<PAGE>
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, 2000.
( ) 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 November 13, 2000
COMMON STOCK ($5.00 Par Value) 700,324
(Title of Class) (Outstanding Shares)
1
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
FORM 10-QSB
For the Quarter Ended September 30, 2000
Contents
PART I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999 3
Consolidated Statements of Income
for the Nine and Three Month Periods
Ended September 30, 2000 and 1999 4
Consolidated Statements of Comprehensive
Income for the Nine Month Period Ended
September 30, 2000 and 1999 5
Consolidated Statements of Stockholders'
Equity for the Nine Month Period
Ended September 30, 2000 6
Consolidated Statements of Cash Flows
for the Nine Month Period Ended
September 30, 2000 and 1999 7
Notes to Consolidated Financial Statements 8-9
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 18
Part II OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security
Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 20
2
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS September 30, 2000 December 31, 1999
(Unaudited)
<S> <C> <C>
Cash and due from banks $ 2,070,856 $ 4,139,228
Interest-bearing deposits in other banks 16,346 13,238
Cash and cash equivalents 2,087,202 4,152,466
Securities available for sale 13,366,343 13,383,658
Mortgage loans held for sale 0 68,000
Loans receivable, net of allowance for
loan losses September 30, 2000 $1,165,695,
December 31, 1999 $1,211,628 80,262,790 85,668,141
Bank premises and equipment, net 2,693,310 2,828,800
Accrued interest receivable and other assets 4,041,338 3,434,861
TOTAL ASSETS $102,450,983 $109,535,926
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 8,950,127 $ 10,434,304
Interest bearing 79,755,098 80,161,897
TOTAL DEPOSITS 88,705,225 90,596,201
Securities sold under agreements
to repurchase 723,283 661,092
Other borrowed funds 5,153,054 10,471,037
Other liabilities 643,402 565,694
TOTAL LIABILITIES 95,224,964 102,294,024
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, 2000 700,324 shares;
December 31, 1999 698,637 shares 3,501,620 3,493,185
Surplus 162,777 154,268
Retained earnings 3,602,723 3,701,727
Accumulated other comprehensive income (loss) (41,101) (107,278)
TOTAL STOCKHOLDERS' EQUITY 7,226,019 7,241,902
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $102,450,983 $109,535,926
</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
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Interest income:
Loans receivable, including fees $ 5,257,769 $ 5,374,894 $ 1,747,229 $ 1,837,876
Securities:
Taxable 498,104 527,623 166,192 187,588
Tax-exempt 26,262 17,268 10,002 7,196
Other 65,469 36,578 20,090 11,056
Total interest income 5,847,604 5,956,363 1,943,513 2,043,716
Interest expense:
Deposits 2,759,937 2,611,207 988,371 869,296
Other borrowed funds 427,599 134,350 88,036 66,339
Long-term debt 0 225,131 0 75,868
Total interest expense 3,187,536 2,970,688 1,076,407 1,011,503
Net interest income 2,660,068 2,985,675 867,106 1,032,213
Provision for loan losses 350,000 210,000 60,000 30,000
Net interest income after
provision for loan losses 2,310,068 2,775,675 807,106 1,002,213
Other income:
Customer service fees 271,338 246,915 88,953 91,697
Net gains from sale of mortgages 39,520 50,203 21,233 15,433
Net losses from sale of securities (889) 0 (889) 0
Other 184,423 218,147 59,404 74,833
Total other income 494,392 515,265 168,701 181,963
Other expenses:
Salaries and employee benefits 1,245,077 1,446,328 435,786 493,504
Occupancy 282,402 287,143 99,555 97,457
Equipment 323,375 255,312 116,102 87,292
Marketing and advertising 88,202 71,016 22,387 23,022
Loan collection and foreclosed real estate 119,100 31,505 51,166 16,330
Professional fees 198,512 40,292 80,007 16,465
Stationery and supplies 39,756 70,971 17,372 21,677
Other 488,333 516,712 161,916 163,353
Total other expenses 2,784,757 2,719,279 984,291 919,100
Income/(loss) before income taxes 19,703 571,661 (8,484) 265,076
Federal income taxes/(benefit) (28,185) 160,834 (14,024) 77,745
Net Income $ 47,888 $ 410,827 $ 5,540 $ 187,331
Basic and diluted earnings/(loss) per share $ 0.07 $ 0.59 $ 0.01 $ 0.27
Weighted average number of common
shares outstanding 699,778 696,907 700,326 697,169
</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, 2000 September 30, 1999
<S> <C> <C>
Net Income $ 47,888 $ 410,827
Other Comprehensive Income (Loss)
net of tax
Unrealized holding gains (losses)
arising during the period, net of
tax expense (benefit) 2000 $34,093;
1999 ($79,749) 66,177 (160,556)
Total comprehensive income $ 114,065 $ 250,271
</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, 2000 (Unaudited)
<TABLE>
<CAPTION>
Other
Common Retained Comprehensive
Stock Surplus Earnings Income Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999 $3,493,185 $ 154,268 $ 3,701,727 $(107,278) $7,241,902
Net income - - 47,888 - 47,888
Cash dividends ($.21 per share) (146,892) (146,892)
Net change in unrealized gain (loss)
on securities available for sale,
net of taxes - - - 66,177 66,177
Issuance of 1,690 shares of common
stock under dividend reinvestment
program 8,435 8,509 16,944
Balance, September 30, 2000 $3,501,620 $ 162,777 $ 3,602,723 $ (41,101) $7,226,019
</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, 2000 September 30, 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 47,888 410,827
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 350,000 210,000
Provision for depreciation 281,696 214,708
Net gains on sale of mortgage loans (39,520) (50,203)
Net loss on sale of securities 889 0
Proceeds from sale of mortgage loans 2,738,600 3,446,353
Mortgage loans originated for sale (2,570,600) (2,344,650)
Net amortization of securities premiums and discounts (1,927) 5,385
Amortization of mortgage servicing rights 24,019 23,585
Increase in accrued interest receivable and other assets (337,860) (385,004)
Increase in other liabilities 77,708 123,668
Net cash provided by (used in) operating activities 570,893 1,654,669
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 2,085,000 1,500,000
Proceeds from sales of securities available for sale 1,497,020 0
Purchase of securities available for sale (3,463,397) (3,701,827)
Net (increase) decrease in loans 4,233,579 (5,736,732)
Purchases of bank premises and equipment (146,206) (254,397)
Purchase of life insurance policies 0 (450,000)
Proceeds from surrender of life insurance policies 434,563 208,242
Net cash provided by (used in) investing activities 4,640,559 (8,434,714)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (1,890,976) 471,315
Net increase in securities sold
under agreements to repurchase 62,191 616,833
Net increase (decrease) in other borrowed funds (5,317,983) 5,544,311
Dividends paid (146,892) (174,251)
Proceeds from shares issued under dividend
reinvestment program 16,944 9,761
Net cash provided by (used in) financing activities (7,276,716) 6,467,969
Decrease in cash and cash equivalents (2,171,211) (312,076)
Cash and cash equivalents:
Beginning 4,152,466 3,024,192
Ending 2,087,202 2,712,116
Cash payments for:
Interest 3,131,084 2,996,229
Income taxes 168,605 200,115
Non-cash investing and financing activities:
Loans transferred to Other Real Estate Owned 735,586 0
</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, 2000
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, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000.
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 Standards
The Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities", in June 1998
which was amended by Statement No. 137 and Statement 138. 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.
In September 2000, the Financial Accounting Standards Board issued
Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities". This statement replaces FASB # 125, of the
same name. It revises the standards for securitizations and other transfers of
financial assets and collateral and requires certain disclosures, but carries
over most of the provisions of FASB # 125 without reconsideration. FASB # 140 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. The statement is effective for
recognition and reclassification of collateral and for disclosures relating to
securitization transactions and collateral for fiscal years ending after
December 15, 2000. This statement is to be applied prospectively with certain
exceptions. Other than these exceptions, earlier or retroactive application of
its accounting provisions is not permitted. The adoption of the statement is not
expected to have a significant impact on the Company.
8
<PAGE>
Note C. Cash Dividend
On October 12, 2000, the Board of Directors declared a dividend of $.07
per share to shareholders of record on October 31, 2000. The dividend will be
paid on November 17, 2000.
Note D: Proposed Merger
Effective July 24, 2000, the Company's Dividend Reinvestment Plan was
suspended with the execution of a definitive agreement for National Penn
Bancshares to acquire Community Independent Bank, Inc.
The basic terms of the definitive agreement call for the tax-free
exchange of 0.9 share of National Penn common stock for each share of Community
Independent Bank, Inc. common stock. Based on National Penn's July 21, 2000
closing price of $21.88 per share, the value per share of Community Independent
Bank, Inc. would be $19.69. This price equates to 56.25 times CIB's estimated
trailing twelve months earnings, and a multiple of 1.89 times CIB's book value
as of March 31, 2000. The transaction is expected to be consummated in the first
quarter of 2001.
On October 25, 2000, National Penn Bancshares, Inc. declared a 5% stock
dividend payable on December 20, 2000 to shareholders of record on December 8,
2000.
On November 1, 2000, National Penn Bancshares, Inc. issued a press
release finalizing the exchange ratio for National Penn Bancshares' merger with
Community Independent Bank, Inc. National Penn Bancshares, Inc. and Community
Independent Bank, Inc. announced that, after expiration of a 20 trading days
valuation period, the exchange ratio for the pending merger of Community
Independent Bank, Inc. into National Penn Bancshares, Inc. has been finalized at
0.945 share of National Penn Bancshares stock for each share of Community
Independent Bank stock. While the valuation period did not result in any change
in the exchange ratio, the original exchange ratio has been adjusted to 0.945 to
1 to reflect the 5% stock dividend declared on October 25, 2000 by National Penn
Bancshares and payable on December 20, 2000.
The transaction is subject to approval by shareholders of Community
Independent Bank at a meeting to be held on November 30, 2000, receipt of
regulatory approvals, and other customary conditions. Closing is anticipated for
January 3, 2001.
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 third quarter of 2000 was $5,540, a
decrease of $181,791, or 97.04% from $187,331 net income for the third quarter
of 1999. Net income for the nine months ended September 30, 2000 was $47,888,
88.34% less than the $410,827 reported for the same period in 1999. Total assets
decreased to $102,450,983 at September 30, 2000, a decrease of $7,084,943, or
6.47% from $109,535,926 at December 31, 1999.
9
<PAGE>
During the nine months ended September 30, 2000, loans receivable
decreased 6.31% to $80,262,790 from $85,668,141 at December 31, 1999, and
deposits decreased 2.09% to $88,705,225 from $90,596,201 at December 31, 1999.
Borrowed funds decreased 50.79% to $5,153,054 from $10,471,037 at December 31,
1999.
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 decreased $165,107 or 16.00% to
$867,106 during the third quarter of 2000 from $1,032,213 during the third
quarter of 1999. For the first nine months of 2000, net interest income
decreased $325,607 or 10.91% to $2,660,068 from $2,985,675 during the first nine
months of 1999.
Interest income decreased $100,203 or 4.90%, from $2,043,716 for the
third quarter of 1999 to $1,943,513 for the third quarter of 2000, while
interest expense increased $64,904 or 6.42%, from $1,011,503 for the third
quarter of 1999 to $1,076,407 for the third quarter of 2000. For the first nine
months of 2000, interest income decreased $108,759 or 1.83% to $5,847,604 from
$5,956,363 for the first nine months of 1999; interest expense increased
$216,848 or 7.30% from $2,970,688 for the first nine months of 1999 to
$3,187,536 for the first nine months of 2000.
The decreases in interest income are principally due to lower levels of
loans receivable and taxable securities and $2.3 million in loans on non-accrual
status while the increase in interest expense was due to higher interest rates
paid on interest bearing deposits.
Net interest margin decreased 65 basis point from 4.24% in the third
quarter of 1999 to 3.59% in the third quarter of 2000. Net interest margin
decreased 49 basis points from 4.08% for the first nine months of 1999 to 3.59%
for the first nine months of 2000. Net interest margin decreased primarily due
to an increase in non-performing assets to 3.03% of total assets or $3,109,000
at September 30, 2000 compared to $988,000 or 0.91% of total assets at September
30, 1999.
For the third quarter of 2000, the average yield on earning assets
decreased 5 basis points to 8.05% from 8.10% for the third quarter of 1999. For
the first nine months of 2000, the average yield on earning assets decreased 24
basis points to 7.92% from 8.16% for the first nine months of 1999. The decrease
was caused primarily by a decrease in loans receivable and investment portfolio
and the increase of $2,121,000 in non-performing assets at September 30, 2000.
For the third quarter of 2000, the average rate paid on
interest-bearing liabilities increased 65 basis points to 4.93% from 4.28% for
the second quarter of 1999. For the first nine months of 2000, the average rate
paid on interest-bearing liabilities increased 26 basis points to 4.79% from
4.53% for the first nine months of 1999. The increase was caused primarily by an
increase in interest rates paid on deposits.
10
<PAGE>
Provision for Loan Losses
The provision for loan losses was $60,000 for the third quarter of 2000
compared to $30,000 for the third quarter of 1999. For the first nine months of
2000, the loan loss provision was $350,000 compared to $210,000 for the first
nine months of 1999.
The allowance for loan losses represented 1.43% and 1.39% of total
loans receivable at September 30, 2000 and at December 31, 1999, 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 decreased $13,262 or 7.29% from $181,963 during the
third quarter of 1999 to $168,701 during the third quarter of 2000. For the
first nine months of 2000, total other income decreased $20,873 or 4.05% to
$494,392 from $515,265 for the first nine months of 1999. This decrease was
primarily due to a $10,683 decrease in net gains from the sale of mortgages and
a decrease in other income of $33,724 primarily due to a decrease in mortgage
lending activity causing a decrease in mortgage loan fees.
Other Expenses
Total other expenses increased $65,191 or 7.09% during the third
quarter of 2000 versus the same period in 1999, from $919,100 to $984,291. Total
other expenses for the first nine months of 2000 increased $65,478 or 2.41% to
$2,784,757 from $2,719,279 during the same period in 1999.
Salaries and employee benefits, which represent the largest component
of other expenses decreased $57,718 or 11.70% from $493,504 for the third
quarter of 1999 to $435,786 for the same period in 2000. Salaries and employee
benefits decreased primarily due to the unexpected resignation of the
President/CEO on March 23, 2000 and the subsequent reversal of the salary
continuation accrued liability of approximately $72,000. For the first nine
months in 2000, salaries and employee benefits decreased $201,251 or 13.91% to
$1,245,077 from $1,446,328 for the same period in 1999 primarily due to the
resignation of the President/CEO in March 2000, salary continuation accrual
reversal, and reduced staff during the first nine months of 2000.
Occupancy expense increased $2,098 or 2.15%, to $99,555 for the third
quarter of 2000 versus $97,457 for the third quarter of 1999. For the first nine
months of 2000, occupancy expense decreased $4,741 or 1.65% to $282,402 from
$287,143 for the same period 1999. The decrease was primarily due to reduced
leasing costs due to the closing of the Loan Center office in the third quarter
1999.
Equipment expense increased $28,810 or 33.00%, from $87,292 for the
third quarter of 1999 to $116,102 for the third quarter of 2000. For the first
nine months of 2000, equipment expense increased $68,063 or 26.66% to $323,375
from $255,312 for the same period in 1999. The increase in equipment expense was
the result of increases in software support and depreciation, primarily due to
the installation of a new proof system in the fourth quarter 1999 and a new IBM
AS/400 operating system at the end of the first quarter 2000.
11
<PAGE>
Marketing and advertising expenses decreased $635 or 2.76% to $22,387
for the third quarter of 2000 versus $23,022 for the third quarter of 1999. For
the first nine months of 2000, the marketing and advertising expenses increased
$17,186 or 24.20% to $88,202 from $71,016 for the same period in 1999. The
increase in marketing and advertising expenses for the first nine months of 2000
was due to continued advertising efforts and advertising agency expenses to
develop the company's new image campaign.
Loan collection and foreclosed real estate expenses increased $34,836
or 213.33% to $51,166 for the third quarter of 2000 versus $16,330 for the third
quarter of 1999. For the first nine months in 2000, loan collection and
foreclosed real estate expenses increased $87,595 or 278.04% to $119,100 from
$31,505 or the same period in 1999. Increases in loan collections and foreclosed
real estate expenses were primarily due to increased efforts in the collection
and work-out of non-performing assets.
Professional fees increased $63,542 or 385.92% to $80,007 for the third
quarter of 2000 versus $16,465 for the third quarter of 1999. For the first nine
months of 2000, professional fees were $198,512 versus $40,292 for the same
period in 1999, an increase of $158,220 or 392.68%. Professional fees for the
third quarter and first nine months of 2000 were higher than the same periods
the previous year due primarily to additional internal audits performed by an
outside firm, CEO search fees, fees related to the collection and work-out of
non-performing assets, attorney and accountant fees relative to the preparation
and review of merger documents, and fees incurred to initiate profitability
studies.
Stationery and supplies expense decreased $4,305 or 19.86% to $17,372
for the third quarter of 2000 versus $21,677 for the third quarter of 1999. For
the first nine months of 2000, stationery and supplies expense was $39,756
versus $70,971 for the same period in 1999, a decrease of $31,215 or 43.98%. The
decrease in the stationery and supplies expense is primarily a result of the
creation of supply inventory and purchasing software for managing the bank's
purchasing function.
Other operating expenses decreased from $163,353 for the third quarter
of 1999 to $161,916 for the same period in 2000, a decrease of $1,437 or .88%.
For the first nine months of 2000, other operating expenses decreased $28,379 or
5.49% to $488,333 from $516,712 for the same period in 1999. Other operating
expenses included in this category that experienced decreases for the current
period include telephone, postage, travel, and employee programs due to
increased efforts to control expenses.
Income Taxes
Income tax benefit was $14,024 for the third quarter 2000 and $28,185
for the first nine months of 2000. The tax benefit was primarily a result of
income on tax-exempt securities and loans outpacing taxable income, primarily
due to the effect of non-performing assets on interest and fees on the loans
receivable.
Year 2000
The transition to year 2000 went smoothly with no major problems being
discovered. Cash levels that were increased to accommodate year-end liquidity
needs were reduced to normal levels during the first quarter 2000.
12
<PAGE>
Regulatory Agreement
On January 24, 2000, the Bank entered into a Memorandum of
Understanding ("MOU") with the Office of the Comptroller of the Currency
("OCC"), whereby the Bank has agreed to take certain actions in response to
concerns raised by the OCC. The MOU is not a formal supervisory action by the
OCC. The actions which the Bank agreed to take are generally in the nature of
improving the Bank's internal procedures and policies. The Bank believes that it
is materially in compliance with the implementation of steps necessary to comply
with its obligations under the MOU.
FINANCIAL CONDITION
Securities
Securities decreased to $13,366,343 at September 30, 2000, from
$13,383,658 at December 31, 1999. The decrease of $17,315 or 0.13% is primarily
due to maturing municipal security and partially offset by the increase of fair
market value of the security portfolio, which is classified as available for
sale and marked to market value.
Loans
Loans receivable, net of the allowance for loan losses of $1,165,695 at
September 30, 2000 and $1,211,628 at December 31, 1999 decreased to $80,262,790
at September 30, 2000 from $85,668,141 at December 31, 1999. The decrease of
$5,405,351 or 6.31% was primarily due to decreases in the mortgage and
commercial loan portfolios and normal loan pay-downs.
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, 2000 was 2.77%, compared with 3.59% at
December 31, 1999. Total non-performing loans decreased to $2,352,000 at
September 30, 2000, from $3,040,000 at December 31, 1999. The decrease in total
non-performing loans of $688,000 is primarily attributable to payments received
on non-performing loans.
The Bank had other real estate owned (OREO) consisting of seven
properties in the amount of $757,139 at September 30, 2000 and one property in
the amount of $47,600 at December 31, 1999.
13
<PAGE>
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, 2000, December 31, 1999 and September 30, 1999.
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999 September 30, 1999
(In thousands)
<S> <C> <C> <C>
Average loans outstanding $85,028 $84,758 $84,084
Allowance for loan losses 1,166 1,212 863
Non-performing loans:
Non-accruing loans 2,287 2,456 5
Accruing loans past due
90 days or more 65 584 844
Total non-performing loans 2,352 3,040 849
Other real estate 757 48 139
Total non-performing assets $ 3,109 $ 3,088 $ 988
Non-performing loans to average
loans outstanding 2.77% 3.59% 1.01%
Non-performing assets to total assets 3.03% 2.82% 0.91%
Allowance for loan losses to total
non-performing loans 49.56% 39.87% 101.65%
Allowance for loan losses to
average loans outstanding 1.37% 1.43% 1.03%
</TABLE>
Potential Problem Loans
At September 30, 2000, the Bank has $865,116 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, 2000 were $88,705,225, a decrease of
$1,890,976 or 2.09% over total deposits of $90,596,201 at December 31, 1999. All
deposit categories except interest checking, certificates of deposit decreased
from December 31, 1999 to September 30, 2000, with the most significant
decreases in money market deposit accounts, non-interest bearing demand
accounts, and IRA's, $5,228,451 or 26.04%, $1,620,626 or 15.33%, and $605,652 or
13.49%, respectively. Time deposits greater than $100,000 increased $4,258,790
or 78.58% since December 31, 1999. Time deposits less than $100,000 increased
$1,153,532 or 3.16% since December 31, 1999. Interest checking deposits
increased $228,117 or 5.09% in the same period.
14
<PAGE>
Other Borrowed Funds and Long-term Debt
Other borrowed funds including securities sold under agreements to
repurchase and long-term debt decreased $5,255,792 from $11,132,129 at December
31, 1999 to $5,876,337 at September 30, 2000. The decrease was primarily a
result of the decrease in loans of $5,405,351 and a decrease in cash and cash
equivalents of $2,065,264. Cash and cash equivalents levels were reduced from
higher levels as higher liquidity was anticipated during the century date
rollover. The need for higher liquidity for Year 2000 concerns did not
materialize and cash and cash equivalent levels were decreased to normal levels.
Stockholders' Equity and Capital Ratios
Total stockholders' equity at September 30, 2000 was $7,226,019
compared to $7,241,902 at December 31, 1999. In the third quarter of 1999, the
Company implemented a dividend reinvestment program which resulted in additional
capital during the first nine months of 2000 of $16,944. As mentioned
previously, this Plan was terminated in July 2000. Although dividends paid in
the year 2000 exceeded net income, capital ratios increased due to a decrease in
net assets and an improvement in the unrealized losses on securities available
for sale since December 31, 1999. A comparison of the Bank's capital ratios is
as follows:
September 30, 2000 December 31, 1999
------------------ -----------------
Tier 1 Capital 6.93% 6.54%
(to average assets)
Tier 1 Capital 9.70% 8.97%
(to risk-weighted assets)
Total Capital 10.96% 10.22%
(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, 2000 and December 31, 1999, 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 $4,273,000. 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 $26 million at September 30, 2000.
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 31, 2000, payable on November 17, 2000. Effective July 24,
2000, the Company's Dividend Reinvestment Plan was terminated with the execution
of a definitive agreement for National Penn Bancshares to acquire Community
Independent Bank, Inc.
On November 1, 2000, National Penn Bancshares, Inc. and Community
Independent Bank, Inc. announced that, after expiration of a 20 trading days
valuation period, the exchange ratio for the pending merger of Community
Independent Bank, Inc. into National Penn Bancshares, Inc. has been finalized at
0.945 share of National Penn Bancshares stock for each share of Community
Independent Bank stock. While the valuation period did not result in any change
in the exchange ratio, the original exchange ratio has been adjusted to 0.945 to
1 to reflect the 5% stock dividend declared on October 25, 2000 by National Penn
Bancshares and payable on December 20, 2000.
16
<PAGE>
The transaction is subject to approval by shareholders of Community
Independent Bank at a meeting to be held on November 30, 2000, receipt of
regulatory approvals, and other customary conditions. Closing is anticipated for
January 3, 2001.
Upon completion of the merger of CIB into National Penn, National Penn
intends to merge Bernville Bank into National Penn Bank as part of its Berks
County Division.
Frederick P. Krott has been selected to become a director of National
Penn Bancshares, Inc., and Mr. Krott and Stratton D. Yatron will become
directors of National Penn Bank. All current members of the CIB Board will
become members of National Penn Bank's Berks County Division Board.
National Penn will have assets of $2.6 billion following the
acquisition, which is subject to regulatory approval, as well as approval of
shareholders of CIB. National Penn anticipates that the transaction will close
in the first quarter of 2001 and will be accounted for as a pooling of
interests.
National Penn Bancshares, Inc. currently operates 56 banking offices in
southeastern Pennsylvania through National Penn Bank and its divisions, Chestnut
Hill National Bank, 1st Main Line Bank, National Asisan Bank, and Elverson
National Bank, and three banking offices in the North Jersey - New York City
marketplace through Panasia Bank. Trust and investment management services are
provided through Investors Trust company; brokerage services are provided
through Penn Securities, Inc.; and mortgage banking activities are provided
through Penn 1st Financial Services, Inc.
National Penn Bancshares, Inc. common stock is traded on the Nasdaq
Stock Market under the symbol "NPBC." Additional information about the National
Penn family is available on National Penn's website at
http://www.natpennbank.com.
---------------------------
17
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Bank's exposure to market risk has not changed significantly since
December 31, 1999. 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
Reference is made to the information contained in the
Form 8-K filed by Community Independent Bank on July
28, 2000 concerning the Merger Agreement between
National Penn Bancshares, Inc. and Community
Independent Bank, Inc. on July 23, 2000. In the Merger
Agreement, each outstanding share of Community
Independent Bank, Inc. will be converted into 0.9
shares of National Penn Bancshares, Inc. common stock
and cash in lieu of fractional shares. Community
Independent Bank, Inc. and National Penn Bancshares,
Inc. also entered into a Stock Option Agreement dated
July 23, 2000.
18
<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 13, 2000 /s/ Karl D. Gerhart
----------------- ----------------------------------------
Date Karl D. Gerhart, Acting President/CEO
November 13, 2000 /s/ Linda L. Strohmenger
----------------- ---------------------------------------
Date Linda L. Strohmenger, Secretary
(Principal financial officer)
18
