Market Overview

Chemung Financial Corporation Reports First Quarter 2018 Net Income of $4.4 Million, or $0.92 per Share

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ELMIRA, N.Y., April 18, 2018 (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 first quarter of 2018 of $4.4 million, or $0.92 per share, compared to $3.0 million, or $0.62 per share, for the first quarter of 2017.

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

"We had a great start to 2018 with strong growth in year-over-year net income, which continues to be driven by our commercial and indirect loan portfolios and improving margins. Due to the seasonality of our commercial and indirect consumer portfolios, we expect to see stronger growth in our loan portfolios during the next two quarters. We remain optimistic about the strength of the economy, however, the environment for deposits and commercial loans remains intensely competitive. We continue to assess our environment to meet the expectations of our clients, while tightly managing our cost of interest-bearing liabilities."

First Quarter Highlights1

  • Net interest income increased $1.4 million, or 10.4%
  • Non-interest income increased $0.6 million, or 13.0%
  • Effective tax rate decreased from 30.0% to 19.3%
  • Loans, net of deferred fees, increased $8.1 million, or 0.6%
  • Commercial loans increased $4.7 million, or 0.6%
  • Deposits increased $50.8 million, or 3.5%
  • Dividends declared during the first quarter of 2018 were $0.26 per share

A more detailed summary of financial performance follows.

1 Balance sheet comparisons are calculated for March 31, 2018 versus December 31, 2017. Income statement comparisons are calculated for the first quarter of 2018 versus first quarter of 2017.

1st Quarter 2018 vs 1st Quarter 2017

Net Interest Income:

Net interest income for the current quarter totaled $14.9 million compared with $13.5 million for the same period in the prior year, an increase of $1.4 million, or 10.4%. Interest and fees from loans increased $1.6 million, while interest from investments, including interest-earning deposits, decreased $0.2 million in the current quarter as compared to the same period in the prior year. Interest expense on borrowed funds increased $0.1 million, while interest expense on securities sold under agreements to repurchase decreased $0.1 million in the first quarter of 2018 when compared to the same period in the prior year. Fully taxable equivalent net interest margin was 3.75% in the first quarter of 2018, compared with 3.45% for the same period in the prior year. Average interest-earning assets increased $18.3 million in the first quarter of 2018, compared to the same period in the prior year. The average yield on interest-earning assets increased 28 basis points, while the average cost of interest-bearing liabilities decreased one basis point in the first quarter of 2018, compared to the same period in the prior year. The increase in the average yield on interest-earning assets can be mostly attributed to a 25 basis points increase in the average yield on commercial loans, due to an increase in PRIME and LIBOR, along with a $0.3 million increase in prepayments penalties during the first quarter of 2018, compared to the same period in the prior year. Additionally, the average yield on investments increased 22 basis points due to the increase in the average yield on interest-earnings assets, compared to the same period in the prior year. The decline in the average cost of interest-bearing liabilities can be attributed to an 81 basis points decline in the cost of borrowings due to the maturity of one $10.0 million repurchase agreement (4.54% rate) in March 2017, one $4.0 million FHLB advance (3.90% rate) in October 2017, and one $2.0 million FHLB term advance (3.05%) in January 2018.

Non-Interest Income:

Non-interest income for the current quarter was $5.5 million compared with $4.8 million for the same period in the prior year, an increase of $0.6 million, or 13.0%. The increase was due primarily to increases of $0.2 million in wealth management group fee income and $0.3 million in other non-interest income. The increase in WMG fee income can be attributed to an increase in assets under management or administration. The increase in other non-interest income can be mostly attributed to a $0.4 million New York State sales tax refund received during the first quarter of 2018.

Non-Interest Expense:

Non-interest expense for the current quarter was $14.2 million compared with $13.0 million for the same period in the prior year, an increase of $1.1 million, or 8.6%. The increase was due primarily to increases of $0.4 million in salaries and wages, $0.1 million in data processing expenses, $0.2 million in professional services, $0.1 million in marketing and advertising expenses, and $0.1 million in other real estate owned expenses. The increase in salaries and wages can be attributed to an increase in the number of employees, compared to the prior year, and annual merit increases. The Bank opened one denovo branch in Schenectady, New York in January 2018. The increase in professional services can be mostly attributed to consulting costs associated with the New York State sales tax refund noted above within the Non-Interest Income section. The increase in data processing and marketing and advertising can be attributed to the timing of projects. The increase in other real estate owned expenses can be attributed to additional OREO properties, compared to the prior year.

Income Tax Expense:

Income tax expense for the quarter was $1.1 million compared with $1.3 million for the same period in the prior year, a decrease of $0.2 million, or 16.9%. The decrease was due primarily to the decline in the Federal income tax rate from 34% to 21%, with the enactment of the Tax Cuts and Jobs Act of 2017. Additionally, the Corporation increased income generated from CCTC Funding Corp., a real estate investment trust subsidiary of the Bank, reducing the Corporation's state income tax. Partially offsetting these tax benefits was higher income before income tax expense for the quarter, when compare to the same period in the prior year.

Asset Quality

Non-performing loans totaled $17.3 million at March 31, 2018, or 1.31% of total loans, compared with $17.3 million at December 31, 2017, or 1.32% of total loans. Non-performing assets, which are comprised of non-performing loans and other real estate owned, were $19.1 million, or 1.12% of total assets, at March 31, 2018, compared with $19.3 million, or 1.13% of total assets, at December 31, 2017.

Management performs an ongoing assessment of the adequacy of the allowance for loan losses based upon a number of factors including an analysis of historical loss factors, collateral evaluations, recent charge-off experience, credit quality of the loan portfolio, current economic conditions and loan growth. Based on this analysis, the provision for loan losses for the first quarter of 2018 was $0.7 million, a decrease of $0.3 million compared with the same period in the prior year. The decline in the provision can be attributed to a decline in specific impairments and slower growth in the loan portfolio compared to the same period in the prior year. Net charge-offs for the first quarter of 2018 were $0.5 million, compared with $0.3 million for the first quarter of 2017. 

The allowance for loan losses was $21.4 million as of March 31, 2018 and $21.2 million as of December 31, 2017. The allowance for loan losses was 123.78% of non-performing loans at March 31, 2018 compared with 122.15% at December 31, 2017. The ratio of the allowance for loan losses to total loans was 1.62% at March 31, 2018 compared with 1.61% at December 31, 2017.

Balance Sheet Activity

Assets totaled $1.700 billion at March 31, 2018 compared with $1.708 billion at December 31, 2017, a decrease of $7.7 million, or 0.4%. The decline was due primarily to decreases of $14.1 million in securities available for sale and $2.7 million in FHLB stock, offset by increases of $8.1 million in loans and $2.4 million in accrued interest receivable and other assets. 

The decrease in securities available for sale can be mostly attributed to pay-downs, maturities, and an increase in unrealized losses. The decrease in FHLB stock can be attributed to the pay-down of the FHLB overnight advances. The increase in total loans can be attributed to increases of $3.0 million in commercial mortgages, $1.7 million in commercial and agriculture loans, $0.2 million in residential mortgages, and $3.9 million in indirect consumer loans, offset by a decrease of $0.7 million in other consumer loans. The increase in accrued interest receivable and other assets can be mostly attributed to the fair market value adjustment to interest rate swaps of $0.9 million at March 31, 2018.

Deposits totaled $1.518 billion at March 31, 2018 compared with $1.467 billion at December 31, 2017, an increase of $50.8 million, or 3.5%. The growth was attributable to increases of $60.3 million in money market accounts and $4.0 million in savings deposits, offset by decreases of $7.3 million in non-interest-bearing demand deposits, $4.3 million in interest-bearing demand deposits, and $1.9 million in time deposits. The increase in money market accounts can be attributed to the seasonal inflow of deposits from existing municipal clients. FHLB advances and other debt totaled $4.5 million at March 31, 2018 compared with $64.2 million at December 31, 2017, a decrease of $59.8 million, or 93.0%. The decline can be attributed to the pay-down of FHLB overnight advances due to the increase in deposits.

Total shareholders' equity was $150.3 million at March 31, 2018 compared with $149.8 million at December 31, 2017, an increase of $0.4 million, or 0.3%. The increase in retained earnings of $3.2 million was due primarily to earnings of $4.4 million, offset by $1.2 million in dividends declared during the first quarter of 2018. The increase in accumulated other comprehensive loss of $3.5 million can be attributed to the decline in the fair market value of the securities portfolio. Also, additional-paid-in capital increased $0.4 million and treasury stock decreased $0.3 million, due to the issuance of shares to the Corporation's employee benefit stock plans.

The total equity to total assets ratio was 8.84% at March 31, 2018 compared with 8.77% at December 31, 2017. The tangible equity to tangible assets ratio was 7.55% at March 31, 2018 compared with 7.48% at December 31, 2017. Book value per share increased to $31.16 at March 31, 2018 from $31.10 at December 31, 2017. As of March 31, 2018, the Bank's capital ratios were in excess of those required to be considered well-capitalized under the regulatory framework for prompt corrective action and the Corporation met all capital adequacy requirements to which it is subject.

Other Items

The market value of total assets under management or administration in our Wealth Management Group was $1.957 billion at March 31, 2018, including $361.6 million of assets under management or administration for the Corporation, compared to $1.952 billion at December 31, 2017, including $346.8 million of assets under management or administration for the Corporation, an increase of $5.0 million, or 0.3%.

About Chemung Financial Corporation

Chemung Financial Corporation is a $1.7 billion financial services holding company headquartered in Elmira, New York and operates 34 retail offices through its principal subsidiary, Chemung Canal Trust Company, a full service community bank with trust powers. Established in 1833, Chemung Canal Trust Company is the oldest locally-owned and managed community bank in New York State. Chemung Financial Corporation is also the parent of CFS Group, Inc., a financial services subsidiary offering non-traditional services including mutual funds, annuities, brokerage services, tax preparation services and insurance, 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)  
    March 31,   Dec. 31,   Sept. 30,   June 30,   March 31,
(in thousands)     2018       2017       2017       2017       2017  
ASSETS                    
Cash and due from financial institutions   $ 25,473     $ 27,966     $ 34,572     $ 26,684     $ 26,275  
Interest-earning deposits in other financial institutions     5,531       2,763       21,806       37,862       99,410  
Total cash and cash equivalents     31,004       30,729       56,378       64,546       125,685  
                     
Equity investments     2,154       2,337       2,248       2,207       2,150  
                     
Securities available for sale     278,984       293,091       311,700       323,777       302,074  
Securities held to maturity     3,640       3,781       3,865       4,928       3,721  
FHLB and FRB stocks, at cost     3,097       5,784       3,497
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