Chemung Financial Corp (CHMG) is a $2.8 billion financial services holding company headquartered in Elmira, New York. Through its principal subsidiary, Chemung Canal Trust Company, the Corporation has been serving its local communities for over 190 years, making it the oldest locally-owned and managed community bank in New York State.
Chemung Financial's History of Steady Growth and Resilience
Chemung Financial's roots trace back to 1833 when Chemung Canal Trust Company was first established. Over the decades, the bank has weathered various economic cycles, including the Great Depression and the 2008 financial crisis, adapting its strategy to meet the evolving needs of its customers while maintaining a focus on prudent risk management.
In 2001, Chemung Financial Corporation was formed as the holding company for Chemung Canal Trust Company, allowing the organization to diversify its operations and explore new business opportunities. This transition to a financial holding company structure enabled the Corporation to expand its product offerings and venture into new avenues for growth.
A significant milestone in the company's history was the launch of CFS Group, Inc., the Corporation's financial services subsidiary that provides wealth management, trust, and investment advisory services. This expansion into fee-based businesses has helped enhance Chemung Financial's revenue stream and balance out its reliance on the interest rate environment.
In more recent years, the Corporation has further bolstered its regional presence through strategic branch acquisitions and de novo openings. A notable expansion occurred in 2018 when the company opened a new regional banking center in the Capital Region of New York, strengthening its presence in the state and allowing it to better serve customers in a larger market.
During the COVID-19 pandemic in 2020, Chemung Financial Corporation demonstrated its resilience by adapting its operations to meet the evolving needs of its customers. The company leveraged technology to maintain uninterrupted service and support its community during this challenging time, further solidifying its position as a trusted financial institution in New York State.
Navigating Challenging Times with Prudent Risk Management
Despite the headwinds faced by the banking industry in recent years, Chemung Financial has demonstrated its ability to navigate turbulent conditions. The Corporation's disciplined approach to credit underwriting and funding cost management has enabled it to maintain solid profitability and a well-capitalized balance sheet.
As of September 30, 2024, Chemung Financial reported a total risk-based capital ratio of 13.31%, well above the 10% threshold for well-capitalized institutions. This strong capital position has provided the bank with the flexibility to support loan growth, make strategic investments, and return capital to shareholders through a consistently maintained dividend.
Liquidity
Chemung Financial's liquidity profile is noteworthy, with a cash and cash equivalents balance of $80.4 million as of September 30, 2024. The bank's investment portfolio of $554.6 million in securities available for sale provides an additional source of liquidity, should the need arise. Furthermore, the Corporation has access to $75 million in unsecured lines of credit with five financial institutions, enhancing its liquidity position and providing additional financial flexibility.
Diversified Revenue Streams Driving Consistent Performance
Chemung Financial's financial performance has been characterized by its ability to generate stable earnings, even in the face of industry headwinds. For the year ended December 31, 2024, the Corporation reported net income of $23.7 million, or $4.96 per share, despite the challenges posed by the interest rate environment.
The bank's diversified revenue streams have been a key contributor to its resilience. In addition to its traditional net interest income from lending and investing activities, Chemung Financial has been able to leverage its wealth management subsidiary, CFS Group, to generate a steady stream of non-interest income. For the nine months ended September 30, 2024, CFS Group contributed $8.6 million in fee income, representing nearly 50% of the Corporation's total non-interest income.
Financials
For the nine months ended September 30, 2024, Chemung Financial reported net income of $17.76 million, or $3.72 per share, compared to $21.20 million, or $4.48 per share, for the same period in the prior year. The decrease was primarily attributable to decreases in net interest income and non-interest income, as well as an increase in non-interest expense, offset by a decrease in the provision for credit losses.
Net interest income for the nine months ended September 30, 2024 totaled $54.24 million, a decrease of 4.1% compared to the same period in the prior year, due to an increase of $14.25 million in interest expense, partially offset by an increase of $11.93 million in interest and dividend income. The increase in interest expense was primarily attributed to a $13.3 million increase in interest expense on deposits.
Non-interest income for the nine months ended September 30, 2024 decreased 8.1% to $17.17 million, primarily due to decreases in other non-interest income and interchange revenue from debit card transactions, partially offset by increases in Wealth Management Group fee income and changes in the fair value of equity investments.
Non-interest expense increased 4.2% to $49.43 million for the nine months ended September 30, 2024, primarily due to increases in compensation expense and non-compensation expense.
For the most recent quarter (Q3 2024), Chemung Financial reported revenue of $32.597 million and net income of $5.914 million. The operating cash flow for the quarter was negative $12.391 million, while free cash flow was negative $11.291 million.
Furthermore, Chemung Financial has demonstrated prudent expense management, with a reported efficiency ratio of 68.97% for the nine-month period ended September 30, 2024. This disciplined approach to controlling costs has helped offset the pressure on net interest margins and supported the bank's overall profitability.
Core Banking and Wealth Management Segments
Chemung Financial operates through two main business segments: Core Banking and Wealth Management Group (WMG).
The Core Banking segment generates revenues by attracting deposits from the general public and using those funds to originate consumer, commercial, commercial real estate, and residential mortgage loans, primarily in CHMG's local markets, as well as to invest in securities. As of September 30, 2024, the Core Banking segment's loan portfolio totaled $2.03 billion, up 2.9% from December 31, 2023. The increase was primarily attributable to a $52 million increase in commercial mortgage loans and a $24.9 million increase in commercial and industrial loans, offset by decreases of $20.9 million in indirect consumer loans and $3.9 million in residential mortgages.
Commercial lending continues to be a primary driver of asset growth, with total commercial real estate loans, inclusive of construction loans, increasing by $46.7 million in CHMG's Capital Bank division and $6.8 million in the Canal Bank division. Commercial and industrial loan growth was concentrated in the Capital Bank division, increasing by $19.6 million.
The Wealth Management Group (WMG) segment provides revenues by offering trust and investment advisory services to clients. As of September 30, 2024, the market value of total assets under management or administration in WMG was $2.32 billion, including $367.8 million of assets held under management or administration for CHMG. This represents an increase of $73.2 million, or 3.3%, primarily attributable to market improvements during 2024.
Prudent Expansion and Shareholder Returns
Looking ahead, Chemung Financial remains committed to its strategy of prudent expansion and shareholder value creation. The Corporation continues to explore opportunities to expand its footprint in its existing markets, as evidenced by the recent opening of a new regional banking center in Williamsville, New York, under its Canal Bank division.
At the same time, Chemung Financial has maintained a consistent approach to capital allocation, returning a portion of its earnings to shareholders through a quarterly cash dividend. The bank's Board of Directors recently approved a dividend increase of $0.01 per share, raising the quarterly payout to $0.32 per share, effective for the first quarter of 2025.
Risks and Challenges Ahead
While Chemung Financial has demonstrated its ability to navigate challenging conditions, the bank is not immune to the broader risks facing the banking industry. The ongoing macroeconomic uncertainties, including the potential for a slowdown in economic growth and rising interest rates, could put pressure on the bank's net interest margins and asset quality.
Additionally, the competitive landscape in Chemung Financial's markets remains intense, with larger regional and national banks vying for market share. The bank's ability to maintain its competitive edge and attract and retain customers will be crucial to its continued success.
Conclusion
Chemung Financial Corp (CHMG) is a well-established community bank with a proven track record of weathering economic cycles and delivering consistent financial performance. The Corporation's diversified revenue streams, prudent risk management, and shareholder-friendly capital allocation strategy have enabled it to navigate the challenges facing the banking industry.
As Chemung Financial continues to expand its regional footprint and explore new avenues for growth, investors will be closely watching the bank's ability to maintain its competitive edge and deliver sustainable returns. With its strong balance sheet, seasoned management team, and deep community roots, Chemung Financial appears well-positioned to continue its legacy of serving its local markets for years to come.
The bank's focus on commercial lending, particularly in its Capital Bank division, coupled with its growing Wealth Management Group, provides a solid foundation for future growth. By leveraging its technological investments and digital capabilities, Chemung Financial is poised to meet the evolving needs of its customers while maintaining its commitment to community banking principles.