##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the quarterly period ended September 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 0-17455
 Comm Bancorp, Inc.
 Pennsylvania
    
    23-2242292(State or other jurisdiction of incorporation
 or organization)
    
    (I.R.S. Employer Identification Number)
 125 North State Street, Clarks Summit, PA
    
    18411(Address of principal executive offices)
    
    (Zip Code)
 (570) 586-0377
 (Registrants telephone number, including area code)
 (Former
name, former address and former fiscal year, if changed since last report.)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 o þ




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##### 



COMM BANCORP, INC.
FORM 10-Q
September 30, 2010
 INDEX
 CONTENTS
    
    Page No.Part I. Financial Information:Item 1. Financial Statements (unaudited)Consolidated Statements of Income (Loss) and Comprehensive
Income (Loss) for the Three Months and Nine Months Ended
September 30, 2010 and 2009
    
    
    3Consolidated Balance Sheets  September 30, 2010 and
December 31, 2009
    
    
    4Consolidated Statements of Changes in Stockholders Equity
for the Nine Months Ended September 30, 2010 and 2009
    
    
    5Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2010 and 2009
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    *Item 4. Controls and Procedures
    
    
    58Item 4T. Controls and Procedures
    
    
    *Part II. Other Information:Item 1. Legal Proceedings
    
    
    59Item 1A. Risk Factors
    
    
    *Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
    
    
    59Item 3. Defaults Upon Senior Securities
    
    
    59Item 4. Removed and Reserved
    
    
    59Item 5. Other Information
    
    
    59Item 6. Exhibits
    
    
    59Signatures
    
    
    60Exhibit Index
    
    
    61Exhibit 31(i)Exhibit 32
  *
    
    Not Applicable  2




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##### Table of Contents



Comm Bancorp, Inc.
 
 CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Unaudited)
    
    
    (Unaudited)Interest income:Interest and fees on loans:Taxable
    
    $
    5,806
    
    
    $
    6,194
    
    
    $
    17,689
    
    
    $
    19,078Tax-exempt
    
    
    319
    
    
    
    598
    
    
    
    959
    
    
    
    1,883Interest and dividends on investment securities available-for-sale:Taxable
    
    
    590
    
    
    
    205
    
    
    
    1,842
    
    
    
    869Tax-exempt
    
    
    219
    
    
    
    407
    
    
    
    759
    
    
    
    1,417Dividends
    
    
    2
    
    
    
    9
    
    
    
    6
    
    
    
    29Interest on federal funds sold
    
    
    12
    
    
    
    4
    
    
    
    29
    
    
    
    5Total interest income
    
    
    6,948
    
    
    
    7,417
    
    
    
    21,284
    
    
    
    23,281Interest expense:Interest on deposits
    
    
    2,100
    
    
    
    2,433
    
    
    
    6,848
    
    
    
    7,492Interest on short-term borrowings
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    97Interest on long-term debt
    
    
    160
    
    
    
    

    
    
    
    480Total interest expense
    
    
    2,260
    
    
    
    2,438
    
    
    
    7,328
    
    
    
    7,589Net interest income
    
    
    4,688
    
    
    
    4,979
    
    
    
    13,956
    
    
    
    15,692Provision for loan losses
    
    
    300
    
    
    
    8,670
    
    
    
    1,600
    
    
    
    9,760Net interest income (loss) after provision for loan losses
    
    
    4,388
    
    
    
    (3,691
    )
    
    
    12,356
    
    
    
    5,932Noninterest income:Service charges, fees and commissions
    
    
    711
    
    
    
    848
    
    
    
    2,182
    
    
    
    2,444Mortgage banking income
    
    
    405
    
    
    
    287
    
    
    
    900
    
    
    
    1,179Net gain on sale of premises and equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    294Net gain on sale of investment securities available-for-sale
    
    
    
    
    
    
    1,385
    
    
    
    361
    
    
    
    1,499Total noninterest income
    
    
    1,116
    
    
    
    2,520
    
    
    
    3,443
    
    
    
    5,416Noninterest expense:Salaries and employee benefits expense
    
    
    2,188
    
    
    
    2,025
    
    
    
    6,558
    
    
    
    6,329Net occupancy and equipment expense
    
    
    558
    
    
    
    591
    
    
    
    1,708
    
    
    
    1,849Other expenses
    
    
    2,203
    
    
    
    1,942
    
    
    
    5,403
    
    
    
    5,735Total noninterest expense
    
    
    4,949
    
    
    
    4,558
    
    
    
    13,669
    
    
    
    13,913Income (loss) before income taxes
    
    
    555
    
    
    
    (5,729
    )
    
    
    2,130
    
    
    
    (2,565
    )Income tax benefit
    
    
    (445
    )
    
    
    (2,354
    )
    
    
    (1,210
    )
    
    
    (2,180
    )Net income (loss)
    
    
    1,000
    
    
    
    (3,375
    )
    
    
    3,340
    
    
    
    (385
    )Other comprehensive income (loss):Unrealized gains on investment securities available-for-sale
    
    
    777
    
    
    
    1,118
    
    
    
    2,532
    
    
    
    1,473Reclassification adjustment for gains included in net income
    
    
    
    
    
    
    (1,385
    )
    
    
    (361
    )
    
    
    (1,499
    )Income tax expense (benefit) related to other comprehensive income (loss)
    
    
    264
    
    
    
    (91
    )
    
    
    738
    
    
    
    (9
    )Other comprehensive income (loss), net of income taxes
    
    
    513
    
    
    
    (176
    )
    
    
    1,433
    
    
    
    (17
    )Comprehensive income (loss)
    
    $
    1,513
    
    
    $
    (3,551
    )
    
    $
    4,773
    
    
    $
    (402
    )Per share data:Net income (loss)
    
    $
    0.58
    
    
    $
    (1.95
    )
    
    $
    1.94
    
    
    $
    (0.22
    )Cash dividends declared
    
    
    
    
    
    $
    0.28
    
    
    
    
    
    
    $
    0.84Average common shares outstanding
    
    
    1,722,923
    
    
    
    1,718,439
    
    
    
    1,722,923
    
    
    
    1,722,994
   3




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Comm Bancorp, Inc.
 
 CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
 September 30,
    
    
    December 31,2010
    
    
    2009(Unaudited)
    
    
    (Unaudited)Assets:Cash and due from banks
    
    $
    52,658
    
    
    $
    23,978Federal funds sold
    
    
    19,501
    
    
    
    25,300Investment securities available-for-sale
    
    
    108,555
    
    
    
    108,005Loans held for sale, net
    
    
    625
    
    
    
    2,016Loans, net of unearned income
    
    
    447,282
    
    
    
    476,944Less: allowance for loan losses
    
    
    13,669
    
    
    
    17,462Net loans
    
    
    433,613
    
    
    
    459,482Premises and equipment, net
    
    
    11,300
    
    
    
    11,616Accrued interest receivable
    
    
    2,023
    
    
    
    2,122Other assets
    
    
    24,502
    
    
    
    19,634Total assets
    
    $
    652,777
    
    
    $
    652,153Liabilities:Deposits:Noninterest-bearing
    
    $
    82,407
    
    
    $
    88,335Interest-bearing
    
    
    503,536
    
    
    
    502,448Total deposits
    
    
    585,943
    
    
    
    590,783Long-term debt
    
    
    8,000
    
    
    
    8,000Accrued interest payable
    
    
    1,110
    
    
    
    1,296Other liabilities
    
    
    2,572
    
    
    
    1,740Total liabilities
    
    
    597,625
    
    
    
    601,819Stockholders equity:Common stock, par value $0.33, authorized 12,000,000 shares, issued and
outstanding: September 30, 2010, 1,722,923 shares; December 31, 2009, 1,721,007 shares
    
    
    569
    
    
    
    568Capital surplus
    
    
    8,010
    
    
    
    7,966Retained earnings
    
    
    44,321
    
    
    
    40,981Accumulated other comprehensive income
    
    
    2,252
    
    
    
    819Total stockholders equity
    
    
    55,152
    
    
    
    50,334Total liabilities and stockholders equity
    
    $
    652,777
    
    
    $
    652,153
   4




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##### Table of Contents



Comm Bancorp, Inc.
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(Dollars in thousands, except per share data)
 AccumulatedOther
    
    
    TotalCommon
    
    
    Capital
    
    
    Retained
    
    
    Comprehensive
    
    
    Stockholders(Unaudited)
    
    Stock
    
    
    Surplus
    
    
    Earnings
    
    
    Income
    
    
    EquityBalance, December 31, 2009
    
    $
    568
    
    
    $
    7,966
    
    
    $
    40,981
    
    
    $
    819
    
    
    $
    50,334Net income
    
    
    
    
    
    
    
    
    
    
    3,340
    
    
    
    
    
    
    
    3,340Dividend reinvestment plan: 1,916 shares issued
    
    
    1
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    45Other comprehensive income, net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,433
    
    
    
    1,433Balance,
September 30, 2010
    
    $
    569
    
    
    $
    8,010
    
    
    $
    44,321
    
    
    $
    2,252
    
    
    $
    55,152Balance, December 31, 2008
    
    $
    571
    
    
    $
    7,694
    
    
    $
    47,862
    
    
    $
    1,671
    
    
    $
    57,798Net loss
    
    
    
    
    
    
    
    
    
    
    (385
    )
    
    
    
    
    
    
    (385
    )Dividends declared: $0.84 per share
    
    
    
    
    
    
    
    
    
    
    (1,446
    )
    
    
    
    
    
    
    (1,446
    )Dividend reinvestment plan: 6,494 shares issued
    
    
    2
    
    
    
    241
    
    
    
    
    
    
    
    
    
    
    
    243Repurchase and retirement: 18,117 shares
    
    
    (6
    )
    
    
    (54
    )
    
    
    (624
    )
    
    
    
    
    
    
    (684
    )Other comprehensive loss, net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17
    )
    
    
    (17
    )Balance,
September 30, 2009
    
    $
    567
    
    
    $
    7,881
    
    
    $
    45,407
    
    
    $
    1,654
    
    
    $
    55,509
   5




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##### Table of Contents



Comm Bancorp, Inc.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share data)
 2010
    
    
    2009Nine Months Ended September 30,
    
    (Unaudited)Cash flows from operating activities:Net income (loss)
    
    $
    3,340
    
    
    $
    (385
    )Adjustments to reconcile net income (loss) to net cash provided by operating activities:Provision for loan losses
    
    
    1,600
    
    
    
    9,760Depreciation and amortization of premises and equipment
    
    
    578
    
    
    
    678Net amortization of investment securities
    
    
    1,575
    
    
    
    236Amortization of net loan costs
    
    
    255
    
    
    
    286Amortization of mortgage servicing rights
    
    
    213
    
    
    
    310Deferred income tax expense (benefit)
    
    
    1,646
    
    
    
    (2,044
    )Net gain on sale of investment securities available-for-sale
    
    
    (361
    )
    
    
    (1,499
    )Net gain on sale of loans
    
    
    (805
    )
    
    
    (1,210
    )Net gain on sale of premises and equipment
    
    
    
    
    
    
    (294
    )Net loss sale of foreclosed assets
    
    
    
    
    
    
    159Changes in:Loans held for sale, net
    
    
    2,196
    
    
    
    2,600Accrued interest receivable
    
    
    99
    
    
    
    (454
    )Other assets
    
    
    (3,083
    )
    
    
    (1,219
    )Accrued interest payable
    
    
    (186
    )
    
    
    (630
    )Other liabilities
    
    
    335
    
    
    
    339Net cash provided by operating activities
    
    
    7,402
    
    
    
    6,633Cash flows from investing activities:Proceeds from repayments of investment securities available-for-sale
    
    
    14,092
    
    
    
    7,700Proceeds from sales of investment securities available-for-sale
    
    
    6,154
    
    
    
    40,460Purchases of investment securities available-for-sale
    
    
    (19,839
    )
    
    
    (4,651
    )Proceeds from sale of foreclosed assets
    
    
    365
    
    
    
    268Net decrease (increase) in lending activities
    
    
    20,005
    
    
    
    (26,970
    )Proceeds from sale of premises and equipment
    
    
    
    
    
    
    509Purchases of premises and equipment
    
    
    (262
    )
    
    
    (771
    )Net cash provided by investing activities
    
    
    20,515
    
    
    
    16,545Cash flows from financing activities:Net changes in:Money market, NOW, savings and noninterest-bearing accounts
    
    
    15,202
    
    
    
    7,436Time deposits
    
    
    (20,042
    )
    
    
    5,373Proceeds from issuance of common shares
    
    
    45
    
    
    
    243Repurchase and retirement of common shares
    
    
    
    
    
    
    (684
    )Cash dividends paid
    
    
    (241
    )
    
    
    (1,435
    )Net cash provided by (used in) financing activities
    
    
    (5,036
    )
    
    
    10,933Net increase in cash and cash equivalents
    
    
    22,881
    
    
    
    34,111Cash and cash equivalents at beginning of year
    
    
    49,278
    
    
    
    20,717Cash and cash equivalents at end of period
    
    $
    72,159
    
    
    $
    54,828Supplemental disclosures:Cash paid during the period for:Interest
    
    $
    7,514
    
    
    $
    8,219Income taxes
    
    
    
    
    
    
    691Noncash items:Transfers of loans to foreclosed assets
    
    
    4,009
    
    
    
    2,023Unrealized losses (gains) on investment securities available-for-sale, net
    
    $
    (1,433
    )
    
    $
    17
   6




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##### Table of Contents



Comm Bancorp, Inc.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
 1. Basis of presentation:
    2. Earnings per common share:
  3. Subsequent events:
   7




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##### Table of Contents



Comm Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, except per share data)
 4. Investment securities:
  Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairSeptember 30, 2010
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueState and municipals
    
    $
    18,080
    
    
    $
    1,415
    
    
    
    
    
    
    $
    19,495Mortgage-backed securities:U.S. Government agencies
    
    
    84,222
    
    
    
    1,901
    
    
    $
    5
    
    
    
    86,118U.S. Government-sponsored enterprises
    
    
    164
    
    
    
    9
    
    
    
    
    
    
    
    173Equity securities:Restricted
    
    
    2,537
    
    
    
    
    
    
    
    
    
    
    
    2,537Other
    
    
    139
    
    
    
    96
    
    
    
    3
    
    
    
    232Total
    
    $
    105,142
    
    
    $
    3,421
    
    
    $
    8
    
    
    $
    108,555
 Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairDecember 31, 2009
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueState and municipals
    
    $
    25,343
    
    
    $
    1,520
    
    
    $
    1
    
    
    $
    26,862Mortgage-backed securities:U.S. Government agencies
    
    
    78,537
    
    
    
    17
    
    
    
    399
    
    
    
    78,155U.S. Government-sponsored enterprises
    
    
    208
    
    
    
    12
    
    
    
    
    
    
    
    220Equity securities:Restricted
    
    
    2,537
    
    
    
    
    
    
    
    
    
    
    
    2,537Other
    
    
    139
    
    
    
    94
    
    
    
    2
    
    
    
    231Total
    
    $
    106,764
    
    
    $
    1,643
    
    
    $
    402
    
    
    $
    108,005
   8




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##### Table of Contents



Comm Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, except per share data)
 4. Investment securities (continued):
  Less than 12 months
    
    
    12 months or more
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedSeptember 30, 2010
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesState and municipalsMortgage-backed securities:U.S. Government agencies
    
    $
    1,723
    
    
    $
    5
    
    
    
    
    
    
    
    
    
    
    $
    1,723
    
    
    $
    5U.S. Government-sponsored enterprisesEquity securities:RestrictedOther
    
    
    
    
    
    
    
    
    
    $
    6
    
    
    $
    3
    
    
    
    6
    
    
    
    3Total
    
    $
    1,723
    
    
    $
    5
    
    
    $
    6
    
    
    $
    3
    
    
    $
    1,729
    
    
    $
    8
 Less than 12 months
    
    
    12 months or more
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDecember 31, 2009
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesState and municipals
    
    $
    686
    
    
    $
    1
    
    
    
    
    
    
    
    
    
    
    $
    686
    
    
    $
    1Mortgage-backed securities:U.S. Government agencies
    
    
    30,651
    
    
    
    399
    
    
    
    
    
    
    
    
    
    
    
    30,651
    
    
    
    399U.S. Government-sponsored enterprisesEquity securities:RestrictedOther
    
    
    
    
    
    
    
    
    
    $
    7
    
    
    $
    2
    
    
    
    7
    
    
    
    2Total
    
    $
    31,337
    
    
    $
    400
    
    
    $
    7
    
    
    $
    2
    
    
    $
    31,344
    
    
    $
    402
    9




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##### Table of Contents



Comm Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, except per share data)
 4. Investment securities (continued):
     10




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##### Table of Contents



Comm Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, except per share data)
 4. Investment securities (continued):
  After one
    
    
    After fiveWithin
    
    
    but within
    
    
    but within
    
    
    AfterSeptember 30, 2010
    
    one year
    
    
    five years
    
    
    ten years
    
    
    ten years
    
    
    TotalState and municipals
    
    $
    1,129
    
    
    $
    2,753
    
    
    $
    10,550
    
    
    $
    5,063
    
    
    $
    19,495Mortgage-backed securities:U.S. Government
    
    
    13,543
    
    
    
    40,356
    
    
    
    30,076
    
    
    
    2,143
    
    
    
    86,118U.S. Government-sponsored
    
    
    46
    
    
    
    113
    

    
    
    14
    

    
    
    

    
    
    
    173Total
    
    $
    14,718
    
    
    $
    43,222
    
    
    $
    40,640
    
    
    $
    7,206
    
    
    $
    105,786
 5. Fair values of financial instruments:
  
    
    Level 1: Unadjusted quoted prices or identical assets or liabilities in active
markets that the entity has the ability to access as of the measurement date.
 
    
    Level 2: Significant other observable inputs other than Level 1 prices such as
quoted prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable market
data.
 
    
    Level 3: Significant unobservable inputs that reflect a reporting entitys own
assumptions about the assumptions that market participants would use in pricing an asset
or liability.
  11




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##### Table of Contents



Comm Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, except per share data)
 5. Fair values of financial instruments (continued):
  Fair Value Measurements UsingQuoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsSeptember 30, 2010
    
    Amount
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Investment securities available-for-sale:State and municipals
    
    $
    19,495
    
    
    
    
    
    
    $
    19,495Mortgage-backed securities:U.S. Government agencies
    
    
    86,118
    
    
    
    
    
    
    
    86,118U.S. Government-sponsored enterprises
    
    
    173
    
    
    
    
    
    
    
    173Equity securities:Other
    
    
    232
    
    
    $
    232Total
    
    $
    106,018
    
    
    $
    232
    
    
    $
    105,786
 Fair Value Measurements UsingQuoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsDecember 31, 2009
    
    Amount
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Investment securities available-for-sale:State and municipals
    
    $
    26,862
    
    
    
    
    
    
    $
    26,862Mortgage-backed securities:U.S. Government agencies
    
    
    78,155
    
    
    
    
    
    
    
    78,155U.S. Government-sponsored enterprises
    
    
    220
    
    
    
    
    
    
    
    220Equity securities:Other
    
    
    231
    
    
    $
    231Total
    
    $
    105,468
    
    
    $
    231
    
    
    $
    105,237
   12




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Comm Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, except per share data)
 5. Fair values of financial instruments (continued):
  Fair Value Measurements UsingQuoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsSeptember 30, 2010
    
    Amount
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Impaired loans
    
    $
    6,046
    
    
    
    
    
    
    
    
    
    
    $
    6,046Foreclosed assets
    
    $
    3,564
    
    
    
    
    
    
    
    
    
    
    $
    3,564
 Fair Value Measurements UsingQuoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable InputsDecember 31, 2009
    
    Amount
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Impaired loans
    
    $
    7,719
    
    
    
    
    
    
    
    
    
    
    $
    7,719
     13




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##### Table of Contents



Comm Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, except per share data)
 5. Fair values of financial instruments (continued):
     Cash and cash equivalents:
 Investment securities available-for-sale:
 Loans held for sale, net:
 Net loans:
 Mortgage servicing rights:
 Accrued interest receivable:
  14




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##### Table of Contents



Comm Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, except per share data)
 5. Fair values of financial instruments (continued):
 Deposits without stated maturities:
 Deposits with stated maturities:
 Long-term debt:
 Accrued interest payable:
 Off-balance sheet financial instruments:
  15




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##### Table of Contents



Comm Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, except per share data)
 5. Fair values of financial instruments (continued):
  September 30, 2010
    
    

December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueFinancial assets:Cash and cash equivalents
    
    $
    72,159
    
    
    $
    72,159
    
    
    $
    49,278
    
    
    $
    49,278Investment securities available-for-sale
    
    
    108,555
    
    
    
    108,555
    
    
    
    108,005
    
    
    
    108,005Loans held for sale, net
    
    
    625
    
    
    
    625
    
    
    
    2,016
    
    
    
    2,016Net loans
    
    
    433,613
    
    
    
    439,823
    
    
    
    459,482
    
    
    
    467,018Mortgage servicing rights
    
    
    972
    
    
    
    972
    
    
    
    893
    
    
    
    893Accrued interest receivable
    
    
    2,023
    
    
    
    2,023
    
    
    
    2,122
    
    
    
    2,122Total
    
    $
    617,947
    
    
    $
    624,157
    
    
    $
    621,796
    
    
    $
    629,332Financial liabilities:Deposits without stated maturities
    
    $
    354,134
    
    
    $
    354,134
    
    
    $
    338,932
    
    
    $
    338,932Deposits with stated maturities
    
    
    231,809
    
    
    
    240,495
    
    
    
    251,851
    
    
    
    256,749Long-term debt
    
    
    8,000
    
    
    
    8,000
    
    
    
    8,000
    
    
    
    8,066Accrued interest payable
    
    
    1,110
    
    
    
    1,110
    
    
    
    1,296
    
    
    
    1,296Total
    
    $
    595,053
    
    
    $
    603,739
    
    
    $
    600,079
    
    
    $
    605,043
 6. Definitive Merger Agreement:
     16




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##### Table of Contents



Comm Bancorp, Inc.
 
 MANAGEMENTS DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share data)
 Forward-Looking Discussion:
       17




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##### Table of Contents



Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
 Critical Accounting Policies:
       18




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##### Table of Contents



Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
      19




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##### Table of Contents



Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
   Operating Environment:
    20




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##### Table of Contents



Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
  Review of Financial Position:
     21




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##### Table of Contents



Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
 Investment Portfolio:
   Distribution of investment securities available-for-sale
 September 30,
    
    
    December 31,2010
    
    
    2009Amount
    
    
    %
    
    
    Amount
    
    
    %State and municipals
    
    $
    19,495
    
    
    
    17.96
    %
    
    $
    26,862
    
    
    
    24.87
    %Mortgage-backed securities:U.S. Government agencies
    
    
    86,118
    
    
    
    79.33
    
    
    
    78,155
    
    
    
    72.36U.S. Government-sponsored enterprises
    
    
    173
    
    
    
    0.16
    
    
    
    220
    
    
    
    0.21Equity securities:Restricted
    
    
    2,537
    
    
    
    2.34
    
    
    
    2,537
    
    
    
    2.35Other
    
    
    232
    
    
    
    0.21
    
    
    
    231
    
    
    
    0.21Total
    
    $
    108,555
    
    
    
    100.00
    %
    
    $
    108,005
    
    
    
    100.00
    %
     22




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##### Table of Contents



Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
  Maturity distribution of available-for-sale portfolio
 After one
    
    
    After fiveWithin
    
    
    but within
    
    
    but within
    
    
    Afterone year
    
    
    five years
    
    
    ten years
    
    
    ten years
    
    
    TotalSeptember 30, 2010
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    YieldAmortized cost:State and municipals
    
    $
    1,121
    
    
    
    7.48
    %
    
    $
    2,640
    
    
    
    7.77
    %
    
    $
    9,563
    
    
    
    7.38
    %
    
    $
    4,756
    
    
    
    7.04
    %
    
    $
    18,080
    
    
    
    7.35
    %Mortgage-backed securities:U.S. Government
    
    
    13,353
    
    
    
    2.90
    
    
    
    39,627
    
    
    
    2.94
    
    
    
    29,142
    
    
    
    2.81
    
    
    
    2,100
    
    
    
    3.16
    
    
    
    84,222
    
    
    
    2.89U.S. Government-sponsored
    
    
    44
    
    
    
    6.74
    
    
    
    107
    
    
    
    6.75
    
    
    
    13
    
    
    
    6.70
    
    
    
    
    
    
    
    
    
    
    
    164
    
    
    
    6.74Equity securities:Restricted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,537
    
    
    
    0.26
    
    
    
    2,537
    
    
    
    0.26Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    139
    
    
    
    0.88
    
    
    
    139
    
    
    
    0.88Total
    
    $
    14,518
    
    
    
    3.27
    %
    
    $
    42,374
    
    
    
    3.25
    %
    
    $
    38,718
    
    
    
    3.94
    %
    
    $
    9,532
    
    
    
    4.29
    %
    
    $
    105,142
    
    
    
    3.60
    %Fair value:State and municipals
    
    $
    1,129
    
    
    
    
    
    
    $
    2,753
    
    
    
    
    
    
    $
    10,550
    
    
    
    
    
    
    $
    5,063
    
    
    
    
    
    
    $
    19,495Mortgage-backed securities:U.S. Government
    
    
    13,543
    
    
    
    
    
    
    
    40,356
    
    
    
    
    
    
    
    30,076
    
    
    
    
    
    
    
    2,143
    
    
    
    
    
    
    
    86,118U.S. Government-sponsored
    
    
    46
    
    
    
    
    
    
    
    113
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    173Equity securities:Restricted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,537
    
    
    
    
    
    
    
    2,537Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    232
    
    
    
    
    
    
    
    232Total
    
    $
    14,718
    
    
    
    
    
    
    $
    43,222
    
    
    
    
    
    
    $
    40,640
    
    
    
    
    
    
    $
    9,975
    
    
    
    
    
    
    $
    108,555
  23




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##### Table of Contents



Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
 Loan Portfolio:
      24




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##### Table of Contents



Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
  Distribution of loan portfolio
 September 30,
    
    
    December 31,2010
    
    
    2009Amount
    
    
    %
    
    
    Amount
    
    
    %Commercial, financial and others
    
    $
    144,714
    
    
    
    32.35
    %
    
    $
    160,945
    
    
    
    33.75
    %Real estate:Construction
    
    
    17,777
    
    
    
    3.97
    
    
    
    23,195
    
    
    
    4.86Residential
    
    
    102,125
    
    
    
    22.83
    
    
    
    104,925
    
    
    
    22.00Commercial
    
    
    152,877
    
    
    
    34.18
    
    
    
    155,269
    
    
    
    32.55Consumer, net
    
    
    26,672
    
    
    
    5.97
    
    
    
    29,447
    
    
    
    6.18Lease financing, net
    
    
    3,117
    
    
    
    0.70
    
    
    
    3,163
    
    
    
    0.66Loans, net of unearned income
    
    
    447,282
    
    
    
    100.00
    %
    
    
    476,944
    
    
    
    100.00
    %Less: allowance for loan losses
    
    
    13,669
    
    
    
    
    
    
    
    17,462Net loans
    
    $
    433,613
    
    
    
    
    
    
    $
    459,482
   25




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##### Table of Contents



Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
  Maturity distribution and interest sensitivity of loan portfolio
 After oneWithin
    
    
    but within
    
    
    AfterSeptember 30, 2010
    
    one year
    
    
    five years
    
    
    five years
    
    
    TotalMaturity schedule:Commercial, financial and others
    
    $
    61,755
    
    
    $
    19,497
    
    
    $
    63,462
    
    
    $
    144,714Real estate:Construction
    
    
    8,098
    
    
    
    3,693
    
    
    
    5,986
    
    
    
    17,777Residential
    
    
    8,555
    
    
    
    28,784
    
    
    
    64,786
    
    
    
    102,125Commercial
    
    
    12,381
    
    
    
    7,459
    
    
    
    133,037
    
    
    
    152,877Consumer, net
    
    
    1,950
    
    
    
    18,460
    
    
    
    6,262
    
    
    
    26,672Lease financing, net
    
    
    623
    
    
    
    2,494
    
    
    
    
    
    
    
    3,117Total
    
    $
    93,362
    
    
    $
    80,387
    
    
    $
    273,533
    
    
    $
    447,282Predetermined interest rates
    
    $
    38,595
    
    
    $
    63,421
    
    
    $
    75,068
    
    
    $
    177,084Floating- or adjustable-interest rates
    
    
    54,767
    
    
    
    16,966
    
    
    
    198,465
    
    
    
    270,198Total
    
    $
    93,362
    
    
    $
    80,387
    
    
    $
    273,533
    
    
    $
    447,282
     26




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Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
       27




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##### Table of Contents



Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
     Distribution of off-balance sheet commitments
 September 30,
    
    
    December 31,2010
    
    
    2009Commitments to extend credit
    
    $
    84,446
    
    
    $
    81,945Unused portions of lines of credit
    
    
    27,427
    
    
    
    24,723Commercial letters of credit
    
    
    16,892
    
    
    
    20,982Total
    
    $
    128,765
    
    
    $
    127,650
   28




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##### Table of Contents



Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
 Asset Quality:
  September 30,
    
    2010
    
    
    2009United States
    
    
    9.6
    %
    
    
    9.8
    %Pennsylvania
    
    
    9.0
    
    
    
    8.6Lackawanna county
    
    
    9.8
    
    
    
    9.0Luzerne county
    
    
    10.5
    
    
    
    9.9Monroe county
    
    
    10.1
    
    
    
    9.4Susquehanna county
    
    
    9.0
    
    
    
    8.7Wayne county
    
    
    8.3
    
    
    
    7.5Wyoming county
    
    
    9.6
    %
    
    
    7.7
    %
   
    
    Hiring an independent loan review company to assist and advise us with our credit
risk management practices;
 
    
    Enhancing the oversight and workout of classified assets by hiring an in-house
attorney to expedite the process of loan foreclosures and redeploying existing staff to
the workout and loan review functions;
 
    
    Initiating the formation of a problem loan committee for the purpose of
monitoring the status of problem assets and devising action plans for the timely workout
or liquidation of assets;
 
    
    Overhauling the appraisal process by requiring new appraisals on all impaired
loans subject to evaluation under FASB ASC 310, Receivables, and any loan that is
delinquent over 60 days; and
 
    
    Tightening underwriting standards to ensure a more rigorous review of potential
loans and more conservative lending standards.
  29




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##### Table of Contents



Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
   
    
    The borrower is current as to existing loan payments;
 
    
    The borrower can obtain funds from a new creditor at existing market rates to repay the
current loan; and
 
    
    The modification is due to a reduction in the existing market rates as compared to the
interest rate on the original loan or an improvement in the creditworthiness of the borrower
since the issuance of the loan.
   30




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Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
       31




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##### Table of Contents



Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
  Distribution of nonperforming assets
 September 30,
    
    
    December 31,2010
    
    
    2009Nonaccrual loans:Commercial, financial and others
    
    $
    2,199
    
    
    $
    7,438Real estate:Construction
    
    
    5,402
    
    
    
    4,532Residential
    
    
    1,542
    
    
    
    1,797Commercial
    
    
    5,566
    
    
    
    5,196Consumer, net
    
    
    166
    
    
    
    52Lease financing, netTotal nonaccrual loans
    
    
    14,875
    
    
    
    19,015Restructured loans:Commercial, financial and others
    
    
    1,346
    
    
    
    1,777Real estate:ConstructionResidential
    
    
    275Commercial
    
    
    348
    
    
    
    2,525Consumer, netLease financing, netTotal restructured loans
    
    
    1,969
    
    
    
    4,302Accruing loans past due 90 days or more:Commercial, financial and others
    
    
    534
    
    
    
    263Real estate:ConstructionResidential
    
    
    120
    
    
    
    603Commercial
    
    
    
    
    
    
    469Consumer, net
    
    
    15
    
    
    
    134Lease financing, net
    
    
    228
    
    
    
    165Total accruing loans past due 90 days or more
    
    
    897
    
    
    
    1,634Total nonperforming loans
    
    
    17,741
    
    
    
    24,951Foreclosed assets
    
    
    6,853
    
    
    
    3,209Total nonperforming assets
    
    $
    24,594
    
    
    $
    28,160Ratios:Nonperforming loans as a percentage of loans, net
    
    
    3.97
    %
    
    
    5.23
    %Nonperforming assets as a percentage of loans, net and
and foreclosed assets
    
    
    5.42
    %
    
    
    5.86
    %
  32




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##### Table of Contents



Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
  
    
    Loans past due 90 days or more;
 
    
    Nonaccrual loans;
 
    
    Restructured loans; and
 
    
    Criticized loans, including regulatory risk ratings of Special Mention, Substandard, Doubtful
and Loss.
     33




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##### Table of Contents



Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
  Distribution of impaired loans
 September 30,
    
    
    December 31,2010
    
    
    2009Nonaccrual loans:Commercial, financial and others
    
    $
    2,199
    
    
    $
    7,438Real estate:Construction
    
    
    5,402
    
    
    
    4,532Residential
    
    
    1,542
    
    
    
    1,797Commercial
    
    
    5,566
    
    
    
    5,196Consumer, net
    
    
    166
    
    
    
    52Lease financing, netTotal nonaccrual loans
    
    
    14,875
    
    
    
    19,015Accruing loans:Commercial, financial and others
    
    
    1,346
    
    
    
    3,400Real estate:ConstructionResidential
    
    
    275
    
    
    
    55Commercial
    
    
    348
    
    
    
    5,198Consumer, netLease financing, netTotal accruing loans
    
    
    1,969
    
    
    
    8,653Total impaired loans
    
    $
    16,844
    
    
    $
    27,668Ratio:Impaired loans as a percentage of loans, net
    
    
    3.77
    %
    
    
    5.80
    %
  September 30, 2010
    
    
    December 31, 2009Recorded
    
    
    Related
    
    
    Recorded
    
    
    RelatedInvestment
    
    
    Allowance
    
    
    Investment
    
    
    AllowanceImpaired loans:With a related allowance
    
    $
    8,638
    
    
    $
    2,592
    
    
    $
    13,481
    
    
    $
    5,762With no related allowance
    
    
    8,206
    
    
    
    
    
    
    
    14,187Total
    
    $
    16,844
    
    
    $
    2,592
    
    
    $
    27,668
    
    
    $
    5,762
  34




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Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Gross interest due under terms
    
    $
    258
    
    
    $
    440
    
    
    $
    966
    
    
    $
    1,362Interest income recognized
    
    
    120
    
    
    
    211
    
    
    
    407
    
    
    
    696Interest income not recognized
    
    $
    138
    
    
    $
    229
    
    
    $
    559
    
    
    $
    666Interest income recognized (cash-basis)
    
    $
    210
    
    
    $
    181
    
    
    $
    606
    
    
    $
    528Average recorded investment in impaired loans
    
    $
    18,531
    
    
    $
    32,125
    
    
    $
    22,766
    
    
    $
    31,677
    35




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Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
   Allocation of the allowance for loan losses
 September 30,
    
    
    December 31,2010
    
    
    2009Category
    
    
    
    
    
    
    Categoryas a
    
    
    
    
    
    
    as a% of
    
    
    
    
    
    
    % ofAmount
    
    
    loans
    
    
    Amount
    
    
    loansAllocated allowance:Specific:Commercial, financial and others
    
    $
    1,499
    
    
    
    0.79
    %
    
    $
    3,679
    
    
    
    2.27
    %Real estate:Construction
    
    
    670
    
    
    
    1.21
    
    
    
    1,002
    
    
    
    0.95Residential
    
    
    271
    
    
    
    0.41
    
    
    
    265
    
    
    
    0.39Commercial
    
    
    82
    
    
    
    1.32
    
    
    
    812
    
    
    
    2.18Consumer, net
    
    
    70
    
    
    
    0.04
    
    
    
    4
    
    
    
    0.01Lease financing, netTotal
specific
    
    
    2,592
    
    
    
    3.77
    
    
    
    5,762
    
    
    
    5.80Formula:Commercial, financial and others
    
    
    4,293
    
    
    
    31.56
    
    
    
    1,024
    
    
    
    31.48Real estate:Construction
    
    
    1,211
    
    
    
    2.76
    
    
    
    1,645
    
    
    
    3.91Residential
    
    
    93
    
    
    
    22.42
    
    
    
    103
    
    
    
    21.61Commercial
    
    
    3,318
    
    
    
    32.86
    
    
    
    1,413
    
    
    
    30.37Consumer, net
    
    
    186
    
    
    
    5.93
    
    
    
    184
    
    
    
    6.17Lease financing, net
    
    
    171
    
    
    
    0.70
    
    
    
    12
    
    
    
    0.66Total formula
    
    
    9,272
    
    
    
    96.23
    
    
    
    4,381
    
    
    
    94.20Total allocated allowance
    
    
    11,864
    
    
    
    100.00
    %
    
    
    10,143
    
    
    
    100.00
    %Unallocated allowance
    
    
    1,805
    
    
    
    
    
    
    
    7,319Total allowance for loan losses
    
    $
    13,669
    
    
    
    
    
    
    $
    17,462
  36




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Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
     37




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Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
  Reconciliation of allowance for loan losses
 September 30,2010Allowance for loan losses at beginning of period
    
    $
    17,462Loans charged-off:Commercial, financial and others
    
    
    3,376Real estate:Construction
    
    
    1,926Residential
    
    
    9Commercial
    
    
    332Consumer, net
    
    
    78Lease financing, netTotal
    
    
    5,721Loans recovered:Commercial, financial and others
    
    
    306Real estate:ConstructionResidential
    
    
    4CommercialConsumer, net
    
    
    18Lease financing, netTotal
    
    
    328Net loans charged-off
    
    
    5,393Provision charged to operating expense
    
    
    1,600Allowance for loan losses at end of period
    
    $
    13,669Ratios:Net loans charged-off as a percentage of average loans outstanding
    
    
    1.54
    %Allowance for loan losses as a percentage of period end loans
    
    
    3.06
    %
    38




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##### Table of Contents



Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
 Deposits:
    Deposit distribution
 September 30,
    
    
    September 30,2010
    
    
    2009Average
    
    
    Average
    
    
    Average
    
    
    AverageBalance
    
    
    Rate
    
    
    Balance
    
    
    RateInterest-bearing:Money market accounts
    
    $
    33,881
    
    
    
    0.99
    %
    
    $
    26,059
    
    
    
    0.88
    %NOW accounts
    
    
    104,263
    
    
    
    1.33
    
    
    
    74,865
    
    
    
    1.41Savings accounts
    
    
    110,125
    
    
    
    0.43
    
    
    
    106,680
    
    
    
    0.53Time deposits less than $100
    
    
    155,704
    
    
    
    3.04
    
    
    
    164,390
    
    
    
    3.33Time deposits $100 or more
    
    
    87,737
    
    
    
    2.54
    
    
    
    81,610
    
    
    
    3.30Total interest-bearing
    
    
    491,710
    
    
    
    1.86
    %
    
    
    453,604
    
    
    
    2.21
    %Noninterest-bearing
    
    
    87,735
    
    
    
    
    
    
    
    81,092Total deposits
    
    $
    579,445
    
    
    
    
    
    
    $
    534,696
   39




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Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
    Maturity distribution of time deposits of $100 or more
 September 30,
    
    
    December 31,2010
    
    
    2009Within three months
    
    $
    31,668
    
    
    $
    13,860After three months but within six months
    
    
    9,706
    
    
    
    31,501After six months but within twelve months
    
    
    19,117
    
    
    
    22,289After twelve months
    
    
    20,788
    
    
    
    21,287Total
    
    $
    81,279
    
    
    $
    88,937
  40




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Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
 Market Risk Sensitivity:
     41




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Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
  Interest rate sensitivity
 Due after
    
    
    Due afterthree months
    
    
    one yearDue within
    
    
    but within
    
    
    but within
    
    
    Due afterSeptember 30, 2010
    
    three months
    
    
    twelve months
    
    
    five years
    
    
    five years
    
    
    TotalRate-sensitive assets:Investment securities
    
    $
    4,119
    
    
    $
    10,599
    
    
    $
    43,222
    
    
    $
    50,615
    
    
    $
    108,555Loans held for sale, net
    
    
    625
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    625Loans, net of unearned income
    
    
    174,664
    
    
    
    106,966
    
    
    
    149,652
    
    
    
    16,000
    
    
    
    447,282Federal funds sold
    
    
    19,501
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,501Total
    
    $
    198,909
    
    
    $
    117,565
    
    
    $
    192,874
    
    
    $
    66,615
    
    
    $
    575,963Rate-sensitive liabilities:Money market accounts
    
    $
    25,932
    
    
    $
    12,386
    
    
    
    
    
    
    
    
    
    
    $
    38,318NOW accounts
    
    
    107,517
    
    
    
    16,191
    
    
    
    
    
    
    
    
    
    
    
    123,708Savings accounts
    
    
    2,084
    
    
    
    
    
    
    $
    107,617
    
    
    
    
    
    
    
    109,701Time deposits less than $100
    
    
    30,325
    
    
    
    36,763
    
    
    
    70,828
    
    
    $
    12,614
    
    
    
    150,530Time deposits $100 or more
    
    
    31,668
    
    
    
    28,823
    
    
    
    19,432
    
    
    
    1,356
    
    
    
    81,279Long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,000
    
    
    
    8,000Total
    
    $
    197,526
    
    
    $
    94,163
    
    
    $
    197,877
    
    
    $
    21,970
    
    
    $
    511,536Rate sensitivity gap:Period
    
    $
    1,383
    
    
    $
    23,402
    
    
    $
    (5,003
    )
    
    $
    44,645Cumulative
    
    $
    1,383
    
    
    $
    24,785
    
    
    $
    19,782
    
    
    $
    64,427
    
    
    $
    64,427RSA/RSL ratio:Period
    
    
    1.01
    
    
    
    1.25
    
    
    
    0.97
    
    
    
    3.03Cumulative
    
    
    1.01
    
    
    
    1.08
    
    
    
    1.04
    
    
    
    1.13
    
    
    
    1.13
   42




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Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
       43




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Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
 Liquidity:
  
    
    Funding new and existing loan commitments;
 
    
    Payment of deposits on demand or at their contractual maturity;
 
    
    Repayment of borrowings as they mature;
 
    
    Payment of lease obligations; and
 
    
    Payment of operating expenses.
   
    
    FHLB-Pgh liquidity contingency line of credit;
 
    
    Federal Reserve Bank discount window;
 
    
    Internet certificates of deposit;
 
    
    Brokered deposits;
 
    
    Institutional Deposit Corporation deposits;
 
    
    Repurchase agreements; and
 
    
    Federal funds purchased.
   44




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Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
      45




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##### Table of Contents



Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
  Capital Adequacy:
   
    
    A Tier I risk-based ratio of at least 6.0 percent;
 
    
    A total risk-based ratio of at least 10.0 percent; and
 
    
    A Leverage ratio of at least 5.0 percent.
   46




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Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
  Regulatory capital
 Minimum to be WellCapitalized underMinimum for Capital
    
    
    Prompt CorrectiveActual
    
    
    Adequacy Purposes
    
    
    Action ProvisionsSeptember 30,
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Basis for ratios:Tier I capital to risk-weighted assets:Consolidated
    
    $
    52,455
    
    
    $
    53,417
    
    
    $
    19,125
    
    
    $
    21,040Community Bank
    
    
    46,774
    
    
    
    48,080
    
    
    
    18,896
    
    
    
    20,892
    
    
    $
    28,345
    
    
    $
    31,338Total capital to risk-weighted assets:Consolidated
    
    
    66,528
    
    
    
    60,055
    
    
    
    38,251
    
    
    
    42,079Community Bank
    
    
    60,776
    
    
    
    54,672
    
    
    
    37,793
    
    
    
    41,784
    
    
    
    47,241
    
    
    
    52,230Tier I capital to total average assets
less goodwill:Consolidated
    
    
    52,455
    
    
    
    53,417
    
    
    
    25,703
    
    
    
    24,628Community Bank
    
    
    46,774
    
    
    
    48,080
    
    
    $
    25,469
    
    
    $
    24,481
    
    
    $
    31,837
    
    
    $
    30,601Risk-weighted assets:Consolidated
    
    
    461,385
    
    
    
    508,430Community Bank
    
    
    455,661
    
    
    
    504,735Risk-weighted off-balance sheet items:Consolidated
    
    
    16,748
    
    
    
    17,563Community Bank
    
    
    16,748
    
    
    
    17,563Average assets for Leverage ratio:Consolidated
    
    
    642,564
    
    
    
    615,705Community Bank
    
    $
    636,735
    
    
    $
    612,015Ratios:Tier I capital as a percentage of risk-
weighted assets and off-balance sheet
items:Consolidated
    
    
    11.0
    %
    
    
    10.2
    %
    
    
    4.0
    %
    
    
    4.0
    %Community Bank
    
    
    9.9
    
    
    
    9.2
    
    
    
    4.0
    
    
    
    4.0
    
    
    
    6.0
    %
    
    
    6.0
    %Total of Tier I and Tier II capital as a
percentage of risk-weighted assets and
off-balance sheet items:Consolidated
    
    
    13.9
    
    
    
    11.4
    
    
    
    8.0
    
    
    
    8.0Community Bank
    
    
    12.9
    
    
    
    10.5
    
    
    
    8.0
    
    
    
    8.0
    
    
    
    10.0
    
    
    
    10.0Tier I capital as a
percentage of total
average assets less intangible assets:Consolidated
    
    
    8.2
    
    
    
    8.7
    
    
    
    4.0
    
    
    
    4.0Community Bank
    
    
    7.3
    %
    
    
    7.9
    %
    
    
    4.0
    %
    
    
    4.0
    %
    
    
    5.0
    %
    
    
    5.0
    %
   47




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Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
    Review of Financial Performance:
   48




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##### Table of Contents



Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
 Net Interest Income:
  
    
    Variations in the volume, rate and composition of earning assets and
interest-bearing liabilities;
 
    
    Changes in general market rates; and
 
    
    The level of nonperforming assets.
   49




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##### Table of Contents



Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
  Net interest income changes due to rate and volume
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010 vs. 2009
    
    
    2010 vs. 2009Increase (decrease)
    
    
    Increase (decrease)attributable to
    
    
    attributable toTotal
    
    
    
    
    
    
    
    
    
    
    TotalChange
    
    
    Rate
    
    
    Volume
    
    
    Change
    
    
    Rate
    
    
    VolumeInterest income:Loans:Taxable
    
    $
    (388
    )
    
    $
    (72
    )
    
    $
    (316
    )
    
    $
    (1,389
    )
    
    $
    (864
    )
    
    $
    (525
    )Tax-exempt
    
    
    (423
    )
    
    
    27
    
    
    
    (450
    )
    
    
    (1,400
    )
    
    
    167
    
    
    
    (1,567
    )Investments:Taxable
    
    
    378
    
    
    
    (38
    )
    
    
    416
    
    
    
    950
    
    
    
    (325
    )
    
    
    1,275Tax-exempt
    
    
    (284
    )
    
    
    19
    
    
    
    (303
    )
    
    
    (997
    )
    
    
    22
    
    
    
    (1,019
    )Federal funds sold
    
    
    8
    
    
    
    2
    
    
    
    6
    
    
    
    24
    
    
    
    
    
    
    
    24Total interest income
    
    
    (709
    )
    
    
    (62
    )
    
    
    (647
    )
    
    
    (2,812
    )
    
    
    (1,000
    )
    
    
    (1,812
    )Interest expense:Money market accounts
    
    
    22
    
    
    
    1
    
    
    
    21
    
    
    
    78
    
    
    
    22
    
    
    
    56NOW accounts
    
    
    55
    
    
    
    (51
    )
    
    
    106
    
    
    
    252
    
    
    
    (44
    )
    
    
    296Savings accounts
    
    
    (36
    )
    
    
    (35
    )
    
    
    (1
    )
    
    
    (70
    )
    
    
    (84
    )
    
    
    14Time deposits less than $100
    
    
    (191
    )
    
    
    (108
    )
    
    
    (83
    )
    
    
    (560
    )
    
    
    (351
    )
    
    
    (209
    )Time deposits $100 or more
    
    
    (183
    )
    
    
    (95
    )
    
    
    (88
    )
    
    
    (344
    )
    
    
    (487
    )
    
    
    143Short-term borrowings
    
    
    (5
    )
    
    
    3
    
    
    
    (8
    )
    
    
    (97
    )
    
    
    (8
    )
    
    
    (89
    )Long-term debt
    
    
    160
    
    
    
    
    
    
    
    160
    
    
    
    480
    
    
    
    
    
    
    
    480Total interest expense
    
    
    (178
    )
    
    
    (285
    )
    
    
    107
    
    
    
    (261
    )
    
    
    (952
    )
    
    
    691Net interest income
    
    $
    (531
    )
    
    $
    223
    
    
    $
    (754
    )
    
    $
    (2,551
    )
    
    $
    (48
    )
    
    $
    (2,503
    )
   50




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Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
      51




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Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
    52




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Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
  Summary of net interest income
 September 30, 2010
    
    
    September 30, 2009Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    AverageAverage
    
    
    Income/
    
    
    Interest
    
    
    Average
    
    
    Income/
    
    
    InterestBalance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    RateASSETS:Earning assets:Loans:Taxable
    
    $
    435,435
    
    
    $
    17,689
    
    
    
    5.43
    %
    
    $
    447,962
    
    
    $
    19,078
    
    
    
    5.69
    %Tax-exempt
    
    
    31,329
    
    
    
    1,453
    
    
    
    6.20
    
    
    
    65,328
    
    
    
    2,853
    
    
    
    5.84Investments:Taxable
    
    
    91,227
    
    
    
    1,848
    
    
    
    2.71
    
    
    
    31,488
    
    
    
    898
    
    
    
    3.81Tax-exempt
    
    
    20,722
    
    
    
    1,150
    
    
    
    7.42
    
    
    
    39,079
    
    
    
    2,147
    
    
    
    7.35Federal funds sold
    
    
    30,999
    
    
    
    29
    
    
    
    0.13
    
    
    
    5,244
    
    
    
    5
    
    
    
    0.13Total earning assets
    
    
    609,712
    
    
    
    22,169
    
    
    
    4.86
    %
    
    
    589,101
    
    
    
    24,981
    
    
    
    5.67
    %Less: allowance for loan losses
    
    
    15,426
    
    
    
    
    
    
    
    
    
    
    
    5,855Other assets
    
    
    48,723
    
    
    
    
    
    
    
    
    
    
    
    32,897Total assets
    
    $
    643,009
    
    
    
    
    
    
    
    
    
    
    $
    616,143LIABILITIES AND STOCKHOLDERS EQUITY:Interest-bearing liabilities:Money market accounts
    
    $
    33,881
    
    
    
    250
    
    
    
    0.99
    %
    
    $
    26,059
    
    
    
    172
    
    
    
    0.88
    %NOW accounts
    
    
    104,263
    
    
    
    1,041
    
    
    
    1.33
    
    
    
    74,865
    
    
    
    789
    
    
    
    1.41Savings accounts
    
    
    110,125
    
    
    
    352
    
    
    
    0.43
    
    
    
    106,680
    
    
    
    422
    
    
    
    0.53Time deposits less than $100
    
    
    155,704
    
    
    
    3,535
    
    
    
    3.04
    
    
    
    164,390
    
    
    
    4,095
    
    
    
    3.33Time deposits $100 or more
    
    
    87,737
    
    
    
    1,670
    
    
    
    2.54
    
    
    
    81,610
    
    
    
    2,014
    
    
    
    3.30Short-term borrowings
    
    
    11
    
    
    
    
    
    
    
    0.63
    
    
    
    18,595
    
    
    
    97
    
    
    
    0.70Long-term debt
    
    
    8,000
    
    
    
    480
    
    
    
    8.02Total interest-bearing liabilities
    
    
    499,721
    
    
    
    7,328
    
    
    
    1.96
    %
    
    
    472,199
    
    
    
    7,589
    
    
    
    2.15
    %Noninterest-bearing deposits
    
    
    87,735
    
    
    
    
    
    
    
    
    
    
    
    81,092Other liabilities
    
    
    3,237
    
    
    
    
    
    
    
    
    
    
    
    3,758Stockholders equity
    
    
    52,316
    
    
    
    
    
    
    
    
    
    
    
    59,094Total liabilities and stockholders equity
    
    $
    643,009
    
    
    
    
    
    
    
    
    
    
    $
    616,143Net interest income/spread
    
    
    
    
    
    $
    14,841
    
    
    
    2.90
    %
    
    
    
    
    
    $
    17,392
    
    
    
    3.52
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.25
    %
    
    
    
    
    
    
    
    
    
    
    3.95
    %Tax equivalent adjustments:Loans
    
    
    
    
    
    $
    494
    
    
    
    
    
    
    
    
    
    
    $
    970Investments
    
    
    
    
    
    
    391
    
    
    
    
    
    
    
    
    
    
    
    730Total adjustments
    
    
    
    
    
    $
    885
    
    
    
    
    
    
    
    
    
    
    $
    1,700
 Note:
    
    Average balances were calculated using average daily balances. Interest income on loans
include fees of $540 in 2010 and $652 in 2009. Available-for-sale securities, included in
investment securities, are stated at amortized cost with the related average unrealized
holding gains of $1,499 and $2,573 for the nine months ended September 30, 2010 and 2009
included in other assets. Tax-equivalent adjustments were calculated using the prevailing
statutory tax rate of 34.0 percent.  53




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##### Table of Contents



Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
 Provision for Loan Losses:
   Noninterest Income:
    54




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##### Table of Contents



Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
 Noninterest Expense:
   Noninterest expenses
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Salaries and employee benefits expense:Salaries and payroll taxes
    
    $
    1,737
    
    
    $
    1,734
    
    
    $
    5,198
    
    
    $
    5,109Employee benefits
    
    
    451
    
    
    
    291
    
    
    
    1,360
    
    
    
    1,220Salaries and employee benefits expense
    
    
    2,188
    
    
    
    2,025
    
    
    
    6,558
    
    
    
    6,329Net occupancy and equipment expense:Net occupancy expense
    
    
    266
    
    
    
    271
    
    
    
    856
    
    
    
    898Equipment expense
    
    
    292
    
    
    
    320
    
    
    
    852
    
    
    
    951Net occupancy and equipment expense
    
    
    558
    
    
    
    591
    
    
    
    1,708
    
    
    
    1,849Other expenses:Marketing expense
    
    
    141
    
    
    
    167
    
    
    
    345
    
    
    
    528Other taxes
    
    
    154
    
    
    
    151
    
    
    
    469
    
    
    
    497Stationery and supplies
    
    
    55
    
    
    
    49
    
    
    
    151
    
    
    
    178Contractual services
    
    
    724
    
    
    
    482
    
    
    
    1,729
    
    
    
    1,618Insurance, including FDIC assessment
    
    
    398
    
    
    
    336
    
    
    
    1,160
    
    
    
    1,313Other
    
    
    731
    
    
    
    757
    
    
    
    1,549
    
    
    
    1,601Other expenses
    
    
    2,203
    
    
    
    1,942
    
    
    
    5,403
    
    
    
    5,735Total noninterest expense
    
    $
    4,949
    
    
    $
    4,558
    
    
    $
    13,669
    
    
    $
    13,913
  55




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##### Table of Contents



Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
       56




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##### Table of Contents



Comm Bancorp, Inc.
MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)
(Dollars in thousands, except per share data)
   Income Taxes:
    57




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##### Table of Contents



Comm Bancorp, Inc.
 
 CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures:
  Internal Control Over Financial Reporting:
   58




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##### Table of Contents



Comm Bancorp, Inc.  OTHER INFORMATION
 
 Part II. Other Information
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Removed and Reserved
  
 Item 5. Other Information
  
 Item 6. Exhibits
 31
    (i)
    
    CEO and CFO certifications pursuant to Rule 13a-14(a)/15d-14(a).32
    
    
    CEO and CFO certifications pursuant to Section 1350.
  59




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##### Table of Contents



COMM BANCORP, INC.
FORM 10-Q
 
 SIGNATURE PAGE
  Registrant, Comm Bancorp, Inc.Date: November 15, 2010
    /s/ William F. Farber, Sr.William F. Farber, Sr.President and Chief Executive Officer
Chairman of the Board/Director
(Principal Executive Officer)Date: November 15, 2010
    /s/ Scott A. SeasockScott A. SeasockExecutive Vice President and
Chief Financial Officer
(Principal Financial Officer)Date: November 15, 2010
    /s/ Stephanie A. Westington, CPAStephanie A. Westington, CPAVice President of Finance
(Principal Accounting Officer)  60




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##### Table of Contents



EXHIBIT INDEX
 Item Number
    
    Description
    
    Page31
    (i)
    
    CEO and CFO Certifications Pursuant to Rule 13a-14(a)/15d-14(a).
    
    
    6232
    
    
    CEO and CFO Certifications Pursuant to Section 1350.
    
    
    64
  61