-----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, Lnafab0m2RvDh7KJLug77/0JGuQzWDNLc8MX6GBApJCxCcAYNks5+ymgQINuUFPL N7UDXST8kohKs6TktHnBEw== 0000763563-98-000015.txt : 19980515 0000763563-98-000015.hdr.sgml : 19980515 ACCESSION NUMBER: 0000763563-98-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 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-Q SEC ACT: SEC FILE NUMBER: 000-13888 FILM NUMBER: 98619549 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-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarterly period ended March 31, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-13888 CHEMUNG FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) New York 16-1237038 (State or other jurisdiction of I.R.S. Employer incorporation or organization) Identification No. One Chemung Canal Plaza, Elmira, NY 14902 (Address of principal executive offices) (Zip Code) (607) 737-3711 (Registrant's telephone number, including area code) 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 XX NO Indicate the number of shares outstanding of each of the issuer's classes of common stock as of March 31, 1998: Common Stock, $5 par value -- outstanding 2,061,738 shares CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY INDEX PAGE PART I. FINANCIAL INFORMATION Item 1: Financial Statements Condensed Consolidated Balance Sheets 1 Condensed Consolidated Statements of Income 2 Condensed Consolidated Statement of Cash Flows 3 Notes to Condensed Consolidated Financial Statements 4 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 3: Quantitative and Qualitative disclosures about Market Risk Informations responsive to this Item is set forth in "Management's Discussion of Operations and Financial Condition" of the quarterly 10-Q for the period ended March 31, 1998 and is in- corporated herein by referance to Interest Rate Risk. 12 PART II. OTHER INFORMATION Item 6: Exhibits and Reports on Form 8-K 14 All other items required by Part II are either inapplicable or would require an answer which is negative. SIGNATURES 15 PART I. FINANCIAL INFORMATION Item 1: Financial Statements
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS March 31 Dec. 31 1998 1997 ASSETS Cash and due from banks $ 27,078,563 $ 32,997,157 Int.-bearing deposits with other financial institutions 1,672,444 1,421,298 Federal funds sold 14,100,000 0 Securities held to maturity, fair value of $8,722,817 in 1998 and $9,224,028 in 1997 8,722,817 9,224,028 Securities available for sale, at fair value 201,287,311 185,302,745 Loans, net of unearned income and deferred fees292,569,421 296,976,769 Allowance for loan losses (4,197,167) (4,145,422) Loans, net 288,372,254 292,831,347 Bank premises and equipment, net 10,154,916 10,219,043 Intangible assets, net of accumulated amortization 6,668,805 6,815,631 Other assets 10,817,144 10,123,203 Total assets $568,874,254 $548,934,452 LIABILITIES Deposits: Non-interest bearing $ 83,054,856 $ 94,656,560 Interest bearing 378,233,801 356,387,782 Total deposits 461,288,657 451,044,342 Securities sold under agreement to repurchase 21,787,065 9,447,856 Federal Home Loan Bank Advances 10,000,000 16,300,000 Other liabilities 13,293,251 10,505,077 Total liabilities 506,368,973 487,297,275 SHAREHOLDERS' EQUITY Common Stock, $5.00 par value per share; authorized 3,000,000 shares, issued: 2,150,067 10,750,335 10,750,335 Surplus 10,101,804 10,101,804 Retained earnings 39,345,096 38,236,025 Treasury stock, at cost (88,329 shares in 1998 and 80,538 in 1997)(2,367,919) (2,032,886) Accumulated Other Comprehensive Income 4,675,965 4,581,899 Total shareholders' equity 62,505,281 61,637,177 Total liabilities & shareholders' equity $568,874,254 $548,934,452 See Accompanying Notes to Condensed Consolidated Financial Statements
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME 3 Months Ended March 31 INTEREST INCOME 1998 1997 Loans $6,601,795 $6,399,111 Securities 3,085,156 2,982,059 Federal funds sold 145,979 69,591 Interest bearing deposits 97,314 46,127 Total interest income 9,930,244 9,496,888 INTEREST EXPENSE Deposits 3,733,259 3,488,028 Securities sold under agreement to repurchase and funds borrowed 436,234 339,960 Total interest expense 4,169,493 3,827,988 Net interest income 5,760,751 5,668,900 Provision for loan losses 200,000 200,000 Net interest income after provision for loan losses 5,560,751 5,468,900 Realized gains-security trans., Net 147,385 0 Other operating income 1,844,598 1,670,299 Total other operating income 1,991,983 1,670,299 Other operating expenses 4,931,619 4,914,434 Income before income taxes 2,621,115 2,224,765 Income taxes 872,906 747,261 Net Income $1,748,209 $1,477,504 Net Income per Share $.85 $0.71 See Accompanying Notes to Condensed Consolidated Financial Statements
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Three Months Ended March 31 1998 1997 OPERATING ACTIVITIES Net income $ 1,748,209 $ 1,477,504 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of intangible assets 146,826 146,826 Provision for loan losses 200,000 200,000 Depreciation and amortization 375,910 380,134 Amortization and discount on securities, net 21,393 78,874 Gain on sales of securities, net (147,385) 0 (Increase) decrease in other assets (693,941) (1,082,149) Increase (decrease) other liabilities 2,729,281 (2,189,132) Net cash provided (used) by operating activities 4,380,293 (987,943) INVESTING ACTIVITIES Proceeds from maturities of securities - AFS 13,639,209 6,808,442 Proceeds from maturities of securities -HTM 822,130 2,067,168 Proceeds from sales of securities - AFS 6,080,716 240 Purchases of securities - AFS (35,423,066) (5,000,000) Purchases of securities - HTM (320,920) (3,550,572) Purchases of premises and equipment, net (311,783) (172,145) Loans, net of repayments and other reductions 3,973,136 (2,862,312) Proceeds from sales of student loans 285,957 508,332 Net cash (used) by investing activities (11,254,621) (2,200,849) FINANCING ACTIVITIES Net increase (decrease) in demand deposits, NOW, savings and insured money market accounts(3,523,166) 7,510,672 Net increase (decrease) in certificates of deposit and individual retirement accounts 13,767,481 2,818,399 Net increase (decrease) in securities sold under agreements to repurchase 12,339,209 (5,048,234) Net Increase (decrease) in Federal Home Loan Bank advances (6,300,000) 0 Sale of treasury shares 0 0 Purchase of treasury shares (335,033) 0 Cash dividends paid (641,611) (580,220) Net cash provided (used) by financing activities 15,306,880 4,700,617 Net increase (decrease) in cash and cash equivalents 8,432,552 1,511,825 Cash and cash equivalents at beginning of year 34,418,455 31,755,294 Cash and cash equivalents at end of period $42,851,007 $33,267,119 See Accompanying Notes to Condensed Consolidated Financial Statements
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Summary of Significant Accounting Policies Basis of Presentation Chemung Financial Corporation (the Company) operates as a bank holding company. Its only subsidiary is Chemung Canal Trust Company (the Bank).The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, the Bank. All material intercompany accounts and transactions have been eliminated in the consolidation. 2. The condensed consolidated financial statements included herein reflect all adjustments which are, in the opinion of management, of a normal recurring nature and necessary to present fairly the Company's financial position as of March 31, 1998 and December 31, 1997, and results of operations and cash flows for the three month periods ended March 31, 1998 and 1997. 3. Net income per share for the periods presented have been computed by dividing net income by 2,061,741 weighted average shares outstanding for the three month period ended March 31, 1998 and 2,072,214 weighted average shares outstanding for the three month period ended March 31, 1997. 4. Goodwill, which represents the excess of purchase price over the fair value of identifiable assets acquired, is being amortized over 15 years on the straight-line method. Deposit base intangible, resulting from the Bank's purchase of deposits from the Resolution Trust Company in 1994, is being amortized over the expected useful life of 15 years on a straight-line basis. Amortization periods are monitored to determine if events and circumstances require such periods to be reduced. Periodically, the Company reviews its goodwill and deposit base intangible assets for events or changes in circumstances that may indicate that the carrying amount of the assets are not recoverable. 5. Effective January 1, 1998 the Company adopted the remaining provisions of SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which relate to the accounting for securities lending, repurchase agreements, and other secured financing activities. These provisions, which were delayed for implementation by SFAS No. 127, are not expected to have a material impact on the Company. In addition, the FASB is considering certain amendments and interpretations of SFAS No. 125 which, if enacted in the future, could affect the accounting for transactions within their scope. On January 1, 1998, the Company adopted the provisions of Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income. This statement establishes standards for reporting and display of comprehensive income and its components. Comprehensive income includes the reported net income of a company adjusted for items that are currently accounted for as direct entries to equity, such as the mark to market adjustment on securities available for sale, foreign currency items and minimum pension liability adjustments. At the Company, comprehensive income represents net income plus other comprehensive income, which consists of the net change in unrealized gains or losses on securities available for sale for the period. Accumulated other comprehensive income represents the net unrealized gains or losses on securities available for sale as of the balance sheet dates. Comprehensive income for the three-month periods ended March 31, 1998 and 1997 was $1,842,275 and $219,375, respectively. The following summarizes the components of other comprehensive income:
Unrealized Gains or Losses on Securities: Unrealized holding losses during the three months ended March 31, 1997, net of tax (pre-tax amount of ($2,108,439)) $ (1,258,129) Reclassification adjustment for gains or losses realized in net income during the three months ended March 31, 1997, net of tax (pre-tax amount of $0) 0 Other comprehensive income-three months ended March 31, 1997 $ (1,258,129) Unrealized holding gains during the three months ended March 31, 1998, net of tax (pre-tax amount of $304,005) $ 182,585 Reclassification adjustment for gains realized in net income during the three months ended March 31, 1998, net of tax (pre-tax amount of $147,385) (88,519) Other comprehensive income-three months ended March 31, 1998 $ 94,066
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 profit 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 will not have an impact on the Company's financial position or results of operation. In February, 1998 the FASB issued SFAS No. 132, Employers' Disclosure about Pensions and Other Post Retirement Benefits. This statement revises employers' disclosures about pension and other post retirement benefit plans. It does not change the measurement or recognition of these plans. The statement is effective for the Company in 1998 and will not impact the Company's financial position and results of operations. Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operation Total assets at March 31, 1998 were $568.9 million, an increase of $19.9 million or 3.63% from the beginning of the year. This first quarter growth is reflected in overnight investments (Federal Funds Sold and Interest Bearing Deposits) and the securities portfolio which have increased $14.4 million and $15.5 million respectively. The Available for Sale segment of the securities portfolio totaled $201.3 million as compared to $185.3 million at the beginning of the year, an increase of 8.63%. At amortized cost, increases in Federal Agency Bonds ($13.2 million), Corporate Bonds ($5.1 million) and Mortgage Backed Securities ($559 thousand) were somewhat offset by a $2.9 million decrease in Municipal Bonds. The allowance valuation for Available for Sale securities has increased $157 thousand since year end 1997. The Held to Maturity segment of the portfolio consisting primarily of Municipal Obligations totaled $8.7 million at March 31, 1998 versus $9.2 million at the beginning of the year. Amortized cost and fair value, maturity duration, and unrealized gains and losses for the components in each of the Available for Sale and Held to Maturity categories of the securities portfolio at March 31, 1998 are set forth in the following tables:
AVAILABLE FOR SALE HELD TO MATURITY Amortized Fair Amortized Fair Cost Value Cost Value U.S. Treasury and other U.S. Govt. Agencies $106,812,193$106,893,238 $ - $ - Mtg. Backed Securities 55,579,850 56,069,283 - - Obligations of states and Political subdivisions 22,462,47722,665,347 8,658,327 8,658,327 Other bonds and notes 5,188,660 5,137,470 64,490 64,490 Corporate Stocks 3,458,642 10,521,973 - - $193,501,822$201,287,311 $ 8,722,817 $ 8,722,817
The carrying value and weighted average yields based on amortized cost by years to maturity for securities available for sale as of March 31, 1998 are as follows (excluding corporate stocks):
Maturing Within One Year After One, Within Five Amount Yield Amount Yield U.S. Treasury and other U.S. Government Agencies$ 17,044,5306.68% $ 51,172,708 6.08% Mortgage Backed Securities - - 3,282,689 6.69% Obligations of states and political subdivisions 5,571,307 4.49% 9,795,869 4.64% Other bonds and notes - - 2,556,220 6.28% Total $ 22,615,837 6.14% $ 66,807,486 5.91%
Maturing After Five, Within Ten After Ten Years Amount Yield Amount Yield U.S. Treasury and other U.S. Government Agencies$ 38,676,0006.63% $ - - Mortgage Backed Securities - - 52,786,594 7.40% Obligations of states and political subdivisions 5,594,914 4.23% 1,703,257 3.09% Other bonds and notes 2,581,250 6.31% - - Total $ 46,852,164 6.36% $ 54,489,851 7.32%
Mortgage-backed securities are expected to have shorter average lives than their contractual maturities as shown above, because borrowers may repay obligations with or without call or prepayment penalties. The amortized cost and weighted average yields by years to maturity for securities held to maturity as of March 31, 1998 are as follows:
Maturing Within One Year After One, Within Five Amount Yield Amount Yield Obligations of states and political subdivisions $ 6,036,609 3.92% $ 1,467,040 5.19% Other bonds and notes - - - - Total Bonds $ 6,036,609 3.92% $ 1,467,040 5.19%
Maturing After Five, Within Ten After Ten Years Amount Yield Amount Yield Obligations of states and political subdivisions $ 1,154,678 3.93% $ - - Other bonds and notes 64,490 8.25% - - Total $ 1,219,168 4.16% $ - -
There are no securities of a single issuer (other than securities of the U.S. Government and its agencies) that exceed 10% of shareholders equity at March 31, 1998 in either the Available for Sale or Held to Maturity categories. Gross unrealized gains and gross unrealized losses on securities Available for Sale were as follows:
AVAILABLE FOR SALE Unrealized Unrealized Gains Losses U.S. Treasury and other U.S. Govt. Agencies $ 301,424 $ 220,379 Mtg. Backed Securities 520,331 30,898 Obligations of states and Political subdivisions 240,894 38,024 Other bonds and notes 58 51,248 Corporate Stocks 7,063,331 - $8,126,038 $ 340,549
Realized net gains on sales of securities Available for Sale for the three-month period ended March 31, 1998 were $147,385. Included in the Corporate Stocks component in the above tables are 51,730 shares of SLM Holding Corp., formerly known as Student Loan Marketing Association ("Sallie Mae") at a cost basis of $4,732 and fair value of $2,256,721. These shares were acquired as preferred shares (a permitted exception to the U.S. 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 March 31, 1998, the bank's equity portfolio held listed securities totaling $89,538 at cost with a total fair value of $4,875,155. These shares were acquired prior to the enactment of the Banking Act of 1933. Other equities included in the bank portfolio are 9,964 shares of Federal Reserve Bank and 17,972 shares of the Federal Home Loan Bank of New York valued at $498,200 and $1,797,200 respectively. Management has no current plans for selling these securities. Total loan balances have decreased $4.4 million or 1.48% since the beginning of the year. Of this decline, approximately $3.7 million is in the business loan segment of our portfolio due to some large paydowns on lines of credit. Total consumer loans are down $1.6 million centered primarily in consumer installment loans and home equity loans which declined $830 thousand and $895 thousand respectively. Additionally, there was a $611 thousand seasonal decline in credit card oustandings. As regards consumer installment loans, have begun to see an increase in indirect auto financing activity which represents a major part of that portfolio. We also introduced new home equity products late in the first quarter in an effort to remain competitive in that area. The decreases noted above were somewhat offset during the quarter with seasonal increases in the student loan portfolio ($762 thousand), as well as a $909 thousand increase in the mortgage portfolio where activity continues to be strong. Total deposits at March 31, 1998 were $461.3 million as compared to $451.0 million at the beginning of the year, an increase of $10.2 million or 2.27%. While public fund balances were up $14.1 million, these increases were somewhat offset by lower personal and non-personal balances ($1.6 million decrease) and a $2.3 million decrease in official checks outstanding. Of the $12.3 million increase in securities sold under agreements to repurchase, $9.5 million is related to a term repurchase agreement with the Federal Home Loan Bank which was used to leverage the purchase of a Federal Agency bond. Net earnings for the first quarter of 1998 were $1.748 million, an increase of $271 thousand (18.32%) from the prior year. Net earnings per share for the period were $0.85 on 2,061,741 average shares outstanding versus $0.71 on 2,072,214 average shares outstanding the prior year. Earnings for the first quarter were enhanced by realized after tax gains of $89 thousand on the sale of approximately $5.9 million of municipal obligations. In addition to the above, earnings for the first quarter of 1998 were positively impacted by a $92 thousand increase in Net Interest Income as well as a $174 thousand (10.44%) increase in Other Operating Income. Operating Expenses on the other hand increased only $17 thousand (0.35%). As indicated on the Condensed Consolidated Statement of Cash Flows, cash and cash equivalents have increased $8.4 million since the beginning of the year. In addition to cash provided by operating activities ($4.4 million), other primary sources of cash flow during the three month period ended March 31, 1998 included proceeds from the sale and maturity of investment securities ($20.5 million), an increase in deposit accounts ($10.2 million), an increase in securities sold under agreement to repurchase ($12.3 million), and a $4.3 million reduction in net loan balances. Cash proceeds generated from the above sources have been used primarily to fund the purchase of investment securities ($35.7 million) and repay overnight advances from the Federal Home Loan Bank ($6.3 million), with excess funds invested in overnight Fed Funds and interest bearing deposits. During the three months ended March 31, 1998, the company acquired 7,791 treasury shares at an average price of $43.00 per share. No treasury shares have been sold thusfar in 1998. During the quarter, the Company declared a cash dividend of $0.31 per share. Based upon loans outstanding, past experience, as well as an ongoing review of the risk inherent in our loan portfolio, management has maintained the loan loss provision for the first three months at $200 thousand which is equal to the amount expensed during the first three months of 1997. At 212% of non-performing loans and 1.43% of total loans, the Allowance for Loan Losses is viewed by management as adequate relative to risk. Non-performing loans at March 31, 1998 constituted 0.68% of total loans. Changes in the allowance for loan losses for the three months ended March 31, 1998 is as follows:
March 31, 1998 Amount (000's) Balance at beginning of period $ $ 4,145 Charge-offs: Domestic: Commercial, financial and agricultural 9 Commercial mortgages 0 Residential mortgages 4 Consumer loans 167 $ 180 Recoveries: Domestic: Commercial, financial and agricultural $ 5 Commercial mortgages 0 Residential mortgages 0 Consumer loans 27 $ 32 Net charge-offs $ 148 Additions charged to operations 200 Balance at end of period $ 4,197 Ratio of net charge-offs during the period to average loans outstanding during the period .05%
Included in the allowance for loan losses at March 31, 1998 is an allowance for impaired loans of $223 thousand versus $239 thousand at the beginning of the year. The total recorded investment in these loans at March 31, 1998 and December 31,1997 was $1.058 million and $951 thousand respectively. Management distinguishes between impaired and non-accrual loans as follows: Impaired Loans - A loan would be considered impaired when it is probable that after having considered current information and events regarding the borrower's ability to repay their obligations, the corporation will be unable to collect all amounts due according to the contractual terms of the loan agreement. Non-Accrual Loans - A loan is placed on non-accrual when it becomes past due and is referred to legal counsel, or in the case of a commercial loan which becomes 90 days delinquent, or in the case of a consumer loan (not guaranteed by a government agency) or a real estate loan which becomes 120 days delinquent unless, because of collateral or other circumstances, it is deemed to be collectible. When placed on non-accrual, previously accrued interest is reversed. Loans may also be placed in non-accrual if management believes such classification is warranted for other reasons. At March 31, 1998, the allocation of the allowance for loan losses is as follows:
Reported Period March 31, 1998 Balance at end of period applicable to: Percent of Loans in each Amount Category to Total Loans Domestic: Commercial, financial and agricultural 1,324,824 33.73% Commercial mortgages 127,522 2.04% Residential mortgages 24,615 25.50% Consumer loans 708,371 38.73% Unallocated: 2,011,835 N/A Total $4,197,167 100.00%
For the periods ended March 31, 1998 and December 31, 1997, the following table summarized the Company's non-accrual and past due loans:
Amounts (000's) March 31, 1998 December 31, 1997 Non-accrual loans $ 1,045 $ 930 Accruing loans past due$ 938 $ 688 90 days or more
At March 31, 1998, the Company has no commercial loans for which payments are presently current but the borrowers are currently experiencing severe financial difficulties. At March 31, 1998, no loan concentrations to borrowers engaged in the same or similar industries exceeded 10% of total loans and the Corporation has no interest-bearing assets other than loans that meet the non-accrual, past due, restructured or potential problem loan criteria. On March 31, 1998, the Company's consolidated leverage ratio was 9.31%. The Tier I and Total Risk Adjusted Capital ratios were 16.23% and 17.48%, respectively. 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 identifying all applications and data bases supporting the Bank's mission critical applications. The five phase 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 March 31, 1998, the awareness phase was complete and the assessment phase 90% complete. The financial implications to the Company will be determined upon completion of the assessment phase of the project. Interest Rate Risk The company realizes a major source of income by acting as intermediary between borrowers and savers. The differential or spread between interest earned on earning assets, primarily loans and investments, and the interest paid to depositors is affected with changes to market interest rates. Additionally, because of assumptions made to the Company's loan and investment portfolios and to its deposit base, changes in interest rates can materially affect the projected maturities of these balance sheet classes and thus alter the Company's sensitivity to future changes in interest rates. The Bank's Asset/Liability Committee (ALCO) has the strategic responsibility for setting the policy guidelines on acceptable interest rate risk exposure. The ALCO is made up of the chairman of the board, chief executive officer, executive vice presidents, senior lending officer, senior marketing officer, financial officer and others representing key functions. All guidelines set by this committee are board approved. The ALCO's primary focus is on maintaining consistent growth in net interest income with an acceptable level of volatility as a result of changes to interest rates. As of March 31,1998 the exposure to changing interest rates is within the guidelines established by the ALCO. The Company uses an industry standard earnings simulation model as its primary method to identify and manage its interest rate risk profile. The model is based on projected cash flows using historical data for all financial instruments. Also incorporated into the model are assumptions of deposit rates and balances in relation to changes in interest rates. These assumptions are based on internal historical data. In recent years core deposits (NOW accounts, Insured Money Market Accounts and Savings accounts) have not been re-priced with movements of interest rates in the negotiable securities markets. The ALCO recognizes that the assumptions made are inherently uncertain. The ALCO uses static gap analysis as a secondary method of identifying and managing the Company's interest rate risk profile. Gap analysis measures the difference between the assets and liabilities re-pricing and maturing within specific time periods, called buckets. A positive gap indicates more rate sensitive assets are due to either re-price or mature than rate sensitive liabilities in a specific bucket. This would indicate that the Company should have rising earnings in periods of rising interest rates and falling earnings in periods of falling rates. The ALCO recognizes the limitations of static gap analysis. Primarily it does not take into account the effect of interest rate movements and the competitive market forces on the re-pricing and maturity characteristics of interest-earning assets and interest-bearing liabilities. For these reasons, and for the recent practicality of using earnings simulation models gap analysis has fallen out of favor with the risk management community. Lastly, the ALCO monitors the expected fluctuation of the Company's market value of equity with changes to interest rates. Appropriate risk limits have been established to protect the bank's shareholders in the advent of adverse changes to interest rates, and as of March 31, 1998 exposure to changing interest rates is within the risk limits established. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Applicable Exhibits (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 to April 9, 1997 are incorporated herein by reference to Exhibit A of the registrant's Form 10-Q for the quarter ended June 30, 1997, File No.0-13888. (27) Financial Data Schedule (EDGAR version only) (b) Reports on Form 8-K During the quarter ended March 31, 1998, no reports on Form 8-K or amendments to any previously-filed Form 8-K were filed by the registrant. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned there to duly authorized. CHEMUNG FINANCIAL CORPORATION DATE: May 14, 1998 /s/ Jan P. Updegraff Jan P. Updegraff President & CEO DATE: May 14, 1998 /s/ John R. Battersby Jr. John R. Battersby Jr. Treasurer EX-27 2
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S UNAUDITED QUARTERLY FINANCIAL STATEMENTS AND DISCLOSURES FOR THE PERIOD ENDED MARCH 31, 1998 AS PRESENTED IN ITS FIRST QUARTER 1998 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND DISCLOSURES. 1,000 3-MOS DEC-31-1998 MAR-31-1998 27,079 1,672 14,100 0 201,287 8,723 8,723 292,569 4,197 568,874 461,289 21,787 13,293 10,000 0 0 10,750 51,755 568,874 6,602 3,085 243 9,930 3,733 4,169 5,761 200 147 4,932 2,621 1,748 0 0 1,748 .85 .85 4.60 1,045 938 0 0 4,145 180 32 4,197 2,185 0 2,012
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