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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 MARCH 31, 2003
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from____________to______________
COMMISSION FILE NUMBER: 0-15536
CODORUS VALLEY BANCORP, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2428543
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
105 Leader Heights Road, P.O. Box 2887, York, Pennsylvania 17405
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(Address of principal executive offices) (Zip code)
717-747-1519
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since the last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Act). [ ]
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. On April 22, 2003, 2,831,887
shares of common stock, par value $2.50, were outstanding, which includes the
effect of a 5 percent stock dividend declared April 8, 2003.
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Codorus Valley Bancorp, Inc.
FORM 10-Q INDEX
Page #
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PART I - FINANCIAL INFORMATION
Item 1. Financial statements:
Consolidated statements of financial condition 3
Consolidated statements of income 4
Consolidated statements of cash flows 5
Consolidated statements of changes in stockholders' equity 6
Notes to consolidated financial statements 7
Item 2. Management's discussion and analysis of financial condition and
results of operations 12
Item 3. Quantitative and qualitative disclosures about market risk 20
Item 4. Controls and procedures 20
PART II - OTHER INFORMATION
Item 1. Legal proceedings 20
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 23
CERTIFICATIONS
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
Certification of Principal Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Exhibit 99.1) 26
Certification of Principal Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Exhibit 99.2) 27
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Codorus Valley Bancorp, Inc.
Consolidated Statements of Financial Condition
Unaudited
March 31, December 31,
(dollars in thousands, except per share data) 2003 2002
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ASSETS
Interest bearing deposits with banks $ 107 $ 242
Cash and due from banks 16,755 10,878
Federal funds sold 100 0
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Total cash and cash equivalents 16,962 11,120
Securities, available-for-sale 64,878 70,366
Securities, held-to-maturity (fair value $9,938 for 2003 and $9,539 for 2002) 9,356 9,357
Loans, held for sale 3,837 4,586
Loans (net of deferred fees of $665 in 2003 and $645 in 2002) 237,332 233,960
Less-allowance for loan losses (1,515) (1,515)
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Net loans 235,817 232,445
Premises and equipment 9,306 9,335
Other assets 15,187 12,688
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Total assets $ 355,343 $ 349,897
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LIABILITIES
Deposits
Noninterest bearing $ 31,736 $ 30,120
Interest bearing 271,895 262,507
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Total deposits 303,631 292,627
Short-term borrowings 0 7,089
Long-term debt 15,028 16,164
Other liabilities 4,130 1,794
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Total liabilities 322,789 317,674
STOCKHOLDERS' EQUITY
Preferred stock, par value $2.50 per share;
1,000,000 shares authorized; 0 shares issued and outstanding 0 0
Common stock, par value $2.50 per share;
10,000,000 shares authorized; 2,831,887 shares issued
on 3/31/03 and 2,697,035 on 12/31/02 7,080 6,743
Additional paid-in capital 17,369 15,549
Retained earnings 6,931 8,551
Accumulated other comprehensive income 1,174 1,380
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Total stockholders' equity 32,554 32,223
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Total liabilities and stockholders' equity $ 355,343 $ 349,897
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See accompanying notes.
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Codorus Valley Bancorp, Inc.
Consolidated Statements of Income
Unaudited
Three months ended
March 31,
(dollars in thousands, except per share data) 2003 2002
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INTEREST INCOME
Loans, including fees $ 4,055 $ 4,406
Investment securities
Taxable 679 493
Tax-exempt 119 131
Dividends 15 13
Other 5 115
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Total interest income 4,873 5,158
INTEREST EXPENSE
Deposits 1,537 2,100
Federal funds purchased and other short-term borrowings 5 0
Long-term debt 241 316
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Total interest expense 1,783 2,416
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Net interest income 3,090 2,742
PROVISION FOR LOAN LOSSES 37 20
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Net interest income after provision for loan losses 3,053 2,722
NONINTEREST INCOME
Trust and investment services fees 215 207
Service charges on deposit accounts 215 175
Income from bank owned life insurance 72 75
Other income 265 152
Gain on sale of securities 167 72
Gain on sale of mortgages 237 242
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Total noninterest income 1,171 923
NONINTEREST EXPENSE
Salaries and benefits 1,653 1,438
Occupancy of premises, net 267 213
Furniture and equipment 284 273
Postage, stationery and supplies 107 92
Professional and legal 77 65
Marketing and advertising 53 97
Foreclosed real estate, net 67 35
Other 565 474
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Total noninterest expense 3,073 2,687
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Income before income taxes 1,151 958
PROVISION FOR INCOME TAXES 290 171
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Net income $ 861 $ 787
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Net income per share, basic $ 0.30 $ 0.28
Net income per share, diluted $ 0.30 $ 0.28
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See accompanying notes.
- 4 -
Codorus Valley Bancorp, Inc.
Consolidated Statements of Cash Flows
Unaudited
Three months ended
March 31,
(dollars in thousands) 2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 861 $ 787
Adjustments to reconcile net income to net cash provided by operations
Depreciation 253 243
Provision for loan losses 37 20
Provision for losses on foreclosed real estate 55 9
Amortization of investment in real estate partnership 52 196
Increase in cash surrender value of life insurance investment (72) (75)
Originations of held for sale mortgages (15,862) (12,138)
Proceeds from sales of held for sale mortgages 16,848 23,384
Gain on sales of held for sale mortgages (237) (242)
Gain on sales of securities (167) (72)
Loss on sales of foreclosed real estate 6 0
Decrease (increase) in accrued interest receivable and other assets 169 (329)
Increase in accrued interest payable and other liabilities 236 75
Other, net 158 28
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Net cash provided by operating activities 2,337 11,886
CASH FLOWS FROM INVESTING ACTIVITIES
Securities, available-for-sale:
Purchases (8,183) (15,201)
Maturities and calls 4,902 6,806
Sales 8,469 1,090
Net increase in loans made to customers (3,472) (2,139)
Purchases of premises and equipment (233) (146)
Investment in real estate partnership (670) 0
Proceeds from sales of foreclosed real estate 237 0
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Net cash provided by (used in) investing activities 1,050 (9,590)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand and savings deposits 4,800 11,353
Net increase in time deposits 6,204 707
Net decrease in short-term borrowings (7,089) 0
Repayment of long-term debt (1,136) (85)
Dividends paid (324) (307)
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Net cash provided by financing activities 2,455 11,668
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Net increase in cash and cash equivalents 5,842 13,964
Cash and cash equivalents at beginning of year 11,120 25,035
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Cash and cash equivalents at end of period $ 16,962 $ 38,999
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SUPPLEMENTAL DISCLOSURES
Interest paid on deposits and borrowed funds $ 1,779 $ 2,401
Income taxes paid $ 0 $ 0
See accompanying notes.
- 5 -
Codorus Valley Bancorp, Inc.
Consolidated Statements of Changes in Stockholders' Equity
Unaudited
Accumulated
Additional Other
Common Paid-in Retained Comprehensive
(dollars in thousands, except per share data) Stock Capital Earnings Income (Loss) Total
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For the three months ended March 31, 2003
Balance, December 31, 2002 $ 6,743 $ 15,549 $ 8,551 $ 1,380 $32,223
Comprehensive income:
Net income 861 861
Other comprehensive income, net of tax:
Unrealized losses on securities net of reclassification
adjustment for gains included in net income (206) (206)
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Total comprehensive income 655
Cash dividends ($.114 per share, adjusted) (324) (324)
5% stock dividend - 134,852 shares at fair value 337 1,820 (2,157) 0
- -----------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2003 $ 7,080 $ 17,369 $ 6,931 $ 1,174 $32,554
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For the three months ended March 31, 2002
Balance, December 31, 2001 $ 6,411 $ 14,004 $ 8,526 $ 427 $29,368
Comprehensive income:
Net income 787 787
Other comprehensive income, net of tax:
Unrealized losses on securities net of reclassification
adjustment for gains included in net income (115) (115)
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Total comprehensive income 672
Cash dividends ($.109 per share, adjusted) (307) (307)
5% stock dividend - 128,313 shares at fair value 321 1,493 (1,814) 0
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Balance, March 31, 2002 $ 6,732 $ 15,497 $ 7,192 $ 312 $29,733
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See accompanying notes.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
The interim financial statements are unaudited. However, they reflect all
adjustments that are, in the opinion of management, necessary to present fairly
the financial condition and results of operations for the reported periods, and
are of a normal and recurring nature.
These statements should be read in conjunction with the notes to the audited
financial statements contained in the 2002 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 three-month period ended March 31, 2003 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 8, 2003. The
weighted average shares of common stock outstanding, used for basic and diluted
calculations, were 2,831,887 and 2,845,779, respectively, for the three-month
period ended March 31, 2003. Comparatively, shares for basic and diluted
calculations were 2,827,098 and 2,834,257, respectively, for the three-month
period ended March 31, 2002.
Stock-Based Compensation
Stock options issued under shareholder approved employee and director stock
option plans are accounted for under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25). Stock options are granted
at exercise prices not less that the fair value of the common stock on the date
of grant. Under APB 25, no compensation expense is recognized related to these
plans.
In accordance with Financial Accounting Standard No. 123, the Corporation has
elected to disclose the pro forma information regarding net income and net
income per share as if the stock options had been accounted for under the
recognition provisions of the Statement. For purposes of pro forma disclosures,
the estimated fair value of the options is amortized to expense over the
options' vesting period. Pro forma amounts are indicated below:
- 7 -
Three months ended
March 31,
(dollars in thousands, except per share data) 2003 2002
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Reported net income $ 861 $ 787
Deduct total stock-based employee compensation
expense determined under fair value based method for
all awards, net of related tax effects 5 37
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Pro forma net income $ 856 $ 750
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Reported basic and diluted earnings per share $ .30 $ .28
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Pro forma basic earnings per share $ .30 $ .27
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Pro forma diluted earnings per share $ .30 $ .26
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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
March 31,
(dollars in thousands) 2003 2002
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Unrealized holding losses arising during the period $ (145) $ (102)
Reclassification adjustment for gains included in income (167) (72)
- --------------------------------------------------------------------------------------------
Net unrealized losses (312) (174)
Tax effect 106 59
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Net of tax amount $ (206) $ (115)
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Reclassifications
Certain amounts in the 2002 financial statements have been reclassified to
conform to the 2003 presentation format. These reclassifications had no impact
on the Corporation's net income.
Recently issued FASB Statements
In April 2003, the Financial Accounting Standards Board issued Statement No. 149
(Statement), "Amendment of Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities". This Statement clarifies the definition of
a derivative and incorporates certain decisions made by the Board as part of the
Derivatives Implementation Group process. The Statement is effective for
contracts entered into or modified, and for hedging relationships designated
after June 30, 2003 and should be applied prospectively. The provisions of the
Statement that relate to implementation issues addressed by the Derivatives
Implementation Group that have been effective should continue to be applied in
accordance with their respective effective dates. Adoption of this Statement is
not expected to have a significant impact on the Corporation's financial
condition or results of operations.
In November 2002, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." This Interpretation expands the disclosures to be made by a guarantor
in its financial statements about its obligations under certain guarantees and
requires the
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guarantor to recognize a liability for the fair value of an obligation assumed
under certain specified guarantees. FIN 45 clarifies the requirements of FASB
Statement No. 5, "Accounting for Contingencies." In general, FIN 45 applies to
contracts or indemnification agreements that contingently require the guarantor
to make payments to the guaranteed party based on changes in an underlying that
is related to an asset, liability or equity security of the guaranteed party,
which would include financial standby letters of credit. Certain guarantee
contracts are excluded from both the disclosure and recognition requirements of
this Interpretation, including, among others, guarantees related to commercial
letters of credit and loan commitments. The disclosure requirements of FIN 45
require disclosure of the nature of the guarantee, the maximum potential amount
of future payments that the guarantor could be required to make under the
guarantee and the current amount of the liability, if any, for the guarantor's
obligations under the guarantee. The accounting recognition requirements of FIN
45 are to be applied prospectively to guarantees issued or modified after
December 31, 2002. Adoption of FIN 45 did not have a significant impact on the
Company's financial condition or results of operations.
Outstanding letters of credit written are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. The
Company's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for standby letters of credit is represented
by the contractual amount of those instruments. The Company had $2,481,000 of
standby letters of credit as of March 31, 2003. The Bank uses the same credit
policies in making conditional obligations as it does for on-balance sheet
instruments.
The majority of these standby letters of credit expire within the next twelve
months. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending other loan commitments. The Company requires
collateral and personal guarantees supporting these letters of credit as deemed
necessary. Management believes that the proceeds obtained through a liquidation
of such collateral and the enforcement of personal guarantees would be
sufficient to cover the maximum potential amount of future payments required
under the corresponding guarantees. The current amount of the liability as of
March 31, 2003 for guarantees under standby letters of credit issued after
December 31, 2002 is not material.
NOTE 3--DEPOSITS
The composition of deposits on March 31, 2003 and December 31, 2002, was as
follows:
March 31, December 31,
(dollars in thousands) 2003 2002
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Noninterest bearing demand $ 31,736 $ 30,120
NOW 36,602 34,851
Money market 74,079 73,938
Savings 14,315 13,023
Time CDs less that $100,000 114,500 114,808
Time CDs $100,000 or more 32,399 25,887
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Total deposits $ 303,631 $ 292,627
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- 9 -
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 March 31, 2003, based on
FDIC capital guidelines.
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CODORUS VALLEY BANCORP, INC.
MINIMUM FOR WELL CAPITALIZED
ACTUAL CAPITAL ADEQUACY MINIMUM*
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(dollars in thousands) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
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AT MARCH 31 , 2003
Capital ratios:
Tier 1 risk based $31,018 11.25% > than = to $11,024 > than = to 4.0% n/a n/a
Total risk based 32,533 11.80 > than = to 22,049 > than = to 8.0 n/a n/a
Leverage 31,018 9.10 > than = to 13,631 > than = to 4.0 n/a n/a
- ---------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 2002
Capital ratios:
Tier 1 risk based $30,475 11.32% > than = to $10,770 > than = to 4.0% n/a n/a
Total risk based 31,990 11.88 > than = to 21,539 > than = to 8.0 n/a n/a
Leverage 30,475 8.93 > than = to 13,650 > than = to 4.0 n/a n/a
- --------------------------------------------------------------------------------------------------------------
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PEOPLESBANK
MINIMUM FOR WELL CAPITALIZED
ACTUAL CAPITAL ADEQUACY MINIMUM*
--------------------------------------------------------------------------------------------------------
(dollars in thousands) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
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AT MARCH 31 , 2003
Capital ratios:
Tier 1 risk based $26,499 9.84% > than = to $10,777 > than = to 4.0% > than = to $16,165 > than = to 6.0%
Total risk based 28,014 10.40 > than = to 21,554 > than = to 8.0 > than = to 26,942 > than = to 10.0
Leverage 26,499 7.92 > than = to 13,384 > than = to 4.0 > than = to 16,730 > than = to 5.0
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AT DECEMBER 31, 2002
Capital ratios:
Tier 1 risk based $25,946 9.86% > than = to $10,521 > than = to 4.0% > than = to $15,782 > than = to 6.0%
Total risk based 27,461 10.44 > than = to 21,042 > than = to 8.0 > than = to 26,303 > than = to 10.0
Leverage 25,946 7.75 > than = to 13,390 > than = to 4.0 > than = to 16,738 > than = to 5.0
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* To be well capitalized under prompt correction action provisions.
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NOTE 5--CONTINGENT LIABILITIES
During the first quarter of 2003, a business banking client filed a counterclaim
against PeoplesBank, alleging, among other things, that PeoplesBank breached an
implied-in-fact agreement to the claimants related to loans made to the
claimants. PeoplesBank's management believes there are substantial defenses to
this lawsuit and intends to defend it vigorously. Further information regarding
this claim is included in this Form 10-Q, on page 20, under Part II, Item 1,
Legal proceedings.
Also during the first quarter of 2003, PeoplesBank became aware of a civil
forfeiture action brought about by the United States Attorney's Office. The
forfeiture action involves real estate supporting a loan that PeoplesBank made
to a customer who was allegedly involved with criminal activity. PeoplesBank
intends to protect its mortgage interest in the real estate from forfeiture
through available defenses including the "innocent owner defense." Further
information regarding this forfeiture action is included in this Form 10-Q, on
page 17, under Forfeiture action related to mortgaged property.
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 $2,900 were included in other expense for the first three
months of 2003 and $4,600 were included in the first three months of 2002. The
losses represent refunds in excess of funds available in the merchant's account.
We cannot estimate the additional potential loss associated with this merchant
credit card account at this time.
- 11 -
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.
CRITICAL ACCOUNTING ESTIMATES:
Disclosure of Codorus Valley's significant accounting policies is included in
Note 1 to the consolidated financial statements of the 2002 Annual Report to
Stockholders, filed as Exhibit 13 to the Annual Report on Form 10-K for the
period ended December 31, 2002. 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 14 and 17 of this Form
10-Q.
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,
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financial and managerial strengths of borrowers, adequacy of collateral, if
collateral dependent, or present value of future cash flows and other relevant
factors. Estimates related to the value of collateral also have a significant
impact on whether or not management continues to accrue income on delinquent
loans and on the amounts at which foreclosed real estate is recorded on the
statement of financial condition. As described in Note 5--Contingent
Liabilities, property collateralizing a loan on PeoplesBank's books is subject
to litigation. In establishing the loan loss allowance, management presumed that
the rights to the property would be protected. If, however, PeoplesBank's
property rights are not successfully protected the allowance for loan losses
will need to be increased through provision expense to cover the loss.
As permitted by SFAS No. 123, the Corporation accounts for stock-based
compensation in accordance with Accounting Principles Board Opinion (APB) No.
25. Under APB No. 25, no compensation expense is recognized in the income
statement related to any options granted under the Corporation's stock option
plans. The pro forma impact of net income and earnings per share that would
occur if compensation expense was recognized, based on the estimated fair value
of the options on the date of grant, is disclosed in Note 2 to the financial
statements under Stock-Based Compensation. The Corporation has no current plans
to change its method of accounting for stock-based compensation.
Management discussed the development and selection of critical accounting
estimates and related Management Discussion and Analysis disclosure with the
Audit Committee. There were no material changes made to the critical accounting
estimates during the periods presented within.
THREE MONTHS ENDED MARCH 31, 2003
COMPARED TO THREE MONTHS ENDED MARCH 31, 2002
- ---------------------------------------------
INCOME STATEMENT ANALYSIS
OVERVIEW
Net income for the current three-month period ended March 31, 2003, was $861,000
or $.30 per diluted share, compared to $787,000 or $.28 per diluted share, for
the same period of 2002. The $74,000 or 9 percent increase in current period net
income was caused primarily by an increase in net interest income and
noninterest income, which more than offset an increase in noninterest expense
and federal income tax. Current period net interest income increased $348,000 or
13 percent over the same period of 2002 due primarily to lower funding costs
(rate driven) and increased income from investment securities (volume driven).
Noninterest income increased $248,000 or 27 percent over 2002 due to income from
an acquired insurance agency, increases in gains from the sale of investment
securities and an increase in service charges on deposit accounts. Noninterest
expense increased $386,000 or 14 percent over 2002 due to expansion, principally
the acquisition of an insurance agency in September of 2002 and the addition of
a financial center in December 2002. Current period federal income tax increased
$119,000 or 70 percent over 2002 due to an increase in pretax earnings and a
decrease in tax credits. Net income as a percentage of average total assets for
the first three months (annualized) of 2003 was 1.01 percent, compared to 0.92
percent for the same period of 2002. Net income as a percentage of average
stockholders' equity for the first three months (annualized) of 2003 was 10.57
percent, compared to 10.32 percent for the same period of 2002.
Total assets of the Corporation on March 31, 2003, were $355 million, an
increase of approximately $5 million or 1.6 percent above December 31, 2002.
Based on a recent evaluation of probable loan losses and the current loan
portfolio, management believes that the allowance is adequate to support losses
- 13 -
inherent in the portfolio at March 31, 2003. Management also believes that the
Corporation and PeoplesBank were well capitalized on March 31, 2003, 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
A sluggish U.S. economy, abnormally low market interest rates, high unemployment
and a lack of consumer and business confidence that prevailed throughout 2002
continued into 2003. Net interest income for the current three-month period
ended March 31, 2003, was $3,090,000, an increase of $348,000 or 13 percent
above the same period in 2002. Net interest income increased primarily as a
result of lower funding costs (rate driven) and an increase in income from
investment securities (volume driven). Earning assets averaged $307 million and
yielded 6.61 percent (tax equivalent) for 2003, compared to $305 million and
7.04 percent, respectively, for 2002. Interest bearing liabilities averaged $280
million at an average rate of 2.59 percent for 2003, compared to $273 million
and 3.59 percent, respectively, for 2002. Based on a balance sheet simulation
analysis at March 31, 2003, management believes that Codorus Valley is asset
sensitive, which may increase net interest income if the economy improves and
market interest rates rise in the period ahead.
PROVISION FOR LOAN LOSSES
A $37,000 provision expense for loan losses was recorded in the current
three-month period, compared to $20,000 for the same period in 2002. The expense
for each period was responsive to loan growth and continued concern over the
longevity of sluggish national and local economies. Information regarding
nonperforming assets and the allowance for loan losses can be found within those
sections of this report.
NONINTEREST INCOME
Total noninterest income for the current three-month period was $1,171,000, an
increase of $248,000 or 27 percent above the same period in 2002. The increase
was caused primarily by increases in other income and gains from the sale of
investment securities. The $113,000 or 74 percent increase in other income was
primarily due to fees from the sale of investment and insurance products by an
insurance agency that PeoplesBank acquired in September 2002. Gains from the
sale of investment securities increased $95,000 or 132 percent above the prior
year. The $40,000 or 23 percent increase in service charges on deposit accounts
also contributed to the increase in noninterest income.
NONINTEREST EXPENSE
Total noninterest expense for the current three-month period was $3,073,000, an
increase of $386,000 or 14 percent above the same period in 2002. The increase
was caused primarily by increases in salaries and benefits, occupancy and other
expense. Salaries and benefits increased $215,000 or 15 percent due primarily to
planned corporate expansion. The current period included the expense of prior
year initiatives such as the acquisition of an insurance agency in September
2002 and the addition of a financial center in December 2002. The $54,000 or 25
percent increase in occupancy expense was also caused primarily by corporate
expansion. Other expense increased $91,000 or 19 percent due in part to
increased employee training expenses, liability insurance expenses and normal
business growth.
In March 2003, management engaged a consulting firm to conduct a companywide
performance evaluation, to include staffing and work processes. The consulting
engagement is expected to be completed in ten months at an estimated cost of
$275,000. Management believes that the evaluation will
- 14 -
result in expense reductions, improved operating efficiency and increased
revenue, which in the aggregate are expected to exceed the consultant's fee.
INCOME TAXES
The provision for federal income tax was $290,000 for the current three-month
period, compared to $171,000 for the same period in 2002. The $119,000 or 70
percent increase in tax reflects an increase in pretax income and a decrease in
federal tax credits. Tax credits were maximized in 2002 because they included
historic rehabilitation tax credits from PeoplesBank's investment in a
low-income housing project, available only in the year the rehabilitation
construction is complete.
BALANCE SHEET REVIEW
INVESTMENT SECURITIES
On March 31, 2003, securities available-for-sale decreased approximately $5
million from year-end 2002, as the proceeds from sales, maturities, calls and
prepayments on mortgage backed instruments were deployed to loans and an
investment in a real estate partnership that provides low-income housing. The
real estate partnership is described in the Other Assets section of this report
LOANS
On March 31, 2003, loans increased $3 million or slightly over 1 percent from
year-end 2002, principally business loans.
OTHER ASSETS AND OTHER LIABILITIES
In March 2003, PeoplesBank committed to invest $2.8 million in a real estate
partnership whose purpose is to construct 60 new townhouses and rent them to
people who qualify for low-income housing. Actual disbursement is scheduled to
be made in installments throughout the year with project completion scheduled by
the end of 2003. PeoplesBank is a limited partner that holds a 73.5 percent
interest in the partnership. Its role in the partnership is solely as an
investor, whose return is in the form of federal tax credits, which will be
realized over a ten-year period that begins in 2004.
DEPOSITS
On March 31, 2003, total deposits increased $11 million or 4 percent above
year-end 2002. Most of the increase was caused by the addition of a $7 million
CD from a local municipality on March 31, which matured and was disbursed in
April. The remaining increase in total deposits was attributable to the addition
of a financial center in December 2002 and normal business growth.
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 $32,554,000 on March 31, 2003, an increase of $331,000 or 1
percent above December 31, 2002. The increase was caused primarily by an
increase in retained net income from profitable operations.
On April 8, 2003, the board of directors declared a quarterly cash dividend of
$0.12 per share ($0.114 adjusted), payable on or before May 13, 2003, to
shareholders of record April 22, 2003. This follows a
- 15 -
$0.12 per share ($0.114 adjusted) dividend paid in February. Also on April 8,
2003, the board declared a 5 percent stock dividend payable on or before June 5,
2003, to shareholders of record April 22, 2003. Distribution of the stock
dividend will result in the issuance of approximately 134,852 common shares, as
reflected in the enclosed financial statements.
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 March 31, 2003, based on FDIC capital
guidelines.
RISK MANAGEMENT
NONPERFORMING ASSETS
Table 1--Nonperforming Assets, provides a summary of nonperforming assets and
related ratios. The paragraphs below provide information for selected categories
for March 31, 2003, compared to December 31, 2002.
TABLE 1-NONPERFORMING ASSETS
March 31, December 31,
(dollars in thousands) 2003 2002
- ---------------------------------------------------------------------------------
Nonaccrual loans $ 5,208 $ 5,051
Accruing loans that are contractually past due
90 days or more as to principal or interest 850 453
Foreclosed real estate, net of allowance 250 465
- ---------------------------------------------------------------------------------
Total nonperforming assets $ 6,308 $ 5,969
- ---------------------------------------------------------------------------------
Ratios:
Nonaccrual loans as a % of total period-end loans 2.19% 2.16%
Nonperforming assets as a % of total period-end
loans and net foreclosed real estate 2.66% 2.55%
Nonperforming assets as a % of total period-end 19.38% 18.52%
stockholders' equity
Allowance for loan losses as a multiple of
nonaccrual loans .3x .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 March 31, 2003, the nonaccrual loan portfolio was
$5,208,000, slightly above the $5,051,000 reported on December 31, 2002. On
March 31, 2003, nonaccrual loans were comprised of eighteen unrelated accounts,
ranging in size from $1,000 to $2,647,000. Two of the eighteen loans, for
$2,647,000 and $1,230,000, respectively, comprise 74 percent of the nonaccrual
loan portfolio and management believes that they are adequately collateralized.
During March 2003, the borrowers responsible for the previously mentioned
$1,230,000 nonaccrual loan, filed a counterclaim against PeoplesBank described
in the Legal Proceedings section of this report (Part II--Other Information,
Item 1). Accounts within the nonaccrual loan portfolio vary by industry and are
generally collateralized with real estate assets. Management and the board of
directors evaluate the allowance for loan losses at least quarterly.
- 16 -
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.
Accruing loans that are contractually past due 90 days or more as to principal
or interest totaled $850,000 on March 31, 2003, compared to $453,000 on December
31, 2002. The $850,000 on March 31 was attributable to a single loan pending
renegotiation of terms. Subsequent to March 31, the loan was renegotiated and
the account was brought current. Generally, loans in the past due category are
adequately collateralized and in the process of collection.
Foreclosed real estate, net of allowance, was $250,000 on March 31, 2003,
compared to $465,000 on December 31, 2002. An allowance for losses, which is
evaluated at least quarterly, has been established for foreclosed real estate
assets where the estimated fair value, less selling expenses, is below the
financial carrying value. On March 31, 2003, the allowance was $35,000. For the
first three months of 2003, a $55,000 loss provision was recorded to reflect
losses associated with declines in net realizable value. Comparatively, a $9,000
loss provision was recorded for the same period of 2002. Efforts to liquidate
foreclosed real estate are proceeding as quickly as potential buyers can be
located.
FORFEITURE ACTION RELATED TO MORTGAGED PROPERTY
On March 26, 2003, the United States Attorney's Office began an in rem civil
forfeiture action,by Complaint in the United States District Court for the
Middle District of Pennsylvania, titled United States of America v.
Approximately 83 Acres of Real Estate Located in Fairview Township, York County,
Pennsylvania, titled in the name of CCA Associates, Inc. The real property,
which is the subject of the forfeiture action, serves as the sole collateral for
a loan by PeoplesBank to CCA Associates, Inc. (CCA), the owner or reputed owner
of this property. The loan to CCA, which was guaranteed by a third party, has a
current principal balance of $1,500,000 plus accrued interest and other fees and
costs. The federal government for his alleged involvement has indicted guarantor
with criminal activity. PeoplesBank intends to protect its mortgage interest in
the real estate from forfeiture through available defenses including the
"innocent owner defense." As of the date this report was filed, the loan was
classified as a performing asset. Management believes that the primary debt
obligation to PeoplesBank will be satisfied once the property is liquidated and
the proceeds from the sale distributed. Therefore, management does not believe
that satisfaction of the loan will have a material adverse impact on the
Corporation.
ALLOWANCE FOR LOAN LOSSES
Table 2--Analysis of Allowance for Loan Losses, shows a $1,515,000 allowance on
March 31, 2003, representing a $394,000 or 21 percent decrease from March 31,
2002. The allowance for loan losses as a percentage of total loans was 0.64
percent on March 31, 2003, compared to 0.84 percent on March 31, 2002. The
decrease in the allowance was primarily the result of charge-offs relating to
equipment financing contracts amounting to $864,000 for calendar year 2002.
Management believes that the loss on these contracts was caused by external
fraud and is presently seeking legal redress, including the initiation of
lawsuits with other defrauded financial institutions. Although the level of
nonaccrual loans was approximately the same for both periods, management
decreased the allowance based on the strength of the collateral position of the
loans in this category. 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 March 31, 2003.
- 17 -
TABLE 2-ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(dollars in thousands) 2003 2002
- ----------------------------------------------------------------------------
Balance-January 1, $ 1,515 $ 1,898
Provision charged to operating expense 37 20
Loans charged off:
Commercial 5 18
Real estate-mortgage 0 0
Consumer 62 0
- ----------------------------------------------------------------------------
Total loans charged off 67 18
Recoveries:
Commercial 16 7
Real estate-mortgage 0 0
Consumer 14 2
- ----------------------------------------------------------------------------
Total recoveries 30 9
- ----------------------------------------------------------------------------
Net charge-offs 37 9
- ----------------------------------------------------------------------------
Balance-March 31, $ 1,515 $ 1,909
- ----------------------------------------------------------------------------
Ratios:
Net charge-offs (annualized ) to average total loans 0.06% 0.02%
Allowance for loan losses to total loans
at period-end 0.64% 0.84%
Allowance for loan losses to nonaccrual loans
and loans past due 90 days or more 25.0% 102.5%
LIQUIDITY
Codorus Valley's loan-to-deposit ratio, which is used as a broad measure of
liquidity, was approximately 78 percent on March 31, 2003, compared to 80
percent on December 31, 2002. Liquidity for both periods was adequate based on
availability from many sources, including the potential liquidation of a $65
million portfolio of available-for-sale securities valued at March 31, 2003.
Another important source of liquidity for PeoplesBank is available credit
provided by the Federal Home Loan Bank of Pittsburgh (FHLBP). On December 31,
2002, the latest available date, available funding from the FHLBP was $83
million. In response to a sluggish U.S. economy and abnormally low market
interest rates, 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.
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 March 31,
2003, totaled $81,107,000 and consisted of $50,001,000 in unfunded commitments
of existing loans, $28,625,000 to grant new loans and $2,481,000 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.
- 18 -
Codorus Valley has various long-term contractual obligations outstanding at
March 31, 2003, including long-term debt, time deposits and obligations under
capital and operating leases. Such obligations have not changed significantly
from those reported in Table 11 of the Form 10K for 2002.
MARKET RISK MANAGEMENT
In the normal course of conducting business, Codorus Valley is exposed to market
risk, principally interest rate risk, through the operations of its banking
subsidiary. Interest rate risk arises from market driven fluctuations in
interest rates, which may affect cash flows, income, expense and values of
financial instruments. An asset-liability management committee comprised of
members of management manages interest rate risk. A detailed discussion of
market interest risk is provided in the Corporation's annual report on Form 10-K
for the period ended December 31, 2002.
Codorus Valley performed a simulation on its balance sheet at March 31, 2003 and
December 31, 2002. The results of the point-in-time analyses are shown in Table
3--Interest Rate Sensitivity. The analyses reveal that the Corporation's balance
sheet was asset sensitive for both periods. Asset sensitive means that loan and
investment assets will reprice to a greater and faster degree than the deposits
and debt that fund them. Therefore, the balance sheet is positioned to benefit
from economic growth and rising market interest rates. Conversely, if market
interest rates decline, earnings are expected to decline.
TABLE 3-INTEREST RATE SENSITIVITY
at March 31, 2003
- --------------------------------------------------------------------
Change in
Change in interest rates Forecasted interest net income
(basis points) over 12 mos rate scenario $000's %
- --------------------------------------------------------------------
+200 High 271 7.9
0 Flat (baseline) 0 0.0
-200 Low (383) (11.2)
+75 Most likely 37 1.1
at December 31, 2002
- --------------------------------------------------------------------
Change in
Change in interest rates Forecasted interest net income
(basis points) over 12 mos rate scenario $000's %
- --------------------------------------------------------------------
+200 High 217 6.0
0 Flat (baseline) 0 0.0
-200 Low (393) (10.8)
+118 Most likely 94 2.6
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 in the Corporation's Form 10-K for
period ended December 31, 2002, it cannot be predicted whether such
- 19 -
legislation will be adopted or, if adopted, how such legislation would affect
the business of Codorus Valley and its subsidiaries.
Management is not aware of any other current specific recommendations by
regulatory authorities or proposed legislation, which, if they were implemented,
would have a material adverse effect upon the liquidity, capital resources, or
results of operations. Although the general cost of compliance with numerous 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.
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 19, 2003, In the Net Sports, LLC, James B. Murphy and Barbara S. Murphy
filed a counterclaim against PeoplesBank in the Court of Common Pleas of Dauphin
County, Pennsylvania, alleging, among other things, that PeoplesBank: breached
an implied-in-fact agreement to the claimants related to loans made to the
claimants; intentionally interfered with the claimants' existing contracts and
prospective business relations; and made certain misrepresentations to the
claimants. The claimants allege to have incurred unliquidated losses and other
damages in excess of $3.9 million and exemplary damages in excess of $35,000.
The counterclaim was filed in response to a complaint filed by PeoplesBank
whereby PeoplesBank alleges that the claimants defaulted on a promissory note
resulting in damages to PeoplesBank in excess of $1.2 million. Management
believes there are substantial defenses to this lawsuit and intends to defend it
vigorously. The impact of the final disposition of this lawsuit cannot be
assessed at this time. Counsel believes that the claim may qualify as a "covered
claim" under PeoplesBank's lender liability insurance policy, which should cover
the defense and indemnification of PeoplesBank for said claim. The factual
discovery process has not been completed. Although Codorus Valley expects to
incur costs in defending these claims, based on the results of its investigation
thus far and preliminary discussions with its lawyers, Codorus Valley currently
does not believe the ultimate resolution of the claims will have a material
impact on its financial condition or results of operations.
- 20 -
Codorus Valley is involved in no other material litigation other than routine
litigation incident to the nature of its business. In addition, management is
not aware of any material proceedings pending, threatened or contemplated
against Codorus Valley and PeoplesBank 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 to Exhibit 10.1
to Registrant's Current Report on Form 8-K, dated and filed
with the Commission on March 20, 2003.)
10.3 Change of Control Agreement between PeoplesBank, A Codorus
Valley Company, Codorus Valley Bancorp, Inc. and Jann A.
Weaver, dated October 1, 1997. (Incorporated by reference to
Exhibit 10.2 to the Registrant's Current Report on Form 8-K,
dated and filed with the Commission March 20, 2003.)
10.4 Change of Control Agreement between PeoplesBank, A Codorus
Valley Company, Codorus Valley Bancorp, Inc. and Harry R.
Swift, dated October 1, 1997. (Incorporated by reference to
Exhibit 10.4 to the Registrant's Current Report on Form 8-K,
filed with the Commission on March 20, 2003.)
- 21 -
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.)
99.1 Certification of Principal Executive Officer, pursuant to
Section 906 of the Sarbanes- Oxley Act of 2002
99.2 Certification of Principal Financial Officer, pursuant to
Section 906 of the Sarbanes- Oxley Act of 2002
ITEM 6. (b) REPORTS ON FORM 8-K
On March 20, 2003, Codorus Valley Bancorp, Inc. filed a report on Form 8-K, Item
5, dated March 18, 2003. The purpose of the Form 8K was to electronically file:
an Amendment to the Employment Agreement by and among PeoplesBank, A Codorus
Valley Company, Codorus Valley Bancorp, Inc., and Larry J. Miller dated October
1, 1997 and Executive Employment Agreement dated January 1, 1993 between
PeoplesBank, A Codorus Valley Company, Codorus Valley Bancorp, Inc. and Larry J.
Miller (filed as Exhibit 10.1); a Change of Control Agreement between
PeoplesBank, A Codorus Valley Company, Codorus Valley Bancorp, Inc., and Jann A.
Weaver, dated October 1, 1997 (filed as Exhibit 10.2); and a Change of Control
Agreement between PeoplesBank, A Codorus Valley Company, Codorus Valley Bancorp,
Inc., and Harry R. Swift, dated October 1, 1997 (filed as Exhibit 10.3).
Codorus Valley Bancorp, Inc. filed a report on Form 8-K on January 21, 2003. The
Form 8-K, dated January 21, 2003, disclosed that Codorus Valley Bancorp, Inc.
released a Press Release announcing the declaration of a quarterly cash dividend
and the results of operations for the period ended December 31, 2002, which
included a $445,000 loan loss provision for the fourth quarter of 2002.
- 22 -
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)
May 14, 2003 /s/ Larry J. Miller
Date -------------------
Larry J. Miller
President & CEO
(Principal executive officer)
May 14, 2003 /s/ Jann A. Weaver
Date ------------------
Jann A. Weaver
Treasurer & Assistant Secretary
(Principal financial and accounting officer)
- 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; and
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: May 14, 2003 /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; and
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: May 14, 2003 /s/ Jann A. Weaver
------------------
Jann A. Weaver
Treasurer and Assistant Secretary
- 25 -