(Unaudited)
1.
Basis
of Presentation
The
accompanying unaudited consolidated financial statements of Community Banks,
Inc. and Subsidiaries (“Community”) have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of
management, all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation have been included.
Operating
results for the three months and nine months ended September 30, 2007, are
not
necessarily indicative of the results that may be expected for the year ending
December 31, 2007.
For
further information, refer to the audited consolidated financial statements,
and
footnotes thereto, included in the Annual Report on Form 10-K, for the year
ended December 31, 2006.
Community
is a financial holding company whose wholly-owned subsidiaries include
CommunityBanks, CommunityBanks Investments, Inc. (CBII), and Community Banks
Life Insurance Co. (CBLIC). CommunityBanks provides a wide range of services
through its network of offices in Adams, Berks, Chester, Cumberland, Dauphin,
Lancaster, Luzerne, Northumberland, Schuylkill, Snyder, and York Counties in
Pennsylvania and Baltimore, Carroll, and Howard Counties in
Maryland.
2.
Fair Value Measurements
In
September 2006, the Financial Accountings Standard Board (“FASB”) issued SFAS
No. 157,
Fair Value Measurements
, which defines fair value, establishes
a framework for measuring fair value, and enhances disclosures about assets
and
liabilities carried at fair value, but does not change existing guidance as
to
whether or not an asset or liability is carried at fair value. SFAS
No. 157 also: (1) precludes the use of a liquidity or block
discount when measuring instruments traded in an active market
at fair value; (2) requires cost related to acquiring financial
instruments carried at fair value to be included in earnings and; (3) clarifies
that an issuer’s credit standing should be considered when measuring liabilities
at fair value. The purpose of this Standard was to provide
consistency and comparability in determining fair value
measurements.
Community
elected to adopt SFAS No. 157 and SFAS No. 159 as of January 1, 2007, under
the
early adoption provisions of both standards. In its original filing
on Form 10-Q for the period ended March 31, 2007, Community applied
the fair value option provisions of SFAS No. 159 to certain securities that
had
a fair value of approximately $150 million that were included in its
available-for-sale portfolio at December 31, 2006. These securities, which
had
an historical cost basis of approximately $155 million, consisted primarily
of
various mortgage-backed securities and collateralized mortgage backed
obligations.
All
of the available-for-sale securities for which SFAS No. 159 was adopted
reflected previously unrecognized loss positions prior to January 1, 2007 (i.e.,
their fair value was less than historic cost). Prior to the decision to early
adopt SFAS No. 159 for the identified securities, Community had intended to
hold
these securities until their scheduled maturity or until there was a recovery
in
the market prices associated with these specific investments.
In
April of 2007, Community sold these trading securities, all of which had been
reclassified pursuant to the early adoption of SFAS No. 159, in order to
facilitate a balance sheet restructuring strategy. A portion of the
replacement investments, approximately $20 million, were classified as trading
securities. The remaining replacement investments, totaling approximately $128
million were classified as available-for sale securities at the date of
purchase. Also in April, 2007, Community applied the fair value
option provisions of SFAS No. 159 to $30 million of Federal Home Loan Bank
advances issued to facilitate its balance sheet restructuring.
Community
Banks, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2.
Fair Value Measurements (continued)
Subsequent
to the transactions discussed above and the original filing of Community’s first
quarter Form 10-Q on May 10, 2007, the staff of the Securities and Exchange
Commission (SEC) advised Community that the balance sheet restructuring
strategy, as presented, was inconsistent with the spirit and intent of SFAS
No.
159 and therefore was deemed a non-substantive adoption of the
Standard. Consequently, as reflected in an amended Form
10-Q for its first quarter, Community decided to reverse its decision to apply
SFAS No. 159 to those securities as of January 1, 2007. The
investment securities that were sold early in the second quarter were
reclassified as available-for-sale securities. Those securities were
considered “other-than-temporarily-impaired” at the end of the first quarter of
2007 based upon the presumption that Community had the intent to sell those
securities as of March 31, 2007. In the first quarter of 2007,
Community recognized a charge to earnings for the other-than-temporary
impairment of $4.4 million. The effect of the other-than-temporary
impairment charge and other related adjustments reduced income before income
taxes by $4.7 million, reduced income tax expense by $1.6 million, and reduced
net income by $3.1 million for the three months ended March 31,
2007. The “other-than-temporary impairment” charge was reclassified
as an “investment security loss” as of the date of the actual sale of the
securities in April of 2007.
Fair
Value Measurements (SFAS No. 157)
Assets
and liabilities, at fair value, consist of the following at September 30, 2007
(in thousands):
|
Trading
assets, consisting of Federal agency debt securities
|
$ 20,003
|
|
|
|
|
Federal
Home Loan Bank (“FHLB”) advances (contractual principal;
$30,000)
|
$ 29,999
|
Community
records trading assets and selected FHLB advances at fair value, with unrealized
gains and losses reflected in the consolidated statement of
income. The degree of judgment utilized in measuring the fair value
of these assets and liabilities generally correlates to their level of pricing
observability. Pricing observability is impacted by a number of factors,
including the type of asset or liability, whether the asset or liability has
an
established market and the characteristics specific to the transaction. Assets
and liabilities with readily available active quoted prices or for which fair
value can be measured from actively quoted prices generally will have a higher
degree of pricing observability and a lesser degree of judgment utilized in
measuring fair value. Conversely, assets and liabilities rarely
traded or not quoted will generally have less, or no, pricing observability
and
a higher degree of judgment utilized in measuring fair value.
Community’s
early adoption of SFAS No. 157, among other things, requires enhanced
disclosures about assets and liabilities that are carried at fair value. SFAS
No. 157 establishes a hierarchal disclosure framework associated with the level
of pricing observability utilized in measuring assets or liabilities at fair
value. The three broad levels defined by the SFAS No. 157 hierarchy are as
follows:
Level
I – Quoted prices are available in active markets for identical assets or
liabilities as of the reported date.
Level
II – Pricing inputs are other than quoted prices in active markets, which are
either directly or indirectly observable as of the reported date. The nature
of
these assets and liabilities include items for which quoted prices are available
but traded less frequently, and items that are fair valued using other financial
instruments, the parameters of which can be directly observed.
Level
III – Assets and liabilities that have little to no pricing observability as of
the reported date. These items do not have two-way markets and are
measured using management’s best estimate of fair value, where the inputs into
the determination of fair value require significant management judgment or
estimation.
Community
Banks, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2.
Fair Value Measurements (continued)
The
following table summarizes the valuation of Community’s trading assets and
liabilities that Community measures on a recurring basis, as well as
available-for-sale securities that Community measures at fair
value on a recurring basis, by the above SFAS No. 157 pricing
observability levels as of September 30, 2007, (in
thousands):
|
Description
|
Level
I
|
Level
II
|
Total
|
|
Trading
assets – Federal agency debt securities
|
$
---
|
$20,003
|
$20,003
|
|
FHLB
borrowings
|
$
---
|
$29,999
|
$29,999
|
|
Available-for-sale
securities
|
$
---
|
$639,962
|
$639,962
|
3.
Summary of Significant Accounting Policies
Cash
Flows Information –
Refer to Note 5, “Acquisitions,” for the terms
of non-cash transactions in 2007.
Earnings
Per Share -
Basic earnings per share represents income available
to common stockholders divided by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share reflect
additional common shares that would have been outstanding if dilutive potential
common shares had been issued, as well as any adjustment to income that would
result from the assumed issuance. Potential common shares that may be
issued by Community relate solely to outstanding stock options, and are
determined using the treasury stock method. All share and per share
amounts are restated for stock splits and stock dividends that occur prior
to
the issuance of the financial statements.
Earnings
per share for the three and nine months ended September 30 have been computed
as
follows (in thousands, except per share data):
|
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
10,493
|
|
|
$
|
10,558
|
|
|
$
|
28,030
|
|
|
$
|
31,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding (basic)
|
|
|
24,815
|
|
|
|
23,459
|
|
|
|
24,376
|
|
|
|
23,693
|
|
|
Effect
of dilutive stock options
|
|
|
174
|
|
|
|
204
|
|
|
|
225
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding (diluted)
|
|
|
24,989
|
|
|
|
23,663
|
|
|
|
24,601
|
|
|
|
23,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
share information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.42
|
|
|
$
|
0.45
|
|
|
$
|
1.15
|
|
|
$
|
1.34
|
|
|
Diluted
earnings per share
|
|
|
0.42
|
|
|
|
0.45
|
|
|
|
1.14
|
|
|
|
1.32
|
|
Community
Banks, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3.
Summary of Significant Accounting Policies
(continued)
Comprehensive
Income (Loss)
-
The
components of comprehensive income (loss) and related tax effect for the three
and nine months ended September 30 are as follows (in thousands):
|
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Unrealized
holding gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
available-for-sale securities
|
|
$
|
5,551
|
|
|
$
|
11,470
|
|
|
$
|
(8,828
|
)
|
|
$
|
2,023
|
|
|
Reclassification
adjustments for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
losses
(gains) included in net income
|
|
|
---
|
|
|
|
(28
|
)
|
|
|
4,388
|
|
|
|
(317
|
)
|
|
Net
unrealized gains (losses)
|
|
|
5,551
|
|
|
|
11,442
|
|
|
|
(4,440
|
)
|
|
|
1,706
|
|
|
Tax
effect
|
|
|
(1,943
|
)
|
|
|
(4,005
|
)
|
|
|
1,554
|
|
|
|
(597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net-of-tax
amount
|
|
$
|
3,608
|
|
|
$
|
7,437
|
|
|
$
|
(2,886
|
)
|
|
$
|
1,109
|
|
The
components of accumulated other comprehensive loss, included in stockholders’
equity, are as follows (in thousands):
|
|
|
September
30,
2007
|
|
|
December
31,
2006
|
|
|
Net
unrealized gain (loss) on available-for-sale securities
|
|
$
|
(4,006
|
)
|
|
$
|
434
|
|
|
Tax
effect
|
|
|
1,402
|
|
|
|
(152
|
)
|
|
Net-of-tax
amount
|
|
|
(2,604
|
)
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded
pension liability
|
|
|
(3,213
|
)
|
|
|
(3,213
|
)
|
|
Tax
effect
|
|
|
1,125
|
|
|
|
1,125
|
|
|
Net-of-tax
amount
|
|
|
(2,088
|
)
|
|
|
(2,088
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive loss
|
|
$
|
(4,692
|
)
|
|
$
|
(1,806
|
)
|
Reclassifications
–
Certain amounts reported in the prior year have been reclassified to conform
with the 2007 presentation. These reclassifications did not impact
Community’s financial condition or results of operations.
Community
Banks, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4.
Pending Merger
On
May 1, 2007, Community announced that it had signed a definitive agreement
pursuant to which Community will combine with Susquehanna Bancshares, Inc.
(“Susquehanna”), under Susquehanna’s charter. Under the terms of the agreement,
Community shareholders will be entitled to elect to receive for each share
of
Community stock they own, either $34.00 in cash or 1.48 shares of Susquehanna
common stock. Community shareholders may elect to receive cash for some shares
and stock for others, but all shareholder elections will be subject to
allocation procedures that will result in the exchange of 90 percent of
Community’s common shares outstanding for shares of Susquehanna common stock and
the remaining 10 percent of Community common shares outstanding for cash. At
the
time of the announcement, the value of the transaction was approximately
$860 million. Following consummation, the joint franchise will include
approximately 240 banking offices in the mid-Atlantic region. The merger has
received regulatory approval and the separate approvals of the shareholders
of
both Community and Susquehanna and is expected to be consummated on November
16,
2007.
5.
Acquisitions
On
April 1, 2007, Community and BUCS Financial Corp (“BUCS”), parent company of
BUCS Federal Bank, completed a merger in which BUCS was merged into Community.
Also on that date, BUCS Federal Bank was merged into CommunityBanks, Community’s
banking subsidiary. BUCS was headquartered in Baltimore County, Maryland, with
4
banking offices in Baltimore and Howard counties, Maryland. The purchase price
consisted of shares of Community common stock (65%) and cash (35%). Community
issued approximately 550,000 shares with an aggregate value of approximately
$13
million, based on Community’s share price of $23.87 at the merger date. Cash
payments to electing BUCS shareholders totaled $7 million. BUCS had
approximately $147 million in assets, $118 million in net loans, $9 million
in
investments, $123 million in deposits, $13 million in borrowings and $10 million
of stockholders’ equity at the merger date.
Community
and East Prospect State Bank (“East Prospect”) also completed a merger on April
1, 2007, in which East Prospect was merged into CommunityBanks. East Prospect
was a single-branch bank located in York County, Pennsylvania. The purchase
price consisted of shares of Community common stock (75%) and cash (25%).
Community issued approximately 668,000 shares with an aggregate value of
approximately $16 million, based on Community’s share price of $23.87 at the
merger date. Cash payments to electing East Prospect shareholders totaled $5
million. East Prospect had approximately $58 million in assets, $13 million
in
net loans, $41 million in investments, $43 million in deposits, and $13 million
of stockholders’ equity at the merger date.
The
results of operations of Community include BUCS’ and East Prospect’s results
from and after April 1, 2007. Disclosed below is certain pro forma information
for 2007 as if BUCS and East Prospect had been acquired on January 1, 2007,
and
for 2006 as if BUCS and East Prospect had been acquired on January 1, 2006.
These results combine historical results of BUCS and East Prospect into
Community’s consolidated statement of income. While certain adjustments have
been made for the estimated impact of purchase accounting adjustments, they
are
not necessarily indicative of what would have occurred had the mergers taken
place on the indicated dates.
|
|
|
2007
|
|
|
2006
|
|
|
(in
thousands, except per share data)
|
|
Nine
Months Ended
September
30
|
|
|
Three
Months Ended
September
30
|
|
|
Nine
Months Ended
September
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$
|
84,558
|
|
|
$
|
28,522
|
|
|
$
|
85,552
|
|
|
Other
income
|
|
|
27,499
|
|
|
|
9,741
|
|
|
|
28,549
|
|
|
Net
income
|
|
|
24,809
|
|
|
|
10,729
|
|
|
|
32,557
|
|
|
Diluted
earnings per common share
|
|
$
|
0.99
|
|
|
$
|
0.43
|
|
|
$
|
1.30
|
|
Community
Banks, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6.
Guarantees
Community
does not issue any guarantees that would require liability recognition or
disclosure, other than its standby letters of credit. Standby letters
of credit written are conditional commitments issued by Community to guarantee
the performance of a customer to a third party. Generally, all
letters of credit, when issued have expiration dates within one
year. The credit risk involved in issuing letters of credit is
essentially the same as that which is involved in extending loan facilities
to
customers. Community generally holds collateral and/or personal
guarantees supporting these commitments. Community had
issued $75.6 million and $84.2 million
of standby letters of credit as of September 30, 2007 and December 31, 2006,
respectively. Management believes that the proceeds obtained through
a liquidation of collateral and the enforcement of guarantees would be
sufficient to cover the potential amount of future payments required under
the
corresponding letters of credit. The current amount of the
liability as of September 30, 2007 and December 31, 2006, for guarantees under
standby letters of credit issued is not material.
7.
Long-Term
Debt
|
(in
thousands)
|
|
September
30,
2007
|
|
|
December
31,
2006
|
|
|
Outstanding
advances from the FHLB of Pittsburgh mature from 2007 to
2017. The advances are collateralized by FHLB stock, certain
first mortgage loans and both agency and mortgage-backed
securities. The advance rates range from 2.85% to 6.35%, with a
weighted average interest rate of 4.74%. Advances totaling $328
million are convertible advances. Convertible advances with an
initial fixed-rate period are convertible to variable rate at the
option
of the FHLB. Convertible advances with an initial variable-rate
period at LIBOR-100 basis points are convertible to fixed-rate or
to a
variable rate tied to a spread over LIBOR. Under the terms of the
arrangements, if the FHLB opts to convert advances to variable rate,
Community has the ability to prepay the advances at no
penalty. At the current time no advances have been converted
and remain fixed rate.
|
|
$
|
413,483
|
|
|
$
|
315,079
|
|
Maturities
on long-term debt at September 30, 2007, are as follows for twelve month periods
ending as indicated (in thousands):
|
September
30, 2008
|
|
$
|
14,481
|
|
|
September
30, 2009
|
|
|
70,079
|
|
|
September
30, 2010
|
|
|
5,090
|
|
|
September
30, 2011
|
|
|
25,092
|
|
|
September
30, 2012
|
|
|
11,083
|
|
|
Thereafter
|
|
|
287,658
|
|
|
|
|
$
|
413,483
|
|
Community
Banks, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8.
Stock-Based Plans
In
January, 2007, Community granted 273,000 option awards under its Long-Term
Incentive Program. The fair value of the awards was estimated with the following
weighted-average assumptions using the Black-Scholes option pricing
model:
|
Dividend
yield
|
3.1%
|
|
Volatility
|
29.2%
|
|
Risk-free
interest rate
|
4.5%
|
|
Expected
life (years)
|
6.0
|
|
Resulting
grant-date fair value
|
$
6.33
|
These
assumptions are based on multiple factors, including historical exercise
patterns of employees in relatively homogeneous groups with respect to exercise
and post-vesting employment termination behaviors, expected future exercising
patterns for the same homogeneous groups and the historical volatility of
Community’s stock price.
At
September 30, 2007, there was $2.4 million of unrecognized compensation cost
related to all share-based payments. This cost is expected to be recognized
over
a weighted-average period of 3.6 years.
COMMUNITY
BANKS, INC. AND SUBSIDIARIES
INTRODUCTION
The
purpose of this review is to provide additional information necessary to fully
understand the consolidated financial condition and results of operations of
Community Banks, Inc. (“Community”). Throughout this review, net
interest income and the yield on earning assets are stated on a fully
taxable-equivalent basis and balances represent average daily balances unless
otherwise indicated.
On
April 1, 2007, Community completed its acquisitions of both BUCS Financial
Corp
(BUCS) and East Prospect State Bank (East Prospect). At the date of
the mergers, Community acquired the four branches of BUCS, which are located
in
central Maryland, and the single branch of East Prospect, which is located
in
York County, Pennsylvania. Under the terms of the separate
merger agreements with the acquired companies, Community issued cash and stock
with an aggregated value of $42 million in exchange for all of the outstanding
shares of BUCS and East Prospect. Community added a total of $210
million in assets, $131 million in loans and $166 million in deposits as a
result of the two mergers. The acquired assets, loans and deposits
represented 6%, 5%, and 7%, respectively, of Community’s balances immediately
prior to the mergers.
On
May 1, 2007, Community announced the signing of a definitive merger agreement
with Susquehanna Bancshares, Inc. ("Susquehanna") pursuant to which Community
will be merged with Susquehanna in a stock and cash transaction that was valued
at approximately $860 million. Under the terms of the merger agreement,
shareholders of Community will be entitled to elect to receive for each share
of
Community common stock they own, either $34.00 in cash or 1.48 shares of
Susquehanna common stock, with no more than 10% of the consideration to be
paid
in cash. The transaction will consolidate the companies' presence in
southeastern Pennsylvania and the Mid-Atlantic region, particularly in the
attractive York and Lancaster markets. The combined company will have over
$12
billion in assets and approximately $2 billion in market capitalization, making
it the 45th largest bank holding company in the United States. This merger
has
now been approved by the shareholders of both companies and by the appropriate
regulatory bodies and is expected to be consummated on November 16, 2007.
GAAP
REPORTING ISSUES
This
section of the presentation will summarize the salient GAAP reporting issues
associated with presentations of financial information for Community, including:
forward-looking statements; critical accounting policies; and GAAP versus
“non-GAAP” presentations.
Forward-Looking
Statements
Periodically,
Community has made assertions that may include forward-looking information.
Community cautions that forward-looking information disseminated through
financial presentations should not be construed as guarantees of future
performance. Furthermore, actual results may differ from expectations
contained in such forward-looking information as a result of factors that are
not predictable. Financial performance can be affected by any number
of factors that are not predictable or are out of management’s direct
control. Examples include: the effect of prevailing
economic conditions; unforeseen or dramatic changes in the general interest
rate
environment; actions or changes in policies of the Federal Reserve Board and
other government agencies; the risk associated with global instability; business
risk associated with the management of the credit extension function and
fiduciary activities. Each of these factors could affect estimates,
assumptions, uncertainties and risk used to develop forward-looking information,
and could cause actual results to differ materially from management’s
expectations regarding future performance.
Critical
Accounting Policies
The
identification of those accounting policies which are deemed to be critical
to
the application of GAAP on reported results of Community is an important facet
of this presentation. Management has identified the applicable promulgations
of
GAAP that have particular relevance in connection with reported results for
the
quarter ended September 30, 2007:
|
§
|
Allowance
for Loan Losses: Adequacy of
Allowance
|
|
§
|
Purchase
Accounting for Business
Combinations
|
|
§
|
“Other
than Temporary” Impairment of Investment
Securities
|
Management
believes that the application of its accounting policies and procedures for
each
of the above items should be considered to be a critical accounting policy
to
ensure the fair presentation of Community’s financial statements.
Community
applies a systemic methodology in order to estimate the allowance for loan
losses. This methodology incorporates management’s judgments about
the credit quality of the loan portfolio and a disciplined, regimented
methodology that is consistently applied. This process requires that
a detailed analysis of the loan portfolio be performed on a quarterly
basis. This analysis includes a specific individual loan review for
any and all loans that meet specific materiality criteria. Such loans
are evaluated for impairment under the provisions of Statement of Financial
Accounting Standards (“SFAS”) No. 114, “Accounting by Creditors for Impairment
of a Loan.” The portfolio is further stratified to analyze groups of
homogeneous loans with similar risk characteristics. Such loans are
evaluated under the provisions of SFAS No. 5 “Accounting for
Contingencies.”
Management
considers all known relevant internal and external factors that may affect
loan
collectibility, as well as particular risks indigenous to specific types of
lending. The process is further designed to consolidate the aggregate
loss estimates and to ensure that the allowance for loan losses is recorded
in
accordance with generally accepted accounting principles. The final
results are reviewed and approved by executive management. Results
are regularly validated by a review of trends associated with loan volume,
delinquencies, potential concentrations, or other factors that may influence
the
methodology used to estimate the allowance for loan losses.
|
·
|
Purchase
Accounting for Business
Combinations
|
In
June of 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible
Assets.” These standards eliminated the pooling-of-interests method
of accounting (“pooling”) in favor of purchase accounting. Further,
these standards were promulgated to ensure that post-merger financial statements
of combined entities are prepared in a manner that best represents the
underlying economics of a business combination.
These
standards necessitate the application of accounting policies and procedures
that
entail the use of assumptions, estimates, and judgments that are critical to
the
presentation of financial information, including the ongoing valuation of
intangibles. The ultimate responsibility for the application of these
standards and the adequacy of disclosures related thereto rests with
management.
|
·
|
Other
than Temporary Impairment of Investment
Securities
|
Investment
securities are written down to their net realizable value when there is
impairment in value that is considered to be other than
temporary. The determination of whether or not other than temporary
impairment exists is a matter of judgment. Management reviews its investment
securities portfolio regularly for possible impairment that is other than
temporary by analyzing the facts and circumstances of each investment and the
expectations for that investment’s performance.
At
the end of the first quarter of 2007, Community reported an “other than
temporary impairment” of $4.4 million in connection with $140 million of
investment securities that were subsequently sold in April of 2007 as part
of
Community’s portfolio restructuring plan. The “other than temporary
impairment” loss that had been recorded as of March 31, 2007 has been
reclassified in these financial statements as a loss on the sale of investment
securities pursuant to the realization of actual losses from the second quarter
sale.
GAAP
versus Non-GAAP
Since
2001, all business combinations must be accounted for under the “purchase
accounting” method. Prior to that time, most business combinations in the
banking industry had been accounted for under the previously permissible
“pooling of interests” method. Like most other financial institutions
that have made acquisitions since the mandate of purchase accounting, Community
is now providing certain non-GAAP information to assist investors in their
understanding of the effect of acquisition activity on reported results. Many
of
these disclosures have been designed to overcome comparability issues related
to
the influence of intangibles (principally goodwill) created in business
combinations. Such information is not presented as a substitute for traditional
GAAP measurements, but is provided as a supplemental enhancement to improve
comparability and investor understanding. Community has augmented its
traditional GAAP presentation by providing an extensive reconciliation of
relevant GAAP and non-GAAP measures to enhance its disclosures of comparative
financial performance.
SUMMARY
OF FINANCIAL AND OPERATING RESULTS
Overview
Community
reported third quarter earnings per share for 2007 of $0.42, which was $0.03
less than the $0.45 recorded in the same period of 2006. Net income
reached $10.5 million, almost equal to the net income recorded in the prior
year’s quarter. Results for the third quarter of 2007 were inclusive
of $754,000 of merger-related expenses incurred in connection with the upcoming
merger with Susquehanna Bancshares, which reduced the current quarter’s earnings
by more than $0.02 per share.
Net
income and earnings per share for the first nine months of 2007 were hampered
by
the March 31, 2007 recognition of securities losses that were attributed to
Community’s portfolio restructuring initiative in the first
quarter. The first quarter investment losses reduced year-to-date net
income and earnings per share by $2.9 million and $0.12,
respectively. Primarily as a result of the restructuring charge,
year-to-date earnings per share performance for the first nine months of 2007
declined to $1.14 versus $1.32 for the same period of 2006. The losses stemming
from that initiative facilitated the reinvestment of investment sale proceeds
into higher-yielding securities.
Community
completed two mergers of its own effective April 1, 2007, and the results for
the nine months ended September 30, 2007 reflect the combined results of both
BUCS Financial Corp (BUCS) and East Prospect State Bank (East
Prospect). Comparisons of operating performance in the third quarter
are slightly distorted by the impact of the two mergers that occurred on April
1, 2007. A number of performance metrics serve to illustrate the
continuing difficulties presented by the external operating
environment. Despite these challenges, Community has continued to
record results ahead of many of its competitors. Net interest margin,
a primary driver of net interest income performance, declined only slightly
from
the second quarter, from 3.72% to 3.67%. At the same time,
non-interest income as a percent of total income also declined, from 26.8%
to
25.38%. The efficiency ratio, which expresses non-interest expenses
as a percent of total revenues was a bright spot at 56.31% and served to
illustrate Community’s ongoing efforts to keep operating expenses in line with
revenue performance. Loan, total asset and deposit growth were all in
the 8% to11% range, though a significant portion of the growth was attributed
to
the additional loans, assets and deposits brought on in the
mergers.
Like
many banks of its size, Community has begun to experience increases in the
level
of non-accrual loans, which grew from $12.5 million at December 31, 2006 to
$26.4 million at September 30, 2007. Community continues to maintain
an allowance for loan losses that it believes is adequate to absorb losses,
if
any, by deterioration in these credit relationships. During the third
quarter, Community added nearly $1.1 million to the allowance via its provision
to loan losses. Such provision was in excess of the $0.5 million of
net-charge offs which occurred for the three months ended September 30,
2007.
BALANCE
SHEET
Three
Months Ended September 30:
The
average balance sheets for the three months ended September 30, 2007 and 2006
were as follows:
|
|
|
September
30,
|
|
|
Change
|
|
|
(in
thousands)
|
|
2007
|
|
|
2006
|
|
|
Volume
|
|
|
%
|
|
|
Cash
and due from banks
|
|
$
|
62,333
|
|
|
$
|
62,636
|
|
|
$
|
(303
|
)
|
|
|
---
|
%
|
|
Federal
funds sold and interest-bearing deposits
|
|
|
27,494
|
|
|
|
29,324
|
|
|
|
(1,830
|
)
|
|
|
(6
|
)%
|
|
Investments
(including trading assets)
|
|
|
682,695
|
|
|
|
566,772
|
|
|
|
115,923
|
|
|
|
20
|
%
|
|
Loans
|
|
|
2,578,729
|
|
|
|
2,339,352
|
|
|
|
239,377
|
|
|
|
10
|
%
|
|
Allowance
for loan losses
|
|
|
(25,490
|
)
|
|
|
(24,385
|
)
|
|
|
(1,105
|
)
|
|
|
5
|
%
|
|
Net
loans
|
|
|
2,553,239
|
|
|
|
2,314,967
|
|
|
|
238,272
|
|
|
|
10
|
%
|
|
Goodwill
and other intangible assets
|
|
|
279,494
|
|
|
|
259,023
|
|
|
|
20,471
|
|
|
|
8
|
%
|
|
Other
assets
|
|
|
173,083
|
|
|
|
153,183
|
|
|
|
19,900
|
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
3,778,338
|
|
|
$
|
3,385,905
|
|
|
$
|
392,433
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
deposits
|
|
$
|
356,064
|
|
|
$
|
344,708
|
|
|
$
|
11,356
|
|
|
|
3
|
%
|
|
Interest-bearing
deposits
|
|
|
2,282,324
|
|
|
|
2,093,349
|
|
|
|
188,975
|
|
|
|
9
|
%
|
|
Short-term
borrowings
|
|
|
81,387
|
|
|
|
60,680
|
|
|
|
20,707
|
|
|
|
34
|
%
|
|
Long-term
debt
|
|
|
435,014
|
|
|
|
340,162
|
|
|
|
94,852
|
|
|
|
28
|
%
|
|
Subordinated
debt
|
|
|
75,260
|
|
|
|
51,548
|
|
|
|
23,712
|
|
|
|
46
|
%
|
|
Other
liabilities
|
|
|
27,200
|
|
|
|
23,547
|
|
|
|
3,653
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
3,257,249
|
|
|
|
2,913,994
|
|
|
|
343,255
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
521,089
|
|
|
|
471,911
|
|
|
|
49,178
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
3,778,338
|
|
|
$
|
3,385,905
|
|
|
$
|
392,433
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in Community’s balance sheet from the third quarter of 2006 to the third quarter
of 2007 were dramatically affected by the additional loans, assets and deposits
acquired as a result of the mergers of BUCS and East Prospect on April 1, 2007.
As previously noted, the acquired loans, assets and deposits provided
approximately one-half of the increases noted in the above table. The
increase in goodwill and other intangible assets is principally attributable
to
these two mergers. Under purchase accounting, results for the three months
ended
September 30, 2006 were not restated for historical BUCS and East Prospect
activity.
Core
economic trends continue to influence financial institution performance on
both
a national and regional level. The most pervasive economic trends
suggest an increasing likelihood for softening of economic activity that, in
turn, is moderating both the growth and profitability of financial
institutions. These trends include a measurable reduction in level of
new home construction and home sales, the fallout from the sub-prime lending
issues, higher energy prices, and elevated concerns over credit quality. Local
economic conditions within Community’s trading area have remained steady, but
are not immune to the more pervasive conditions existing throughout the national
economy.
While
conditions on a national level suggest a higher likelihood of an economic
slowdown, the actual changes in assets from the year ago period remain
encouraging. The major category of earning assets, and the most important driver
of overall interest income performance, is loan growth. Loan growth,
while not robust, did reflect 10% increase from the year ago
period. Overall earning assets also grew 12%. Approximately one-half
of this growth was attributed to the assets added in the April 1
mergers.
The
following table provides a summary of the changes in the various categories
of
loans:
|
|
|
|
|
|
|
|
|
Change
|
|
|
(in
thousands)
|
|
September
30,
2007
|
|
|
September
30,
2006
|
|
|
Amount
|
|
|
Annualized
%
|
|
|
Commercial
|
|
$
|
958,605
|
|
|
$
|
831,951
|
|
|
$
|
126,654
|
|
|
|
15
|
%
|
|
Commercial
real estate
|
|
|
807,618
|
|
|
|
831,288
|
|
|
|
(23,670
|
)
|
|
|
(3
|
)%
|
|
Residential
real estate
|
|
|
178,487
|
|
|
|
150,926
|
|
|
|
27,561
|
|
|
|
18
|
%
|
|
Consumer
|
|
|
634,019
|
|
|
|
525,187
|
|
|
|
108,832
|
|
|
|
21
|
%
|
|
Total
|
|
$
|
2,578,729
|
|
|
$
|
2,339,352
|
|
|
$
|
239,377
|
|
|
|
10
|
%
|
Excluding
the influence of the mergers, growth in quarterly loan balance comparisons
was
fueled primarily by commercial loan growth, which continues to exhibit normal
seasonal influences. While commercial loan growth was strong,
activity in commercial real estate lending was subdued. Given the
perceived softness in the housing industry, a number of commercial borrowers
have been reducing their credit facilities and scaling back on development
activities until economic conditions exhibit tangible signs of sustainable
improvement. Consumer lending increases were strong, partially due to
seasonal increases.
Deposit
balances remain the primary source of core funding and Community recognized
growth of 8% between the third quarter of 2007 and the same period of 2006,
as
follows:
|
|
|
|
|
|
|
|
|
Change
|
|
|
(in
thousands)
|
|
September
30,
2007
|
|
|
September
30,
2006
|
|
|
Amount
|
|
|
Annualized
%
|
|
|
Demand
|
|
$
|
356,064
|
|
|
$
|
344,708
|
|
|
$
|
11,356
|
|
|
|
3
|
%
|
|
Savings
& NOW accounts
|
|
|
937,362
|
|
|
|
873,670
|
|
|
|
63,692
|
|
|
|
7
|
%
|
|
Time
|
|
|
1,038,140
|
|
|
|
984,415
|
|
|
|
53,725
|
|
|
|
5
|
%
|
|
Time
$100,000 or more
|
|
|
306,822
|
|
|
|
235,264
|
|
|
|
71,558
|
|
|
|
30
|
%
|
|
|
|
$
|
2,638,388
|
|
|
$
|
2,438,057
|
|
|
$
|
200,331
|
|
|
|
8
|
%
|
Increases
in deposit balances were influenced significantly by the mix of deposits from
the acquired banks. Rate offerings on time deposits increased
throughout 2006, resulting in an overall increase in both time deposits and
time
deposits with balances in excess of $100,000. The interest rate
offerings on short term time deposits were influenced by the steady increase
in
the benchmark Federal Funds rates that commenced in the first six months of
2006. Throughout 2006, the increased rate offerings on
short term time deposits, particularly those offerings with maturities of less
than one year, provided sufficient incentive for depositors to commit excess
liquidity into higher-yielding, short-term time deposit
products. The rates offered on short term time deposits
provided both the desired level of liquidity and more competitive pricing for
consumers. While interest rate offerings did not increase substantially since
mid-year 2006, customers seemed to have reached an inflection point for moving
deposits into higher yielding time categories. More recent rate trends suggest
a
bias toward a slight lowering of rates. While demand deposit
balances reflected modest growth of 3% from the year ago period, the levels
of
demand deposit balances since the middle of 2006 through September 30, 2007
have
remained constant.
Community
also reflected increases in both wholesale borrowing categories and investment
balances. The increases are reflective of ongoing efforts to enhance
net interest income growth and asset / liability management during periods
characterized by moderate loan growth and subdued economic activity. Increases
in wholesale borrowings included an additional $20 million issuance of
subordinated debentures that was utilized, in part, to facilitate the cash
component of the April 1, 2007, bank mergers.
Nine
Months Ended September 30:
The
average balance sheets for the nine months ended September 30, 2007 and 2006
were as follows:
|
|
|
September
30,
|
|
|
Change
|
|
|
(in
thousands)
|
|
2007
|
|
|
2006
|
|
|
Volume
|
|
|
%
|
|
|
Cash
and due from banks
|
|
$
|
59,608
|
|
|
$
|
60,462
|
|
|
$
|
(854
|
)
|
|
|
(1
|
)%
|
|
Federal
funds sold and interest-bearing deposits
|
|
|
39,203
|
|
|
|
31,340
|
|
|
|
7,863
|
|
|
|
25
|
%
|
|
Investments
(including trading assets)
|
|
|
678,833
|
|
|
|
585,909
|
|
|
|
92,924
|
|
|
|
16
|
%
|
|
Loans
|
|
|
2,519,749
|
|
|
|
2,314,258
|
|
|
|
205,491
|
|
|
|
9
|
%
|
|
Allowance
for loan losses
|
|
|
(25,170
|
)
|
|
|
(23,817
|
)
|
|
|
(1,353
|
)
|
|
|
6
|
%
|
|
Net
loans
|
|
|
2,494,579
|
|
|
|
2,290,441
|
|
|
|
204,138
|
|
|
|
9
|
%
|
|
Goodwill
and other intangible assets
|
|
|
272,584
|
|
|
|
258,902
|
|
|
|
13,682
|
|
|
|
5
|
%
|
|
Other
assets
|
|
|
165,491
|
|
|
|
159,964
|
|
|
|
5,527
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
3,710,298
|
|
|
$
|
3,387,018
|
|
|
$
|
323,280
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
deposits
|
|
$
|
353,370
|
|
|
$
|
356,200
|
|
|
$
|
(2,830
|
)
|
|
|
(1
|
)%
|
|
Interest-bearing
deposits
|
|
|
2,234,155
|
|
|
|
2,017,997
|
|
|
|
216,158
|
|
|
|
11
|
%
|
|
Short-term
borrowings
|
|
|
90,304
|
|
|
|
62,340
|
|
|
|
27,964
|
|
|
|
45
|
%
|
|
Long-term
debt
|
|
|
427,820
|
|
|
|
403,828
|
|
|
|
23,992
|
|
|
|
6
|
%
|
|
Subordinated
debt
|
|
|
69,180
|
|
|
|
49,282
|
|
|
|
19,898
|
|
|
|
40
|
%
|
|
Other
liabilities
|
|
|
25,201 29
|
|
|
|
23,691
|
|
|
|
1,510
|
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
3,200,030
|
|
|
|
2,913,338
|
|
|
|
286,692
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
510,268
|
|
|
|
473,680
|
|
|
|
36,588
|
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
3,710,298
|
|
|
$
|
3,387,018
|
|
|
$
|
323,280
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
sheet trends for the first nine months of 2007 compared to the same period
of
2006 reflected many of the same trends noted for the quarterly
comparisons. The influence from the April 1, 2007, acquisitions on
reported growth trends is more diluted in the nine month
comparisons.
RESULTS
OF OPERATIONS
Net
Interest Income - Three Months Ended September 30:
Community’s
major source of revenue is derived from intermediation activities and is
reported as net interest income. Net interest income is defined as
the difference between interest income on earning assets and interest expense
on
deposits and borrowed funds. Net interest margin is a relative
measure of a financial institution’s ability to efficiently deliver net interest
income from a given level of earning assets. Interest spread, which is the
primary component of net interest margin, is the difference between the interest
rates received on earning assets and those paid on interest-bearing liabilities.
Net interest income, net interest margin, and interest spread are all influenced
by the frequency, velocity, and extent of interest rate changes, including
the
slope of the yield curve, and by the composition and absolute volumes of earning
assets and funding sources.
The
following table compares net interest income, net interest margin, and interest
spread components between the third quarters of 2006 and 2007.
|
|
|
Net
Interest Margin – Quarter to Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
September
30, 2007
|
|
|
September
30, 2006
|
|
|
|
|
Average
Balance
|
|
|
FTE
Interest Income/ Expense
|
|
|
Average
Rate Earned/
Paid
|
|
|
Average
Balance
|
|
|
FTE
Interest Income/ Expense
|
|
|
Average
Rate Earned/
Paid
|
|
|
Federal
funds sold and interest-
bearing
deposits in banks
|
|
$
|
27,494
|
|
|
$
|
346
|
|
|
|
4.99
|
%
|
|
$
|
29,324
|
|
|
$
|
390
|
|
|
|
5.28
|
%
|
|
Investment
securities
|
|
|
682,695
|
|
|
|
10,664
|
|
|
|
6.20
|
%
|
|
|
566,772
|
|
|
|
8,556
|
|
|
|
5.99
|
%
|
|
Loans
- commercial
|
|
|
958,605
|
|
|
|
19,019
|
|
|
|
7.87
|
%
|
|
|
831,950
|
|
|
|
16,687
|
|
|
|
7.76
|
%
|
|
-
commercial real estate
|
|
|
807,618
|
|
|
|
14,631
|
|
|
|
7.19
|
%
|
|
|
831,288
|
|
|
|
14,810
|
|
|
|
7.07
|
%
|
|
-
residential real estate
|
|
|
178,487
|
|
|
|
2,709
|
|
|
|
6.02
|
%
|
|
|
150,926
|
|
|
|
2,364
|
|
|
|
6.21
|
%
|
|
-
consumer
|
|
|
634,019
|
|
|
|
11,559
|
|
|
|
7.23
|
%
|
|
|
525,188
|
|
|
|
9,552
|
|
|
|
7.22
|
%
|
|
Total
earning assets
|
|
$
|
3,288,918
|
|
|
$
|
58,928
|
|
|
|
7.11
|
%
|
|
$
|
2,935,448
|
|
|
$
|
52,359
|
|
|
|
7.08
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
- savings and NOW accounts
|
|
$
|
937,362
|
|
|
$
|
5,659
|
|
|
|
2.40
|
%
|
|
$
|
873,670
|
|
|
$
|
4,969
|
|
|
|
2.26
|
%
|
|
- time
|
|
|
1,344,962
|
|
|
|
15,397
|
|
|
|
4.54
|
%
|
|
|
1,219,679
|
|
|
|
12,889
|
|
|
|
4.19
|
%
|
|
Short-term
borrowings
|
|
|
81,387
|
|
|
|
918
|
|
|
|
4.47
|
%
|
|
|
60,680
|
|
|
|
739
|
|
|
|
4.83
|
%
|
|
Long-term
debt
|
|
|
435,014
|
|
|
|
5,207
|
|
|
|
4.75
|
%
|
|
|
340,162
|
|
|
|
3,936
|
|
|
|
4.59
|
%
|
|
Subordinated
debt
|
|
|
75,260
|
|
|
|
1,351
|
|
|
|
7.12
|
%
|
|
|
51,548
|
|
|
|
972
|
|
|
|
7.48
|
%
|
|
Total
interest-bearing liabilities
|
|
$
|
2,873,985
|
|
|
$
|
28,532
|
|
|
|
3.94
|
%
|
|
$
|
2,545,739
|
|
|
$
|
23,505
|
|
|
|
3.66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income to earning assets
|
|
|
|
|
|
|
|
|
|
|
7.11
|
%
|
|
|
|
|
|
|
|
|
|
|
7.08
|
%
|
|
Interest
expense to paying liabilities
|
|
|
|
|
|
|
|
|
|
|
3.94
|
%
|
|
|
|
|
|
|
|
|
|
|
3.66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
spread
|
|
|
|
|
|
|
|
|
|
|
3.17
|
%
|
|
|
|
|
|
|
|
|
|
|
3.42
|
%
|
|
Impact
of non-interest funds
|
|
|
|
|
|
|
|
|
|
|
0.50
|
%
|
|
|
|
|
|
|
|
|
|
|
0.48
|
%
|
|
Net
interest margin
|
|
|
|
|
|
$
|
30,396
|
|
|
|
3.67
|
%
|
|
|
|
|
|
$
|
28,854
|
|
|
|
3.90
|
%
|
Changes
in net interest income, net interest margin, and interest spread between the
two
periods were influenced both by the increase in interest rates from a year
ago
and by the more recent decline in rates.
|
o
|
The
existence of a generally higher level of short-term interest rates
since
mid-year 2006 and the prolonged presence of an “inverted” or “flat" yield
curve throughout most of 2006 and into the first half of
2007. This trend was then coupled with the more recent decline
in short-term rates during the third quarter of 2007. These
dynamics contributed to a generally upward re-pricing of a significant
portion of the funding base. At the same time, the more recent
declines in rates have undermined attempts to simultaneously increase
the
yields on the loan portfolio.
|
|
o
|
The
Federal Open Market Committee’s more recent tightening of the benchmark
Federal Funds rate during the third quarter of
2007.
|
|
o
|
A
less robust pace of loan growth since mid-year
2006.
|
|
o
|
Some
favorable influence from enhanced investment yields and higher portfolio
balances in 2007.
|
|
o
|
Ongoing
competitive pressure to sustain higher short-term time deposit pricing
to
maintain and increase funding balances necessary to meet the current
level
of earning asset growth.
|
|
o
|
Consumer
preferences for higher-cost rate offerings on time
deposits.
|
Third
quarter comparisons of net interest spread and net interest margin between
2006
and 2007 resulted in declines in both net interest spread, from 3.42% to 3.17%,
and in net interest margin, from 3.90% to 3.67%.
Net
Interest Income - Nine Months Ended September 30:
The
following table compares net interest income, net interest margin, and interest
spread components between the first nine months of 2007 and 2006.
|
|
|
Net
Interest Margin – Year to Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
September
30, 2007
|
|
|
September
30, 2006
|
|
|
|
|
Average
Balance
|
|
|
FTE
Interest Income/ Expense
|
|
|
Average
Rate Earned/
Paid
|
|
|
Average
Balance
|
|
|
FTE
Interest Income/ Expense
|
|
|
Average
Rate Earned/
Paid
|
|
|
Federal
funds sold and interest-
bearing
deposits in banks
|
|
$
|
39,203
|
|
|
$
|
1,524
|
|
|
|
5.20
|
%
|
|
$
|
39,340
|
|
|
$
|
1,426
|
|
|
|
4.85
|
%
|
|
Investment
securities
|
|
|
678,833
|
|
|
|
31,311
|
|
|
|
6.17
|
%
|
|
|
585,909
|
|
|
|
26,085
|
|
|
|
5.95
|
%
|
|
Loans
- commercial
|
|
|
942,456
|
|
|
|
55,779
|
|
|
|
7.91
|
%
|
|
|
825,241
|
|
|
|
47,844
|
|
|
|
7.75
|
%
|
|
-
commercial real estate
|
|
|
806,338
|
|
|
|
43,304
|
|
|
|
7.18
|
%
|
|
|
819,887
|
|
|
|
42,741
|
|
|
|
6.97
|
%
|
|
-
residential real estate
|
|
|
169,051
|
|
|
|
7,892
|
|
|
|
6.24
|
%
|
|
|
151,751
|
|
|
|
6,933
|
|
|
|
6.11
|
%
|
|
-
consumer
|
|
|
601,904
|
|
|
|
32,547
|
|
|
|
7.23
|
%
|
|
|
517,378
|
|
|
|
27,045
|
|
|
|
6.99
|
%
|
|
Total
earning assets
|
|
$
|
3,237,785
|
|
|
$
|
172,357
|
|
|
|
7.12
|
%
|
|
$
|
2,939,506
|
|
|
$
|
152,074
|
|
|
|
6.92
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
- savings and NOW accounts
|
|
$
|
912,949
|
|
|
$
|
16,144
|
|
|
|
2.36
|
%
|
|
$
|
840,397
|
|
|
$
|
12,363
|
|
|
|
1.97
|
%
|
|
- time
|
|
|
1,321,206
|
|
|
|
44,516
|
|
|
|
4.50
|
%
|
|
|
1,177,600
|
|
|
|
34,700
|
|
|
|
3.94
|
%
|
|
Short-term
borrowings
|
|
|
90,304
|
|
|
|
3,240
|
|
|
|
4.80
|
%
|
|
|
62,340
|
|
|
|
2,080
|
|
|
|
4.46
|
%
|
|
Long-term
debt
|
|
|
427,820
|
|
|
|
15,008
|
|
|
|
4.69
|
%
|
|
|
403,828
|
|
|
|
13,611
|
|
|
|
4.51
|
%
|
|
Subordinated
debt
|
|
|
69,180
|
|
|
|
3,720
|
|
|
|
7.19
|
%
|
|
|
49,282
|
|
|
|
2,707
|
|
|
|
7.34
|
%
|
|
Total
interest-bearing liabilities
|
|
$
|
2,821,459
|
|
|
$
|
82,628
|
|
|
|
3.92
|
%
|
|
$
|
2,533,447
|
|
|
$
|
65,461
|
|
|
|
3.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income to earning assets
|
|
|
|
|
|
|
|
|
|
|
7.12
|
%
|
|
|
|
|
|
|
|
|
|
|
6.92
|
%
|
|
Interest
expense to paying liabilities
|
|
|
|
|
|
|
|
|
|
|
3.92
|
%
|
|
|
|
|
|
|
|
|
|
|
3.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
spread
|
|
|
|
|
|
|
|
|
|
|
3.20
|
%
|
|
|
|
|
|
|
|
|
|
|
3.47
|
%
|
|
Impact
of non-interest funds
|
|
|
|
|
|
|
|
|
|
|
0.51
|
%
|
|
|
|
|
|
|
|
|
|
|
0.47
|
%
|
|
Net
interest margin
|
|
|
|
|
|
$
|
89,729
|
|
|
|
3.71
|
%
|
|
|
|
|
|
$
|
86,613
|
|
|
|
3.94
|
%
|
Many
of the quarter-to-quarter trends itemized above were also the primary catalysts
for similar declines in the nine month year-to-date comparisons of net interest
margin. Community had experienced sequential compression in net interest margin
throughout each of the four quarters of 2006. That decline was characterized
by
continuous re-pricing of funding sources and a constrained ability to
proportionately increase the pricing of rate-sensitive
assets. Community has experienced more modest sequential quarterly
compression since the beginning of 2007, as net interest margin has remained
relatively constant during the first nine months of 2007.
Provision
for Loan Losses
During
the first three quarters of 2007, Community recorded a provision for loan losses
of $3.1 million, slightly higher than the level of net charge-offs ($2.4
million) during that same period. The ratio of the allowance for loan
losses declined slightly to 0.98% compared to 1.00% at the end of
2006. During the third quarter of 2007, Community did
experience a decline in the coverage of the allowance to non-accrual loans,
from
188% at December 31, 2006 to 97% at September 30, 2007. Total
non-performing assets also rose and now comprise 1.16% of outstanding loans
at
the end of the third quarter, compared to 0.85% at June 30, 2007.
Community
experienced increases in the level of non-accrual loans, which more than doubled
from $12.5 million at December 31, 2006, to $26.4 million at June 30,
2007. The majority of these loans are deemed to be adequately secured
by underlying real estate collateral. A portion of the increase was
related to the absorption of the merged banks into Community’s more stringent
loan classification process.
Non-Interest
Income - Three Months Ended September 30:
Non-interest
income, excluding investment activity, increased 18%, to $10.4 million for
the
quarter ended September 30, 2007, versus $8.8 million in the year ago third
quarter. Absolute increases in non-interest sources of revenue were
significantly influenced by the April 1, 2007, bank acquisitions and the
acquisitions of insurance and trust businesses in
2006. The increase was favorably affected by fee
initiatives which were implemented near the end of the first quarter of
2007. Community has continuously encouraged customer use of
internet-based account statements as an alternative to traditional statement
processing and mailing. Community customers now have the ability to
receive statements via this more cost-effective alternative or incur a modest
fee to continue the traditional service. Community also continues to
enhance features associated with its OverdraftHonor® program and the assessment
of fees related thereto. The following summarizes the various
components of non-interest income, excluding investment securities gains and
other than temporary impairment of investment securities, for the third quarter
of both 2007 and 2006:
|
|
|
Three
Months Ended September 30,
|
|
|
(in
thousands)
|
|
2007
|
|
|
2006
|
|
|
Increase
(Decrease)
|
|
|
Investment
management and trust services
|
|
$
|
1,211
|
|
|
$
|
968
|
|
|
$
|
243
|
|
|
Service
charges on deposit accounts
|
|
|
4,278
|
|
|
|
3,037
|
|
|
|
1,241
|
|
|
Other
service charges, commissions and fees
|
|
|
2,209
|
|
|
|
1,817
|
|
|
|
392
|
|
|
Insurance
premium income and commissions
|
|
|
1,079
|
|
|
|
1,053
|
|
|
|
26
|
|
|
Mortgage
banking activities
|
|
|
459
|
|
|
|
533
|
|
|
|
(74
|
)
|
|
Earnings
on investment in life insurance
|
|
|
755
|
|
|
|
679
|
|
|
|
76
|
|
|
Trading
activities gains
|
|
|
38
|
|
|
|
---
|
|
|
|
38
|
|
|
Other
|
|
|
345
|
|
|
|
725
|
|
|
|
(380
|
)
|
|
Total
non-interest income, excluding available-
for-sale
investment security gains (losses)
|
|
$
|
10,374
|
|
|
$
|
8,812
|
|
|
$
|
1,562
|
|
Investment
management and trust services income totaled $1.2 million, or more than a 25%
increase from the $1 million reported in the third quarter of
2006. It should be noted that the third quarter results for both
years was constrained by seasonal trends. The major component of the
increase relates to the third quarter 2006 acquisition of the south-central
Pennsylvania-based trust business that added approximately $325,000 of quarterly
revenues to Community’s existing trust business. Investment
management income also includes the commissions earned from retail investment
sales of annuities and other investment products, which has become an
increasingly important component of Community’s financial services product
mix.
Service
charges on deposit accounts grew to nearly $4.3 million in the third quarter
of
2007, an increase of 41% from the year earlier total of $3.0
million. Nearly a third of the increase was ascribed to the activity
added from the April 1 bank mergers. The most significant portion of
this revenue is derived from the OverdraftHonor® program which continues to be
made available to an expanding base of customers that meet the prescribed
requirements for acceptance into this program.
The
remainder of non-interest income, including other service charges and fees,
insurance-related revenues, and earnings from life insurance-related investments
reflected stable or slightly improved performance. Income from
mortgage banking activities continues to be sluggish, owing to reduced
refinancing of mortgages and the general decline in housing industry activity
for the past two years.
Non-Interest
Income - Nine Months Ended September 30:
The
recognition of the $4.4 million loss associated with the restructuring of
Community’s investment portfolio reduced first quarter net income by $2.9
million on an after tax basis. The following summary includes the
various components of non-interest income, excluding the impact of investment
securities gains and losses, for the first nine months of both 2007 and
2006:
|
|
|
Nine
Months Ended September 30,
|
|
|
(in
thousands)
|
|
2007
|
|
|
2006
|
|
|
Increase
(Decrease)
|
|
|
Investment
management and trust services
|
|
$
|
4,259
|
|
|
$
|
3,069
|
|
|
$
|
1,190
|
|
|
Service
charges on deposit accounts
|
|
|
11,951
|
|
|
|
8,423
|
|
|
|
3,528
|
|
|
Other
service charges, commissions and fees
|
|
|
6,494
|
|
|
|
5,420
|
|
|
|
1,074
|
|
|
Insurance
premium income and commissions
|
|
|
3,318
|
|
|
|
3,098
|
|
|
|
220
|
|
|
Mortgage
banking activities
|
|
|
1,701
|
|
|
|
1,581
|
|
|
|
120
|
|
|
Earnings
on investment in life insurance
|
|
|
2,199
|
|
|
|
2,010
|
|
|
|
189
|
|
|
Trading
activities gains
|
|
|
4
|
|
|
|
---
|
|
|
|
4
|
|
|
Other
|
|
|
1,168
|
|
|
|
1,849
|
|
|
|
(681
|
)
|
|
Total
non-interest income, excluding available-
for-sale
investment security gains (losses)
|
|
$
|
31,094
|
|
|
$
|
25,450
|
|
|
$
|
5,644
|
|
Increases
in non-interest income in the first nine months of 2007, like the quarterly
comparisons, were influenced by both the acquisitions of the trust and insurance
units in mid to late 2006 and by the April 1, 2007, bank
mergers. As with the quarterly comparisons, the most
significant increase related to the implementation of fee-based strategies,
including fees associated with statement processing and changes to Community’s
OverdraftHonor® program.
Non-Interest
Expenses - Three Months Ended September 30:
Aggregate
non-interest expenses grew to $23.7 million, which represented an 12% increase
from the third quarter of 2006, when aggregate expenses reached $21.2 million.
Much of the increase related to incremental expenses added as a result of the
acquisitions. The following is a quarterly comparison of the expenses
within the various components of operating expenses:
|
|
|
Three
Months Ended September 30,
|
|
|
(in
thousands)
|
|
2007
|
|
|
2006
|
|
|
Increase
(Decrease)
|
|
|
Salaries
and employee benefits
|
|
$
|
12,419
|
|
|
$
|
11,611
|
|
|
$
|
808
|
|
|
Net
occupancy and equipment expenses
|
|
|
3,917
|
|
|
|
3,452
|
|
|
|
465
|
|
|
Payment
card processing expense
|
|
|
848
|
|
|
|
553
|
|
|
|
295
|
|
|
Marketing
expense
|
|
|
350
|
|
|
|
354
|
|
|
|
(4
|
)
|
|
Telecommunications
expense
|
|
|
718
|
|
|
|
542
|
|
|
|
176
|
|
|
Merger
expenses
|
|
|
754
|
|
|
|
---
|
|
|
|
754
|
|
|
Amortization
of intangibles
|
|
|
750
|
|
|
|
659
|
|
|
|
91
|
|
|
Other
|
|
|
3,930
|
|
|
|
4,001
|
|
|
|
(71
|
)
|
|
Total
non-interest expenses
|
|
$
|
23,686
|
|
|
$
|
21,172
|
|
|
$
|
2,514
|
|
The
efficiency ratio, which compares the relative levels of expenses to revenues,
was 56.31%, showing steady improvement since the fourth quarter of 2006, despite
the expenses added as a result of the acquisitions. The efficiency ratio remains
within Community’s desired operating range for this important metric. Community
continued its emphasis on ensuring that operating expenses are appropriately
aligned with its revenue stream. Ongoing challenges to the revenue
stream, caused by “flat” or “inverted” yield curve and less robust loan and
asset growth, have intensified management’s focus on expense saving
opportunities.
Nearly
one-third of the total increase in non-interest expenses was related to the
increase in salary and benefits expenses. The increase in salary and
benefits was tied to personnel added as a result of the April 1, 2007, bank
mergers and the addition of the additional trust and insurance units in
2006. At September, 2007, Community had 971 full-time equivalent
employees compared to 993 at December 31, 2006, and 952 at September 30,
2006. Despite the impact of the acquisitions, increases in staffing
have been mitigated by Community’s management of existing staffing levels via
programs announced at the end of 2006. At that time, Community
announced its intention to accelerate expense-saving initiatives related to
both
a reduction in operating regions from nine to six, and to the introduction
of
its more expansive office rationalization process. In connection with
these efforts, Community identified salary and benefit savings, the majority
of
which were facilitated through early retirement, scheduled attrition, or
selected staff reductions in the first quarter of 2007.
Occupancy
expenses grew 13%, from $3.5 million in the third quarter of 2006 to $3.9
million in the same period of 2007. The majority of the increase
relates to the expenses added in the April 1, 2007, bank mergers.
During
the third quarter, Community recorded expenses of $754,000 related to various
expenses associated with the upcoming merger with Susquehanna. These
expenses are not reimbursable by Susquehanna and have therefore been reflected
in third quarter operating results, as required under generally accepted
accounting principles.
Other
categories of expense, including electronic payment processing, marketing,
and
telecommunications expenses, increased due to increased usage or increased
volumes of activity, including incremental activity associated with the bank
mergers. Such increases were partially offset by reductions in
certain expenses in connection with the upcoming merger with
Susquehanna. Growth in the amortization of intangibles rose primarily
due to the core deposit intangible that arose in the mergers of BUCS and East
Prospect.
Non-Interest
Expenses - Nine Months Ended September 30:
Changes
in the level of non-interest expenses for the first nine months of 2007
reflected an overall increase of 13%, which included the impact of the April
1,
2007, bank mergers. Changes in individual categories of expenses were
influenced by the factors discussed above. The following is a
comparison of the expenses within the various components of operating expenses
for the first nine months of 2007 and 2006:
|
|
|
Nine
Months Ended September 30,
|
|
|
(in
thousands)
|
|
2007
|
|
|
2006
|
|
|
Increase
|
|
|
Salaries
and employee benefits
|
|
$
|
37,497
|
|
|
$
|
34,280
|
|
|
$
|
3,217
|
|
|
Net
occupancy and equipment expenses
|
|
|
11,691
|
|
|
|
10,350
|
|
|
|
1,341
|
|
|
Payment
card processing expense
|
|
|
2,235
|
|
|
|
1,391
|
|
|
|
844
|
|
|
Marketing
expense
|
|
|
1,407
|
|
|
|
1,194
|
|
|
|
213
|
|
|
Telecommunications
expense
|
|
|
1,855
|
|
|
|
1,659
|
|
|
|
196
|
|
|
Merger
expenses
|
|
|
754
|
|
|
|
---
|
|
|
|
754
|
|
|
Amortization
of intangibles
|
|
|
2,222
|
|
|
|
2,015
|
|
|
|
207
|
|
|
Other
|
|
|
12,657
|
|
|
|
11,514
|
|
|
|
1,143
|
|
|
Total
non-interest expenses
|
|
$
|
70,318
|
|
|
$
|
62,403
|
|
|
$
|
7,915
|
|
Income
Taxes
The
reported rate for the third quarter of 2007 was 24%, while the rate for the
same
period of 2006 was 26%. The reported rate for the first nine months
of 2007 was 23% and was only slightly distorted as a result of the impact of
the
impairment loss on investment securities on pre-tax income in the first
quarter.
CAPITAL
Regulators
have established standards for the monitoring and maintenance of appropriate
levels of capital for financial institutions. Regulatory capital
guidelines are based on a risk-based supervisory approach that has been designed
to ensure effective management of capital levels and associated business
risk. The following table provides the risk-based capital positions
of Community and its banking subsidiary, CommunityBanks, at September 30, 2007,
along with a comparison to the various current regulatory capital
requirements:
|
|
September
30,
2007
|
Regulatory
Minimum
|
“Well
Capitalized”
|
|
Leverage
ratio
|
|
|
|
|
Community
Banks, Inc.
|
9.26%
|
4%
|
5%
|
|
CommunityBanks
|
8.96%
|
4%
|
5%
|
|
|
|
|
|
|
Tier
1 capital ratio
|
|
|
|
|
Community
Banks, Inc.
|
11.30%
|
4%
|
6%
|
|
CommunityBanks
|
10.91%
|
4%
|
6%
|
|
|
|
|
|
|
Total
risk-based capital ratio
|
|
|
|
|
Community
Banks, Inc.
|
12.19%
|
8%
|
10%
|
|
CommunityBanks
|
11.81%
|
8%
|
10%
|
In
early March of 2007, Community executed an issuance of $20 million of fixed-rate
subordinated debentures that met the regulatory requirements and associated
restrictions for qualification as “Tier 1 capital” and were classified as
subordinated debt on the consolidated balance sheet. The
majority of the proceeds of the most recent issuance were utilized to facilitate
the cash consideration in the acquisitions of BUCS Financial Corp and East
Prospect State Bank on April 1, 2007. At September 30, 2007, Community had
$73
million of subordinated debt that qualified as “Tier 1 capital.”
Earnings
in the first nine months of 2007 supported a return of capital to shareholders
in the form of a cash dividend of $0.63 per share.
CONTRACTUAL
OBLIGATIONS
|
Significant
contractual obligations at September 30, 2007, are summarized as
follows:
|
|
|
|
Payments
due by period
|
|
|
(in
thousands)
|
|
Total
|
|
|
Less
than
1
year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
More
than
5
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
$
|
413,483
|
|
|
$
|
14,481
|
|
|
$
|
75,169
|
|
|
$
|
36,175
|
|
|
$
|
287,658
|
|
|
Operating
lease obligations
|
|
|
38,435
|
|
|
|
2,115
|
|
|
|
4,243
|
|
|
|
3,892
|
|
|
|
28,185
|
|
|
Subordinated
debt
|
|
|
75,260
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
75,260
|
|
|
Time
deposits
|
|
|
1,376,954
|
|
|
|
915,514
|
|
|
|
420,529
|
|
|
|
38,697
|
|
|
|
2,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,904,132
|
|
|
$
|
932,110
|
|
|
$
|
499,941
|
|
|
$
|
78,764
|
|
|
$
|
393,317
|
|
COMMUNITY
BANKS, INC. AND SUBSIDIARIES
PART
I - Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Table
1: Reconciliation of GAAP to Non-GAAP Measures:
(1)
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Income
statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
10,493
|
|
|
$
|
10,558
|
|
|
$
|
28,030
|
|
|
$
|
31,631
|
|
|
Amortization
of core deposit and other intangible assets
(1)
|
|
|
488
|
|
|
|
428
|
|
|
|
1,445
|
|
|
|
1,309
|
|
|
Merger
expenses
(1)
|
|
|
490
|
|
|
|
---
|
|
|
|
490
|
|
|
|
---
|
|
|
Net
operating (tangible) income
|
|
$
|
11,471
|
|
|
$
|
10,986
|
|
|
$
|
29,965
|
|
|
$
|
32,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
assets
|
|
$
|
3,778,338
|
|
|
$
|
3,385,905
|
|
|
$
|
3,710,298
|
|
|
$
|
3,387,018
|
|
|
Goodwill
|
|
|
(265,048
|
)
|
|
|
(245,794
|
)
|
|
|
(258,449
|
)
|
|
|
(245,439
|
)
|
|
Core
deposit and other intangible assets
|
|
|
(14,446
|
)
|
|
|
(13,229
|
)
|
|
|
(14,135
|
)
|
|
|
(13,463
|
)
|
|
Average
tangible assets
|
|
$
|
3,498,844
|
|
|
$
|
3,126,882
|
|
|
$
|
3,437,714
|
|
|
$
|
3,128,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
return on average tangible assets
|
|
|
1.30
|
%
|
|
|
1.39
|
%
|
|
|
1.17
|
%
|
|
|
1.41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
equity
|
|
$
|
521,089
|
|
|
$
|
471,911
|
|
|
$
|
510,268
|
|
|
$
|
473,680
|
|
|
Goodwill
|
|
|
(265,048
|
)
|
|
|
(245,794
|
)
|
|
|
(258,449
|
)
|
|
|
(245,439
|
)
|
|
Core
deposit and other intangible assets
|
|
|
(14,446
|
)
|
|
|
(13,229
|
)
|
|
|
(14,135
|
)
|
|
|
(13,463
|
)
|
|
Deferred
taxes
|
|
|
2,349
|
|
|
|
1,755
|
|
|
|
2,124
|
|
|
|
1,775
|
|
|
Average
tangible equity
|
|
$
|
243,944
|
|
|
$
|
214,643
|
|
|
$
|
239,808
|
|
|
$
|
216,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
return on average tangible equity
|
|
|
18.66
|
%
|
|
|
20.31
|
%
|
|
|
16.71
|
%
|
|
|
20.34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
end of quarter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
3,789,634
|
|
|
$
|
3,431,208
|
|
|
$
|
3,789,634
|
|
|
$
|
3,431,208
|
|
|
Goodwill
|
|
|
(265,136
|
)
|
|
|
(245,864
|
)
|
|
|
(265,136
|
)
|
|
|
(245,864
|
)
|
|
Core
deposit and other intangible assets
|
|
|
(14,083
|
)
|
|
|
(13,641
|
)
|
|
|
(14,083
|
)
|
|
|
(13,641
|
)
|
|
Total
tangible assets
|
|
$
|
3,510,415
|
|
|
$
|
3,171,703
|
|
|
$
|
3,510,415
|
|
|
$
|
3,171,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
equity
|
|
$
|
526,475
|
|
|
$
|
479,584
|
|
|
$
|
526,475
|
|
|
$
|
479,584
|
|
|
Goodwill
|
|
|
(265,136
|
)
|
|
|
(245,864
|
)
|
|
|
(265,136
|
)
|
|
|
(245,864
|
)
|
|
Core
deposit and other intangible assets
|
|
|
(14,083
|
)
|
|
|
(13,641
|
)
|
|
|
(14,083
|
)
|
|
|
(13,641
|
)
|
|
Deferred
taxes
|
|
|
2,277
|
|
|
|
1,698
|
|
|
|
2,277
|
|
|
|
1,698
|
|
|
Total
tangible equity
|
|
$
|
249,533
|
|
|
$
|
221,777
|
|
|
$
|
249,533
|
|
|
$
|
221,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible
book value at end of period
|
|
$
|
10.05
|
|
|
$
|
9.45
|
|
|
$
|
10.05
|
|
|
$
|
9.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Net
of related tax effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMUNITY
BANKS, INC. AND SUBSIDIARIES