EXHIBIT 99.2
| September 30, 2019 | QUARTERLY REPORT | |
Dear Shareholder:
As you would expect, the ongoing integration of the Monument Bank franchise remained a focus at C&N, following the successful June 24th systems conversion. The transition of Monument customers to C&N’s products and systems went very smoothly and our Team worked well to address various challenges following the changeover. As this important effort settles in, we are turning our attention to the regional market plan and fully implementing our sales and relationship model. We are leveraging corporate resources and methodically building in-market capacity to deliver treasury/cash management, mortgage, and wealth management services, as well as enhanced mobile and online capabilities, to current and prospective customers. The additional services and delivery channels will enhance the customer experience and create value as we meet a broader range of needs and deepen relationships. We have been pleased with the collaboration throughout the process and our results to-date.
There is a similar theme with the York loan production office. The Team continues to deliver strong loan growth and is building its impact in the market. They are working hard at implementing a market plan to add relationship bankers and capacity to the region.
It is important to note that the regional Teams in C&N’s legacy markets continue to drive results and expand relationships, as well. We broke ground for the new Towanda office on September 25th and expect to open this state-of-the-art facility in the spring of next year. Our focus over the past several years to build a sustainable, value driven business model is maturing, as is the underlying capacity of our marketing Team and related technology. The brand refresh we introduced last quarter has been well-received and will be essentially completed during the fourth quarter.
Net income in the third quarter of 2019, excluding merger related items and securities gains, increased by approximately 2% compared to the third quarter of 2018 while EPS decreased 7%, the difference due to the additional shares issued in the Monument acquisition. Year-to-date, on the same basis, adjusted net income increased 14% and adjusted EPS grew 8%. The drivers include stronger net interest income, increased overall levels of noninterest income, and managed growth in noninterest expenses. The consistent positive trends in these key areas continue to support an increased run rate in core earnings. Looking forward, the economy appears to be solid despite an unsettled political environment. Fed policy and the return to a flat yield curve inside the extended low interest rate environment present an ongoing challenge to sustaining the net interest margin.
Third quarter results were impacted by a loan loss provision $1.16 million compared to $60,000 in the third quarter of 2018, and credits to the provision during the first two quarters of 2019. The higher provision this quarter was primarily due to a specific reserve on one problem loan of $678,000, combined with an increased provision required to provide for ongoing loan growth.
C&N’s capital position enables the Company to pursue growth and expansion and it remains strong following the Monument acquisition. When coupled with our positive earnings, these capital levels support our plans for future growth and continuation of a strong cash dividend. On October 17, 2019, the Board of Directors declared a cash dividend on common stock of $.27 per share payable on November 8, 2019. This results in an annual dividend of $1.08 and annualized yield of 4.11% based on C&N’s September 30, 2019 closing price of $26.28.
Thank you to all our loyal shareholders for your continued support and interest in C&N.
J. Bradley Scovill
President and CEO
CONDENSED, CONSOLIDATED EARNINGS INFORMATION
(Dollars In Thousands, Except Per Share Data) (Unaudited)
| | | 3RD
QUARTER | | | 3RD
QUARTER | | | | | | | | | |
| | | 2019 | | | 2018 | | | | | | | | | |
| | | (Current) | | | (Prior Year) | | | $ Incr. (Decr.) | | | % Incr. (Decr.) | |
| Interest and Dividend Income | | $ | 17,277 | | | $ | 12,800 | | | $ | 4,477 | | | | 34.98 | % |
| Interest Expense | | | 3,000 | | | | 1,241 | | | | 1,759 | | | | 141.74 | % |
| Net Interest Income | | | 14,277 | | | | 11,559 | | | | 2,718 | | | | 23.51 | % |
| Provision for Loan Losses | | | 1,158 | | | | 60 | | | | 1,098 | | | | 1830.00 | % |
| Net Interest Income After Provision for Loan Losses | | | 13,119 | | | | 11,499 | | | | 1,620 | | | | 14.09 | % |
| Noninterest Income | | | 4,963 | | | | 4,462 | | | | 501 | | | | 11.23 | % |
| Gain on Restricted Equity Security | | | 0 | | | | 571 | | | | (571 | ) | | | -100.00 | % |
| Net Gains (Losses) on Available-for-sale Debt Securities | | | 13 | | | | (2 | ) | | | 15 | | | | -750.00 | % |
| Merger-Related Expenses | | | 206 | | | | 200 | | | | 6 | | | | 3.00 | % |
| Other Noninterest Expenses | | | 11,486 | | | | 9,633 | | | | 1,853 | | | | 19.24 | % |
| Income Before Income Tax Provision | | | 6,403 | | | | 6,697 | | | | (294 | ) | | | -4.39 | % |
| Income Tax Provision | | | 1,096 | | | | 1,111 | | | | (15 | ) | | | -1.35 | % |
| Net Income | | $ | 5,307 | | | $ | 5,586 | | | $ | (279 | ) | | | -4.99 | % |
| Net Income Attributable to Common Shares (1) | | $ | 5,281 | | | $ | 5,558 | | | $ | (277 | ) | | | -4.98 | % |
| PER COMMON SHARE DATA: | | | | | | | | | | | | | | | | |
| Net Income - Basic | | $ | 0.39 | | | $ | 0.45 | | | $ | (0.06 | ) | | | -13.33 | % |
| Net Income - Diluted | | $ | 0.39 | | | $ | 0.45 | | | $ | (0.06 | ) | | | -13.33 | % |
| Dividend Per Share - Quarterly | | $ | 0.27 | | | $ | 0.27 | | | $ | 0.00 | | | | 0.00 | % |
| Number of Shares Used in Computation - Basic | | | 13,627,676 | | | | 12,228,833 | | | | | | | | | |
| Number of Shares Used in Computation - Diluted | | | 13,646,818 | | | | 12,271,536 | | | | | | | | | |
CONDENSED, CONSOLIDATED EARNINGS INFORMATION
(Dollars In Thousands, Except Per Share Data) (Unaudited)
| | | 9 MONTHS ENDED | | | | | | | |
| | | SEPTEMBER 30, | | | | | | | |
| | | 2019 | | | 2018 | | | | | | | |
| | | (Current) | | | (Prior Year) | | | $ Incr. (Decr.) | | | % Incr. (Decr.) | |
| Interest and Dividend Income | | $ | 47,481 | | | $ | 37,024 | | | $ | 10,457 | | | | 28.24 | % |
| Interest Expense | | | 7,284 | | | | 3,313 | | | | 3,971 | | | | 119.86 | % |
| Net Interest Income | | | 40,197 | | | | 33,711 | | | | 6,486 | | | | 19.24 | % |
| Provision for Loan Losses | | | 197 | | | | 332 | | | | (135 | ) | | | -40.66 | % |
| Net Interest Income After Provision for Loan Losses | | | 40,000 | | | | 33,379 | | | | 6,621 | | | | 19.84 | % |
| Noninterest Income | | | 14,218 | | | | 13,557 | | | | 661 | | | | 4.88 | % |
| Gain on Restricted Equity Security | | | 0 | | | | 2,321 | | | | (2,321 | ) | | | -100.00 | % |
| Net Gains (Losses) on Available-for-sale Debt Securities | | | 20 | | | | (284 | ) | | | 304 | | | | -107.04 | % |
| Merger-Related Expenses | | | 3,818 | | | | 200 | | | | 3,618 | | | | 1809.00 | % |
| Other Noninterest Expenses | | | 33,604 | | | | 29,212 | | | | 4,392 | | | | 15.03 | % |
| Income Before Income Tax Provision | | | 16,816 | | | | 19,561 | | | | (2,745 | ) | | | -14.03 | % |
| Income Tax Provision | | | 2,770 | | | | 3,229 | | | | (459 | ) | | | -14.21 | % |
| Net Income | | $ | 14,046 | | | $ | 16,332 | | | $ | (2,286 | ) | | | -14.00 | % |
| Net Income Attributable to Common Shares (1) | | $ | 13,974 | | | $ | 16,249 | | | $ | (2,275 | ) | | | -14.00 | % |
| PER COMMON SHARE DATA: | | | | | | | | | | | | | | | | |
| Net Income - Basic | | $ | 1.06 | | | $ | 1.33 | | | $ | (0.27 | ) | | | -20.30 | % |
| Net Income - Diluted | | $ | 1.06 | | | $ | 1.33 | | | $ | (0.27 | ) | | | -20.30 | % |
| Dividend Per Share - Quarterly | | $ | 0.81 | | | $ | 0.81 | | | $ | 0.00 | | | | 0.00 | % |
| Dividend Per Share - Special | | $ | 0.10 | | | $ | 0.00 | | | $ | 0.10 | | | | | |
| Number of Shares Used in Computation - Basic | | | 13,182,960 | | | | 12,209,879 | | | | | | | | | |
| Number of Shares Used in Computation - Diluted | | | 13,206,244 | | | | 12,248,669 | | | | | | | | | |
(1) Basic and diluted net income per common share are determined based on net income less earnings allocated to nonvested restricted shares with nonforfeitable dividends.
CONDENSED, CONSOLIDATED BALANCE SHEET DATA
(In Thousands) (Unaudited)
| | | SEPTEMBER 30, | | | SEPTEMBER 30, | | | SEPTEMBER 30, 2019 vs 2018 | |
| | | 2019 | | | 2018 | | | $ Incr. (Decr.) | | | % Incr. (Decr.) | |
| ASSETS | | | | | | | | | | | | | | | | |
| Cash & Due from Banks | | $ | 51,443 | | | $ | 38,341 | | | $ | 13,102 | | | | 34.17 | % |
| Available-for-sale Debt Securities | | | 363,467 | | | | 358,706 | | | | 4,761 | | | | 1.33 | % |
| Loans Held for Sale | | | 2,033 | | | | 551 | | | | 1,482 | | | | 268.97 | % |
| Loans, Net | | | 1,130,143 | | | | 813,717 | | | | 316,426 | | | | 38.89 | % |
| Intangible Assets | | | 29,939 | | | | 11,951 | | | | 17,988 | | | | 150.51 | % |
| Other Assets | | | 65,562 | | | | 62,173 | | | | 3,389 | | | | 5.45 | % |
| TOTAL ASSETS | | $ | 1,642,587 | | | $ | 1,285,439 | | | $ | 357,148 | | | | 27.78 | % |
| | | | | | | | | | | | | | | | | |
| LIABILITIES | | | | | | | | | | | | | | | | |
| Deposits | | $ | 1,294,882 | | | $ | 1,043,947 | | | $ | 250,935 | | | | 24.04 | % |
| Repo Sweep Accounts | | | 3,767 | | | | 5,421 | | | | (1,654 | ) | | | -30.51 | % |
| Total Deposits and Repo Sweeps | | | 1,298,649 | | | | 1,049,368 | | | | 249,281 | | | | 23.76 | % |
| Borrowed Funds | | | 75,714 | | | | 35,985 | | | | 39,729 | | | | 110.40 | % |
| Subordinated Debt | | | 7,000 | | | | 0 | | | | 7,000 | | | | | |
| Other Liabilities | | | 18,285 | | | | 10,099 | | | | 8,186 | | | | 81.06 | % |
| TOTAL LIABILITIES | | | 1,399,648 | | | | 1,095,452 | | | | 304,196 | | | | 27.77 | % |
| | | | | | | | | | | | | | | | | |
| SHAREHOLDERS' EQUITY | | | | | | | | | | | | | | | | |
| Common Shareholders' Equity, Excluding Accumulated Other Comprehensive Income (Loss) | | | 238,479 | | | | 198,355 | | | | 40,124 | | | | 20.23 | % |
| Accumulated Other Comprehensive Income (Loss): | | | | | | | | | | | | | | | | |
| Net Unrealized Gains/Losses on Available-for-sale Debt Securities | | | 4,173 | | | | (8,502 | ) | | | 12,675 | | | | -149.08 | % |
| Defined Benefit Plans | | | 287 | | | | 134 | | | | 153 | | | | 114.18 | % |
| TOTAL SHAREHOLDERS' EQUITY | | | 242,939 | | | | 189,987 | | | | 52,952 | | | | 27.87 | % |
| TOTAL LIABILITIES & SHAREHOLDERS' EQUITY | | $ | 1,642,587 | | | $ | 1,285,439 | | | $ | 357,148 | | | | 27.78 | % |
