CCBP Comm Bancorp (MM)

 

 

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 June 30, 2009

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.

(Exact name of registrant as specified in its charter)

Pennsylvania		23-2242292
(State or other jurisdiction of incorporation		(I.R.S. Employer Identification Number)
or organization)

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.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes o No þ

APPLICABLE ONLY TO CORPORATE REGISTRANTS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 1,718,439 at July 31, 2009.

 

 

Page 1 of 62

Exhibit Index on Page 58

COMM BANCORP, INC.
FORM 10-Q
June 30, 2009

INDEX

CONTENTS		Page No.
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements.
Consolidated Statements of Income and Comprehensive Income for the Three Months and Six Months Ended June 30, 2009 and 2008			3
Consolidated Balance Sheets — June 30, 2009 and December 31, 2008			4
Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2009 and 2008			5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008			6
Notes to Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. Quantitative and Qualitative Disclosures About Market Risk			*
Item 4. Controls and Procedures			54
Item 4T. Controls and Procedures			*
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings			55
Item 1A. Risk Factors			*
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			55
Item 3. Defaults Upon Senior Securities			55
Item 4. Submission of Matters to a Vote of Security Holders			56
Item 5. Other Information			56
Item 6. Exhibits			56
Signatures			57
Exhibit Index			58
Exhibit 31(i)
Exhibit 32

Comm Bancorp, Inc.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Dollars in thousands, except per share data)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Interest income:
Interest and fees on loans:
Taxable		$	6,436			$	7,274			$	12,884			$	14,842
Tax-exempt			619				564				1,285				1,135
Interest and dividends on investment securities available-for-sale:
Taxable			315				38				664				81
Tax-exempt			473				357				1,010				721
Dividends			9				15				20				27
Interest on federal funds sold							10				1				12
Total interest income			7,852				8,258				15,864				16,818
Interest expense:
Interest on deposits			2,426				2,982				5,059				6,252
Interest on short-term borrowings			36				50				92				178
Total interest expense			2,462				3,032				5,151				6,430
Net interest income			5,390				5,226				10,713				10,388
Provision for loan losses			520				283				1,090				613
Net interest income after provision for loan losses			4,870				4,943				9,623				9,775
Noninterest income:
Service charges, fees and commissions			832				881				1,596				1,679
Mortgage banking income			490				154				892				324
Net gains on sale of premises and equipment											294
Net gains on sale of investment securities available-for-sale											114
Total noninterest income			1,322				1,035				2,896				2,003
Noninterest expense:
Salaries and employee benefits expense			2,164				2,115				4,304				4,245
Net occupancy and equipment expense			583				645				1,258				1,283
Other expenses			2,260				1,272				3,793				2,503
Total noninterest expense			5,007				4,032				9,355				8,031
Income before income taxes			1,185				1,946				3,164				3,747
Provision for income tax expense (benefit)			(30	)			286				174				522
Net income			1,215				1,660				2,990				3,225
Other comprehensive income (loss):
Unrealized gains (losses) on investment securities available-for-sale			13				(582	)			355				(338	)
Reclassification adjustment for gains included in net income											(114	)
Income tax expense (benefit) related to other comprehensive income (loss)			4				(198	)			82				(115	)
Other comprehensive income (loss), net of income taxes			9				(384	)			159				(223	)
Comprehensive income		$	1,224			$	1,276			$	3,149			$	3,002
Per share data:
Net income		$	0.70			$	0.95			$	1.73			$	1.84
Cash dividends declared		$	0.28			$	0.27			$	0.56			$	0.54
Average common shares outstanding			1,722,282				1,751,841				1,725,310				1,752,609

See Notes to Consolidated Financial Statements.

Comm Bancorp, Inc.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

		June 30,				December 31,
		2009				2008
Assets:
Cash and due from banks		$	8,315			$	8,017
Federal funds sold							12,700
Investment securities available-for-sale			73,169				80,574
Loans held for sale, net			787				1,390
Loans, net of unearned income			510,870				485,882
Less: allowance for loan losses			6,019				5,255
Net loans			504,851				480,627
Premises and equipment, net			11,709				11,753
Accrued interest receivable			2,526				2,143
Other assets			9,456				6,837
Total assets		$	610,813			$	604,041
Liabilities:
Deposits:
Noninterest-bearing		$	82,002			$	79,674
Interest-bearing			456,795				462,617
Total deposits			538,797				542,291
Short-term borrowings							7,950
Accrued interest payable			1,696				1,815
Other liabilities			2,912				2,137
Total liabilities			551,355				546,243
Stockholders’ equity:
Common stock, par value $0.33, authorized 12,000,000 shares, issued and outstanding: June 30, 2009, 1,716,263 shares; December 31, 2008, 1,730,062 shares			566				571
Capital surplus			7,799				7,694
Retained earnings			49,263				47,862
Accumulated other comprehensive income			1,830				1,671
Total stockholders’ equity			59,458				57,798
Total liabilities and stockholders’ equity		$	610,813			$	604,041

See Notes to Consolidated Financial Statements.

Comm Bancorp, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in thousands, except per share data)

														Accumulated
														Other				Total
		Common				Capital				Retained				Comprehensive				Stockholders’
		Stock				Surplus				Earnings				Income				Equity
Balance, December 31, 2008		$	571			$	7,694			$	47,862			$	1,671			$	57,798
Net income											2,990								2,990
Dividends declared: $0.56 per share											(965	)							(965	)
Dividend reinvestment plan: 4,318 shares issued			1				159												160
Repurchase and retirement: 18,117 shares			(6	)			(54	)			(624	)							(684	)
Other comprehensive income, net of income taxes															159				159
Balance, June 30, 2009		$	566			$	7,799			$	49,263			$	1,830			$	59,458
Balance, December 31, 2007		$	579			$	7,326			$	45,353			$	1,115			$	54,373
Net income											3,225								3,225
Dividends declared: $0.54 per share											(945	)							(945	)
Dividend reinvestment plan: 5,738 shares issued			2				257												259
Repurchase and retirement: 11,586 shares			(4	)			(35	)			(473	)							(512	)
Other comprehensive loss, net of income taxes															(223	)			(223	)
Balance, June 30, 2008		$	577			$	7,548			$	47,160			$	892			$	56,177

See Notes to Consolidated Financial Statements.

Comm Bancorp, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands, except per share data)

Six Months Ended June 30,		2009				2008
Cash flows from operating activities:
Net income		$	2,990			$	3,225
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses			1,090				613
Depreciation and amortization of premises and equipment			459				476
Net amortization of investment securities			181				47
Amortization of net loan costs			191				166
Amortization of mortgage servicing rights			231				110
Deferred income tax benefit			(214	)			(358	)
Net gains on sale of investment securities available-for-sale			(114	)
Net gains on sale of loans			(942	)			(259	)
Net gains on sale of premises and equipment			(294	)
Net gains on sale of foreclosed assets			(17	)			(12	)
Changes in:
Loans held for sale, net			1,545				582
Accrued interest receivable			(383	)			121
Other assets			(1,246	)			(341	)
Accrued interest payable			(119	)			(37	)
Other liabilities			681				109
Net cash provided by operating activities			4,039				4,442
Cash flows from investing activities:
Proceeds from repayments of investment securities available-for-sale			4,661				9,248
Proceeds from sales of investment securities available-for-sale			4,341
Purchases of investment securities available-for-sale			(1,423	)			(1,714	)
Proceeds from sale of foreclosed assets			145				137
Net increase in lending activities			(27,023	)			(20,042	)
Proceeds from sale of premises and equipment			509
Purchases of premises and equipment			(630	)			(295	)
Net cash used in investing activities			(19,420	)			(12,666	)
Cash flows from financing activities:
Net changes in:
Money market, NOW, savings and noninterest-bearing accounts			(358	)			(258	)
Time deposits			(3,136	)			11,433
Short-term borrowings			7,950
Proceeds from issuance of common shares			160				259
Repurchase and retirement of common shares			(684	)			(512	)
Cash dividends paid			(953	)			(930	)
Net cash provided by financing activities			2,979				9,992
Net increase (decrease) in cash and cash equivalents			(12,402	)			1,768
Cash and cash equivalents at beginning of year			20,717				21,876
Cash and cash equivalents at end of period		$	8,315			$	23,644
Supplemental disclosures:
Cash paid during the period for:
Interest		$	5,270			$	6,467
Income taxes			691				830
Noncash items:
Transfers of loans to foreclosed assets			1,518
Unrealized losses (gains) on investment securities available-for-sale, net		$	(159	)		$	223

See Notes to Consolidated Financial Statements.

Comm Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

1. Basis of presentation:

The accompanying unaudited consolidated financial statements of Comm Bancorp, Inc. and subsidiaries, Community Bank and Trust Company, including its subsidiaries, Community Leasing Corporation and Comm Financial Services Corporation, and Comm Realty Corporation (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the financial position and results of operations for the periods have been included. All significant intercompany balances and transactions have been eliminated in consolidation. Prior-period amounts are reclassified when necessary to conform with the current year’s presentation. These reclassifications did not have a material effect on the operating results or financial position of the Company. The operating results and financial position of the Company for the three months and six months ended and as of June 30, 2009, are not necessarily indicative of the results of operations that may be expected in the future.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. For additional information and disclosures required under GAAP, reference is made to the Company’s Annual Report on Form 10-K for the period ended December 31, 2008.

2. Earnings per common share:

The Company had no dilutive potential common shares outstanding during the three-month and six-month periods ended June 30, 2009 and 2008, therefore, the per share data presented on the face of the Consolidated Statements of Income and Comprehensive Income relates to basic per share amounts.

Comm Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, except per share data)

3. Subsequent events:

On May 28, 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 165, “Subsequent Events.” This Statement is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, SFAS No. 165 sets forth:

•

The period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in financial statements;

•

The circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and

•

The disclosures that an entity should make about events or transactions that occurred after the balance sheet date.

SFAS No. 165 is effective for interim and annual periods ending after June 15, 2009. The Company has evaluated events and transactions occurring subsequent to the balance sheet date of June 30, 2009, for items that should potentially be recognized or disclosed in these financial statements. The evaluation was conducted through August 12, 2009, the date these financial statements were issued.

4. Transfers of financial assets:

On June 12, 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets, an Amendment of SFAS No. 140.” This Statement prescribes the information that a reporting company must provide in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance and cash flows; and a transferor’s continuing involvement in transferred financial assets. SFAS No. 166 is effective for fiscal years beginning after November 15, 2009. The adoption of this Statement on January 1, 2010, is not expected to have a material affect on the operating results or financial position of the Company.

5. Variable Interest Entities:

On June 12, 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R).” This Statement amends FASB Interpretation No. (“FIN”) 46, “Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51,” to require an enterprise to determine whether its variable interest or interests give it a controlling financial interest in a variable interest entity. SFAS No. 167 also amends FIN 46(R) to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. SFAS No. 167 is effective for fiscal years beginning after November 15, 2009. The adoption of this Statement on January 1, 2010, is not expected to have a material affect on the operating results or financial position of the Company.

Comm Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, except per share data)

6. Hierarchy of GAAP:

On July 1, 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a Replacement of SFAS No. 162,” SFAS No. 168 replaces SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” to establish the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in preparation of financial statements in conformity with GAAP in the United States. SFAS No. 168 is effective for interim and annual periods ending after September 15, 2009. The adoption of this Statement on July 1, 2009, is not expected to have a material affect on the operating results or financial position of the Company.

7. Investment securities:

On April 1, 2009, the Company adopted FASB Staff Position (“FSP”) Financial Accounting Standard (“FAS”) 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” FSP FAS 115-2 and FAS 124-2 provides additional guidance designed to create greater clarity and consistency in accounting for and presenting other than temporary impairment losses on securities. The adoption of this FSP did not have a material effect on the operating results or financial position of the Company.

All investment securities were classified as available-for-sale at June 30, 2009 and December 31, 2008. The amortized cost and fair value of available-for-sale securities aggregated by investment category at June 30, 2009 and December 31, 2008, are summarized as follows:

		Amortized				Unrealized				Unrealized				Fair
June 30, 2009		Cost				Gains				Losses				Value
State and municipals		$	38,023			$	1,830			$	76			$	39,777
Mortgage-backed securities			29,697				939								30,636
Equity securities:
Restricted			2,537												2,537
Other			139				83				3				219
Total		$	70,396			$	2,852			$	79			$	73,169

		Amortized				Unrealized				Unrealized				Fair
December 31, 2008		Cost				Gains				Losses				Value
State and municipals		$	44,873			$	2,288			$	154			$	47,007
Mortgage-backed securities			31,916				366				56				32,226
Equity securities:
Restricted			1,116												1,116
Other			137				90				2				225
Total		$	78,042			$	2,744			$	212			$	80,574

Comm Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, except per share data)

Net unrealized holding gains and losses on available-for-sale securities are included as a separate component in stockholders’ equity. The Company had net unrealized holding gains of $1,830, net of deferred income taxes of $943, at June 30, 2009, and $1,671, net of deferred income taxes of $861, at December 31, 2008.

The fair value and gross unrealized losses of available-for-sale securities with unrealized losses for which an other-than-temporary impairment has not been recognized at June 30, 2009 and December 31, 2008, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, are summarized as follows:

		Less than 12 months								12 months or more								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
June 30, 2009		Value				Losses				Value				Losses				Value				Losses
State and municipals		$	2,742			$	76											$	2,742			$	76
Mortgage-backed securities
Equity securities:
Restricted
Other			6				3												6				3
Total		$	2,748			$	79											$	2,748			$	79

		Less than 12 months								12 months or more								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
December 31, 2008		Value				Losses				Value				Losses				Value				Losses
State and municipals		$	4,102			$	154											$	4,102			$	154
Mortgage-backed securities			6,071				56												6,071				56
Equity securities:
Restricted
Other			7				2												7				2
Total		$	10,180			$	212											$	10,180			$	212

At June 30, 2009, the Company had 149 investment securities, consisting of 122 tax-exempt state and municipal obligations, 18 mortgage-backed securities, including collateralized mortgage obligations, and two restricted and seven marketable equity securities. There were 7 investment securities in an unrealized loss position at June 30, 2009, including six tax-exempt state and municipal obligations and one marketable equity security. None of these securities were in a continuous unrealized loss position for 12 months or more. Community Bank holds all of the Company’s debt securities and is a state member bank of the Federal Reserve System which imposes strict limitations and restrictions on the types of securities that may be acquired. As a result, securities held are “Bank Quality Investment” grade, defined as bearing a credit quality rating of “Baa” or higher from Moody’s or “BBB” or higher from Standard and Poor’s rating services, and are readily marketable, but are still subject to price fluctuations because of changes in interest rates. The decline in the fair value below the amortized cost basis of each of the debt securities was attributable to changes in interest rates and was not indicative of a downgrade in the credit quality of the issuer. Management does not consider the unrealized losses, as a result of changes in interest rates, to be other-than-temporary based on historical evidence that indicates the cost of these securities is recoverable within a reasonable period of time in relation to normal cyclical changes in the market rates of interest.

Comm Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, except per share data)

Tax-exempt state and municipal securities consisted of insured general obligations and revenue bonds. All six of the tax-exempt state and municipal obligations that were in an unrealized loss position at June 30, 2009, were insured general obligations. None of these bonds were in a continuous unrealized loss position for longer than 12 months at June 30, 2009. The insured general obligations have a credit quality rating of “AAA” and are secured by the unlimited taxing power of the issuer and is further safeguarded against default by the unconditional guarantee of an insurance company over the term of the bond to pay the bondholder any principal or interest that is due on a stated maturity date not paid by the issuer. Because there has been no change in the credit quality of the issuers or other events or circumstances that may cause a significant adverse impact on the fair value of these securities, the unrealized losses are not considered to be other-than-temporary impairments at June 30, 2009. At the current time we do not intend to sell, and it is more likely than not that we will not have to sell, any of our temporarily impaired securities.

Marketable equity securities are held at the Parent Company consisting of common stocks of commercial banks. At June 30, 2009, the market value of common stock held in Wachovia Corporation was below its amortized cost basis of $9. Wells Fargo and Company acquired Wachovia Corporation after the close of business on December 31, 2008. Wells Fargo and Company had a credit rating of “AA” and was categorized as well capitalized under regulatory capital guidelines at year-end 2008. As a result, the Company does not consider the unrealized loss to be other than temporary because it was directly related to the financial weakness of the former issuer. At the current time we do not intend to sell, and it is more likely than not that we will not have to sell, any of our temporarily impaired securities.

As a member of the Federal Home Loan Bank of Pittsburgh (“FHLB-Pgh”), the Company is required to purchase and hold stock in the FHLB-Pgh to satisfy membership and borrowing requirements. This stock is restricted in that it can only be sold to the FHLB-Pgh or to another member institution, and all sales of FHLB-Pgh stock must be at par. As a result of these restrictions, FHLB-Pgh stock is unlike other investment securities insofar as there is no trading market for FHLB-Pgh stock and the transfer price is determined by FHLB-Pgh membership rules and not by market participants. As of June 30, 2009 and December 31, 2008, our FHLB-Pgh stock totaled $2.4 million and $1.0 million and is included in investment securities available-for-sale on the Consolidated Balance Sheets.

Comm Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, except per share data)

In December 2008, the FHLB-Pgh voluntarily suspended dividend payments on its stock, as well as the repurchase of excess stock from members. The FHLB-Pgh cited a significant reduction in the level of core earnings resulting from lower short-term interest rates, the increased cost of liquidity, and constrained access to the debt markets at attractive rates and maturities as the main reasons for the decision to suspend dividends and the repurchase of excess capital stock. The FHLB-Pgh last paid a dividend in the third quarter of 2008.

FHLB-Pgh stock is held as a long-term investment and its value is determined based on the ultimate recoverability of the par value. The Company evaluates impairment quarterly. The decision of whether impairment exists is a matter of judgement that reflects our view of the FHLB-Pgh’s long-term performance, which includes factors such as the following:

•

its operating performance;

•

the severity and duration of declines in the fair value of its net assets related to its capital stock amount;

•

its commitment to make payments required by law or regulation and the level of such payments in relation to its operating performance;

•

the impact of legislative and regulatory changes on the FHLB-Pgh, and accordingly, on the members of the FHLB-Pgh; and

•

its liquidity and funding position.

After evaluating all of these considerations the Company concluded that the par value of its investment in FHLB-Pgh stock will be recovered. Accordingly, no impairment charge was recorded on these securities for the six months ended June 30, 2009. Our evaluation of the factors described above in future periods could result in the recognition of impairment charges on FHLB-Pgh stock.

Comm Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, except per share data)

The maturity distribution of the fair value, which is the net carrying amount, of the debt securities classified as available-for-sale at June 30, 2009, is summarized in the table that follows. The distributions are based on contractual maturity with the exception of mortgage-backed securities. Mortgage-backed securities have been presented based upon estimated cash flows, assuming no change in the current interest rate environment. Expected maturities may differ from contracted maturities, or estimated maturities for mortgage-backed securities, because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

						After one				After five
		Within				but within				but within				After
June 30, 2009		one year				five years				ten years				ten years				Total
State and municipals		$	1,881			$	4,030			$	20,465			$	13,401			$	39,777
Mortgage-backed securities			10,886				18,189				1,356				205				30,636
Total		$	12,767			$	22,219			$	21,821			$	13,606			$	70,413

8. Fair values of financial instruments:

GAAP establishes a fair value hierarchy that prioritizes the inputs to the valuation methods used to measure fair value into three levels which include the following:

•

Level 1: Unadjusted quoted prices of 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.

Comm Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, except per share data)

Assets and liabilities measured at fair value on a recurring basis at June 30, 2009 and December 31, 2008, are summarized below:

Fair Value Measurements Using

Quoted Prices in

Active Markets for

Significant Other

Significant

Identical Assets

Observable Inputs

Unobservable Inputs

June 30, 2009

Amount

(Level 1)

(Level 2)

(Level 3)

Assets:

Investment securities available-for-sale

$

70,632

$

219

$

70,413

Fair Value Measurements Using

Quoted Prices in

Active Markets for

Significant Other

Significant

Identical Assets

Observable Inputs

Unobservable Inputs

December 31, 2008

Amount

(Level 1)

(Level 2)

(Level 3)

Assets:

Investment securities available-for-sale

$

79,458

$

225

$

79,233

Investment securities available-for-sale reported at fair value using Level 1 inputs include marketable equity securities trading in active exchange markets. The fair value of investment securities available-for-sale utilizing Level 2 inputs include debt securities with quoted market prices based on a matrix pricing model. This method for determining fair value is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities.

Assets measured at fair value on a non-recurring basis at June 30, 2009 and December 31, 2008, are summarized below:

Fair Value Measurements Using

Quoted Prices in

Active Markets for

Significant Other

Significant

Identical Assets

Observable Inputs

Unobservable Inputs

June 30, 2009

Amount

(Level 1)

(Level 2)

(Level 3)

Assets:

Impaired loans

$

14,445

$

14,445

Foreclosed assets

$

1,726

$

1,726

Fair Value Measurements Using

Quoted Prices in

Active Markets for

Significant Other

Significant

Identical Assets

Observable Inputs

Unobservable Inputs

December 31, 2008

Amount

(Level 1)

(Level 2)

(Level 3)

Assets:

Impaired loans

$

16,135

$

16,135

Foreclosed assets

$

336

$

336

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a recorded investment of $18,734 and a related allowance of $4,289 at June 30, 2009. Impaired loans had a recorded investment of $19,707 and a related allowance of $3,572 at December 31, 2008. The fair value of foreclosed assets is based upon estimates derived through independent appraisals. Real estate acquired in connection with foreclosures is written down to fair value less cost to sell.

Comm Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, except per share data)

Disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practical to estimate that value is required by GAAP. The Company’s assets that were considered financial instruments approximated 96.7 percent of total assets at June 30, 2009, and 97.0 percent of total assets at December 31, 2008. Liabilities that were considered financial instruments approximated 99.5 percent of total liabilities at June 30, 2009, and 99.6 percent of total liabilities at December 31, 2008. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets. In many cases, these values cannot be realized in immediate settlement of the instrument. This disclosure does not and is not intended to represent the fair value of the Company.

Fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of certain assets and liabilities that are not considered financial.

Accordingly, such assets and liabilities are excluded from disclosure requirements. For example, no benefit is recorded for the value of low-cost funding subsequently discussed. In addition, Community Bank’s Trust and Wealth Management Division contributes fee income annually. Trust assets and liabilities are not considered financial instruments for this disclosure, and their values have not been incorporated into the fair value estimates.

On April 1, 2009, the Company adopted FSP FAS 107-1 and Accounting Principles Bulletin (“APB”) 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” The adoption of FSP FAS 107-1 and APB 28-1 did not have a material effect on the operating results or financial position of the Company.

Comm Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, except per share data)

The following methods and assumptions were used by the Company to construct the accompanying table containing the fair values and related carrying amounts of financial instruments:

Cash and cash equivalents: The carrying values of cash and cash equivalents as reported on the balance sheet approximate fair value.

Investment securities available for sale: The fair value of investment securities available for sale is based on quoted market prices. The carrying values of restricted equity securities approximate fair value.

Loans held for sale, net: The fair value of loans held for sale, net, are based on quoted market prices.

Net loans: For adjustable-rate loans that reprice immediately and with no significant credit risk, fair values are based on carrying values. The fair values of other nonimpaired loans are estimated using discounted cash flow analysis, using interest rates currently offered for loans with similar terms to borrowers of similar credit risk. Fair values for impaired loans are estimated using discounted cash flow analysis determined by the loan review function or underlying collateral values, where applicable.

Mortgage servicing rights: The fair value of mortgage servicing rights is based on observable market prices when available or the present value of future cash flows when not available.

Short-term borrowings: The carrying value of short-term borrowings at a variable interest rate approximates fair value.

Accrued interest receivable: The carrying value of accrued interest receivable as reported on the balance sheet approximates fair value.

Deposits without stated maturities: The fair value of noninterest-bearing deposits and savings, NOW and money market accounts is the amount payable on demand at the reporting date. The fair value estimates do not include the benefit that results from such low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.

Deposits with stated maturities: The carrying value of adjustable-rate, fixed-term time deposits approximates their fair value at the reporting date. For fixed-rate time deposits, the present value of future cash flows is used to estimate fair value. The discount rates used are the current rates offered for time deposits with similar maturities.

Comm Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, except per share data)

Accrued interest payable: The carrying value of accrued interest payable as reported on the balance sheet approximates fair value.

Off-balance sheet financial instruments: The majority of commitments to extend credit, unused portions of lines of credit and letters of credit carry current market interest rates if converted to loans. Because such commitments are generally unassignable by either the Company or the borrower, they only have value to the Company and the borrower. None of the commitments are subject to undue credit risk. The estimated fair values of off-balance sheet financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of off-balance sheet financial instruments was not material at June 30, 2009 and December 31, 2008.

The estimated fair value of financial instruments at June 30, 2009 and December 31, 2008, is summarized as follows:

		June 30, 2009								December 31,2008
		Carrying				Fair				Carrying				Fair
		Value				Value				Value				Value
Financial assets:
Cash and cash equivalents		$	8,315			$	8,315			$	20,717			$	20,717
Investment securities available-for-sale			73,169				73,169				80,574				80,574
Loans held for sale, net			787				787				1,390				1,390
Net loans			504,851				508,254				480,627				487,917
Mortgage servicing rights			833				833				578				578
Accrued interest receivable			2,526				2,526				2,143				2,143
Total		$	590,481			$	593,884			$	586,029			$	593,319
Financial liabilities:
Deposits without stated maturities		$	290,183			$	290,183			$	290,541			$	290,541
Deposits with stated maturities			248,614				253,929				251,750				260,019
Short-term borrowings			7,950				7,950
Accrued interest payable			1,696				1,696				1,815				1,815
Total		$	548,443			$	553,758			$	544,106			$	552,375

Comm Bancorp, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS

(Dollars in thousands, except per share data)

Forward-Looking Discussion:

Certain statements in this Form 10-Q are forward-looking statements that involve numerous risks and uncertainties. The following factors, among others, may cause actual results to differ materially from projected results:

Local, domestic and international economic and political conditions, and government monetary and fiscal policies affect banking both directly and indirectly. Inflation, recession, unemployment, volatile interest rates, tight money supply, real estate values, international conflicts, and other factors beyond our control may also adversely affect our future results of operations. Our management team, consisting of the Board of Directors and executive officers, expects that no particular factor will affect the results of operations. The continuation of downward trends in areas such as real estate, construction and consumer spending, may adversely impact our ability to maintain or increase profitability. Therefore, we cannot assure the continuation of our current level of income and growth.

Our earnings depend largely upon net interest income. The relationship between our cost of funds, deposits and borrowings, and the yield on our interest-earning assets, loans and investments all influence net interest income levels. This relationship, defined as the net interest spread, fluctuates and is affected by regulatory, economic and competitive factors that influence interest rates, the volume, rate and mix of interest-earning assets and interest-bearing liabilities, and the level of nonperforming assets. As part of our interest rate risk (“IRR”) strategy, we monitor the maturity and repricing characteristics of interest-earning assets and interest-bearing liabilities to control our exposure to interest rate changes.

To a certain extent, our success depends upon the general economic conditions in the geographic market that we serve. Further adverse changes to economic conditions would likely impair loan collections and may have a materially adverse effect on the consolidated results of operations and financial position.

The banking industry is highly competitive, with rapid changes in product delivery systems and in consolidation of service providers. We compete with many larger institutions in terms of asset size. These competitors also have substantially greater technical, marketing and financial resources. The larger size of these companies affords them the opportunity to offer some specialized products and services not offered by us. We are constantly striving to meet the convenience and needs of our customers and to enlarge our customer base, however, we cannot assure that these efforts will be successful.

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

Critical Accounting Policies:

Our financial statements are prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to establish critical accounting policies and make accounting estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods.

An accounting estimate requires assumptions about uncertain matters that could have a material effect on the financial statements if a different amount within a range of estimates were used or if estimates changed from period to period. Readers of this report should understand that estimates are made considering facts and circumstances at a point in time, and changes in those facts and circumstances could produce results that differ from when those estimates were made. Significant estimates that are particularly susceptible to material change in the next year relate to the allowance for loan losses, fair values of financial instruments and the valuations of real estate acquired through foreclosure, deferred tax assets and liabilities and intangible assets. Actual amounts could differ from those estimates.

We maintain the allowance for loan losses at a level we believe adequate to absorb probable credit losses related to specifically identified loans, as well as probable incurred losses inherent in the remainder of the loan portfolio as of the balance sheet date. The balance in the allowance for loan losses account is based on past events and current economic conditions.

The allowance for loan losses account consists of an allocated element and an unallocated element. The allocated element consists of a specific portion for the impairment of loans individually evaluated and a formula portion for the impairment of those loans collectively evaluated. The unallocated element is used to cover inherent losses that exist as of the evaluation date, but which have not been identified as part of the allocated allowance using our impairment evaluation methodology due to limitations in the process.

We monitor the adequacy of the allocated portion of the allowance quarterly and adjust the allowance as necessary through normal operations. This self-correcting mechanism reduces potential differences between estimates and actual observed losses. In addition, the unallocated portion of the allowance is examined quarterly to ensure that it is consistent with changes in the related criteria that would indicate a need to either increase or decrease it. The determination of the level of the allowance for loan losses is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Accordingly, we cannot ensure that charge-offs in future periods will not exceed the allowance for loan losses or that additional increases in the allowance for loan losses will not be required resulting in an adverse impact on operating results.

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

Fair values of financial instruments, in cases where quoted market prices are not available, are based on estimates using present value or other valuation techniques which are subject to change.

Real estate acquired in connection with foreclosures or in satisfaction of loans is written-down to fair value based upon current estimates derived through independent appraisals less cost to sell. However, proceeds realized from sales may ultimately be higher or lower than those estimates.

Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences by applying enacted statutory tax rates to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The amount of deferred tax assets is reduced, if necessary, to the amount that, based on available evidence, will more likely than not be realized. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Intangible assets consist of goodwill. The valuation of goodwill is analyzed at least annually for impairment.

For a further discussion of our significant accounting policies, refer to the note entitled, “Summary of significant accounting policies,” in the Notes to Consolidated Financial Statements to our Annual Report on Form 10-K for the period ended December 31, 2008. This note lists the significant accounting policies used by management in the development and presentation of our financial statements. This Management’s Discussion and Analysis, The Notes to the Consolidated Financial Statements, and other financial statement disclosures identify and address key variables and other qualitative and quantitative factors that are necessary for the understanding and evaluation of our financial position, results of operations and cash flows.

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

Operating Environment:

The recession continued into the second quarter of 2009, as the gross domestic product (“GDP”), the value of all goods and services produced in the United States decreased at a seasonally-adjusted annual rate of 1.0 percent. However, the recession appears to have somewhat abated. The pace of the decline was much less severe than the previous two quarters. GDP declined 6.4 percent in the first quarter of 2009 and 5.4 percent in the fourth quarter of 2008. The decrease in GDP reflected declines of 8.9 percent in business investment and 1.2 percent in consumer spending, coupled with another steep retraction of 29.3 percent in residential construction. Partially offsetting these decreases was an increase in government spending and a reduction in imports. Labor markets, already strained, weakened further as the unemployment rate rose to 9.5 percent in June 2009 from 8.5 percent in March 2009. Due to the continued weakness in economic conditions, the Federal Open Market Committee (“FOMC”) kept the target range for the federal funds rate unchanged at 0.00 percent to 0.25 percent during the second quarter of 2009.

Review of Financial Position:

Total assets were $610.8 million at June 30, 2009, an increase of $6.8 million from $604.0 million at December 31, 2008. The growth resulted primarily from an increase of $25.0 million in loans, net of unearned income, to $510.9 million at the close of the second quarter from $485.9 million at year-end 2008. The increase in loans reflected strong demand for financing from municipalities within our market area. Deposit gathering was slow during the first half of 2009. Total deposits decreased $3.5 million to $538.8 million at June 30, 2009, from $542.3 million at December 31, 2008. Noninterest-bearing deposits increased $2.3 million, while interest-bearing deposits decreased $5.8 million. Available-for-sale investment securities declined $7.4 million to $73.2 million at June 30, 2009, from $80.6 million at the end of 2008. We had $8.0 million in short-term borrowings outstanding at the end of the second quarter. At December 31, 2008, there were $12.7 million in federal funds sold outstanding.

In comparison to the previous quarter end, total assets decreased $1.0 million from $611.8 million at March 31, 2009. Loans, net of unearned income, increased $3.7 million from $507.2 million from the end of the first quarter, while investment securities decreased $2.0 million from $75.2 million. Total deposits rose $17.9 million from $520.9 million at March 31, 2009. We repaid $19.5 million of the $27.5 million in short-term borrowings outstanding at the previous quarter-end.

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

Investment Portfolio:

At June 30, 2009, our investment portfolio consisted primarily of short-term U.S. Government agency mortgage-backed securities, which provide us with a source of liquidity and intermediate-term tax-exempt state and municipal obligations, which we use to mitigate our tax burden.

The carrying values of the major classifications of securities as they relate to the total investment portfolio at June 30, 2009, and December 31, 2008, are summarized as follows:

Distribution of investment securities available-for-sale

		June 30,								December 31,
		2009								2008
		Amount				%				Amount				%
State and municipals		$	30,636				41.87	%		$	47,007				58.34	%
Mortgage-backed securities			39,777				54.36				32,226				40.00
Equity securities:
Restricted			2,537				3.47				1,116				1.38
Other			219				0.30				225				0.28
Total		$	73,169				100.00	%		$	80,574				100.00	%

Available-for-sale investment securities decreased $7.4 million to $73.2 million at June 30, 2009, from $80.6 million at December 31, 2008. The unrealized holding gain, which equaled $1,671, net of income taxes of $861, at the end of 2008 appreciated $159 to $1,830, net of income taxes of $943, at June 30, 2009.

During the first half of 2009, we received proceeds from the sale of available-for-sale investment securities of $4.3 million. The securities sold were composed entirely of intermediate-term, tax-exempt state and municipal obligations. These securities were sold to avoid a potential alternative minimum tax position caused by a higher level of tax-exempt income due to an increase in the demand for financing by municipal customers. Net gains recognized on the sale of available-for-sale investment securities totaled $114 for the six months ended June 30, 2009. No securities were sold during the six months ended June 30, 2008.

For the first six months of 2009, the investment portfolio averaged $75.0 million, an increase of $39.2 million compared to $35.8 million for the same period of last year. The tax-equivalent yield on the investment portfolio decreased 79 basis points to 5.96 percent for the first half of 2009 from 6.75 percent for the same period of 2008. In addition, the tax-equivalent yield fell 28 basis points to 5.81 percent for the second quarter from 6.09 percent for the first quarter.

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

The maturity distribution of the amortized cost, fair value and weighted-average tax-equivalent yield of the available-for-sale portfolio at June 30, 2009, is summarized as follows. The weighted-average yield, based on amortized cost, has been computed for tax-exempt state and municipals on a tax-equivalent basis using the federal statutory tax rate of 34.0 percent. The distributions are based on contractual maturity with the exception of mortgage-backed securities and equity securities. Mortgage-backed securities have been presented based upon estimated cash flows, assuming no change in the current interest rate environment. Equity securities with no stated contractual maturities are included in the “After ten years” maturity distribution. Expected maturities may differ from contractual maturities, or estimated maturities for mortgage-backed securities, because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

Maturity distribution of available-for-sale portfolio

										After one								After five
		Within								but within								but within								After
		one year								five years								ten years								ten years								Total
June 30, 2009		Amount				Yield				Amount				Yield				Amount				Yield				Amount				Yield				Amount				Yield
Amortized cost:
State and municipals		$	1,828				7.86	%		$	3,867				7.73	%		$	19,243				7.40	%		$	13,085				7.35	%		$	38,023				7.44	%
Mortgage-backed securities			10,551				4.35				17,640				4.37				1,307				3.41				199				4.52				29,697				4.32
Equity securities:
Restricted																											2,537				1.45				2,537				1.45
Other																											139				2.33				139				2.33
Total		$	12,379				4.87	%		$	21,507				4.97	%		$	20,550				7.15	%		$	15,960				6.33	%		$	70,396				5.90	%
Fair value:
State and municipals		$	1,881							$	4,030							$	20,465							$	13,401							$	39,777
Mortgage-backed securities			10,886								18,189								1,356								205								30,636
Equity securities:
Restricted																											2,537								2,537
Other																											219								219
Total		$	12,767							$	22,219							$	21,821							$	16,362							$	73,169

Loan Portfolio:

According to the “Monetary Report to Congress” issued on July 21, 2009, businesses continued to cut back on capital spending. Business spending for both equipment and software and structures fell sharply in the first quarter of 2009 by 33.8 percent and 44.2 percent. Indicators suggest that business spending, although not to the same magnitude, fell once again in the second quarter. Tight credit conditions, coupled with another decrease in business spending, led to a $39.3 billion decrease in commercial and industrial loans at all commercial banks throughout the United States from the end of the first quarter of 2009. With regard to our loan portfolio, business loans, including commercial loans, commercial mortgages and lease financing, increased $8.1 million to $351.6 million at June 30, 2009, from $343.5 million at March 31, 2009. The growth was largely attributable to an increase in the demand for tax-exempt loans from municipalities within our market area.

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

Despite an increase in the second quarter, mortgage rates continued to be favorable by historical standards. The rate for a 30-year, fixed-rate mortgage in the United States was 5.42 percent at June 30, 2009, 42 basis points higher than 5.00 percent at the end of the previous quarter, but 90 basis points below 6.32 percent one year earlier. The drastic declines in housing demand and construction since late 2005 appear to be stabilizing. In spite of the continued weakness, residential mortgage lending in the banking industry increased in the second quarter, as evidenced by a $37.4 billion or 3.9 percent annualized increase in real estate loans for all commercial banks from the end of the first quarter of 2009. We experienced a slight reduction in residential mortgage loans of $1.5 million or a 5.6 percent annualized rate to $106.6 million at June 30, 2009, from $108.1 million at March 31, 2009.

Due to favorable mortgage rates, activity in our secondary mortgage department was strong during the first half of 2009. Residential mortgage loans serviced for the Federal National Mortgage Association (“FNMA”) increased $19.0 million or at an annual rate of 30.8 percent to $143.6 million at the end of the second quarter of 2009 from $124.6 million at the end of 2008. In comparison, for the same period of 2008, residential mortgage loans serviced for the FNMA increased at an annualized rate of 7.1 percent. For the three months and six months ended June 30, residential mortgages sold to the FNMA totaled $28.3 million and $49.2 million in 2009 compared to $8.9 million and $14.0 million in 2008. Net gains realized on the sale of residential mortgages totaled $518 for the second quarter and $942 year-to-date 2009, compared to $118 and $259 for the same periods of 2008.

According to the “Monetary Report to Congress,” consumer spending was flat for the first two months of the second quarter. Continued job losses and declining household wealth has weighed heavily on consumption. Our consumer loans decreased $729 or at an annual rate of 9.2 percent from the end of the first quarter of 2009.

Average loans grew $19.2 million or 3.9 percent to $513.9 million for the six months ended June 30, 2009, from $494.7 million for the same six months of 2008. Due to the sustained low interest rate environment and recording a higher volume of nonaccrual loans, the tax-equivalent yield on our loan portfolio decreased 91 basis points to 5.82 percent for the first half of 2009 compared to 6.73 percent for the same period of 2008. The FOMC has indicated that interest rates will remain at extremely low levels for some time due to the severity of the current recession. As a result, the yield on the loan portfolio may decline further.

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

The composition of the loan portfolio at June 30, 2009, and December 31, 2008, is summarized as follows:

Distribution of loan portfolio

		June 30,								December 31,
		2009								2008
		Amount				%				Amount				%
Commercial, financial and others		$	191,415				37.47	%		$	170,305				35.05	%
Real estate:
Construction			21,536				4.21				25,332				5.21
Residential			106,611				20.87				112,053				23.06
Commercial			157,485				30.83				142,641				29.36
Consumer, net			31,135				6.09				32,812				6.76
Lease financing, net			2,688				0.53				2,739				0.56
Loans, net of unearned income			510,870				100.00	%			485,882				100.00	%
Less: allowance for loan losses			6,019								5,255
Net loans		$	504,851							$	480,627

In an attempt to limit IRR and liquidity strains, we continually examine the maturity distribution and interest rate sensitivity of the loan portfolio. For the first half of 2009 market interest rates remained at historically low levels. Accordingly, we continued to place emphasis on originating loans with interest rates that reprice after one but within five years. Upon the threat of rising interest rates, we will shift to promoting floating-rate loans that reprice immediately with changes in the prime rate. Adjustable-rate loans represented 52.5 percent of the loan portfolio at June 30, 2009, compared to 50.2 percent at the end of 2008.

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

The maturity and repricing information of the loan portfolio by major classification at June 30, 2009, is summarized as follows:

Maturity distribution and interest sensitivity of loan portfolio

						After one
		Within				but within				After
June 30, 2009		one year				five years				five years				Total
Maturity schedule:
Commercial, financial and others		$	95,275			$	44,371			$	51,769			$	191,415
Real estate:
Construction			14,534				4,357				2,645				21,536
Residential			16,773				48,429				41,409				106,611
Commercial			23,663				58,304				75,518				157,485
Consumer, net			4,226				22,124				4,785				31,135
Lease financing, net			539				2,149								2,688
Total		$	155,010			$	179,734			$	176,126			$	510,870
Predetermined interest rates		$	76,108			$	99,559			$	67,159			$	242,826
Floating- or adjustable-interest rates			78,902				80,175				108,967				268,044
Total		$	155,010			$	179,734			$	176,126			$	510,870