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Chemung Financial Corporation Reports Third Quarter 2016 Net Income of $2.7 Million, or $0.58 per Share

ELMIRA, N.Y., Oct. 20, 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 third quarter of 2016 of $2.7 million, or $0.58 per share, compared to $2.5 million, or $0.52 per share, for the third quarter of 2015.

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

“Our average earning assets for the third quarter this year were up over $100 million from the third quarter of last year, driving an increase in net interest income of $349 thousand from the same quarter last year. We continue to drive organic growth through the addition of high quality commercial credits resulting in a year to date increase in commercial loans of 8.6%. I am pleased to see the realization of the benefits associated with our ongoing retail transformation. With new digital technology changing the way people conduct their banking, the transformation of our brick and mortar branch system is producing significant cost savings.”

Third Quarter Highlights1

  • Loans, net of deferred fees, increased $47.9 million, or 4.1%
  • Commercial loans increased $60.0 million, or 8.6%
  • Deposits increased $108.6 million, or 7.8%
  • Net interest income increased $0.3 million, or 2.7%
  • Dividends declared during the quarter were $0.26

A more detailed summary of financial performance follows.

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

3rd Quarter 2016 vs 2nd 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 $0.2 million, while interest and dividend income from securities decreased $0.1 million when compared to the prior quarter. Fully taxable equivalent net interest margin was 3.33%, compared with 3.36% for the prior quarter. Average interest-earning assets increased $4.0 million compared to the prior quarter. The yield on interest-earning assets decreased two basis points, while the cost of interest-bearing liabilities increased one basis point compared to the prior quarter. The decline in the yield on interest-earning assets can be mostly attributed to a seven basis point decline in the yield of commercial loans and a ten and six basis point decline in the yields of taxable and tax-exempt securities, respectively, offset by a ten basis point increase in the yield of consumer loans. The decline in the yield of commercial loans can be attributed to new production at lower competitive rates. The decline in the yield of taxable securities can be attributed to higher projected prepayment speeds when comparing the current quarter to the prior quarter. The decline in the yield of tax-exempt securities can be attributed to the maturities of municipal securities. The increase in the yield of consumer loans can be attributed to the indirect loan portfolio and increasing the portfolio toward higher yielding used car loans.

Non-Interest Income:

Non-interest income for the quarter was $5.4 million compared with $5.2 million for the prior quarter, an increase of $0.2 million, or 4.2%. The increase was due primarily to increases of $0.1 million in service charges on deposit accounts, $0.3 million in interchange revenue from debit card transactions, and a $0.1 million net gain on security transactions, offset by decreases of $0.2 million in wealth management group fee income and $0.1 million in other non-interest income. The increase in interchange revenue from debit card transactions is due to the recognition of an incremental volume bonus related to the rebranding of the Bank’s credit cards in 2015. The net gain on security transactions can be attributed to the sale of $15.0 million in agency securities during the current quarter. The decrease in wealth management group fee income can be attributed to a decline in revenue from tax services performed during the prior quarter.

Non-Interest Expense:

Non-interest expense for the quarter was $13.5 million compared with $15.6 million for the prior quarter, a decrease of $2.1 million, or 13.5%. The decrease was due primarily to decreases of $0.1 million in pension and other employee benefits, $0.4 million in net occupancy expenses, $0.1 million in furniture and equipment expenses, $0.1 million in data processing expenses, $0.1 million in professional services, $0.2 million in marketing and advertising, and $1.3 million in other non-interest expenses, offset by an increase of $0.2 million in salaries and wages. The decrease in net occupancy expenses and furniture and equipment expenses can be attributed to the closure of the branch at 202 East State Street in Ithaca, NY during the second quarter. The decrease 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 the second quarter. The decrease in marketing and advertising expense was due to seasonality, as the Bank sponsors the majority of its events during the second quarter. The decrease in other non-interest expense can be attributed to the establishment of a $1.2 million legal reserve during the second quarter.

3rd Quarter 2016 vs 3rd Quarter 2015

Net Interest Income:

Net interest income for the current quarter totaled $13.0 million compared with $12.7 million for the same period in the prior year, an increase of $0.3 million, or 2.7%. Interest and fees from loans increased $0.4 million when compared to the same period in the prior year. Fully taxable equivalent net interest margin was 3.33%, compared with 3.45% for the same period in the prior year. Average interest-earning assets increased $103.3 million compared to the same period in the prior year. The yield on interest-earning assets decreased 12 basis points, while the cost of interest-bearing liabilities increased one basis point compared to the same period in the prior year. The decline in the yield on interest-earning assets can be mostly attributed to a 25 basis point decline in the yield of commercial loans, offset by a 33 basis point increase in the yield of consumer loans.

Non-Interest Income:

Non-interest income for the quarter was $5.4 million compared with $4.9 million for the same period in the prior year, an increase of $0.5 million, or 10.6%. The increase was due primarily to increases of $0.4 million in interchange revenue from debit card transactions, $0.1 million in service charges on deposit accounts, and a $0.1 million net gain on security transactions, offset by a decrease of $0.1 million in wealth management group fee income. The increase in interchange revenue from debit card transactions is due to the recognition of an incremental volume bonus related to the rebranding of the Bank’s credit cards in 2015. The net gain on security transactions can be attributed to the sale of $15.0 million in agency securities during the current quarter. The decrease in wealth management group fee income can be attributed to a decline in assets under management or administration.

Non-Interest Expense:

Non-interest expense for the quarter was $13.5 million compared with $13.6 million for the same period in the prior year, a decrease of $0.1 million, or 1.2%. The decrease was due primarily to decreases of $0.2 million in net occupancy expenses, $0.1 million in data processing expenses, $0.1 million in marketing and advertising expenses, and $0.1 million in other non-interest expenses, offset by increases of $0.2 million in salaries and wages and $0.3 million in professional services. The decrease in net occupancy expenses can be attributed to the closure of the branch office at 202 East State Street in Ithaca, NY during the second quarter of 2016. The increase in salaries and wages can be attributed to an increase in the merit bonus pool for 2016. The increase in professional services can be attributed to consulting services associated with the incremental volume bonus related to the rebranding of the Bank’s credit cards in 2015.

Asset Quality

Non-performing loans totaled $12.9 million at September 30, 2016, or 1.06% 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 September 30, 2016 was primarily in the consumer loan and residential mortgage segments of the loan portfolio, offset by a decrease in the commercial mortgage segment. Non-performing assets, which are comprised of non-performing loans and other real estate owned, were $13.3 million, or 0.77% of total assets, at September 30, 2016, compared with $13.8 million, or 0.85% of total assets, at December 31, 2015. The decrease in non-performing assets was due to the sale of one large commercial property in other real estate owned.

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 third quarter of 2016 and 2015 were $1.1 million and $0.3 million, respectively. Net charge-offs for the third quarter of 2016 were $0.4 million compared with $0.3 million for the same period in the prior year. The increase in the provision for loan losses, compared to the same period in the prior year, can be attributed to increases in the commercial loan portfolio and impaired loans.

At September 30, 2016, the allowance for loan losses was $15.3 million, compared with $14.3 million at December 31, 2015. The allowance for loan losses was 118.8% of non-performing loans at September 30, 2016 compared with 116.6% at December 31, 2015. The ratio of the allowance for loan losses to total loans was 1.26% at September 30, 2016 compared with 1.22% at December 31, 2015.

Balance Sheet Activity

Assets totaled $1.729 billion at September 30, 2016 compared with $1.620 billion at December 31, 2015, an increase of $108.9 million, or 6.7%. The growth was due primarily to increases of $109.3 million in cash and cash equivalents and $47.9 million in the loan portfolio, partially offset by a $41.6 million decrease in securities available for sale.

The increase in cash and cash equivalents can be attributed to maturities, pay-downs, and 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 $70.2 million in commercial mortgages and $1.9 million in residential mortgages, offset by decreases in commercial and agriculture of $10.2 million, indirect consumer of $8.8 million, and other consumer of $5.0 million.

The decrease in securities available for sale can be mostly attributed to the sale of $14.5 million in U.S. treasuries in the first quarter and $15.0 million in agency securities in the third quarter, along with $60.3 million in maturities and calls of agencies and pay-downs on mortgage-backed securities, offset by additional purchases of $1.8 million in municipals and $46.4 million in mortgage-backed securities during the third quarter.

Deposits totaled $1.509 billion at September 30, 2016 compared with $1.400 billion at December 31, 2015, an increase of $108.6 million, or 7.8%. The growth was attributable to increases of $22.0 million in non-interest bearing demand deposits, $18.9 million in interest-bearing demand deposits, $81.6 million in money market accounts, and $3.8 million in savings deposits. Partially offsetting the increases noted above was a decrease of $17.7 million in time 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 $144.8 million at September 30, 2016 compared with $137.2 million at December 31, 2015, an increase of $7.6 million, or 5.6%. The increase was primarily due to earnings of $7.1 million, a reduction of $0.8 million in treasury stock, and a decrease of $3.2 million in accumulated other comprehensive loss, offset by $3.7 million in dividends declared during the year.

The total equity to total assets ratio was 8.38% at September 30, 2016 compared with 8.47% at December 31, 2015. The tangible equity to tangible assets ratio was 7.03% at September 30, 2016 compared with 6.99% at December 31, 2015. Book value per share increased to $30.37 at September 30, 2016 from $28.96 at December 31, 2015. As of September 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 $1.714 billion at September 30, 2016, including $293.0 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 $141.6 million, or 7.6%. The decrease can be mostly attributed to the loss of one large non-profit customer during the first quarter of 2016.

On October 20, 2016, the Corporation amended its noncontributory defined benefit pension plan (“pension plan”) to freeze future retirement benefits after December 31, 2016. Beginning on January 1, 2017, both the pay-based and service-based component of the formula used to determine retirement benefits in the pension plan will be frozen so that participants will no longer earn further retirement benefits. Due to the freezing of the pension plan, the Corporation amended its defined contribution profit sharing, savings, and investment plan (“401(k)”) for all active participants to supersede the current contribution formula used by the Corporation. Beginning on January 1, 2017 the Corporation will begin contributing a non-discretionary 3% of gross annual wages (as defined by the 401(k) plan) for each participant, regardless of the participant’s deferral, in addition to a 50% match up to 6% of gross annual wages. All contributions beginning January 1, 2017 will vest immediately. The Corporation expects these changes will have no impact on 2016 results. The Corporation expects the freezing of the pension plan will reduce the Corporation’s pension expense for fiscal year 2017 by approximately $2.6 million when compared to fiscal year 2016. The increase in the Corporation’s contribution to the 401(k) will increase the Corporation’s 401(k) expense for fiscal year 2017 by approximately $0.7 million when compared to fiscal year 2016.

Additionally, on October 20, 2016, the Corporation amended its defined benefit health care plan to not allow any new retirees into the plan, effective January 1, 2017. The Corporation expects to recognize a $0.3 million curtailment gain related to the amendment of the plan in the fourth quarter of 2016. The Corporation also expects that the freezing of the plan to new retirees will reduce the postretirement health care expense for fiscal year 2017 by approximately $0.1 million when compared to fiscal year 2016.

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

“The freezing of our defined benefit pension plan and defined benefit health care plan will allow us to manage the rising costs of our retirement plans and limit our long-term liabilities. Our compensation and benefits package remains highly competitive and will enable us to attract and retain talent.”

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)
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
(in thousands) 2016 2016 2016 2015 2015
ASSETS
Cash and due from financial institutions $35,345 $27,233 $26,471 $24,886 $30,800
Interest-bearing deposits in other financial institutions 100,159 80,121 29,388 1,299 44,449
Total cash and cash equivalents 135,504 107,354 55,859 26,185 75,249
Trading assets, at fair value 720 767 734 701 636
Securities available for sale 303,259 300,277 324,484 344,820 335,571
Securities held to maturity 4,504 3,518 4,577 4,566 4,604
FHLB and FRB stocks, at cost 4,491 4,491 4,179 4,797 4,171
Total investment securities 312,254 308,286 333,240 354,183 344,346
Commercial 759,675 742,874 725,596 699,711 664,505
Mortgage 197,665 196,200 196,751 195,778 197,506
Consumer 259,226 262,082 264,546 273,144 279,926
Loans, net of deferred loan fees 1,216,566 1,201,156 1,186,893 1,168,633 1,141,937
Allowance for loan losses (15,325) (14,668) (14,527) (14,260) (14,022)
Loans, net 1,201,241 1,186,488 1,172,366 1,154,373 1,127,915
Loans held for sale 119 809 593 1,076 316
Premises and equipment, net 29,084 29,706 28,620 29,397 30,023
Goodwill 21,824 21,824 21,824 21,824 21,824
Other intangible assets, net 3,183 3,428 3,673 3,931 4,201
Accrued interest receivable and other assets 24,936 25,270 26,317 28,294 27,129
Total assets $1,728,865 $1,683,932 $1,643,226 $1,619,964 $1,631,639
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest-bearing demand deposits $424,243 $408,846 $393,121 $402,236 $392,734
Interest-bearing demand deposits 149,527 126,305 141,457 130,573 144,097
Money market accounts 579,211 562,028 527,578 497,658 503,411
Savings deposits 207,544 212,086 208,555 203,749 196,994
Time deposits 148,419 158,655 163,541 166,079 173,205
Total deposits 1,508,944 1,467,920 1,434,252 1,400,295 1,410,441
FHLB overnight advances - - - 13,900 -
Securities sold under agreements to repurchase 30,002 28,778 28,825 28,453 30,358
FHLB advances and other debt 23,893 23,970 22,012 22,076 22,140
Accrued interest payable and other liabilities 21,214 19,855 17,091 17,998 29,985
Total liabilities 1,584,053 1,540,523 1,502,180 1,482,722 1,492,924
Shareholders' equity
Common stock 53 53 53 53 53
Additional-paid-in capital 45,724 45,639 45,652 45,537 45,545
Retained earnings 122,382 120,860 120,460 118,973 118,057
Treasury stock, at cost (15,542) (15,608) (15,781) (16,379) (16,654)
Accumulated other comprehensive income (loss) (7,805) (7,535) (9,338) (10,942) (8,286)
Total shareholders' equity 144,812 143,409 141,046 137,242 138,715
Total liabilities and shareholders' equity $1,728,865 $1,683,932 $1,643,226 $1,619,964 $1,631,639
Period-end shares outstanding 4,768 4,762 4,759 4,739 4,724


Chemung Financial Corporation
Consolidated Statements of Income (Unaudited)
Three Months Ended Nine Months Ended
September 30, Percent September 30, Percent
(in thousands, except per share data) 2016 2015 Change 2016 2015 Change
Interest and dividend income:
Loans, including fees $12,487 $12,114 3.1 $37,054 $36,113 2.6
Taxable securities 1,225 1,237 (1.0) 3,943 3,490 13.0
Tax exempt securities 228 227 0.4 722 685 5.4
Interest-bearing deposits 85 17 400.0 180 60 200.0
Total interest and dividend income 14,025 13,595 3.2 41,899 40,348 3.8
Interest expense:
Deposits 561 500 12.2 1,607 1,478 8.7
Securities sold under agreements to repurchase 214 213 0.5 636 634 0.3
Borrowed funds 210 191 9.9 623 556 12.1
Total interest expense 985 904 9.0 2,866 2,668 7.4
Net interest income 13,040 12,691 2.7 39,033 37,680 3.6
Provision for loan losses 1,050 307 242.0 2,033 956 112.7
Net interest income after provision for loan losses 11,990 12,384 (3.2) 37,000 36,724 0.8
Non-interest income:
Wealth management group fee income 2,027 2,122 (4.5) 6,240 6,446 (3.2)
Service charges on deposit accounts 1,361 1,275 6.7 3,781 3,637 4.0
Interchange revenue from debit card transactions 1,203 831 44.8 3,035 2,499 21.4
Net gains (losses) on securities transactions 75 (11) N/M 983 291 237.8
Net gains on sales of loans held for sale 115 89 29.2 273 239 14.2
Net gains (losses) on sales of other real estate owned 10 - N/M (6) 120 N/M
Income from bank owned life insurance 19 19 0.0 55 56 (1.8)
Other 625 587 6.5 1,891 2,136 (11.5)
Total non-interest income 5,435 4,912 10.6 16,252 15,424 5.4
Non-interest expense:
Salaries and wages 5,355 5,135 4.3 15,720 15,423 1.9
Pension and other employee benefits 1,573 1,562 0.7 4,894 4,848 0.9
Net occupancy 1,503 1,701 (11.6) 5,287 5,308 (0.4)
Furniture and equipment 685 742 (7.7) 2,286 2,264 1.0
Data processing 1,624 1,751 (7.3) 5,058 4,864 4.0
Professional services 502 200 151.0 1,418 889 59.5
Amortization of intangible assets 245 277 (11.6) 748 866 (13.6)
Marketing and advertising 101 208 (51.4) 648 714 (9.2)
Other real estate owned expense 41 79 (48.1) 150 387 (61.2)
FDIC insurance 324 277 17.0 895 843 6.2
Loan expense 162 212 (23.6) 462 527 (12.3)
Other 1,356 1,490 (9.0) 5,483 4,260 28.7
Total non-interest expense 13,471 13,634 (1.2) 43,049 41,193 4.5
Income before income tax expense 3,954 3,662 8.0 10,203 10,955 (6.9)
Income tax expense 1,209 1,211 (0.2) 3,130 3,651 (14.3)
Net income $2,745 $2,451 12.0 $7,073 $7,304 (3.2)
Basic and diluted earnings per share $0.58 $0.52 $1.49 $1.55
Cash dividends declared per share 0.26 0.26 0.78 0.78
Average basic and diluted shares outstanding 4,765 4,722 4,758 4,715
N/M - Not meaningful


Chemung Financial Corporation
Consolidated Financial Highlights (Unaudited)
As of or for the
As of or for the Three Months Ended Nine Months Ended
Sept. 30, June 30, March 31, Dec. 31, Sept. 30, Sept. 30, Sept. 30,
(in thousands, per share data) 2016 2016 2016 2015 2015 2016 2015
RESULTS OF OPERATIONS
Interest income $ 14,025 $ 13,925 $ 13,949 $ 13,896 $ 13,595 $ 41,899 $ 40,348
Interest expense 985 957 924 934 904 2,866 2,668
Net interest income 13,040 12,968 13,025 12,962 12,691 39,033 37,680
Provision for loan losses 1,050 388 595 615 307 2,033 956
Net interest income after provision for loan losses 11,990 12,580 12,430 12,347 12,384 37,000 36,724
Non-interest income 5,435 5,216 5,601 5,023 4,912 16,252 15,424
Non-interest expense 13,471 15,570 14,008 14,234 13,634 43,049 41,193
Income before income tax expense 3,954 2,226 4,023 3,136 3,662 10,203 10,955
Income tax expense 1,209 605 1,316 1,007 1,211 3,130 3,651
Net income $ 2,745 $ 1,621 $ 2,707 $ 2,129 $ 2,451 $ 7,073 $ 7,304
Basic and diluted earnings per share $ 0.58 $ 0.34 $ 0.57 $ 0.45 $ 0.52 $ 1.49 $ 1.55
Average basic and diluted shares outstanding 4,765 4,760 4,750 4,731 4,722 4,758 4,715
PERFORMANCE RATIOS
Return on average assets 0.65% 0.39% 0.67% 0.52% 0.62% 0.57% 0.62%
Return on average equity 7.55% 4.57% 7.73% 6.05% 7.05% 6.62% 7.12%
Return on average tangible equity (a) 9.14% 5.55% 9.45% 7.42% 8.71% 8.05% 8.83%
Efficiency ratio (a) (b) 71.28% 77.00% 76.89% 77.35% 75.25% 75.03% 75.78%
Non-interest expense to average assets 3.20% 3.75% 3.48% 3.49% 3.44% 3.47% 3.52%
Loans to deposits 80.62% 81.83% 82.75% 83.46% 80.96% 80.62% 80.96%
YIELDS / RATES - Fully Taxable Equivalent
Yield on loans 4.16% 4.17% 4.21% 4.20% 4.22% 4.18% 4.25%
Yield on investments 1.73% 1.81% 2.07% 1.98% 1.89% 1.86% 1.87%
Yield on interest-earning assets 3.58% 3.60% 3.72% 3.66% 3.70% 3.63% 3.73%
Cost of interest-bearing deposits 0.21% 0.21% 0.20% 0.20% 0.20% 0.21% 0.20%
Cost of borrowings 3.15% 3.16% 2.66% 2.99% 3.03% 2.97% 2.80%
Cost of interest-bearing liabilities 0.36% 0.35% 0.35% 0.35% 0.35% 0.35% 0.35%
Interest rate spread 3.22% 3.25% 3.37% 3.31% 3.35% 3.28% 3.38%
Net interest margin, fully taxable equivalent 3.33% 3.36% 3.47% 3.42% 3.45% 3.38% 3.48%
CAPITAL
Total equity to total assets at end of period 8.38% 8.52% 8.58% 8.47% 8.50% 8.38% 8.50%
Tangible equity to tangible assets at end of period (a) 7.03% 7.12% 7.14% 6.99% 7.02% 7.03% 7.02%
Book value per share $ 30.37 $ 30.12 $ 29.64 $ 28.96 $ 29.36 $ 30.37 $ 29.36
Tangible book value per share 25.13 24.81 24.28 23.53 23.85 25.13 23.85
Period-end market value per share 28.99 29.35 26.35 27.50 28.03 28.99 28.03
Dividends declared per share 0.26 0.26 0.26 0.26 0.26 0.78 0.78
AVERAGE BALANCES
Loans and loans held for sale (c) $ 1,199,367 $ 1,192,786 $ 1,175,051 $ 1,151,469 $ 1,142,402 $ 1,189,105 $ 1,138,799
Earning assets 1,577,348 1,573,306 1,527,656 1,522,176 1,474,098 1,559,500 1,462,484
Total assets 1,674,492 1,669,654 1,620,547 1,617,322 1,570,818 1,656,313 1,564,346
Deposits 1,456,622 1,457,173 1,404,487 1,410,017 1,367,853 1,439,497 1,353,664
Total equity 144,631 142,746 140,864 139,697 137,855 142,745 137,079
Tangible equity (a) 119,504 117,374 115,240 113,812 111,693 117,372 110,628
ASSET QUALITY
Net charge-offs $ 393 $ 247 $ 328 $ 377 $ 313 $ 968 $ 620
Non-performing loans (d) 12,903 12,429 12,774 12,232 12,368 12,903 12,368
Non-performing assets (e) 13,270 12,822 14,416 13,762 14,744 13,270 14,744
Allowance for loan losses 15,325 14,668 14,527 14,260 14,022 15,325 14,022
Annualized net charge-offs to average loans 0.13% 0.08% 0.11% 0.13% 0.11% 0.11% 0.07%
Non-performing loans to total loans 1.06% 1.03% 1.08% 1.05% 1.08% 1.06% 1.08%
Non-performing assets to total assets 0.77% 0.76% 0.88% 0.85% 0.90% 0.77% 0.90%
Allowance for loan losses to total loans 1.26% 1.22% 1.22% 1.22% 1.23% 1.26% 1.23%
Allowance for loan losses to non-performing loans 118.77% 118.01% 113.72% 116.58% 113.37% 118.77% 113.37%
(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 reserve 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) Loans and loans held for sale 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
Average Consolidated Balance Sheets & Net Interest Income Analysis and Rate/Volume Analysis of Net Interest Income (Unaudited)
YTD - September 30, 2016YTD - September 30, 2015 YTD - Sept. 30, 2016 vs. Sept. 30, 2015
(in thousands) Average
Balance
Interest Yield /Rate Average
Balance
Interest Yield /Rate Total
Change
Due to
Volume
Due to
Rate
Earning assets:
Commercial loans 727,824 23,617 4.33% 650,108 22,328 4.59% 1,289 2,597 (1,308)
Mortgage loans 196,799 5,806 3.94% 198,618 6,070 4.09% (264) (53) (211)
Consumer loans 264,482 7,784 3.93% 290,073 7,812 3.60% (28) (719) 691
Taxable securities 277,346 3,947 1.90% 250,859 3,494 1.86% 453 377 76
Tax-exempt securities 45,824 1,042 3.04% 41,228 989 3.21% 53 108 (55)
Interest-bearing deposits 47,225 180 0.51% 31,598 60 0.25% 120 38 82
Total earning assets 1,559,500 42,376 3.63% 1,462,484 40,753 3.73% 1,623 2,348 (725)
Non-earnings assets:
Cash and due from banks 26,867 58,623
Premises and equipment, net 29,696 31,331
Other assets 51,564 22,349
Allowance for loan losses (14,592) (14,055)
AFS valuation allowance 3,278 3,614
Total assets 1,656,313 1,564,346
Interest-bearing liabilities:
Interest-bearing checking 132,988 106 0.11% 125,285 76 0.08% 30 5 25
Savings and money market 743,808 1,060 0.19% 659,994 881 0.18% 179 124 55
Time deposits 160,352 441 0.37% 186,687 521 0.37% (80) (80) -
FHLB advances and repos 56,605 1,259 2.97% 56,862 1,190 2.80% 69 (5) 74
Total int.-bearing liabilities 1,093,753 2,866 0.35% 1,028,828 2,668 0.35% 198 44 154
Non-interest-bearing liabilities:
Demand deposits 402,349 381,698
Other liabilities 17,466 16,741
Total liabilities 1,513,568 1,427,267
Shareholders' equity 142,745 137,079
Total liabilities and shareholders' equity 1,656,313 1,564,346
Fully taxable equivalent net interest income 39,510 38,085 1,425 2,304 (879)
Net interest rate spread (1) 3.28% 3.38%
Net interest margin, fully taxable equivalent (2) 3.38% 3.48%
Taxable equivalent adjustment (477) (405)
Net interest income 39,033 37,680
(1) Net interest rate spread is the difference in the average yield on interest-earning assets less the average rate on interest-bearing liabilities.
(2) Net interest margin is the ratio of fully taxable equivalent net interest income divided by average interest-earning assets.
Chemung Financial Corporation
Average Consolidated Balance Sheets & Net Interest Income Analysis and Rate/Volume Analysis of Net Interest Income (Unaudited)
QTD - September 30, 2016 QTD - September 30, 2015 QTD - Sept. 30, 2016 vs. Sept. 30, 2015
Average
Balance

Interest
Yield /
Rate
Average
Balance

Interest
Yield /
Rate
Total
Change
Due to
Volume
Due to
Rate
Earning assets:
Commercial loans 741,515 7,967 4.27% 660,407 7,522 4.52% 445 881 (436)
Mortgage loans 197,292 1,950 3.93% 198,994 2,007 4.00% (57) (19) (38)
Consumer loans 260,559 2,623 4.00% 283,001 2,620 3.67% 3 (219) 222
Taxable securities 268,388 1,225 1.82% 260,603 1,238 1.88% (13) 30 (43)
Tax-exempt securities 43,692 329 3.00% 44,871 327 2.89% 2 (9) 11
Interest-bearing deposits 65,902 85 0.51% 26,222 17 0.26% 68 41 27
Total earning assets 1,577,348 14,179 3.58% 1,474,098 13,731 3.70% 448 705 (257)
Non-earnings assets:
Cash and due from banks 27,420 52,793
Premises and equipment, net 29,575 30,597
Other assets 50,397 24,803
Allowance for loan losses (14,783) (14,181)
AFS valuation allowance 4,535 2,708
Total assets 1,674,492 1,570,818
Interest-bearing liabilities:
Interest-bearing checking 122,030 27 0.09% 123,604 26 0.08% 1 - 1
Savings and money market 769,855 392 0.20% 675,841 313 0.18% 79 44 35
Time deposits 154,618 142 0.37% 176,480 161 0.36% (19) (22) 3
FHLB advances and repos 53,619 424 3.15% 52,906 404 3.03% 20 5 15
Total int.-bearing liabilities 1,100,122 985 0.36% 1,028,831 904 0.35% 81 27 54
Non-interest-bearing liabilities:
Demand deposits 410,119 391,929
Other liabilities 19,620 12,203
Total liabilities 1,529,861 1,432,963
Shareholders' equity 144,631 137,855
Total liabilities and shareholders' equity 1,674,492 1,570,818
Fully taxable equivalent net interest income 13,194 12,827 367 678 (311)
Net interest rate spread (1) 3.22% 3.35%
Net interest margin, fully taxable equivalent (2) 3.33% 3.45%
Taxable equivalent adjustment (154) (136)
Net interest income 13,040 12,691
(1) Net interest rate spread is the difference in the average yield on interest-earning assets less the average rate on interest-bearing liabilities.
(2) Net interest margin is the ratio of fully taxable equivalent net interest income divided by average interest-earning assets.


Chemung Financial Corporation

GAAP to Non-GAAP Reconciliations (Unaudited)

The Corporation prepares its consolidated financial statements in accordance with GAAP. See the Corporation’s unaudited consolidated balance sheets and statements of income contained within this press release. 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 measure 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 Nine Months Ended
Sept. 30, June 30, March 31, Dec. 31, Sept. 30, Sept. 30, Sept. 30,
(in thousands, except per share data) 2016 2016 2016 2015 2015 2016 2015
NET INTEREST MARGIN - FULLY TAXABLE EQUIVALENT
AND EFFICIENCY RATIO
Net interest income (GAAP) $ 13,040 $ 12,968 $ 13,025 $ 12,962 $ 12,691 $ 39,033 $ 37,680
Fully taxable equivalent adjustment 154 159 164 149 136 477 405
Fully taxable equivalent net interest income (non-GAAP) $ 13,194 $ 13,127 $ 13,189 $ 13,111 $ 12,827 $ 39,510 $ 38,085
Non-interest income (GAAP) $ 5,435 $ 5,216 $ 5,601 $ 5,023 $ 4,912 $ 16,252 $ 15,424
Less: net gains (losses) on security transactions (75) - (908) (81) 11 (983) (291)
Adjusted non-interest income (non-GAAP) $ 5,360 $ 5,216 $ 4,693 $ 4,942 $ 4,923 $ 15,269 $ 15,133
Non-interest expense (GAAP) $ 13,471 $ 15,570 $ 14,008 $ 14,234 $ 13,634 $ 43,049 $ 41,193
Less: amortization of intangible assets (245) (245) (258) (270) (277) (748) (866)
Less: legal reserve - (1,200) - - - (1,200) -
Adjusted non-interest expense (non-GAAP) $ 13,226 $ 14,125 $ 13,750 $ 13,964 $ 13,357 $ 41,101 $ 40,327
Average interest-earning assets (GAAP) $ 1,577,348 $ 1,573,306 $ 1,527,656 $ 1,522,176 $ 1,474,098 $ 1,559,500 $ 1,462,484
Net interest margin - fully taxable equivalent (non-GAAP) 3.33% 3.36% 3.47% 3.42% 3.45% 3.38% 3.48%
Efficiency ratio (non-GAAP) 71.28% 77.00% 76.89% 77.35% 75.25% 75.03% 75.78%

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 Nine Months Ended
Sept. 30, June 30, March 31, Dec. 31, Sept. 30, Sept. 30, Sept. 30,
(in thousands, except per share and ratio data) 2016 2016 2016 2015 2015 2016 2015
TANGIBLE EQUITY AND TANGIBLE ASSETS
(PERIOD END)
Total shareholders' equity (GAAP) $ 144,812 $ 143,409 $ 141,046 $ 137,242 $ 138,715 $ 144,812 $ 138,715
Less: intangible assets (25,007) (25,252) (25,497) (25,755) (26,025) (25,007) (26,025)
Tangible equity (non-GAAP) $ 119,805 $ 118,157 $ 115,549 $ 111,487 $ 112,690 $ 119,805 $ 112,690
Total assets (GAAP) $ 1,728,865 $ 1,683,932 $ 1,643,226 $ 1,619,964 $ 1,631,639 $ 1,728,865 $ 1,631,639
Less: intangible assets (25,007) (25,252) (25,497) (25,755) (26,025) (25,007) (26,025)
Tangible assets (non-GAAP) $ 1,703,858 $ 1,658,680 $ 1,617,729 $ 1,594,209 $ 1,605,614 $ 1,703,858 $ 1,605,614
Total equity to total assets at end of period (GAAP) 8.38% 8.52% 8.58% 8.47% 8.50% 8.38% 8.50%
Book value per share (GAAP) $ 30.37 $ 30.12 $ 29.64 $ 28.96 $ 29.36 $ 30.37 $ 29.36
Tangible equity to tangible assets at end of period (non-GAAP) 7.03% 7.12% 7.14% 6.99% 7.02% 7.03% 7.02%
Tangible book value per share (non-GAAP) $ 25.13 $ 24.81 $ 24.28 $ 23.53 $ 23.85 $ 25.13 $ 23.85

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 Nine Months Ended
Sept. 30, June 30, March 31, Dec. 31, Sept. 30, Sept. 30, Sept. 30,
(in thousands, except ratio data) 2016 2016 2016 2015 2015 2016 2015
TANGIBLE EQUITY (AVERAGE)
Total average shareholders' equity (GAAP) $ 144,631 $ 142,746 $ 140,864 $ 139,697 $ 137,855 $ 142,745 $ 137,079
Less: average intangible assets (25,127) (25,372) (25,624) (25,885) (26,162) (25,373) (26,451)
Average tangible equity (non-GAAP) $ 119,504 $ 117,374 $ 115,240 $ 113,812 $ 111,693 $ 117,372 $ 110,628
Return on average equity (GAAP) 7.55% 4.57% 7.73% 6.05% 7.05% 6.62% 7.12%
Return on average tangible equity (non-GAAP) 9.14% 5.55% 9.45% 7.42% 8.71% 8.05% 8.83%

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 Nine Months Ended
Sept. 30, June 30, March 31, Dec. 31, Sept. 30, Sept. 30, Sept. 30,
(in thousands, except per share and ratio data) 2016 2016 2016 2015 2015 2016 2015
CORE NET INCOME
Reported net income (GAAP) $ 2,745 $ 1,621 $ 2,707 $ 2,129 $ 2,451 $ 7,073 $ 7,304
Net gains (losses) on security transactions (net of tax) (47) - (565) (50) 7 (612) (180)
Legal reserve - 747 - - - 747 -
Core net income (non-GAAP) $ 2,698 $ 2,368 $ 2,142 $ 2,079 $ 2,458 $ 7,208 $ 7,124
Average basic and diluted shares outstanding 4,765 4,760 4,750 4,731 4,722 4,758 4,715
Reported basic and diluted earnings per share (GAAP) $ 0.58 $ 0.34 $ 0.57 $ 0.45 $ 0.52 $ 1.49 $ 1.55
Reported return on average assets (GAAP) 0.65% 0.39% 0.67% 0.52% 0.62% 0.57% 0.62%
Reported return on average equity (GAAP) 7.55% 4.57% 7.73% 6.05% 7.05% 6.62% 7.12%
Core basic and diluted earnings per share (non-GAAP) $ 0.57 $ 0.50 $ 0.45 $ 0.44 $ 0.52 $ 1.51 $ 1.51
Core return on average assets (non-GAAP) 0.64% 0.57% 0.53% 0.51% 0.62% 0.58% 0.61%
Core return on average equity (non-GAAP) 7.42% 6.67% 6.12% 5.90% 7.07% 6.75% 6.95%

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