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

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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     2,112       2,154       2,337       2,248       2,207    
                       
Securities available for sale     265,157       278,984       293,091       311,700       323,777    
Securities held to maturity     3,806       3,640       3,781       3,865       4,928    
FHLB and FRB stocks, at cost     5,816       3,097       5,784       3,497       3,764    
Total investment securities     274,779       285,721       302,656       319,062       332,469    
                       
Commercial     860,209       848,075       843,337       826,554       794,175    
Mortgage     193,423       194,600       194,440       197,210       200,629    
Consumer     280,812       277,236       274,047       265,049       257,843    
Loans, net of deferred loan fees     1,334,444       1,319,911       1,311,824       1,288,813       1,252,647    
Allowance for loan losses     (19,645 )     (21,390 )     (21,161 )     (15,694 )     (15,104 )  
Loans, net     1,314,799       1,298,521       1,290,663       1,273,119       1,237,543    
                       
Loans held for sale     684       190       542       1,246       386    
Premises and equipment, net     26,049       26,136       26,657       27,366       27,836    
Goodwill     21,824       21,824       21,824       21,824       21,824    
Other intangible assets, net     1,709       1,891       2,085       2,292       2,506    
Accrued interest receivable and other assets     33,395       32,513       30,127       28,147       29,255    
Total assets   $ 1,710,166     $ 1,699,954     $ 1,707,620     $ 1,731,682     $ 1,718,572    
                       
LIABILITIES AND SHAREHOLDERS' EQUITY                      
Deposits:                      
Non-interest-bearing demand deposits   $ 462,233     $ 460,271     $ 467,610     $ 449,841     $ 436,017    
Interest-bearing demand deposits     125,867       144,707       149,026       156,094       144,239    
Money market accounts     522,328       574,075       513,782       586,795       591,751    
Savings deposits     222,387       222,700       218,666       218,106       220,227    
Time deposits     146,094       116,447       118,362       126,182       132,803    
Total deposits     1,478,909       1,518,200       1,467,446       1,537,018       1,525,037    
                       
Securities sold under agreements to repurchase     -       10,000       10,000       10,000       11,937    
FHLB advances and other debt     63,361       4,464       64,217       13,577       13,658    
Accrued interest payable and other liabilities     16,116       17,028       16,144       16,810       15,978    
Total liabilities     1,558,386       1,549,692       1,557,807       1,577,405       1,566,610    
                       
Shareholders' equity                      
Common stock     53       53       53       53       53    
Additional-paid-in capital     45,873       46,404       45,967       46,089       45,966    
Retained earnings     132,973       131,694       128,453       130,006       127,585    
Treasury stock, at cost     (12,998 )     (14,053 )     (14,320 )     (14,596 )     (14,670 )  
Accumulated other comprehensive (loss)     (14,121 )     (13,836 )     (10,340 )     (7,275 )     (6,972 )  
Total shareholders' equity     151,780       150,262       149,813       154,277       151,962    
Total liabilities and shareholders' equity   $ 1,710,166     $ 1,699,954     $ 1,707,620     $ 1,731,682     $ 1,718,572    
                       
Period-end shares outstanding     4,831       4,824       4,817       4,804       4,799    
                       


                           
Chemung Financial Corporation                        
Consolidated Statements of Income (Unaudited)  
   
    Three Months Ended       Six Months Ended      
    June 30,   Percent   June 30,   Percent  
(in thousands, except per share data)     2018       2017     Change     2018       2017     Change  
Interest and dividend income:                          
Loans, including fees   $ 14,300     $ 12,817     11.6     $ 28,350     $ 25,316     12.0    
Taxable securities     1,264       1,398     (9.6 )     2,553       2,820     (9.5 )  
Tax exempt securities     295       276     6.9       603       514     17.3    
Interest-earning deposits     10       193     (94.8 )     32       348     (90.8 )  
Total interest and dividend income     15,869       14,684     8.1       31,538       28,998     8.8    
                         
Interest expense:                          
Deposits     608       549     10.7       1,109       1,087     2.0    
Securities sold under agreements to repurchase     44       95     (53.7 )     137       288     (52.4 )  
Borrowed funds     200       90     122.2       375       179     109.5    
Total interest expense     852       734     16.1       1,621       1,554     4.3    
                         
Net interest income     15,017       13,950     7.6       29,917       27,444     9.0    
Provision for loan losses     2,362       421     461.0       3,071       1,461     110.2    
Net interest income after provision for loan losses     12,655       13,529     (6.5 )     26,846       25,983     3.3    
                         
Non-interest income:                          
Wealth management group fee income     2,373       2,269     4.6       4,689       4,378     7.1    
Service charges on deposit accounts     1,144       1,225     (6.6 )     2,308       2,409     (4.2 )  
Interchange revenue from debit card transactions     996       964     3.3       2,031       1,884     7.8    
Net gains on securities transactions     -       12     (100.0 )     -       12     (100.0 )  
Net gains on sales of loans held for sale     59       53     11.3       105       122     (13.9 )  
Net gains (losses) on sales of other real estate owned     (48 )     (9 )   433.3       (4 )     8     (150.0 )  
Income from bank owned life insurance     17       18     (5.6 )     33       35     (5.7 )  
Other     784       490     60.0       1,638       1,021     60.4    
Total non-interest income     5,325       5,022     6.0       10,800       9,869     9.4    
                           
Non-interest expense:                          
Salaries and wages     5,564       5,422     2.6       11,278       10,697     5.4    
Pension and other employee benefits     1,518       1,540     (1.4 )     3,176       3,091     2.7    
Other components of net periodic pension and postretirement benefits     (408 )     (333 )   22.5       (816 )     (666 )   22.5    
Net occupancy     1,643       1,702     (3.5 )     3,251       3,308     (1.7 )  
Furniture and equipment     702       781     (10.1 )     1,360       1,462     (7.0 )  
Data processing     1,764       1,587     11.2       3,506       3,191     9.9    
Professional services     508       417     21.8       1,048       717     46.2    
Legal accruals and settlements     989       850     16.4       989       850     16.4    
Amortization of intangible assets     182       213     (14.6 )     376       439     (14.4 )  
Marketing and advertising     255       118     116.1       604       367     64.6    
Other real estate owned expense     100       11     809.1       238       31     667.7    
FDIC insurance     301       309     (2.6 )     618       634     (2.5 )  
Loan expense     184       166     10.8       353       282     25.2    
Other     1,665       1,549     7.5       3,152       2,974     6.0    
Total non-interest expense     14,967       14,332     4.4       29,133       27,377     6.4    
                           
Income before income tax expense     3,013       4,219     (28.6 )     8,513       8,475     0.4    
Income tax expense     486       1,263     (61.5 )     1,547       2,540     (39.1 )  
Net income   $ 2,527     $ 2,956     (14.5 )   $ 6,966     $ 5,935     17.4    
                           
Basic and diluted earnings per share   $ 0.52     $ 0.62         $ 1.44     $ 1.24        
Cash dividends declared per share     0.26       0.26           0.52       0.52        
Average basic and diluted shares outstanding     4,828       4,797           4,825       4,793        
                           
N/M - Not meaningful                          
                           
                           


       
Chemung Financial Corporation
Consolidated Financial Highlights (Unaudited)
                        As of or for the
    As of or for the Three Months Ended   Six Months Ended
    June 30,   March 31,   Dec. 31,   Sept. 30,   June 30,   June 30,   June 30,
(in thousands, per share data)     2018       2018       2017       2017       2017       2018       2017  
RESULTS OF OPERATIONS                      
Interest income   $ 15,869     $ 15,669     $ 15,560     $ 15,497     $ 14,684     $ 31,538     $ 28,998  
Interest expense     852       769       780       734       734       1,621       1,554  
Net interest income     15,017       14,900       14,780       14,763       13,950       29,917       27,444  
Provision for loan losses     2,362       709       6,272       1,289       421       3,071       1,461  
Net interest income after provision for loan losses     12,655       14,191       8,508       13,474       13,529       26,846       25,983  
Non-interest income     5,325       5,475       5,456       5,166       5,022       10,800       9,869  
Non-interest expense     14,967       14,166       13,111       13,276       14,332       29,133       27,377  
Income before income tax expense     3,013       5,500       853       5,364       4,219       8,513       8,475  
Income tax expense     486       1,061       3,012       1,710       1,263       1,547       2,540  
Net income (loss)   $ 2,527     $ 4,439     $ (2,159 )   $ 3,654     $ 2,956     $ 6,966     $ 5,935  
                             
Basic and diluted earnings per share   $ 0.52     $ 0.92     $ (0.45 )   $ 0.76     $ 0.62     $ 1.44     $ 1.24  
Average basic and diluted shares outstanding     4,828       4,822       4,809       4,802       4,797       4,825       4,793  
                             
PERFORMANCE RATIOS                            
Return on average assets     0.59 %     1.06 %     (0.50 )%     0.85 %     0.69 %     0.82 %     0.70 %
Return on average equity     6.70 %     11.96 %     (5.53 )%     9.46 %     7.90 %     9.31 %     8.06 %
Return on average tangible equity (a)     7.94 %     14.21 %     (6.55 )%     11.24 %     9.43 %     11.05 %     9.66 %
Efficiency ratio (a) (b)     67.47 %     68.21 %     63.43 %     64.83 %     69.28 %     67.84 %     69.27 %
Non-interest expense to average assets     3.52 %     3.37 %     3.01 %     3.09 %     3.34 %     3.45 %     3.23 %
Loans to deposits     90.23 %     86.94 %     89.40 %     83.85 %     82.14 %     90.23 %     82.14 %
                             
YIELDS / RATES - Fully Taxable Equivalent                            
Yield on loans     4.33 %     4.34 %     4.26 %     4.34 %     4.18 %     4.34 %     4.18 %
Yield on investments     2.21 %     2.22 %     2.15 %     2.16 %     2.01 %     2.22 %     2.01 %
Yield on interest-earning assets     3.94 %     3.94 %     3.82 %     3.86 %     3.65 %     3.94 %     3.65 %
Cost of interest-bearing deposits     0.24 %     0.20 %     0.20 %     0.20 %     0.20 %     0.22 %     0.20 %
Cost of borrowings     2.41 %     2.23 %     2.42 %     2.95 %     2.82 %     2.31 %     2.94 %
Cost of interest-bearing liabilities     0.32 %     0.29 %     0.28 %     0.27 %     0.26 %     0.30 %     0.28 %
Interest rate spread     3.62 %     3.65 %     3.54 %     3.59 %     3.39 %     3.64 %     3.37 %
Net interest margin, fully taxable equivalent     3.73 %     3.75 %     3.63 %     3.68 %     3.47 %     3.74 %     3.46 %
                             
CAPITAL                            
Total equity to total assets at end of period     8.88 %     8.84 %     8.77 %     8.91 %     8.84 %     8.88 %     8.84 %
Tangible equity to tangible assets at end of period (a)     7.60 %     7.55 %     7.48 %     7.62 %     7.53 %     7.60 %     7.53 %
                             
Book value per share   $ 31.42     $ 31.16     $ 31.10     $ 32.11     $ 31.67     $ 31.42     $ 31.67  
Tangible book value per share (a)     26.55       26.24       26.14       27.09       26.60       26.55       26.60  
Period-end market value per share     50.11       46.47       48.10       47.10       40.88       50.11       40.88  
Dividends declared per share     0.26       0.26       0.26       0.26       0.26       0.52       0.52  
                             
AVERAGE BALANCES                            
Loans and loans held for sale (c)   $ 1,328,386     $ 1,315,207     $ 1,291,414     $ 1,259,919     $ 1,237,189     $ 1,321,834     $ 1,226,377  
Interest earning assets     1,625,591       1,623,748       1,639,257       1,615,833       1,634,955       1,624,676       1,620,290  
Total assets     1,703,722       1,703,047       1,727,616       1,707,111       1,723,664       1,703,386       1,709,014  
Deposits     1,495,410       1,488,708       1,516,390       1,512,685       1,532,819       1,492,076       1,514,374  
Total equity     151,216       150,495       154,767       153,244       150,155       150,857       148,408  
Tangible equity (a)     127,591       126,665       130,759       129,024       125,720       127,130       123,864  
                             
ASSET QUALITY                            
Net charge-offs   $ 4,107     $ 480     $ 805     $ 699     $ 277     $ 4,587     $ 610  
Non-performing loans (d)     12,790       17,280       17,324       14,028       15,208       12,790       15,208  
Non-performing assets (e)     13,676       19,113       19,264       14,216       15,545       13,676       15,545  
Allowance for loan losses     19,645       21,390       21,161       15,694       15,104       19,645       15,104  
                             
Annualized net charge-offs to average loans     1.24 %     0.15 %     0.25 %     0.22 %     0.09 %     0.70 %     0.10 %
Non-performing loans to total loans     0.96 %     1.31 %     1.32 %     1.09 %     1.21 %     0.96 %     1.21 %
Non-performing assets to total assets     0.80 %     1.12 %     1.13 %     0.82 %     0.90 %     0.80 %     0.90 %
Allowance for loan losses to total loans     1.47 %     1.62 %     1.61 %     1.22 %     1.21 %     1.47 %     1.21 %
Allowance for loan losses to non-performing loans     153.60 %     123.78 %     122.15 %     111.88 %     99.32 %     153.60 %     99.32 %
                             
(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.
(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)        
                                     
    Three Months Ended
 June 30, 2018
  Three Months Ended
 June 30, 2017
  Three Months Ended
June 30, 2018 vs. 2017
(in thousands)   Average
Balance
  Interest   Yield /
Rate
  Average
Balance
  Interest   Yield /
Rate
  Total
Change
   Due to
Volume
   Due to
Rate
Interest earning assets:                                    
Commercial loans   $ 855,121     $ 9,663     4.53 %   $ 779,218     $ 8,357     4.30 %   $ 1,306     $ 843     $ 463  
Mortgage loans     194,244       1,800     3.72 %     201,093       1,867     3.72 %     (67 )     (67 )     -  
Consumer loans     279,021       2,873     4.13 %     256,878       2,658     4.15 %     215       228       (13 )
Taxable securities     240,800       1,266     2.11 %     275,275       1,400     2.04 %     (134 )     (180 )     46  
Tax-exempt securities     52,527       363     2.77 %     51,027       401     3.15 %     (38 )     12       (50 )
Interest-earning deposits     3,878       10     1.03 %     71,464       193     1.08 %     (183 )     (174 )     (9 )
Total interest earning assets     1,625,591       15,975     3.94 %     1,634,955       14,876     3.65 %     1,099       662       437  
                                     
Non- interest earnings assets:                                    
Cash and due from banks     27,130               24,446                      
Premises and equipment, net     26,287               28,205                      
Other assets     56,002               54,033                      
Allowance for loan losses     (21,218 )             (15,060 )                    
AFS valuation allowance     (10,070 )             (2,915 )                    
Total assets   $ 1,703,722             $ 1,723,664                      
                                     
Interest-bearing liabilities:                                    
Interest-bearing checking   $ 131,863     $ 28     0.09 %   $ 142,892     $ 33     0.09 %     (5 )     (5 )     -  
Savings and money market     774,020       419     0.22 %     822,989       394     0.19 %     25       (27 )     52  
Time deposits     130,432       161     0.50 %     137,502       122     0.36 %     39       (6 )     45  
FHLB advances and repos     40,557       244     2.41 %     26,341       185     2.82 %     59       89       (30 )
Total int.-bearing liabilities     1,076,872       852     0.32 %     1,129,724       734     0.26 %     118       51       67  
                                     
Non-interest-bearing liabilities:                                    
Demand deposits     459,095               429,436                      
Other liabilities     16,539               14,349                      
Total liabilities     1,552,506               1,573,509                      
Shareholders' equity     151,216               150,155                      
Total liabilities and shareholders' equity   $ 1,703,722             $ 1,723,664                      
                                     
Fully taxable equivalent net interest income         15,123               14,142         $ 981     $ 611     $ 370  
Net interest rate spread (1)           3.62 %           3.39 %            
Net interest margin, fully taxable equivalent (2)           3.73 %           3.47 %            
Taxable equivalent adjustment         (106 )             (192 )                
Net interest income       $ 15,017             $ 13,950                  
                                     
(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) 
                                                                     
    Six Months Ended
June 30, 2018
  Six Months Ended
June 30, 2017
  Six Months Ended
June 30, 2018 vs. 2017
(in thousands)   Average
Balance
    Interest     Yield /
Rate
  Average
Balance
    Interest     Yield /
Rate
  Total
Change
   Due to
Volume
  Due to
Rate
Interest earning assets:                                    
Commercial loans   $ 849,927     $ 19,096     4.53 %   $ 770,267     $ 16,387     4.29 %   $ 2,709     $ 1,758     $ 951  
Mortgage loans     194,579       3,610     3.74 %     199,740       3,754     3.79 %     (144 )     (95 )     (49 )
Consumer loans     277,328       5,717     4.16 %     256,370       5,300     4.17 %     417       430       (13 )
Taxable securities     245,382       2,557     2.10 %     273,935       2,823     2.08 %     (266 )     (293 )     27  
Tax-exempt securities     53,570       742     2.79 %     47,910       747     3.14 %     (5 )     83       (88 )
Interest-earning deposits     3,890       32     1.66 %     72,068       348     0.97 %     (316 )     (462 )     146  
Total interest earning assets     1,624,676       31,754     3.94 %     1,620,290       29,359     3.65 %     2,395       1,421       974  
                                     
Non-interest earnings assets:                                    
Cash and due from banks     27,191               25,161                      
Premises and equipment, net     26,415               28,429                      
Other assets     54,882               53,994                      
Allowance for loan losses     (21,236 )             (14,706 )                    
AFS valuation allowance     (8,542 )             (4,154 )                    
Total assets   $ 1,703,386             $ 1,709,014                      
                                     
                                     
Interest-bearing liabilities:                                    
Interest-bearing checking   $ 141,632     $ 63     0.09 %   $ 147,895     $ 67     0.09 %   $ (4 )   $ (4 )   $ -  
Savings and money market     772,019       793     0.21 %     803,269       771     0.19 %     22       (37 )     59  
Time deposits     123,813       253     0.41 %     139,366       250     0.36 %     3       (30 )     33  
FHLB advances and repos     44,616       512     2.31 %     31,973       466     2.94 %     46       159       (113 )
Total int.-bearing liabilities     1,082,080       1,621     0.30 %     1,122,503       1,554     0.28 %     67       88       (21 )
                                     
Non-interest-bearing liabilities:                                    
Demand deposits     454,612               423,844                      
Other liabilities     15,837               14,259                      
Total liabilities     1,552,529               1,560,606                      
Shareholders' equity     150,857               148,408                      
Total liabilities and shareholders' equity   $ 1,703,386             $ 1,709,014                      
                                     
Fully taxable equivalent net interest income         30,133               27,805         $ 2,328     $ 1,333     $ 995  
Net interest rate spread (1)           3.64 %           3.37 %            
Net interest margin, fully taxable equivalent (2)           3.74 %           3.46 %            
Taxable equivalent adjustment         (216 )             (361 )                
Net interest income       $ 29,917             $ 27,444                  
                                     
(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 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   Six Months Ended
    June 30,   March 31,   Dec. 31,   Sept. 30,   June 30,   June 30,   June 30,
(in thousands, except per share data)     2018       2018       2017       2017       2017       2018       2017  
NET INTEREST MARGIN - FULLY TAXABLE EQUIVALENT                            
AND EFFICIENCY RATIO                            
Net interest income (GAAP)   $ 15,017     $ 14,900     $ 14,780     $ 14,763     $ 13,950     $ 29,917     $ 27,444  
Fully taxable equivalent adjustment     106       110       206       220       192       216       361  
Fully taxable equivalent net interest income (non-GAAP)   $ 15,123     $ 15,010     $ 14,986     $ 14,983     $ 14,142     $ 30,133     $ 27,805  
                             
Non-interest income (GAAP)   $ 5,325     $ 5,475     $ 5,456     $ 5,166     $ 5,022     $ 10,800     $ 9,869  
Less:  net (gains) losses on security transactions     -       -       (97 )     -       (12 )     -       (12 )
Adjusted non-interest income (non-GAAP)   $ 5,325     $ 5,475     $ 5,359     $ 5,166     $ 5,010     $ 10,800     $ 9,857  
                             
Non-interest expense (GAAP)   $ 14,967     $ 14,166     $ 13,111     $ 13,276     $ 14,332     $ 29,133     $ 27,377  
Less:  amortization of intangible assets     (182 )     (194 )     (207 )     (214 )     (213 )     (376 )     (439 )
Less:  legal reserve     (989 )     -       -       -       (850 )     (989 )     (850 )
Adjusted non-interest expense (non-GAAP)   $ 13,796     $ 13,972     $ 12,904     $ 13,062     $ 13,269     $ 27,768     $ 26,088  
                             
Average interest-earning assets (GAAP)   $ 1,625,591     $ 1,623,748     $ 1,639,257     $ 1,615,833     $ 1,634,955     $ 1,624,676     $ 1,620,290  
                             
Net interest margin - fully taxable equivalent (non-GAAP)     3.73 %     3.75 %     3.63 %     3.68 %     3.47 %     3.74 %     3.46 %
Efficiency ratio (non-GAAP)     67.47 %     68.21 %     63.43 %     64.83 %     69.28 %     67.84 %     69.27 %
                             

Tangible Equity and Tangible Assets (Period-End)

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

                         
                        As of or for the
    As of or for the Three Months Ended   Six Months Ended
    June 30,   March 31,   Dec. 31,   Sept. 30,   June 30,   June 30,   June 30,
(in thousands, except per share and ratio data)     2018       2018       2017       2017       2017       2018       2017  
TANGIBLE EQUITY AND TANGIBLE ASSETS                            
(PERIOD END)                            
Total shareholders' equity (GAAP)   $ 151,780     $ 150,262     $ 149,813     $ 154,277     $ 151,962     $ 151,780     $ 151,962  
Less:  intangible assets     (23,533 )     (23,715 )     (23,909 )     (24,116 )     (24,330 )     (23,533 )     (24,330 )
Tangible equity (non-GAAP)   $ 128,247     $ 126,547     $ 125,904     $ 130,161     $ 127,632     $ 128,247     $ 127,632  
                             
Total assets (GAAP)   $ 1,710,166     $ 1,699,954     $ 1,707,620     $ 1,731,682     $ 1,718,572     $ 1,710,166     $ 1,718,572  
Less:  intangible assets     (23,533 )     (23,715 )     (23,909 )     (24,116 )     (24,330 )     (23,533 )     (24,330 )
Tangible assets (non-GAAP)   $ 1,686,633     $ 1,676,239     $ 1,683,711     $ 1,707,566     $ 1,694,242     $ 1,686,633     $ 1,694,242  
                             
Total equity to total assets at end of period (GAAP)     8.88 %     8.84 %     8.77 %     8.91 %     8.84 %     8.88 %     8.84 %
Book value per share (GAAP)   $ 31.42     $ 31.16     $ 31.10     $ 32.11     $ 31.67     $ 31.42     $ 31.67  
                             
Tangible equity to tangible assets at                            
end of period (non-GAAP)     7.60 %     7.55 %     7.48 %     7.62 %     7.53 %     7.60 %     7.53 %
Tangible book value per share (non-GAAP)   $ 26.55     $ 26.24     $ 26.14     $ 27.09     $ 26.60     $ 26.55     $ 26.60  
                             

Tangible Equity (Average)

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

                             
                        As of or for the
    As of or for the Three Months Ended   Six Months Ended
    June 30,   March 31,   Dec. 31,   Sept. 30,   June 30,   June 30,   June 30,
(in thousands, except ratio data)     2018       2018       2017       2017       2017       2018       2017  
TANGIBLE EQUITY (AVERAGE)                            
Total average shareholders' equity (GAAP)   $ 151,216     $ 150,495     $ 154,767     $ 153,244     $ 150,155     $ 150,857     $ 148,408  
Less:  average intangible assets     (23,625 )     (23,830 )     (24,008 )     (24,220 )     (24,435 )     (23,727 )     (24,544 )
Average tangible equity (non-GAAP)   $ 127,591     $ 126,665     $ 130,759     $ 129,024     $ 125,720     $ 127,130     $ 123,864  
                             
Return on average equity (GAAP)     6.70 %     11.96 %     (5.53 )%     9.46 %     7.90 %     9.31 %     8.06 %
Return on average tangible equity (non-GAAP)     7.94 %     14.21 %     (6.55 )%     11.24 %     9.43 %     11.05 %     9.66 %
                             

Adjustments for Certain Items of Income or Expense

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

                             
                        As of or for the
    As of or for the Three Months Ended   Six Months Ended
    June 30,   March 31,   Dec. 31,   Sept. 30,   June 30,   June 30,   June 30,
(in thousands, except per share and ratio data)     2018       2018       2017       2017       2017       2018       2017  
NON-GAAP NET INCOME                            
Reported net income (GAAP)   $ 2,527     $ 4,439     $ (2,159 )   $ 3,654     $ 2,956     $ 6,966     $ 5,935  
Net (gains) losses on security transactions (net of tax)     -       -       (60 )     -       (8 )     -       (8 )
Legal reserve (net of tax)     737       -       -       -       528       737       528  
Revaluation of net deferred tax asset     -       -       2,927       -       -       -       -  
Non-GAAP net income   $ 3,264     $ 4,439     $ 708     $ 3,654     $ 3,476     $ 7,703     $ 6,455  
                             
Average basic and diluted shares outstanding     4,828       4,822       4,809       4,802       4,797       4,825       4,793  
                             
Reported basic and diluted earnings per share (GAAP)   $ 0.52     $ 0.92     $ (0.45 )   $ 0.76     $ 0.62     $ 1.44     $ 1.24  
Reported return on average assets (GAAP)     0.59 %     1.06 %     (0.50 )%     0.85 %     0.69 %     0.82 %     0.70 %
Reported return on average equity (GAAP)     6.70 %     11.96 %     (5.53 )%     9.46 %     7.90 %     9.31 %     8.06 %
                             
Core basic and diluted earnings per share (non-GAAP)   $ 0.68     $ 0.92     $ 0.15     $ 0.76     $ 0.72     $ 1.60     $ 1.35  
Core return on average assets (non-GAAP)     0.77 %     1.06 %     0.16 %     0.85 %     0.81 %     0.91 %     0.76 %
Core return on average equity (non-GAAP)     8.66 %     11.96 %     1.81 %     9.46 %     9.29 %     10.30 %     8.77 %
                             

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 2017 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

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