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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934 for the Quarterly period ended June 30, 1998.
( ) Transition report under Section 13 or 15 (d) of the Securities Exchange
Act of 1934 for the transition period from ____________to ___________.
No. 000-29658
(Commission File Number)
COMMUNITY INDEPENDENT BANK, INC.
(Exact Name of Registrant as Specified in its Charter)
PENNSYLVANIA 23-2357593
(State of Incorporation) (IRS Employer ID Number)
201 N. MAIN STREET, BERNVILLE, PA 19506
(Address of Principal Executive Offices) (zip code)
(610) 488-1200
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Exchange Act 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 X No
Number of Shares Outstanding as of July 31, 1998
COMMON STOCK ($5.00 Par Value) 696,774
(Title of Class) (Outstanding Shares)
COMMUNITY INDEPENDENT BANK, INC.
FORM 10-QSB
For the Quarter Ended June 30, 1998
Contents
PART I FINANCIAL INFORMATION Page No.
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Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of
June 30, 1998 and December 31, 1997 3-4
Consolidated Statements of Income
for the Six and Three Month Periods
Ended June 30, 1998, and 1997 4-5
Consolidated Statements of Comprehensive
Income for the Six-Month Periods Ended
June 30, 1998, and 1997 5
Consolidated Statements of Stockholders'
Equity for the Six-Month Period
Ended June 30, 1998 6
Consolidated Statements of Cash Flows
for the Six-Month Periods Ended June 30,
1998 and 1997 6-7
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-16
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 17
Part II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security
Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
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COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED BALANCE SHEETS
ASSETS June 30, December 31,
1998 1997
(Unaudited)
Cash and due from banks $ 1,785,923 $ 1,701,268
Interest-bearing deposits in other banks 21,108 1,773,211
Federal funds sold - 158,000
Cash and cash equivalents 1,807,031 3,632,479
Securities available for sale 11,253,500 9,524,028
Securities held to maturity - 1,000,585
Loans receivable, net of allowance
for loan losses June 30, 1998
$545,518; December 31, 1997
$540,158 75,849,553 64,364,029
Bank premises and equipment, net 2,607,663 2,636,981
Accrued interest receivable and other assets 2,437,008 2,303,885
TOTAL ASSETS $93,954,755 $83,461,987
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 7,939,858 $ 7,442,811
Interest bearing 71,663,531 63,286,257
TOTAL DEPOSITS 79,603,389 70,729,068
Other borrowed funds 1,791,678 471,808
Long-term debt 5,000,000 5,000,000
Other liabilities 440,949 360,705
TOTAL LIABILITIES 86,836,016 76,561,581
Stockholders' equity:
Preferred stock, par value $5.00 per
share; authorized and unissued
1,000,000 shares - -
Common stock, par value $5.00
per share; authorized
5,000,000 shares; issued and
outstanding June 30, 1998
696,774 shares; December 31, 1997
348,287 shares 3,483,870 1,741,435
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Surplus 142,148 1,882,808
Retained earnings 3,469,941 3,257,894
Net unrealized appreciation
on securities available for
sale, net of taxes 22,780 18,269
TOTAL STOCKHOLDERS' EQUITY 7,118,739 6,900,406
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $93,954,755 $83,461,987
See Notes to Consolidated Financial Statements
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended For the Three Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest income:
Loan receivable, including fees $ 3,047,262 $2,363,683 $ 1,591,051 $1,234,999
Securities:
Taxable 297,538 216,830 152,972 105,893
Tax-exempt 16,157 44,138 7,812 21,456
Other 10,626 30,191 616 18,491
Total interest income 3,371,583 2,654,842 1,752,451 1,380,839
Interest expense:
Deposits 1,483,592 1,231,374 760,669 625,466
Other 182,975 4,683 103,065 1,795
Total interest expense 1,666,567 1,236,057 863,734 627,261
Net interest income 1,705,016 1,418,785 888,717 753,578
Provision for loan losses 60,000 42,000 30,000 18,000
Net interest income after
provision for loan losses 1,645,016 1,376,785 858,717 735,578
Other income:
Customer service fees 135,335 94,621 69,595 45,467
Net gains from sale of
mortgages 73,953 14,185 48,994 7,293
Other 140,577 58,540 70,303 35,066
Total other income 349,865 167,346 188,892 87,826
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Other expenses:
Salaries and employee benefits 820,699 553,341 416,395 283,350
Occupancy 141,303 92,178 71,438 46,847
Equipment 130,712 111,319 65,818 57,419
Marketing and advertising 52,203 68,932 30,292 24,320
Loan collection and foreclosed
real estate 86,884 63,952 61,150 41,412
Professional fees 49,743 6,592 40,006 4,745
Stationery and supplies 30,724 34,304 15,890 17,727
Other 262,448 213,595 137,753 120,294
Total other expenses 1,574,716 1,144,213 838,742 596,114
Income before income taxes 420,165 399,918 208,867 227,290
Federal income taxes 124,529 110,478 60,795 64,816
Net income $ 295,636 $ 289,440 $148,072 $162,474
Basic and diluted earnings per share $0.42 $0.42 $0.21 $0.23
Weighted average number of common
shares outstanding 696,574 696,574 696,574 696,574
</TABLE>
See Notes to Consolidated Financial Statements
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (Unaudited)
For the Six Months Ended
June 30, June 30,
1998 1997
Net Income $ 295,636 $ 289,440
Other Comprehensive Income (Loss)
net of tax
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during the period, net of
tax expense (benefit) 4,511 (299)
1998 $2,323; 1997 $(153)
Comprehensive income $ 300,147 $ 289,141
See Notes to Consolidated Financial Statements
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COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1998 (Unaudited)
[CAPTION]
<TABLE>
Net unrealized
Appreciation
On Securities
Common Retained Available
Stock Surplus Earnings For Sale Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ 1,741,435 $ 1,882,808 $ 3,257,894 $ 18,269 $ 6,900,406
Net income - - 295,636 - 295,636
Cash dividends ($.12) per share) - - (83,589) - (83,589)
Net change in unrealized appreciation
on securities available for sale,
net of taxes - - - 4,511 4,511
Issuance of 100 shares of common
stock upon exercise of stock options 500 1,275 - - 1,775
Two-for-one stock split $ 1,741,935 (1,741,935) - - -
Balance, June 30, 1998 $ 3,483,870 $ 142,148 $ 3,469,941 $ 22,780 $ 7,118,739
</TABLE>
See Notes to Consolidated Financial
Statements
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended
June 30, June 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 295,636 289,440
Adjustments to reconcile net income
to net cash provided by
operating activities:
Provision for loan losses 60,000 42,000
Provision for depreciation 116,889 95,620
Gain on disposal of property and
equipment - (1,800)
Net gains on sale of mortgage loans (73,953) (14,185)
Proceeds from sale of mortgage loans 5,224,953 884,485
Mortgage loans originated for sale (5,151,000) (870,300)
Net amortization of securities
premiums and discounts 2,666 9,810
Amortization of mortgage servicing
rights 9,054 1,148
Increase in accrued interest
receivable and other assets (94,329) (27,713)
Increase (decrease) in other
liabilities 80,244 (27,488)
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Net cash provided by operating activities 470,160 381,017
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from maturities of securities held to
maturity 1,000,000 500,000
Proceeds from maturities of securities
available for sale 435,000 953,699
Purchase of securities available for sale (2,159,720) (2,165,122)
Net increase in loans (11,595,694) (2,791,689)
Proceeds from sale of property and equipment - 18,810
Purchases of bank premises and equipment (87,571) (122,731)
Purchase of life insurance - (1,450,000)
Net cash used in investing activities (12,407,985) (5,057,033)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 8,874,321 4,665,148
Net increase in other borrowed funds 1,319,870 201,230
Dividends paid (83,589) (76,623)
Proceeds from common stock options exercised 1,775 -
Net cash provided by financing activities 10,112,377 4,789,755
Increase (decrease) in cash and cash
equivalents (1,825,448) 113,739
Cash and cash equivalents:
Beginning 3,632,479 3,606,358
Ending 1,807,031 3,720,097
Cash payments for:
Interest 1,672,083 1,253,403
Income taxes 112,910 100,350
See Notes To Consolidated Financial Statements
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
Note A. Basis of Presentation
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The unaudited consolidated financial statements include the accounts of
Community Independent Bank, Inc. and its wholly-owned subsidiary, Bernville
Bank, N.A. All significant intercompany accounts and transactions have been
eliminated. The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for fair presentation have been included. Operating results
for the six month period ended June 30, 1998 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1998.
In addition to historical information, this Form 10-QSB Report contains
forward-looking statements. The forward-looking statements contained herein are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected in the forward-looking statements.
Important factors that might cause such differences include, but are not limited
to, those discussed in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations". Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date hereof. The Company undertakes
no obligation to publicly revise or update these forward-looking statements to
reflect events or circumstances that arise after the date hereof. Readers should
carefully review the risk factors described in other documents the files from
time to time with the Securities and Exchange Commission.
Note B. Earnings per Share
In 1997, the Financial Accounting Standards Board issued statement No. 128,
"Earnings Per Share". Statement No. 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of stock options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented to conform to the Statement No. 128 requirements.
On June 25, 1998, the Board of Directors declared a two-for-one stock split
in the form of a 100% stock dividend on common stock outstanding, payable on
July 31, 1998 to shareholders of record on July 17, 1998. The stock split
resulted in the issuance of 348,387 additional common shares. The effect of this
stock split has been recorded as of June 30, 1998. All per share data has been
adjusted for the effect of the stock split.
Note C. Comprehensive Income
The Financial Accounting Standards Board issued statement No. 130,
"Reporting Comprehensive Income" in June 1997. The Company adopted the
provisions of the new standard in 1998. The only comprehensive income item that
the Company presently has is unrealized gains (losses) on securities available
for sale.
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Note D. Stockholder Automatic Dividend Reinvestment and Stock Purchase Plan
On June 25, 1998, the Company adopted a dividend reinvestment and stock
purchase plan available to stockholders who elect to reinvest their cash
dividends for the purchase of additional shares of the Company's common stock.
Participants may also elect to make voluntary cash payments not to exceed $2,500
each quarter for the purchase of additional shares of the Company's common
stock. The common stock may be purchased in the open market or from authorized
but unissued shares, substantially at prevailing market prices. The Company has
reserved 225,000 shares of common stock for possible issuance under the plan and
anticipates the plan will be available to stockholders during the fourth quarter
of 1998.
Note E. Cash Flow Information
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks, interest bearing deposits with banks and federal funds
sold.
Note F. New Accounting Standard
The Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities", in June 1998.
The Statement is effective for fiscal years beginning after June 15, 1999. The
adoption of the Statement is not expected to have a significant impact on the
Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations analyzes the major elements of the Company's balance sheets and
statements of income. This should be read in conjunction with the Company's
financial statements and accompanying footnotes.
OVERVIEW
The Company's net income for the second quarter of 1998 was $148,072, a
decrease of $14,402, or 8.86% from $162,474 net income for the second quarter of
1997. Net income for the six months ended June 30, 1998 was $295,636, 2.14% more
than the $289,440 reported for the same period in 1997. Total assets increased
to $93,954,755 at June 30, 1998, an increase of $10,492,768, or 12.57% from
$83,461,987 at December 31, 1997.
During the six months ended June 30, 1998, loans receivable increased
17.84% to $75,849,553 from $64,364,029, while deposits increased 12.55% to
$79,603,389 from $70,729,068.
RESULTS OF OPERATIONS
Net Interest Income and Net Interest Margin
Net interest income is the primary source of operating income for the
Company. Net interest income is the difference between interest earned on loans
and securities and interest paid on deposits
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and other funding sources. Generally, changes in net interest income are
measured by net interest rate spread and net interest margin. Net interest rate
spread is equal to the difference between the average rate earned on earning
assets and the average rate incurred on interest-bearing liabilities. Net
interest margin represents the difference between interest income (including net
loan fees earned) and interest expense calculated as a percentage of average
earning assets. The factors that influence net interest income include changes
in interest rates and changes in the volume and mix of assets and liability
balances.
The Company's net interest income increased $135,139 or 17.93% to $888,717
during the second quarter of 1998 from $753,578 during the second quarter of
1997. For the first six months of 1998, net interest income increased $286,231
or 20.17% to $1,705,016 from $1,418,785 during the first six months of 1997.
Interest income increased $371,612 or 26.91%, from $1,380,839 for the
second quarter of 1997 to $1,752,451 for the second quarter of 1998, while
interest expense increased $236,473 or 37.70%, from $627,261 for the second
quarter of 1997 to $863,734 for the second quarter of 1998. For the first six
months of 1998, interest income increased $716,741 or 27.0%, to $3,371,583 from
$2,654,842 for the first six months of 1997, while interest expense increased
$430,510 or 34.83% from $1,236,057 for the first six months of 1997 to
$1,666,567 for the first six months of 1998.
The increases in interest income are principally due to higher levels of
loans receivable and taxable securities while the increase in interest expense
was due to interest bearing deposits growth and higher levels of borrowed funds
used to fund the growth in earning assets.
Net interest margin decreased 26 basis points from 4.51% in the second
quarter of 1997 to 4.25% in the second quarter of 1998. Net interest margin
decreased 11 basis points from 4.32% for the first six months of 1997 to 4.21%
for the first six months of 1998. Net interest margin decreased primarily due
to a larger increase in the average rate paid on interest-bearing liabilities
than the increase in the average yield on interest-earning assets.
For the second quarter of 1998, the average yield on earning assets
increased 38 basis points to 8.38% from 8.0% for the second quarter of 1997.
For the first six months of 1998, the average yield on earning assets increased
29 basis points to 8.34% from 8.05% for the first six months of 1997. The
increase is primarily attributable to an increase in average yield earned on
commercial loans.
For the second quarter of 1998, the average rate paid on interest-bearing
liabilities, increased 23 basis points to 4.61% from 4.38% for the second
quarter of 1997. For the first six months of 1998, the average rate paid on
interest-bearing liabilities, increased 21 basis points to 4.62% from 4.41% for
the first six months of 1997. The increase was caused primarily by an increase
in the volume and rate of other borrowed funds which was partially offset by a
decrease in the rate paid on savings accounts.
Provision for Loan Losses
The provision for loan losses was $30,000 for the second quarter of 1998
compared to $18,000 for the second quarter of 1997. For the first six months of
1998, the loan loss provision was $60,000 compared to $42,000 for the first six
months of 1997.
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The allowance for loan losses represented .71% and .83% of total loans
receivable at June 30, 1998 and at December 31, 1997, respectively. Management
performs periodic evaluations of the loan portfolio. These evaluations consider
several factors including, but not limited to, current economic conditions, loan
portfolio composition, prior loan loss experience, trends in portfolio volume,
and management's estimation of future potential losses. Management believes that
the allowance for loan losses is adequate for each of the periods presented,
however, due to the significant increase in loans the monthly addition to the
allowance will be increased from $10,000 to $30,000 beginning with July 1998.
Other Income
Total other income increased $101,066 or 115.08% from $87,826 during the
second quarter of 1997 to $188,892 during the second quarter of 1998. The
increase was due primarily to a $24,128 increase in customer service fees which
directly correlated with the implementation of convenience fees on ATMs and an
increase in customer accounts, a $41,701 increase in gains from sale of loans as
a result of increased loan sales and an increase in other income of $35,237
which is primarily attributable to earnings on life insurance policies.
For the first six months of 1998, other income increased $182,519 or 109%,
to $349,865 from $167,346 for the same period in 1997. The primary reasons for
the increase were an increase in customer service fees of $40,714, an increase
in gains from sale of loans of $59,768 and an increase in other income of
$82,037. These increases are a result of the same items mentioned in the
preceding paragraph for the second quarter.
Other Expenses
Total other expenses increased $242,628 or 40.70% during the second quarter
of 1998 versus the same period in 1997, from $596,114 to $838,742. Total other
expenses also increased during the first six months of 1998 versus the first six
months of 1997 by $430,503 or 37.62% from $1,144,213 to $1,574,716. The
increases in total other expenses reflect the growth of the Company, especially
due to the opening of a loan center in February 1997 which resulted in an
increase in loan volume and the Wyomissing office which opened in November 1997.
Salaries and employee benefits, which represent the largest component of
other expenses increased from $283,350 for the second quarter of 1997 to
$416,395 for the same period in 1998. For the first six months of 1998, salaries
and employee benefits increased $267,358 or 48.32% to $820,699 from $553,341 for
the same period in 1997. Salaries and employee benefits increased due to the
growth of the Company, especially from the opening of the loan center and
Wyomissing office.
Occupancy expense increased $24,591 or 52.49%, to $71,438 for the second
quarter of 1998 versus $46,847 for the second quarter of 1997. For the first six
months of 1998, occupancy expense was $141,303 versus $92,178 for the same
period in 1997, an increase of $49,125 or 53.29%. These increases reflect
escalation provisions in operating lease agreements as well as building, lease
and other occupancy expenses related to the operation of the new loan center and
Wyomissing office.
Equipment expense increased $8,399 or 12.76%, from $57,419 for the second
quarter of 1997 to $65,818 for the second quarter of 1998. For the first six
months of 1998, equipment expense increased $19,393 or 17.42% to $130,712 from
$111,319 for the same period in 1997. The increase in
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equipment expense which was primarily due to the addition of the loan center and
Wyomissing office and an increase in depreciation expense was offset by a
decrease in maintenance contracts.
Marketing and advertising expenses increased $5,972 or 24.56% to $30,292
for the second quarter of 1998 versus $24,320 for the second quarter of 1997.
For the first six months of 1998, marketing and advertising was $52,203 versus
$68,932 for the same period in 1997, a decrease of $16,729 or 24.27%. The
decrease for the first six months of 1998 was due to an effort by management to
control these types of expenses.
Loan collection and foreclosed real estate expenses increased $19,738 or
47.66% to $61,150 for the second quarter of 1998 versus $41,412 for the second
quarter of 1997. For the first six months of 1998, loan collection and
foreclosed real estate expenses was $86,884 versus $63,952 for the same period
in 1997, an increase of $22,932 or 35.86%. The increase in loan collection and
foreclosed real estate expenses was primarily due to environmental clean-up
costs associated with one foreclosed property. That property was sold in July
1998 recovering some of these expenses.
Professional fees increased $35,261 to $40,006 for the second quarter of
1998 versus $4,745 for the second quarter of 1997. For the first six months of
1998, professional fees were $49,743 versus $6,592 for the same period in 1997,
an increase of $43,151. The increase in professional fees was due to legal and
accounting fees associated with registering the Company with the SEC and listing
the Company's stock on the American Stock Exchange.
Stationery and supplies expense decreased $1,837 or 10.36% to $15,890 for
the second quarter of 1998 versus $17,727 for the second quarter of 1997. For
the first six months of 1998, stationery and supplies expense was $30,724 versus
$34,304 for the same period in 1997, a decrease of $3,580 or 10.44%. The
decrease is due to the cost of setting up the loan center and Wyomissing office
in 1997 with no similar cost in 1998.
Other operating expenses increased from $120,294 for the second quarter of
1997 to $137,753 for the same period in 1998, an increase of $17,459 or 14.51%.
For the first six months of 1998, other operating expenses increased $48,853 or
22.87% to $262,448 versus $213,595 for the same period in 1997. Other operating
expenses included in this category include directors' fees, ATM surcharge fees,
FDIC insurance premium, examinations, travel, telephone, dues and subscriptions,
postage, training and charitable contributions. The increase in such expense
categories is principally the result of the Bank's growth.
Income Taxes
Income tax expense was $60,795 for the second quarter of 1998, for an
effective tax rate of 29.11% versus $64,816 for the second quarter of 1997 and
an effective tax rate of 28.52% For the first six months of 1998, income tax
expense was $124,529, for an effective tax rate of 29.64% versus $110,478 and an
effective tax rate of 27.63% for the same period in 1997. The tax rate for each
of the periods was less than the federal statutory rate of 34% primarily because
of tax-exempt securities and loan income.
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Year 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (Year 2000) approaches. The "Year
2000" problem is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two digit year value to 00.
The issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. The Company is utilizing both internal and external resources to identify,
correct and test the systems for the year 2000 compliance. It is anticipated
that all necessary modifications will be completed by December 31, 1998,
allowing adequate time for testing. To date, confirmation has been received from
the Bank's primary processing vendor that its system is "Year 2000" compliant.
Other processing vendors have confirmed that plans are being developed to
address processing of transactions in the year 2000. Management has not yet
assessed the year 2000 compliance expense and related potential affect on the
Company's earnings.
FINANCIAL CONDITION
Securities
Securities increased to $11,253,500 at June 30, 1998 from $10,524,613 at
December 31, 1997. The increase of $728,887 or 6.93% was primarily due to the
purchase of U.S. Government agency obligations with proceeds from the maturity
of the held to maturity security and deposit growth.
Loans
Loans receivable, net of the allowance for loan losses of $545,518 at June
30, 1998 and $540,158 at December 31, 1997 increased to $75,849,553 at June 30,
1998 from $64,364,029 at December 31, 1997. The increase of $11,485,524 or
17.84% was primarily from an increase in commercial loans of $6,676,992 from
$16,418,588 at December 31, 1997 to $23,095,580 at June 30, 1998 and an increase
of approximately $4,000,000 in mortgage loans.
Loan and Asset Quality
Total nonperforming loans (comprised of non-accruing and loans past due for
more than 90 days and still accruing) as a percentage of total loans as of June
30, 1998 was .15% as compared with .46% at December 31, 1997.
The Bank had other real estate owned (OREO) consisting of two properties in
the amount of $212,649 at June 30, 1998 and December 31, 1997. One of these
properties was sold in July 1998, leaving the Bank with other real estate owned
of $47,599.
The following schedule displays detailed information about the Bank's
nonperforming assets and the allowance for loan losses for the periods ended
June 30, 1998, December 31, 1997 and June 30, 1997.
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June 30 December 31 June 30
1998 1997 1997
(In thousands)
Amount of loans receivable
outstanding at end of period $76,395 $64,904 $55,464
Allowance for loan losses 546 540 503
Non-performing loans:
Non-accruing loans 99 290 0
Accruing loans past due
90 days or more 16 6 87
Total nonperforming loans 115 296 87
Other real estate 213 213 427
Total nonperforming assets $ 328 $ 509 $ 514
Nonperforming loans to
total loans 0.15% 0.46% 0.16%
Nonperforming assets to total assets 0.38% 0.61% 0.70%
Allowance for loan losses to total
nonperforming loans 474.78% 182.43% 578.16%
Allowance for loan losses to total loans 0.71% 0.83% 0.91%
Potential Problem Loans
At June 30, 1998, the Bank has $1,373,000 in commercial loans for which the
payments are presently current, but the borrowers are experiencing financial
difficulties. These loans are subject to constant management attention and their
classification is reviewed quarterly.
Cash and Cash Equivalents
Cash and due from banks, interest bearing deposits in other banks and
federal funds sold are all liquid funds. The aggregate amount in these three
categories decreased by $1,825,448 to $1,807,031 at June 30, 1998 from
$3,632,479 at December 31, 1997, because excess cash was needed to fund loan
growth.
Deposits
Total deposits at June 30, 1998 were $79,603,389, an increase of $8,874,321
or 12.55% over total deposits of $70,729,068 at December 31, 1997. All deposit
categories increased from December 31, 1997 to June 30, 1998 with the most
significant increases in interest bearing demand accounts and time deposits less
than $100,000. Interest bearing demand accounts increased $4,898,275 or 30.48%
from $16,069,319 at December 31, 1997 to $20,967,594 at June 30, 1998. Time
deposits less than $100,000 increased $3,004,466 or 9.03% from $33,283,518 at
December 31, 1997 to $36,287,984 at June 30, 1998. The increase in total
deposits was a result of competitive pricing of the money market product and the
opening of the Wyomissing office. The increase was primarily used to fund new
loans.
14
<PAGE>
Other Borrowed Funds and Long-term Debt
Other borrowed funds and long-term debt increased $1,319,870 from
$5,471,808 at December 31, 1997 to $6,791,678 at June 30, 1998. The increase was
primarily used to fund new loans.
Stockholders' Equity and Capital Ratios
Total stockholders' equity at June 30, 1998 was $7,118,739 compared to
$6,900,406 at December 31, 1997. A comparison of the Bank's capital ratios is
as follows:
June 30, 1998 December 31, 1997
-------------- ------------------
Tier 1 Capital 7.55% 8.28%
(to average assets)
Tier 1 Capital 10.34% 11.97%
(to risk-weighted assets)
Total Capital 11.17% 12.95%
(to risk-weighted assets)
The minimum capital requirements imposed by federal regulatory authorities
for Leverage, Tier 1 and Total Capital are 4%, 4% and 8%, respectively. The
consolidated capital ratios are not materially different from the Bank's capital
ratios. At June 30, 1998 and December 31, 1997, the Company and the Bank
exceeded the minimum capital ratio requirements and are considered "well
capitalized".
Interest Rate Sensitivity
The operations of the Bank are subject to risk resulting from interest rate
fluctuations to the extent that there is a difference between the amount of the
Bank's interest earning assets and the amount of interest bearing liabilities
that are prepaid/withdrawn, mature or reprice in specified periods.
The principal objective of the Bank's asset/liability management activities
is to provide consistently higher levels of net interest income while
maintaining acceptable levels of interest rate and liquidity risk and
facilitating the funding needs of the Bank. The Bank utilizes an interest rate
sensitivity model as the primary quantitative tool in measuring the amount of
interest rate risk that is present. The traditional maturity "gap" analysis,
which reflects the volume difference between interest rate sensitive assets and
liabilities during a given time period, is reviewed regularly by management. A
positive gap occurs when the amount of interest sensitive assets exceeds
interest sensitive liabilities. This position would contribute positively to net
income in a rising interest rate environment. Conversely, if the balance sheet
has more liabilities repricing than assets, the balance sheet is liability
sensitive or negatively gapped. Management continues to monitor sensitivity in
order to avoid overexposure to changing interest rates.
Another method used by management to review its interest sensitivity
position is through "simulation". In simulation, the Bank projects the future
net interest streams in light of the current gap position. Various interest rate
scenarios are used to measure levels of interest income associated with
15
<PAGE>
potential changes in the Bank's operating environment. Management cannot measure
levels of interest income associated with potential changes in the Bank's
operating environment. Management cannot predict the direction of interest rates
or how the mix of assets and liabilities will change. The use of this
information will help formulate strategies to minimize the unfavorable effect on
net interest income caused by interest rate changes.
The operations of the Bank do not subject it to foreign currency exchange
or commodity price risk. Also, the Bank does not utilize interest rate swaps,
caps or other hedging transactions.
The Bank's overall sensitivity to interest rate risk is low due to its non-
complex balance sheet. The Bank has implemented several strategies to manage
interest rate risk which include selling most newly originated residential
mortgages, increasing the volume of variable rate commercial loans and
maintaining a short maturity in the investment portfolio.
Liquidity
Liquidity management involves meeting the funds flow requirements of
customers who may either be depositors wanting to withdraw funds, or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs. Liquid assets consist of vault cash, securities and maturities of earning
assets.
The Bank's principal source of asset liquidity is the securities portfolio.
The carrying value of securities maturing in less than one year equals
$2,705,000. Other sources of funds are principal pay downs and maturities in the
loan portfolio.
The Bank also has sources of liability liquidity which include core
deposits and borrowing capacity at the Federal Home Loan Bank. The short-term
borrowing capacity from FHLB was in excess of $34 million at June 30, 1998. At
June 30, 1998, the Bank had $5 million borrowed from the FHLB with a scheduled
maturity in 1999.
Management believes that the Bank's liquidity is sufficient to meet its
anticipated needs.
Future Outlook
In September 1998, the operations and support staff of Bernville Bank, the
wholly owned subsidiary of Community Independent Bank, Inc. will relocate to
Bernville Bank's new operations center at 900 Corporate Drive, Reading, PA. In
addition to relieving crowded office space at the Bernville location the move
will enable the Bank to serve its growing customer base more efficiently.
During the second quarter of 1998, Community Independent Bank, Inc.
registered its common stock with the Securities and Exchange Commission. During
the third quarter of 1998, Community Independent Bank, Inc., anticipates
acceptance by the American Stock Exchange for the listing of the holding company
stock.
Community Independent Bank plans to introduce its dividend reinvestment and
stock purchase plan to its shareholder base later this year.
16
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Bank's exposure to market risk has not changed significantly since
December 31, 1997. The market risk principally includes interest rate risk that
is discussed above.
Part II Other Information
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
Reference is made to the information contained in the Form
8-K filed by Community Independent Bank on June 25, 1998,
concerning the 2-for-1 stock split payable on July 31,
1998 to shareholders of record as of the close of business
on July 17, 1998.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNITY INDEPENDENT BANK, INC.
--------------------------------
(Registrant)
8/7/98 /s/ Arlan J. Werst
- -------- --------------------------------
Date Arlan J. Werst, President/CEO
8/7/98 /s/ Linda L. Strohmenger
- -------- --------------------------------
Date Linda L. Strohmenger, Secretary
(Principal financial officer)
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE QUARTERLY
REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL INFORMATION.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 1,785,923
<INT-BEARING-DEPOSITS> 21,108
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,253,500
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 75,849,553
<ALLOWANCE> 545,518
<TOTAL-ASSETS> 93,954,755
<DEPOSITS> 79,603,389
<SHORT-TERM> 1,791,678
<LIABILITIES-OTHER> 440,949
<LONG-TERM> 5,000,000
0
0
<COMMON> 3,483,870
<OTHER-SE> 3,634,869
<TOTAL-LIABILITIES-AND-EQUITY> 93,954,755
<INTEREST-LOAN> 3,047,262
<INTEREST-INVEST> 313,695
<INTEREST-OTHER> 10,626
<INTEREST-TOTAL> 3,371,583
<INTEREST-DEPOSIT> 1,483,592
<INTEREST-EXPENSE> 1,666,567
<INTEREST-INCOME-NET> 1,705,016
<LOAN-LOSSES> 60,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,574,716
<INCOME-PRETAX> 420,165
<INCOME-PRE-EXTRAORDINARY> 420,165
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 295,636
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
<YIELD-ACTUAL> 3.72
<LOANS-NON> 99,000
<LOANS-PAST> 16,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,373,000
<ALLOWANCE-OPEN> 540,158
<CHARGE-OFFS> 60,000
<RECOVERIES> 2,000
<ALLOWANCE-CLOSE> 545,518
<ALLOWANCE-DOMESTIC> 470,586
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 74,932
</TABLE>
