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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the Quarterly period ended September 30, 1998.
( ) Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from ____________to ____________.
No. 000-29658
(Commission File Number)
COMMUNITY INDEPENDENT BANK, INC.
(Exact Name of Registrant as Specified in its Charter)
PENNSYLVANIA 23-2357593
(State of Incorporation) (IRS Employer ID Number)
201 N. MAIN STREET, BERNVILLE, PA 19506
(Address of Principal Executive Offices) (zip code)
(610) 488-1200
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. Yes X No
Number of Shares Outstanding as of October 31, 1998
COMMON STOCK ($5.00 Par Value) 696,774
(Title of Class) (Outstanding Shares)
1
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COMMUNITY INDEPENDENT BANK, INC.
FORM 10-QSB
For the Quarter Ended September 30, 1998
Contents
<TABLE>
<CAPTION>
<S> <C> <C>
PART I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997 3-4
Consolidated Statements of Income
for the Nine and Three Month Periods
Ended September 30, 1998, and 1997 5-6
Consolidated Statements of Comprehensive
Income for the Nine-Month Periods Ended
September 30, 1998, and 1997 7
Consolidated Statements of Stockholders'
Equity for the Nine-Month Period
Ended September 30, 1998 8
Consolidated Statements of Cash Flows
for the Nine-Month Periods Ended September 30,
1998 and 1997 9-10
Notes to Consolidated Financial Statements 11-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12-21
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 21
Part II OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security
Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
</TABLE>
2
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COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
Cash and due from banks $ 2,141,461 $ 1,701,268
Interest-bearing deposits in other banks 20,740 1,773,211
Federal funds sold - 158,000
Cash and cash equivalents 2,162,201 3,632,479
Securities available for sale 12,587,189 9,524,028
Securities held to maturity - 1,000,585
Loans receivable, net of allowance
for loan losses September 30, 1998
$636,242; December 31, 1997
$540,158 79,866,724 64,364,029
Bank premises and equipment, net 2,630,697 2,636,981
Accrued interest receivable and other assets 2,505,798 2,303,885
TOTAL ASSETS $99,752,609 $83,461,987
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 7,384,141 $ 7,442,811
Interest bearing 73,574,524 63,286,257
TOTAL DEPOSITS 80,958,665 70,729,068
Other borrowed funds 6,020,912 471,808
Long-term debt 5,000,000 5,000,000
Other liabilities 451,098 360,705
TOTAL LIABILITIES 92,430,675 76,561,581
Stockholders' equity:
Preferred stock, par value $5.00 per
share; authorized and unissued
1,000,000 shares - -
Common stock, par value $5.00
per share; authorized
5,000,000 shares; issued and
outstanding September 30, 1998
696,774 shares; December 31, 1997
348,287 shares 3,483,870 1,741,435
Surplus 142,148 1,882,808
</TABLE>
3
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<TABLE>
<S> <C> <C>
Retained earnings 3,581,991 3,257,894
Net unrealized appreciation
on securities available for
sale, net of taxes 113,925 18,269
TOTAL STOCKHOLDERS' EQUITY 7,321,934 6,900,406
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $99,752,609 $83,461,987
</TABLE>
See Notes to Consolidated Financial Statements
4
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COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended For the Three Months Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest income:
Loan receivable, including fees $4,770,378 $3,623,068 $1,723,116 $1,259,385
Securities:
Taxable 458,707 338,064 161,169 121,234
Tax-exempt 23,213 60,779 7,056 16,641
Other 10,857 30,927 231 736
Total interest income 5,263,155 4,052,838 1,891,572 1,397,996
Interest expense:
Deposits 2,293,154 1,868,550 809,562 637,176
Other 326,147 30,779 143,172 26,096
Total interest expense 2,619,301 1,899,329 952,734 663,272
Net interest income 2,643,854 2,153,509 938,838 734,724
Provision for loan losses 150,000 60,000 90,000 18,000
Net interest income after
provision for loan losses 2,493,854 2,093,509 848,838 716,724
Other income:
Customer service fees 199,786 149,744 64,451 55,123
Net gains from sale of
mortgages 108,212 34,813 34,259 20,628
Other 211,724 114,630 71,147 56,090
Total other income 519,722 299,187 169,857 131,841
Other expenses:
Salaries and employee benefit 1,244,603 873,753 423,904 320,412
Occupancy 234,436 141,299 93,133 49,121
Equipment 199,186 165,550 68,474 54,231
Marketing and advertising 77,698 90,234 25,495 21,302
Loan collection and foreclosed
real estate 84,208 88,526 (2,676) 24,574
Professional fees 77,417 18,168 27,674 11,576
Stationery and supplies 54,582 49,375 23,858 15,071
Other 410,026 325,462 147,578 111,867
Total other expenses 2,382,156 1,752,367 807,440 608,154
Income before income taxes 631,420 640,329 211,255 230,411
Federal income taxes 181,928 180,960 57,399 70,482
</TABLE>
5
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<TABLE>
<S> <C> <C> <C> <C>
Net income $ 449,492 $ 459,369 $ 153,856 $ 159,929
Basic and diluted earnings per share $0.65 $0.66 $0.22 $0.23
Weighted average number of common
shares outstanding 696,574 696,574 696,574 696,574
</TABLE>
See Notes to Consolidated Financial Statements
6
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COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, September 30,
1998 1997
<S> <C> <C>
Net Income $ 449,492 $ 459,369
Other Comprehensive Income
net of tax
Unrealized gains on securities:
Unrealized holding gains
arising during the period, net of
tax expense 95,656 17,822
1998 $49,277; 1997 $9,182
Comprehensive income $ 545,148 $ 477,191
</TABLE>
See Notes to Consolidated Financial Statements
7
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COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Net unrealized
Appreciation
On Securities
Common Retained Available
Stock Surplus Earnings For Sale Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ 1,741,435 $ 1,882,808 $ 3,257,894 $ 18,269 $ 6,900,406
Net income - - 449,492 - 449,492
Cash dividends ($.18 per share) - - (125,395) - (125,395)
Net change in unrealized appreciation
on securities available for sale,
net of taxes - - - 95,656 95,656
Issuance of 100 shares of common
stock upon exercise of stock options 500 1,275 - - 1,775
Two-for-one stock split 1,741,935 (1,741,935) - - -
Balance, September 30, 1998 $ 3,483,870 $ 142,148 $ 3,581,991 $ 113,925 $ 7,321,934
</TABLE>
See Notes to Consolidated Financial Statements
8
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COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, September 30,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 449,492 459,369
Adjustments to reconcile net income
to net cash provided by
operating activities:
Provision for loan losses 150,000 60,000
Provision for depreciation 175,334 163,606
Gain on disposal of property and equipment - (1,800)
Net gains on sale of mortgage loans (108,211) (34,813)
Proceeds from sale of mortgage loans 7,321,861 1,933,763
Mortgage loans originated for sale (7,213,650) (1,898,950)
Net amortization of securities premiums and discounts 4,217 13,666
Amortization of mortgage servicing rights 13,599 4,309
Increase in accrued interest receivable and other assets (192,780) (84,148)
Increase in other liabilities 90,393 26,347
Net cash provided by operating activities 690,255 641,349
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from maturities of securities held to maturity 1,000,000 1,500,000
Proceeds from maturities of securities available for sale 1,435,000 1,193,699
Purchase of securities available for sale (4,356,860) (4,676,138)
Net increase in loans (15,724,704) (7,995,157)
Proceeds from sale of property and equipment - 18,810
Purchases of bank premises and equipment (169,050) (298,766)
Purchase of life insurance - (1,450,000)
Net cash used in investing activities (17,815,614) (11,707,552)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 10,229,597 3,064,533
Net increase in other borrowed funds 5,549,104 6,037,678
Dividends paid (125,395) (114,934)
Proceeds from common stock options exercised 1,775 -
Net cash provided by financing activities 15,655,081 8,987,277
Decrease in cash and cash equivalents (1,470,278) (2,078,926)
</TABLE>
9
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<TABLE>
<S> <C> <C>
Cash and cash equivalents:
Beginning 3,632,479 3,606,358
Ending 2,162,201 1,527,432
Cash payments for:
Interest 2,611,820 1,902,017
Income taxes 194,484 151,968
</TABLE>
See Notes To Consolidated Financial Statements
10
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COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998
Note A. Basis of Presentation
The unaudited consolidated financial statements include the accounts of
Community Independent Bank, Inc. and its wholly-owned subsidiary, Bernville
Bank, N.A. All significant intercompany accounts and transactions have been
eliminated. The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for fair presentation have been included. Operating results
for the nine month period ended September 30, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998.
In addition to historical information, this Form 10-QSB Report contains
forward-looking statements. The forward-looking statements contained herein are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected in the forward-looking statements.
Important factors that might cause such differences include, but are not limited
to, those discussed in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations". Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date hereof. The Company undertakes
no obligation to publicly revise or update these forward-looking statements to
reflect events or circumstances that arise after the date hereof. Readers should
carefully review the risk factors described in other documents the files from
time to time with the Securities and Exchange Commission.
Note B. Earnings per Share
In 1997, the Financial Accounting Standards Board issued statement No. 128,
"Earnings Per Share". Statement No. 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of stock options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented to conform to the Statement No. 128 requirements.
On June 25, 1998, the Board of Directors declared a two-for-one stock split
in the form of a 100% stock dividend on common stock outstanding, payable on
July 31, 1998 to shareholders of record on July 17, 1998. The stock split
resulted in the issuance of 348,387 additional common shares. The effect of this
stock split has been recorded as of June 30, 1998. All per share data has been
adjusted for the effect of the stock split.
11
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Note C. Comprehensive Income
The Financial Accounting Standards Board issued statement No. 130,
"Reporting Comprehensive Income" in June 1997. The Company adopted the
provisions of the new standard in 1998. The only comprehensive income item that
the Company presently has is unrealized gains (losses) on securities available
for sale.
Note D. Stockholder Automatic Dividend Reinvestment and Stock Purchase Plan
On June 25, 1998, the Company adopted a dividend reinvestment and stock
purchase plan available to stockholders who elect to reinvest their cash
dividends for the purchase of additional shares of the Company's common stock.
Participants may also elect to make voluntary cash payments not to exceed $2,500
each quarter for the purchase of additional shares of the Company's common
stock. The common stock may be purchased in the open market or from authorized
but unissued shares, substantially at prevailing market prices. The Company has
reserved 225,000 shares of common stock for possible issuance under the plan and
anticipates the plan will be available to stockholders during the fourth quarter
of 1998.
Note E. Cash Flow Information
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks, interest bearing deposits with banks and federal funds
sold.
Note F. New Accounting Standard
The Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities", in June 1998.
The Statement is effective for fiscal years beginning after June 15, 1999. The
adoption of the Statement is not expected to have a significant impact on the
Company.
Note G. Cash Dividend
On October 22, 1998, the Board of Directors declared a dividend of $.06 per
share to shareholders of record on November 2, 1998. The dividend will be paid
on November 13, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations analyzes the major elements of the Company's balance sheets and
statements of income. This should be read in conjunction with the Company's
financial statements and accompanying footnotes.
12
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OVERVIEW
The Company's net income for the third quarter of 1998 was $153,856, a
decrease of $6,073, or 3.8% from $159,929 net income for the third quarter of
1997. Net income for the nine months ended September 30, 1998 was $449,492, 2.2%
less than the $459,369 reported for the same period in 1997. Total assets
increased to $99,752,609 at September 30, 1998, an increase of $16,290,622, or
19.5% from $83,461,987 at December 31, 1997.
During the nine months ended September 30, 1998, loans receivable increased
24.1% to $79,866,724 from $64,364,029 at December 31, 1997, while deposits
increased 14.5% to $80,958,665 from $70,729,068 at December 31, 1997.
RESULTS OF OPERATIONS
NET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income is the primary source of operating income for the
Company. Net interest income is the difference between interest earned on loans
and securities and interest paid on deposits and other funding sources.
Generally, changes in net interest income are measured by net interest rate
spread and net interest margin. Net interest rate spread is equal to the
difference between the average rate earned on earning assets and the average
rate incurred on interest-bearing liabilities. Net interest margin represents
the difference between interest income (including net loan fees earned) and
interest expense calculated as a percentage of average earning assets. The
factors that influence net interest income include changes in interest rates and
changes in the volume and mix of assets and liability balances.
The Company's net interest income increased $204,114 or 27.8% to $938,838
during the third quarter of 1998 from $734,724 during the third quarter of 1997.
For the first nine months of 1998, net interest income increased $409,345 or
22.8% to $2,643,854 from $2,153,509 during the first nine months of 1997.
Interest income increased $493,576 or 35.3%, from $1,397,996 for the third
quarter of 1997 to $1,891,572 for the third quarter of 1998, while interest
expense increased $289,462 or 43.6%, from $663,272 for the third quarter of 1997
to $952,734 for the third quarter of 1998. For the first nine months of 1998,
interest income increased $1,210,317 or 29.9%, to $5,263,155 from $4,052,838 for
the first nine months of 1997, while interest expense increased $719,972 or
37.9% from $1,899,329 for the first nine months of 1997 to $2,619,301 for the
first nine months of 1998.
The increases in interest income are principally due to higher levels of
loans receivable and taxable securities while the increase in interest expense
was due to interest bearing deposits growth and higher levels of borrowed funds
used to fund the growth in earning assets.
Net interest margin decreased 19 basis points from 4.34% in the third
quarter of 1997 to 4.15% in the third quarter of 1998. Net interest margin
decreased 14 basis points from 4.33% for the first nine months of 1997 to 4.19%
for the first nine months of 1998. Net interest margin decreased primarily due
to a larger increase in the average rate paid on interest-bearing liabilities
than the increase in the average yield on interest-earning assets.
13
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For the third quarter of 1998, the average yield on earning assets
increased 6 basis points to 8.24% from 8.18% for the third quarter of 1997. For
the first nine months of 1998, the average yield on earning assets increased 23
basis points to 8.32% from 8.09% for the first nine months of 1997. The increase
is primarily attributable to an increase in average yield earned on commercial
loans.
For the third quarter of 1998, the average rate paid on interest-bearing
liabilities , increased 22 basis points to 4.66% from 4.44% for the third
quarter of 1997. For the first nine months of 1998, the average rate paid on
interest-bearing liabilities, increased 21 basis points to 4.63% from 4.42% for
the first nine months of 1997. The increase was caused primarily by an increase
in the volume of other borrowed funds which was partially offset by a decrease
in the rate paid on savings accounts.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $90,000 for the third quarter of 1998
compared to $18,000 for the third quarter of 1997. For the first nine months of
1998, the loan loss provision was $150,000 compared to $60,000 for the first
nine months of 1997.
The allowance for loan losses represented .79% and .83% of total loans
receivable at September 30, 1998 and at December 31, 1997, respectively.
Management performs periodic evaluations of the loan portfolio. These
evaluations consider several factors including, but not limited to, current
economic conditions, loan portfolio composition, prior loan loss experience,
trends in portfolio volume, and management's estimation of future potential
losses. Management believes that the allowance for loan losses is adequate for
each of the periods presented, however, due to the significant increase in loans
the monthly addition to the allowance was increased from $10,000 to $30,000
beginning in July 1998.
OTHER INCOME
Total other income increased $38,016 or 28.9% from $131,841 during the
third quarter of 1997 to $169,857 during the third quarter of 1998. The increase
was due primarily to a $9,328 increase in customer service fees which directly
correlated with the implementation of convenience fees on ATMs and an increase
in customer accounts, a $13,631 increase in gains from sale of loans as a result
of increased loan sales and an increase in other income of $15,057 which is
primarily attributable to earnings on life insurance policies.
For the first nine months of 1998, other income increased $220,535 or
73.7%, to $519,722 from $299,187 for the same period in 1997. The primary
reasons for the increase were an increase in customer service fees of $50,042,
an increase in gains from sale of loans of $73,399 and an increase in other
income of $97,094. These increases are a result of the same items mentioned in
the preceding paragraph for the third quarter.
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OTHER EXPENSES
Total other expenses increased $199,286 or 32.8% during the third quarter
of 1998 versus the same period in 1997, from $608,154 to $807,440. Total other
expenses also increased during the first nine months of 1998 versus the first
nine months of 1997 by $629,789 or 35.9% from $1,752,367 to $2,382,156. The
increases in total other expenses reflect the growth of the Company, especially
due to the opening of a loan center in February 1997 which resulted in an
increase in loan volume and the Wyomissing office which opened in November 1997.
Salaries and employee benefits, which represent the largest component of
other expenses increased from $320,412 for the third quarter of 1997 to $423,904
for the same period in 1998. For the first nine months of 1998, salaries and
employee benefits increased $370,850 or 42.4% to $1,244,603 from $873,753 for
the same period in 1997. Salaries and employee benefits increased due to the
growth of the Company, especially from the opening of the loan center and
Wyomissing office.
Occupancy expense increased $44,012 or 90.0%, to $93,133 for the third
quarter of 1998 versus $49,121 for the third quarter of 1997. For the first nine
months of 1998, occupancy expense was $234,436 versus $141,299 for the same
period in 1997, an increase of $93,137 or 65.9%. These increases reflect
escalation provisions in operating lease agreements as well as building, lease
and other occupancy expenses related to the operation of the new loan center,
Wyomissing office and new operations center.
Equipment expense increased $14,243 or 26.3%, from $54,231 for the third
quarter of 1997 to $68,474 for the third quarter of 1998. For the first nine
months of 1998, equipment expense increased $33,636 or 20.3% to $199,186 from
$165,550 for the same period in 1997. The increase in equipment expense which
was primarily due to the addition of the loan center and Wyomissing office and
an increase in depreciation expense was offset by a decrease in maintenance
contracts.
Marketing and advertising expenses increased $4,193 or 19.7% to $25,495 for
the third quarter of 1998 versus $21,302 for the third quarter of 1997. For the
first nine months of 1998, marketing and advertising was $77,698 versus $90,234
for the same period in 1997, a decrease of $12,536 or 13.9%. The decrease for
the first nine months of 1998 was due to an effort by management to control
these types of expenses.
Loan collection and foreclosed real estate expenses decreased $27,250 or
110.9% to ($2,676) for the third quarter of 1998 versus $24,574 for the third
quarter of 1997. For the first nine months of 1998, loan collection and
foreclosed real estate expenses were $84,208 versus $88,526 for the same period
in 1997, a decrease of $4,318 or 4.9%. The decrease in loan collection and
foreclosed real estate expenses was primarily due to the sale of one foreclosed
property in July 1998. The sale resulted in the recovery of some previously
incurred environmental clean-up costs.
Professional fees increased $16,098 to $27,674 for the third quarter of
1998 versus $11,576 for the third quarter of 1997. For the first nine months of
1998, professional fees were $77,417 versus $18,168 for the same period in 1997,
an increase of $59,249. The increase in professional fees was due to legal and
accounting fees associated with registering the Company with the SEC and listing
the Company's stock on the American Stock Exchange.
15
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Stationery and supplies expense increased $8,787 or 58.3% to $23,858 for
the third quarter of 1998 versus $15,071 for the third quarter of 1997. For the
first nine months of 1998, stationery and supplies expense was $54,582 versus
$49,375 for the same period in 1997, an increase of $5,207 or 10.5%. The
increase is due primarily to the purchase of ATM and VISA cards.
Other operating expenses increased from $111,867 for the third quarter of
1997 to $147,578 for the same period in 1998, an increase of $35,711 or 31.9%.
For the first nine months of 1998, other operating expenses increased $84,564 or
26.0% to $410,026 versus $325,462 for the same period in 1997. Other operating
expenses included in this category include directors' fees, ATM surcharge fees,
FDIC insurance premium, examinations, travel, telephone, dues and subscriptions,
postage, training and charitable contributions. The increase in such expense
categories is principally the result of the Bank's growth.
INCOME TAXES
Income tax expense was $57,399 for the third quarter of 1998, for an
effective tax rate of 27.2% versus $70,482 for the third quarter of 1997 and an
effective tax rate of 30.6% For the first nine months of 1998, income tax
expense was $181,928, for an effective tax rate of 28.8% versus $180,960 and an
effective tax rate of 28.3% for the same period in 1997. The tax rate for each
of the periods was less than the federal statutory rate of 34% primarily because
of tax-exempt securities and loan income.
YEAR 2000
The Company has made , and is continuing to make, a concerted effort to
insure that all aspects of the Company's operation will not be adversely
affected by the changeover to year 2000. Senior management and the Board of
Directors of the Company have been actively involved in the planning, allocating
of resources and monitoring the progress to evaluate and implement corrective
actions to assure Y2K readiness. The Company has named the Vice President of
Operations as the Y2K Coordinator to oversee the project. A Y2K committee
comprised of members of Senior Management regularly reviews the status of Y2K
activities. The Y2K Coordinator reports to the Board of Directors on a monthly
basis.
The Company's software systems are products provided by software vendors,
and are not developed in-house. The Company has contacted and is working closely
with its vendors to ensure readiness. Early in the Y2K project, mission critical
applications were identified. These applications have all been certified as Y2K
ready. The Company has participated in a joint Y2K testing program with its
primary software vendor. All PC's have been tested for Y2K compliance. BIOS
upgrades were made to those PC's which did not pass the initial tests. ATM's
were upgraded to assure their readiness for Year 2000.
Systems such as HVAC, Security Access systems, elevators, calculators, etc.
were all checked and verified for Year 2000 readiness.
The Company has identified and contacted its major commercial customers
concerning the Y2K efforts of the commercial customers. Information concerning
Y2K and the Companies readiness efforts has been made available to all customers
of the Company. Employees of the Company have been informed of the Companies
efforts through articles in the Companies weekly newsletter.
16
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As part of the planning process, the Company is also developing contingency
plans that will provide alternative methods of doing business, should it be
necessary. The Company has in place a contract with an alternative site provider
to provide contingency processing services.
FINANCIAL CONDITION
SECURITIES
Securities increased to $12,587,189 at September 30, 1998 from $10,524,613
at December 31, 1997. The increase of $2,062,576 or 19.6% was primarily due to
the purchase of U.S. Government agency obligations with proceeds from the
maturity of the held to maturity securities and deposit growth.
LOANS
Loans receivable, net of the allowance for loan losses of $636,242 at
September 30, 1998 and $540,158 at December 31, 1997 increased to $79,866,724 at
September 30, 1998 from $64,364,029 at December 31, 1997. The increase of
$15,502,695 or 24.1% was primarily from an increase in commercial loans of
$10,510,183 from $16,418,588 at December 31, 1997 to $26,928,771 at September
30, 1998 and an increase of approximately $4,000,000 in mortgage loans.
LOAN AND ASSET QUALITY
Total nonperforming loans (comprised of non-accruing and loans past due for
more than 90 days and still accruing) as a percentage of total loans as of
September 30, 1998 was .14% as compared with .46% at December 31, 1997.
The Bank had other real estate owned (OREO) consisting of one property in
the amount of $47,600 at September 30, 1998 and two properties in the amount of
$212,649 at December 31, 1997.
The following schedule displays detailed information about the Bank's
nonperforming assets and the allowance for loan losses for the periods ended
September 30, 1998, December 31, 1997 and September 30, 1997.
17
<PAGE>
<TABLE>
<CAPTION>
September 30 December 31 September 30
1998 1997 1997
(In thousands)
<S> <C> <C> <C>
Amount of loans receivable
outstanding at end of period $ 80,503 $ 64,904 $ 60,658
Allowance for loan losses 636 540 520
Non-performing loans:
Non-accruing loans 96 290 0
Accruing loans past due
90 days or more 18 6 188
Total nonperforming loans 114 296 188
Other real estate 48 213 413
Total nonperforming assets $ 162 $ 509 $ 601
Nonperforming loans to
total loans 0.14% 0.46% 0.31%
Nonperforming assets to total assets 0.16% 0.61% 0.60%
Allowance for loan losses to total
nonperforming loans 557.89% 182.43% 276.60%
Allowance for loan losses to total loans 0.79% 0.83% 0.86%
</TABLE>
POTENTIAL PROBLEM LOANS
At September 30, 1998, the Bank has $1,572,000 in commercial loans for
which the payments are presently current, but the borrowers are experiencing
financial difficulties. These loans are subject to constant management attention
and their classification is reviewed quarterly.
DEPOSITS
Total deposits at September 30, 1998 were $80,958,665, an increase of
$10,229,597 or 14.5% over total deposits of $70,729,068 at December 31, 1997.
All deposit categories except non-interest bearing demand accounts increased
from December 31, 1997 to September 30, 1998 with the most significant increases
in interest bearing demand accounts and time deposits less than $100,000.
Interest bearing demand accounts increased $3,187,081 or 19.8% from $16,069,319
at December 31, 1997 to $19,256,400 at September 30, 1998. Time deposits less
than $100,000 increased $5,833,411 or 17.5% from $33,283,518 at December 31,
1997 to $39,116,929 at September 30, 1998. The increase in total deposits was a
result of competitive pricing of the money market product and the opening of the
Wyomissing office. The increase was primarily used to fund new loans.
18
<PAGE>
OTHER BORROWED FUNDS AND LONG-TERM DEBT
Other borrowed funds and long-term debt increased $5,549,104 from
$5,471,808 at December 31, 1997 to $11,020,912 at September 30, 1998. The
increase was primarily used to fund new loans.
STOCKHOLDERS' EQUITY AND CAPITAL RATIOS
Total stockholders' equity at September 30, 1998 was $7,321,934 compared to
$6,900,406 at December 31, 1997. A comparison of the Bank's capital ratios is as
follows:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Tier 1 Capital 6.94% 8.28%
(to average assets)
Tier 1 Capital 9.58% 11.97%
(to risk-weighted assets)
Total Capital 10.47% 12.95%
(to risk-weighted assets)
</TABLE>
The minimum capital requirements imposed by federal regulatory authorities
for Leverage, Tier 1 and Total Capital are 4%, 4% and 8%, respectively. The
consolidated capital ratios are not materially different from the Bank's capital
ratios. At September 30, 1998 and December 31, 1997, the Company and the Bank
exceeded the minimum capital ratio requirements and are considered "well
capitalized".
INTEREST RATE SENSITIVITY
The operations of the Bank are subject to risk resulting from interest rate
fluctuations to the extent that there is a difference between the amount of the
Bank's interest earning assets and the amount of interest bearing liabilities
that are prepaid/withdrawn, mature or reprice in specified periods.
The principal objective of the Bank's asset/liability management activities
is to provide consistently higher levels of net interest income while
maintaining acceptable levels of interest rate and liquidity risk and
facilitating the funding needs of the Bank. The Bank utilizes an interest rate
sensitivity model as the primary quantitative tool in measuring the amount of
interest rate risk that is present. The traditional maturity "gap" analysis,
which reflects the volume difference between interest rate sensitive assets and
liabilities during a given time period, is reviewed regularly by management. A
positive gap occurs when the amount of interest sensitive assets exceeds
interest sensitive liabilities. This position would contribute positively to net
income in a rising interest rate environment. Conversely, if the balance sheet
has more liabilities repricing than assets, the balance sheet is liability
sensitive or negatively gapped. Management continues to monitor sensitivity in
order to avoid overexposure to changing interest rates.
19
<PAGE>
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 and
maintaining a short maturity in the investment portfolio.
LIQUIDITY
Liquidity management involves meeting the funds flow requirements of
customers who may either be depositors wanting to withdraw funds, or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs. Liquid assets consist of vault cash, securities and maturities of earning
assets.
The Bank's principal source of asset liquidity is the securities portfolio.
The carrying value of securities maturing in less than one year equals
$2,212,000. Another source of funds is maturities in the loan portfolio.
The Bank also has sources of liability liquidity which include core
deposits and borrowing capacity at the Federal Home Loan Bank. The short-term
borrowing capacity from FHLB was in excess of $34 million at September 30, 1998.
At September 30, 1998, the Bank had $5 million borrowed from the FHLB with a
scheduled maturity in 1999.
Management believes that the Bank's liquidity is sufficient to meet its
anticipated needs.
FUTURE OUTLOOK
On August 19, 1998, Community Independent Bank, Inc. was listed on the
American Stock Exchange. The trading symbol is INB.
20
<PAGE>
A cash dividend of six cents per share was declared to shareholders of
record on November 2, 1998 payable on November 13, 1998. Community Independent
Bank, Inc. has registered a dividend reinvestment plan which will commence with
the dividend payment on November 13, 1998.
A new operations center will house Bernville Bank item processing,
marketing, finance, human resource and loan support departments. The operations
center is located in Berks Corporate Center, 900 Corporate Drive, Reading. The
new operations center will provide additional space for Bernville Bank
(subsidiary of Community Independent Bank, Inc.) to service the processing needs
of the bank as the bank continues its expected growth. The move will take place
in October 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Bank's exposure to market risk has not changed significantly since
December 31, 1997. The market risk principally includes interest rate risk that
is discussed above.
ART II OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNITY INDEPENDENT BANK, INC.
--------------------------------
(Registrant)
_______ _____________________________
Date Arlan J. Werst, President/CEO
_______ _______________________________
Date Linda L. Strohmenger, Secretary
(Principal financial officer)
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE QUARTERLY
REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL INFORMATION.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 2,141,461
<INT-BEARING-DEPOSITS> 20,740
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,587,189
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 79,866,724
<ALLOWANCE> 636,242
<TOTAL-ASSETS> 99,752,609
<DEPOSITS> 80,958,665
<SHORT-TERM> 6,020,912
<LIABILITIES-OTHER> 451,098
<LONG-TERM> 5,000,000
0
0
<COMMON> 3,483,870
<OTHER-SE> 3,838,064
<TOTAL-LIABILITIES-AND-EQUITY> 99,752,609
<INTEREST-LOAN> 4,770,378
<INTEREST-INVEST> 481,920
<INTEREST-OTHER> 10,857
<INTEREST-TOTAL> 5,263,155
<INTEREST-DEPOSIT> 2,293,154
<INTEREST-EXPENSE> 2,619,301
<INTEREST-INCOME-NET> 2,643,854
<LOAN-LOSSES> 150,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,382,156
<INCOME-PRETAX> 631,420
<INCOME-PRE-EXTRAORDINARY> 631,420
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 449,492
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.65
<YIELD-ACTUAL> 3.69
<LOANS-NON> 96,000
<LOANS-PAST> 18,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,572,000
<ALLOWANCE-OPEN> 540,158
<CHARGE-OFFS> 60,000
<RECOVERIES> 6,000
<ALLOWANCE-CLOSE> 636,242
<ALLOWANCE-DOMESTIC> 380,008
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 256,234
</TABLE>
