Comm Bancorp, Inc. Reports Results Through Third Quarter 2009

CLARKS SUMMIT -- Comm Bancorp, Inc. (NASDAQ:CCBP) today reported a net loss of $385 thousand or $0.22 per share for the nine months ended September 30, 2009, compared to net income of $4,700 thousand or $2.68 per share for the same period of 2008. The net loss was $3,375 thousand or $1.95 per share in the third quarter of 2009 compared to net income of $1,475 thousand or $0.84 per share for the same quarter of 2008. The net losses reported for nine months and quarter ended September 30, 2009, were primarily a result of recognizing a provision for loan losses of $8.7 million in the third quarter of 2009.

Return on average assets was (2.19)% for the third quarter and (0.08)% for the nine months ended September 30, 2009, compared to 1.00% and 1.10% for the respective 2008 periods. Return on average stockholders' equity was (22.63)% and (0.87)%, respectively, for the third quarter and year-to-date 2009, compared to 10.31% and 11.17% for the same periods of 2008.

"Regulatory oversight of banks has intensified primarily as a result of the recent escalation of bank failures reported in 2009," stated William F. Farber, Sr., President and Chief Executive Officer. "Regulators are being extremely critical in their evaluations of capital adequacy, and in particular, the reserves banks set aside for potential loan losses. As a result of this emphasis, coupled with the recent deterioration evidenced in the commercial and construction sectors of our loan portfolio and the continuation of the downturn in local economic conditions, we set aside additional reserves through recognizing a provision for loan losses of $8.7 million in the third quarter of 2009. The rapid devaluation of collateral values used to measure impairment on specifically identified loans, coupled with a shortening of the loss experience period utilized to estimate losses in the remainder of the portfolio, caused the large provision. With this provision, we believe the allowance for loan losses is adequate to absorb probable credit losses related to specifically identified criticized loans as well as probable incurred losses inherent in the remainder of the loan portfolio as of September 30, 2009. Our institution's challenges are specifically limited to certain sectors of the loan portfolio, accounting for only a portion of the overall balance sheet, as we did not experience the recent losses recognized by many banks in their investment portfolios," continued Farber. "Despite this significant charge, the Company's regulatory capital ratios continued to exceed the levels required to be considered "well capitalized" under applicable regulatory guidelines. Going forward, we will focus our efforts on remedying the status of our nonperforming assets, while continuing to meet the banking needs of our customers. Our goal is to return to profitability as soon as we are able," concluded Farber.

INCOME STATEMENT REVIEW

For the nine months ended September 30, tax-equivalent net interest income increased $352 thousand or 2.1% to $17,392 thousand in 2009 from $17,040 thousand in 2008. A $1,858 thousand or 19.7% decrease in interest expense was partially offset by a $1,506 thousand or 5.7% reduction in tax-equivalent interest revenue. The reduction in interest expense was a result of a decrease in our cost of funds of 79 basis points to 2.15% for the nine months ended September 30, 2009, from 2.94% for the same nine months of last year. We experienced significant reductions in the rates paid for all interest-bearing liability categories. Average interest-bearing liabilities grew $42.9 million or 10.0%, which partially mitigated the positive influence of the reduction in funding costs. The decline in interest revenue resulted primarily from an 88 basis point decrease in the tax-equivalent yield on earning assets to 5.67% for the nine months ended September 30, 2009, from 6.55% for the same period of 2008. Specifically, the tax-equivalent yield on the loan portfolio, which decreased 93 basis points to 5.71% in 2009 from 6.64% in 2008, had the greatest impact on interest revenue. Partially offsetting the decline in the tax-equivalent yield on earning assets was growth in average earning assets of $48.6 million or 9.0%. Average investments increased $35.8 million comparing the nine months ended September 30, 2009 and 2008. In addition, the average loan portfolio grew $19.2 million to $513.3 million in 2009 from $494.1 million in 2008. Our tax-equivalent net interest margin for the nine months ended September 30, contracted 26 basis points to 3.95% in 2009 compared to 4.21% in 2008.

The provision for loan losses equaled $8,670 thousand for the third quarter of 2009, compared to $400 thousand for the same quarter of 2008. The year-to-date provision for loan losses totaled $9,760 thousand in 2009, an increase of $8,747 thousand or 863.5% from $1,013 thousand in 2008. The large change in the provision for loan losses in 2009 reflects the effect of obtaining revised collateral valuations on certain large commercial real estate loans from independent appraisals which indicated significant market devaluations brought on by the rapid deterioration in the local economy. In addition, management revised its methodology for estimating losses in the remainder of the loan portfolio by shortening the number of periods considered for estimating loss factors in order to reflect the current market conditions. Management believes that recent historical data is a better basis for determining loss factors given the rapid economic decline in our market area.

Noninterest income for the third quarter rose $1,590 thousand to $2,520 thousand in 2009 from $930 thousand in 2008. Included in noninterest income in the third quarter of 2009 were net gains on the sale of available-for-sale investment securities of $1,385 thousand. Adjusting for these gains, noninterest income increased $205 thousand or 22.0%. Mortgage banking income increased $167 thousand, while service charges, fees and commissions rose $38 thousand. For the nine months ended September 30, 2009, noninterest income totaled $5,416 thousand, an increase of $2,483 thousand or 84.7% from $2,933 thousand for the same period last year. Included in year-to-date noninterest income in 2009 was a net gain of $294 thousand from the disposition of the former Tunkhannock and Eaton Township, Pennsylvania branch offices. In addition, noninterest income in 2009 included $1,499 thousand in net gains from the sale of available-for-sale investment securities. Due to the significantly lower mortgage rates, mortgage banking income increased $735 thousand comparing the nine months ended September 30, 2009 and 2008. Service charges, fees and commissions decreased $45 thousand or 1.8% to $2,444 thousand in 2009 from $2,489 thousand in 2008.

For the third quarter, noninterest expense increased $475 thousand or 11.6% to $4,558 thousand in 2009 from $4,083 thousand in 2008. The increase resulted primarily from a $611 thousand or 45.9% increase in other expenses. This increase was due largely to an increase in the cost of deposit insurance imposed by the FDIC on all insured-depository institutions to help mitigate the effects of recent bank failures on the Deposit Insurance Fund. Salaries and employee benefits expense decreased $144 thousand or 6.6%, while net occupancy and equipment expense increased $8 thousand. For the nine months ended September 30, 2009, noninterest expense increased $1,799 thousand or 14.9%. Other expenses rose $1,901 thousand or 49.6%, which was due primarily to the increase in FDIC insurance. Salaries and employee benefits and net occupancy and equipment expenses decreased $85 thousand and $17 thousand.

BALANCE SHEET REVIEW

Total assets amounted to $614.3 million at September 30, 2009, an increase of $3.5 million compared to $610.8 million at June 30, 2009. Loans, net of unearned income, decreased $3.8 million to $507.1 million at September 30, 2009, from $510.9 million at the end of the previous quarter. Available-for-sale investment securities declined $34.9 million to $38.3 million at the close of the third quarter from $73.2 million at June 30, 2009. Total deposits increased $16.3 million from $538.8 million at June 30, 2009, to $555.1 million at September 30, 2009. Federal funds sold amounted to $46.1 million at September 30, 2009. At June 30, 2009, there were $8.0 million in borrowed funds outstanding at the Federal Home Loan Bank of Pittsburgh.

Stockholders' equity equaled $55.5 million or $32.30 per share at September 30, 2009, compared to $59.5 million or $34.64 per share at the end of the previous quarter. Dividends declared were $0.28 per share and $0.84 per share, for the third quarter and nine months ended September 30, 2009. At September 30, 2009, Community Bank and Trust Company, our wholly-owned subsidiary, reported Tier I, Total and Leverage risked based capital ratios of 9.2%, 10.5% and 7.9%, respectively. As a result, our bank subsidiary continued to exceed the requirements to be categorized as well capitalized under the regulatory framework for prompt corrective action at the end of the third quarter of 2009.

Nonperforming assets equaled $23.7 million or 4.65% of loans, net of unearned income and foreclosed assets at September 30, 2009, compared to $18.2 million or 3.69% one year earlier. Nonperforming assets equaled $23.0 million or 4.49% of loans, net of unearned income and foreclosed assets at June 30, 2009, and $24.2 million or 4.99% at December 31, 2008. The allowance for loan losses equaled $11.6 million or 2.28% of loans, net of unearned income, at September 30, 2009, compared to $4.7 million or 0.95% one year ago. Loans charged-off, net of recoveries, increased $2,503 thousand or 264.6% to $3,449 thousand for the nine months ended September 30, 2009, from $946 thousand for the same period last year.

Comm Bancorp, Inc. serves six Pennsylvania counties through Community Bank and Trust Company's 15 community-banking offices and one loan production office. Each office, interdependent with the community, offers a comprehensive array of financial products and services to individuals, businesses, not-for-profit organizations and government entities. In addition, customers can take advantage of Klick(SM) Banking, on-line banking services, by accessing the Company's website at http://www.combk.com/. The Company's business philosophy includes offering direct access to senior management and other officers and providing friendly, informed and courteous service, local and timely decision making, flexible and reasonable operating procedures and consistently-applied credit policies.