Market Overview

Chemung Financial Corporation Reports Second Quarter 2018 Net Income of $2.5 Million, or $0.52 per Share

Share:

ELMIRA, N.Y., July 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 second quarter of 2018 of $2.5 million, or $0.52 per share, compared to $3.0 million, or $0.62 per share, for the second quarter of 2017.

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

"The second quarter included two significant events, one was the settlement of an ongoing legal proceeding regarding a lease in Ithaca, NY, which led to an additional $1.0 million in expense for the quarter.  The second event related to the charge-off of multiple commercial loans to a long-term customer of the Bank, which impacted the Bank's provision for loan losses.  Due to the $3.6 million charge-off, the Bank's historical loss factors increased, leading to an additional $1.6 million in expense for the quarter, specifically for the charge-off of this one relationship.  While the finalization of these events negatively impacted our earnings this quarter, it allows us to put these items behind us and focus on the future.

The environment for deposits and commercial loans continues to be competitive.  We are managing balance sheet growth, while continuing our focus on balancing liquidity needs with the cost of interest-bearing liabilities, ever mindful of the overall impact to our net interest margin."

Second Quarter Highlights1

  • Net interest income increased $1.1 million, or 7.6%
  • Non-interest income increased $0.3 million, or 6.0%
  • Effective tax rate decreased from 29.9% to 16.1%
  • Loans, net of deferred fees, increased $22.6 million, or 1.7%
  • Commercial loans increased $16.9 million, or 2.0%
  • Deposits increased $11.5 million, or 0.8%
  • Dividends declared during the second quarter of 2018 were $0.26 per share

A more detailed summary of financial performance follows.

1 Balance sheet comparisons are calculated for June 30, 2018 versus December 31, 2017.   Income statement comparisons are calculated for the second quarter of 2018 versus second quarter of 2017.

2nd Quarter 2018 vs 2nd Quarter 2017

Net Interest Income:

Net interest income for the current quarter totaled $15.0 million compared with $14.0 million for the same period in the prior year, an increase of $1.0 million, or 7.6%.  Interest and fees from loans increased $1.5 million, while interest from investments, including interest-earning deposits, decreased $0.3 million in the second quarter of 2018 as compared to the same period in the prior year.  Interest expense on deposits and borrowed funds both increased $0.1 million, while interest expense on securities sold under agreements to repurchase decreased $0.1 million in the second quarter of 2018 when compared to the same period in the prior year.  Fully taxable equivalent net interest margin was 3.73% in the second quarter of 2018, compared with 3.47% for the same period in the prior year.  Average interest-earning assets decreased $9.4 million in the second quarter of 2018, compared to the same period in the prior year.  The average yield on interest-earning assets increased 29 basis points, while the average cost of interest-bearing liabilities increased six basis points in the second 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 23 basis points increase in the average yield on commercial loans, due to an increase in PRIME and LIBOR, and a $75.9 million increase in the average balance of commercial loans, compared to the same period in the prior year.  The increase in the average cost of interest-bearing liabilities can be attributed to a 14 basis points increase in time deposits and a $14.2 million increase in the average balance of FHLB advances and repos, offset by a 41 basis points decline in the average cost of FHLB advances and repos due to the maturity of one $4.0 million FHLB advance (3.90% rate) in October 2017, one $2.0 million FHLB term advance (3.05%) in January 2018, and one $10.0 million repurchase agreement (3.72% rate) in May 2018.

Non-Interest Income:

Non-interest income for the current quarter was $5.3 million compared with $5.0 million for the same period in the prior year, an increase of $0.3 million, or 6.0%.  The increase was due primarily to increases of $0.1 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 an increase in swap fee income and rent income from other real estate owned.

Non-Interest Expense:

Non-interest expense for the current quarter was $15.0 million compared with $14.3 million for the same period in the prior year, an increase of $0.7 million, or 4.4%.  The increase was due primarily to increases of $0.1 million in salaries and wages, $0.2 million in data processing expenses, $0.1 million in legal accruals and settlements, $0.1 million in marketing and advertising expenses, $0.1 million in other real estate owned expenses, and $0.1 million in other non-interest expenses.   The increase in salaries and wages can be attributed to annual merit increases and an increase in headcount associated with two denovo branches opened in 2018.  The Bank opened one denovo branch in Schenectady, New York in January 2018 and one denovo branch in Wilton, New York in May 2018.  The increase in data processing can be attributed to the timing of projects and the addition of two new denovo branches in 2018. The increase in legal accruals and settlements can be attributed to the settlement agreement in the matter of Fane vs. Chemung Canal Trust Company (the "Action") during the second quarter of 2018.  As noted within the Current Report on Form 8-K filed on June 15, 2018, the two parties agreed to release each other from any and all liabilities, claims, counterclaims, demands, charges, complaints and causes of action, to dismiss the Action with prejudice, and the Bank agreed to pay Fane $3.3 million in connection with the settlement of the Action.   The increase in marketing and advertising expense can be attributed to the promotion of two new denovo branches in 2018 and the timing of campaigns and sponsored events.  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 $0.5 million compared with $1.3 million for the same period in the prior year, a decrease of $0.8 million, or 61.5%.  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.  Finally, the Corporation recognized a $1.2 million decline in income before income tax expense for the quarter, when compared to the same period in the prior year.

2nd Quarter 2018 vs 1st Quarter 2018

Net Interest Income:

Net interest income for the current quarter totaled $15.0 million compared with $14.9 million for the prior quarter, an increase of $0.1 million, or 0.8%.  Interest and fees from loans increased $0.3 million, while interest from investments, including interest-earning deposits, decreased $0.1 million in the second quarter of 2018 as compared to the prior quarter.  Interest expense on deposits increased $0.1 million in the second quarter of 2018 when compared to prior quarter.  Fully taxable equivalent net interest margin was 3.73% in the second quarter of 2018, compared with 3.75% for the prior quarter.  Average interest-earning assets increased $1.8 million in the second quarter of 2018, compared to the prior quarter.  The average yield on interest-earning assets was flat, while the average cost of interest-bearing liabilities increased three basis points in the second quarter of 2018, compared to the prior quarter.  The average yield on interest-earning assets was flat due to $0.3 million in prepayment penalties during the first quarter of 2018, offset by an increase in PRIME and LIBOR during the second quarter of 2018.  The increase in the average cost of interest-bearing liabilities can be attributed to an 18 basis points increase in the average cost of borrowings due to an increase in the FHLB overnight borrowing rate for the second quarter of 2018, compared to the prior quarter.

Non-Interest Income:

Non-interest income for the current quarter was $5.3 million compared with $5.5 million for the prior quarter, a decrease of $0.2 million, or 2.8%.  The decrease was due primarily to net losses on sales of other real estate owned and a decline in other non-interest income.  The decrease 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, offset by an increase in swap fees and rent income from other real estate owned during the second quarter of 2018.

Non-Interest Expense:

Non-interest expense for the current quarter was $15.0 million compared with $14.2 million for the prior quarter, an increase of $0.8 million, or 5.7%.  The increase was due primarily to increases of $1.0 million in legal accruals and settlements and $0.2 million in other non-interest expenses, partially offset by decreases of $0.2 million in salaries and wages, $0.1 million in pension and other employee benefits, and $0.1 million in marketing and advertising expenses.  The increase in legal accruals and settlements can be attributed to the settlement agreement in the matter of Fane vs. Chemung Canal Trust Company (the "Action") during the second quarter of 2018.  As noted within the Current Report on Form 8-K filed on June 15, 2018, the two parties agreed to release each other from any and all liabilities, claims, counterclaims, demands, charges, complaints and causes of action, to dismiss the Action with prejudice, and the Bank agreed to pay Fane $3.3 million in connection with the settlement of the Action. The Bank had previously reserved $2.3 million for the matter and therefore recognized an additional $1.0 million in legal accruals and settlements during the second quarter of 2018. The decrease in salaries and wages can be attributed to the reduction of merit rewards for the current quarter, compared to the prior quarter, and an acceleration of restricted stock awards during the prior quarter.  The decrease in pension and other employee benefits can be attributed to a decline in healthcare costs in the current quarter, when compared to the prior quarter.  The decrease in marketing and advertising can be attributed to the promotion of two new denovo branches in 2018 and timing of promotions and sponsored events.

Income Tax Expense:

Income tax expense for the quarter was $0.5 million compared with $1.1 million for the prior quarter, a decrease of $0.6 million, or 54.2%.  The decrease was due primarily to a $2.5 million decline in income before income tax expense for the second quarter of 2018, when compared to the prior quarter.

Asset Quality

Non-performing loans totaled $12.8 million at June 30, 2018, or 0.96% 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 $13.7 million, or 0.80% of total assets, at June 30, 2018, compared with $19.3 million, or 1.13% of total assets, at December 31, 2017. The decline in non-performing loans can be mostly attributed to the charge-off of multiple large commercial loans to one borrower for $3.6 million during the second quarter of 2018.  The decline in non-performing assets can be mostly attributed to the charge-off of multiple large commercial loans to one borrower for $3.6 million and the sale of one other real estate owned property during the second quarter of 2018.

Management performs an ongoing assessment of the adequacy of the allowance for loan losses based upon a number of factors including an analysis of historical loss factors, collateral evaluations, recent charge-off experience, credit quality of the loan portfolio, current economic conditions and loan growth.  Based on this analysis, the provision for loan losses for the second quarter of 2018 was $2.4 million, an increase of $1.9 million compared with the same period in the prior year.  The increase in the provision can be mostly attributed to an increase in the historical loss factor of the commercial and industrial loan portfolio, due to the charge-off of multiple large commercial loans to one borrower for $3.6 million during the second quarter of 2018.  Net charge-offs for the second quarter of 2018 were $4.1 million, compared with $0.3 million for the second quarter of 2017. 

The allowance for loan losses was $19.6 million at June 30, 2018 compared with $21.2 million at December 31, 2017.  The allowance for loan losses was 153.60% of non-performing loans at June 30, 2018 compared with 122.15% at December 31, 2017.  The ratio of the allowance for loan losses to total loans was 1.47% at June 30, 2018 compared with 1.61% at December 31, 2017.

Balance Sheet Activity

Total assets totaled $1.710 billion at June 30, 2018 compared with $1.708 billion at December 31, 2017, an increase of $2.5 million, or 0.1%.  The increase can be mostly attributed to increases of $4.1 million in cash and cash equivalents, $24.2 million in loans, net, and $3.2 million in accrued interest receivable and other assets, offset by a decrease of $27.9 million in securities available for sale.

The increase in cash and equivalents was due to changes in securities, loans, deposits, and borrowings.  The increase in total loans can be mostly attributed to increases of $21.7 million in commercial mortgages and $9.8 million in indirect consumer loans, partially offset by decreases of $4.9 million in commercial and agriculture loans, $1.0 million in residential mortgages, and $3.0 million in other consumer loans.  The increase in accrued interest receivable and other assets can be mostly attributed to the fair market adjustment to interest rate swaps for the year ($1.3 million) and increases in operating prepaid assets and the net deferred tax asset.  The decrease in securities available for sale can be mostly attributed to pay-downs, maturities, and an increase in unrealized losses.

Total liabilities totaled $1.558 billion at June 30, 2018, flat as compared to December 31, 2017.  Deposits totaled $1.479 billion at June 30, 2018 compared with $1.467 billion at December 31, 2017, an increase of $11.5 million, or 0.8%.  The growth was attributable to increases of $8.6 million in money market accounts, $3.7 million in savings accounts, and $27.7 million in time deposits, due to a rate promotion, offset by decreases of $5.4 million in non-interest bearing demand deposit accounts and $23.2 million in interest-bearing demand deposit accounts.  FHLB advances and other debt totaled $63.4 million at June 30, 2018 compared with $64.2 million at December 31, 2017, a decrease of $0.8 million, or 1.3%.  The decline in FHLB advances can be attributed to an increase in deposits and decline in securities, offset by growth in the loan portfolio.

Total shareholders' equity was $151.8 million at June 30, 2018 compared with $149.8 million at December 31, 2017, an increase of $2.0 million, or 1.3%.  The increase in retained earnings of $4.5 million was due primarily to earnings of $7.0 million, offset by $2.5 million in dividends declared during the first half of 2018.  The increase in accumulated other comprehensive loss of $3.8 million can be attributed to the decline in the fair market value of the securities portfolio.   Also, additional-paid-in capital decreased $0.1 million and treasury stock decreased $1.3 million, due to the issuance of shares to the Corporation's employee benefit stock plans.

The total equity to total assets ratio was 8.88% at June 30, 2018 compared with 8.77% at December 31, 2017.  The tangible equity to tangible assets ratio was 7.60% at June 30, 2018 compared with 7.48% at December 31, 2017.  Book value per share increased to $31.42 at June 30, 2018 from $31.10 at December 31, 2017.  As of June 30, 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 $1.894 billion at June 30, 2018, including $289.7 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, a decrease of $57.6 million, or 3.0%.  The decline in total assets under management or administration can be mostly attributed to a decrease in the Corporation's pledged securities portfolio for municipal deposits, which is held by its Wealth Management Group.

About Chemung Financial Corporation

Chemung Financial Corporation is a $1.7 billion financial services holding company headquartered in Elmira, New York and operates 35 retail offices through its principal subsidiary, Chemung Canal Trust Company, a full service community bank with trust powers.  Established in 1833, Chemung Canal Trust Company is the oldest locally-owned and managed community bank in New York State.  Chemung Financial Corporation is also the parent of CFS Group, Inc., a financial services subsidiary offering non-traditional services including mutual funds, annuities, brokerage services, tax preparation services and insurance, and Chemung Risk Management, Inc., a captive insurance company based in the State of Nevada.

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

                       
Chemung Financial Corporation                    
Consolidated Balance Sheets (Unaudited)  
   
    June 30,   March 31,   Dec. 31,   Sept. 30,   June 30,  
(in thousands)     2018       2018       2017       2017       2017    
ASSETS                      
Cash and due from financial institutions   $ 30,837     $ 25,473     $ 27,966     $ 34,572     $ 26,684    
Interest-earning deposits in other financial institutions     3,978       5,531       2,763       21,806       37,862    
Total cash and cash equivalents     34,815       31,004       30,729       56,378       64,546    
                       
Equity investments    <
View Comments and Join the Discussion!
 
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com