UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005
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.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2428543
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
105 Leader Heights Road, P.O. Box 2887, York, Pennsylvania 17405
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(Address of principal executive offices) (Zip code)
717-747-1519
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(Registrant's telephone number, including area code)
Not Applicable
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(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 [X] No [ ]
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Act). Yes [ ] No [X]
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. On July 26, 2005, 3,154,721
shares of common stock, par value $2.50, were outstanding.
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Codorus Valley Bancorp, Inc.
FORM 10-Q INDEX
Page #
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PART I - FINANCIAL INFORMATION
Item 1. Financial statements:
Consolidated statements of financial condition 3
Consolidated statements of income 4
Consolidated statements of cash flows 5
Consolidated statements of changes in shareholders' equity 6
Notes to consolidated financial statements 7
Item 2. Management's discussion and analysis of financial condition and
results of operations 12
Item 3. Quantitative and qualitative disclosures about market risk 21
Item 4. Controls and procedures 21
PART II - OTHER INFORMATION
Item 1. Legal proceedings 22
Item 2. Unregistered sales of equity securities and use of proceeds 22
Item 3. Defaults upon senior securities 22
Item 4. Submission of matters to a vote of security holders 22
Item 5. Other information 22
Item 6. Exhibits 23
SIGNATURES 25
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Codorus Valley Bancorp, Inc.
Consolidated Statements of Financial Condition
Unaudited
June 30, December 31,
(dollars in thousands, except per share data) 2005 2004
- --------------------------------------------------------------------------- ------------ ------------
ASSETS
Interest bearing deposits with banks $ 104 $ 119
Cash and due from banks 14,183 7,966
Federal Funds Sold 4,853 0
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Total cash and cash equivalents 19,140 8,085
Securities available-for-sale 61,632 62,587
Securities held-to-maturity (fair value $9,864 for 2005 and $9,929 for 2004) 9,102 9,103
Restricted investment in bank stock, at cost 2,085 2,450
Loans held for sale 1,266 1,589
Loans (net of deferred fees of $489 in 2005 and $481 in 2004) 319,332 298,671
Less-allowance for loan losses (2,207) (1,865)
------------ ------------
Net loans 317,125 296,806
Premises and equipment 10,850 9,909
Other assets 15,999 17,142
------------ ------------
Total assets $ 437,199 $ 407,671
============ ============
LIABILITIES
Deposits
Noninterest bearing $ 47,529 $ 40,897
Interest bearing 309,628 288,640
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Total deposits 357,157 329,537
Short-term borrowings 0 12,880
Long-term debt 39,482 26,613
Other liabilities 2,923 2,659
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Total liabilities 399,562 371,689
SHAREHOLDERS' EQUITY
Preferred stock, par value $2.50 per share;
1,000,000 shares authorized; 0 shares issued and outstanding 0 0
Common stock, par value $2.50 per share;
10,000,000 shares authorized; 3,154,721 shares issued and
outstanding on 6/30/05 and 2,992,590 on 12/31/04 7,887 7,481
Additional paid-in capital 22,960 20,293
Retained earnings 6,705 8,034
Accumulated other comprehensive income 85 174
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Total shareholders' equity 37,637 35,982
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Total liabilities and shareholders' equity $ 437,199 $ 407,671
============ ============
See accompanying notes.
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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) 2005 2004 2005 2004
- --------------------------------------------------------- ----------- ----------- ----------- -----------
INTEREST INCOME
Loans, including fees $ 5,245 $ 4,189 $ 10,389 $ 8,370
Investment securities
Taxable 615 580 1,214 1,182
Tax-exempt 102 105 203 209
Dividends 17 5 36 18
Other 27 15 29 24
----------- ----------- ----------- -----------
Total interest income 6,006 4,894 11,871 9,803
INTEREST EXPENSE
Deposits 1,714 1,297 3,179 2,594
Federal funds purchased and other short-term borrowings 6 0 57 4
Long-term debt 416 288 792 610
----------- ----------- ----------- -----------
Total interest expense 2,136 1,585 4,028 3,208
----------- ----------- ----------- -----------
Net interest income 3,870 3,309 7,843 6,595
PROVISION FOR LOAN LOSSES 175 125 375 175
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 3,695 3,184 7,468 6,420
NONINTEREST INCOME
Trust and investment services fees 315 250 580 493
Service charges on deposit accounts 396 358 769 698
Mutual fund, annuity and insurance sales 363 190 646 426
Income from bank owned life insurance 66 48 131 126
Other income 138 122 251 240
Gain on sales of mortgages 76 80 142 175
(Loss) gain on sales of securities (86) 0 (86) 7
----------- ----------- ----------- -----------
Total noninterest income 1,268 1,048 2,433 2,165
NONINTEREST EXPENSE
Personnel 1,928 1,724 3,762 3,391
Occupancy of premises, net 327 257 651 529
Furniture and equipment 314 294 631 614
Postage, stationery and supplies 143 112 245 202
Professional and legal 76 69 141 154
Marketing and advertising 177 133 266 241
Other 565 555 1,115 1,120
----------- ----------- ----------- -----------
Total noninterest expense 3,530 3,144 6,811 6,251
----------- ----------- ----------- -----------
Income before income taxes 1,433 1,088 3,090 2,334
PROVISION FOR INCOME TAXES 348 277 777 604
----------- ----------- ----------- -----------
Net income $ 1,085 $ 811 $ 2,313 $ 1,730
=========== =========== =========== ===========
Net income per share, basic $ 0.35 $ 0.26 $ 0.74 $ 0.55
Net income per share, diluted $ 0.34 $ 0.25 $ 0.72 $ 0.54
=========== =========== =========== ===========
See accompanying notes.
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Codorus Valley Bancorp, Inc.
Consolidated Statements of Cash Flows
Unaudited
Six months ended
June 30,
(dollars in thousands) 2005 2004
- ----------------------------------------------------------------------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,313 $ 1,730
Adjustments to reconcile net income to net cash provided by operations
Depreciation 537 495
Provision for loan losses 375 175
Amortization of investment in real estate partnership 237 109
Increase in cash surrender value of life insurance investment (131) (126)
Originations of held for sale mortgages (10,832) (14,347)
Proceeds from sales of held for sale mortgages 11,297 15,827
Gain on sales of held for sale mortgages (142) (175)
Loss (gain) on sales of securities 86 (7)
Gain on sales of foreclosed real estate (27) 0
Increase in accrued interest receivable and other assets (451) (289)
Increase in accrued interest payable and other liabilities 324 377
Other, net 155 266
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Net cash provided by operating activities 3,741 4,035
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available-for-sale
Purchases (10,018) (6,610)
Maturities and calls 6,703 1,772
Sales 3,918 5,262
Net decrease in restricted investment in bank stock 365 296
Net increase in loans made to customers (20,709) (16,720)
Purchases of premises and equipment (1,484) (687)
Investment in real estate partnership 0 (1,107)
Purchase of insurance agency assets (60) (105)
Proceeds from sales of foreclosed real estate 1,559 0
--------- ---------
Net cash used in investing activities (19,726) (17,899)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand and savings deposits 16,731 24,293
Net increase in time deposits 10,889 2,068
Net decrease in short-term borrowings (12,880) (6,795)
Proceeds from issuance of long-term debt 13,500 1,800
Repayment of long-term debt (631) (2,240)
Dividends paid (749) (710)
Issuance of common stock 186 26
Cash paid in lieu of fractional shares (6) (6)
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Net cash provided by financing activities 27,040 18,436
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Net increase in cash and cash equivalents 11,055 4,572
Cash and cash equivalents at beginning of year 8,085 12,408
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Cash and cash equivalents at end of period $ 19,140 $ 16,980
========= =========
See accompanying notes.
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Codorus Valley Bancorp, Inc.
Consolidated Statements of Changes in Shareholders' Equity
Unaudited
Accumulated
Additional Other
Common Paid-in Retained Comprehensive
(dollars in thousands, except per share data) Stock Capital Earnings Income Total
- ------------------------------------------------ -------- ---------- -------- ------------- ---------
For the six months ended June 30, 2005
Balance, December 31, 2004 $ 7,481 $ 20,293 $ 8,034 $ 174 $ 35,982
Comprehensive income:
Net income 2,313 2,313
Other comprehensive loss, net of tax:
Unrealized losses on securities, net (89) (89)
---------
Total comprehensive income 2,224
Cash dividends ($.238 per share, adjusted) (749) (749)
5% stock dividend - 149,593 shares at fair value 374 2,513 (2,893) (6)
Issuance of common stock -
12,538 shares under stock option plan 32 154 186
-------- ---------- -------- ------------- ---------
Balance, June 30, 2005 $ 7,887 $ 22,960 $ 6,705 $ 85 $ 37,637
======== ========== ======== ============= =========
For the six months ended June 30, 2004
Balance, December 31, 2003 $ 7,094 $ 17,451 $ 8,498 $ 746 $ 33,789
Comprehensive income:
Net income 1,730 1,730
Other comprehensive loss, net of tax:
Unrealized losses on securities, net (599) (599)
---------
Total comprehensive income 1,131
Cash dividends ($.226 per share, adjusted) (710) (710)
5% stock dividend - 141,672 shares at fair value 354 2,656 (3,016) (6)
Issuance of common stock -
1,654 shares under stock option plan 4 22 26
-------- ---------- -------- ------------- ---------
Balance, June 30, 2004 $ 7,452 $ 20,129 $ 6,502 $ 147 $ 34,230
======== ========== ======== ============= =========
See accompanying notes.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The interim financial statements are unaudited. However, they reflect all
adjustments that 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 the notes to the audited
financial statements contained in the 2004 Annual Report to Shareholders.
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
Corporation). PeoplesBank has two wholly owned subsidiaries, SYC Insurance
Services, Inc. and SYC Settlement Services, Inc. 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 six-month period ended June 30, 2005 are not
necessarily indicative of the results to be expected for the full year.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
Stock dividend and per share computations
All per share computations include the effect of stock dividends declared,
including the 5 percent stock dividend declared April 12, 2005. The weighted
average number of shares of common stock outstanding used for basic and diluted
calculations follows.
Three months ended Six months ended
(In thousands) June 30, June 30,
- -------------- ------------------ --------------------
2005 2004 2005 2004
------ ------ ------ -------
Basic 3,150 3,130 3,147 3,130
Diluted 3,212 3,198 3,212 3,199
Stock-based compensation
Stock options issued under shareholder approved employee and director stock
option plans are accounted for under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25). Stock options are granted
at exercise prices not less than the fair value of the common stock on the date
of grant. Under APB 25, no compensation expense is recognized related to these
plans.
In accordance with Financial Accounting Standard No. 123, the Corporation has
elected to disclose the pro forma information regarding net income and net
income per share as if the stock options had been accounted for under the
recognition provisions of the Standard. For purposes of pro forma disclosures,
the estimated fair value of the options is amortized to expense over the
options' vesting period. Pro forma amounts are indicated in the following table:
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Three months ended Six months ended
June 30, June 30,
(Dollars in thousands, except per share data) 2005 2004 2005 2004
- ------------------------------------------------------ --------- --------- --------- ---------
Reported net income $ 1,085 $ 811 $ 2,313 $ 1,730
Deduct total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects 24 15 38 20
--------- --------- --------- ---------
Pro forma net income $ 1,061 $ 796 $ 2,275 $ 1,710
--------- --------- --------- ---------
Reported basic earnings per share $ .35 $ .26 $ .74 $ .55
--------- --------- --------- ---------
Reported diluted earnings per share $ .34 $ .25 $ .72 $ .54
--------- --------- --------- ---------
Pro forma basic earnings per share $ .34 $ .25 $ .72 $ .55
--------- --------- --------- ---------
Pro forma diluted earnings per share $ .33 $ .25 $ .71 $ .53
========= ========= ========= =========
Comprehensive income
Accounting principles generally 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 Six months ended
June 30, June 30,
(Dollars in thousands) 2005 2004 2005 2004
- ----------------------------------------- ------- ------- ------- -------
Unrealized holding gains (losses) arising
during the period $ 446 $(1,324) $ (221) $ (900)
Reclassification adjustment for losses
(gains) included in income 86 0 86 (7)
------- ------- ------- -------
Net unrealized gains (losses) 532 (1,324) (135) (907)
Tax effect (181) 450 46 308
------- ------- ------- -------
Net of tax amount $ 351 $ (874) $ (89) $ (599)
======= ======= ======= =======
New Accounting Pronouncements
On April 14, 2005, the Securities and Exchange Commission announced a new rule
that allows companies to implement Statement No. 123(R), "Accounting for
Stock-Based Compensation" at the beginning of their next fiscal year, instead of
the next reporting period, that begins after June 15, 2005. This means that a
calendar year company, such as Codorus Valley, will need to comply with
Statement No. 123(R) when it files financial statements for first quarter 2006,
instead of third quarter 2005.
In March 2005, the Securities and Exchange Commission released Staff Accounting
Bulletin No. 107 (SAB No. 107), "Share Based Payment," providing guidance on
option valuation methods, the accounting for income tax effects of share-based
payment arrangements upon adoption of Statement of Financial Accounting Standard
No. 123(R), and the disclosures in the management discussion and analysis
subsequent to adoption. The Corporation will provide SAB No. 107 required
disclosures upon adoption of SFAS No.123(R).
In December 2004, the Financial Accounting Standards Board (FASB) issued
Statement No. 123(R), "Share-Based Payment." Statement No. 123(R) revised
Statement No. 123, "Accounting for Stock-
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Based Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and its related implementation guidance. Statement No.
123(R) will require compensation costs related to share-based payment
transactions to be recognized in the financial statements (with limited
exceptions). Public companies are required to adopt the new standard using a
modified prospective method. Under the modified prospective method, companies
are required to record compensation cost for new and modified awards over the
related vesting period of such awards prospectively and record compensation cost
prospectively for the unvested portion, at the date of adoption, of previously
issued and outstanding awards over the remaining vesting period of such awards.
The amount of compensation cost will be measured based on the grant-date fair
value of the equity or liability instruments issued. The Corporation is
currently evaluating the impact of this standard on its results of operations
and financial position.
NOTE 3 -- DEPOSITS
The composition of deposits on June 30, 2005 and December 31, 2004, was as
follows:
June 30, December 31,
(Dollars in thousands) 2005 2004
- -------------------------- ---------- ------------
Noninterest bearing demand $ 47,529 $ 40,897
NOW 48,565 43,188
Money market 90,811 88,001
Savings 21,180 19,268
Time CDs less than $100,000 117,793 111,766
Time CDs $100,000 or more 31,279 26,417
---------- ------------
Total deposits $ 357,157 $ 329,537
========== ============
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NOTE 4 -- LONG-TERM DEBT
A summary of long-term debt at June 30, 2005 and December 31, 2004 follows:
June 30, December 31,
(Dollars in thousands) 2005 2004
- -------------------------------------------------- ----------- ------------
Obligations of PeoplesBank to FHLBP
Due 2005, 5.36%, convertible quarterly $ 6,000 $ 6,000
Due 2007, 4.69%, amortizing 650 857
Due 2009, 3.47%, convertible quarterly after
December 2006 5,000 5,000
Due 2010, 4.32% 6,000 0
Due 2011, 4.30%, amortizing 4,880 0
Due 2012, 4.25%, amortizing 2,474 0
Due 2013, 3.46%, amortizing 4,096 4,318
Due 2014, 6.43%, convertible quarterly after
July 2009 5,000 5,000
Obligations of Codorus Valley Bancorp, Inc.
Due 2011, floating rate based on 1 month
LIBOR plus 1.50%, amortizing 1,683 1,728
Due 2034, floating rate based on 3 month
LIBOR plus 2.02%, callable quarterly after
December 2009 3,093 3,093
----------- ------------
38,876 25,996
Capital lease obligation 606 617
----------- ------------
Total long-term debt $ 39,482 $ 26,613
=========== ============
PeoplesBank's obligations to Federal Home Loan Bank of Pittsburgh (FHLBP) are
fixed rate and fixed/floating (convertible) rate instruments. The FHLBP has an
option on the convertible borrowings to convert the rate to a floating rate
after the expiration of a specified period. The floating rate is based on the
LIBOR index plus a spread. If the FHLBP elects to exercise its conversion
option, PeoplesBank may repay the converted loan without a prepayment penalty.
Codorus Valley has two long-term obligations. The first is due 2011 and is
secured by a mortgage on the Codorus Valley Corporate Center office building at
105 Leader Heights Road, York, Pennsylvania. The second obligation is due 2034,
which represents the issuance of trust preferred debt securities. Trust
preferred debt securities were issued to support planned growth and are included
in Tier 1 capital for regulatory capital purposes.
NOTE 5 -- REGULATORY 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 Valley's 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.
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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 average assets (leverage ratio). Management believes that
Codorus Valley and PeoplesBank were well capitalized on June 30, 2005, 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.
AT JUNE 30, 2005
Capital ratios:
Tier 1 risk based $ 40,049 11.52 % > or = $ 13,906 > or = 4.0 % n/a n/a
Total risk based 42,256 12.15 > or = 27,812 > or = 8.0 n/a n/a
Leverage 40,049 9.56 > or = 16,759 > or = 4.0 n/a n/a
AT DECEMBER 31, 2004
Capital ratios:
Tier 1 risk based $ 38,285 11.77 % > or = $ 13,012 > or = 4.0 % n/a n/a
Total risk based 40,150 12.34 > or = 26,023 > or = 8.0 n/a n/a
Leverage 38,285 9.86 > or = 15,534 > or = 4.0 n/a n/a
PEOPLESBANK
AT JUNE 30, 2005
Capital ratios:
Tier 1 risk based $ 35,540 10.40 % > or = $ 13,665 > or = 4.0 % > or = $ 20,497 > or = 6.0 %
Total risk based 37,747 11.05 > or = 27,329 > or = 8.0 > or = 34,161 > or = 10.0
Leverage 35,540 8.60 > or = 16,521 > or = 4.0 > or = 20,652 > or = 5.0
AT DECEMBER 31, 2004
Capital ratios:
Tier 1 risk based $ 33,837 10.60 % > or = $ 12,774 > or = 4.0 % > or = $ 19,161 > or = 6.0 %
Total risk based 35,702 11.18 > or = 25,548 > or = 8.0 > or = 31,935 > or = 10.0
Leverage 33,837 8.85 > or = 15,291 > or = 4.0 > or = 19,114 > or = 5.0
* To be well capitalized under prompt corrective action provisions.
NOTE 6 -- CONTINGENT LIABILITIES
Management is not aware of any material contingent liabilities on June 30, 2005.
NOTE 7 -- GUARANTEES
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 written are conditional commitments issued by the 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 $4,532,000 of standby letters of credit on June
30, 2005, compared to $2,857,000 on December 31, 2004. 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 guarantees. The current amount of the liability
as of June 30, 2005, for guarantees under standby letters of credit issued is
not material.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's 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 Corporation), a bank holding company, and its wholly owned subsidiary,
PeoplesBank, A Codorus Valley Company (PeoplesBank), are provided below. Codorus
Valley's consolidated financial condition and results of operations consist
almost entirely of PeoplesBank's 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.
Readers should note that many factors, some of which are discussed elsewhere in
this report and in the documents that management incorporates 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:
- - operating, legal and regulatory risks;
- - economic, political and competitive forces affecting banking, securities,
asset management and credit services businesses; and
- - the risk that management's 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. Readers should carefully review the risk factors
described in other documents that Codorus Valley files periodically with the
Securities and Exchange Commission.
CRITICAL ACCOUNTING ESTIMATES:
Disclosure of Codorus Valley's significant accounting policies is included in
Note 1 to the consolidated financial statements of the 2004 Annual Report to
Shareholders, filed as Exhibit 13 to the Annual Report on Form 10-K for the
period ended December 31, 2004. Some of these policies are particularly
sensitive, requiring management to make significant judgments, estimates and
assumptions. Additional information is contained in Management's Discussion and
Analysis for the most sensitive of these issues, including the provision and
allowance for loan losses, located on pages 16 and 19 of this Form 10-Q.
Management makes significant estimates in determining the allowance for loan
losses. Management considers a variety of factors in establishing this estimate
such as current economic conditions, diversification of the loan portfolio,
delinquency statistics, results of internal loan reviews, financial and
managerial strengths of borrowers, adequacy of collateral, if collateral
dependent, or present value of
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future cash flows and other relevant factors. Estimates related to the value of
collateral also have a significant impact on whether or not management continues
to accrue income on delinquent loans and on the amounts at which foreclosed real
estate is recorded on the statement of financial condition.
As permitted by SFAS No. 123, the Corporation accounts for stock-based
compensation in accordance with Accounting Principles Board Opinion (APB) No.
25. Under APB No. 25, no compensation expense is recognized in the income
statement related to any options granted under the Corporation's stock option
plans. The pro forma impact of net income and earnings per share that would
occur if compensation expense was recognized, based on the estimated fair value
of the options on the date of the grant, is disclosed in Note 2 to the
consolidated financial statements under the subheading Stock-Based Compensation.
The Corporation plans to change its method of accounting for stock-based
compensation in 2006, in accordance with Financial Accounting Statement No.
123(R), which is described in Note 2 under the subheading New Accounting
Pronouncements. Based on stock options outstanding on June 30, 2005,
approximately $50,000 will be expensed for full year 2006 and $34,000 for 2007.
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.
THREE MONTHS ENDED JUNE 30, 2005,
COMPARED TO THREE MONTHS ENDED JUNE 30, 2004
OVERVIEW
Net income for the three-month period ended June 30, 2005, was $1,085,000 or
$.34 per diluted share, compared to $811,000 or $.25 per diluted share, for the
same period of 2004. The $274,000 or 34 percent increase in net income was the
result of increases in net interest income and noninterest income, which more
than offset increases in noninterest expense and loan loss provision. The
$561,000 or 17 percent increase in net interest income was primarily
attributable to an increase in interest income from a larger volume of business
loans. The $220,000 or 21 percent increase noninterest income was primarily
attributable to an increase in commission income from a larger volume of sales
of mutual funds, annuities and insurance products. The $386,000 or 12 percent
increase in noninterest expense resulted primarily from increases in personnel
and occupancy expenses from franchise expansion described in the Income
Statement Analysis Overview section of this report and normal business growth.
The $50,000 or 40 percent increase in the current period loan loss provision
reflected management's assessment of overall credit quality, loan growth and
macro-economic factors such as rising energy costs and interest rates.
NET INTEREST INCOME
Net interest income for the three-month period ended June 30, 2005, was
$3,870,000, an increase of $561,000 or 17 percent above the same period in 2004.
The increase reflected an increase in average earning assets, principally
business loans. Earning assets averaged $387 million and yielded 6.07 percent
(tax equivalent) for the second quarter of 2005, compared to $347 million and
5.50 percent, respectively, for the second quarter 2004. The average balance of
investment securities for both quarters was approximately $70 million; however
the yield for the current quarter averaged 4.37 percent or 10 basis points above
2004. Interest bearing liabilities averaged $342 million at an average rate of
2.50 percent for 2005, compared to $311 million and 2.05 percent, respectively,
for the second quarter of 2004. The $31 million or 10 percent increase in the
average balance of interest bearing liabilities occurred
- 13 -
primarily in core (non-CD deposits) and long-term debt. Throughout the second
quarter, CD deposits, principally variable rate CDs, continued to trend upward
outpacing the first quarter of 2005.
PROVISION FOR LOAN LOSSES
A $175,000 provision expense for loan losses was recorded in the three-month
period ended June 30, 2005, compared to $125,000 for the same period in 2004.
The current period provision was based on management's assessment of overall
credit quality, loan growth and macro-economic factors such as rising energy
costs and interest rates.
NONINTEREST INCOME
Total noninterest income for the current three-month period was $1,268,000, an
increase of $220,000 or 21 percent above the second quarter of 2004. The
increase was primarily attributable to an increase in commission income from the
sale of mutual fund, annuity and insurance products, which resulted from a
greater level of sales. Increases in trust fees and service charges on deposit
accounts from normal business growth also contributed. The current period
included an $86,000 loss from the sale of available-for-sale securities as part
of an investment "swap." The swap entailed selling low yielding investments at a
loss and replacing them with higher yielding investments, which is designed to
increase portfolio yield and interest income in future periods.
NONINTEREST EXPENSE
Total noninterest expense for the current three-month period was $3,530,000, an
increase of $386,000 or 12 percent above the same period in 2004. The increase
was primarily attributable to increases in personnel and occupancy expenses,
which resulted from expansion of the banking franchise described in the Income
Statement Analysis Overview section of this report. Franchise expansion also
resulted in increases in stationery and supplies and advertising expenses.
INCOME TAXES
The provision for federal income tax was $348,000 for the current three-month
period, compared to $277,000 for the same period in 2004. The $71,000 or 26
percent increase in tax provision was the result of a 32 percent increase in
pretax income. The tax increase in the current period was reduced by the
recognition of tax credits from investments in low income housing partnerships.
For the current period, tax credits totaled $83,000, compared to $37,000 for the
second quarter of 2004.
SIX MONTHS ENDED JUNE 30, 2005,
COMPARED TO SIX MONTHS ENDED JUNE 30, 2004
INCOME STATEMENT ANALYSIS
OVERVIEW
Net income for the six-month period ended June 30, 2005, was $2,313,000 or $.72
per diluted share, compared to $1,730,000 or $.54 per diluted share, for the
same period of 2004. The $583,000 or 34 percent increase in net income was the
result of increases in net interest income and noninterest income, which more
than offset increases in noninterest expense and loan loss provision. The
$1,248,000 or 19 percent increase in net interest income was attributable to an
increase in interest income and fees from a
- 14 -
larger volume of business and consumer loans. The net interest margin was 4.30
percent for the current period, compared to 3.92 percent for the first six
months of 2004. The $268,000 or 12 percent increase in noninterest income was
attributable to increases in commissions and fees, which resulted from increased
sales and business growth. The $560,000 or 9 percent increase in noninterest
expense was attributable to increases in personnel and occupancy expenses
associated with corporate expansion, as described below, and normal business
growth. The loan loss provision was $375,000 for the current six-month period,
an increase of $200,000 or 114 percent above the same period of 2004 based on
management's assessment of overall credit quality, loan growth and
uncontrollable macro-economic factors such as rising energy costs and interest
rates.
PeoplesBank opened two full-service financial centers during the quarter ended
March 31, 2005. The first, opened on February 23, is located at 1477 Carlisle
Road in West Manchester Township, PA. The second, opened on March 21, is located
at 26 East Main Street in the Borough of New Freedom, PA. Additionally, on
October 6, 2004, PeoplesBank opened a financial center at 2510 Delta Road,
Brogue, PA. As of June 30, 2005, PeoplesBank operated fourteen financial centers
located strategically throughout York County, Pennsylvania.
The return of average assets (ROA) for first six months (annualized) of 2005 was
1.10 percent, compared to 0.91 percent for the same period of 2004. The return
on average equity (ROE) for the first six months (annualized) of 2005 was 12.54
percent, compared to 10.05 percent for the same period of 2004. The efficiency
ratio (noninterest expense as a percentage of net operating revenue) for the
current period was 64.6 percent, compared to 70 percent for the first six months
of 2004.
Total assets of the Corporation on June 30, 2005, were approximately $437
million, an increase of $30 million or 7 percent above December 31, 2004. Asset
growth occurred primarily in business loans, which were funded by growth in core
(non-CD) deposits, CDs and long-term debt. Based on a recent evaluation of
probable loan losses and the current loan portfolio, management believes that
the allowance is adequate to support losses inherent in the portfolio at June
30, 2005. Management also believes that the Corporation and PeoplesBank were
well capitalized on June 30, 2005, based on FDIC capital guidelines. An
explanation of the factors and trends that caused changes between the two
periods, by earnings category, is provided below.
NET INTEREST INCOME
Since early 2004, short-term interest rates in the United States (US) have
trended upward in response to monetary policy by the Federal Open Market
Committee of the Federal Reserve (Fed), which was influenced by economic growth,
price increases and other factors. During the first six months of 2005, the Fed
raised its target federal funds rate 25 basis points on four occasions, which
moved the rate from 2.25 percent to 3.25 percent. The prime rate, established by
commercial banks, moved in lock-step and increased from 5.25 percent to 6.25
percent. As short-term yields have trended up, long-term yields (10-year UST
bond) declined slightly resulting in a flattening of the US yield curve. Many
economists, including Federal Reserve Chairman Greenspan, are puzzled as to why
long-term interest rates, which are influenced in part by the market's
perception of inflation, have not risen. Based on commentary from the Fed, the
markets are poised for further interest rate increases through year-end 2005.
Net interest income for the six-month period ended June 30, 2005, was
$7,843,000, an increase of $1,248,000 or 19 percent above the same period in
2004. Earning assets averaged $385 million and yielded 6.37 percent (tax
equivalent) for 2005, compared to $345 million and 5.79 percent, respectively,
for 2004. The $40 million or 12 percent increase in average earning assets
occurred primarily in business loans and secondarily in consumer loans. The
average balance of investment securities for the
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current period was approximately $73 million, up slightly from 2004, but the
average yield was 4.53 percent or 29 basis points above the prior year. Interest
bearing liabilities averaged $339 million at an average rate of 2.29 percent for
2005, compared to $308 million and 2.10 percent, respectively, for 2004. The $31
million or 10 percent increase in the average balance of interest bearing
liabilities occurred primarily in core (non-CD) deposits, and secondarily in
long-term debt. The addition of three financial centers since October 2004
positively impacted the growth in core deposits. The increase in long-term debt
supplemented deposit growth as an important source of funding for loans. Net
interest margin, ie., net interest income (tax equivalent) as a percentage of
average earning assets, was 4.30 percent for the six-month period ended June 30,
2005, compared to 3.92 percent for the same period in 2004. In the period ahead,
management expects that growth in net interest income will be constrained as a
result of higher funding costs and a relatively flat US yield curve environment.
Funding costs are expected to increase in response to changes in deposit mix,
rising short-term interest rates and competition.
PROVISION FOR LOAN LOSSES
A $375,000 provision expense for loan losses was recorded in the six-month
period ended June 30, 2005, compared to $175,000 for the same period in 2004.
The current period provision was based on management's assessment of overall
credit quality, loan growth and macro-economic factors such as rising energy
costs and interest rates. Information regarding nonperforming assets and the
allowance for loan losses can be found within those sections of this report.
NONINTEREST INCOME
Total noninterest income for the current six-month period was $2,433,000, an
increase of $268,000 or 12 percent above the same period in 2004. The increase
was primarily attributable to a $220,000 or 52 percent increase in commission
income from the sale of mutual fund, annuity and insurance products, which
resulted from increased sales. Increases in trust fees and service charges on
deposit accounts from normal business growth also contributed. Current period
income from the sale of mortgages was below the first six months of 2004 due in
part to a decrease in sales volume. Losses from the sale of available-for-sale
securities during the current period resulted from a bond swap, which is
described in the three-month period ended June 30, 2005, section of this report.
NONINTEREST EXPENSE
Total noninterest expense for the current six-month period was $6,811,000, an
increase of $560,000 or 9 percent above the same period in 2004. The increase
was primarily attributable to increases in personnel and occupancy expenses,
which resulted from expansion of the banking franchise previously described in
the Overview section. In the period ahead, it is probable that noninterest
expense will increase as a result of franchise expansion, recently completed and
planned financial center renovations, and an anticipated increase in premiums
for employee health insurance. Marketing expense is also likely to increase as
management implements a brand image campaign planned for later in 2005.
INCOME TAXES
The provision for federal income tax was $777,000 for the current six-month
period, compared to $604,000 for the same period in 2004. The $173,000 or 29
percent increase in tax provision was the result of a 32 percent increase in
pretax income. The tax increase in the current period was reduced by the
recognition of tax credits from investments in low income housing partnerships.
For the current period, tax credits totaled $165,000, compared to $75,000 for
the first six months of 2004.
-16-
BALANCE SHEET REVIEW
LOANS
On June 30, 2005, loans were approximately $319 million, an increase of $21
million or 7 percent above year-end 2004. The increase was attributable to
growth in the business loan portfolio, principally fixed-rate loans.
DEPOSITS
On June 30, 2005, total deposits were approximately $357 million, an increase of
$28 million or 8 percent above year-end 2004. The increase was attributable, in
part, to the addition of three financial centers and normal business growth. Two
financial centers were opened in the first quarter of 2005 and one was opened in
the fourth quarter of 2004. The increase in deposits occurred primarily within
the demand (non-interest bearing and NOW) and CD categories. Most of the growth
in the CD category was attributable to variable rate CDs, which re-price weekly
based on the rate of the one year UST bond. In a rising interest rate
environment the cost of variable rate CDs increases. A comparative table of
deposits, by deposit type, is provided in Note 3 of this report.
LONG-TERM DEBT
On June 30, 2005, total long-term debt was $39 million, an increase of $13
million or 48 percent above year-end 2004. The increase in debt supplemented
deposit growth and provided necessary funding for current and planned loan
growth. A comparative table of long-term debt is provided in Note 4 of this
report.
SHAREHOLDERS' EQUITY AND CAPITAL ADEQUACY
Shareholders' equity or capital, as a source of funds, enables Codorus Valley to
maintain asset growth and absorb losses. Total shareholders' equity was
approximately $37,637,000 on June 30, 2005, an increase of $1,655,000 or 5
percent above December 31, 2004. The increase was caused primarily by an
increase in retained earnings from profitable operations.
On July 12, 2005, the Board of Directors declared a quarterly cash dividend of
$.125 per common share, payable on or before August 9, 2005, to shareholders of
record July 26, 2005. This follows a $.119 per common share cash dividend paid
in May and February, as adjusted for the 5 percent common stock dividend
distributed in June of this year. The stock dividend resulted in the issuance of
149,593 common shares.
On October 14, 2004, the Corporation issued a press release, which was filed on
Form 8-K, announcing that the Board of Directors authorized the purchase, in
open market and privately negotiated transactions, of up to 4.9 percent or
approximately 146,000 shares of its then outstanding common stock. As of June
30, 2005, the Corporation has not acquired any of its common stock under the
authorization reported in October 2004.
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 5 --
Regulatory
-17-
Matters, to the financial statements. Management believes that Codorus Valley
and PeoplesBank were well capitalized on June 30, 2005, based on FDIC capital
guidelines.
RISK MANAGEMENT
NONPERFORMING ASSETS
Table 1 -- Nonperforming Assets, provides a summary of nonperforming assets and
related ratios. The paragraphs below provide information for selected categories
for June 30, 2005, compared to December 31, 2004.
TABLE 1-NONPERFORMING ASSETS
June 30, December 31,
(dollars in thousands) 2005 2004
-------- ------------
Nonaccrual loans $ 442 $ 622
Accruing loans that are contractually past due
90 days or more as to principal or interest 101 19
Foreclosed real estate, net of allowance 30 1,535
-------- ---------
Total nonperforming assets $ 573 $ 2,176
======== =========
Ratios:
Nonaccrual loans as a % of total period-end loans 0.14% 0.21%
Nonperforming assets as a % of total period-end
loans and net foreclosed real estate 0.18% 0.72%
Nonperforming assets as a % of total period-end
stockholders' equity 1.52% 6.05%
Allowance for loan losses as a multiple of
nonaccrual loans 5.0x 3.0x
For the current period, nonaccrual loans consisted of consumer loans and
mortgages. Accordingly, interest income was recognized on a cash basis. On June
30, 2005, the nonaccrual loan portfolio was $442,000, compared to $622,000 on
December 31, 2004, which was relatively low for both periods. On June 30, 2005,
the portfolio was comprised of 11 unrelated accounts ranging in size from $6,000
to $100,000. 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.
The level of accruing loans that are contractually past due 90 days or more as
to principal or interest was not significant for the periods presented.
Generally, loans in the past due category are adequately collateralized and in
the process of collection.
Foreclosed real estate, net of allowance, was $30,000 on June 30, 2005, compared
to $1,535,000 on December 31, 2004. The decrease was attributable to the sale,
in February 2005, of real estate from one account that had a carrying value of
approximately $1,527,000. Sale proceeds exceeded the carrying value of the real
estate by $151,000 resulting in a gain on the sale. Approximately $29,000 of the
total
-18-
gain was recognized in February 2005 at the time of settlement. The remaining
$122,000 gain will be recognized as income in July 2005. The delay in income
recognition on this transaction was due to litigation over a mechanic's lien,
which was resolved in the Corporation's favor in July. Efforts to liquidate the
remaining foreclosed real estate are proceeding as quickly as potential buyers
can be located.
ALLOWANCE FOR LOAN LOSSES
Table 2 -- Analysis of Allowance for Loan Losses, shows the allowance was
$2,207,000 or .69 percent of total loans on June 30, 2005, compared to
$1,717,000 or .62 percent of total loans, respectively, on June 30, 2004. The
$490,000 or 29 percent increase in the allowance was based on management's
estimate to bring the allowance to a level reflective of risk in the portfolio,
loan growth and macro-economic factors such as rising energy costs and interest
rates. Based on a recent evaluation of potential loan losses in the current
portfolio, management believes that the allowance is adequate to support losses
inherent in the loan portfolio on June 30, 2005.
TABLE 2-ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(dollars in thousands) 2005 2004
- --------------------- --------- ---------
Balance-January 1, $ 1,865 $ 1,694
Provision charged to operating expense 375 175
Loans charged off:
Commercial 34 215
Real estate-mortgage 9 8
Consumer 47 98
--------- ---------
Total loans charged off 90 321
Recoveries:
Commercial 41 162
Real estate-mortgage 1 0
Consumer 15 7
--------- ---------
Total recoveries 57 169
--------- ---------
Net charge-offs 33 152
--------- ---------
Balance-June 30, $ 2,207 $ 1,717
--------- ---------
Ratios:
Net charge-offs (annualized) to average total loans 0.02% 0.11%
Allowance for loan losses to total loans
at period-end 0.69% 0.62%
Allowance for loan losses to nonaccrual loans
and loans past due 90 days or more 406.4% 146.5%
LIQUIDITY
Codorus Valley's loan-to-deposit ratio, which is used as a broad measure of
liquidity, was approximately 89 percent on June 30, 2005, compared to 91 percent
on December 31, 2004. Liquidity for both periods was adequate based on
availability from many sources, including the potential liquidation of a $62
million portfolio of available-for-sale securities, valued at June 30, 2005.
Another
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important source of liquidity for PeoplesBank is available credit from the
Federal Home Loan Bank of Pittsburgh (FHLBP). On March 31, 2005, the latest
available date, available funding from the FHLBP was approximately $90 million.
The recent addition of three financial centers is expected to increase liquidity
in the form of deposit growth.
Off-Balance Sheet Arrangements
Codorus Valley's 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 of existing loans, and letters of credit made under the
same standards as on-balance sheet instruments. Unused commitments on June 30,
2005, totaled $105,087,000 and consisted of $59,273,000 in unfunded commitments
of existing loans, $41,282,000 to grant new loans and $4,532,000 in letters of
credit. Due to fixed maturity dates and specified conditions within these
instruments, many will expire without being drawn upon. Management believes that
amounts actually drawn upon can be funded in the normal course of operations and
therefore do not present a significant liquidity risk to Codorus Valley.
Contractual Obligations
Codorus Valley has various long-term contractual obligations outstanding at June
30, 2005, including long-term debt, time deposits and obligations under capital
and operating leases, which were reported in Table 11 of the Form 10-K for the
year ended 2004. Over the past six months, PeoplesBank has increased its
contractual obligations to support balance sheet growth and physical expansion.
A comparative schedule of deposits, which includes time deposits, is provided in
Note 3 of this Form 10-Q report. A comparative schedule of long-term debt is
provided in Note 4.
MARKET RISK MANAGEMENT
In the normal course of conducting business, Codorus Valley is exposed to market
risk, principally interest rate risk, through the operations of its banking
subsidiary. Interest rate risk arises from market driven fluctuations in
interest rates, which may affect cash flows, income, expense and values of
financial instruments. An asset-liability management committee comprised of
members of management manages interest rate risk.
Codorus Valley performed a simulation on its balance sheet at June 30, 2005 and
December 31, 2004. The results of the point-in-time analyses are shown in Table
3 -- Interest Rate Sensitivity. The analyses reveal that the Corporation's
balance sheet was asset sensitive for both periods. Asset sensitive means that
loan and investment assets will reprice to a greater and faster degree than the
deposits and debt that fund them. Therefore, the balance sheet is positioned to
benefit from economic growth and rising market interest rates. Conversely, if
market interest rates decline, earnings are expected to decline. A detailed
discussion of market interest risk is provided in the Corporation's annual
report on Form 10-K for the period ended December 31, 2004.
-20-
TABLE 3-INTEREST RATE SENSITIVITY
Change in interest rates
(basis points) Forecasted interest Change in net income
ramped over 12 mos rate scenario $000's %
------------------------ ------------------- ------- ----
AT JUNE 30, 2005
+75 Most likely 69 1.4
+200 High 136 2.8
0 Flat (baseline) 0 0.0
-200 Low (192) (4.0)
AT DECEMBER 31, 2004
+125 Most likely 141 3.4
+200 High 161 3.9
0 Flat (baseline) 0 0.0
-200 Low (145) (3.5)
OTHER RISKS
Future grand acts of terrorism in the United States of America, or in other
countries, could erode consumer and business confidence and disrupt commerce,
resulting in a prolonged economic recession. A prolonged economic recession
could have a material adverse effect on the liquidity, capital resources or
results of operations of Codorus Valley.
Periodically, federal and state legislation is proposed that could result in
additional regulation of, or restrictions on, the business of Codorus Valley and
its subsidiaries. Other than as discussed in the Corporation's Form 10-K for the
year ended December 31, 2004, it cannot be predicted whether such legislation
will be adopted or, if adopted, how such legislation would affect the business
of Codorus Valley and its subsidiaries.
Management is not aware of any other current specific recommendations by
regulatory authorities or proposed legislation, which, if they were implemented,
would have a material adverse effect upon the liquidity, capital resources, or
results of operations. Although the general cost of compliance with numerous
federal and state laws and regulations has, and in the future, may have a
negative impact on Codorus Valley's results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to the section entitled "Market risk management" within Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations on page 20 of this Form 10-Q.
ITEM 4. CONTROLS AND PROCEDURES
Codorus Valley maintains disclosure controls and procedures designed to ensure
that information required to be disclosed in the reports that the Corporation
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission. Based upon their
evaluation of those controls and procedures performed as of June 30, 2005, the
chief executive and chief financial officers of Codorus Valley concluded that
Codorus Valley's disclosure controls and procedures were adequate.
-21-
Codorus Valley made no significant changes in its internal controls or in other
factors that could significantly affect these controls in the quarter ended June
30, 2005, as evaluated by the chief executive and chief financial officers.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Management of Codorus Valley and PeoplesBank is not aware of any material
litigation, other than routine litigation incident to the nature of its
business, nor any material proceedings pending, threatened or contemplated
against Codorus Valley and PeoplesBank by government authorities.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Codorus Valley made no sales or repurchases of equity securities during the
quarter ended June 30, 2005.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Nothing to report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) An annual meeting of shareholders was held on May 17, 2005, at 9:00 am,
Codorus Valley Corporate Center, 105 Leader Heights Road, York, Pennsylvania
17403.
(b), (c) Three directors were re-elected at the May 17, 2005, meeting. Votes
were as follows:
Votes
Term Votes Against or
Re-elected Expires For Withheld*
- --------------------------- ------- --------- ---------
Class C:
D. Reed Anderson, Esquire 2008 2,408,960 149,847
MacGregor S. Jones 2008 2,418,951 139,856
Larry J. Miller 2008 2,420,894 137,913
*Includes broker nonvotes
Directors whose term continued after the meeting:
Term Expires
------------
Class A:
Rodney L. Krebs 2006
Dallas L. Smith 2006
Class B:
M. Carol Druck 2007
Donald H. Warner 2007
Michael L. Waugh 2007
ITEM 5. OTHER INFORMATION
Nothing to report.
-22-
ITEM 6. EXHIBITS
Exhibit
Number Description of Exhibit
3(i) Articles of Incorporation (Incorporated by reference to
Exhibit 3(i) to Current Report on Form 8-K, filed with the
Commission on March 29, 2001.)
3(ii) By-laws (Incorporated by reference to Exhibit 3(ii) to Current
Report on Form 8-K, filed with the Commission on March 29,
2001.)
4 Rights Agreement dated as of November 4, 1995 (Incorporated
by reference to Current Report on Form 8-K, filed with the
Commission on March 29, 2001.)
10.1 1996 Stock Incentive Plan (Incorporated by reference to
Exhibit 99 of Registration Statement No. 333-09277 on Form
S-8, filed with the Commission on July 31, 1996.)
10.2 Amendments to the Employment Agreement by and among
PeoplesBank, A Codorus Valley Company, Codorus Valley Bancorp,
Inc., and Larry J. Miller dated October 1, 1997, including
Executive Employment Agreement dated January 1, 1993 between
Codorus Valley Bancorp, Inc., Peoples Bank of Glen Rock and
Larry J. Miller. (Incor-prorated by reference to Exhibit 10.1
to Registrant's Current Report on Form 8-K, filed with the
Commission on March 20, 2003.)
10.3 Change of Control Agreement between PeoplesBank, A
Codorus Valley Company, Codorus Valley Bancorp, Inc. and Jann
A. Weaver, dated October 1, 1997. (Incorporated by reference
to Exhibit 10.2 to the Registrant's Current Report on Form
8-K, filed with the Commission on March 20, 2003.)
10.4 Change of Control Agreement between PeoplesBank, A
Codorus Valley Company, Codorus Valley Bancorp, Inc. and Harry
R. Swift, dated October 1, 1997. (Incorporated by reference to
Exhibit 10.4 to the Registrant's Current Report on Form 8-K,
filed with the Commission on March 20, 2003.)
10.5 1998 Independent Directors Stock Option Plan
(Incorporated by reference to Exhibit 4.3 of Registration
Statement No. 333-61851 on Form S-8, filed with the Commission
on August 19, 1998.)
10.6 2000 Stock Incentive Plan (Incorporated by reference to
Exhibit 4.3 of Registration Statement No. 333-40532 on Form
S-8, filed with the Commission on June 30, 2000.)
10.7 2001 Employee Stock Bonus Plan (Incorporated by reference
to Exhibit 99.1 of Registration Statement No. 333-68410 on
Form S-8, filed with the Commission on August 27, 2001.)
10.8 Dividend Reinvestment and Stock Purchase Plan
(Incorporated by reference to Exhibit 4 (a) Registration
Statement no. 33-46171 on Amendment no. 4 to Form S-3, filed
with the Commission on July 23, 2004.)
-23-
10.9 Salary Continuation Agreement dated October 1, 1998
between PeoplesBank, A Codorus Valley Company and Larry J.
Miller (Incorporated by reference to Exhibit 10.9 of the
Registrant's 2004 Form 10-K filed with the Commission on March
29, 2005.)
10.10 Salary Continuation Agreement dated October 1, 1998
between PeoplesBank, A Codorus Valley Company and Harry R.
Swift (Incorporated by reference to Exhibit 10.10 of the
Registrant's 2004 Form 10-K filed with the Commission on March
29, 2005.)
10.11 Salary Continuation Agreement dated October 1, 1998
between PeoplesBank, A Codorus Valley Company and Jann Allen
Weaver (Incorporated by reference to Exhibit 10.11 of the
Registrant's 2004 Form 10-K filed with the Commission on March
29, 2005.)
10.12 Form of Group Term Replacement Plan dated December 1, 1998, as
amended, including Split Dollar Policy Endorsements pertaining
to senior officers of the Corporation's subsidiary,
PeoplesBank, A Codorus Valley Company (Incorporated by
reference to Exhibit 10.12 of the Registrant's 2004 Form 10-K
filed with the Commission on March 29, 2005.)
10.13 Sample form Director Group Term Replacement Plan, dated
December 1, 1998, including Split Dollar Policy Endorsements
pertaining to non-employee directors of the Corporation's
subsidiary, PeoplesBank, A Codorus Valley Company
(Incorporated by reference to Exhibit 10.13 of the
Registrant's 2004 Form 10-K filed with the Commission on March
29, 2005.)
31a Certification of Principal Executive Officer Pursuant to
Section 302 of the Sarbanes- Oxley Act of 2002
31b 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
-24-
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 authorized
undersigned.
Codorus Valley Bancorp, Inc.
(Registrant)
August 9, 2005 /s/ Larry J. Miller
--------------------
Date Larry J. Miller
President & CEO
(Principal executive officer)
August 9, 2005 /s/ Jann A. Weaver
------------------
Date Jann A. Weaver
Treasurer & Assistant Secretary
(Principal financial and accounting officer)
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