Chemung Financial Reports First Quarter 2014 Earnings

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| Source: Chemung Financial Corporation

ELMIRA, N.Y., April 24, 2014 (GLOBE NEWSWIRE) -- Chemung Financial Corporation (Nasdaq:CHMG), the parent company of Chemung Canal Trust Company, today reported net income and earnings per share for the quarter ended March 31, 2014. Highlights for the quarter include:

  • Net income for the first quarter of 2014 was $2.1 million, or $0.44 per share, compared with $2.4 million, or $0.52 per share, for the same quarter in the prior year.
     
  • Net interest margin for the first quarter of 2014 was 3.53%, compared with 3.66% for the preceding quarter and 4.07% for the same quarter in the prior year. Average interest-earning assets increased $215.0 million year-over-year, due to the fourth quarter 2013 branch acquisition in addition to organic growth.
     
  • Total loans increased $28.7 million, or 2.9%, from $995.9 million at December 31, 2013 to $1.025 billion at March 31, 2014. This increase was attributable to growth of $23.6 million, or 4.5%, in commercial loans.
     
  • Non-performing assets to total assets ratio was 0.59% at March 31, 2014 compared with 0.61% at March 31, 2013.
     
  • Book value per share was $30.03 at March 31, 2014 compared with $28.54 at March 31, 2013, an increase of $1.49, or 5.2%. Tangible book value per share was $24.08 at March 31, 2014 compared with $22.80 at March 31, 2013, an increase of $1.28, or 5.6%.
     
  • As a result of the branch acquisition during the fourth quarter of 2013, the tangible equity to tangible assets ratio decreased to 7.67% at March 31, 2014, compared with 8.47% at March 31, 2013.
     
  • Dividends declared during the quarter ended March 31, 2014 were $0.26 per share, level with the prior year.

Ronald M. Bentley, President and CEO stated, "As expected, we experienced net interest margin compression in the first quarter of 2014. To combat margin compression, we organically grew commercial loans $23.6 million, or 4.5%, and consumer loans $4.6 million, or 1.6%. As we continue to channel deposits from the acquired branch offices into loans, we expect to realize increases in both net interest margin and earnings. In addition, deposits increased $25.6 million, or 2.0%, primarily in core checking accounts."

Summary:

Chemung Financial Corporation reported net income of $2.1 million for the first quarter of 2014, a decrease of $0.3 million, or 14.4%, compared with $2.4 million for the same period in the prior year. Earnings per share for the first quarter of 2014 totaled $0.44, compared with $0.52 for the same period in the prior year. Return on average assets and return on average equity for the first quarter of 2014 were 0.56% and 5.93%, respectively, compared with 0.77% and 7.37%, respectively, for the same period in the prior year.

Net income of $2.1 million for the current quarter ended March 31, 2014 represents an increase of $0.6 million, or 38.9%, from net income of $1.5 million for the preceding quarter ended December 31, 2013. The increase in earnings was due primarily to items related to the branch acquisition in the fourth quarter of 2013, and a reduction of $0.4 million in the provision for loan losses. Earnings per share for the current quarter totaled $0.44 compared with $0.32 for the preceding quarter. Return on average assets and return on average equity for the current quarter were 0.56% and 5.93%, respectively, compared with 0.42% and 4.34%, respectively, for the preceding quarter.

Net Interest Income:

Net interest income for the first quarter of 2014 totaled $12.0 million compared with $11.7 million for the same period in the prior year, an increase of $0.3 million, or 2.7%. Net interest margin was 3.58% for the first quarter of 2014 compared with 4.14% for the same period in the prior year. The decline in net interest margin was due in part to a 65 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 $215.0 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 $12.0 million compared with $12.1 million for the preceding quarter ended December 31, 2013, a decrease of $0.1 million, or 0.3%. Net interest margin was 3.58% for the current quarter compared with 3.72% for the preceding quarter. The decline in net interest margin was due in part to a 17 basis point decrease in the yield on interest-earnings assets, partially offset by a four basis point decline in the cost of funds and an increase of $74.7 million in average interest-earning assets.

Non-Interest Income:

Non-interest income for the first quarter of 2014 was $5.0 million compared with $5.2 million for the preceding quarter ended December 31, 2013 and $4.0 million for the same first quarter in the prior year. The decrease from the preceding quarter was due primarily to a gain of $0.5 million from bargain purchase that occurred in the fourth quarter of 2013 and a reduction of $0.1 million in service charges on deposit accounts. These items were partially offset by a gain of $0.5 million from the liquidation of the Corporation's investment in a pool of trust preferred securities. The increase in non-interest income from the prior year was due primarily to the above mentioned liquidation gain, an increase of $0.3 million in service charges on deposit accounts attributable to branches acquired in the fourth quarter of 2013, and $0.1 million in Wealth Management Group fee income.

Non-Interest Expense:

Non-interest expense for the first quarter of 2014 was $13.3 million compared with $11.7 million for the prior year, an increase of $1.6 million, or 13.8%. The increase was due primarily to increases of $0.4 million in occupancy expense, $0.4 million in data processing expense and $0.3 million in salaries and wages. These increases were attributable to the branches acquired in the fourth quarter of 2013.

Non-interest expense for the current quarter was $13.3 million compared with $14.5 million for the preceding quarter ended December 31, 2013, a decrease of $1.1 million, or 7.8%. The decrease was due primarily to decreases of $1.1 million in acquisition expenses and $0.4 million in pension and other employee benefits. These items were partially offset by increases of $0.3 million in occupancy expense and $0.2 million in data processing expense. The increase in occupancy and data processing expenses were related to the acquired branches.

Asset Quality:

Non-performing loans totaled $8.6 million at March 31, 2014, or 0.84% of total loans, up from $7.3 million, or 0.79%, at March 31, 2013. The increase in non-performing loans at March 31, 2014 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, was 0.59% of total assets, or $8.8 million at March 31, 2014, down from 0.61%, or $7.8 million, at March 31, 2013. The Corporation's peer group average for the ratio of non-performing assets to total assets was 1.41% at December 31, 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 first quarter of 2014 was $0.6 million compared with $1.0 million for the preceding quarter ended December 31, 2013, and $0.4 million for the same period in the prior year. The decrease in the provision for loan losses from the preceding quarter was due primarily to the establishment of $0.5 million in additional specific reserves on two commercial loans in the preceding quarter. Net charge-offs for the current quarter were $0.3 million compared with $0.1 million for the preceding quarter and less than $0.1 million for the same period in the prior year.

At March 31, 2014 the allowance for loan losses was $13.2 million, compared with $10.8 million at March 31, 2013. The allowance for loan losses was 153.55% of non-performing loans at March 31, 2014, compared with 148.65% at March 31, 2013. The ratio of the allowance for loan losses to total loans was 1.28% at March 31, 2014, compared with 1.17% at March 31, 2013. 

Balance Sheet Activity:

Assets totaled $1.498 billion at March 31, 2014 compared with $1.280 billion at March 31, 2013, an increase of $217.6 million, or 17.0%. The growth was due primarily to increases of $101.8 million in securities available for sale and $103.1 million, or 11.2%, in total portfolio loans. The increase in portfolio loans was due to strong growth of $61.0 million in commercial loans and $47.7 million in consumer loans.

Deposits totaled $1.292 billion at March 31, 2014 compared with $1.079 billion at March 31, 2013, an increase of $212.9 million, or 19.7%. The increase was primarily due to $177.7 million from the branch acquisition and $35.2 million in organic deposit growth. At March 31, 2014, demand deposit and money market accounts comprised 66.3% of total deposits compared with 61.5% at March 31, 2013.

Total equity was $140.5 million at March 31, 2014 compared with $132.9 million at March 31, 2013, an increase of $7.6 million, or 5.7%. The total equity to total assets ratio was 9.38% at March 31, 2014 compared with 10.38% at March 31, 2013. The tangible equity to tangible assets ratio was 7.67% at March 31, 2014 compared with 8.47% at March 31, 2013. Book value per share increased to $30.03 at March 31, 2014 from $28.54 at March 31, 2013. As of March 31, 2014, both the Corporation's and the Bank's capital ratios were in excess of those required to be considered well-capitalized under regulatory capital guidelines.

Other Items:

The market value of total assets under management or administration in our Wealth Management Group was $1.923 billion at March 31, 2014 compared with $1.833 billion at March 31, 2013, an increase of $89.4 million, or 4.9%.

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 Investor Relations.

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 2013 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)          
  March 31, Dec. 31, Sept. 30, June 30, March 31,
(Dollars in thousands, except share data) 2014 2013 2013 2013 2013
ASSETS          
Cash and due from financial institutions  $ 34,478  $ 31,600  $ 37,491  $ 23,812  $ 27,757
Interest-bearing deposits in other financial institutions  22,670  20,009  2,438  945  18,380
Total cash and cash equivalents  57,148  51,609  39,929  24,757  46,137
           
Trading assets, at fair value  413  366  313  389  384
           
Securities available for sale  337,134  346,016  259,275  225,362  235,307
Securities held to maturity  6,126  6,495  6,544  6,570  9,898
FHLB and FRB stocks, at cost  4,482  4,482  6,725  4,579  4,607
Total investment securities  347,742  356,993  272,544  236,511  249,812
           
Commercial  542,082  518,510  500,957  478,018  481,063
Mortgage  196,396  195,997  194,042  198,072  202,114
Consumer  286,087  281,359  272,635  257,950  238,256
Total loans  1,024,565  995,866  967,634  934,040  921,433
Allowance for loan losses  (13,155)  (12,776)  (11,856)  (11,320)  (10,825)
Loans, net  1,011,410  983,090  955,778  922,720  910,608
           
Loans held for sale  75  695  866  947  786
Premises and equipment, net  29,351  30,039  25,087  24,969  24,800
Goodwill  21,824  21,824  21,824  21,824  21,824
Other intangible assets, net  6,033  6,377  4,481  4,695  4,909
Other assets  23,535  25,150  20,269  20,348  20,712
Total assets  $ 1,497,531  $ 1,476,143  $ 1,341,091  $ 1,257,160  $ 1,279,972
           
           
Deposits:          
Non-interest-bearing demand deposits  $ 354,727  $ 351,222  $ 297,053  $ 297,523  $ 296,361
Interest-bearing demand deposits  114,507  114,679  96,191  89,027  102,201
Insured money market accounts  387,912  361,095  289,459  261,060  265,025
Savings deposits  198,876  194,768  185,824  185,081  183,279
Time deposits  235,868  244,492  221,938  224,965  232,091
Total deposits  1,291,890  1,266,256  1,090,465  1,057,656  1,078,957
           
Securities sold under agreements to repurchase  30,646  32,701  30,499  30,568  31,427
FHLB advances  25,189  25,243  75,146  26,101  27,158
Other liabilities  9,283  13,365  10,175  10,156  9,522
Total liabilities  1,357,008  1,337,565  1,206,285  1,124,481  1,147,064
           
Shareholders' equity          
Common stock  53  53  53  53  53
Additional-paid-in capital  45,516  45,399  45,556  45,451  45,473
Retained earnings  111,895  111,031  110,740  109,755  108,296
Treasury stock, at cost  (17,728)  (18,060)  (18,266)  (18,205)  (18,291)
Accumulated other comprehensive income (loss)  787  155  (3,277)  (4,375)  (2,623)
Total shareholders' equity  140,523  138,578  134,806  132,679  132,908
Total liabilities and shareholders' equity  $ 1,497,531  $ 1,476,143  $ 1,341,091  $ 1,257,160  $ 1,279,972
           
Period-end shares outstanding  4,679,396  4,671,066  4,660,217  4,659,931  4,657,151
       
Chemung Financial Corporation      
Consolidated Statements of Income (Unaudited)      
  Three Months Ended  
  March 31, Percent
(Dollars in thousands, except share and per share data) 2014 2013 Change
Interest and dividend income:      
Loans, including fees  $ 11,168  $ 11,304 (1.2)
Taxable securities  1,503  1,131 32.9
Tax exempt securities  264  305 (13.4)
Interest-bearing deposits  19  8 137.5
Total interest and dividend income  12,954  12,748 1.6
       
Interest expense:      
Deposits  522  624 (16.3)
Securities sold under agreements to repurchase  209  219 (4.6)
Borrowed funds  190  188 1.1
Total interest expense  921  1,031 (10.7)
       
Net interest income  12,033  11,717 2.7
Provision for loan losses  639  431 48.3
Net interest income after provision for loan losses  11,394  11,286 1.0
       
Non-interest income:      
Wealth management group fee income  1,883  1,750 7.6
Service charges on deposit accounts  1,232  969 27.1
Net gain on sales of loans held for sale  41  112 (63.4)
Net loss on sales of other real estate owned  (30)  --   N/M
Other  1,838  1,191 54.3
Total non-interest income  4,964  4,022 23.4
       
Non-interest expense:      
Salaries and wages  5,153  4,818 7.0
Pension and other employee benefits  1,359  1,424 (4.6)
Net occupancy  1,793  1,362 31.6
Furniture and equipment  630  518 21.6
Data processing  1,481  1,113 33.1
Professional fees  222  329 (32.5)
Amortization of intangible assets  345  235 46.8
Marketing and advertising  293  288 1.7
Other real estate owned expense  87  36 141.7
FDIC insurance  269  217 24.0
Loan expenses  149  143 4.2
Merger and acquisition expenses  86  --   N/M
Other  1,476  1,242 18.8
Total non-interest expense  13,343  11,725 13.8
       
Income before income tax expense  3,015  3,583 (15.9)
Income tax expense  951  1,171 (18.8)
Net income  $ 2,064  $ 2,412 (14.4)
       
Basic and diluted earnings per share  $ 0.44  $ 0.52  
Cash dividends declared per share  0.26  0.26  
Average basic and diluted shares outstanding  4,677,178  4,655,862  
       
N/M - Not meaningful      
       
Chemung Financial Corporation          
Consolidated Financial Highlights (Unaudited)          
           
  As of or for the Three Months Ended
  March 31, Dec. 31, Sept. 30, June 30, March 31,
(Dollars in thousands, except share and per share data) 2014 2013 2013 2013 2013
           
RESULTS OF OPERATIONS          
Interest income  $ 12,954  $ 13,072  $ 12,509  $ 12,333  $ 12,748
Interest expense 921 1,002 992 1,005 1,031
Net interest income 12,033 12,070 11,517 11,328 11,717
Provision for loan losses 639 1,000 874 450 431
Net interest income after provision for loan losses 11,394 11,070 10,643 10,878 11,286
Non-interest income 4,964 5,229 4,351 4,475 4,022
Non-interest expense 13,343 14,470 11,813 11,392 11,725
Income before income tax expense 3,015 1,829 3,181 3,961 3,583
Income tax expense 951 343 1,002 1,306 1,171
Net income  $ 2,064  $ 1,486  $ 2,179  $ 2,655  $ 2,412
           
Basic and diluted earnings per share  $ 0.44  $ 0.32  $ 0.47  $ 0.57  $ 0.52
Average basic and diluted shares outstanding 4,677,178 4,664,140 4,660,336 4,658,400 4,655,862
           
PERFORMANCE RATIOS          
Return on average assets 0.56% 0.42% 0.67% 0.84% 0.77%
Return on average equity 5.93% 4.34% 6.45% 7.92% 7.37%
Return on average tangible equity (a) 7.41% 5.40% 8.04% 9.88% 9.24%
Efficiency ratio (b) 77.28% 76.66% 70.97% 69.94% 72.12%
Non-interest expense to average assets 3.64% 4.09% 3.65% 3.60% 3.75%
Loans to deposits 79.31% 78.65% 88.74% 88.31% 85.40%
           
YIELDS / RATES - Fully Taxable Equivalent          
Yield on loans 4.51% 4.67% 4.71% 4.79% 5.06%
Yield on investments 2.09% 2.05% 2.32% 2.34% 2.53%
Yield on interest-earning assets 3.85% 4.02% 4.23% 4.28% 4.50%
Cost of interest-bearing deposits 0.23% 0.26% 0.30% 0.31% 0.33%
Cost of borrowings 2.91% 1.90% 2.49% 2.80% 2.79%
Cost of interest-bearing liabilities 0.38% 0.42% 0.47% 0.48% 0.50%
Interest rate spread 3.47% 3.60% 3.76% 3.80% 4.00%
Net interest margin, fully taxable equivalent 3.58% 3.72% 3.90% 3.93% 4.14%
           
CAPITAL          
Total equity to total assets at end of period 9.38% 9.39% 10.05% 10.55% 10.38%
Tangible equity to tangible assets at end of period (a) 7.67% 7.62% 8.25% 8.63% 8.47%
           
Book value per share  $ 30.03  $ 29.67  $ 28.93  $ 28.47  $ 28.54
Tangible book value per share 24.08 23.63 23.28 22.78 22.80
Period-end market value per share 27.12 34.17 34.63 33.49 33.90
Dividends declared per share 0.26 0.26 0.26 0.26 0.26
           
AVERAGE BALANCES          
Loans (c)  $ 1,007,415  $ 981,491  $ 950,657  $ 929,439  $ 909,166
Earning assets 1,381,604 1,306,934 1,189,978 1,173,862 1,166,590
Total assets 1,488,577 1,404,770 1,283,577 1,269,472 1,266,379
Deposits 1,282,917 1,163,065 1,073,571 1,067,958 1,065,909
Total equity 141,061 135,979 133,955 134,392 132,783
Tangible equity (a) 112,996 109,082 107,528 107,746 105,913
           
ASSET QUALITY          
Net charge-offs (recoveries)  $ 260  $ 80  $ 338  $ (45)  $ 39
Non-performing loans (d) 8,567 8,511 7,643 7,468 7,282
Non-performing assets (e) 8,808 9,049 8,207 8,056 7,847
Allowance for loan losses 13,155 12,776 11,856 11,320 10,825
           
Annualized net charge-offs to average loans 0.10% 0.03% 0.14% (0.02)% 0.02%
Non-performing loans to total loans 0.84% 0.85% 0.79% 0.80% 0.79%
Non-performing assets to total assets 0.59% 0.61% 0.61% 0.64% 0.61%
Allowance for loan losses to total loans 1.28% 1.28% 1.23% 1.21% 1.17%
Allowance for loan losses to non-performing loans 153.55% 150.11% 155.12% 151.58% 148.65%
           
(a) See the GAAP to Non-GAAP reconciliations.
(b) Efficiency ratio is non-interest expense less merger and acquisition expenses less amortization of intangible assets divided by the total of fully taxable equivalent net interest income plus non-interest income less net gain on securities transactions less gain from bargain purchase less OTTI recovery.
(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.

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 Three Months Ended
  March 31, Dec. 31, Sept. 30, June 30, March 31,
(Dollars in thousands, except per share data) 2014 2013 2013 2013 2013
           
TANGIBLE EQUITY AND TANGIBLE ASSETS          
(PERIOD END)          
Total shareholders' equity (GAAP)  $ 140,523  $ 138,578  $ 134,806  $ 132,679  $ 132,908
Less: intangible assets (27,857) (28,201) (26,305) (26,519) (26,733)
Tangible equity (non-GAAP)  $ 112,666  $ 110,377  $ 108,501  $ 106,160  $ 106,175
           
Total assets (GAAP)  $ 1,497,531  $ 1,476,143  $ 1,341,091  $ 1,257,160  $ 1,279,972
Less: intangible assets (27,857) (28,201) (26,305) (26,519) (26,733)
Tangible assets (non-GAAP)  $ 1,469,674  $ 1,447,942  $ 1,314,786  $ 1,230,641  $ 1,253,239
           
Total equity to total assets at end of period (GAAP) 9.38% 9.39% 10.05% 10.55% 10.38%
Book value per share (GAAP)  $ 30.03  $ 29.67  $ 28.93  $ 28.47  $ 28.54
           
Tangible equity to tangible assets at end of period (non-GAAP) 7.67% 7.62% 8.25% 8.63% 8.47%
Tangible book value per share (non-GAAP)  $ 24.08  $ 23.63  $ 23.28  $ 22.78  $ 22.80
           
TANGIBLE EQUITY AND TANGIBLE ASSETS          
(AVERAGE)          
Total shareholders' equity (GAAP)  $ 141,061  $ 135,979  $ 133,955  $ 134,392  $ 132,783
Less: intangible assets (28,065) (26,897) (26,427) (26,646) (26,870)
Tangible equity (non-GAAP)  $ 112,996  $ 109,082  $ 107,528  $ 107,746  $ 105,913
           
Return on average equity (GAAP) 5.93% 4.34% 6.45% 7.92% 7.37%
           
Return on average tangible equity (non-GAAP) 7.41% 5.40% 8.04% 9.88% 9.24%
           
Karl F. Krebs, EVP and CFO

Phone:  607-737-3714