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EX-13 - EXHIBIT 13 - COMM BANCORP INCc98470exv13.htm
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EX-21 - EXHIBIT 21 - COMM BANCORP INCc98470exv21.htm
EX-31.(I) - EXHIBIT 31(I) - COMM BANCORP INCc98470exv31wxiy.htm
Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
     
þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
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
or organization)
  (I.R.S. Employer Identification Number)
     
125 North State Street, Clarks Summit, PA   18411
     
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code: (570) 586-0377
Securities registered pursuant to Section 12(b) of the Act:
     
Title of each class   Name of each exchange on which registered
     
None   The NASDAQ Stock Market
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.33 per share
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 as defined 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
State the aggregate market value of the voting common stock held by non-affiliates based on the closing sale price as of the last business day of the registrant’s most recently completed second fiscal quarter: $50,703,080 at June 30, 2009.
Indicate the number of shares outstanding of the registrant’s common stock, as of the latest practicable date: 1,722,923 at March 10, 2010.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Annual Report to Stockholders for the year ended December 31, 2009, are incorporated by reference in Part II of this Annual Report. Portions of the registrant’s 2010 Proxy Statement are incorporated by reference in Part III of this Annual Report.
 
 
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Exhibit Index on Page 45

 

 


 

COMM BANCORP, INC.
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 Exhibit 13
 Exhibit 21
 Exhibit 31(i)
 Exhibit 32

 

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COMM BANCORP, INC.
FORM 10-K
Special Note Regarding Forward-Looking Statements
This annual report on Form 10-K, other periodic reports filed by us under the Securities Exchange Act of 1934 (“Exchange Act”), as amended, and any other written or oral statements made by or on behalf of us may include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 which reflect our current views with respect to future events and financial performance. Such forward-looking statements are based on general assumptions and are subject to various risks, uncertainties and other factors that may cause actual results to differ materially from the views, beliefs and projections expressed in such statements. Our business and financial results are affected by business and economic conditions, both generally and specifically in the Northeastern Pennsylvania market in which we operate. In particular, our businesses and financial results may be impacted by:
   
Changes in interest rates and valuations in the debt, equity and other financial markets;
   
Disruptions in the liquidity and other functioning of financial markets, including such disruptions in the market for real estate and other assets commonly securing financial products;
   
Actions by the Board of Governors of the Federal Reserve System (“Federal Reserve Board”) and other government agencies, including those that impact money supply and market interest rates;
   
Changes in our customers’ and suppliers’ performance in general and their creditworthiness in particular;
   
Changes in customer preferences and behavior, whether as a result of changing business and economic conditions or other factors;
   
Changes resulting from the newly enacted Emergency Economic Stabilization Act of 2008;
   
A continuation of recent turbulence in significant segments of the United States and global financial markets, particularly if it worsens, that could impact our performance, both directly by affecting our revenues and the value of our assets and liabilities, and indirectly by affecting our customers and suppliers and the economy generally;
   
Changes in local, regional and national economic conditions and our assessment of the impact of those changes on our estimates, including the allowance for loan losses;

 

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Changes in the competitive landscape that could impact our business and financial performance as the financial industry restructures in the current environment;
   
Current economic and financial market conditions, as our forward-looking financial statements are subject to the risk that these conditions will be substantially different than we are currently expecting. These statements are based on our current expectations that interest rates will remain low through 2010 with continued wide market credit spreads and our view that economic trends currently point to a continuation of severe recessionary conditions through 2010;
   
Legal and regulatory developments that could have an impact on our ability to operate our businesses, financial condition, results of operations, competitive position or reputation. Reputational impacts, in turn, could affect matters such as business generation and retention, our ability to attract and retain management, liquidity and funding. These legal and regulatory developments could include: (i) the unfavorable resolution of legal proceedings or regulatory and other governmental inquiries; (ii) increased litigation risk from recent regulatory and other governmental developments; (iii) the results of the regulatory examination process, and regulators’ future use of supervisory and enforcement powers; (iv) legislative and regulatory reforms, including changes to laws and regulations involving tax, pension, education and mortgage lending, the protection of confidential customer information, and other aspects of the financial institution industry; and (v) changes in accounting policies and principles;
   
Our ability to identify and effectively manage risks inherent in our businesses, including where appropriate, through the effective use of third-party insurance and capital management techniques;
   
Our ability to anticipate and implement technological changes that can have an impact on our ability to respond to customer needs and to meet competitive demands;
   
Our ability to implement our business initiatives and strategies that could affect our financial performance over the next several years;
   
Competition that can impact our customer acquisition, growth and retention, as well as our credit spreads and product pricing, which can affect market share, deposits and revenues; and
   
Widespread natural disasters, terrorist activities or international hostilities, either as a result of the impact on the economy and capital and other financial markets generally, or on us or on our customers and suppliers.

 

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The words “believe,” “expect,” “anticipate,” “project” and similar expressions signify forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements made by or on behalf of us. Any such statements speak only as of the date the statement was made. We undertake no obligation to update or revise any forward-looking statements.
Part I
Item 1. Business
General
We are a registered bank holding company incorporated in 1983 as a Pennsylvania business corporation and are headquartered in Clarks Summit, Pennsylvania. We have two wholly-owned subsidiaries, Community Bank and Trust Company, referred to as Community Bank, and Comm Realty Corporation, referred to as Comm Realty. Our business consists primarily of the management and supervision of Community Bank. Comm Realty, a Pennsylvania business corporation, holds, manages and sells foreclosed or distressed assets on behalf of Community Bank. Our principal source of income is dividends paid by Community Bank. At December 31, 2009, we had approximately:
   
$656.8 million in total assets;
   
$476.9 million in loans;
   
$590.8 million in deposits; and
   
$ 55.0 million in stockholders’ equity.
Community Bank is a Pennsylvania commercial bank and a member of the Federal Reserve System whose deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”). Community Bank is a full-service commercial bank providing a wide range of products and services, including time and demand deposit accounts, consumer, commercial and mortgage loans and commercial leases to individuals and small- to medium-sized businesses. Community Bank’s principal market area comprises Lackawanna, Luzerne, Monroe, Susquehanna, Wayne and Wyoming counties located in the Northeast corner of the Commonwealth of Pennsylvania. At December 31, 2009, Community Bank had 15 community banking offices and one loan production office located within this market area.
Community Bank competes with 26 commercial banks, 6 thrift institutions and 54 credit unions, many of which are substantially larger in terms of assets and liabilities. In addition, Community Bank experiences competition for deposits from mutual funds and security brokers, while consumer discount, mortgage and insurance companies compete for various types of loans. Principal methods of competing for banking, permitted nonbanking services and financial activities include price, nature of product, quality of service and convenience of location.

 

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Community Bank has three wholly-owned subsidiaries, Community Leasing Corporation, referred to as Community Leasing, Comm Financial Services Corporation, referred to as Comm Financial Services and Community Abstract Services, LLC, referred to as Community Abstract. Community Leasing, a Pennsylvania business corporation, engages in commercial leasing. Comm Financial Services, a Pennsylvania business corporation, engages in selling insurance products and services and in providing asset management services. Community Abstract, a Pennsylvania limited liability company, offers title insurance and abstract services to residential and commercial mortgage loan customers.
As of December 31, 2009, Community Bank had 189 full-time equivalent employees. We and Community Bank are not parties to any collective bargaining agreement and employee relations are considered to be good.
Our primary source of funds is the cash flow provided by our financing activities, mainly deposit gathering. Our other sources of funds are provided by investing activities, including principal and interest payments on loans and investment securities, and operating activities, primarily net income. We offer a variety of deposit accounts with a range of interest rates and terms, including money market accounts, NOW accounts, savings accounts, certificates of deposit and demand deposit accounts. Our deposits are primarily obtained from areas surrounding our banking offices. We rely primarily on marketing, new products, service and long-standing relationships with customers to attract and retain these deposits. At December 31, 2009, our deposits totaled $590.8 million. Of the total deposit balance, $162.9 million or 27.6 percent represented time deposits less than $100 thousand and $109.7 million or 18.6 percent represented savings accounts. We have maintained a high level of core deposits, which has contributed to our low cost of funds. Core deposits include money market, NOW, savings, time deposits less than $100 thousand and demand deposit accounts, which in the aggregate, represented 84.9 percent of total deposits at December 31, 2009, and 85.0 percent of total deposits at December 31, 2008. A further discussion of our deposits is filed at Exhibit 13 to this report and is incorporated in its entirety by reference under this Item 1.
We are not dependent on deposits or exposed by loan concentrations to a single customer or to a small group of customers, the loss of any one or more of whom would have a materially adverse effect on our financial condition.
Supervision and Regulation
The following discussion sets forth the material elements of the basic regulatory framework applicable to us and Community Bank and provides certain specific information. This basic regulatory framework is primarily intended for the protection of investors in our common stock, depositors of Community Bank and the FDIC that insures bank deposits. To the extent that the following information describes statutory and regulatory provisions, it is qualified by reference to those provisions. A change in the statutes, regulations or regulatory policies applicable to us or Community Bank may have a material effect on our business.

 

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Intercompany Transactions
Various governmental requirements, including Sections 23A and 23B of the Federal Reserve Act and Regulation W of the Federal Reserve Board, limit borrowings by us from Community Bank and also limit various other transactions between us and Community Bank. For example, Section 23A limits to no more than 10.0 percent of its total capital the aggregate outstanding amount of Community Bank’s loans and other “covered transactions” with any particular nonbank affiliate including financial subsidiaries, and limits to no more than 20.0 percent of its total capital the aggregate outstanding amount of Community Bank’s “covered transactions” with all of its affiliates including financial subsidiaries. At December 31, 2009, approximately $6.3 million was available for loans to us from Community Bank. Section 23A also generally requires that Community Bank’s loans to its nonbank affiliates, including financial subsidiaries, be secured, and Section 23B generally requires that Community Bank’s transactions with its nonbank affiliates, including financial subsidiaries, be at arm’s-length terms. Also, we and Community Bank and any financial subsidiary are prohibited from engaging in certain “tie-in” arrangements in connection with extensions of credit or provision of property or services.
Supervisory Agencies
As a Pennsylvania commercial bank and member of the Federal Reserve System, Community Bank is subject to primary supervision, regulation and examination by the Pennsylvania Department of Banking and the Federal Reserve Board. Community Bank is subject to extensive Pennsylvania and federal statutes and regulations that significantly affect its business and activities. Community Bank must file reports with its regulators concerning its activities and financial condition and obtain regulatory approval to enter into certain transactions. Community Bank is also subject to periodic examinations by its primary and secondary regulators to ascertain compliance with various regulatory requirements.
We, Community Bank and our subsidiaries, are also affected by various other governmental requirements and regulations, general economic conditions and the fiscal and monetary policies of the federal government and the Federal Reserve Board. The monetary policies of the Federal Reserve Board influence, to a significant extent, the overall growth of loans, leases, investments, deposits, interest rates charged on loans and interest rates paid on deposits. The nature and impact of future changes in monetary policies are often unpredictable.

 

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We are subject to the jurisdiction of the United States Securities and Exchange Commission (“SEC”) for matters relating to the offering and sale of our securities. We are also subject to the SEC’s rules and regulations relating to periodic reporting, insider trading reports and proxy solicitation materials. Our common stock is listed for quotation of prices on The NASDAQ Global MarketSM and therefore, we are subject to the listing rules and regulations imposed by The NASDAQ Global MarketSM.
Support of Community Bank
Under current Federal Reserve Board policy, we are expected to act as a source of financial and managerial strength to Community Bank by standing ready to use available resources, or obtain additional resources, to provide adequate capital funds during periods of financial adversity. The support expected by the Federal Reserve Board may be required at times when we may not have the resources or inclination to provide it.
If a default occurred with respect to Community Bank, any capital loans to Community Bank from us would be subordinate in right of payment to depositors and certain other debt holders of Community Bank.
Liability of Commonly Controlled Banks
Community Bank can be held liable for any loss incurred, or reasonably expected to be incurred, by the FDIC in connection with the default of a commonly controlled FDIC-insured depository institution, or any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default.
“Default” is generally defined as the appointment of a conservator or receiver, and “in danger of default” is generally defined as the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance.
Depositor Preference Statute
In the “liquidation or other resolution” of Community Bank by any receiver, federal law provides that deposits and certain claims for administrative expenses and employee compensation against Community Bank are afforded a priority over the general unsecured claims against Community Bank, including federal funds and letters of credit.

 

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Capital Requirements
We are subject to risk-based capital requirements and guidelines imposed by the Federal Reserve Board, which are substantially similar to the capital requirements and guidelines imposed by the Federal Reserve Board on Community Bank. Under these risk-based capital requirements, bank holding companies and banks are required to maintain Tier I and Total capital, less certain deductions, of at least 4.0 percent and 8.0 percent of their total risk-weighted assets, including certain off-balance sheet items, such as unused lending commitments and standby letters of credit. On December 31, 2009, Community Bank issued $8.0 million in subordinated notes at a fixed interest rate of 8.0 percent, which mature on December 31, 2016. The subordinated notes qualify as Tier II capital for risk-based capital requirements for both us and Community Bank. At December 31, 2009, we met both requirements, with Tier I and Total capital ratios of 10.6 percent and 13.4 percent. Community Bank also met both requirements at December 31, 2009, with Tier I and Total capital ratios of 9.6 percent and 12.4 percent.
The Federal Reserve Board also requires banks and bank holding companies to maintain a minimum Leverage ratio, Tier I capital to total average assets less intangible assets, of 3.0 percent for bank holding companies that meet certain specified criteria, including having the highest regulatory rating. Our Leverage ratio was 8.6 percent and Community Bank’s Leverage ratio was 7.8 percent at December 31, 2009.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) requires Federal Reserve Board regulators to take prompt corrective action if an FDIC-insured depository institution does not meet minimum capital requirements, including the termination of deposit insurance by the FDIC and certain restrictions on its business. FDICIA establishes five capital categories for insured banks: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. FDICIA imposes progressively more restrictive constraints on operations, management and capital distributions depending on the category into which an institution is classified. Rules adopted by the Federal Reserve Board under FDICIA provide that a state member bank is deemed to be well capitalized if the bank has a total risk-based capital ratio of 10.0 percent or greater, a Tier I risk-based capital ratio of 6.0 percent or greater, a Leverage ratio of 5.0 percent or greater and the institution is not subject to a written agreement, order, capital directive or prompt corrective action directive to meet and maintain a specific level of any capital measure. As of December 31, 2009, Community Bank was well capitalized, based on the prompt corrective action ratios and guidelines described above. It should be noted, however, that a bank’s capital category is determined solely for the purpose of applying the Federal Reserve Board’s prompt corrective action regulations, and that the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects.

 

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Dividend Restrictions
We are a legal entity separate and distinct from Community Bank. In general, under Pennsylvania law, we cannot pay a cash dividend if the payment would render us insolvent. Our revenues consist primarily of dividends paid by Community Bank. Various federal and state statutory provisions limit the amount of dividends Community Bank can pay to us without regulatory approval. Under Pennsylvania law, Community Bank may declare and pay dividends to us only out of accumulated net earnings and as long as the surplus of Community Bank would not be reduced below its stated paid-in capital. More stringent dividend restrictions apply under Federal Reserve Regulation H, which restricts calendar year dividend payments of member banks to the total of its net profits for that year combined with its retained net profits for the preceding two calendar years, less any required transfer to surplus, unless a bank has received prior approval from the Federal Reserve Board. At December 31, 2009, Community Bank had no retained net profits available for dividend declaration under Federal Reserve Regulation H.
On February 24, 2009, the Federal Reserve Board issued Supervisory Release (“SR”) 09-4, “Applying Supervisory Guidance and Regulations on the Payment of Dividends, Stock Redemptions, and Stock Repurchases at Bank Holding Companies.” SR 09-4 clarifies previously issued supervisory guidance regarding payment of cash dividends in times of stress on earnings and capital ratios. According to the provisions of SR 09-4, a bank holding company should inform the Federal Reserve Board and should eliminate, defer or significantly reduce its dividends if: (i) the bank holding company’s net income available to shareholders for the past four quarters, net of dividends previously paid during the period, is not sufficient to fully fund the dividends; (ii) the bank holding company’s prospective rate of earnings is not consistent with the bank holding company’s capital needs and overall current and prospective financial condition and risk profile; or (iii) the bank holding company will not meet, or is in danger of not meeting, its regulatory capital adequacy ratios.
Subsequent to year-end 2009, management requested the Federal Reserve Board’s approval for us and Community Bank to declare and pay a dividend for the first quarter of 2010. On March 1, 2010, management received notification from the Federal Reserve Board recommending that we and Community Bank not declare or pay a dividend for the first quarter of 2010. Accordingly, we and Community Bank did not declare a dividend for the first quarter of 2010. We and Community Bank must inform the Federal Reserve Board prior to declaring any future dividends, and there can be no assurance that the Federal Reserve Board will not object to the payment of these dividends.
In addition, federal bank regulatory agencies have the authority to prohibit Community Bank from engaging in an unsafe or unsound practice in conducting its business. Depending upon the financial condition of the bank in question, the payment of dividends could be deemed to constitute an unsafe or unsound practice. The ability of Community Bank to pay dividends in the future is currently influenced, and could be further influenced, by bank regulatory policies and capital guidelines.

 

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Deposit Insurance Assessments
Community Bank’s deposits are insured by the FDIC and as a result, Community Bank is subject to FDIC deposit insurance assessments. Under the provisions of The Federal Deposit Insurance Reform Act of 2005 (the “Reform Act”), the Bank Insurance Fund and the Savings Association Insurance Fund were merged to form the Deposit Insurance Fund (“DIF”). As a result, all insured institutions are subject to the same assessment rate schedule issued by the FDIC. The assessment rate schedule is determined by the Designated Reserve Ratio (“DRR”), the level that the FDIC would like the DIF to achieve as a percentage of insured deposits. Current legislation permits the FDIC to set the DRR between 1.15 percent and 1.50 percent. For 2009, the FDIC set the DRR at 1.25 percent.
Under the Reform Act, the amount each institution is assessed is based upon statutory factors that include the balance of insured deposits as well as the degree of risk the institution poses to the insurance fund. Each institution is placed into one of four risk categories depending on the institution’s capital ratios and supervisory ratings. Institutions, including Community Bank, in Risk Category I will be charged a rate between $0.07 and $0.24 per $100 of assessable deposits. For the majority of these institutions, base assessment rates will be based on the financial ratio method. Under this method, each financial ratio and a weighted-average of capital, asset quality, management, earnings, liquidity and sensitivity to market risk supervisory component ratings is multiplied by a pricing multiplier. The sum of these products is added to a uniform amount to produce an assessment rate between 2 and 4 basis points, the range of base rates for institutions in Risk Category I. Any increase in rates above the base rate schedule is then added or any decrease is subtracted. The annual assessment rate for Community Bank for 2009 was approximately $0.13 per $100 of assessable deposits.
On February 27, 2009, the FDIC adopted a restoration plan designed to replenish the DIF over a period of seven years ending December 31, 2015. In order to implement this restoration plan, the FDIC changed its risk-based assessment system and its base assessment rates. For the first quarter of 2009 only, the FDIC increased all deposit assessment rates by $0.07 per $100 of assessable deposits. These new rates range from $0.12 to $0.14 per $100 of assessable deposits for Risk Category I institutions to $0.50 per $100 of assessable deposits for Risk Category IV institutions. Beginning April 1, 2009, the base assessment rates ranged from $0.12 to $0.16 per $100 of assessable deposits for Risk Category I institutions to $0.45 per $100 of assessable deposits for Risk Category IV institutions. Changes to the risk-based assessment system included increasing premiums for institutions that rely on excessive amounts of brokered deposits, increasing premiums for excessive use of secured liabilities, including Federal Home Loan Bank advances, lowering premiums for small institutions with very high capital levels, and adding financial ratios and debt issuer ratings to the premium calculations for banks with over $10.0 billion in assets, while providing a reduction for their unsecured debt.
On May 22, 2009, due to the severity of the decrease in the DIF, the FDIC issued a final rule which levied a special emergency assessment on all insured depository institutions of 5 basis points of total assets less Tier I capital as of June 30, 2009, which was collected on September 30, 2009. Based on the new assessment rates, our FDIC insurance expense was $798 thousand. In addition, we paid $277 thousand for the special emergency assessment on September 30, 2009.

 

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On November 12, 2009, the FDIC adopted a final rule that required all insured depository institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. The FDIC also adopted a uniform increase in assessment rates of $0.03 per $100 of assessable deposits effective on January 1, 2011. On December 31, 2009, Community Bank paid $3.5 million in prepaid deposit insurance assessments, which included $222 thousand for the fourth quarter of 2009. The remaining $3.3 million in prepaid deposit insurance is included in other assets on the Consolidated Balance Sheets filed at Exhibit 13 to this report.
In addition to DIF assessments, the Deposit Insurance Funds Act of 1996 provides for assessments to pay for the cost of Financing Corporation (“FICO”) funding. The FICO is a mixed ownership government corporation whose sole purpose was to function as a financing vehicle for the now defunct Federal Savings and Loan Insurance Corporation. In 2009, Community Bank paid FICO assessments of $56 thousand.
Emergency Economic Stabilization Act of 2008
On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008 (“EESA”). Pursuant to the EESA, the United States Treasury has the authority to, among other things, invest in financial institutions and purchase mortgages, mortgage-backed securities and certain other financial instruments from financial institutions, in an aggregate amount up to $700.0 billion, for the purpose of stabilizing and providing liquidity to the United States financial markets. On October 14, 2008, the United States Treasury announced a plan, referred to as the Capital Purchase Program (“CPP”) to invest up to $250.0 billion of this $700.0 billion in certain eligible United States banks, thrifts and their holding companies in the form of non-voting, senior preferred stock initially paying quarterly dividends at a 5.0 percent annual rate. In the event the United States Treasury makes any such senior preferred investment in any company, it will also receive 10-year warrants to acquire common shares of the company having an aggregate market price of 15.0 percent of the amount of the senior preferred investment.
Our Board of Directors decided not to participate in the CPP after carefully evaluating the objectives, requirements and restrictions of participating in the program. In addition, the enactment of EESA temporarily raised the basic limit on federal deposit insurance coverage from $100 thousand to $250 thousand per depositor. The temporary increase in deposit insurance coverage became effective October 3, 2008. EESA provides that the basic deposit insurance limit will return to $100 thousand after December 31, 2009. On May 20, 2009, President Obama signed the Helping Families Save Their Homes Act, which extended the temporary increase from $100 thousand to $250 thousand per depositor until December 31, 2013.

 

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On October 14, 2008, the FDIC announced the Temporary Liquidity Guarantee Program (“TLGP”). The final rule was adopted on November 21, 2008. The FDIC stated that its purpose is to strengthen confidence and encourage liquidity in the banking system by guaranteeing newly issued senior unsecured debt of banks of 31 days or greater, thrifts, and certain holding companies, and by providing full coverage of all transaction accounts, regardless of dollar amount. Inclusion in the program was voluntary. Participating institutions are assessed fees based on a sliding scale, depending on length of maturity. Shorter-term debt has a lower fee structure and longer-term debt has a higher fee. The range is from 50 basis points on debt of 180 days or less and a maximum of 100 basis points for debt with maturities of one year or longer, on an annualized basis. A 10 basis point surcharge is added to a participating institution’s current insurance assessment in order to fully cover all transaction accounts. The Company and Community Bank opted out of the TLGP.
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (“ARRA”), an economic stimulus package. ARRA significantly expanded the restrictions on executive compensation that were included in Section 111 of EESA and imposed various corporate governance standards on recipients of Troubled Asset Relief Program funds, including those under the CPP, until such funds are repaid. We and Community Bank did not participate in the CPP and therefore are not subject to the provisions of the ARRA related to executive compensation.
Interstate Banking and Branching
The Riegle-Neal Interstate Banking and Branch Efficiency Act of 1994 (“Riegle-Neal”) authorized interstate acquisitions of banks and bank holding companies without geographic limitation. Under Riegle-Neal, a bank holding company cannot make an interstate acquisition of a bank if, as a result, it would control more than 10.0 percent of the total United States insured depository deposits and more than 30.0 percent or the applicable state law limit of deposits in that state.
Subject to certain restrictions, Riegle-Neal also permits banks to merge across state lines through purchases or branch openings. However, the ability of banks to acquire branch offices is contingent on the host state having adopted legislation “opting in” to those provisions of Riegle-Neal. In addition, interstate mergers are contingent upon the host state not having adopted legislation “opting out” of that provision of Riegle-Neal. Pennsylvania has opted in to all of these provisions upon the condition that another host state has similar or reciprocal requirements. As of the date of this report, we have not entered into an agreement involving any interstate acquisitions of a bank or a branch office.

 

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Control Acquisitions
Under the Change in Bank Control Act of 1978, a bank holding company is required to obtain prior Federal Reserve Board approval before acquiring more than 5.0 percent of the voting shares, or substantially all of the assets, of a bank holding company, bank or savings association. In determining whether to approve a proposed acquisition, the Federal Reserve Board will consider, among other factors, the effect of the acquisition on competition, the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-acquisition basis, and the acquiring institution’s record of addressing the credit needs of the communities it serves, consistent with the safe and sound operations of the bank under the Community Reinvestment Act of 1977 (“CRA”).
Permitted Nonbanking Activities
The Federal Reserve Board permits us or our subsidiaries to engage in nonbanking activities that are so closely related to banking or managing or controlling banks as to be appropriate. The Federal Reserve Board requires us to serve as a source of financial and managerial strength to Community Bank and not to conduct our operations in an unsafe or unsound manner. The Federal Reserve Board has enforcement powers to require us or our non-banking subsidiaries to terminate any activity it believes constitutes a serious risk to the safety, soundness or stability of Community Bank, and is inconsistent with sound banking principles or violates federal banking laws and regulations.
Financial Services Modernization
We must also comply with the Gramm-Leach-Bliley Act of 1999 (“GLB Act”) in the conduct of our operations. The GLB Act eliminates the restrictions placed on the activities of banks and bank holding companies and creates two new structures, financial holding companies and financial subsidiaries. We and Community Bank are now allowed to provide a wider array of financial products and services that were reserved only for insurance companies and securities firms. In addition, we can now affiliate with an insurance company and a securities firm. We can elect to become a financial holding company, which would allow us to engage in activities referred to as “financial activities” that are not permitted to bank holding companies. A financial holding company may also affiliate with companies that are engaged in financial activities. A “financial activity” is an activity that does not pose a safety and soundness risk and is financial in nature, incidental to an activity that is financial in nature, or complimentary to a financial activity. As of the date of this report, we have not elected to become a financial holding company nor do we anticipate electing to become one in the near term.

 

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Privacy
The GLB Act also creates a minimum federal standard of privacy protections for consumers and customers of financial institutions. According to this Act, we must provide notice to consumers and customers about our privacy policies and practices, describe the conditions under which we may disclose nonpublic personal information to non-affiliated third parties, and provide an “opt-out” method to prevent us from disclosing such information to non-affiliated third parties. The GLB Act distinguishes a customer from a consumer for purposes of the notice requirements imposed by this Act. We are required to give a customer a privacy notice at the time a customer relationship is established and then annually thereafter as long as the relationship continues. By contrast, we are required to give notice to a consumer only if we intend to disclose nonpublic personal information about the consumer to a non-affiliated third party.
Community Reinvestment Act
We are also subject to the CRA and the regulations promulgated to implement the CRA, which are designed to create a system for bank regulatory agencies to evaluate a depository institution’s record in meeting the credit needs of its community. Community Bank received an “outstanding” rating in its last CRA examination which was held on June 29, 2009. “Outstanding” is the highest CRA rating that a depository institution can receive.
Terrorist Activities
The Office of Foreign Assets Control (“OFAC”) of the Department of the Treasury sends us and our bank regulatory agencies, on a periodic basis, lists of names of persons and organizations suspected of aiding, harboring or engaging in terrorist acts. Should Community Bank find a name on any transaction, account or wire transfer that is on an OFAC list, Community Bank must freeze the account, file a suspicious activity report and notify the Federal Bureau of Investigation. Community Bank has appointed an OFAC Compliance Officer to oversee the inspection of its accounts and the filing of any notifications.
The USA PATRIOT Act
Congress enacted The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (“USA PATRIOT”) Act for the purpose of strengthening United States security, law enforcement and intelligence in order to combat terrorism on a variety of fronts. The USA PATRIOT Act contains extensive anti-money laundering and financial transparency laws and imposes rules and regulations to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering. In addition, under the USA PATRIOT Act, financial institutions are prohibited from engaging in specified financial transactions and account relationships with foreign financial institutions and foreign customers.

 

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Subprime and Predatory Lending
The Federal Reserve Board has issued regulations and is proposing more rigorous standards under new rules, which implement the Home Ownership and Equity Protection Act (“HOEPA”). This Act imposes additional disclosure requirements and certain substantive limitations on certain mortgage loans with rates or fees above specified levels. The regulations lower the rate levels that trigger the application of HOEPA and include additional fees in the calculation of the fee amount that triggers HOEPA. The loans that Community Bank currently makes are generally below the rate and fee levels that trigger HOEPA.
Community Bank must also comply with a Pennsylvania law, Act 55, the Mortgage Bankers and Brokers and Consumer Equity Protection Act. This Act addresses what is known as “predatory lending,” among other things, and is applicable to Community Bank’s closed-end home equity mortgage loans, involving property located in Pennsylvania, in an amount less than $100 thousand made at a “high cost,” which is generally the rate and point triggers in the HOEPA. Those HOEPA triggers are:
   
An annual percentage rate exceeding 8.0 percentage points for 1st lien loans or 10.0 percentage points for subordinate lien loans above comparable term U.S. Treasury securities; and/or
   
Total points and fees payable by the consumer at or before closing that exceed the greater of 8.0 percent of the total loan amount or $480 for the year 2002 adjusted for each calendar year based on the consumer price index.
Mortgage Lending Acts
On July 8, 2008, Pennsylvania Governor Rendell signed into law Acts 56, 57, 58, 59 and 60 of 2008, which pertain to the mortgage industry in Pennsylvania. Act 56 of 2008 combined two mortgage licensing laws that pertain to first and secondary lien residential mortgage lending into a single licensing law, which required individuals engaged in nonclerical mortgage activities to obtain separate individual “mortgage originator” licenses. Act 57 of 2008 amended the Pennsylvania Usury Law by increasing from $50 thousand to $218 thousand the applicability of the usury law to residential mortgage loans. Act 58 of 2008 authorized the Department of Banking to require initial and renewal license applicants for lender and broker licenses to use a national electronic licensing system and to pay related processing fees. Act 59 of 2008 increased penalties for violation of the Real Estate Appraisers Certification Act and added three government officials to the State Board of Certified Real Estate Appraisers. Act 60 of 2008 amended the Pennsylvania Housing Finance Agency (“PHFA”) Law by requiring mortgage lenders, including Community Bank, to periodically provide to PHFA a list of residential mortgage foreclosure notices issued during the most recent period and contains amendments to the rules for providing a mortgage borrower in default with a Notice of Intention to Foreclose.

 

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On February 18, 2009, the Federal Government implemented the Homeowner Affordability and Stability Plan (“HASP”), a $75.0 billion federal program intended to support recovery in the housing market and ensure that eligible homeowners are able to continue to fulfill their mortgage obligations. HASP includes the following initiatives:
   
A refinance option for homeowners that are current in their mortgage payments and whose mortgages are owned by the Federal National Mortgage Association (“FNMA”) or the Federal Home Loan Mortgage Corporation (“FHLMC”);
   
A homeowner stability initiative to prevent foreclosures and help eligible borrowers stay in their homes by offering loan modifications that reduce mortgage payments to more sustainable levels; and
   
An increase in U.S. Treasury funding to FNMA and FHLMC to allow them to lower mortgage rates.
HASP also offers monetary incentives to mortgage servicers and mortgage holders for certain modifications of at-risk loans and would establish an insurance fund designed to reduce foreclosures.
Credit Card Reform
On May 22, 2009, President Obama signed into law The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (the “Credit Card Act”). The Credit Card Act is comprehensive credit card legislation that aims to establish fair and transparent practices relating to open end consumer credit plans. The first phase of the legislation began in August 2009, under which the payment period with no late fees was extended from 14 to 21 days, the advance warning period for significant changes to credit card accounts was extended from 15 to 45 days, and opt-out provisions were made available to customers. A second phase began in February 2010, which includes provisions governing when rate increases can be applied on late accounts, requirements for clearer disclosures of terms before opening an account, prohibitions on charging over-limit fees and double-cycle billing, and various other restrictions. Additional rules will become effective in July 2010, which deal with interest rate reinstatements on former overdue accounts, gift card expiration dates and inactivity fees.
Overdraft Fee Regulation
On November 12, 2009, the Federal Reserve Board issued a final rule amending Regulation E, Electronic Funds Transfers. According to the final rule, beginning July 1, 2010, banks may not charge fees for paying overdrafts on ATM and debit card transactions unless the customer gives consent, or opts in, to the payment of overdrafts for these transactions. Additional federal legislation has been introduced which would limit the number and amount of overdraft fees which banks can charge, prohibit ordering the posting transactions to cause customers to incur higher fees, prohibit insufficient funds fees on ATM or debit card transactions and require banks to provide a customer notice and opportunity to cancel transactions that would trigger an overdraft.

 

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Sales of Insurance
Our federal bank regulatory agencies have issued consumer protection rules with respect to the retail sale of insurance products by us, Community Bank, or a subsidiary or joint venture of us or Community Bank. These rules generally cover practices, solicitations, advertising or offers of any insurance product by a depository institution or any person that performs such activities at an office of, or on behalf of, us or Community Bank. Moreover, these rules include specific provisions relating to sales practices, disclosures and advertising, the physical separation of banking and nonbanking activities and domestic violence discrimination.
Corporate Governance
The Sarbanes-Oxley Act of 2002 (“SOX”) has substantially changed the manner in which public companies govern themselves and how the accounting profession performs its statutorily required audit function. SOX made structural changes in the way public companies make disclosures and strengthened the independence of auditors and audit committees. SOX requires direct responsibility of senior corporate management, namely the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), for establishing and maintaining an adequate internal control structure and procedures for financial reporting and disclosure by public companies.
Under SOX, audit committees will be primarily responsible for the appointment, compensation and oversight of the work of their auditors. The independence of the members of the audit committee is assured by barring members who accept consulting fees from the company or are affiliated with the company other than in their capacity as members of the board of directors.
SOX prohibits insider trades during pension fund blackout periods and requires prompt disclosure of insider transactions in company stock, which must be reported by the second business day following an insider transaction.
Under Section 404 of SOX, we must provide an assertion of the adequacy of our internal controls over financial reporting as part of each annual Exchange Act report. As a result of us being classified as a smaller reporting company as defined in Rule 12b-2 of the Exchange Act, our independent registered public accounting firm is not required to attest on our internal controls over financial reporting until fiscal years ending after June 15, 2010.

 

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Regulatory Reform
In July 2009, the Obama Administration proposed a wide range of regulatory reforms that, if enacted, may have significant effects on the financial services industry in the United States. Significant proposals that would affect us and Community Bank under this regulatory reform include: (i) the creation of the Financial Services Oversight Council, which would coordinate activities among regulators; (ii) the re-examination of capital standards for banks and bank holding companies; (iii) increasing Federal Reserve supervision to more closely watch for systemic risks; and (iv) the creation of the Consumer Financial Protection Agency with broad authority over consumer-related financial products such as credit cards and mortgages. In response to the Obama Administration’s proposal, in December 2009, the U.S. House of Representatives passed The Wall Street Reform and Consumer Protection Act of 2009 and the U.S. Senate is expected to consider its version of the financial reform legislation in the near term. Such legislation would likely increase regulation and oversight of the financial services industry and impose restrictions on the ability of firms within the industry to conduct business consistent with historical practices. We cannot predict whether, or in what form, further legislation or regulations may be enacted, or to what extent we and Community Bank will be affected by such enactment.
Community Bank
Community Bank’s legal headquarters is located at 125 North State Street, Clarks Summit, Lackawanna County, Pennsylvania 18411. Community Bank is a commercial bank that seeks to provide personal attention and professional financial assistance to its customers. Community Bank is a locally managed and oriented financial institution established to serve the needs of individuals and small— and medium-sized businesses. Community Bank’s business philosophy includes offering direct access to its President 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.
Available Information
We file reports, proxy and information statements and other information electronically with the SEC. You may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room located at 100 F. Street, N.E., Washington, DC 20549 on official business days between the hours of 10:00am and 3:00pm EST. You can obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically. The SEC’s website address is http://www.sec.gov. Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed with the SEC may be obtained without charge by writing to Comm Bancorp, Inc., 125 North State Street, Clarks Summit, PA 18411, Attn: Investor Relations or through our website at http://www.combk.com.

 

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Item 2. Properties
Our corporate headquarters is located at 125 North State Street, Clarks Summit, Lackawanna County, Pennsylvania. We own this facility which has approximately 24,000 square feet and contains our main community banking office.
In addition to the above location, at December 31, 2009, we owned 10 and leased 4 retail community banking offices and leased a limited purpose office used solely for loan production. We also lease an office building located at 1212 South Abington Road, Clarks Summit, Lackawanna County, Pennsylvania, which serves as our loan operations center. We consider our properties to be suitable and adequate for our current and immediate future purposes.
Item 3. Legal Proceedings
We, Community Bank and our subsidiaries are not parties to any legal proceedings that could have any significant effect upon our financial condition or operating results. In addition, we, Community Bank and our subsidiaries are not parties to any legal proceedings under federal and state environmental laws.
Item 4. Submission of Matters to a Vote of Security Holders
None.

 

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Part II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
We had 1,194 stockholders of record, including individual participants in security position listings, and 1,722,923 shares of common stock, par value of $0.33 per share, the only authorized class of stock outstanding as of March 10, 2010. Our common stock trades on The NASDAQ Global Market_ as CommBcp under the symbol “CCBP.” The high and low closing sale prices and dividends per share of our common stock for the four quarters of 2009 and 2008 are summarized in the following table:
                         
                    Dividends  
2009:   High     Low     Declared  
 
                       
First quarter
  $ 40.99     $ 35.04     $ 0.28  
 
                       
Second quarter
    40.00       35.31       0.28  
 
                       
Third quarter
    40.00       31.00       0.28  
 
                       
Fourth quarter
  $ 34.50     $ 21.80     $ 0.14  
                         
                    Dividends  
2008:   High     Low     Declared  
 
                       
First quarter
  $ 47.25     $ 41.00     $ 0.27  
 
                       
Second quarter
    48.00       41.00       0.27  
 
                       
Third quarter
    44.92       40.75       0.27  
 
                       
Fourth quarter
  $ 42.00     $ 35.00     $ 0.27  
We have paid cash dividends since 1983. The payment of future dividends must necessarily depend upon earnings, financial position, appropriate restrictions under applicable laws and other factors relevant at the time the Board of Directors considers any declaration of dividends. For information on dividend restrictions on us and Community Bank, refer to our consolidated financial statements and notes to these statements filed at Exhibit 13 to this report and incorporated in their entirety by reference under this Item 5.

 

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There were no purchases made by or on behalf of us or any “affiliated purchaser,” as defined in the Exchange Act Rule 10b-18(a)(3), of our common stock during each of the three months ended December 31, 2009. On August 19, 2009, the Board of Directors approved a resolution to suspend the Stock Repurchase Program.
Item 6. Selected Financial Data
The information called for by this item is filed at Exhibit 13 to this report and is incorporated in its entirety by reference under this Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The information called for by this item is filed at Exhibit 13 to this report and is incorporated in its entirety by reference under this Item 7.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements and notes to these statements are filed at Exhibit 13 to this report and are incorporated in their entirety by reference under this Item 8.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Our Disclosure Controls and Internal Controls
As of December 31, 2009, the end of the period covered by this Annual Report on Form 10-K, our CEO and CFO evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based upon that evaluation, the CEO and CFO concluded that our disclosure controls and procedures, as of December 31, 2009, were effective to provide reasonable assurance that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that information required to be disclosed in such reports is accumulated and communicated to the CEO and CFO to allow timely decisions regarding required disclosure.
Under Section 404 of SOX, we are required to assess the effectiveness of our internal control over financial reporting at the end of each fiscal year and report, based on that assessment, whether our internal control over financial reporting is effective. The assessment report on the effectiveness of our internal control over financial reporting as of December 31, 2009, is filed at Exhibit 13 to this report and is incorporated in its entirety by reference under this Item 9A.

 

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Changes in Internal Control Over Financial Reporting
In the ordinary course of business, we may routinely modify, upgrade and enhance our internal control and procedures for financial reporting. However, there were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act that occurred during the fourth quarter of our fiscal year ended December 31, 2009, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Directors
At December 31, 2009, we had 8 directors. Our directors are elected at each annual meeting of stockholders for a one-year term and until their successors are duly elected and qualified. A majority of the directors have been determined by the Board of Directors to satisfy the independence requirements mandated by the SEC, The NASDAQ Global Market_ and any related banking laws. Our independent directors met once during 2009 without the presence of management to discuss management’s performance and our overall strategic direction.

 

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The following information is presented for each of our current directors, all of whom have been nominated to become a director at our 2010 Annual Stockholders Meeting.
                     
    Age as of       Director
Name   March 10, 2010   Principal Occupation for Past Five Years   Since
 
                   
David L. Baker
    64     Senior Vice President of Community Bank.     1988  
 
                   
William F. Farber, Sr.
    72     President and CEO of Comm Bancorp, Inc. and Community Bank.     1983  
 
                   
Judd B. Fitze
    58     Partner in Farr, Davis & Fitze, a law firm.     1995  
 
                   
Dean L. Hesser
    43     President of Tom Hesser Chevrolet, Inc. and Tom Hesser Nissan, LLC, automobile dealerships.     2003  
 
                   
John P. Kameen
    68     Publisher of The Forest City News.     1983  
 
                   
Erwin T. Kost
    66     President of Kost Tire Distributors, Inc.     1997  
 
                   
Susan F. Mancuso
    58     Partner in Mancuso & Mancuso, Accounting & Tax Service.     2003  
 
                   
Joseph P. Moore, III(1)
    58     Auto Dealer, Manheim Imports, an automobile dealership.     2000  
     
(1)  
A son of Joseph P. Moore, Jr., who owns beneficially more than 5.0 percent of our common stock.
Committees
Our Board of Directors has two standing committees, namely the Nominating and Corporate Governance Committee and the Joint Audit Committee, which also serves as the audit committee for Community Bank. Each member of these committees satisfies the independence requirements applicable to the SEC, The NASDAQ Global Market_ and any related banking laws.
The Nominating and Corporate Governance Committee assists the Board of Directors in fulfilling their corporate oversight responsibilities. The primary duties of this committee are to:
   
Develop and recommend corporate governance policies and guidelines for us and monitor our compliance with these policies and guidelines; and
   
Identify and recommend to the Board, director nominees and committee member candidates.

 

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The following directors are members of the Nominating and Corporate Governance Committee: Joseph P. Moore, III, Chairperson; Dean L. Hesser; and Susan F. Mancuso. The Nominating and Corporate Governance Committee operates pursuant to a Charter approved and adopted by our Board of Directors. A copy of our written Charter of the Nominating and Corporate Governance Committee is filed at Exhibit 99(ii) to our Annual Report on Form 10-K for the year ended December 31, 2003, Commission File Number: 0-17455, and is incorporated in its entirety by reference into this report. The text of the Charter of the Nominating and Corporate Governance Committee and our Bylaws are posted on our website at http://www.combk.com. Copies of this Charter will be provided, without charge, upon written request to Comm Bancorp, Inc., 125 North State Street, Clarks Summit, PA 18411, Attn: Investor Relations.
The Joint Audit Committee is responsible for assisting the Boards of Directors’ oversight of:
   
The integrity of our financial statements;
   
The audit by the independent registered public accounting firm of our financial statements;
   
Our report on internal control over financial reporting;
   
The independent registered public accounting firm’s and internal auditing firm’s qualifications and independence; and
   
The performance of our internal audit function.
The following directors are members of the Joint Audit Committee: Susan F. Mancuso, Chairperson; Erwin T. Kost; and Joseph P. Moore, III. The Joint Audit Committee operates pursuant to a Charter approved and adopted by our Board of Directors. A copy of our written Charter of the Joint Audit Committee, as amended March 2, 2007, is filed as Exhibit 99(i) to our Annual Report on Form 10-K for the year ended December 31, 2006, Commission File Number: 0-17455, and is incorporated in its entirety by reference into this report. The text of this Charter is posted on our website at http://www.combk.com. Copies of this Charter will be provided, without charge, upon written request to Comm Bancorp, Inc., 125 North State Street, Clarks Summit, PA 18411, Attn: Investor Relations.
Our Board of Directors has identified Mrs. Mancuso as the Joint Audit Committee’s financial expert. Mrs. Mancuso is a licensed Pennsylvania public accountant. Mrs. Mancuso received degrees of a Bachelor of Science in Accounting and a Master of Business Administration. From 1976 to the present, she has practiced in the area of taxation, specializing in taxation and financial advisement. During the years 1980 through 1986, she was engaged to perform governmental and school audits. She is a licensed Accredited Tax Preparer and Tax Advisor and member of the National Society of Public Accountants and the Pennsylvania Society of Public Accountants. In fulfilling its oversight responsibilities, the Joint Audit Committee reviewed with us the audited financial statements and the footnotes to those statements for our fiscal year 2009 Annual Report to Stockholders and discussed with us the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements.

 

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The Joint Audit Committee reviewed and discussed with the independent registered public accounting firm their judgments as to the quality, not just the acceptability, of our accounting principles and such other matters required to be discussed by the Joint Audit Committee with the independent registered public accounting firm under the auditing standards of the Public Company Accounting Oversight Board (United States). Our independent registered public accounting firm has expressed the opinion that our audited financial statements present fairly, in all material respects, our financial position, the results of operations and cash flows for the fiscal year 2009, in conformity with accounting principles generally accepted in the United States of America.
The Joint Audit Committee discussed with the independent registered public accounting firm their independence from us and our management, and received from them the written disclosures and the letter required by the Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees.”
Prior to the issuance of this report, the Joint Audit Committee discussed with the independent registered public accounting firm, matters required to be discussed by Statement on Auditing Standards No. 61, “Communication with Audit Committees,” as amended, including the overall scope and timing for their respective audits. In addition, the Joint Audit Committee met with the internal auditing firm, the internal auditor and the independent registered public accounting firm to discuss the results of their examinations, their consideration of our internal controls and the overall quality of our financial reporting.
In relying on the reviews and discussions referred to above, the Joint Audit Committee recommended to the Board of Directors that the audited financial statements be included in this report. The Joint Audit Committee also recommended to the Board of Directors the selection of ParenteBeard LLC, Certified Public Accountants, to serve as our independent registered public accounting firm.
Director Qualifications and Nominating Process
The Nominating and Corporate Governance Committee is responsible to search for qualified candidates for director for us and Community Bank. The Committee performs its nominating function in accordance with the Charter of the Nominating and Corporate Governance Committee and our Bylaws. In making recommendations for nomination as a director, the committee reviews and considers the qualifications, strengths and abilities of the potential candidates, including new candidates that may be identified from time to time through our internal search and review procedures or as a result of stockholder recommendations. For new candidates, the review process becomes more involved as it becomes increasingly likely that a particular candidate may be recommended for nomination. In deciding whether to recommend the re-nomination of an incumbent director or the nomination of a director who previously served as an officer or director, the committee considers their prior performance as a director or officer. The committee also makes specific recommendations to the Board regarding the directors who it believes should be appointed to particular committees of the Board, based upon its review and assessment of the qualifications and abilities of the individual directors and the differing functions and membership requirements of the committees.

 

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The committee works with the Board, on an ongoing basis, to identify the particular qualities and abilities that we generally seek in our directors, and the mix of experience, expertise and attributes that are sought or required for the Board as a whole. These qualities and attributes include, but are not limited to, integrity, business acumen, financial literacy and community involvement. Target attributes for our Board as a whole include independence, diversity of background and experience, and a range of expertise across all areas vital to corporate governance, including financial expertise and knowledge of the banking business. All candidates for nomination are evaluated against these target qualities and attributes, as well as our particular needs at the time, both on the Board and on committees of the Board. The committee will determine, in its sole discretion, whether a nominee meets the quality and attribute standards.
The committee oversees the internal procedures, adopted from time to time, to assist in the identification of suitable candidates to serve as directors. The committee also has the authority to retain professional consultants to assist in the task of identifying possible candidates, although it did not do so in 2009.
The Board gives substantial weight to the recommendations of the Nominating and Corporate Governance Committee in selecting nominees for election or appointment as directors. Under normal circumstances, the Board will not select nominees, including incumbent directors, who have not been recommended by a majority of the Nominating and Corporate Governance Committee members.
Under Section 10.1 of our Amended and Restated Bylaws, a stockholder may also nominate a person for director to be elected at our annual meeting. A stockholder must submit a nomination for director to the Secretary of the Board of Directors, in writing, no later than the close of business on the 60th day preceding the date for the annual meeting. This notification must contain the following information:
   
The nominee’s name and address;
   
The nominee’s principal occupation;

 

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The number of shares of our common stock held by the notifying stockholder and the nominee; and
   
A certification, under oath before a notary public, that a nominee meets the eligibility requirements under Section 10.3 of our Amended and Restated Bylaws.
Under Section 10.3, a person is not qualified to serve as a director if he or she:
   
Is under indictment for, or has ever been convicted of, a criminal offense involving dishonesty or breach of trust and the penalty for such offense could be imprisonment for more than one year;
   
Is a person against whom a federal or state bank regulatory agency has, within the past ten years, issued a cease and desist order for conduct involving dishonesty or breach of trust and that order is final and not subject to appeal;
   
Has been found either by any federal or state regulatory agency whose decision is final and not subject to appeal or by a court to have: (i) breached a fiduciary duty involving personal profit; or (ii) committed a willful violation of any law, rule or regulation governing banking, securities, commodities or insurance, or any final cease and desist order issued by a banking, securities, commodities or insurance regulatory agency; or
   
Has been nominated by a person who would be disqualified from serving as our director under the above eligibility requirements.
If a stockholder’s nomination is not timely and in proper form or in accordance with the above requirements, the nominee will not be recommended by the Nominating and Corporate Governance Committee for consideration by the full Board of Directors. Furthermore, nominations not timely and in proper form, shall be disregarded by the presiding officer of the annual meeting, and upon his or her instruction, the vote tellers may disregard all votes cast for such nominee.
Communications with Directors
Stockholders and other interested parties who wish to communicate with our directors may do so by writing to Comm Bancorp, Inc., 125 North State Street, Clarks Summit, PA 18411, Attn: Investor Relations-Corporate Secretary. The Office of the Corporate Secretary will forward such written correspondence to the applicable director or to the Nominating and Corporate Governance Committee if such correspondence is not addressed to a specific director. Periodically, the Nominating and Corporate Governance Committee will summarize all stockholder communications it has received and will make all such communications available for the directors’ review. In order to efficiently process all stockholder communications, the Nominating and Corporate Governance Committee, with the Board’s approval, may seek the assistance of counsel or advisors in reviewing and evaluating particular communications. In all cases, the complete text of communications will be made available to the directors in an appropriate and timely manner.

 

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Executive Officers
Our executive officers are appointed by the Board of Directors and serve at the will of the Board of Directors, subject to certain change in control agreements discussed later in this report.
The following information is presented for our executive officers:
             
    Held   Employee   Age as of
Name and Position   Since   Since   March 10, 2010
 
           
William R. Boyle
  2001   2001   50
Executive Vice President and Chief Credit Officer
           
 
           
William F. Farber, Sr.
  2001   2001   72
President and CEO, Chairman of the Board
           
 
           
John P. Kameen
  1996   (1)   68
Secretary
           
 
           
Scott A. Seasock
  1989   1989   52
Executive Vice President and CFO
           
     
(1)  
Not our employee or an employee of Community Bank. This person did not receive any additional fees for serving as an Executive Officer.
Section 16(a) Beneficial Ownership Reporting Compliance
Executive officers, directors and “beneficial owners” of more than 10.0 percent of our common stock must file initial reports of ownership and reports of changes in ownership with the SEC and The NASDAQ Global Market_ pursuant to Section 16(a).
We have reviewed the reports and written representations from the executive officers and directors. Based on this review, we believe that all filing requirements were met during 2009 with the following exceptions:
   
On June 12, 2009, Joseph P. Moore, III, a director, sold 1,500 shares of our common stock at a price of $37.00 per share or $55,500 in the aggregate. A Form 4 was required to be filed on or before June 16, 2009. Mr. Moore failed to do so. Mr. Moore filed his Form 4 with the SEC for this sale on September 4, 2009.

 

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On August 27, 2009, Judd B. Fitze, a director, sold 226 shares of our common stock at a price of $38.00 per share or $8,588 in the aggregate. A Form 4 was required to be filed on or before August 31, 2009. Attorney Fitze failed to do so. Attorney Fitze filed his Form 4 with the SEC for this sale on September 1, 2009.
   
On November 24, 2009, Dean L. Hesser, a director, purchased 200 shares of our common stock at a price of $27.00 per share or $5,400 in the aggregate. A Form 4 was required to be filed on or before November 27, 2009. Mr. Hesser failed to do so. Mr. Hesser filed his Form 4 with the SEC on November 30, 2009.
   
On December 10, 2009, David L. Baker, a director, purchased 200 shares of our common stock at a price of $27.00 per share or $5,400 in the aggregate. A Form 4 was required to be filed on or before December 14, 2009. Mr. Baker failed to do so. Mr. Baker filed his Form 4 on December 22, 2009.
   
On May 15, 2009, Judd B. Fitze, a director, became the administrator for an estate holding 49,391.524 shares of our common stock. A Form 4 was required to be filed on or before May 19, 2009. Attorney Fitze failed to do so. Attorney Fitze filed the Form 4 on September 15, 2009. As administrator for this estate, Attorney Fitze authorized the following sale transactions:
   
sold 1,100 shares of our common stock on October 27, 2009, at a price of $30.74 per share or $33,814 in the aggregate. A Form 4 was required to be filed on or before October 29, 2009. Attorney Fitze failed to do so.
   
sold 28,900 shares of our common stock on November 11, 2009, at a price of $30.59 per share or $884,051 in the aggregate. A Form 4 was required to be filed on or before November 13, 2009. Attorney Fitze failed to do so.
   
sold 2,000 shares of our common stock on December 16, 2009, at a price of $26.00 per share or $52,000 in the aggregate. A Form 4 was required to be filed on or before December 18, 2009. Attorney Fitze failed to do so.
Attorney Fitze filed a Form 5 on January 25, 2010, for the above transactions in lieu of filing a Form 4.

 

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Codes of Ethics and Business Conduct
The Boards of Directors of us and Community Bank have adopted a Code of Ethics that applies to the CEO and Principal Executive Officer, CFO and Principal Financial Officer, and the Vice President of Finance and Principal Accounting Officer (collectively referred to as the “Senior Financial Officers”). This Code of Ethics for Senior Financial Officers is designed to deter wrongdoing and to promote the following, among other responsibilities:
   
Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
   
Full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the SEC and in other public communications made by us;
   
Compliance with applicable governmental laws, rules and regulations;
   
Prompt internal reporting of Code of Ethics violations to an appropriate person or persons identified in the Code of Ethics; and
   
Accountability of adherence to the Code of Ethics.
In addition, all of our employees, including our Senior Financial Officers, are required to abide by our Code of Business Conduct to ensure that our business is conducted in a consistently legal and ethical manner. This Code of Business Conduct forms the foundation of a comprehensive process that includes compliance with all corporate policies and procedures, an open relationship among colleagues that contributes to good business conduct, and an abiding belief in the integrity of our employees. Our policies and procedures cover all areas of professional conduct, including employment policies, conflicts of interest, intellectual property and the protection of confidential information, as well as strict adherence to all laws and regulations applicable to the conduct of our business.
Employees are required to report any conduct they believe in good faith to be an actual or apparent violation of the standards contained in our Code of Business Conduct or any other unusual or suspicious business arrangement or behavior. SOX requires audit committees to have procedures to receive, retain and treat complaints received regarding accounting, internal accounting controls or auditing matters and to allow for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters. We currently have such procedures in place.
In addition, the members of our Board of Directors are required to comply with the Code of Business Conduct, which is intended to focus the Board and the individual directors on areas of ethical risk, help directors recognize and deal with ethical issues, provide mechanisms to report unethical conduct and foster a culture of honesty and accountability. The Code of Business Conduct covers all areas of professional conduct relating to service on the Board, including conflicts of interest, unfair or unethical use of corporate opportunities, strict maintenance of confidential information, compliance with all applicable laws and regulations and oversight of ethics and compliance by our employees.

 

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A copy of our written Code of Ethics for Senior Financial Officers has been filed as Exhibit 14 to our Annual Report on Form 10-K for the year ended December 31, 2003, Commission File Number: 0-17455, and is incorporated in its entirety by reference into this report. The text of the Codes of Ethics for Senior Financial Officers and Business Conduct are posted on our website at http://www.combk.com. Copies of our Codes of Ethics for Senior Financial Officers and Business Conduct will be provided, without charge, upon written request to Comm Bancorp, Inc., 125 North State Street, Clarks Summit, PA 18411, Attn: Investor Relations. Any amendment to, or waiver from, the provisions of the Code of Ethics for Senior Financial Officers that require disclosure under applicable rules of the SEC or The NASDAQ Global MarketSM will be disclosed along with the reasons for the amendment or waiver in Item 10 of a current report on Form 8-K and posted on our website.
Item 11. Executive Compensation
Executive compensation is determined by the Executive Compensation Committee of Community Bank’s Board of Directors. We utilize annual compensation which includes salary, bonus, non-equity incentive plan compensation and contributions to Community Bank’s defined contribution plan on behalf of the executive officers. Compensation for the executive officers is reviewed annually. All executive compensation is paid by Community Bank to the applicable executive. Our named executive officers include, William F. Farber, Sr., President and CEO, Scott A. Seasock, Executive Vice President and CFO and William R. Boyle, Executive Vice President and Chief Credit Officer (“CCO”).
We do not have any long-term compensation program including those that are based upon the award of stock options and restricted stock or other long-term incentive awards.

 

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Summary Compensation Table
The following table presents compensation information for each of the years ended December 31, 2009 and 2008, for the named executive officers.
SUMMARY COMPENSATION TABLE
                                                 
                            Non-Equity              
                            Incentive Plan     All Other        
            Salary     Bonus     Compensation     Compensation     Total  
Name & Position   Year     ($)     ($)     ($)     ($)(1)     ($)  
 
                                               
William F. Farber, Sr.
    2009       161,090       -0-       -0-       64,894       225,984  
President and CEO
    2008       161,090       30,000       -0-       70,274       261,364  
 
                                               
Scott A. Seasock
    2009       155,410       -0-       -0-       5,322       160,732  
Executive Vice President and CFO
    2008       155,410       13,800       6,200       8,924       184,334  
 
                                               
William R. Boyle
    2009       155,410       -0-       -0-       4,745       160,155  
Executive Vice President and CCO
    2008       155,410       20,000       -0-       8,905       184,315  
     
(1)  
Represents contributions Community Bank made on behalf of the named executive officers pursuant to the defined contribution plan, except for Mr. Farber who also received director fees of $60,000 in 2009 and $61,500 in 2008 for services as Chairman of the Board of Community Bank. Aggregate perquisites and other personal benefits were less than $10,000 for each named executive officer, and therefore, need not be presented.
Annual Bonuses and Non-Equity Incentive Plan Compensation
Except for Mr. Seasock who has an employment agreement that contains a non-equity incentive plan, the Executive Compensation Committee bases their decision for discretionary annual bonuses paid to each named executive officer on two factors. The first factor is the Executive Compensation Committee’s evaluation of each executive’s salary to the base pay levels in our peer group, consisting of 10 financial institutions located in the Northeast Region of Pennsylvania, for executives with similar responsibilities. The second factor is the evaluation of the executive’s unique role, job performance and contribution in meeting our strategic business plan and long-term objectives. There were no discretionary cash bonuses paid to each named executive officer in 2009.
Mr. Seasock takes part in our non-equity incentive plan. His bonus is based on a formula for us achieving a certain return on average assets and percentage increase in net income ranges and is intended to serve as incentive for performance to occur over a specified period. Under the bonus formula for Mr. Seasock, the achievement ranges for return on average assets and percentage increase in net income are given equal weighting. The minimum achievement ranges were 1.00 percent to 1.05 percent for return on average assets and 5.00 percent to 5.90 percent for percentage increase in net income for 2009. Based on the above performance measures, Mr. Seasock did not earn a bonus in 2009. The Executive Compensation Committee has the ability to award bonuses in excess of the amounts calculated pursuant to this formula based on the aforementioned criteria for discretionary annual bonuses. There was no discretionary bonus awarded to Mr. Seasock in 2009.

 

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Discretionary Annual and Matching Contributions to Community Bank’s Defined Contribution Plan
Community Bank has a defined contribution plan, which covers all employees who have completed 1,000 hours of service, attained twenty-one (21) years of age and have been employed by Community Bank for at least one year. Normal retirement age is sixty-five (65). The normal retirement benefit is the accumulated account balance of contributions, investment income and forfeitures. The annual contribution is determined by the Board of Directors and is based on a prescribed percentage of annual net income allocated to each participant on a pro-rata share of compensation covered under the plan. Investment income is allocated to each participant based on a pro-rata share of the account balances accumulated at the beginning of the year. Forfeitures are allocated to each participant based on a pro-rata share of compensation covered under the plan.
The defined contribution plan includes the provisions under section 401(k) of the Internal Revenue Code (“401(k)”). This 401(k) feature of the plan permits employees to make voluntary, pre-tax contributions up to 25.0 percent of their compensation. Our contributions to the 401(k) are based on 100.0 percent matching of voluntary contributions up to 3.0 percent of the employee’s eligible compensation. If a participant separates from service prior to retirement, the participant will be entitled to 100.0 percent of their contributions made under the 401(k) and also a portion of Community Bank’s matching 401(k) contributions and annual discretionary contributions based on years of service according to the following schedule:
         
Years of Service   Vested Interest  
Less than 1
    0 %
1
    20 %
2
    40 %
3
    60 %
4
    80 %
5
    100 %
A participant is always 100.0 percent vested in pension plan transferred balances.
During 2009, there were no annual discretionary contributions allocated among participants’ accounts under the defined contribution plan. Discretionary matching contributions under the 401(k) feature of the plan totaled $168,071 in 2009. Contributions made by Community Bank on behalf of the named executive officers to the plan are included in the “All Other Compensation” column of the Summary Compensation Table.

 

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Executive Employment Agreements
In order to retain our long-serving and key named executive officers, we entered into employment agreements with William F. Farber, Sr., President and CEO, Scott A. Seasock, Executive Vice President and CFO and William R. Boyle, Executive Vice President and CCO.
The employment agreement for Mr. Farber, which was entered into on March 1, 2010, contains a provision for severance payments based on our non-renewal of the agreement or disability of Mr. Farber, termination of the agreement for good reason as defined below or a change-in-control of us or Community Bank. Under the agreement, on or after February 28, 2011, Mr. Farber may also, upon providing us or Community Bank 60 days notice, voluntarily retire from his positions and be entitled to receive post-retirement benefits which are equivalent to the severance payment for non-renewal, disability, termination for good reason or change-in-control. With respect to the severance payments, including post-retirement benefits, Mr. Farber would be entitled to receive the sum of $14,000 per month for 60 consecutive months or until his death, whichever occurs first. Community Bank would also be required to pay premiums on a commercially-reasonable comprehensive medical insurance plan on Mr. Farber’s behalf. Mr. Farber would also be entitled to the use of his current executive office suite and the provision of secretarial support for a period of 12 months after termination of employment.
The estimated aggregate amount of severance payments, including post-retirement benefits, that Mr. Farber would receive based upon the provisions under his employment agreement dated March 1, 2010, if a termination event as described above occurred is $886,500. This estimated aggregate amount includes payments of $14,000 per month for 60 months for post-retirement benefits without any deductions for applicable taxes and $775 per month for 60 months for medical insurance premiums. The estimated aggregate amount has not been reduced to a present value worth.
The employment agreements for Messrs. Seasock and Boyle contain a provision for a severance payment based on our non-renewal of the agreement or a change-in-control of us or Community Bank. With respect to the severance payment for our non-renewal under these employment agreements, the affected named executive officer may, at his sole discretion, terminate his employment and receive a lump-sum severance payment equal to 24 months of his then current salary, net of all applicable withholding taxes. The affected named executive officer will receive no other benefits and perquisites as a result of such termination.
With respect to these employment agreements, if a change-in-control of us or Community Bank occurs and the affected named executive officer is terminated because of the change-in-control or for any other good reason, as defined below, then we, or our successor, are obligated to pay to such terminated named executive officer, for a 24-month period, his then current salary, net of all applicable withholding taxes, and premiums to maintain his long-term disability insurance and medical insurance. Any other benefits and perquisites for such affected named executive officer shall cease upon such termination.

 

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On March 17, 2010, Mr. Seasock’s employment agreement was amended to increase the term of the agreement from a constant two year period to a constant three year period. This First Amendment to Mr. Seasock’s employment agreement was filed at Exhibit 10.1 to our Current Report on Form 8-K on March 19, 2010, Commission File Number: 0-17455, and is incorporated in its entirety by reference into this report. The disclosure in the subsequent table for Mr. Seasock reflects the new amendment to his agreement.
The following table sets forth the estimated aggregate amount of such severance and change-in-control payments that each of the two named executive officers would receive based upon their salary and benefits as of December 31, 2009, if a termination event as described above had occurred:
                 
    Estimated Lump-Sum     Estimated Aggregate Amount  
    Severance Payment     to be Paid as a Result of  
    as a Result of     Change-In-Control under  
    Non-Renewal of     the Employment Agreement  
Name and Title   Agreement ($)(1)     ($)(2)  
Scott A. Seasock,
Executive Vice President and CFO
    466,230       520,318  
 
 
William R. Boyle,
Executive Vice President and CCO
    310,820       321,364  
     
(1)  
This estimated amount is gross salary without any deductions for applicable withholding taxes.
 
(2)  
This estimated amount includes gross salary without any deductions for applicable withholding taxes and 24 months of premiums for long-term disability insurance and medical insurance. This estimated amount has not been reduced to a present value worth.
All three employment agreements have a non-compete restriction that is triggered if the affected named executive officer is terminated for cause or such executive officer resigns from employment for other than a good reason. These executive officers agreed not to enter into competition with us or Community Bank after such termination within the Pennsylvania counties of Lackawanna, Susquehanna, Wayne and Wyoming, and within 20 miles of any branch office located outside these counties which was established during such executive officer’s employment with us and Community Bank. The non-compete restriction for Mr. Farber is for a period of five years after termination. For Messrs. Seasock and Boyle, the non-compete restriction is for a period of six months.
A change in control under all three agreements is generally defined as:
   
A substantial sale or disposition of our or Community Bank’s assets or operations;
   
A person holding beneficial ownership of enough shares of our stock to gain majority control of the Board of Directors; or
   
At any time during any 24 consecutive months commencing with the date of these agreements, a majority of the directors of us or Community Bank are persons who were not members of the respective boards at the beginning of such period, unless changes in the board’s membership were the result of death, voluntary resignation or retirement.

 

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A termination for good reason under these three agreements is generally defined as:
   
Without the officer’s consent, any assignment of duties other than duties described in the agreement;
   
Any removal of the officer from, or failure to re-elect the officer to, his position, except in connection with termination of the officer for cause;
   
Any failure to pay the officer his benefits as described in his agreement;
   
Any material breach of the agreement by us or Community Bank; or
   
A change in control.
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
The Executive Compensation Committee of Community Bank’s Board of Directors is responsible for developing and implementing our executive compensation program. The Executive Compensation Committee is comprised of four of our directors who also serve as directors of Community Bank, all of whom meet the independence standards contained in Rule 4200(a)(15) of the listing rules for The NASDAQ Global Market_ and Joseph P. Moore, Jr., a director emeritus and one of our principal stockholders.
In 2009, the Executive Compensation Committee met three times to discuss the performance of the named executive officers and compared their performance, and our performance, with peer group companies. The Chair of the Executive Compensation Committee distributes relevant material to the members to assist them in discussion and review of each named executive officer’s total compensation package. For example, the Human Resources Director of Community Bank prepares a spreadsheet delineating each named executive officer’s salary, benefits and perquisites for this committee to review. In addition, the Chair reviews current bank industry trade journals and other publications for articles on executive compensation in the banking industry and the Chair disseminates that information to members of this committee.
The members of this committee also discuss his and other named executive officers’ compensation packages with Mr. Farber, our Chairman, President and CEO, to solicit his views. Generally, this committee meets in November of each year to discuss and award bonuses to the named executive officers to be paid prior to year-end. Moreover, the committee meets at least once in the second quarter of each year to fix that year’s compensation package for each named executive officer. The Executive Compensation Committee fixes each named executive officer’s compensation package and the Chair of this committee then informs the Human Resources Director of Community Bank of that decision.

 

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In addition to the spreadsheet information that this committee will receive, we will also consider for 2010 compensation the contribution of each named executive officer in creating a culture of performance with integrity. We will also consider the years of service that each named executive officer has given to us and their contributions to civic life in the communities in which we conduct business.
Executive Compensation Committee
Judd B. Fitze
John P. Kameen
Erwin T. Kost
J. Robert McDonnell
Joseph P. Moore, Jr.
The following table presents compensation information for Community Bank’s directors for 2009.
DIRECTORS’ COMPENSATION TABLE
                         
    Fees Earned     All Other        
Name   or Paid in Cash ($)     Compensation ($)(1)     Total ($)  
 
                       
Judd B. Fitze
    23,000       1,350(2)       24,350  
 
                       
John P. Kameen
    23,000       4,235(2)       27,235  
 
                       
Each of our other directors
    23,000       -0-       23,000  
     
(1)  
Aggregate perquisites and other personal benefits were less than $10,000 for each director, and therefore, need not be presented.
 
(2)  
Represents fees for appraisal services provided to Community Bank.
Mr. Baker is employed by Community Bank as Senior Vice President and is responsible for business development in the Susquehanna and Wyoming Counties of Pennsylvania. Mr. Baker, in addition to having extensive banking experience, is well known and respected in the communities we serve. For his services as Senior Vice President, Mr. Baker received a salary of $57,158, and discretionary matching contributions of $1,756 under the 401(k) feature of Community Bank’s defined contribution plan in 2009. The total amount of all other perquisites received by Mr. Baker was less than $10,000.
Director fees and all other compensation are paid to the directors by Community Bank. Our directors are not paid for attendance at Comm Bancorp, Inc.’s Board of Directors’ meetings. There were no stock awards, option awards, non-equity incentive plan compensation, other long-term compensation or nonqualified deferred compensation earnings paid to any director in 2009.

 

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
This section describes how much stock our directors and executive officers own. It also describes the persons or entities that own more than 5.0 percent of our voting stock.
Stock Owned by Directors and Executive Officers
This table indicates the number of shares of our common stock owned by the directors and executive officers as of March 10, 2010. The aggregate percentage of shares owned by all directors and executive officers is 14.19 percent. Unless otherwise noted, each individual has sole voting and investment power for the shares indicated below.
                 
    Amount and Nature of        
Name of Individual or Identity of Group   Beneficial Ownership(1)     Percent of Class  
 
               
David L. Baker
    14,522.691        
 
               
William R. Boyle(2)
    3,541.307        
 
               
William F. Farber, Sr.
    150,960.000       8.76 %
 
               
Judd B. Fitze
    25,257.656       1.47 %
 
               
Dean L. Hesser
    2,000.000        
 
               
John P. Kameen
    19,572.000       1.14 %
 
               
Erwin T. Kost
    11,505.124        
 
               
Susan F. Mancuso
    7,339.287        
 
               
Joseph P. Moore, III
    100.000        
 
               
Scott A. Seasock(2)
    9,677.542        
 
               
All Directors and Executive Officers as a group (8 Directors, 4 Executive Officers, 10 persons in total)
    244,475.607       14.19 %
     
(1)  
Includes shares held: (i) directly; (ii) jointly with spouse; (iii) jointly with various relatives; (iv) by the transfer agent in our dividend reinvestment account; (v) individually in employee benefit plans; (vi) in various trusts; and (vii) as an administrator of an estate.
 
(2)  
Executive officer, not a director.

 

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Voting Stock Owned by “Beneficial Owners”
The following are the persons or entities known by us to own beneficially more than 5.0 percent of our common stock as of March 10, 2010.
                 
Name and Address   Number of Shares(1)     Percent of Class  
 
 
Joseph P. Moore, Jr.
    169,330.000       9.83 %
400 Williamson Road
Gladwyne, PA 19035
               
 
               
William F. Farber, Sr.
    150,960.000       8.76 %
Crystal Lake Road
R.R.1, Box 1281
Carbondale, PA 18407
               
     
(1)  
Includes shares held: (i) directly; and (ii) in various trusts.
Item 13. Certain Relationships and Related Transactions and Director Independence
We encourage our directors and executive officers to have banking and financial transactions with Community Bank. All of these transactions are made on comparable terms and with similar interest rates as those prevailing for other customers.
The total consolidated loans made by Community Bank at December 31, 2009 to our directors and officers as a group, members of their immediate families and companies in which they have a 10.0 percent or more ownership interest was $6.8 million or 12.3 percent of our total consolidated capital accounts. The largest aggregate balance for these loans in 2009 was $7.6 million or 13.8 percent of our total consolidated capital accounts. During 2009, advances and repayments on these loans were $0.5 million and $1.3 million. These loans did not involve more than the normal risk of collectibility nor did they present any other unfavorable features.
Item 14. Principal Accounting Fees and Services
The fees billed for professional services rendered by our independent registered public accounting firm for each of the two years ended December 31, 2009 and 2008, are summarized as follows:
                 
Year Ended December 31,   2009     2008  
Audit fees(1)
  $ 122,925     $ 107,730  
Other fees(2)
    600          
 
           
Total
  $ 123,525     $ 107,730  
 
           
     
(1)  
Audit fees consist of fees billed for services rendered for the audit of our annual financial statements on Form 10-K and review of financial statements included in our Form 10-Q, or services that are normally provided in connection with statutory and regulatory filings.
 
(2)  
Other fees consist of fees billed for services related to alternative minimum tax issues.

 

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The Joint Audit Committee’s pre-approval policies and procedures related to products and services provided by our independent registered public accounting firm are set forth in the Charter of the Joint Audit Committee of us and Community Bank. For the two years ended December 31, 2009 and 2008, all of the audit fees, audit-related fees, tax fees and other fees were pre-approved by the Joint Audit Committee.
Part IV
Item 15. Exhibits and Financial Statement Schedules
(a)    1.
The consolidated financial statements and notes to these statements as well as the applicable report of the independent registered public accounting firm are filed at Exhibit 13 to this report and are incorporated in their entirety by reference under this Item 15(a)1.
  2.  
All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes to these statements.
  3.  
The exhibits required by Item 601 of Regulation S-K are included under Item 15(b) to this report.

 

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(b)  
Exhibits required by Item 601 of Regulation S-K:
         
Exhibit Number    
Referred to    
Item 601 of    
Regulation S-K   Description of Exhibit
  2    
None.
  3 (i)  
Articles of Incorporation, as amended, filed at Exhibit 3(i) to our Annual Report on Form 10-K for the year ended December 31, 2006, Commission file number 0-17455 on March 30, 2007, and incorporated hereto by reference.
  3 (ii)  
Bylaws, as amended, filed at Exhibit 3(ii) to our Annual Report on Form 10-K for the year ended December 31, 2006, Commission file number 0-17455 on March 30, 2007, and incorporated hereto by reference.
  4    
None.
  9    
None.
  10    
Executive Employment Agreements of Scott A. Seasock and William R. Boyle filed as Exhibits 10.01 and 10.02 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, Commission file number 0-17455 on November 13, 2001, and incorporated hereto by reference. Executive Employment Agreement of William F. Farber, Sr. filed as Exhibit 10.1 to our Current Report on Form 8-K, Commission file number 0-17455 on March 2, 2010, and incorporated hereto by reference. First amendment to Executive Employment Agreement of Scott A. Seasock filed as Exhibit 10.1 to our Current Report on Form 8-K, Commission file number 0-17455 on March 19, 2010, and incorporated hereto by reference.
  11    
None.
  12    
None.
  13    
Portions of the Annual Report to Stockholders for Fiscal Year Ended December 31, 2009.
  14    
Code of Ethics, filed at Exhibit 14 to our Annual Report on Form 10-K for the year ended December 31, 2003, Commission file number 0-17455 on March 29, 2004, and incorporated hereto by reference.
  16    
None.
  18    
None.
  21    
List of Subsidiaries.
  22    
None.
  23    
None.
  24    
None.
  31 (i)  
CEO certification pursuant to Rule 13a-14(a)/15d-14(a).
       
CFO certification pursuant to Rule 13a-14(a)/15d-14(a).
  31 (ii)  
Not Applicable.
  32    
CEO certification pursuant to Section 1350.
       
CFO certification pursuant to Section 1350.
  33    
Not Applicable.
  34    
Not Applicable.
  35    
Not Applicable.
  99 (i)  
Charter of the Joint Audit Committee, as amended, filed at Exhibit 99(i) to our Annual Report on Form 10-K for the year ended December 31, 2006, Commission file number 0-17455 on March 30, 2007, and incorporated hereto by reference.
  100    
None.

 

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Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto, duly authorized.
         
COMM BANCORP, INC.
(Registrant)
  Date
 
       
BY:
  /s/ William F. Farber, Sr.
 
  March 29, 2010 
 
  William F. Farber, Sr.,
President and Chief Executive Officer
   
 
  Chairman of the Board
(Principal Executive Officer)
   
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
     
Signature and Capacity   Date
 
   
/s/ David L. Baker
 
David L. Baker, Director
  March 29, 2010 
 
   
/s/ William F. Farber, Sr.
 
William F. Farber, Sr.,
President and Chief Executive Officer
Chairman of the Board/Director
(Principal Executive Officer)
  March 29, 2010 
 
   
/s/ Judd B. Fitze
 
Judd B. Fitze, Director
  March 29, 2010 
 
   
/s/ Dean L. Hesser
 
Dean L. Hesser, Director
  March 29, 2010 
 
   
/s/ John P. Kameen
 
John P. Kameen, Secretary/Director
  March 29, 2010 
 
   
/s/ Erwin T. Kost
 
Erwin T. Kost, Director
  March 29, 2010 

 

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Table of Contents

     
Signature and Capacity   Date
 
   
/s/ Susan F. Mancuso
 
Susan F. Mancuso, Director
  March 29, 2010 
 
   
/s/ Joseph P. Moore, III
 
Joseph P. Moore, III, Director
  March 29, 2010 
 
   
/s/ Scott A. Seasock
 
Scott A. Seasock, Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
  March 29, 2010 
 
   
/s/ Stephanie A. Westington
 
Stephanie A. Westington, CPA
Vice President of Finance
(Principal Accounting Officer)
  March 29, 2010 

 

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EXHIBIT INDEX
                 
Exhibit        
Number   Description   Page
       
 
       
  13    
Portions of the Annual Report to Stockholders for Fiscal Year Ended December 31, 2009.
    46  
       
 
       
  21    
List of Subsidiaries.
    164  
       
 
       
  31 (i)  
CEO Certification Pursuant to Rule 13a-14(a)/15d-14(a).
    165  
       
 
       
       
CFO Certification Pursuant to Rule 13a-14(a)/15d-14(a).
       
       
 
       
  32    
CEO Certification Pursuant to Section 1350.
    167  
       
 
       
       
CFO Certification Pursuant to Section 1350.
       

 

45