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Chemung Financial Corporation Reports Annual and Fourth Quarter 2016 Net Income of $10.0 Million, or $2.11 per Share, and $3.0 Million, or $0.62 per Share

ELMIRA, N.Y., Jan. 26, 2017 (GLOBE NEWSWIRE) -- Chemung Financial Corporation (the “Corporation”) (Nasdaq:CHMG), the parent company of Chemung Canal Trust Company (the “Bank”), today reported net income of $10.0 million, or $2.11 per share, for the full year of 2016 compared to $9.4 million, or $2.00 per share, for the full year of 2015. Net income for the fourth quarter of 2016 of $3.0 million, or $0.62 per share, compared to $2.1 million, or $0.45 per share, for the fourth quarter of 2015.

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

“2016 was a strong year for our institution. The combination of organic growth and cost saving measures contributed to our strong growth in earnings of over six percent year-over-year. I am looking forward to my first year as CEO of Chemung Financial Corporation and continuing our focus on providing high quality services to our customers, engaging the communities we serve, and creating value for our shareholders.”

Fourth Quarter Highlights1

  • Loans, net of deferred fees, increased $31.7 million, or 2.7%
  • Commercial loans increased $45.5 million, or 6.5%
  • Deposits increased $56.0 million, or 4.0%
  • Net interest income increased $0.3 million, or 2.6%
  • Effective tax rate decreased from 32.1% to 30.1%
  • Dividends declared during the quarter were $0.26

A more detailed summary of financial performance follows.

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

YTD 2016 vs YTD 2015

Net Interest Income:

Net interest income for the year ended December 31, 2016 totaled $52.3 million compared with $50.6 million for the preceding year, an increase of $1.7 million, or 3.3%. The increase was due primarily to interest income from the loan portfolio, as the year-to-date average loan balance increased $52.6 million when compared to the preceding year. Fully taxable equivalent net interest margin was 3.37%, compared with 3.46% for the preceding year. The decline in net interest margin was a result of the commercial loan portfolio repricing to current market rates. The yield on interest-earning assets decreased by ten basis points, while the cost of interest-bearing liabilities remained flat. The decline in the yield of interest-earning assets can be mostly attributed to declines of 23 basis points in the yield of commercial loans and 16 basis points in the yield of mortgage loans, due to new production at lower competitive rates, offset by a 33 basis point increase in consumer loans, due to the indirect loan portfolio and increasing the portfolio toward higher yielding used car loans. Average interest-earning assets increased $94.0 million compared to the prior year, primarily in commercial loans.

Non-Interest Income:

Non-interest income for the year ended December 31, 2016 was $21.1 million compared with $20.4 million for the preceding year, an increase of $0.7 million, or 3.4%. The increase was primarily due to increases of $0.2 million in service charges on deposit accounts, $0.7 million in interchange revenue from debit card transactions, and $0.6 million in net gains on security transactions, offset by decreases of $0.2 million in WMG fee income and $0.6 million in other non-interest income. The increase in service charges on deposit accounts can be attributed to an increase in volume. The increase in interchange revenue from debit card transactions can be mostly attributed to the recognition of an incremental volume bonus related to the rebranding of the Bank’s credit cards in the fourth quarter of 2015. The net gain on security transactions can be attributed to the sale of $14.5 million in U.S. Treasuries and $25.0 million in obligations of U.S. Government sponsored enterprises. The decrease in WMG fee income can be attributed to a decline in assets under management or administration. The decrease in other non-interest income can be attributed to a decline in CFS Group, Inc. fee income and rental income from other real estate owned properties, which were sold in 2016.

Non-Interest Expense:

Non-interest expense for the year ended December 31, 2016 was $56.6 million compared with $55.4 million for the preceding year, an increase of $1.2 million, or 2.1%. The increase was due primarily to increases of $0.2 million in pension and other employee benefits, $0.9 million in professional services, and $1.2 million in other non-interest expenses, offset by decreases of $0.3 million in salaries and wages, $0.2 million in net occupancy expenses, $0.2 million in amortization of intangible assets, and $0.6 million in other real estate owned expenses. The increase in pension and other employee benefits can be attributed to an increase in health insurance costs, offset by a $0.3 million curtailment gain related to the amendment of the defined benefit health care plan during the fourth quarter. Please refer to the September 30, 2016 Form 10-Q (filed November 2, 2016) and related earnings release (filed on October 20, 2016) for further information about the amendments to the defined benefit plan and pension plan. The increase in professional services includes expenses incurred related to the feasibility and implementation of Chemung Risk Management, Inc., a captive insurance subsidiary of the Corporation, and legal costs associated with the appeal of the Fane v. Chemung Canal Trust Company decision. The increase in other non-interest expenses can be attributed to the establishment of a $1.2 million legal reserve associated with the Fane v. Chemung Canal Trust Company case. Please refer to the September 30, 2016 Form 10-Q (filed November 2, 2016) and the June 30, 2016 earnings release (filed on July 29, 2016) for further information about the case. The decrease in salaries and wages can be attributed to a reduction in full time equivalents. 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 decrease in other real estate owned expenses can be attributed to the sale of properties in 2016.

Income Tax Expense:

The effective tax rate decreased to 30.5% for the year ended December 31, 2016 compared with 33.1% for the same period in the prior year. The decrease in the effective tax rate can be attributed to the formation of Chemung Risk Management, Inc., and increasing the utilization of the Bank’s real estate investment trust.

4th Quarter 2016 vs 3rd Quarter 2016

Net Interest Income:

Net interest income for the current quarter totaled $13.3 million compared with $13.0 million for the prior quarter, an increase of $0.3 million, or 2.0%. Interest and fees from loans increased $0.1 million and interest and dividend income from securities increased $0.1 million. Fully taxable equivalent net interest margin was 3.33% consistent with the prior quarter. Average interest-earning assets increased $29.9 million compared to the prior quarter. The yield on interest-earning assets and cost of interest-bearing liabilities both decreased one basis point compared to the prior quarter.

Non-Interest Income:

Non-interest income for the quarter was $4.9 million compared with $5.4 million for the prior quarter, a decrease of $0.5 million, or 9.9%. The decrease was due primarily to decreases of $0.2 million in interchange revenue from debit card transactions and $0.2 million in other non-interest income. The decrease in interchange revenue from debit card transactions can be mostly attributed to the recognition of an incremental volume bonus related to the rebranding of the Bank’s credit cards in 2015 during the third quarter.

Non-Interest Expense:

Non-interest expense for the quarter was $13.6 million compared with $13.5 million for the prior quarter, an increase of $0.1 million, or 0.7%. The increase was due primarily to increases of $0.3 million in professional services, $0.1 million in marketing and advertising expenses, and $0.2 million in other non-interest expenses, offset by decreases of $0.1 million in salaries and wages and $0.3 million in pension and other employee benefits. The increase in professional services can be mostly attributed to legal costs associated with the appeal of the Fane v. Chemung Canal Trust Company case. The decrease in pension and other employee benefits can be mostly attributed to a decline in health insurance costs and a $0.3 million curtailment gain related to the amendment of the defined benefit health care plan during the quarter, offset by additional payroll tax associated with year-end incentives paid in 2017.

Income Tax Expense:

The effective tax rate decreased to 30.1% for the current quarter compared with 30.6% for the prior quarter. The decrease in the effective tax rate can be attributed to increasing the utilization of the Bank’s real estate investment trust.

4th Quarter 2016 vs 4th Quarter 2015

Net Interest Income:

Net interest income for the current quarter totaled $13.3 million compared with $13.0 million for the same period in the prior year, an increase of $0.3 million, or 2.6%. Interest and fees from loans increased $0.5 million when compared to the same period in the prior year. Fully taxable equivalent net interest margin was 3.33%, compared with 3.42% for the same period in the prior year. Average interest-earning assets increased $85.1 million compared to the same period in the prior year. The yield on interest-earning assets decreased nine basis points, while the cost of interest-bearing liabilities remained flat compared to the same period in the prior year. The decline in the yield on interest-earning assets can be mostly attributed to a four basis decline in the yield on loans and 23 basis point decline in the yield on investments.

Non-Interest Income:

Non-interest income for the quarter was $4.9 million compared with $5.0 million for the same period in the prior year, a decrease of $0.1 million, or 2.5%. The decrease was due primarily to a decrease of $0.4 million in other non-interest income, offset by a $0.2 million increase in interchange revenue from deposit accounts. The decrease in other non-interest income can be attributed to a decline in CFS Group, Inc. fee income and rental income from other real estate owned properties, which were sold in 2016.

Non-Interest Expense:

Non-interest expense for the quarter was $13.6 million compared with $14.2 million for the same period in the prior year, a decrease of $0.6 million, or 4.7%. The decrease was due primarily to decreases of $0.6 million in salaries and wages, $0.1 million in net occupancy expenses, $0.2 million in data processing expenses, and $0.4 million in other real estate owned expenses, offset by increases of $0.2 million pension and other employee benefits and $0.4 million in professional services. The decrease in salaries and wages can be attributed to a reduction in full time equivalents, along with higher incentive awards during the fourth quarter of 2015, compared to the same period in 2016. 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 decrease in other real estate owned expenses can be attributed to the sale of properties in 2016. The increase in pension and other employee benefits can be mostly attributed to an increase in health insurance costs, offset by a $0.3 million curtailment gain related to the amendment of the defined benefit health care plan during the quarter. The increase in professional services can be mostly attributed to legal costs associated with the appeal of the Fane v. Chemung Canal Trust Company case.

Income Tax Expense:

The effective tax rate decreased to 30.1% for the quarter compared with 32.1% for the same period in the prior year. The decrease in the effective tax rate can be attributed to the formation of Chemung Risk Management, Inc., a captive insurance subsidiary of the Corporation, and increasing the utilization of the Bank’s real estate investment trust.

Asset Quality

Non-performing loans totaled $12.0 million at December 31, 2016, or 1.00% of total loans, compared with $12.2 million at December 31, 2015, or 1.05% of total loans. The decrease in non-performing loans at December 31, 2016 was primarily in the commercial mortgage segment, offset by increases 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 $12.4 million, or 0.75% of total assets, at December 31, 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 fourth quarter of 2016 and 2015 were $0.4 million and $0.6 million, respectively. Net charge-offs for the fourth quarter of 2016 were $1.5 million compared with $0.4 million for the same period in the prior year. The increase in the net charge-offs, compared to the same period in the prior year, can be attributed to the write-off of specifically reserved commercial loans.

The allowance for loan losses was $14.3 million as of December 31, 2016 and 2015. The allowance for loan losses was 118.4% of non-performing loans at December 31, 2016 compared with 116.6% at December 31, 2015. The ratio of the allowance for loan losses to total loans was 1.19% at December 31, 2016 compared with 1.22% at December 31, 2015.

Balance Sheet Activity

Assets totaled $1.657 billion at December 31, 2016 compared with $1.620 billion at December 31, 2015, an increase of $37.2 million, or 2.3%. The growth was due primarily to increases of $48.0 million in cash and cash equivalents and $31.7 million in the loan portfolio, partially offset by a $41.4 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 $62.2 million in commercial mortgages and $2.7 million in residential mortgages, offset by decreases in commercial and agriculture of $16.7 million, indirect consumer of $11.8 million, and other consumer of $4.8 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 $25.0 million obligations of U.S. Government sponsored enterprises in the third and fourth quarters, along with $89.8 million in calls and maturities of U.S. Government sponsored enterprises and pay-downs on mortgage-backed securities, and an unrealized loss of $7.2 million for year-to-date 2016, offset by additional purchases of $1.8 million in obligations of states and political subdivisions and $94.7 million in mortgaged-backed securities.

Deposits totaled $1.456 billion at December 31, 2016 compared with $1.400 billion at December 31, 2015, an increase of $56.0 million, or 4.0%. The growth was attributable to increases of $15.6 million in non-interest bearing demand deposits, $6.3 million in interest-bearing demand deposits, $51.3 million in money market accounts, and $4.9 million in savings deposits. Partially offsetting the increases noted above was a decrease of $22.0 million in time deposits. The changes in money market accounts and demand deposits can be attributed to new municipal clients, along with the seasonal inflow of deposits from existing municipal clients.

Total equity was $143.7 million at December 31, 2016 compared with $137.2 million at December 31, 2015, an increase of $6.5 million, or 4.7%. The increase was primarily due to earnings of $10.0 million, a reduction of $1.1 million in treasury stock, and a decrease of $0.2 million in accumulated other comprehensive loss, offset by $4.9 million in dividends declared during the year.

The total equity to total assets ratio was 8.67% at December 31, 2016 compared with 8.47% at December 31, 2015. The tangible equity to tangible assets ratio was 7.29% at December 31, 2016 compared with 6.99% at December 31, 2015. Book value per share increased to $30.07 at December 31, 2016 from $28.96 at December 31, 2015. As of December 31, 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 $1.721 billion at December 31, 2016, including $294.9 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 $134.5 million, or 7.3%. The decrease can be mostly attributed to the loss of one large non-profit customer during the first quarter of 2016.

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)
Dec. 31, Sept. 30, June 30, March 31, Dec. 31,
(in thousands) 2016 2016 2016 2016 2015
ASSETS
Cash and due from financial institutions $28,205 $35,345 $27,233 $26,471 $24,886
Interest-bearing deposits in other financial institutions 45,957 100,159 80,121 29,388 1,299
Total cash and cash equivalents 74,162 135,504 107,354 55,859 26,185
Trading assets, at fair value 774 720 767 734 701
Securities available for sale 303,402 303,259 300,277 324,484 344,820
Securities held to maturity 4,705 4,504 3,518 4,577 4,566
FHLB and FRB stocks, at cost 4,041 4,491 4,491 4,179 4,797
Total investment securities 312,148 312,254 308,286 333,240 354,183
Commercial 745,216 759,675 742,874 725,596 699,711
Mortgage 198,492 197,665 196,200 196,751 195,778
Consumer 256,582 259,226 262,082 264,546 273,144
Loans, net of deferred loan fees 1,200,290 1,216,566 1,201,156 1,186,893 1,168,633
Allowance for loan losses (14,253) (15,325) (14,668) (14,527) (14,260)
Loans, net 1,186,037 1,201,241 1,186,488 1,172,366 1,154,373
Loans held for sale 412 119 809 593 1,076
Premises and equipment, net 28,923 29,084 29,706 28,620 29,397
Goodwill 21,824 21,824 21,824 21,824 21,824
Other intangible assets, net 2,945 3,183 3,428 3,673 3,931
Accrued interest receivable and other assets 29,954 24,936 25,270 26,317 28,294
Total assets $1,657,179 $1,728,865 $1,683,932 $1,643,226 $1,619,964
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest-bearing demand deposits $417,812 $424,243 $408,846 $393,121 $402,236
Interest-bearing demand deposits 136,826 149,527 126,305 141,457 130,573
Money market accounts 548,963 579,211 562,028 527,578 497,658
Savings deposits 208,636 207,544 212,086 208,555 203,749
Time deposits 144,106 148,419 158,655 163,541 166,079
Total deposits 1,456,343 1,508,944 1,467,920 1,434,252 1,400,295
FHLB overnight advances - - - - 13,900
Securities sold under agreements to repurchase 27,606 30,002 28,778 28,825 28,453
FHLB advances and other debt 13,815 23,893 23,970 22,012 22,076
Accrued interest payable and other liabilities 15,667 21,214 19,855 17,091 17,998
Total liabilities 1,513,431 1,584,053 1,540,523 1,502,180 1,482,722
Shareholders' equity
Common stock 53 53 53 53 53
Additional-paid-in capital 45,603 45,724 45,639 45,652 45,537
Retained earnings 124,111 122,382 120,860 120,460 118,973
Treasury stock, at cost (15,265) (15,542) (15,608) (15,781) (16,379)
Accumulated other comprehensive (loss) (10,754) (7,805) (7,535) (9,338) (10,942)
Total shareholders' equity 143,748 144,812 143,409 141,046 137,242
Total liabilities and shareholders' equity $1,657,179 $1,728,865 $1,683,932 $1,643,226 $1,619,964
Period-end shares outstanding 4,781 4,768 4,762 4,759 4,739


Chemung Financial Corporation
Consolidated Statements of Income (Unaudited)
Three Months Ended Twelve Months Ended
December 31, Percent December 31, Percent
(in thousands, except per share data) 2016 2015 Change 2016 2015 Change
Interest and dividend income:
Loans, including fees $12,623 $12,158 3.8 $49,677 $48,271 2.9
Taxable securities 1,296 1,468 (11.7) 5,239 4,958 5.7
Tax exempt securities 223 254 (12.2) 945 939 0.6
Interest-bearing deposits 127 16 693.8 307 76 303.9
Total interest and dividend income 14,269 13,896 2.7 56,168 54,244 3.5
Interest expense:
Deposits 563 525 7.2 2,170 2,003 8.3
Securities sold under agreements to repurchase 213 214 (0.5) 849 848 0.1
Borrowed funds 197 195 1.0 820 751 9.2
Total interest expense 973 934 4.2 3,839 3,602 6.6
Net interest income 13,296 12,962 2.6 52,329 50,642 3.3
Provision for loan losses 404 615 (34.3) 2,437 1,571 55.1
Net interest income after provision for loan losses 12,892 12,347 4.4 49,892 49,071 1.7
Non-interest income:
Wealth management group fee income 2,076 2,076 0.0 8,316 8,522 (2.4)
Service charges on deposit accounts 1,308 1,249 4.7 5,089 4,886 4.2
Interchange revenue from debit card transactions 992 808 22.8 4,027 3,307 21.8
Net gains on securities transactions 4 81 (95.1) 987 372 165.3
Net gains on sales of loans held for sale 53 55 (3.6) 326 294 10.9
Net gains (losses) on sales of other real estate owned 27 (36) N/M 21 84 (75.0)
Income from bank owned life insurance 18 19 (5.3) 73 75 (2.7)
Other 419 771 (45.7) 2,310 2,907 (20.5)
Total non-interest income 4,897 5,023 (2.5) 21,149 20,447 3.4
Non-interest expense:
Salaries and wages 5,234 5,800 (9.8) 20,954 21,223 (1.3)
Pension and other employee benefits 1,238 1,060 16.8 6,132 5,908 3.8
Net occupancy 1,550 1,698 (8.7) 6,837 7,006 (2.4)
Furniture and equipment 681 715 (4.8) 2,967 2,979 (0.4)
Data processing 1,535 1,722 (10.9) 6,593 6,586 0.1
Professional services 757 404 87.4 2,175 1,293 68.2
Amortization of intangible assets 238 270 (11.9) 986 1,136 (13.2)
Marketing and advertising 229 185 23.8 877 899 (2.4)
Other real estate owned expense 30 425 (92.9) 180 812 (77.8)
FDIC insurance 298 232 28.4 1,193 1,075 11.0
Loan expense 207 166 24.7 669 693 (3.5)
Other 1,564 1,557 0.4 7,047 5,817 21.1
Total non-interest expense 13,561 14,234 (4.7) 56,610 55,427 2.1
Income before income tax expense 4,228 3,136 34.8 14,431 14,091 2.4
Income tax expense 1,274 1,007 26.5 4,404 4,658 (5.5)
Net income $2,954 $2,129 38.8 $10,027 $9,433 6.3
Basic and diluted earnings per share $0.62 $0.45 $2.11 $2.00
Cash dividends declared per share 0.26 0.26 1.04 1.04
Average basic and diluted shares outstanding 4,773 4,731 4,762 4,719
N/M - Not meaningful


Chemung Financial Corporation
Consolidated Financial Highlights (Unaudited)
As of or for the
As of or for the Three Months Ended Twelve Months Ended
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Dec. 31, Dec. 31,
(in thousands, per share data) 2016 2016 2016 2016 2015 2016 2015
RESULTS OF OPERATIONS
Interest income $14,269 $14,025 $13,925 $13,949 $13,896 $56,168 $54,244
Interest expense 973 985 957 924 934 3,839 3,602
Net interest income 13,296 13,040 12,968 13,025 12,962 52,329 50,642
Provision for loan losses 404 1,050 388 595 615 2,437 1,571
Net interest income after provision for loan losses 12,892 11,990 12,580 12,430 12,347 49,892 49,071
Non-interest income 4,897 5,435 5,216 5,601 5,023 21,149 20,447
Non-interest expense 13,561 13,471 15,570 14,008 14,234 56,610 55,427
Income before income tax expense 4,228 3,954 2,226 4,023 3,136 14,431 14,091
Income tax expense 1,274 1,209 605 1,316 1,007 4,404 4,658
Net income $2,954 $2,745 $1,621 $2,707 $2,129 $10,027 $9,433
Basic and diluted earnings per share $0.62 $0.58 $0.34 $0.57 $0.45 $2.11 $2.00
Average basic and diluted shares outstanding 4,773 4,765 4,760 4,750 4,731 4,762 4,719
PERFORMANCE RATIOS
Return on average assets 0.69% 0.65% 0.39% 0.67% 0.52% 0.60% 0.60%
Return on average equity 8.20% 7.55% 4.57% 7.73% 6.05% 7.02% 6.84%
Return on average tangible equity (a) 9.92% 9.14% 5.55% 9.45% 7.42% 8.52% 8.45%
Efficiency ratio (a) (b) 72.63% 71.28% 77.00% 76.89% 77.35% 74.43% 76.18%
Non-interest expense to average assets 3.18% 3.20% 3.75% 3.48% 3.49% 3.40% 3.51%
Loans to deposits 82.42% 80.62% 81.83% 82.75% 83.46% 82.42% 83.46%
YIELDS / RATES - Fully Taxable Equivalent
Yield on loans 4.16% 4.16% 4.17% 4.21% 4.20% 4.18% 4.24%
Yield on investments 1.75% 1.73% 1.81% 2.07% 1.98% 1.83% 1.91%
Yield on interest-earning assets 3.57% 3.58% 3.60% 3.72% 3.66% 3.61% 3.71%
Cost of interest-bearing deposits 0.21% 0.21% 0.21% 0.20% 0.20% 0.21% 0.20%
Cost of borrowings 3.13% 3.15% 3.16% 2.66% 2.99% 3.01% 2.85%
Cost of interest-bearing liabilities 0.35% 0.36% 0.35% 0.35% 0.35% 0.35% 0.35%
Interest rate spread 3.22% 3.22% 3.25% 3.37% 3.31% 3.26% 3.36%
Net interest margin, fully taxable equivalent 3.33% 3.33% 3.36% 3.47% 3.42% 3.37% 3.46%
CAPITAL
Total equity to total assets at end of period 8.67% 8.38% 8.52% 8.58% 8.47% 8.67% 8.47%
Tangible equity to tangible assets at end of period (a) 7.29% 7.03% 7.12% 7.14% 6.99% 7.29% 6.99%
Book value per share $30.07 $30.37 $30.12 $29.64 $28.96 $30.07 $28.96
Tangible book value per share 24.89 25.13 24.81 24.28 23.53 24.89 23.53
Period-end market value per share 36.35 28.99 29.35 26.35 27.50 36.35 27.50
Dividends declared per share 0.26 0.26 0.26 0.26 0.26 1.04 1.04
AVERAGE BALANCES
Loans and loans held for sale (c) $1,210,922 $1,199,367 $1,192,786 $1,175,051 $1,151,469 $1,194,589 $1,141,992
Earning assets 1,607,287 1,577,348 1,573,306 1,527,656 1,522,176 1,571,513 1,477,529
Total assets 1,699,059 1,674,492 1,669,654 1,620,547 1,617,322 1,667,184 1,577,831
Deposits 1,483,348 1,456,622 1,457,173 1,404,487 1,410,017 1,450,520 1,367,717
Total equity 143,388 144,631 142,746 140,864 139,697 142,906 137,891
Tangible equity (a) 118,502 119,504 117,374 115,240 113,812 117,656 111,583
ASSET QUALITY
Net charge-offs $1,476 $393 $247 $328 $377 $2,444 $997
Non-performing loans (d) 12,043 12,903 12,429 12,774 12,232 12,043 12,232
Non-performing assets (e) 12,431 13,270 12,822 14,416 13,762 12,431 13,762
Allowance for loan losses 14,253 15,325 14,668 14,527 14,260 14,253 14,260
Annualized net charge-offs to average loans 0.48% 0.13% 0.08% 0.11% 0.13% 0.20% 0.09%
Non-performing loans to total loans 1.00% 1.06% 1.03% 1.08% 1.05% 1.00% 1.05%
Non-performing assets to total assets 0.75% 0.77% 0.76% 0.88% 0.85% 0.75% 0.85%
Allowance for loan losses to total loans 1.19% 1.26% 1.22% 1.22% 1.22% 1.19% 1.22%
Allowance for loan losses to non-performing loans 118.35% 118.77% 118.01% 113.72% 116.58% 118.35% 116.58%
(a) See the GAAP to Non-GAAP reconciliations.
(b) Efficiency ratio is non-interest expense 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 - December 31, 2016
YTD - December 31, 2015
YTD - Dec. 31, 2016 vs. Dec. 31, 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 $734,628 $31,682 4.31% $657,038 $29,824 4.54% $1,858 $3,421 $(1,563)
Mortgage loans 197,132 7,689 3.90% 198,332 8,063 4.07% (374) (47) (327)
Consumer loans 262,829 10,512 4.00% 286,622 10,516 3.67% (4) (913) 909
Taxable securities 274,401 5,245 1.91% 262,181 4,963 1.89% 282 230 52
Tax-exempt securities 45,127 1,364 3.02% 43,081 1,356 3.15% 8 64 (56)
Interest-bearing deposits 57,396 307 0.53% 30,275 76 0.25% 231 103 128
Total earning assets 1,571,513 56,799 3.61% 1,477,529 54,798 3.71% 2,001 2,858 (857)
Non-earnings assets:
Cash and due from banks 26,708 26,959
Premises and equipment, net 29,525 30,953
Other assets 51,590 53,153
Allowance for loan losses (14,771) (14,103)
AFS valuation allowance 2,619 3,340
Total assets $1,667,184 $1,577,831
Interest-bearing liabilities:
Interest-bearing checking $135,874 $136 0.10% $129,442 $113 0.09% $23 $7 $16
Savings and money market 752,489 1,457 0.19% 671,829 1,214 0.18% 243 167 76
Time deposits 156,737 577 0.37% 182,177 676 0.37% (99) (99) -
FHLB advances and repos 55,472 1,669 3.01% 56,202 1,599 2.85% 70 (21) 91
Total int.-bearing liabilities 1,100,572 3,839 0.35% 1,039,650 3,602 0.35% 237 54 183
Non-interest-bearing liabilities:
Demand deposits 405,420 384,269
Other liabilities 18,286 16,021
Total liabilities 1,524,278 1,439,940
Shareholders' equity 142,906 137,891
Total liabilities and shareholders' equity $1,667,184 $1,577,831
Fully taxable equivalent net interest income 52,960 51,196 $1,764 $2,804 $(1,040)
Net interest rate spread (1) 3.26% 3.36%
Net interest margin, fully taxable equivalent (2) 3.37% 3.46%
Taxable equivalent adjustment (631) (554)
Net interest income $52,329 $50,642
(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 - December 31, 2016
QTD - December 31, 2015
QTD - Dec. 31, 2016 vs. Dec. 31, 2015
Average
Balance

Interest
Yield /
Rate

Average
Balance

Interest
Yield /
Rate

Total
Change

Due to
Volume

Due to
Rate

Earning assets:
Commercial loans $754,893 $8,064 4.25% $677,603 $7,497 4.39% $567 $817 $(250)
Mortgage loans 198,122 1,884 3.78% 197,484 1,992 4.00% (108) 6 (114)
Consumer loans 257,907 2,728 4.21% 276,382 2,704 3.88% 24 (192) 216
Taxable securities 265,626 1,298 1.94% 295,779 1,469 1.97% (171) (149) (22)
Tax-exempt securities 43,052 322 2.98% 48,581 367 3.00% (45) (43) (2)
Interest-bearing deposits 87,687 127 0.58% 26,347 16 0.24% 111 69 42
Total earning assets 1,607,287 14,423 3.57% 1,522,176 14,045 3.66% 378 508 (130)
Non-earnings assets:
Cash and due from banks 26,234 26,764
Premises and equipment, net 29,016 29,830
Other assets 51,162 50,270
Allowance for loan losses (15,302) (14,245)
AFS valuation allowance 662 2,527
Total assets $1,699,059 $1,617,322
Interest-bearing liabilities:
Interest-bearing checking $144,469 $35 0.10% $141,777 $37 0.10% (2) (2) -
Savings and money market 778,343 392 0.20% 707,549 333 0.19% 59 39 20
Time deposits 145,971 136 0.37% 168,796 155 0.36% (19) (23) 4
FHLB advances and repos 52,096 410 3.13% 54,242 409 2.99% 1 (17) 18
Total int.-bearing liabilities 1,120,879 973 0.35% 1,072,364 934 0.35% 39 (3) 42
Non-interest-bearing liabilities:
Demand deposits 414,565 391,895
Other liabilities 20,227 13,366
Total liabilities 1,555,671 1,477,625
Shareholders' equity 143,388 139,697
Total liabilities and shareholders' equity $1,699,059 $1,617,322
Fully taxable equivalent net interest income 13,450 13,111 $339 $511 $(172)
Net interest rate spread (1) 3.22% 3.31%
Net interest margin, fully taxable equivalent (2) 3.33% 3.42%
Taxable equivalent adjustment (154) (149)
Net interest income $13,296 $12,962
(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 Twelve Months Ended
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Dec. 31, Dec. 31,
(in thousands, except per share data) 2016 2016 2016 2016 2015 2016 2015
NET INTEREST MARGIN - FULLY TAXABLE EQUIVALENT
AND EFFICIENCY RATIO
Net interest income (GAAP) $13,296 $13,040 $12,968 $13,025 $12,962 $52,329 $50,642
Fully taxable equivalent adjustment 154 154 159 164 149 631 554
Fully taxable equivalent net interest income (non-GAAP) $13,450 $13,194 $13,127 $13,189 $13,111 $52,960 $51,196
Non-interest income (GAAP) $4,897 $5,435 $5,216 $5,601 $5,023 $21,149 $20,447
Less: net (gains) losses on security transactions (4) (75) - (908) (81) (987) (372)
Adjusted non-interest income (non-GAAP) $4,893 $5,360 $5,216 $4,693 $4,942 $20,162 $20,075
Non-interest expense (GAAP) $13,561 $13,471 $15,570 $14,008 $14,234 $56,610 $55,427
Less: amortization of intangible assets (238) (245) (245) (258) (270) (986) (1,136)
Less: legal reserve - - (1,200) - - (1,200) -
Adjusted non-interest expense (non-GAAP) $13,323 $13,226 $14,125 $13,750 $13,964 $54,424 $54,291
Average interest-earning assets (GAAP) $1,607,287 $1,577,348 $1,573,306 $1,527,656 $1,522,176 $1,571,513 $1,477,529
Net interest margin - fully taxable equivalent (non-GAAP) 3.33% 3.33% 3.36% 3.47% 3.42% 3.37% 3.46%
Efficiency ratio (non-GAAP) 72.63% 71.28% 77.00% 76.89% 77.35% 74.43% 76.18%

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 Twelve Months Ended
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Dec. 31, Dec. 31,
(in thousands, except per share and ratio data) 2016 2016 2016 2016 2015 2016 2015
TANGIBLE EQUITY AND TANGIBLE ASSETS
(PERIOD END)
Total shareholders' equity (GAAP) $143,748 $144,812 $143,409 $141,046 $137,242 $143,748 $137,242
Less: intangible assets (24,769) (25,007) (25,252) (25,497) (25,755) (24,769) (25,755)
Tangible equity (non-GAAP) $118,979 $119,805 $118,157 $115,549 $111,487 $118,979 $111,487
Total assets (GAAP) $1,657,179 $1,728,865 $1,683,932 $1,643,226 $1,619,964 $1,657,179 $1,619,964
Less: intangible assets (24,769) (25,007) (25,252) (25,497) (25,755) (24,769) (25,755)
Tangible assets (non-GAAP) $1,632,410 $1,703,858 $1,658,680 $1,617,729 $1,594,209 $1,632,410 $1,594,209
Total equity to total assets at end of period (GAAP) 8.67% 8.38% 8.52% 8.58% 8.47% 8.67% 8.47%
Book value per share (GAAP) $30.07 $30.37 $30.12 $29.64 $28.96 $30.07 $28.96
Tangible equity to tangible assets at
end of period (non-GAAP) 7.29% 7.03% 7.12% 7.14% 6.99% 7.29% 6.99%
Tangible book value per share (non-GAAP) $24.89 $25.13 $24.81 $24.28 $23.53 $24.89 $23.53

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 Twelve Months Ended
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Dec. 31, Dec. 31,
(in thousands, except ratio data) 2016 2016 2016 2016 2015 2016 2015
TANGIBLE EQUITY (AVERAGE)
Total average shareholders' equity (GAAP) $143,388 $144,631 $142,746 $140,864 $139,697 $142,906 $137,891
Less: average intangible assets (24,886) (25,127) (25,372) (25,624) (25,885) (25,250) (26,308)
Average tangible equity (non-GAAP) $118,502 $119,504 $117,374 $115,240 $113,812 $117,656 $111,583
Return on average equity (GAAP) 8.20% 7.55% 4.57% 7.73% 6.05% 7.02% 6.84%
Return on average tangible equity (non-GAAP) 9.92% 9.14% 5.55% 9.45% 7.42% 8.52% 8.45%

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 Twelve Months Ended
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Dec. 31, Dec. 31,
(in thousands, except per share and ratio data) 2016 2016 2016 2016 2015 2016 2015
NON-GAAP NET INCOME
Reported net income (GAAP) $2,954 $2,745 $1,621 $2,707 $2,129 $10,027 $9,433
Net (gains) losses on security transactions (net of tax) (2) (47) - (565) (50) (614) (230)
Legal reserve - - 747 - - 747 -
Non-GAAP net income $2,952 $2,698 $2,368 $2,142 $2,079 $10,160 $9,203
Average basic and diluted shares outstanding 4,773 4,765 4,760 4,750 4,731 4,762 4,719
Reported basic and diluted earnings per share (GAAP) $0.62 $0.58 $0.34 $0.57 $0.45 $2.11 $2.00
Reported return on average assets (GAAP) 0.69% 0.65% 0.39% 0.67% 0.52% 0.60% 0.60%
Reported return on average equity (GAAP) 8.20% 7.55% 4.57% 7.73% 6.05% 7.02% 6.84%
Core basic and diluted earnings per share (non-GAAP) $0.62 $0.57 $0.50 $0.45 $0.44 $2.13 $1.95
Core return on average assets (non-GAAP) 0.69% 0.64% 0.57% 0.53% 0.51% 0.61% 0.58%
Core return on average equity (non-GAAP) 8.19% 7.42% 6.67% 6.12% 5.90% 7.11% 6.67%

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