UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
-------------
Commission File Number 1-14274
-------
CITIZENS FIRST FINANCIAL CORP.
(Exact name of registrant 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
(Address of principal executive offices)
(309) 661-8700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant has: (1) filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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
As of July 28, 1998, the Registrant had 2,300,854 shares of
Common Stock outstanding.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1998 and December 31, 1997 1
Consolidated Income Statements for
the Six Months Ended June 30, 1998
and 1997 2
Consolidated Income Statement for the
Three Months Ended June 30, 1998 and
1997 3
Consolidated Statement of Cash Flows
for the Six Months Ended June 30, 1998
and 1997 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 6
Item 3. Quantitative and Qualititative Disclosures
About Market Risk 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Change in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 17
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 June 30, 1998 and December 31, 1997
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
(Unaudited and in thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,690 $ 4,622
Interest-bearing demand deposits 17,112 3,317
-------- --------
Total cash and cash equivalents 21,802 7,939
Investment securities - available
for sale 18,286 19,302
Mortgage loans held for sale 2,365 2,394
Loans 224,252 230,309
Allowance for loan losses (1,029) (840)
-------- --------
Net loans 223,223 229,469
Premises and equipment 8,264 8,408
Federal Home Loan Bank of Chicago
stock 1,834 2,453
Foreclosed real estate 577 605
Other assets 4,717 3,030
-------- --------
Total assets $281,068 $273,600
-------- --------
-------- --------
LIABILITIES AND EQUITY CAPITAL
Liabilities
Deposits $202,757 $198,633
Federal Home Loan Bank advances 35,577 33,944
Advances by borrowers for taxes
and insurance 684 694
Other liabilities 2,834 2,359
-------- --------
Total liabilities 241,852 235,630
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 and
outstanding 28 28
Paid-in-capital 27,347 27,194
Retained earnings - substantially
restricted 19,128 18,184
Net unrealized loss on securities
available for sale (75) (100)
Less:
Treasury shares, 291,479 and
281,750 (4,713) (4,520)
Unearned incentive plan shares (1,050) (1,206)
Unearned Employee Stock Option
Plan shares (1,449) (1,610)
-------- --------
Total equity capital 39,216 37,970
-------- --------
Total liabilities and
equity capital $281,068 $273,600
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
Citizens First Financial Corp. and Subsidiary
Consolidated Income Statements
<TABLE>
<CAPTION>
For the six months
ended June 30,
1998 1997
(Unaudited and in thousands
except share data)
<S> <C> <C>
Interest income:
Interest on loans $ 9,535 $ 8,885
Interest on investments 936 1,024
---------- ----------
Total interest income 10,471 9,909
Interest expense:
Interest on savings deposits 4,816 4,843
Interest on borrowings 1,022 843
---------- ---------
Total interest expense 5,838 5,686
---------- ---------
Net interest income 4,633 4,223
Provision for loan losses 225 150
---------- ---------
Net interest income after
provision for loan losses 4,408 4,073
Noninterest income:
Loan servicing fees 26 109
Net realized gains on sales of
available for sale securities 2 11
Net gains on loan sales 474 111
Other operating income 398 434
---------- ----------
Total noninterest income 900 665
---------- ----------
Noninterest expense:
Salaries and employee benefits 2,099 1,947
Net occupancy and equipment expenses 529 429
Deposit insurance/OTS expense 98 63
Data processing fees 243 199
Other operating expense 795 686
---------- ----------
Total noninterest expense 3,764 3,324
---------- ----------
Income before income tax 1,544 1,414
Income tax expense 599 549
---------- ----------
Net income $945 $865
---------- ----------
---------- ----------
Net earnings per share
Assuming no dilution $0.41 $0.35
Weighted average shares outstanding 2,304,304 2,451,708
Assuming full dilution $0.38 $0.33
Weighted average shares outstanding 2,490,247 2,595,168
</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 June 30,
1998 1997
(Unaudited and in thousands
except share data)
<S> <C> <C>
Interest income:
Interest on loans $ 4,724 $ 4,588
Interest on investments 557 498
---------- ----------
Total interest income 5,281 5,086
Interest expense:
Interest on savings deposits 2,414 2,431
Interest on borrowings 527 487
---------- ----------
Total interest expense 2,941 2,918
---------- ----------
Net interest income 2,340 2,168
Provision for loan losses 120 75
---------- ----------
Net interest income after provision
for loan losses 2,220 2,093
Noninterest income:
Loan servicing fees 15 53
Net realized gains on sales of
available for sale securities 8 11
Net gains on loan sales 222 63
Other operating income 222 216
---------- ----------
Total noninterest income 467 343
---------- ----------
Noninterest expense:
Salaries and employee benefits 1,084 1,008
Net occupancy and equipment expenses 267 212
Deposit insurance/OTS expense 49 38
Data processing fees 116 96
Other operating expense 460 356
---------- ----------
Total noninterest expense 1,976 1,710
---------- ----------
Income before income tax 711 726
Income tax expense 276 282
---------- ----------
Net income $435 $444
---------- ----------
---------- ----------
Net earnings per share
Assuming no dilution $0.19 $0.18
Weighted average shares outstanding 2,307,747 2,407,953
Assuming full dilution $0.17 $0.17
Weighted average shares outstanding 2,487,241 2,552,986
</TABLE>
3
<PAGE>
Citizens First Financial Corp. and Subsidiary
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
For the six months
ended June 30,
1998 1997
(Unaudited and in
thousands)
<S> <C> <C>
Operating activities:
Net income $ 945 $ 865
Adjustments to reconcile net
income to net cash provided by
operating activities
Provision for loan losses 225 150
Investment securities gains (2) (11)
ESOP compensation expense 332 243
Incentive plan compensation expense 139 141
Investment securities amortization, net 31 22
Net gains on sale of loans (474) (111)
Net losses on sale of foreclosed property 35 0
Net gains on sale of property
and equipment 0 (12)
Depreciation 299 221
Loans originated for sale (34,220) (9,915)
Proceeds from sale of loans 34,461 8,017
Change in:
Other liabilities 475 (164)
Prepaid expenses and other assets (1,687) (1,327)
------- -------
Net cash (used) provided by operating
activities 559 (1,881)
Investing Activities:
Purchase of securities available for
sale (6,010) (1,992)
Proceeds from maturities and principal
paydowns on securities available
for sale 2,668 3,332
Proceeds from sales of securities
available for sale 4,352 1,670
Proceeds from redemption of Federal Home
Loan Bank stock 619 0
Proceeds from maturities and principal
paydowns on securities held-to-
maturity 0 500
Other net changes in loans 5,883 (12,492)
Proceeds from sale of foreclosed
property 393 183
Purchase of premises and equipment (155) (1,902)
Proceeds from sale of property and
equipment 0 12
------- -------
Net cash (used) provided by
investing activities 7,750 (10,689)
Financing Activities:
Net change in deposits 4,124 (4,082)
Proceeds from FHLB advances 6,000 16,410
Repayment of FHLB advances (4,367) (250)
Purchase of incentive plan stock 0 (753)
Purchase of treasury stock shares (193) (2,676)
Net changes in advances by borrowers
for taxes and insurance (10) 87
------- -------
Net cash provided by
financing activities 5,554 8,736
Net change in cash and cash equivalents 13,863 (3,834)
Cash and cash equivalents, beginning
of period 7,939 7,007
------- -------
Cash and cash equivalents, end of period $21,802 $ 3,173
------- -------
------- -------
Additional cashflows and supplementary
information:
Interest paid $ 5,521 $ 5,486
Income tax paid 582 425
Loans transferred to foreclosed
property 400 0
</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.
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'.
2. Statement of Information Furnished
----------------------------------
The accompanying unaudited consolidated financial statements
have been prepared in accordance with Form 10-Q instructions and
Rule 10-01 of Regulation S-X, and in the opinion of management
reflects all adjustments necessary to present a fair statement of
the financial position as of June 30, 1998 and December 31, 1997,
the results of operations for the six and three months ended June
30, 1998 and 1997 and the cash flows for the six months ended
June 30, 1998 and 1997. All adjustments to the financial
statements were of a normal recurring nature. These results have
been determined on the basis of generally accepted accounting
principles. The results of operations for the six months ended
June 30, 1998 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 28, 1998, included in
the Company's 1997 Annual Report to Shareholders.
3. Comprehensive Income
--------------------
Comprehensive income for each of the periods presented did
not differ materially from net income. Accordingly,
comprehensive income has not been separately presented.
4. Earnings Per Share
------------------
Net earnings per share are computed based upon the weighted
average common and common equivalent shares outstanding for the
six and three months ended June 30, 1998 and 1997.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation
Citizens First Financial Corp. is the holding company for
Citizens Savings Bank F.S.B. The Bank has two wholly-owned
service corporations, CSL Service Corporation and Fairbury Financial
Services 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.
On March 2, 1998, the Company received approval from the
Office of Thrift Supervision ('OTS') for the repurchase of 5% of
its common stock. As of June 30, 1998 the Company had
repurchased 9,729 shares under this plan.
Comparison of Financial Condition at June 30, 1998 and December
31, 1997
Total assets increased from $273.6 million at December 31,
1997 to $281.1 million at June 30, 1998. The $7.5 million or
2.7% increase was due to the increase in interest bearing demand
deposits.
Cash and cash equivalents increased from $7,939,000 at
December 31, 1997 to $21,802,000 at June 30, 1998, an increase of
$13,863,000 or 174.6%. This increase was the result of proceeds
from the increased loan sales during the first half of 1998 and
the sale and principal reduction of investment securities, which
decreased from $19,302,000 at December 31, 1997 to $18,286,000 at
June 30, 1998, a decrease of $1,016,000 or 5.3%.
Net loans, including loans held for sale, decreased from
$231,863,000 at December 31, 1997 to $225,588,000 at June
30,1998, a decrease of $6,275,000 or 2.7%.
Deposits increased from $198,633,000 at December 31, 1997 to
$202,757,000 at June 30, 1998, an increase of $4,124,000 or 2.1%.
Borrowings from the Federal Home Loan Bank of Chicago (the
'FHLB') increased from $33,944,000 at December 31, 1997 to
$35,577,000 at June 30, 1998, an increase of $1,633,000 or 4.8%.
Other liabilities increased from $2,359,000 at December 31, 1997
to $2,834,000 at June 30, 1998, an increase of $475,000 or 20.1%
primarily because of an increase in accrued principal and
interest payments on serviced loans.
Total stockholders' equity capital increased by $1,246,000
or 3.3%, from $37,970,000 at December 31, 1997 to $39,216,000 at
June 30, 1998. The increase was caused by the earnings of the
Company during the six months ended June 30, 1998 and the
allocation of shares in the Company's stock-based compensation
plans.
6
<PAGE>
Comparison of Operating Results for the Six Months Ended June 30,
1998 and June 30, 1997
Net income for the six months ended June 30, 1998 increased
by $80,000 from $865,000 for the six months ended June 30, 1997
to $945,000 for the six months ended June 30, 1998. The increase
was primarily due to increased net interest income and net gains
on loan sales which was partially offset by increased noninterest
expense.
Interest Income
Interest on loans increased by $650,000 or 7.3%, from
$8,885,000 for the six months ended June 30, 1997 to $9,535,000
for the six months ended June 30, 1998. The increase was due to
a higher average balance of loans financed by borrowings from the
FHLB. The borrowings were invested primarily in one-to-four
family and commercial loans. Interest on investments decreased
from $1,024,000 for the six months ended June 30, 1997 to
$936,000 for the six months ended June 30, 1998, a decrease of
$88,000 or 8.6%.
Interest Expense
Interest on savings deposits remained relatively constant,
decreasing $27,000 or 0.6%, from $4,843,000 for the six months
ended June 30, 1997 to $4,816,000 for the six months ended June
30, 1998. The interest on borrowings increased by $179,000 or
21.2%, from $843,000 for the six months ended June 30, 1997 to
$1,022,000 for the six months ended June 30, 1998 as a result of
increased average borrowings from the FHLB in 1998.
Noninterest Income
Total noninterest income increased by $235,000 or 35.3%,
from $665,000 for the six months ended June 30, 1997 to $900,000
for the six months ended June 30, 1998. The increase was
primarily due to an increase in net gains on loan sales. Net
gains on loan sales increased by $363,000 or 327.0%, from
$111,000 for the six months ended June 30, 1997 to $474,000 for
the six months ended June 30, 1998, because of an increase in
loan sales in the six months ended June 30, 1998. This increase
was offset by a decrease in loan servicing fees from $109,000 for
the six months ended June 30, 1997 to $26,000 for the six months
ended June 30, 1998, a decrease of $83,000 or 76.1%. This
decrease was due to the amortization of previously capitalized
mortgage servicing rights.
Noninterest Expense
Total noninterest expense increased by $440,000 or 13.2%,
from $3,324,000 for the six months ended June 30, 1997 to
$3,764,000 for the six months ended June 30, 1998. Salaries and
benefits increased by $152,000 or 7.8%, from $1,947,000 for the
six months ended June 30, 1997 to $2,099,000 for the six months
ended June 30, 1998, due to the increase in the price of the
Company's stock which is used to fund the ESOP stock based
compensation program and the additional compensation expense from
the new full-service facility that was opened in the third
quarter of 1997. Net occupancy expenses increased by $100,000 or
23.3%, from $429,000 for the six months ended June 30, 1997 to
$529,000 for the six months ended June 30, 1998, primarily
because of the new full-service office and administrative
facility. Deposit insurance/OTS expense increased by $35,000,
from $63,000 for the three months ended June 30, 1997 to $98,000
for the six months ended June 30, 1998, because of the utilization
of a deposit insurance credit utilized in the first quarter of
1997.
7
<PAGE>
Provision for Loan Losses
The provision for loan losses increased from $150,000 for
the six months ended June 30, 1997 to $225,000 for the six months
ended June 30, 1998, an increase of $75,000 or 50.0%. 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
Income tax expense increased from $549,000 for the six
months ended June 30, 1997 to $599,000 for the six months ended
June 30, 1998, an increase of $50,000 or 9.1%. The increase was
due to the increase in net income for the six months ended June
30, 1998. The effective tax rates for the six months ended June
30, 1998 and 1997 were 38.8% and 38.8%, respectively.
Comparison of Operating Results for the Three Months Ended June
30, 1998 and June 30, 1997
Net income for the three months ended June 30, 1998
decreased by $9,000 from $444,000 for the three months ended June
30, 1997 to $435,000 for the three months ended June 30, 1998.
The decrease was due to increased noninterest expense which was
offset by increased net interest income and net gains on loan
sales.
Interest Income
Interest on loans increased by $136,000 or 3.0%, from
$4,588,000 for the three months ended June 30, 1997 to $4,724,000
for the three months ended June 30, 1998. Interest on
investments increased from $498,000 for the three months ended
June 30, 1997 to $557,000 for the three months ended June 30,
1998, an increase of $59,000 or 11.8%. The increase was due to
the higher average balances in interest-bearing demand deposit
accounts.
Interest Expense
Interest on savings deposits decreased from $2,431,000 for
the three months ended June 30, 1997 to $2,414,000 for the three
months ended June 30, 1998, a decrease of $17,000 or 0.7%. The
interest on borrowings increased by $40,000 or 8.2%, from
$487,000 for the three months ended June 30, 1997 to $527,000 for
the three months ended June 30, 1998 due to higher average
borrowings during the period.
Noninterest Income
Total noninterest income increased by $124,000 or 36.2%,
from $343,000 for the three months ended June 30, 1997 to
$467,000 for the three months ended June 30, 1998. The increase
was due to the increase in net gains on loan sales. Net gains on
loan sales increased by $159,000 or 252.4%, from $63,000 for the
three months ended June 30, 1997 to $222,000 for the three months
ended June 30, 1998.
8
<PAGE>
Noninterest Expense
Total noninterest expense increased by $266,000 or 15.6%,
from $1,710,000 for the three months ended June 30, 1997 to
$1,976,000 for the three months ended June 30, 1998. Salaries and
benefits increased by $76,000 or 7.5%, from $1,008,000 for the
three months ended June 30, 1997 to $1,084,000 for the three
months ended June 30, 1998, due to the increase in the price of
the Company's stock which is used to fund the ESOP stock based
compensation program and the additional compensation expense from
the new full-service facility that was opened in the third
quarter of 1997. Net occupancy expenses increased by $55,000 or
25.9%, from $212,000 for the three months ended June 30, 1997 to
$267,000 for the three months ended June 30, 1998, primarily
because of the new full-service office and administrative
facility.
Provision for Loan Losses
The provision for loan losses increased from $75,000 for the
three months ended June 30, 1997 to $120,000 for the three months
ended June 30, 1998 an increase of $45,000 or 60.0%. 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
Income tax expense decreased from $282,000 for the three
months ended June 30, 1997 to $276,000 for the three months ended
June 30, 1998, a decrease of $6,000 or 2.1%. The decrease was
due to the decrease in net income for the three months ended June
30, 1998. The effective tax rates for the three months ended
June 30, 1998 and 1997 were 38.8% and 38.8%, respectively.
9
<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 4.0%. At June 30, 1998
and 1997, the Bank's liquidity ratio was 14.6% and 14.9%,
respectively. Management maintains its liquid assets in
accordance with regulatory requirements.
At June 30, 1998, the Bank exceeded all of its regulatory
capital requirements with Tier 1 core capital of $31.2 million,
or 11.4% of adjusted assets, which is above the required level of
$11.0 million or 4.0%; and risk-based capital of $32.3 million
or 18.3% of risk-weighted assets, which is above the required
level of $14.1 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 June 30, 1998, cash and
interest-bearing deposits totaled $21.8 million or 7.8% of the
Company's total assets.
The Company has other sources of liquidity if a need for
additional funds arises, including FHLB advances. At June 30,
1998, the Bank had outstanding advances with the FHLB of $35.6
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 the
total assets limitations, the Bank may increase its borrowings
with the FHLB by $60.6 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 June 30, 1998 the Bank had commitments to originate loans
and unused lines of credit totaling $31.0 million. Certificate
accounts which are scheduled to mature in one year or less from
June 30, 1998 totaled $107.5 million. The Bank anticipates that
it will have sufficient funds to meet its current loan
commitments and maturing deposits.
10
<PAGE>
Accounting Changes
In June, 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.130,
'Reporting Comprehensive Income' (SFAS No. 130), which establishes
standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial
statements. Comprehensive income is defined as 'the change in
equity of a business enterprise during a period from transactions and
other events and circumstances from non-owner sources. It
includes all changes in equity during a period except those
resulting from investment by owners and distributions to owners.'
The comprehensive income and related cumulative equity impact of
comprehensive income items will be required to be disclosed
prominently as part of the notes to the financial statements.
Only the impact of unrealized gains or losses on securities
available for sale is expected to be disclosed as an additional
component of the Company's income under the requirements of SFAS
No. 130. This statement is effective for fiscal years beginning
after December 15, 1997. The Company adopted SFAS No. 130 in
1998. At June 30, 1998 and 1997, the amounts to be disclosed by
the Company under the SFAS No. 130 are considered immaterial and
are therefor not shown in the accompanying financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities', which establishes
accounting and reporting standards for derivative instruments.
It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and
measure those instruments at fair value. This statement is
effective for all periods beginning after June 15, 1999. The
Company will adopt Standard 133 during fiscal year 2000 and does
not anticipate any impact to its 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.
11
Item 3: Quantitative and Qualitative Disclosures About Market
Risk
The Bank is subject to interest rate risk to the degree that its
interest-bearing liabilities, primarily deposits with short and
medium term maturities, mature or reprice at different rates than
our interest earning assets. Although having liabilities mature
or reprice less frequently on average than assets will be
beneficial in times of rising interest rates, such an asset
liability structure will result in lower net income during
period of declining interest rates, unless offset by other
factors.
The Bank believes it is critical to manage the relationship
between interest rates and the effect on its net portfolio value
(NPV). This approach calculates the difference between the
present value of expected cash flows from assets and the present
value of expected cash flows from liabilities, as well as cash
flows from off-balance sheet contracts. The Bank manages assets
and liabilities within the context of the marketplace, regulatory
limitations, and within its operation on the amount of change in
NPV which is acceptable given interest rate changes.
Presented below, as of March 31, 1998, is an analysis performed by
the Office of Thrift Supervision ( OTS') of the Bank's interest
rate risk as measured by changes in NPV for instantaneous and
sustained parallel shifts in the yield curve, in 100 basis point
increments, up and down 400 basis points. This data is presented
as of March 31, 1998 since data from the most recent quarter
(June 30, 1998) is not yet available from the OTS. Management
believes there has been no significant change in interest rate
risk measures since March 31, 1998.
<TABLE>
<CAPTION>
Net Portfolio Value NPV as % of PV of Assets
Change Amount Change Change
in Rates (000's) (000's) % NPV Ratio Change
- -------- ------ ------- ------ --------- ------
(C> <C> <C> <C> <C> <C>
+400 bp 28,922 (9,627) (25%) 11.08% (262 bp)
+300 bp 31,990 (6,559) (17%) 12.00% (170 bp)
+200 bp 34,791 (3,758) (10%) 12.79% (91 bp)
+100 bp 37,104 (1,445) (4%) 13.39% (31 bp)
0 bp 38,549 13.70%
- -100 bp 38,968 420 1% 13.69% (1 bp)
- -200 bp 38,218 (330) (1)% 13.32% (38 bp)
- -300 bp 37,665 (884) (2)% 13.02% (68 bp)
- -400 bp 37,832 (716) (2)% 12.93% (77 bp)
</TABLE>
As with any method of measuring interest rate risk, certain
shortcomings are inherent in the methods of analysis presented
above. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react
in different degrees to changes in market interest rates. Also,
the interest rates on certain types of assets and liabilities may
fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as adjustable loans,
have features which restrict changes in interest rates on a short
term basis and over the life of the asset. Finally, the ability
of many borrowers to service their debt may decrease in the event
of an interest rate increase. The Company considers all of these
factors in monitoring its exposure to interest rate risk.
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 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
(a) The company's Annual Meeting of shareholders
was held on April 27, 1998.
(b) See Item 4-c below.
(c) At such meeting, the shareholders approved
the following matters:
1. The election of the following individuals as
Directors.
<TABLE>
<CAPTION>
Votes For Votes Withheld Term
--------- -------------- ----
<C> <C> <C> <C>
Ronald C. Wells 2,149,605 20,739 3 years
Paul J. Hoffman 2,149,805 20,539 3 years
L. Carl Borngasser, Jr. 2,142,895 27,449 1 year
</TABLE>
Additionally, the following individuals represent the names
of the other Directors whose terms of office as a Director
continued after the meeting:
C. William Landefeld
Lyle J. Honnegger
2. The ratification of Olive LLP as independent
auditors for the Company for the fiscal year
ending December 31, 1998, as reflected by
2,136,197 votes for, 30,737 votes against,
3,410 abstentions and no broker non-votes.
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.*
11.0 Statement re: Computation of Per Share
Earnings (filed herewith)
27.0 Financial Data Schedule **
b. Reports on Form 8-K
Not applicable
* Incorporated by reference to this Registration
Statement on Form SB-2, as amended, filed on January 24, 1996,
Registration No. 333-556.
** Submitted only in electronic format.
14
<PAGE>
Exhibit Index
-------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
11.0 Statement re: Computation of Per Share Earnings 15
27.0 Financial Data Schedule (submitted only in
electronic format)
</TABLE>
Exhibit 11.0 Statement re: Computation of Per Share Earnings
(Unaudited)
Earnings per share were computed as follows (dollar amounts
in thousands except share data):
<TABLE>
<CAPTION>
Weighted
Average Per Share
Income Shares Amount
------ -------- ---------
<S> <C> <C> <C>
For the six months ended
June 30, 1998:
Basic Earnings per Share:
Income available to
common stockholders $ 945 2,304,304 $0.41
Effect of Dilutive
Securities
Stock options 113,926
Unearned incentive plan
shares 72,017
Diluted Earnings Per Share
Income available to common
stockholders and
assumed conversions $ 945 2,490,247 $0.38
For the six months ended
June 30, 1997:
Basic Earnings per Share:
Income available to
common stockholders $ 865 2,451,708 $0.35
Effect of Dilutive
Securities:
Stock options 54,825
Unearned incentive
plan shares 88,635
---------
Diluted Earnings per Share:
Income available to
common stockholders
and assumed conversions $ 865 2,595,168 $0.33
------ --------- -----
------ --------- -----
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Weighted
Average Per Share
Income Shares Amount
------ -------- ---------
<S> <C> <C> <C>
For the three months ended
June 30, 1998:
- --------------------------
Basic Earnings per Share:
Income available to common
stockholders $435 2,307,747 $0.19
Effect of Dilutive Securities
Stock options 110,189
Unearned incentive plan
shares 69,305
---------
Diluted Earnings Per Share
Income available to common
stockholders and assumed
conversions $435 2,487,241 $0.17
---- --------- -----
----- --------- -----
For the three months ended
June 30, 1997:
- ---------------------------
Basic Earnings per Share:
Income available to common
stockholders $444 2,407,953 $0.18
Effect of Dilutive
Securities:
Stock Options 58,456
Unearned incentive plan
shares 86,577
---------
Diluted Earnings per Share:
Income available to
common stockholders and
assumed conversions $444 2,552,986 $0.17
---- --------- -----
---- --------- -----
16
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.
Citizens First Financial Corp.
Date: August 14, 1998 /s/ C. William Landefeld
--------------------------------
C. William Landefeld
President
Date: August 14, 1998 /s/ Dallas G. Smiley
--------------------------------
Dallas G. Smiley
Chief Financial Officer
17<PAGE>
</TABLE>
