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State’s Oldest Bank Takes Next Step

By Linda Goodspeed

Following record earnings in 2012, Chemung Financial Corporation, parent company of the state’s oldest locally owned and managed community bank, is poised for the next chapter in its long history.
In November 2012, Chemung began trading on the Nasdaq exchange, a move bank officials and analysts say will help the bank in its acquisition strategy.
Headquartered in Elmira, Chemung Financial is the parent company of Chemung Canal Trust Company, a full-service community bank with $1.3 billion in assets and 28 retail branches. It also owns and operates CFS Group, Inc., a financial services company. The bank was established in 1833, and took its name from the newly opened Chemung Canal waterway which first opened up trade in the region. Ancestors of some of the founders still hold accounts at the bank.
Earlier this year, the 180-year-old bank reported record net income for 2012 of $11 million, an increase of $500,000, or 4.6 percent over 2011. The bank experienced double digit growth in both loans and deposits.
Ronald M. Bentley, president and CEO, said there were several reasons behind the bank’s move to the Nasdaq, including paving the way for future acquisitions. Previously, the bank’s stock was traded over the counter.
“Moving to the Nasdaq improves the liquidity of our shares and increases our exposure in the investment community,” Bentley said. “To the extent being on the Nasdaq has boosted our stock price, it gives us more currency to do more acquisitions, which are a big part of our growth strategy.”
Moving to the Nasdaq also makes Chemung eligible to join the Russell 3,000 index of largest stocks, which is expected to happen in June 2013 when the index rebalances.
“I have a buy on Chemung’s stock right now,” said Alex Twerdahl, associate director at Sandler O’Neill & Partners, who follows the bank. “Part of the thesis behind that recommendation is that Chemung will be added to the Russell 3,000. A fair number of funds look to mirror the Russell indexes, which provides buying pressure for people to buy and own the stock.”
Chemung’s record year was all organic growth. Its last acquisition was in April 2011 when it purchased Capital Bank.
“After the Capital acquisition, we took a breather last year to digest and integrate the bank,” Bentley said. “We’re now poised to be in the merger business again.”
The Capital acquisition gave Chemung a strong presence in the Capitol Region, which Bentley calls “one of the best markets in the country” with a diversified economy that includes government, health care, higher education and nanotech. Bentley said the region accounted for about $165 million in new commercial loans for the bank last year.
“Expansion into that market generated a lot of new commercial loans for us,” Bentley said. “We have a real leadership position in that market.”
He said the bank wants to continue to build its presence there and may look for another acquisition in that market.
Overall, Chemung’s commercial loans last year increased $47.3 million or 11.6 percent and consumer loans increased $42.5 million or 21.6 percent.
Non-performing assets to total assets ratio declined to 0.89 percent at December 31, 2012, compared to 1.79 percent at December 31, 2011.
On the residential mortgage side, Bently said the booming refinance business the last several months had slowed dramatically, hurting earnings at some larger banks.
“It’s slowed down with us, too,” he said. “But it’s not a major line of business for us, so there’s less impact.”
He said the bank will continue to sell residential mortgages on the secondary mortgage market, and as a result, underwriting guidelines will have to conform to those standards.
“We don’t want to put 30-year mortgages on our balance sheet,” he said. “There’s too much risk.”
On the deposit side, total core deposits last year grew $86.5 million or 12 percent.
Bentley said the historic low interest rate environment has put tremendous pressure on earnings.
“We have margin compressions I haven’t seen in my lifetime,” he said. “There’s very little room to lower deposit costs to offset those margins.”
Bentley said the challenges facing Chemung are not unique, but are industry wide. Among those challenges are: low interest rates, high unemployment, slow economic growth, regulatory uncertainty and political gridlock.
“The business outlook is very challenging,” Bentley noted. “The business community is sitting on a lot of cash, but is reluctant to invest because of all the uncertainty. It’s not a particularly attractive climate for anyone.”
But if history is any guide, and Chemung has 180 years of history on its side, the bank should be able to navigate these troubled waters.
“It has a good solid balance sheet, a good management team and room to grow,” Twerdahl said.■

Posted on Monday, June 17, 2013 (Archive on Sunday, September 15, 2013)
Posted by Scott  Contributed by Scott


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