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Chemung Financial Reports First Quarter 2014 Earnings

Chemung Financial Corporation Logo

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%

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

Source:Chemung Financial Corporation