FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-15536
Codorus Valley Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2428543
(State of incorporation) (I.R.S. Employer ID No.)
1 Manchester Street, P.O. Box 67, Glen Rock, PA 17327
(Address of principal executive offices) (Zip Code)
(717) 235-6871 or (717) 846-1970
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changes
since last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
1,045,296 shares of $2.50 (par value) common stock were
outstanding as of 4-22-97 .
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CODORUS VALLEY BANCORP, INC.
10Q INDEX
Page
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PART I - FINANCIAL INFORMATION:
- Consolidated Statements of Financial Condition... 1
- Consolidated Statements of Income................ 2
- Consolidated Statements of Cash Flows............ 3
- Notes to Consolidated Financial Statements....... 4
- Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 7
PART II - OTHER INFORMATION ............................... 15
Signature Page ............................................ 16
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CODORUS VALLEY BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Unaudited
March December March
31, 31, 31,
1997 1996 1996
--------- --------- ---------
Assets (dollars in thousands)
Cash and due from banks:
Interest bearing deposits with banks $ 343 $ 337 $ 340
Non-interest bearing deposits and cash 6,010 7,012 5,147
Federal funds sold 1,100 300 4,650
Loans held for sale 0 0 7,030
Securities available for sale 53,962 56,859 64,193
Loans 171,093 166,651 151,435
Less-allowance for loan losses (1,972) (2,110) (2,306)
-------- -------- --------
Total net loans 169,121 164,541 149,129
Premises and equipment 6,481 5,025 3,690
Interest receivable 1,691 1,642 1,763
Other assets 1,547 1,613 1,069
-------- -------- --------
Total assets............................$240,255 $237,329 $237,011
======== ======== ========
Liabilities
Deposits
Non-interest bearing demand $ 16,558 $ 19,142 $ 16,007
NOW 23,030 22,237 21,333
Insured money fund 27,507 25,651 26,080
Savings 21,129 20,652 22,263
Time CD's less than $100,000 107,575 106,283 111,962
Time CD's $100,000 and above 17,032 15,495 16,474
-------- -------- --------
Total deposits 212,831 209,460 214,119
Short-term borrowings 0 4,000 0
Long-term borrowings 2,965 0 0
Interest payable 896 796 995
Accrued expenses and other liabilities 542 367 665
-------- -------- --------
Total liabilities....................... 217,234 214,623 215,779
Stockholders' Equity
Series preferred stock, par value $2.50
per share; 1,000,000 shares authorized;
0 shares issued and outstanding 0 0 0
Common stock, par value $2.50 per share;
10,000,000 shares authorized; 1,045,296
shares issued at 3/31/97 and 12/31/96;
and 995,793 at 3/31/96. 2,613 2,613 2,490
Additional paid-in capital 6,556 6,556 5,194
Retained earnings 13,632 13,191 13,206
Net unrealized gains on securities
available for sale, net of taxes 220 346 342
-------- -------- --------
Total stockholders' equity.............. 23,021 22,706 21,232
Total liabilities and stockholders'
equity.................................$240,255 $237,329 $237,011
======== ======== ========
See accompanying notes.
1
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CODORUS VALLEY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Unaudited
Three months ended
March 31,
(dollars in thousands, except per share data) 1997 1996
Interest Income ------ ------
Interest and fees from loans $3,803 $3,594
Interest from federal funds sold and interest
bearing deposits with banks 18 40
Interest and dividends from securities:
Taxable interest income 756 849
Tax-exempt interest income 51 74
Dividend income 15 14
------ ------
Total interest income.............................. 4,643 4,571
Interest Expense
NOW 97 116
Insured money fund 192 186
Savings 117 135
Time CD's less than $100,000 1,445 1,529
Time CD's $100,000 and above 214 219
------ ------
Total interest expense on deposits 2,065 2,185
Interest expense on short-term borrowings and
federal funds purchased 3 0
Interest expense on long-term borrowings 58 0
------ ------
Total interest expense............................. 2,126 2,185
------ ------
Net interest income................................. 2,517 2,386
Provision for Loan Losses 67 58
------ ------
Net interest income after provision for loan losses 2,450 2,328
Non-interest Income
Trust income 107 66
Service charges on deposit accounts 101 102
Other service charges and fees 73 60
------ ------
Total non-interest income 281 228
Non-interest Expense
Salaries and benefits 918 880
Occupancy of premises 110 112
Furniture and equipment 191 118
Postage, stationery and supplies 103 80
Professional and legal 36 50
Marketing and advertising 69 18
Acquired real estate, net (9) (10)
Other 381 290
------ ------
Total non-interest expense 1,799 1,538
Income before income taxes 932 1,018
Provision for Income Taxes 292 314
------ ------
Net income..........................................$ 640 $ 704
====== ======
Net income per common share..........................$0.58 $0.64
===== =====
See accompanying notes.
2
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CODORUS VALLEY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Three months ended
March 31,
1997 1996
------- -------
Cash Flows From Operating Activities: (dollars in thousands)
Net Income $ 640 $ 704
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation 139 90
Provision for loan losses 67 58
Provision for losses on assets acquired in foreclosure 0 (2)
Gain on sales of assets acquired in foreclosure 0 (13)
(Increase) in interest receivable (49) (60)
Decrease (increase) in other assets 72 (18)
Increase in interest payable 100 130
Increase in other liabilities 175 255
Other, net 23 13
------- -------
Net cash provided by operating activities............. 1,167 1,157
Cash Flows From Investing Activities:
Proceeds from sales of securities available for sale 219 0
Proceeds from maturities and calls of securities
available for sale 3,699 5,356
Purchase of securities available for sale (1,231) (8,319)
Net (increase) decrease in loans made to customers (4,840) 1,313
Proceeds from loan sales 225 166
Purchases of premises and equipment (1,595) (257)
Proceeds from sale of assets acquired in foreclosure 23 424
------- -------
Net cash used in investing activities................ (3,500) (1,317)
Cash Flows From Financing Activities:
Net increase (decrease) in demand and savings deposits 542 (27)
Net increase in time deposits 2,829 1,706
(Decrease) in short-term borrowings and
federal funds purchased (4,000) 0
Increase in long-term borrowings 2,965 0
Dividends paid (199) (229)
------- -------
Net cash provided by financing activities............ 2,137 1,450
------- -------
Net (decrease) in cash and cash equivalents.......... (196) 1,290
Cash and cash equivalents at beginning of year....... 7,649 8,847
------- -------
Cash and cash equivalents at March 31,...............$ 7,453 $10,137
======= =======
Supplemental Disclosures:
Interest payments $1,965 $2,055
Income tax payments $0 $15
See accompanying notes.
3
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CODORUS VALLEY BANCORP, INC.
Notes to Consolidated Financial Statements
Note 1-General
The interim financial statements are unaudited. However, they reflect
all adjustments which are, in the opinion of management, necessary to
present fairly the financial condition and results of operations for the
reported periods, and are of a normal and recurring nature.
These statements should be read in conjunction with notes to the
financial statements contained in the 1996 Annual Report to
Stockholders.
No shares of common stock are reserved for issuance in the event of
conversions or the exercise of warrants, options or other rights, except
for shares reserved for the Corporation's Dividend Reinvestment and
Stock Purchase Plan, Shareholders' Rights Plan, and 1996 Stock Incentive
Plan.
The results of operations for the three month period ended March 31,
1997 are not necessarily indicative of the results to be expected for
the full year.
Note 2-Summary of Significant Accounting Policies
Allowance for Loan Losses - Management considers the allowance for loan
losses (reserve) to be adequate at this time.
Held for Sale Loans - Loans held for sale are reported at the lower of
cost or market value. The amount by which cost exceeds market value, if
any, is accounted for as a valuation allowance and is charged to
expense in the period of the change.
Per Share Computations - All per share computations include the
retroactive effect of stock dividends including the estimated effect of
the 5% stock dividend declared April 8, 1997. The weighted average
number of shares of common stock outstanding was approximately 1,097,561
for the three month periods ended March 31, 1997 and March 31, 1996.
Reclassifications - Certain reclassifications have been made to the 1996
consolidated financial statements to conform with the 1997 presentation.
SFAS No. 121 - Effective January 1, 1996 the Corporation adopted
Statement of Financial Accounting Standards No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." The new rule specifies, among other things, when assets should be
reviewed for impairment, how to determine if an asset is impaired, how
to measure an impairment loss, and what disclosures are necessary in the
financial statements. Adoption of Statement No. 121 did not affect the
assets, earnings or capital of the Corporation.
4
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CODORUS VALLEY BANCORP, INC.
Notes to Consolidated Financial Statements, continued
Note 2-Summary of Significant Accounting Policies, continued
SFAS No. 122 - Effective January 1, 1996, the Corporation adopted
Statement of Financial Accounting Standards No. 122, "Accounting for
Mortgage Servicing Rights." The new rule requires that management
recognize as separate assets, rights to service mortgage loans for
others, regardless of how they were acquired. Management should
allocate the total cost of mortgage loans, either purchased or
originated, to the loans and the servicing rights based on their
relative fair value. Statement No. 122 also specifies how mortgage
servicing rights and excess servicing rights should be evaluated for
impairment. In June 1996, Statement No. 122 was superseded by SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" as described more fully below. Adoption
of Statement No. 122 did not materially affect the assets, earnings or
capital of the Corporation.
SFAS No. 125 - On June 30, 1996, the FASB issued Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities" which supersedes
SFAS No. 122, "Accounting for Mortgage Servicing Rights," and amends
SFAS No. 65, "Accounting for Certain Mortgage Banking Activities." This
Statement provides accounting and reporting guidance for transfers and
servicing of financial assets and extinguishments of liabilities based
on the application of a "financial-components approach" that focuses on
control. Under this approach, when an entity transfers financial
assets, it recognizes the financial and servicing asset it controls
and the liabilities it has incurred, and derecognizes liabilities when
extinguished. The Statement is effective for specified transactions
occurring after December 31, 1996. On October 31, 1996, the FASB issued
SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of
SFAS No. 125," which defers until January 1, 1998, the effective date of
paragraph 9-12 for the following specific transactions: securities
lending, repurchase agreements, dollar rolls, and other similar secured
transactions. Additionally, the FASB agreed to defer for one year
paragraph 15 for all transactions. Statement No. 125 must be applied
prospectively. Adoption of this Statement is not expected to have a
material impact on the assets, earnings or capital of the Corporation.
SFAS No. 128 - In February 1997, the FASB issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" which supersedes APB
Opinion No. 15. Statement No. 128, effective for financial statements
issued after December 15, 1997, simplifies the computation of earnings
per share (EPS) by replacing the presentation of primary EPS with a
presentation of basic EPS. Under this Statement the dilutive effect of
stock options will be excluded when calculating basic EPS. Statement
No. 128 requires dual presentation of basic and diluted EPS by entities
with complex capital structures. Adoption of Statement No. 128 is not
expected to have a material impact on the EPS calculations of the
Corporation.
5
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CODORUS VALLEY BANCORP, INC.
Note 3-Impaired Loans
The Corporation records impaired loans in accordance with 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." For all
reportable periods, impaired loans were, for practical purposes,
comprised of collateral dependent commercial loans and residential
mortgage loans classified as nonaccrual(cash basis). Additional
information regarding impaired loans is provided in the schedule that
follows.
March December March
31, 31, 31,
(dollars in thousands) 1997 1996 1996
------ ------ ------
Impaired loans $1,803 $2,063 $4,374
Amount of impaired loans that
have a related allowance $1,803 $2,063 $4,374
Amount of impaired loans with
no related allowance $0 $0 $0
Allowance for impaired loans $204 $371 $552
For the three month period ended
March 31,
1997 1996
------ ------
Average investment in impaired loans $1,930 $3,771
Interest income recognized on
impaired loans (all cash-basis method) $4 $32
Note 4-Analysis of Allowance for Loan Losses
Changes in the allowance for loan losses for the three month period
ended March 31, were as follows:
(dollars in thousands) 1997 1996
------ ------
Balance-January 1, $2,110 $2,286
Provision charged to operating expense 67 58
Loans charged off (226) (61)
Recoveries 21 23
------ ------
Balance-March 31, $1,972 $2,306
====== ======
6
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CODORUS VALLEY BANCORP, INC.
Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations
The following is management's discussion and analysis of the significant
changes in the results of operations, capital resources and liquidity
presented in the accompanying consolidated financial statements of Codorus
Valley Bancorp, Inc., a bank holding company (the Corporation), and its
wholly-owned subsidiary, PeoplesBank, A Codorus Valley Company (the Bank),
formerly Peoples Bank of Glen Rock until February 1997. The Corporation's
consolidated financial condition and results of operations consist primarily
of the Bank's financial condition and results of operations. This discussion
should be read in conjunction with the 1996 Annual Report. Current
performance does not guarantee, assure, or may not be indicative of similar
performance in the future.
In addition to historical information, this 10-Q Report contains forward-
looking statements. The forward-looking statements contained herein are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected. Important factors that might cause
such a difference include, but are not limited to, those discussed in this
"Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations" section. Readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. The Corporation undertakes no obligation
to publicly revise or update these forward-looking statements to reflect
events or circumstances that arise after the date hereof. Readers should
carefully review the risk factors described in other documents the
Corporation files periodically with the Securities and Exchange Commission.
Three months ended March 31, 1997
compared to three months ended March 31, 1996
RESULTS OF OPERATIONS
Net income for the current three month period was $640,000, or $.58 per
share, compared to $704,000, or $.64 per share, for the same period in 1996.
Per share amounts were adjusted to reflect a five percent stock dividend
declared on April 8, 1997. Net income was down from the prior period, as
anticipated, due primarily to a higher level of noninterest expense. The
increase in noninterest expense was driven in part by capital investments in
systems and technology in accordance with the Corporation's strategic plan.
Marketing expenses relating to an image campaign associated with the new name
of the Corporation's financial services subsidiary (PeoplesBank, A Codorus
Valley Company), and charitable donation expenses also increased above the
prior period. For the three month period (annualized) of 1997, the return on
average assets (ROA) and return on average equity (ROE) were approximately
7
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CODORUS VALLEY BANCORP, INC.
1.08% and 11.0%, respectively, compared to 1.20% and 13.1%, respectively, for
1996.
At March 31, 1997, total assets were approximately $240 million, compared to
$237 million at March 31, 1996. Book value per share, adjusted for a recent
five percent stock dividend declaration, was $20.97 on March 31, 1997,
compared to $19.34 on March 31, 1996. The Corporation's capital remained
sound as evidenced by a Tier I Risk-Based Capital Ratio of 13.5% and a Total
Risk-Based Capital Ratio of 14.6% on March 31, 1997.
An explanation of the factors and trends that caused changes between the two
periods, by major earnings category, is provided below.
Total interest income for the current three month period was $4,643,000, up
$72,000 or 1.6% above the $4,571,000 earned in the same period of 1996. The
$72,000 increase in interest income was due primarily to a larger volume of
earning assets, principally commercial loans. The average volume of total
loans during the current quarter was approximately $166.9 million, or $10.7
million above the average balance (including loans held-for-sale) for the
first quarter of 1996. Conversely, the average volume of securities-
available-for-sale for the current quarter was $54.6 million which reflected
a $7.2 million decline from the first quarter of 1996. The decline in the
investment securities portfolio partially funded growth in the loan
portfolio. The taxable equivalent yield on average earning assets
approximated 8.36% for the current quarter compared to 8.31% for the first
quarter of 1996. Moderate loan growth is anticipated for the next quarter
based on the presumptions that the local and national economies will continue
to grow, the level of employment remains relatively high, and the rate of
inflation remains low and stable.
Total interest expense for the current three month period was $2,126,000,
down $59,000 or 2.7% below the $2,185,000 incurred for the same period in
1996. The $59,000 decrease in interest expense was due primarily to a lower
average volume of interest bearing deposits. Total interest bearing deposits
averaged $192.3 million for the current quarter compared to $196.5 million
for the first quarter of 1996. Lower rates on interest bearing demand and
savings accounts also contributed to the decline in funding costs. In January
1997, the Bank borrowed $3 million from the Federal Home Loan Bank of
Pittsburgh (FHLBP) in the form of a 6.82% fixed rate loan that amortizes over
a ten year term. Proceeds from the FHLBP loan will be used to partially
finance the Bank's mortgage loan program. Deposit growth has been a challenge
for PeoplesBank and the commercial banking industry as a whole due to
competitive pressures, and increased investment by households and businesses
in the stock market. Moderate deposit growth is anticipated for the next
quarter due to the recent addition of a full service banking office. Also,
recent stock market volatility may cause some investors to seek lower risk,
insured commercial bank deposit products.
Net interest income for the current three month period was $2,517,000, up
8
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CODORUS VALLEY BANCORP, INC.
$131,000 or 5.5% above the $2,386,000 earned in the same period of 1996. The
increase in net interest income for the current quarter resulted from a
larger average volume of earning assets and lower funding costs.
The provision (expense) for possible loan losses was $67,000 for the current
three month period compared to $58,000 for the first quarter of 1996. The
provision for both periods was necessary to support loan growth.
Total noninterest income for the current three month period was $281,000, up
$53,000 or 23% above the same quarter in 1996. The $53,000 increase resulted
from increased trust fees and other service charges and fees attributable to
normal business growth. Noninterest income in the period ahead is expected to
exceed the level achieved in 1996 due to planned business growth.
Total noninterest expense for the current three month period was $1,799,000,
up $261,000 or 17% above the $1,538,000 incurred for the first quarter of
1996. The $261,000 increase in non-interest expense was primarily the result
of increases within the following expense categories: salaries and benefits,
up $ 38,000; furniture and equipment, up $73,000; marketing and advertising,
up $51,000; and other expenses, up $132,000. The increase in salaries and
benefits expense was primarily attributable to staff additions associated
with the recent opening of PeoplesBank's eighth full service banking office
located at 2701 Eastern Boulevard, East York, Pennsylvania. The increase in
furniture and equipment expense in the current quarter reflects increased
depreciation expense from increased investment in computer equipment and
systems which were purchased in the latter half of 1996. Comparatively,
depreciation expense for the first quarter of 1996 was low because the Bank's
computer system was fully depreciated in 1995. The increase in marketing and
advertising expense was primarily attributable to increased product
promotions and an image campaign associated with the new name of the
Corporation's financial services subsidiary PeoplesBank, A Codorus Valley
Company. The increase in other expense, an aggregate of many individual
expenditures, increased primarily as a result of increased charitable
donations. Noninterest expense is expected to increase in the period ahead
due to depreciation and other expenses associated with increased capital
investment in technological system solutions and physical facilities in
accordance with the Corporation's strategic plan.
The provision for federal income taxes declined $22,000 in the current period
due to a reduction in income before income taxes.
CREDIT RISK AND LOAN QUALITY
A summary of nonperforming assets and past due loans, and related ratios, is
provided in Table 1. An explanation of changes within each classification for
March 31, 1997, compared to March 31, 1996, is provided below.
Impaired loans, the major component of total nonperforming assets, declined
9
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CODORUS VALLEY BANCORP, INC.
$2,571,000 or 59% since March 31, 1996 to a current level of $1,803,000. The
decline was the result of many factors such as: contract renegotiations based
on prevailing market conditions for selected accounts, recoveries due to
aggressive collection efforts, reclassification to assets acquired in
foreclosure where collateral assets were taken in satisfaction of debt, and
charge-offs. At March 31, 1997, total impaired loans were comprised of
seventeen unrelated relationships, primarily commercial loan relationships,
ranging in size from approximately $4,500 to $374,500. 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. The
Corporation uses the cash basis method to recognize interest income on loans
that are impaired. For all reportable periods, impaired loans were
principally comprised of collateral dependent commercial loans and
residential mortgage loans classified as nonaccrual. Efforts to modify
contractual terms for individual accounts, based on prevailing market
conditions, or liquidate collateral assets, are proceeding as quickly as
potential buyers can be located and legal constraints permit.
The other component of nonperforming assets, assets acquired in foreclosure
(net of a related reserve) increased $386,000 since March 31, 1996, to a
level of $717,000. The increase in assets acquired, reflected loan collateral
assets taken in satisfaction of debt. At March 31, 1997, the assets acquired
portfolio consisted primarily of improved real estate from seven unrelated
accounts. Generally Accepted Accounting Principles require that assets taken
in satisfaction of debt be accounted for on an individual asset basis, at the
lower of (a) fair value minus estimated costs to sell or (b) cost. A loss
reserve, which is evaluated quarterly, has been established for assets whose
estimated market value, less selling expenses, is below their financial
carrying costs. At March 31, 1997 and 1996, the reserve level was deemed
adequate and no loss provisions were recorded for either period. Efforts to
liquidate assets acquired are proceeding as quickly as potential buyers can
be located and legal constraints permit.
At March 31, 1997, loans past due 90 days or more and still accruing interest
totalled $735,000. Generally, loans in the past due category are well
collateralized and in the process of collection. The current level of past
due loans is closely monitored and believed to be within a manageable range.
At March 31, 1997, there were no potential problem loans, as defined by the
Securities and Exchange Commission, identified by management. However,
management was monitoring approximately $7.6 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 Table 1 disclosure. They are reviewed
closely, and management presently believes that the allowance for loan losses
is adequate to cover anticipated losses that may be attributable to these
loans. Comparatively, management was monitoring approximately $9.7 million of
loans at March 31, 1996.
10
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CODORUS VALLEY BANCORP, INC.
Table 2, Analysis of Allowance for Loan Losses, depicts a $1,972,000
allowance (reserve) at March 31, 1997. The reserve as a percentage of total
loans was 1.15% at March 31, 1997, compared to 1.46% at March 31, 1996. The
decrease in the reserve level for the current period was primarily
attributable to improvement in the quality of the total loan portfolio as
evidenced by improvement in the impaired loan and nonperforming asset ratios
depicted in Table 1. The provision expense was $67,000 for the current
quarter which primarily supported loan growth, principally commercial loans.
Of the total $226,000 charged-off in the current period, $172,000 was
attributable to one commercial loan borrower whose accounts were deemed
uncollectible. Based on a recent evaluation of potential loan losses,
management believes that the allowance is adequate to support any reasonably
foreseeable level of losses that may arise. Ultimately, however, the adequacy
of the allowance is largely dependent upon future economic factors beyond the
Corporation's control. With this in mind, additions to the allowance for loan
losses may be required in future periods.
LIQUIDITY
The loan-to-deposit ratio was 80.4% at March 31, 1997, compared to 74.0% at
March 31, 1996. The increase in the ratio reflects a decline in liquidity due
to loan growth exceeding deposit growth. The ratio for both periods was
within the current asset-liability management policy which requires that the
loan-to-deposit ratio not exceed 85%. During the current period, the Bank
routinely used its line of credit with the Federal Home Loan Bank of
Pittsburgh (FHLBP) as a planned short term funding strategy. Outstanding
advances on the line of credit, limited to ten percent of total Bank assets,
are collateralized by the Bank's investment securities under a blanket lien
arrangement with the FHLBP. At March 31, 1997, the unused line of credit with
the FHLBP was approximately $23.8 million.
In January, 1997, the Bank borrowed $3 million from the FHLBP under a ten
year, 6.82% fixed rate note arrangement to help fund its residential mortgage
loan program.
STOCKHOLDERS' EQUITY (CAPITAL)
Total stockholders' equity, or capital, was $23,021,000 at March 31, 1997,
compared to $21,232,000 at March 31, 1996. Growth in equity during the
current period was due primarily to earnings retention from profitable
operations. Book value per share, adjusted for both periods to include the
retroactive effect of a five percent stock dividend declared April 8, 1997,
was $20.97 on March 31, 1997, compared to $19.34 on March 31, 1996.
On April 8, 1997, the Board of Directors declared a regular quarterly cash
dividend of $.19 per share, payable on or before May 13, 1997, to
stockholders of record April 22, 1997. Also on April 8, 1997, the Board
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CODORUS VALLEY BANCORP, INC.
declared a five percent stock dividend, payable on or before June 12, 1997,
to stockholders of record April 22, 1997. The stock dividend is another
method of enhancing shareholder value.
On March 31, 1997, there were 1,045,296 common shares outstanding. The recent
five percent stock dividend declaration will result in the issuance of
approximately 52,264 in additional common shares on or before the June 12,
1997, payable date. All per share amounts were retroactively adjusted for
stock dividends, including the recent five percent stock dividend declared on
April 8, 1997. The weighted average number of shares of common stock
outstanding were approximately 1,097,561 for the three month periods ended
March 31, 1997 and March 31, 1996.
At March 31, 1997, the Corporation's Tier I Risk-Based Capital Ratio was
13.5% and its Total Risk-Based Capital Ratio was 14.6%. Both capital ratios
exceeded the minimum federal regulatory requirements for well capitalized
banks of 6% and 10%, respectively.
As previously disclosed in the 1996 Annual Report to Shareholders and
Securities & Exchange Commission filings, the Board of Directors began
implementing a series of initiatives, in accordance with the Corporation's
long-range Strategic Plan, designed to better position the Corporation as a
financial services provider for the twenty-first century. One such initiative
is the construction of a new corporate headquarters, to be known as Codorus
Valley Corporate Center. Occupancy of this approximately $5.4 million project
is scheduled in the third quarter of 1997, at which time the Corporation
plans to lease seventy-five percent of the space to the Bank and the
remainder to nonaffiliated parties. Another initiative involved branch office
expansion. On April 22, 1997, the Bank opened it's eighth full service
community banking office, located in East York, Pennsylvania. The estimated
cost of this project, including purchase price, renovation, and furniture and
equipment, is approximately $825,000. Both capital projects are being funded
with cash generated from current Bank operations. On April 25, 1997, another
strategic initiative was accomplished when the Corporation's common stock
began quotation on the NASDAQ National Market System (symbol: CVLY).
Capital investments made in the recent past and in the future, relative to
physical expansion and cost effective technological system solutions, will
reduce Corporate net income and capital growth in the period ahead. However,
these expenditures are deemed necessary to grow market share and net income
over the long term, and are an important part of the overall strategy to
achieve the goal of enhancing long term shareholder value.
Except as disclosed herein, the Corporation is not currently aware of any
other trends, events or uncertainties which may materially and adversely
effect capital, results of operations or liquidity.
12
<PAGE>
CODORUS VALLEY BANCORP, INC.
Table 1 - Nonperforming Assets and Past Due Loans
March 31, December 31, March 31,
(dollars in thousands) 1997 1996 1996
------ ------ ------
Impaired loans (1) $1,803 $2,063 $4,374
Assets acquired in foreclosure (2) 717 780 331
------ ------ ------
Total nonperforming assets $2,520 $2,843 $4,705
====== ====== ======
Loans past due 90 days or more
and still accruing interest $735 $524 $875
Ratios:
Impaired loans as a % of
total period-end loans 1.05% 1.24% 2.76%
Nonperforming assets as a % of
total period-end loans and net
assets acquired in foreclosure 1.47% 1.70% 2.96%
Nonperforming assets as a % of
total period-end stockholders'
equity 10.95% 12.52% 22.16%
Allowance for loan losses as a
multiple of impaired loans 1.1x 1.0x .5x
Interest not recognized on impaired
loans at period-end: (3)
Contractual interest due $246 $246 $295
Interest revenue recognized 4 18 32
---- ---- ----
Interest not recognized in operations $242 $228 $263
==== ==== ====
(1) Comprised solely of nonaccrual loans.
(2) Net of related allowance(reserve).
(3) This table includes interest not recognized on loans which were
classified as impaired at period-end. While every effort is being
made to collect this interest revenue, it is probable a portion will
never be recovered.
13
<PAGE>
CODORUS VALLEY BANCORP, INC.
Table 2-Analysis of Allowance for Loan Losses
(dollars in thousands) 1997 1996
------ ------
Balance-January 1, $2,110 $2,286
Provision charged to operating expense 67 58
Loans charged off:
Commercial 183 0
Real estate-mortgage 0 0
Consumer 43 61
------ ------
Total loans charged off 226 61
Recoveries:
Commercial 10 18
Real estate-mortgage 11 0
Consumer 0 5
------ ------
Total recoveries 21 23
------ ------
Net charge-offs 205 38
Balance-March 31, $1,972 $2,306
====== ======
Ratios:
Net charge-offs (annualized) to average
total loans 0.49% 0.09%
Allowance for loan losses to total loans
at period-end 1.15% 1.46%
Allowance for loan losses to impaired loans
and loans past due 90 days or more 77.7% 43.9%
14
<PAGE>
CODORUS VALLEY BANCORP, INC.
PART II - Other Information:
Item 1. 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, if determined
adversely to the Registrant, will not have a material impact on the
Corporation's liquidity, capital resources, or results of operations.
Item 2. Changes in securities - nothing to report.
Item 3. Defaults upon senior securities - nothing to report.
Item 4. Submission of matters to a vote of security holders - nothing to
report.
Item 5. Other information - nothing to report.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits -
The Corporation filed a Form 8-K, via EDGAR, dated March 25, 1997. It
contained a comprehensive electronic filing of an Executive Employment
Agreement, dated as of January 1, 1993, between Codorus Valley Bancorp, Inc.,
Peoples Bank of Glen Rock and Larry J. Miller (Exhibit 10), and is hereby
incorporated by reference.
(b) Reports on Form 8-K - see Item 6(a) above.
15
<PAGE>
CODORUS VALLEY BANCORP, INC.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Codorus Valley Bancorp, Inc.
(Registrant)
May 12, 1997 By /s/ Larry J. Miller
Date Larry J. Miller,
President & CEO
(principal executive officer)
May 12, 1997 By /s/ Jann A. Weaver
Date Jann A. Weaver,
Assistant Treasurer &
Assistant Secretary
(principal financial and
accounting officer)
16
<PAGE>
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