Chemung Financial Reports Fourth Quarter and Full-Year 2013 Earnings

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| Source: Chemung Financial Corporation

ELMIRA, N.Y., Jan. 30, 2014 (GLOBE NEWSWIRE) -- Chemung Financial Corporation (Nasdaq:CHMG), the parent company of Chemung Canal Trust Company, reported fourth quarter ended December 31, 2013 and full-year net income and earnings per share. Highlights for the fourth quarter and full year include:

  • In the fourth quarter, the Corporation completed the acquisition of six former Bank of America branch offices located in Cayuga, Cortland, Seneca and Tompkins counties in New York. As part of the transaction, the Corporation acquired approximately $177.7 million in deposits and $1.2 million in loans. The acquisition is expected to be accretive to earnings in 2015. The Corporation now operates 31 branch offices in New York and 3 branch offices in Pennsylvania. This is the fourth acquisition over the past five years for the Corporation.
     
  • Net income for the fourth quarter of 2013 was $1.5 million, or $0.32 per share, compared with $2.1 million, or $0.46 per share, for the same quarter in the prior year. Excluding pre-tax items of $0.5 million in gain from bargain purchase and $1.2 million in acquisition expenses, core net income for the fourth quarter of 2013 was $1.7 million, or $0.37 per share. The gain from bargain purchase represents the excess fair value of net assets acquired in the branch acquisition completed in the fourth quarter of 2013.
     
  • Net income for the twelve months ended December 31, 2013 was $8.7 million, or $1.87 per share, compared with $11.0 million, or $2.38 per share, for the same period in the prior year, a decrease of $2.3 million, or 20.8%. Excluding pre-tax items of $0.5 million in gain from bargain purchase and $1.4 million in acquisition expenses, core net income for the twelve months ended December 31, 2013 was $9.1 million, or $1.96 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 twelve months ended December 31, 2012 was $10.4 million, or $2.23 per share.
     
  • Net interest margin for the fourth quarter of 2013 was 3.66%, compared with 3.84% for the preceding quarter and 3.98% for the fourth quarter in the prior year. Net interest margin for the twelve months ended December 31, 2013 was 3.85%, down from 4.07% for the same period in the prior year, while average interest-earning assets increased $59.3 million. 
     
  • Non-performing assets to total assets ratio was 0.61% at December 31, 2013 compared with 0.53% at December 31, 2012.
     
  • Book value per share was $29.67 at December 31, 2013 compared with $28.20 at December 31, 2012, an increase of $1.47, or 5.2%. Tangible book value per share was $23.63 at December 31, 2013 compared with $22.40 at December 31, 2012, an increase of $1.23, or 5.5%.
     
  • As a result of the branch acquisition, the tangible equity to tangible assets ratio decreased to 7.62% at December 31, 2013, compared with 8.53% at December 31, 2012.
     
  • Dividends declared during the quarter ended December 31, 2013 were $0.26 per share compared with $0.25 per share for the prior year, an increase of 4.0%. Dividends declared during the twelve months ended December 31, 2013 were $1.04 per share compared with $1.00 per share for the prior year, an increase of 4.0%. For 2013, the dividend yield was 3.0% on the Corporation's stock.
     
  • The Corporation was added to the Russell 3000 Index, which measures the performance of the largest 3,000 publicly held U.S. companies based on total market capitalization. In addition, the Corporation has met the listing requirements for inclusion in the NASDAQ Global Select Market effective January 2, 2014.

Ronald M. Bentley, President and CEO stated, "As expected, 2013 was an eventful and challenging year as earnings came under pressure from net interest margin compression. The single best strategy to combat margin compression is to grow our balance sheet, so we were pleased with the acquisition of six branch offices in contiguous markets during the fourth quarter of 2013. This transaction becomes increasingly accretive to earnings as we channel the acquired deposits into loans over the next few years."

Mr. Bentley stated, "In addition to the acquisition, we experienced solid organic growth in both loans and deposits during 2013. Commercial loans increased $64.5 million, or 14.2% and consumer loans increased $42.4 million, or 17.7%. Excluding the deposits acquired in the branch acquisition, organic growth in deposits was $40.9 million, or 3.9%."

"Our inclusion in the Russell 3000 Index is another opportunity to increase the liquidity in our shares for current and future shareholders," said Mr. Bentley. "This listing certainly aids in our effort to increase the visibility of the Corporation within the investment community," Bentley added.

Summary:

Chemung Financial Corporation reported net income of $1.5 million for the fourth quarter of 2013, a decrease of $0.6 million, or 30.2%, compared with $2.1 million for the same period in the prior year. Earnings per share for the fourth quarter of 2013 totaled $0.32, compared with $0.46 for the same period in the prior year. Return on average assets and return on average equity for the fourth quarter of 2013 were 0.42% and 4.34%, respectively, compared with 0.67% and 6.33%, respectively, for the same period in the prior year.

Core net income for the fourth quarter of 2013 was $1.7 million, or $0.37 per share, compared with $2.1 million, or $0.46 per share, for the same period in the prior year. Core net income for the current quarter excluded $0.5 million in gain from bargain purchase and $1.2 million in acquisition expenses. The decrease in core net income was due primarily to increases of $0.9 million in the provision for loan losses and $0.7 million in non-interest expense. These items were partially offset by increases of $0.5 million in net interest income and $0.6 million in non-interest income. Core return on average assets and core return on average equity for the fourth quarter of 2013 were 0.49% and 5.09%, respectively, compared with 0.67% and 6.33%, respectively, for the same period in the prior year.

Net income of $1.5 million for the current quarter ended December 31, 2013 represents a decrease of $0.7 million, or 31.8%, from net income of $2.2 million for the preceding quarter ended September 30, 2013. The decline in earnings was due primarily to an increase of $2.7 million in non-interest expense, which included $1.2 million in acquisition expenses. These items were partially offset by increases of $0.6 million in net interest income and $0.9 million in non-interest income, which included $0.5 million in gain from bargain purchase. Earnings per share for the current quarter totaled $0.32 compared with $0.47 for the preceding quarter. Return on average assets and return on average equity for the current quarter were 0.42% and 4.34%, respectively, compared with 0.67% and 6.45%, respectively, for the preceding quarter.

Net income for the twelve months ended December 31, 2013 was $8.7 million, a decrease of $2.3 million, or 20.8%, compared with $11.0 million for the twelve months ended December 31, 2012. Earnings per share for the twelve months ended December 31, 2013 was $1.87, compared with $2.38 for the twelve months ended December 31, 2012. Return on average assets and return on average equity for the twelve months ended December 31, 2013 were 0.67% and 6.50%, respectively, compared with 0.88% and 8.41%, respectively, for the same period in the prior year.

Core net income for the twelve months ended December 31, 2013 was $9.1 million, or $1.96 per share, compared with $10.4 million, or $2.23 per share, for the twelve months ended December 31, 2012. The current year core net income excluded $0.5 million in gain from bargain purchase and $1.4 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 increases of $1.9 million in the provision for loan losses and $1.2 million in non-interest expense, and a decline of $0.2 million in net interest income. These items were partially offset by an increase of $1.5 million in non-interest income and a reduction of $0.6 million in income taxes. Core return on average assets and core return on average equity for the twelve months ended December 31, 2013 were 0.70% and 6.79%, respectively, compared with 0.83% and 7.91%, respectively, for the same period in the prior year.

Net Interest Income:

Net interest income for the fourth quarter of 2013 totaled $12.1 million compared with $11.6 million for the same period in the prior year, an increase of $0.5 million, or 3.7%. Net interest margin was 3.66% for the fourth quarter of 2013 compared with 3.98% for the same period in the prior year. The decline in net interest margin was due in part to a 39 basis point decrease in the yield on interest-earning assets, partially offset by a 13 basis point decline in the cost of funds and an increase of $144.1 million in average earning assets. In addition, the net interest margin declined as a result of the investment of cash from the branch acquisition into investment securities.

Net interest income for the current quarter totaled $12.1 million compared with $11.5 million for the preceding quarter ended September 30, 2013, an increase of $0.6 million, or 4.8%. Net interest margin was 3.66% for the current quarter compared with 3.84% for the preceding quarter. The increase in net interest income was due primarily to an increase of $117.0 million in average earning assets, partially offset by a 20 basis point decrease in the yield on interest-earning assets. The decline in net interest margin was due in part to yields on interest-earning assets decreasing at a faster rate than the cost of interest-bearing liabilities and as stated above, the branch acquisition.

Net interest income for the twelve months ended December 31, 2013 totaled $46.6 million compared with $46.8 million for the prior year, a decrease of $0.2 million, or 0.5%. Net interest margin was 3.85% for the twelve months ended December 31, 2013 compared with 4.07% for the same period in the prior year. The decline in net interest income was due primarily to margin compression evidenced by a 34 basis point decrease in the yield on interest-earning assets, partially offset by a 16 basis point decline in the cost of funds and an increase of $59.3 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. In addition, the Corporation anticipated a decline in the yield on interest-earning assets due in part to its investment of cash from the branch acquisition into investment securities.

Non-Interest Income:

Non-interest income for the fourth quarter of 2013 was $5.2 million compared with $4.4 million for the preceding quarter ended September 30, 2013 and $4.2 million for the same fourth quarter in the prior year. The increase from the preceding quarter and year-ago quarter was due primarily to a gain from bargain purchase and increases in Wealth Management fee income and service charges on deposit accounts.

Net loss on securities transactions for the fourth quarter of 2013 was less than $0.1 million, due primarily to the sale of a CDO consisting of a pool of trust preferred securities that was rated as Caa3 by Moody's. In light of uncertainty around the treatment of covered securities under Volker Rule provisions, the Corporation thought it was prudent to sell the CDO at a slight loss.

Non-interest income for the twelve months ended December 31, 2013 was $18.1 million compared with $17.2 million for the prior year, an increase of $0.9 million, or 5.2%. The increase was due primarily to a $0.5 million gain from bargain purchase and increases of $0.5 million in Wealth Management Group fee income and $0.5 million in service charges on deposit accounts. These items were partially offset by reductions of $0.8 million in casualty gains from insurance reimbursements and $0.3 million in net gain on securities transactions.

Non-Interest Expense:

Non-interest expense for the fourth quarter of 2013 was $14.5 million compared with $12.6 million for the prior year, an increase of $1.9 million, or 14.5%. The increase was due primarily to increases of $1.2 million in acquisition expenses and $0.3 million in pension and other employee benefits.

Non-interest expense for the current quarter was $14.5 million compared with $11.8 million for the preceding quarter ended September 30, 2013, an increase of $2.7 million, or 22.5%. The increase was due primarily to increases of $1.0 million in acquisition expenses, $0.5 million in salaries and wages, and $0.4 million in pension and other employee benefits.

Non-interest expense for the twelve months ended December 31, 2013 was $49.4 million compared with $46.8 million for the prior year, an increase of $2.6 million, or 5.6%. The increase was due primarily to increases of $1.4 million in acquisition expenses, $0.4 million in salaries and wages, $0.3 million in pension and other employee benefits, $0.3 million in net occupancy expense and $0.3 million in data processing costs. These items were partially offset by a decrease of $0.5 million in professional services.

Asset Quality:

Non-performing loans totaled $8.5 million at December 31, 2013, or 0.85% of total loans, up from $6.0 million, or 0.68%, at December 31, 2012. The increase in non-performing loans at December 31, 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 $9.0 million at December 31, 2013, or 0.61% of total assets, up from $6.6 million, or 0.53%, at December 31, 2012. The Corporation's peer group average for the ratio of non-performing assets to total assets was 1.46% at September 30, 2013 (the most recent period available).

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 fourth quarter of 2013 was $1.0 million compared with $0.9 million for the preceding quarter ended September 30, 2013, and $0.1 million for the same period in the prior year. The increase in the provision for loan losses was due primarily to the establishment of $0.5 million in additional specific reserves on two commercial loans and loan portfolio growth. Net charge-offs for the current quarter were $0.1 million compared with $0.3 million for the preceding quarter and $0.5 million for the same period in the prior year.

The provision for loan losses for the twelve months ended December 31, 2013 was $2.8 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 the establishment of $0.9 million in additional specific reserves on three commercial loans, loan portfolio growth and higher net charge-offs. Net charge-offs for the twelve months ended December 31, 2013 were $0.4 million compared with $0.2 million for the prior year.

At December 31, 2013 the allowance for loan losses was $12.8 million, compared with $10.4 million at December 31, 2012. The allowance for loan losses was 150.11% of non-performing loans at December 31, 2013, compared with 172.96% at December 31, 2012. The ratio of the allowance for loan losses to total loans was 1.28% at December 31, 2013, compared with 1.17% at December 31, 2012.

Balance Sheet Activity:

Assets totaled $1.476 billion at December 31, 2013 compared with $1.248 billion at December 31, 2012, an increase of $227.9 million, or 18.3%. The growth was due primarily to increases of $106.8 million in investment securities and $102.3 million, or 11.5%, in total portfolio loans. The increase in portfolio loans was due to strong growth of $64.5 million in commercial loans and $42.4 million in consumer loans.

Deposits totaled $1.263 billion at December 31, 2013 compared with $1.045 million at December 31, 2012, an increase of $218.6 million, or 20.9%. The increase was primarily due to $177.7 million from the branch acquisition and $40.9 million in organic deposit growth. At December 31, 2013, demand deposit and money market accounts comprised 65.5% of total deposits compared with 60.7% at December 31, 2012.

Total equity was $138.6 million at December 31, 2013 compared with $131.1 million at December 31, 2012, an increase of $7.5 million, or 5.7%. The total equity to total assets ratio was 9.39% at December 31, 2013 compared with 10.50% at December 31, 2012. The tangible equity to tangible assets ratio was 7.62% at December 31, 2013 compared with 8.53% at December 31, 2012. Book value per share increased to $29.67 at December 31, 2013 from $28.20 at December 31, 2012. As of December 31, 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 $1.888 billion at December 31, 2013 compared with $1.735 billion at December 31, 2012, an increase of $153.0 million, or 8.8%.

Subsequent Event:

In addition to the CDO that was sold during the fourth quarter of 2013, the Corporation owned one other CDO consisting of a pool of trust preferred securities. The remaining CDO was liquidated and the Corporation will record a gain of approximately $0.5 million during the first quarter of 2014. The Corporation does not own any other CDO's in its investment securities portfolio.

About Chemung Financial Corporation:

Chemung Financial Corporation is a $1.5 billion financial services holding company headquartered in Elmira, New York and operates 34 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
Consolidated Balance Sheets (Unaudited)
  Dec. 31, Sept. 30, June 30, March 31, Dec. 31,
(Dollars in thousands, except share data) 2013 2013 2013 2013 2012
ASSETS          
Cash and due from financial institutions  $ 31,600  $ 37,491  $ 23,812  $ 27,757  $ 29,239
Interest-bearing deposits in other financial institutions  20,009  2,438  945  18,380  11,002
Total cash and cash equivalents  51,609  39,929  24,757  46,137  40,241
           
Trading assets, at fair value  366  313  389  384  348
           
Securities available for sale  346,016  259,275  225,362  235,307  239,686
Securities held to maturity  6,495  6,544  6,570  9,898  5,749
FHLB and FRB stocks, at cost  4,482  6,725  4,579  4,607  4,710
Total investment securities  356,993  272,544  236,511  249,812  250,145
           
Commercial  518,504  500,957  478,018  481,063  454,048
Mortgage  195,997  194,042  198,072  202,114  200,476
Consumer  281,365  272,635  257,950  238,256  238,993
Total loans  995,866  967,634  934,040  921,433  893,517
Allowance for loan losses  (12,776)  (11,856)  (11,320)  (10,825)  (10,433)
Loans, net  983,090  955,778  922,720  910,608  883,084
           
Loans held for sale  695  866  947  786  1,057
Premises and equipment, net  30,039  25,087  24,969  24,800  25,484
Goodwill  21,824  21,824  21,824  21,824  21,824
Other intangible assets, net  6,377  4,481  4,695  4,909  5,144
Other assets  25,150  20,269  20,348  20,712  20,833
Total assets  $ 1,476,143  $ 1,341,091  $ 1,257,160  $ 1,279,972  $ 1,248,160
           
           
Deposits:          
Non-interest-bearing demand deposits  $ 351,222  $ 297,053  $ 297,523  $ 296,361  $ 300,610
Interest-bearing demand deposits  114,679  96,191  89,027  102,201  90,730
Insured money market accounts  361,095  289,459  261,060  265,025  243,115
Savings deposits  191,882  183,804  182,393  181,421  173,589
Time deposits  244,492  221,938  224,965  232,091  236,690
Total deposits  1,263,370  1,088,445  1,054,968  1,077,099  1,044,734
           
Securities sold under agreements to repurchase  32,701  30,499  30,568  31,427  32,711
FHLB advances  25,243  75,146  26,101  27,158  27,225
Other liabilities  16,251  12,195  12,844  11,380  12,375
Total liabilities  1,337,565  1,206,285  1,124,481  1,147,064  1,117,045
           
Shareholders' equity          
Common stock  53  53  53  53  53
Additional-paid-in capital  45,398  45,556  45,451  45,473  45,357
Retained earnings  111,031  110,740  109,755  108,296  107,078
Treasury stock, at cost  (18,059)  (18,266)  (18,205)  (18,291)  (18,566)
Accumulated other comprehensive income (loss)  155  (3,277)  (4,375)  (2,623)  (2,807)
Total shareholders' equity  138,578  134,806  132,679  132,908  131,115
Total liabilities and shareholders' equity  $ 1,476,143  $ 1,341,091  $ 1,257,160  $ 1,279,972  $ 1,248,160
           
Period-end shares outstanding  4,671,066  4,660,217  4,659,931  4,657,151  4,649,741
 
 
Chemung Financial Corporation
Consolidated Statements of Income (Unaudited)
  Twelve Months Ended   Three Months Ended  
  December 31, Percent December 31, Percent
(Dollars in thousands, except share and per share data) 2013 2012 Change 2013 2012 Change
Interest and dividend income:            
Loans, including fees  $ 45,135  $ 45,298 (0.4)  $ 11,530  $ 11,220 2.8
Taxable securities  4,391  5,357 (18.0)  1,271  1,215 4.6
Tax exempt securities  1,101  1,268 (13.2)  256  292 (12.3)
Interest-bearing deposits  36  153 (76.5)  15  30 (50.0)
Total interest and dividend income  50,663  52,076 (2.7)  13,072  12,757 2.5
             
Interest expense:            
Deposits  2,350  3,182 (26.1)  559  695 (19.6)
Securities sold under agreements to repurchase  858  994 (13.7)  213  231 (7.8)
Borrowed funds  824  1,058 (22.1)  230  190 21.1
Total interest expense  4,032  5,234 (23.0)  1,002  1,116 (10.2)
             
Net interest income  46,631  46,842 (0.5)  12,070  11,641 3.7
Provision for loan losses  2,755  828 232.7  1,000  74 1251.4
Net interest income after provision for loan losses  43,876  46,014 (4.6)  11,070  11,567 (4.3)
             
Non-interest income:            
Wealth management group fee income  7,344  6,827 7.6  1,896  1,657 14.4
Service charges on deposit accounts  4,706  4,241 11.0  1,328  1,098 20.9
Net gain (loss) on securities transactions  (13)  301 (104.3)  (14)  --   N/M
Net gain on sales of loans held for sale  503  484 3.9  78  214 (63.6)
Net gain (loss) on sales of other real estate owned  28  (45)  N/M  (5)  27  N/M
Casualty gains  --   790 (100.0)  --   --   N/M
Gain from bargain purchase  470  --   N/M  470  --   N/M
Other  5,038  4,590 9.8  1,476  1,196 23.4
Total non-interest income  18,076  17,188 5.2  5,229  4,192 24.7
             
Non-interest expense:            
Salaries and wages  19,365  18,918 2.4  5,227  5,207 0.4
Pension and other employee benefits  5,939  5,624 5.6  1,777  1,486 19.6
Net occupancy  5,502  5,164 6.5  1,486  1,315 13.0
Furniture and equipment  2,326  2,205 5.5  726  605 20.0
Data processing  4,750  4,421 7.4  1,317  1,142 15.3
Professional fees  928  1,443 (35.7)  215  749 (71.3)
Amortization of intangible assets  921  1,047 (12.0)  258  238 8.4
Marketing and advertising  1,033  1,068 (3.3)  251  153 64.1
Other real estate owned expense  194  328 (40.9)  56  42 33.3
FDIC insurance  866  807 7.3  241  192 25.5
Merger and acquisition expenses  1,387  30  N/M  1,170  --   N/M
Loan expenses  780  788 (1.0)  243  250 (2.8)
Other  5,408  4,952 9.2  1,503  1,263 19.0
Total non-interest expense  49,399  46,795 5.6  14,470  12,642 14.5
             
Income before income tax expense  12,553  16,407 (23.5)  1,829  3,117 (41.3)
Income tax expense  3,822  5,385 (29.0)  343  987 (65.2)
Net income  $ 8,731  $ 11,022 (20.8)  $ 1,486  $ 2,130 (30.2)
             
Basic and diluted earnings per share  $ 1.87  $ 2.38    $ 0.32  $ 0.46  
Cash dividends declared per share  1.04  1.00    0.26  0.25  
Average basic and diluted shares outstanding  4,659,685  4,640,912    4,664,140  4,643,696  
             
N/M - not meaningful.            
 
 
Chemung Financial Corporation
Consolidated Financial Highlights (Unaudited)
            As of or for the
  As of or for the Three Months Ended Twelve Months Ended
  Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Dec. 31, Dec. 31,
(Dollars in thousands, except share and per share data) 2013 2013 2013 2013 2012 2013 2012
               
RESULTS OF OPERATIONS              
Interest income  $ 13,072  $ 12,509  $ 12,333  $ 12,748  $ 12,757  $ 50,663  $ 52,076
Interest expense 1,002 992 1,005 1,031 1,116 4,032 5,234
Net interest income 12,070 11,517 11,328 11,717 11,641 46,631 46,842
Provision for loan losses 1,000 874 450 431 74 2,755 828
Net interest income after provision for loan losses 11,070 10,643 10,878 11,286 11,567 43,876 46,014
Non-interest income 5,229 4,351 4,475 4,022 4,192 18,076 17,188
Non-interest expense 14,470 11,813 11,392 11,725 12,642 49,399 46,795
Income before income tax expense 1,829 3,181 3,961 3,583 3,117 12,553 16,407
Income tax expense 343 1,002 1,306 1,171 987 3,822 5,385
Net income  $ 1,486  $ 2,179  $ 2,655  $ 2,412  $ 2,130  $ 8,731  $ 11,022
               
Basic and diluted earnings per share  $ 0.32  $ 0.47  $ 0.57  $ 0.52  $ 0.46  $ 1.87  $ 2.38
Average basic and diluted shares outstanding 4,664,140 4,660,336 4,658,400 4,655,862 4,643,696 4,659,685 4,640,912
               
PERFORMANCE RATIOS              
Return on average assets 0.42% 0.67% 0.84% 0.77% 0.67% 0.67% 0.88%
Return on average equity 4.34% 6.45% 7.92% 7.37% 6.33% 6.50% 8.41%
Return on average tangible equity (a) 5.40% 8.04% 9.88% 9.24% 7.94% 8.12% 10.63%
Efficiency ratio (b) 78.96% 73.08% 72.09% 74.50% 79.85% 74.73% 74.30%
Non-interest expense to average assets 4.09% 3.65% 3.60% 3.75% 3.98% 3.78% 3.73%
Loans to deposits 78.83% 88.90% 88.54% 85.55% 85.53% 78.83% 85.53%
               
YIELDS / RATES              
Yield on loans 4.66% 4.69% 4.77% 5.04% 5.02% 4.79% 5.37%
Yield on investments 1.88% 2.10% 2.10% 2.28% 2.23% 2.07% 2.22%
Yield on interest-earning assets 3.97% 4.17% 4.21% 4.43% 4.36% 4.19% 4.53%
Cost of interest-bearing deposits 0.26% 0.30% 0.31% 0.33% 0.36% 0.30% 0.43%
Cost of borrowings 1.43% 2.49% 2.80% 2.79% 2.74% 2.42% 2.90%
Cost of interest-bearing liabilities 0.41% 0.47% 0.49% 0.50% 0.54% 0.47% 0.63%
Interest rate spread 3.56% 3.70% 3.72% 3.93% 3.82% 3.72% 3.90%
Net interest margin 3.66% 3.84% 3.87% 4.07% 3.98% 3.85% 4.07%
               
CAPITAL              
Total equity to total assets at end of period 9.39% 10.05% 10.55% 10.38% 10.50% 9.39% 10.50%
Tangible equity to tangible assets at end of period (a) 7.62% 8.25% 8.63% 8.47% 8.53% 7.62% 8.53%
               
Book value per share  $ 29.67  $ 28.93  $ 28.47  $ 28.54  $ 28.20  $ 29.67  $ 28.20
Tangible book value per share 23.63 23.28 22.78 22.80 22.40 23.63 22.40
Period-end market value per share 34.17 34.63 33.49 33.90 29.89 34.17 29.89
Dividends declared per share 0.26 0.26 0.26 0.26 0.25 1.04 1.00
               
AVERAGE BALANCES              
Loans (c)  $ 981,491  $ 950,657  $ 929,439  $ 909,166  $ 888,515  $ 942,908  $ 844,255
Earning assets 1,306,934 1,189,978 1,173,862 1,166,590 1,162,788 1,209,673 1,150,408
Total assets 1,404,770 1,283,577 1,269,472 1,266,379 1,264,125 1,306,367 1,253,725
Deposits 1,160,761 1,070,553 1,065,649 1,064,016 1,059,463 1,090,456 1,042,727
Total equity 135,979 133,955 134,392 132,783 133,799 134,285 131,119
Tangible equity (a) 109,082 107,528 107,746 105,913 106,703 107,576 103,670
               
ASSET QUALITY              
Net charge-offs (recoveries)  $ 80  $ 338  $ (45)  $ 39  $ 469  $ 412  $ 178
Non-performing loans (d) 8,511 7,643 7,468 7,282 6,032 8,511 6,032
Non-performing assets (e) 9,049 8,207 8,056 7,847 6,597 9,049 6,597
Allowance for loan losses 12,776 11,856 11,320 10,825 10,433 12,776 10,433
               
Annualized net charge-offs to average loans 0.03% 0.14% (0.02)% 0.02% 0.21% 0.04% 0.02%
Non-performing loans to total loans 0.85% 0.79% 0.80% 0.79% 0.68% 0.85% 0.68%
Non-performing assets to total assets 0.61% 0.61% 0.64% 0.61% 0.53% 0.61% 0.53%
Allowance for loan losses to total loans 1.28% 1.23% 1.21% 1.17% 1.17% 1.28% 1.17%
Allowance for loan losses to non-performing loans 150.11% 155.12% 151.58% 148.65% 172.96% 150.11% 172.96%
 
(a) See the GAAP to Non-GAAP reconciliations.
(b) Efficiency ratio is non-interest expense less merger and acquisition expenses divided by the total of net interest income plus non-interest income less net gain on securities transactions less casualty gains less gain from bargain purchase.
(c)  Loans include loans held for sale. Loans do not reflect the allowance for loan losses.
(d)  Non-performing loans include non-accrual loans only.
(e)  Non-performing assets include non-performing loans plus other real estate owned.
N/M – not meaningful.

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.

            As of or for the
  As of or for the Three Months Ended Twelve Months Ended
  Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Dec. 31, Dec. 31,
(Dollars in thousands, except per share data) 2013 2013 2013 2013 2012 2013 2012
               
TANGIBLE EQUITY AND TANGIBLE ASSETS              
(PERIOD END)              
Total shareholders' equity (GAAP)  $ 138,578  $ 134,806  $ 132,679  $ 132,908  $ 131,115  $ 138,578  $ 131,115
Less: intangible assets (28,201) (26,305) (26,519) (26,733) (26,968) (28,201) (26,968)
Tangible equity (non-GAAP)  $ 110,377  $ 108,501  $ 106,160  $ 106,175  $ 104,147  $ 110,377  $ 104,147
               
Total assets (GAAP)  $ 1,476,143  $ 1,341,091  $ 1,257,160  $ 1,279,972  $ 1,248,160  $ 1,476,143  $ 1,248,160
Less: intangible assets (28,201) (26,305) (26,519) (26,733) (26,968) (28,201) (26,968)
Tangible assets (non-GAAP)  $ 1,447,942  $ 1,314,786  $ 1,230,641  $ 1,253,239  $ 1,221,192  $ 1,447,942  $ 1,221,192
               
Total equity to total assets at end of period (GAAP) 9.39% 10.05% 10.55% 10.38% 10.50% 9.39% 10.50%
Book value per share (GAAP)  $ 29.67  $ 28.93  $ 28.47  $ 28.54  $ 28.20  $ 29.67  $ 28.20
               
Tangible equity to tangible assets at end of period (non-GAAP) 7.62% 8.25% 8.63% 8.47% 8.53% 7.62% 8.53%
Tangible book value per share (non-GAAP)  $ 23.63  $ 23.28  $ 22.78  $ 22.80  $ 22.40  $ 23.63  $ 22.40
               
TANGIBLE EQUITY AND TANGIBLE ASSETS              
(AVERAGE)              
Total shareholders' equity (GAAP)  $ 135,979  $ 133,955  $ 134,392  $ 132,783  $ 133,799  $ 134,285  $ 131,119
Less: intangible assets (26,897) (26,427) (26,646) (26,870) (27,096) (26,709) (27,449)
Tangible equity (non-GAAP)  $ 109,082  $ 107,528  $ 107,746  $ 105,913  $ 106,703  $ 107,576  $ 103,670
               
Return on average equity (GAAP) 4.34% 6.45% 7.92% 7.37% 6.33% 6.50% 8.41%
               
Return on average tangible equity (non-GAAP) 5.40% 8.04% 9.88% 9.24% 7.94% 8.12% 10.63%
Karl F. Krebs, EVP and CFO

Phone: 607-737-3714