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[LETTERHEAD OF RHOADS & SINON LLP APPEARS HERE]
April 24, 1998
Securities and Exchange Commission
Division of Corporate Finance
450 Fifth Street NW
Washington, DC 20549
VIA EDGAR
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Re: Community Independent Bank, Inc.
Amendment of Form 10-SB
Ladies and Gentlemen:
On behalf of Community Independent Bank, Inc. (the "Company"), we file
herewith the Company's Form 10-SB/A and Supplemental Response of the Company's
accountants, Beard & Company, Inc., in response to the Commission's Comment
Letter dated April 13, 1998.
If you have any comments or questions regarding this filing, please do
not hesitate to contact the undersigned or Carl Lundblad of this office at
(717) 233-5731.
Very truly yours,
RHOADS & SINON LLP
By: /s/ Charles J. Ferry
Charles J. Ferry
Enclosure
cc: Arlan J. Werst, w/encl.
Terry Lehman, CPA, w/encl.
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A
General Form for Registration of Securities of
Small Business Issuers
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
Community Independent Bank, Inc.
(Name of Small Business Issuer in its Charter)
Pennsylvania 23-2357593
------------------------------- ------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
201 North Main Street
Bernville, Pennsylvania 19506
(Address of principal executive offices) (zip code)
Issuer's telephone number: 610-488-1200
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None. None.
Securities to be registered under Section 12(g) of the Act:
Common Stock, $5.00 par value
(Title of class)
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INDEX
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Description Page
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PART I.
Item 1. Description of Business 1
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Item 3. Description of Property 20
Item 4. Security Ownership of Certain Beneficial Owners and Management 20
Item 5. Directors, Executive Officers, Promoters, and Control Persons 21
Item 6. Executive Compensation 23
Item 7. Certain Relationships and Related Transactions 29
Item 8. Description of Securities 29
PART II.
Item 1. Market Price of and Dividends on the Registrant's Common Equity
and Other Shareholder Matters 34
Item 2. Legal Proceedings 36
Item 3. Changes in and Disagreements with Accountants 36
Item 4. Recent Sales of Unregistered Securities 36
Item 5. Indemnification of Directors and Officers 36
PART F/S 38
PART III.
Item 1. Index to Exhibits 62
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PART I
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ITEM 1 DESCRIPTION OF BUSINESS
Community Independent Bank, Inc. (the "Company") is a Pennsylvania
business corporation which is registered as a bank holding company under the
Bank Holding Company Act of 1956, as amended (the "Holding Company Act"). The
Company was incorporated on December 31, 1984 for the purpose of acquiring
Bernville Bank, N.A. (the "Bank") and thereby enabling the Bank to operate
within a bank holding company structure. The Company became an active bank
holding company on December 31, 1984 when it acquired the Bank. The Bank is a
wholly-owned subsidiary of the Company.
The Company's principal activities consist of owning and supervising
the Bank, which engages in a full service commercial and consumer banking
business. The Company, through the Bank, derives substantially all of its
income from the furnishing of banking and banking related services.
The Company is a legal entity separate and distinct from the Bank.
The rights of the Company, and thus the rights of the Company's creditors and
shareholders, to participate in the distributions and earnings of the Bank, are
necessarily subject to the prior claims of creditors of the Bank, except to the
extent that claims of the Company itself as a creditor may be recognized. Such
claims on the Bank by creditors other than the Company include obligations in
respect of federal funds purchased and certain other borrowings, as well as
deposit liabilities.
The Company directs the policies and coordinates the financial
resources of the Bank. The Company provides and performs various technical and
advisory services for the Bank, coordinates the Bank's general policies and
activities, and participates in the Bank's major business decisions.
As of December 31, 1997, the Company, on a consolidated basis, had
total assets of approximately $83.4 million, total deposits of approximately
$70.7 million, and total stockholders' equity of approximately $6.9 million.
Bernville Bank, N.A.
The Bank was incorporated in 1907 under the laws of the United States
of America as a national bank under the name "The First National Bank of
Bernville." In 1971, the bank charter was changed to a state charter under the
name "Bernville Bank." In 1983, the charter was again changed to a national
banking association under the current name. The Bank is a member of the Federal
Reserve System.
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As of December 31, 1997, the Bank (exclusive of holding company assets
and liabilities) had total assets of approximately $83.4 million, total deposits
of approximately $70.7 million and total stockholders' equity of approximately
$6.6 million. Its deposits are insured by the Bank Insurance Fund ("BIF")
maintained by the Federal Deposit Insurance Corporation (the "FDIC") to the
maximum extent permitted by law.
The Bank engages in a full service commercial and consumer banking
business. The Bank, with its main office at 201 North Main Street, Bernville,
Pennsylvania, also provides services to its customers through three full service
branch banks which includes drive-in facilities, and one loan service center.
The Bank's main office, three full service branch offices and loan service
center are all located in Berks County, Pennsylvania.
The Bank's services include accepting time, demand and saving
deposits, including NOW accounts, regular savings accounts, money market
certificates, fixed rate certificates of deposit and club accounts. Its
services also include making secured and unsecured commercial and consumer
loans, making construction and mortgage loans and the renting of safe deposit
facilities. Additional services include making residential mortgage loans,
small business loans and student loans. The Bank's business loans include
seasonal credit, collateral loans and term loans. The Bank is not authorized to
exercise trust powers
In 1997 the Bank began to offer a check card to its customers, and
also instituted "Xpress Phone Banking" which offers customers 24-hour access to
their accounts.
No material amount of deposits is obtained from a single depositor or
group of depositors (including Federal, state and local governments). The Bank
has not experienced any significant seasonal fluctuations in the amount of its
deposits.
Both fixed and adjustable rate residential mortgage loans are offered.
Fixed rate loans for residential mortgages have terms up to 30 years. Fixed rate
residential mortgage loans ranging from 20 to 30 years are generally sold in the
secondary market. Adjustable rate loans are held in portfolio. The current
residential mortgage portfolio is comprised of substantially all fixed rate
loans.
Home Equity loans are originated as fixed rate loans with terms
generally between 3 to 5 years, and occasionally up to 10 years. Variable rate
home equity loans are also offered and represent approximately only 2% of the
portfolio.
Commercial loans are offered as either variable rate loans for the
life of the loan or have a fixed term for 3 to 5 years and then vary according
to an index. Fixed rate loans currently represent 90% of the commercial
portfolio and variable rate loans represent 10% of the portfolio.
Consumer loans are primarily fixed rates and represent 95% of the
consumer loan portfolio. Lines of credit are offered as adjustable rates and
represent 5% of the portfolio.
The Bank requires private mortgage insurance for all residential loans
in excess of 80% of the appraised value. For other types of loans, the Bank's
general policy is not to lend above 80% of the collateral value.
No significant portion of the Bank's loans are concentrated within any
one business industry.
The Bank has no deposits or loans directly with foreign entities, and
has a minimal amount of deposits made by persons working in foreign countries.
The Bank's assets are not invested in foreign securities, Eurodollars or foreign
loans.
Market Area and Competition
The Bank's primary service area is the northwestern portion of Berks
County, Pennsylvania. By all indications, Berks County has experienced and will
continue to experience good economic growth. There are over 7,600 employers in
Berks County with a workforce of approximately 167,000. Over 40% of Berks County
land is dedicated to farming, while approximately 28% of all Berks County jobs
are in manufacturing (compared with approximately 16% for the entire U.S.).
Prominent manufacturing employers in Berks County include East Penn
Manufacturing Co. Inc., Carpenter Technology Corporation, AT&T Microelectronics,
Dana Corporation, and Arrow International. Per Capita Income in 1994 was
$23,008 and $24,139 in 1995. Consistent with the trend of continuing economic
growth, unemployment in Berks County has remained low during the recent past --
3.3% in December 1996 and 3.2% in December 1997. Additionally, Berks County
continues to experience moderate population growth as the Philadelphia
metropolitan area grows north and west. For example, in 1990 the population was
336,523, and grew in 1992 to 343,135, and to 349,583 in 1995.
The Bank competes with local commercial banks as well as other
commercial banks with branches in the Bank's market
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area. All phases of the Bank's Business are highly competitive. The Bank
considers its major competition to be CoreStates Bank, headquartered in
Philadelphia, Pennsylvania and Bank of Pennsylvania, headquartered in
Harrisburg, Pennsylvania.
The Bank, along with other commercial banks, competes with respect to
its lending activities as well as in attracting demand deposits, with savings
banks, savings and loan associations, insurance companies, regulated small loan
companies and credit unions. Most of these competitors have substantially
greater financial resources than the Company including a larger capital base
which allows them to attract customers seeking larger loans than the Bank is
able to make.
The Bank is generally competitive with all competing financial
institutions in its service areas with respect to interest rates paid on time
and savings deposits, service charges on deposit accounts and interest rates
charged on loans.
Supervision and Regulation
The Company is subject to regulation by the Pennsylvania Department of
Banking and the Federal Reserve Board. The deposits of the Bank are insured by
the FDIC and the Bank is a member of the Bank Insurance Fund which is
administered by the FDIC. The Bank is subject to regulation by the Pennsylvania
Department of Banking and the FDIC, but, as a national bank, is regulated and
examined by the Office of the Comptroller of the Currency.
The Company is required to file with the Federal Reserve Board an
annual report and such additional information as the Federal Reserve Board may
require pursuant to the Bank Holding Company Act of 1956, as amended (the "BHC
Act"). The Federal Reserve Board may also make examinations of the Company.
The BHC Act requires each bank holding company to obtain the approval of the
Federal Reserve Board before it may acquire substantially all the assets of any
bank, or before it may acquire ownership or control of any voting shares of any
bank if, after such acquisition, it would own or control, directly or
indirectly, more than five percent of the voting shares of such bank.
Pursuant to provisions of the BHC Act and regulations promulgated by
the Federal Reserve Board thereunder, the Company may only engage in or own
companies that engage in activities deemed by the Federal Reserve Board to be so
closely related to the business of banking or managing or controlling banks as
to be a proper incident thereto, and the Company must gain permission from the
Federal Reserve Board prior to engaging in most new business activities.
A bank holding company and its subsidiaries are subject to certain
restrictions imposed by the BHC Act on any extensions of credit to the bank
or any of its subsidiaries, investments in the stock or securities thereof, and
on the taking of such stock or securities as collateral for loans to any
borrower. A bank holding company and its subsidiaries
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are also prevented from engaging in certain tie-in arrangements in connection
with any extension of credit, lease or sale of property or furnishing of
services.
Source of Strength Doctrine
Under Federal Reserve Board regulations, a bank holding company is
required to serve as a source of financial and managerial strength to its
subsidiary banks and may not conduct its operations in an unsafe or unsound
manner. In addition, it is the Federal Reserve Board's policy that in serving
as a source of strength to its subsidiary banks, a bank holding company should
stand ready to use available resources to provide adequate capital funds to its
subsidiary banks during periods of financial stress or adversity and should
maintain the financial flexibility and capital-raising capacity to obtain
additional resources for assisting its subsidiary banks. A bank holding
company's failure to meet its obligations to serve as a source of strength to
its subsidiary banks will generally be considered by the Federal Reserve Board
to be an unsafe and unsound banking practice or a violation of the Federal
Reserve Board regulations or both. This doctrine is commonly known as the
"source of strength" doctrine.
Dividends
Dividends are paid by the Company from its assets, which are mainly
provided by dividends from the Bank. However, certain regulatory restrictions
exist regarding the ability of the Bank to transfer funds to the Company in the
form of cash dividends, loans or advances. The approval of the Comptroller of
the Currency is required if the total of all dividends declared by a national
bank in any calendar year exceeds the Bank's net profits (as defined) for that
year combined with its retained net profits for the preceding two calendar
years. Under this restriction, the Bank, without prior regulatory approval, can
declare dividends to the Corporation totaling $920,000, plus an additional
amount equal to the Bank's net profit for 1998, up to the date of any such
dividend declaration.
Capital Adequacy
The Federal banking regulators have adopted risk-based capital
guidelines for bank holding companies, such as the Company. Currently, the
required minimum ratio of total capital to risk-weighted assets (including off-
balance sheet activities, such as standby letters of credit) is 8%. At least
half of the total capital is required to be Tier 1 capital, consisting
principally of common shareholders' equity, noncumulative perpetual preferred
stock, a limited amount of cumulative perpetual preferred stock and minority
interests in the equity accounts of consolidated subsidiaries, less goodwill.
The remainder (Tier 2 capital) may consist of a limited amount of subordinated
debt and intermediate-term preferred stock, certain hybrid capital instruments
and other debt securities, perpetual preferred stock and a limited amount of the
general loan loss allowance.
In addition to the risk-based capital guidelines, the Federal banking
regulators established minimum leverage ratio (Tier 1 capital to total assets)
guidelines for bank holding companies. These guidelines provide for a minimum
leverage ratio of 3% for those bank holding companies which have the highest
regulatory examination ratings and are not contemplating or experiencing
significant growth or expansion. All other bank holding companies are required
to
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maintain a leverage ratio of at least 1% to 2% above the 3% stated minimum. The
Company and the Bank exceed all applicable capital requirements.
FDICIA
In 1991, the Federal Deposit Insurance Corporation Improvement Act
("FDICIA") was signed into law. FDICIA established five different levels of
capitalization of financial institutions, with "prompt corrective actions" and
significant operational restrictions imposed on institutions that are capital
deficient under the categories. The five categories are: Well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized.
To be considered well capitalized, an institution must have a total
risk-based capital ratio of at least 10%, a Tier 1 risk-based capital ratio of
at least 6%, a leverage capital ratio of 5%, and must not be subject to any
order or directive requiring the institution to improve its capital level. An
institution falls within the adequately capitalized category if it has a total
risk-based capital ratio of at least 8%, a Tier 1 risk-based capital ratio of at
least 4%, and a leverage capital ratio of at least 4%. Institutions with lower
capital levels are deemed to be undercapitalized, significantly undercapitalized
or critically undercapitalized, depending on their actual capital levels. In
addition, the appropriate federal regulatory agency may downgrade an institution
to the next lower capital category upon a determination that the institution is
in an unsafe or unsound condition, or is engaged in an unsafe or unsound
practice. Institutions are required under FDICIA to closely monitor their
capital levels and to notify their appropriate regulatory agency of any basis
for a change in capital category. On December 31, 1997, the Company and the
Bank exceeded the minimum capital levels of the well capitalized category.
Regulatory oversight of an institution becomes more stringent with
each lower capital category, with certain "prompt corrective actions" imposed
depending on the level of capital deficiency.
Other Provisions of FDICIA
Each depository institution must submit audited financial statements
to its primary regulator and the FDIC, which reports are made publicly
available. In addition, the audit committee of each depository institution must
consist of outside directors and the audit committee at "large institutions" (as
defined by FDIC regulation) must include members with banking or financial
management expertise. The audit committee at "large institutions" must also
have access to independent outside counsel. In addition, an institution must
notify the FDIC and the institution's primary regulator of any change in the
institution's independent auditor, and annual management letters must be
provided to the FDIC and the depository institution's primary regulator. The
regulations define a "large institution" as one with over $500 million in
assets, which does not include the Bank. Also, under the rule, an institution's
independent auditor must examine the institution's internal controls over
financial reporting.
Under FDICIA, each federal banking agency must prescribe certain
safety and soundness standards for depository institutions and their holding
companies. Three types of standards must be prescribed: Asset quality and
earnings, operational and managerial, and compensation. Such standards would
include a ratio of classified assets to capital, minimum earnings, and, to the
extent feasible, a minimum ratio of market value to book value for publicly
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traded securities of such institutions and holding companies. Operational and
managerial standards must relate to: (i) internal controls, information systems
and internal audit systems, (ii) loan documentation, (iii) credit underwriting,
(iv) interest rate exposure, (v) asset growth, and (vi) compensation, fees and
benefits. In November, 1993, the federal banking agencies released proposed
rules setting forth some of the required safety and soundness standards. Under
such proposed rules, if the primary federal regulator determines that any
standard has not been met, the regulator can require the institution to submit a
compliance plan that describes the steps the institution will take to eradicate
the deficiency. Failure to adopt or implement a compliance plan could lead to
further sanctions by the responsible regulator. Pursuant to the Riegle
Community Development and Regulatory Improvement Act of 1994, federal banking
agencies have been given the discretion to adopt safety and soundness guidelines
rather than regulations.
Provisions of FDICIA relax certain requirements for mergers and
acquisitions among financial institutions, including authorization of mergers of
insured institutions that are not members of the same insurance fund, and
provide specific authorization for a federally chartered savings association or
national bank to be acquired by an insured depository institution.
Under FDICIA, all depository institutions must provide 90 days notice
to their primary federal regulator of branch closings, and penalties are imposed
for false reports by financial institutions. Depository institutions with
assets in excess of $250 million must be examined on-site annually by their
primary federal or state regulator or the FDIC.
FDICIA also sets forth Truth in Savings disclosure and advertising
requirements applicable to all depository institutions.
FDIC Insurance Assessments
The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") created two deposit insurance funds to be administered by the
FDIC: The Savings Association Insurance Fund (SAIF) and the Bank Insurance Fund
(BIF). The Bank's deposits are insured under BIF. The FDIC has implemented a
risk-related premium schedule for all insured depository institutions that
results in the assessment of premiums based on capital and supervisory measures.
Under the risk-related premium schedule, the FDIC assigns, on a
semiannual basis, each institution to one of three capital groups (well
capitalized, adequately capitalized or undercapitalized) and further assigns
such institution to one of three subgroups within a capital group. The
institution's subgroup assignment is based upon the FDIC's judgment of the
institution's strength in light of supervisory evaluations, including
examination reports, statistical analyses and other information relevant to
gauging the risk posed by the institution. Only institutions with a total
capital to risk-adjusted assets ratio of 10.00% or greater, a Tier 1 capital to
risk-adjusted assets ratio of 6.0% or greater and a Tier 1 leverage ratio of
5.0% or greater are assigned to the well-capitalized group. Prior to BIF being
fully funded during 1995, the Bank was subject to FDIC deposit insurance
assessments at the rate of 23 cents for every $100 of deposits.
In the second quarter of 1995, the BIF reached its statutory reserve
ratio requirement. Consequently, the FDIC significantly reduced the assessment
rates applicable to BIF members and refunded to BIF members that portion of the
assessment for the second and third
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quarters of 1995 which represented an overpayment once the BIF had achieved full
funding in accordance with the statutory reserve ratio requirement. The Bank
received a refund from the FDIC in September, 1995 in the amount of $30,176,
which amount also includes interest on the refund from June 30 to September 15,
1995. In the case of the Bank, for the second half of 1995, it was assessed at
the rate of $.0575 for every $100 of deposits. During 1996 and 1997, the Bank
was assessed a flat charge of $500 per quarter by the FDIC in lieu of any
deposit based assessment. At the same time, because the SAIF had not reached
full funding under its statutory reserve ratio requirement, the FDIC continued
the SAIF assessment rate for thrift institutions in even the lowest risk-based
category at $.23 for every $100 of deposits.
SAIF Recapitalization Plan
On September 30, 1996, Congress enacted a SAIF Recapitalization Plan
and a plan for banks insured by the fully capitalized BIF to share the burden of
repaying outstanding Finance Corporation (FICO) bonds issued to fund SAIF's
predecessor (the "FSLIC") in the late 1980s. The legislation enacted by
Congress containing the Recapitalization Plan is entitled the Deposit Insurance
Funds Act of 1996.
Under the Recapitalization Plan, SAIF insured institutions were
required to pay a one time special assessment in the fourth quarter of 1996
equivalent to 65.7 cents for every $100 of insured deposits as of March 31,
1995. The one time special assessment on SAIF insured deposits is intended to
result in a major decrease in annual insurance premiums paid by SAIF insured
institutions. At the end of 1996, SAIF insured institutions generally paid 23
cents for each $100 of deposit insurance coverage while BIF insured banks
insured by the fully capitalized BIF paid virtually zero assessments.
As part of the legislation, a new formula was adopted whereby BIF
insured institutions, such as the Bank, would be required to share in the burden
of repayment of the FICO bonds issued to finance the FSLIC in the 1980s.
Commencing in calendar year 1997, the only deposit insurance cost for most well-
capitalized, well-managed BIF insured and SAIF insured institutions will be FICO
bond payments. For years 1997 through 1999, SAIF insured institutions will pay
approximately 6.5 cents per $100 in deposits toward the FICO bond payments while
BIF insured institutions will pay approximately 1.3 cents per $100 in deposits.
During 1997, the Bank paid $7,879 to the FDIC based on average deposits of
approximately $64.6 million. From the year 2000 to 2017, both SAIF insured
institutions and BIF insured institutions will pay approximately 2.43 cents per
$100 in deposits toward retirement of the FICO obligations.
The legislation also contains certain restrictions on the ability of
SAIF insured institutions to transfer deposits to BIF insured affiliates and a
requirement that Congress must eliminate the thrift charter before merging SAIF
into BIF. Finally, the legislation also contained a prohibition against the
FDIC assessing any deposit insurance premiums against well-managed, well-
capitalized banks when BIF reserves are at or above the statutory reserve
requirement of 1.25% of total insured deposits.
Interstate Banking
Prior to the passage of the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Riegle-Neal Act") in September 1994,
interstate acquisitions were
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prohibited under the terms of the Douglas Amendment to the BHC Act unless the
acquisition was specifically authorized by a reciprocal interstate banking
statute, such as the statute adopted in Pennsylvania in 1990. Similarly,
interstate branching was prohibited for national banks and state-chartered
member banks by the McFadden Act, although some states, not including
Pennsylvania, had passed laws permitting limited interstate branching by non-
Federal Reserve member state banks. The Riegle-Neal Act permits an adequately
capitalized, adequately managed bank holding company to acquire a bank in
another state as of September 29, 1994, whether or not the state permits the
acquisition, subject to certain deposit concentration caps and the Federal
Reserve Board's approval. A state may not impose discriminatory requirements on
acquisitions by out-of-state holding companies. In addition, beginning on
June 1, 1997, under the Riegle-Neal Act, a bank can expand interstate by merging
with a bank in another state and also may consolidate the acquired bank into new
branch offices of the acquiring bank, unless the other state affirmatively opts
out of the legislation before that date. A state may also opt into the
legislation earlier than June 1, 1997 if it wishes to do so. The Riegle-Neal Act
also permits de novo interstate branching as of June 1, 1997 but only if a state
affirmatively opts in by appropriate legislation. Once a state opts in to
interstate branching, it may not opt out at a later date. The Riegle-Neal Act
also allows foreign banks to branch by merger or de novo branch to the same
extent as banks from the foreign bank's home state. The Riegle-Neal Act also
subjects foreign banks to some additional requirements, including extending
obligations under the Community Reinvestment Act to certain foreign bank
acquisitions and regulating the types of activities off-shore branches of
foreign banks may conduct. The Pennsylvania Legislature amended the Pennsylvania
Banking Code of 1965 in July, 1995, to opt in to all of the provisions of the
Riegle-Neal Act, including interstate bank mergers and de novo interstate
branching.
Legislative Developments
In 1996, automatic teller machine (ATM) networks began allowing bank
members to levy surcharge fees on ATM transactions by non-customers. Legislative
proposals were introduced in Congress and discussed by members of the
Pennsylvania legislature that would have required disclosure of the surcharge
fee at the terminal or would have prohibited assessment of the fees. These
legislative proposals were not adopted. Consumer interest groups, however,
continue to oppose surcharge fees and it is possible that Congress and the
Pennsylvania legislature again could consider such legislation in 1998. The Bank
did charge such service fees in 1997. Thus, enactment of such legislation could
adversely affect the Bank's ability to continue this policy.
Employees
As of December 31, 1997, the Bank had a total of 39 full-time and
14 part-time employees. The Bank provides a variety of employment benefits and
considers its relationship with its employees to be good.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The purpose of this discussion is to focus on information about the
Company's financial condition and results of operations which is not otherwise
apparent from the financial
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statements. Reference should be made to those statements and the selected
financial data presented elsewhere for an understanding of the following
discussion and analysis.
Results of Operations
---------------------
The Company recorded net income of $587,000 ($1.68 per share) for 1997
compared to $618,000 ($1.99 per share) in 1996. Return on average assets was
.80% for 1997 and .95% for 1996. The decrease in net income of $31,000 in 1997
was primarily caused by an increase in other expenses of $435,000 which was
offset by an increase in other income of $45,000 and an increase in net interest
income of $338,000 from 1996 to 1997. A more detailed explanation for each
contribution to the change in net income from 1996 to 1997 is included in the
remainder of this analysis.
Net Interest Income
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 and other funding sources. The
factors that influence net interest income include changes in interest rates and
changes in the volume and mix of assets and liability balances.
Net interest income increased $338,000, or 13% in 1997 compared to
1996. Table 1 analyzes the factors contributing to the increase in net interest
income in 1997. The average balances, interest income and expense, and the
average rates earned and paid for assets and liabilities are found in Table 2.
During 1997, the average yield on earning assets increased .06% while
the average cost of funds decreased .01%. An increase of $6,687,000 or 13.33%
in average loan volume during 1997 resulted in additional loan interest income
of $590,000. However the reduced rates resulted in a decrease in the yield
earned on average loans in 1997 to 8.81% compared to 8.83% in 1996.
The Bank's securities' portfolio in 1997 grew by $1,071,000 or 11.75%
compared to 1996. Interest income increased $72,000 or 15.06% in 1997 compared
to 1996 primarily due to the increased portfolio.
Average interest bearing demand deposits, savings deposits and
certificates of deposit increased by $4,257,000 or 8.00% in 1997 compared to
1996. The increase in interest expense on these deposits of $155,000 or 6.49%
was primarily a result of the increase in deposits during 1997.
Likewise, the Company increased its reliance on short-term borrowings
and long-term debt as a source of funds in 1997. Average short-term borrowings
increased $722,000 resulting in additional interest expense of $32,000 while the
rate paid on these borrowings increased interest expense by $12,000. Long term
debt averaged $1,164,000 in 1997 compared to $-0- in 1996 resulting in interest
expense of $70,000.
Table 1 - Volume/Rate Analysis
<TABLE>
<CAPTION>
1997 vs.1996
Increase (Decrease)
Due to Changes in
(in thousands) VOLUME RATE TOTAL
------------ --------- ---------
<S> <C> <C> <C>
Interest income:
Interest bearing deposits with other banks $ (45) $ 1 $ (44)
Securities:
Taxable 80 12 92
Tax-exempt (18) (2) (20)
Federal funds sold (3) 0 (3)
Loans 590 (8) 582
--------- -------- --------
Total 604 3 607
--------- -------- --------
Interest expense:
Interest bearing demand deposits 135 31 166
Savings deposits 3 0 3
Time deposits (10) (4) (14)
Short-term borrowings 32 12 44
Long-term debt 70 0 70
--------- -------- --------
Total 230 39 269
--------- -------- --------
Net interest income $ 374 $ (36) $ 338
==================================
</TABLE>
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Table 2 - Average Balances and Interest Rates
<TABLE>
<CAPTION>
1997 1996
--------------------------------------- --------------------------------------
Interest Interest
Average Income Average Average Income Average
(in thousands) Balance (Expense) Rate Balance (Expense) Rate
------- --------- ---- ------- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Assets
Earning assets:
Interest bearing deposits with other banks $619 $33 5.33% $1,467 $77 5.25%
Taxable securities 8,512 475 5.58 7,042 383 5.44
Tax-exempt securities 1,675 75 4.48 2,074 95 4.58
Federal funds sold 37 2 5.41 105 5 4.76
Loans, net of reserves 56,862 5,010 8.81 50,175 4,428 8.83
----------- ---------- ----------- ----------
Total interest earning assets 67,705 5,595 8.26 60,863 4,988 8.20
Other assets 5,803 4,837
----------- -----------
Total assets $73,508 $65,700
============ ============
Liabilities and Stockholders' Equity
Interest bearing deposits:
Demand deposits $14,604 490 3.36% $10,303 324 3.14%
Savings deposits 10,113 250 2.47 9,975 247 2.48
Time deposits 32,743 1,802 5.50 32,925 1,816 5.52
------ ----- ------ -----
Total interest bearing deposits 57,460 2,542 4.42 53,203 2,387 4.49
Short-term borrowings 882 51 5.78 160 7 4.38
Long-term debt 1,164 70 6.01 0 0 -
---------------------- ------------------------
Total interest bearing liabilities 59,506 2,663 4.48 53,363 2,394 4.49
---------------------- -------------------------
Non-interest bearing demand deposits 7,150 6,831
Other liabilities 452 394
Stockholders' equity 6,400 5,112
----------- -----------
Total liabilities and stockholders' equity $73,508 $65,700
============ ============
Interest rate spread 3.78% 3.71%
=========== ==========
Net interest income/margin $2,932 4.33% $2,594 4.26%
====================== =========================
</TABLE>
For purposes of computing average loan balances, nonaccruing loans are included
in the daily average loan balance. Yields on tax exempt securities are not
presented on a tax equivalent basis.
Other Income
Other income increased by $45,000 or 12% from 1996 to 1997. The
increase which occurred in 1997 is summarized as follows. Service charges on
deposit accounts increased $43,000 or 25% which directly correlated with the
implementation of convenience fees on ATMs and an increase in customer accounts.
The increase in other income of
10
<PAGE>
$55,000 or 46% is due to an increase in earnings on life insurance policies.
Gains on loan sales decreased $52,000 or 54% as a result of reduced loan sales
in 1997.
Other Expenses
Other expenses increased $435,000 or 21% in 1997 to $2,489,000
compared to $2,054,000 in 1996. Salaries and benefits totaled $1,262,000 in
1997, an increase of $291,000 or 30% from 1996. Occupancy expense totaled
$194,000 in 1997, an increase of $14,000 or 7.78% compared to $180,000 in 1996.
Equipment and furniture expenses increased $40,000 or 20.41% in 1997 to $236,000
compared to $196,000 in 1996. The increase in salaries and benefits was due to
new personnel hired to staff the loan center which opened in February 1997 and
the new branch which opened in November 1997. The new facilities also
attributed to the increase in occupancy and equipment expenses from 1996 to
1997. Marketing expenses totaled $134,000 in 1997, an increase of $44,000 or
48.89% from 1996 due to the promotion of the new office.
Other operating expenses increased to $662,000 in 1997 compared to
$616,000 in 1996. The increase of $46,000 or 7.47% was primarily the result of
an increase in real estate owned expenses of $16,000 in 1997, and an increase in
stationary supplies and communication lines of $22,000 for the new offices.
With the implementation of ATM service charges, the bank did not receive a
favorable interchange fee which resulted in ATM expenses increasing by $8,000 in
1997.
Financial Condition
-------------------
The Bank's financial condition can be evaluated in terms of trends in
its sources and uses of funds. Table 3 illustrates how the Bank has managed its
sources and uses of funds which are directly affected by outside economic
factors, such as interest rate fluctuations.
Table 3 - Sources and Uses of Funds
<TABLE>
<CAPTION>
1997 Increase (Decrease) 1996
Average ------------------------ Average
(in thousands) Balance Amount % Balance
----------------------------------------------
<S> <C> <C> <C> <C>
Funding uses:
Loans:
Commercial $ 13,659 $ 2,783 25.59% $ 10,876
Mortgage 39,236 3,502 9.80 35,734
Consumer 4,480 391 9.56 4,089
-------------------- --------
57,375 6,676 13.17 50,699
Less:Allowance for loan losses (513) 11 (2.10) (524)
-------------------- --------
56,862 6,687 13.33 50,175
Interest bearing deposits with banks 619 (848) (57.81) 1,467
Securities:
Taxable 8,512 1,470 20.87 7,042
Tax-exempt 1,675 (399) (19.24) 2,074
-------------------- --------
10,187 1,071 11.75 9,116
Federal funds sold 37 (68) (64.76) 105
-------------------- --------
Total interest earning assets 67,705 6,842 11.24 60,863
Other assets 5,803 966 19.97 4,837
-------------------- --------
Total uses $ 73,508 $ 7,808 11.88 $ 65,700
==================== ========
Funding sources:
Deposits:
Demand $ 7,150 $ 319 4.67 $ 6,831
Interest bearing demand 14,604 4,301 41.75 10,303
Savings 10,113 138 1.38 9,975
Time under $100,000 29,295 (593) (1.98) 29,888
-------------------- --------
Total core deposits 61,162 4,165 7.31 56,997
Time over $100,000 3,448 411 13.53 3,037
-------------------- --------
Total deposits 64,610 4,576 7.62 60,034
Funds borrowed
Short-term 882 722 451.25 160
Long-term 1,164 1,164 -- --
-------------------- --------
Total funds borrowed 2,046 1,886 1,178.75 160
-------- -------- -------- --------
Total deposits and funds borrowed 66,656 6,462 10.74 60,194
Other liabilities 452 58 14.72 394
Stockholders' equity 6,400 1,288 25.20 5,112
-------------------- --------
Total sources $ 73,508 $ 7,808 11.88 $ 65,700
==================== ========
</TABLE>
11
<PAGE>
Loans Receivable
Average loans receivable, net of loan reserves, increased $6,687,000
or 13.33% in 1997. The increase in loans was directly attributable to increased
marketing efforts, favorable economic conditions in the Company's market area,
and competitive pricing. Table 4 provides an analysis of the Bank's loan
distribution at the end of each of the last two years. Consumer loans include
revolving credit plans, personal lines of credit, installment loans and student
loans. Loans which are secured by real estate include residential and
nonresidential mortgages and home equity loans to individuals.
Table 4 - Loan Portfolio
December 31,
1997 1996
------------------------------
(In Thousands)
Commercial, financial and agricultural $ 9,594 $ 4,994
Consumer, net of unearned discount 4,592 4,007
Real estate 50,731 43,766
All other 567 470
------------------------------
$ 65,484 $ 53,237
==============================
Table 5 - Loan Maturities
The following table shows the maturity of loans (excluding residential mortgages
of 1-4 family residences and consumer loans) outstanding at December 31, 1997.
<TABLE>
<CAPTION>
Due in one Due in one Due in over
year or less to five years five years Total
--------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 2,310 $ 5,027 $ 2,257 $ 9,594
All other 55 114 398 567
--------------------------------------------------------
Total Loans $ 2,365 $ 5,141 $ 2,655 $ 10,161
========================================================
Interest rates on loans which are:
Fixed $ 987 $ 566
Floating 47 36
------------------------------
Total loans $ 1,034 $ 602
==============================
</TABLE>
Nonperforming Loans
Table 6 reflects the Bank's nonaccrual, past due and restructured
loans for each of the past two years. A loan is generally placed on nonaccrual
when the contractual payment of principal or interest has become 90 days past
due or management has serious doubts about further collectibility of principal
or interest, even though the loan is currently performing.
Table 6 - Nonperforming Loans
December 31,
1997 1996
-------------------------------------
(In Thousands)
Average loans outstanding $ 57,375 $ 50,699
=====================================
Nonaccrual loans:
Commercial - 801
Real estate 290 152
Consumer - -
-------------------------------------
Total 290 953
Accruing loans past due
90 days or more 6 225
Restructured loans - -
-------------------------------------
Total Nonperforming Loans $ 296 $ 1,178
=====================================
Ratio of non-performing loans
to average loans outstanding 0.52% 2.32%
The decline in non-perfoming loans from December 31, 1996 to December
31, 1997 was principally due to the payment in full of one commercial loan
relationship totalling approximately $801,000 which was refinanced with another
financial institution.
12
<PAGE>
All of the nonaccrual loans at December 31, 1997 are secured by real
estate or otherwise guaranteed as to repayment. Management has not identified
any other material potential problem loans that are not included in the above
table.
Table 7 - Nonaccrual and Restructured Loans - Related Information
1997 1996
---------------------------------------
(In Thousands)
Interest income that would have
been recorded under original
terms 16 34
Interest income recorded
during the period - -
Commitments to lend
additional funds - -
Allowance for Loan Losses
The amount charged to operations and the related balance in the
allowance for loan losses is based upon periodic evaluations of the loan
portfolio by management. 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. Table 8 is an analysis of the allowance for loan
losses for the past two years.
Table 8 - Summary of Loan Loss Experience
1997 1996
----------------------------
(In Thousands)
Average loans outstanding $ 57,375 $ 50,699
============================
Allowance for loan losses January 1 $ 484 $ 519
Losses charged to allowance
Commercial 12 68
Real estate - 25
Consumer 14 16
----------------------------
26 109
Recoveries credited to allowance
Commercial - -
Real estate - -
Consumer 4 2
----------------------------
4 2
----------------------------
Net charge-offs 22 107
Provision for loan losses 78 72
----------------------------
Allowance for loan losses at December 31 $ 540 $ 484
============================
Ratio of net charge-offs to
average loans outstanding 0.04% 0.21%
13
<PAGE>
The specific allocations of the allowance for loan losses are based on
management's evaluation of the risks inherent in the specific portfolios for the
dates indicated. Amounts in a particular category may be used to absorb losses
if another category allocation proves to be inadequate. Table 9 reflects the
allocations of the allowance for loan losses for each of the past two years.
Table 9 - Allocation of the Allowance for Loan Losses
1997 1996
% of % of
Amount Loan Amount Loan
----------------------------------------------------
(In Thousands)
Commercial 293 15.5% 179 10.4%
Real estate 95 77.5% 97 82.2%
Consumer 25 7.0% 11 7.5%
Unallocated 127 - 197 -
----------------------------------------------------
$ 540 100% $ 484 100%
====================================================
Highly leveraged transactions ("HLTs") generally include loans and
commitments made in connection with recapitalizations, acquisitions, and
leveraged buyouts, and result in the borrower's debt-to-total assets ratio
exceeding 75%. The Bank had no loans at December 31, 1997 that qualified as
HLTs.
Securities
The Company's securities' portfolio is classified as either "held to
maturity" or "available for sale". Securities classified as held to maturity
are carried at amortized cost and include those securities that the bank has
both the intent and ability to hold to maturity. Securities classified as
available for sale, which are those securities that the bank intends to hold for
an indefinite amount of time, but not necessarily to maturity, are carried at
fair value with the unrealized holding gains or losses, net of taxes, reported
as a component of the Company's stockholders' equity on the balance sheet.
During 1997 the Company used excess funds originated from operating
activities, maturities of U.S. Treasury and municipal securities to purchase
U.S. Treasury securities which increased $1,969,000 or 55.53%.
Table 10 sets for the carrying amount of securities at the dates indicated.
Table 10 - Securities Portfolio
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
---------------- ----------------
(In Thousands)
<S> <C> <C>
Held to maturity:
U.S. Treasury Securities $1,001 $ 2,513
---------------- ----------------
Total held to maturity securities $1,001 $ 2,513
================ ================
Available for sale securities (at fair value):
U.S. Treasury securities $ 4,543 $ 1,033
U.S. Government agencies 3,486 2,967
State and political subdivisions 1,011 2,014
Equity securities 484 476
---------------- ----------------
Total available for sale securities $ 9,524 $ 6,490
================ ================
</TABLE>
14
<PAGE>
Table 11 sets forth the maturities and the weighted average yields of securities
by contractual maturities at December 31, 1997. Yields on obligations of states
and political subdivisions are not presented on a tax-equivalent basis.
Table 11 - Analysis of Securities
<TABLE>
<CAPTION>
Maturing
After One After Five
But Within But Within After
Within One Year Five Years Ten Years Ten Years
Amount Yield Amount Yield Amount Yield Amount Yield
----------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held to maturity
U.S. Treasury $ 1,001 4.73% - - -
==============================================================================================
Available for sale:
U.S. Treasury securities - - $ 4,543 6.15% $ - - $ - -
U.S. Government agencies $ 994 4.95% 2,493 5.67% - - - -
State and political subdivisions 536 4.39% 302 4.19% 174 4.73% - -
---------- ----------- ------------ -----------
$ 1,530 4.75% $ 7,338 5.91% $ 174 4.73% $ - -
========== =========== ============ ===========
</TABLE>
Deposits
The Company's primary source of funds continues to be core deposit
accounts which include both interest and noninterest bearing demand, savings,
and time deposits under $100,000. Core deposits increased an average of
$4,165,000 or 7.31% in 1997. The largest category of core deposits and the
primary source of funds continues to be time deposits under $100,000. This
category includes certificates of deposit, which allow customers to invest their
funds at selected maturity ranges from fourteen days to ten years, individual
retirement accounts, and the Bank's passbook accounts. The average balance of
these funds decreased $593,000 or 1.98% in 1997.
Interest bearing demand accounts, consisting of N.O.W. and Money
Market accounts increased an average of $4,301,000 or 41.75% in 1997. The
increase was a result of competitive pricing of the money market product and the
opening of a new office.
Table - 12 Average Deposits and Average Rates by Major Classification
<TABLE>
<CAPTION>
1997 1996
(in thousands) Amount Rate Amount Rate
-------------------------------------------------
<S> <C> <C> <C> <C>
Non-interest bearing demand $ 7,150 $ 6,831
Interest bearing demand 14,604 3.36% 10,303 3.14%
Savings deposits 10,113 2.47 9,975 2.48
Time deposits 32,743 5.50 32,925 5.52
------------ ------------
Total $ 64,610 $ 60,034
============ ============
</TABLE>
15
<PAGE>
At December 31, 1997, time deposits outstanding in an individual
amount of $100,000 or more totaled $4,785,000. The maturity of these deposits
are reflected in Table 13.
Table 13 - Maturities of Time Deposits of $100,000 or More
(in thousands) 1997
----------
Three months or less $ 2,219
Over three months through six months 308
Over six months through twelve months 828
Over twelve months 1,430
----------
Total $ 4,785
==========
Short-term and Term Borrowings
Borrowed funds are utilized when timing differences occur between the
purchase of new assets and the maturity of existing assets. Management also
uses borrowed funds as an asset/liability tool to match the repricing
characteristics of certain earning assets, allowing for core funds to be used
for additional loan volume or security purchases.
Table 14 - Borrowed Funds
(in thousands) 1997 1996
------------- -------------
Short-term borrowings $ 471,808 $ 229,900
============= =============
Federal Home Loan Bank term borrowings $ 5,000,000 $ -
============= =============
The Bank maintains a U.S. Treasury tax and loan note option account
for the deposit of withholding taxes, corporate income taxes and certain other
payments to the federal government. Deposits are subject to withdrawal and are
evidenced by an open-ended interest-bearing note. Borrowings under this note
option account were $471,808 at December 31, 1997 and $229,900 at December 31,
1996.
The Bank has an arrangement with the Federal Home Loan Bank (FHLB)
which allows for borrowings up to a maximum percentage of qualifying assets. At
December 31, 1997 and 1996, the Bank had a maximum borrowing capacity of
$30,621,000 and $26,976,000, respectively. Borrowings from the FHLB include a
flexible line of credit, repurchase agreements and term borrowings.
Term borrowings are term funds from the Federal Home Loan Bank under a
note totaling $5,000,000. The term borrowings carry a fixed rate of interest of
6.02% and mature in 1999.
Capital Requirements/Ratios
The Bank places a significant emphasis on maintaining a strong capital
base. The capital resources of the Bank consist of two major components of
regulatory capital, stockholders' equity and the allowance for loan losses. The
Bank's capital maintained steady growth during 1997.
Current capital guidelines issued by federal regulatory authorities
require the bank to meet minimum risk-based capital ratios in an effort to make
regulatory capital more responsive to the risk exposure related to a bank's on
and off balance sheet items.
Risk-based capital guidelines re-define the components of capital,
categorize assets into risk classes, and include certain off-balance sheet items
in the calculation of capital
16
<PAGE>
requirements. The components of risk-based capital are segregated as Tier I and
Tier II capital. Tier I capital is composed of total stockholders' equity
reduced by goodwill and other intangible assets. Tier II capital is comprised
of the allowance for loan losses and any qualifying debt obligations.
Regulators also have adopted minimum requirements of 4% of Tier I capital and 8%
of risk-adjusted assets in total capital.
The Bank is also subject to leverage capital requirements. This
requirement compares capital (using the definition of Tier I capital) to balance
sheet assets and is intended to supplement the risk-based capital ratio in
measuring capital adequacy. The guidelines set a minimum leverage ratio of 3%
for institutions that are highly rated in terms of safety and soundness, and
which are not experiencing or anticipating any significant growth. Other
institutions are expected to maintain capital levels of at least 1% or 2% above
the minimum. As of December 31, 1997 the Bank had a leverage ratio of 8.28%.
The Bank's actual capital amounts are reflected in the following table.
Table 15 - Capital Ratios
<TABLE>
<CAPTION>
December 31,
-----------------------------
1997 1996
------------ ------------
(in thousands)
<S> <C> <C>
Tier I
Common stockholders' equity $ 6,625 $ 6,195
Tier II
Allowable portion of allowance for loan losses 540 484
------------ ------------
Risk-based capital $ 7,165 $ 6,679
============ ============
Risk adjusted assets (including off-balance-sheet exposures) $ 55,338 $ 43,361
============ ============
Tier I risk-based capital ratio 11.97% 14.29%
Total risk-based capital ratio 12.95% 15.40%
</TABLE>
Note: Any unrealized appreciation and depreciation on securities available for
sale was excluded from regulatory capital components of risk-based capital and
leverage ratios.
Table 16 - Capital Analysis
<TABLE>
<CAPTION>
Relationship Between Significant
Financial Ratios
-------------------------------------
1997 1996
------------- ------------
<S> <C> <C>
Return on average equity 9.17% 12.09%
Earnings retained 73.29% 79.37%
Internal capital growth 6.72% 9.60%
Change in average assets 11.88% 16.88%
Equity to average assets 8.71% 7.78%
Growth in average equity 25.20% 14.26%
Dividend payout ratio 26.71% 20.63%
</TABLE>
Note - Internal capital growth is equal to return on average equity multiplied
by earnings retained.
During 1997 the Company paid cash dividends to its shareholders
amounting to $156,000 compared to $127,000 in 1996. On a per share basis,
dividends for 1997 increased 9.76% to $.45 from $.41 in 1996.
In 1996, the Company commenced the sale of up to 108,000 shares of
common stock at a price of $18.50 per share. A total of 72,919 shares were sold
and resulted in net proceeds of $1,257,000.
Stockholders' equity is adjusted for the effect of unrealized
appreciation or depreciation, net of tax, on securities classified as available
for sale. At December 31, 1997 and 1996, stockholders' equity included $18,000
and ($17,000), respectively, in unrealized appreciation (depreciation).
The return on average equity for the year ended December 31, 1997 was
9.17%, a decrease from 12.09% for the year ended December 31, 1996.
17
<PAGE>
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
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,
significantly decreasing the volume of borrowed funds, and maintaining a short
maturity in the investment portfolio.
The following table provides information about the Bank's financial
instruments that are sensitive to changes in interest rates. For securities,
loans and deposits, the table presents principal cash flows and related weighted
average interest rates by maturity dates or repricing frequency. The Bank has
no market risk sensitive instruments entered into for trading purposes.
Table 17 - Interest Rate Sensitivity
<TABLE>
<CAPTION>
Over Three Over Six Over One
Three Months but Months but Year but Over
Months Within Six Within One Within Three Three
(in thousands) or Less Months Year Years Years
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest earning assets:
Interest bearing deposits with other banks $ 1,773 $ - $ - $ - $ -
Securities (amortized cost):
U.S. Treasuries 1,000 - - 4,510 -
U.S. Government Agencies - - 999 2,499 -
Municipals 345 90 100 100 370
Federal funds sold 158 - - - -
Loans 9,198 1,919 4,548 12,492 37,327
----------------------------------------------------------------
Total interest earning assets 12,474 2,009 5,647 19,601 37,697
----------------------------------------------------------------
Interest bearing liabilities:
Interest bearing demand deposits 3,811 - - 12,258 -
Savings deposits 94 - 107 - 9,448
Time deposits 7,965 3,737 8,389 13,749 3,728
Short-term borrowings 472 - - - -
Long-term borrowings - - - 5,000 -
----------------------------------------------------------------
Total interest bearing liabilities 12,342 3,737 8,496 31,007 13,176
----------------------------------------------------------------
Interest sensitivity gap $ 132 $ (1,728) $ (2,849) $ (11,406) $ 24,521
================================================================
Cumulative sensitivity gap $ 132 $ (1,596) $ (4,445) $ (15,851) $ 8,670
================================================================
</TABLE>
18
<PAGE>
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. As disclosed in Note 3 of the Financial Statements, the carrying
value of securities maturing in less than one year equals $2,533,000.
Other sources of funds are principal paydowns and maturities in the
loan portfolio. The loan maturity schedule (Table 5) illustrates the maturities
of commercial loans.
The Bank also has sources of liability liquidity which include core
deposits and borrowing capacity at the Federal Home Loan Bank as previously
discussed.
Management believes that the Bank's liquidity is sufficient to meet
its anticipated needs.
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. The Bank's assessment of all computer
hardware and primary software applications found these items to be year 2000
compliant. Ancillary software and other applications are currently under review.
Management does not anticipate incurring any material expenses related to the
year 2000 issue.
Effects of Inflation
The majority of assets and liabilities of a financial institution are
monetary in nature, and therefore, differ greatly from most commercial and
industrial companies that have significant investments in fixed assets or
inventories. The precise impact of inflation upon the Bank is difficult to
measure. Inflation may affect the borrowing needs of consumers, thereby
impacting the growth rate of the Bank's assets. Inflation may also affect the
general level of interest rates, which can have a direct bearing on the Bank.
19
<PAGE>
Management believes the most significant impact on financial results
is the Bank's ability to react to changes in interest rates. As discussed
previously, management is attempting to maintain an essentially balanced
position between interest sensitive assets and liabilities in order to protect
against wide interest rate fluctuations.
ITEM 3 DESCRIPTION OF PROPERTY
The Bank owns the main office of the Company and the Bank located at
201 North Main Street, Bernville, Pennsylvania and its branch offices located on
Route 422, R.D. 1, Robesonia, Pennsylvania, and on Roadside Drive,
Shartlesville, Pennsylvania. The property on which the main office is situated
is comprised of approximately 6,300 square feet of space in the aggregate, of
which approximately 2,100 square feet is used for banking facilities and the
remainder is used for corporate and other offices. The branch office located in
Robesonia is comprised of approximately 2,000 square feet. The branch office
located in Shartlesville is also comprised of approximately 2,000 square feet
with an additional basement comprised of approximately 1,000 square feet.
The Bank also leases the premises for one branch location and a loan
center under operating lease agreements expiring in various years through
October 2017. Certain lease agreements contain escalation provisions. The Bank
also has options to extend the lease agreements for additional lease terms from
five to thirty years. The Bank is responsible to pay all real estate taxes,
insurance, utilities and maintenance and repairs on the buildings. The loan
center is located on Berkshire Boulevard in Wyomissing, Pennsylvania, and
comprises approximately 1,157 square feet. The branch office is located on
Commerce Drive in Wyomissing, Pennsylvania and is comprised of approximately
3,300 square feet.
ITEM 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of December 31, 1997,
regarding ownership of Common Stock of the Company by (i) the only persons known
by the Company to own beneficially more than 5% thereof; (ii) the directors and
the chief executive officer of the Company individually; and (iii) all officers
and directors of the Company as a group. Unless otherwise specified, all
persons listed below have sole voting and investment power with respect to their
shares.
Amount of
Common Stock
Name and Address of Beneficially Percent of
Beneficial Owner Owned (a) Class (a)
- ------------------- ------------ ----------
John F. Hampson 682 *
P.O. Box 154
Wernersville, PA 19565
Frederick P. Krott 1,840(b) *
20
<PAGE>
Box 160A
RD 1
Richland, PA 17087
Paul T. Manrodt 2,502 *
104 Witman Road
Womelsdorf, PA 19567
Walter J. Potteiger 16,155(c) 4.60%
165 Derr Road
Bernville, PA 19506
Deborah K. Ritter 932(d) *
51 Focht Road
Robesonia, PA 19551
John J. Seitzinger 2,632 *
South 3rd Street
Shartlesville, PA 19554
Arlan J. Werst 6,282(e) 1.79%
P.O. Box 356
88 Swissdale Road
Bernville, PA 19506
Stratton D. Yatron 1,300 *
407 North Tulpehocken Road
Reading, PA 19601
All directors and executive
officers as a group (eight persons) 32,325 9.21%
- -------------------------
* less than 1%
(a) The securities "beneficially owned" by an individual are determined as of
December 31, 1997 in accordance with the definition of "beneficial
ownership" set forth in the regulations of the Securities and Exchange
Commission. Accordingly, they may include securities owned by or for,
among others, the wife and/or minor children of the individual and any
other relative who has the same home as such individual, as well as other
securities as to which the individual has or shares voting or investment
power or has the right to acquire under outstanding stock options within 60
days after the date of this Registration Statement. Beneficial ownership
may be disclaimed as to certain of the securities.
(b) Includes 949 shares jointly owned with his wife, 150 shares owned by his
wife, 233 shares owned by his daughter and 176 shares owned by his son.
(c) Includes 15,062 shares which are jointly owned and 771 shares which are
owned by his wife.
(d) Includes 60 shares held as custodian for her daughter.
(e) Includes 2,494 shares which are jointly owned with his wife and 1,894
shares which are owned by his wife.
ITEM 5 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
21
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Name Age Position
- ------------------- ----- ----------------------------
Arlan J. Werst 55 President and Chief Executive Officer of the
Company and the Bank; Director of the
Company and the Bank
Shirley M. Luckenbill 61 Treasurer and Assistant Secretary of the
Company and Assistant Cashier and Assistant
Secretary of the Bank
Linda L. Strohmenger 53 Secretary of the Company and Vice President,
Finance of the Bank
Paula Barron 36 Vice President, Sales and Marketing of the
Bank
Monica Lubinsky 35 Vice President and Loan Officer of the Bank
Debra Paxson 39 Vice President, Human Resources of the Bank
John F. Hampson 43 Director of the Company and the Bank
Frederick P. Krott 51 Director of the Company and the Bank
Paul T. Manrodt 73 Director of the Company and the Bank
Walter J. Potteiger 58 Director of the Company and the Bank
Deborah K. Ritter 45 Director of the Company and the Bank
John J. Seitizinger 68 Director of the Company and the Bank
Stratton D. Yatron 31 Director of the Company and the Bank
Arlan J. Werst has been President and Chief Executive Officer of the
Company and the Bank since 1984. He was first elected as a Director of the
Company and the Bank in 1984, and his term expires in 2001.
Shirley M. Luckenbill has been Treasurer and Assistant Secretary of the
Company since 1984 and Assistant Secretary of the Bank since 1972.
Linda L. Strohmenger has been Vice President, Finance, of the Bank since
1997. Ms. Strohmenger has been Secretary of the Company since 1984 and
Secretary of the Bank since 1976.
Paula Barron has been Vice President of the Bank since 1997. Previous to
that time, Ms. Barron was Marketing and Community Banking Manager of the Bank
since July 1995. From December 1985 to April 1995, Ms. Barron was employed by
National Penn Bank, Boyertown, Pennsylvania, most recently as Assistant Vice
President.
Monica Lubinsky has been Vice President and Loan Officer of the Bank since
September 1996. Previously, Ms. Lubinsky was employed by National Penn Bank,
Boyertown, Pennsylvania, from August 1987, most recently as Assistant Vice
President.
Debra Paxson has been Vice President of the Bank since 1997. Previously,
for the time period covering the past five years, Ms. Paxson was the Manager of
Human Resources of the Bank.
22
<PAGE>
John F. Hampson has been a Director of the Company and the Bank since 1995.
His current term expires in 1999. Mr. Hampson is currently and has been for the
past five years a principal of Wyomissing Animal Hospital.
Frederick P. Krott has been a Director of the Company and the Bank since
1990. His current term expires in 2000. Mr. Krott is currently and has been
for the past five years the Funeral Director at Lamm & Witman Funeral Home.
Paul T. Manrodt has been a Director of the Company since 1984 and of the
Bank since 1982. His term expires in 2000. Mr. Manrodt is presently, and has
been for the past five years Pastor Emeritus, Evangelical Lutheran Frieden's
Church.
Walter J. Potteiger has been a Director of the Company and the Bank since
1993. His term expires in 2001. Mr. Potteiger is currently, and has been for
the past five years President and Owner of Hilltop Express Co., Inc.
Deborah K. Ritter has been a Director of the Company and the Bank since
1994. Her term expires in 1999. Ms. Ritter is currently, and has been for the
past five years Director of Sales and Marketing at Kohl Building Products.
John J. Seitzinger has been a Director of the Company and the Bank since
1986. His term expires in 1999. Mr. Seitzinger is currently, and has been for
the past five years, Proprietor of Haag's Hotel.
Stratton D. Yatron has been a Director of the Company and the Bank since
1997. His term expires in 2001. Mr. Yatron is currently, and has been for the
past five years, Secretary/Treasurer of Adelphi Kitchens, Inc.
ITEM 6 EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid by the Company
and the Bank for services rendered in all capacities to the Chief Executive
Officer of the Company and the Bank. There are no other executive officers of
the Company or the Bank whose salary and bonus exceeded $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
-------------------------
Annual Compensation Awards Payouts
-------------------------------- ------------------------- -------
Securities
Restricted Underlying
Name and Other Annual Stock Options/ LTIP All Other
Principal Position Year Salary Bonus Compensation Award(s) SARs(#) Payouts Compensation
- ------------------ ----- -------- ----- ------------ -------- ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arlan J. Werst, 1997 $ 143,801 -- -- -- 500 -- $ 5,214(2)
Pres. & CEO
1996 $ 139,193(1) -- -- -- -- -- $ 4,966(3)
1995 $ 131,100(1) -- -- -- -- -- $ 4,565(3)
- -----------------------
</TABLE>
(1) Includes director fees.
(2) Represents (1) the Company's contribution to 401(k) plan, (2) the current
dollar value of the remainder of the premium paid under a split-dollar
insurance arrangement, and (3) the amount paid as premium purusant to a
Term Life Insurance Plan.
(3) Represents (1) the Company's contribution to 401(k) plan, and (2) the
amount paid as premium pursuant to a Term Life Insurance Plan.
23
<PAGE>
Option Grants in Last Fiscal Year
Individual Grants
Number of % of Total
Securities Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/sh) Date
- -------------- ----------- ----------- --------- ----------
Arlan J. Werst 500 18.5% $24.125 10 yrs. or 12/24/2007
Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise(#) Realized ($) Unexercisable Unexercisable
- --------------- ----------- ----------- ------------- --------------
Arlan J. Werst -0- -0- -0-/ -0-/
500 -0-
- ----------------------
Directors' Fees
The Bank pays directors $175 for each meeting attended, plus $175 for each
committee meeting attended if held on dates other than those on which the full
board met, plus an annual fee of $1250. Beginning in 1997, director fees are
not paid to employee directors.
Employee Stock Option Plan
In February 1996, the Board of Directors of the Company adopted an
Employee Stock Option Plan, which was approved by the shareholders of the
Company in March 1996 (the "Employee Stock Option Plan" or "Plan"). Pursuant to
the Employee Stock Option Plan, stock options may be granted which qualify under
the Internal Revenue Code as incentive stock options as well as stock options
that do not qualify as incentive options or are designated as not intended to so
qualify. All officers and key employees of the Company or any current or future
subsidiary corporation are eligible to receive options under the Employee Stock
Option Plan. As of December 31, 1997, 4,400 options have been granted under the
Plan.
24
<PAGE>
The purpose of the Employee Stock Option Plan is to provide additional
incentive to employees of the Company by encouraging them to invest in the
Company's Common Stock and thereby acquire a proprietary interest in the Company
and an increased personal interest in the Company's continued success and
progress. The Employee Stock Option Plan is administered by an Option Committee
("Committee") which is appointed by the Board of Directors and consists only of
Directors who are not eligible to receive options under the Employee Stock
Option Plan. The options under the Employee Stock Option Plan, the type of
option (incentive stock options or non-qualified options, or both) to be
granted, the number of shares subject to each option, the rate of option
exercisability, and, subject to certain other provisions to be discussed below,
the option price and duration of the option.
The Committee may, in its discretion, modify or amend any of the
option terms hereafter described, provided that if an incentive option is
granted under the Plan, the option as modified or amended continues to be an
incentive stock option.
The aggregate number of shares which may be issued upon the exercise
of options under the Employee Stock Option Plan is 25,000 shares of Common
Stock. In the event of any change in the capitalization of the Company, such as
by stock dividend, stock split or what the Board of Directors in its sole
discretion to be similar circumstances, the aggregate number and kind of shares
which may be issued under the Plan will be appropriately adjusted in a manner
determined in the sole discretion of the Board of Directors. Reacquired shares
of the Company's Common Stock, as well as unissued shares, may be used for
purposes of the Plan. Common Stock of the Company subject to options which have
terminated unexercised, either in whole or in part, will be available for future
options granted under the plan.
The option price for options issued under the Employee Stock Option
Plan may be made in (a) cash, (b) (unless prohibited by the Board of Directors)
Company Common Stock which will be valued by the Secretary of the Company at its
fair market value or (c) unless prohibited by the Board of Directors) any
combination of cash and Common Stock of the Company valued as provided in clause
(b).
Under the terms of the Plan, the Board has interpreted the provision
of the Plan which allows payment of the option price in Common Stock of the
Company to permit the "pyramiding" of shares in successive exercises. Thus, an
optionee could initially exercise an option in part, acquiring a small number of
shares of Common Stock, and immediately thereafter effect further exercises of
the option, using the Common Stock acquired upon earlier exercises to pay for an
increasingly greater number of shares received on each successive exercise.
This procedure could permit an optionee to pay the option price by using a
single share of Common Stock or a small number of shares of Common Stock and to
acquire a number of shares of Common Stock having an aggregate fair market value
equal to the excess of (a) the fair market value (as determined above) of all
shares to which the option relates over (b) the aggregate exercise price under
the option.
Except as otherwise described below, none of the options granted under
the Employee Stock Option Plan may be exercised during the first year after the
date granted. Thereafter, each optionee may exercise up to 33-1/3% of his
option the second year, up to 66-2/3% of his option the third year, and up to
100% of his option thereafter. In the Even to a "change in control" of the
Company, as defined in the Employee Stock Option Plan, each optionee may
exercise the total number of shares then subject to the option. Consequently,
25
<PAGE>
the Plan might be viewed as "anti-takeover" or "anti-greenmail" in nature. See
"Description of Capital Stock - Anti Takeover and Anti Greenmail Provisions and
Management Implications" The Committee has the authority to provide for a
different rate of option exercisability for any optionee.
Unless terminated earlier by the option's terms, incentive stock
options expire ten years after the date they are granted and non-qualified stock
options expire ten years and thirty days after the date they are granted.
Options terminate three months (but not later than the scheduled termination
date)after the date on which employment is terminated (whether such termination
be voluntary or involuntary), other than by reason of death or disability. The
option terminates one year from the date of termination due to death or
disability (but not later than the scheduled termination date). Options granted
pursuant to the Plan are not transferable, except by will or the laws of descent
and distribution in the event of death. During an optionee's lifetime, the
option is exercisable only by the optionee, including, for this purpose, the
optionee's legal guardian or custodian in the event of disability.
The Company's Board of Directors has the right at any time, and from
time to time, to modify, amend, suspend or terminate the Plan, without
shareholder approval, except to the extent that shareholder approval of the Plan
modification amendment is required by the Internal Revenue Code of 1986, as
amended, to permit the granting of incentive stock options under the Plan. Any
such action will not affect options previously granted. If the Board of
Directors voluntarily submits a proposed modification, amendment, suspension or
termination for shareholder approval, such submission will not require any
future modifications, amendments suspensions or terminations (whether or not
relating to the same provision or subject matter) to be similarly submitted for
shareholder approval.
Stock Option Plan for Non-Employee Directors
In February 1996, the Board of Directors adopted a Stock Option Plan
for Non-Employee Directors (the "Director Plan"). The Director Plan was
approved by the shareholders of the Company in March 1996.
The purpose of the Director Plan is to provide additional incentive to
members of the Boards of Directors of the Company and each present and future
subsidiary corporations who are not also employees of encouraging them to invest
in the Company's Common Stock and thereby acquire a further proprietary interest
in the Company and an increased personal interest in the Company's continued
success and progress.
As of April 1, 1996, each of the then six non-employee directors of
the Company was automatically granted an option to purchase 500 shares of the
Company's Common Stock at an exercise price of $19.00 per share.
Each person who (a) was not a director of the Company or any
subsidiary corporation as of April 1, 1996, and (b) is not an employee of the
Company or any subsidiary corporation and who on or after April 1, 1996 is first
elected as a director of the Company or any subsidiary corporation at any annual
or special meeting of stockholder(s) of the Company or any subsidiary
corporation, shall, as of the date of such election, automatically be granted an
option to purchase 500 shares of the Company's Common Stock.
26
<PAGE>
On the fifth anniversary of the initial option grant described above
and provided a person described in the first or second paragraph above continues
to be a non-employee director on such anniversary, such person shall, on such
fifth anniversary, automatically be granted on each anniversary an option to
purchase 500 shares of the Company's Common Stock or such lower number of shares
as shall be equal to the number of shares as shall then available (if any for
grant under the Director Plan divided by the number of persons who are to
receive an option on such anniversary).
The Director Plan is administered by the Board of Directors of the
Company, including non-employee directors. Under the Director Plan, the Board
has the right to adopt such rules for the conduct of its business and the
administration of the Director Plan as it considers desirable. A majority of
the members of the Board will constitute a quorum for all purposes and the vote
or act of the Board on such matter. The Board of Directors has the exclusive
right to construe the inconsistencies to the extent necessary to effectuate the
purpose of the Director Plan and the options issued pursuant to it. No member
of the Board of Directors of the Company will be liable for any authority or
discretion granted in connection with the Director Plan to the Board of
Directors, or for the acts or omissions of any other members of the Board of
Directors.
The aggregate number of shares which may be issued upon the exercise
of options under the Director Plan is 10,000 shares of the Company Common Stock.
In the event of any change in the capitalization of the Company, such as by
stock dividend, stock split or what the Board of Directors deems in its sole
discretion to be similar circumstances, the aggregate number and kind of shares
which may be issued under the Director Plan will be appropriately adjusted in a
manner determined in the sole discretion of the Board of Directors. Reacquired
shares of the Company's Common Stock, as well as unissued shares, may be used
for the purpose of the Director Plan. Common Stock of the Company subject to
options which have terminated unexercised, either in whole or in part, will be
available for future options granted under the Director Plan.
The option price for options issued under the Director Plan will be
equal to the fair market value of the Company Common Stock on the date of the
election or reelection of non-employee directors. Fair market value of the
Company Common Stock will be determined by the Board.
Payment of the option price on exercise of options granted under the
Director Plan may be made in (a) cash, (b) (unless prohibited by the Board of
Directors) Company Common Stock which will be valued by the Secretary of the
Company at its fair market value or (c) (unless prohibited by the Board of
Directors) any combination of cash and Common Stock of the Company valued as
provided in clause (b).
Under the terms of the Director Plan, the Board has interpreted the
provision of the Director Plan which allows payment of the option price in
Common Stock of the Company to permit the "pyramiding" of shares in successive
exercises. Thus, an optionee could initially exercise an option in part,
acquiring a small number of share of Common Stock, and immediately thereafter
effect further re-exercises of the option, using the Common Stock acquired upon
earlier exercises to pay for an increasingly greater number of shares received
on each successive exercise. This procedure could permit an optionee to pay the
option price by using a single share of Common Stock or a small number of shares
of Common Stock and to acquire a number of shares of Common Stock having an
aggregate fair
27
<PAGE>
market value equal to the excess of (a) the fair market value (as determined
above) of all shares to which the option relates over (b) the aggregate exercise
price under the option.
Options granted pursuant to the Director Plan may be exercised in
whole, or from time to time in part, beginning on the earlier to occur of (i)
one year after the date of their grant or (ii) a "change in control" of the
Company, as such term is defined in the Director Plan. Consequently, the
Director Plan might be viewed as "anti-takeover" and "anti-greenmail" in nature.
See "DESCRIPTION OF CAPITAL STOCK - `Anti-Takeover' and `Anti-Greenmail'
Provisions and Management Implications."
Unless terminated earlier by the option's terms, options granted under
the Director Plan will expire ten years after the date they are granted.
Options terminate three months after the optionee ceases to be a director of the
Company or a subsidiary corporation (whether by death, disability, resignation,
removal, failure to reelected or otherwise, and regardless of whether the
failure to continue as a direct was for cause or otherwise), but not later than
ten years after the date of option grant. Options granted pursuant to the
Director Plan are not transferable, except by the laws of descent and
distribution in the event of death. During an optionee's lifetime, the option
is exercisable only by the optionee, including, for this purpose, the optionee's
legal guardian or custodian in the event of disability.
Under the Director Plan, the Board of Directors of the Company has the
right, without shareholder approval, at any time, and from time to time, to
modify or amend the Director Plan in any way, or to suspend or terminate it,
effective as of such date, which date may be either before or after the taking
of such action, as may be specified by the Board; however, such action will not
affect options granted under the Director Plan prior to the actual date on which
such action occurred. However, certain important provisions of the Director
Plan (e.g., the option amount, option price and eligibility) may not be amended
more than once every six months.
Options may not be granted pursuant to the Director Plan after March
28, 2004.
Employees' Profit Sharing Plan
The Bank maintains a 401(k) Profit Sharing Plan and Trust for its
employees. Employees are permitted to contribute up to 17% of their
compensation, but not over the statutory limit. The profit sharing plan covers
employees who meet the eligibility requirements of having worked 1,000 hours in
a plan year and have attained the age of 21. The amount of matching 401(k)
contributions and profit sharing plan contributions is at the discretion of the
Bank's Board of Directors. The expense related to this plan was $18,070 in
1997.
Deferred Compensation Plans
On June 26, 1997, the Bank adopted various deferred compensation plans
for certain directors of the Bank. Under the plans' provisions, benefits will
be payable upon retirement, death or permanent disability of the participant.
Executive Salary Continuation Plan
28
<PAGE>
On June 26, 1997, the Bank adopted a Salary Continuation Plan for
certain Executive Officers as a supplemental retirement benefit. Mr. Werst's
annual benefit under this plan is $47,000 for a duration of 15 years, totalling
$705,000 in total benefits paid. To fund the benefits under this plan and the
Deferred Compensation Plans, the Bank is the owner and the beneficiary of life
insurance policies on the lives of the directors and officers. The policies had
an aggregate cash surrender value of $1,489,186 as of December 31, 1997.
ITEM 7 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank has had, and expects to have in the future, loan and other
banking transactions in the ordinary course of business with many of its
directors, officers and their associates. All extensions of credit to such
persons have been made in the ordinary course of business on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, and in the opinion of the
management of the Bank, do not involve more than a normal risk of collectibility
or present other unfavorable features. All loans to directors or executive
officers of the Company or the Bank require the approval of the Board of
Directors except for the members requesting such loan who is prohibited from
attending the discussion or participating in the vote on such loan. During
1997, $1,346,347 of new loans were made to such persons and repayments totaled
$468,552. As of December 31, 1997, directors and officers were indebted to the
Bank for loans totaling $1,420,123.
ITEM 8 DESCRIPTION OF SECURITIES
The statements made under this section include summaries of certain
provisions contain in the Company's Articles of Incorporation (the "Articles")
and in its Bylaws. These statements do not purport to be complete and are
qualified in their entirety by reference to such Articles of Bylaws, copies of
which are filed as exhibits hereto.
The Company is authorized to issue 5,000,000 shares of common stock,
par value $5.00 per share ("Common Stock"), and 1,000,000 shares of preferred
stock, par value $5.00 per share.
Under the Company's Articles, the Company's Board of Directors is
authorized, without further shareholder action, to provide for the issuance of
the Preferred Stock in one or more series, in such numbers of shares, and with
such voting rights, designations, preferences, limitations, qualifications,
restrictions, special rights and relative rights (if any) as shall be set forth
in resolutions providing for the issuance thereof and adopted by the Board of
Directors.
It is not possible to state the actual effect of the authorization of
the Preferred Stock upon the rights of holders of the Common Stock until the
Board of Directors determines the specific rights of the holders of series of
Preferred Stock. However, the issuance of shares of Preferred Stock could
adversely affect the rights of the holder of Common Stock.
Additionally, the issuance by the Board of Directors of any shares of
Preferred Stock may be used to deter, discourage or make more difficult the
assumption of control of
29
<PAGE>
the Company by another corporation or person through a tender offer, merger,
proxy contest or similar transaction or series of transactions. See "Anti-
Takeover and Anti-Greenmail Provisions and Management Implications" below.
To date, the Company has issued no shares of Preferred Stock and has
no present plans to issue any shares of Preferred Stock.
Dividends
The holders of the Company's Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor, subject to the payment of any preferential dividend
to the holders of the Company's Preferred Stock, if any. Funds for the payment
of dividends of the Company are primarily obtained from dividends paid by the
Bank.
Voting Rights
Holders of the Company's Common Stock are entitled to one vote for
each share held, except for certain limitations on such voting rights provided
by the Company's Articles. See "`Anti-Takeover,' and `Anti-Greenmail'
Provisions and Management Implications" below.
The Company's Articles provide that one director, any class of the
Board, or the entire Board may be removed from office only for "cause," and not
without cause, and only with the vote of the holders of at least 75% or such
higher percentage as may be required by law, of the outstanding shares of
capital stock of the Company then eligible to vote. "Cause" is defined to mean
only (1) conviction of the director of a felony, (2) declaration by order of
court that the director is of unsound mind, or (3) gross abuse of trust. Under
this provision, no director amy be removed by shareholders without cause, even
if a majority, supermajority or all of the outstanding stock of the Company then
entitled to vote were voted in favor of such removal, and a director could be
removed for cause only if 75% of the stock were voted in favor of such removal
and one of the conditions of "cause" had been met. One effect of this provision
may be to make the removal of directors more difficult to accomplish since the
holders of more than 25% of the stock of the Company then eligible to vote
(which could include members of the Board and/or officers) would have a veto
power over any removal of directors.
The Company's Articles provide that the affirmative vote of at least
75% of the outstanding shares of capital stock of the Company then eligible to
vote is required for the adoption of any shareholder proposal to amend the
Company's Articles or Bylaws which has not been previously approved by the
Company's Board of Directors. One effect of this provision may be to make such
proposals to amend the Company's Article or Bylaws more difficult to accomplish
since the holders of more than 25% of the stock of the Company then eligible to
vote (which could include members of the Board and/or officers) would have a
veto power over any changes to the Company's Articles and Bylaws.
Classification of Board of Directors and Filling Vacancies
30
<PAGE>
The Bylaws of the Company provide for a classified Board of Directors
consisting of three classes of directors as nearly equal in number as possible.
Approximately one-third of the directors are elected annually for three-year
terms. Staggering the election of directors in this manner makes it more
difficult for an individual or group of individuals to change a majority of the
directors and possibly discourages takeover attempts.
Under the Bylaws vacancies in the Board of Directors, including
vacancies resulting from an increase in the number of directors, may be filled
by the remaining members of the Board, even less than a quorum. Any director
elected to fill a vacancy in the Board shall become a member of the same class
of directors in which the vacancy existed; but if the vacancy is due to an
increase in the number of directors, a majority of the members of the Board
shall designate the directorship as belonging to any one of the three classes so
as to maintain the three classes of directors as nearly equal as possible. Each
director so appointed holds office until a successor is elected by the
shareholders, who may make such election at the next annual meeting of
shareholders or at any special meeting of shareholders called for such purpose.
Preemptive Rights
Holders of the Company's Common Stock have no preemptive rights.
Liquidation
In the event of liquidation, dissolution or winding up of the Company,
after payment or provision for payment of the Debts and other liabilities of the
Company and subject to the rights of any series of Preferred Stock which may be
outstanding, holders of the Company's Common Stock would share pro rata in all
--- ----
assets distributable to shareholders in respect of shares held by them.
"Anti-Takeover" and "Anti-Greenmail" Provisions and Management Implications
The Articles of the Company presently contain certain provisions which
may be deemed to be "anti-takeover" and "anti-greenmail" in nature of that such
provisions may deter, discourage or make more difficult the assumption of
control of the Company by another corporation or person through a tender offer,
merger, proxy contest or similar transaction or series of transactions.
One of these provisions is the authorization of 5,000,000 share of
Common Stock and 1,000,000 shares of Preferred Stock. These additional shares
of Common Stock and Preferred Stock were authorized for the purpose of providing
the Company's Board of Directors with as much flexibility as possible to issue
additional shares, without further shareholder approval, for proper corporate
purposes including stock dividends, stock splits, acquisitions, future
financings, employee benefit plans, and other similar purposes. However, these
additional shares may also be used by the Board of Directors (if consistent with
its fiduciary responsibilities) to deter future attempts to gain control over
the Company.
31
<PAGE>
A second provision concerns the factors which the Board may consider
in evaluating the offer of another party to make a tender or other offer for the
Company's securities (whether in cash or in securities of the offeror). Under
the Pennsylvania Business Corporation Law of 1988, as amended ("BCL"), the Board
stands in a fiduciary relation to the Company and must discharge its duties in
good faith, in a manner it reasonably believes to be in the best interests of
the Company, and with such care, including reasonable inquiry, skill and
diligence, which a person or ordinary prudence would exercise under similar
circumstances. The BCL further provides that, in discharging its duties, the
Board may consider a number of other factors, some of which the Company has
incorporated into its Articles. The Articles provide that, in evaluating a
takeover offer, the Board may consider all relevant factors, including the
impact of the acquisition on employees, depositors and customers of the Company
and its subsidiaries and on the communities which the Company and its
subsidiaries serve; the reputation and business practices of the offeror and its
management and affiliates; the value of any securities offered in exchange for
Company's stock; and any anti-trust or other legal and regulatory issues that
are raised by the offer. Under the Articles, the Board is also permitted to
consider any other factors it deems relevant, including the long-term and short-
term interests of the Company and its shareholders, whether or not such other
factors are monetary or non-monetary, or are shareholder of non-shareholder
considerations. If the Board of Directors determines than an offer should be
rejected, the Articles provide that the Board is authorized to take any lawful
action to accomplish its purpose including, but not limited to, any or all of
the following: advising shareholders not to accept the offer; litigation
against the offeror; filing complaints with all governmental and regulatory
authorities; acquiring the Company's securities; selling or otherwise issuing
authorized but unissued securities or treasury stock or granting options with
respect thereto; acquiring a company to create an antitrust or other regulatory
problem for the offeror; and obtaining a more favorable offer from another
individual or entity. The Articles also eliminate any duty of the Directors to
auction the Company or any subsidiary in the event of a proposed sale or merger
of the Company or any subsidiary and permit the Boards to negotiate with only
one acquiror.
The Articles of the Company also provide that no "person" shall have
the right to cast more than 10% of the total votes entitled to be case by all
holders of the Company's voting securities at any meeting without the approval
of the Company's Board of Directors and subject to such conditions as the Board
may impose. Since this provision has not, to the Board's knowledge, been
violated, the Board has not had to consider the option of any such conditions.
The term "person" includes individuals, partnerships, corporations, groups or
other entities and also includes "shareholder groups". When two or more persons
act together as a partnership, limited partnership, syndicate, association or
other group for the purpose of acquiring, holding, disposing of or voting shares
of stock, or are deemed a "group" for purposes of Section 13(d) ("Section
13(d)") of the Securities Exchange Act of 1934 and the regulations thereunder,
they will be deemed a "shareholder group" under the Articles and treated as a
single person. The Board of Directors' determination of the existence of a
shareholder group and the number of votes any person or each member of a
shareholder group is entitled to cast shall be final and conclusive absent clear
and convincing evidence of bad faith. The term "person" does not, however,
include the Company or the Bank when either holds voting securities for itself
or as a fiduciary for its customers or as a trustee pursuant to one or more
employee benefit plans sponsored by the Company or the Bank. The 10% voting
limitation in the Articles does not apply to the casting of votes by a person as
a
32
<PAGE>
proxy holder for other shareholders pursuant to proxies that were revocable and
secured from shareholders who are not part of a shareholder group which includes
the person voting such proxies.
The Articles also provide that no "person" (as such term is defined in
the preceding paragraph) may have "holdings" that exceed 10% of the Company's
voting securities except as authorized by, and subject to such conditions as may
be imposed by, the Company's Board of Directors. Since this provision has not,
to the Board's knowledge, been violated, the Board has not had to adopt any such
conditions. The term "holdings" means the voting securities (1) which the
person owns of record, (2) as to which the person has direct or indirect
beneficial ownership (as such term is used in Section 13(d) and (3) owned of
record or beneficially by members of a "shareholder group" (as such term is
defined in the preceding paragraph) which includes such person. The Board of
Directors of the Company may terminate the voting rights of any person who
acquires holdings that cause a violation of this provision of the Articles for
so long as such violation continues, commence litigation to require divestiture
of the holdings in excess of the 10% limit or take such other action as it deems
appropriate, including seeking injunctive relief or purchasing such excess
shares as described below. The Board of Directors' determination with respect
to the existence of bad faith.
Shares acquired in violation of either the voting or holdings
limitations, as described in the preceding two paragraphs, may, among other
things, not be voted by the holder thereof or, if any votes are case in
violation of these provisions, such votes will not be counted. In addition, the
Articles provide a mechanism by which shares held in violation of the voting or
holdings limitations would be purchase by the Company or its designee and which
would create a potential economic loss to the violator of such provisions.
Specifically, the Articles grant the Company or its designee an option to
purchase all or any part of a person's holdings that exceed 10% of the Company's
issued and outstanding voting securities. If the person is a shareholder group,
the Company need not exercise its purchase option proportionately with respect
to the individual members of the group, but may exercise such option as to any
one or more or all of such individual members. The Board of Directors is
authorized to exercise this option by adopting a resolution to such effect. The
purchase price for the voting securities is intended to equal the average market
price for such voting securities during the period beginning 65 trading days
prior to the date on which the resolution was adopted and ending five trading
days prior to the date of adoption of the resolution. However, with respect to
voting securities which are to be purchased and either (1) the resolution is
adopted within one year after the voting securities were acquired by the
shareholder or (2) the resolution is adopted within one year after the earlier
of (a) the date of public disclosure of such person's acquisition of such voting
securities, or (b) the date on which the directors were first notified in
writing of such person's acquisition of such voting securities, the purchase
price cannot exceed the direct cost to acquire such securities (excluding legal,
accounting, brokerage, investment advisory, interest, points, or other carrying
charges or indirect costs) incurred by the person from whom such securities are
purchased. The purpose of this provision is to prevent a person who violates
the voting or holdings limitations from making a profit on voting securities
held less than one year or for which ownership was first disclosed, either
publicly or to the Board, within one year before the Company's adoption of the
resolution (even though the securities were owned for more than one year.) The
purchase price will be computed by an independent public accounting firm
selected by the Board of Directors and such firm's computation will be
conclusive in the absence of clear and convincing evidence of bad faith.
33
<PAGE>
Although the foregoing voting and holdings limitations have been
discussed with counsel, no formal legal opinion has been sought by the Company
and none is being given with respect to the enforceability of these provisions.
Any provision which discourages the acquisition of Company stock by a
person seeking control could be beneficial to the shareholders generally to the
extent that it (a) provides for greater stability and continuity of management,
(b) protects shareholders against unfair or inequitable mergers or tender
offers, and (c) helps discourage or prevent a takeover by an acquiror seeking to
obtain control in order to break up and auction off the Company's component
parts or otherwise act in nonbeneficial ways with respect to the Company or its
assets. However, such provisions could also have the effect of discouraging,
making costlier or more difficult, or preventing a merger or a tender offer
which would be beneficial to the Company's shareholders. For instance, the
anti-takeover provisions in the Articles might prevent shareholders from
receiving a premium for their securities in a takeover or merger. Moreover, the
anti-takeover provisions may have the effect of assisting Company's management
in retaining its position, even if removal would be beneficial to the
shareholders generally. Consequently, management would be in a better position
to resist changes that might benefit shareholders generally, but that might be
disadvantageous to management. Additionally, it has been suggested by some
commentators that the presence of anti-takeover provisions in a corporation's
charger may adversely affect the market price of that corporation's securities.
The Board of Directors has the discretion to waive the foregoing
provisions to facilitate the acceptance of an offer which it determines to be
favorable. Accordingly, the ability of the Board to waive these provisions may,
in effect, give the Board a veto with respect to certain types of offers for
control of the Company.
PART II
-------
ITEM 1 MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market.
Information concerning the listed and bid prices of the Common Stock is
available from the OTC Bulletin Board under the symbol CMYI. The Common Stock
has not been actively traded and there is no assurance that an active market
will develop in the future. The following broker-dealers currently make a
market in the Company's Common Stock: F.J. Morrissey & Co., Inc., Ryan, Beck &
Co, and Wheat, First Union Securities Inc.
The following table sets forth high and low bid prices per share for
the Company's Common Stock for each quarter of 1996, and each quarter of 1997,
based upon information obtained from the OTC Bulletin Board. All such bid
prices reflect inter-dealer prices, without retail mark-up, mark-down or
commissions and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
1996 High Bid Low Bid
-------- -------
<S> <C> <C>
First Quarter $18.67 $18.50
Second Quarter 18.50 18.25
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C>
Third Quarter 17.75 16.75
Fourth Quarter 18.75 16.75
1997
First Quarter 18.75 17.00
Second Quarter 20.50 18.75
Third Quarter 22.50 20.25
Fourth Quarter 24.125 21.25
</TABLE>
As of December 31, 1997, 348,287 shares of Common Stock were outstanding
held of record by approximately 498 persons, and there were outstanding options
which were exercisable on that date (or within 90 days thereof) for 3,567 shares
of Common Stock.
The Company has declared cash dividends on its common stock as follows:
Cash Dividends
Calendar Quarter Per Common Share
- ---------------- ----------------
1996
First Quarter $.10
Second Quarter .10
Third Quarter .10
Fourth Quarter .11
1997
First Quarter $.11
Second Quarter .11
Third Quarter .11
Fourth Quarter .12
The holders of the Company's Common Stock are entitled to receive dividends
when, as and if declared by the Board of Directors out of funds legally
available therefor, subject to the payment of any preferential dividend to the
holders of the Company's Preferred Stock, if any. Funds for the payment of
dividends of the Company are primarily obtained from dividends paid by the Bank.
It is the present intention of the Company's Board of Directors to continue
to pay regular quarterly cash dividends; however, the declaration and payment of
future dividends is in the sole discretion of the Board of Directors and their
amount depends upon the earnings, financial condition and capital needs of the
Company and the Bank and certain other factors, including restrictions arising
from federal banking laws and regulations to which the Company and the Bank are
subject.
35
<PAGE>
The Bank is subject to certain limitations on the amount of cash dividends
that it can pay. The prior approval of the Comptroller of the Currency of the
United States is required if the total of all cash dividends declared by a
national bank, such as the Bank, in any calendar year will exceed the sum of
such bank's net profits (as defined by statute) for that year combined with the
retained net profits for the preceding two calendar years, less any required
transfers to surplus. Under this formula, as of December 31, 1997, the Bank has
approximately $920,000 legally available for the payment of dividends without
such approval. In addition, the Comptroller of the Currency is authorized to
determine under certain circumstances relating to the financial condition of a
national bank that the payment of dividends would be an unsafe or unsound
practice and to prohibit payment thereof. The Federal Deposit Insurance
Corporation Act generally prohibits all payments of dividends by any bank which
is in default of any assessment to the FDIC.
ITEM 2 LEGAL PROCEEDINGS
The Bank from time to time is a party to routine litigation incidental
to its business. The Company is not currently a party to any material
litigation.
ITEM 3 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4 RECENT SALES OF UNREGISTERED SECURITIES
Pursuant to an exemption under Regulation A, on May 13, 1996, the Bank
commenced the sale of up to 108,109 shares of its common stock at a price of
$18.50 per share. The share certificates issued pursuant to this offering
indicated that the shares had been acquired for investment and may not be
offered, sold, transferred, pledged or otherwise disposed of without an
effective registration statement. A total of 72,919 shares were sold. The
total offering price was $1,349,001, with net proceeds of $1,257,261, and legal
fees and printing costs of $91,740.
ITEM 5 INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Pennsylvania Business Corporation Law, the
Company's Articles provide that a director shall not be personally liable for
monetary damages as such for any action taken, or any failure to take any
action, unless the director breaches or fails to perform the duties of his or
her office under the BCL, and the beach or failure to perform constitutes self-
dealing, willful misconduct or recklessness. These provisions of the Company's
Articles, however, do not apply to the responsibility or liability of a director
pursuant to any criminal statute, or to the liability of a director for the
payment of taxes pursuant to local, Pennsylvania or federal law. These
provisions offer persons who serve on the Board of Directors of the Company
protection against awards of monetary damages for negligence in the performance
of their duties.
36
<PAGE>
The Company's Articles also provide that every person who is or was a
director or executive officer of the Company, or of any Corporation which he
served as such at the request of the Company, shall be indemnified by the
Company to the fullest extent permitted by law against all expenses and
liabilities reasonably incurred by or imposed upon him, in connection with any
proceeding to which he may be made, or threatened to be made, a party, or in
which he may become involved by reason of his being or having been a director or
executive officer of the Company or such other company, whether or not he is a
director or executive officer of the Company or such other company at the time
the expenses or liabilities are incurred.
37
<PAGE>
PART F/S
--------
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1997
38
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Community Independent Bank, Inc.
Bernville, Pennsylvania
We have audited the accompanying consolidated balance sheets of Community
Independent Bank, Inc. and its wholly-owned subsidiary, Bernville Bank, N.A., as
of December 31, 1997 and 1996, and the related consolidated statements of
income, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Community
Independent Bank, Inc. and its wholly-owned subsidiary, Bernville Bank, N.A., as
of December 31, 1997 and 1996, and the results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles.
BEARD & COMPANY, INC.
Reading, Pennsylvania
January 23, 1998
39
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
December 31, 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,701,268 $ 1,828,347
Interest bearing deposits in other banks 1,773,211 1,778,011
Federal funds sold 158,000 -
Securities available for sale 9,524,028 6,490,085
Securities held to maturity, fair value 1997 $ 999,375; 1996 $ 2,492,657 1,000,585 2,513,338
Loans receivable, net of allowance for loan losses
1997 $ 540,158; 1996 $ 484,226 64,364,029 52,217,265
Bank premises and equipment, net 2,636,981 2,325,815
Accrued interest receivable and other assets 2,303,885 947,594
------------------------------------------------------
Total assets $ 83,461,987 $ 68,100,455
======================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing $ 7,442,811 $ 6,807,781
Interest bearing 63,286,257 54,328,221
------------------------------------------------------
Total deposits 70,729,068 61,136,002
Other borrowed funds 471,808 229,900
Long-term debt 5,000,000 -
Other liabilities 360,705 299,131
------------------------------------------------------
Total liabilities 76,561,581 61,665,033
------------------------------------------------------
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 348,287 shares 1,741,435 1,741,435
Surplus 1,882,808 1,882,808
Retained earnings 3,257,894 2,827,759
Net unrealized appreciation (depreciation) on securities
available for sale, net of taxes 18,269 (16,580)
------------------------------------------------------
Total stockholders' equity 6,900,406 6,435,422
------------------------------------------------------
Total liabilities and stockholders' equity $ 83,461,987 $ 68,100,455
======================================================
</TABLE>
See Notes to Consolidated Financial Statements.
40
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income:
Loans receivable, including fees $ 5,010,103 $ 4,428,389
Securities:
Taxable 445,055 356,452
Tax-exempt 74,831 94,617
Other 64,889 108,385
---------------------------------
Total interest income 5,594,878 4,987,843
---------------------------------
Interest expense:
Deposits 2,542,353 2,386,682
Other 120,526 7,151
---------------------------------
Total interest expense 2,662,879 2,393,833
---------------------------------
Net interest income 2,931,999 2,594,010
Provision for loan losses 78,000 72,000
---------------------------------
Net interest income after provision for loan losses 2,853,999 2,522,010
---------------------------------
Other income:
Customer service fees 212,396 169,445
Net gains from sale of loans 43,622 95,983
Other 174,608 119,716
---------------------------------
Total other income 430,626 385,144
---------------------------------
Other expenses:
Salaries and employee benefits 1,262,118 971,526
Occupancy 194,327 179,925
Equipment 236,326 195,553
Marketing and advertising 133,884 90,421
Loan collection and foreclosed real estate 105,288 89,697
Stationery and supplies 79,101 64,614
Other 477,654 462,017
---------------------------------
Total other expenses 2,488,698 2,053,753
---------------------------------
Income before income taxes 795,927 853,401
Federal income taxes 209,064 235,653
---------------------------------
Net income $ 586,863 $ 617,748
=================================
Basic and diluted earnings per share $ 1.68 $ 1.99
=================================
Weighted average number of common shares outstanding 348,287 311,015
=================================
</TABLE>
See Notes to Consolidated Financial Statements.
41
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
Common Stock (Depreciation)
---------------------------- On Securities
Number Par Retained Available
Of Shares Value Surplus Earnings For Sale Total
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 275,445 $ 1,377,225 $ 991,182 $ 2,337,431 $ 16,112 $ 4,721,950
Issuance of 72,919 shares of
common stock 72,919 364,595 892,666 - - 1,257,261
Cash paid in lieu of fractional shares (77) (385) (1,040) - - (1,425)
Net income - - - 617,748 - 617,748
Cash dividends ($.41 per share) - - - (127,420) - (127,420)
Net change in unrealized
appreciation (depreciation)
on securities available for
sale, net of taxes - - - - (32,692) (32,692)
------------------------------------------------------------------------------------
Balance, December 31, 1996 348,287 1,741,435 1,882,808 2,827,759 (16,580) 6,435,422
Net income - - - 586,863 - 586,863
Cash dividends ($.45 per share) - - - (156,728) - (156,728)
Net change in unrealized
appreciation (depreciation)
on securities available for
sale, net of taxes - - - - 34,849 34,849
------------------------------------------------------------------------------------
Balance, December 31, 1997 348,287 $ 1,741,435 $1,882,808 $ 3,257,894 $ 18,269 $ 6,900,406
====================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
42
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 586,863 $ 617,748
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 78,000 72,000
Provision for depreciation 201,073 171,721
Gain on disposal of property and equipment (1,800) -
Net gains on sale of loans (43,622) (95,983)
Net amortization of securities premiums and discounts 19,846 34,455
Amortization of mortgage servicing rights 6,879 2,907
Net cash provided by sale of loans 43,622 95,983
(Increase) decrease in accrued interest receivable and other assets 89,867 (148,473)
Increase in other liabilities 61,574 219
-----------------------------------
Net cash provided by operating activities 1,042,302 750,577
-----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest bearing deposits in other banks 4,800 (1,772,800)
Net increase in federal funds sold (158,000) -
Proceeds from maturities of securities held to maturity 1,500,000 2,000,000
Proceeds from maturities of securities available for sale 2,185,000 1,599,866
Purchase of securities available for sale (5,173,233) (4,203,265)
Net increase in loans (12,245,755) (3,463,620)
Proceeds from sale of property and equipment 18,810 -
Purchases of bank premises and equipment (529,249) (182,775)
Purchase of life insurance (1,450,000) -
-----------------------------------
Net cash used in investing activities (15,847,627) (6,022,594)
-----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 9,593,066 5,364,090
Net increase (decrease) in other borrowed funds 241,908 (742,100)
Proceeds from long-term debt 5,000,000 -
Dividends paid and cash paid in lieu of fractional shares (156,728) (128,845)
Proceeds from issuance of common stock, net of stock issuance costs - 1,257,261
-----------------------------------
Net cash provided by financing activities 14,678,246 5,750,406
-----------------------------------
Increase (decrease) in cash and due from banks (127,079) 478,389
Cash and due from banks:
Beginning 1,828,347 1,349,958
-----------------------------------
Ending $ 1,701,268 $ 1,828,347
====================================
Cash payments for:
Interest $ 2,621,742 $ 2,390,362
====================================
Income taxes $ 202,143 $ 228,916
====================================
</TABLE>
See Notes to Consolidated Financial Statements.
43
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1
- --------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
Community Independent Bank, Inc. (the Corporation) and its wholly-owned
subsidiary, Bernville Bank, N.A. (the Bank). All significant intercompany
accounts and transactions have been eliminated.
Nature of operations:
The Bank operates under a national bank charter and provides full banking
services. As a national bank, the Bank is subject to regulation of the
Office of the Comptroller of the Currency and the Federal Deposit Insurance
Corporation. The bank holding company (Parent Company) is subject to
regulation of the Federal Reserve Bank. The area served by the Bank is
principally Berks County, Pennsylvania.
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Presentation of cash flows:
For purposes of reporting cash flows, cash and due from banks includes cash
on hand and amounts due from banks.
Securities:
Securities classified as available for sale are those securities that the
Bank intends to hold for an indefinite period of time but not necessarily to
maturity. Any decision to sell a security classified as available for sale
would be based on various factors, including significant movement in
interest rates, changes in maturity mix of the Bank's assets and
liabilities, liquidity needs, regulatory capital considerations and other
similar factors. Available for sale securities are carried at fair value.
Unrealized appreciation or depreciation, net of tax, on available for sale
securities is reported as a net amount in a separate component of
stockholders' equity. Gains and losses on the sale of available for sale
securities are determined using the specific-identification method. Premiums
and discounts are recognized in interest income using the interest method
over the period to maturity.
Bonds, notes and debentures for which the Bank has the positive intent and
ability to hold to maturity are reported at cost, adjusted for premiums and
discounts that are recognized in interest income using the interest method
over the period to maturity.
Management determines the appropriate classification of debt securities at
the time of purchase and re-evaluates such designation as of each balance
sheet date.
Loans receivable:
Loans generally are stated at their outstanding unpaid principal balances
net of an allowance for loan losses and any deferred fees or costs. Interest
income is accrued on the unpaid principal balance. Loan origination fees net
of certain direct origination costs are deferred and recognized as an
adjustment of the yield (interest income) of the related loans. The Bank is
generally amortizing these amounts over the contractual life of the loan.
44
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1
- --------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loans receivable (continued):
A loan is generally considered impaired when it is probable the Bank will be
unable to collect all contractual principal and interest payments due in
accordance with the terms of the loan agreement. The accrual of interest is
discontinued when the contractual payment of principal or interest has become 90
days past due or management has serious doubts about further collectibility of
principal or interest, even though the loan is currently performing. A loan may
remain on accrual status if it is in the process of collection and is either
guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid
interest credited to income in the current year is reversed and unpaid interest
accrued in prior years is charged against the allowance for loan losses.
Interest received on nonaccrual loans generally is either applied against
principal or reported as interest income, according to management's judgment as
to the collectibility of principal. Generally, loans are restored to accrual
status when the obligation is brought current, has performed in accordance with
the contractual terms for a reasonable period of time and the ultimate
collectibility of the total contractual principal and interest is no longer in
doubt.
Allowance for loan losses:
The allowance for loan losses is established through provisions for loan
losses charged against income. Loans deemed to be uncollectible are charged
against the allowance for loan losses, and subsequent recoveries, if any, are
credited to the allowance.
The allowance for loan losses related to impaired loans that are identified
for evaluation is based on discounted cash flows using the loan's initial
effective interest rate or the fair value of the collateral for certain
collateral dependent loans. By the time a loan becomes probable of foreclosure,
it has been charged down to fair value, less estimated costs to sell.
The allowance for loan losses is maintained at a level considered adequate to
provide for losses that can be reasonably anticipated. Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past loan
loss experience, known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay, the estimated value of any
underlying collateral, composition of the loan portfolio, current economic
conditions, and other relevant factors. This evaluation is inherently subjective
as it requires material estimates that may be susceptible to significant change,
including the amounts and time of future cash flows expected to be received on
impaired loans.
Loans held for sale:
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated fair value. All sales are made without
recourse. There were no loans held for sale at December 31, 1997 and 1996.
Loan servicing:
The cost of mortgage servicing rights is amortized in proportion to and over
the period of estimated net servicing revenues. Impairment of mortgage servicing
rights is assessed based on the fair value of those rights. Fair values are
estimated using discounted cash flows based on a current market interest rate.
45
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1
- --------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Bank premises and equipment:
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation of property and equipment is computed
principally on the straight-line method over the estimated useful lives of
the related assets.
Income taxes:
Deferred taxes are provided on the liability method whereby deferred tax
assets are recognized for deductible temporary differences and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax basis. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely
than not that some portion of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes
in tax laws and rates on the date of enactment.
Off-balance sheet financial instruments:
In the ordinary course of business, the Bank has entered into off-balance
sheet financial instruments consisting of commitments to extend credit and
letters of credit. Such financial instruments are recorded in the balance
sheets when they are funded.
Earnings per share:
The Company adopted FASB Statement No. 128, "Earnings Per Share", in 1997.
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
effect of stock options. Diluted earnings per share includes the dilutive
effect of stock options. The effect of stock options on diluted earnings
per share for the Corporation is immaterial and results in the same amount
reported as basic earnings per share for 1997 and 1996. Accordingly, basic
and diluted earnings per share are the same amounts for all periods
presented and are the same amount as previously reported for 1996.
2
- --------------------------------------------------------------------------------
RESTRICTIONS ON CASH AND DUE FROM BANK BALANCES
The Bank is required to maintain average reserve balances with the Federal
Reserve Bank. The total of those reserve balances was approximately $150,000 at
December 31, 1997 and $350,000 at December 31, 1996.
46
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
3
- --------------------------------------------------------------------------------
SECURITIES
The amortized cost of securities and their approximate fair value at December 31
were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Appreciation Depreciation Value
--------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale securities:
December 31, 1997:
U.S. Treasury securities $ 4,509,946 $ 33,259 $ (77) $ 4,543,128
U.S. Government agency obligations 3,497,900 1,572 (13,167) 3,486,305
Obligations of states and
political subdivisions 1,005,000 6,095 - 1,011,095
Equity securities 483,500 - - 483,500
--------------------------------------------------------
$ 9,496,346 $ 40,926 $ (13,244) $ 9,524,028
========================================================
December 31, 1996:
U.S. Treasury securities $ 1,027,179 $ 6,608 $ (818) $ 1,032,969
U.S. Government agency obligations 3,002,228 - (35,407) 2,966,821
Obligations of states and
political subdivisions 2,010,000 7,694 (3,199) 2,014,495
Equity securities 475,800 - - 475,800
--------------------------------------------------------
$ 6,515,207 $ 14,302 $ (39,424) $ 6,490,085
========================================================
Held to maturity securities:
December 31, 1997:
U.S. Treasury securities $ 1,000,585 $ - $ (1,210) $ 999,375
========================================================
December 31, 1996:
U.S. Treasury securities $ 2,513,338 $ - $ (20,681) $ 2,492,657
========================================================
</TABLE>
Equity securities are principally comprised of stock in the Federal Reserve Bank
and Federal Home Loan Bank.
47
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
3
- --------------------------------------------------------------------------------
SECURITIES (CONTINUED)
The amortized cost and fair value of securities as of December 31, 1997, by
contractual maturity or call date, are shown below. Expected maturities may
differ from contractual maturities or call dates because borrowers may have the
right to prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Available For Sale Held To Maturity
----------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 1,533,985 $ 1,529,332 $ 1,000,585 $ 999,375
Due after one year through five years 7,308,861 7,337,438 - -
Due after five years through ten years 170,000 173,758 - -
Equity securities 483,500 483,500 - -
-----------------------------------------------------------
$ 9,496,346 $ 9,524,028 $ 1,000,585 $ 999,375
===========================================================
</TABLE>
There were no sales of securities during the years ended December 31, 1997 and
1996.
Securities with a carrying value of $ 5,520,620 and $ 4,498,662 at December 31,
1997 and 1996 respectively, were pledged to secure public deposits and for other
purposes as required or permitted by law.
4
- --------------------------------------------------------------------------------
LOANS RECEIVABLE
Loans are comprised of the following:
December 31,
1997 1996
----------------------------------
Commercial $ 16,418,588 $ 11,873,652
Consumer 4,917,381 4,352,864
Mortgage 44,148,080 37,010,501
----------------------------------
65,484,049 53,237,017
Allowance for loan losses (540,158) (484,226)
Net deferred loan fees and costs (579,862) (535,526)
----------------------------------
$ 64,364,029 $ 52,217,265
==================================
48
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
4
- --------------------------------------------------------------------------------
LOANS RECEIVABLE (CONTINUED)
The following table presents changes in the allowance for loan losses:
Years Ended December 31,
1997 1996
--------------------------
Balance, beginning $ 484,226 $ 518,850
Provision for loan losses 78,000 72,000
Loans charged off (26,363) (109,309)
Recoveries 4,295 2,685
--------------------------
Balance, ending $ 540,158 $ 484,226
==========================
There were no impaired loans at December 31, 1997. The recorded investment in
impaired loans, not requiring an allowance for loan losses, was $925,000 at
December 31, 1996. The recorded investment in impaired loans requiring an
allowance for loan losses was $-0- at December 31, 1996. For the years ended
December 31, 1997 and 1996, the average recorded investment in these impaired
loans was $328,000 and $936,000, and the interest income recognized on impaired
loans was $20,000 and $69,000 respectively.
5
- --------------------------------------------------------------------------------
LOAN SERVICING
The Bank capitalized $20,991 and $45,456 of mortgage servicing rights for loans
originated and sold in 1997 and 1996 respectively and amortized $6,879 and
$2,907 of those rights for the years ended December 31, 1997 and 1996
respectively.
The amortization of originated mortgage servicing rights is recorded as a
reduction of servicing revenue in other income. Mortgage servicing rights are
included in other assets.
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balance of mortgage loans
serviced for others totaled $6,773,957 and $4,747,131 at December 31, 1997 and
1996 respectively. Servicing income, net of mortgage servicing rights
amortization, for the years ended December 31, 1997 and 1996 was $6,997 and
$3,120 respectively.
49
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
6
- --------------------------------------------------------------------------------
BANK PREMISES AND EQUIPMENT
The major classes of bank premises and equipment and the total accumulated
depreciation were as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
--------------------------------
<S> <C> <C>
Land and land improvements $ 262,562 $ 262,562
Bank buildings and leasehold improvements 2,034,690 1,933,611
Bank furniture and equipment 1,653,750 1,256,460
--------------------------------
3,951,002 3,452,633
Less accumulated depreciation 1,314,021 1,126,818
--------------------------------
$ 2,636,981 $ 2,325,815
================================
</TABLE>
7
- --------------------------------------------------------------------------------
DEPOSITS
The components of deposits at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
---------------------------------
<S> <C> <C>
Demand, non-interest bearing $ 7,442,811 $ 6,807,781
Demand, interest bearing 16,069,319 11,237,593
Savings 9,648,567 10,151,556
Time, $ 100,000 and over 4,784,853 3,478,459
Time, other 32,783,518 29,460,613
---------------------------------
$ 70,729,068 $ 61,136,002
=================================
</TABLE>
50
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
7
- --------------------------------------------------------------------------------
DEPOSITS (CONTINUED)
At December 31, 1997, the scheduled maturities of time deposits are as follows:
1998 $ 20,087,505
1999 8,820,794
2000 4,926,273
2001 1,599,433
2002 1,465,034
Thereafter 669,332
--------------------
$ 37,568,371
====================
8
- --------------------------------------------------------------------------------
OTHER BORROWED FUNDS AND LONG-TERM DEBT
The Bank maintains a U.S. Treasury tax and loan note option account for the
deposit of withholding taxes, corporate income taxes and certain other payments
to the federal government. Deposits are subject to withdrawal and are evidenced
by an open-ended interest-bearing note. Borrowings under this note option
account were $ 471,808 and $ 229,900 at December 31, 1997 and 1996 respectively,
with interest payable at a variable rate (5.25% and 5.15% at December 31, 1997
and 1996 respectively).
The Bank has a flexible line of credit commitment which expires March 25, 1998
from the Federal Home Loan Bank (FHLB) for borrowings up to $ 2,697,000. There
were no borrowing under this line of credit at December 31, 1997 and 1996.
The Bank has a line of credit under the "RepoPlus" Advance program with the
Federal Home Loan Bank which expires June 25, 1998 for borrowing up to
$ 10,000,000. There were no borrowings under this line of credit at December 31,
1997 and 1996.
Long-term debt at December 31, 1997 is an advance from the Federal Home Loan
Bank in the amount of $ 5,000,000 due October 8, 1999 with an interest rate of
6.02%.
51
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
9
- --------------------------------------------------------------------------------
REGULATORY MATTERS AND STOCKHOLDERS' EQUITY
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet the minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material affect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth below) of
total and Tier 1 capital (as defined in the regulations) to risk-weighted
assets, and of Tier 1 capital to average assets. Management believe, as of
December 31, 1997, that the Bank meets all capital adequacy requirements to
which it is subject.
As of December 31, 1997, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based
and Tier 1 leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
The Bank's actual capital amounts and ratios are also presented below. The
consolidated capital ratios are not materially different from the Bank's capital
ratios.
<TABLE>
<CAPTION>
For Capital
Adequacy
Actual Purposes
-----------------------------------------------------------------------------
Amount Ratio Amount Ratio
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
As of December 31, 1997:
Total capital (to risk weighted assets) $ 7,165,000 12.95% $ 4,427,000 greater than or equal to 8.00%
Tier 1 capital (to risk weighted assets) 6,625,000 11.97 2,214,000 greater than or equal to 4.00
Tier 1 capital (to average assets) 6,625,000 8.28 3,200,000 greater than or equal to 4.00
As of December 31, 1996:
Total capital (to risk weighted assets) $ 6,679,000 15.40% $ 3,470,000 greater than or equal to 8.00%
Tier 1 capital (to risk weighted assets) 6,195,000 14.29 1,734,000 greater than or equal to 4.00
Tier 1 capital (to average assets) 6,195,000 9.43 2,628,000 greater than or equal to 4.00
<CAPTION>
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
-----------------------------------------------
Amount Ratio
-----------------------------------------------
<S> <C>
As of December 31, 1997:
Total capital (to risk weighted assets) $ 5,534,000 greater than or equal to 10.00%
Tier 1 capital (to risk weighted assets) 3,320,000 greater than or equal to 6.00
Tier 1 capital (to average assets) 4,000,000 greater than or equal to 5.00
As of December 31, 1996:
Total capital (to risk weighted assets) $ 4,337,000 greater than or equal to 10.00%
Tier 1 capital (to risk weighted assets) 2,601,000 greater than or equal to 6.00
Tier 1 capital (to average assets) 3,285,000 greater than or equal to 5.00
</TABLE>
Banking laws and regulations limit the amount of dividends that may be paid and
any dividends declared by the Bank are subject to approval by the Bank's
regulatory agencies. Under current banking laws, the Bank would be limited to
approximately $920,000 of dividends in 1998 plus an additional amount equal to
the Bank's net income for 1998, up to the date of any such dividend declaration.
On April 1, 1996, the Bank commenced the sale of up to 108,109 shares of its
common stock at a price of $18.50 per share. A total of 72,919 shares were sold
and resulted in net proceeds of $1,257,261 after stock issuance costs of
$92,780.
52
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, AND 1996
10
- --------------------------------------------------------------------------------
EMPLOYEE BENEFITS
The Bank has a 401(k) Profit Sharing Plan and Trust for its employees. Employees
are permitted to contribute up to 17% of their compensation, but not over the
statutory limit. The profit sharing plan covers employees who meet the
eligibility requirements of having worked 1,000 hours in a plan year and have
attained the age of 21. The amount of matching 401(k) contributions and profit
sharing plan contributions is at the discretion of the Bank's Board of
Directors. The expense related to this plan was $18,070 and #34,765 in 1997 and
1996 respectively.
On June 26, 1997, the Bank adopted various deferred compensation plans for
certain directors and officers of the Bank. Under the Plans' provisions,
benefits will be payable upon retirement, death or permanent disability of the
participant. At December 31, 1997, $22,624 had been accrued under these
contracts. To fund the benefits under these agreements, the Bank is the owner
and the beneficiary of life insurance policies on the lives of the directors and
officers. The policies had an aggregate cash surrender value of $1,489,186 at
December 31, 1997.
On March 28, 1996, at the Annual Meeting of Shareholders, the shareholders
approved an Employee Stock Option Plan and a Non-Employee Directors Stock Option
Plan.
The Employee Stock Option Plan covers all officers and key employees of the
Corporation and its subsidiary and is administered by a committee of the Board
of Directors. The Plan covers 25,000 shares of common stock. The option price
for options issued under the Plan must be at least equal to 100% of the fair
market value of the common stock on the date of grant. Options granted under the
Plan are exercisable over a three-year period, commencing one year after the
date of grant, on a cumulative basis. Options expire on the earlier of ten years
after the date of grant, three months from the participants' termination of
employment or one year from the date of the participants' death or disability.
The Non-Employee Directors' Stock Option Plan covers 10,000 shares of common
stock. The Plan covers all directors of the Corporation and its subsidiary who
are not employees. The option price for options issued under the Plan will be
equal to the fair market value of the Corporation's common stock on the date of
grant. On April, 1, 1996, each of the Corporation's six non-employee directors
was granted an option to purchase 500 shares of common stock at an exercise
price of $19.00 per share. Non-employee directors elected to the Board of
Directors subsequent to April 1, 1996 will receive an option to purchase 500
shares upon their election. On the fifth anniversary date of the initial option
grant date, and every five years thereafter, each non-employee director shall be
granted options to purchase 500 shares of common stock. Options are exercisable
one year from the date of grant and expire on the earlier of ten years after the
date of grant, three months from the date the participant ceases to be a
director of the Corporation or three months from the date of the participants'
death or disability.
The Corporation adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," effective January 1, 1996. This
standard provides companies with a choice of how to account for stock options
and other stock grants. In accordance with the provisions of SFAS No. 123, the
Corporation elected to follow APB Opinion 25 and related interpretations
in accounting for its stock options granted in 1997 and 1996 and, accordingly,
did not recognize compensation cost. If the Corporation had elected to recognize
compensation cost based on the fair value of the options granted at grant date
as prescribed by SFAS No. 123, the effect on net income and basic and diluted
earnings per share would have been reduced to the pro forma amounts indicated
below:
53
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
10
- --------------------------------------------------------------------------------
EMPLOYEE BENEFITS (CONTINUED)
<TABLE>
<CAPTION>
Years Ended December 31
1997 1996
<S> <C> <C>
Net income:
As reported $586,863 $617,748
Pro forma $582,474 $612,478
Basic and diluted earnings per share:
As reported $1.68 $1.99
Pro forma $1.67 $1.97
</TABLE>
The fair value of each option grant is estimated using the Black-Scholes
option pricing model with the following weighted average assumptions in 1997 and
1996 respectively: risk-free interest rate 5.3% and 6.3%; volatility .01 and
.01; expected life 7 years. The weighted average fair value of the options
granted was $3.45 in 1997 and $3.20 in 1996.
Stock option transactions under the Plans were as follows:
<TABLE>
<CAPTION>
Number of Exercise
Options Price
--------------------------------
<S> <C> <C>
Granted in 1996 4,700 $ 17.75 - $ 19.00
--------------------------------
Outstanding, December 31, 1996 4,700 $ 17.75 - $ 19.00
Granted in 1997 3,200 $ 20.50 - $ 24.125
--------------------------------
Outstanding, December 31, 1997 7,900 $ 17.75 - $ 24.125
================================
</TABLE>
The weighted average remaining contractual life of options outstanding at
December 31, 1997 was 9.1 years.
There were 3,567 options exercisable at December 31, 1997 at $17.75 - $19.00
per share. Options available for grant at December 31, 1997 were 27,100.
11
- --------------------------------------------------------------------------------
INCOME TAXES
The components of income tax expense were as follows:
Years Ended December 31,
1997 1996
------------------------------
Current $ 225,543 $ 210,474
Deferred (16,479) 25,179
------------------------------
$ 209,064 $ 235,653
==============================
54
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
11
- --------------------------------------------------------------------------------
INCOME TAXES (CONTINUED)
Reconciliation of the statutory income tax at a rate of 34% to the income tax
expense in the consolidated statements of income is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996
------------------------------
<S> <C> <C>
Computed statutory tax expense $ 270,615 $ 290,156
Tax exempt interest (34,376) (39,850)
Disallowance of interest expense 5,331 4,760
Life insurance (13,323) -
Other (19,183) (19,413)
------------------------------
$ 209,064 $ 235,653
==============================
Net deferred tax assets consisted of the following components:
December 31,
1997 1996
------------------------------
Deferred tax assets:
Allowance for loan losses $ 154,205 $ 135,188
Deferred loan fees 23,361 26,722
Deferred compensation 7,692 -
Unrealized depreciation on securities available for sale - 8,542
------------------------------
Total deferred tax assets 185,258 170,452
------------------------------
Deferred tax liabilities:
Bank premises and equipment (89,866) (76,051)
Mortgage servicing rights (19,264) (14,466)
Unrealized appreciation on securities available for sale (9,412) -
------------------------------
(118,542) (90,517)
------------------------------
Net deferred tax assets $ 66,716 $ 79,935
==============================
</TABLE>
55
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31,1997 AND 1996
12
- --------------------------------------------------------------------------------
LEASE COMMITMENTS AND TOTAL RENTAL EXPENSE
The Bank leases the premises for one branch location and a loan center
under operating lease agreements expiring in various years through
October 2017. Certain lease agreements contain escalation provisions.
The Bank also has options to extend the lease agreements for additional
lease terms from five to thirty years. The Bank is responsible to pay
all real estate taxes, insurance, utilities and maintenance and repairs
on the buildings.
Future minimum lease payments by year and in the aggregate, under
noncancellable operating leases with initial or remaining terms of one
year or more, consisted of the following at December 31, 1997:
1998 $ 84,860
1999 85,306
2000 85,765
2001 86,238
2002 72,189
Thereafter 1,199,167
-------------
$ 1,613,525
=============
The total rental expense included in the statements of income for the
periods ended December 31, 1997 and 1996 is $ 21,849 and $ -0-
respectively.
13
- --------------------------------------------------------------------------------
TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
The Bank has had banking transactions in the ordinary course of business with
its executive officers and directors and their related interests on the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with others. At December 31, 1997 and 1996, these
persons were indebted to the Bank for loans totaling $ 1,420,123 and $ 542,328
respectively. During 1997, $ 1,346,347 of new loans were made and repayments
totaled $ 468,552.
56
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
14
- --------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and letters of
credit. Those instruments involve, to varying degrees, elements of credit risk
in excess of the amount recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and letters
of credit is represented by the contractual amount of those instruments. The
Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
A summary of the Bank's financial instrument commitments is as follows:
December 31,
1997 1996
--------------------------
Commitments to extend credit $ 7,475,000 $ 6,002,000
Outstanding letters of credit 531,000 30,000
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation. Collateral held varies but may include personal or commercial real
estate, accounts receivable, inventory and equipment.
Outstanding letters of credit written are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
15
- --------------------------------------------------------------------------------
CONCENTRATION OF CREDIT RISK
The Bank grants commercial, residential and consumer loans to customers
primarily located in Berks County, Pennsylvania. The concentrations of credit by
type of loan are set forth in Note 4. Although the Bank has a diversified loan
portfolio, its debtors' ability to honor their contracts is influenced by the
region's economy.
57
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
16
- --------------------------------------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management uses its best judgment in estimating the fair value of the Bank's
financial instruments; however, there are inherent weaknesses in any estimation
technique. Therefore, for substantially all financial instruments, the fair
value estimates herein are not necessarily indicative of the amounts the Bank
could have realized in a sales transaction on the dates indicated. The estimated
fair value amounts have been measured as of their respective year ends, and have
not been reevaluated or updated for purposes of these financial statements
subsequent to those respective dates. As such, the estimated fair values of
these financial instruments subsequent to the respective reporting dates may be
different than the amounts reported at each year-end.
The following information should not be interpreted as an estimate of the fair
value of the entire Bank since a fair value calculation is only provided for a
limited portion of the Bank's assets. Due to a wide range of valuation
techniques and the degree of subjectivity used in making the estimates,
comparisons between the Bank's disclosures and those of other companies may not
be meaningful. The following methods and assumptions were used by the Bank in
estimating its fair value disclosures for financial instruments:
Cash and due from banks and interest bearing deposits in other banks:
The carrying amounts reported approximate those assets' fair value.
Securities:
Fair values of securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments.
Loans receivable:
For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The
fair values for other loans receivable were estimated using discounted
cash flow analysis, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality.
Accrued interest receivable and payable:
The carrying amount of accrued interest receivable and payable
approximate their fair values.
Deposit liabilities:
The fair values disclosed for demand deposits (e.g., interest-bearing
and noninterest-bearing checking, passbook, savings and certain types of
money market accounts) are, by definition, equal to the amount payable
on demand at the reporting date (i.e., their carrying amounts). Fair
values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently
being offered on certificates of deposit to a schedule of aggregated
expected monthly maturities on time deposits.
58
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31,1997 AND 1996
16
- --------------------------------------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Other borrowed funds:
The current carrying amounts of other borrowed funds approximate their
fair values.
Long-term debt:
The current carrying amount of the debt approximates the fair value.
Off-balance sheet instruments:
Off-balance sheet instruments of the Bank consist of letters of credit,
loan commitments and unfunded lines of credit. Fair values for the
Bank's off-balance sheet instruments are based on fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit
standing.
A summary of the estimated fair values of the Bank's financial instruments are
as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 1,701 $ 1,701 $ 1,828 $ 1,828
Interest-bearing deposits in other banks 1,773 1,773 1,778 1,778
Federal funds sold 158 158 -- --
Securities 10,525 10,523 9,003 8,983
Loans receivable, net 64,364 65,143 52,217 52,503
Accrued interest receivable 381 381 312 312
Financial liabilities:
Deposits 70,729 70,977 61,136 61,549
Other borrowed funds 472 472 230 230
Long-term debt 5,000 5,000 -- --
Accrued interest payable 261 261 220 220
Off-balance sheet financial instruments:
Commitments to extend credit - - - -
Standby letters of credit - - - -
</TABLE>
59
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
17
- --------------------------------------------------------------------------------
COMMUNITY INDEPENDENT BANK, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
Balance Sheets
December 31,
1997 1996
-------------------------
(In Thousands)
Assets:
Cash $ 257 $ 257
Investment in bank subsidiary 6,643 6,178
-------------------------
Total assets 6,900 6,435
=========================
Stockholders' equity $ 6,900 $ 6,435
=========================
Statements of Income
Year Ended
December 31,
1997 1996
-------------------------
(In Thousands)
Dividends from Bank subsidiary $ 157 $ 127
Equity in net income less dividends of
Bank subsidiary 430 491
-------------------------
Net income $ 587 $ 618
=========================
60
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
17
- --------------------------------------------------------------------------------
COMMUNITY INDEPENDENT BANK, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
Statements of Cash Flows
Year Ended
December 31,
1997 1996
-------------------------
(In Thousands)
Operating activities:
Net income $ 587 $ 618
Adjustments to reconcile net income to
cash provided by operating activities:
Undistributed earnings of subsidiary (430) (491)
-------------------------
Net cash provided by operating
activities 157 127
-------------------------
Investing activities:
Investment in subsidiary - (998)
-------------------------
Net cash used in investing
activities - (998)
-------------------------
Financing activities:
Cash dividends (157) (129)
Proceeds from issuance of common stock, net
of stock issuance costs - 1,257
-------------------------
Net cash provided by financing activities (157) 1,128
-------------------------
Increase in cash - 257
Cash:
Beginning 257 -
-------------------------
Ending $ 257 $ 257
=========================
61
<PAGE>
PART III
--------
ITEM 1. INDEX TO EXHIBITS
3.1 Articles of Incorporation of Community Independent Bank, Inc.,
as amended
3.2 Bylaws of Community Independent Bank, Inc., as amended
4.1 Certificate of Common Stock
10.1 1996 Employee Stock Option Plan
10.2 Director Deferred Compensation Plan
10.3 Stock Option Plan for Non-Employee Directors
10.4 Salary Continuation Plan
21.1 Subsidiaries of the Registrant - Bernville Bank, N.A.
27.1 Financial Data Schedule
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: April 24, 1998
COMMUNITY INDEPENDENT BANK, INC.
By: /s/ Arlan J. Werst
-----------------------
Arlan J. Werst
President and Chief
Executive Officer
62
<PAGE>
EXHIBIT 3.1
Microfilm Number Filed with the Department of State on
----------- -------
Entity Number
--------------
--------------------------------------
Secretary of the Commonwealth
Community Independent Bank, Inc.
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DSCB:15-1915 (Rev 90)
In compliance with the requirements of 15 Pa.C.S. (S) 1915 (relating
to articles of amendment), the undersigned business corporation, desiring to
amend its Articles, hereby states that:
1. The name of the corporation is: Community Independent Bank, Inc.
---------------------------------------------
2. The (a) address of this corporation's current registered office in this
Commonwealth or (b) name of its commercial registered office provider and the
county of venue is (the Department is hereby authorized to correct the following
information to conform to the records of the Department):
(a) 201 North Main Street, Bernville, PA 19506 Berks
--------------------------------------------------------------------------
Number and Street City State Zip County
(b)c/o:
----------------------------------------------------------------------
Name of Commercial Registered Office Provider County
For a corporation represented by a commercial registered office provider, the
county in (b) shall be deemed the county in which the corporation is located
for venue and official publication purposes.
3. The statute by or under which it was incorporated is: Business Corporation
------------------------
Law, May 5, 1933, P.L. 364, as amended.
- ---------------------------------------
4. The date of its incorporation is: 12-31-84
5. (Check, and if appropriate complete, one of the following):
x The amendment shall be effective upon filing these Articles of Amendment
--- in the Department of State.
--- The amendment shall be effective on: at
----------------- -------------------
Date Hour
6. (Check one of the following):
x The amendment was adopted by the shareholders (or members) pursuant to 15
--- Pa.C.S. (S) 1914(a) and (b).
The amendment was adopted by the board of directors pursuant to 15
--- Pa.C.S. (S) 1914(c).
7. (Check, and if appropriate complete, one of the following):
The amendment adopted by the corporation, set forth in full, is as
--- follows:
x The amendment adopted by the corporation is set forth in full in Exhibit
--- A attached hereto and made a part hereof.
8. (Check if the amendment restates the Articles):
x The restated Articles of Incorporation supersede the original Articles
--- and all amendments thereto.
<PAGE>
IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles
of Amendment to be signed by a duly authorized officer thereof this 28th day of
March, 1996.
Community Independent Bank, Inc.
By: /s/ Arlan J. Werst
--------------------------------
Arlan J. Werst, President
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
COMMUNITY INDEPENDENT BANK, INC.
--------------------------------
1. Name
----
The name of the Corporation is:
Community Independent Bank, Inc.
2. Registered Office
-----------------
The location and post office address of its current
registered office in the Commonwealth of Pennsylvania is:
201 North Main Street
Bernville, PA 19506
3. Incorporation
-------------
The Corporation is incorporated under the provisions of the
Business Corporation Law of the Commonwealth of Pennsylvania (Act of May 5,
1933, P.L. 364, as amended).
4. Capital Stock
-------------
The aggregate number of shares which the Corporation shall
have authority to issue is 6,000,000 shares, of which 5,000,000 shares shall be
common stock, par value $5.00 per share, and 1,000,000 shares shall be preferred
stock, par value $5.00 per share.
The designations, relative rights, preferences and
liabilities of each class of stock, itemized by class, shall be as follows:
(a) Preferred. The Corporation's board of directors
(hereafter called "Board of Directors" or "Board") is authorized to
adopt at any time, or from time to time, amendments to the Articles of
Incorporation with respect to any unissued and/or treasury shares of
preferred stock, and thereby to fix or change the division of shares
of the preferred stock into classes and/or into series within any
class or classes, and to fix or change the determination of the voting
rights, designations, preferences, limitations, qualifications,
restrictions, special rights and relative rights of the shares of any
class or series. The authority of the Board with
A-1
<PAGE>
respect to each class or series of preferred stock shall include, but
not be limited to, determination of the following:
(i) The number of shares constituting that class or
series and the distinctive designation of that class or series;
(ii) The dividend rate on the shares of that class
or series, whether dividends shall be cumulative, and, if so, from
which date or dates;
(iii) Whether that class or series shall have voting
rights, in addition to any voting rights provided by law, and, if so,
the terms of such voting rights;
(iv) Whether that class or series shall have
conversion privileges (including rights to convert such class or
series into the capital stock of the Corporation or any other entity)
and, if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events as the
Board of Directors shall determine;
(v) Whether or not shares of that class or series
shall be redeemable and whether or not the Corporation or the holder
(or both) may exercise the redemption right, including the date or
dates upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under
different conditions;
(vi) The rights of the shares of that class or
series in the event of voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; and
(vii) Any other relative rights, preferences and
limitations of that class or series as may be permitted or required by
law.
(b) Common. Each share of common stock shall be entitled to one vote
on all matters submitted to a vote of shareholders except as the right to
exercise such vote may be limited by the provisions of these Articles of
Incorporation, including Articles 5, 8, 9, and 10. The holders of common stock
shall be entitled to such dividends as may be declared by the Board of Directors
from time to time, provided that required dividends, if any, on the preferred
stock have been paid or provided for. In the event of the liquidation,
dissolution, or winding up, whether voluntary or involuntary of the Corporation,
the assets and funds of the Corporation available for distribution to
shareholders, and remaining after the payment to holders of preferred stock of
the amounts (if any) to which they are entitled, shall be divided and paid to
the holders of the common stock according to their respective shares.
A-2
<PAGE>
(c) Authorization of Board to Set Terms in Respect of Corporation's
Securities. Notwithstanding the foregoing, to the fullest extent permitted by
applicable law, the Board of Directors may set forth in any security, contract,
warrant or other instrument evidencing any shares, option rights, or securities
having conversion or option rights, such terms as it deems appropriate
including, without limiting the generality of such authority, conditions that
preclude or limit any Person (as defined in Article 15) or any transferee(s)
(either direct or remote) of the Person from (i) owning or offering to acquire a
specified number or percentage of the outstanding common shares, other shares,
option rights, securities having conversion or option rights, or obligations of
the Corporation or (ii) from exercising, converting, transferring or receiving
the shares, option rights, securities having conversion or option rights, or
obligations, and which invalidate any rights or options beneficially owned by
such Person or any transferee(s) (either direct or remote) of such Person. This
Article 4 is intended to validate, to the extent permitted by applicable law,
the adoption by the Board of Directors of shareholder rights plans or so--called
"poison pills," including both call and put "poison pills." Nothing contained
herein shall be deemed to limit or restrict the powers of the Board of Directors
as provided in the Pennsylvania Business Corporation Law of 1988, as amended, or
otherwise in Pennsylvania law.
5. No Cumulative Voting
--------------------
The shareholders of the Corporation shall not have the right
to cumulate their votes for the election of directors.
6. Power of Board to Oppose Certain Transactions
---------------------------------------------
A. The Board of Directors may, if it deems it advisable,
oppose a tender, or other offer for the Corporation's securities, whether the
offer is in cash or in the securities of a corporation or otherwise. When
considering whether to oppose an offer, the Board of Directors may, but is not
legally obligated to, consider any pertinent issues; by way of illustration, but
not of limitation, the Board of Directors may, but shall not be legally
obligated to, consider any and all of the following:
(1) Whether the offer price is acceptable based on the
historical and present operating results or financial condition of the
Corporation.
(2) Whether a more favorable price could be obtained for the
Corporation's securities in the future.
(3) The impact which an acquisition of the Corporation would
have on the employees, depositors and customers of the Corporation and any
Subsidiary (as defined in Article 15) and the community which they serve.
A-3
<PAGE>
(4) The reputation and business practices of the offeror and
its management and affiliates as they would affect the employees, depositors and
customers of the Corporation and its Subsidiaries and the future value of the
Corporation's stock.
(5) The value of the securities, if any, which the offeror is
offering in exchange for the Corporation's securities, based on an analysis of
the worth of the Corporation as compared to the Corporation or other entity
whose securities are being offered.
(6) Any antitrust or other legal and regulatory issues that
are raised by the offer.
If the Board of Directors determines that an offer should be rejected,
it may take any lawful action to accomplish its purpose including, but not
limited to, any or all of the following: advising shareholders not to accept the
offer; litigation against the offeror; filing complaints with all governmental
and regulatory authorities; acquiring the Corporation's securities; selling or
otherwise issuing authorized but unissued securities or treasury stock or
granting options with respect thereto; acquiring a company to create an
antitrust or other regulatory problem for the offeror; and obtaining a more
favorable offer from another individual or entity.
B. If the Board of Directors determines to sell the
Corporation or any Subsidiary to a third party, or to merge or consolidate the
Corporation or any Subsidiary with a third party, the Board of Directors shall
not be legally obligated to create an auction and may negotiate with only one
acquirer.
7. Personal Liability of Directors and Indemnification
---------------------------------------------------
A. A director of this Corporation shall not be personally
liable for monetary damages as such for any action taken, or any failure to take
any action, unless
(1) the director has breached or failed to perform the
duties of his office under Section 1713 of the Pennsylvania Business Corporation
Law of 1988, as amended; and
(2) the breach or failure to perform constitutes self-
dealing, willful misconduct or recklessness.
This Article 7(A) shall not apply to a director's liability
for monetary damages to the extent prohibited by Section 1713(b) of the
Pennsylvania Business Corporation Law of 1988, as amended.
B. Every person who is or was a director or executive officer
of the Corporation, or of any corporation which he served as such at the request
of the Corporation, shall be indemnified by the Corporation to the fullest
extent permitted by law against all
A-4
<PAGE>
expenses and liabilities reasonably incurred by or imposed upon him, in
connection with any proceeding to which he may be made, or threatened to be
made, a party, or in which he may become involved by reason of his being or
having been a director or executive officer of the Corporation, or of such other
Corporation, whether or not he is a director or executive officer of the
Corporation or such other Corporation at the time the expenses or liabilities
are incurred.
C. This Article 7, or any portion thereof, may be changed by
a by-law amendment adopted by all of the then members of the Board of Directors,
provided that such by-law amendment shall not apply to acts or omissions
occurring prior to the adoption of such by-law amendment.
8. Limitation on Voting of Certain Persons
---------------------------------------
A. Except as permitted by Article 8C, no Person (as
hereinafter defined) shall have the right to cast (or to execute written
consents with respect to) more than ten percent (10%) of the total votes which
all holders of Voting Securities (as hereinafter defined) are entitled to cast
at any meeting (whether an annual or special meeting or otherwise) of holders of
Voting Securities of any class, regardless of the number of shares or other
units of Voting Securities owned by such Person, unless authorized to do so by
the Board of Directors and subject to such conditions as the Board of Directors
may impose.
B. When two or more Persons act together as a partnership,
limited partnership, syndicate, association or other group for the purpose of
acquiring, holding, disposing of or voting shares of stock, or are deemed a
"group" for purpose of Section 13(d) of the Securities Exchange Act of 1934 and
the regulations thereunder in effect on the date hereof (hereafter called
"Section 13(d)," regardless of whether the Corporation is subject to such Act),
such partnership, syndicate, association or group shall be deemed to constitute
a shareholder group ("Shareholder Group") and shall be considered a single
Person.
C. The casting of votes by a Person as a proxy holder for
other shareholders of the Corporation shall not be counted in computing the 10%
limitation set forth in Article 8A to the extent that the proxies so voted were
revocable and were secured from other shareholders who are not members of a
Shareholder Group which includes such Person. The granting by a holder of Voting
Securities of a revocable proxy to a Person shall not in itself cause such
holder to be considered a member of a Shareholder Group which includes such
Person.
D. The Board of Directors' determination of the existence or
membership of a Shareholder Group, and of a number of votes any Person or each
member of a Shareholder Group is entitled to cast, shall be final and
conclusive, absent clear and convincing
A-5
<PAGE>
evidence of bad faith. In the event of a violation of the provisions of this
Article 8, and without prejudice to the Corporation's other rights and remedies
(including, but not limited to, seeking injunctive relief and invoking the
provisions of Article 10 of these Amended and Restated Articles of
Incorporation), the Judges of Election and other appropriate officials at any
meeting of holders of Voting Securities are directed not to count votes cast in
violation of this Article 8.
9. Limitation on Holdings of Certain Persons
-----------------------------------------
A. No Person (as such term is defined in Article 15) may have
Holdings (as such term is defined in Article 9C) that exceed ten percent (10%)
of the issued and outstanding Common Stock or other Voting Securities (as such
term is defined in Article 15) of the Corporation, except as authorized by the
Board of Directors and subject to such conditions as the Board of Directors may
impose.
B. If any Person acquires Holdings which cause a violation of
the restriction contained in this Article 9, the Board of Directors may (1)
terminate all voting rights attributable to the Holdings of such Person during
the time that this Article 9 is being violated, (2) commence litigation to
require to divestiture of such amount of the Holdings so that after such
divestiture the Person would no longer be in violation of the restriction
contained in this Article 9, or (3) take such other action as is appropriate
under the circumstances, including, but not limited to, seeking injunctive
relief and invoking the provisions of Article 10 of these Amended and Restated
Articles of Incorporation.
C. A Person's Holdings, as such term is used in this Article
9, consist of: (1) the Voting Securities which the Person owns of record, (2)
the Voting Securities as to which the Person has direct or indirect beneficial
ownership (as such term is used in Section 13(d)), and (3) the Voting Securities
owned of record or beneficially (as defined in clause (2)) by members of a
Shareholder Group (as such term is defined in Article 11) which includes such
Person. The Board of Directors' determination of the existence and membership of
a Shareholder Group, and of the record and beneficial ownership of Voting
Securities of any Person or each member of a Shareholder Group, shall be final
and conclusive, absent clear and convincing evidence of bad faith.
10. Remedies of Corporation Triggered by Certain Violations
-------------------------------------------------------
A. In the event of a violation of the provisions of Articles
8 or 9 of these Amended and Restated Articles of Incorporation, the Corporation
or one or more individuals or entities designated by the Corporation as its
nominee(s), shall (in addition to the Corporation's other rights and remedies)
have the right to purchase, at the Corporation's option (which right may be
exercised at any time and from time to time), all or any portion of a Person's
Holdings (as such terms are defined in Articles 15 and
A-6
<PAGE>
9, respectively) that exceed ten percent (10%) of the issued and outstanding
Voting Securities (as such term is defined in Article 15). The exercise of the
Corporation's purchase option shall be evidenced by a resolution (the
"Resolution") of the Board of Directors, certified by the Secretary or any
Assistant Secretary of the Corporation. The Resolution shall specify (among
other things): (1) the name and address of the Person (as such term is defined
in Article 15) whose Voting Securities are being purchased; (2) the total number
of shares or other units of Voting Securities to be purchased from each Person;
(3) the date on which the Voting Securities are to be purchased (the "Purchase
Date"), which Purchase Date shall not be less than twenty (20) days nor more
than sixty (60) days after the date of the adoption of the Resolution (the
"Resolution Date"); (4) the purchase price for the Voting Securities (the
"Purchase Price") being purchased from each Person (as computed under the
provisions of Article 10G); (5) the title of the account in which the Purchase
Price is to be deposited (as provided in Article 10C) and the address of the
bank (which bank may be a Subsidiary, as such term is defined in Article 15) in
which said account (the "Account") is located; and (6) the name of the official
(the "Bank Official") to whom certificates for the Voting Securities being
purchased, properly endorsed in blank for transfer, and an irrevocable proxy are
to be delivered (as provided in Article 10C). In the event the Corporation
appoints one or more nominees to exercise all or any portion of the purchase
option, the Resolution shall further specify: (1) the name or names of the
nominee(s) and (2) the number of shares or other units of Voting Securities that
the nominees or each nominee is being given the right to purchase.
B. The Corporation shall prepare and give to such Person
whose Voting Securities are being purchased, not later than ten (10) days after
the Resolution Date, a notice (the "Notice") which shall state the fact that the
Voting Securities owned by the Person are being purchased pursuant to this
Article 10. Included with the Notice shall be a copy of the Resolution
authorizing the purchase of the Person's Voting Securities, as provided in
Article 10A. The Notice shall be deemed given if it is personally delivered or
is mailed to the Person whose Voting Securities are being purchased, at the
address for the Person on the records of the Corporation, by registered or
certified United States mail, postage prepaid, return receipt requested.
C. On or prior to the Purchase Date, the Corporation or the
Corporation's nominee(s), if any were designated, shall deposit the Purchase
Price (as computed under the provisions of Article 10G) into the Account. The
terms of the Account shall be such as to allow the Person whose Voting
Securities are purchased to withdraw the funds in the Account and any interest
earned thereupon, upon the delivery to the Bank Official of the following items:
(1) the certificates for the Voting Securities being purchased, properly
endorsed in blank for transfer (with signatures guaranteed by a financial
institution or brokerage firm acceptable to the Corporation), and (2) an
irrevocable proxy giving the purchaser or
A-7
<PAGE>
respective purchasers of the Voting Securities severally, as the case may be
(hereafter called the "Purchaser(s)"), the exclusive right to vote the Voting
Securities purchased in the name, place and stead of the holders thereof.
D. If, on or prior to the Purchase Date, the Purchase Price
has been deposited into the Account and if, on the Purchase Date, certificates
for all of the Voting Securities being purchased as designated in the Resolution
are not delivered to the Bank Official, properly endorsed in blank for transfer
(with signatures guaranteed), together with the aforesaid irrevocable proxy,
then, effective on the Purchase Date, (1) all of the Voting Securities being
purchased as designated in the Resolution which are not so delivered with an
irrevocable proxy shall be deemed automatically assigned and transferred to the
respective Purchaser(s) (whether such Purchaser(s) are the Corporation or its
nominee(s), or both), (2) the Corporation shall mark its records to indicate
that the certificates for the Voting Securities which have been purchased have
been canceled, (3) the Corporation shall issue new certificates to the
respective Purchaser(s) and (4) the respective Purchaser(s) shall be deemed to
have received an irrevocable proxy granting to the respective Purchaser(s) the
right to vote all of the Voting Securities purchased in the name, place, and
stead of the holders thereof. Every holder of Voting Securities hereby
authorizes and appoints the Secretary or any Assistant Secretary of the
Corporation as the holder's agent and attorney-in-fact to make assignments and
transfers on the Corporation's books and to execute any proxy on behalf of the
holder as provided herein.
E. If, for any reason (and regardless of whether the
Corporation formally revokes the Resolution), the Corporation or the
Corporation's nominee(s) do not deposit the Purchase Price as provided in
Article 10C, the Resolution shall be deemed revoked and of no force or effect.
In such case, the holder of the Voting Securities to be purchased shall have no
legal right against the Corporation or its nominee(s) for the Purchase Price or
any other legal or equitable claim by reason of the revocation of the Resolution
or otherwise. Nothing contained herein shall prevent the Corporation or its
nominee(s) from thereafter exercising the purchase option with respect to such
holder or any member of a Shareholder Group (as such term is defined in Article
8) which includes such holder upon the adoption of a new Resolution pursuant to
this Article 10, regardless of the fact that a prior Resolution was revoked.
F. In the event the Board of Directors determines that a
Shareholder Group (as such term is defined in Article 8) exists with Holdings
(as such term is defined in Article 9) in excess of 10% of the issued and
outstanding Voting Securities, the purchase option need not be exercised
proportionately as to the Holdings of all members of the Shareholder group and
may be exercised as to any one or more or all members of the Shareholder Group,
as the Board of Directors shall determine.
A-8
<PAGE>
G. The Purchase Price shall equal the number of shares or
other units of Voting Securities being purchased multiplied as follows: (1) if,
during the period beginning sixty-five (65) trading days prior to the Resolution
Date and ending five (5) trading days prior to the Resolution Date (such sixty
(60) trading days being hereafter called the "Measurement Period"), the class of
Voting Securities to be purchased is listed on or admitted to unlisted trading
privileges on a national securities exchange or on the NASDAQ Stock Market, by
the mean average of the per share closing sale prices for such Voting Securities
during the Measurement Period on the national securities exchange or on the
NASDAQ Stock Market with the largest trading volume on which such security is
then listed or admitted to unlisted trading privileges; (2) if, during the
Measurement Period, the class of Voting Securities to be purchased is not listed
or admitted to unlisted trading privileges on any national securities exchange
or on the NASDAQ Stock Market, by the mean average of the per share closing bid
prices for such Voting Securities during the Measurement Period in the
over-the-counter market; (3) if, during the Measurement Period, the class of
Voting Securities to be purchased is not listed or admitted to unlisted trading
privileges on any national securities exchange or the NASDAQ Stock Market and no
bid price is quoted for such Voting Securities in the over-the-counter market,
but such Voting Securities are convertible into another class of securities
("Converted Securities") which is so listed, traded or quoted, the Purchase
Price of such Voting Securities shall be calculated as if Converted Securities
were being purchased hereunder; (4) if, during the Measurement Period, neither
the class of Voting Securities to be purchased, nor any class of securities into
which such Voting Securities are convertible, is listed on or admitted to
unlisted trading privileges on a national securities exchange or on the NASDAQ
Stock Market and no bid price is quoted in the over-the-counter market, by the
lower of (a) the last sale price prior to the Resolution Date or (b) the per
share or other unit book value of such Voting Security as of the last day of the
calendar quarter which immediately precedes the Resolution Date. The Corporation
shall retain the independent public accounting firm regularly retained by the
Corporation, or any other firm of independent public accountants selected by the
Board of Directors, to compute the Purchase Price. The accounting firm's
computation of the Purchase Price shall be final and conclusive, absent clear
and convincing evidence of bad faith. The term "trading day" shall refer to a
day in which there is trading of stock on the New York Stock Exchange or NASDAQ.
Notwithstanding the foregoing, with respect to Voting Securities, if and to the
extent the Resolution Date occurs within one year after the Voting Securities
were acquired by the shareholder, or if and to the extent that the Resolution
Date occurs within one year after the earliest of (i) the date of public
disclosure of such Person's acquisition of such Voting Securities, or (ii) the
date on which the Board of Directors was first notified in writing of such
Person's acquisition of such Voting Securities, the Purchase Price shall in no
event exceed the direct cost incurred by the holder to purchase such Voting
A-9
<PAGE>
Securities (excluding legal, accounting, brokerage, investment, advisory,
interest, points or other carrying charges, or indirect costs, whether or not
similar to the foregoing).
lb. Removal of Directors
--------------------
(a) Removal by Shareholders
The entire Board of Directors, or a class of the Board, if
the Board is classified with respect to the power to elect directors, or any
individual director, may be removed from office by the shareholders only for
cause (as defined herein) and only with the vote of shareholders entitled to
cast at least seventy-five percent (75%), or such higher percentage as may be
required by law, of the votes which all shareholders would be entitled to cast
at any annual election of directors or of such class of directors. The term
"cause," as used herein, shall refer only to one of the following events: (1)
conviction of the director of a felony; (2) declaration by order of court that
the director is of unsound mind; or (3) gross abuse of trust which is proved by
clear and convincing evidence to have been committed in bad faith.
(b) Removal by Board of Directors
The Board of Directors may, without shareholder approval,
declare vacant the office of any director for any proper cause (whether or not
similar to those listed in subparagraph (a) above) including, but not limited
to, conflict of interest or other breach of fiduciary duty, default on a loan,
or unacceptability of the director to bank regulatory authorities as a director
of a bank subsidiary of the Corporation.
12. Subchapters E, G, H, I and J
----------------------------
Subchapters E, G, H, I and J of Chapter 25 of the
Pennsylvania Business Corporation Law of 1988, as amended, shall not be
applicable to this Corporation.
13. Amendment to Articles or Bylaws
-------------------------------
Any amendment to these Amended and Restated Articles of
Incorporation or to the Bylaws of the Corporation which is proposed by
shareholders, and which has not previously received the approval of the Board of
Directors, shall require for adoption the affirmative vote of the holders of at
least seventy-five percent (75%) of the votes which all shareholders are
entitled to cast thereon, in addition to any other approval which is required by
law, these Amended and Restated Articles of Incorporation, the Bylaws of the
Corporation or otherwise.
A-10
<PAGE>
14. Severability
------------
In the event that all, some or any part of any provision contained in
this Amended and Restated Articles of Incorporation shall be found by any court
of competent jurisdiction to be illegal, invalid or unenforceable (as against
public policy or otherwise), such provision shall be enforced to the fullest
extent permitted by law and shall be construed as if it had been narrowed only
to the extent necessary so as not to be invalid, illegal or unenforceable; the
validity, legality and enforceability of the remaining provisions of this
Amended and Restated Articles of Incorporation shall continue in full force and
effect and shall not be affected or impaired by such illegality, invalidity or
unenforceability of any other provision (or any part or parts thereof) of the
Amended and Restated Articles of Incorporation. If and to the extent that any
provision contained in this Amended and Restated Articles of Incorporation
violates any rule of a securities exchange or automated quotation system on
which securities of the Corporation are traded, the Board of Directors is
authorized, in its sole discretion, to suspend or terminate such provision for
such time or periods of time and subject to such conditions as the Board of
Directors shall determine in its sole discretion.
15. Definitions
-----------
As used herein, the term "Person" shall mean any individual,
partnership, corporation, group or other entity (other than the Corporation or
any Subsidiary as defined below for itself or as a fiduciary for customers, or a
trustee holding Voting Securities for the benefit of the employees of the
Corporation or its Subsidiaries or any one of them, pursuant to one or more
employee benefit plans or arrangements sponsored by the Corporation or any
Subsidiary). A "Shareholder Group," as defined in Article 8, is considered a
single "Person."
As used herein, the term "Subsidiary" shall mean any corporation of which
the Corporation owns fifty percent (50%) or more of any class of securities
entitled to vote in the election of directors, either directly or indirectly,
through one or more other corporations.
As used herein, the term "Voting Securities" refers to all outstanding
securities of the Corporation entitled to vote (whether in the election of
directors or otherwise).
The use of the masculine gender shall include the feminine and neuter
genders, as the case may be.
16. Headings
--------
Article headings and the ordering of paragraphs are for convenience of
reference only and shall not be construed to alter, amend or otherwise affect
the meaning, intent or effect of the provisions of this Amended and Restated
Articles of Incorporation.
A-11
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
COMMUNITY INDEPENDENT BANK, INC.
These Bylaws are supplemental to the Pennsylvania Business Corporation
Law and other applicable provisions of law, as the same shall from
time to time be in effect.
ARTICLE I. MEETINGS OF SHAREHOLDERS.
Section 101. Place of Meetings. All meetings of the shareholders shall
-----------------
be held at such place or places, within or without the Commonwealth of
Pennsylvania, as shall be determined by the Board of Directors from time to
time.
Section 102. Annual Meetings. The annual meeting of the shareholders
---------------
for the election of directors and the transaction of such other business as may
properly come before the meeting shall be held at such time as the Board of
Directors shall fix. Any business which is a proper subject for shareholder
action may be transacted at the annual meeting, irrespective of whether the
notice of said meeting contains any reference thereto, except as otherwise
provided by applicable law.
Section 103. Special Meetings. Special meetings of the shareholders
----------------
may be called at any time by the Board of Directors, the Chief Executive
Officer, the Chairman of the Board, the President or by the shareholders
entitled to cast at least one-third of the vote which all shareholders are
entitled to cast at the particular meeting.
<PAGE>
Section 104. Conduct of Shareholders' Meetings. The Chief Executive
---------------------------------
Officer shall preside at all shareholders' meetings. In the absence of the Chief
Executive Officer, the Chairman of the Board shall preside or, in his or her
absence, the President or, in his or her absence, any officer designated by the
Board of Directors. The officer presiding over the shareholders' meeting may
establish such rules and regulations for the conduct of the meeting as he or she
may deem to be reasonably necessary or desirable for the orderly and expeditious
conduct of the meeting. Unless the officer presiding over the shareholders'
meeting otherwise requires, shareholders need not vote by ballot on any
questions.
ARTICLE II. DIRECTORS AND BOARD MEETINGS
Section 201. Management by Board of Directors. The business and
--------------------------------
affairs of the Corporation shall be managed by its Board of Directors. The Board
of Directors may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by statute, regulation, the Articles of
Incorporation or these Bylaws directed or required to be exercised or done by
the shareholders.
Section 202. Nomination for Directors. Nominations for directors to be
------------------------
elected at an annual meeting of shareholders must be submitted to the Secretary
of the Corporation in writing not
<PAGE>
later than the close of business on the twentieth day immediately preceding the
date of the meeting. All late nominations shall be rejected. Notwithstanding the
foregoing, at any time prior to the election of directors at a meeting of
shareholders the Board of Directors may designate a substitute nominee to
replace any bona fide nominee who was nominated as set forth above and, who, for
any reason, becomes unavailable for election as a director.
Section 203. Directors Must be Shareholders. Every director must be a
------------------------------
shareholder of the Corporation or The Merchants National Bank of Allentown and
shall own in his or her own right the number of shares (if any) required by law
in order to qualify as such director. Any director shall forthwith cease to be a
director when he or she no longer holds such shares, which fact shall be
reported to the Board of Directors by the Secretary, whereupon the Board of
Directors shall declare the seat of such director vacated.
Section 204. Eligibility and Mandatory Retirement. No person shall be
------------------------------------
eligible to be elected as a director if he or she shall have attained the age of
seventy on or prior to the date of his election. Any director of this
Corporation who attains the age of seventy shall cease to be a director (without
any action on
<PAGE>
his or her part) at the close of business on the day prior to the date of the
next shareholders' meeting at which directors are to be elected regardless of
whether or not his or her term as a director would otherwise expire at such
shareholders' meeting. Notwithstanding the foregoing, the age of sixty-five, as
opposed to seventy, shall be the applicable age for purposes of this Section 204
as to directors who are present or former officers of the Corporation or any of
the subsidiaries of the Corporation.
Section 205. Number of Directors. The Board of Directors shall consist
-------------------
of not less than five (5) nor more than twenty-five (25) directors. The number
of directors to be elected, subject to the foregoing limits, shall be determined
from time to time by the Board of Directors.
Section 206. Classification of Directors. The directors shall be
---------------------------
divided into three classes, as nearly equal in number as possible, known as
Class 1, consisting of not more than eight (8) directors, and Class 2,
consisting of not more than eight (8) directors, and Class 3, consisting of not
more than nine (9) directors. The initial directors of Class 1 shall serve until
the third annual meeting of shareholders. At the third annual meeting of the
shareholders, the directors of Class 1 shall be elected for
<PAGE>
a term of three years and, after expiration of such term, shall thereafter be
elected every three years for three year terms. The initial directors of Class 2
shall serve until the second annual meeting of shareholders. At the second
annual meeting of the shareholders, the directors of Class 2 shall be elected
for a term of three years and, after the expiration of such term, shall
thereafter be elected every three years for three year terms. The initial
directors of Class 3 shall serve until the first annual meeting of shareholders.
At the first annual meeting of the shareholders the directors of Class 3 shall
be elected for a term of three years and, after the expiration of such term,
shall thereafter be elected every three years for three year terms. Each
director shall serve until his or her successor shall have been elected and
shall qualify, even though his or her term of office as herein provided has
otherwise expired, except in the event of his or her earlier resignation,
removal or disqualification.
Section 207. Vacancies. Vacancies in the Board of Directors, including
---------
vacancies resulting from an increase in the number of directors, may be filled
by the remaining members of the Board even though less than a quorum. Any
director elected to fill a vacancy in the Board of Directors shall become a
member of the same class of directors in which the vacancy existed; but if the
vacancy is due to an increase in the number of directors, a
<PAGE>
majority of the members of the Board of Directors shall designate such
directorship as belonging to Class 1, Class 2 or Class 3 so as to maintain the
three classes of directors as nearly equal in number as possible. Each director
so elected shall be a director until his or her successor is elected by the
shareholders, who may make such election at the next annual meeting of the
shareholders or at any special meeting duly called for that purpose and held
prior thereto.
Section 208. Resignations. Any director may resign at any time. Such
------------
resignation shall be in writing, but the acceptance thereof shall not be
necessary to make it effective.
Section 209. Compensation of Directors. No director shall be entitled
-------------------------
to any salary as such; but the Board of Directors may fix, from time to time, a
reasonable annual fee for acting as a director and a reasonable fee to be paid
each director for his or her services in attending meetings of the Board or
meetings of committees appointed by the Board. The Corporation may reimburse
directors for expenses related to their duties as a member of the Board.
Section 210. Regular Meetings. Regular meetings of the Board of
----------------
Directors shall be held on such day, at such hour, and at such place, consistent
with applicable law, as the Board shall
<PAGE>
from time to time designate or as may be designated in any notice from the
Secretary calling the meeting. The Board of Directors shall meet for
reorganization at the first regular meeting following the annual meeting of
shareholders at which the directors are elected. Notice need not be given of
regular meetings of the Board of Directors which are held at the time and place
designated by the Board of Directors. If a regular meeting is not to be held at
the time and place designated by the Board of Directors, notice of such meeting,
which need not specify the business to be transacted thereat and which may be
either verbal or in writing, shall be given by the Secretary to each member of
the Board at least twenty-four hours before the time of the meeting.
Section 211. Special Meetings. Special meetings of the Board of
----------------
Directors may be called by the Chairman of the Board, the Chief Executive
Officer, the President or whenever three or more members of the Board so request
in writing. A special meeting of the Board of Directors shall be deemed to be
any meeting other than the regular meeting of the Board of Directors. Notice of
the time and place of every special meeting, which need not specify the business
to be transacted thereat and which may be either verbal or in writing, shall be
given by the Secretary to each
<PAGE>
member of the Board at least twenty-four hours before the time of such meeting.
Section 212. Chairmen of the Board. The Board of Directors shall elect
---------------------
a Chairman of the Board at the first regular meeting of the Board following each
annual meeting of shareholders at which directors are elected. The Chairman of
the Board shall be a member of the Board of Directors and shall preside at the
meetings of the Board and perform such other duties as may be prescribed by the
Board of Directors.
Section 213. Vice Chairmen of the Board. The Board of Directors may
--------------------------
elect one or more Vice Chairmen of the Board as the Board of Directors may from
time to time deem advisable. The Vice Chairmen of the Board shall have such
duties as are prescribed by the Board of Directors or the Chairman of the Board.
The Vice Chairmen of the Board need not be members of the Board of Directors.
Section 214. Reports and Records. The reports of officers and
-------------------
committees and the records of the proceedings of all committees shall be filed
with the Secretary of the Corporation and presented to the Board of Directors,
if practicable, at its next regular meeting. The Board of Directors shall keep
complete records of its proceedings in a minute book kept for that purpose. When
a director shall request it, the vote of each director upon a particular
question shall be recorded in the minutes.
<PAGE>
ARTICLE III. COMMITTEES.
Section 301. Committees. The following two committees of the Board of
----------
Directors shall be established by the Board of Directors in addition to any
other committee the Board of Directors may in its discretion establish:
Executive Committee
Audit Committee
Section 302. Executive Committee. The Executive Committee shall
-------------------
consist of any five or more directors. A majority of the members of the
Executive Committee shall constitute a quorum, and actions of a majority of
those present at a meeting at which a quorum is present shall be actions of the
Committee. Meetings of the Committee may be called at any time by the Chairman
or Secretary of the Committee, and shall be called whenever two or more members
of the Committee so request in writing. The Executive Committee shall have and
exercise the authority of the Board of Directors in the management of the
business of the Corporation between the dates of regular meetings of the Board.
Section 303. Audit Committee. The Audit Committee shall consist of at
---------------
least five directors, none of whom shall be officers of the Corporation.
Meetings of the Committee may be called at any time by the Chairman or Secretary
of the Committee, and shall be called whenever two or more members of the
Committee so request
<PAGE>
in writing. A majority of the members of the Committee shall constitute a
quorum, and actions of a majority of those present at a meeting at which a
quorum is present shall be actions of the Committee. The Committee shall
supervise the audit of the books of the Corporation and recommend for approval
by the Board the services of a reputable certified public accounting firm to
examine the affairs of the Corporation.
Section 304. Appointment of Committee Members. The Board of Directors
--------------------------------
shall elect the members of the Executive and Audit Committees and the chairman
and vice chairman of each such committee to serve until the next annual meeting
of shareholders. The Chief Executive Officer shall appoint or shall establish a
method of appointing, subject to the approval of the Board of Directors, the
members of any other committees established by the Board of Directors, and the
chairman and vice chairmen of each such committee, to serve until the next
annual meeting of shareholders.
Section 305. Organization and Proceedings. Each committee of the Board
----------------------------
of Directors shall effect its own organization by the appointment of a secretary
and such other officers, except the chairman and vice chairmen as it may deem
necessary. A record of the proceedings of all committees shall be kept by the
<PAGE>
secretary of such committee and filed and presented as provided in Section 214
of these Bylaws.
ARTICLE IV. OFFICERS.
Section 401. Officers. The officers of the Corporation shall be a
--------
Chief Executive Officer, a President, one or more Vice Presidents, a Secretary,
a Treasurer, and such other officers and assistant officers as the Board of
Directors may from time to time deem advisable. Except for the Chief Executive
Officer, President, Secretary and Treasurer, the Board may refrain from filling
any of the said offices at any time and from time to time. The same individual
may hold any two or more offices except both the offices of President and
Treasurer. The following officers shall be elected by the Board of Directors at
the time, in the manner and for such terms as the Board of Directors from time
to time shall determine: Chief Executive Officer, President, Executive Vice
Presidents, Senior Vice Presidents, Administrative Vice Presidents, Secretary,
and Treasurer. The Chief Executive Officer may, subject to change by the Board
of Directors, appoint such other officers and assistant officers as he or she
may deem advisable provided such officers or assistant officers have a title no
higher than Vice President, who shall hold office for
<PAGE>
such periods as the Chief Executive Officer shall determine. Any officer may be
removed at any time, with or without cause, and regardless of the term for which
such officer was elected, but without prejudice to any contract right of such
officer.
Section 402. Chief Executive Officer. The Chief Executive Officer
-----------------------
shall have general supervision of all of the departments and business of the
Corporation and shall prescribe the duties of the other officers and employees
and see to the proper performance thereof. The Chief Executive Officer shall be
responsible for having all orders and resolutions of the Board of Directors
carried into effect. The Chief Executive Officer shall execute on behalf of the
Corporation and may affix or cause to be affixed a seal to all authorized
documents and instruments requiring such execution, except to the extent that
signing and execution thereof shall have been delegated to some other officer or
agent of the Corporation by the Board of Directors or by the Chief Executive
Officer. The Chief Executive Officer shall be a member of the Board of
Directors. In the absence or disability of the Chairman of the Board or his or
her refusal to act, the Chief Executive Officer shall preside at meetings of the
Board. In general, the Chief Executive Officer shall perform all the duties and
exercise all the powers and authorities incident to such office or as prescribed
by the Board of Directors.
<PAGE>
Section 403. President. The President shall perform such duties as are
---------
incident to such office or prescribed by the Board of Directors or the Chief
Executive Officer. In the event of the absence or disability of the Chief
Executive Officer or his or her refusal to act, the President shall perform the
duties and have the powers and authorities of the Chief Executive Officer. The
President shall execute on behalf of the Corporation and may affix or cause to
be affixed a seal to all authorized documents and instruments requiring such
execution, except to the extent that signing and execution thereof shall have
been delegated to some other officer or agent of the Corporation by the Board of
Directors or the President. The President shall be a member of the Board of
Directors. In the absence or disability of the Chairman of the Board and the
Chief Executive Officer or their refusal to act, the President shall preside at
meetings of the Board.
Section 404. Vice Presidents. The Vice Presidents shall perform such
---------------
duties, do such acts and be subject to such supervision as may be prescribed by
the Board of Directors, the Chief Executive Officer or the President. In the
event of the absence or disability of the Chief Executive Officer and President
or their refusal to act, the Vice Presidents, in the order of their rank, and
within
<PAGE>
the same rank in the order of their seniority, shall perform the duties and have
the powers and authorities of the Chief Executive Officer and President, except
to the extent inconsistent with applicable law.
Section 405. Secretary. The Secretary shall act under the supervision
---------
of the Chief Executive Officer and President or such other officer as the Chief
Executive Officer or President may designate. Unless a designation to the
contrary is made at a meeting, the Secretary shall attend all meetings of the
Board of Directors and all meetings of the shareholders and record all of the
proceedings of such meetings in a book to be kept for that purpose, and shall
perform like duties for the standing committees when required by these Bylaws or
otherwise. The Secretary shall give, or cause to be given, notice of all
meetings of the shareholders and of the Board of Directors. The Secretary shall
keep a seal of the Corporation, and, when authorized by the Board of Directors,
the Chief Executive Officer or the President, cause it to be affixed to any
documents and instruments requiring it. The Secretary shall perform such other
duties as may be prescribed by the Board of Directors, Chief Executive Officer,
President or such other supervising officer as the Chief Executive Officer or
President may designate.
<PAGE>
Section 406. Treasurer. The Treasurer shall act under the supervision
---------
of the Chief Executive Officer and President or such other officer as the Chief
Executive Officer or President may designate. The Treasurer shall have custody
of the Corporation's funds and such other duties as may be prescribed by the
Board of Directors, Chief Executive Officer, President or such other supervising
officer as the Chief Executive Officer or President may designate.
Section 407. Assistant Officers. Unless otherwise provided by the
------------------
Board of Directors, each assistant officer shall perform such duties as shall be
prescribed by the Board of Directors, the Chief Executive Officer, the President
or the officer to whom he or she is an assistant. In the event of the absence or
disability of an officer or his or her refusal to act, his or her assistant
officers shall, in the order of their rank, and within the same rank in the
order of their seniority, have the powers and authorities of such officer.
Section 408. Compensation. Unless otherwise provided by the Board of
------------
Directors, the salaries and compensation of all officers and assistant officers,
except the Chief Executive Officer and President shall be fixed by or in the
manner designated by the Chief Executive Officer.
<PAGE>
Section 409. General Powers. The officers are authorized to do and
--------------
perform such corporate acts as are necessary in the carrying on of the business
of the Corporation, subject always to the directions of the Board of Directors.
ARTICLE V. INDEMNIFICATION.
Section 501. Mandatory Indemnification. The Corporation shall, to the
-------------------------
full extent permitted by Section 410 of the Pennsylvania Business Corporation
Law (15 P.S. 1410), as amended from time to time, indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was a director,
officer or employee of the Corporation or of any of its subsidiaries.
Section 502. Optional Indemnification. In all situations in which
------------------------
indemnification is not mandatory under Section 501 hereof, the Corporation may,
to the full extent permitted by Section 410 of the Pennsylvania Business
Corporation Law (15 P.S. 1410), as amended from time to time, indemnify all
persons whom it is empowered to indemnify pursuant thereto.
ARTICLE VI. SHARES OF CAPITAL STOCK.
Section 601. Authority to Sign Share Certificates. Every
------------------------------------
<PAGE>
share certificate of the Corporation shall be signed by the Chief Executive
Officer or the President and by the Secretary or one of the Assistant
Secretaries. Certificates may be signed by a facsimile signature of the Chief
Executive Officer or the President and the Secretary or one of the Assistant
Secretaries of the Corporation.
Section 602. Lost or Destroyed Certificates. Any person claiming a
------------------------------
share certificate to be lost, destroyed or wrongfully taken shall receive a
replacement certificate if such person shall have: (a) requested such
replacement certificate before the Corporation has notice that the shares have
been acquired by a bona fide purchaser; (b) provided the Corporation with an
indemnity agreement satisfactory in form and substance to the Board of
Directors, or the Chief Executive Officer, or the President or the Secretary;
and (c) satisfied any other reasonable requirements (including providing an
affidavit and a surety bond) fixed by the Board of Directors, or the Chief
Executive Officer, or the President or the Secretary.
ARTICLE VII. GENERAL.
Section 701. Fiscal Year. The fiscal year of the Corporation shall
-----------
begin on the first day of January in each year and end on the thirty-first day
of December in each year.
<PAGE>
Section 702. Record Date. The Board of Directors may fix any time
-----------
whatsoever (whether or not the same is more than fifty days) prior to the date
of any meeting of shareholders, or the date for the payment of any dividend or
distribution, or the date for the allotment of rights, or the date when any
change or conversion or exchange of shares will be made or will go into effect,
as a record date for the determination of the shareholders entitled to notice
of, or to vote at, any such meetings, or entitled to receive payment of any such
dividend or distribution, or to receive any such allotment of rights, or to
exercise the rights in respect to any such change, conversion or exchange of
shares.
Section 703. Absentee Participation in Meetings. One or more directors
----------------------------------
may participate in a meeting of the Board of Directors, or of a committee of the
Board, by means of a conference telephone or similar communications equipment,
by means of which all persons participating in the meeting can hear each other.
Section 704. Emergency Bylaws. In the event of any emergency resulting
----------------
from a nuclear attack or similar disaster, and during the continuance of such
emergency, the following Bylaw provisions shall be in effect, notwithstanding
any other provisions of these Bylaws:
<PAGE>
(a) A meeting of the Board of Directors or of any committee thereof
may be called by any officer or director upon one hour's notice to all persons
entitled to notice whom, in the sole judgment of the notifier, it is feasible to
notify;
(b) The director or directors in attendance at the meeting of the
Board of Directors or of any committee thereof shall constitute a quorum; and
(c) These Bylaws may be amended or repealed, in whole or in part, by a
majority vote of the directors attending any meeting of the Board of Directors,
provided such amendment or repeal shall only be effective for the duration of
such emergency.
Section 705. Severability. If any provision of these Bylaws is illegal
------------
or unenforceable as such, such illegality or unenforceability shall not affect
any other provision of these Bylaws and such other provisions shall continue in
full force and effect.
ARTICLE VIII. AMENDMENT OR. REPEAL.
Section 801. Amendment or Repeal by the Board of Directors. These
---------------------------------------------
Bylaws may be amended or repealed, in whole or in part, by a majority vote of
members of the Board of Directors at any regular or special meeting of the Board
duly convened. Notice need not be given of the purpose of the meeting of the
Board of Directors at which the amendment or repeal is to be considered.
<PAGE>
Section 802. Recording Amendments and Repeals. The text of all
--------------------------------
amendments and repeals to these Bylaws shall be attached to the Bylaws with a
notation of the date and vote of each such amendment or repeal.
ARTICLE IX. APPROVAL OF AMENDED BYLAWS AND RECORD OF AMENDMENTS AND REPEALS.
Section 901. Approval and Effective Date. These Bylaws have been
---------------------------
approved as the Bylaws of the Corporation this 15th day of December, 1981, and
shall be effective as of said date.
Section 902. Amendments or Repeals.
---------------------
Date Amended
Section Involved or Repealed Approved by
<PAGE>
Exhibit 4.1 Certificate of Common Stock
Form of Stock Certificate for Community Independent Bank, Inc. Common
Stock, Par Value $5, Specimen:
This certifies that ______________________ is the owner of
Fully paid and non-assessable shares of Common Stock of the Par Value
of Five Dollars ($5.00) per share of Community Independent Bank, Inc.,
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Corporation will furnish to any shareholder, upon request
and without charge, a full or summary statement of the designations,
preferences, limitation, and relative rights of the shares of each class
authorized to be issued, and the variations in the relative rights and
preferences between the shares of each series of preferred stock so far as
the same have been fixed and determined, and the authority of the Board of
Directors to fix and determine the relative rights and preferences of
subsequent series of preferred stock. This Certificate and the shares
represented hereby are subject to all of the provisions of the Articles of
Incorporation and the By-Laws of the Corporation, as amended from time to
time, including, but not limited to, provisions limiting voting rights.
This Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
WITNESS the facsimile signatures of the duly authorized officers and
the facsimile corporate seal of the Corporation.
Dated
[CORPORATE SEAL APPEARS HERE]
/s/ Linda Strohmenger /s/ Arlan J. Werst
Secretary President
<PAGE>
EXHIBIT 10.1
Community Independent Bank, Inc.
1996 EMPLOYEE STOCK OPTION PLAN
1. Purpose of Plan
Purpose of this 1996 Employee Stock Option Plan (the "Plan") is to
provide additional incentive to officers and other key employees of Community
Independent Bank, Inc. (the "Company") and each present or future parent or
subsidiary corporation by encouraging them to invest in shares of the Company's
common stock, $5.00 par value ("Common Stock"), and thereby acquire a
proprietary interest in the Company's continued success and progress, to the
mutual benefit of officers, employees and shareholders.
2. Aggregate Number of Shares
25,000 shares of the Company's Common Stock shall be the aggregate
number of shares which may be issued under this Plan. Notwithstanding the
foregoing, in the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split (other than the
3 for 2 stock split effective April 1, 1996 for which no adjustment shall be
made), combination of shares, recapitalization, merger, consolidation, transfer
of assets, reorganization, conversion or what the Option Committee (defined in
Section 4(a)), deems in its sole discretion to be similar circumstances, the
aggregate number and kind of shares which may be issued under this Plan shall be
appropriately adjusted in a manner determined in the sole discretion of the
Option Committee. Reacquired shares of the Company's Common Stock, as well as
unissued shares, may be used for the purpose of this Plan. Common Stock of the
Company subject to options which have terminated unexercised, either in whole or
in part, shall be available for future options granted under this Plan.
3. Class of Persons Eligible to Receive Options
All officers and key employees of the Company and of any present or
future Company parent or subsidiary corporation are eligible to receive an
option or options under this Plan. The individuals who shall, in fact, receive
an option or options options shall be selected by the Option Committee, in its
sole discretion, except as otherwise specified in Section 4 hereof. During the
term of this Plan, no optionee under this Plan shall be entitled to be granted
options to purchase shares of the Company's Common Stock in excess of the total
number of shares set forth in Section 2 of this Plan (as adjusted pursuant to
Section 2).
B-1
<PAGE>
4. Administration of Plan
(a) This Plan shall be administered by the Option Committee
("Committee") appointed by the Company's Board of Directors. The Committee shall
consist of a minimum of two and a maximum of five members of the Board of
Directors, each of whom shall be a "disinterested person" within the meaning of
Rule 16b-3(c) (2) (i) under the Securities Exchange Act of 1934, as amended, or
any future corresponding rule. The Committee shall, in addition to its other
authority and subject to the provisions of this Plan, determine which
individuals shall in fact be granted an option or options, whether the option
shall be an Incentive Stock Option or a Non-Qualified Stock Option (as such
terms are defined in Section 5 (a)), the number of shares to be subject to each
of the options, the time or times at which the options shall be granted, the
rate of option exercisability, and, subject to Section 5 hereof, the price at
which each of the options is exercisable and the duration of the option.
(b) The Committee shall adopt such rules for the conduct of its
business and administration of this Plan as it considers desirable. A majority
of the members of the Committee shall constitute a quorum for all purposes. The
vote or written consent of a majority of the members of the Committee on a
particular matter shall constitute the act of the Committee on such matter. The
Committee shall have the right to construe the Plan and the options issued
pursuant to it, to correct defects and omissions and to reconsile
inconsistencies to the extent necessary to effectuate the Plan and the options
issued pursuant to it, and such action shall be final, binding and conclusive
upon all parties concerned. No member of the Committee or the Board of Directors
shall be liable for any act or omission (whether or not negligent) taken or
omitted in good faith, or for the exercise of an authority or discretion granted
in connection with the Plan to a Committee or the Board of Directors, or for the
acts or omissions of any other members of a Committee or the Board of Directors.
Subject to the numerical limitations on Committee membership set forth in
Section 4(a) hereof, the Board of Directors may at any time appoint additional
members of the Committee and may at any time remove any member of the Committee
with or without cause. Vacancies in the Committee, however caused, may be filled
by the Board of Directors, if it so desires.
5. Incentive Stock Options and Non-Qualified Stock Options
(a) Options issued pursuant to this Plan may be either Incentive Stock
Options granted pursuant to Section 5(b) hereof or Non-Qualified Stock Options
granted pursuant to Section 5(c) hereof, as determined by the Committee. An
"Incentive Stock Option" is an option which satisfies all of the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and
the
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regulations thereunder, and a "Non-Qualified Stock Option" is an option which
either does not satisfy all of those requirements or the terms of the option
provide that it will not be treated as an Incentive Stock Option. The Committee
may grant both an Incentive Stock Option and a Non-Qualified Stock Option to the
same person, or more than one of each type of option to the same person. The
option price for options issued under this Plan shall be equal at least to the
fair market value (as defined below) of the Company's Common Stock on the date
of the grant of the option. The fair market value of the Company's Common Stock
on any particular date shall mean the last reported sale price of a share of the
Company's Common Stock on any stock exchange on which such stock is then listed
or admitted to trading, or on the NASDAQ National Market System or Small Cap
NASDAQ, on such date, or if no sale took place on such day, the last such date
on which a sale took place, or if the Common Stock is not then quoted on the
NASDAQ National Market System or Small Cap NASDAQ, or listed or admitted to
trading on any stock exchange, the average of the bid and asked prices in the
over-the-counter market on such date, or if none of the foregoing, a price
determined by the Committee.
(b) Subject to the authority of the Committee set forth in Section 4(a)
hereof, Incentive Stock Options issued pursuant to this Plan shall be issued
substantially in the form set forth in Appendix I hereof, which form is hereby
incorporated by reference and made a part hereof, and shall contain
substantially the terms and conditions set forth therein. Incentive Stock
Options shall not be exercisable after the expiration of ten years from the date
such options are granted, unless terminated earlier under the terms of the
option. At the time of the grant of an Incentive Stock Option hereunder, the
Committee may, in its discretion, amend or supplement any of the option terms
contained in Appendix I for any particular optionee, provided that the option as
amended or supplemented satisfies the requirements of Section 422 of the Code
and the regulations thereunder. Each of the options granted pursuant to this
Section 5(b) is intended, if possible, to be an "Incentive Stock Option" as that
term is defined in Section 422 of the Code and the regulations thereunder. In
the event this Plan or any option granted pursuant to this Section 5(b) is in
any way inconsistent with the applicable legal requirements of the Code or the
regulations thereunder for an Incentive Stock Option, this Plan and such option
shall be deemed automatically amended as of the date hereof to conform to such
legal requirements, if such conformity may be achieved by amendment.
(c) Subject to the authority of the Committee set forth in Section 4(a)
hereof, Non-Qualified Stock Options issued pursuant to this Plan shall be issued
substantially in the form set forth in Appendix II hereof, which form is hereby
incorporated by reference and made a part hereof, and shall contain
substantially the terms and conditions set forth therein. Non-Qualified Stock
Options shall
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expire ten years and 30 days after the date they are granted, unless terminated
earlier under the option terms. At the time of granting a Non-Qualified Stock
Option hereunder, the Committee may, in its discretion, amend or supplement any
of the option terms contained in Appendix II for any particular optionee.
(d) Neither the Company nor any of its current or future parent,
subsidiaries or affiliates, nor their officers, directors, shareholders, stock
option plan committees, employees or agents shall have any liability to any
optionee in the event (i) an option granted pursuant to Section 5(b) hereof does
not qualify as an "Incentive Stock Option" as that term is used in Section 422
of the Code and the regulations thereunder; (ii) any optionee does not obtain
the tax treatment pertaining to an Incentive Stock Option; or (iii) any option
granted pursuant to Section 5(c) hereof is an "Incentive Stock Option."
6. Amendment, Supplement, Suspension and Termination
Options shall not be granted pursuant to this Plan after the expiration
of ten years from the date the Plan is adopted by the Board of Directors of the
Company. The Board of Directors reserves the right at any time, and from time to
time, to amend or supplement this Plan in any way, or to suspend or terminate
is, effective as of such date, which date may be either before or after the
taking of such action, as may be specified by the Board of Directors; provided,
however, that such action shall not affect options granted under the Plan prior
to the actual date on which such action occurred. If an amendment or supplement
of this Plan is required by the Code or the regulations thereunder to be
approved by the shareholders of the Company in order to permit the granting of
"Incentive Stock Options" (as that term is defined in Section 422 of the Code
and regulations thereunder) pursuant to the amended or supplemented Plan, such
amendment or supplement shall also be approved by the shareholders of the
Company in such manner as is prescribed by the Code and the regulations
thereunder. If the Board of Directors voluntarily submits a proposed amendment,
supplement, suspension or termination for shareholder approval, such submission
shall not require any future amendments, supplements, suspensions or
terminations (whether or not relating to the same provision or subject matter)
to be similarly submitted for shareholder approval.
7. Effectiveness of Plan
This Plan shall become effective on the date of its adoption by the
Company's Board of Directors, subject however to approval by the holders of the
Company's Common Stock in the manner as prescribed in the Code and the
regulations thereunder. Options may be granted under this Plan prior to
obtaining shareholder approval, provided such options shall not be exercisable
until shareholder approval is obtained.
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8. General Conditions
(a) Nothing contained in this Plan or any option granted pursuant to
this Plan shall confer upon any employee the right to continue in the employ of
the Company or any affiliated or subsidiary corporation or interfere in any way
with the rights of the Company or any affiliated or subsidiary corporation to
terminate his employment in any way.
(b) Corporate action constituting an offer of stock for sale to any
employee under the terms of the options to be granted hereunder shall be deemed
complete as of the date when the Committee authorizes the grant of the option to
the employee, regardless of when the option is actually delivered to the
employee or acknowledge or agreed to by him.
(c) The terms "parent corporation" and "subsidiary corporation" as
used throughout this Plan, and the options granted pursuant to this Plan, shall
(except as otherwise provided in the option form) have the meaning that is
ascribed to that term when contained in Section 422(b) of the Code and the
regulations thereunder, and the Company shall be deemed to be the grantor
corporation for purposes of applying such meaning.
(d) References in this Plan to the Code shall be deemed to also refer
to the corresponding provisions of any future United States revenue law.
(e) The use of the masculine pronoun shall include the feminine
gender whenever appropriate.
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APPENDIX I
INCENTIVE STOCK OPTION
To:
------------------------------------------------------------------------
Name
------------------------------------------------------------------------
Address
Date of Grant:
--------------------------------------------------------------
You are hereby granted an option, effective as of the date hereof, to
purchase ___________ shares of common stock, $5.00 par value ("Common Stock"),
of Community Independent Bank, Inc. (the "Company") at a price of $_____ per
share pursuant to the Company's 1996 Employee Stock Option Plan (the "Plan").
Your option may first be exercised on and after one year from the date of
grant, but not before that time. On and after one year and prior to two years
from the date of grant, your option may be exercised for up to 33 1/3% of the
total number of shares subject to the option minus the number of shares
previously purchased by exercise of the option (as adjusted for any change in
the outstanding shares of the Common Stock of the Company by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the Option
Committee deems in its sole discretion to be similar circumstances). Each
succeeding year thereafter, your option may be exercised for up to an additional
33 1/3% of the total number of shares subject to the option minus the number of
shares previously purchased by exercise of the option (as adjusted for any
change in the outstanding shares of the Common Stock of the Company by reason of
a stock dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the Option
Committee deems in its sole discretion to be similar circumstances). Thus, this
option is fully exercisable on and after three years after the date of grant,
except if terminated earlier as provided herein. No fractional shares shall be
issued or delivered. This option shall terminate and is not exercisable after
ten years from the date of its grant (the "Scheduled Termination Date"), except
if terminated earlier as hereafter provided.
In the event of a "change of control" (as hereafter defined) of the
Company, your option may, from and after the date of the change of control, and
notwithstanding the foregoing paragraph, be
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exercised for up to 100% of the total number of shares then subject to the
option minus the number of shares previously purchased upon exercise of the
option (as adjusted for stock dividends, stock splits, combinations of shares
and what the Option Committee deems in its sole discretion to be similar
circumstances). A "change of control" shall be deemed to have occurred upon the
happening of any of the following events:
1. A change within a twelve-month period in a majority of the members of
the board of directors of the Company;
2. A change within a twelve-month period in the holders of more than 50%
of the outstanding voting stock of the Company; or
3. Any other event deemed to constitute a "change of control" by the
Option Committee.
You may exercise your option by giving written notice to the Secretary of
the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check; (b) (unless
prohibited by the Option Committee) certificates representing shares of Common
Stock of the Company, which will be valued by the Secretary of the Company at
the fair market value per share of the Company's Common stock (as determined in
accordance with the Plan) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; or (c)
(unless prohibited by the Option Committee) any combination of cash and Common
stock of the Company valued as provided in clause (b). Any assignment of stock
shall be in a form and substance satisfactory to the Secretary of the Company,
including guarantees of signature(s) and payment of all transfer taxes if the
Secretary deems such guarantees necessary or desirable.
Your option will, to the extent not previously exercised by you, terminate
three months after the date on which your employment by the Company or a Company
subsidiary corporation is terminated (whether such termination be voluntary or
involuntary) other than by reason of disability as defined in Section 22(e)(3)
of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations thereunder, or death, in which case your option will terminate one
year from the date of termination of employment due to disability or death (but
in no event later than the Scheduled Termination Date). After the date your
employment is terminated, as aforesaid, you may exercise this option only for
the number of shares which you had a right to purchase and did not purchase on
the date your employment terminated. If you are employed by a Company subsidiary
corporation, your employment shall be deemed to have terminated on the date your
employer ceases to be a Company
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subsidiary corporation, unless you are on that date transferred to the Company
or another Company subsidiary corporation. Your employment shall not be deemed
to have terminated if you are transferred from the Company to a Company
subsidiary corporation, or vice versa, or from one Company subsidiary
corporation to another Company subsidiary corporation.
If you die while employed by the Company or a Company subsidiary
corporation, your executor or administrator, as the case may be, may, at any
time within one year after the date of your death (but in no event later than
the Scheduled Termination Date), exercise the option as to any shares which you
had a right to purchase and did not purchase during your lifetime. If your
employment with the Company or a Company parent or subsidiary corporation is
terminated by reason of your becoming disabled (within the meaning of Section
22(e)(3) of the Code and the regulations thereunder), you or your legal guardian
or custodian may at any time within one year after the date of such termination
(but in no event later than the Scheduled Termination Date), exercise the option
as to any shares which you had a right to purchase and did not purchase prior to
such termination. Your executor, administrator, guardian or custodian must
present proof of his authority satisfactory to the Company prior to being
allowed to exercise this option.
In the event of any change in the outstanding shares of the Common stock of
the Company by reason of a stock dividend, stock split, combination of shares,
recapitalization, merger, consolidation, transfer or assets, reorganization,
conversion or what the Option Committee deems in its sole discretion to be
similar circumstances, the number and kind of shares subject to this option and
the option price of such shares shall be appropriately adjusted in a manner to
be determined in the sole discretion of the Option Committee. Notwithstanding
the foregoing, there shall be no adjustment made to the number of shares subject
to this option and the option price with respect to the stock split effective
April 1, 1996.
This option is not transferable otherwise than by Will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this
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option is not exercisable until all the following events occur and during the
following periods of time:
(a) Until the Plan pursuant to which this option is granted is
approved by the shareholders of the Company in the manner prescribed by the Code
and the regulations thereunder;
(b) Until this option and the optioned shares are approved and/or
registered with such federal, state and local regulatory bodies or agencies and
securities exchanges as the Company may deem necessary or desirable; or
(c) During any period of time in which the Company deems that the
exercisability of this option, the offer to sell the shares optioned hereunder,
or the sale thereof, may violate a federal, state, local or securities exchange
rule, regulation or law, or may cause the Company to be legally obligated to
issue or sell more shares than the Company is legally entitled to issue or sell.
The following two paragraphs shall be applicable if, on the date of
exercise of this option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended,
and under applicable state securities laws, and shall continue to be applicable
for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that he will
acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgements and agreements as
the Company may, in its sole discretion, deem advisable to avoid any violation
of federal state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the optionee
hereunder shall bear the following legend:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or under applicable state
securities laws. The shares have been acquired for investment and may
not be offered, sold, transferred, pledged or otherwise disposed of
without an
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<PAGE>
effective registration statement under the Securities Act of 1933, as
amended, and under any applicable state securities laws or an opinion of
counsel acceptable to the Company that the proposed transaction will be
exempt from such registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and legend
set forth in the two immediately preceding paragraphs is to prevent violations
of the Securities Act of 1933, as amended, and any applicable state securities
laws.
It is the intention of the Company and you that this option shall, if
possible, be an "Incentive Stock Option" as that term is used in Section 422 of
the Code and the regulations thereunder. In the event this option is in any way
inconsistent with the legal requirements of the Code or the regulations
thereunder for an "Incentive Stock Option," this option shall be deemed
automatically amended as of the date hereof to conform to such legal
requirements, if such conformity may be achieved by amendment.
This option shall be subject to the terms of the Plan in effect on the date
this option is granted, which terms are hereby incorporated herein by reference
and made a part hereof. In the event of any conflict between the terms of this
option and the terms of the Plan in effect on the date of this option, the terms
of the Plan shall govern. This option constitutes the entire understanding
between the Company and you with respect to the subject matter hereof and no
amendment, supplement or waiver of this option, in whole or in part, shall be
binding upon the Company unless in writing and signed by the President of the
Company. This option and the performances of the parties hereunder shall be
construed in accordance with and governed by the laws of the Commonwealth of
Pennsylvania.
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Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions.
Community Independent Bank, Inc.
By:
------------------------------
I hereby acknowledge receipt of a copy of the foregoing stock option and,
having read it hereby signify my understanding of, and my agreement with, its
terms and conditions.
-------------------------- ------------
(Signature) (Date)
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<PAGE>
APPENDIX II
NON-QUALIFIED STOCK OPTION
To: Name
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Address
Date of Grant:
-----------------------------------------------------------------
You are hereby granted an option, effective as of the date hereof, to
purchase ________ shares of common stock, $5.00 par value ("Common Stock"), of
Community Independent Bank, Inc. (the "Company") at a price of $____ per share
pursuant to the Company's 1996 Employee Stock Option Plan (the "Plan").
Your option may first be exercised on and after one year from the date of
grant, but not before that time. On and after one year and prior to two years
from the date of grant, your option may be exercised for up to 33 1/3% of the
total number of shares subject to the option minus the number of shares
previously purchased by exercise of the option (as adjusted for any change in
the outstanding shares of the Common stock of the Company by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the Option
Committee deems in its sole discretion to be similar circumstances). Each
succeeding year thereafter, your option may be exercised for up to an additional
33 1/3% of the total number of shares subject to the option minus the number of
shares previously purchased by exercise of the option (as adjusted for any
change in the outstanding shares of the Common Stock of the Company by reason of
a stock dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the Option
Committee deems in its sole discretion to be similar circumstances). Thus, this
option is fully exercisable on and after three years after the date of grant,
except if terminated earlier as provided herein. No fractional shares shall be
issued or delivered. This option shall terminate and is not exercisable after
ten years from the date of its grant (the "Scheduled Termination Date"), except
if terminated earlier as hereafter provided.
In the event of a "change of control" (as hereafter defined) of the
Company, your option may, from and after the date of the change of control, and
notwithstanding the foregoing paragraph, be exercised for up to 100% of the
total number of shares then subject to the option minus the number of shares
previously purchased upon
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exercise of the option (as adjusted for stock dividends, stock splits,
combinations of shares and what the Option Committee deems in its sole
discretion to be similar circumstances). A "change of control" shall be deemed
to have occurred upon the happening of any of the following events:
1. A change within a twelve-month period in a majority of the members of the
board of directors of the Company;
2. A change within a twelve-month period in the holders of more than 50% of
the outstanding voting stock of the Company; or
3. Any other event deemed to constitute a "change of control" by the Option
Committee.
You may exercise your option by giving written notice to the Secretary of the
Company on forms supplied by the Company at its then principal executive office,
accompanied by payment of the option price for the total number of shares you
specify that you wish to purchase. The payment may be in any of the following
forms: (a) cash, which may be evidenced by a check; (b) (unless prohibited by
the Option Committee) certificates representing shares of Common Stock of the
Company, which will be valued by the Secretary of the Company at the fair market
value per share of the Company's Common Stock (as determined in accordance with
the Plan) on the date of delivery of such certificates to the Company,
accompanied by an assignment of the stock to the Company; or (c) (unless
prohibited by the Option Committee) any combination of cash and Common Stock of
the Company valued as provided in clause (b). Any assignment of stock shall be
in a form and substance satisfactory to the Secretary of the Company, including
guarantees of signature(s) and payment of all transfer taxes if the Secretary
deems such guarantees necessary or desirable.
Your option will, to the extent not previously exercised by you, terminate
three months after the date on which your employment by the Company or a Company
subsidiary corporation is terminated (whether such termination be voluntary or
involuntary) other than by reason of disability as defined in Section 22(e) (3)
of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations thereunder, or death, in which case your option will terminate one
year from the date of termination of employment due to disability or death (but
in no event later than the Scheduled Termination Date). After the date your
employment is terminated, as aforesaid, you may exercise this option only for
the number of shares which you had a right to purchase and did not purchase on
the date your employment terminated. If you are employed by a Company subsidiary
corporation, your employment shall be deemed to have terminated on the date your
employer ceases to be a Company subsidiary corporation, unless you are on that
date transferred to the Company or another Company subsidiary corporation. Your
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employment shall not be deemed to have terminated if you are transferred from
the Company to a Company subsidiary corporation, or vice versa, or from one
Company subsidiary corporation to another Company subsidiary corporation.
If you die while employed by the Company or a Company subsidiary
corporation, your executor or administrator, as the case may be, may, at any
time within one year after the date of your death (but in no event later than
the Scheduled Termination Date), exercise the option as to any shares which you
had a right to purchase and did not purchase during your lifetime. If your
employment with the Company or a Company parent or subsidiary corporation is
terminated by reason of your becoming disabled (within the meaning of Section
22(e) (3) of the Code and the regulations thereunder), you or your legal
guardian or custodian may at any time within one year after the date of such
termination (but in no event later than the Scheduled Termination Date),
exercise the option as to any shares which you had a right to purchase and did
not purchase prior to such termination. Your executor, administrator, guardian
or custodian must present proof of his authority satisfactory to the Company
prior to being allowed to exercise this option.
In the event of any change in the outstanding shares of the Common Stock
of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Option Committee deems in its sole
discretion to be similar circumstances, the number and kind of shares subject to
this option and the option price of such shares shall be appropriately adjusted
in a manner to be determined in the sole discretion of the Option Committee.
Notwithstanding the foregoing, there shall be no adjustment made to the number
of shares subject to this option and the option price with respect to the stock
split effective April 1, 1996.
This option is not transferable otherwise than by Will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such would violate a federal, state, local or securities
exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option is
not exercisable until all the following events occur and during the following
periods of time:
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(a) Until the Plan pursuant to which this option is granted is approved
by the shareholders of the Company in the manner prescribed by the Code and the
regulations thereunder;
(b) Until this option and the optioned shares are approved and/or
registered with such federal, state and local regulatory bodies or agencies and
securities exchanges as the Company may deem necessary or desirable; or
(c) During any period of time in which the Company deems that the
exercisability of this option, the offer to sell the shares optioned hereunder,
or the sale thereof, may violate a federal, state, local or securities exchange
rule, regulation or law, or may cause the Company to be legally obligated to
issue or sell more shares than the Company is legally entitled to issue or sell.
The following two paragraphs shall be applicable if, on the date of
exercise of this option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended,
and under applicable state securities laws, and shall continue to be applicable
for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that he will
acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgements and agreements as
the Company may, in its sole discretion, deem advisable to avoid any violation
of federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the optionee
hereunder shall bear the following legend:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended, or under applicable state securities
laws. The shares have been acquired for investment and may not be offered, sold,
transferred, pledged or otherwise disposed of without an effective registration
statement under the Securities Act of 1933, as amended, and under any applicable
state securities laws or an opinion of counsel acceptable to the Company that
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<PAGE>
the proposed transaction will be exempt from such registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and legend
set forth in the two immediately preceding paragraphs is to prevent violations
of the Securities Act of 1933, as amended, and any applicable state securities
laws.
It is the intention of the Company and you that this option shall not be an
"Incentive Stock Option" as that term is used in Section 422 of the Code and the
regulations thereunder.
This option shall be subject to the terms of the Plan in effect on the date
this option is granted, which terms are hereby incorporated herein by reference
and made a part hereof. In the event of any conflict between the terms of this
option and the terms of the Plan in effect on the date of this option, the terms
of the Plan shall govern. This option constitutes the entire understanding
between the Company and you with respect to the subject matter hereof and no
amendment, supplement or waiver of this option, in whole or in part, shall be
binding upon the Company unless in writing and signed by the President of the
Company. This option and the performances of the parties hereunder shall be
construed in accordance with and governed by the laws of the Commonwealth of
Pennsylvania.
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<PAGE>
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions.
Community Independent Bank, Inc.
By:
-------------------------------------
I hereby acknowledge receipt of a copy of the foregoing stock option and, having
read it hereby signify my understanding of, and my agreement with, its terms and
conditions.
--------------------------- --------------
(Signature) (Date)
B-17
<PAGE>
EXHIBIT 10.2
DIRECTOR
DEFERRED COMPENSATION PLAN
For The Consideration
Of
BERNVILLE BANK, NA
BERNVILLE, PA
Bank Compensation Strategies, Inc.
3600 West 80th Street
Suite 200
Minneapolis, Minnesota 55431
(612) 893-6767
Fax (612) 893-6797
<PAGE>
Summary of Benefit Plan Design
Deferred Compensation Plan
Bernville Bank, NA
Plan benefits:
. Retirement income is provided for participating directors.
. Amounts deferred are not taxable income to the participant or heirs until
actually received.
. Full pre-tax amounts deferred earn interest which is compounded without
current taxation.
. Family income protection is provided for participant's beneficiary.
. Individual agreements specify:
- Deferral amounts
- Interest crediting
- Payout duration
- Early retirement benefits
<PAGE>
Benefit Plan Liability
Deferred Compensation Plan
Bernville Bank, NA
Accounting considerations:
. The plan provides postretirement benefits for preretirement services.
. Benefit accruals are required under GAAP (APB 12/FAS 87).
- Amounts deferred are expensed as earned.
- Employer match and interest credited are expensed annually.
. Guaranteed crediting rates during payout may create earlier accrual
expenses to the extent they exceed above market rates during the post
retirement period.
Based on the recommended benefits, the employer's benefit liability is shown
below.
--------------------------
Benefit Plan Liability
--------------------------
Assets Liabilities
- --------------------------------------------------------------------------------
Accrued
Benefit Liability
$ 24,233 year 1
<PAGE>
Benefit Plan Expense
Deferred Compensation Plan
Bernville Bank, NA
Assets Liabilities
- --------------------------------------------------------------------------------
Accrued
Benefit Liability
$ 24,233 year 1
Based upon the above benefit liability and a 34.00% tax bracket, the resulting
benefit expense is shown below.
-----------------------------------------------------------------------
Plan Cumulative After-Tax
Year Benefit Expense
-----------------------------------------------------------------------
1 649
2 2,831
3 6,763
4 12,686
5 20,868
10 79,118
15 157,970
20 253,723
<PAGE>
Financing Strategy
Deferred Compensation Plan
Bernville Bank, NA
This financing strategy recommendation will:
. Cover contingent benefit liabilities in the event of death prior to
retirement.
. Generate additional tax-favored earnings to offset the benefit expenses.
. Comply with regulatory parameters as defined by OCC Bulletin 96-51.
------------------------------
Asset/Liability Management
------------------------------
Assets Liabilities
- --------------------------------------------------------------------------------
Taxable Asset
(5.00% taxable)
$ 285,000 Accrued
Benefit Liability
Other Assets
(6.00% no current tax)
<PAGE>
EXHIBIT 10.3
COMMUNITY INDEPENDENT BANK, INC.
1996 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. Purpose of Plan
The purpose of the 1996 Stock Option Plan for Non-Employee Directors
(the "Plan") contained herein is to enhance the ability of Community Independent
Bank, Inc. and its current and future subsidiaries (collectively the
"Companies") to attract, retain and motivate members of their respective Boards
of Directors and to provide additional incentive to members of their respective
Boards of Directors by encouraging them to invest in shares of Community
Independent Bank, Inc. (the "Company") common stock and thereby acquire a
proprietary interest in the Company and an increased personal interest in the
Companies' contained success and progress, to the mutual benefit of directors,
employees and stockholders.
2. Aggregate Number of Shares
10,000 shares of the Company's common stock,par value $5.00 per share
("Common Stock"), shall be the aggregate number of shares which may be issued
under this Plan. Notwithstanding the foregoing, in the event of any change in
the outstanding shares of the Common Stock of the Company by reason of a stock
dividend, stock split (other than the 3 for 2 stock split effective April 1,
1996 for which no adjustment shall be made), combination of shares,
recapitalization, merger, consolidation, transfer of assets, reorganization,
conversion or what the Board of Directors deems in its sole discretion to be
similar circumstances , the aggregate number and kind of shares which may be
issued under this Plan shall be appropriately adjusted in a manner determined in
the sole discretion of the Option Committee. Reacquired shares of the Company's
Common Stock, as well as unissued shares, may be used for the purpose of this
Plan. Common Stock of the Company subject to options which have terminated
unexercised, either in whole or in part, shall be available for future options
granted under this Plan.
3. Participation
Each person who is, as of April 1, 1996, a director of the Company or
any subsidiary corporation, and is not as of such date an employee of the
Company or any subsidiary corporation, shall, as of April 1, 1996, automatically
be granted an option to purchase 500 shares of the Company's Common Stock such
figure to
C-1
<PAGE>
be subject to adjustment for the same events described in Section 2 hereof).
Each person who (a) is not a director of the Company or any subsidiary
corporation as of April 1, 1996, and (b) is not an employee of the Company or
any subsidiary corporation and who on or after April 1, 1996 is first elected or
appointed as a director of the Company or any subsidiary corporation shall, as
of the date of such election or appointment, automatically be granted an option
to purchase 500 shares of the Company's Common Stock (such figure to be subject
to adjustment for the same events described in Section 2 hereof). On the fifth
anniversary of the initial option grant hereunder and provided a person
described in the first or second sentences of this Section 3 continues to be a
non-employee director on such anniversary, such person shall, on such fifth
anniversary, automatically be granted on such anniversary an option to purchase
500 shares of the Company's Common Stock (such figure to be adjusted for the
same events described in Section 2 hereof) or such lower number of shares as
shall be equal to the number of shares as shall then available (if any) for
grant under this Plan divided by the number of persons who are to receive an
option on such anniversary, subject, however, to the provisions of Section 6
hereof.
4. Administration of Plan
This Plan shall be administered by the Board of Directors of the
Company. The Board of Directors of the Company shall adopt such rules for the
conduct of its business and administration of this Plan as it considers
desirable. A majority of the members of the Board of Directors of the Company
shall constitute a quorum for all purposes. The vote or written consent of a
majority of the members of the Board of Directors of the Company on a particular
matter shall constitute the act of the Board of Directors of the Company on such
matter. The Board of Directors of the Company shall have the exclusive right to
construe the Plan and the options issued pursuant to it, to current defects and
omissions and to reconcile inconsistencies to the extent necessary to effectuate
the purpose of this Plan and the options issued pursuant to it, and such action
shall be final, binding and conclusive upon all parties concerned. No member of
the Board of Directors of the Company shall be liable for any act or omission
(whether or not negligent) taken or omitted in good faith, or for the exercise
of any authority or discretion granted in connection with the Plan to the Board
of Directors, or for the acts or omissions of any other members of the Board of
Directors.
5. Non-Qualified Stock Options, Option Price and Term
(a) Options issued pursuant to this Plan shall be non-qualified stock
options. A non-qualified stock option is an option which does not satisfy the
requirements of Section 422A of the Internal Revenue Code of 1986, as amended
(the "Code"). The option
C-2
<PAGE>
price for the non-qualified stock options issued under this Plan shall be equal
to the fair market value, as determined by the Board of Directors of the
Company, of the Company's Common Stock on the date of the grant of the option.
The fair market value of the Company's Common Stock on any particular date shall
mean the last reported sale price of a share of the Company's Common Stock on
any stock exchange on which such stock is then listed or admitted to trading, or
on the NASDAQ National Market System or Small Cap NASDAQ, on such date, or if no
sale took place on such day, the last such date on which a sale took place, or
if the Common Stock is not then quoted on the NASDAQ National Market System or
Small Cap NASDAQ, or listed or admitted to trading on any stock exchange, the
average of the bid and asked prices in the over-the-counter market on such date,
or if none of the foregoing, a price determined by the Committee.
(b) Options issued pursuant to this Plan shall be issued substantially
in the form set forth in Appendix I hereof, which form is hereby incorporated by
reference and made a part hereof, and shall contain substantially the terms and
conditions set forth therein. Options shall expire ten years after the date
they are granted, unless terminated earlier as provided herein.
6. Amendment, Supplement, Suspension and Termination
Options shall not be granted pursuant to this Plan after the
expiration of eight years from and after the date this Plan is approved by the
stockholders of the Company. The Board of Directors of the Company reserves the
right at any time, and from time to time, to amend or supplement this Plan in
any way, or to suspend or terminate it, effective as of such date, which date
may be either before or after the taking of such action, as may be specified by
the Board of Directors of the Company; provided, however, that such action shall
not affect options granted under the Plan prior to the actual date on which such
action occurred. Notwithstanding the foregoing, if Rule 16b-3 of the Securities
Exchange Act of 1934 is applicable to the Company, the Plan provisions specified
in Rule 16b-3(c)(2)(ii)(A) under the Securities Exchange Act of 1934, as
amended, or any future corresponding rule may not be amended or supplemented
more than once every six months, except as permitted by Rule 16b-3(c)(2)(ii)(B).
If the Board of Directors voluntarily submits a proposed amendment, supplement,
suspension or termination for stockholder approval, such submission shall not
require any future amendments, supplements (whether or not relating to the same
provision or subject matter), suspensions or terminations to be similarly
submitted for stockholder approval.
7. Effectiveness of Plan
This Plan shall become effective on the date of its
C-3
<PAGE>
adoption by the Company's Board of Directors, subject however to approval by the
holders of the Company's Common Stock in the manner described in Rule 16b-3(b)
under the Securities Exchange Act of 1934, as amended, or any future
corresponding rule.
8. General Conditions
(a) Nothing contained in this Plan or any option granted pursuant
to this Plan shall confer upon any director the right to continue as a director
of the Companies or interfere in any way with the rights of the Companies to
terminate him as a director.
(b) Corporate action constituting an offer of stock for sale to
any director under the terms of the options to be granted hereunder shall be
deemed complete as of April 1, 1996, or as of the automatic grant date hereunder
after April 1, 1996, regardless of when the option is actually delivered to the
non-employee director or acknowledged or agreed to by him.
(c) The term "subsidiary corporation" as used throughout this Plan
shall mean a corporation in which the Company owns, directly or indirectly,
shares of stock representing fifty percent or more of the outstanding voting
power of all classes of stock of such corporation at the time of the granting of
an option under this Plan.
(d) The use of the masculine pronoun shall include the feminine
gender whenever appropriate.
C-4
<PAGE>
APPENDIX I
NON-QUALIFIED STOCK OPTION
To:
------------------------------------------------------------------------
Name
------------------------------------------------------------------------
Address
Date:
------------------------------------------------
You are hereby granted an option, effective as of the date hereof, to
purchase shares of common stock (par value $5.00 per share) ("Common Stock") of
Community Independent Bank, Inc. (the "Company") at a price of $_____ per share
pursuant to the Company's 1996 Stock Option Plan for Non-Employee Directors (the
"Plan").
Your option may first be exercised on and after the earlier to occur of (i)
one year from the date of its grant or (ii) a "change in control" of the
Company, as hereinafter defined, but not before that time. On and after the
earlier to occur of (i) one year from the date your option is granted or (ii) a
"change in control" of the Company, and prior to ten years from the date of its
grant, your option may be exercised in whole, or from time to time in part, for
up to the total whole number of shares then subject to the option minus the
number of shares previously purchased by exercise of the option (as
appropriately adjusted for stock dividends, stock splits and what the Board of
Directors of the Company deems in its sole discretion to be similar
circumstances). No fractional shares shall be issued or delivered. This option
shall terminate and is not exercisable after the expiration of ten years from
the date of its grant, except if terminated earlier as hereafter provided.
For purposes of your option, a "change in control" of the Company shall
have been deemed to conclusively occur when any of the following events shall
have occurred without your prior written consent:
(1) a change in at least five members of the Company's Board of
Directors or the addition of five or more new members to the Company's Board of
Directors or any combination of the foregoing, within any two calendar year
period, unless such change or addition occurs with the affirmative vote in
writing of you in your capacity as a director or a shareholder; or
(2) a person or group acting in concert as described in Section
13(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
proposes to hold or acquire
C-5
<PAGE>
beneficial ownership within the meaning of Rule 13(d)(3) promulgated under the
Exchange Act of a number of voting shares of the Company which constitutes
either (i) more than fifty percent of the shares which voted in the election of
directors of the Company at the shareholders' meeting immediately preceding such
determination or (ii) more than thirty percent of the Company's outstanding
voting shares. The term "proposes to hold or acquire" shall mean when a person
or group acting in concert has (A) the right to acquire or merge (whether such
right is exercisable immediately or only after the passage of time or upon the
receipt of such regulatory approvals as is required by applicable law) pursuant
to an agreement, arrangement or understanding (whether or not in writing) or
upon the exercise or conversion of rights, exchange rights, warrants or options
or otherwise; (B) commenced a tender or exchange offer with respect to the
voting shares of the Company or securities convertible or exchangeable into
voting shares of the Company; or (C) the right to vote pursuant to any
agreement, arrangement or understanding (whether or not in writing); provided,
however, that such person or group acting in concert shall not be deemed to have
acquired such shares if the agreement, arrangement or understanding to vote such
securities arises solely from a revocable proxy given in response to a public
proxy or consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations of the Exchange Act and is not also then
reportable on Schedule 13D under the Exchange Act or any comparable or successor
report.
You may exercise your option by giving written notice to the Secretary of
the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check; (b) (unless
prohibited by the Board of Directors) certificates representing shares of Common
Stock of the Company, which will be valued by the Secretary of the Company at
the fair market value per share of the Company's Common Stock (as determined in
accordance with the Plan) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; or (c)
(unless prohibited by the Board of Directors) any combination of cash and Common
Stock of the Company valued as provided in clause (b). Any assignment of stock
shall be in a form and substance satisfactory to the Secretary of the Company,
including guarantees of signature(s) and payment of all transfer taxes if the
Secretary deems such guarantees necessary or desirable.
Your option will, to the extent not previously exercised by you, terminate
three months after the date on which you cease to be a director of the Company
or a subsidiary corporation (whether
C-6
<PAGE>
by death, disability, resignation, removal, failure to be reelected or otherwise
and regardless of whether the failure to continue as a director was for cause or
otherwise), but in no event later than ten years from the date this option is
granted. After the date you cease to be a director, you may exercise this
option only for the number of shares which you had a right to purchase and did
not purchase on the date you ceased to be a director. If you are a director of
a subsidiary corporation, your directorship shall be deemed to have terminated
on the date such company ceases to be subsidiary corporation, unless you are
also a director of the Company or another subsidiary corporation, or on that
date became a director of the Company or another subsidiary corporation. Your
directorship shall not be deemed to have terminated if you cease being a
director of the Company or a subsidiary corporation but are or concurrently
therewith become a director of the Company or another subsidiary corporation.
If you die while a director of the Company or a subsidiary corporation,
executor or administrator, as the case may be, may, at any time within three
months after the date of your death (but in no event later than ten years from
the date this option is granted), exercise the option as to any shares which you
had a right to purchase and did not purchase during your lifetime. If your
directorship with the Company or a subsidiary corporation is terminated by
reason of your becoming disabled, you or your legal guardian or custodian may at
any time within three months after the date of such termination (but in no event
later than 10 years from the date this option is granted), exercise the option
as to any shares which you had a right to purchase and did not purchase prior to
such termination. Your executor, administrator, guardian or custodian must
present proof of his authority satisfactory to the Company prior to being
allowed to exercise this option.
In the event of any change in the outstanding shares of the Common Stock of
the Company by reason of a stock dividend, stock split, combination of shares,
recapitalization, merger, consolidation, transfer of assets, reorganization,
conversion or what the Board of Directors deems in its sole discretion to be
similar circumstances, the number and kind of shares subject to this option and
the option price of such shares shall be appropriately adjusted in a manner to
be determined in the sole discretion of the Board of Directors. Notwithstanding
the foregoing, there shall be no adjustment made to the number of shares subject
to this option and the option price with respect to the stock split effective
April 1, 1996.
This option is not transferable otherwise than by Will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your
C-7
<PAGE>
legal guardian or custodian in the event of disability. Until the option price
has been paid in full pursuant to due exercise of this option and the purchased
shares are delivered to you, you do not have any rights as a stockholder of the
Company. The Company reserves the right not to deliver to you the shares
purchased by virtue of exercise of this option during any period of time in
which the Company deems, in its sole discretion, that such delivery may not be
consummated without violating a federal, state, local or securities exchange
rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option is
not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan is approved by the shareholders;
(b) Until this option and the optioned shares are approved and/or
registered with such federal, state and local regulatory bodies or agencies and
securities exchanges as the Company may deem necessary or desirable; or
(c) During any period of time in which the Company deems that the
exercisability of this option, the offer to sell the shares optioned hereunder,
or the sale thereof, may violate a federal, state, local or securities exchange
rule, regulation or law, or may cause the Company to be legally obligated to
issue or sell more shares than the Company is legally entitled to issue.
The following two paragraphs shall be applicable if, on the date of
exercise of this option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended,
and under applicable state securities laws, and shall continue to be applicable
for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that he
will acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that
the proposed transaction will be exempt from such registration. The optionee
shall execute such instruments, representations, acknowledgements and agreements
as the Company may, in its sole discretion, deem advisable to avoid any
violation of federal, state, local or securities exchange rule, regulation or
law.
C-8
<PAGE>
(b) The certificates for Common Stock to be issued to the optionee
hereunder shall bear the following legend:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or under applicable state
securities laws. The shares have been acquired for investment and may not
be offered, sold, transferred, pledged or otherwise disposed of without an
effective registration statement under the Securities Act of 1933, as
amended, and under any applicable state securities laws or an opinion of
counsel acceptable to the Company that the proposed transaction will be
exempt from such registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and legend
set forth in the two immediately preceding paragraphs is to prevent violations
of the Securities Act of 1933, as amended, and any applicable state securities
laws.
This option shall be subject to the terms of the Plan in effect on the date
this option is granted, which terms are hereby incorporated herein by reference
and made a apart hereof. In the event of any conflict between the terms of this
option and the terms of the Plan in effect on the date of this option, the terms
of the Plan shall govern. This option constitutes the entire understanding
between the Company and you with respect to the subject matter hereof and no
amendment, supplement or waiver of this option, in whole or in part, shall be
binding upon the Company unless in writing and signed by the President of the
Company. This option and the performances of the parties hereunder shall be
construed in accordance with and governed by the laws of the Commonwealth of
Pennsylvania.
C-9
<PAGE>
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions.
COMMUNITY INDEPENDENT BANK, INC.
(SEAL) By:
- --------------------------------
I hereby acknowledge receipt of a copy of the foregoing stock option and,
having read it hereby signify my understanding of, and my agreement with, its
terms and conditions.
--------------------------------
- --------------- (Signature)
(Date)
C-10
<PAGE>
EXHIBIT 10.4
SALARY CONTINUATION PLAN
For The Consideration
Of
BERNVILLE BANK, NA
BERNVILLE, PA
Bank Compensation Strategies, Inc.
3600 West 80th Street
Suite 200
Minneapolis, Minnesota 55431
(612) 893-6767
Fax (612) 893-6797
<PAGE>
Summary of Benefit Plan Design
Salary Continuation Plan
Bernville Bank, NA
Plan benefits:
. Retirement income benefits are provided for selected key decision makers.
. Family income protection is provided for participant's beneficiary.
. Individual agreements specify:
- Vesting
- Incentives
- Early retirement benefits
- Disability benefits
- Change of control provisions
The following chart summarizes the retirement benefits for each plan
participant.
- --------------------------------------------------------------------------------
Retire- Duration Total
ment Annual of Benefits
Executive Age Age Benefit Benefits Paid
- --------------------------------------------------------------------------------
Arlan Werst 54 65 47,000 15 years 705,000
<PAGE>
Benefit Plan Liability
Salary Continuation Plan
Bernville Bank, NA
Accounting considerations:
. The plan provides postretirement benefits for preretirement services.
. Benefit accruals are required under GAAP (APB 12 / FAS 87).
. Present value of benefit payments are recorded at earlier of retirement
or at full eligibility (Vesting).
Based on the recommended benefits, the employer's benefit liability is shown
below.
------------------------------
Benefit Plan Liability
------------------------------
Assets Liabilities
- --------------------------------------------------------------------------------
Accrued
Benefit Liability
$ 22,846 year 1
<PAGE>
Benefit Plan Expense
Salary Continuation Plan
Bernville Bank, NA
Assets Liabilities
- --------------------------------------------------------------------------------
Accrued
Benefit Liability
$ 22,846 year 1
Based upon the above benefit liability and a 34.00% tax bracket, the resulting
benefit expense is shown below.
-------------------------------------------------------------------------
Plan Cumulative After-Tax
Year Benefit Expense
-------------------------------------------------------------------------
1 15,078
2 31,489
3 49,351
4 68,792
5 89,951
10 227,333
15 345,277
20 424,581
<PAGE>
Exhibit 21.1
Subsidiaries of the Registrant
------------------------------
1. Bernville Bank, N.A., a National Banking Association organized
pursuant to the laws of the United States of America.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,701
<INT-BEARING-DEPOSITS> 1,773
<FED-FUNDS-SOLD> 158
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,524
<INVESTMENTS-CARRYING> 1,001
<INVESTMENTS-MARKET> 1,000
<LOANS> 65,484
<ALLOWANCE> 540
<TOTAL-ASSETS> 83,462
<DEPOSITS> 70,729
<SHORT-TERM> 472
<LIABILITIES-OTHER> 0
<LONG-TERM> 5,000
0
0
<COMMON> 1,741
<OTHER-SE> 5,159
<TOTAL-LIABILITIES-AND-EQUITY> 83,462
<INTEREST-LOAN> 5,010
<INTEREST-INVEST> 520
<INTEREST-OTHER> 65
<INTEREST-TOTAL> 5,595
<INTEREST-DEPOSIT> 2,542
<INTEREST-EXPENSE> 2,663
<INTEREST-INCOME-NET> 2,932
<LOAN-LOSSES> 78
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,489
<INCOME-PRETAX> 796
<INCOME-PRE-EXTRAORDINARY> 796
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 587
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.68
<YIELD-ACTUAL> 4.33
<LOANS-NON> 290
<LOANS-PAST> 6
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 484
<CHARGE-OFFS> 26
<RECOVERIES> 22
<ALLOWANCE-CLOSE> 540
<ALLOWANCE-DOMESTIC> 413
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 127
</TABLE>
