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Chemung Financial Corporation Reports Second Quarter 2019 Net Income of $5.0 Million, or $1.02 per Share

ELMIRA, N.Y., July 22, 2019 (GLOBE NEWSWIRE) -- Chemung Financial Corporation (the “Corporation”) (CHMG), the parent company of Chemung Canal Trust Company (the “Bank”), today reported net income of $5.0 million, or $1.02 per share, for the second quarter of 2019, compared to $2.5 million, or $0.52 per share, for the second quarter of 2018.

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

“We are very pleased to report another quarter of strong earnings for 2019.  Our results are a direct reflection of our focused approach to managing interest rate sensitivity, liquidity, and efficiency while positioning the balance sheet for the remainder of 2019 and into 2020.  Our net interest margin remains steady, even though there is downward pressure due to the increasing costs of obtaining deposits.  We are looking forward to the benefits of a stronger balance sheet and capital ratios that will provide us with the opportunity to support continued growth.”

Second Quarter Highlights1

  • Provision for loan losses decreased $2.2 million, or 93.6%

  • Total shareholders’ equity increased $13.4 million, or 8.1%

  • Total equity to total assets ratio increased to 10.18% at June 30, 2019

  • Dividends declared during the second quarter of 2019 were $0.26 per share

A more detailed summary of financial performance follows.

1 Balance sheet comparisons are calculated for June 30, 2019 versus December 31, 2018.  Income statement comparisons are calculated for the second quarter of 2019 versus the second quarter of 2018.

2nd Quarter 2019 vs 2nd Quarter 2018

Net Interest Income:

Net interest income for the current quarter totaled $15.1 million compared with $15.0 million for the same period in the prior year, an increase of $0.1 million, or 0.6%, due primarily to a $0.8 million increase in total interest and dividend income, offset by a $0.7 million increase in total interest expense.  Interest and fees from loans increased $0.3 million and interest from interest-earning deposits increased $0.5 million in the second quarter of 2019 as compared to the same period in the prior year.  Interest expense on deposits increased $0.9 million, while interest expense on borrowed funds decreased $0.2 million in the second quarter of 2019 when compared to the same period in the prior year.  Fully taxable equivalent net interest margin was 3.69% in the second quarter of 2019, compared with 3.73% for the same period in the prior year.  The average yield on interest-earning assets increased 13 basis points, while the average cost of interest-bearing liabilities increased 26 basis points in the second quarter of 2019, compared to the same period in the prior year.  Average interest-earning assets increased $28.6 million in the second quarter of 2019, compared to the same period in the prior year.  The increase in interest and dividend income for the current quarter can be mostly attributed to average annualized yield increases of 155 basis points on interest-earning deposits, 19 basis points on commercial loans, 34 basis points on consumer loans and 12 basis points on taxable securities, due to rising interest rates, along with a $77.9 million increase in the average balance of interest-earning deposits, compared to the same period in the prior year.  The increase in interest expense for the current quarter can be mostly attributed to an increase in interest rates on average interest-bearing deposits, including promotional rates on time deposits, offset by a $36.3 million decrease in the average balance of FHLB advances, other debt and repurchase agreements.

Non-Interest Income:

Non-interest income for the current quarter was $5.1 million compared with $5.3 million for the same period in the prior year, a decrease of $0.2 million, or 4.5%.  The decrease can be mostly attributed to a decrease of $0.4 million in other non-interest income, offset by an increase of $0.2 million in Wealth Management Group fee (“WMG”) income.  The decrease in other non-interest income was due primarily to the $0.2 million decrease in swap fees and various other non-interest income items.  The increase in WMG fee income can be mostly attributed to an increase in fees from terminating trusts.  

Non-Interest Expense:

Non-interest expense for the current quarter was $13.8 million compared with $15.0 million for the same period in the prior year, a decrease of $1.2 million, or 7.6%.  The decrease can be mostly attributed to decreases of $1.0 million in legal accruals and settlements, $0.2 million in net occupancy expenses, $0.1 million in furniture and equipment expenses, and $0.1 million in marketing and advertising expenses, offset by increases of $0.2 million in salaries and wages, $0.1 million in data process expenses, and a $0.3 million reduced credit in other components of net periodic pension and postretirement benefits.  The decrease in legal accruals and settlements can be attributed to the settlement agreement in the matter of Fane vs. Chemung Canal Trust Company during the second quarter of 2018.  The decrease in net occupancy expense was due primarily to the closure of two branches in 2019.  The increase in salaries and wages can be mostly attributed to annual merit increases. 

Income Tax Expense:

Income tax expense for the current quarter was $1.2 million compared with $0.5 million for the same period in the prior year.  The increase in income tax expense was due primarily to an increase of $3.2 million in income before income tax expense for the second quarter of 2019 as compared to the same period in the prior year.  The effective income tax rate increased from 16.1% for the second quarter of 2018 to 19.8% for the second quarter of 2019.

2nd Quarter 2019 vs 1st Quarter 2019

Net Interest Income:

Net interest income for the current quarter totaled $15.1 million compared with $15.2 million for the prior quarter, a decrease of $0.1 million, or 0.4%, due primarily to a $0.1 million increase in total interest expense.  Interest and fees from loans increased $0.1 million and interest and dividend income from investment securities increased $0.1 million, while interest from interest-earning deposits decreased $0.2 million compared to the prior quarter.  Interest expense on deposits increased due primarily to a 19 basis points increase in the average cost of time deposits, along with an increase of $10.4 million in the average balance of time deposits due to promotional rates on time deposits.  Fully taxable equivalent net interest margin was 3.69% in the second quarter of 2019, a slight decrease of two basis points compared with 3.71% for the prior quarter.  Average interest-earning assets decreased $16.9 million in the second quarter of 2019, while the average yield on interest-earning assets was level compared to the prior quarter.   The average cost of interest-bearing liabilities increased three basis points in the second quarter of 2019, compared to the prior quarter.

Non-Interest Income:

Non-interest income for the current quarter was $5.1 million compared with $4.9 million for the prior quarter, an increase of $0.2 million, or 3.3%.  The increase in non-interest income was due primarily to a $0.2 million increase in WMG fee income.  The increase in WMG fee income can be mostly attributed to an increase in the market value of total assets under management or administration and an increase in tax preparation fees.

Non-Interest Expense:

Non-interest expense for the current quarter was $13.8 million compared with $13.5 million for the prior quarter, an increase of $0.3 million, or 2.4%.  The increase can be mostly attributed to increases of $0.4 million in other non-interest expense and $0.1 million in data processing expense, offset by a decrease of $0.1 million in marketing and advertising expense.  The increase in other non-interest expense can be mostly attributed to a $0.2 million increase in the debit card rewards program.  The increase in data processing expense and the decrease in marketing and advertising expense were both related to the timing of various projects.

Income Tax Expense:

Income tax expense for the current quarter was $1.2 million compared with $1.0 million for the prior quarter, an increase of $0.2 million, or 19.2%.  The increase in income tax expense can be attributed to a $0.7 million increase in income before income tax expense for the second quarter of 2019, when compared to the prior quarter.  The effective income tax rate increased from 18.8% for the first quarter of 2019 to 19.8% for the second quarter of 2019.

Asset Quality

Non-performing loans totaled $19.5 million at June 30, 2019, or 1.51% of total loans, compared with $12.3 million at December 31, 2018, or 0.93% of total loans.  Non-performing assets, which are comprised of non-performing loans and other real estate owned, were $19.7 million, or 1.12% of total assets, at June 30, 2019, compared with $12.8 million, or 0.73% of total assets, at December 31, 2018. The increase in non-performing loans can be mostly attributed to two commercial mortgage relationships, offset by decreases in the residential mortgage and consumer loan portfolios.

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 2019 was $0.2 million, a decrease of $2.2 million compared with the same period in the prior year.  The decrease in the provision for loan losses can be mostly attributed to a decrease in the total loan portfolio of $46.1 million between June 30, 2018 and June 30, 2019.  Additionally, during 2018 there was an increase in the historical loss factor on the commercial and industrial loan portfolio, due to the charge-off of multiple large commercial loans to one borrower for $3.6 million in the second quarter.  Net charge-offs for the second quarter of 2019 were $0.2 million, compared with $4.1 million for the second quarter of 2018. 

The allowance for loan losses was $19.7 million at June 30, 2019 compared with $18.9 million at December 31, 2018.  The allowance for loan losses was 100.77% of non-performing loans at June 30, 2019 compared with 154.59% at December 31, 2018.  The ratio of the allowance for loan losses to total loans was 1.53% at June 30, 2019 compared with 1.44% at December 31, 2018.

Balance Sheet Activity

Total assets were $1.753 billion at June 30, 2019 compared with $1.755 billion at December 31, 2018, a decrease of $2.3 million, or 0.1%.  The decrease can be mostly attributed to decreases of $13.5 million in cash and cash equivalents and $23.5 million in total loans, offset by increases of $27.0 million in securities available for sale and $8.2 million in operating lease right-to-use assets related to the adoption of ASU No. 2016-02 Leases (“Topic 842”) as of January 1, 2019.

The decrease in cash and cash equivalents was due to changes in securities, loans, deposits, and borrowings.  The decrease in total loans can be mostly attributed to decreases of $13.4 million in commercial mortgages, $10.7 million in indirect consumer loans and $5.2 million in other consumer loans, offset by increases of $4.7 million in commercial and agriculture loans and $1.1 million in residential mortgages.  The increase in securities available for sale can be mostly attributed to purchases in the amount of $57.3 million, offset by $15.2 million in sales of mortgage-backed and municipal securities, along with maturities and paydowns.

Total liabilities were $1.575 billion at June 30, 2019 compared with $1.590 billion at December 31, 2018, a decrease of $15.7 million or 1.0%.  The decrease in total liabilities can be mostly attributed to a decrease of $28.1 million in deposits, offset by increases of $8.3 million in operating lease liabilities related to the January 1, 2019 adoption of Topic 842 and $4.3 million in accrued interest payable and other liabilities.  The decline in deposits from $1.569 billion at December 31, 2018 to $1.541 billion at June 30, 2019 can be mostly attributed to decreases of $32.4 million in non-interest bearing demand deposits accounts and $32.9 million in money market accounts, offset by increases of $27.6 million in time deposits, due to a rate promotion, and $9.2 million in interest-bearing demand deposit accounts.  The decreases in non-interest-bearing demand deposit and money market accounts can be mostly attributed to an outflow of commercial deposits.

Total shareholders’ equity was $178.4 million at June 30, 2019 compared with $165.0 million at December 31, 2018, an increase of $13.4 million, or 8.1%.  The increase in retained earnings of $6.9 million can be mostly attributed to earnings of $9.4 million, offset by $2.5 million in dividends declared.  The decrease in accumulated other comprehensive loss of $5.5 million can be mostly attributed to the increase in the fair market value of the securities portfolio.  Also, treasury stock decreased $0.5 million, due to the issuance of shares to the Corporation’s employee benefit stock plans and directors’ stock plans.

The total equity to total assets ratio was 10.18% at June 30, 2019 compared with 9.40% at December 31, 2018.  The tangible equity to tangible assets ratio was 8.99% at June 30, 2019 compared with 8.19% at December 31, 2018.  Book value per share increased to $36.64 at June 30, 2019 from $33.99 at December 31, 2018.  As of June 30, 2019, the Bank’s capital ratios were in excess of those required to be considered well-capitalized under the regulatory framework for prompt corrective action.

Other Items

The market value of total assets under management or administration in our Wealth Management Group was $1.838 billion at June 30, 2019, including $273.5 million of assets under management or administration for the Corporation, compared to $1.768 billion at December 31, 2018, including $283.0 million of assets under management or administration for the Corporation, an increase of $69.7 million, or 3.9%.  The increase in total assets under management or administration can be mostly attributed to increases in the market value of total assets.

About Chemung Financial Corporation

Chemung Financial Corporation is a $1.8 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.

Forward-Looking Statements:

This press release may contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act, and the Private Securities Litigation Reform Act of 1995.  The Corporation intends its forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in this press release.  All statements regarding the Corporation's expected financial position and operating results, 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 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 (“SEC”), including the 2018 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)                    
    June 30,   March 31,   Dec. 31,   Sept. 30,   June 30,
(in thousands)     2019       2019       2018       2018       2018  
ASSETS                    
Cash and due from financial institutions   $ 32,622     $ 28,153     $ 33,040     $ 31,831     $ 30,837  
Interest-earning deposits in other financial institutions     83,838       97,657       96,932       82,081       3,978  
Total cash and cash equivalents     116,460       125,810       129,972       113,912       34,815  
                     
Equity investments     2,079       2,032       1,909       1,987       2,112  
                     
Securities available for sale     269,286       266,721       242,258       246,473       265,157  
Securities held to maturity     4,090       3,861       4,875       4,203       3,806  
FHLB and FRB stocks, at cost     3,091       3,143       3,138       3,138       5,816  
Total investment securities     276,467       273,725       250,271       253,814       274,779  
                     
Commercial     855,298       862,597       864,024       857,954       860,209  
Mortgage     183,835       181,428       182,724       188,636       193,423  
Consumer     249,238       255,012       265,158       274,048       280,812  
Loans, net of deferred loan fees     1,288,371       1,299,037       1,311,906       1,320,638       1,334,444  
Allowance for loan losses     (19,656 )     (19,745 )     (18,944 )     (19,635 )     (19,645 )
Loans, net     1,268,715       1,279,292       1,292,962       1,301,003       1,314,799  
                     
Loans held for sale     624       658       502       1,715       684  
Premises and equipment, net     23,605       24,279       24,980       25,514       26,049  
Operating lease right-of-use assets     8,220       8,391       -       -       -  
Goodwill     21,824       21,824       21,824       21,824       21,824  
Other intangible assets, net     1,037       1,188       1,351       1,527       1,709  
Accrued interest receivable and other assets     33,966       32,373       31,572       32,568       33,395  
Total assets   $ 1,752,997     $ 1,769,572     $ 1,755,343     $ 1,753,864     $ 1,710,166  
                     
LIABILITIES AND SHAREHOLDERS' EQUITY                    
Deposits:                    
Non-interest-bearing demand deposits   $ 451,985     $ 462,000     $ 484,433     $ 469,887     $ 462,233  
Interest-bearing demand deposits     188,843       187,834       179,603       211,099       125,867  
Money market accounts     505,084       540,476       537,948       532,489       522,328  
Savings deposits     217,434       219,199       217,027       217,621       222,387  
Time deposits     177,792       156,993       150,226       144,901       146,094  
Total deposits     1,541,138       1,566,502       1,569,237       1,575,997       1,478,909  
                     
FHLB advances and other debt     4,195       4,250       4,304       4,358       63,361  
Operating lease liabilities     8,250       8,399       -       -       -  
Accrued interest payable and other liabilities     21,027       18,887       16,773       17,010       16,116  
Total liabilities     1,574,610       1,598,038       1,590,314       1,597,365       1,558,386  
                     
Shareholders' equity                    
Common stock     53       53       53       53       53  
Additional-paid-in capital     46,284       46,174       45,820       46,006       45,873  
Retained earnings     150,063       146,340       143,129       138,654       132,973  
Treasury stock, at cost     (12,062 )     (12,191 )     (12,562 )     (12,927 )     (12,998 )
Accumulated other comprehensive loss     (5,951 )     (8,842 )     (11,411 )     (15,287 )     (14,121 )
Total shareholders' equity     178,387       171,534       165,029       156,499       151,780  
Total liabilities and shareholders' equity   $ 1,752,997     $ 1,769,572     $ 1,755,343     $ 1,753,864     $ 1,710,166  
                     
Period-end shares outstanding     4,868       4,863       4,855       4,837       4,831  

 

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Chemung Financial Corporation                        
Consolidated Statements of Income (Unaudited)                        
    Three Months Ended       Six Months Ended    
    June 30,   Percent   June 30,   Percent
(in thousands, except per share data)     2019       2018     Change     2019       2018     Change
Interest and dividend income:                        
Loans, including fees   $ 14,570     $ 14,300     1.9     $ 29,059     $ 28,350     2.5  
Taxable securities     1,281       1,264     1.3       2,476       2,553     (3.0 )
Tax exempt securities     306       295     3.7       579       603     (4.0 )
Interest-earning deposits     525       10     5150.0       1,233       32     3753.1  
Total interest and dividend income     16,682       15,869     5.1       33,347       31,538     5.7  
                         
Interest expense:                        
Deposits     1,544       608     153.9       3,005       1,109     171.0  
Securities sold under agreements to repurchase     -       44     (100.0 )     -       137     (100.0 )
Borrowed funds     37       200     (81.5 )     74       375     (80.3 )
Total interest expense     1,581       852     85.6       3,079       1,621     89.9  
                         
Net interest income     15,101       15,017     0.6       30,268       29,917     1.2  
Provision for loan losses     150       2,362     (93.6 )     1,243       3,071     (59.5 )
Net interest income after provision for loan losses     14,951       12,655     18.1       29,025       26,846     8.1  
                         
Non-interest income:                        
Wealth management group fee income     2,524       2,373     6.4       4,800       4,689     2.4  
Service charges on deposit accounts     1,085       1,144     (5.2 )     2,189       2,308     (5.2 )
Interchange revenue from debit card transactions     1,024       996     2.8       2,055       2,031     1.2  
Net gains on securities transactions     19       -     N/M     19       -     N/M  
Change in fair value of equity investments     27       26     3.8       116       24     383.3  
Net gains on sales of loans held for sale     29       59     (50.8 )     77       105     (26.7 )
Net gains (losses) on sales of other real estate owned     (3 )     (48 )   N/M     (86 )     (4 )   N/M  
Income from bank owned life insurance     16       17     (5.9 )     31       33     (6.1 )
Other     365       758     (51.8 )     810       1,614     (49.8 )
Total non-interest income     5,086       5,325     (4.5 )     10,011       10,800     (7.3 )
                         
Non-interest expense:                        
Salaries and wages     5,780       5,564     3.9       11,501       11,278     2.0  
Pension and other employee benefits     1,473       1,518     (3.0 )     3,018       3,176     (5.0 )
Other components of net periodic pension and postretirement benefits     (141 )     (408 )   N/M     (282 )     (816 )   N/M  
Net occupancy     1,478       1,643     (10.0 )     3,045       3,251     (6.3 )
Furniture and equipment     595       702     (15.2 )     1,123       1,360     (17.4 )
Data processing     1,873       1,764     6.2       3,600       3,506     2.7  
Professional services     418       508     (17.7 )     823       1,048     (21.5 )
Legal accruals and settlements     -       989     (100.0 )     -       989     (100.0 )
Amortization of intangible assets     151       182     (17.0 )     314       376     (16.5 )
Marketing and advertising     145       255     (43.1 )     413       604     (31.6 )
Other real estate owned expense     40       100     (60.0 )     71