U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934 for the Quarterly period ended June 30, 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 July 31, 1999
COMMON STOCK ($5.00 Par Value) 696,774
(Title of Class) (Outstanding Shares)
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
FORM 10-QSB
For the Quarter Ended June 30, 1999
Contents
PART I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of
June 30, 1999 and December 31, 1998 3
Consolidated Statements of Income
for the Six and Three Month Periods
Ended June 30, 1999 and 1998 4
Consolidated Statements of Comprehensive
Income for the Six Month Periods Ended
June 30, 1999 and 1998 5
Consolidated Statements of Stockholders'
Equity for the Six Month Period
Ended June 30, 1999 6
Consolidated Statements of Cash Flows
for the Six Month Periods Ended June 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 9-17
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>
June 30, 1999 December 31, 1998
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,288,435 $ 2,998,485
Interest-bearing deposits in other banks 26,168 25,707
Cash and cash equivalents 2,314,603 3,024,192
Securities available for sale 13,969,810 12,876,464
Mortgage loans held for sale 160,750 1,051,500
Loans receivable, net of allowance for
loan losses June 30, 1999 $853,504,
December 31, 1998 $719,788 84,236,416 79,322,201
Bank premises and equipment, net 2,783,156 2,710,743
Accrued interest receivable and other assets 3,463,483 2,736,735
TOTAL ASSETS $ 106,928,218 $ 101,721,835
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 9,596,298 $ 9,551,421
Interest bearing 82,682,718 75,891,372
TOTAL DEPOSITS 92,279,016 85,442,793
Securities sold under agreements
to repurchase 570,763 --
Other borrowed funds 1,056,965 3,423,300
Long-term debt 5,000,000 5,000,000
Other liabilities 658,890 496,270
TOTAL LIABILITIES 99,565,634 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
June 30, 1999 696,774 shares;
December 31, 1998 696,774 shares 3,483,870 3,483,870
Surplus 142,148 142,148
Retained earnings 3,774,329 3,634,445
Accumulated other comprehensive income (loss) (37,763) 99,009
TOTAL STOCKHOLDERS' EQUITY 7,362,584 7,359,472
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 106,928,218 $ 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 Six Months Ended For the Three Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest income:
Loan receivable, including fees $3,537,018 $3,047,262 $1,801,077 $1,591,051
Securities:
Taxable 340,035 297,538 170,941 152,972
Tax-exempt 10,072 16,157 5,028 7,812
Other 25,522 10,626 12,944 616
Total interest income 3,912,647 3,371,583 1,989,990 1,752,451
Interest expense:
Deposits 1,741,911 1,483,592 880,887 760,669
Other borrowed funds 68,011 33,712 37,465 28,021
Long-term debt 149,263 149,263 74,954 75,044
Total interest expense 1,959,185 1,666,567 993,306 863,734
Net interest income 1,953,462 1,705,016 996,684 888,717
Provision for loan losses 180,000 60,000 90,000 30,000
Net interest income after
provision for loan losses 1,773,462 1,645,016 906,684 858,717
Other income:
Customer service fees 155,218 135,335 78,097 69,595
Net gains from sale of mortgages 34,770 73,953 8,437 48,994
Other 143,314 140,577 78,067 70,303
Total other income 333,302 349,865 164,601 188,892
Other expenses:
Salaries and employee benefits 952,824 820,699 492,510 416,395
Occupancy 189,686 141,303 96,030 71,438
Equipment 168,020 130,712 86,075 65,818
Marketing and advertising 47,994 52,203 32,386 30,292
Loan collection and foreclosed real estate 15,175 86,884 8,117 61,150
Professional fees 23,827 49,743 8,577 40,006
Stationery and supplies 49,294 30,724 22,264 15,890
Other 353,359 262,448 184,127 137,753
Total other expenses 1,800,179 1,574,716 930,086 838,742
Income before income taxes 306,585 420,165 141,199 208,867
Federal income taxes 83,089 124,529 37,736 60,795
Net Income $ 223,496 $ 295,636 $ 103,463 $ 148,072
Basic and diluted earnings per share $ 0.32 $ 0.42 $ 0.15 $ 0.21
Weighted average number of common
shares outstanding 696,774 696,574 696,774 696,574
</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 Six Months Ended
June 30, 1999 June 30, 1998
<S> <C> <C>
Net Income $ 223,496 $ 295,636
Other Comprehensive Income (Loss)
net of tax
Unrealized holding gains (losses)
arising during the period, net of
tax expense 1999 ($67,496);
1998 $2,323 (136,772) 4,511
Total comprehensive income $ 86,724 $ 300,147
</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 Six Months Ended June 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 -- -- 223,496 -- 223,496
Cash dividends ($.12 per share) -- -- (83,612) -- (83,612)
Net change in unrealized gain (loss)
on securities available for sale,
net of taxes -- -- -- (136,772) (136,772)
Balance, June 30, 1999 $ 3,483,870 $ 142,148 $ 3,774,329 $ (37,763) $ 7,362,584
</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 Six Months Ended
June 30, 1999 June 30, 1998
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income 223,496 295,636
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 180,000 60,000
Provision for depreciation 142,645 116,889
Net gains on sale of mortgage loans (34,770) (73,953)
Proceeds from sale of mortgage loans 2,530,203 5,224,953
Mortgage loans originated for sale (1,604,683) (5,151,000)
Net amortization of securities premiums and discounts 3,626 2,666
Amortization of mortgage servicing rights 15,545 9,054
Increase in accrued interest receivable and other assets (316,619) (94,329)
Increase in other liabilities 162,620 80,244
Net cash provided by operating activities 1,302,063 470,160
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from maturities of securities held to maturity -- 1,000,000
Proceeds from maturities of securities available for sale 1,000,000 435,000
Purchase of securities available for sale (2,301,240) (2,159,720)
Net increase in loans (5,210,635) (11,595,694)
Purchases of bank premises and equipment (215,058) (87,571)
Purchase of life insurance (450,000) --
Proceeds from surrender of life insurance 208,242 --
Net cash used in investing activities (6,968,691) (12,407,985)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 6,836,223 8,874,321
Net increase in securities sold
under agreements to repurchase 570,763 --
Net increase (decrease) in other borrowed funds (2,366,335) 1,319,870
Dividends paid (83,612) (83,589)
Proceeds from common stock options exercised -- 1,775
Net cash provided by financing activities 4,957,039 10,112,377
Increase (decrease) in cash and cash equivalents (709,589) (1,825,448)
Cash and cash equivalents:
Beginning 3,024,192 3,632,479
Ending 2,314,603 1,807,031
Cash payments for:
Interest 1,987,657 1,672,083
Income taxes 139,267 112,910
</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)
JUNE 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 six month period ended June 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. Earnings per Share
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. All per share data
has been adjusted for the effect of the stock split.
Note C. 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 D. Cash Dividend
On July 8, 1999, the Board of Directors declared a dividend of $.06 per
share to shareholders of record on July 23, 1999. The dividend will be paid on
August 13, 1999.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations analyzes the major elements of the Company's balance sheets and
statements of income. This should be read in conjunction with the Company's
financial statements and accompanying footnotes.
OVERVIEW
The Company's net income for the second quarter of 1999 was $103,463, a
decrease of $44,609, or 30.1% from $148,072 net income for the second quarter of
1998. Net income for the six months ended June 30, 1999 was $223,496, 24.4% less
than the $295,636 reported for the same period in 1998. Total assets increased
to $106,928,218 at June 30, 1999, an increase of $5,206,383, or 5.1% from
$101,721,835 at December 31, 1998.
During the six months ended June 30, 1999, loans receivable increased 6.2%
to $84,236,416 from $79,322,201 at December 31, 1998, while deposits increased
8.0% to $92,279,016 from $85,442,793 at December 31, 1998.
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 $107,967 or 12.1% to $996,684
during the second quarter of 1999 from $888,717 during the second quarter of
1998. For the first six months of 1999, net interest income increased $248,446
or 14.6% to $1,953,462 from $1,705,016 during the first six months of 1998.
Interest income increased $237,539 or 13.6%, from $1,752,451 for the second
quarter of 1998 to $1,989,990 for the second quarter of 1999, while interest
expense increased $129,572 or 15.0%, from $863,734 for the second quarter of
1998 to $993,306 for the second quarter of 1999. For the first six months of
1999, interest income increased $541,064 or 16.0% to $3,912,647 from $3,371,583
for the first six months of 1998, while interest expense increased $292,618 or
17.6% from $1,666,567 for the first six months of 1998 to $1,959,185 for the
first six 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 18 basis points from 4.25% in the second
quarter of 1998 to 4.07% in the second quarter of 1999. Net interest margin
decreased 15 basis points from 4.22% for the first six months of 1998 to 4.07%
for the first six months of 1999. Net interest margin decreased 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 second quarter of 1999, the average yield on earning assets
decreased 27 basis points to 8.11% from 8.38% for the second quarter of 1998.
For the first six months of 1999, the average yield on earning assets decreased
20 basis points to 8.15% from 8.35% for the first six months of 1998. The
decrease is primarily attributable to a decrease in average yield earned on
commercial loans.
For the second quarter of 1999, the average rate paid on interest-bearing
liabilities decreased 15 basis points to 4.46% from 4.61% for the second quarter
of 1998. For the first six months of 1999, the average rate paid on
interest-bearing liabilities decreased 9 basis points to 4.53% from 4.62% for
the first six months of 1998. The decrease was caused primarily by a decrease in
the volume of other borrowed funds and a decrease in the average rate paid on
time deposits.
Provision for Loan Losses
The provision for loan losses was $90,000 for the second quarter of 1999
compared to $30,000 for the second quarter of 1998. For the first six months of
1999, the loan loss provision was $180,000 compared to $60,000 for the first six
months of 1998.
The allowance for loan losses represented 1.01% and .90% of total loans
receivable at June 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 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 and
continuing through June 1999.
Other Income
Total other income decreased $24,291 or 12.9% from $188,892 during the
second quarter of 1998 to $164,601 during the second quarter of 1999. The
decrease was due primarily to a $40,557 decrease in net gains from the sale of
mortgages which was partially offset by an increase of $8,502 in customer
service fees and an increase in other income of $7,764 which is primarily
attributable to earnings on life insurance policies.
Other Expenses
Total other expenses increased $91,344 or 10.89% during the second quarter
of 1999 versus the same period in 1998, from $838,742 to $930,086. Total other
expenses also increased during the first six months of 1999 versus the first six
months of 1998 by $225,463 or 14.3% from $1,574,716 to $1,800,179. The increase
in total other expenses reflects the continued growth of the Company.
10
<PAGE>
Salaries and employee benefits, which represent the largest component of
other expenses increased from $416,395 for the second quarter of 1998 to
$492,510 for the same period in 1999. For the first six months of 1999, salaries
and employee benefits increased $132,125 or 16.1% to $952,824 from $820,699 for
the same period in 1998. Salaries and employee benefits increased due to the
growth of the Company, which resulted in the creation of additional positions
throughout the Company.
Occupancy expense increased $24,592 or 34.4%, to $96,030 for the second
quarter of 1999 versus $71,438 for the second quarter of 1998. For the first six
months of 1999, occupancy expense was $189,686 versus $141,303 for the same
period in 1998, an increase of $48,383 or 34.2%. Approximately $41,000 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 $20,257 or 30.8%, from $65,818 for the second
quarter of 1998 to $86,075 for the second quarter of 1999. For the first six
months of 1999, equipment expense increased $37,308 or 28.5% to $168,020 from
$130,712 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
$231,769 thus far in 1999 had a significant impact on depreciation, which
increased approximately $24,000.
Marketing and advertising expenses increased $2,094 or 6.9% to $32,386 for
the second quarter of 1999 versus $30,292 for the second quarter of 1998. For
the first six months of 1999, marketing and advertising was $47,994 versus
$52,203 for the same period in 1998, a decrease of $4,209 or 8.1%. The decrease
for the first six months of 1999 was due to an effort by management to control
these types of expenses.
Loan collection and foreclosed real estate expenses decreased $53,033 or
86.7% to $8,117 for the second quarter of 1999 versus $61,150 for the second
quarter of 1998. For the first six months of 1999, loan collection and
foreclosed real estate expenses were $15,175 versus $86,884 for the same period
in 1998, a decrease of $71,709 or 82.5%. 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 $31,429 or 78.6% to $8,577 for the second
quarter of 1999 versus $40,006 for the second quarter of 1998. For the first six
months of 1999, professional fees were $23,827 versus $49,743 for the same
period in 1998, a decrease of $25,916 or 52.1%. Professional fees for the first
six 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.
Stationery and supplies expense increased $6,374 or 40.1% to $22,264 for
the second quarter of 1999 versus $15,890 for the second quarter of 1998. For
the first six months of 1999, stationary and supplies expense was $49,294 versus
$30,724 for the same period in 1998, an increase of $18,570 or 60.4%. The
increase is primarily a result of the continued growth of the Company.
11
<PAGE>
Other operating expenses increased from $137,753 for the second quarter of
1998 to $184,127 for the same period in 1999, an increase of $46,374 or 33.7%.
For the first six months of 1999, other operating expenses increased $90,911 or
34.6% to $353,359 versus $262,448 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 stock exchange fees. The increases in such
expense categories are principally the result of the Bank's growth.
Income Taxes
Income tax expense was $37,736 for the second quarter of 1999, for an
effective tax rate of 26.7% versus $60,795 for the second quarter of 1998 and an
effective tax rate of 29.1%. For the first six months of 1999, income tax
expense was $83,089 for an effective tax rate of 27.1% versus $124,529 and an
effective tax rate of 29.6% 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
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 were purchased from well-established
software vendors and were not developed in-house. The Company has worked 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.
have been checked and verified for Year 2000 readiness.
Through December 31, 1998, the Company incurred approximately $15,000 in
expenses related to the year 2000. An additional $3,000 in Y2K expenses was
spent during the first six months of 1999. Any additional Y2K related expenses
for the remainder of 1999 are expected to be minimal.
The Company has identified and contacted its major commercial customers
concerning the Y2K efforts of these customers and continues to work closely with
them to insure their successful transition to Year 2000. Information concerning
Y2K and the Company's readiness efforts has been made available to all customers
of the Company. Employees of the Company have been informed of the Company's
efforts through articles in the Company's weekly newsletter.
12
<PAGE>
As part of the planning process, the Company has developed a business
resumption plan that provides 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.
The Company believes that, as of June 30, 1999, it has completed the
majority of its preparations for Year 2000 and is confident that it will provide
uninterrupted financial services during the Year 2000 rollover and well beyond.
FINANCIAL CONDITION
Securities
Securities increased to $13,969,810 at June 30, 1999, from $12,876,464 at
December 31, 1998. The increase of $1,093,346 or 8.5% is primarily the net
difference between U.S. Government agency obligation purchases of $2,001,650 and
proceeds from maturities of a U.S. Government agency obligation and U.S.
Treasury note totaling $1,000,000.
Loans
Loans receivable, net of the allowance for loan losses of $853,504 at June
30, 1999 and $719,788 at December 31, 1998 increased to $84,236,416 at June 30,
1999 from $79,322,201 at December 31, 1998. The increase of $4,914,215 or 6.2%
was primarily from an increase in commercial loans of $4,433,088 from
$27,184,490 at December 31, 1998 to $31,617,578 at June 30, 1999.
Loan and Asset Quality
Total non-performing loans (comprised of non-accruing and loans past due
for more than 90 days and still accruing) as a percentage of average loans
outstanding as of June 30, 1999 was .11%, compared with .39% at December 31,
1998.
The Bank had other real estate owned (OREO) consisting of two properties in
the amount of $138,716 at June 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
June 30, 1999, December 31, 1998 and June 30, 1998.
13
<PAGE>
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998 June 30, 1998
(In thousands)
<S> <C> <C> <C>
Average loans outstanding $83,407 $74,859 $76,395
Allowance for loan losses 853 720 546
Non-performing loans:
Non-accruing loans 0 93 99
Accruing loans past due
90 days or more 90 202 16
Total non-performing loans 90 295 115
Other real estate 139 48 213
Total non-performing assets $ 229 $ 343 $ 328
Non-performing loans to average
loans outstanding 0.11% 0.39% 0.15%
Non-performing assets to total assets 0.21% 0.34% 0.38%
Allowance for loan losses to total
non-performing loans 947.78% 244.07% 474.78%
Allowance for loan losses to
average loans outstanding 1.02% 0.96% 0.71%
</TABLE>
Potential Problem Loans
At June 30, 1999, the Bank has $3,424,000 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 June 30, 1999 were $92,279,016, an increase of $6,836,223
or 8.0% over total deposits of $85,442,793 at December 31, 1998. All deposit
categories except non-interest bearing demand accounts, statement savings
accounts and time deposits $100,000 and over increased from December 31,1998 to
June 30, 1999, with the most significant increases in money market deposit
accounts and time deposits less than $100,000. MMDAs increased $4,432,351 or
26.7% from $16,601,248 at December 31, 1998 to $21,033,599 at June 30, 1999.
Time deposits less than $100,000 increased $2,552,226 or 6.4% from $39,627,621
at December 30, 1998 to $42,179,847 at June 30, 1999. The increase in total
deposits was a result of competitive pricing of the money market product and was
primarily used to fund new loans.
14
<PAGE>
Other Borrowed Funds and Long-term Debt
Other borrowed funds including securities sold under agreements to
repurchase and long-term debt decreased $1,795,572 from $8,423,300 at December
31, 1998 to $6,627,728 at June 30, 1999. The decrease was primarily a result of
lower overnight borrowings due to growth in deposits which exceeded the volume
of new lending.
Stockholders' Equity and Capital Ratios
Total stockholders' equity at June 30, 1999 was $7,362,584 compared to
$7,359,472 at December 31, 1998. The retained net earnings of the Company of
$139,884 were substantially offset by unrealized losses on securities available
for sale of $136,772. A comparison of the Bank's capital ratios is as follows:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Tier 1 Capital 6.89% 7.04%
(to average assets)
Tier 1 Capital 9.32% 9.91%
(to risk-weighted assets)
Total Capital 10.43% 10.93%
(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 June 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
$3,084,473. 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 June 30, 1999. At
June 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 six cents per share was declared to shareholders of
record on July 23, 1999, payable on August 13, 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. A community
financial center site is under agreement pending plan approval by the site
developers from the municipality. Approval is anticipated during the third
quarter 1999.
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)
August 13, 1999 /s/ Arlan J. Werst
------------------- ---------------------------------
Date Arlan J. Werst, President/CEO
August 13, 1999 /s/ Linda L. Strohmenger
------------------- ---------------------------------
Date Linda L. Strohmenger, Secretary
(Principal financial officer)
18
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
EXHIBIT 27. FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE QUARTERLY
REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL INFORMATION.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1999
<CASH> 2,288,435
<INT-BEARING-DEPOSITS> 26,168
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,969,810
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 84,236,416
<ALLOWANCE> 853,504
<TOTAL-ASSETS> 106,928,218
<DEPOSITS> 92,279,016
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,627,728
<LONG-TERM> 5,000,000
0
0
<COMMON> 3,483,870
<OTHER-SE> 3,878,714
<TOTAL-LIABILITIES-AND-EQUITY> 106,928,218
<INTEREST-LOAN> 3,537,018
<INTEREST-INVEST> 350,107
<INTEREST-OTHER> 25,522
<INTEREST-TOTAL> 3,912,647
<INTEREST-DEPOSIT> 1,741,911
<INTEREST-EXPENSE> 1,959,185
<INTEREST-INCOME-NET> 1,953,462
<LOAN-LOSSES> 180,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,800,179
<INCOME-PRETAX> 306,585
<INCOME-PRE-EXTRAORDINARY> 306,585
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 223,496
<EPS-BASIC> 0.32
<EPS-DILUTED> 0.32
<YIELD-ACTUAL> 4.11
<LOANS-NON> 0
<LOANS-PAST> 90,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,424,000
<ALLOWANCE-OPEN> 719,788
<CHARGE-OFFS> 46,285
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 853,504
<ALLOWANCE-DOMESTIC> 684,188
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 169,316
</TABLE>
