Codorus Valley Bancorp, Inc. Reports First Quarter 2022

Codorus Valley Bancorp, Inc. Reports First Quarter 2022

YORK, Pa., April 28, 2022 (GLOBE NEWSWIRE) — Codorus Valley Bancorp, Inc. (Codorus Valley, or the Corporation) (NASDAQ: CVLY), parent company of PeoplesBank, A Codorus Valley Company (PeoplesBank), today announced net income of $3.1 million or $0.32 per diluted share, for the quarter ended March 31, 2022. This compares to a net income of $2.7 million or $0.28 per diluted share for the quarter ended December 31, 2021, representing an increase of $359,000 or 13.3 percent and net income of $3.9 million or $0.40 per diluted share, for the quarter ended March 31, 2021.

First quarter financial and operational highlights include:

  • Quarterly net income of $3.1 million compared to net income of $3.9 million in the year-ago quarter and $2.7 million in the linked quarter
  • Board of Directors declared a cash dividend at $0.15 per share
  • Board of Directors appointed new Director at April Board meeting
  • Board of Directors entered into Cooperation Agreement with Driver Opportunity Partners I LP, Driver Management Company LLC and J. Abbott Cooper
  • Hunt Valley Connections Center opened in the Maryland market in the first quarter
  • New niche portfolio mortgage products launched in the first quarter
  • New online small business loan application scheduled to roll out in second quarter 2022

“During the first quarter, our team executed on several key initiatives to enhance the client experience, grow the business, and increase shareholder value. These initiatives include, executing against our shareholder repurchase program, announcing the closure of the Gardenville Financial Center, closing the Young Manor Business Banking Center, and opening our new Hunt Valley location. Net income for the first quarter increased by 13.3 percent compared to the fourth quarter of 2021. Total non PPP loans increased by 3.4 percent annualized compared to the fourth quarter 2021 due to growth in commercial and consumer loans. We anticipate the launch of the new small business online application in the second quarter to further support small business loan growth. We remain focused on growing low cost core deposits and expect the net interest margin will continue to grow within the rising interest rate environment,” stated Craig L. Kauffman, President and CEO.

“Lower gains in mortgage loans impacted non-interest income. In the midst of a rising mortgage rate environment, we have executed on several initiatives this quarter to continue to grow mortgages including rolling out new jumbo niche mortgage products, hiring a Sales Manager, broadening our geographical focus, and promoting the new online mortgage application. We also celebrated the opening of the new Hunt Valley Connections Center in February. This highly visible hub location will help to further grow our presence in Maryland and cultivate business, wealth, and consumer relationships in an important growth market,” added Mr. Kauffman.

REVIEW OF RESULTS

Balance Sheet

Loans

Loans held for investment, which include SBA-backed Paycheck Protection Program loans (SBA PPP loans), decreased by $1.3 million from December 31, 2021 to March 31, 2022, or 0.08 percent as the impact of SBA PPP loan forgiveness outpaced net commercial loan growth. Excluding SBA PPP loans, total loans increased by $12.7 million from December 31, 2021 to March 31, 2022, or 3.4 percent annualized. SBA PPP loans, net of deferred fees and costs, declined by $13.9 million to $13.8 million at March 31, 2022 from $27.7 million at December 31, 2021 due to forgiveness activity.

Non-accrual loans decreased by $3.3 million to $30.2 million over the three months ended March 31, 2022 as a result of PeoplesBank’s continued progress in reducing such assets.

Investment Securities

Investment Securities increased by $48.1 million to $302.4 million at March 31, 2022 compared to $254.3 million at December 31, 2021, as the bank purchased mortgage-backed securities, corporate securities and municipal securities, deploying excess liquidity.

Deposits

Deposits decreased by $47.9 million, or 2.2 percent from December 31, 2021 to March 31, 2022, ending the period at $2.1 billion. During the first quarter of 2022, non-interest bearing demand accounts decreased by $16.3 million or 3.1 percent. Also decreasing during the first quarter of 2022 were money market accounts by $18.0 million or 2.4 percent and certificates of deposits by $27.5 million or 6.0 percent. Offsetting the decreases was a $2.1 million or 0.8 percent increase in interest bearing checking accounts and an $11.7 million increase or 7.8 percent in savings accounts. The change in deposit mix resulted in a 6 basis point decrease in average interest bearing deposit cost of deposits to 0.27 percent for the quarter ended March 31, 2022, compared to 0.33 percent average interest bearing cost of deposits for the quarter ended December 31, 2021.

Income Statement

The Corporation’s net interest income for the three months ended March 31, 2022 was $15.7 million, an increase of 1.5 percent when compared to $15.5 million for the same period in 2021 and the same when compared to $15.7 million for the linked quarter. The Corporation’s tax-equivalent net interest margin (NIM) was 2.79 percent for the three months ended March 31, 2022, compared to 3.04 percent for the same period in 2021 and 2.75 percent for the linked quarter. The growth of lower cost core deposits and resulting near-term growth in short-term investments served to dilute the reported NIM while having minimal impact on net interest income. PPP fees recognized during the quarter ended March 31, 2022 were $356,000, compared to $1.9 million for the quarter ended March 31, 2021 and $760,000 for the quarter ended December 31, 2021. Despite the decrease in PPP fees recognized, net interest income was able to grow during these periods. Deposits continued to shift to lower cost core deposits, reducing our average interest bearing cost of deposits by 35 basis points as compared to the quarter ended March 31, 2021, and 6 basis points on a linked quarter basis.

The provision for loan losses for the three months ended March 31, 2022 was $1.0 million compared to $1.2 million for the same period in 2021 and $1.7 million for the linked quarter. The Corporation’s nonperforming assets ratio was 2.00 percent as of March 31, 2022, a 21.6 percent decrease from the nonperforming assets ratio as of March 31, 2021 of 2.55 percent and a 9.9 percent decrease from the nonperforming assets ratio as of December 31, 2021 of 2.22 percent.

Noninterest income for the first quarter 2022 was $3.9 million, a decrease of $571,000 or 12.9 percent, as compared to noninterest income of $4.4 million for the first quarter 2021 and a decrease of $611,000 or 13.7 percent as compared to the linked quarter. The decrease was primarily due to lower gains on sales of mortgage loans recognized during the current quarter, partially offset by higher income in other categories, particularly trust and wealth fees, as compared to the prior periods.

Noninterest expense was $14.7 million for the first quarter 2022, an increase of $1.0 million or 7.1 percent, as compared to noninterest expense of $13.7 million for the first quarter 2021 and a decrease of 2.6 percent compared to noninterest expense of $15.1 million for the linked quarter. Professional and legal expenses were the primary drive of the increase in the first quarter 2022 compared to the same period in 2021. A decrease in charitable donations was the primary driver between the current quarter and the linked quarter.

Income tax expense for the quarter ended March 31, 2022 was $807,000, compared to $1.1 million, for the same period in 2021 and $639,000 in the linked quarter. The effective tax rate for the three months ended March 31, 2022, March 31, 2021 and December 31, 2021 was 20.9 percent, 21.6 and 19.2 percent, respectively.

Dividend Declared and Stock Buyback

On April 12, 2022, the Board of Directors of the Corporation declared a regular quarterly cash dividend of $0.15 per share, payable on May 10, 2022 to shareholders of record at the close of business on April 26, 2022. The payment of this $0.15 per share cash dividend for the second quarter 2022 is equal to the cash dividend paid in the prior quarter.

The Corporation repurchased 1,535 shares at a weighted average price of $22.00 per share during the first quarter 2022, completing the share repurchase plan approved in August 2021.

Business Lines

The new Hunt Valley Connections Center opened on February 7, 2022 as the first Connections Center in the Maryland market. This replaced the Hunt Valley Financial Center that was located nearby. The new location allows PeoplesBank to consolidate business, mortgage, and wealth operations in Maryland contributing to our overall strategy of optimizing our delivery channels and provide clients an enhanced retail banking experience. The Hunt Valley Connections Center features expanded hours, drive-thru service and a drive-thru ATM, comfortable conversation areas to speak with a financial mentor, the vision board experience, and a concierge area to assist with digital banking needs.

In the first quarter of 2022, PeoplesBank announced the closure of the Gardenville Financial Center located in Baltimore City. The location will close on May 13, 2022 with clients transitioning to the Perry Hall Financial Center located seven miles north of Gardenville. The Young Manor Business Banking Center in downtown Hanover closed on February 11, 2022.

The Mortgage Banking Division experienced lower than anticipated mortgage sales due to rising rates and a softening of the market. The new online application was in full use during the first quarter and helped to create increased efficiencies and improve the client experience. A Mortgage Sales Manager was hired in late March to increase brand awareness, recruit additional Mortgage Loan Originators (MLOs) in the Maryland market and develop current MLOs. Three new portfolio niche products were finalized and rolled out late in the first quarter — a new Physician Preferred Mortgage, Entrepreneurial Mortgage, and Private Banking & Private Wealth Mortgage. The mortgage team continues to provide first time homebuyers with 100% financing and a CRA grant program to assist with down payments and closing costs.

Plans are underway to roll out a new online small business loan application process with streamlined underwriting for small business loan products in the second quarter 2022. PeoplesBank will be one of the first in the local market to offer this online experience. Once launched, small businesses will complete an online assessment to determine if they meet eligibility requirements for the online small business loan. If requirements are met, the business will be provided a link to apply for a small business loan. The streamlined application process is estimated to take an average of 15 minutes to complete. The new offering will also allow for electronic signatures of some loan documents. Maximum loan amounts range from $100,000 to $500,000 depending on the product.

PeoplesBank launched a new Rewards+ credit card in December 2021. Success of this new card along with the sales of other credit card products resulted in a 28% increase in credit cards sales during the first quarter.

Subsequent Events

Subsequent to the quarter close on April 12, 2022, Codorus Valley Bancorp, Inc. entered into a Cooperation Agreement (“the Agreement”) with Driver Opportunity Partners I LP, Driver Management Company LLC and J. Abbott R. Cooper (collectively, “Driver”).

In conjunction with the Agreement, the Corporation’s Board of Directors (the “Board”) announced it is implementing a series of initiatives designed to enhance the Corporation’s corporate governance practices, further analyze credit risk policies and practices, and ensure continued alignment with shareholders. These initiatives follow engagement and input from shareholders, including Driver Management Company LLC and its affiliates, which together own 6.7% of Codorus Valley’s outstanding common stock.

The Corporation also announced the appointment of three new directors to its Board. The first new director, John E. Kiernan, Esq., was appointed by the Board at its April 12, 2022 meeting per the terms of the Agreement. Mr. Kiernan has been appointed to the Corporate Governance and Nominating Committee, the Audit Committee, and the Compensation Committee of the Board. The second new director will be chosen solely by the Board, and will be appointed no later than the end of Q2 2022. The Board and Driver together will identify a third new director with substantial public company board experience from the banking sector. Immediately following the appointment to the Board, the third new director will be appointed to the Board’s Enterprise Risk Management Committee. The third new director also will be appointed no later than Q2 2022. Upon completion of these additions, the size of the Board will not exceed eleven directors.

About Codorus Valley Bancorp, Inc.
Codorus Valley Bancorp, Inc. is the largest independent financial services holding company headquartered in York, Pennsylvania. Codorus Valley primarily operates through its financial services subsidiary, PeoplesBank, A Codorus Valley Company. PeoplesBank offers a full range of consumer, business, wealth management, and mortgage services at financial centers located in communities throughout South Central Pennsylvania and Central Maryland. Codorus Valley Bancorp, Inc.’s Common Stock is listed on the NASDAQ Global Market under the symbol CVLY.

Forward-looking Statements
Codorus Valley Bancorp, Inc. has made forward-looking statements in this Press Release. These forward-looking statements are subject to risks and uncertainties. Forward-looking statements include information concerning possible or assumed future results of operations of the Corporation and its subsidiaries. When words such as “believes,” “expects,” “anticipates,” or similar expressions occur in this Press Release, the Corporation is making forward-looking statements. Note that many factors could affect the future financial results of the Corporation and its subsidiaries, both individually and collectively, and could cause those results to differ materially from those expressed in the forward-looking statements contained in this Press Release. Those factors include, but are not limited to: the recent and continuing COVID-19 pandemic which poses risks and may harm the Corporation’s business and results of operations in future quarters, credit risk, changes in market interest rates, inability to achieve merger-related synergies, competition, economic downturn or recession, and government regulation and supervision. The Corporation provides greater detail regarding these as well as other factors in its 2021 Form 10-K and 2022 Form 10-Qs, including Risk Factors sections of those reports, and in its subsequent SEC filings. The Corporation undertakes no obligation to update or revise any forward-looking statements.

Accounting standards require the consideration of subsequent events occurring after the balance sheet date for matters that require adjustment to, or disclosure in, the consolidated financial statements. The review period for subsequent events extends up to and includes the filing date of a public company’s financial statements when filed with the Securities and Exchange Commission. Accordingly, the consolidated financial information in this announcement is subject to change.

Questions or comments concerning this Press Release should be directed to:

Codorus Valley Bancorp, Inc.
Financial Highlights
                         
Condensed Consolidated Statements of Income (Unaudited)
(in thousands of dollars, except per share data)
                         
      Quarterly     Year-to-Date    
      1st Qtr   4th Qtr   1st Qtr     December 31,    
        2022       2021       2021         2021    
Interest income     $ 17,297     $ 17,519     $ 18,375       $ 71,691    
Interest expense       1,596       1,858       2,898         9,591    
   Net interest income       15,701       15,661       15,477         62,100    
Provision for loan losses       1,027       1,731       1,231         3,663    
Noninterest income       3,862       4,473       4,433         16,365    
Noninterest expense       14,676       15,070       13,706         56,215    
    Income before income taxes       3,860       3,333       4,973         18,587    
 Provision for income taxes       807       639       1,073         3,928    
   Net income     $ 3,053     $ 2,694     $ 3,900       $ 14,659    
Basic earnings per share     $ 0.32     $ 0.28     $ 0.40       $ 1.51    
Diluted earnings per share     $ 0.32     $ 0.28     $ 0.40       $ 1.50    
                         
                         
Condensed Consolidated Statements of Financial Condition (Unaudited)
(in thousands of dollars)
                         
      March 31,   December 31, March 31,          
        2022       2021       2021            
Cash and short term investments     $ 439,215     $ 545,494     $ 426,904            
Investment securities       303,694       255,596       181,828            
Loans       1,530,512       1,537,627       1,592,475            
Allowance for loan losses       (22,027 )     (22,782 )     (22,411 )          
Net loans       1,508,485       1,514,845       1,570,064            
Premises and equipment, net       21,779       21,955       24,816            
Operating leases right-of-use assets       3,584       1,697       2,198            
Goodwill       2,301       2,301       2,301            
Other assets       80,624       76,684       70,393            
   Total assets     $ 2,359,682     $ 2,418,572     $ 2,278,504            
                         
Deposits     $ 2,095,872     $ 2,143,765     $ 1,964,063            
Borrowed funds       32,349       32,340       54,342            
Subordinated debentures       30,703       30,683       30,622            
Operating leases liability       3,738       1,803       2,325            
Other liabilities       13,301       14,476       28,401            
Shareholders’ equity       183,719       195,505       198,751            
   Total liabilities and shareholders’ equity   $ 2,359,682     $ 2,418,572     $ 2,278,504            
                         
Codorus Valley Bancorp, Inc.
Financial Highlights
                       
Selected Financial Data (Unaudited)
                       
      Quarterly
        2022       2021       2021       2021       2021  
      1st Qtr   4th Qtr   3rd Qtr   2nd Qtr   1st Qtr
Earnings and Per Share Data (1)                    
  (in thousands, except per share data)                    
  Net income   $ 3,053     $ 2,694     $ 4,783     $ 3,282     $ 3,900  
  Basic earnings per share   $ 0.32     $ 0.28     $ 0.49     $ 0.33     $ 0.40  
  Diluted earnings per share   $ 0.32     $ 0.28     $ 0.49     $ 0.33     $ 0.40  
  Cash dividends paid per share   $ 0.15     $ 0.15     $ 0.13     $ 0.13     $ 0.13  
  Book value per share   $ 19.28     $ 20.64     $ 20.72     $ 20.44     $ 20.12  
  Tangible book value per share (2)   $ 19.04     $ 20.40     $ 20.48     $ 20.20     $ 19.89  
  Average shares outstanding     9,486       9,506       9,699       9,816       9,842  
  Average diluted shares outstanding     9,517       9,548       9,748       9,848       9,867  
                       
Performance Ratios (%)                    
  Return on average assets (3)     0.51       0.46       0.83       0.58       0.71  
  Return on average equity (3)     6.33       5.46       9.56       6.56       7.96  
  Net interest margin (4)     2.79       2.75       2.90       2.80       3.04  
  Efficiency ratio (5)     74.51       74.31       67.33       74.81       68.36  
  Net overhead ratio (3)(6)     1.81       1.79       1.66       1.85       1.69  
                       
Asset Quality Ratios (%)                    
  Net loan charge-offs to average loans (3)     0.47       0.34       0.01       0.19       0.02  
  Allowance for loan losses to total loans (7)     1.44       1.49       1.47       1.43       1.42  
  Nonperforming assets to total loans                    
    and foreclosed real estate     2.00       2.22       2.75       2.59       2.55  
                       
Capital Ratios (%)                    
  Average equity to average assets     8.09       8.34       8.70       8.88       8.97  
  Tier 1 leverage capital ratio     8.60       8.59       8.92       9.11       9.39  
  Common equity Tier 1 capital ratio     11.93       12.11       12.38       12.87       13.13  
  Tier 1 risk-based capital ratio     12.54       12.74       13.01       13.53       13.81  
  Total risk-based capital ratio     15.67       15.92       16.21       16.80       17.13  
                       
(1) per share amounts and shares outstanding were adjusted for stock dividends        
(2) book value less goodwill and core deposit intangibles                
(3) annualized for the quarterly periods presented                    
(4) net interest income (tax-equivalent) as a percentage of average interest earning assets        
(5) noninterest expense as a percentage of net interest income and noninterest income (tax-equivalent)    
(6) noninterest expense less noninterest income as a percentage of average assets        
(7) excludes loans held for sale                    
                       
  Reconciliation of Non-GAAP Financial Measure (Tangible Book Value)
                       
  (in thousands, except per share data)     2022       2021       2021       2021       2021  
      1st Qtr   4th Qtr   3rd Qtr   2nd Qtr   1st Qtr
  Total Shareholders’ Equity   $ 183,719     $ 195,505     $ 198,712     $ 199,273     $ 198,751  
  Less: Preferred Stock     0       0       0       0       0  
  Less: Goodwill and Other Intangible Assets     (2,305 )     (2,301 )     (2,306 )     (2,307 )     (2,307 )
  Tangible Shareholders’ Equity   $ 181,414     $ 193,204     $ 196,406     $ 196,966     $ 196,444  
                       
  Common Shares Outstanding     9,528       9,472       9,592       9,752       9,877  
  Book Value Per Share   $ 19.28     $ 20.64     $ 20.72     $ 20.44     $ 20.12  
                       
  Book Value Per Share   $ 19.28     $ 20.64     $ 20.72     $ 20.44     $ 20.12  
  Effect of Intangible Assets     (0.24 )     (0.24 )     (0.24 )     (0.24 )     (0.23 )
  Tangible Book Value Per Share   $ 19.04     $ 20.40     $ 20.48     $ 20.20     $ 19.89  
                       
  This report contains certain financial information determined by methods other than in accordance with GAAP. This    
  non-GAAP disclosure has limitations as an analytical tool and should not be considered in isolation or as a substitute    
  for the analysis of the Corporation’s results as reported under GAAP, nor is it necessarily comparable to non-GAAP    
  performance measures that may be presented by other companies. Our management uses this non-GAAP measure in    
  its analysis of our performance because it believes this measure is material and will be used as a measure of our    
  performance by investors.                    
                       
ANALYSIS OF NET INTEREST INCOME                                    
Average Balances and Interest Rates, Taxable-Equivalent Basis (Unaudited)                              
                                           
    Three Months Ended
    March 31, 2022     December 31, 2021     March 31, 2021  
(Dollars in thousands)   Average Balance   Taxable-Equivalent Interest   Taxable-Equivalent Rate     Average Balance   Taxable-Equivalent Interest   Taxable-Equivalent Rate     Average Balance   Taxable-Equivalent Interest   Taxable-Equivalent Rate  
                                           
Assets                                          
Interest bearing deposits with banks   $ 483,553   $ 228     0.19 %   $ 497,931   $ 191     0.15 %   $ 325,193   $ 81     0.10 %
Investment securities:                                          
  Taxable     258,112     1,289     2.03       215,571     1,010     1.86       151,517     608     1.63  
  Tax-exempt     24,583     124     2.05       23,618     118     1.98       19,401     118     2.47  
    Total investment securities     282,695     1,413     2.03       239,189     1,128     1.87       170,918     726     1.72  
Loans:                                          
  Taxable (1)     1,516,145     15,594     4.17       1,520,641     16,097     4.20       1,567,817     17,515     4.53  
  Tax-exempt     10,891     111     4.13       11,004     160     5.78       9,899     97     3.97  
    Total loans     1,527,036     15,705     4.17       1,531,645     16,257     4.21       1,577,716     17,612     4.53  
    Total earning assets     2,293,284     17,346     3.07       2,268,765     17,576     3.07       2,073,827     18,419     3.60  
Other assets (2)     92,129               99,625               111,868          
    Total assets   $ 2,385,413             $ 2,368,390             $ 2,185,695          
Liabilities and Shareholders’ Equity                                          
Deposits:                                          
  Interest bearing demand   $ 997,383     331     0.13 %   $ 963,920     354     0.15 %   $ 814,058   $ 430     0.21 %
  Savings     155,982     12     0.03       147,584     14     0.04       117,627     15     0.05  
  Time     451,131     719     0.65       476,061     965     0.80       529,466     1,775     1.36  
    Total interest bearing deposits     1,604,496     1,062     0.27       1,587,565     1,333     0.33       1,461,151     2,220     0.62  
Short-term borrowings     9,967     10     0.41       11,505     12     0.40       7,735     8     0.42  
Long-term debt     23,363     105     1.82       23,540     145     2.44       49,044     301     2.49  
Subordinated debentures     30,696     419     5.54       30,676     369     4.77       30,615     369     4.89  
    Total interest bearing liabilities     1,668,522     1,596     0.39       1,653,286     1,858     0.45       1,548,545     2,898     0.76  
Noninterest bearing deposits     511,170               503,035               423,830          
Other liabilities     12,755               14,502               17,340          
Shareholders’ equity     192,966               197,567               195,980          
    Total liabilities and shareholders’ equity   $ 2,385,413             $ 2,368,390             $ 2,185,695          
Net interest income (tax equivalent basis)       $ 15,750               $ 15,718               $ 15,521        
Net interest margin (3)           2.79 %           2.75 %           3.04 %
Tax equivalent adjustment         (49 )               (57 )               (44 )      
Net interest income       $ 15,701               $ 15,661               $ 15,477        
                                           
(1) Average balances include nonaccrual loans.                                 
(2) Average balances include bank owned life insurance and foreclosed real estate.                             
(3) Net interest income (tax-equivalent basis) annualized as a percentage of average interest earning assets.                         

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