UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
( ) 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)
Pennsylvania 23-2428543
(State of incorporation) (I.R.S. Employer ID No.)
1 Manchester Street, P.O. Box 67, Glen Rock, PA 17327
(Address of principal executive offices) (Zip Code)
(717) 235-6871 or (717) 846-1970
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changes
since 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 X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
1,045,168 shares of $2.50 (par value) common stock were
outstanding as of 7-23-96 .
CODORUS VALLEY BANCORP, INC.
10Q INDEX
Page
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PART I - FINANCIAL INFORMATION:
- Consolidated Statements of Financial Condition... 1
- Consolidated Statements of Income................ 2
- Consolidated Statements of Cash Flows............ 3
- Notes to Consolidated Financial Statements....... 4
- Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 7
PART II - OTHER INFORMATION ............................... 16
Signature Page ............................................ 18
CODORUS VALLEY BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Unaudited
June 30, December 31, June 30,
1996 1995 1995
--------- --------- ---------
Assets (dollars in thousands)
Cash and due from banks:
Interest bearing deposits with banks $ 352 $ 341 $ 319
Non-interest bearing deposits and cash 8,609 5,356 5,444
Federal funds sold 2,250 3,150 4,400
Securities available for sale 69,220 61,679 59,850
Loans 156,278 160,008 155,909
Less-allowance for loan losses (2,364) (2,286) (2,152)
-------- -------- --------
Total net loans 153,914 157,722 153,757
Premises and equipment 3,971 3,523 3,206
Interest receivable 1,810 1,703 1,674
Other assets 1,534 1,273 1,409
-------- -------- --------
Total assets............................$241,660 $234,747 $230,059
======== ======== ========
Liabilities
Deposits
Non-interest bearing demand $ 19,002 $ 17,369 $ 14,935
NOW 21,185 20,862 19,141
Insured money fund 27,263 25,902 26,299
Savings 22,529 21,577 21,910
Time CD's less than $100,000 109,957 110,435 110,880
Time CD's $100,000 and above 16,396 16,295 16,061
-------- -------- --------
Total deposits 216,332 212,440 209,226
Short-term borrowings 2,500 0 0
Interest payable 831 865 810
Accrued expenses and other liabilities 598 410 249
-------- -------- --------
Total liabilities....................... 220,261 213,715 210,285
Stockholders' Equity
Series preferred stock, par value $2.50
per share; 1,000,000 shares authorized;
0 shares issued and outstanding 0 0 0
Common stock, par value $2.50 per share;
10,000,000 shares authorized; 1,045,168
shares issued at 6/30/96; 995,792 at
12/31/95; and 995,785 at 6/30/95. 2,613 2,490 2,489
Capital surplus 6,552 5,194 5,194
Retained earnings 12,220 12,731 11,645
Net unrealized gains(losses) on securities
available for sale, net of taxes 14 617 446
-------- -------- --------
Total stockholders' equity.............. 21,399 21,032 19,774
Total liabilities and stockholders'
equity.................................$241,660 $234,747 $230,059
======== ======== ========
See accompanying notes.
1
CODORUS VALLEY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Unaudited
Three months ended Six months ended
June 30, June 30,
(dollars in thousands, except per share data) 1996 1995 1996 1995
------ ------ ------ ------
Interest Income
Interest and fees from loans $3,540 $3,605 $7,134 $7,047
Interest from federal funds sold and interest
bearing deposits with banks 39 82 79 115
Interest and dividends from securities:
Taxable interest income 990 780 1,839 1,530
Tax-exempt interest income 60 71 134 147
Dividend income 11 12 25 26
------ ------ ------ ------
Total interest income.............................. 4,640 4,550 9,211 8,865
Interest Expense
NOW 119 127 235 253
Insured money fund 191 194 377 397
Savings 139 142 274 286
Time CD's less than $100,000 1,537 1,497 3,066 2,850
Time CD's $100,000 and above 224 214 443 385
------ ------ ------ ------
Total interest expense on deposits 2,210 2,174 4,395 4,171
Interest expense on short-term borrowings 8 0 8 0
------ ------ ------ ------
Total interest expense.............................. 2,218 2,174 4,403 4,171
------ ------ ------ ------
Net interest income................................. 2,422 2,376 4,808 4,694
Provision for Loan Losses 50 31 108 32
------ ------ ------ ------
Net interest income after provision for loan losses 2,372 2,345 4,700 4,662
Non-interest Income
Trust income 70 72 136 130
Service charges on deposit accounts 103 104 205 198
Other service charges and fees 50 62 110 124
Gain on sale of loans 7 0 7 0
Gain (loss) on sales of securities 2 0 2 (62)
------ ------ ------ ------
Total non-interest income 232 238 460 390
Non-interest Expense
Salaries and benefits 870 877 1,750 1,716
Occupancy of premises 105 107 217 213
Furniture and equipment 127 152 245 308
FDIC deposit insurance 0 111 1 222
Professional and legal 51 56 101 51
Marketing and advertising 57 57 75 102
Acquired real estate, net 22 2 12 37
Other 361 337 730 664
------ ------ ------ ------
Total non-interest expense 1,593 1,699 3,131 3,313
Income before income taxes 1,011 884 2,029 1,739
Provision for Income Taxes 334 279 648 530
------ ------ ------ ------
Net income..........................................$ 677 $ 605 $1,381 $1,209
====== ====== ====== ======
Net income per common share..........................$0.65 $0.58 $1.32 $1.16
===== ===== ===== =====
See accompanying notes.
2
CODORUS VALLEY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Six months ended
June 30,
1996 1995
------- -------
Cash Flows From Operating Activities: (dollars in thousands)
Net Income $ 1,381 $ 1,209
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation 181 186
Provision for loan losses 108 32
Provision for losses on assets acquired in foreclosure (2) 30
Gain on sales of assets acquired in foreclosure (13) 0
Gain on sales of loans (7) 0
(Gain) loss on sales of securities (2) 62
(Increase) in interest receivable (107) (35)
(Increase) decrease in other assets (259) 44
Decrease in interest payable (34) (42)
Increase (decrease) in other liabilities 188 (128)
Other, net 5 (10)
------- -------
Net cash provided by operating activities............. 1,439 1,348
Cash Flows From Investing Activities:
Proceeds from sales of securities available for sale 2,378 2,345
Proceeds from maturities and calls of securities
available for sale 9,454 6,288
Purchase of securities available for sale (20,339) (12,864)
Net increase in loans made to customers (3,904) (5,997)
Proceeds from loan sales 7,484 454
Purchases of premises and equipment (629) (91)
Proceeds from sale of assets acquired in foreclosure 500 145
------- -------
Net cash used in investing activities................ (5,056) (9,720)
Cash Flows From Financing Activities:
Net increase (decrease) in demand and savings deposits 4,269 (5,111)
Net (decrease) increase in time deposits (377) 17,441
Increase in short-term borrowings 2,500 0
Dividends paid (398) (361)
Cash paid in lieu of fractional shares (13) (6)
Payment to repurchase common stock 0 (270)
------- -------
Net cash provided by financing activities............ 5,981 11,693
------- -------
Net increase (decrease) in cash and cash equivalents. 2,364 3,321
Cash and cash equivalents at beginning of year....... 8,847 6,842
------- -------
Cash and cash equivalents at June 30,................$11,211 $10,163
======= =======
Supplemental Disclosures:
Interest payments $4,429 $4,213
Income tax payments $695 $610
See accompanying notes.
3
CODORUS VALLEY BANCORP, INC.
Notes to Consolidated Financial Statements
Note 1-General
The interim financial statements are unaudited. However, they reflect
all adjustments which are, in the opinion of management, 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 notes to the
financial statements contained in the 1995 Annual Report to
Stockholders.
No shares of common stock are reserved for issuance in the event of
conversions or the exercise of warrants, options or other rights, except
for shares reserved for the Corporation's Dividend Reinvestment and
Stock Purchase Plan, Shareholders' Rights Plan, and 1996 Stock Incentive
Plan.
The results of operations for the six month period ended June 30,
1996 are not necessarily indicative of the results to be expected for
the full year.
Note 2-Summary of Significant Accounting Policies
Allowance for Loan Losses - Management considers the allowance for loan
losses (reserve) to be adequate at this time.
Held for Sale Loans - Loans held for sale are reported at the lower of
cost or market value. The amount by which cost exceeds market value, if
any, is accounted for as a valuation allowance and is charged to
expense in the period of the change.
Per Share Computations - All per share computations include the
retroactive effect of stock dividends.
Reclassifications - Certain reclassifications have been made to the 1995
consolidated financial statements to conform with the 1996 presentation.
SFAS No. 121 - Effective January 1, 1996 the Corporation adopted
Statement of Financial Accounting Standards No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." The new rule specifies, among other things, when assets should be
reviewed for impairment, how to determine if an asset is impaired, how
to measure an impairment loss, and what disclosures are necessary in the
financial statements. Adoption of Statement No. 121 will not materially
affect the assets, earnings or capital of the Corporation.
4
CODORUS VALLEY BANCORP, INC.
Notes to Consolidated Financial Statements, continued
Note 2-Summary of Significant Accounting Policies, continued
SFAS No. 122 - Effective January 1, 1996, the Corporation adopted
Statement of Financial Accounting Standards No. 122, "Accounting for
Mortgage Servicing Rights." The new rule requires that management
recognize as separate assets, rights to service mortgage loans for
others, regardless of how they were acquired. Management should
allocate the total cost of mortgage loans, either purchased or
originated, to the loans and the servicing rights based on their
relative fair value. Statement No. 122 also specifies how mortgage
servicing rights and excess servicing rights should be evaluated for
impairment. Adoption of Statement No. 122 did not materially affect
the assets, earnings or capital of the Corporation.
Note 3-Impaired Loans
On January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of
a Loan", as amended by Statement No. 118, "Accounting by Creditors for
Impairment of a Loan--Income Recognition and Disclosure." Under
Statement No. 114, a loan is considered impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due. The Statement requires that impaired loans be
measured based on the present value of expected future cash flows,
discounted at the loan's effective interest rate, or as a practical
expedient, at the loan's observable market price or the fair value of
the collateral if the loan is collateral dependent. If the measure of
the impaired loan is less than its recorded investment a creditor must
recognize an impairment by creating, or adjusting, a valuation allowance
with a corresponding charge to loan loss expense. The Corporation
uses the cash basis method to recognize interest income on loans that
are impaired. All of the Corporation's impaired loans were on a non-
accrual status for all reported periods. Additional information
regarding impaired loans is provided in the schedule that follows.
June 30, December 31, June 30,
(dollars in thousands) 1996 1995 1995
------ ------ ------
Impaired loans $2,867 $3,583 $2,381
Amount of impaired loans that
have a related allowance $2,867 $3,583 $2,381
Amount of impaired loans with
no related allowance $0 $0 $0
Allowance for impaired loans $388 $485 $367
For the six month period ended
June 30,
1996 1995
------ ------
Average investment in impaired loans $3,964 $2,012
Interest income recognized on
impaired loans (all cash-basis method) $39 $11
5
CODORUS VALLEY BANCORP, INC.
Notes to Consolidated Financial Statements, continued
Note 4-Analysis of Allowance for Loan Losses
Changes in the allowance for loan losses for the three month period
ended June 30, were as follows:
(dollars in thousands) 1996 1995
------ ------
Balance-January 1, $2,286 $2,249
Provision charged to operating expense 108 32
Loans charged off (73) (208)
Recoveries 43 79
------ ------
Balance-June 30, $2,364 $2,152
====== ======
6
CODORUS VALLEY BANCORP, INC.
Management's Discussion of Consolidated Financial Condition and
Results of Operations
The consolidated earnings of Codorus Valley Bancorp, Inc. (the Corporation),
were derived from the operations of its wholly-owned subsidiary, Peoples Bank
of Glen Rock (the Bank). This discussion is intended to enhance the reader's
understanding of the financial statements, notes to financial statements, and
tables appearing elsewhere in this report. The results of operations for the
six month period ended June 30, 1996 are not necessarily indicative of the
results to be expected for the full year.
Three months ended June 30, 1996
compared to three months ended June 30, 1995
RESULTS OF OPERATIONS
Net income for the current three month period was $677,000, up $72,000 or 12%
above the second quarter of 1995. The increase in net income was due
primarily to a larger volume of earning assets and a reduction in FDIC
deposit insurance expense. Net income per share, as adjusted for stock
dividends, for the current quarter was $.65, up $.07 or 12% above the $.58
earned in the comparable period in 1995.
An explanation of the factors and trends that caused changes between the two
periods, by major earnings category, follows.
Total interest income for the current three month period was $4,640,000, up
$90,000 or 2% above the $4,550,000 earned in the same period of 1995. The
$90,000 increase in interest income was due primarily to a larger volume of
earning assets, principally investments in the securities portfolio. The
average volume of securities available-for-sale was $14.3 million higher in
the current quarter than in the same quarter of 1995. In an effort to manage
interest rate risk, the Bank sold $7 million of fixed rate mortgage loans
classified as held-for-sale. Pursuant to the April 1996 loan sale, the Bank
retained mortgage servicing rights. Income from loans during the current
period was constrained by moderate loan demand, competitive pressures and a
relatively high level of nonperforming commercial loans.
Total interest expense for the current three month period was $2,218,000, up
$44,000 or 2% above the $2,174,000 incurred for the same period in 1995. The
$44,000 increase in interest expense was due primarily to a larger volume of
interest bearing deposits, principally time deposits. The average volume of
interest bearing deposits was $8.8 million higher in the current quarter
compared to the same quarter in 1995.
Net interest income for the current three month period was $2,422,000, up
$46,000 or 1.9% above the $2,376,000 earned in the same period of 1995. The
7
CODORUS VALLEY BANCORP, INC.
increase in current period net interest income was achieved primarily from a
larger average volume of earning assets. The provision (expense) for possible
loan losses was $50,000 for the current three month period compared to
$31,000 for the same period in 1995. The prior period provision was unusually
low due to a $270,000 loan loss recovery in December 1994 which reduced the
need to fund the allowance for loan losses (reserve) in 1995.
Total non-interest income for the current three month period was $232,000,
which approximated the same quarter in 1995.
Total non-interest expense for the current three month period was $1,593,000,
down $106,000 or 6.2% less than the $1,699,000 incurred for the second
quarter of 1995. The decrease in total non-interest expense was primarily the
result of a $111,000 reduction in FDIC deposit insurance expense due to a
FDIC rate reduction for well capitalized and well managed commercial bank
members.
The provision for income taxes in the current quarter increased $55,000 or
19.7% due to a higher level of pretax earnings.
Six months ended June 30, 1996
compared to six months ended June 30, 1995
Net income for the first six months of 1996 was $1,381,000, up $172,000 or
14.2% above the $1,209,000 earned for the same period of 1995. The increase
in net income was due primarily to a larger volume of earning assets and a
reduction in FDIC deposit insurance expense. Earnings per share, as adjusted
for stock dividends, was $1.32 on June 30, 1996, compared to $1.16 on June
30, 1995. For the six month period (annualized) of 1996, the return on
average assets (ROA) and return on average equity (ROE) were 1.17% and 12.9%,
respectively, compared to 1.09% and 13%, respectively, for 1995.
At June 30, 1996, total assets were approximately $242 million, reflecting a
$12 million or 5% increase above June 30, 1995. Book value per share, as
adjusted for stock dividends, was $20.47 on June 30, 1996, compared to $18.92
on June 30, 1995. The Corporation's capital remained sound as evidenced by a
Tier I Risked-Based Capital Ratio of 13.9% and a Total Risk-Based Capital
Ratio of 15.2% on June 30, 1996.
An explanation of the factors and trends that caused changes between the two
periods, by major earnings category, follows.
Total interest income for the current six month period was $9,211,000, up
$346,000 or 3.9% above the $8,865,000 earned in the same period of 1995. The
$346,000 increase in total interest income was due primarily to a larger
volume of earning assets, principally securities. The year to date average
volume of securities available-for-sale was approximately $10.8 million or
8
CODORUS VALLEY BANCORP, INC.
20% above the same period in 1995. Income from loans during the current
period was constrained by moderate loan demand, competitive pressures and a
relatively high level of nonperforming commercial loans. In the period ahead,
it is anticipated that the volume of commercial loans will increase based on
an increased number of loan applications and commitments generated during
June and July.
Total interest expense for the current six month period was $4,403,000, up
$232,000 or 5.6% above the $4,171,000 incurred for the same period in 1995.
The $232,000 increase in total interest expense was due primarily to a larger
volume of interest bearing deposits, principally time deposits. The year to
date average volume of interest bearing deposits increased approximately
$10.5 million or 5.6% above the same period in 1995. Deposits are expected to
grow moderately in the period ahead based on the level of CD rates and recent
stock market volatility.
Net interest income was $4,808,000 for the current period, up $114,000 or
2.4% above the first six months in 1995. Income from a larger volume of
investment securities outpaced funding costs. The net yield on average
earning assets (taxable equivalent basis) was 4.43% for the current six month
period compared to 4.59% for the same period in 1995.
The provision for loan losses was $108,000 for the current period, up $76,000
above the same period in 1995. The provision for 1995 was lower than usual
due to a $270,000 loan loss recovery in December 1994 which reduced the need
to fund the allowance for loan losses (reserve) in 1995.
Total non-interest income for the current six month period was $460,000, up
$70,000 or 18% above the same period in 1995. The prior period contained a
$62,000 loss from the infrequent sale of investment securities. To achieve
comparability in non-interest income from normal operations, the $62,000 loss
should be excluded from prior period income. On an adjusted basis, total non-
interest income for the current period approximated the same period of 1995.
Total non-interest expense for the current six month period was $3,131,000,
down $182,000 or 5.5% below the $3,313,000 incurred for the same period in
1995. The decrease in total non-interest expense was primarily the result of
a $221,000 reduction in FDIC deposit insurance expense. During the current
period the FDIC charged well capitalized and well managed commercial bank
members a minimum membership fee of $500 per quarter. It is possible however,
that later in 1996 or 1997, the U.S. Congress will require commercial banks
to pay a portion of the annual Financing Corporation ("FICO") bond
obligation. FICO was created to help resolve the financial crisis within the
savings & loan insurance fund during the late 1980's. This policy issue,
including effective date, assessment rate, obligation period, etc., is
currently under congressional review. Accordingly, the ultimate effect of
this provision cannot be determined at this time. However, such a provision,
if enacted into law, may have an adverse impact on future results of
operations of the Bank.
9
CODORUS VALLEY BANCORP, INC.
In addition to the reduction in current period FDIC deposit insurance
expenses, an explanation of other notable changes follows. Salaries and
benefits expense increased $34,000 due to normal merit raises and planned
staff additions. Furniture and equipment expense declined $63,000 due to a
decline in depreciation expense since the Bank's mainframe computer system
was fully depreciated in the latter part of 1995. Mainframe computer system
expense will commence in September 1996 when the Bank installs a new system.
The projected annual expense will approximate $120,000 for the new system.
Professional and legal expense increased $50,000 in the current period. Prior
period professional and legal expenses were unusually low due to a partial
insurance reimbursement associated with the large loan loss in 1994,
attributable to a former Bank officer. Marketing and advertising expense
declined $27,000 in the current period due primarily to timing. Acquired real
estate (net) expense declined $25,000 in the current period due to a
reduction in the size of the portfolio, and a gain from the sale of acquired
assets. The "other" expense category, an aggregate of many individual
expenditures, increased $66,000 due to normal business growth and greater
problem loan carrying costs. In the period ahead, it is probable non-interest
expenses will increase due to planned expansion, staff additions, and
automation.
The provision for income taxes was $648,000 for the current period, up
$118,000 above the same period in 1995 due to a higher level of pretax
earnings.
CREDIT RISK AND LOAN QUALITY
A summary of nonperforming assets and past due loans, and related ratios, is
provided in Table 1. An explanation of changes within each classification for
June 30, 1996, compared to June 30, 1995, is provided below.
Impaired loans, the major component of total nonperforming assets, increased
$486,000 or 20% since June 30, 1995 to a current level of $2,867,000. The
overall increase was caused primarily by the addition of two unrelated
commercial loan relationships which are adequately collaterized. Another
factor contributing to the increase in impaired loans was a change in
strategy relative to proactive loan classification and aggressive recovery.
At June 30, 1996 total impaired loans were comprised of twenty-two
relationships, principally commercial loan relationships, which ranged in
size from approximately $10,000 to $375,000. A loss reserve, which is
evaluated quarterly, has been established for accounts that appear to be
under-collateralized. Efforts to modify contractual terms for individual
accounts or liquidate collateral assets are proceeding as quickly as
potential buyers can be located and legal constraints permit.
The other component of nonperforming assets, assets acquired in foreclosure
(net of a related reserve) declined $310,000 or 44% since June 30, 1995 to a
level of $385,000 due primarily to liquidations. Assets acquired (also known
10
CODORUS VALLEY BANCORP, INC.
as OREO) consist primarily of improved real estate from five commercial loan
customers in unrelated businesses. Generally Accepted Accounting Principles
require that assets taken in satisfaction of debt be accounted for on an
individual asset basis, at the lower of (a) fair value minus estimated costs
to sell or (b) cost. During the current period the Corporation did not
record a loss provision because the loss reserve for assets acquired was
deemed adequate. Comparatively, the Corporation recorded a $30,000 loss
provision for the first six months in 1995 to reflect a decline in the
estimated fair value of assets acquired. Efforts to liquidate assets acquired
are proceeding as quickly as potential buyers can be located and legal
constraints permit.
At June 30, 1996, loans past due 90 days or more and still accruing interest
totalled $1,552,000. A significant percentage of this category was comprised
of one commercial loan relationship which amounted to $657,000. A signed sale
agreement was recently obtained from an unrelated third party to purchase the
collateral that supports this commercial relationship. The agreement requires
the Bank to provide financing, and the sale price was set at a level to cover
the outstanding principal loan balance and accrued interest. Generally, loans
in the past due category are well collateralized and in the process of
collection. The current level of past due loans is closely monitored and
believed to be within a manageable range.
At June 30, 1996, there were no potential problem loans, as defined by the
Securities and Exchange Commission, identified by management. However,
management was monitoring approximately $10,800,000 of loans for which the
ability of the borrower to comply with present repayment terms was uncertain.
These loans were not included in the above disclosure. They are monitored
closely, and management presently believes that the allowance for loan losses
is adequate to cover anticipated losses that may be attributable to these
loans.
Table 2, Analysis of Allowance for Loan Losses, depicts a $2,364,000
allowance (reserve) at June 30, 1996. The reserve as a percentage of total
loans was 1.51% at June 30, 1996, compared to 1.38% at June 30, 1995. The
increase in the reserve ratio during the current period was attributable to
a larger loss provision, smaller net charge-offs, and a reduction in
outstanding loan balances due to a $7 million mortgage loan sale. Based on a
recent evaluation of potential loan losses, management believes that the
allowance is adequate to support any reasonably foreseeable level of losses
that may arise. Ultimately, however, the adequacy of the allowance is largely
dependent upon future economic factors beyond the Corporation's control.
With this in mind, additions to the allowance for loan losses may be required
in future periods.
11
CODORUS VALLEY BANCORP, INC.
LIQUIDITY
The loan-to-deposit ratio was 72.2% at June 30, 1996, compared to 74.5% at
June 30, 1995. The ratio for both periods was within the 70-80% range that
the Corporation uses for liquidity policy purposes.
STOCKHOLDERS' EQUITY (CAPITAL)
Total stockholders' equity, or capital, was $21,399,000 at June 30, 1996,
compared to $19,774,000 at June 30, 1995. Growth in equity during the current
period was due primarily to earnings retention from profitable operations.
Book value per share was $20.47 on June 30, 1996, compared to $18.92, as
adjusted for stock dividends, on June 30, 1995.
On July 9, 1996, the Board of Directors declared a regular quarterly cash
dividend of $.17 per share, payable on or before August 13, 1996, to
stockholders of record July 23, 1996. Payment of this cash dividend will
bring total cash dividends through August 1996 to $.57 per share, up $.04 or
7.5% above the $.53 paid through August 1995. As previously disclosed in the
Form 10-Q for the first quarter of 1996, a 5% stock dividend was paid on June
13, 1996. The stock dividend is another method of enhancing the value of our
shareholders investment.
At June 30, 1996, the Corporation's Tier I Risk-Based Capital Ratio was 13.9%
and its Total Risk-Based Capital Ratio was 15.2%. Both capital ratios
exceeded the minimum federal regulatory requirements for well capitalized
banks of 6% and 10%, respectively.
A 1996 Stock Incentive Plan was recently approved by the shareholders at the
annual meeting held on May 21, 1996. Under the Plan, 50,000 common shares are
reserved for possible issuance. To date, no shares were granted under the
Stock Incentive Plan.
As previously disclosed in the Form 10-K for the period ended December 31,
1995, the Corporation is progressing with its plans to replace and relocate
its headquarters facility. A local contractor was recently awarded the
contract for construction of the new Codorus Valley Corporate Center, at 105
Leader Heights Road, York, Pennsylvania. A recent estimate of total project
costs, including land and furnishings, range from $5.3 to $5.5 million. It is
probable that the Corporation will fund the project internally with retained
earnings. The Bank is projected to use 75% of the new facility and the
remainder will be leased out as a source of revenue. Also, as previously
disclosed, the Bank is in the process of replacing its aging mainframe
computer system. Implementation of the new Horizon computer system, from
Alltel Corporation, is scheduled for completion in September 1996. A recent
estimate of total project costs range from $500,000 to $600,000. It is
probable the project will be financed through a leasing arrangement. The new
Horizon computer system will provide the power, speed and increased
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CODORUS VALLEY BANCORP, INC.
capabilities needed to stay competitive in a changing financial services
industry. Additionally, the Bank continues to seek ways to expand its branch
office network. Planned capital investments relative to physical expansion
and automation could reduce Corporate net income and capital growth in the
short term; however, these expenditures are deemed necessary to grow market
share and net income over the long term. We believe that these investments
are an important part of the overall strategy to achieve the goal of
enhancing long term shareholder value.
13
CODORUS VALLEY BANCORP, INC.
Table 1 - Nonperforming Assets and Past Due Loans
June 30, December 31, June 30,
(dollars in thousands) 1996 1995 1995
------ ------ ------
Impaired loans $2,867 $3,583 $2,381
Assets acquired in foreclosure,
net of reserve 385 695 695
------ ------ ------
Total nonperforming assets $3,252 $4,278 $3,076
====== ====== ======
Loans past due 90 days or more
and still accruing interest $1,552 $1,755 $1,239
Ratios:
Impaired loans as a % of
total period-end loans 1.83% 2.24% 1.53%
Nonperforming assets as a % of
total period-end loans and net
assets acquired in foreclosure 2.08% 2.66% 1.96%
Nonperforming assets as a % of
total period-end stockholders'
equity 15.20% 20.34% 15.56%
Allowance for loan losses as a
multiple of impaired loans .8x .6x .9x
Interest not recognized on impaired
loans at period-end:(1)
Contractual interest due $285 $306 $199
Interest revenue recognized 39 120 11
---- ---- ----
Interest not recognized in operations $246 $186 $188
==== ==== ====
(1) This table includes interest not recognized on loans which were
classified as impaired at period-end. While every effort is being
made to collect this interest revenue, it is probable a portion will
never be recovered.
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CODORUS VALLEY BANCORP, INC.
Table 2-Analysis of Allowance for Loan Losses
(dollars in thousands) 1996 1995
------ ------
Balance-January 1, $2,286 $2,249
Provision charged to operating expense 108 32
Loans charged off:
Commercial 7 177
Real estate-mortgage 2 0
Consumer 64 31
------ ------
Total loans charged off 73 208
Recoveries:
Commercial 19 68
Real estate-mortgage 0 0
Consumer 24 11
------ ------
Total recoveries 43 79
------ ------
Net charge-offs 30 129
Balance-June 30, $2,364 $2,152
====== ======
Ratios:
Net charge-offs (annualized) to average
total loans 0.04% 0.17%
Allowance for loan losses to total loans
at period-end 1.51% 1.38%
Allowance for loan losses to impaired loans
and loans past due 90 days or more 53.5% 59.4%
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CODORUS VALLEY BANCORP, INC.
PART II - Other Information:
Item 1. Legal proceedings
Except as previously reported, in the opinion of the management of the
Corporation and the Bank, there are no proceedings pending to which the
Corporation and the Bank is a party or to which their property is subject,
which, if determined adversely to the Corporation and the Bank, would be
material in relation to the Corporation's and the Bank's undivided profits or
financial condition. Except as previously reported, there are no proceedings
pending other than ordinary routine litigation incident to the business of
the Corporation and the Bank. In addition, no material proceedings are
pending or are known to be threatened or contemplated against the Corporation
and the Bank by government authorities.
Item 2. Changes in the rights of the Company's security holders -
nothing to report.
Item 3. Defaults by the Company on its senior securities - nothing to report.
Item 4. Results of votes of security holders -
(a) An annual meeting of shareholders was held on May 21, 1996.
(b), (c) Three matters were voted upon as follows:
(1) Three directors were re-elected, as follows:
Votes Votes
Term cast Against or
Re-elected Expires For Withheld*
D. Reed Anderson, Esq. 1999 799,253 5,588
MacGregor S. Jones 1999 801,646 3,195
Larry J. Miller 1999 798,699 6,142
*includes broker nonvotes.
Directors whose term continued after the meeting:
Term Expires
Dallas L. Smith 1997
George A. Trout, DDS 1997
Rodney L. Krebs 1997
Larry J. Miller 1998
D. Reed Anderson, Esq. 1998
MacGregor S. Jones 1998
(2) The shareholders approved and ratified the adoption of the Codorus
Valley Bancorp, Inc. 1996 Stock Incentive Plan. Votes were cast as
follows: 683,120 For, 85,054 Against, and 4,800 Abtstentions or
broker nonvotes.
16
CODORUS VALLEY BANCORP, INC.
PART II - Other Information, continued:
Item 4. Results of votes of security holders, continued -
(3) The shareholders ratified the selection of Ernst & Young LLP,
of Harrisburg, Pennsylvania, as the independent auditors for the
Corporation for the year ending December 31, 1996. Votes were cast as
follows: 799,990 For, 2,006 Against, and 2,845 Abstentions or broker
nonvotes.
Item 5. Other information - nothing to report.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits - none.
(b) Reports on Form 8-K - none.
17
CODORUS VALLEY BANCORP, INC.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Codorus Valley Bancorp, Inc.
(Registrant)
By /s/ Larry J. Miller
(principal executive officer)
Larry J. Miller,
President & CEO
Date: July 31, 1996
By /s/ Jann A. Weaver
(principal financial and
accounting officer)
Jann A. Weaver,
Assistant Treasurer &
Assistant Secretary
Date: July 31, 1996
18