<TABLE>
<CAPTION>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
<S> <C>
XX ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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 jursidiction of (I.R.S. Employer Identification
incorporation or organization Number)
One Chemung Canal Plaza, P.O. Box 1522 14902
Elmira, New York
(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)
</TABLE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YES X NO
</TABLE>
The aggregate market value of Common Stock held by non-affiliates on
February 29, 2000 was $45,773,116
As of February 29, 2000 there were 4,043,882 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, 1999 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 11, 2000 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, 1999, 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, 1999.
Competition
Six (6) of the Bank's thirteen (13) full-service branches, in addition to
the main office, are located in Chemung County. The other seven (7) full-
service branches are located in the adjacent counties of Schuyler, Steuben,
and Tioga. All facilities are located in New York State.
Within these market areas, the Bank encounters intense competition in its
banking business from several other financial institutions offering
comparable products. These competitors include other commercial banks
(both locally based independent banks and local offices of regional and
major metropolitan-based banks), as well as stock savings banks and credit
unions. In addition, the Bank experiences competition in marketing some of
its services from local operations of insurance companies, brokerage firms
and retail financial service businesses.
Dependence Upon a Single Customer
Neither the Corporation nor the Bank is dependent upon a single or limited
number of customers.
Research and Development
Expenditures for research and development were immaterial for the years
1999, 1998, and 1997.
Employees
As of December 31, 1999, the Bank employed 303 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
Year Ended December 31,
1999 1998 1997
Assets Average Yield/ Average Yield Average Yield/
Balance Interes Rate Balance Interes / Balance Intere Rate
t t Rate st
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans $346,550 29,446 8.50% 311,679 27,865 8.94% 291,259 26,680 9.16%
Taxable securities 204,635 12,718 6.21 173,306 11,188 6.46 157,615 10,629 6.74
Tax-exempt securities 28,094 1,275 4.54 31,118 1,434 4.61 31,154 1,442 4.63
Federal funds sold 9,870 484 4.90 10,882 590 5.42 5,481 300 5.48
Interest-bearing deposits 2,412 254 10.52 4,186 328 7.83 5,380 321 5.97
Total interest earning assets 591,561 44,177 7.47% 531,171 41,405 7.80% 490,889 39,372 8.02%
Non-interest earning assets:
Cash and due from banks 24,868 25,184 24,396
Premises and equipment, net 10,689 10,154 9,751
Other assets 9,237 7,188 5,065
Less allowance for loan (4,620) (4,323) (4,077)
losses
Intangibles and AFS valuation
Allowance 10,507 14,625 13,211
Total $642,242 $583,999 $539,235
Liabilities and Shareholders'
Equity
Interest bearing liabilities:
Demand deposits $ 41,596 525 1.26% $43,456 611 1.41% $44,991 675 1.50%
Savings deposits 151,262 4,342 2.87 143,065 4,284 3.00 135,146 3,894 2.88
Time deposits 202,239 10,230 5.06 190,684 10,351 5.43 185,686 10,187 5.49
Federal Home Loan Bank
advances and securities sold 73,946 3,631 4.91 45,258 2,420 5.35 24,233 1,342 5.54
under agreements to
repurchase
Total interest earning 469,043 18,728 3.99% 422,463 17,666 4.18% 390,056 16,098 4.13%
liabilities
Non-interest bearing
liabilities:
Demand deposits 99,035 89,957 84,332
Other liabilities 7,865 7,601 6,094
575,943 520,021 480,482
Shareholders' equity 66,299 63,978 58,753
Total $642,242 $583,999 $539,235
Net interest earnings $25,449 $23,739 $23,274
Net yield on interest earning 4.30% 4.47% 4.74%
assets
</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.
Investment securities are stated at amortized cost.
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 (in
thousands of dollars):
<TABLE>
<CAPTION>
1999 Compared to 1998 1998 Compared to 1997
Increase (Decrease) Increase (Decrease)
Due to (1) Due to (1)
Volume Rate Net Volume Rate Net
Interest earned on:
<S> <C> <C> <C> <C> <C> <C>
Loans $3,004 (1,422) 1,582 1,836 (651) 1,185
Taxable securities 1,974 (444) 1,530 1,017 (458) 559
Tax-exempt securities (138) (21) (159) (2) (6) (8)
Federal funds sold (52) (54) (106) 293 (3) 290
Interest-bearing (165) 91 (74) (80) 87 7
deposits
Total interest earning $4,623 (1,850) 2,773 3,064 (1,031) 2,033
assets
Interest paid on:
Demand deposits (25) (61) (86) (23) (41) (64)
Savings deposits 236 (178) 58 229 161 390
Time deposits 607 (728) (121) 272 (108) 164
Federal Home Loan Bank
advances and securities
sold under agreements 1,424 (213) 1,211 1,126 (48) 1,078
to repurchase
Total interest bearing $2,242 (1,180) 1,062 1,604 (36) 1,568
liabilities
Net interest income $2,381 (670) 1,711 1,460 (995) 465
<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,
1999 1998 1997
<S> <C> <C> <C>
U.S. Treasury and other U.S. Government $108,038 101,528 93,971
agencies
Mortgage backed securities 73,747 89,593 55,603
State and political subdivisions 29,290 28,036 34,955
Corporate bonds and notes 10,180 9,762 149
Corporate stocks 14,735 13,036 9,849
Total $235,990 241,955 194,527
</TABLE>
Included in the above table are $227,384, $235,294 and $185,303
(in thousands of dollars) of securities available for sale at
December 31, 1999, 1998 and 1997, respectively.
The following tables set forth the maturities of debt securities
at December 31, 1999 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 (in thousands of dollars):
<TABLE>
<CAPTION>
Maturing
After One,
But Within
Within One Five Years
Year
Amount Yield Amount Yield
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S. Government $ 1,502 5.94% $64,143 5.84%
agencies
Mortgage backed securities - - 1,198 6.69
State and political subdivisions 8,464 4.11 6,958 4.30
Corporate bonds and notes - - 2,411 6.25
Total $ 9,966 4.38% $74,710 5.72%
Maturing
After Five, After
But Within Ten Years
Ten Years
Amount Yield Amount Yield
U.S. Treasury and other U.S. Government 42,393 7.13% - -
agencies
Mortgage backed securities 6,152 6.02 66,397 6.69
State and political subdivisions 10,374 4.71 3,494 5.22
Corporate bonds and notes 2,495 6.34 5,274 7.35
Total $61,414 6.58% $75,165 6.67%
</TABLE>
Loan Portfolio
The following table shows the Corporation's loan distribution at
the end of each of the last five years (in thousands of dollars):
<TABLE>
<CAPTION>
December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Commercial, financial and 131,043 $ 113,865 102,816 92,557 89,785
agricultural
Real estate mortgages 94,580 89,544 79,753 78,400 71,870
Consumer loans 134,616 126,097 114,593 113,004 101,687
Total $360,239 329,506 297,162 283,961 263,342
</TABLE>
The following table shows the maturity of loans (excluding real
estate mortgages and consumer loans) outstanding as of December
31, 1999. Also provided are the amounts due after one year
classified according to the sensitivity to changes in interest
rates (in thousands of dollars):
<TABLE>
<CAPTION>
After One
Within But After
One Year Within Five Total
Five Years
Years
<S> <C> <C> <C> <C>
Commercial, financial and $ 35,953 $ 28,116 $ 66,974 $131,043
agricultural
Loans maturing after one year
with:
Fixed interest rates 21,032 21,522
Variable interest rates 7,084 45,452
Total $ 28,116 66,974
</TABLE>
Non-accrual and Past Due Loans
The following table summarizes the Corporation's non-accrual and
past due loans (in thousands of dollars):
<TABLE>
<CAPTION>
December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Non-accrual loans(1) $640 4,458 930 1,494 1,119
Accruing loans past
due 90 days or more $281 395 688 226 681
</TABLE>
Information with respect to non-accrual loans at December 31,
1999, 1998 and 1997 is as follows (in thousands of dollars):
<TABLE>
<CAPTION>
December 31,
1999 1998 1997
<S> <C> <C> <C>
Non-accrual loans $640 4,458 930
Interest income that
would have been recorded
under original terms 318 545 286
Interest income recorded
during the period 153 271 48
<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 non-accrual 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 non-accrual if management believes such classification is
warranted for other reasons.
</FN>
</TABLE>
Potential Problem Loans
At December 31, 1999, 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, 1999, 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, 1999, 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 Loss Experience
This table summarizes the Corporation's loan loss experience for each year
in the five-year period ended December 31, 1999 (in thousands of dollars):
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Allowance for loans losses at beginning $4,509 4,145 3,975 3,900 3,600
of year
Charge-offs:
Commercial, financial and 38 13 77 195 82
agricultural
Real estate mortgages 12 16 53 1 5
Consumer loans 624 552 640 538 286
Home equity 16 13 - 20 -
Total 690 594 770 754 373
Recoveries:
Commercial, financial and 43 35 14 16 16
agricultural
Consumer loans 130 123 76 71 93
Total 173 158 90 87 109
Net charge-offs 517 436 680 667 264
Additions charged to operations (1) 673 800 850 742 564
Allowance for loan losses at end of $4,665 4,509 4,145 3,975 3,900
year
Ratio of net charge-offs during period
to average loans outstanding .15% . 14% .23% .24% .11%
<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 1999 than
in prior years. The net charge-offs to total loans have
averaged 0.17% over the last five years and the highest
percentage in any of those years was 0.24%.
<FN2>
(2) Daily balances were used to compute average outstanding
loan balances.
</FN>
</TABLE>
The allocated portions of the allowance reflect management's
estimates of specific known risk elements in the respective
portfolios. Among the factors considered in allocating portions
of the allowance by loan type are the current levels of past due,
non-accrual and impaired loans. The unallocated portion of the
allowance represents risk elements in the loan portfolio that
have not been specifically identified. Factors considered in
determining the appropriate level of unallocated allowance
include historical loan loss history, current economic
conditions, and expectations for loan growth. The following
table summarizes the Corporation's allocation of the loan loss
allowance for each year in the five-year period ended December
31, 1999:
<TABLE>
<CAPTION>
Amount of loan loss allowance
(in thousands) and Percent of Loans
by Category to Total Loans
Balance at end
of period
applicable to: 1999 % 1998 % 1997 % 1996 % 1995 %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial,
financial
and agricultural $1,227 25.4 2,081 24.0 1,402 22.5 1,472 20.8 1,042 20.9
Commercial
mortgages 334 12.2 21 12.0 132 14.0 249 14.8 305 16.3
Residential
mortgages 185 25.0 88 25.7 31 24.8 21 24.4 16 23.5
Consumer loans 1,416 37.4 1,007 38.3 823 38.7 503 40.0 153 39.3
Domestic: 3,162 100.0 3,197 100.0 2,388 100.0 2,245 100.0 1,516 100.0
Unallocated: 1,503 N/A 1,312 N/A 1,757 N/A 1,730 N/A 2,384 N/A
Total $4,665 100.0 4,509 100.0 4,145 100.0 3,975 100.0 3,900 100.0
</TABLE>
Deposits
The average daily amounts of deposits and rates paid on such
deposits is summarized for the periods indicated in the following
table (in thousands of dollars):
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand $99,035 - % 89,957 - % 84,332 - %
deposits
Interest-bearing demand 41,596 1.26 43,456 1.41 44,991 1.50
deposits
Savings deposits 151,262 2.87 143,065 3.00 135,146 2.88
Time deposits 202,239 5.06 190,684 5.43 185,686 5.49
$494,132 467,162 450,155
</TABLE>
Scheduled maturities of certificates of deposit at December 31,
1999 are summarized as follows (in thousands of dollars):
<TABLE>
<CAPTION>
Time Certificates of Deposits
<S> <C>
2000 $159,085
2001 26,480
2002 10,514
2003 2,487
2004 4,366
2005 and thereafter 365
$203,297
</TABLE>
Maturities of certificates of deposit in denominations of
$100,000 or more outstanding at December 31, 1999 are summarized
as follows (in thousands of dollars):
<TABLE>
<CAPTION>
Time Certificates of Deposits
<S> <C>
3 months or less $41,135
Over 3 through 12 months 13,589
Over 12 months 2,340
</TABLE>
There were no other time deposits of $100,000 or more.
Return on Equity and Assets
The following table shows consolidated operating and capital
ratios of the Corporation for each of the last three years:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Return on average assets 1.31% 1.25% 1.27%
Return on average equity 12.66 11.41 11.67
Return on beginning equity 12.70 11.84 12.22
Dividend payout ratio 36.90 37.56 36.55
Average equity to average assets ratio 10.32 10.96 10.90
Year-end equity to year-end assets ratio 10.00 10.66 11.23
</TABLE>
Short-Term Borrowings
For each of the three years in the period ended December 31,
1999, 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 REGISTRANT'S COMMON EQUITY 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,
1999, 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 1999 Annual Report are the dividends paid by the
Corporation for each quarter of the last three (3) years. The
number of shareholders of record on February 29, 2000 was 730.
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, 1999 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, 1999 is
incorporated herein by reference to Exhibit C of Exhibit Listing
13.
ITEM 7A. QUANTITATIVE AND QUALITATIVE 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 Operation presented in the Corporation's Annual
Report to Shareholders for the year ended December 31, 1999 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, 1999 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 7, 2000, relating to the Annual Meeting of
Shareholders to be held on May 11, 2000, 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 7, 2000, relating to the Annual Meeting of
Shareholders to be held on May 11, 2000, 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 7, 2000, relating to the Annual Meeting of Shareholders to
be held on May 10, 2000, 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 7, 2000, relating to the Annual Meeting of
Shareholders to be held on May 11, 2000, 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, 1999 and 1998, and for each of
the years in the three-year period ended December 31, 1999 are
incorporated by reference in Item 8:
<TABLE>
<CAPTION>
<S> <C>
- Independent Auditors' Report
- Consolidated Balance Sheets - December 31, 1999 and 1998
- Consolidated Statements of Income - Years ended December 31, 1999,
1998 and 1997
- Consolidated Statements of Shareholders' Equity and Comprehensive
Income - Years ended December 31, 1999, 1998 and 1997
- Consolidated Statements of Cash Flows-Years ended December 31, 1999,
1998 and 1997
- Notes to Consolidated Financial Statements - December 31, 1999 and
1998
</TABLE>
(2) List of Financial Statement 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.
<TABLE>
<CAPTION>
(3) Listing of Exhibits
<S> <C> <C>
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,
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 October EXHIBIT E
13, 1999.
Exhibit (13) Annual Report to Shareholders for the year
ended December 31, 1999.
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 F
Exhibit (22) Registrant's Notice of Annual Meeting, Proxy EXHIBIT G
Statement dated April 7,2000, and Proxy Form
Exhibit (27) Financial Disclosure Schedule (EDGAR version
only)
</TABLE>
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the three months
ended December 31, 1999.
(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, 1999
CHEMUNG FINANCIAL CORPORATION
ELMIRA, NEW YORK
____________________________________
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
LISTING
<S> <C> <C>
EXHIBIT 13 Annual Report To Shareholders For The Year Ended
December 31, 1999
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, and the
Quantitative and Qualitative Disclosures about
Market Risk
D Consolidated Financial Statements and Independent
Auditors' Report
E Bylaws of the Registrant, as amended to October 13,
1999
EXHIBIT 21 F Subsidiaries of the Registrant
EXHIBIT 22 G Notice of Annual Meeting, Proxy Statement dated
April 7, 2000, and Proxy Form
</TABLE>
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.
<TABLE>
<CAPTION>
<S> <C>
CHEMUNG FINANCIAL CORPORATION DATED: MARCH 8, 2000
By /s/ Jan P. Updegraff
Jan P. Updegraff
President and Chief Executive Officer
</TABLE>
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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
Robert E. Agan Director
Donald L. Brooks, Jr. Director
/s/ David J. Dalrymple
David J. Dalrymple Director March 8, 2000
/s/ Robert H. Dalrymple
Robert H. Dalrymple Director March 8, 2000
/s/ Frederick Q. Falck
Frederick Q. Falck Director March 8, 2000
/s/ Stephen M. Lounsberry
Stephen M. Lounsberry Director March 8, 2000
/s/ Thomas K. Meier
Thomas K. Meier Director March 8, 2000
/s/ Ralph H. Meyer
Ralph H. Meyer Director March 8, 2000
/s/ John F. Potter
John F. Potter Director March 8, 2000
/s/ Charles M. Streeter
Charles M. Streeter Director March 8, 2000
/s/ Richard W. Swan
Richard W. Swan Director March 8, 2000
/s/ William A. Tryon
William A. Tryon Director March 8, 2000
/s/ William C. Ughetta
William C. Ughetta Director March 8, 2000
Signature Title Date
/s/ Nelson Moores van den Blink
Nelson Mooers van den Blink Director March 8, 2000
/s/ Jan P. Updegraff
Jan P. Updegraff Director, President & March 8, 2000
Chief Executive
Officer
Attest
/s/ Donna C. Denton
Donna C. Denton Secretary March 8, 2000
</TABLE>
EXHIBIT E
Amended Bylaws Effective October 13, 1999
(A copy of the Bylaws exhibit filed with the Securities
and Exchange Commission may be obtained upon request in
writing to the registrant's Corporate Secretary.)
CHEMUNG FINANCIAL CORPORATION
BY-LAWS
Amended to October 13, 1999
ARTICLE I
Offices
SECTION 1. Principal Office
The principal office of the corporation shall be
located in the City of Elmira, County of Chemung and
State of New York.
SECTION 2. Other Offices
The corporation may also have such other offices,
either within or without the State of New York, as the
Board of Directors may from time to time determine or
the business of the corporation may require.
ARTICLE II
Shareholders
SECTION 1. Place of Meetings of Shareholders
Meetings of shareholders may be held at such place,
within or without the State of New York, as may be
fixed by the Board of Directors.
SECTION 2. Annual Meeting of Shareholders
A meeting of shareholders shall be held annually on
such date and at such place and time as may be fixed by
the Board of Directors for the election of directors
and the transaction of other business.
SECTION 3. Special Meetings of Shareholders
Special meetings of the shareholders may be called by
the Board of Directors or by the chairman of the board
or by the president. Such call shall state the purpose
or purposes of the proposed meeting. Business
transacted at any special meeting shall be confined to
the purpose or purposes for which the meeting is
called.
SECTION 4. Fixing Record Date
The Board of Directors may fix, in advance, a date as
the record date for purpose of determining the
shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or
to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining
shareholders entitled to receive payment of any
dividend or the allotment of any rights, or for the
purpose of any other action. Such date shall be not
more than sixty (60) nor less than ten (10) days before
the date of such meeting nor more than 60 days before
any other action. If no record date is fixed, the
record date for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the
day next preceding the day on which notice is given and
for all other purposes shall be at the close of
business on the day on which the resolution of the
Board of Directors relating thereto is adopted.
SECTION 5. Notice of Meetings of Shareholders
Written notice of every meeting of shareholders shall
state the place, date and hour of the meeting and
unless it is the annual meeting, indicate that it is
being issued by or at the direction of the person or
persons calling the meeting. Notice of a special
meeting shall also state the purpose or purposes for
which the meeting is called. If, at any meeting,
action is proposed to be taken which would, if taken,
entitle shareholders fulfilling the statutory
requirements to receive payment for their shares, the
notice of such meeting shall include a statement of
that purpose and to that effect. A copy of the notice
of any meeting shall be given, personally or by mail,
not less than ten (10) nor more than sixty (60) days
before the date of the meeting, to each shareholder
entitled to vote at such meeting. If mailed, such
notice shall be deemed given when deposited in the
United States mail, with postage thereon prepaid,
directed to the shareholder at his address as it
appears on the record of shareholders or, if he shall
have filed with the secretary of the corporation a
written request that notices to him be mailed to some
other address, then directed to him at such other
address.
SECTION 6. Adjourned Meetings
When a determination of shareholders entitled to notice
of or to vote at any meeting of shareholders has been
made, such determination shall apply to any adjournment
thereof, unless the Board of Directors fixes a new
record date for the adjourned meeting. When a meeting
is adjourned to another time or place, it shall not be
necessary to give any notice of the adjourned meeting
if the time and place to which the meeting is adjourned
are announced at the meeting at which the adjournment
is taken, and at the adjourned meeting the corporation
may transact any business that might have been
transacted on the original date of the meeting.
However, if after the adjournment the Board of
Directors fixes a new record date for the adjourned
meeting, a notice of the adjourned meeting shall be
given to each shareholder of record on the new record
date entitled to notice.
SECTION 7. List of Shareholders at Meeting
A list of shareholders as of the record date, certified
by the secretary or by the transfer agent, shall be
produced at any meeting of shareholders upon the
request thereat or prior thereto of any shareholder.
If the right to vote at any meeting is challenged, the
inspectors of election, or person presiding thereat,
shall require such list of shareholders to be produced
as evidence of the right of the persons challenged to
vote at such meetings, and all persons who appear from
such list to be shareholders entitled to vote thereat
may vote at such meeting.
SECTION 8. Quorum of Shareholders
The holders of a majority of the shares entitled to
vote thereat shall constitute a quorum at a meeting of
shareholders for the transaction of any business. When
a quorum is once present to organize a meeting, it is
not broken by the subsequent withdrawal of any
shareholders. Despite the absence of a quorum, the
shareholders present may adjourn the meeting.
SECTION 9. Proxies
Every shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a
meeting may authorize another person or persons to act
for him by proxy. Every proxy must be signed by the
shareholder or his attorney-in-fact. No proxy shall be
valid after the expiration of eleven (11) months from
the date thereof unless otherwise provided in the
proxy. Every proxy shall be revocable at the pleasure
of the shareholder executing it, except in those cases
where an irrevocable proxy is provided by law.
SECTION 10. Inspectors at Shareholders Meetings
The Board of Directors, in advance of any shareholders
meeting, may appoint one or more inspectors to act at
the meeting or any adjournment thereof. If inspectors
are not so appointed, the person presiding at a
shareholders meeting may, and on the request of any
shareholder entitled to vote thereat shall, appoint
inspectors. If appointed on the request of one or more
shareholders, the holders of a majority of shares
present and entitled to vote thereat shall determine
the number of inspectors to be appointed. In case any
person appointed fails to appear or act, the vacancy
may be filled by appointment made by the Board of
Directors in advance of the meeting or at the meeting
by the person presiding thereat. Each inspector,
before entering upon the discharge of his duties, shall
take and sign an oath faithfully to execute the duties
of inspector at such meeting with strict impartiality
and according to the best of his ability. The
inspectors shall determine the number of shares
outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum,
the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the
right to the result, and do such acts as are proper to
conduct the election or vote with fairness to all
shareholders. On request of the person presiding at
the meeting or any shareholder entitled to vote
thereat, the inspectors shall make a report in writing
of any challenge, question or matter determined by them
and execute a certificate of any fact found by them. A
report or certificate made by them shall be prima facie
evidence of the facts stated and of the vote as
certified by them.
SECTION 11. Qualifications of Voters
Every shareholder of record shall be entitled at every
meeting of shareholders to one vote for every share
standing in his name on the record of shareholders.
Neither treasury shares nor shares held by another
domestic or foreign corporation of any type or kind, if
a majority of the shares entitled to vote in the
election of directors of such other corporation is held
by the corporation, shall be voted at any meeting or
counted in determining the total number of outstanding
shares.
Shares held by an administrator, executor, guardian,
conservator, committee, or other fiduciary, except a
trustee, may be voted by him, either in person or by
proxy, without transfer of such shares into his name.
Shares held by a trustee may be voted by him, either in
person or by proxy, only after the shares have been
transferred into his name as trustee or into the name
of his nominee.
Shares held by or under the control of a receiver may
be voted by him without the transfer thereof into his
name if authority so to do is contained in an order of
the court by which such received was appointed.
A shareholder whose shares are pledged shall be
entitled to vote such shares until the shares have been
transferred into the name of the pledgee, or a nominee
of the pledgee.
Shares standing in the name of another domestic or
foreign corporation of any type or kind may be voted by
such officer, agent or proxy as the By-Laws of such
corporation may provide or, in the absence of such
provision, as the Board of Directors of such
corporation may determine.
SECTION 12. Vote of Shareholders
Directors shall, except as otherwise required by law,
be elected by a plurality of the votes cast at a
meeting of shareholders by the holders of shares
entitled to vote in the election. Any other corporate
action by vote of the shareholders shall, except as
otherwise required by law, these By-Laws or the
certificate of incorporation, be authorized by a
majority of the votes cast at a meeting of shareholders
by the holders of shares entitled to vote thereon.
SECTION 13. Conduct of Shareholders' Meetings
The Officer presiding over the shareholders' meeting
may establish such rules and regulations for the
conduct of the meeting as the presiding Officer may
deem to be reasonably necessary or desirable for the
orderly and expeditious conduct of the meeting.
SECTION 14. Shareholder Proposals
No shareholder shall be entitled to submit a proposal
to a meeting of shareholders unless at the time of
submitting the proposal, the shareholder shall be a
record or beneficial owner of at least 1% or $1,000 in
market value of shares entitled to be voted at the
meeting, and shall have held such shares for at least
one year and shall continue to own such shares through
the date on which the meeting is held. A shareholder
meeting the above requirements shall deliver to the
secretary of the corporation not later than 120 days
prior to the date on which the corporation's proxy
statement was mailed to stockholders in connection with
the previous year's annual meeting, the text of any
proposal which he intends to propose at an annual
meeting of shareholders and a notice of the intention
of the shareholder to present such proposal at the
meeting. A proposal to be presented at any meeting of
shareholders other than an annual meeting shall be
delivered to the secretary a reasonable time before the
mailing of the corporation's proxy material.
ARTICLE III
Directors
SECTION 1. Board of Directors
The business of the corporation shall be managed under
the direction of its Board of Directors.
SECTION 2. Qualifications of Directors
Each director shall be at least 18 years of age and
shall automatically cease to be a director on the last
day of the month during which he or she attains the age
of seventy-two (72) years. At the time of taking an
office, each director shall be a stockholder of the
corporation owning in his or her own right, free from
pledge, lien or charge, the number of shares of capital
stock of the corporation while each director of a New
York bank or trust company is required to own in such
bank or trust company or a holding company of such bank
or trust company by the New York State Banking law. If
a director shall cease to own the required number of
shares, he or she automatically ceases to be a director
of the corporation and his or her office shall be
vacant, and he or she shall not be eligible for re-
election as a director for a period of one year from
the date of the next succeeding annual meeting of
stockholders of the corporation.
SECTION 3. Number of Directors
The number of directors constituting the entire Board
shall be fifteen (15). This number may be increased or
decreased from time to time by amendment of these By-
Laws, provided, however, that the number may not be
decreased to less than three (3). No decrease in the
number of directors shall shorten the term of any
incumbent director.
SECTION 4. Election and Term of Directors
The directors shall be classified by the Board of
Directors with respect to the time for which they
severally hold office, into three classes, as nearly
equal in number for a term of one (1) year, the second
class shall be originally elected for a term of two (2)
years, and the third class shall be originally elected
for a term of three (3) years, with the directors of
each class to hold office until their successors are
elected and qualified. Newly created directorships
resulting from an increase in the number of directors
shall be classified by the Board of Directors when the
directorship is created. At each annual meeting of the
stockholders of the corporation, the successors of the
class of directors whose terms expire at that meeting
shall be elected to hold office for a term expiring at
the annual meeting of stockholders held in the third
year following the year of their election or until
their successors are elected and have qualified.
SECTION 5. Nominations for Directors
Nominations of candidates for election as directors of
the corporation at any meeting of stockholders called
for the election of directors may be made by the Board
of Directors or by any stockholder entitled to vote at
such meeting. Nominations made by the Board of
Directors shall be made at a meeting of the Board of
Directors, or by written consent of directors in lieu
of a meeting, not later than 60 days prior to the date
of any meeting of stockholders called for the election
of directors. The secretary of the corporation shall
request that each such proposed nominee provide the
corporation with such information concerning himself as
is required, under the rules of the Securities and
Exchange Commission, to be included in the
corporation's proxy statement soliciting proxies for
his election as a director. Any stockholder who
intends to make a nomination at any annual meeting of
stockholders shall deliver to the secretary of the
corporation not later than 120 days prior to the date
on which the corporation's proxy statement was mailed
to stockholders in connection with the previous year's
annual meeting, or if such nomination is to be made at
a meeting of shareholders other than an annual meeting,
a reasonable time before the mailing of the
corporation's proxy material, a notice setting forth
(i) the name, age, business address and residence
address of each nominee proposed in such notice, (ii)
the principal occupation or employment of each such
nominee, (iii) the number of shares of capital stock of
the corporation which are owned of record and
beneficially by each such nominee and (iv) such other
information concerning each such nominee as would be
required, under the rules of the Securities and
Exchange Commission, in a proxy statement soliciting
proxies for the election of such nominees. Such notice
shall include a signed consent of such nominee to serve
as a director of the corporation, if elected. In the
event that a person is validly designated as a nominee
in accordance with the provisions of this section and
shall thereafter become unable or unwilling to stand
for election to the Board of Directors, the Board of
Directors or the stockholder who proposed such nominee,
as the case may be, may designate a substitute nominee.
If the secretary of the meeting of stockholders called
for the election of directors determines that a
nomination was not made in accordance with the
foregoing procedures, such nomination shall be void.
SECTION 6. Newly Created Directorships and Vacancies
Newly created directorships resulting from an increase
in the number of directors and vacancies occurring in
the Board of Directors for any reason may be filled by
vote of a majority of the directors then in office,
although less than a quorum exists. A director elected
to fill a newly created directorship or a vacancy,
shall be elected to hold office until the next meeting
of shareholders at which the election of directors is
in the regular order of business, and until his
successor has been elected and qualified.
SECTION 7. Removal of Directors
Any director, an entire class of directors or the
entire Board of Directors may be removed from office,
with or without cause, only by the affirmative vote of
the holders of at least 75% of the outstanding shares
of stock of the corporation entitled to vote generally
in the election of directors, voting together as a
single class.
SECTION 8. Quorum of Directors
One-third (1/3) of the entire Board of Directors or
seven directors, whichever number is greater, shall
constitute a quorum for the transaction of business or
of any specified item of business.
SECTION 9. Action by the Board of Directors
The vote of the majority of the directors present at a
meeting of the Board of Directors at the time of the
vote, if a quorum is present at such time, shall,
except as otherwise provided by law, these By-Laws or
the certificate of incorporation, be the act of the
Board of Directors.
SECTION 10. Written Consent of Directors Without A
Meeting
Any action required or permitted to be taken by the
Board of Directors or a committee thereof may be taken
without a meeting if all members of the Board or the
committee consent in writing to the adoption of a
resolution authorizing the action. The resolution and
the written consents thereto by the members of the
board or committee shall be filed with the minutes of
the proceedings of the Board or committee.
SECTION 11. Place and Time of Meetings of Board of
Directors
Meetings of the Board of Directors, regular or special,
may be held at any place, within or without the State
of New York and at any time, fixed by the Board of
Directors or by the person or persons calling the
meeting. Such meetings may be held by means of a
conference telephone or similar communications
equipment allowing all persons participating in the
meeting to hear each other at the same time.
SECTION 12. Notice of Meetings of the Board of
Directors
Regular meetings of the Board of Directors may be held
without notice if the time and place of such meetings
are fixed by the Board of Directors. Special meetings
of the Board of Directors shall be held upon notice to
the directors and may be called by the chairman of the
board, the president, the executive vice president, or
any two directors. The notice shall be given
personally including by telephone or mail, telegram,
cable or other public instrumentality. If given
personally or by telephone, such notice shall be given
not less than 48 hours before the meeting to each
director. If given by mail, cable, telegram or other
public instrumentality, such notice shall be given not
less than five (5) days before the date of the meeting,
to each director. Such notice shall be deemed given,
if mailed, when deposited in the United States mail,
with postage thereon prepaid or, if telegraphed, cabled
or sent by other public instrumentality, when given to
the telegraph company, cable company, or other public
instrumentality, directed to the director at his
business address or, if he shall have filed with the
secretary of the corporation, a written request that
notices to him be mailed or telegraphed, cabled or sent
to some other address, then directed to him at such
other address. The notice need not specify the purpose
of any regular or special meeting of the Board of
Directors.
SECTION 13. Interested Directors
No contract or other transaction between a corporation
and one or more of its directors, or between a
corporation and any other corporation, firm,
association or other entity in which one or more of its
directors, or officers, are directors or have a
substantial financial interest, shall be either void or
voidable for this reason alone or by reason alone that
such director or directors are present at the meeting
of the Board, or of a committee thereof, which approves
such contract or transaction or that his or their votes
are counted for such purpose:
1. If the material facts as to such director's interest in such
contract or transaction and as to any such common directorship,
officership or financial interest are disclosed in good faith or
known to the Board or committee, and the Board or committee
approves such contract or transaction by a vote sufficient for
such purpose without counting the vote of such interested
director or, if the votes of the disinterested directors are
insufficient to constitute an act of the Board as defined in
Section 9 of this Article, by unanimous vote of the disinterested
directors; or
2. If the material facts as to such director's interest in such
contract or transaction and as to any such common directorship,
officership or financial interest are disclosed in good faith or
known to the shareholders entitled to vote thereon, and such
contract or transaction is approved by vote of such shareholders;
or
3. If the contract or transaction is affirmatively established
by the party or parties thereto to be fair and reasonable as to
the corporation at the time it was approved by the Board, a
committee thereof, or the shareholders.
Common or interested directors may be counted in
determining the presence of a quorum at a meeting of
the Board or a committee thereof which approves such
contract or transaction.
The Board of Directors shall have authority to fix the
compensation of directors for services in any capacity.
A loan shall not be made by the corporation to any
director unless it is authorized by vote of the
shareholders. For this purpose, the shares of the
director who would be the borrower shall not be shares
entitled to vote.
SECTION 14. Reimbursement and Compensation of
Directors
The directors may be paid their expenses of attendance
at each meeting of the Board of Directors and may be
paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary as director. No
such payment shall preclude any director from serving
the corporation in any other capacity and receiving
compensation therefor. Members of the executive
committee or other committees may be allowed similar
reimbursement and compensation for their services as
such.
SECTION 15. Executive Committee and Other Committees
The Board of Directors by resolution adopted by a
majority of the entire Board, may designate from among
its members an executive committee and other
committees, each consisting of three or more directors,
and each of which shall have and may exercise such
powers as shall be conferred or authorized by the
resolution appointing it, except that no such committee
shall have authority as to the following matters:
1. The submission to shareholders of any action that needs
shareholders' approval;
2. The filling of vacancies in the Board of Directors or in any
committee:
3. The fixing of compensation of the directors for serving on
the Board of Directors or on any committee;
4. The amendment or repeal of the By-Laws or the adoption of
new By-Laws;
5. The amendment or repeal or any resolution of the Board of
Directors.
Each such committee shall serve at the pleasure of the
Board. The Board of Directors shall have the power at
any time to fill vacancies in, to change the size or
membership of, and to discharge any such committee.
A majority of any such committee may determine its
action and may fix the time and place of its meetings,
unless provided otherwise by the Board of Directors.
Each such committee shall keep a written record of its
acts and proceedings and shall submit such record to
the Board of Directors at each regular meeting thereof
and at such other times as requested by the Board of
Directors. Failure to submit such record, or failure
of the Board to approve any action indicated therein
will not, however, invalidate such action to the extent
it has been carried out by the corporation prior to the
time the record of such action was, or should have
been, submitted to the Board of Directors as herein
provided.
ARTICLE IV
Officers
SECTION 1. Number
The Board of Directors may elect a chairman of the
board who shall be a member of the Board of Directors
and shall elect a president, one or more vice
presidents, a secretary and a treasurer, who need not
be members of the Board of Directors and such other
officers and assistant officers who need not be members
of the Board of Directors as the Board of Directors may
from time to time deem proper. Any two or more offices
may be held by the same person, except the offices of
president and secretary.
SECTION 2. Election and Term of Office
The officers of the corporation to be elected or
appointed by the Board of Directors shall be elected or
appointed annually by the Board of Directors at the
first meeting of the Board of Directors held after each
annual meeting of the shareholders. Subject to the
provisions of Section 3 of this Article, each officer
shall hold office until the first meeting of the Board
of Directors following the next annual meeting of
shareholders and until his successor has been elected
or appointed and qualified.
SECTION 3. Removal
Any officer or agent elected or appointed by the Board
of Directors may be removed by the Board of Directors
with or without cause, but such removal shall be
without prejudice to the contract rights, if any, of
the person so removed. The election or appointment of
an officer shall not of itself create contract rights.
SECTION 4. New Offices and Vacancies
Newly created offices and vacancy in any office because
of death, resignation, removal, disqualification or
otherwise, may be filled from time to time by the Board
of Directors for the unexpired portion of the term.
SECTION 5. Chief Executive Officer
The Board of Directors shall appoint either the
chairman of the board, if any, or the president the
chief executive officer of the corporation ("the CEO")
who, subject to the control of the Board of Directors,
shall direct and control all the business and affairs
of the corporation.
SECTION 6. Chairman of the Board
The chairman of the board, if any, and if so designated
by the Board of Directors, shall be the chief executive
officer of the corporation and, subject to the control
of the Board of Directors, shall in general perform all
duties incident to the office of chief executive
officer. He shall, when present, preside at all
meetings of the shareholders and of the Board of
Directors. He may sign, with the secretary or any
other proper officer of the corporation thereunto
authorized by the Board of Directors, certificates
representing shares of the corporation, any deeds,
mortgages, bonds, contracts or other instruments which
the Board of Directors has authorized to be executed,
except in cases where the signing and execution thereof
shall be expressly delegated by the Board of Directors
or by these By-Laws to some other officer or agent of
the corporation, or shall be required by law to be
otherwise signed or executed; and shall perform such
other duties as may be prescribed by the Board of
Directors from time to time.
SECTION 7. President
The president shall be the chief operating officer of
the corporation and, subject to the control of the
Board of Directors and the chairman of the board (if he
is the CEO), shall direct the conduct and operation of
the business and properties of the corporation. If so
designated by the Board of Directors, he shall also be
the chief executive officer of the corporation and
shall perform all duties incident to that office. He
shall, in the absence of the chairman of the board,
preside at all meetings of the shareholders and of the
Board of Directors. He may sign, with the secretary or
any other proper officer of the corporation thereunto
authorized by the Board of Directors, certificates
representing shares of the corporation, any deeds,
mortgages, bonds, contracts or other instruments which
the Board of Directors has authorized to be executed,
except in cases where the signing and execution thereof
shall be expressly delegated by the Board of Directors
or by these By-Laws to some other officer or agent of
the corporation, or shall be required by law to be
otherwise signed or executed; and shall perform such
other duties as may be prescribed by the Board of
Directors from time to time.
SECTION 8. Vice President
In the absence of the chairman of the board and the
president or in the event of their death or inability
to act, the executive vice president (or in the event
of the death or inability to act of the executive vice
president, the vice president designated by the Board
of Directors, if any, or if none, the vice president
having the greatest seniority) shall perform the duties
of the chairman of the board and the president, and
when so acting shall have the authority of and be
subject to all the restrictions upon the chairman of
the board and the president. Any vice president may
sign, with the secretary or any other proper officer of
the corporation thereunto authorized by the Board of
Directors, certificates representing shares of the
corporation; and shall perform such other duties as
from time to time may be assigned to him by the
chairman of the board (if he is the CEO) or by the
president or by the Board of Directors.
SECTION 9. Secretary
The secretary shall: 1) keep the minutes of the
proceedings of its shareholders, Board of Directors and
executive committee and other committees, if any; in
one or more books provided for that purpose; 2) see
that all notices are duly given in accordance with the
provisions of these By-Laws or as required by law; 3)
be custodian of the corporate records and of the seal
of the corporation and see that the seal of the
corporation is affixed to all documents and execution
of which on behalf of the corporation under its seal is
duly authorized; 4) file each written request by a
shareholder that notices to him be mailed to some
address other than this address as it appears on the
record of shareholders; 5) sign with the chairman of
the board or the president or a vice president
certificates representing shares of the corporation,
the issuance of which shall have been authorized by
resolution of the Board of Directors; 6) have general
charge of the record of shareholders of the
corporation; and 7) in general perform all duties
incident to the office of secretary and such other
duties as from time to time may be assigned to him by
the chairman of the board (if he is the CEO) or by the
president or by the Board of Directors.
SECTION 10. Treasurer
If required by the Board of Directors, the treasurer
shall give a bond for the faithful discharge of his
duties in such sum and with such surety or sureties as
the Board of Directors shall determine. He shall: 1)
have charge and custody of and be responsible for all
funds and securities of the corporation, receive and
give receipts for moneys due and payable to the
corporation from any source whatsoever, and deposit all
such moneys in the name of the corporation in such
banks, trust companies or other depositaries as shall
be selected in accordance with the provisions of these
By-Laws; 2) have charge and custody of and be
responsible for the keeping of correct and complete
books and records of account of the corporation; sign
with the chairman of the board, or the president or a
vice president, certificates representing shares of the
corporation, the issuance of which shall have been
authorized by resolution of the Board of Directors; and
3) in general perform all of the duties incident to the
office of treasurer and such other duties as from time
to time may be assigned to him by the chairman of the
board (if he is the CEO) or by the president or by the
Board of Directors.
SECTION 11. Assistant Secretaries and Assistant
Treasurers
The assistant secretaries, when authorized by the Board
of Directors, may sign with the chairman of the board
or the president or a vice president, certificates
representing shares of the corporation, the issuance of
which shall have been authorized by a resolution of the
Board of Directors. The assistant treasurers shall, if
required by the Board of Directors, give bonds for the
faithful discharge of their duties in such sums and
with such sureties as the Board of Directors shall
determine. Assistant secretaries and assistant
treasurers, in general, shall perform such duties as
shall be assigned to them by the secretary or the
treasurer, respectively, or by the chairman of the
board (if he is the CEO) or the president or the Board
of Directors. In the absence of the secretary or in
the event of his death, inability or refusal to act,
the assistant secretary (or in the event there be more
than one assistant secretary, the assistant secretaries
in the order of their appointment or as determined by
the chairman of the board (if he is the CEO) or the
president or the Board of Directors), shall perform the
duties and exercise the authority of the secretary. In
the absence of the treasurer or in the event of his
death, inability or refusal to act, the assistant
treasurer, (or in the event there be more than one
assistant treasurer, the assistant treasurers in the
order of their appointment or as determined by the
chairman of the board (if he is the CEO) or the
president or the Board of Directors) shall perform the
duties and exercise the authority of the treasurer.
SECTION 12. Compensation of Officers
The compensation of the officers shall be fixed from
time to time by the Board of Directors and no officer
shall be prevented from receiving such compensation by
reason of the fact that he is also a director of the
corporation.
ARTICLE V
Contracts, Checks and Deposits
SECTION 1. Contracts
The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract
or execute and deliver any instrument in the name of
and on behalf of the corporation and such authority may
be general or confined to specific instances.
SECTION 2. Checks, Drafts, etc.
All checks, drafts or other orders for the payment of
money, notes or other evidences of indebtedness issued
in the name of the corporation, shall be signed by such
officer or officers, agent or agents of the corporation
and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
SECTION 3. Deposits
All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of
the corporation in such banks, trust companies or other
depositaries as the Board of Directors may select.
ARTICLE VI
Certificates Representing Shares, Record
of Shareholders, Transfer of Shares
SECTION 1. Issuance of Shares
No shares of any class of the corporation or any
obligations or other securities convertible into or
carrying options to purchase any such shares of the
corporation, or any options or rights to purchase any
such shares or securities of the corporation, shall be
issued or sold unless such issuance or sale is approved
by the affirmative vote of at least 80% of the entire
Board of Directors.
SECTION 2. Certificates Representing Shares
The shares of the corporation shall be represented by
certificates which shall be in such form as shall be
determined by the Board of Directors. All such
certificates shall be consecutively numbered or
otherwise identified. Such certificates shall be
signed by the chairman of the board or the president or
a vice president and the secretary or an assistant
secretary or the treasurer or an assistant treasurer,
and may, but need not, be sealed with the seal of the
corporation or a facsimile thereof. The signature of
the officers upon the certificate may be facsimile if
the certificate is countersigned by a transfer agent or
an assistant transfer agent, or registered by a
registrar other than the corporation itself or its
employee. In case any officer who has signed or whose
facsimile signature has been placed upon a certificate
shall have ceased to be such officer before such
certificate is issued, it may be issued by the
corporation with the same effect as if he were such
officer at the date of issue. Each certificate shall
state upon the face thereof; 1) that the corporation is
formed under the laws of New York; 2) the name of the
person or persons to whom issued; 3) the number and
class of shares and the par value of each share
represented by such certificate.
SECTION 3. Lost, Destroyed or Wrongfully Taken
Certificates
The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate
or certificates theretofore issued by the corporation,
alleged to have been lost, apparently destroyed or
wrongfully taken upon the making of an affidavit of
that fact by the person claiming the certificate to be
lost, apparently destroyed or wrongfully taken. When
authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, apparently
destroyed or wrongfully taken certificate or
certificates, or his legal representative to advertise
the same in such manner as it shall require and/or give
the corporation a bond in such sum and with such surety
or sureties as it may direct as indemnity against any
claim that may be made against the corporation with
respect to the certificates alleged to have been lost,
apparently destroyed or wrongfully taken.
SECTION 4. Record of Shareholders
The corporation shall keep at its principal office, or
at the office of its transfer agent in the State of New
York, a record containing the names and addresses of
all shareholders, the number and class of shares held
by each and the dates when they respectively became the
owners of record thereof. The corporation shall be
protected in treating the persons in whose names shares
stand on the record of shareholders as the owners
thereof for all purposes.
SECTION 5. Transfer of Shares
Upon surrender to the corporation or the transfer agent
of the corporation of a certificate representing shares
duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it
shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, and cancel
the old certificate. Every such transfer of shares
shall be entered on the record of shareholders of the
corporation.
ARTICLE VII
Fiscal Year
The fiscal year of the corporation shall be determined
by resolution of the Board of Directors.
ARTICLE VIII
Dividends
The Board of Directors may from time to time declare,
and the corporation may pay, dividends on its
outstanding shares in the manner and upon the terms and
conditions provided by law and its certificate of
incorporation.
ARTICLE IX
Seal
The seal of the corporation shall be circular in form
and contain the name of the corporation, the year when
it was formed, and the words "New York." The
corporation may use the seal causing it or a facsimile
to be affixed or impressed or reproduced in any other
manner.
ARTICLE X
Waiver of Notice
SECTION 1. Waiver of Notice to Shareholders
Notice of meeting need not be given to any shareholder
who signed a waiver of notice, in person or by proxy,
whether before or after the meeting. The attendance of
any shareholder at a meeting, in person or by proxy,
without protesting prior to the conclusion of the
meeting the lack of notice of such meeting, shall
constitute a waiver of notice by him.
SECTION 2. Waiver of Notice to Director
Notice of meeting need not be given to any director who
signs a waiver of notice whether before or after the
meeting, or who attends the meeting without protesting,
prior thereto or at the commencement, the lack of
notice to him. A waiver of notice need not specify the
purpose of any regular or special meeting of the Board
of Directors.
SECTION 3. Notice Dispensed with When Delivery
Prohibited
Whenever communication to any shareholder or any
director is unlawful under any statute of the State of
New York or of the United States or any regulation,
proclamation or order issued under said statutes, the
giving of any notice to such shareholder or such
director shall not be required and there shall be no
duty to apply for license or other permission to do so.
ARTICLE XI
Indemnification
To the fullest extent permitted by law, either directly
or by the purchase of insurance or in part directly and
in part by the purchase of insurance, the corporation
shall indemnify each natural person, or if deceased,
his personal representative made or threatened to be
made a party to any action or proceeding civil or
criminal, including an appeal therein against the
reasonable expenses, attorneys' fees, judgments, fines
and amounts paid in settlement if such person is made
or threatened to be made a party by reason of the fact
that he or his testator or intestate is or was: 1) an
officer, director or employee of the corporation or 2)
an officer, director or employee of or served in any
capacity in any other corporation, partnership, joint
venture, trust or other enterprise, at the request of
this corporation, provided that in the case of a person
serving as an employee or in any capacity in any other
corporation, that such person was at the time he was so
designated to serve by this corporation, an employee of
this corporation, or 3) the occupant of a position or a
member of a committee or Board or a person having
responsibilities under federal or state law, including
but not limited to responsibilities under the Employee
Retirement Income Security Act of 1974, who was
appointed to such position or to such committee or
Board by the Board of this corporation or by an officer
of this corporation or who served in such position or
on such committee or Board at the request or direction
of the Board of this corporation or of an officer of
this corporation or who assumed such responsibilities
at the request or direction of the Board of this
corporation or of any officer of this corporation,
provided only that such person acted in good faith for
a purpose which he reasonably believed would be in the
best interest of the corporation or in the case of
service for any other corporation or any partnership,
joint venture, trust, employee benefit plan or other
enterprise, not opposed to the best interests of the
corporation, and in criminal proceedings had no
reasonable cause to believe that his conduct was
unlawful.
The corporation's obligations under this Article shall
be reduced by the amount of any insurance which is
available to any such person whether such insurance is
purchased by the corporation or otherwise. The right
of indemnity created herein shall be personal to the
officer, director, employee or other person and their
respective legal representatives and in no case shall
any insurance carrier be entitled to be subrogated to
any rights created herein.
Nothing contained herein shall obligate the corporation
to indemnify any person against any claim arising out
of personal injuries, bodily injuries or property
damage.
ARTICLE XII
Amendment and Repeal
SECTION 1. Amendment and Repeal by the Shareholders
These By-Laws may be amended or repealed by vote of the
shareholders entitled to vote generally in the election
of directors, provided that notice of meeting states
such purpose, and provided further that the provisions
of Article III may be amended or repealed only by the
affirmative vote of holders of at least 75% of the
outstanding shares of stock of the corporation entitled
to vote generally in the election of directors.
SECTION 2. Amendment and Repeal by the Board of
Directors
These By-Laws may also be amended or repealed by a
majority of the entire Board of Directors provided that
the provisions of Article III may be amended only by
the affirmative vote of at least 75% of the entire
Board of Directors and further provided that Section 1
of Article VI may be amended only by the affirmative
vote of at least 80% of the entire Board of Directors.
CHEMUNG FINANCIAL CORPORATION
LEGEND FOR BY-LAWS
<TABLE>
<CAPTION>
DATE ARTICLE SECTION DESCRIPTION
<S> <C> <C> <C>
4/9/97 Article Section 3 Number of Directors changed
III from twenty to nineteen.
4/8/98 Article II Sections 4 & 5 Change fifty (50) days to
sixty (60) days.
12/8/98 Article Section 3 Number of Directors changed
III from nineteen to seventeen.
8/11/99 Article Section 3 Number of Directors changed
III from seventeen to sixteen.
</TABLE>
EXHIBIT A
TABLE OF QUARTERLY MARKET PRICE RANGES
<TABLE>
<CAPTION>
Market Prices of Chemung Financial Corporation Stock
During Past Three Years (dollars)
1999 1998 1997
<S> <C> <C> <C>
1st Quarter 26 1/2 - 29 21 1/2 - 25 1/2 16 13/16 - 18
2nd Quarter 24 - 27 25 3/4 - 30 16 3/4 - 17 5/8
3rd Quarter 24 - 26 26 1/4 - 30 16 13/16 - 18 3/4
4th Quarter 24 1/4 - 25 3/4 22 3/4 - 28 19 1/8 - 23 3/4
</TABLE>
EXHIBIT B
TABLE OF DIVIDENDS PAID
<TABLE>
<CAPTION>
Dividends Paid Per Common Share by Chemung Financial Corporation
During Past Three Years
1999 1998 1997
<S> <C> <C> <C>
January 4 $0.170 $0.155 $0.140
April 1 0.170 0.155 0.140
July 1 0.190 0.170 0.155
October 1 0.190 0.170 0.155
$0.720 $0.650 $0.590
</TABLE>
As of December 31, 1999 there were 747 registered holders of
record of the Corporation's stock. Chemung Financial Corporation
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 that is not otherwise apparent from the
consolidated financial statements included in this annual report.
Reference should be made to those statements and the selected
financial data presented elsewhere in this report for an
understanding of the following discussion and analysis.
Forward-Looking Statements
Statements included in this discussion and in future filings by
Chemung Financial Corporation (the "Corporation") with the
Securities and Exchange Commission, in Chemung Financial
Corporation press releases, and in oral statements made with the
approval of an authorized executive officer, which are not
historical or current facts, are "forward-looking statements"
made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, and are subject to
certain risks and uncertainties that could cause actual results
to differ materially from historical earnings and those presently
anticipated or projected. Chemung Financial Corporation wishes to
caution readers not to place undue reliance on any such forward-
looking statements, which speak only as of the date made. The
following important factors, among others, in some cases have
caused and in the future could cause Chemung Financial
Corporation's actual financial performance to differ materially
from that expressed in any forward-looking statement: (1) credit
risk, (2) interest rate risk, (3) competition, (4) changes in the
regulatory environment, and (5) changes in general business and
economic trends. The foregoing list should not be construed as
exhaustive, and the Corporation disclaims any obligation to
subsequently revise any forward-looking statements to reflect
events or circumstances after the date of such statements, or to
reflect the occurrence of anticipated or unanticipated events.
Description of Business
Chemung Financial 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 deployment 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.
Management of Credit Risk - Loan Portfolio
The Bank manages credit risk, while conforming to state and
federal laws governing the making of loans, through written
policies and procedures; 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 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 and 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 $1.5 billion
at December 31, 1999, compared to $1.4 billion a year earlier and
$1.2 billion at December 31, 1997. 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 1999, as well as 1998 and 1997, the Trust and 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
outsourcing retirement fund recordkeeping. The tradeoff in
revenue and expense is not 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.
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 century had
been programmed with two-digit reference to each year. Such
hardware and software, if not upgraded by January 1, 2000, could
become useless.
Beginning at that time, and continuing throughout 1998 and 1999,
under the direction of the Bank's operations committee,
management undertook a five-phase project to respond to the
issue, with major emphasis on identifying all applications and
databases supporting the Bank's mission-critical applications.
The five phases included: awareness, assessment, renovation,
validation and implementation, with a goal of neutralizing not
only the Bank's vulnerability, but also to determine the
financial capacity of its vendors, determine the need for
alternate vendors, and evaluate the capacity of its customers to
respond to this challenge. Additionally, a contingency plan was
formulated to assure business continuation in the event of Year
2000 system failures.
All of these efforts proved successful and we entered the year
2000 with all operating systems functioning normally with no
disruption in service to our customers. A committee will
continue to monitor and evaluate the Bank's efforts throughout
2000, as well as any possible effects of Year 2000 on borrowers
and other third parties that may not be immediately apparent.
Expenditures associated with Year 2000 readiness, including
hardware and software upgrades, as well as expenditures of
testing totaled approximately, $250,000.
While some of the hardware and software expenditures may have
been made even without the Year 2000 issue, the greatest
opportunity cost of the Year 2000 challenge was the management
time spent on this issue versus other areas, such as new product
development. With the Year 2000 efforts successfully completed,
we look forward to re-deploying these management resources to
other opportunities available to the Corporation.
Employees
The Corporation and its banking subsidiary had 303 full-time
equivalent employees (FTE's) on December 31, 1999, versus 291 at
the beginning of the year and 281 on December 31, 1997. The
employment trend is relatively stable.
Consolidated Balance Sheet Comments
Average earning assets for 1999 grew by $60.4 million or 11.4% to
$591.6 million, compared to $531.2 million in 1998 and $490.9
million in 1997. Loan activity was strong throughout the year,
with the year end 1999 balance growing $30.7 million or 9.3% to
$360.0 million. Particular strength was shown in business loans,
which grew by $17.2 million or 15.1%. Mortgage (both residential
and commercial) and consumer loan growth was also strong
throughout the year, with year end balances growing $5.0 million
(5.6%) and $8.5 million (6.8%), respectively. Growth in consumer
lending continues to be influenced by the volume of indirect auto
financings. Average total loan balances were $346.5 million
versus $311.7 million during 1998 and $291.3 million during 1997.
The growth in average loans, as well as, a $25.5 million increase
in average investments (at amortized cost), was funded by a $55.7
million increase in average total funding liabilities, including
deposits and other borrowed funds. Average deposits for 1999
were $494.1 million, an increase of $26.9 million or 5.8% when
compared to the 1998 average of $467.2 million. Average deposits
in 1997 totaled $450.2 million. Period end deposit balances were
up $15.7 million or 3.4%, with this growth centered in time and
investment certificate balances which increased $21.6 million
(107.1%) and $4.6 million (3.6%), respectively. These increases
were offset primarily by lower year end 1999 demand deposit and
insured money market account balances compared to year end 1998
which declined $3.6 million and $7.1 million, respectively. It
should be pointed out that with year end 1998 falling on a
Thursday, balances were somewhat inflated as compared to year end
1999 due to the fact that social security direct deposits, which
are normally received on the 3rd of the month, were received and
credited on December 31, 1998. This year, these same deposits
were received and credited on January 3, 2000. Accordingly,
period end 1999 deposit growth over period end 1998 is less than
the growth in average deposits realized in 1999 versus the 1998
average deposits. Other borrowed funds, consisting primarily of
securities sold under agreements to repurchase and Federal Home
Loan Bank advances, increased on average by $28.7 million. While
the Bank entered into no new leveraging transactions during 1999,
the average increase is related to leveraged transactions which
occurred in the later half of 1998. The increase of $22.8
million in year end 1999 Federal Home Loan Bank advances occurred
primarily during November and December of 1999, and is related to
both a decrease in deposits during December as well as
maintaining higher cash on hand balances as it related to Year
2000 contingency planning. These cash balances were
approximately $10.6 million higher than year end 1998 balances.
<TABLE>
<CAPTION>
Exhibit I BALANCE SHEET COMPARISONS
(in millions)
Change Compounded
Average Balance 1998 Annual
Sheet 1999 1998 1997 1996 1995 1994 to Growth 5
1999 Years
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Assets $642.2 $584.0 $539.2 $516.2 $494.1 $431.2 10.0% 8.3%
Earning Assets 591.6 531.2 490.9 469.5 447.1 394.7 11.4% 8.4%
Loans, net of
unearned income
and deferred fees 346.5 311.7 291.3 273.9 249.1 221.4 11.2% 9.4%
Investments (1) 245.0 219.5 199.8 195.6 198.0 173.3 11.6% 7.2%
Deposits 494.1 467.2 450.2 440.9 424.4 374.6 5.8% 5.7%
Wholesale funding
(Advances) 66.6 37.0 13.1 2.9 N/A N/A 80.0% N/A
Tier I equity (2) 57.6 52.6 51.6 46.4 41.7 38.2 9.5% 8.6%
<FN>
<FN1>
(1) Average balances for investments include securities available for sale
and securities held to maturity, based on amortized cost, and federal funds
sold and interest bearing deposits.
<FN2>
(2) Average shareholders' equity less intangible assets and accumulated
other comprehensive income.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Change Compounded
Ending Balance 1998 Annual
Sheet 1999 1998 1997 1996 1995 1994 to Growth 5
1999 Years
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Assets $653.2 $620.1 $545.5 $529.2 $499.3 $494.3 5.3% 5.7%
Earning Assets 597.6 563.5 486.1 474.6 446.3 448.9 6.1% 5.9%
Loans, net of
unearned income
and deferred fees 360.0 329.3 296.9 283.7 263.0 236.5 9.3% 8.8%
Allowance for
loan losses 4.7 4.5 4.1 4.0 3.9 3.6 3.5% 5.3%
Investments (1) 237.1 243.3 196.8 196.3 189.6 212.1 -2.5% 2.3%
Deposits 481.8 466.1 451.0 439.6 426.9 432.3 3.4% 2.2%
Wholesale
funding (Advances) 94.2 71.4 20.5 10.0 N/A N/A 31.9% N/A
Tangible equity(2) 59.7 59.9 54.8 48.7 44.9 37.2 -0.3% 9.9%
<FN>
<FN1>
(1) Investments include both securities available for sale and securities
held to maturity, at estimated fair value, and interest bearing deposits.
<FN2>
(2) Shareholders' equity less intangible assets.
</FN>
</TABLE>
Securities
The Board-approved Funds Management Policy includes an investment
portfolio policy which requires that, except for local municipal
obligations that are sometimes not rated or carry ratings above
"Baa" but below "A" by Moody's or Standard and Poors, debt
securities purchased for the bond portfolio must carry a minimum
rating of "A". Marketable securities are classified as Available
for Sale while local direct investment in municipal obligations
are classified as Held to Maturity. The Available for Sale
segment of the securities portfolio at December 31, 1999, was
$227.4 million compared to $235.3 million a year earlier and
$185.3 million at the end of 1997. At year-end 1999, total
unrealized depreciation in the securities available for sale
portfolio was $504 thousand, compared to an unrealized gain of
$8.983 million a year ago. This change is reflective of the
impact that higher market interest rates had on the fair value of
the bond portfolio.
The components of this change are set forth in the following
table (in thousands):
<TABLE>
<CAPTION>
1999 1998
Estimated Unrealized Estimated
Amortized Fair Appreciation Amortized Fair Unrealized
At December 31 Cost Value (Depreciation) Cost Value Appreciation
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury
Securities $ 15,507 $ 15,341 $ (166) $ 23,013 $ 29,295 $ 282
Obligations of
other U.S.
Government
Agencies 96,004 92,697 (3,307) 77,787 78,233 446
Mortgage-
backed 77,419 73,747 (3,672) 89,245 89,593 348
securities
Obligations of
states and
Political
Subdivisions 21,359 20,734 (625) 20,967 21,432 465
Corporate
bonds 10,663 10,130 (533) 9,682 9,705 23
and notes
Corporate Stocks 6,936 14,735 7,799 5,617 13,036 7,419
Totals $227,888 $227,384 $ (504) $226,311 $235,294 $ 8,983
</TABLE>
Included in the above table are 44,839 shares of SLM Holding
Corporation at a cost basis of approximately $4 thousand and
estimated fair value of $1.894 million. These shares were
acquired as preferred shares of Student Loan Marketing
Association ("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, 1999, the Bank's
portfolio held marketable equities totaling $89 thousand at cost,
with a total estimated fair value of $5.964 million. The shares,
other than SLM Holding Corp., were acquired prior to the
enactment of the Banking Act of 1933. Non-marketable equity
securities included in the Bank portfolio are 10,572 shares of
Federal Reserve Bank and 52,450 shares of the Federal Home Loan
Bank of New York. They are carried at their cost of $528.6
thousand and $5.245 million, respectively. The fair value of
these securities is assumed to approximate their cost. The number
of shares of these last two investments is regulated by
regulatory policies of the respective institutions.
Asset Quality
Non-performing loans at year end decreased to $1.405 million
versus $4.853 million at the end of 1998 and $1.617 million at
the end of 1997, and represented 0.39% of total loans outstanding
compared to 1.5% at the end of 1998 and 0.54% on December 31,
1997. The decrease in 1999 and the increase in 1998 relate
primarily to one real estate secured commercial loan which was
paid in full during the fourth quarter of 1999. Net loan charge
offs were $517 thousand or 0.15% of average outstanding loans in
1999, compared to $436 thousand or 0.14% of average outstanding
loans in 1998 and $680 thousand or 0.23% of average outstanding
loans in 1997. The allowance for loan losses at December 31,
1999 was 1.30% of total outstandings versus 1.37% a year ago and
1.40% at December 31, 1997.
Capital Resources and Dividends
The Corporation continues to maintain a strong capital position.
Tangible shareholders' equity at December 31, 1999, was $59.7
million or 9.13% of total assets compared to $59.9 million or
9.65% of total assets a year earlier and $54.8 million or 9.98%
at December 31, 1997. While undistributed earnings (net earnings
less dividends declared) increased in 1999 by $5.3 million, the
decrease in tangible shareholders' equity at December 31, 1999,
is primarily due to a $5.7 million decrease in accumulated other
comprehensive income related to the net decrease in unrealized
gains on available for sale securities, and the purchase of $1.5
million in treasury stock. The impact of the above was somewhat
offset by a $587 thousand decrease in intangible assets, and a
$1.1 million increase in shareholders' equity related to
restricted stock units for the directors' deferred compensation
plan. As of December 31, 1999, the Corporation's ratio of Total
Capital to Risk Weighted Assets was 16.57% compared with 16.67% a
year earlier and 17.44% at December 31, 1997. The Corporation's
leverage ratio (Average Tier I Capital/Average Assets) was 9.49%
during 1999 and 9.57% in 1998.
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, 1999, the
maximum amount available for transfer from the Bank to the
Corporation in the form of loans was $1.8 million. 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, 1999, $9.6 million was
available for the declaration of dividends.
Cash dividends declared amounted to $3.097 million in 1999 versus
$2.741 million in 1998 and $2.506 million in 1997. Dividends
declared during 1999 amounted to 36.9% of net income compared to
37.6% and 36.6% of 1998 and 1997 net income, respectively. It is
management's objective to continue generating sufficient capital
internally, while retaining an adequate dividend payout ratio.
Treasury Shares
When shares of the Corporation become available in the market, we
may purchase them after careful consideration of our capital
position. During 1999, 58,674 shares were purchased at a total
cost of $1.465 million or an average price of $24.96 per share.
In 1998, 39,383 shares were purchased at a total cost of $984
thousand or an average price of $24.99 per share, and in 1997
there were 5,370 shares purchased at a total cost of $108
thousand ($20.07 per share).
Performance Summary
Net income for 1999 was affected by 1) higher volumes of average
earning assets and total funding liabilities, 2) lower average
interest rates on both sides of the balance sheet resulting in a
lower net interest margin, 3) higher non-interest income volumes,
and 4) higher non-interest expenses.
Consolidated net income for 1999 was $8.392 million versus $7.297
million in 1998, up $1.095 million (15.0%) or $2.03 per share
versus $1.77 per share (up 14.7%). In 1997, the Corporation
earned $6.857 million. Quarterly dividends declared totaled
$0.76 per share versus $0.665 in 1998 and $0.605 in 1997,
adjusted for the two-for-one stock split, effected in the form of
a 100% stock dividend in June 1998.
Net interest income in 1999 increased $1.710 million or 7.2% over
1998. Total interest and dividend income on earning assets was
$44.177 million in 1999 compared to $41.405 million in 1998 and
$39.372 million in 1997. While the yield on average earning
assets declined to 7.47% during 1999 compared to 7.80% and 8.02%
in 1998 and 1997, respectively, this was offset by a $60.4
million or 11.4% increase in average earning assets. $34.8
million of the increase in average earning assets was generated
in our loan portfolio with the remainder consisting of higher
average balances in the securities portfolio. Total average
funding liabilities during 1999 increased by $55.7 million or
10.9%. The interest expense associated with these liabilities
totaled $18.728 million in 1999 as compared to $17.666 million in
1998 and $16.098 million in 1997. The cost of funds on these
average funding liabilities, including the effect of non-interest
bearing funding sources (such as demand deposits), decreased to
3.30% during 1999 versus 3.45% and 3.39% during 1998 and 1997,
respectively. The above yields and costs resulted in a net
interest margin in 1999 of 4.30%, compared to 4.47% in 1998 and
4.74% in 1997.
Non-interest income increased $1.188 million to $9.405 million,
up 14.5% over 1998. Trust and Investment Services income, at
$4.813 million was again the largest component and registered an
increase of 6.8%. Other significant increases were realized in
service charges (+ $207 thousand), income from our equity
investment in Cephas Capital Partners, LP (+ $178 thousand),
credit card merchant earnings (+ $139 thousand) and checkcard
interchange income (+ $149 thousand). Gains realized in the
Bank's investment securities portfolio were $151 thousand
compared to $216 thousand in 1998 and $324 thousand in 1997.
Non-interest expenses increased $1.158 million (5.7%) to $21.6
million. Non-interest expenses for 1998 were $20.5 million
compared to $19.4 million in 1997. These expenses were
negatively affected by a $337 thousand increase in salaries and
other employee benefits, a $248 thousand increase in advertising
costs, a $229 thousand increase in data processing expenses, and
a $144 thousand increase in credit card processing fees.
During 1999, the Bank's provision for loan losses totaled $673
thousand, down $127 thousand from $800 thousand in 1998 and $850
thousand in 1997. The change is a reflection of management's
ongoing evaluation of the risk inherent in the portfolio.
Income tax expense in 1999 totaled $4.159 million as compared to
$3.386 million in 1998, an increase of 22.8%. In addition to the
tax on 1999 pre-tax income, income tax expense in 1999 was
impacted by an additional tax of $87 thousand resulting from the
accounting for the effect of a phased-in New York State tax rate
reduction on deferred tax assets and liabilities.
Exhibit II EARNINGS FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Change Compounded
l998 Annual
to Growth 5
(in thousands) 1999 1998 1997 1996 1995 1994 1999 Years
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest $25,449 $23,739 $23,274 $22,468 $21,849 $19,304 7.2% 5.7%
Income
Provision for
Loan Losses 673 800 850 742 564 624 -15.9% 1.5%
Net Interest
Income after
Provision for 24,777 22,939 22,424 21,726 21,285 18,680 8.0% 5.8%
loan losses
Other Operating
Income:
Trust and
Investment 4,813 4,505 4,079 3,719 3,678 3,323 6.8% 7.7%
Services Income
Securities
Gains, Net 151 216 324 610 531 140 -30.1% 1.5%
Other Income 4,442 3,496 3,065 2,777 2,527 2,222 27.1% 14.9%
Total Other
Operating Income 9,405 8,217 7,468 7,106 6,736 5,685 14.5% 10.6%
Other Operating
Expenses 21,631 20,473 19,368 19,408 19,560 17,375 5.7% 4.5%
Income before
income tax 12,551 10,683 10,524 9,424 8,461 6,990 17.5% 12.4%
expense
Income tax expense 4,159 3,386 3,667 3,266 2,859 2,342 22.8% 12.2%
Net Income $8,392 7,297 6,857 6,158 5,602 4,648 15.0% 12.5%
</TABLE>
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 Corporation. For purposes of constructing this
table, average investment securities are at average
amortized cost and 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. No tax
equivalent adjustments were made.
<TABLE>
<CAPTION>
1999 vs. 1998 1998 vs. 1997
Increase/(Decrease) Increase/(Decrease)
Total Due to Due to Total Due to Due to
Interest income (in Change Volume Rate Change Volume Rate
thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans $1,582 3,004 (1,422) $1,185 $1,836 $ (651)
Taxable investment 1,530 1,974 (444) 559 1,017 (458)
securities
Tax-exempt investment
securities (159) (138) (21) (8) (2) (6)
Federal funds sold (106) (52) (54) 290 293 (3)
Interest bearing deposits (74) (165) 91 7 (80) 87
Total Interest Income $2,773 4,623 (1,850) $2,033 $3,064 $(1,031)
Interest Expense (in
thousands)
Interest Bearing Demand
deposits $ (86) (25) (61) $ (64) $ (23) $ (41)
Savings deposits 58 236 (178) 390 229 161
Time deposits (121) 607 (728) 164 272 (108)
Federal Home Loan Bank
advances and Securities
sold under 1,211 1,424 (213) 1,078 1,126 (48)
Agreements to repurchase
Total Interest Expense $1,062 2,242 (1,180) $1,568 $1,604 $ (36)
Net Interest Income $1,711 2,381 (670) $ 465 $1,460 $ (995)
</TABLE>
Intangible Assets
The Corporation's intangible assets at December 31, 1999, were $5.641
million and represented 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. The intangible assets are 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.
Exhibit IV
<TABLE>
<CAPTION>
Selected per share Change
data on Common 1998 Compounded
Shares (Adjusted To Annual
for two-for-one 1999 1998 1997 1996 1995 1994 1999 Growth
stock split) 5 Years
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income per share $2.03 $ 1.77 $ 1.66 $ 1.48 $ 1.34 $ 1.23 14.7% 10.5%
Dividends declared 0.76 0.665 0.605 0.53 0.49 0.467 14.3% 10.2%
Tangible book value 14.5 14.59 13.24 11.76 10.79 8.88 -0.2% 10.4%
Market price at 12/31 24.50 27.50 21.00 17.00 13.88 12.75 -10.9% 14.0%
Average shares
outstanding
(in thousands) 4,132 4,116 4,143 4,159 4,176 3,798 0.4% 1.7%
</TABLE>
Exhibit V
<TABLE>
<CAPTION>
Selected Ratios 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Return on average assets 1.31% 1.25% 1.27% 1.19% 1.13%
Return on average tier I equity(1) 14.57% 13.88% 14.29% 14.08% 14.26%
Dividend yield for the year ended 3.43% 2.47% 2.95% 3.29% 3.60%
Dividend payout 36.90% 37.56% 36.55% 35.78% 36.52%
Tier I capital to risk adjusted 15.37% 15.42% 16.19% 15.61% 15.21%
assets
Tier I leverage ratio 9.49% 9.57% 9.49% 8.97% 8.52%
Total capital to risk adjusted 16.57% 16.67% 17.44% 16.87% 16.46%
assets
Loans to deposits 74.72% 70.63% 65.84% 64.53% 61.61%
Allowance for loan losses to 1.30% 1.37% 1.40% 1.40% 1.48%
total loans
Allowance for loan losses to non- 332% 92.9% 257% 231% 217%
performing loans
Non-performing loans to total 0.39% 1.47% 0.54% 0.61% 0.68%
loans
Net interest rate spread 3.48% 3.62% 3.89% 3.99% 4.12%
Net interest margin 4.30% 4.47% 4.74% 4.79% 4.89%
Efficiency ratio (2) 60.09% 61.97% 60.84% 63.41% 66.12%
<FN>
<FN1>
(1) Average Tier I Equity is average shareholders' equity less
intangible assets and accumulated other comprehensive income.
<FN2>
(2) Efficiency ratio is operating expenses adjusted for amortization
of intangible assets and donations divided by net interest income plus
other operating income adjusted for non-taxable gains on stock
donations.
</FN>
</TABLE>
Consolidated Cash Flows
During 1999, cash and cash equivalents increased $3.253 million as
compared to a decrease of $5.599 million in 1998 and a $2.663 million
increase in 1997. In addition to cash provided by operating
activities, other primary sources of cash in 1999 included proceeds
from the sales and maturities of securities and student loans ($84.752
million), proceeds from Federal Home Loan Bank advances ($29.700
million), and an increase in deposits ($15.634 million). In 1998, the
primary sources of cash included proceeds from the sales and
maturities of securities and student loans ($108.012 million), a net
increase in securities sold under agreements to repurchase ($41.140
million), Federal Home Loan Bank advances ($26.900 million), and an
increase in deposits ($15.095 million).
Cash generated from the above activities was used primarily to fund
increases in earning assets. During 1999, the purchases of securities
and the funding of loans, net of repayments, totaled $86.084 million
and $33.738 million, respectively. Other significant uses of cash in
1999 included repayments of Federal Home Loan Bank advances ($6.900
million), purchases of premises and equipment ($3.506 million),
payment of cash dividends ($2.945 million), and the purchase of
treasury shares ($1.465 million). In 1998, the purchases of securities
and funding of loans, net of repayments, totaled $151.012 million and
$35.895 million, respectively. Repayments of Federal Home Loan Bank
advances were $16.300 million, and the investment in premises and
equipment totaled $1.325 million. Other significant uses of cash
included the payment of cash dividends ($2.685 million), and the
purchase of treasury shares ($984 thousand).
Liquidity and Sensitivity
The term "liquidity" refers primarily to the expected cash flows from
assets held and secondarily to borrowings secured by assets of the
Corporation. 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 financial officer and others representing key
functions.
The Bank is a member of the Federal Home Loan Bank of New York
("FHLB") in order to access borrowings which enhance management's
ability to satisfy future liquidity needs. The Bank's $5.245 million
investment in FHLB stock allowed it to maintain a $62.726 million line
of credit at December 31, 1999. This compares to $56.696 million at
the end of 1998.
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. For that reason, the ALCO
has established tolerance limits based upon a 200 basis point change
in interest rates. At December 31, 1999, it is estimated that a 200
basis point increase in interest rates would negatively impact net
interest income by 7.8%, well within the Bank's established tolerance
limit of 12.0%.
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. During the fourth quarter of
1999, management, as part of it's Year 2000 contingency planning, took
special precautions in order to assure the Bank's ability to meet any
customer cash requirements. To this end, the Bank secured a $10.0
million guaranteed line of credit from the Federal Home Loan Bank.
Also, the Bank carried increased cash on hand at all of its offices
that in aggregate totaled $18.582 million at December 31, 1999, versus
$8.142 million at December 31, 1998. This precaution distorted some
of our financial and interest rate risk ratios. Specifically,
management noted that the risk of interest rates rising 200 basis
points would negatively impact market value of our capital account by
15.1%, slightly over the established tolerance of 15.0%. Given the
special circumstances surrounding the Year 2000 precautions,
management and the Board of Directors felt that no corrective action
was required. The increase in cash on hand was temporary and was
reduced in January 2000.
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 1999, 1998 and 1997 has
been quite stable, even with movements in market rates in excess of
200 basis points. Short term rates (6 month U.S. Treasury Bills)
ranged between 4.41% - 5.85% during 1999 and 4.15% - 5.16% during
1998. 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 1999.
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 the Corporation's asset/liability policies.
Recent Accounting Pronouncements
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
(including banks) to recognize all derivatives as either assets or
liabilities, including certain derivative instruments embedded in
other contracts, 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, as
amended by SFAS No. 137, is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. Earlier adoption, however
is permitted. Management is currently evaluating the impact, if any,
of this Statement on the Corporation's Consolidated financial
statements.
John R. Battersby, Jr.
Treasurer and Chief Financial Officer
To our Shareholders:
The consolidated financial statements appearing in this annual report
have been prepared by the Corporation in accordance with generally
accepted accounting principles. The primary responsibility for the
integrity of the financial information included in this report rests
with management. The opinion of KPMG LLP, the Corporation's
independent accountants, on those consolidated financial statements is
included herein.
The Corporation and its subsidiary bank maintain a system of internal
accounting controls that is designed to provide reasonable assurance
that assets are safeguarded, that transactions are executed in
accordance with management's authorization and are properly recorded,
and that accounting records are adequate for preparation of
consolidated financial statements and other financial information.
The Internal Auditing Department is charged with the responsibility of
verifying accounting records and reviewing internal controls. The
internal auditor reports directly to the Examining Committee of the
Board of Directors whose members are all non-employee directors. The
Committee meets with management, the internal auditor and the
independent auditors in conjunction with its review of matters
relating to the consolidated financial statements and the internal
audit program. The independent auditors and the internal auditor meet
with the Examining Committee without the presence of management.
Jan P. Updegraff
President and Chief Executive Officer
John R. Battersby, Jr.
Treasurer and Chief Financial Officer
EXHIBIT D
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT AUDITORS'
Independent Auditors' Report
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, 1999,
and 1998, 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, 1999. 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, 1999
and 1998, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1999, in
conformity with generally accepted accounting principles.
Syracuse, New York
February 2, 2000
<TABLE>
<CAPTION
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
December 31 1999 1998
Assets
<S> <C> <C>
Cash and due from banks $30,926,401 27,515,582
Interest-bearing deposits with other financial
institutions 1,146,495 1,304,207
Total cash and cash equivalents 32,072,896 28,819,789
Securities available for sale, at estimated fair 227,383,641 235,293,736
value
Securities held to maturity, estimated fair value
of $8,606,703 at December 31, 1999 and
$6,660,923 at December 31, 1998 8,606,703 6,660,923
Loans, net of unearned income and deferred fees 359,963,407 329,255,342
Allowance for loan losses (4,665,093) (4,509,185)
Loans, net 355,298,314 324,746,157
Premises and equipment, net 12,121,667 10,084,608
Other assets 12,119,128 8,232,896
Intangible assets, net of accumulated amortization 5,641,025 6,228,328
Total assets $653,243,374 620,066,437
Liabilities and Shareholders' Equity
Deposits:
Non-interest-bearing $ 98,292,851 101,908,083
Interest-bearing 383,480,838 364,231,279
Total deposits 481,773,689 466,139,362
Securities sold under agreements to repurchase 49,946,491 50,587,369
Federal Home Loan Bank advances 49,700,000 26,900,000
Accrued interest payable 1,609,842 1,428,560
Dividends payable 849,257 697,570
Other liabilities 4,052,212 8,223,949
Total liabilities 587,931,491 553,976,810
Commitments and contingencies (note 13)
Shareholders' equity:
Common stock, $.01 par value per share, authorized
10,000,000 shares; issued 4,300,134 shares at
December 31, 1999 and 1998 43,001 43,001
Capital surplus 21,941,629 20,851,800
Retained earnings 48,065,946 42,770,991
Treasury stock, at cost (256,054 shares at
December 31, 1999; 197,380 shares at (4,435,629) (2,970,954)
December 31, 1998)
Accumulated other comprehensive income (loss) (303,064) 5,394,789
Total shareholders' equity 65,311,883 66,089,627
Total liabilities and shareholders' equity $653,243,374 620,066,437
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
Years ended December 31 1999 1998 1997
Interest and dividend income:
<S> <C> <C> <C>
Loans $29,446,584 27,865,497 26,679,426
Securities 13,992,910 12,621,909 12,070,919
Federal funds sold 483,552 589,976 300,359
Interest-bearing deposits 253,724 327,927 321,265
Total interest and dividend income 44,176,770 41,405,309 39,371,969
Interest expense:
Deposits 15,096,420 15,246,674 14,756,046
Borrowed funds 1,044,567 736,493 659,753
Securities sold under agreements
to repurchase 2,586,552 1,683,244 682,065
Total interest expense 18,727,539 17,666,411 16,097,864
Net interest income 25,449,231 23,738,898 23,274,105
Provision for loan losses 672,669 800,000 850,100
Net interest income after
provision for loan losses 24,776,562 22,938,898 22,424,005
Other operating income:
Trust & investment services 4,812,723 4,504,569 4,078,880
income
Service charges on deposit 2,217,859 2,010,639 1,906,931
accounts
Net gain on sales of securities 150,585 215,993 323,989
Credit card merchant earnings 769,586 630,968 536,735
Other 1,454,253 854,850 621,273
Total other operating income 9,405,006 8,217,019 7,467,808
Other operating expenses:
Salaries and wages 8,928,490 8,290,133 8,041,859
Pension and other employee 1,637,612 1,939,033 2,033,962
benefits
Net occupancy expenses 1,838,431 1,739,063 1,562,568
Furniture and equipment expenses 1,713,266 1,655,776 1,651,675
Other 7,513,238 6,848,747 6,077,630
Total other operating expenses 21,631,037 20,472,752 19,367,694
Income before income tax expense 12,550,531 10,683,165 10,524,119
Income tax expense 4,159,030 3,386,027 3,666,899
Net income $ 8,391,501 7,297,138 6,857,220
Weighted average shares 4,132,148 4,116,405 4,143,089
outstanding
Basic Earnings Per Share $2.03 $1.77 $1.66
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity and Comprehensive Income
Accumulated
Other
Capital Retained Treasury Comprehensive
Common Surplus Earnings Stock Income Total
Stock (Loss)
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31,1996 $10,750,335 10,101,804 33,885,269 (1,925,118) 3,307,909 56,120,199
Comprehensive Income:
Net Income - - 6,857,220 - - 6,857,220
Other comprehensive income - - - - 1,273,990 1,273,990
Total comprehensive income 8,131,210
Cash dividends declared
($.605 per share) - - (2,506,464) - - (2,506,464)
Purchase of 5,370 shares
of treasury stock - - - (107,768) - (107,768)
Balances at 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
Other comprehensive income - - - - 812,890 812,890
Total comprehensive income 8,110,028
Reduction of par value
from $5.00 to $0.01 (10,728,834) 10,728,834 - - - -
per share
Two-for-one stock split
in the form of a 100%
stock dividend 21,500 - (21,500) - - -
Cash dividends declared
($.665 per share) - - (2,740,672) - - (2,740,672)
Purchase of 39,383 shares of
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
Comprehensive Income:
Net income - - 8,391,501 - - 8,391,501
Other comprehensive loss - - - - (5,697,853)(5,697,853
Total comprehensive income 2,693,648
Restricted stock units
for directors' deferred
compensation plan - 1,089,829 - - - 1,089,829
Cash dividends declared
($.76 per share) - - (3,096,546) - - (3,096,546)
Purchase of 58,674
shares of treasury stock - - - (1,464,675) - (1,464,675)
Balances at December 31,1999 $ 43,001 21,941,629 48,065,946 (4,435,629) ( 303,064)65,311,883
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31 1999 1998 1997
Cash flows from operating
activities:
<S> <C> <C> <C>
Net income $ 8,391,501 7,297,138 6,857,220
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization of intangible assets 587,303 587,303 587,303
Provision for deferred tax expense 45,955 (554,345) (260,933)
(benefit)
Provision for loan losses 672,669 800,000 850,100
Depreciation and amortization 1,468,561 1,459,446 1,483,178
Amortization of premiums and
accretion of discounts on 473,074 321,469 248,288
securities, net
Gain on sales of securities, net (150,585) (215,993) (323,989)
Increase in other assets (3,886,234) (1,489,386) (1,834,245)
Increase in accrued interest payable 181,282 237,151 38,618
Increase (decrease) in other 661,219 2,945,355 (2,649,988)
liabilities
Net cash provided by operating 8,444,745 11,388,138 4,995,552
activities
Cash flows from investing activities:
Proceeds from sales of securities
available for sale 12,239,005 19,174,487 24,071,461
Proceeds from maturities of and
principal collected on securities 4,529,397 7,054,835 12,226,947
held to maturity
Proceeds from maturities of and
principal collected on securities 65,470,411 78,602,492 30,683,353
available for sale
Purchases of securities available for (79,608,744) (146,519,981) (52,508,840)
sale
Purchases of securities held to (6,475,177) (4,491,731) (11,099,132)
maturity
Purchases of premises and equipment (3,505,619) (1,325,011) (1,989,588)
Net increase in loans (33,738,401) (35,894,863) (17,235,072)
Proceeds from sales of student loans 2,513,575 3,180,053 3,299,607
Net cash used in investing (38,575,553 (80,219,719) (12,551,264)
activities
Cash flows from financing activities:
Net (decrease) increase in demand
deposits, NOW accounts, savings
accounts, and insured money (10,265,077) 11,498,217 11,603,559
market accounts
Net increase (decrease) in
certificates of deposit and 25,899,404 3,596,803 (208,560)
individual retirement accounts
Net (decrease) increase in securities
sold under agreements to repurchase (640,878) 41,139,513 (4,923,284)
Federal Home Loan Bank advances 29,700,000 26,900,000 6,300,000
Repayments of Federal Home Loan Bank
advances (6,900,000) (16,300,000) -
Purchase of treasury stock (1,464,675) (984,284) (107,768)
Sale of treasury stock - 67,378 -
Cash dividends paid (2,944,859 ) (2,684,712) (2,445,074)
Net cash provided by financing 33,383,915 63,232,915 10,218,873
activities
Net increase (decrease) in cash and
cash equivalents 3,253,107 (5,598,666) 2,663,161
Cash and cash equivalents, beginning 28,819,789 34,418,455 31,755,294
of year
Cash and cash equivalents, end of $32,072,896 28,819,789 34,418,455
year
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Income Taxes $ 7,048,403 1,201,696 3,748,867
Interest $18,546,257 17,429,260 16,059,256
Supplemental disclosure of non-cash
activity:
Transfer of loans to other real $ 398,667 403,317 696,914
estate owned
Adjustment to securities available
for sale to fair value, net of tax ($5,697,853) 812,890 1,273,990
</TABLE>
See accompanying notes to consolidated financial statements.
Chemung Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(1) SUMMARY OF SIGNIFICANT 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 or not intended to be held to
maturity are classified as available for sale and carried at fair
value. 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 accumulated other
comprehensive income (loss) 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 for
the foreseeable future, except for educational loans which are
sold to a third party from time to time upon reaching repayment
status.
Interest on loans is accrued and credited to operations on the
interest method. The accrual of interest is discontinued 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 warranted
for other purposes. Loan origination fees and certain direct
loan origination 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 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 adequacy of the allowance is based on management's evaluation
of the inherent risk of loss in the loan portfolio, which
includes consideration of prevailing economic conditions, past
loss experience, the level of non-performing loans, delinquency
levels 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 time of their examination.
Management, considering current information and events regarding
the borrower's ability to repay their obligations, considers a
loan to be impaired when it is probable that the Corporation will
be unable to collect all amounts due according to the contractual
terms of the loan agreement. When a loan is considered to be
impaired, the amount of the impairment is measured based on the
present value of expected future cash flows discounted at the
loan's effective interest rate or, as a practical expedient, at
the loan's observable market price or the fair value of
collateral, less the estimated costs to sell if the loan is
collateral dependent. Residential mortgage loans and consumer
loans are evaluated collectively since they are homogeneous and
generally carry smaller balances. All loans restructured in a
troubled debt restructuring are also considered impaired loans.
In general, interest income on impaired loans is recorded on a
cash basis when collection in full is reasonably expected. If
full collection is uncertain, cash receipts are applied first to
principal then to interest income.
Premises and Equipment
Land is carried at cost, while buildings and equipment are stated
at cost less accumulated depreciation and amortization.
Depreciation is charged to current operations under accelerated
and straight-line methods over the estimated useful lives of the
assets, which range from 15 to 50 years for buildings and from 3
to 10 years for equipment and furniture. Amortization of
leasehold improvements and leased equipment is recognized on the
straight-line method over the shorter of the lease term or the
estimated life of the asset.
Other Real Estate
Real estate acquired through foreclosure or deed in lieu of
foreclosure is recorded at the lower of the carrying value of the
loan or estimated fair value of the property at the time of
acquisition. Write downs from cost to estimated fair value which
are required at the time of foreclosure are charged to the
allowance for loan losses. Subsequent to acquisition, other real
estate is carried at the lower of the carrying amount or fair
value less estimated costs to dispose. Subsequent adjustments to
the carrying values of such properties resulting from declines in
fair value are charged to operations in the period in which the
declines occur. Other real estate owned at December 31, 1999,
amounted to $535,699 and at December 31, 1998, amounted to
$651,268.
Income Taxes
The Corporation files a consolidated tax return on the accrual
method. Deferred tax assets and liabilities are recognized for
future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which temporary
differences are expected to be recovered or settled, or the tax
carryforwards are expected to be utilized. 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 and Investment Services 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 and
Investment Services income is recognized on the accrual method
based on contractual rates applied to the balances of individual
trust accounts. Market value of trust assets under
administration totaled $1.486 billion at December 31, 1999, and
$1.401 billion at December 31, 1998.
Pension Plan
Pension costs, based on actuarial computations of current and
future benefits for employees, are charged to current operating
results. 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 asset is
impaired.
Basic Earnings Per Share
Basic earnings per share was computed on the basis of the
weighted average number of common shares outstanding,
retroactively adjusted for stock splits and dividends. Issuable
shares (such as those related to directors restricted stock
units) are considered outstanding and are included in the
computation of basic earnings per share.
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.
Other Financial Instruments
The Corporation is a party to certain other financial instruments
with off-balance sheet risk such as commitments under standby
letters of credit, unused portions of lines of credit and
commitments to fund new loans. The Corporation's policy is to
record such instruments when funded.
Other Comprehensive Income
Comprehensive income at the Corporation 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 consolidated
balance sheet dates, net of the related tax effect.
Comprehensive income for the years ended December 31, 1999, 1998,
and 1997 was $2,693,648, $8,110,028, and $8,131,210,
respectively. The following summarizes the components of other
comprehensive income:
<TABLE>
<CAPTION>
<S> <C>
Unrealized holding losses during the year ended
December 31, 1999, net of tax (pre-tax amount of
$(9,336,350)) $(5,607,412)
Reclassification adjustment for gains realized in
net income during the year ended December 31,
1999, net of tax (pre-tax amount of $150,585)
( 90,441)
Other comprehensive income for the year ended
December 31, 1999 $ (5,697,853)
Unrealized holding gains during the year 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 year ended December 31,
1998, net of tax (pre-tax amount of $215,993) ( 129,725)
Other comprehensive income for the year ended
December 31, 1998 $ 812,890
Unrealized holding gains during the year 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 year ended December 31,
1997, net of tax (pre-tax amount of $323,989) ( 194,588)
Other comprehensive income for the year ended
December 31, 1997 $ 1,273,990
</TABLE>
Segment Reporting
The Corporation'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 years' consolidated financial statements are
reclassified whenever necessary to conform with the current
year's presentation.
Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards (SFAS) No.
133, " Accounting for Derivative Instruments and Hedging
Activities," which establishes accounting and reporting standards
for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging
activities. During the second quarter of 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No.
133." SFAS No. 137 defers the effective date of SFAS No. 133 by
one year from fiscal years beginning after June 15, 1999, to
fiscal years beginning after June 15, 2000. Management is
currently evaluating the impact, if any, of this Statement on the
Corporation's consolidated financial statements.
(2) RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
The Bank is required to maintain certain reserves of vault cash
and/or deposits with the Federal Reserve Bank of New York. The
amount of this reserve requirement is included in cash on hand of
$11,350,000 at December 31, 1999.
(3) SECURITIES
Amortized cost and estimated fair value of securities available
for sale at December 31, 1999, and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
Amortized Estimated Amortized Estimated
Cost Fair Cost Fair
Value Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $15,507,454 15,341,305 23,012,624 23,294,865
Obligations of other U.S.
Government agencies 96,004,009 92,696,922 77,787,530 78,233,115
Mortgage backed securities 77,418,683 73,747,174 89,245,351 89,592,665
Obligations of states and
political subdivisions 21,358,536 20,733,805 20,967,461 21,431,874
Corporate bonds and notes 10,663,352 10,129,626 9,681,590 9,704,695
Corporate stocks 6,936,209 14,734,809 5,616,847 13,036,522
Total $227,888,243 227,383,641 226,311,403 235,293,736
</TABLE>
Included in corporate stocks at December 31, 1999, and 1998 is
the Bank's required investment in the stock of the Federal Home
Loan Bank carried at its cost basis of $5,245,000 and $3,955,600,
respectively. This investment allows the Bank to maintain a
$62,726,000 line of credit with the Federal Home Loan Bank at
December 31, 1999, and $56,695,500 at December 31,1998. Other
equities required in the Bank portfolio include 10,572 shares of
Federal Reserve Bank stock valued at $528,600 at December 31,
1999, and 9,964 shares valued at $498,200 at December 31, 1998.
Gross unrealized gains and gross unrealized losses on securities
available for sale at December 31, 1999, and 1998 were as
follows:
<TABLE>
<CAPTION>
1999 1998
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses
<S> <C> <C> <C> <C>
U.S. Treasury securities $1,872 168,021 282,241 -
Obligations of other U.S. Government - 3,307,087 479,935 34,350
agencies
Mortgage backed securities 5,511 3,677,020 506,296 158,982
Obligations of states and other 15,321 640,052 470,174 5,761
political subdivisions
Corporate bonds and notes - 533,726 105,225 82,120
Corporate Stocks 7,798,600 - 7,419,675 -
Total $7,821,304 8,325,906 9,263,546 281,213
</TABLE>
Gross realized gains on sales of securities available for sale were
$150,585, $215,993, and $323,989 for the years ended December 31, 1999,
1998 and 1997, respectively. There were no realized losses on sales of
securities available for sale for the years ended December 31, 1999, 1998
and 1997.
Securities held to maturity of $8,606,703 and $6,660,923 at December 31,
1999, and 1998, respectively, represent non-marketable obligations of
political subdivisions, usually local municipalities. Fair value
approximates amortized cost. There were no sales of securities held to
maturity in 1999, 1998 or 1997. The contractual maturity of these
securities is as follows at December 31, 1999: $5,431,077 within one year,
$2,461,826 after one year but within five years and $713,800 after five
years but within ten years.
Interest and dividends on securities for the years ended December 31, 1999,
1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
Taxable:
<S> <C> <C> <C>
U. S. Treasury securities $ 1,119,844 1,920,930 2,821,733
Obligations of other U.S. Government 5,227,780 4,659,247 3,670,414
agencies
Mortgage backed securities 5,201,842 3,801,800 3,727,722
Corporate bonds and notes 631,480 391,720 48,984
Corporate stocks 536,980 414,602 360,184
Exempt from federal taxation:
Obligations of states and political
subdivisions 1,274,984 1,433,610 1,441,882
Total $13,992,910 12,621,909 12,070,919
</TABLE>
The amortized cost and estimated fair value by years to contractual
maturity (mortgage backed securities are shown as maturing in the year of
the final contractual payment) as of December 31, 1999, for securities
available for sale are as follows (excluding corporate stocks):
<TABLE>
<CAPTION>
Maturing
After One, But
Within One Year Within Five Years
Amortized Fair Amortized Fair
Cost Value Cost Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $1,499,901 1,501,773 14,007,553 13,839,532
Obligations of other U.S. - - 51,934,435 50,303,794
Government agencies
Mortgage backed securities - - 1,206,538 1,197,625
Obligations of states and 3,026,537 3,033,485 4,506,863 4,496,040
political subdivisions
Corporate bonds and notes - - 2,496,556 2,410,984
Total $4,526,438 4,535,258 74,151,945 72,247,975
</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>
U.S. Treasury securities $44,069,574 - - -
Obligations of other U.S. 44,069,574 42,393,128 - -
Government agencies
Mortgage backed securities 6,394,900 6,152,249 69,817,245 66,397,300
Obligations of states and 10,078,325 9,710,396 3,746,811 3,493,884
political subdivisions
Corporate bonds and notes 2,605,219 2,445,005 5,561,577 5,273,637
Total $63,148,018 60,700,778 79,125,633 75,164,821
</TABLE>
Actual maturities may differ from contractual maturities above 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 $176,737,390 at December 31,
1999, and $160,490,195 at December 31, 1998. This includes U.S. Treasury
securities totaling $2,000,000 and $2,000,000 (fair value of $1,970,246 and
$2,073,760), mortgage backed securities totaling $9,125,075 and $13,328,093
(fair value of $8,791,440 and $13,622,012), and obligations of other U.S.
Government agencies totaling $59,689,815 and $62,023,789 (fair value of
$57,457,985 and $62,965,881) pledged to secure securities sold under
agreements to repurchase at December 31, 1999, and 1998, respectively.
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, 1999 or 1998.
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 Partnership, LP. These small business
investment companies 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,
1999 and 1998 totaled $2,175,866 and $1,800,282, respectively, and are
included in other assets under the equity method of accounting.
(4) LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of the loan portfolio is summarized as follows:
<TABLE>
<CAPTION>
December 31, 1999 1998
<S> <C> <C>
Residential mortgages $90,346,353 84,554,079
Commercial mortgages 4,233,277 4,989,429
Commercial, financial and 130,774,872 113,478,081
agricultural
Leases, net 267,746 387,697
Consumer loans 134,616,556 126,096,779
Net deferred origination fees
and unearned income (275,397) (250,723)
$359,963,407 329,255,342
</TABLE>
Residential mortgages totaling $82,364,702 for 1999, and $72,103,426 for
1998, were pledged as collateral for the Bank's line of credit with the
Federal Home Loan Bank of New York.
The Corporation's market area encompasses the New York State counties of
Chemung, Steuben, Schuyler and Tioga. Substantially all of the
Corporation's outstanding loans are with borrowers living or doing business
within 25 miles of the Bank's 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 commitments to originate new loans, generally
follow the loan classifications in the schedule. Other than general
economic risks, management is not aware of any material concentrations of
credit risk to any industry or individual borrower.
The principal balances of loans not accruing interest, including certain
impaired loans described below, totaled $640,051 and $4,458,393 at December
31, 1999, and 1998, respectively. The decrease in 1999 relates primarily
to one real estate secured commercial loan which was paid in full during
the fourth quarter of 1999. Loans with restructured payment terms because
of the borrowers' financial difficulties at December 31, 1999, totaled
$624,861. There were no loans with restructured payment terms because of
the borrowers' financial difficulties at December 31, 1998. The effect of
nonaccrual loans on interest income for the years ended December 31, 1999,
1998 and 1997 was not material. Loans past due greater than 90 days and
still accruing totaled $281,273, at December 31, 1999 and $394,949 at
December 31, 1998. The Bank is not committed to advance additional funds to
these borrowers.
Transactions in the allowance for loan losses for the years ended December
31, 1999, 1998, and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Balances at January 1 $4,509,185 4,145,422 3,975,000
Provision charged to operations 672,669 800,000 850,100
Loans charged off (690,034) (593,704) (770,389)
Recoveries 173,273 157,467 90,711
Balances at December 31 $4,665,093 4,509,185 4,145,422
</TABLE>
At December 31, 1999, and 1998 the recorded investment in loans that are
considered to be impaired totaled $761,016 and $4,569,242, respectively.
Included in the 1999 amount are impaired loans of $360,689 for which the
related allowance for loan losses is $149,924. The 1998 amount includes
$4,321,019 of impaired loans with a related allowance for loan losses of
$993,207. The average recorded investment in impaired loans during 1999,
1998 and 1997 was $3,171,533, $2,837,325 and $1,201,217, respectively. The
effect on interest income for impaired loans was not material to the
consolidated financial statements in 1999, 1998 or 1997.
(5) PREMISES & EQUIPMENT
Premises and equipment at December 31, 1999, and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Land $ 2,681,408 2,106,408
Buildings 13,222,838 11,644,535
Equipment and furniture 14,927,263 13,658,373
Leasehold improvements 431,448 429,020
31,262,957 27,838,336
Less accumulated depreciation 19,141,290 17,753,728
$12,121,667 10,084,608
(6) DEPOSITS
Interest-bearing deposits include certificates of deposit in denominations
of $100,000 or more aggregating $57,063,792 and $32,636,701 at December 31,
1999, and 1998, respectively. Interest expense on such certificates was
$2,777,298, $2,420,835 and $2,279,576 for 1999, 1998 and 1997,
respectively.
Scheduled maturities of certificates of deposit at December 31, 1999, are
summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
TIME CERTIFICATES OF DEPOSIT
<S> <C>
2000 $159,084,846
2001 26,480,336
2002 10,514,425
2003 2,487,131
2004 4,366,292
2005 and thereafter 364,569
$203,297,599
</TABLE>
(7) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The agreements have maturities of 3 days to 9 years at December 31, 1999,
and 4 days to 10 years at December 31, 1998, and a weighted average
interest rate of 4.97% at December 31, 1999, and 4.80% at December 31,
1998. The maximum amounts outstanding at any one month-end and average
amount under these agreements during 1999 were $53,731,116 and
$51,900,947, respectively. 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.
(8) FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank advances at December 31, 1999, 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 $29,700,000,
3.60% three day advance with a maturity date of January 3, 2000.
(9) INCOME TAXES
For the years ended December 31, 1999, 1998, and 1997, income tax expense
attributable to income from operations consists of:
<TABLE>
<CAPTION>
1999 1998 1997
Current:
<S> <C> <C> <C>
State $ 481,750 449,653 871,137
Federal 3,631,325 3,490,719 3,056,695
4,113,075 3,940,372 3,927,832
Deferred Expense(Benefit) 45,955 (554,345) (260,933)
$4,159,030 3,386,027 3,666,899
</TABLE>
Income tax expense differed from the amounts computed by applying the U.S.
Federal statutory income tax rate to income before income tax as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Tax computed at statutory rat e $4,267,180 3,632,276 3,578,200
Tax-exempt interest (522,865) (527,353) (499,677)
Dividend exclusion (55,707) (53,988) (50,369)
State taxes, net of federal 371,094 241,864 549,418
benefit
Nondeductible interest expense 64,792 68,089 66,403
Other items, net 34,536 25,139 22,924
Actual tax expense $4,159,030 3,386,027 3,666,899
</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, 1999, and 1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
Deferred tax assets:
<S> <C> <C>
Allowance for loan losses-book $1,817,054 1,800,968
Accrual for postretirement benefits other th an 750,595 812,079
pensions
Deferred loan fees 104,924 96,851
Deferred compensation and directors fees 655,745 623,570
Net unrealized losses on securities available 201,538 -
for sale
Accrued Pension - 96,307
Interest on non-accrual loans 50,271 119,330
Bond discount 46,586 103,624
Other 46,608 44,066
Total gross deferred tax assets 3,673,321 3,696,795
Deferred tax liabilities:
Depreciation 207,048 282,044
Allowance for loan losses-tax - 133,166
Prepaid Pension 54,137 -
Net unrealized gains on securities available - 3,587,543
for sale
Other - 25,032
Total gross deferred tax liabilities 261,185 4,027,785
Net deferred tax asset (liability) $3,412,136 (330,990)
</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 following table presents (1) change in the plan's projected
benefit obligation and plan assets, and (2) the plan's funded
status reconciled with amounts recognized in the Corporation's
consolidated balance sheet at December 31, 1999, and 1998:
<TABLE>
<CAPTION>
1999 1998
Change in projected benefit obligation:
<S> <C> <C>
Projected benefit obligation at beginning of $14,549,204 13,370,944
year
Service cost 320,308 359,955
Interest cost 986,425 921,621
Plan amendments 384,407 -
Actuarial (gain) l o ss (2,335,605) 633,329
Benefits paid (883,658) (736,645)
Projected benefit obligation at end of year $13,021,081 14,549,204
Change in fair value of plan assets:
Fair value of plan assets at beginning of 19,209,845 16,777,650
year
Actual return on plan assets 2,135,378 3,201,812
Expenses paid (38,000) (32,972)
Benefits paid (883,658) (736,645)
Fair value of plan assets at end of year 20,423,565 19,209,845
Funded Status:
Plan assets in excess of projected benefit
obligation At end of year 7,402,484 4,660,641
Unrecognized net asset being recognized over 559,902 629,790
10 years
Prior service cost not yet recognized in net
periodic pension cost 796,207 470,599
Unrecongnized net actuarial gain (8,398,893) (5,804,670)
Prepaid (accrued) pension costs $ 359,700 (43,640)
</TABLE>
Net periodic pension cost (income) in 1999, 1998, and 1997 is
comprised of the following:
<TABLE>
<CAPTION>
Components of net periodic pension cost 1999 1998 1997
(income)
<S> <C> <C> <C>
Service cost, benefit earned during the year $ 320,308 359,955 324,126
Interest cost on projected benefit 986,425 921,621 872,423
obligation
Expected return on plan assets (1,437,813 (1,395,769) (1,104,424)
Net amortization and deferral (272,260) (89,848) 12,646
Net periodic pension cost (income) $ (403,340) (204,041) 104,771
</TABLE>
The principal actuarial assumptions used in 1999, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Discount rate 8.00% 6.75% 7.00%
Expected long-term rate of return on 7.50% 8.50% 8.50%
assets
Assumed rate of future compensation 5.00% 5.00% 5.00%
increase
</TABLE>
The plan's assets at December 31, 1999, and 1998 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 $620,279, $633,019, and
$591,669 for the years ended December 31, 1999, 1998 and 1997,
respectively.
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 following table presents (1) changes in the plan's
accumulated postretirement benefit obligation and (2) the plan's
funded status reconciled with amounts recognized in the
Corporation's consolidated balance sheet at December 31, 1999,
and 1998:
<TABLE>
<CAPTION>
Change in accumulated postretirment benefit obligation 1999 1998
<S> <C> <C>
Accumulated postretirement benefit obligation at $2,214,000 1,848,000
beginning of year
Service cost 42,000 42,000
Interest cost 174,000 144,000
Participant contributions 70,320 56,940
Plan amendments 422,000 -
Actuarial (gain) loss (145,234) 535,405
Benefits paid (234,086) (412,345)
Accumulated postretirement benefit obligation at end of $2,543,000 2,214,000
year
Accrued postretirement benefit cost:
Accumulated postretirement benefit obligation end of $2,543,000 2,214,000
year
Unrecognized net actuarial gain (loss) 616,498 (361,732)
Accrued postretirement benefit cost at end of year,
included in other liabilities $1,926,502 1,852,268
</TABLE>
The components of net periodic post-retirement benefit cost for
the years ended December 31, 1999, 1998, and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Service cost $ 42,000 42,000 40,000
Interest cost 174,000 144,000 117,000
Net amortization and deferral 22,000 - (7,000)
Net periodic postretirement cost $238,000 186,000 150,000
</TABLE>
The postretirement benefit obligation was determined using a
discount rate of 8.00% for 1999 and 6.75% for 1998. The
assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation initially
ranged from 7.3% to 8.7% in 2000, depending on the specific
plan, and was decreased to 5.5% in the year 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 was increased one percent, the
accumulated postretirement benefit obligation as of December
31, 1999, would have increased by 4.3%, and the aggregate of
service and interest cost would increase by 4.2%. If the
health care cost trend rate was decreased one percent, the
accumulated postretirement benefit obligation as of December
31, 1999, would have decreased by 3.9%, and the aggregate of
service and interest cost would have decreased by 3.7%.
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 through entities
in which they are principal owners (more than 10% interest),
were customers of, and had loans and other transactions
with, the Bank in the ordinary course of business. All
loans and commitments included in such transactions were
made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for
comparable transactions with other persons. These loans and
commitments, which did not involve more than normal risk of
collectibility or present other unfavorable features, are
summarized as follows for the years ended December 31, 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Balance at beginning of year $ 7,557,687 9,078,914
Additions 24,824,104 24,545,805
Amounts collected (25,162,984) (26,067,032)
Balance at end of year $ 7,218,807 7,557,687
</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>
1999 1998 1997
<S> <C> <C> <C>
Data processing services 1,979,254 1,618,091 1,358,882
Advertising 646,594 398,208 364,914
Amortization of intangible 587,303 587,303 587,303
assets
</TABLE>
(13) COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are outstanding various
commitments and contingent liabilities, such as commitments to
extend credit, which are not reflected in the accompanying
consolidated financial statements. Commitments to outside parties
under standby letters of credit, unused portions of lines of
credit, and commitments to fund new loans totaled $3,306,032,
$118,164,973 and $8,074,147, respectively, at December 31, 1999.
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. Because many commitments and
almost all standby letters of credit expire without being funded
in whole or in part, the contract amounts are not estimates of
future cash flows. Loan commitments and unused lines of credit
have off balance sheet credit risk because only origination fees
are recognized on the consolidated balance sheet until
commitments are fulfilled or expire. The credit risk amounts are
equal to the contractual amounts, assuming the amounts are fully
advanced and collateral or other security is of no value. The
Corporation does not anticipate losses as a result of these
transactions. These commitments also have off balance sheet
interest rate risk in that the interest rate at which these
commitments were made may not be at market rates on the date the
commitments are fulfilled.
At December 31, 1999, the Corporation had outstanding commitments
totaling $776,636 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 2002 and may be extended on a year-to-year basis.
In the normal course of business, there are various outstanding
legal proceedings. In the opinion of management, the aggregate
amount involved in such proceedings is not material to the
financial condition or results of operations of the Corporation.
(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, 1999, the
maximum amount available for transfer from the Bank to the
Corporation in the form of loans was $1,769,638. 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, 1999, $9,631,842 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 1999 1998
Assets:
<S> <C> <C>
Cash on deposit with subsidiary bank $ 29,669 333,753
Investment in subsidiary bank 61,907,440 62,758,019
Dividend receivable 949,257 797,570
Securities available for sale, at estimated 1,102,481 1,099,148
fair value
Other assets 2,188,718 1,800,282
Total assets $66,177,565 66,788,772
Liabilities and shareholders' equity:
Dividend payable 849,257 697,570
Other liabilities 16,425 1,575
Total Liabilities 865,682 699,145
Shareholders' equity:
Total shareholders' equity $65,311,883 66,089,627
Total Liabilities and shareholders' equity $66,177,565 66,788,772
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME - YEARS ENDED DECEMBER 31
Income: 1999 1998 1997
<S> <C> <C> <C>
Interest and dividends $ 93,060 112,375 111,341
Gain on sale of securities - - 28,981
Other income 177,530 2,533 -
Dividends from subsidiary bank 4,496,546 3,137,387 5,006,464
Income before equity in undistributed
Earnings of subsidiary bank 4,767,136 3,252,295 5,146,786
Equity in undistributed earnings of
subsidiary bank 3,759,448 4,126,662 1,749,017
Operating Expenses 76,036 78,546 -
Income before income tax expense 8,450,552 7,300,411 6,895,803
Income tax expense 59,061 3,273 38,583
Net Income $8,391,501 7,297,138 6,857,220
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS - YEARS ENDED DECEMBER 31
1999 1998 1997
Cash flows from operating activities:
<S> <C> <C> <C>
Net Income $8,391,501 $7,297,138 6,857,220
Adjustments to reconcile net income to
net cash
Provided by operating activities:
Equity in undistributed earnings of
subsidiary bank (3,759,448) (4,126,663) (1,749,017)
Increase in dividend receivable (151,687) (155,959) (61,391)
Gain on sale of securities - - (28,980)
Increase in other assets (388,436) (956,199) (844,875)
Increase (decrease) in other liabilities 13,520 (9,685) -
Net cash provided by operating 4,105,450 2,048,632 4,172,957
activities
Cash flow from investing activities:
Proceeds from sales of securities
available for sale - - 232,022
Net cash provided by investing - - 232,022
activities
Cash flow from financing activities:
Cash dividends paid (2,944,859) (2,681,428) (2,445,074)
Purchase of treasury stock (1,464,675) (984,284) (107,768)
Sale of treasury stock - 67,378 -
Net cash used in financing activities (4,409,534) (3,598,334) (2,552,842)
Increase (decrease) in cash and cash
equivalents (304,084) (1,549,702) 1,852,137
Cash and cash equivalents at beginning of 333,753 1,883,455 31,318
year
Cash and cash equivalents at end of year $ 29,669 333,753 1,883,455
</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:
Short-Term Financial Instruments
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. For certain securities,
such as equity investments in the Federal Home Loan Bank, Federal
Reserve Bank and non-marketable obligations of political
subdivisions, fair value is estimated to approximate amortized
cost.
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 analysis 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.
Securities Sold Under Agreements to Repurchase (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, 1999 and 1998.
Receivables and Payables
For these short term instruments the carrying value approximates
fair value.
The estimated fair value of the Corporation's financial
instruments as of December 31, 1999 and 1998 are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value (1) Amount Value (1)
Financial assets:
<S> <C> <C> <C> <C>
Cash and due from banks $ 30,926 30,926 27,516 27,516
Interest-bearing deposits 1,146 1,146 1,304 1,304
Securities 235,990 235,990 241,955 241,955
Net loans 355,298 350,624 324,746 328,370
Accrued interest 4,143 4,143 3,843 3,843
receivable
Financial liabilities:
Deposits:
Demand, savings, NOW and
money market accounts $277,390 277,390 287,617 287,617
Time deposits 204,384 203,877 178,522 180,080
Repurchase agreements 49,946 49,610 50,587 50,867
Federal Home Loan Bank 49,700 49,239 26,900 26,961
advances
Dividends payable 849 849 697 697
Accrued interest payable 1,610 1,610 1,429 1,429
<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 judgement and, therefore, can not 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 classifications 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 that, as of
December 31, 1999, and 1998, the Corporation and the Bank met
all capital adequacy requirements to which they are subject.
As of December 31, 1999, the most recent notification from the
Federal Reserve Bank of New York categorized the Bank as well
capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized the Bank must
maintain minimum total risk-based, Tier 1 risk-based and Tier 1
leverage ratios as set forth in the table below. There have
been no conditions or events since that notification that
management believes have changed the Bank's or the Corporation's
capital category.
The actual capital amounts and ratios of the Corporation and the
Bank are also presented in the following table:
<TABLE>
<CAPTION>
Required To
Actual Be Required To
Adequately Be Well
Capitalized Capitalized
Amou Rati Amou Rat Amount Rati
nt o nt io o
As of December 31, 1999
Total Capital(to Risk
Weighted Assets):
<S> <C> <C> <C <C> <C <C> <C <C> <C <C>
Consolidated $64,639,014 16.57% > $31,199,743 > 8.00% > $38,999,678 > 10.00%
Subsidiary $61,254,697 15.84% > $30,939,128 > 8.00% > $38,673,909 > 10.00%
Tier 1 Capital(to Risk
Weighted Assets):
Consolidated $59,973,921 15.37% > $15,599,871 > 4.00% > $23,399,807 > 6.00%
Subsidiary $56,589,604 14.63% > $15,469,564 > 4.00% > $23,204,346 > 6.00%
Tier 1 Capital(to Average
Assets):
Consolidated $59,973,921 9.49% > $18,952,047 > 3.00% > $31,586,744 > 5.00%
Subsidiary $56,589,604 9.00% > $18,860,467 > 3.00% > $31,434,112 > 5.00%
As of December 31, 1998
Total Capital(to Risk
Weighted Assets):
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 9.57% > $17,081,207 > 3.00% > $28,468,678 > 5.00%
Subsidiary $51,153,025 9.02% > $17,008,021 > 3.00% > $28,347,001 > 5.00%
</TABLE>
EXHIBIT F
CHEMUNG FINANCIAL CORPORATION
Subsidiary List
<TABLE>
<CAPTION>
Name State of Incorporation
<S> <C>
Chemung Canal Trust Company New York
</TABLE>
EXHIBIT G
NOTICE OF ANNUAL MEETING, PROXY STATEMENT
DATED APRIL 7, 2000, AND PROXY FORM
Notice of 2000 Annual Meeting and Proxy Statement
April 7, 2000
Dear Shareholder:
It is our pleasure to invite you to Chemung Financial
Corporation's 2000 Annual Meeting of Shareholders to be held on
Thursday, May 11, 2000, at 7:00 p.m. at the Clemens Center in
Elmira, New York. Parking will be available in the Chemung Canal
Trust Company main lot or in the parking garage located on Gray
Street. Following the meeting, refreshments will be served.
In addition to the formal items of business, we will review your
company's financial performance for the past year, discuss
management's plans for 2000 and answer any questions you may
have. New this year is the proxy written in plain English in an
effort to simplify the information presented and to increase
understanding. We hope you like the format and value your
feedback.
It is important that you be represented at the meeting, whether
or not you plan to attend, so please mark, sign and date the
enclosed proxy card and return it in the envelope provided. If
you plan to attend, please mark the proxy card where indicated
and include the number in your group planning to attend the
meeting.
Your directors and management look forward to seeing you at the
meeting.
Sincerely yours,
Jan P. Updegraff
President and
Chief Executive Officer
NOTICE OF 2000 ANNUAL MEETING OF SHAREHOLDERS
One Chemung Canal Plaza
P.O. Box 1522
Elmira, New York 14902
Parent Company of
Chemung Canal Trust Company
<TABLE>
<CAPTION>
<S> <C>
Date/Time:7:00 p.m. on Thursday, May 11, 2000
Place: Clemens Center
116 East Gray Street
Elmira, NY 14901
Items of Business: (1) Election of four directors, and
(2) Transacting other business properly
brought
before the meeting
Who May Vote: Shareholders of record as of March 24, 2000.
Annual Report & Copies of the 1999 Annual Report & Proxy
Proxy Statement: Statement
Are enclosed
Date of Mailing: This Notice and the Proxy Statement are first
being mailed to stockholders on or about April
7, 2000.
BY ORDER OF THE BOARD OF DIRECTORS
Donna C. Denton, Secretary
April 7, 2000
</TABLE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Questions About the Meeting 5
Election of Directors and Nominee Biographies 7
Standing Director Biographies 8
Security Ownership of Certain Beneficial Owners &
Management 10
Personnel Committee Report on Executive Compensation 14
Executive Officers 15
Executive Compensation 16
Pension Plans & Employment Contracts 17
Performance Graph 19
Board of Directors Information 20
Other Information 21
Director Business Relationships 22
Section 16(a) Beneficial Ownership Reporting 22
</TABLE>
QUESTIONS ABOUT THE MEETING
What do I need to know about Chemung Financial Corporation and
Chemung Canal Trust Company?
Chemung Canal Trust Company (the "Bank") is the wholly owned
banking subsidiary of Chemung Financial Corporation (the
"Corporation"), and unless otherwise stated, financial and other
information is presented on a consolidated basis.
What am I voting on?
You are voting on the re-election of four directors to the
Corporation's Board of Directors.
Who may vote?
You may vote if you owned the Corporation's stock at the close of
business on March 24, 2000. As of March 17, 2000, there were
4,043,882 shares of common stock outstanding.
How do I vote?
By signing, dating, and returning each proxy card you receive in
the prepaid envelope. Please indicate in the space provided on
the proxy card if you plan to attend the meeting.
Can I change my mind after indicating my vote and returning the
proxy card?
Yes. You may change your vote any time before the polls close at
or before the annual meeting by:
(a) Signing and returning another proxy card indicating a
later date; or
(b) attending the annual meeting and voting in person; or
(c) revoking your proxy by notifying the Corporate Secretary
in writing.
What if I return my proxy card but do not provide voting
instructions?
Properly signed proxies received without voting instructions will
be voted FOR the nominee directors.
How are votes counted?
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. Any other matter requires the
affirmative vote of a majority of votes cast except as otherwise
provided in the Corporation's Certificate of Incorporation or By-
laws. Only shares voted in favor of a nominee will be counted
toward the achievement of plurality. Votes withheld (including
broker non-votes) and abstentions are counted as present for the
purpose of determining a quorum but are not counted as votes
cast.
Who pays for the solicitation of proxies?
The cost of soliciting proxies will be borne by the Corporation.
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 additional remuneration. American Stock
Transfer and Trust Company, the Corporation's transfer agent,
will aid the Corporation in the solicitation of proxies and proxy
vote tabulations. If you hold your stock in "street" name, the
transfer agent will request the appropriate nominees, brokerage
houses, custodians and fiduciaries to forward soliciting material
to you at the Corporation's expense.
What is the deadline for submitting shareholder proposals?
Shareholders desiring to present proposals in next year's proxy
statement and at the 2001 Annual Meeting of Shareholders,
including a notice of intent to make a nomination at the Meeting,
must submit their proposal to the Corporate Secretary on or
before December 6, 2000. Each shareholder proposal must comply
with the rules and regulations of the Securities and Exchange
Commission in order to be included in next year's proxy
statement.
Who are the Corporation's independent accountants?
The accounting firm of KPMG LLP has acted as the Corporation's
independent auditors and accountants since 1990 and the directors
expect KPMG LLP to continue in service throughout 2000.
Representatives of KPMG LLP will be present at the Annual Meeting
to answer your questions.
Is there any other business to come before the meeting?
Management knows of no other business to be presented for
consideration, other than the election of four directors. If
other matters are properly presented, the proxies intend to vote
in accordance with their best judgment.
How do I obtain an Annual Report on Form 10-K?
You may obtain a copy of Chemung Financial Corporation's 1999
Annual Report on Form 10-K filed with the Securities and Exchange
Commission without charge if you would like more detailed
information concerning the Corporation. To obtain a copy, either
write to: Donna C. Denton, Vice President & Secretary, Chemung
Canal Trust Company, One Chemung Canal Plaza, P. O. Box 1522,
Elmira, NY 14902, or e-mail your request to our website:
www.chemungcanal.com.
ELECTION OF DIRECTORS AND NOMINEE BIOGRAPHIES
Who are the nominees this year?
David J. Dalrymple, John F. Potter, William C. Ughetta, and Jan
P. Updegraff have each been nominated for election to the
Corporation's Board of Directors. If elected, each nominee will
hold the office of director for three years or until a successor
has been duly elected and qualified.
What are the backgrounds of this year's nominees?
DAVID J. DALRYMPLE, Age 46, Director since 1993
President of Dalrymple Holding Corporation, parent company for
several construction materials and highway construction companies. Mr.
Dalrymple is the brother of Robert H. Dalrymple, also a Director of the
Corporation.
JOHN F. POTTER, Age 54, Director since 1991
President of Seneca Beverage Corporation, a wholesale distributor
of beer and water products.
WILLIAM C. UGHETTA, Age 67, Director since 1985
Lawyer, of Counsel to the law firm of Sayles & Evans.
Retired since June 1, 1998. Formerly Senior Vice President and
General Counsel of Corning Incorporated, a diversified manufac-
Turing company.
Director of Covance, Inc.
Director of GlobalLift Technologies, Inc.
JAN P. UPDEGRAFF, Age 57, Director 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.
STANDING DIRECTOR BIOGRAPHIES
What are the backgrounds of the directors not standing for
election this year?
<TABLE>
<CAPTION>
Directors with terms expiring in Directors with terms expiring in
2001 2002
<S> <C>
ROBERT H. DALRYMPLE, Age 49 ROBERT E. AGAN, Age 61
Director since 1995 Director since 1986
Secretary of Dalrymple Chairman of the Board, Chief
Holding Corporation, a parent Executive Officer and President of
company for several construction Hardinge Inc., a world-wide machine
materials and highway construction tool manufacturer.
companies. Mr. Dalrymple is the
brother of David J. Dalrymple,
also a Director of the
Corporation.
FREDERICK Q. FALCK, Age 51 DONALD L. BROOKS, JR., Age 71
Director since 1997 Director since 1985
President of L.M. Trading Retired physician; Director of
Company, an agricultural Arnot Ogden Medical Center.
investment corporation;
Vice President of Arnot
Realty Corporation;
President and former Chairman
of The Rathbone Corporation.
RALPH H. MEYER, Age 60 STEPHEN M. LOUNSBERRY III, Age 46
Director since 1985 Director since 1995
Retired since August 1, 1998. President of Applied
Formerly President and Chief Technology Manufacturing since
Executive Officer of Guthrie July 17, 1996, a manufacturer of
Healthcare System, a vertically machined industrial and railroad
integrated health care delivery component parts;
system. Formerly President of Moore &
Steele Corp.
RICHARD W. SWAN, Age 51 THOMAS K. MEIER, Age 59
Director since 1985 Director since 1988
President of Swan & Sons- President of Elmira College.
Morss Co., Inc., an insurance
brokerage agency.
</TABLE>
<TABLE>
<CAPTION>
STANDING DIRECTOR BIOGRAPHIES
Directors with terms expiring in Directors with terms expiring in
2001 2002
<S> <C>
WILLIAM A. TRYON, Age 69 CHARLES M. STREETER, JR., Age 60
Director since 1987 Director since 1985
Chairman of the Board and President of Streeter
Chief Associates, Inc., a general
Executive Officer of Trayer building contractor.
Products, Inc., an automotive,
truck and other industrial parts
manufacturer;
Chairman and former President
of Perry & Carroll, Inc., an
insurance brokerage agency;
Formerly a Director of the
Bank from
1964 to 1976.
NELSON MOOERS VAN DEN BLINK
Age 65, Director since 1985
Chairman of the Board, Chief
Executive Officer and Treasurer of
The Hilliard Corporation, a motion
control equipment, oil reclaimer
and filter manufacturer.
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT
The following table shows how much of the Corporation's common
stock is owned by directors, named executive officers and owners
of more than five percent of our outstanding stock as of February
29, 2000.
<TABLE>
<CAPTION>
Amount &
Nature of
Name of Beneficial Owner Stock
(and address if Ownership Exceeds Beneficially Percent of Shares
5%) Owned Outstanding*
<S> <C> <C>
Chemung Canal Trust Company 583,5011 14.4%
One Chemung Canal Plaza
Elmira, NY 14902
Chemung Canal Trust Company
Profit-Sharing, Savings and 399,1122 9.9%
Investment Plan
One Chemung Canal Plaza
Elmira, NY 14902
David J. Dalrymple
274 Upper Coleman Avenue 622,4563, 5 15.4%
Elmira, NY 14905
Robert H. Dalrymple
875 Upland Drive 595,3244, 5 14.7%
Elmira, NY 14905
Robert E. Agan 13,1816 *
Donald L. Brooks, Jr. 14,8856 *
James E. Corey III 7,2617 *
Jerome F. Denton 7,4067 *
Frederick Q. Falck 3.2%
128,5516, 8
Stephen M. Lounsberry III *
20,8736
Thomas K. Meier *
5,9176
</TABLE>
<TABLE>
<CAPTION>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT
Amount &
Nature of
Name of Beneficial Owner Stock
(and address if Ownership Exceeds Beneficially Percent of Shares
5%) Owned Outstanding*
<S> <C> <C>
Ralph H. Meyer *
14,5096
John F. Potter *
29,7196, 9
Charles M. Streeter, Jr. *
24,6966, 10
Richard W. Swan 1.8%
71,66511
William A. Tryon *
22,85212
William C. Ughetta *
31,1796
Jan P. Updegraff *
9,2987
Nelson Mooers van den Blink 3,478 *
All Directors, Nominees and
Executive Officers as a group (21 1,117,81613 27.6%
persons)
* Unless otherwise noted, less than 1%.
<FN>
FOOTNOTES
1 Held by the Bank in various fiduciary capacities, either alone or
with others. Includes 23,096 shares held with sole voting and
dispositive powers, 560,405 shares held with shared power to vote
and 351,543 shares held with shared dispositive power. Shares
held in a co-fiduciary capacity by the Bank are voted by the co-
fiduciary in the same manner as if the co-fiduciary were the sole
fiduciary. Shares held by the Bank as sole trustee will be voted
by the Bank only if the trust instrument provides for voting of
the shares at the direction of the grantor or a beneficiary and
the Bank actually receives voting instructions.
2 The Plan participants instruct the Bank as trustee how to vote
these shares. If a participant fails to instruct the voting of
the shares, the Bank votes these shares in the same proportion as
it votes all of the shares for which it receives voting
instructions. Plan participants have dispositive power over these
shares subject to certain restrictions.
3 Includes 91,822 shares held directly, 3,808 shares held as
custodian for Mr. Dalrymple's children, 448,510 shares held by the
Dalrymple Family Limited Partnership of which David J. Dalrymple
and Robert H. Dalrymple are sole general partners, and 78,316
shares held by Dalrymple Holding Corporation, of which David J.
Dalrymple and Robert H. Dalrymple are officers, directors and
principal shareholders. Excludes 7,176 shares held by Mr.
Dalrymple's spouse as to which Mr. Dalrymple disclaims beneficial
ownership. See footnote 5.
4 Includes 64,690 shares held directly, 3,808 shares held as
custodian for Mr. Dalrymple's children, 448,510 shares held by the
Dalrymple Family Limited Partnership of which David J. Dalrymple
and Robert H. Dalrymple are sole general partners, and 78,316
shares held by Dalrymple Holding Corporation of which David J.
Dalrymple and Robert H. Dalrymple are officers, directors and
principal shareholders. Excludes 4,064 shares held by Mr.
Dalrymple's spouse as to which Mr. Dalrymple disclaims beneficial
ownership. See footnote 5.
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. Because of the definition of
"beneficial ownership" under Section 13 of The Exchange Act, 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' aggregate beneficial ownership would equal
17% of the Corporation's outstanding shares.
6 Includes shares that Messrs. Agan (12,281), Brooks (2,385), Falck
(1,609), Lounsberry (4,070), Meier (917), Meyer (9,319), Potter
(9,455), Streeter (4,270), and Ughetta (6,179) have credited to
their accounts in memorandum unit form under the Corporation's
Deferred Directors Fee Plan. The deferred fees held in memorandum
unit form 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. Shares held in memorandum unit form under
the Plan have no voting rights.
7 Includes all 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. Messrs.
Updegraff, Corey and Denton have an interest in 9,091, 4,692, and
6,186 such shares held by the Plan, respectively.
8 Includes 600 shares held directly and 126,342 shares held
indirectly in Mr. Falck's capacity as a co-trustee and/or income
beneficiary in various trusts. Excludes 145,968 shares owned by
The Rathbone Corporation of which Mr. Falck is an officer and
director.
9 Includes 12,843 shares owned by Seneca Beverage Corporation, of
which corporation Mr. Potter is an officer, director and principal
shareholder.
10 Includes 10,836 shares owned by Streeter Associates, Inc., of
which corporation Mr. Streeter is an officer, director and
principal shareholder.
11 Includes 11,700 shares owned by Swan and Sons-Morss Co., Inc., of
which corporation Mr. Swan is an officer, director and one of the
principal shareholders, 33,255 shares held in trusts over which
Mr. Swan has voting and dispositive power, and 444 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 4,236 shares held by Mr. Swan's
spouse as to which Mr. Swan disclaims beneficial ownership.
12 Excludes 6,974 shares held by Mr. Tryon's spouse as to which Mr.
Tryon disclaims beneficial ownership.
13 Does not include 26,401 shares owned by spouses of certain
officers and directors as to which shares such officers and
directors disclaim beneficial ownership. Does not include 526,826
shares included under each of David J. and Robert H. Dalrymple
(see footnote 5). Also does not include 90 shares of preferred
stock owned by directors, certain officers and their spouses of
CCTC Funding Corp., a subsidiary of the Bank, a Real Estate
Investment Trust under the Internal Revenue Code.
</FN>
</TABLE>
PERSONNEL COMMITTEE REPORT ON EXECUTIVE COMPENSATION OF
MANAGEMENT
The Personnel Committee of the Board of Directors furnishes the
following report on executive compensation:
What is our philosophy of executive compensation?
Under the supervision of the Committee (comprised entirely of
outside directors), the Bank has developed and implemented
compensation policies that seek to enhance the profitability of
the Bank and the Corporation, thus enhancing shareholder value.
The executive compensation program consists of base pay, an
annual management incentive bonus, and a long-term incentive
bonus. The Committee feels that this philosophy provides fair
and competitive compensation that attracts and retains well-
qualified executives.
How is the Chief Executive Officer compensated?
The Board of Directors, upon recommendation of the Committee,
sets the annual compensation of the Chief Executive Officer.
The recommendation of the Committee follows substantial review of
comparative information including executive compensation for
similarly situated banks and bank holding companies. Key
criteria include Return on Average Tier I Equity, Return on
Average Assets and dividend performance. The Committee determined
that the performance of the Bank was well within the range
reported by its peers and that the compensation paid by the Bank
was appropriate in comparison to the peer group. Incentive bonus
payments to the CEO, based upon performance relative to goals,
are determined at year-end. The Committee approved an incentive
bonus of $55,000 for Mr. Updegraff based upon 1999 performance.
There is also a Board approved long-term incentive bonus to those
officers who play a major role in setting and implementing long-
term strategies. Currently the only participant in this plan is
the Chief Executive Officer. Payment of the long-term incentive
award will be deferred for three years following the accrual year
and may be further deferred at the participant's election. The
incentive bonus may or may not be deferred at the officer's
election. No long-term incentive bonus to the CEO has yet been
awarded.
How are other executive officers compensated?
In setting the compensation and bonuses of the executive vice
presidents and auditor, the Committee reviews a recommendation by
the CEO that is based on a number of factors including individual
and organizational performance, merit increases and
responsibility levels. Bonus recommendations are reviewed in the
same way, and the Board of Directors has final approval.
Based on their evaluation, the Committee believes that the
executive management of the Corporation is achieving significant
improvements in long-term financial performance. The compensation
policies, plans and programs implemented by the Committee are
contributing to this management focus.
<TABLE>
<CAPTION>
<S> <C> <C>
Thomas K. Meier, Chairman Ralph H. Meyer Donald L. Brooks, Jr.
Richard W. Swan David J. Dalrymple William A. Tryon
Frederick Q. Falck William C. Ughetta
</TABLE>
EXECUTIVE OFFICERS
Who were the executive officers of the Corporation and the Bank
during 1999?
<TABLE>
<CAPTION>
Name Age Position (served since)
<S> <C> <C>
Jan P. Updegraff 57 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
Vice President and Treasurer of the
Corporation and Executive Vice
President of the Bank (1990).
James E. Corey III 53 Vice President of the Corporation
(1993) and Executive Vice President
of the Bank (1998); formerly Senior
Vice President of the Bank (1993).
Jerome F. Denton1 48 Vice President of the Corporation
(1997); formerly Secretary (1986);
Executive Vice President of the Bank
(1998); formerly Senior Vice
President of the Bank (1996).
Thomas C. Karski 54 Vice President of the Corporation
(1998) and Senior Vice President of
the Bank (1998); formerly Vice
President of the Bank (1987).
Joseph P. Manning 61 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. 49 Senior Vice President, Chief
Financial Officer of the Bank
(1998); Treasurer of the Corporation
and the Bank (1995); formerly Vice
President of the Bank (1995).
Donna C. Denton1 44 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).
<FN>
<FN1>
1 Jerome F. Denton and Donna C. Denton are husband and wife.
</FN>
</TABLE>
EXECUTIVE COMPENSATION
Who are the named executive officers whose compensation exceeds
$100,000 for 1999?
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
Name and Principal All Other
Position Held Year Salary($) Bonus($)1 Compensation($)2
<S> <C> <C> <C> <C>
Jan P. Updegraff 1999 192,692 55,000 10,019
President and Chief
Executive Officer of 1998 175,577 40,000 10,513
the Corporation and the
Bank 1997 128,846 20,000 8,463
James E. Corey III 1999 97,052 27,000 7,931
Vice President of the
Corporation and 1998 91,210 12,000 8,096
Executive Vice
President of the Bank 1997 85,462 11,500 7,162
Jerome F. Denton 1999 89,646 25,000 7,708
Vice President of the
Corporation and 1998 81,312 10,600 7,799
Executive Vice
President of the Bank 1997 72,923 9,000 6,786
<FN> Includes amounts allocated for the year indicated, whether
<FN1> paid or deferred, under both the Bank-Wide and Management
1 Incentive Bonus Plans.
<FN2> Includes amounts allocated for the year indicated under the
2 Bank's Profit-Sharing, Savings and Investment Plan.
<FN3> NOTE: The officers of the Corporation are not separately
compensated for services rendered to the Corporation and this
policy is likely to continue.
</FN>
</TABLE>
PENSION PLANS & EMPLOYMENT CONTRACTS
Pension Plans
The following table shows the estimated annual retirement
benefits payable from the Chemung Canal Trust Company Pension and
Executive Supplemental Pension Plans, based upon a straight-life
annuity form of payment, payable on retirement at age 65, and
assuming final average earnings as shown. Employees vest fully
following 5 years of service, normal retirement age is 65, and
reduced benefit payments are available for early retirement at or
after age 55.
<TABLE>
<CAPTION>
Average Annual 15 20 25 30 351
Compensation
<S> <C> <C> <C> <C> <C>
$100,000 24,527 32,702 40,878 48,053 55,229
$120,000 30,077 40,102 50,128 58,953 67,779
$150,000 38,402 51,202 64,003 75,303 86,604
$190,000 49,502 66,002 82,503 97,103 111,704
$200,000 52,277 69,702 87,128 102,553 117,979
<FN>
<FN1>
1 Maximum number of years allowed under the terms of the Pension
Plan.
</FN>
</TABLE>
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% of the above average
annual compensation (exclusive of bonuses), plus for each year of
credited service to a maximum of 35 years, .65% of average
compensation in excess of 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. The average
taxable wage base was $33,060 for a participant attaining age 65
in 1999.
The named executive officers of the Corporation and the Bank had
the following credited full years of service under the Plan as of
December 31, 1999: Jan P. Updegraff--29, James E. Corey III--12,
and Jerome F. Denton--27.
The Bank's non-qualified Executive Supplemental Pension Plan
provides a benefit equal to the benefit which would have been
paid under the terms of the Bank's Pension Plan without regard to
limitations under the Internal Revenue Code. 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.
Employment Contracts
The Bank has employment contracts with twenty of its senior
officers, all vice president level and above. The contracts
provide that in the event of termination of any of these
officers' employment without cause, the officer shall continue to
receive his or her salary at the level then existing and the
customary fringe benefits which he or she is then receiving for a
period ending December 31, 2001, except for Mrs. Melinda Sartori,
Mrs. Marcia Scanlin, and Messrs. Battersby, Corey, Denton,
Karski, Manning, Updegraff and Ward whose guaranteed terms end
December 31, 2002. The contracts further provide that they may
be extended by the Board of Directors on a year-to-year basis and
also may be terminated for cause upon thirty days' notice.
COMPARATIVE RETURN PERFORMANCE GRAPH
Comparison of Five-Year Cumulative Total Returns For Fiscal Years
Ending December 31, 1995 - 1999 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>
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
Chemung Financial
Corporation 100.00 112.68 142.46 181.37 246.80 231.28
CRSP NASDAQ 100.00 141.30 173.90 213.10 300.20 542.40
Composite
NASDAQ - Bank Stocks 100.00 149.00 196.70 329.40 327.10 314.40
</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, 1994.
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.
BOARD OF DIRECTORS INFORMATION
How often did the Board meet during fiscal year 1999?
The Board of Directors of the Corporation held ten regularly
scheduled meetings and the Board of Directors of the Bank held
twelve regularly scheduled meetings and two special meetings
during the year ended December 31, 1999.
With the exception of Mr. Agan, who attended 50% of the
Corporation's board meetings and 66% of the total Corporation's
and Bank's board and committee meetings, each director of the
Corporation and the Bank attended at least 75% of the board and
committee meetings of which they were members.
What standing Board Committees exist at the Bank?
The following table shows the standing Committees, membership of
each, and number of meetings held in 1999.
<TABLE>
<CAPTION>
Name Execu- Loan Trust & Portfolio Examining/ Person-
tive Employee Audit nel
Benefits
<S> <C> <C> <C> <C> <C> <C>
Agan X X X
Brooks X* X X
D.J.Dalrymple X* X X
R.H. Dalrymple X X X
Falck X X X
Lounsberry X X X*
Meier X X X*
Meyer X X X
Potter X X* X
Streeter X* X X
Swan X X X
Tryon X X X
Ughetta X X X
Updegraff X X X X
Van den Blink X X X
# of Meetings 8 13 12 4 3 3
in 1999
</TABLE>
*Committee Chairman
The Executive Committee may, subject to limitations under
applicable law and the By-Laws, act on behalf of the Board
whenever the Board is not in session. Actions taken will be
reported at the next regular meeting of the Board.
The Loan Committee establishes policy for the Bank's lending
functions as determined under applicable regulations and/or the
By-Laws.
The Trust and Employee Benefits Committee passes on all questions
of policy bearing upon the investment of trust funds and the
general conduct of the estate, agency, and fiduciary business of
the Bank. The Committee also has responsibility for the Bank's
own benefit plans and reviews the trust and investment policies
and performance.
The Portfolio Committee passes on all questions of policy
relating to the oversight of the Bank's investment portfolio and
internal administrative functions.
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.
The Personnel Committee is responsible for the nomination of
officers and makes compensation recommendations for the
president, executive vice presidents and the auditor.
How are Directors compensated?
Each non-employee director of the Bank receives an annual
retainer of $5,000 and a fee of $300 for each meeting of the
Board of Directors and its committees attended. The Chairperson
of each committee receives $350 for each committee meeting
attended. Only one fee is paid for attendance at meetings that
serve both the Corporation and the Bank. Employee directors
receive no fees for their services as Directors.
A Deferred Directors Fee Plan for non-employee Directors provides
that Directors may elect to defer receipt of all or any part of
their fees. Deferrals are credited with either interest
compounded quarterly at the Applicable Federal Rate for short-
term debt instruments or converted to units which 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 units will be paid in shares of common stock.
OTHER INFORMATION
Some of the Bank's directors and officers, and entities with
which they are associated, are customers of the Bank in the
ordinary course of business and are indebted to the Bank. The
Bank anticipates that some of these directors, officers and
entities will continue to be customers of and indebted to the
Bank on similar terms in the future. All loans to these
individuals and entities are made in the ordinary course of
business, involve no more than a normal risk of collectibility
and are on substantially the same terms, including interest rates
and collateral requirements, as those services provided for
comparable transactions with unaffiliated persons and entities.
The Bank has purchased and paid for insurance from Continental
Casualty Company 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. This
insurance coverage, expiring in April 2002, has an annual cost of
$11,250.
Director Business Relationships
The Bank retained Sayles and Evans, a law firm of which Mr.
Ughetta is of counsel, for legal services during 1999 and expects
to retain Sayles & Evans for legal services during the current
year.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's directors, certain executive officers, and ten
percent shareholders (collectively "Reporting Persons") to file
with the Securities and Exchange Commission ("SEC") initial
reports of ownership and changes in beneficial ownership (the
"Reports"). SEC regulations require Reporting Persons to furnish
the Corporation with copies of all Reports filed.
Based solely on review of the Reports furnished to the
Corporation and written representation from the Reporting Persons
that no other reports were required for the year ended December
31, 1999, the Corporation's Reporting Persons complied with these
requirements except for one report not timely filed by Mr.
Potter.
BY ORDER OF THE BOARD OF DIRECTORS
Donna C. Denton
Secretary
Date:April 7, 2000
One Chemung Canal Plaza
Elmira, New York 14902
www.chemungcanal.com
CHEMUNG FINANCIAL CORPORATION
ANNUAL MEETING OF SHAREHOLDERS - MAY 11, 2000
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF CHEMUNG FINANCIAL CORPORATION
John R. Battersby, Sr. 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
11, 2000 (including any adjournments or postponements thereof)
and to vote all shares of Common Stock of Chemung Financial
Corporation which the undersigned is entitled to vote on all
matters that properly come before the meeting, subject to any
directions indicated.
(To be signed on Reverse Side)
*****************************************************************
THIS PROXY WILL, WHEN PROPERLY EXECUTED, BE VOTED AS DIRECTED.
IF NO DIRECTIONS TO THE CONTRARY ARE GIVEN, THE PROXY AGENTS
INTEND TO VOTE FOR THE NOMINEES.
NOMINEES: 3-year term:
FOR WITHHELD
<TABLE>
<CAPTION>
<S> <C>
1.Election of David J. Dalrypmle
Directors. John F. Potter
William C. Ughetta
Jan P. Updegraff
For, except vote withheld from the following nominee(s):
_______________________________________________________
I/We will attend the Meeting
Number in group ____
___________________DATE_____ _____________________DATE__________
Signature Signature If Held Jointly
NOTE: Please sign exactly as name appears hereon. Joint owners
should each sign. When signing as attorney, executor,
administrator, trustee, custodian or guardian, please give full
title as such.
</TABLE>
<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, 1999 AS PRESENTED IN ITS ANNUAL 1999 FORM 10-K AND IS
QUALIIFIED 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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 30,926
<INT-BEARING-DEPOSITS> 1,146
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 227,384
<INVESTMENTS-CARRYING> 8,607
<INVESTMENTS-MARKET> 8,607
<LOANS> 359,963
<ALLOWANCE> 4,665
<TOTAL-ASSETS> 653,243
<DEPOSITS> 481,774
<SHORT-TERM> 79,646
<LIABILITIES-OTHER> 6,511
<LONG-TERM> 20,000
0
0
<COMMON> 43
<OTHER-SE> 65,269
<TOTAL-LIABILITIES-AND-EQUITY> 653,243
<INTEREST-LOAN> 29,447
<INTEREST-INVEST> 13,993
<INTEREST-OTHER> 737
<INTEREST-TOTAL> 44,177
<INTEREST-DEPOSIT> 15,096
<INTEREST-EXPENSE> 18,728
<INTEREST-INCOME-NET> 25,449
<LOAN-LOSSES> 673
<SECURITIES-GAINS> 151
<EXPENSE-OTHER> 21,631
<INCOME-PRETAX> 12,551
<INCOME-PRE-EXTRAORDINARY> 8,392
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,392
<EPS-BASIC> 2.03
<EPS-DILUTED> 2.03
<YIELD-ACTUAL> 4.30
<LOANS-NON> 640
<LOANS-PAST> 281
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,509
<CHARGE-OFFS> 690
<RECOVERIES> 173
<ALLOWANCE-CLOSE> 4,665
<ALLOWANCE-DOMESTIC> 3,162
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,503
</TABLE>
