Chemung Financial Corporation — FY2022 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2022, with comparison to FY2021. Chemung is a New York-based bank holding company operating through Chemung Canal Trust Company and affiliates, providing community banking, lending, deposits, and wealth management. At year-end it had $2.646 billion in assets, $1.829 billion in loans, $2.327 billion in deposits, and 31 branches in New York and Pennsylvania. The financial statements received an unqualified audit opinion from Crowe LLP.
Financial performance and condition
| Metric | FY2022 / year-end | FY2021 / change |
|---|---|---|
| Interest and dividend income | $81.5 million | $69.0 million; up 18.1% |
| Net interest income | $74.2 million | $65.6 million; up 13.1% |
| Non-interest income | $21.4 million | $23.9 million; down 10.2% |
| Non-interest expense | $59.3 million | $55.7 million; up 6.5% |
| Net income / diluted EPS | $28.8 million / $6.13 | $26.4 million / $5.64 |
| Fully taxable-equivalent net interest margin | 3.05% | 2.84% |
| Return on average assets / equity | 1.15% / 15.93% | 1.09% / 12.94% |
| Operating cash flow | $35.0 million | $35.5 million |
Net income rose 8.9%, driven mainly by higher net interest income and a $554,000 provision credit for loan losses, partly offset by lower fee income, higher expenses, and higher taxes. The provision credit compared with a $17,000 provision in 2021. Wealth management fees fell 7.2% to $10.3 million, largely reflecting lower market values of managed or administered assets; gains on residential mortgage loan sales also declined.
Total assets increased 9.4% year over year. Loans grew 20.5% to $1.829 billion, led by commercial real estate and indirect auto lending; deposits increased 8.0% to $2.327 billion. Cash and cash equivalents were $55.9 million. Investing cash flow was a $252.6 million use, principally reflecting loan growth, while financing cash flow provided $246.5 million, including deposit growth and FHLBNY advances.
Borrowings and capital: FHLBNY overnight advances were $95.8 million at year-end, up from $14.6 million. Shareholders’ equity fell 21.3% to $166.4 million; the equity-to-assets ratio declined to 6.29% from 8.74%. The decline chiefly reflected a $68.7 million after-tax other comprehensive loss tied largely to the securities portfolio’s lower fair value as rates rose. The Bank remained well capitalized: total risk-based capital was 12.10%, common equity Tier 1 was 11.07%, and Tier 1 leverage was 7.91%.
Material changes, outlook, and risks
- Interest rates and securities: The Federal Reserve raised rates by 425 basis points during 2022. Higher rates lifted asset yields and net interest margin, but also increased funding costs and reduced the fair value of available-for-sale securities. Those securities had $96.8 million of gross unrealized losses at year-end; management attributed the declines primarily to interest rates, not credit quality, and reported no other-than-temporary impairment charges.
- Funding and liquidity: Deposit growth included $206.0 million of time-deposit growth, including $73.5 million of one-way brokered deposits. Demand and money-market deposits were 70.7% of deposits, down from 77.9%. Uninsured deposits were $548 million, or 24% of total deposits. The Bank had $99.8 million of FHLBNY borrowing capacity and $68 million of available unsecured correspondent lines. Management said funding sources were adequate; it had not accessed the Bank Term Funding Program as of the financial-statement release.
- Credit concentrations: Commercial real estate and business loans totaled $1.249 billion, or 68.3% of loans. Non-owner-occupied CRE was 382.9% of risk-based capital, and the portfolio had grown more than 50% over the preceding three years—levels that may draw heightened regulatory scrutiny under agency guidance. Indirect auto loans increased 70.5% to $202.1 million.
- Asset quality and reserves: Non-performing loans were $8.2 million, or 0.45% of loans, versus $8.1 million, or 0.54%, in 2021. The allowance declined to $19.7 million, or 1.07% of loans, from $21.0 million, or 1.38%. The company released the remaining $2.4 million pandemic-related reserve during 2022; net charge-offs were $812,000.
- Accounting change: CECL became effective for the company on January 1, 2023. Management estimated the loan allowance could remain flat or increase by up to $2.0 million, and the allowance for unfunded commitments could increase by up to $1.2 million; these were estimates, with a one-time cumulative retained-earnings adjustment expected. Management gave no specific earnings or revenue guidance in the provided filing text.
- Other contingencies and developments: The company continues litigation seeking recovery of approximately $3.7 million plus expenses relating to a defaulted, allegedly fraudulent loan participation; it had received about $0.5 million in 2020. The Bank reported that it had satisfied its obligations under a 2021 fair-lending consent order, which required $53,000 restitution and a $350,000 penalty. The filing also discusses March 2023 failures of Silicon Valley Bank and Signature Bank and heightened sector liquidity concerns; these events occurred after the balance-sheet date.
- Other stated risks: Management identifies sensitivity to interest rates, deposit competition and liquidity, recession/inflation effects on borrowers, commercial real estate exposure, consumer and auto credit, cyber and fraud risks, regulatory changes, and competition. It provided no formal forward-looking numerical forecast.
Most important facts for investors to verify
- Whether deposit mix, uninsured-deposit levels, brokered funding, and FHLBNY borrowing needs changed materially after year-end amid banking-sector liquidity pressures.
- Subsequent movements in unrealized securities losses, tangible equity, and the potential effects of any securities sales or funding actions.
- The final CECL adoption impact, including loan and unfunded-commitment allowances and the retained-earnings adjustment.
- Credit performance and reserve adequacy as the CRE concentration and indirect auto portfolio grow, including criticized loans, non-performing assets, charge-offs, and collateral values.
- Progress and recoveries in the loan-participation litigation and any further material legal, regulatory, or fair-lending matters.