<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997 Commission File Number 1-14274
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CITIZENS FIRST FINANCIAL CORP.
--------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 37-1351861
- ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2101 N. Veterans Parkway, Bloomington, Illinois 61704
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(Address of principal executive offices)
(309) 661-8700
----------------
(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
twelve 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.
(1) [X] Yes [ ] No
(2) [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
As of October 31, 1997, the Registrant had 2,359,552 shares of Common
Stock outstanding .
Transitional Small Business Disclosure Format
YES NO X
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<PAGE>
Table of Contents
PART I - FINANCIAL INFORMATION Page
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Item 1. Financial Information
Consolidated Balance Sheets as of September 30,
1997 and December 31, 1996 1
Consolidated Income Statement for the Nine
Months Ended September 30, 1997 and 1996 2
Consolidated Income Statement for the Three
Months Ended September 30, 1997 and 1996 3
Consolidated Statement of Cash Flows for the
Nine Months Ended September 30, 1997 and 1996 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 6
PART II - OTHER INFORMATION
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Item 1. Legal Proceedings 13
Item 2. Change in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature Page 14
Statements contained in this Form 10-Q which are not historical facts are
forward-looking statements, as that term is described in the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements are
subject to risk and uncertainties which could cause actual results to differ
materially from those projected. Such risks and uncertainties include
potential changes in interest rates, competitive factors in the financial
services industry, general economic conditions , the effect of new
legislation and other risks detailed in documents filed by the Company with
the Securities and Exchange Commission from time to time.
<PAGE>
PART I.--FINANCIAL INFORMATION
Citizens First Financial Corp. and Subsidiary
Consolidated Balance Sheets
As of September 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
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(UNAUDITED AND IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks................... $5,199 $ 4,352
Interest-bearing demand deposits.......... 1,492 2,655
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Total cash and cash equivalents....... 6,691 7,007
Investment securities:
Available for sale........................ 24,493 28,371
Held to maturity.......................... 500 1,000
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Total investment securities........... 24,993 29,371
Mortgage loans held for sale.............. 7,038 3,027
Loans..................................... 225,804 211,554
Allowance for loan losses................ (656) (512)
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Net loans.............................. 225,148 211,042
Premises and equipment.................... 7,785 5,778
Federal Home Loan Bank of Chicago stock... 2,107 1,662
Foreclosed real estate.................... 608 697
Other assets.............................. 3,592 3,053
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Total assets......................... $277,962 $ 261,637
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LIABILITIES AND EQUITY CAPITAL
Liabilities
Deposits.................................. $195,204 202,125
Federal Home Loan Bank Advances........... 42,147 16,250
Advances by borrowers for taxes and
insurance............................... 322 751
Other liabilities......................... 2,064 2,162
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Total liabilities.................... 239,737 221,288
Equity Capital
Preferred stock, $.01 par value
Authorized and unissued-- 1,000,000
shares.................................. -- --
Common stock, $.01 par value; 8,000,000
shares authorized, 2,817,500 shares
issued, 2,345,023 and 2,568,611 shares
outstanding............................. 28 28
Paid-in-capital........................... 27,101 27,024
Retained earnings--substantially
restricted.............................. 17,519 16,295
Net unrealized loss on securities
available for sale...................... (185) (297)
Less:
Treasury shares, 213,075 and -0-shares... (3,295) 0
Unearned incentive plan shares........... (1,252) (769)
Unearned Employee Stock Option Plan
shares................................. (1,691) (1,932)
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Total equity capital................. 38,225 40,349
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Total liabilities and equity
capital............................ $277,962 $ 261,637
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</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
Citizens First Financial Corp. and Subsidiary
Consolidated Income Statements
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
--------------- ---------------
(UNAUDITED AND IN THOUSANDS
EXCEPT SHARE DATA)
<S> <C> <C>
Interest income:
Interest on loans................................................ $ 13,546 $ 11,937
Interest on investments.......................................... 1,472 1,525
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Total interest income.......................................... 15,018 13,462
Interest expense:
Interest on savings deposits..................................... 7,250 7,639
Interest on borrowings........................................... 1,410 81
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Total interest expense......................................... 8,660 7,720
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Net interest income........................................... 6,358 5,742
Provision for loan losses......................................... 225 113
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Net interest income after provision for loan losses........... 6,133 5,629
Noninterest income:
Loan servicing fees.............................................. 391 477
Net realized gains (losses) on sales of available for sale
securities...................................................... 11 (33)
Net gains on loan sales.......................................... 177 157
Other operating income........................................... 602 542
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Total noninterest income....................................... 1,181 1,143
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Noninterest expense:
Salaries and employee benefits................................... 3,155 2,881
Net occupancy and equipment expenses............................. 685 573
Deposit insurance/OTS expense.................................... 124 1,781
Data processing fees............................................. 310 293
Other operating expense.......................................... 1,024 924
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Total noninterest expense...................................... 5,298 6,452
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Income before income tax.......................................... 2,016 320
Income tax expense............................................. 792 124
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Net income........................................................ $ 1,224 $ 196
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Net earnings per share
Assuming no dilution............................................. $ 0.49 N/A
Weighted average shares outstanding.............................. 2,490,517 N/A
Assuming full dilution........................................... $ 0.44 N/A
Weighted average shares outstanding.............................. 2,769,856 N/A
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
Citizens First Financial Corp. and Subsidiary Consolidated Income Statements
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
--------------- ---------------
(UNAUDITED AND IN THOUSANDS
EXCEPT SHARE DATA)
<S> <C> <C>
Interest income:
Interest on loans.......................................... $ 4,661 $ 4,092
Interest on investments.................................... 448 537
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Total interest income..................................... 5,109 4,629
Interest expense:
Interest on savings deposits............................... 2,407 2,489
Interest on borrowings..................................... 567 52
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Total interest expense.................................... 2,974 2,541
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Net interest income...................................... 2,135 2,088
Provision for loan losses................................... 75 38
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Net interest income after provision for loan losses...... 2,060 2,050
Noninterest income:
Loan servicing fees........................................ 125 123
Net realized gains (losses) on sales of available for sale
securities................................................ 0 0
Net gains on loan sales.................................... 66 20
Other operating income..................................... 192 174
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Total noninterest income.................................. 383 317
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Noninterest expense:
Salaries and employee benefits............................. 1,073 1,029
Net occupancy and equipment expenses....................... 256 189
Deposit insurance/OTS expense.............................. 61 1,510
Data processing fees....................................... 111 102
Other operating expense.................................... 340 335
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Total noninterest expense................................. 1,841 3,165
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Pre-tax income.............................................. 602 (798)
Tax expense (credit)........................................ 243 (310)
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Net income................................................ $ 359 ($ 488)
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Earnings Per Share
Assuming no dilution:
Net income................................................ $ 0.15 ($ 0.19)
Average number of shares.................................. 2,422,586 2,601,463
Assuming full dilution:
Net income................................................ $ 0.13 ($ 0.17)
Average number of shares.................................. 2,688,242 2,817,500
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
Citizens First Financial Corp. and Subsidiary
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
--------------- ---------------
(UNAUDITED AND IN THOUSANDS)
<S> <C> <C>
Operating activities:
Net income................................................................ $ 1,224 $ 196
Adjustments to reconcile net income to net cash provided by operating
activities
Provision for loan losses................................................. 225 113
Investment securities (gains) losses...................................... (11) 33
ESOP compensation expense................................................. 376 0
Incentive plan compensation expense....................................... 211 0
Investment securities amortization (accretion), net....................... 31 67
Net (gains) losses on sale of loans....................................... (177) (157)
Net (gains) losses on sale of property and equipment...................... (13) (23)
Depreciation.............................................................. 340 300
Loans originated for sale................................................. (15,601) (15,321)
Proceeds from sale of loans............................................... 11,767 10,868
Change in:
Other liabilities........................................................ (98) 543
Prepaid expenses and other assets........................................ (539) (1,503)
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Net cash (used) provided by operating activities.......................... (2,265) (4,884)
Investing Activities:
Purchase of securities available for sale................................. (1,992) (19,840)
Proceeds from maturities and principal paydowns on securities available
for sale................................................................. 4,293 1,921
Proceeds from sales of securities available for sale...................... 1,670 2,031
Proceeds from maturities and principal paydowns on securities
held-to-maturity......................................................... 500 4,492
Redemption (purchase) of FHLB stock....................................... (445) 12
Other net changes in loans................................................ (14,637) (22,049)
Proceeds from sale of foreclosed property................................. 395 0
Purchase of premises and equipment........................................ (2,347) (305)
Proceeds from sales of premises and equipment............................. 13 51
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Net cash (used) provided by investing activities......................... (12,550) (33,687)
Financing Activities:
Net change in deposits.................................................... (6,921) (4,731)
Proceeds from FHLB advances............................................... 26,480 17,550
Repayment of FHLB advances................................................ (583) 0
Purchase of incentive plan stock.......................................... (753) 0
Purchase of ESOP stock.................................................... 0 (2,254)
Issuance of common stock, net of stock issuance expenses of $1,163,000.... 0 27,012
Purchase of treasury stock shares......................................... (3,295) 0
Net changes in advances by borrowers for taxes and insurance.............. (429) (311)
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Net cash (used) provided by financing activities......................... 14,499 37,266
Net change in cash and cash equivalents................................... (316) (1,305)
Cash and cash equivalents, beginning of period............................ 7,007 6,602
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Cash and cash equivalents, end of period.................................. $ 6,691 5,297
------ ------
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Additional cashflows and supplementary information:
Interest paid............................................................ 8,393 7,530
Income tax paid.......................................................... 785 698
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
Citizens First Financial Corp.
Notes to Consolidated Financial Statements
1. Background Information
Citizens First Financial Corp. (the "Company") was incorporated in
January, 1996 and on May 1, 1996 acquired all of the outstanding shares of
common stock of Citizens Savings Bank, F.S.B. (the "Bank") upon the Bank's
conversion from a federally chartered mutual savings bank to a federally
chartered stock savings bank. The Company purchased 100% of the outstanding
capital stock of the Bank using 50% of the net proceeds from the Company's
initial stock offering which was completed on May 1, 1996. Accordingly, the
data relating to period prior to May 1, 1996 represents the consolidated data
of the Bank and its subsidiaries. The data subsequent to May 1, 1996
represents the consolidated data of the Company and the Bank.
The Company sold 2,817,500 shares of common stock in the initial offering
at $10.00 per share, including 225,400 shares purchased by the Bank's
Employee Stock Option Plan (the "ESOP"). The ESOP shares were acquired by the
Bank with proceeds from a Company loan totaling $2,254,000. The net proceeds
of the offering totaled $27,012,000; $28,175,000 less $1,163,000 in
underwriting commissions and other expenses. The Company's stock is traded on
the American Stock Exchange under the symbol "CBK".
The acquisition of the Bank by the Company was accounted for as a
"pooling-of-interests" under generally accepted accounting principles. The
application of the pooling-of-interests method records the assets and
liabilities of the merged companies on a historical cost basis with no
goodwill or other intangible assets being recorded.
2. Statement of Information Furnished
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-QSB instructions and Item 310(b) of
Regulation S-B, and in the opinion of management contains all adjustments
necessary to present fairly the financial position as of September 30, 1997
and December 31, 1996, the results of operations for the nine and three
months ended September 30, 1997 and 1996 and the cash flows for the nine
months ended September 30, 1997 and 1996. All adjustments to the financial
statements were normal and recurring in nature. These results have been
determined on the basis of generally accepted accounting principles. The
results of operations for the nine months ended September 30, 1997 are not
necessarily indicative of the results to be expected for the entire fiscal
year.
The consolidated financial statements are those of the Company and the
Bank. These consolidated financial statements should be read in conjunction
with the audited financial statements and notes thereto, dated January 24,
1997, included in the Company's 1996 Annual Report to Shareholders.
3. Earnings Per Share
Net earnings per share is computed based upon the weighted average common
and common equivalent shares outstanding for periods subsequent to the Bank's
conversion to a stock savings bank on May 1, 1996.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Citizens First Financial Corp. (the "Company") is the holding company for
Citizens Savings Bank F.S.B. (the "Bank"). The Bank has two wholly-owned
service corporations, CSL Service Corporation and Fairbury Service Corp. CSL
Service Corporation is an Illinois-chartered corporation that has been
inactive, but began the sale of tax-deferred annuities at the end of 1996.
Fairbury Financial Services Corp. is an Illinois-chartered corporation that
currently services previously sold tax-deferred annuities and long-term care
insurance policies that it sold on an agency basis.
Prior to the Company's acquisition of the Bank on May 1, 1996, the
Company had no material assets or operations. Accordingly, the following
information reflects management's discussion and analysis of the financial
condition and results of operations for the Bank for the period prior to May
1, 1996 and for the Company and Bank subsequent to the period beginning May
1, 1996.
On September 30, 1996, the President signed into law the Deposit
Insurance Fund Act of 1996 (the "Funds Act") which among other things imposed
a special one-time assessment on Savings Association Insurance Fund ("SAIF")
member institutions, including the Bank, to recapitalize the SAIF. The
special assessment imposed by the Federal Deposit Insurance Corporation was
65.7 basis points on SAIF assessable deposits as of March 31, 1995, payable
on November 27, 1996. The special assessment was recognized in the third
quarter of 1996 and as a result the Bank took a charge of $1.37 million
($839,000 after-tax or $.30 per share).
On December 24, 1996, the Company received approval from the Office of
Thrift Supervision ("OTS") for the repurchase of 10% of its common stock. As
of September 30, 1997 the Company had repurchased 213,075 shares at prices
ranging from $13.532 to $16.50 per share.
Comparison of Financial Condition at September 30, 1997 and December 31, 1996
Total assets increased from $261.6 million at December 31, 1996 to $278.0
million at September 30, 1997. The $16.4 million or 6.3% increase was
primarily due to the increase in loans.
Cash and cash equivalents decreased from $7,007,000 at December 31, 1996
to $6,691,000 at September 30, 1997, a decrease of $316,000 or 4.5%. This
decrease was the result of the use of such assets for the increased
investment in loans.
Premises and equipment increased from $5,778,000 at December 31, 1996 to
$7,785,000 at September 30, 1997, an increase of $2,007,000, or 34.7%, due to
the purchase of a building in January, 1997 to serve as a new full-service
office and administrative facility.
6
<PAGE>
Net loans, including loans held for sale, increased from $214,069,000 at
December 31, 1996 to $232,186,000 at September 30,1997, an increase of
$18,117,000 or 8.5%. The growth in loans was funded primarily from borrowings
from the Federal Home Loan Bank. The increase in net loans was primarily in
the origination of one-to-four family and commercial loans. For the nine
months ended September 30, 1997, the Bank had total loan originations of
$90.6 million, with originations of $53.6 million and $29.2 million of
one-to-four and commercial loans, respectively.
Deposits decreased from $202,125,000 at December 31, 1996 to $195,204,000
at September 30, 1997, a decrease of $6,921,000 or 3.4%. Certificates of
deposit accounted for $6,506,000 of the decrease. This decrease was
attributable to depositors increased investments in the stock market and
competition from other financial institutions for these deposits. Advances by
borrowers for taxes and insurance decreased by $429,000 or 57.1% because of
the payment of real estate taxes in September for escrowed borrowers.
Borrowings from the Federal Home Loan Bank of Chicago (the "FHLB")
increased from $16,250,000 at December 31, 1996 to $42,147,000 at September
30, 1997, an increase of $25,897,000 or 159.4%. The increase was used to fund
the increase in loans, offset the decrease in deposits and fund the purchase
of the new office and administrative facility.
Total stockholders' equity capital decreased by $2,124,000 or 5.3%, from
$40,349,000 at December 31, 1996 to $38,225,000 at September 30, 1997. The
decrease was caused by the repurchase of the Company's stock for use for
incentive plans and as part of the Company's 10% repurchase program, which
was approved by the Office of Thrift Supervision on December 24, 1996.
Comparison of Operating Results for the Nine Months Ended September 30, 1997 and
September 30, 1996
Net income for the nine months ended September 30, 1997 increased by
$1,028,000, or 524.5%, from $196,000 for the nine months ended September 30,
1996 to $1,224,000 for the nine months ended September 30, 1997. The increase
was due to the previously discussed Funds Act special assessment in 1996 and the
higher interest income generated by the growth of the Bank's loan portfolio
which was funded by borrowings from the FHLB and the investment of the proceeds
from the 1996 stock offering.
Interest Income
Interest on loans increased by $1,609,000 or 13.5%, from $11,937,000 for
the nine months ended September 30, 1996 to $13,546,000 for the nine months
ended September 30, 1997. The increase was due to a higher average balance
of loans as a result of the investment of the proceeds from the stock
offering and the use of increased borrowings from the FHLB. The new loans
were invested primarily in one-to-four family and commercial loans. Interest
on investments decreased from $1,525,000 for the nine months ended September
30, 1996 to $1,472,000 for the nine months ended September 30, 1997, a
decrease of $53,000 or 3.5%.
7
<PAGE>
Interest Expense
Interest on savings deposits decreased by $389,000 or 5.1%, from
$7,639,000 for the nine months ended September 30, 1996 to $7,250,000 for the
nine months ended September 30, 1997. The decrease was attributable to the
lower average balance in savings deposits during the nine months ended
September 30, 1997. The interest on borrowings increased by $1,329,000, from
$81,000 for the nine months ended September 30, 1996 to $1,410,000 for the
nine months ended September 30, 1997, as a result of increased borrowings
from the FHLB in 1997 that were used primarily to fund the increase in the
loan portfolio.
Noninterest Income
Total noninterest income increased by $38,000 or 3.3%, from $1,143,000
for the nine months ended September 30, 1996 to $1,181,000 for the nine
months ended September 30, 1997. Loan servicing fees decreased $86,000 or
18.0%, from $477,000 for the nine months ended September 30, 1996 to $391,000
for the nine months ended September 30, 1997. This decrease reflected the
lower accretion of previously deferred loan fees for the nine months ended
September 30, 1997. Net gains on loan sales increased by $20,000 or 12.7%,
from $157,000 for the nine months ended September 30, 1996 to $177,000 for
the nine months ended September 30, 1997. Sales of available for sale
securities resulted in a loss of $33,000 for the nine months ended September
30, 1996, compared to a gain of $11,000 for the nine months ended September
30, 1997.
Noninterest Expense
Total noninterest expense decreased by $1,154,000 or 17.9%, from
$6,452,000 for the nine months ended September 30, 1996 to $5,298,000 for the
nine months ended September 30, 1997. Deposit insurance/OTS assessment
decreased from $1,781,000 for the nine months ended September 30, 1996 to
$124,000 for the nine months ended September 30, 1997, a decrease of
$1,657,000 or 93.0%. The decrease was attributable to the previously
discussed Funds Act special assessment and the resulting lower deposit
insurance premiums. Salaries and benefits increased by $274,000 or 9.5%, due
to the effects of the ESOP and other stock based compensation programs and
the addition of employees to operate the new facility. Net occupancy expenses
increased by $112,000 or 19.5%, for the nine months ended September 30, 1997
primarily because of the purchase of a new building in January, 1997 to serve
as a new full-service office and administrative facility.
Provision for Loan Losses
The provision for loan losses increased from $113,000 for the nine months
ended September 30, 1996 to $225,000 for the nine months ended September 30,
1997, an increase of $112,000 or 99.1%. The increase was made as a result of
the increase in the origination of commercial loans, the continued growth of
the remainder of the loan portfolio and management's evaluation of the loan
portfolio. While management believes that the allowance for loan losses is
sufficient based on information currently available, no assurances can be
made that future events or conditions or regulatory directives will not
result in increased provisions for loan losses or additions to the Bank's
allowance for losses which may adversely affect net income.
8
<PAGE>
Income Tax Expense
Income tax expense increased from $124,000 for the nine months ended
September 30, 1996 to $792,000 for the nine months ended September 30, 1997,
an increase of $668,000 or 538.7%. The increase in income tax expense was
attributable to increased earnings for the nine months ended September 30,
1997. The effective tax rates for the nine months ended September 30, 1997
and 1996 were 39.3% and 38.8%, respectively.
Comparison of Operating Results for the Three Months Ended September 30, 1997
and September 30, 1996
Net income for the three months ended September 30, 1997 increased by
$847,000 from a loss of ($488,000) for the three months ended September 30,
1996 to $359,000 for the three months ended September 30, 1997. The increase
was primarily due to the previously discussed 1996 Funds Act special
assessment and higher interest income generated by the growth in the Bank's
loan portfolio.
Interest Income
Interest on loans increased by $569,000 or 13.9%, from $4,092,000 for the
three months ended September 30, 1996 to $4,661,000 for the three months
ended September 30, 1997. The increase was due to a higher average balance of
loans due to the investment of the proceeds from the stock offering and
borrowings from the FHLB. The proceeds and borrowings were invested primarily
in one-to-four family and commercial loans. Interest on investments decreased
from $537,000 for the three months ended September 30, 1996 to $448,000 for
the three months ended September 30, 1997, an decrease of $89,000 or 16.6%.
Interest Expense
Interest on savings deposits decreased by $82,000 or 3.3%, from
$2,489,000 for the three months ended September 30, 1996 to $2,407,000 for
the three months ended September 30, 1997. The decrease was attributable to
lower average balance in savings deposits during the three months ended
September 30, 1997. The interest on borrowings increased by $515,000 as a
result of increased borrowings from the FHLB in 1997.
Noninterest Income
Total noninterest income increased by $66,000 or 20.8%, from $317,000 for
the three months ended September 30, 1996 to $383,000 for the three months
ended September 30, 1997. The increase was primarily due to an increase in
net gains on loan sales. Net gains on loan sales increased by $46,000 or
230%, from $20,000 for the three months ended September 30, 1996 to $66,000
for the three months ended September 30, 1997, because of an increase in loan
sales in the three months ended September 30, 1997.
9
<PAGE>
Noninterest Expense
Total noninterest expense increased by $1,324,000 or 41.8%, from
$3,165,000 for the three months ended September 30, 1996 to $1,841,000 for
the three months ended September 30, 1997. Salaries and benefits increased by
$44,000 or 4.3%, due to the effects of the ESOP and other stock based
compensation programs. Net occupancy expenses increased by $67,000 or 35.5%,
for the three months ended September 30, 1997 primarily because of the
purchase of a new building in January, 1997 to serve as a new full-service
office and administrative facility. Deposit insurance/OTS expense decreased
by $1,449,000 from $1,510,000 for the three months ended September 30, 1996
to $61,000 for the three months ended September 30, 1997 because of the
previously discussed 1996 Funds Act special assessment.
Provision for Loan Losses
The provision for loan losses increased from $38,000 for the three months
ended September 30, 1996 to $75,000 for the three months ended September 30,
1997, an increase of $37,000 or 97.4%. The increase was made because of the
increase in the origination of commercial loans, the continued growth of the
loan portfolio and management's evaluation of the loan portfolio. While
management believes that the allowance for loan losses is sufficient based on
information currently available, no assurances can be made that future events
or conditions or regulatory directives will not result in increased
provisions for loan losses or additions to the Bank's allowance for losses
which may adversely affect net income.
Income Tax Expense (Credit)
There was an income tax credit of $310,000 for the three months ended
September 30, 1996, as compared to an expense of $243,000 for the three
months ended September 30, 1997, a change of $553,000. The increase in income
tax credit derived from the loss for the three months ended September 30,
1996. The effective tax rates for the three months ended September 30, 1997
and 1996 were 40.4% and 38.8%, respectively.
10
<PAGE>
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits, principal and interest
payments on loans and securities, sales of loans and securities and FHLB
advances. While maturing and scheduled amortization of loans are predictable
sources of funds, deposit outflows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and competition.
The Bank's liquidity requirement, which may be varied at the direction of the
OTS depending on economic conditions and deposit flows, is based upon a
percentage of the Bank's deposits and short-term borrowings. The Bank is
currently required by the OTS to maintain a ratio of liquid assets of 5.0%.
At September 30, 1997 and 1996, the Bank's liquidity ratio was 5.21% and
5.88%, respectively. Management maintains its liquid assets in accordance
with regulatory requirements.
At September 30, 1997, the Bank exceeded all of its regulatory capital
requirements with a tangible capital level of $29.2 million, or 10.5% of
adjusted assets, which is above the required level of $4.1 million or 1.5%;
core capital of $29.2 million, or 10.5% of adjusted assets, which is above
the required level of $8.3 million or 3.0%; and risk-based capital of $29.8
million or 18.3% of adjusted assets, which is above the required level of
$13.0 million or 8.0%.
The Company's most liquid assets are cash and interest-bearing demand
accounts. The level of these accounts is dependent on the operating,
financing, lending and investing activities during any given period. At
September 30, 1997, cash and interest-bearing deposits totaled $6.7 million
or 2.4% of the Company's total assets.
The Company has other sources of liquidity if a need for additional funds
arises, including FHLB advances. At September 30, 1997, the Bank had
outstanding advances with the FHLB of $42.1 million. The FHLB maintains two
limitations on the availability based on FHLB stock ownership and total
assets. The Bank currently meets the stock limitation; however, this limit
may be raised by the purchase of additional FHLB stock. Based on total assets
limitations, the Bank may increase its borrowings with the FHLB by $55.1
million. Depending upon market conditions and the pricing of deposit products
and FHLB borrowings, the Bank may utilize FHLB advances to fund loan
originations.
At September 30, 1997 the Bank had commitments to originate loans and
unused lines of credit totaling $17.6 million. Certificate accounts which are
scheduled to mature in one year or less from September 30, 1997 totaled $94.3
million. The Bank anticipates that it will have sufficient funds to meet its
current loan commitments and maturing deposits.
11
<PAGE>
Accounting Changes
In March 1997, the FASB issued SFAS No. 128, "Earnings per share", which
supersedes APB No. 15, "Earnings Per Share". SFAS 128 establishes standards
for computing and presenting earnings per share and applies to entities with
publicly held common stock or potential common stock (i.e. securities such as
options, warrants, convertible securities, or contingent stock agreements).
The statement replaces the presentation of primary earnings per share with a
presentation of basic earnings per share and requires dual presentation of
basic and diluted earnings per share on the face of the income statement.
SFAS 128 is effective for financial statements issued for periods ending
after December 15, 1997. Earlier application is not permitted; however,
restatement of all prior-period earnings per share data presented will be
required. If the Company had been subject to the requirements of SFAS 128 for
the three months and nine months ended September 30, 1997 and September 30,
1996, earnings per common share and earnings per common share - assuming full
dilution, would not have differed materially from the amounts presented in
the accompanying financial statements.
Year 2000 Compliance
The Year 2000 compliance issue exists because many computer systems and
applications currently use two-digit fields to designate a year. As the
century date change occurs, date-sensitive systems may either fail or not
operate properly unless the underlying programs are modified or replaced.
The Bank has initiated a program to assure that all computer applications
will be Year 2000 compliant. This program includes the monitoring and
testing of the Bank's outside data processing provider and other vendors Year
2000 compliance progress.
The Bank is continuing to assess the extent of programming changes
required to address this issue. Although final cost estimates have not been
determined, it is not expected that these expenses will have a material
adverse impact on the Company and the Bank's financial condition, liquidity,
or results of operations.
12
<PAGE>
PART II. -- OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any legal proceedings of a material
nature at this time other than those occurring in the ordinary course of
business which in the aggregate involves amounts which are believed by
management to be immaterial to the financial condition of the Company.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
3.1 Certificate of Incorporation of Citizens First
Financial Corp.*
3.2 By-laws of Citizens First Financial Corp.*
11. Computation of Earnings Per Share (filed
herewith)
27. Financial Data Schedule
b. Report on Form 8-K
On August 27, 1997, the Company filed a report on Form
8-K in connection with the signing by the Bank of a
definitive agreement for the sale of a Bank branch office
to the State Bank of Graymont.
On October 23, 1997, the Company filed a report on Form
8-K in connection with the election of Ronald C. Wells
as Chairman of the Board of the Company and the Bank.
* Incorporated by reference to this Registration Statement on
Form SB-2, as amended, filed on January 24, 1996, Registration
No. 333-556.
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Citizens First Financial Corp.
(Registrant)
Date: November 14, 1997 /s/ C. William Landefeld
----------------------- ----------------------------
C. William Landefeld
President
Date: November 14, 1997 /s/ Dallas G. Smiley
----------------------- ----------------------------
Dallas G. Smiley
Chief Financial Officer
14
<PAGE>
Exhibit 11
Exhibit 11 Computation of Per Share Earnings
Statement Regarding Computation of Earnings Per Share
for the nine months ended September 30, 1997
(Unaudited)
Assuming no dilution:
Net income (in thousands) $ 1,224
---------
Weighted average number
of shares:
Average shares outstanding: 2,420,800
Average incremental shares related
to stock options 69,717
---------
2,490,517
---------
---------
Income per share assuming no dilution: $ 0.49
---------
---------
Assuming full dilution:
Net income (in thousands) $ 1,224
---------
---------
Weighted average number
of shares:
Average shares issued 2,817,500
Average incremental shares related
to stock options 69,717
Average treasury shares (117,361)
---------
2,769,856
---------
---------
Income per share assuming full dilution: $ 0.44
---------
---------
Note:
Earnings per share are computed based upon the weighted average common
and common equivalent shares outstanding for periods subsequent to the
Company's initial stock offering on May 1, 1996. Accordingly, earnings per
share for the nine months ended September 30, 1996 are not meaningful.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary information extracted from the form 10-QSB and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5199
<INT-BEARING-DEPOSITS> 1492
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,493
<INVESTMENTS-CARRYING> 500
<INVESTMENTS-MARKET> 500
<LOANS> 232,842
<ALLOWANCE> 656
<TOTAL-ASSETS> 277,962
<DEPOSITS> 195,204
<SHORT-TERM> 13,819
<LIABILITIES-OTHER> 2386
<LONG-TERM> 28,328
0
0
<COMMON> 28
<OTHER-SE> 38,197
<TOTAL-LIABILITIES-AND-EQUITY> 277,962
<INTEREST-LOAN> 13,546
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<INTEREST-TOTAL> 15,018
<INTEREST-DEPOSIT> 7250
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<INTEREST-INCOME-NET> 6358
<LOAN-LOSSES> 225
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<EXPENSE-OTHER> 5298
<INCOME-PRETAX> 2016
<INCOME-PRE-EXTRAORDINARY> 2016
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1224
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.44
<YIELD-ACTUAL> .032
<LOANS-NON> 329
<LOANS-PAST> 405
<LOANS-TROUBLED> 346
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 512
<CHARGE-OFFS> 81
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<ALLOWANCE-CLOSE> 656
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