Ladies and gentlemen, and welcome to your Chemung Financial Corporation Annual Meeting of Shareholders. At this time, it is my pleasure to turn the floor over to your host, David Dalrymple, Chairman of the Board of Directors. Sir, the floor is yours.
Thank you. Welcome to our 189th annual stockholders meeting of Chemung Financial Corporation. I'm Dave Dalrymple, chairman of your board of directors, and we appreciate you joining us today. The financial results for 2021 were extremely good and once again confirms our belief that our business model is sound despite pandemic and global instability.
We continue to offer products and services that provide value to our customers in a way that demonstrates respect and appreciation for their business. We recognize that providing a positive, rewarding work environment for 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 in the communities we serve. Today, we're using a hybrid meeting of remote and in-person attendance.
Anders M. Tomson, our President and CEO, is unable to join us today as he is resting and recovering after a recent medical procedure. He's doing very well, and we wish him the best for a speedy recovery. This afternoon, in addition to the formal business matters upon which shareholder action is required,
Karl F. Krebs, our CFO and treasurer, will report on the 2021 financial results and provide a brief look at the first quarter of 2022. We appreciate your investment in and support of our company and hope that our discussions today meet your expectations.
If you are attending today's meeting by phone or wish to view the slides, the formal presentations can be found on our website at chemungcanal.com. I would like to remind you that some of the remarks made today contain forward-looking information and are therefore subject to the risks and uncertainties described in our SEC filings.
First, I would like to introduce you to my fellow directors identified on Slide 5. Andrew Thompson, Raymond Archibold, Larry Becker, Ron Bentley, David Buicko , Robert Dalrymple, Richard Forrestel, Denise Hanrahan , Stephen Lounsbury, Jeff Streeter, Don Traynor, and Tom Tranter.
We appreciate all of the directors' incredible efforts and steadfast support of our company. Today's meeting coincides with the retirement of Larry Becker from our board of directors. Larry joined the Chemung Financial Board in 2011 following the bank acquisition of the Fort Orange Financial Corp. and Capital Bank and Trust Company, where Mr. Becker served as vice chairman. During his tenure, Mr. Becker helped shape the bank's core values of doing business with integrity, transparency, and good citizenship.
His affiliations in the Capital Region have proven invaluable to cultivating contacts and relationships that will continue to contribute to the bank's growth and stability for the years to come. Larry's been a tireless advocate for the Chemung Canal and Capital Bank brands and a true believer in our community banking philosophy.
Larry will continue supporting the bank through his service on our Capital Bank Advisory Board. On behalf of the board, management team, and all of the stakeholders, I extend the sincerest thanks and appreciation to Larry for his 40+ years of service, advocacy, wise oversight, and commitment to our great company.
The official parties for today's meeting are serving as proxies, Karl F. Krebs and Thomas C. Whitney, and inspectors of election, Katherine L. Rheim and Monica L. Ridall. Our SEC counsel has joined us, Benjamin M. Azoff with Luse Gorman, and our external auditors, Tiler Teague with Crowe LLP.
The principal business of this annual meeting of shareholders is to elect four directors for a term of three years each, approve a non-binding advisory basis compensation of the named executive officers, also referred to as say on pay, and to ratify the appointment of Crowe LLP as the company's independent registered public accounting firm for the fiscal year ending December thirty-first, 2022. The board of directors set April 8th, 2022, as the date of record for this shareholder meeting.
Pursuant to the bylaws, the board of directors has appointed Monica L. Ridall and Katherine L. Rheim 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 to inspectors be affixed to the minutes of this meeting.
At this time, I would like to ask the Corporate Secretary of Chemung Financial Corporation, Kathleen S. McKillip, to present the affidavit of mailing of the notice of meeting and accompanying proxy materials, and to report on the existence of a quorum for the meeting.
I present the affidavit of mailing to the shareholders of the company on April 8th, 2022.
Thank you. The report of the Secretary on the existence of a quorum is accepted. I direct that the affidavit of mailing and a list of holders of record be filed with the records of this 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 minutes of the last meeting of shareholders held on June 8th, 2021.
I move to dispense with the reading of the minutes of the meeting of shareholders held on June 8th, 2021.
I second the motion.
You heard the motion to dispense with the reading of minutes. All in favor, please acknowledge by saying aye.
Aye.
Aye.
All opposed, no. Any abstentions? Hearing none, the motion is carried. First item of business is the election of directors for a three-year term. A plurality of votes cast is required to elect each director nominee. The board of directors elected today will hold office until 2025 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 the three-year term: Ronald Bentley, David Buicko, Robert Dalrymple, and Jeffrey Streeter.
The second item of business is to approve the compensation of the named executive officers, also known as say on pay proposal. Third item of business is the ratification of the appointment by the board of directors of Crowe LLP as the Company's independent registered public accounting firm for 2022.
I will now hear the Inspector's report of the voting results.
For the respective Proposal 1, election of directors, each nominee received at least 2,203,748 votes.
Therefore, each nominee named in the proxy statement has been duly elected a director of the company.
For Proposal 2, approval of compensation of executive officers say on pay proposal. The voting results are as follows. For, 2,217,160. Against, 60,668. 43,539 abstained.
Therefore, Proposal 2 is approved.
For the respective Proposal 3, the ratification of the appointment of Crowe LLP as the company's independent registered public accounting firm for 2022. The voting results are as follows. For, 2,861,174. Against, 10,408. 29,639 abstained.
Therefore, Proposal 3 has been ratified. The business portion of this meeting is now concluded. I'd like to introduce our Chief Financial Officer and Treasurer, Karl F. Krebs, who will present a summary of the corporation's 2021 results and a recap of the results of the first quarter of 2022.
Hi today. Despite the lingering pandemic, last year was a successful year for Chemung Financial Corporation. We proudly delivered record results for our shareholders. As of December 31, 2021, the company's balance sheet had grown to $2.4 billion, as evident on Slide 8. Loans totaled $1.5 billion, while total deposits continued its growth to $2.2 billion.
Shareholders equity boosted $211.5 million at the year-end 2021, representing a 5.9% increase over year-end 2020. As you can see on Slide 10, the corporation's earning assets continued their consistent upward trajectory for the last five years. This growth in assets was supported in tandem by the consistent increase in capital ratio. The graph on Slide 12 highlights our two capital ratios.
Even with the previously noted balance sheet growth, all of our capital ratios exceed regulatory standards, and our banking regulators continue to recognize us as a well-capitalized institution. The company also achieved strong earnings in 2021, with a net income of $46.4 million at $5.64 a share, as seen on Slide 13.
This result represents the highest level of earnings in the company's 189-year history and continues an impressive pattern of growth since 2019. Average shares outstanding have continued to decline since 2019 due to the execution of our share repurchase plans, thereby contributing to an increase in shareholder returns. Slides 16 and 17 depict another nice upward trend as it relates to return on average assets and return on average equity.
In 2021, return on average assets was 1.09%, and return on average equity was 12.94%. Now, as you may recall, the broader market indices in the financial sector had been adversely impacted at the onset of the pandemic in 2020, as was Chemung Canal, whose stock experienced a 20% decline in share price.
However, I am pleased to report that the market responded positively to the company's performance throughout 2021, ending the year at $36.45 per share, a significant increase of 36.8% over 2020. This increase, along with our quarterly dividends, resulted in a total shareholder return of 20.16% for 2021. Our focus continues to be on value and total shareholder return.
In 2021, the corporation not only continued its tradition of uninterrupted dividend payments, but also increased the dividend per share by 19% to $0.31 per share beginning in the second quarter of 2021. The corporation paid dividends of approximately $5.6 million at $1.19 per share during 2021. 2021 again saw continued disturbance to the way we work, live, and do business under the seemingly endless evolution of the COVID-19 pandemic.
However, the bank's ability to navigate through these pandemic-related challenges enabled us to continue providing essential banking services without interruption. While the overall severity of COVID-19 appears to be decreasing, it keeps us trained. Our cleaning protocols and social distancing measures continue to provide a safe environment for our employees and our customers.
Our previously remote staff have returned to the office, and are excited to once again interact face-to-face on a daily basis with colleagues, clients, and our communities. The bank was able to fund, in total, 2,134 Paycheck Protection, or PPP loans to businesses in our communities.
Both clients and non-clients to the bank over the course of the pandemic. 274 of those loans were originated in 2021, totaling more than $77 million. Through year-end 2021, $185 million in PPP loans have been successfully forgiven. As you can see on Slide 25, loans in forbearance was at its highest point during the pandemic, representing 15.77% of total loans as of May of 2020. I'm happy to report that as of December 31, 2021, no COVID-related forbearances remain.
Through 2021, we continued our focus on our core depository relationships. This strategy has yielded an important service model that permeates throughout our deposit franchise. 2021 deposit balances grew $117.7 million, an increase of 5.8%, bringing total deposits to slightly more than $2.1 million. This deposit growth allowed us to redeploy excess liquidity into loan originations and investment securities consistent with the prior year.
TDA and Money Market Accounts represented the majority of deposits as of year-end 2021. Organic loan production, which is loan production excluding PPP, was $414 million in 2021, a slight increase over 2020 and 48% more than the pre-pandemic growth experienced in 2019. The majority of this growth was generated by the commercial and indirect lines of business.
While interest rates remained relatively low during the majority of 2021, residential mortgage production began its expected decline towards pre-pandemic levels. However, while overall production was down 3% in 2021, total mortgage loan production was still two times the pre-pandemic volume.
Total commercial loans portfolio balances remained stable in 2021 despite the discontinuation of the PPP program in May of 2021 due to the aforementioned organic loan production, with volume of 9% excluding PPP over 2020, and 16% over the pre-pandemic level in 2019. As you can see on Slide number 38, nonperforming assets continued their downward trend in 2021, decreasing by 19.3%.
The bank's long-term focus on reducing NPAs has resulted in continued improvement year-over-year to the credit quality metrics of our portfolio, bringing the percentage of NPAs to total assets at year-end to 0.34%. Net interest margin decreased in 2021 as asset yields declined and outpaced the decline in deposit costs.
Sustained levels of excess liquidity, fueled by elevated deposits and lower yields on available-for-sale securities and loan rates, contributed to the decline of 31 basis points from 3.25% in 2020 to a net interest margin of 2.84%. The Fed's recent and planned rate hikes will have a positive impact on our 2022 net interest income as a result of our asset sensitivity in combination with a lag in the impact on deposit costs.
Despite these market conditions, I am very pleased with our ability to maintain our traditionally low funding costs. As you can see on Slide 41, the corporation's cost of interest-bearing deposits decreased by 9 basis points this year to an unprecedented low of 22 basis points, still slightly below that of our peers.
The impact of this discipline is an increase in the bank's net interest income, continuing our track record of prudent balance sheet growth coupled with disciplined interest rate management. In fact, $65.6 million in net interest income in 2021 is a new record for the corporation. As shown on Slide 43, our wealth management group completed another successful year in 2021.
With over $2.3 billion in assets under management, the established reputation of our wealth management group continues to contribute to the corporation's bottom line at record levels of fee income and growth opportunities throughout our distribution footprint. We're excited with the momentum in this important line of business coming into 2022. A key component of our success is the continued focus on refining our operating model.
As you can see, we've reduced the level of non-interest expense as the bank has grown in scale and complexity. This focus on efficiency has caused a sustained reduction in our key ratio of non-interest expense to average assets. An important discipline in achieving these results has been maintaining the company's salary and related costs.
Even with the continued growth of the bank and the ever-increasing regulatory demands, we remain steadfast in managing our headcount, as evidenced on slide number 47. The focus on appropriate FTE levels to empower new revenue generation and opportunistic hiring has cultivated support of a more focused, more nimble, and professional workforce.
Cost containment, coupled with balance sheet revenue growth, contributed to lowering the corporation's efficiency ratio to a five-year low of 61.7%. In 2021, the corporation received regulatory approval on a 250,000 share repurchase program, the second such repurchase program in place since 2020. We executed this plan purchasing 34,921 shares at an average cost of $38.55 per share, materially below book value and providing significant shareholder return.
I'm pleased to report that the momentum of 2021 has continued into the new year, resulting in net income of $6.9 million, as depicted on slide number 50. We've already experienced strong increases in loan and deposit growth, net of PPP loans of 5% and 4.4%, respectively.
Non-performing loans decreased to 5.1% from year-end 2021, representing 0.49% of total loans. Improved credit outlook related to reduced concerns over the pandemic resulted in the release of $1.2 million of the pandemic-related portion of the allowance for loan losses as of Q1 2022. Strong earnings in the first quarter resulted in earnings per share of $1.36. Despite the strong results of 2021, some emerging global events and the market's reaction continue to provide new challenges for the bank.
I will now turn the meeting back over to Chairman David J. Dalrymple to provide a brief update on some of the key strategic initiatives executed in 2021.
Thank you, Karl. Beginning on Slide 52, you'll see some of the examples of broad strategies that the bank executed this year in our effort to improve the client experience, maximize efficiency, and continue our long tradition of community investment.
Our distribution channels continue to evolve as clients' demand for these services expand through the use of our digital platforms while visiting our traditional branches less frequently. Investments in our digital products in 2021 included mobile banking upgrades, enhanced card controls, real-time alerts, personal money management, online appointment scheduling, and budgeting tools, all that will help our clients better control, manage, invest, and protect their personal and business monies.
While traditional banking through branch offices will not be going away anytime soon, it's essential that we remain keenly attentive to the expectations of our clients as we evaluate future opportunities to be more efficient and enhance the client experience. We continue to expand robotic automation to assist with routine daily functions to improve the efficiency of the corporation and mitigate risk.
Cybercriminals are rapidly developing more sophisticated methods to access client information, creating continual pressure to manage these evolving risks. This year marks the first full year of the bank's expansion into the Western New York market. Our Clarence, New York loan production office produced significant results in its first year, currently servicing $47 million in loans. We are excited to report that the pipeline for 2022 is very strong.
In November 2021, we relocated our Bath branch just a short distance from its original location. This allowed the bank to obtain a more efficient space and improve customer flow for the volume in that market. The client and branch staff response to our new space has been extremely positive. We also refined and refreshed a very important segment of our bank, our small business unit.
Now rebranded as business banking, we expanded our team of business bankers and implemented product efficiencies to streamline the loan application approval process. Our commitment to our communities and stakeholders, as outlined in our corporate responsibility statement, was reemphasized as we increased transparency in reporting on several key financial service and sustainability metrics. As you can see, the corporation is a proud supporter of our communities and is committed to making measurable long-term impact across our footprint.
The importance of supporting our communities has been recognized and practiced by our bank and employees for nearly 200 years. Whether through corporate sponsorships and donations or through individual participation, our colleagues commit so much of their time enhancing the quality of life of their fellow citizens. The bank continues its commitment to support those organizations that are essential within our communities.
Our employees have generously spent more than 16,000 hours volunteering, providing services in diverse organizations across our footprint. The impact of their efforts is amazing and heartening to see how they embrace and exemplify the important aspect and responsibility as community bankers. Over our long history, the corporation has adapted to changes in the economy, the regulatory environment, customer trends, and technology. We continue to evolve and remain an important resource for our clients and communities.
As was reported earlier, our company has a strong capital base and a liquidity position providing a solid foundation for 2022 and beyond. Our corporation is well poised to manage the challenging and changing economic landscape and market uncertainty. None of these results would have been possible without the contributions of our executive management team.
These individuals seen on Slide 65 have reliably stepped up to the challenge and delivered for our shareholders. They manage our major lines of business in functional operating areas. They not only oversee critical components of the corporation, they also provide guidance and leadership across the entire franchise on a daily basis. They're broadly responsible for prudently managing risk and ensuring the profitability of the corporation across the enterprise. Their enthusiasm and professionalism is fundamental to our success, and we're very appreciative of their expertise.
Earlier in the presentation, I mentioned the retirement of Larry Becker from our board of directors. I would also like to acknowledge the bank employees who retired during the past year, appearing on Slides 66, 67, and 68. Chip Carlson, Terry Casey, Melissa Gardner, Jane Klucik, Wendy Nelson, Louis Aubry , Andrea Seymour, Deborah Weir, and Maureen Willis. Their dedication to our company helped strengthen our past and prepare us for the future.
We thank them all and extend our best wishes for a happy and healthy retirement. In our 189-year history, we've withstood many challenges and are amply poised to withstand many more. We remain confident in our business model and its ability to provide growth and value for all of our stakeholders in 2022 and beyond.
The bank is committed to the continual development of strategies and initiatives that will support the bank, our clients, and our communities, and is prepared to react and pivot swiftly under any circumstances. As we close out this year's annual meeting, 2021 has been a year of tremendous activity and positive results.
Our success was a direct result of the hard work and commitment of our colleagues, supported by the expert guidance and dedication of the board of directors. On behalf of the board, management, and staff, thank you for your continued investment and confidence in our company. I'll now ask for a motion to adjourn this meeting.
I move that this meeting be adjourned.
Second the motion.
I've heard the motion to adjourn the meeting. All in favor, please say aye.
Aye.
Opposed? Abstentions? Hearing none, the meeting is now adjourned. Thank you for your time in joining us today.
Thank you. This concludes today's conference. Thank you again for your participation. You may disconnect your lines at this time, and have a great day.