Codorus Valley Bancorp
Annual Report 2020

Plain-text annual report

G U I D I N G T H E W A Y F O R W A R D “When you come out of the storm, you won’t be the same person who walked in. That’s what this storm’s all about.” – Haruki Murakami, International Author The world will be forever changed by the uncertainty and turbulence brought by COVID-19. It has taken lives, impacted livelihoods, and changed lifestyles. While there is optimism that the darkest days of the storm may be behind us, the impact of the storm rages on for many. Codorus Valley Bancorp, Inc. stands strong during the storm — offering a light of hope to struggling small businesses, patiently helping clients navigate new ways of banking, and assisting an unprecedented number of clients with purchasing or refinancing their homes. In the midst of a turbulent year, Codorus Valley Bancorp, Inc. has guided the way forward for a brighter future for our clients and the communities we serve. 1 Dear Shareholders To say our world has been living through a stormy and turbulent time is an understatement. Experiencing a global pandemic, economic disruption, social unrest, and political turmoil has affected nearly every facet of our lives. The financial effects of the pandemic, locally and regionally, have been uneven. It has produced the most severe global economic contraction since 1929 during the Great Depression, and equally, a sudden falloff in equity markets. Those businesses and industries that require gathering people in person (such as restaurants, fitness centers and movie theatres) have suffered tremendous financial losses, while other entities (grocery stores, fast food and home delivery) have flourished. will continue on that path by supporting our clients and our communities with our time, talent and financial resources. Operating Landscape Company grew noninterest income by 14.2 percent in 2020, predominantly due to higher volumes of mortgage loans – originated and then sold to the secondary market. Codorus Valley Bancorp, Inc. (“Codorus Valley” or the “Company”) has not only endured, but has grown stronger in its resolve to live out its mission. Our associates’ unwavering commitment to help our clients live confidently took on new meaning this past year. The Company moved forward on many important strategic initiatives in 2020, despite the many market disruptions. PeoplesBank President Craig Kauffman will provide an overview of those efforts on page 4. With the successful execution of many strategic initiatives during 2020, we have gained new momentum and are laser focused on moving forward in greater ways in 2021. Larry J. Miller Chairman, President and CEO Harry R. Swift, Esq. Vice Chairman and Lead Director PeoplesBank, financial services subsidiary of Codorus Valley Bancorp, Inc., traces its roots to 1864 and has endured many cycles and many crises. This past year presented us with the most challenging set of threats our Leadership Team has ever faced. As the pandemic subsides, there remains economic devastation with unemployment elevated, small businesses shuttering daily and families struggling to pay for food and housing. We have long believed that our shareholders will benefit when we create enduring, sustainable value for all stakeholders. Now more than ever, we The Company’s investment in technology and infrastructure over the last several years paid dividends in 2020. We were able to adapt quickly to new ways of safely providing essential banking services in the midst of the pandemic. Clients’ behaviors also adapted with increased use of digital banking services. During March 2020, the Federal Reserve Board of Governors reduced interest rates by 150 basis points. The Company responded by cutting expenses and focusing on fee-based revenue to address a lower net interest margin. The Performance Adversely affecting earnings in 2020 were increases in the provision for loan and lease losses associated with the COVID-19 pandemic and due to loan provision expenses associated with four commercial loan relationships. The large loss reported in the first quarter of 2020 was due to apparent fraudulent activities believed perpetrated by one of the obligors. The Company’s loss on the foregoing credit was approximately $7.7 million. The loan losses last year did not affect the Corporation or PeoplesBank’s 2  Guiding the way Forward status as a “well-capitalized” financial institution. Codorus Valley Bancorp, Inc. realized net income available to common shareholders (earnings) of $8.4 million for the year ending 2020, compared to $18.6 million of earnings realized in 2019, which represents a reduction of approximately, $10.2 million or 54.8 percent. The decrease in net income and earnings per share for 2020 was a direct result of the impact of net interest margin reduction and an increase of provision for loan and lease losses. The net interest margin (tax equivalent basis) for 2020 was 3.13 percent, compared to 3.66 percent realized in 2019. The fourth quarter began to show a recovery in earnings, with a 5.9 percent increase in net income over the same period in 2019. On December 31, 2020, total assets of Codorus Valley were approximately $2.16 billion, representing a 14.6 percent increase compared to December 31, 2019. Total deposits at year-end 2020 were approximately $1.9 billion, compared to $1.6 billion at year-end 2019, representing an increase of 17.2 percent. Total loans at year-end 2020 were at $1.6 billion, as compared to year-end 2019 when loans totaled $1.5 billion. Additional 2020 financial performance information for Codorus Valley Bancorp, Inc. is contained in the Corporation’s Annual Report on Form 10-K for the year ending December 31, 2020. In December, the Company announced the successful private placement of $31.0 million in aggregate principal amount of 4.50% Fixed-to-Floating Rate Subordinated Unsecured Notes, due 2030. This debt offering strengthened the Company’s already strong capital position, will provide additional flexibility to grow the franchise and will enhance the Company’s ability to execute on its long-term business strategies. In early January 2021, the Company’s Board of Directors approved a stock repurchase program, wherein the Company authorized the repurchase of up to $5 million of the Corporation’s issued and outstanding common stock. Recognition Some businesses have been remarkably resilient throughout the pandemic. The truth is that some people have been much more fortunate than others have, and we consider the Company and ourselves in this category. We are privileged to be in this position and each of us needs to accept responsibility that there is much we can do to help others who have been adversely impacted and have become vulnerable. The Crisis Management Team put forth herculean efforts throughout the early stages of the pandemic, and they continue to light the way for our Company. Ably led by President Kauffman, the Team spent many, many hours weighing the needs of our 3 associates, our clients and our communities during this trying time. I would like to single out three Team members for their efforts helping us survive this storm. Todd Tyson/General Services, Jen Grove/Human Resources and Kristen Heisey/Communications, worked tirelessly to keep our associates and clients safe, maintain our staffing levels and continually inform our associates and clients. Thank you all! Closing The theme of this year’s Annual Review is Guiding the Way Forward. While this past year had many unexpected turns, our experienced team of financial executives and associates remain committed to being a guiding light to our clients and for our communities. With the successful execution of many strategic initiatives during 2020, we have gained new momentum and are laser focused on moving forward in greater ways in 2021. We sincerely appreciate your support, confidence and continued long-term investment in Codorus Valley Bancorp, Inc. Our hope is that 2021 brings calmer waters for everyone. Larry J. Miller Chairman, President and Chief Executive Officer Codorus Valley Bancorp, Inc. Moving Strategic Priorities Forward PeoplesBank began 2020 energized and ready to fully execute on its strategic priorities — refreshing the PeoplesBank brand, launching a new retail concept in Lancaster City and implementing a new commercial loan origination system. Many of these initiatives launched just days before the pandemic arrived. In mid-March, PeoplesBank adapted quickly to the changing environment brought on by the pandemic. For the safety of associates and our clients, operations changed nearly overnight with 50% of our staff working remotely. Retail operations pivoted to serving more clients through drive thru and digital channels. PeoplesBank responded quickly to the changing needs of our clients. Financial hardship phone lines and fee waivers were established to address client needs. The Bank responded quickly to the needs of small businesses through two rounds of Paycheck Protection Program (PPP) funding, welcoming many new business clients in the process. The Bank successfully launched its refreshed brand in early March with a new website, collaterals and merchandising. New signage was installed in all markets throughout 2020. A brand awareness campaign was executed in the second half of the year and is expected to continue throughout 2021. PeoplesBank’s digital transformation accelerated in 2020 with record utilization of online banking and mobile deposits. Video calls were offered as a new channel for clients to talk with a financial mentor. A major focus area was the development of a new commercial loan origination system that will eventually serve as the company’s CRM system. The new platform was launched in the fourth quarter allowing business clients to access a client portal for a more streamlined experience. A project team is also working on migrating micro business clients to PeoplesBank’s robust personal online banking platform. This conversion is expected to be complete by the second quarter of 2021. A new PeoplesBank Momentum Checking and Savings product was launched in the Lancaster market as a pilot test. The new rewards product will be marketed across the PeoplesBank footprint in 2021. In addition, a new Boost Line of Credit for small businesses located in low to moderate income markets was introduced. The strategic focus on geographic expansion continued to be implemented in 2020. The new Lancaster City Connections Center opened a week before the pandemic impacted operations. Due to the state- of-art technology, the Connections Center team was able to continue to virtually engage with prospects and clients even when the doors were closed. The new Connections Center concept has been well received in the market with a growing number of new business and consumer clients. Oregon Pike, which was the first full service financial center to open in Lancaster County in 2018, also experienced strong growth in 2020. The Company continues to evaluate market conditions and new opportunities. In 2020, PeoplesBank closed five limited service Retirement Community Offices and announced the closure of two additional Retirement Community Offices in early 2021. Resources from these closures will be deployed to higher growth opportunity areas. PeoplesBank will continue to operate in five retirement communities in 2021 after the closures are complete. The PeoplesBank Wealth Management Division continues to show strong growth exceeding $1 billion in assets under management. The Wealth Management division was recently recognized by Pohl Consulting as a top performer for 2019 among over 100 trust companies nationally. Top performers are those organizations with the highest 5-year average of revenue growth rate and the highest average profitability ratio for the same year. This was the first time that PeoplesBank was named as a top performer and a significant accomplishment on a national level. Our greatest asset at PeoplesBank are our associates. Great care has been 4 Craig L. Kauffman Executive Vice President and Chief Operating Officer taken to protect associates during the pandemic including instituting many new safety protocols, instituting modified work schedules, and offering remote work where possible. In addition, the Bank’s new leadership development program was initiated in 2020 to grow leaders at all levels of the organization. In late 2020, we were also able to grow our commercial and wealth teams with several seasoned professionals from within the Pennsylvania and Maryland markets. The addition of these new associates will position PeoplesBank well to continue to grow the Company. Despite the many disruptions of this past year, we are relentlessly focused on the strategic opportunities ahead for PeoplesBank. We will continue to work towards serving our clients in unprecedented ways including enhancements to our digital experience, continuing our retail delivery network evolution, expanding into new markets, and continuing to attract and deepen relationships with clients who value a personalized approach to banking. We remain committed to serving as community builders. We are pleased to share an overview of our PeoplesBank’s community impact on the following page. Craig L. Kauffman Executive Vice President and Chief Operating Officer, Codorus Valley Bancorp, Inc. President and Chief Executive Officer, PeoplesBank 2020 Community Impact We remain committed to strengthening the communities we serve by supporting many important community initiatives including education and financial literacy, housing and food insecurities, economic development and community engagement. Below is a summary of our community impact in 2020: VOLUNTEERING 109 associates volunteered 3,403 hours, served on 49 non-profit boards and helped 128 community groups HELPING 75% of the Senior Leadership Team volunteered with local non-profits in 2020 MENTORING 6 high school seniors participated in the PeoplesBank Student Banker Apprenticeship Program receiving unprecedented access to executives and learning about a career in banking SUPPORTING $1.8 million in giving to 150+ organizations in our community GIVING Associates personally gave $142,922 of their own funds to local non-profits through bank initiatives TEACHING 1,578 elementary, middle and high school students in 12 schools participated in 3,265 hours of online financial literacy courses through the PeoplesBank Financial Scholars Program during the 2019/2020 school year ASSISTING 1,330 PPP loans in first round funding totaling $181.4 million; 83% of the loans supporting small businesses with loan amounts below $150,000 5 Selected Financial Data Codorus Valley Bancorp, Inc. 2020 2019 2018 2017 2016 Summary of operations (in thousands) Interest income $ 75,713 $ 85,317 $ 80,321 $ 70,415 $ 62,230 Interest expense 15,253 21,378 16,401 10,868 8,649 Net interest income 60,460 63,939 63,920 59,547 53,581 Provision for loan losses 14,675 2,450 2,700 4,175 3,000 Noninterest income 15,892 13,912 13,314 11,522 10,030 Noninterest expense 51,204 51,729 49,810 44,986 41,623 Income before income taxes 10,473 23,672 24,724 21,908 18,988 Provision for income taxes 2,031 5,025 5,182 9,904 5,886 Net income 8,442 18,647 19,542 12,004 13,102 Preferred stock dividends 0 0 0 0 16 Net income available to common shareholders $ 8,442 $ 18,647 $ 19,542 $ 12,004 $ 13,086 Per common share (adjusted for stock dividends) Net income, basic $ 0.86 $ 1.89 $ 1.98 $ 1.22 $ 1.35 Net income, diluted $ 0.86 $ 1.88 $ 1.96 $ 1.21 $ 1.34 Cash dividends paid $ 0.520 $ 0.608 $ 0.564 $ 0.468 $ 0.427 Stock dividends distributed 0% 5% 5% 5% 5% Book value $ 20.16 $ 19.59 $ 18.01 $ 16.72 $ 15.88 Tangible book value (1) $ 19.93 $ 19.36 $ 17.78 $ 16.49 $ 15.65 Cash dividend payout ratio 60.2% 32.4% 28.3% 38.0% 32.0% Weighted average shares outstanding 9,781,712 9,863,332 9,857,559 9,779,816 9,694,739 Weighted average diluted shares outstanding 9,809,011 9,929,659 9,953,229 9,894,628 9,777,719 Profitability ratios Return on average shareholders' equity (ROE) 4.35% 9.98% 11.42% 7.40% 8.47% Return on average assets (ROA) 0.41% 1.01% 1.11% 0.72% 0.88% Net interest margin (tax equivalent basis) 3.13% 3.66% 3.84% 3.84% 3.89% Efficiency ratio 66.68% 65.93% 63.95% 62.07% 64.09% Net overhead ratio 1.73% 2.05% 2.08% 2.03% 2.15% Capital ratios (consolidated) Common equity tier 1 ratio 13.10% 12.45% 12.15% 11.58% 11.88% Tier 1 risk-based capital 13.79% 13.11% 12.83% 12.29% 12.66% Total risk-based capital 17.13% 14.36% 14.08% 13.48% 13.81% Average shareholders' equity to average assets 9.52% 10.12% 9.75% 9.79% 10.44% Summary of financial condition at year-end (in thousands) Investment securities (including restricted bank stock) $ 187,595 $ 164,226 $ 155,515 $ 164,902 $ 201,665 Loans (including loans held for sale) 1,560,570 1,516,938 1,489,807 1,401,479 1,272,319 Assets 2,162,199 1,886,545 1,807,480 1,709,205 1,611,587 Deposits 1,863,539 1,590,564 1,495,280 1,384,507 1,264,177 Borrowings 85,748 89,557 122,332 150,805 181,947 Equity 197,960 191,168 178,746 164,219 154,957 Other data Full service financial centers 26 25 26 26 26 Number of employees (full-time equivalents) 343 350 348 326 306 Wealth Management assets, market value (in thousands) $ 1,017,126 $ 899,876 $ 725,087 $ 711,161 $ 562,865 1) A reconciliation of tangible book value, which is a non-GAAP Financial Measure, can be found further in this Annual Review. 6 Tangible Book Value (1) The following table provides the reconciliation of tangible book value, which is a non-GAAP Financial Measure, for the dates indicated: 2020 2019 2018 2017 2016 (dollars in thousands) Total Shareholders' Equity $ 197,960 $ 191,168 $ 178,746 $ 164,219 $ 154,957 Less: Preferred Stock 0 0 0 0 0 Less: Goodwill and Other Intangible Assets (2,308) (2,312) (2,316) (2,321) (2,327) Tangible Shareholders' Equity $ 195,652 188,856 $ 176,430 $ 161,898 $ 152,630 Common Shares Outstanding 9,821 9,756 9,924 9,819 9,755 Book Value $ 20.16 $ 19.59 $ 18.01 $ 16.72 $ 15.88 Book Value $ 20.16 $ 19.59 $ 18.01 $ 16.72 $ 15.88 Effect of Intangible Assets (0.23) (0.23) (0.23) (0.23) (0.23) Tangible Book Value $ 19.93 $ 19.36 $ 17.78 $ 16.49 $ 15.65 This document 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 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. Common Stock, Dividend, and Broker Information Codorus Valley Bancorp, Inc. common stock is listed on the NASDAQ Global Market under the symbol CVLY. Codorus Valley had approximately 1,893 holders of record as of February 24, 2021. The closing price per share of Codorus Valley’s common stock on February 24, 2021, was $17.22. The following table sets forth high and low sales prices and dividends paid per common share for Codorus Valley as reported by NASDAQ during the periods indicated. All amounts reflect the impact of the common stock dividends distributed by the Corporation. 2020 2019 Dividends Dividends Quarter High Low Per Share High Low Per Share First $23.05 $14.15 $0.160 $23.07 $18.71 $0.152 Second 15.70 10.62 0.160 22.35 19.30 0.152 Third 14.13 11.62 0.100 23.46 19.30 0.152 Fourth 17.73 12.71 0.100 23.60 20.69 0.152 For further information, we refer you to the following market makers in our common stock: Boenning and Scattergood, Inc. 610-862-5368 800-842-8928 Janney Montgomery Scott LLC 717-779-2720 800-999-0503 Piper Sandler (Formerly Sandler O’Neill & Partners, L.P.) (Institutional Trades Only) 800-333-6000 Internet Information Information about products and services that are offered by Codorus Valley and its subsidiaries is available on the Internet at www.peoplesbanknet.com. Financial Information The Annual Report on Form 10-K is filed with the Securities and Exchange Commission ( SEC ). Copies of this document and other SEC filings by Codorus Valley Bancorp, Inc. may be obtained electronically at PeoplesBank’s website at www.peoplesbanknet.com (select Your Life, then under Connect select Investor Relations, then Filings, then Documents), or the SEC’s website at www.sec.gov/edgarhp.htm. Copies can also be obtained without charge by writing to: Treasurer, Codorus Valley Bancorp, Inc., P.O. Box 2887, York, PA 17405-2887. Annual Shareholder Meeting The Annual Shareholder Meeting will be held virtually on Tuesday, May 18, 2021, at 9:00 am Eastern Time. To be admitted to the Annual Meeting at www.virtualshareholdermeeting.com/CVLY2021, you must enter the control number found on your proxy card, voting instruction form or notice. You may vote during the Annual Meeting by following the instructions available on the meeting website during the meeting. Transfer Agent EQ Shareholder Services, 1110 Centre Point Curve, Suite 101, MAC N9173-010, Mendota Heights, MN 55120. Phone: 800-468-9716. Dividend Reinvestment and Stock Purchase Plan Information regarding the Corporation’s Dividend Reinvestment and Stock Purchase Plan may be obtained by contacting the transfer agent above. 7 Boards of Directors Codorus Valley Bancorp, Inc. PeoplesBank Larry J. Miller Chairman, President and Chief Executive Officer Codorus Valley Bancorp, Inc. Executive Chairman PeoplesBank Harry R. Swift, Esq. Vice Chairman and Lead Director Retired General Counsel and Secretary Codorus Valley Bancorp, Inc. and PeoplesBank Craig L. Kauffman Executive Vice President and Chief Operating Officer Codorus Valley Bancorp, Inc. President and Chief Executive Officer PeoplesBank Sarah M. Brown President and Chief Executive Officer Keller-Brown Insurance Services Brian D. Brunner Division President Account and Item Processing Sales Fiserv, Inc. Cynthia A. Dotzel, CPA Practicing CPA Dotzel & Company, Inc. John W. Giambalvo, Esq. President and Chief Executive Officer Jack Giambalvo Motor Company Jeffrey R. Hines, P.E. Retired President and Chief Executive Officer The York Water Company J. Rodney Messick Chief Executive Officer HomeSale Realty Services Group, Inc. Corporate Headquarters Codorus Valley Bancorp, Inc. Codorus Valley Corporate Center 105 Leaders Heights Road York, Pennsylvania 17403-5137 717-747-1519 For location information and hours, visit www.peoplesbanknet.com. All Financial Centers have a 24-Hour ATM on-site for client convenience and are members of the MoneyPass® Network. Directors Emeritus PeoplesBank D. Reed Anderson, Esq. M. Carol Druck MacGregor S. Jones Barry A. Keller Rodney L. Krebs Dallas L. Smith Corporate Officers Codorus Valley Bancorp, Inc. Larry J. Miller Chairman, President and Chief Executive Officer Craig L. Kauffman Executive Vice President and Chief Operating Officer Diane E. Baker, CPA Vice President, Assistant Secretary and Assistant Treasurer Larry D. Pickett, CPA Treasurer Timothy J. Nieman, Esq. General Counsel and Secretary PeoplesWealth Advisors A Subsidiary of PeoplesBank Stephen M. Altland President and Chief Executive Officer Diane E. Baker, CPA Vice President and Secretary Larry D. Pickett, CPA Treasurer and Assistant Secretary Timothy J. Nieman, Esq. General Counsel Victoria A. Schofield Vice President Financial Advisors and Registered Representatives Jamie K. Cash, CFP® Wendy M. Livingston Victoria A. Schofield Gregory F. Wolfe Contact Information To contact any Financial Center, the Client Care Center, or any bank associate, please call us at 717-846-1970 or 1-888-846-1970. Information regarding our products, services, and locations may be found at our website at www.peoplesbanknet.com. “Thank you for your investment in Codorus Valley Bancorp, Inc. during a time of so much uncertainty in our world. We grieve over the devastating impact the pandemic has had in our communities this past year. There is much work to still be done as we overcome the long-term effects of the virus, work to foster diversity and inclusion and prudently support the sustainability of small businesses. While 2020 has been like no other, we look forward with optimism that brighter days and calmer waters are ahead for our Company, our clients and the communities we serve. ” 8 Craig L. Kauffman President and Chief Executive Officer 717-747-1501 Diane E. Baker, CPA Executive Vice President, Chief Operations and Chief Risk Officer 717-747-1550 Timothy J. Nieman, Esq. General Counsel and Secretary 717-747-2403 Larry D. Pickett, CPA Executive Vice President, Chief Financial Officer 717-747-1502 Stephen M. Altland Senior Vice President, Wealth Management Division 717-747-1585 Scott R. Campagna Senior Vice President, Chief Information Officer 717-747-1581 Leadership Group PeoplesBank Harland Carney, III Senior Vice President, Director of Commercial Lending 717-747-2424 Chad Clabaugh Senior Vice President, Chief Consumer Banking Officer 717-747-1515 Matthew A. Clemens, SPHR, PCC Senior Vice President, Chief Administrative Officer 717-747-1507 Amy L. Doll Senior Vice President, Chief Commercial Banking and Lending Officer 717-747-1580 John Eaton Jr. Senior Vice President, Director of Business Banking 717-747-1546 E. Dennis Ginder Senior Vice President, Chief Credit Officer 717-781-8485 Kristen M. Heisey, CFMP Vice President, Director of Marketing and Client Experience 717-747-1520 Chad Hotsko Senior Vice President, Director of Business Banking 717-565-0052 Kent A. Ketterman Senior Vice President, Director of Commercial Real Estate Lending 717-747-1506 Todd A. Tyson, CFSSP, CCBSP, CBAP Senior Vice President, Director of General Services and Security Officer 717-747-1510 9 Our Mission To be community builders with an unwavering commitment to: • Helping our clients achieve their dreams and live confidently • Cultivating a work environment where our associates can thrive and make a difference • Delivering value and prosperity for our shareholders Incorporated in 1986, Codorus Valley Bancorp, Inc. is a bank holding company that provides a full range of financial services through its principal subsidiary, PeoplesBank, A Codorus Valley Company. As a publicly-held corporation, common stock issued by Codorus Valley Bancorp, Inc. is traded on the NASDAQ Global Market under the symbol CVLY. PeoplesBank, with origins dating back to 1864, is the largest independent community bank headquartered and managed in York County, Pennsylvania. Focused on acquiring and nurturing financial relationships with small and mid-sized businesses and consumers, PeoplesBank provides business, personal, and mortgage banking services as well as wealth management services throughout its network of financial centers located in York, Lancaster, and Cumberland Counties in Pennsylvania and in Baltimore and Harford Counties and Baltimore City in Maryland. Codorus Valley Bancorp, Inc. | Codorus Valley Corporate Center | 105 Leaders Heights Road | York, PA 17403-5137 | 717.747.1519 peoplesbanknet.com | P49367 

Continue reading text version or see original annual report in PDF format above