UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 18, 2019
CITIZENS & NORTHERN CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania | 0-16084 | 23-2451943 | ||
(State or other jurisdiction of | (Commission | (I.R.S. Employer | ||
incorporation) | File Number) | Identification No.) |
90-92 Main Street, Wellsboro, PA | 16901 | |
(Address of Principal Executive Office) | (Zip Code) |
Registrant’s telephone number, including area code (570) 724-3411
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
Common Stock Par Value $1.00 | CZNC | NASDAQ Capital Market |
Indicate by checkmark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR 230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR 240.12b-2)
Emerging growth company ¨
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨
ITEM 2.02. Results of Operations and Financial Condition
Citizens & Northern Corporation (the “Company”) announced unaudited, consolidated financial results for the three-month and six-month periods ended June 30, 2019. On July 18, 2019, the Company issued a press release titled “C&N Declares Dividend and Announces Second Quarter 2019 Unaudited Financial Results,” a copy of which is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference. The Company’s “banCNotes,” a report that includes unaudited financial information, will be mailed to shareholders on or about July 25, 2019. A copy of the unaudited quarterly financial information included in banCNotes is furnished as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated herein by reference. Also, supplemental, unaudited financial information is furnished as Exhibit 99.3 to this Current Report on Form 8-K and is incorporated herein by reference.
ITEM 8.01. Other Events
On July 18, 2019, the Company’s Board of Directors declared a cash dividend on its common stock of $0.27 per share. The dividend is payable August 9, 2019 to shareholders of record as of July 29, 2019. The Company announced the dividend in the press release which is attached hereto as Exhibit 99.1 and incorporated herein by reference.
ITEM 9.01. Financial Statements and Exhibits
(a) | Not applicable. |
(b) | Not applicable. |
(c) | Not applicable. |
(d) | Exhibits. |
Exhibit 99.3: Supplemental, unaudited financial information.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Current Report on Form 8-K to be signed on its behalf by the undersigned, thereunto duly authorized.
CITIZENS & NORTHERN CORPORATION | ||
Date: 7/18/19 | By: | /s/ Mark A. Hughes |
Treasurer and Chief Financial Officer |
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Exhibit 99.1
Contact: Charity Frantz | |
July 18, 2019 | 570-724-0225 |
charityf@cnbankpa.com |
C&N DECLARES DIVIDEND AND Announces SECOND QUARTER 2019 UNAUDITED Financial RESULTS
For Immediate Release:
Wellsboro, PA – Citizens & Northern Corporation (“C&N”) (NASDAQ: CZNC) announced its most recent dividend declaration and its unaudited, consolidated financial results for the three-month and six-month periods ended June 30, 2019.
Dividend Declared
C&N’s Board of Directors declared a regular quarterly cash dividend of $0.27 per share. The dividend is payable on August 9, 2019 to shareholders of record as of July 29, 2019. Declaration of the dividend was made at the July 18, 2019 meeting of C&N’s Board of Directors.
Merger with Monument Bancorp, Inc.
C&N’s merger with Monument Bancorp, Inc. (“Monument”) was completed April 1, 2019. Monument was the parent company of Monument Bank, a commercial bank which operated two community bank offices and one lending office in Bucks County, Pennsylvania. Total purchase consideration was $42.7 million, including 1,279,825 shares of C&N common stock issued with a value of $33.1 million and cash paid totaling $9.6 million. Holders of Monument common stock prior to the consummation of the merger held approximately 9.4% of C&N’s common stock outstanding immediately following the merger.
In connection with the merger, effective April 1, 2019, C&N recorded goodwill of $16.7 million and a core deposit intangible asset of $1.5 million. Total loans acquired on April 1, 2019 were valued at $259.3 million, while total deposits assumed were valued at $223.3 million, borrowings were valued at $111.6 million and subordinated debt was valued at $12.4 million. The subordinated debt included an instrument with a fair value of $5.4 million that was redeemed on April 1, 2019 with no realized gain or loss. C&N acquired available-for-sale debt securities valued at $94.6 million and sold the securities in early April for approximately no realized gain or loss. The assets purchased and liabilities assumed in the merger were recorded at their estimated fair values at the time of closing and may be adjusted for up to one year subsequent to the acquisition.
C&N incurred merger-related expenses in the second quarter 2019 of $3.3 million, including costs associated with termination of data processing contracts, conversion of Monument’s customer accounting data into C&N’s core system, severance and similar expenses, legal and other professional fees and various other costs. Merger-related expenses for the six months ended June 30, 2019 totaled $3.6 million. Management expects additional merger-related expenses associated with the Monument merger subsequent to June 30, 2019 will be insignificant.
Unaudited Financial Information
Net income was $0.27 per diluted share in the second quarter 2019 as compared to $0.41 in the first quarter 2019 and $0.52 in the second quarter 2018. For the six months ended June 30, 2019, net income per diluted share was $0.67 as compared to $0.87 per share for the first six months of 2018. Earnings for the second quarter 2019 and six months ended June 30, 2019 were significantly impacted by the Monument acquisition, including the effects of non-recurring merger-related expenses described earlier. Further, interest income on loans acquired from Monument, partially offset by interest expense on deposits, borrowings and subordinated debt assumed, contributed to growth in C&N’s net interest income, while costs associated with the expansion contributed to an increase in noninterest expenses.
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Earnings for the second quarter 2018 and six months ended June 30, 2018 included the benefit of a realized gain on a restricted equity security (Visa Inc. Class B stock) partially offset by the impact of a loss on available-for-sale debt securities. In the second quarter 2018, C&N recorded a pre-tax gain on a restricted equity security (Visa Class B stock) of $1,750,000 and a pre-tax impairment loss on available-for-sale debt securities (sold in July 2018) of $282,000.
The following table provides a reconciliation of C&N’s second quarter and June 30, 2019 year-to-date unaudited earnings results under U.S. generally accepted accounting principles (U.S. GAAP) to comparative non-U.S. GAAP results excluding Monument merger-related expenses and realized gains and losses on securities. Management believes disclosure of unaudited second quarter and six-months ended June 30, 2019 and 2018 earnings results, adjusted to exclude the impact of these items, provides useful information to investors for comparative purposes.
RECONCILIATION OF NET INCOME AND
DILUTED EARNINGS PER SHARE TO NON-U.S.
GAAP MEASURE
(Dollars In Thousands, Except Per Share Data)
(Unaudited)
2nd Quarter 2019 | 2nd Quarter 2018 | |||||||||||||||||||||||||||||||
Income | Diluted | Income | Diluted | |||||||||||||||||||||||||||||
Before | Income | Earnings | Before | Income | Earnings | |||||||||||||||||||||||||||
Income | Tax | per | Income | Tax | per | |||||||||||||||||||||||||||
Tax | Provision | Net | Common | Tax | Provision | Net | Common | |||||||||||||||||||||||||
Provision | (1) | Income | Share | Provision | (1) | Income | Share | |||||||||||||||||||||||||
Results as Presented Under U.S. GAAP | $ | 4,342 | $ | 693 | $ | 3,649 | $ | 0.27 | $ | 7,748 | $ | 1,377 | $ | 6,371 | $ | 0.52 | ||||||||||||||||
Add: Merger-Related Expenses | 3,301 | 673 | 2,628 | |||||||||||||||||||||||||||||
Less: Gain on Restricted Equity Security | (1,750 | ) | (368 | ) | (1,382 | ) | ||||||||||||||||||||||||||
Net (Gains) Losses on Available-for-Sale Debt Securities | (7 | ) | (1 | ) | (6 | ) | 282 | 59 | 223 | |||||||||||||||||||||||
Adjusted Earnings, Excluding Effect of Merger- Related Expenses, Gain on Restricted Equity Security and Net Gains and Losses on Available-for-Sale Debt Securities (Non-U.S. GAAP) | $ | 7,636 | $ | 1,365 | $ | 6,271 | $ | 0.46 | $ | 6,280 | $ | 1,068 | $ | 5,212 | $ | 0.42 |
6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | |||||||||||||||||||||||||||||||
Income | Diluted | Income | Diluted | |||||||||||||||||||||||||||||
Before | Income | Earnings | Before | Income | Earnings | |||||||||||||||||||||||||||
Income | Tax | per | Income | Tax | per | |||||||||||||||||||||||||||
Tax | Provision | Net | Common | Tax | Provision | Net | Common | |||||||||||||||||||||||||
Provision | (1) | Income | Share | Provision | (1) | Income | Share | |||||||||||||||||||||||||
Results as Presented Under U.S. GAAP | $ | 10,413 | $ | 1,674 | $ | 8,739 | $ | 0.67 | $ | 12,864 | $ | 2,118 | $ | 10,746 | $ | 0.87 | ||||||||||||||||
Add: Merger-Related Expenses | 3,612 | 739 | 2,873 | |||||||||||||||||||||||||||||
Less: Gain on Restricted Equity Security | (1,750 | ) | (368 | ) | (1,382 | ) | ||||||||||||||||||||||||||
Net (Gains) Losses on Available-for-sale Debt Securities | (7 | ) | (1 | ) | (6 | ) | 282 | 59 | 223 | |||||||||||||||||||||||
Adjusted Earnings, Excluding Effect of Merger- Related Expenses, Gain on Restricted Equity Security and Net Gains and Losses on Available-for-Sale Debt Securities (Non-U.S. GAAP) | $ | 14,018 | $ | 2,412 | $ | 11,606 | $ | 0.89 | $ | 11,396 | $ | 1,809 | $ | 9,587 | $ | 0.78 |
(1) | Income tax has been allocated based on an income tax rate of 21%. The tax benefit associated with merger-related expenses has been adjusted to reflect the estimated nondeductible portion of the expenses. |
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Additional highlights related to C&N’s second quarter and June 30, 2019 year-to-date unaudited earnings results as compared to the first quarter 2019 and comparative periods of 2018 are presented below.
Second Quarter 2019 as Compared to First Quarter 2019
Net income was $3,649,000 in the second quarter 2019 as compared to $5,090,000 in the first quarter 2019. As noted in the table above, second quarter 2019 net income, excluding the impact of merger-related expenses and net securities gains, would be $6,271,000. Other significant variances were as follows:
· | Net interest income increased $2,490,000 (21.3%) in the second quarter 2019 over the total for the first quarter 2019. Total average earning assets increased $285.0 million, including an increase in average loans outstanding of $281.5 million, reflecting the impact of the Monument acquisition as well as robust loan growth during the quarter. Total average deposits increased $248.1 million, including deposits assumed from Monument and seasonal growth in municipal deposits. The net interest margin was 3.89% for the second quarter 2019, down from 4.04% in the first quarter 2019. The average yield on earning assets increased 0.19% while the average rate paid on interest-bearing liabilities increased 0.44%. The increase in average rate on interest-bearing liabilities resulted primarily from comparatively higher rates on time deposits and short-term borrowings assumed from Monument. Accretion and amortization of purchase accounting-related adjustments from marking financial instruments to fair value had a positive effect on net interest income in the second quarter 2019 of $214,000, including an increase in income on loans of $413,000 partially offset by increases in interest expense on time deposits of $137,000 and on short-term borrowings of $62,000. The net positive impact to the second quarter 2019 net interest margin from accretion and amortization of purchase accounting adjustments was 0.06%. |
· | The credit for loan losses (reduction in expense) was $4,000 in the second quarter 2019 as compared to a credit of $957,000 in the first quarter 2019. In each of the first two quarters of 2019, the credit for loan losses reflected the impact of eliminations of specific allowances on commercial loans that are no longer considered impaired. |
· | Noninterest income of $4,849,000 in the second quarter 2019 was up $443,000 from the first quarter 2019 total. Total trust and brokerage revenue increased $277,000 while net gains from sales of residential mortgage loans increased $134,000. Other noninterest income decreased $93,000, as the first quarter total included revenue from realization of tax credits of $152,000 with no corresponding item in the second quarter. |
· | Noninterest expense, excluding merger-related expenses, totaled $11,422,000 in the second quarter 2019, an increase of $726,000 over the first quarter 2019 amount. Salaries and wages expense increased $783,000, including $656,000 related to the former Monument operations. Data processing expenses increased $159,000, mainly due to costs associated with operating two core systems from April 1, 2019 until conversion of former Monument customer data to C&N’s core system was completed in late June. Professional fees expense increased $109,000, including increases in expense related to employee sales and service training and employee recruiting costs. Pensions and other employee benefits expense decreased $393,000 in the second quarter 2019 from the first quarter total, reflecting the customary seasonal recognition of higher payroll taxes in the first quarter and a $201,000 credit received in the second quarter for overpayment of claims on C&N’s partially self-insured health plan. |
Second Quarter 2019 as Compared to Second Quarter 2018
As described above, second quarter 2019 net income was $3,649,000, and excluding the impact of merger-related expenses and net securities gains, would be $6,271,000. In comparison, second quarter 2018 net income was $6,371,000, and excluding net securities gains, would be $5,212,000. Other significant variances were as follows:
· | Second quarter 2019 net interest income of $14,205,000 was $2,950,000 (26.2%) higher in the second quarter 2019 as compared to the total for the second quarter 2018. Consistent with the discussion above, the growth in net interest income resulted mainly from growth related to the Monument acquisition. The net interest margin of 3.89% for the second quarter 2019 was slightly higher than the second quarter 2018 margin of 3.87%. The average yield on earning assets was 0.45% higher in the second quarter 2019 as compared to the same period in 2018, while the average rate paid on interest-bearing liabilities increased 0.60% between periods. |
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· | Second quarter 2019 noninterest income was $160,000 higher than the second quarter 2018 total. Total trust and brokerage revenue increased $147,000, interchange revenue from debit card transactions increased $58,000 and net gains from sales of residential mortgage loans increased $55,000. Other noninterest income decreased $92,000, as there was no revenue from realization of tax credits in the second quarter 2019 while the second quarter 2018 total included revenue of $154,000 from tax credits associated with a donation of real estate. |
· | Noninterest expense, excluding merger-related expenses, increased $1,738,000 in the second quarter 2019 over the second quarter 2018 amount. Salaries and wages expense increased $1,083,000, including $656,000 related to the former Monument operations and an increase of $185,000 in cash and stock-based incentive compensation expense. Other noninterest expense increased $277,000. Within other noninterest expense, expenses and net losses on other real estate properties increased $137,000, with other increases in loan collection expenses of $63,000, amortization of core deposit intangibles of $72,000, credit card operating costs of $51,000, other taxes of $36,000 and insurance of $31,000. Also, within other noninterest expense, donations expense decreased $249,000 reflecting the second quarter 2018 donation of real estate referred to above that resulted in expense of $250,000 with no similar item in 2019. Data processing expenses increased $268,000, reflecting the costs of operating two core processing systems for most of the second quarter 2019 as well as costs related to product development efforts in connection with a fintech organization and other increases in software licensing costs. |
Six Months Ended June 30, 2019 as Compared to Six Months Ended June 30, 2018
Net income for the six-month period ended June 30, 2019 was $8,739,000, or $0.67 per diluted share, while net income for the first six months of 2018 was $10,746,000, or $0.87 per share. Excluding the impact of merger-related expenses and net securities gains, adjusted earnings for the first six months of 2019 would be $11,606,000 or $0.89 per share as compared to similarly adjusted earnings of $9,587,000 or $0.78 per share for the first six months of 2018. Other significant variances were as follows:
· | Net interest income was up $3,768,000 (17.0%) for the first six months of 2019 over the same period in 2018, reflecting the benefits of growth related to the Monument acquisition. The net interest margin was 3.96% for the first six months of 2019, up from 3.86% in 2018. The net interest margin for the first six months of 2019 included a net positive impact from accretion and amortization of purchase accounting adjustments of 0.03%. For the first six months of 2019, the average yield on earning assets was up 0.38% as compared to the same period in 2018, while the average rate paid on interest-bearing liabilities was up 0.42% between periods. Despite compression in the interest rate spread, the increase in the net interest margin reflected growth in average earning assets of $157.9 million, while in comparison, average interest-bearing liabilities increased $106.6 million. The excess growth in earning assets was funded mainly by an increase of $35.7 million in average noninterest-bearing demand deposits and by an increase in average stockholders’ equity (excluding accumulated other comprehensive income) of $26.9 million. |
· | The credit for loan losses (reduction in expense) was $961,000 for the first six months of 2019 as compared to a provision of $272,000 in the first six months of 2018. The credit for loan losses in 2019 reflects the impact of eliminations of specific allowances on commercial loans that are no longer considered impaired. |
· | Noninterest income was $160,000 higher for the first six months of 2019 as compared to the first six months of 2018. Total trust and brokerage revenue increased $180,000 and interchange revenue from debit card transactions increased $122,000. Loan servicing fees, net, decreased $126,000, as the fair value of servicing rights decreased $148,000 in 2019 as compared to a decrease of $26,000 in 2018. |
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· | Noninterest expense, excluding merger-related expenses, increased $2,539,000 for the six months ended June 30, 2019 over the total for the first six months of 2018. Significant variances included the following: |
Ø | Salaries and wages expense increased $1,452,000, including $656,000 related to the former Monument operations and an increase of $351,000 in cash and stock-based incentive compensation expense. |
Ø | Other noninterest expense increased $735,000. Within other noninterest expense, expenses and net losses on other real estate properties increased $416,000, with other increases in loan collection expenses of $172,000, credit card operating costs of $83,000, amortization of core deposit intangibles of $73,000, insurance of $49,000, other taxes of $36,000 and consulting related to the overdraft privilege program of $35,000. Also within other noninterest expense, donations expense decreased $249,000 reflecting the second quarter 2018 donation of real estate referred to above that resulted in expense of $250,000 with no similar item in 2019. |
Ø | Data processing expenses increased $430,000, reflecting the costs of operating two core processing systems for most of the second quarter 2019 as well as costs related to product development efforts in connection with a fintech organization and other increases in software licensing costs. |
Ø | Automated teller machine and interchange expense decreased $175,000, reflecting cost reductions pursuant to a renegotiated service contract. |
Other Information:
Changes in other unaudited financial information are as follows:
· | Total assets amounted to $1,609,685,000 at June 30, 2019, up from $1,290,000,000 at March 31, 2019 and up 25.4% from $1,284,007,000 at June 30, 2018. |
· | Net loans outstanding (excluding mortgage loans held for sale) were $1,108,483,000 at June 30, 2019, up from $817,136,000 at March 31, 2019 and up 36.9% from $809,816,000 at June 30, 2018. In comparing outstanding balances at June 30, 2019 and 2018, total commercial loans increased $167.3 million (47.4%), total residential mortgage loans increased $126.9 million (28.2%) and total consumer loans increased $3.9 million (24.5%). At June 30, 2019, the outstanding balance of commercial loan participations with other financial entities was $66.3 million as compared to $68.4 million at March 31, 2019 and $62.9 million at June 30, 2018. |
· | Total nonperforming assets as a percentage of total assets was 0.95% at June 30, 2019, down from 1.02% at March 31, 2019 and 1.35% at June 30, 2018. Included within nonperforming assets are loans considered impaired upon their purchase from Monument (“PCI Loans”). PCI Loans totaled $441,000 at April 1, 2019 and June 30, 2019. |
· | Deposits and repo sweep accounts totaled $1,287,335,000 at June 30, 2019, up from $1,045,043,000 at March 31, 2019 and up 23.1% from $1,046,068,000 at June 30, 2018. |
· | Total shareholders’ equity was $239,716,000 at June 30, 2019, up from $202,127,000 at March 31, 2019 and $189,179,000 at June 30, 2018. Within shareholders’ equity, the portion of accumulated other comprehensive income (loss) related to available-for-sale debt securities was $3,138,000 at June 30, 2019, up from ($941,000) at March 31, 2019 and ($6,476,000) at June 30, 2018. Fluctuations in accumulated other comprehensive income (loss) related to valuations of available-for-sale debt securities have been caused by changes in interest rates. |
· | Citizens & Northern Bank is subject to various regulatory capital requirements. At June 30, 2019, Citizens & Northern Bank maintains regulatory capital ratios that exceed all capital adequacy requirements. Management expects the Bank to remain well-capitalized for the foreseeable future. |
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· | Assets under management by C&N’s Trust and Financial Management Group amounted to $948,998,000 at June 30, 2019, up from $924,080,000 at March 31, 2019 and up 2.4% from $927,089,000 at June 30, 2018. |
Citizens & Northern Corporation is the parent company of Citizens & Northern Bank, an independent community bank providing complete financial, investment and insurance services through 27 full service offices located in Tioga, Bradford, Sullivan, Lycoming, Potter, Cameron, McKean and Bucks counties in Pennsylvania and in Canisteo and South Hornell, New York. C&N also offers commercial, residential and consumer lending services through offices in York and Warminster in Pennsylvania and Elmira, New York. C&N can be found on the worldwide web at www.cnbankpa.com. The Company’s stock is listed on NASDAQ Capital Market Securities under the symbol CZNC.
Safe Harbor Statement: Except for historical information contained herein, the matters discussed in this release are forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainty, including without limitation, the following: changes in monetary and fiscal policies of the Federal Reserve Board and the U.S. Government, particularly related to changes in interest rates; changes in general economic conditions; legislative or regulatory changes; downturn in demand for loan, deposit and other financial services in the Corporation’s market area; increased competition from other banks and non-bank providers of financial services; technological changes and increased technology-related costs; changes in management’s assessment of realization of securities and other assets; and changes in accounting principles, or the application of generally accepted accounting principles. Citizens & Northern disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
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EXHIBIT 99.2
June 30, 2019 | QUARTERLY REPORT |
Dear Shareholder:
The entire C&N Team produced at an exceptional level during Q2 as the Company turned to the future with the closing of the Monument acquisition, ramp up of the York LPO, and introduction of a refreshed brand. It is a significant moment in our long history and the Team delivered.
During the second quarter our top priority has been the systems conversion with Monument and related training efforts. The integration team did an outstanding job conversion weekend and significant on-site support has helped to smooth the transition for customers and staff in the Bucks County market. That group will remain active over the next six to twelve months to complete the integration of cultures, support ongoing customer and staff education, and build-out of C&N’s relationship management model and process. Management is evaluating the overall integration process and documenting strengths and weaknesses that will improve execution on our next acquisition.
The York loan production office is off to a fast start and we are optimistic about achieving the targets that were set when we launched this effort. A strong core team is operating in the market and we continue to add talent that fits our culture and style of banking. We plan to expand our presence in the south-central PA market methodically and opportunistically in the next several years.
The branding project that has been underway since we announced the Monument acquisition launched into the public phase during the second quarter. Our objectives were to refresh and energize the Citizens & Northern brand, eliminate potential confusion with competitors, and remain connected with our historic branding in legacy markets. We believe that the refreshed C&N branding positions us to achieve these goals and we have received positive feedback to date. This effort will continue to roll out through the remainder of 2019 and is aligned with our culture and strategy as we move to the future.
All of these efforts have energized the C&N Team and enhance the value we work to create for our customers in our legacy markets, as well. The strong core franchise built over the years enables us to pursue growth and expansion, and we remain focused on strengthening existing relationships and communities. The teams serving these markets are outstanding and are fully engaged.
Earnings growth is another ongoing priority. Although second quarter results are difficult to assess given the noise of merger expenses and related market value adjustments, core earnings remain strong. Net income in the second quarter of 2019, excluding merger related items and securities gains, increased by approximately 20% compared to the second quarter of 2018 while EPS increased just under 10%. Year-to-date, on the same basis, net income increased 21% and EPS grew 14%. The drivers include stronger net interest income, consistent overall levels of noninterest income, and managed growth in noninterest expenses. Second quarter loan loss provision was essentially $0 which followed a $957,000 credit in the first quarter. The reduction in provisions reflects ongoing improvement in credit quality metrics and has enhanced earnings during the first half of 2019. Third quarter results should provide more clarity on our run rate earnings and the impact of expansion activities as nearly all the merger related expenses have been captured during the first half of the year.
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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 July 18, 2019, the Board of Directors declared a cash dividend on common stock of $.27 per share payable on August 9, 2019 to shareholders of record on July 29, 2019. This results in an annual dividend of $1.08 and annualized yield of 4.10% based on C&N’s June 30, 2019 closing price of $26.33.
Finally, at the Annual Shareholders meeting C&N welcomed Clark Frame to the Board. Clark was a founder and Chairman and CEO of Monument Bank for the past eleven years and has had a lengthy career in our industry. His experience, knowledge, and insights into the southeastern PA market will be invaluable as we work to build our franchise together.
Thank you to all our loyal shareholders for your continued support and interest.
J. Bradley Scovill
President and CEO
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CONDENSED, CONSOLIDATED EARNINGS INFORMATION
(Dollars In Thousands, Except Per Share Data) (Unaudited)
2ND | 2ND | |||||||||||||||
QUARTER | QUARTER | |||||||||||||||
2019 | 2018 | |||||||||||||||
(Current) | (Prior Year) | $ Incr. (Decr.) | % Incr. (Decr.) | |||||||||||||
Interest and Dividend Income | $ | 17,139 | $ | 12,334 | $ | 4,805 | 38.96 | % | ||||||||
Interest Expense | 2,934 | 1,079 | 1,855 | 171.92 | % | |||||||||||
Net Interest Income | 14,205 | 11,255 | 2,950 | 26.21 | % | |||||||||||
Credit for Loan Losses | (4 | ) | (20 | ) | 16 | -80.00 | % | |||||||||
Net Interest Income After Credit for Loan Losses | 14,209 | 11,275 | 2,934 | 26.02 | % | |||||||||||
Noninterest Income | 4,849 | 4,689 | 160 | 3.41 | % | |||||||||||
Gain on Restricted Equity Security | 0 | 1,750 | (1,750 | ) | -100.00 | % | ||||||||||
Net Gains (Losses) on Available-for-sale Debt Securities | 7 | (282 | ) | 289 | -102.48 | % | ||||||||||
Merger-Related Expenses | 3,301 | 0 | 3,301 | |||||||||||||
Other Noninterest Expenses | 11,422 | 9,684 | 1,738 | 17.95 | % | |||||||||||
Income Before Income Tax Provision | 4,342 | 7,748 | (3,406 | ) | -43.96 | % | ||||||||||
Income Tax Provision | 693 | 1,377 | (684 | ) | -49.67 | % | ||||||||||
Net Income | $ | 3,649 | $ | 6,371 | ($ | 2,722 | ) | -42.72 | % | |||||||
Net Income Attributable to Common Shares (1) | $ | 3,630 | $ | 6,339 | ($ | 2,709 | ) | -42.74 | % | |||||||
PER COMMON SHARE DATA: | ||||||||||||||||
Net Income - Basic | $ | 0.27 | $ | 0.52 | ($ | 0.25 | ) | -48.08 | % | |||||||
Net Income - Diluted | $ | 0.27 | $ | 0.52 | ($ | 0.25 | ) | -48.08 | % | |||||||
Dividend Per Share - Quarterly | $ | 0.27 | $ | 0.27 | $ | 0.00 | 0.00 | % | ||||||||
Number of Shares Used in Computation - Basic | 13,597,848 | 12,210,902 | ||||||||||||||
Number of Shares Used in Computation - Diluted | 13,622,954 | 12,248,145 |
CONDENSED, CONSOLIDATED EARNINGS INFORMATION
(Dollars In Thousands, Except Per Share Data) (Unaudited)
6 MONTHS ENDED | ||||||||||||||||
JUNE 30, | ||||||||||||||||
2019 | 2018 | |||||||||||||||
(Current) | (Prior Year) | $ Incr. (Decr.) | % Incr. (Decr.) | |||||||||||||
Interest and Dividend Income | $ | 30,204 | $ | 24,224 | $ | 5,980 | 24.69 | % | ||||||||
Interest Expense | 4,284 | 2,072 | 2,212 | 106.76 | % | |||||||||||
Net Interest Income | 25,920 | 22,152 | 3,768 | 17.01 | % | |||||||||||
(Credit) Provision for Loan Losses | (961 | ) | 272 | (1,233 | ) | -453.31 | % | |||||||||
Net Interest Income After (Credit) Provision for Loan Losses | 26,881 | 21,880 | 5,001 | 22.86 | % | |||||||||||
Noninterest Income | 9,255 | 9,095 | 160 | 1.76 | % | |||||||||||
Gain on Restricted Equity Security | 0 | 1,750 | (1,750 | ) | -100.00 | % | ||||||||||
Net Gains (Losses) on Available-for-sale Debt Securities | 7 | (282 | ) | 289 | -102.48 | % | ||||||||||
Merger-Related Expenses | 3,612 | 0 | 3,612 | |||||||||||||
Other Noninterest Expenses | 22,118 | 19,579 | 2,539 | 12.97 | % | |||||||||||
Income Before Income Tax Provision | 10,413 | 12,864 | (2,451 | ) | -19.05 | % | ||||||||||
Income Tax Provision | 1,674 | 2,118 | (444 | ) | -20.96 | % | ||||||||||
Net Income | $ | 8,739 | $ | 10,746 | ($ | 2,007 | ) | -18.68 | % | |||||||
Net Income Attributable to Common Shares (1) | $ | 8,693 | $ | 10,691 | ($ | 1,998 | ) | -18.69 | % | |||||||
PER COMMON SHARE DATA: | ||||||||||||||||
Net Income - Basic | $ | 0.67 | $ | 0.88 | ($ | 0.21 | ) | -23.86 | % | |||||||
Net Income - Diluted | $ | 0.67 | $ | 0.87 | ($ | 0.20 | ) | -22.99 | % | |||||||
Dividend Per Share - Quarterly | $ | 0.54 | $ | 0.54 | $ | 0.00 | 0.00 | % | ||||||||
Dividend Per Share - Special | $ | 0.10 | $ | 0.00 | $ | 0.10 | ||||||||||
Number of Shares Used in Computation - Basic | 12,956,916 | 12,200,245 | ||||||||||||||
Number of Shares Used in Computation - Diluted | 12,982,361 | 12,236,518 |
(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.
3
CONDENSED, CONSOLIDATED BALANCE SHEET DATA
(In Thousands) (Unaudited)
JUNE 30, | JUNE 30, | JUNE 30, 2019 vs 2018 | ||||||||||||||
2019 | 2018 | $ Incr. (Decr.) | % Incr. (Decr.) | |||||||||||||
ASSETS | ||||||||||||||||
Cash & Due from Banks | $ | 39,505 | $ | 51,475 | ($ | 11,970 | ) | -23.25 | % | |||||||
Available-for-sale Debt Securities | 363,465 | 348,044 | 15,421 | 4.43 | % | |||||||||||
Loans Held for Sale | 1,131 | 177 | 954 | 538.98 | % | |||||||||||
Loans, Net | 1,108,483 | 809,816 | 298,667 | 36.88 | % | |||||||||||
Intangible Assets | 30,013 | 11,952 | 18,061 | 151.11 | % | |||||||||||
Other Assets | 67,088 | 62,543 | 4,545 | 7.27 | % | |||||||||||
TOTAL ASSETS | $ | 1,609,685 | $ | 1,284,007 | $ | 325,678 | 25.36 | % | ||||||||
LIABILITIES | ||||||||||||||||
Deposits | $ | 1,284,143 | $ | 1,040,899 | $ | 243,244 | 23.37 | % | ||||||||
Repo Sweep Accounts | 3,192 | 5,169 | (1,977 | ) | -38.25 | % | ||||||||||
Total Deposits and Repo Sweeps | 1,287,335 | 1,046,068 | 241,267 | 23.06 | % | |||||||||||
Borrowed Funds | 62,574 | 39,054 | 23,520 | 60.22 | % | |||||||||||
Subordinated Debt | 7,000 | 0 | 7,000 | |||||||||||||
Other Liabilities | 13,060 | 9,706 | 3,354 | 34.56 | % | |||||||||||
TOTAL LIABILITIES | 1,369,969 | 1,094,828 | 275,141 | 25.13 | % | |||||||||||
SHAREHOLDERS' EQUITY | ||||||||||||||||
Common Shareholders' Equity, Excluding Accumulated | ||||||||||||||||
Other Comprehensive Income (Loss) | 236,284 | 195,518 | 40,766 | 20.85 | % | |||||||||||
Accumulated Other Comprehensive Income (Loss): | ||||||||||||||||
Net Unrealized Gains/Losses on | ||||||||||||||||
Available-for-sale Debt Securities | 3,138 | (6,476 | ) | 9,614 | -148.46 | % | ||||||||||
Defined Benefit Plans | 294 | 137 | 157 | 114.60 | % | |||||||||||
TOTAL SHAREHOLDERS' EQUITY | 239,716 | 189,179 | 50,537 | 26.71 | % | |||||||||||
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY | $ | 1,609,685 | $ | 1,284,007 | $ | 325,678 | 25.36 | % |
4
EXHIBIT 99.3 – Supplemental, Unaudited Financial Information
CONDENSED, CONSOLIDATED FINANCIAL HIGHLIGHTS
(Dollars In Thousands, Except Per Share Data) (Unaudited)
AS OF OR FOR THE | ||||||||||||
SIX MONTHS ENDED | % | |||||||||||
JUNE 30, | INCREASE | |||||||||||
2019 | 2018 | (DECREASE) | ||||||||||
EARNINGS PERFORMANCE | ||||||||||||
Net Income | $ | 8,739 | $ | 10,746 | -18.68 | % | ||||||
Return on Average Assets (Annualized) | 1.21 | % | 1.70 | % | -28.82 | % | ||||||
Return on Average Equity (Annualized) | 8.07 | % | 11.56 | % | -30.19 | % | ||||||
BALANCE SHEET HIGHLIGHTS | ||||||||||||
Total Assets | $ | 1,609,685 | $ | 1,284,007 | 25.36 | % | ||||||
Available-for-Sale Debt Securities | 363,465 | 348,044 | 4.43 | % | ||||||||
Loans (Net) | 1,108,483 | 809,816 | 36.88 | % | ||||||||
Allowance for Loan Losses | 8,200 | 8,831 | -7.15 | % | ||||||||
Deposits and Repo Sweep Accounts | 1,287,335 | 1,046,068 | 23.06 | % | ||||||||
OFF-BALANCE SHEET | ||||||||||||
Outstanding Balance of Mortgage Loans Sold with Servicing Retained | $ | 172,910 | $ | 171,543 | 0.80 | % | ||||||
Trust Assets Under Management | 948,998 | 927,089 | 2.36 | % | ||||||||
SHAREHOLDERS' VALUE (PER COMMON SHARE) | ||||||||||||
Net Income - Basic | $ | 0.67 | $ | 0.88 | -23.86 | % | ||||||
Net Income - Diluted | $ | 0.67 | $ | 0.87 | -22.99 | % | ||||||
Dividends – Quarterly | $ | 0.54 | $ | 0.54 | 0.00 | % | ||||||
Dividends – Special | $ | 0.10 | $ | 0.00 | ||||||||
Common Book Value | $ | 17.51 | $ | 15.40 | 13.70 | % | ||||||
Tangible Common Book Value (a) | $ | 15.32 | $ | 14.43 | 6.17 | % | ||||||
Market Value (Last Trade) | $ | 26.33 | $ | 25.86 | 1.82 | % | ||||||
Market Value / Common Book Value | 150.37 | % | 167.92 | % | -10.45 | % | ||||||
Market Value / Tangible Common Book Value | 171.87 | % | 179.21 | % | -4.10 | % | ||||||
Price Earnings Multiple (Annualized) | 19.65 | 14.69 | 33.76 | % | ||||||||
Dividend Yield (Annualized, Excluding Special Dividend) | 4.10 | % | 4.18 | % | -1.91 | % | ||||||
Common Shares Outstanding, End of Period | 13,687,999 | 12,280,538 | 11.46 | % |
1
CONDENSED, CONSOLIDATED FINANCIAL HIGHLIGHTS (Continued)
(Dollars In Thousands, Except Per Share Data) (Unaudited)
AS OF OR FOR THE | ||||||||||||
SIX MONTHS ENDED | % | |||||||||||
JUNE 30, | INCREASE | |||||||||||
2019 | 2018 | (DECREASE) | ||||||||||
SAFETY AND SOUNDNESS | ||||||||||||
Tangible Common Equity / Tangible Assets (a) | 13.28 | % | 13.93 | % | -4.67 | % | ||||||
Nonperforming Assets / Total Assets | 0.91 | % | 1.35 | % | -32.59 | % | ||||||
Allowance for Loan Losses / Total Loans | 0.73 | % | 1.08 | % | -32.41 | % | ||||||
Total Risk Based Capital Ratio (b) | 20.66 | % | 23.82 | % | -13.27 | % | ||||||
Tier 1 Risk Based Capital Ratio (b) | 19.22 | % | 22.70 | % | -15.33 | % | ||||||
Common Equity Tier 1 Risk Based Capital Ratio (b) | 19.22 | % | 22.70 | % | -15.33 | % | ||||||
Leverage Ratio (b) | 13.14 | % | 14.52 | % | -9.50 | % | ||||||
AVERAGE BALANCES | ||||||||||||
Average Assets | $ | 1,440,745 | $ | 1,263,473 | 14.03 | % | ||||||
Average Equity | $ | 216,589 | $ | 185,984 | 16.46 | % | ||||||
EFFICIENCY RATIO (c) | ||||||||||||
Net Interest Income on a Fully Taxable-Equivalent | ||||||||||||
Basis (c) | $ | 26,486 | $ | 22,812 | 16.11 | % | ||||||
Noninterest Income | 9,255 | 9,095 | 1.76 | % | ||||||||
Total (1) | $ | 35,741 | $ | 31,907 | 12.02 | % | ||||||
Noninterest Expense Excluding Merger Expenses (2) | $ | 22,118 | $ | 19,579 | 12.89 | % | ||||||
Efficiency Ratio = (2)/(1) | 61.88 | % | 61.36 | % | 0.85 | % |
(a) Tangible book value per common share and tangible common equity as a percentage of tangible assets are non-U.S. GAAP ratios. Management believes this non-GAAP information is helpful in evaluating the strength of the Corporation's capital and in providing an alternative, conservative valuation of the Corporation's net worth. The ratios shown above are based on the following calculations of tangible assets and tangible common equity:
Total Assets | $ | 1,609,685 | $ | 1,284,007 | ||||||||
Less: Intangible Assets, Primarily Goodwill | (30,013 | ) | (11,952 | ) | ||||||||
Tangible Assets | $ | 1,579,672 | $ | 1,272,055 | ||||||||
Total Shareholders' Equity | $ | 239,716 | $ | 189,179 | ||||||||
Less: Intangible Assets, Primarily Goodwill | (30,013 | ) | (11,952 | ) | ||||||||
Tangible Common Equity (3) | $ | 209,703 | $ | 177,227 | ||||||||
Common Shares Outstanding, End of Period (4) | 13,687,999 | 12,280,538 | ||||||||||
Tangible Common Book Value per Share = (3)/(4) | $ | 15.32 | $ | 14.43 |
(b) Capital ratios for the most recent period are estimated.
(c) The efficiency ratio is a non-GAAP ratio that is calculated as shown above. For purposes of calculating the efficiency ratio, net interest income on a fully taxable-equivalent basis includes amounts of interest income on tax-exempt securities and loans that have been increased to a fully taxable-equivalent basis, using the Corporation's marginal federal income tax rate of 21%. In the calculation above, management excluded 2019 expenses of $3.612 million related to the acquisition of Monument Bancorp, Inc. which closed on April 1, 2019. These expenses include costs associated with termination of data processing contracts, conversion of Monument's customer accounting data into the Corporation's core system, severance and similar expenses, professional fees and other expenses.
2
QUARTERLY CONDENSED, CONSOLIDATED
INCOME STATEMENT INFORMATION
(Dollars In Thousands, Except Per Share Data)
(Unaudited)
For the Three Months Ended: | ||||||||||||||||||||||||
June 30, | March 31, | Dec. 31, | Sept. 30, | June 30, | March 31, | |||||||||||||||||||
2019 | 2019 | 2018 | 2018 | 2018 | 2018 | |||||||||||||||||||
Interest income | $ | 17,139 | $ | 13,065 | $ | 13,304 | $ | 12,800 | $ | 12,334 | $ | 11,890 | ||||||||||||
Interest expense | 2,934 | 1,350 | 1,312 | 1,241 | 1,079 | 993 | ||||||||||||||||||
Net interest income | 14,205 | 11,715 | 11,992 | 11,559 | 11,255 | 10,897 | ||||||||||||||||||
(Credit) provision for loan losses | (4 | ) | (957 | ) | 252 | 60 | (20 | ) | 292 | |||||||||||||||
Net interest income after (credit) provision for loan losses | 14,209 | 12,672 | 11,740 | 11,499 | 11,275 | 10,605 | ||||||||||||||||||
Noninterest income | 4,849 | 4,406 | 5,040 | 4,462 | 4,689 | 4,406 | ||||||||||||||||||
Net gains (losses) on securities | 7 | 0 | (4 | ) | 569 | 1,468 | 0 | |||||||||||||||||
Merger-related expenses | 3,301 | 311 | 127 | 200 | 0 | 0 | ||||||||||||||||||
Other noninterest expenses | 11,422 | 10,696 | 9,947 | 9,633 | 9,684 | 9,895 | ||||||||||||||||||
Income before income tax provision | 4,342 | 6,071 | 6,702 | 6,697 | 7,748 | 5,116 | ||||||||||||||||||
Income tax provision | 693 | 981 | 1,021 | 1,111 | 1,377 | 741 | ||||||||||||||||||
Net income | $ | 3,649 | $ | 5,090 | $ | 5,681 | $ | 5,586 | $ | 6,371 | $ | 4,375 | ||||||||||||
Net income attributable to common shares | $ | 3,630 | $ | 5,063 | $ | 5,654 | $ | 5,558 | $ | 6,339 | $ | 4,352 | ||||||||||||
Basic earnings per common share | $ | 0.27 | $ | 0.41 | $ | 0.46 | $ | 0.45 | $ | 0.52 | $ | 0.36 | ||||||||||||
Diluted earnings per common share | $ | 0.27 | $ | 0.41 | $ | 0.46 | $ | 0.45 | $ | 0.52 | $ | 0.36 |
QUARTERLY CONDENSED, CONSOLIDATED
BALANCE SHEET INFORMATION
(In Thousands) (Unaudited)
As of: | ||||||||||||||||||||||||
June 30, | March 31, | Dec. 31, | Sept. 30, | June 30, | March 31, | |||||||||||||||||||
2019 | 2019 | 2018 | 2018 | 2018 | 2018 | |||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Cash & Due from Banks | $ | 39,505 | $ | 44,002 | $ | 37,487 | $ | 38,341 | $ | 51,475 | $ | 36,860 | ||||||||||||
Available-for-Sale Debt Securities | 363,465 | 357,646 | 363,273 | 358,706 | 348,044 | 341,133 | ||||||||||||||||||
Loans Held for Sale | 1,131 | 0 | 213 | 551 | 177 | 225 | ||||||||||||||||||
Loans, Net | 1,108,483 | 817,136 | 818,254 | 813,717 | 809,816 | 808,300 | ||||||||||||||||||
Intangible Assets | 30,013 | 11,949 | 11,951 | 11,951 | 11,952 | 11,953 | ||||||||||||||||||
Other Assets | 67,088 | 59,267 | 59,715 | 62,173 | 62,543 | 59,645 | ||||||||||||||||||
TOTAL ASSETS | $ | 1,609,685 | $ | 1,290,000 | $ | 1,290,893 | $ | 1,285,439 | $ | 1,284,007 | $ | 1,258,116 | ||||||||||||
LIABILITIES | ||||||||||||||||||||||||
Deposits | $ | 1,284,143 | $ | 1,039,911 | $ | 1,033,772 | $ | 1,043,947 | $ | 1,040,899 | $ | 1,018,081 | ||||||||||||
Repo Sweep Accounts | 3,192 | 5,132 | 5,853 | 5,421 | 5,169 | 5,482 | ||||||||||||||||||
Total Deposits and Repo Sweeps | 1,287,335 | 1,045,043 | 1,039,625 | 1,049,368 | 1,046,068 | 1,023,563 | ||||||||||||||||||
Borrowed Funds | 62,574 | 32,844 | 42,915 | 35,985 | 39,054 | 39,122 | ||||||||||||||||||
Subordinated Debt | 7,000 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Other Liabilities | 13,060 | 9,986 | 10,985 | 10,099 | 9,706 | 9,049 | ||||||||||||||||||
TOTAL LIABILITIES | 1,369,969 | 1,087,873 | 1,093,525 | 1,095,452 | 1,094,828 | 1,071,734 | ||||||||||||||||||
SHAREHOLDERS' EQUITY | ||||||||||||||||||||||||
Common Shareholders' Equity, Excluding | ||||||||||||||||||||||||
Accumulated Other Comprehensive Income (Loss) | 236,284 | 202,768 | 201,538 | 198,355 | 195,518 | 191,920 | ||||||||||||||||||
Accumulated Other Comprehensive Income (Loss): | ||||||||||||||||||||||||
Net Unrealized Gains (Losses) on Available-for-sale Securities | 3,138 | (941 | ) | (4,307 | ) | (8,502 | ) | (6,476 | ) | (5,679 | ) | |||||||||||||
Defined Benefit Plans Adjustment, Net | 294 | 300 | 137 | 134 | 137 | 141 | ||||||||||||||||||
TOTAL SHAREHOLDERS' EQUITY | 239,716 | 202,127 | 197,368 | 189,987 | 189,179 | 186,382 | ||||||||||||||||||
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY | $ | 1,609,685 | $ | 1,290,000 | $ | 1,290,893 | $ | 1,285,439 | $ | 1,284,007 | $ | 1,258,116 |
3
AVAILABLE-FOR-SALE DEBT SECURITIES
(In Thousands)
June 30, 2019 | March 31, 2019 | December 31, 2018 | ||||||||||||||||||||||
Amortized | Fair | Amortized | Fair | Amortized | Fair | |||||||||||||||||||
Cost | Value | Cost | Value | Cost | Value | |||||||||||||||||||
Obligations of U.S. Government agencies | $ | 16,918 | $ | 17,570 | $ | 11,916 | $ | 12,265 | $ | 12,331 | $ | 12,500 | ||||||||||||
Obligations of states and political subdivisions: | ||||||||||||||||||||||||
Tax-exempt | 73,897 | 75,499 | 75,910 | 76,902 | 84,204 | 83,952 | ||||||||||||||||||
Taxable | 30,591 | 31,509 | 30,059 | 30,435 | 27,618 | 27,699 | ||||||||||||||||||
Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: | ||||||||||||||||||||||||
Residential pass-through securities | 55,098 | 55,141 | 57,727 | 57,049 | 54,827 | 53,445 | ||||||||||||||||||
Residential collateralized mortgage obligations | 139,513 | 139,484 | 142,642 | 140,722 | 148,964 | 145,912 | ||||||||||||||||||
Commercial mortgage-backed securities | 43,476 | 44,262 | 40,583 | 40,273 | 40,781 | 39,765 | ||||||||||||||||||
Total Available-for-Sale Debt Securities | $ | 359,493 | $ | 363,465 | $ | 358,837 | $ | 357,646 | $ | 368,725 | $ | 363,273 |
Summary of Loans by Type
(Excludes Loans Held for Sale)
(In Thousands)
June 30, | March 31, | Dec. 31, | June 30, | |||||||||||||||||||||
2019 | 2019 | 2018 | 2018 | |||||||||||||||||||||
Residential mortgage: | ||||||||||||||||||||||||
Residential mortgage loans - first liens | $ | 484,479 | $ | 374,764 | $ | 372,339 | $ | 361,592 | ||||||||||||||||
Residential mortgage loans - junior liens | 28,880 | 25,538 | 25,450 | 26,594 | ||||||||||||||||||||
Home equity lines of credit | 35,224 | 32,847 | 34,319 | 34,852 | ||||||||||||||||||||
1-4 Family residential construction | 27,994 | 24,437 | 24,698 | 26,722 | ||||||||||||||||||||
Total residential mortgage | 576,577 | 457,586 | 456,806 | 449,760 | ||||||||||||||||||||
Commercial: | ||||||||||||||||||||||||
Commercial loans secured by real estate | 279,267 | 160,177 | 162,611 | 159,392 | ||||||||||||||||||||
Commercial and industrial | 115,264 | 92,842 | 91,856 | 88,499 | ||||||||||||||||||||
Political subdivisions | 52,308 | 52,142 | 53,263 | 56,690 | ||||||||||||||||||||
Commercial construction and land | 21,197 | 12,701 | 11,962 | 13,066 | ||||||||||||||||||||
Loans secured by farmland | 7,251 | 6,938 | 7,146 | 7,397 | ||||||||||||||||||||
Multi-family (5 or more) residential | 26,749 | 7,031 | 7,180 | 7,860 | ||||||||||||||||||||
Agricultural loans | 5,234 | 5,471 | 5,659 | 5,622 | ||||||||||||||||||||
Other commercial loans | 13,037 | 13,467 | 13,950 | 14,455 | ||||||||||||||||||||
Total commercial | 520,307 | 350,769 | 353,627 | 352,981 | ||||||||||||||||||||
Consumer | 19,799 | 17,037 | 17,130 | 15,906 | ||||||||||||||||||||
Total | 1,116,683 | 825,392 | 827,563 | 818,647 | ||||||||||||||||||||
Less: allowance for loan losses | (8,200 | ) | (8,256 | ) | (9,309 | ) | (8,831 | ) | ||||||||||||||||
Loans, net | $ | 1,108,483 | $ | 817,136 | $ | 818,254 | $ | 809,816 |
Loans Held for Sale
(In Thousands)
June 30, | March 31, | Dec. 31, | June 30, | |||||||||||||||||||||
2019 | 2019 | 2018 | 2018 | |||||||||||||||||||||
Residential mortgage loans originated and serviced - outstanding balance | $ | 174,041 | $ | 170,676 | $ | 171,955 | $ | 171,720 | ||||||||||||||||
Less: outstanding balance of loans sold | (172,910 | ) | (170,676 | ) | (171,742 | ) | (171,543 | ) | ||||||||||||||||
Loans held for sale, net | $ | 1,131 | $ | 0 | $ | 213 | $ | 177 |
4
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(In Thousands)
3 Months | 3 Months | 6 Months | 6 Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
June 30, | March 31, | June 30, | June 30, | |||||||||||||
2019 | 2019 | 2019 | 2018 | |||||||||||||
Balance, beginning of period | $ | 8,256 | $ | 9,309 | $ | 9,309 | $ | 8,856 | ||||||||
Charge-offs | (68 | ) | (111 | ) | (179 | ) | (326 | ) | ||||||||
Recoveries | 16 | 15 | 31 | 29 | ||||||||||||
Net charge-offs | (52 | ) | (96 | ) | (148 | ) | (297 | ) | ||||||||
(Credit) provision for loan losses | (4 | ) | (957 | ) | (961 | ) | 272 | |||||||||
Balance, end of period | $ | 8,200 | $ | 8,256 | $ | 8,200 | $ | 8,831 |
PAST DUE AND IMPAIRED LOANS, NONPERFORMING ASSETS
AND TROUBLED DEBT RESTRUCTURINGS (TDRs)
(Dollars In Thousands)
June 30, | March 31, | Dec 31, | June 30, | |||||||||||||
2019 | 2019 | 2018 | 2018 | |||||||||||||
Impaired loans with a valuation allowance | $ | 1,785 | $ | 2,769 | $ | 4,851 | $ | 3,652 | ||||||||
Impaired loans without a valuation allowance | 4,479 | 3,728 | 4,923 | 4,346 | ||||||||||||
Total impaired loans | $ | 6,264 | $ | 6,497 | $ | 9,774 | $ | 7,998 | ||||||||
Total loans past due 30-89 days and still accruing | $ | 4,407 | $ | 7,123 | $ | 7,142 | $ | 3,921 | ||||||||
Nonperforming assets: | ||||||||||||||||
Total nonaccrual loans | $ | 9,289 | $ | 9,441 | $ | 13,113 | $ | 11,230 | ||||||||
Total loans past due 90 days or more and still accruing | 2,631 | 1,902 | 2,906 | 3,195 | ||||||||||||
Total nonperforming loans | 11,920 | 11,343 | 16,019 | 14,425 | ||||||||||||
Foreclosed assets held for sale (real estate) | 3,305 | 1,875 | 1,703 | 2,897 | ||||||||||||
Total nonperforming assets | $ | 15,225 | $ | 13,218 | $ | 17,722 | $ | 17,322 | ||||||||
Loans subject to troubled debt restructurings (TDRs): | ||||||||||||||||
Performing | $ | 2,050 | $ | 776 | $ | 655 | $ | 753 | ||||||||
Nonperforming | 1,299 | 774 | 2,884 | 2,951 | ||||||||||||
Total TDRs | $ | 3,349 | $ | 1,550 | $ | 3,539 | $ | 3,704 | ||||||||
Total nonperforming loans as a % of loans | 1.07 | % | 1.37 | % | 1.94 | % | 1.76 | % | ||||||||
Total nonperforming assets as a % of assets | 0.95 | % | 1.02 | % | 1.37 | % | 1.35 | % | ||||||||
Allowance for loan losses as a % of total loans (1) | 0.73 | % | 1.00 | % | 1.12 | % | 1.08 | % | ||||||||
Allowance for loan losses as a % of nonperforming loans | 68.79 | % | 72.78 | % | 58.11 | % | 61.22 | % |
(1) | Effective April 1, 2019, C&N recorded loans purchased from Monument at fair value. Loans identified as having a deterioration in credit quality were valued at $441,000 at April 1, 2019 and June 30, 2019. The remainder of the portfolio was determined to be the performing component of the portfolio, valued at $258,884,000 at April 1, 2019. The calculation of fair value included a discount for credit losses of $1,907,000, reflecting an estimate of the present value of credit losses based on market expectations. None of the performing loans purchased were found to be impaired in the second quarter 2019; accordingly, there was no allowance for loan losses on loans purchased from Monument at June 30, 2019. |
5
Analysis of Average Daily Balances and Rates
(Dollars in Thousands)
3 Months | 3 Months | 3 Months | ||||||||||||||||||||||
Ended | Rate of | Ended | Rate of | Ended | Rate of | |||||||||||||||||||
6/30/2019 | Return/ | 3/31/2019 | Return/ | 6/30/2018 | Return/ | |||||||||||||||||||
Average | Cost of | Average | Cost of | Average | Cost of | |||||||||||||||||||
Balance | Funds % | Balance | Funds % | Balance | Funds % | |||||||||||||||||||
EARNING ASSETS | ||||||||||||||||||||||||
Interest-bearing due from banks | $ | 22,398 | 2.67 | % | $ | 20,306 | 2.32 | % | $ | 22,286 | 1.73 | % | ||||||||||||
Available-for-sale debt securities, at amortized cost: | ||||||||||||||||||||||||
Taxable | 289,041 | 2.53 | % | 281,805 | 2.64 | % | 247,809 | 2.24 | % | |||||||||||||||
Tax-exempt | 73,928 | 3.60 | % | 80,124 | 3.79 | % | 102,801 | 3.50 | % | |||||||||||||||
Total available-for-sale debt securities | 362,969 | 2.75 | % | 361,929 | 2.89 | % | 350,610 | 2.61 | % | |||||||||||||||
Loans receivable: | ||||||||||||||||||||||||
Taxable | 1,035,672 | 5.46 | % | 751,172 | 5.37 | % | 747,889 | 5.14 | % | |||||||||||||||
Tax-exempt | 69,571 | 3.78 | % | 72,574 | 3.97 | % | 77,616 | 3.65 | % | |||||||||||||||
Total loans receivable | 1,105,243 | 5.35 | % | 823,746 | 5.25 | % | 825,505 | 5.00 | % | |||||||||||||||
Other earning assets | 1,423 | 3.10 | % | 1,089 | 3.35 | % | 1,219 | 3.29 | % | |||||||||||||||
Total Earning Assets | 1,492,033 | 4.68 | % | 1,207,070 | 4.49 | % | 1,199,620 | 4.23 | % | |||||||||||||||
Cash | 20,325 | 16,914 | 18,010 | |||||||||||||||||||||
Unrealized gain/loss on securities | (101 | ) | (4,628 | ) | (8,242 | ) | ||||||||||||||||||
Allowance for loan losses | (8,378 | ) | (9,339 | ) | (9,161 | ) | ||||||||||||||||||
Bank premises and equipment | 16,214 | 14,511 | 15,425 | |||||||||||||||||||||
Intangible assets | 30,040 | 11,950 | 11,952 | |||||||||||||||||||||
Other assets | 49,935 | 43,172 | 41,575 | |||||||||||||||||||||
Total Assets | $ | 1,600,068 | $ | 1,279,650 | $ | 1,269,179 | ||||||||||||||||||
INTEREST-BEARING LIABILITIES | ||||||||||||||||||||||||
Interest-bearing deposits: | ||||||||||||||||||||||||
Interest checking | $ | 218,731 | 0.58 | % | $ | 198,903 | 0.46 | % | $ | 217,607 | 0.39 | % | ||||||||||||
Money market | 199,092 | 0.51 | % | 176,869 | 0.41 | % | 180,667 | 0.27 | % | |||||||||||||||
Savings | 173,922 | 0.17 | % | 156,691 | 0.10 | % | 152,663 | 0.10 | % | |||||||||||||||
Time deposits | 383,361 | 1.80 | % | 227,315 | 1.09 | % | 229,420 | 0.88 | % | |||||||||||||||
Total interest-bearing deposits | 975,106 | 0.97 | % | 759,778 | 0.56 | % | 780,357 | 0.45 | % | |||||||||||||||
Borrowed funds: | ||||||||||||||||||||||||
Short-term | 37,279 | 2.45 | % | 15,935 | 2.01 | % | 23,610 | 1.39 | % | |||||||||||||||
Long-term | 35,167 | 2.60 | % | 34,688 | 2.55 | % | 22,174 | 2.13 | % | |||||||||||||||
Subordinated debt | 7,000 | 6.59 | % | 0 | 0.00 | % | 0 | 0.00 | % | |||||||||||||||
Total borrowed funds | 79,446 | 2.88 | % | 50,623 | 2.38 | % | 45,784 | 1.75 | % | |||||||||||||||
Total Interest-bearing Liabilities | 1,054,552 | 1.12 | % | 810,401 | 0.68 | % | 826,141 | 0.52 | % | |||||||||||||||
Demand deposits | 294,112 | 261,295 | 248,182 | |||||||||||||||||||||
Other liabilities | 15,454 | 10,941 | 8,848 | |||||||||||||||||||||
Total Liabilities | 1,364,118 | 1,082,637 | 1,083,171 | |||||||||||||||||||||
Stockholders' equity, excluding accumulated other comprehensive income/loss | 235,733 | 200,422 | 192,375 | |||||||||||||||||||||
Accumulated other comprehensive income/loss | 217 | (3,409 | ) | (6,367 | ) | |||||||||||||||||||
Total Shareholders' Equity | 235,950 | 197,013 | 186,008 | |||||||||||||||||||||
Total Liabilities and Shareholders' Equity | $ | 1,600,068 | $ | 1,279,650 | $ | 1,269,179 | ||||||||||||||||||
Interest Rate Spread | 3.56 | % | 3.81 | % | 3.71 | % | ||||||||||||||||||
Net Interest Income/Earning Assets | 3.89 | % | 4.04 | % | 3.87 | % | ||||||||||||||||||
Total Deposits (Interest-bearing and Demand) | $ | 1,269,218 | $ | 1,021,073 | $ | 1,028,539 |
(1) Annualized rates of return on tax-exempt securities and loans are presented on a fully taxable-equivalent basis, using the Corporation’s marginal federal income tax rate of 21%.
(2) Nonaccrual loans have been included with loans for the purpose of analyzing net interest earnings.
(3) Rates of return on earning assets and costs of funds have been presented on an annualized basis.
6
Analysis of Average Daily Balances and Rates
(Dollars in Thousands)
6 Months | 6 Months | |||||||||||||||
Ended | Rate of | Ended | Rate of | |||||||||||||
6/30/2019 | Return/ | 6/30/2018 | Return/ | |||||||||||||
Average | Cost of | Average | Cost of | |||||||||||||
Balance | Funds % | Balance | Funds % | |||||||||||||
EARNING ASSETS | ||||||||||||||||
Interest-bearing due from banks | $ | 21,358 | 2.50 | % | $ | 18,231 | 1.61 | % | ||||||||
Available-for-sale debt securities, at amortized cost: | ||||||||||||||||
Taxable | 285,443 | 2.59 | % | 248,819 | 2.22 | % | ||||||||||
Tax-exempt | 77,009 | 3.70 | % | 102,988 | 3.51 | % | ||||||||||
Total available-for-sale debt securities | 362,452 | 2.82 | % | 351,807 | 2.60 | % | ||||||||||
Loans receivable: | ||||||||||||||||
Taxable | 894,208 | 5.42 | % | 744,292 | 5.09 | % | ||||||||||
Tax-exempt | 71,064 | 3.88 | % | 76,933 | 3.69 | % | ||||||||||
Total loans receivable | 965,272 | 5.31 | % | 821,225 | 4.96 | % | ||||||||||
Other earning assets | 1,257 | 3.21 | % | 1,175 | 2.92 | % | ||||||||||
Total Earning Assets | 1,350,339 | 4.59 | % | 1,192,438 | 4.21 | % | ||||||||||
Cash | 18,629 | 17,445 | ||||||||||||||
Unrealized gain/loss on securities | (2,352 | ) | (6,893 | ) | ||||||||||||
Allowance for loan losses | (8,856 | ) | (9,082 | ) | ||||||||||||
Bank premises and equipment | 15,367 | 15,438 | ||||||||||||||
Intangible assets | 21,045 | 11,953 | ||||||||||||||
Other assets | 46,573 | 42,174 | ||||||||||||||
Total Assets | $ | 1,440,745 | $ | 1,263,473 | ||||||||||||
INTEREST-BEARING LIABILITIES | ||||||||||||||||
Interest-bearing deposits: | ||||||||||||||||
Interest checking | $ | 208,872 | 0.53 | % | $ | 215,307 | 0.37 | % | ||||||||
Money market | 188,042 | 0.46 | % | 180,297 | 0.24 | % | ||||||||||
Savings | 165,354 | 0.14 | % | 151,149 | 0.10 | % | ||||||||||
Time deposits | 305,769 | 1.53 | % | 224,267 | 0.83 | % | ||||||||||
Total interest-bearing deposits | 868,037 | 0.79 | % | 771,020 | 0.42 | % | ||||||||||
Borrowed funds: | ||||||||||||||||
Short-term | 26,666 | 2.32 | % | 37,878 | 1.50 | % | ||||||||||
Long-term | 34,929 | 2.57 | % | 17,639 | 2.09 | % | ||||||||||
Subordinated debt | 3,520 | 6.59 | % | 0 | 0.00 | % | ||||||||||
Total borrowed funds | 65,115 | 2.69 | % | 55,517 | 1.69 | % | ||||||||||
Total Interest-bearing Liabilities | 933,152 | 0.93 | % | 826,537 | 0.51 | % | ||||||||||
Demand deposits | 277,794 | 242,093 | ||||||||||||||
Other liabilities | 13,210 | 8,859 | ||||||||||||||
Total Liabilities | 1,224,156 | 1,077,489 | ||||||||||||||
Stockholders' equity, excluding accumulated other comprehensive income/loss | 218,175 | 191,258 | ||||||||||||||
Accumulated other comprehensive income/loss | (1,586 | ) | (5,274 | ) | ||||||||||||
Total Shareholders' Equity | 216,589 | 185,984 | ||||||||||||||
Total Liabilities and Shareholders' Equity | $ | 1,440,745 | $ | 1,263,473 | ||||||||||||
Interest Rate Spread | 3.66 | % | 3.70 | % | ||||||||||||
Net Interest Income/Earning Assets | 3.96 | % | 3.86 | % | ||||||||||||
Total Deposits (Interest-bearing and Demand) | $ | 1,145,831 | $ | 1,013,113 |
(1) Annualized rates of return on tax-exempt securities and loans are presented on a fully taxable-equivalent basis, using the Corporation’s marginal federal income tax rate of 21% in 2018.
(2) Nonaccrual loans have been included with loans for the purpose of analyzing net interest earnings.
(3) Rates of return on earning assets and costs of funds have been presented on an annualized basis.
7
COMPARISON OF NONINTEREST INCOME
(In Thousands)
Three Months Ended | Six Months Ended | |||||||||||||||||||
June 30, | March 31, | June 30, | June 30, | June 30, | ||||||||||||||||
2019 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||
Trust and financial management revenue | $ | 1,583 | $ | 1,360 | $ | 1,526 | $ | 2,943 | $ | 2,948 | ||||||||||
Brokerage revenue | 361 | 307 | 271 | 668 | 483 | |||||||||||||||
Insurance commissions, fees and premiums | 48 | 30 | 13 | 78 | 57 | |||||||||||||||
Service charges on deposit accounts | 1,277 | 1,250 | 1,302 | 2,527 | 2,506 | |||||||||||||||
Service charges and fees | 89 | 79 | 82 | 168 | 168 | |||||||||||||||
Interchange revenue from debit card transactions | 699 | 643 | 641 | 1,342 | 1,220 | |||||||||||||||
Net gains from sales of loans | 221 | 87 | 166 | 308 | 350 | |||||||||||||||
Loan servicing fees, net | 35 | 28 | 61 | 63 | 189 | |||||||||||||||
Increase in cash surrender value of life insurance | 99 | 92 | 98 | 191 | 195 | |||||||||||||||
Other noninterest income | 437 | 530 | 529 | 967 | 979 | |||||||||||||||
Total noninterest income, excluding realized gains (losses) on securities, net | $ | 4,849 | $ | 4,406 | $ | 4,689 | $ | 9,255 | $ | 9,095 |
COMPARISON OF NONINTEREST EXPENSE
(In Thousands)
Three Months Ended | Six Months Ended | |||||||||||||||||||
June 30, | March 31, | June 30, | June 30, | June 30, | ||||||||||||||||
2019 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||
Salaries and wages | $ | 5,276 | $ | 4,493 | $ | 4,193 | $ | 9,769 | $ | 8,317 | ||||||||||
Pensions and other employee benefits | 1,225 | 1,618 | 1,200 | 2,843 | 2,810 | |||||||||||||||
Occupancy expense, net | 665 | 657 | 613 | 1,322 | 1,250 | |||||||||||||||
Furniture and equipment expense | 333 | 301 | 313 | 634 | 584 | |||||||||||||||
Data processing expenses | 962 | 803 | 694 | 1,765 | 1,335 | |||||||||||||||
Automated teller machine and interchange expense | 277 | 189 | 319 | 466 | 641 | |||||||||||||||
Pennsylvania shares tax | 347 | 347 | 336 | 694 | 672 | |||||||||||||||
Professional fees | 331 | 222 | 279 | 553 | 555 | |||||||||||||||
Telecommunications | 176 | 164 | 157 | 340 | 390 | |||||||||||||||
Directors' fees | 141 | 183 | 168 | 324 | 352 | |||||||||||||||
Other noninterest expense | 1,689 | 1,719 | 1,412 | 3,408 | 2,673 | |||||||||||||||
Total noninterest expense, excluding merger-related expenses | 11,422 | 10,696 | 9,684 | 22,118 | 19,579 | |||||||||||||||
Merger-related expenses | 3,301 | 311 | 0 | 3,612 | 0 | |||||||||||||||
Total noninterest expense | $ | 14,723 | $ | 11,007 | $ | 9,684 | $ | 25,730 | $ | 19,579 |
8
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