Some of the information contained in this report concerning the markets and industry in which we operate is
derived from publicly available information and from industry sources. Although we believe that this publicly
available information and information provided by these industry sources are reliable, we have not independently
verified the accuracy of any of this information.
ITEM 1. BUSINESS
General Development of Business
Chemung Financial Corporation (the "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 Chemung Canal Trust Company (the
"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, and its name was changed to Chemung Canal Trust Company in 1903.
The Corporation has been a financial holding company since June 22, 2000. Financial holding company status
provides the Corporation with the flexibility to offer an array of financial services, such as insurance products,
mutual funds, and brokerage services, which provide additional sources of fee based income and allow the
Corporation to better serve its customers. The Corporation established a financial services subsidiary, CFS Group,
Inc., in September 2001 which offers non-banking financial services such as mutual funds, annuities, brokerage
services, insurance and tax preparation services. As such, the Corporation currently operates as a financial holding
company with two subsidiaries, Chemung Canal Trust Company, a full-service community bank with full trust
powers, and CFS Group, Inc.
The Securities and Exchange Commission (the "SEC") maintains a web site at www.sec.gov that contains reports,
proxy and information statements, and other information regarding the Corporation. You may also read and copy
materials we file with the SEC at the SEC's Public Reference Room at 100 F St., NE, Washington, D.C. 20549. You
may obtain information concerning the operation of the Public Reference Room by calling 1-800-SEC-0330. In
addition, we maintain a corporate web site at www.chemungcanal.com. We make available free of charge through
our web site our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any
amendments to those reports pursuant to Section 13(a) or 15(d) of the Exchange Act and filed with the SEC. These
items are available as soon as reasonably practicable after we electronically file or furnish such material with or to the
SEC. These items are also available on our website as Interactive Data Files as required pursuant to Rule 405 of
Regulation S-T (§232.405). The contents of our web site are not a part of this report. These materials are also
available free of charge by written request to: Jane H. Adamy, Senior Vice President and Secretary, Chemung Canal
Trust Company, One Chemung Canal Plaza, Elmira, NY 14901.
Description of Business
The Bank is a New York State chartered commercial bank which engages in full-service commercial and consumer
banking and wealth management business. The Bank's services include accepting time, demand and savings deposits,
including NOW accounts, savings accounts, insured money market accounts, investment certificates, fixed-rate
certificates of deposit and club accounts. The Bank's 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), and making commercial, residential and home equity mortgage
loans, revolving credit loans with overdraft checking protection and small business loans. Additional services include
renting safe deposit facilities, the provision of networked automated teller facilities and an internet banking product
featuring bill payment services.
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Wealth management services provided by the Bank include services as executor and trustee under wills and
agreements, and guardian, custodian, 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.
CFS Group, Inc. offers an array of financial services including mutual funds, full and discount brokerage services,
annuity and other insurance products and tax preparation services.
For additional information, including information concerning the results of operations of the Corporation and its
subsidiaries, see Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II,
There have been no material changes in the manner of doing business by the Corporation or its subsidiaries during the
fiscal year ended December 31, 2011.
Market Area and Competition
Seven of the Bank's 28 full-service offices, including the main office, are located in Chemung County, New York.
The Bank has thirteen full-service offices located in the nearby counties of Broome, Schuyler, Steuben, Tioga and
Tompkins. In April 2011, Chemung Canal Trust Company, as part of the Fort Orange Financial Corp. acquisition by
Chemung Financial Corporation, added five full service branch offices to its footprint in Albany and Saratoga counties
under the name Capital Bank, a division of Chemung Canal Trust Company. The Bank also operates 3 full-service
offices in Bradford County, Pennsylvania and full service Wealth Management Centers located in Chemung and
Broome counties. The Corporation defines its primary market areas as those areas within a 25-mile radius of its New
York offices in Albany, Broome, Chemung, Saratoga, Steuben, Schuyler, Tioga and Tompkins counties, including the
northern tier of Pennsylvania.
Within these market areas, the Bank encounters 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 banking institutions. 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 affecting the Bank and, as a result, they
may have a competitive advantage over the Bank in certain respects. This is particularly true of credit unions
because their pricing structure is not encumbered by income taxes.
Competition for the Bank's Wealth Management Group services comes primarily from brokerage firms and
independent investment advisors. These firms devote much of their considerable resources toward gaining larger
positions in these markets. The market value of the Bank's Wealth Management Group assets under administration
totaled approximately $1.6 billion at year-end 2011. The Wealth Management Group division is responsible for the
largest component of non-interest revenue.
Supervision and Regulation
The Corporation is regulated under the Bank Holding Company Act of 1956, as amended (the "BHC Act"), and is
subject to the supervision of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board").
As a bank holding company, the Corporation generally may engage in the activities permissible for a bank holding
company, which includes banking, managing or controlling banks, performing certain servicing activities for
subsidiaries, and engaging in other activities that the Federal Reserve Board has determined to be so closely related
to banking as to be a proper incident thereto. Because the Corporation also has elected financial holding company
status, it may also engage in a broader range of activities that are determined by the Federal Reserve and the
Secretary of the Treasury to be financial in nature or incidental to financial activities or activities that are
determined by the Federal Reserve Board to be complementary to a financial activity and that do not pose
a substantial risk to the safety and soundness of depository institutions or the financial system generally.
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The Corporation is also under the jurisdiction of the SEC and is subject to the disclosure and regulatory
requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended,
as administered by the SEC.
The Bank is chartered under the laws of New York State and is supervised by the New York State Department of
Financial Services ("NYSDFS"). The Bank also is a member bank of the Federal Reserve System and, therefore,
the Federal Reserve Board serves as its primary federal regulator.
CFS Group, Inc. is subject to supervision by other regulatory authorities as determined by the activities in which it
is engaged. Insurance activities are supervised by the NYSD, and brokerage activities are subject to supervision
by the SEC and the Financial Industry Regulatory Authority ("FINRA").
The Corporation is subject to capital adequacy guidelines of the Federal Reserve Board. The guidelines apply on a
consolidated basis and require bank holding companies to maintain a minimum ratio of Tier 1 capital to total assets
(or "leverage ratio") of 4%. For the most highly rated bank holding companies, the minimum ratio is 3%. The
Federal Reserve Board capital adequacy guidelines also require bank holding companies to maintain a minimum
ratio of Tier 1 capital to risk-weighted assets of 4% and a minimum ratio of qualifying total capital to risk-weighted
assets of 8%. Any bank holding company whose capital does not meet the minimum capital adequacy guidelines is
considered to be undercapitalized, and is required to submit an acceptable plan to the Federal Reserve Board for
achieving capital adequacy. In addition, an undercapitalized company's ability to pay dividends to its shareholders
and expand its lines of business through the acquisition of new banking or non-banking subsidiaries also could be
restricted by the Federal Reserve Board. The Federal Reserve Board may set higher minimum capital requirements
for bank holding companies where circumstances warrant, such as companies anticipating significant growth or
facing unusual risks. As of December 31, 2011, the Corporation's leverage ratio was 8.27%, its ratio of Tier 1
capital to risk-weighted assets was 11.84% and its ratio of qualifying total capital to risk-weighted assets was
13.28%. The Federal Reserve Board has not advised the Corporation that it is subject to any special capital
requirements.
Pursuant to Federal Reserve Board regulations and supervisory policies, bank holding companies also are expected
to serve as a source of financial and managerial strength to their subsidiary depository institutions. Therefore, to
the extent the Bank is in need of capital, the Corporation could be expected to provide additional capital to the
Bank, including, potentially, raising new capital for that purpose.
The Bank is subject to leverage and risk-based capital requirements and minimum capital guidelines of the Federal
Reserve Board that are similar to those applicable to the Corporation. As of December 31, 2011, the Bank was in
compliance with all minimum capital requirements. The Bank's leverage ratio as of that date was 7.92%, its ratio of
Tier 1 capital to risk-weighted assets was 11.36%, and its ratio of qualifying total capital to risk-weighted assets
was 12.80%.
The Bank also is subject to substantial regulatory restrictions relating to its ability to pay dividends to the
Corporation. Under Federal Reserve Board and NYSDFS regulations, the Bank may not pay a dividend without
prior approval of the Federal Reserve and the NYSDFS if the total amount of all dividends declared during such
calendar year, including the proposed dividend, exceeds the sum of its retained net income to date during the