Chemung Financial Reports Third Quarter 2013 Earnings

ELMIRA, N.Y., Oct. 28, 2013 (GLOBE NEWSWIRE) -- Chemung Financial Corporation (Nasdaq:CHMG), the parent company of Chemung Canal Trust Company, reported third quarter ended September 30, 2013 and year-to-date net income and earnings per share. Highlights for the third quarter and year-to-date include:

• Net income for the third quarter of 2013 was $2.2 million, or $0.47 per share, compared with $2.8 million, or $0.61 per share, for the same quarter in the prior year. Excluding pre-tax acquisition expenses of $0.2 million, core net income for the third quarter of 2013 was $2.3 million, or $0.50 per share.
• Net income for the nine months ended September 30, 2013 was $7.2 million, or $1.56 per share, compared with $8.9 million, or $1.92 per share, for the same period in the prior year, a decrease of $1.7 million, or 18.5%. Excluding pre-tax acquisition expenses of $0.2 million, core net income for the nine months ended September 30, 2013 was $7.4 million, or $1.58 per share. Excluding pre-tax items of $0.3 million in net gain on securities transactions and $0.8 million in casualty gains, core net income for the nine months ended September 30, 2012 was $8.2 million, or $1.78 per share.
• Net interest margin for the third quarter of 2013 was 3.84%, compared with 3.87% for the preceding quarter and 4.04% for the third quarter in the prior year. Net interest margin for the nine months ended September 30, 2013 was 3.93%, down from 4.10% for the same period in the prior year, while interest-earning assets increased $30.6 million.
• Non-performing assets to total assets ratio was 0.61% at September 30, 2013 compared with 0.53% at December 31, 2012 and 0.75% at September 30, 2012.
• Capital remains strong as the tangible equity to tangible assets ratio was 8.25% at September 30, 2013, compared with 8.53% at December 31, 2012 and 8.39% at September 30, 2012.
• Book value per share increased to $28.93 at September 30, 2013 from $28.20 at December 31, 2012.
• Dividends declared during the quarter ended September 30, 2013 were $0.26 per share compared with $0.25 per share for the prior year, an increase of 4.0%.
• In the third quarter, in anticipation of the increase in liquidity resulting from the purchase of six branches with approximately $260 million in deposits, the Corporation initiated a pre-funding strategy. The strategy involved the purchase of investment securities of varying maturities, funded with short-term FHLB advances. The maturities and cash flows of the securities were structured to provide funding for the anticipated deployment into new commercial and consumer loans originated in the near future. The acquisition of the branches will close in the fourth quarter of 2013.

Ronald M. Bentley, President and CEO stated, "We are pleased to report solid quarterly earnings combined with strong asset quality and capital levels. Despite a sluggish economy in many of our markets, we continue to experience growth in our commercial and consumer loan portfolios." Mr. Bentley also stated, "Our branch acquisition pre-funding strategy, which included growth in securities and loans, drove an increase in net interest income for the third quarter of 2013 compared with the preceding quarter."

Summary:

Chemung Financial Corporation reported net income of $2.2 million for the third quarter of 2013, a decrease of $0.6 million, or 23.1%, compared with $2.8 million for the same period in the prior year. Earnings per share for the third quarter of 2013 totaled $0.47, compared with $0.61 for the same period in the prior year. Return on average assets and return on average equity for the third quarter of 2013 were 0.67% and 6.45%, respectively, compared with 0.89% and 8.53%, respectively, for the same period in the prior year.

Core net income for the third quarter of 2013 was $2.3 million, or $0.50 per share, compared with $2.8 million, or $0.61 per share, for the same period in the prior year. Core net income for the current quarter excluded $0.2 million in acquisition expenses. The decrease in core net income was due primarily to a decline of $0.3 million in net interest income and increases of $0.6 million in the provision for loan losses and $0.3 million in non-interest expense. These items were partially offset by an increase of $0.4 million in non-interest income and a reduction of $0.3 million in income taxes. Core return on average assets and core return on average equity for the third quarter of 2013 were 0.71% and 6.85%, respectively, compared with 0.90% and 8.55%, respectively, for the same period in the prior year.

Net income of $2.2 million for the current quarter ended September 30, 2013 represents a decrease of $0.5 million, or 17.9%, from net income of $2.7 million for the preceding quarter ended June 30, 2013. The decline in earnings was due primarily to increases of $0.4 million in the provision for loan losses and $0.4 million in non-interest expense, which included $0.2 million in acquisition expenses. Earnings per share for the current quarter totaled $0.47 compared with $0.57 for the preceding quarter. Return on average assets and return on average equity for the current quarter were 0.67% and 6.45%, respectively, compared with 0.84% and 7.92%, respectively, for the preceding quarter.

Net income for the nine months ended September 30, 2013 was $7.2 million, a decrease of $1.7 million, or 18.5%, compared with $8.9 million for the nine months ended September 30, 2012. Earnings per share for the nine months ended September 30, 2013 was $1.56, compared with $1.92 for the nine months ended September 30, 2012. Return on average assets and return on average equity for the nine months ended September 30, 2013 were 0.76% and 7.25%, respectively, compared with 0.95% and 9.12%, respectively, for the same period in the prior year.

Core net income for the nine months ended September 30, 2013 was $7.4 million compared with $8.2 million for the nine months ended September 30, 2012. The current year core net income excluded $0.2 million in acquisition expenses. The prior year core net income excluded pre-tax items of $0.3 million in net gain on securities transactions and $0.8 million in casualty gains. The decrease in core net income was due primarily to a decline of $0.6 million in net interest income and increases of $1.0 million in the provision for loan losses and $0.6 million in non-interest expense. These items were partially offset by an increase of $0.9 million in non-interest income and a reduction of $0.4 million in income taxes. Core earnings per share for September 30, 2013 was $1.58, compared with $1.78 for the nine months ended September 30, 2012. Core return on average assets and core return on average equity for the nine months ended September 30, 2013 were 0.77% and 7.38%, respectively, compared with 0.88% and 8.45%, respectively, for the same period in the prior year.

Net Interest Income:

Net interest income for the third quarter of 2013 totaled $11.5 million compared with $11.8 million for the same period in the prior year, a decrease of $0.3 million, or 2.3%. Net interest margin was 3.84% for the third quarter of 2013 compared with 4.04% for the same period in the prior year. The decline in net interest income was due primarily to a 29 basis point decrease in the yield on interest-earning assets, partially offset by a 12 basis point decline in the cost of funds and an increase of $29.5 million in average earning assets.

Net interest income for the current quarter totaled $11.5 million compared with $11.3 million for the preceding quarter ended June 30, 2013, an increase of $0.2 million, or 1.7%. Net interest margin was 3.84% for the current quarter compared with 3.87% for the preceding quarter. The increase in net interest income was due primarily to an increase of $16.1 million in average earning assets, partially offset by a four basis point decrease in the yield on interest-earning assets. The decline in net interest margin was due primarily to yields on interest-earning assets decreasing at a faster rate than the cost of interest-bearing liabilities.

Net interest income for the nine months ended September 30, 2013 totaled $34.6 million compared with $35.2 million for the prior year, a decrease of $0.6 million, or 1.8%. Net interest margin was 3.93% for the nine months ended September 30, 2013 compared with 4.10% for the same period in the prior year. The decline in net interest income was due primarily to margin compression evidenced by a 31 basis point decrease in the yield on interest-earning assets, partially offset by a 17 basis point decline in the cost of funds and an increase of $30.6 million in average earning assets. The decline in net interest margin was due primarily to yields on interest-earning assets decreasing at a faster rate than the cost of interest-bearing liabilities. The decrease in yield on interest-earning assets was attributable to lower loan yields as loans continue to reprice at current market rates.

Non-Interest Income:

Non-interest income for the third quarter of 2013 was $4.4 million compared with $4.5 million for the preceding quarter ended June 30, 2013 and $4.0 million for the same second quarter in the prior year. The increase from the year-ago quarter was due primarily to increases in Wealth Management fee income, service charges on deposit accounts and net gain on sales of other real estate owned. The decline from the preceding quarter was due primarily to decreases in Wealth Management fee income and net gain on sales of loans held for sale.

Non-interest income for the nine months ended September 30, 2013 was $12.8 million compared with $13.0 million for the prior year, a decrease of $0.2 million, or 1.1%. The decline was due primarily to reductions of $0.8 million in casualty gains from insurance reimbursements and $0.3 million in net gain on securities transactions. These items were partially offset by increases of $0.3 million in Wealth Management Group fee income, $0.2 million in service charges on deposit accounts and $0.2 million in net gain on sales of loans held for sale.

Non-Interest Expense:

Non-interest expense for the third quarter of 2013 was $11.8 million compared with $11.3 million for the prior year, an increase of $0.5 million, or 4.2%. The increase was due primarily to increases of $0.2 million in data processing costs and $0.2 million in acquisition expenses.

Non-interest expense for the current quarter was $11.8 million compared with $11.4 million for the preceding quarter ended June 30, 2013, an increase of $0.4 million, or 3.7%. The increase was due primarily to increases of $0.2 million in acquisition expenses, $0.1 million in salaries and wages, and $0.1 million in marketing and advertising expense.

Non-interest expense for the nine months ended September 30, 2013 was $34.9 million compared with $34.2 million for the prior year, an increase of $0.7 million, or 2.3%. The increase was due primarily to increases of $0.4 million in salaries and wages, $0.2 million in acquisition expenses and $0.2 million in data processing costs. These items were partially offset by decreases of $0.1 million in other real estate owned expenses and $0.1 million in amortization of intangible assets. The increase in salaries and wages was due primarily to compensation related to merit increases and incentive plans.

Asset Quality:

Non-performing loans totaled $7.6 million at September 30, 2013, or 0.79% of total loans, up from $6.0 million, or 0.68%, at December 31, 2012 and down from $8.7 million, or 0.99%, at September 30, 2012. The increase in non-performing loans at September 30, 2013 was primarily in the commercial loan segment of the loan portfolio. Non-performing assets, which are comprised of non-performing loans and other real estate owned, totaled $8.2 million at September 30, 2013, or 0.61% of total assets, up from $6.6 million, or 0.53%, at December 31, 2012 and down from $9.6 million, or 0.75%, at September 30, 2012.

Management performs an ongoing assessment of the adequacy of the allowance for loan losses based upon a number of factors including an analysis of historical loss factors, collateral evaluations, recent charge-off experience, credit quality of the loan portfolio, current economic conditions and loan growth. Based on this analysis, the provision for loan losses for the third quarter of 2013 was $0.9 million compared with $0.5 million for the preceding quarter ended June 30, 2013, and $0.2 million for the same period in the prior year. The increase in the provision for loan losses was due primarily to one commercial loan, loan portfolio growth and higher net charge-offs. Net charge-offs for the current quarter were $0.3 million compared with net recoveries of less than $0.1 million for the preceding quarter and net recoveries of $0.2 million for the same period in the prior year.

The provision for loan losses for the nine months ended September 30, 2013 was $1.8 million compared with $0.8 million for the same period in the prior year. The increase in the provision for loan losses was due primarily to one commercial loan, loan portfolio growth and higher net charge-offs. Net charge-offs for the nine months ended September 30, 2013 were $0.3 million compared with net recoveries of $0.3 million for the prior year.

At September 30, 2013 the allowance for loan losses was $11.9 million, compared with $10.4 million at December 31, 2012 and $10.8 million at September 30, 2012. The allowance for loan losses was 155.12% of non-performing loans at September 30, 2013, compared with 172.96% at December 31, 2012 and 124.96% at September 30, 2012. The ratio of the allowance for loan losses to total loans was 1.23% at September 30, 2013, compared with 1.17% at December 31, 2012 and 1.24% at September 30, 2012.

Balance Sheet Activity:

Assets totaled $1.341 billion at September 30, 2013 compared with $1.248 billion at December 31, 2012, an increase of $92.9 million, or 7.4%. The growth was due primarily to increases of $74.1 million, or 8.3%, in total portfolio loans and $22.4 million, or 9.0%, in investment securities. The increase in portfolio loans was due to strong growth of $46.9 million in commercial loans and $33.6 million in consumer loans. The increase in investment securities was related to a pre-funding strategy associated with the acquisition of six branches scheduled to close in the fourth quarter of 2013.

Deposits totaled $1.088 billion at September 30, 2013 compared with $1.045 million at December 31, 2012, an increase of $43.7 million, or 4.2%. The growth was primarily due to increases of $46.3 million in money market accounts and $10.2 million in savings deposits. These items were partially offset by a decrease of $14.8 million in higher cost time deposits. At September 30, 2013, demand deposit and money market accounts comprised 62.7% of total deposits compared with 60.7% at December 31, 2012 and 60.9% at September 30, 2012.

The increase in FHLB advances was due to primarily to an increase of $49.1 million in low-cost overnight FHLB advances. The increase was related to a pre-funding strategy associated with the acquisition of six branches scheduled to close in the fourth quarter of 2013. The overnight FHLB advances will be paid off after the acquisition is closed.

Total equity was $134.8 million at September 30, 2013 compared with $131.1 million at December 31, 2012. The total equity to total assets ratio was 10.05% at September 30, 2013 compared with 10.50% at December 31, 2012. The tangible equity to tangible assets ratio was 8.25% at September 30, 2013 compared with 8.53% at December 31, 2012. Book value per share increased to $28.93 at September 30, 2013 from $28.20 at December 31, 2012. As of September 30, 2013, both the Corporation's and the Bank's capital ratios were in excess of those required to be considered well-capitalized under regulatory capital standards.

Other Items:

The market value of total assets under management or administration in our Wealth Management Group was $1.829 billion at September 30, 2013 compared with $1.735 billion at December 31, 2012 and $1.722 billion at September 30, 2012.

On July 12, 2013, Chemung Financial Corporation announced that its banking subsidiary, Chemung Canal Trust Company entered into an agreement with Bank of America to purchase six branch offices located in Auburn, Cortland, Ithaca and Seneca Falls, New York. As part of the transaction, Chemung Canal Trust Company will acquire approximately $260.9 million in deposits and $1.8 million in loans. The transaction will close in the fourth quarter of 2013 and is expected to be accretive to Chemung Financial Corporation earnings in 2015.

About Chemung Financial Corporation:

Chemung Financial Corporation is a $1.3 billion financial services holding company headquartered in Elmira, New York and operates 28 retail offices through its principal subsidiary, Chemung Canal Trust Company, a full-service community bank with trust powers. Established in 1833, Chemung Canal Trust Company is the oldest locally-owned and managed community bank in New York State. Chemung Financial Corporation is also the parent of CFS Group, Inc., a financial services subsidiary offering non-traditional services including mutual funds, annuities, brokerage services, tax preparation services and insurance.

This press release may be found at: www.chemungcanal.com under Shareholder Info.

Forward-Looking Statements:

This press release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Corporation intends its forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. All statements regarding, among other things, the Corporation's expected financial condition and results of operations, the Corporation's business strategy, the Corporation's financial plans, forecasted demographic and economic trends relating to the Corporation's industry and similar matters are forward-looking statements. These statements can sometimes be identified by the Corporation's use of forward-looking words such as "may," "will," "anticipate," "estimate," "expect," or "intend." The Corporation cannot promise that its expectations in such forward-looking statements will turn out to be correct. The Corporation's actual results could be materially different from expectations because of various factors, including changes in economic conditions or interest rates, credit risk, difficulties in managing the Corporation's growth, competition, changes in law or the regulatory environment, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, and changes in general business and economic trends. Information concerning these and other factors can be found in the Corporation's periodic filings with the Securities and Exchange Commission, including in our 2012 Annual Report on Form 10-K. These filings are available publicly on the SEC's website at http://www.sec.gov, on the Corporation's website at http://www.chemungcanal.com or upon request from the Corporate Secretary at (607) 737-3746. Except as otherwise required by law, the Corporation undertakes no obligation to publicly update or revise its forward-looking statements, whether as a result of new information, future events, or otherwise.

Chemung Financial Corporation

GAAP to Non-GAAP Reconciliations (Unaudited)

The table below shows computations of tangible equity and tangible assets and certain related ratios, all of which are considered to be non-GAAP financial measures. The tangible equity to tangible assets ratio has become a focus of some investors and management believes this ratio may assist in analyzing the Corporation's capital position, absent the effects of intangible assets. These non-GAAP financial measures have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analysis of results reported under GAAP. Because not all companies use identical calculations, the non-GAAP measures presented in the following table may not be comparable to those reported by other companies.

CONTACT: For further information contact:
         Karl F. Krebs, EVP and CFO
         kkrebs@chemungcanal.com
         Phone: 607-737-3714