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 September 30, 1998
------------------
Commission File Number 1-14274
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CITIZENS FIRST FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 37-1351861
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(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
--------------
(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 November 2, 1998, the Registrant had 2,288,522 shares of Common Stock
outstanding .
<PAGE>
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
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<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheet as of September
30, 1998 and December 31, 1997 1
Consolidated Income Statement for the Nine
Months Ended September 30, 1998 and 1997 2
Consolidated Income Statement for the Three
Months Ended September 30, 1998 and 1997 3
Consolidated Statement of Comprehensive Income
for the Three and Nine Months Ended
September 30, 1998 and 1997 4
Consolidated Statement of Cash Flows for the
Nine Months Ended September 30, 1998 and 1997 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
PART II - OTHER INFORMATION
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Item 1. Legal Proceedings 15
Item 2. Change in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security
Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 18
</TABLE>
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>
CITIZENS FIRST FINANCIAL CORP. AND SUBSIDIARY
PART I. -- FINANCIAL INFORMATION
Citizens First Financial Corp. and Subsidiary
Consolidated Balance Sheet
As of September 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited and in thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,374 $ 4,622
Interest-bearing demand deposits 14,343 3,317
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Total cash and cash equivalents 19,717 7,939
Investment securities - available
for sale 17,757 19,302
Mortgage loans held for sale 3,255 2,394
Loans 230,844 230,309
Allowance for loan losses (1,068) (840)
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Net loans 229,776 229,469
Premises and equipment 8,163 8,408
Federal Home Loan Bank of Chicago
stock 1,834 2,453
Foreclosed real estate 754 605
Other assets 4,193 3,030
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Total assets $285,449 $273,600
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-------- --------
LIABILITIES AND EQUITY CAPITAL
Liabilities
Deposits $203,958 198,633
Federal Home Loan Bank advances 38,494 33,944
Advances by borrowers for taxes
and insurance 236 694
Other liabilities 4,995 2,359
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Total liabilities 247,683 235,630
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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 27,378 27,194
Retained earnings - substantially
restricted 19,616 18,184
Net unrealized loss on securities
available for sale (12) (100)
Less:
Treasury shares, 426,379 and
281,750 (6,903) (4,520)
Unearned incentive plan shares (972) (1,206)
Unearned Employee Stock Option
Plan shares (1,369) (1,610)
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Total equity capital 37,766 37,970
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Total liabilities and
equity capital $285,449 $273,600
-------- --------
-------- --------
</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,
1998 1997
(Unaudited and in thousands
except share data)
<S> <C> <C>
Interest income:
Interest on loans $ 14,371 $ 13,546
Interest on investments 1,414 1,472
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Total interest income 15,785 15,018
Interest expense:
Interest on savings deposits 7,205 7,250
Interest on borrowings 1,565 1,410
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Total interest expense 8,770 8,660
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Net interest income 7,015 6,358
Provision for loan losses 345 225
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Net interest income after
provision for loan losses 6,670 6,133
Noninterest income:
Net realized gains on sales of
available for sale securities 17 11
Net gains on loan sales 615 177
Other operating income 638 792
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Total noninterest income 1,270 980
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Noninterest expense:
Salaries and employee benefits 3,199 2,946
Net occupancy and equipment expenses 799 685
Deposit insurance/OTS expense 146 124
Data processing fees 364 310
Other operating expense 1,090 1,032
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Total noninterest expense 5,598 5,097
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Income before income tax 2,342 2,016
Income tax expense 909 792
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Net income $1,433 $1,224
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---------- ----------
Net earnings per share
Assuming no dilution $0.63 $0.49
Weighted average shares outstanding 2,286,201 2,490,517
Assuming full dilution $0.58 $0.44
Weighted average shares outstanding 2,454,009 2,769,856
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
Citizens First Financial Corp. and Subsidiary
Consolidated Income Statement
<TABLE>
<CAPTION>
For the three months
ended September 30,
1998 1997
(Unaudited and in thousands
except share data)
<S> <C> <C>
Interest income:
Interest on loans $ 4,836 $ 4,661
Interest on investments 478 448
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Total interest income 5,314 5,109
Interest expense:
Interest on savings deposits 2,389 2,407
Interest on borrowings 543 567
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Total interest expense 2,932 2,974
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Net interest income 2,382 2,135
Provision for loan losses 120 75
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Net interest income after provision
for loan losses 2,262 2,060
Noninterest income:
Net realized gains on sales of
available for sale securities 15 0
Net gains on loan sales 141 66
Other operating income 214 249
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Total noninterest income 370 315
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Noninterest expense:
Salaries and employee benefits 1,100 999
Net occupancy and equipment expenses 270 256
Deposit insurance/OTS expense 48 61
Data processing fees 121 111
Other operating expense 295 346
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Total noninterest expense 1,834 1,773
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Income before income tax 798 602
Income tax expense 310 243
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Net income $488 $359
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---------- ----------
Net earnings per share
Assuming no dilution $0.22 $0.15
Weighted average shares outstanding 2,253,397 2,422,586
Assuming full dilution $0.20 $0.13
Weighted average shares outstanding 2,384,927 2,688,242
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
Citizens First Financial Corp. and Subsidiary
Consolidated Statement of Comprehensive Income
<TABLE>
<CAPTION>
For the three For the nine
months ended months ended
September 30, 1998 September 30, 1998
(Unaudited and in thousands)
------------------------------------------
<S> <C> <C>
Net income $488 $1,433
Other comprehensive income, net
of tax
Unrealized gains on securities:
Unrealized holding gain arising
during the period 63 88
Less: Reclassification
adjustment for gains included
in net income 0 0
---- ----
Comprehensive income 63 88
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$551 $1,521
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For the three For the nine
months ended months ended
September 30, 1997 September 30, 1997
(Unaudited and in thousands)
------------------------------------------
<S> <C> <C>
Net income $359 $1,224
Other comprehensive income,
net of tax
Unrealized gains on
securities:
Unrealized holding gain
arising during the
period 42 112
Less: Reclassification
adjustment for gains
included in net income 0 0
---- -----
Comprehensive income 42 112
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$401 $1,336
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----- -------
</TABLE>
See notes to consolidated financial statements.
4
Citizens First Financial Corp. and Subsidiary
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
For the nine months
ended September 30,
1998 1997
(Unaudited and in
thousands)
<S> <C> <C>
Operating activities:
Net income $ 1,433 $ 1,224
Adjustments to reconcile net
income to net cash provided by
operating activities
Provision for loan losses 345 225
Investment securities gains (17) (11)
ESOP compensation expense 452 376
Incentive plan compensation expense 206 211
Investment securities amortization, net 44 31
Net gains on sale of loans (615) (177)
Net losses on sale of foreclosed property 43 0
Net gains on sale of property
and equipment 0 (13)
Depreciation 449 340
Loans originated for sale (43,088) (15,601)
Proceeds from sale of loans 42,842 11,767
Change in:
Other liabilities 2,636 (98)
Prepaid expenses and other assets (1,163) (539)
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Net cash (used) provided by operating
activities 3,567 (2,265)
------- --------
Investing Activities:
Purchase of securities available for
sale (8,121) (1,992)
Proceeds from maturities and principal
paydowns on securities available
for sale 4,360 4,293
Proceeds from sales of securities
available for sale 5,367 1,670
Redemption (purchase) of Federal Home
Loan Bank stock 619 (445)
Proceeds from maturities and principal
paydowns on securities held-to-
maturity 0 500
Other net changes in loans (1,567) (14,637)
Proceeds from sale of foreclosed
property 723 395
Purchase of premises and equipment (204) (2,347)
Proceeds from sale of property and
equipment 0 13
------- --------
Net cash (used) provided by
investing activities 1,177 (12,550)
------- --------
Financing Activities:
Net change in deposits 5,325 (6,921)
Proceeds from FHLB advances 9,000 26,480
Repayment of FHLB advances (4,450) (583)
Purchase of incentive plan stock 0 (753)
Purchase of treasury stock shares (2,383) (3,295)
Net changes in advances by borrowers
for taxes and insurance (458) (429)
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Net cash provided by
financing activities 7,034 14,499
------- -------
Net change in cash and cash equivalents 11,778 (316)
Cash and cash equivalents, beginning
of period 7,939 7,007
------- -------
Cash and cash equivalents, end of period $19,717 $ 6,691
------- -------
------- -------
Additional cashflows and supplementary
information:
Interest paid $ 7,587 $ 8,393
Income tax paid 776 785
Loans transferred to foreclosed
property 915 326
</TABLE>
See notes to consolidated financial statements.
5
<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 September 30, 1998 and
December 31, 1997, the results of operations for the nine and three months ended
September 30, 1998 and 1997 and the cash flows for the nine months ended
September 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
nine months ended September 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. Earnings Per Share
------------------
Basic earnings per share have been computed based upon the weighted average
common shares outstanding for the nine and three months ended September 30, 1998
and 1997. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company.
6
<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 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.
On September 15, 1998, the Company received approval from the Office of
Thrift Supervision ('OTS') for the repurchase of 5% or 120,449 of its common
stock. As of September 30, 1998 the Company had repurchased 17,850 shares under
this plan. This repurchase was completed on October 14, 1998.
Comparison of Financial Condition at September 30, 1998 and December 31, 1997
Total assets increased from $273.6 million at December 31, 1997 to $285.4
million at September 30, 1998. The $11.8 million or 4.3% increase was primarily
due to the increase in interest-bearing demand deposits.
Cash and cash equivalents increased from $7,939,000 at December 31, 1997 to
$19,717,000 at September 30, 1998, an increase of $11,778,000 or 148.4%. This
increase was primarily the result of increased deposits and borrowings from the
Federal Home Loan Bank of Chicago (the 'FHLB').
Net loans, including loans held for sale, increased from $231,863,000 at
December 31, 1997 to $233,031,000 at September 30,1998, an increase of
$1,168,000 or 0.5%.
Deposits increased from $198,633,000 at December 31, 1997 to $203,958,000
at September 30, 1998, an increase of $5,325,000 or 2.7%.
Borrowings from the FHLB increased from $33,944,000 at December 31, 1997 to
$38,494,000 at September 30, 1998, an increase of $4,550,000 or 13.4%. Other
liabilities increased from $2,359,000 at December 31, 1997 to $4,995,000 at
September 30, 1998, an increase of $2,636,000 or 111.7% primarily because of an
increase in accrued principal and interest payments on serviced loans.
Total stockholders' equity capital decreased by $204,000 or 0.5%, from
$37,970,000 at December 31, 1997 to $39,216,000 at September 30, 1998. The
decrease was caused by the repurchase of the Company's stock, offset by earnings
of the Company during the nine months ended September 30, 1998 and the
allocation of shares in the Company's stock-based compensation plans.
7
<PAGE>
Comparison of Operating Results for the Nine Months Ended September 30, 1998 and
September 30, 1997
Net income for the nine months ended September 30, 1998 increased by
$209,000 from $1,224,000 for the nine months ended September 30, 1997 to
$1,433,000 for the nine months ended September 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 $825,000 or 6.1%, from $13,546,000 for the
nine months ended September 30, 1997 to $14,371,000 for the nine months ended
September 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 $1,472,000 for the nine months ended September 30, 1997 to $1,414,000 for
the nine months ended September 30, 1998, a decrease of $58,000 or 3.9%.
Interest Expense
Interest on savings deposits remained relatively constant, decreasing
$45,000 or 0.6%, from $7,250,000 for the nine months ended September 30, 1997 to
$7,205,000 for the nine months ended September 30, 1998. The interest on
borrowings increased by $155,000 or 11.0%, from $1,410,000 for the nine months
ended September 30, 1997 to $1,565,000 for the nine months ended September 30,
1998 as a result of increased average borrowings from the FHLB in 1998.
Noninterest Income
Total noninterest income increased by $290,000 or 29.6%, from $980,000 for
the nine months ended September 30, 1997 to $1,270,000 for the nine months ended
September 30, 1998. The increase was primarily due to an increase in net gains
on loan sales. Net gains on loan sales increased by $438,000 or 247.5%, from
$177,000 for the nine months ended September 30, 1997 to $615,000 for the nine
months ended September 30, 1998, because of an increase in loan sales in the
nine months ended September 30, 1998. This increase was offset by a decrease in
loan servicing fees from $156,000 for the nine months ended September 30, 1997
to $12,000 for the nine months ended September 30, 1998, a decrease of $144,000
or 92.3%. This decrease was due to the amortization of previously capitalized
mortgage servicing rights.
Noninterest Expense
Total noninterest expense increased by $501,000 or 9.8%, from $5,097,000
for the nine months ended September 30, 1997 to $5,598,000 for the nine months
ended September 30, 1998. Salaries and benefits increased by $253,000 or 8.6%,
from $2,946,000 for the nine months ended September 30, 1997 to $3,199,000 for
the nine months ended September 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 $114,000 or 16.6%, from $685,000 for the nine months ended
September 30, 1997 to $799,000 for the nine months ended September 30, 1998,
primarily because of the new full-service office and administrative facility.
Deposit insurance/OTS expense increased by $22,000, from $124,000 for the nine
months ended September 30, 1997 to $146,000 for the nine months ended September
30, 1998 because of the utilization of a deposit insurance credit utilized in
the first quarter of 1997.
8
<PAGE>
Provision for Loan Losses
The provision for loan losses increased from $225,000 for the nine months
ended September 30, 1997 to $345,000 for the nine months ended September 30,
1998 an increase of $120,000 or 53.3%. 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 $792,000 for the nine months ended
September 30, 1997 to $909,000 for the nine months ended September 30, 1998, an
increase of $117,000 or 14.8%. The increase was due to the increase in net
income for the nine months ended September 30, 1998. The effective tax rates
for the nine months ended September 30, 1998 and 1997 were 38.8% and 39.3%,
respectively.
Comparison of Operating Results for the Three Months Ended September 30, 1998
and September 30, 1997
Net income for the three months ended September 30, 1998 increased by
$129,000 from $359,000 for the three months ended September 30, 1997 to $488,000
for the three months ended September 30, 1998. The increase was due to
increased net interest income and net gains on loan sales, offset by higher
noninterest expense.
Interest Income
Interest on loans increased by $175,000 or 3.8%, from $4,661,000 for the
three months ended September 30, 1997 to $4,836,000 for the three months ended
September 30, 1998. Interest on investments increased from $448,000 for the
three months ended September 30, 1997 to $478,000 for the three months ended
September 30, 1998, an increase of $30,000 or 6.7%. The increase was due to the
higher average balances in interest-bearing demand deposit accounts.
Interest Expense
Interest on savings deposits decreased from $2,407,000 for the three months
ended September 30, 1997 to $2,389,000 for the three months ended September 30,
1998, a decrease of $18,000 or 0.7%. The interest on borrowings decreased by
$24,000 or 4.2%, from $567,000 for the three months ended September 30, 1997 to
$543,000 for the three months ended September 30, 1998.
Noninterest Income
Total noninterest income increased by $55,000 or 17.5%, from $315,000 for
the three months ended September 30, 1997 to $370,000 for the three months ended
September 30, 1998. The increase was due to the increase in net gains on loan
sales. Net gains on loan sales increased by $75,000 or 113.6%, from $66,000 for
the three months ended September 30, 1997 to $141,000 for the three months ended
September 30, 1998.
9
<PAGE>
Noninterest Expense
Total noninterest expense increased by $61,000 or 3.4%, from $1,773,000 for
the three months ended September 30, 1997 to $1,834,000 for the three months
ended September 30, 1998. Salaries and benefits increased by $101,000 or 10.1%,
from $999,000 for the three months ended September 30, 1997 to $1,100,000 for
the three months ended September 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.
Provision for Loan Losses
The provision for loan losses increased from $75,000 for the three months
ended September 30, 1997 to $120,000 for the three months ended September 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 increased from $243,000 for the three months ended
September 30, 1997 to $310,000 for the three months ended September 30, 1998, an
increase of $67,000 or 27.6%. The increase was due to the increase in net income
for the three months ended September 30, 1998. The effective tax rates for the
three months ended September 30, 1998 and 1997 were 38.8% and 40.4%,
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 4.0%. At September
30, 1998 and 1997, the Bank's liquidity ratio was 15.6% and 14.5%, respectively.
Management maintains its liquid assets in accordance with regulatory
requirements.
At September 30, 1998, the Bank exceeded all of its regulatory capital
requirements with Tier 1 core capital of $27.8 million, or 10.1% of adjusted
assets, which is above the required level of $11.1 million or 4.0%; and
risk-based capital of $28.9 million or 16.1% of risk-weighted assets, which is
above the required level of $14.3 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,
1998, cash and interest-bearing deposits totaled $19.7 million or 6.9% 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, 1998, the Bank had
outstanding advances with the FHLB of $38.5 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 $58.4 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, 1998 the Bank had commitments to originate loans and
unused lines of credit totaling $32.4 million. Certificate accounts which are
scheduled to mature in one year or less from September 30, 1998 totaled $95.8
million. The Bank anticipates that it will have sufficient funds to meet its
current loan commitments and maturing deposits.
11
<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.
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's lending and deposit activities, like those of most financial
institutions, depend significantly upon computer systems to process and record
transactions. The Company is aware of the potential Year 2000 problems that may
affect the operating systems that control our computers as well as those of our
third-party data service providers that maintain many of our records. In 1997,
the Bank began the process of identifying Year 2000 related problems that may
affect the Bank's systems. A task force of Bank officers and employees was
established to address the issues related to these problems. Outside
consultants have and will be utilized when required to complete this project.
The task force analyzed the Bank's operations and both identified those
functions that would be affected by Year 2K issues and determined which of these
functions were 'mission critical' (i.e. vital to the day-to-day operations of
the Bank). A timetable was established for completion of the various sections
of the project.
The Bank is working with the companies that supply or service the Bank's
computer systems to identify and remedy any year 2000 related systems. The
Company's Board of Directors is monitoring the Bank's progress in addressing
Year 2000 issues.
12
<PAGE>
Inventory and testing of the Bank's computer equipment will be completed in
the fourth quarter of 1998. New equipment will be obtained to replace equipment
that is not found to be Year 2000 compliant.
The Bank's primary lending and savings systems are maintained by an
independent data center. These systems have been identified as being mission
critical to the Bank. The data center has completed the revision of the
majority of their programs. Testing of these programs began in the third
quarter of 1998 by representatives of the data center and their client advisory
group utilizing tests that were developed by the group. The Bank participated
in the development of this test plan. Corrections of any problems found were to
be corrected and retested in the fourth quarter of 1998. Pending the successful
completion of this phase of testing the data center will commence the testing of
the interfaces that the data center customers utilize (e.g. automated teller
machine networks, Federal Reserve data exchanges). They intend to complete this
phase of testing by March 31, 1999.
The data center is absorbing the direct expenses of making their computer
programs Year 2000 compliant. The Bank's direct expenses to date (other than
the salary of Company employees involved in the project) have been less than
$10,000.
Although the Company believes it is taking the necessary steps to address
the Year 2000 compliance issue, no assurances can be given that some problems
will not occur or that we ill not incur significant additional expenses in
future periods. In the event that the Bank is ultimately required to purchase
replacement computer systems, programs and equipment, or to incur substantial
expenses to make the Bank's current systems, programs and equipment year 2000
compliant, the Company's net income, and financial condition could be adversely
affected.
Because the Bank's loan portfolio to individual borrowers is diversified
and its market area does not depend significantly upon one employer or industry,
it does not expect any Year 2000 related difficulties that may affect the Bank's
depositors and borrowers to significantly affect the Company's net earnings or
cash flow.
The Company is developing a contingency plan to deal with the Year 2000
related issues. This program will provide for dealing with situations that
might occur that are both related to the Bank's operation (e.g. computer system
or equipment, liquidity) and those that are beyond the Company's control (e.g.
power failure, phone/communication line failure). The plan will include methods
to deal with these situations and continue to service the Bank's customers
despite Year 2000 problems arising. The Company has established June 30, 1999
as a deadline for the completion of this plan.
13
<PAGE>
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, from data as of June 30, 1998, is an analysis 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 June 30, 1998 since the analysis
of data from the most recent quarter (September 30, 1998) is not yet available.
Management believes there has been no significant change in interest rate risk
measures since June 30, 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
- -------- ------- ------- ------ --------- ------
<S> <C> <C> <C> <C> <C>
+400 bp 27,202 (9,699) (26 %) 10.37 % (277 bp)
+300 bp 30,308 (6,592) (18 %) 11.33 % (181 bp)
+200 bp 33,146 (3,754) (10 %) 12.16 % ( 97 bp)
+100 bp 35,488 (1,413) ( 4 %) 12.81 % ( 33 bp)
0 bp 36,901 13.14 %
- -100 bp 37,512 612 2 % 13.21 % 7 bp
- -200 bp 38,218 527 1 % 13.07 % ( 7 bp)
- -300 bp 37,665 1,025 3 % 13.10 % ( 4 bp)
- -400 bp 37,832 1,896 5 % 13.24 % 10 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.
14
<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
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
11.0 Statement re: Computation of Per Share Earnings
(filed herewith)
27.0 Financial Data Schedule *
b Reports on Form 8-K
On September 14, 1998, the Company filed a report on Form
8-K, announcing the completion of the repurchase of 5% of
its outstanding common stock.
On September 24, 1998, the Company filed a report on Form
8-K, announcing the implementation of a stock repurchase
program of 5% of its outstanding common stock.
.
* Submitted only in electronic format.
15
<PAGE>
Exhibit Index
-------------
Page
----
11.0 Statement re: Computation of Per Share Earnings 16
27.0 Financial Data Schedule (submitted only in
electronic format)
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
------ -------- ----------
For the nine months ended
September 30, 1998:
- --------------------------
<S> <C> <C> <C>
Basic Earnings per Share:
Income available to common
stockholders $ 1,433 2,286,201 $0.63
Effect of Dilutive Securities
Stock options 98,954
Unearned incentive plan shares 68,854
---------
Diluted Earnings Per Share
Income available to common
stockholders and assumed
conversions $ 1,433 2,454,009 $0.58
-------- --------- ------
-------- --------- ------
For the nine months ended
September 30, 1997:
- --------------------------
<S> <C> <C> <C>
Basic Earnings per Share:
Income available to common
stockholders $ 1,224 2,490,517 $0.49
Effect of Dilutive Securities:
Stock options 196,338
Unearned incentive plan shares 83,001
---------
Diluted Earnings per Share:
Income available to common
stockholders and assumed
conversions $ 1,224 2,769,856 $0.44
------- --------- -----
------- --------- -----
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Weighted
Average Per Share
Income Shares Amount
<S> <C> <C> <C>
For the three months ended
September 30, 1998:
- --------------------------
Basic Earnings per Share:
Income available to common
stockholders $ 488 2,253,397 $0.22
Effect of Dilutive Securities
Stock options 69,011
Unearned incentive plan
shares 62,519
---------
Diluted Earnings Per Share
Income available to common
stockholders and assumed
conversions $ 488 2,384,927 $0.20
------ --------- -----
------ --------- -----
For the three months ended
September 30, 1997:
- --------------------------
Basic Earnings per Share:
Income available to common
stockholders $ 359 2,422,586 $0.15
Effect of Dilutive Securities:
Stock options 182,655
Unearned incentive plan
shares 83,001
---------
Diluted Earnings per Share:
Income available to common
stockholders and assumed
conversions $ 359 2,688,242 $0.13
----- --------- -----
----- --------- -----
</TABLE>
17
<PAGE>
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: November 16, 1998 /s/ C. William Landefeld
----------------------------------
C. William Landefeld
President
Date: November 16, 1998 /s/ Dallas G. Smiley
----------------------------------
Dallas G. Smiley
Chief Financial Officer
18
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary information extracted from the Form 10-Q and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> $5,374
<INT-BEARING-DEPOSITS> $14,343
<FED-FUNDS-SOLD> $0
<TRADING-ASSETS> $0
<INVESTMENTS-HELD-FOR-SALE> $17,757
<INVESTMENTS-CARRYING> $0
<INVESTMENTS-MARKET> $0
<LOANS> $234,099
<ALLOWANCE> $1,068
<TOTAL-ASSETS> $285,449
<DEPOSITS> $203,958
<SHORT-TERM> $9,000
<LIABILITIES-OTHER> $5,231
<LONG-TERM> $29,494
$0
$0
<COMMON> $28
<OTHER-SE> $37,738
<TOTAL-LIABILITIES-AND-EQUITY> $285,449
<INTEREST-LOAN> $14,371
<INTEREST-INVEST> $1,414
<INTEREST-OTHER> $0
<INTEREST-TOTAL> $15,785
<INTEREST-DEPOSIT> $7,205
<INTEREST-EXPENSE> $8,770
<INTEREST-INCOME-NET> $7,015
<LOAN-LOSSES> $345
<SECURITIES-GAINS> $17
<EXPENSE-OTHER> $5,598
<INCOME-PRETAX> $2,342
<INCOME-PRE-EXTRAORDINARY> $2,342
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $1,433
<EPS-PRIMARY> $0.63
<EPS-DILUTED> $0.58
<YIELD-ACTUAL> .035
<LOANS-NON> $179
<LOANS-PAST> $478
<LOANS-TROUBLED> $330
<LOANS-PROBLEM> $0
<ALLOWANCE-OPEN> $840
<CHARGE-OFFS> $128
<RECOVERIES> $11
<ALLOWANCE-CLOSE> $1,068
<ALLOWANCE-DOMESTIC> $9
<ALLOWANCE-FOREIGN> $0
<ALLOWANCE-UNALLOCATED> $1,059
</TABLE>
