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.
Passage of the Gramm-Leach-Bliley Act during the fourth quarter of 1999 permitted qualified bank holding companies to elect to become financial holding companies and to engage in expanded financial activities. During the second quarter of 2000, Chemung Financial Corporation exercised this election, and on June 22, 2000 received approval from the Federal Reserve Bank of New York. This provides the Corporation with the flexibility to offer a wider array of financial services, such as insurance products, mutual funds, and brokerage services. This will allow us to better serve the needs of our clients as well as provide an additional source of fee based income. To that end, the Corporation established a financial services subsidiary, CFS Group, Inc., which commenced operation during September of 2001. As such, Chemung Financial Corporation now operates as a financial holding company with two subsidiaries, Chemung Canal Trust Company (the "Bank"), a full-service community bank with full trust powers, and CFS Group, Inc., a financial services subsidiary.
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. During 2000, the Corporation established a financial services subsidiary, CFS Group, Inc., to provide additional financial services. CFS Group, Inc. began operations during September 2001. Exhibits I through VI included in the Corporation's Annual Report to Shareholders for the year ended December 31, 2001, set forth financial information with respect to the Corporation's financial position and results of operations. Management's Discussion and Analysis of Financial Condition and Results of Operations, including Exhibits I through VI, is incorporated herein by reference.
(c) Narrative description of business
Business
The Bank is a New York State chartered, independent commercial bank, which engages in full-service commercial and consumer banking and trust business. The Bank's services include accepting time, demand and savings deposits including NOW accounts, Super NOW accounts, regular savings accounts, insured money market accounts, investment certificates, fixed-rate certificates of deposit and club accounts. Its services also include making secured and unsecured commercial and consumer loans, financing commercial transactions either directly or participating with regional industrial development and community lending corporations, making commercial, residential and home equity mortgage loans, revolving credit loans with overdraft checking protection, small business loans and student loans. Additional services include renting of safe deposit facilities, selling uninsured annuity and mutual fund investment products, and the use of networked automated teller facilities.
Trust services provided by the Bank include services as executor, trustee under wills and agreements, guardian and custodian and trustee and agent for pension, profit-sharing and other employee benefit trusts as well as various investment, pension, estate planning and employee benefit administrative services.
For additional information, which focuses on the results of operation of the Corporation and the Bank, see Management's Discussion and Analysis of Financial Condition and Results of Operations, incorporated herein by reference.
There have been no material changes in the manner of doing business by the Corporation or the Bank during the fiscal year ended December 31, 2001.
Competition
Six (6) of the Bank's thirteen (13) full-service branches, in addition to the main office, are located in Chemung County. The other seven (7) full-service branches are located in the adjacent counties of Schuyler, Steuben, and Tioga. All facilities are located in New York State.
Within these market areas, the Bank encounters intense competition in its banking business from several other financial institutions offering comparable products. These competitors include other commercial banks (both locally based independent banks and local offices of regional and major metropolitan-based banks), as well as stock savings banks and credit unions. In addition, the Bank experiences competition in marketing some of its services from local operations of insurance companies, brokerage firms and retail financial service businesses.
Dependence Upon a Single Customer
Neither the Corporation nor the Bank is dependent upon a single or limited number of customers.
Research and Development
Expenditures for research and development were immaterial for the years 2001, 2000, and 1999.
Employees
As of December 31, 2001, the Bank employed 315 persons on a full-time equivalent basis.
Excutive Officers
The executive officers of the Corporation are elected annually and hold office until their respective successors have been elected and qualified or until death, resignation or removal by the Board of Directors. Each executive officer of the Corporation is also an executive officer of the Bank. There are no arrangements or understandings between the persons named and any other person pursuant to which such officers were selected.
(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
Year Ended December 31,
For the purpose of these computations, non-accruing loans are included in the daily average loan amounts outstanding. Daily balances were used for average balance computations. Investment securities are stated at amortized cost. 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 and dividends earned and interest paid resulting from changes in volume and changes in rates (in thousands of dollars):
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):
Included in the above table are $239,137, $222,707 and $227,384 (in thousands of dollars) of securities available for sale at December 31, 2001, 2000 and 1999, respectively.
The following table sets forth the maturities of debt securities at December 31, 2001 and the weighted average yields of such securities (all securities are calculated on the basis of the amortized cost and effective yields weighted for the scheduled maturity of each security, except mortgage-backed securities which are based on the average life at the projected prepayment speed of each security). Federal tax equivalent adjustments have been made in calculating yields on municipal obligations (in thousands of dollars):
Loan Portfolio
The following table shows the Corporation's loan distribution at the end of each of the last five years (in thousands of dollars):
The following table shows the maturity of loans (excluding residential mortgages and consumer loans) outstanding as of December 31, 2001. Also provided are the amounts due after one year classified according to the sensitivity to changes in interest rates (in thousands of dollars):
Non-accrual and Past Due Loans
The following table summarizes the Corporation's non-accrual and past due loans (in thousands of dollars):
Information with respect to non-accrual loans at December 31, 2001, 2000 and 1999 is as follows (in thousands of dollars):
(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 non-accrual 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 non-accrual if management believes such classification is warranted for other reasons.
Potential Problem Loans
At December 31, 2001, in addition to non-performing loans, the Corporation, through its loan review function, has identified 19 commercial relationships totaling $7.3 million which it has internally classified as sub-standard. Included in this total are two relationships which total $4.7 million. While in a performing status as of December 31, 2001, these loans, given the current economic climate, have the potential to become non-performing. In addition, at December 31, 2001, there is one relationship totaling $4.6 million internally classified as special mention, for which adverse financial performance and cash flow information became available to management subsequent to December 31, 2001. This new information will cause this relationship to be classified as sub-standard subsequent to December 31, 2001. It is also expected that the loans in this relationship could be placed on non-performing status in the first quarter of 2002. Accordingly, management's attention is focused on these credits, which are reviewed on at least a quarterly basis.
Loan Concentrations
At December 31, 2001, the Corporation has no loan concentrations to borrowers engaged in the same or similar industries that exceed 10% of total loans.
Other Earning Assets
At December 31, 2001, the Corporation has no earning assets other than loans that meet the non-accrual, past due, restructured or potential problem loan criteria.
Summary of Loan Loss Experience
This table summarizes the Corporation's loan loss experience for each year in the five-year period ended December 31, 2001 (in thousands of dollars):
(1) Daily balances were used to compute average outstanding loan balances.
The allocated portions of the allowance reflect management's estimates of specific known risk elements in the respective portfolios. Among the factors considered in allocating portions of the allowance by loan type are the current levels of past due, non-accrual and impaired loans. The unallocated portion of the allowance represents risk elements in the loan portfolio that have not been specifically identified. Factors considered in determining the appropriate level of unallocated allowance include historical loan loss history, current economic conditions, and loan growth. The following table summarizes the Corporation's allocation of the loan loss allowance for each year in the five-year period ended December 31, 2001:
The above allocation is neither indicative of the specific amounts or the loan categories in which future charge-offs may occur, nor is it an indicator of future loss trends. The allocation of the allowance to each category does not restrict the use of the allowance to absorb losses in any category.
Deposits
The average daily amounts of deposits and rates paid on such deposits is summarized for the periods indicated in the following table (in thousands of dollars):
Scheduled maturities of time deposits at December 31, 2001 are summarized as follows (in thousands of dollars):
$178,143
28,612
11,499
5,872
5,768
2007 and thereafter
$229,916
Maturities of time deposits in denominations of $100,000 or more outstanding at December 31, 2001 are summarized as follows (in thousands of dollars):
3 months or less
$34,905
Over 3 through 6 months
1,640
Over 6 through 12 months
5,388
Over 12 months
15,590
$57,523
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,
Return on average assets
1.18%
1.31%
1.31%
Return on average equity
10.87
12.86
12.66
Return on beginning equity
11.43
13.41
12.70
Dividend payout ratio
42.20
39.67
36.90
Average equity to average assets ratio
10.87
10.20
10.32
Year-end equity to year-end assets ratio
10.92
10.99
10.00
Short-Term Borrowings
For each of the three years in the period ended December 31, 2001, the average outstanding balance of short-term borrowings did not exceed 30% of shareholders' equity.
Securities Sold Under Agreements to Repurchase and Federal Home Loan Bank Advances
Information regarding securities sold under agreements to repurchase and FHLB advances is incorporated herein by reference from note 7 and note 8 to the consolidated financial statements, included as Exhibit D of Exhibit Listing 13.
ITEM 2.
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 seven (7) 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 69,047 square feet. The office building adjacent to the main office was acquired during 1995 and consists of approximately 33,186 square feet of which 30,766 square feet are occupied by operating departments of the Bank and 2,420 square feet are leased. The leased automated teller facility spaces total approximately 150 square feet.
The Bank holds one (1) of its branch facilities (Bath Office), three (3) automated teller facilities (Elmira/Corning Regional Airport, Elmira College and WalMart Store) and an office facility in Binghamton for Trust and Investment business activity 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.
ITEM 3. LEGAL PROCEEDINGS
Neither the Corporation nor its subsidiaries are a party to any material pending legal proceeding required to be disclosed under this item.
ITEM 4.
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.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY 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, 2001, 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 2001 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, 2002 was 702.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The Financial Data Exhibits 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, 2001 are incorporated herein by reference to Exhibit C of Exhibit Listing 13.
OTHER SELECTED FINANCIAL DATA
ITEM 7.
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, 2001 is incorporated herein by reference to Exhibit C of Exhibit Listing 13.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by Item 305 of Regulation S-K is included in 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, 2001 and is incorporated herein by reference to Exhibit C of Exhibit Listing 13.
ITEM 8.
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, 2001 are incorporated herein by reference to Exhibit D of Exhibit Listing 13.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.
ITEM 10. DIRECTORS, PROMOTERS AND CONTROL PERSONS OF THE REGISTRANT
The information set forth under the captions "Nominees For Election of Directors" 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 5, 2002, relating to the Annual Meeting of Shareholders to be held on May 15, 2002, is incorporated herein by reference to Exhibit F of Exhibit Listing 22.
EXECUTIVE OFFICERS
The information concerning Executive Officers of the Corporation is incorporated herein by reference from Part I of this Annual Report on Form 10-K.
ITEM 11.
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 5, 2002, relating to the Annual Meeting of Shareholders to be held on May 15, 2002, is incorporated herein by reference to Exhibit F of Exhibit Listing 22.
ITEM 12.
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 5, 2002, relating to the Annual Meeting of Shareholders to be held on May 15, 2002, is incorporated herein by reference to Exhibit F of Exhibit Listing 22.
ITEM 13.
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 5, 2002, relating to the Annual Meeting of Shareholders to be held on May 15, 2002, is incorporated herein by reference to Exhibit F of Exhibit Listing 22.
PART IV
ITEM 14.
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 subsidiaries, included in the Annual Report of the registrant to its shareholders as of December 31, 2001 and 2000, and for each of the years in the three-year period ended December 31, 2001, are incorporated by reference in Item 8:
-
Independent Auditors' Report
-
Consolidated Balance Sheets - December 31, 2001 and 2000
-
Consolidated Statements of Income - Years ended December 31, 2001, 2000 and 1999
-
Consolidated Statements of Shareholders' Equity and Comprehensive Income - Years ended December 31, 2001, 2000 and 1999
-
Consolidated Statements of Cash Flows-Years ended December 31, 2001, 2000 and 1999
-
Notes to Consolidated Financial Statements - December 31, 2001, 2000 and 1999
(2) List of Financial Statement 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.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the three months ended December 31, 2001.
(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, 2001
CHEMUNG FINANCIAL CORPORATION
ELMIRA, NEW YORK
____________________________________
EXHIBIT LISTING
EXHIBIT
EXHIBIT 13
Annual Report To Shareholders For The Year Ended December 31, 2001
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 Financial Data Exhibits, and the Quantitative and Qualitative Disclosures about Market Risk
D
Consolidated Financial Statements and Independent Auditors' Report
EXHIBIT 21
F
Subsidiaries of the Registrant
EXHIBIT 22
G
Notice of Annual Meeting, Proxy Statement dated April 5, 2002, and Proxy Form
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CHEMUNG FINANCIAL CORPORATION
DATED: MARCH 13, 2002
By /s/ Jan P. Updegraff
Jan P. Updegraff
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been executed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Robert E. Agan
Robert E. Agan
Director
March 13, 2002
David J. Dalrymple
Director
Robert H. Dalrymple
Director
/s/ Frederick Q. Falck
Frederick Q. Falck
Director
March 13, 2002
/s/ Stephen M. Lounsberry
Stephen M. Lounsberry
Director
March 13, 2002
/s/ Thomas K. Meier
Thomas K. Meier
Director
March 13, 2002
/s/ Ralph H. Meyer
Ralph H. Meyer
Director
March 13, 2002
/s/ John F. Potter
John F. Potter
Director
March 13, 2002
/s/ Charles M. Streeter, Jr.
Charles M. Streeter, Jr.
Director
March 13, 2002
/s/ Richard W. Swan
Richard W. Swan
Director
March 13, 2002
William A. Tryon
Director
/s/ William C. Ughetta
William C. Ughetta
Director
March 13, 2002
/s/ Nelson Mooers van den Blink
Nelson Mooers van den Blink
Director
March 13, 2002
/s/ Jan P. Updegraff
Jan P. Updegraff
Director, President & Chief Executive Officer
March 13, 2002
Attest
/s/ Jane H. Adamy
Jane H. Adamy
Secretary
March 13, 2002