-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VmHDzpdOgsuyilbl47AgQTkt+L/s/nQPvtTVatRJ3fkO+wfWbJk2NwSPsP2Hvgcn oUCW5/GPMmcGog7JWEtVZg== 0000763563-96-000006.txt : 19960401 0000763563-96-000006.hdr.sgml : 19960401 ACCESSION NUMBER: 0000763563-96-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19960329 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHEMUNG FINANCIAL CORP CENTRAL INDEX KEY: 0000763563 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 161237038 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13888 FILM NUMBER: 96540871 BUSINESS ADDRESS: STREET 1: ONE CHEMUNG CANAL PLZ STREET 2: P O BOX 1522 CITY: ELMIRA STATE: NY ZIP: 14902 BUSINESS PHONE: 6077373711 MAIL ADDRESS: STREET 1: ONE CHEMUNG CANAL PLZ STREET 2: P O BOX 1522 CITY: ELMIRA STATE: NY ZIP: 14902 10-K 1 1995 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the fiscal year ended December 31, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from _____________ to _____________ Commission File Number 0-13888 CHEMUNG FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) NEW YORK 16-123703-8 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) One Chemung Canal Plaza, P.O. Box 1522 Elmira, New York 14902 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (607) 737-3711 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $5 a share (Title of class) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO The aggregate market value of Common Stock held by nonaffiliates on February 29, 1996 was $34,933,528. As of February 29, 1996 there were 2,084,611 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, 1995 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 2, 1996 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, 1995, 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 Bank's services include accepting time, demand and savings deposits including NOW accounts, Super NOW accounts, regular savings accounts, insured money market accounts, investment certificates, fixed-rate certificates of deposit and club accounts. Its services also include making secured and unsecured commercial and consumer loans, financing commercial transactions either directly or participating with regional industrial development and community lending corporations, making commercial, residential and home equity mortgage loans, revolving credit loans with overdraft checking protection, small business loans and student loans. Additional services include renting of safe deposit facilities, selling uninsured annuity and mutual fund investment products, and the use of networked automated teller facilities. Trust services provided by the Bank include services as executor, trustee under wills and agreements, guardian and custodian and trustee and agent for pension, profit-sharing and other employee benefit trusts as well as various investment, pension, estate planning and employee benefit administrative services. For additional information which focuses on the results of operation of the Corporation and the Bank, see Management's Discussion and Analysis of Financial Condition and Results of Operations, incorporated herein by reference. There have been no material changes in the manner of doing business by the Corporation or the Bank during the fiscal year ended December 31, 1995. Competition Six (6) of the Bank's thirteen (13) full-service branches, in addition to the main office, are located in Chemung County. The other seven (7) full-service branches are located in the adjacent counties of Schuyler, Steuben, and Tioga. All facilities are located in New York State. Within these market areas, the Bank encounters intense competition in its banking business from several other financial institutions offering comparable products. These competitors include other commercial banks (both locally-based independent banks and local offices of regional and major metropolitan-based banks), as well as stock savings banks and credit unions. In addition, the Bank experiences competition in marketing some of its services from local operations of insurance companies, brokerage firms and retail financial service businesses. Dependence Upon a Single Customer Neither the Corporation nor the Bank is dependent upon a single or limited number of customers. Research and Development Expenditures for research and development were immaterial for the years 1995, 1994, and 1993. Employees As of December 31, 1995, the Bank employed 281 persons on a full-time equivalent basis. (d) Financial information about foreign and domestic operations and export sales Neither the Corporation nor the Bank relies on foreign sources of funds or income. (e) Statistical disclosure by bank holding companies The following disclosures present summarized statistical data covering the Corporation and the Bank. Distribution of Assets, Liabilities and Shareholders' Equity, Interest Rates and Interest Differential
December 31, 1995 1994 1993 Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate Assets Interest-earning assets: Loans $ 249,149 23,868 9.58% $ 221,419 20,006 9.04% $ 224,127 20,741 9.25% Taxable securities 155,238 9,960 6.42 134,524 7,762 5.77 106,736 6,088 5.70 Tax-exempt securities 28,051 1,406 5.01 25,054 1,262 5.04 22,596 1,184 5.24 Federal funds sold 8,434 486 5.76 10,236 407 3.98 12,587 371 2.95 Interest-bearing deposits 6,267 357 5.70 3,478 143 4.11 2,401 73 3.04 Total interest- earning assets 447,139 36,077 8.07% 394,711 29,580 7.49% 368,447 28,457 7.72% Non-interest earning assets: Cash and due from banks 23,442 21,657 20,372 Premises and equipment, net 9,657 7,451 7,513 Other assets 6,922 5,506 4,853 Less allowance for loan losses (3,876) (3,419) (3,453) Excess of cost over fair value of net assets acquired, net of accumulated amortization 11,969 5,339 - Total $ 495,253 $ 431,245 $ 397,732 Liabilities and Shareholders' Equity Interest-bearing liabilities: Demand deposits $ 43,312 731 1.69% $ 43,372 673 1.55% $ 42,275 811 1.92% Savings deposits 149,257 4,408 2.95 142,819 3,778 2.65 133,671 3,806 2.85 Time deposits 153,433 8,307 5.41 121,783 5,445 4.47 110,631 4,887 4.42 Federal funds purchased and securities sold under agreement to repurchase 13,846 781 5.73 9,975 380 3.81 9,717 281 2.89 Total interest- bearing liabilities 359,848 14,227 3.95% 317,949 10,276 3.23% 296,294 9,785 3.30% Non-interest bearing liabilities: Demand deposits 78,406 66,635 60,461 Other 6,995 5,106 3,978 445,249 389,690 360,733 Shareholders' equity 50,004 41,555 36,999 Total $ 495,253 $ 431,245 $ 397,732 Net interest earnings $ 21,850 $ 19,304 $ 18,672 Net yield on interest- earning assets 4.89% 4.89% 5.07% 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:
1995 Compared to 1994 1994 Compared to 1993 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 $ 2,607 1,255 3,862 (249) (486) (735) Taxable securities 1,273 925 2,198 1,603 71 1,674 Tax-exempt securities 150 (6) 144 125 (47) 78 Federal funds sold (81) 160 79 (78) 114 36 Interest-bearing deposits 145 70 215 39 31 70 Total interest- earning assets $ 4,094 2,404 6,498 1,440 (317) 1,123 Interest paid on: Demand deposits (1) 59 58 21 (159) (138) Savings deposits 176 442 618 251 (279) (28) Time deposits 1,580 1,282 2,862 498 60 558 Federal funds purchased and securities sold under agreement to repurchase 179 234 413 8 91 99 Total interest-bearing liabilities $ 1,934 2,017 3,951 778 (287) 491 (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, 1995 1994 1993 (In Thousands of Dollars) U.S. Treasury and other U.S. Government Agencies $ 108,775 163,238 104,216 State and political subdivisions 30,275 28,085 21,997 Other bonds and notes 33,596 7,181 8,871 Corporate stocks 6,818 5,493 2,002 Total $ 179,464 203,997 137,086 Included in the above table are $171,882, $188,828 and $44,814 of securities available for sale at December 31, respectively.
Investment Portfolio (continued) The following tables set forth the maturities of investment securities at December 31, 1995 and the weighted average yields of such securities (calculated on the basis of the cost and effective yields weighted for the scheduled maturity of each security). Federal tax equivalent adjustments have been made in calculating yields on municipal obligations.
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 $ 38,744 6.26% $ 68,000 6.49% State and political subdivisions 10,411 4.68 16,371 4.89 Other bonds and notes 1,522 7.98 1,501 8.40 Total $ 50,677 5.99% $ 85,872 6.22% 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 $ 2,032 7.07% $ - - % State and political subdivisions 3,275 5.33 217 4.71 Other bonds and notes 5,031 6.69 25,542 7.85 Total $ 10,338 6.33% $25,759 7.82%
Loan Portfolio The following table shows the Corporation's loan distribution at the end of each of the last five years:
December 31, 1995 1994 1993 1992 1991 (In Thousands of Dollars) Commercial, financial and agricultural $ 89,785 75,006 69,484 63,630 65,830 Real estate mortgages 71,870 67,912 71,345 81,431 89,401 Installment loans 101,687 94,181 82,028 74,258 72,462 Total $ 263,342 237,099 222,857 219,049 227,693
The following table shows the maturity of loans (excluding residential real estate mortgages and installment loans) outstanding as of December 31, 1995. 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 $ 40,564 15,259 33,962 89,785 Loans maturing after one year with: Fixed interest rates 8,426 6,618 Variable interest rates 6,833 27,344 Total $ 15,259 33,962
Nonaccrual and Past Due Loans The following table summarizes the Corporation's nonaccrual and past due loans:
December 31, 1995 1994 1993 1992 1991 (In Thousands of Dollars) Nonaccrual loans (1) $ 1,120 1,201 1,605 1,321 721 Accruing loans past due 90 days or more $ 681 354 274 588 2,307
Information with respect to nonaccrual loans at December 31, 1995, 1994 and 1993 is as follows:
December 31, 1995 1994 1993 (In Thousands of Dollars) Nonaccrual loans $ 1,119 1,201 1,605 Interest income that would have been recorded under original terms 200 342 429 Interest income recorded during the period 52 58 164 (1) It is the Corporation's policy that when a past due loan is referred to legal counsel, or in the case of a commercial loan which becomes 90 days delinquent, or in the case of consumer, mortgage or home equity loans not guaranteed by a government agency which become 120 days delinquent, the loan is placed in nonaccrual and previously accrued interest is reversed unless, because of collateral or other circumstances, it is deemed to be collectible. Loans may also be placed in nonaccrual if management believes such classification is warranted for other reasons.
Potential Problem Loans At December 31, 1995, 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, 1995, 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, 1995, 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, 1995:
Year Ended December 31, 1995 1994 1993 1992 1991 (In Thousands of Dollars) Balance at beginning of period $ 3,600 3,500 3,400 2,800 2,500 Charge-offs: Commercial, financial and agricultural 82 282 550 61 226 Real estate mortgages 5 14 --- --- --- Installment loans 286 422 346 382 380 Home equity --- --- --- --- --- 373 718 896 443 606 Recoveries: Commercial, financial and agricultural 16 18 10 100 223 Installment loans 93 76 79 41 58 109 94 89 141 281 Net charge-offs 264 624 807 302 325 Allowance of acquired bank at time of acquisition -- 100 -- -- -- Additions charged to operations (1) 564 624 907 902 625 Balance at end of period $ 3,900 3,600 3,500 3,400 2,800 Ratio of net charge-offs during period to average loans outstanding (2) .11% .28% .36% .14% .15% (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 1995 than in prior years. The net charge-offs to average 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.
This table summarizes the Corporation's allocation of the loan loss reserve for each year in the five-year period ended December 31, 1995.
Amount (in thousands) and Percent of Loans by Category to Total Loans December 31, Balance at end of Period Applicable to: 1995 % 1994 % 1993 % 1992 % 1991 % Domestic: $ 1,516 100.0 2,575 100.0 3,150 100.0 2,117 100.0 2,085 100.0 Commercial, financial and agricultural 1,042 33.0 2,108 31.0 2,620 30.2 1,625 28.6 1,409 28.7 Commercial mortgages 305 4.1 282 5.0 248 6.5 112 6.7 187 7.4 Residential mortgages 16 23.8 16 23.6 13 25.5 34 30.4 44 31.9 Consumer loand 153 39.3 169 40.4 270 37.8 346 34.3 446 32.1 Unallocated: 2,384 N/A 1,025 N/A 350 N/A 1,283 N/A 715 N/A Total $ 3,900 100.0 3,600 100.0 3,500 100.0 3,400 100.0 2,800 100.0
Deposits The average daily amounts of deposits and rates paid on such deposits are summarized for the periods indicated in the following table:
Year Ended December 31, 1995 1994 1993 Amount Rate Amount Rate Amount Rate (In Thousands of Dollars) Noninterest-bearing demand deposits $ 78,406 ---% 66,635 ---% 60,461 ---% Interest-bearing demand deposits 43,312 1.69 43,372 1.55 42,275 1.92 Savings deposits 149,257 2.95 142,819 2.65 133,671 2.85 Time deposits 153,433 5.41 121,783 4.47 110,631 4.42 $ 424,408 374,609 347,038
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 $13,503 Over 3 through 12 months 5,918 Over 12 months 2,041
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, 1995 1994 1993 Return on average assets 1.13% 1.08% 1.13% Return on average equity 11.20 11.18 12.15 Return on beginning equity 12.25 12.13 12.66 Dividend payout ratio 36.52 38.23 36.86 Average equity to average assets ratio 10.10 9.64 9.30 Year-end equity to year-end assets ratio 10.54 9.25 9.63
Short-Term Borrowings For each of the three years in the period ended December 31, 1995, the average outstanding balance of short-term borrowings did not exceed 30% of shareholders' equity. ITEM 2. PROPERTIES The Corporation and the Bank currently conduct all their business activities from the Bank's main office, thirteen (13) branch locations situated in a four-county area, owned office space adjacent to the Bank's main office, and five (5) off-site automated teller facilities (ATMs), three (3) of which are located on leased property. The main office is a six-story structure located at One Chemung Canal Plaza, Elmira, New York, in the downtown business district. The main office consists of approximately 62,000 square feet of space entirely occupied by the Bank. The combined square footage of the thirteen (13) branch banking facilities totals approximately 46,350 square feet. The office building adjacent to the main office was acquired during 1995 and consists of approximately 18,213 square feet of which 8,202 square feet are occupied by operating departments of the Bank and 10,011 square feet are leased. The leased automated teller facility spaces total approximately 150 square feet. The Bank holds two (2) of its branch facilities (Arnot Mall Office and Bath Office) and three (3) automated teller facilities (Elmira/Corning Regional Airport, Elmira College and WalMart Store) under lease arrangements; and owns the rest of its offices including the main office and the adjacent office building. The Corporation holds no real estate in its own name. ITEM 3. LEGAL PROCEEDINGS Neither the Corporation nor its subsidiary are a party to any material pending legal proceeding required to be disclosed under this item. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS There were no matters submitted to a vote of shareholders during the fourth quarter of the fiscal year covered by this report. PART II ITEM 5. MARKET FOR THE REGISTRANTS SECURITIES AND RELATED SHAREHOLDER MATTERS The Corporation's stock is traded in the over-the-counter market. Incorporated herein by reference to portions of the Corporation's Annual Report to Shareholders for the year ended December 31, 1995, are the quarterly market price ranges for the Corporation's stock for the past three (3) years, based upon actual transactions as reported by securities brokerage firms which maintain a market or conduct trades in the Corporation's stock and other transactions known by the Corporation's management. Also incorporated herein by reference to a part of the Corporation's 1995 Annual Report are the dividends paid by the Corporation for each quarter of the last three (3) years. The number of shareholders of record on February 29, 1996 was 834. 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, 1995 is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations presented in the Corporation's Annual Report to Shareholders for the year ended December 31, 1995 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, 1995 are 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" and "Executive Officers" and the Section 16(a) disclosure set forth under the caption "Security Ownership of Management", as presented in the registrant's Proxy Statement, dated March 5, 1996, relating to the Annual Meeting of Shareholders to be held on April 2, 1996, 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"; "Management Incentive Plan"; "Employment Contracts"; and "Other Compensation Agreements", presented in the registrant's Proxy Statement, dated March 5, 1996, relating to the Annual Meeting of Shareholders to be held on April 2, 1996, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the captions "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management", presented in the registrant's Proxy Statement, dated March 5, 1996, relating to the Annual Meeting of Shareholders to be held on April 2, 1996, 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 5, 1996, relating to the Annual Meeting of Shareholders to be held on April 2, 1996, is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) List of Financial Statements and Independent Auditors' Report The following consolidated financial statements and Independent Auditors' Report of Chemung Financial Corporation and subsidiary, included in the Annual Report of the registrant to its shareholders as of December 31, 1995 and 1994, and for each of the years in the three-year period ended December 31, 1995 are incorporated by reference in Item 8: - Independent Auditors' Report - Consolidated Balance Sheets - December 31, 1995 and 1994 - Consolidated Statements of Income - Years ended December 31, 1995, 1994 and 1993 - Consolidated Statements of Shareholders' Equity - Years ended December 31, 1995, 1994 and 1993 - Consolidated Statements of Cash Flows - Years ended December 31, 1995, 1994 and 1993 - Notes to Consolidated Financial Statements - December 31, 1995 and 1994 (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 September 13, 1995, are incorporated herein by reference to Exhibit A of the Registrant's Form 10-Q for the period ended September 30, 1995, File No. 0-13888. Exhibit (13) -- Annual Report to Shareholders for the year ended December 31, 1995. -- 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 5, 1996, and Proxy Form Exhibit (27) -- Financial Disclosure Schedule (EDGAR version only) (b) Reports on Form 8-K There were no reports filed on Form 8-K during the three months ended December 31, 1995. (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, 1995 CHEMUNG FINANCIAL CORPORATION ELMIRA, NEW YORK ____________________________________ EXHIBIT LISTING EXHIBIT EXHIBIT 13 Annual Report To Shareholders For The Year Ended December 31, 1995 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 5, 1996, 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 13, 1996 By "signature" John W. Bennett Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been executed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date "signature" Director 3/13/96 Robert E. Agan "signature" Director, Chairman & 3/13/96 John W. Bennett Chief Executive Officer Director Donald L. Brooks, Jr. "signature" Director 3/13/96 David J. Dalrymple "signature" Director 3/13/96 Robert H. Dalrymple "signature" Director 3/13/96 Richard H. Evans "signature" Director 3/13/96 Natalie B. Kuenkler "signature" Director 3/13/96 Edward B. Hoffman "signature" Director 3/13/96 Stephen M. Lounsberry III Signature Title Date Director Boyd McDowell II "signature" Director 3/13/96 Thomas K. Meier "signature" Director 3/13/96 Ralph H. Meyer Director John F. Potter "signature" Director 3/13/96 Samuel J. Semel "signature" Director 3/13/96 Charles M. Streeter, Jr. "signature" Director 3/13/96 Richard W. Swan "signature" Director 3/13/96 William A. Tryon Director William C. Ughetta "signature" Director, President & 3/13/96 Jan P. Updegraff Chief Operating Officer "signature" Director 3/13/96 Nelson Mooers van den Blink "signature" Treasurer and Principal 3/13/96 Accounting Officer Attest "signature" Secretary 3/13/96 Jerome F. Denton EX-13 2 ANNUAL REPORT EXHIBITS EXHIBIT A TABLE OF QUARTERLY MARKET PRICE RANGES
Market Prices of Chemung Financial Corporation Stock During Past Three Years (dollars) - ----------------------------------------------------------------------------- 1995 1994 1993 - ----------------------------------------------------------------------------- Hi -- Lo Hi -- Lo Hi -- Lo 1st Quarter 26 1/4 - 25 24 - 23 21 1/4 - 17 1/2 2nd Quarter 26 1/4 - 25 26 - 23 24 1/2 - 22 3rd Quarter 25 - 24 1/4 26 - 24 1/2 24 1/4 - 22 4th Quarter 27 - 25 26 - 24 25 - 23
EXHIBIT B TABLE OF DIVIDENDS PAID
Dividends Paid Per Share by Chemung Financial Corporation During Past Three Years - ----------------------------------------------------------------------------- 1995 1994 1993 - ----------------------------------------------------------------------------- January 3 $.2400 $.2275 $.2100 April 3 .2400 .2275 .2100 July 3 .2400 .2275 .2100 October 2 .2500 .2400 .2275 - ----------------------------------------------------------------------------- $.9700 $.9225 $.8575
As of December 31, 1995 there were 834 registered holders of record of the Corporation's stock. Chemung Financial Corporation's common stock is inactively traded in the over-the-counter market. The quarterly market price ranges for the Corporation's stock for the past three (3) years are based upon actual transactions as reported by brokerage firms which maintain a market or conduct trades in the Corporation's stock and other transactions known by the Corporation's management. EXHIBIT C MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCLUDING THE SELECTED FINANCIAL DATA EXHIBIT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The purpose of this discussion is to focus on information about the financial condition and results of operations of Chemung Financial Corporation which is not otherwise apparent from the consolidated financial statements included in this annual report. Reference should be made to those statements and the selected financial data presented elsewhere in this report for an understanding of the following discussion and analysis. Description of Business Chemung Financial Corporation (the "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 $100. Lesser capitalized banks were assessed on a scale currently reaching to $0.31. During the third quarter, the FDIC's Bank Insurance Fund ("BIF") became fully capitalized at the required 1.25% of insured deposits. This resulted in an 82% decline in the annualized premium to $0.04 per $100 insured deposit. In subsequent developments, the BIF fund was recognized as over capitalized with respect to statute law and the 1996 premium for well capitalized banks reduced to the statutory limit of $2,000 in total. In order to be considered well capitalized, the FDIC requires a bank's Total Risk Based Capital Ratio to be greater than or equal to 10% AND its Tier 1 Risk Based Capital Ratio to be greater than or equal to 6.00% AND its leverage ratio to be greater than or equal to 5.00%. This designation has been maintained and the Bank's FDIC insurance premiums for 1995 were $538 thousand vs $796 thousand in 1994 and $769 thousand in 1993. In 1995, FDIC premiums constituted the Corporation's fourth largest non-interest expense behind salaries, credit card data processing, and general data processing. In December 1995, the Bank received notification from the FDIC that it remains well capitalized and, due to that the 1996 FDIC insurance premium will be reduced to $2 thousand for BIF insured deposits. There will, however, be a one-time charge to banks having deposits insured by the Savings Association Insurance Fund ("SAIF") in order to recapitalize that fund to the same level as the BIF fund. The two funds will then be merged. $36 million of the Bank's deposits will be subjected to the assessment which will be expensed during the year that the enabling legislation is signed into law by the President. The timing of this event is rendered uncertain by the debate over federal budget reconciliation legislation to which it was originally attached. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA 91") 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 continues to be a major impediment to banking profitability. Competition The Bank is subject to intense competition in the lending and deposit gathering aspects of its business from commercial banks, savings banks, savings and loan associations, credit unions; and other providers of financial services, such as money market funds, brokerage firms, investment companies, credit companies and insurance companies. The Bank also competes with nonfinancial institutions, including retail stores and certain utilities that maintain their own credit programs, as well as governmental agencies that make available loans to certain borrowers. The Bank faces significant competition in acquiring quality assets, due to such factors as increased activities by providers of credit cards, and the increased lending powers granted to and employed by thrift institutions and credit unions. The Bank also faces competition in attracting deposits at reasonable prices due to the activities of money market funds; increased activities of non-bank deposit takers, including brokerage firms; and the increased availability of demand deposit type accounts at thrift institutions and credit unions. Unlike the 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 $771 million at book ($993 million at fair value) December 31, 1995, compared to $732 million a year earlier. 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 1995 1994 1993 1992 1991 1990 1 yr 5 yrs - --------------------------------------------------------------------------------------------------------------------- Per Share Data - --------------------------------------------------------------------------------------------------------------------- Net Operating Income $ 2.68 $2.45 $2.87 $2.55 $1.90 $1.93 9.4% 7.8% Net Income 2.68 2.45 2.37 2.55 1.90 1.93 9.4% 7.8% Dividends Declared 0.98 0.935 0.875 0.82 0.76 0.76 4.8% 5.8% Tangible Book Value 21.57 17.75 20.25 18.75 17.02 15.91 21.5% 7.1% Market Price 12/31 27.75 25.50 23.00 18.50 18.25 24.00 8.8% 3.1% Average Shares O/S (thousands) 2,088 1,899 1,894 1,894 1,899 1,921 10.0% 1.7% ===================================================================================================================== Earnings (in thousands) - --------------------------------------------------------------------------------------------------------------------- Net Interest Income 21,849 19,304 18,672 18,339 16,557 15,690 13.2% 7.9% Loan Loss Provision 564 624 907 902 625 446 -9.6% 5.3% Net Income after Loan Loss Provision 21,285 18,680 17,765 17,437 15,932 15,244 14.0% 7.9% Fiduciary Department Income 3,678 3,323 3,294 3,176 2,708 2,802 10.7% 6.3% Securities Gains (Losses), net 531 140 821 105 (506) 7 279.3% N/A Other Income 2,527 2,223 2,003 1,691 1,620 1,342 13.7% 17.7% Total Non-Interest Income 6,736 5,686 6,118 4,972 3,822 4,151 18.5% 12.5% Non Interest Expense 19,560 17,375 15,626 15,287 14,901 14,282 12.6% 7.4% Pretax Income 8,461 6,991 8,257 7,122 4,853 5,113 21.0% 13.1% Income Taxes 2,859 2,343 2,830 2,296 1,241 1,398 22.0% 20.9% Net Operating Income 5,602 4,648 5,427 4,826 3,612 3,715 20.5% 10.2% Effect of Accounting Change 0 0 (933) 0 0 0 N/A N/A Net Income 5,602 4,648 4,494 4,826 3,612 3,715 20.5% 10.2% ===================================================================================================================== Average Balance Sheet (in millions) - --------------------------------------------------------------------------------------------------------------------- Total Assets 495.2 431.2 397.7 387.0 356.8 332.1 14.8% 9.8% Earning Assets 450.8 396.7 368.4 358.3 328.1 303.5 13.6% 9.7% Loans - Net 249.1 221.4 224.1 221.0 218.6 205.2 12.5% 4.3% Securities 187.0 161.6 144.3 137.3 108.9 98.4 15.7% 18.0% Deposits 424.4 374.6 347.0 338.5 319.4 299.0 13.3% 8.4% Tangible Equity 41.7 38.7 37.0 34.2 31.5 30.0 7.8% 7.8% ===================================================================================================================== Ending Balance Sheet (in millions) - --------------------------------------------------------------------------------------------------------------------- Total Assets 501.9 494.3 398.1 385.8 381.7 335.8 1.5% 9.9% Earning Assets 452.5 448.6 369.4 356.4 350.1 304.7 0.9% 9.7% Loans - Net 259.1 232.9 218.8 214.9 224.2 206.6 11.2% 5.1% Securities 179.5 204.0 137.1 127.5 110.1 94.1 -12.0% 18.2% Deposits 426.9 432.3 342.9 339.2 325.8 302.8 -1.2% 8.2% Tangible Equity 44.9 37.2 38.3 35.5 32.3 30.5 20.7% 9.4% Allowance For Loan Losses 3.90 3.60 3.50 3.40 2.80 2.50 8.3% 11.2% =====================================================================================================================
During 1995, as well as 1994, the Fiduciary Division noted a continued 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 now compliment our more traditional investment alternatives with additional products made available through strategic alliances with various mutual fund and insurance companies. Employees The Corporation and its Banking subsidiary had 281 full-time equivalent employees (FTE's) on December 31, 1995. The employment trend is relatively stable. Performance Summary Net income for 1995 was impacted by 1) higher loan volumes, 2) widely fluctuating interest rates, 3) higher levels of non-interest income, and 4) important changes in non-interest expenses. This compares with 1994 when net income was negatively impacted by an environment of a sustained rise in interest rates. During the third quarter, the Federal Deposit Insurance Corporation's Bank Insurance Fund ("BIF") became fully capitalized at the required 1.25% of insured deposits. This resulted in an 82% decline in the annualized premium to $0.04 per $100 insured deposit and resulted in an estimated $437 thousand reduction from the budgeted full year's accrual of $975 thousand. A rebate during the third quarter amounted to $253 thousand, of which $108 thousand served to reduce the third quarter FDIC expense. During the second and third quarter, the data processing function was brought in-house from a remote-job-entry system through Mellon Datacenter. Estimated non-recurring expenses associated with the project amounted to $370 thousand. This investment is viewed by management as a technological requirement for delivering appropriate service to our market at the most efficient cost. The annualized reduction in data processing expense is estimated at $200 thousand. Due to the sustained increase in loan demand, management decided to increase the provision for loan losses to $200 thousand per quarter during the first three quarters. This level was in anticipation of significant loan growth due to the expansion of the Bank's service area, introduction of new products, and positive economic conditions favoring increased lending activity. Average loan balances were up 12.5% which was slightly below the business plan. Due in part to very favorable prevailing economic conditions, however, the Bank's loan loss experience was significantly below management's original expectations of the inherent risk levels of the portfolio. There were no provisions added to the allowance during November and December and $102 thousand of the allowance for loan losses was returned to pretax income. Non-performing loans at year end increased to $1.800 million versus $1.178 million at the end of 1994, and represented 0.68% of total outstandings compared to 0.49% on December 31, 1994 and 0.85% on December 31, 1993. Net loan losses, however, were only $264 thousand or 0.11% of average outstandings, compared to $623.8 thousand in 1994 and $806.7 thousand in 1993. The allowance for loan losses at December 31, 1995 was 1.48% of outstandings and, at 217% of non-performing loans versus 306% a year ago and 186% in 1993, is felt by management to be adequate.
Exhibit II Selected Ratios 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------------- Return on average assets 1.13% 1.08% 1.13% 1.25% 1.01% Return on average tangible equity 13.43% 12.01% 12.15% 14.12% 11.45% Dividend yield 12/31 3.60% 3.76% 3.96% 4.54% 4.16% Dividend payout 36.52% 38.22% 36.86% 32.17% 39.97% Leverage ratio 8.34% 7.69% 9.63% 9.20% 8.46% ======================================================================================================================= Tier I capital to risk adjusted assets 13.84% 13.71% 15.66% 14.80% 13.02% Total capital to risk adjusted assets 15.15% 15.03% 17.09% 16.22% 14.15% Loans to deposits 61.61% 54.71% 64.83% 64.38% 69.70% Loan reserve to outstanding loans 1.48% 1.52% 1.57% 1.55% 1.23% Loan reserve to non-performing loans 217% 306% 186% 178% 92% Non-performing loans to outstanding loans 0.68% 0.49% 0.85% 0.87% 1.33% ===================================================================================================================== Net interest rate spread 4.12% 4.26% 4.42% 4.35% 3.99% Net interest margin 4.89% 4.89% 5.07% 5.12% 5.05% =====================================================================================================================
Chemung Financial's net profits before dividends for 1995 were $5.602 million versus $4.648 million for 1994, up $954 thousand (20.5%) or $2.68 versus $2.45 per share (9.4%) on 189 thousand average additional shares outstanding. During 1993 the Corporation earned $2.37 when net profits before dividends were reduced $933 thousand ($0.50 per share) by the change in accounting for postretirement medical benefits to $4.494 million. Quarterly dividends declared totaled $0.98 per share versus 1994's $0.935 and $0.875 in 1993. While the average interest rate on earning assets was 8.07% during 1995 versus 7.49% in 1994, the interest expense on the Bank's liabilities also increased to 3.95% in 1995 versus 3.23% in 1994 and delivered a net interest spread of 4.12% versus 4.26% a year earlier. Due to higher levels of non-interest bearing demand deposits, the net interest margin was maintained at 4.89%. Non-interest income totaled $6.736 million versus $5.685 million in 1994 and $6.119 million in 1993. Trust department income, at $3.678 million in 1995 versus $3.323 million in 1994 and $3.294 million in 1993 is the largest segment on non-interest income. During 1995, $531 thousand in net securities gains were realized as management moved from a strategy with emphasis upon liquidity to an investment approach with higher yield potential. Securities sold or matured were mostly U.S. Treasury securities with the proceeds reinvested primarily in U.S. Government agency notes and U.S. Government agency guaranteed mortgage-backed securities. The decline in non-interest income during 1994 when compared to 1993 occurred because during 1993, $821 thousand in capital gains were realized. $545 thousand of 1993's gains resulted from the sale of a defaulted bond at $790 thousand which had been written down to $245 thousand from $1 million during 1991. During 1995, non-recurring expenses associated with the acquisition of Owego were approximately $124 thousand. Management believes that future cost efficiencies, together with future steady and sustainable growth in the Owego market will recapture the goodwill associated with the acquisition. Average earning assets for 1995 grew by $54.1 million or 13.6% to $450.8 million, compared to $396.7 million in 1994 and $368.4 million in 1993. Commercial and consumer loan balances grew 19.7% and 8.0%, respectively, while the mortgage portfolio increased $3.9 million (5.8%). Average total loan balances were $249.1 million versus $221.4 million during 1994 (up 12.5%) and $224.1 million during 1993. The 1994 acquisition of the Columbia branches from RTC and the purchase of Owego at year-end 1994 had only minor impact upon the average loan balances in 1995. Management expects significant progress in these areas during 1996. 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.
Exhibit III Changes Due to Volume and Rate 1995 vs 1994 1994 vs 1993 --------------------------------------------------------- Increase Increase (Decrease) (Decrease) - -------------------------------------------------------------------------------------------------------------------- Total Due to Due to Total Due to Due to Change Volume Rate Change Volume Rate - -------------------------------------------------------------------------------------------------------------------- C> Interest Income (thousands) - -------------------------------------------------------------------------------------------------------------------- Loans $ 3,862 $ 2,607 $ 1,255 $ (735) $ (249) $ (486) Taxable investment securities 2,198 1,273 925 1,674 1,603 71 Tax-exempt investment securities 144 150 (6) 78 125 (47) Federal funds sold 79 (81) 160 36 (78) 114 Interest-bearing deposits 215 145 70 70 39 31 - -------------------------------------------------------------------------------------------------------------------- Total Interest Income $ 6,498 $ 4,094 $ 2,404 $ 1,123 $ 1,440 $ (317) ==================================================================================================================== Interest Expense (thousands) - -------------------------------------------------------------------------------------------------------------------- Demand deposits $ 58 $ (1) $ 59 $ (138) $ 21 $ (159) Savings deposits 618 176 442 (28) 251 (279) Time deposits 2,862 1,580 1,282 558 498 60 Federal funds purchased and securities sold under agreement to repurchase 413 179 234 99 8 91 - -------------------------------------------------------------------------------------------------------------------- Total Interest Expense $ 3,951 $ 1,934 $ 2,017 $ 491 $ 778 $ (287) ==================================================================================================================== Net Interest Income $ 2,547 $ 2,160 $ 387 $ 632 $ 662 $ 30 ====================================================================================================================
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. During 1995, the regulatory authorities finalized their rules for examining institutions relative to their exposure to interest rate risk with respect to the fair value of an organization's net worth. They concluded that the fair value of all securities would be considered irrespective of whether holdings were categorized as held to maturity. In November 1995, the Financial Accounting Standards Board published A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities. Concurrent with the initial adoption of the Guide, but no later than December 31, 1995, the Corporation was permitted to reassess the appropriateness of the classifications of all securities held at that time and implement reclassification without calling into question the intent of the Corporation to hold other debt securities to maturity in the future. Effective December 1, 1995, the Corporation transferred securities with amortized costs of $10,505,646 from the held to maturity portfolio to the available for sale portfolio. The net unrealized gain was $154,557. The transferred securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders' equity net of related taxes. The Available for Sale segment of the securities portfolio at December 31, 1995 was $171.9 million compared to $188.8 million at the beginning of the year. Interest rates continued to trend lower during the year. This, together with an exceptional appreciation in the common stock portfolio of the Corporation's banking subsidiary caused the Allowance valuation to increase to $6.3 million at December 31, 1995, compared to a negative $295 thousand at December 31, 1994. The components of the appreciation are set forth in the following table:
Amortized Fair Appreciation Cost Value (Depreciation) - -------------------------------------------------------------------------------------------------------------------- (in thousands) U.S. Treasury Securities $ 77,579 $ 78,516 $ 937 Obligations of other U.S. Government Agencies 29,692 30,258 566 U.S. Government Agency Mortgage-backed pools 30,647 30,573 (74) Obligations of states and political subdivisions 22,301 22,703 402 Other bonds and notes 2,941 3,014 73 Corporate stocks 2,468 6,818 4,350 - -------------------------------------------------------------------------------------------------------------------- Totals $ 165,628 $ 171,882 $ 6,254 ====================================================================================================================
Included in Corporate stocks is 17,995 shares of Student Loan Marketing Association ("SALLIE MAE") at a cost basis of $5,762 and fair value of $1,187,670. These shares were acquired as preferred shares (a permitted exception to the Government regulation banning bank ownership of equity securities) in the original capitalization of the U.S. Government Agency. Later, the shares were converted to common stock as SALLIE MAE recapitalized. Additionally, at December 31, 1995, the banking subsidiary's portfolio held marketable investments in equities totalling $94,995 at cost with a total market value of $3,194,389. These shares were acquired prior to the enactment of the Banking Act of 1933. Other equities included in the bank portfolio are 9,964 shares of Federal Reserve Bank and 14,813 shares of the Federal Home Loan Bank of New York. They are valued at $498,200 and $1,481,300, respectively. Management has no current plans for selling these securities. Capital Resources and Dividends The Corporation continues to maintain a strong capital position. Tangible shareholders' equity at December 31, 1995, was $44.9 million or 8.95% of total assets compared to $37.2 million or 7.52% of total assets at the end of 1994 and $38.3 million or 9.63% of assets at the end of 1993. The Federal Reserve requires 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. The Corporation continues to maintain a strong capital position. As of December 31, 1995, the Corporation's total Weighted Risk Adjusted Capital Ratio was 15.15% compared with 15.03% at December 31, 1994 and 17.09% at the end of 1993. The leverage ratio (Average Tier I Capital/Average Assets) was 8.34% at year end versus 7.69% in 1994 and 9.63% in 1993. Management's strategy for leveraging the Corporation's capital is to maintain the leverage ratio between 7.50% and 8.50%. 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, 1995, 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, 1995, $7,857,299 was available for the declaration of dividends. Cash dividends declared amounted to $2.046 million in 1995 versus $1.777 million in 1994 and $1.657 million in 1993. Dividends declared amounted to 36.5% of net earnings compared to 38.2% and 36.8% of 1994 and 1993 net earnings, respectively. It is management's objective to continue generating sufficient capital internally, while retaining an adequate dividend payout ratio. The core deposit intangible and goodwill in the amounts of $5.34 million and $2.65 million, respectively, at December 31, 1995, which account for the premium paid in connection with the acquisition of three branches from the Resolution Trust Corporation ("RTC") and the Owego National Financial Corporation during 1994, is being amortized over 15 years for both book and tax purposes. Amortization periods are monitored to determine if events and circumstances require such periods to be reduced. With respect to each of the branches acquired from the RTC, management has determined that our purchase of these deposits constituted entrance into major new market areas and provides a basis for concluding that the core deposit intangible benefits will exist beyond a short-term period. Treasury Shares When shares of the Corporation come on the market, we will bid only after careful review of our capital position. During 1995, 11,632 shares were purchased at a total cost of $299,749 or an average price of $25.77 per share. In 1994, 7,500 of the treasury shares were sold at a price of $23.00 per share to fund profit sharing requirements. During 1993, 2,869 common shares were purchased at a total cost of $65,638 ($22.878 average cost per share). Cash Flow Proceeds from maturities and sales of securities and student loans available for sale trailed purchases of securities and loan originations, net of repayments and net purchases of premises and equipment, by $356 thousand during 1995. Net purchases of premises and equipment were $3.013 million, including $540 thousand for real estate. In 1994, net cash used by investing activities was $85.1 million. Additionally, in June 1994, the bank acquired $45.6 million in deposits from the RTC. This event resulted in unusually high levels of securities purchases. Net cash provided by financing activities amounted to a negative $4.495 million during 1995 compared to $49.0 million a year earlier, when the purchase of deposits of acquired branches accounted for $45.6 million of the increase. Core deposits (Demand, NOW, Savings and Insured Money Market Accounts) decreased $14.3 million while certificates of deposit and individual retirement accounts increased $8.9 million. Liquidity and Sensitivity The term "liquidity" refers primarily to the expected cash flows from assets held for investment and secondarily to borrowings secured by assets held for investments. These two sources of liquidity have in the past been sufficient to fund the operations of the Bank, and the Board of Directors anticipates that they will suffice in the future. For this reason, the term "liquidity" in the Bank's policies does not refer to proceeds from the sale of assets, although the sale of assets held as available for sale is a source of liquidity available to management. Liquidity management involves the ability to meet the cash flow requirements of deposit customers, borrowers, and the operating, investing, and financing activities of the Corporation. Management of interest rate sensitivity seeks to avoid fluctuating net interest margins and to enhance consistent growth of net interest income through periods of changing interest rates. As intermediaries between borrowers and savers, commercial banks incur interest rate risk. The Bank's Asset/Liability Committee (ALCO) has the strategic responsibility for setting the policy guidelines on acceptable exposure. The ALCO is made up of the President, Senior Lending Officer, Senior Marketing Officer, Chief Financial Officer, and others representing key functions. 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 $1.481 million in FHLB common stock, the Bank maintained a credit line of $52,389,800 at December 31, 1995. Interest-rate risk is the risk that net interest income will fluctuate as a result of a change in interest rates. It is the assumption of interest rate risk, along with credit risk, that drives the net interest margin of a financial institution. A related component of interest rate risk is the expectation that the market value of our capital account will fluctuate with changes in interest rates. This component is a direct corollary to the earnings-impact component: an institution exposed to earnings erosion is also exposed to shrinkage in market value. Interest rate risk is portrayed below using the "contractual" gap. Contractual gap measures the stated repricing and maturity of assets and liabilities. At December 31, 1995, the cumulative one-year contractual gap for the Bank was a negative $121.5 million versus a negative $111.4 million a year earlier and a negative $75.2 at the end of 1993. This indicates that $121.5 million of earning assets could reprice after the source of funds reprice. In recent years, however, core deposits (NOW accounts, Insured Money Market Accounts and Savings accounts) have not been repriced with movements of interest rates in the negotiable securities markets. Rather, the interest paid upon such funding sources during 1995, 1994 and 1993 has been very stable, even with movements in excess of 200 basis points. Short-term and intermediate-term interest rates on U.S. Treasury Securities reached their lowest levels at the beginning of 1994; peaked over 250 basis points higher at the beginning of 1995 and had declined more than 200 basis points by the end of the year.
December 31, 1995 Rate Sensitive - -------------------------------------------------------------------------------------------------------------------- Contractual Amounts 1 to 90 91 to 365 1 to 5 Over 5 (Thousands) days days years years - -------------------------------------------------------------------------------------------------------------------- Earning assets: Loans $ 99,667 $ 24,573 $ 72,425 $ 66,291 Securities 6,684 43,993 85,648 35,538 Federal funds 10,000 Other (Equities) 6,818 - -------------------------------------------------------------------------------------------------------------------- Total earning assets 123,169 68,566 158,073 101,829 ==================================================================================================================== Net sources: NOW accounts 43,958 Insured Money Market 47,520 Time certificates under $100 thousand 23,835 67,980 41,507 38 Time certificates over $100 thousand 13,618 5,803 2,041 Savings 97,184 Repurchase agreements 13,382 - -------------------------------------------------------------------------------------------------------------------- Total sources 239,497 73,783 43,548 38 ==================================================================================================================== Incremental gap -116,328 -5,217 114,525 101,791 Percent of earning assets -94.4 -7.6 72.4 100 Cumulative gap -116,328 -121,545 -7,020 94,771 Percent of total assets -25.8 -26.9 -1.6 21.0 ================================================================================
The asset/liability management function of the Bank falls under the authority of the Board of Directors, which has charged the ALCO with responsibility for implementing its funds management policies. The ALCO is responsible for supervising the preparation and annual revisions of the financial segments of the Bank Plan, which is built upon the committee's economic and interest-rate assumptions and the Annual Budget. It is the responsibility of the ALCO to modify prudently any and all asset/liability strategies in order to achieve profit goals. On January 1, 1995, the Corporation adopted the provisions of 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. 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. The Corporation defines smaller balance, homogeneous loans as consumer loans, residential mortgages, home equity and credit card outstandings. Significant factors impacting management's judgment in determining when a loan is impaired include an evaluation of compliance with repayment program, condition of collateral, deterioration in financial strength of borrower or any case when the expected future cash payments may be less than the recorded amount. Commercial loans are placed upon non-accrual status when delinquency reaches 90 days unless collateral is deemed adequate, while consumer, mortgage and home equity loans are considered for non-accrual at 120 days. This is due to management's evaluation of commercial loans as carrying a greater level of inherent risk. New Accounting Standards In June of 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 122 ("SFAS No. 122") Accounting for Certain Mortgage Banking Activities, an Amendment of FASB Statement No. 65. This statement amends certain provisions of Statement 65 to eliminate the accounting distinction between rights to service mortgage loans for others that are acquired through loan origination activities and those acquired through purchase transactions. The Corporation presently recognizes servicing rights acquired only through loan underwriting transactions and these are not material. Adoption of SFAS No. 122 in 1996 will have no material impact upon its financial statements based upon historical levels of sales where servicing is retained. In October of 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 ("SFAS No. 123") Accounting for Stock-Based Compensation which encourages, but does not require, companies to use a fair value based method of determining compensation cost for grants of stock options under stock-based employee compensation plans. Companies electing to continue accounting for these plans under the provisions of Opinion 25 will be required to present pro forma disclosures of net income and net income per share, as if a fair value based method had been applied. The Corporation is required to implement SFAS No. 123 on January 1, 1996. Management does not believe the adoption of SFAS No. 123 will have a material impact on the Corporation's consolidated financial statements as it does not currently have a stock-based compensation plan. /s/ "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, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in note 1 to the consolidated financial statements, effective January 1, 1995, the Company changed its method of accounting for impairment of loans to adopt the provisions of Statement of Financial Accounting Standards (SFAS) No. 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 Disclosures. Also as discussed in note 1, at January 1, 1994, the Company changed its method of accounting for securities to adopt the provisions of SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and 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 26, 1996 CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEET
Assets December 31 1995 1994 - ---------------------------------------------------------------------------------------------------------------- Cash and due from banks $ 27,293,592 24,266,349 Interest-bearing deposits with other 90,206 114,243 financial institutions Federal funds sold 10,000,000 8,000,000 Securities available for sale, at fair value 171,882,062 188,828,284 Securities held to maturity, fair value of 7,582,044 15,168,682 $7,581,519 in 1995 and $15,012,570 in 1994 Loans 263,001,304 236,497,448 Allowance for loan losses (3,900,000) (3,599,968) ---------------------------------------------------------------------------------- Loans, net 259,101,304 232,897,480 Premises and equipment, net 10,290,702 8,527,302 Other assets 7,662,639 7,952,438 Goodwill and deposit base intangible, 7,990,237 8,577,540 net of accumulated amortization ---------------------------------------------------------------------------------- Total assets $ 501,892,786 $ 494,332,318 ================================================================================== Liabilities and Shareholders' Equity - ---------------------------------------------------------------------------------------------------------------- Deposits: Noninterest-bearing 83,591,381 81,135,334 Interest-bearing 343,287,511 351,135,386 ---------------------------------------------------------------------------------- Total deposits 426,878,892 432,270,720 Securities sold under agreements to repurchase 13,381,581 10,203,785 Accrued interest payable 1,059,102 894,396 Dividends payable 520,462 456,027 Other liabilities 7,153,851 4,768,644 ---------------------------------------------------------------------------------- Total liabilities 448,993,888 448,593,572 ---------------------------------------------------------------------------------- Commitments and contingencies (note 14) Shareholders' equity: Common stock, $5.00 par value per share; 10,750,335 10,750,335 authorized 3,000,000 shares, issued: 2,150,067 Surplus 10,068,563 10,068,563 Retained earnings 29,930,969 26,374,590 Treasury stock, at cost (1995 - 68,218 shares; (1,579,298) (1,279,549) 1994 - 56,586 shares) Net unrealized gain (loss) on securities 3,728,329 (175,193) available for sale, net of taxes ---------------------------------------------------------------------------------- Total shareholders' equity 52,898,898 45,738,746 ---------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 501,892,786 $ 494,332,318 ================================================================================== See accompanying notes to consolidated financial statements.
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31 1995 1994 1993 ------------------------------------------------------------------------------------------------------------ Interest income: Loans $ 23,867,713 20,006,304 20,740,622 Securities 11,365,927 9,023,516 7,272,439 Federal funds sold 485,979 407,259 370,926 Interest-bearing deposits 357,090 142,882 72,931 ------------------------------------------------------------------------------------------------------------ Total interest income 36,076,709 29,579,961 28,456,918 ------------------------------------------------------------------------------------------------------------ Interest expense: Deposits 13,446,125 9,895,852 9,503,976 Borrowed funds 7,538 8,366 108 Securities sold under agreements to repurchase 773,264 372,133 281,096 ------------------------------------------------------------------------------------------------------------ Total interest expense 14,226,927 10,276,351 9,785,180 ------------------------------------------------------------------------------------------------------------ Net interest income 21,849,782 19,303,610 18,671,738 Provision for loan losses 564,380 623,772 906,739 ------------------------------------------------------------------------------------------------------------ Net interest income after provision for loan losses 21,285,402 18,679,838 17,764,999 Other operating income: Trust department income 3,677,622 3,322,643 3,294,388 Service charges on deposit accounts 1,502,971 1,318,448 1,273,640 Net gain on sales of securities 530,953 140,001 821,467 Credit card merchant earnings 494,821 436,246 377,628 Other 529,413 467,856 351,743 ----------------------------------------------------------------------------------------------------------- 6,735,780 5,685,194 6,118,866 ------------------------------------------------------------------------------------------------------------ Other operating expenses: Salaries and wages 7,658,865 6,848,952 6,177,966 Pension and other employee benefits 2,214,273 1,824,114 1,983,641 Net occupancy expenses 1,586,077 1,440,755 1,281,754 Furniture and equipment expenses 1,475,543 1,270,385 1,203,610 Other 6,625,056 5,990,536 4,979,616 ------------------------------------------------------------------------------------------------------------ 19,559,814 17,374,742 15,626,587 ------------------------------------------------------------------------------------------------------------ Income before income taxes and cumulative effect 8,461,368 6,990,290 8,257,278 of change in accounting principle Income taxes 2,859,476 2,342,765 2,830,032 ------------------------------------------------------------------------------------------------------------ Income before cumulative effect of change in 5,601,892 4,647,525 5,427,246 accounting principle Cumulative effect, at January 1, 1993, of change in - - (933,183) accounting for postretirement benefits other than pensions, net of income tax expense of $643,939 ------------------------------------------------------------------------------------------------------------ Net income $ 5,601,892 4,647,525 4,494,063 ============================================================================================================ Weighted average number of common shares outstanding 2,087,751 1,899,488 1,893,618 ============================================================================================================ Per common share: Income before cumulative effect of change in $ 2.68 2.45 2.87 accounting principle Cumulative effect of change in accounting $ - - (.50) principle ------------------------------------------------------------------------------------------------------------ Net income $ 2.68 2.45 2.37 ============================================================================================================ See accompanying notes to consolidated financial statements.
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Unrealized Gain (Loss) On Securities Common Retained Treasury Available Stock Surplus Earnings Stock For Sale Total - ---------------------------------------------------------------------------------------------------------------- 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 - - (1,656,528) - - (1,656,528) ($.875 per share) Purchase of 2,869 shares of - - - (65,638) - (65,638) treasury stock Sale of 2,000 shares - 2,808 - 45,200 - 48,008 of treasury stock - ---------------------------------------------------------------------------------------------------------------- Balances at December 31, 1993 9,783,495 6,488,330 23,503,671 (1,449,124) - 38,326,372 Net unrealized gain on - - - - 2,786,610 2,786,610 securities available for sale, net of taxesof $1,910,980 Issuance of 193,368 shares 966,840 3,577,308 - - - 4,544,148 in acquisition Net income - - 4,647,525 - - 4,647,525 Cash dividends declared - - (1,776,606) - - (1,776,606) ($.935 per share) Sale of 7,500 shares - 2,925 - 169,575 - 172,500 of treasury stock Change in net unrealized gain - - - - (2,961,803) (2,961,803) (loss) on securities available for sale, net of taxes of $2,031,136 - ---------------------------------------------------------------------------------------------------------------- Balances at December 31, 1994 10,750,335 10,068,563 26,374,590 (1,279,549) (175,193) 45,738,746 Net income - - 5,601,892 - - 5,601,892 Cash dividends declared - - (2,045,513) - - (2,045,513) ($.98 per share) Purchases of 11,632 shares of - - - (299,749) - (299,749) treasury stock Change in net unrealized gain - - - - 3,903,522 3,903,522 (loss) on securities available for sale, net of taxes of $2,645,891 - ---------------------------------------------------------------------------------------------------------------- Balances at December 31, 1995 $ 10,750,335 10,068,563 29,930,969 (1,579,298) 3,728,329 52,898,898 ================================================================================================================ See accompanying notes to consolidated financial statements
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31 1995 1994 1993 --------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 5,601,892 4,647,525 4,494,063 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of goodwill and deposit 587,303 232,003 - base intangible Deferred income taxes (168,577) 98,614 (110,044) Provision for loan losses 564,380 623,772 906,739 Depreciation and amortization 1,250,236 986,183 971,073 Amortization and discount on securities, net (458,579) (1,077,616) (709,539) Gain on sales of securities, net (530,953) (140,001) (821,467) (Increase) decrease in other assets 289,799 (1,968,603) (715,341) Increase (decrease) in accrued interest payable 164,706 215,747 (110,944) Increase (decrease) in other liabilities 2,553,784 (201,391) 677,656 Accrued postretirement benefits - - 1,577,122 --------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 9,853,991 3,416,233 6,159,318 --------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from sales of securities held to maturity - - 6,013,130 Proceeds from sales of securities available 15,958,448 19,955,253 14,934,718 for sale Proceeds from maturities of and principal 7,261,930 5,651,201 114,291,595 collected on securities held to maturity Proceeds from maturities of and principal 94,781,598 69,972,928 - collected on securities available for sale Purchases of securities available for sale (78,373,282) (156,905,963) - Purchases of securities held to maturity (10,202,780) (11,841,859) - Purchases of securities - - (108,319,159) Cash of acquired bank, net of cash paid - 2,894,434 - Purchases of premises and equipment, net (3,013,636) (1,999,522) (533,821) Loan originations, net of repayments and (29,563,052) (9,324,698) (7,289,548) other reductions Proceeds from sales of student loans 2,794,848 2,507,848 2,572,308 Deposit acquisition premium - (5,965,793) - --------------------------------------------------------------------------------------------------------- Net cash provided (used) by $ (355,926) (85,056,171) 21,669,223 investing activities (Continued)
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31 1995 1994 1993 --------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net increase (decrease) in demand deposits, $ (14,320,289) 328,981 4,889,843 NOW accounts, savings accounts, and insured money market accounts Net increase (decrease) in certificates of 8,928,461 6,928,120 (1,195,261) deposit and individual retirement account Net increase (decrease) in securities sold 3,177,796 (2,341,784) 3,693,745 under agreements to repurchase Purchases of treasury stock (299,749) - (65,638) Sale of treasury stock - 172,500 48,008 Cash dividends paid (1,981,078) (1,751,148) (1,623,590) Deposits of acquired branches - 45,628,085 - --------------------------------------------------------------------------------------------------------- Net cash provided (used) by financing (4,494,859) 48,964,754 5,747,107 activities --------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash 5,003,206 (32,675,184) 33,575,648 equivalents Cash and cash equivalents, beginning of year 32,380,592 65,055,776 31,480,128 --------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 37,383,798 32,380,592 65,055,776 ========================================================================================================= Supplemental disclosure of cash flow information: Transfer of securities held to maturity $ 10,505,646 94,727,116 - to securities available for sale Cash paid during the year for: Income Taxes 2,937,581 2,464,816 3,427,195 Interest $ 14,062,221 10,052,237 9,896,016 =========================================================================================================
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 5,780,938 stock issued ------------ Liabilities assumed $ 36,600,512 See accompanying notes to consolidated financial statements.
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1994 (1) Statement of Accounting Policies Organization Chemung Financial Corporation (the Corporation), through its wholly owned subsidiary, Chemung Canal Trust Company (the Bank), provides commercial banking services to its local market area. The Corporation is subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory agencies. As discussed in note 2, at the end of 1994 the Corporation acquired Owego National Financial Corporation (Owego), a commercial bank. Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles and include the accounts of the Corporation and the Bank. All significant intercompany balances and transactions eliminated in consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Securities 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. 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 fair value of any available for sale or held to maturity security below amortized cost that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment of yield using the interest method. Dividend and interest income are recognized when earned. 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. The Corporation adopted the provisions of SFAS No. 114, Accounting by Creditors for Impairment of a Loan, as amended SFAS 118, Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures on January 1, 1995. Management, considering current information and events regarding the borrower's ability to repay their obligations, considers a loan to be impaired when it is probable that the Corporation will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is considered to be impaired, the amount of the impairment is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of collateral if the loan is collateral dependent. Impairment losses are included in the allowance for loan losses through a charge to the provision for loan losses. In general, interest income on impaired loans is recorded on a cash basis when collection in full is reasonably expected. If full collection is uncertain, cash receipts are applied first to principal then to interest income. Adoption of these statements did not have a material impact on the Corporation's 1995 consolidated financial statements. Loans Loans are stated at the amount of unpaid principal balance less unearned discounts and net deferred fees. The corporation has the ability and intent to hold its loans until maturity except for educational loans which are sold to a third party from time to time upon reaching repayment status. Interest on loans is accrued and credited to operations on the level yield method. The accrual of interest is discounted and previously accrued interest is reversed when commercial loans become 90 days delinquent and, when consumer, mortgage and home equity loans, which are not guaranteed by government agencies, become 120 days delinquent. 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 Land is carried at cost, while buildings and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is charged to current operations under accelerated and straight-line methods over the estimated useful lives of the assets, which range from 15 to 50 years for buildings and from 3 to 10 years for equipment and furniture. Amortization of leasehold improvements and leased equipment is recognized on the straight-line method over the shorter of the lease term or the estimated life of the assets. Other Real Estate Real estate acquired through foreclosure or deed in lieu of foreclosure is recorded at the lower of the carrying value of the loan or estimated fair value of the property at the time of acquisition. Write downs from cost to estimated fair value which are required at the time of foreclosure are charged to the allowance for loan losses. Subsequent to acquisition, other real estate is carried at the lower of the carrying amount or fair value less estimated costs to dispose. Subsequent adjustments to the carrying values of such properties resulting from declines in fair value are charged to operations in the period in which the declines occur. Income Taxes The Corporation files a consolidated return on the accrual method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Trust Department Income Assets held in a fiduciary or agency capacity for customers are not included in the accompanying consolidated balance sheets, since such assets are not assets of the Corporation. Trust department income is recognized on the accrual method based on contractual rates applied to the balances of individual trust accounts. Pension Plan 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 the provisions of SFAS 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, which established a new accounting principle for the cost of retiree health care and other postretirement benefits. Immediate recognition of the transition obligation was elected. 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. Periodically, the Corporation reviews its goodwill and deposit base intangible assets for events or changes in circumstances that may indicate that the carrying amount of the assets are not recoverable. 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. These 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 commitments under standby letters of credit, unused portions of lines of credit and commitments to fund new loans. 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 $5,780,938, consisting of $1,236,790 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 are included in the consolidated financial statements beginning January 1, 1995. For taxation purposes the acquisition was accounted for as a tax free reorganization. The excess of the cost over the fair value of the net assets acquired (goodwill) of $2,843,750 is being amortized on the straight-line method over a period of 15 years. During 1994, the Bank acquired deposits totaling $45,628,085 from the Resolution Trust Company at a premium of $5,965,793. This deposit base intangible asset is being amortized on the straight-line method over 15 years. The 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 $ 2,092 $ 2,087 shares outstanding 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 21, 1995 was $6,954,000, of which $923,000 was required to be on deposit with the Federal Reserve Bank; the remainder, $6,031,000, was represented by cash on hand. (4) Securities Amortized cost and fair value of securities available for sale at December 31, 1995 and 1994 are as follows:
1995 1994 - ---------------------------------------------------------------------------------------------------------------- Amortized Fair Amortized Fair Cost Value Cost Value - ---------------------------------------------------------------------------------------------------------------- U.S. Treasury securities $ 77,579,182 78,516,356 135,086,502 132,211,021 Obligations of other U.S. Government agencies 29,692,008 30,258,315 31,806,859 31,027,012 Obligations of states and political subdivisions 22,300,655 22,702,964 14,888,600 14,903,869 Other bonds and notes 33,587,684 33,586,921 5,192,796 5,193,756 Corporate stocks 2,468,469 6,817,506 2,148,876 5,492,626 - ---------------------------------------------------------------------------------------------------------------- $ 165,627,998 171,882,062 189,123,633 188,828,284 ================================================================================================================
Amortized cost and fair value of securities held to maturity at December 31, 1995 and 1994 are as follows:
1995 1994 - ---------------------------------------------------------------------------------------------------------------- Amortized Fair Amortized Fair Cost Value Cost Value - ---------------------------------------------------------------------------------------------------------------- Obligations of states and political subdivisions $ 7,572,044 7,572,044 13,181,247 13,025,161 Other bonds and notes 10,000 9,475 1,987,435 1,987,409 - ---------------------------------------------------------------------------------------------------------------- $ 7,582,044 7,581,519 15,168,682 15,012,570 ================================================================================================================
Included in corporate stocks at December 31, 1995 and 1994 is the Bank's required investment in the stock of the Federal Home Loan Bank with a cost of $1,481,300 and $1,193,200, respectively. This investment allows the Bank to maintain a $52,389,800 line of credit with the Federal Home Loan Bank. Gross unrealized gains and gross unrealized losses on securities available for sale at December 31, 1995 and 1994 were as follows:
1995 1994 - ---------------------------------------------------------------------------------------------------------------- Unrealized Unrealized Unrealized Unrealized Gains Losses Gains Losses - ---------------------------------------------------------------------------------------------------------------- U.S. Treasury securities $ 945,697 8,523 3,753 2,879,234 Obligations of other U.S. Government agencies 571,096 4,789 89,733 869,580 Obligations of states and political subdivisions 421,180 18,871 191,870 176,600 Other bonds and notes 95,297 96,060 38,976 38,017 Corporate stocks 4,349,037 - 3,356,773 13,023 - ---------------------------------------------------------------------------------------------------------------- $ 6,382,307 128,243 3,681,105 3,976,454 ================================================================================================================
Gross unrealized gains and gross unrealized losses on securities held to maturity at December 31, 1995 and 1994 were as follows:
1995 1994 - ---------------------------------------------------------------------------------------------------------------- Unrealized Unrealized Unrealized Unrealized Gains Losses Gains Losses - ---------------------------------------------------------------------------------------------------------------- Obligations of states and political subdivisions $ - - 976 157,062 Other bonds and notes - 525 4,677 4,703 - ---------------------------------------------------------------------------------------------------------------- $ - 525 5,653 161,765 ================================================================================================================
Gross realized gains on sales of securities were $530,953, $140,001, and $821,467 for the years ended December 31, 1995, 1994 and 1993, 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, 1995, 1994 and 1993 were as follows:
1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------- Taxable U.S. Treasury securities $ 6,087,187 5,152,024 3,443,000 Obligations of other U.S. Government agencies 2,918,058 1,739,701 1,548,043 Other bonds and notes 673,373 614,390 849,532 Corporate stocks 281,145 255,723 247,543 Exempt from federal taxation - obligations of states and political subdivisions 1,406,164 1,261,678 1,184,321 - ---------------------------------------------------------------------------------------------------------------- $ 11,365,927 9,023,516 7,272,439 ================================================================================================================
The amortized cost and fair value by years to maturity as of December 31, 1995 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 $ 32,047,390 32,214,981 45,531,792 46,301,375 Obligations of other U.S. Government agencies 6,494,823 6,528,615 21,197,185 21,698,140 Obligations of states and political subdivisions 5,551,101 5,593,265 14,272,410 14,593,722 Other bonds and notes 1,496,762 1,517,605 1,443,893 1,495,940 - ---------------------------------------------------------------------------------------------------------------- Total $ 45,590,076 45,854,466 82,445,280 84,089,177 ================================================================================================================ Maturing - ---------------------------------------------------------------------------------------------------------------- After Five, But Within Ten Years After Ten Years - ---------------------------------------------------------------------------------------------------------------- Amortized Fair Amortized Fair Cost Value Cost Value - ---------------------------------------------------------------------------------------------------------------- Obligations U.S. Government agencies $ 2,000,000 2,031,560 - - Obligations of states and political subdivisions 2,252,144 2,298,696 225,000 217,281 Other bonds and notes 5,021,051 5,031,379 25,625,978 25,541,997 - ---------------------------------------------------------------------------------------------------------------- Total $ 9,273,195 9,361,635 25,850,978 25,759,278 ======================================================================================
The amortized cost and fair value by years to maturity as of December 31, 1995 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 $ 4,817,894 4,817,894 1,777,670 1,777,670 Other bonds and notes 5,000 4,875 5,000 4,600 - ---------------------------------------------------------------------------------------------------------------- Total $ 4,822,894 4,822,769 1,782,670 1,782,270 ================================================================================================================ Maturing - ---------------------------------------------------------------------------------------------------------------- After Five, But Within Ten Years After Ten Years - ---------------------------------------------------------------------------------------------------------------- Amortized Fair Amortized Fair Cost Value Cost Value - ---------------------------------------------------------------------------------------------------------------- Obligations of states and political subdivisions $ 976,480 976,480 - - ================================================================================================================
The fair value of securities pledged to secure public funds on deposit or for other purposes as required by law was $95,913,200 at December 31, 1995 and $96,791,741 at December 31, 1994. U.S. Treasury securities totaling $18,380,000 and $19,277,150 (fair value of $18,616,689 and $ $18,776,577) were pledged to secure repurchase agreements at December 31, 1995 and 1994, 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, 1995 or 1994. In November, 1995 the Financial Accounting Standards Board published A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities (Guide). Concurrent with the initial adoption of the Guide, but no later than December 31, 1995, the Corporation was permitted to reassess the appropriateness of the classifications of all securities held at that time and implement reclassifications without calling into question the intent of the Corporation to hold other debt securities to maturity in the future. Effective December 1, 1995 the Corporation transferred securities with amortized costs of $10,505,646 from the held to maturity portfolio to the available for sale portfolio. The net unrealized gain was $154,557. The transferred securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders' equity, net of related taxes. (5) Loans and Allowance for Loan Losses The composition of the loan portfolio is summarized as follows:
December 31, 1995 1994 - ---------------------------------------------------------------------------------------------------------------- Residential mortgages $ 61,070,320 54,717,992 Commercial mortgages 10,799,467 13,194,116 Commercial, financial and agricultura l89,785,341 75,006,015 Consumer loans 101,687,175 94,180,896 Net deferred fees and unearned income (340,999) (601,571) - ---------------------------------------------------------------------------------------------------------------- $ 263,001,304 236,497,448 ================================================================================================================
During 1995, 1994 and 1993, the Corporation sold $2,794,848, $2,507,848 and $2,572,308, 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 $1,119,671 and $1,200,547 at December 31, 1995 and 1994, respectively. There were no loans with modified payment terms because of the borrowers' financial difficulties at December 31, 1995 and 1994. The effect of nonaccrual loans on interest income for the years ended December 31, 1995, 1994 and 1993 was not material. The Bank is not committed to advance additional funds to these borrowers. Other real estate owned at December 31, 1995 amounted to $175,922 involving one property and at December 31, 1994, amounted to $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, 1995, 1994 and 1993 were as follows:
1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------- Balances at January 1 $ 3,599,968 3,500,000 3,400,000 Provision charged to operations 564,380 623,772 906,739 Loans charged off (373,261) (717,511) (896,100) Recoveries 108,913 93,739 89,361 Allowance of Owego - 99,968 - at time of acquisition - ---------------------------------------------------------------------------------------------------------------- $ 3,900,000 3,599,968 3,500,000 ================================================================================================================
As discussed note 1, the Corporation changed its method of accounting for impairment of loans on January 1, 1995 to adopt the provisions SFAS No. 114, Accounting for Creditors for Impairment of a Loan, as amended by SFAS No. 118, Accounting by Creditors for Impairment of Loan - Income Recognition and Disclosures. At December 31, 1995, the recorded investment in loans that are considered to be impaired totaled $879,539. Included in this amount was $530,811 of impaired loans for which the related allowance for loan losses is $198,618, and $348,728 of impaired loans with no related allowance for loan losses. The average recorded investment in impaired loans during 1995 was $722,055. The effect on interest income for impaired loans was not material to the consolidated financial statements in 1995. (6) Premises and Equipment Premises and equipment at December 31, 1995 and 1994 are as follows:
1995 1994 - ---------------------------------------------------------------------------------------------------------------- Land $ 2,106,408 2,066,408 Buildings 9,883,468 9,009,746 Equipment and furniture 11,463,538 9,502,219 Leasehold improvements 396,478 317,624 - ---------------------------------------------------------------------------------------------------------------- 23,849,892 20,895,997 Less accumulated depreciation 13,559,190 12,368,695 - ---------------------------------------------------------------------------------------------------------------- $ 10,290,702 8,527,302 ================================================================================================================
(7) Deposits Interest-bearing deposits include certificates of deposit in denominations of $100,000 or more aggregating $21,462,087 and $17,169,048 at December 31, 1995 and 1994, respectively. Interest expense on such certificates was $1,057,353, $559,034, and $654,522 for 1995, 1994 and 1993, respectively. (8) Securities Sold Under Agreements to Repurchase The agreements have maturities from 4 to 34 days at December 31, 1995 and 4 to 97 days at December 31, 1994, and a weighted average interest rate of 5.33% at December 31, 1995 and 5.30% at December 31, 1994. The maximum amounts outstanding at any one month-end and average amount under these agreements during 1995 were $19,677,060 and $13,726,251, respectively. The 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 securities underlying the agreements were under the Trust Department's control as custodian. (9) Income Taxes Total income taxes for the years ended December 31, 1995, 1994 and 1993 were allocated as follows:
1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------- Income before income taxes and cumulative effect of accounting change $ 2,859,476 2,342,765 2,830,032 Cumulative effect, at January 1, 1993, of adoption of SFAS 106 - - 643,939 Shareholders' equity for change in unrealized loss on securities 2,645,891 (120,156) - - ---------------------------------------------------------------------------------------------------------------- $ 5,505,367 2,222,609 3,473,971 ================================================================================================================
For the years ended December 31, 1995, 1994 and 1993, income tax expense attributable to income from operations before cumulative effect of change in accounting principle consists of:
1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------- Current: State $ 646,080 499,305 709,967 Federal 2,381,973 1,744,846 2,230,109 - ---------------------------------------------------------------------------------------------------------------- 3,028,053 2,244,151 2,940,076 Deferred (168,577) 98,614 (110,044) - ---------------------------------------------------------------------------------------------------------------- $ 2,859,476 2,342,765 2,830,032 ================================================================================================================
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:
1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------- Tax computed at statutory rate $ 2,876,865 2,376,699 2,804,386 Tax exempt interest (486,208) (435,678) (402,658) Dividend exclusion (33,594) (32,362) (31,829) State taxes, net of federal benefit 408,610 345,813 479,566 Nondeductible interest expense 55,582 41,829 33,751 Other items, net 38,221 46,464 (53,184) - ---------------------------------------------------------------------------------------------------------------- Actual tax expense $ 2,859,476 2,342,765 2,830,032 ================================================================================================================
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1995 and 1994 are presented below:
1995 1994 - ---------------------------------------------------------------------------------------------------------------- Deferred tax assets: Allowance for loan losses $ 1,180,197 1,066,814 Accrual for postretirement benefits other than pensions 732,372 699,494 Deferred loan fees 113,647 185,896 Deferred compensation and directors fees 369,611 322,897 Net unrealized losses on securities - 120,156 Other 180,729 138,535 - ---------------------------------------------------------------------------------------------------------------- Total gross deferred tax assets $ 2,576,556 2,533,792 - ---------------------------------------------------------------------------------------------------------------- Deferred tax liabilities: Bond discount 53,750 101,715 Depreciation 410,007 389,469 Net unrealized gains on securities 2,525,735 - Other 58,772 37,002 - ---------------------------------------------------------------------------------------------------------------- Total gross deferred tax liabilities 3,048,264 528,186 - ---------------------------------------------------------------------------------------------------------------- Net deferred tax asset (liability) $ (471,708) 2,005,606 ================================================================================================================
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, 1995 and 1994:
1995 1994 - ---------------------------------------------------------------------------------------------------------------- Actuarial present value of accumulated benefit obligation, including vested benefits of $9,488,826 and $9,009,876 in 1995 and 1994 respectively $ (9,956,932) (9,314,611) Projected benefit obligation for service rendered to date (12,211,661) (11,573,174) Plan assets at fair value 14,042,435 11,833,298 Excess of plan assets over the projected benefit obligation 1,830,774 260,124 Unrecognized net obligation 839,454 909,342 Unrecognized net gain (3,241,671) (1,207,086) Unrecognized prior service cost 598,945 - - ---------------------------------------------------------------------------------------------------------------- Prepaid (accrued) pension cost $ 27,502 (37,620) ================================================================================================================
Net periodic pension cost included the following components:
Years ended December 31, 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------- Service cost - benefits earned during the year $ 293,048 271,218 265,992 Interest cost on projected benefit obligation 798,518 757,327 762,002 Actual return on plan assets (2,436,581) (131,585) (245,983) Net amortization and deferral 1,542,093 (780,715) (599,153) - ---------------------------------------------------------------------------------------------------------------- Net periodic pension cost $ 197,078 116,245 182,858 ================================================================================================================
Assumptions used in determining pension amounts are as follows:
1995 1994 - ---------------------------------------------------------------------------------------------------------------- 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 on assets 8.5 8.5
The plan's assets at December 31, 1995 and 1994 are invested in common and preferred stocks, U.S. Government securities, and corporate bonds and notes. Effective January 1, 1995, retirees' benefits were increased. This amendment generated prior service cost of $622,106. 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 $499,343, $423,161 and $406,798 for the years ended December 31, 1995, 1994 and 1993, 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 the provisions of 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, 1995 and 1994:
1995 1994 - ---------------------------------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $ (807,185) (909,058) Fully eligible active plan participants (114,090) (140,404) Other active plan participants (1,061,074) (624,166) - ---------------------------------------------------------------------------------------------------------------- (1,982,349) (1,673,628) Unrecognized net (gain) loss 168,896 (44,910) - ---------------------------------------------------------------------------------------------------------------- Accrued postretirement benefit cost included in other liabilities $(1,813,453) (1,718,538) ================================================================================================================
Net periodic postretirement benefit cost for 1995 and 1994 included the following components:
Years ended December 31 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------- Service cost $ 75,728 44,407 9,889 Interest cost 127,308 114,642 118,284 - ---------------------------------------------------------------------------------------------------------------- Net periodic postretirement benefit cost $ 203,036 159,049 218,173 ================================================================================================================
For measurement purposes, a 12.5% and 10.5% 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 1995; 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, 1995 and 1994. (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, 1995 and 1994:
1995 1994 - ---------------------------------------------------------------------------------------------------------------- Balance at beginning of year $ 7,174,106 9,892,451 Additions 26,333,212 26,807,438 Amounts collected (25,079,714) (29,525,783) - ---------------------------------------------------------------------------------------------------------------- Balance at end of year $ 8,427,604 7,174,106 ================================================================================================================
(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, - ---------------------------------------------------------------------------------------------------------------- 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------- Stationery and supplies $ 437,253 445,691 384,124 Credit card computer costs 554,676 475,238 431,421 Data processing service 690,980 624,556 631,531 FDIC insurance premiums 538,279 795,913 768,891 Advertising 444,637 395,425 305,940 Amortization of goodwill and deposit base intangible 587,303 232,003 -
(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 $2,237,793, $85,928,406 and $1,151,988, respectively, at December 31, 1995. The Corporation does not anticipate losses as a result of these transactions. The Bank has employment contracts with certain of its senior officers, which expire at various dates through 1999 and may be extended on a year-to-year basis. Under pending federal legislation is the proposed one-time special assesment to recapitalize the SAIF insurance fund. If enacted in its current form, the assessment is estimated to be between 75 to 80 basis points of SAIF insured deposits held as of March 31, 1995. Based upon these rates, the Corporation's pre-tax expense would be approximately $275,000 to $320,000. There is no assurance that this pending legislation will be enacted into law, therefore, the FASB has stated that the charge to earnings must be recorded in the period it is enacted. Accordingly, the Corporation has made no accrual for this potential obligation. (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, 1995, 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 31,1995, $7,857,299 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 1995 1994 - ---------------------------------------------------------------------------------------------------------------- Assets: Cash on deposit with subsidiary bank $ 195,586 273,358 Investment in subsidiary bank 52,274,720 44,880,039 Dividend receivable 520,462 1,656,027 Securities available for sale 455,947 590,619 Other assets - 3 - ---------------------------------------------------------------------------------------------------------------- Total assets $ 53,446,715 47,400,046 ================================================================================================================ Liabilities and shareholders' equity: Dividend payable 520,462 456,027 Deferred tax liability 27,355 40,390 Payable to Owego shareholders - 1,164,883 - ---------------------------------------------------------------------------------------------------------------- Total liabilities 547,817 1,661,300 - ---------------------------------------------------------------------------------------------------------------- Shareholders' equity: Common stock 10,750,335 10,750,335 Surplus 10,068,563 10,068,563 Retained earnings 29,930,969 26,374,590 Treasury stock, at cost (1,579,298) (1,279,549) Net unrealized gain (loss) on securities available for sale 3,728,329 (175,193) - ---------------------------------------------------------------------------------------------------------------- Total shareholders' equity 52,898,898 45,738,746 - ---------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 53,446,715 47,400,046 ================================================================================================================ Statements of Income - ---------------------------------------------------------------------------------------------------------------- Years Ended December 31, 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------- Income: Interest and dividends $ 23,031 23,768 22,806 Gain on sale of securities 112,500 140,001 3 Dividends from subsidiary bank 2,045,513 2,976,606 1,656,528 Income before equity in undistributed earnings of subsidiary bank 2,181,044 3,140,375 1,679,337 Equity in undistributed earnings of subsidiary bank 3,472,647 1,569,926 2,814,726 - ---------------------------------------------------------------------------------------------------------------- Income before income taxes 5,653,691 4,710,301 4,494,063 Income taxes 51,799 62,776 - - ---------------------------------------------------------------------------------------------------------------- Net Income $ 5,601,892 4,647,525 4,494,063 ================================================================================================================ Statements of Cash Flows - ---------------------------------------------------------------------------------------------------------------- December 31, 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 5,601,892 4,647,525 4,494,063 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of subsidiary (3,472,647) (1,569,926) (2,814,726) (Increase) decrease in dividend receivable 1,135,565 (1,225,458) (32,938) Gain on sale of securities, net (112,500) (140,001) (3) Decrease in payable to Owego shareholders (1,164,883) - - - ---------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 1,987,427 1,712,140 1,646,396 - ---------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from sales of securities available for sale 215,628 271,234 31 Purchases of securities available for sale - (221,193) 116,200 Payment to subsidiary for prior year's taxes - (146,035) - - ---------------------------------------------------------------------------------------------------------------- Net cash provided (used) by investing activities 215,628 (95,994) (116,169) - ---------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Cash dividends paid (1,981,078) (1,751,148) (1,623,590) Purchases of treasury stock (299,749) - (65,638) Sale of treasury stock - 172,500 48,008 - ---------------------------------------------------------------------------------------------------------------- Net cash used by financing activities (2,280,827) (1,578,648) (1,641,220) - ---------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (77,772) 37,498 (110,993) Cash and cash equivalents at beginning of year 273,358 235,860 346,853 - ---------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 195,586 273,358 235,860 ================================================================================================================
(17) Fair Values of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and Cash Equivalents For those short-term instruments that generally mature in ninety days or less, the carrying value approximates fair value. Securities Fair values for securities are based on either 1) quoted market prices, 2) dealer quotes, 3) correspondent bank pricing system, or 4) discounted cash flow to maturity. Loans Receivable For variable-rate loans that reprice frequently, fair values are based on carrying values. The fair values for other loans are estimated through discounted cash flow analyses using interest rates currentlybeing offered for loans with similar terms and credit quality. Deposits The fair values disclosed for demand deposits, savings accounts and money market accounts are, by definition, equal to the amounts payable on demand at the reporting date (i.e., their carrying values). The fair value of fixed maturity certificates of deposits is estimated using a discounted cash flow approach that applies interest rates currently being offered on certificates to a schedule of weighted average expected monthly maturities on time deposits. 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, 1995 and 1994 are as follows (dollars in thousands):
1995 1994 Carrying Fair Carrying Fair Amount Value (1) Amount Value (1) - ---------------------------------------------------------------------------------------------------------------- Financial assets: Cash and cash equivalents $ 27,294 27,294 24,267 24,267 Securities 179,464 179,464 203,997 203,841 Net loans 259,101 259,310 232,897 231,855 Federal Home Loan Bank 90 90 114 114 Federal funds sold 10,000 10,000 8,000 8,000 - ---------------------------------------------------------------------------------------------------------------- Total Earning Assets 448,655 448,864 445,008 443,810 - ---------------------------------------------------------------------------------------------------------------- Fixed assets 10,291 10,291 8,527 8,527 Other assets 15,653 15,653 16,530 16,530 - ---------------------------------------------------------------------------------------------------------------- Total assets $ 501,893 502,102 494,332 493,134 ================================================================================================================ Financial liabilities: Deposits: Demand, savings, NOW and money market accounts $ 272,057 272,057 286,232 286,232 Time certificates 154,822 156,268 146,039 145,392 - ---------------------------------------------------------------------------------------------------------------- Total deposits 426,879 428,325 432,271 431,624 Borrowings: Repurchase agreements 13,382 13,382 10,204 10,204 Other liabilities 8,733 8,733 6,118 6,118 - ---------------------------------------------------------------------------------------------------------------- Total liabilities 448,994 450,440 448,593 447,946 Equity 52,899 51,662 45,739 45,188 - ---------------------------------------------------------------------------------------------------------------- Total liabilities and equity $ 501,893 502,102 494,332 493,134 ================================================================================================================ Standby letters of credit $ 2,238 2,238 1,904 1,904 Unused portions of lines of credit $ 85,928 85,928 75,940 75,940 Commitments to fund new loans $ 1,152 1,152 572 572 (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. The Federal Deposit Insurance Corporation Improvement Act of 1991, (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 SUBSIDIARY LIST EXHIBIT E CHEMUNG FINANCIAL CORPORATION Subsidiary List Name State of Incorporation Chemung Canal Trust Company New York EX-22 4 PROXY STATEMENT & FORM EXHIBIT F NOTICE OF ANNUAL MEETING, PROXY STATEMENT DATED MARCH 5, 1996, AND PROXY FORM March 5, 1996 Dear Shareholder: You are cordially invited to attend the Annual Meeting of Shareholders to be held on Tuesday, April 2, 1996, 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: Robert E. Agan, Donald L. Brooks, Jr., Stephen M. Lounsberry III, Boyd McDowell II,Thomas K. Meier, Charles M. Streeter, Jr. and Nelson Mooers van den Blink. The nominated candidate for a one-year term is: Jan P. Updegraff. The attached Proxy Statement sets forth in detail information relating to the nominated candidates as well as those directors continuing in office and additional information relating to the management of the corporation. In addition to the above-noted election, we will review our financial performance for the past year and discuss our plans for 1996. It is important that you be represented at the Meeting whether or not you plan to attend in person. Accordingly, we urge you to mark, sign and date the proxy card enclosed in the mailing envelope sleeve and return it in the envelope provided. Also, if you plan to attend the Meeting, please mark the proxy card where indicated and include the number in your group. Your directors and management look forward to seeing you on April 2. Sincerely yours, /s/ John W. Bennett John W. Bennett Chief Executive Officer One Chemung Canal Plaza P.O. Box 1522 Elmira, New York 14902 Parent Company of Chemung Canal Trust Company NOTICE OF ANNUAL MEETING OF SHAREHOLDERS As directed by the Board of Directors of Chemung Financial Corporation, NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of the Corporation will be held at the Elmira Holiday Inn, One Holiday Plaza, 760 East Water Street, Elmira, New York, Tuesday, April 2, 1996, 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 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 February 28, 1996, 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 conenience. 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 5, 1996 CHEMUNG FINANCIAL CORPORATION ONE CHEMUNG CANAL PLAZA, P.O. BOX 1522, ELMIRA, NEW YORK PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS, APRIL 2, 1996 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. This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors for use at the Annual Meeting of Shareholders (the "Annual Meeting") of Chemung Financial Corporation to be held on Tuesday, April 2, 1996, at 7:00 P.M., at the Elmira Holiday Inn, One Holiday Plaza, 760 East Water Street, Elmira, New York. This Proxy Statement and the accompanying Proxy and Notice of Annual Meeting of Shareholders are being mailed to Shareholders on or about March 5, 1996. A Shareholder granting a proxy has the right to revoke it by a duly executed Proxy bearing a later date, by attending the Annual Meeting and voting in person, or by otherwise notifying the Secretary of the Corporation in writing prior to the Annual Meeting. Only Shareholders of record at the close of business on February 28, 1996, are entitled to receive notice of and to vote at the Annual Meeting. As of February 15, 1996, there were 2,084,611 shares of Common Stock outstanding and entitled to vote. Each share of Common Stock is entitled to one vote. There are no cumulative voting rights. Nominees for director will be elected by a plurality of votes cast at the Annual Meeting by holders of Common Stock present in person or by proxy and entitled to vote on such election. Any other matter requires the affirmative vote of a majority of votes cast at the meeting, except as otherwise provided in the Corporation's Certificate of Incorporation or By-laws. Only shares affirmatively voted in favor of a nominee will be counted toward the achievement of a plurality. Votes withheld (including non-broker votes) and abstentions are counted as present for the purposes of determining a quorum but are not counted as votes cast. The cost of soliciting proxies will be borne by the Corporation and the Bank. In addition to solicitations by mail, some of the directors, officers, and regular employees of the Corporation and the Bank may conduct additional solicitations by telephone and personal contacts without remuneration. American Stock Transfer & Trust Company , the Corporation's transfer agent, will aid the Corporation in the solicitation of proxies and proxy vote tabulations. Nominees, brokerage houses, custodians and fiduciaries will be requested to forward soliciting material to beneficial owners of stock held of record and the Corporation will reimburse such persons for any reasonable expense. ACTION TO BE TAKEN UNDER PROXY: It is proposed that at the Annual Meeting action will be taken on the matters set forth in the accompanying Notice of Annual Meeting and described in this Proxy Statement. Proxies returned by Shareholders and not revoked will be voted for the election of the nominees for directors unless Shareholders instruct otherwise on the Proxy. The Board of Directors does not know of any other business to be brought before the Annual Meeting but it is intended that, as to any such other business, a vote may be cast pursuant to the Proxy in accordance with the judgment of the person or persons acting thereunder; and should any herein-named nominee for the office of director become unable to accept nomination or election, which is not anticipated, it is intended that the persons acting under the Proxy will vote for the election in the stead of such nominee of such other person as the Board of Directors may recommend. BOARD OF DIRECTORS: Nominees For Election as Directors Those persons serving as directors of the Corporation and the Bank, being the same individuals, normally serve three-year terms of office, with approximately one-third of the total number of each such Board of Directors to be elected at each Annual Meeting of each such entity. The number of directors to be elected at the 1996 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. The following table sets forth information concerning the Board of Directors' nominees for election as directors at the Annual Meeting and each director continuing in office:
Length of Service Principal Occupation During Name and Age As Director (1) Past 5 Years NOMINEE WITH TERM EXPIRING IN 1997 Jan P. Updegraff Since 1996 (1996) President & COO of the Age 53 Corporation (elected on February 14, 1996, to be effective upon approval by the Federal Reserve Bank, as required by law) and President & COO of the Bank since February 14, 1996; formerly Vice President & Treasurer of the Corporation and Executive Vice President of the Bank NOMINEES WITH TERMS EXPIRING IN 1999 Robert E. Agan Since 1986 (1986) President, CEO and Director Age 57 of Hardinge Inc., worldwide machine tool manufacturer Donald L. Brooks, Jr. Since 1985 (1972) Physician Age 67 Stephen M. Lounsberry III Since 1995 (1995) President of Moore & Steele Age 42 Corporation, manufacturer of railroad lubrication systems Boyd McDowell II Since 1985 (1969) Retired; formerly Chairman Age 70 of the Board & CEO of the Corporation and the Bank Thomas K. Meier Since 1988 (1988) President of Elmira College Age 55 NOMINEES WITH TERMS EXPIRING IN 1999 Charles M. Streeter, Jr. Since 1985 (1979) President of Streeter Age 56 Associates, Inc., general building contractor Nelson Mooers van den Blink Since 1985 (1983) Chairman of the Board, Chief Age 61 Executive Officer and Treasurer of The Hilliard Corporation, motion contol 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 42 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 65 1995; formerly Chairman of the Board & CEO of Chas. F. Evans Co., Inc., specialists in commercial roofing Edward B. Hoffman Since 1993 (1993) Partner with Sayles, Evans, Age 64 Brayton, Palmer & Tifft, law firm John F. Potter Since 1991 (1991) President of Seneca Beverage Age 50 Corp., wholesale distributor of beer, water and soda products William C. Ughetta Since 1985 (1985) Senior Vice President and Age 63 General Counsel of Corning Incorporated, a diversified manufacturing company DIRECTORS CONTINUING IN OFFICE WITH TERMS EXPIRING IN 1998 John W. Bennett Since 1988 (1988) Chairman of the Board & CEO Age 62 of the Corporation (elected on February 14, 1996, to be effective upon approval by the Federal Reserve Bank, as required by law) and Chairman of the Board & CEO of the Bank since February 14, 1996; formerly President & CEO of the Corporation and the Bank; also a director of Hardinge Inc. Robert H. Dalrymple Since 1995 (1995) Secretary of Dalrymple Age 45 Holding Corporation, parent company for several construction companies Natalie B. Kuenkler Since 1985 (1976) Director of various community Age 70 organizations Ralph H. Meyer Since 1985 (1981) President & CEO of Guthrie Age 56 Healthcare System, a vertically integrated healthcare delivery system DIRECTORS CONTINUING IN OFFICE WITH TERMS EXPIRING IN 1998 Samuel J. Semel Since 1993 (1993) President of Chemung Age 69 Electronics, Inc., retail electronics store Richard W. Swan Since 1985 (1984) President of Swan & Sons- Age 47 Morss Co., Inc., insurance brokerage agency William A. Tryon Since 1987 (1987) Chairman of the Board and CEO Age 65 of Trayer Products,Inc., automotive, truck and other industrial parts manufacturer; and Chirman of the Board of Perry and Swartwood, Inc., insurance brokerage agency; formerly a director of the Bank from 1964 to 1976 (1) The date in parentheses reflects the year in which the director was first elected to the Bank Board.
Directors and Committee Meetings The Board of Directors of the Corporation held eight (8) regularly scheduled meetings and no special meeting during the year ended December 31, 1995. The Corporation has no standing committees. The Board of Directors of the Bank held twelve (12) regularly scheduled meetings and one special meeting during the year ended December 31, 1995. 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 1995 this Committee held three (3) meetings. On December 31, 1995, its members were Messrs. Semel (Chairman), Agan, Brooks, R. Dalrymple, Hoffman, Lounsberry, McDowell, Meier and Meyer. The Nominating Committee selects and recommends to the Board of Directors nominees for election to the Board. The Committee will consider written recommendations by Shareholders for nominees for election to the Board if such recommendations are mailed to the Chairman of the Nominating Committee or to the President of the Corporation at the Corporations Main Office, One Chemung Canal Plaza, Elmira, New York 14902. There was one (1) Committee meeting held in 1995. On December 31, 1995, its members were Messrs. Streeter (Chairman), Bennett, Brooks, D. Dalrymple, McDowell, Potter, Swan and Mrs. Kuenkler. The Personnel Committee is responsible for the nomination of officers, recommendation of Executive Officer compensation plans, and establishment of guidelines for setting all other officers' salaries. Additional responsibilities include the review and approval of employee benefit programs and employee relation policies and procedures. The Committee held seven (7) meetings in 1995 and on December 31, 1995, its members were Messrs. Meyer (Chairman), Brooks, D. Dalrymple, Evans, Meier, Potter, Swan, Ughetta, and Mrs. van den Blink. During the year ended December 31, 1995, 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 exception of Mr. Agan who attended 65% of such meetings. Directors Compensation Each director of the Bank who is not an officer or employee of the Bank receives an annual retainer of $5,000 and a fee of $300 for each meeting of the Board of Directors attended. Those directors who are members of one or more committees of the Board of Directors also receive a fee of $300 for each meeting of each committee attended, with the exception of the Chairman of each committee who receives $350. Directors who are not officers or employees of the Corporation receive a fee of $300 for attendance at meetings of the Board of the Corporation which are held on days when there is no meeting of the Board of Directors of the Bank. There were no such meetings held during 1995. 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 compounded quarterly and added to said account at a rate equal to the "Applicable Federal Rate" for short-term debt instruments as computed and published by the Internal Revenue Service for the month immediately preceding the applicable calendar quarter. The memorandum Unit Value Account of each participating director is credited with the dollar amount of deferral, with the aggregate of said deferred amounts being converted to units on a quarterly basis by dividing the aggregate of said deferred amounts by the closing bid price for shares of the Common Stock of the Corporation on such trading dates as described in the Plan. Dividends are credited to said account on the dates and at the rate per unit at which dividends are paid per share on the Corporation's outstanding Common Stock and are then converted to units using the same basis of conversion as for deferred amounts. Within certain time limitations, a participating director may elect to receive deferred fees either in a lump sum or in installments. The aggregate amount of directors retainers and fees paid and deferred during 1995 was $269,000. 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 February 1997, costs $18,424 on an annual basis, and has been paid by the Bank. No claims have been made or paid under this insurance. The Bank has retained Sayles, Evans, Brayton, Palmer & Tifft, of which Mr. Hoffman is a partner, for legal services during the last two years and expects to retain Sayles, Evans, Brayton, Palmer & Tifft for legal services during the current year. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS: The following table sets forth information, as of January 31, 1996, with respect to any person who is known by the Corporation to be the beneficial owner of more than five percent of the Corporation's Common Stock:
Name and Address of Number of Shares of Common Percent of Shares Beneficial Owner Stock Beneficially Owned Outstanding Chemung Canal Trust Company 389,168(1) 18.7% One Chemung Canal Plaza Elmira, NY 14902 Chemung Canal Trust Company 215,137(2) 10.3% as trustee of the Chemung Canal Profit-Sharing, Savings and Investment Plan One Chemung Canal Plaza Elmira, NY 14902 Mary E. Dalrymple 220,221(3) 10.6% 661 Foster Avenue See Footnote 7 Elmira, NY 14905 David J. Dalrymple 188,385(4,6) 9.0% 274 Upper Coleman Avenue See Footnote 7 Elmira, NY 14905 Robert H. Dalrymple 179,062(5,6) 8.6% 875 Upland Drive See Footnote 7 Elmira, NY 14905 1 Held by the Bank in various fiduciary capacities, either alone or with others. Includes 31,452 shares held with sole voting and dispositive powers, 357,716 shares held with shared power to vote and 181,260 shares held with shared power to dispose. Shares held in a co-fiduciary capacity by the Bank are voted by the co-fiduciary or fiduciaries in the same manner as if the co-fiduciary or fiduciaries were the sole fiduciary. Shares held by the Bank as sole trustee are voted by the Bank only if the trust instrument provides for voting of the shares at the direction of the donor or a beneficiary and such direction is in fact received. 2 Voted by the Bank as directed by the Plan participants. 3 Includes 117,221 shares held directly and 103,000 shares held by Dalrymple Family Limited Partnership, of which Mary E. Dalrymple, David J. Dalrymple and Robert H. Dalrymple are sole general partners (see footnotes 4 and 5). 4 Includes 44,323 shares held directly, 1,904 shares held as custodian for Mr. Dalrymple's children under the New York State Uniform Gifts to Minors Act, 103,000 shares held by Dalrymple Family Limited Partnership (see footnote 3), and 39,158 shares held by Dalrymple Holding Corporation, of which David J. Dalrymple and Robert H. Dalrymple are officers, directors and principal shareholders (see footnote 5). Excludes 1,350 shares held by Mr. Dalrymple's spouse. 5 Includes 35,000 shares held directly, 1,904 shares held as custodian for Mr. Dalrymple's children under the New York State Uniform Gifts to Minors Act, 103,000 shares held by Dalrymple Family Limited Partnership (see footnote 3), and 39,158 shares held by Dalrymple Holding Corporation (see footnote 4). Excludes 1,000 shares held by Mr. Dalrymple's spouse. 6 Excludes 15,115 shares held by Susquehanna Supply Company of which David J. Dalrymple and Robert H. Dalrymple each own 23.1% of the outstanding common stock. 7 Because of the definition of "beneficial ownership" under Section 13 of The Exchange Act, and the rules and regulations promulgated thereunder, Mary, David and Robert Dalrymple are listed as beneficial owners of many of the same shares. Without such multiple counting, Mary, David and Robert Dalrymples' total aggregate beneficial ownership is approximately 16.4% of the outstanding shares of Common Stock of the Corporation and if deemed to be a member of a "group" within the meaning of Section 13(d)(3) of The Exchange Act, such group would be deemed to hold approximately 16.4% of the outstanding shares of Common Stock of the Corporation. Nothing described herein shall infer or be deemed an admission by such person that such a group exists.
SECURITY OWNERSHIP OF MANAGEMENT: As of January 31, 1996, 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 Shares Outstanding(A) Robert E. Agan 450 -- John W. Bennett 8,147(B) -- Donald L. Brooks, Jr. 1,250 -- David J. Dalrymple 46,227(C) 2.22 Robert H. Dalrymple 36,904(C) 1.77 Richard H. Evans 9,352 -- Edward B. Hoffman 1,655 -- Natalie B. Kuenkler 6,706(D) -- Stephen M. Lounsberry III 1,671 -- Boyd McDowell II 7,013 -- Thomas K. Meier 2,000 -- Ralph H. Meyer 2,595 -- John F. Potter 8,564(E) -- Samuel J. Semel 4,376 -- Charles M. Streeter, Jr. 10,213(F) -- Richard W. Swan 19,387(G) -- William A. Tryon 9,619 -- William C. Ughetta 8,500 -- Nelson Mooers van den Blink 1,546 -- Jan P. UpdegraffB 3,257 -- All Directors, Nominees 202,251(H) 9.70 and Executive Officers as a group (24 persons) A. Unless otherwise noted, less than 1% per individual. B. Includes all vested shares of Common Stock of the Corporation held for the benefit of each Executive Officer by the Bank as trustee of the Bank's Profit-Sharing, Savings and Investment Plan, who may instruct the trustee as to the voting of such shares. If no instructions are received, the trustee votes the shares in the same proportion as it votes all of the shares for which instructions were received from all Plan participants. The power to dispose of shares is held by Plan participants subject to certain restrictions. Messrs. Bennett and Updegraff have a vested interest in 6,998 and 3,104 such shares held by the Plan,resectively. Under the provisions of the Plan, the trustee holds for the benefit of all employees who participate in the Plan 215,137 shares of the Corporation's Common Stock. C. Includes only shares held directly by Messrs. Dalrymple. See Footnote 7 of the SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS table on page 8 for further explanation of shares beneficially held. D. Includes 4,131 shares held by Mrs. Kuenkler and another as trustees under the Will of a 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. E. Includes 5,709 shares owned by Seneca Beverage Corp., of which corporation Mr. Potter is an officer, director and the principal shareholder. F. Includes 5,418 shares owned by Streeter Associates, Inc., of which corporation Mr. Streeter is an officer, director and the principal shareholder. G. Includes 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 and 254 shares held by Mr. Swan as custodian for his minor children. 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. H. Does not include 14,445 shares owned by spouses of certain officers and directors as to which shares such officers and directors disclaim beneficial ownership.
Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation's directors and executive officers, and persons who own more than ten percent of a registered class of the Corporation's equity securities, to file with the Securities and Exchange Commission initial reports of ownership, reports of changes in beneficial ownership, and annual reports involving security transactions pursuant to one or more rules as set forth under Sections 16(a) and 16(b) of the Securities Exchange Act. Directors, executive officers, and greater than ten percent shareholders are required by SEC regulation to furnish the Corporation with copies of all Section 16(a) forms they file. To the Corporations 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, 1995, all Section 16(a) filing requirements applicable to its executive officers, directors and any ten percent shareholder were complied with, except that Mr. David J. Dalrymple's purchase of 1,161 shares of the Corporation's Common Stock on May 13, 1995, was inadvertently overlooked for timely reporting purposes and was reported on a Form 4 dated June 20, 1995. 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 compensation of other senior management which is recommended by the Chief Executive Officer based upon performance and and other relevant factors and then approved by the Board of Directors. Aside from the fringe benefit programs in which all Bank employees participate, compensation of all Bank officers consists of an annual salary and a management incentive bonus. The management incentive bonus is subject to the terms and conditions of a Management Incentive Plan adopted by the Board of Directors on January 11, 1995 which provides for the payment of bonuses based in part by the Corporation's attainment of specific operating objectives and in part by a subjective review of individual performance. Additionally, those officers who play a major role in setting and implementing long-term strategies, currently being the Chief Executive Officer and the Executive Vice President, may receive a long-term incentive award. Payment of the long-term incentive award will be deferred for three years following the accrual year and may be further deferred at the election of the participant. The incentive bonus may or may not be deferred at the officer's election. Under the terms and conditions of the Plan, payment of an incentive bonus or issuance of a long-term award is subject to the Corporation's attaining or exceeding certain predetermined operating goals and further considerations which are based on a subjective review of the individual. For 1995, management incentive bonuses and long-term awards could not be issued unless the Corporation attained net income (after taxes) equal to at least a 1.0% return on average assets (ROA) and an efficiency ratio of 67% or less. In evaluating the performance and recommending the compensation of the Chief Executive Officer and the compensation guidelines for the Bank's other senior management, the committee has taken particular note of management's ability during 1995 in achieving certain profit, growth, and operational objectives which were established by the Board of Directors in the Bank Plan at the beginning of 1995 and compared the Corporation's financial results against the results reported by similar banking businesses in New York and Pennsylvania. The financial and operational measurements considered by the Board were: profits, return on assets, return on equity, new market penetration, new product development, expense control, asset growth, non- interest income, asset quality and asset liability management. There is no specific weight given to any of these factors and there is no formula whereby a certain performance will result in a certain salary. The committee 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 reviewed a report prepared by 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 review it was determined that the performance of the Bank was well within the range reported by its peers and that the compensation paid by the Bank was appropriate in comparison to the peer group. 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 earning 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 Ralph H. Meyer, Chairman Richard H. Evans Richard W. Swan Donald L. Brooks, Jr. Thomas K. Meier William C. Ughetta David J. Dalrymple John F. Potter Nelson Mooers van den Blink Comparative Return Performance Graph Comparison of Five-Year Cumulative Total Return For Fiscal Years Ending December 31, 1991 - 1995 Among Chemung Financial Corporation, NASDAQ - Composite Index and NASDAQ - Bank Stock Index (OMITTED GRAPHIC MATERIAL - SEE APPENDIX)
1991 1992 1993 1994 1995 Chemung Financial Corporation 79.25 84.00 108.72 125.52 142.26 NASDAQ - Composite 160.56 186.87 214.51 209.69 296.30 NASDAQ - Bank Stocks 164.09 238.85 272.40 271.41 404.35
The cumulative total return includes (i) dividends paid and (ii) changes in the share price of the Corporation's Common Stock and assumes that all dividends were reinvested. The above graph assumes that the value of the investment in Chemung Financial Corporation and each index was $100 on December 31, 1990. 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 1995, 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 (1) 62 Chairman of the Board & CEO of the Corporation and the Bank (1996); formerly President & CEO of the Corporation and the Bank (1991); and prior thereto President & COO of the Corporation and the Bank (1988) Jan P. Updegraff (1) 53 President and COO of the Corporation and the Bank (1996); formerly Vice President and Treasurer of the Corporation and Executive Vice President of the Bank (1990) Daniel F. Agan (2) 62 Vice President of the Corporation (1988) and Senior Vice President of the Bank (1984) Robert J. Hodgson 50 Vice President of the Corporation (1990) and Senior Vice President of the Bank (1988) James E. Corey III 49 Vice President of the Corporation (1993) and Senior Vice President of the Bank (1993) Joseph J. Tascone 48 Vice President of the Corporation and Senior Vice President of the Bank (1995); and prior thereto Vice President of the Bank (1987) 1 Messrs. Bennett and Updegraff were elected on February 14, 1996 by the Board of Directors to the positions of Chairman of the Board & CEO and President & COO, respectively, to be effective upon approval by the Federal Reserve Bank, as required by law. 2 Mr. Daniel F. Agan is a brother of board member, Robert E. Agan.
Executive Compensation The following information indicates compensation paid or accrued by the Bank during 1995 for services rendered by each of the Chief Executive Officer and the four highest-paid executive officers of the Corporation and the Bank whose total compensation exceeded $100,000. At present, the officers of the Corporation are not separately compensated for services rendered by them to the Corporation. It presently is contemplated that such will continue to be the policy of the Corporation. Summary Compensation Table
Name Annual Compensation and Principal All Other Position Year Salary($) Bonus($) (1) Compensation ($) (2) John W. Bennett (3) 1995 194,000 18,000 8,418 Chairman of the Board & CEO 1994 185,692 30,000 8,174 of the Corporation and the Bank 1993 162,885 32,000 6,597 Jan P. Updegraff (3) 1995 95,385 15,000 6,660 President & COO of the Corporation 1994 90,385 25,000 6,266 and the Bank 1993 84,692 20,000 2,100 1 Includes amounts allocated for the year indicated, whether paid or deferred, to such person under the Bank-Wide and Management Incentive Bonus Plans. 2 Includes amounts allocated for the year indicated to such person under the Bank's Profit-Sharing, Savings and Investment Plan. 3 See footnote 1 of the Executive Officer table on page 13.
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 lan, 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 $25,920 for a participant attaining age 65 in 1995). The Bank made contributions to the Retirement Plan totaling $262,200 for 1995 and $306,288 for 1993. Due to a full funding limitation, the Bank made no contribution to the Retirement Plan for 1994. Additionally, effective January 1, 1994, the Bank established a non-qualified Executive Supplemental Pension Plan designed to provide a benefit which, when added to other retirement income, will ensure the payment of a competitive level of retirement income in order to attract, retain and motivate selected executives of the Bank. From time to time the Board of Directors may select executives as participants in the plan. Currently, Mr. Bennett is the only plan participant. This Plan provides an annual benefit equal to the amount, if any, that the benefit which would have been paid under the terms of the Bank's Retirement Plan, computed as if the basic Retirement 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 Retirement Plan on the date of the participant's termination. The following table sets forth the estimated annual benefits under both plans, based upon a straight-life annuity form of pension, payable on retirement at age 65 by a participating employee, assuming final average earnings as shown. Employees become fully vested following 5 years of service.
Average Annual Annual Benefits upon Retirement Earnings with Years of Service Indicated 20 30 35 (1) $100,000 33,630 49,446 56,853 $120,000 41,030 60,346 69,403 $150,000 52,130 76,696 88,228 $190,000 66,930 98,496 113,328 $200,000 70,630 103,946 119,603 1 Maximum number of years allowed under the terms of the Retirement Plan.
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, 1995: John W. Bennett (40) and Jan P. Updegraff (25). Profit-Sharing, Savings and Investment Plan The Bank maintains a Profit-Shring, 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 $120,000 or $60,000 for 1995). 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 $499,342 for 1995, $423,161 for 1994, and $406,798 for 1993. Management Incentive Plan Effective for 1995, the Board of Directors adopted on January 11, 1995, Bank-Wide and Management Incentive Plans which provide for the awarding of incentive bonuses to all Bank employees subject to the Corporation's attaining or exceeding minimum predetermined operating objectives. Under the terms and conditions of the Plans, exceeding the minimum operating objectives will result in an increase in funds available for distribution to the Plans' participants. Pursuant to the Management Incentive Plan, which covers only Bank Officers and Exempt Non-Officers, the award of any bonus under either the Bank-Wide or Management Incentive Plans is subject to the Corporation's attaining all minimum operation objectives. The minimum objectives established for the fiscal year 1995 were net income (after taxes) equal to at least a 1.0% return on average assets (ROA) and an efficiency ratio of 67% or less. The amount of the bonus payment or award to each participant is determined by an allocation formula based in part on the results of the Corporation's performance and the Division or Department performance (if applicable), and in part by a subjective review of the participant's individual performance. Any Senior Officer may defer all or any portion of the annual incentive award until his or her retirement or separation from service. Additionally, key officers having responsibilities for setting and implementing long-term strategies may receive a long-term incentive award which payment of said long-term award will be deferred for three years following the accrual year and may be further deferred at the election of the participant. The Bank made awards to the Senior Officer participants in the Management Incentive Plan totaling $160,250 for the accrual year of 1995. Prior to implementing the Management Incentive Plan, the Bank had instituted an Incentive Bonus Plan effective for its Senior Officers which provided that the Bank could award bonuses to key management officers and others in such amount as the Board of Directors, in its sole discretion, could determine. The Bank made contributions to the Incentive Bonus Plan totaling $182,500 for 1994 and $171,500 for 1993. 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, 1997, except for Messrs. Agan, Cory, Hodgson, Tascone and Updegraff whose guaranteed terms end December 31, 1998, and Mr. Bennett whose guaranteed term ends July 1, 1998. The contracts further provide that they may be extended by the Board of Directors on a year-to-year basis and also may be terminated for cause upon thirty days' notice. Other Compensation Agreements The Bank maintains several contributory and non-contributory medical, life and disability plans covering all officers, as well as all full-time employees. The Bank does not maintain any stock option, stock appreciation rights or stock purchase or award plans for officers or directors. INDEPENDENT PUBLIC ACCOUNTANTS: The accounting firm of KPMG Peat Marwick LLP, 113 South Salina Street, Syracuse, New York 13202 has acted as the Bank's and the Corporation's independent auditors and accountants since 1990 and will so act in 1996. Representatives of KPMG Peat Marwick LLP will be present at the Annual Meeting of Shareholders with the opportunity to make a statement. The representatives will respond to appropriate questions. OTHER BUSINESS: Management knows of no business which will be presented for consideration, other than the matters described in the Notice of Annual Meeting. If other matters are properly presented, the persons designated as proxies intend to vote thereon in accordance with their best judgment. SHAREHOLDER PROPOSALS: Qualified Shareholders desiring to present a proposal at the 1997 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 6, 1996. 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 5, 1996 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 2, 1996 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, 1991 - 1995 Among Chemung Financial Corporation, NASDAQ - Composite Index and NASDAQ - Bank Stock Index", as required by Item 402(1) 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 2, 1996 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 2, 1996 (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: Robert E. Agan 1. Election of Donald L. Brooks, Jr. Directors. Stephen M. Lounsberry III Boyd McDowell II For, except vote withheld Thomas K. Meier from the following nominee(s): Charles M. Streeter, Jr. Nelson Mooers van den Blink 1-year term: Jan P. Updegraff 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 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S 1995 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-31-1995 DEC-31-1995 27,294 90 10,000 0 171,882 7,582 7,582 263,001 3,900 501,893 426,879 13,382 8,733 0 0 0 10,750 42,149 501,893 23,868 11,366 843 36,077 13,446 14,227 21,850 564 531 19,560 8,461 5,602 0 0 5,602 2.68 2.68 8.07 1,120 681 0 0 3,600 373 109 3,900 3,900 0 2,384
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