10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2010
or
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o |
|
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission file number: 0-15536
CODORUS VALLEY BANCORP, INC.
(Exact name of registrant as specified in its charter)
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Pennsylvania
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23-2428543 |
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(State or other jurisdiction of
|
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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105 Leader Heights Road, P.O. Box 2887, York, Pennsylvania
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17405 |
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(Address of principal executive offices)
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(Zip code) |
717-747-1519
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since the last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definition of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date. On May 5, 2010, 4,079,410 shares of common stock, par value $2.50,
were outstanding.
Codorus Valley Bancorp, Inc.
Form 10-Q Index
- 2 -
PART I FINANCIAL INFORMATION
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Item 1. |
|
Financial Statements |
Codorus Valley Bancorp, Inc.
Consolidated Balance Sheets
Unaudited
|
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|
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|
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|
|
|
|
March 31, |
|
|
December 31, |
|
(dollars in thousands, except share data) |
|
2010 |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
Interest bearing deposits with banks |
|
$ |
17,948 |
|
|
$ |
14,545 |
|
Cash and due from banks |
|
|
9,378 |
|
|
|
8,634 |
|
Federal funds sold |
|
|
3,000 |
|
|
|
3,000 |
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
|
30,326 |
|
|
|
26,179 |
|
Securities, available-for-sale |
|
|
170,559 |
|
|
|
174,177 |
|
Restricted investment in bank stocks, at cost |
|
|
4,277 |
|
|
|
4,277 |
|
Loans held for sale |
|
|
1,373 |
|
|
|
1,266 |
|
Loans (net of deferred fees of $707 2010 and $766 2009) |
|
|
649,236 |
|
|
|
645,877 |
|
Less-allowance for loan losses |
|
|
(7,711 |
) |
|
|
(7,175 |
) |
|
|
|
|
|
|
|
Net loans |
|
|
641,525 |
|
|
|
638,702 |
|
Premises and equipment, net |
|
|
11,113 |
|
|
|
11,223 |
|
Other assets |
|
|
34,045 |
|
|
|
37,007 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
893,218 |
|
|
$ |
892,831 |
|
|
|
|
|
|
|
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Liabilities |
|
|
|
|
|
|
|
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Deposits |
|
|
|
|
|
|
|
|
Noninterest bearing |
|
$ |
56,830 |
|
|
$ |
55,583 |
|
Interest bearing |
|
|
680,498 |
|
|
|
667,374 |
|
|
|
|
|
|
|
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Total deposits |
|
|
737,328 |
|
|
|
722,957 |
|
Short-term borrowings |
|
|
8,079 |
|
|
|
8,466 |
|
Long-term debt |
|
|
58,660 |
|
|
|
73,972 |
|
Junior subordinated debt |
|
|
10,310 |
|
|
|
10,310 |
|
Other liabilities |
|
|
4,916 |
|
|
|
5,114 |
|
|
|
|
|
|
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Total liabilities |
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|
819,293 |
|
|
|
820,819 |
|
|
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|
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|
|
|
|
|
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|
|
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|
Shareholders equity |
|
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|
|
|
|
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|
Preferred stock, par value $2.50 per share; $1,000 liquidation preference,
1,000,000 shares authorized; 16,500 shares issued and outstanding 2010
and 2009 |
|
|
15,867 |
|
|
|
15,828 |
|
Common stock, par value $2.50 per share;
10,000,000 shares authorized; 4,079,410 shares issued and
outstanding 2010 and 4,074,636 2009 |
|
|
10,199 |
|
|
|
10,187 |
|
Additional paid-in capital |
|
|
37,065 |
|
|
|
37,004 |
|
Retained earnings |
|
|
7,936 |
|
|
|
6,592 |
|
Accumulated other comprehensive income |
|
|
2,858 |
|
|
|
2,401 |
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
73,925 |
|
|
|
72,012 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
893,218 |
|
|
$ |
892,831 |
|
|
|
|
|
|
|
|
See accompanying notes.
- 3 -
Codorus Valley Bancorp, Inc.
Consolidated Statements of Income
Unaudited
|
|
|
|
|
|
|
|
|
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|
Three months ended |
|
|
|
March 31, |
|
(dollars in thousands, except per share data) |
|
2010 |
|
|
2009 |
|
Interest income |
|
|
|
|
|
|
|
|
Loans, including fees |
|
$ |
9,130 |
|
|
$ |
8,065 |
|
Investment securities: |
|
|
|
|
|
|
|
|
Taxable |
|
|
829 |
|
|
|
836 |
|
Tax-exempt |
|
|
585 |
|
|
|
366 |
|
Dividends |
|
|
3 |
|
|
|
7 |
|
Other |
|
|
8 |
|
|
|
15 |
|
|
|
|
|
|
|
|
Total interest income |
|
|
10,555 |
|
|
|
9,289 |
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
Deposits |
|
|
2,829 |
|
|
|
3,656 |
|
Federal funds purchased and other short-term borrowings |
|
|
20 |
|
|
|
17 |
|
Long-term and junior subordinated debt |
|
|
468 |
|
|
|
520 |
|
|
|
|
|
|
|
|
Total interest expense |
|
|
3,317 |
|
|
|
4,193 |
|
|
|
|
|
|
|
|
Net interest income |
|
|
7,238 |
|
|
|
5,096 |
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
720 |
|
|
|
244 |
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
6,518 |
|
|
|
4,852 |
|
|
|
|
|
|
|
|
Noninterest income |
|
|
|
|
|
|
|
|
Trust and investment services fees |
|
|
346 |
|
|
|
311 |
|
Income from mutual fund, annuity and insurance sales |
|
|
319 |
|
|
|
346 |
|
Service charges on deposit accounts |
|
|
562 |
|
|
|
525 |
|
Income from bank owned life insurance |
|
|
158 |
|
|
|
163 |
|
Other income |
|
|
154 |
|
|
|
148 |
|
Gain on sales of loans held for sale |
|
|
144 |
|
|
|
167 |
|
Gain on sales of securities |
|
|
|
|
|
|
163 |
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
1,683 |
|
|
|
1,823 |
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
Personnel |
|
|
3,206 |
|
|
|
3,346 |
|
Occupancy of premises, net |
|
|
501 |
|
|
|
480 |
|
Furniture and equipment |
|
|
440 |
|
|
|
435 |
|
Postage, stationery and supplies |
|
|
115 |
|
|
|
110 |
|
Professional and legal |
|
|
106 |
|
|
|
84 |
|
Marketing and advertising |
|
|
127 |
|
|
|
125 |
|
FDIC insurance |
|
|
308 |
|
|
|
230 |
|
Debit card processing |
|
|
135 |
|
|
|
122 |
|
Charitable donations |
|
|
329 |
|
|
|
176 |
|
Telephone |
|
|
138 |
|
|
|
110 |
|
Foreclosed real estate including gain (loss) on sales |
|
|
73 |
|
|
|
40 |
|
Impaired loan carrying costs |
|
|
196 |
|
|
|
34 |
|
Other |
|
|
410 |
|
|
|
516 |
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
6,084 |
|
|
|
5,808 |
|
|
|
|
|
|
|
|
Income before income taxes (benefit) |
|
|
2,117 |
|
|
|
867 |
|
Provision (benefit) for income taxes |
|
|
406 |
|
|
|
(96 |
) |
|
|
|
|
|
|
|
Net income |
|
|
1,711 |
|
|
|
963 |
|
Preferred stock dividends and discount accretion |
|
|
245 |
|
|
|
223 |
|
|
|
|
|
|
|
|
Net income available to common shareholders |
|
$ |
1,466 |
|
|
$ |
740 |
|
|
|
|
|
|
|
|
Net income per common share, basic and diluted |
|
$ |
0.36 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
|
See accompanying notes.
- 4 -
Codorus Valley Bancorp, Inc.
Consolidated Statements of Cash Flows
Unaudited
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
(dollars in thousands) |
|
2010 |
|
|
2009 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,711 |
|
|
$ |
963 |
|
Adjustments to reconcile net income to net cash provided by (used in) operations: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
345 |
|
|
|
353 |
|
Provision for loan losses |
|
|
720 |
|
|
|
244 |
|
Amortization of investment in real estate partnership |
|
|
141 |
|
|
|
135 |
|
Increase in cash surrender value of life insurance investment |
|
|
(158 |
) |
|
|
(163 |
) |
Originations of loans held for sale |
|
|
(9,434 |
) |
|
|
(20,536 |
) |
Proceeds from sales of loans held for sale |
|
|
9,471 |
|
|
|
18,455 |
|
Gain on sales of loans held for sale |
|
|
(144 |
) |
|
|
(167 |
) |
Gain on sales of securities available-for-sale |
|
|
|
|
|
|
(163 |
) |
Gain on sales of held for sale assets |
|
|
(35 |
) |
|
|
|
|
Gain on sales of foreclosed real estate |
|
|
(122 |
) |
|
|
|
|
Stock-based compensation expense |
|
|
46 |
|
|
|
55 |
|
Decrease (increase) in accrued interest receivable |
|
|
102 |
|
|
|
(241 |
) |
Increase in other assets |
|
|
(420 |
) |
|
|
(466 |
) |
Increase in accrued interest payable |
|
|
20 |
|
|
|
205 |
|
Decrease in other liabilities |
|
|
(216 |
) |
|
|
|
|
Other, net |
|
|
296 |
|
|
|
106 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
2,323 |
|
|
|
(1,220 |
) |
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Securities, available-for-sale |
|
|
|
|
|
|
|
|
Purchases |
|
|
(3,488 |
) |
|
|
(74,984 |
) |
Maturities, repayments and calls |
|
|
7,569 |
|
|
|
5,666 |
|
Sales |
|
|
|
|
|
|
5,505 |
|
Net increase in restricted investment in bank stock |
|
|
|
|
|
|
(1,570 |
) |
Net increase in loans made to customers |
|
|
(6,901 |
) |
|
|
(16,811 |
) |
Purchases of premises and equipment |
|
|
(235 |
) |
|
|
(337 |
) |
Proceeds from sales of held for sale assets |
|
|
542 |
|
|
|
|
|
Proceeds from sales of foreclosed real estate |
|
|
5,966 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
3,453 |
|
|
|
(82,531 |
) |
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net increase in demand and savings deposits |
|
|
13,845 |
|
|
|
20,608 |
|
Net increase in time deposits |
|
|
526 |
|
|
|
31,606 |
|
Net decrease in short-term borrowings |
|
|
(387 |
) |
|
|
(16,608 |
) |
Proceeds from issuance of long-term debt |
|
|
|
|
|
|
66,000 |
|
Repayment of long-term debt |
|
|
(15,312 |
) |
|
|
(299 |
) |
Cash dividends paid to preferred shareholders |
|
|
(206 |
) |
|
|
(83 |
) |
Cash dividends paid to common shareholders |
|
|
(122 |
) |
|
|
(482 |
) |
Net proceeds from issuance of preferred stock and common stock warrants |
|
|
|
|
|
|
16,461 |
|
Issuance of common stock |
|
|
27 |
|
|
|
85 |
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(1,629 |
) |
|
|
117,288 |
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
4,147 |
|
|
|
33,537 |
|
Cash and cash equivalents at beginning of year |
|
|
26,179 |
|
|
|
14,875 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
30,326 |
|
|
$ |
48,412 |
|
|
|
|
|
|
|
|
See accompanying notes.
- 5 -
Codorus Valley Bancorp, Inc.
Consolidated Statements of Changes in Shareholders Equity
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Preferred |
|
|
Common |
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
|
|
(dollars in thousands, except share data) |
|
Stock |
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
Income |
|
|
Total |
|
|
For the three months ended March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2010 |
|
$ |
15,828 |
|
|
$ |
10,187 |
|
|
$ |
37,004 |
|
|
$ |
6,592 |
|
|
$ |
2,401 |
|
|
$ |
72,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,711 |
|
|
|
|
|
|
|
1,711 |
|
Other comprehensive gain, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on securities, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
457 |
|
|
|
457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock discount accretion |
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
(39 |
) |
|
|
|
|
|
|
|
|
Common stock cash dividends ($0.03 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(122 |
) |
|
|
|
|
|
|
(122 |
) |
Preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(206 |
) |
|
|
|
|
|
|
(206 |
) |
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
46 |
|
Issuance of common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,774 shares under dividend reinvestment
and stock purchase plan |
|
|
|
|
|
|
12 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2010 |
|
$ |
15,867 |
|
|
$ |
10,199 |
|
|
$ |
37,065 |
|
|
$ |
7,936 |
|
|
$ |
2,858 |
|
|
$ |
73,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2009 |
|
$ |
|
|
|
$ |
10,043 |
|
|
$ |
35,877 |
|
|
$ |
5,057 |
|
|
$ |
1,204 |
|
|
$ |
52,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
963 |
|
|
|
|
|
|
|
963 |
|
Other comprehensive loss, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on securities, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(313 |
) |
|
|
(313 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock and common stock warrants
issued, net of issuance costs of $39 |
|
|
15,678 |
|
|
|
|
|
|
|
783 |
|
|
|
|
|
|
|
|
|
|
|
16,461 |
|
Preferred stock discount accretion |
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
(35 |
) |
|
|
|
|
|
|
|
|
Common stock cash dividends ($0.12 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(482 |
) |
|
|
|
|
|
|
(482 |
) |
Preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(83 |
) |
|
|
|
|
|
|
(83 |
) |
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
55 |
|
Issuance of common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,321 shares under dividend reinvestment
and stock purchase plan |
|
|
|
|
|
|
28 |
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2009 |
|
$ |
15,713 |
|
|
$ |
10,071 |
|
|
$ |
36,772 |
|
|
$ |
5,420 |
|
|
$ |
891 |
|
|
$ |
68,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
- 6 -
Notes to Consolidated Financial Statements (Unaudited)
Note 1Basis of Presentation
The accompanying consolidated balance sheet at December 31, 2009 has been derived from audited
financial statements and the unaudited interim financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of America for
interim financial information, the instructions to Form 10-Q, and FASB Accounting Standards
Codification (ASC) 270. Accordingly, the interim financial statements do not include all of the
financial information and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, the interim financial statements
include all adjustments necessary to present fairly the financial condition and results of
operations for the reported periods, and are of a normal and recurring nature.
These statements should be read in conjunction with the notes to the audited financial statements
contained in the Corporations Annual Report on Form 10-K for the year ended December 31, 2009.
The consolidated financial statements include the accounts of Codorus Valley Bancorp, Inc. and its
wholly owned bank subsidiary, PeoplesBank, A Codorus Valley Company (PeoplesBank), and its wholly
owned nonbank subsidiary, SYC Realty Company, Inc. (collectively referred to as Codorus Valley or
the Corporation). PeoplesBank has four wholly owned subsidiaries, Codorus Valley Financial
Advisors, Inc. and SYC Settlement Services, Inc. and two subsidiaries whose purpose is to
temporarily hold foreclosed properties pending eventual liquidation. All significant intercompany
account balances and transactions have been eliminated in consolidation. The combined results of
operations of the nonbank subsidiaries are not material to the consolidated financial statements.
The results of operations for the three-month period ended March 31, 2010 are not necessarily
indicative of the results to be expected for the full year.
In accordance with FASB ASC 855, the Corporation evaluated the events and transactions that
occurred after the balance sheet date of March 31, 2010, but before the financial statements were
issued for potential recognition or disclosure. In preparing these financial statements, the
Corporation evaluated the events and transactions that occurred from March 31, 2010 through the
date these financial statements were issued.
Note 2Significant Accounting Policies
Per Share Computations
The weighted average number of shares of common stock outstanding used for basic and diluted
calculations are provided below:
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
(in thousands, except per share data) |
|
2010 |
|
|
2009 |
|
Net income available to common shareholders |
|
$ |
1,466 |
|
|
$ |
740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding (basic) |
|
|
4,077 |
|
|
|
4,023 |
|
Effect of dilutive stock options |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
Weighted average shares outstanding (diluted) |
|
|
4,077 |
|
|
|
4,024 |
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per common share |
|
$ |
0.36 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
|
|
|
Anti-dilutive stock options and
common stock warrants excluded from
the computation of earnings per share |
|
|
486 |
|
|
|
454 |
|
- 7 -
Comprehensive Income
Accounting principles generally accepted in the United States of America require that recognized
revenue, expenses, gains and losses be included in net income. Although certain changes in assets
and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported
as a separate component of the equity section of the balance sheet, such items, along with net
income, are components of comprehensive income. The components of other comprehensive income
(loss) and related tax effects are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
(dollars in thousands) |
|
2010 |
|
|
2009 |
|
Unrealized holding gains (losses) arising during
the period |
|
$ |
692 |
|
|
$ |
(638 |
) |
Reclassification adjustment for gains included in
income |
|
|
|
|
|
|
(163 |
) |
|
|
|
|
|
|
|
Net unrealized gains (losses) |
|
|
692 |
|
|
|
(475 |
) |
Tax effect |
|
|
(235 |
) |
|
|
162 |
|
|
|
|
|
|
|
|
Net of tax amount |
|
$ |
457 |
|
|
$ |
(313 |
) |
|
|
|
|
|
|
|
Cash Flow Information
For purposes of the statements of cash flows, the Corporation considers interest bearing deposits
with banks, cash and due from banks, and federal funds sold to be cash and cash equivalents.
Noncash items for the three-month period ended March 31, 2010 consisted of the transfer of loans to
foreclosed real estate in the amount of $3,298,000. Comparatively, for the three-month period
ended March 31, 2009 noncash transfers included the transfer of loans to foreclosed real estate in
the amount of $699,000 and the transfer of loans held for sale to investment in the amount of
$1,829,000.
Supplemental Benefit Plans
In January 2009, the Corporation incurred a non-recurring cost of $242,000 to restructure employee
benefit plans. Restructuring the benefit plans resulted in a federal income tax benefit so that
the overall transaction had an insignificant impact on net income.
Income Taxes
The provision for income tax for the first quarter 2009 was a $96,000 credit (benefit) which
included a federal income tax benefit of $242,000 associated with restructuring employee benefit
plans.
Recent Accounting Pronouncements
The FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820) Improving
Disclosures about Fair Value Measurements. The amendments in this Update require some new
disclosures and clarify some existing disclosure requirements about fair value measurement as set
forth in Codification Subtopic 820-10. Specifically, ASU 2010-06 amends Codification Subtopic
820-10 to now require:
|
|
|
A reporting entity should disclose separately the amounts of significant transfers in
and out of Level 1 and Level 2 fair value measurements and describe the reasons for the
transfers; and |
|
|
|
In the reconciliation for fair value measurements using significant unobservable inputs,
a reporting entity should present separately information about purchases, sales, issuances,
and settlements. |
- 8 -
In addition, ASU 2010-06 clarifies the requirements of the following existing disclosures:
|
|
|
For purposes of reporting fair value measurement for each class of assets and
liabilities, a reporting entity needs to use judgment in determining the appropriate
classes of assets and liabilities; and |
|
|
|
A reporting entity should provide disclosures about the valuation techniques and inputs
used to measure fair value for both recurring and nonrecurring fair value measurements. |
The Corporation adopted the update, except for disclosures about purchases, sales and issuances,
and settlements in the roll forward of activity in Level 3 fair value measurements, which is
effective for fiscal years beginning after December 15, 2010. The adoption of the Update did not
have an effect on the Corporations financial position or results of operations.
The FASB issued ASU 2009-16, Transfers and Servicing (Topic 860) Accounting for Transfers of
Financial Assets an amendment of FASB Statement 140. The amendments in the Update improve
financial reporting by eliminating the exceptions for qualifying special-purpose entities from
consolidation guidance and the exception that permitted sale accounting for certain mortgage
securitizations when a transferor has not surrendered control over the transferred financial
assets. In addition, the amendments require enhanced disclosures about the risks that a transferor
continues to be exposed to because of its continuing involvement in transferred financial assets.
Comparability and consistency in accounting for transferred financial assets will also be improved
through clarifications of the requirements for isolation and limitations on portions of financial
assets that are eligible for sale accounting. The Corporation adopted the update, and it did not
have an effect on its financial position or results of operations.
In November 2008, the SEC released a proposed roadmap regarding the potential use by U.S. issuers
of financial statements prepared in accordance with International Financial Reporting Standards
(IFRS). IFRS is a comprehensive series of accounting standards published by the International
Accounting Standards Board (IASB). Under the proposed roadmap, the Company may be required to
prepare financial statements in accordance with IFRS as early as 2015. The SEC will make a
determination in 2011 regarding the mandatory adoption of IFRS. The Corporation is currently
assessing the impact that this potential change would have on its consolidated financial
statements, and it will continue to monitor the development of the potential implementation of
IFRS.
Note 3Securities Available-for-Sale
A summary of available-for-sale securities at March 31, 2010 and December 31, 2009 is provided
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
Amortized |
|
|
Gross Unrealized |
|
|
Fair |
|
(dollars in thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. agency |
|
$ |
15,057 |
|
|
$ |
109 |
|
|
$ |
(12 |
) |
|
$ |
15,154 |
|
U. S. agency mortgage-backed |
|
|
77,438 |
|
|
|
2,458 |
|
|
|
|
|
|
|
79,896 |
|
State and municipal |
|
|
72,746 |
|
|
|
1,945 |
|
|
|
(170 |
) |
|
|
74,521 |
|
Corporate trust preferred |
|
|
987 |
|
|
|
1 |
|
|
|
|
|
|
|
988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
securities,
available-for-sale |
|
$ |
166,228 |
|
|
$ |
4,513 |
|
|
$ |
(182 |
) |
|
$ |
170,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. agency |
|
$ |
13,526 |
|
|
$ |
120 |
|
|
$ |
|
|
|
$ |
13,646 |
|
U. S. agency mortgage-backed |
|
|
82,579 |
|
|
|
1,715 |
|
|
|
(34 |
) |
|
|
84,260 |
|
State and municipal |
|
|
73,446 |
|
|
|
2,059 |
|
|
|
(164 |
) |
|
|
75,341 |
|
Corporate trust preferred |
|
|
987 |
|
|
|
|
|
|
|
(57 |
) |
|
|
930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
securities,
available-for-sale |
|
$ |
170,538 |
|
|
$ |
3,894 |
|
|
$ |
(255 |
) |
|
$ |
174,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 9 -
The amortized cost and estimated fair value of debt securities at March 31, 2010 by contractual
maturity are shown below. Actual maturities may differ from contractual maturities if call options
on select debt issues are exercised in the future. Mortgage-backed securities are included in the
maturity categories based on average expected life.
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
|
Amortized |
|
|
Fair |
|
(dollars in thousands) |
|
Cost |
|
|
Value |
|
Due in one year or less |
|
$ |
4,369 |
|
|
$ |
4,396 |
|
Due after one year through five years |
|
|
111,765 |
|
|
|
115,157 |
|
Due after five years through ten years |
|
|
44,392 |
|
|
|
45,328 |
|
Due after ten years |
|
|
5,702 |
|
|
|
5,678 |
|
|
|
|
|
|
|
|
Total debt securities |
|
$ |
166,228 |
|
|
$ |
170,559 |
|
|
|
|
|
|
|
|
Gross gains realized from the sale of available-for-sale securities were $0 and $163,000 for the
three months ended March 31, 2010 and 2009, respectively. Realized gains and losses from the sale
of available-for-sale securities are computed on the basis of specific identification of the
adjusted cost of each security and are shown net as a separate line item in the income statement.
Securities, issued by agencies of the federal government, with a carrying value of $86,244,000 and
$84,460,000 on March 31, 2010 and December 31, 2009, respectively, were pledged to secure public
funds, trust deposits, repurchase agreements and Federal Home Loan Bank debt.
The table below shows investments gross unrealized losses and fair value, aggregated by investment
category and length of time that individual securities have been in a continuous unrealized loss
position, at March 31, 2010 and December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
(dollars in thousands) |
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency |
|
$ |
3,021 |
|
|
$ |
12 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,021 |
|
|
$ |
12 |
|
State and municipal |
|
|
11,841 |
|
|
|
145 |
|
|
|
1,054 |
|
|
|
25 |
|
|
|
12,895 |
|
|
|
170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily
impaired debt
securities |
|
$ |
14,862 |
|
|
$ |
157 |
|
|
$ |
1,054 |
|
|
$ |
25 |
|
|
$ |
15,916 |
|
|
$ |
182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency mortgage-backed |
|
$ |
8,656 |
|
|
$ |
34 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
8,656 |
|
|
$ |
34 |
|
State and municipal |
|
|
10,607 |
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
|
10,607 |
|
|
|
164 |
|
Corporate trust preferred |
|
|
|
|
|
|
|
|
|
|
930 |
|
|
|
57 |
|
|
|
930 |
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily
impaired debt
securities |
|
$ |
19,263 |
|
|
$ |
198 |
|
|
$ |
930 |
|
|
$ |
57 |
|
|
$ |
20,193 |
|
|
$ |
255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2010, the unrealized losses within the less than 12 months category of $157,000
was attributable to twenty-five different securities, primarily municipalities, and $25,000 in the
12 months or more category was attributed to two different municipal securities.
- 10 -
In April 2009, the FASB issued FASB ASC Topic 320. This guidance clarifies the interaction of the
factors that should be considered when determining whether a debt security is
other-than-temporarily impaired. For debt securities, the Corporation must assess whether (a) it
has the intent to sell the security and (b) it is more likely than not that it will be required to
sell the security prior to its anticipated recovery. These steps are done before assessing whether
the entity will recover the cost basis of the investment. Previously, this assessment required the
Corporation to assert it has both the intent and the ability to hold a security for a period of
time sufficient to allow for an anticipated recovery in fair value to avoid recognizing an
other-than-temporary impairment. This change does not affect the need to forecast recovery of the
value of the security through either cash flows or market price.
In instances when a determination is made that an other-than-temporary impairment exists but the
Corporation does not intend to sell the debt security and it is unlikely that the Corporation will
be required to sell the debt security prior to its anticipated recovery, FASB ASC Topic 320 changes
the presentation and amount of the other-than-temporary impairment recognized in the income
statement. The other-than-temporary impairment is separated into (a) the amount of the total
other-than-temporary impairment related to a decrease in cash flows expected to be collected from
the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment
related to all other factors. The amount of the total other-than-temporary impairment related to
the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment
related to all other factors is recognized in other comprehensive income. FASB ASC Topic 320 was
effective for the Corporation for interim and annual reporting periods ending after June 15, 2009
and thereafter.
Available-for-sale and held-to-maturity securities are analyzed quarterly for possible
other-than-temporary impairment. The analysis considers, among other factors: 1) whether the
Corporation has the intent to sell its securities prior to market recovery or maturity; 2) whether
it is more likely than not that the Corporation will
be required to sell its securities prior to market recovery or maturity; 3) default rates/history
by security type; 4) third-party securities ratings; 5) third-party guarantees; 6) subordination;
7) payment delinquencies; and 8) current financial news.
We believe that unrealized losses at March 31, 2010 were primarily the result of changes in market
interest rates and that we have the ability to hold these investments for a time necessary to
recover the amortized cost. To date, we have collected all interest and principal on our
investment securities as scheduled. We
believe that collection of the contractual principal and interest is probable and therefore, all
impairment is considered to be temporary.
Note 4Restricted Investment in Bank Stocks
Restricted stock, which represents required investments in the common stock of correspondent banks,
is carried at cost and as of March 31, 2010 and December 31, 2009 and consists primarily of the
common stock of FHLB of Pittsburgh (FHLB) and to a lesser degree Atlantic Central Bankers Bank
(ACBB). Under the FHLBs Capital Plan, PeoplesBank is required to maintain a minimum member stock
investment, both as a condition of becoming and remaining a member and as a condition of obtaining
loans from the FHLB. In December 2008, the FHLB notified member banks that it was suspending
dividend payments and the repurchase of capital stock.
We evaluate the restricted stock for impairment in accordance with FASB ASC Topic 942. Our
determination of whether these investments are impaired is based on their assessment of the
ultimate recoverability of their cost rather than by recognizing temporary declines in value. The
determination of whether a decline affects the ultimate recoverability of their cost is influenced
by criteria such as: (1) the significance of the decline in net assets of the FHLB as compared to
the capital stock amount for the FHLB and the length of time this situation has persisted, (2)
commitments by the FHLB to make payments required by law or regulation and the level of such
payments in relation to the operating performance of the FHLB, and (3) the impact of legislative
and regulatory changes on institutions and, accordingly, on the customer base of the FHLB. We
believe that no impairment charge was necessary related to the restricted stock as of March 31,
2010.
- 11 -
Note 5Loans
The composition of the loan portfolio was as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(dollars in thousands) |
|
2010 |
|
|
2009 |
|
Commercial, financial and agricultural |
|
$ |
425,059 |
|
|
$ |
415,404 |
|
Real estate construction and land development |
|
|
100,000 |
|
|
|
104,986 |
|
|
|
|
|
|
|
|
Total commercial related loans |
|
|
525,059 |
|
|
|
520,390 |
|
Real estate residential and home equity |
|
|
72,829 |
|
|
|
73,294 |
|
Consumer |
|
|
51,348 |
|
|
|
52,193 |
|
|
|
|
|
|
|
|
Total consumer related loans |
|
|
124,177 |
|
|
|
125,487 |
|
|
|
|
|
|
|
|
Total loans |
|
$ |
649,236 |
|
|
$ |
645,877 |
|
|
|
|
|
|
|
|
Note 6Deposits
The composition of deposits was as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(dollars in thousands) |
|
2010 |
|
|
2009 |
|
Noninterest bearing demand |
|
$ |
56,830 |
|
|
$ |
55,583 |
|
NOW |
|
|
57,301 |
|
|
|
55,010 |
|
Money market |
|
|
193,807 |
|
|
|
186,873 |
|
Savings |
|
|
26,881 |
|
|
|
23,508 |
|
Time deposits less than $100,000 |
|
|
238,916 |
|
|
|
238,594 |
|
Time deposits $100,000 or more |
|
|
163,593 |
|
|
|
163,389 |
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
737,328 |
|
|
$ |
722,957 |
|
|
|
|
|
|
|
|
Note 7Long-term Debt
PeoplesBanks obligations to the Federal Home Loan Bank of Pittsburgh (FHLBP) are primarily fixed
rate instruments. A summary of long-term debt at March 31, 2010 and December 31, 2009, is provided
below:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(dollars in thousands) |
|
2010 |
|
|
2009 |
|
Obligations of PeoplesBank to FHLBP: |
|
|
|
|
|
|
|
|
Due February 2010, 1.55% |
|
|
|
|
|
|
15,000 |
|
Due June 2010, 4.32% |
|
|
6,000 |
|
|
|
6,000 |
|
Due January 2011, 2.06% |
|
|
14,000 |
|
|
|
14,000 |
|
Due January 2011, 4.30%, amortizing |
|
|
3,602 |
|
|
|
3,676 |
|
Due August 2011, 2.42% |
|
|
12,000 |
|
|
|
12,000 |
|
Due January 2012, 2.34% |
|
|
10,000 |
|
|
|
10,000 |
|
Due June 2012, 4.25%, amortizing |
|
|
854 |
|
|
|
948 |
|
Due December 2012, 1.91% |
|
|
5,000 |
|
|
|
5,000 |
|
Due May 2013, 3.46%, amortizing |
|
|
1,774 |
|
|
|
1,906 |
|
Due December 2013, 2.39% |
|
|
5,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
58,230 |
|
|
|
73,530 |
|
Capital lease obligation |
|
|
430 |
|
|
|
442 |
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
58,660 |
|
|
$ |
73,972 |
|
|
|
|
|
|
|
|
- 12 -
Note 8Regulatory Matters
Codorus Valley and PeoplesBank are subject to various regulatory capital requirements administered
by banking regulators. Failure to meet minimum capital requirements can initiate certain mandatory
and possible additional discretionary actions by regulators that, if undertaken, could have a
material effect on Codorus Valleys financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, Codorus Valley and PeoplesBank must meet
specific capital guidelines that involve quantitative measures of assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices. The capital amounts
and classifications are also subject to qualitative judgments by the regulators.
Quantitative measures established by regulators to ensure capital adequacy require Codorus Valley
and PeoplesBank to maintain minimum ratios, as set forth below, to total and Tier 1 capital as a
percentage of risk-weighted assets, and of Tier 1 capital to quarter-to-date average assets
(leverage ratio). We believe that Codorus Valley and PeoplesBank were well capitalized on March
31, 2010, based on FDIC capital guidelines.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum for |
|
|
Well Capitalized |
|
|
|
Actual |
|
|
Capital Adequacy |
|
|
Minimum* |
|
(dollars in thousands) |
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
Codorus Valley Bancorp, Inc. (consolidated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 risk based |
|
$ |
80,751 |
|
|
|
12.03 |
% |
|
$ |
26,839 |
|
|
|
4.00 |
% |
|
|
n/a |
|
|
|
n/a |
|
Total risk based |
|
|
88,462 |
|
|
|
13.18 |
|
|
|
53,679 |
|
|
|
8.00 |
|
|
|
n/a |
|
|
|
n/a |
|
Leverage |
|
|
80,751 |
|
|
|
9.13 |
|
|
|
35,386 |
|
|
|
4.00 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 risk based |
|
$ |
79,286 |
|
|
|
11.83 |
% |
|
$ |
26,810 |
|
|
|
4.00 |
% |
|
|
n/a |
|
|
|
n/a |
|
Total risk based |
|
|
86,461 |
|
|
|
12.90 |
|
|
|
53,620 |
|
|
|
8.00 |
|
|
|
n/a |
|
|
|
n/a |
|
Leverage |
|
|
79,286 |
|
|
|
9.11 |
|
|
|
34,815 |
|
|
|
4.00 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PeoplesBank, A Codorus Valley Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 risk based |
|
$ |
76,463 |
|
|
|
11.46 |
% |
|
$ |
26,678 |
|
|
|
4.00 |
% |
|
$ |
40,018 |
|
|
|
6.00 |
% |
Total risk based |
|
|
84,174 |
|
|
|
12.62 |
|
|
|
53,357 |
|
|
|
8.00 |
|
|
|
66,696 |
|
|
|
10.00 |
|
Leverage |
|
|
76,463 |
|
|
|
8.69 |
|
|
|
35,212 |
|
|
|
4.00 |
|
|
|
44,015 |
|
|
|
5.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 risk based |
|
$ |
74,945 |
|
|
|
11.25 |
% |
|
$ |
26,647 |
|
|
|
4.00 |
% |
|
$ |
39,970 |
|
|
|
6.00 |
% |
Total risk based |
|
|
82,120 |
|
|
|
12.33 |
|
|
|
53,293 |
|
|
|
8.00 |
|
|
|
66,616 |
|
|
|
10.00 |
|
Leverage |
|
|
74,945 |
|
|
|
8.66 |
|
|
|
34,601 |
|
|
|
4.00 |
|
|
|
43,251 |
|
|
|
5.00 |
|
|
|
|
* |
|
To be well capitalized under prompt corrective action provisions. |
Note 9Shareholders Equity
Preferred Stock Issued to the United States Department of the Treasury
In connection with the Emergency Economic Stabilization Act of 2008 (EESA), the U.S. Treasury
Department (Treasury) initiated a Capital Purchase Program (CPP) which allowed for qualifying
financial institutions to issue preferred stock to the Treasury, subject to certain limitations and
terms. The EESA was developed to attract broad participation by strong financial institutions, to
stabilize the financial system and increase lending to benefit the national economy and citizens of
the United States.
- 13 -
On January 9, 2009, the Corporation entered into a Securities Purchase Agreement with the Treasury
pursuant to which the Corporation sold to the Treasury, for an aggregate purchase price of $16.5
million, 16,500 shares of non-voting cumulative perpetual preferred stock, $1,000 liquidation
value, $2.50 par value, and warrants to purchase up to 263,859 shares of common stock, par value
$2.50 per share, with an exercise price of $9.38 per share. As a condition under the CPP, without
the consent of the Treasury, the Corporations share repurchases are limited to purchases in
connection with the administration of any employee benefit plan, including purchases to offset
share dilution in connection with any such plans. This restriction is effective until January 9,
2012 or until the Treasury no longer owns any of the Corporations preferred shares issued under
the CPP. The Corporations preferred stock is included as a component of Tier 1 capital in
accordance with regulatory capital requirements. See Note 8, Regulatory Matters for details of
the Corporations regulatory capital.
The preferred stock ranks senior to the Corporations common shares and pays a compounded
cumulative dividend at a rate of 5 percent per year for the first five years, and 9 percent per
year thereafter. Dividends are payable quarterly on February 15th, May 15th, August 15th and
November 15th. The Corporation is prohibited from paying any dividend with respect to shares of
common stock or repurchasing or redeeming any shares of the Corporations common shares in any
quarter unless all accrued and unpaid dividends are paid on the preferred stock for all past
dividend periods (including the latest completed dividend period), subject to certain limited
exceptions. In addition, without the prior consent of the Treasury, the Corporation is prohibited
from declaring or paying any cash dividends on common shares in excess of $0.12 per share, which
was the last quarterly cash dividend per share declared prior to October 14, 2008. The CPP also
places restrictions on incentive compensation to senior executives. The preferred stock is
non-voting, other than class voting rights on matters that could adversely affect the preferred
stock, and is generally redeemable at the liquidation value at any time in whole or in part (i.e.,
a minimum of 25 percent of the issue price) with regulatory permission.
Common Stock Warrants
The 263,859 shares of common stock warrants issued to the Treasury have a term of 10 years
(expiring January 9, 2019) and are exercisable at any time, in whole or in part, at an exercise
price of $9.38 per share (subject to certain anti-dilution adjustments). The $16.5 million of
proceeds was allocated to the preferred stock and the warrants based on their relative fair values
at issuance ($15.7 million was allocated to the preferred stock and $783,000 to the warrants). The
fair value of the preferred stock was based on a 10 percent assumed market discount rate. The fair
value of the stock warrants was calculated by a third-party software model based on many financial
assumptions including market price of the stock, stock price volatility and risk free interest
rate. The difference between the initial value allocated to the preferred stock of approximately
$15.7 million and the liquidation value of $16.5 million, i.e., the preferred stock discount, will
be charged to retained earnings over the first five years of the contract as an adjustment to the
dividend yield using the effective yield method.
Note 10Contingent Liabilities
We are not aware of any material contingent liabilities on March 31, 2010.
- 14 -
Note 11Guarantees
Codorus Valley does not issue any guarantees that would require liability recognition or
disclosure, other than its standby letters of credit. Standby letters of credit are written
conditional commitments issued by PeoplesBank to guarantee the performance of a customer to a third
party. Generally, all letters of credit, when issued, have expiration dates within one year. The
credit risk involved in issuing letters of credit is essentially the same as those that are
involved in extending loan facilities to customers. The Corporation generally holds collateral
and/or personal guarantees supporting these commitments. The Corporation had $6,132,000 of standby
letters of credit outstanding on March 31, 2010, compared to $5,651,000 on December 31, 2009.
Management believes that the proceeds obtained through a liquidation of collateral and the
enforcement of guarantees would be sufficient to cover the potential amount of future payment
required under the corresponding letters of credit. The amount of the liability as of March 31,
2010 and December 31, 2009, for guarantees under standby letters of credit issued, was not
material. Many of the commitments are expected to expire without being drawn and therefore,
generally do not present significant liquidity risk to the Corporation or PeoplesBank.
Note 12Fair Value Measurements and Fair Values of Financial Instruments
We use our best judgment in estimating the fair value of the Corporations financial instruments;
however, there are inherent weaknesses in any estimation technique. Therefore, for substantially
all financial instruments, the fair value estimates herein are not necessarily indicative of the
amounts that could be
realized in sales transactions on the dates indicated. The estimated fair value amounts have been
measured as of their respective year-ends and have not been re-evaluated or updated for purposes of
these financial statements subsequent to those respective dates. As such, the estimated fair
values of these financial instruments subsequent to the respective reporting dates may be different
than the amounts reported at each period end.
Fair value measurement guidance defines fair value as the price that would be received to sell the
asset or transfer the liability in an orderly transaction (that is, not a forced liquidation or
distressed sale) between market participants at the measurement date under current market
conditions. Additional guidance is provided on determining when the volume and level of activity
for the asset or liability has significantly decreased and on identifying circumstances when a
transaction may not be considered orderly.
Fair value measurement and disclosure guidance provides a list of factors that a reporting entity
should evaluate to determine whether there has been a significant decrease in the volume and level
of activity for the asset or liability in relation to normal market activity for the asset or
liability. When the reporting entity concludes there has been a significant decrease in the volume
and level of activity for the asset or liability, further analysis of the information from that
market is needed, and significant adjustments to the related prices may be necessary to estimate
fair value in accordance with fair value measurement and disclosure guidance.
This guidance further clarifies that, when there has been a significant decrease in the volume and
level of activity for the asset or liability, some transactions may not be orderly. In those
situations, the entity must evaluate the weight of the evidence to determine whether the
transaction is orderly. The guidance provides a list of circumstances that may indicate that a
transaction is not orderly. A transaction price that is not associated with an orderly transaction
is given little, if any, weight when estimating fair value.
Fair value and disclosure guidance establishes a fair value hierarchy that prioritizes the inputs
to valuation methods used to measure fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three
levels of the fair value hierarchy are as follows:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement
date for identical, unrestricted assets or liabilities.
Level 2: Quoted prices in markets that are not active, or inputs that are observable either
directly or indirectly, for substantially the full term of the asset or liability.
Level 3: Prices or valuation techniques that require inputs that are both significant to the
fair value measurement and unobservable (i.e. supported with little or no market activity).
- 15 -
An assets or liabilitys level within the fair value hierarchy is based on the lowest level of
input that is significant to the fair value measurement.
For financial assets measured at fair value, the fair value measurements by level within the fair
value hierarchy are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant Other |
|
|
Significant Other |
|
|
|
|
|
|
|
Active Markets for |
|
|
Observable |
|
|
Unobservable |
|
(dollars in thousands) |
|
Total |
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured at fair value on a recurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale |
|
$ |
170,559 |
|
|
$ |
|
|
|
$ |
170,559 |
|
|
$ |
|
|
Measured at fair value on a nonrecurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
|
5,351 |
|
|
|
|
|
|
|
|
|
|
|
5,351 |
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured at fair value on a recurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale |
|
$ |
174,177 |
|
|
$ |
|
|
|
$ |
174,177 |
|
|
$ |
|
|
Measured at fair value on a nonrecurring basis: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
|
5,427 |
|
|
|
|
|
|
|
|
|
|
|
5,427 |
|
Other real estate owned |
|
|
668 |
|
|
|
|
|
|
|
|
|
|
|
668 |
|
The following information should not be interpreted as an estimate of the fair value of the
entire Corporation since a fair value calculation is only provided for a limited portion of the
Corporations assets and liabilities. Due to a wide range of valuation techniques and the degree
of subjectivity used in making the estimates, comparisons between the Corporations disclosures and
those of other companies may not be meaningful. The following methods and assumptions were used to
estimate the fair values of the Corporations financial instruments and certain nonfinancial assets
at March 31, 2010 and December 31, 2009:
Cash and cash equivalents (carried at cost)
The carrying amounts reported in the balance sheet for cash and short-term instruments approximate
those assets fair values.
Securities, available-for-sale
The fair values of securities available-for-sale (carried at fair value) are determined by
obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix
pricing (Level 2), which is a mathematical technique used widely in the industry to value debt
securities without relying exclusively on quoted market prices for the specific securities but
rather by relying on the securities relationship to other benchmark quoted prices.
Restricted investment in bank stocks (carried at cost)
The carrying amount of restricted investment in bank stocks approximates fair value, and considers
the limited marketability of such securities.
- 16 -
Loans held for sale (carried at lower of cost or fair value)
The fair value of loans held for sale is determined, when possible, using quoted secondary-market
prices. If no such quoted prices exist, the fair value of a loan is determined using quoted prices
for a similar loan or loans, adjusted for the specific attributes of that loan. At March 31, 2010,
the fair value of loans held for sale exceeded the cost basis, therefore, no write-down to fair
value, valuation allowance or charge to earnings were recorded.
Loans (carried at cost)
Generally, for variable and adjustable rate loans that reprice frequently and with no significant
change in credit risk, fair value is based on carrying value. Fair values for other loans in the
portfolio are estimated using discounted cash flow analyses, using market rates at the balance
sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future
cash flows are calculated based upon contractual maturity or call dates, projected repayments and
prepayments of principal.
Impaired loans (generally carried at fair value)
Impaired loans are those that are accounted for under FASB ASC Topic 310, in which the Corporation
has measured impairment generally based on the fair value of the loans collateral. Fair value is
generally determined based upon independent third-party appraisals of the properties, or discounted
cash flows based upon the expected proceeds. A portion of the allowance for loan losses is
allocated to impaired loans if the value of the collateral supporting such loans is deemed to be
less than the unpaid balance. If these allocations cause the allowance for loan losses to require
increase, such increase is reported as a component of the provision for loan losses. Loan losses
are charged against the allowance when management believes that the uncollectability of a loan is
confirmed. These loans are included as Level 3 fair values, based on the lowest level of input
that is significant to the fair value measurements. At March 31, 2010, the fair value of loans
with a specific reserve allowance was $7,677,000, net of a valuation allowance of $2,326,000,
compared to $7,828,000, net of a valuation allowance of $2,401,000 at December 31, 2009. The
specific allowance on impaired loans decreased by $75,000 for the three months ended March 31,
2010, compared to a $5,000 increase for the same period in 2009. These amounts were included in
the provision for loan losses.
Other Real Estate Owned (carried at lower of cost or fair value)
Other real estate property acquired through foreclosure is initially recorded at fair value of the
property at the transfer date less estimated selling cost. Subsequently, other real estate owned is
carried at the lower of its carrying value or the fair value less estimated selling cost. Fair
value is usually determined based upon an independent third-party appraisal of the property or
occasionally upon a recent sales offer. At December 31, 2009, the carrying value of other real
estate, with a valuation allowance recorded subsequent to initial foreclosure, was $857,000, net of
a valuation allowance of $189,000 which was established in the third quarter of 2009. This real
estate was sold in the first quarter of 2010.
Interest receivable and payable (carried at cost)
The carrying amount of interest receivable and interest payable approximates its fair value.
Deposit liabilities (carried at cost)
The fair values disclosed for demand deposits (e.g., noninterest and interest bearing checking,
money market and savings accounts) are, by definition, equal to the amount payable on demand at the
reporting date (i.e., their carrying amounts). Fair values for variable rate time deposits that
reprice frequently are based on carrying value. Fair values for fixed rate time deposits are
estimated using a discounted cash flow calculation that applies interest rates currently being
offered in the market on certificates to a schedule of aggregated expected monthly maturities of
time deposits.
Short-term borrowings (carried at cost)
The carrying amounts of short-term borrowings approximate their fair values.
- 17 -
Long-term debt (carried at cost)
Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted
prices for new FHLB advances with similar credit risk characteristics, terms and remaining
maturity. These prices are obtained from this active market and represent a market value that is
deemed to represent the transfer price if the liability were assumed by a third party.
Junior subordinated debt (carried at cost)
The fair value of junior subordinated debt is estimated using discounted cash flow analysis, based
on market rates and spread characteristics currently offered on such debt with similar credit risk
characteristics, terms and remaining maturity.
Off-balance sheet financial instruments (disclosed at cost)
Fair values for the Corporations off-balance sheet financial instruments (lending commitments and
letters of credit) are based on fees currently charged in the market to enter into similar
agreements, taking into account the remaining terms of the agreements and the counterparties
credit standing. These amounts were not considered to be material at March 31, 2010 and December
31, 2009.
The estimated fair values of the Corporations financial instruments were as follows at March 31,
2010 and December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
Estimated |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
(dollars in thousands) |
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
30,326 |
|
|
$ |
30,326 |
|
|
$ |
26,179 |
|
|
$ |
26,179 |
|
Securities, available-for-sale |
|
|
170,559 |
|
|
|
170,559 |
|
|
|
174,177 |
|
|
|
174,177 |
|
Restricted investment in bank stocks |
|
|
4,277 |
|
|
|
4,277 |
|
|
|
4,277 |
|
|
|
4,277 |
|
Loans held for sale |
|
|
1,373 |
|
|
|
1,402 |
|
|
|
1,266 |
|
|
|
1,293 |
|
Loans, net |
|
|
641,525 |
|
|
|
643,346 |
|
|
|
638,702 |
|
|
|
641,250 |
|
Interest receivable |
|
|
3,325 |
|
|
|
3,325 |
|
|
|
3,427 |
|
|
|
3,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing demand, NOW, money market and savings deposits |
|
$ |
334,819 |
|
|
$ |
334,819 |
|
|
$ |
320,974 |
|
|
$ |
320,974 |
|
Time deposits |
|
|
402,509 |
|
|
|
407,444 |
|
|
|
401,983 |
|
|
|
406,203 |
|
Short-term borrowings |
|
|
8,079 |
|
|
|
8,079 |
|
|
|
8,466 |
|
|
|
8,466 |
|
Long-term debt |
|
|
58,660 |
|
|
|
59,375 |
|
|
|
73,972 |
|
|
|
74,681 |
|
Junior subordinated debt |
|
|
10,310 |
|
|
|
3,690 |
|
|
|
10,310 |
|
|
|
4,331 |
|
Interest payable |
|
|
772 |
|
|
|
772 |
|
|
|
752 |
|
|
|
752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-balance sheet instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 18 -
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
Managements discussion and analysis of the significant changes in the results of operations,
capital resources and liquidity presented in the accompanying consolidated financial statements for
Codorus Valley Bancorp, Inc. (Codorus Valley or the Corporation), a bank holding company, and its
wholly owned subsidiary, PeoplesBank, A Codorus Valley Company (PeoplesBank), are provided below.
Codorus Valleys consolidated financial condition and results of operations consist almost entirely
of PeoplesBanks financial condition and results of operations. Current performance does not
guarantee, and may not be indicative of, similar performance in the future.
Forward-looking statements:
Management of the Corporation has made forward-looking statements in this Form 10-Q. 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 the Form 10-Q, management is making forward-looking statements.
Note that many factors, some of which are discussed elsewhere in this report and in the documents
that are incorporated by reference, 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 or incorporated by
reference in this Form 10-Q. These factors include, but are not limited to, the following:
|
|
operating, legal and regulatory risks; |
|
|
a prolonged economic downturn; |
|
|
an increase in nonperforming assets requiring loss provisions and the incurrence of
carrying costs; |
|
|
declines in the market value of investment securities considered to be other than
temporary; |
|
|
the effect of and changes in the rate of FDIC premiums, including special assessments; |
|
|
interest rate fluctuations which could increase our cost of funds or decrease our yield on
earning assets and therefore reduce our net interest income; |
|
|
future legislative or administrative changes to the TARP Capital Purchase Program; |
|
|
unavailability of capital when needed or available at an excessive cost; |
|
|
political and competitive forces affecting banking, securities, asset management and credit
services businesses; and |
|
|
the risk that managements analysis of these risks and forces could be incorrect and/or
that the strategies developed to address them could be unsuccessful. |
The Corporation undertakes no obligation to publicly revise or update these forward-looking
statements to reflect events or circumstances that arise after the date of this report.
Critical accounting estimates:
Disclosure of Codorus Valleys significant accounting policies is included in Note 1 to the
consolidated financial statements included in the 2009 Annual Report on Form 10-K for the period
ended December 31, 2009. Some of these policies require management to make significant judgments,
estimates and assumptions that have a material impact on the carrying value of certain assets and
liabilities.
- 19 -
We make significant estimates in determining the allowance for loan losses, valuation of foreclosed
real estate, and evaluation of other than temporary impairment losses of securities. We consider a
variety of factors in establishing allowance for loan losses such as current economic conditions,
diversification of the
loan portfolio, delinquency statistics, results of internal loan reviews, financial and managerial
strength of borrowers, adequacy of collateral, if collateral dependent, and present value of future
cash flows and other relevant factors. Foreclosed real estate is initially recorded at fair value
minus estimated costs to sell at the date of foreclosure, establishing a new cost basis. Appraisals
are generally used to determine fair value. After foreclosure, we review valuations at least
quarterly and adjust the asset to the lower of carrying value or fair value minus estimated costs
to sell. Estimates related to the value of collateral also have a significant impact on whether or
not we continue to accrue income on delinquent loans and on the amounts at which foreclosed real
estate is recorded on the balance sheet.
The Corporation records its available-for-sale securities portfolio at fair value. Fair values for
these securities are determined based on methodologies in accordance with FASB ASC 820, and as
clarified by several FASB accounting standard updates. Fair values for debt securities are volatile
and may be influenced by any number of factors, including market interest rates, prepayment speeds,
discount rates, credit ratings and yield curves. Fair values for debt securities are based on
quoted market prices, where available. If quoted market prices are not available, fair values are
based on the quoted prices of similar instruments or an estimate of fair value by using a range of
fair value estimates in the market place as a result of the illiquid market specific to the type of
security. When the fair value of a debt security is below its amortized cost, and depending on the
length of time the condition exists and the extent the fair value is below amortized cost,
additional analysis is performed to determine whether an other-than-temporary impairment condition
exits. Available-for-sale debt securities are analyzed quarterly for possible other-than-temporary
impairment. The analysis considers whether the Corporation has the intent to sell its debt
securities prior to market recovery or maturity and whether it is more likely than not that the
Corporation will be required to sell its debt securities prior to market recovery or maturity.
Often, information available to conduct these assessments is limited and rapidly changing; making
estimates of fair value subject to judgment. If actual information or conditions are different than
estimated, the extent of the impairment of the debt security may be different than previously
estimated, which could have a material effect on the Corporations results of operations and
financial condition.
Management discussed the development and selection of critical accounting estimates and related
Management Discussion and Analysis disclosure with the Audit Committee. There were no material
changes made to the critical accounting estimates during the periods presented within this report.
Additional information is contained in Managements Discussion and Analysis regarding critical
accounting estimates, including the provision and allowance for loan losses, located on pages 22
and 28 of this report.
Three months ended March 31, 2010,
compared to three months ended March 31, 2009
FINANCIAL HIGHLIGHTS
The Corporation earned net income available to common shareholders of $1,466,000 or $0.36 per share
($0.36 diluted) for the three-month period ended March 31, 2010, compared to $740,000 or $0.18 per
share ($0.18 diluted), for the same period of 2009. The $726,000 or 98 percent increase in net
income available to common shareholders was the result of an increase in net interest income, which
more than offset increases in the provision for loan losses and noninterest expense, and a decrease
in noninterest income.
The $2,142,000 or 42 percent increase in net interest income for the current quarter reflected a
larger volume of interest earning assets, principally business loans and investment securities.
Net interest income was also favorably impacted by lower rates paid on deposit products, which
reflected the low level of short-term market interest rates. The net interest margin was 3.69
percent for the first three months of 2010, compared to 2.95 percent for the same period in 2009.
The provision for loan losses for the current period increased $476,000 or 195 percent due to
reserve allocations for specific impaired business loans, continued uncertainty in the economy and
declining commercial real estate values. The $276,000 or 5 percent increase in noninterest expense
was primarily the result of increased carrying costs on impaired loans and foreclosed
real estate, and increased FDIC deposit insurance premiums. The $140,000 or 8 percent decrease in
noninterest income for the current quarter was primarily the result of a $163,000 gain from the
sale of investment securities realized in the first quarter of 2009. No investment securities
gains or losses were realized thus far in 2010.
- 20 -
Total assets were approximately $893 million on March 31, 2010, an increase of $72 million or 9
percent above March 31, 2009. Asset growth occurred primarily in the business loans and investment
securities portfolios, which were funded primarily by an increase in deposits.
Net income as a percentage of average shareholders equity (ROE) was 9.33 percent for the first
three months (annualized) of 2010, compared to 5.70 percent for the same period of 2009. Net income
as a percentage of average total assets (ROA) was 0.77 percent for the first three months
(annualized) of 2010, compared to 0.50 percent for the same period of 2009. The increase in both
ratios for 2010 reflected the increase in earnings. The efficiency ratio (noninterest expense as a
percentage of net interest income plus noninterest income on a tax equivalent basis) was 64.9
percent for the first three months of 2010, compared to 82.1 percent for the same period of 2009.
The favorable decrease in the efficiency ratio during the current period was due to the increase in
net interest income.
On March 31, 2010, the nonperforming assets ratio was 4.30 percent, compared to 5.33 percent for
December 31, 2009, and 2.92 percent for March 31, 2009. Net loan charge-offs for the current three
month period totaled $184,000, compared to $84,000 for the first quarter of 2009. Information
regarding nonperforming assets is provided in the Risk Management section of this report, including
Table 3Nonperforming Assets. Based on a recent evaluation of probable loan losses and the current
loan portfolio, we believe that the allowance is adequate to support losses inherent in the loan
portfolio on March 31, 2010. An analysis of the allowance is provided in Table 4Analysis of
Allowance for Loan Losses.
On March 31, 2010, PeoplesBank exceeded the minimum ratios established by bank regulators for well
capitalized institutions as shown in Note 8Regulatory Matters.
A more detailed analysis of the factors and trends affecting corporate earnings follows.
INCOME STATEMENT ANALYSIS
Net interest income
Net interest income for the three-month period ended March 31, 2010, was $7,238,000, an increase of
$2,142,000 or 42 percent above the first quarter of 2009 due primarily to a decrease in the average
rates paid on deposits. An increase in the average volume of earning assets also contributed to
the increase in net interest income. These factors improved the net interest margin, which was 3.69
percent for the first quarter of this year, compared to 2.95 percent for the first quarter of 2009.
For the first quarter of 2010, total interest income increased $1,266,000 or 14 percent above 2009
due primarily to an increase in the average volume of earning assets. Earning assets averaged $832
million and yielded 5.31 percent (tax equivalent basis) for the current quarter, compared to $730
million and 5.28 percent, respectively, for the first quarter of 2009. The $102 million or 14
percent increase in average earning assets was primarily the result of growth in the business loan
and investment securities portfolios. The increase in investment securities, principally U.S.
agency mortgage-backed bonds and tax-exempt municipal bonds, resulted from a leverage strategy,
which is discussed in the Investment Securities section of this report.
- 21 -
For the first quarter of 2010, total interest expense decreased $876,000 or 21 percent below the
first quarter of 2009 due to a decrease in the average rates paid on deposits. Total interest
bearing liabilities averaged $756 million at an average rate of 1.78 percent for the current
quarter, compared to $652 million and 2.61
percent, respectively, for the first quarter of 2009. The $104 million or 16 percent increase in
average interest bearing liabilities was the result of growth in the average volume of money market
and time deposits. The continued influence of the Federal Reserve Bank to keep market interest
rates low, as a means of stimulating the economy, have helped to lower the Corporations funding
costs. Federally insured bank deposits continue to provide safe haven to our clients who are
concerned about the economy, volatility in the capital markets and the high level of unemployment.
Provision for loan losses
For the quarter ended March 31, 2010, the provision for loan losses was $720,000, compared to
$244,000 for the first quarter of 2009. The current period provision reflected a decline in loan
quality as a result of economic conditions, an increase in net loan growth, depressed real estate
values and a high level of unemployment. Information about loan quality is provided in the
Nonperforming Asset section of this report on page 25.
Noninterest income
The following table presents the components of total noninterest income for the first quarter of
2010, compared to the first quarter of 2009. Total noninterest income decreased $140,000 or 8
percent primarily because the first quarter of 2009 included a $163,000 gain from the sale of
securities. Excluding the securities gain results in an increase of $23,000 or 1 percent of
noninterest income for the current quarter.
Table 1 Noninterest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Change |
|
|
|
March 31, |
|
|
Increase (Decrease) |
|
(dollars in thousands) |
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
Trust and investment services fees |
|
$ |
346 |
|
|
$ |
311 |
|
|
$ |
35 |
|
|
|
11 |
% |
Income from mutual fund, annuity and
insurance sales |
|
|
319 |
|
|
|
346 |
|
|
|
(27 |
) |
|
|
(8 |
) |
Service charges on deposit accounts |
|
|
562 |
|
|
|
525 |
|
|
|
37 |
|
|
|
7 |
|
Income from bank owned life insurance |
|
|
158 |
|
|
|
163 |
|
|
|
(5 |
) |
|
|
(3 |
) |
Other income |
|
|
154 |
|
|
|
148 |
|
|
|
6 |
|
|
|
4 |
|
Gain on sales of loans held for sale |
|
|
144 |
|
|
|
167 |
|
|
|
(23 |
) |
|
|
(14 |
) |
Gain on sales of securities |
|
|
|
|
|
|
163 |
|
|
|
(163 |
) |
|
|
(100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
$ |
1,683 |
|
|
$ |
1,823 |
|
|
$ |
(140 |
) |
|
|
(8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The discussion that follows addresses changes in selected categories of noninterest income.
Trust and investment services feesThe increase reflected appreciation in market value, upon which
fees are based, and an increase in income from the sale of settlement advisory services.
Income from mutual fund, annuity and insurance salesThe decrease in income from the sale of mutual
funds, annuities and insurance products by Codorus Valley Financial Advisors, a subsidiary of
PeoplesBank, was a result of decreased demand. Significant capital market losses during the latter
part of 2008 through the first quarter of 2009 resulted in many investors becoming risk adverse to
market based products. Another factor is that management is focused on growing advisory service fee
income, which generates an on-going revenue stream, as opposed to one-time fees on commission-based
products.
Service charges on deposit accountsThe increase was due primarily to an increase in debit card
revenue, which reflected an increase in the volume of transactions.
- 22 -
Gain on sales of loans held for saleThe decrease was due to a decrease in the volume of loan
sales.
Gain on sales of securities During the first quarter of 2009, gains were realized from the sale of
U.S. agency mortgage-backed bonds from the available-for-sale securities portfolio to take
advantage of the low interest rate environment. There was no comparable transaction in the first
quarter of 2010.
Noninterest expense
The following table presents the components of total noninterest expense for the first quarter of
2010, compared to the first quarter of 2009. Total noninterest expense increased $276,000 or 5
percent.
Table 2 Noninterest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Change |
|
|
|
March 31, |
|
|
Increase (Decrease) |
|
(dollars in thousands) |
|
2010 |
|
|
2009 |
|
|
$ |
|
|
% |
|
|
Personnel |
|
$ |
3,206 |
|
|
$ |
3,346 |
|
|
$ |
(140 |
) |
|
|
(4 |
)% |
Occupancy of premises, net |
|
|
501 |
|
|
|
480 |
|
|
|
21 |
|
|
|
4 |
|
Furniture and equipment |
|
|
440 |
|
|
|
435 |
|
|
|
5 |
|
|
|
1 |
|
Postage, stationery and supplies |
|
|
115 |
|
|
|
110 |
|
|
|
5 |
|
|
|
5 |
|
Professional and legal |
|
|
106 |
|
|
|
84 |
|
|
|
22 |
|
|
|
26 |
|
Marketing and advertising |
|
|
127 |
|
|
|
125 |
|
|
|
2 |
|
|
|
2 |
|
FDIC insurance |
|
|
308 |
|
|
|
230 |
|
|
|
78 |
|
|
|
34 |
|
Debit card processing |
|
|
135 |
|
|
|
122 |
|
|
|
13 |
|
|
|
11 |
|
Charitable donations |
|
|
329 |
|
|
|
176 |
|
|
|
153 |
|
|
|
87 |
|
Telephone |
|
|
138 |
|
|
|
110 |
|
|
|
28 |
|
|
|
25 |
|
Foreclosed real estate including gain (loss) on sales |
|
|
73 |
|
|
|
40 |
|
|
|
33 |
|
|
|
83 |
|
Impaired loan carrying costs |
|
|
196 |
|
|
|
34 |
|
|
|
162 |
|
|
|
476 |
|
Other |
|
|
410 |
|
|
|
516 |
|
|
|
(106 |
) |
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
$ |
6,084 |
|
|
$ |
5,808 |
|
|
$ |
276 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The discussion that follows addresses changes in selected categories of noninterest expense.
PersonnelThe decrease in personnel expense, comprised of wages, sales commissions, payroll taxes
and employee benefits, resulted primarily from the non-recurring cost of $242,000 incurred in the
prior year to restructure employee benefit plans. Restructuring the benefit plans resulted in a
federal income tax benefit so that the overall transaction had an insignificant impact on prior
period net income.
Professional and legalThe increase in professional and legal expense was the result of normal
business growth.
FDIC insuranceThe increase in Federal Deposit Insurance Corporation (FDIC) insurance premiums was
the result of an increase in assessment rates and an increase in the volume of deposits upon which
the assessment was based.
Charitable donationsThe increase in charitable donations for the current quarter for nonprofit
educational and scholarship purposes qualified for state tax credits, which were used to reduce
Pennsylvania shares tax expense, included in the other expense category.
- 23 -
TelephoneThe increase in telephone expense was a result of an increase in telephony applications
to enhance the business continuity process (i.e., off-site disaster recovery) and improve daily
communication, and increased user charges from normal business growth. Additionally, the first
quarter of 2009 included a $13,000 reimbursement from the communications provider pertaining to
billing disputes.
Foreclosed real estate including gain (loss) on salesThe increase in foreclosed real estate
expense generally reflected a larger portfolio of foreclosed real estate properties. The current
quarter expense was favorably impacted by the recognition of a $122,000 net gain from the sale of
four unrelated properties.
Impaired loan carrying costsThe increase in impaired loan carrying costs generally reflected a
larger portfolio of impaired loans. Typical carrying expenses include insurance, real estate taxes,
appraisals and legal fees.
OtherThe decrease in other expense, which is comprised of many underlying expenses, included a
decrease in Pennsylvania shares tax, which resulted from the recognition of tax credits previously
described above in the charitable donations line item.
Income taxes
The provision for income tax for the first quarter of 2010 was $406,000, compared to a $96,000
credit, or tax benefit for the same period in 2009. The increase in income tax was primarily the
result of an increase in pretax income. The tax benefit for the first quarter of 2009 resulted
from a one-time tax benefit associated with restructuring employee benefit plans. For both
periods, the Corporations statutory federal income tax rate was 34 percent. The Corporations
effective income tax rate was approximately 19 percent for the first quarter of 2010, compared to a
negative 11 percent for the first quarter of 2009. The effective tax rate differs from the
statutory tax rate due to the impact of low-income housing credits and tax-exempt income, including
income from bank owned life insurance. The effective tax rate for 2009 was negative as a result of
the one-time tax benefit and the low level of pretax income.
BALANCE SHEET REVIEW
Loans
On March 31, 2010, total loans were $649 million, representing a slight 0.5 percent increase above
year-end 2009. During the current quarter, the demand for business loans slowed after a two year
period of particularly strong growth. As a result of sluggish economic growth and a high level of
unemployment the lack of demand for consumer loans continued. The average yield (tax equivalent
basis) earned on total loans was 5.77 percent for the current three-month period, compared to 5.61
percent for the first three months of 2009. The composition of the Corporations loan portfolio at
March 31, 2010, compared to December 31, 2009, is provided in Note 5Loans.
Deposits
On March 31, 2010, total deposits were $737 million, an increase of $14 million or 2 percent above
year-end 2009. The increase in total deposits, as shown in Note 6Deposits, occurred primarily in
the money market deposit category. Federally insured bank deposits continue to provide safe haven
for those clients who remain concerned about the economy, volatility in the capital markets and the
high level of unemployment. The Corporation does not rely on brokered deposits to fund its
operation. The average rate paid on interest bearing deposits was 1.70 percent for the current
three month period, compared to 2.59 percent for the first three months of 2009.
- 24 -
Long-term debt
On March 31, 2010, long-term debt totaled $59 million, compared to $74 million at year-end 2009.
The decrease reflected a $15 million, 1.55 percent rate, Federal Home Loan Bank of Pittsburgh
advance that matured in February. A listing of outstanding long-term debt obligations is provided
in Note 7Long-term Debt.
Shareholders equity and capital adequacy
Shareholders equity or capital enables Codorus Valley to maintain asset growth and absorb losses.
Total shareholders equity was approximately $73.9 million on March 31, 2010, an increase of
approximately $1.9 million or 3 percent above the level at December 31, 2009. The increase was
caused primarily by an increase in retained earnings from profitable operations. An increase in
accumulated other comprehensive income from unrealized gains, net of federal income tax, on
securities available-for-sale also contributed to the increase in shareholders equity.
The Corporation typically pays cash dividends on a quarterly basis. The Board of Directors
determines the dividend rate after considering the Corporations capital requirements, current and
projected net income, and other factors. On April 13, 2010, the Board of Directors declared a
quarterly cash dividend of $0.06 per common share payable on May 11, 2010, to shareholders of
record April 27, 2010. This dividend follows a $0.03 per share dividend paid in February. The
Corporations participation in the U.S. Department of the Treasurys Capital Purchase Program (CPP)
requires regulatory approval to increase quarterly cash dividends on common stock above the
quarterly $0.12 per share level that was in effect at the time of the issuance of the preferred
stock. More information about the Corporations participation in the CPP is provided in Note
9Shareholders Equity.
Codorus Valley and PeoplesBank are subject to various regulatory capital requirements administered
by banking regulators that involve quantitative guidelines and qualitative judgments. Quantitative
measures established by regulators pertain to minimum capital ratios, as set forth in Note
8Regulatory Matters, to the financial statements. We believe that Codorus Valley and PeoplesBank
were well capitalized on March 31, 2010, based on FDIC capital guidelines.
RISK MANAGEMENT
Credit risk management
The Credit Risk Management section included in our 2009 Form 10-K provides a general overview of
the credit risk management process and loan concentrations. Credit risk represents the possibility
that a loan client, counterparty or issuer may not perform in accordance with contractual terms
posing one of the most significant risks to the Corporation.
Nonperforming assets
The following table presents asset categories posing the greatest risk of loss and related ratios.
We generally place a loan on nonaccrual status and cease accruing interest income, i.e., recognize
interest income on a cash basis, when loan payment performance is unsatisfactory and the loan is
past due 90 days or more. Loans past due 90 days or more and still accruing interest represent
loans that are contractually past due, but are well collateralized and in the process of
collection. The final category, foreclosed real estate, is real estate acquired to satisfy debts
owed to PeoplesBank. The paragraphs below explain significant changes in the aforementioned
categories for March 31, 2010, compared to December 31, 2009.
- 25 -
Nonperforming assets are reviewed by management each month. We generally rely on appraisals
performed by independent licensed appraisers to determine the value of impaired,
collateral-dependent loans. In instances where the value of the collateral minus estimated selling
costs is less than the net carrying amount of the loan, a loss allowance is established for that
difference by recording a loss provision to the income statement. When it is probable that some
portion or all of the loan balance will not be collected, that amount is charged off as loss
against the allowance. A loan is returned to accrual status when we determine that circumstances
have improved to the extent that all the principal and interest amounts contractually due are
brought current and future payments are reasonably assured.
Table 3 Nonperforming Assets
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(dollars in thousands) |
|
2010 |
|
|
2009 |
|
|
Nonaccrual loans |
|
$ |
21,239 |
|
|
$ |
25,558 |
|
Accruing loans that are contractually past due
90 days or more as to principal or interest |
|
|
184 |
|
|
|
40 |
|
Foreclosed real estate, net of allowance |
|
|
6,773 |
|
|
|
9,314 |
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
$ |
28,196 |
|
|
$ |
34,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios: |
|
|
|
|
|
|
|
|
Nonaccrual loans as a % of total period-end loans |
|
|
3.27 |
% |
|
|
3.96 |
% |
|
|
|
|
|
|
|
|
|
Nonperforming assets as a % of total period-end
loans and net foreclosed real estate |
|
|
4.30 |
% |
|
|
5.33 |
% |
|
|
|
|
|
|
|
|
|
Nonperforming assets as a % of total period-end
shareholders equity |
|
|
38.14 |
% |
|
|
48.48 |
% |
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a multiple of
nonaccrual loans |
|
|
.4 |
x |
|
|
.3 |
x |
On March 31, 2010, nonaccrual loans consisted of collateralized business and residential mortgage
loans, and consumer loans. The level of nonaccrual loans was relatively high for both periods
primarily as a result of prolonged weakened economic conditions and the corresponding effects it
has had on our commercial borrowers. The nonaccrual loan portfolio balance totaled $21,239,000 on
March 31, 2010, a decrease of $4,319,000 or 17 percent, compared to year-end 2009. The decrease
resulted primarily from the reclassification of a nonaccrual loan to foreclosed real estate
identified below as property no. 1 and, to a lesser degree, payments by borrowers. On March 31,
2010, the nonaccrual loans portfolio was comprised of twenty-one unrelated accounts ranging in size
from $1,000 to $5,041,000. Five unrelated commercial loan accounts, which represent 90 percent of
the total nonaccrual loan portfolio balance, are described below.
We evaluate the adequacy of the allowance for loan losses at least quarterly and have established a
loss allowance for selected accounts where the net realizable value of the collateral is
insufficient to repay the loan. Collection efforts, including modification of contractual terms
for individual accounts based on prevailing market conditions and liquidation of collateral assets,
are being employed to maximize recovery. Further provisions for loan losses may be required on
nonaccrual loans when additional information becomes available.
Loan no. 1The outstanding principal loan balance is $5,041,000. Based on an appraisal of the
improved real estate, an 89,000 square foot office building collateralizing the loan and other
factors, we established a $1,649,000 allowance for possible loss. Since the last report, the
borrowers have been unable to finalize
financial arrangements to complete tenant improvements as required under the terms of the lease. We
are presently considering our recovery options.
- 26 -
Loan no. 2PeoplesBank owns an approximately 29 percent participation loan interest and its share
of the outstanding principal balance of the loan is $3,807,000. The collateral supporting the loan
is a condominium building. Subsequent to the previously reported public auction in the fourth
quarter of 2009 that resulted in the sale of 17 of the 81 available condominium units, the borrower
is actively marketing the remaining units for sale. We will also rely on the personal guarantors
of the loan, if necessary.
Loan no. 3 PeoplesBank owns a 27 percent participation loan interest and its share of the
outstanding principal balance of the loan is $4,385,000. The collateral supporting the loan is
approximately 110 acres of undeveloped land, which is zoned mixed office district. In our
judgment, the loan is adequately collateralized by the real estate. We will also rely on the
personal guarantors of the loan, if necessary.
Loan no. 4 The outstanding principal loan balance is $3,723,000. This account is collateralized
by three acres of improved real estate located in a major commercial district and a small parcel of
improved real estate and the assignment of a personal loan from a third-party whose payments are
current. Based on recent appraisals of the real estate, we believe that the loan is adequately
collateralized.
Loan no. 5 PeoplesBank owns an approximately 54 percent participation loan interest, and its share
of the outstanding principal balance of the loan is $2,144,000. Since year-end 2009, PeoplesBank
has collected approximately $300,000 from the sale of 7 improved building lots, which it applied to
the outstanding principal balance. This account is collateralized by 135 approved residential
building lots. Of this total, 28 lots are improved. We established a $417,000 reserve for
probable loss for this collateral dependent loan, which was based on an appraisal from an
independent appraiser.
On March 31, 2010, the foreclosed real estate portfolio balance totaled $6,773,000, representing a
$2,541,000 or 27 percent decrease, compared to year-end 2009. Subsequent to year-end 2009, one
nonaccrual loan at December 31, 2009 was foreclosed on and reclassified to foreclosed real estate,
identified as property no.1 below, and four properties were liquidated with a carrying value of
$5,844,000, which resulted in the recognition of a net gain totaling $122,000. The net gain was
included in foreclosed real estate expense. On March 31, 2010, the portfolio was comprised of five
unrelated accounts ranging in size from $102,000 to $3,298,000, which we are actively attempting to
liquidate. Foreclosed real estate is included in the other assets category on the Corporations
balance sheet. Three unrelated accounts, which represent 97 percent of the total foreclosed real
estate portfolio balance, are described below. As of March 31, 2010, no valuation allowance has
been established for these accounts because, in our judgment, the carrying value reflects fair
value less estimated costs to sell. However, a valuation allowance may be required in the future on
foreclosed real estate as additional information becomes available.
Property no. 1 The outstanding principal loan balance is $3,298,000. This account is
collateralized by 266 acres of unimproved land that is zoned for residential development.
Subsequent to year-end 2009, PeoplesBank acquired the real estate through a public auction. We are
presently considering our recovery options.
Property no. 2The property is a nine unit condominium building with a carrying value of
$1,827,000. To date, the Corporation has received agreements to purchase five of the units. We
anticipate total gross proceeds of approximately $1,217,000 from the sale of the five units.
Property no. 3 PeoplesBank has a 64 percent participation loan interest in 42 improved lots within
a 20.6 acre established residential subdivision. The carrying value of PeoplesBanks interest is
$1,437,000. The lead bank is in the process of marketing the property and is considering offers
from prospective buyers and exploring the value of potential additional collateral.
- 27 -
Allowance for loan losses
Although the Corporation maintains sound credit policies, certain loans deteriorate and must be
charged off as losses. The allowance for loan losses is maintained to absorb losses inherent in
the portfolio. The allowance is increased by provisions charged to expense and is reduced by loan
charge offs, net of recoveries. The allowance is based upon managements continuous evaluation of
the loan portfolio coupled with a formal review of adequacy on a quarterly basis, which is subject
to review and approval by the Board.
The allowance for loan losses consists primarily of two components: specific allowances for
individually impaired commercial loans and allowances calculated for pools of loans. The
Corporation uses an internal risk rating system to evaluate individual loans. Loans are segmented
into industry groups or pools with similar characteristics and an allowance for loan losses is
allocated to each segment based on quantitative factors such as recent loss history, and
qualitative factors, such as the results of internal and external credit reviews, changes in the
size and composition of the loan portfolio, adequacy of collateral, general economic conditions and
the local business outlook. Determining the level of the allowance for probable loan losses at any
given period is difficult, particularly during deteriorating or uncertain economic periods. We
must make estimates using assumptions and information which are often subjective and fluid.
Table 4Analysis of Allowance for Loan Losses presents an analysis of the activity in the allowance
for loan losses for the three months ended March 31, 2010 and 2009. The allowance was $7,711,000 or
1.19 percent of total loans, on March 31, 2010, compared to $4,850,000 or 0.82 percent, on March
31, 2009. The increase in the allowance reflects credit quality issues for selected commercial
real estate loans and was based on our estimate of the amount necessary to bring the allowance to a
level reflective of the risk in the loan portfolio and loan growth. We considered macro-economic
factors that could adversely affect the ability of PeoplesBanks loan clients to repay their loans,
including the high level of unemployment and the probable continuation of a downturn in the
commercial real estate market. Based on its evaluation of probable loan losses in the current
portfolio, we believe that the allowance is adequate to support losses inherent in the loan
portfolio on March 31, 2010.
- 28 -
Table 4 Analysis of Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
(dollars in thousands) |
|
2010 |
|
|
2009 |
|
Balance-January 1, |
|
$ |
7,175 |
|
|
$ |
4,690 |
|
|
|
|
|
|
|
|
|
|
Provision charged to operating expense |
|
|
720 |
|
|
|
244 |
|
|
|
|
|
|
|
|
|
|
Loans charged off: |
|
|
|
|
|
|
|
|
Commercial |
|
|
100 |
|
|
|
|
|
Real estate residential and home equity |
|
|
|
|
|
|
20 |
|
Consumer |
|
|
108 |
|
|
|
74 |
|
|
|
|
|
|
|
|
Total loans charged off |
|
|
208 |
|
|
|
94 |
|
Recoveries: |
|
|
|
|
|
|
|
|
Commercial |
|
|
3 |
|
|
|
6 |
|
Consumer |
|
|
21 |
|
|
|
4 |
|
|
|
|
|
|
|
|
Total recoveries |
|
|
24 |
|
|
|
10 |
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
184 |
|
|
|
84 |
|
|
|
|
|
|
|
|
Balance-March 31, |
|
$ |
7,711 |
|
|
$ |
4,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios: |
|
|
|
|
|
|
|
|
Annualized net charge-offs to
average total loans |
|
|
0.11 |
% |
|
|
0.06 |
% |
Allowance for loan losses to total loans
at period-end |
|
|
1.19 |
% |
|
|
0.82 |
% |
Allowance for loan losses to nonaccrual loans
and loans past due 90 days or more |
|
|
36.0 |
% |
|
|
33.4 |
% |
Liquidity risk management
Maintaining adequate liquidity provides the Corporation with the ability to meet financial
obligations to depositors, loan customers, employees, and shareholders on a timely and cost
effective basis in the normal course of business. Additionally, it provides funds for growth and
business opportunities as they arise. Liquidity is generated from transactions relating to both
the Corporations assets and liabilities. The primary sources of asset liquidity are scheduled
investment security maturities and cash inflows, funds received from customer loan payments, and
asset sales. The primary sources of liability liquidity are deposit growth, short-term borrowings
and long-term debt. The Consolidated Statements of Cash Flows, included in this report, present the
changes in cash from operating, investing and financing activities. At March 31, 2010, management
believes that liquidity was adequate based upon the potential liquidation of unpledged
available-for-sale securities with a fair value totaling $85 million and available credit from the
Federal Home Loan Bank of Pittsburgh (FHLBP). On March 31, 2010, available net funding from the
FHLBP was approximately $41 million. The Corporations loan-to-deposit ratio, which is used as a
broad measure of liquidity, was approximately 88 percent for March 31, 2010, compared to 89 percent
for year-end 2009.
Off-balance sheet arrangements
The Corporations financial statements do not reflect various commitments that are made in the
normal course of business, which may involve some liquidity risk. These commitments consist
primarily of commitments to grant new loans, unfunded commitments under existing loan facilities,
and letters of credit issued under the same standards as on-balance sheet instruments. Unused
commitments on March 31, 2010, totaled $174 million and consisted of $135 million in unfunded
commitments under existing loan facilities, $33 million to grant new loans and $6 million in
letters of credit. Normally these commitments have fixed expiration dates or termination clauses
and are for specific purposes. Accordingly, many of the commitments are expected to expire without
being drawn and therefore, generally do not present significant liquidity risk to the Corporation
or PeoplesBank.
- 29 -
|
|
|
Item 3. |
|
Quantitative and Qualitative Disclosures About Market Risk |
Not applicable to smaller reporting companies.
|
|
|
Item 4T. |
|
Controls and Procedures |
The Corporation carried out an evaluation, under the supervision and with the participation of the
Corporations management, including the Corporations Chief Executive Officer and Chief Financial
Officer, of the effectiveness of its disclosure controls and procedures, as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e). Based upon the evaluation, the Corporations Chief Executive Officer
and Chief Financial Officer concluded that, as of March 31, 2010, the Corporations disclosure
controls and procedures are effective. The Corporations disclosure controls and procedures are
designed to provide reasonable, not absolute, assurance that information required to be disclosed
in the Corporations reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms. A control system, no matter how well conceived and operated, must
reflect the fact that there are resource constraints, that the benefits of controls must be
considered relative to their costs, and inherent limitations that may not prevent fraud,
particularly by collusion of two or more people or by management override of a control.
There has been no change in the Corporations internal control over financial reporting that
occurred during the quarter ended March 31, 2010, that has materially affected or is reasonably
likely to materially affect, the Corporations internal control over financial reporting.
On October 2, 2009, the SEC announced that auditor attestation reports for non-accelerated filers
(smallest public companies with a public float below $75 million) relative to compliance with
section 404 of the Sarbanes-Oxley Act of 2002 are required for fiscal years ending on or after June
15, 2010 (effectively December 31, 2010 for the Corporation). This announcement extended the
previous expiration date for this requirement which was for fiscal years ending on or after
December 15, 2009.
Part IIOTHER INFORMATION
|
|
|
Item 1. |
|
Legal proceedings |
There are no legal proceedings pending against Codorus Valley Bancorp, Inc. or any of its
subsidiaries which are expected to have a material impact upon the financial position and/or
operating results of the Corporation. Management is not aware of any proceedings known or
contemplated by government authorities.
Not applicable to smaller reporting companies.
|
|
|
Item 2. |
|
Unregistered sales of equity securities and use of proceeds |
Nothing to report.
|
|
|
Item 3. |
|
Defaults upon senior securities |
Nothing to report.
|
|
|
Item 4. |
|
Removed and reserved |
- 30 -
|
|
|
Item 5. |
|
Other information |
Nothing to report.
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
|
|
|
3.1 |
|
|
Amended Articles of Incorporation (Incorporated by reference to Exhibit 3(i) to the Registrants
Current Report on Form 8-K, filed with the Commission on October 14, 2005.) |
|
|
|
|
|
|
3.2 |
|
|
Amended By-laws (Incorporated by reference to Exhibit 3(ii) to the Registrants Current Report
on Form 8-K, filed with the Commission on November 15, 2007.) |
|
|
|
|
|
|
3.3 |
|
|
Certificate of Designations for the Series A Preferred Stock (Incorporated by reference to
Exhibit 3.1 to the Registrants Current Report on Form 8-K, filed with the Commission on
January 15, 2009.) |
|
|
|
|
|
|
4 |
|
|
Rights Agreement dated as of November 4, 2005 (Incorporated by reference to Exhibit 4 to the
Registrants Current Report on Form 8-K, filed with the Commission on November 8, 2005.) |
|
|
|
|
|
|
4.1 |
|
|
Securities Purchase Agreement dated as of January 9, 2009, between the Registrant and the United
States Department of Treasury (Incorporated by reference to Exhibit 10.1 to the Registrants
Current Report on Form 8-K, filed with the Commission on January 15, 2009.) |
|
|
|
|
|
|
4.2 |
|
|
Warrant, dated January 9, 2009, to purchase shares of Common Stock of the Registrant
(Incorporated by reference to Exhibit 4.1 to the Registrants Current Report on Form
8-K, filed with the Commission on January 15, 2009.) |
|
|
|
|
|
|
14 |
|
|
Code of Ethics (Incorporated by reference to Exhibit 14 to the Registrants Current Report on
Form 8-K, filed with the Commission on March 3, 2008.) |
|
|
|
|
|
|
31.1 |
|
|
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 |
|
|
|
|
|
|
31.2 |
|
|
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 |
|
|
|
|
|
|
32 |
|
|
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 |
- 31 -
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused this
report to be signed on its behalf by the undersigned there unto duly authorized.
|
|
|
|
|
|
|
Codorus Valley Bancorp, Inc. |
|
|
|
|
(Registrant) |
|
|
|
|
|
|
|
May 11, 2010
|
|
/s/ Larry J. Miller |
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Larry J. Miller
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President & CEO |
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(Principal executive officer) |
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May 11, 2010
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/s/ Jann A. Weaver |
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Jann A. Weaver
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Treasurer & Assistant Secretary |
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(Principal financial and accounting officer) |
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