Item 1: Business
Codorus Valley Bancorp, Inc. is a Pennsylvania business corporation, incorporated on October 7, 1986. On March 2, 1987, Codorus Valley became a bank holding company, under the Bank Holding Company Act of 1956. PeoplesBank, A Codorus Valley Company is its wholly-owned banking subsidiary. SYC Realty Co., Inc. is its wholly-owned nonbank subsidiary. Codorus Valley's business consists primarily of managing PeoplesBank, and its principal source of income is dividends received from PeoplesBank. On December 31, 2000, Codorus Valley had total consolidated assets of $295 million, total deposits and other liabilities of $268 million, and total stockholders' equity of $27 million.
Bank Subsidiary
PeoplesBank, organized in 1934, is a Pennsylvania chartered bank. It is not a member of the Federal Reserve System. PeoplesBank offers a full range of commercial and consumer banking services through eight full service financial centers located in York County, Pennsylvania. On February 1, 2001, PeoplesBank's ninth branch opened in Penn Township, Pennsylvania. PeoplesBank also offers trust and investment services at Codorus Valley Corporate Center located in York, Pennsylvania, and mutual funds, via a third-party marketing arrangement, throughout its financial center network. Mutual funds are not FDIC insured, not obligations of nor guaranteed by PeoplesBank, and are subject to investment risk including the possible loss of principal. The Federal Deposit Insurance Corporation insures the deposits of PeoplesBank to the extent provided by law. On December 31,2000, PeoplesBank had total loans of $218 million and total deposits of $247 million.
PeoplesBank is not dependent on deposits or exposed to loan concentration to a single customer, or to a small group of customers. Therefore, losses from a single customer, or small customer group, would not have a material adverse effect on the financial condition of PeoplesBank. At year-end 2000, the loan portfolio included one industry concentration that exceeded 10% of total loans. The commercial facility leasing industry accounted for 22.3% of total loans. In comparison, at year-end 1999, there were three concentrations of loans by industry that exceeded 10% of total loans, as follows: commercial facility leasing, 16.1%; residential facility leasing, 10.9%; and real estate development, 10.6%.
In 1999, PeoplesBank created SYC Insurance Services, Inc., as a wholly-owned subsidiary, to facilitate the sale of investment products through a third-party marketing arrangement. SYC Insurance, inactive in 1999, began operations in January 2000. The initial product offering was fixed annuities. In the near term, SYC Insurance will offer variable annuities and life insurance within PeoplesBank's service area. Products sold by SYC Insurance are not FDIC insured, not obligations of nor guaranteed by PeoplesBank and are subject to investment risk including the possible loss of principal.
In 1998, PeoplesBank created SYC Settlement Services, Inc., as a wholly-owned subsidiary, to provide real estate settlement services. SYC Settlement Services, Inc. began operations in January 1999.
Nonbank Subsidiary
On June 20, 1991, SYC Realty Company, Inc. was incorporated as a wholly-owned subsidiary of Codorus Valley Bancorp, Inc. Codorus Valley created this nonbank subsidiary primarily for the purpose of disposing of selected properties obtained from PeoplesBank in satisfaction of debts previously contracted. SYC Realty commenced business operations in October 1995. To date, the financial impact of this subsidiary's operations on Codorus Valley and PeoplesBank has been immaterial.
Competition
The banking industry in PeoplesBank's service area, principally York County, Pennsylvania, and northern Maryland is extremely competitive. PeoplesBank competes with commercial banks and other financial service providers such as thrifts, credit unions, consumer finance companies, investment firms, and mortgage companies. Some financial service providers operating in PeoplesBank's service area operate on a national and regional scale and possess resources greater than those of PeoplesBank.
Supervision and Regulation
Codorus Valley Bancorp, Inc. is registered as a bank holding company and is subject to the regulations of the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956. The Bank Holding Company Act requires bank holding companies to file periodic reports with and are subject to examination by the Federal Reserve. The Federal Reserve issued regulations under the Bank Holding Company Act that require a bank holding company to serve as a source of financial and managerial strength
to its subsidiary banks. As a result, the Federal Reserve, pursuant to such regulations, may require Codorus Valley to stand ready to use its resources to provide adequate capital funds to PeoplesBank during periods of financial stress or adversity.
The Bank Holding Company Act prohibits Codorus Valley from acquiring: direct or indirect control of more than 5% of the outstanding voting stock of any bank, or substantially all of the assets of any bank, or merging with another bank holding company, without the prior approval of the Federal Reserve. The Pennsylvania Department of Banking also must approve any similar consolidation. Pennsylvania law permits Pennsylvania bank holding companies to control an unlimited number of banks.
The Bank Holding Company Act restricts Codorus Valley to engaging in activities that the Federal Reserve has found to be closely related to banking, and which are expected to produce benefits for the public that will outweigh any potentially adverse effects. To this end, the Bank Holding Company Act prohibits Codorus Valley from: engaging in most nonbanking businesses, or acquiring ownership or control of more than 5% of the outstanding voting stock of any company engaged in a nonbanking business, unless the Federal Reserve has determined that the nonbanking business is closely related to banking. Under the Bank Holding Company Act, the Federal Reserve may require a bank holding company to end a nonbanking business if it constitutes a serious risk to the financial soundness and stability of any bank subsidiary of the bank holding company.
The operations of PeoplesBank are subject to federal and state statutes applicable to banks chartered under the banking laws of the Commonwealth of Pennsylvania and whose deposits are insured by the Federal Deposit Insurance Corporation.
The FDIC is the primary regulator of PeoplesBank. It regularly examines banks in such areas as loss reserves, loans, investments, management practices, and other aspects of operations. These examinations are designed for the protection of PeoplesBank's depositors rather than Codorus Valley's shareholders. PeoplesBank must furnish annual and quarterly reports to the FDIC.
Federal and state banking laws and regulations govern, among other things, the scope of a bank's business, the investments a bank may make, the reserves against deposits a bank must maintain, the types and terms of loans a bank may make and the collateral it may take, the activities of a bank with respect to mergers and consolidations, and the establishment of branches.
The Federal Reserve Act imposes restrictions on a subsidiary bank of a bank holding company, such as PeoplesBank. The restrictions affect extensions of credit to the bank holding company and its subsidiaries, investments in the stock or other securities of the bank holding company and its subsidiaries, and taking such stock or securities as collateral for loans. The Federal Reserve Act and Federal Reserve regulations also place limitations and reporting requirements on extensions of credit by a bank to the principal shareholders of its parent holding company, among others, and to related interests of such principal shareholders. In addition, such
legislation and regulations may affect the terms upon which any person becoming a principal shareholder of a holding company may obtain credit from banks with which the subsidiary bank maintains a correspondent relationship. PeoplesBank and the banking industry in general, are affected by the monetary and fiscal policies of government agencies, including the Federal Reserve. Through open market securities transactions and changes in its discount rate and reserve requirements, the Board of Governors of the Federal Reserve exerts considerable influence over the cost and availability of funds for lending and investment.
A brief discussion of recent federal agency pronouncements that affect Codorus Valley and/or PeoplesBank follows.
The Gramm-Leach-Bliley Act, also known as the Financial Services Modernization Act, was signed into law on November 12, 1999, and amends the Bank Holding Company Act of 1956. The law repeals Depression-era banking laws and permits banks, insurance companies and securities firms to engage in each others' businesses after complying with certain conditions and regulations. The law grants to community banks the power to enter new financial markets as a matter of right that larger institutions have managed to do. At this time Codorus Valley has no plans to pursue these additional possibilities. Management does not believe that the Financial Services Modernization Act will have a material effect on Codorus Valley's operations. However, the act may result in increased competition from larger financial service companies, many of which have substantially more financial resources than Codorus Valley, and now offer banking services in addition to insurance and brokerage services. The Financial Services Modernization Act also modifies current law related to financial privacy and community reinvestment. The new privacy provisions will generally prohibit financial institutions, including Codorus Valley and PeoplesBank, from disclosing nonpublic personal financial information to nonaffiliated third parties unless customers have the opportunity to opt out of the disclosure.
Periodically, various types of federal and state legislation are proposed that could result in additional regulation of, and restrictions on, the business of Codorus Valley and PeoplesBank. 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. As a consequence of the extensive regulation of commercial banking activities in the United States, Codorus Valley's and PeoplesBank's business is particularly susceptible to being affected by federal legislation and regulations that may increase the cost of doing business. Except as specifically described above, management believes that the effect of the provisions of the aforementioned legislation on the liquidity, capital resources, and results of operations of the Codorus Valley will be immaterial. 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.
Other information
On December 31, 2000, PeoplesBank had 127 full-time employees, 19 part-time employees and 4 seasonal employees.
The required Statistical Information for Item 1 can be found in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations of this report.
Item 2:
Item 2: Properties
Codorus Valley Bancorp, Inc. owns the following property in fee, subject to two liens. A local financial institution holds a first lien for approximately $2 million and Codorus Valley's wholly-owned subsidiary PeoplesBank holds a second lien for approximately $2.2 million.
Codorus Valley Corporate Center Located at 105 Leader Heights Road, York, in York Township, PA. This facility of approximately 40,000 square feet serves as a corporate headquarters. Approximately sixty-seven percent of the leasable space is leased to PeoplesBank, the remaining thirty-three percent is available for lease to nonaffiliated parties. This facility is adjacent to the Bank's Data Operations Center and Leader Heights banking office.
PeoplesBank owns the following properties in fee and without liens.
Glen Rock Office: Located at 1 Manchester Street in the borough of Glen Rock, PA. Two bank-owned parking lots are located nearby on Hanover Street and at 7 Manchester Street in the borough of Glen Rock, PA.
Jacobus Office: Located at 1 North Main Street in the borough of Jacobus, PA.
Jefferson Office: Located at 6 Baltimore Street in the borough of Jefferson, PA. A bank-owned parking lot is located nearby at 10 Baltimore Street.
York New Salem Office: Located at 320 North Main Street in the borough of York New Salem, PA.
Leader Heights Office: Serves as both a banking office and data operations center. It is located at 109 Leader Heights Road in York Township, PA.
Cape Horn Office: Located at 2587 Cape Horn Road, Red Lion in the Township of Windsor, PA.
East York Office: Located at 2701 Eastern Boulevard, York in the township of Springettsbury, PA.
PeoplesBank leases the following property.
Stewartstown Office: Located at 2 Ballast Lane in the borough of Stewartstown, PA. This office is a 1,278 square foot unit of a business complex known as Village Square at Stewartstown. The lease, signed on November 29, 1993, is for a twenty year term, with four five year term options. From inception of the lease through 1997, the minimum annual rent was approximately $15,700. For the four year period 1998 through 2001, the minimum annual rent will be approximately $17,300. Thereafter, the minimum annual rent will increase at three-year intervals.
Effective February 1, 2001, PeoplesBank leases the following property.
South Hanover Office: Located at 1400 Baltimore Street, Hanover in Penn Township, PA. This office is a 1,850 square foot unit adjacent to a Rutter's Farm Store. The lease is for a fifteen year term, with three five-year term options. Minimum annual rent is as follows: years 1-5 $88,000, years 6-10 $95,000, and years 11-15 $102,000. Thereafter, the minimum annual rent will be increased at five-year intervals.
All of the above properties are located in York County, Pennsylvania and are, in the opinion of management, adequate for the business purposes of Codorus Valley and its subsidiaries.
Item 3:
Item 3: Legal Proceedings
In the opinion of the management of Codorus Valley Bancorp, Inc., there are no proceedings pending to which Codorus Valley and PeoplesBank are a party or to which its property is subject, which, if determined adversely to Codorus Valley and PeoplesBank, would be material in relation to Codorus Valley's and PeoplesBank's financial condition. There are no proceedings pending other than ordinary routine litigation incident to the business of Codorus Valley and PeoplesBank. In addition, no material proceedings are pending, threatened or contemplated against Codorus Valley and PeoplesBank by government authorities.
Item 4:
Item 4: Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5:
Item 5: Market for Codorus Valley Bancorp, Inc.'s Common Equity and Related Stockholder Matters
Market and dividend information appearing in the 2000 Annual Report to Stockholders, under the caption Stock, Dividend and Broker Information, is incorporated by reference in response to this item and is included on page 45 of Exhibit 13.
As of March 15, 2001, the Codorus Valley had approximately 988 stockholders of record.
Related stockholder information appearing in the 2000 Annual Report to Stockholders, under the caption Stockholders' Equity, included in Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations, is incorporated by reference in response to this item and is included on pages 32 and 33 of Exhibit 13.
Item 6:
Item 6: Selected Financial Data
Information appearing in the 2000 Annual Report to Stockholders, under the caption Selected Financial Data, is incorporated by reference in response to this item and is included on page 3 of Exhibit 13.
Item 7:
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations.
The Management Discussion and Analysis of Consolidated Financial Condition and Results of Operations in the 2000 Annual Report to Stockholders is incorporated by reference in response to this item and is included on pages 23 through 40 of Exhibit 13.
Item 7A:
Item 7A: Quantitative and Qualitative Disclosures About Market Risk
Information appearing in the 2000 Annual Report to Stockholders, under the caption Market Risk Management included in Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations, is incorporated by reference in response to this item and is included on pages 38 and 39 of Exhibit 13.
Codorus Valley manages interest rate risk primarily through sensitivity analysis, included on pages 38 and 39 of Exhibit 13. It also uses a gap analysis as a secondary means for managing interest rate risk. The gap analysis begins by assigning interest rate sensitive assets and interest rate sensitive liabilities into future time periods, typically one year, based on a scheduled maturity or repricing date. Repriceable liabilities are then subtracted from repriceable assets to determine a difference, or gap. The measurement process relies on many assumptions such as the amount and timing of repriceable cash flows from interest rate sensitive assets and liabilities. The following assumptions are made about repriceable cash flows from interest rate sensitive assets:
o variable rate instruments could reprice daily, o adjustable rate instruments reprice at the interest maturity date, o fixed rate loans reprice at their scheduled maturity date and include estimated prepayments o fixed rate investment securities, except for mortgage-backed instruments, reprice at their scheduled maturity date, or call date if more appropriate, and o fixed rate mortgage-backed instruments reprice based on principal paydown estimates.
Generally, the cash flow assumptions for interest sensitive assets apply to interest sensitive liabilities with the exception of NOW and savings deposits which do not have scheduled maturities. Technically, NOW
and savings balances can be repriced at any time. Historically, NOW and savings balances and rates have been relatively stable despite changes in market interest rates. This stability assumption was made in the current measurement process.
A schedule depicting balance sheet repricing characteristics and an estimate of gap at December 31, 2000, is provided below. The cumulative gap measure is one way to measure how a change in market interest rates will impact net interest income for specific time frames. For example, the cumulative gap in the "181-365" repricing category represents a one year net liability position of $45 million or 17 percent of interest earning assets on December 31, 2000. The liability sensitive gap position implies that over the next year net income will increase if market interest rates fall and decrease if rates rise. The theory is that more liabilities will reprice, at lower market interest rates, than the assets that they fund.
A gap analysis is limited in its usefulness since it represents a one-day position, which is continually changing and not necessarily indicative of Codorus Valley's position at any other time. Gap analysis does not consider the complexity of interest rate relationships and spreads depending on the direction, magnitude and timing of changes in market interest rates. Additionally, it does not consider the impact of financial strategies that management could employ.
Item 8:
Item 8: Financial Statements and Supplementary Data
Codorus Valley's Consolidated Financial Statements and the Notes thereto, in the 2000 Annual Report to Stockholders, are incorporated by reference in response to this item and are included on pages 4 through 21 of Exhibit 13. Table 11-Summary of Quarterly Financial Data included in Management's Discussion and Analysis of Consolidated Financial Condition of Results of
Operations, in the 2000 Annual Report to Stockholders, is incorporated by reference in response to supplementary financial data and is included on page 39 of Exhibit 13.
Item 9:
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.
PART III
Item 10:
Item 10: Directors and Executive Officers, Codorus Valley Bancorp, Inc.
Information appearing in the Proxy Statement relating to the 2001 Annual Meeting of Stockholders to be held May 15, 2001 (Proxy Statement), under the captions "Information as to Nominees and Directors" and "Board of Directors and Executive Officers" is incorporated by reference in response to this item. Information regarding Section 16(a)Beneficial Ownership Reporting Compliance follows.
Section 16(a) of the Securities Exchange Act of 1934, requires that the corporation's officers and directors, and persons who own more than 10% of the registered class of the corporation's equity securities, file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and greater than 10% shareholders are required by SEC regulation to furnish the corporation with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of Forms 3, 4 and 5 and amendments thereto received by it, or written representations from certain reporting persons that no Form 5 was required for that reporting person, the corporation believes that during the period from January 1, 2000 through December 31, 2000, its officers and directors were in compliance with all filing requirements applicable to them, with the exception of D. Reed Anderson, Esquire, M. Carol Druck, MacGregor S. Jones, Barry A. Keller, Rodney L. Krebs, Dallas L. Smith, George A. Trout, D.D.S. and Donald H. Warner. Each named Director inadvertantly filed one late Form 4 to report one transaction during 2000 concerning the issuance of stock options under the 1998 Independent Director's Stock Option Plan.
Item 11:
Item 11: Executive Compensation
Information appearing in the Proxy Statement, under the captions "Executive Officers Compensation," "Board of Directors Report on Executive Compensation" and "Performance Graph" is incorporated by reference in response to this item.
Item 12:
Item 12: Security Ownership of Certain Beneficial Owners and Management
Information appearing in the Proxy Statement, under the caption "Beneficial Ownership of Codorus Valley Bancorp, Inc.'s Stock Owned by Principal Owners and Management" is incorporated by reference in response to this item.
Item 13:
Item 13: Certain Relationships and Related Transactions
Information appearing in the Proxy Statement, under the caption "Certain Relationships and Related Transactions," is incorporated by reference in response to this item.
PART IV
Item 14:
Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this Form 10-K report.
1. Financial Statements The following consolidated statements of Codorus Valley Bancorp, Inc. are included by reference in Part II, Item 8 hereof: Report of Independent Auditors Consolidated Statements of Financial Condition Consolidated Statements of Income Consolidated Statements of Cash Flows Consolidated Statements of Changes in Stockholders' Equity Notes to Consolidated Financial Statements
2. Financial Statement Schedules Required financial statement schedules are omitted. This information is either not applicable, not required or is shown in the respective financial statements or in the notes thereto.
3. Exhibits filed as part of 10-K pursuant to Item 601 of Regulation S-K. Exhibit Number Description of Exhibit 3(i) Articles of Incorporation (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 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,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 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 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, dated and filed with the Commission 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.)
11 Statement re: Computation of Earnings Per Share (Incorporated by reference to Exhibit 13 hereof, 2000 Annual Report to Stockholders at Note 1 to the Consolidated Financial Statements.)
13 Excerpts from the Annual Report to Stockholders for fiscal year ended December 31, 2000.
21 List of subsidiaries of Codorus Valley Bancorp, Inc.
23 Consent of Independent Auditors
24 Power of Attorney
(B) Reports on Form 8-K.
Codorus Valley Bancorp, Inc. filed no Current Reports on Form 8-K for the quarter ended December 31, 2000.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Codorus Valley Bancorp, Inc. (Registrant)
By /s/ Larry J. Miller Date: March 27, 2001 ----------------------------- Larry J. Miller, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature and Capacity
- ----------------------------- Chairman of the Board of 3/27/01 George A. Trout, DDS Directors and Director
/s/ Larry J. Miller President, Chief Executive 3/27/01 - ----------------------------- Officer and Director Larry J. Miller, President (Principal Executive Officer)
/s/ Rodney L. Krebs Vice Chairman of the Board 3/27/01 - ----------------------------- of Directors and Director Rodney L. Krebs
/s/ D. Reed Anderson Director 3/27/01 - ----------------------------- D. Reed Anderson, Esq.
/s/ M. Carol Druck Director 3/27/01 - ----------------------------- M. Carol Druck
/s/ MacGregor S. Jones Director 3/27/01 - ----------------------------- MacGregor S. Jones
/s/ Dallas L. Smith Director 3/27/01 - ----------------------------- Dallas L. Smith
/s/ Donald H. Warner Vice President and Director 3/27/01 - ----------------------------- Donald H. Warner
/s/ Jann A. Weaver Treasurer and 3/27/01 - ----------------------------- Assistant Secretary Jann A. Weaver (Principal Financial Officer)
- ----------------------------- Vice President and Secretary 3/27/01 Harry R. Swift, Esq.
EXHIBIT INDEX