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

ELMIRA, N.Y., Oct. 20, 2016 (GLOBE NEWSWIRE) — Chemung Financial Corporation (the “Corporation”) (Nasdaq:CHMG), the parent company of Chemung Canal Trust Company (the “Bank”), today reported net income for the third quarter of 2016 of $2.7 million, or $0.58 per share, compared to $2.5 million, or $0.52 per share, for the third quarter of 2015.

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

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

Third Quarter Highlights1

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

A more detailed summary of financial performance follows.

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

3rd Quarter 2016 vs 2nd Quarter 2016

Net Interest Income:

Net interest income for the current quarter totaled $13.0 million, consistent with the prior quarter.  Interest and fees from loans and interest-bearing deposits both increased $0.2 million, while interest and dividend income from securities decreased $0.1 million when compared to the prior quarter.  Fully taxable equivalent net interest margin was 3.33%, compared with 3.36% for the prior quarter.  Average interest-earning assets increased $4.0 million compared to the prior quarter.  The yield on interest-earning assets decreased two basis points, while the cost of interest-bearing liabilities increased one basis point compared to the prior quarter.  The decline in the yield on interest-earning assets can be mostly attributed to a seven basis point decline in the yield of commercial loans and a ten and six basis point decline in the yields of taxable and tax-exempt securities, respectively, offset by a ten basis point increase in the yield of consumer loans.  The decline in the yield of commercial loans can be attributed to new production at lower competitive rates. The decline in the yield of taxable securities can be attributed to higher projected prepayment speeds when comparing the current quarter to the prior quarter.  The decline in the yield of tax-exempt securities can be attributed to the maturities of municipal securities.  The increase in the yield of consumer loans can be attributed to the indirect loan portfolio and increasing the portfolio toward higher yielding used car loans.

Non-Interest Income:

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

Non-Interest Expense:

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

3rd Quarter 2016 vs 3rd Quarter 2015

Net Interest Income:

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

Non-Interest Income:

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

Non-Interest Expense:

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

Asset Quality

Non-performing loans totaled $12.9 million at September 30, 2016, or 1.06% of total loans, compared with $12.2 million at December 31, 2015, or 1.05% of total loans.  The increase in non-performing loans at September 30, 2016 was primarily in the consumer loan and residential mortgage segments of the loan portfolio, offset by a decrease in the commercial mortgage segment.  Non-performing assets, which are comprised of non-performing loans and other real estate owned, were $13.3 million, or 0.77% of total assets, at September 30, 2016, compared with $13.8 million, or 0.85% of total assets, at December 31, 2015.  The decrease in non-performing assets was due to the sale of one large commercial property in other real estate owned.

Management performs an ongoing assessment of the adequacy of the allowance for loan losses based upon a number of factors including an analysis of historical loss factors, collateral evaluations, recent charge-off experience, credit quality of the loan portfolio, current economic conditions and loan growth.  Based on this analysis, the provision for loan losses for the third quarter of 2016 and 2015 were $1.1 million and $0.3 million, respectively.  Net charge-offs for the third quarter of 2016 were $0.4 million compared with $0.3 million for the same period in the prior year.  The increase in the provision for loan losses, compared to the same period in the prior year, can be attributed to increases in the commercial loan portfolio and impaired loans.   

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

Balance Sheet Activity

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

The increase in cash and cash equivalents can be attributed to maturities, pay-downs, and the sale of available for sale securities and an increase in deposits, offset by an increase in total loans and the pay down of FHLB overnight advances.

The increase in total loans can be attributed to increases of $70.2 million in commercial mortgages and $1.9 million in residential mortgages, offset by decreases in commercial and agriculture of $10.2 million, indirect consumer of $8.8 million, and other consumer of $5.0 million.

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

Deposits totaled $1.509 billion at September 30, 2016 compared with $1.400 billion at December 31, 2015, an increase of $108.6 million, or 7.8%.  The growth was attributable to increases of $22.0 million in non-interest bearing demand deposits, $18.9 million in interest-bearing demand deposits, $81.6 million in money market accounts, and $3.8 million in savings deposits.  Partially offsetting the increases noted above was a decrease of $17.7 million in time deposits.  The changes in money market accounts and demand deposits can be attributed to the seasonal inflow of deposits from municipal clients.

Total equity was $144.8 million at September 30, 2016 compared with $137.2 million at December 31, 2015, an increase of $7.6 million, or 5.6%.  The increase was primarily due to earnings of $7.1 million, a reduction of $0.8 million in treasury stock, and a decrease of $3.2 million in accumulated other comprehensive loss, offset by $3.7 million in dividends declared during the year.

The total equity to total assets ratio was 8.38% at September 30, 2016 compared with 8.47% at December 31, 2015.  The tangible equity to tangible assets ratio was 7.03% at September 30, 2016 compared with 6.99% at December 31, 2015.  Book value per share increased to $30.37 at September 30, 2016 from $28.96 at December 31, 2015.  As of September 30, 2016, the Bank’s capital ratios were in excess of those required to be considered well-capitalized under regulatory capital guidelines and the Corporation met capital requirements under regulatory guidelines.

Other Items

The market value of total assets under management or administration in our Wealth Management Group was $1.714 billion at September 30, 2016, including $293.0 million of assets under management or administration for the Corporation, compared with $1.856 billion at December 31, 2015, including $304.1 million of assets held under management or administration for the Corporation, a decrease of $141.6 million, or 7.6%.  The decrease can be mostly attributed to the loss of one large non-profit customer during the first quarter of 2016.

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

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

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

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

About Chemung Financial Corporation

Chemung Financial Corporation is a $1.7 billion financial services holding company headquartered in Elmira, New York and operates 33 retail offices through its principal subsidiary, Chemung Canal Trust Company, a full-service community bank with trust powers.  Established in 1833, Chemung Canal Trust Company is the oldest locally-owned and managed community bank in New York State.  Chemung Financial Corporation is also the parent of CFS Group, Inc., a financial services subsidiary offering non-traditional services including mutual funds, annuities, brokerage services, tax preparation services and insurance, and Chemung Risk Management, Inc., a captive insurance company based in the State of Nevada.

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

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

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

Chemung Financial Corporation 
Consolidated Financial Highlights (Unaudited) 
                        As of or for the
    As of or for the Three Months Ended   Nine Months Ended
    Sept. 30,   June 30,   March 31,   Dec. 31,   Sept. 30,   Sept. 30,   Sept. 30,
(in thousands, per share data)     2016       2016       2016       2015       2015       2016       2015  
RESULTS OF OPERATIONS              
Interest income   $   14,025     $   13,925     $   13,949     $   13,896     $   13,595     $   41,899     $   40,348  
Interest expense     985       957       924       934       904       2,866       2,668  
Net interest income     13,040       12,968       13,025       12,962       12,691       39,033       37,680  
Provision for loan losses     1,050       388       595       615       307       2,033       956  
Net interest income after provision for loan losses     11,990       12,580       12,430       12,347       12,384       37,000       36,724  
Non-interest income     5,435       5,216       5,601       5,023       4,912       16,252       15,424  
Non-interest expense     13,471       15,570       14,008       14,234       13,634       43,049       41,193  
Income before income tax expense     3,954       2,226       4,023       3,136       3,662       10,203       10,955  
Income tax expense     1,209       605       1,316       1,007       1,211       3,130       3,651  
Net income   $   2,745     $   1,621     $   2,707     $   2,129     $   2,451     $   7,073     $   7,304  
                             
Basic and diluted earnings per share   $   0.58     $   0.34     $   0.57     $   0.45     $   0.52     $   1.49     $   1.55  
Average basic and diluted shares outstanding     4,765       4,760       4,750       4,731       4,722       4,758       4,715  
                             
PERFORMANCE RATIOS                            
Return on average assets     0.65 %     0.39 %     0.67 %     0.52 %     0.62 %     0.57 %     0.62 %
Return on average equity     7.55 %     4.57 %     7.73 %     6.05 %     7.05 %     6.62 %     7.12 %
Return on average tangible equity (a)     9.14 %     5.55 %     9.45 %     7.42 %     8.71 %     8.05 %     8.83 %
Efficiency ratio (a) (b)     71.28 %     77.00 %     76.89 %     77.35 %     75.25 %     75.03 %     75.78 %
Non-interest expense to average assets     3.20 %     3.75 %     3.48 %     3.49 %     3.44 %     3.47 %     3.52 %
Loans to deposits     80.62 %     81.83 %     82.75 %     83.46 %     80.96 %     80.62 %     80.96 %
                             
YIELDS / RATES – Fully Taxable Equivalent                            
Yield on loans     4.16 %     4.17 %     4.21 %     4.20 %     4.22 %     4.18 %     4.25 %
Yield on investments     1.73 %     1.81 %     2.07 %     1.98 %     1.89 %     1.86 %     1.87 %
Yield on interest-earning assets     3.58 %     3.60 %     3.72 %     3.66 %     3.70 %     3.63 %     3.73 %
Cost of interest-bearing deposits     0.21 %     0.21 %     0.20 %     0.20 %     0.20 %     0.21 %     0.20 %
Cost of borrowings     3.15 %     3.16 %     2.66 %     2.99 %     3.03 %     2.97 %     2.80 %
Cost of interest-bearing liabilities     0.36 %     0.35 %     0.35 %     0.35 %     0.35 %     0.35 %     0.35 %
Interest rate spread     3.22 %     3.25 %     3.37 %     3.31 %     3.35 %     3.28 %     3.38 %
Net interest margin, fully taxable equivalent     3.33 %     3.36 %     3.47 %     3.42 %     3.45 %     3.38 %     3.48 %
                             
CAPITAL                            
Total equity to total assets at end of period     8.38 %     8.52 %     8.58 %     8.47 %     8.50 %     8.38 %     8.50 %
Tangible equity to tangible assets at end of period (a)     7.03 %     7.12 %     7.14 %     6.99 %     7.02 %     7.03 %     7.02 %
                             
Book value per share   $   30.37     $   30.12     $   29.64     $   28.96     $   29.36     $   30.37     $   29.36  
Tangible book value per share     25.13       24.81       24.28       23.53       23.85       25.13       23.85  
Period-end market value per share     28.99       29.35       26.35       27.50       28.03       28.99       28.03  
Dividends declared per share     0.26       0.26       0.26       0.26       0.26       0.78       0.78  
                             
AVERAGE BALANCES                            
Loans and loans held for sale (c)   $   1,199,367     $   1,192,786     $   1,175,051     $   1,151,469     $   1,142,402     $   1,189,105     $   1,138,799  
Earning assets     1,577,348       1,573,306       1,527,656       1,522,176       1,474,098       1,559,500       1,462,484  
Total assets     1,674,492       1,669,654       1,620,547       1,617,322       1,570,818       1,656,313       1,564,346  
Deposits     1,456,622       1,457,173       1,404,487       1,410,017       1,367,853       1,439,497       1,353,664  
Total equity     144,631       142,746       140,864       139,697       137,855       142,745       137,079  
Tangible equity (a)     119,504       117,374       115,240       113,812       111,693       117,372       110,628  
                             
ASSET QUALITY                            
Net charge-offs   $   393     $   247     $   328     $   377     $   313     $   968     $   620  
Non-performing loans (d)     12,903       12,429       12,774       12,232       12,368       12,903       12,368  
Non-performing assets (e)     13,270       12,822       14,416       13,762       14,744       13,270       14,744  
Allowance for loan losses     15,325       14,668       14,527       14,260       14,022       15,325       14,022  
                             
Annualized net charge-offs to average loans     0.13 %     0.08 %     0.11 %     0.13 %     0.11 %     0.11 %     0.07 %
Non-performing loans to total loans     1.06 %     1.03 %     1.08 %     1.05 %     1.08 %     1.06 %     1.08 %
Non-performing assets to total assets     0.77 %     0.76 %     0.88 %     0.85 %     0.90 %     0.77 %     0.90 %
Allowance for loan losses to total loans     1.26 %     1.22 %     1.22 %     1.22 %     1.23 %     1.26 %     1.23 %
Allowance for loan losses to non-performing loans     118.77 %     118.01 %     113.72 %     116.58 %     113.37 %     118.77 %     113.37 %
                             
(a)  See the GAAP to Non-GAAP reconciliations. 
(b)  Efficiency ratio is non-interest expense less merger and acquisition expenses less amortization of intangible assets less legal reserve divided by the total of fully taxable equivalent net interest income plus non-interest income less net gains on securities transactions less gain from bargain purchase less gain on liquidation of trust preferred securities.
(c)  Loans and loans held for sale do not reflect the allowance for loan losses. 
(d)  Non-performing loans include non-accrual loans only. 
(e)  Non-performing assets include non-performing loans plus other real estate owned. 

Chemung Financial Corporation                                    
Average Consolidated Balance Sheets & Net Interest Income Analysis and Rate/Volume Analysis of Net Interest Income (Unaudited)        
             
YTD – September 30, 2016 YTD – September 30, 2015   YTD – Sept. 30, 2016 vs. Sept. 30, 2015
(in thousands)   Average
Balance
  Interest   Yield /Rate   Average
Balance
  Interest   Yield /Rate   Total
Change
  Due to
Volume
  Due to
Rate
     
Earning assets:                                    
Commercial loans     727,824       23,617       4.33 %     650,108       22,328       4.59 %     1,289       2,597       (1,308 )
Mortgage loans       196,799         5,806       3.94 %       198,618         6,070       4.09 %       (264 )       (53 )       (211 )
Consumer loans     264,482       7,784       3.93 %     290,073       7,812       3.60 %     (28 )     (719 )     691  
Taxable securities     277,346       3,947       1.90 %     250,859       3,494       1.86 %     453       377       76  
Tax-exempt securities     45,824       1,042       3.04 %     41,228       989       3.21 %     53       108       (55 )
Interest-bearing deposits     47,225       180       0.51 %     31,598       60       0.25 %     120       38       82  
Total earning assets     1,559,500       42,376       3.63 %     1,462,484       40,753       3.73 %     1,623       2,348       (725 )
                                     
Non-earnings assets:                                    
Cash and due from banks     26,867               58,623                      
Premises and equipment, net     29,696               31,331                      
Other assets     51,564               22,349                      
Allowance for loan losses     (14,592 )             (14,055 )                    
AFS valuation allowance     3,278               3,614                      
Total assets     1,656,313               1,564,346                      
                                     
                                     
Interest-bearing liabilities:                                    
Interest-bearing checking     132,988       106       0.11 %     125,285       76       0.08 %     30       5       25  
Savings and money market     743,808       1,060       0.19 %     659,994       881       0.18 %     179       124       55  
Time deposits     160,352       441       0.37 %     186,687       521       0.37 %     (80 )     (80 )      
FHLB advances and repos     56,605       1,259       2.97 %     56,862       1,190       2.80 %     69       (5 )     74  
Total int.-bearing liabilities     1,093,753       2,866       0.35 %     1,028,828       2,668       0.35 %     198       44       154  
                                                 
Non-interest-bearing liabilities:                                    
Demand deposits     402,349               381,698                      
Other liabilities     17,466               16,741                      
Total liabilities     1,513,568               1,427,267                      
Shareholders’ equity     142,745               137,079                      
Total liabilities and shareholders’ equity     1,656,313               1,564,346                      
                                     
Fully taxable equivalent net interest income         39,510               38,085         1,425   2,304     (879 )
Net interest rate spread (1)             3.28 %             3.38 %            
Net interest margin, fully taxable equivalent (2)             3.38 %             3.48 %            
Taxable equivalent adjustment         (477 )             (405 )                
Net interest income         39,033               37,680                  
                                     
(1)  Net interest rate spread is the difference in the average yield on interest-earning assets less the average rate on interest-bearing liabilities.    
(2)  Net interest margin is the ratio of fully taxable equivalent net interest income divided by average interest-earning assets.          
                                     
Chemung Financial Corporation
                           
Average Consolidated Balance Sheets & Net Interest Income Analysis and Rate/Volume Analysis of Net Interest Income (Unaudited)        
                                     
    QTD – September 30, 2016   QTD – September 30, 2015   QTD – Sept. 30, 2016 vs. Sept. 30, 2015
    Average
Balance
 
Interest
  Yield /
Rate
  Average
Balance
 
Interest
  Yield /
Rate
  Total
Change
  Due to
Volume
  Due to
Rate
     
Earning assets:                                    
Commercial loans       741,515         7,967       4.27 %       660,407         7,522       4.52 %       445         881         (436 )
Mortgage loans       197,292         1,950       3.93 %       198,994         2,007       4.00 %       (57 )       (19 )       (38 )
Consumer loans       260,559         2,623       4.00 %       283,001         2,620       3.67 %       3         (219 )       222  
Taxable securities     268,388       1,225       1.82 %     260,603       1,238       1.88 %     (13 )     30       (43 )
Tax-exempt securities     43,692       329       3.00 %     44,871       327       2.89 %     2       (9 )     11  
Interest-bearing deposits     65,902       85       0.51 %     26,222       17       0.26 %     68       41       27  
Total earning assets     1,577,348       14,179       3.58 %     1,474,098       13,731       3.70 %     448       705       (257 )
                                     
Non-earnings assets:                                    
Cash and due from banks     27,420               52,793                      
Premises and equipment, net     29,575               30,597                      
Other assets     50,397               24,803                      
Allowance for loan losses     (14,783 )             (14,181 )                    
AFS valuation allowance     4,535               2,708                      
Total assets     1,674,492               1,570,818                      
                                     
Interest-bearing liabilities:                                    
Interest-bearing checking     122,030       27       0.09 %     123,604       26       0.08 %     1             1  
Savings and money market     769,855       392       0.20 %     675,841       313       0.18 %     79       44       35  
Time deposits     154,618       142       0.37 %     176,480       161       0.36 %     (19 )     (22 )     3  
FHLB advances and repos     53,619       424       3.15 %     52,906       404       3.03 %     20       5       15  
Total int.-bearing liabilities     1,100,122       985       0.36 %     1,028,831       904       0.35 %     81       27       54  
                                                 
Non-interest-bearing liabilities:                                    
Demand deposits     410,119               391,929                      
Other liabilities     19,620               12,203                      
Total liabilities     1,529,861               1,432,963                      
Shareholders’ equity     144,631               137,855                      
Total liabilities and shareholders’ equity     1,674,492               1,570,818                      
                                     
Fully taxable equivalent net interest income         13,194               12,827         367   678     (311 )
Net interest rate spread (1)             3.22 %             3.35 %            
Net interest margin, fully taxable equivalent (2)             3.33 %             3.45 %            
Taxable equivalent adjustment           (154 )               (136 )                
Net interest income           13,040                 12,691                  
                                     
(1)  Net interest rate spread is the difference in the average yield on interest-earning assets less the average rate on interest-bearing liabilities.    
(2)  Net interest margin is the ratio of fully taxable equivalent net interest income divided by average interest-earning assets.          
                                     


Chemung Financial Corporation

GAAP to Non-GAAP Reconciliations (Unaudited)

The Corporation prepares its consolidated financial statements in accordance with GAAP.  See the Corporation’s unaudited consolidated balance sheets and statements of income contained within this press release. That presentation provides the reader with an understanding of the Corporation’s results that can be tracked consistently from period-to-period and enables a comparison of the Corporation’s performance with other companies’ GAAP financial statements.

In addition to analyzing the Corporation’s results on a reported basis, management uses certain non-GAAP financial measures, because it believes these non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the Corporation and, therefore, facilitate a comparison of the Corporation with the performance of its competitors. Non-GAAP financial measures used by the Corporation may not be comparable to similarly named non-GAAP financial measures used by other companies.

The SEC has adopted Regulation G, which applies to all public disclosures, including earnings releases, made by registered companies that contain “non-GAAP financial measures.”  Under Regulation G, companies making public disclosures containing non-GAAP financial measures must also disclose, along with each non-GAAP financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure and a statement of the Corporation’s reasons for utilizing the non-GAAP financial measure as part of its financial disclosures.  The SEC has exempted from the definition of “non-GAAP financial measures” certain commonly used financial measures that are not based on GAAP.  When these exempted measures are included in public disclosures, supplemental information is not required.  The following measures used in this Report, which are commonly utilized by financial institutions, have not been specifically exempted by the SEC and may constitute “non-GAAP financial measures” within the meaning of the SEC’s new rules, although we are unable to state with certainty that the SEC would so regard them.

Fully Taxable Equivalent Net Interest Income, Net Interest Margin, and Efficiency Ratio

Net interest income is commonly presented on a tax-equivalent basis.  That is, to the extent that some component of the institution’s net interest income, which is presented on a before-tax basis, is exempt from taxation (e.g., is received by the institution as a result of its holdings of state or municipal obligations), an amount equal to the tax benefit derived from that component is added to the actual before-tax net interest income total.  This adjustment is considered helpful in comparing one financial institution’s net interest income to that of other institutions or in analyzing any institution’s net interest income trend line over time, to correct any analytical distortion that might otherwise arise from the fact that financial institutions vary widely in the proportions of their portfolios that are invested in tax-exempt securities, and that even a single institution may significantly alter over time the proportion of its own portfolio that is invested in tax-exempt obligations.  Moreover, net interest income is itself a component of a second financial measure commonly used by financial institutions, net interest margin, which is the ratio of net interest income to average interest-earning assets.  For purposes of this measure as well, fully taxable equivalent net interest income is generally used by financial institutions, as opposed to actual net interest income, again to provide a better basis of comparison from institution to institution and to better demonstrate a single institution’s performance over time.  The Corporation follows these practices.

The efficiency ratio is a non-GAAP financial measure which represents the Corporation’s ability to turn resources into revenue and is calculated as non-interest expense divided by total revenue (fully taxable equivalent net interest income and non-interest income), adjusted for one-time occurrences and amortization.  This measure is meaningful to the Corporation, as well as investors and analysts, in assessing the Corporation’s productivity measured by the amount of revenue generated for each dollar spent.

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

Tangible Equity and Tangible Assets (Period-End)

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

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

Tangible Equity (Average)

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

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

Adjustments for Certain Items of Income or Expense

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

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

Forward-Looking Statements:

This press release may contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act, and the Private Securities Litigation Reform Act of 1995.  The Corporation intends its forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in this press release.  All statements regarding the Corporation’s expected financial position and operating results, the Corporation’s business strategy, the Corporation’s financial plans, forecasted demographic and economic trends relating to the Corporation’s industry and similar matters are forward-looking statements.  These statements can sometimes be identified by the Corporation’s use of forward-looking words such as “may,” “will,” “anticipate,” “estimate,” “expect,” or “intend.”  The Corporation cannot promise that its expectations in such forward-looking statements will turn out to be correct.  The Corporation’s actual results could be materially different from expectations because of various factors, including changes in economic conditions or interest rates, credit risk, difficulties in managing the Corporation’s growth, competition, changes in law or the regulatory environment, including the Dodd-Frank Act, and changes in general business and economic trends.  Information concerning these and other factors can be found in the Corporation’s periodic filings with the Securities and Exchange Commission (“SEC”), including the 2015 Annual Report on Form 10-K.  These filings are available publicly on the SEC’s website at http://www.sec.gov, on the Corporation’s website at http://www.chemungcanal.com or upon request from the Corporate Secretary at (607) 737-3746.  Except as otherwise required by law, the Corporation undertakes no obligation to publicly update or revise its forward-looking statements, whether as a result of new information, future events, or otherwise. 

CONTACT: For further information contact:
Karl F. Krebs, EVP and CFO
kkrebs@chemungcanal.com
Phone:  607-737-3714

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