CHEMUNG FINANCIAL CORP - FORM 10-Q

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EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER AND TREASURER - CHEMUNG FINANCIAL CORP	chmg10q03312015exh32_2.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER AND TREASURER - CHEMUNG FINANCIAL CORP	chmg10q03312015exh31_2.htm
EX-32.1 - CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER - CHEMUNG FINANCIAL CORP	chmg10q03312015exh32_1.htm
EXCEL - IDEA: XBRL DOCUMENT - CHEMUNG FINANCIAL CORP	Financial_Report.xls
EX-31.1 - CERTIFICATION OF OF PRESIDENT & CHIEF EXECUTIVE OFFICER - CHEMUNG FINANCIAL CORP	chmg10q03312015exh31_1.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q
[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarterly period ended March 31, 2015
Or
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-13888

CHEMUNG FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)

New York				16-1237038
(State or other jurisdiction of incorporation or organization)				I.R.S. Employer Identification No.

One Chemung Canal Plaza, P.O. Box 1522, Elmira, NY				14902
(Address of principal executive offices)				(Zip Code)

(607) 737-3711 or (800) 836-3711
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES: X NO:____

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES: X NO:____

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer		[ ]	Non-accelerated filer		[ ]
Accelerated filer		[X]	Smaller reporting company		[ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
YES: NO: X

The number of shares of the registrant's common stock, $.01 par value, outstanding on May 7, 2015 was 4,650,073.

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

INDEX

		PAGES
	Glossary of Abbreviations and Terms	3

PART I.	FINANCIAL INFORMATION

Item 1:	Financial Statements – Unaudited

	Consolidated Balance Sheets	6
	Consolidated Statements of Income	7
	Consolidated Statements of Comprehensive Income	8
	Consolidated Statements of Shareholders’ Equity	9
	Consolidated Statements of Cash Flows	10

	Notes to Unaudited Consolidated Financial Statements	12

Item 2:	Management's Discussion and Analysis of Financial Condition and Results of Operations	34

Item 3:	Quantitative and Qualitative Disclosures About Market Risk	55

Item 4:	Controls and Procedures	56

PART II.	OTHER INFORMATION

Item 1:	Legal Proceedings	57

Item 1A:	Risk Factors	57

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	57

Item 3:	Defaults Upon Senior Securities	57

Item 4:	Mine Safety Disclosures	57

Item 5:	Other Information	57

Item 6:	Exhibits	58

SIGNATURES		59

EXHIBIT INDEX

GLOSSARY OF ABBREVIATIONS AND TERMS

To assist the reader the Corporation has provided the following list of commonly used abbreviations and terms included in the Notes to the Unaudited Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Abbreviations

ALCO	Asset-Liability Committee
ASU	Accounting Standards Update
Bank	Chemung Canal Trust Company
CDARS	Certificate of Deposit Account Registry Service
CDO	Collateralized Debt Obligation
CFS	CFS Group, Inc.
Corporation	Chemung Financial Corporation
Dodd-Frank Act	The Dodd-Frank Wall Street Reform and Consumer Protection Act
EPS	Earnings per share
FASB	Financial Accounting Standards Board
FDIC	Federal Deposit Insurance Corporation
FHLBNY	Federal Home Loan Bank New York
FRB	Board of Governors of the Federal Reserve System
FRBNY	Federal Reserve Bank of New York
Freddie Mac	Federal Home Loan Mortgage Corporation
GAAP	U.S. Generally Accepted Accounting Principles
ICS	Insured Cash Sweep Service
MD&A	Management’s Discussion and Analysis of Financial Condition and Results of Operations
NAICS	North American Industry Classification System
OPEB	Other postemployment benefits
OREO	Other real estate owned
OTTI	Other-than-temporary impairment
PCI	Purchased credit impaired
ROA	Return on average assets
ROE	Return on average equity
RWA	Risk-weighted assets
SBA	Small Business Administration
SEC	Securities and Exchange Commission
TDRs	Troubled debt restructurings
WMG	Wealth Management Group

Terms

Allowance for loan losses to total loans	Represents period-end allowance for loan losses divided by retained loans.
Assets under administration	Represents assets that are beneficially owned by clients and all investment decisions pertaining to these assets are also made by clients.
Assets under management	Represents assets that are managed on behalf of clients.
Basel III	A comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector.
Benefit obligation	Refers to the projected benefit obligation for pension plans and the accumulated postretirement benefit obligation for OPEB plans.
Capital Bank	Division of Chemung Canal Trust Company located in the “Capital Region” of New York State and includes the counties of Albany and Saratoga.
CDARS	Program involving a network of financial institutions that exchange certificates of deposits among members in order to ensure FDIC insurance coverage on customer deposits above the single institution limit. Using a sophisticated matching system, funds are exchanged on a dollar-for-dollar basis, so that the equivalent of an original deposit comes back to the originating institution.

Collateralized debt obligation	A structured financial product that pools together cash flow-generating assets, such as mortgages, bonds, and loans.
Collateralized mortgage obligations	A type of mortgage-backed security with principal repayments organized according to their maturities and into different classes based on risk. The mortgages serve as collateral and are organized into classes based on their risk profile.
Dodd-Frank Act	The Dodd-Frank Act was enacted on July 21, 2010 and significantly changed the bank regulatory landscape and has impacted and will continue to impact the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new rules and regulations, and to prepare various studies and reports for Congress.
Fully taxable equivalent basis	Represents revenue from investments that receive tax credits and tax-exempt securities are presented on a basis comparable to taxable investments and securities; the corresponding income tax impact related to tax-exempt items is recorded within income tax expense.
GAAP	Accounting principles generally accepted in the United States of America.
Holding company and other	Consists of the operations for Chemung Financial Corporation (parent only) and CFS.
ICS	Program involving a network of financial institutions that exchange interest-bearing money market deposits among members in order to ensure FDIC insurance coverage on customer deposits above the single institution limit. Using a sophisticated matching system, funds are exchanged on a dollar-for-dollar basis, so that the equivalent of an original deposit comes back to the originating institution.
Loans held for sale	Residential real estate originated for sale on the secondary market with maturities from 15-30 years.
Mortgage-backed securities	A type of asset-backed security that is secured by a collection of mortgages.
Municipal clients	A political unit, such as a city, town, or village, incorporated for local self-government.
N/A	Data is not applicable or available for the period presented.
N/M	Not meaningful.
Non-GAAP	A calculation not made according to GAAP.
Obligations of state and political subdivisions	An obligation that is guaranteed by the full faith and credit of a state or political subdivision that has the power to tax.
Obligations of U.S. Government	A federally guaranteed obligation backed by the full power of the U.S. government, including Treasury bills, treasury notes and treasury bonds.
Obligations of U.S. Government sponsored enterprise obligations	Obligations of agencies originally established or chartered by the U.S. government to serve public purposes as specified by the U.S. Congress; these obligations are not explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the U.S. government.
Other real estate owned	Represents real property owned by the Corporation, which is not directly related to its business and is most frequently the result of a foreclosure on real property.
OTTI	Impairment charge taken on a security whose fair value has fallen below the carrying value on the balance sheet and whose value is not expected to recover through the holding period of the security.
PCI loans	Represents loans that were acquired in the Fort Orange Financial Corp. transaction and deemed to be credit-impaired on the acquisition date in accordance with the guidance of FASB.

Political subdivision	A county, city, town, or other municipal corporation, a public authority, or a publicly-owned entity that is an instrumentality of a state or a municipal corporation.
Pre-provision profit/(loss)	Represents total net revenue less noninterest expense. The Corporation believes that this financial measure is useful in assessing the ability of a bank to generate income in excess of its provision for credit losses.
RWA	Risk-weighted assets consist of on- and off-balance sheet assets that are assigned to one of several broad risk categories and weighted by factors representing their risk and potential for default. On-balance sheet assets are risk-weighted based on the perceived credit risk associated with the obligor or counterparty, the nature of any collateral, and the guarantor, if any. Off-balance sheet assets such as lending-related commitments, guarantees, derivatives and other applicable off-balance sheet positions are risk-weighted by multiplying the contractual amount by the appropriate credit conversion factor to determine the on-balance sheet credit equivalent amount, which is then risk-weighted based on the same factors used for on-balance sheet assets. Risk-weighted assets also incorporate a measure for market risk related to applicable trading assets-debt and equity instruments. The resulting risk-weighted values for each of the risk categories are then aggregated to determine total risk-weighted assets.
SBA loan pools	Business loans partially guaranteed by the SBA
Securities sold under agreements to repurchase	Sale of securities together with an agreement for the seller to buy back the securities at a later date.
TDR	A TDR is deemed to occur when the Corporation modifies the original terms of a loan agreement by granting a concession to a borrower that is experiencing financial difficulty.
Trust preferred securities	A hybrid security with characteristics of both subordinated debt and preferred stock which allows for early redemption by the issuer, makes fixed or variable payments, and matures at face value.
Unaudited	Financial statements and information that have not been subjected to auditing procedures sufficient to permit an independent certified public accountant to express an opinion.
Wealth Management Group	Provides 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, financial planning, pension, estate planning and employee benefit administration services.

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
(in thousands, except share and per share data)	March 31, 2015			December 31, 2014
ASSETS
Cash and due from financial institutions	$	29,643		$	28,130
Interest-bearing deposits in other financial institutions		55,230			1,033
Total cash and cash equivalents		84,873			29,163

Trading assets, at fair value		601			549

Securities available for sale, at estimated fair value		266,307			280,507
Securities held to maturity, estimated fair value of $6,076 at March 31, 2015 and $6,197 at December 31, 2014		5,693			5,831
FHLBNY and FRBNY Stock, at cost		4,148			5,535

Loans, net of deferred loan fees		1,143,572			1,121,574
Allowance for loan losses		(13,892	)		(13,686	)
Loans, net		1,129,680			1,107,888

Loans held for sale		628			665
Premises and equipment, net		31,548			32,287
Goodwill		21,824			21,824
Other intangible assets, net		4,763			5,067
Bank owned life insurance		2,782			2,764
Accrued interest receivable and other assets		31,925			32,459

Total assets	$	1,584,772		$	1,524,539

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest-bearing	$	376,773		$	366,298
Interest-bearing		991,357			913,716
Total deposits		1,368,130			1,280,014

FHLBNY overnight advances		-			30,830
Securities sold under agreements to repurchase		31,084			29,652
FHLBNY term advances		19,283			19,310
Long term capital lease obligation		2,976			2,976
Dividends payable		1,209			1,204
Accrued interest payable and other liabilities		25,797			26,925
Total liabilities		1,448,479			1,390,911

Shareholders' equity:
Common stock, $0.01 par value per share, 10,000,000 shares authorized; 5,310,076 issued at March 31, 2015 and December 31, 2014		53			53
Additional-paid-in-capital		45,477			45,355
Retained earnings		115,450			114,383
Treasury stock, at cost (662,244 shares at March 31, 2015; 680,948 shares at December 31, 2014)		(16,900	)		(17,378	)
Accumulated other comprehensive loss		(7,787	)		(8,785	)
Total shareholders' equity		136,293			133,628

Total liabilities and shareholders' equity	$	1,584,772		$	1,524,539



See accompanying notes to unaudited consolidated financial statements.

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	THREE MONTHS ENDED MARCH 31,
(in thousands, except per share data)	2015		2014
Interest and dividend income:
Loans, including fees	$	11,903	$	11,168
Taxable securities		1,089		1,503
Tax exempt securities		219		264
Interest-bearing deposits		23		19
Total interest and dividend income		13,234		12,954
Interest expense
Deposits		486		522
Securities sold under agreements to repurchase		209		209
Borrowed funds		197		190
Total interest expense		892		921
Net interest income		12,342		12,033
Provision for loan losses		390		639
Net interest income after provision for loan losses		11,952		11,394

Other non-interest income:
WMG fee income		2,126		1,883
Service charges on deposit accounts		1,138		1,232
Net gain on security transactions		50		-
Net gain on sales of loans held for sale		52		41
Net gains (losses) on sales of other real estate owned		78		(30	)
Income from bank owned life insurance		18		19
Other		1,724		1,819
Total other non-interest income		5,186		4,964

Other non-interest expense:
Salaries and wages		5,100		5,153
Pension and other employee benefits		1,729		1,359
Net occupancy expenses		1,850		1,793
Furniture and equipment expenses		733		630
Data processing expense		1,561		1,481
Professional services		269		222
Amortization of intangible assets		304		344
Marketing and advertising expenses		235		293
Other real estate owned expenses		84		87
FDIC insurance		286		269
Loan expense		140		149
Merger and acquisition related expenses		-		86
Other		1,445		1,477
Total other non-interest expenses		13,736		13,343
Income before income tax expense		3,402		3,015
Income tax expense		1,126		951
Net income	$	2,276	$	2,064

Weighted average shares outstanding		4,707		4,677
Basic and diluted earnings per share	$	0.48	$	0.44

See accompanying notes to unaudited consolidated financial statements.

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended March 31,
(in thousands)	2015			2014

Net income	$	2,276		$	2,064

Other comprehensive income:
Unrealized holding gains on securities available for sale		1,265			884
Reclassification adjustment for gains realized in net income		(50	)		-
Net unrealized gains		1,215			884
Tax effect		441			340
Net of tax amount		774			544

Change in funded status of defined benefit pension plan and other benefit plans:
Net gain (loss) arising during the period		-			-
Reclassification adjustment for amortization of prior service costs		(22	)		(22	)
Reclassification adjustment for amortization of net actuarial loss		383			165
Total before tax effect		361			143
Tax effect		137			55
Net of tax amount		224			88

Total other comprehensive income		998			632

Comprehensive income	$	3,274		$	2,696

See accompanying notes to consolidated financial statements.

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(UNAUDITED)

(in thousands, except share data)	Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
Balances at January 1, 2014	$	53	$	45,399		$	111,031		$	(18,060	)	$	155		$	138,578
Net income		-		-			2,064			-			-			2,064
Other comprehensive income		-		-			-			-			632			632
Restricted stock awards		-		36			-			-			-			36
Restricted stock units for directors' deferred compensation plan		-		23			-			-			-			23
Cash dividends declared ($0.26 per share)		-		-			(1,200	)		-			-			(1,200	)
Distribution of 8,385 shares of treasury stock for directors' compensation		-		59			-			214			-			273
Distribution of 990 shares of treasury stock for employee restricted stock awards, net		-		(26	)		-			26			-			-
Distribution of 3,595 shares of treasury stock for employee compensation		-		25			-			92			-			117
Balances at March 31, 2014	$	53	$	45,516		$	111,895		$	(17,728	)	$	787		$	140,523


Balances at January 1, 2015	$	53	$	45,355		$	114,383		$	(17,378	)	$	(8,785	)	$	133,628
Net income		-		-			2,276			-			-			2,276
Other comprehensive income		-		-			-			-			998			998
Restricted stock awards		-		52			-			-			-			52
Restricted stock units for directors' deferred compensation plan		-		25			-			-			-			25
Cash dividends declared ($0.26 per share)		-		-			(1,209	)		-			-			(1,209	)
Distribution of 9,673 shares of treasury stock for directors' compensation		-		24			-			247			-			271
Distribution of 3,303 shares of treasury stock for employee compensation		-		8			-			85			-			93
Sale of 5,728 shares of treasury stock		-		13			-			146			-			159
Balances at March 31, 2015	$	53	$	45,477		$	115,450		$	(16,900	)	$	(7,787	)	$	136,293

See accompanying notes to unaudited consolidated financial statements.

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)	THREE MONTHS ENDED MARCH 31,
CASH FLOWS FROM OPERATING ACTIVITIES:	2015			2014
Net income	$	2,276		$	2,064
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets		304			344
Provision for loan losses		390			639
Gain on disposal of fixed assets		(9	)		(7	)
Depreciation and amortization of fixed assets		1,024			886
Amortization of premiums on securities, net		549			614
Gains on sales of loans held for sale, net		(52	)		(41	)
Proceeds from sales of loans held for sale		2,341			1,804
Loans originated and held for sale		(2,252	)		(1,143	)
Net gains on trading assets		(10	)		(12	)
Net gains on securities transactions		(50	)		-
Net (gains) losses on sales of other real estate owned		(78	)		30
Purchase of trading assets		(42	)		(35	)
(Increase) decrease in other assets		(25	)		1,354
Decrease in accrued interest payable		(12	)		(46	)
Expense related to restricted stock units for directors' deferred compensation plan		25			23
Expense related to employee stock compensation		93			117
Expense related to employee stock awards		52			36
Decrease in other liabilities		(1,062	)		(4,021	)
Income from bank owned life insurance		(18	)		(19	)
Net cash provided by operating activities		3,444			2,587

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and calls of securities available for sale		5,751			5,000
Proceeds from maturities and principal collected on securities available for sale		9,165			5,027
Proceeds from maturities and principal collected on securities held to maturity		598			630
Purchases of securities available for sale		-			(875	)
Purchases of securities held to maturity		(460	)		(261	)
Purchase of FHLBNY and FRBNY stock		(2,391	)		-
Redemption of FHLBNY and FRBNY stock		3,778			-
Proceeds from sale of equipment		9			7
Purchases of premises and equipment		(285	)		(198	)
Proceeds from sales of other real estate owned		647			249
Net increase in loans		(22,192	)		(28,958	)
Net cash used by investing activities		(5,380	)		(19,379	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, interest-bearing demand accounts, savings accounts, and insured money market accounts		112,008			34,257
Net decrease in time deposits		(23,892	)		(8,623	)
Net increase (decrease) in securities sold under agreements to repurchase		1,432			(2,055	)
Repayments of FHLBNY long term advances		(27	)		(54	)
Repayments of FHLBNY overnight advances, net		(30,830	)		-
Sale of treasury stock		159			-
Cash dividends paid		(1,204	)		(1,194	)
Net cash provided by financing activities		57,646			22,331
Net increase in cash and cash equivalents		55,710			5,539
Cash and cash equivalents, beginning of period		29,163			51,609
Cash and cash equivalents, end of period	$	84,873		$	57,148

See accompanying notes to unaudited consolidated financial statements.

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

(UNAUDITED)

	THREE MONTHS ENDED MARCH 31,
Supplemental disclosure of cash flow information:	2015		2014
Cash paid for:
Interest	$	904	$	967
Income taxes	$	1,546	$	68
Supplemental disclosure of non-cash activity:
Transfer of loans to other real estate owned	$	10	$	-
Dividends declared, not yet paid	$	1,209	$	1,200

See accompanying notes to unaudited consolidated financial statements.

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The Corporation, through its wholly owned subsidiaries, the Bank and CFS, provides a wide range of banking, financing, fiduciary and other financial services to its clients. The Corporation and the Bank are subject to the regulations of certain federal and state agencies and undergo periodic examinations by those regulatory authorities.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in conformity with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. These financial statements include the accounts of the Corporation and its subsidiaries, and all significant intercompany balances and transactions are eliminated in consolidation. Amounts in the prior periods' consolidated financial statements are reclassified whenever necessary to conform to the current period's presentation.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and disclosures provided, and actual results could differ. In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures necessary for the fair presentation of the accompanying consolidated financial statements have been included.

Subsequent Events

The Corporation has evaluated events and transactions through the time the unaudited consolidated financial statements were issued. Financial statements are considered issued when they are widely distributed to all shareholders and other financial statement users, or filed with the SEC. In conjunction with applicable accounting standards, all material subsequent events have been either recognized in the unaudited consolidated financial statements or disclosed in the notes to the unaudited consolidated financial statements.

Recent Account Pronouncements

In January 2014, the FASB issued ASU 2014-04, an amendment to Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40), Reclassification of Collateralized Mortgage Loans upon a Troubled Debt Restructuring. The objective of this ASU is to clarify when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, such that all or a portion of the loan should be derecognized and the real estate property recognized. The main provisions would also require additional disclosures regarding the amount of foreclosed residential real estate property held by the creditor and the recorded investments of consumer mortgage loans that are in the process of foreclosure at each interim and annual reporting period. This ASU became effective for the Corporation in fiscal years and interim periods within those years, beginning after December 15, 2014. The Corporation has adopted this guidance for the reporting periods after December 15, 2014 and did not have a material impact on its financial statements.

In May 2014, the FASB issued ASU 2014-09, an amendment to Revenue from Contracts with Customers (Topic 606). The objective of the ASU is to align the recognition of revenue with the transfer of promised goods or services provided to customers in an amount that reflects the consideration which the entity expects to be entitled in exchange for those goods or services. The amendments in this ASU are effective for annual reported period beginning after December 15, 2016, including interim periods within that reporting period. The standard allows an entity to apply the amendments in the ASU using either the retrospective or cumulative effect transition method. The Corporation is evaluating the potential impact on the Corporation’s financial statements.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. Under ASU 2015-03 the Corporation will present debt issuance costs in the balance sheet as a reduction from the related debt liability rather than as an asset. Amortization of such costs will continue to be reported as interest expense. ASU 2015-03 will be effective for the Corporation beginning January 1, 2016, though early adoption is permitted. Retrospective adoption is required. The Corporation is evaluating the potential impact on the Corporation’s financial statements.

NOTE 2 EARNING PER COMMON SHARE (shares in thousands)

Basic earnings per share is net income divided by the weighted average number of common shares outstanding during the period. Issuable shares, including those related to directors’ restricted stock units and directors’ stock compensation, are considered outstanding and are included in the computation of basic earnings per share. All outstanding unvested share based payment awards that contain rights to non-forfeitable dividends are considered participating securities for this calculation. Restricted stock awards are grants of participating securities and are considered outstanding at grant date. Earnings per share information is adjusted to present comparative results for stock splits and stock dividends that occur. Earnings per share were computed by dividing net income by 4,707 and 4,677 weighted average shares outstanding for the three-month periods ended March 31, 2015 and 2014, respectively. There were no dilutive common stock equivalents during the three-month periods ended March 31, 2015 or 2014.

NOTE 3 SECURITIES

Amortized cost and estimated fair value of securities available for sale are as follows (in thousands):

	March 31, 2015
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	168,426	$	2,021	$	-	$	170,447
Mortgage-backed securities, residential		57,951		1,231		-		59,182
Collateralized mortgage obligations		229		2		-		231
Obligations of states and political subdivisions		30,356		808		12		31,152
Corporate bonds and notes		1,500		28		-		1,528
SBA loan pools		1,253		10		3		1,260
Trust Preferred securities		1,908		116		-		2,024
Corporate stocks		285		198		-		483
Total	$	261,908	$	4,414	$	15	$	266,307

	December 31, 2014
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	180,535	$	1,300	$	162	$	181,673
Mortgage-backed securities, residential		60,787		892		19		61,660
Collateralized mortgage obligations		335		3		-		338
Obligations of states and political subdivisions		30,677		802		28		31,451
Corporate bonds and notes		1,502		35		4		1,533
SBA loan pools		1,296		11		3		1,304
Trust preferred securities		1,906		122		-		2,028
Corporate stocks		285		235		-		520
Total	$	277,323	$	3,400	$	216	$	280,507

Amortized cost and estimated fair value of securities held to maturity are as follows (in thousands):

	March 31, 2015
	Amortized Cost			Unrealized Gains			Unrealized Losses			Estimated Fair Value
Obligations of states and political subdivisions		$	5,253		$	379		$	-		$	5,632
Time deposits with other financial institutions			440			4			-			444
Total		$	5,693		$	383		$	-		$	6,076

	December 31, 2014
	Amortized Cost			Unrealized Gains			Unrealized Losses			Estimated Fair Value
Obligations of states and political subdivisions		$	5,175		$	360		$	-		$	5,535
Time deposits with other financial institutions			656			6			-			662
Total		$	5,831		$	366		$	-		$	6,197

The amortized cost and estimated fair value of debt securities are shown below by expected maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately (in thousands):

	March 31, 2015
	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Within one year	$	33,780	$	34,151	$	2,639	$	2,667
After one, but within five years		162,966		165,245		2,051		2,243
After five, but within ten years		5,444		5,755		1,003		1,166
After ten years		-		-		-		-
		202,190		205,151		5,693		6,076
Mortgage-backed securities, residential		57,951		59,182		-		-
Collateralized mortgage obligations		229		231		-		-
SBA loan pools		1,253		1,260		-		-
Total	$	261,623	$	265,824	$	5,693	$	6,076

The proceeds from sales and calls of securities resulting in gains or losses as of March 31, 2015 and 2014 are listed below (in thousands):

	2015		2014
Proceeds	$	51	$	-
Gross gains	$	50	$	-
Tax expense	$	19	$	-

The following tables summarize the investment securities available for sale with unrealized losses at March 31, 2015 and December 31, 2014 by aggregated major security type and length of time in a continuous unrealized loss position (in thousands):

	Less than 12 months						12 months or longer						Total
March 31, 2015	Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value			Unrealized Losses
Obligations of states and political subdivisions		$	1,850		$	10		$	740		$	2		$	2,590		$	12
SBA loan pools			-			-			579			3			579			3
Total temporarily impaired securities		$	1,850		$	10		$	1,319		$	5		$	3,169		$	15

	Less than 12 months				12 months or longer				Total
December 31, 2014	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	57,512	$	108	$	4,945	$	54	$	62,457	$	162
Mortgage-backed securities, residential		11,051		19		-		-		11,051		19
Obligations of states and political subdivisions		4,625		22		1,056		6		5,681		28
Corporate bonds and notes		-		-		243		4		243		4
Corporate stocks		276		1		316		2		592		3
Total temporarily impaired securities	$	73,464	$	150	$	6,560	$	66	$	80,024	$	216

Other-Than-Temporary Impairment

As of March 31, 2015, the majority of the Corporation’s unrealized losses in the investment securities portfolio related to obligations of states and political subdivisions. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Corporation does not have the intent to sell these securities and it is not likely that it will be required to sell these securities before their anticipated recovery, the Corporation does not consider these securities to be other-than-temporarily impaired at March 31, 2015.

During the first quarter of 2014, the Corporation received notice that one CDO consisting of a pool of trust preferred securities was liquidated and recorded $500 thousand in other operating income during the first quarter of 2014. The Corporation does not own any other CDO’s in its investment securities portfolio.

The tables below present a roll forward of the cumulative credit losses recognized in earnings for the three-month periods ended March 31, 2015 and 2014 (in thousands):

	2015		2014
Beginning balance, January 1,	$	-	$	1,939
Amounts related to credit loss for which an other-than-temporary impairment was not previously recognized		-		-
Additions/Subtractions:
Amounts realized for securities sold during the period		-		-
Amounts related to securities for which the Corporation intends to sell or that it will be more likely than not that the Corporation will be required to sell prior to recovery of amortized cost basis		-		-
Reductions for increase in cash flows expected to be collected that are recognized over the remaining life of the security		-		-
Reductions for previous credit losses realized in securities liquidated during the period		-		(1,939	)
Increases to the amount related to the credit loss for which other-than-temporary impairment was previously recognized		-		-
Ending balance, March 31,	$	-	$	-

NOTE 4 LOANS AND ALLOWANCE FOR LOAN LOSSES

The composition of the loan portfolio, net of deferred origination fees and cost, and unearned income is summarized as follows (in thousands):

	March 31, 2015		December 31, 2014
Commercial and agricultural:
Commercial and industrial	$	170,677	$	165,385
Agricultural		1,155		1,021
Commercial mortgages:
Construction		49,392		54,831
Commercial mortgages		430,993		397,762
Residential mortgages		198,628		196,809
Consumer loans:
Credit cards		1,526		1,654
Home equity lines and loans		98,706		99,354
Indirect consumer loans		173,722		184,763
Direct consumer loans		18,773		19,995
Total loans, net of deferred loan fees	$	1,143,572	$	1,121,574
Interest receivable on loans		2,673		2,780
Total recorded investment in loans	$	1,146,245	$	1,124,354

The Corporation's concentrations of credit risk by loan type are reflected in the preceding table. The concentrations of credit risk with standby letters of credit, committed lines of credit and commitments to originate new loans generally follow the loan classifications in the table above.

The following tables present the activity in the allowance for loan losses by portfolio segment for the three-month periods ending March 31, 2015 and 2014 (in thousands):

	Three Months Ended
	March 31, 2015
Allowance for loan losses	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages			Consumer Loans			Total
Beginning balance:	$	1,460	$	6,326	$	1,572		$	4,328		$	13,686
Charge-offs:		-		-		(21	)		(369	)		(390	)
Recoveries:		15		67		-			124			206
Net recoveries (charge-offs)		15		67		(21	)		(245	)		(184	)
Provision		196		137		43			14			390
Ending balance	$	1,671	$	6,530	$	1,594		$	4,097		$	13,892

	Three Months Ended
	March 31, 2014
Allowance for loan losses	Commercial and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Beginning balance:	$	1,979		$	6,243		$	1,517		$	3,037		$	12,776
Charge-offs:		(55	)		(44	)		(7	)		(467	)		(573	)
Recoveries:		92			38			-			183			313
Net recoveries (charge-offs)		37			(6	)		(7	)		(284	)		(260	)
Provision		(71	)		247			42			421			639
Ending balance	$	1,945		$	6,484		$	1,552		$	3,174		$	13,155

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2015 and December 31, 2014 (in thousands):

	March 31, 2015
Allowance for loan losses	Commercial and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment		$	301		$	1,280		$	-		$	-		$	1,581
Collectively evaluated for impairment			1,370			5,214			1,572			4,097			12,253
Loans acquired with deteriorated credit quality			-			36			22			-			58
Total ending allowance balance		$	1,671		$	6,530		$	1,594		$	4,097		$	13,892

	December 31, 2014
Allowance for loan losses	Commercial and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment		$	89		$	1,145		$	-		$	1		$	1,235
Collectively evaluated for impairment			1,335			5,145			1,550			4,327			12,357
Loans acquired with deteriorated credit quality			36			36			22			-			94
Total ending allowance balance		$	1,460		$	6,326		$	1,572		$	4,328		$	13,686

	March 31, 2015
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	1,973	$	13,767	$	249	$	483	$	16,472
Loans collectively evaluated for impairment		170,254		465,960		198,622		292,920		1,127,756
Loans acquired with deteriorated credit quality		-		1,761		256		-		2,017
Total ending loans balance	$	172,227	$	481,488	$	199,127	$	293,403	$	1,146,245

	December 31, 2014
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	1,452	$	13,712	$	254	$	486	$	15,904
Loans collectively evaluated for impairment		164,748		438,246		196,783		306,042		1,105,819
Loans acquired with deteriorated credit quality		620		1,761		250		-		2,631
Total ending loans balance	$	166,820	$	453,719	$	197,287	$	306,528	$	1,124,354

The following tables present loans individually evaluated for impairment recognized by class of loans as of March 31, 2015 and December 31, 2014, the average recorded investment and interest income recognized by class of loans as of the three-month periods ended March 31, 2015 and 2014 (in thousands):

	March 31, 2015						December 31, 2014
With no related allowance recorded:	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
Commercial and agricultural:
Commercial and industrial	$	1,668	$	1,670	$	-	$	1,359	$	1,364	$	-
Commercial mortgages:
Construction		1,919		1,899		-		1,927		1,910		-
Commercial mortgages other		7,686		7,593		-		7,803		7,708		-
Residential mortgages		249		249		-		253		253		-
Consumer loans:
Home equity lines and loans		480		483		-		429		432		-
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial		301		303		301		89		89		89
Commercial mortgages:
Commercial mortgages other		4,394		4,275		1,280		4,210		4,094		1,145
Consumer loans:
Home equity lines and loans		-		-		-		54		54		1
Total	$	16,697	$	16,472	$	1,581	$	16,124	$	15,904	$	1,235

	Three Months Ended March 31, 2015				Three Months Ended March 31, 2014
With no related allowance recorded:	Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)
Commercial and agricultural:
Commercial and industrial	$	1,517	$	15	$	1,656	$	14
Commercial mortgages:
Construction		1,904		25		2,296		25
Commercial mortgages other		7,674		63		7,005		63
Residential mortgages		252		1		115		-
Consumer loans:
Home equity lines & loans		458		6		72		1
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial		196		3		921		-
Commercial mortgages:
Commercial mortgages other		4,184		23		863		-
Consumer loans:
Home equity lines and loans		27		-		58		1
Total	$	16,212	$	136	$	12,986	$	104

(1)	Cash basis interest income approximates interest income recognized.

The following tables present the recorded investment in past due and non-accrual status by class of loans as of March 31, 2015 and December 31, 2014 (in thousands):

March 31, 2015	Current		30-89 Days Past Due		90 Days or more Past Due and accruing		Loans acquired with deteriorated credit quality		Non-Accrual (1)		Total
Commercial and agricultural:
Commercial and industrial	$	170,397	$	317	$	24	$	-	$	331	$	171,069
Agricultural		1,158		-		-		-		-		1,158
Commercial mortgages:
Construction		47,913		-		1,444		-		148		49,505
Commercial mortgages		424,367		536		-		1,761		5,319		431,983
Residential mortgages		193,684		1,482		-		256		3,705		199,127
Consumer loans:
Credit cards		1,505		13		8		-		-		1,526
Home equity lines and loans		97,626		672		-		-		655		98,953
Indirect consumer loans		172,573		1,266		-		-		249		174,088
Direct consumer loans		18,781		43		-		-		12		18,836
Total	$	1,128,004	$	4,329	$	1,476	$	2,017	$	10,419	$	1,146,245

(1) Includes all loans on non-accrual status regardless of the number of days such loans were delinquent as of March 31, 2015.

December 31, 2014	Current		30-89 Days Past Due		90 Days or more Past Due and accruing		Loans acquired with deteriorated credit quality		Non-Accrual (1)		Total
Commercial and agricultural:
Commercial and industrial	$	164,109	$	756	$	-	$	620	$	312	$	165,797
Agricultural		1,023		-		-		-		-		1,023
Commercial mortgages:
Construction		53,371		-		1,446		-		150		54,967
Commercial mortgages		391,096		3,064		-		1,761		2,831		398,752
Residential mortgages		191,089		2,333		-		250		3,615		197,287
Consumer loans:

CHEMUNG FINANCIAL CORP - FORM 10-Q - May 8, 2015

Attached files