Back to GetFilings.com
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
105 Leader Heights Road, P.O. Box 2887, York, Pennsylvania 17405
----------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(717) 747-1519
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year,
if changed since the last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. On October 22, 2002, 2,694,830
shares of common stock, par value $2.50, were outstanding.
- 1 -
Codorus Valley Bancorp, Inc.
FORM 10-Q INDEX
Page #
------
PART I - FINANCIAL INFORMATION
---------------------
Item 1. Financial statements:
Consolidated statements of financial condition 3
Consolidated statements of income 4
Consolidated statements of cash flows 5
Consolidated statements of changes in stockholders' equity 6
Notes to consolidated financial statements 7
Item 2. Management's discussion and analysis of financial condition and
results of operations 10
Item 3. Quantitative and qualitative disclosures about market risk 20
Item 4. Controls and procedures 20
PART II - OTHER INFORMATION
-----------------
Item 1. Legal proceedings 21
Item 2. Changes in securities and use of proceeds 21
Item 3. Defaults upon senior securities 21
Item 4. Submission of matters to a vote of security holders 21
Item 5. Other information 21
Item 6. Exhibits and reports on Form 8-K 21
SIGNATURES 22
CERTIFICATIONS
Certification of Principal Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 23
Certification of Principal Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 23
Certification of Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 24
Certification of Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 25
- 2 -
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Codorus Valley Bancorp, Inc.
Consolidated Statements of Financial Condition
Unaudited
September 30, December 31,
(dollars in thousands, except per share data) 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
Interest bearing deposits with banks $ 219 $ 388
Cash and due from banks 10,878 9,722
Federal funds sold 0 14,925
- ------------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 11,097 25,035
Securities, available for sale 76,628 38,362
Securities, held to maturity (fair value $9,804 for 2002 and $9,216 for 2001) 9,357 9,358
Loans, held for sale 4,091 12,349
Loans (net of deferred fees of $661 in 2002 and $691 in 2001) 229,929 225,785
Less-allowance for loan losses (2,069) (1,898)
- ------------------------------------------------------------------------------------------------------------------------------
Net loans 227,860 223,887
Premises and equipment 9,194 9,449
Other assets 13,441 12,015
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $ 351,668 $ 330,455
==============================================================================================================================
LIABILITIES
Deposits:
Noninterest-bearing $ 30,231 $ 26,093
Interest-bearing 262,762 250,852
- ------------------------------------------------------------------------------------------------------------------------------
Total deposits 292,993 276,945
Short-term debt 5,255 0
Long-term debt 19,274 19,573
Other liabilities 2,401 4,569
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 319,923 301,087
STOCKHOLDERS' EQUITY
Series preferred stock, par value $2.50 per share;
1,000,000 shares authorized; 0 shares issued and outstanding 0 0
Common stock, par value $2.50 per share;
10,000,000 shares authorized; 2,694,830 shares issued and
outstanding on 9/30/02 and 2,564,261 on 12/31/01 6,737 6,411
Additional paid-in capital 15,527 14,004
Retained earnings 8,192 8,526
Accumulated other comprehensive income 1,289 427
- ------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 31,745 29,368
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 351,668 $ 330,455
==============================================================================================================================
See accompanying notes.
- 3 -
Codorus Valley Bancorp, Inc.
Consolidated Statements of Income
Unaudited
Three months ended Nine months ended
September 30, September 30,
(dollars in thousands, except per share data) 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans, including fees $ 4,272 $ 4,769 $ 12,931 $ 14,248
Investment securities:
Taxable 776 618 1,920 1,792
Tax-exempt 133 137 395 409
Dividends 7 14 27 107
Other 39 215 222 460
- ------------------------------------------------------------------------------------------------------------------------
Total interest income 5,227 5,753 15,495 17,016
INTEREST EXPENSE
Deposits 1,841 2,466 5,986 7,471
Federal funds purchased and other short-term borrowings 1 0 1 7
Long-term debt 298 291 911 871
- ------------------------------------------------------------------------------------------------------------------------
Total interest expense 2,140 2,757 6,898 8,349
- ------------------------------------------------------------------------------------------------------------------------
Net interest income 3,087 2,996 8,597 8,667
PROVISION FOR LOAN LOSSES 0 30 70 143
- ------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 3,087 2,966 8,527 8,524
NONINTEREST INCOME
Trust and investment services fees 182 159 581 507
Service charges on deposit accounts 202 191 571 529
Income from bank owned life insurance 81 79 229 219
Other income 165 208 469 487
Gain on sale of securities 107 0 179 0
Gain on sale of mortgages 136 1 460 69
- ------------------------------------------------------------------------------------------------------------------------
Total noninterest income 873 638 2,489 1,811
NONINTEREST EXPENSE
Salaries and benefits 1,488 1,332 4,341 3,802
Occupancy of premises, net 194 208 595 606
Furniture and equipment 257 274 794 804
Postage, stationery and supplies 98 84 299 299
Professional and legal 48 89 176 180
Marketing and advertising 109 82 356 281
Foreclosed real estate, net 6 94 52 199
Other 517 460 1,418 1,313
- ------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 2,717 2,623 8,031 7,484
- ------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,243 981 2,985 2,851
PROVISION FOR INCOME TAXES 271 265 567 777
- ------------------------------------------------------------------------------------------------------------------------
Net income $ 972 $ 716 $ 2,418 $ 2,074
========================================================================================================================
Net income per share, basic $ 0.36 $ 0.27 $ 0.90 $ 0.77
Net income per share, diluted $ 0.36 $ 0.27 $ 0.89 $ 0.77
========================================================================================================================
See accompanying notes.
- 4 -
Codorus Valley Bancorp, Inc.
Consolidated Statements of Cash Flows
Unaudited
Nine months ended September 30,
(dollars in thousands) 2002 2001
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,418 $ 2,074
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation 723 717
Provision for loan losses 70 143
Amortization of investment in real estate partnership 589 0
Increase in cash surrender value of life insurance investment (229) (219)
Originations of held for sale mortgages (34,118) (2,610)
Proceeds from sales of held for sale mortgages 42,836 4,366
Gain on sales of held for sale mortgages (460) (69)
Gain on sales of securities (179) 0
Gain on sales of foreclosed real estate (58) (60)
Increase in accrued interest receivable and other assets (1,189) (164)
Increase in accrued interest payable and other liabilities 113 181
Other, net 520 (46)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 11,036 4,313
CASH FLOWS FROM INVESTING ACTIVITIES
Securities, available for sale:
Purchases (68,539) (11,542)
Maturities and calls 17,158 9,565
Sales 14,316 2,313
Net increase in loans made to customers (4,333) (9,072)
Purchases of premises and equipment (521) (621)
Investment in real estate partnership (2,982) 0
Investment in cash surrender value life insurance (306) 0
Purchase of assets of insurance agency (125) 0
Proceeds from sales of foreclosed real estate 257 1,728
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (45,075) (7,629)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand and savings deposits 20,274 5,884
Net (decrease) increase in time deposits (4,226) 19,052
Net increase in short-term borrowings 5,255 0
Repayment of long-term debt (299) (247)
Dividends paid (938) (893)
Issuance of common stock 39 24
Cash paid in lieu of fractional shares (4) (4)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 20,101 23,816
- -----------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (13,938) 20,500
Cash and cash equivalents at beginning of year 25,035 9,737
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 11,097 $ 30,237
- -----------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
Interest paid on deposits and borrowed funds $ 6,996 $ 8,345
Income taxes paid $ 425 $ 805
See accompanying notes.
- 5 -
Codorus Valley Bancorp, Inc.
Consolidated Statements of Changes in Stockholders' Equity
Unaudited
Accumulated
Additional Other
Common Paid-in Retained Comprehensive Treasury
(dollars in thousands) Stock Capital Earnings Income Stock Total
- --------------------------------------------------------------------------------------------------------------------------------
For the nine months ended September 30, 2002
Balance, December 31, 2001 $6,411 $14,004 $ 8,526 $ 427 $ 0 $29,368
Comprehensive income:
Net income 2,418 2,418
Other comprehensive income, net of tax:
Unrealized gains on securities, net 862 862
-------
Total comprehensive income 3,280
Cash dividends ($.348 per share, adjusted) (938) (938)
5% stock dividend - 127,927 shares at fair value 320 1,490 (1,814) (4)
Issuance of common stock - 2,642 shares 6 33 39
- --------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2002 $6,737 $15,527 $ 8,192 $1,289 $ 0 $31,745
================================================================================================================================
For the nine months ended September 30, 2001
Balance, December 31, 2000 $6,137 $12,447 $ 8,844 $ 126 $(163) $27,391
Comprehensive income:
Net income 2,074 2,074
Other comprehensive income, net of tax:
Unrealized gains on securities, net 569 569
-------
Total comprehensive income 2,643
Cash dividends ($.332 per share, adjusted) (893) (893)
5% stock dividend - 121,738 shares at fair value 268 1,464 (1,899) 163 (4)
Issuance of common stock - 2,100 shares 6 19 2 27
- --------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2001 $6,411 $13,930 $ 8,128 $ 695 $ 0 $29,164
================================================================================================================================
- 6 -
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
The interim financial statements are unaudited. However, they reflect all
adjustments that are, in the opinion of management, necessary to present fairly
the financial condition and results of operations for the reported periods, and
are of a normal and recurring nature.
These statements should be read in conjunction with the notes to the audited
financial statements contained in the 2001 Annual Report to Stockholders.
The consolidated financial statements include the accounts of Codorus Valley
Bancorp, Inc. and its wholly owned bank subsidiary, PeoplesBank, A Codorus
Valley Company, and its wholly owned nonbank subsidiary, SYC Realty Company,
Inc. PeoplesBank has two wholly owned subsidiaries, SYC Insurance Services,
Inc. and SYC Settlement Services, Inc. All significant intercompany account
balances and transactions have been eliminated in consolidation. The combined
results of operations of the nonbank subsidiaries are not material to the
consolidated financial statements.
The results of operations for the nine-month period ended September 30, 2002
are not necessarily indicative of the results to be expected for the full year.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
Stock dividend and per share computations
All per share computations include the retroactive effect of stock dividends
declared, including the 5 percent stock dividend declared April 9, 2002. The
weighted average shares of common stock outstanding, used for basic and diluted
calculations, were 2,693,595 and 2,703,991, respectively, for the three-month
period ended September 30, 2002; and 2,692,826 and 2,703,222, respectively, for
the nine-month period ended September 30, 2002. Comparatively, shares for both
basic and diluted calculations were 2,691,419 for the three-month period ended
September 30, 2001; and 2,690,828, for the nine-month period ended September 30,
2001.
Comprehensive income
Accounting principles generally require that recognized revenue, expenses,
gains and losses be included in net income. Although certain changes in assets
and liabilities, such as unrealized gains and losses on available-for-sale
securities, are reported as a separate component of the equity section of the
balance sheet, such items, along with net income, are components of
comprehensive income. The components of other comprehensive income and related
tax effects are presented in the following table:
Three months ended Nine months ended
September 30, September 30,
(dollars in thousands) 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------
Unrealized holding gains
arising during the period $ 793 $ 308 $1,485 $ 862
Reclassification adjustment for gains
included in net income (107) 0 (179) 0
- ----------------------------------------------------------------------------------------------------------
Net unrealized gains 686 308 1,306 862
Tax effect (233) (105) (444) (293)
- ----------------------------------------------------------------------------------------------------------
Net of tax effect $ 453 $ 203 $ 862 $ 569
==========================================================================================================
- 7 -
Reclassifications
Certain amounts in the 2001 financial statements have been reclassified to
conform to the 2002 presentation format. These reclassifications had no impact
on the Corporation's net income.
Recently issued FASB Statements
In April 2002, the Financial Accounting Standards Board issued Statement No.
145, "Rescission of Statements No. 4, 44 and 64, Amendment of Statement No.13."
This statement requires that debt extinguishment no longer be classified as an
extraordinary item since debt extinguishment has become a risk management
strategy for many companies. It also eliminates the inconsistent accounting
treatment for sale-leaseback transactions and certain lease modifications that
have economic effects similar to sale-leaseback transactions. This statement
became effective May 15, 2002, and did not have any impact on the Corporation's
financial condition or results of operations.
In June 2002, the Financial Accounting Standards Board issued Statement No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities," which
nullifies EITF Issue 94-3, "Liability Recognition for Certain Employee
Termination Benefits and other Costs to Exit and Activity (including certain
costs incurred in a restructuring)." This statement delays recognition of these
costs until liabilities are incurred and requires fair value measurement. It
does not impact the recognition of liabilities incurred in connection with a
business combination or the disposal of long-lived assets. The provisions of
this statement are effective for exit or disposal activities initiated after
December 31, 2002, and are not expected to have a significant impact on the
Corporation's financial condition or results of operations.
In October 2002, the Financial Accounting Standards Board issued Statement No.
147, "Acquisition of Certain Financial Institutions." This statement provides
guidance on accounting for the acquisition of a financial institution, including
the acquisition of part of a financial institution. The statement defines
criteria for determining whether the acquired financial institution meets the
conditions for a "business combination." If the acquisition meets the conditions
of a "business combination," the specialized accounting guidance under Statement
No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions"
will not apply after September 30, 2002, and the amount of the unidentifiable
intangible asset will be reclassified to goodwill upon adoption of Statement No.
147. The transition provisions were effective on October 1, 2002, and did not
have any impact on the Corporation's financial condition or results of
operations.
NOTE 3--DEPOSITS
The composition of deposits on September 30, 2002 and December 31, 2001, was as
follows:
September 30, December 31,
(dollars in thousands) 2002 2001
- ----------------------------------------------------------------
Noninterest bearing demand $ 30,231 $ 26,093
NOW 34,263 29,301
Money market 73,033 62,148
Savings 14,006 13,719
Time CDs less than $100,000 114,828 117,724
Time CDs $100,000 or more 26,632 27,960
- ----------------------------------------------------------------
Total deposits $292,993 $276,945
================================================================
- 8 -
NOTE 4--REGULATORY MATTERS
Codorus Valley and PeoplesBank are subject to various regulatory capital
requirements administered by banking regulators. Failure to meet minimum capital
requirements can initiate certain mandatory and possible additional
discretionary actions by regulators that, if undertaken, could have a material
effect on Codorus Valley's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, Codorus
Valley and PeoplesBank must meet specific capital guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The capital amounts
and classifications are also subject to qualitative judgments by the regulators.
Quantitative measures established by regulators to ensure capital adequacy
require Codorus Valley and PeoplesBank to maintain minimum ratios, as set forth
below, to total and Tier I capital as a percentage of risk-weighted assets, and
of Tier I capital to average assets (leverage ratio). Management believes that
Codorus Valley and PeoplesBank were well capitalized on September 30, 2002,
based on FDIC capital guidelines.
- ----------------------------------------------------------------------------------------------------------------------------
CODORUS VALLEY BANCORP, INC.
ADEQUATELY WELL CAPITALIZED
ACTUAL CAPITALIZED MINIMUM MINIMUM
-------------------------------------------------------------------------------------------------
(dollars in thousands) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ----------------------------------------------------------------------------------------------------------------------------
AT SEPTEMBER 30, 2002
Capital ratios:
Tier 1 risk based $30,078 11.40% > than = to $10,558 > than = to 4.0% > than = to $15,837 > than = to 6.0%
Total risk based 32,147 12.18 > than = to 21,116 > than = to 8.0 > than = to 26,395 > than = to 10.0
Leverage 30,078 8.84 > than = to 13,616 > than = to 4.0 > than = to 17,020 > than = to 5.0
- ----------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 2001
Capital ratios:
Tier 1 risk based $28,932 10.88% > than = to $10,637 > than = to 4.0% > than = to $15,956 > than = to 6.0%
Total risk based 30,829 11.59 > than = to 21,275 > than = to 8.0 > than = to 26,593 > than = to 10.0
Leverage 28,932 9.27 > than = to 12,482 > than = to 4.0 > than = to 15,603 > than = to 5.0
============================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------
PEOPLESBANK
ADEQUATELY WELL CAPITALIZED
ACTUAL CAPITALIZED MINIMUM MINIMUM
--------------------------------------------------------------------------------------------------
(dollars in thousands) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- -----------------------------------------------------------------------------------------------------------------------------
AT SEPTEMBER 30, 2002
Capital ratios:
Tier 1 risk based $25,573 9.92% > than = to $10,307 > than = to 4.0% > than = to $15,460 > than = to 6.0%
Total risk based 27,642 10.73 > than = to 20,614 > than = to 8.0 > than = to 25,767 > than = to 10.0
Leverage 25,573 7.66 > than = to 13,352 > than = to 4.0 > than = to 16,690 > than = to 5.0
- -----------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 2001
Capital ratios:
Tier 1 risk based $23,919 9.23% > than = to $10,369 > than = to 4.0% > than = to $15,554 > than = to 6.0%
Total risk based 25,816 9.96 > than = to 20,738 > than = to 8.0 > than = to 25,923 > than = to 10.0
Leverage 23,919 7.86 > than = to 12,207 > than = to 4.0 > than = to 15,259 > than = to 5.0
=============================================================================================================================
- 9 -
NOTE 5--CONTINGENT LIABILITIES
During the second quarter of 2001, the management of PeoplesBank became aware
of a potential loss stemming from its merchant credit card business. Some
individuals, who transacted business with a former PeoplesBank merchant
customer, are seeking refunds claiming that service was not rendered. The
merchant did not have sufficient funds to cover reimbursement requests, and
PeoplesBank terminated the merchant's credit card account relationship. Losses
of approximately $1,500 were included in other expense for the first nine months
of 2002 and $41,000 for the year 2001, which represent refunds in excess of
funds available in the merchant's account. Management cannot estimate the
additional potential loss associated with this merchant credit card account at
this time. Management has engaged legal counsel to determine the extent of its
liability and to assist it with developing and pursuing legal remedies.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of the significant changes in the results
of operations, capital resources and liquidity presented in the accompanying
consolidated financial statements for Codorus Valley Bancorp, Inc. (Codorus
Valley or Corporation), a bank holding company, and its wholly owned subsidiary,
PeoplesBank, A Codorus Valley Company (PeoplesBank), are provided below. Codorus
Valley's consolidated financial condition and results of operations consist
almost entirely of PeoplesBank's financial condition and results of operations.
Current performance does not guarantee, and may not be indicative of, similar
performance in the future.
FORWARD-LOOKING STATEMENTS:
Management of the Corporation has made forward-looking statements in this Form
10-Q. These forward-looking statements are subject to risks and uncertainties.
Forward-looking statements include information concerning possible or assumed
future results of operations of the Corporation and its subsidiaries. When words
such as "believes," "expects," "anticipates" or similar expressions occur in the
Form 10-Q, management is making forward-looking statements.
Readers should note that many factors, some of which are discussed elsewhere in
this report and in the documents that management incorporates by reference,
could affect the future financial results of the Corporation and its
subsidiaries, both individually and collectively, and could cause those results
to differ materially from those expressed in the forward-looking statements
contained or incorporated by reference in this Form 10-Q. These factors include:
- - operating, legal and regulatory risks;
- - economic, political and competitive forces affecting banking,
securities, asset management and credit services businesses; and
- - the risk that management's analysis of these risks and forces could be
incorrect and/or that the strategies developed to address them could be
unsuccessful.
The Corporation undertakes no obligation to publicly revise or update these
forward-looking statements to reflect events or circumstances that arise after
the date of this report. Readers should carefully review the risk factors
described in other documents that Codorus Valley files periodically with the
Securities and Exchange Commission.
- 10 -
CRITICAL ACCOUNTING POLICIES:
Disclosure of Codorus Valley's significant accounting policies is included in
Note 1 to the consolidated financial statements of the 2001 Annual Report to
Stockholders, filed as Exhibit 13 to the Annual Report on Form 10-K for the
period ended December 31, 2001. Some of these policies are particularly
sensitive, requiring that significant judgments, estimates and assumptions be
made by management. Additional information is contained in Management's
Discussion and Analysis for the most sensitive of these issues, including the
provision and allowance for loan losses, located on pages 11 and 17 of this
Report.
Significant estimates are made by management in determining the allowance for
loan losses. Management considers a variety of factors in establishing this
estimate such as current economic conditions, diversification of the loan
portfolio, delinquency statistics, results of internal loan reviews, financial
and managerial strengths of borrowers, adequacy of collateral, if collateral
dependent, or present value of future cash flows and other relevant factors.
Based on its analysis, management believes that the allowance for loan losses
is adequate at September 30, 2002.
THREE MONTHS ENDED SEPTEMBER 30, 2002
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2001
OVERVIEW
Net income for the third quarter of 2002 was $972,000 or $.36 per diluted share,
compared to $716,000 or $.27 per diluted share, for the third quarter of 2001.
The $256,000 or 36 percent increase in current period net income was caused
primarily by a $235,000 or 37 percent increase in noninterest income. The
increase in noninterest income was principally attributable to gains from the
sale of residential mortgages and investment securities. Current period net
income was also favorably impacted by a $91,000 or 3 percent increase in net
interest income. The increase in net interest income was due to a decrease in
interest expense on interest bearing liabilities, which was greater than the
decrease in interest income from earning assets. 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 third quarter of 2002 was $3,087,000, an increase of
$91,000 or 3 percent above the third quarter of 2001. The increase in net
interest income was due to a decrease in interest expense on interest bearing
liabilities, which declined to a greater degree than interest income on earning
assets. Earning assets averaged $313 million and yielded 6.39 percent (tax
equivalent) for third quarter 2002, compared to $293 million and 7.67 percent,
respectively, for the same period in 2001. Interest bearing liabilities averaged
$286 million at an average rate of 2.97 percent for the third quarter of 2002,
compared to $263 million and 4.16 percent, respectively, for the same period in
2001.
PROVISION FOR LOAN LOSSES
For the current three month period, management determined that the allowance for
loan losses was adequate; therefore, no provision expense was necessary.
Contributing to the allowance's adequacy was the recognition of a $187,500
recovery from a prior period loan loss. Comparatively, $30,000 was recorded as a
loan loss provision for the third quarter of 2001. The expense for each period
was responsive to loan growth and the condition of the loan portfolio.
Information about nonperforming assets and allowance for loan losses can be
found within those sections of this Report.
- 11 -
NONINTEREST INCOME
Total noninterest income for the current three-month period was $873,000, an
increase of $235,000 or 37 percent above the third quarter of 2001. Current
period noninterest income included a $135,000 increase in gains from the sale of
residential mortgages. Low market interest rates continued to prevail throughout
the current period, which was beneficial for the mortgage lending business. The
current period also included $107,000 in gains from the sale of securities,
available for sale. Comparatively, management did not sell securities during the
third quarter of 2001. Trust and investment services fees increased $23,000 or
14 percent in the current period due in part to the recognition of periodic
estate fees and normal business growth. Other income decreased $43,000 or 21
percent due in part to a decrease in fees from the sale of investment products,
principally fixed annuities.
NONINTEREST EXPENSE
Total noninterest expense for the current three-month period was $2,717,000, an
increase of $94,000 or 4 percent above the third quarter of 2001. The increase
was caused primarily by increases in salaries and benefits, postage, marketing
and other expenses, which more than offset decreases in professional and legal
and foreclosed real estate expenses. Salaries and benefits increased $156,000 or
12 percent due primarily to staffing two financial centers, a mortgage banking
operation and a centralized call center, which became operational primarily in
the latter half of 2001. Postage expense increased $14,000 or 17 percent due
primarily to a postage rate increase and increased volume. Marketing expense
increased $27,000 or 33 percent due to an increase in product and image
advertising. Other expense increased $57,000 or 12 percent due to increases in
employee training, director fees, miscellaneous loan expenses and liability
insurance. Professional and legal expense decreased $41,000 or 46 percent during
the current period because the third quarter of 2001 included expenses
associated with information technology consulting and services, legal advice for
Corporate Center arbitration matters and consulting advice relative to future
growth strategies. Foreclosed real estate expense decreased $88,000 or 94
percent in the current period, which included gains on the liquidation of
properties acquired to satisfy loans. Additionally, prior period foreclosed real
estate expense included increased loss provisions due to a deterioration in the
net realizable value of acquired properties.
ACQUISITION OF INSURANCE AGENCY
In September 2002, PeoplesBank purchased the assets of Market Street Financial
Services, Inc., a full service insurance agency. More information about the
acquisition is provided in the year-to-date section of this Report.
CAPITAL INVESTMENT IN TECHNOLOGY
Automation of the teller function at PeoplesBank was completed in September
2002. More information about this project is provided in the year-to-date
section of this Report.
INCOME TAXES
The provision for federal income tax was $271,000 for the current three-month
period, compared to $265,000 for the third quarter of 2001. In spite of a
$262,000 or 27 percent increase in pretax income, the tax provision increased
only slightly due to the recognition of tax credits described in the
year-to-date section of this Report.
- 12 -
NINE MONTHS ENDED SEPTEMBER 30, 2002
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2001
INCOME STATEMENT ANALYSIS
OVERVIEW
Net income for the current nine-month period was $2,418,000 or $.89 per diluted
share, compared to $2,074,000 or $.77 per diluted share, for the same period of
2001. The $344,000 or 17 percent increase in current period net income was
caused primarily by an increase in noninterest income and a decrease in federal
income tax. The 37 percent increase in noninterest income was due primarily to
gains from the sale of residential mortgages and investment securities. The 27
percent decrease in federal income tax was due to tax credits, which PeoplesBank
will receive from its investment in a real estate partnership with an affiliate
of the YMCA of York, Pennsylvania. The partnership's purpose is to provide
affordable housing to qualified families and, to a lesser degree, to provide
space for commercial purposes in downtown York, as part of a revitalization
initiative. The increase in noninterest income and decrease in federal income
tax more than offset an increase in noninterest expense and a decrease in net
interest income. The 7 percent increase in noninterest expense was caused
primarily by increased operating expenses attributable to the addition of two
full service financial centers, a centralized call center and a mortgage banking
operation in the prior year. The 1 percent decrease in net interest income was
caused by lower yields on earning assets due to a lower interest rate
environment and other factors. Net income as a percentage of average total
assets for the first nine months (annualized) of 2002 was 0.95 percent, compared
to 0.90 percent for the same period of 2001. Net income as a percentage of
average stockholders' equity for the first nine months (annualized) of 2002 was
10.62 percent compared, to 9.78 percent for the same period of 2001. Total
assets of the Corporation on September 30, 2002, were $352 million, an increase
of $21 million or 6 percent above December 31, 2001. Management believes that
the Corporation and PeoplesBank were well capitalized on September 30, 2002,
based on FDIC capital guidelines. An explanation of the factors and trends that
caused changes between the two periods, by earnings category, is provided below.
NET INTEREST INCOME
Net interest income for the current nine-month period ended September 30, 2002,
was $8,597,000, a decrease of $70,000 or 1 percent below the same period in
2001. Net interest income decreased due to several factors: lower yields on
earning assets caused by low market interest rates; an increase in variable rate
business loans, with yields significantly below fixed rate loans; interest
income reductions caused by placing several large business loans on nonaccrual;
and a higher level of liquidity due to deposit growth. Earning assets averaged
$310 million and yielded 6.76 percent (tax equivalent) for 2002, compared to
$281 million and 8.19 percent, respectively, for 2001. Interest bearing
liabilities averaged $280 million at an average rate of 3.30 percent for 2002,
compared to $254 million and 4.40 percent, respectively, for 2001. Declining
market interest rates, which prevailed throughout 2001, have remained at
historically low levels for the current period, lowering yields on earning
assets and funding costs. Based on a balance sheet simulation analysis at
September 30, 2002, management believes that Codorus Valley is asset sensitive,
which may increase net interest income if market interest rates rise in the
period ahead.
PROVISION FOR LOAN LOSSES
A $70,000 provision expense for loan losses was recorded in the current
nine-month period, compared to $143,000 for the same period in 2001. An $187,500
recovery from a loan loss in a prior period was
- 13 -
realized in September 2002, which reduced the need for management to add to
the provision expense in the third quarter. The expense for each period was
responsive to loan growth and condition of the loan portfolio in relation to
the allowance for loan losses. Information about nonperforming assets and
allowance for loan losses can be found within those sections of this Report.
NONINTEREST INCOME
Total noninterest income for the current nine-month period was $2,489,000, an
increase of $678,000 or 37 percent above the same period in 2001. Most of the
increase was caused by gains from the sale of residential mortgages and
investment securities. Gains from the sale of residential mortgages were up
$391,000 above the prior year due to mortgage banking operations, which was not
operational during the first nine months of 2001, and low market interest rates.
The current period also reflected $179,000 in gains from the sale of securities,
available for sale. No gains were realized from the sale of securities during
the same period of 2001. Trust and investment services fees increased 15 percent
in the current period due to the timing of income recognition. In 2002,
management began to collect and record trust fees monthly instead of quarterly,
which resulted in a nonrecurring timing benefit. Increases in the remaining
categories of noninterest income, with the exception of other income, were due
primarily to normal business growth. Noninterest income, a primary focus for
management, is expected to increase in the period ahead due to the addition of a
full service insurance agency in September 2002, as described below.
NONINTEREST EXPENSE
Total noninterest expense for the current nine-month period was $8,031,000, an
increase of $547,000 or 7 percent above the same period in 2001. The increase
was caused primarily by increases in salaries and benefits, marketing and other
expense. Salaries and benefits increased $539,000 or 14 percent due primarily to
staffing two financial centers, a mortgage banking operation and a centralized
call center primarily in the latter half of 2001. Marketing expense increased
$75,000 or 27 percent due to an increase in product and image advertising. Other
expense increased $105,000 or 8 percent due to a $35,000 loss on a fraudulent
check, increased loan expenses caused in part by mortgage banking activities,
increased employee training expenses and normal business growth. Current period
foreclosed real estate expense decreased $147,000 or 74% compared to the first
nine months of 2001. The prior period reflected a higher level of carrying costs
and loss provisions, which were attributable to a larger portfolio of acquired
properties.
ACQUISITION OF INSURANCE AGENCY
In September 2002, PeoplesBank purchased the assets, principally the customer
list, of Market Street Financial Services, Inc., a full service insurance
agency. The acquisition cost was $375,000, which included a cash downpayment at
closing, and two annual installments of cash and corporate stock. The purchase
contract also provides for the payment of contingent consideration if
predetermined revenue goals are achieved. Presently, the staff of six, which
includes the two former owners, is comprised of five licensed sales
representatives and one administrator. Plans call for this operation to relocate
to the Codorus Valley Corporate Center in early 2003. The customer list
intangible asset will be amortized on a straight-line basis over a 15 year
period, which is the estimated retention period of its customers. Management
believes that the acquisition enables PeoplesBank to expand its investment and
insurance product menu and expertise, increase fee income and provide greater
convenience to its clients.
- 14 -
FRANCHISE EXPANSION
Management plans to establish a financial center in the new Susquehanna
Commerce Center at 221 West Philadelphia Street in downtown York, Pennsylvania,
upon completion of its construction during the fourth quarter of 2002. An
eight-year operating lease, with renewal options, for approximately 2,814
square feet of space has been executed. Base rent for the first year is
$42,500. The lease agreement provides for annual increases in base rent.
CAPITAL INVESTMENT IN TECHNOLOGY
Automation of the teller function at PeoplesBank was completed in September
2002. Capital investment in teller automation software and printers is expected
to increase productivity and quality control, and increase fee income. It is
also expected to enhance sales and corporate image. The new system cost
approximately $145,000 and is being depreciated over a five-year useful life.
INCOME TAXES
The provision for federal income tax was $567,000 for the current nine-month
period, compared to $777,000 for the same period in 2001. The $210,000 or 27
percent decrease in tax in the current period reflects the recognition of tax
credits from PeoplesBank's investment in a low-income housing partnership with
an affiliate of the YMCA of York, Pennsylvania, described more fully in the
2001 Annual Report to Stockholders.
BALANCE SHEET REVIEW
INVESTMENTS AND FEDERAL FUNDS SOLD
On September 30, 2002, overnight investments in federal funds sold reflected a
$15 million decrease from year-end 2001, as funds were deployed to
available-for-sale securities to obtain higher yields. Available-for-sale
securities increased $38 million from year-end 2001, due primarily to the
deployment of overnight investments, and deposit growth.
LOANS
On September 30, 2002, loans increased $4 million from year-end 2001,
principally business loans. In contrast, on September 30, 2002, held-for-sale
mortgages decreased $8 million from year-end 2001. The decrease in held-for-sale
mortgages represented a focused effort by management to liquidate this portfolio
and generate gains.
DEPOSITS
On September 30, 2002, total deposits increased $16 million from year-end 2001.
The increase in deposits, principally core deposits, was driven primarily by
customers seeking safe haven from depressed securities markets. The addition of
two financial centers in 2001 also contributed to deposit growth in the current
period.
STOCKHOLDERS' EQUITY AND CAPITAL ADEQUACY
Stockholders' equity, or capital, as a source of funds, enables Codorus Valley
to maintain asset growth and absorb losses. Total stockholders' equity was
approximately $31,745,000 on September 30, 2002,
- 15 -
an increase of $2,377,000 or 8 percent above December 31, 2001. The increase
was caused primarily by increases in retained net income and unrealized gains
from available-for-sale securities.
On October 8, 2002, the board of directors declared a quarterly cash dividend
of $0.12 per share, payable on or before November 12, 2002, to shareholders of
record October 22, 2002. This follows a $0.12 per share dividend paid in
August, May ($0.114 adjusted) and February ($0.114 adjusted). Additionally, a 5
percent stock dividend was paid on June 6, 2002. Payment of the stock dividend
resulted in the issuance of 127,927 common shares. The weighted average shares
of common stock outstanding, used for basic and diluted calculations, were
2,692,826 and 2,703,222, respectively, for the nine-month period ended
September 30, 2002. Comparatively, shares for both basic and diluted
calculations were 2,690,828, for the nine-month period ended September 30, 2001.
Codorus Valley and PeoplesBank are subject to various regulatory capital
requirements administered by banking regulators that involve quantitative
guidelines and qualitative judgments. Quantitative measures established by
regulators pertain to minimum capital ratios, as set forth in Note
4--Regulatory Matters, to the financial statements. Management believes that
Codorus Valley and PeoplesBank were well capitalized on September 30, 2002,
based on FDIC capital guidelines.
RISK MANAGEMENT
NONPERFORMING ASSETS
Table 1--Nonperforming Assets and Past Due Loans, provides a summary of
nonperforming assets and past due loans, and related ratios. The paragraphs
below provide information for selected categories for September 30, 2002,
compared to December 31, 2001.
TABLE 1-NONPERFORMING ASSETS AND PAST DUE LOANS
September 30, December 31,
(dollars in thousands) 2002 2001
- -------------------------------------------------------------------------------------------------
Nonaccrual loans $6,602 $1,411
Foreclosed real estate, net of allowance 638 692
- -------------------------------------------------------------------------------------------------
Total nonperforming assets $7,240 $2,103
=================================================================================================
Accruing loans that are contractually past due
90 days or more as to principal or interest $ 34 $ 164
Ratios:
Nonaccrual loans as a % of total period-end loans 2.87% 0.62%
Nonperforming assets as a % of total period-end
loans and net foreclosed real estate 3.14% 0.93%
Nonperforming assets as a % of total period-end 22.81% 7.16%
stockholders' equity
Allowance for loan losses as a multiple of
nonaccrual loans .3x 1.3x
Nonaccrual loans were principally comprised of collateral dependent business
loans. Accordingly, Codorus Valley recognized interest income on a cash basis
for these loans. On September 30, 2002, the nonaccrual loan portfolio was
$6,602,000, an increase of $5,191,000 above December 31, 2001. The
- 16 -
increase was caused by the addition of five unrelated business loan accounts.
Management believes that the largest two loans, for $2,646,000 and $1,230,000,
respectively, are adequately collateralized. The remaining three loan accounts,
which range in size from $303,000 to $1,096,000, are not adequately
collateralized, in management's judgment. A loss allowance, totaling $910,000,
has been established for these three accounts, pending collateral liquidation
and debt workout. On September 30, 2002, the nonaccrual loan portfolio was
comprised of nineteen unrelated accounts, ranging in size from $5,000 to
$2,646,000. These loan relationships vary by industry and are generally
collateralized with real estate assets. Management and the board of directors
evaluate an allowance for probable loan losses at least quarterly.
Foreclosed real estate, net of allowance, was $638,000 on September 30, 2002,
which was below the level at year-end 2001. On September 30, 2002, the
foreclosed real estate portfolio consisted of four unrelated accounts, ranging
in size from $29,000 to $502,000. The single largest property makes up 75
percent of the total portfolio. Management believes that the net realizable
value of this property exceeds its carrying value. An allowance for probable
losses, which is evaluated at least quarterly, has been established for
foreclosed real estate assets whose estimated fair value, less selling
expenses, is below their financial carrying value. On September 30, 2002, the
allowance was $35,000. For the first nine months of 2002 a $30,000 loss
provision was recorded to reflect losses associated with declines in net
realizable value. Comparatively, a $62,000 loss provision was recorded for the
same period of 2001. Efforts to liquidate foreclosed real estate are proceeding
as quickly as potential buyers can be located and legal constraints permit.
Accruing loans that are contractually past due 90 days or more as to principal
or interest totaled $34,000 on September 30, 2002, compared to $164,000 on
December 31, 2001. The level for both periods is considered immaterial.
Generally, loans in the past due category are adequately collateralized and in
the process of collection.
ALLOWANCE FOR LOAN LOSSES
Table 2--Analysis of Allowance for Loan Losses, shows a $2,069,000 allowance on
September 30, 2002, which was 0.90 percent of total loans. The increase in the
current period allowance was based primarily on an $187,500 recovery from a
business loan, which was charged off as a loss in a prior accounting period.
Based on a recent evaluation of potential loan losses in the current portfolio,
management believes that the allowance is adequate to support losses inherent
in the loan portfolio on September 30, 2002.
- 17 -
TABLE 2-ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(dollars in thousands) 2002 2001
- ---------------------------------------------------------------------------
Balance-January 1, $1,898 $1,967
Provision charged to operating expense 70 143
Loans charged off:
Commercial 66 121
Real estate-mortgage 7 0
Consumer 66 70
- ---------------------------------------------------------------------------
Total loans charged off 139 191
Recoveries:
Commercial 227 7
Real estate-mortgage 0 0
Consumer 13 6
- ---------------------------------------------------------------------------
Total recoveries 240 13
- ---------------------------------------------------------------------------
Net charge-offs (recoveries) (101) 178
Balance-September 30, $2,069 $1,932
===========================================================================
Ratios:
- -------
Net charge-offs (recoveries)
(annualized) to average total loans -0.06% 0.11%
Allowance for loan losses to total loans
at period-end 0.90% 0.86%
Allowance for loan losses to nonaccrual loans
and loans past due 90 days or more 31.2% 112.0%
LIQUIDITY
Codorus Valley's loan-to-deposit ratio, which is used as a broad measure of
liquidity, was approximately 78 percent on September 30, 2002, compared to 81
percent on December 31, 2001. During 2002, continued growth in deposits and
proceeds from the sale of held-for-sale mortgages resulted in increased
liquidity for Codorus Valley. These funds, temporarily invested in overnight
instruments, were largely deployed into available-for-sale securities, and
loans by September 30, 2002.
Codorus Valley's financial statements do not reflect various commitments that
are made in the normal course of business, which may involve some liquidity
risk. These commitments consist primarily of commitments to grant new loans,
unfunded commitments of existing loans, and letters of credit made under the
same standards as on-balance sheet instruments. Unused commitments on September
30, 2002, were $63,389,000, which consisted of $35,988,000 in unfunded
commitments of existing loans, $25,313,000 to grant new loans and $2,088,000 in
letters of credit. Due to fixed maturity dates and specified conditions within
these instruments, many will expire without being drawn upon. Management
believes that amounts actually drawn upon can be funded in the normal course of
operations and therefore do not present a significant liquidity risk to Codorus
Valley.
MARKET RISK MANAGEMENT
In the normal course of conducting business, Codorus Valley is exposed to market
risk, principally interest rate risk, through the operations of its banking
subsidiary. Interest rate risk arises from market driven fluctuations in
interest rates, which may affect cash flows, income, expense and values of
- 18 -
financial instruments. An asset-liability management committee comprised of
members of management manages interest rate risk. A detailed discussion of
market interest risk is provided in SEC Form 10-K for the period ended December
31, 2001.
Codorus Valley performed a simulation on its balance sheet for September 30,
2002. The results of that point-in-time analysis are shown in Table 3--Interest
Rate Sensitivity. Since year-end 2001, Codorus Valley's balance sheet has
become less asset sensitive because overnight investments decreased while
investment securities increased, particularly in the three to four year average
life category. Generally, the financial services industry has experienced
increased liquidity, as deposit customers sought safe haven from depressed
securities markets, loan customers refinanced and bond issuers called bonds.
TABLE 3-INTEREST RATE SENSITIVITY
at September 30, 2002
- -------------------------------------------------------------------------------------------
Change in
Change in interest rates Forecasted interest net income
(basis points) over 12 mos rate scenario $000's %
- -------------------------------------------------------------------------------------------
+200 High 134 4.0
0 Flat (baseline) 0 0.0
-200 Low (289) (8.5)
+57 Most likely (28) (0.8)
at December 31, 2001
- -------------------------------------------------------------------------------------------
Change in
Change in interest rates Forecasted interest net income
(basis points) over 12 mos rate scenario $000's %
- -------------------------------------------------------------------------------------------
+200 High 304 10.2
0 Flat (baseline) 0 0.0
-200 Low (458) (15.4)
+175 Most likely 35 1.2
OTHER RISKS
More grand acts of terrorism in the United States of America, or in other
countries, could erode consumer and business confidence and disrupt commerce,
resulting in a prolonged economic recession. A prolonged economic recession
could have a material adverse effect on the liquidity, capital resources or
results of operations of Codorus Valley.
Periodically, federal and state legislation is proposed that could result in
additional regulation of, or restrictions on, the business of Codorus Valley
and its subsidiaries. Other than as discussed below, it cannot be predicted
whether such legislation will be adopted or, if adopted, how such legislation
would affect the business of Codorus Valley and its subsidiaries.
The Sarbanes-Oxley Act (Act) was signed by President Bush on July 30, 2002. It
represents an extraordinary expansion of securities law regulation of corporate
governance, disclosure, reporting and accounting requirements and penalties.
The Act will spur additional regulation flowing from the specific and extensive
rule-making required by the Act in the period ahead. Some of the Act's
provisions were effective immediately, while others become effective in the
future. A brief summary of the Act's provisions are provided below.
- 19 -
Financial statement certification--The CEO and CFO must certify that
the company's financial statements comply with SEC reporting
requirements and that they are materially correct.
Corporate insiders--The SEC's Form 4 for corporate insiders must be
filed within 2 days following a sale or purchase of company stock.
Insiders are prohibited from trading during blackout periods. Loans to
insiders are prohibited; however, banks are exempt if terms are no more
favorable than those offered to the public.
Audit Committee--Each member of the Audit Committee must be independent
and must not receive compensation, except in his or her capacity as a
director. At least one member must be a "financial expert." The
Committee must establish procedures for whistleblower protection.
Independent Accountant--The Act creates a Public Company Accounting
Oversight Board to oversee the audit of public companies. It also
places restrictions on non-audit services. The lead audit partner and
the review partner must be rotated every 5 years.
Penalties--The Act establishes new monetary sanctions and criminal
penalties for securities fraud violations involving accounting
irregularities and financial fraud, including sanctions specifically
applicable to directors, officers and professionals.
Management is not aware of any other current specific recommendations by
regulatory authorities or proposed legislation, which, if they were
implemented, would have a material adverse effect upon the liquidity, capital
resources, or results of operations. Although the general cost of compliance
with numerous and multiple federal and state laws and regulations does have,
and in the future may have, a negative impact on Codorus Valley's results of
operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to the section entitled "Market risk management" within Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations.
ITEM 4. CONTROLS AND PROCEDURES
Codorus Valley maintains controls and procedures designed to ensure that
information required to be disclosed in the reports that the company files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission. Based upon their evaluation of
those controls and procedures performed within 90 days of the filing date of
this report, the chief executive and chief financial officers of Codorus Valley
concluded that Codorus Valley's disclosure controls and procedures were
adequate.
Codorus Valley made no significant changes in its internal controls or in other
factors that could significantly affect these controls subsequent to the date
of the evaluation of the controls by the chief executive and chief financial
officers.
- 20 -
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the opinion of management, there are no proceedings pending to which the
Corporation or its subsidiaries are a party or to which their property is
subject, which, if determined adversely to the Corporation or its subsidiaries,
would be material in relation to the Corporation's or its subsidiaries'
financial condition. There are no proceedings pending other than ordinary
routine litigation incident to the business of the Corporation or its
subsidiaries. In addition, no material proceedings are pending or are known to
be threatened or contemplated against the Corporation or its subsidiaries by
government authorities.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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. (A) EXHIBITS
Exhibit
Number Description of Exhibit
- ------ ----------------------
3(i) Articles of Incorporation (Incorporated by reference to Exhibit 3(i) to Current
Report on Form 8-K, filed with the Commission on March 29, 2001.)
3(ii) By-laws (Incorporated by reference to Exhibit 3(ii) to Current Report on Form 8-K,
filed with the Commission on March 29, 2001.)
4 Rights Agreement dated as of November 4, 1995 (Incorporated by reference to Current
Report on Form 8-K, filed with the Commission on March 29, 2001.)
10.1 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 99 of Registration
Statement No. 333-9277 on Form S-8, filed with the Commission on July 31, 1996.)
10.2 Amendments to the Employment Agreement by and among PeoplesBank, A Codorus Valley
Company, Codorus Valley Bancorp, Inc., and Larry J. Miller dated October 1, 1997,
including Executive Employment Agreement dated January 1, 1993 between Codorus Valley
Bancorp, Inc., Peoples Bank of Glen Rock and Larry J. Miller. (Incorporated by reference
Exhibit 10.1 to Registrant's Current Report on Form 8-K, dated
to and filed with the Commission on March 13, 1998.)
10.3 Change of Control Agreement between PeoplesBank, A Codorus Valley Company, Codorus Valley
Bancorp, Inc. and Jann A. Weaver, dated October 1, 1997. (Incorporated
- 21 -
by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K, dated and filed
with the Commission March 13, 1998.)
10.4 Change of Control Agreement between PeoplesBank, A Codorus Valley Company,
Codorus Valley Bancorp, Inc. and Harry R. Swift, dated October 1, 1997. (Incorporated by
reference to Exhibit 10.4 to the Registrant's Current Report on Form 8-K, filed with the
Commission on March 13, 1998.)
10.5 1998 Independent Directors Stock Option Plan (Incorporated by reference to Exhibit 4.3 of
Registration Statement No. 333-61851 on Form S-8, filed with the Commission on August 19, 1998.)
10.6 2000 Stock Incentive Plan (Incorporated by reference to Exhibit 4.3 of Registration Statement No.
333-40532 on Form S-8, filed with the Commission on June 30, 2000.)
10.7 2001 Employee Stock Bonus Plan (Incorporated by reference to Exhibit 99.1 of Registration
Statement No. 333-68410 on Form S-8, filed with the Commission on August 27, 2001.)
11 Statement re: Computation of Earnings Per Share can be referenced in Note 2 of the
Consolidated Financial Statements in this report.
ITEM 6. (B) REPORTS ON FORM 8-K
None.
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the Registrant
has caused this report to be signed on its behalf by the authorized undersigned.
Codorus Valley Bancorp, Inc.
(Registrant)
November 12, 2002 /s/ Larry J. Miller
Date ---------------------
Larry J. Miller
President & CEO
(Principal executive officer)
November 12, 2002 /s/ Jann A. Weaver
Date ---------------------
Jann A. Weaver
Treasurer & Assistant Secretary
(Principal financial and accounting officer)
- 22 -
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Codorus Valley Bancorp,
Inc. (the "Company") on Form 10-Q for the period ending September 30, 2002, as
filed with the Securities and Exchange Commission (the "Report"), I, Larry J.
Miller, President and CEO, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company as of the dates and for the periods
expressed in the Report.
Date: November 12, 2002 /s/ Larry J. Miller
---------------------
Larry J. Miller
President and CEO
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Codorus Valley Bancorp,
Inc. (the "Company") on Form 10-Q for the period ending September 30, 2002, as
filed with the Securities and Exchange Commission (the "Report"), I, Jann A.
Weaver, Treasurer and Assistant Secretary, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
1. The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company as of the dates and for the periods
expressed in the Report.
Date: November 12, 2002 /s/ Jann A. Weaver
----------------------
Jann A. Weaver
Treasurer and Assistant Secretary
- 23 -
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Larry J. Miller, President and CEO, certify, that:
1. I have reviewed this quarterly report on Form 10-Q of Codorus
Valley Bancorp, Inc.
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report.
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report.
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
(a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which
this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the "Evaluation Date");
and
(c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date.
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or
operation of the internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors any
material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls.
6. The registrant's other certifying officer and I have
indicated in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 12, 2002 By: /s/ Larry J. Miller
--------------------
Larry J. Miller, President and CEO
- 24 -
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jann A. Weaver, Treasurer and Assistant Secretary, certify, that:
1. I have reviewed this quarterly report on Form 10-Q of Codorus
Valley Bancorp, Inc.
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report.
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report.
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
(a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which
this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the "Evaluation Date");
and
(c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or
operation of the internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors any
material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls.
6. The registrant's other certifying officer and I have
indicated in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 12, 2002 By: /s/ Jann A. Weaver
------------------
Jann A. Weaver, Treasurer and
Assistant Secretary
- 25 -