CVLY Codorus Valley Bancorp, Inc.

Management Discussion

• The full year 2019 net income available to shareholders of $18,647,000 represents a decrease of $895,000 compared to the full year 2018 earnings of $19,542,000. Earnings per share were $1.89 basic and $1.88 diluted for 2019 compared to $1.98 basic and $1.96 diluted for 2018. The decrease in net income and earnings per share for the year was primarily the result of higher noninterest expense in 2019 as compared to 2018. Personnel costs increased in 2019 due to executive level positions being vacant in the first half of 2018. In addition, a write down on foreclosed real estate during the fourth quarter 2019 resulted in increased noninterest expense for the year 2019.
• Net interest income, which totaled $63,939,000 for the year ended December 31, 2019, represented an increase of $19,000 or less than 1 percent above net interest income of $63,920,000 for 2018. The slight change in net interest income was primarily due to an increase in the volume and rate on commercial loans, offset by a corresponding increase in the rate on interest bearing deposits.
• The loan loss provision for 2019 was $2,450,000, a decrease of $250,000 compared to a provision of $2,700,000 for 2018. The decreased loan loss provision was the result of a decrease of $718,000 in the unallocated portion of the loan loss provision, offset by modest net loan growth and a minimal increase in total nonperforming assets compared to 2018. The allowance for loan losses as a percentage of total period-end loans was 1.40 percent and 1.29 percent as of December 31, 2019 and 2018, respectively. The provision for loan losses for both periods supported adequate allowance for loan loss coverage considering several factors, including the size, composition, and risks to the loan portfolio, the level of specific reserves, and realized net charge-offs.