CHEMUNG FINANCIAL CORP 10-K Analysis & Summary – 3/14/2025

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Chemung Financial Corp

10-K

Annual report

Filing date:

03/14/2025

TLDR:

ELI5:

Chemung Financial, a bank, made a little less money this year because they spent more and earned less from some activities, though they saved some money on potential loan losses. The bank is in good financial shape overall, but they need to watch out for rising costs and the fact that a lot of their loans are for commercial real estate.

Accession #:

0000763563-25-000058

Published on

March 16, 2025

Analyst Summary

Net income decreased by 5.3% year-over-year, from $25.0 million to $23.7 million, driven by decreased net interest income, decreased non-interest income, and increased non-interest expenses.
Return on Average Assets (ROAA) decreased from 0.94% to 0.86%, and Return on Average Equity (ROAE) decreased from 14.11% to 11.53%.
The efficiency ratio increased from 64.89% to 69.12%, indicating decreased efficiency.
Total assets increased by 2.4% to $2.776 billion, with an increase in loans and a decrease in investment securities and deposits.
Non-owner occupied commercial real estate loans represented 399.4% of Bank risk-based capital, exceeding regulatory guidance levels.
Management is focused on geographic expansion, particularly in Western New York, to diversify its revenue base.
A lawsuit against Pioneer Bank related to fraudulent activity indicates potential risks in loan participations.
Operating Profit Margin decreased by 2.8% from 31.81% to 30.92%.
Net Profit Margin decreased by 3.6% from 25.25% to 24.33%.
EPS decreased by 6.1% from $5.28 to $4.96.
The Debt-to-Equity Ratio decreased by 7.7% from 12.88 to 11.89.
The Interest Coverage Ratio decreased by 13.8% from 1.81 to 1.56.
Revenue decreased by 1.74%.
Net Income decreased by 5.32%.
EPS decreased by 6.06%.
The efficiency ratio increased from 66.20% in 2023 to 68.89% in 2024, indicating a decrease in efficiency.
Tangible book value per share increased from $36.48 in 2023 to $40.55 in 2024.

Opportunities and Risks

Risk: Adverse economic conditions in New York and Pennsylvania could negatively impact loan demand and credit quality.
Risk: High concentration in commercial real estate lending exposes the bank to increased credit risk and potential regulatory scrutiny.
Risk: Fluctuations in interest rates could affect net interest margin and the value of financial instruments.
Risk: Intense competition from local, regional, and national financial institutions could limit growth and profitability.
Risk: Increasing cybersecurity threats could lead to financial losses and reputational damage.
Opportunity: Expansion into Western New York presents growth opportunities.
Opportunity: Growing wealth management services can provide a stable source of fee income.
Opportunity: Investing in digital banking technologies can improve customer experience and efficiency.

Potential Implications

Company Performance

Actively manage interest rate risk by diversifying funding sources and hedging strategies.
Carefully monitor the commercial real estate portfolio and ensure adequate risk management practices.
Continue to invest in digital banking technologies to enhance customer experience and improve efficiency.
Explore opportunities to diversify revenue streams and reduce reliance on net interest income.

Stock Price

The decrease in net income and key profitability ratios may negatively impact investor sentiment.
High concentration in commercial real estate lending could raise concerns among investors and potentially limit stock price appreciation.
Successful execution of geographic expansion and digital banking initiatives could positively influence the stock price.

SEC Filing Report: Chemung Financial Corporation (CHMG) 10-K for FY2024

Executive Summary

This report analyzes Chemung Financial Corporation’s (CHMG) 10-K filing for the fiscal year ended December 31, 2024. The analysis reveals a mixed performance, with a slight decrease in net income driven by increased non-interest expenses and decreased non-interest income, partially offset by a decrease in the provision for credit losses. While the bank maintains a strong capital position and is well-capitalized, certain trends warrant attention, including the increasing cost of deposits and the concentration in commercial real estate lending. Overall, a ‘Hold’ recommendation is appropriate, pending further observation of these trends and their impact on future performance.

Company Overview

Chemung Financial Corporation is a financial holding company headquartered in Elmira, New York, operating primarily through its subsidiary, Chemung Canal Trust Company. The bank provides a range of financial services, including commercial and retail banking, wealth management, and insurance products. CHMG operates 30 branch offices across New York and Pennsylvania. The current economic environment presents both challenges and opportunities for CHMG, particularly regarding interest rate management, credit risk, and competition.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management acknowledges the impact of economic conditions on their performance. They highlight their growth strategy, focusing on expanding their geographic footprint and diversifying revenue streams. The MD&A emphasizes the bank’s community-banking model and prudent lending practices. However, the tone is cautiously optimistic, acknowledging the competitive landscape and regulatory challenges.

Key Insight: Management’s focus on geographic expansion, particularly in Western New York, is a strategic move to diversify its revenue base.
Red Flag: The MD&A mentions a lawsuit against Pioneer Bank related to fraudulent activity, indicating potential risks in loan participations.

Financial Statement Analysis

Income Statement

Net income decreased by 5.3% year-over-year, from $25.0 million to $23.7 million. This decline was primarily driven by:

A slight decrease in net interest income (-0.5%).
A decrease in non-interest income (-5.4%).
An increase in non-interest expenses (+4.7%).

These were partially offset by a decrease in the provision for credit losses and income tax expense.

Key Ratios:

Return on Average Assets (ROAA): Decreased from 0.94% to 0.86%.
Return on Average Equity (ROAE): Decreased from 14.11% to 11.53%.
Efficiency Ratio: Increased from 64.89% to 69.12%, indicating decreased efficiency.
Net Interest Margin (FTE): Decreased from 2.85% to 2.76%.

Balance Sheet

Total assets increased by 2.4% to $2.776 billion. Key changes include:

An increase in loans, net of allowance for credit losses (+5.1%).
A decrease in total investment securities (-8.2%).
A decrease in total deposits (-1.3%).
A significant increase in finance lease obligations and FHLBNY advances (+222.8%).

Key Ratios:

Loans to Deposits: Increased from 81.20% to 86.42%.
Total Equity to Total Assets: Increased from 7.20% to 7.76%.
Non-Performing Loans to Total Loans: Decreased from 0.53% to 0.43%.
Allowance for Credit Losses to Total Loans: Decreased from 1.14% to 1.03%.

Cash Flow Statement

Cash from operations remained relatively stable. Investing activities used more cash due to net increases in loans. Financing activities provided cash, primarily from increased borrowings, offsetting dividend payments.

Uncommon Metrics & Footnotes

Commercial Real Estate Concentration: Non-owner occupied commercial real estate loans represented 399.4% of Bank risk-based capital, exceeding regulatory guidance levels.
Wealth Management: Assets under management or administration decreased slightly, but excluding assets held for the Corporation, total Wealth Management Group assets increased.
Brokered Deposits: Brokered deposits decreased, indicating a shift in funding strategy.
CECL Implementation: The adoption of CECL had a significant impact on the allowance for credit losses methodology.

Risk and Opportunity Assessment

Risks

Economic Conditions: Adverse economic conditions in New York and Pennsylvania could negatively impact loan demand and credit quality.
Commercial Real Estate Concentration: High concentration in commercial real estate lending exposes the bank to increased credit risk and potential regulatory scrutiny.
Interest Rate Risk: Fluctuations in interest rates could affect net interest margin and the value of financial instruments.
Competition: Intense competition from local, regional, and national financial institutions could limit growth and profitability.
Cybersecurity: Increasing cybersecurity threats could lead to financial losses and reputational damage.

Opportunities

Geographic Expansion: Expansion into Western New York presents growth opportunities.
Wealth Management: Growing wealth management services can provide a stable source of fee income.
Digital Banking: Investing in digital banking technologies can improve customer experience and efficiency.

Conclusion & Actionable Insights

Chemung Financial Corporation exhibits a stable financial position, but faces challenges related to the changing economic environment and competitive pressures. The decrease in net income and key profitability ratios warrants attention. The high concentration in commercial real estate lending and the increasing cost of deposits are areas of concern.

Recommendations:

Actively manage interest rate risk by diversifying funding sources and hedging strategies.
Carefully monitor the commercial real estate portfolio and ensure adequate risk management practices.
Continue to invest in digital banking technologies to enhance customer experience and improve efficiency.
Explore opportunities to diversify revenue streams and reduce reliance on net interest income.

Overall Assessment: Hold. While CHMG demonstrates financial stability, the identified risks and concerning trends suggest a cautious approach. Further monitoring of the bank’s performance and its ability to adapt to the changing environment is warranted before making a buy or sell decision.

1. Commentary

Chemung Financial Corporation’s financial performance in 2024 presents a mixed picture. Net income decreased by 5.3% compared to 2023, driven by a slight decline in net interest income and a decrease in non-interest income. However, the company demonstrated improved asset quality with a credit for credit losses, and a decrease in non-performing assets. The corporation maintains strong capital ratios, exceeding regulatory requirements, and book value per share increased. While profitability metrics like ROA and ROE declined, the company continues to return value to shareholders through consistent dividend payouts.

2. Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin: Not applicable for financial institutions.
Operating Profit Margin: Calculated as (Income Before Income Tax Expense) / (Net Interest Income + Non-Interest Income) = $30,085 / ($74,059 + $23,230) = 30.92%.
- Trend: In 2023, Operating Profit Margin was $31,501 / ($74,457 + $24,549) = 31.81%. The Operating Profit Margin decreased by 2.8%.
- Industry: The operating profit margin for regional banks typically ranges from 30% to 40%. CHMG’s operating profit margin is within this range.
Net Profit Margin: Calculated as Net Income / (Net Interest Income + Non-Interest Income) = $23,671 / ($74,059 + $23,230) = 24.33%.
- Trend: In 2023, Net Profit Margin was $25,000 / ($74,457 + $24,549) = 25.25%. The Net Profit Margin decreased by 3.6%.
- Industry: The net profit margin for regional banks typically ranges from 20% to 30%. CHMG’s net profit margin is within this range.
Return on Assets (ROA): 0.86% (provided in the filing).
- Trend: In 2023, ROA was 0.94%. ROA decreased by 8.5%.
- Industry: The ROA for regional banks typically ranges from 0.8% to 1.2%. CHMG’s ROA is slightly below the average.
Return on Equity (ROE): 11.53% (provided in the filing).
- Trend: In 2023, ROE was 14.11%. ROE decreased by 18.3%.
- Industry: The ROE for regional banks typically ranges from 10% to 15%. CHMG’s ROE is within this range.
Earnings Per Share (EPS) – Basic and Diluted: $4.96 (provided in the filing).
- Trend: In 2023, EPS was $5.28. EPS decreased by 6.1%.
- Industry: EPS varies widely based on the size and profitability of the bank.

Liquidity

Current Ratio: Calculated as Current Assets / Current Liabilities.
* Current Assets = Total Assets = $2,776,147 (Approximation since detailed breakdown unavailable)
* Current Liabilities = Total Liabilities = $2,560,838 (Approximation since detailed breakdown unavailable)
* Current Ratio = $2,776,147 / $2,560,838 = 1.08
- Trend: In 2023, Current Ratio = $2,710,529 / $2,515,288 = 1.08. The Current Ratio remained the same.
- Industry: A current ratio above 1 is generally considered healthy for banks.
Quick Ratio (Acid-Test Ratio): Calculated as (Current Assets – Inventory) / Current Liabilities. Since inventory is not applicable, it will be the same as the current ratio.
- Trend: In 2023, Quick Ratio = $2,710,529 / $2,515,288 = 1.08. The Quick Ratio remained the same.
- Industry: A quick ratio above 1 is generally considered healthy for banks.
Cash Ratio: Calculated as (Cash and Cash Equivalents) / Current Liabilities = $47,035 / $2,560,838 = 0.018
- Trend: In 2023, Cash Ratio = $36,847 / $2,515,288 = 0.015. The Cash Ratio increased by 20%.
- Industry: The cash ratio for banks is typically low, as they rely on other sources of liquidity.

Solvency/Leverage

Debt-to-Equity Ratio: Calculated as Total Liabilities / Total Shareholders’ Equity = $2,560,838 / $215,309 = 11.89.
- Trend: In 2023, Debt-to-Equity Ratio = $2,515,288 / $195,241 = 12.88. The Debt-to-Equity Ratio decreased by 7.7%.
- Industry: A debt-to-equity ratio of 10-15 is typical for banks. CHMG’s debt-to-equity ratio is within this range.
Debt-to-Assets Ratio: Calculated as Total Liabilities / Total Assets = $2,560,838 / $2,776,147 = 0.92.
- Trend: In 2023, Debt-to-Assets Ratio = $2,515,288 / $2,710,529 = 0.93. The Debt-to-Assets Ratio decreased by 1.1%.
- Industry: A debt-to-assets ratio of 0.8-0.9 is typical for banks. CHMG’s debt-to-assets ratio is within this range.
Interest Coverage Ratio (Times Interest Earned): Calculated as EBIT / Interest Expense = (Net Income + Income Tax Expense + Interest Expense) / Interest Expense = ($23,671 + $6,414 + $53,505) / $53,505 = 1.56.
- Trend: In 2023, Interest Coverage Ratio = ($25,000 + $6,501 + $38,617) / $38,617 = 1.81. The Interest Coverage Ratio decreased by 13.8%.
- Industry: A ratio above 1.5 is generally considered acceptable, indicating the company can cover its interest expenses.

Activity/Efficiency

Inventory Turnover: Not applicable for financial institutions.
Days Sales Outstanding (DSO): Not directly applicable to banks, but can be proxied using average loans and interest income. Calculated as (Average Loans / Interest Income) * 365 = ($2,016,481 / $112,128) * 365 = 6,568 days.
- Trend: In 2023, DSO = ($1,898,986 / $97,228) * 365 = 7,122 days. DSO decreased by 7.8%.
- Industry: This metric is less relevant for banks than for companies selling physical goods.
Days Payable Outstanding (DPO): Not directly applicable to banks.
Asset Turnover: Calculated as Total Revenue / Average Total Assets = (Net Interest Income + Non-Interest Income) / Average Total Assets = ($74,059 + $23,230) / $2,744,721 = 0.035.
- Trend: In 2023, Asset Turnover = ($74,457 + $24,549) / $2,660,329 = 0.037. The Asset Turnover decreased by 5.4%.
- Industry: Asset turnover for banks is typically low, reflecting the capital-intensive nature of the business.

Valuation

Price-to-Earnings Ratio (P/E): Calculated as Stock Price / EPS = $48.81 / $4.96 = 9.84.
- Trend: In 2023, P/E Ratio = $49.80 / $5.28 = 9.43. The P/E Ratio increased by 4.4%.
- Industry: The P/E ratio for regional banks typically ranges from 8 to 15. CHMG’s P/E ratio is within this range.
Price-to-Book Ratio (P/B): Calculated as Stock Price / Book Value Per Share = $48.81 / $45.13 = 1.08.
- Trend: In 2023, P/B Ratio = $49.80 / $41.07 = 1.21. The P/B Ratio decreased by 10.7%.
- Industry: A P/B ratio around 1 is common for banks, suggesting the market values the company roughly at its net asset value.
Price-to-Sales Ratio (P/S): Calculated as Market Cap / Total Revenue. Market Cap = Shares Outstanding * Stock Price = 4,770,000 * $48.81 = $232,813,700 (in thousands $232,814). Total Revenue = Net Interest Income + Non-Interest Income = $74,059 + $23,230 = $97,289. P/S Ratio = $232,814 / $97,289 = 2.39.
- Trend: In 2023, Market Cap = 4,732,000 * $49.80 = $235,653,600 (in thousands $235,654). Total Revenue = $74,457 + $24,549 = $99,006. P/S Ratio = $235,654 / $99,006 = 2.38. The P/S Ratio increased by 0.4%.
- Industry: The P/S ratio for regional banks typically ranges from 1 to 3. CHMG’s P/S ratio is within this range.
Enterprise Value to EBITDA (EV/EBITDA): Calculated as (Market Cap + Total Debt – Cash) / EBITDA.
* Market Cap = $232,814 (in thousands)
* Total Debt = FHLBNY Advances + Long-Term Finance Lease Obligation = $109,110 + $3,779 = $112,889 (in thousands)
* Cash = $47,035 (in thousands)
* EBITDA = Net Income + Interest Expense + Income Tax Expense + Depreciation & Amortization = $23,671 + $53,505 + $6,414 + $1,814 = $85,404 (in thousands)
* EV = $232,814 + $112,889 – $47,035 = $298,668 (in thousands)
* EV/EBITDA = $298,668 / $85,404 = 3.50
- Trend: Not enough information to calculate previous year.
- Industry: The EV/EBITDA ratio for regional banks typically ranges from 6 to 12. CHMG’s EV/EBITDA ratio is below this range.

Growth Rates

Revenue Growth: Calculated as (Current Year Revenue – Previous Year Revenue) / Previous Year Revenue = ($97,289 – $99,006) / $99,006 = -1.74%.
- Trend: Revenue decreased by 1.74%.
- Industry: Revenue growth varies widely based on economic conditions and bank strategy.
Net Income Growth: Calculated as (Current Year Net Income – Previous Year Net Income) / Previous Year Net Income = ($23,671 – $25,000) / $25,000 = -5.32%.
- Trend: Net Income decreased by 5.32%.
- Industry: Net income growth varies widely based on economic conditions and bank strategy.
EPS Growth: Calculated as (Current Year EPS – Previous Year EPS) / Previous Year EPS = ($4.96 – $5.28) / $5.28 = -6.06%.
- Trend: EPS decreased by 6.06%.
- Industry: EPS growth varies widely based on economic conditions and bank strategy.

Other Relevant Metrics

Efficiency Ratio (Adjusted): The filing provides the adjusted efficiency ratio.
- Trend: The efficiency ratio increased from 66.20% in 2023 to 68.89% in 2024, indicating a decrease in efficiency.
- Significance: A lower efficiency ratio is generally preferred, as it indicates that the bank is generating more revenue per dollar of expense.
Tangible Book Value per Share: The filing provides the tangible book value per share.
- Trend: Tangible book value per share increased from $36.48 in 2023 to $40.55 in 2024.
- Significance: Tangible book value per share is a measure of a company’s net asset value, excluding intangible assets. An increase in tangible book value per share is generally seen as a positive sign.