UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 Manchester Street, P.O. Box 67, Glen Rock, Pennsylvania 17327
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 717-846-1970
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which
Title of each class registered
NOT APPLICABLE NOT APPLICABLE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $2.50 per share
(Title of class)
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 check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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On February 27, 1996, the aggregate market value of the Registrant's voting
stock held by non-affiliates was approximately, $25,757,424.
As of February 27, 1996, Codorus Valley Bancorp, Inc. had 995,793 shares of
common stock outstanding, par value $2.50 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Document: Parts:
1995 Annual Report to Stockholders I, II and IV
Proxy Statement for the Annual Meeting of
Stockholders to be held May 21, 1996. III and IV
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Codorus Valley Bancorp, Inc.
Form 10-K Index
Part I Page
Item 1 Business............................................ 4
Item 2 Properties.......................................... 8
Item 3 Legal Proceedings................................... 9
Item 4 Submission of Matters to a Vote of Security Holders. 9
Part II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters......................... 9
Item 6 Selected Financial Data............................. 10
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 10
Item 8 Financial Statements and Supplementary Data......... 10
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................. 10
Part III
Item 10 Directors and Executive Officers of the Registrant. 10
Item 11 Executive Compensation............................. 10
Item 12 Security Ownership of Certain Beneficial Owners
and Management..................................... 10
Item 13 Certain Relationships and Related Transactions..... 11
Part IV
Item 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K........................................ 11
Signatures......................................... 13
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PART I
Item 1: Business
Codorus Valley Bancorp, Inc. ("Bancorp" or the "Registrant") is a Pennsylvania
business incorporated October 7, 1986. On March 2, 1987 Bancorp became effective
as a bank holding company, pursuant to the Bank Holding Company Act of 1956, as
amended, with Peoples Bank of Glen Rock ("Peoples Bank" or the "Bank") as its
wholly-owned banking subsidiary. Since commencing operations, Bancorp's business
has consisted primarily of managing and supervising the Bank, and its principal
source of income has been dividends paid by the Bank. At December 31, 1995
Bancorp had total consolidated assets of $234.7 million, total deposits and
other liabilities of $213.7 million, and total stockholders' equity of $21
million.
Peoples Bank of Glen Rock
Peoples Bank of Glen Rock, organized in 1934, is a Pennsylvania chartered bank
and is not a member of the Federal Reserve System. Peoples Bank offers a full
range of commercial and consumer banking services through seven full service
banking office locations in southern York County, Pennsylvania. It also offers
trust and investment services at a separate office located in Pine Grove
Commons, York, Pennsylvania. The deposits of Peoples Bank are insured by the
Federal Deposit Insurance Corporation to the extent provided by law. At December
31, 1995 Peoples Bank had total loans of $160 million and total deposits of
$212.5 million.
The Bank is not dependent for deposits nor exposed by loan concentration to a
single customer or to a small group of customers. Accordingly, losses from a
single customer, or small customer group, would not have a material adverse
effect on the financial condition of the Bank. At year end 1995 approximately
12% of total outstanding loans were concentrated in the real estate development
industry, compared to 13% at year end 1994.
Non-Banking Subsidiary
On June 20, 1991, SYC Realty Company, Inc. ("SYC Realty") was incorporated as a
wholly-owned subsidiary of the Registrant. This non-bank subsidiary was created
primarily for the purpose of disposing selected properties obtained from the
Bank in satisfaction of debts previously contracted. SYC Realty commenced
business operations in October 1995. To date, the financial impact of this
subsidiary's operations on the Registrant and the Bank has been immaterial.
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Competition
The banking industry in Peoples Bank's service area, principally southern York
County, Pennsylvania, is extremely competitive. The Bank competes with
commercial banks and other financial service providers such as thrifts, credit
unions, consumer finance companies, investment firms, and mortgage companies.
Some of the financial services providers operating in Peoples Bank's service
area operate on a regional scale and possess resources greater than those of
Peoples Bank.
Supervision and Regulation
Codorus Valley Bancorp, Inc. is subject to regulation by the Pennsylvania
Department of Banking, the Federal Reserve Board ("FRB") and the Securities and
Exchange Commission ("SEC"). Bancorp is restricted to activities which are found
by the Federal Reserve Board to be closely related to banking, and which are
expected to produce benefits for the public that will outweigh any potentially
adverse effects.
Provisions of the Bank Holding Company Act of 1956, as amended, ("BHC Act")
requires Bancorp to secure the prior approval of the Federal Reserve Board
before it owns or controls, directly or indirectly, more than 5% of the voting
shares or substantially all of the assets of any institution, including another
bank.
Bancorp is required to file an annual report with the FRB and any additional
information required pursuant to the BHC Act. The FRB may also make examinations
of Bancorp and each of its subsidiaries. Subsidiary banks of a bank holding
company are subject to certain restrictions imposed by the BHC Act on any
extensions of credit to the bank holding company or any of its subsidiaries,
investments in the stock or securities thereof, and on the taking of such stock
or securities as collateral for loans to any borrower. A bank holding company
and its subsidiaries are also prevented from engaging in certain tie-in
arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services.
Peoples Bank of Glen Rock is subject to regulation by the Pennsylvania
Department of Banking, the Federal Deposit Insurance Corporation ("FDIC") and
the Federal Reserve Board. Federal and state laws and regulations govern, among
other things, the scope of a bank's business, the investments a bank may make,
the reserves against deposits a bank must maintain, loans a bank makes and
collateral it takes, the activities of a bank with respect to mergers and
consolidations, and the establishment of branches.
The earnings of the Bank are also affected by domestic economic conditions and
the monetary and fiscal policies of the United States government and its
agencies.
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The passage of the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 and the Riegle Community Development and Regulatory Improvement Act may
have a significant impact upon the Registrant. The key provisions pertain to
interstate banking and interstate branching as well as a reduction in the
regulatory burden on the banking industry. Since September 1995, bank holding
companies may acquire banks in other states without regard to state law. In
addition, banks can merge with other banks in another state beginning in June,
1997. States may adopt laws preventing interstate branching but, if so, no
out-of-state bank can establish a branch in such state and no bank in such state
may branch outside the state. During July 1995, Pennsylvania amended the
provisions of its Banking Code to authorize full interstate banking and
branching under Pennsylvania law and to facilitate the operations of interstate
banks in Pennsylvania. As a result of legal and industry changes, management
predicts that consolidation will continue as the financial services industry
strives for greater cost efficiencies and market share.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
also has impact on how the Bank conducts its business. FDICIA's risk-based
assessment system is designed to promote safety and soundness in the banking and
thrift industries by making the deposit insurance system fairer to well-run
institutions and by encouraging weaker institutions to improve their financial
condition. Current information about the Bancorp's deposit insurance premiums is
provided in the 1995 Annual Report to Shareholders, within the Management's
Discussion section under the subheading non-interest expenses. Information about
Bancorp's capital ratios can be found in the 1995 Annual Report, within the
Management's Discussion section under the subheading stockholder's equity
(including Table 10). Bancorp's and the Bank's capital ratios exceed current
regulatory requirements for well capitalized banks. "Truth-in-Savings" a
separate subtitle within FDICIA, called the "Bank Enterprize Act of 1991,"
requires truth-in-savings on consumer deposit accounts so that consumers can
make meaningful comparisons between the competing claims of banks with regard to
deposit accounts and products. The Bank has been providing information to
depositors concerning the terms of their deposit accounts, and in particular the
annual percentage yield in compliance with this law.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") reformed supervisory, enforcement and penalty provisions relative to
financial service companies.
Periodically, legislation is enacted which has the effect of increasing the cost
of doing business, limiting or expanding permissible activities or affecting the
competitive balance between banks and other financial institutions. Proposals to
change the laws and regulations governing the operations and taxation of banks,
bank holding companies, and other financial institutions are frequently made in
Congress, and before various bank regulatory agencies. No predictions can be
made as to the likelihood of any major changes or the impact such changes might
have on the assets, earnings or capital of the Bancorp and its subsidiary bank.
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Other information
At December 31, 1995 the Bank had one hundred and twenty (120) full-time
employees and sixteen (16) part-time employees.
The required Statistical Information for Item I can be found in Item 7,
"Management's Discussion and Analysis" of this report.
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Item 2: Properties
Codorus Valley Bancorp, Inc., the holding company, owns in fee and without liens
the following properties.
Trust and Investment Services Office
Located at 120 Pine Grove Commons, Pine Grove Road, York, PA. This office
is a 1,575 square foot (approximately) unit of a business condominium
complex known as Pine Grove Commons. This space is leased to its
subsidiary, Peoples Bank of Glen Rock. The lease, as signed on August 17,
1990, is for a five year term and is renewable every five years thereafter
at the option of the lessee. The lessee pays annual rent of $18,900 during
the said term in monthly installments of $1,575. The fixed rent may be
adjusted annually in reference to the Consumer Price Index as described in
the lease agreement.
Headquarters facility site
A one acre (approximately) parcel of land located at 105 Leader Heights
Road in York Township, PA was purchased in 1995. This land, adjacent to the
Bank's Data Operations Center and banking office, coupled with real estate
already owned by the Bank will serve as the site for a headquarters
facility.
Peoples Bank of Glen Rock, the banking subsidiary of the Registrant, owns the
following properties in fee and without liens.
Glen Rock Office: Serves as both a corporate headquarters and banking office.
It is located at the intersection of Hanover and Manchester Streets in the
borough of Glen Rock, PA. A bank-owned parking lot is located nearby on
Hanover Street.
Jacobus Office: Located at 1 North Main Street in the borough of
Jacobus, PA.
Jefferson Office: Located at 6 Baltimore Street in the borough of
Jefferson, PA. A bank-owned parking lot is located nearby at 10
Baltimore Street.
York New Salem Office: Located at 320 North Main Street in the
borough of York New Salem, PA.
Leader Heights Office: Serves as both a banking office and data operations
center. It is located at 109 Leader Heights Road in York Township, PA. In
addition, the Bank owns a small tract of adjoining land which it may use
for future development.
Cape Horn Office: Located at 2587 Cape Horn Road, Red Lion in the
township of Windsor, PA.
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Human Resources Office: Located at 7 Manchester Street in the
borough of Glen Rock, PA. This office is a frame dwelling located
next to the Glen Rock banking office.
Peoples Bank of Glen Rock leases the following property.
Stewartstown Office: Located at 2 Ballast Lane in the borough of
Stewartstown, PA. This office is a 1,278 square foot unit of a business
complex known as Village Square at Stewartstown. The lease, as signed on
November 29, 1993 is for a twenty year term. The minimum annual rent for
years 1 thru 4 is $15,656, payable in monthly installments of $1,305.
Thereafter, the minimum annual rent will increase at four year intervals.
All of the above properties are located in York County, Pennsylvania and are
adequate for the business purposes of the Registrant and its subsidiaries.
Item 3: Legal Proceedings
Various legal actions or proceedings, arising in the ordinary course of
business, are pending involving the Corporation or its subsidiaries. In the
opinion of management, these matters are without merit or immaterial in terms of
the Corporation's liquidity, capital resources, and results of operations.
Item 4: Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5: Market for the Corporation's Common Equity and Related
Stockholder Matters
Market and dividend information appearing in the 1995 Annual Report to
Stockholders at Exhibit 13 under the caption "Stock, Dividend and Broker
Information" is incorporated by reference in response to this item.
As of February 27, 1996, the Registrant had approximately one thousand,
twenty-one (1,021) stockholders of record.
Related stockholder information appearing in the 1995 Annual Report to
Stockholders at Exhibit 13 under the caption "Stockholders' Equity" included in
the Management's Discussion of Consolidated Financial Condition and Results of
Operations is incorporated by reference in response to this item.
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Item 6: Selected Financial Data
Information appearing in the 1995 Annual Report to Stockholders at Exhibit 13
under the caption "Selected Financial Data" is incorporated by reference in
response to this item.
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Management Discussion and Analysis of Consolidated Financial Condition and
Results of Operations appearing in the 1995 Annual Report to Stockholders at
Exhibit 13 is incorporated by reference in response to this item.
Item 8: Financial Statements and Supplementary Data
The Registrant's Consolidated Financial Statements and Notes thereto appearing
in the 1995 Annual Report to Stockholders at Exhibit 13 is incorporated by
reference in response to this item.
The Registrant does not meet both of the tests under Item 302(a)(5) of
Regulation S-K, and therefore, is not required to provide supplementary
financial data.
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10: Directors and Executive Officers of the Registrant
Information appearing in the Proxy Statement at Exhibit 99 under the caption
"Information as to Nominees, Directors and Executive Officers" related to the
Annual Meeting of Stockholders to be held May 21, 1996 is incorporated by
reference in response to this item.
Item 11: Executive Compensation
Information appearing in the Proxy Statement at Exhibit 99 under the caption
"Executive Compensation" related to the Annual Meeting of Stockholders to be
held May 21, 1996 is incorporated by reference in response to this item.
Item 12: Security Ownership of Certain Beneficial Owners and Management
Information appearing in the Proxy Statement at Exhibit 99 under the caption
"Principal Beneficial Owners of the Corporation's Stock" related to the Annual
Meeting of Stockholders to be held May 21, 1996 is incorporated by reference in
response to this item.
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Item 13: Certain Relationships and Related Transactions
Information appearing in the Proxy Statement at Exhibit 99 under the caption
"Certain Transactions" related to the Annual Meeting of Stockholders to be held
May 21, 1996 is incorporated by reference in response to this item.
PART IV
Item 14: Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(A) 1. The Annual Report to Stockholders of the Registrant for the fiscal
year ended December 31, 1995.
2. All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
3. Exhibits filed as part of 10-K pursuant to Item 601 of
Regulation S-K.
Exhibit
Number Description of Exhibit
3(i) Articles of Incorporation, as amended, of the Registrant
were filed at Exhibit 3(i) to Form 8-K dated March 25, 1996
and are hereby incorporated by reference.
3(ii) Amended By-laws of the Registrant were filed at Exhibit
3(ii) to Form 8-K dated March 25, 1996 and are hereby
incorporated by reference.
13 Annual Report to Stockholders for fiscal year ended December
31, 1995 (incorporated by reference to Parts I-IV of the
Form 10-K)
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
24 Power of Attorney
99 Proxy Statement for, Notice of, and Form of Proxy
for, the Annual Meeting of Stockholders of the
Registrant to be held May 21, 1996 as filed.
(incorporated by reference to Parts I-IV of the Form
10-K)
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(B) Reports on Form 8-K.
There were no reports on Form 8-K for the quarter ended December 31,
1995.
(C) List of exhibits required by item 601 of Regulation S-K
Exhibit
Number Description of Exhibit
3(i) Articles of Incorporation, as amended, of the Registrant
were filed at Exhibit 3(i) to Form 8-K dated March 25, 1996
and are hereby incorporated by reference.
3(ii) Amended By-laws of the Registrant were filed at Exhibit
3(ii) to Form 8-K dated March 25, 1996 and are hereby
incorporated by reference.
13 Annual Report to Stockholders for fiscal year ended December
31, 1995.
21 List of subsidiaries of the Registrant.
23 Consent of Independent Auditors
24 Power of Attorney
99 Proxy Statement for, Notice of, and Form of Proxy for, the
Annual Meeting of Stockholders to be held May 21, 1996.
12
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Signatures
Pursuant to the requirements of Section 13 or 15(d) 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 Date: March 26, 1996
Larry J. Miller, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature and Capacity
/s/ George A. Trout, D.D.S Chairman of the Board of 3/26/96
George A. Trout, D.D.S. Directors and Director
/s/ Larry J. Miller President, Chief Executive 3/26/96
Larry J. Miller, President Officer and Director
(Principal Executive Officer)
/s/ Barry A. Keller Vice Chairman of the Board of 3/26/96
Barry A. Keller Directors and Director
/s/ Dallas S. Smith Secretary and Director 3/26/96
Dallas S. Smith
/s/ M. Carol Druck Assistant Secretary, 3/26/96
M. Carol Druck Assistant Treasurer and Director
/s/ MacGregor S. Jones Assistant Secretary and 3/26/96
MacGregor S. Jones Director
/s/ Rodney L. Krebs Treasurer and Director 3/26/96
Rodney L. Krebs
/s/ Donald H. Warner Vice President and Director 3/26/96
Donald H. Warner
/s/ D. Reed Anderson, Esq. Director 3/26/96
D. Reed Anderson, Esq.
/s/ Jann A. Weaver Assistant Treasurer and 3/26/96
Jann A. Weaver Assistant Secretary
(Principal Financial and
Principal Accounting Officer)
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1995
ANNUAL REPORT
Codorus Valley Bancorp, Inc.
Corporate Introduction
Codorus Valley Bancorp, Inc. is a Pennsylvania business incorporated in 1986. On
March 2, 1987 Codorus Valley Bancorp, Inc. became effective as a bank holding
company, pursuant to the Bank Holding Company Act of 1956, as amended. Peoples
Bank of Glen Rock is its wholly-owned banking subsidiary and SYC Realty Co.,
Inc. is its wholly-owned nonbank subsidiary. Peoples Bank of Glen Rock,
organized in 1934, offers a full range of commercial and consumer banking
services through seven full service banking office locations in southern York
County, Pennsylvania. The deposits of Peoples Bank of Glen Rock are fully
insured by the Federal Deposit Insurance Corporation (FDIC) to the maximum
extent provided by law. Peoples Bank also offers trust and investment services
at a separate office located in Pine Grove Commons, York.
Notice of Annual Meeting
The annual meeting of stockholders will be held on Tuesday, May 21, 1996 at
10:00 a.m. prevailing time, at the Holiday Inn Holidome (at West Manchester
Mall), Red Rose Room, 2000 Loucks Road, York, Pennsylvania 17404.
Transfer Agent
Registrar and Transfer Company
Transfer Agent, Codorus Valley Bancorp, Inc.
10 Commerce Drive
Cranford, NJ 07016-3572
Form 10-K Request
The form 10-K Report filed with the Securities and Exchange Commission may be
obtained, without charge, by writing to:
Mr. Jann Allen Weaver, CPA
Chief Financial Officer
Codorus Valley Bancorp, Inc.
P.O. Box 67
Glen Rock, PA 17327-0067
Dividend Reinvestment and Stock Purchase Plan
Information regarding the Corporation's Dividend Reinvestment and Stock Purchase
Plan may be obtained by calling 1-800-368-5948 or by writing to:
Registrar and Transfer Company
Plan Administrator, Codorus Valley Bancorp, Inc.
Dividend Reinvestment and Stock Purchase Plan
10 Commerce Drive
Cranford, NJ 07016-3572
Codorus Valley Bancorp, Inc. and its subsidiaries are Equal Employment
Opportunity/Affirmative Action Employers.
Codorus Valley Bancorp, Inc.
1
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Contents
<TABLE>
<S> <C>
Selected Financial Data................................................................ 3
Report to Shareholders................................................................. 4
Report of Independent Auditors......................................................... 6
Financial Statements................................................................... 7
Notes to Financial Statements.......................................................... 11
Management's Financial Overview........................................................ 25
Board of Directors and Advisory Committee Members...................................... 42
Bank Officers.......................................................................... 43
Bank Office Locations.................................................................. 44
</TABLE>
Stock, Dividend and Broker Information
Common stock issued by Codorus Valley Bancorp, Inc. is quoted under the
symbol "CVLY" on the over-the-counter ("OTC") Electronic Bulletin Board, an
automated quotation service, made available through, and governed by, the NASDAQ
system. At the close of business on December 31, 1995 there were approximately
1,021 stockholders of record.
Prices presented in the table below are bid prices between
broker-dealers which do not include retail mark-ups or mark-downs or any
commission to the broker-dealer. The published bid prices do not necessarily
reflect prices in actual transactions. Cash dividends paid for the most recent
eight quarters are provided in the table below. Dividends per share are adjusted
for stock dividends.
<TABLE>
<CAPTION>
1995 1994
---- ----
Dividends Dividends
Quarter High Low per share High Low per share
- ------- ---- --- --------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
First $23.25 $22.00 $.221 $25.75 $25.13 $.221
Second 22.25 21.25 .144 26.00 25.75 .125
Third 24.25 22.25 .150 26.00 26.00 .125
Fourth 28.00 23.50 .150 26.00 23.25 .125
</TABLE>
For further information, we refer you to:
<TABLE>
<S> <C> <C>
Ryan, Beck & Co. Janney, Montgomery, Scott, Inc. Hopper Soliday & Co., Inc.
150 Monument Road, Suite 106 48 E. Market St., P.O. Box 2246 1703 Oregon Pike
Bala Cynwyd, PA 19004 York, PA 17405-2246 Lancaster, PA 17601
(800)223-8969 (717)845-5611 (800)456-9234
</TABLE>
F.J. Morrissey & Co., Inc. Sandler O'Neil & Partners, L.P.
1700 Market St. Two World Trade Center
Suite 1420 104th Floor
Philadelphia, PA 19103-3913 New York, NY 10048
(800)842-8928 (800)635-6851
Codorus Valley Bancorp, Inc.
2
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Selected Financial Data
<TABLE>
<CAPTION>
5 year
1995 1994 1993 1992 1991 CGR(1)
---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
(in thousands)
Total interest income $ 18,346 $ 16,053 $ 15,696 $ 16,705 $ 17,604 1.5%
Total interest expense 8,722 6,940 7,283 8,651 10,363 -3.4%
-------- -------- -------- -------- --------
Net interest income 9,624 9,113 8,413 8,054 7,241 7.7%
Provision for loan losses 228 1,229 441 258 505 -6.4%
-------- -------- -------- -------- --------
Net interest income after
provision for loan losses 9,396 7,884 7,972 7,796 6,736 8.2%
Non-interest income 912 880 1,348 650 619 11.1%
Non-interest expense 6,559 6,322 6,330 5,765 4,926 8.4%
-------- -------- -------- -------- --------
Income before income taxes 3,749 2,442 2,990 2,681 2,429 8.5%
Provision for income taxes 1,155 712 713(2) 687 703 7.7%
-------- -------- -------- -------- --------
Net income $ 2,594 $ 1,730 $ 2,277 $ 1,994 $ 1,726 8.9%
======== ======== ======== ======== ========
RATIOS
Return on average
stockholders' equity (ROE) 13.3% 9.5% 13.5% 13.2% 12.6%
Return on average assets (ROA) 1.14% 0.81% 1.12% 1.02% 0.95%
Average stockholders' equity
to average assets 8.61% 8.51% 8.24% 7.77% 7.56%
COMMON SHARE DATA (3)
Net income per share $ 2.62 $ 1.74 $ 2.29 $ 2.00 $ 1.73
Dividends per share $ 0.665 $ 0.596 $ 0.550 $ 0.459 $ 0.426
Book value per share $ 21.12 $ 17.95 $ 17.69 $ 15.96 $ 14.42
Dividends $659,200 $594,300 $547,800 $456,500 $424,545
Dividend payout ratio 25.4% 34.4% 24.1% 22.9% 24.6%
Weighted average shares outstanding 991,541 995,723 995,637 995,636 995,636
SUMMARY OF FINANCIAL 5 year
CONDITION AT YEAR-END CGR(1)
(in thousands)
Total investments (4) $ 61,679 $ 53,717 $ 55,424 $ 57,247 $ 43,069 13.5%
Total loans 160,008 150,637 140,557 132,453 129,346 4.7%
Total assets 234,747 215,997 211,534 202,174 185,145 6.3%
Total deposits 212,440 196,896 192,725 184,964 169,275 6.1%
Total equity (5) 21,032 17,872 17,616 15,892 14,354 10.0%
Trust assets (book value) $ 36,134 $ 31,276 $ 29,065 $ 23,086 $ 15,270 23.3%
Trust income 311 291 170 105 135 29.9%
NON-FINANCIAL DATA
Number of bank offices 7 7 6 5 5
Number of employees
(full-time equivalent) 128 121 126 111 107
</TABLE>
- -------------------------------------
(1) Compound growth rate (CGR) is the average annual growth over the five year
period which began in 1990.
(2) Amount is comprised of a $883,000 provision for
income taxes less a one-time $170,000 tax benefit caused by the cumulative
effect of a change in accounting principle.
(3) Adjusted for stock dividends.
(4) Investments are reflected at fair value for 1995 and 1994; and at amortized
cost for prior periods.
(5) Total equity for 1995 and 1994 includes net unrealized gains or losses on
securities available for sale, net of taxes.
3
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Codorus Valley Bancorp, Inc.
Report To Shareholders
April 10, 1996
To Our Shareholders:
As we race toward the end of the millennium, we reflect upon 1995 and
realize that it was truly a significant and historic year in the financial
services industry. Extraordinary performances in the United States bond and
stock markets provided momentary diversions from a banking industry which
accelerated into a new era. As inflation remained below three percent for the
fifth consecutive year, the industry achieved record profits, bank-related FDIC
premiums reached record lows, and massive industry consolidation (driven in part
by the 1994 Interstate Banking and Branching Act) turned clients into
spectators.
In the nation's capital, Congress presided over the final resolution to
the thrift industry's expensive debacle. During the year, we witnessed
Congressional inability to produce a compromise budget, resulting in a partial
government shutdown and fueling the public's disgust toward Washington gridlock.
On a more positive note, Alan Greenspan was recently nominated to his third term
as Chairman of the Federal Reserve Board of Governors. Greenspan's leadership,
as a proponent of controlled monetary expansion, should continue to stabilize
the financial markets and inflation.
Codorus Valley Bancorp, Inc., primarily through its financial services
subsidiary Peoples Bank of Glen Rock, realized record profits in 1995; earning
$2,594,000 or $2.62 per share, compared to $1,730,000 or $1.74 per share in
1994. Loan losses attributable to a former officer of Peoples Bank, who is
presently under federal indictment, materially affected the financial results
for 1994. The $864,000 or 50 percent increase was due to a smaller loan loss
provision, improved yields on a larger volume of earning assets, and a reduction
in FDIC deposit insurance expense. For 1995, the Return on Average Assets (ROA)
and Return on Average Equity (ROE) were 1.14 percent and 13.3 percent,
respectively, compared to 0.81 percent and 9.5 percent, respectively, for 1994.
The Corporation ended 1995 with $235 million in assets and $21 million
in capital. Book value per share, as restated for stock dividends, was $21.12,
$17.95 and $17.69 for years ended 1995, 1994 and 1993, respectively. Capital
levels for the Corporation remained well above regulatory requirements, as
evidenced by a leverage ratio of 8.98 percent and a tier I risk-based capital
ratio of 13.35 percent at December 31, 1995.
At December 31, 1995, nonperforming assets as a percentage of total
loans and net assets acquired in foreclosure were approximately 2.66 percent, as
compared to 1.61 percent at December 31, 1994. At December 31, 1995, the
allowance (reserve) for possible loan losses was $2.3 million or 1.43 percent of
total loans. Management deems this reserve level adequate based on information
currently available.
During 1995, Peoples Bank announced the promotion of Kelly L. Rosenzweig
as Assistant Vice President and Assistant Controller, and Ronald E. Talbert was
added to the lending staff as Commercial Services Officer.
4
<PAGE>
Codorus Valley Bancorp, Inc.
Report To Shareholders (continued)
The Board of Directors of the Corporation adopted a Shareholder Rights
Plan, which is designed to protect the long-term value of shareholders'
investments. Specifically, the Rights Plan will help guard against partial or
inadequate tender offers, unfair open market accumulations, and other abusive or
coercive takeover tactics. The Rights Plan was adopted as a prospective measure
and not in response to any specific situation.
The Corporation purchased property located at 105 Leader Heights Road,
York, which is adjacent to Peoples Bank's Data Operations Center and banking
office. This acquisition, coupled with real estate already owned by Peoples
Bank, was a material piece in the long range plan for Corporate office
consolidation and expansion. The Board of Directors has approved the design and
plans for the Codorus Valley Corporate Center. Peoples Bank will occupy a major
portion of the building, with the remaining space leased as a source of revenue.
Occupancy is tentatively scheduled for the third quarter of 1997.
After a rigorous evaluation process, Peoples Bank recently purchased a
new computer system called Horizon, from Alltel Information Services. We are
confident that the implementation of this system, scheduled for the third
quarter of this year, will provide improved customer service, operational
efficiency and managerial information. The new system will play a key role in
the execution of our "high touch-high tech" vision of 21st century banking.
Evolution of the financial services industry is only in its early
stages. Changing customer preferences and lifestyles, and rapid advances in
communications and technology, will challenge all businesses. Non-traditional
methods of delivering services to our clients require that we adapt and embrace
change. Through change comes opportunity, and through opportunity, challenges.
We look forward with enthusiasm to the challenges and opportunities that lie
ahead.
We sincerely appreciate your loyalty and trust as clients and
shareholders of Codorus Valley Bancorp, Inc.
Sincerely,
/s/ Larry J. Miller
- -------------------------------------
Larry J. Miller
President and Chief Executive Officer
Codorus Valley Bancorp, Inc.
5
<PAGE>
Report of Independent Auditors
The Stockholders and Board of Directors
Codorus Valley Bancorp, Inc.
We have audited the consolidated statements of financial condition of Codorus
Valley Bancorp, Inc. as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Codorus
Valley Bancorp, Inc. at December 31, 1995 and 1994, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, in 1994 the
Corporation changed its method of accounting for certain investments in debt and
equity securities. As discussed in Note 14 to the consolidated financial
statements, in 1993 the Corporation changed its method of accounting for income
taxes.
/s/ ERNST & YOUNG LLP
Harrisburg, Pennsylvania
January 11, 1996
Codorus Valley Bancorp, Inc.
6
<PAGE>
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
December 31,
(dollars in thousands) 1995 1994
---- ----
<S> <C> <C>
Assets
Cash and due from banks:
Interest bearing deposits with banks $ 341 $ 119
Non-interest bearing deposits and cash 5,356 4,873
Federal funds sold 3,150 1,850
Securities available for sale 61,679 53,717
Loans 160,008 150,637
Less-allowance for loan losses (2,286) (2,249)
--------- ---------
Total net loans 157,722 148,388
Premises and equipment 3,523 3,301
Interest receivable 1,703 1,639
Other assets 1,273 2,110
--------- ---------
Total assets .............................................................. $ 234,747 $ 215,997
========= =========
Liabilities
Deposits:
Non-interest bearing demand $ 17,369 $ 15,177
NOW 20,862 20,375
Insured Money Fund 25,902 29,347
Savings 21,577 22,497
Time CD's less than $100,000 110,435 98,822
Time CD's $100,000 and above 16,295 10,678
--------- ---------
Total deposits 212,440 196,896
Interest payable 865 852
Accrued expenses and other liabilities 410 377
--------- ---------
Total liabilities ......................................................... 213,715 198,125
Stockholders' Equity
Series 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; 995,792 shares issued
and outstanding for 1995, and 958,621 for 1994 2,490 2,396
Capital surplus 5,194 4,428
Retained earnings 12,731 11,932
Net unrealized gains (losses) on securities available for sale, net of taxes 617 (884)
--------- ---------
Total stockholders' equity ................................................ 21,032 17,872
Total liabilities & stockholders' equity .................................. $ 234,747 $ 215,997
========= =========
See accompanying notes.
</TABLE>
Codorus Valley Bancorp, Inc.
7
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years ended December 31,
(dollars in thousands, except per share data) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest Income
Interest and fees from loans $ 14,545 $ 12,629 $ 12,019
Interest from deposits with banks 13 6 4
Interest from federal funds sold 168 96 116
Interest and dividends from investment securities:
Taxable interest income 3,278 3,023 3,255
Tax-exempt interest income 291 254 248
Dividend income 51 45 54
-------- -------- --------
Total interest income ........................................... 18,346 16,053 15,696
Interest Expense
Interest on deposits:
NOW 504 536 552
Insured Money Fund 800 921 926
Savings 560 606 658
Time CD's less than $100,000 6,012 4,404 4,472
Time CD's $100,000 and above 843 469 658
-------- -------- --------
Total interest expense on deposits 8,719 6,936 7,266
Interest on federal funds purchased and other short term borrowings 3 4 17
-------- -------- --------
Total interest expense ......................................... 8,722 6,940 7,283
-------- -------- --------
Net interest income ............................................ 9,624 9,113 8,413
Provision for Loan Losses 228 1,229 441
-------- -------- --------
Net interest income after provision for loan losses ............ 9,396 7,884 7,972
Non-interest Income
Trust income 311 291 170
Service charges on deposit accounts 415 373 314
Other service charges and fees 248 230 202
Gain on sales of loans 0 0 298
(Loss) gain on sales of securities (62) (14) 364
-------- -------- --------
Total non-interest income 912 880 1,348
Non-interest Expense
Salaries and benefits 3,510 3,165 3,006
Occupancy of premises 428 431 422
Furniture and equipment 588 594 543
FDIC deposit insurance 232 436 415
Professional and legal 185 162 162
Marketing and advertising 206 220 211
Acquired real estate, net 64 145 464
Other 1,346 1,169 1,107
-------- -------- --------
Total non-interest expense ..................................... 6,559 6,322 6,330
-------- -------- --------
Income before income taxes and cumulative
effect of change in accounting principle ..................... 3,749 2,442 2,990
Provision for income taxes 1,155 712 883
-------- -------- --------
Income before cumulative effect of change in
accounting principle ......................................... 2,594 1,730 2,107
Cumulative effect of change in accounting principle 0 0 170
-------- -------- --------
Net income $ 2,594 $ 1,730 $ 2,277
======== ======== ========
Income per common share before cumulative
effect of change in accounting principle $ 2.62 $ 1.74 $ 2.12
Effect of change in accounting principle 0.00 0.00 0.17
-------- -------- --------
Net income per common share .................................... $ 2.62 $ 1.74 $ 2.29
======== ======== ========
</TABLE>
See accompanying notes.
Codorus Valley Bancorp, Inc.
8
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Years ended December 31,
(dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 2,594 $ 1,730 $ 2,277
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation 369 363 299
Provision for loan losses 228 1,229 441
Provision for losses on assets acquired in foreclosure 30 87 430
Cumulative effect of change in accounting principle 0 0 (170)
Deferred federal income tax (benefit) expense (299) 236 (63)
Loss (gain) on sales of securities 62 14 (364)
Gain on sales of loans 0 0 (298)
Gain on sales of assets acquired in foreclosure (3) (6) (83)
(Increase) decrease in interest receivable (64) (86) 74
Decrease (increase) in other assets 403 (274) (368)
Increase (decrease) in interest payable 13 (137) (94)
Increase (decrease) in other liabilities 33 173 (31)
Other, net 16 88 153
------- ------- -------
Net cash provided by operating activities ...................... 3,382 3,417 2,203
Cash Flows From Investing Activities:
Proceeds from sales of investment securities 0 0 1,821
Proceeds from maturities and calls of investment securities 0 0 16,271
Proceeds from sales of securities available for sale 2,345 2,481 0
Proceeds from maturities and calls of securities available for sale 14,392 18,992 0
Purchase of investment securities 0 0 (16,112)
Purchase of securities available for sale (22,602) (21,325) 0
Net increase in loans made to customers (10,380) (11,727) (14,889)
Proceeds from loan sales 626 596 5,799
Purchases of premises and equipment (591) (455) (871)
Proceeds from sale of assets acquired in foreclosure 224 459 1,140
------- ------- -------
Net cash used in investing activities .......................... (15,986) (10,979) (6,841)
Cash Flows From Financing Activities:
Net (decrease) increase in demand, NOW,
insured money fund and savings deposits (1,686) (1,497) 10,213
Net increase (decrease) in time deposits 17,230 5,668 (2,452)
Dividends paid (659) (594) (548)
Proceeds from issuance of common stock 0 4 0
Cash paid in lieu of fractional shares (6) 0 (5)
Payment to repurchase common stock (270) 0 0
------- ------- -------
Net cash provided by financing activities ...................... 14,609 3,581 7,208
Net increase (decrease) in cash and cash equivalents ........... 2,005 (3,981) 2,570
Cash and cash equivalents at beginning of year ................. 6,842 10,823 8,253
------- ------- -------
Cash and cash equivalents at end of year ....................... $ 8,847 $ 6,842 $10,823
======= ======= =======
Supplemental Disclosures:
Interest payments $8,709 $7,073 $7,360
Income tax payments $1,310 $542 $1,048
</TABLE>
See accompanying notes.
Codorus Valley Bancorp, Inc.
9
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statement of Changes in Stockholders' Equity
Unrealized
Common Capital Retained Gains and Treasury Total
(dollars in thousands) Stock Surplus Earnings (Losses) Stock Equity
--------- -------- -------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 ...................................... $ 2,282 $ 3,424 $10,186 $ $ $15,892
Net income 2,277 2,277
Cash dividends (548) (548)
5% stock dividend - 45,472 shares
at fair value 114 1,000 (1,119) (5)
--------- -------- ------- ------ ------ -------
Balance, December 31, 1993 ..................................... 2,396 4,424 10,796 17,616
Net income 1,730 1,730
Cash dividends (594) (594)
Common stock issued under dividend
reinvestment plan 4 4
Change in unrealized gains(losses) on securities,
net of $455 income tax benefit (884) (884)
--------- -------- ------- ------ ------ -------
Balance, December 31, 1994 ..................................... 2,396 4,428 11,932 (884) 17,872
Net income 2,594 2,594
Cash dividends (659) (659)
Acquisition of treasury stock (270) (270)
5% stock dividend - 47,161 shares at fair value
(includes 9,994 shares from treasury stock) 94 766 (1,136) 270 (6)
Change in unrealized gains(losses) on securities,
net of $773 income tax 1,501 1,501
--------- -------- ------- ------ ------ -------
Balance, December 31, 1995 .................................... $ 2,490 $5,194 $12,731 $ 617 $ 0 $21,032
========= ======== ======= ====== ====== =======
</TABLE>
See accompanying notes.
Codorus Valley Bancorp, Inc.
10
<PAGE>
Notes to Consolidated Financial Statements
(December 31, 1995)
NOTE 1-Summary Of Significant Accounting Policies
Basis of Financial Statement Presentation
The accounting and reporting policies of Codorus Valley Bancorp, Inc.
and subsidiaries (the "Corporation") conform with generally accepted accounting
principles (GAAP) and prevailing practices of the banking industry.
Principles of Consolidation and Reclassifications
The consolidated financial statements include the accounts of Codorus
Valley Bancorp, Inc., its wholly-owned bank subsidiary, Peoples Bank of Glen
Rock, and its wholly-owned nonbank subsidiary, SYC Realty Company, Inc. All
significant intercompany account balances and transactions have been eliminated
in consolidation. Certain prior years' amounts have been reclassified to conform
to the 1995 presentation.
Securities Available for Sale
Effective January 1, 1994, the total investment securities portfolio was
classified as available for sale in accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." This Statement requires that securities available for sale
be recorded at fair value, and any unrealized gains and losses, net of taxes, be
reflected as a separate line item in the stockholders' equity section of the
balance sheet. For 1993, and prior periods, the total investment securities
portfolio was classified as a long term investment, in which securities were
presumed to be held to maturity. For 1993, and prior periods, the total security
portfolio was recorded at amortized cost.
Gains and losses from the sale of securities are computed on the basis
of specific identification of the adjusted cost of each security. Upon
realization, gains and losses are shown separately in the income statement.
Loans
Interest on loans is credited to income based upon the principal amount
outstanding. Loan fees are generally considered to be adjustments of interest
rate yields and are amortized to interest income over the terms of the related
loans. The accrual of interest income is discontinued, and unpaid interest on a
loan is reversed and charged against current income, when circumstances indicate
that collection is doubtful. Loans are returned to accrual status when
management determines that circumstances have improved to the extent that both
principal and interest are deemed collectible. When collection of principal is
in doubt, additions are made to the allowance for loan losses.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed adequate
by management, based on information currently available, to absorb potential
losses in the loan portfolio. Recognized loan losses are charged, and recoveries
credited, to the allowance. The Corporation's loan loss provision, charged to
operating income, is determined by management based on such factors as changes
in local economic conditions, prior loss experience, adequacy of collateral, and
risk characteristics of the loan portfolio.
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, the Corporation
recognizes an impairment by adjusting a valuation allowance. Loans are
charged-off when there has been permanent impairment of the related recorded
investment. The measure of impaired loans for all reported periods was based on
the fair value of collateral due to a collateral dependency. The cash method of
recognizing interest income was used for impaired loans for all reported
periods.
Codorus Valley Bancorp, Inc.
11
<PAGE>
Notes to Consolidated Financial Statements (continued)
Premises and Equipment
Premises and equipment are carried at cost less accumulated
depreciation. Depreciation expense is calculated principally on the
straight-line method. The depreciation methods are designed to allocate the cost
of the assets over their estimated useful lives, as follows:
Buildings and improvements 10 to 40 years
Equipment 5 to 15 years
Maintenance and repairs are charged to expense as incurred. The cost of
significant improvements to existing assets is capitalized. When facilities are
retired or otherwise disposed of, the cost is removed from the asset accounts
and any gain or loss is reflected in the statement of income.
Assets Acquired in Foreclosure
Foreclosed assets, included in other assets, are comprised of property
acquired through a foreclosure proceeding or acceptance of a deed-in-lieu of
foreclosure. Foreclosed assets initially are recorded at fair value at the date
of foreclosure establishing a new cost basis. After foreclosure, valuations are
periodically performed by management and the asset is carried at the lower of
(1) cost or (2) fair value minus estimated costs to sell. If the fair value of
the asset minus the estimated costs to sell the asset is less than the cost of
the asset, the deficiency is immediately recognized as a valuation allowance.
If, however, the fair value minus the costs to sell the asset subsequently
increases above the asset's cost, the valuation allowance is reduced, but not
below zero. Costs related to the improvement of acquired real estate assets are
capitalized until the real estate reaches a saleable condition. Revenue and
expenses from operations and changes in the valuation allowance are included in
acquired real estate expense.
Income Taxes
The Corporation and its subsidiaries file a consolidated federal income
tax return. Consolidated income tax expense is allocated based on their
respective earnings to total earnings.
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The Corporation adopted the provisions of the new Statement in its
financial statements as of January 1, 1993. As permitted by the Statement, prior
year financial statements have not been restated to reflect the change in
accounting method. The cumulative effect as of January 1, 1993 of adopting
Statement No. 109 increased net income by $170,000.
Under Statement No. 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax basis of
assets and liabilities. These differences are then subject to the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. Prior to adopting Statement No. 109, income tax expense was determined
using the liability method prescribed by Statement No. 96, which is superseded
by Statement No. 109. Among other changes, Statement No. 109 changes the
recognition and measurement criteria for deferred tax assets included in
Statement No. 96.
Statement No. 109 requires the recognition of future tax benefits,
measured by enacted tax rates, attributable to deductible temporary differences
between the financial statement and income tax basis of assets and liabilities.
In order to realize the deferred tax asset, the Corporation considered a number
of factors, including its recent earnings history and its expectation of future
earnings. Based on these factors the Corporation has concluded that it is more
likely than not the deferred tax asset will be realized. Accordingly, a deferred
tax asset valuation allowance was not established as of December 31, 1995. On a
quarterly basis, the Corporation will assess whether a valuation allowance for
the deferred tax asset account will be required.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Codorus Valley Bancorp, Inc.
12
<PAGE>
Notes to Consolidated Financial Statements (continued)
Net Income and Dividends Per Common Share
Net income and dividends per common share are computed by dividing net
income and dividends by the weighted average number of shares of common stock
outstanding, adjusted for stock dividends.
Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include:
cash and due from banks, and federal funds sold.
Non-cash financing transactions for the years ended December 31, 1995,
1994 and 1993 consisted of certificates of deposit which matured and were
renewed for new terms. These transactions amounted to approximately $40,132,000
for 1995, $21,470,000 for 1994 and $7,336,000 for 1993.
Non-cash investing transactions for the years ended December 31, 1995,
1994 and 1993 consisted of the transfer of loans to assets acquired in
satisfaction of debt. These transfers amounted to approximately $291,000 for
1995, $189,000 for 1994 and $1,133,000 for 1993.
Fair Value of Financial Instruments
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures (see Note 17) for financial instruments.
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and short-term instruments approximates their fair value at
the reporting date.
Investment securities (including mortgage-backed securities): Fair values
for investment securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based
on quoted market prices of comparable instruments.
Loans receivable: For variable-rate and adjustable-rate loans that reprice
frequently and show no significant change in credit risk, fair values are
based on carrying values. For fixed-rate loans, fair values are estimated
using quoted market prices.
Demand and Savings deposits: The fair value of demand and savings deposits
is the amount payable on demand at the reporting date.
Time deposits: The carrying value of time certificates of deposit (CD's)
less than $100,000 with an original term of six months or less and variable
rate CD's of less than $100,000 is assumed to approximate fair value. The
fair value of all other CD's is estimated by discounting the future cash
flows, using rates offered for deposits of similar remaining maturities at
the reporting date.
Off-balance sheet instruments: The fair value of off-balance sheet
instruments, such as commitments to extend credit and standby letters of
credit, are based on fees currently charged to enter into similar
agreements. Generally, fees charged on standby letters of credit and
selected commitments to extend credit, principally for commercial loans,
outstanding at December 31, 1995 are not considered material.
Codorus Valley Bancorp, Inc.
13
<PAGE>
Notes to Consolidated Financial Statements (continued)
NOTE 2-Current Accounting Developments
In October 1994, the FASB issued Statement of Financial Accounting
Standards No. 119, "Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments", which is effective for financial statements
issued for fiscal years ending after December 15, 1994. Statement No. 119
requires new qualitative disclosures about why a company uses derivative
financial instruments (e.g., futures, forwards, swaps, and options) and what
strategies underlie their use. The primary distinction is between derivatives
held or issued for trading purposes and those held for purposes other than
trading. For all derivatives, the Statement requires information about the
notional or contract amounts, nature and terms, and the related accounting
policies. The Corporation's use of derivative financial instruments has been
nominal to date. Accordingly, adoption of Statement No. 119 did not affect the
Corporation's financial statement disclosures.
In March 1995, the FASB issued Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Statement No. 121 addresses the accounting
for the impairment (i.e., the carrying amount of the assets might not be
recoverable) of long-lived assets, such as property, plant and equipment,
identifiable intangibles including patents and trademarks, and goodwill related
to those assets. It specifies 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. The Statement also
requires that long-lived assets and identifiable intangibles (except for assets
of a discontinued operation) held for disposal be accounted for at the lower of
cost or fair value less cost to sell. Statement No. 121 is effective for fiscal
years beginning after December 15, 1995. Adoption of this Statement is not
expected to materially affect the assets, earnings or capital of the
Corporation.
In May 1995, the FASB issued Statement of Financial Accounting Standards
No. 122, "Accounting for Mortgage Servicing Rights an amendment of FASB
Statement No. 65." Statement No. 122 eliminates the accounting inconsistencies
that existed between mortgage servicing rights acquired through loan origination
activities and those acquired through purchase transactions. The new rule
requires that mortgage banking enterprises recognize a separate asset for
mortgage servicing rights, regardless of how they were acquired. If the mortgage
banking enterprise sells or securitizes mortgage loans and retains the mortgage
servicing rights, the total cost of the mortgage loans is to be allocated to the
loan and the servicing rights based on their relative fair values if it is
practical to estimate those values. The Statement also specifies how mortgage
servicing rights and excess servicing rights should be evaluated for impairment.
Statement No. 122 applies prospectively in fiscal years beginning after December
15, 1995 to transactions in which mortgage loans are sold or securitized with
servicing rights retained. Adoption of this Statement is not expected to
materially affect the assets, earnings or capital of the Corporation.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation." Statement No. 123
prescribes accounting and reporting standards for all stock-based compensation
plans, including employee stock options, restricted stock, and stock
appreciation rights. The new rule is based on a fair value accounting method
which measures compensation cost at the grant date and recognizes it over the
service period, which is usually the vesting period. The Statement also allows
companies to continue to measure compensation costs using the intrinsic value
based method of accounting prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees." The new rule requires certain disclosures regardless
of which method companies use to account for stock-based employee compensation
arrangements. Statement No. 123 is effective for fiscal years beginning after
December 15, 1995. The Corporation had no employee stock-based compensation
plans in existence as of December 31, 1995.
NOTE 3-Restrictions on Cash And Due From Banks
Cash balances reserved to meet regulatory requirements of the Federal
Reserve Board and balances maintained at other banks for compensating balance
requirements amounted to $1,196,000 at December 31, 1995.
Codorus Valley Bancorp, Inc.
14
<PAGE>
Notes to Consolidated Financial Statements (continued)
NOTE 4-Securities
The amortized cost and estimated market values of investments in debt and equity
securities, classified as available for sale, as of December 31, 1995 and 1994
follows:
<TABLE>
<CAPTION>
(dollars in thousands) Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
1995
Debt Securities
U.S. Treasuries $22,599 $ 249 $ (64) $22,784
U.S. Agencies 23,078 443 (30) 23,491
States and political subdivisions 5,159 169 (4) 5,324
Mortgage-backed securities 9,071 152 (9) 9,214
------- ------- ----- -------
Total debt securities 59,907 1,013 (107) 60,813
Equity Securities 838 28 0 866
------- ------- ----- -------
Total securities $60,745 $ 1,041 $ (107) $61,679
======= ======= ===== =======
1994
Debt Securities
U.S. Treasuries $23,697 $ 50 $ (716) $23,031
U.S. Agencies 20,001 8 (555) 19,454
States and political subdivisions 5,386 28 (30) 5,384
Mortgage-backed securities 5,157 18 (157) 5,018
------- ------- ----- -------
Total debt securities 54,241 104 (1,458) 52,887
Equity Securities 815 15 0 830
------- ------- ----- -------
Total securities $55,056 $ 119 $ (1,458) $53,717
======= ======= ===== =======
</TABLE>
The amortized cost and estimated fair value of debt securities as of December
31, 1995, by contractual maturity, are shown below. Actual maturities may differ
from contractual maturities if put/call options on selected debt issues are
exercised in the future.
<TABLE>
<CAPTION>
December 31, 1995
-----------------
Amortized Fair
(dollars in thousands) Cost Value
--------- -------
<S> <C> <C>
Due in one year or less $15,912 $15,989
Due after one year through five years 31,123 31,494
Due after five years through ten years 3,801 4,116
Due after ten years 0 0
------- -------
50,836 51,599
Mortgage-backed securities (1) 9,071 $ 9,214
------- -------
Total debt securities $59,907 $60,813
======= =======
</TABLE>
(1) Mortgage-backed securities were not included by contractual maturity due to
the following: (a) principal payments are received throughout the term of the
instrument unlike other debt securities which pay at the end of the term, and
(b) actual maturities are usually shorter than contractual maturities since the
principal prepayment option is frequently exercised by mortgage borrowers.
Securities with an amortized cost of $16,284,000 on December 31, 1995 and
$14,655,000 on December 31, 1994 were pledged to secure public deposits and for
other purposes.
Codorus Valley Bancorp, Inc.
15
<PAGE>
Notes to Consolidated Financial Statements (continued)
NOTE 5-Loans
The composition of the loan portfolio at December 31, is as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
1995 1994
--------- --------
<S> <C> <C>
Commercial, industrial and agricultural $ 81,119 $ 77,984
Real estate-- construction and land development 19,817 19,501
--------- --------
Total commercial related loans 100,936 97,485
Real estate -- residential mortgages 36,286 32,240
Installment 22,786 20,912
--------- --------
Total consumer related loans 59,072 53,152
Total loans $160,008 $150,637
========= ========
</TABLE>
Concentrations of credit risk arise when a number of customers are
engaged in similar business activities in the same geographic region, or have
similar economic features that could cause their ability to meet contractual
obligations to be similarly affected by changes in economic conditions. Most of
the Corporation's business is with customers in southern York County,
Pennsylvania. Although this may pose a concentration risk geographically, it is
believed the diverse local economy and detailed knowledge about the customer
base minimizes this risk. At year end 1995, approximately $19.8 million or 12%
of total loans were concentrated in the real estate development industry. Loans
to borrowers within the real estate development industry are usually supported
by real estate collateral.
The aggregate amount of loans to directors, executive officers,
principal shareholders and any associates of such persons was $3,351,000 and
$3,732,000 for the years ended 1995 and 1994, respectively. During 1995, total
new loan additions amounted to $982,000 and total payments collected amounted to
$1,363,000. Related party loans are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and do not involve more than
normal risk of collection. As of year end, 1995, all loans to this group were
current and performing in accordance with original contractual terms.
The Corporation originates and classifies loans as long term
investments; accordingly, the cost method of accounting is used. Periodically, a
portion of fixed rate residential mortgage loans are sold, without recourse, as
a means of managing interest rate risk. A determination is made as to whether
any loans are held-for-sale at reporting periods. Generally, the Corporation
retains servicing rights on the loans it sells. The volume of loans serviced by
the Corporation for others was $10,850,000 at December 31, 1995; $12,444,000 at
December 31, 1994 and $15,206,000 at December 31, 1993.
NOTE 6-Impaired and Past Due Loans
Impaired and past due loans as of December 31, were as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
1995 1994 1993
------ ------ -----
<S> <C> <C> <C>
Impaired loans $3,583 $1,766 $ 223
Loans past due 90 days or more and still accruing interest 1,755 522 734
Amount of impaired loans that have a related allowance $3,583 $1,766 $ 223
Amount of impaired loans with no related allowance 0 0 0
Allowance for impaired loans 485 299 29
Average investment in impaired loans $2,730 $ 983 $1,509
Interest income recognized on impaired loans (all cash-basis method) 120 23 2
</TABLE>
Codorus Valley Bancorp, Inc.
16
<PAGE>
Notes to Consolidated Financial Statements (continued)
NOTE 7-Analysis of Allowance for Loan Losses
Changes in the allowance for loan losses for each of the three years ended
December 31, were as follows:
(dollars in thousands)
1995 1994 1993
------ ------ ------
Balance-- beginning of year $2,249 $2,000 $1,800
Provision charged to operating expense 228 1,229 441
Loans charged off (342) (1,279) (261)
Recoveries 151 299 20
------ ------ ------
Balance-- end of year $2,286 $2,249 $2,000
====== ====== ======
NOTE 8-Assets Acquired in Foreclosure
Foreclosed assets, net of reserve, amounted to $695,000, $670,000, and
$1,050,000 at December 31, 1995, 1994 and 1993, respectively. The net expenses
associated with these assets were approximately $64,000 for 1995; $145,000 for
1994; and $464,000 for 1993.
Changes in the allowance for assets acquired in foreclosure, for each of the
three years ended December 31, were as follows:
(dollars in thousands)
1995 1994 1993
---- ---- ----
Balance-- beginning of year $ 10 $ 0 $ 5
Provision charged to operating expense 30 87 430
Write-downs to fair value and losses
incurred on sales (27) (77) (435)
Recoveries 10 0 0
---- ---- ----
Balance-- end of year $ 23 $ 10 $ 0
==== ==== ====
NOTE 9-Premises And Equipment
The following is a summary of the premises and equipment accounts at December
31,
(dollars in thousands) 1995 1994
------- -------
Land $ 715 $ 371
Buildings and improvements 3,341 3,238
Equipment 2,473 2,329
------- -------
6,529 5,938
Less-accumulated depreciation (3,006) (2,637)
------- -------
Net premises and equipment $ 3,523 $ 3,301
======= =======
Codorus Valley Bancorp, Inc.
17
<PAGE>
Notes to Consolidated Financial Statements (continued)
NOTE 10-Pension Plan
Defined Benefit Plan:
The Corporation has a noncontributory defined benefit plan covering
substantially all of its employees. Benefits under the plan are based on years
of service, age at retirement and the employees' average annual compensation
over the most recent ten years. The Corporation's funding policy is to annually
contribute amounts, not to exceed the maximum amount deductible for federal
income tax purposes, to an irrevocable trust. Contributions are intended to
provide not only for benefits attributed to service to date, but also for those
expected to be earned in the future.
The following table sets forth the plan's funded status and amounts recognized
in the Corporation's consolidated financial statements at December 31,
<TABLE>
<CAPTION>
(dollars in thousands) 1995 1994
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $959 in 1995 and $760 in 1994 $1,018 $ 803
====== =======
Projected benefit obligation for service rendered to date (1,660) (1,295)
Plan assets at fair value 2,165 1,751
------ -------
Plan assets in excess of projected benefit obligation 505 456
Prior service cost 3 3
Unrecognized net gain from past experience different
from that assumed (265) (201)
Unrecognized net transition asset (236) (252)
------ -------
Prepaid pension cost included in other assets $ 7 $ 6
====== =======
</TABLE>
Net periodic pension cost for years ended December 31, included the following
components:
<TABLE>
<CAPTION>
(dollars in thousands) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Service cost benefits earned during the period $ 86 $ 111 $ 89
Interest cost on projected benefit obligation 97 96 96
Actual return on plan assets (463) 63 (166)
Net amortization and deferral 279 (237) 2
-------- -------- --------
Net periodic pension (income) cost $ (1) $ 33 $ 21
======== ======== ========
</TABLE>
In determining the projected benefit obligation, the weighted average
assumed discount rate used was 7 percent at December 31, 1995 and 8 percent at
December 31, 1994, while the rate of increase in future salary levels was 5
percent at December 31, 1995 and 1994. The expected long-term rate of return on
assets, used in determining net periodic pension cost, was 9 percent for 1995,
1994 and 1993.
Plan assets consist primarily of investments in the Lexicon Funds
managed by First Union National Bank. During 1995, plan assets were equally
divided between a capital appreciation equity fund and a fixed income fund.
Codorus Valley Bancorp, Inc.
18
<PAGE>
Notes to Consolidated Financial Statements (continued)
NOTE 10-Pension Plan (continued)
Defined Contribution Plan:
The Corporation maintains an employee 401(k) savings and investment
plan, covering substantially all employees. Under the plan, employees can
contribute a percentage of their gross salary. The Corporation matches a
percentage of the employee contributions. In 1995 and 1994 the Corporation
matched 50% of the first 6% of the employee's contribution. The Corporation's
expense for the 401(k) deferred contribution plan was $44,000 for 1995, $42,000
for 1994, and $27,200 for 1993.
NOTE 11-Short-term Borrowings
The schedule below provides a three year summary of short-term
borrowings comprised of federal funds purchased and other borrowings. Federal
funds purchased from correspondent banks usually mature in one business day.
Other short-term borrowings consists of a line of credit with the Federal Home
Loan Bank of Pittsburgh (FHLBP), which is renewable annually on January 1st.
Outstanding advances on the line of credit, limited to ten percent of total
assets, are collateralized by pledged investment securities. Interest on the
line of credit is calculated daily based on the federal funds rate. At December
31, 1995 the unused line of credit with FHLBP was approximately $23 million.
A summary of aggregate short-term borrowings is as follows for the three
years ended December 31,
(dollars in thousands)
1995 1994 1993
---- ---- ----
Maximum amount outstanding at any month-end $500 $900 $4,500
Daily average amount outstanding $65 $85 $514
Weighted average interest rate 5.71% 4.76% 3.31%
NOTE 12-Restrictions Of Payment Of Dividends
Under the Pennsylvania Banking Code of 1965, as amended, a restriction
is placed on the availability of capital surplus for payment of dividends by the
subsidiary. At December 31, 1995, capital surplus of $5,194,000 was so
restricted.
NOTE 13-Stockholders' Equity
In January 1995, the Corporation acquired 10,000 shares of its common
stock which was subsequently reissued as part of a stock dividend declared in
April 1995.
The Corporation declared a five percent stock dividend in April 1995
which was paid on June 8, 1995. The stock dividend resulted in the issuance of
47,161 common shares.
The Corporation maintains a Dividend Reinvestment and Stock Purchase
Plan (the "Plan"). Shareholders of common stock may participate in the Plan,
which provides that additional shares of common stock may be purchased with
reinvested dividends at prevailing market prices. To the extent that shares are
not available in the open market, the Corporation has reserved 52,500 shares of
common stock to be issued under the Plan. The number of shares available for
issuance under the Plan are adjusted for stock dividends and stock splits. Open
market purchases are usually made by an independent purchasing agent retained to
act as agent for Plan participants, and the purchase price to participants will
be the actual price paid, excluding brokerage commissions and other expenses
which will be paid by the Corporation. The Plan permits participants to make
additional voluntary cash payments toward the purchase of shares of the
Corporation's common stock.
Codorus Valley Bancorp, Inc.
19
<PAGE>
Notes to Consolidated Financial Statements (continued)
NOTE 14-Income Taxes
Effective January 1, 1993, the Corporation changed its method of
accounting for income taxes from the liability method required by SFAS No. 96 to
the liability method required by SFAS No. 109, "Accounting for Income Taxes"
(see Note 1 - Significant Accounting Policies). As permitted under the new
rules, prior years' financial statements have not been restated. The cumulative
effect of adopting Statement No. 109 as of January 1, 1993 was to increase net
income by $170,000.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Corporation's deferred tax assets and liabilities as of December 31, 1995
and December 31, 1994 are as follows:
(dollars in thousands) 1995 1994
---- ----
Deferred tax assets
Loan loss $618 $ 606
Deferred loan fees 210 280
Net unrealized losses on securities
available for sale 0 455
---- -------
Total deferred tax assets 828 1,341
---- -------
Deferred tax liabilities
Depreciation 182 178
Net unrealized losses on loans 19 395
Net unrealized gains on securities
available for sale 318 0
Other 88 74
---- -------
Total deferred tax liabilities 607 647
---- -------
Net deferred tax assets $221 $ 694
==== =======
Analysis of federal income taxes reflected in the income statements is as
follows:
(dollars in thousands) 1995 1994 1993
---- ---- ----
Current tax provision $1,454 $476 $946
Deferred tax provision (299) 236 (63)
------ ---- ----
Total tax provision $1,155 $712 $883
====== ==== ====
Codorus Valley Bancorp, Inc.
20
<PAGE>
Notes to Consolidated Financial Statements (continued)
NOTE 14-Income Tax (continued)
The reasons for the difference between the provision for income taxes and the
amount computed by applying the statutory federal income tax rate to income
before income taxes are as follows:
(dollars in thousands) 1995 1994 1993
------ ------ ------
Income before income taxes $3,749 $2,442 $2,990
====== ====== ======
Computed tax at 34% $1,275 $ 830 $1,017
Increase (reduction) in taxes resulting from:
Tax exempt interest income (141) (132) (154)
Interest expense disallowance 18 14 17
Other--net 3 0 3
------ ------ ------
Provision for income taxes $1,155 $ 712 $ 883
====== ====== ======
The provision for income taxes includes ($21,000), ($5,000), and $124,000 in
1995, 1994, and 1993 of applicable income tax (benefit) expense related to
investment security (losses) gains of ($62,000), ($14,000), and $364,000,
respectively.
NOTE 15-Financial Instruments with Off-Balance Sheet Risk
In the normal course of business the Corporation's banking subsidiary is a
party to various financial transactions that are not funded as of the balance
sheet date. Off-balance sheet financial instruments, which enable bank customers
to meet their financing needs, are comprised mainly of commitments to extend
credit and letters of credit.
To varying degrees, these instruments contain elements of credit and
market risk similar to those on-balance sheet financial instruments. To manage
these risks the Corporation uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet instruments.
Normally, off-balance sheet instruments have fixed expiration dates or
termination clauses, at specific rates and for specific purposes. Since some of
the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
Off-balance sheet instruments do not represent unusual risks for the Corporation
and management does not anticipate any significant losses as a result of these
transactions.
The following is a summary of significant commitments:
December 31,
(dollars in thousands) 1995 1994
---- ----
Commitments to extend credit $28,152 $24,987
Standby letters of credit 1,608 3,745
Codorus Valley Bancorp, Inc.
21
<PAGE>
Notes to Consolidated Financial Statements (continued)
NOTE 16-Contingent Liabilities
Various legal actions or proceedings, arising in the ordinary course of
business, are pending involving the Corporation or its subsidiaries. In the
opinion of management, these matters are without merit or immaterial in terms of
the Corporation's liquidity, capital resources, and results of operations.
NOTE 17-Fair Value of Financial Instruments
FASB Statement No. 107, "Disclosures About Fair Value of Financial
Instruments", requires disclosure of fair value information about financial
instruments, whether or not recognized on the balance sheet, for which it is
practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. Statement No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Corporation.
An analysis of financial instruments is as follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
----------------- -----------------
Carrying Fair Carrying Fair
(dollars in thousands) Amount Value Amount Value
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 5,697 $ 5,697 $ 4,992 $ 4,992
Federal funds sold 3,150 3,150 1,850 1,850
Securities 61,679 61,679 53,717 53,717
Loans 160,008 160,039 150,637 147,200
Less: allowance for loan losses (2,286) (2,286) (2,249) (2,249)
Interest receivable 1,703 1,703 1,639 1,639
-------- -------- -------- --------
Total financial assets $229,951 $229,982 $210,586 $207,149
======== ======== ======== ========
Financial liabilities:
Demand and savings deposits $ 85,710 $ 85,710 $ 87,396 $ 87,396
Time deposits 126,730 127,836 109,500 108,908
Interest payable 865 865 852 852
-------- -------- -------- --------
Total financial liabilities $213,305 $214,411 $197,748 $197,156
======== ======== ======== ========
</TABLE>
The methods and assumptions used to estimate fair value can be found in the
"Fair Value of Financial Instruments" section of Note 1 to the Financial
Statements.
Codorus Valley Bancorp, Inc.
22
<PAGE>
Notes to Consolidated Financial Statements (continued)
NOTE 18-Condensed Financial Information -- Parent Company Only
Codorus Valley Bancorp, Inc.
Condensed Statements of Financial Condition
- -------------------------------------------------------------------------------
December 31,
(dollars in thousands) 1995 1994
------ ------
Assets
Cash and due from banks $ 130 $ 88
Investment in subsidiaries:
Peoples Bank of Glen Rock 20,274 17,576
SYC Realty Company 33 0
Other assets 597 215
------- -------
Total assets..............................................$21,034 $17,879
======= =======
Liabilities-- Miscellaneous $ 2 $ 7
Stockholders' Equity
Series preferred stock 0 0
Common stock 2,490 2,396
Capital surplus 5,194 4,428
Retained earnings 12,731 11,932
Net unrealized gains (losses) on securities
available for sale, net of taxes 617 (884)
------- -------
Total stockholders' equity............................... $21,032 $17,872
Total liabilities & stockholders' equity................. $21,034 $17,879
======= =======
Codorus Valley Bancorp, Inc.
Condensed Statements of Income
- ------------------------------------------------------------------------------
Years ended December 31,
(dollars in thousands) 1995 1994 1993
---- ---- ----
Income
Dividends from Peoples Bank of Glen Rock $1,431 $ 594 $ 577
Gain on sale of securities 0 0 30
Miscellaneous income 32 22 23
------ ------- -------
Total income 1,463 616 630
Expenses--Other operating expenses 84 67 65
------ ------- -------
Income before applicable income tax benefit
and undistributed earnings of subsidiaries...... 1,379 549 565
Applicable income tax benefit 17 15 4
------ ------- -------
Income before undistributed earnings of
subsidiaries 1,396 564 569
Undistributed earnings of subsidiaries:
Peoples Bank of Glen Rock 1,198 1,166 1,708
SYC Realty Company 0 0 0
------ ------- -------
Net income ..................................... $2,594 $1,730 $2,277
====== ======= =======
Codorus Valley Bancorp, Inc.
23
<PAGE>
Notes to Consolidated Financial Statements (continued)
NOTE 18-Condensed Financial Information -- Parent Company Only (continued)
Codorus Valley Bancorp, Inc.
Condensed Statements of Cash Flows
- ------------------------------------------------------------------------------
Years ended December 31,
(dollars in thousands) 1995 1994 1993
---- ---- ----
Cash Flows From Operating Activities:
Net income $2,594 $1,730 $2,277
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation 9 9 9
Undistributed earnings of subsidiaries (1,198) (1,166) (1,708)
Gain on sale of securities 0 0 (30)
Other, net (50) (10) 13
------ ------- -------
Net cash provided by operating activities.... 1,355 563 561
Cash Flows From Investing Activities:
Proceeds from sales of investment securities 0 0 91
Purchase of investment securities 0 0 (2)
Purchase of available for sale securities (1) 0 0
Payment for investment in subsidiary (33) 0 0
Purchase of premises and equipment (344) 0 0
------ ------- -------
Net cash (used for) provided by investing
activities.................................. (378) 0 89
Cash Flows Used For Financing Activities:
Dividends paid (659) (594) (548)
Cash in lieu of fractional shares (6) 0 (5)
Payment to repurchase common stock (270) 0 0
Proceeds from issuance of common stock 0 4 0
------ ------- -------
Net cash used for financing activities....... (935) (590) (553)
------ ------- -------
Net increase (decrease) in cash and
cash equivalents............................ 42 (27) 97
Cash and cash equivalents at beginning of year 88 115 18
------ ------- -------
Cash and cash equivalents at end of year...... $ 130 $ 88 $ 115
====== ======= =======
Codorus Valley Bancorp, Inc.
24
<PAGE>
Management's Discussion of Consolidated Financial
Condition and Results of Operations
The consolidated earnings of Codorus Valley Bancorp, Inc. (the
"Corporation") were derived primarily from the operations of its wholly-owned
subsidiary, Peoples Bank of Glen Rock (the "Bank"). This discussion and analysis
should be read in connection with the Consolidated Financial Statements and
Notes which appear in this report. Such financial condition and results of
operations are not intended to be indicative of future performance.
Overview
Market interest rates peaked in January 1995 and began a steady descent
throughout the remainder of the year. This was in sharp contrast to the rapid
rise in rates which characterized 1994. The national economy continued to expand
in 1995 for the fifth consecutive year, one of the longest expansions on record.
The low interest rate environment helped to propel the stock market to record
highs. During the current year, mortgage interest rates dropped to the low
levels of 1993, making refinancing and home buying more affordable. However, a
rising level of consumer debt, wage stagnation, and corporate and government
downsizing, served to constrain consumer demand and economic growth.
Based on information provided by the FDIC for the first three quarters
of 1995, the commercial banking industry appears to be headed toward achieving
record profits for the fourth consecutive year. The growth in commercial bank
earnings is attributable to several factors, such as: greater loan volumes,
lower FDIC deposit insurance costs, higher noninterest income, and improved
asset quality. It is anticipated that improved earnings will raise the level of
industry capital to a record high for 1995. Mergers and acquisitions within the
industry continue to be a primary strategy for many institutions to improve
profitability and increase market share.
For 1995, the Corporation earned $2,594,000 or $2.62 per share,
compared to $1,730,000 or $1.74 per share for 1994, and $2,277,000 or $2.29 per
share for 1993. The $864,000 or 50% increase in net income for 1995 vs. 1994 was
due to a smaller loan loss provision, improved yields on a larger volume of
earning assets, and a reduction in FDIC deposit insurance expense. The $547,000
or 24% decrease in net income for 1994 vs. 1993 reflected a higher than normal
loan loss provision. In 1994, approximately $1.1 million of loan charge-offs
were directly attributable to a former Bank officer, who is presently under
federal indictment. Additional information relating to the loan charge-offs can
be found in the Credit Risk and Loan Quality Section of this report.
Additionally, net income for 1993 included $437,000 in after-tax gains from the
sale of assets and a one-time $170,000 federal income tax benefit caused by the
mandatory adoption of the Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
For 1995, annual dividends totalled $.665 per share, compared to $.596
in 1994 and $.550 in 1993. Book value per common share was $21.12, $17.95 and
$17.69 for years ended 1995, 1994 and 1993, respectively. Per share amounts were
retroactively adjusted for stock dividends.
Net income as a percentage of average stockholders' equity, or return on
equity (ROE), was 13.3% for 1995, compared to 9.5% for 1994, and 13.5% for 1993.
Net income as a percentage of total average assets, or return on assets (ROA),
was 1.14% for 1995, compared to 0.81% for 1994, and 1.12% for 1993. The
reduction in both of these key ratios for 1994 reflected the impact of an
unusually large loan loss in the second quarter of that year.
At December 31, 1995, nonperforming assets as a percentage of total
loans and net assets acquired in foreclosure was approximately 2.66%, compared
to 1.61% and 0.90% for years ended 1994 and 1993, respectively. Information
about nonperforming assets is provided in the Credit Risk and Loan Quality
Section of this Report, including Table 7.
Throughout 1995, a capital level well above regulatory requirements was
maintained. Currently there are three federal regulatory definitions of capital
that take the form of minimum ratios. Table 10 depicts that the Corporation
exceeds all federal minimum regulatory standards. The allowance (reserve) for
possible loan losses as a percentage of total loans was 1.43% at December 31,
1995, compared to 1.49% at December 31, 1994, and 1.42% at December 31, 1993.
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.
In the period ahead, minimal inflation and declining federal government
budget deficits seem to indicate further declines in U.S. interest rates. This
presumption has positive lending, but negative funding implications for the
financial services industry. In addition to locating cost effective funding
sources, the industry will be challenged by how to satisfy changing customer
preferences and lifestyles through advances in communication and computer
technologies. To successfully meet these challenges the collective focus of the
Board of Directors and management will continue to be on customer needs and
preferences, service quality and convenience, asset quality, capital adequacy,
and cost control. We believe this focus will help to increase the long term
value of the Corporation.
A more detailed analysis of the factors and trends affecting Corporate
earnings follows.
Results Of Operations
Net Interest Income
Net interest income is the Corporation's principal source of revenue,
representing the difference between interest income earned on loans and
investment securities, and interest expense incurred on deposits. The change in
net interest income from year to year is caused by changes in interest rates,
changes in volume, and changes in the composition or mix of interest sensitive
assets and liabilities.
For analytical purposes, Table 1-Net Interest Income, Table
2-Rate/Volume Analysis of Changes in Net Interest Income, and Table 3-Average
Balances and Interest Rates, are all presented on a taxable equivalent basis and
are used in the analysis of net interest income. Income from tax-exempt assets,
primarily loans to or securities issued by state and local governments, is
increased by an amount
Codorus Valley Bancorp, Inc.
25
<PAGE>
Management's Discussion of Consolidated Financial
Condition and Results of Operations (continued)
equivalent to the federal income taxes which would have
been incurred if the income was taxable at the statutory rate of 34%. Such an
adjustment facilitates comparison between taxable and tax exempt assets.
Net interest income increased $519,000 or 5.6%, on a taxable equivalent
basis, in 1995 compared to 1994. The increase was primarily attributable to
improved yields on a larger volume of earning assets. Comparatively, net
interest income, on a taxable equivalent basis, for 1994 vs. 1993, increased
$656,000 or 7.6% due primarily to a larger volume of earning assets and lower
funding costs.
For 1995, total interest income, on a taxable equivalent basis, was
$18,543,000, up $2,301,000 or 14.2% above the $16,242,000 earned in 1994. This
increase was due primarily to higher yields on a larger average volume of loans.
In 1995, total loans averaged $154.6 million to yield 9.44%, compared to $144.8
million and 8.76%, respectively, for 1994. During 1995, growth was achieved in
all major loan portfolios, with consumer loans outpacing commercial loans.
Comparatively, interest income, on a taxable equiv alent basis, for 1994 vs.
1993, increased $313,000 or 2% due to an increase in average total loans.
For 1995, total interest expense was $8,722,000, up $1,782,000 or 25.7%
above the $6,940,000 incurred in 1994. This increase was due to higher rates
paid on a larger average volume of deposits, principally Certificates of Deposit
("CD's"). A significant portion of the Bank's CD portfolio matured in the period
September 1994 through June 1995, and renewed at competitive prices which were
relatively high at the time. Generally, higher CD rates in the first half of
1995 stimulated investment in CD's, and resulted in disintermediation from
interest bearing demand and savings accounts. Comparatively, interest expense
for 1994 vs. 1993, decreased $343,000 or 4.7% due primarily to lower rates.
The interest rate spread was 4.02%, 4.13%, and 4.02% for the years
ended 1995, 1994, and 1993, respectively. The net yield on average earning
assets was 4.54%, 4.57%, and 4.46% for the years ended 1995, 1994 and 1993,
respectively. For 1995, the decrease in these two measures of net interest
income reflects the Bank's asset sensitive balance sheet structure, an increase
in nonperforming assets, and competitive pricing pressures.
Based on the results of a recent analysis of interest rate risk, the
repricing characteristics of the Corporation's assets and liabilities appear to
be reasonably matched over the next year. During 1995, the average balances of
variable and adjustable rate loans continued to grow as a percentage of the
average total loan portfolio compared to average fixed rate loans. Both of these
factors should help to insulate net interest income from any significant
fluctuations in market interest rates.
<TABLE>
<CAPTION>
Table 1-Net Interest Income (taxable equivalent basis)
5-yr
December 31, 1995 1994 1993 1992 1991 CGR
(dollars in thousands) -------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Total interest income $ 18,346 $ 16,053 $ 15,696 $ 16,705 $ 17,604 1.5%
Tax equivalent adjustment 197 189 233 285 321 n/a
-------- -------- -------- -------- --------
Adjusted total interest income 18,543 16,242 15,929 16,990 17,925 1.4%
Total interest expense 8,722 6,940 7,283 8,651 10,363 -3.4%
-------- -------- -------- -------- --------
Net interest income (taxable equivalent basis) $ 9,821 $ 9,302 $ 8,646 $ 8,339 $ 7,562 7.1%
======== ======== ======== ======== ========
Average earning assets $216,429 $203,399 $193,972 $184,319 $172,119 6.3%
Average interest bearing liabilities 191,701 179,756 173,727 167,308 157,833 6.1%
Yield on earning assets 8.57% 7.99% 8.21% 9.22% 10.41%
Rate on interest bearing liabilities 4.55% 3.86% 4.19% 5.17% 6.57%
-------- -------- -------- -------- --------
Interest rate spread 4.02% 4.13% 4.02% 4.05% 3.84%
Net yield on average earning assets 4.54% 4.57% 4.46% 4.52% 4.39%
</TABLE>
Codorus Valley Bancorp, Inc.
26
<PAGE>
Management's Discussion of Consolidated Financial
Condition and Results of Operations (continued)
Table 2-Rate/Volume Analysis of Changes in Net Interest Income (taxable
equivalent basis)
<TABLE>
<CAPTION>
Year ended 1995 vs. 1994
December 31, Increase Change due to
1995 1994 (Decrease) Volume Rates
-------- ------- ------- ------ --------
<S> <C> <C> <C> <C> <C>
(dollars in thousands)
Interest Income
Interest bearing deposits with banks $ 13 $ 6 $ 7 $ 3 $ 4
Federal funds sold 168 96 72 19 53
Securities, taxable 3,329 3,068 261 116 145
Securities, tax-exempt 441 385 56 57 (1)
Loans, taxable (1) 14,453 12,516 1,937 900 1,037
Loans, tax-exempt 139 171 (32) (41) 9
------- ------- ------ ------ ------
Total interest income 18,543 16,242 2,301 1,054 1,247
Interest Expense
Deposits:
Interest bearing demand 1,304 1,457 (153) (148) (5)
Savings 560 606 (46) (37) (9)
Time deposits under $100,000 6,012 4,404 1,608 704 904
Time deposits $100,000 and above 843 469 374 160 214
Federal funds purchased and other
short term borrowings 3 4 (1) (1) 0
------- ------- ------ ------ ------
Total interest expense 8,722 6,940 1,782 678 1,104
Net interest income $ 9,821 $ 9,302 $ 519 $ 376 $ 143
======= ======= ====== ====== ======
<CAPTION>
Year ended 1994 vs. 1993
December 31, Increase Change due to
1994 1993 (Decrease) Volume Rates
-------- ------- ------- ------ --------
<S> <C> <C> <C> <C> <C>
(dollars in thousands)
Interest Income
Interest bearing deposits with banks $ 6 $ 4 $ 2 $ 1 $ 1
Federal funds sold 96 116 (20) (42) 22
Securities, taxable 3,068 3,309 (241) 61 (302)
Securities, tax-exempt 385 376 9 6 3
Loans, taxable (1) 12,516 11,815 701 955 (254)
Loans, tax-exempt 171 309 (138) (105) (33)
------- ------- ------ ------ ------
Total interest income 16,242 15,929 313 876 (563)
Interest Expense
Deposits:
Interest bearing demand 1,457 1,478 (21) 149 (170)
Savings 606 658 (52) 37 (89)
Time deposits under $100,000 4,404 4,472 (68) 226 (294)
Time deposits $100,000 and above 469 658 (189) (175) (14)
Federal funds purchased and other
short term borrowings 4 17 (13) (14) 1
------- ------- ------ ------ ------
Total interest expense 6,940 7,283 (343) 223 (566)
Net interest income $ 9,302 $ 8,646 $ 656 $ 653 $ 3
======= ======= ====== ====== ======
</TABLE>
(1) Includes loan fees of $324,000 in 1995, $412,000 in 1994 and $408,000
in 1993.
Codorus Valley Bancorp, Inc.
27
<PAGE>
Management's Discussion of Consolidated Financial
Condition and Results of Operations (continued)
Table 3-Average Balance and Interest Rates (taxable equivalent basis)
<TABLE>
<CAPTION>
1995 1994 1993
------------------------ ------------------------ -------------------------
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
Assets
Interest bearing deposits
with banks $ 236 $ 13 5.51% $ 158 $ 6 3.80% $ 135 $ 4 2.96%
Federal funds sold 2,856 168 5.88 2,392 96 4.01 3,757 116 3.09
Investment securities:
Taxable 53,406 3,329 6.23 51,454 3,068 5.96 50,519 3,309 6.55
Tax-exempt 5,322 441 8.29 4,634 385 8.31 4,559 376 8.25
-------- ------- ---- -------- ------ ---- ------- ------ -----
Total investment securities 58,728 3,770 6.42 56,088 3,453 6.16 55,078 3,685 6.69
Loans:
Taxable (1) 153,218 14,453 9.43 142,938 12,516 8.76 132,244 11,815 8.93
Tax-exempt 1,391 139 9.99 1,823 171 9.38 2,758 309 11.20
-------- ------ ---- ------- ------ ---- ------- ------ -----
Total loans 154,609 14,592 9.44 144,761 12,687 8.76 135,002 12,124 8.98
-------- ------ ---- ------- ------ ---- ------- ------ ----
Total earning assets 216,429 18,543 8.57 203,399 16,242 7.99 193,972 15,929 8.21
Other assets (2) 10,838 9,704 10,134
Total assets $227,267 $213,103 $204,106
======== ======== ========
Liabilities and Stockholders' Equity
Interest bearing deposits:
Interest bearing demand $46,850 1,304 2.78 $ 52,155 1,457 2.79 $ 47,387 1,478 3.12
Savings 21,742 560 2.58 23,169 606 2.62 21,936 658 3.00
Time deposits under $100,000 108,116 6,012 5.56 93,222 4,404 4.72 88,739 4,472 5.04
Time deposits $100,000 and above 14,928 843 5.65 11,125 469 4.22 15,151 658 4.34
-------- ------ ---- -------- ------ ---- -------- ------- ----
Total interest bearing deposits 191,636 8,719 4.55 179,671 6,936 3.86 173,213 7,266 4.19
Federal funds purchased and other
short term borrowings 65 3 4.62 85 4 4.71 514 17 3.31
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total interest bearing
liabilities 191,701 8,722 4.55 179,756 6,940 3.86 173,727 7,283 4.19
Non-interest bearing deposits 14,871 14,162 12,226
Other liabilities 1,126 1,050 1,327
Stockholders' equity 19,569 18,135 16,826
Total liabilities and
stockholders' equity $227,267 $213,103 $204,106
======== ======== ========
Net interest income $ 9,821 $ 9,302 $ 8,646
======== ======== ========
Interest rate spread 4.02% 4.13% 4.02%
===== ===== =====
Net yield on earning assets 4.54% 4.57% 4.46%
===== ===== =====
</TABLE>
(1) Includes loan fees of $324,000 in 1995, $412,000 in 1994, and $408,000 in
1993.
(2) Includes average nonaccrual loans of $2,730,000 in 1995, $983,000 in 1994,
and $1,509,000 in 1993.
Codorus Valley Bancorp, Inc.
28
<PAGE>
Management's Discussion of Consolidated Financial
Condition and Results of Operations (continued)
Provision for Loan Losses
The provision for possible loan losses is an estimated expense charged
to earnings in anticipation of losses attributable to uncollectible loans. The
provision reflects management's judgement of an appropriate level for the
allowance (reserve) for loan losses.
The provision expense for possible loan losses was $228,000 for 1995,
which represented a $1,001,000 decrease below the $1,229,000 provision for 1994.
The prior year's provision was unusually large due to loan charge-offs
approximating $1,087,000 which were attributable to a former Bank officer. These
charge-offs also explain the large increase in the loan loss provision expense
for 1994 compared to 1993.
Non-Interest Income
Total non-interest income for 1995 was $912,000, up $32,000 or 3.6%
above 1994. Comparability between periods from normal operations can be achieved
by removing the effect of losses from relatively infrequent sales of investment
securities. In 1995 a $62,000 loss resulted from the sale of approximately $2.4
million in low yielding securities which were exchanged for higher yielding
securities to improve overall portfolio yield. The income produced from the
higher yielding securities more than offset the loss in 1995. On an adjusted
basis, total non-interest income for 1995 increased $80,000 or 8.9% above 1994.
The increase in 1995 was generally attributable to normal business growth.
Comparatively, total non-interest income for 1994 was $880,000, down
$468,000 or 35% below the $1,348,000 earned in 1993. The $1,348,000 earned in
1993 included $662,000 in gains from the infrequent sale of loans and investment
securities. To achieve comparability in non-interest income from normal
operations, it is necessary to exclude the relatively infrequent gains and
losses from asset sales. On an adjusted basis, total non-interest income for
1994 increased $208,000 or 30% above 1993. The overall increase in adjusted
non-interest income was due primarily to a $121,000 increase in trust income
attributable to business growth, greater than normal estate fees, and the full
year's effect of a 1993 price increase. Service charges on deposit accounts and
other fees increased due to normal business growth.
Non-interest income for 1996 is currently projected to exceed the 1995
level due primarily to planned business growth.
Non-Interest Expenses
Total non-interest expenses for 1995 were $6,559,000, up $237,000 or
3.7% above the $6,322,000 incurred for 1994. The overall increase was due to
increases within the salaries and benefits, and other expense categories.
Salaries and benefits expense increased $345,000 due to staff additions, normal
merit raises, a year end bonus, and higher replacement costs attributable to
normal business growth, improved controls, and branch office expansion. Other
expenses increased $177,000, of which approximately $79,000 was attributable to
problem loan carrying costs. Increased problem loan costs reflected a larger
portfolio of nonperforming loans and increased loan collection efforts during
1995. The remaining increase in other expenses was due to the combined effect
of small increases from many individual expenses attributable to normal
business growth.
Comparatively, total non-interest expenses for 1994 were $6,322,000,
down $8,000 when compared to 1993. The overall reduction in expenses was
attributable to smaller acquired real estate costs which more than offset the
increase in expenses associated with branch office expansion. In April 1994, the
Corporation opened a seventh full service banking office in the community of
Stewartstown. Prior to that, in June 1993, a sixth full service banking office
was opened near the community of Red Lion. Accordingly, branch office expansion
accounts for most of the increase in salaries and benefits, occupancy, and
furniture and equipment expenses in 1994. Acquired real estate expenses declined
$319,000 in 1994 as compared to 1993. These expenses primarily reflect declines
in the market value, and carrying costs (including liquidation costs) for
properties acquired in satisfaction of debt. Acquired real estate expenses were
unusually high in 1993 due to a larger portfolio of acquired assets and a weaker
commercial real estate market.
In September 1995, the FDIC lowered its deposit insurance rate for Bank
Insurance Fund ("BIF") insured commercial banks. Generally, the FDIC rate for
well capitalized and well managed commercial banks was reduced from $.23 per
$100 of deposits to $.04 per $100 of deposits, effective June 1, 1995. A refund
to commercial banks, pursuant to the rate reduction, was made by the FDIC
because the BIF achieved its required reserve level of $1.25 per $100 deposits
in May 1995. For the full year 1995 the Bank incurred $232,000 in expense for
FDIC deposit insurance, which included the favorable effect of the refund and
rate reduction. In the absence of the refund and rate reduction, the Bank would
have incurred approximately $453,000 for 1995.
For 1996, projected FDIC deposit insurance costs could be as low as
$2,000, the current minimum cost of membership for a year. However, in 1996 it
is possible that the U.S. Congress will require commercial banks to begin paying
a portion of the annual Financing Corporation ("FICO") bond obligation. FICO was
created to help resolve the financial crisis within the Savings & Loan industry
during the late 1980's. This policy issue, including an 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.
In the period ahead, non-interest expenses will increase primarily as a
result of planned business growth.
Income Taxes
The provision for federal income taxes was $1,155,000 for 1995 compared
to $712,000 for 1994 and $883,000 for 1993. The increase in the tax provision
for 1995 is due to an increase in operating income.
In February 1992, the Financial Accounting Statement Board issued
Statement of Financial Accounting Standards No. 109,
Codorus Valley Bancorp, Inc.
29
<PAGE>
Management's Discussion of Consolidated Financial
Condition and Results of Operations (continued)
"Accounting for Income Taxes," which superseded Statement No. 96. As required,
the Corporation adopted Statement No. 109 as of January 1, 1993. As permitted by
this Statement, prior period financial statements were not restated to reflect
the cumulative change. The change to Statement No. 109 resulted in an increase
in the deferred tax asset of $170,000 and is reflected in the income statement
as a cumulative effect of change in accounting principle in 1993.
Financial Condition
Investment Securities
The investment security portfolio is an interest earning asset, second
only in size to the loan portfolio. Investment securities serve as an important
source of revenue, a primary source of liquidity, and as collateral for public
deposits.
Investment is limited to high quality debt instruments. Direct
obligations of the U.S. Government are full faith and credit obligations of the
federal government. Issues of federal agencies are also directly guaranteed,
indirectly guaranteed, or sponsored, by the federal government. Obligations of
states and political subdivisions, known as "municipals", are also maintained in
the portfolio. In accordance with investment policy, municipal securities are
limited to not more than $1 million per issuer.
Maturities for individual issues range from less than one year to
approximately ten years. The average expected life is used in lieu of final
maturity for mortgage-backed securities because of their tendency to prepay. The
weighted average maturity of the investment security portfolio at year end 1995
was approximately 2.2 years compared to approximately 2.8 years at year end
1994. A maturity distribution by security type, and weighted average yields are
presented in Table 4.
At year end 1995 the total investment securities portfolio had an
amortized cost of $60,745,000 and a fair value of approximately $61,679,000. The
$934,000 or 1.5% appreciation in value was due primarily to declining market
interest rates. Comparatively, at year end 1994 the total investment securities
portfolio had an amortized cost of $55,056,000 and a fair value of approximately
$53,717,000. The $1,339,000 or 2.4% decline in value was due primarily to rising
market interest rates. Unrealized holding gains and losses, net of applicable
taxes, are recorded in accordance with Accounting Statement No. 115, as
described below.
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." This Statement is effective for
fiscal years beginning after December 15, 1993. Statement No. 115 requires
companies to classify their investment securities into three categories and to
account for each category in a specified manner. The first category is
"held-to-maturity" which is reportable at amortized cost. The second category is
"available-for-sale" which requires securities to be reported at fair value.
Unrealized gains and losses, net of any tax effect, for this category must be
reflected as a separate line item in the stockholders' equity section of the
balance sheet. The third category is "trading" which continues to be reported at
fair value with unrealized gains and losses recorded directly in the income
statement. Effective January 1, 1994, the Corporation classified its total
investment securities portfolio as available-for-sale. Compliance with Statement
No. 115 did not have a material impact on corporate net income. However, the net
effect of unrealized gains or losses, caused by marking an available-for-sale
portfolio to market, can cause volatility within the stockholders' equity
section of the balance sheet.
Loans
Total investment in loans at year end 1995 was $160 million representing
a $9.4 million or 6.2% increase above year end 1994. A growing local economy,
declining market interest rates, and relatively low unemployment, were all
factors which contributed to an increase in loan demand. During 1995, growth was
achieved in all major loan portfolios, with consumer loans outpacing commercial
loans.
Comparatively, the total investment in loans at year end 1994 was $150.6
million, representing a $10.1 million or 7.2% increase above year end 1993. The
increase was due to the same factors as in 1995 with the exception of declining
interest rates. The sharp rise in market interest rates, particularly in the
third and fourth quarters of 1994 slowed the demand for credit. Additionally,
new commercial loan development efforts were hampered since the second quarter
of 1994, due to an unusually large loan loss caused by a former Bank officer.
Bank personnel were redirected to quantify and document the loss, and prepare
for economic and legal recourse.
Table 5 presents the composition of total loans on a comparative basis
for a five year period. The table depicts a relatively stable mix of commercial
and consumer related loans over the past five years.
Table 6, reveals that the commercial loan portfolio was comprised of
$49.3 million or 49% in fixed rate loans and $51.6 million or 51% in variable or
adjustable rate loans at year end 1995. This compares to $42.7 million or 44% in
fixed rate commercial loans and $54.8 million or 56% in variable and adjustable
rate commercial loans at year end 1994. The percentage of fixed rate commercial
loans increased in 1995 due to a relatively low interest rate environment,
particularly in the last half of the year. Low interest rates induced some
customers to refinance from variable rate loans to fixed rate loans.
At year end 1995 the volume of adjustable rate residential mortgage
loans, including home equity loans, was approximately $22.6 million representing
62% of the total residential mortgage loan and home equity loan portfolios. This
compares to $19.3 million and 60%, respectively, for year end 1994.
Variable rate loans reprice periodically with changes in the Bank's Base
rate, or the Prime rate as reported in the Wall Street Journal. Adjustable rate
loans reprice at annual intervals based on the U.S. Treasury yield curve.
Marketing emphasis is placed on variable and adjustable rate loans since they
reprice in response to changes in market interest rates.
The Bank serviced loans for others in the amount of $10,850,000
Codorus Valley Bancorp, Inc.
30
<PAGE>
Management's Discussion of Consolidated Financial
Condition and Results of Operations (continued)
<TABLE>
<CAPTION>
Table 4-Analysis of Investment Securities
Weighted
U.S. U.S. State & Average
Treasury Agency(1) Municipal Stock Total Yield(2)
-------- --------- --------- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
December 31, 1995
Maturity
Within one year $ 7,499 $ 8,477 $ 374 $ $16,350 6.42%
One to five years 15,100 22,214 2,442 39,756 6.11
Five to ten years 1,458 2,343 3,801 8.73
Over ten years 0
No set maturity 838 838
------- ------- ------ ---- -------
Amortized cost $22,599 $32,149 $5,159 $838 $60,745 6.36
======= ======= ====== ==== =======
Average maturity 2.2 years
December 31, 1994
Maturity
Within one year $ 5,008 $ 3,062 $1,168 $ $ 9,238 6.05%
One to five years 18,195 18,637 1,601 38,433 6.14
Five to ten years 494 3,459 2,367 6,320 8.51
Over ten years 250 250 9.09
No set maturity 815 815
------- ------- ------ ---- -------
Amortized cost $23,697 $25,158 $5,386 $815 $55,056 6.41
======= ======= ====== ==== =======
Average maturity 2.8 years
December 31, 1993
Maturity
Within one year $ 8,045 $ 4,816 $ 485 $ $13,346 5.75%
One to five years 15,178 15,852 2,467 33,497 6.21
Five to ten years 1,488 4,498 1,793 7,779 8.00
Over ten years 0
No set maturity 802 802
------- ------- ------ ---- -------
Amortized cost $24,711 $25,166 $4,745 $802 $55,424 6.35
======= ======= ====== ==== =======
Average maturity 2.6 years
</TABLE>
(1) Collateralized-mortgage obligations (CMO's) and mortgage-backed securities
(MBS's) are included in the maturity categories based on average expected
life.
(2) Yields on tax-exempt obligations were computed on a taxable equivalent
basis using a 34% tax rate.
Codorus Valley Bancorp, Inc.
31
<PAGE>
Management's Discussion of Consolidated Financial
Condition and Results of Operations (continued)
at year end 1995, compared to $12,444,000 at year end 1994, and $15,206,000 at
year end 1993. Servicing rights were retained from past mortgage loan sales to
provide a source of income and a basis for cross-selling additional financial
services.
In spite of relatively low interest rates, and the prospect of future
declines, loan growth is expected to be moderate in the period ahead.
Constraining factors include: competitive pressures, a rising level of consumer
debt among the public, and widespread employment insecurity caused by corporate
and government downsizing.
Credit Risk and Loan Quality
The Corporation emphasizes the minimization of credit risk. To support
this objective a sound lending policy framework has been established. Within
this framework are six basic policies which guide the lending process and
minimize risk. First, the Corporation follows detailed written lending policies
and procedures. Second, loan approval authority is granted commensurate with
dollar amount, loan type, level of risk, and the experience of the loan officer.
Third, loan review committees function at both the senior lending officer
Table 5-Loan Portfolio Composition
<TABLE>
<CAPTION>
December 31, 1995 1994 1993 1992 1991
(dollars in thousands) ------------------ ---------------- ------------------ ----------------- -------------------
<S> <C> <C> <C> <C> <C>
Commercial, industrial and
agricultural $ 81,119 50.7% $ 77,984 51.8% $ 78,383 55.8% $ 70,831 53.5% $ 70,341 54.4%
Real estate--construction and
land development 19,817 12.4 19,501 12.9 16,811 11.9 18,061 13.6 17,245 13.3
-------- ----- -------- ----- --------- ----- --------- ----- -------- -----
Total commercial related loans 100,936 63.1 97,485 64.7 95,194 67.7 88,892 67.1 87,586 67.7
Real estate--residential
mortgages 36,286 22.7 32,240 21.4 26,866 19.1 25,954 19.6 25,883 20.0
Installment 22,786 14.2 20,912 13.9 18,497 13.2 17,607 13.3 15,877 12.3
------- ----- -------- ----- -------- ----- --------- ----- -------- -----
Total consumer related loans 59,072 36.9 53,152 35.3 45,363 32.3 43,561 32.9 41,760 32.3
Total loans (1) $160,008 100.0% $150,637 100.0% $140,557 100.0% $132,453 100.0% $129,346 100.0%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
(1) The Corporation's total loan portfolio is solely domestic.
Table 6-Selected Loan Maturities and Interest Rate Sensitivity
December 31, 1995
Years to Maturity
------------------------------
1 or less 1 to 5 over 5 Total
---------- ------- ------ -----
(dollars in thousands)
Commercial, industrial and
agricultural $10,802 $17,827 $52,490 $ 81,119
Real estate--construction and
land development 10,062 5,307 4,448 19,817
------- ------- ------- --------
Total commercial related loans $20,864 $23,134 $56,938 $100,936
======= ======= ======= ========
Fixed interest rates $ 3,449 $17,284 $28,565 $ 49,298
Floating or adjustable
interest rates 17,415 5,850 28,373 51,638
------- ------- ------- --------
Total commercial related loans $20,864 $23,134 $56,938 $100,936
======= ======= ======= ========
Codorus Valley Bancorp, Inc.
32
<PAGE>
Management's Discussion of Consolidated Financial
Condition and Results of Operations (continued)
level and the Board of Directors level to review and authorize loans that exceed
preestablished dollar thresholds and/or meet other criteria. Fourth, the
Corporation adheres to making most of its loans within its primary geographical
market area, York County. Although this may pose a geographic concentration risk
we believe our diverse local economy and knowledge of our customers minimizes
this risk. Fifth, the loan portfolio is diversified to prevent dependency upon a
single customer or small group of related customers. And sixth, the Corporation
does not make loans to foreign countries or persons residing therein.
In addition to a comprehensive lending policy, numerous internal reviews
and audits of the loan portfolio occur throughout the year. An important
on-going review mechanism is the lender initiated risk rating system, ("LIRRS").
The LIRRS requires personnel with lending authority to systematically evaluate
and rate loans based upon preestablished risk criteria. All potential problem
loans and assets acquired in foreclosure are reviewed quarterly, or more
frequently if circumstances dictate, by a Special Asset Committee comprised of
selected members of senior management. For each loan under review the Special
Asset Committee has the responsibility of establishing a final risk rating, an
action plan for reducing risk, and a loss reserve. In addition to internal
controls, the loan portfolio is reviewed annually by independent auditors in
connection with their audit of the financial statements; and examined
periodically by bank regulators.
A primary measure of loan quality is the percentage of loans that move
from an earnings category to a nonperforming category. Table 7-Nonperforming
Assets and Past Due Loans, depicts asset categories posing the greatest risk of
loss. A loan is considered impaired when, based on current information and
events, it is probable that the Bank will be unable to collect all amounts due.
Internal loan classifications such as nonaccrual, and troubled debt
restructurings, are examples of impaired loans. It is the Bank's policy to
reclassify loans to an impaired status when either principal or interest
payments become 90 days past due, unless the value of the supporting collateral
is adequate and the loan is in the process of collection. An impaired
classification may be made prior to 90 days past due if management believes that
the collection of interest or principal is doubtful. Assets acquired in
foreclosure are primarily real estate assets (collateral) taken in satisfaction
of debt pursuant to foreclosure. The final category, loans past due 90 days or
more and still accruing interest, are contractually past due but, are well
collateralized and in the process of collection.
Table 7 depicts that total nonperforming assets were $4,278,000 or 2.66%
of total loans and net assets acquired in foreclosure at December 31, 1995.
Comparatively, nonperforming assets were $2,436,000 and 1.61%, respectively, for
December 31, 1994. The $1,842,000 or 76% increase in nonperforming assets at
year end 1995 primarily reflects an increase in impaired loans. This key
component of nonperforming assets is discussed below.
Impaired loans increased $1,817,000 since the beginning of the year to
a level of $3,583,000 at December 31, 1995. Most of the overall increase can be
explained by two unrelated commercial relationships for $456,000 and $858,000,
respectively, which were classified as impaired in the fourth quarter of 1995.
Another factor contributing to the increase in impaired loans in 1995 was a
change in strategy relative to proactive loan classification and aggressive
recovery. At December 31, 1995 the impaired loan portfolio was comprised of
twenty four relationships, principally commercial loan relationships, which
ranged in size from $10,000 to $858,000. These loan relationships vary by
industry, and are generally collaterized with real estate assets. 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.
Assets acquired in foreclosure, net of reserve, were $695,000 for year
end 1995, up $25,000 above year end 1994. During 1995, this portfolio was
reduced by approximately $253,000 from sale proceeds, $5,000 from miscellaneous
receipts, and $27,000 from asset write-downs due to declines in market value.
Asset additions in 1995 however, exceeded total reductions. At year end 1995,
assets acquired consist primarily of improved real estate from five commercial
loan relationships in unrelated businesses. The loss provision for assets
acquired, due to estimated declines in fair market value, was $30,000 in 1995
compared to $87,000 in 1994 and $430,000 in 1993. Efforts to liquidate the
portfolio of assets acquired are proceeding as quickly as potential buyers can
be located and legal constraints permit.
At December 31, 1995, loans past due 90 days or more and still accruing
interest were $1,755,000, representing an increase of $1,233,000 above year end
1994. Most of this category was comprised of four unrelated commercial loan
relationships totalling $1,567,000. Generally, loans in the past due category
are well collaterized 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 year end 1995, no potential problem loans, as defined by the
Securities and Exchange Commission, were identified by management. At that time
management was monitoring $7.7 million 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 followed closely, and management
presently believes that the allowance for loan losses is adequate to cover
anticipated losses that may be attributable to these loans.
At year end 1995 approximately $19.8 million or 12% of total loans were
concentrated in the real estate development industry. This compares with $19.5
million or 13% for 1994 and $16.8 million or 12% for 1993. Real estate
development is broadly defined to include loans to builders, land developers,
building sub-contractors, and building suppliers.
Although the Corporation maintains sound credit policies, certain loans
deteriorate and are charged off as losses. The allowance (reserve) for loan
losses is maintained to absorb these potential losses. The allowance is
increased by provisions charged to expense and is reduced by loan charge-offs,
net of recoveries. In analyzing the adequacy of the allowance, also known as
reserve, management
Codorus Valley Bancorp, Inc.
33
<PAGE>
Management's Discussion of Consolidated Financial
Condition and Results of Operations (continued)
Table 7-Nonperforming Assets and Past Due Loans
<TABLE>
<CAPTION>
December 31, 1995 1994 1993 1992 1991
(dollars in thousands) ----- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Impaired loans $3,583 $1,766 $ 223 $2,652 $2,243
Assets acquired in foreclosure, net of reserve 695 670 1,050 1,198 763
------ ------ ------- ------ ------
Total nonperforming assets $4,278 $2,436 $1,273 $3,850 $3,006
====== ====== ======= ====== ======
Loans past due 90 days or more
and still accruing interest $1,755 $ 522 $ 734 $ 284 $ 515
Ratios:
Impaired loans as a % of
total year-end loans 2.24% 1.17% 0.16% 2.00% 1.73%
Nonperforming assets as a % of
total year-end loans and net
assets acquired in foreclosure 2.66% 1.61% 0.90% 2.88% 2.31%
Nonperforming assets as a % of
total year-end stockholders' equity 20.34% 13.63% 7.23% 24.23% 20.94%
Allowance for loan losses as a
multiple of impaired loans .6x 1.3x 9.0x 0.7x 0.8x
Interest not recognized on
impaired loans at period-end (1)
Contractual interest due $ 306 $ 125 $ 24 $ 260 $ 256
Interest revenue recognized 120 23 2 36 7
------ ------ ------- ------ ------
Interest not recognized in operations $ 186 $ 102 $ 22 $ 224 $ 249
====== ====== ======= ====== ======
</TABLE>
(1) This table includes interest not recognized on loans which were classified
as impaired at year end. While every effort is being made to collect this
interest revenue, it is probable a portion will never be recovered.
Codorus Valley Bancorp, Inc.
34
<PAGE>
Management's Discussion of Consolidated Financial
Condition and Results of Operations (continued)
considers the results of internal and external credit reviews, past loss
experience, changes in the size and character of the loan portfolio, adequacy of
collateral, general economic conditions and the local business outlook.
Table 8 presents an analysis of the activity in the allowance for loan
losses over a five year period. The allowance at year end 1995 was $2,286,000,
representing a $37,000 increase above the $2,249,000 level at 1994 year end. The
increase in the loss allowance generally supported a larger volume of loans. For
1995, net loan charge-offs were $191,000 compared to $980,000 for 1994 and
$241,000 for 1993.
For 1995, $141,000 of total loan charge-offs was attributable to one
commercial loan account which was deemed uncollectible.
For 1994, the significant increase in total loan charge-offs was caused
by one event. As previously disclosed on May 5, 1994, management of the Bank
discovered violations of credit policy, internal controls and loan
authorizations in connection with the commercial loan portfolio of a former Bank
officer. Subsequently, the loan officer resigned and the Bank completed an
internal review for the purpose of identifying all unauthorized loans and
evaluating them for collectability and collateral adequacy. Effective June 30,
1994, the Bank recorded a $1,005,000 loan loss provision expense, and on July
12, 1994 charged-off $1,087,000 as loan losses. In December 1994, the Bank
received $270,000 in net insurance proceeds as a partial recovery for the
losses. Presently, the former Bank officer is under federal indictment.
Management continues to evaluate and implement its options concerning legal
recourse in this matter.
For 1993, $183,000 of total charge-offs was attributable to two
commercial loan accounts. Both were written down to fair value less estimated
costs to sell and reclassified to assets acquired in foreclosure where the
collateral for one account was ultimately sold.
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 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. Table 9 presents an allocation of the allowance for
potential loan losses by major loan category.
Deposits
Deposits are the primary source of funding for loans and investment
securities. Total deposits at year end 1995 were $212.4 million, up $15.5
million or 7.9% from year end 1994.
Most of the deposit growth, principally within the time or CD category,
was achieved in the first two quarters of 1995. Based on declining market
interest rates, and the perception of continued decline, customers purchased
CD's at favorable yields; sometimes with funds from their interest bearing
demand and savings accounts.
Comparatively, total deposits grew $4.2 million or 2.2% between year end
1994 and 1993. The relatively small rate of deposit growth reflected customer
preference for higher return-higher risk market alternatives. As higher market
interest rates pushed up deposit rates, particularly in the latter part of 1994,
funds began to flow back into the banking system. In April, 1994, the Bank
opened its seventh full service branch office which also contributed to the
growth in deposits.
Certificates of deposit $100,000 and above ("large CD's"), the most
volatile deposit type, increased in 1995 due primarily to competitive rates.
Generally, these funds were from local investors. Comparatively, large CD's
declined in 1994 due primarily to deposit run-off from non-local investors. This
planned reduction in 1994 was attributable to both pricing and denial of
non-local purchase requests. At 1995 year end, the balance of certificates
$100,000 and above was $16,295,000. Of this total: $4,757,000 mature within
three months; $3,977,000 mature after three months but within six months;
$4,249,000 mature after six months but within twelve months; and the remaining
$3,312,000 mature beyond twelve months.
In the period ahead, deposits are projected to grow slowly based on the
presumption that deposit rates will remain at their present levels, or
moderately decline. Anticipated declines in market interest rates are likely to
continue the popularity of stock-based mutual funds, thereby constraining
deposit growth for commercial banks.
Stockholders' Equity
Stockholders' equity, or capital, is evaluated in relation to total
assets and the risk associated with those assets. The greater the capital
resources, the more likely a corporation is to meet its cash obligations and
absorb unforeseen losses. For these reasons capital adequacy has been, and will
continue to be, of paramount importance.
There are currently three federal regulatory definitions of capital
adequacy that take the form of minimum ratios. Table 10 depicts that the
Corporation exceeds all federal minimum regulatory standards.
Effective January 1, 1994, the Corporation adopted Accounting
Statement No. 115 which is described in the Investment Securities section of
this report. Under Statement No. 115 the Corporation reclassified the total
investment securities portfolio as available-for-sale and reported unrealized
holding gains and losses, net of taxes, as a separate component of
stockholders' equity.
For the year ended 1995, total stockholders' equity increased $3,160,000
or 17.7% above 1994. The increase was due to earnings retention from profitable
operations, and unrealized holding gains, net of taxes, from securities
available for sale. Comparatively, for year ended 1994, total stockholders'
equity increased $256,000 or 1.5% above 1993. Equity growth in 1994 was
constrained by low earnings due to an unusually large loan loss provision, and
increased costs relative to branch office expansion. Unrealized holding losses,
net of taxes, from securities available for sale also constrained equity in
1994.
The Corporation generally pays cash dividends on a quarterly basis. The
dividend rate is determined by the Board of Directors after considering the
Corporation's capital requirements, current and projected net income, and other
factors. The total cash dividend payment in 1995 was $659,200, compared to
$594,300 in 1994 and
Codorus Valley Bancorp, Inc.
35
<PAGE>
Management's Discussion of Consolidated Financial
Condition and Results of Operations (continued)
<TABLE>
<CAPTION>
TABLE 8-Analysis of Allowance for Loan Losses
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(dollars in thousands)
Balance--beginning of year $2,249 $2,000 $1,800 $1,861 $1,677
Provision charged to operating expense 228 1,229 441 258 505
Loans charged off:
Commercial 276 1,255 223 250 309
Real estate--mortgage 0 0 9 23 0
Consumer 66 24 29 61 62
------ ------ ------ ------ ------
Total loans charged off 342 1,279 261 334 371
Recoveries:
Commercial 134 298 0 7 39
Real estate--mortgage 0 0 0 0 0
Consumer 17 1 20 8 11
------ ------ ------ ------ ------
Total recoveries 151 299 20 15 50
------ ------ ------ ------ ------
Net charge-offs 191 980 241 319 321
Balance -- end of year $2,286 $2,249 $2,000 $1,800 $1,861
====== ====== ====== ====== ======
Ratios:
Net charge-offs to average total loans 0.12% 0.68% 0.18% 0.25% 0.25%
Allowance for loan losses to total loans at year-end 1.43% 1.49% 1.42% 1.36% 1.44%
Allowance for loan losses to impaired loans and loans
past due 90 days or more 42.8% 98.3% 209.0% 61.3% 67.5%
</TABLE>
<TABLE>
<CAPTION>
Table 9-Allocation of the Allowance for Loan Losses
December 31,
----------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------- -------------- ------------- -------------- --------------
%Total %Total %Total %Total %Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
Commercial, industrial and
agricultural $1,233 50.7% $1,198 51.8% $1,165 55.8% $ 993 53.5% $1,251 54.4%
Real estate--construction and
land development 268 12.4 171 12.9 147 11.9 298 13.6 301 13.3
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total commercial related 1,501 63.1 1,369 64.7 1,312 67.7 1,291 67.1 1,552 67.7
Real estate--residential mortgages 942 22.7 51 21.4 731 19.1 90 19.6 101 20.0
Installment 8 14.2 17 13.9 7 13.2 12 13.3 13 12.3
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total consumer related 102 36.9 68 35.3 80 32.3 102 32.9 114 32.3
Unallocated 683 n/a 812 n/a 608 n/a 407 n/a 195 n/a
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total $2,286 100.0% $2,249 100.0% $2,000 100.0% $1,800 100.0% $1,861 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Note: The specific allocation for any particular loan category may be
reallocated in the future as risk perceptions change. Furthermore, the portion
allocated to each loan category is not the total amount available for future
losses that might occur within such categories since the total allowance is a
general allowance applicable to the entire loan portfolio.
Codorus Valley Bancorp, Inc.
36
<PAGE>
Management's Discussion of Consolidated Financial
Condition and Results of Operations (continued)
$547,800 in 1993. Total dividends were increased in all three periods based on
earnings capacity and a sound capital level.
The dividend payout ratio, which represents the percentage of annual
net income returned to the stockholders in the form of cash dividends, was 25.4%
for 1995, compared to 34.4% in 1994 and 24.1% for 1993. The Corporation's normal
dividend payout allows for quarterly cash returns to its stockholders and
provides earnings retention at a level sufficient to finance future corporate
growth.
In January 1995, the Corporation acquired 10,000 shares of its common
stock utilizing $270,000 of capital. The shares reacquired were subsequently
reissued as part of a stock dividend declared in April 1995.
In furtherance of its commitment to enhance long term stockholder value,
the Corporation paid a five percent stock dividend in June 1995. The five
percent stock dividend resulted in the issuance of 47,161 common shares.
Since the beginning of 1993, the Bank has established two full service
banking facilities. The first, established in June 1993, near the community of
Red Lion, Pennsylvania is owned by the Bank. The cost to construct and furnish
this facility was approximately $760,000. The second, established in April 1994,
in the community of Stewartstown, Pennsylvania is a leased facility. Capital
expenditures of approximately $234,000 were made for improvements, equipment and
furniture. The costs for both projects were financed internally with funds from
profitable operations. During 1995, the Bank received regulatory approval to
establish a full service banking office near the community of Shrewsbury,
Pennsylvania. To date, no definitive plans have been made on this project
proposal.
In September, 1995, the Corporation purchased a parcel of land adjacent
to the Bank's Data Operations Center and banking office to serve as the site for
a headquarters facility. This acquisition, coupled with real estate already
owned by the Bank, was a material piece in the long range plan for Corporate
office consolidation and expansion. The Board of Directors recently approved the
design of the new Corporate headquarters facility. Initial plans call for the
Bank to occupy a major portion of the building and lease the remaining space as
a source of revenue. Preliminary cost estimates to construct and furnish a
suitable facility range from $4 to $4.5 million. Occupancy is tentatively
scheduled for the third quarter of 1997. While the Corporate headquarters will
be relocated, the Bank will maintain a full service banking office in Glen Rock.
Alternatives for funding this project are currently being analyzed.
In February 1996, the Board of Directors approved management's
recommendation to replace the Bank's aging computer system. The Horizon Banking
System from ALLTEL Corporation was selected after a rigorous evaluation. It will
operate on an IBM AS400 computer.
Table 10-Capital Ratios
December 31,
(dollars in thousands) 1995 1994 1993
-------- -------- --------
Tier I Capital--Total stockholders' equity,
as adjusted (1) $ 20,415 $ 18,756 $ 17,616
Tier II Capital--Allowance for loan
losses (2) 1,911 1,794 1,691
-------- -------- --------
Total risk-based capital $ 22,326 $ 20,550 $ 19,307
Risk-adjusted on-balance sheet assets (1) $149,763 $139,862 $132,943
Risk-adjusted off-balance sheet exposure (3) 3,150 3,684 2,342
-------- -------- --------
Total risk-adjusted assets including
off-balance sheet exposure $152,913 $143,546 $135,285
Ratios:
Tier I risk-based capital ratio 13.35% 13.07% 13.02%
Federal minimum required 4.00 4.00 4.00
Total risk-based capital ratio 14.60% 14.32% 14.27%
Federal minimum required 8.00 8.00 8.00
Leverage ratio (4) 8.98% 8.80% 8.63%
Federal minimum required 4.00 4.00 4.00
(1) Net unrealized gains and losses on securities available for sale, net of
taxes, are disregarded for capital ratio computation purposes. Their effect
is eliminated from stockholders' equity and asset totals in accordance with
federal regulatory banking guidelines.
(2) Allowance for loan losses is limited to 1.25% of total risk-adjusted assets.
(3) Off-balance sheet exposure is caused primarily by standby letters of credit
and loan commitments with a remaining maturity exceeding one year. These
obligations have been converted to on-balance sheet credit equivalent
amounts and adjusted for risk.
(4) Tier I capital divided by average total assets.
Codorus Valley Bancorp, Inc.
37
<PAGE>
Management's Discussion of Consolidated Financial
Condition and Results of Operations (continued)
Implementation of the new system will take approximately six months with a
September 1996 completion date. A preliminary cost estimate is $500,000. It is
probable that this project will be financed through a leasing arrangement.
Planned capital investments relative to 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.
The passage of the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 and the Riegle Community Development and Regulatory
Improvement Act may have a significant impact upon the Corporation. The key
provisions pertain to interstate banking and interstate branching as well as a
reduction in the regulatory burden on the banking industry. Since September
1995, bank holding companies may acquire banks in other states without regard to
state law. In addition, banks can merge with other banks in another state
beginning in June, 1997. States may adopt laws preventing interstate branching
but, if so, no out-of-state bank can establish a branch in such state and no
bank in such state may branch outside the state. During July 1995, Pennsylvania
amended the provisions of its Banking Code to authorize full interstate banking
and branching under Pennsylvania law and to facilitate the operations of
interstate banks in Pennsylvania. As a result of legal and industry changes,
management predicts that consolidation will continue as the financial services
industry strives for greater cost efficiencies and market share. Management
believes that such consolidation may enhance its competitive position as a
community bank. There are numerous other proposals before Congress and the
regulators to change the way commercial banks conduct business. However, the
effect of these proposals on liquidity, capital and results of operations cannot
be determined until they are enacted into law.
During November 1995, the Board of Directors adopted a Shareholder
Rights Plan ("SRP") as previously disclosed in an SEC Form 8-K filed on December
4, 1995. Each Right entitles the registered holder to purchase from the
Corporation one share of common stock at a price of $100.00 per share, subject
to adjustment. Rights are triggered by certain events defined in the SRP,
including an unfair or unfriendly acquisition. Rights are not exercisable until
the occurrence of certain specified triggering events and expire on November 4,
2005, unless earlier redeemed by the Corporation. Rights of shareholders are
specifically enumerated within the SRP.
The Corporation provides a Dividend Reinvestment and Stock Purchase Plan
("Plan") for shareholders. To the extent that shares are not available in the
open market, the Corporation has reserved 52,500 shares of common stock to be
issued under the Plan. Any shares issued from authorized but unissued status
will increase the capital of the Corporation. However, this also has the
potential to dilute earnings per share unless accompanied by growth in net
income.
The Corporation is subject to restrictions on the payment of dividends
to its shareholders pursuant to the Pennsylvania Business Corporation Law of
1988, as amended (the "BCL"). The BCL operates generally to preclude dividend
payments if the effect thereof would render the Corporation insolvent, as
defined. As a practical matter, the Corporation's payment of dividends is
contingent upon its ability to obtain funding in the form of dividends from the
Bank. Payment of dividends to the Corporation by the Bank is subject to
restrictions set forth in the Pennsylvania Banking Code of 1965, as amended.
Accordingly, the Banking Code places a restriction on the availability of the
$5,194,000 capital surplus account for payment of dividends.
In January, 1996, the Pennsylvania Department of Banking began a routine
examination of the Bank based on a September 30, 1995, examination date. The
results of this examination will be reported when available.
Liquidity and Interest Rate Sensitivity
Fundamental objectives of the asset-liability management process of the
Corporation are to maximize net interest income within acceptable levels of
liquidity and interest rate risk and within capital adequacy constraints. An
Asset-Liability Committee ("ALCO") is responsible for managing the Bank's
asset-liability process. The ALCO is comprised of senior management and an
outside director, and meets regularly.
Maintaining adequate liquidity provides the Corporation with the ability
to meet financial obligations to its depositors, loan customers, employees, and
stockholders on a timely and cost efficient basis. Additionally, it provides
funds for normal operating expenditures and business opportunities as they
arise. The objective of interest rate sensitivity management is to increase net
interest income by managing interest rate sensitive assets and liabilities in
such a way that they can be repriced in response to changes in market interest
rates.
Liquidity is generated from transactions relating to both the
Corporation's assets and liabilities. The primary sources of liquidity are:
scheduled investment security maturities and cash flows; a line of credit with
the Federal Home Loan Bank of Pittsburgh ("FHLBP"); short term borrowing in the
form of federal funds purchased from correspondent banks; and deposit growth. At
December 31, 1995, the Corporation had no amounts outstanding on its line of
credit with the FHLBP. At that time, the available credit line with the FHLBP
was approximately $23 million. Loan receipts, from customer loan payments,
represent another important source of liquidity. The sale of assets, such as
investment securities and loans, are yet another source of liquidity.
The total loan-to-deposit ratio at year end 1995 was 75.3%, compared to
76.5% at year end 1994. The ratio for both years was well within the 70-80%
range which the Corporation uses for liquidity policy purposes.
Interest rate sensitivity, closely related to liquidity management, is a
function of the repricing characteristics of the Corporation's portfolio of
assets and liabilities. Asset-liability management strives to match maturities,
or repriceable cash flows if more relevant, and interest rates between loan and
investment security assets with the deposit liabilities that fund them.
Successful asset-liability management results in a balance sheet structure which
can cope effectively with market rate fluctuations.
Codorus Valley Bancorp, Inc.
38
<PAGE>
Management's Discussion of Consolidated Financial
Condition and Results of Operations (continued)
The Corporation utilizes two financial techniques for quantifying
interest rate risk. The primary means is a computer simulation model which
provides a dynamic view of the effects of the changes in rates, spreads, and
yield curve shifts on net interest income. These changes are modeled
periodically under various interest rate scenarios. A secondary means is the
weighted static "gap", which is a refinement of the traditional (unweighted)
static gap. The gap technique depicted in Table 11, is described below.
The gap technique begins by segmenting both assets and liabilities into
future time periods, (usually 12 months, or less) based on when repricing can be
effected, rather than contractual maturities. Repriceable liabilities are
subtracted from repriceable assets, for a specific time period, to determine a
difference, or gap. Once known, the gap is managed based on predictions of
future market interest rates. Intentional mismatching, or gapping, can enhance
net interest income if market rates move as predicted. However, if market rates
behave in a manner contrary to predictions net interest income will suffer.
Gaps, therefore, contain an element of risk and must be prudently managed. When
the gap is negative, with interest-bearing liabilities in excess of
interest-earning assets, net interest income generally improves if interest
rates fall. The opposite occurs in the case of a positive gap.
Table 11 shows an approximation of the Corporation's interest rate
sensitivity based on a static gap presentation. This means that volumes are held
constant, or static, at December 31, 1995, so the effects of changes in market
interest rates on net interest income can be isolated. The table depicts both
the traditional (unweighted) and "weighted" gaps at December 31, 1995. The
weighted gap is a more realistic approach and will be stressed here because it
reflects adjustments to the repriceable cash flows based on correlation factors.
These factors take into consideration that interest rate relationships and
spreads differ depending on the cycle and level of external market interest
rates.
One way to predict how a change in interest rates will impact net
interest income for specific time frames is through the weighted cumulative gap
measure. For example, the weighted cumulative gap in the "181-365 days"
repricing category represents a one year net asset position of approximately
$19,738,000 or 8.9% of earning assets at December 31, 1995. The asset sensitive
gap position implies that over the next year there will be a positive impact on
net interest income if market interest rates rise. The theory is that more
assets will reprice, at higher market interest rates, than the liabilities that
support them. Conversely, a decline in market interest rates would have a
negative impact on net interest income.
It is important to note that the table displays a point in time
analysis and is only a general indicator of interest rate sensitivity. In
addition, the interest rate sensitivity of the Corporation's assets and
liabilities illustrated in the table would vary substantially if different
assumptions were used. As perceptions about interest rates and the market
change, positions at the end of any period may not be reflective of the
Corporation's view in subsequent periods.
Based on the results of a recent analysis of interest rate risk,
management believes the Corporation is reasonably well positioned to respond
expeditiously to market interest rate changes.
Impact of Inflation and Changing Prices
The majority of assets and liabilities of a financial institution are
monetary in nature and therefore differ greatly from most commercial and
industrial companies that have significant investments in fixed assets or
inventories. However, inflation does have an important impact on the growth of
total assets in the banking industry and the resulting need to increase equity
capital at higher than normal rates in order to maintain an appropriate
equity-to-assets ratio. Another significant effect of inflation is on
non-interest expenses, which tend to rise during periods of general inflation.
The level of inflation, as measured by the annual average percentage change in
the consumer price index for all urban consumers, (CPIU) was 2.8%, 2.6%, and
3.0% for 1995, 1994 and 1993 respectively.
Management believes the most significant impact on financial results is
the Corporation's ability to react to changes in market interest rates.
Management strives to structure the balance sheet to increase net interest
income by managing interest rate sensitive assets and liabilities in such a way
that they can be repriced in response to changes in market interest rates.
Codorus Valley Bancorp, Inc.
39
<PAGE>
Management's Discussion of Consolidated Financial
Condition and Results of Operations (continued)
Table 11-Interest Rate Sensitivity
<TABLE>
<CAPTION>
at December 31, 1995
After After
0-30 31-90 91-180 181-365 1 year to 2 years to After Non-
(dollars in thousands) Days Days Days Days 2 years 5 years 5 years Market Total
---- ---- ------ ------- --------- ---------- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold $ 3,150 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 3,150
Interest-bearing deposits 341 0 0 0 0 0 0 0 341
Securities available
for sale (1) 544 3,515 3,612 10,267 18,523 20,483 3,801 934 61,679
Loans (2) 43,742 7,519 13,571 29,669 22,201 35,813 3,910 3,583 160,008
-------- -------- ------- --------- -------- ------- -------- ------- --------
Total earning assets 47,777 11,034 17,183 39,936 40,724 56,296 7,711 -- --
Noninterest-earning
assets (3) -- -- -- -- -- -- -- 9,569 9,569
-------- -------- ------- --------- -------- -------- --------- ------- --------
Total assets 47,777 11,034 17,183 39,936 40,724 56,296 7,711 14,086 234,747
Liabilities and
Stockholders' Equity
NOW deposits 20,862 0 0 0 0 0 0 0 20,862
Insured Money
Fund deposits 25,902 0 0 0 0 0 0 0 25,902
Savings deposits 21,577 0 0 0 0 0 0 0 21,577
Time deposits less
than $100,000 22,056 10,287 16,984 18,606 17,499 25,003 0 0 110,435
Time deposits
$100,000 and above 7,008 2,527 2,384 1,570 1,244 1,562 0 0 16,295
-------- -------- ------- --------- -------- -------- --------- ------- --------
Total interest-bearing
liabilities 97,405 12,814 19,368 20,176 18,743 26,565 0 0 195,071
Noninterest-bearing
liabilities (4) 0 0 0 0 0 0 0 18,644 18,644
Stockholders' equity 0 0 0 0 0 0 0 21,032 21,032
-------- -------- ------- -------- -------- -------- -------- ------- --------
Total liabilities and
stockholders' equity $ 97,405 $ 12,814 $ 19,368 $ 20,176 $ 18,743 $ 26,565 $ 0 $39,676 $234,747
Traditional interest
sensitivity gap $(49,628) $ (1,780) $ (2,185) $ 19,760 $ 21,981 $ 29,731 $ 7,711 -- --
Traditional cumulative
interest sensitivity gap $(49,628) $(51,408) $(53,593) $(33,833) $(11,852) $ 17,879 $ 25,590 -- --
Traditional cumulative
gap as a percent of
earning assets at
December 31, 1995 -22.5% -23.3% -24.3% -15.3% -5.4% 8.1% 11.6%
Weighted interest
sensitivity gap (5) $ 4,480 $ (2,020) $ (2,411) $ 19,689 $ 20,285 $ 26,108 $ 4,953
Weighted cumulative
interest sensitivity
gap (5) $ 4,480 $ 2,460 $ 49 $ 19,738 $ 40,023 $ 66,131 $ 71,084
Weighted cumulative
gap as a percent of
earning assets at
December 31, 1995 (5) 2.0% 1.1% 0.0% 8.9% 18.1% 30.0% 32.2%
</TABLE>
(1) The non-market column consists of net unrealized holding losses.
(2) The non-market column consists of non-accrual loans.
(3) The non-market column is comprised of: non-interest
bearing deposits & cash; premises & equipment;
interest receivable; other assets; and the allowance for loan losses.
(4) The non-market column is comprised of: demand deposit accounts;
interest payable; and accrued expenses and other liabilities.
(5) "Weighted" interest sensitivity gaps are considered more
reliable point-in-time indicators of interest rate risk than traditional, or
unweighted gaps. Weighted interest sensitivity gaps reflect adjustments to
the repriceable cash flows in the above table, based on correlation factors,
which take into consideration that interest rate relationships and spreads
differ depending on the cycle and level of external market interest rates.
Codorus Valley Bancorp, Inc.
40
<PAGE>
Management's Discussion of Consolidated Financial
Condition and Results of Operations (continued)
Table 12-Summary of Quarterly Financial Data
<TABLE>
<CAPTION>
1995 1994
------------------------------------- ------------------------------------
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands,
except per share data)
Interest income $4,825 $4,656 $4,550 $4,315 $4,250 $4,098 $3,879 $3,826
Interest expense 2,259 2,292 2,174 1,997 1,828 1,742 1,676 1,694
------ ------ ------ ------ ------ ------ ------ ------
Net interest income 2,566 2,364 2,376 2,318 2,422 2,356 2,203 2,132
Provision for loan losses 196 0 31 1 47 88 1,039 55
Non-interest income 304 218 238 214 226 213 230 225
Non-interest expense 1,711 1,535 1,703 1,614 1,601 1,583 1,598 1,540
------ ------ ------ ------ ------ ------ ------ ------
Net operating income (loss) 963 1,047 880 917 1,000 898 (204) 762
Gain (loss) securities sales 0 0 0 (62) (14) 0 0 0
Gain (loss) other 0 0 4 0 0 0 0 0
------ ------ ------ ------ ------ ------ ------ ------
Pretax income (loss) 963 1,047 884 855 986 898 (204) 762
Provision for income taxes 301 324 279 251 291 254 (67) 234
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss) $ 662 $ 723 $ 605 $ 604 $ 695 $ 644 $ (137) $ 528
====== ====== ====== ====== ====== ====== ====== ======
Net income (loss) per share (1) $ 0.67 $ 0.73 $ 0.61 $ 0.61 $ 0.70 $ 0.65 $(0.14) $ 0.53
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
(1) Net income per share was retroactively adjusted for stock dividends.
Codorus Valley Bancorp, Inc.
41
<PAGE>
Board of Directors
[LOGO] [LOGO]
Board of Directors
Codorus Valley Bancorp, Inc. and Peoples Bank of Glen Rock
George A. Trout, D.D.S.
Chairman-Codorus Valley Bancorp, Inc.
Dentist
Barry A. Keller
Chairman-Peoples Bank of Glen Rock
Insurance Broker/Consultant
Larry J. Miller
President and Chief Executive Officer
Codorus Valley Bancorp, Inc. and
Peoples Bank of Glen Rock
D. Reed Anderson, Esq.
Attorney-Stock and Leader
M. Carol Druck
President-Druck Realty, Inc.
MacGregor S. Jones
President-Mac Jones Ford, Inc.
Rodney L. Krebs
President-Springfield Contractors, Inc.
Dallas L. Smith
President-Bruce V. Smith, Inc.
Donald H. Warner
President-Warner Services, Inc.
Directors Emeritus -- Peoples Bank of Glen Rock
Jeffrey C. Bortner, Esq. William U. Kapp Bernard F. Young
Advisory Committees -- Peoples Bank of Glen Rock
CAPE HORN OFFICE
Keith R. Brown
President-Phoenix Health Care, Inc.
d/b/a Dallastown Nursing Center
Evans N. Fishel
President-H. Norman Fishel & Son, Inc.
Thomas W. King, CPA
President-King & King, PC
JACOBUS OFFICE
Richard E. Hopper
Business and Property Management
Samuel E. Keeney
President-Sam Keeney Organ
and Piano Center, Inc.
Donald L. Kern
President-K&M Home Center, Inc.
JEFFERSON OFFICE
Cindy E. Baugher
President-Baugher Motors, Inc.
James L. Miller
Auctioneer
Robert E. Rebert
Farmer
LEADER HEIGHTS OFFICE
Richard D. Hupper, Ed. D.
Superintendent-Southern York County
School District
Robert L. Jackson
President-R.L. Jackson Construction Co.
Elizabeth K. Ricklefs, DVM
President-Leader Heights Animal
Hospital, Inc.
YORK NEW SALEM OFFICE
Lynn D. Harbold
Retired Agent-Prudential Insurance Co.
Theodore M. Krebs
Partner-K&K Services
Claude W. Rohrbaugh
President-B&R Electrical Contractors, Inc.
Codorus Valley Bancorp, Inc.
42
<PAGE>
Peoples Bank of Glen Rock Executive Officers,
Officers and Supervisors
[LOGO]
Executive Officers
Larry J. Miller, CLBB
President and
Chief Executive Officer
Dennis H. Engle, CLBB
Executive Vice President
and Chief Lending Officer
Karl J. Boehringer, Jr., CLBB
Vice President,
Commercial Services
Todd A. Tyson, CLBB
Vice President/Branch Administration & Marketing
Jann Allen Weaver, CPA
Senior Vice President and
Chief Financial Officer
Robin D. Cannon
Vice President and
Auditor
Connie E. Sohnleitner
Vice President and
Human Resource Manager
Timothy E. Senft
Vice President/Cashier and
Chief Operations Officer
Bruce A. Lamborne
Vice President,
Trust & Investment Services
Officers and Supervisors
Barbara J. Myers
Corporate Secretary
Sandra M. Aulbach
Assistant Vice President
and Assistant Secretary
Kelly L. Rosenzweig
Assistant Vice President
and Assistant Controller
Linda D. Senft, CRCM
Assistant Vice President
and Compliance Officer
Frank D. Barile
Trust Officer
and Assistant Secretary
Kent A. Ketterman
Assistant Vice President and Commercial Services Officer
George W. Peck, Jr.
Commercial Services Officer
Ronald E. Talbert
Commercial Services Officer
Steven W. Bollinger
Credit Review Officer
Scott T. Weaver
Loan Review Officer
Julie B. Grothey
Manager,
Commercial Services
Barbara L. Hartman
Supervisor,
Data Processing Services
Christine A. Myers
Supervisor,
Deposit Services
Timothy S. Wise
Manager,
Consumer Services
Phyllis A. Crumley
Consumer Services Officer
In Appreciation
The Board of Directors and Management acknowledge the service and
contributions made to the success of Peoples Bank of Glen Rock by the employees
who retired during 1995. Best wishes for a healthy and enjoyable retirement.
Edith D. Hinkle - Trust & Investment Services - 21 years
Audrey R. Slagel - Consumer Services - 19 years
Codorus Valley Bancorp, Inc.
43
<PAGE>
Bank Office And Trust Department Locations
Corporate Headquarters
1 Manchester St., P.O. Box 67
Glen Rock, PA 17327-0067
Glen Rock Office
1 Manchester St., P.O. Box 67
Glen Rock, PA 17327-0067
Connie L. Kiser,
Manager
Terry R. Kernan,
Customer Service Officer
Jacobus Office
1 North Main St., P.O. Box 176
Jacobus, PA 17407-0176
Barbara J. Hoch,
Manager
Elizabeth A. Schnetzka,
Customer Service Officer
Trust and Investment Services
120 Pine Grove Commons
York, PA 17403-5151
Jefferson Office
6 Baltimore St., P.O. Box 127
Codorus, PA 17311-0127
Lisa F. Laughman,
Manager
Melissa S. Stauffer,
Customer Service Representative
York New Salem Office
320 North Main St., P.O. Box 278
York New Salem, PA 17371-0278
Algard P. Shaffer, CLBB,
Manager
Diana R. Harbaugh,
Customer Service Officer
Leader Heights Office
109 Leader Heights Rd.
York, PA 17403-5137
Denise L. Copenheaver,
Manager
Chere L. Mairose,
Customer Service Officer
Cape Horn Office
2587 Cape Horn Rd.
Red Lion, PA 17356
Brenda L. Krout,
Manager
Rose M. King,
Customer Service Representative
Stewartstown Office
2 Ballast Lane, P.O. Box 925
Stewartstown, PA 17363-0925
Tara L. Calaman,
Manager
Brenda K. Kinard,
Customer Service Officer
Call 717-235-6871 or 717-846-1970 or 1-888-846-1970 for more information.
Codorus Valley Bancorp, Inc.
44
<PAGE>
Mission Statement
Mission Statement
Codorus Valley Bancorp, Inc., is an independent, financially strong, full
service financial corporation. Through its subsidiary, Peoples Bank of Glen
Rock, we currently engage in three core businesses: commercial banking, consumer
banking, and trust and investment services, with particular expertise in the
commercial banking segment. Our target markets include businesses, consumers and
communities located in York County, Pennsylvania and surrounding counties.
We are committed to serving profitably the financial needs of our customers and
local communities with high quality service. High quality customer service and
competitive product pricing will be our guiding business principles. We will
strive to balance the needs of the groups directly affected by our existence:
local communities, customers, employees, regulatory authorities and
shareholders. To that end, we will pursue the following broad goals and
strategies with enthusiasm.
Communities:
Our goal is to meet the financial needs of our communities by supporting their
programs and projects relative to housing, business, education and recreation.
Customers:
Our goal is to meet the financial needs of our customers by consistently
providing friendly, competent and convenient service; by offering a broad range
of quality products; and through product and service innovation.
Employees:
Our goal is to attract, develop, and retain ethical and effective people by
providing a work environment characterized by opportunity, challenge and
competitive compensation.
Regulatory authorities:
Our goal is to comply with all regulations and directives of regulatory
authorities.
Shareholders:
Our goal is to maximize long term shareholder value by adhering to the above
operating philosophies, goals and strategies.
<PAGE>
[LOGO]
Codorus Valley Bancorp, Inc.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
CODORUS VALLEY BANCORP, INC.
1. Peoples Bank of Glen Rock - 100% owned
1 Manchester Street, P.O. Box 67
Glen Rock, Pennsylvania 17327
2. SYC Realty Company, Inc. - 100% owned
1 Manchester Street, P.O. Box 67
Glen Rock, Pennsylvania 17327
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Codorus Valley Bancorp, Inc. of our report dated January 11, 1996,
included in the 1995 Annual Report of Codorus Valley Bancorp, Inc.
We also consent to the incorporation by reference in the Registration
Statement (Post-Effective Amendment No. 2 to Form S-3 No. 33-46171) of
Codorus Valley Bancorp, Inc. and in the related Prospectus of our report
dated January 11, 1996, with respect to the consolidated financial statements
of Codorus Valley Bancorp, Inc. incorporated by reference in this Annual
Report (Form 10-K) for the year ended December 31, 1995.
March 25, 1996
Harrisburg, Pennsylvania
/s/ Ernst & Young LLP
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Larry J. Miller and Jann A. Weaver, and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (including his capacity as a director and/or officer of
Codorus Valley Bancorp, Inc.), to sign this Form 10-K and any or all amendments
to this Form 10-K and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Signature Title Date
/s/ George A. Trout, D.D.S. Chairman of the Board of 3/26/96
George A. Trout, D.D.S. Directors and Director
/s/ Larry J. Miller President, Chief Executive 3/26/96
Larry J. Miller Officer and Director
(Principal Executive Officer)
/s/ Barry A. Keller Vice Chairman of the Board of 3/26/96
Barry A. Keller Directors and Director
/s/ Dallas L. Smith Secretary and Director 3/26/96
Dallas L. Smith
/s/ M. Carol Druck Assistant Secretary, 3/26/96
M. Carol Druck Assistant Treasurer and Director
/s/ MacGregor S. Jones Assistant Secretary and 3/26/96
MacGregor S. Jones Director
/s/ Rodney L. Krebs Treasurer and Director 3/26/96
Rodney L. Krebs
/s/ Donald H. Warner Vice President and Director 3/26/96
Donald H. Warner
/s/ D. Reed Anderson, Esq. Director 3/26/96
D. Reed Anderson, Esq.
/s/ Jann A. Weaver Assistant Treasurer and 3/26/96
Jann A. Weaver Assistant Secretary
(Principal Financial and
Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 5,356
<INT-BEARING-DEPOSITS> 341
<FED-FUNDS-SOLD> 3,150
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 61,679
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 160,008
<ALLOWANCE> 2,286
<TOTAL-ASSETS> 234,747
<DEPOSITS> 212,440
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,275
<LONG-TERM> 0
0
0
<COMMON> 2,490
<OTHER-SE> 18,542
<TOTAL-LIABILITIES-AND-EQUITY> 234,747
<INTEREST-LOAN> 14,545
<INTEREST-INVEST> 3,620
<INTEREST-OTHER> 181
<INTEREST-TOTAL> 18,346
<INTEREST-DEPOSIT> 8,719
<INTEREST-EXPENSE> 3
<INTEREST-INCOME-NET> 9,624
<LOAN-LOSSES> 228
<SECURITIES-GAINS> (62)
<EXPENSE-OTHER> 6,559
<INCOME-PRETAX> 3,749
<INCOME-PRE-EXTRAORDINARY> 3,749
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,594
<EPS-PRIMARY> 2.62
<EPS-DILUTED> 2.62
<YIELD-ACTUAL> 4.45
<LOANS-NON> 3,583
<LOANS-PAST> 1,755
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,249
<CHARGE-OFFS> 342
<RECOVERIES> 151
<ALLOWANCE-CLOSE> 2,286
<ALLOWANCE-DOMESTIC> 2,286
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
