-----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, TYa3hF1CKVlOxRHGvn4ApRH8ZUPwHyPuefvjiXgGUMT+dE/MZNNUGHLoLBhDV9Vi NCUTJj6hqUoalY0+0YQwqQ== 0000763563-98-000011.txt : 19980327 0000763563-98-000011.hdr.sgml : 19980327 ACCESSION NUMBER: 0000763563-98-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980326 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: SEC FILE NUMBER: 000-13888 FILM NUMBER: 98574435 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 3 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the fiscal year ended December 31, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from _____________ to _____________ Commission File Number 0-13888 CHEMUNG FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) NEW YORK 16-123703-8 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) One Chemung Canal Plaza, P.O. Box 1522 Elmira, New York 14902 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (607) 737-3711 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $5 a share (Title of class) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO The aggregate market value of Common Stock held by nonaffiliates on February 28, 1998 was $47,657,848 As of February 28, 1998 there were 2,061,738 shares of Common Stock, $5 par value outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the year ended December 31, 1997 are incorporated by reference into Parts I, II and IV. Portions of the Proxy Statement for the Annual Shareholders meeting to be held on May 13, 1998 are incorporated by reference into Parts III and IV. PART I ITEM 1. BUSINESS (a) General development of business Chemung Financial Corporation (Corporation) was incorporated on January 2, 1985, under the laws of the State of New York. The Corporation was organized for the purpose of acquiring a majority holding of Chemung Canal Trust Company (Bank). The Bank was established in 1833 under the name Chemung Canal Bank, and was subsequently granted a New York State bank charter in 1895. In 1902, the Bank was reorganized as a New York State trust company under the name Elmira Trust Company, which name was changed to Chemung Canal Trust Company in 1903. On June 1, 1985, after the approval by the New York State Superintendent of Banks and the Board of Governors of the Federal Reserve System of the Plan of Acquisition and holding company application, the Bank became a wholly-owned subsidiary of the Corporation. There have been no material changes in the mode of conducting business of either the Corporation or the Bank since the acquisition of the Bank by the Corporation. The Corporation is subject to applicable federal laws relating to bank holding companies as well as federal securities laws, State Corporation Law and State Banking Law. (b) Financial information about industry segments The Corporation and the Bank are engaged only in banking and bank-related businesses. Exhibits I through V included in "Management's Discussion and Analysis of Financial Condition and Results of Operation" ("MD&A") for the Corporation's Annual Report to Shareholders for the year ended December 31, 1997, sets forth financial information with respect to bank-related industry segments. The MD&A including Exhibits I through V are incorporated herein by reference. (c) Narrative description of business Business The Bank is a New York State chartered, independent commercial bank which engages in full-service commercial and consumer banking and trust business. The Bank's services include accepting time, demand and savings deposits including NOW accounts, Super NOW accounts, regular savings accounts, insured money market accounts, investment certificates, fixed-rate certificates of deposit and club accounts. Its services also include making secured and unsecured commercial and consumer loans, financing commercial transactions either directly or participating with regional industrial development and community lending corporations, making commercial, residential and home equity mortgage loans, revolving credit loans with overdraft checking protection, small business loans and student loans. Additional services include renting of safe deposit facilities, selling uninsured annuity and mutual fund investment products, and the use of networked automated teller facilities. Trust services provided by the Bank include services as executor, trustee under wills and agreements, guardian and custodian and trustee and agent for pension, profit-sharing and other employee benefit trusts as well as various investment, pension, estate planning and employee benefit administrative services. For additional information which focuses on the results of operation of the Corporation and the Bank, see Management's Discussion and Analysis of Financial Condition and Results of Operations, incorporated herein by reference. There have been no material changes in the manner of doing business by the Corporation or the Bank during the fiscal year ended December 31, 1997. Competition Six (6) of the Bank's thirteen (13) full-service branches, in addition to the main office, are located in Chemung County. The other seven (7) full-service branches are located in the adjacent counties of Schuyler, Steuben, and Tioga. All facilities are located in New York State. Within these market areas, the Bank encounters intense competition in its banking business from several other financial institutions offering comparable products. These competitors include other commercial banks (both locally-based independent banks and local offices of regional and major metropolitan-based banks), as well as stock savings banks and credit unions. In addition, the Bank experiences competition in marketing some of its services from local operations of insurance companies, brokerage firms and retail financial service businesses. Dependence Upon a Single Customer Neither the Corporation nor the Bank is dependent upon a single or limited number of customers. Research and Development Expenditures for research and development were immaterial for the years 1997, 1996, and 1995. Employees As of December 31, 1997, the Bank employed 281 persons on a full-time equivalent basis. (d) Financial information about foreign and domestic operations and export sales Neither the Corporation nor the Bank relies on foreign sources of funds or income. (e) Statistical disclosure by bank holding companies The following disclosures present summarized statistical data covering the Corporation and the Bank.
Distribution of Assets, Liabilities and Shareholders' Equity, Interest Rates and Interest Differential December 31, 1997 1996 1995 Average Yield/Average Yield/Average Yield/ BalanceInterest Rate BalanceInterest Rate BalanceInterest Rate Assets Interest earning assets: Loans $ 291,259 26,6809.16%$273,904 25,3149.24%$249,149 23,868 9.58% Taxable securities 157,615 10,6296.74 156,378 10,2926.58 155,238 9,960 6.42 Tax-exempt securities 31,154 1,442 4.63 28,883 1,360 4.71 28,051 1,406 5.01 Federal funds sold 5,481 300 5.48 6,522 350 5.37 8,434 486 5.76 Other Investments 161 0 - 0 0 - 0 0 - - Interest-bearing deposits 5,380 321 5.97 3,808 195 5.13 6,267 357 5.70 Total interest earning assets 491,050 39,3728.02%469,495 37,511 7.99%447,139 36,077 8.07%
Non-interest earning assets: Cash and due from banks 24,396 23,501 23,442 Premises and equipment, net 9,751 10,146 9,657 Other assets 8,091 7,003 6,922 Less allowance for loan losses (4,077) (3,932) (3,867) Excess of cost over fair value of net assets 13,211 12,247 11,969 Total $ 542,422 $ 518,460 $ 495,253
Liabilities and Shareholders' Equity Interest bearing liabilities: Demand deposits $ 44,991 675 1.50%$ 44,261 719 1.63%$ 43,312 731 1.69% Savings deposits 135,146 3,894 2.88 139,219 3,942 2.83 149,257 4,408 2.95 Time deposits 185,68610,187 5.49 177,537 9,6255.42 153,433 8,307 5.41 Federal Home Loan Bank advances and securities sold under agreements to repurchase 24,233 1,3425.54 15,213 7574.97 13,846 781 5.64 Total interest bearing liabilities 390,05616,098 4.13%376,23015,043 4.00%359,848 14,227 3.95%
Non-interest bearing liabilities: Demand deposits 84,332 79,901 78,406 Other 9,281 8,181 6,995 483,669 464,312 445,249 Shareholders' equity 58,753 54,148 50,004 Total $ 542,422 $ 518,460 $ 495,253
Net interest earnings $ 23,274 $ 22,468 $ 21,850
Net yield on interest earning assets 4.74% 4.79% 4.89%
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:
1997 Compared to 1996 1996 Compared to 1995 Increase (Decrease) Due to (1) Increase (Decrease) Due to (1) Volume Rate Net Volume Rate Net (In Thousands of Dollars) (In Thousands of Dollars) Interest earned on: Loans $ 1,591 (225) 1,366 2,310 (864) 1,446 Taxable securities 82 255 337 74 258 332 Tax-exempt securities105 (23) 82 41 (87) (46) Federal funds sold (57) 7 (50) (104) (32) (136) Interest-bearing deposits 90 36 126 (129) (33) (162) Total interest earning assets$ 1,811 50 1,861 2,191 (757) 1,434 Interest paid on: Demand deposits 12 (56) (44) 16 (28) (12) Savings deposits (117) 69 (48) (289) (177) (466) Time deposits 446 116 562 1,307 11 1,318 Federal Home Loan Bank advances and securities sold under agreements to repurchase 491 94 585 73 (97) (24) Total interest bearing liabilities$ 832 223 1,055 1,107 (291) 816 (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, 1997 1996 1995 (In Thousands of Dollars) U.S. Treasury and other U.S. Government Agencies $ 93,971 104,567 108,775 Mortgage backed securities 55,603 50,109 30,573 State and political subdivisions 34,955 30,775 30,275 Other bonds and notes 149 1,270 3,023 Corporate stocks 9,849 8,996 6,818 Total $ 194,527 195,717 179,464
Included in the above table are $185,303, $185,365 and $171,882 of securities available for sale at December 31, 1997, 1996 and 1995, respectively. The following tables set forth the maturities of investment securities at December 31, 1997 and the weighted average yields of such securities (calculated on the basis of the cost and effective yields weighted for the scheduled maturity of each security). Federal tax equivalent adjustments have been made in calculating yields on municipal obligations.
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 $ 13,095 6.67% $ 50,220 6.10% Mortgage Backed Securities - - 3,660 6.69 State and political subdivisions 11,899 4.22 12,489 4.73 Other bonds and notes 5 5.50 80 7.32 Total $ 24,999 5.50% $ 66,450 5.88%
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 $ 30,656 6.73%$ - - - % Mortgage Backed Securities - - 51,943 7.46 State and political subdivisions 9,836 4.60 730 4.85 Other bonds and notes 64 8.25 - - Total $ 40,556 6.22% $ 52,673 7.42%
Loan Portfolio The following table shows the Corporation's loan distribution at the end of each of the last five years:
December 31, 1997 1996 1995 1994 1993 (In Thousands of Dollars) Commercial, financial and agricultural $ 102,816 92,557 89,785 75,006 69,484 Real estate mortgages 79,753 78,400 71,870 67,912 71,345 Consumer loans 114,593 113,004 101,687 94,181 82,028 Total $ 297,162 283,961 263,342 237,099 222,857
The following table shows the maturity of loans (excluding real estate mortgages and consumer loans) outstanding as of December 31, 1997. Also provided are the amounts due after one year classified according to the sensitivity to changes in interest rates:
After One Within But WithinAfter One YearFive YearsFive Years Total Commercial, financial and agricultural $ 32,629 24,137 46,050 102,816 Loans maturing after one year with: Fixed interest rates 17,155 12,237 Variable interest rates 6,982 33,813 Total $ 24,137 46,050
Nonaccrual and Past Due Loans The following table summarizes the Corporation's nonaccrual and past due loans:
December 31, 1997 1996 1995 1994 1993 (In Thousands of Dollars) Nonaccrual loans (1) $ 930 1,494 1,119 1,201 1,605 Accruing loans past due 90 days or more $ 688 226 681 354 274
Information with respect to nonaccrual loans at December 31, 1997, 1996 and 1995 is as follows:
December 31, 1997 1996 1995 (In Thousands of Dollars) Nonaccrual loans $ 930 1,494 1,119 Interest income that would have been recorded under original terms 286 278 200 Interest income recorded during the period 48 58 52 (1) It is the Corporation's policy that when a past due loan is referred to legal counsel, or in the case of a commercial loan which becomes 90 days delinquent, or in the case of consumer, mortgage or home equity loans not g uaranteed by a government agency which becomes 120 days delinquent, the loan is placed in nonaccrual and previously accrued interest is reversed unless, because of collateral or other circumstances, it is deemed to be collectible. Loans may also be placed in nonaccrual if management believes such classification is warranted for other reasons.
Potential Problem Loans At December 31, 1997, the Corporation has no commercial loans for which payments are presently current but the borrowers are currently experiencing severe financial difficulties. Those loans are subject to constant management attention and their classification is reviewed by the Board of Directors at least quarterly. Loan Concentrations At December 31, 1997, the Corporation has no loan concentrations to borrowers engaged in the same or similar industries that exceed 10% of total loans. Other Interest-Bearing Assets At December 31, 1997, the Corporation has no interest-bearing assets other than loans that meet the nonaccrual, past due, restructured or potential problem loan criteria. Summary of Loan Experience This table summarizes the Corporation's loan loss experience for each year in the five-year period ended December 31, 1997:
Year Ended December 31, 1997 1996 1995 1994 1993 (In Thousands of Dollars) Balance at beginning of period $3,975 3,900 3,600 3,500 3,400 Charge-offs: Commercial, financial and agricultural 77 195 82 282 550 Real estate mortgages 53 1 5 14 - Consumer loans 640 538 286 422 346 Home equity - 20 - - - 770 754 373 718 896 Recoveries: Commercial, financial and agricultural 14 16 16 18 10 Consumer loans 76 71 93 76 79 90 87 109 94 89 Net charge-offs 680 667 264 624 807 Allowance of acquired bank at time of acquisition - - - 100 - - Additions charged to operations (1) 850 742 564 624 907 Balance at end of period $4,145 3,975 3,900 3,600 3,500 Ratio of net charge-offs during period to average loans outstanding (2) .23% .24% .11% .28% .36% (1) The amount charged to operations and the related balance in the allowance for loan losses is based upon periodic evaluations of the loan portfolio by management. These evaluations consider several factors including, but not limited to, general economic conditions, loan portfolio composition, prior loan loss experience, growth in the loan portfolio and management's estimation of future potential losses. The risk elements in the various portfolio categories are not considered to be any greater in 1997 than in prior years. The net charge-offs to total loans have averaged 0.24% over the last five years and the highest percentage in any of those years was 0.36%. (2) Daily balances were used to compute average outstanding loan balances.
The allocated portions of the reserve reflect management's estimates of specific known risk elements in the respective portfolios. Among the factors considered in allocating portions of the reserve by loan type are the current levels of past due, nonaccrual and impaired loans. The unallocated portion of the reserve represents risk elements in the loan portfolio that have not been specifically identified. Factors considered in determining the appropriate level of unallocated reserves include historical loan loss history, current economic conditions, and expectations for loan growth. The following table summarizes the Corporation's allocation of the loan loss reserve for each year in the five- year period ended December 31, 1997:
Amount (in thousands) and Percent of Loans by Category to Total Loans Balance at end of Period Applicable to:1997 % 1996 % 1995 % 1994 % 1993 % Domestic: $2,588100.0 2,445100.0 2,030100.0 2,857100.0 3,274100.0 Commercial, financial and agricultural1,40234.5 1,472 32.3 1,042 33.0 2,108 31.0 2,620 30.2 Commercial mortgages1322.0 249 3.2 305 4.1 282 5.0 247 6.5 Residential mortgages 31 24.8 21 24.5 16 23.6 16 23.6 13 25.5 Consumer loans 1,023 38.7 703 40.0 667 39.3 451 40.4 394 37.8 Unallocated: 1,557 N/A 1,530 N/A 1,870 N/A 743 N/A 226 N/A Total $4,145100.0 3,975100.0 3,900100.0 3,600100.0 3,500100.0
Deposits The average daily amounts of deposits and rates paid on such deposits is summarized for the periods indicated in the following table:
Year Ended December 31, 1997 1996 1995 Amount Rate Amount Rate Amount Rate (In Thousands of Dollars) Noninterest-bearing demand deposits$ 84,332 - % 79,901 - % 78,406 - % Interest-bearing demand deposits 44,991 1.50 44,261 1.63 43,312 1.69 Savings deposits 135,146 2.88 139,219 2.83 149,257 2.95 Time deposits 185,686 5.49 177,537 5.42 153,433 5.41 $ 450,155 440,918 424,408
Scheduled maturities of certificates of deposit with a remaining term greater than one year at December 31, 1997 are summarized as follows:
Time Certificates of Deposits (In Thousands of Dollars) 1998 $119,945 1999 29,606 2000 17,190 2001 3,528 2002 3,522 2003 and thereafter 10 $173,801
Maturities of certificates of deposit $100,000 or more outstanding at December 31, 1997 are summarized as follows:
Time Certificates of Deposits (In Thousands of Dollars) 3 months or less $19,263 Over 3 through 12 months 8,972 Over 12 months 2,780 There were no other time deposits of $100,000 or more.
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, 1997 1996 1995 Return on average assets 1.26% 1.19% 1.13% Return on average equity 11.67 11.37 11.20 Return on beginning equity 12.22 11.64 12.25 Dividend payout ratio 36.55 35.78 36.52 Average equity to average assets ratio 10.83 10.44 10.10 Year-end equity to year-end assets ratio 11.23 10.54 10.54
Short-Term Borrowings For each of the three years in the period ended December 31, 1997, the average outstanding balance of short-term borrowings did not exceed 30% of shareholders' equity. ITEM 2. PROPERTIES The Corporation and the Bank currently conduct all their business activities from the Bank's main office, thirteen (13) branch locations situated in a four-county area, owned office space adjacent to the Bank's main office, and five (5) off-site automated teller facilities (ATMs), three (3) of which are located on leased property. The main office is a six-story structure located at One Chemung Canal Plaza, Elmira, New York, in the downtown business district. The main office consists of approximately 62,000 square feet of space entirely occupied by the Bank. The combined square footage of the thirteen (13) branch banking facilities totals approximately 46,350 square feet. The office building adjacent to the main office was acquired during 1995 and consists of approximately 18,213 square feet of which 13,711 square feet are occupied by operating departments of the Bank and 4,502 square feet are leased. The leased automated teller facility spaces total approximately 150 square feet. The Bank holds two (2) of its branch facilities (Arnot Mall Office and Bath Office) and three (3) automated teller facilities (Elmira/Corning Regional Airport, Elmira College and WalMart Store) under lease arrangements; and owns the rest of its offices including the main office and the adjacent office building. The Corporation holds no real estate in its own name. ITEM 3. LEGAL PROCEEDINGS Neither the Corporation nor its subsidiary are a party to any material pending legal proceeding required to be disclosed under this item. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS There were no matters submitted to a vote of shareholders during the fourth quarter of the fiscal year covered by this report. PART II ITEM 5. MARKET FOR THE REGISTRANTS SECURITIES AND RELATED SHAREHOLDER MATTERS The Corporation's stock is traded in the over-the-counter market. Incorporated herein by reference to portions of the Corporation's Annual Report to Shareholders for the year ended December 31, 1997, are the quarterly market price ranges for the Corporation's stock for the past three (3) years, based upon actual transactions as reported by securities brokerage firms which maintain a market or conduct trades in the Corporation's stock and other transactions known by the Corporation's management. Also incorporated herein by reference to a part of the Corporation's 1997 Annual Report are the dividends paid by the Corporation for each quarter of the last three (3) years. The number of shareholders of record on February 28, 1998 was 808. ITEM 6. SELECTED FINANCIAL DATA The Selected Financial Data Exhibit included in Management's Discussion and Analysis of Financial Condition and Results of Operations and presented in the Corporation's Annual Report to Shareholders for the year ended December 31, 1997 is incorporated herein by reference to Exhibit C of Exhibit Listing 13. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations presented in the Corporation's Annual Report to Shareholders for the year ended December 31, 1997 is incorporated herein by reference to Exhibit C of Exhibit Listing 13. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Independent Auditors' Report and consolidated financial statements as presented in the Corporation's Annual Report to Shareholders for the year ended December 31, 1997 are incorporated herein by reference to Exhibit D of Exhibit Listing 13. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE REGISTRANT The information set forth under the captions "Nominees For Election of Directors" and "Executive Officers" and the Section 16(a) disclosure set forth under the caption "Security Ownership of Management", as presented in the registrant's Proxy Statement, dated April 2, 1998, relating to the Annual Meeting of Shareholders to be held on May 13, 1998, is incorporated herein by reference to Exhibit F of Exhibit Listing 22. ITEM 11. EXECUTIVE COMPENSATION The information set forth under the captions "Directors Compensation"; "Directors' Personnel Committee Report on Executive Compensation"; " Comparative Return Performance Graph"; "Executive Compensation"; "Pension Plan"; "Profit- Sharing, Savings and Investment Plan"; "Employment Contracts"; and "Other Compensation Agreements", presented in the registrant's Proxy Statement, dated April 2, 1998, relating to the Annual Meeting of Shareholders to be held on May 13, 1998, is incorporated herein by reference to Exhibit F of Exhibit Listing 22. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the captions "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management", presented in the registrant's Proxy Statement, dated April 2, 1998, relating to the Annual Meeting of Shareholders to be held on May 13, 1998, is incorporated herein by reference to Exhibit F of Exhibit Listing 22. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the caption "Certain Transactions", presented in the registrant's Proxy Statement, dated April 2, 1998, relating to the Annual Meeting of Shareholders to be held on May 13, 1998, is incorporated herein by reference to Exhibit F of Exhibit Listing 22. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) List of Financial Statements and Independent Auditors' Report The following consolidated financial statements and Independent Auditors' Report of Chemung Financial Corporation and subsidiary, included in the Annual Report of the registrant to its shareholders as of December 31, 1997 and 1996, and for each of the years in the three-year period ended December 31, 1997 are incorporated by reference in Item 8: - Independent Auditors' Report - Consolidated Balance Sheets - December 31, 1997 and 1996 - Consolidated Statements of Income - Years ended December 31, 1997, 1996 and 1995 - Consolidated Statements of Shareholders' Equity - Years ended December 31, 1997, 1996 and 1995 - Consolidated Statements of Cash Flows - Years ended December 31, 1997, 1996 and 1995 - Notes to Consolidated Financial Statements - December 31, 1997 and 1996 (2) List of Financial Schedules Schedules to the consolidated financial statements required by Article 9 of Regulation S-X are not required under the related instructions or are inapplicable, and therefore have been omitted. (3) Listing of Exhibits Exhibit (3.1) -- Certificate of Incorporation is filed as Exhibit 3.1 to Registrant's Registration Statement on Form S-14, Registration No. 2-95743, and is incorporated herein by reference. -- Certificate of Amendment to the Certificate of Incorporation, filed with the Secretary of State of New York on April 1, 1988, is incorporated herein by reference to Exhibit A of the Registrant's Form 10-K for the year ended December 31, 1988, File No. 0-13888. (3.2) -- Bylaws of the Registrant, as amended April 9, 1997, are incorporated herein by reference to Exhibit A of the Registrant's Form 10-Q for the period ended June 30, 1997, File No. 0-13888. Exhibit (13) -- Annual Report to Shareholders for the year ended December 31, 1997. -- Table of Quarterly Market Price Ranges. EXHIBIT A -- Table of Dividends Paid. EXHIBIT B -- Management's Discussion and Analysis of EXHIBIT C Financial Condition and Results of Operations including the Selected Financial Data Exhibit. -- Consolidated Financial Statements and EXHIBIT D Independent Auditors' Report. Exhibit (21) -- Subsidiaries of the registrant. EXHIBIT E Exhibit (22) -- Registrant's Notice of Annual Meeting, EXHIBIT F Proxy Statement dated April 2, 1998, and Proxy Form Exhibit (27) -- Financial Disclosure Schedule (EDGAR version only) (b) Reports on Form 8-K There were no reports filed on Form 8-K during the three months ended December 31, 1997. (c) Exhibits The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedules None ANNUAL REPORT ON FORM 10-K ITEM 14(c) CERTAIN EXHIBITS YEAR ENDED DECEMBER 31, 1997 CHEMUNG FINANCIAL CORPORATION ELMIRA, NEW YORK ____________________________________ EXHIBIT LISTING EXHIBIT EXHIBIT 13 Annual Report To Shareholders For The Year Ended December 31, 1997 A - Table of Quarterly Market Price Ranges B - Table of Dividends Paid C - Management's Discussion and Analysis of Financial Condition and Results of Operations Including the Selected Financial Data Exhibit D - Consolidated Financial Statements and Independent Auditors' Report EXHIBIT 21 E - Subsidiaries of the Registrant EXHIBIT 22 F - Notice of Annual Meeting, Proxy Statement dated April 2, 1998, and Proxy Form Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CHEMUNG FINANCIAL CORPORATION DATED: MARCH 11, 1998 By /s/ Jan P. Updegraff Jan P. Updegraff President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been executed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Robert E. Agan Director March 11, 1998 Robert E. Agan /s/ John W. Bennett Director & Chairman March 11, 1998 John W. Bennett of the Board /s/ Donald L. Brooks, Jr Director March 11, 1998 Donald L. Brooks, Jr. /s/ David J. Dalrymple Director March 11, 1998 David J. Dalrymple Director Robert H. Dalrymple /s/ Richard H. Evans Director March 11, 1998 Richard H. Evans /s/ Frederick Q. Falck Director March 11, 1998 Frederick Q.Falck /s/ Edward B. Hoffman Director March 11, 1998 Edward B. Hoffman /s/ Stephen M. Lounsberry III Director March 11, 1998 Stephen M. Lounsberry III Signature Title Date /s/ Thomas K. Meier Director March 11, 1998 Thomas K. Meier Director Ralph H. Meyer Director John F. Potter /s/ Samuel J. Semel Director March 11, 1998 Samuel J. Semel /s/ Charles M. Streeter, Jr. Director March 11, 1998 Charles M. Streeter, Jr. /s/ Richard W. Swan Director March 11, 1998 Richard W. Swan /s/ William A. Tryon Director March 11, 1998 William A. Tryon Director William C. Ughetta /s/ Jan P. Updegraff Director, President & March 11, 1998 Jan P. Updegraff Chief Executive Officer /s/ Nelson Mooers van den Blink Director March 11, 1998 Nelson Mooers van den Blink Treasurer and Principal John R. Battersby, Jr Accounting Officer Attest /s/ Robert J. Hodgson Secretary March 11, 1998 Rober J. Hodgson EX-13 2 82 EXHIBIT A TABLE OF QUARTERLY MARKET PRICE RANGES
Market Prices of Chemung Financial Corporation Stock During Past Three Years (dollars) - ----------------------------------------------------------------------------- 1997 1996 1995 - ----------------------------------------------------------------------------- Hi -- Lo Hi -- Lo Hi -- Lo 1st Quarter 36 - 33 5/8 28 3/4 - 27 26 1/4 - 25 2nd Quarter 35 1/4 - 33 1/2 31 1/2 - 28 26 1/4 - 25 3rd Quarter 37 1/2 - 33 5/8 33 1/4 - 30 3/8 25 3/4 - 25 1/4 4th Quarter 47 1/2 - 38 1/4 35 3/4 - 33 27 3/4 - 25
EXHIBIT B TABLE OF DIVIDENDS PAID
Dividends Paid by Chemung Financial Corporation During Past Three Years - ----------------------------------------------------------------------------- 1997 1996 1995 - ----------------------------------------------------------------------------- January 2 $.2800 $.2500 $.2400 April 1 .2800 .2500 .2400 July 1 .3100 .2500 .2400 October 1 .3100 .2800 .2500 - ----------------------------------------------------------------------------- $1.1800 $1.0300 $.9700
As of December 31, 1997 there were 824 registered holders of record of the Corporation's stock. Chemung Financial Corporation's common stock is inactively traded in the over-the-counter market. The quarterly market price ranges for the Corporation's stock for the past three (3) years are based upon actual transactions as reported by brokerage firms which maintain a market or conduct trades in the Corporation's stock and other transactions known by the Corporation's management. EXHIBIT C MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCLUDING FINANCIAL DATA EXHIBITS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The purpose of this discussion is to focus on information about the financial condition and results of operations of Chemung Financial Corporation which is not otherwise apparent from the consolidated financial statements included in this annual report. Reference should be made to those statements and the selected financial data presented elsewhere in this report for an understanding of the following discussion and analysis. Description of Business Chemung Financial Corporation (the OCorporationO) is a one-bank holding company with its only subsidiary being Chemung Canal Trust Company (the OBankO), a full-service community bank with full Trust powers. Therefore, the financial condition should be examined in terms of the acquisition and employment of funds within its Omarket areasO. Management defines the market areas of Chemung Canal Trust Company as those areas within a 25-mile radius of branches in these communities. These areas encompass Chemung, Steuben, Schuyler, and Tioga counties, together with the northern tier of Pennsylvania. The BankOs lending policy restricts substantially all lending efforts to these geographical regions. During 1997, the Corporation joined six other bank holding companies in forming a Small Business Investment Comapny ("SBIC") as a limited partner. The SBIC is authorized under The Small Business Equity Investment Act of 1992 and is registered under the CEPHAS Capital Partners, L.P.. The Corporation's capital commitment to the partnership is $2.475 million of which $804,375 had been paid as of December 31, 1997. The objective of the partnership is to achieve a superior rate of return over a five to ten year life through the realization and distribution of portfolio capital gains, operating income and other transaction/advisory fee income. Management of Credit Risk - Loan Portfolio The Bank manages credit risk, while conforming to all state and Federal laws governing the making of loans, through written policies and procedures implemented to ensure loan repayment; loan review to identify loan problems at the earliest possible time; collection procedures (continued even after a loan is charged off); an adequate allowance for loan losses; and continuing education and training to ensure lending expertise. Diversification by loan product is maintained through offering commercial loans, 1-4 family mortgages, and a full range of consumer loans. The Loan Committee of the Board is designated to receive required loan reports, oversee loan policy, and approve loans above the authorized individual and Senior Loan Committee lending limits. The Senior Loan Committee, consisting of the chairman of the board, president, senior lending officer, commercial loan officer, mortgage officer, consumer loan officer, and financial officer, implements the Board-approved loan policy. Supervision and Regulation The Corporation, as a bank holding company, is regulated under the Bank Holding Company Act of 1956, as amended (the OActO), and is subject to the supervision of the Board of Governors of the Federal Reserve System (the OFederal Reserve BoardO). Generally, the Act limits the business of bank holding companies to banking, or managing or controlling banks, performing certain servicing activities for subsidiaries, and engaging in such other activities as the Federal Reserve Board may determine to be closely related to banking and a proper incident thereto. The Bank is chartered under the laws of New York State and is supervised by the New York State Banking Department. The Federal Deposit Insurance Corporation Improvement Act of 1991 (OFDICIAO) was passed in order to protect depositors and taxpayers from the excesses of the S&L problems of the 1980Os. There are a number of provisions in this act that significantly increase the non-interest operating costs of the Bank. These rules specifically impact the cost of external audit, the mortgage loan product (through appraisal requirements), as well as all other loan products and contain the potential for the regulatory authorities to begin micro-managing banks of all sizes. Competition The Bank is subject to intense competition in the lending and deposit gathering aspects of its business from commercial banks, savings banks, savings and loan associations, credit unions; and other providers of financial services, such as money market funds, brokerage firms, investment companies, credit companies and insurance companies. The Bank also competes with nonfinancial institutions, including retail stores and certain utilities that maintain their own credit programs, as well as governmental agencies that make available loans to certain borrowers. The Bank faces significant competition in acquiring quality assets, due to such factors as increased activities by providers of credit cards, and the increased lending powers granted to and employed by thrift institutions and credit unions. The Bank also faces competition in attracting deposits at reasonable prices due to the activities of money market funds; increased activities of non-bank deposit takers, including brokerage firms; and the increased availability of demand deposit type accounts at thrift institutions and credit unions. Unlike the Bank, many of these competitors are not subject to regulation as extensive as that described under the OSupervision and RegulationO section and, as a result, they may have a competitive advantage over the Corporation in certain respects. This is particularly true of credit unions, as their pricing is not encumbered by income taxes. Competition for the BankOs fiduciary services comes primarily from brokerage firms and independent investment advisors. This is considered very significant competition, as these firms devote much of their considerable resources toward gaining larger positions in this market. Trust Assets Under Administration, however, totaled over $1.217 billion at market December 31, 1997, compared to $1.074 billion a year earlier. Relative to the BankOs total assets, when compared with peer commercial banks, the Trust Department is unusually large and favorable in terms of generating non-interest income. During 1997, as well as 1996 and 1995, the Investment Services Division noted a continued increase in the competition for personal and corporate investment management services in our market areas. Thus, in an effort to position the Fiduciary Division for future growth, we now compliment our more traditional investment alternatives with additional products made available through strategic alliances with various mutual fund and insurance companies. Marketing efforts introduced in 1996 and continued in 1997 included sales and referral incentives designed to maximize results from the Bank's branch system. Additionally, during 1997, an office was opened in Binghamton, New York specifically for the purpose of providing Trust and Investment Services. This office is located in the Marine Midland Plaza. SIGNIFICANT ISSUE - YEAR 2000 During 1997, management advised its Board of Directors of the many issues surrounding the approach of January 1, 2000. Nearly all computer hardware and software developed during the current century, have been programmed with two digit reference to each year. Such hardware and software, if not upgraded by January 1, 2000 may become useless. Management is undergoing a five phase project to respond to this issue, with major emphasis upon identifiying all applications and data bases supporting the Bank's mission critical applications. The five phases are awareness, assessment, renovation, validation and implementation, and will seek to neutralize not only the Bank's vulnerability but to determine the financial capacity of its vendors, determine alternate vendors, and evaluate the capacity of its customers to respond to this challenge. As of December 31, 1997 the awareness phase was complete and the assessment phase underway. The implications of this issue are considered to be very significant to the financial services industry in particular. The financial implications to the Corporation will be determined upon completion of the assessment phase of the project. Employees The Corporation and its Banking subsidiary had 281 full-time equivalent employees (FTEOs) on December 31, 1997 versus 289 at the beginning of the year. The employment trend is relatively stable. Balance Sheet Comments Average earning assets for 1997 grew by $21.6 million or 4.6% to $491.1 million, compared to $469.5 million in 1996 and $447.1 million in 1995. Commercial and consumer loan balances grew $11.9 million (5.76%), while the mortgage portfolio increased $1.4 million (1.73%). Average total loan balances were $291.3 million versus $273.9 million during 1996 (up 6.4%) and $249.1 million during 1995. The 1994 acquisition of the Columbia branches from the Resolution Trust Corporation and the purchase of Owego at year-end 1994, had only minor impact upon the average loan balances in 1995, but began to show improved results in 1996, particularly in home equity loan services. During the fourth quarter of 1996, management elected to borrow $10 million maturing in two years from the Federal Home Loan Bank for the purpose of funding the purchase of an equal amount of U.S. Government Agency notes. This leveraging strategy provided an annualized net interest spread of 135 basis points. Non-performing loans at year end decreased to $1.617 million versus $1.720 million at the end of 1996, and represented 0.54% of total outstandings compared to 0.61% on December 31, 1996 and 0.68% on December 31, 1995. Net loan losses were $680 thousand or 0.23% of average outstandings, compared to $667 thousand in 1996 and $264 thousand in 1995. The allowance for loan losses at December 31, 1997 was 1.40% of outstandings and, at 257% of non- performing loans versus 231% a year ago and 217% in 1995, is felt by management to be adequate.
Exhibit I Balance Sheet Comparisons Average Balance Sheet Change (in millions) 1997 1996 1995 1994 1993 19921 yr. 5 yrs Total assets 542.4 518.5 495.2 431.2 397.7 387.0 4.6% 7.0% Earning assets 491.1 469.5 447.1 394.7 368.4 358.3 4.6% 6.5% Loans 291.3 273.9 249.1 221.4 224.1 221.0 6.4% 5.7% *Investments 199.8 195.6 198.0 173.3 144.3 137.3 2.1% 7.8% Deposits 450.2 440.9 424.4 374.6 347.0 338.5 2.1% 5.9% Tangible Equity 51.6 46.4 41.7 38.2 37.0 34.211.2% 8.6% *Average balances for investments are based on amortized cost. Ending Balance Sheet (in millions) 1997 1996 1995 1994 1993 1992 Change Total assets 548.9 532.2 501.9 494.3 398.1 385.8 3.1% 7.3% Earning assets 486.1 474.6 446.3 448.9 369.2 356.4 2.4% 6.4% Loans - net 292.8 279.7 259.1 232.9 218.8 214.9 4.7% 6.4% Investments 196.8 196.3 189.6 212.1 147.1 138.0 .3% 7.4% Deposits 451.0 439.6 426.9 432.3 342.9 339.2 2.6% 5.9% Tangible Equity 54.8 48.7 44.9 37.2 38.3 35.512.5% 9.1% Allowance for Loans 4.15 3.98 3.90 3.60 3.50 3.40 4.3% 4.1%
Securities The board-approved Funds Management Policy includes an investment portfolio policy which requires that, except for local municipal obligations which are sometimes not rated or carry ratings above "Baa" but below "A" by Moody's or Standard & Poors, debt securities purchased for the bond portfolio must carry a minimum rating of "A". Marketable securities are classified as Available for Sale while local direct investment in municipal obligations are classified as Held to Maturity. The Available for Sale segment of the securities portfolio at December 31, 1997, was $185.3 million compared to $185.4 million a year earlier and $171.9 million at the end of 1995. The components of the net appreciation are set forth in the following table:
Amortized Fair Cost Value Appreciation (in thousands) U.S. Treasury Securities $ 37,188 $ 37,294 $ 106 Obligations of other U.S. Government Agencies 56,565 56,677 112 U.S. Government Agency Mortgage-backed pools 55,021 55,603 582 Obligations of states and political subdivisions 25,361 25,800 439 Other bonds and notes 80 80 0 Corporate stocks 3,459 9,849 6,390 Totals $ 177,674 $ 185,303 $ 7,629
Included in the above table are 15,350 shares of SLM Holding Corporation at a cost basis of $4,915 and fair value of $2,135,569. These shares were acquired as preferred shares of Student Loan Marketing Agency ("Sallie Mae") a permitted exception to the Government regulation banning bank ownership of equity securities in the original capitalization of the U.S. Government Agency. Later, the shares were converted to common stock as SALLIE MAE recapitalized. Additionally, at December 31, 1997, the banking subsidiary's portfolio held marketable equities totalling $89,540 at cost with a total fair value of $4,323,514 The shares, other than SLM Holding Corp., were acquired prior to the enactment of the Banking Act of 1933. Other equities included in the bank portfolio are 9,964 shares of Federal Reserve Bank and 17,972 shares of the Federal Home Loan Bank of New York. They are valued at $498,200 and $1,797,200, respectively. Management has no current plans for selling these investments. Capital Resources and Dividends The Corporation continues to maintain a strong capital position. Tangible shareholdersO equity at December 31, 1997, was $54.8 million or 9.98% of total assets compared to $48.7 million or 9.15% of total assets at the end of 1996 and $44.9 million or 8.95% of assets at the end of 1995. As of December 31, 1997, the Corporation's total Risk Weighted Adjusted Capital Ratio was 17.44% compared with 16.87% at December 31, 1996 and 16.46% at the end of 1995. The leverage ratio (Average Tier I Capital/Average Assets) was 9.49% at year end versus 8.97% in 1996 and 8.52% in 1995. Management's strategy for leveraging the Corporation's capital is to maintain the leverage ratio between 7.50% and 8.50%. As opportunities for matching suitable investments with appropriate funding sources are presented in the market place, this strategy will be implemented. During 1997, the relatively flat yield curve was not attractive for this approach. Under Federal Reserve regulations (see Note 15 to the consolidated financial statements), the Bank is limited to the amount it may loan to the Corporation, unless such loans are collateralized by specific obligations. At December 31, 1997, the maximum amount available for transfer from the Bank to the Corporation in the form of loans was $1,660,655. The Bank is subject to legal limitations on the amount of dividends that can be paid to the Corporation. Dividends are limited to retained net profits, as defined by regulations, for the current year and the two preceding years. At December 31, 1997, $8,143,853 was available for the declaration of dividends. Cash dividends declared amounted to $2.506 million in 1997 versus $2.203 million in 1996 and $2.046 million in 1995. Dividends declared amounted to 36.6% of net earnings compared to 35.8% and 36.5% of 1996 and 1995 net earnings, respectively. It is management's objective to continue generating sufficient capital internally, while retaining an adequate dividend payout ratio. Performance Summary Net income for 1997 was impacted by 1) higher loan volumes 2) lower average interest rates 3) higher levels of non-interest income, and 4) lower non- interest expenses. Consolidated net income for 1997 was $6.857 million versus $6.158 million, up $699 thousand (11.4%) or $3.31 versus $2.96 per share (11.8%) on 7.8 thousand fewer average shares outstanding. During 1995 the Corporation earned $2.68, up 9.4% from 1994. Quarterly dividends declared totaled $1.21 per share versus 1996's $1.06 and $0.98 in 1995. Under FDIC Risk-Related Premium System Rules, in order to be considered WELL CAPITALIZED, the FDIC requires a bank's Total Risk Based Capital Ratio to be greater than or equal to 10% AND its Tier 1 Risk Based Capital Ratio to be greater than or equal to 6.00% AND its leverage ratio to be greater than or equal to 5.00%. This designation has been maintained and the Bank's FDIC insurance premiums for 1997 were $71 thousand versus $253 thousand in 1996 and $538 thousand in 1995. Included in 1996 FDIC charges was a one-time charge to banks having deposits insured by the Savings Association Insurance Fund ("SAIF") in order to recapitalize that fund to the same level as the Bank Insurance Fund. The two funds are now merged. There were $29 million of the Bank's deposits subjected to a $191 thousand assessment in the fourth quarter of 1996. In December 1997, the Bank received notification from the FDIC that it remains well capitalized. The 1998 FDIC insurance premium will be accrued at an annual rate of $73 thousand for total insured deposits. During 1997, the Bank's provision for loan losses totaled $850 thousand, up $108 thousand from $742 thousand in 1996 and $564 thousand in 1995. The increase is a reflection of management's ongoing evaluation of the risk inherent in the portfolio. During 1995, management determined that based upon its review of the inherent risk, no provisions should be added to the reserve during November and December of that year, and $102 thousand of the loan loss reserve was returned to pretax income. This was a reflection of the very strong business environment and consistently favorable loan experience of that year. The average interest rate on earning assets was 8.02% during 1997 versus 7.99% in 1996 and 8.07% in 1995. The interest expense on the Bank's liabilities also increased to 4.13% in 1997 versus 4.00% in 1996 and 3.95% in 1995. This resulted in a net interest spread of 3.89% versus 3.99% a year earlier and 4.12% in 1995. The net interest margin declined 5 basis points to 4.74%. Noninterest income totaled $7.468 million versus $7.106 million in 1996 and $6.736 million in 1995. Trust department income, at $4.079 million in 1997 versus $3.719 million in 1996 and $3.678 million in 1995 is the largest segment of non-interest income. There were $324 thousand in net securities gains realized during 1997 as management continued to move more proactively from a strategy with emphasis upon liquidity to an investment approach with higher yield potential. Investments sold or matured were primarily U.S. Treasury securities with the proceeds reinvested primarily in U.S. Government agency notes and U.S. Government agency guaranteed mortgage backed securities. Exhibit II
Change Earnings 1997 1996 1995 1994 1993 1992 1 yr. 5 yrs (in thousands) Net Int. Inc $23,274 22,468 21,849 19,30418,672 18,339 3.6% 4.9% Loan Loss Prov. 850 742 564 624 907 902 14.6% -1.2% Net Int. Inc After Loan Loss Provision 22,424 21,726 21,285 18,68017,765 17,437 3.2% 5.2% Trust Income 4,079 3,719 3,678 3,3233,294 3,176 9.7% 5.1% Securities Gains (losses),net 324 610 531 140 821 105 -46.9% 25.3% Other Income 3,065 2,777 2,527 2,2222,004 1,691 10.4% 12.6% Total Non Interest Income 7,468 7,106 6,736 5,6856,119 4,972 5.1% 8.5% Non Int. Expense 19,368 19,408 19,560 17,37515,627 15,287 -0.2% 4.8% Pretax Income 10,524 9,424 8,461 6,9908,257 7,122 11.7% 8.1% Income Taxes 3,667 3,266 2,859 2,3422,830 2,296 12.3% 9.8% Net Oper Income 6,857 6,158 5,602 4,6485,427 4,826 11.4% 7.3% Effect of Acct Change 0 0 0 0 (933) 0 N/A N/A Net Income 6,857 6,158 5,602 4,6484,494 4,826 11.4% 7.3%
Exhibit III
Selected Financial Data Change Per Share Data 1997 1996 1995 1994 1993 1992 1 yr. 5 yrs Net Oper Income $3.31 $2.96 $2.68 $2.45 $2.87 $2.55 11.8% 5.4% Net Income 3.31 2.96 2.68 2.45 2.37 2.55 11.8% 5.4% Dividends Declared 1.21 1.06 0.98 0.935 0.875 0.82 14.2% 8.1% Tangible Book Value 26.49 23.51 21.57 17.75 20.25 18.75 12.7% 7.2% Market Pr 12/31 42.00 34.00 27.75 25.50 23.00 18.50 23.5% 17.8% Average Shs O/S 2,072 2,079 2,088 1,899 1,894 1,894 -0.3% 1.8% (thousands)
Exhibit IV
Selected Ratios 1997 1996 1995 1994 1993 Return on average assets 1.26% 1.19% 1.13% 1.08% 1.13% Ret on avg. Tier 1 Equity 14.29% 14.08% 14.26% 12.49% 12.15% Dividend yield 12/31 2.95% 3.29% 3.60% 3.76% 3.96% Dividend payout 36.55% 35.78% 36.52% 38.22% 36.86% Leverage Ratio 9.39% 8.97% 8.52% 7.69% 9.63% Tier I capital to risk adjusted assets 16.19% 15.61% 15.21% 13.71% 15.66% Total capital to risk adjusted assets 17.44% 16.87% 16.46% 15.03% 17.09% Loans to deposits 65.84% 64.53% 61.61% 54.71% 64.83% Loan reserve to outstanding loans 1.40% 1.40% 1.48% 1.52% 1.57% Loan reserve to non-performing loans 257% 231% 217% 232% 186% Non-performing loans to outstanding loans 0.54% 0.61% 0.68% 0.66% 0.85% Net interest rate spread 3.89% 3.99% 4.12% 4.26% 4.42% Net interest margin 4.74% 4.79% 4.89% 4.89% 5.07%
Exhibit V Changes Due to Volume and Rate The following table demonstrates the impact on net interest income of the changes in the volume of earning assets and interest-bearing liabilities and changes in rates earned and paid by the Bank. For purposes of constructing this table, earning asset averages include non-performing loans. Therefore, the impact of lower levels of non-performing loans is reflected in the change due to rate, but does not affect changes due to volume.
1997 vs. 1996 1996 vs. 1995 Increase Increase (Decrease) (Decrease) Total Due to Due to Total Due to Due to Change Volume Rate Change Volume Rate Interest Income(thousands) Loans $1,366 $1,591 $(225) $ 1,446 $2,310 $(864) Taxable investment securities 337 82 255 332 74 258 Tax-exempt investment Securities 82 105 (23) (46) 41 (87) Federal funds sold (50) (57) 7 (136) (104) (32) Interest-bearing dep. 126 90 36 (162) (129) (33) Total Interest Income $1,861 $1,811 $ 50 $ 1,434 $2,192 $(758) Interest Expense (thousands) Demand deposits $ (44)$ 12 $ (56) $ (12)$ 16 $ (28) Savings deposits (48) (117) 69 (466) (289) (177) Time deposits 562 446 116 1,318 1,307 11 Federal Funds Purchased and securities sold under agreement to repurchase 585 491 94 (24) 73 (97) Total Interest Expense$1,055 $ 832 $ 223 $ 816 $1,107 $(291) Net Interest Income $ 806 $ 979 $(173) $ 618 $1,085 $(467)
The core deposit intangible and goodwill in the amount of $4.54 million and $2.28 million, respectively, at December 31, 1997, which accounts for the premium paid in connection with the acquisition of three branches from the Resolution Trust Corporation ("RTC") and the acquisition of Owego National Financial Corporation during 1994, is being amortized over 15 years for both book and tax purposes. Amortization periods are monitored to determine if events and circumstances require such periods to be reduced. With respect to each of the branches acquired from the RTC, management has determined that our purchase of these deposits constituted entrance into major new market areas and provides a basis for concluding that the purchased goodwill benefits will exist beyond a short-term period. Treasury Shares When shares of the Corporation come on the market, we will bid only after careful review of our capital position. During 1997, 2,685 shares were purchased at a total cost of $107,768 or an average price of $40.14 per share. Early in 1996, 7,280 shares of treasury stock were sold at a price of $27.75 per share to fund profit sharing requirements. During 1996, 16,915 shares were purchased at a total cost of $514,599 or an average price of $30.42 per share. In 1995, 11,632 of the treasury shares were purchased at a total cost of $299,749 or an average price of $25.77 per share. Cash Flow Proceeds from maturities and sales of securities and student loans available for sale trailed purchases of securities and loan originations, net of repayments and net purchases of premises and equipment, by $12.551 million in 1997. Net purchases of equipment were $1.990 million. During 1996, proceeds from maturities and sales of securities and student loans were less than purchases of securities and loan originations net of repayments and net purchases of premises and equipment by $38.304 million. Net purchases of premises and equipment during 1996 were $862.7 thousand, In 1995, net cash provided by investing activities was $2.290 million Net cash provided by financing activities amounted to $10.219 million in 1997, compared to $21.304 million during 1996 and net cash used by financing activities of $4.495 million in 1995. Core deposits (Demand, NOW, Savings and Insured Money Market Accounts) increased $11.6 million in 1997, compared to a decrease of $7.4 million in 1996, while certificates of deposit and individual retirement accounts decreased $208.6 thousand compared to an increase of $20.1 million in 1996. Liquidity and Sensitivity The term OliquidityO refers primarily to the expected cash flows from assets held for investment and secondarily to borrowings secured by assets held for investments. These two sources of liquidity have in the past been sufficient to fund the operations of the Bank, and the Board of Directors anticipates that they will suffice in the future. For this reason, the term OliquidityO in the BankOs policies does not refer to proceeds from the sale of assets, although the sale of assets held as available for sale is a source of liquidity available to management. Liquidity management involves the ability to meet the cash flow requirements of deposit customers, borrowers, and the operating, investing, and financing activities of the Corporation. Management of interest rate sensitivity seeks to avoid fluctuating net interest margins and to enhance consistent growth of net interest income through periods of changing interest rates. As intermediaries between borrowers and savers, commercial banks incur interest rate risk. The BankOs Asset/Liability Committee (ALCO) has the strategic responsibility for setting the policy guidelines on acceptable exposure. The ALCO is made up of the chairman of the board, president, senior lending officer, senior marketing officer, financial officer, and others representing key functions. During 1993, the Bank became a member of the Federal Home Loan Bank of New York (OFHLBO). The primary reasons for joining the FHLB were to enhance managementOs ability to satisfy future liquidity needs and to have an additional alternative for investing excess reserves. The Bank's $1.797 million investment in FHLB stock, allowed it to maintain a line of credit of $46,976,500 at December 31, 1997. Interest-rate risk is the risk that net interest income will fluctuate as a result of a change in interest rates. It is the assumption of interest rate risk, along with credit risk, that drives the net interest margin of a financial institution. A related component of interest rate risk is the expectation that the market value of our capital account will fluctuate with changes in interest rates. This component is a direct corollary to the earnings-impact component: an institution exposed to earnings erosion is also exposed to shrinkage in market value. Interest rate risk is portrayed below using the OcontractualO gap. Contractual gap measures the stated repricing and maturity of assets and liabilities. At December 31, 1997, the cumulative one-year contractual gap for the Bank was a negative $176.0 million versus a negative $160.9 million a year earlier and a negative $121.5 at the end of 1995. This indicates that $176.0 million of earning assets could reprice after the source of funds reprice. It is highly unlikely that this would happen, however, and there is no historical precedent for it. In recent years, however, core deposits (NOW accounts, Insured Money Market Accounts and Savings accounts) have not been repriced with movements of interest rates in the negotiable securities markets. Rather, the interest paid upon such funding sources during 1997, 1996 and 1995 has been very stable, even with movements in excess of 200 basis points. Short term rates (6 month U.S. Treasury Bills) ranged between 5.03% - 5.45% during 1997.
December 31, 1997 Rate Sensitive Contractual Amounts 1 to 90 1 to 365 1 to 5 Over 5 (Thousands) days days years years Earning assets: Loans $ 98,089 $ 21,650$ 100,467 $ 76,458 Securities 11,629 18,086 66,300 88,122 Federal funds 0 Other (Equities) 8,755 Total earning assets $ 118,473 $ 39,736 $ 166,767 $ 164,580 Net sources: NOW accounts $ 46,417 Insured Money Market 49,048 Time certificates under $100 thousand 35,325 61,503 47,008 10 Time certificates over $100 thousand 19,264 8,972 2,779 Savings 87,945 Federal Home Loan Bank Advances6,300 10,000 Repurchase agreements 5,248 4,200 Total sources $ 249,547 $ 84,675 $ 49,787 $ 10 Incremental gap -131,074 -44,939 116,980 164,570 Percent of earning assets -110.6 -113.1 70.1 100 Cumulative gap -131,074 -176,013 -59,033 105,537 Percent of total assets -24.0 -32.2 -10.8 19.3
The asset/liability management function of the Bank falls under the authority of the Board of Directors, which has charged the ALCO with responsibility for implementing its funds management policies. The ALCO is responsible for supervising the preparation and annual revisions of the financial segments of the Bank Plan, which is built upon the committeeOs economic and interest-rate assumptions and the Annual Budget. It is the responsibility of the ALCO to modify prudently any and all asset/liability. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued SFAS No.130 Reporting Comprehensive Income. SFAS No. 130 establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. The impact of adopting SFAS No. 130, which is effective for the Company in 1998, has not been determined. In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 requires publicly-held companies to report financial and other information about key revenue- producing segments of the entity for which such information is available and is utilized by the chief operation decision maker. Specific information to be reported for individual segments includes profits or loss, certain revenue and expense items and total assets. A reconciliation of segment financial information to amounts reported in the financial statements would be provided. SFAS No. 131 is effective for the Company in 1998 and the impact of adoption has not been determined. /S/ Jan P. Updegraff Jan P. Updegraff President and Chief Operating Officer EXHIBIT D CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT AUDITORS Independent Auditors' Report The Board of Directors and Shareholders Chemung Financial Corporation and Subsidiary: We have audited the accompanying consolidated balance sheets of Chemung Financial Corporation and subsidiary as of December 31, 1997 and 1996, and the related consolidated statements of income, shareholdersO equity and cash flows for each of the years in the three-year period ended December 31, 1997. These consolidated financial statements are the responsibility of the CompanyOs management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Chemung Financial Corporation and subsidiary at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Syracuse, New York January 22, 1998 CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEET
Assets December 31 1997 1996 Cash and due from banks $ 32,997,157 31,103,374 Interest-bearing deposits with other financial institutions 1,421,298 151,920 Federal funds sold 0 500,000 Securities available for sale, at fair value185,302,745 185,365,478 Securities held to maturity, fair value of $9,224,028 in 1997 and $10,351,440 in 19969,224,028 10,351,840 Loans, net of unearned income and deferred fees296,9 76,769 283,720,981 Allowance for loan losses (4,145,422)(3,975,000) Loans, net 292,831,347 279,745,981 Premises and equipment, net 10,219,043 9,712,633 Other assets 10,123,203 7,878,811 Intangible assets, net of accumulated amortization6, 815,631 7,402,934 Total assets $ 548,934,452 532,212,971 Liabilities and Shareholders' Equity Deposits: Noninterest-bearing $ 94,656,560 86,049,289 Interest-bearing 356,387,782 353,600,054 Total deposits 451,044,342 439,649,343 Securities sold under agreements to repurchase 9,447,856 14,371,140 Federal Home Loan Bank advances16,300,000 10,000,000 Accrued interest payable 1,191,409 1,152,791 Dividends payable 641,611 580,220 Other liabilities 8,672,057 10,339,278 Total liabilities 487,297,275 476,092,772 Commitments and contingencies (note 14) Shareholders' equity: Common stock, $5.00 par value per share; authorized 3,000,000 shares, issued: 2,150,06710, 750,335 10,750,335 Surplus 10,101,804 10,101,804 Retained earnings 38,236,025 33,885,269 Treasury stock, at cost (1997 - 80,538 shares;(2,032,886) (1,925,118) 1996 - 77,853 shares) Net unrealized gain on securities available for sale, net of taxes4,581,899 3,307,909 Total shareholders' equity 61,637,177 56,120,199 Total liabilities and shareholders' equity $ 548,934,452 532,212,971 See accompanying notes to consolidated financial statements.
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME
Interest income: Loans $ 26,679,426 25,313,778 23,867,713 Securities 12,070,919 11,651,818 11,365,927 Federal funds sold 300,359 350,005 485,979 Interest-bearing deposits 321,265 195,181 357,090 Total interest income 39,371,969 37,510,782 36,076,709 Interest expense: Deposits 14,756,046 14,286,189 13,446,125 Borrowed funds 659,753 176,126 7,538 Securities sold under agreements to repurchase 682,065 580,354 773,264 Total interest expense 16,097,864 15,042,669 14,226,927 Net interest income 23,274,105 22,468,113 21,849,782 Provision for loan losses 850,100 741,662 564,380 Net interest income after provision for loan losses22,424,005 21,726,451 21,285,402 Other operating income: Trust department income 4,078,880 3,718,851 3,677,622 Service charges on deposit accounts 1,906,931 1,611,409 1,502,971 Net gain on sales of securities 323,989 609,596 530,953 Credit card merchant earnings 536,735 519,039 494,821 Other 621,273 646,603 529,413 7,467,808 7,105,498 6,735,780 Other operating expenses: Salaries and wages 8,041,859 7,926,874 7,658,865 Pension and other employee benefits 2,033,962 1,976,814 2,214,273 Net occupancy expenses 1,562,568 1,629,539 1,586,077 Furniture and equipment expenses 1,651,675 1,592,873 1,475,543 Other 6,077,630 6,281,664 6,625,056 19,367,694 19,407,764 19,559,814 Income before income taxes 10,524,119 9,424,185 8,461,368 Income taxes 3,666,899 3,266,662 2,859,476 Net income $ 6,857,220 6,157,523 5,601,892 Weighted average shares outstanding 2,071,544 2,079,312 2,087,751 Net income per common share: $ 3.31 2.96 2.68 See accompanying notes to consolidated financial statements.
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, 1994$10,750,335 10,068,563 26,374,590 (1,279,549) (175,193) 45,738,746 Net income - - 5,601,892 - - 5,601,892 Cash dividends declared- - (2,045,513) - - (2,045,513) ($.98 per share) Purchase of 11,632 shares - - - (299,749) - (299,749) of treasury stock Change in net unrealized gain - - - - 3,903,522 3,903,522 (loss) on securities available for sale, net of taxes of $2,645,891 Balances at December 31, 199510,750,335 10,068,563 29,930,969 (1,579,298)3 ,728,329 52,898,898 Net income - - 6,157,523 - - 6,157,523 Cash dividends declared- - (2,203,223) - - (2,203,223) ($1.06 per share) Purchases of 16,915 shares of - - - (514,599) - (514,599) treasury stock Sale of 7,280 shares of treasury stock - 33,241 - 168,799 - - 202,020 Change in net unrealized gain - - - - (420,420) (420,420) (loss) on securities available for sale, net of taxes of $312,318 Balances at December 31, 1996$ 10,750,335 10,101,804 33,885,269 (1,925,118) 3,307,909 56,120,199 Net income - - 6,857,220 - - 6,857,220 Cash dividends declared- - (2,506,464) - - (2,506,464) ($1.21 per share) Purchase of 2,685 shares of- - - (107,768) - (107,768) treasury stock Change in net unrealized gain (loss)- - - - 1,273,990 1,273,990 on securities available for sale, net of taxes of $833,553 Balances a December 31, 1997$ 10,750,335 10,101,804 38,236,025 (2,032,886) 4,581,899 61,637,177 See accompanying notes to consolidated financial statements
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31 1997 1996 1995 Cash flows from operating activities: Net income $ 6,857,220 6,157,523 5,601,892 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of intangible assets587,303 587,303 585,303 Deferred income taxes (260,933) (387,248) (168,577) Provision for loan losses 850,100 741,662 564,380 Depreciation and amortization1,483,178 1,440,752 1,250,236 Amortization and discount on securities, net248,288 303,365 (458,579) Gain on sales of securities, net(323,989) (609,596) (530,953) (Increase) decrease in other assets(2,244,392)(216,172) 289,799 Increase (decrease) in accrued interest payable38,618 93,689 164,706 Increase (decrease) in other liabilities(2,239,841) 3,260,358 (92,107) Net cash provided by operating activities4,995,552 11,371,636 7,20 8,100 Cash flows from investing activities: Proceeds from sales of securities available24,071,461 57,617,458 15,958,448 for sale Proceeds from maturities of and principal 12,226,947 6,035,978 7,2 61,930 collected on securities held to maturity Proceeds from maturities of and principal30,683,353 52,023,153 94, 781,598 collected on securities available for sale Purchases of securities available for sale(52,508,840)(122,926,000)( 75,727,391) Purchases of securities held to maturity(11,099,132)(8,805,672)(10,2 02,780) Purchases of premises and equipment, net(1,989,588)(862,683)(3,013,6 36) Loan net of repayments and other reductions(17,235,072) (24,578,050) (29,563,052) Proceeds from sales of student loans3,299,607 3,191,711 2,794,848 Net cash provided (used) by investing activities$ (12,551,264)(38, 304,105) 2,289,965
(Continued) CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31 1997 1996 1995 Cash flows from financing activities: Net increase (decrease) in demand deposits,$ 11,603,559 (7,366,182) (14,320,289) NOW accounts, savings accounts, and insured money market accounts Net increase (decrease) in certificates of(208,560) 20,136,632 8,92 8,461 deposit and individual retirement account Net increase (decrease) in securities sold (4,923,284 989,559 3,177,796 under agreements to repurchase Net increase Federal Home Loan Bank advances6,300,000 10,000,000 - - Purchases of treasury stock (107,768) (514,599) (299,749) Sale of treasury stock - 202,020 - Cash dividends paid (2,445,074) (2,143,465) (1,981,078) Net cash provided (used) by financing10,218,873 21,303,965 (4,494, 859) activities Net increase (decrease) in cash and cash2,663,161 (5,628,504) 5,003 ,206 equivalents Cash and cash equivalents, beginning of year31,755,294 37,383,798 32 ,380,592 Cash and cash equivalents, end of year $ 34,418,455 31,755,294 37,3 83,798 Supplemental disclosure of cash flow information: Transfer of securities held to maturity $ - - 10,505,646 to securities available for sale Cash paid during the year for: Income Taxes 3,748,867 3,832,329 2,937,581 Interest $ 16,059,256 14,948,980 14,062,221 See accompanying notes to consolidated financial statements.
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (1) Statement of Accounting Policies Organization Chemung Financial Corporation (the Corporation), through its wholly owned subsidiary, Chemung Canal Trust Company (the Bank), provides commercial banking services to its local market area. The Corporation is subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory agencies. Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles and include the accounts of the Corporation and the Bank. All significant intercompany balances and transactions are eliminated in consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Securities Management determines the appropriate classification of securities at the time of purchase. If management has the intent and the Corporation has the ability at the time of purchase to hold securities until maturity, they are classified as held to maturity and carried at amortized cost. Securities to be held for indefinite periods of time and not intended to be held to maturity are classified as available for sale and carried at fair value. Securities held for indefinite periods of time include securities that management intends to use as part of its asset/liability management strategy and that may be sold in response to changes in interest rates, resultant prepayment risk and other factors related to interest rate and resultant prepayment risk changes. Unrealized holding gains and losses, net of the related tax effects, on securities classified as available for sale are excluded from earnings and are reported as a separate component of shareholders' equity until realized. Realized gains and losses are determined using the specific identification method. Transfers of securities between categories are recorded at fair value at the date of transfer. A decline in the fair value of any available for sale or held to maturity security below amortized cost that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment of yield using the interest method. Dividend and interest income are recognized when earned. Loans Loans are stated at the amount of unpaid principal balance less unearned discounts and net deferred fees. The Corporation has the ability and intent to hold its loans until maturity except for educational loans which are sold to a third party from time to time upon reaching repayment status. Interest on loans is accrued and credited to operations on the level yield method. The accrual of interest is discounted and previously accrued interest is reversed when commercial loans become 90 days delinquent and, when consumer, mortgage and home equity loans, which are not guaranteed by government agencies, become 120 days delinquent. Loans may also be placed in non-accrual if management believes such classification is warranted for other purposes. Loan origination fees and certain loan origination costs are deferred and amortized over the life of the loan using the interest method. Allowance for Loan Losses The allowance for loan losses is maintained at a level considered adequate to provide for loan losses. The allowance is increased by provisions charged to earnings and recoveries of loans previously charged off, and reduced by loan charge-offs. The level of the allowance is based on managementOs evaluation of potential losses in the loan portfolio, prevailing and anticipated economic conditions, past loss experience, and other factors pertinent to estimating potential losses. Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowances may be necessary based on changes in economic conditions, particularly in New York State. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the BankOs allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. Management, considering current information and events regarding the borrower's ability to repay their obligations, considers a loan to be impaired when it is probable that the Corporation will be unable to collect all amounts due according to the contractual terms of the loan agreement. When a loan is considered to be impaired, the amount of the impairment is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of collateral if the loan is collateral dependent. Residential mortgage loans and consumer loans are evaluated collectively since they are homogeneous and generally carry smaller balances. Impairment losses are included in the allowance for loan losses through a charge to the provision for loan losses. In general, interest income on impaired loans is recorded on a cash basis when collection in full is reasonably expected. If full collection is uncertain, cash receipts are applied first to principal then to interest income. Premises and Equipment Land is carried at cost, while buildings and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is charged to current operations under accelerated and straight-line methods over the estimated useful lives of the assets, which range from 15 to 50 years for buildings and from 3 to 10 years for equipment and furniture. Amortization of leasehold improvements and leased equipment is recognized on the straight-line method over the shorter of the lease term or the estimated life of the assets. Other Real Estate Real estate acquired through foreclosure or deed in lieu of foreclosure is recorded at the lower of the carrying value of the loan or estimated fair value of the property at the time of acquisition. Write downs from cost to estimated fair value which are required at the time of foreclosure are charged to the allowance for loan losses. Subsequent to acquisition, other real estate is carried at the lower of the carrying amount or fair value less estimated costs to dispose. Subsequent adjustments to the carrying values of such properties resulting from declines in fair value are charged to operations in the period in which the declines occur. Income Taxes The Corporation files a consolidated return on the accrual method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Trust Department Income Assets held in a fiduciary or agency capacity for customers are not included in the accompanying consolidated balance sheets, since such assets are not assets of the Corporation. Trust department income is recognized on the accrual method based on contractual rates applied to the balances of individual trust accounts. Pension Plan The BankOs funding policy is to contribute amounts to the plan sufficient to meet minimum regulatory funding requirements, plus such additional amounts as the Bank may determine to be appropriate from time to time. Postretirement Benefits In addition to pension benefits, the Bank provides health care and life insurance benefits for retired employees. The estimated costs of providing benefits are accrued over the years the employees render services necessary to earn those benefits. Intangible Assets Goodwill, which represents the excess of purchase price over the fair value of identifiable assets acquired in 1995, is being amortized over 15 years on the straight-line method. Deposit base intangible, resulting from the Bank's purchase of deposits from the Resolution Trust Company in 1994, is being amortized over the expected useful life of 15 years on a straight- line basis. Amortization periods are monitored to determine if events and circumstances require such periods to be reduced. Periodically, the Corporation reviews its goodwill and deposit base intangible assets for events or changes in circumstances that may indicate that the carrying amount of the assets are impaired. Per Share Information Per share data was computed on the basis of the weighted average number of common shares outstanding, retroactively adjusted for stock splits and dividends. On December 31, 1997, the Corporation adopted the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share. Adoption of this statement had no effect on the Corporation as it has no potentially dilutive securities. Cash and Cash Equivalents Cash and cash equivalents include cash and amounts due from banks, interest- bearing deposits with other financial institutions, federal funds sold, and U.S. Treasury securities with original terms to maturity of 90 days or less. Securities Sold Under Agreements to Repurchase The Corporation enters into sales of U.S. Treasury securities under agreements to repurchase. These agreements are treated as financings, and the obligations to repurchase securities sold are reflected as liabilities in the consolidated balance sheets. The amount of the securities underlying the agreements remains in the asset account. The Corporation has agreed to repurchase securities identical to those sold. The securities underlying the agreements were under the bank's control. Financial Instruments With Off-Balance Sheet Risk The Corporation does not engage in the use of derivative financial instruments and the CorporationOs only financial instruments with off- balance sheet risk are commitments under standby letters of credit, unused portions of lines of credit and commitments to fund new loans. Reclassifications Amounts in the prior yearOs consolidated financial statements are reclassified whenever necessary to conform with the current yearOs presentation. (2) Restrictions on Cash and Due from Bank Accounts The Bank is required to maintain average reserve balances with the Federal Reserve Bank of New York. The required average total reserve for the 14- day maintenance period beginning December 18, 1997 was $8,506,000, of which $2,439,000 was required to be on deposit with the Federal Reserve Bank; the remainder, $6,067,000, was represented by cash on hand. (3) Securities Amortized cost and fair value of securities available for sale at December 31, 1997 and 1996 are as follows:
1997 1996 Amortized Fair Amortized Fair Cost Value Cost Value U.S. Treasury securities$ 37,188,03537,293,793 52,721,091 52,763,618 Obligations of other U.S. Government agencies56,565,434 56,676,787 51,831,740 51,803,452 Mortgage backed securities55,020,82955,602,615 50,193,422 50,109,133 Obligations of states and political subdivisions25,361,08025,800,408 20,257,203 20,499,918 Other bonds and notes 79,671 79,963 1,178,422 1,192,889 Corporate stocks 3,458,827 9,849,179 3,662,274 8,996,468 $ 177,673,876 185,302,745 179,844,152 185,365,478
Amortized cost and fair value of securities held to maturity at December 31, 1997 and 1996 are as follows:
Obligations of states and political subdivisions$ 9,154,5389,154,538 10,275,184 10,275,184 Other bonds and notes 69,490 69,490 76,656 76,256 $ 9,224,028 9,224,028 10,351,840 10,351,440
Included in corporate stocks at December 31, 1997 and 1996 is the Bank's required investment in the stock of the Federal Home Loan Bank with a cost of $1,797,200. This investment allows the Bank to maintain a $46,976,500 line of credit with the Federal Home Loan Bank. Gross unrealized gains and gross unrealized losses on securities available for sale at December 31, 1997 and 1996 were as follows:
1997 1996 Unrealized Unrealized Unrealized Unrealized Gains Losses Gains Losses U.S. Treasury securities$ 126,876 21,118 276,003 233,476 Obligations of other U.S. Government agencies 242,668 131,315 338,193 366,481 Mortgage backed securities626,925 45,139 135,219 219,508 Obligations of states and political subdivisions439,540 212 260,656 17,941 Other bonds and notes 292 - 14,467 - Corporate stocks 6,390,352 - 5,334,194 - $ 7,826,653 197,784 6,358,732 837,406
Gross unrealized gains and gross unrealized losses on securities held to maturity at December 31, 1997 and 1996 were as follows:
1997 1996 Unrealized Unrealized Unrealized Unrealized Gains Losses Gains Losses Other bonds and notes - - - 400
Gross realized gains on sales of securities were $323,989, $613,190, and $530,953 for the years ended December 31, 1997, 1996 and 1995, respectively. Gross realized losses on sales of securities were $3,594 for the year ended December 31, 1996. There were no realized losses on sales of securities for the years ended December 31, 1997 and 1995. Interest and dividends on securities for the years ended December 31, 1997, 1996 and 1995 were as follows:
1997 1996 1995 Taxable U.S. Treasury securities $ 2,821,733 4,002,636 6,087,187 Obligations of other U.S. Government agencies 3,670,414 3,252,513 2,918,058 Mortgage backed securities 3,727,722 2,590,587 240,143 Other bonds and notes 48,984 174,419 433,230 Corporate stocks 360,184 271,614 281,145 Exempt from federal taxation - Obligations of states and political subdivisions 1,441,882 1,360,049 1,406,164 $ 12,070,919 11,651,818 11,365,927
The amortized cost and fair value by years to maturity as of December 31, 1997 for debt securities available for sale are as follows (excluding corporate stocks):
Maturing After One, But Within One Year Within Five Years Amortized Fair Amortized Fair Cost Value Cost Value U.S. Treasury securities$ 6,098,2536,115,743 31,089,782 31,178,050 Obligations of other U.S. Government agencies6,941,474 6,979,380 19,010,324 19,041,783 Mortgage backed securities - - 3,654,393 3,660,165 Obligations of states and political subdivisions 5,602,194 5,633,418 10,591,851 10,767,699 Other bonds and notes - - 79,671 79,963 Total $ 18,641,921 18,728,541 64,426,021 64,727,660
Maturing After Five, But Within Ten Years After Ten Years Amortized Fair Amortized Fair Cost Value Cost Value Obligations U.S. Government agencies$ 30,613,636 30,655,624 - - Mortgage backed securities - - 51,366,436 51,942,450 Obligations of states and political subdivisions8,454,996 8,669,239 712,039 730,052 Total $ 39,068,632 39,324,863 52,078,475 52,672,502
The amortized cost and fair value by years to maturity as of December 31, 1997 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 $ 6,265,5676,265,567 1,721,792 1,721,792 Other bonds and notes 5,000 5,000 - - Total $ 6,270,567 6,270,567 1,721,792 1,721,792
Maturing After Five, But Within Ten Years After Ten Years Amortized Fair Amortized Fair Cost Value Cost Value Obligations of states and political subdivisions$ 1,167,1791,167,179 - - Other bonds and notes 64,490 64,490 - - Total $ 1,231,669 1,231,669 - -
The fair value of securities pledged to secure public funds on deposit or for other purposes as required by law was $103,131,459 at December 31, 1997 and $107,381,997 at December 31, 1996. U.S. Treasury securities totaling $13,000,000 (fair value of $13,044,720 and $12,951,250,GNMA's totaling $12,185,770 and $10,844,688 (fair value of $12,625,864 and $11,283,339), SLMA totaling $2,000,000 (fair value of $1,992,500 and $1,970,000) were pledged to secure repurchase agreements and other borrowings at December 31, 1997 and 1996, respectively, see note 7. There are no securities of a single issuer (other than securities of the U.S. Government and its agencies) that exceed 10% of shareholdersO equity at December 31, 1997 or 1996. In November, 1995 the Financial Accounting Standards Board published A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities (Guide). Concurrent with the initial adoption of the Guide, but no later than December 31, 1995, the Corporation was permitted to reassess the appropriateness of the classifications of all securities held at that time and implement reclassifications without calling into question the intent of the Corporation to hold other debt securities to maturity in the future. Effective December 1, 1995 the Corporation transferred securities with amortized costs of $10,505,646 from the held to maturity portfolio to the available for sale portfolio. The net unrealized gain was $154,557. The transferred securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders' equity, net of related taxes. During 1997, the Bank declared a special dividend payable to the Corporation for the purpose of funding equity investments in Southern Tier Business Development, LLC and Cephas Capital Partners, LP. These small investment companies ("SBIC's") were established for the purpose of providing financing to small businesses in areas served, including minority- owned small businesses and those that will create jobs for the low to moderate income levels in the targeted areas. These investments, totaling $844,875, are included in other assets under the equity method of accounting. (4) Loans and Allowance for Loan Losses
The composition of the loan portfolio is summarized as follows: December 31, 1997 1996 Residential mortgages $ 73,756,609 69,440,000 Commercial mortgages 5,996,380 8,959,555 Commercial, financial and agricultural102,402,506 92,467,486 Leases 413,487 89,758 Consumer loans 114,592,615 113,003,980 Net deferred fees and unearned income(184,828) (239,798) $ 296,976,769 283,720,981
During 1997, 1996 and 1995, the Corporation sold $3,299,607, $3,191,711 and $2,794,848, respectively, of education loans at par to the Student Loan Marketing Association. The CorporationOs market area encompasses the New York State counties of Chemung, Steuben, Schuyler and Tioga. Substantially all of the CorporationOs outstanding loans are with borrowers living or doing business within 25 miles of the branches in these counties. The CorporationOs concentrations of credit risk are reflected in the preceding table. The concentrations of credit risk with standby letters of credit, committed lines of credit and commitments to originate new loans, generally follow the loan classifications in the schedule. Other than general economic risks, management is not aware of any material concentrations of credit risk to any industry or individual borrower. The principal balances of loans not accruing interest totaled $929,697 and $1,493,607 at December 31, 1997 and 1996, respectively. There were no loans with modified payment terms because of the borrowersO financial difficulties at December 31, 1997 and 1996. The effect of nonaccrual loans on interest income for the years ended December 31, 1997, 1996 and 1995 was not material. The Bank is not committed to advance additional funds to these borrowers. Other real estate owned at December 31, 1997 amounted to $595,127 and at December 31, 1996, amounted to $271,331. Transactions in the allowance for loan losses for the years ended December 31, 1997, 1996 and 1995 were as follows:
1997 1996 1995 Balances at January 1 $ 3,975,000 3,900,000 3,599,968 Provision charged to operations 850,100 741,662 564,380 Loans charged off (770,389) (754,360) (373,261) Recoveries 90,711 87,698 108,913 $ 4,145,422 3,975,000 3,900,000
At December 31, 1997 and 1996, the recorded investment in loans that are considered to be impaired totaled $951,007 and $1,700,600 respectively. Included in the 1997 amount are impaired loans of $707,404 for which the related allowance for loan losses is $238,934 and $243,603 of impaired loans with no related allowance for loan losses. The 1996 amount includes $798,702 in impaired loans with a related allowance for loan losses of $340,949 and $901,898 with no related allowance. The average recorded investment in impaired loans during 1997, 1996 and 1995 was $1,201,217, $1,620,774 and $722,055 respectively. The effect on interest income for impaired loans was not material to the consolidated financial statements in 1997, 1996 or 1995. (5) Premises and Equipment Premises and equipment at December 31, 1997 and 1996 are as follows:
1997 1996 Land $ 2,106,408 2,106,408 Buildings 11,250,664 10,166,115 Equipment and furniture 12,843,138 12,003,849 Leasehold improvements 399,534 399,534 26,599,744 24,675,906 Less accumulated depreciation 16,380,701 14,963,273 $ 10,219,043 9,712,633
(6) Deposits Interest-bearing deposits include certificates of deposit in denominations of $100,000 or more aggregating $31,014,878 and $36,770,362 at December 31, 1997 and 1996, respectively. Interest expense on such certificates was $2,279,576, $2,215,271, and $1,057,353 for 1997, 1996 and 1995, respectively. Scheduled maturities of certificates of deposit at December 31,1997 are summarized as follows:
Time Certificates of Deposit 1998 $119,945,280 1999 29,605,998 2000 17,189,754 2001 3,528,508 2002 3,521,852 2003 and thereafter 10,000 $173,801,392
(7) Securities Sold Under Agreements to Repurchase The agreements have maturities of 2 to 350 days at December 31, 1997 and 2 days at December 31, 1996, and a weighted average interest rate of 5.17% at December 31, 1997 and 6.04% at December 31, 1996. The maximum amounts outstanding at any one month-end and average amount under these agreements during 1997 were $16,482,934 and $13,502,272, respectively. The maximum amounts outstanding at any one month-end and average amount under these agreements during 1996 were $15,953,161 and $12,270,169, respectively. (8) Federal Home Loan Bank Advances Federal Home Loan Bank advances at December 31, 1997, consisted of a $10,000,000, 6.18%, two year advance with a maturity date of October 16, 1998 and a $6,300,000, 6.125%, two day advance with a maturity date of January 2, 1998. (9) Income Taxes Total income taxes for the years ended December 31, 1997, 1996 and 1995 were allocated as follows:
1997 1996 1995 Income before income taxes $ 3,666,899 3,266,662 2,859,476 Shareholders' equity for change in unrealized gain (loss) on securities833,553 (312,318) 2,645,891 $ 4,500,452 2,954,344 5,505,367
For the years ended December 31, 1997, 1996 and 1995, income tax expense attributable to income from operations consists of:
1997 1996 1995 Current: State $ 871,137 792,674 646,080 Federal 3,056,695 2,861,236 2,381,973 3,927,832 3,653,910 3,028,053 Deferred (260,933) (387,248) (168,577) $ 3,666,899 3,266,662 2,859,476
Income tax expense differed from the amounts computed by applying the U.S. Federal statutory income tax rate to income before income taxes as follows:
1997 1996 1995 Tax computed at statutory rate $ 3,578,200 3,204,223 2,876,865 Tax exempt interest (499,677) (465,955) (486,208) Dividend exclusion (50,369) (34,151) (33,594) State taxes, net of federal benefit 549,418 476,584 408,610 Nondeductible interest expense 66,403 52,262 55,582 Other items, net 22,924 33,699 38,221 Actual tax expense $ 3,666,899 3,266,662 2,859,476
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1997 and 1996 are presented below:
1997 1996 Deferred tax assets: Allowance for loan losses-book$ 1,655,682 1,593,518 Accrual for postretirement benefits other than pensions 780,350 767,119 Deferred loan fees 68,714 84,760 Deferred compensation and directors fees584,019 500,728 Pensions 176,320 126,499 Other 114,608 135,360 Total gross deferred tax assets $ 3,379,693 3,207,984 Deferred tax liabilities: Bond discount 72,508 22,409 Depreciation 349,554 421,097 Allowance for loan losses-tax 233,040 300,738 Net unrealized gains on securities3,046,970 2,213,417 Other 22,383 22,465 Total gross deferred tax liabilities 3,724,455 2,980,126 Net deferred tax asset (liability)$ (344,762) 277,858
Realization of deferred tax assets is dependent upon the generation of future taxable income or the existence of sufficient taxable income within the carryback period. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. In assessing the need for a valuation allowance, management considers the scheduled reversal of the deferred tax liabilities, the level of historical taxable income and projected future taxable income over the periods in which the temporary differences comprising the deferred tax assets will be deductible. Based on its assessment, management determined that no valuation allowance is necessary. (10) Pension Plan The Bank has a noncontributory defined benefit pension plan covering substantially all employees. The plan's defined benefit formula generally bases payments to retired employees upon their length of service multiplied by a percentage of the average monthly pay over the last five years of employment. The following table sets forth the plan's funded status and amounts recognized in the Corporation's consolidated balance sheets at December 31, 1997 and 1996:
1997 1996 Actuarial present value of accumulated benefit obligation, including vested benefits of $10,458,070 and $9,493,865 in 1997 and 1996 respectively $ (10,676,065) (9,666,905) Projected benefit obligation for service rendered to date (13,370,944) (11,881,414) Plan assets at fair value 16,777,650 15,036,423 Excess of plan assets over the projected benefit obligation 3,406,706 3,155,009 Unrecognized net obligation 699,678 769,566 Unrecognized net gain (4,867,446) (4,623,648) Unrecognized prior service cost 513,381 556,163 Prepaid (accrued) pension cost$ (247,681)(142,910)
Net periodic pension cost included the following components:
Years ended December 31, 1997 1996 1995 Service cost - benefits earned during the year $ 324,126 346,403 293,048 Interest cost on projected benefit obligation 872,423 825,891 798,518 Actual return on plan assets (2,346,488) (1,459,973) (2,436,581) Net amortization and deferral 1,254,710 458,091 1,542,093 Net periodic pension cost$ 104,771 170,412 197,078
Assumptions used in determining pension amounts are as follows:
1997 1996 Discount rate for benefit obligations 7.0% 7.5% Rate of increase in compensation levels 5.0 5.0 Expected long-term rate of return on assets8.5 8.5
The planOs assets at December 31, 1997 and 1996 are invested in common and preferred stocks, U.S. Government securities, and corporate bonds and notes, and mutual funds. The Bank also sponsors a defined contribution profit sharing, savings and investment plan which covers all employees with a minimum of 1,000 hours of annual service. The Bank matches at the rate of 50% of the first 6% of an eligible employeeOs current earnings. Expense under the plan totaled $591,669, $550,854, and $499,343 for the years ended December 31, 1997, 1996 and 1995, respectively. (11) Other Postretirement Benefit Plans The Bank sponsors a defined benefit health care plan that provides postretirement medical, dental and prescription drug benefits to full-time employees who meet minimum age and service requirements. Postretirement life insurance benefits are also provided to certain employees who retired prior to July 1981. The plan is contributory, with retiree contributions adjusted annually, and contains other cost sharing features such as deductibles and coinsurance. The accounting for the plan anticipates future cost-sharing changes to the written plan that are consistent with the BankOs expressed intent to increase the retiree contribution rate annually for the expected general inflation rate for that year. The BankOs policy is to fund the cost of medical benefits in amounts determined at the discretion of management. The following table presents the planOs funded status reconciled with amounts recognized in the CorporationOs consolidated balance sheet at December 31, 1997 and 1996:
1997 1996 Accumulated postretirement benefit obligation: Retirees $(1,062,000) (965,000) Fully eligible active plan participants (156,000) (86,000) Other active plan participants(630,000) (577,000) (1,848,000) (1,628,000) Unrecognized net (gain) (173,673) (264,822) Accrued postretirement benefit cost included in other liabilities $(2,021,673) (1,892,822)
Net periodic postretirement benefit cost included the following components:
Years ended December 31 1997 1996 1995 Service cost $ 40,000 42,000 75,728 Interest cost 117,000 112,000 127,308 Net amortization and deferral (7,000) - - Net periodic postretirement benefit cost$ 150,000 154,000 203,036
For measurement purposes, a 10.5% and 8.5% annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) for non medicare and medicare, respectively, was assumed for 1997; the rate was assumed to decrease gradually to 5.5% by the year 2005 and remains at that level thereafter. A 1% increase in the trend rate for all future years does not have a material effect on the obligation. The weighted-average discount rate used in determining the accumulated postretirement benefit obligations was 7.0% at December 31, 1997 and 7.5% at December 31, 1996. (12) Related Party Transactions Members of the Board of Directors, certain Bank officers, and their immediate families directly, or indirectly through entities in which they are principal owners (more than a 10% interest), were customers of, and had loans and other transactions with, the Bank in the ordinary course of business. All loans and commitments included in such transactions were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons. These loans and commitments, which did not involve more than normal risk of collectibility or present other unfavorable features, are summarized as follows for the years ended December 31, 1997 and 1996:
1997 1996 Balance at beginning of year $ 8,426,537 8,427,604 Additions 27,755,844 20,889,397 Amounts collected (27,103,467) (20,890,464) Balance at end of year $ 9,078,914 8,426,537
(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, 1997 1996 1995 Stationery and supplies $ 389,139 469,008 437,253 Data processing service 1,358,882 1,155,576 1,245,656 FDIC insurance premiums 70,538 253,220 538,279 Advertising 364,914 448,640 444,637 Amortization of intangible assets 587,303 587,303 587,303
(14) Commitments and Contingencies In the normal course of business, there are outstanding various commitments and contingent liabilities, such as commitments to extend credit, which are not reflected in the accompanying consolidated financial statements. Commitments to outside parties under standby letters of credit, unused portions of lines of credit, and commitments to fund new loans totaled $3,180,233, $88,607,434 and $2,429,427, respectively, at December 31, 1997. Commitments to outside parties under standby letters of credit, unused portions of lines of credit, and commitments to fund new loans totaled $2,751,992, $87,280,030 and $4,684,956, respectively, at December 31, 1996. Because many commitments and almost all letters of credit expire without being funded in whole or in part, the contract amounts are not estimates of future cash flows. Loan commitments have off balance sheet credit risk because only origination fees are recognized in the balance sheet until commitments are fulfilled or expire. The credit risk amounts are equal to the contractual amounts, assuming the amounts are fully advanced and collateral or other security is of no value. The Corporation does not anticipate losses as a result of these transactions. At December 31, 1997, the Corporation had outstanding commitments totaling $1,832,625 to fund equity investments in Small Business Investment Companies. The Bank has employment contracts with certain of its senior officers, which expire at various dates through the year 2001 and may be extended on a year-to-year basis. (15) ShareholdersO Equity Under Federal Reserve regulations, the Bank is limited to the amount it may loan to the Corporation, unless such loans are collateralized by specific obligations. At December 31, 1997, the maximum amount available for transfer from the Bank to the Corporation in the form of loans was $1,660,655. The Bank is subject to legal limitations on the amount of dividends that can be paid to the Corporation. Dividends are limited to retained net profits, as defined by regulations, for the current year and the two preceding years. At December 31,1997, $8,143,853 was available for the declaration of dividends. (16) Parent Company Financial Information Condensed parent company only financial statement information of Chemung Financial Corporation is as follows:
Balance Sheets December 31 1997 1996 Assets: Cash on deposit with subsidiary bank$ 1,883,455 31,318 Investment in subsidiary bank57,824,425 54,801,058 Dividend receivable 641,611 580,220 Securities available for sale1,094,697 1,298,403 Investments in SBIC's 844,875 0 Total assets $ 62,289,063 56,710,999 Liabilities and shareholders' equity: Dividend payable 641,611 580,220 Deferred tax liability 10,275 10,580 Total liabilities 651,886 590,800 Shareholders' equity: Common stock 10,750,335 10,750,335 Surplus 10,101,804 10,101,804 Retained earnings 38,236,025 33,885,269 Treasury stock, at cost (2,032,886) (1,925,118) Net unrealized gain on securities available for sale 4,581,899 3,307,909 Total shareholders' equity61,637,177 56,120,199 Total liabilities and shareholders' equity$ 62,289,063 56,710,999
Statements of Income Years Ended December 31, 1997 1996 1995 Income: Interest and dividends $ 111,341 14,378 23,031 Gain on sale of securities 28,981 35,538 112,500 Dividends from subsidiary bank 5,006,464 3,203,223 2,045,513 Income before equity in undistributed earnings of subsidiary bank 5,146,786 3,253,139 2,181,044 Equity in undistributed earnings of subsidiary bank 1,749,017 2,922,189 3,472,647 Income before income taxes 6,895,803 6,175,328 5,653,691 Income taxes 38,583 17,805 51,799 Net Income $ 6,857,220 6,157,523 5,601,892
Statements of Cash Flows
December 31, 1997 1996 1995 Cash flows from operating activities: Net income $ 6,857,220 6,157,523 5,601,892 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of subsidiary (1,749,017) (2,922,189) (3,472,647) (Increase) decrease in dividend receivable (61,391) (59,738) 1,135,565 Gain on sale of securities, net(28,981) (35,538) (112,500) Decrease in payable to Owego shareholders - - (1,164,883) Net cash provided by operating activities5,017,831 3,140,038 1,987,427 Cash flows from investing activities: Proceeds from sales of securities available for sale 232,023 151,738 215,628 Investments in SBIC's (844,875) - - Purchases of securities available for sale - (1,000,000) - Net cash provided (used) by investing activities (612,852) (848,262) 215,628 Cash flows from financing activities: Cash dividends paid (2,445,074) (2,143,465) (1,981,078) Purchases of treasury stock (107,768) (514,599) (299,749) Sale of treasury stock - 202,020 - Net cash used by financing activities (2,552,842) (2,456,044) (2,280,827) Increase (decrease) in cash and cash equivalents 1,852,137 (164,268) (77,772) Cash and cash equivalents at beginning of year 31,318 195,586 273,358 Cash and cash equivalents at end of year $ 1,883,455 31,318 195,586
(17) Fair Values of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and Cash Equivalents For those short-term instruments that generally mature in ninety days or less, the carrying value approximates fair value. Securities Fair values for securities are based on either 1) quoted market prices, 2) dealer quotes, 3) correspondent bank pricing system, or 4) discounted cash flow to maturity. Loans Receivable For variable-rate loans that reprice frequently, fair values are based on carrying values. The fair values for other loans are estimated through discounted cash flow analyses using interest rates currently being offered for loans with similar terms and credit quality. Deposits The fair values disclosed for demand deposits, savings accounts and money market accounts are, by definition, equal to the amounts payable on demand at the reporting date (i.e., their carrying values). The fair value of fixed maturity certificates of deposits is estimated using a discounted cash flow approach that applies interest rates currently being offered on certificates to a schedule of weighted average expected monthly maturities on time deposits. Repurchase Agreements These instruments bear both variable and stated rates of interest. Therefore, the carrying value approximates fair value for the variable rate instruments and stated rate instruments are based on a discounted cash flow to maturity. Federal Home Loan Bank Advances These instruments bear a stated rate of interest to maturity and therefore the fair value is based on a discounted cash flow to maturity. Commitments to Extend Credit The fair value of commitments to extend credit are based on fees currently charged to enter into similar agreements, the counter party's credit standing and discounted cash flow analysis. The fair value of these commitments to extend credit approximates the recorded amounts of the related fees and is not material at December 31, 1997 and 1996. Interest Receivable and Payable For these short term instruments the carrying value approximates fair value. The estimated fair value of the CorporationOs financial instruments as of December 31, 1997 and 1996 are as follows (dollars in thousands):
1997 1996 Carrying Fair Carrying Fair Amount Value (1) Amount Value (1) Financial assets: Cash and cash equivalents $ 32,997 32,997 31,103 31,103 Interest bearing deposits 1,421 1,421 152 152 Federal funds sold - - 500 500 Securities 194,527 194,527 195,717 195,717 Interest receivable 3,911 3,911 3,905 3,905 Net loans 292,831 294,877 279,746 281,965 Financial liabilities: Deposits: Demand, savings, NOW and money market accounts$ 277,243 277,243 264,641 264,641 Time certificates173,801 174,394 175,008 175,293 Interest payable 1,191 1,191 1,153 1,153 Repurchase agreements9,448 9,475 14,371 14,371 Federal Home Loan Bank advances 16,300 16,345 10,000 10,034 (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 Corporation and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory -- and possibly additional discretionary -- actions by regulators that, if undertaken, could have a direct material effect on the consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of December 31, 1997, that the Corporation and the Bank meet all capital adequacy requirements to which they are subject. As of December 31, 1997, the most recent notification from the Federal Reserve Bank of New York categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized well capitalized the Bank must maintain minimum total risk-based, Tier 1 risk based, Tier 1 leverage ratios set forth in the table. There are not conditions or events since that notification that management believes have changed the bank's category. The actual capital amounts and ratios of the Corporation and the Bank are also presented in the following table:
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions Amount Ratio Amount Ratio Amount Ratio As of December 31, 1997 Total Capital (to risk weighted assets): Consolidated $ 54,121,84217.44% $ 24,824,997 8.00% N/A N/A Subsidiary $ 50,300,61716.31% $ 24,669,976 8.00% $ 30,837,470 10.00% Tier 1 Capital (to risk weighted assets): Consolidated $ 50,239,64616.19% $ 12,412,499 4.00% N/A N/A Subsidiary $ 46,442,34415.06% $ 12,334,988 4.00% $ 18,502,482 6.00% Tier 1 Capital (to average assets): Consolidated $ 50,239,646 9.49% $ 15,875,493 3.00% N/A N/A Subsidiary $ 46,442,344 8.80% $ 15,837,213 3.00% $ 26,395,355 5.00% As of December 31, 1996 Total Capital (to risk weighted assets): Consolidated $ 49,048,78116.87% $ 23,265,476 8.00% N/A N/A Subsidiary $ 47,729,55116.49% $ 23,162,443 8.00% $ 28,953,054 10.00% Tier 1 Capital (to risk weighted assets): Consolidated $ 45,409,35615.61% $ 11,632,738 4.00% N/A N/A Subsidiary $ 44,106,02615.23% $ 11,581,222 4.00% $ 17,371,832 6.00% Tier 1 Capital (to average assets): Consolidated $ 45,409,356 8.97% $ 15,186,375 3.00% N/A N/A Subsidiary $ 44,106,026 8.72% $ 15,173,735 3.00% $ 25,289,558 5.00%
EX-21 3 EXHIBIT E CHEMUNG FINANCIAL CORPORATION Subsidiary List Name State of Incorporation Chemung Canal Trust Company New York EX-22 4 10 EXHIBIT F NOTICE OF ANNUAL MEETING, PROXY STATEMENT DATED APRIL 2, 1998, AND PROXY FORM Notice of 1998 Annual Meeting and Proxy Statement April 2, 1998 Dear Shareholder: You are cordially invited to attend the Annual Meeting of Shareholders to be held on Wednesday, May 13, 1998, at 7:00 p.m., local time, at the Elmira Holiday Inn, in the City of Elmira, New York. Following the meeting, desserts, coffee, tea and other refreshments will be served. The three items on the agenda requiring Shareholders' vote will be (1) to elect seven directors - the candidates nominated for three-year terms, all currently serving, are: John W. Bennett, Robert H. Dalrymple, Frederick Q. Falck, Ralph H. Meyer, Samuel J. Semel, Richard W. Swan and William A. Tryon, (2) to vote on a proposal to amend the corporation's certificate of incorporation to increase the number of authorized shares of common stock and to reduce the par value of such stock, and (3) to vote on a proposal to adopt the Chemung Canal Trust Company Deferred Directors Fee Plan. The attached Proxy Statement sets forth in detail information relating to the proposals, the nominated candidates and those directors continuing in office, and additional information relating to the management of the corporation. In addition to the above-noted election, we will review our financial performance for the past year and discuss our plans for 1998. It is important that you be represented at the meeting whether or not you plan to attend in person. Accordingly, we urge you to mark, sign and date the proxy card enclosed in the mailing envelope sleeve and return it in the envelope provided. Also, if you plan to attend the meeting, please mark the proxy card where indicated and include the number in your group. Your directors and management look forward to seeing you on May 13. /s/ Jan P. Updegraff Jan P. Updegraff President and Chief Executive Officer One Chemung Canal Plaza P.O. Box 1522 Elmira, New York 14902 Parent Company of Chemung Canal Trust Company NOTICE OF ANNUAL MEETING OF SHAREHOLDERS As directed by the Board of Directors of Chemung Financial Corporation, NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of the Corporation will be held at the Elmira Holiday Inn, One Holiday Plaza, 760 East Water Street, Elmira, New York, on Wednesday, May 13, 1998, at 7:00 p.m. for the following purposes: to elect seven (7) directors, each to hold office for a term of three years and until their respective successors have been elected and qualified; to consider a proposal to amend the corporation's certificate of incorporation to increase the number of authorized shares of common stock and to reduce the par value of such stock; to consider a proposal to adopt the Chemung Canal Trust Company Deferred Directors Fee Plan; and to transact such other business as may properly come before the meeting or any adjournments thereof. The Board of Directors has fixed the close of business on April 1, 1998 as the record date for determination of Shareholders entitled to notice of and to vote at this meeting. Shareholders are requested to date, sign and mail the enclosed proxy in the envelope provided at their earliest convenience. A prompt response will be appreciated and will save the Corporation additional time and expense. BY ORDER OF THE BOARD OF DIRECTORS Robert J. Hodgson Secretary April 2, 1998 CHEMUNG FINANCIAL CORPORATION ONE CHEMUNG CANAL PLAZA, P.O. BOX 1522, ELMIRA, NEW YORK PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS, MAY 13, 1998 Chemung Financial Corporation and its wholly-owned subsidiary, Chemung Canal Trust Company, are incorporated under the laws of the State of New York. For purposes of this proxy statement, unless otherwise stated, financial and other information is presented on a consolidated basis for Chemung Financial Corporation ("Corporation") and Chemung Canal Trust Company ("Bank"). This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors for use at the Annual Meeting of Shareholders (the "Annual Meeting") of Chemung Financial Corporation to be held on Wednesday, May 13, 1998, at 7:00 p.m., local time, at the Elmira Holiday Inn, One Holiday Plaza, 760 East Water Street, Elmira, New York. This Proxy Statement and the accompanying Proxy and Notice of Annual Meeting of Shareholders are being mailed to Shareholders on or about April 2, 1998. A Shareholder granting a proxy has the right to revoke it by a duly executed Proxy bearing a later date, by attending the Annual Meeting and voting in person, or by otherwise notifying the Secretary of the Corporation in writing prior to the Annual Meeting. Only Shareholders of record at the close of business on April 1, 1998 are entitled to receive notice of and to vote at the Annual Meeting. As of March 16, 1998, there were 2,061,738 shares of Common Stock outstanding and entitled to vote. Each share of Common Stock is entitled to one vote. There are no cumulative voting rights. Nominees for director will be elected by a plurality of votes cast at the Annual Meeting by holders of Common Stock present in person or by proxy and entitled to vote on such election. Any other matter requires the affirmative vote of a majority of votes cast at the meeting, except as otherwise provided in the Corporation's Certificate of Incorporation or By-laws. Only shares affirmatively voted in favor of a nominee will be counted toward the achievement of a plurality. Votes withheld (including non-broker votes) and abstentions are counted as present for the purpose of determining a quorum but are not counted as votes cast. The cost of soliciting proxies will be borne by the Corporation and the Bank. In addition to solicitations by mail, some of the directors, officers, and regular employees of the Corporation and the Bank may conduct additional solicitations by telephone and personal contacts without remuneration. American Stock Transfer & Trust Company, the Corporation's transfer agent, will aid the Corporation in the solicitation of proxies and proxy vote tabulations. Nominees, brokerage houses, custodians and fiduciaries will be requested to forward soliciting material to beneficial owners of stock held of record and the Corporation will reimburse such persons for their reasonable expenses. ACTION TO BE TAKEN UNDER PROXY: It is proposed that at the Annual Meeting action will be taken on the matters set forth in the accompanying Notice of Annual Meeting and described in this Proxy Statement. Proxies returned by Shareholders and not revoked will be voted for the election of the nominees for directors, for the proposal to amend the Corporation's Certificate of Incorporation to increase the number of authorized shares of common stock and to reduce the par value of such stock and for the proposal to adopt the Chemung Canal Trust Company Deferred Directors Fee Plan unless Shareholders instruct otherwise on the Proxy. A Shareholder granting a proxy has the right to revoke it by filing with the Secretary of the Corporation prior to the time such proxy is voted a duly executed proxy bearing a later date, by attending the Annual Meeting and voting in person, or by otherwise notifying the Secretary of the Corporation in writing of such Shareholder's intention to revoke such proxy prior to the time such proxy is voted. The Board of Directors does not know of any other business to be brought before the Annual Meeting, but it is intended that, as to any such other business, a vote may be cast pursuant to the Proxy in accordance with the judgment of the person or persons acting thereunder. Should any nominee for the office of director become unable to accept nomination or election, which is not anticipated, it is intended that the persons acting under the Proxy will vote for the election in the stead of such nominee of such other person as the Board of Directors may recommend. BOARD OF DIRECTORS: Nominees For Election as Directors Those persons serving as directors of the Corporation and the Bank, being the same individuals, normally serve three-year terms of office, with approximately one-third of the total number of each such Board of Directors to be elected at each Annual Meeting of each such entity. The number of directors to be elected at the 1998 Annual Meeting of Shareholders is seven (7) for three-year terms, each to serve for such term and until their respective successors are elected and qualified. The following table sets forth information concerning the nominees for election as directors and each director continuing in office:
John W. Bennett Since 1988 Chairman of the Board of the Corporation Age 64 and Bank; formerly President and Chief Executive Officer of the Corporation and Bank; also a director of Hardinge Inc. Robert H. Dalrymple Since 1995 Secretary of Dalrymple Holding Age 47 Corporation, a parent company for several construction companies. Length of Principal Occupation During Name and Age Service Past 5 Years As Director NOMINEES WITH TERMS EXPIRING IN 2001 (continued) Frederick Q. Falck Since 1997 President of L.M. Trading Company, an Age 49 agricultural investment corporation; Vice President of Arnot Realty Corporation; Chairman of The Rathbone Corporation; President of the US Foundation of the Universidad del Valle de Guatemala and board member since 1986; Treasurer of the Escuela Agricula Panamerica, an agricultural college in Honduras and Board member since 1990. Ralph H. Meyer Since 1985 President and Chief Executive Officer of Age 58 Guthrie Healthcare System, a vertically integrated health care delivery system. Samuel J. Semel Since 1993 President of Chemung Electronics, Inc., Age 71 an electronic and computer consulting firm. Richard W. Swan Since 1985 President of Swan & Sons-Morss Co., Inc., Age 49 an insurance brokerage agency. William A. Tryon Since 1987 Chairman of the Board and Chief Executive Age 67 Officer of Trayer Products, Inc., an automotive, truck and other industrial parts manufacturer; President of Perry & Carroll, Inc., an insurance brokerage agency; formerly a director of the Bank from 1964 to 1976. DIRECTORS CONTINUING IN OFFICE WITH TERMS EXPIRING IN 1999 Robert E. Agan Since 1986 Chairman of the Board, Chief Executive Age 59 Officer and President of Hardinge Inc., a world-wide machine tool manufacturer. Donald L. Brooks, Since 1985 Retired physician. Jr. Age 69 Stephen M. Since 1995 President of Applied Technology Lounsberry III Manufacturing Corporation since July 17, Age 44 1996, a manufacturer of railroad lubrication systems; formerly President of Moore & Steele Corporation. Length of Principal Occupation During Name and Age Service Past 5 Years As Director DIRECTORS CONTINUING IN OFFICE WITH TERMS EXPIRING IN 1999 (continued) Thomas K. Meier Since 1988 President of Elmira College. Age 57 Charles M. Since 1985 President of Streeter Associates, Inc., a Streeter, Jr. general building contractor. Age 58 Nelson Mooers van Since 1985 Chairman of the Board, Chief Executive den Blink Officer and Treasurer of The Hilliard Age 63 Corporation, a motion control equipment, oil reclaimer and filter manufacturer. DIRECTORS CONTINUING IN OFFICE WITH TERMS EXPIRING IN 2000 David J. Dalrymple Since 1993 President of Dalrymple Holding Age 44 Corporation, parent company for several construction companies. Richard H. Evans Since 1985 Retired since January 1, 1995; formerly Age 67 Chairman of the Board & Chief Executive Officer of Chas. F. Evans Co., Inc., specialists in commercial roofing. Edward B. Hoffman Since 1993 Partner with Sayles, Evans, Brayton, Age 66 Palmer & Tifft law firm. John F. Potter Since 1991 President of Seneca Beverage Corporation, Age 52 a wholesale distributor of beer, water and soda products. William C. Ughetta Since 1985 Senior Vice President and former General Age 65 Counsel of Corning Incorporated, a diversified manufacturing company. Jan P. Updegraff Since 1996 President and Chief Executive Officer of Age 55 the Corporation and Bank; formerly Vice President and Treasurer of the Corporation and Chief Operating Officer and Executive Vice President of the Bank.
PROPOSAL TO AMEND THE CORPORATION'S CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK AND TO REDUCE THE PAR VALUE OF SUCH STOCK The Corporation's Certificate of Incorporation currently authorizes the issuance of three million (3,000,000) shares of Common Stock, with a par value of five dollars ($5.00) per share. The Board of Directors on March 11, 1998 unanimously adopted a resolution proposing that the Certificate of Incorporation be amended to increase the authorized number of shares of Common Stock to ten million (10,000,000), subject to shareholder approval of the amendment. The Board of Directors has also unanimously approved a change in the par value of the Common Stock from $5.00 per share to $0.01 per share. The purpose of reducing the par value is to reduce the amount of New York State franchise taxes to be paid by the Corporation upon the increase in the number of authorized shares. Under applicable New York State franchise tax law, the Corporation must pay a one-time tax of one-twentieth of one percent on the amount of the par value of the shares that are proposed to be newly authorized. Reducing the par value of the Common Stock as proposed will reduce this tax by approximately $17,000. The reduction in the par value per share of the Common Stock from $5.00 per share to $0.01 per share will not affect the Corporation's total authorized Common Stock. The reduction in par value will reduce the par value of the Corporation's Common Stock account and increase the accumulated paid-in capital account by the same amount. The overall stock equity balance will not change. Par value is an arbitrary number that has no correlation with the actual value of a corporation's common equity. The recommended change would not change either the aggregate market or book value of shareholder common equity. The change in par value represents an accounting change that brings the par value of the Common Stock to a level similar to that of many other publicly traded companies. Proposed Amendment to Certificate of Incorporation The Board of Directors has adopted resolutions setting forth (i) the proposed amendment to paragraph 4 of the Corporation's Certificate of Incorporation (the "Amendment"); (ii) the advisability of the Amendment; and (iii) a call for submission of the Amendment for approval by the Corporation's shareholders at the meeting. The following is the text of paragraph 4 of the Certificate of Incorporation of the Corporation, as proposed to be amended: The aggregate number of shares which the Corporation shall have the authority to issue is: Ten Million (10,000,000), all of which shall be common shares of the par value of one cent ($0.01) each. Purpose and Effect of the Proposed Amendment As of April 1, 1998, the Corporation had 2,061,738 shares of Common Stock outstanding. Based upon the number of outstanding shares of Common Stock, the Corporation currently has 938,262 shares remaining available for other purposes. The Board of Directors believes that it is in the Corporation's best interest to increase the number of shares of Common Stock that the Corporation is authorized to issue in order to give the Corporation additional flexibility to maintain a reasonable stock price with future stock splits and/or stock dividends. The Board of Directors also believes that the availability of additional authorized but unissued shares will provide the Corporation with the flexibility to issue Common Stock for other proper corporate purposes which may be identified in the future, such as to raise equity capital, to adopt additional employee benefit plans or reserve additional shares for issuance under such plans, and to make acquisitions through the use of stock. The Board of Directors believes that the proposed increase in the authorized Common Stock will make available sufficient shares for use should the Corporation decide to use its shares for one or more of such previously mentioned purposes or otherwise. No additional action or authorization by the Corporation's shareholders would be necessary prior to the issuance of such additional shares, unless required by applicable law or the rules of any stock exchange or national securities association trading system on which the Common Stock is then listed or quoted. The Corporation reserves the right to seek a further increase in authorized shares from time to time in the future as considered appropriate by the Board of Directors. Under the Corporation's Certificate of Incorporation, the Corporation's shareholders do not have preemptive rights with respect to Common Stock. Thus, should the Board of Directors elect to issue additional shares of Common Stock, existing shareholders would not have any preferential rights to purchase such shares. In addition, if the Board of Directors elects to issue additional shares of Common Stock, such issuance could have a dilutive effect on the earnings per share, voting power and shareholdings of current shareholders. The proposed amendment to increase the authorized number of shares of Common Stock could, under certain circumstances, have an anti-takeover effect, although this is not the intention of this proposal. For example, in the event of a hostile attempt to take over control of the Corporation, it may be possible for the Corporation to endeavor to impede the attempt by issuing shares of the Common Stock, thereby diluting the voting power of the other outstanding shares and increasing the potential cost to acquire control of the Corporation. The Amendment therefore may have the effect of discouraging unsolicited takeover attempts. By potentially discouraging initiation of any such unsolicited takeover attempt, the proposed Amendment may limit the opportunity for the Corporation's shareholders to dispose of their shares at the higher price generally available in takeover attempts or that may be available under a merger proposal. The proposed amendment may have the effect of permitting the Corporation's current management, including the current Board of Directors, to retain its position, and place it in a better position to resist changes that shareholders may wish to make if they are dissatisfied with the conduct of the Corporation's business. However, the Board of Directors is not aware of any attempt to take control of the Corporation and the Board of Directors has not presented this proposal with the intent that it be utilized as a type of anti-takeover device. Vote Required The affirmative vote of a majority of the outstanding shares of common stock entitled to vote at the annual meeting is required for approval of this proposal. YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL. PROPOSAL TO ADOPT THE CHEMUNG CANAL TRUST COMPANY DEFERRED DIRECTORS FEE PLAN The Bank's Deferred Directors Fee Plan (the "Plan"), attached herein as Appendix A, enables the Bank's directors to defer all or any portion of the fees ("Fees") payable on account of their service as directors. The Fees include both the annual retainer fee and fees payable on account of attendance at various committee meetings held throughout the year. Participating directors may elect to allocate their deferred Fees to the Memorandum Money Market Account, the Memorandum Unit Value Account or any combination of the two. Deferrals to the Memorandum Money Market Account obtain interest equal to the Applicable Federal Rate for short-term debt as published by the Internal Revenue Service. Interest is added to each Director's balance on a quarterly basis. Fees deferred to the Memorandum Unit Value Account are expressed in units, the number of which units is determined by dividing the Fees so allocated by the closing price of the Corporation's common stock ("Market Value") on the last trading day of each quarter. Subsequent dividends paid by the Corporation increase the number of units in each account by the equivalent of the Market Value of the Corporation's common stock as of the dividend date. The number of units is also adjusted in the event of stock dividends, stock splits or other similar recapitalizations effected by the Corporation. Fees deferred under the Plan are payable at the election of a participating director, at a specified age or time, upon the termination of the director's services as a director. Notwithstanding the above, payments to directors must commence not later than the year in which the director obtains the age of 72. Deferred Fees may be paid in either one installment or in a number of installments, as elected by the director. The value of a director's Memorandum Money Market Account must be paid in cash. All amounts represented by the Memorandum Unit Value Account shall be paid only in shares of the Corporation's common stock (except fractional shares which shall be paid in cash). Deferred Fees are accounted for as a general unfunded liability of the Bank and Corporation. Participating directors have neither a claim nor security interest against any asset of the Bank on account of such deferred Fees. The Plan, first approved on April 13, 1977, was amended, effective October 1, 1997 to require that Fees deferred into units of the Corporation's common stock be paid only in shares of the Corporation. Formerly, stock units were settled in cash. As of October 1, 1997, the value of deferrals represented by the Memorandum Unit Value Account may not be reallocated to the Memorandum Money Market Account. Vote Required The affirmative vote of a majority of the outstanding shares of common stock entitled to vote at the Annual Meeting is required for approval of this proposal. YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS: The following table sets forth information, as of January 31, 1998, with respect to any person who is known by the Corporation to be the beneficial owner of more than five percent of the Corporation's Common Stock:
Name and Address of Number of Shares of Percent of Shares Beneficial Owner Common Outstanding Stock Beneficially Owned Chemung Canal Trust 376,2581 18.2% Company One Chemung Canal Plaza Elmira, NY 14902 Chemung Canal Trust Company 227,1152 11% Profit-Sharing, Savings and Investment Plan One Chemung Canal Plaza Elmira, NY 14902 David J. Dalrymple 274 Upper Coleman 308,7783, 5 15.0%6 Avenue Elmira, NY 14905 Robert H. Dalrymple 875 Upland Drive 297,6624, 5 14.4%6 Elmira, NY 14905
1 Held by the Bank in various fiduciary capacities, either alone or with others. Includes 25,613 shares held with sole voting and dispositive powers, 350,645 shares held with shared power to vote and 184,717 shares held with shared dispositive power. Shares held in a co-fiduciary capacity by the Bank are voted by the co-fiduciary or fiduciaries in the same manner as if the co-fiduciary or fiduciaries were the sole fiduciary. Shares held by the Bank as sole trustee are voted by the Bank only if the trust instrument provides for voting of the shares at the direction of the donor or a beneficiary and such direction is in fact received. 2 Voted by the Bank as trustee as directed by the Plan participants. 3 Includes 43,461 shares held directly, 1,904 shares held as custodian for Mr. Dalrymple's children under the New York State Uniform Gifts to Minors Act, 224,255 shares held by Dalrymple Family Limited Partnership of which David J. Dalrymple and Robert H. Dalrymple are sole general partners (see footnotes 5 and 6), and 39,158 shares held by Dalrymple Holding Corporation, of which David J. Dalrymple and Robert H. Dalrymple are officers, directors and principal shareholders (see footnote 4). Excludes 1,988 shares held by Mr. Dalrymple's spouse as to which shares Mr. Dalrymple disclaims beneficial ownership. 4 Includes 32,345 shares held directly, 1,904 shares held as custodian for Mr. Dalrymple's children under the New York State Uniform Gifts to Minors Act, 224,255 shares held by Dalrymple Family Limited Partnership of which David J. Dalrymple and Robert H. Dalrymple are sole general partners (see footnotes 5 and 6), and 39,158 shares held by Dalrymple Holding Corporation (see footnote 3). Excludes 1,345 shares held by Mr. Dalrymple's spouse as to which shares Mr. Dalrymple disclaims beneficial ownership. 5 Excludes 15,115 shares held by Susquehanna Supply Company of which David J. Dalrymple and Robert H. Dalrymple each own 23.1% of the outstanding common stock. 6 Because of the definition of "beneficial ownership" under Section 13 of The Exchange Act, and the rules and regulations promulgated thereunder, David and Robert Dalrymple are each listed as beneficial owners of 263,413 of the same shares. Without such multiple counting, David and Robert Dalrymples' total aggregate beneficial ownership is 16.6% of the outstanding shares of Common Stock of the Corporation and if deemed to be a member of a "group" within the meaning of Section 13(d)(3) of The Exchange Act, such group would be deemed to hold said percentage of the outstanding shares of Common Stock of the Corporation. Nothing described herein shall infer or be deemed an admission by such person that such a group exists. SECURITY OWNERSHIP OF MANAGEMENT: As of January 31, 1998, each director or nominee and each Executive Officer named in the Summary Compensation Table herein, individually, and all directors, nominees and Executive Officers as a group beneficially owned Common Stock as reported to the Corporation as of said date as follows (unless otherwise indicated, each of the persons named has sole voting and investment power with respect to the shares listed):
Directors, Nominees and Amount and Percent of Executive Officers Nature Shares Outstanding* of Beneficial Ownership Robert E. Agan 5,789A * John W. Bennett 9,344B * Donald L. Brooks, Jr. 6,895A * David J. Dalrymple 308,778C 15.00%C Robert H. Dalrymple 297,662C 14.04%C Richard H. Evans 9,352 * Frederick Q. Falck 3.06% 63,391A, D Edward B. Hoffman 4,023A * Stephen M. Lounsberry 5,873A * III Thomas K. Meier 2,000 * Ralph H. Meyer 6,466A * John F. Potter * 13,004A, E Samuel J. Semel 6,143A * Charles M. Streeter, 11,659A, * Jr. F Directors, Amount and Percent of Nominees and Nature Shares Outstanding* Executive Officers of Beneficial Ownership Richard W. Swan 19,193G * William A. Tryon 9,332 * William C. Ughetta 12,924A * Jan P. Updegraff 4,055B * Nelson Mooers van den 1,637 * Blink All Directors, Nominees 539,683H 26.18% and Executive Officers as a group (25 persons)
* Unless otherwise noted, less than 1% per individual. A Includes shares that Messrs. Agan (5,339), Brooks (645), Falck (220), Hoffman, (2,272), Lounsberry (1,379), Meyer (3,871), Potter (3,941), Semel (1,511), Streeter (1,446), and Ughetta (2,924) have credited to their accounts the equivalent of that number of shares shown in parenthesis following their names of Common Stock in valuation entry form under the Bank's Deferred Directors Fee Plan. Such deferred fees will be paid solely in shares of the Corporation's Common Stock pursuant to the terms of the Plan and the election of the Plan participants. Said share equivalencies have no voting rights until shares are actually issued to said directors under the terms of the Plan. B Includes all vested shares of Common Stock of the Corporation held for the benefit of each Executive Officer by the Bank as trustee of the Bank's Profit-Sharing, Savings and Investment Plan, who may instruct the trustee as to the voting of such shares. If no instructions are received, the trustee votes the shares in the same proportion as it votes all of the shares for which instructions were received from all Plan participants. The power to dispose of shares is held by Plan participants subject to certain restrictions. Messrs. Bennett and Updegraff have a vested interest in 8,199 and 3,905 such shares held by the Plan, respectively. Under the provisions of the Plan, the trustee holds for the benefit of all employees who participate in the Plan 227,115 shares of the Corporation's Common Stock. C See Footnotes 3 - 6 of the SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS table for further explanation of shares beneficially owned. C Includes shares held in various trusts of which Mr. Falck is a co- trustee or income beneficiary. Excludes 74,280 shares owned by The Rathbone Corporation of which Mr. Falck is an officer, director and co- trustee of various trusts which are shareholders of said corporation. E Includes 6,042 shares owned by Seneca Beverage Corporation, of which corporation Mr. Potter is an officer, director and the principal shareholder. F Includes 5,418 shares owned by Streeter Associates, Inc., of which corporation Mr. Streeter is an officer, director and the principal shareholder. G Includes 5,850 shares owned by Swan & Sons-Morss Co., Inc., of which corporation Mr. Swan is an officer, director and one of the principal shareholders and 210 shares held by Mr. Swan as custodian for his minor children. Does not include 2,158 shares held by others as trustees for a trust of which Mr. Swan is an income beneficiary, as to which shares Mr. Swan disclaims beneficial ownership. H Does not include 14,916 shares owned by spouses of certain officers and directors as to which shares such officers and directors disclaim beneficial ownership and does not include 263,413 shares included under each of David J. Dalrymple and Robert H. Dalrymple (see footnote 6 under SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS). COMPENSATION OF MANAGEMENT: Directors' Personnel Committee Report on Executive Compensation Under the supervision of the Personnel Committee of the Board of Directors composed entirely of outside directors, the Bank has developed and implemented compensation policies which seek to enhance the profitability of the Bank and the Corporation and thus, Shareholder value while at the same time providing fair and competitive compensation which will attract and retain well-qualified executives. Based upon recommendations of the Personnel Committee, the Board of Directors sets the annual compensation of the Chief Executive Officer. The Committee also reviews and recommends to the Board of Directors compensation of other senior management as first recommended by the Chief Executive Officer based upon performance and other relevant factors. Aside from the fringe benefit programs in which all Bank employees participate, compensation of all Bank officers and exempt non-officers consists of an annual salary and a management incentive bonus. The management incentive bonus is subject to the terms and conditions of the Management Incentive Plan adopted by the Board of Directors, which provides for the payment of bonuses to participants in accordance with an allocation formula based in part on the Corporation's attainment of specific operating objectives and in part on a subjective review of the participant's individual performance. Additionally, those officers who play a major role in setting and implementing long-term strategies, currently being the Chairman of the Board and the Chief Executive Officer, may receive a long-term incentive award. Payment of the long-term incentive award will be deferred for three years following the accrual year and may be further deferred at the election of the participant. The incentive bonus may or may not be deferred at the officer's election. For 1997, Messrs. Bennett and Updegraff received incentive bonuses of $40,000 and $20,000, respectively. No long-term awards were issued. Senior Officer participants as a group, including Messrs. Bennett and Updegraff, received incentive bonus awards totaling $287,140 for 1997. In evaluating the performance and recommending the compensation of the Chief Executive Officer and the compensation guidelines for the Bank's other senior management, the Committee has taken particular note of management's ability during 1997 in achieving certain profit, growth, and operational objectives which were established by the Board of Directors in the Bank Plan at the beginning of 1997 and compared the Corporation's financial results against the results reported by similar banks in New York and Pennsylvania. The financial and operational measurements considered by the Board were: net profit, return on assets, return on equity, new market penetration, new product development, cost control, asset growth, non-interest income, asset quality and asset liability management. There is no specific weight given to any of these factors and there is no formula whereby a certain performance will result in a certain salary. The Committee considers total performance and the total financial and operating conditions of the Bank in making its compensation recommendations. Also, in considering the compensation of the Chairman of the Board and Chief Executive Officer, the Committee periodically reviews reports prepared by various organizations which provide comparative information on Executive compensation for a nationwide peer group of independent banks and bank holding companies having similar asset size. From this review it was determined that the performance of the Bank was within the range reported by its peers and that the compensation paid by the Bank was appropriate in comparison to the peer group. In its review of management performance and compensation, the committee has also taken into account management's consistent commitment to the long-term success of the Corporation and Bank. The committee has recognized that profitability in any one year is considerably impacted by the general economic conditions nationally and in its market areas, over which management has little or no control, and the Committee's policy, therefore, is to not over-emphasize, either positively or negatively, a single year's results at the expense of significant, sustained, long-term earnings growth. Based on their evaluation, the Committee believes that the executive management of the Corporation is dedicated to achieving significant improvements in long-term financial performance and that the compensation policies, plans and programs the Committee has implemented and administered have contributed to achieving this management focus.
SUBMITTED BY THE DIRECTORS' PERSONNEL COMMITTEE Thomas K. Meier, Chairman Richard H. Evans William A. Tryon Donald L. Brooks, Jr. Ralph H. Meyer William C. Ughetta David J. Dalrymple Richard W. Swan
Executive Officers During 1997, the names and positions of the executive officers of the Corporation and the Bank, all serving one-year terms, were as follows:
Name Age Position (served since) John W. Bennett 64 Chairman of the Board and Chief Executive Officer of the Corporation and the Bank (1996); formerly President and Chief Executive Officer of the Corporation and the Bank (1991); and prior thereto President and Chief Operating Officer of the Corporation and the Bank (1988). Jan P. Updegraff 55 President and Chief Operating Officer of the Corporation and the Bank (1996); formerly Vice President and Treasurer of the Corporation and Executive Vice President of the Bank (1990). Daniel F. Agan1 64 Vice President of the Corporation (1988) and Senior Vice President of the Bank (1984). Robert J. Hodgson 52 Secretary and Corporate Counsel of the Corporation and the Bank (1997); formerly Vice President of the Corporation (1990); and Senior Vice President of the Bank (1988). James E. Corey III 51 Vice President of the Corporation (1993) and Senior Vice President of the Bank (1993). Joseph J. Tascone 50 Vice President of the Corporation and Senior Vice President of the Bank (1995); and prior thereto Vice President of the Bank (1987). Jerome F. Denton 46 Vice President of the Corporation (1997); formerly Secretary (1986); and Senior Vice President of the Bank (1996). 1 Mr. Daniel F. Agan is a brother of Board member, Robert E. Agan.
Executive Compensation The following information indicates compensation paid or accrued by the Bank during 1997 for services rendered by each of the Chief Executive Officer and the highest-paid executive officers of the Corporation and the Bank whose total compensation exceeded $100,000. At present, the officers of the Corporation are not separately compensated for services rendered by them to the Corporation. It presently is contemplated that such will continue to be the policy of the Corporation.
Summary Compensation Table Annual Compensation Name and Principal All Other Position Held Year Salary($ Bonus($)1 Compensation($)2 ) John W. Bennett 1997 209,308 40,000 9,218 Chairman of the Board and Chief 1996 200,308 25,000 8,541 Executive Officer of the Corporation 1995 194,000 18,000 8,418 and the Bank Jan P. Updegraff 1997 128,846 20,000 8,463 President and Chief Operating Officer 1996 114,039 15,000 7,342 of the Corporation and Bank 1995 95,385 15,000 6,660 1 Includes amounts allocated for the year indicated, whether paid or deferred, to such person under the Bank-Wide and Management Incentive Bonus Plans. 2 Includes amounts allocated for the year indicated to such person under the Bank's Profit-Sharing, Savings and Investment Plan.
Pension Plan The Bank maintains a non-contributory, defined benefit Pension Plan trusteed and administered by the Bank. The Plan covers all employees who have attained age 20 with one or more years of service and who have one thousand hours of service during the plan year. Under the Plan, the annual benefit payable to qualifying employees upon their retirement is based on the average of their five highest paid consecutive years out of the last ten calendar years of employment. Normal retirement age under the Plan is 65. The Plan also provides for reduced benefit payments for early retirement following age 55. Compensation under the Plan is limited to all of an employee's salary, wages, or other regular payments from the Bank, excluding bonuses, commissions, overtime pay, or other unusual payments. The Pension Plan provides an annual benefit of 1.2% for each year of credited service to a maximum of 25 years and for each additional year to a maximum of 10 years, 1% times the above average compensation, plus for each year of credited service to a maximum of 35 years, .65% of the above average compensation to the extent it exceeds the average of the taxable wage base in effect under Section 230 of the Social Security Act for each year in the 35 - year period ending with the year in which the participant attains social security retirement age (which base was $29,304 for a participant attaining age 65 in 1997). The Bank made contributions to the Pension Plan totaling $262,200 for 1995. Due to a full funding limitation, the Bank made no contribution to the Pension Plan for the years 1996 and 1997. Additionally, effective January 1, 1994, the Bank established a non- qualified Executive Supplemental Pension Plan designed to provide a benefit which, when added to other retirement income, will ensure the payment of a competitive level of retirement income in order to attract, retain and motivate selected executives of the Bank. From time to time the Board of Directors may select executives as participants in the plan. Currently, Mr. Bennett is the only plan participant. This Plan provides an annual benefit equal to the amount, if any, that the benefit which would have been paid under the terms of the Bank's Pension Plan, computed as if the basic Pension Plan benefit formula administered and payable without regard to the special benefit limitations required to comply with Sections 415, 401(a)(17) and other governing sections of the Internal Revenue Code, exceeds the benefit which is payable to the participant under the terms of the Pension Plan on the date of the participant's termination. The following table sets forth the estimated annual benefits under both plans, based upon a straight-life annuity form of pension, payable on retirement at age 65 by a participating employee, assuming final average earnings as shown. Employees become fully vested following 5 years of service.
Average Annual Annual Benefits upon Retirement with Years of Service Earnings Indicated 20 30 351 $100,000 33,190 48,786 56,083 $120,000 40,590 59,686 68,633 $150,000 51,690 76,036 87,458 $190,000 66,490 97,836 112,558 $200,000 70,190 103,286 118,833 1 Maximum number of years allowed under the terms of the Pension Plan
The previously-noted executive officers of the Corporation and the Bank had the following credited full years of service under the Plan, as of December 31, 1997: John W. Bennett (42) and Jan P. Updegraff (27). Employment Contracts The Bank has employment contracts with twenty of its senior officers, all vice president level and above. The contracts provide that in the event of termination of any of these officers' employment without cause, the officer shall continue to receive his or her salary at the level then existing and the customary fringe benefits which he or she is then receiving for a period ending December 31, 1999, except for Messrs. Corey, Denton, Tascone and Updegraff whose guaranteed terms end December 31, 2000, Mr. Bennett whose guaranteed term ends July 1, 1998 and Mr. Agan whose guaranteed term ends March 1, 1999. The contracts further provide that they may be extended by the Board of Directors on a year-to-year basis and also may be terminated for cause upon thirty days' notice. Other Compensation Agreements The Bank maintains several contributory and non-contributory medical, life and disability plans covering all officers and full-time employees. The Bank does not maintain any stock option, stock appreciation rights or stock purchase or award plans for officers or directors. Comparative Return Performance Graph Comparison of Five-Year Cumulative Total Returns For Fiscal Years Ending December 31, 1993 - 1997 Among Chemung Financial Corporation, CRSP Total Returns Index for NASDAQ Stock Market (US Companies) and NASDAQ - Bank Stocks Index (OMITTED GRAPHIC MATERIAL - SEE APPENDIX)
1992 1993 1994 1995 1996 1997 Chemung Financial 100.0 129. 150. 168.1 213.2 272.38 Corporation 0 23 23 5 1 CRSP NASDAQ 100.0 114. 112. 158.7 195.2 239.50 Composite 0 80 20 0 0 NASDAQ - Bank 100.0 114. 113. 169.2 223.4 377.40 Stocks 0 00 60 0 0
The cumulative total return includes (i) dividends paid and (ii) changes in the share price of the Corporation's Common Stock and assumes that all dividends were reinvested. The above graph assumes that the value of the investment in Chemung Financial Corporation and each index was $100 on December 31, 1992. The CRSP Total Returns Index for NASDAQ Stock Market (US Companies) and Bank Stocks indices were obtained from the Center for Research in Security Prices (CRSP), University of Chicago, Chicago, Illinois. Compensation of Directors and Committee Meetings The Board of Directors of the Corporation held eight (8) regularly scheduled meetings during the year ended December 31, 1997. The Corporation has no standing committees. The Board of Directors of the Bank held twelve (12) regularly scheduled meetings and one special meeting during the year ended December 31, 1997. Among its standing committees, the Board of Directors of the Bank has an Examining Committee and a Personnel Committee. The Examining Committee makes an annual examination of the Bank as a whole, reviews the Bank's internal audit and loan review procedures and recommends to the Board of Directors the engagement and dismissal of independent auditors. During 1997 this Committee held three (3) meetings. On December 31, 1997, its members were Mrs. van den Blink (Chairperson) and Messrs. Agan, Brooks, R. Dalrymple, Falck, Lounsberry, Potter, Semel and Streeter. The Personnel Committee is responsible for the nomination of officers, recommendation of Executive Officer compensation plans, and establishment of guidelines for setting all other officers' salaries. Additional responsibilities include the review and approval of employee benefit programs and employee relation policies and procedures. The Committee held six (6) meetings in 1997 and on December 31, 1997, its members were Messrs. Meier (Chairperson), Brooks, D. Dalrymple, Evans, Meyer, Swan, Tryon and Ughetta. During the year ended December 31, 1997, each director of the Corporation and the Bank attended at least 75% of the aggregate of the number of Board Meetings held and the number of meetings held by all committees of which such director was a member, with the exception of Dr. Donald L. Brooks, Jr. who attended 67% of such meetings. Each director of the Bank who is not an officer or employee of the Bank receives an annual retainer of $5,000 and a fee of $300 for each meeting of the Board of Directors attended. Those directors who are members of one or more committees of the Board of Directors also receive a fee of $300 for each meeting of each committee attended, with the exception of the Chairperson of each committee who receives $350. The aggregate amount of directors' retainers and fees paid or deferred under the Deferred Directors Fee Plan during 1997 was $246,800. Directors who are not officers or employees of the Corporation receive a fee of $300 for attendance at meetings of the Board of the Corporation which are held on days when there is no meeting of the Board of Directors of the Bank. There were no such meetings held during 1997. Otherwise, directors of the Corporation are not compensated for services rendered by them to the Corporation and no change is presently contemplated in this policy. Certain Transactions Some of the Bank's directors and officers, and entities of which they are associated, are customers of the Bank in the ordinary course of business, or are indebted to the Bank in respect to loans of $60,000 or more, and it is anticipated that some of these directors, officers and entities will continue to be customers of and indebted to the Bank on similar terms in the future. All loans to these individuals and entities are made in the ordinary course of business, involve no more than a normal risk of collectibility and were made on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transactions with unaffiliated persons. The Bank has purchased insurance from a CNA Company, American Casualty Company of Reading, Pennsylvania, providing for reimbursement of directors and officers of the Corporation and the Bank for their costs and expenses for claims based on "wrongful acts" in connection with their duties as directors or officers, including actions as fiduciaries of the Bank's Pension and Profit- Sharing Plans under the Employee Retirement Income Security Act of 1974. The insurance coverage, which expires in February 1998, costs $18,900 on an annual basis, and has been paid by the Bank. The Bank retained Sayles, Evans, Brayton, Palmer & Tifft, a law firm of which Mr. Hoffman is a partner, for legal services during the last two years and expects to retain Sayles, Evans, Brayton, Palmer & Tifft for legal services during the current year. INDEPENDENT PUBLIC ACCOUNTANTS: The accounting firm of KPMG Peat Marwick LLP, 113 South Salina Street, Syracuse, New York 13202 has acted as the Bank's and the Corporation's independent auditors and accountants since 1990 and will so act in 1998. Representatives of KPMG Peat Marwick LLP will be present at the Annual Meeting of Shareholders with the opportunity to make a statement. The representatives will respond to appropriate questions. OTHER BUSINESS: Management knows of no business which will be presented for consideration, other than the matters described in the Notice of Annual Meeting. If other matters are properly presented, the persons designated as proxies intend to vote thereon in accordance with their best judgment. SHAREHOLDER PROPOSALS: Qualified Shareholders desiring to present a proposal at the 1999 Annual Meeting of Shareholders, including a notice of intent to make a nomination at said Meeting, must submit such proposal to the Corporation on or before December 3, 1998. Such proposals must comply in all respects with the rules and regulations of the Securities and Exchange Commission. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation's directors, certain executive officers, and more than ten percent owners of a registered class of the Corporation's equity securities, to file with the Securities and Exchange Commission initial reports of ownership and changes in beneficial ownership. Directors, executive officers, and greater than ten percent shareholders are required by SEC regulation to furnish the Corporation with copies of all Section 16(a) forms they file. To the Corporation's knowledge, based on review of the copies of such reports furnished to the Corporation and written representations that no other reports were required for the year ended December 31, 1997, all Section 16(a) filing requirements applicable to its executive officers, directors and any ten percent shareholder were met. OTHER MATTERS: Financial statements for the Corporation and its consolidated subsidiaries are included in Chemung Financial Corporation's Annual Report to stockholders for the year 1997 which was mailed to the stockholders beginning April 2, 1998. A COPY OF CHEMUNG FINANCIAL CORPORATION'S 1997 ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS AVAILABLE WITHOUT CHARGE TO THOSE STOCKHOLDERS WHO WOULD LIKE MORE DETAILED INFORMATION CONCERNING THE CORPORATION. TO OBTAIN A COPY, PLEASE WRITE TO: ROBERT J. HODGSON, SENIOR VICE PRESIDENT, CORPORATE COUNSEL AND SECRETARY, CHEMUNG CANAL TRUST COMPANY, ONE CHEMUNG CANAL PLAZA, ELMIRA, NY 14902. BY ORDER OF THE BOARD OF DIRECTORS Robert J. Hodgson Secretary Date: April 2, 1998 One Chemung Canal Plaza Elmira, New York 14902 Appendix A PROPOSAL TO ADOPT THE CHEMUNG CANAL TRUST COMPANY DEFERRED DIRECTORS FEE PLAN CHEMUNG CANAL TRUST COMPANY Deferred Directors Fee Plan Any Director may elect from time to time that payment of all or any part of the annual retainer thereafter payable to him or her and that payment of all or any part of the fees thereafter earned by him or her for attendance at subsequent meetings of the full Board of Directors and at subsequent meetings of committees of the Board of Directors (such annual retainer and fees for attendance being hereinafter collectively referred to as "fees") be deferred on the following terms and conditions: 1) ELECTION -- All elections must be in writing and signed by the Director and must designate the time and manner of payment of all fees deferred pursuant thereto. Provided such amendment is made before the year in which payment of deferred fees would have commenced under the Director's existing election, an election as to the time and manner of payment of deferred fees may be amended to further defer the commencement of payment or to extend the period of payment but no amendment may accelerate the commencement of payment or shorten the period of payment. 2) PERIOD OF ELECTIONS -- Each election shall continue in effect as to all fees thereafter earned as above provided by the electing Director until revoked by written instrument signed by such Director. 3) SUCCESSIVE ELECTIONS -- A Director who revokes an election may make a new election at any time thereafter as to fees to be so earned after such new election but the prior revoked election shall govern the time and manner of payment of all fees deferred pursuant thereto, except as otherwise specifically allowed hereunder. 4) ACCOUNTING FOR DEFERRED FEES -- Deferred fees shall be a general unfunded liability of Chemung Canal Trust Company ("the Bank"). No separate fund shall be set aside or earmarked for their payment. Neither shall any Director have a right or security interest in any asset of the Bank and no trust or security interest shall be implied as a result thereof. A Director may designate, in increments of 10%, the compensation to be deferred, or compensation already deferred, to be allocated to a Memorandum Money Market or a Memorandum Unit Value Account, or a combination of such accounts, provided, however, that effective October 1, 1997, amounts allocated to the Memorandum Unit Value Account as of October 1, 1997 or thereafter and earnings thereon may not thereafter be transferred to the Memorandum Money Market Account. Any change in such designation may be made no later than the last day of each March, June, September and December during the deferral period to be effective on the date next following such notification that compensation would have been paid in accordance with the Bank's normal practice but for the election to defer. a) Memorandum Money Market Account -- A memorandum account shall be kept of the deferred fees by each Director with the balance in said memorandum account to be credited with interest compounded quarterly on the average balance during each such calendar quarter at a rate during each calendar quarter equal to the Applicable Federal Rate for short-term debt instruments as computed and published by the Internal Revenue Service for the month immediately preceding the calendar quarter for which the interest computation is being made. b) Memorandum Unit Value Account -- The amount, if any, in or allocated to the Director's deferred compensation Unit Value Account on the dates compensation would have been paid in accordance with the Bank's normal practice but for the election to defer, shall be expressed in units on a quarterly basis, the number of which shall be calculated as of the last trading day of each quarter and shall be equal to the sum of the quarterly retainer plus the Director's allocated fees other than the Director's quarterly retainer received by the Director in such quarter divided by the closing bid price for shares of the Bank's Common Stock (hereinafter referred to as "Market Value") on such date. On each date that the Bank pays a regular cash dividend on shares of its Common Stock outstanding, the Director's account shall be credited with a number of units equal to the amount of such dividend per share multiplied by the number of units in the Director's account on such date divided by the Market Value on such dividend date. The value of the units in the Director's Unit Value Account on any given date shall be determined by reference to the Market Value on such date. For the purposes of this Plan, the term "Bank Common Stock" shall mean the common stock of Chemung Financial Corporation, the parent company of Chemung Canal Trust Company. If a valuation date shall not be a trading day, the Market Value on such valuation date shall be deemed to be the Market Value on the trading day next preceding such date. c) Recapitalization -- The number of units in the Director's Unit Value Account shall be proportionally adjusted for any increase or decrease in the number of issued shares of Common Stock of the Bank resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the Bank, or any distribution or spin-off of assets (other than cash to the stockholders of the Bank). 5) TIME OF PAYMENT -- At the election of an electing Director, deferred fees shall be paid to him or her, or payment thereof to him or her, shall commence either: a) at a specified age, or b) at a specified time, or c) at the termination of his or her services as a Director; provided, however, that payment must be made or commenced not later than the year in which the Director attains the age of 72 years, and provided further that except in the case of death, retirement or disability, no payment from a Unit Value Account shall be made until at least six (6) months after the last credit of units to the Account. 6) MANNER OF PAYMENT -- A Director may elect to receive the compensation deferred under the Plan in either (a) a lump sum, or (b) a number of annual installments as specified by the Director on the election form. All amounts distributed to a Director, his or her personal representatives or beneficiaries in the Director's Money Market Account shall be paid in cash and, effective October 1, 1997, all amounts in the Director's Unit Value Account shall be paid in the form of shares of the Bank's Common Stock. 7) DEATH -- At the death of an electing Director, the entire balance of his or her account shall be paid in a lump sum to his or her personal representatives or, if the Director has named a beneficiary and such beneficiary survives the Director, in a lump sum or in installments of not more than 10 years as the Board of Directors may determine after consultation with the beneficiary. 8) TOTAL AND PERMANENT DISABILITY -- Upon the request of an electing Director, together with satisfactory proof of his or her total and permanent disability, the Board of Directors may direct the payment of the entire balance of his or her account to the Director or the commencement of installment payments to him or her. 9) TRANSFER, PLEDGE OR SEIZURE -- Title to deferred fees shall not vest in a Director until actual payment thereof is made by the Bank in accordance with the provisions of this Plan. A Director may not transfer, assign, pledge, hypothecate or encumber in any way any interest in such deferred fees prior to the actual receipt thereof. If a Director attempts to transfer, assign or encumber any interest in his or her deferred fees, or any part thereof, prior to the payment or distribution thereof to him or her, or if any transfer or seizure of such deferred fees is attempted to be made or brought about through the operation of any bankruptcy or insolvency law or other legal procedure, the rights of the Director taking such action or concerned therein or affected thereby or who would, but for this provision, be entitled to receive such deferred fees, shall forthwith and ipso facto terminate and the Bank may thereafter, in its absolute discretion at such time or times and in such manner as it deems proper, cause the whole or any part of the balance of the Director's account to be paid to any person or persons, including any spouse or child of the Director, as the Bank in its uncontrolled discretion shall deem advisable. 10) AMENDMENT OR REPEAL -- This Plan may be amended or repealed in whole or in part at any time by the Bank, but no such amendment or repeal shall alter the time or manner of the payment of fees, the payment of which has theretofore been deferred pursuant hereto, except as expressly allowed herein. CHEMUNG FINANCIAL CORPORATION Subsidiary, Chemung Canal Trust Company Notice of Annual Meeting and Proxy Statement One Chemung Canal Plaza Annual Meeting of P.O. Box 1522 Shareholders to be held Elmira, New York 14902 MAY 13, 1998 ANNUAL MEETING OF SHAREHOLDERS - MAY 13, 1998 PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CHEMUNG FINANCIAL CORPORATION John R. Battersby, Darwin C. Farber, and John B. Hintz, each with power of substitution and with all powers and discretion the undersigned would have if personally present, are hereby appointed the Proxy Agents to represent the undersigned at the Annual Meeting of Shareholders of Chemung Financial Corporation to be held on May 13, 1998 (including any adjournments or postponements thereof) and to vote all shares of Common Stock of Chemung Financial Corporation which the undersigned is entitled to vote on all matters that properly come before the meeting and any adjournment thereof, subject to any directions indicated. THIS PROXY WILL WHEN PROPERLY EXECUTED, BE VOTED AS DIRECTED. IF NO DIRECTIONS TO THE CONTRARY ARE GIVEN, THE PROXY AGENTS INTEND TO VOTE FOR THE NOMINEES IDENTIFIED IN ITEM (1) AND FOR ITEMS (2) AND (3). NOMINEES FOR WITHHELD 1. Election of Directors. 3-year term: John W. Bennett Robert H. Dalrymple Frederick Q. Falck Ralph H. Meyer Samuel J. Semel Richard W. Swan William A. Tryon FOR/AGAINST/ABSTAIN 2. Approval to increase the number of authorized shares of common stock and reduce the par value of such stock. (To be signed on Reverse Side) FOR/AGAINST/ABSTAIN 3. Approval of the Chemung Canal Trust Company Deferred Directors Fee Plan. I/We will attend the Meeting Number in group SIGNATURE(S) NOTE: Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee, custodian or guardian, please give full title as such. EX-27 5
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S AUDITED FINANCIAL STATEMENTS AND DISCLOSURES FOR THE PERIOD ENDED DECEMBER 31, 1997 AS PRESENTED IN ITS ANNUAL 1997 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND DISCLOSURES 1,000 12-MOS DEC-31-1997 DEC-31-1997 32,997 1,421 0 0 185,303 9,224 9,224 296,977 4,145 548,934 451,044 15,747 10,504 10,000 0 0 10,750 50,887 548,934 26,679 12,071 622 39,372 14,756 16,098 23,274 850 324 19,368 10,524 6,857 0 0 6,857 3.31 3.31 4.74 930 688 0 0 3,975 770 90 4,145 2,588 0 1,557
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