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, 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 August 10, 2000
COMMON STOCK ($5.00 Par Value) 700,327
------------------------------ --------------------
(Title of Class) (Outstanding Shares)
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
FORM 10-QSB
For the Quarter Ended June 30, 2000
Contents
PART I FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of
June 30, 2000 and December 31, 1999 3
Consolidated Statements of Income
for the Six and Three Month Periods
Ended June 30, 2000 and 1999 4
Consolidated Statements of Comprehensive
Income for the Six Month Period
Ended June 30, 2000 and 1999 5
Consolidated Statements of Stockholders'
Equity for the Six Month Period
Ended June 30, 2000 6
Consolidated Statements of Cash Flows
for the Six Month Period
Ended June 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 9-16
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 19
2
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,798,025 $ 4,139,228
Interest-bearing deposits in other banks 25,094 13,238
Cash and cash equivalents 2,823,119 4,152,466
Securities available for sale 13,290,613 13,383,658
Mortgage loans held for sale 168,000 68,000
Loans receivable, net of allowance for
loan losses June 30, 2000 $1,115,181,
December 31, 1999 $1,211,628 82,793,524 85,668,141
Bank premises and equipment, net 2,765,964 2,828,800
Accrued interest receivable and other assets 3,494,005 3,434,861
------------ ------------
TOTAL ASSETS $105,335,225 $109,535,926
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 9,469,392 $ 10,434,304
Interest bearing 81,894,132 80,161,897
------------ ------------
TOTAL DEPOSITS 91,363,524 90,596,201
Securities sold under agreements
to repurchase 721,717 661,092
Other borrowed funds 5,492,367 10,471,037
Other liabilities 550,600 565,694
------------ ------------
TOTAL LIABILITIES 98,128,208 102,294,024
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
June 30, 2000 700,327 shares;
December 31, 1999 698,637 shares 3,501,635 3,493,185
Surplus 162,762 154,268
Retained earnings 3,646,206 3,701,727
Accumulated other comprehensive income (loss) (103,586) (107,278)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 7,207,017 7,241,902
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $105,335,225 $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 Six Months Ended For the Three Months Ended
------------------------------- -------------------------------
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable, including fees $3,510,540 $3,537,018 $1,743,102 $1,801,077
Securities:
Taxable 331,912 340,035 162,988 170,941
Tax-exempt 16,260 10,072 5,394 5,028
Other 45,379 25,522 22,384 12,944
---------- ---------- ---------- ----------
Total interest income 3,904,091 3,912,647 1,933,868 1,989,990
Interest expense:
Deposits 1,771,566 1,741,911 929,558 880,887
Other borrowed funds 339,563 68,011 135,807 37,465
Long-term debt 0 149,263 0 74,954
---------- ---------- ---------- ----------
Total interest expense 2,111,129 1,959,185 1,065,365 993,306
Net interest income 1,792,962 1,953,462 868,503 996,684
Provision for loan losses 290,000 180,000 260,000 90,000
Net interest income after
provision for loan losses 1,502,962 1,773,462 608,503 906,684
Other income:
Customer service fees 182,385 155,218 93,206 78,097
Net gains from sale of mortgages 18,287 34,770 11,373 8,437
Other 125,019 143,314 67,592 78,067
---------- ---------- ---------- ----------
Total other income 325,691 333,302 172,171 164,601
Other expenses:
Salaries and employee benefits 809,291 952,824 365,822 492,510
Occupancy 182,847 189,686 90,379 96,030
Equipment 207,273 168,020 103,999 86,075
Marketing and advertising 65,816 47,994 39,853 32,386
Loan collection and foreclosed real estate 67,934 15,175 38,714 8,117
Professional fees 118,505 23,827 77,060 8,577
Stationery and supplies 22,384 49,294 12,160 22,264
Other 326,416 353,359 169,144 184,127
---------- ---------- ---------- ----------
Total other expenses 1,800,466 1,800,179 897,131 930,086
Income/(loss) before income taxes 28,187 306,585 (116,457) 141,199
Federal income taxes/(benefit) (14,161) 83,089 (48,863) 37,736
Net Income/(Loss) $ 42,348 $ 223,496 $ (67,594) $ 103,463
Basic and diluted earnings/(loss) per share $ 0.06 $ 0.32 $ (0.10) $ 0.15
Weighted average number of common
shares outstanding 699,501 696,774 699,928 696,774
</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)
For the Six Months Ended
-----------------------------
June 30, 2000 June 30, 1999
------------- -------------
Net Income $42,348 $223,496
Other Comprehensive Income (Loss)
net of tax
Unrealized holding gains (losses)
arising during the period, net of
tax expense (benefit) 2000 $1,903;
1999 ($67,496) 3,692 (136,772)
Total comprehensive income $46,040 $ 86,724
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, 2000 (Unaudited)
<TABLE>
<CAPTION>
Accumulated
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) $7,241,902
Net income -- -- 42,348 -- 42,348
Cash dividends ($.14 per share) (97,869) (97,869)
Net change in unrealized gain (loss)
on securities available for sale,
net of taxes -- -- -- 3,692 3,692
Issuance of 1,690 shares of common
stock under dividend reinvestment program 8,450 8,494 16,944
Balance, June 30, 2000 $3,501,635 $162,762 $3,646,206 $(103,586) $7,207,017
</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, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 42,348 223,496
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 290,000 180,000
Provision for depreciation 186,701 142,645
Net gains on sale of mortgage loans (18,287) (34,770)
Proceeds from sale of mortgage loans 1,457,300 2,530,203
Mortgage loans originated for sale (1,289,300) (1,604,683)
Net amortization of securities premiums and discounts (1,829) 3,626
Amortization of mortgage servicing rights 15,939 15,545
Increase in accrued interest receivable and other assets (228,053) (316,619)
Increase (decrease) in other liabilities (15,094) 162,620
Net cash provided by operating activities 439,725 1,302,063
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 1,085,000 1,000,000
Purchase of securities available for sale (984,531) (2,301,240)
Net (increase) decrease in loans 2,051,409 (5,210,635)
Purchases of bank premises and equipment (123,865) (215,058)
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 2,462,576 (6,968,691)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 767,323 6,836,223
Net increase in securities sold under agreements to repurchase 60,625 570,763
Net decrease in other borrowed funds (4,978,671) (2,366,335)
Dividends paid (97,869) (83,612)
Proceeds from shares issued under dividend reinvestment program 16,944 --
Net cash provided by (used in) financing activities (4,231,648) 4,957,039
Decrease in cash and cash equivalents (1,329,347) (709,589)
Cash and cash equivalents:
Beginning 4,152,466 3,024,192
Ending 2,823,119 2,314,603
Cash payments for:
Interest 2,085,992 1,987,657
Income taxes 109,748 139,267
Non-cash investing and financing activities:
Loans transferred to Other Real Estate Owned 270,603 --
</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, 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 six month period ended June 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 Standard
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.
Note C. Cash Dividend
On July 20, 2000, the Board of Directors declared a dividend of $.07 per
share to shareholders of record on August 4, 2000. The dividend will be paid on
August 17, 2000.
8
<PAGE>
Note D: Subsequent Events
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.
The basic terms of the definitive agreement call for the tax-free exchange
of .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.
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 loss for the second quarter of 2000 was $67,594, a
decrease of $171,057, or 165.33% from $103,463 net income for the second quarter
of 1999. Net income for the six months ended June 30, 2000 was $42,348, 81.05%
less than the $223,496 reported for the same period in 1999. Total assets
decreased to $105,335,225 at June 30, 2000, a decrease of $4,200,701, or 3.83%
from $109,535,926 at December 31, 1999.
During the six months ended June 30, 2000, loans receivable decreased 3.36%
to $82,793,524 from $85,668,141 at December 31, 1999, while deposits increased
0.85% to $91,363,524 from $90,596,201 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 $128,181 or 12.86% to $868,503
during the second quarter of 2000 from $996,684 during the second quarter of
1999. For the first six months of 2000, net interest income decreased $160,500
or 8.22% to $1,792,962 from $1,953,462 during the first six months of 1999.
9
<PAGE>
Interest income decreased $56,122 or 2.82%, from $1,989,990 for the second
quarter of 1999 to $1,933,868 for the second quarter of 2000, while interest
expense increased $72,059 or 7.25%, from $993,306 for the second quarter of 1999
to $1,065,365 for the second quarter of 2000. For the first six months of 2000,
interest income decreased $8,556 or 0.22% to $3,904,091 from $3,912,647 for the
first six months of 1999; interest expense increased $151,944 or 7.76% from
$1,959,185 for the first six months of 1999 to $2,111,129 for the first six
months of 2000.
The decreases in interest income are principally due to lower levels of
loans receivable and taxable securities and $2.7 million in loans on non-accrual
status while the increase in interest expense was due to interest bearing
deposits growth.
Net interest margin decreased 57 basis point from 4.07% in the second
quarter of 1999 to 3.50% in the second quarter of 2000. Net interest margin
decreased 48 basis points from 4.07% for the first six months of 1999 to 3.59%
for the first six months of 2000. Net interest margin decreased primarily due to
an increase in non-performing assets to 2.84% of total assets or $2,991,000 at
June 30, 2000 compared to $229,000 or 0.21% of total assets at June 30, 1999.
For the second quarter of 2000, the average yield on earning assets
decreased 28 basis points to 7.83% from 8.11% for the second quarter of 1999.
For the first six months of 2000, the average yield on earning assets decreased
30 basis points to 7.85% from 8.15% for the first six months of 1999. The
decrease was caused primarily by a decrease in loans receivable and investment
portfolio and the increase of $2,762,000 in non-performing assets at June 30,
2000.
For the second quarter of 2000, the average rate paid on interest-bearing
liabilities increased 34 basis points to 4.80% from 4.46% for the second quarter
of 1999. For the first six months of 2000, the average rate paid on
interest-bearing liabilities increased 19 basis points to 4.72% from 4.53% for
the first six months of 1999. The increase was caused primarily by an increase
in interest-bearing deposits.
Provision for Loan Losses
The provision for loan losses was $260,000 for the second quarter of 2000
compared to $90,000 for the second quarter of 1999. For the first six months of
2000, the loan loss provision was $290,000 compared to $180,000 for the first
six months of 1999.
The allowance for loan losses represented 1.33% and 1.39% of total loans
receivable at June 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, however, due to the significant amount of non-performing loans, an
additional provision of $200,000 was added to the reserve account during the
second quarter of 2000.
Other Income
Total other income increased $7,570 or 4.60% from $164,601 during the
second quarter of 1999 to $172,171 during the second quarter of 2000. For the
first six months of 2000, total other income decreased $7,611 or 2.28% to
$325,691 from $333,302 for the first six months of 1999. This decrease was
primarily due to a $16,483 decrease in net gains from the sale of mortgages and
a decrease in other income of $18,295 primarily due to a decrease in mortgage
lending activity causing a decrease in
10
<PAGE>
mortgage loan fees. The decreases in the net gains from the sale of mortgages
and mortgage lending activity were partially offset by increased customer fees,
insufficient fund fees, ATM convenience fees, and CD early withdrawal penalty
fees of approximately $6,000, $11,000, $7,000, and $3,000 respectively.
Other Expenses
Total other expenses decreased $32,955 or 3.54% during the second
quarter of 2000 versus the same period in 1999, from $930,086 to $897,131. Total
other expenses for the first six months of 2000 remained relatively the same as
the same period in 1999.
Salaries and employee benefits, which represent the largest component of
other expenses decreased $126,688 or 25.72% from $492,510 for the second quarter
of 1999 to $365,822 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 six months in 2000, salaries
and employee benefits decreased $143,533 or 15.06% to $809,291 from $952,824 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 six months of 2000.
Occupancy expense decreased $5,651 or 5.88%, to $90,379 for the second
quarter of 2000 versus $96,030 for the second quarter of 1999. For the first six
months of 2000, occupancy expense decreased $6,839 or 3.61% to $182,847 from
$189,686 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 $17,924 or 20.82%, from $86,075 for the second
quarter of 1999 to $103,999 for the second quarter of 2000. For the first six
months of 2000, equipment expense increased $39,253 or 23.36% to $207,273 from
$168,020 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.
Marketing and advertising expenses increased $7,467 or 23.06% to $39,853
for the second quarter of 2000 versus $32,386 for the second quarter of 1999.
For the first six months of 2000, the marketing and advertising expenses
increased $17,822 or 37.13% to $65,816 from $47,994 for the same period in 1999.
The increase in marketing and advertising expenses for the first six 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 $30,597 or
376.95% to $38,714 for the second quarter of 2000 versus $8,117 for the second
quarter of 1999. For the first six months in 2000, loan collection and
foreclosed real estate expenses increased $52,759 or 347.67% to $67,934 from
$15,175 for 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 $68,483 or 798.45% to $77,060 for the second
quarter of 2000 versus $8,577 for the second quarter of 1999. For the first six
months of 2000, professional fees were $118,505 versus $23,827 for the same
period in 1999, an increase of $94,678 or 397.36%. Professional fees for the
second quarter and first six 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 and fees incurred to initiate profitability studies.
11
<PAGE>
Stationery and supplies expense decreased $10,104 or 45.38% to $12,160 for
the second quarter of 2000 versus $22,264 for the second quarter of 1999. For
the first six months of 2000, stationery and supplies expense was $22,384 versus
$49,294 for the same period in 1999, a decrease of $26,910 or 54.59%. 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 $184,127 for the second quarter of
1999 to $169,144 for the same period in 2000, a decrease of $14,983 or 8.14%.
For the first six months of 2000, other operating expenses decreased $26,943 or
7.62% to $326,416 from $353,359 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 $48,863 for the second quarter 2000 and $14,161 for
the first six 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.
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 $13,290,613 at June 30, 2000, from $13,383,658 at
December 31, 1999. The decrease of $93,045 or 0.70% is primarily due to a
maturing $85,000 municipal security.
Loans
Loans receivable, net of the allowance for loan losses of $1,115,181 at
June 30, 2000 and $1,211,628 at December 31, 1999 decreased to $82,793,524 at
June 30, 2000 from $85,668,141 at December 31, 1999. The decrease of $2,874,617
or 3.36% was primarily due to decreases in the mortgage and commercial loan
portfolios and normal loan pay-downs.
12
<PAGE>
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 June 30, 2000 was 3.10%, compared with 3.59% at December 31,
1999. Total non-performing loans decreased to $2,673,000 at June 30, 2000, from
$3,040,000 at December 31, 1999. The decrease in total non-performing loans of
$367,000 is primarily attributable to a combination of non-performing loans paid
off and additional loans classified as non-performing.
The Bank had other real estate owned (OREO) consisting of three properties
in the amount of $318,203 at June 30, 2000 and one property in the amount of
$47,600 at December 31, 1999.
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, 2000, December 31, 1999 and June 30, 1999.
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999 June 30, 1999
------------- ----------------- -------------
(In thousands)
<S> <C> <C> <C>
Average loans outstanding $86,195 $84,758 $ 83,407
Allowance for loan losses 1,115 1,212 853
Non-performing loans:
Non-accruing loans 2,666 2,456 0
Accruing loans past due 90 days or more 7 584 90
Total non-performing loans 2,673 3,040 90
Other real estate 318 48 139
Total non-performing assets $ 2,991 $ 3,088 $ 229
Non-performing loans to average
loans outstanding 3.10% 3.59% 0.11%
Non-performing assets to total assets 2.84% 2.82% 0.21%
Allowance for loan losses to total
non-performing loans 41.72% 39.87% 947.78%
Allowance for loan losses to
average loans outstanding 1.29% 1.43% 1.02%
</TABLE>
Potential Problem Loans
At June 30, 2000, the Bank has $1,009,971 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.
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Deposits
Total deposits at June 30, 2000 were $91,363,524, an increase of $767,323
or 0.85% over total deposits of $90,596,201 at December 31, 1999. All deposit
categories except non-interest bearing demand accounts, money market deposit
accounts, and individual retirement accounts increased from December 31, 1999 to
June 30, 2000, with the most significant increases in time deposits greater than
$100,000. Time deposits greater than $100,000 increased $5,049,810 or 93.18%
since December 31, 1999. Interest checking deposits increased $625,763 or 13.97%
in the same period. Savings accounts increased $126,470 or 1.38% since December
31, 1999. The increase in deposits was primarily a result of competitive pricing
and was primarily used to pay down the bank's overnight FHLB borrowings.
Other Borrowed Funds and Long-term Debt
Other borrowed funds including securities sold under agreements to
repurchase and long-term debt decreased $4,918,045 from $11,132,129 at December
31, 1999 to $6,214,084 at June 30, 2000. The decrease was primarily a result of
the increase in deposits of $767,323, a decrease in cash and cash equivalents of
$1,329,347 and a decrease in net loans of $2,874,617. 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 June 30, 2000 was $7,207,017 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 six months of 2000 of $16,944. As mentioned previously, this
Plan was terminated in July 2000. The retained net earnings of the Company of
$42,348 was enhanced by unrealized gains on securities available for sale of
$3,692. A comparison of the Bank's capital ratios is as follows:
June 30, 2000 December 31, 1999
------------- -----------------
Tier 1 Capital 6.76% 6.54%
(to average assets)
Tier 1 Capital 9.55% 8.97%
(to risk-weighted assets)
Total Capital 10.80% 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 June 30, 2000 and December 31, 1999, the Company and the Bank
exceeded the minimum capital ratio requirements and are considered "well
capitalized".
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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.
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
$4,700,000. 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 $29 million at June 30, 2000.
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Management believes that the Bank's liquidity is sufficient to meet its
anticipated needs.
Future Outlook
Bernville Bank announced the resignation of Arlan J. Werst, effective March
23, 2000. Karl D. Gerhart and Walter J. Potteiger were then designated as the
transition team to manage the day to day affairs of the bank. On April 13, 2000,
Karl D. Gerhart was appointed acting President and CEO.
A cash dividend of seven cents per share was declared to shareholders of
record on July 20, 2000, payable on August 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.
The basic terms of the definitive agreement call for the tax-free exchange
of .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.
As of July 24, 2000, CIB had 700,327 shares of common stock outstanding and
options for approximately 22,600 additional shares.
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.
One member of the CIB Board will be mutually selected to become a director
of National Penn and that person and another mutually-selected person 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.
--------------------------
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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 April 11, 2000, concerning
the resignation of Arlan J. Werst as President and Chief
Executive Officer of the Company and the Bank and the appointment
of a transition team to manage the day to day operations of the
Company and the Bank while an executive search is conducted. The
transition team consists of two members of the Board of
Directors, Walter J. Potteiger and Karl D. Gerhart.
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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 10, 2000 /s/ Karl D. Gerhart
--------------- -------------------------------------
Date Karl D. Gerhart, Acting President/CEO
August 10, 2000 /s/ Linda L. Strohmenger
--------------- -------------------------------------
Date Linda L. Strohmenger, Secretary
(Principal financial officer)
18
