Chemung Financial Corporation
Annual Report 2013

Plain-text annual report

Chemung Financial C o r p o r a t i o n CELEbRATiNg OUR 180Th YEAR Excerpt of legislation passed by the NYS Legislature in April 1833. 2013 ANNUAL REPORT financial highlights (in thousands, except share and per share data) OPERating REsUlts - Year Ended December 31 2013 2012 % of Change Net interest income Provision for loan losses Other operating income: Securities gains, net Wealth Management group fee income Other income Other operating expense: Merger and acquisition related expenses Other expense income tax expense Net income at Year End: Assets Loans, net 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 equity Return on average tangible equity trust assets Under administration (market value) as Fiduciary as Custodian common stock Market Prices and Dividends Paid During Past two Years (dollars) December 31, 2013 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter December 31, 2012 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter $ 46,361 2,755 $ 46,842 828 -1.03% 232.73% (13) 7,344 10,745 1,387 48,012 3,822 8,731 $ 1,476,143 995,866 12,776 1,263,370 138,578 390 1.87 29.67 23.63 1.04 4,659,685 301 6,827 10,060 30 46,765 5,385 11,022 $ 1,248,160 893,517 10,433 1,044,734 131,115 356 2.38 28.20 22.40 1.00 4,640,912 7.57% 6.81% 2.67% -29.03% -20.79% 18.27% 11.45% 22.46% 20.93% 5.69% 9.55% -21.43% 5.21% 5.49% 4.00% 0.40% 1.28% 0.67% 6.50% 8.12% 1.17% 0.88% 8.41% 10.63% $1,424,491 463,923 $1,888,414 $1,230,111 504,733 $1,734,844 15.80% -8.09% 8.85% high $ 36.00 35.85 34.53 33.99 $ 32.50 25.70 25.99 26.00 Low $ 30.23 30.31 30.18 28.41 Dividends $ 0.26 0.26 0.26 - $ 23.51 23.55 24.76 22.65 $ 0.50 0.25 0.25 0.25 As of February 28, 2014 there were 1,226 registered holders of record of the Corporation’s stock, which includes 608 Non-Objecting beneficial Owners ("NObO") shares held in street name. On the cover: An excerpt of the April 1833 legislation authorizing the establishment of Chemung Canal bank. A complete copy of this legislation can be found in “About Us” section of our website www.chemungcanal.com APRiL 1, 2014 T o o u r s h a r e h o l d e r s Dear fellow shareholders: 2013 was an eventful and challenging year for Chemung Canal Trust Company. As expected, earnings came under pressure from net interest margin compression. In this historic low rate environment, this has become an industry- wide challenge. Simply put, we cannot lower deposit rates enough to offset the decline in loan and investment yields. The single best strategy to combat margin pressure is to grow our balance sheet so we were very pleased to announce the acquisition of six (6) Bank of America branches in November. This branch purchase expands our distribution network in Tompkins County which we have long targeted for expansion and in other contiguous markets where we enjoy brand recognition. This transaction becomes increasingly accretive to earnings as we channel the acquired deposits into loans over the next few years. David J. Dalrymple Ronald M. bentley financial Results Net income for the year was $8.7 million and earnings per share (EPS) were $1.87. Excluding one-time acquisition related expenses, net income was $9.1 million and EPS were $1.96, both in line with our expectations for the year. Our return on average assets was 0.67% and our return on average equity was 6.50%. In 2013, $4.8 million in dividends were declared continuing our long history of uninterrupted dividend payments. Driven almost entirely by organic growth, we experienced solid growth in both loans and deposits. Commercial loans increased $64.5 million or 14.2% and consumer and mortgage loans increased $37.9 million or 8.6% from year earlier levels. Excluding the deposits acquired in connection with the Bank of America branch purchase, demand deposits grew $12.4 million or 4.1% while total core deposits (demand, NOW, savings and money market) grew $72.9 million or 9.0% from year earlier levels. With some changes to our service charges and fees to bring us more in line with competition along with a solid year in our Wealth Management Group, non-interest income was $18.1 million, up 5.2% from the previous year. At December 31, 2013, our balance sheet reflects total assets of $1.5 billion, total loans of $1.0 billion, total deposits of $1.3 billion and total shareholders’ equity of $138.6 million. Our capital ratios remain well above those considered to be “well capitalized” by regulators. The market value of total assets under management or administration in our Wealth Management Group was $1.9 billion at year-end. the Bank of america Branch acquisition In November, we completed the acquisition of six (6) Bank of America branches. Two of these offices are located in Ithaca (The Commons and Route 13), two are located in Auburn (Genesee St. and Grant Ave.) and the remaining two are situated in Cortland and Seneca Falls. In total, we acquired $178 million in deposits and $1 million in commercial loans. We are prudently deploying these low-cost deposits into commercial and consumer loans. This will take some time as we will not deviate from our disciplined and conservative underwriting practices. Consequently, we expect the transaction to be slightly dilutive to EPS in 2014 but accretive in years thereafter. This transaction becomes very financially attractive as more and more of these deposits are channeled into loans. Once again, our team did an outstanding job with the systems conversion and integration. We extend a warm welcome to former Bank of America clients and staff. 1 asset Quality and Reserves Credit quality remains stable and strong. The ratio of total nonperforming assets to total assets at year end was 0.61%, a level considered very strong. The significant increase in the provision for loan losses for the year was driven primarily by the growth in the bank’s loan portfolio. The allowance for loan and lease losses (ALLL) at year-end was $12.8 million, representing an ALLL to total loans ratio of 1.28%. growth strategy Our strategy is to grow our company organically, through de novo branch expansion and by acquiring branches, banks and businesses that complement existing strengths and market niches. We have been successful on all fronts. The Bank of America purchase represents our sixth transaction in the last seven (7) years. Mergers and acquisitions have become a core competency of our organization and we remain alert to new opportunities. We are enjoying continued success in the Capital Region which we entered into with the acquisition of Capital Bank in April of 2011. The Albany market has proven to be fertile ground for new high-quality loans and we have been well received in this market. We continue to channel our resources into markets that offer the greatest opportunity and potential and Albany is one of the best markets in the state. Last year, we relocated our Latham office to a full service, free-standing building with a 2-bay drive-up and ATM across the street from our old storefront location. We also added a drive-up at our Slingerlands office. With a limited branch network in the region, we have crystallized our plans to expand our distribution channels in the region. We recognize, however, that technology is dramatically changing the way banking services are delivered and we believe that future banking offices will be further apart and cover a larger footprint. In other words, there are no plans to put a branch on every corner. As previously mentioned, we also continued to grow organically. We have built a better engine for natural growth by sharpening our sales and marketing effectiveness, building long-term client relationships, bringing new products to market and delivering on our CanalCare service promise. Other accomplishments Our Wealth Management Group had a very good year contributing almost $1.9 million in pre-tax income. With so much pressure on the margin, it is important we find new sources of fee income and the preservation, creation and protection of wealth for high net worth individuals has long been a hallmark of Chemung Canal. We continued to invest in new products and services to meet the changing needs of our clients. Mobile banking was launched in February 2013 and is very popular — nearly 10,000 clients have signed up already. Our iPad mobile banking app is also catching on quickly. Global 1.0 and 2.0, our banking program for younger clients, is meeting with similar success. We now offer a MyDesign Debit Card which is a personalized check card program that allows our cardholders to design their own card for a minimal fee. We are also upgrading our ATMs to accept cash and check deposits. All great examples of Chemung Canal meeting the needs of our clients. Regulatory climate As we have written in these pages in the past, there is an avalanche of new regulations coming our way. This is the environment in which we operate so we will adapt and make sure we are in compliance. But our chief concern is not the increase in “hard” costs — it is the time our management team must devote to this activity, distracting us from our main mission of profitably growing our business. And there is no relief in sight. A one- size-fits-all regulatory regime is inappropriate, costly and unnecessary. We strongly endorse a two-tier system that distinguishes between Main Street community banks and Wall Street systemically important banks. 2 in Memoriam: Boyd McDowell ii, 1926 -2013 We mourn the passing of long-time leader of Chemung Canal, Boyd McDowell II. Boyd served in executive leadership positions for 20 years. He was elected President in 1976 and acquired the title of Chairman the following year. He served as Chairman, President and CEO from 1977 to 1988 at which time Jack Bennett was appointed President. Boyd continued to serve in his other capacities until 1991 and then served on the Board of Directors until 1997. Boyd was the great, great grandson of NYS Senator John G. McDowell who took the lead in the NYS Legislature to establish the bank in 1833 then served as its first president. Boyd was greatly admired and respected by so many at the bank and in our community. He was 87. Our Board of Directors This past February, our board elected two (2) new members: Tom Tranter, President of Corning Enterprises and Tom Tyrrell, Area Chairman at Arthur J. Gallagher & Co. in Albany, NY. Both bring a wealth of experience, knowledge and skills to our boardroom and will stand for election at our upcoming shareholders’ meeting. Management changes In October, we welcomed Karl Krebs to Chemung Canal as our Chief Financial Officer. Karl has held executive leadership positions at both regional and community banks and we look forward to his contributions to our success. Some long-serving managers have retired. The following retired after serving for more than 25 years: Daniel Donovan, Consumer Loan Manager (42 years); Tina McGurgan, Computer Operations Manager (40 years); James Ripley, Logistical Support Manager (38 years); Pamela Kelley, Senior Relationship Manager (30 years); Jackie Stevens, Branch Manager (30 years); and Donna Coles, Branch Manager (25 years). We thank them all for their dedication and contributions, and we wish them good health and happiness in retirement. Through a combination of internal professional development and promotion and external recruitment, we have provided for seamless management succession. the future Our purpose is to create value for our shareholders, clients, employees and the communities where we do business. The way to create value is to grow our earnings. With higher earnings, shareholders should see stock appreciation and continued dividends. With higher earnings, we can pay our employees competitive compensation and benefits and invest in their professional development. With higher earnings, we can invest in technology and new products and services to meet the needs of our clients. With higher earnings, we can continue to be a good and generous corporate citizen helping to improve the quality of life for many. The single best way for a banking company to increase earnings is to grow our company and balance sheet. We are proud to report that we have more than doubled the size of the bank over the past seven years and, in the process, increased value for all our stakeholders. The task ahead is to continue this momentum. It was 180 years ago this past October that Chemung Canal opened for business just a few steps away from our current headquarters in Elmira, NY. Established by an Act of the New York State Legislature in 1833 (Andrew Jackson was President), we are the oldest locally owned and managed banking institution in the state. Our long, rich and successful history continues to inspire us today. As always, we are grateful for the continued support of our shareholders, clients, employees and the communities we serve. David J. Dalrymple Chairman of the Board Ronald M. Bentley President and Chief Executive Officer 3 Sitting (l to r) E. Sneeringer, Jr., J. Updegraff, R. Dalrymple, R. bentley, R. Storch Standing (l to r) D. Dalrymple, W. Eggers, R. Swan, S. Lounsberry iii, C. Drinkwater, L. becker, J. Potter, and b. boyea BOaRD Of DiREctORs Ronald M. Bentley President and Chief Executive Officer Chemung Financial Corporation, Chemung Canal Trust Company and CFS group, inc. larry h. Becker Chief Operating Officer Windsor Development group, inc. Bruce W. Boyea Chairman, President and Chief Executive Officer Security Mutual Life insurance Company of New York David J. Dalrymple Chairman of the board Chemung Financial Corporation, Chemung Canal Trust Company and President Dalrymple holding Corporation Robert h. Dalrymple Vice President and Secretary 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 John f. Potter President Seneca beverage Corp. Eugene M. sneeringer, Jr. Principal Sneeringer Monahan Provost Redgrave Title Agency, inc. Robert l. storch Retired Owner Storchmont Dairy Farms Richard W. swan Chairman of the board Swan and Sons-Morss Co., inc. Jan P. Updegraff Retired President and Chief Executive Officer Chemung Financial Corporation and Chemung Canal Trust Company caPital BanK DivisiOn aDvisORY BOaRD Elizabeth t. coco Entrepreneur in Residence University of Albany gerald D. Jennings Former Mayor City of Albany Paul g. Kasselman President Kasselman Electric inc. Raymond J. Kinley, Jr. Retired President and Chief Executive Officer Clough harbour & Assoc. Jim Menzies Founder Leontine Consulting LLC Retired Chief Executive Officer Keybank, New York Daniel P. nolan President and Chief Executive Officer hugh Johnson Advisors gregory f. Oberting President interstate Commodities, inc. Joseph a. Reilly President Empire broadcasting Corporation Dean a. Rueckert President Rueckert Advertising and Public Relations Edward J. trombly Partner, hiscock & barclay thomas R. tyrrell Area Chairman Arthur J. gallagher & Company OthER infORMatiOn Dividend Reinvestment and stock Purchase Plan: Registered shareholders of Chemung Financial Corporation, through The Dividend Reinvestment and Stock Purchase Plan, may reinvest their dividends or make quarterly cash payments to purchase additional stock of the Corporation. Shareholders not enrolled in the plan may view and print a descriptive brochure and enrollment form at www.amstock.com or receive the plan documents 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, 2014 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/proxyservices/viewmaterials.asp. annual Meeting The Annual Meeting of Shareholders will be held on Thursday, May 8, 2014 at 2:00 p.m. at the downtown holiday inn, Elmira — Riverview. chEMUng canal tRUst cOMP anY, caPital BanK & cfs gROUP , inc. OfficERs E xEcUt i vE M a n a gE M En t t EaM Ronald M. Bentley President & Chief Executive Officer, Richard g. carr Executive Vice President, business Client Services, louis c. Difabio Executive Vice President, Retail Client Services, Karl f. Krebs Executive Vice President, Chief Financial Officer and Treasurer, Karen R. Makowski Executive Vice President, Chief Administrative & Risk Officer, Melinda a. sartori Executive Vice President, Wealth Management group, anders M. tomson Division President, Capital bank, Pamela D. Burns Senior Vice President, human Resources, Michael J. crimmins Senior Vice President, Support Services, Michael J. Wayne Senior Vice President, Marketing, Brendan P. Mccormick Vice President & Auditor, Kathleen s. McKillip Assistant Treasurer & Corporate Secretary catherine B. crandall WMg Estate Administration, Daniel D. fariello Commercial Lending, Marianne t. Kalec Retail Lending, Robert M. Pichette Commercial Lending, timothy P. Rubery Commercial Lending, thomas J. Whitaker Finance, thomas W. Wirth, cfa investment Services s En iO R vi cE PR Es iD En t s vi cE PR Es iD En t s Yvonne l. albee Regulatory Risk, Dawn l. aubin Auburn genesee St branch, Judy l. Barton bank Operations, Michael J. Battersby branch Administration, sean Beliles WMg Estate Administration, Michael D. Blatt, cfa investment Services, John h. Brand, cfa investment Services, Marci l. cartwright Wealth Management group, andrew c. Day Commercial Lending, lucimar foo-siam Escudero Commercial Credit, Yvette M. francisco Loan Review, thomas E. funk Finance, victoria a. harkins Private banking, James s. hartle branch Administration, craig B. heffner Commercial Lending, William M. hodel Commercial Lending, christopher K. Kelly Retirement Services group, Mark P. Kenjerska ithaca Commons branch, christopher Kennedy Commercial Lending, John t. Kite Commercial Lending, celeste D. Knickerbocker Finance, Michael s. lares WMg Estate Administration, Ronald W. lesch Commercial Lending, christopher B. loughridge WMg Estate Administration, Robert P. luther Commercial Lending, audrey Manchester branch Administration, Eileen M. Mccarthy WMg Support Services, D. tavis McKeon branch Administration, J. Edmond Morton iv WMg Regional Manager, Ronald W. Poole Commercial Lending, chester l. Reed Commercial Lending, Robert a. Roemmelt Jr. Arnot Road branch, John J. sentigar information Technology, Kenneth J. Wilson business Development as s i s ta n t vi cE PR Es iD En t s Kimberly a. Bailey Canton branch, christopher c. Brown Commercial Lending, David E. carlson Troy branch, Richard W. carroll Watkins glen branch, alison J. conklin-Devita Waverly branch, Joel a. crimmins Commercial Lending, gary K. Earley WMg Estate Administration, constance l. English Corning branch, sandra l. grooms The Station (ithaca) branch, scott t. heffner Marketing, Mary l. Keefe business Services, Matthew t. Keefe information Technology, lorri a. Miller Tioga branch, Mary anne narosky business Client Services, Debra a. newcomer Main Office branch, Randi Richer Loan Operations, sheryl J. scott big Flats branch, Jennifer sczepanski horseheads branch, andrea l. seymour Logistical Support, Zoran M. smiljanic ithaca South branch, susan l. smith Auburn grant Ave. branch, Debra l. stanton Security, theresa a. Wagner Deposit Operations, David a. Wakeman Resource Recovery, sheila a. Washburn bank Operations, Joan M. Wittig-smith Audit as s i s ta n t t R Ea sU R E Rs sherry l. armstrong Community Corners (ithaca) branch, larissa a. Benderskaya Latham branch, laura l. Bennett Real Estate Lending, gregory J. Bruno Slingerlands branch, Elizabeth M. courtright Compliance, cheryl a. DeBlock binghamton branch, Karen a. Dimmick Westside (Elmira) branch, stephanie l. gibbons Real Estate Lending, Barbara l. Keller indirect Lending, lashonda R. love Washington Ave. branch, sharon M. Martin Elmira heights branch, Julianne E. Meeker information Technology, christine Perlee Wolf Rd. branch, veronica s. Porter Seneca Falls branch, tina M. sabina Real Estate Lending, Kenneth h. seeber Clifton Park branch, allison a. strife human Resources, Meredith l. tigue Regulatory Risk, scott a. townsend Cortland branch, todd n. trencancky Vestal branch, charolette R. truxal Oakdale Mall branch, Devin E. Wandell WMg Estate Administration, linda l. Wead Montour Falls branch, Jennifer l. White bath branch, sue a. Williams Towanda branch, Jean a. Wise-Wicks Painted Post branch cfs gROUP, inc. Joseph M. cascio, Sr. Vice President Officer listing as of March 31, 2014 CFS g R O U P, i N C . Chemung Canal Trust Company and Capital bank office locations 19 Seneca Falls • 8 9 Auburn • • Clifton Park 3 Latham • 4 • Albany 1 2 • Slingerlands 5 16 Cortland • 26 28 • Ithaca 29 27 20 • Bath Watkins Glen • 18 17 •Montour Falls 22 Painted Post • 21 Corning • 13 14 • Horseheads 12 • Elmira Heights 10 • Big Flats 1 11 Southport • 15 • Elmira 25 • Waverly 23 24 • Owego • Johnson City 56 • Binghamton 7 • Vestal nY Pa 4 • Troy 3 • Towanda 2 • Canton Main OfficE One Chemung Canal Plaza, Elmira cORtlanD cOUntY cortland: 1094 highway 222 16. 1. 2. 3. 4. 5. 6. 7. 8. 9. BRaDfORD cOUntY canton: 5 West Main St. towanda: 304 Main St. troy: 159 Canton St. BROOME cOUntY Binghamton: 127 Court St. Johnson city: Oakdale Mall, 601-635 harry L. Dr. vestal: 100 Rano blvd. caYUga cOUntY auburn: 120 genesee St. auburn: 185 grant Ave. schUYlER cOUntY Montour falls: 303 W. Main St. Watkins glen: 318 N. Franklin St. 17. 18. sEnEca cOUntY seneca falls: 54 Fall St. 19. stEUBEn cOUntY Bath: 410 W. Morris St. corning: 149 W. Market St. Painted Post: 243 N. hamilton St. tiOga cOUntY Owego: 203 Main St. Owego: 1054 State Route 17C Waverly: 405 Chemung St. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. chEMUng cOUntY Big flats: 437 Maple St. Elmira: 628 W. Church St. Elmira heights: 100 W. McCanns blvd. horseheads: 29 Arnot Rd. horseheads: 602 S. Main St. southport: 951 Pennsylvania Ave. 10. 11. 12. 13. 14. 15. tOMPKins cOUntY ithaca: Community Corners, 909 hanshaw Rd. ithaca: 304 Elmira Rd. ithaca: 202 The Commons Current logo usage ithaca: The Station, 806 W. buffalo St. caPital REgiOn albany: 1375 Washington Ave. albany: 65 Wolf Rd., Suite 107 clifton Park: 7 Southside Dr. latham: 581 Loudon Rd. slingerlands: 1365 New Scotland Rd. 1. 2. 3. 4. 5. All locations offer 24-hour ATM ser- vices. For office hours and a list of all Chemung Canal Trust Company and Capital bank ATMs, please visit our websites at chemungcanal.com and capitalbank.com. chemungcanal.com capitalbank.com Larger CCTC logo but Capital bank cap “C” is larger than CCTC cap “C” Cap “C” height is identical for both logos CCTC text and graphic are reversed Capital bank cap “C” is larger than CCTC cap “C” 

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