10-K405 1 1994 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE X SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the fiscal year ended December 31, 1994 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from _____________ to _____________ Commission File Number 0-13888 CHEMUNG FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) NEW YORK 16-123703-8 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) One Chemung Canal Plaza, P.O. Box 1522 Elmira, New York 14902 (Address of principal executive offices) (Zip Code) Registrants telephone number, including area code: (607) 737-3711 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $5 a share (Title of class) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants 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. X Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ___ The aggregate market value of Common Stock held by nonaffiliates on February 28, 1995 was $34,099,187. As of February 28, 1995 there were 2,093,481 shares of Common Stock, $5 par value outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the year ended December 31, 1994 are incorporated by reference into Parts I, II and IV. Portions of the Proxy Statement for the Annual Shareholders meeting to be held on April 11, 1995 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. The Selected Financial Data Exhibit included in "Management's Discussion and Analysis of Financial Condition and Results of Operation" ("MD&A") for the Corporation's Annual Report to Shareholders for the year ended December 31, 1994, sets forth financial information with respect to bank-related industry segments. The MD&A including the Selected Financial Data Exhibit is incorporated herein by reference. (c) Narrative description of business Business The Bank is a New York State chartered, independent commercial bank which engages in full-service commercial and consumer banking and trust business. The Banks 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 Operation, 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, 1994. Competition Six (6) of the Banks 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 1994, 1993, and 1992. Employees As of December 31, 1994, the Bank employed 271 persons on a full-time equivalent basis. (d) Financial information about foreign and domestic operations and export sales Neither the Corporation nor the Bank rely 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.
Distribution of Assets, Liabilities and Shareholders' Equity, Interest Rates and Interest Differential December 31, 1994 1993 1992 Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate Assets Interest earning assets: Loans $ 221,419 20,006 9.04% $ 224,127 20,741 9.25% $ 220,993 22,358 10.12% Taxable securities 134,524 7,762 5.77 106,736 6,088 5.70 99,098 6,439 6.50 Tax-exempt securities 25,054 1,262 5.04 22,596 1,184 5.24 24,384 1,441 5.91 Federal funds sold 10,236 407 3.98 12,587 371 2.95 13,848 466 3.37 Interest-bearing deposits 3,478 143 4.11 2,401 73 3.04 - - - Total interest earning assets 394,711 29,580 7.49% 368,447 28,457 7.72% 358,323 30,704 8.57% Non-interest earning assets: Cash and due from banks 21,657 20,372 19,574 Premises and equipment, net 7,451 7,513 7,739 Other assets 5,506 4,853 4,338 Less allowance for loan losses (3,419) (3,453) (2,970) Excess of cost over fair value of net assets acquired, net of accumulated amortization 5,339 - - Total $ 431,245 $ 397,732 $ 387,004 Distribution of Assets, Liabilities and Shareholders' Equity, Interest Rates and Interest Differential December 31, 1994 1993 1992 Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate Liabilities and Shareholders' Equity Interest bearing liabilities: Demand deposits $ 43,372 673 1.55% $ 42,275 811 1.92% $ 40,739 1,180 2.90% Savings deposits 142,819 3,778 2.65 133,671 3,806 2.85 128,563 4,825 3.75 Time deposits 121,783 5,445 4.47 110,631 4,887 4.42 112,481 5,947 5.29 Federal funds purchased and securities sold under agreement to repurchase 9,975 380 3.81 9,717 281 2.89 11,366 413 3.63 Total interest bearing liabilities 317,949 10,276 3.23% 296,294 9,785 3.30% 293,149 12,365 4.22% Non-interest bearing liabilities: Demand deposits 66,635 60,461 56,737 Other 5,106 3,978 2,944 389,690 360,733 352,830 Shareholders' equity 41,555 36,999 34,174 Total $ 431,245 $ 397,732 $ 387,004 Net interest earnings $ 19,304 $ 18,672 $ 18,339 Net yield on interest earning assets 4.89% 5.07% 5.12% For the purpose of these computations, nonaccruing loans are included in the daily average loan amounts outstanding. Daily balances were used for average balance computations. No tax equivalent adjustments have been made in calculating yields on obligations of states and political subdivisions.
The following table sets forth for the periods indicated, a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates:
1994 Compared to 1993 1993 Compared to 1992 Increase (Decrease) Due to (1) Increase (Decrease) Due to (1) Volume Rate Net Volume Rate Net (In Thousands of Dollars) (In Thousands of Dollars) Interest earned on: Loans $ (249) (486) (735) 313 (1,930) (1,617) Taxable securities 1,603 71 1,674 473 (824) (351) Tax-exempt securities 125 (47) 78 (101) (156) (257) Federal funds sold (78) 114 36 (40) (55) (95) Interest-bearing deposit 39 31 70 73 2,965 73 Total interest earning assets $ 1,440 (317) 1,123 718 (2,965) (2,247) Interest paid on: Demand deposits 21 (159) (138) 43 (412) (369) Savings deposits 251 (279) (28) 185 (1,204) (1,019) Time deposits 498 60 558 (96) (964) (1,060) Federal funds purchased and securities sold under agreement to repurchase 8 91 99 (55) (77) (132) Total interest bearing liabilities $ 778 (287) 491 77 (2,657) (2,580) (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. Investment Portfolio The following table sets forth the carrying amount of investment securities at the dates indicated: December 31, 1994 1993 1992 (In Thousands of Dollars) U.S. Treasury and other U.S. Government Agencies $ 163,238 104,216 89,418 State and political subdivisions 28,085 21,997 23,221 Other bonds and notes 7,181 8,871 14,162 Corporate stocks 5,493 2,002 736 Total $ 203,997 137,086 127,537 Included in the above table are $188,828 and $44,814 of securities available for sale at December 31, 1994 and 1993, respectively. The following tables set forth the maturities of investment securities at December 31, 1994 and the weighted average yields of such securities (calculated on the basis of the cost and effective yields weighed for the scheduled maturity of each security). Federal tax equivalent adjustments have been made in calculating yields on municipal obligations. Maturing Within After One, But One Year Within Five Years Amount Yield Amount Yield (In Thousands of Dollars) U.S. Treasury and other U.S. Government Agencies $ 67,222 5.31% $ 91,798 6.45% State and political subdivisions 8,714 4.62 15,300 5.18 Other bonds and notes 3,250 7.28 3,930 7.31 Total $ 79,186 5.32% $111,028 6.31% Maturing After Five, But After Within Ten Years Ten Years Amount Yield Amount Yield (In Thousands of Dollars) U.S. Treasury and other U.S. Government Agencies $ 7,874 7.56% $ - - % State and political subdivisions 3,214 4.92 842 6.51 Other bonds and notes - - - - Total $ 11,088 6.79% $ 842 6.51% Loan Portfolio The following table shows the Corporation's loan distribution at the end of each of the last five years: December 31, 1994 1993 1992 1991 1990 (In Thousands of Dollars) Commercial, financial and agricultural $ 75,006 69,484 63,360 65,830 55,689 Real estate mortgages 67,912 71,345 81,431 89,401 86,018 Installment loans 94,181 82,028 74,258 72,462 67,932 Total $ 237,099 222,857 219,049 227,693 209,639 The following table shows the maturity of loans (excluding residential real estate mortgages and installment loans) outstanding as of December 31, 1994. Also provided are the amounts due after one year classified according to the sensitivity to changes in interest rates: After One Within But Within After One Year Five Years Five Years Total Commercial, financial and agricultural $ 49,875 24,314 817 75,006 Loans maturing after one year with: Fixed interest rates 11,066 817 Variable interest rates 13,248 --- Total $ 24,314 817 Nonaccrual and Past Due Loans The following table summarizes the Corporation's nonaccrual and past due loans: December 31, 1994 1993 1992 1991 1990 (In Thousands of Dollars) Nonaccrual loans (1) $ 1,201 1,605 1,321 721 1,219 Accruing loans past due 90 days or more $ 354 274 588 2,307 1,996 Information with respect to nonaccrual loans at December 31, 1994, 1993 and 1992 is as follows: December 31, 1994 1993 1992 (In Thousands of Dollars) Nonaccrual loans $ 1,201 1,605 1,321 Interest income that would have been recorded under original terms 342 429 277 Interest income recorded during the period 58 164 54 (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 or real estate mortgage loan which becomes 120 days deliquent, or in the case of a consumer loan not guaranteed by a government agency which becomes 180 days deliquent, the loan is placed in nonaccrual and previously accrued interest is reversed unless, because of collateral or other circumstances, it is deemed to be collectible. Loans may also be placed in nonaccrual if management believes such classification is warranted for other reasons. Potential Problem Loans At December 31, 1994, the Corporation has no commercial loans for which payments are presently current but the borrowers are currently experiencing severe financial difficulties. Those loans are subject to constant management attention and their classification is reviewed by the Board of Directors at least semi-annually. Loan Concentrations At December 31, 1994, 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, 1994, the Corporation has no interest-bearing assets other than loans that meet the nonaccrual, past due, restructured or potential problem loan criteria. Summary of Loan Experience This table summarizes the Corporation's loan loss experience for each year in the five-year period ended December 31, 1994: Year Ended December 31, 1994 1993 1992 1991 1990 (In Thousands of Dollars) Balance at beginning of period $ 3,500 3,400 2,800 2,500 2,350 Charge-offs: Commercial, financial and agricultural 282 550 61 226 174 Real estate mortgages 14 --- --- --- --- Installment loans 422 346 382 380 283 Home equity --- --- --- --- 19 718 896 443 606 476 Recoveries: Commercial, financial and agricultural 18 10 100 223 63 Installment loans 76 79 41 58 117 94 89 141 281 180 Net charge-offs 624 807 302 325 296 Allowance of acquired bank at time of acquisition 100 -- -- -- -- Additions charged to operations (1) 624 907 902 625 446 Balance at end of period $ 3,600 3,500 3,400 2,800 2,500 Ratio of net charge-offs during period to average loans outstanding (2) .28% .36% .14% .15% .14% (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 1994 than in prior years. The net charge-offs to total loans have averaged 0.21% over the last five years and the highest percentage in any of those years was 0.36%. (2) Daily balances were used to compute average outstanding loan balances. Deposits The average daily amounts of deposits and rates paid on such deposits is summarized for the periods indicated in the following table: Year Ended December 31, 1994 1993 1992 Amount Rate Amount Rate Amount Rate (In Thousands of Dollars) Noninterest-bearing demand deposits $ 66,635 ---% 60,461 ---% 56,737 ---% Interest-bearing demand deposits 43,372 1.55 42,275 1.92 40,739 2.90 Savings deposits 142,819 2.65 133,671 2.85 128,563 3.75 Time deposits 121,783 4.47 110,631 4.42 112,481 5.29 $ 374,609 347,038 338,520 Maturities of certificates of deposit $100,000 or more outstanding at December 31 are summarized as follows: Time Certificates of Deposits (In Thousands of Dollars) 3 months or less $ 8,643 Over 3 through 12 months 3,983 Over 12 months 4,543 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: Year Ended December 31, 1994 1993 1992 Return on average assets 1.08% 1.13% 1.25% Return on average equity 11.18 12.15 14.12 Return on beginning equity 12.13 12.66 14.93 Dividend payout ratio 38.23 36.86 32.17 Average equity to average assets ratio 9.64 9.30 8.83 Year-end equity to year-end assets ratio 9.25 9.63 9.20 Short-Term Borrowings For each of the three years in the period ended December 31, 1994, the average outstanding balance of short- term borrowings did not exceed 30% of shareholder's equity.
ITEM 2. PROPERTIES The Corporation and the Bank currently conduct all their business activities from the Banks main office, thirteen (13) branch locations situated in a four-county area, leased office space adjacent to the Banks main office, and four (4) 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 leased office and automated teller facility spaces total approximately 3,450 square feet. The Bank holds two (2) of its branch facilities (Arnot Mall Office and Bath Office), three (3) automated teller facilities (Elmira/Corning Regional Airport, Elmira College and WalMart Store), and the business office adjacent to the main office under lease arrangements; and owns the rest of its offices including the main office. The Corporation holds no real estate in its own name. ITEM 3. LEGAL PROCEEDINGS Neither the Corporation nor its subsidiary are a party to any material pending legal proceeding required to be disclosed under this item. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS There were no matters submitted to a vote of shareholders during the fourth quarter of the fiscal year covered by this report. PART II ITEM 5. MARKET FOR THE REGISTRANTS SECURITIES AND RELATED SHAREHOLDER MATTERS The Corporation's stock is traded in the over-the-counter market. Incorporated herein by reference to portions of the Corporation's Annual Report to Shareholders for the year ended December 31, 1994, are the quarterly market price ranges for the Corporation's stock for the past three (3) years, based upon actual transactions as reported by First Albany Corporation, a securities brokerage firm which maintains a market in the Corporation's stock, other security brokerage firms, and other transactions known by the Corporation. Also incorporated herein by reference to a part of the Corporation's 1994 Annual Report are the dividends paid by the Corporation for each quarter of the last three (3) years. The number of shareholders of record on February 28, 1995 was 847. 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, 1994 is incorporated herein by reference. ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Managements 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, 1994 is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Independent Auditors' Report and consolidated financial statements as presented in the Corporation's Annual Report to Shareholders for the year ended December 31, 1994 is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE REGISTRANT The information set forth under the captions Election of Directors, Executive Officers, and the Section 16(a) disclosure as presented in the registrant's Proxy Statement, dated March 14, 1995, relating to the Annual Meeting of Shareholders to be held on April 11, 1995, is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information set forth under the captions "Directors Compensation; Directors' Personnel Committee Report on Executive Compensation; Comparative Return Performance Graph; Executive Compensation; Retirement Plan; Profit Sharing, Savings and Investment Plan; Incentive Bonus Plan; Employment Contracts; and Other Compensation Agreements", presented in the registrant's Proxy Statement, dated March 14, 1995, relating to the Annual Meeting of Shareholders to be held on April 11, 1995, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the caption Voting Securities and Equity Ownership by Certain Beneficial Owners and by Directors, Nominees and Executive Officers, presented in the registrants Proxy Statement, dated March 14, 1995, relating to the Annual Meeting of Shareholders to be held on April 11, 1995, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the caption Certain Transactions, presented in the registrant's Proxy Statement, dated March 14, 1995, relating to the Annual Meeting of Shareholders to be held on April 11, 1995, is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) List of Financial Statements and Report of Independent Auditors 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, 1994 and 1993, and for each of the years in the three-year period ended December 31, 1994 are incorporated by reference in Item 8: - Independent Auditors' Report - Consolidated Balance Sheets - December 31, 1994 and 1993 - Consolidated Statements of Income - Years ended December 31, 1994, 1993 and 1992 - Consolidated Statements of Shareholders' Equity - Years ended December 31, 1994, 1993 and 1992 - Consolidated Statements of Cash Flows - Years ended December 31, 1994, 1993 and 1992 - Notes to Consolidated Financial Statements - December 31, 1994 and 1993 (2) List of Financial Schedules Schedules to the consolidated financial statements required by Article 9 of Regulation S-X are not required under the related instructions or are inapplicable, and therefore have been omitted. (3) Listing of Exhibits Exhibit (3.1) -- Certificate of Incorporation is filed as Exhibit 3.1 to Registrant's Registration Statement on Form S-14, Registration No. 2-95743, and is incorporated herein by reference. -- Certificate of Amendment to the Certificate of Incorporation, filed with the Secretary of State of New York on April 1, 1988, is incorporated herein by reference to Exhibit A of the Registrant's Form 10-K for the year ended December 31, 1988, File No. 0-13888. (3.2) -- Bylaws of the Registrant, as amended January 9, 1991, are incorporated herein by reference to Exhibit A of the Registrant's Form 10-K for the year ended December 31, 1990, File No. 0-13888. Exhibit (13) -- Annual Report to Shareholders for the year ended December 31, 1994. -- Table of Quarterly Market Price Ranges. EXHIBIT A -- Table of Dividends Paid. EXHIBIT B -- Management's Discussion and Analysis of EXHIBIT C Financial Condition and Results of Operations including the Selected Financial Data Exhibit. -- Consolidated Financial Statements and EXHIBIT D Independent Auditors' Report. Exhibit (21) -- Subsidiaries of the registrant. EXHIBIT E Exhibit (22) -- Registrant's Notice of Annual Meeting, EXHIBIT F Proxy Statement dated March 14, 1995, and Proxy Form Exhibit (27) -- Financial Disclosure Schedule (b) Reports on Form 8-K There were no reports filed on Form 8-K during the three months ended December 31, 1994. (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, 1994 CHEMUNG FINANCIAL CORPORATION ELMIRA, NEW YORK ____________________________________ EXHIBIT LISTING EXHIBIT EXHIBIT 13 Annual Report To Shareholders For The Year Ended December 31, 1994 A - Table of Quarterly Market Price Ranges B - Table of Dividends Paid C - Management's Discussion and Analysis of Financial Condition and Results of Operations Including the Selected Financial Data Exhibit D - Consolidated Financial Statements and Independent Auditors' Report EXHIBIT 21 E - Subsidiaries of the Registrant EXHIBIT 22 F - Notice of Annual Meeting, Proxy Statement dated March 14, 1995, and Proxy Form Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CHEMUNG FINANCIAL CORPORATION DATED: MARCH 8, 1995 By "signature" John W. Bennett President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been executed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date Director Robert E. Agan "signature" Director, President & March 8, 1995 John W. Bennett Chief Executive Officer Director Donald L. Brooks, Jr. "signature" Director March 8, 1995 David J. Dalrymple "signature" Director March 8, 1995 Robert H. Dalrymple "signature" Director March 8, 1995 Richard H. Evans "signature" Director March 8, 1995 Natalie B. Kuenkler "signature" Director March 8, 1995 Edward B. Hoffman "signature" Director March 8, 1995 Stephen M. Lounsberry III Signature Title Date Director Boyd McDowell II "signature" Director March 8, 1995 Thomas K. Meier "signature" Director March 8, 1995 Ralph H. Meyer "signature" Director March 8, 1995 John F. Potter "signature" Director March 8, 1995 Whitney S. Powers "signature" Director March 8, 1995 Samuel J. Semel "signature" Director March 8, 1995 Charles M. Streeter, Jr. Director Richard W. Swan "signature" Director March 8, 1995 William A. Tryon Director William C. Ughetta "signature" Director March 8, 1995 Nelson Mooers van den Blink "signature" Vice President, TreasurerMarch 8, 1995 Jan P. Updegraff and Principal Accounting Officer Attest "signature" Secretary March 8, 1995 Jerome F. Denton
EX-13 2 EXHIBIT A TABLE OF QUARTERLY MARKET PRICE RANGES
Market Prices of Chemung Financial Corporation Stock During Past Three Years (dollars) ----------------------------------------------------------------------------- 1994 1993 1992 ----------------------------------------------------------------------------- Hi -- Lo Hi -- Lo Hi -- Lo 1st Quarter 24 5/8 - 23 21 1/4 - 17 1/2 20 - 18 2nd Quarter 26 - 23 3/4 24 1/2 - 22 20 - 17 1/2 3rd Quarter 26 3/4 - 24 1/2 24 1/4 - 22 19 - 18 4th Quarter 26 - 24 3/4 25 - 23 18 7/10 - 17
EXHIBIT B TABLE OF DIVIDENDS PAID
Dividends Paid Per Share by Chemung Financial Corporation During Past Three Years ----------------------------------------------------------------------------- 1994 1993 1992 ----------------------------------------------------------------------------- January 1 $.2275 $.2100 $.1900 April 1 .2275 .2100 .2000 July 1 .2275 .2100 .2000 October 1 .2400 .2275 .2100 ----------------------------------------------------------------------------- $.9225 $.8575 $.8000 As of December 31, 1994 there were 815 registered holders of record of the Corporation's stock. Chemung Financial Corporation's common stock is inactively traded in the over-the-counter market. The quarterly market price ranges for the Corporation's stock for the past three (3) years are based upon actual transactions as reported by First Albany Corporation, a brokerage firm which maintains a market in the Corporation's stock, other brokerage firms, and other transactions known by the Corporation's management.
EXHIBIT C MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCLUDING THE SELECTED FINANCIAL DATA EXHIBIT The purpose of this discussion is to focus on information about the financial condition and results of operations of Chemung Financial Corporation which is not otherwise apparent from the consolidated financial statements included in this annual report. Reference should be made to those statements and the selected financial data presented elsewhere in this report for an understanding of the following discussion and analysis. Description of Business Chemung Financial Corporation (the "Corporation) is a one-bank holding company with its only subsidiary being Chemung Canal Trust Company (the "Bank"), a full service community bank with full Trust powers. Therefore, the financial condition should be examined in terms of the acquisition and employment of funds within its "market areas". Management defines the market areas of Chemung Canal Trust Company as those areas within a 25-mile radius of branches in these communities. These areas encompass Chemung, Steuben, Schuyler, and Tioga counties, together with the northern tier of Pennsylvania. The Bank's lending policy restricts substantially all lending efforts to these geographical regions. Management of Credit Risk - Loan Portfolio The Bank manages credit risk, while conforming to all state and Federal laws governing the making of loans, through written policies and procedures implemented to ensure loan repayment; loan review to identify loan problems at the earliest possible time; collection procedures (continued even after a loan is charged off); an adequate allowance for loan losses; and continuing education and training to ensure lending expertise. Diversification by loan product is maintained through offering commercial loans, 1-4 family mortgages, and a full range of consumer loans. The Executive Committee of the Board is designated to receive required loan reports, oversee loan policy, and approve loans above the authorized individual and Senior Loan Committee lending limits. The Senior Loan Committee, consisting of the president, senior lending officer, commercial loan officer, mortgage officer, consumer loan officer, and chief financial officer, implements the Board-approved loan policy. Supervision and Regulation The Corporation, as a bank holding company, is regulated under the Bank Holding Company Act of 1956, as amended (the "Act"), and is subject to the supervision of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). Generally, the Act limits the business of bank holding companies to banking, or managing or controlling banks, performing certain servicing activities for subsidiaries, and engaging in such other activities as the Federal Reserve Board may determine to be closely related to banking and a proper incident thereto. The Bank is chartered under the laws of New York State and is supervised by the New York State Banking Department. On October 1, 1992 the FDIC issued its final Risk-Related Premium System Rule, which provides for "well capitalized" banks to be assessed at $0.23 per hundred dollars. Lesser capitalized banks will be assessed on a scale currently reaching to $0.31. In order to be considered well capitalized, the FDIC requires a bank's Total Risk Based Capital Ratio to be greater than or equal to 10% AND its Tier 1 Risk Based Capital Ratio to be greater than or equal to 6.00% AND its leverage ratio to be greater than or equal to 5.00%. In December 1992, the Bank received notification from the FDIC that it is considered well capitalized and that the FDIC insurance premium will remain at $0.23 per hundred dollars of deposit. This designation has been maintained and the Bank's FDIC insurance premiums for 1994 were $796 thousand and constitute its second largest non-interest expense behind salaries. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was passed in order to protect depositors and taxpayers from the excesses of the S&L problems of the 1980's. There are a number of provisions in this act that significantly increase the non-interest operating costs of the Bank. These rules specifically impact the cost of external audit, the mortgage loan product (through appraisal requirements), as well as all other loan products and contain the potential for the regulatory authorities to begin micro-managing banks of all sizes. Thus, regulatory burden has become a major impediment to banking profitability. It is anticipated that the Bank Insurance Funds will become fully capitalized during the current year, at which time a reduction in premium has been proposed by the Chair of the FDIC. Competition The Bank is subject to intense competition in the lending and deposit gathering aspects of its business from commercial banks, savings banks, savings and loan associations, credit unions; and other providers of financial services, such as money market funds, brokerage firms, investment companies, credit companies and insurance companies. The Bank also competes with nonfinancial institutions, including retail stores and certain utilities that maintain their own credit programs, as well as governmental agencies that make available loans to certain borrowers. The Bank faces significant competition in acquiring quality assets, due to such factors as increased activities by providers of credit cards, and the increased lending powers granted to and employed by thrift institutions and credit unions. The Bank also faces competition in attracting deposits at reasonable prices due to the activities of money market funds; increased activities of non-bank deposit takers, including brokerage firms; and the increased availability of demand deposit type accounts at thrift institutions and credit unions. Unlike the Corporation, many of these competitors, with the particular exception of thrift institutions, are not subject to regulation as extensive as that described under the "Supervision and Regulation" section and, as a result, they may have a competitive advantage over the Corporation in certain respects. Competition for the Bank's fiduciary services comes primarily from brokerage firms and independent investment advisors. It is not considered particularly significant and Trust Assets Under Administration totaled $732 million at December 31, 1994, compared to $699 million a year earlier. The 1994 figure includes $28 million at book for Owego's Trust Department. Relative to the Bank's total assets, when compared with peer banks, the Trust Department is disproportionally large and favorable in terms of generating non-interest income.
Exhibit I Selected Financial Data -------------------------------------------------------------------------------------------------------------------- Growth Rates 1994 1993 1992 1991 1990 1989 1 yr 5 yrs -------------------------------------------------------------------------------------------------------------------- Per Share Data -------------------------------------------------------------------------------------------------------------------- Net Operating Income $2.45 $2.87 $2.55 $1.90 $1.93 $2.14 -14.6% 2.9% Net Income 2.45 2.37 2.55 1.90 1.93 2.14 3.4% 2.9% Dividends Declared 0.935 0.875 0.82 0.76 0.76 0.68 6.9% 7.5% Book Value 21.85 20.25 18.75 17.02 15.91 14.85 7.9% 9.4% Market Price 12/31 25.50 23.00 18.50 18.25 24.00 28.00 10.9% -1.8% Average Shares O/S (thousands) 1,899 1,894 1,894 1,899 1,921 1,933 0.3% -0.3% ==================================================================================================================== Earnings (in thousands) -------------------------------------------------------------------------------------------------------------------- Net Interest Income 19,304 18,672 18,339 16,557 15,690 15,079 3.4% 5.6% Loan Loss Provision 624 907 902 625 446 495 -31.2% 5.2% Fiduciary Department Income 3,323 3,294 3,176 2,708 2,802 2,452 0.9% 7.1% Securities Gains (Losses), net 140 821 105 (506) 7 281 -82.9% -10.0% Other Income 2,223 2,003 1,691 1,620 1,342 1,290 11.0% 14.5% Other Expense 17,375 15,627 15,287 14,902 14,281 12,836 11.2% 7.1% Income Taxes 2,343 2,830 2,296 1,241 1,398 1,636 -17.2% 8.6% Net Operating Income 4,648 5,427 4,826 3,612 3,715 4,134 -14.4% 2.5% Effect of Accounting Change 0 (933) 0 0 0 0 N/A N/A Net Income 4,648 4,494 4,826 3,612 3,715 4,134 3.4% 2.5% ==================================================================================================================== Average Balance Sheet (in millions) -------------------------------------------------------------------------------------------------------------------- Total Assets 431.2 397.7 387.0 356.8 332.1 318.3 8.4% 7.1% Earning Assets 396.7 368.4 358.3 328.1 303.5 290.7 7.7% 7.3% Loans (Net) 221.4 224.1 221.0 218.6 205.2 188.6 -1.2% 3.5% Investments 175.3 144.3 137.3 108.9 98.4 102.1 21.5% 14.3% Deposits 374.6 347.0 338.5 319.4 299.0 287.0 8.0% 6.1% Shareholder Equity 41.6 37.0 34.2 31.5 30.0 27.3 12.4% 10.5% ==================================================================================================================== Ending Balance Sheet (in millions) -------------------------------------------------------------------------------------------------------------------- Total Assets 494.3 398.1 385.8 381.7 335.8 322.8 24.2% 10.6% Earning Assets 448.5 369.4 356.4 350.1 304.7 292.2 21.4% 10.7% Loans - Net 232.9 218.8 214.9 224.2 206.6 193.2 6.4% 4.1% Investments 204.0 137.1 127.5 110.1 94.1 88.2 48.8% 26.3% Deposits 432.3 342.9 339.2 325.8 302.8 290.9 26.1% 9.7% Shareholders' Equity 45.7 38.3 35.5 32.3 30.5 28.7 19.3% 11.8% Allowance For Loan Losses 3.60 3.50 3.40 2.80 2.50 2.35 2.9% 10.6% ====================================================================================================================
During 1993, the Bank introduced a service designed to meet the needs of individuals and corporations that do not require their funds to be insured by the FDIC. This program, utilizing a broad universe of mutual funds to arrive at four investment model portfolios to match specific investment objectives, had customer balances in excess of $6 million at December 31, 1993. Originally, management believed that this product could be marketed through its system of commercial banking branches. The regulatory issues proved onerous and the project was terminated as of year-end 1994. During 1994, however, the Fiduciary Division noted a marked increase in the competition for personal and corporate investment management services in our market areas. The reasons were 1) aggressive pricing and marketing by competitors; and 2) while our long-term investment performance remained strong, short-term results during the 1992 and 1993 calendar years prompted many present and potential clients to question the validity of a consistent and inflexible approach to investing in equities. The temporal proximity of these two developments challenged us to reflect upon the traditional manner in which investment services have been brought to our markets. We concluded that our proprietary products alone would fall short of providing the level of flexibility that many of our customers will demand. Thus, in an effort to position the Fiduciary Division for future growth, we have begun to compliment our more traditional investment alternatives with additional products made available through strategic alliances with various mutual fund and insurance companies. the most mature program to date is the EB ACCESS Program in the employee benefits administration area which currently utilizes mutual funds from Fidelity Investors Corp. The Fiduciary Division is also in the process of developing a similar program which will allow our personal customers to invest in mutual funds. In addition, annuity contracts will be added to our product menu early in 1995. Acquisitions During 1994, the Bank purchased deposits totaling $45,628,085 from the Resolution Trust Company and paid a premium of $5,965,793. This deposit base intangible asset is being amortized on a straight-line basis over 15 years. The total accumulated amortization at December 31, 1994 was $232,003. In acquiring these deposits management believes that its customer base has been substantially increased in the areas of Bath, Painted Post and Watkins Glen -- all in New York State and in communities contiguous to our previous market. Additionally, on December 29, 1994, the managements of the Corporation and the Owego National Financial Corporation ("Owego") signed the documents required to consummate the previously announced acquisition of Owego. Owego commenced business as a branch of the Bank on January 3, 1995. The total purchase price was $5,709,031, consisting of $1,164,883 in cash and 193,368 shares of the Corporation's common stock with a fair value of $4,544,148. The acquisition was accounted for under the purchase method of accounting for business combinations, and accordingly, all assets and liabilities acquired were adjusted to and recorded at their fair values at the date of acquisition and the results of operations of Owego will be included in the consolidated financial statements beginning January 1, 1995. For taxation purposes, the acquisition was accounted for as a tax-free reorganization. Goodwill of $2,843,750 created as a result of this acquisition is being amortized on a straight-line after tax basis over a period of 15 years. At December 29, 1994, Owego's deposits were $36.5 million. Employees The Corporation and its Banking subsidiary had 271 full-time equivalent employees (FTE's) on December 31, 1994. The employment trend is relatively stable. Performance Summary The Corporation's net profits before dividends for 1994 were $4.648 million or $2.45 per share. This compares with $2.37 per share in 1993 when net profit before dividends were reduced $933 thousand ($0.50 per share) by the change in accounting for postretirement medical benefits to $4.494 million ($2.37 per share). This compared with $4.8 million or $2.55 per share in 1992. Quarterly dividends declared totaled $0.935 per share vs 1993's $0.875 and $0.82 in 1992. Effective January 1, 1993, the Corporation adopted the provisions of SFAS No. 109, Accounting for Income Taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences caused by the differences between the financial reporting basis and the tax basis of the Corporation's assets and liabilities at enacted tax rates expected to be in effect when such amounts are to be recovered or settled. At December 31, 1994, the Corporation has a net deferred tax asset of $2.01 million vs $1.93 million at December 31, 1993, which in each year was attributable primarily to the tax effect of differences between the financial and tax bases of the Bank's allowance for loan losses and its accrual for postretirement benefits other than pensions. Net operating income for 1994 was impacted somewhat negatively by a sudden and sustained increase in interest rates. This compares with 1993 when net operating income was favorably impacted by an environment of declining interest rates, with interest expense declining at a significantly more rapid rate than interest income through the first three quarters. The net interest spread stopped expanding during the fourth quarter of 1993 and began the most rapid increase in recent history. Non-interest income totaled $5.685 million compared to $6.119 million in 1993 and $4.971 million in 1992. Trust Department income, at $3.3 million is the largest segment of non-interest income. The decline in non-interest income when compared to 1993 results from the fact that during 1993, $821 thousand in capital gains were realized. $545 thousand of 1993's gains resulted from the sale of a defaulted bond for $790 thousand which had been written down to $245 thousand from $1 million during 1991. Net interest income for 1994 was $19.3 million, an improvement of 3.4%. The net interest rate margin (net interest income divided by average earning assets) for 1994 was 4.89% compared to 5.07% in 1993 and 5.12% in 1992. The net interest spread between interest earned on average earning assets and interest paid on average interest-bearing liabilities, however, declined also to 4.26% from the year earlier 4.42%. Average earning assets for 1994 grew by $28.3 million or 7.7% to $396.7 million, compared to $368.4 million in 1993 and $358.3 million in 1992. Commercial and home equity loan balances grew 7.9% and 8.9%, respectively, while the mortgage portfolio declined $3.4 million (4.8%). The decline in mortgage balances was due to a combination of 1) continued prepayments caused by historically low interest rates, and 2) a very slow real estate market. Non-performing loans at year end declined 37.3% to $1.178 million and represented 0.49% of total outstanding loan balances compared to 0.85% a year earlier. Loans charged off net of recoveries were $623.8 thousand compared to $806.7 thousand in 1993 and $301.8 thousand in 1992. Management viewed the net chargeoffs in 1993 as consistent with the final stages of the soft business environment which was somewhat reversed in 1994. The loan loss reserve, at 305.5% of non-performing loans versus 186% a year ago and 178% in 1992, is felt by management to be adequate.
Exhibit II Selected Ratios -------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 -------------------------------------------------------------------------------------------------------------------- Return on average assets 1.08% 1.13% 1.25% 1.01% 1.11% Return on average equity 11.18% 12.15% 14.12% 11.45% 12.39% Dividend yield 12/31 3.76% 3.96% 4.54% 4.16% 3.16% Dividend payout 38.22% 36.86% 32.17% 39.97% 39.30% ==================================================================================================================== Equity to assets 9.25% 9.63% 9.20% 8.46% 9.05% Primary capital to assets 9.98% 10.51% 10.08% 9.20% 9.80% Tier I capital to risk adjusted assets 13.71% 15.66% 14.80% 13.02% 13.67% Total capital to risk adjusted assets 15.03% 17.09% 16.22% 14.15% 14.79% ==================================================================================================================== Loans to deposits 54.71% 64.83% 64.38% 69.70% 69.22% Loan reserve to outstanding loans 1.52% 1.57% 1.55% 1.23% 1.19% Loan reserve to non-performing loans 305.63% 186.27% 178.10% 92.47% 77.76% Non-performing loans to outstanding loans 0.49% 0.85% 0.87% 1.33% 1.53% ==================================================================================================================== Net interest rate spread 4.26% 4.42% 4.35% 3.99% 3.93% Net interest margin 4.89% 5.07% 5.12% 5.05% 5.17% ====================================================================================================================
The implementation of FASB 115, effective January 1, 1994 dramatically increased the available for sale classification of investment securities and effected the reported balance sheet by 1) increasing or decreasing the aggregate reported value of the securities to reflect fair value as of the reporting date; and 2) increasing or decreasing the corporation's capital account in a like manner, net of deferred income taxes. Average total loan balances were $221.4 million versus $224.1 million during 1993 and $221.0 million during 1992. The enhanced business environment caused commercial loans to increase $5.5 million (7.9%). Mortgage loan balances dropped $3.4 million (4.8%) to $67.9 million. The acquisition of the Columbia branches from RTC and the purchase of Owego at year-end had no material impact upon the average loan balances. Relatively strong continued demand for home equity loans, which advanced $3.4 million (8.9%) to $41.9 million vs $38.5 million at year end, together with generally strong performance for installment and credit card business, enabled total consumer loan balances to advance 14.8%. The following table demonstrates the impact on net interest income of the changes in the volume of earning assets and interest-bearing liabilities and changes in rates earned and paid by the Bank. For purposes of constructing this table, earning asset averages include non-performing loans. Therefore, the impact of lower levels of non-performing loans is reflected in the change due to rate, but does not affect changes due to volume.
Exhibit III Changes Due to Volume and Rate 1994 vs 1993 1993 vs 1992 --------------------------------------------------------- Increase Increase (Decrease) (Decrease) -------------------------------------------------------------------------------------------------------------------- Total Due to Due to Total Due to Due to Change Volume Rate Change Volume Rate -------------------------------------------------------------------------------------------------------------------- Interest Income (thousands) -------------------------------------------------------------------------------------------------------------------- Loans $ (735) $ (249) $ (486) $(1,617) $ 313 $(1,930) Taxable investment securities 1,674 1,603 71 (351) 473 (824) Tax-exempt investment securities 78 125 (47) (257) (101) (156) Interest-bearing deposits 70 39 31 73 73 0 Federal funds sold 36 (78) 114 (95) (40) (55) -------------------------------------------------------------------------------------------------------------------- Total Interest Income $ 1,123 $1,440 $ (317) $ (2,247) $ 718 $(2 965) ==================================================================================================================== Interest Expense (thousands) -------------------------------------------------------------------------------------------------------------------- Demand deposits $ (138) $ 21 $ (159) $ (369) $ 43 $ (412) Savings deposits (28) 251 (279) (1,019) 185 (1,204) Time deposits 558 498 60 (1,060) (96) (964) Federal Funds purchased and securities sold under agreement to repurchase 99 8 91 (132) (55) (77) -------------------------------------------------------------------------------------------------------------------- Total Interest Expense $ 491 $ 778 $ (287) $ (2,580) $ 77 $ 2,657 ==================================================================================================================== Net Interest Income $ 632 $ 662 $ 30 $ 333 $ 641 $ (308) ====================================================================================================================
Non-interest income was $5.69 million in 1994 versus $6.12 million in 1993, a decline of $430 thousand for the year. This change is mostly due to net pretax securities gains of $821.5 thousand taken in 1993, the largest portion of which was a $545 thousand gain realized on a previously written down bond. Trust Department fees totaled $3.32 million in 1994 versus $3.29 million in 1993 and $3.18 million for 1992. The board-approved investment portfolio policy requires that except for local municipal obligations which are sometimes unrated or carry ratings above "Baa" but below "A" by Moody's or Standard & Poors, debt securities purchased for the bond portfolio must carry a minimum rating of "A". The policy also states that, except for short term U.S. Treasury Bills and/or U.S. Government Agency discount notes, purchases are to be made with the intent of holding to maturity. Treasury Bills and U. S. Government Agency discount securities are reflected on our balance sheet as "available for sale". Non-interest expenses for 1994 were $17.4 million vs $15.6 million in 1993, up $1.8 million or 11.5%. Salaries and wages were $6.85 million, an increase of $671 thousand (10.86%). This increase resulted primarily from the acquisition of the three branches from the RTC. Pension and other employee benefit expense decreased $159 thousand (8.0%) to $1.82 million. Total assets at December 31, 1994, were $494.3 million compared with $398.1 million at year-end 1993 and $385.8 million at year-end 1992. Deposits grew by 26.1% to $432 million compared to $343 million at the end of 1993 and $339 million at end of 1992. Capital Resources and Dividends The Corporation continues to maintain a strong capital position. Shareholders' equity at December 31, 1994, was $45.7 million or 9.25% of total assets compared to $38.3 million or 9.63% of total assets at the end of 1993 and $35.5 million or 9.20% at the end of 1992. Effective December 31, 1992, the Federal Reserve required banks and bank holding companies to maintain a minimum Tier I risk adjusted capital ratio of 4.00% and a minimum total risk adjusted capital ratio of capital to assets of 8.00%. Tier I (core) capital is essentially shareholders' equity, adjusted for goodwill purchased after 1988, net of Treasury stock. Tier 2 (supplementary) capital may include preferred stock, subordinated debt with an original maturity of 5 years or more, and the allowance for loan losses. As of December 31, 1994, the Corporation's total Risk Weighted Adjusted Capital Ratio was 15.03% compared with 17.09% at the prior year's end. Under Federal Reserve regulations (see Note 15 to the consolidated financial statements), the Bank is limited to the amount it may loan to the Corporation, unless such loans are collateralized by specific obligations. At December 31, 1994, the maximum amount available for transfer from the Bank to the Corporation in the form of loans was $1,660,655. The Bank is subject to legal limitations on the amount of dividends that can be paid to the Corporation. Dividends are limited to retained net profits, as defined by regulations, for the current year and the two preceding years. At December 31, 1994, $7,629,531 was available for the declaration of dividends. Cash dividends declared amounted to $1.777 million in 1994 compared to $1.657 million in 1993 and $1.553 million in the prior year. Dividends declared amounted to 38.2% of net earnings compared to 36.8% and 32.2% of 1993 and 1992 net earnings, 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 come on the market, we will bid only after careful review of our capital position. During 1994, 7,500 shares were sold at a price of $23.00 per share to fund profit sharing requirements. During 1993, 2,869 common shares were purchased at a total cost of $65,638 ($22.878 average cost per share). Additionally, 2,000 common shares were sold at $48,008 ($24.004 per share). In 1992, 5,288 shares were acquired at a total cost of $89,896 ($17.000 average cost per share). Liquidity and Sensitivity 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, Chief Lending Officer, Chief Marketing Officer, Chief Financial Officer, and others representing key functions. Interest rate risk is portrayed below using the "contractual" gap. Contractual gap measures the stated repricing and maturity of assets and liabilities. At December 31, 1994, the cumulative one-year contractual gap for the Bank was a negative $111.4 million versus a negative $75.2 million a year earlier and a negative $108.8 at the end of 1992. This means that $111.4 million of earning assets will reprice after the source of funds reprice.
December 31, 1994 Rate Sensitive -------------------------------------------------------------------------------------------------------------------- Contractual Amounts 1 to 90 91 to 365 1 to 5 Over 5 (Thousands) days days years years -------------------------------------------------------------------------------------------------------------------- Earning assets: Loans $ 94,585 $ 3,149 $ 71,482 $ 57,309 Securities 30,275 49,518 107,732 10,067 Federal Funds 8,000 Equities 4,902 -------------------------------------------------------------------------------------------------------------------- Total earning assets 137,762 62,667 179,214 67,376 ==================================================================================================================== Net Sources: NOW accounts 44,071 Insured Money Market 59,027 Time certificates under $100 thousand 17,489 66,148 45,217 Time certificates over $100 thousand 8,643 3,983 4,543 Savings 102,287 Repurchase agreements 10,204 -------------------------------------------------------------------------------------------------------------------- Total sources 241,721 70,131 49,760 0 ==================================================================================================================== Incremental Gap -103,959 -7,464 129,454 67,376 Percent of earning assets -0.75 -0.12 0.72 1.00 Cumulative gap -103,959 -111,423 18,031 85,407 Percent of total assets -0.21 -0.23 0.04 0.17 ====================================================================================================================
A written Asset/Liability Management Policy has been established with a goal of minimizing the changes in net income which result from interest rate movement. The Bank's cumulative one-year gap ratio is -23% vs -19% a year earlier and -28% at the end of 1992. It is well within the written ALCO policy one-year target of minus 50% or better. During 1993, the Bank became a member of the Federal Home Loan Bank of New York ("FHLB"). The primary reasons for joining the FHLB were to enhance management's ability to satisfy future liquidity needs and to have an additional alternate for investing excess reserves. Having invested $1.193 million in FHLB common stock, the Bank enjoyed a credit line of $22,233,600 at December 31, 1994. In May 1993, the FASB issued Statement of Financial Accounting Standards No. 114 (SFAS 114), Accounting by Creditors for Impairment of a Loan as amended by SFAS No. 118 Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure which is effective for the Corporation on January 1, 1995. These statements require that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. For purposes of these statements, a loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all contractual interest and principal payments according to the terms of the agreement. SFAS 114 does not apply to large groups of small balance, homogeneous loans that are collectively evaluated for impairment. This issuance requires the Corporation to account for a troubled debt restructuring involving a modification of terms at fair value as of the date of the restructuring. Management intends to adopt SFAS 114 as of January 1, 1995, and has determined that the adoption of SFAS 114 will not have a material effect on the Corporation's financial condition or results of operations. "signature" Jan P. Updegraff Vice President & Treasurer EXHIBIT D CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT AUDITORS INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Chemung Financial Corporation and Subsidiary: We have audited the accompanying consolidated balance sheets of Chemung Financial Corporation and subsidiary as of December 31, 1994 and 1993, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1994. 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, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in note 1 to the consolidated financial statements, effective January 1, 1994, the Company changed its method of accounting for securities to adopt the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Also as discussed in note 1, at January 1, 1993 the Company changed its method of accounting for postretirement benefits to adopt the provisions of SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. /s/ KPMG Peat Marwick LLP Syracuse, New York January 27, 1995 CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
Assets December 31 1994 1993 ------------------------------------------------------------------------------------------------------------ Cash and due from banks $ 24,380,592 20,217,871 Federal funds sold 8,000,000 9,900,000 Securities available for sale 188,828,284 44,813,897 Securities held to maturity, fair value of $15,012,570 in 1994 and $99,120,749 in 1993 15,168,682 92,272,034 Loans 236,497,448 222,261,132 Allowance for loan losses (3,599,968) (3,500,000) --------------------------------------------------------------------------------------------- Loans, net 232,897,480 218,761,132 Premises and equipment, net 8,527,302 7,222,482 Accrued interest receivable and other assets 7,952,438 4,936,253 Goodwill and deposit base intangible, net of accumulated amortization 8,577,540 - --------------------------------------------------------------------------------------------- Total assets $ 494,332,318 398,123,669 ============================================================================================= Liabilities and Shareholders' Equity ----------------------------------------------------------------------------------------------------------- Deposits: Noninterest-bearing 81,135,334 66,022,189 Interest-bearing 351,135,386 276,829,126 --------------------------------------------------------------------------------------------- Total deposits 432,270,720 342,851,315 Securities sold under agreements to repurchase 10,203,785 12,545,569 Accrued interest payable 894,396 611,139 Dividends payable 456,027 430,569 Accrued expenses and other liabilities 4,768,644 3,358,705 --------------------------------------------------------------------------------------------- Total liabilities 448,593,572 359,797,297 --------------------------------------------------------------------------------------------- Commitments and contingencies (note 14) Shareholders' equity: Common stock, $5.00 par value per share; authorized 3,000,000 shares, issued: 2,150,067 shares in 1994; 1,956,699 shares in 1993 10,750,335 9,783,495 Surplus 10,068,563 6,488,330 Retained earnings 26,374,590 23,503,671 Treasury stock, at cost (1994 - 56,586 shares; 1993 - 64,086 shares) (1,279,549) (1,449,124) Net unrealized loss on securities available for sale, net of tax effect (175,193) - --------------------------------------------------------------------------------------------- Total shareholders' equity 45,738,746 38,326,372 --------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 494,332,318 398,123,669 ============================================================================================= See accompanying notes to consolidated financial statements.
CONSOLIDATED FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31 1994 1993 1992 ----------------------------------------------------------------------------------------------------------- Interest Income: Loans $ 20,006,304 20,740,622 22,358,116 Securities 9,023,516 7,272,439 7,879,653 Federal funds sold 407,259 370,926 466,052 Interest-bearing deposits 142,882 72,931 - ----------------------------------------------------------------------------------------------------------- Total interest income 29,579,961 28,456,918 30,703,821 ----------------------------------------------------------------------------------------------------------- Interest expense: Deposits 9,895,852 9,503,976 11,951,505 Borrowed funds 8,366 108 506 Securities sold under agreements to repurchase 372,133 281,096 413,118 ----------------------------------------------------------------------------------------------------------- Total interest expense 10,276,351 9,785,180 12,365,129 ----------------------------------------------------------------------------------------------------------- Net interest income 19,303,610 18,671,738 18,338,692 Provision for loan losses 623,772 906,739 901,834 ----------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 18,679,838 17,764,999 17,436,858 Other operating income: Trust department income 3,322,643 3,294,388 3,176,223 Service charges on deposit accounts 1,318,448 1,273,640 1,122,459 Net gain on sales of securities 140,001 821,467 104,552 Other 904,102 729,371 568,755 ----------------------------------------------------------------------------------------------------------- 5,685,194 6,118,866 4,971,989 ----------------------------------------------------------------------------------------------------------- Other operating expenses: Salaries and wages 6,848,952 6,177,966 6,215,118 Pension and other employee benefits 1,824,114 1,983,641 1,783,349 Net occupancy expenses 1,440,755 1,281,754 1,236,409 Furniture and equipment expenses 1,270,385 1,203,610 1,353,412 Other 5,990,536 4,979,616 4,699,095 ----------------------------------------------------------------------------------------------------------- 17,374,742 15,626,587 15,287,383 ----------------------------------------------------------------------------------------------------------- Income before income taxes and cumulative effect of change in accounting principle 6,990,290 8,257,278 7,121,464 Income taxes 2,342,765 2,830,032 2,295,525 ----------------------------------------------------------------------------------------------------------- Income before cumulative effect of change in accounting principle 4,647,525 5,427,246 4,825,939 Cumulative effect, at January 1, 1993, of change in accounting for postretirement benefits other than pensions, net of income tax expense of $643,939 - (933,183) - ----------------------------------------------------------------------------------------------------------- Net income $ 4,647,525 4,494,063 4,825,939 =========================================================================================================== Weighted average number of common shares outstanding 1,899,488 1,893,618 1,893,923 Per common share: Income before cumulative effect of change in accounting principle $ 2.45 2.87 2.55 Cumulative effect of change in accounting principle $ - (.50) - Net income $ 2.45 2.37 2.55 See accompanying notes to consolidated financial statements.
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Net Unrealized Gain Common Retained Treasury (Loss) On Stock Surplus Earnings Stock Securities Total -------------------------------------------------------------------------------------------------------------------- Balances at December 31, 1991 $ 9,783,495 6,485,522 17,392,852 (1,338,790) - 32,323,079 Net Income - - 4,825,939 - - 4,825,939 Cash dividends declared ($.82 per share) - - (1,552,655) - (1,552,655) - Purchase of 5,288 shares of treasury stock - - - (89,896) - (89,896) -------------------------------------------------------------------------------------------------------------------- Balances at December 31, 1992 9,783,495 6,485,522 20,666,136 (1,428,686) - 35,506,467 Net income - - 4,494,063 - - 4,494,063 Cash dividends declared ($.875 per share) - - (1,656,528) - - (1,656,528) Purchase of 2,869 shares of treasury stock - - - (65,638) - (65,638) Sales of 2,000 shares of treasury stock - 2,808 - 45,200 - 48,008 -------------------------------------------------------------------------------------------------------------------- Balances at December 31, 1993 9,783,495 6,488,330 23,503,671 (1,449,124) - 38,326,372 Cumulative effect at January 1, 1994 of the adoption of SFAS 115, net of tax effect of $1,910,980 - - - - 2,786,610 2,786,610 Issuance of 193,368 shares in acquisition 966,840 3,577,308 - - - 4,544,148 Net income - - 4,647,525 - - 4,647,525 Cash dividends declared ($.935 per share) - - (1,776,606) - - (1,776,606) Sale of 7,500 shares of treasury stock - 2,925 - 169,575 - 172,500 Change in net unrealized gain (loss) on securities available for sale, net of tax effect of $2,031,106 - - - - (2,961,803) (2,961,803) -------------------------------------------------------------------------------------------------------------------- Balances at December 31, 1994 $ 10,750,335 10,068,563 26,374,590 (1,279,549) (175,193) 45,738,746 ==================================================================================================================== See accompanying notes to consolidated financial statements.
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31 1994 1993 1992 ----------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 4,647,525 4,494,063 4,825,939 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of deposit base intangible 232,003 - - Deferred income tax benefit 98,614 (110,044) (402,853) Provision for loan losses 623,772 906,739 901,834 Depreciation and amortization 986,183 971,073 905,997 Amortization of discount on securities, net (1,077,616) (709,539) (777,676) Gain on sales of securities, net (140,001) (821,467) (104,552) (Increase) decrease in accrued interest receivable and other assets (1,968,603) (715,341) 173,468 Increase (decrease) in accrued interest payable 215,747 (110,944) (334,166) Increase (decrease) in accrued taxes and other liabilities (201,391) 677,656 60,800 Accrued postretirement benefits - 1,577,122 - ----------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 3,416,233 6,159,318 5,248,791 ----------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from sales of securities held to maturity - 6,013,130 39,025,106 Proceeds from sales of securities available for sale 19,955,253 14,934,718 - Proceeds from maturities of securities held to maturity 5,651,201 114,291,595 68,447,774 Proceeds from maturities of securities available for sale 69,972,928 - - Purchases of securities available for sale (156,905,963) - - Purchases of securities held to maturity (11,841,859) - - Purchases of securities - (108,319,159) (134,004,711) Cash of acquired bank, net of cash paid 2,894,434 - - Purchases of premises and equipment, net (1,999,522) (533,821) (920,471) Loan originations, net of repayments and other reductions (9,324,698) (7,289,548) 6,792,359 Proceeds from sales of student loans 2,507,848 2,572,308 1,602,199 Deposit acquisition premium (5,965,793) - - ----------------------------------------------------------------------------------------------------------- Net cash provided (used) by investing activities $ (85,056,171) 21,669,223 (19,057,744) ----------------------------------------------------------------------------------------------------------- (Continued)
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31 1994 1993 1992 ----------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net increase in demand deposits, NOW accounts, savings accounts, and insured money market accounts $ 328,981 4,889,843 17,637,093 Net increase (decrease) in certificates of deposit and individual retirement account 6,928,120 (1,195,261) (4,237,695) Net increase (decrease) in short-term borrowings (2,341,784) 3,693,745 (12,170,676) Purchases of treasury stock - (65,638) (89,896) Sale of treasury stock 172,500 48,008 - Cash dividends paid (1,751,148) (1,623,590) (1,515,790) Deposits of acquired branches 45,628,085 - - ----------------------------------------------------------------------------------------------------------- Net cash provided (used) by financing activities 48,964,754 5,747,107 (376,964) ----------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (32,675,184) 33,575,648 (14,185,917) Cash and cash equivalents, beginning of year 65,055,776 31,480,128 45,666,045 ----------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 32,380,592 65,055,776 31,480,128 =========================================================================================================== Supplemental disclosure of cash flow information: Transfer of securities held to maturity to securities available for sale $ 94,727,116 - 14,924,017 Cash paid during the year for: Income Taxes 2,464,816 3,427,195 2,814,026 Interest $ 10,052,237 9,896,016 12,699,294 =========================================================================================================== On December 29, 1994, the Corporation acquired the stock of a commercial bank. In conjunction with this acquisition, liabilities were assumed as follows: Fair value of net assets acquired $ 42,381,450 Cash paid and fair value of common stock issued 5,780,938 -------------- Liabilities assumed $ 36,600,512 ============== See accompanying notes to consolidated financial statements.
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1994 AND 1993 (1) STATEMENT OF ACCOUNTING POLICIES ORGANIZATION Chemung Financial Corporation (the Corporation), through its wholly owned subsidiary, Chemung Canal Trust Company (the Bank), provides commercial banking services to its local market area. The Corporation is subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory agencies. As discussed in note 2, at the end of 1994 the Corporation acquired Owego National Financial Corporation (Owego), a commercial bank. BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles and include the accounts of the Corporation and the Bank. All significant intercompany balances and transactions eliminated in consolidation. SECURITIES The Corporation adopted the provisions of Statement of Financial Accounting Standards No. 115 (SFAS 115), Accounting for Certain Investments in Debt and Equity Securities, at January 1, 1994. SFAS 115 requires classification of securities into three categories: held to maturity, available for sale and trading. In conjunction with the adoption of SFAS 115, the Corporation transferred securities with a cost basis of $94,727,116 to the available for sale portfolio. There were $4,697,590 of net unrealized gains associated with these securities. Management determines the appropriate classification of securities at the time of purchase. If management has the intent and the Corporation has the ability at the time of purchase to hold securities until maturity, they are classified as held to maturity and carried at historical cost, adjusted for the amortization or accretion of premiums or discounts. Securities to be held for indefinite periods of time and not intended to be held to maturity are classified as available for sale and carried at fair value. Securities held for indefinite periods of time include securities that management intends to use as part of its asset/liability management strategy and that may be sold in response to changes in interest rates, resultant prepayment risk and other factors related to interest rate and resultant prepayment risk changes. Unrealized holding gains and losses, net of the related tax effects, on securities classified as available for sale are excluded from earnings and are reported as a separate component of shareholders' equity until realized. Securities classified as available for sale prior to January 1, 1994, are reported at the lower of aggregate cost or fair value. Realized gains and losses are determined using the specific identification method. Transfers of securities between categories are recorded at fair value at the date of transfer. The unrealized holding gains or losses included in the separate component of shareholders' equity for securities transferred from available for sale to held to maturity are maintained and amortized into earnings over the remaining life of the security as an adjustment to yield in a manner consistent with the amortization or accretion of premium or discount on the associated security. A decline in the market value of any available for sale or held to maturity security below amortized cost that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment of yield using the interest method. Dividend and interest income are recognized when earned. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is maintained at a level considered adequate to provide for loan losses. The allowance is increased by provisions charged to earnings and recoveries of loans previously charged off, and reduced by loan charge-offs. Charge-offs include the excess of a loan's carrying value over estimated fair value of real estate received and transferred to other real estate. The level of the allowance is based on management's evaluation of potential losses in the loan portfolio, prevailing and anticipated economic conditions, past loss experience, and other factors pertinent to estimating potential losses. Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowances may be necessary based on changes in economic conditions, particularly in New York State. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information as available to them at the time of their examination. Statement of Financial Accounting Standards No. 114 (SFAS 114), Accounting by Creditors for Impairment of a Loan as amended by SFAS No. 118 Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure is effective for the Corporation on January 1, 1995. These statements require that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. For purposes of these statements, a loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all contractual interest and principal payments according to the terms of the loan agreement. These statements will be adopted on January 1, 1995 on a prospective basis. Management has determined that the adoption of SFAS 114 will not have a material effect on the Corporation's financial condition, results of operation, cash flow or liquidity. LOANS Loans are stated at the amount of unpaid principal balance less unearned discounts and net deferred fees. Interest on loans is accrued and credited to operations on the level yield method. The accrual of interest is discontinued and previously accrued interest is reversed when commercial and real estate mortgage loans become 120 days delinquent. Consumer loans which are not guaranteed by government agencies are generally charged off upon becoming 180 days delinquent. Loan origination fees and certain loan origination costs are deferred and amortized over the life of the loan using the interest method. PREMISES AND EQUIPMENT Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is charged to current operations under accelerated and straight-line methods over the estimated useful lives of the assets, which range from 15 to 50 years for buildings and from 3 to 10 years for equipment and furniture. Amortization of leasehold improvements and leased equipment is recognized on the straight-line method over the shorter of the lease term or the estimated life of the assets. OTHER REAL ESTATE Real estate acquired through foreclosure or deed in lieu of foreclosure, including loans considered in-substance foreclosures, 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 adjustments to the carrying values of such properties resulting from declines in fair value are charged to operations in the period in which the declines occur. INCOME TAXES The Corporation files a consolidated return on the accrual method. Effective January 1, 1993, the Corporation adopted the provisions of SFAS No. 109, Accounting for Income Taxes, and has included the cumulative effect of that change in the 1993 consolidated statement of income. Because the effect of the change is not material, it has been included in the 1993 tax provision. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Pursuant to the deferred method under APB Opinion 11, which was applied in 1992 and prior years, deferred income taxes were recognized for income and expense items that were reported in different years for financial reporting purposes and income tax purposes using the tax rate applicable for the year of calculation. Under the deferred method, deferred taxes were not adjusted for subsequent changes in tax rates. TRUST DEPARTMENT INCOME Assets held in a fiduciary or agency capacity for customers are not included in the accompanying consolidated balance sheets, since such assets are not assets of the Corporation. Trust department income is recognized on the accrual method based on contractual rates applied to the balances of individual trust accounts. PENSION PLAN Pension cost is computed using the projected unit credit actuarial cost method. The Bank's funding policy is to contribute amounts to the plan sufficient to meet minimum regulatory funding requirements, plus such additional amounts as the Bank may determine to be appropriate from time to time. POSTRETIREMENT BENEFITS In addition to pension benefits, the Bank provides health care and life insurance benefits for retired employees. Effective January 1, 1993, the Corporation adopted Statement of Financial Accounting Standards No. 106 (SFAS 106), Employers' Accounting for Postretirement Benefits Other Than Pensions, which establishes a new accounting principle for the cost of retiree health care and other postretirement benefits. Immediate recognition of the transition obligation was elected. Prior to 1993, the Corporation recognized these benefits on the pay-as-you-go method. The cumulative effect of the change in method of accounting for postretirement benefits other than pensions is reported in the 1993 consolidated statement of income. GOODWILL AND DEPOSIT BASE INTANGIBLE Goodwill, which represents the excess of purchase price over the fair value of identifiable assets acquired, is being amortized over 15 years on the straight- line method. Deposit base intangible, resulting from the Bank's purchase of deposits from the Resolution Trust Company in 1994, is being amortized over the expected useful life of 15 years on a straight-line basis. Amortization periods are monitored to determine if events and circumstances require such periods to be reduced. PER SHARE INFORMATION Per share data was computed on the basis of the weighted average number of common shares outstanding, retroactively adjusted for stock splits and dividends. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash and amounts due from banks, federal funds sold, and U.S. Treasury securities with original terms to maturity of 90 days or less. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE The Corporation enters into sales of U.S. Treasury securities under agreements to repurchase (reverse repurchase agreements). These reverse repurchase agreements are treated as financings, and the obligations to repurchase securities sold are reflected as liabilities in the consolidated statement of financial condition. The amount of the securities underlying the agreements remains in the asset account. The Corporation has agreed to repurchase securities identical to those sold. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Corporation does not engage in the use of derivative financial instruments and the Corporation's only financial instruments with off-balance sheet risk are disclosed in note 14. RECLASSIFICATIONS Amounts in the prior year's consolidated financial statements are reclassified whenever necessary to conform with the current year's presentation. (2) ACQUISITIONS On December 29, 1994, management of the Corporation and of Owego signed the documents required to consummate the previously announced acquisition of Owego. Owego commenced business as a branch of the Bank on January 3, 1995. The total purchase price was $5,709,031, consisting of $1,164,883 in cash and 193,368 shares of the Corporation's common stock with a fair value of $4,544,148 at the date of acquisition. The acquisition was accounted for under the purchase method, accordingly, all assets and liabilities acquired were recorded at their fair values at the date of acquisition and the results of operations of Owego will be included in the consolidated financial statements beginning January 1, 1995. For taxation purposes the acquisition was accounted for as a tax free reorganization. The excess of the cost over the fair value of the net assets acquired (goodwill) of $2,843,750 is being amortized on the straight-line method over a period of 15 years. During 1994, the Bank acquired deposits totaling $45,628,085 from the Resolution Trust Company at a premium of $5,965,793. This deposit base intangible asset is being amortized on the straight-line method over 15 years. The total accumulated amortization at December 31, 1994 was $232,003. The Corporation's unaudited proforma condensed consolidated results of operations for the years ended December 31, 1994 and 1993 are presented below. This proforma information has been prepared assuming that the acquisition of Owego had been effective January 1, 1994 and 1993, respectively. Such proforma condensed financial information includes various estimates and is not necessarily indicative of the consolidated results of operations as they might have been had the acquisition been effective as of January 1, 1994 or 1993.
Year ended Year ended December 31, 1994 December 31, 1993 -------------------------------------------------------------------------------------------------------------------- Proforma Proforma -------------------------------------------------------------------------------------------------------------------- (in thousands except per share amounts) Net interest income $ 20,773 $ 20,265 Net income $ 4,291 $ 4,651 Weighted average common shares outstanding 2,092 2,087 Net income per share $ 2.05 $ 2.23
3) RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS The Bank is required to maintain average reserve balances with the Federal Reserve Bank of New York. The required average total reserve for the 14-day maintenance period beginning December 22,1994 was $6,561,000, of which $1,007,000 was required to be on deposit with the Federal Reserve Bank; the remainder, $5,554,000, was represented by cash on hand. (4) SECURITIES Amortized cost and fair values of securities available for sale at December 31, 1994 and 1993 are as follows:
1994 1993 -------------------------------------------------------------------------------------------------------------------- Amortized Fair Amortized Fair Cost Value Cost Value -------------------------------------------------------------------------------------------------------------------- U.S. Treasury securities $ 135,086,502 132,211,021 44,813,897 44,813,897 Obligations of other U.S. Government agencies 31,806,859 31,027,012 - - Obligations of states and political subdivisions 14,888,600 14,903,869 - - Other bonds and notes 5,192,796 5,193,756 - - Corporate stocks 2,148,876 5,492,626 - - -------------------------------------------------------------------------------------------------------------------- $ 189,123,633 188,828,284 44,813,897 44,813,897 ====================================================================================================================
Amortized cost and fair values of securities held to maturity at December 31, 1994 and 1993 are as follows:
1994 1993 -------------------------------------------------------------------------------------------------------------------- Amortized Fair Amortized Fair Cost Value Cost Value -------------------------------------------------------------------------------------------------------------------- U.S. Treasury securities $ - - 47,368,551 48,153,328 Obligations of other U.S. Government agencies - - 12,033,435 12,923,610 Obligations of states and political subdivisions 13,181,247 13,025,161 21,997,433 22,763,185 Other bonds and notes 1,987,435 1,987,409 8,870,740 9,293,202 Corporate stocks - - 2,001,875 5,987,424 -------------------------------------------------------------------------------------------------------------------- $ 15,168,682 15,012,570 92,272,034 99,120,749 ====================================================================================================================
Included in corporate stocks at December 31, 1994 and 1993 is the Bank's required investment in the stock of the Federal Home Loan Bank with a cost of $1,193,200 and $1,152,900, respectively. This investment allows the Bank to maintain a $22,233,600 line of credit with the Federal Home Loan Bank. Gross unrealized gains and gross unrealized losses on securities available for sale at December 31, 1994 were as follows:
Unrealized Unrealized Gains Losses -------------------------------------------------------------------------------------------------------------------- U.S. Treasury securities $ 3,753 2,879,234 Obligations of other U.S. Government agencies 89,733 869,580 Obligations of states and political subdivisions 191,870 176,600 Other bonds and notes 38,976 38,017 Corporate stocks 3,356,773 13,023 -------------------------------------------------------------------------------------------------------------------- $ 3,681,105 3,976,454 ====================================================================================================================
Gross unrealized gains and gross unrealized losses on securities held to maturity at December 31, 1994 and 1993 were as follows:
1994 1993 Unrealized Unrealized Unrealized Unrealized Gains Losses Gains Losses -------------------------------------------------------------------------------------------------------------------- U.S. Treasury securities $ - - 837,857 53,080 Obligations of other U.S. Government agencies - - 890,175 - Obligations of states and political subdivisions 976 157,062 778,518 12,768 Other bonds and notes 4,677 4,703 424,929 2,467 Corporate stocks - - 3,989,751 4,200 -------------------------------------------------------------------------------------------------------------------- $ 5,653 161,765 6,921,230 72,515 ====================================================================================================================
Gross realized gains on sales of securities were $140,001, $821,467, and $104,552 for the years ended December 31, 1994, 1993 and 1992, respectively. Included in gross realized gains on sales of securities for the year ended December 31, 1993 is $545,000 relating to the sale of a $1,000,000 security which was deemed permanently impaired and written down by $755,000 in 1991. The security was sold in 1993 for $790,000. Interest and dividends on securities for the years ended December 31, 1994, 1993 and 1992 were as follows:
1994 1993 1992 -------------------------------------------------------------------------------------------------------------------- Taxable U.S. Treasury securities $ 5,152,024 3,443,000 3,120,115 Obligations of other U.S. Government agencies 1,739,701 1,548,043 2,124,613 Other bonds and notes 614,390 849,532 1,031,747 Corporate stocks 255,723 247,543 161,700 Exempt from federal taxation - obligations of states and political subdivisions 1,261,678 1,184,321 1,441,478 -------------------------------------------------------------------------------------------------------------------- $ 9,023,516 7,272,439 7,879,653
The amortized cost and fair value by years to maturity as of December 31, 1994 for securities available for sale are as follows (excluding corporate stocks):
Maturing -------------------------------------------------------------------------------------------------------------------- After One, But Within One Year Within Five Years -------------------------------------------------------------------------------------------------------------------- Amortized Fair Amortized Fair Cost Value Cost Value -------------------------------------------------------------------------------------------------------------------- U.S. Treasury Securities $ 63,718,556 63,286,628 71,367,946 68,924,393 Obligations of other U.S. Government agencies 3,503,488 3,521,413 20,429,608 19,992,788 Obligations of states and political subdivisions 3,793,533 3,823,429 9,240,177 9,319,692 Other bonds and notes 2,499,564 2,501,875 2,693,232 2,691,881 -------------------------------------------------------------------------------------------------------------------- Total $ 73,515,141 73,133,345 103,730,963 100,928,754 ==================================================================================================================== Maturing -------------------------------------------------------------------------------------------------------------------- After Five, But Within Ten Years After Ten Years -------------------------------------------------------------------------------------------------------------------- Amortized Fair Amortized Fair Cost Value Cost Value -------------------------------------------------------------------------------------------------------------------- Obligations U.S. Government agencies $ 7,873,763 7,512,811 - - Obligations of states and political subdivisions 1,554,890 1,502,215 300,000 258,533 Other bonds and notes - - - -------------------------------------------------------------------------------------------------------------------- Total $ 9,428,653 9,015,026 300,000 258,533 ==================================================================================================================== The amortized cost and fair value by years to maturity as of December 31, 1994 for securities held to maturity are as follows: Maturing -------------------------------------------------------------------------------------------------------------------- After One, But Within One Year Within Five Years -------------------------------------------------------------------------------------------------------------------- Amortized Fair Amortized Fair Cost Value Cost Value -------------------------------------------------------------------------------------------------------------------- Obligations of states and political subdivisions $ 4,920,882 4,920,882 6,059,429 5,953,800 Other bonds and notes 750,243 754,920 1,237,192 1,232,489 -------------------------------------------------------------------------------------------------------------------- Total $ 5,671,125 5,675,802 7,296,621 7,186,289 ==================================================================================================================== Maturing -------------------------------------------------------------------------------------------------------------------- After Five, But Within Ten Years After Ten Years -------------------------------------------------------------------------------------------------------------------- Amortized Fair Amortized Fair Cost Value Cost Value -------------------------------------------------------------------------------------------------------------------- Obligations of states and political subdivisions $ 1,659,270 1,608,813 541,666 541,666 ====================================================================================================================
The fair value of securities pledged to secure public funds on deposit or for other purposes as required by law was $96,791,741 at December 31, 1994 and $62,886,134 at December 31, 1993. U.S. Treasury securities totaling $19,277,150 and $14,897,000 (fair value of $18,776,577 and $14,976,843) were pledged to secure repurchase agreements at December 31, 1994 and 1993, respectively, see note 8. There are no securities of a single issuer (other than securities of the U.S. Government and its agencies) that exceed 10% of shareholders' equity at December 31, 1994 or 1993. (5) LOANS AND ALLOWANCE FOR LOAN LOSSES The composition of the loan portfolio is summarized as follows:
December 31, 1994 1993 -------------------------------------------------------------------------------------------------------------------- Residential mortgages $ 54,717,992 56,894,106 Commercial mortgages 13,194,116 14,451,711 Commercial, financial and agricultural 75,006,015 69,483,923 Consumer loans 94,180,896 82,028,441 Net deferred fees and unearned income (601,571) (597,049) -------------------------------------------------------------------------------------------------------------------- $ 236,497,448 222,261,132 ====================================================================================================================
During 1994, 1993 and 1992, the Corporation sold $2,507,848, $2,572,308 and $1,602,199, respectively, of education loans at par to the Student Loan Marketing Association. The Corporation's market area encompasses the New York State counties of Chemung, Steuben, Schuyler and Tioga. Substantially all of the Corporation's outstanding loans are with borrowers living or doing business within 25 miles of the branches in these counties. The Corporation's concentrations of credit risk are reflected in the preceding schedule. The concentrations of credit risk with standby letters of credit, committed lines of credit and commitments to originate new loans, generally follow the loan classifications in the schedule. Other than general economic risks, management is not aware of any material concentrations of credit risk to any industry or individual borrower. The principal balances of loans not accruing interest totaled $1,200,547 and $1,605,341 at December 31, 1994 and 1993, respectively. There were no loans with modified payment terms because of the borrowers' financial difficulties at December 31, 1994 and 1993. The effect of nonaccrual loans on interest income for the years ended December 31, 1994, 1993 and 1992 was not material. The Bank is not committed to advance additional funds to these borrowers. Other real estate owned at December 31, 1994 consisted of $171,000 involving four properties. There was no other real estate owned at December 31, 1993. Transactions in the allowance for loan losses for the years ended December 31, 1994, 1993 and 1992 were as follows:
1994 1993 1992 -------------------------------------------------------------------------------------------------------------------- Balances at January 1 $ 3,500,000 3,400,000 2,800,000 Provision charged to operations 623,772 906,739 901,834 Loans charged off (717,511) (896,100) (443,183) Recoveries 93,739 89,361 141,349 Allowance of Owego at time of acquisition 99,968 - - -------------------------------------------------------------------------------------------------------------------- $ 3,599,968 3,500,000 3,400,000 ====================================================================================================================
(6) PREMISES AND EQUIPMENT Premises and equipment at December 31, 1994 and 1993 are as follows:
1994 1993 -------------------------------------------------------------------------------------------------------------------- Land $ 2,066,408 1,860,448 Buildings 9,009,746 8,311,568 Equipment and furniture 9,502,219 8,309,348 Leasehold improvements 317,624 255,258 -------------------------------------------------------------------------------------------------------------------- 20,895,997 18,736,622 Less accumulated depreciation 12,368,695 11,514,140 -------------------------------------------------------------------------------------------------------------------- $ 8,527,302 7,222,482 ====================================================================================================================
(7) DEPOSITS Interest-bearing deposits include certificates of deposit in denominations of $100,000 or more aggregating $17,169,048 and $13,423,389 at December 31, 1994 and 1993, respectively. Interest expense on such certificates was $559,034, $654,522 and $833,963 for 1994, 1993 and 1992, respectively. (8) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE The agreements have maturities from 4 to 97 days at December 31, 1994 and 3 to 137 days at December 31, 1993, and a weighted average interest rate of 5.30% at December 31, 1994 and 2.86% at December 31, 1993. The maximum amounts outstanding at any one month-end and average amount under these agreements during 1994 were $15,158,469 and $9,809,991, respectively. The maximum amounts outstanding at any one month-end and average amount under these agreements during 1993 were $15,553,985 and $9,714,451, respectively. The securities underlying the agreements were under the Trust Department's control as custodian. See note 4 for a description of the securities underlying these borrowings. (9) INCOME TAXES As discussed in note 1, the Corporation adopted SFAS 109 as of January 1, 1993. The cumulative effect of this change in accounting for income taxes is included as an increase in income taxes in the consolidated statement of income for the year ended December 31, 1993 because the effect of the change is not material. Total income taxes for the years ended December 31, 1994, 1993 and 1992 were allocated as follows:
1994 1993 1992 -------------------------------------------------------------------------------------------------------------------- Income before income taxes and cumulative effect of accounting change $ 2,342,765 2,830,032 2,295,525 Cumulative effect, at January 1, 1993, of adoption of SFAS 109 - 643,939 - Shareholders' equity for change in unrealized loss on securities (120,156) - - -------------------------------------------------------------------------------------------------------------------- $ 2,222,609 3,473,971 2,295,525 ==================================================================================================================== For the years ended December 31, 1994, 1993 and 1992, income tax expense attributable to income from operations before cumulative effect of change in accounting principle consists of: 1994 1993 1992 -------------------------------------------------------------------------------------------------------------------- Current: State $ 499,305 709,967 689,864 Federal 1,744,846 2,230,109 2,008,514 2,244,151 2,940,076 2,698,378 Deferred 98,614 (110,044) (402,853) -------------------------------------------------------------------------------------------------------------------- $ 2,342,765 2,830,032 2,295,525 ==================================================================================================================== Income tax expense differed from the amounts computed by applying the U.S. Federal statutory income tax rate to income before cumulative effect of change in accounting principle as follows: 1994 1993 1992 -------------------------------------------------------------------------------------------------------------------- Tax computed at statutory rate $ 2,376,699 2,804,386 2,421,298 Tax exempt interest (435,678) (402,658) (490,103) Dividend exclusion (32,362) (31,829) (32,395) State taxes, net of federal benefit 345,813 479,566 454,939 Nondeductible interest expense 41,829 33,751 45,230 Other items, net 46,464 (53,184) (103,444) -------------------------------------------------------------------------------------------------------------------- Actual tax expense $ 2,342,765 2,830,032 2,295,525 ==================================================================================================================== Deferred income benefit resulting from timing differences between items of income and expense reported for financial reporting purposes and those reported for federal income tax purposes for the year ended December 31, 1992 are as follows: Provision for loan losses $ (266,100) Other (136,753) ------------------------------------------------------------------------------------------------- $ (402,853) ================================================================================================= The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1994 and 1993 are presented below: 1994 1993 -------------------------------------------------------------------------------------------------------------------- Deferred tax assets: Allowance for loan losses $ 1,066,814 1,046,201 Accrual for postretirement benefits other than pensions 699,494 733,036 Deferred loan fees 185,896 240,865 Deferred compensation and directors fees 322,897 309,300 Net unrealized losses on securities 120,156 - Other 138,535 32,103 -------------------------------------------------------------------------------------------------------------------- Total gross deferred tax assets 2,533,792 2,361,505 -------------------------------------------------------------------------------------------------------------------- Deferred tax liabilities: Bond discount 101,715 49,760 Depreciation 389,469 333,569 Other 37,002 48,191 -------------------------------------------------------------------------------------------------------------------- Total gross deferred tax liabilities 528,186 431,520 -------------------------------------------------------------------------------------------------------------------- Net deferred tax asset $ 2,005,606 1,929,985 ====================================================================================================================
Realization of deferred tax assets is dependent upon the generation of future taxable income or the existence of sufficient taxable income within the carryback period. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. In assessing the need for a valuation allowance, management considers the scheduled reversal of the deferred tax liabilities, the level of historical taxable income and projected future taxable income over the periods in which the temporary differences comprising the deferred tax assets will be deductible. Based on its assessment, management determined that no valuation allowance is necessary. (10) PENSION PLAN The Bank has a noncontributory defined benefit pension plan covering substantially all employees. The plan's defined benefit formula generally bases payments to retired employees upon their length of service multiplied by a percentage of the average monthly pay over the last five years of employment. The following table sets forth the plan's funded status and amounts recognized in the Corporation's consolidated balance sheets at December 31, 1994 and 1993:
1994 1993 -------------------------------------------------------------------------------------------------------------------- Actuarial present value of accumulated benefit obligation, including vested benefits of $9,009,876 and $8,469,892 in 1994 and 1993 respectively $ (9,314,611) (8,733,282) -------------------------------------------------------------------------------------------------------------------- Projected benefit obligation for service rendered to date (11,573,174) (11,068,821) Plan assets at fair value 11,833,298 12,235,923 -------------------------------------------------------------------------------------------------------------------- Excess of plan assets over the projected benefit obligation 260,124 1,167,102 Unrecognized net obligation 909,342 979,230 Unrecognized net gain (1,207,086) (2,067,707) -------------------------------------------------------------------------------------------------------------------- (Accrued) prepared pension cost $ (37,620) 78,625 ==================================================================================================================== Net periodic pension cost included the following components: Years ended December 31, 1994 1993 1992 -------------------------------------------------------------------------------------------------------------------- Service cost - benefits earned during the year $ 271,218 265,992 257,268 Interest cost on projected benefit obligation 757,327 762,002 718,767 Actual return on plan assets (131,585) (245,983) (599,277) Net amortization and deferral (780,715) (599,153) (157,633) -------------------------------------------------------------------------------------------------------------------- Net periodic pension cost $ 116,245 182,858 219,125 ==================================================================================================================== Assumptions used in determining pension amounts are as follows: 1994 1993 -------------------------------------------------------------------------------------------------------------------- Discount rate for benefit obligations 7.0% 7.0% Rate of increase in compensation levels 5.0 5.0 Expected long-term rate of return of assets 8.5 8.5
The plan's assets at December 31, 1994 and 1993 are invested in common and preferred stocks, U.S. Government securities, and corporate bonds and notes. The Bank also sponsors a defined contribution profit sharing, savings and investment plan which covers all employees with a minimum of 1,000 hours of annual service. The Bank matches at the rate of 50% of the first 6% of an eligible employee's current earnings. Expense under the plan totaled $423,161, $406,798 and $450,241 for the years ended December 31, 1994, 1993 and 1992, respectively. (11) OTHER POSTRETIREMENT BENEFIT PLANS The Bank sponsors a defined benefit health care plan that provides postretirement medical, dental and prescription drug benefits to full-time employees who meet minimum age and service requirements. Postretirement life insurance benefits are also provided to certain employees who retired prior to July 1981. The plan is contributory, with retiree contributions adjusted annually, and contains other cost sharing features such as deductibles and coinsurance. The accounting for the plan anticipates future cost-sharing changes to the written plan that are consistent with the Bank's expressed intent to increase the retiree contribution rate annually for the expected general inflation rate for that year. The Bank's policy is to fund the cost of medical benefits in amounts determined at the discretion of management. As discussed in note 1, the Corporation adopted Statement of Financial Accounting Standards No. 106 (SFAS 106), Employers' Accounting for Postretirement Benefits Other Than Pensions, as of January 1, 1993. The effect of adopting SFAS 106 on net income and the net periodic postretirement cost for the year ended December 31, 1993, was a decrease of $933,183 and an increase of $108,173, respectively. The following table presents the plan's funded status reconciled with amounts recognized in the Corporation's consolidated balance sheet at December 31, 1994 and 1993: 1994 1993 -------------------------------------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $ (909,058) (712,811) Fully eligible active plan participants (140,404) (289,929) Other active plan participants (624,166) (797,068) -------------------------------------------------------------------------------------------------------------------- (1,673,628) (1,799,808) Unrecognized net (gain)loss (44,910) 113,613 -------------------------------------------------------------------------------------------------------------------- Accrued postretirement benefit cost included in other liabilities $ (1,718,538) (1,686,195) ====================================================================================================================
Net periodic postretirement benefit cost for 1994 and 1993 includes the following components: 1994 1993 -------------------------------------------------------------------------------------------------------------------- Service cost $ 44,407 99,889 Interest cost 114,642 118,284 -------------------------------------------------------------------------------------------------------------------- Net periodic postretirement benefit cost $ 159,049 218,173 ====================================================================================================================
For measurement purposes, a 13.5% and 11.5% annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) for non medicare and medicare, respectively, was assumed for 1994; the rate was assumed to decrease gradually to 5.5% by the year 2005 and remains at that level thereafter. A 1% increase in the trend rate for all future years does not have a material effect on the obligation. The weighted-average discount rate used in determining the accumulated postretirement benefit obligations was 7% at December 31, 1994 and 1993. (12) RELATED PARTY TRANSACTIONS Members of the Board of Directors, certain Bank officers, and their immediate families directly, or indirectly through entities in which they are principal owners (more than a 10% interest), were customers of, and had loans and other transactions with, the Bank in the ordinary course of business. All loans and commitments included in such transactions were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons. These loans and commitments, which did not involve more than normal risk of collectibility or present other unfavorable features, are summarized as follows for the years ended December 31, 1994 and 1993:
1994 1993 -------------------------------------------------------------------------------------------------------------------- Balance at beginning of year $ 9,892,451 8,960,569 Additions 26,807,438 34,701,638 Amounts collected (29,525,783) (33,769,756) -------------------------------------------------------------------------------------------------------------------- Balance at end of year $ 7,174,106 9,892,451 ====================================================================================================================
(13) EXPENSES The following expenses, which exceeded 1% of total revenues (total interest income plus other operating income) in at least one of the years presented, are included in other operating expenses:
Years ended December 31, -------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 -------------------------------------------------------------------------------------------------------------------- Stationery and supplies $ 445,691 384,124 359,840 Credit card computer costs 475,238 431,421 393,375 Data processing service 624,556 631,531 611,393 FDIC insurance premiums 795,913 768,891 740,407 Advertising 395,425 305,940 340,375
(14) COMMITMENTS AND CONTINGENCIES In the normal course of business, there are outstanding various commitments and contingent liabilities, such as commitments to extend credit, which are not reflected in the accompanying consolidated financial statements. Commitments to outside parties under standby letters of credit, unused portions of lines of credit, and commitments to fund new loans totaled $1,904,607, $75,940,053 and $572,338, respectively, at December 31, 1994. The Corporation does not anticipate losses as a result of these transactions. The Bank has employment contracts with certain of its senior officers, which expire at various dates through 1998 and may be extended on a year-to-year basis. (15) SHAREHOLDERS' EQUITY Under Federal Reserve regulations, the Bank is limited to the amount it may loan to the Corporation, unless such loans are collateralized by specific obligations. At December 31, 1994, the maximum amount available for transfer from the Bank to the Corporation in the form of loans was $1,660,655. The Bank is subject to legal limitations on the amount of dividends that can be paid to the Corporation. Dividends are limited to retained net profits, as defined by regulations, for the current year and the two preceding years. At December 31, 1994, $7,629,531 was available for the declaration of dividends. (16) PARENT COMPANY FINANCIAL INFORMATION Condensed parent company only financial statement information of Chemung Financial Corporation is as follows:
Balance Sheets -------------------------------------------------------------------------------------------------------------------- December 31 1994 1993 -------------------------------------------------------------------------------------------------------------------- Assets: Cash on deposit with subsidiary bank $ 273,358 235,860 Investment in subsidiary bank 44,880,039 37,689,131 Dividend receivable 1,656,027 430,569 Securities available for sale 590,619 401,381 Other assets 3 - -------------------------------------------------------------------------------------------------------------------- Total assets $ 47,400,046 38,756,941 ==================================================================================================================== Liabilities and shareholders' equity: Dividend payable 456,027 430,569 Deferred tax liability 40,390 - Payable to Owego shareholders 1,164,883 - -------------------------------------------------------------------------------------------------------------------- Total liabilities 1,661,300 430,569 -------------------------------------------------------------------------------------------------------------------- Shareholders' equity: Common stock 10,750,335 9,783,495 Surplus 10,068,563 6,488,330 Retained earnings 26,374,590 23,503,671 Treasury stock, at cost (1,279,549) (1,449,124) Net unrealized loss on securities available for sale (175,193) - -------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 45,738,746 38,326,372 -------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 47,400,046 38,756,941 ==================================================================================================================== Statements of Income -------------------------------------------------------------------------------------------------------------------- Years Ended December 31, 1994 1993 1992 -------------------------------------------------------------------------------------------------------------------- Income: Interest and dividends $ 23,768 22,806 20,898 Gain on sale of securities 140,001 3 7,506 Dividends from subsidiary bank 2,976,606 1,656,528 1,552,656 -------------------------------------------------------------------------------------------------------------------- Income before equity in undistributed earnings of subsidiary bank 3,140,375 1,679,337 1,581,060 Equity in undistributed earnings of subsidiary bank 1,569,926 2,814,726 3,244,879 -------------------------------------------------------------------------------------------------------------------- Income before income taxes 4,710,301 4,494,063 4,825,939 Income taxes 62,776 - - -------------------------------------------------------------------------------------------------------------------- Net Income $ 4,647,525 4,494,063 4,825,939 ==================================================================================================================== Statements of Cash Flows -------------------------------------------------------------------------------------------------------------------- December 31, 1994 1993 1992 -------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities Net income $ 4,647,525 4,494,063 4,825,939 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of subsidiary (1,569,926) (2,814,726) (3,244,879) Increase in dividend receivable (1,225,458) (32,938) (36,865) Gain on sale of securities, net (140,001) (3) - -------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 1,712,140 1,646,396 1,544,195 -------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from sales of common stock, other 271,234 31 210,009 Purchases of common stock, other (221,193) (116,200) - Payment to subsidiary for prior year's taxes (146,035) - - -------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by investing activities (95,994) (116,169) 210,009 -------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Cash dividends paid (1,751,148) (1,623,590) (1,515,790) Purchases of treasury stock - (65,638) (89,896) Sale of treasury stock 172,500 48,008 - -------------------------------------------------------------------------------------------------------------------- Net cash used by financing activities (1,578,648) (1,641,220) (1,605,686) -------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 37,498 (110,993) 148,518 Cash and cash equivalents at beginning of year 235,860 346,853 198,335 -------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 273,358 235,860 346,853 ====================================================================================================================
(17) FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate thefair value of each class of financial instruments: CASH AND CASH EQUIVALENTS For those short-term instruments that generally mature in ninety days or less, the carrying value approximates fair value. SECURITIES Fair values for securities are based on either 1) quoted market prices,2) dealer quotes, 3) correspondent bank pricing system, or 4) discounted cash flow to maturity. LOANS RECEIVABLE For variable-rate loans that reprice frequently, fair values are based on carrying values. The fair values for other loans are estimated through discounted cash flow analyses using interest rates currentlybeing offered for loans with similar terms and credit quality. DEPOSITS The fair values disclosed for demand deposits, savings accounts andmoney market accounts are, by definition, equal to the amounts payable on demand at the reporting date (i.e., their carrying values). The fair value of fixed maturity certificates of deposits is estimated using a discounted cash flow approach that applies interest rates currently being offered on certificates to a schedule of weighted average expected monthly maturities on time deposits. BORROWINGS These instruments bear variable rates and therefore the carrying value approximates fair value. COMMITMENTS TO EXTEND CREDIT The fair value to commitments to extend credit are equal to the contract value of the commitments as the contractual rates and fees approximate those currently charged to originate similar commitments. The estimated fair value of the Corporation's financial instruments as of December 31, 1994 and 1993 are as follows (dollars in thousands):
1994 1993 Carrying Fair Carrying Fair Amount Value (1) Amount Value (1) -------------------------------------------------------------------------------------------------------------------- Financial assets: Cash and cash equivalents $ 24,381 24,381 20,218 20,218 Securities 203,997 203,841 137,086 143,934 Loans receivable: Commercial loans 75,006 75,083 69,484 72,245 Adjustable rate mortgages 4,462 4,718 3,014 3,029 Fixed rate mortgages 63,450 61,734 68,332 72,236 Home equity loans 41,893 41,908 38,466 38,499 Consumer loans 44,574 44,824 35,771 36,823 Credit card loans 7,714 7,790 7,791 7,788 -------------------------------------------------------------------------------------------------------------------- Total loans 237,099 236,057 222,858 230,620 Less: Allowance for loan losses 3,600 3,600 3,500 3,500 Unearned income 602 602 597 597 -------------------------------------------------------------------------------------------------------------------- Net loans 232,897 231,843 218,761 226,523 Federal funds sold 8,000 8,000 9,900 9,900 Fixed assets 8,527 8,527 7,222 7,222 Accrued interest and other 16,530 16,530 4,936 4,936 -------------------------------------------------------------------------------------------------------------------- Total assets $ 494,332 493,134 398,123 412,733 ==================================================================================================================== 1994 1993 Carrying Fair Carrying Fair Amount Value (1) Amount Value (1) -------------------------------------------------------------------------------------------------------------------- Financial liabilities: Deposits: Demand, savings, NOW and money market accounts $ 286,232 286,232 237,152 237,152 Time certificates 146,039 145,392 105,699 110,135 -------------------------------------------------------------------------------------------------------------------- Total deposits 432,271 431,624 342,851 347,287 Borrowings: Repurchase agreements 10,204 10,204 12,546 12,546 Accrued interest payable, dividends payable and other liabilities 6,118 6,118 4,400 4,400 -------------------------------------------------------------------------------------------------------------------- Total liabilities 448,593 447,946 359,797 364,233 Equity 45,739 45,188 38,326 48,500 -------------------------------------------------------------------------------------------------------------------- Total liabilities and equity $ 494,332 493,134 398,123 412,733 ==================================================================================================================== Standby letters of credit $ 1,904 1,904 1,160 1,160 Unused portions of lines of credit $ 75,940 75,940 65,381 65,381 Commitments to fund new loans $ 572 572 512 512
(1) Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. (18) REGULATORY CAPITAL REQUIREMENT The Bank is subject to the capital adequacy requirements of the Federal Deposit Insurance Corporation. Under the "prompt corrective action" provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991, (the FDIC Act), federal regulators are required to take prompt corrective action to solve the problems of crititically undercapitalized institutions. The FDIC Act established capital levels for which insured institutions will be categorized as (in declining order) well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, or critically undercapitalized. Under the FDIC Act, a "well capitalized" institution must have a risk based capital ratio of 10 percent, a core capital ratio of 5 percent and a Tier 1 risk-based capital ratio of 6 percent. (The "Tier 1 risk-based capital" ratio is the ratio of core capital to risk-weighted assets.) The Bank is a well capitalized institution under the definitions.
EX-21 3 EXHIBIT E CHEMUNG FINANCIAL CORPORATION Subsidiary List Name State of Incorporation Chemung Canal Trust Company New York EX-22 4 EXHIBIT F NOTICE OF ANNUAL MEETING, PROXY STATEMENT DATED MARCH 14, 1995, AND PROXY FORM March 14, 1995 Dear Shareholder: You are cordially invited to attend the Annual Meeting of Shareholders to be held on Tuesday, April 11, 1995, at 7:00 p.m. at the Elmira Holiday Inn, in the City of Elmira, New York. Following the Meeting, desserts, coffee, tea and other refreshments will be served. The one item on the agenda requiring Shareholders vote will be the election of eight directors. The candidates nominated for three-year terms, all currently serving, are: John W. Bennett, Robert H. Dalrymple, Natalie B. Kuenkler, Ralph H. Meyer, Samuel J. Semel, Richard W. Swan and William A. Tryon. The nominated candidate for a one-year term, who is currently serving, is: Stephen M. Lounsberry III. The attached Proxy Statement sets forth in detail information relating to the nominated candidates as well as those directors continuing in office. In addition to the above-noted election, we will review our financial performance for the past year and discuss our plans for 1995. Also, Joseph J. Tascone, Vice President and Senior Trust Investment Officer of Chemung Canal Trust Company, will speak on the topic of Investing: "How to Snatch Defeat from the Jaws of Victory". It is important that you be represented at the Meeting whether or not you plan to attend in person. Accordingly, we urge you to mark, sign, date and return the enclosed proxy card in the envelope provided. Also, if you plan to attend the Meeting, please mark the proxy card where indicated and include the number in your group. Your directors and management look forward to seeing you on April 11. Sincerely yours, /s/ John W. Bennett John W. Bennett President and CEO One Chemung Canal Plaza P.O. Box 1522 Elmira, New York 14902 Parent Company of CHEMUNG CANAL TRUST COMPANY NOTICE OF ANNUAL MEETING OF SHAREHOLDERS As directed by the Board of Directors of Chemung Financial Corporation, NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of the Corporation will be held at the Elmira Holiday Inn, One Holiday Plaza, Elmira, New York, Tuesday, April 11, 1995, at 7:00 p.m. for the following purposes: 1. To elect seven (7) directors, each to hold office for a term of three years and one (1) director to hold office for a term of one year,and in each case until their respective successors have been elected and qualified. 2. To transact such other business as may properly come before the Meeting or any adjournments thereof. The Board of Directors has fixed the close of business on March 8, 1995 as the record date for determination of Shareholders entitled to notice of and to vote at this Meeting. Shareholders are requested to date, sign and mail the enclosed proxy in the envelope provided at their earliest convenience. A prompt response will be appreciated and will save the Corporation additional time and expense. BY ORDER OF THE BOARD OF DIRECTORS Jerome F. Denton Secretary March 14, 1995 CHEMUNG FINANCIAL CORPORATION ONE CHEMUNG CANAL PLAZA, P.O. BOX 1522, ELMIRA, NEW YORK PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS, APRIL 11, 1995 GENERAL INFORMATION: Chemung Financial Corporation and its wholly-owned subsidiary, Chemung Canal Trust Company, are incorporated under the laws of the State of New York. For purposes of this proxy statement, financial and other information is presented on a consolidated basis for Chemung Financial Corporation (Corporation ) and Chemung Canal Trust Company (Bank). The disclosed information of the Corporation and the Bank should be viewed as though it pertained to one entity, unless otherwise stated. The Corporation anticipates that the proxy and proxy statement will be mailed to holders of Common Stock of the Corporation on or about March 14, 1995. SOLICITATION AND REVOCATION OF PROXIES: This proxy statement is furnished to the Shareholders of Chemung Financial Corporation in connection with the solicitation of proxies by the Board of Directors of the Corporation for the purposes set forth in the attached Notice of Annual Meeting to be held April 11, 1995. The proxy may be revoked at any time prior to the voting thereof. Such right is not limited or subject to any formal procedure. Attendance at the Meeting will not in and of itself revoke a proxy. The cost of soliciting proxies will be borne by the Corporation and the Bank. In addition to solicitations by mail, some of the directors, officers, and regular employees of the Corporation and the Bank may conduct additional solicitations by telephone and personal contacts without remuneration. American Stock Transfer & Trust Company , the Corporation's transfer agent, will aid the Corporation in the solicitation of proxies and proxy vote tabulations. Nominees, brokerage houses, custodians and fiduciaries will be requested to forward soliciting material to beneficial owners of stock held of record and the Corporation will reimburse such persons for any reasonable expense. BOARD OF DIRECTORS: ELECTON OF DIRECTORS Those persons serving as directors of the Corporation and the Bank, being the same individuals, normally serve three-year terms of office, with approximately one-third of the total number of each such Board of Directors to be elected at each Annual Shareholders Meeting of each such entity. The number of directors to be elected at the 1995 Annual Meeting of Shareholders is eight (8); seven (7) for three-year terms and one (1) for a one-year term, each to serve for such term and until their respective successors are elected and qualified. Nominees for director will be elected by a plurality of votes cast at the Meeting by holders of Common Stock present in person or by proxy and entitled to vote on such election. Any other matter requires the affirmative vote of a majority of the votes cast at the Meeting. Only shares affirmatively voted in favor of a nominee will be counted toward the achievement of a 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. Proxies returned by Shareholders and not revoked will be voted for the election of the nominees as directors unless Shareholders instruct otherwise on the proxy. If any nominee shall become unavailable for election, the persons designated as proxies reserve full discretion to cast votes for other persons. The following table sets forth information concerning the Board of Directors' nominees for election as directors and the other directors whose terms of office do not expire at the 1995 Annual Meeting:
Length of Service Principal Occupation During Name and Age As Director (1) Past 5 Years NOMINEE WITH TERM EXPIRING IN 1996 Stephen M. Lounsberry III Since 1995 (1995) President of Moore & Steele Age 41 Corporation, manufacturer of railroad lubrication systems NOMINEES WITH TERMS EXPIRING IN 1998 John W. Bennett Since 1988 (1988) President & CEO of the Age 61 Corporation and the Bank since January 1, 1991; formerly President of the Corporation and the Bank; also director of Hardinge Brothers, Inc. Robert H. Dalrymple Since 1995 (1995) Secretary of Dalrymple Age 44 Holding Corporation, parent company for several construction companies Length of Service Principal Occupation During Name and Age As Director (1) Past 5 Years NOMINEES WITH TERMS EXPIRING IN 1998 Natalie B. Kuenkler Since 1985 (1976) Director of various Age 69 community organizations Ralph H. Meyer Since 1985 (1981) President of Guthrie Age 55 Healthcare System, a vertically integrated healthcare delivery system Samuel J. Semel Since 1993 (1993) President of Chemung Age 68 Electronics, Inc., retail electronics store Richard W. Swan Since 1985 (1984) President of Swan & Age46 Sons-Morss Co., Inc., insurance brokerage agency William A. Tryon Since 1987 (1987) Chairman of the Board and Age 64 CEO of Trayer Products, Inc., automotive and truck parts manufacturer; and Chairman of the Board of Perry and Swartwood, Inc., insurance brokerage agency; formerly a director of the Bank from 1964 to 1976 DIRECTORS CONTINUING IN OFFICE WITH TERMS EXPIRING IN 1996 Robert E. Agan Since 1986 (1986) President and CEO, and Age 56 Director of Hardinge Brothers, Inc., machine tool manufacturer Donald L. Brooks, Jr. Since 1985 (1972) Physician Age 66 Boyd McDowell II Since 1985 (1969) Retired since April 1, Age 69 1991; formerly Chair- man of the Board & CEO of the Corporation and the Bank; also a director of Hardinge Brothers, Inc. Thomas K. Meier Since 1988 (1988) President of Elmira Age 54 College DIRECTORS CONTINUING IN OFFICE WITH TERMS EXPIRING IN 1996 Charles M. Streeter, Jr. Since 1985 (1979) President of Streeter Age 55 Associates, Inc., general contractors Nelson Mooers van den Blink Age 60 Since 1985 (1983) Chairman of the Board, Chief Executive Officer, and Treasurer of The Hilliard Corporation, motion control equipment, oil reclaimer and filter manufacturer DIRECTORS CONTINUING IN OFFICE WITH TERMS EXPIRING IN 1997 David J. Dalrymple Since 1993 (1993) President of Dalrymple Age 40 Holding Corporation since December 17, 1993, parent company for several construction companies; formerly Vice President Richard H. Evans Since 1985 (1981) Retired since January 1, Age 64 1995; formerly Chairman of the Board & CEO of Chas. F. Evans Co., Inc. Edward B. Hoffman Since 1993 (1993) Partner with Sayles, Evans, Age 63 Brayton, Palmer & Tifft, law firm John F. Potter Since 1991 (1991) President of Seneca Age 49 Beverage Corp., wholesale distributor of beer, water and soda products Whitney S. Powers Since 1985 (1983) Manufacturing Consultant; Age 71 also a director of Hardinge Brothers, Inc. William C. Ughetta Since 1985 (1985) Senior Vice President and Age 62 General Counsel of Corning Incorporated, a diversified manufacturing company
(1) The date in parentheses reflects the year in which the director was first elected to the Bank Board. Messrs. Robert H. Dalrymple and Stephen M. Lounsberry III were elected to the Corporation's and the Bank's Boards of Directors on January 11, 1995 and March 8, 1995, respectively. DIRECTORS AND COMMITTEE MEETINGS The Board of Directors of the Corporation held eight (8) regularly scheduled meetings and one (1) special meeting during the year ended December 31, 1994. The Corporation has no standing committees. The Board of Directors of the Bank held twelve (12) regularly scheduled meetings and no special meetings during the year ended December 31, 1994. Among its standing committees, the Board of Directors of the Bank has an Examining Committee, Nominating Committee and a Personnel Committee. The Examining Committee makes an annual examination of the Bank as a whole, reviews the Banks internal audit and loan review procedures, and recommends to the Board of Directors the engagement and dismissal of independent auditors. During 1994 this Committee held three (3) meetings. On December 31, 1994 its members were Messrs. Brooks (Chairman), Agan, Hoffman, McDowell, Meyer, Potter, Powers and Semel. The Nominating Committee selects and recommends to the Board of Directors nominees for election to the Board. The Committee will consider written recommendations by Shareholders for nominees for election to the Board if such recommendations are mailed to the Chairman of the Nominating Committee or to the President of the Corporation at the Corporations Main Office, One Chemung Canal Plaza, Elmira, New York 14902. There were no Committee meetings held in 1994. On December 31, 1994 its members were Messrs. Swan (Chairman), Bennett, Brooks, D. Dalrymple, McDowell, Potter, Powers, Streeter, and Mrs. Kuenkler. The Personnel Committee reviews employee benefit programs and employee relation policies and procedures. Additional responsibilities include the nomination of officers, recommendation of Executive Officer compensation plans, and establishment of guidelines for setting all other officers' salaries. The Committee held six (6) meetings in 1994 and on December 31, 1994 its members were Messrs. Meier (Chairman), Brooks, D. Dalrymple, Evans, Meyer, Potter, Streeter, Ughetta, and Mrs. van den Blink. During the year ended December 31, 1994, each director of the Corporation and the Bank attended at least 75% of the aggregate of (1) the total number of Board Meetings held and (2) the total number of meetings held by all committees of which such director was a member, with the exceptions of Messrs. Agan, Brooks, McDowell, and Mrs. Kuenkler who attended 64%, 73%, 72% and 54%, respectively, of such meetings. DIRECTORS COMPENSATION Each director of the Bank who is not an officer or employee of the Bank receives an annual retainer of $5,000 and a fee of $300 for each meeting of the Board of Directors attended. Those directors who are members of one or more committees of the Board of Directors also receive a fee of $300 for each meeting of each committee attended, with the exception of the Chairman of each committee who receives $350. Directors who are not officers or employees of the Corporation receive a fee of $300 for attendance at meetings of the Board of the Corporation which are held on days when there is no meeting of the Board of Directors of the Bank. There was one such meeting during 1994. Otherwise, directors of the Corporation are not compensated for services rendered by them to the Corporation. It presently is contemplated that such will continue to be the policy of the Corporation. Any director who is entitled to receive a retainer and fees for meetings of the Board of Directors and of committees thereof attended, may elect to have all or a portion of said retainer and fees deferred under the Banks Deferred Directors Fee Plan . Each participating director may designate, in increments of 10%, the compensation to be deferred, or compensation already deferred, to be allocated to a memorandum Money Market or a memorandum Unit Value Account, or a combination of such accounts. The memorandum Money Market Account of each participating director is credited with the dollar amount of deferral, and interest is computed and added to said account at the times and in the manner and at the rate at which interest is computed for the Bank's Insured Money Market Accounts. The memorandum Unit Value Account of each participating director is credited with the dollar amount of deferral, with the aggregate of said deferred amounts being converted to units on a quarterly basis by dividing the aggregate of said deferred amounts by the closing bid price for shares of the Common Stock of the Corporation on such trading dates as noted in the Plan. Dividends are credited to said account on the dates and at the rate per unit at which dividends are paid per share on the Corporation's outstanding Common Stock and are then converted to units using the same basis of conversion as for deferred amounts. Within certain time limitations, a participating director may elect to receive deferred fees either in a lump sum or in installments. The aggregate amount of directors retainers and fees paid and deferred during 1994 was $207,350. No additional compensation was received by any director for special assignments or services. CERTAIN TRANSACTIONS Some of the directors and officers of the Bank, and some of the corporations and firms with which these individuals are associated, also are customers of the Bank in the ordinary course of business, or are indebted to the Bank in respect to loans of $60,000 or more, and it is anticipated that some of these individuals, corporations and firms will continue to be customers of and indebted to the Bank on a similar basis in the future. All loans extended to such individuals, corporations and firms were made in the ordinary course of business, did not involve more than normal risk of collectibility or present other unfavorable features and were made on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable bank transactions with unaffiliated persons. The Bank has purchased insurance from a CNA Company, American Casualty Company of Reading, Pennsylvania, providing for reimbursement of directors and officers of the Corporation and the Bank for costs and expenses incurred by them in actions brought against them for wrongful acts in connection with their duties as directors or officers, including actions as fiduciaries of the Banks Pension and Profit-Sharing Plans, under the Employee Retirement Income Security Act of 1974. The insurance coverage, which expires in November 1995, costs $18,423 on an annual basis, and has been paid by the Bank. No claims have been made or pad under this insurance. The Bank has retained Sayles, Evans, Brayton, Palmer & Tifft, of which Mr. Hoffman is a partner, for legal services during the last two years and expects to retain Sayles, Evans, Brayton, Palmer & Tifft for legal services during the current year. VOTING SECURITIES AND EQUITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND BY DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS The Board of Directors has fixed the close of business on March 8, 1995, as the record date for determination of Shareholders entitled to notice of and to vote at this Meeting. As of the close of business on February 15, 1995, the Corporation had outstanding 2,093,481 shares of Common Stock. Each of said shares is entitled to one vote at the Meeting with respect to each matter to be voted upon. None of said stock has cumulative voting rights. To the knowledge of the Corporation, as of January 3, 1995, the only persons who beneficially owned more than 5% of the outstanding shares of the Corporations Common Stock are set forth below: Mary E. Dalrymple of 661 Foster Avenue, Elmira, New York, David J. Dalrymple of 274 Upper Coleman Avenue, Elmira, New York and Robert H. Dalrymple of 875 Upland Drive, Elmira, New York, may be deemed to have beneficially owned collectively 341,349 shares or 16.31% of the Corporation's Common Stock. Mary E. Dalrymple, the mother of David J. Dalrymple and Robert H. Dalrymple, owned directly 214,221 of said shares. David J. Dalrymple owned directly 46,162 shares and as custodian for his children under the New York State Uniform Gifts to Minors Act 1,904 shares. Robert H. Dalrymple owned directly 38,000 shares and as custodian for his children under the New York State Uniform Gifts to Minors Act 1,904 shares. Dalrymple Holding Corporation, of which corporation David J. Dalrymple and Robert H. Dalrymple are officers, directors and principal shareholders, owned directly 39,158 of said shares. Said total ownership by said three persons does not include 15,115 shares owned by Susquehanna Supply Company of which David J. Dalrymple and Robert H. Dalrymple each own 23.1% of the outstanding common stock nor does it include 1,350 shares and 1,000 shares owned by the respective spouses of David J. Dalrymple and Robert H. Dalrymple. Said persons may be deemed to share beneficial ownership because of family relationships amongst them and because they may be deemed to constitute a "group" within the meaning of Section 13 (d)(3) of the Exchange Act. The disclosure described herein shall not be deemed to be an admission by said persons that such a group exists. The Bank, in various fiduciary, agency and trust capacities held a total of 608,507 shares or 29.1 % of the outstanding stock of the Corporation. When acting in a co-fiduciary capacity, the shares will be voted by the co-fiduciary or fiduciaries in the same manner as if the co-fiduciary or fiduciaries were the sole fiduciary. Where the Bank is sole trustee, the shares will be voted only if the trust instrument provides for voting the stock at the direction of the donor or a beneficiary and such direction is in fact received. It is the intention of the Bank in its fiduciary capacity to vote those shares as to which it has sole voting power in favor of the proposals as hereinafter described. As of January 3, 1995, each director or nominee and each Executive Officer named in the Summary Compensation Table herein, individually, and all directors, nominees and Executive Officers as a group beneficially owned Common Stock as reported to the Corporation as of said date as follows (unless otherwise indicated, each of the persons named has sole voting and investment power with respect to the shares listed):
DIRECTORS, NOMINEES AND AMOUNT AND NATURE PERCENT OF EXECUTIVE OFFICERS OF BENEFICIAL OWNERSHIP(A) SHARES OUTSTANDING(B) Robert E. Agan 450 -- John W. Bennett(C) 7,674 -- Donald L. Brooks, Jr. 1,250 -- David J. Dalrymple(D) 46,162 2.21 Robert H. Dalrymple(D) 38,000 1.82 Richard H. Evans 9,352 -- Edward B. Hoffman 1,579 -- Natalie B. Kuenkler(E) 6,706 -- Stephen M. Lounsberry III 1,625 -- Boyd McDowell II 8,357 -- Thomas K. Meier 2,000 -- Ralph H. Meyer 1,500 -- John F. Potter(F) 8,171 -- Whitney S. Powers 9,675 -- Samuel J. Semel 4,176 -- Charles M. Streeter, Jr.(G) 10,213 -- Richard W. Swan(H) 19,133 -- William A. Tryon 14,039 -- William C. Ughetta 6,500 -- Nelson Mooers van den Blink 1,476 -- Jan P. Updegraff(C) 3,009 -- All Directors, Nominees and 211,891 10.12 Executive Officers as a group (24 persons)(I) Notes: A. Unless otherwise noted, all shares included in this table are owned directly, with sole voting and dispositive power. B. Unless otherwise noted, less than 1% per individual. C. Includes all vested shares of Common Stock of the Corporation held for the benefit of each Executive Officer by the Bank as trustee of the Bank's Profit-Sharing, Savings and Investment Plan, who may instruct the trustee as to the voting of such shares. If no instructions are received, the trustee votes the shares in the same proportion as it votes all of the shares for which instructions were received from all Plan participants. The power to dispose of shares is held by Plan participants subject to certain restrictions. Messrs. Bennett and Updegraff have a vested interest in 6,578 and 2,859 such shares held by the Plan, respectively. Under the provisions of the Plan, the trustee holds for the benefit of all employees who participate in the Plan 183,018 shares of the Corporation's Common Stock D. Does not include 39,158 shares owned by Dalrymple Holding Corporation, of which corporation David J. Dalrymple and Robert H. Dalrymple are officers, directors and the principal shareholders nor 15,115 shares owned by Susquehanna Supply Company, of which company Messrs. Dalrymple are each 23.1% owners, as to which shares Messrs. Dalrymple disclaim beneficial ownership. See also VOTING SECURITIES AND EQUITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND BY DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS herein. E. Includes 4,131 shares held by Mrs. Kuenkler and another as trustees under the Will of a decedent under which Mrs. Kuenkler is an income beneficiary and as trustee shares voting and dispositive powers. Does not include 75,600 shares owned by The Rathbone Corporation, of which Mrs. Kuenkler is a director. F. Includes 5,448 shares owned by Seneca Beverage Corp., of which corporation Mr. Potter is an officer, director and the principal shareholder. G. Includes 5,418 shares owned by Streeter Associates, Inc., of which corporation Mr. Streeter is an officer, director and the principal shareholder. H. Includes 6,000 shares owned by Swan & Sons-Morss Co., Inc., of which corporation Mr. Swan is an officer, director and one of the principal shareholders. Does not includes 2,158 shares held by others as trustees for a trust of which Mr. Swan is an income beneficiary, as to which shares Mr. Swan disclaims beneficial ownership. I. Does not include 14,441 shares owned as custodians for minor children and owned by spouses of certain officers and directors as to which such officers and directors disclaim beneficial ownership. Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation's directors and executive officers, and persons who own more than ten percent of a registered class of the Corporation's equity securities, to file with the Securities and Exchange Commission initial reports of ownership, reports of changes in beneficial ownership, and annual reports involving security transactions pursuant to one or more rules as set forth under Sections 16(a) and 16(b) of the Securities Exchange Act. Directors, executive officers, and greater than ten percent shareholders are required by SEC regulation to furnish the Corporation with copies of all Section 16(a) forms they file. To the Corporation's knowledge, based on review of the copies of such reports furnished to the Corporation and written representations that no other reports were required for the year ended December 31, 1994, the executive officers, directors and any ten percent shareholder complied with all Section 16(a) filing requirements. MANAGEMENT: DIRECTORS' PERSONNEL COMMITTEE REPORT ON EXECUTIVE COMPENSATION Under the supervision of the Personnel Committee of the Board of Directors which is composed entirely of outside directors, the Bank has developed and implemented compensation policies which seek to enhance the profitability of the Bank and the Corporation and thus, shareholder value while at the same time providing fair and competitive compensation which will attract and retain well-qualified executives. Based upon recommendations of the Personnel Committee, the Board of Directors sets the annual compensation of the Chief Executive Officer and approves guidelines establishing compensation for other senior management which is then recommended by the Chief Executive Officer based upon performance and other relevant factors and then approved by the Board of Directors. Aside from the fringe benefit programs in which all Bank employees participate, annual compensation of all Bank executives consists of an annual salary and a discretionary bonus which may or may not be deferred at the executive's election. This bonus is paid only if profits for the year exceed 8% of the Shareholders equity and is recommended by the Personnel Committee and fixed by the Board of Directors near year-end, when results for the year can be accurately predicted. The Bank at present has no long term compensation plan such as stock options. In evaluating the performance and recommending the compensation of the Chief Executive Officer and the compensation guidelines for the Bank's other senior management, the committee has taken particular note of management's success during 1994 in achieving certain profit, growth and operational objectives which were established by the Board of Directors in the Bank Plan at the beginning of 1994 and compared the Corporation's financial results against the results reported by similar banking businesses in New York and Pennsylvania. In making its evaluation the committee also noted management's successful expansion of the Corporation's market base during 1994 through the acquisition from the Resolution Trust Corporation of deposits and banking offices in three new market areas and the further expansion to a fourth new market area through a merger with an existing full-service bank. The financial and operational measurements considered by the Board were: profits, return on assets, return on equity, new product development, expense control, asset growth, non-interest income, asset quality and asset liability management. There is no specific weight given to any of these factors and there is no formula whereby a certain performance will result in a certain bonus or salary. he committee subjectively considers total performance and the total financial and operating conditions of the Bank in making its compensation recommendations. Also, in considering the compensation of the Chief Executive Officer, the committee consulted with Ben S. Cole of Ben S. Cole Financial Inc., an organization which provides comparative information on CEO compensation for a nationwide peer group of independent banks and holding companies having similar asset size. From this consultation it was determined that the performance of the Bank compared favorably with that of its peers and that the compensation paid by the Bank was well within the range of compensation paid by its peers. In its review of management performance and compensation, the committee has also taken into account management's consistent commitment to the long-term success of the Corporation and its subsidiary. The committee has recognized that the Corporation's profitability in any one year is considerably impacted by the general economic conditions nationally and in its trading areas, over which management has little or no control, and the committee's policy, therefore, is to not over-emphasize, either positively or negatively, a single year's results at the expense of significant, sustained, long-term earnings growth. Based on its evaluation of these factors, the committee believes that the executive management of the Corporation is dedicated to achieving significant improvements in long-term financial performance and that the compensation policies, plans and programs the committee has implemented and administered have contributed to achieving this management focus. SUBMITTED BY THE DIRECTORS' PERSONNEL COMMITTEE Thomas K. Meier, Chairman John F. Potter Donald L. Brooks, Jr. Charles M. Streeter, Jr. David J. Dalrymple William C. Ughetta Richard H. Evans Nelson Mooers van den Blink Ralph H. Meyer COMPARATIVE RETURN PERFORMANCE GRAPH Comparison of Five Year Cumulative Total Return For Fiscal Years Ending December 31, 1990 - 1994 Among Chemung Financial Corporation, NASDAQ - Composite Indes and NASDAQ - Bank Stock Index
1990 1991 1992 1993 1994 Chemung Financial Corporation 89.99 71.40 75.55 98.17 113.47 NASDAQ - Composite 84.92 136.28 158.58 180.93 176.92 NASDAQ - Bank Stocks 73.23 120.17 174.87 199.33 198.69
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 30, 1989. The NASDAQ - Composite and Bank Stock indices were obtained from the Center for Research in Security Prices, University of Chicago, Chicago, Illinois. EXECUTIVE OFFICERS During 1994, the names and positions of the executive officers of the Corporation and the Bank, all serving one-year terms, were as follows:
NAME AGE POSITION (served since) John W. Bennett 61 President and CEO of the Corporation and the Bank(1991); formerly President of the Corporation and the Bank (1988); and prior thereto Vice President of the Corporation and Executive Vice President of the Bank (1986) Jan P. Updegraff 52 Vice President and Treasurer of the Corpora- tion (1990) and Executive Vice President of the Bank (1990) Daniel F. Agan 61 Vice President of the Corporation (1988) and Senior Vice President of the Bank (1984) Robert J. Hodgson 49 Vice President of the Corporation (1990) and Senior Vice President of the Bank (1988) James E. Corey, III 48 Vice President of the Corporation (1993) and Senior Vice President of the Bank (1993)
EXECUTIVE COMPENSATION The following information indicates all compensation paid by the Bank during 1994 to the Chief Executive Officer and any of the four highest paid executive officers of the Corporation and the Bank whose total compensation exceedd $100,000. At present, the officers of the Corporation are not separately compensated for services rendered by them to the Corporation. It presently is contemplated that such will continue to be the policy of the Corporation. SUMMARY COMPENSATION TABLE
NAME ANNUAL COMPENSATION AND PRINCIPAL ALL OTHER POSITION YEAR SALARY($) BONUS($)(1) COMPENSATION ($)(2) John W. Bennett 1994 185,692 30,000 8,174 President & CEO of the Corporation 1993 162,885 32,000 6,597 and the Bank 1992 156,539 18,000 6,713 Jan P. Updegraff 1994 90,385 25,000 6,266 Vice President & Treasurer of the 1993 84,692 20,000 2,100 Corporation and Executive Vice 1992 82,615 15,000 3,716 President of the Bank (1) Includes amounts allocated for the year indicated, whether paid or deferred, to such person under the Bank's Incentive Bonus Plan. (2) Includes amounts allocated for the year indicated to such person under the Bank's Profit-Sharing, Savings and Investment Plan.
RETIREMENT PLAN The Bank maintains a non-contributory, defined benefit Retirement Plan trusteed and administered by the Bank. The Plan covers all employees who have attained age 20 with one or more years of service and who have one thousand hours of service during the plan year. Under the Plan, the annual benefit payable to qualifying employees upon their retirement is based on the average of their five highest paid years out of the last ten calendar years of employment. Normal retirement age under the Plan is 65. The Plan also provides for reduced benefit payments for early retirement following age 55. Compensation under the Plan is limited to all of an employees salary, wages, or other regular payments from the Bank, excluding bonuses, commissions, overtime pay, or other unusual payments. The Retirement Plan provides an annual benefit of 1.2% for each year of credited service to a maximum of 25 years and for each additional year to a maximum of 10 years, 1% times the above average compensation, plus for each year of credited service to a maximum of 35 years , .65% of the above average compensation to the extent it exceeds the average of the taxable wage base in effect under Section 230 of the Social Security Act for each year in the 35 - year period ending with the year in which the participant attains social security retirement age (which base was $24,312 for a participant attaining age 65 in 1994). The following table sets forth the estimated annual benefits, based upon a straight-life annuity form of pension, payable on retirement at age 65 by a participating employee, assuming final average earnings as shown. Employees become fully vested following 5 years of service.
AVERAGE ANNUAL ANNUAL BENEFITS UPON RETIREMENT EARNINGS WITH YEARS OF SERVICE INDICATED 10 20 30 35 $100,000 16,920 33,839 49,759 57,219 $120,000 20,620 41,239 60,659 69,769 $150,000 26,170 52,339 77,009 88,594 $190,000 33,570 67,139 98,809 116,694 $200,000 33,940 70,839 104,259 119,969
The previously- noted executive officers of the Corporation and the Bank had the following credited full years of service under the Plan, as of December 31, 1994: John W. Bennett (39) and Jan P. Updegraff (24). Due to the full funding limitation, the Bank made no contribution to the Pension Plan for 1994. Contributions made to the Pension Plan by the Bank totaled $306,288 for 1993, and $316,345 for 1992. Effective January 1, 1994, the Bank established a non-qualified Executive Supplemental Pension Plan designed to provide a benefit which, when added to other retirement income, will ensure the payment of a competitive level of retirement income in order to attract, retain and motivate selected executives of the Bank. From time to time the Board of Directors may select executives as participants in the plan. Currently, the President is the only plan participant. The Plan provides an annual benefit equal to the amount, if any, that the benefit which would have been paid under the terms of the Bank's Pension Plan, computed as if the basic Pension Plan benefit formula administered and payable without regard to the special benefit limitations required to comply with Sections 415, 401(a)(17) and other governing sections of the Internal Revenue Code, exceeds the benefit which is payable to the participant under the terms of the Pension Plan on the date of the participant's termination. PROFIT SHARING, SAVINGS AND INVESTMENT PLAN The Bank maintains a Profit-Sharing, Savings and Investment Plan for the benefit of all employees with one or more years of service who have attained one thousand hours of service during the Plan year. The Banks contribution in any year is paid out of the Banks net profit and, therefore, is subject to change from year to year. The contribution shall not exceed the maximum amount deductible for income tax purposes for such year. Annual contributions under the Plan are allocated pro rata on the basis of participants aggregate covered compensation, limited, however, to a maximum of 50% of the defined benefit limit under Code Section 415 (b) (1) (A) in effect as of January 1 of the Plan Year for which the contribution is made (50% of $118,800 or $59,400 for 1994). Participants who have earned at least five years of vesting service may make limited withdrawals from the Plans Trust Fund from account balances accumulated prior to January 1, 1985. The Plan further provides the opportunity for all participants to contribute up to 10% of pay on a tax-deferred basis with the Bank matching 50% of the first 6% of that contribution. Both the Bank's profit sharing and matching contributions are invested in the Corporation's Common Stock to the extent available. Participants' accounts are at all times 100% vested, and benefits are payable upon retirement, death, disability, or other termination of employment. The Bank made contributions to the Profit Sharing, Savings and Investment Plan totaling $423,161 for 1994, $406,798 for 1993, and $450,241 for 1992. INCENTIVE BONUS PLAN The Bank instituted an Incentive Bonus Plan effective January 1, 1983, for its senior officers which proveides that the Bank may award bonuses to key management officers and others in such amount as the Board of Directors, in its sole discretion, may, from time to time, determine. Bonuses awarded may be paid in cash or, in certain instances, may be deferred at the participant's option, until his or her retirement or separation from service. The maximukm pool of funds available for the Plan is defined as not to exceed 25% of the amount by which the Bank's profits for any award year exceed 8% of shareholders equity at the beginning of the award year. The Bank made contributions to the Incentive Bonus Plan totaling $182,500 for 1994, $171,500 for 1993, and $160,000 for 1992. EMPLOYMENT CONTRACTS The Bank has employment contracts with nineteen of its senior officers, all vice president level and above. The contracts provide that in the event of termination of any of these officers' employment without cause, the officer shall continue to receive his or her salary at the level then existing and the customary fringe benefits which he or she is then receiving for a period ending December 31, 1996, except for Messrs. Agan, Corey and Hodgson whose guaranteed terms end December 31, 1997, and Messrs. Bennett and Updegreaff whose guaranteed terms end December 31, 1998. The contracts further provide that they may be extended by the Board of Directors on a year-to-year basis and also may be terminated for cause upon thirty days' notice. OTHER COMPENSATION AGREEMENTS The Bank maintains several contributory and non-contributory medical, life and disability plans covering all officers, as well as all full-time employees. The Bank does not maintain any stock option, stock appreciation rights or stock purchase or award plans for offficers or directors. INDEPENDENT PUBLIC ACCOUNTANTS: The accounting firm of KPMG Peat Marwick, 113 South Salina Street, Syracuse, New York 13202 has acted as the Bank's and the Corporation's independent auditors and accountants for the fiscal year of 1994 and will so act in 1995. Representatives of KPMG Peat Marwick will be present at the Annual Meeting of Shareholders with the opportunity to make a statement. The representatives will respond to appropriate questions. OTHER BUSINESS: Management knows of no business which will be presented for consideration, other than the matters described in the Notice of Annual Meeting. If other matters are properly presented, the persons designated as proxies intend to vote thereon in accordance with their best judgment. SHAREHOLDER PROPOSALS: Qualified Shareholders desiring to present a proposal at the 1996 Annual Meeting of Shareholders, including a notice of intent to make a nomination at said Meeting, must submit such proposal to the Corporation on or before November 14, 1995. Such proposals must comply in all respects with the rules and regulations of the Securities and Exchange Commission. BY ORDER OF THE BOARD OF DIRECTORS Jerome F. Denton Secretary Date: March 14, 1995 One Chemung Canal Plaza Elmira, New York 14902 CHEMUNG FINANCIAL CORPORATION Subsidiary, Chemung Canal Trust Company NOTICE OF ANNUAL MEETING AND PROXY STATEMENT One Chemung Canal Plaza Annual Meeting of P.O. Box 1522 Shareholders to be held Elmira, New York 14902 April 11, 1995 APPENDIX OMITTED GRAPHIC MATERIAL The Comparative Return Performance Graph set forth under the heading "Comparison of Five Year Cumulative Total Return For Fiscal Years Ending December 31, 1990 - 1994 Among Chemung Financial Corporation, NASDAQ - Composite Index and NASDAQ - Bank Stock Index", as required by Item 402 (l) of Regulation S-K has been omitted pursuant to Rule 304(d) of Regulation S-T but will be filed with the Securities and Exchange Commission in paper form pursuant to Rule 311(b) of Regulation S-T. PROXY FORM CHEMUNG FINANCIAL CORPORATION ANNUAL MEETING OF SHAREHOLDERS - APRIL 11, 1995 PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CHEMUNG FINANCIAL CORPORATION John R. Battersby, Darwin C. Farber, and John B. Hintz, each with power of substitution and with all the powers and discretion the undersigned would have if personally present, are hereby appointed the Proxy Agents to represent the undersigned at the Annual Meeting of Shareholders of Chemung Financial Corporation, to be held on April 11, 1995 (including any adjournments or postponements thereof) and to vote all shares of Common Stock of Chemung Financial Corporation which the undersigned is entitled to vote on all matters that properly come before the meeting, subject to any directions indicated. (To be signed on Reverse Side) THIS PROXY WILL, WHEN PROPERLY EXECUTED, BE VOTED AS DIRECTED. IF NO DIRECTIONS TO THE CONTRARY ARE GIVEN, THE PROXY AGENTS INTEND TO VOTE FOR THE NOMINEES. NOMINEES FOR WITHHELD 3-year term: John W. Bennett 1. Election of Robert H. Dalrymple Directors. Natalie B. Kuenkler Ralph H. Meyer For, except vote withheld from the Samuel J. Semel following nominee(s): Richard W. Swan William A. Tryon 1-year term: Stephen M. Lounsberry III I/We will attend the Meeting Number in group SIGNATURE(S) DATE NOTE: Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee, custodian or guardian, please give full title as such.
EX-27 5
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S 1994 ANNUAL REPORT TO SHAREHOLDERS AND STATISTICAL DISCLOSURES BY BANK HOLDING COMPANIES AS PRESENTED IN THE FORM 10-K, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND DISCLOSURES. 1,000 YEAR DEC-31-1994 DEC-31-1994 24,267 114 8,000 0 188,828 15,013 15,169 236,497 3,600 494,332 432,271 10,204 6,119 0 10,750 0 0 34,988 494,332 20,006 9,024 550 29,580 9,896 10,276 19,304 624 140 17,375 6,990 4,648 0 0 4,648 2.45 2.45 7.49 1,201 262 0 0 3,500 718 94 3,600 3,600 0 0