Chemung Financial Corporation (CHMG) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Chemung Financial Corporation Annual Meeting of Shareholders. Our host for today's call is David Dalrymple, Chairman of the Board. [Operator Instructions] I would like to now turn the call over to your host, Mr. Dalrymple, you may begin.

Okay. Thank you. Well, we appreciate you joining us today for our 191st Annual Stockholders Meeting of Chemung Financial Corporation. We're happy to report another successful year for your company and we continue to offer a wide array of products and services that provide value to our customers and do so in a way that demonstrates respect and appreciation for their business. We recognize that providing a positive rewarding work environment for our employees will be reflected in providing a positive experience for our customers. We live where we do business and provide significant contributions to help maintain and enhance the quality of life of the communities we serve. We are confident that the community banking model is necessary for a free market economy to function, and I am very privileged and proud to be associated with this bank, which has survived and thrived on almost 2 centuries. I'm happy to turn over the presentation of this meeting to our President and CEO, Anders Tomson.

Thank you so much, Dave. Good afternoon, everybody. In addition to the formal business matters upon which shareholder action is required, I'm pleased to report on our 2023 financial results today. We appreciate your investment in, and support to our company and hope our discussion today meet your expectations. If you are attending today's meeting by phone and wish to view the slides, the formal presentation will be found on the Investor Relations section of our website at chemungcanal.com. I would like to remind you that some of the remarks today contain forward-looking information, are therefore, subject to the risks and uncertainties described in our SEC filings. First, I'd like to introduce you to my fellow directors identified on Slide #5. I personally appreciate their incredible efforts and steadfast support of our company. The official proxies for today's meeting are; our proxies, Tom Whitaker and Jacob Aquilio; Inspectors of Election, [ Catherine S. Rein ] and Monica Ridosh; SEC Council Ben Azoff, Luse Gorman; and our external auditors, Tyler Pheanis and [ James Oleff; ] Crowe LLP. Now the principal business of this Annual Meeting of Shareholders is to elect 5 directors for a term of 3 years each; to approve on a nonbinding advisory basis the compensation of the named executive officers, also referred as Say-On-Pay to select and approve on a nonbinding advisory basis the frequency of Say-On-Pay vote, to ratify the appointment of Crowe LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2024. The Board of Directors set April 8, 2024, as the date of record for this meeting. Pursuant to the bylaws, the Board of Directors has appointed Monica L. Ridosh and [ Catherine S. Rein ] as the inspectors of election to serve at this meeting of shareholders. The oath of inspectors has been executed by the inspectors and received by the Secretary. Therefore, I direct the oath of inspectors be affixed to the minutes of the meeting. At this time, I would ask the Corporate Secretary of Chemung Financial Corporation, Kathleen S. McKillip, to present the affidavit of mailing of the notice of availability and to report on the existence of a quorum for the meeting.

I present the affidavit of mailing, which states that the notice of availability was mailed beginning April 24, 2024, to shareholders of record as of April 8, 2024, the record date for shareholders entitled to notice of this meeting. In addition, I also present a list of the holders of record of the company's common stock as of the close of business on April 8, 2024. Finally, I have been advised by the inspectors of election that at least a majority of the company's outstanding shares entitled to vote are represented in person or by proxy at today's meeting. Since the majority of the company's shares are represented here today, a quorum is present, and the meeting is duly convened.

Thanks, so much. The report of the Secretary on the existence of a quorum is accepted. I direct that the affidavit of mailing and the list of holders of record be filed with the records of the meeting. As in the past, the proxies will make and second a series of motions. I will entertain a motion to dispense with the reading of the minutes of the last meeting of shareholders held on June 6, 2023.

I move to dispense with the reading of the minutes of the meeting of shareholders held on June 6, 2023.

I second the motion.

Okay. You've heard the motion to dispense with the reading of the minutes. All in favor, please say aye. [Voting]

Any opposed, please say no. [Voting]

Any abstentions? [Voting]

This motion is carried. Now the first item of business is the election of 5 directors for a 3-year term. A plurality of votes cast is required to elect each director nominee. Five of the directors elected today will hold office until the 2027 Annual Meeting of Shareholders or until their successors are elected and qualified. As indicated in the company's proxy statement, the Board of Directors has nominated the following individuals for a 3-year term: Raimundo C. Archibold, Jr.; David J. Dalrymple; Denise V. Gonick; Joseph F. Meade IV; and Thomas R. Tyrrell. The second item of business is to approve the compensation of the named executive officers, also known as the Say-On-Pay proposal. The third item of business is to report on the frequency on Say-On-Pay also known as Say-When-On-Pay proposal. And the fourth item of business is the ratification of appointment by the Board of Directors of Crowe LLP as the company's independent registered public get firm for fiscal year 2024. We will now hear the inspector's report of the voting results. [ Mrs. Rein ].

With respect to Proposal 1, election of directors, each nominee received at least 2,674,138 votes.

Therefore, each nominee named in the proxy statement has been duly elected as director of the company.

With respect to Proposal 2, approval of compensation of the named executive officers, the Say-On-Pay proposal, the voting results are as follows: for 3,136,139, against 110,289, abstain 20,116.

Therefore, proposal 2 has been approved.

With respect to Proposal 3, frequency vote on Say-On-Pay, the vote was every year 2,989,547; every 2 years 71,896; abstain 35,852.

Therefore, Proposal 3 has been approved as every year.

With respect to proposal 4, the ratification of the appointment of Crowe LLP as the company's independent registered public accounting firm for 2024 the voting results are as follows: for 3,995,209; against 40,613; abstain 4,154.

Thank you. Therefore, Proposal 4 has been ratified. The business portion of this meeting is now concluded, and I will now present a summary of the corporation's 2023 results. 2023 was a successful year for Chemung Canal. We continue to refine our focus and execute on our community banking model, delivering strong results for our shareholders. Notably, October 2023, mark Chemung Canal Trust Company 190th Anniversary. Since our doors first opened in 1833, Chemung Canal has crossed many milestones and achieved consistent results. We've endured a significant world in domestic events that challenged our organization but also strengthened our resolve and validated our business model. In the face of these dynamic events, the corporate has consistently met new challenges and remain a reliable financial and community resource for our stakeholders. Throughout our history, we've evolved to meet the needs of our ever-changing communities. Our footprint has grown and our financial platforms are growing. Our consistent objective continues. Meeting the evolving financial needs of our stakeholders and providing long-term dependable value for our shareholders. 190 years since our founding, we stand proud of the oldest locally owned and managed community bank in New York State. Our bank -- our bank's journey is truly remarkable, and it is far from complete. 2023 brought a new set of challenges for the bank. In March, financial sector turmoil and rising interest rates contribute to a handful of high-profile bank failures. Although Chemung Canal is a more durable business models in these troubled institutions, our bank was not immune to these same market pressures. As you will see, financial performance across the entire banking sector was negatively impacted by interest rates, margin compression, bank liquidity, credit concerns and broad-based inflation. For Chemung Canal, strong balance sheet and liquidity management position the bank to withstand these pressures and remain a strong financial partner in our committees. 2023 was indeed a dynamic year. Our company's balance sheet has grown to $2.7 billion, as shown on Slide #8. Both total loans and total deposits increased to $2 billion and $2.4 billion, respectively, while total shareholders' equity grew to $195.2 million at year-end. The company achieved strong earnings in 2023 with net income of $25 million or $5.28 per share. This result interrupted our consistent track record of increased earnings. As the chart on Slide 10 depicts, earnings decreased year-over-year in 2023. However, results were [ stalled ] a relative basis when compared to the broader market. Slide #11 illustrates the results related to return on average assets and return on average equity, ROA of 0.94% and an ROE of 14.11% both decreased slightly over 2022. However, as you can see on Slide 12 and 13, these results are in line or better than peers. Asset growth continued its upward trend in the last 5 years, in 2023 at $2.71 billion. Retained earnings continue to add to total capital, supporting the corporation's consistent growth and business initiatives. Despite the negative impact of rising interest rates on the banks available for sale securities in 2022, our key capital ratios improved in 2023 and continue to exceed regulatory standards. The bank's regulatory -- regulators consistently recognized Chemung Financial Corporation as a well-capitalized institution. Chemung Financial stock regained momentum in 2023, increasing 28% and performing well above peers. Total shareholder return was 11.74% in 2023. The corporation continued its tradition of interrupted dividend payments, paying approximately $5.9 million or $1.24 per share. Under challenging market conditions, the bank continued to be a reliable lending resource for our constituents. Total loans increased 6% in 2023. The lending in New York's capital region continues to be an important component of interest earnings for the corporation. Of note, the company's extension to Western New York continued contributing to the bank's loan growth in 2023. At year-end, the bank surpassed $100 million in loans in this important region. Now despite the overall portfolio growth, loan originations decreased slightly. This result is appropriate given the year-over-year increase in interest rates and economic conditions. Commercial lending continues to be the most significant segment of the bank's loan portfolio. This year, market forces dictated a decline in total residential and consumer lending. Loan demand from these sectors have been negatively impacted by rising interest rates. Commercial loan balances grew by 11.1% in 2023, continuing their upward trend over the last 5 years, as shown on Slide #26. The market has positive responding to the bank's commercial lending efforts, and we remain focused on being a prudent commercial lending resource for our markets. As you can see on the Slide 28, nonperforming assets retained their low levels of the last 4 years. The bank's long-term focus on credit quality, as measured by the ratio of nonperforming asset to total assets, has yielded consistent results year-over-year. The corporation benefits from strong value quality metrics throughout its loan portfolios. Now a hallmark of our company is our strong deposit franchise. We provide significant support and a high level of service to our core depository relationships, yielding an enduring business model that provides long-term value. This has again been validated in the year with a challenging interest rate environment. In 2023, deposit balances increased 4.4%. Total deposits exceeded $2.4 billion at year-end. The lion's share of the corporation's deposits continue to ride the bank's -- reside in the bank's legacy markets. These reliable deposits are the essential catalyst that funds our loan growth and confident expansion into new markets. This year, banks competing for deposits as market liquidity was challenged by elevated interest rates. Chemung Canal executed several retail deposit campaigns to drive new deposits and expand funding case for our business initiatives. Today, the bank's deposits are primarily comprised of direct deposit and money market accounts, which makes up more than 50% of total deposits. Now as you can see on Slide 33, our deposit franchise is diversified between consumer, commercial and public sources. This diversity is an additional component of the bank's durability and stability. Our traditionally low cost of funds was not immune into 2023s market forces. The corporation's cost of funds, while consistent with peers increased through the year. The bank utilized a combination of traditional deposits, brokerage CDs and overnight borrowings on funding aforementioned loan growth. Net interest margin decreased slightly in 2023 from 3.05% to 2.85% as illustrated on Slide #35. Net interest income remained consistent with the prior year. Increased tax, asset sensitivity, balance sheet growth, and disciplined interest rate management to help keep this key benchmark stable. The Bank's Wealth Management Group completed another successful year with $2.2 billion in assets under management, the established reputation of our Wealth Management Group continues to contribute to the corporation's bottom line. The Wealth Management Group contributed $10.46 million in fee income in 2023. This business is an important differentiator for the corporation and a valued resource in our markets. We look forward to its continued expansion. Inflation pressures remain consistent in the market and impacted financial performance. As a result, noninterest income expense increased in 2023. Despite this 8% increase, the bank's focus on efficiency to maintain the important ratio of noninterest expense to average assets. The outcome of this effort was a standing favorable to peers. Management remains disciplined in maintaining the company's salary and related costs. In spite of demanding market pressures and increasing regulatory demands, we continue to focus on prudently managing our costs and minimizing overall headcount. While total FTEs remained relatively flat in 2023, the corporation's efficiency ratio rose slow. This increase was a direct result of margin compression and the impact of inflation on operating costs. Earlier, I mentioned the company's expansion into Western New York. The success of our clearance office has been encouraging, and I'm pleased to announce our plans to open a regional banking center in Williamsville, New York is quickly taking shape. A branch line has been selected and renovations began just this week. A formal public announcement will take place this summer, and we'll also coincide with other exciting initiatives in this important market. Customer demand for digital services persistently lows. We continuously refine our service and distribution platform to meet these ever-changing needs. Now our traditional branches remain essential to our community strategy and smart investments in our digital bank platform allow customers that freedom to bank when and where it is convenient for them. Our objective is to provide a secure and frictionless customer experience for clients, whether they choose to bank in one of our many branch locations or online through our digital banking channels. Chemung Canal continues its long history of supporting our communities, including the expansion of our corporate responsibility statement to include sensible management of our environmental impact. Measurable results across our footprint are important and we will continue to be at the forefront of these efforts. Our colleagues commit countless hours of the personal time, enhancing the quality of life of their fellow citizens. We are proud of the positive impact they have in our communities. Whether through corporate sponsorships and donations or individual participation, the bank supports organizations that are essential to the well-being of our communities. Over our long history, the corporation has adapted to a new rule challenges and evolving market conditions. We are committed to responding to these demands and remain relevant and effective in this constantly changing paradigm. Our bank has confidence to execute in a dynamic environment because of our strong capital base and our commitment to our core principles. This commitment to evolve contributes to our strong capital results and value creation. Now these outcomes would not have been possible without the contributions of our executive management team. These individuals on Slide #50 have consistently delivered strong results for our shareholders. They oversee critical components of the corporation, manage major lines of business and provide guidance and leadership across the enterprise. Their enthusiasm and professionalism are fundamental to the corporation's success, and we appreciate their dedication and their expertise. Notably, in March 2023 Pam Burns, former Director of Human Resources and Chief Diversity Officer; and Karl Krebs former Executive Vice President, CFO and Treasurer, officially retired. Monica Ridosh was promoted in January 2023 the Director Human Resources; filling the vacancy created by Pam Burn's retirement. Monica is a valued member of the executive management team and important resource for our colleagues. Dale McKim joined the bank in July of 2023 being named CFO and Treasurer, following the retirement of Karl Krebs. Dale's vast experience in finance and risk makes him a well-equipped successor. I am confident that his contributions and efforts will support the corporation's continued success. For 190 years we have served our communities and constituents with pride and purpose. We remain confident in our business model and its ability to provide growth and sustained value. Our core community banking strategy support the bank, our clients and our communities, and afford us the ability to [ rack ] swiftly under changing circumstances. Proper execution of our strategic initiatives drives our success and provides value for our shareholders. As we close this year's annual meeting, 2023 was a year of tremendous activity and positive results. Our success was the direct result of the hard work and commitment of our colleagues, supported by the expert guidance and dedication of the Board of Directors. I personally appreciate their efforts over the last year. On behalf of the Board of Directors, executive management staff, thank you all for your continued investment and confidence in our company. I will now ask for a motion to adjourn this meeting.

I move with this meeting be adjourned.

I second the motion.

You've heard the motion to adjourn the meeting. All in favor, say aye. [Voting]

Is there any oppose, say no. [Voting]

Any abstentions? [Voting]

The motion is carried. The Annual Meeting of the Corporation is now adjourned. Thank you so much.

This concludes today's Chemung Financial Corporation Annual Meeting of Shareholders. Thank you for attending, and have a wonderful rest of your day.