UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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.)
105 Leader Heights Road, P.O. Box 2887 York, PA 17405
(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.
2,303,987 shares of $2.50 (par value) common stock were
outstanding as of 10-27-98 .
<PAGE>
CODORUS VALLEY BANCORP, INC.
10Q INDEX
Page
#
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statements of Financial Condition... 1
Consolidated Statements of Income................ 2
Consolidated Statements of Cash Flows............ 3
Notes to Consolidated Financial Statements....... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk...................................... 22
PART II - OTHER INFORMATION
Item 1. Legal proceedings.................................. 23
Item 2. Changes in securities and use of proceeds.......... 23
Item 3. Defaults by the company on its senior securities... 23
Item 4. Results of votes of security holders............... 23
Item 5. Other information.................................. 23
Item 6. Exhibits and reports on Form 8-K................... 23
SIGNATURES................................................. 24
EXHIBIT 27, Financial Data Schedule........................ 25
<PAGE>
PART I - FINANCIAL INFORMATION: Item 1. Financial Statements
CODORUS VALLEY BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Unaudited
September December September
30, 31, 30,
(dollars in thousands) 1998 1997 1997
Assets --------- --------- ---------
Cash and due from banks
Interest bearing deposits with banks $ 208 $ 123 $ 140
Non-interest bearing deposits and cash 7,304 7,721 7,398
Federal funds sold 0 5,350 5,000
Loans held for sale 2,375 0 0
Securities available for sale 51,748 40,303 42,614
Loans 183,405 191,342 185,022
Less-allowance for loan losses (1,866) (2,098) (2,072)
-------- -------- --------
Total net loans 181,539 189,244 182,950
Premises and equipment 9,454 9,797 9,637
Interest receivable 1,583 1,538 1,494
Other assets 7,072 982 1,506
-------- -------- --------
Total assets............................$261,283 $255,058 $250,739
======== ======== ========
Liabilities
Deposits
Non-interest bearing demand $ 19,909 $ 21,152 $ 18,896
NOW 22,940 22,041 21,626
Insured money fund and money market 35,419 28,901 29,796
Savings 20,841 19,992 21,139
Time CD's less than $100,000 111,985 112,874 110,525
Time CD's $100,000 and above 19,960 21,303 20,267
-------- -------- --------
Total deposits 231,054 226,263 222,249
Short-term borrowings 600 0 0
Long-term borrowings 2,630 2,802 2,857
Interest payable 896 820 893
Other liabilities 442 748 648
-------- -------- --------
Total liabilities....................... 235,622 230,633 226,647
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; 2,303,987 shares
shares issued at 9/30/98; 1,097,259 at
12/31/97 and 9/30/97 5,760 2,743 2,743
Common stock distributable, par value $2.50
per share; 1,097,259 shares payable 0 2,743 0
Additional paid-in capital 10,279 8,063 8,063
Retained earnings 9,150 10,444 12,847
Accumulated other comprehensive income from
unrealized gains on securities, net of tax 472 432 439
-------- -------- --------
Total stockholders' equity.............. 25,661 24,425 24,092
Total liabilities and stockholders'
equity.................................$261,283 $255,058 $250,739
======== ======== ========
See accompanying notes. 1
<PAGE>
CODORUS VALLEY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Unaudited
<TABLE>
Three months ended Nine months ended
September 30, September 30,
(dollars in thousands, except per share data) 1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees from loans $4,133 $4,275 $12,692 $12,079
Interest from federal funds sold and interest
bearing deposits with banks 90 73 317 114
Interest and dividends from securities:
Taxable interest income 650 617 1,774 2,080
Tax-exempt interest income 74 50 206 153
Dividend income 13 14 42 43
------ ------ ------ ------
Total interest income.............................. 4,960 5,029 15,031 14,469
Interest Expense
NOW 87 95 258 285
Insured money fund and money market 264 238 715 647
Savings 120 122 352 359
Time CD's less than $100,000 1,553 1,554 4,635 4,526
Time CD's $100,000 and above 275 264 850 708
------ ------ ------ ------
Total interest expense on deposits 2,299 2,273 6,810 6,525
Interest expense on short-term borrowings and
federal funds purchased 0 15 0 69
Interest expense on long-term borrowings 46 50 140 140
------ ------ ------ ------
Total interest expense............................ 2,345 2,338 6,950 6,734
------ ------ ------ ------
Net interest income................................ 2,615 2,691 8,081 7,735
Provision for Loan Losses 75 68 375 202
------ ------ ------ ------
Net interest income after provision for loan losses 2,540 2,623 7,706 7,533
Non-interest Income
Trust and investment services fees 112 108 396 297
Service charges on deposit accounts 122 111 353 314
Other service charges and fees 80 91 229 215
Gain on sale of loans 4 56 108 59
Gain (loss) on sales of securities 72 (17) 194 (17)
------ ------ ------ ------
Total non-interest income 390 349 1,280 868
Non-interest Expense
Salaries and benefits 1,030 988 3,019 2,855
Occupancy of premises 208 171 610 396
Furniture and equipment 237 217 709 616
Postage, stationery and supplies 89 96 290 315
Professional and legal 83 50 188 173
Marketing and advertising 64 82 263 243
Acquired real estate, net 35 20 47 32
Other 352 316 1,074 958
------ ------ ------ ------
Total non-interest expense 2,098 1,940 6,200 5,588
Income before income taxes 832 1,032 2,786 2,813
Provision for Income Taxes 227 321 904 894
------ ------ ------ ------
Net income..........................................$ 605 $ 711 $1,882 $1,919
====== ====== ====== ======
Net income per share
Basic..............................................$0.26 $0.31 $0.82 $0.83
Diluted............................................$0.26 $0.31 $0.81 $0.83
See accompanying notes.
</TABLE>
2
<PAGE>
CODORUS VALLEY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Nine months ended
September 30,
1998 1997
------- -------
Cash Flows From Operating Activities: (dollars in thousands)
Net Income $ 1,882 $ 1,919
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation 616 469
Provision for loan losses 375 202
Provision for losses on assets acquired in foreclosure 22 0
Net loss (gain) on sales of assets acquired in foreclosure 2 (5)
Gain on sales of loans (108) (59)
Gain on sales of securities (194) 17
(Increase) decrease in interest receivable (45) 148
Decrease (increase) in other assets 168 114
Decrease in interest payable 76 97
(Decrease) increase in other liabilities (306) 281
Other, net (103) (57)
------- -------
Net cash provided by operating activities............. 2,385 3,126
Cash Flows From Investing Activities:
Proceeds from sales of securities available for sale 9,163 5,000
Proceeds from maturities and calls of securities
available for sale 10,359 13,597
Purchase of securities available for sale (30,755) (4,252)
Net increase in loans made to customers (58) (22,990)
Proceeds from loan sales 3,699 4,388
Purchases of premises and equipment (273) (5,081)
Proceeds from sale of assets acquired in foreclosure 380 81
Investment in cash surrender value of life insurance (5,115) 0
------- -------
Net cash used in investing activities................ (12,600) (9,257)
Cash Flows From Financing Activities:
Net increase in demand and savings deposits 7,023 3,775
Net (decrease) increase in time deposits (2,232) 9,014
Net increase in short-term borrowings and
federal funds purchased 600 (4,000)
Net (decrease) increase in long-term borrowings (172) 2,857
Dividends paid (680) (617)
Cash paid in lieu of fractional shares (6) (9)
------- -------
Net cash provided by financing activities............ 4,533 11,020
------- -------
Net (decrease) increase in cash and cash equivalents. (5,682) 4,889
Cash and cash equivalents at beginning of year....... 13,194 7,649
------- -------
Cash and cash equivalents at September 30, ..........$ 7,512 $12,538
======= =======
Supplemental Disclosures:
Interest payments $6,734 $6,428
Income tax payments $862 $580
See accompanying notes.
3
<PAGE>
CODORUS VALLEY BANCORP, INC.
Notes to Unaudited 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 audited
financial statements contained in the 1997 Annual Report to
Stockholders.
The consolidated financial statements include the accounts of Codorus
Valley Bancorp, Inc. and its wholly owned bank subsidiary, PeoplesBank,
and its wholly owned nonbank subsidiary, SYC Realty Company, Inc. All
significant intercompany account balances and transactions have been
eliminated in consolidation.
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 121,550 shares for the Corporation's Dividend Reinvestment and Stock
Purchase Plan; 72,630 shares for the 1996 Stock Incentive Plan; 100,000
shares for the 1998 Independent Directors' Stock Option Plan; and those
shares reserved for the Shareholders' Rights Plan.
The results of operations for the nine month period ended September 30,
1998 are not necessarily indicative of the results to be expected for
the full year.
Note 2-Summary of Significant Accounting Policies
Loans Held for Sale - 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. At September 30, 1998, the market
value of loans held for sale was approximately $2,419,000.
Per Share Computations - All per share computations include the
retroactive effect of stock dividends, including the two-for-one stock
split effected in the form of a 100 percent stock dividend paid in
January 1998, and the 5 percent stock dividend paid in June 1998. The
weighted average number of shares of common stock outstanding used was
approximately 2,303,987 for the nine month periods ended September 30,
1998 and 1997.
Reclassifications - Certain reclassifications have been made to the 1997
consolidated financial statements to conform with the 1998 presentation.
Comprehensive Income - As of January 1, 1998, the Corporation adopted
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income." Statement No. 130 establishes new rules for the
reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the Company's
net income or shareholders' equity. Statement No. 130 requires
4
<PAGE>
CODORUS VALLEY BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements, continued
Note 2 - Summary of Significant Accounting Policies, continued
unrealized gains or losses on available for sale securities, to be
included in other comprehensive income. Total comprehensive income was
$810,000 for the quarter ended September 30, 1998, compared to $778,000
for the same period of 1997. Year to date total comprehensive income
was $1,922,000 for 1998, compared to $2,012,000 for 1997.
Note 3-Current Accounting Developments
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 did not have a
material impact on the EPS calculations of the Corporation.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." The Statement
establishes standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial
statements. Comprehensive income includes net income plus all other
non-owner changes in equity currently excluded from net income. These
other non-owner changes in equity currently include transactions
specified in SFAS No. 52, "Foreign Currency Translation", SFAS No. 80,
"Accounting for Futures Contracts", SFAS No. 87, "Employers' Accounting
for Pensions", and SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Statement No. 130 is effective for fiscal
years beginning after December 15, 1997, with earlier application
permitted. Management has adopted this Statement and disclosed the
impact of adoption in Note 2 to the financial statements included in
this filing.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information." Statement No. 131 establishes standards for the
reporting of financial information from the operating segments in annual
and interim financial statements. This Statement requires that
financial information be reported on the basis that it is reported
internally for evaluating segment performance and deciding how to
allocate resources to segments. Because this Statement addresses how
supplemental financial information is disclosed in annual and interim
reports, the adoption will have no material impact on the financial
statements. Statement No. 131 is effective for annual financial
statements for fiscal years beginning after December 15, 1997, and
interim comparative financial statements for fiscal years beginning
after December 15, 1998, with early adoption encouraged.
5
<PAGE>
CODORUS VALLEY BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements, continued
Note 4-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 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.
September December September
30, 31, 30,
(dollars in thousands) 1998 1997 1997
------ ------ ------
Impaired loans $2,933 $2,842 $2,829
Amount of impaired loans that
have a related allowance $2,933 $2,842 $2,829
Amount of impaired loans with
no related allowance $0 $0 $0
Allowance for impaired loans $646 $500 $472
For the nine month period ended
September 30,
1998 1997
------ ------
Average investment in impaired loans $2,821 $2,057
Interest income recognized on
impaired loans (all cash-basis method) $44 $77
Note 5-Analysis of Allowance for Loan Losses
Changes in the allowance for loan losses for the nine month period
ended September 30, were as follows:
(dollars in thousands) 1998 1997
------ ------
Balance-January 1, $2,098 $2,110
Provision charged to operating expense 375 202
Loans charged off (624) (351)
Recoveries 17 111
------ ------
Balance-September 30, $1,866 $2,072
====== ======
6
<PAGE>
CODORUS VALLEY BANCORP, INC.
Item 2. 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 its accompanying consolidated financial statements for Codorus
Valley Bancorp, Inc., a bank holding company (the Corporation), and its
wholly-owned subsidiary, PeoplesBank, A Codorus Valley Company (the Bank).
The Corporation's consolidated financial condition and results of
operations consist almost entirely of the Bank's financial condition and
results of operations. 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. For example, risks and
uncertainties can arise with changes in: general economic conditions,
including their impact on capital expenditures; business conditions in the
financial services industry; the regulatory environment; rapidly changing
technology and evolving banking industry standards; competitive factors,
including increased competition with community, regional and national
financial institutions; new service and product offerings by competitors;
and price pressures. 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. In addition, readers should
carefully review the risk factors described in other documents the
Corporation files periodically with the Securities and Exchange Commission.
Three months ended September 30, 1998
compared to three months ended September 30, 1997
INCOME STATEMENT ANALYSIS
Overview
Net income for the current three month period was $605,000, or $0.26 per
share, compared to $711,000, or $0.31 per share, for the same period in 1997.
All per share amounts were adjusted for stock dividends. The $106,000 or 15
percent decrease in current period net income was due primarily to an
increase in total noninterest expense and a decrease in interest income from
loans. The increase in total noninterest expense was primarily attributable
to long term investments in facilities and technology, and normal business
growth. The decrease in interest income from loans was primarily attributable
to lower yields caused by declining market interest rates and competitive
7
<PAGE>
CODORUS VALLEY BANCORP, INC.
pressures. An explanation of the factors and trends that caused changes
between the two periods, by earnings category, is provided below.
Net interest income
Net interest income for the current three month period was $2,615,000,
representing a $76,000 or 2.8 percent decline from the third quarter of 1997.
Generally, the decline in net interest income was attributable to declining
market interest rates and competitive pressures.
Total earning assets averaged $236.4 million in the current period, an
increase of $5.8 million or 2.5 percent above the third quarter of 1997. In
spite of an increase in earning assets, principally investment securities,
interest income declined in the current period due in part to declining
market interest rates. Interest income from loans, principally commercial
loans, was further reduced by competition and an unusually large level of
early loan payoffs from business clients who sold their businesses. Loans
yielded approximately 8.17 percent for the current period compared to 8.57
percent for the third quarter of 1997.
Total deposits averaged $229.4 million in the current period, an increase of
$7.8 million or 3.5 percent above the third quarter of 1997, principally in
the demand deposit category. Due to competitive pressures, deposit funding
costs, principally certificates of deposit, did not decline to the extent of
loan yields. Deposit funding costs averaged 3.98 percent for the current
period compared to 4.07 percent for the third quarter of 1997.
Provision for loan losses
The provision expense for possible loan losses was $75,000 for the current
period, which was slightly above the provision for the third quarter of 1997.
The current period provision supported a higher level of net charge-offs
incurred to date. The risk management section of this report provides more
information about loan charge-offs and the loan loss allowance (reserve).
Noninterest income
Total noninterest income for the current three month period was $390,000, an
increase of $41,000 or 11.7 percent more than the same period in 1997. The
increase was due primarily to the periodic recognition of gains from the sale
of assets. In September 1998, the Bank sold approximately $2.5 million of its
investment securities and recognized a pretax gain of $72,500 from the sale.
8
<PAGE>
CODORUS VALLEY BANCORP, INC.
Noninterest expense
Total noninterest expense for the current three month period was $2,098,000,
an increase of $158,000 or 8 percent more than the same period in 1997. The
increase in noninterest expense primarily reflects the implementation of many
long term strategic initiatives during 1997 and 1996 to enhance the corporate
infrastructure, and normal business growth. Additional information about
noninterest expense is provided in the nine month analysis section of this
report.
Income taxes
The provision for federal income taxes was $227,000 for the current period,
a decrease of $94,000 or 29 percent less than the third quarter of 1997 due
primarily to lower pretax income.
Nine months ended September 30, 1998
compared to nine months ended September 30, 1997
OVERVIEW
Net income for the current nine month period was $1,882,000, or $0.81 per
diluted share, compared to $1,919,000, or $0.83 per diluted share, for the
same period in 1997. All per share amounts were adjusted to reflect stock
dividends, including the two-for-one stock split effected in the form of a
100 percent stock dividend paid in January 1998, and the 5 percent stock
dividend paid in June 1998. The $37,000 or 2 percent decrease in current
period net income was due to the combined effect of: net interest income
compression due to competition and other factors; an increase in noninterest
expense caused primarily by long term investments in facilities and
technology, and normal business growth; and a larger provision for loan
losses. Gains from asset sales totalled $302,000 for the current period
compared to $42,000 for the first nine months in 1997.
At September 30, 1998, total assets were approximately $261 million, an
increase of $10.5 million or 4.2 percent greater than September 30, 1997.
Book value per share, as adjusted for stock dividends, was $11.14 on
September 30, 1998, compared to $10.46 on September 30, 1997. At September
30, 1998, management believes that the Corporation's capital meets all
capital requirements to which it is subject. The Bank's capital ratios exceed
the quantitative federal regulatory minimums for well capitalized commercial
banks.
For the nine month period (annualized) of 1998, the return on average assets
was approximately 0.98 percent compared to 1.05 percent for 1997. For the
9
<PAGE>
CODORUS VALLEY BANCORP, INC.
same periods, the return on average equity was approximately 9.9 percent for
1998 compared to 10.8 percent for 1997.
An explanation of the factors and trends that caused changes between the two
periods, by major earnings category, is provided below.
INCOME STATEMENT ANALYSIS
Net interest income
Net interest income for the current nine month period was $8,081,000, an
increase of $346,000 or 4.5 percent more than the same period in 1997. The
increase in net interest income was a result of a larger volume of earning
assets which averaged $236 million through September 1998 compared to $227
million for the same period in 1997. Growth in the year-to-date average
volume of interest earning assets occurred primarily in the commercial loan
and short-term investment portfolios. Funding was primarily provided by
deposit growth. The weighted average yield on earning assets was
approximately 8.33 percent through September 1998 compared to 8.42 percent
through September 1997. The weighted average cost of deposits was
approximately 4.01 percent through September 1998, compared to 4.05 percent
for the same period of 1997.
While net interest income for the first nine months of 1998 increased above
the 1997 level, the increase was below the $437,000 or 6 percent increase for
1997 vs 1996 for the same periods. The increase in net interest income for
the current period was constrained by competitive pressures and early
commercial loan payoffs as described in the balance sheet review section of
this report. Additionally, declining market interest rates lowered yields on
earning assets to a greater degree than the rates paid for the deposits that
fund them. Compression of net interest income is expected to continue in the
period ahead.
Provision for loan losses
The provision expense for possible loan losses was $375,000 for the current
nine month period which was necessary to support a higher level of net loan
charge-offs. The increase in the level of loan charge-offs was primarily
attributable to a $456,000 charge-off in June 1998 associated with a single
commercial borrower whose account was deemed partially worthless.
Comparatively, for the same period in 1997, the provision expense was
$202,000 which was necessary to support loan growth and net loan charge-offs.
10
<PAGE>
CODORUS VALLEY BANCORP, INC.
Noninterest income
Total noninterest income for the current nine month period was $1,280,000, an
increase of $412,000 or 48 percent more than the same period in 1997. The
increase in noninterest income was due primarily to the periodic recognition
of net gains from asset sales, trust and investment services fees, and normal
business growth. In January 1998, the Bank sold $6.5 million of available-
for-sale investment securities and recognized a pretax gain of $122,000 from
the sale. In April 1998, the Bank sold a $3.1 million portfolio of held-for-
sale fixed rate mortgage loans and recognized a pretax gain of $103,000 from
the sale. In September 1998, the Bank sold $2.5 million of available-for-sale
investment securities and recognized a pretax gain of $72,500 from the sale.
Current period trust and investment services fees increased $99,000 or 33
percent from the same period in 1997 due to asset appreciation, new business
and estate fees. Noninterest income, as adjusted for gains from periodic
asset sales, is expected to increase in the period ahead based on normal
business growth, and fee increases on selected services.
Noninterest expense
Total noninterest expense for the current nine month period was $6,200,000,
an increase of $612,000 or 11 percent more than the same period in 1997. The
increase in noninterest expense primarily reflects the implementation of
strategic initiatives in 1997 to expand, staff, and equip the organization,
in addition to normal business growth. Long-term investments were made to
position the Corporation for future expansion and to increase its service
capabilities.
The implementation of strategic initiatives resulted in increases within the
following expense categories: salaries and benefits, up $164,000 or 6
percent; occupancy, up $214,000 or 54 percent; furniture and equipment, up
$93,000 or 15 percent; and marketing and advertising, up $20,000 or 8
percent. The increase in salaries and benefits was primarily attributable to
planned staff additions, merit raises and higher replacement costs. The
increase in occupancy expense reflects increased depreciation, maintenance
and property tax expenses associated with a branch office addition in April
1997, and construction and occupancy of the Codorus Valley Corporate Center
("Corporate Center") which was operational in August 1997. The increase in
furniture and equipment expense reflects increased depreciation and
maintenance costs from increased investment in computer equipment and systems
in 1997, and increased depreciation expense as a result of furnishing the
Corporate Center. The increase in marketing and advertising expense for the
current period was attributable to initial implementation costs associated
with a sales and product training program as described below. The other
operating expense category increased $116,000 or 12 percent due primarily to
increases in problem loan carrying costs and capital stock taxes. Noninterest
expense is expected to increase in the period ahead due to past and planned
11
<PAGE>
CODORUS VALLEY BANCORP, INC.
capital investments, in accordance with the Corporation's long range
strategic plan, sales training, and normal business growth.
Sales and product training
In January 1998, the Bank contracted with Financial Selling Systems, a
national sales training and consulting firm, to implement a sales and product
training program. The program is focused on the retail banking staff and has
two primary objectives: first, to expedite the transformation of the Bank to
a customer-focused corporate culture, based upon superior sales and service;
second, to increase sales through improved selling skills, increased product
knowledge and confidence, and sales incentives. Formal training of the retail
banking staff began in May. This comprehensive retail training program is
expected to take approximately 30 months to complete at an estimated cost of
$175,000. Through September 30, 1998, the Bank has incurred approximately
$69,000 for this program.
Year 2000 compliance
The following section contains forward-looking statements which involve risks
and uncertainties. The actual impact on the Corporation of the Year 2000
issue (Y2K) could materially differ from that which is anticipated in the
forward-looking statements as a result of certain factors identified below.
The Year 2000 issue poses significant risks for all businesses, households
and governments. The risk is that on January 1, 2000, date sensitive systems
using two digits to represent the year may not be able to distinguish between
the Year 2000 and the Year 1900. The date problem could result in system
failures and miscalculations causing disruptions in normal business and
governmental operations. The problem has broad implications far beyond
familiar computer systems and could adversely impact security systems,
telephone systems, climate control systems, elevators, automobiles and other
date sensitive systems. Unfortunately, there is no universal solution for
this problem and resolution of the Y2K issue may be both labor intensive and
costly for some companies.
The Bank is subject to the regulation and oversight of various banking
regulators, whose oversight includes the provision of specific timetables,
programs and guidance regarding Y2K issues. Regulatory examination of the
Bank's Y2K programs are conducted periodically and reports are submitted
quarterly to the Corporation's Board of Directors.
Corporation's State of Year 2000 Readiness
Resolving the Year 2000 issue is one of the Corporation's highest priorities.
In 1997, a project team was formed to address the Y2K issue. Based on an
internal assessment of the Corporation's systems and software, the project
12
<PAGE>
CODORUS VALLEY BANCORP, INC.
team determined that some existing systems and software must be remediated or
replaced prior to the millennium. The replacement date for an aged item-
processing system, which is not Y2K compliant, was advanced to the fourth
quarter of 1998, approximately twelve months earlier than initially planned.
Contract negotiations and scheduling have delayed planned installation of
this system until early 1999. Management presently believes that as a result
of modifications to existing software and hardware and conversions to new
software, the Y2K issue can be mitigated. However, if such modifications and
conversions are not made, or are not completed on a timely basis, the Y2K
issue could have a material adverse impact on the operations of the
Corporation.
The Corporation has initiated communications with its major vendors to
determine the extent to which these third parties will be Y2K compliant. To
date, responses have been positive; however, there is no guarantee that the
systems and software of other companies on which the Corporation relies will
be Y2K compliant. As a precaution the Corporation will test, and develop
contingency plans, as needed, for mission critical systems.
Further, the Bank has communicated with its large commercial borrowers. These
borrowers may pose a credit risk to the Bank if they are not Y2K compliant,
and their businesses are disrupted. Responses from large commercial borrowers
are currently being evaluated, and the Bank will take appropriate action
based upon their level of readiness for Year 2000. The Bank has also
incorporated a Y2K readiness review in its underwriting process for business
loans.
Costs of Year 2000 Readiness
As of September 30, 1998, approximately $15,000 has been expended on Y2K
readiness. Management expects to spend a total of $50,000 for the entire
project. Most of this amount will be paid to external technicians for system
test plans and testing, and recorded as expense. In addition, the Bank plans
to replace an aged item-processing system in the first quarter of 1999. This
system will cost approximately $300,000 which produces an annual after-tax
depreciation expense of $40,000 based on a five-year expected useful life.
Implementation of this mission critical system was accelerated from its
original fourth quarter 1999 target date.
The cost of the Y2K project and the date on which the Corporation plans to
become Y2K compliant is based on management's best estimates, which assume
the continued availability of certain resources, third party modification
plans and other factors. However, there is no guarantee that these estimates
will be achieved and actual results could differ materially from management's
plan.
13
<PAGE>
CODORUS VALLEY BANCORP, INC.
Risks of Year 2000
At present, management believes its progress in remedying the Corporation's
systems, programs and applications and installing Y2K compliant upgrades is
on target, except for installation of the item-processing system. The Y2K
problem creates risk for the Corporation from unforeseen problems in its own
computer systems and from third party vendors who provide the majority of
mainframe and pc-based computer applications. Failure of third party systems
relative to the Y2K issue could have a material impact on the Corporation's
ability to conduct business. The Corporation is also exposed to credit risk
if large commercial borrowers are not Y2K compliant and their businesses are
disrupted.
Contingency Plans for Year 2000
It is expected that mission critical systems will be largely remediated and
tested for Year 2000 compliance by December 31, 1998, with the exception of
the item-processing system which is scheduled for implementation in the first
quarter of 1999. The Corporation will continue to monitor the progress of
remediation of the mission critical systems and is in the process of
developing a remediation contingency plan. In addition, the Corporation has
begun to develop a business resumption contingency plan.
In accordance with regulatory mandate, the Corporation's goal is to be
substantially Year 2000 compliant by year end 1998. However, uncertainties
remain about whether or not the Corporation's third party vendors and large
commercial borrowers will be Year 2000 compliant. Accordingly, the financial
impact of the Year 2000 issue on the Corporation's assets, earnings and
liquidity cannot be determined at this time.
Insurance sales
During 1997, Pennsylvania enacted a law to permit State chartered banking
institutions to sell insurance. This followed the U.S. Supreme Court decision
in favor of nationwide insurance sales by banks and barring states from
blocking insurance sales by national banks in towns with populations of no
more than 5,000. The Bank is currently evaluating its options regarding the
sale of insurance.
Income taxes
The provision for federal income taxes was $904,000 for the current nine
month period, compared to $894,000 for the same period in 1997.
14
<PAGE>
CODORUS VALLEY BANCORP, INC.
BALANCE SHEET REVIEW
Investment securities
Cash inflows from deposit growth during the current period was primarily used
to increase the volume of available-for-sale investment securities. The
average volume (based on amortized cost) for the third quarter of 1998 was
$49.6 million compared to $43.7 million for the same quarter of 1997. To
date, the Bank has sold investment securities at a gain on two occasions as
previously described in the noninterest income section of this report.
Investment securities were sold to take advantage of attractive market prices
and to realize a portion of the relatively high level of unrealized portfolio
holding gains.
Loans
The average monthly balance of total loans declined from the beginning of the
year, particularly for commercial loans, due to competitive pressures. In
many cases the Bank was willing to lose a loan to more aggressive competitors
rather than undermine sound underwriting standards. In addition, an unusually
large level of early loan payoffs of approximately $5.4 million occurred in
the commercial loan portfolio attributable to clients selling businesses. The
average monthly balance of total performing loans for September 1998 was
$181.4 million, compared to $188.4 million for December 1997, and $183.7
million for September 1997.
It is probable that competitive pressures, particularly for commercial loans,
will constrain loan growth for commercial banks in the period ahead. In spite
of competitive pressures, the Bank is committed to maintain high underwriting
standards.
Other assets
In the third quarter 1998, the Bank invested approximately $5 million in cash
surrender value life insurance policies. This investment was used to finance
supplemental retirement plans for selected executives and Board members, and
provide a tax-exempt return to the Bank. The supplemental retirement plans,
replaced, in part, other insurance coverages. The current yield on the
investment is projected at 5.85 to 6.0 percent. This investment, included in
other assets on the statement of financial condition, was funded by the
liquidation of short-term investments with correspondent banks.
15
<PAGE>
CODORUS VALLEY BANCORP, INC.
FUNDING
Deposits
To date, total average deposit growth has been slow but steady. The average
monthly balance of total deposits was $231.8 million for September 1998,
compared to $225.9 million for December 1997, and $223.5 million for
September 1997. Overall deposit growth was primarily attributable to normal
business growth, and the addition of a full service banking office in April
1997. For 1998, the average volume of relatively low cost demand and savings
deposits increased, while the average volume of more costly certificates of
deposits (cds) declined. Cds were not priced to increase volume because the
funding wasn't needed in light of loan runoff which was sufficient to fund
new loans.
It is probable that competitive pressures, particularly the stock and mutual
funds markets, will continue to constrain deposit growth for commercial banks
in the period ahead.
Short-Term and Long-Term Borrowings
In order to meet short term funding needs the Bank can borrow from larger
correspondent banks in the form of funds purchased. The Bank also utilizes
available credit through the Federal Home Loan Bank of Pittsburgh (FHLBP).
The rate is established daily based on prevailing market conditions for
overnight funds.
The Bank's maximum borrowing capacity, as established quarterly by the FHLBP,
was approximately $65 million, at June 30, 1998, the most recent available
date. At September 30, 1998, the Bank had $2.6 million outstanding on its
account with the FHLBP in the form of long term fixed rate debt.
Stockholders' Equity
Stockholders' equity, or capital, is a source of funds which enables the
Corporation to maintain asset growth and to absorb losses. Total
stockholders' equity was $25,661,000 at September 30, 1998, an increase of
$1,569,000 or 6.5 percent above September 30, 1997. The increase in total
equity in the current period was primarily attributable to earnings retention
from profitable operations. Book value per share was $11.14 on September 30,
1998, compared to $10.46 on September 30, 1997. Per share amounts for both
periods were adjusted for stock dividends.
In January 1998, the Corporation paid a two-for-one stock split effected in
the form of a 100 percent stock dividend. In June 1998, the Corporation paid
a 5 percent stock dividend which was comparable to the 5 percent stock
16
<PAGE>
CODORUS VALLEY BANCORP, INC.
dividend paid in June 1997. In addition to cash dividends, the payment of
stock dividends is another method of enhancing shareholder value.
Through September 1998, the Corporation paid regular quarterly cash
dividends, per common share, as follows: $.10 on February 10, 1998; $.10 on
May 12, 1998; and $.105 on August 11, 1998. On October 13, 1998, the Board
declared a regular quarterly cash dividend of $.105 per share, payable
November 10, 1998, to shareholders of record October 27, 1998.
The weighted average number of shares of common stock outstanding, adjusted
for stock dividends, was approximately 2,303,987 for the nine month periods
ended September 30, 1998 and 1997.
The level of capital for the Corporation and Bank remained sound for both
periods. The Bank exceeded all minimum regulatory requirements for well
capitalized commercial banks as established by the FDIC, its primary federal
regulator. The FDIC's minimum quantitative standards for a well capitalized
institution are as follows: Tier I risk-based capital, 6 percent; Total risk-
based capital, 10 percent; and Leverage ratio, 5 percent. At the state level,
the Pennsylvania Department of Banking uses a Leverage ratio guideline of 6
percent. The Corporation's and the Bank's capital amounts and classification
are also subject to qualitative judgements by regulators. The table below
depicts the capital ratios for the Corporation and Bank for the periods ended
September 30, 1998 and 1997. The level of Bank capital reflects dividends the
Bank paid to the Corporation to fund construction of the Corporate Center.
Ratios Corporation Bank
9/30/98 9/30/97 9/30/98 9/30/97
Tier I risk-based capital 12.6 12.6 10.2 10.2
Tier II risk-based capital 13.5 13.7 11.2 11.3
Leverage 9.8 9.4 7.9 7.6
Capital investments made in 1997 and 1996, as described in previous SEC
filings, and future investment will impact current and future earnings and
capital growth. Possible future investments could include expansion of the
community office franchise, purchase of technological system solutions, and
acquisition of other financial services companies. Management and the Board
of Directors believe that capital investments, guided by a long range
strategic plan, are necessary to develop an infrastructure to grow market
share and net income over the long-term, and are important components of the
overall strategy of enhancing long-term shareholder value.
RISK MANAGEMENT
Nonperforming assets
A summary of nonperforming assets and past due loans, and related ratios, is
provided in Table 1 incorporated herein. An explanation of changes within
17
<PAGE>
CODORUS VALLEY BANCORP, INC.
each classification for September 30, 1998, compared to September 30, 1997,
is provided below.
The major component of nonperforming assets is impaired loans. For all
reporting periods, impaired loans were principally comprised of collateral
dependent commercial loans and residential mortgage loans classified as
nonaccrual. Accordingly, the Corporation uses the cash basis method to
recognize interest income on loans that are impaired. On September 30, 1998,
the impaired loan portfolio was $2,933,000, an increase of $104,000 or 4
percent more than September 30, 1997. Impaired loans increased primarily as
a result of a commercial loan addition in June 1998 which has a current
carrying value of approximately $1,369,000. This single account, which
management believes is adequately collaterized by real estate, represented 47
percent of the impaired loan portfolio at September 30, 1998. At September
30, 1998, the impaired loan portfolio was comprised of seventeen unrelated
accounts, primarily commercial loan relationships, ranging in size from
$25,000 to $1,369,000. These loan relationships vary by industry and are
generally collateralized with real estate assets. A loss reserve, which is
evaluated at least quarterly, has been established for accounts that appear
to be under-collateralized. 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.
Assets acquired in foreclosure, net of reserve, were $1,467,000 on September
30, 1998, representing an increase of $638,000 or 77 percent above September
30, 1997. The increase in assets acquired was caused by the addition of an
improved real estate property taken via deed-in-lieu of foreclosure in May
1998. The Corporation's carrying value for this asset is approximately
$999,000. Management believes that the net realizable value of this property,
which makes up 68 percent of total assets acquired, is sufficiently greater
than its carrying value based on a recent external appraisal. A loss reserve,
which is evaluated at least quarterly, has been established for assets whose
estimated market value, less selling expenses, are below their financial
carrying costs. At September 30, 1998, the reserve for assets acquired was
$15,000. For the first nine months of 1998, a $22,000 loss provision was
recorded to reflect a decline in fair value. Comparatively, no loss provision
was deemed necessary for the same period of 1997. Efforts to liquidate assets
acquired are proceeding as quickly as potential buyers can be located and
legal constraints permit.
At September 30, 1998, loans past due 90 days or more and still accruing
interest totalled $190,000, compared to $391,000 for September 30, 1997.
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 September 30, 1998, there were no potential problem loans, as defined by
the Securities and Exchange Commission, identified by management. However,
18
<PAGE>
CODORUS VALLEY BANCORP, INC.
management was monitoring loans of approximately $9.7 million 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 monitored
closely, and management presently believes that the allowance for loan losses
is adequate to cover anticipated losses that may be attributable to these
loans. Comparatively, management was monitoring loans of approximately $5.6
million on September 30, 1997.
Allowance for loan losses
Table 2, Analysis of Allowance for Loan Losses (the "allowance"),
incorporated herein, depicts a $1,866,000 allowance or reserve at September
30, 1998, which was 1 percent of total loans. The current period reserve
declined from the prior year primarily as a result of a $456,000 charge-off
attributable to a single commercial borrower whose account was deemed
partially uncollectible in June 1998. The provision expense for the current
nine month period was $375,000 which was greater than the $202,000 provision
in 1997, due to a greater level of net charge-offs.
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.
Liquidity
Liquidity is deemed adequate and the principal funding sources include:
deposit growth, maturing investment securities, the ability to borrow from
the Federal Home Loan Bank of Pittsburgh, and asset sales.
The loan-to-deposit ratio was approximately 80 percent at September 30, 1998,
compared to 83 percent at September 30, 1997. The ratio for both periods was
within current policy guidelines.
Market risk management
In the normal course of conducting business activities the Corporation is
exposed to market risk, principally interest rate risk, through the
operations of its banking subsidiary. Interest rate risk arises from market
driven fluctuations in interest rates which may affect cash flows, income,
expense and values of financial instruments. Interest rate risk is managed by
an Asset-Liability Management Committee comprised of members of senior
management and an outside director. No material changes in market risk
strategy occurred during the current period. A detailed discussion of market
risk is provided in the SEC Form 10-K for period ended December 31, 1997.
19
<PAGE>
CODORUS VALLEY BANCORP, INC.
Other risks
Periodically, various types of federal and state legislation is proposed that
could result in additional regulation of, or restrictions on, the business of
the Corporation and its subsidiaries. It cannot be predicted whether such
legislation will be adopted or, if adopted, how such legislation would affect
the business of the Corporation and its subsidiaries.
Further, the business of the Corporation is also affected by the state of the
financial services industry in general. As a result of legal and industry
changes, management predicts that the industry will continue to experience an
increase in consolidations and mergers as the financial services industry
strives to increase profits and market share. Management also expects
increased diversification of financial products and services offered by the
Corporation or subsidiary thereof, and its competitors. Management believes
that such consolidations and mergers, and diversification of products and
services may enhance its competitive position as a community bank.
Except as disclosed herein, the Corporation is not currently aware of any
other trends, events or uncertainties which may materially and adversely
affect capital, results of operations or liquidity.
20
<PAGE>
CODORUS VALLEY BANCORP, INC.
Table 1 - Nonperforming Assets and Past Due Loans
September 30, December 31, September 30,
(dollars in thousands) 1998 1997 1997
------ ------ ------
Impaired loans (1) $2,933 $2,842 $2,829
Assets acquired in foreclosure (2) 1,467 380 829
------ ------ ------
Total nonperforming assets $4,400 $3,222 $3,658
====== ====== ======
Loans past due 90 days or more
and still accruing interest $190 $107 $391
Ratios:
Impaired loans as a % of
total period-end loans 1.58% 1.49% 1.53%
Nonperforming assets as a % of
total period-end loans and net
assets acquired in foreclosure 2.35% 1.68% 1.97%
Nonperforming assets as a % of
total period-end stockholders'
equity 17.15% 13.19% 15.18%
Allowance for loan losses as a
multiple of impaired loans .6x .7x .7x
Interest not recognized on impaired
loans at period-end: (3)
Contractual interest due $320 $398 $294
Interest revenue recognized 44 103 77
---- ---- ----
Interest not recognized in operations $276 $295 $217
==== ==== ====
(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.
21
<PAGE>
CODORUS VALLEY BANCORP, INC.
Table 2-Analysis of Allowance for Loan Losses
(dollars in thousands) 1998 1997
------ ------
Balance-January 1, $2,098 $2,110
Provision charged to operating expense 375 202
Loans charged off:
Commercial 610 289
Real estate-mortgage 0 0
Consumer 14 62
------ ------
Total loans charged off 624 351
Recoveries:
Commercial 10 107
Real estate-mortgage 0 0
Consumer 7 4
------ ------
Total recoveries 17 111
------ ------
Net charge-offs 607 240
Balance-September 30, $1,866 $2,072
====== ======
Ratios:
Net charge-offs (annualized) to average
total loans .43% 0.18%
Allowance for loan losses to total loans
at period-end 1.00% 1.12%
Allowance for loan losses to impaired loans
and loans past due 90 days or more 59.8% 64.3%
Item 3. Quantitative and Qualitative Disclosures About Market Risk
No material changes have occurred in the market risk strategy as discussed in
the Form 10-K for the period ended December 31, 1997. (SEC file number 000-
15536, Exhibit 13, pages 49 through 52.)
22
<PAGE>
CODORUS VALLEY BANCORP, INC.
PART II - OTHER INFORMATION:
Item 1. Legal proceedings
In the opinion of the management of the Corporation, there are no proceedings
pending to which the Corporation and the Bank are a party or to which its
property is subject, which, if determined adversely to the Corporation and
the Bank, would be material in relation to the Corporation's and the Bank's
financial condition. There are no proceedings pending other than ordinary
routine litigation incident to the business of the Corporation and the Bank.
In addition, no material proceedings are pending or are known to be
threatened or contemplated against the Corporation and the Bank by government
authorities.
Item 2. Changes in securities and use of proceeds - nothing to report.
Item 3. Defaults by the company on its senior securities - nothing to report.
Item 4. Results of votes 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 following exhibit is being filed as part of this
Report: (see also Item 6(b))
Exhibit No. Description
27 Financial Data Schedule as of September 30, 1998.
(b) Reports on Form 8-K- none.
23
<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)
November 12, 1998 By /s/ Larry J. Miller
Date Larry J. Miller,
President & CEO
(principal executive officer)
November 12, 1998 By /s/ Jann A. Weaver
Date Jann A. Weaver,
Assistant Treasurer &
Assistant Secretary
(principal financial and
accounting officer)
24
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 7,304
<INT-BEARING-DEPOSITS> 208
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51,748
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 185,780
<ALLOWANCE> 1,866
<TOTAL-ASSETS> 261,283
<DEPOSITS> 231,054
<SHORT-TERM> 600
<LIABILITIES-OTHER> 1,338
<LONG-TERM> 2,630
0
0
<COMMON> 5,760
<OTHER-SE> 19,901
<TOTAL-LIABILITIES-AND-EQUITY> 261,283
<INTEREST-LOAN> 12,692
<INTEREST-INVEST> 2,022
<INTEREST-OTHER> 317
<INTEREST-TOTAL> 15,031
<INTEREST-DEPOSIT> 6,810
<INTEREST-EXPENSE> 6,950
<INTEREST-INCOME-NET> 8,081
<LOAN-LOSSES> 375
<SECURITIES-GAINS> 194
<EXPENSE-OTHER> 6,200
<INCOME-PRETAX> 2,786
<INCOME-PRE-EXTRAORDINARY> 2,786
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,882
<EPS-PRIMARY> .82
<EPS-DILUTED> .81
<YIELD-ACTUAL> 4.57
<LOANS-NON> 2,933
<LOANS-PAST> 190
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,098
<CHARGE-OFFS> 624
<RECOVERIES> 17
<ALLOWANCE-CLOSE> 1,866
<ALLOWANCE-DOMESTIC> 1,866
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
