Chemung Financial Corporation Reports Second Quarter 2017 Net Income of $3.0 Million, or $0.62 per Share

ELMIRA, N.Y., July 20, 2017 (GLOBE NEWSWIRE) -- Chemung Financial Corporation (the “Corporation”) (Nasdaq:CHMG), the parent company of Chemung Canal Trust Company (the “Bank”), today reported net income of $3.0 million, or $0.62 per share, for the second quarter of 2017, compared to $1.6 million, or $0.34 per share, for the second quarter of 2016.

Anders M. Tomson, Chemung Financial Corporation CEO, stated:

“We continue to see solid growth in revenues, earnings, loans and deposits.  Our return on average equity for the second quarter improved to 7.90%, compared to 4.57% for the same period in the prior year.  The efficiency ratio has also improved year over year, improving from 77.00% to 69.28%.  As part of our plan to improve profitability, we completed the relocation of our 120 Genesee Street branch in Auburn, NY to 110 Genesee Street, which allowed us to downsize our space by nearly two thirds and will generate future cost savings for us.  I am excited for the remainder of the year and working with our employees to continue delivering long-term value for our shareholders, customers and the communities we serve.”

Second Quarter Highlights¹

• Loans, net of deferred fees, increased $52.4 million, or 4.4%
• Commercial loans increased $49.0 million, or 6.6%
• Deposits increased $68.7 million, or 4.7%
• Net interest income increased $1.0 million, or 7.6%   
• Non-interest expense decreased $1.2 million, or 8.0%
• Dividends declared during the quarter were $0.26

A more detailed summary of financial performance follows.

¹ Balance sheet comparisons are calculated for June 30, 2017 versus December 31, 2016.   Income statement comparisons are calculated for the second quarter of 2017 versus second quarter of 2016.

2nd Quarter 2017 vs 2nd Quarter 2016

Net Interest Income:

Net interest income for the current quarter totaled $14.0 million compared with $13.0 million for the same period in the prior year, an increase of $1.0 million, or 7.6%.  Interest and fees from loans increased $0.5 million and interest from investments, including interest-bearing deposits, increased $0.3 million while interest expense on borrowed funds and securities sold under agreements to repurchase both decreased $0.1 million when compared to the same period in the prior year.  Fully taxable equivalent net interest margin was 3.47%, compared with 3.36% for the same period in the prior year.  Average interest-earning assets increased $61.6 million compared to the same period in the prior year.  The yield on interest-earning assets increased five basis points, while the cost of interest-bearing liabilities decreased nine basis points compared to the same period in the prior year.  The increase in the yield on interest-earning assets can be mostly attributed to a 20 basis point increase in the yield on investments due to the reinvestment of maturing securities into higher yielding mortgage-backed and municipal securities.  The decline in the cost of interest-bearing liabilities can be attributed to a 34 basis point decline in the cost of borrowings due to the maturity of one $10.0 million FHLB term advance (4.60% rate) in December 2016 and one $10.0 million repurchase agreement (4.54% rate) in March 2017.

Non-Interest Income:

Non-interest income for the current quarter was $5.0 million compared with $5.2 million for the same period in the prior year, a decrease of $0.2 million, or 3.7%.  The decrease was due primarily to a $0.2 million decline in other non-interest income related to rent income from other real estate owned and swap fees.

Non-Interest Expense:

Non-interest expense for the current quarter was $14.3 million compared with $15.6 million for the same period in the prior year, a decrease of $1.3 million, or 8.0%.  The decrease was due primarily to decreases of $0.4 million in pension and other employee benefits, $0.4 million in legal reserve, $0.2 million in net occupancy and furniture and equipment expenses, and $0.2 million in marketing and advertising expenses.  The decrease in pension and other employee benefits can be attributed to a $0.7 million decrease due to the freezing of accruals for the pension and post-retirement healthcare plans during the fourth quarter of 2016, offset by increases of $0.1 million in 401(k) expense and $0.3 million in healthcare costs.  Please refer to page four under “Other Items” for further discussion of the legal reserve.  The decrease in net occupancy and furniture and equipment expenses can be attributed to the closure of the branch at 202 East State Street in Ithaca, NY at the end of May 2016, along with a decrease in exit costs for the branch at 120 Genesee Street in Auburn, NY in 2017, compared to exit costs for the closure of the branch at 202 East State Street.  The decrease in marketing and advertising expenses can be mostly attributed to timing.

2nd Quarter 2017 vs 1st Quarter 2017

Net Interest Income:

Net interest income for the current quarter totaled $14.0 million compared with $13.5 million for the prior quarter, an increase of $0.5 million, or 3.4%.  Interest and fees from loans increased $0.3 million while interest expense on securities sold under agreements to repurchase decreased $0.1 million when compared to the prior quarter.  Fully taxable equivalent net interest margin was 3.47%, compared with 3.45% for the prior quarter.  Average interest-earning assets increased $29.5 million compared to the prior quarter.  The yield on interest-earning assets decreased one basis point, while the cost of interest-bearing liabilities decreased four basis points compared to the prior quarter.  The decline in the yield on interest-earning assets can be mostly attributed to a two basis point decline in the yield on loans offset by a one basis point increase in the yield on investments.

Non-Interest Income:

Non-interest income for the current quarter was $5.0 million compared with $4.8 million for the prior quarter, an increase of $0.2 million, or 3.6%.  The increase was due to a $0.2 million increase in Wealth Management Group fee income.

Non-Interest Expense:

Non-interest expense for the current quarter was $14.3 million compared with $13.0 million for the prior quarter, an increase of $1.3 million, or 9.9%.  The increase was due primarily to an increase in the legal reserve by an additional $0.9 million, and increases of $0.2 million in net occupancy and furniture and equipment expenses, $0.1 million in salaries and wages and in professional fees, offset by a decrease of $0.1 million in marketing and advertising expense.  Please refer to page four under “Other Items” for further discussion of the legal reserve.  The increase in net occupancy and furniture and equipment expenses was due primarily to exit costs for the branch at 120 Genesee Street in Auburn, NY during the second quarter of 2017.  The decrease in marketing and advertising expenses can be mostly attributed to timing.

Asset Quality

Non-performing loans totaled $15.2 million at June 30, 2017, or 1.21% of total loans, compared with $12.0 million at December 31, 2016, or 1.00% of total loans.  The increase in non-performing loans at June 30, 2017 was primarily in the commercial mortgage segment and related to one large commercial loan, offset by decreases in the residential mortgage and consumer segments.  Non-performing assets, which are comprised of non-performing loans and other real estate owned, were $15.5 million, or 0.90% of total assets, at June 30, 2017, compared with $12.4 million, or 0.75% of total assets, at December 31, 2016.  As noted above, the increase in non-performing assets was primarily due to the commercial mortgage segment of the loan portfolio.

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 second quarter of 2017 was $0.4 million, level with the same period in the prior year.  Net charge-offs for the second quarter of 2017 were $0.3 million, consistent with $0.2 million for the second quarter of 2016.

The allowance for loan losses was $15.1 million as of June 30, 2017 and $14.3 million as of December 31, 2016.  The allowance for loan losses was 99.32% of non-performing loans at June 30, 2017 compared with 118.35% at December 31, 2016.  The decline was due to an increase in non-performing loans as noted above.  The ratio of the allowance for loan losses to total loans was 1.21% at June 30, 2017 compared with 1.19% at December 31, 2016.

Balance Sheet Activity

Assets totaled $1.719 billion at June 30, 2017 compared with $1.657 billion at December 31, 2016, an increase of $61.4 million, or 3.7%.  The growth was due primarily to increases of $20.9 million in securities available for sale and $52.4 million in the loan portfolio, offset by a decrease of $9.6 million in cash and cash equivalents.  

The increase in total loans can be mostly attributed to increases of $36.2 million in commercial mortgages, $12.8 million in commercial and agriculture loans, $2.1 million in residential mortgages and $1.2 million in indirect consumer loans.  The increase in securities available for sale can be mostly attributed to additional purchases of mortgage-backed and municipal securities.  The decrease in cash and cash equivalents can be attributed to an increase in deposits, offset by an increase in securities available for sale and total loans.

Deposits totaled $1.525 billion at June 30, 2017 compared with $1.456 billion at December 31, 2016, an increase of $68.7 million, or 4.7%.  The growth was attributable to increases of $18.2 million in non-interest bearing demand deposits, $7.4 million in interest-bearing demand deposits, $42.8 million in money market accounts and $11.6 million in savings deposits.  Partially offsetting the increases noted above was a decrease of $11.3 million in time deposits.  The changes in money market accounts and demand deposits can be attributed to new municipal clients, along with the seasonal inflow of deposits from existing municipal clients.

Total equity was $152.0 million at June 30, 2017 compared with $143.7 million at December 31, 2016, an increase of $8.3 million, or 5.7%.  The increase was primarily due to earnings of $5.9 million, a reduction of $0.6 million in treasury stock, and a decrease of $3.8 million in accumulated other comprehensive loss, mostly attributable to the increase in the fair market value of the securities portfolio, offset by $2.4 million in dividends declared during the year.

The total equity to total assets ratio was 8.84% at June 30, 2017 compared with 8.67% at December 31, 2016.  The tangible equity to tangible assets ratio was 7.53% at June 30, 2017 compared with 7.29% at December 31, 2016.  Book value per share increased to $31.67 at June 30, 2017 from $30.07 at December 31, 2016.  As of June 30, 2017, the Bank’s capital ratios were in excess of those required to be considered well-capitalized under regulatory capital guidelines and the Corporation met capital requirements under regulatory guidelines.

Other Items

The market value of total assets under management or administration in our Wealth Management Group was $1.826 billion at June 30, 2017, including $323.9 million of assets under management or administration for the Corporation, compared to $1.721 billion at December 31, 2016, including $294.9 million of assets under management or administration for the Corporation, an increase of $104.6 million, or 6.1%.

As previously disclosed on July 6, 2017, the Corporation on June 29, 2017, received Notice of Entry of the decision and Order of the New York Appellate Division, Third Department, in the matter of Fane v. Chemung Canal Trust Company, involving claims by the owner of the leased premises at 202 East State Street, Ithaca, New York against Chemung Canal Trust Company, the bank subsidiary of the Corporation. The Court affirmed the State of New York Supreme Court for the County of Tompkins’ decision in favor of the plaintiff with damages to be determined at a later proceeding.  The Bank established an additional legal reserve in the amount of $0.9 million, in connection with this case, during the second quarter of 2017.  The Bank’s total reserve with respect to this matter, as of June 30, 2017, now stands at $2.3 million, including $0.2 million accrued for related expenses not yet paid.

About Chemung Financial Corporation

Chemung Financial Corporation is a $1.7 billion financial services holding company headquartered in Elmira, New York and operates 33 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, and Chemung Risk Management, Inc., a captive insurance company based in the State of Nevada.

This press release may be found at: www.chemungcanal.com under Investor Relations.

Chemung Financial Corporation
GAAP to Non-GAAP Reconciliations (Unaudited)

The Corporation prepares its Consolidated Financial Statements in accordance with GAAP.  See the Corporation’s unaudited consolidated balance sheets and statements of income contained within this press release. That presentation provides the reader with an understanding of the Corporation’s results that can be tracked consistently from period-to-period and enables a comparison of the Corporation’s performance with other companies’ GAAP financial statements.

In addition to analyzing the Corporation’s results on a reported basis, management uses certain non-GAAP financial measures, because it believes these non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the Corporation and, therefore, facilitate a comparison of the Corporation with the performance of its competitors. Non-GAAP financial measures used by the Corporation may not be comparable to similarly named non-GAAP financial measures used by other companies.

The SEC has adopted Regulation G, which applies to all public disclosures, including earnings releases, made by registered companies that contain “non-GAAP financial measures.”  Under Regulation G, companies making public disclosures containing non-GAAP financial measures must also disclose, along with each non-GAAP financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure and a statement of the Corporation’s reasons for utilizing the non-GAAP financial measure as part of its financial disclosures.  The SEC has exempted from the definition of “non-GAAP financial measures” certain commonly used financial measures that are not based on GAAP.  When these exempted measures are included in public disclosures, supplemental information is not required.  The following measures used in this Report, which are commonly utilized by financial institutions, have not been specifically exempted by the SEC and may constitute "non-GAAP financial measures" within the meaning of the SEC's new rules, although we are unable to state with certainty that the SEC would so regard them.

Fully Taxable Equivalent Net Interest Income, Net Interest Margin, and Efficiency Ratio

Net interest income is commonly presented on a tax-equivalent basis.  That is, to the extent that some component of the institution's net interest income, which is presented on a before-tax basis, is exempt from taxation (e.g., is received by the institution as a result of its holdings of state or municipal obligations), an amount equal to the tax benefit derived from that component is added to the actual before-tax net interest income total.  This adjustment is considered helpful in comparing one financial institution's net interest income to that of other institutions or in analyzing any institution’s net interest income trend line over time, to correct any analytical distortion that might otherwise arise from the fact that financial institutions vary widely in the proportions of their portfolios that are invested in tax-exempt securities, and that even a single institution may significantly alter over time the proportion of its own portfolio that is invested in tax-exempt obligations.  Moreover, net interest income is itself a component of a second financial measure commonly used by financial institutions, net interest margin, which is the ratio of net interest income to average interest-earning assets.  For purposes of this measure as well, fully taxable equivalent net interest income is generally used by financial institutions, as opposed to actual net interest income, again to provide a better basis of comparison from institution to institution and to better demonstrate a single institution’s performance over time.  The Corporation follows these practices.

The efficiency ratio is a non-GAAP financial measure which represents the Corporation’s ability to turn resources into revenue and is calculated as non-interest expense divided by total revenue (fully taxable equivalent net interest income and non-interest income), adjusted for one-time occurrences and amortization.  This measure is meaningful to the Corporation, as well as investors and analysts, in assessing the Corporation’s productivity measured by the amount of revenue generated for each dollar spent.

Tangible Equity and Tangible Assets (Period-End)

Tangible equity, tangible assets, and tangible book value per share are each non-GAAP financial measures. Tangible equity represents the Corporation’s stockholders’ equity, less goodwill and intangible assets.  Tangible assets represents the Corporation’s total assets, less goodwill and other intangible assets.  Tangible book value per share represents the Corporation’s equity divided by common shares at period-end.  These measures are meaningful to the Corporation, as well as investors and analysts, in assessing the Corporation’s use of equity.

Tangible Equity (Average)

Average tangible equity and return on average tangible equity are each non-GAAP financial measures. Average tangible equity represents the Corporation’s average stockholders’ equity, less average goodwill and intangible assets for the period.  Return on average tangible equity measures the Corporation’s earnings as a percentage of average tangible equity.  These measures are meaningful to the Corporation, as well as investors and analysts, in assessing the Corporation’s use of equity.