Chemung Financial (CHMG) - 2024 Q1 - Quarterly Results

Overview and First Quarter 2024 Highlights First Quarter 2024 Financial Highlights Chemung Financial Corporation reported strong Q1 2024 financial results, including increased net income, record loan growth, and improved credit quality Q1 2024 Key Financial Results | Metric | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Net Income | $7.1 million | $3.8 million | $7.3 million | | Diluted EPS | $1.48 | $0.80 | $1.54 | | Dividends Declared per Share | $0.31 | $0.31 | $0.31 | - Total loans surpassed $2.0 billion for the first time, growing by $30.9 million during the quarter[68] - Credit quality improved, with non-performing loans to total loans decreasing to 0.39% as of March 31, 2024, from 0.53% at year-end 2023[2] Management Commentary The President and CEO, Anders M Tomson, highlighted the strong start to 2024, attributing success to the company's core businesses and client-focused model - CEO Anders M Tomson highlighted 6% annualized loan growth and improving credit metrics as an endorsement of the client-focused business model[44] Financial Performance Analysis Q1 2024 vs Q4 2023 (Quarter-over-Quarter) Net income more than doubled quarter-over-quarter, primarily driven by a significant decrease in the provision for credit losses and a slight increase in net interest income Net Interest Income (QoQ) - Net interest income increased by $0.2 million (1.1%) to $18.1 million, driven by a $1.1 million rise in loan interest income, partially offset by higher interest expenses[4] - Fully taxable equivalent net interest margin expanded by 4 basis points to 2.73% from 2.69%, partly due to $0.3 million in interest income from a nonaccrual commercial loan payoff[45][71] - The average cost of total borrowings decreased by 37 basis points to 5.15%, supported by the $50.0 million BTFP advance at 4.91%[5] Provision for Credit Losses (QoQ) - Provision for credit losses significantly decreased by $4.3 million, shifting from a $2.3 million provision in Q4 2023 to a $(2.0) million credit in Q1 2024[6][32] - The decrease was primarily due to an annual review of CECL model loss drivers, resulting in lower historical loss experience and favorable economic forecasts for unemployment and GDP[6][82] Non-Interest Income (QoQ) - Non-interest income decreased by $0.2 million (3.4%) to $5.7 million, primarily due to lower service charges, debit card interchange revenue, and fair value changes in equity investments[50] Non-Interest Expense (QoQ) - Non-interest expense decreased slightly by $0.1 million (0.8%) to $16.7 million, with a $0.7 million decrease in other expenses partially offset by higher salaries, benefits, and marketing costs[51] - Marketing and advertising expenses increased due to a 190th-anniversary checking account campaign and a new CD campaign[8] Income Tax Expense (QoQ) - Income tax expense increased by $1.2 million to $2.0 million, with the effective tax rate rising to 22.4% from 18.1% due to higher pretax income[52] Q1 2024 vs Q1 2023 (Year-over-Year) Net income decreased slightly year-over-year, primarily due to net interest income compression, partially offset by a significant reduction in the provision for credit losses Net Interest Income (YoY) - Net interest income decreased by $1.8 million (8.8%) to $18.1 million, primarily driven by a $6.8 million increase in interest expense on deposits[53] - The average interest rate paid on interest-bearing deposits increased by 141 basis points, reflecting the rising rate environment and a shift to higher-cost deposits[10] - Fully taxable equivalent net interest margin compressed to 2.73% from 3.14%, as the average cost of interest-bearing liabilities rose 136 basis points, outpacing the 58 basis point increase in asset yields[77] Provision for Credit Losses (YoY) - Provision for credit losses decreased by $2.3 million year-over-year, mainly due to the CECL model update, favorable economic forecasts, and lower loan growth[12][78] Non-Interest Income (YoY) - Non-interest income increased by $0.3 million (5.6%) to $5.7 million, primarily from a $0.1 million increase in wealth management fee income due to higher assets under management[13] Non-Interest Expense (YoY) - Non-interest expense increased by $0.9 million (5.7%) to $16.7 million, driven by higher pension and employee benefits ($0.4 million), salaries and wages ($0.2 million), and data processing costs ($0.2 million)[57][14] Income Tax Expense (YoY) - Income tax expense of $2.0 million was comparable to Q1 2023, with the effective tax rate at 22.4% in Q1 2024 versus 21.5% in Q1 2023[58] Financial Condition Analysis (as of March 31, 2024) Balance Sheet Activity Total assets grew to $2.785 billion as of March 31, 2024, driven by increases in cash, commercial loans, and deposits Balance Sheet Changes (vs Dec 31, 2023) | Account | Change (in millions) | Key Driver(s) | | :--- | :--- | :--- | | Total Assets | +$74.4 | Increase in cash and loans | | Total Loans, net | +$30.9 | Growth in commercial loans (+$38.1M) | | Total Investment Securities | -$19.4 | Paydowns and market value decline | | Total Deposits | +$51.3 | Growth in interest-bearing demand and time deposits | | Total Liabilities | +$72.5 | Deposit growth and new BTFP advance | | Total Shareholders' Equity | +$1.9 | Retained earnings growth offset by AOCI loss | Asset Quality Asset quality metrics significantly improved, with notable decreases in non-performing loans and assets, leading to stronger reserve coverage Asset Quality Metrics | Metric | March 31, 2024 | Dec. 31, 2023 | | :--- | :--- | :--- | | Non-performing loans (NPLs) (in millions) | $7.8 | $10.4 | | NPLs to Total Loans | 0.39% | 0.53% | | Non-performing assets (NPAs) (in millions) | $8.4 | $10.7 | | NPAs to Total Assets | 0.30% | 0.40% | | Allowance for Credit Losses (ACL) to NPLs | 261.28% | 216.28% | | ACL to Total Loans | 1.02% | 1.14% | | Annualized Net Charge-offs to Avg. Loans | 0.04% | 0.05% (for FY2023) | - The decrease in NPLs was primarily due to the $1.9 million payoff of a nonaccrual commercial real estate loan[59] Liquidity and Capital Resources The Corporation maintains strong liquidity and capital, supported by available-for-sale securities, FHLB and FRB funding, and capital ratios well above regulatory requirements - Key liquidity sources include $94.9 million in cash, a $566.0 million available-for-sale securities portfolio ($240.3 million unpledged), and $231.0 million in available FHLB borrowing capacity[17] - In January 2024, the Corporation utilized the FRB's Bank Term Funding Program (BTFP) with a $50.0 million advance to leverage lower interest rates[16][17] - Uninsured deposits totaled $689.4 million (27.8%) of total deposits, including $190.7 million of municipal deposits collateralized by pledged assets[86] Key Capital Ratios | Ratio | March 31, 2024 | Dec. 31, 2023 | | :--- | :--- | :--- | | Total Equity to Total Assets | 7.08% | 7.20% | | Tangible Equity to Tangible Assets | 6.34% | 6.45% | | Book Value per Share | $41.35 | $41.07 | Other Items The Wealth Management Group's assets under management increased due to favorable equity markets, while the stock repurchase program remained active - Assets under management in the Wealth Management Group increased by $108.0 million (4.8%) to $2.350 billion, primarily due to improvements in equity markets[87] - As of March 31, 2024, 200,816 shares remained available for repurchase under the existing stock buyback program, with no shares repurchased in Q1 2024[65] Appendix: Financial Tables & Non-GAAP Reconciliation - The company uses non-GAAP measures such as tangible book value, adjusted efficiency ratio, and fully taxable equivalent net interest margin to facilitate comparison and show performance trends[120][24] Consolidated Financial Highlights (Unaudited) This section provides a five-quarter summary of the Corporation's key operational results, performance ratios, capital metrics, and asset quality data, allowing for trend analysis Quarterly Performance Ratios | Ratio | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Return on average assets | 1.04% | 0.56% | 1.12% | | Return on average equity | 14.48% | 8.63% | 16.97% | | Net interest margin (FTE) | 2.73% | 2.69% | 3.14% | | Efficiency ratio (unadjusted) | 70.32% | 70.79% | 62.42% | Consolidated Balance Sheets (Unaudited) This table presents the Corporation's consolidated balance sheets at the end of each of the last five quarters, detailing assets, liabilities, and shareholders' equity Selected Balance Sheet Items (in thousands) | Account | March 31, 2024 | Dec. 31, 2023 | March 31, 2023 | | :--- | :--- | :--- | :--- | | Total Assets | $2,784,890 | $2,710,529 | $2,654,183 | | Loans, net | $1,983,139 | $1,950,147 | $1,853,626 | | Total Deposits | $2,480,772 | $2,429,427 | $2,332,429 | | Total Shareholders' Equity | $197,128 | $195,241 | $177,341 | Consolidated Statements of Income (Unaudited) This section provides a detailed year-over-year comparison of the consolidated statements of income for the three months ended March 31, 2024, and March 31, 2023, showing percentage changes for each line item Income Statement YoY Comparison (in thousands) | Line Item | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $18,089 | $19,947 | (9.3)% | | Provision (credit) for credit losses | $(2,040) | $277 | (836.5)% | | Total Non-interest Income | $5,657 | $5,423 | 4.3% | | Total Non-interest Expense | $16,698 | $15,836 | 5.4% | | Net Income | $7,050 | $7,270 | (3.0)% | Average Consolidated Balance Sheets & Net Interest Income Analysis This table provides a detailed rate/volume analysis of net interest income, breaking down the changes between Q1 2024 and Q1 2023 into components attributable to changes in average balances (volume) and changes in average yields/rates - The $4.975 million year-over-year increase in total interest income was driven by a $1.870 million increase from higher asset volumes and a $3.105 million increase from higher rates[21] - The $6.847 million year-over-year increase in total interest expense was driven by a $1.357 million increase from higher liability volumes and a $5.490 million increase from higher rates[94] GAAP to Non-GAAP Reconciliations The Corporation provides non-GAAP financial measures, including tangible equity, fully taxable equivalent net interest income, and adjusted efficiency ratio, to offer insights into operational performance and trends Tangible Equity and Tangible Assets Tangible Book Value per Share (Non-GAAP) | Metric | March 31, 2024 | Dec. 31, 2023 | | :--- | :--- | :--- | | Book Value per Share (GAAP) | $41.34 | $41.07 | | Tangible Book Value per Share (Non-GAAP) | $36.77 | $36.48 | - Tangible equity (non-GAAP) is calculated by subtracting $21.8 million in intangible assets from GAAP total shareholders' equity, resulting in $175.3 million as of March 31, 2024[123] Fully Taxable Equivalent Net Interest Income and Net Interest Margin Net Interest Margin Reconciliation | Metric | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Net Interest Income (GAAP) (in thousands) | $18,089 | $17,898 | $19,947 | | Fully Taxable Equivalent Adjustment (in thousands) | $84 | $87 | $98 | | FTE Net Interest Income (Non-GAAP) (in thousands) | $18,173 | $17,985 | $20,045 | | FTE Net Interest Margin (Non-GAAP) | 2.73% | 2.69% | 3.14% | Efficiency Ratio Efficiency Ratio (Adjusted vs Unadjusted) | Ratio | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Efficiency Ratio (Unadjusted) | 70.32% | 70.79% | 62.42% | | Efficiency Ratio (Adjusted) | 70.07% | 70.42% | 62.18% | Adjusted Net Income and EPS - For Q1 2024, reported GAAP net income of $7.05 million and EPS of $1.48 were identical to the non-GAAP figures, indicating no adjustments were made[42]