FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
----------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File No. 33-84132
COMMUNITY INVESTORS BANCORP, INC.
(Exact name of registrant as specified in its charter)
Ohio 34-1779309
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
119 South Sandusky Avenue
Bucyrus, Ohio 44820
(Address of principal (Zip Code)
executive office)
Issuers' telephone number, including area code: (419) 562-7055
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
As of May 14, 1999, the latest practicable date, 1,218,144 shares of the
registrant's common stock, $.01 par value, were issued and outstanding.
Page 1 of 18 pages
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INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II - OTHER INFORMATION 17
SIGNATURES 18
2
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<TABLE>
Community Investors Bancorp, Inc.
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
March 31, June 30,
ASSETS 1999 1998
<S> <C> <C>
Cash and due from banks $ 2,399 $ 1,279
Federal funds sold 1,165 572
Interest-bearing deposits in other financial institutions 837 942
------- -------
Cash and cash equivalents 4,401 2,793
Investment securities available for sale - at market 2,902 5,485
Investment securities held to maturity - at amortized cost, approximate market
value of $3,185 and $7,317 as of March 31, 1999 and June 30, 1998 3,185 7,285
Mortgage-backed securities available for sale - at market 13,069 -
Mortgage-backed securities held to maturity - at amortized cost, approximate
market value of $965 and $1,214 as of March 31, 1999 and June 30, 1998 1,010 1,269
Loans receivable - net 87,824 83,574
Property acquired in settlement of loans 39 58
Office premises and equipment - at depreciated cost 731 600
Federal Home Loan Bank stock - at cost 1,340 825
Accrued interest receivable on loans 98 114
Accrued interest receivable on mortgage-backed securities 70 7
Accrued interest receivable on investments and interest-bearing deposits 109 233
Prepaid expenses and other assets 155 150
Prepaid federal income taxes 19 -
Deferred federal income taxes 201 142
------- -------
Total assets $115,153 $102,535
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 78,869 $ 75,955
Advances from the Federal Home Loan Bank 25,375 15,558
Advances by borrowers for taxes and insurance 9 5
Accrued interest payable 388 342
Other liabilities 100 226
Accrued federal income taxes - 106
------- -------
Total liabilities 104,741 92,192
Stockholders' equity
Preferred stock, 1,000,000 shares authorized, no par value; no shares issued - -
Common stock, 4,000,000 shares authorized, $.01 par value; 1,660,850 shares issued 17 17
Additional paid-in capital 7,099 6,908
Retained earnings, restricted 8,183 7,742
Shares acquired by stock benefit plans (621) (759)
Less 442,706 and 394,530 shares of treasury stock - at cost (4,194) (3,551)
Unrealized losses on securities designated as available for sale, net of
related tax effects (72) (14)
------- -------
Total stockholders' equity 10,412 10,343
------- -------
Total liabilities and stockholders' equity $115,153 $102,535
======= =======
</TABLE>
3
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<TABLE>
Community Investors Bancorp, Inc.
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
Nine months ended Three months ended
March 31, March 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest income
Loans $5,143 $4,940 $1,707 $1,682
Mortgage-backed securities 421 76 193 25
Investment securities 421 531 112 188
Interest-bearing deposits and other 128 22 21 15
----- ----- ----- -----
Total interest income 6,113 5,569 2,033 1,910
Interest expense
Deposits 2,683 2,659 864 875
Borrowings 926 393 331 148
----- ----- ----- -----
Total interest expense 3,609 3,052 1,195 1,023
----- ----- ----- -----
Net interest income 2,504 2,517 838 887
Provision for losses on loans 73 120 21 64
----- ----- ----- -----
Net interest income after provision
for losses on loans 2,431 2,397 817 823
Other income
Gain on sale of investment securities 6 - - -
Loss on sale of other repossessed assets (2) (6) - (4)
Other operating 183 141 58 46
----- ----- ----- -----
Total other income 187 135 58 42
General, administrative and other expense
Employee compensation and benefits 852 738 282 253
Occupancy and equipment 102 101 38 38
Federal deposit insurance premiums 35 34 12 11
Franchise taxes 113 111 34 41
Expenses of property acquired in settlement of loans 22 23 8 8
Data processing 159 133 59 53
Other operating 338 371 104 123
----- ----- ----- -----
Total general, administrative and other expense 1,621 1,511 537 527
----- ----- ----- -----
Earnings before income taxes 997 1,021 338 338
Federal income taxes
Current 363 390 107 117
Deferred (29) (44) 8 (6)
----- ----- ----- -----
Total federal income taxes 334 346 115 111
----- ----- ----- -----
NET EARNINGS $ 663 $ 675 $ 223 $ 227
===== ===== ===== =====
EARNINGS PER SHARE
Basic $.58 $.53 $.20 $.18
=== === === ===
Diluted $.57 $.52 $.20 $.17
=== === === ===
</TABLE>
4
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<TABLE>
Community Investors Bancorp, Inc.
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
For the nine months For the three months
ended March 31, ended March 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net earnings $663 $675 $223 $227
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities
during the period (54) (1) 41 -
Reclassification adjustment for realized gains
included in earnings (4) - - -
--- --- --- ---
Comprehensive income $605 $674 $264 $227
=== === === ===
</TABLE>
5
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<TABLE>
Community Investors Bancorp, Inc.
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended March 31,
(In thousands)
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 663 $ 675
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of discounts and premiums on loans,
investments and mortgage-backed securities - net 26 (17)
Amortization of deferred loan origination fees (174) (70)
Depreciation and amortization 35 36
Provision for losses on loans 73 120
Amortization expense of stock benefit plans 329 226
Loss on sale of other repossessed assets 2 6
Federal Home Loan Bank stock dividends (63) (42)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans 16 (26)
Accrued interest receivable on mortgage-backed securities (63) 4
Accrued interest receivable on investments and
interest-bearing deposits 124 (16)
Prepaid expenses and other assets (5) (47)
Accrued interest payable 46 62
Other liabilities (126) (46)
Federal income taxes
Current (125) 113
Deferred (29) (44)
------ ------
Net cash provided by operating activities 729 934
Cash flows provided by (used in) investing activities:
Proceeds from maturity of investment securities 5,583 4,641
Proceeds from sale of securities designated as available for sale 4,996 -
Purchase of investment securities designated as available for sale (2,949) (4,992)
Purchase of investment securities designated as held to maturity (930) (2,581)
Purchase of mortgage-backed securities designated as available for sale (16,252) -
Principal repayments on mortgage-backed securities 3,308 188
Loan principal repayments 23,080 13,950
Loan disbursements (27,364) (20,729)
Purchase of office premises and equipment (166) (23)
Proceeds from sale of other repossessed assets 154 53
Purchase of Federal Home Loan Bank stock (452) -
------ ------
Net cash used in investing activities (10,992) (9,493)
------ ------
Net cash used in operating and investing
activities (subtotal carried forward) (10,263) (8,559)
------ ------
</TABLE>
6
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<TABLE>
Community Investors Bancorp, Inc.
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended March 31,
(In thousands)
1999 1998
<S> <C> <C>
Net cash used in operating and investing
activities (subtotal brought forward) $(10,263) $(8,559)
Cash flows provided by financing activities:
Net increase in deposit accounts 2,914 2,459
Proceeds from Federal Home Loan Bank advances 12,000 18,550
Repayment of Federal Home Loan Bank advances (2,183) (11,780)
Advances by borrowers for taxes and insurance 4 7
Purchase of treasury stock (643) (636)
Dividends on common stock (221) (199)
------- ------
Net cash provided by financing activities 11,871 8,401
------- ------
Net increase (decrease) in cash and cash equivalents 1,608 (158)
Cash and cash equivalents at beginning of period 2,793 2,410
------- ------
Cash and cash equivalents at end of period $ 4,401 $ 2,252
======= ======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 487 $ 295
======= ======
Interest on deposits and borrowings $ 3,563 $ 2,990
======= ======
Supplemental disclosure of noncash investing activities:
Transfers from loans to other repossessed assets $ 154 $ 52
======= ======
Unrealized losses on securities designated as available
for sale, net of related tax effects $ (58) $ (10)
======= ======
</TABLE>
7
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Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine and three months ended March 31, 1999 and 1998
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared
in accordance with instructions for Form 10-QSB and, therefore, do not
include information or footnotes necessary for a complete presentation of
consolidated financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. Accordingly, these
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto of Community Investors Bancorp, Inc.
(the "Corporation") included in the Annual Report on Form 10-KSB for the
year ended June 30, 1998. However, in the opinion of management, all
adjustments (consisting of only normal recurring accruals) which are
necessary for a fair presentation of the financial statements have been
included. The results of operations for the three and nine month periods
ended March 31, 1999 are not necessarily indicative of the results which may
be expected for an entire fiscal year.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Corporation and First Federal Savings and Loan Association of Bucyrus
(the "Association"). All significant intercompany items have been
eliminated.
3. Earnings Per Share
Basic earnings per share is computed based upon the weighted-average common
shares outstanding during the period less shares in the ESOP that are
unallocated and not committed to be released. Weighted-average common shares
deemed outstanding, which gives effect to 79,272 unallocated ESOP shares,
totaled 1,146,414 and 1,138,872 for the nine and three month periods ended
March 31, 1999. Weighted-average common shares deemed outstanding, which
gives effect to 92,709 unallocated ESOP shares, totaled 1,262,325 and
1,259,807 for the nine and three month period ended March 31,1998.
Diluted earnings per share is computed taking into consideration common
shares outstanding and dilutive potential common shares to be issued under
the Corporation's stock option plan. Weighted-average common shares deemed
outstanding for purposes of computing diluted earnings per share totaled
1,163,715 and 1,156,173 for the nine and three month periods ended March 31,
1999. Weighted-average common shares deemed outstanding for purposes of
computing diluted earnings per share totaled 1,294,847 and 1,300,082 for the
nine and three month periods ended March 31, 1998.
8
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Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine and three months ended March 31, 1999 and 1998
4. Effects of Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general-purpose financial statements.
SFAS No. 130 requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements. It does not require a specific format for that
financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. Management adopted SFAS No. 130 effective
July 1, 1998, as required, without material impact on the Corporation's
financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 significantly changes
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about reportable segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. SFAS No. 131 uses a "management approach" to disclose financial
and descriptive information about the way that management organizes the
segments within the enterprise for making operating decisions and assessing
performance. For many enterprises, the management approach will likely
result in more segments being reported. In addition, SFAS No. 131 requires
significantly more information to be disclosed for each reportable segment
than is presently being reported in annual financial statements and also
requires that selected information be reported in interim financial
statements. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. Management adopted SFAS No. 131 effective July 1, 1998,
as required, without material impact on the Corporation's financial
statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires entities to recognize
all derivatives in their financial statements as either assets or
liabilities measured at fair value. SFAS No. 133 also specifies new methods
of accounting for hedging transactions, prescribes the items and
transactions that may be hedged, and specifies detailed criteria to be met
to qualify for hedge accounting.
9
<PAGE>
Community Investors Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine and three months ended March 31, 1999 and 1998
4. Effects of Recent Accounting Pronouncements (continued)
The definition of a derivative financial instrument is complex, but in
general, it is an instrument with one or more underlyings, such as an
interest rate or foreign exchange rate, that is applied to a notional
amount, such as an amount of currency, to determine the settlement
amount(s). It generally requires no significant initial investment and can
be settled net or by delivery of an asset that is readily convertible to
cash. SFAS No. 133 applies to derivatives embedded in other contracts,
unless the underlying of the embedded derivative is clearly and closely
related to the host contract.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. On
adoption, entities are permitted to transfer held-to-maturity debt
securities to the available-for-sale or trading category without calling
into question their intent to hold other debt securities to maturity in the
future. SFAS No. 133 is not expected to have a material impact on the
Corporation's financial statements.
10
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Community Investors Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
In addition to historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties.
Economic circumstances, the Corporation's operations and the Corporation's
actual results could differ significantly from those discussed in the
forward-looking statements. Some of the factors that could cause or contribute
to such differences are discussed herein but also include changes in the economy
and interest rates in the nation and the Corporation's market area generally.
Some of the forward-looking statements included herein are the statements
regarding management's determination of the amount and adequacy of the allowance
for losses on loans, the effect of the year 2000 on certain information
technology systems and the effect of certain recent accounting pronouncements.
Discussion of Financial Condition Changes from June 30, 1998 to March 31, 1999
At March 31, 1999, the Corporation's assets totaled $115.2 million, an increase
of $12.6 million, or 12.3%, over the level reported at June 30, 1998. The
increase in assets was funded primarily through growth in the deposit portfolio
of $2.9 million, combined with an increase in advances from the Federal Home
Loan Bank of $9.8 million.
Liquid assets (i.e. cash, interest-bearing deposits and investment securities)
decreased by $5.1 million during the nine month period, to a total of $10.5
million at March 31, 1999, as maturities and sales of investment securities of
$5.6 million and $5.0 million, respectively, were partially offset by purchases
of investment securities totaling $3.9 million and a $1.6 million increase in
cash and cash equivalents. Mortgage-backed securities totaled $14.1 million at
March 31, 1999, an increase of $12.8 million over June 30, 1998 levels.
Purchases of mortgage-backed and investment securities totaled $16.3 million and
$3.9 million, respectively, during the nine month period. The instruments
include government agency securities and corporate bonds and bear a weighted
average interest rate of 6.42%. The purchases were financed using fixed-rate
advances from the Federal Home Loan Bank bearing a weighted average interest
rate of 5.05%, coupled with previously mentioned maturities of investment
securities. Regulatory liquidity amounted to 10.09% at March 31, 1999.
Loans receivable increased by $4.3 million, or 5.1%, during the nine month
period, to a total of $87.8 million at March 31, 1999. Loan disbursements
amounted to $27.4 million and were partially offset by principal repayments of
$23.1 million. The volume of loan disbursements during the nine months ended
March 31, 1999, exceeded the volume achieved during the nine months ended March
31, 1998 by $6.6 million, or 32.0%. The allowance for loan losses totaled
$578,000 at March 31, 1999, as compared to $563,000 at June 30, 1998.
Nonperforming loans totaled $848,000 at March 31, 1999, as compared to $600,000
at June 30, 1998. The allowance for loan losses represented 68.2% of
nonperforming loans as of March 31, 1999 and 93.8% at June 30, 1998. Although
management believes that its allowance for loan losses at March 31, 1999, is
adequate based upon the available facts and circumstances, there can be no
assurance that additions to such allowance will not be necessary in future
periods, which could adversely affect the Corporation's results of operations.
11
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Community Investors Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Discussion of Financial Condition Changes from June 30, 1998 to March 31, 1999
(continued)
Deposits totaled $78.9 million at March 31, 1999, an increase of $2.9 million,
or 3.8%, over June 30, 1998 levels. Management continued its efforts to achieve
a moderate rate of growth through marketing and pricing strategies.
Advances from the Federal Home Loan Bank totaled $25.4 million at March 31,
1999, an increase of $9.8 million, or 63.1%, over June 30, 1998 levels. The
increase resulted primarily from fixed-rate advances used to fund the purchase
of mortgage-backed and investment securities, as previously discussed.
The Association is required to meet minimum capital standards promulgated by the
Office of Thrift Supervision (OTS). At March 31, 1999, the Association's capital
was well in excess of such minimum capital requirements.
Comparison of Operating Results for the Nine Month Periods Ended March 31, 1999
and 1998
General
The Corporation's net earnings totaled $663,000 for the nine months ended March
31, 1999, a decrease of $12,000, or 1.8%, from the $675,000 of net earnings
reported for the same period in 1998. The decrease in earnings resulted
primarily from a $110,000 increase in general, administrative and other expense
and a $13,000 decrease in net interest income, which were partially offset by a
$52,000 increase in other income and a $12,000 decrease in the provision for
federal income taxes.
Net Interest Income
Net interest income decreased by $13,000, or .5%, for the nine months ended
March 31, 1999, compared to the 1998 period. Interest income on loans increased
by $203,000, or 4.1%, due primarily to a $6.4 million increase in the average
net portfolio balance of loans outstanding year-to-year, partially offset by a
decline in the average yield. Interest income on investment and mortgage-backed
securities and interest-bearing deposits increased by $341,000, or 54.2%, due
primarily to a $12.0 million increase in the average portfolio balance
outstanding.
Interest expense on deposits increased by $24,000, or .9%, due primarily to a
$3.2 million increase in the average balance of deposits outstanding, which was
partially offset by a decline in the cost of deposits year-to-year. Interest
expense on borrowings increased by $533,000, due primarily to a $13.9 million
increase in the weighted-average balance of advances from the Federal Home Loan
Bank outstanding.
12
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Community Investors Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Nine Month Periods Ended March 31, 1999
and 1998 (continued)
Net Interest Income (continued)
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $13,000, or .5%, to a total of $2.5 million for
the nine months ended March 31, 1999. The interest rate spread amounted to
approximately 2.63% in the 1999 nine month period, as compared to 3.06% during
the 1998 period, while the net interest margin totaled approximately 3.02% in
1999, as compared to 3.55% in 1998.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the
Association, the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to the Association's
market area, and other factors related to the collectibility of the
Association's loan portfolio. As a result of such analysis, management recorded
a $73,000 provision for losses on loans during the nine month period ended March
31, 1999, a decrease of $47,000 from the comparable 1998 period. The current
period provision reflects the growth in the loan portfolio coupled with an
increase in nonperforming loans, mitigated by the composition of nonperforming
assets, which consists substantially of one- to four-family residential mortgage
loans that management deems to have adequate levels of collateralization. There
can be no assurance that the loan loss allowance of the Association will be
adequate to cover losses on nonperforming assets in the future.
Other Income
Other income increased by $52,000, or 38.5%, for the nine months ended March 31,
1999, compared to the same period in 1998, due primarily to an increase in
service fees on deposit accounts and transactions.
General, Administrative and Other Expense
General, administrative and other expense increased by $110,000, or 7.3%, during
the nine months ended March 31, 1999, compared to the same period in 1998. This
increase resulted primarily from an $114,000, or 15.4%, increase in employee
compensation and benefits, which was partially offset by a $33,000, or 8.9%,
decrease in other operating expenses. The increase in employee compensation and
benefits resulted primarily from increased staffing levels year to year, coupled
with increased costs attendant to stock benefit plans and normal merit
increases. The decrease in other operating expenses resulted from management's
ongoing efforts to control expenses and achieve increased operating
efficiencies.
Federal Income Taxes
The provision for federal income taxes decreased by $12,000, or 3.5%, for the
nine months ended March 31, 1999, as compared to the same period in 1998. This
decrease resulted primarily from the decrease in net earnings before taxes of
$24,000, or 2.4%. The effective tax rates were 33.5% and 33.9% for the nine
months ended March 31, 1999 and 1998, respectively.
13
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Community Investors Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Month Periods Ended March 31, 1999
and 1998
General
The Corporation's net earnings totaled $223,000 for the three months ended March
31, 1999, a decrease of $4,000, or 1.8%, from the $227,000 of net earnings
reported for the same period in 1998. The decrease in earnings resulted
primarily from a $49,000 decrease in net interest income and a $10,000 increase
in general, administrative and other expense, which were partially offset by a
$16,000 increase in other income and a $43,000 decrease in the provision for
losses on loans.
Net Interest Income
Net interest income decreased by $49,000, or 5.5%, for the three months ended
March 31, 1999, compared to the 1998 period. Interest income on loans increased
by $25,000, or 1.5%, due primarily to a $5.6 million increase in the average net
portfolio balance of loans outstanding year-to-year, partially offset by a
decline in the average yield. Interest income on investment and mortgage-backed
securities and interest-bearing deposits increased by $98,000, or 43.0%, due
primarily to an increase in the average portfolio balance outstanding.
Interest expense on deposits decreased by $11,000, or 1.3%, due primarily to a
decline in the cost of deposits year-to-year, which was partially offset by a
$1.9 million increase in the average balance of deposits outstanding. Interest
expense on borrowings increased by $183,000, due primarily to a $14.2 million
increase in the weighted-average balance of advances from the Federal Home Loan
Bank outstanding.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $49,000, or 5.5%, to a total of $838,000 for
the three months ended March 31, 1999. The interest rate spread amounted to
approximately 2.60% in the 1999 three month period, as compared to 3.27% during
the 1998 period, while the net interest margin totaled approximately 2.98% in
1999, as compared to 3.76% in 1998.
Provision for Losses on Loans
A provision for losses on loans is charged to earnings to bring the total
allowance for loan losses to a level considered appropriate by management based
on historical experience, the volume and type of lending conducted by the
Association, the status of past due principal and interest payments, general
economic conditions, particularly as such conditions relate to the Association's
market area, and other factors related to the collectibility of the
Association's loan portfolio. As a result of such analysis, management recorded
a $21,000 provision for losses on loans during the three month period ended
March 31, 1999, a decrease of $43,000 from the comparable 1998 period. The
current period provision reflects the growth in the loan portfolio coupled with
an increase in nonperforming loans, mitigated by the composition of
nonperforming assets, which consists substantially of one- to four-family
residential mortgage loans that management deems to have adequate levels of
collateralization. There can be no assurance that the loan loss allowance of the
Association will be adequate to cover losses on nonperforming assets in the
future.
14
<PAGE>
Community Investors Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three Month Periods Ended March 31, 1999
and 1998 (continued)
Other Income
Other income increased by $16,000, or 38.1%, for the three months ended March
31, 1999, compared to the same period in 1998, due primarily to an increase in
service fees on deposit accounts and transactions.
General, Administrative and Other Expense
General, administrative and other expense increased by $10,000, or 1.9%, during
the three months ended March 31, 1999, compared to the same period in 1998. This
increase resulted primarily from a $29,000, or 11.5%, increase in employee
compensation and benefits, which was partially offset by a $19,000, or 15.4%,
decrease in other operating expenses. The increase in employee compensation and
benefits resulted primarily from increased staffing levels year to year, coupled
with increased costs attendant to stock benefit plans and normal merit
increases. The decrease in other operating expenses resulted from management's
ongoing efforts to reduce expenses and achieve increased operating efficiencies.
Federal Income Taxes
The provision for federal income taxes increased by $4,000, or 3.6%, during the
three months ended March 31, 1999, as compared to the same period in 1998. Net
earnings before income taxes remained unchanged at $338,000, compared to the
three months ended March 31, 1998. The effective tax rates were 34.0% and 32.8%
for the three months ended March 31, 1999 and 1998, respectively.
Year 2000 Compliance Matters
As with all providers of financial services, the Association's operations are
heavily dependent on information technology systems. The Association is
addressing the potential problems associated with the possibility that the
computers that control or operate the information technology system and
infrastructure may not be programmed to read four-digit date codes and, upon
arrival of the year 2000, may recognize the two-digit code "00" as the year
1900, causing systems to fail to function or to generate erroneous data.
As part of the awareness and assessment phases of its action plan related to the
Year 2000 problem, the Association identified the operating systems that it
considers critical to the on-going operations of the Asssociation. The
Association is working with companies that supply or service its information
technology systems to remedy any year 2000 problems.
15
<PAGE>
Community Investors Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Year 2000 Compliance Matters (continued)
Of the systems that the Association identified as mission-critical, the most
significant is the on-line core account processing system that is performed by a
third party service provider, Intrieve, Inc. The service provider has converted
its hardware to a new Year 2000 compliant system. The Association's conversion
to this new system was completed during the fourth calendar quarter of 1998. The
service provider successfully performed Year 2000 proxy testing with several of
its larger users during early October 1998. Year 2000 compliance has become an
integral part of the Association's 1999 planning. With the completion of the
proxy testing of the mission critical systems the Association is now focusing on
the less critical portions of the year 2000 program.
The Association has developed a contingency plan in case the mission-critical
systems are not successfully renovated in a timely manner or if they actually
fail at Year 2000 critical dates. The contingency plan states that the
Association deems the likelihood of failure of the service provider's efforts to
renovate Year 2000 changes to the on-line core account processing system to be
remote; however, a more likely scenario is that the service provider's system
will be down for several days or weeks upon arrival of Year 2000. The plan,
therefore, primarily addresses action to deal with the latter possibility rather
than with a catastrophic event. The Association does not consider contingency
planning to be a static process; therefore, the plan will be amended to address
a catastrophic event if testing results indicate greater concern.
Management of the Association has developed an estimate of expenses that are
reasonably likely to be incurred by the Association in connection with this
issue; however, the Association does not expect to incur significant expense to
implement the necessary corrective measures. As of March 31, 1999, the
Association has expensed approximately $3,000 to ensure all mission critical
systems will be functional upon arrival of Year 2000. No assurance can be given,
however, that significant expense will not be incurred in future periods. In the
event that the Association is ultimately required to purchase replacement
computer systems, programs and equipment, or incur substantial expense to make
the Association's current systems, programs and equipment Year 2000 compliant,
the Association's net earnings and financial condition could be adversely
affected.
In addition to possible expense related to its own systems, the Association
could incur losses if loan payments are delayed due to Year 2000 problems
affecting any major borrowers in the Association's primary market area. Because
the Association's loan portfolio is highly diversified with regard to individual
borrowers and types of businesses and the Association's primary market area is
not significantly dependent upon one employer or industry, the Association does
not expect any significant or prolonged difficulties that will affect net
earnings or cash flow.
16
<PAGE>
Community Investors Bancorp, Inc.
PART II
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
Reports on Form 8-K: None.
Exhibits:
27 Financial Data Schedule for the
nine months ended March 31, 1999.
17
<PAGE>
Community Investors Bancorp, Inc.
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.
Date: May 14, 1999 By: /s/John W. Kennedy
------------------------- ---------------------------
John W. Kennedy
President and Chief
Executive Officer
Date: May 14, 1999 By: /s/Robert W. Siegel
------------------------- ---------------------------
Robert W. Siegel
Assistant Vice President
and Controller
18
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