Dear Shareholder:

CSI reported higher revenues and net income for the quarter ended November 30, 1998. Our improved results were due to new business, volume growth from existing customers, cross-sales to existing customers and the contribution from Computer Bank, Inc. acquired May 1, 1998.

Improved Third Quarter Results

Revenues increased 27% to $13.3 million in the third quarter of fiscal 1999 compared with $10.5 million in the same period last year. CSI was successful in contracting with new banks during the quarter, including three new customer contracts signed with Computer Bank, Inc., our Texas subsidiary.

We continue to benefit from the growing trend in newly chartered banks. For every bank acquisition that takes place in the country today, there seems to be a newly chartered community bank formed to serve that local market. At last count, there were around 400 applications pending in the country. CSI has been very successful in being a provider of choice for many of these new banks, and we view this as an area for continued growth in the future.

Net income for the third quarter increased 9% to $1.3 million compared with $1.2 million for the third quarter of fiscal 1998. Earnings per share rose 7% to $0.59 compared with $0.55 in the prior year’s third quarter. Our rate of growth for income was less than revenue due to higher interest expense, investments related to the new corporate office building, our new service center in Orrville, Ohio, the expanding check image business, and our Texas subsidiary. We remain focused on improving our earnings performance in the future.

Nine Months Results Show Solid Revenue Growth

Revenues increased 25% to $37.3 million for the nine-month period ended November 30, 1998 compared with revenues of $29.8 million for the same period last year. We expect to record a significant one-time increase in revenues in the fourth quarter as a result of liquidated damages in customer contracts and real estate sales. The liquidated damages revenue is due to the cancellation of certain customer contracts, primarily as a result of bank mergers.

Net income for the first nine months of fiscal 1999 rose 7% to $3.5 million compared with $3.2 million for the first nine months of last year. Earnings per share for the nine-month period were $1.58, an increase of 7% from the $1.48 reported for the same period last year.

5% Stock Dividend Declared

A 5% stock dividend was declared by your Board of Directors at the November meeting. The stock dividend was distributed on December 14, 1998, to shareholders of record as of the close of business on November 23, 1998. We remain focused on building shareholder value and believe the 5% stock dividend will improve our stock’s liquidity and reward long-term shareholders with additional shares of CSI stock.

The Board also declared a regular quarterly cash dividend of $0.16 per share paid December 28, 1998, to shareholders of record as of December 1, 1998. The cash dividend was paid on the stock dividend shares in addition to currently outstanding shares.

Building on CSI’s Strategy for Growth

CSI took several key steps during the third quarter to bolster its goal of building revenues to $100 million over the next five years.

• Dr. Constantine W. "Deno" Curris joined CSI’s Board of Directors in November. Dr. Curris is the President of Clemson University in Clemson, South Carolina, and will be a tremendous asset to our team. His election to the Board expands the number of CSI directors from seven to eight members.
• CSI also welcomed Bill Fallon to the CSI management team this past quarter. Bill joined CSI in August in the newly created position of Vice-President of Human Resources. Bill brings 20 years experience in the Human Resource field and will play a key role in the growth and development of CSI employees.
• A new $2 million Electronic Funds Transfer (EFT) system was brought on-line in early November. This state-of-the-art system provides the foundation to support the significant growth in electronic transactions we are experiencing in the ATM, Visa Check Card and Point-of-Sale areas.

.....Sincerely,