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Chemung Financial Reports Second Quarter 2016 Net Income of $2.4 Million, or $0.50 per Share

ELMIRA, N.Y., July 21, 2016 (GLOBE NEWSWIRE) -- Chemung Financial Corporation (the “Corporation”) (Nasdaq:CHMG), the parent company of Chemung Canal Trust Company (the “Bank”), today reported net income for the second quarter of 2016 of $2.4 million, or $0.50 per share, compared to $2.6 million, or $0.55 per share, for the second quarter of 2015.

Ronald M. Bentley, Chemung Financial Corporation CEO, stated:

“We continue to grow our municipal deposit base, which was the primary contributor for the $67.6 million increase in deposits since December 31, 2015. Our deposit growth has allowed us to continue funding higher yielding commercial loans and indirect auto loans, and grow our net interest income. Finally, we created a new captive insurance subsidiary during the second quarter of 2016, which will allow us to strengthen our risk management program, along with providing a potential net tax benefit starting in 2017.”

Second Quarter Highlights1

  • Loans, net of deferred fees increased $32.5 million, or 2.8%

  • Commercial loans increased $43.2 million, or 6.2%

  • Deposits increased $67.6 million, or 4.8%

  • Net interest income increased $0.3 million, or 2.5%

  • Dividends declared during the quarter were $0.26

A more detailed summary of financial performance follows.

1 Balance sheet comparisons are calculated for June 30, 2016 versus December 31, 2015. Income statement comparisons are calculated for the second quarter of 2016 versus prior-year second quarter.

2nd Quarter 2016 vs 1st Quarter 2016

Net Interest Income:

Net interest income for the current quarter totaled $13.0 million, consistent with the prior quarter. Interest and fees from loans and interest-bearing deposits both increased $0.1 million, while interest and dividend income from securities decreased $0.2 million when compared to the prior quarter. Fully taxable equivalent net interest margin was 3.36%, compared with 3.47% for the prior quarter. Average interest-earning assets increased $45.7 million compared to the prior quarter. The yield on interest-earning assets decreased twelve basis points, while the cost of interest-bearing liabilities was flat compared to the prior quarter. The yield on interest-earning assets decreased due to an increase of $55.3 million in the average interest-bearing deposits in other financial institutions balance, compared to the prior quarter. These deposits earned the federal funds rate of approximately 50 basis points during the current quarter.

Non-Interest Income:

Non-interest income for the quarter was $5.2 million compared with $5.6 million for the prior quarter, a decrease of $0.4 million, or 6.9%. The decrease was due primarily to the $0.9 million net gain on security transactions from the sale of $14.5 million in U.S. Treasuries during the prior quarter. Offsetting the net gain on security transactions were increases of $0.2 million in wealth management group fee income, $0.2 million in service charges on deposit accounts, and $0.1 million in other non-interest income. The increase in wealth management group fee income can be attributed to tax services performed during the quarter. The increase in service charges on deposit accounts can be attributed to seasonality.

Non-Interest Expense:

Non-interest expense for the quarter was $14.4 million compared with $14.0 million for the prior quarter, an increase of $0.4 million, or 2.6%. The increase was due primarily to increases of $0.2 million in professional services, $0.1 million in marketing and advertising expenses, and $0.1 million in loan expense. The increase in professional services can be attributed to start-up costs associated with the establishment of Chemung Risk Management, Inc. (the “Captive”), a captive insurance subsidiary, which was completed in May 2016. The increase in marketing and advertising expense was due to seasonality, as the Bank sponsors the majority of its events during the spring and summer. The increase in loan expense can be attributed to an increase in commercial loan volume.

2nd Quarter 2016 vs 2nd Quarter 2015

Net Interest Income:

Net interest income for the current quarter totaled $13.0 million compared with $12.6 million for the same period in the prior year, an increase of $0.4 million, or 2.5%. Interest and fees from loans increased $0.2 million, while interest and dividend income from securities increased $0.1 million when compared to the same period in the prior year. Fully taxable equivalent net interest margin was 3.36%, compared with 3.50% for the same period in the prior year. Average interest-earning assets increased $110.5 million compared to the same period in the prior year. The yield on interest-earning assets decreased 14 basis points, while the cost of interest-bearing liabilities increased one basis point compared to the same period in the prior year. The yield on interest-earning assets decreased due to an increase of $33.8 million in the average interest-bearing deposits in other financial institutions balance, compared to the same period in the prior year. These deposits earned the federal funds rate of approximately 50 basis points during the current quarter.

Non-Interest Income:

Non-interest income for the quarter was $5.2 million compared with $5.3 million for the same period in the prior year, a decrease of $0.1 million, or 2.1%. The decrease was due primarily to the $0.3 million net gain on security transactions from the sale of $48.3 million in U.S. government sponsored agencies and Treasury securities during 2015. Offsetting the net gain on security transactions were increases of $0.1 million in service charges on deposit accounts and interchange revenue from debit card transactions. The increase in service charges on deposit accounts can be attributed to seasonality. The increase in interchange revenue from debit card transactions can be attributed to an increase in debit card activity when compared to the same period in the prior year.

Non-Interest Expense:

Non-interest expense for the quarter was $14.4 million compared with $13.8 million for the same period in the prior year, an increase of $0.6 million, or 3.9%. The increase was due primarily to increases of $0.1 million in pension and employee benefits, $0.1 million in net occupancy expenses, $0.2 million in data processing, $0.2 million in professional services, and $0.1 million in other non-interest expense, offset by a $0.2 million decrease in other real estate owned expense. The increase in net occupancy expenses can be attributed to one-time depreciation expense related to the closure of the branch office at 202 East State Street in Ithaca, NY at the end of May 2016. The increase in professional services can be attributed to start-up costs associated with the establishment of the Captive, which was completed in May 2016. The decrease in other real estate owned can be attributed to the sale of properties in 2015.

Asset Quality

Non-performing loans totaled $12.4 million at June 30, 2016, or 1.03% of total loans, compared with $12.2 million at December 31, 2015, or 1.05% of total loans. The increase in non-performing loans at June 30, 2016 was primarily in the residential mortgage and consumer loan segments of the loan portfolio. Non-performing assets, which are comprised of non-performing loans and other real estate owned, were $12.8 million, or 0.76% of total assets, at June 30, 2016, compared with $13.8 million, or 0.85% of total assets, at December 31, 2015.

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 2016 and 2015 were $0.4 million and $0.3 million, respectively. Net charge-offs for the second quarter of 2016 were $0.2 million compared with $0.1 million for the same period in the prior year.

At June 30, 2016 the allowance for loan losses was $14.7 million, compared with $14.3 million at December 31, 2015. The allowance for loan losses was 118.0% of non-performing loans at June 30, 2016, compared with 116.6% at December 31, 2015. The ratio of the allowance for loan losses to total loans was 1.22% at June 30, 2016, level with December 31, 2015.

Balance Sheet Activity

Assets totaled $1.683 billion at June 30, 2016 compared with $1.620 billion at December 31, 2015, an increase of $63.5 million, or 3.9%. The growth was due primarily to increases of $81.2 million in cash and cash equivalents and $32.5 million in the loan portfolio, partially offset by a $44.5 million decrease in securities available for sale.

The increase in cash and cash equivalents can be attributed to the sale of available for sale securities and an increase in deposits, offset by an increase in total loans and the pay down of FHLB overnight advances.

The increase in total loans can be attributed to increases of $46.1 million in commercial mortgages and $0.4 million in residential mortgages, offset by decreases in indirect consumer of $6.3 million, other consumer of $4.8 million, and commercial and agriculture of $2.9 million.

The decrease in securities available for sale can be mostly attributed to the sale of $14.5 million in U.S. Treasuries and $35.2 million in maturities of agencies and pay-downs on mortgage-backed securities.

Deposits totaled $1.468 billion at June 30, 2016 compared with $1.400 billion at December 31, 2015, an increase of $67.6 million, or 4.8%. The growth was mostly attributable to increases of $64.4 million in money market accounts, $8.3 million in savings deposits, and $6.6 million in non-interest bearing demand deposits. Partially offsetting the increases noted above were decreases of $7.4 million in time deposits and $4.3 million in interest-bearing demand deposits. The changes in money market accounts and demand deposits can be attributed to the seasonal inflow of deposits from municipal clients.

Total equity was $144.2 million at June 30, 2016 compared with $137.2 million at December 31, 2015, an increase of $6.9 million, or 5.0%. The increase was primarily due to earnings of $5.1 million, a reduction of $0.8 million in treasury stock, and a decrease of $3.4 million in accumulated other comprehensive loss, offset by $2.4 million in dividends declared during the year.

The total equity to total assets ratio was 8.56% at June 30, 2016 compared with 8.47% at December 31, 2015. The tangible equity to tangible assets ratio was 7.17% at June 30, 2016 compared with 6.99% at December 31, 2015. Book value per share increased to $30.27 at June 30, 2016 from $28.96 at December 31, 2015. As of June 30, 2016, the Bank’s capital ratios were in excess of those required to be considered well-capitalized under regulatory capital guidelines and the Corporation met capital requirements under regulatory guidelines.

Other Items

The market value of total assets under management or administration in our Wealth Management Group was $1.689 billion at June 30, 2016, including $305.4 million of assets under management or administration for the Corporation, compared with $1.856 billion at December 31, 2015, including $304.1 million of assets held under management or administration for the Corporation, a decrease of $166.7 million, or 9.0%. The decrease can be attributed to the loss of one large non-profit customer during the first quarter of 2016, along with a decline in the market value of assets.

As previously disclosed on June 2, 2016, the Corporation received approval from the State of Nevada for the creation of a new captive insurance subsidiary, the Captive, on May 31, 2016. The purpose of the Captive is to insure gaps in commercial coverage and uninsured exposures in the Corporation’s current insurance coverages and allow the Corporation to strengthen its overall risk management program. The Corporation recognized approximately $170 thousand in one-time expenses associated with the feasibility and implementation of the Captive during the first half of 2016 and will have annual costs of approximately $90 thousand associated with the on-going operations of the Captive. Beginning in fiscal year 2017, the Corporation expects to receive a potential net benefit of approximately $370 thousand associated with the insurance premium exclusion, for income tax purposes, provided to captive insurance companies. This net benefit will be reduced by claims submitted to the Captive.

About Chemung Financial Corporation

Chemung Financial Corporation is a $1.7 billion financial services holding company headquartered in Elmira, New York and operates 33 retail offices through its principal subsidiary, Chemung Canal Trust Company, a full-service community bank with trust powers. Established in 1833, Chemung Canal Trust Company is the oldest locally-owned and managed community bank in New York State. Chemung Financial Corporation is also the parent of CFS Group, Inc., a financial services subsidiary offering non-traditional services including mutual funds, annuities, brokerage services, tax preparation services and insurance, and Chemung Risk Management, Inc., a captive insurance company based in the State of Nevada.

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

Chemung Financial Corporation
Consolidated Balance Sheets (Unaudited)
June 30, March 31, Dec. 31, Sept. 30, June 30,
(in thousands) 2016 2016 2015 2015 2015
ASSETS
Cash and due from financial institutions $27,233 $26,471 $24,886 $30,800 $28,014
Interest-bearing deposits in other financial institutions 80,121 29,388 1,299 44,449 1,650
Total cash and cash equivalents 107,354 55,859 26,185 75,249 29,664
Trading assets, at fair value 767 734 701 636 635
Securities available for sale 300,277 324,484 344,820 335,571 290,571
Securities held to maturity 3,518 4,577 4,566 4,604 6,045
FHLB and FRB stocks, at cost 4,491 4,179 4,797 4,171 4,873
Total investment securities 308,286 333,240 354,183 344,346 301,489
Commercial 742,874 725,596 699,711 664,505 665,303
Mortgage 196,200 196,751 195,778 197,506 198,469
Consumer 262,082 264,546 273,144 279,926 286,634
Loans, net of deferred loan fees 1,201,156 1,186,893 1,168,633 1,141,937 1,150,406
Allowance for loan losses (14,668) (14,527) (14,260) (14,022) (14,028)
Loans, net 1,186,488 1,172,366 1,154,373 1,127,915 1,136,378
Loans held for sale 809 593 1,076 316 668
Premises and equipment, net 29,706 28,620 29,397 30,023 30,874
Goodwill 21,824 21,824 21,824 21,824 21,824
Other intangible assets, net 3,428 3,673 3,931 4,201 4,478
Accrued interest receivable and other assets 24,818 26,317 28,294 27,129 27,623
Total assets $1,683,480 $1,643,226 $1,619,964 $1,631,639 $1,553,633
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest-bearing demand deposits $408,846 $393,121 $402,236 $392,734 $385,467
Interest-bearing demand deposits 126,305 141,457 130,573 144,097 118,988
Money market accounts 562,028 527,578 497,658 503,411 447,360
Savings deposits 212,086 208,555 203,749 196,994 199,437
Time deposits 158,655 163,541 166,079 173,205 180,725
Total deposits 1,467,920 1,434,252 1,400,295 1,410,441 1,331,977
FHLB overnight advances - - 13,900 - 15,600
Securities sold under agreements to repurchase 28,778 28,825 28,453 30,358 31,882
FHLB advances and other debt 23,970 22,012 22,076 22,140 22,201
Accrued interest payable and other liabilities 18,656 17,091 17,998 29,985 15,453
Total liabilities 1,539,324 1,502,180 1,482,722 1,492,924 1,417,113
Shareholders' equity
Common stock 53 53 53 53 53
Additional-paid-in capital 45,639 45,652 45,537 45,545 45,468
Retained earnings 121,607 120,460 118,973 118,057 116,817
Treasury stock, at cost (15,608) (15,781) (16,379) (16,654) (16,704)
Accumulated other comprehensive income (loss) (7,535) (9,338) (10,942) (8,286) (9,114)
Total shareholders' equity 144,156 141,046 137,242 138,715 136,520
Total liabilities and shareholders' equity $1,683,480 $1,643,226 $1,619,964 $1,631,639 $1,553,633
Period-end shares outstanding 4,762 4,759 4,739 4,724 4,720

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) 2016 2015 Change 2016 2015 Change
Interest and dividend income:
Loans, including fees $12,321 $12,096 1.9 $24,567 $23,999 2.4
Taxable securities 1,281 1,164 10.1 2,718 2,253 20.6
Tax exempt securities 240 239 0.4 494 458 7.9
Interest-bearing deposits 83 20 315.0 95 43 120.9
Total interest and dividend income 13,925 13,519 3.0 27,874 26,753 4.2
Interest expense:
Deposits 539 492 9.6 1,046 978 7.0
Securities sold under agreements to repurchase 211 212 (0.5) 422 421 0.2
Borrowed funds 207 168 23.2 413 365 13.2
Total interest expense 957 872 9.7 1,881 1,764 6.6
Net interest income 12,968 12,647 2.5 25,993 24,989 4.0
Provision for loan losses 388 259 49.8 983 649 51.5
Net interest income after provision for loan losses 12,580 12,388 1.5 25,010 24,340 2.8
Non-interest income:
Wealth management group fee income 2,201 2,198 0.1 4,213 4,324 (2.6)
Service charges on deposit accounts 1,285 1,224 5.0 2,420 2,362 2.5
Interchange revenue from debit card transactions 939 859 9.3 1,832 1,668 9.8
Net gains on securities transactions - 252 N/M 908 302 200.7
Net gains on sales of loans held for sale 97 98 (1.0) 158 150 5.3
Net gains (losses) on sales of other real estate owned (11) 42 N/M (16) 120 N/M
Income from bank owned life insurance 18 19 (5.3) 36 37 (2.7)
Other 687 634 8.4 1,266 1,549 (18.3)
Total non-interest income 5,216 5,326 (2.1) 10,817 10,512 2.9
Non-interest expense:
Salaries and wages 5,182 5,188 (0.1) 10,365 10,288 0.7
Pension and other employee benefits 1,646 1,557 5.7 3,321 3,286 1.1
Net occupancy 1,878 1,757 6.9 3,784 3,607 4.9
Furniture and equipment 829 789 5.1 1,601 1,522 5.2
Data processing 1,720 1,552 10.8 3,434 3,113 10.3
Professional services 575 420 36.9 916 689 32.9
Amortization of intangible assets 245 285 (14.0) 503 589 (14.6)
Marketing and advertising 325 271 19.9 547 506 8.1
Other real estate owned expense 57 224 (74.6) 109 308 (64.6)
FDIC insurance 277 280 (1.1) 571 566 0.9
Loan expense 188 175 7.4 300 315 (4.8)
Other 1,447 1,325 9.2 2,926 2,770 5.6
Total non-interest expense 14,369 13,823 3.9 28,377 27,559 3.0
Income before income tax expense 3,427 3,891 (11.9) 7,450 7,293 2.2
Income tax expense 1,059 1,314 (19.4) 2,375 2,440 (2.7)
Net income $2,368 $2,577 (8.1) $5,075 $4,853 4.6
Basic and diluted earnings per share $0.50 $0.55 $1.07 $1.03
Cash dividends declared per share 0.26 0.26 0.52 0.52
Average basic and diluted shares outstanding 4,760 4,717 4,754 4,712
N/M - Not meaningful

Chemung Financial Corporation
Consolidated Financial Highlights (Unaudited)
As of or for the
As of or for the Three Months Ended Six Months Ended
June 30, March 31, Dec. 31, Sept. 30, June 30, June 30, June 30,
(in thousands, per share data) 2016 2016 2015 2015 2015 2016 2015
RESULTS OF OPERATIONS
Interest income $13,925 $13,949 $13,896 $13,595 $13,519 $27,874 $26,753
Interest expense 957 924 934 904 872 1,881 1,764
Net interest income 12,968 13,025 12,962 12,691 12,647 25,993 24,989
Provision for loan losses 388 595 615 307 259 983 649
Net interest income after provision for loan losses 12,580 12,430 12,347 12,384 12,388 25,010 24,340
Non-interest income 5,216 5,601 5,023 4,912 5,326 10,817 10,512
Non-interest expense 14,369 14,008 14,234 13,634 13,823 28,377 27,559
Income before income tax expense 3,427 4,023 3,136 3,662 3,891 7,450 7,293
Income tax expense 1,059 1,316 1,007 1,211 1,314 2,375 2,440
Net income $2,368 $2,707 $2,129 $2,451 $2,577 $5,075 $4,853
Basic and diluted earnings per share $0.50 $0.57 $0.45 $0.52 $0.55 $1.07 $1.03
Average basic and diluted shares outstanding 4,760 4,750 4,731 4,722 4,717 4,754 4,712
PERFORMANCE RATIOS
Return on average assets 0.57% 0.67% 0.52% 0.62% 0.66% 0.62% 0.63%
Return on average equity 6.67% 7.73% 6.05% 7.05% 7.52% 7.20% 7.16%
Return on average tangible equity (a) 8.11% 9.45% 7.42% 8.71% 9.32% 8.78% 8.89%
Efficiency ratio (b) 77.00% 76.89% 77.35% 75.25% 75.83% 76.95% 76.04%
Non-interest expense to average assets (c) 3.46% 3.48% 3.49% 3.44% 3.55% 3.46% 3.56%
Loans to deposits 81.83% 82.75% 83.46% 80.96% 86.37% 81.83% 86.37%
YIELDS / RATES - Fully Taxable Equivalent
Yield on loans 4.17% 4.21% 4.20% 4.22% 4.26% 4.19% 4.27%
Yield on investments 1.81% 2.07% 1.98% 1.89% 1.91% 1.94% 1.87%
Yield on interest-earning assets 3.60% 3.72% 3.66% 3.70% 3.74% 3.66% 3.74%
Cost of interest-bearing deposits 0.21% 0.20% 0.20% 0.20% 0.21% 0.20% 0.21%
Cost of borrowings 3.16% 2.66% 2.99% 3.03% 2.64% 2.89% 2.69%
Cost of interest-bearing liabilities 0.35% 0.35% 0.35% 0.35% 0.34% 0.35% 0.35%
Interest rate spread 3.25% 3.37% 3.31% 3.35% 3.40% 3.31% 3.39%
Net interest margin, fully taxable equivalent 3.36% 3.47% 3.42% 3.45% 3.50% 3.41% 3.50%
CAPITAL
Total equity to total assets at end of period 8.56% 8.58% 8.47% 8.50% 8.79% 8.56% 8.79%
Tangible equity to tangible assets at end of period (a) 7.17% 7.14% 6.99% 7.02% 7.22% 7.17% 7.22%
Book value per share $30.27 $29.64 $28.96 $29.36 $28.92 $30.27 $28.92
Tangible book value per share 24.97 24.28 23.53 23.85 23.35 24.97 23.35
Period-end market value per share 29.35 26.35 27.50 28.03 26.48 29.35 26.48
Dividends declared per share 0.26 0.26 0.26 0.26 0.26 0.52 0.52
AVERAGE BALANCES
Loans (d) $1,192,786 $1,175,051 $1,151,469 $1,142,402 $1,141,412 $1,183,919 $1,136,967
Earning assets 1,573,306 1,527,656 1,522,176 1,474,098 1,462,842 1,550,481 1,456,580
Total assets 1,669,654 1,620,547 1,617,322 1,570,818 1,563,346 1,647,121 1,561,056
Deposits 1,457,173 1,404,487 1,410,017 1,367,853 1,353,895 1,430,840 1,346,452
Total equity 142,746 140,864 139,697 137,855 137,386 141,795 136,684
Tangible equity (a) 117,374 115,240 113,812 111,693 110,945 116,297 110,087
ASSET QUALITY
Net charge-offs $248 $327 $377 $313 $123 $575 $307
Non-performing loans (e) 12,429 12,774 12,232 12,368 12,862 12,429 12,862
Non-performing assets (f) 12,822 14,416 13,762 14,744 15,238 12,822 15,238
Allowance for loan losses 14,668 14,527 14,260 14,022 14,028 14,668 14,028
Annualized net charge-offs to average loans 0.08% 0.11% 0.13% 0.11% 0.04% 0.10% 0.05%
Non-performing loans to total loans 1.03% 1.08% 1.05% 1.08% 1.12% 1.03% 1.12%
Non-performing assets to total assets 0.76% 0.88% 0.85% 0.90% 0.98% 0.76% 0.98%
Allowance for loan losses to total loans 1.22% 1.22% 1.22% 1.23% 1.22% 1.22% 1.22%
Allowance for loan losses to non-performing loans 118.01% 113.72% 116.58% 113.37% 109.07% 118.01% 109.07%
(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 less legal settlement divided by the total of fully taxable equivalent net interest income plus non-interest income less net gains on securities transactions less gain from bargain purchase less gain on liquidation of trust preferred securities.
(c) For the non-interest expense to average assets ratio, non-interest expense does not include legal settlement expense.
(d) Loans include loans held for sale. Loans do not reflect the allowance for loan losses.
(e) Non-performing loans include non-accrual loans only.
(f) Non-performing assets include non-performing loans plus other real estate owned.

Chemung Financial Corporation

GAAP to Non-GAAP Reconciliations (Unaudited)

The Corporation prepares its Consolidated Financial Statements in accordance with GAAP; these financial statements appear on pages 5-6. That presentation provides the reader with an understanding of the Corporation’s results that can be tracked consistently from period-to-period and enables a comparison of the Corporation’s performance with other companies’ GAAP financial statements.

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

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

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

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

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

As of or for the
As of or for the Three Months Ended Six Months Ended
June 30, March 31, Dec. 31, Sept. 30, June 30, June 30, June 30,
(in thousands, except per share data) 2016 2016 2015 2015 2015 2016 2015
NET INTEREST MARGIN - FULLY TAXABLE EQUIVALENT
AND EFFICIENCY RATIO
Net interest income (GAAP) $12,968 $13,025 $12,962 $12,691 $12,647 $25,993 $24,989
Fully taxable equivalent adjustment 159 164 149 136 133 323 269
Fully taxable equivalent net interest income (non-GAAP) $13,127 $13,189 $13,111 $12,827 $12,780 $26,316 $25,258
Non-interest income (GAAP) $5,216 $5,601 $5,023 $4,912 $5,326 $10,817 $10,512
Less: net gains (losses) on security transactions - (908) (81) 11 (252) (908) (302)
Adjusted non-interest income (non-GAAP) $5,216 $4,693 $4,942 $4,923 $5,074 $9,909 $10,210
Non-interest expense (GAAP) $14,369 $14,008 $14,234 $13,634 $13,823 $28,377 $27,559
Less: amortization of intangible assets (245) (258) (270) (277) (285) (503) (589)
Adjusted non-interest expense (non-GAAP) $14,124 $13,750 $13,964 $13,357 $13,538 $27,874 $26,970
Average interest-earning assets (GAAP) $1,573,306 $1,527,656 $1,522,176 $1,474,098 $1,462,842 $1,550,481 $1,456,580
Net interest margin - fully taxable equivalent (non-GAAP) 3.36% 3.47% 3.42% 3.45% 3.50% 3.41% 3.50%
Efficiency ratio (non-GAAP) 77.00% 76.89% 77.35% 75.25% 75.83% 76.95% 76.04%

Tangible Equity and Tangible Assets (Period-End)

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

As of or for the
As of or for the Three Months Ended Six Months Ended
June 30, March 31, Dec. 31, Sept. 30, June 30, June 30, June 30,
(in thousands, except per share and ratio data) 2016 2016 2015 2015 2015 2016 2015
TANGIBLE EQUITY AND TANGIBLE ASSETS
(PERIOD END)
Total shareholders' equity (GAAP) $144,156 $141,046 $137,242 $138,715 $136,520 $144,156 $136,520
Less: intangible assets (25,252) (25,497) (25,755) (26,025) (26,302) (25,252) (26,302)
Tangible equity (non-GAAP) $118,904 $115,549 $111,487 $112,690 $110,218 $118,904 $110,218
Total assets (GAAP) $1,683,480 $1,643,226 $1,619,964 $1,631,639 $1,553,633 $1,683,480 $1,553,633
Less: intangible assets (25,252) (25,497) (25,755) (26,025) (26,302) (25,252) (26,302)
Tangible assets (non-GAAP) $1,658,228 $1,617,729 $1,594,209 $1,605,614 $1,527,331 $1,658,228 $1,527,331
Total equity to total assets at end of period (GAAP) 8.56% 8.58% 8.47% 8.50% 8.79% 8.56% 8.79%
Book value per share (GAAP) $30.27 $29.64 $28.96 $29.36 $28.92 $30.27 $28.92
Tangible equity to tangible assets at end of period (non-GAAP) 7.17% 7.14% 6.99% 7.02% 7.22% 7.17% 7.22%
Tangible book value per share (non-GAAP) $24.97 $24.28 $23.53 $23.85 $23.35 $24.97 $23.35

Tangible Equity (Average)

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

As of or for the
As of or for the Three Months Ended Six Months Ended
June 30, March 31, Dec. 31, Sept. 30, June 30, June 30, June 30,
(in thousands, except ratio data) 2016 2016 2015 2015 2015 2016 2015
TANGIBLE EQUITY (AVERAGE)
Total average shareholders' equity (GAAP) $142,746 $140,864 $139,697 $137,855 $137,386 $141,795 $136,684
Less: average intangible assets (25,372) (25,624) (25,885) (26,162) (26,441) (25,498) (26,597)
Average tangible equity (non-GAAP) $117,374 $115,240 $113,812 $111,693 $110,945 $116,297 $110,087
Return on average equity (GAAP) 6.67% 7.73% 6.05% 7.05% 7.52% 7.20% 7.16%
Return on average tangible equity (non-GAAP) 8.11% 9.45% 7.42% 8.71% 9.32% 8.78% 8.89%

Adjustments for Certain Items of Income or Expense

In addition to disclosures of certain GAAP financial measures, including net income, EPS, ROA, and ROE, we may also provide comparative disclosures that adjust these GAAP financial measures for a particular period by removing from the calculation thereof the impact of certain transactions or other material items of income or expense occurring during the period, including certain nonrecurring items. The Corporation believes that the resulting non-GAAP financial measures may improve an understanding of its results of operations by separating out any such transactions or items that may have had a disproportionate positive or negative impact on the Corporation’s financial results during the particular period in question. In the Corporation’s presentation of any such non-GAAP (adjusted) financial measures not specifically discussed in the preceding paragraphs, the Corporation supplies the supplemental financial information and explanations required under Regulation G.

As of or for the
As of or for the Three Months Ended Six Months Ended
June 30, March 31, Dec. 31, Sept. 30, June 30, June 30, June 30,
(in thousands, except per share and ratio data) 2016 2016 2015 2015 2015 2016 2015
CORE NET INCOME
Reported net income (GAAP) $2,368 $2,707 $2,129 $2,451 $2,577 $5,075 $4,853
Net gains (losses) on security transactions (net of tax) - (565) (50) 7 (156) (565) (187)
Core net income (non-GAAP) $2,368 $2,142 $2,079 $2,458 $2,421 $4,510 $4,666
Average basic and diluted shares outstanding 4,760 4,750 4,731 4,722 4,717 4,754 4,712
Reported basic and diluted earnings per share (GAAP) $0.50 $0.57 $0.45 $0.52 $0.55 $1.07 $1.03
Reported return on average assets (GAAP) 0.57% 0.67% 0.52% 0.62% 0.66% 0.62% 0.63%
Reported return on average equity (GAAP) 6.67% 7.73% 6.05% 7.05% 7.52% 7.20% 7.16%
Core basic and diluted earnings per share (non-GAAP) $0.50 $0.45 $0.44 $0.52 $0.51 $0.95 $0.99
Core return on average assets (non-GAAP) 0.57% 0.53% 0.51% 0.62% 0.62% 0.55% 0.60%
Core return on average equity (non-GAAP) 6.67% 6.12% 5.90% 7.07% 7.07% 6.40% 6.88%

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 2015 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.

For further information contact: Karl F. Krebs, EVP and CFO kkrebs@chemungcanal.com Phone: 607-737-3714

Source:Chemung Financial Corp