Chemung Financial Corporation
Annual Report 2009

Plain-text annual report

CHEMUNG FINANCIAL CORPORATION 2009 ANNUAL REPORT FINANCIAL HIGHLIGHTS (in thousands, except per share data) OPERATING RESULTS - Year Ended December 31 Net Interest Income Provision for loan losses Non-interest income: Securities gains, net Trust Preferred impairment writedown Trust & Investment Services Income Other operating income Other operating expense Net income At Year End: Assets Loans, net of deferred fees and costs, and unearned income Allowance for loan losses Deposits Shareholders’ equity Employees (full time equivalent) Share and Per Share Data: Net income Book value, at year end Tangible book value, at year end Dividends declared Shares outstanding (average) Ratios: Allowance to total loans Return on average assets Return on average Tier I Equity 2009 $ 33,155 2,450 2008 $ 30,668 1,450 % of Change 8.11% 68.97% 785 -2,242 8,089 9,078 39,321 5,233 589 -803 6,834 10,518 33,968 8,354 $ 975,919 $ 838,318 595,853 9,967 801,063 90,086 327 1.45 24.97 20.64 1.00 3,603 1.67% 0.56% 6.97% 565,185 9,106 656,909 83,007 309 2.32 23.14 18.96 1.00 3,594 1.61% 1.00% 11.45% 33.28% 179.20% 18.36% -13.69% 15.76% -37.36% 16.41% 5.43% 9.46% 21.94% 8.53% 5.83% -37.50% 7.91% 8.86% 0.00% 0.25% Trust Assets Under Administration (Market Value) as Fiduciary as Custodian $1,163,880 468,317 $1,632,197 $1,131,802 446,569 $1,578,371 2.83% 4.87% 3.41% Market Prices of Chemung Financial Corporation Stock During Past Three Years (dollars) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 2009 15.00 – 22.00 17.25 – 23.00 18.75 – 21.25 19.55 – 23.00 2008 24.35 – 28.25 25.50 – 28.25 22.15 – 26.30 19.55 – 25.10 2007 30.00 – 33.00 29.05 – 32.10 27.55 – 31.00 25.49 – 30.00 Dividends Paid Per Common Share by Chemung Financial Corporation During Past Three Years January 2 April 1 July 1 October 1 2009 0.25 0.25 0.25 0.25 1.00 2008 0.25 0.25 0.25 0.25 1.00 2007 0.24 0.24 0.24 0.24 0.96 As of December 31, 2009 there were 555 registered holders of record of the Corporation’s stock. Chemung Financial Corporation common stock is inactively traded in the over-the-counter market. The quarterly market price ranges for the Corporation’s stock for the past three (3) years are based upon actual transactions as reported by brokerage firms which maintain a market or conduct trades in the Corporation’s stock and other transactions known by the Corporation’s management. MISSION The mission of Chemung Financial Corporation is to remain a strong and independent financial services organization creating value for shareholders, customers, employees and the communities where the company does business, while maintaining the highest standards of business ethics. Chemung Financial is a community-oriented, client-focused organization. VISION The vision of Chemung Financial Corporation is to be a high-performing community bank remaining true to our mission, and to become the company of choice for customers, employees, investors and financial services companies seeking a partner. Cover image: Overlooking the Chemung Valley ©2010 Polly Smith-Blackwell May totaling approximately $1.448 million; other-than- temporary impairment (OTTI) charges of $2.242 million on trust preferred securities pools carried in the Corporation’s investment portfolio; a $1.0 million increase in the provision for loan losses; higher FDIC insurance costs of $1.402 million which included a special assessment of $439 thousand; and, higher pension costs totaling $2.323 million. Recent accounting rule changes required that we expense one-time acquisition charges at the time of acquisition in contrast to past practices where these costs could be capi- talized as part of acquisition goodwill. The write-down of the trust preferred securities pools is required by current accounting rules despite the fact that we continue to receive all contractual payments on these securities. The increase in the provision for loan losses was principally due to increases in nonperforming and classified loans as well as higher net loan charge-offs. It should be noted that our allowance for loan losses as a percent of total loans at year end was 1.67%, a level considered very healthy and higher than most of our peers. The higher FDIC insurance costs are a direct result of the increase in bank failures and the need for the FDIC to replenish the deposit insurance fund. Notwithstanding another “special assessment” on top of our regular premi- ums, this expense will be less in 2010. The higher pension costs were driven by the equity market decline in the latter part of last year, but we are pleased to report that we have recovered most of these losses in the market value of our pension plan and the expense for 2010 will be greatly reduced. When you eliminate the one-time, non-recurring items, our results were essentially on target. With the softening of our local economy, we have seen a rise in delinquencies and nonperforming loans, although they remain at very manageable levels. Excluding a USDA guarantee on a large portion of a large commercial credit that has been restructured and, therefore, included in our nonper- forming loan figures, total nonperforming loans as a percent of total loans was 1.50%, a level consistent with other banks in the northeast. At December 31, 2009, our balance sheet reflects total assets of $976 million, total loans of $596 million, total deposits of $801 million and total shareholders’ equity of $90 million. Our capital ratios remain at levels well above those consid- ered to be well capitalized by regulators. The market value of total assets under management or administration in our Trust & Investment Center exceeds $1.6 billion. 1 Ronald M. Bentley David J. Dalrymple TO OUR SHAREHOLDERS We are pleased to report that 2009 was another good, albeit challenging, year for your company. While earnings were down from the previous year, our financial results were in line with our expectations after accounting for several extraordinary items which are discussed in detail below. In May, we completed the successful acquisition and integra- tion of the Bank of Canton, an $80 million community bank headquartered in Canton, PA with branch offices in Troy and Towanda, PA. This merger expanded our footprint into the contiguous northern tier of Pennsylvania and was imme- diately accretive to earnings, excluding one-time acquisition related expenses. With the addition of these three offices in Bradford County, PA, we now operate 23 full service offices in seven counties. While our local economy has fared better than many parts of the country, the Great Recession is clearly being felt by our residents and businesses and, consequently, our bank. Our disciplined underwriting and conservative business model have prepared us well for these times. The year was also marked by a maelstrom of potential change coming out of Washington which will likely impact future results. Financial Results Net income for the year was $5.233 million representing a 37% decrease from 2008. Earnings per share of $1.45 were also 37% lower than last year. Our return on average assets for 2009 was .56% and our return on average equity was 6.13%, down from 2008 levels of 1.00% and 9.36%, respec- tively. In 2009, $3.522 million in dividends were declared continuing over 100 years of uninterrupted dividend pay- ments. Our 2009 financial results were negatively impacted by several significant items including: one-time acquisition costs related to the acquisition of Canton Bancorp, Inc. in Growth and Acquisitions In the Bank of Canton acquisition, we acquired approximately $70 million in deposits, $59 million in loans and 9,000 accounts. The acquisition, systems conversion and integra- tion went very smoothly and we continued to gain and refine our expertise in this area, a critical and important skill as we expect acquisitions will be a part of our future growth. Our Bank of Canton colleagues did an admirable job throughout the merger process and we are glad they are now members of our organization. Due to this acquisition, as well as organic growth, total assets grew $138 million or 16% and total deposits climbed $144 million or 22%. Total loans, however, only increased $31 million or 5% as a result of weaker loan demand and our decision to sell most newly originated low fixed rate residential mortgages in the secondary market for interest rate risk management purposes. There is a popular misconception across the nation that banks are not lending. This is clearly not the case at Chemung Canal as we have the capacity and willingness to make loans to creditworthy borrowers. In June of 2008, we purchased Cascio Financial Strategies, a long-time Elmira firm providing financial planning, invest- ment and tax preparation services. While market conditions have hurt this line of business, we are well positioned to serve the complete financial needs of our clients as the market recovers and clients seek alternative investment opportunities. In addition, our new tax preparation service has been very well received by our clients and we expect to grow this business markedly in 2010. In March of 2008, we acquired three branches of M&T bank; two in Broome County and one in Tioga County. This acqui- sition expanded our presence into a contiguous and sizeable market and we continue to be encouraged by the warm reception we have received in these communities. In January of 2009, we relocated our Community Corners office in Ithaca to a free-standing building with greatly improved visibility, accessibility and banking services. This investment is already paying dividends as this office has seen solid growth since the move. tion growth has made us more efficient. But it does not stop there. Behind the scenes, we are questioning and challeng- ing everything we do in an effort to find a better way. It is an essential and healthy process and one producing results. Through these initiatives over the past three years, we have delivered over $2 million in annual profit improvement. To use an overused metaphor, we are hitting a lot of singles. This past October, we launched a Private Banking/Wealth Management practice. By combining some of our traditional core strengths and resources with some newly acquired capabilities, and staffed by professionals who understand the needs of high net worth individuals, we have a platform that can make a meaningful difference for this market segment. With the exploration and development of the Marcellus Shale, one of the most promising natural gas reserves in the country, we collaborated with other professionals to help educate landowners on the various aspects of gas land leases and royalties. This development has the potential to create significant wealth in our region and we have positioned ourselves as a source for investment management and estate planning. Recent events in the financial and credit markets demonstrated that many organizations lacked effective and sound risk management systems. While we believe we effectively manage major risks to our organization, we subscribe to the theory of continuous improvement and re-examined our practices. As a result, a new process that provides for overarching, umbrella oversight of major risks has been implemented. We feel this process has strengthened our risk management practices. Capital Management Growth remains the lifeblood of our business, any business. Our strategy has been to grow our company organically, through branch expansion and by acquiring branches, banks and businesses that complement existing strengths and market niches. Evidenced by the heated acquisition activity of the past four years, we have used our capital to accomplish this growth and believe shareholder value has been enhanced as a result. Other Accomplishments One of our major goals as an organization is to become more efficient. Naturally, leveraging our infrastructure and building our balance sheet without adding overhead makes us a more efficient company. Our recent history of organic and acquisi- Investing in our People In this crowded field of financial services providers, it is the quality of our people and the service they deliver that distinguishes Chemung Canal. Banking has become a commodity business and service is the only sustainable and 2 defining competitive advantage. CanalCare, our service promise to both external and internal clients, remains the nucleus of our efforts to make client service the hallmark of our success and our service quality measurement systems strongly suggest we are exceeding client expectations. We also continue to invest in the professional growth and development of our “human assets.” Whether earning a degree at a local college, attending an industry-sponsored professional seminar, participating in an in-house coaching program, or training our front-line personnel to uncover the financial needs of our clients, we are committed to providing the resources to help our people be successful in their jobs. Community Involvement and Leadership Creating value for the communities we serve has long been an integral part of our mission and we do this in many ways besides providing credit to individuals, businesses and other organizations. Hundreds of organizations receive financial support each year in the form of direct contributions or sponsorships. Our sponsorship of the LPGA Corning Classic, the Fourth of July Celebration at Eldridge Park, the Watkins Glen Grand Prix Festival, the Clemens Center, the Arnot Art Museum and the Binghamton Tennis Challenge, are examples of Chemung Canal helping to bring quality events and entertainment to our region making this place we call home a more enjoyable place to live and work. Moreover, our employees devote thousands of hours of their personal time to community and philanthropic organizations. They are involved and play a leadership role in many worthy causes including the United Way, Susan G. Komen Race for the Cure and the Buddy Walk for individuals with Down Syndrome, just to name a few. We are proud of them and appreciate their efforts which enhance the quality of life for all. Our Board of Directors In connection with our merger with the Bank of Canton, we invited Robert Storch to join our board of directors and his election was approved by our shareholders in May. Bob is a lifelong resident of Troy, PA and was a long-time member of the Canton board. He brings to Chemung Canal extensive experience in the dairy and farming industry and, with our entry into northern Pennsylvania, adds a valued dimension to our corporate governance. We look forward to his contribu- tions to our organization. The Future In response to the credit and financial crisis, there is a dizzying array of proposals coming out of Washington. Few of our elected officials fully understand that community banks were not responsible for this crisis. But once again, many will be punished for the transgressions of the few. Our regulatory burden is already stifling—we are disillusioned when we try to quantify how much we spend on compliance. Our legisla- tors and government officials are now bent on controlling and regulating our every action from product offerings to incentive compensation programs to overdraft and interchange fees. We will continue to join forces with our industry trade associations and other community banks to advocate for balanced, sensible reform. In this time of what promises to be dramatic change for our industry, we are consoled by the fact that our community banking philosophy and conservative business model have served us well for over 175 years. The one certainty is our unwavering dedication to our community bank mission. We will continue to build long-term relationships with our clients and play a vital role in the communities we serve. Deposits gathered locally will be channeled back into our local communities in the form of loans to businesses, individuals, organizations and other enterprises. The growth we have experienced over the past few years is compelling evidence of the peoples’ preference for a community bank. By any measure, we are well prepared to deal with whatever comes our way and we are grateful to our staff and board of directors for building this solid foundation. We are also thankful for the continued support of our clients, employees, shareholders and the communities we serve. Ronald M. Bentley President and Chief Executive Officer David J. Dalrymple Chairman of the Board 3 Sitting (l to r) R. Swan, R. Dalrymple, R. Bentley, D. Dalrymple, T. Meier, W. Eggers, Standing (l to r) C. Streeter, Jr. R. Agan, R. Meyer, J. Updegraff, C. Drinkwater, S. Lounsberry III, R. Storch and J. Potter BOARD OF DIRECTORS Robert E. Agan Chairman Emeritus Hardinge, Inc. Robert H. Dalrymple Vice President and Secretary Dalrymple Holding Corporation Thomas K. Meier President Elmira College Charles M. Streeter, Jr. Retired President Streeter Associates, Inc. Ronald M. Bentley President and Chief Executive Officer Chemung Financial Corporation, Chemung Canal Trust Company and CFS Group, Inc. David J. Dalrymple Chairman of the Board Chemung Financial Corporation, Chemung Canal Trust Company and President Dalrymple Holding Corporation Clover M. Drinkwater Partner Sayles & Evans William D. Eggers Senior Counsel Nixon Peabody LLP Stephen M. Lounsberry, III President Applied Technology Manufacturing Ralph H. Meyer Retired President and Chief Executive Officer Guthrie Healthcare System Richard W. Swan Chairman of the Board Swan and Sons-Morss Co. Inc. John F. Potter President Seneca Beverage Corp. Robert L. Storch Retired Owner Storchmont Dairy Farms Jan P. Updegraff Retired President and Chief Executive Officer Chemung Financial Corporation and Chemung Canal Trust Company OTHER INFORMATION Dividend Investment and Stock Purchase Plan Registered shareholders of Chemung Financial Corporation, through The Dividend Investment and Stock Purchase Plan, may invest their dividends or make quarterly cash payments to purchase additional stock of the Corporation. Shareholders not enrolled in the plan may receive a descriptive brochure and authorization card for the plan upon written request to the Corporation’s secretary at the following address: Chemung Financial Corporation Attn: Corporate Secretary P.O. Box 1522 Elmira, New York 14902-1522 www.chemungcanal.com 4 Form 10-K Annual Report A copy of the Corporation’s Form 10-K Annual Report is available without charge to shareholders after March 31, 2010 upon written request to the Corporation’s secretary. A copy is also available on our Transfer Agent, American Stock Transfer & Trust Company’s website at www.amstock.com/proxymaterials/viewmaterials.asp. Annual Meeting The Annual Meeting of Shareholders will be held on Wednesday, May 5, 2010 at 2:00 p.m. at the downtown Holiday Inn, Elmira — Riverview. CHEMUNG CANAL TRUST COMPANY & CFS GROUP, INC. OFFICERS EXECUTIVE MANAGEMENT TEAM Ronald M. Bentley President & Chief Executive Officer John R. Battersby, Jr. Executive Vice President, Chief Financial Officer & Treasurer James E. Corey, III Executive Vice President, Chief Risk Officer & CanalCare Executive Melinda A. Sartori Executive Vice President Trust & Investment Services Jane H. Adamy Senior Vice President, Corporate Secretary & Trust Compliance Officer Richard G. Carr Senior Vice President Business Client Services Michael J. Crimmins Senior Vice President Support Services Louis C. DiFabio Senior Vice President Retail Client Services Linda M. Struble Senior Vice President Human Resources Norman R. Ward Senior Vice President & Auditor Michael J. Wayne Senior Vice President & Director of Marketing SENIOR VICE PRESIDENTS Elizabeth T. Dalrymple Trust & Estate Administration Bradley S. Eaton Regional Trust Executive Douglas R. Johnson Regional Trust Executive Thomas J. Whitaker Finance Thomas W. Wirth, CFA Trust Investment Services VICE PRESIDENTS Deborah A. Adams Compliance & CRA Joseph W. Ahern Regional Trust Officer Yvonne L. Albee Trust Operations Ronald E. Allison Community Relations Judy L. Barton Bank Operations James D. Ripley Logistical Support Debra A. Newcomer Main Office Branch Manager Nancy J. Battersby (1) Trust & Estate Administration Robert A. Roemmelt, Jr. Arnot Road Branch Manager Douglas F. Bissonette Trust & Estate Administration Larry W. Rudawsky Retirement Services Group Michael D. Blatt, CFA Trust Investment Services John J. Sentigar Information Technology Rose J. Catalano Corporate Architect Catherine B. Crandall Trust & Estate Administration Larry G. Denniston Regional Investment Officer Leslie J. Distin Regional Trust Officer Daniel R. Donovan Consumer Lending Jacqueline L. Stevens Branch Administration Kenneth L. Wilson (2) Business Development Executive ASSISTANT VICE PRESIDENTS Kimberly A. Bailey Canton Branch Manager Michael J. Battersby Horseheads Branch Manager Lucimar Foo-Siam Escudero Loan Review & Commercial Credit Pamela D. Burns Human Resources Alex A. Gilliam Business Development David Carlson Troy Branch Manager William M. Hodel Commercial Lending Marianne T. Kalec Real Estate Lending Pamela A. Kelley Regional Trust Officer Richard W. Carroll Watkins Glen Branch Manager Deborah A. Cram (1) Southport Branch Manager Gary K. Earley Trust & Estate Administration Celeste D. Knickerbocker Finance Constance L. English Corning Branch Manager John E. Kravec BSA/AML Officer Christopher J. Giammichele Commercial Lending Michael S. Lares (1) Trust Investment Services Ronald W. Lesch Regional Commercial Loan Executive Sandra L. Grooms The Station (Ithaca) Branch Manager Craig B. Heffner Commercial Lending Christopher B. Loughridge Trust Investment Services Scott T. Heffner Marketing Audrey Manchester Branch Administration Megan B. Horton Owego Branch Manager Brendan P. McCormick Audit Mary L. Keefe e-Business Services J. Edmond Morton, IV Private Banking Matthew T. Keefe Information Technology Joseph H. Perry Ithaca Region Robert M. Pichette Commercial Lending Manager Ronald W. Poole Commercial Lending Chester L. Reed (2) Commercial Lending Sandra J. Martinichio Trust Tax Services Eileen M. McCarthy Trust & Investment Administrative Services Tina M. McGurgan Information Technology Mary Anne Narosky Business Client Services Kerry L. Oetting, CPC, QPA, QKA Retirement Services Group Joan M. Smith Finance Debra L. Stanton, CFSA Security Officer Theresa A. Wagner Deposit Operations David A. Wakeman Resource Recovery ASSISTANT TREASURERS John H. Brand Trust Investment Services Donna M. Coles Elmira Heights Branch Manager Alison J. Conklin-DeVita Waverly Branch Manager Cheryl A. DeBlock Vestal Branch Manager Karen A. Dimmick Westside (Elmira) Branch Manager Jennifer L. White Bath Branch Manager Tina M. Sabina Real Estate Lending Sheryl J. Scott Big Flats Branch Manager Jennifer Sczepanski Community Corners (Ithaca) Branch Manager Andrea L. Seymour Logistical Support Lori A. Smith Towanda Branch Manager Todd N. Trencansky Tioga (Owego) Branch Manager Charolette R. Truxal Oakdale Mall Branch Manager Sheila A. Washburn Bank Operations Linda L. Wead Montour Falls Branch Manager Jean A. Wise Painted Post Branch Manager Joan M. Wittig-Smith, CFSA, CFAP Audit CFS GROUP, INC. Joseph M. Cascio, Sr. Vice President & Group Manager (1) Promoted 1/20/2010 (2) Elected 2/17/2010 OFFICE LOCATIONS Main Office: One Chemung Canal Plaza, Elmira, NY 14901 (800) 836-3711 (607) 737-3711 Bath: 410 W. Morris St., Bath, NY 14810 (607) 776-3361 Big Flats: 437 Maple St., Big Flats, NY 14814 (607) 562-8474 Binghamton: 127 Court St., Binghamton, NY 13901 (607) 771-6369 Canton: 5 West Main St., Canton, PA 17724 (570) 673-5127 Corning: 149 W. Market St., Corning, NY 14830 (607) 962-4668 Elmira: 628 W. Church St., Elmira, NY 14905 (607) 734-7204 Elmira Heights: 100 W. McCanns Blvd., Elmira Heights, NY 14903 (607) 734-1323 *Herkimer: 219 N. Prospect St., Herkimer, NY 13350 (877) 457-3354 Horseheads: 602 S. Main St., Horseheads, NY 14845 (607) 739-8735 Horseheads: 29 Arnot Rd., Horseheads, NY 14845 (607) 739-0373 Ithaca: The Station, 806 W. Buffalo St., Ithaca, NY 14850 (607) 277-2609 Ithaca: Community Corners, 909 Hanshaw Road, Ithaca, NY 14850 (607) 257-2194 Johnson City: Oakdale Mall, 601-635 Harry L. Dr., Johnson City, NY 13790 (607) 729-6347 Montour Falls: 303 W. Main St., Montour Falls, NY 14865 (607) 535-7103 Owego: 203 Main St., Owego, NY 13827 (607) 687-0670 Owego: 1054 State Route 17C, Owego, NY 13827 (607) 687-5757 Painted Post: 243 N. Hamilton St., Painted Post, NY 14870 (607) 962-6811 Southport: 951 Pennsylvania Ave., Elmira, NY 14904 (607) 734-2111 Towanda: 304 Main St., Towanda, PA 18848 (570) 265-7169 Troy: 410 Canton St., Troy, PA 16947 (570) 297-0657 Vestal: 100 Rano Blvd., Vestal, NY 13850 (607) 797-1721 Watkins Glen: 318 N. Franklin St., Watkins Glen, NY 14891 (607) 535-7186 Waverly: 405 Chemung St., Waverly, NY 14892 (607) 565-8168 *Trust & Investment Office Cayuga Heights Ithaca Herkimer Bath Watkins Glen Montour Falls Painted Post Corning Big Flats Horseheads Elmira Heights Elmira Southport Owego Johnson City Binghamton Vestal Waverly New York Pennsylvania Troy Towanda Canton All locations, except Trust & Investment offices, offer 24-hour ATM services. For office hours and a list of all Chemung Canal Trust Company ATMs, please visit our website at chemungcanal.com. GENERAL INFORMATION 607·737·3711 800·836·3711 chemungcanal.com Member FDIC Equal Housing Lender 

Continue reading text version or see original annual report in PDF format above