EXHIBIT 99.2
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December 31, 2021 | QUARTERLY REPORT |
Dear Shareholder:
C&N delivered a strong fourth quarter performance and record net income for 2021 of $30.6 million. These results were supported by our relationship-based business model and recent acquisitions, as well as the government’s response to COVID-19 and subsequent economic rebound. The C&N Team was steadfast in its focus on our mission of “Creating Value Through Lifelong Relationships” during 2021, producing great results in a unique environment. The last three months of 2021 remained volatile as the world continued to debate and react to the pandemic and its impact on the economy, public policy, and our culture. Real GDP is estimated to have increased by 6%, fueled by robust consumer spending. While this is good news, there are persistent supply chain, workforce, and inflation pressures affecting many individuals and businesses. Cumulatively, these pressures have driven a modest increase in intermediate and long-term interest rates and more certainty that the Fed will act to raise short-term rates early in 2022. Progress regarding COVID-19 that was evident early in the fourth quarter slipped a bit with the rapid spread of the Omicron variant beginning in December, creating renewed uncertainty about the course of the pandemic and public policy reaction.
Through all these challenges, C&N’s team members have been fully engaged to provide support, counsel, and solutions to the needs of our customers and communities. This consistency has positioned C&N as a dependable partner, resource, and trusted advisor for all that we serve, and underpins the persistency of our earnings and overall financial strength. Themes for the quarter also remained consistent with prior periods as lending activity in all segments was solid, PPP forgiveness advanced, the wealth management business continued to grow, and the improved base of core deposits was sustained. C&N’s excellent risk profile also carried on as credit metrics improved, and liquidity and capital levels remained outstanding.
Earnings for the fourth quarter of 2021 were $7.3 million, or $.46 per share compared to $6.8 million, or $.43 per share during the fourth quarter of 2020. After adjusting for merger-related expenses and loss on prepayment of borrowings, net income for the fourth quarter of 2020 was $8.2 million, or $.52 per share. Net interest income for the fourth quarter of $19.72 million was $39,000 lower than 2020 as average loans outstanding declined by $115.2 million, including a reduction in average PPP loans of $112.5 million, while average total deposits increased $87.6 million. The net interest margin was 3.65% for the quarter compared to 3.76% a year earlier. The ongoing low interest rate environment, and higher than normal average balance of lower-yielding deposits with the Federal Reserve and other banks, continue to put pressure on the net interest margin.
The provision for loan losses was $1,128,000 in the fourth quarter compared to $620,000 in the fourth quarter of 2020. In each of these quarters, the provision was impacted by increases in the collectively determined portion of the allowance due to loan growth, other than PPP. C&N’s credit metrics improved during 2021 as reflected in past due, non-performing loans, and troubled debt restructuring (TDR) balances. As of December 31, 2021, no loans remain in deferral status to support clients impacted by COVID-19.
Noninterest income for the fourth quarter of 2021 was $6.4 million, a decrease of $149,000 from the fourth quarter 2020 total. Increased revenue from wealth management, deposit service charges and interchange fees were more than offset by a reduction in net gains from sale of loans due to lower volumes.
Noninterest expenses of $16.0 million increased $243,000 during the fourth quarter 2021 compared to the fourth quarter 2020 total, excluding merger-related costs and loss on prepayment of borrowings. Information technology-related expenses and professional fees were the primary drivers of expense growth, while salaries and employee benefits costs declined as the costs of incentive compensation plans were adjusted at year-end.
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Earnings for the year ended December 31, 2021 were $30.55 million, or $1.92 per share, compared to $19.22 million, or $1.30 per share in 2020. Excluding merger related expenses and loss on prepayment of borrowings, net income for 2020 would be $26.65 million, or $1.80 per share. The impact of the July 1, 2020 Covenant acquisition is evident in assessing performance in 2021 compared to 2020 including the growth in net interest income of $10.6 million and noninterest expenses of $6.9 million. In 2021, noninterest income was up $1.5 million from the total for 2020, reflecting revenues from wealth management activities, growth in loan servicing fees, and interchange revenue, while net gains from sales of mortgage loans declined. The provision for loan losses of $3.66 million for 2021 was $252,000 lower than the comparable amount for 2020 as charges related to specific loans were lower in the current year.
C&N amended its existing stock repurchase program to authorize the repurchase of up to 1,000,000 shares, or 6.25% of the issued and outstanding shares as of February 18, 2021. In the fourth quarter of 2021, 6,959 shares were repurchased at an average price of $24.97 per share. Cumulatively through December 31, 2021, 299,059 shares have been repurchased for a total cost of $7,412,000 at an average price of $24.78 per share. Activating the repurchase program enables C&N to manage total capital and shares outstanding to support growth in return on equity and earnings per share which are ultimately key drivers of our stock price.
Shareholder value is also supported by C&N’s cash dividend. Consistent with the third quarter payout, the Board declared a regular quarterly cash dividend of $.28 per share payable to shareholders of record on January 31, 2022, payable February 11, 2022. On an annualized basis, the dividend yield is 4.25% based on the December 31, 2021 market price of $26.12.
The accomplishments of the C&N team in 2021, amid a volatile environment, are commendable. With a number of exciting initiatives planned to build on this success in 2022 and beyond, we will continue to create value and deepen relationships with our customers, communities, and shareholders.
As always, we thank you for your support!
J. Bradley Scovill
President and CEO
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CONDENSED, CONSOLIDATED EARNINGS INFORMATION
(Dollars In Thousands, Except Per Share Data) (Unaudited)
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| 4TH |
| 4TH |
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| | QUARTER | | QUARTER | | | | | |
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| | 2021 | | 2020 | | | | | |
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| | (Current) | | (Prior Year) | | $ Incr. (Decr.) | | % Incr. (Decr.) |
| |||
Interest and Dividend Income | | $ | 21,246 | | $ | 21,859 | | $ | (613) |
| (2.80) | % |
Interest Expense | |
| 1,530 | |
| 2,104 | |
| (574) |
| (27.28) | % |
Net Interest Income | |
| 19,716 | |
| 19,755 | |
| (39) |
| (0.20) | % |
Provision for Loan Losses | |
| 1,128 | |
| 620 | |
| 508 |
| 81.94 | % |
Net Interest Income After Provision for Loan Losses | |
| 18,588 | |
| 19,135 | |
| (547) |
| (2.86) | % |
Noninterest Income | |
| 6,416 | |
| 6,565 | |
| (149) |
| (2.27) | % |
Net (Losses) Gains on Available-for-sale Debt Securities | |
| (1) | |
| 144 | |
| (145) |
| (100.69) | % |
Loss on Prepayment of Borrowings | | | 0 | | | 1,636 | | | (1,636) | | (100.00) | % |
Merger-Related Expenses | |
| 0 | |
| 182 | |
| (182) |
| (100.00) | % |
Other Noninterest Expenses | |
| 16,018 | |
| 15,775 | |
| 243 |
| 1.54 | % |
Income Before Income Tax Provision | |
| 8,985 | |
| 8,251 | |
| 734 |
| 8.90 | % |
Income Tax Provision | |
| 1,677 | |
| 1,481 | |
| 196 |
| 13.23 | % |
Net Income | | $ | 7,308 | | $ | 6,770 | | $ | 538 |
| 7.95 | % |
Net Income Attributable to Common Shares (1) | | $ | 7,256 | | $ | 6,727 | | $ | 529 |
| 7.86 | % |
PER COMMON SHARE DATA: | |
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Net Income - Basic | | $ | 0.46 | | $ | 0.43 | | $ | 0.03 |
| 6.98 | % |
Net Income - Diluted | | $ | 0.46 | | $ | 0.43 | | $ | 0.03 |
| 6.98 | % |
Dividend Per Share | | $ | 0.28 | | $ | 0.27 | | $ | 0.01 |
| 3.70 | % |
Number of Shares Used in Computation - Basic | |
| 15,630,094 | |
| 15,799,436 | |
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Number of Shares Used in Computation - Diluted | |
| 15,635,892 | |
| 15,801,068 | |
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CONDENSED, CONSOLIDATED EARNINGS INFORMATION
(Dollars In Thousands, Except Per Share Data) (Unaudited)
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| | YEARS ENDED | | | | | |
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| | December 31, | | | | | |
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| | 2021 | | 2020 | | | | | |
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|
| (Current) |
| (Prior Year) |
| $ Incr. (Decr.) |
| % Incr. (Decr.) |
| |||
Interest and Dividend Income | | $ | 84,501 | | $ | 77,160 | | $ | 7,341 |
| 9.51 | % |
Interest Expense | |
| 6,562 | |
| 9,595 | |
| (3,033) |
| (31.61) | % |
Net Interest Income | |
| 77,939 | |
| 67,565 | |
| 10,374 |
| 15.35 | % |
Provision for Loan Losses | |
| 3,661 | |
| 3,913 | |
| (252) |
| (6.44) | % |
Net Interest Income After Provision for Loan Losses | |
| 74,278 | |
| 63,652 | |
| 10,626 |
| 16.69 | % |
Noninterest Income | |
| 25,857 | |
| 24,344 | |
| 1,513 |
| 6.22 | % |
Net Gains on Available-for-sale Debt Securities | |
| 24 | |
| 169 | |
| (145) |
| (85.80) | % |
Loss on Prepayment of Borrowings | |
| 0 | |
| 1,636 | |
| (1,636) |
| (100.00) | % |
Merger-Related Expenses | |
| 0 | |
| 7,708 | |
| (7,708) |
| (100.00) | % |
Other Noninterest Expenses | |
| 62,472 | |
| 55,609 | |
| 6,863 |
| 12.34 | % |
Income Before Income Tax Provision | |
| 37,687 | |
| 23,212 | |
| 14,475 |
| 62.36 | % |
Income Tax Provision | |
| 7,133 | |
| 3,990 | |
| 3,143 |
| 78.77 | % |
Net Income | | $ | 30,554 | | $ | 19,222 | | $ | 11,332 |
| 58.95 | % |
Net Income Attributable to Common Shares (1) | | $ | 30,313 | | $ | 19,106 | | $ | 11,207 |
| 58.66 | % |
PER COMMON SHARE DATA: | |
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Net Income - Basic | | $ | 1.92 | | $ | 1.30 | | $ | 0.62 |
| 47.69 | % |
Net Income - Diluted | | $ | 1.92 | | $ | 1.30 | | $ | 0.62 |
| 47.69 | % |
Dividend Per Share | | $ | 1.11 | | $ | 1.08 | | $ | 0.03 |
| 2.78 | % |
Number of Shares Used in Computation - Basic | |
| 15,765,639 | |
| 14,743,386 | |
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Number of Shares Used in Computation - Diluted | |
| 15,771,955 | |
| 14,747,048 | |
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(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. |
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CONDENSED, CONSOLIDATED BALANCE SHEET DATA
(Dollars In Thousands) (Unaudited)
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| | December 31, | | December 31, | | |
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| 2021 |
| 2020 |
| $ Incr. (Decr.) |
| % Incr. (Decr.) |
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ASSETS | | | | | | | | | | | | |
Cash & Due from Banks | | $ | 104,948 | | $ | 101,857 | | $ | 3,091 |
| 3.03 | % |
Available-for-sale Debt Securities | |
| 517,679 | |
| 349,332 | |
| 168,347 |
| 48.19 | % |
Loans, Net | |
| 1,551,312 | |
| 1,632,824 | |
| (81,512) |
| (4.99) | % |
Bank-Owned Life Insurance | | | 30,670 | | | 30,096 | | | 574 | | 1.91 | % |
Bank Premises and Equipment, Net | | | 20,683 | | | 21,526 | | | (843) | | (3.92) | % |
Intangible Assets | |
| 55,821 | |
| 56,356 | |
| (535) |
| (0.95) | % |
Other Assets | |
| 46,535 | |
| 47,109 | |
| (574) |
| (1.22) | % |
TOTAL ASSETS | | $ | 2,327,648 | | $ | 2,239,100 | | $ | 88,548 |
| 3.95 | % |
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LIABILITIES | |
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Deposits | | $ | 1,925,060 | | $ | 1,820,469 | | $ | 104,591 |
| 5.75 | % |
Borrowed Funds - Federal Home Loan Bank and Repurchase Agreements | |
| 29,845 | |
| 74,630 | |
| (44,785) |
| (60.01) | % |
Senior Notes, Net | | | 14,701 | | | 0 | | | 14,701 |
| | % |
Subordinated Debt, Net | |
| 33,009 | |
| 16,553 | |
| 16,456 |
| 99.41 | % |
Other Liabilities | |
| 23,628 | |
| 27,692 | |
| (4,064) |
| (14.68) | % |
TOTAL LIABILITIES | |
| 2,026,243 | |
| 1,939,344 | |
| 86,899 |
| 4.48 | % |
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STOCKHOLDERS' EQUITY | |
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Common Stockholders' Equity, Excluding Accumulated | |
|
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Other Comprehensive Income | |
| 296,379 | |
| 287,961 | |
| 8,418 |
| 2.92 | % |
Accumulated Other Comprehensive Income: | |
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|
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Net Unrealized Gains on Available-for-sale Debt Securities | |
| 4,809 | |
| 11,676 | |
| (6,867) |
| (58.81) | % |
Defined Benefit Plans | |
| 217 | |
| 119 | |
| 98 |
| 82.35 | % |
TOTAL STOCKHOLDERS' EQUITY | |
| 301,405 | |
| 299,756 | |
| 1,649 |
| 0.55 | % |
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY | | $ | 2,327,648 | | $ | 2,239,100 | | $ | 88,548 |
| 3.95 | % |
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