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, 1999.
( ) 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, 1999
COMMON STOCK ($5.00 Par Value) 697,600
- ------------------------------ --------------------
(Title of Class) (Outstanding Shares)
1
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
FORM 10-QSB
For the Quarter Ended September 30, 1999
Contents
PART I FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of
September 30, 1999 and December 31, 1998 3
Consolidated Statements of Income
for the Nine and Three Month Periods
Ended September 30, 1999 and 1998 4
Consolidated Statements of Comprehensive
Income for the Nine Month Periods Ended
September 30, 1999 and 1998 5
Consolidated Statements of Stockholders'
Equity for the Nine Month Period
Ended September 30, 1999 6
Consolidated Statements of Cash Flows
for the Nine Month Periods Ended
September 30, 1999 and 1998 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-17
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 17
Part II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security
Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
2
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS September 30, 1999 December 31, 1998
(Unaudited)
------------------ -----------------
<S> <C> <C>
Cash and due from banks $ 2,692,426 $ 2,998,485
Interest-bearing deposits in other banks 19,690 25,707
Cash and cash equivalents 2,712,116 3,024,192
Securities available for sale 14,832,601 12,876,464
Mortgage loans held for sale -- 1,051,500
Loans receivable, net of allowance for
loan losses September 30, 1999 $862,799,
December 31, 1998 $719,788 84,848,933 79,322,201
Bank premises and equipment, net 2,750,432 2,710,743
Accrued interest receivable and other assets 3,419,661 2,736,735
TOTAL ASSETS $ 108,563,743 $ 101,721,835
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 8,838,485 $ 9,551,421
Interest bearing 77,075,623 75,891,372
TOTAL DEPOSITS 85,914,108 85,442,793
Securities sold under agreements
to repurchase 616,833 --
Other borrowed funds 8,967,611 3,423,300
Long-term debt 5,000,000 5,000,000
Other liabilities 619,938 496,270
TOTAL LIABILITIES 101,118,490 94,362,363
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, 1999 697,600 shares;
December 31, 1998 696,774 shares 3,488,000 3,483,870
Surplus 147,779 142,148
Retained earnings 3,871,021 3,634,445
Accumulated other comprehensive income (loss) (61,547) 99,009
TOTAL STOCKHOLDERS' EQUITY 7,445,253 7,359,472
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 108,563,743 $ 101,721,835
</TABLE>
3
<PAGE>
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,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest income:
Loan receivable, including fees $ 5,374,894 $ 4,770,378 $ 1,837,876 $ 1,723,116
Securities:
Taxable 527,623 458,707 187,588 161,169
Tax-exempt 17,268 23,213 7,196 7,056
Other 36,578 10,857 11,056 231
Total interest income 5,956,363 5,263,155 2,043,716 1,891,572
Interest expense:
Deposits 2,611,207 2,293,154 869,296 809,562
Other borrowed funds 134,350 101,015 66,339 67,303
Long-term debt 225,131 225,132 75,868 75,869
Total interest expense 2,970,688 2,619,301 1,011,503 952,734
Net interest income 2,985,675 2,643,854 1,032,213 938,838
Provision for loan losses 210,000 150,000 30,000 90,000
Net interest income after
provision for loan losses 2,775,675 2,493,854 1,002,213 848,838
Other income:
Customer service fees 246,915 199,786 91,697 64,451
Net gains from sale of mortgages 50,203 108,212 15,433 34,259
Other 218,147 211,724 74,833 71,147
Total other income 515,265 519,722 181,963 169,857
Other expenses:
Salaries and employee benefits 1,446,328 1,244,603 493,504 423,904
Occupancy 287,143 234,436 97,457 93,133
Equipment 255,312 199,186 87,292 68,474
Marketing and advertising 71,016 77,698 23,022 25,495
Loan collection and foreclosed real estate 31,505 84,208 16,330 (2,676)
Professional fees 40,292 77,417 16,465 27,674
Stationery and supplies 70,971 54,582 21,677 23,858
Other 516,712 410,026 163,353 147,578
Total other expenses 2,719,279 2,382,156 919,100 807,440
Income before income taxes 571,661 631,420 265,076 211,255
Federal income taxes 160,834 181,928 77,745 57,399
Net Income $ 410,827 $ 449,492 $ 187,331 $ 153,856
Basic and diluted earnings per share $ 0.59 $ 0.65 $ 0.27 $ 0.22
Weighted average number of common
shares outstanding 696,907 696,574 697,169 696,574
</TABLE>
See Notes to Consolidated Financial statements
4
<PAGE>
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, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C> <C>
Net Income $ 410,827 $ 449,492
Other Comprehensive Income (Loss)
net of tax
Unrealized holding gains (losses)
arising during the period, net of
tax expense (benefit) 1999 ($79,749);
1998 $49,277 (160,556) 95,656
Total comprehensive income $ 250,271 $ 545,148
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Common Retained Comprehensive
Stock Surplus Earnings Income Total
----------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 $ 3,483,870 $ 142,148 $ 3,634,445 $ 99,009 $ 7,359,472
Net income -- -- 410,827 -- 410,827
Cash dividends ($.25 per share) -- -- (174,251) -- (174,251)
Net change in unrealized gain (loss)
on securities available for sale,
net of taxes -- -- -- (160,556) (160,556)
Issuance of 826 shares of common
stock under dividend reinvestment
program 4,130 5,631 -- -- 9,761
Balance, September 30, 1999 $ 3,488,000 $ 147,779 $ 3,871,021 $ (61,547) $ 7,445,253
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
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, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 410,827 449,492
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 210,000 150,000
Provision for depreciation 214,708 175,334
Net gains on sale of mortgage loans (50,203) (108,212)
Proceeds from sale of mortgage loans 3,446,353 7,321,861
Mortgage loans originated for sale (2,344,650) (7,213,650)
Net amortization of securities premiums and discounts 5,385 4,217
Amortization of mortgage servicing rights 23,585 13,599
Increase in accrued interest receivable and other assets (385,004) (192,779)
Increase in other liabilities 74,836 90,393
Net cash provided by operating activities 1,605,837 690,255
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from maturities of securities held to maturity -- 1,000,000
Proceeds from maturities of securities available for sale 1,500,000 1,435,000
Purchase of securities available for sale (3,701,827) (4,356,860)
Net increase in loans (5,736,732) (15,724,704)
Purchases of bank premises and equipment (254,397) (169,050)
Purchase of life insurance (450,000) --
Proceeds from surrender of life insurance 208,242 --
Net cash used in investing activities (8,434,714) (17,815,614)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 471,315 10,229,597
Net increase in securities sold
under agreements to repurchase 616,833 --
Net increase (decrease) in other borrowed funds 5,544,311 5,549,104
Dividends paid (125,419) (125,395)
Proceeds from shares issued under dividend
reinvestment program 9,761 --
Proceeds from common stock options exercised -- 1,775
Net cash provided by financing activities 6,516,801 15,655,081
Increase (decrease) in cash and cash equivalents (312,076) (1,470,278)
Cash and cash equivalents:
Beginning 3,024,192 3,632,479
Ending 2,712,116 2,162,201
Cash payments for:
Interest 2,996,229 2,611,820
Income taxes 200,115 194,484
</TABLE>
See Notes To Consolidated Financial Statements
7
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
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, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999.
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 Company files
from time to time with the Securities and Exchange Commission.
Note B. New Accounting Standard
The Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities", in June 1998
which was recently amended by Statement No. 137 which delays the effective date.
The Company is required to adopt the Statement on January 1, 2001. The adoption
of the Statement is not expected to have a significant impact on the Company.
Note C. Cash Dividend
On September 23, 1999, the Board of Directors declared a dividend of $.07
per share to shareholders of record on October 22, 1999. The dividend will be
paid on November 15, 1999.
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.
8
<PAGE>
OVERVIEW
The Company's net income for the third quarter of 1999 was $187,331, an
increase of $33,475, or 21.8% from $153,856 net income for the third quarter of
1998. Net income for the nine months ended September 30, 1999 was $410,827, 8.6%
less than the $449,492 reported for the same period in 1998. Total assets
increased to $108,563,743 at September 30, 1999, an increase of $6,841,908, or
6.7% from $101,721,835 at December 31, 1998.
During the nine months ended September 30, 1999, loans receivable increased
7.0% to $84,848,933 from $79,322,201 at December 31, 1998, while deposits
increased 0.6% to $85,914,108 from $85,442,793 at December 31, 1998. The
increase in loans receivable was funded by an increase in other borrowed funds
which included overnight borrowings from the FHLB and overnight repurchase
agreements.
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 asset and liability balances.
The Company's net interest income increased $93,375 or 9.9% to $1,032,213
during the third quarter of 1999 from $938,838 during the third quarter of 1998.
For the first nine months of 1999, net interest income increased $341,821 or
12.9% to $2,985,675 from $2,643,854 during the first nine months of 1998.
Interest income increased $152,144 or 8.0%, from $1,891,572 for the third
quarter of 1998 to $2,043,716 for the third quarter of 1999, while interest
expense increased $58,769 or 6.2%, from $952,734 for the third quarter of 1998
to $1,011,503 for the third quarter of 1999. For the first nine months of 1999,
interest income increased $693,208 or 13.2% to $5,956,363 from $5,263,155 for
the first nine months of 1998, while interest expense increased $351,387 or
13.4% from $2,619,301 for the first nine months of 1998 to $2,970,688 for the
first nine months of 1999.
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.
9
<PAGE>
Net interest margin decreased 1 basis point from 4.15% in the third quarter
of 1998 to 4.14% in the third quarter of 1999. Net interest margin decreased 10
basis points from 4.19% for the first nine months of 1998 to 4.09% for the first
nine months of 1999. The decrease in the net interest margin is primarily due to
a larger decrease in the average yield on interest-earning assets than the
decrease in the average rate paid on interest-bearing liabilities.
For the third quarter of 1999, the average yield on earning assets
decreased 14 basis points to 8.10% from 8.24% for the third quarter of 1998. For
the first nine months of 1999, the average yield on earning assets decreased 16
basis points to 8.16% from 8.32% for the first nine months of 1998. The decrease
is primarily attributable to a decrease in average yield earned on commercial
loans.
For the third quarter of 1999, the average rate paid on interest-bearing
liabilities decreased 38 basis points to 4.28% from 4.66% for the third quarter
of 1998. For the first nine months of 1999, the average rate paid on
interest-bearing liabilities decreased 19 basis points to 4.44% from 4.63% for
the first nine months of 1998. The decrease was caused primarily by a decrease
in the average rate paid on other borrowed funds and a decrease in the average
rate paid on time deposits.
Provision for Loan Losses
The provision for loan losses was $30,000 for the third quarter of 1999
compared to $90,000 for the third quarter of 1998. For the first nine months of
1999, the loan loss provision was $210,000 compared to $150,000 for the first
nine months of 1998.
The allowance for loan losses represented 1.01% and .90% of total loans
receivable at September 30, 1999 and at December 31, 1998, 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 potential losses in
the portfolio. Management believes that the allowance for loan losses is
adequate for each of the periods presented.
Other Income
Total other income increased $12,106 or 7.1% from $169,857 during the third
quarter of 1998 to $181,963 during the third quarter of 1999. The increase was
due primarily to a $27,246 increase in customer service fees and an increase in
other income of $3,686, which were partially offset by a decrease of $18,826 in
net gains from the sale of mortgages. The increase in customer service fees is a
result of increases in ATM convenience fees and insufficient funds fees
collected during the third quarter of 1999. The increase in other income is
primarily attributable to earnings on life insurance policies.
For the first nine months of 1999, total other income decreased $4,457 or
0.9% to $515,265 from $519,722 for the same period in 1998. The $4,457 decrease
is primarily attributable a decrease in net gains from the sale of mortgages of
$58,009 which was partially offset by an increase in customer service fees of
$47,129. The increase in customer service fees is a result of increases in both
ATM convenience fees and insufficient funds fees.
10
<PAGE>
Other Expenses
Total other expenses increased $111,660 or 13.8% during the third quarter
of 1999 versus the same period in 1998, from $807,440 to $919,100. Total other
expenses also increased during the first nine months of 1999 versus the first
nine months of 1998 by $337,123 or 14.2% from $2,382,156 to $2,719,279. The
increase in total other expenses reflects the continued growth of the Company.
Salaries and employee benefits, which represent the largest component of
other expenses increased $69,600 or 16.4% from $423,904 for the third quarter of
1998 to $493,504 for the same period in 1999. For the first nine months of 1999,
salaries and employee benefits increased $201,725 or 16.2% to $1,446,328 from
$1,244,603 for the same period in 1998. The increase in salaries and employee
benefits is reflective of the continued growth of average assets of the Company.
Occupancy expense increased $4,324 or 4.6%, to $97,457 for the third
quarter of 1999 versus $93,133 for the third quarter of 1998. For the first nine
months of 1999, occupancy expense was $287,143 versus $234,436 for the same
period in 1998, an increase of $52,707 or 22.4%. Approximately $46,000 of that
increase can be attributed to the addition of the new operations center lease in
the third quarter of 1998 and the related building maintenance and utilities
costs associated with that location.
Equipment expense increased $18,818 or 27.5%, from $68,474 for the third
quarter of 1998 to $87,292 for the third quarter of 1999. For the first nine
months of 1999, equipment expense increased $56,126 or 28.2% to $255,312 from
$199,186 for the same period in 1998. The increase in equipment expense was the
result of increases in maintenance contracts, equipment repairs, software
support and depreciation. Equipment purchases of $337,859 during 1998 and
$254,397 thus far in 1999 had a significant impact on depreciation, which
increased approximately $36,000.
Marketing and advertising expenses decreased $2,473 or 9.7% to $23,022 for
the third quarter of 1999 versus $25,495 for the third quarter of 1998. For the
first nine months of 1999, marketing and advertising was $71,016 versus $77,698
for the same period in 1998, a decrease of $6,682 or 8.6%. The decrease in
marketing and advertising expenses for the first nine months of 1999 was due to
an effort by management to control these types of expenses.
Loan collection and foreclosed real estate expenses increased $19,006 to
$16,330 for the third quarter of 1999 versus ($2,676) for the third quarter of
1998. The increase in loan collection and foreclosed real estate expenses was
primarily due to the additional expenses associated with two properties included
in other real estate owned. For the first nine months of 1999, loan collection
and foreclosed real estate expenses were $31,505 versus $84,208 for the same
period in 1998, a decrease of $52,703 or 62.6%. The higher level of loan
collection and foreclosed real estate expenses in 1998 was primarily due to the
environmental clean-up costs associated with a property which was sold in the
third quarter of 1998.
Professional fees decreased $11,209 or 40.5% to $16,465 for the third
quarter of 1999 versus $27,674 for the third quarter of 1998. For the first nine
months of 1999, professional fees were $40,292 versus $77,417 for the same
period in 1998, a decrease of $37,125 or 48.0%. Professional fees for the first
nine months of 1998 were higher than that for the same period in 1999 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.
11
<PAGE>
Stationery and supplies expense decreased $2,181 or 9.1% to $21,677 for the
third quarter of 1999 versus $23,858 for the third quarter of 1998. For the
first nine months of 1999, stationery and supplies expense was $70,971 versus
$54,582 for the same period in 1998, an increase of $16,389 or 30.0%. The
increase is primarily a result of the continued growth of the Company.
Other operating expenses increased from $147,578 for the third quarter of
1998 to $163,353 for the same period in 1999, an increase of $15,775 or 10.7%.
For the first nine months of 1999, other operating expenses increased $106,686
or 26.1% to $516,712 versus $410,026 for the same period in 1998. Other
operating expenses included in this category that experienced increases for the
current period include telephone, education and training, examinations, postage,
travel, messenger services, MAC fees and shares tax. The increases in such
expense categories are principally the result of the Bank's growth.
Income Taxes
Income tax expense was $77,745 for the third quarter of 1999, for an
effective tax rate of 29.3% versus $57,399 for the third quarter of 1998 and an
effective tax rate of 27.2%. For the first nine months of 1999, income tax
expense was $160,834 for an effective tax rate of 28.1% versus $181,928 and an
effective tax rate of 28.8% for the same period in 1998. 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 and earnings on the cash surrender
value of life insurance policies.
Year 2000
During the two years of preparation for the Year 2000 issue, the bank
underwent rigorous, detailed assessments by Federal regulators that were
unsurpassed by any other industry segment. During the two years of preparing for
the Year 2000 date change, the bank performed a broad assessment of its internal
and external systems. This assessment was comprised of four stages:
Evaluation
All systems were thoroughly examined to determine the extent and complexity
of their vulnerability. Evaluations included hardware, software, mechanical and
other critical and non-critical systems.
Correction
In each case where a potential problem was identified, action was taken to
address it. Mission critical systems (those that would affect our customers most
directly) were fixed immediately. Other systems have either been made Y2K ready,
or have been replaced.
Testing
Every system that has been identified as mission critical was tested. In
many cases, Y2K ready systems are in use now. The Company has communicated to
its customers that there will be no need to have large amounts of cash on hand
since the usual payment methods such as checks, credit cards, debit cards and
ATMs have all been extensively tested and are Year 2000 ready.
12
<PAGE>
Contingency Plans
Plans are in place to ensure that operations continue in the unlikely event
a system fails. For example:
o Complete back-up records on all customer accounts are maintained
o Service providers (phone companies, utilities and other) have been
assessed for Y2K readiness
o Sufficient cash will be available for customer requirements
The Company has spent over $18,000 to support its Year 2000 preparedness
efforts. Because of its efforts, the Company is confident that it will provide
uninterrupted financial services during the Year 2000 rollover.
FINANCIAL CONDITION
Securities
Securities increased to $14,832,601 at September 30, 1999, from $12,876,464
at December 31, 1998. The increase of $1,956,137 or 15.2% is primarily the net
difference between purchases of U.S. Government agency obligations, general
obligation bonds and a corporate note totaling $3,701,827 and proceeds from
maturities of a U.S. Government agency obligation and U.S. Treasury notes
totaling $1,500,000.
Loans
Loans receivable, net of the allowance for loan losses of $862,799 at
September 30, 1999 and $719,788 at December 31, 1998 increased to $84,848,933 at
September 30, 1999 from $79,322,201 at December 31, 1998. The increase of
$5,526,732 or 7.0% was primarily from an increase in commercial loans of
$5,358,168 from $27,184,490 at December 31, 1998 to $32,542,658 at September 30,
1999.
Loan and Asset Quality
Total non-performing loans (comprised of non-accruing loans and loans past
due for more than 90 days and still accruing) as a percentage of average loans
outstanding as of September 30, 1999 was 1.01%, compared with .39% at December
31, 1998. Total non-performing loans increased to $849,000 at September 30,
1999, from $295,000 at December 31, 1999. The increase in total non-performing
loans is primarily attributable to two commercial mortgage loans totaling
$573,000, both of which are well capitalized by real estate.
The Bank had other real estate owned (OREO) consisting of two properties in
the amount of $138,716 at September 30, 1999 and one property in the amount of
$47,600 at December 31, 1998.
The following schedule displays detailed information about the Bank's
non-performing assets and the allowance for loan losses for the periods ended
September 30, 1999, December 31, 1998 and September 30, 1998.
13
<PAGE>
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998 September 30, 1998
(In thousands)
------------------ ----------------- ------------------
<S> <C> <C> <C>
Average loans outstanding $84,084 $74,859 $80,503
Allowance for loan losses 863 720 636
Non-performing loans:
Non-accruing loans 5 93 96
Accruing loans past due
90 days or more 844 202 18
Total non-performing loans 849 295 114
Other real estate 139 48 48
Total non-performing assets $ 988 $ 343 $ 162
Non-performing loans to average
loans outstanding 1.01% 0.39% 0.14%
Non-performing assets to total assets 0.91% 0.34% 0.16%
Allowance for loan losses to total
non-performing loans 101.65% 244.07% 557.89%
Allowance for loan losses to
average loans outstanding 1.03% 0.96% 0.79%
</TABLE>
Potential Problem Loans
At September 30, 1999, the Bank has $4,069,000 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, 1999 were $85,914,108, an increase of
$471,315 or 0.6% over total deposits of $85,442,793 at December 31, 1998. The
most significant increases included MMDAs and time deposits $100,000 and over.
MMDAs increased $823,306 or 5.0% from $16,601,248 at December 31, 1998 to
$17,424,554 at September 30, 1999. Time deposits greater than $100,000 increased
$731,614 or 13.6% from $5,387,650 at December 31, 1998 to $6,119,264 at
September 30, 1999. Significant decreases include non-interest bearing demand
accounts and time deposits less than $100,000. Non-interest bearing demand
accounts decreased $712,936 or 7.5% from $9,551,421 at December 31, 1998 to
$8,838,485 at September 30, 1999. Time deposits less than $100,000 decreased
$686,835 or 1.9% from $35,350,197 at December 31, 1999 to $34,663,362 at
September 30, 1999.
14
<PAGE>
Other Borrowed Funds and Long-term Debt
Other borrowed funds including securities sold under agreements to
repurchase and long-term debt increased $6,161,144 from $8,423,300 at December
31, 1998 to $14,584,444 at September 30, 1999. The increase was primarily a
result of higher overnight borrowings due to an increase in the volume of new
lending which exceeded the growth in deposits.
Stockholders' Equity and Capital Ratios
Total stockholders' equity at September 30, 1999 was $7,445,253 compared to
$7,359,472 at December 31, 1998. In the third quarter of 1999, the Company
implemented a dividend reinvestment program which resulted in additional capital
of $9,761. The retained net earnings of the Company of $236,576 were
substantially offset by unrealized losses on securities available for sale of
$160,556. A comparison of the Bank's capital ratios is as follows:
September 30, 1999 December 31, 1998
------------------ -----------------
Tier 1 Capital 6.87% 7.04%
(to average assets)
Tier 1 Capital 9.29% 9.91%
(to risk-weighted assets)
Total Capital 10.38% 10.93%
(to risk-weighted assets)
The minimum capital requirements imposed by federal regulatory authorities
for Leverage, Tier 1 and Total Capital are 4%, 4% and 8%, respectively. The
consolidated capital ratios are not materially different from the Bank's capital
ratios. At September 30, 1999 and December 31, 1998, 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 re-price 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 re-pricing 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.
15
<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
$4,586,387. 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 $32 million at September 30, 1999.
At September 30, 1999, the Bank had $5 million borrowed from the FHLB with a
scheduled maturity in October 1999.
Management believes that the Bank's liquidity is sufficient to meet its
anticipated needs.
Future Outlook
A cash dividend of seven cents per share was declared to shareholders of
record on October 22, 1999, payable on November 15, 1999. Community Independent
Bank, Inc. established a dividend reinvestment plan in 1998. The dividend
reinvestment plan was registered with the U.S. Securities and Exchange
Commission in July 1999 which enables the holding company to issue authorized
shares to satisfy the needs of the dividend reinvestment program.
Bernville Bank, N.A., a subsidiary of Community Independent Bank, Inc., has
announced that no new branches will be opened during 1999. The primary objective
in the 1999 strategic plan is to increase the bank's profitability.
16
<PAGE>
Bernville Bank is exploring the formation of joint ventures with insurance
agencies to provide title insurance and general insurance products. Bernville
Bank has introduced lease-financing services to meet the equipment acquisition
needs of the businesses and repurchase agreements as a cash management tool for
individuals and businesses. Management believes that adding these products and
services to the many quality financial services the bank already offers to its
customers will allow the bank to better serve its customers, create new fee
income opportunities and compete more effectively.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Bank's exposure to market risk has not changed significantly since
December 31, 1998. The market risk principally includes interest rate risk that
is discussed above.
Part II Other Information
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27.
Financial Data Schedule
(b) Reports on Form 8-K
None
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNITY INDEPENDENT BANK, INC.
(Registrant)
November 12, 1999 /s/ Arlan J. Werst
- ----------------- -----------------------------
Date Arlan J. Werst, President/CEO
November 12, 1999 /s/ Linda L. Strohmenger
- ----------------- -------------------------------
Date Linda L. Strohmenger, Secretary
(Principal financial officer)
18
<PAGE>
<TABLE> <S> <C>
<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-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,692,426
<INT-BEARING-DEPOSITS> 19,690
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,832,601
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 84,848,933
<ALLOWANCE> 862,799
<TOTAL-ASSETS> 108,563,743
<DEPOSITS> 85,914,108
<SHORT-TERM> 0
<LIABILITIES-OTHER> 9,584,444
<LONG-TERM> 5,000,000
0
0
<COMMON> 3,488,000
<OTHER-SE> 3,957,253
<TOTAL-LIABILITIES-AND-EQUITY> 108,563,743
<INTEREST-LOAN> 5,374,894
<INTEREST-INVEST> 544,891
<INTEREST-OTHER> 36,578
<INTEREST-TOTAL> 5,956,363
<INTEREST-DEPOSIT> 2,611,207
<INTEREST-EXPENSE> 2,970,688
<INTEREST-INCOME-NET> 2,985,675
<LOAN-LOSSES> 210,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,719,279
<INCOME-PRETAX> 571,661
<INCOME-PRE-EXTRAORDINARY> 571,661
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 410,827
<EPS-BASIC> 0.59
<EPS-DILUTED> 0.59
<YIELD-ACTUAL> 4.09
<LOANS-NON> 5,000
<LOANS-PAST> 849,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,069,000
<ALLOWANCE-OPEN> 719,788
<CHARGE-OFFS> 91,954
<RECOVERIES> 24,965
<ALLOWANCE-CLOSE> 862,799
<ALLOWANCE-DOMESTIC> 755,308
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 107,491
</TABLE>
