EXHIBIT 99.2
| September 30, 2017 | QUARTERLY REPORT | |
Dear Shareholder:
Third quarter 2017 net income was $0.32 per share, as compared to $0.34 in the second quarter 2017 and $0.34 in the third quarter 2016. For the nine months ended September 30, 2017, net income per share was $0.94 as compared to $0.95 for the first nine months of 2016. The return on average assets for the first nine months of 2017 was 1.23%, and the return on average equity was 8.13%. Loans, deposits, and trust assets under management continued the steady growth we have experienced over the past several years. This ongoing progress is the result of our focus on building relationships and delivering value to customers across the C&N franchise and was the driver of solid revenue growth during the quarter.
Net interest income increased $279,000 (2.7%) in the third quarter of 2017 compared to the second quarter, and by $454,000 (4.5%) compared to the third quarter of 2016. Through the first nine months of 2017, net interest income was $943,000 (3.1%) higher than in the same period in 2016. Growth in average loans outstanding of approximately $17 million during the quarter and $55 million compared to the third quarter of 2016 is the primary driver of these increases. We also experienced solid growth in core deposits and ongoing reductions in higher cost borrowings, improving C&N’s funding mix. The yield on earning assets was 4.16% during the third quarter of 2017 compared to 4.07% in 2016 while the overall cost of funds increased by .02% during the same period. As a result, the net interest margin increased .09%, to 3.83% during the third quarter of 2017 from 3.74% a year earlier. Recall that the Federal Reserve raised the federal funds rate by .25% in June to a target of 1.25%, resulting in a flattening of the yield curve throughout most of the third quarter.
The provision for loan losses was $322,000 during the third quarter of 2017 compared to $538,000 in 2016. Through the first nine months of 2017, the provision was $778,000 compared to $1.224 million for the same period in 2016. The lower provision amounts for both the current quarter and the first nine months of 2017 reflect reductions in reserves related to charge-off experience and qualitative factors used in calculating the allowance for loan losses. Management maintains a robust process to determine the adequacy of the allowance that incorporates these and other factors. C&N’s overall credit quality remains strong as reflected in our past due and non-performing loan metrics at September 30, 2017 compared to a year earlier.
Noninterest revenue increased by $182,000 (4.7%) in the third quarter of 2017 compared to 2016. The most notable increases were Trust revenues reflecting growth in assets under management as well as a recent fee increase, interchange revenue on debit cards, and gains from the sale of mortgage loans, while service charges on deposit account declined due to lower volumes of overdrafts. These same factors contributed to an increase of $556,000 (4.8%) during the first nine months of 2017 compared to the same period in 2016, with the exception of gains from the sale of mortgage loans which decreased $48,000.
Noninterest expenses increased $613,000 (7.1%) in the third quarter of 2017 compared to 2016. The primary drivers of this increase were collection and other real estate expenses, costs associated with health care benefits, ATM and interchange expenses, software subscriptions related to investments in technology, and increased fees for outsourcing internal audit activities. Overall salaries and wages increased 2%, while FDIC premiums declined. These same factors produced a $1.38 million (5.3%) increase in noninterest expenses for the first nine months of 2017 compared to the same period in 2016.
C&N’s strong capital position provides the ability to pursue a strategy of growth and expansion while continuing to support shareholder value. The dividend paid during the third quarter remained at $.26 per share producing a yield of 4.23% based on the September 30, 2017 market price of $24.56. In April 2016, the Board announced a common stock repurchase program for the acquisition of up to 600,000 shares. There have been no repurchases of stock under this program to date.
We hope you enjoy this edition of banCnotes and, as always, thank you for your investment and ongoing support.
 | |
| J. Bradley Scovill | |
| President and CEO | |
CONDENSED, CONSOLIDATED EARNINGS INFORMATION
(Dollars In Thousands, Except Per Share Data) (Unaudited)
| | | | 3RD | | | | 3RD | | | | | | | | | |
| | | | QUARTER | | | | QUARTER | | | | | | | | | |
| | | | 2017 | | | | 2016 | | | | | | | | | |
| | | | (Current) | | | | (Prior Year) | | | | $ Incr. (Decr.) | | | | % Incr. (Decr.) | |
| Interest and Dividend Income | | $ | 11,626 | | | $ | 11,131 | | | $ | 495 | | | | 4.45 | % |
| Interest Expense | | | 985 | | | | 944 | | | | 41 | | | | 4.34 | % |
| Net Interest Income | | | 10,641 | | | | 10,187 | | | | 454 | | | | 4.46 | % |
| Provision for Loan Losses | | | 322 | | | | 538 | | | | (216 | ) | | | -40.15 | % |
| Net Interest Income After Provision for Loan Losses | | | 10,319 | | | | 9,649 | | | | 670 | | | | 6.94 | % |
| Noninterest Revenue | | | 4,066 | | | | 3,884 | | | | 182 | | | | 4.69 | % |
| Net Gains on Available-for-sale Securities | | | 5 | | | | 584 | | | | (579 | ) | | | -99.14 | % |
| Noninterest Expenses | | | 9,192 | | | | 8,579 | | | | 613 | | | | 7.15 | % |
| Income Before Income Tax Provision | | | 5,198 | | | | 5,538 | | | | (340 | ) | | | -6.14 | % |
| Income Tax Provision | | | 1,262 | | | | 1,451 | | | | (189 | ) | | | -13.03 | % |
| Net Income | | $ | 3,936 | | | $ | 4,087 | | | $ | (151 | ) | | | -3.69 | % |
| Net Income Attributable to Common Shares (1) | | $ | 3,916 | | | $ | 4,065 | | | $ | (149 | ) | | | -3.67 | % |
| | | | | | | | | | | | | | | | | |
| PER COMMON SHARE DATA: | | | | | | | | | | | | | | | | |
| Net Income - Basic | | $ | 0.32 | | | $ | 0.34 | | | $ | (0.02 | ) | | | -5.88 | % |
| Net Income - Diluted | | $ | 0.32 | | | $ | 0.34 | | | $ | (0.02 | ) | | | -5.88 | % |
| Dividend Per Share | | $ | 0.26 | | | $ | 0.26 | | | $ | 0.00 | | | | 0.00 | % |
| Number of Shares Used in Computation - Basic | | | 12,124,854 | | | | 12,014,267 | | | | | | | | | |
| Number of Shares Used in Computation - Diluted | | | 12,162,263 | | | | 12,044,066 | | | | | | | | | |
CONDENSED, CONSOLIDATED EARNINGS INFORMATION
(Dollars In Thousands, Except Per Share Data) (Unaudited)
| | | 9 MONTHS ENDED | | | | | | | |
| | | SEPTEMBER 30, | | | | | | | |
| | | 2017 | | | 2016 | | | | | | | |
| | | (Current) | | | (Prior Year) | | | $ Incr. (Decr.) | | | % Incr. (Decr.) | |
| Interest and Dividend Income | | $ | 34,078 | | | $ | 32,992 | | | $ | 1,086 | | | | 3.29 | % |
| Interest Expense | | | 2,916 | | | | 2,773 | | | | 143 | | | | 5.16 | % |
| Net Interest Income | | | 31,162 | | | | 30,219 | | | | 943 | | | | 3.12 | % |
| Provision for Loan Losses | | | 778 | | | | 1,224 | | | | (446 | ) | | | -36.44 | % |
| Net Interest Income After Provision for Loan Losses | | | 30,384 | | | | 28,995 | | | | 1,389 | | | | 4.79 | % |
| Noninterest Revenue | | | 12,036 | | | | 11,480 | | | | 556 | | | | 4.84 | % |
| Net Gains on Available-for-sale Securities | | | 257 | | | | 1,089 | | | | (832 | ) | | | -76.40 | % |
| Noninterest Expenses | | | 27,566 | | | | 26,186 | | | | 1,380 | | | | 5.27 | % |
| Income Before Income Tax Provision | | | 15,111 | | | | 15,378 | | | | (267 | ) | | | -1.74 | % |
| Income Tax Provision | | | 3,620 | | | | 3,847 | | | | (227 | ) | | | -5.90 | % |
| Net Income | | $ | 11,491 | | | $ | 11,531 | | | $ | (40 | ) | | | -0.35 | % |
| Net Income Attributable to Common Shares (1) | | $ | 11,432 | | | $ | 11,468 | | | $ | (36 | ) | | | -0.31 | % |
| | | | | | | | | | | | | | | | | |
| PER COMMON SHARE DATA: | | | | | | | | | | | | | | | | |
| Net Income - Basic | | $ | 0.94 | | | $ | 0.95 | | | $ | (0.01 | ) | | | -1.05 | % |
| Net Income - Diluted | | $ | 0.94 | | | $ | 0.95 | | | $ | (0.01 | ) | | | -1.05 | % |
| Dividend Per Share | | $ | 0.78 | | | $ | 0.78 | | | $ | 0.00 | | | | 0.00 | % |
| Number of Shares Used in Computation - Basic | | | 12,105,673 | | | | 12,032,619 | | | | | | | | | |
| Number of Shares Used in Computation - Diluted | | | 12,146,297 | | | | 12,056,639 | | | | | | | | | |
(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
(Dollars In Thousands) (Unaudited)
| | | SEPTEMBER 30, | | | SEPTEMBER 30, | | | SEPTEMBER 30, 2017 vs 2016 | |
| | | 2017 | | | 2016 | | | $ Incr. (Decr.) | | | % Incr. (Decr.) | |
| ASSETS | | | | | | | | | | | | | | | | |
| Cash & Due from Banks | | $ | 32,850 | | | $ | 34,070 | | | $ | (1,220 | ) | | | -3.58 | % |
| Available-for-sale Securities | | | 365,086 | | | | 409,800 | | | | (44,714 | ) | | | -10.91 | % |
| Loans Held for Sale | | | 437 | | | | 621 | | | | (184 | ) | | | -29.63 | % |
| Loans, Net | | | 792,112 | | | | 733,917 | | | | 58,195 | | | | 7.93 | % |
| Intangible Assets | | | 11,956 | | | | 11,963 | | | | (7 | ) | | | -0.06 | % |
| Other Assets | | | 57,480 | | | | 54,962 | | | | 2,518 | | | | 4.58 | % |
| TOTAL ASSETS | | $ | 1,259,921 | | | $ | 1,245,333 | | | $ | 14,588 | | | | 1.17 | % |
| | | | | | | | | | | | | | | | | |
| LIABILITIES | | | | | | | | | | | | | | | | |
| Deposits | | $ | 1,021,625 | | | $ | 991,880 | | | $ | 29,745 | | | | 3.00 | % |
| Repo Sweep Accounts | | | 4,739 | | | | 6,320 | | | | (1,581 | ) | | | -25.02 | % |
| Total Deposits and Repo Sweeps | | | 1,026,364 | | | | 998,200 | | | | 28,164 | | | | 2.82 | % |
| Borrowed Funds | | | 34,256 | | | | 46,808 | | | | (12,552 | ) | | | -26.82 | % |
| Other Liabilities | | | 8,288 | | | | 9,722 | | | | (1,434 | ) | | | -14.75 | % |
| TOTAL LIABILITIES | | | 1,068,908 | | | | 1,054,730 | | | | 14,178 | | | | 1.34 | % |
| | | | | | | | | | | | | | | | | |
| SHAREHOLDERS' EQUITY | | | | | | | | | | | | | | | | |
| Common Shareholders' Equity, Excluding Accumulated Other Comprehensive Income | | | 190,639 | | | | 185,173 | | | | 5,466 | | | | 2.95 | % |
| Accumulated Other Comprehensive Income: | | | | | | | | | | | | | | | | |
| Net Unrealized Gains/Losses on Available-for-sale Securities | | | 227 | | | | 5,388 | | | | (5,161 | ) | | | -95.79 | % |
| Defined Benefit Plans | | | 147 | | | | 42 | | | | 105 | | | | 250.00 | % |
| TOTAL SHAREHOLDERS' EQUITY | | | 191,013 | | | | 190,603 | | | | 410 | | | | 0.22 | % |
| TOTAL LIABILITIES & SHAREHOLDERS' EQUITY | | $ | 1,259,921 | | | $ | 1,245,333 | | | $ | 14,588 | | | | 1.17 | % |
