ELMIRA, N.Y., July 20, 2023 (GLOBE NEWSWIRE) -- Chemung Financial Corporation (the “Corporation”) ( CHMG), the parent company of Chemung Canal Trust Company (the “Bank”), today reported net income of $6.3 million, or $1.33 per share, for the second quarter of 2023, compared to $8.0 million, or $1.72 per share, for the second quarter of 2022, and $7.3 million, or $1.54 per share, for the first quarter of 2023.
“I’m pleased with the financial results for the second quarter,” said Anders M. Tomson, President and CEO of Chemung Financial Corporation. “Our focus on balance sheet management allowed us to drive meaningful loan growth, while managing deposit costs in a dynamic environment. Continued expense management efforts and strong credit metrics leave us well positioned to execute on our strategic goals in 2023,” added Tomson.
Second Quarter Highlights1:
- Net interest income grew $1.0 million, or 5.4% in the quarter, when compared to the second quarter of 2022.
- Tangible common equity to tangible assets improved by 36 basis points to 5.87%. 1 2
- Commercial loan growth approximated 8.7% on an annualized basis. 1
- Non-performing loans to total loans decreased from 0.45% as of December 31, 2022 to 0.39% as of June 30, 2023.
- Dividends declared during the second quarter 2023 were $0.31 per share.
1 Balance sheet comparisons are calculated as of June 30, 2023 versus December 31, 2022.
2 Please refer to GAAP to Non-GAAP Reconciliations.
2nd Quarter 2023 vs 2nd Quarter 2022
Net Interest Income:
Net interest income for the second quarter of 2023 totaled $18.6 million compared to $17.6 million for the same period in the prior year, an increase of $1.0 million, or 5.4%, due primarily to increases of $8.4 million in interest income on loans, including fees, and $0.8 million in interest and dividend income on taxable securities, offset by increases of $7.7 million in interest expense on deposits, and $0.6 million in interest expense on borrowed funds.
The increase in interest income on loans, including fees was due primarily to a 119 basis points increase in the average yield on loans, primarily reflecting an increase in the interest rates in the commercial portfolio, when compared to the same period in the prior year, and a $292.4 million increase in average loan balances, representing increases across all loan categories, when compared to the same period in the prior year.
The increase in interest and dividend income on taxable securities when compared to the same period in the prior year, was due to a 61 basis points increase in the average yield on securities, due to an increase in average interest rates, despite a decrease of $71.8 million in the average balance of taxable securities, when compared to the same period in the prior year, primarily due to paydowns on certain securities held in the portfolio between the second quarter of 2022 and the second quarter of 2023.
The increase in interest expense on deposits was due primarily to a 180 basis points increase in average rates paid on interest-bearing deposits, which included brokered deposits, a shift in the deposit mix towards interest-bearing accounts, and a deposit campaign in the second quarter of 2023, when compared to the same period in the prior year. The increase in interest expense on borrowed funds was due primarily to an increase in interest rates and a $27.2 million increase in the average balance of overnight FHLBNY borrowings in the current quarter, when compared to the same period in the prior year.
Fully taxable equivalent net interest margin was 2.87% for the second quarter 2023, compared to 2.97% for the same period in the prior year. Average interest-earning assets increased $214.2 million for the three months ended June 30, 2023 compared to the same period in the prior year. The average yield on interest-earning assets increased 117 basis points to 4.29%, while the average cost of interest-bearing liabilities increased 187 basis points to 2.11%, for the three months ended June 30, 2023, when compared to the same period in the prior year, due to the rising interest rate environment, as well as a shift in the overall deposit mix to higher cost deposits when compared to the same period in the prior year.
Provision for credit losses increased $2.0 million for the second quarter of 2023, when compared to the second quarter of 2022. This was primarily due to the release of a $1.2 million portion of the COVID-19 specific reserve, the release of a specific reserve held on a sold commercial real estate loan, the upgrades of two large commercial credits, and the roll-off of a large commercial loan charge off from the historical loss factors, in the second quarter of 2022.
Non-Interest Income:
Non-interest income for the second quarter of 2023 was $5.4 million compared to $5.3 million for the same period in the prior year, an increase of $0.1 million, or 2.4%. The increase in the current quarter was due primarily to an increase of $0.1 million in the change in fair value of equity investments, due to an improvement in equity markets benefiting the Corporation's deferred compensation plan, during the current quarter, compared to the same period in the prior year. Remaining components of non-interest income were relatively consistent when compared to the same period in the prior year.
Non-Interest Expense:
Non-interest expense for the second quarter of 2023 was $15.9 million compared to $14.3 million for the same period in the prior year, an increase of $1.6 million, or 11.0%. The increase can be mostly attributed to increases of $0.6 million in salaries and wages, $0.3 million in FDIC insurance, $0.3 million in other non-interest expense, and $0.2 million in other components of net periodic pension benefits.
The increase in salaries and wages was primarily attributed to base salary increases and an increase in the market value of the assets held related to the Corporation's deferred compensation plan, when compared to the same period in the prior year. The increase in FDIC insurance was primarily due to an increase in the assessment rate effective January 1, 2023. The increase in other non-interest expense was primarily attributable to the recapture of $0.2 million of accrued expenses related to a telecom contract dispute in the second quarter of 2022. The increase in other components of net periodic pension cost (benefits) was primarily due to actuarial adjustments related to the Corporation's pension plans.
Income Tax Expense:
Income tax expense for the second quarter of 2023 was $1.6 million compared to $2.3 million in the second quarter of 2022. The effective tax rate for the current quarter decreased to 20.4% from 22.6% for the same period in the prior year.
2nd Quarter 2023 vs 1st Quarter 2023
Net Interest Income:
Net interest income for the second quarter of 2023 totaled $18.6 million compared to $19.9 million for the prior quarter, a decrease of $1.3 million, or 6.5%, due primarily to increases of $3.1 million in interest expense on deposits, offset by an increase of $1.5 million in interest income on loans, including fees, and a decrease of $0.2 million in interest expense on borrowed funds.
The increase in interest expense on deposits was due primarily to a 67 basis points increase in the average rate paid on interest-bearing deposits, which included brokered deposits, when compared to the prior quarter, a continued shift towards interest-bearing deposits as a percentage of total deposits, and intensifying competitive pressures across the industry to attract and retain deposits.
The increase in interest income on loans, including fees was due primarily to a $30.9 million increase in average loan balances, concentrated in the commercial loan portfolio, when compared to the prior quarter, and a 19 basis points increase in the average yield on loans, reflecting increases across all loan categories due to an increase in interest rates, when compared to the prior quarter. The decrease in interest expense on borrowed funds was due primarily to a $16.7 million decrease in the average balance of FHLBNY borrowings due to a shift towards comparatively lower cost brokered deposits, which was partially offset by a 26 basis points increase in average rates paid on overnight FHLBNY borrowings in the current quarter, when compared to the prior quarter.
Fully taxable equivalent net interest margin was 2.87% in the current quarter compared to 3.14% in the prior quarter. Average interest-earning assets increased $17.2 million in the current quarter when compared to the prior quarter. The average yield on interest-earning assets increased 17 basis points to 4.29%, compared to the prior quarter. The average cost of interest-bearing liabilities increased 62 basis points to 2.11%, for the three months ended June 30, 2023, compared to the prior quarter, due to the rising interest rate environment, and a shift in the deposit base towards higher cost interest-bearing deposits.
Non-Interest Income:
Non-interest income was $5.4 million for the second and first quarters of 2023. Increases of $0.1 million in interchange revenue from debit card transactions and other non-interest income were offset by a decrease of $0.2 million in the change in fair value of equity investments, predominantly due to a decrease in the market value of a particular asset held by the Corporation.
Non-Interest Expense:
Non-interest expense for the second quarter of 2023 was $15.9 million, compared to $15.8 million for the prior quarter, an increase of $0.1 million, or 0.5%. The increase can be primarily attributed to increases of $0.2 million in professional services, $0.1 million in pension and other employee benefits, and $0.1 million in data processing, offset primarily by decreases of $0.2 million in marketing and advertising and $0.2 million in other non-interest expense.
The increase in professional services was primarily attributed to the timing and breadth of services rendered, when compared to the prior quarter. The increase in pension and other employee benefits was primarily due to an increase in healthcare related costs, when compared to the prior quarter. The increase in data processing was attributable to expenditures relating to ongoing cybersecurity improvement initiatives and increased software expenses. The decrease in marketing and advertising was due to seasonal advertising initiatives during the first quarter, which were not replicated in the second quarter, and expenses relating to the expansion of the reach of digital ads in the first quarter. The decrease in other non-interest expense was due to a decrease in recruitment expenditures, along with smaller decreases across a range of other categories.
Income Tax Expense:
Income tax expense for the second quarter of 2023 was $1.6 million compared to $2.0 million for the prior quarter, a decrease of $0.4 million. The effective tax rate for the current quarter decreased to 20.4% from 21.5% in the prior quarter.
Asset Quality
Non-performing loans totaled $7.3 million at June 30, 2023, or 0.39% of total loans, compared to $8.2 million, or 0.45% of total loans at December 31, 2022. The improvement in non-performing loans to total loans was the result of both an increase in total loans, and a decrease in non-performing loans. The decrease in non-performing loans was primarily attributable to paydowns among commercial non-performing loans. Non-performing assets, which are comprised of non- performing loans and other real estate owned, were $7.5 million, or 0.28% of total assets, at June 30, 2023, compared to $8.4 million, or 0.32% of total assets, at December 31, 2022. The decrease in non-performing assets can be primarily attributed to the decrease in non-performing loans.
Management performs an ongoing assessment of the adequacy of the allowance for credit losses based on its current expected credit losses (CECL) methodology, which includes loans individually analyzed, as well as loans analyzed on a pooled basis. The Corporation's methodology seeks to estimate the lifetime losses in its loan portfolio by utilizing an expected discounted cash flow approach. Based on Federal Open Market Committee (FOMC) forecasted data points, the model is supplemented by qualitative considerations including relevant economic influences, portfolio concentrations, and other external factors. The Corporation adopted the CECL accounting standard on January 1, 2023.
The allowance for credit losses was $20.2 million at June 30, 2023 and $19.7 million at December 31, 2022, respectively. The allowance for credit losses on unfunded commitments, a component of other liabilities, was $1.0 million at June 30, 2023. The increase in the allowance for credit losses can mostly be attributed to the $0.4 million adjustment made upon adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), and additional provisioning related to increased loan volume. There were no adjustments to the qualitative factor considerations between January 1, 2023 and June 30, 2023. These increases were offset by decreased allowance requirements forecasted by the model due to more favorable economic projections, notably a decrease in the FOMC's forecasted U.S. unemployment rate for year-end 2023 from 4.6% to 4.1%. As of January 1, 2023, the Corporation recognized a $1.5 million one-time implementation adjustment, of which $1.1 million reflected the addition of an allowance for credit losses on unfunded commitments.
The allowance for credit losses was 276.17% of non-performing loans at June 30, 2023, and the ratio of the allowance for credit losses to loans was 1.07% at June 30, 2023. The allowance for loan losses to non-performing loans was 240.39% at December 31, 2022, and the ratio of the allowance for loan losses to total loans was 1.07% at December 31, 2022.
Balance Sheet Activity
Total assets were $2.675 billion at June 30, 2023 compared to $2.646 billion at December 31, 2022, an increase of $29.1 million, or 1.1%. The increase can be mostly attributed to increases of $64.5 million in loans, net of deferred origination fees and costs, offset by decreases of $28.3 million in securities available for sale, at estimated fair value, $1.9 million in FRB and FHLB stock, at cost, $1.6 million in total cash and cash equivalents, and an increase of $0.5 million in allowance for credit losses.
The increase in loans, net of deferred loan fees, was concentrated in the commercial loan portfolio, which increased $53.1 million. Consumer loans were buoyed by continued demand for indirect auto lending, which increased $8.7 million. Consumer loans other than indirect auto increased $3.3 million, while residential mortgages decreased by $0.6 million, due to lower demand and certain residential mortgage loans being sold into the secondary market. The decrease in securities available for sale was primarily due to $30.6 million in paydowns and maturities, offset by an increase in the fair value of the portfolio of $0.7 million. The decrease in FRB and FHLB stock, at cost was attributable to lower holding requirements on FHLB stock due to lower FHLBNY overnight borrowing activity. The decrease in cash and cash equivalents was primarily due to changes in deposits and loan production. The increase in the allowance for credit losses can mostly be attributed to the adoption of CECL and additional provisioning related to increased loan volume.
Total liabilities were $2.497 billion at June 30, 2023 compared to $2.479 billion at December 31, 2022, an increase of $18.1 million, or 0.7%. The increase in total liabilities can primarily be attributed to increases of $63.0 million in deposits, offset by a decrease of $45.1 million in overnight advances.
The increase in deposits was due primarily to increases of $112.0 million in brokered deposits, $31.1 million in time deposits, and $1.8 million in interest bearing DDAs, offset by decreases of $61.8 million in non-interest bearing DDAs, $10.8 million in money market accounts, and $9.3 million in savings accounts. Total deposits were comprised of 28.1% non- interest bearing deposits and 71.9% interest bearing deposits as of June 30, 2023, and were comprised of 31.5% non- interest bearing deposits and 68.5% interest bearing deposits as of December 31, 2022. The aggregate amount of the Corporation's outstanding uninsured deposits (net of deposits pledged to secure municipal deposits), was 20.6% and 23.5% of total deposits, as of June 30, 2023 and December 31, 2022, respectively. The decrease in advances and other debt was due to a $45.1 million decrease in overnight FHLBNY borrowings, as brokered deposits replaced overnight borrowings as a primary tool utilized to fund asset growth.
Total shareholders’ equity was $177.4 million at June 30, 2023, compared to $166.4 million at December 31, 2022, an increase of $11.0 million, or 6.6%, primarily due to an increase of $9.6 million in retained earnings, and a decrease of $0.5 million in accumulated other comprehensive loss. The increase in retained earnings was due primarily to net income of $13.6 million, offset by $1.5 million in dividends declared, and a $1.5 million one-time adjustment due to the implementation CECL. The decrease in accumulated other comprehensive loss was primarily due to an increase in the fair market value of the securities portfolio during the period.
The total equity to total assets ratio was 6.63% at June 30, 2023, compared to 6.29% at December 31, 2022. The tangible equity to tangible assets ratio was 5.87% at June 30, 2023 compared to 5.51% at December 31, 2022(1). Book value per share increased to $37.49 at June 30, 2023 from $35.32 at December 31, 2022. As of June 30, 2023, the Bank’s capital ratios were in excess of those required to be considered well-capitalized under the regulatory framework for prompt corrective action.
Liquidity
Management believes that the Corporation has the necessary liquidity to provide flexibility in meeting its various business needs. The Corporation uses a variety of resources to manage its liquidity. These include short term investments, cash flow from lending and investing activities, core-deposit growth and non-core funding sources, such as time deposits of $250,000 or more, brokered deposits, and FHLBNY advances. As of June 30, 2023, the Corporation's cash and cash equivalents balance was $54.2 million. The Corporation also maintains an investment portfolio of securities available for sale, comprised primarily of US Government treasury securities, Small Business Administration loan pools, mortgage-backed securities, and municipal bonds. Although this portfolio generates interest income for the Corporation, it also serves as an available source of liquidity and capital if the need should arise. As of June 30, 2023, the Corporation's investment in securities available for sale was $604.3 million, $298.2 million of which was not pledged as collateral. Additionally, as of June 30, 2023, the Bank's overnight advance line capacity at the Federal Home Loan Bank of New York was $244.7 million, of which $50.8 million was utilized. As of June 30, 2023, the Bank's unused borrowing capacity at the Federal Home Loan Bank of New York was $193.9 million. Additional funding was available to the Corporation through the Bank Term Funding Program (BTFP) and Discount Window Lending provided by the Federal Reserve. The Corporation did not utilize these funding sources during the first or second quarters of 2023. Uninsured deposits totaled $483.1 million as of June 30, 2023 and $548.0 million as of December 31, 2023. Due to their nature, the Corporation considers uninsured deposits to be less sticky than insured deposits, and closely monitors their level when considering liquidity management strategic decisions.
The Corporation also considers brokered deposits to be an element of its deposit strategy. As of June 30, 2023, the Corporation has entered into brokered deposit arrangements with 4-week, 13-week, and 26-week terms totaling $185.5 million.
The table below summarizes the Corporation’s additional funding resources by type as of the dates indicated (in thousands):
| ADDITIONAL FUNDING RESOURCES | |||||
| June 30, 2023 | December 31, 2022 | ||||
| Federal Home Loan Bank of New York | $ | 193,944 | $ | 99,761 | |
| Correspondent bank lines | 60,000 | 68,000 | |||
| Brokered deposits available per policy limit | 81,975 | 174,465 | |||
| Unpledged investment securities, at fair value | 298,227 | 420,671 | |||
| Total Additional Funding Resources | $ | 634,146 | $ | 762,897 | |
Other Items
The market value of total assets under management or administration in our Wealth Management Group was $2.166 billion at June 30, 2023, including $363.3 million of assets under management or administration for the Corporation, compared to $2.053 billion at December 31, 2022, including $346.5 million of assets under management or administration for the Corporation, an increase of $113.0 million, or 5.5%, due primarily to broad improvements in financial markets.
As previously announced on January 8, 2021, the Corporation announced that the Board of Directors approved a new stock repurchase program. Under the repurchase program, the Corporation may repurchase up to 250,000 shares of its common stock, or approximately 5% of its then outstanding shares. The repurchase program permits shares to be repurchased in open market or privately negotiated transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. As of June 30, 2023, a total of 49,184 shares of common stock at a total cost of $2.0 million were repurchased by the Corporation under its share repurchase program. No shares were repurchased in the second quarter of 2023. The weighted average cost was $40.42 per share repurchased. Remaining buyback authority under the share repurchase program was 200,816 shares at June 30, 2023.
(1) See the GAAP to Non-GAAP reconciliations.
About Chemung Financial Corporation
Chemung Financial Corporation is a $2.7 billion financial services holding company headquartered in Elmira, New York and operates 31 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.
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, inflation, cyber security risks, difficulties in managing the Corporation’s growth, competition, changes in law or the regulatory environment, and changes in general business and economic trends.
Information concerning these and other factors, including Risk Factors, can be found in the Corporation’s periodic filings with the Securities and Exchange Commission (“SEC”), including the 2022 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.
| Chemung Financial Corporation | ||||||||||||||||
| Consolidated Balance Sheets (Unaudited) | ||||||||||||||||
| June 30, | March 31, | Dec. 31, | Sept. 30, | June 30, | ||||||||||||
| (in thousands) | 2023 | 2023 | 2022 | 2022 | 2022 | |||||||||||
| ASSETS | ||||||||||||||||
| Cash and due from financial institutions | $ | 25,499 | $ | 25,109 | $ | 29,309 | $ | 32,262 | $ | 24,371 | ||||||
| Interest-earning deposits in other financial institutions | 28,727 | 9,532 | 26,560 | 10,161 | 5,397 | |||||||||||
| Total cash and cash equivalents | 54,226 | 34,641 | 55,869 | 42,423 | 29,768 | |||||||||||
| Equity investments | 2,841 | 2,949 | 2,830 | 2,677 | 2,750 | |||||||||||
| Securities available for sale | 604,313 | 626,055 | 632,589 | 640,352 | 692,995 | |||||||||||
| Securities held to maturity | 1,804 | 1,932 | 2,424 | 3,210 | 2,943 | |||||||||||
| FHLB and FRB stock, at cost | 6,328 | 7,913 | 8,197 | 3,872 | 5,897 | |||||||||||
| Total investment securities | 612,445 | 635,900 | 643,210 | 647,434 | 701,835 | |||||||||||
| Commercial | 1,302,333 | 1,280,804 | 1,249,206 | 1,203,609 | 1,124,701 | |||||||||||
| Mortgage | 285,084 | 285,944 | 285,672 | 283,128 | 276,847 | |||||||||||
| Consumer | 306,489 | 306,953 | 294,570 | 256,018 | 216,014 | |||||||||||
| Loans, net of deferred loan fees | 1,893,906 | 1,873,701 | 1,829,448 | 1,742,755 | 1,617,562 | |||||||||||
| Allowance for credit losses | (20,172 | ) | (20,075 | ) | (19,659 | ) | (18,631 | ) | (17,485 | ) | ||||||
| Loans, net | 1,873,734 | 1,853,626 | 1,809,789 | 1,724,124 | 1,600,077 | |||||||||||
| Loans held for sale | 785 | — | — | — | — | |||||||||||
| Premises and equipment, net | 15,496 | 15,867 | 16,113 | 16,581 | 16,812 | |||||||||||
| Operating lease right-of-use assets | 6,050 | 6,250 | 6,449 | 6,646 | 6,841 | |||||||||||
| Goodwill | 21,824 | 21,824 | 21,824 | 21,824 | 21,824 | |||||||||||
| Accrued interest receivable and other assets | 87,272 | 83,126 | 89,469 | 89,713 | ||||||||||||
