-----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, WZIh0SrwEx7VxpwVENE3P7Mr7WjSANipOyap67VX7sXcNrdgxw/5n+vzRiF4pV/k gglJPKYyUdCjLqWHW8/9vA== 0000763563-99-000012.txt : 19990330 0000763563-99-000012.hdr.sgml : 19990330 ACCESSION NUMBER: 0000763563-99-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990329 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: 99575546 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 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, 1998 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 $0.01 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 state- ments incorporated by reference in Part III of this Form 10-K or any amend- ment 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 non-affiliates on February 28, 1999 was $55,996,704 As of February 28, 1999 there were 4,100,054 shares of Common Stock, $0.01 par value outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the year ended December 31, 1998 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 12, 1999 are incorporated by reference into Parts III and IV. PART I ITEM 1. BUSINESS (a) General development of business Chemung Financial Corporation (Corporation) was incorporated on January 2, 1985, under the laws of the State of New York. The Corporation was organized for the purpose of acquiring a majority holding of Chemung Canal Trust Company (Bank). The Bank was established in 1833 under the name Chemung Canal Bank, and was subsequently granted a New York State bank charter in 1895. In 1902, the Bank was reorganized as a New York State trust company under the name Elmira Trust Company, which name was changed to Chemung Canal Trust Company in 1903. On June 1, 1985, after the approval by the New York State Superintendent of Banks and the Board of Governors of the Federal Reserve System of the Plan of Acquisition and holding company application, the Bank became a wholly owned subsidiary of the Corporation. There have been no material changes in the mode of conducting business of either the Corporation or the Bank since the acquisition of the Bank by the Corporation. The Corporation is subject to applicable federal laws relating to bank holding companies as well as federal securities laws, State Corporation Law and State Banking Law. (b) Financial information about industry segments The Corporation and the Bank are engaged only in banking and bank-related businesses. Exhibits I through V included in the Corporation's Annual Report to Shareholders for the year ended December 31, 1998, 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, 1998. 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 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 1998, 1997, and 1996. Employees As of December 31, 1998, the Bank employed 291 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, 1998 1997 1996 Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate Assets Interest earning assets: Loans $ 311,679 27,865 8.94% $291,259 26,680 9.16% $273,904 25,314 9.24% Taxable securities 173,306 11,188 6.46 157,615 10,629 6.74 156,378 10,292 6.58 Tax-exempt securities 31,118 1,434 4.61 31,154 1,442 4.63 28,883 1,360 4.71 Federal funds sold 10,882 590 5.42 5,481 300 5.48 6,522 350 5.37 Other Investments 1,365 3 .22 161 0 - 0 0 - Interest-bearing deposits 4,186 328 7.83 5,380 321 5.97 3,808 195 5.13 Total interest earning assets 532,536 41,408 7.78% 491,050 39,372 8.02% 469,495 37,511 7.99%
Non-interest earning assets: Cash and due from banks 25,184 24,396 23,501 Premises and equipment, net 10,154 9,751 10,146 Other assets 9,203 8,091 7,003 Less allowance for loan losses (4,323 (4,077) (3,932) Excess of cost over fair value of net assets 14,625 13,211 12,247 Total $ 587,379 $ 542,422 $ 518,460
Liabilities and Shareholders' Equity Interest bearing liabilities: Demand deposits $ 43,456 611 1.41% $ 44,991 675 1.50% $ 44,261 719 1.63% Savings deposits 143,065 4,284 3.00 135,146 3,894 2.88 139,219 3,942 2.83 Time deposits 190,684 10,351 5.43 185,686 10,187 5.49 177,537 9,625 5.42 Federal Home Loan Bank advances and securities sold under agreements to repurchase 45,25 2,420 5.35 24,233 1,342 5.54 15,213 757 4.97 Total interest bearing liabilities 422,463 17,666 4.18% 390,056 16,098 4.13% 376,230 15,043 4.00%
Non-interest bearing liabilities: Demand deposits 89,957 84,332 79,901 Other 10,981 9,281 8,181 523,401 483,669 464,312 Shareholders' equity 63,978 58,753 54,148 Total $ 587,379 $ 542,422 $ 518,460
Net interest earnings $ 23,742 $ 23,274 $ 22,468
Net yield on interest earning assets 4.46% 4.74% 4.79%
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:
1998 Compared to 1997 1997 Compared to 1996 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 $ 1,836 (651) 1,185 1,591 (225) 1,366 Taxable securities 1,017 (458) 559 82 255 337 Tax-exempt securitie (2) (6) (8) 105 (23) 82 Federal funds sold 293 (3) 290 (57) 7 (50) Other Investments 3 0 3 0 0 0 Interest-bearing deposits (80) 87 7 90 36 126 Total interest earning assets $ 3,067 (1,031) 2,036 1,811 50 1,861 Interest paid on: Demand deposits (23) (41) (64) 12 (56) (44) Savings deposits 229 161 390 (117) 69 (48) Time deposits 272 (108) 164 446 116 562 Federal Home Loan Bank advances and securities sold under agreements to repurchase 1,126 (48) 1,078 491 94 585 Total interest bearing liabilities $ 1,604 (36) 1,568 832 223 1,055 (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 (in thousands of dollars):
December 31, 1998 1997 1996 U.S. Treasury and other U.S. Government Agencies $ 101,528 93,971 104,567 Mortgage backed securities 89,593 55,603 50,109 State and political subdivisions 28,036 34,955 30,775 Other bonds and notes 9,762 149 1,270 Corporate stocks 13,036 9,849 8,996 Total $ 241,955 194,527 195,717
Included in the above table are $235,294, $185,303 and $185,365 (in thousands of dollars) of securities available for sale at December 31, 1998, 1997 and 1996, respectively. The following tables set forth the maturities of investment securities at December 31, 1998 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 $ 17,548 5.21% $ 59,563 5.89% Mortgage Backed Securities - - 1,982 6.69 State and political subdivisions 8,301 4.39 7,842 4.58 Other bonds and notes - - 2,516 6.25 Total $ 25,849 4.94% $ 71,903 5.78%
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 $ 24,417 6.56% $ - - % Mortgage Backed Securities - - 87,611 6.95 State and political subdivisions 8,177 4.56 3,716 5.05 Other bonds and notes 2,715 6.35 4,531 6.88 Total $ 35,309 6.08% $ 95,858 6.87%
Loan Portfolio The following table shows the Corporation's loan distribution at the end of each of the last five years:
December 31, 1998 1997 1996 1995 1994 (In Thousands of Dollars) Commercial, financial and agricultural $ 113,865 102,816 92,557 89,785 75,006 Real estate mortgages 89,544 79,753 78,400 71,870 67,912 Consumer loans 126,097 114,593 113,004 101,687 94,181 Total $ 329,506 297,162 283,961 263,342 237,099
The following table shows the maturity of loans (excluding real estate mortgages and consumer loans) outstanding as of December 31, 1998. Also provided are the amounts due after one year classified according to the sensitivity to changes in interest rates:
After One Within But Within After One Year Five Years Five Years Total Commercial, financial and agricultural $ 32,815 19,469 61,581 113,865 Loans maturing after one year with: Fixed interest rates 12,184 24,019 Variable interest rates 7,285 37,562 Total $ 19,469 61,581
Non-accrual and Past Due Loans The following table summarizes the Corporation's non-accrual and past due loans:
December 31, 1998 1997 1996 1995 1994 (In Thousands of Dollars) Non-accrual loans (1) $ 4,458 930 1,494 1,119 1,201 Accruing loans past due 90 days or more $ 395 688 226 681 354
Information with respect to non-accrual loans at December 31, 1998, 1997 and 1996 is as follows:
December 31, 1998 1997 1996 (In Thousands of Dollars) Non-accrual loans $ 4,458 930 1,494 Interest income that would have been recorded under original terms 545 286 278 Interest income recorded during the period 271 48 58 (1) It is the Corporation's policy that when a past due loan is referred to legal counsel, or in the case of a commercial loan which becomes 90 days delinquent, or in the case of consumer, mortgage or home equity loans not guaranteed by a government agency which becomes 120 days delinquent, the loan is placed in 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, 1998, 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, 1998, 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, 1998, the Corporation has no interest-bearing assets other than loans that meet the non-accrual, past due, restructured or potential problem loan criteria. Summary of Loan Experience This table summarizes the Corporation's loan loss experience for each year in the five-year period ended December 31, 1998:
Year Ended December 31, 1998 1997 1996 1995 1994 (In Thousands of Dollars) Balance at beginning of period $4,145 3,975 3,900 3,600 3,500 Charge-offs: Commercial, financial and agricultural 13 77 195 82 282 Real estate mortgages 16 53 1 5 14 Consumer loans 552 640 538 286 422 Home equity 13 - 20 - - 594 770 754 373 718 Recoveries: Commercial, financial and agricultural 35 14 16 16 18 Consumer loans 123 76 71 93 76 158 90 87 109 94 Net charge-offs 436 680 667 264 624 Allowance of acquired bank at time of acquisition - - - - 100 Additions charged to operations (1) 800 850 742 564 624 Balance at end of period $4,509 4,145 3,975 3,900 3,600 Ratio of net charge-offs during period to average loans outstanding (2) .14% .23% .24% .11% .28% (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 1998 than in prior years. The net charge-offs to total loans have averaged 0.20% over the last five years and the highest percentage in any of those years was 0.28%. (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, non-accrual 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 econmic 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, 1998:
Amount (in thousands) and Percent of Loans by Category to Total Loans Balance at end of Period Applicable to: 1998 % 1997 % 1996 % 1995 % 1994 % Domestic: $3,197 100.0 2,588 100.0 2,445 100.0 2,030 100.0 2,857 100.0 Commercial, financial and agricultural 2,081 34.6 1,402 34.5 1,472 32.3 1,042 33.0 2,108 31.0 Commercial mortgages 21 1.5 132 2.0 249 3.2 305 4.1 282 5.0 Residential mortgages 88 25.7 31 24.8 21 24.5 16 23.6 16 23.6 Consumer loans 1,007 38.3 1,023 38.7 703 40.0 667 39.3 451 40.4 Unallocated: 1,312 N/A 1,557 N/A 1,530 N/A 1,870 N/A 743 N/A Total $4,509 100.0 4,145 100.0 3,975 100.0 3,900 100.0 3,6 00 100.0
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, 1998 1997 1996 Amount Rate Amount Rate Amount Rate (In Thousands of Dollars) Noninterest-bearing demand deposits $ 89,957 - % 84,332 - % 79,901 - % Interest-bearing demand deposits 43,456 1.41 44,991 1.50 44,261 1.63 Savings deposits 143,065 3.00 135,146 2.88 139,219 2.83 Time deposits 190,684 5.43 185,686 5.49 177,537 5.42 $ 467,162 450,155 440,918
Scheduled maturities of certificates of deposit at December 31, 1998 are summarized as follows:
Time Certificates of Deposits (In Thousands of Dollars) 1999 $118,730 2000 41,142 2001 11,274 2002 3,505 2003 2,529 2004 and thereafter 261 $177,441
Maturities of certificates of deposit $100,000 or more outstanding at December 31, 1998 are summarized as follows:
Time Certificates of Deposits (In Thousands of Dollars 3 months or less $20,304 Over 3 through 12 months 7,466 Over 12 months 4,867 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, 1998 1997 1996 Return on average assets 1.24% 1.26% 1.19% Return on average equity 11.41 11.67 11.37 Return on beginning equity 11.84 12.22 11.64 Dividend payout ratio 37.56 36.55 35.78 Average equity to average assets ratio 10.89 10.83 10.44 Year-end equity to year-end assets ratio 10.60 11.23 10.54
Short-Term Borrowings For each of the three years in the period ended December 31, 1998, the average outstanding balance of short-term borrowings did not exceed 30% of shareholders' equity. ITEM 2. PROPERTIES The Corporation and the Bank currently conduct all their business activities from the Bank's main office, thirteen (13) branch locations situated in a four-county area, owned office space adjacent to the Bank's main office, and six (6) off-site automated teller facilities (ATMs), three (3) of which are located on leased property. The main office is a six-story structure located at One Chemung Canal Plaza, Elmira, New York, in the downtown business district. The main office consists of approximately 62,000 square feet of space entirely occupied by the Bank. The combined square footage of the thirteen (13) branch banking facilities totals approximately 46,350 square feet. The office building adjacent to the main office was acquired during 1995 and consists of approximately 18,213 square feet of which 13,711 square feet are occupied by operating departments of the Bank and 4,502 square feet are leased. The leased automated teller facility spaces total approximately 150 square feet. The Bank holds two (2) of its branch facilities (Arnot Mall Office and Bath Office) and three (3) automated teller facilities (Elmira/Corning Regional Airport, Elmira College and WalMart Store) under lease arrangements; and owns the rest of its offices including the main office and the adjacent office building. The Corporation holds no real estate in its own name. ITEM 3. LEGAL PROCEEDINGS Neither the Corporation nor its subsidiary are a party to any material pending legal proceeding required to be disclosed under this item. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS There were no matters submitted to a vote of shareholders during the fourth quarter of the fiscal year covered by this report. PART II ITEM 5. MARKET FOR THE 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, 1998, 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 1998 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, 1999 was 756. 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, 1998 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, 1998 is incorporated herein by reference to Exhibit C of Exhibit Listing 13. ITEM 7A. QUANTITATIVE AND QUAITATIVE DISCLOSURES ABOUT MARKET RISK Information required by item 305 of Regulation S-K is included in the Management's Discussion and Analysis of Financial Condition and Results of Operations presented in the Corporation's Annual Report to Shareholders for the year ended December 31, 1998 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, 1998 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 6, 1999, relating to the Annual Meeting of Shareholders to be held on May 12, 1999, 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 6, 1999, relating to the Annual Meeting of Shareholders to be held on May 12, 1999, 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 6, 1999, relating to the Annual Meeting of Shareholders to be held on May 12, 1999, 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 6, 1999, relating to the Annual Meeting of Shareholders to be held on May 12, 1999, 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, 1998 and 1997, and for each of the years in the three-year period ended December 31, 1998 are incorporated by reference in Item 8: - Independent Auditors' Report - Consolidated Balance Sheets - December 31, 1998 and 1997 - Consolidated Statements of Income - Years ended December 31, 1998, 1997 and 1996 - Consolidated Statements of Shareholders' Equity and Comprehensive Income - Years ended December 31, 1998, 1997 and 1996 - Consolidated Statements of Cash Flows - Years ended December 31, 1998, 1997 and 1996 - Notes to Consolidated Financial Statements - December 31, 1998 and 1997 (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, 1998, are incorporated herein by reference to Exhibit A of the Registrant's Form 10-Q for the period ended June 30, 1998, File No. 0-13888. Exhibit (13) -- Annual Report to Shareholders for the year ended December 31, 1998. -- Table of Quarterly Market Price Ranges. EXHIBIT A -- Table of Dividends Paid. EXHIBIT B -- Management's Discussion and Analysis of EXHIBIT C Financial Condition and Results of Operations including the Selected Financial Data Exhibit. Quantitative and Qualitative disclosures about Market Risk. -- Consolidated Financial Statements and EXHIBIT D Independent Auditors' Report. Exhibit (21) -- Subsidiaries of the registrant. EXHIBIT E Exhibit (22) -- Registrant's Notice of Annual Meeting, EXHIBIT F Proxy Statement dated April 6, 1999, 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, 1998. (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, 1998 CHEMUNG FINANCIAL CORPORATION ELMIRA, NEW YORK ____________________________________ EXHIBIT LISTING EXHIBIT EXHIBIT 13 Annual Report To Shareholders For The Year Ended December 31, 1998 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 Quantitative and Qualitative disclosures about Market Risk. 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 6, 1999, 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 10, 1999 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 Director Robert E. Agan /s/ John W. Bennett Director & Chairman March 10, 1999 John W. Bennett of the Board Director Donald L. Brooks, Jr. /s/ David J. Dalrymple Director March 10, 1999 David J. Dalrymple /s/ Robert H. Dalrymple Director March 10, 1999 Robert H. Dalrymple Director Frederick Q.Falck /s/ Edward B. Hoffman Director March 10, 1999 Edward B. Hoffman /s/ Stephen M. Lounsberry III Director March 10, 1999 Stephen M. Lounsberry III /s/ Thomas K. Meier Director March 10, 1999 Thomas K. Meier /s/ Ralph H. Meyer Director March 10, 1999 Ralph H. Meyer Director John F. Potter /s/ Charles M. Streeter, Jr. Director March 10, 1999 Charles M. Streeter, Jr. /s/ Richard W. Swan Director March 10, 1999 Richard W. Swan /s/ William A. Tryon Director March 10, 1999 William A. Tryon /S/ William C. Ughetta Director March 10, 1999 William C. Ughetta /s/ Nelson Mooers van den Blink Director March 10, 1999 Nelson Mooers van den Blink /s/ Jan P. Updegraff Director, President & March 10, 1999 Jan P. Updegraff Chief Executive Officer Attest /s/ Donna C. Denton Secretary March 10, 1999 Donna C. Denton EX-13 2 EXHIBIT A TABLE OF QUARTERLY MARKET PRICE RANGES
Market Prices of Chemung Financial Corporation Stock During Past Three Years (dollars) - ----------------------------------------------------------------------------- 1998 1997 1996 - ----------------------------------------------------------------------------- Hi -- Lo Hi -- Lo Hi -- Lo 1st Quarter 25 1/2 - 21 1/2 18 - 16 13/16 14 3/8 - 13 1/2 2nd Quarter 30 - 25 3/4 17 5/8 - 16 3/4 15 3/4 - 14 3rd Quarter 30 - 26 1/4 18 3/4 - 16 13/16 16 5/8 - 15 3/16 4th Quarter 28 - 22 3/4 23 3/4 - 19 1/8 17 7/8 - 16 1/2
EXHIBIT B TABLE OF DIVIDENDS PAID
Dividends Paid by Chemung Financial Corporation During Past Three Years - ----------------------------------------------------------------------------- 1998 1997 1996 - ----------------------------------------------------------------------------- January 2 $.1550 $.1400 $.1250 April 1 .1550 .1400 .1250 July 1 .1700 .1550 .1250 October 1 .1700 .1550 .1400 - ----------------------------------------------------------------------------- $0.6500 $0.5900 $0.5150
As of December 31, 1998 there were 756 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 discussions and analysis. Description of Business Chemung Financial Corporation (the "Corporation") is a one-bank holding company with its only subsidiary being Chemung Canal Trust Company (the "Bank"), a full-service community bank with full Trust powers. Therefore, the financial condition should be examined in terms of the acquisition and employment of funds within its "market areas". Management defines the market areas of Chemung Canal Trust Company as those areas within a 25-mile radius of its branches in Chemung, Steuben, Schuyler, and Tioga counties, including the northern tier of Pennsylvania. The Bank's lending policy restricts substantially all lending efforts to these geographical regions. In 1997, the Corporation joined six other bank holding companies in forming a Small Business Investment Company ("SBIC") as a limited partner. The SBIC is authorized under The Small Business Equity Investment Act of 1992 and is registered under the name CEPHAS Capital Partners, LP. The Corporation's capital commitment to the partnership is $2.475 million, of which $1.758 million had been paid as of December 31, 1998. 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 authorized individual and Senior Officers Loan Committee lending limits. The Senior Officers Loan Committee, consisting of the president, two executive vice presidents, senior lending officer, mortgage officer, and consumer loan officer, implements the Board-approved loan policy. Supervision and Regulation The Corporation, as a bank holding company, is regulated under the Bank Holding Company Act of 1956, as amended (the "Act"), and is subject to the supervision of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). Generally, the Act limits the business of bank holding companies to banking, or managing or controlling banks, performing certain servicing activities for subsidiaries, and engaging in such other activities as the Federal Reserve Board may determine to be closely related to banking and a proper incident thereto. The Bank is chartered under the laws of New York State and is supervised by the New York State Banking Department. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was passed in order to protect depositors and taxpayers from the excesses of the S&L problems of the 1980's. There are a number of provisions in this act that significantly increase the operating costs of the Bank. These rules specifically impact the cost of external audit, the mortgage loan product (through appraisal requirements), as well as all other loan products. Competition The Bank is subject to intense competition in the lending and deposit gathering aspects of its business from commercial and thrift banking institutions, credit unions, and other providers of financial services, such as brokerage firms, investment companies, insurance companies and Internet vendors. The Bank also competes with non-financial institutions, including retail stores and certain utilities that maintain their own credit programs, as well as governmental agencies that make available loans to certain borrowers. Unlike the Bank, many of these competitors are not subject to regulation as extensive as that described under the "Supervision and Regulation" section and, as a result, they may have a competitive advantage over the Corporation in certain respects. This is particularly true of credit unions, as their pricing is not encumbered by income taxes. Competition for the Bank's fiduciary services comes primarily from brokerage firms, independent investment advisors, and a non-bank trust company operating in Steuben County with newly expanded powers. This is considered to be significant competition, as these firms devote much of their considerable resources toward gaining larger positions in these markets. Trust assets under administration, however, totaled $1.4 billion at December 31, 1998, compared to $1.2 billion a year earlier and nearly $1.1 billion at December 31, 1996. Relative to the Bank's consolidated net assets, the Trust and Investment Division is unusually large and is responsible for the largest component of non- interest revenue. During 1998, as well as 1997 and 1996, the Trust & Investment Division noted a continued increase in the competition for personal and corporate investment management services in our market areas. Early in 1998, management formed a strategic alliance with a third party administrator for the purpose of out- sourcing retirment fund recordkeeping. The trade off in revenue and expense is material but the alliance contributed importantly to our efforts to bring first rate technology to our retirement services clients. We see this strategy as extremely important in our efforts to remain in the retirement services business while reducing the requirements for investing in related technology. Significant Issue - Year 2000 In 1997, management advised its Board of Directors of the many issues surrounding the approach of January 1, 2000. Nearly all computer hardware and software developed during the 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 databases 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. A committee continues to direct the Bank's Year 2000 activities under the framework of the FFIEC's Five Step Program. The first phase of testing of critical applications was substantially completed by year-end 1998, with testing of other non-critical applications expected to be completed by March 31, 1999. The Company has begun evaluating Year 2000 readiness of its commercial loan applicants as part of the loan underwriting process and is calling upon major existing borrowers to assess their readiness and identify potential problems. In addition, the Bank is currenty formulating a contingency plan for business continuation in the event of Year 2000 systems failures. This contingency plan will be based upon the Bank's existing disaster recovery plan with modifications for the Year 2000 risks. The Bank expects to complete its systems contingency plan by March 1999. Significant Year 2000 failures in the Bank's systems or in the system's third parties (or third parties upon whom they depend) could have a material adverse effect on the Bank's financial condition and results of operation. The Bank believes that its reasonably likley worse case Year 2000 scenario is (i) a material increase in the Bank's credit losses due to Year 2000 problems for the Bank's borrowers and obligors, and (ii) disruption in financial markets causing liquidity stress to the Bank. The magnitude of these potential credit losses and disruption cannot be determined at this time. It is expected that costs associated with Year 2000 readiness including hardware and software upgrades, as well as costs of testing, will be approximately $200,000. Employees The Corporation and its Banking subsidiary had 291 full-time equivalent employees (FTE') on December 31, 1998 versus 281 at the beginning of the year and 289 on December 31, 1996. The employment trend is relatively stable. Balance Sheet Comments Average earning assets for 1998 grew by $41.4 million or 8.4% to $532.5 million, compared to $491.1 million in 1997 and $469.5 million in 1996. Business loans and 1-4 family mortgages were very strong throughout the year, with year-end balances growing $10.04 million (9.2%) and $10.8 million (14.6%) respectively. Average total loan balances were $311.7 million versus $291.3 million during 1997 and $273.9 million during 1996. Non-performing loans at year-end increased to $4.853 million at December 31,1998 versus $1.617 million at the end of 1997 and $1.720 million at the end of 1996, and represented 1.5% of total outstandings compared to 0.54% at the end of 1997 and 0.61% on December 31. 1996. The increase in 1998 relates primarily, to one real estate secured commercial loan. Net loan losses were $436 thousand or 0.14% of average outstandings, compared to $680 thousand in 1997 and $667 thousand in 1996. The allowance for loan losses at December 31, 1998 was 1.37% of total outstandings versus. 1.40% a year ago and 1.40% at December 31, 1996.
Exhibit I Balance Sheet Comparisons Average Balance Sheet Change (in millions) 1998 1997 1996 1995 1994 1993 1 yr. 5 yrs Total Assets $587.4 $542.4 $518.5 $495.2 $431.2 $397.7 8.3% 8.1% Earning Assets 532.5 491.1 469.5 447.1 394.7 368.4 8.4% 7.6% Loans 311.7 291.3 273.9 249.1 221.4 224.1 7.0% 6.8% *Investments 220.9 199.8 195.6 198.0 173.3 144.3 10.6% 8.9% Deposits 467.2 450.2 440.9 424.4 374.6 347.0 3.8% 6.1% Wholesale Funding 37.0 13.1 2.9 N/A N/A N/A 182.4% N/A Tier I Equity 57.4 51.6 46.4 41.7 38.2 37.0 11.2% 9.2% *Average balances for investments are based on amortized cost.
Ending Balance Sheet (in millions) 1998 1997 1996 1995 1994 1993 1yr 5 yrs Total Assets $623.7 $548.9 $532.2 $501.9 $494.3 $398.1 13.6% 9.4% Earning Assets 565.3 486.1 474.6 446.3 448.9 369.2 16.3% 8.9% Loans - Net 324.8 292.8 279.7 259.1 232.9 218.8 10.9% 8.2% Investments 245.1 196.8 196.3 189.6 212.1 147.1 24.5% 10.8% Deposits 466.1 451.0 439.6 426.9 432.3 342.9 3.3% 6.3% Wholesale Funding 71.4 20.5 10.0 N/A N/A N/A 248.3% N/A Tangible Equity 59.9 54.8 48.7 44.9 37.2 38.3 9.3% 9.4% Allowance For Loan Losses 4.51 4.15 3.98 3.90 3.60 3.50 8.7% 5.2%
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 if the securities portfolio at December 31, 1998 was $235.3 million compared to $185.3 million a year earlier and $185.4 million at the end of 1996. At year-end 1998, total appreciation in the banking subsidiary's securities portfolio was $8.983 million, compared to $7.629 million a year ago. The components of the appreciation are set forth in the following tables:
1998 1997 (in thousands) Amortized Fair Amortized Fair Cost Value Appreciation Cost Value Appreciation U.S. Treasury Securities $ 23,013 $ 23,295 $ 282 $ 37,188 $ 37,294 $ 106 Obligations of other U.S. Government Agencies 77,787 78,233 446 56,565 56,677 112 U.S Government Agency Mortgage- backed pools 89,245 89,593 348 55,021 55,603 582 Obligations of states and political subdivisions 20,967 21,432 465 25,361 25,800 439 Other bonds and notes 9,682 9,705 23 80 80 0 Corporate Stocks 5,617 13,036 7,419 3,459 9,849 6,390 Totals $ 226,311 $235,294 $ 8,983 $ 177,674 $185,303 $ 7,629
Included in the above table are 49,604 shares of SLM Holding Corporation at a cost basis $4,538 and fair market value of $2,380,992. 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, 1998, the Banking subsidiary's portfolio held marketable equities totaling $89,538 with a total fair value of $5,102,582. 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 39,556 shares of the Federal Home Loan Bank of New York. They are valued at $498,200 and $3,955,600, respectively. The number of shares of these last two investments is regulated by regulatory policies of the respective institutions. Capital Resources and Dividends The Corporation continues to maintain a strong capital position. Tangible shareholders' equity at December 31, 1998 was $59.9 million or 9.60% of total assets compared to $54.8 million or 9.98% of total assets a year earlier and $48.7 million or 9.15% at December 31, 1996. As of December 31, 1998, the Corporation's total Risk Weighted Adjusted Capital Ratio was 16.67% compared with 17.44% a year earlier and 16.87% at December 31, 1996. The leverage ratio (Average Tier I Capital/Average Assets) was 9.51% during 1998 and 9.49% in 1997. Management's strategy for employing the Corporation's capital is to maintain the leverage ratio as low as possible but at a level in excess of the requirements for being considered well capitalized by the FDIC, the Federal Reserve, and the New York State Banking Department. Term borrowings and repurchase agreements with the Federal Home Loan Bank were the funding source for this strategy. Under Federal Reserve regulations (see Note 14 to the consolidated financial statements), the Bank is limited to the amount it may loan to the Corporation, unless such loans are collateralized by specific obligations. At December 31, 1998, 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, 1998, $8,794,583 was available for the declaration of dividends. At the May annual meeting of the Corporation's shareholders, the authorized number of common shares was increased from 3,000,000 to 10,000,000 and the par value reduced from $5.00 to $0.01 per share. The Corporation's board declared a two for one stock split, payable in the form of a 100% stock dividend to shareholders effective in June 1998. Per share and dividend information has been restated to reflect the stock split. Cash dividends declared amounted to $2.741 million in 1998 versus $2.506 million in 1997 and $2.203 million in 1996. Dividends declared during 1998 amounted to 37.56% of net earnings compared to 36.6% and 35.8% of 1997 and 1996 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 1998 was impacted by 1) higher loan volumes 2) higher volumes in investment securities 3) lower average interest rates on both sides of the balance sheet 4) higher volumes of non-interest income and 5) higher non- interest expenses. Consolidated net income for 1998 was $7.297 million versus $6.857 million, up $440 thousand (6.4%) or $1.77 per share versus $1.66 per share (up 6.6%) on 26,684 fewer average shares outstanding. In 1996, the Corporation earned $6.158 million versus $5.602 million in 1995. Quarterly dividends declared totaled $0.665 per share versus $0.605 in 1997 and $0.53 in 1996, adjusted for the two for one stock split effective in June 1998. Non-interest income increased $749 thousand to $8.217 million, up 10.0% over 1997. Trust and Investment fees, at $4.505 were again the largest component and registered the largest (10.4%) increase. The primary reason for this result was major increases in the pricing of both common stocks and debt securities managed by the department. Gains realized in the Bank's investment securities portfolio were $216 thousand compared to $324 thousand in 1997 and $610 thousand in 1996. Non-interest expenses increased $1.105 million (5.7%) to $20.5 million. Non- interest expenses for 1997 were $19.4 million compared to the same amount in 1996. These expenses were negatively impacted by a $159 thousand increase in the Bank's self insured healthcare costs, a $319 thousand increase in other real estate expenses, a $225 thousand increase in credit card processing, and a $123 thousand increase in rent expense. 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 I 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 1998 were $69 thousand versus $71 thousand in 1997 and $253 thousand in 1996. During 1998, the Bank's provision for loan losses totaled $800 thousand, down $50 thousand from $850 thousand in 1997 and $742 thousand in 1996. The change is a reflection of management's ongoing evaluation of the risk inherent in the portfolio. Also, during 1998, several properties were taken into Other Real Estate ("ORE") as a result of foreclosures. The ORE expenses resulting from these situations totaled $394,471 compared to $75,243 in 1997 and $17,927 in 1996. Exhibit II
Change Earnings (in thousands) 1998 1997 1996 1995 1994 1993 1 yr. 5 yrs Net Interest Income $ 23,739 $ 23,274 $ 22,468 $ 21,849 $ 19,304 $ 18,672 2.0% 4.9% Loan Loss Provision 800 850 742 564 624 907 -5.9% -2.5% Net Interest Income After Loan Loss Provision 22,939 22,424 21,726 21,285 18,680 17,765 2.3% 5.2% Non-interest Income Trust Department Income 4,505 4,079 3,719 3,678 3,323 3,294 10.4% 6.5% Securities Gains, net 216 324 610 531 140 821-33.3%-23.4% Other Income 3,496 3,065 2,777 2,527 2,222 2,004 14.1% 11.8% Total Non-Interest Income 8,217 7,468 7,106 6,736 5,685 6,119 10.0% 6.1% Operating Expense 20,473 19,368 19,408 19,560 17,375 15,627 5.7% 5.6% Pretax income 10,683 10,524 9,424 8,461 6,990 8,257 1.5% 5.3% Effect of Accounting Change 0 0 0 0 0 (933) N/A N/A Income Taxes 3,386 3,667 3,266 2,859 2,342 2,830 -7.7% 3.7% Net Income $ 7,297 6,857 6,158 5,602 4,648 4,494 6.4% 10.2%
The average interest rate on earning assets was 7.78% during 1998 versus 8.02% in 1997 and 7.99% in 1996. The interest expense on the Bank's liabilities increased to 4.18% in 1998 compared to 4.13% in 1997 and 4.00% in 1996. This resulted in a net interest spread of 3.60% versus 3.89% in 1997 and 3.99% in 1996. The net interest margin declined 28 basis points to 4.46%, compared to 4.74% in 1997 and 4.79% in 1996. Exhibit III Changes due to Volume and Rate The following table demonstrates the impact on net interest income of the changes in the volume of earning assets and interest-bearing liabilities and changes in rates earned and paid by the 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.
1998 vs 1997 1997 vs 1996 Increase Increase (Decrease) (Decrease) Interest Income (thousands) Total Due to Due to Total Due to Due to Change Volume Rate Change Volume Rate Loans $ 1,185 $ 1,836 $ (651) $ 1,366 $ 1,591 $ (225) Taxable investment securities 559 1,017 (458) 337 82 255 Tax-exempt investment securities (8) (2) (6) 82 105 (23) Federal funds sold 290 293 (3) (50) (57) 7 Other Investments 3 3 0 0 0 0 Interest bearing deposits 7 (80) 87 126 90 36 Total Interest Income $ 2,036 $ 3,067 $(1,031) $ 1,861 $ 1,811 $ 50 Interest Expense (thousands) Demand deposits $ (64) $ (23) $ (41) $ (44) $ 12 $ (56) Savings deposits 390 229 161 (48) (117) 69 Time deposits 164 272 (108) 562 446 116 Federal funds purchased and securities sold under agreement to repurchase 1,078 1,126 (48) 585 491 94 Total Interest Expense $ 1,568 $ 1,604 $ (36) $ 1,055 $ 832 $ 223 Net Interest Income $ 468 $ 1,463 $ (995) $ 806 $ 979 $ (173)
Intangible assets The core deposit intangible and goodwill in the amount of $4.1 million and $2.1 million, respectively, at December 31, 1998, 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 1998, 39,383 shares were purchased at a total cost of $984,284 or an average price of $24.99 per share. In 1997, 5,370 shares were purchased at a total cost of $107,768 or an average adjusted price of $20.07 per share, and in 1996 there were 33,830 shares purchased at a total cost of $514,599 ($15.21 per share). Exhibit IV
Change Selected data on Common Shares (Adjusted for two for one stock split) 1998 1997 1996 1995 1994 1993 1 yr. 5 yrs Net Income $ 1.77 $ 1.66 $ 1.48 $ 1.34 $ 1.23 $ 1.44 6.6% 4.2% Dividends Declared 0.665 0.605 0.53 0.49 0.467 0.437 9.9% 8.7% Tangible Book Value 14.59 13.24 11.76 10.79 8.88 10.13 10.2% 7.6% Market Price 12/31 27.50 21.00 17.00 13.88 12.75 11.50 31.0% 19.0% Average Shares 4,116 4,143 4,159 4,176 3,798 3,788 -0.7% 1.7%
Exhibit V
Selected Ratios 1998 1997 1996 1995 1994 Return on average Assets 1.24% 1.26% 1.19% 1.13% 1.08% Return on average tier I equity 13.88% 14.29% 14.08% 14.26% 12.49% Dividend Yield 12/31 2.47% 2.95% 3.29% 3.60% 3.76% Dividend payout 37.56% 36.55% 35.78% 36.52% 38.22% Tier I capital to risk adjusted assets 15.42% 16.19% 15.61% 15.21% 13.71% Tier I leverage ratio 9.51% 9.49% 8.97% 8.52% 7.69% Total capital to risk adjusted assets 16.67% 17.44% 16.87% 16.46% 15.03% Loans to deposits 70.63% 65.84% 64.53% 61.61% 54.71% Loan reserve to outstanding loans 1.37% 1.40% 1.40% 1.48% 1.52% Loan reserve to non-performing loans 92.9% 257% 231% 217% 232% Non-performing loans to outstanding loans 1.47% 0.54% 0.61% 0.68% 0.66% Net interest rate spread 3.60% 3.89% 3.99% 4.12% 4.26% Net interest margin 4.46% 4.74% 4.79% 4.89% 4.89% Efficiency ratio (adj. for intangibles) 61.97% 60.84% 63.41% 66.12% 68.34%
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 $80.220 million in 1998. The same areas trailed by $12.551 million in 1997. Net purchases of equipment during 1998 and 1997 were $1.325 million, and $1.990 million, respectively. During 1996, proceeds from maturities and sales of securities and student loans were less than purchases of securities and loan originations net of repayment and net purchases of premises and equipment by $38.304 million. Net purchases of premises and equipment during 1996 were $862.7 thousand. Net cash provided by financing activities amounted to $63.233 million in 1998, compared to $10.219 million in 1997 and $21.304 million in 1996. Core deposits (demand, NOW, Savings and Insured Money Market Accounts) increased $11.5 million in 1998 compared to an increase of $11.6 million in 1997. Liquidity and Sensitivity The term "liquidity" refers primarily to the expected cash flows from assets held for investment and secondarily to borrowings secured by assets held for investments. These two sources of liquidity have in the past been sufficient to fund the operations of the Bank, and the Board of Directors anticipates that they will suffice in the future. For this reason, the term "liquidity" in the Bank's policies does not refer to proceeds from the sale of assets, although the sale of assets held as available for sale is a source of liquidity available to management. Liquidity management involves the ability to meet the cash flow requirements of deposit customers, borrowers, and the operating, investing, and financing activities of the Corporation. Management of interest rate sensitivity seeks to avoid fluctuating net interest margins and to enhance consistent growth of net interest income through periods of changing interest rates. As intermediaries between borrowers and savers, commercial banks incur interest rate risk. The Bank's Asset/Liability Committee (ALCO) has the strategic responsibility for setting the policy guidelines on acceptable exposure. The ALCO is made up of the president, asset liability management officer, senior lending officer, senior marketing officer, chief accounting officer and others representing key functions. The Bank is a member of the Federal Home Loan Bank of New York ("FHLB") in order to enhance management's ability to satisfy future liquidity needs and to have an additional alternative for investing excess reserves. The Bank's $3.956 million investment in FHLB stock allowed it to maintain a $56.696 million line of credit at December 31, 1998. This compares to $46.977 million at the end of 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 "contractual" gap. Contractual gap measures the stated repricing and maturity of assets and liabilities. At December 31, 1998, the cumulative one-year contractual gap for the Bank was a negative $173.9 million versus a negative $176.0 million a year earlier and a negative $160.9 million at the end of 1996. This means that $173.9 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.
December 31, 1998 Rate Sensitive Contractual Amounts (Thousands) 1 to 90 Days 91 to 365 Days 1 to 5 Years Over 5 Years Earning Assets: Loans $ 85,270 $ 20,311 $ 113,392 $ 105,902 Securities 8,501 22,898 71,860 125,660 Other (Equities) 13,036 Total earning assets $ 106,807 $ 43,209 $ 185,252 $ 231,562 Net sources: NOW accounts $ 38,128 Insured Money Market 58,133 Time certificates under $100 thousand 39,231 58,264 48,331 59 Time certificates over $100 thousand 20,304 7,466 4,666 201 Savings 89,448 FHLB advances 6,900 20,000 Repurchase Agreements 6,087 15,000 29,500 Total sources $ 258,231 65,730 67,997 49,760 Incremental gap -151,424 -22,521 117,255 181,802 Percent of earning assets -141.7% -52.1% 63.3% 78.5% Cumulative gap -151,424 -173,945 -56,690 125,112 Percent of total assets -24.3% -27.9% -9.1% 20.1%
In recent years core deposits (NOW accounts, Insured Money Market Accounts and Savings accounts) have not been repriced with movements of interest rates in the negotiable securities markets. Rather, the interest paid upon such funding sources during 1998, 1997 and 1996 has been quite stable, even with movements in excess of 200 basis points. Short term rates (6 month U.S. Treasury Bills) ranged between 4.15% - 5.16% during 1998 and 5.03% - 5.45% during 1997. Management does recognize the need for certain hedging strategies during periods of anticipated higher fluctuations in interest rates and the Board-approved Funds Management Policy provides for limited use of certain derivatives in asset liability management. These strategies were not employed during 1998. The ALCO is responsible for supervising the preparation and annual revisions of the financial segments of the Bank Plan, which is built upon the committee's economic and interest-rate assumptions and the Annual Budget. It is the responsibility of the ALCO to modify prudently any and all asset/liability policies. Effective January 1, 1998 the Company adopted the remaining provisions of Statement of Financial Accounting Standards 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 June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement establishes comprehensive accounting and reporting requirements for derivative instruments and hedging activities. The statement requires (companies or banks) to recognize all derivatives as either assets or liabilities, with the instruments measured at fair value. The accounting for gains and losses resulting from changes in fair value of the derivative instrument, depends on the intended use of the derivative and the type of risk being hedged. This statement is effective for all fiscal quarters beginning January 1, 2000 for calendar year (companies or banks). Earlier adoption, however is permitted. Jan P. Updegraff President and Chief Executive 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, 1998 and 1997, and the related consolidated statements of income, shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Chemung Financial Corporation and subsidiary at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ KPMG LLP Syracuse, New York January 20, 1999 CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEET
Assets December 31 1998 1997 Cash and due from banks $ 27,515,582 32,997,157 Interest-bearing deposits with other financial institutions 1,304,207 1,421,298 Securities available for sale, at fair value 235,293,736 185,302,745 Securities held to maturity, fair value of $6,660,923 in 1998 and $9,224,028 in 1997 6,660,923 9,224,028 Loans, net of unearned income and deferred fees 329,255,342 296,976,769 Allowance for loan losses (4,509,185) (4,145,422) Loans, net 324,746,157 292,831,347 Premises and equipment, net 10,084,608 10,219,043 Other assets 11,826,068 10,123,203 Intangible assets, net of accumulated amortization 6,228,328 6,815,631 Total assets $ 623,659,609 548,934,452 Liabilities and Shareholders' Equity Deposits: Noninterest-bearing $ 101,908,083 94,656,560 Interest-bearing 364,231,279 356,387,782 Total deposits 466,139,362 451,044,342 Securities sold under agreements to repurchase 50,587,369 9,447,856 Federal Home Loan Bank advances 26,900,000 16,300,000 Accrued interest payable 1,428,560 1,191,409 Dividends payable 697,570 641,611 Other liabilities 11,817,121 8,672,057 Total liabilities 557,569,982 487,297,275 Commitments and contingencies (note 13) Shareholders' equity: Common stock, $.01 par value per share; authorized 10,000,000 in 1998, 6,000,000 in 1997;Issued and o/s 4,300,134 in 1998 and 1997 43,001 10,750,335 Capital Surplus 20,851,800 10,101,804 Retained earnings 42,770,991 38,236,025 Treasury stock, at cost (197,380 shares in 1998; 161,076 shares in 1997) (2,970,954) (2,032,886) Accumulated Other Comprehensive Income 5,394,789 4,581,899 Total shareholders' equity 66,089,627 61,637,177 Total liabilities and shareholders' equity $ 623,659,609 548,934,452 See accompanying notes to consolidated financial statements.
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31 1998 1997 1996 Interest income: Loans $ 27,865,497 26,679,426 25,313,778 Securities 12,621,909 12,070,919 11,651,818 Federal funds sold 589,976 300,359 350,005 Interest-bearing deposits 327,927 321,265 195,181 Total interest income 41,405,309 39,371,969 37,510,782 Interest expense: Deposits 15,246,674 14,756,046 14,286,189 Borrowed funds 736,493 659,753 176,126 Securities sold under agreements to repurchase 1,683,244 682,065 580,354 Total interest expense 17,666,411 16,097,864 15,042,669 Net interest income 23,738,898 23,274,105 22,468,113 Provision for loan losses 800,000 850,100 741,662 Net interest income after provision for loan losses 22,938,898 22,424,005 21,726,451 Other operating income: Trust department income 4,504,569 4,078,880 3,718,851 Service charges on deposit accounts 2,010,639 1,906,931 1,611,409 Net gain on sales of securities 215,993 323,989 609,596 Credit card merchant earnings 630,968 536,735 519,039 Other 854,850 621,273 646,603 8,217,019 7,467,808 7,105,498 Other operating expenses: Salaries and wages 8,290,133 8,041,859 7,926,874 Pension and other employee benefits 1,939,033 2,033,962 1,976,814 Net occupancy expenses 1,739,063 1,562,568 1,629,539 Furniture and equipment expenses 1,655,776 1,651,675 1,592,873 Other 6,848,747 6,077,630 6,281,664 20,472,752 19,367,694 19,407,764 Income before income taxes 10,683,165 10,524,119 9,424,185 Income taxes 3,386,027 3,666,899 3,266,662 Net income $ 7,297,138 6,857,220 6,157,523 Weighted average shares outstanding 4,116,405 4,143,089 4,158,624 Net income per common share: $ 1.77 1.66 1.48 See accompanying notes to consolidated financial statements.
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Accumulated Other Common Capital Retained Treasury Comprehensive Stock Surplus Earnings Stock Income Total Balances at December 31, 1995 $ 10,750,335 10,068,563 29,930,969 (1,579,298) 3,728,329 52,898,898 Comprehensive Income: Net income - - 6,157,523 - - 6,157,523 Change in net unrealized gain (loss) on securities available for sale, net of taxes - - - - (420,420) (420,420) Total comprehensive income 5,737,103 Cash dividends declared ($.53 per share) - - (2,203,223) - - (2,203,223) Purchases of 33,830 shares of treasury stock - - - (514,599) - (514,599) Sale of 14,560 shares of treasury stock - 33,241 - 168,799 - 202,020 Balances at December 31, 1996 $ 10,750,335 10,101,804 33,885,269 (1,925,118) 3,307,909 56,120,199 Comprehensive Income Net income - - 6,857,220 - - 6,857,220 Change in net unrealized gain (loss) on securities available for sale, net of taxes - - - - 1,273,990 1,273,990 Total comprehensive income 8,131,210 Cash dividends declared ($.605 per share) - - (2,506,464) - - (2,506,464) Purchase of 5,370 shares of treasury stock - - - (107,768) - (107,768) Balances a December 31, 1997 $ 10,750,335 10,101,804 38,236,025 (2,032,886) 4,581,899 61,637,177 Comprehensive Income: Net income - - 7,297,138 - - 7,297,138 Change in net unrealized gain (loss) on securities available for sales, net of taxes - - - - 812,890 812,890 Total comprehensive income 8,110,028 Reduction of Par Value from $5.00 to $0.01 per share (10,728,834) 10,728,834 - - - - Two for one stock split 21,500 - (21,500) - - - Cash dividends declared ($.665 per share) - - (2,740,672) - - (2,740,672) Purchase of 39,383 shares of treasury stock - - - (984,284) - (984,284) Sale of 3,079 shares of treasury stock - 21,162 - 46,216 - 67,378 Balances at December 31, 1998 $ 43,001 20,851,800 42,770,991 (2,970,954) 5,394,789 66,089,627 See accompanying notes to consolidated financial statements
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31 1998 1997 1996 Cash flows from operating activities: Net income $ 7,297,138 6,857,220 6,157,523 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of intangible assets 587,303 587,303 585,303 Deferred income taxes (554,345) (260,933) (387,248) Provision for loan losses 800,000 850,100 741,662 Depreciation and amortization 1,459,446 1,483,178 1,440,752 Amortization and discount on securities, net 321,469 248,288 303,365 Gain on sales of securities, net (215,993) (323,989) (609,596) (Increase) in other assets (1,702,865 (2,244,392) (216,172) Increase in accrued interest payable 237,151 38,618 93,689 Increase (decrease) in other liabilities 3,158,834 (2,239,841) 3,260,358 Net cash provided by operating activities $ 11,388,138 4,995,552 11,371,636 Cash flows from investing activities: Proceeds from sales of securities available for sale $ 19,174,487 24,071,461 57,617,458 Proceeds from maturities of and principal collected on securities held to maturity 7,054,835 12,226,947 6,035,978 Proceeds from maturities of and principal collected on securities available for sale 78,602,492 30,683,353 52,023,153 Purchases of securities available for sale (146,519,981) (52,508,840) (122,926,000) Purchases of securities held to maturity (4,491,731) (11,099,132) (8,805,672) Purchases of premises and equipment, net (1,325,011) (1,989,588) (862,683) Loan net of repayments and other reductions (35,894,863) (17,235,072) (24,578,050) Proceeds from sales of student loans 3,180,053 3,299,607 3,191,711 Net cash (used) by investing activities $ (80,219,719) (12,551,264) (38,304,105) Cash flows from financing activities: Net increase (decrease) in demand deposits, NOW accounts, savings accounts, and insured money market accounts $ 11,498,217 11,603,559 (7,366,182) Net increase (decrease) in certificates of deposit and individual retirement accounts 3,596,803 (208,560) 20,136,632 Net increase (decrease) in securities sold under agreements to repurchase 41,139,513 (4,923,284) 989,559 Increase in Federal Home Loan Bank advances 26,900,000 6,300,000 10,000,000 Repayments of Federal Home Loan Bank advances (16,300,000) - - Purchases of treasury stock (984,284) (107,768) (514,599) Sale of treasury stock 67,378 - 202,020 Cash dividends paid (2,684,712) (2,445,074) (2,143,465) Net cash provided by financing activities $ 63,232,915 10,218,873 21,303,965 Net increase (decrease) in cash and cash equivalents $ (5,598,666) 2,663,161 (5,628,504) Cash and cash equivalents, beginning of year 34,418,455 31,755,294 37,383,798 Cash and cash equivalents, end of year $ 28,819,789 34,418,455 31,755,294 Supplemental disclosure of cash flow information: Cash paid during the year for: Income Taxes $ 1,201,696 3,748,867 3,832,329 Interest $ 17,429,260 16,059,256 14,948,980 See accompanying notes to consolidated financial statements.
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (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 accumulated other comprehensive income in shareholders' equity until realized. Realized gains and losses are determined using the specific identification method. A decline in the fair value of any available for sale or held to maturity security below amortized cost that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment of yield using the interest method. Dividend and interest income are recognized when earned. Loans Loans are stated at the amount of unpaid principal balance less unearned discounts and net deferred origination fees and costs. The Corporation has the ability and intent to hold its loans 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 in the interest method. The accural 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 on non-accrual if management believes such classification is warrented for other purposes. Loan origination fees and certain direct loan orgination costs are deferred and amortized over the life of the loan as an adjustment of yield, using the interest method. Allowance for Loan Losses The allowance for loan losses is maintained at a level considered adequate to provide for probable future 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 management's evaluation of potential losses in the loan portfolio, prevailing and anticipated economic conditions, past loss experience, and other factors pertinent to estimating losses inherent in the portfolio. Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowances may be necessary based on changes in economic conditions, particularly in New York State. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's allowance for loan losses. Such agencies may require the Corporation to recognize additions to the allowance based on their judgments about information available to them at the timee 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 con- sidered 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. Res- idential mortgage loans and consumer loans are evaluated collectively since they are homogeneous and generally carry smaller balances. Impairment losses are in- cluded 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 building 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 the buildings and from 3 to 10 years for the equipment and furniture. Amortization of leasehold im- provements and leased equipment is recognized on the straight-line method over the shorter of the lease term or the estimated life of the asset. Other Real Estate Real estate acquired through foreclosure or deed in lieu of foreclosure is re- corded at the lower of the carrying amount of 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 future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. 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 On January 1, 1998, the Company adopted SFAS No. 132, "Employers' Disclosure about Pensions and Other Post Retirement Benefits". SFAS No. 132 revises employers' disclosures about pensions and other post retirement benefit plans. SFAS No. 132 does not change the method of accounting for such plans. The Bank's funding policy is to contribute amounts to the plan sufficient to meet minimum regulatory funding requirements, plus such additional amounts as the Bank may determine to be appropriate from time to time. Postretirement Benefits In addition to pension benefits, the Bank provides health care and life insurance benefits for retired employees. The estimated costs of providing benefits are accrued over the years the employees render services necessary to earn those benefits. Intangible Assets Goodwill, which represents the excess of purchase price over the fair value of identifiable assets acquired in 1995, is being amortized over 15 years on the straight-line method. Deposit base intangible, resulting from the Bank's purchase of deposits from the Resolution Trust Company in 1994, is being amortized over the expected useful life of 15 years on a straight-line basis. Amortization periods are monitored to determine if events and circumstances require such periods to be reduced. Periodically, the Corporation reviews its goodwill and deposit base intangible assets for events or changes in circumstances that may indicate that the carrying amount of the assets are impaired. Per Share Information Basic earnings per share were computed on the basis of the weighted average number of common shares outstanding, retroactively adjusted for stock splits and dividends. Cash and Cash Equivalents Cash and cash equivalents include cash and amounts due from banks, interest- bearing deposits with other financial institutions, federal funds sold, and U.S. Treasury securities with original terms to maturity of 90 days or less. Securities Sold Under Agreements to Repurchase The Corporation enters into sales of U.S. Treasury securities under agreements to repurchase. The agreements are treated as financings, and the obligations to repurchase securities sold are reflected as liabilities in the consolidated balance sheets. The amount of the securities underlying the agreements remains in the asset account. The Corporation has agreed to repurchase securities identical to those sold. The securities underlying the agreements were under the Bank's control. Financial Instruments With Off-Balance Sheet Risk The Corporation does not engage in the use of derivative financial instruments and the Corporation's only financial instruments with off-balance sheet risk are commitments under standby letters of credit, unused portions of line of credit and commitments to fund new loans. Other Comprehensive Income On January 1, 1998, the Corporation 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. At the Corporation, comprehensive income represents net income plus other comprehensive income, which consists of the net change in unrealized holding gains or losses on securities available for sale, net of the related tax effect. Accumulated other comprehensive income represents the net unrealized holding gains or losses on securities available for sale as of the balance sheet dates, net of the related tax effect. Comprehensive income for the years ended December 31, 1998, 1997, and 1996 were $8,110,028, $8,131,210 and $5,737,103, respectively. The following summarizes the components of other comprehensive income:
Unrealized Gains or Losses on Securities Unrealized holding gains during the twelve months ended December 31, 1998, net of tax (pre-tax amount of $1,569,456) $ $942,615 Reclassification adjustment for gains realized in net income during the twelve months ended December 31, 1998, net of tax (pre-tax amount of $215,993) (129,725) Other comprehensive income-twelve months ended December 31, 1998 $ 812,890 Unrealized holding gains during the twelve months ended December 31, 1997, net of tax (pre-tax amount of $2,445,185) $ 1,468,578 Reclassification adjustment for gains realized in net income during the twelve months ended December 31, 1997, net of tax (pre-tax amount of $323,989) (194,588) Other comprehensive income-twelve months ended December 31, 1997 $ 1,273,990 Unrealized holding gains during the twelve months ended December 31, 1996, net of tax (pre-tax amount of ($92,139) $ (55,202) Reclassification adjustment for gains realized in net income during the twelve months ended December 31, 1996, net of tax (pre-tax amount of $609,596) (365,218) Other comprehensive income-twelve months ended December 31, 1996 $ (420,420)
Segment Reporting During 1998, the Company adopted SFAS No. 131 "Disclosure about Segments of an Enterprise and Related Information". This statement requires the Company to report financial and other information about key revenue-producing segments of the Company for which such information is available and is utilized by the chief operating decision maker. Specific information to be reported for individual segments include profit and loss, certain revenue and expense items, and total assets. A reconciliation of segment financial information to amounts reported in the financial statements is also provided. This standard did not result in significant changes in the Company's reporting. The Company's operations are solely in the financial services industry and include the provision of traditional commercial banking services. The Company operates primarily in the geographical regions of Chemung, Steuben, Schuyler, and Tioga counties, including the northern tier of Pennsylvania. The Company has identified separate operating segments, however, these segments did not meet the quantitative threshold for separate disclosure. Reclassifications Amounts in the prior year's consolidated financial statements are reclassified whenever necessary to conform with the current year's 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 31, 1998 was $9,029,000, of which $1,922,000 was required to be on deposit with the Federal Reserve Bank; the remainder, $7,107,000, was represented by cash on hand. (3) Securities
Amortized cost and fair value of securities available for sale at December 31, 1998 and 1997 are as follows: 1998 1997 Amortized Fair Amortized Fair Cost Value Cost Value U.S. Treasury securities $ 23,012,62 23,294,865 37,188,035 37,293,793 Obligations of other U.S. Government agencies 77,787,530 78,233,115 56,565,434 56,676,787 Mortgage backed securities 89,245,351 89,592,665 55,020,829 55,602,615 Obligations of states and political subdivisions 20,967,461 21,431,874 25,361,080 25,800,408 Other bonds and notes 9,681,590 9,704,695 79,671 79,963 Corporate stocks 5,616,847 13,036,522 3,458,827 9,849,179 $ 226,311,403 235,293,736 177,673,876 185,302,745
Amortized cost and fair value of securities held to maturity at December 31, 1998 and 1997 are as follows:
1998 1997 Amortized Fair Amortized Fair Cost Value Cost Value Obligations of states and political subdivisions $ 6,603,598 6,603,598 9,154,538 9,154,538 Other bonds and notes 57,325 57,325 69,490 69,490 $ 6,660,923 6,660,923 9,224,028 9,224,028
Included in corporate stocks at December 31, 1998 and 1997 is the Bank's required investment in the stock of the Federal Home Loan Bank carried at its cost basis of $3,955,600 and $1,797,200, respectively. This investment allows the Bank to maintain a $56,695,500 line of credit with the Federal Home Loan Bank at December 31, 1998 and $46,976,500 at December 31, 1997. Gross unrealized gains and gross unrealized losses on securities available for sale at December 31, 1998 and 1997 were as follows:
1998 1997 Unrealized Unrealized Unrealized Unrealized Gains Losses Gains Losses U.S. Treasury securities $ 282,241 - 126,876 21,118 Obligations of other U.S. Government agencies 479,935 34,350 242,668 131,315 Mortgage backed securities 506,296 158,982 626,925 45,139 Obligations of states and political subdivisions 470,174 5,761 439,540 212 Other bonds and notes 105,225 82,120 292 - Corporate stocks 7,419,675 - 6,390,352 - $ 9,263,546 281,213 7,826,653 197,784
There were no gross unrealized gains and gross unrealized losses on securities held to maturity at December 31, 1998 and 1997. Gross realized gains on sales of securities were $215,993, $323,989, and $613,190 for the years ended December 31, 1998, 1997 and 1996, 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, 1998 and 1997. Interest and dividends on securities for the years ended December 31, 1998, 1997 and 1996 were as follows:
1998 1997 1996 Taxable: U.S. Treasury securities $ 1,920,930 2,821,733 4,002,636 Obligations of other U.S. Government agencies 4,659,247 3,670,414 3,252,513 Mortgage backed securities 3,801,800 3,727,722 2,590,587 Other bonds and notes 391,720 48,984 174,419 Corporate stocks 414,602 360,184 271,614 Exempt from federal taxation: Obligations of states and political subdivisions 1,433,610 1,441,882 1,360,049 $ 12,621,909 12,070,919 11,651,818
The amortized cost and fair value by years to contractual maturity as of December 31, 1998 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 $ 12,507,267 12,549,250 10,505,357 10,745,615 Obligations of other U.S. Government agencies 5,000,000 4,998,450 48,650,064 48,816,465 Mortgage backed securities - - 1,956,688 1,981,767 Obligations of states and political subdivisions 4,784,869 4,833,151 5,844,919 5,992,926 Other bonds and notes - - 2,495,496 2,515,625 Total $ 22,292,136 22,380,851 69,452,524 70,052,398
Maturing After Five, But Within Ten Years After Ten Years Amortized Fair Amortized Fair Cost Value Cost Value Obligations U.S. Government agencies $ 24,137,466 24,418,200 - - Mortgage backed securities - - 87,288,663 87,610,898 Obligations of states and political subdivisions 6,725,761 6,890,410 3,611,912 3,715,387 Other bonds and notes 2,620,807 2,657,825 4,565,287 4,531,245 Total $ 33,484,34 33,966,435 95,465,862 95,857,530 The amortized cost and fair value by years to maturity as of December 31, 1998 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 $ 3,467,384 3,467,384 1,849,284 1,849,284 Other bonds and notes - - - - Total $ 3,467,384 3,467,384 1,849,284 1,849,284
Maturing After Five, But Within Ten Years After Ten Years Amortized Fair Amortized Fair Cost Value Cost Value Obligations of states and political subdivisions $ 1,286,930 1,286,930 - - Other bonds and notes 57,325 57,325 - - Total $ 1,344,255 1,344,255 - -
Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. The fair value of securities pledged to secure public funds on deposit or for other purposes as required by law was $160,490,195 at December 31, 1998 and $103,131,459 at December 31, 1997. Also, U.S. Treasury securities totaling $2,000,000 and $13,000,000 (fair value of $2,073,760 and $13,044,720), GNMA's totaling $13,328,093 and $12,185,770 (fair value of $13,622,012 and $12,625,864), Federal Agency Securities totaling $62,023,789 and $2,000,000 (fair value of $62,965,881 and $1,992,500) were pledged to secure repurchase agreements and Federal Homa Loan Bank Advances at December 31, 1998 and 1997, 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 shareholders' equity at December 31, 1998 or 1997. In 1997, the Bank declared a special dividend payable to the Corporation for the purpose of funding equity investments in Southern Tier Business Development, LLC and Cephas Capital 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 as of December 31, 1998 and 1997 totaled $1,800,282 and $844,875, respectively, and are included in other assets under the equity method of accounting. (4) Loans and Allowance for Loan Losses
The composition of the loan portfolio is summarized as follows: December 31, 1998 1997 Residential mortgages $ 84,554,079 73,756,609 Commercial mortgages 4,989,429 5,996,380 Commercial, financial and agricultural 113,478,081 102,402,506 Leases, net 387,697 413,487 Consumer loans 126,096,779 114,592,615 Net deferred origination fees and unearned income (250,723) (184,828) $ 329,255,342 296,976,769
During 1998, 1997 and 1996, the Corporation sold $3,180,053, $3,299,607 and $3,191,711, respectively, of education loans at par to the Student Loan Marketing Association. The Corporation's market area encompasses the New York State counties of Chemung, Steuben, Schuyler and Tioga including the northern tier of Pennsylvania. Substantially all of the Corporation's outstanding loans are with borrowers living or doing business within 25 miles of the branches in these counties. The Corporation's concentrations of credit risk are reflected in the preceding table. The concentrations of credit risk with standby letters of credit, committed lines of credit and committments to originate new loans, generally follow the loan classifications in the schedule. Other than general econmic risks, management is not aware of any material concentrations of credit risk to any industry or individual borrower. The principal balances of loans not accruing interest, including the impaired loans described below, totaled $4,458,393 and $929,697 at December 31, 1998 and 1997, respectively. The increase in 1998 relates primarily to one real estate secured commercial loan. There were no loans with modified payment terms because of the borrowers' financial difficulties at December 31, 1998 and 1997. The effect of nonaccrual loans on interest income for the years ended December 31, 1998, 1997 and 1996 was not material. The Bank is not committed to advance additional funds to these borrowers. Other real estate owned at December 31, 1998 amounted to $651,268 and at December 31, 1997, amounted to $527,127. Transactions in the allowance for loan losses for the years ended December 31, 1998, 1997 and 1996 were as follows:
1998 1997 1996 Balances at January 1 $ 4,145,422 3,975,000 3,900,000 Provision charged to operations 800,000 850,100 741,662 Loans charged off (593,704) (770,389) (754,360) Recoveries 157,467 90,711 87,698 $ 4,509,185 4,145,422 3,975,000
At December 31, 1998 and 1997, the recorded investment in loans that are considered to be impaired totaled $4,569,242 and $951,000 respectively. Included in the 1998 amount are impaired loans of $4,321,019 for which the related allowance for loan losses is $993,207. The 1997 amount includes $707,404 of impaired loans with a related allowance for loan losses of $238,934. The average recorded investment in impaired loans during 1998, 1997 and 1996 was $2,837,325, $1,201,217 and $1,620,774, respectively. The effect on interest income for impaired loans was not material to the consolidated financial statements in 1998, 1997 or 1996. (5) Premises and Equipment Premises and equipment at December 31, 1998 and 1997 are as follows:
1998 1997 Land $ 2,106,408 2,106,408 Buildings 11,644,535 11,250,664 Equipment and furniture 13,658,373 12,843,138 Leasehold improvements 429,020 399,534 27,838,336 26,599,744 Less accumulated depreciation 17,753,728 16,380,701 $ 10,084,608 10,219,043
(6) Deposits Interest-bearing deposits include certificates of deposit in denominations of $100,000 or more aggregating $32,636,701 and $31,014,878 at December 31, 1998 and 1997, respectively. Interest expense on such certificates was $2,420,835, $2,279,576, and $2,215,271 for 1998, 1997 and 1996, respectively. Scheduled maturities of certificates of deposit at December 31,1998 are summarized as follows:
Time Certificates of Deposit 1999 $118,729,955 2000 41,141,654 2001 11,274,194 2002 3,505,044 2003 2,529,255 2004 and thereafter 260,918 $177,441,020
(7) Securities Sold Under Agreements to Repurchase The agreements have maturities of 4 days to 10 years at December 31, 1998 and 2 days to 350 days at December 31, 1997, and a weighted average interest rate of 4.80% at December 31, 1998 and 5.17% at December 31, 1997. The maximum amounts outstanding at any one month-end and average amount under these agreements during 1998 were $50,587,368 and $32,166,417, respectively. 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. (8) Federal Home Loan Bank Advances Federal Home Loan Bank advances at December 31, 1998, consisted of a $10,000,000, 4.90%, five year advance with a maturity date of October 2, 2003, a $10,000,000, 4.41%, ten year advance with a maturity date of October 20, 2008, callable on or after October 20, 2001, and a $6,900,000, 4.25%, four day advance with a maturity date of January 4, 1999. (9) Income Taxes Total income taxes for the years ended December 31, 1998, 1997 and 1996 were allocated as follows:
1998 1997 1996 Income before income taxes $ 3,386,027 3,666,899 3,266,662 Shareholders' equity for deferred compensation paid in stock (10,477) - - Shareholders' equity for change in unrealized gain (loss) on securities 540,573 833,553 (312,318) $ 3,916,123 4,500,452 2,954,344
For the years ended December 31, 1998, 1997 and 1996, income tax expense attributable to income from operations consists of:
1998 1997 1996 Current: State $ 449,653 871,137 792,674 Federal 3,490,719 3,056,695 2,861,236 3,940,372 3,927,832 3,653,910 Deferred (554,345) (260,933) (387,248) $ 3,386,027 3,666,899 3,266,662
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:
1998 1997 1996 Tax computed at statutory rate $ 3,632,276 3,578,200 3,204,223 Tax exempt interest 527,353) (499,677) (465,955) Dividend exclusion (53,988) (50,369) (34,151) State taxes, net of federal benefit 241,864 549,418 476,584 Nondeductible interest expense 68,089 66,403 52,262 Other items, net 25,139 22,924 33,699 Actual tax expense $ 3,386,027 3,666,899 3,266,662
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1998 and 1997 are presented below:
1998 1997 Deferred tax assets: Allowance for loan losses-book $ 1,800,968 1,655,682 Accrual for postretirement benefits other than pensions 812,079 780,350 Deferred loan fees 96,851 68,714 Deferred compensation and directors fees 623,570 584,019 Pensions 96,307 176,320 Interest on non-accrual loans 119,330 53,835 Other 44,066 60,733 Total gross deferred tax assets 3,593,171 3,379,693 Deferred tax liabilities: Bond discount (103,624) 72,508 Depreciation 282,044 349,554 Allowance for loan losses-tax 133,166 233,040 Net unrealized gains on securities 3,587,543 3,046,970 Other 25,032 22,383 Total gross deferred tax liabilities 3,924,161 3,724,455 Net deferred tax asset (liability) $ (330,990) (344,762)
Realization of deferred tax assets is dependent upon the generation of future taxable income or the existence of sufficient taxable income within the loss carryback period. A valuation allowance is recognized when it is more likely than not that some portion of the deferred tax assets will not be realized. In assessing the need for a valuation allowance, management considers the scheduled reversal of the deferred tax liabilities, the level of historical taxable income and projected future taxable income over the periods in which the temporary differences comprising the deferred tax assets will be deductible. Based on its assessment, management determined that no valuation allowance is necessary. (10) Pension Plan and Other Benefit Plans The Bank has a noncontributory defined benefit pension plan covering substantially all employees. The plan's defined benefit formula generally bases payments to retired employees upon their length of service multiplied by a percentage of the average monthly pay over the last five years of employment. The Bank sponsors a defined benefit health care plan that provides postretirement medical, dental and prescription drug benefits to full-time employees who meet minimum age and service requirements. Postretirement life insurance benefits are also provided to certain employees who retired prior to July 1981. The plan is contributory, with retiree contributions adjusted annually, and contains other cost sharing features such as deductibles and coinsurance. The accounting for the plan anticipates future cost-sharing changes to the written plan that are consistent with the Bank's expressed intent to increase the retiree contribution rate annually for the expected general inflation rate for that year. The Bank's policy is to fund the cost of medical benefits in amounts determined at the discretion of management. The following table presents (1) changes in the plan's accumulated benefit obligation and plan assets and (2) the plan's funded status reconciled with amounts recognized in the Company's consolidated balance sheet at December 31, 1998 and 1997:
1998 1997 Change in projected benefit obligation: Projected benefit obligation at beginning of year $13,370,944 11,881,414 Service cost 359,955 324,126 Interest cost 921,621 872,423 Actuarial loss 633,329 898,243 Benefits paid (736,645) (605,262) Projected benefit obligation at end of year 14,549,204 13,370,944 Change in fair value of plan assets: Fair value of plan assets at beginning of year 16,777,650 15,036,423 Actual return on plan assets 3,201,812 2,362,605 Expenses paid (32,972) (16,116) Benefits paid (736,645) (605,262) Fair value of plan assets at end of year 19,209,845 16,777,650 Funded Status: Plan assets in excess of projected benefit obligation at end of year $ 4,660,641 3,406,706 Unrecognized net asset being recognized over 10 years 629,790 699,678 Prior service cost not yet recognized in net periodic pension costs 470,599 513,381 Unrecognized net actuarial (gain) (5,804,670) (4,867,446) Accrued pension costs, included in other liabilities $ (43,640) (247,681)
Net pension cost in 1998, 1997, and 1996 is comprised of the following:
1998 1997 1996 Components of net periodic benefit cost: Service cost, benefit earned during the year $ 359,955 324,126 346,403 Interest cost on projected benefit obligation 921,621 872,423 825,891 Expected return on plan assets (1,395,769) (1,104,424) (1,060,451) Net amortization and deferral (89,848) 12,646 58,569 Net periodic pension cost $ (204,041) 104,771 170,412
The principal actuarial assumptions used in 1998, 1997 and 1996 were as follows:
1998 1997 1996 Discount rate 6.75% 7.00% 7.50% Expected long-term rate of return on assets 8.50% 8.50% 8.50% Assumed rate of future compensation increase 5.00% 5.00% 5.00%
The plan's assets at December 31, 1998 and 1997 are invested in common and preferred stocks, U.S. Government securities, corporate bonds and notes, and mutual funds. The Bank also sponsors a defined contribution profit sharing, savings and investment plan which covers all employees with a minimum of 1,000 hours of annual service. The Bank matches at the rate of 50% of the first 6% of an eligible employee's current earnings. Expense under the plan totaled $633,019, $591,669, and $550,854 for the years ended December 31, 1998, 1997 and 1996, respectively. The following table presents (1) changes in the plan's accumulated postretirement benefit obligation and plan assets and (2) the plan's funded status reconciled with amounts recognized in the Company's consolidated balance sheet at December 31, 1998 and 1997:
1998 1997 Change in accumulated postretirement benefit obligation: Accumulated postretirement benefit obligation at beginning of year $ 1,848,000 1,628,000 Service cost 42,000 40,000 Interest cost 144,000 117,000 Participants contributions 56,940 53,940 Actuarial loss 535,405 84,149 Benefits paid (412,345) (75,089) Accumulated postretirement benefit obligation at end of year 2,214,000 1,848,000 Accrued postretirement benefit cost: Accrued postretirement benefit cost at end of year 2,214,000 1,848,000 Unrecognized net actuarial gain (loss) (361,732) 173,673 Accrued postretirement benefit cost at end of year, included in other liabilit Investment in subsidiary bank 62,758,019 57,824,425 Dividend receivable 797,570 641,611 Securities available for sale 1,099,148 1,094,697 Other assets 1,801,074 844,875 Total assets 66,789,564 62,289,063 Liabilities and shareholders' equity: Dividend payable 697,570 641,611 Reserve for income taxes (12,335) 0 Service cost $ 42,000 40,000 42,000 Interest cost 144,000 117,000 112,000 Net amortization and deferral - (7,000) - Net periodic postretirement cost $ 186,000 150,000 154,000
The postretirement benefit obligation was determined using a discount rate of 6.75% for 1998 and 7.0% for 1997. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation initially ranged from 7.9% to 9.5% in 1999, depending on the specific plan, and was decreased to 5.5% in 2005 and thereafter, over the projected payout of benefits. The health care cost trend rate assumption can have a significant effect on the amounts reported. If the health care cost trend rate were decreased one percent, the accumulated postretirement benefit obligation as of December 31, 1998 would have increased by 7.0%, and the aggregate of service and interest cost would increase by 4.8%. If the health care cost trend rate were decreased one percent, the accumulated postretirement benefit obligation as of December 31, 1998 would have decreased by 6.8% and the aggregate of service and interest cost would have decreased by 3.2%. However, the plan limits the increase in the Bank's annual contributions to the plan for most participants to the increase in base compensation for active employees. (11) Related Party Transactions Members of the Board of Directors, certain Bank officers, and their immediate families directly, or indirectly through entities in which they are principal owners (more tha 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 sub stantially the same terms, including interest rates and collateral, as those prevailing at the time for commparable transactions with other persons. These loans and commitments, which did not involve more than the normal risk of collectibility or present other unfavorable features, are summarized as follows for the years ended December 31, 1998 and 1997:
1998 1997 Balance at beginning of year $ 9,078,914 8,426,537 Additions 24,545,805 27,755,844 Amounts collected (26,067,032) (27,103,467) Balance at end of year $ 7,557,687 9,078,914
(12) Expenses The following expenses, which exceeded 1% of total revenues (total interest income plus other operating income) in at least one of the years presented, are included in other operating expenses:
Years ended December 31 1998 1997 1996 Stationery and supplies $ 437,882 389,139 469,008 Data processing service 1,618,091 1,358,882 1,155,576 Advertising 398,208 364,914 448,640 Amortization of intangible assets 587,303 587,303 587,303
(13) Commitments and Contingencies In the normal course of business, there are outstanding various commitments and contingent liabilities, suchas commitments to extend credit, which are not re- flected in the accompanying consolidated financial statements. Commitments to outside parties under standby letters of credit, unused portions of lines of credit, and commitments to fund new loans totaled $1,439,623, $100,372,761 and $9,513,063, respectively, at December 31, 1998. Commitments to outside parties under standby letters of credit, unused portions of lines of credit, and com- mitments to fund new loans totaled $3,180,233, $88,607,434 and $2,429,427, respectively, at December 31, 1997. 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 amount 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, 1998, the Corporation had outstanding commitments totaling $877,218 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. (14) Shareholders' Equity Under Federal Reserve regulations, the Bank is limited to the amount it may loan to the Corporation, unless such loans are collaterlized by specific obligations. At December 31, 1998, 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 reg- ulations, for the current year and the two preceding years. At December 31, 1998, $8,794,583 was available for the declaration of dividends. (15) Parent Company Financial Information Condensed parent company only financial statement information of Chemung Financial Corporation is as follows:
Balance Sheets December 31 1998 1997 Assets: Cash on deposit with subsidiary bank $ 333,753 1,883,455 Investments in subsidiary bank 62,758,019 57,824,425 Dividend receivable 797,570 641,611 Securities available for sale 1,099,148 1,094,697 Other assets 1,801,074 844,875 Total assets 66,789,564 62,289,063 Liabilities and shareholders' equity: Dividend payable 697,570 641,611 Reserve for income taxes (12,335) 0 Deferred tax liability 14,702 10,275 Total liabilities 699,937 651,886 Shareholders' equity: Total shareholders' equity 66,089,627 61,637,177 Total liabilities and shareholders' equity $ 66,789,564 62,289,063
Statements of Income
Years Ended December 31, 1998 1997 1996 Income: Interest and dividends $ 112,375 111,341 14,378 Gain on sale of securities - 28,981 35,378 Other income 2,533 - - Dividends from subsidiary bank 3,137,387 5,006,464 3,203,223 Income before equity in undistributed earnings of subsidiary bank 3,252,295 5,146,786 3,253,139 Equity in undistributed earnings of subsidiary bank 4,126,662 1,749,017 2,922,189 Operating expenses 78,546 - - Income before income taxes 7,300,411 6,895,803 6,175,328 Income taxes 3,273 38,583 17,805 Net Income $7,297,138 6,857,220 6,157,523
Statements of Cash Flows
December 31 1998 1997 1996 Cash flows from operating activities: Net Income $ 7,297,138 6,857,220 6,157,523 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of subsidiary (4,126,663) (1,749,017) (2,922,189) (Increase) in dividend receivable (155,959) (61,391) (59,738) Gain on sale of securities, net - (28,980) (35,538) Increase in other assets (956,199) (844,875) - Decrease in other liabilities (9,685) - - Net cash provided by operating activities 2,048,632 4,172,957 3,140,038 Cash flow from investing activities: Proceeds from sales of securities available for sale - 232,022 151,738 Purchases of securities available for sale - - (1,000,000) Net cash provided (used) by investing activities - 232,022 (848,262) Cash flows from financing activities: Cash dividends paid (2,681,428) (2,445,074) (2,143,465) Purchases of treasury stock (984,284) (107,768) (514,599) Sale of treasury stock 67,378 - 202,020 Net cash used by financing activities (3,598,334) (2,552,842) (2,456,044) Increase (decrease) in cash and cash equivalents (1,549,702) 1,852,137 (164,268) Cash and cash equivalents at beginning of year 1,883,455 31,318 195,586 Cash and cash equivalents at end of year $ 333,753 1,883,455 31,318
(16) 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, 1998 and 1997. The estimated fair value of the Corporation's financial instruments as of December 31, 1998 and 1997 are as follows (dollars in thousands):
1998 1997 Carrying Fair Carrying Fair Amount Value (1) Amount Value (1) Financial assets: Cash and cash equivalents $ 27,516 27,516 32,997 32,997 Interest-bearing deposits 1,304 1,304 1,421 1,421 Securities 241,955 241,955 194,527 194,527 Net loans 324,746 328,370 292,831 294,877 Financial liabilities: Deposits: Demand, savings, NOW and money market accounts $ 287,617 287,617 277,243 277,243 Time certificates 178,522 180,080 173,801 174,394 Repurchase agreements 50,587 50,867 9,448 9,475 Federal Home Loan Bank advances 26,900 26,961 16,300 16,345 (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.
(17) Regulatory Capital Requirement The Corporation and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory -- and possibly additional discretionary -- actions by regulators that, if undertaken, could have a direct material effect on the consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off balance sheet items as calculated under regulatory accounting practices. The capital amounts and 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 (all as defined in the applicable regulations). Management believes, as of December 31, 1998, and 1997, that the Corporation and the Bank meet all capital adequacy requirements to which they are subject. As of December 31, 1998, 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 as set forth in the table. There have been no 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:
For Capital To Be Well Actual Adequacy Purposes Capitalized Amount Ratio Amount Ratio Amount Ratio As of December 31, 1998 Total Capital (to risk weighted assets): Consolidated $ 58,883,505 16.67% > $ 28,261,391 > 8.00% > $ 35,326,739 > 10.00% Subsidiary $ 55,534,144 15.85% > $ 28,028,918 > 8.00% > $ 35,036,147 > 10.00% Tier 1 Capital (to risk weighted assets): Consolidated $ 54,466,510 15.42% > $ 14,130,696 > 4.00%> $ 21,196,044 > 6.00% Subsidiary $ 51,153,025 14.60% > $ 14,014,459 > 4.00%> $ 21,021,688 > 6.00% Tier 1 Capital (to average assets): Consolidated $ 54,466,510 9.51% > $ 17,182,616 > 3.00%> $ 28,637,693 > 5.00% Subsidiary $ 51,153,025 8.97% > $ 17,109,609 > 3.00%> $ 28,516,015 > 5.00% As of December 31, 1997 Total Capital (to risk weighted assets): Consolidated $ 54,121,842 17.44% > $ 24,824,997 > 8.00%> $ 31,031,246 > 10.00% Subsidiary $ 50,300,617 16.31% > $ 24,669,976 > 8.00%> $ 30,837,470 > 10.00% Tier 1 Capital (to risk weighted assets): Consolidated $ 50,239,646 16.19% > $ 12,412,499 > 4.00%> $ 18,618,749 > 6.00% Subsidiary $ 46,442,344 15.06% > $ 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%> $ 26,459,155 > 5.00% Subsidiary $ 46,442,344 8.80% > $ 15,837,213 > 3.00%> $ 26,395,355 > 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 EXHIBIT F NOTICE OF ANNUAL MEETING, PROXY STATEMENT ----------------------------------------- DATED APRIL 6, 1999, AND PROXY FORM ---------------------------------------- ______________ Notice of 1999 Annual Meeting and Proxy Statement ______________ April 6, 1999 Dear Shareholder: You are cordially invited to attend the Annual Meeting of Shareholders to be held on Wednesday, May 12, 1999, at 7:00 p.m., local time, at the National Warplane Museum, Town of Big Flats, Elmira-Corning Regional Airport, 17 Aviation Drive, Horseheads, NY 14845 (map provided below). Following the meeting, desserts, coffee, tea and other refreshments will be served. The single item on the agenda requiring Shareholders' vote will be to elect six directors - the candidates nominated for three-year terms, all currently serving, are: Robert E. Agan, Donald L. Brooks, Jr., Stephen M. Lounsberry III, Thomas K. Meier, Charles M. Streeter, Jr. and Nelson Mooers van den Blink. The attached Proxy Statement sets forth in detail 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 1999. 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 12. Sincerely yours, 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 wil l be held at the National Warplane Museum, Elmira-Corning Regional Airport, 17 Aviation Drive, Horseheads, NY 14845, on Wednesday, May 12, 1999, at 7:00 p.m. for the following purposes: 1. to elect six (6) directors, each to hold office for a term of three years and until their respective successors have been elected and qualified; and 2. to transact such other business as may properly come before the meeting or any adjournments thereof. The Board of Directors has fixed the close of business on March 26, 1999 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 Donna C. Denton Secretary April 6, 1999 CHEMUNG FINANCIAL CORPORATION ONE CHEMUNG CANAL PLAZA, P.O. BOX 1522, ELMIRA, NEW YORK PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS, MAY 12, 1999 - ------------------------------------------------------------------------------ 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 12, 1999, at 7:00 p.m., local time, at the National Warplane Museum, Elmira- Corning Regional Airport, 17 Aviation Drive, Horseheads, 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 6, 1999. 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 March 26, 1999 are entitled to receive notice of and to vote at the Annual Meeting. As of, March 11, 1999 there were 4,098,154 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 the resonable expense. ACTION TO BE TAKEN UNDER PROXY: It is proposed that at the Annual Meeting action will be taken on the matters set forth in the accompanying Notice of Annual Meeting and described in this Proxy Statement. Proxies returned by Shareholders and not revoked will be voted for the election of the nominees for directors unless Shareholders instruct otherwise on the Proxy. 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 1999 Annual Meeting of Shareholders is six (6) 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:
Name and Age Length of Service Principal Occupation During As Director Past 5 Years NOMINEES WITH TERMS EXPIRING IN 2002 Robert E. Agan Age 60 Since 1986 Chairman of the Board, Chief Executive Officer and President of Hardinge Inc., a world-wide machine tool manufacturer. Donald L. Brooks, Jr. Age 70 Since 1985 Retired physician; Director of Arnot Ogden Medical Center. Stephen M. Lounsberry Age 45 Since 1995 President of Applied Technology Manufacturing since July 17, 1996, a manufacturer of machined industrial and railroad component parts; formerly President of Moore & Steele Corp. Thomas K. Meier Age 58 Since 1988 President of Elmira College. Charles M. Streeter, Jr. Age 59 Since 1985 President of Streeter Associates, Inc., a general building contractor. Nelson Mooers van den Blink Age 64 Since 1985 Chairman of the Board, Chief Executive Officer and Treasurer of The Hilliard Corporation, a motion control equipment, oil reclaimer and filter manufacturer. DIRECTORS CONTINUING IN OFFICE WITH TERMS EXPIRING IN 2000 David J. Dalrymple Age 45 Since 1993 President of Dalrymple Holding Corporation, parent company for several construction materials and highway construction companies. Edward B. Hoffman Age 67 Since 1993 Partner with the law firm of Sayles, Evans, Brayton, Palmer & Tifft. John F. Potter Age 53 Since 1991 President of Seneca Beverage Corporation, a wholesale distributor of beer and water products. William C. Ughetta Age 66 Since 1985 Lawyer, of Counsel to the law firm of Sayles, Evans, Brayton, Palmer & Tifft. Retired since June 1, 1998 from Corning Incorporated; formerly Senior Vice President and General Counsel of Corning Incorporated, a diversified manufacturing company. Director of Covance, Inc. and GlobalLift Technologies, Inc. Jan P. Updegraff Age 56 Since 1996 President and Chief Executive Officer of the Corporation and Bank; formerly Vice President and Treasurer of the Corporation and Chief Operating Officer and Executive Vice President of the Bank. DIRECTORS CONTINUING IN OFFICE WITH TERMS EXPIRING IN 2001 John W. Bennett Age 65 Since 1988 Retired since June 30, 1998; formerly Chairman of the Board, President and Chief Executive Officer of the Corporation and Bank. Director of Hardinge Inc. Robert H. Dalrymple Age 48 Since 1995 Secretary of Dalrymple Holding Corporation, a parent company for several construction materials and highway construction companies. Frederick Q. Falck Age 50 Since 1997 President of L.M. Trading Company, an agricultural investment corporation; Vice President of Arnot Realty Corporation; Chairman of The Rathbone Corporation. Ralph H. Meyer Age 59 Since 1985 Retired since August 1, 1998. Formerly President and Chief Executive Officer of Guthrie Healthcare System, a vertically integrated health care delivery system. Richard W. Swan Age 50 Since 1985 President of Swan & Sons-Morss Co., Inc., an insurance brokerage agency. William A. Tryon Age 68 Since 1987 Chairman of the Board and Chief Executive 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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS: The following table sets forth information, as of January 31, 1999, with respect to any person who is known by the Corporation to be the beneficial owner of more than five percent of the Corporation's Common Stock:
Name and Address of Number of Shares of Common Percent of Shares Beneficial Owner Stock Beneficially Owned Outstanding Chemung Canal Trust Company One Chemung Canal Plaza Elmira, NY 14902 748,595(1) 18.2% Chemung Canal Trust Company Profit-Sharing, Savings and Investment Plan One Chemung Canal Plaza Elmira, NY 14902 453,698(2) 11.1% David J. Dalrymple 274 Upper Coleman Avenue Elmira, NY 14905 617,556(3,5) 15.1%(6) Robert H. Dalrymple 875 Upland Drive Elmira, NY 14905 595,324(4,5) 14.5%(6) 1 Held by the Bank in various fiduciary capacities, either alone or with others. Includes 26,144 shares held with sole voting and dispositive powers, 722,451 shares held with shared power to vote and 375,822 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 86,922 shares held directly, 3,808 shares held as custodian for Mr. Dalrymple's children under the New York State Uniform Gifts to Minors Act, 448,510 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 78,316 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 6,776 shares held by Mr. Dalrymple's spouse as to which shares Mr. Dalrymple disclaims beneficial ownership. 4 Includes 64,690 shares held directly, 3,808 shares held as custodian for Mr. Dalrymple's children under the New York State Uniform Gifts to Minors Act, 448,510 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 78,316 shares held by Dalrymple Holding Corporation (see footnote 3). Excludes 2,690 shares held by Mr. Dalrymple's spouse as to which shares Mr. Dalrymple disclaims beneficial ownership. 5 Excludes 30,230 shares held by Susquehanna Supply Company of which David J. Dalrymple and Robert H. Dalrymple each own 23.1% of the outstanding common stock. 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 526,826 of the same shares. Without such multiple counting, David and Robert Dalrymples' total aggregate beneficial ownership is 16.7% 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, 1999, each director or nominee and each Executive Officer named in the Summary Compensation Table herein, individually, and all directors, nominees and Executive Officers as a group beneficially owned Common Stock as reported to the Corporation as of said date as follows (unless otherwise indicated, each of the persons named has sole voting and investment power with respect to the shares listed):
Directors, Nominees and Amount and Nature Percent of Executive Officers of Beneficial Ownership Shares Outstanding* Robert E. Agan 12,336A * John W. Bennett 14,377B * Donald L. Brooks, Jr. 14,288A * James E. Corey III 6,696B * David J. Dalrymple 617,556C 15.1%C Robert H. Dalrymple 595,324C 14.5%C Frederick Q. Falck 127,505A, D 3.1% Edward B. Hoffman 8,919A * Stephen M. Lounsberry III 18,434A * Thomas K. Meier 4,287 * Ralph H. Meyer 13,622A * John F. Potter 27,301A, E * Charles M. Streeter, Jr. 23,958A, F * Richard W. Swan 71,876G 1.8% Joseph J. Tascone 3,681B * William A. Tryon 22,179 * William C. Ughetta 25,995A * Jan P. Updegraff 8,597B * Nelson Mooers van den Blink 3,375 * All Directors, Nominees and Executive Officers as a group (25 persons) 1,090,219H 26.6% * Unless otherwise noted, less than 1% per individual.
A Includes shares that Messrs. Agan (11,436), Brooks (1,788), Falck (963), Hoffman (4,658), Lounsberry (3,356), Meier (287), Meyer (8,432), Potter (8,605), Streeter (3,532), and Ughetta (5,995) 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, Updegraff, Corey and Tascone have a vested interst in 12,272, 8,395, 4,204 and 3,680 such shares hold by the Plan, respectively. Under the provisions of the plan, the trustee holds for the benefit of all employees who participate inthe Plan 453,698 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. D Includes 200 shares held directly and 126,342 shares held in various trusts of which Mr. Falck is a co-trustee or income beneficiary. Excludes 147,990 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 12,464 shares owned by Seneca Beverage Corporation, of which corporation Mr. Potter is an officer, director and the principal shareholder. F Includes 10,836 shares owned by Streeter Associates, Inc., of which corporation Mr. Streeter is an officer, director and the principal shareholder. G Includes 11,700 shares owned by Swan & Sons-Morss Co., Inc., of which corporation Mr. Swan is an officer, director and one of the principal shareholders, 33,480 shares held in trusts over which Mr. Swan has voting and dispositive power, and 429 shares held by Mr. Swan as custodian for his minor children. Does not include 4,316 shares held by others as trustees for a trust of which Mr. Swan is an income beneficiary or 4,011 shares held by Mr. Swan's spouse, as to which shares Mr. Swan disclaims beneficial ownership. H Does not include 24,179 shares owned by spouses of certain officers and directors as to which shares such officers and directors disclaim beneficial ownership and does not include 526,826 shares included under each of David J. Dalrymple and Robert H. Dalrymple (see footnote 6 under SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS). In addition, does not include 112, shares of preferred stock owned, by certain officers, direcotrs and their spouses of CCTC Funding Corp., a subsidiary of Chemmung Canal Trust Company, which qualifies as a Real Estate Investment Trust under the Internal Revenue Code. accrual year and may be further deferred at the election of the participant. 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 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 1998, Mr. Updegraff received an incentive bonus of $40,000. No long-term awards were issued. Senior Officer participants as a group, including Mr. Updegraff, received incentive bonus awards totaling $191,332 for 1998. In evaluating the performance and recommending the compensation of the Chief Executive Officer and the compensation quidelines for the Bank's other senior mangement, the Committee has taken particular note of management's ability during 1998 in achieving certain profit, growth, and operational objectives which were established by the Board of Directors in the Bank Plan at the beginning of 1998 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 performace 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 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 take into account mangement's consistent commitment to the long-term success of the Corporation and the 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 Richard W. Swan Donald L. Brooks, Jr. Frederick Q. Falck William A. Tryon David J. Dalrymple Ralph H. Meyer William C. Ughetta
Executive Officers - ------------------ During 1998, 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 65 Retired as of June 30, 1998; formerly 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 56 President and Chief Executive Officer of the Corporation and the Bank (1998); formerly President and Chief Operating Officer of the Corporation and the Bank (1996); and prior thereto Vice President and Treasurer of the Corporation and Executive Vice President of the Bank (1990). Daniel F. Agan1 65 Vice President of the Corporation (1988) and Senior Vice President of the Bank (1984). James E. Corey III 52 Vice President of the Corporation (1993) and Executive Vice President of the Bank (1998); formerly Senior Vice President of the Bank (1993). Joseph J. Tascone 51 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 47 Vice President of the Corporation (1997); formerly Secretary (1986); and Executive Vice President of the Bank (1998); formerly Senior Vice President of the Bank (1996). Thomas C. Karski 53 Vice President of the Corporation (1998) and Senior Vice President of the Bank (1998); formerly Vice President of the Bank (1987). Joseph P. Manning 60 Vice President of the Corporation (1998) and Senior Vice President of the Bank (1998); formerly Vice President of the Bank (1993). John R. Battersby Jr. 48 Treasurer of the Corporation and Senior Vice President, Chief Financial Officer and Treasurer of the Bank (1998); formerly Treasurer of the Corporation and Vice President and Treasurer of the Bank (1995); prior thereto Assistant Treasurer of the Corporation and Assistant Vice President and Treasurer of the Bank. Donna C. Denton 43 Secretary of the Corporation (1998) and Vice President and Secretary of the Bank (1998); formerly Vice President of the Bank (1996) and Senior Pension Officer (1991). 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 1998 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 $100,000. At present, the officers of the Corporation are not separately compensated for services rendered by them to the Corporation. It presently is contemplated that such will continue to be the policy of the Corporation.
Summary Compensation Table Annual Compensation Name and Principal Position Held Year Salary($) Bonus($)1 All Other Compensation($)2 John W. Bennett(3) 1998 135,865 - 7,670 Former Chairman of the Board of the 1997 209,308 40,000 9,218 Corporation and the Bank 1996 200,308 25,000 8,541 Jan P. Updegraff 1998 175,577 40,000 10,513 President and Chief Executive Officer of 1997 128,846 20,000 8,463 the Corporation and the Bank 1996 114,039 15,000 7,342 James E. Corey III 1998 91,210 12,000 8,096 Vice President of the Corporation and 1997 85,462 11,500 7,162 Executive Vice President of the Bank 1996 80,385 12,167 6,333 Joseph J. Tascone 1998 90,900 12,700 5,814 Vice President of the Corporation and 1997 87,569 18,000 6,127 Senior Vice President of the Bank 1996 82,685 12,790 5,575 1 Includes amounts allocated for the year indicated, whether paid or deferred, to such person under the Bank-Wide and Management Incentive Bonus Plans. 2 Includes amounts allocated for the year indicated to such person under the Bank's Profit-Sharing, Savings and Investment Plan. 3 Mr. Bennett retired as an officer and employee effective June 30, 1998.
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 $31,128 for a participant attaining age 65 in 1998). Due to a full funding limitation, the Bank has made no contributions to the Pension Plan for the years 1996, 1997 and 1998. 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. Updegraff is the only active employee participating. 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 15 20 25 30 35(1) $100,000 24,715 32,953 41,192 48,430 55,668 $120,000 30,265 40,353 50,442 59,330 68,218 $150,000 38,590 51,453 64,317 75,680 87,043 $190,000 49,690 66,253 82,817 97,480 112,143 $200,000 52,465 69,953 87,442 102,930 118,418 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, 1998: Jan P. Updegraff (28), James E. Corey III (11), and Joseph J. Tascone (12). Mr. Bennett retired June 30, 1998 and is receiving benefits under both plans. Employment Contracts - -------------------- The Bank has employment contracts with twenty-three 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, 2000, except for Messrs. Battersby, Corey, Denton, Karski, Manning, Tascone and Updegraff whose guaranteed terms end December 31, 2001, 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 by terminated for caused 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 a award plans for officers or directors. Comparative Return Performance Graph - ------------------------------------ Comparison of Five-Year Cumulative Total Returns For Fiscal Years Ending December 31, 1994 - 1998 Among Chemung Financial Corporation, CRSP Total Returns Index for NASDAQ Stock Market (US Companies) and NASDAQ - Bank Stocks Index (OMITTED GRAPHIC MATERIAL - SEE APPENDIX)
1993 1994 1995 1996 1997 1998 Chemung Financial Corporation 100.00 114.9 129.6 164.16 209.22 289.09 4 9 9 CRSP NASDAQ Composite 100.00 97.80 138.3 170.0 208.60 293.2 0 0 NASDAQ - Bank Stocks 100.00 99.60 148.4 195.90 328.00 324.9 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, 1993. 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 ten (10) regularly scheduled meetings during the year ended December 31, 1998. 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, 1998. 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 1998 this Committee held three (3) meetings. On December 31, 1998, its members were Messrs. Lounsberry (Chairperson) Agan, Brooks, R. Dalrymple, Falck, Potter, Streeter and Mrs. van den Blink. 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 two (2) meetings in 1998 and on December 31, 1998, its members were Messrs. Meier (Chairperson), Brooks, D. Dalrymple, Evans, Falck, Meyer, Swan, Tryon and Ugnetta. During the year ended December 31, 1998, 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. 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 1998 was $249,250. 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 1998. 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. The Deferred Director Fee Plan for non-employee Directors provides that Directors may elect to defer receipt of all or any part of their fees until a date or dates determined under the Plan. Cash deferrals are credited with interest compounded quarterly at the Applicable Federal Rate for short-term debt instruments while phantom units (fees deferred into the Memorandum Unit Value Account), appreciate or depreciate as would an actual share of the Corporation's common stock purchased on the deferral date. Cash deferrals will be paid in cash and phantom unites will be paid in shares of the Corporation's common stock. 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 normal risk of collectibility and were made on substantiallly 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 Continental Casualty Company, a memeber of the CNA Group, 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 April 1999, cost $16,800 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 and of which Mr. Ughetta is of counsel, 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 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 1999. Representatives of KPMG LLP will be present at the Annual Meeting of Shareholders with the opportunity to make a statement. The representatives will respond to appropriate question. OTHER BUSINESS: Management knows of no business which will be presented for consideration, other than the matter 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 judgement. SHAREHOLDER PROPOSAL: Qualified Shareholders desiring to present a proposal at the 2000 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, 1999. 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, 1998, all Section 16 (a) filing requirements applicable to its executive officers, directors and any ten percent shareholder were complied with, except that one change in beneficial ownership was not reported on a timely basis by Mr. Swan. OTHER MATTERS: Financial statements for the Corporation and its consolidated subsidiaries are included in Chemung Financial Corporation's Annual Report to shareholders for the year 1998 which was mailed to shareholders beginning April 6, 1999. A COPY OF CHEMUNG FINANCIAL CORPORATION'S 1998 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: DONNA C. DENTON, VICE PRESIDENT AND SECRETARY, CHEMUNG CANAL TRUST COMPANY, ONE CHEMUNG CANAL PLAZA, ELMIRA, NEW YORK, 14902. BY ORDER OF THE BOARD OF DIRECTORS Donna C. Denton Secretary Date: April 6, 1999 One Chemung Canal Plaza Elmira, New York 14902 CHEMUNG FINANCIAL CORPORATION ANNUAL MEETING OF SHAREHOLDERS - MAY 12, 1999 PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CHEMUNG FINANCIAL CORPORATION John R. Battersby 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 12, 1999 (including any adjournments or postponements thereof) and to vote all shares of Common Stock of Chemung Financial Corporation which the undersigned is entitled to vote on all matters that properly come before the meeting, subject to any directions indicated. (To be signed on Reverse Side) - ------------------------------------------------------------------------------ THIS PROXY WILL, WHEN PROPERLY EXECUTED, BE VOTED AS DIRECTED. IF NO DIRECTIONS TO THE CONTRARY ARE GIVEN, THE PROXY AGENTS INTEND TO VOTE FOR THE NOMINEES. 1. Election of NOMINEES: 3-YEAR TERM: Directors For _______ Withheld________ Robert E. Agan Donald L. Brooks, Jr. Stephen M. Lounsberry III Thomas K. Meier Charles M. Streeter, Jr. Nelson Mooers van den Blink For, except vote withheld from the following nominee (s): _______________________________________________________ I/We will attend the Meeting __________ Number in group __________ ___________________________Date_______ ______________________Date_________ Signature Signature if Held Jointly NOTE: Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee, custodian or guardian, please give full titel as such. EX-27 5 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S AUDITED ANNUAL FINANCIAL STATEMENTS AND DISCLOSURES FOR THE PERIOD ENDED DECEMBER 31, 1998 AS PRESENTED IN ITS ANNUAL 1998 FORM10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND DISCLOSURES. 1,000 12-MOS DEC-31-1998 DEC-31-1998 27,516 1,304 0 0 235,294 6,661 6,661 329,255 4,509 623,660 466,139 57,487 13,943 20,000 0 0 43 66,047 623,660 27,865 12,622 918 41,405 15,247 17,666 23,739 800 216 20,473 10,683 7,297 0 0 7,297 1.77 1.77 4.46 4,458 395 0 0 4,145 594 158 4,509 3,197 0 1,312
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