FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended June 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _______________
Commission File Number ____________
CITIZENS BANCORP
(Exact name of registrant as specified in its charter)
INDIANA 35-2017500
(State or other Jurisdiction (I.R.S. Employer Identification
of Incorporation or Organization) Number)
60 South Main Street
P.O. Box 635
Frankfort, Indiana 46041
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (765) 654-8533
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ] (N/A)
The aggregate market value of the issuer's voting stock held by non-affiliates,
as of October 20, 1997 was $12,251,240.
The number of shares of the Registrant's Common Stock, without par value,
outstanding as of October 20, 1997, was 1,058,000 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Exhibit Index on Page ___
Page 1 of ___ Pages
<PAGE>
CITIZENS BANCORP
Form 10-K
INDEX
Page
PART I
Item 1 Business..................................................
Item 2. Properties................................................
Item 3. Legal Proceedings.........................................
Item 4. Submission of Matters to a Vote of Security Holders.......
Item 4.5. Executive Officers of the Registrant......................
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters...................................
Item 6. Selected Financial Data...................................
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................
Item 8. Financial Statements and Supplementary Data...............
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................
PART III
Item 10. Directors and Executive Officers of Registrant............
Item 11. Executive Compensation....................................
Item 12. Security Ownership of Certain Beneficial
Owners and Management.................................
Item 13. Certain Relationships and Related Transactions............
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K...............................
SIGNATURES ...............................................................
<PAGE>
Item 1. Business
General
Citizens Bancorp, an Indiana corporation (the "Holding Company"), was
organized in June, 1997. On September 18, 1997, it acquired the common stock of
Citizens Savings Bank of Frankfort ("Citizens") upon the conversion of Citizens
from a federal mutual savings bank to a federal stock savings bank.
Citizens was organized as a state-chartered building and loan
association in 1916 and currently conducts its business from one full-service
office located in Frankfort, Indiana. Citizens' principal business consists of
attracting deposits from the general public and originating fixed-rate and
adjustable-rate loans secured primarily by first mortgage liens on one- to
four-family real estate. Citizens' deposit accounts are insured up to applicable
limits by the Savings Association Insurance Fund ("SAIF") of the Federal Deposit
Insurance Corporation ("FDIC"). Citizens offers a number of consumer and
commercial financial services. These services include: (i) residential real
estate loans; (ii) multi-family loans; (iii) construction loans; (iv)
nonresidential real estate loans; (v) home equity loans (vi) single-pay loans;
(vii) installment loans; (viii) automobile loans; (ix) NOW accounts; (x) money
market demand accounts ("MMDAs") (xi) passbook savings accounts; (xii)
certificates of deposit and (xiii) individual retirement accounts.
Loan Portfolio Data. The following table sets forth the composition of
Citizens' loan portfolio by loan type and security type as of the dates
indicated, including a reconciliation of gross loans receivable after
consideration of the allowance for loan losses and loans in process.
<TABLE>
<CAPTION>
At June 30,
--------------------------------------------------------------
1997 1996 1995
------------------ ----------------- -----------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
(Dollars in thousands)
TYPE OF LOAN Real estate mortgage loans:
<S> <C> <C> <C> <C> <C> <C>
Residential.................................. $29,888 77.77% $26,240 76.30% $22,287 76.13%
Non-residential.............................. 824 2.14 695 2.02 635 2.17
Multi-family................................. 1,551 4.04 1,596 4.64 1,680 5.74
Construction loans:............................. 1,420 3.69 870 2.53 356 1.22
Consumer loans:
Single pay................................... 1,854 4.82 2,110 6.14 1,795 6.13
Installment ................................. 1,696 4.41 1,288 3.74 1,068 3.65
Share ....................................... 15 .04 63 .18 7 .02
Home equity.................................. 2,095 5.45 1,949 5.67 1,973 6.74
Home improvement............................. 8 .02 11 .03 14 .04
------- ------ ------- ------ ------- ------
Gross loans receivable................... $39,351 102.38% $34,822 101.25% $29,815 101.84%
======= ====== ======= ====== ======= ======
TYPE OF SECURITY
Residential real estate ........................ 35,153 91.45 $30,860 89.73% $26,043 88.96%
Non-residential................................. 1,037 2.70 1,072 3.12 1,116 3.81
Multi-family real estate........................ 1,551 4.04 1,596 4.64 1,681 5.74
Deposits........................................ 193 .50 165 .48 82 .28
Auto ......................................... 1,176 3.06 832 2.42 691 2.36
Other security.................................. 111 .29 214 .62 121 .41
Unsecured ...................................... 130 .34 83 .24 81 .28
------- ------ ------- ------ ------- ------
Gross loans receivable..................... 39,351 102.38 34,822 101.25 29,815 101.84
Deduct:
Deferred loan fees.............................. 101 .26 95 .28 86 .29
Allowance for loan losses....................... 212 .55 138 .40 46 .16
Loans in process................................ 603 1.57 197 .57 407 1.39
------- ------ ------- ------ ------- ------
Net loans receivable......................... $38,435 100.00% $34,392 100.00% $29,276 100.00%
======= ====== ======= ====== ======= ======
Mortgage Loans (1):
Adjustable-rate.............................. 9,595 29.68% $ 9,241 32.30% $ 9,319 37.68%
Fixed-rate................................... 22,734 70.32 19,368 67.70 15,410 62.32
Total...................................... $32,329 100.00% $28,609 100.00% $24,729 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
(1) Balances in this category include escrows and reserves for uncollected
interest.
<PAGE>
The following table sets forth certain information at June 30, 1997,
regarding the dollar amount of loans maturing in Citizens' loan portfolio based
on the contractual terms to maturity. Demand loans having no stated schedule of
repayments and no stated maturity and overdrafts are reported as due in one year
or less. This schedule does not reflect the effects of possible prepayments or
enforcement of due-on-sale clauses. Management expects prepayments will cause
actual maturities to be shorter.
<TABLE>
<CAPTION>
Balance Due During Years Ended June 30,
Outstanding at 2001 2003 2008 2013
June 30, to to to and
1997 1998 1999 2000 2002 2007 2012 following
---- ---- ---- ---- ---- ---- ---- ---------
(In thousands)
Real estate mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential loans.................. $29,888 $ 5 $ 38 $ 94 $389 $3,760 $13,890 $11,712
Multi-family loans.................... 1,551 --- --- --- --- 1,394 157 ---
Non-residential loans.............. 824 --- --- 14 8 278 524 ---
Construction loans.................... 1,420 1,420 --- --- --- --- --- ---
Installment loans.................... 1,696 74 249 409 867 97 --- ---
Single pay loans...................... 1,854 1,690 77 86 1 --- --- ---
Loans secured by deposits............. 15 15 --- --- --- --- --- ---
Home equity loans..................... 2,095 --- --- --- --- --- --- 2,095
Home improvement loans................ 8 --- 2 --- 6 --- --- ---
------- ------ ---- ----- ------ ------ ------- -------
Total............................ $39,351 $3,204 $366 $ 603 $1,271 $5,529 $14,571 $13,807
======= ====== ==== ===== ====== ====== ======= =======
</TABLE>
The following table sets forth, as of June 30, 1997, the dollar amount of
all loans due after one year that have fixed interest rates and floating or
adjustable interest rates.
<TABLE>
<CAPTION>
Due After June 30, 1998
---------------------------------------------------------------
Fixed Rates Variable Rates Total
----------- -------------- -----
(In thousands)
Real estate mortgage loans:
<S> <C> <C> <C>
Residential loans........... $22,624 $ 7,259 $29,883
Multi-family loans.......... --- 1,551 1,551
Non-residential loans....... 39 785 824
Construction loans............. --- --- ---
Installment loans.............. 1,622 --- 1,622
Single pay loans............... 22 142 164
Loans secured by deposits...... --- --- ---
Home equity loans.............. --- 2,095 2,095
Home improvement loans......... 8 --- 8
------- ------- -------
Total....................... $24,315 $11,832 $36,147
======= ======= =======
</TABLE>
One- to Four-Family Residential Loans. Citizens' primary lending activity
consists of originating one- to four-family residential mortgage loans secured
by property located in its primary market area. Citizens generally originates
one- to four-family residential mortgage loans in amounts up to 95% of the
lesser of the appraised value or purchase price, with private mortgage insurance
required on loans with a loan-to-value ratio in excess of 80%. The cost of such
insurance is factored into the annual percentage rate on such loans. Citizens
originates and retains fixed rate loans which provide for the payment of
principal and interest over a 15- or 20-year period, or balloon loans having
terms of up to 20 years with principal and interest payments calculated using a
30-year amortization period.
<PAGE>
Citizens also offers adjustable-rate mortgage ("ARM") loans. The interest
rate on ARM loans is indexed to the one-year U.S. Treasury securities yields
adjusted to a constant maturity. Citizens may offer discounted initial interest
rates on ARM loans, but requires that the borrower qualify for the ARM loan at
the fully-indexed rate (the index rate plus the margin). A substantial portion
of the ARM loans in Citizens' portfolio at June 30, 1997 provide for maximum
rate adjustments per year and over the life of the loan of 1% and 6%,
respectively. Citizens' residential ARMs are amortized for terms up to 25 years.
ARM loans decrease the risk associated with changes in interest rates by
periodically repricing, but involve other risks because as interest rates
increase, the underlying payments by the borrower increase, thus increasing the
potential for default by the borrower. At the same time, the marketability of
the underlying collateral may be adversely affected by higher interest rates.
Upward adjustment of the contractual interest rate is also limited by the
maximum periodic and lifetime interest rate adjustment permitted by the loan
documents, and, therefore, is potentially limited in effectiveness during
periods of rapidly rising interest rates. At June 30, 1997, approximately 24% of
Citizens' one- to four-family residential loans had adjustable rates of
interest.
All of the one- to four-family residential mortgage loans that Citizens
originates include "due-on-sale" clauses, which give Citizens the right to
declare a loan immediately due and payable in the event that, among other
things, the borrower sells or otherwise disposes of the real property subject to
the mortgage and the loan is not repaid. However, Citizens occasionally permits
assumptions of existing residential mortgage loans on a case-by-case basis.
At June 30, 1997, approximately $29.9 million, or 77.8% of Citizens'
portfolio of loans, consisted of one- to four-family residential loans.
Approximately $130,000, or .44% of total residential loans, were included in
non-performing assets as of that date. See "--Non-Performing and Problem
Assets."
Multi-Family Loans. At June 30, 1997, approximately $1.6 million, or 4.0%
of Citizens' total loan portfolio, consisted of mortgage loans secured by
multi-family dwellings (those consisting of more than four units). Citizens'
multi-family loans are generally written as one-year adjustable rate loans
indexed to the one-year U.S. Treasury rate or to its internal loan rate which is
established from time-to-time. Citizens writes multi-family loans with maximum
Loan-to-Value ratios of 80%. Citizens' largest multi-family loan as of June 30,
1997 was $837,000 and was secured by an apartment complex in Frankfort. On the
same date, there were no multi-family loans included in non-performing assets.
Multi-family loans, like nonresidential real estate loans, involve a
greater risk than do residential loans. See "-- Nonresidential Real Estate
Loans" below.
Construction Loans. Citizens offers construction loans with respect to
residential and nonresidential real estate and, in certain cases, to builders or
developers constructing such properties on a speculative basis (i.e., before the
builder/developer obtains a commitment from a buyer). At June 30, 1997,
approximately $1.4 million, or 3.7% of Citizens' total loan portfolio, consisted
of construction loans. The largest construction loan at June 30, 1997, totaling
$180,000, was secured by a single-family residence near Frankfort. Citizens had
no construction loans included in non-performing assets on that date.
Construction loans are generally written as six-month, fixed-rate loans
with interest calculated on the amount disbursed under the loan and payable
monthly. Citizens generally requires an 80% Loan-to-Value Ratio for its
construction loans. Inspections are made prior to any disbursement under a
construction loan, and Citizens does not normally charge commitment fees for
construction loans.
While providing Citizens with a comparable, and in some cases higher,
yield than a conventional mortgage loan, construction loans involve a higher
level of risk. For example, if a project is not completed and the borrower
defaults, Citizens may have to hire another contractor to complete the project
at a higher cost. Also, a project may be completed, but may not be salable,
resulting in the borrower defaulting and Citizens taking title to the project.
<PAGE>
Nonresidential Real Estate Loans. Citizens' nonresidential real estate
loans are secured by churches, office buildings, and other commercial
properties. Citizens generally originates non-residential real estate loans as
one-year adjustable rate loans indexed to the one-year U.S. Treasury securities
yield adjusted to a constant maturity, and which are written for maximum terms
of 20 years with maximum Loan-to-Value ratios of 75%. At June 30, 1997,
Citizens' largest nonresidential loan was $157,000 and was secured by a
manufacturing facility in Frankfort. At June 30, 1997, approximately $824,000,
or 2.1% of its total loan portfolio, consisted of nonresidential real estate
loans. On the same date, there were no nonresidential real estate loans included
in non-performing assets.
Loans secured by nonresidential real estate generally are larger than one-
to four-family residential loans and involve a greater degree of risk.
Nonresidential real estate loans often involve large loan balances to single
borrowers or groups of related borrowers. Payments on these loans depend to a
large degree on results of operations and management of the properties and may
be affected to a greater extent by adverse conditions in the real estate market
or the economy in general. Accordingly, the nature of the loans makes them more
difficult for management to monitor and evaluate.
Consumer Loans. Citizens' consumer loans, consisting primarily of home
equity loans, personal installment loans and "single pay" loans aggregated
approximately $5.7 million at June 30, 1997, or 14.7% of its total loan
portfolio. Citizens consistently originates consumer loans to meet the needs of
its customers and to assist in meeting its asset/liability management goals. All
of Citizens' consumer loans, except loans secured by deposits, are fixed-rate
loans with terms that vary from six months (for unsecured installment loans) to
60 months (for home improvement loans and loans secured by new automobiles). At
June 30, 1997, 97.7% of Citizens' consumer loans were secured by collateral.
Citizens' loans secured by deposits are made up to 90% of the original account
balance and, at June 30, 1997, accrued at a rate of 8.5%. This rate may change
but will always be at least 1% over the underlying passbook or certificate of
deposit rate. Interest on loans secured by deposits is paid semi-annually.
Citizens also offers home equity lines of credit and home improvement
loans secured by real estate. The interest rate on a home equity line of credit
is ordinarily tied to the prime rate with a margin of positive 2.0% and a
maximum interest rate of 18%. Citizens does not always hold a first mortgage on
its home equity lines of credit, although it does hold a first mortgage with
respect to approximately 90% of such loans in its portfolio. Citizens ordinarily
offers fixed-rate home improvement loans secured by real estate with a term not
to exceed five years. Citizens restricts the amount that a customer may borrow
under an equity line of credit to $100,000, subject to the general restriction
applicable to all second mortgage loans that limits the amount it may loan to a
borrower to an amount that, when added to any existing mortgage loans, does not
exceed 80% of the appraised value of the collateral property.
At June 30, 1997, Citizens had outstanding approximately $2.1 million
of home equity loans, with unused lines of credit totaling approximately $2.5
million. Home equity loans in the amount of $52,000 were included in
non-performing assets on that date.
Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans which are unsecured or are secured by
rapidly depreciable assets, such as automobiles. Further, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance. In addition, consumer loan
collections depend on the borrower's continuing financial stability, and thus
are more likely to be affected by adverse personal circumstances. Furthermore,
the application of various federal and state laws, including bankruptcy and
insolvency laws, may limit the amount which can be recovered on such loans. At
June 30, 1997, consumer loans amounting to $173,000 were included in
non-performing assets. See "-- Non-Performing and Problem Assets."
Single-Pay Loans. Citizens offers single-pay loans, which are
short-term loans secured by real estate, automobiles or other types of
collateral that are payable with a single payment rather than by installment.
Typically, single-pay loans secured by real estate are written with terms of one
year or less, while single-pay loans secured by other types of collateral are
written for terms of 90 days to six months. Of the approximately $1.9 million of
single-pay loans in Citizens' portfolio as of June 30, 1997, approximately $1.1
million were secured by residential mortgages and $158,000 were secured by land.
The remaining approximately $640,000 of loans in this category were consumer
loans, typically secured by automobiles or subordinate liens on real estate. At
June 30, 1997, Citizens had one delinquent single-pay loan in the amount of
$84,000 in its portfolio.
<PAGE>
Origination, Purchase and Sale of Loans. Citizens historically has
originated its mortgage loans pursuant to its own underwriting standards which
do not conform with the standard criteria of the Federal Home Loan Mortgage
Corporation ("FHLMC") or the Federal National Mortgage Association ("FNMA")
because Citizens does not require current property surveys in most cases.
Citizens may begin originating fixed-rate residential mortgage loans for sale to
the FHLMC on a servicing-retained basis in the future. In the event that
Citizens originates loans for sale to the FHLMC in the secondary market, such
loans will be originated in accordance with the guidelines established by the
FHLMC and will be sold promptly after they are originated.
Citizens confines its loan origination activities primarily to Clinton
County. At June 30, 1997, Citizens had one loan totaling approximately $71,000
secured by property located outside of Indiana. Citizens loan originations are
generated from referrals from existing customers, real estate brokers, and
newspaper and periodical advertising. Loan applications are underwritten and
processed at Citizens' office.
Citizens' loan approval process is intended to assess the borrower's
ability to repay the loan, the viability of the loan and the adequacy of the
value of the property that will secure the loan. To assess the borrower's
ability to repay, Citizens studies the employment and credit history and
information on the historical and projected income and expenses of its
mortgagors. All mortgage loans are approved by Citizens' Loan Committee.
Consumer loans up to $15,000 may be approved by a Loan Officer. Consumer loans
for more than $15,000 must be approved by the senior loan officer or the
President.
Citizens generally requires appraisals on all real property securing its
loans and requires an attorney's opinion and a valid lien on the mortgaged real
estate. Appraisals for all real property securing mortgage loans are performed
by independent appraisers who are state-licensed. Citizens requires fire and
extended coverage insurance in amounts at least equal to the principal amount of
the loan and also require flood insurance to protect the property securing its
interest if the property is in a flood plain. Citizens also generally requires
private mortgage insurance for all residential mortgage loans with Loan-to-Value
Ratios of greater than 80%. Citizens requires escrow accounts for insurance
premiums and taxes for loans that require private mortgage insurance.
Citizens' underwriting standards for consumer loans are intended to
protect against some of the risks inherent in making consumer loans. Borrower
character, paying habits and financial strengths are important considerations.
The following table shows Citizens' loan origination and repayment
activity during the periods indicated:
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------
1997 1996 1995
-------- -------- --------
(In thousands)
Loans Originated:
Real estate mortgage loans:
<S> <C> <C> <C>
Residential loans........................ $9,253 $ 8,738 $ 5,748
Nonresidential loans..................... 202 175 19
Multi-family loans....................... 102 --- 56
Construction loans......................... 2,503 1,603 356
Installment loans.......................... 1,434 1,076 961
Single pay loans........................... 2,818 2,834 3,063
Loans secured by deposits.................. 5 63 6
Home equity loans.......................... 1,156 930 1,054
Home improvement loans..................... --- --- ---
-------- -------- --------
Total originations..................... 17,473 15,419 11,434
Loans purchased............................ --- 64 ---
Reductions:
Principal loan repayments.................. (13,251) (10,279) (8,263)
Loans sold................................. (91) --- ---
Transfers from loans to real estate owned.. --- --- ---
-------- -------- --------
Total reductions....................... (13,342) (10,279) (8,263)
Decrease in other items (1)................ (88) (88) (37)
-------- -------- --------
Net increase (decrease) ................... $ 4,043 $ 5,116 $ 3,134
======== ======== ========
</TABLE>
(1) Other items consist of amortization of deferred loan origination costs and
the provision for losses on loans.
<PAGE>
Citizens' residential loan originations during the year ended June 30,
1997 totaled $9.3 million, compared to $8.7 million and $5.7 million in the
years ended June 30, 1996 and 1995, respectively.
Origination and Other Fees. Citizens realizes income from late charges,
checking account service charges, and fees for other miscellaneous services.
Citizens currently charges origination fees on its mortgage loans of 1% of the
loan amount, up to $100,000, and .5% of the amount of the loan that exceeds
$100,000. Citizens also may charge points on a mortgage loan as consideration
for a lower interest rate, although it does so infrequently. Late charges are
generally assessed if payment is not received within a specified number of days
after it is due. The grace period depends on the individual loan documents.
Non-Performing and Problem Assets
After a mortgage loan becomes 15 days past due, Citizens delivers a
delinquency notice to the borrower. When loans are 30 to 60 days in default,
Citizens sends additional delinquency notices and makes personal contact by
telephone with the borrower to establish acceptable repayment schedules. When
loans become 60 days in default, Citizens again contacts the borrower, this time
in person, to establish acceptable repayment schedules. When a mortgage loan is
90 days delinquent, Citizens will have either entered into a workout plan with
the borrower or referred the matter to its attorney for collection. Management
is authorized to commence foreclosure proceedings for any loan upon making a
determination that it is prudent to do so.
Citizens reviews mortgage loans on a regular basis and places such loans
on a non-accrual status when they become 90 days delinquent. Generally, when
loans are placed on a non-accrual status, unpaid accrued interest is written
off, and further income is recognized only to the extent received.
Non-performing Assets. At June 30, 1997, $344,000, or .74% of total
assets, were non-performing (non-performing loans and non-accruing loans)
compared to $222,000, or .50%, of total assets at June 30, 1996. At June 30,
1997, residential loans and consumer loans accounted for $130,000 and $173,000,
respectively, of non-performing assets. Citizens had no Real Estate Owned
("REO") properties as of June 30, 1997.
The table below sets forth the amounts and categories of Citizens'
non-performing assets (non-performing loans, foreclosed real estate and troubled
debt restructurings) for the last three years. It is Citizens' policy that all
earned but uncollected interest on all loans be reviewed monthly to determine if
any portion thereof should be classified as uncollectible for any loan past due
in excess of 90 days. Delinquent loans that are 90 days or more past due are
considered non-performing assets.
At June 30,
--------------------------------
1997 1997 1995
---- ---- ----
(Dollars in thousands)
Non-performing assets:
Non-performing loans................. $303 $181 $ 98
Troubled debt restructurings......... 41 41 42
Total non-performing loans......... 344 222 140
Foreclosed real estate............... --- --- ---
---- ---- ----
Total non-performing assets........ $344 $222 $140
==== ==== ====
Non-performing loans to total loans..... 0.89% 0.64% 0.48%
Non-performing assets to total assets... 0.74% 0.50% 0.35%
Interest on loans was $8,000, $4,000, and $2,000 less than would have been
reported for the years ended June 30, 1997, 1996 and 1995, respectively, if the
non-performing loans summarized above had been current in accordance with their
original terms. Citizens received $9,000 in interest on non-performing loans
during the year ended June 30, 1997.
At June 30, 1997, Citizens held loans delinquent from 30 to 59 days
totaling approximately $596,000. Other than these loans and the other delinquent
loans disclosed elsewhere in this section, Citizens was not aware of any other
loans, the borrowers of which were experiencing financial difficulties.
<PAGE>
Delinquent Loans. The following table sets forth certain information at
June 30, 1997, 1996, and 1995, relating to delinquencies in Citizens's
portfolio. Delinquent loans that are 90 days or more past due are considered
non-performing assets.
At June 30, 1997
-------------------------------------------------
60-89 Days 90 Days or More
----------------------- -------------------------
Principal Principal
Balance Number Balance Number
of Loans of Loans of Loans of Loans
- ---------------------------------------------------------------------------
Residential
mortgage loans.......... 1 $10 5 $130
Nonresidential
mortgage loans.......... 1 24 --- ---
Multi-family
mortgage loans.......... --- --- --- ---
Installment loans.......... 2 16 6 37
Single pay loans........... --- --- 1 84
Loans secured
by deposit.............. --- --- --- ---
Home equity loans.......... --- --- 5 52
Home improvement loans..... --- --- --- ---
---- ---- ---- ----
Total................... 4 $50 17 $303
=== === == ====
Delinquent loans to
total loans............. .92%
===
<TABLE>
<CAPTION>
At June 30, 1996 At June 30, 1995
--------------------------------------------- -------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
--------------------- ---------------------- -------------------- -----------------------
Principal Principal Principal Principal
Balance Number Balance Number Balance Number Balance Number
of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans
- --------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Residential
<S> <C> <C> <C> <C> <C> <C> <C> <C>
mortgage loans......... 7 $158 8 $ 89 6 $133 3 $41
Nonresidential
mortgage loans......... --- --- --- --- --- --- --- ---
Multi-family
mortgage loans......... --- --- --- --- --- --- --- ---
Installment loans......... 6 16 8 35 5 25 3 9
Single pay loans.......... 4 24 2 12 1 2 3 27
Loans secured
by deposit............. --- --- --- --- --- --- --- ---
Home equity loans......... 1 6 3 45 1 10 2 21
Home improvement loans.... --- --- --- --- --- --- --- ---
-- ---- -- ---- -- ---- -- -----
Total.................. 18 $204 21 $181 13 $170 11 $ 98
== ==== == ==== == ==== == =====
Delinquent loans to
total loans............ 1.12% .91%
==== ===
</TABLE>
<PAGE>
Classified assets. Federal regulations and Citizens' Asset Classification
Policy provide for the classification of loans and other assets such as debt and
equity securities considered by the OTS to be of lesser quality as
"substandard," "doubtful" or "loss" assets. An asset is considered "substandard"
if it is inadequately protected by the current net worth and paying capacity of
the obligor or of the collateral pledged, if any. "Substandard" assets include
those characterized by the "distinct possibility" that the institution will
sustain "some loss" if the deficiencies are not corrected. Assets classified as
"doubtful" have all of the weaknesses inherent in those classified
"substandard," with the added characteristic that the weaknesses present make
"collection or liquidation in full," on the basis of currently existing facts,
conditions, and values, "highly questionable and improbable." Assets classified
as "loss" are those considered "uncollectible" and of such little value that
their continuance as assets without the establishment of a specific loss reserve
is not warranted.
An insured institution is required to establish general allowances for
loan losses in an amount deemed prudent by management for loans classified
substandard or doubtful, as well as for other problem loans. General allowances
represent loss allowances which have been established to recognize the inherent
risk associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. When an insured
institution classifies problem assets as "loss," it is required either to
establish a specific allowance for losses equal to 100% of the amount of the
asset so classified or to charge off such amount. An institution's determination
as to the classification of its assets and the amount of its valuation
allowances is subject to review by the OTS which can order the establishment of
additional general or specific loss allowances.
At June 30, 1997, the aggregate amount of Citizens' classified assets, and
of its general and specific loss allowances were as follows:
At June 30, 1997
(In thousands)
Substandard assets............................................... $190
Doubtful assets.................................................. ---
Loss assets...................................................... ---
----
Total classified assets...................................... $190
====
General loss allowances.......................................... $212
Specific loss allowances......................................... ---
----
Total allowances............................................. $212
====
Citizens regularly reviews its loan portfolio to determine whether any
loans require classification in accordance with applicable regulations.
Allowance for Loan Losses
The allowance for loan losses is maintained through the provision for loan
losses, which is charged to earnings. The provision for loan losses is
determined in conjunction with Citizens' review and evaluation of current
economic conditions (including those of its lending area), changes in the
character and size of the loan portfolio, loan delinquencies (current status as
well as past and anticipated trends) and adequacy of collateral securing loan
delinquencies, historical and estimated net charge-offs, and other pertinent
information derived from a review of the loan portfolio. In the opinion of
management, Citizens' allowance for loan losses is adequate to absorb probable
losses inherent in the loan portfolio at June 30, 1997. However, there can be no
assurance that regulators, when reviewing Citizens' loan portfolio in the
future, will not require increases in its allowances for loan losses or that
changes in economic conditions will not adversely affect its loan portfolio.
<PAGE>
Summary of Loan Loss Experience. The following table analyzes changes in
the allowance during the past three fiscal years ended June 30, 1997.
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of period......................... $138 $ 46 $ 49
Charge-offs:
Residential mortgage loans.......................... --- --- ---
Nonresidential mortgage loans....................... --- --- ---
Multi-family loans.................................. --- --- ---
Construction loans.................................. --- --- ---
Installment loans................................... (11) --- (11)
Single pay loans.................................... --- --- (26)
Loans secured by deposits........................... --- --- ---
Home equity loans................................... --- --- ---
Home improvement loans.............................. --- --- ---
---- ---- -----
Total charge-offs................................. (11) --- (37)
---- ---- -----
Recoveries:
Residential mortgage................................ --- 2 ---
Single pay.......................................... 2 1 ---
Installment......................................... --- 9 2
---- ---- -----
Total recoveries.................................. 2 12 2
---- ---- -----
Net (charge-offs) recoveries........................... (9) 12 (35)
Provision for losses on loans.......................... 83 80 32
---- ---- -----
Balance end of period.................................. $212 $138 $ 46
==== ==== =====
Allowance for loan losses as a percent of
total loans outstanding................................ 0.55% 0.40% 0.16%
Ratio of net (charge-offs) recoveries
to average loans outstanding........................... (.03) .04 (.12)
</TABLE>
Allocation of Allowance for Loan Losses. The following table presents an
analysis of the allocation of Citizens' allowance for loan losses at the dates
indicated. The allocation of the allowance to each category is not necessarily
indicative of future loss in any particular category and does not restrict
Citizens' use of the allowance to absorb losses in other categories.
<TABLE>
<CAPTION>
At June 30,
1997 1996 1995
----------------------- ---------------------- ---------------------
Percent Percent Percent
of loans of loans of loans
in each in each in each
category category category
to total to total to total
Amount loans Amount loans Amount loans
------ ----- ------ ----- ------ -----
(Dollars in thousands)
Balance at end of
period applicable to:
Real estate mortgage loans:
<S> <C> <C> <C> <C> <C> <C>
Residential...................... $81 75.96% $49 75.35% $15 74.75%
Nonresidential................... 3 2.09 1 2.00 --- 2.13
Multi-family..................... 4 3.94 3 4.58 1 5.64
Construction loans................. 27 3.61 11 2.50 2 1.19
Installment loans.................. 53 4.31 41 3.70 11 3.58
Loans secured by deposits.......... --- .04 --- .18 --- .02
Home equity loans.................. 8 5.32 6 5.60 6 6.62
Home improvement loans............. --- .02 --- .03 --- .05
Single pay loans................... 36 4.71 27 6.06 11 6.02
---- ------ ---- ------ --- ------
Total.............................. $212 100.00% $138 100.00% $46 100.00%
==== ====== ==== ====== === ======
</TABLE>
<PAGE>
Investments
Investments. Citizens' investment portfolio consists of equity interests in
pooled investment trusts, and Federal Home Loan Bank ("FHLB") stock. At June 30,
1997, approximately $493,000, or 1.1%, of Citizens' total assets consisted of
such investments.
Citizens also had $3.3 million in interest-earning deposits as of that date.
The following table sets forth the amortized cost and the market value of
Citizens' investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
1997 1996 1995
--------------------- --------------------- ---------------------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
(In thousands)
Available for Sale:
Equity interests in pooled
<S> <C> <C> <C> <C> <C> <C>
investment trusts................ $161 $161 $3,087 $3,003 $2,913 $2,832
FHLB stock............................ 332 332 332 332 332 332
---- ---- ------ ------ ------ ------
Total investments................ $493 $493 $3,419 $3,335 $3,245 $3,164
==== ==== ====== ====== ====== ======
</TABLE>
The following table sets forth the amount of investment securities
(excluding FHLB stock) which mature during each of the periods indicated and the
weighted average yields for each range of maturities at June 30, 1997.
<TABLE>
<CAPTION>
Amount at June 30, 1997 which matures in
One Year One Year Five Years After
or Less to Five Years to Ten Years Ten Years
------- ------------- ------------ ---------
Amortized Average Amoritzed Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield Cost Yield
---- ----- ---- ----- ---- ----- ---- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity interests in pooled investment trusts.... $161 5.99% $--- ---% $--- ---% $--- ---%
</TABLE>
Sources of Funds
General. Deposits have traditionally been Citizens' primary source of
funds for use in lending and investment activities. In addition to deposits,
Citizens derives funds from scheduled loan payments, investment maturities, loan
prepayments, retained earnings, income on earning assets and borrowings. While
scheduled loan payments and income on earning assets are relatively stable
sources of funds, deposit inflows and outflows can vary widely and are
influenced by prevailing interest rates, market conditions and levels of
competition. The deposits shown below include approximately $3.4 million in
public funds deposited by various state, county and local governments which may
fluctuate depending upon prevailing interest rates and the rates offered by
Citizens' competitors. Borrowings from the FHLB of Indianapolis may be used in
the short-term to compensate for reductions in deposits or deposit inflows at
less than projected levels.
Deposits. Citizens attracts deposits principally from within Clinton
County through the offering of a broad selection of deposit instruments,
including fixed-rate passbook accounts, NOW accounts, variable rate money market
accounts, fixed-term certificates of deposit, individual retirement accounts and
savings accounts. Citizens does not actively solicit or advertise for deposits
outside of Clinton County, and substantially all of its depositors are residents
of that county. Deposit account terms vary, with the principal differences being
the minimum balance required, the amount of time the funds remain on deposit and
the interest rate. Citizens does not pay broker fees for any deposits it
receives.
<PAGE>
Citizens establishes the interest rates paid, maturity terms, service fees
and withdrawal penalties on a periodic basis. Determination of rates and terms
are predicated on funds acquisition and liquidity requirements, rates paid by
competitors, growth goals, and applicable regulations. Citizens relies, in part,
on customer service and long-standing relationships with customers to attract
and retain its deposits. Citizens also closely prices its deposits to the rates
offered by its competitors.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and other prevailing interest rates and
competition. The variety of deposit accounts that Citizens offers has allowed it
to be competitive in obtaining funds and to respond with flexibility to changes
in consumer demand. Citizens has become more susceptible to short-term
fluctuations in deposit flows as customers have become more interest rate
conscious. Citizens manages the pricing of its deposits in keeping with its
asset/liability management and profitability objectives. Based on its
experience, management believes that Citizens' passbook, NOW and MMDAs are
relatively stable sources of deposits. However, the ability to attract and
maintain certificates of deposit, and the rates Citizens pays on these deposits,
have been and will continue to be significantly affected by market conditions.
An analysis of Citizens' deposit accounts by type, maturity, and rate at
June 30, 1997, is as follows:
<TABLE>
<CAPTION>
Minimum Balance at Weighted
Opening June 30, % of Average
Type of Account Balance 1997 Deposits Rate
- --------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Withdrawable:
<S> <C> <C> <C> <C>
Fixed rate, passbook accounts.......... $ 50 $6,905 18.99% 3.22%
Variable rate, money market............ 2,500 3,170 8.72 3.30
NOW accounts........................... 50 4,072 11.20 2.09
------- ------
Total withdrawable................... 14,147 38.91 2.91
Certificates (original terms):
3 months or less....................... 1,000 1,074 2.95 5.37
6 months............................... 1,000 4,134 11.37 5.04
12 months.............................. 1.000 966 2.66 4.81
13 months.............................. 5,000 2,370 6.52 5.42
18 months.............................. 1,000 587 1.61 4.93
23 months.............................. 5,000 4,154 11.43 5.79
30 months ............................. 1,000 1,146 3.15 5.27
36 months.............................. 1,000 947 2.61 5.22
Other certificates..................... 1,000 3,566 9.81 6.00
------- ------
Total certificates........................ 18,944 52.11 5.46
IRA's:
Variable rate, money market............ 50 184 0.51 3.25
6 months............................... 1,000 34 0.09 4.53
12 months.............................. 1.000 151 0.42 4.74
18 months.............................. 1,000 19 0.05 4.91
23 months.............................. 1,000 1,578 4.34 5.78
36 months.............................. 1,000 1,157 3.18 5.23
Other certificates..................... 1,000 141 0.39 5.99
------- ------
Total IRA's............................... 3,264 8.98 5.39
------- ------
Total deposits............................ $36,355 100.00% 4.49%
======= ======
</TABLE>
The following table sets forth by various interest rate categories the
composition of Citizens' time deposits at the dates indicated:
At June 30,
1997 1996 1995
------------------------------------------------
(In thousands)
3.00 to 3.99%........ $ --- $ --- $ 219
4.00 to 4.99%........ 3,593 5,173 6,588
5.00 to 5.99%........ 15,702 10,629 7,000
6.00 to 6.99%........ 2,604 5,283 4,349
7.00 to 7.99%........ 120 484 866
8.00 to 8.99%........ 5 5 587
------- ------- -------
Total............. $22,024 $21,574 $19,609
======= ======= =======
<PAGE>
The average amount of and average interest rate paid on, the following
deposits categories which were in excess of ten percent of average total
deposits are as follows:
<TABLE>
<CAPTION>
Years ended June 30,
1997 1996 1995
-------------------- --------------------- -----------------------
Average Average Average Average Average Average
Balance Rate Paid Balance Rate Paid Balance Rate Paid
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts $6,679 3.24% $ 6,867 3.25% $ 7,523 3.24%
NOW accounts 4,081 2.12 3,843 2.06 3,773 2.37
Money market accounts 3,303 3.30 3,233 3.30 3,389 3.30
Time deposit accounts 22,374 5.49 20,513 5.47 17,920 5.45
</TABLE>
The following table represents, by various interest rate categories, the
amounts of time deposits maturing during each of the three years following June
30, 1997. Matured certificates, which have not been renewed as of June 30, 1997,
have been allocated based upon certain rollover assumptions.
<TABLE>
<CAPTION>
Amounts at June 30, 1997
One Year Two Three Greater Than
or Less Years Years Three Years
------- ----- ----- -----------
(In thousands)
<C> <C> <C> <C> <C>
3.00 to 3.99%...... $ --- $ --- $ --- $ ---
4.00 to 4.99%...... 3,540 53 --- --
5.00 to 5.99%...... 8,979 5,089 1,284 350
6.00 to 6.99%...... 735 245 272 1,352
7.00 to 7.99%...... 20 --- --- 100
8.00 to 8.99%...... --- --- --- 5
------- ------ ------ ------
Total........... $13,274 $5,387 $1,556 $1,807
======= ====== ====== ======
</TABLE>
The following table indicates the amount of Citizens' other certificates
of deposit of $100,000 or more by time remaining until maturity as of June 30,
1997.
At June 30, 1997
Maturity Period (In thousands)
Three months or less.............................. $3,300
Greater than three months through six months...... 200
Greater than six months through twelve months..... 617
Over twelve months................................ 612
------
Total........................................ $4,729
======
<PAGE>
The following table sets forth the dollar amount of savings deposits in
the various types of deposits that Citizens offers at the dates indicated, and
the amount of increase or decrease in such deposits as compared to the previous
period.
<TABLE>
<CAPTION>
DEPOSIT ACTIVITY
Balance Increase Balance Increase
at (Decrease) at (Decrease)
June 30, % of from June 30, % of from
1997 Deposits 1996 1996 Deposits 1995
---------------------------------------------------------------------------
(Dollars in thousands)
Withdrawable:
<S> <C> <C> <C> <C> <C> <C>
Fixed rate, passbook accounts................. $6,905 18.99% $ 207 $6,698 18.82% $(195)
Variable rate, money market................... 3,170 8.72 139 3,031 8.51 263
NOW accounts.................................. 4,072 11.20 (2) 4,074 11.44 488
Total withdrawable.......................... 14,147 38.91 344 13,803 38.77 556
Certificates (original terms):
3 months...................................... 1,074 2.95 (1,788) 2,862 8.04 1,300
6 months...................................... 4,134 11.37 1,591 2,543 7.14 395
12 months..................................... 966 2.66 23 943 2.65 (29)
13 months..................................... 2,370 6.52 360 2,010 5.65 36
18 months..................................... 587 1.61 286 301 0.85 63
23 months..................................... 4,154 11.43 470 3,684 10.35 1,189
30 months .................................... 1,146 3.15 (184) 1,330 3.74 (466)
36 months..................................... 947 2.61 (292) 1,239 3.48 (265)
Other certificates............................ 3,566 9.81 (189) 3,755 10.54 (328)
------- ------ ----- ------- ------ ------
Total certificates............................... 18,944 52.11 277 18,667 52.44 1,895
IRA's
Variable rate, money market................... 184 0.51 (40) 224 0.63 (95)
6 months...................................... 34 0.09 (2) 36 0.10 1
12 months..................................... 151 0.42 (12) 163 0.46 (91)
18 months..................................... 19 0.05 19 --- 0.00 ---
23 months..................................... 1,578 4.34 632 946 2.66 523
30 months..................................... --- --- --- --- --- (6)
36 months .................................... 1,157 3.18 (472) 1,629 4.58 (326)
Other certificates............................ 141 0.39 9 132 0.36 (32)
------- ------ ----- ------- ------ ------
Total IRA's................................... 3,264 8.98 134 3,130 8.79 (26)
------- ------ ----- ------- ------ ------
Total deposits................................... $36,355 100.00% $ 755 $35,600 100.00% $2,425
======= ====== ===== ======= ====== ======
</TABLE>
Total deposits at June 30, 1997 were approximately $36.3 million, compared
to approximately $35.6 million at June 30, 1996. Citizens' deposit base depends
somewhat upon the manufacturing sector of Clinton County's economy. Although
Clinton County's manufacturing sector is relatively diversified and not
significantly dependent upon any industry, a loss of a material portion of the
manufacturing workforce could adversely affect Citizens' ability to attract
deposits due to the loss of personal income attributable to the lost
manufacturing jobs and the attendant loss in service industry jobs.
In the unlikely event of Citizens' liquidation after the Conversion, all
claims of creditors (including those of deposit account holders, to the extent
of their deposit balances) would be paid first followed by distribution of the
liquidation account to certain deposit account holders, with any assets
remaining thereafter distributed to the Holding Company as the sole shareholder
of Citizens.
Borrowings. Citizens' focuses on generating high quality loans and then
seeking the best source of funding from deposits, investments or borrowings. At
June 30, 1997, Citizens had borrowings in the amount of $4.0 million from the
FHLB of Indianapolis which bear fixed and variable interest rates and are due at
various dates through October, 1998. Citizens is required to maintain eligible
loans in its portfolio of at least 170% of outstanding advances as collateral
for advances from the FHLB of Indianapolis. Citizens does not anticipate any
difficulty in obtaining advances appropriate to meet its requirements in the
future.
<PAGE>
The following table presents certain information relating to Citizens'
borrowings at or for the years ended June 30, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
At or for the Year
Ended June 30,
1997 1996 1995
-------------------------------------------
(Dollars in thousands)
FHLB Advances:
<S> <C> <C> <C>
Outstanding at end of period............ $4,000 $3,000 $1,500
Average balance outstanding for period.. 3,212 1,923 462
Maximum amount outstanding at any
month-end during the period........... 5,000 3,000 1,500
Weighted average interest rate
during the period..................... 5.41% 5.94% 6.24%
Weighted average interest rate
at end of period...................... 6.51 5.82 5.87
</TABLE>
Service Corporation Subsidiaries
OTS regulations permit federal savings associations to invest in the
capital stock, obligations or other specified types of securities of
subsidiaries (referred to as "service corporations") and to make loans to such
subsidiaries and joint ventures in which such subsidiaries are participants in
an aggregate amount not exceeding 2% of the association's assets, plus an
additional 1% of assets if the amount over 2% is used for specified community or
inner-city development purposes. In addition, federal regulations permit
associations to make specified types of loans to such subsidiaries (other than
special purpose finance subsidiaries) in which the association owns more than
10% of the stock, in an aggregate amount not exceeding 50% of the association's
regulatory capital if the association's regulatory capital is in compliance with
applicable regulations. A savings association that acquires a non-savings
association subsidiary, or that elects to conduct a new activity within a
subsidiary, must give the FDIC and the OTS at least 30 days advance written
notice. The FDIC may, after consultation with the OTS, prohibit specified
activities if it determines such activities pose a serious threat to the SAIF.
Moreover, a savings association must deduct from capital, for purposes of
meeting the core capital, tangible capital and risk-based capital requirements,
its entire investment in and loans to a subsidiary engaged in activities not
permissible for a national bank (other than exclusively agency activities for
its customers or mortgage banking subsidiaries).
Citizens currently owns one subsidiary, Citizens Loan and Service
Corporation ("CLSC"), which primarily engages in the purchase and development of
tracts of undeveloped land. Because CLSC engages in activities that are not
permissible for a national bank, OTS regulations prohibit Citizens from
including its investment in CLSC in its calculation of regulatory capital. CLSC
purchases undeveloped land, constructs improvements and infrastructure on the
land, and then sells lots to builders, who construct homes for sale to
homebuyers. CLSC ordinarily receives payment when title is transferred.
CLSC owns a 104-acre tract of contiguous land on which it is presently
developing 59 acres. CLSC intends to complete the development of the remainder
of the property in approximately ten years. The 59 acres that are presently
being developed will include 64 building lots known as the Southridge Addition,
and 89 building lots known as the Meadow Brook Addition. Both of these Additions
have been annexed into the Town of Frankfort. Citizens purchased this land in
1989 intending to develop these housing additions. However, following enactment
of the Financial Institutions Reform Recovery and Enforcement Act of 1989, the
FDIC directed Citizens to transfer its interest in these developments to CLSC,
which Citizens did, effective June 30, 1994. Phase I of the development includes
33 completed lots in the Southridge Addition, of which 22 lots have been sold
and on which 21 houses have been completed, and 26 lots in the Meadow Brook
Addition, of which 3 lots have been sold with houses presently under
construction on those lots, one of which is a "speculative house" that Citizens
financed. The Southridge lots have been priced generally at $19,000 to $22,000
each, with completed homes selling generally for $90,000 to $120,000, and the
Meadow Brook lots have been priced generally at $23,000 to $26,000 with
completed homes expected to sell generally for $100,000 to $150,000. CLSC
intends to develop the remaining 31 lots in the Southridge Addition beginning in
1998. Phase II and Phase III of the Meadow Brook development, consisting of
approximately 63 lots, are still in the design stage. CLSC also intends to
develop a 25-acre tract located in Frankfort, with homes generally selling for
$175,000 to $300,000. This project is in the early stages of development.
<PAGE>
CLSC intends ultimately to develop the remaining 20-acre parcel of land,
known as the Mann tract, that it presently owns. The development of this land,
which is part of the 104-acre tract discussed above, likely will not be
completed for approximately 10 years. The Mann tract is presently being leased
for farming purposes. CLSC has no present intentions to acquire additional land
for development purposes.
CLSC earned a profit of $11,000 for the year ended June 30, 1997, and
$24,000 for the year ended June 30, 1996 and $2,000 for the year ended June 30,
1995. At June 30, 1997, Citizens had an investment in CLSC of $469,000 and loans
outstanding to CLSC of approximately $524,000 with an interest rate set at the
prime rate plus 1 percent. Citizens' consolidated statements of income included
elsewhere herein include the operations of CLSC. All intercompany balances and
transactions have been eliminated in the consolidation.
Employees
As of June 30, 1997, Citizens employed 12 persons on a full-time basis and
five persons on a part-time basis. None of Citizens' employees is represented by
a collective bargaining group and management considers its employee relations to
be good.
Citizens' employee benefits for full-time employees include, among other
things, a Pentegra Group (formerly known as Financial Institutions Retirement
Fund) defined benefit pension plan, a noncontributory, multiple-employer
comprehensive pension plan (the"Pension Plan"), and hospitalization/major
medical, long-term disability insurance and life insurance.
Management considers its employee benefits to be competitive with those
offered by other financial institutions and major employers in its area.
COMPETITION
Citizens originates most of its loans to and accepts most of its deposits
from residents of Clinton County, Indiana. Citizens is subject to competition
from various financial institutions, including state and national banks, state
and federal savings associations, credit unions, and certain nonbanking consumer
lenders that provide similar services in Clinton County with significantly
larger resources than are available to Citizens. In total, there are five other
financial institutions located in Clinton County. Citizens also competes with
money market funds with respect to deposit accounts and with insurance companies
with respect to individual retirement accounts.
The primary factors influencing competition for deposits are interest
rates, service and convenience of office locations. Citizens competes for loan
originations primarily through the efficiency and quality of the services that
it provides borrowers and through interest rates and loan fees charged.
Competition is affected by, among other things, the general availability of
lendable funds, general and local economic conditions, current interest rate
levels, and other factors that Citizens cannot readily predict.
REGULATION
General
As a federally chartered, SAIF-insured savings association, Citizens is
subject to extensive regulation by the OTS and the FDIC. For example, Citizens
must obtain OTS approval before it may engage in certain activities and must
file reports with the OTS regarding its activities and financial condition. The
OTS periodically examines Citizens' books and records and, in conjunction with
the FDIC in certain situations, has examination and enforcement powers. This
supervision and regulation are intended primarily for the protection of
depositors and federal deposit insurance funds. Citizens' semi- annual
assessment owed to the OTS, which is based upon a specified percentage of
assets, is approximately $7,800.
<PAGE>
Citizens is also subject to federal and state regulation as to such
matters as loans to officers, directors, or principal shareholders, required
reserves, limitations as to the nature and amount of its loans and investments,
regulatory approval of any merger or consolidation, issuance or retirements of
securities, and limitations upon other aspects of banking operations. In
addition, Citizens' activities and operations are subject to a number of
additional detailed, complex and sometimes overlapping federal and state laws
and regulations. These include state usury and consumer credit laws, state laws
relating to fiduciaries, the Federal Truth-In-Lending Act and Regulation Z, the
Federal Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting
Act, the Community Reinvestment Act, anti-redlining legislation and antitrust
laws.
The United States Congress is considering legislation that would require
all federal savings associations, such as Citizens, to either convert to a
national bank or a state-chartered bank by a specified date to be determined. In
addition, under the legislation, the Holding Company likely would not be
regulated as a savings and loan holding company but rather as a bank holding
company. This proposed legislation would abolish the OTS and transfer its
functions among the other federal banking regulators. Certain aspects of the
legislation remain to be resolved and, therefore, no assurance can be given as
to whether or in what form the legislation will be enacted or its effect on the
Holding Company and Citizens.
Savings and Loan Holding Company Regulation
As the holding company for Citizens, the Holding Company is regulated as a
"non-diversified savings and loan holding company" within the meaning of the
Home Owners' Loan Act of 1933, as amended ("HOLA"), and subject to regulatory
oversight of the Director of the OTS. As such, the Holding Company is registered
with the OTS and thereby subject to OTS regulations, examinations, supervision
and reporting requirements. As a subsidiary of a savings and loan holding
company, Citizens is subject to certain restrictions in its dealings with the
Holding Company and with other companies affiliated with the Holding Company.
In general, the HOLA prohibits a savings and loan holding company, without
prior approval of the Director of the OTS, from acquiring control of another
savings association or savings and loan holding company or retaining more than
5% of the voting shares of a savings association or of another holding company
which is not a subsidiary. The HOLA also restricts the ability of a director or
officer of the Holding Company, or any person who owns more than 25% of the
Holding Company's stock, from acquiring control of another savings association
or savings and loan holding company without obtaining the prior approval of the
Director of the OTS.
The Holding Company's Board of Directors presently intends to operate the
Holding Company as a unitary savings and loan holding company. OTS regulations
generally do not restrict the permissible business activities of a unitary
savings and loan holding company.
Notwithstanding the above rules as to permissible business activities of
unitary savings and loan holding companies, if the savings association
subsidiary of such a holding company fails to meet the Qualified Thrift Lender
("QTL") test, then such unitary holding company would become subject to the
activities restrictions applicable to multiple holding companies. (Additional
restrictions on securing advances from the FHLB also apply.) At June 30, 1997,
Citizens' asset composition was in excess of that required to qualify as a
Qualified Thrift Lender.
If the Holding Company were to acquire control of another savings
association other than through a merger or other business combination with
Citizens, the Holding Company would thereupon become a multiple savings and loan
holding company. Except where such acquisition is pursuant to the authority to
approve emergency thrift acquisitions and where each subsidiary savings
association meets the QTL test, the activities of the Holding Company and any of
its subsidiaries (other than Citizens or other subsidiary savings associations)
would thereafter be subject to further restrictions. The HOLA provides that,
among other things, no multiple savings and loan holding company or subsidiary
thereof which is not a savings association shall commence or continue for a
limited period of time after becoming a multiple savings and loan holding
company or subsidiary thereof, any business activity other than (i) furnishing
or performing management services for a subsidiary savings association, (ii)
conducting an insurance agency or escrow business, (iii) holding, managing, or
liquidating assets owned by or acquired from a subsidiary savings association,
(iv) holding or managing properties used or occupied by a subsidiary savings
association, (v) acting as trustee under deeds of trust, (vi) those activities
previously directly authorized by the FSLIC by regulation as of March 5, 1987,
to be engaged in by multiple holding companies, or (vii) those activities
authorized by the Federal Reserve Board (the "FRB") as permissible for bank
holding companies, unless the Director of the OTS by regulation prohibits or
limits such activities for savings and loan holding companies. Those activities
described in (vii) above must also be approved by the Director of the OTS before
a multiple holding company may engage in such activities.
<PAGE>
The Director of the OTS may also approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
associations in more than one state, if the multiple savings and loan holding
company involved controls a savings association which operated a home or branch
office in the state of the association to be acquired as of March 5, 1987, or if
the laws of the state in which the association to be acquired is located
specifically permit associations to be acquired by state-chartered associations
or savings and loan holding companies located in the state where the acquiring
entity is located (or by a holding company that controls such state-chartered
savings associations). Also, the Director of the OTS may approve an acquisition
resulting in a multiple savings and loan holding company controlling savings
associations in more than one state in the case of certain emergency thrift
acquisitions.
Indiana law permits federal and state savings association holding
companies with their home offices located outside of Indiana to acquire savings
associations whose home offices are located in Indiana and savings association
holding companies with their principal place of business in Indiana ("Indiana
Savings Association Holding Companies") upon receipt of approval by the Indiana
Department of Financial Institutions. Moreover, Indiana Savings Association
Holding Companies may acquire savings associations with their home offices
located outside of Indiana and savings association holding companies with their
principal place of business located outside of Indiana upon receipt of approval
by the Indiana Department of Financial Institutions.
No subsidiary savings association of a savings and loan holding company
may declare or pay a dividend on its permanent or nonwithdrawable stock unless
it first gives the Director of the OTS 30 days advance notice of such
declaration and payment. Any dividend declared during such period or without
giving notice shall be invalid.
Federal Home Loan Bank System
Citizens is a member of the FHLB of Indianapolis, which is one of twelve
regional FHLBs. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from funds deposited by
savings associations and proceeds derived from the sale of consolidated
obligations of the FHLB system. It makes loans to members (i.e., advances) in
accordance with policies and procedures established by the Board of Directors of
the FHLB. All FHLB advances must be fully secured by sufficient collateral as
determined by the FHLB. The Federal Housing Finance Board ("FHFB"), an
independent agency, controls the FHLB System, including the FHLB of
Indianapolis.
As a member, Citizens is required to purchase and maintain stock in the
FHLB of Indianapolis in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts, or similar obligations at
the beginning of each year. At June 30, 1997, Citizens' investment in stock of
the FHLB of Indianapolis was $332,000. The FHLB imposes various limitations on
advances such as limiting the amount of certain types of real estate-related
collateral to 30% of a member's capital and limiting total advances to a member.
Interest rates charged for advances vary depending upon maturity, the cost of
funds to the FHLB of Indianapolis and the purpose of the borrowing.
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future. For the fiscal year ended June 30, 1997, dividends paid by the
FHLB of Indianapolis to Citizens totaled approximately $26,000, for an annual
rate of 7.84%.
Insurance of Deposits
Deposit Insurance. The FDIC is an independent federal agency that insures
the deposits, up to prescribed statutory limits, of banks and thrifts and
safeguards the safety and soundness of the banking and thrift industries. The
FDIC administers two separate insurance funds, the Bank Insurance Fund (the
"BIF") for commercial banks and state savings banks and the SAIF for savings
associations such as Citizens and banks that have acquired deposits from savings
associations. The FDIC is required to maintain designated levels of reserves in
each fund. As of September 30, 1996, the reserves of the SAIF were below the
level required by law, primarily because a significant portion of the
assessments paid into the SAIF have been used to pay the cost of prior thrift
failures, while the reserves of the BIF met the level required by law in May,
1995. However, on September 30, 1996, provisions designed to recapitalize the
SAIF and eliminate the premium disparity between the BIF and SAIF were signed
into law. See "-- Assessments" below.
<PAGE>
Assessments. The FDIC is authorized to establish separate annual
assessment rates for deposit insurance for members of the BIF and members of the
SAIF. The FDIC may increase assessment rates for either fund if necessary to
restore the fund's ratio of reserves to insured deposits to the target level
within a reasonable time and may decrease these rates if the target level has
been met. The FDIC has established a risk-based assessment system for both SAIF
and BIF members. Under this system, assessments vary depending on the risk the
institution poses to its deposit insurance fund. An institution's risk level is
determined based on its capital level and the FDIC's level of supervisory
concern about the institution.
On September 30, 1996, President Clinton signed into law legislation which
included provisions designed to recapitalize the SAIF and eliminate the
significant premium disparity between the BIF and the SAIF. Under the new law,
Citizens was charged a one-time special assessment equal to $.657 per $100 in
assessable deposits at March 31, 1995. Citizens recognized this one-time
assessment as a non-recurring operating expense of $211,000 ($127,000 after tax)
during the three-month period ending September 30, 1996, and Citizens paid this
assessment on November 27, 1996. The assessment was fully deductible for both
federal and state income tax purposes. Beginning January 1, 1997, Citizens'
annual deposit insurance premium was reduced from .23% to .0644% of total
assessable deposits. BIF institutions pay lower assessments than comparable SAIF
institutions because BIF institutions pay only 20% of the rate being paid by
SAIF institutions on their deposits with respect to obligations issued by the
federally-chartered corporation which provided some of the financing to resolve
the thrift crisis in the 1980's ("FICO"). The 1996 law also provides for the
merger of the SAIF and the BIF by 1999, but not until such time as bank and
thrift charters are combined. Until the charters are combined, savings
associations with SAIF deposits may not transfer deposits into the BIF system
without paying various exit and entrance fees, and SAIF institutions will
continue to pay higher FICO assessments. Such exit and entrance fees need not be
paid if a SAIF institution converts to a bank charter or merges with a bank, as
long as the resulting bank continues to pay applicable insurance assessments to
the SAIF, and as long as certain other conditions are met.
Savings Association Regulatory Capital
Currently, savings associations are subject to three separate minimum
capital-to-assets requirements: (i) a leverage limit, (ii) a tangible capital
requirement, and (iii) a risk-based capital requirement. The leverage limit
requires that savings associations maintain "core capital" of at least 3% of
total assets. Core capital is generally defined as common shareholders' equity
(including retained income), noncumulative perpetual preferred stock and related
surplus, certain minority equity interests in subsidiaries, qualifying
supervisory goodwill, purchased mortgage servicing rights and purchased credit
card relationships (subject to certain limits) less nonqualifying intangibles.
Under the tangible capital requirement, a savings association must maintain
tangible capital (core capital less all intangible assets except purchased
mortgage servicing rights which may be included after making the above-noted
adjustment in an amount up to 100% of tangible capital) of at least 1.5% of
total assets. Under the risk-based capital requirements, a minimum amount of
capital must be maintained by a savings association to account for the relative
risks inherent in the type and amount of assets held by the savings association.
The risk-based capital requirement requires a savings association to maintain
capital (defined generally for these purposes as core capital plus general
valuation allowances and permanent or maturing capital instruments such as
preferred stock and subordinated debt less assets required to be deducted) equal
to 8.0% of risk-weighted assets. Assets are ranked as to risk in one of four
categories (0-100%). A credit risk-free asset, such as cash, requires no
risk-based capital, while an asset with a significant credit risk, such as a
non-accrual loan, requires a risk factor of 100%. Moreover, a savings
association must deduct from capital, for purposes of meeting the core capital,
tangible capital and risk-based capital requirements, its entire investment in
and loans to a subsidiary engaged in activities not permissible for a national
bank (other than exclusively agency activities for its customers or mortgage
banking subsidiaries). At June 30, 1997, Citizens was in compliance with all
capital requirements imposed by law.
The OTS has promulgated a rule which sets forth the methodology for
calculating an interest rate risk component to be used by savings associations
in calculating regulatory capital. The OTS has delayed the implementation of
this rule, however. The rule requires savings associations with "above normal"
interest rate risk (institutions whose portfolio equity would decline in value
by more than 2% of assets in the event of a hypothetical 200-basis-point move in
interest rates) to maintain additional capital for interest rate risk under the
risk-based capital framework. If the OTS were to implement this regulation,
Citizens would be exempt from its provisions because it has less than $300
million in assets and its risk-based capital ratio exceeds 12%. Citizens
nevertheless measures its interest rate risk in conformity with the OTS
regulation and, as of June 30, 1997, Citizens' interest rate risk was slightly
outside the parameters set forth in the regulation.
<PAGE>
If an association is not in compliance with the capital requirements, the
OTS is required to prohibit asset growth and to impose a capital directive that
may restrict, among other things, the payment of dividends and officers'
compensation. In addition, the OTS and the FDIC generally are authorized to take
enforcement actions against a savings association that fails to meet its capital
requirements. These actions may include restricting the operations activities of
the association, imposing a capital directive, cease and desist order, or civil
money penalties, or imposing harsher measures such as appointing a receiver or
conservator or forcing the association to merge into another institution.
Prompt Corrective Regulatory Action
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FedICIA") requires, among other things, that federal bank regulatory
authorities take "prompt corrective action" with respect to institutions that do
not meet minimum capital requirements. For these purposes, FedICIA establishes
five capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized. At June 30,
1997, Citizens was categorized as "well capitalized," meaning that its total
risk-based capital ratio exceeded 10%, its Tier I risk-based capital ratio
exceeded 6%, its leverage ratio exceeded 5%, and it was not subject to a
regulatory order, agreement or directive to meet and maintain a specific capital
level for any capital measure.
The FDIC may order savings associations which have insufficient capital to
take corrective actions. For example, a savings association which is categorized
as "undercapitalized" would be subject to growth limitations and would be
required to submit a capital restoration plan, and a holding company that
controls such a savings association would be required to guarantee that the
savings association complies with the restoration plan. "Significantly
undercapitalized" savings associations would be subject to additional
restrictions. Savings associations deemed by the FDIC to be "critically
undercapitalized" would be subject to the appointment of a receiver or
conservator.
Dividend Limitations
An OTS regulation imposes limitations upon all "capital distributions" by
savings associations, including cash dividends, payments by an association to
repurchase or otherwise acquire its shares, payments to shareholders of another
institution in a cash-out merger and other distributions charged against
capital. The regulation establishes a three-tiered system of regulation, with
the greatest flexibility being afforded to well-capitalized associations. A
savings association which has total capital (immediately prior to and after
giving effect to the capital distribution) that is at least equal to its fully
phased-in capital requirements would be a Tier 1 institution ("Tier 1
Institution"). An association that has total capital at least equal to its
minimum capital requirements, but less than its fully phased-in capital
requirements, would be a Tier 2 institution ("Tier 2 Institution"). An
institution having total capital that is less than its minimum capital
requirements would be a Tier 3 institution ("Tier 3 Institution"). However, an
institution which otherwise qualifies as a Tier 1 Institution may be designated
by the OTS as a Tier 2 or Tier 3 Institution if the OTS determines that the
institution is "in need of more than normal supervision." Citizens is currently
a Tier 1 Institution.
A Tier 1 Institution may, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year up to the greater of
(a) 100% of its net income to date during the calendar year plus the amount that
would reduce by one-half its "surplus capital ratio" at the beginning of the
calendar year (the smallest excess over its capital requirements), or (b) 75% of
its net income over the most recent four-quarter period. Any additional amount
of capital distributions would require prior regulatory approval. Accordingly,
at June 30, 1997, Citizens had available approximately $1,489,000 for
distribution, without consideration of any capital infusion from the Conversion.
The OTS has proposed revisions to these regulations which would permit
savings associations to declare dividends in amounts which would assure that
they remain adequately capitalized following the dividend declaration. Savings
associations in a holding company system which are rated Camel 1 or 2 and which
are not in troubled condition would need to file a prior notice with the OTS
concerning such dividend declaration.
<PAGE>
Pursuant to the Plan of Conversion, Citizens will establish a liquidation
account for the benefit of Eligible Account Holders and Supplemental Eligible
Account Holders. See "The Conversion -- Principal Effects of Conversion."
Citizens will not be permitted to pay dividends to the Holding Company if its
net worth would be reduced below the amount required for the liquidation
account. Citizens must also must file a notice with the OTS 30 days before
declaring a dividend to the Holding Company.
Limitations on Rates Paid for Deposits
Regulations promulgated by the FDIC pursuant to FedICIA place limitations
on the ability of insured depository institutions to accept, renew or roll over
deposits by offering rates of interest which are significantly higher than the
prevailing rates of interest on deposits offered by other insured depository
institutions having the same type of charter in the institution's normal market
area. Under these regulations, "well-capitalized" depository institutions may
accept, renew or roll such deposits over without restriction, "adequately
capitalized" depository institutions may accept, renew or roll such deposits
over with a waiver from the FDIC (subject to certain restrictions on payments of
rates) and "undercapitalized" depository institutions may not accept, renew or
roll such deposits over. The regulations contemplate that the definitions of
"well capitalized," "adequately capitalized" and "undercapitalized" will be the
same as the definition adopted by the agencies to implement the corrective
action provisions of FedICIA. Citizens does not believe that these regulations
will have a materially adverse effect on its current operations.
Safety and Soundness Standards
On February 2, 1995, the federal banking agencies adopted final safety and
soundness standards for all insured depository institutions. The standards,
which were issued in the form of guidelines rather than regulations, relate to
internal controls, information systems, internal audit systems, loan
underwriting and documentation, compensation and interest rate exposure. In
general, the standards are designed to assist the federal banking agencies in
identifying and addressing problems at insured depository institutions before
capital becomes impaired. If an institution fails to meet these standards, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan may result in enforcement
proceedings. On August 27, 1996, the federal banking agencies added asset
quality and earning standards to the safety and soundness guidelines.
Real Estate Lending Standards
OTS regulations require savings associations to establish and maintain
written internal real estate lending policies. Each association's lending
policies must be consistent with safe and sound banking practices and
appropriate to the size of the association and the nature and scope of its
operations. The policies must establish loan portfolio diversification
standards; establish prudent underwriting standards, including loan-to-value
limits, that are clear and measurable; establish loan administration procedures
for the association's real estate portfolio; and establish documentation,
approval, and reporting requirements to monitor compliance with the
association's real estate lending policies. The association's written real
estate lending policies must be reviewed and approved by the association's Board
of Directors at least annually. Further, each association is expected to monitor
conditions in its real estate market to ensure that its lending policies
continue to be appropriate for current market conditions.
Loans to One Borrower
Under OTS regulations, Citizens may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of its unimpaired capital
and surplus. Additional amounts may be lent, not in excess of 10% of unimpaired
capital and surplus, if such loans or extensions of credit are fully secured by
readily marketable collateral, including certain debt and equity securities but
not including real estate. In some cases, a savings association may lend up to
30 percent of unimpaired capital and surplus to one borrower for purposes of
developing domestic residential housing, provided that the association meets its
regulatory capital requirements and the OTS authorizes the association to use
this expanded lending authority. At June 30, 1997, Citizens did not have any
loans or extensions of credit to a single or related group of borrowers in
excess of its lending limits. Citizens does not believe that the
loans-to-one-borrower limits will have a significant impact on its business
operations or earnings following the Conversion.
<PAGE>
Qualified Thrift Lender
Savings associations must meet a QTL test. If Citizens maintains an
appropriate level of qualified thrift investments ("QTIs") (primarily
residential mortgages and related investments, including certain
mortgage-related securities) and otherwise qualify as a QTL, Citizens will
continue to enjoy full borrowing privileges from the FHLB of Indianapolis. The
required percentage of QTIs is 65% of portfolio assets (defined as all assets
minus intangible assets, property used by the association in conducting its
business and liquid assets equal to 10% of total assets). Certain assets are
subject to a percentage limitation of 20% of portfolio assets. In addition,
savings associations may include shares of stock of the FHLBs, FNMA, and FHLMC
as QTIs. Compliance with the QTL test is determined on a monthly basis in nine
out of every twelve months. As of June 30, 1997, Citizens was in compliance with
its QTL requirement, with approximately 88% of its assets invested in QTIs.
A savings association which fails to meet the QTL test must either convert
to a bank (but its deposit insurance assessments and payments will be those of
and paid to the SAIF) or be subject to the following penalties: (i) it may not
enter into any new activity except for those permissible for a national bank and
for a savings association; (ii) its branching activities shall be limited to
those of a national bank; (iii) it shall not be eligible for any new FHLB
advances; and (iv) it shall be bound by regulations applicable to national banks
respecting payment of dividends. Three years after failing the QTL test the
association must (i) dispose of any investment or activity not permissible for a
national bank and a savings association and (ii) repay all outstanding FHLB
advances. If such a savings association is controlled by a savings and loan
holding company, then such holding company must, within a prescribed time
period, become registered as a bank holding company and become subject to all
rules and regulations applicable to bank holding companies (including
restrictions as to the scope of permissible business activities).
Acquisitions or Dispositions and Branching
The Bank Holding Company Act specifically authorizes a bank holding
company, upon receipt of appropriate regulatory approvals, to acquire control of
any savings association or holding company thereof wherever located. Similarly,
a savings and loan holding company may acquire control of a bank. Moreover,
federal savings associations may acquire or be acquired by any insured
depository institution. Regulations promulgated by the FRB restrict the
branching authority of savings associations acquired by bank holding companies.
Savings associations acquired by bank holding companies may be converted to
banks if they continue to pay SAIF premiums, but as such they become subject to
branching and activity restrictions applicable to banks.
Subject to certain exceptions, commonly-controlled banks and savings
associations must reimburse the FDIC for any losses suffered in connection with
a failed bank or savings association affiliate. Institutions are commonly
controlled if one is owned by another or if both are owned by the same holding
company. Such claims by the FDIC under this provision are subordinate to claims
of depositors, secured creditors, and holders of subordinated debt, other than
affiliates.
The OTS has adopted regulations which permit nationwide branching to the
extent permitted by federal statute. Federal statutes permit federal savings
associations to branch outside of their home state if the association meets the
domestic building and loan test in ss.7701(a)(19) of the Code or the asset
composition test of ss.7701(c) of the Code. Branching that would result in the
formation of a multiple savings and loan holding company controlling savings
associations in more than one state is permitted if the law of the state in
which the savings association to be acquired is located specifically authorizes
acquisitions of its state-chartered associations by state-chartered associations
or their holding companies in the state where the acquiring association or
holding company is located. Moreover, Indiana banks and savings associations are
permitted to acquire other Indiana banks and savings associations and to
establish branches throughout Indiana.
Finally, The Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Riegle-Neal Act") permits bank holding companies to acquire banks
in other states and, with state consent and subject to certain limitations,
allows banks to acquire out-of-state branches either through merger or de novo
expansion. The State of Indiana enacted legislation establishing interstate
branching provisions for Indiana state-chartered banks consistent with those
established by the Riegle-Neal Act (the "Indiana Branching Law"). The Indiana
Branching Law authorizes Indiana banks to branch interstate by merger or de novo
expansion, provided that such transactions are not permitted to out-of-state
banks unless the laws of their home states permit Indiana banks to merge or
establish de novo banks on a reciprocial basis. The Indiana Branching Law became
effective March 15, 1996.
<PAGE>
Transactions with Affiliates
Citizens is subject to Sections 22(h), 23A and 23B of the Federal Reserve
Act, which restrict financial transactions between banks and affiliated
companies. The statute limits credit transactions between a bank or savings
association and its executive officers and its affiliates, prescribes terms and
conditions for bank affiliate transactions deemed to be consistent with safe and
sound banking practices, and restricts the types of collateral security
permitted in connection with a bank's extension of credit to an affiliate.
Federal Securities Law
The shares of Common Stock of the Holding Company will be registered with
the SEC under the Securities Exchange Act of 1934, as amended (the "1934 Act")
as soon as practicable following the Conversion. The Holding Company will be
subject to the information, proxy solicitation, insider trading restrictions and
other requirements of the 1934 Act and the rules of the SEC thereunder. After
three years following Citizens' conversion to stock form, if the Holding Company
has fewer than 300 shareholders, it may deregister its shares under the 1934 Act
and cease to be subject to the foregoing requirements.
Shares of Common Stock held by persons who are affiliates of the Holding
Company may not be resold without registration unless sold in accordance with
the resale restrictions of Rule 144 under the 1933 Act. If the Holding Company
meets the current public information requirements under Rule 144, each affiliate
of the Holding Company who complies with the other conditions of Rule 144
(including those that require the affiliate's sale to be aggregated with those
of certain other persons) would be able to sell in the public market, without
registration, a number of shares not to exceed, in any three-month period, the
greater of (i) 1% of the outstanding shares of the Holding Company or (ii) the
average weekly volume of trading in such shares during the preceding four
calendar weeks.
Community Reinvestment Act Matters
Federal law requires that ratings of depository institutions under the
Community Reinvestment Act of 1977 ("CRA") be disclosed. The disclosure includes
both a four-unit descriptive rating -- outstanding, satisfactory, needs to
improve, and substantial noncompliance -- and a written evaluation of an
institution's performance. Each FHLB is required to establish standards of
community investment or service that its members must maintain for continued
access to long-term advances from the FHLBs. The standards take into account a
member's performance under the CRA and its record of lending to first-time home
buyers. The OTS has designated Citizens' record of meeting community credit
needs as outstanding, which is the highest available designation.
TAXATION
Federal Taxation
Historically, savings associations, such as Citizens, have been permitted
to compute bad debt deductions using either the bank experience method or the
percentage of taxable income method. However, for years beginning after December
31, 1995, no savings association may use the percentage of taxable income method
of computing its allowable bad debt deduction for tax purposes. Instead, all
savings associations are required to compute their allowable deduction using the
experience method. As a result of the repeal of the percentage of taxable income
method, reserves taken after 1987 using the percentage of taxable income method
generally must be included in future taxable income over a six-year period,
although a two-year delay may be permitted for associations meeting a
residential mortgage loan origination test. Citizens will recapture
approximately $60,000 over a six-year period beginning with the June 30, 1997
federal tax return. In addition, the pre-1988 reserve, for which no deferred
taxes have been recorded, need not be recaptured into income unless (i) the
savings association no longer qualifies as a bank under the Code, or (ii) the
savings association pays out excess dividends or distributions.
<PAGE>
Depending on the composition of its items of income and expense, a savings
association may be subject to the alternative minimum tax. A savings association
must pay an alternative minimum tax on the amount (if any) by which 20% of
alternative minimum taxable income ("AMTI"), as reduced by an exemption varying
with AMTI, exceeds the regular tax due. AMTI equals regular taxable income
increased or decreased by certain tax preferences and adjustments, including
depreciation deductions in excess of that allowable for alternative minimum tax
purposes, tax-exempt interest on most private activity bonds issued after August
7, 1986 (reduced by any related interest expense disallowed for regular tax
purposes), the amount of the bad debt reserve deduction claimed in excess of the
deduction based on the experience method and 75% of the excess of adjusted
current earnings over AMTI (before this adjustment and before any alternative
tax net operating loss). AMTI may be reduced only up to 90% by net operating
loss carryovers, but alternative minimum tax paid can be credited against
regular tax due in later years.
For federal income tax purposes, Citizens has been reporting its income
and expenses on the accrual method of accounting. Citizens' federal income tax
returns have not been audited in recent years.
State Taxation
Citizens is subject to Indiana's Financial Institutions Tax ("FIT"), which
is imposed at a flat rate of 8.5% on "adjusted gross income." "Adjusted gross
income," for purposes of FIT, begins with taxable income as defined by Section
63 of the Code and, thus, incorporates federal tax law to the extent that it
affects the computation of taxable income. Federal taxable income is then
adjusted by several Indiana modifications. Other applicable state taxes include
generally applicable sales and use taxes plus real and personal property taxes.
Citizens' state income tax returns have not been audited in recent years.
Current Accounting Issues
In November 1993, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 93-6, "Employer's Accounting for Employee
Stock Ownership Plans." The SOP, among other things, changed the measure of
compensation expense recorded by employers from the cost of employee stock
ownership plan shares allocated to employees during the period to the fair value
of employee stock ownership plan shares allocated. Assuming the acquisition of
shares of stock by the ESOP, the application of SOP 93-6 is likely to result in
fluctuations in compensation expense due to changes in the fair value of the
stock.
In October, 1995, the FASB issued SFAS No. 123 entitled "Accounting for
Stock-Based Compensation." SFAS No. 123 establishes a fair value based method of
accounting and disclosing the amount of stock-based compensation paid to
employees. Historically, Accounting Principles Board ("APB") Opinion No. 25
"Accounting for Stock Issued to Employees" has measured compensation cost using
the method based on the award's intrinsic value. Those electing to remain with
the accounting in APB Opinion No. 25 must make pro forma disclosures of net
income and, when presented, earnings per share, as if the fair value based
method of accounting defined in SFAS 123 had been applied. The disclosure
provisions of SFAS No. 123 have been adopted by Citizens. Management does not
believe that adoption of SFAS No. 123 disclosure provisions will have a material
adverse effect on Citizens' consolidated financial position or results of
operations.
In June, 1996, the FASB issued SFAS No. 125, "Accounting for Transfers of
Financial Assets, Servicing Rights and Extinguishment of Liabilities," that
provides accounting guidance on transfers of financial assets, servicing of
financial assets, and extinguishment of liabilities. SFAS No. 125 superseded
portions of SFAS No. 122. SFAS No. 125 introduces an approach to accounting for
transfers of financial assets that provides a means of dealing with more complex
transactions in which the seller disposes of only a partial interest in the
assets, retains rights or obligations, makes use of special purpose entities in
the transaction, or otherwise has continuing involvement with the transferred
assets. The new accounting method provides that the carrying amount of the
financial assets transferred be allocated to components of the transaction based
on their relative fair values. Transactions subject to the provisions of SFAS
No. 125 include, among others, transfers involving repurchase agreements,
securitizations of financial assets, loan participations and transfers of
receivables with recourse. An entity that undertakes an obligation to service
financial assets recognizes either a servicing asset or liability for the
servicing contract. A servicing asset or liability that is purchased or assumed
is initially recognized at its fair value. Servicing assets and liabilities are
amortized in proportion to and over the period of estimated net servicing income
or net servicing loss and are subject to subsequent assessments for impairment
based on fair value. SFAS No. 125 provides that a liability is removed from the
balance sheet only if the debtor either pays the creditor and is relieved of its
obligation for the liability or is legally released from being the primary
obligor. SFAS No. 125 is effective for applicable transactions occurring after
December 31, 1996, and is to be applied prospectively. Retroactive application
is not permitted. Management does not believe that adoption of SFAS No. 125 will
have a material adverse effect on Citizens' financial position or results of
operations.
<PAGE>
Item 2. Properties.
The following table provides certain information with respect to
Citizens' office as of June 30, 1997:
<TABLE>
<CAPTION>
Net Book
Value of
Property, Approximate
Description Owned or Year Total Furniture & Square
and Address leased Opened Deposits Fixtures Footage
----------- ------ ------ -------- -------- -------
(Dollars in thousands)
<C> <C> <C> <C> <C> <C>
60 South Main Street Owned 1977 $36,355 $578 13,924
Frankfort, IN 46041
</TABLE>
Citizens owns computer and data processing equipment which it uses for
transaction processing, loan origination, and accounting. The net book value of
Citizens' electronic data processing equipment was approximately $21,000 at June
30, 1997.
Citizens operates one automated teller machine ("ATM"), which is located
in the vestibule of its office. Citizens' ATM participates in the Cirrus(R) and
MagicLine(R) networks.
Citizens has also contracted for the data processing and reporting
services of BISYS, Inc. in Houston, Texas. The cost of these data processing
services is approximately $8,500 per month.
Citizens has contracted with the FHLB of Indianapolis for item processing
for a fee of approximately $3,000 per month.
Item 3. Legal Proceedings.
Neither the Holding Company nor Citizens is a party to any pending
legal proceedings, other than routine litigation incidental to the Holding
Company's or Citizens' business.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the Holding Company's shareholders
during the quarter ended June 30, 1997.
Item 4.5. Executive Officers of the Registrant.
The executive officers of the Holding Company are identified below. The
executive officers of the Holding Company are elected annually by the Holding
Company's Board of Directors.
Name Position with Holding Company
Fred W. Carter Chairman of the Board, President and
Chief Executive Officer
Stephen D. Davis Treasurer
Cindy S. Chambers Secretary
Fred W. Carter (age 65) has served as President and Chief Executive
Officer of Citizens and CLSC since 1972, and of the Holding Company since 1997.
Mr. Carter has been an employee of Citizens since 1966 and is the father of
Cindy S. Chambers, Citizens' Secretary and Customer Service Manager.
Cindy S. Chambers (age 43) has served as Citizens' Corporate Secretary
since 1988 and as Citizens' Customer Service Manager since 1982. She has served
as the Holding Company's secretary since 1997 and is the daughter of Fred W.
Carter, Citizens' President and Chief Executive Officer.
Stephen D. Davis (age 41) has served as Citizens' Controller since 1989
and as the Holding Company's Treasurer since 1997.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
The Holding Company's common stock, without par value ("Common Stock"),
is listed over-the-counter through the OTC "Electronic Bulletin Board" under the
symbol "CIBC." The Holding Company shares began to trade on September 18, 1997.
The high and low bid prices for the period September 18, 1997 to October 20,
1997, were $15 1/2 and $13 3/4, respectively. Since the Holding Company has no
independent operation or other subsidiaries to generate income, its ability to
accumulate earnings for the payment of cash dividends to its shareholders is
directly dependent upon the ability of Citizens to pay dividends to the Holding
Company and upon the earnings on its investment securities.
Under current federal income tax law, dividend distributions to the
Holding Company, to the extent that such dividends paid are from the current or
accumulated earnings and profits of Citizens (as calculated for federal income
tax purposes), will be taxable as ordinary income to the Holding Company and
will not be deductible by Citizens. Because the Holding Company and Citizens do
not file a consolidated federal income tax return however, the dividends will be
eligible for a 100% dividends-received deduction by the Holding Company. Any
dividend distributions in excess of current or accumulated earnings and profits
will be treated for federal income tax purposes as a distribution from Citizens'
accumulated bad debt reserves, which could result in increased federal income
tax liability for Citizens. Moreover, Citizens may not pay dividends to the
Holding Company if such dividends would result in the impairment of the
liquidation account established in connection with the Conversion.
Generally, there is no OTS regulatory restriction on the payment of
dividends by the Holding Company unless there is a determination by the Director
of the OTS that there is reasonable cause to believe that the payment of
dividends constitutes a serious risk to the financial safety, soundness or
stability of Citizens. The FDIC also has authority under current law to prohibit
a financial institution from paying dividends if, in its opinion, the payment of
dividends would constitute an unsafe or unsound practice in light of the
financial condition of the financial institution. Indiana law, however, would
prohibit the Holding Company from paying a dividend, if, after giving effect to
the payment of that dividend, the Holding Company would not be able to pay its
debts as they become due in the usual course of business or the Holding
Company's total assets would be less than the sum of its total liabilities plus
preferential rights of holders of preferred stock, if any.
The Holding Company paid no dividends to its shareholders in the fiscal
year ended June 30, 1997.
Item 6. Selected Financial Data.
The following selected financial data of the Holding Company is
qualified in its entirety, and should be read in conjunction with, the
consolidated financial statements, including notes thereto, included elsewhere
in this Form 10-K.
<TABLE>
<CAPTION>
AT JUNE 30,
1997 1996 1995
---- ---- ----
(In thousands)
Summary of Selected Consolidated Financial Condition Data:
<S> <C> <C> <C>
Total assets...................................................... $46,353 $44,235 $39,727
Loans receivable, net (1)......................................... 38,435 34,391 29,275
Cash on hand and in other institutions (2)........................ 4,125 3,308 4,310
Investment securities available for sale.......................... 161 3,003 2,832
Cash surrender value of life insurance contract................... 1,076 1,035 99
FHLB advances..................................................... 4,000 3,000 1,500
Deposits.......................................................... 36,355 35,600 33,175
Retained income................................................... 5,691 5,320 4,841
Unrealized loss on investment securities
available for sale............................................. --- (51) (49)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996 1995
------- ------- -------
(In thousands)
Summary of Selected Consolidated Operating Data:
<S> <C> <C> <C>
Total interest income............................................. $3,509 $3,186 $2,742
Total interest expense............................................ 1,814 1,653 1,370
------- ------- -------
Net interest income............................................ 1,695 1,533 1,372
Provision for loan losses......................................... 83 80 32
Net interest income after
provision for loan losses.................................... 1,612 1,453 1,340
Other income:
Fees and service charges....................................... 138 152 151
Other.......................................................... 21 94 70
------- ------- -------
Total other income........................................... 159 246 221
Other expense:
Salaries and employee benefits................................. 485 415 387
Occupancy expense.............................................. 114 118 109
Data processing expense........................................ 108 101 105
Federal insurance premiums..................................... 259 77 75
Other.......................................................... 251 256 248
------- ------- -------
Total other expense........................................... 1,217 967 924
------- ------- -------
Income before income taxes........................................ 554 732 637
Income taxes...................................................... 183 253 231
------- ------- -------
Income before cumulative effect of
change in accounting principle................................. 371 479 406
Cumulative effect of change in
accounting for income taxes.................................... --- --- ---
------- ------- -------
Net income..................................................... $ 371 $ 479 $ 406
======= ======= =======
Supplemental Data:
Interest rate spread during period................................ 3.75% 3.75% 3.69%
Net yield on interest-earning assets (3).......................... 4.02 3.99 3.92
Return on assets (4).............................................. .82 1.15 1.07
Return on equity (5).............................................. 6.81 9.52 8.89
Equity to assets (6).............................................. 12.28 11.91 12.06
Average interest-earning assets to average
interest-bearing liabilities................................... 106.31 105.61 105.84
Non-performing assets to total assets (6)......................... .74 .50 .35
Allowance for loan losses to total loans
outstanding (6)................................................ .55 .40 .16
Allowance for loan losses to
non-performing loans (6)....................................... 61.57 62.51 33.19
Net (charge-offs) recoveries to average
total loans outstanding ....................................... (.03) .04 (.12)
Other expenses to average assets (7)............................. 2.67 2.32 2.44
Number of full service offices (6)................................ 1 1 1
</TABLE>
(1) Net of allowance for loan losses, deferred fees and escrow.
(2) Includes certificates of deposit in other financial institutions.
(3) Net interest income divided by average interest-earning assets.
(4) Net income divided by average total assets.
(5) Net income divided by average total equity.
(6) At end of period.
(7) Other expenses divided by average total assets.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
General
The Holding Company was incorporated for the purpose of owning all of
the outstanding shares of Citizens. As a result, the discussion that follows
focuses on Citizens' financial condition and results of operations prior to
September 18, 1997, the date of the Conversion. The following discussion and
analysis of the financial condition as of June 30, 1997 and Citizens' results of
operations for periods prior to that date should be read in conjunction with and
with reference to the consolidated financial statements and the notes thereto
included herein.
In addition to the historical information contained herein, the
following discussion contains forward-looking statements that involve risks and
uncertainties. The Holding Company's operations and actual results could differ
significantly from those discussed in the forward-looking statements. Some of
the factors that could cause or contribute to such differences are discussed
herein but also include changes in the economy and interest rates in the nation
and the Holding Company's general market area. The forward-looking statements
contained herein include, but are not limited to, those with respect to the
following matters:
1. Management's determination of the amount of loan loss allowance;
2. The effect of changes in interest rates;
3. Changes in deposit insurance premiums; and
4. Proposed legislation that would eliminate the federal thrift charter
and the separate federal regulation of thrifts.
Asset/Liability Management
Citizens 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 its interest-earning
assets. Management believes it is critical to manage the relationship between
interest rates and the effect on 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. Citizens manages assets and
liabilities within the context of the marketplace, regulatory limitations and
within limits established by its Board of Directors on the amount of change in
NPV which is acceptable given certain interest rate changes.
Interest risk exposure is monitored monthly by an Asset/Liability
Management Committee which considers various factors such as current local and
national economic conditions and interest rate outlook as well as Citizens' loan
and deposit demand, pricing and maturity structure. This Committee periodically
updates Citizens' interest rate risk strategy which primarily involves modifying
asset/liability terms and mix as considered appropriate. An increased emphasis
on consumer loans, which generally have shorter terms to maturity than
residential mortgage loans, in addition to an increase in the volume of
adjustable-rate loans, including multi-family and non-residential mortgage loans
and home equity lines of credit, have been the major strategies for asset
management. Citizens has also attempted to lengthen the average maturity of its
liabilities by offering special rates on longer term certificates of deposit.
Long term advances from the FHLB of Indianapolis are also an available source of
funds which could help Citizens with future liability management.
The OTS issued a regulation, which uses a net market value methodology to
measure the interest rate risk exposure of savings associations. Under this OTS
regulation, an institution's "normal" level of interest rate risk in the event
of an assumed change in interest rates is a decrease in the institution's NPV in
an amount not exceeding 2% of the present value of its assets. Savings
associations with over $300 million in assets or less than a 12% risk-based
capital ratio are required to file OTS Schedule CMR. Data from Schedule CMR is
used by the OTS to calculate changes in NPV (and the related "normal" level of
interest rate risk) based upon certain interest rate changes (discussed below).
Associations which do not meet either of the filing requirements are not
required to file OTS Schedule CMR, but may do so voluntarily. As Citizens does
not meet either of these requirements, it is not required to file Schedule CMR,
although it does so voluntarily. Under the regulation, associations which must
file are required to take a deduction (the interest rate risk capital component)
from their total capital available to calculate their risk based capital
requirement if their interest rate exposure is greater than "normal." The amount
of that deduction is one-half of the difference between (a) the institution's
actual calculated exposure to a 200 basis point interest rate increase or
decrease (whichever results in the greater pro forma decrease in NPV) and (b)
its "normal" level of exposure which is 2% of the present value of its assets.
<PAGE>
Presented below, as of June 30, 1997, is an analysis performed by the OTS
of Citizens' 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. At June 30, 1997, 2% of the present value of
Citizens' assets was approximately $961,000. Because the interest rate risk of a
200 basis point increase in market rates (which was greater than the interest
rate risk of a 200 basis point decrease) was $1.1 million at June 30, 1997,
Citizens would have been required to deduct $64,000 from its total capital
available to calculate its risk based capital requirement if Citizens had been
subject to the OTS' reporting requirements under this methodology. Citizens'
exposure to interest rate risk results from the concentration of fixed rate
mortgage loans in its portfolio.
<TABLE>
<CAPTION>
Change Net Portfolio Value NPV as % of Present Value of Assets
In Rates $ Amount $ Change % Change NPV Ratio Change
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+ 400 bp * $4,933 $(2,387) (33)% 11.02% (422) bp
+ 300 bp 5,588 (1,732) (24)% 12.24% (300) bp
+ 200 bp 6,232 (1,088) (15)% 13.40% (184) bp
+ 100 bp 6,827 (493) (7)% 14.43% (81) bp
0 bp 7,320 --- --- % 15.24% --- bp
- 100 bp 7,575 255 3 % 15.61% 37 bp
- 200 bp 7,504 184 3 % 15.40% 16 bp
- 300 bp 7,424 104 1 % 15.18% (6)bp
- 400 bp 7,543 223 3 % 15.30% 6 bp
</TABLE>
* Basis points.
As with any method of measuring interest rate risk, the methods of
analysis presented above have certain shortcomings. 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-rate loans, have features which restrict changes in
interest rates on a short-term basis and over the life of the asset. Further, in
the event of a change in interest rates, expected rates of prepayments on loans
and early withdrawals from certificates could likely deviate significantly from
those assumed in calculating the table.
Average Balances and Interest Rates and Yields
The following tables present at the fiscal years ended June 30, 1997,
1996 and 1995, the average daily balances of each category of Citizens'
interest-earning assets and interest-bearing liabilities, and the interest
earned or paid on such amounts.
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996 1995
---------------------------- ---------------------------- ----------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits............$ 3,446 $ 179 5.21% $ 3,109 $ 182 5.85% $ 3,713 $ 181 4.89%
FHLB stock........................... 332 26 7.84 332 26 7.91 332 23 7.06
Investment securities
available for sale (1)............. 1,527 94 6.14 3,001 174 5.81 2,832 154 5.43
Loans receivable (2)................. 36,843 3,210 8.71 31,980 2,804 8.77 28,121 2,384 8.48
------ ----- ------ ----- ------ -----
Total interest-earning assets...... 42,148 3,509 8.33 38,422 3,186 8.29 34,998 2,742 7.84
======= ======= ========
Interest-bearing liabilities:
Deposits............................. 36,436 1,641 4.50 34,456 1,539 4.47 32,605 1,341 4.12
FHLB advances........................ 3,212 173 5.41 1,923 114 5.94 462 29 6.24
------ ----- ------ ----- ------ -----
Total interest-bearing liabilities. 39,648 1,814 4.58 36,379 1,653 4.54 33,067 1,370 4.15
------ ----- ------ ----- ------ -----
Net interest-earning assets.............$ 2,500 $ 2,043 $ 1,931
======= ======= ========
Net interest income..................... $1,695 $1,533 $1,372
====== ====== ======
Interest rate spread (3)................ 3.75% 3.75% 3.69%
==== ==== ====
Net yield on weighted average
interest-earning assets (4).......... 4.02% 3.99% 3.92%
==== ==== ====
Average interest-earning assets
to average interest-bearing
liabilities.......................... 106.31% 105.61% 105.84%
====== ====== ======
</TABLE>
(1) Includes securities available for sale at amortized cost prior to SFAS No.
115 adjustments.
(2) Total loans less loans in process. Average balances include non-accrual
loans.
(3) Interest rate spread is calculated by subtracting weighted average
interest rate cost from weighted average interest rate yield for the
period indicated.
(4) The net yield on weighted average interest-earning assets is calculated by
dividing net interest income by weighted average interest-earning assets
for the period indicated.
Interest Rate Spread
Citizens' results of operations have been determined primarily by net
interest income and, to a lesser extent, fee income, miscellaneous income and
general and administrative expenses. Citizens' net interest income is determined
by the interest rate spread between the yields it earns on interest-earning
assets and the rates paid on interest-bearing liabilities, and by the relative
amounts of interest-earning assets and interest-bearing liabilities.
<PAGE>
The following table sets forth the weighted average effective interest
rate that Citizens earned on its loan and investment portfolios, the weighted
average effective cost of its deposits and advances, the interest rate spread,
and net yield on weighted average interest-earning assets for the periods and as
of the dates shown. Average balances are based on average monthly balances.
Management believes that the use of month-end average balances instead of daily
average balances has not caused any material difference in the information
presented.
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996 1995
-------------------------------------
Weighted average interest rate earned on:
<S> <C> <C> <C>
Interest-bearing deposits....................... 5.21% 5.85% 4.89%
FHLB stock...................................... 7.84 7.91 7.06
Investment securities........................... 6.14 5.81 5.43
Loans receivable................................ 8.71 8.77 8.48
Total interest-earning assets................. 8.33 8.29 7.84
Weighted average interest rate cost of:
Deposits........................................ 4.50 4.47 4.12
FHLB advances................................... 5.41 5.94 6.24
Total interest-bearing liabilities............ 4.58 4.54 4.15
Interest rate spread (1)........................... 3.75% 3.75% 3.69%
==== ==== ====
Net yield on weighted average
interest-earning assets (2)..................... 4.02% 3.99% 3.92%
==== ==== ====
</TABLE>
(1) Interest rate spread is calculated by subtracting combined weighted
average interest rate cost from combined weighted average interest rate
earned for the period indicated. Interest rate spread figures must be
considered in light of the relationship between the amounts of
interest-earning assets and interest-bearing liabilities.
(2) The net yield on weighted average interest-earning assets is calculated
by dividing net interest income by weighted average interest-earning
assets for the period indicated.
<PAGE>
The following table describes the extent to which changes in interest
rates and changes in volume of interest-related assets and liabilities have
affected Citizens' interest income and expense during the periods indicated. For
each category of interest-earning asset and interest-bearing liability,
information is provided on changes attributable to (1) changes in rate (changes
in rate multiplied by old volume) and (2) changes in volume (changes in volume
multiplied by old rate). Changes attributable to both rate and volume which
cannot be segregated have been allocated proportionally to the change due to
volume and the change due to rate.
<TABLE>
<CAPTION>
Increase (Decrease) in Net Interest Income
---------------------------------------------------
Total
Due to Due to Net
Rate Volume Change
------- ------- -------
(In thousands)
Year ended June 30, 1997 compared
to year ended June 30, 1996
Interest-earning assets:
<S> <C> <C> <C>
Interest-bearing deposits............... $ (21) $ 19 $ (2)
FHLB stock.............................. (1) --- (1)
Investment securities................... 10 (90) (80)
Loans receivable........................ (19) 425 406
------- ---- ----
Total................................. (31) 354 323
------- ---- ----
Interest-bearing liabilities:
Deposits................................ 10 92 102
FHLB advances........................... (11) 70 59
------- ---- ----
Total................................. (1) 162 161
------- ---- ----
Net change in net interest income......... $ (30) $192 $162
======= ==== ====
Year ended June 30, 1996 compared
to year ended June 30, 1995
Interest-earning assets:
Interest-bearing deposits............... $ 32 $ (32) $ ---
FHLB stock.............................. 3 --- 3
Investment securities................... 11 10 21
Loans receivable........................ 84 336 420
------- ---- ----
Total................................. 130 314 444
------- ---- ----
Interest-bearing liabilities:
Deposits................................ 118 79 197
FHLB advances........................... (2) 87 85
------- ---- ----
Total................................. 116 166 282
------- ---- ----
Net change in net interest income......... $ 14 $ 148 $ 162
======= ==== ====
Year ended June 30, 1995 compared
to year ended June 30, 1994
Interest-earning assets:
Interest-bearing deposits............... $ 60 $ (130) $ (70)
FHLB stock.............................. 4 --- 4
Investment securities................... 29 17 46
Loans receivable........................ 38 300 338
------- ---- ----
Total................................. 131 187 318
------- ---- ----
Interest-bearing liabilities:
Deposits................................ 42 27 69
FHLB advances........................... --- 28 28
------- ---- ----
Total................................. 42 55 97
------- ---- ----
Net change in net interest income......... $ 89 $ 132 $ 221
======= ==== ====
</TABLE>
<PAGE>
Financial Condition at June 30, 1997 Compared to Financial Condition at June 30,
1996
Citizens' total consolidated assets increased by $2.2 million, or 4.8%, to
$46.4 million at June 30, 1997 from $44.2 million at June 30, 1996. Net loans
receivable increased $4.0 million, or 11.8%, while investment securities
decreased $2.8 million and FHLB advances increased $1.0 million. Citizens funded
the increased loans primarily with the increase in interest-bearing deposits of
$755,000, the sale of investment securities and with the additional FHLB
advance. Capital increased $371,000, or 7.0%, to $5.7 million in 1997 from $5.3
million in 1996.
Financial Condition at June 30, 1996 Compared to Financial Condition at June 30,
1995
Total consolidated assets increased by $4.5 million, or 11.4%, to $44.2
million at June 30, 1996 from $39.7 million at June 30, 1995. The increase in
assets for the period was primarily attributable to the growth in Citizens' loan
portfolio of $5.1 million. This increase in loan volume was primarily due to
increased loan demand generated by economic growth in Citizens' market area, and
a more aggressive loan origination program. Loan growth was funded mainly from
an increase in deposits of approximately $2.4 million and an increase in Federal
Home Loan Bank advances of $1.5 million.
The increase in the loan portfolio was comprised primarily of mortgage
loans which increased approximately $4.0 million.
Comparison of Operating Results For Years Ended June 30, 1997 and 1996
Net Income. Net income decreased $108,000, or 22.5%, to $371,000 in 1997
from $479,000 for 1996. This decrease primarily resulted from Citizens'
recognition of the one-time, non-recurring SAIF special assessment in the amount
of $211,000, ($127,000 net of tax) and the sale of an investment at a loss of
approximately $60,000. Citizens chose to sell the investment in order to use the
proceeds to pay down FHLB advances and to increase overall liquidity. These
expenses were offset by an increase of $162,000 in net interest income to $1.7
million for 1997 from $1.5 million for 1996. Excluding the SAIF assessment and
the loss on the sale of investments, net income would have increased $55,000, or
11.5%, to $534,000 for the twelve months ended June 30, 1997 from $479,000 in
1996.
Net Interest Income. Net interest income increased $162,000, or 10.6%, to
$1.7 million in 1997 from $1.5 million in 1996. This increase primarily resulted
from the growth in net loans receivable of $4.0 million, or 11.6%, to $38.4
million in 1997 from $34.4 million in 1996.
Provisions for Loan Losses. Provisions for loan losses for 1997 and 1996
were $83,000 and $80,000, respectively. Citizens increased its provision for
1997 to recognize the increase in consumer loan losses being experienced by
financial institutions nationally, regionally and locally as well as the risks
associated with individually large multi-family and nonresidential real estate
loans. Citizens had no chargeoffs in fiscal year 1996 and experienced $12,000 in
recoveries. Citizens had chargeoffs of $12,000 in fiscal year 1997 and its
allowance for loan loss as of June 30, 1997 was $212,000.
Other Income. Other income decreased approximately $87,000, or 35.4%, in
1997 as compared to 1996. This decrease resulted from the sale of an investment
security at a loss of approximately $60,000, a decrease in fees and service
charges and decreases in other miscellaneous income.
Other Expense. Other expenses increased $250,000 or 25.9% to $1.2 million
in 1997 from $967,000 in 1996. The increase was primarily attributable to an
increase of $47,000 in salaries and benefits, an increase of $196,000 in SAIF
insurance premiums and a $9,000 increase in occupancy expense relating to the
installation of new computers, a "Loan Doc Prep" software package and a Local
Area Network (LAN).
Income Tax Expense. Income tax expense decreased $70,000, or 27.7%, to
$183,000 in 1997 from $253,000 in 1996. The decrease resulted primarily from
Citizens reduced profits in 1997 caused by recognition of the one-time,
non-recurring SAIF special assessment in the amount of $211,000 ($127,000 net of
tax) and the sale of an investment at a loss of approximately $60,000.
<PAGE>
Comparison of Operating Results For Fiscal Years Ended June 30, 1996 and 1995
Net Income. Net income increased $73,000, or 18.0%, to $479,000 for 1996
from $406,000 for 1995. The increase was primarily due to the increase in the
size of Citizens' loan portfolio and the increase in its net interest income.
Net Interest Income. Net interest income increased $161,000, or 11.7%, to
$1.5 million in 1996 from $1.4 million in 1995. This increase was due primarily
to the growth of average interest earning assets to $38.4 million in 1996 from
$35.0 million in 1995. In addition, Citizens' interest rate spread increased to
3.75% in 1996 from 3.7% in 1995 and net interest margin increased to 4.0% in
1996 from 3.9% in 1995.
The increase in average interest-earning assets of $3.4 million reflects
an increase of $3.9 million in average loans, an increase in investments of
$169,000 and a decrease in interest-bearing deposits of $604,000.
Interest rate spread and net interest margin increased in 1996 compared to
1995. This was due to the increase in the yield on average interest-earning
assets to 8.3% in 1996 from 7.8% in 1995, while interest-bearing liabilities
increased to 4.5% in 1996 from 4.2% in 1995.
The yield on average interest-earning assets increased in 1996 due to an
increase in the yield of both loans and investments. Generally positive economic
conditions resulted in sustained loan demand, which resulted in an increase in
the yield on average interest-earning assets.
The increase in the cost of average interest-bearing liabilities was due
primarily to increases in the cost of interest-bearing deposits, to 4.5% in 1996
from 4.1% in 1995. This was partially offset by the decrease in the cost of
short-term borrowings to 5.9% in 1996 from 6.2% in 1995.
Provisions for Loan Losses. Provisions for loan losses for 1996 and 1995
were $80,000 and $32,000, respectively. The increase of $48,000 in 1996 was made
to increase Citizens' allowance commensurate with an increase in residential
mortgage, construction and consumer lending and the inherent risk associated
with each type of lending. Citizens did not charge off any amounts during 1996
and experienced a $12,000 recovery during that period. The $37,000 charge off in
1995 was partially offset by a $2,000 recovery.
Allowances for loan loss for 1996 and 1995 were $138,000 and $46,000
respectively.
Other Income. Other income increased approximately $25,000, or 11.3%, in
1996 as compared to 1995. This increase was primarily the result of a profit of
$24,000 in 1996 from CLSC, Citizens' wholly-owned service corporation.
Other Expense. Other expense increased $43,000, or 4.7%, to $967,000 in
1996 from $924,000 in 1995. The increase was primarily attributable to an
increase of $28,000 in salaries and benefits, primarily due to hiring an
additional loan officer, and a $9,000 increase in occupancy expense in
connection with the installation of new computers, a "Loan Doc Prep" software
package and a Local Area Network (LAN).
Income Tax Expense. Income tax expense increased $22,000, or 9.5%, to
$253,000 in 1996 from $231,000 in 1995. The increase was the result of the
increased net income earned in 1996.
Liquidity and Capital Resources
Citizens' primary sources of funds are deposits, borrowings and the
proceeds from principal and interest payments on loans. While maturities and
scheduled amortization of loans are a predictable source of funds, deposit flows
and mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition.
Citizens' primary investing activity is the origination of loans. During
the years ended June 30, 1997, 1996 and 1995, it originated total loans in the
amounts of $17.5 million, $15.4 million and $11.4 million, respectively.
Citizens purchased loans totaling $64,000 in the fiscal year ended June 30,
1996. Loan principal repayments totaled $13.3 million, $10.3 million and $8.3
million during the respective periods.
<PAGE>
During the years ended June 30, 1997, 1996, and 1995, Citizens purchased
securities in the amounts of $65,000, $169,000 and $154,000, respectively.
Citizens did not receive any proceeds for the sale of securities during 1996 or
1995. During the year ended June 30, 1997, however, Citizens sold approximately
$2.9 million of securities for a loss of approximately $60,000.
Citizens had outstanding loan commitments of $592,000 and unused lines of
credit of approximately $2.5 million at June 30, 1997. The unused lines
represent available borrowings under existing home equity lines of credit.
Citizens anticipates that it will have sufficient funds from loan repayments and
from its ability to borrow additional funds from the FHLB of Indianapolis to
meet its current commitments. Certificates of deposit scheduled to mature in one
year or less at June 30, 1997 totaled $3.3 million. Management believes that a
significant portion of such deposits will remain with Citizens based upon
historical deposit flow data and Citizens' competitive pricing in its market
area.
Liquidity management is both a daily and long-term function of Citizens'
management strategy. In the event that Citizens should require funds beyond its
ability to generate them internally, additional funds are available through the
use of FHLB advances. Citizens had outstanding FHLB advances in the amount of
$4.0 million at June 30, 1997.
The following is a summary of Citizens' cash flows, which are of three
major types. Cash flows from operating activities consist primarily of net
income generated by cash. Investing activities generate cash flows through the
origination and principal collection on loans as well as purchases and sales of
securities. Investing activities will generally result in negative cash flows
when Citizens experiences loan growth. Cash flows from financing activities
include savings deposits, withdrawals and maturities and changes in borrowings.
The following table summarizes cash flows for each year in the three-year period
ended June 30, 1997.
Year Ended June 30,
1997 1996 1995
------- ------- -------
(In thousands)
Operating activities................... $266 $ 518 $ 494
Investing activities:
Purchases of
investment securities............. (65) (169) (154)
Sales of investment securities...... 2,932 --- ---
Principal collected on loans........ 13,251 10,279 8,263
Loans originated.................... (17,474) (15,419) (11,434)
Loans sold.......................... 91 --- ---
Loans purchased..................... --- (64) ---
Change in land held
for development................... 77 (3) (682)
Purchases of equipment.............. (16) (69) (25)
------- ------- -------
Total from investing activities........ (938) (4,927) (3,538)
Financing activities:
Increase/(decrease) in NOW,
MMDA and passbook deposits........ 305 460 (1,991)
Increase in certificates
of deposit........................ 450 1,965 1,129
Advances from FHLB.................. 14,500 4,500 6,000
Payments to FHLB.................... (13,500) (3,000) (4,500)
------- ------- -------
Total from financing activities........ 1,755 3,925 638
------- ------- -------
Net increase/(decrease) in cash
and cash equivalents................ $ 817 $(1,002) $(2,900)
======= ======= =======
<PAGE>
Federal regulations require FHLB-member savings associations to maintain
an average daily balance of liquid assets equal to a monthly average of not less
than a specified percentage of their net withdrawable savings deposits plus
short-term borrowings. Liquid assets include cash, certain time deposits,
certain bankers' acceptances, specified U.S. government, state or federal agency
obligations, certain corporate debt securities, commercial paper, certain mutual
funds, certain mortgage-related securities, and certain first lien residential
mortgage loans. This liquidity requirement may be changed from time-to-time by
the OTS to any amount within the range of 4% to 10%, and is currently 5%,
although the OTS has proposed a reduction of the percentage to 4%. Also, a
savings association currently must maintain short-term liquid assets
constituting at least 1% of its average daily balance of net withdrawable
deposit accounts and current borrowings, although the OTS has proposed
eliminating this requirement. Monetary penalties may be imposed for failure to
meet these liquidity requirements. As of June 30, 1997, Citizens had liquid
assets of $2.6 million, and a regulatory liquidity ratio of 6.7%, all of which
constituted short-term investments.
Pursuant to OTS capital regulations, savings associations must currently
meet a 1.5% tangible capital requirement, a 3% leverage ratio (or core capital)
requirement, and a total risk-based capital to risk-weighted assets ratio of 8%.
At June 30, 1997, Citizens' tangible capital ratio was 10.3%, its core capital
ratio was 10.3%, and its risk-based capital to risk-weighted assets ratio was
18.1%. Therefore, at June 30, 1997, Citizens' capital levels exceeded all
applicable regulatory capital requirements currently in effect. The following
table provides the minimum regulatory capital requirements and Citizens' capital
ratios as of June 30, 1997:
<TABLE>
<CAPTION>
At June 30, 1997
------------------------------------------------------------------------------
OTS Requirement Citizens' Capital Level
------------------------ --------------------------------------------
% of % of Amount
Capital Standard Assets Amount Assets(1) Amount of Excess
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Tangible capital........... 1.5% $ 683 10.3% $4,698 $4,015
Core capital (2)........... 3.0 1,365 10.3 4,698 3,333
Risk-based capital......... 8.0 2,174 18.1 4,910 2,736
</TABLE>
(1) Tangible and core capital levels are shown as a percentage of total
assets; risk-based capital levels are shown as a percentage of
risk-weighted assets.
(2) The OTS has proposed and is expected to adopt a core capital requirement
for savings associations comparable to that adopted by the OCC for
national banks. The new regulation, as proposed, would require at least 3%
of total adjusted assets for savings associations that received the
highest supervisory rating for safety and soundness, and 4% to 5% for all
other savings associations. The final form of such new OTS core capital
requirement may differ from that which has been proposed. Citizens expects
to be in compliance with such new requirements. See "Regulation -- Savings
Association Regulatory Capital."
As of June 30, 1997, management is not aware of any current recommendations
by regulatory authorities which, if they were to be implemented, would have, or
are reasonably likely to have, a material adverse effect on Citizens' liquidity,
capital resources or results of operations.
Impact of Inflation
The consolidated financial statements presented herein have been prepared
in accordance with generally accepted accounting principles. These principles
require the measurement of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money over time due to inflation.
<PAGE>
Citizens' primary assets and liabilities are monetary in nature. As a
result, interest rates have a more significant impact on Citizens' performance
than the effects of general levels of inflation. Interest rates, however, do not
necessarily move in the same direction or with the same magnitude as the price
of goods and services, since such prices are affected by inflation. In a period
of rapidly rising interest rates, the liquidity and maturities structures of
Citizens' assets and liabilities are critical to the maintenance of acceptable
performance levels.
The principal effect of inflation, as distinct from levels of interest
rates, on earnings is in the area of noninterest expense. Such expense items as
employee compensation, employee benefits and occupancy and equipment costs may
be subject to increases as a result of inflation. An additional effect of
inflation is the possible increase in the dollar value of the collateral
securing loans that Citizens has made. Management is unable to determine the
extent, if any, to which properties securing Citizens' loans have appreciated in
dollar value due to inflation.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
[ERNST & YOUNG LETTERHEAD]
Report of Independent Auditors
Board of Directors
Citizens Savings Bank of Frankfort
We have audited the accompanying consolidated statements of condition of
Citizens Savings Bank of Frankfort and subsidiary as of June 30, 1997 and 1996,
and the related consolidated statements of income and changes in retained income
and cash flows for each of the three years in the period ended June 30, 1997.
These financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Citizens Savings
Bank of Frankfort and subsidiary at June 30, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1997, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Indianapolis, Indiana
August 22, 1997
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Consolidated Statements of Condition
<TABLE>
<CAPTION>
June 30
1997 1996
-------------------------------------
<S> <C> <C>
Assets
Cash on
hand and in other institutions $ 861,360 $ 655,488
Interest-bearing deposits 3,263,687 2,652,686
Investment securities available for sale 160,995 3,003,242
Stock in Federal Home Loan Bank of Indianapolis 331,600 331,600
Loans receivable 38,435,416 34,391,405
Land held for development 995,908 1,072,800
Cash surrender value of life insurance contract 1,075,840 1,034,553
Property and equipment 578,343 603,464
Other assets 650,161 490,058
-------------------------------------
Total assets $46,353,310 $44,235,296
=====================================
Liabilities and Retained Income
Deposits $36,355,213 $35,600,140
Federal Home Loan Bank advances 4,000,000 3,000,000
Other liabilities 307,303 366,157
Total liabilities 40,662,516 38,966,297
Retained income - substantially restricted 5,690,794 5,319,852
Unrealized loss on investment securities available
for sale, net of tax --- (50,853)
-------------------------------------
5,690,794 5,268,999
-------------------------------------
Total liabilities and retained income $46,353,310 $44,235,296
=====================================
</TABLE>
See accompanying notes.
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years ended June 30
1997 1996 1995
------------------------------------------------------
Interest income:
<S> <C> <C> <C>
Interest on loans $3,210,018 $2,803,774 $2,383,591
Other interest income 299,370 382,453 358,661
------------------------------------------------------
3,509,388 3,186,227 2,742,252
Interest expense:
Interest on deposits 1,640,868 1,538,886 1,341,925
Interest on borrowings 173,668 114,253 28,812
------------------------------------------------------
1,814,536 1,653,139 1,370,737
------------------------------------------------------
Net interest income 1,694,852 1,533,088 1,371,515
Provision for loan losses 83,000 80,000 32,000
------------------------------------------------------
Net interest income after provision
for loan losses 1,611,852 1,453,088 1,339,515
Other income:
Fees and service charges 138,342 152,379 151,726
Loss on sale of investments (60,243) --- ---
Other 80,733 94,097 69,731
------------------------------------------------------
158,832 246,476 221,457
Other expense:
Salaries and employee benefits 485,151 414,730 387,245
Occupancy expense 114,449 117,967 109,842
Data processing expense 107,764 101,675 104,619
Federal insurance premium 258,685 76,868 75,078
Other 250,468 256,137 247,470
------------------------------------------------------
1,216,517 967,377 924,254
------------------------------------------------------
Income before income taxes 554,167 732,187 636,718
Income taxes 183,225 253,257 230,549
------------------------------------------------------
Net income $ 370,942 $ 478,930 $ 406,169
======================================================
</TABLE>
See accompanying notes.
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Consolidated Statements of Changes in Retained Income
<TABLE>
<CAPTION>
Unrealized Loss on
Retained Income Investment Securities
Substantially Available for Sale, Total Retained
Restricted Net of Tax Income
---------------------------------------------------------------------
<S> <C> <C> <C>
Balance as of June 30, 1994 $4,434,753 $ (49,697) $4,385,056
Net income 406,169 --- 406,169
Net change in unrealized loss on
investment securities available
for sale, net of tax --- 735 735
---------------------------------------------------------------------
Balance as of June 30, 1995 4,840,922 (48,962) 4,791,960
Net income 478,930 --- 478,930
Net change in unrealized loss on
investment securities available
for sale, net of tax --- (1,891) (1,891)
---------------------------------------------------------------------
Balance as of June 30, 1996 5,319,852 (50,853) 5,268,999
Net income 370,942 --- 370,942
Net change in unrealized loss on
investment securities available for
sale, net of tax --- 50,853 50,853
---------------------------------------------------------------------
Balance as of June 30, 1997 $5,690,794 $ --- $5,690,794
=====================================================================
</TABLE>
See accompanying notes.
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended June 30
1997 1996 1995
----------------------------------------------------------
Operating activities
<S> <C> <C> <C>
Net income $ 370,942 $ 478,930 $ 406,169
Adjustments to reconcile net income to net
cash provided by operating activities:
Loss on sale of investments 60,243 --- ---
Provision for loan losses 83,000 80,000 32,000
Depreciation and amortization 45,587 48,055 39,148
Deferred federal income tax credit (76,326) (74,473) (21,753)
Increase in other assets and cash surrender
value of life insurance contract (158,418) (140,525) (78,522)
Increase (decrease) in other liabilities (58,854) 126,311 116,650
----------------------------------------------------------
Net cash provided by operating activities 266,174 518,298 493,692
Investing activities
Purchases of investment securities (65,481) (169,304) (153,930)
Proceeds from sale of investment securities 2,931,693 --- ---
Principal collected on loans 13,251,130 10,279,567 8,262,649
Loans originated (17,473,565) (15,419,000) (11,433,731)
Loans purchased --- (64,000) ---
Proceeds from sale of loans 91,455 --- ---
(Increase) decrease in land held for development 76,892 (3,342) (681,907)
Purchases of equipment (16,498) (69,117) (24,516)
----------------------------------------------------------
Net cash provided (used) by investing activities (1,204,374) (5,445,196) (4,031,435)
Financing activities
Increase (decrease) in NOW, MMDA and
passbook deposits 304,545 460,126 (1,990,873)
Increase in certificates of deposit 450,528 1,965,007 1,128,535
Advances from Federal Home Loan Bank 14,500,000 4,500,000 6,000,000
Payments to Federal Home Loan Bank (13,500,000) (3,000,000) (4,500,000)
----------------------------------------------------------
Net cash provided by financing activities 1,755,073 3,925,133 637,662
----------------------------------------------------------
Increase (decrease) in cash and cash equivalents 816,873 (1,001,765) (2,900,081)
Cash and cash equivalents at beginning of year 3,308,174 4,309,939 7,210,020
----------------------------------------------------------
Cash and cash equivalents at end of year $ 4,125,047 $ 3,308,174 $ 4,309,939
==========================================================
</TABLE>
See accompanying notes.
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Notes to Consolidated Financial Statements
June 30, 1997
1. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Citizens Savings
Bank ("Bank") of Frankfort, Indiana, and its wholly owned subsidiary, Citizens
Loan and Service Corporation ("Service Corp."). The Bank operates as a
traditional savings bank in Clinton County. The Service Corp. develops land for
residential housing. All significant intercompany accounts and transactions have
been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and in other institutions and
interest-bearing deposits. Interest-bearing deposits are available on demand.
Investment Securities
At June 30, 1997 and 1996, investment securities, which consist of equity
interests in pooled investment trusts, are classified as available-for-sale and
carried at fair value with the unrealized loss as a separate component of
equity, net of tax. At June 30, 1997, 1996, and 1995, the cost basis of
investment securities was $160,995, $3,087,450 and $2,913,124, respectively and
the gross unrealized loss was $0, $84,208, and $81,077 respectively. Gains and
losses on the sale of these securities are based on the specific cost of the
individual security being sold.
Management determines the appropriate classification of investment securities at
the time of purchase. Securities classified as held to maturity are those which
management has the positive intent and ability to hold until the scheduled
maturity. Securities classified as held to maturity are stated at amortized
cost. Securities classified as available for sale are those which may be sold
for liquidity purposes, or other reasons, prior to reaching scheduled maturity.
Stock in Federal Home Loan Bank of Indianapolis
Stock in the Federal Home Loan Bank of Indianapolis is stated at cost and the
amount of stock held is determined by regulation.
Loans Receivable
The Bank has a first mortgage lien on all property securing loans classified as
residential and commercial real estate mortgage loans. Further, a portion of
certain mortgage loan balances is insured by private or government guaranty
insurance policies. Interest income is computed monthly based upon the principal
amount of the loans outstanding. The Bank discontinues the accrual of interest
on loans when, in management's opinion, the collection of all or a portion of
interest has become doubtful. Mortgage loans are placed on non-accrual status
when they become 90 days delinquent. When a loan is placed on nonaccrual, the
Bank charges all previously accrued and unpaid interest against income. Loan
origination and commitment fees and certain direct loan origination costs are
deferred and amortized as an adjustment of yield over the contractual life of
the related loans.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed adequate by
management to absorb losses in the loan portfolio. Management's determination of
the adequacy of the allowance is based on an evaluation of the portfolio
including consideration of past loan loss experience, current economic
conditions, volume, growth and composition of the loan portfolio, and other
relevant factors. The allowance is increased by provisions for loan losses
charged against income and reduced by net charge-offs.
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Notes to Consolidated Financial Statements (Continued)
1. Significant Accounting Policies (continued)
In 1995, Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" ("SFAS 114") and Statement of Financial
Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan
- - Income Recognition and Disclosures" ("SFAS 118"), an amendment to SFAS 114,
were adopted. Any allowance for loan losses related to troubled loans identified
for evaluation in accordance with SFAS 114 is based on estimated discounted cash
flows using the loan's initial effective interest rate or the fair value of the
collateral for certain collateral dependent loans. Consumer loans and
one-to-four family residential loans are collectively evaluated for impairment
as homogeneous loan groups which are outside the scope of SFAS 114. Under SFAS
118, no interest income on loans determined to be impaired is accrued. Interest
income on such loans is recognized only upon cash receipt. SFAS 114 and SFAS 118
have not had a significant impact on results of operations in 1997, 1996 or
1995.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is computed principally by the straight-line method over the
estimated useful lives (5 to 40 years) of the related assets.
Income Taxes
Deferred tax assets and liabilities are established for temporary differences
between the financial reporting basis and tax basis of assets and liabilities,
at the enacted tax rates expected to be in effect when the temporary differences
reverse . The effect of a tax rate change is recognized in income in the period
of enactment.
Use of Estimates
Preparation of financial statements requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain elements of the 1996 and 1995 consolidated financial statements have
been reclassified to conform with the 1997 presentation herein.
2. Loans Receivable
Loans receivable consist of the following:
June 30
1997 1996
------------------------------
Real estate mortgage loans:
One-to-four family residential $29,887,850 $26,239,965
Commercial 2,375,245 2,290,739
Construction loans 1,419,800 870,000
Installment loans 5,475,168 5,358,258
Loans secured by deposits 193,111 62,559
------------------------------
39,351,174 34,821,521
Less:
Allowance for loan losses 211,635 138,606
Deferred loan fees 101,140 94,665
Undisbursed portion of loan proceeds 602,983 196,845
------------------------------
915,758 430,116
------------------------------
$38,435,416 $34,391,405
==============================
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Notes to Consolidated Financial Statements (Continued)
2. Loans Receivable (continued)
Changes in the allowance for loan losses are as follows:
Year Ended June 30
1997 1996 1995
-----------------------------------
Balance at beginning of year $138,606 $46,416 $ 49,267
Provision for losses 83,000 80,000 32,000
Charge-offs (11,597) - (36,721)
Recoveries 1,626 12,190 1,870
-----------------------------------
Balance at end of year $211,635 $138,606 $ 46,416
===================================
At June 30, 1997 the Bank had loan commitments of approximately $592,000. Of the
$592,000 loan commitments, $488,000 are fixed rate commitments at 8.65%.
The Bank's loan portfolio consists primarily of loans originated in its
principal market area of Frankfort, Indiana, Clinton County and its contiguous
counties. The economy of the Bank's market area primarily includes some
diversified industries and agriculture. At June 30, 1997 and June 30, 1996, and
for the years then ended, the Bank had no loans considered to be impaired under
SFAS 114. Advances from the Federal Home Loan Bank of Indianapolis are secured
by a floating lien on the Bank's one-to-four family residential mortgage loans
(see Note 7).
3. Loans to Related Parties
The Bank has granted loans to certain of its directors, officers and their
associates. Related party loans are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated parties and do not involve more than
normal risk of collectibility. The aggregate dollar amounts of these loans were
$2,211,000 and $1,644,000 at June 30, 1997 and 1996, respectively. During the
year ended June 30, 1997, related party loans were increased $890,000 by loan
advances and reduced $323,000 by loan repayments. During 1996, related party
loans were increased $535,000 by loan advances and reduced $416,000 by loan
repayments.
4. Land Held for Development
The Bank, through its Service Corp., holds approximately 59 acres of land for a
three phase residential housing addition in Frankfort, Indiana. In January 1992,
the Bank received regulatory approval of a plan to develop this land. During the
years ended June 30, 1997, 1996, and 1995, approximately $68,000, $240,000, and
$654,000 was expended to create the infrastructure for the development and
provide further improvements to the first and second phase of the project.
During the years ended June 30, 1997 and 1996 approximately $166,000 and
$270,000 respectively, was received from the sale of lots in the development
resulting in gains from sale of these lots of $17,000 and $33,000, respectively.
The Service Corp. owns an additional 45 acres of land for future development.
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Notes to Consolidated Financial Statements (Continued)
5. Property and Equipment
Property and equipment consists of the following:
June 30
1997 1996
-------------------------------
Land $137,307 $137,307
Office building 647,154 647,154
Furniture, fixtures and equipment 255,327 295,158
-------------------------------
1,039,788 1,079,619
Less accumulated depreciation 461,445 476,155
-------------------------------
$578,343 $603,464
===============================
6. Deposits
Deposits consist of the following:
June 30
1997 1996
----------------------------------
Savings accounts:
Fixed rate, passbook $ 6,904,561 $ 6,698,172
Variable rate, money market 3,354,231 3,252,183
----------------------------------
10,258,792 9,950,355
Negotiable order of withdrawal (NOW)
accounts 4,072,240 4,076,132
Certificates 22,024,181 21,573,653
----------------------------------
$36,355,213 $35,600,140
==================================
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Notes to Consolidated Financial Statements (Continued)
6. Deposits (continued)
The following table presents interest expense on deposits for the years ended
June 30, 1997, 1996 and 1995.
For the Year Ended June 30
1997 1996 1995
----------------------------------------
Fixed rate, passbooks $216,388 $224,314 $230,077
Variable rate, money markets 108,991 107,232 105,566
NOWs 86,551 79,569 84,406
Certificates 1,228,938 1,127,771 921,876
----------------------------------------
Total interest on deposits $1,640,868 $1,538,886 $1,341,925
========================================
The average interest rates represent the weighted average interest rates in
effect at June 30 of each year. Accrued interest payable, which relates
primarily to certificate accounts, totaled $69,000 and $39,000 at June 30, 1997
and 1996, respectively, and is included in other liabilities. Cash paid for
interest was $1,611,000, $1,539,000, and $1,341,000 for the years ended June 30,
1997, 1996, and 1995, respectively. Deposit accounts with balances in excess of
$100,000 totaled $6,654,000 with a weighted average interest rate of 4.88% as of
June 30, 1997. Deposits over $100,000 are not federally insured.
Contractual maturities of certificates of deposit at June 30, 1997 were:
Certificates over All other
Year ended June 30, $100,000 Certificates Total
- --------------------------------------------------------------------------
1998 $4,117,330 $9,157,050 $13,274,380
1999 200,000 5,187,390 5,387,390
2000 100,246 1,455,255 1,555,501
2001 200,000 784,608 984,608
2002 111,114 661,012 772,126
Thereafter --- 50,176 50,176
-----------------------------------------------
$4,728,690 $17,295,491 $22,024,181
===============================================
7. Advances from Federal Home Loan Bank of Indianapolis
Advances from the Federal Home Loan Bank of Indianapolis totaling $4,000,000 at
June 30, 1997 bear fixed and variable interest rates and are due at various
dates through October 1998 . The Bank is required to maintain eligible loans in
its portfolio of at least 170% of outstanding advances as collateral for
advances from the Federal Home Loan Bank of Indianapolis. Advances outstanding
as of June 30, 1997 are scheduled to mature as follows:
Year ended June 30, Amount
------------------- ----------
1998 $3,000,000
1999 1,000,000
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Notes to Consolidated Financial Statements (Continued)
7. Advances from Federal Home Loan Bank of Indianapolis (continued)
The following table presents certain information relating to advances at or for
the years ended June 30, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
For the Year Ended June 30
1997 1996 1995
------------------------------------------------------
FHLB Advances:
<S> <C> <C> <C>
Outstanding at end of period $4,000,000 $3,000,000 $1,500,000
Average balance outstanding for period 3,212,000 1,923,000 462,000
Maximum amount outstanding at
any month-end during the period: 5,000,000 3,000,000 1,500,000
Weighted average interest rate during the period 5.41% 5.94% 6.24%
Weighted average interest rate at end of period 6.51 5.82 5.87
</TABLE>
8. Income Taxes
Income tax expense is summarized as follows:
For the Year Ended June 30
1997 1996 1995
-------------------------------------
Federal:
Current $204,275 $255,830 $196,285
Deferred (62,054) (58,491) (17,119)
-------------------------------------
142,221 197,339 179,166
State:
Current 55,276 71,900 56,017
Deferred (14,272) (15,982) (4,634)
-------------------------------------
41,004 55,918 51,383
-------------------------------------
Income tax expense $183,225 $253,257 $230,549
=====================================
Federal income taxes vary from the amount computed using the corporate statutory
rate due principally to income on the cash surrender value of a life insurance
policy (see Note 10).
The reconciliation of income tax computed at the federal statutory rate to the
Bank's effective income tax is as follows:
<TABLE>
<CAPTION>
Year ended June 30
1997 1996 1995
------------------------------
<S> <C> <C> <C>
Tax rate of federal statutory rate 34.0 %34.0 %34.0%
State franchise tax, net of federal benefit 4.9 5.0 5.3
Income on cash surrender value of life insurance policy (7.5) (5.9) (5.0)
Other 1.7 1.5 1.9
------------------------------
Effective tax rate 33.1% 34.6% 36.2%
==============================
</TABLE>
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes (continued)
The components of the Bank's net deferred tax asset included in other assets as
of June 30 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------
Deferred tax assets:
<S> <C> <C> <C>
Deferred loan origination fees $124,563 $118,904 $ 111,442
Unrealized loss on investment --- 35,698 34,458
Officer supplemental retirement plan 99,263 67,681 38,347
Allowance for loan losses 89,945 58,908 19,727
Other 21,484 15,621 7,747
-----------------------------------------------------
335,255 296,812 211,721
Deferred tax liabilities:
FHLB stock dividend (27,132) (27,132) (27,132)
Deferred loan origination costs (81,579) (78,680) (74,826)
Percentage bad debt deduction (49,107) (58,915) (58,915)
Other (15,669) (13,116) (7,592)
-----------------------------------------------------
(173,487) (177,843) (168,465)
-----------------------------------------------------
Net deferred tax asset $161,768 $118,969 $43,256
=====================================================
</TABLE>
The Bank and its wholly owned subsidiary file a consolidated federal income tax
return. The Bank paid $431,009, $248,646 and $168,539 of federal and state
income taxes in 1997, 1996 and 1995, respectively.
9. Retained Income
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory--and possibly additional discretionary--actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors. Management believes that the Bank meets all
capital adequacy requirements to which it is subject.
Pursuant to the Financial Institutions Reform Recovery and Enforcement Act of
1989 (FIRREA), as implemented by a rule promulgated by the Office of Thrift
Supervision ("OTS"), savings institutions must meet three separate minimum
capital-to-assets requirements: (i) a risk-based capital requirement of 8% of
risk-weighted assets, (ii) a leverage ratio of 3% core capital to total assets
and (iii) a tangible capital requirement of 1.5% tangible core capital to total
assets. The following table summarizes, the Bank's capital requirements under
FIRREA and its actual capital and capital ratios at June 30.
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Notes to Consolidated Financial Statements (Continued)
9. Retained Income (continued)
<TABLE>
<CAPTION>
Capital Requirements Actual Capital Amount
% $ % $ of Excess
--------------------------------------------------------------------------------
June 30, 1997:
<S> <C> <C> <C> <C> <C>
Risk-based 8.0% $2,174,000 18.1% $4,910,000 $2,736,000
Leverage 3.0 1,365,000 10.3 4,698,000 3,333,000
Tangible 1.5 683,000 10.3 4,698,000 4,015,000
June 30 1996:
Risk-based 8.0% $2,072,000 16.8% $4,343,000 $2,271,000
Leverage 3.0 1,298,000 9.7 4,204,000 2,906,000
Tangible 1.5 649,000 9.7 4,204,000 3,555,000
</TABLE>
At June 30, 1997 and 1996, the Bank had approximately $993,000 and $1,070,000,
respectively, invested in its Service Corp., which invests in land held for
development. Since enactment of FIRREA, regulatory capital rules require a
reduction of regulatory capital for such an investment. The amount of regulatory
capital reduction was 100% as of June 30, 1997 and 1996. The reductions were
partially offset by non-withdrawable deposits includable in regulatory capital
of $0 and $5,000 at June 30, 1997 and 1996 respectively.
Pursuant to the Federal Deposit Insurance Corporation Improvement Act Prompt
Corrective Action regulations, for all periods presented, the Office of Thrift
Supervision categorized the Bank as "well-capitalized" under the regulatory
framework for prompt corrective action. To be categorized as well-capitalized
the Bank must maintain a total risk-based capital (as defined) ratio of 10%, a
Tier 1 risk-based capital (as defined) ratio of 6%, and a Tier 1 leverage (as
defined) ratio of 5%. The Bank's ratios were as follows:
Capital Requirements Actual Capital
% $ % $
------------------------------------------------------
As of June 30, 1997:
Risk-based 10.0% $2,717,000 18.1% $4,910,000
Tier I risk-based 6.0 1,630,000 17.3 4,698,000
Tier I leverage 5.0 2,276,000 10.3 4,698,000
As of June 30 1996:
Risk-based 10.0% $2,590,000 16.8% $4,343,000
Tier I risk-based 6.0 1,554,000 16.2 4,204,000
Tier I leverage 5.0 2,163,000 9.7 4,204,000
Citizens has qualified under provisions of the Internal Revenue Code which
permit it to deduct from taxable income a provision for bad debts which differs
from the provision for such losses charged against income. Accordingly, retained
income includes income of approximately $1,349,000 for which no provision for
federal income taxes has been made. If, in the future, this portion of retained
income is used for any purpose other than to absorb loan losses, federal income
taxes may be imposed at the then applicable rates.
10. Employee Benefits
Substantially all full-time employees are covered by a defined benefit pension
plan administered by the Financial Institutions Retirement Fund (FIRF), a
multi-employer, industry sponsored plan. Plan information is not available for
the Bank as an individual entity within the multi-employer group. Pension
expense consisting primarily of plan administration costs amounted to
approximately $20,556, $1,300, and $16,400 in 1997, 1996, and 1995,
respectively.
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Notes to Consolidated Financial Statements (Continued)
10. Employee Benefits (continued)
In addition to the above plan, the Bank sponsors a supplemental non-qualified
pension plan that provides certain officers with defined pension benefits in
excess of those provided in the qualified plan. To fund the plan, the Bank
purchased single premium life insurance contracts on the participating
employees. The carrying value of this investment, representing the cash
surrender value of the policies, was $1,076,000 and $1,035,000 at June 30, 1997
and 1996, respectively. During the years ended June 30, 1997, 1996, and 1995,
$74,300, $69,000, and $47,400, respectively, were charged to expense under this
plan.
11. Fair Value of Financial Instruments
Statement No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. Statement No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Bank.
The following methods and assumptions were used by the Bank in estimating its
fair value disclosures for financial instruments:
Cash and interest bearing deposits: The carrying amounts reported in the
balance sheet for cash and short-term investments approximate those
assets' fair values.
Investment securities available for sale: Fair values for investment
securities are based on quoted market prices, where available. If quoted
market prices are not available, fair values are based on quoted market
prices of comparable instruments.
Stock in Federal Home Loan Bank of Indianapolis: The amount of stock held
in the Federal Home Loan Bank is determined by regulation and is stated at
cost which approximates market.
Loans receivable: For variable-rate loans that reprice frequently, fair
values are based on carrying values. The fair values for all other loans
are estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of
similar credit quality.
Deposit liabilities: The fair values disclosed for demand deposits,
including interest-bearing and noninterest-bearing accounts, passbook
savings, and certain types of money market accounts are, by definition,
equal to the amount payable on demand at the reporting date (i.e., their
carrying amounts). Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest
rates currently being offered on certificates to a schedule of aggregated
expected monthly maturities on time deposits.
Federal Home Loan Bank advances: The carrying amounts approximate their
fair values.
<PAGE>
Citizens Savings Bank of Frankfort and Subsidiary
Notes to Consolidated Financial Statements (Continued)
11. Fair Value of Financial Instruments (continued)
The estimated fair values of the Bank's financial instruments at June 30, 1997
are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
------------------------------
Assets:
<S> <C> <C>
Cash on hand and in other institutions $ 861,360 $ 861,360
Interest bearing deposits 3,263,687 3,263,687
Investment securities available for sale 160,995 160,995
Stock in Federal Home Loan Bank of Indianapolis 331,600 331,600
Loans receivable 38,435,416 37,400,000
Liabilities:
Deposits 36,355,213 36,380,000
Federal Home Loan Bank advances 4,000,000 4,000,000
</TABLE>
12. Plan of Conversion
On April 9, 1997, the Board of Directors adopted a Plan of Conversion ("Plan"),
whereby the Bank will convert from a federally-chartered mutual savings bank to
a federally-chartered capital stock savings bank. The Plan is subject to
approval by the regulatory authorities and members at a special meeting.
Pursuant to the Plan, non-transferable subscription rights to purchase shares of
stock of the savings Bank will be offered first to eligible account holders of
the Bank, then to an ESOP to be formed, then to supplemental eligible account
holders of the Bank, and then to the extent that stock is available, to certain
other members as of a specified date, and then to members of the general public
with preference given to residents of Clinton County. The capital stock will be
offered at $10.00 per share. The exact number of shares to be offered will be
determined by the Board of Directors based upon an appraisal to be made by an
independent appraisal firm. At least the minimum number of shares offered in the
conversion must be sold.
The plan provides that when the conversion is completed, a "liquidation account"
will be established in an amount equal to the regulatory capital of the Bank as
of the latest practicable date prior to consummation of the conversion. The
liquidation account is established to provide a limited priority claim to the
assets of the Bank to qualifying depositors ("eligible account holders") who
continue to maintain deposits in the Bank after conversion. In the unlikely
event of a complete liquidation of the Bank, and only in such an event, eligible
account holders would receive from the liquidation account, a liquidation
distribution based on their proportionate share of the total remaining
qualifying deposits.
The Bank may pay dividends on its stock after the conversion if its regulatory
capital would not thereby be reduced below the amount then required for the
aforementioned liquidation account and if such dividends are otherwise permitted
under applicable regulations. In general regulations permit dividends within
guidelines based on current levels of net income and capital.
The OTS also has authority to prohibit an institution from paying dividends if,
in its opinion, the payment of dividends would constitute an unsafe or unsound
practice in light of the financial condition of the institution.
Costs of the conversion will be deducted from the proceeds of sale of common
stock and recorded as a reduction of common stock. If the conversion is not
completed, such costs will be charged to expense. Conversion costs of $92,000
have been incurred as of June 30, 1997.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There were no such changes or disagreements during the applicable
period.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information concerning the Holding Company's executive officers is
included in Item 4.5 in Part I of this report. Section 16(a) of the Securities
Exchange Act of 1934 ("1934 Act") requires that the Holding Company's officers
and directors and persons who own more than 10% of the Holding Company's Common
Stock file reports of ownership and changes in ownership with the Securities and
Exchange Commission (the "SEC"). Officers, directors and greater than 10%
shareholders are required by SEC regulations to furnish the Holding Company with
copies of all Section 16(a) forms that they file.
Based solely on its review of the copies of such forms received by it,
and/or written representations from certain reporting persons that no Forms 5
were required for those persons, the Holding Company believes that during the
fiscal year ended June 30, 1997, all filing requirements applicable to its
officers, directors and greater than 10% beneficial owners with respect to
Section 16(a) of the 1934 Act were complied with.
Presented below is certain information concerning the directors of the
Holding Company:
<TABLE>
<CAPTION>
Director of Director of Position
Holding Company Citizens Expiration with
Director Since Since of Term Citizens
<S> <C> <C> <C> <C>
Robert F. Ayres 1997 1979 1999 Director
Fred W. Carter 1997 1960-1966; 1997 Director, President and
1971 to Present Chief Executive Officer
Perry W. Lewis 1997 1975 1998 Director
John J. Miller 1997 1995 1998 Director
Billy J. Wray 1997 1992 1999 Director
</TABLE>
Presented below is certain information concerning the directors of
Citizens:
Robert F. Ayres (age 72) served as Superintendent of Community Schools of
Frankfort from 1965 until his retirement in 1989. He previously served as a high
school principal, teacher and coach at Frankfort Senior High School, in
Frankfort.
Fred W. Carter (age 65) has served as President and Chief Executive
Officer of Citizens and CLSC since 1972, and has been an employee of Citizens
since 1966. Mr. Carter is the father of Cindy S. Chambers, Citizens' Secretary
and Customer Service Manager.
Perry W. Lewis (age 76) has served as the Chairman of Lewis Ford Sales,
Inc. in Frankfort since 1984.
John J. Miller (age 58) has served as President of Goodwin Funeral Home,
Inc. in Frankfort since 1979.
Billy J. Wray (age 66) is part owner of Premium Auto Center, Inc. (a
used-car dealership), in Lebanon, Indiana. He also owns interests in various
real estate developments around Frankfort.
<PAGE>
Citizens also has an advisory director program pursuant to which its
former directors may continue to serve as advisors to the Board of Directors
upon their retirement or resignation from the Board. Currently, Ralph C. Hinshaw
and Rawl V. Ransom serve as advisory directors. Mr. Hinshaw and Mr. Ransom
receive $500 for each meeting that they attend. They receive no fees for
meetings they do not attend. See "Executive Compensation and Related
Transactions of Citizens -- Compensation of Directors." Item 11. Executive
Compensation.
No cash compensation is paid directly by the Holding Company to any of its
executive officers. Each of such officers is compensated by Citizens.
The following table sets forth information as to annual, long-term and
other compensation for services in all capacities to Citizens' President and
Chief Executive Officer for the fiscal year ended June 30, 1997. Other than Mr.
Carter, no other executive officers earned over $100,000 in salary and bonuses
during that fiscal year.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
Name and Principal Fiscal Other Annual All Other
Position Year Salary Bonus Compensation (4) Compensation
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fred Carter, President and 1997 $91,000 (1) $39,600 (2) -- $120 (3)
Chief Executive Officer
</TABLE>
(1) Includes $6,000 in fees received for service on Citizens Board of
Directors. Mr. Carter's annual salary has been increased to $95,000
effective January 1, 1997.
(2) Beginning with calendar year 1997, Mr. Carter receives a bonus equal to
10% of the profits of Citizens in excess of $626,000 after deducting
certain expenses incurred by Citizens.
(3) This column includes amounts paid by Citizens for insurance premiums with
respect to a $10,000 term life insurance policy for the benefit of Mr.
Carter.
(4) Mr. Carter received certain perquisites, but the incremental cost of
providing such perquisites did not exceed the lesser of $50,000 or 10% of
his salary and bonus.
Employment Contracts
Citizens entered into a three-year employment contract with Mr. Carter.
The contract with Mr. Carter, effective as of the effective date of the
Conversion, extends annually for an additional one-year term to maintain its
three-year term if Citizens' Board of Directors determines to so extend it,
unless notice not to extend is properly given by either party to the contract.
Mr. Carter receives an initial salary under the contract equal to his salary
with Citizens prior to the Conversion, subject to increases approved by the
Board of Directors. The contract also provides, among other things, for
participation in other fringe benefits and benefit plans available to Citizens'
employees. Mr. Carter may terminate his employment upon 60 days' written notice
to Citizens. Citizens may discharge Mr. Carter for cause (as defined in the
contract) at any time or in certain specified events. If Citizens terminates Mr.
Carter's employment for other than cause or if Mr. Carter terminates his own
employment for cause (as defined in the contract), Mr. Carter will receive his
base compensation under the contract for an additional three years if the
termination follows a change of control in the Holding Company, and for the
balance of the contract if the termination does not follow a change in control.
In addition, during such period, Mr. Carter will continue to participate in
Citizens' group insurance plans and retirement plans, or receive comparable
benefits. Moreover, within a period of three months after such termination
following a change of control, Mr. Carter will have the right to cause Citizens
to purchase any stock options he holds for a price equal to the fair market
value (as defined in the contract) of the shares subject to such options minus
their option price. If the payments provided for in the contract, together with
any other payments made to Mr. Carter by Citizens, are deemed to be payments in
violation of the "golden parachute" rules of the Code, such payments will be
reduced to the largest amount which would not cause Citizens to lose a tax
deduction for such payments under those rules. As of the date hereof, the cash
compensation which would be paid under the contract to Mr. Carter if the
contract were terminated either after a change of control of the Holding
Company, without cause by Citizens, or for cause by Mr. Carter, would be
$255,000. For purposes of this employment contract, a change of control of the
Holding Company is generally an acquisition of control, as defined in
regulations issued under the Change in Bank Control Act and the Savings and Loan
Holding Company Act.
<PAGE>
The employment contract protects Citizens' confidential business
information and protects Citizens from competition by Mr. Carter should he
voluntarily terminate his employment without cause or be terminated by Citizens
for cause.
Compensation of Directors
Citizens pays its directors a monthly retainer of $300 plus $200 for each
month in which they attend one or more meetings. Rawl V. Ransom and Ralph C.
Hinshaw receive $500 per monthly meeting attended as advisory directors. Total
fees paid to its directors and advisory directors for the year ended June 30,
1997 were approximately $40,400.
Citizens' directors and advisory directors may, pursuant to a deferred
compensation agreement, defer payment of some or all of their directors fees
into a retirement account. Under this agreement, deferred directors fees are to
be paid to a director beginning upon the first day of the month following the
director's seventieth (70th) birthday, and continuing in equal installments over
a 180-month period. A director may also receive his benefits in a lump sum in
the event of financial hardship. The agreement also provides for death and
disability benefits. At present, Mr. Carter is the only director who has
executed a deferred compensation agreement with Citizens.
Directors of the Holding Company and CLSC are not currently paid
directors' fees. The Holding Company may, if it believes it is necessary to
attract qualified directors or is otherwise beneficial to the Holding Company,
adopt a policy of paying directors' fees.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of October 20, 1997, by each person
who is known by the Holding Company to own beneficially 5% or more of the Common
Stock. Unless otherwise indicated, the named beneficial owner has sole voting
and dispositive power with respect to the shares.
Number of Shares
Name and Address of Common Stock Percent of
of Beneficial Owner(1) Beneficially Owned Class
---------------------------------------------------------------------
The Farmers Bank 84,640(2) 8.0%
9 East Clinton Street
Frankfort, IN 46041
(1) The information in this chart is based on Schedule 13D and 13G
Report(s) filed by the above-listed person(s) with the SEC containing
information concerning shares held by them. It does not reflect any
changes in those shareholdings which may have occurred since the date
of such filings.
(2) These shares are held by the Trustee of the Citizens Bancorp ESOP. The
Employees participating in the ESOP are entitled to instruct the
Trustee how to vote shares held in their accounts under the ESOP.
Unallocated shares held in a suspense account under the ESOP are
required to be voted by the Trustee in the same proportion as allocated
shares are voted.
<PAGE>
The following table sets forth certain information regarding the
nominees for the position of director of the Holding Company, including the
number and percent of shares of Common Stock beneficially owned by such persons
as of October 20, 1997. Unless otherwise indicated, each nominee has sole
investment and/or voting power with respect to the shares shown as beneficially
owned by him. The table also sets forth the number of shares of Holding Company
Common Stock beneficially owned by all directors and executive officers of the
Holding Company as a group.
<TABLE>
<CAPTION>
Common Stock
Expiration of Director of the Beneficially
Term as Holding Owned as of Percentage
Name Director Company Since October 20, 1997 of Class(1)
- ---------------------------------------- ------------- --------------------------------------
<S> <C> <C> <C> <C>
Fred W. Carter 1997 1997 22,000 (2) 2.08%
Robert F. Ayres 1999 1997 5,000 .47
Perry W. Lewis 1998 1997 22,000 (2) 2.08
John J. Miller 1998 1997 37,000 (2) (3) 3.50
Billy J. Wray 1999 1997 30,000 (2) 1.89
All directors and
executive officers
as a group (10 persons) 175,000 16.54%
</TABLE>
(1) Based upon information furnished by the respective director nominees.
Under applicable regulations, shares are deemed to be beneficially owned
by a person if he or she directly or indirectly has or shares the power to
vote or dispose of the shares, whether or not he or she has any economic
power with respect to the shares. Includes shares beneficially owned by
members of the immediate families of the directors residing in their
homes.
(2) Includes shares owned by director and his spouse.
(3) Includes shares owned by a company deemed to be controlled by Mr. Miller.
Item 13. Certain Relationships and Related Transactions.
Citizens has followed a policy of offering to its directors, officers, and
employees real estate mortgage loans secured by their principal residence as
well as other loans. All of Citizens' loans to its directors, officers and
employees are made on substantially the same terms, including interest rates and
collateral as those prevailing at the time for comparable transactions, and do
not involve more than minimal risk of collectibility. Loans to directors,
executive officers and their associates totaled approximately $2.2 million, or
approximately 39% of consolidated retained earnings at June 30, 1997. This
amount includes two loans to directors Billy J. Wray and John J. Miller, neither
of whom were directors or employees of Citizens when the loans were originated.
The first loan, in the original principal amount of approximately $1.5 million,
was originated in October, 1991 to both Mr. Wray and Mr. Miller and is secured
by the 48-unit Clinton Estates apartment complex located in Frankfort. Citizens
sold a $542,000 nonrecourse participation in this loan to reduce the loan
balance to within its lending limit. At June 30, 1997, this loan was current
with a balance of approximately $1,337,000, of which approximately $837,000 was
owed to Citizens. The second loan, dated February, 1994, was a construction line
of credit in the original amount of $620,000 to Mr. Miller, secured by eight
condominiums and other real estate located in Tipton, Indiana. At June 30, 1997,
this loan was also current with a balance of approximately $395,000. Citizens is
not obligated to advance additional funds pursuant to this line of credit. In
the opinion of Citizens' management, these loans are adequately collateralized.
Current law authorizes Citizens to make loans or extensions of credit to
its executive officers, directors, and principal shareholders on the same terms
that are available with respect to loans made to its employees. At present,
Citizens' loans to executive officers, directors, principal shareholders and
employees are made on the same terms generally available to the public. Citizens
may in the future, however, adopt a program under which it may waive loan
application fees and closing costs with respect to loans made to such persons.
Loans made to a director or executive officer in excess of the greater of
$25,000 or 5% of Citizens' capital and surplus (up to a maximum of $500,000)
must be approved in advance by a majority of the disinterested members of the
Board of Directors. Citizens' policy regarding loans to directors and all
employees meets the requirements of current law.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) List the following documents filed as part of the report:
Financial Statements
Consolidated Statements of Financial Condition at June 30, 1997, and
1996 Consolidated Statements of Income for the Years Ended June 30,
1997, 1996, and 1995
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended June 30, 1997, 1996, and 1995. Consolidated Statements of
Cash Flows for the Years Ended June 30, 1997, 1996, and 1995 Notes to
Consolidated Financial Statements
(b) Reports on Form 8-K.
The Holding Company filed no reports on Form 8-K during the quarter
ended June 30, 1997.
(c) The exhibits filed herewith or incorporated by reference herein are set
forth on the Exhibit Index on page E-1. Included in those exhibits are
executive compensation plans and arrangements which are identified as
Exhibits 10(5) through 10(9).
(d) All schedules are omitted as the required information either is not
applicable or is included in the Consolidated Financial Statements or
related notes.
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on behalf of the undersigned, thereto duly authorized.
CITIZENS BANCORP
Date: October 30, 1997 By: /s/ Fred W. Carter
---------------------------------
Fred W. Carter, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on this 30th day of October,
1997.
Signatures Title Date
(1) Principal Executive Officer:
/s/ Fred W. Carter )
---------------------- )
Fred W. Carter President and )
Chief Executive Officer )
)
)
(2) Principal Financial and )
Accounting Officer: )
)
)
/s/ Stephen D. Davis Treasurer )
---------------------- )
Stephen D. Davis )
)
) October 30, 1997
)
(3) The Board of Directors: )
)
)
Director )
---------------------- )
Robert F. Ayres )
)
)
/s/ Fred W. Carter Director )
---------------------- )
Fred W. Carter )
)
)
/s/ Perry W. Lewis Director )
---------------------- )
Perry W. Lewis )
)
)
)
<PAGE>
/s/ John J. Miller )
---------------------- )
John J. Miller Director )
) October 30, 1997
)
Director )
---------------------- )
Billy J. Wray )
)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
3(1) Registrant's Articles of Incorporation are incorporated by reference
to Exhibit 3(1) to the Registration Statement on Form S-1
(Registration No. 333-29031) (the "Registration Statement")
(2) Registrant's Code of By-Laws are incorporated by reference to
Exhibit 3(2) to the Registration Statement
10(4) Citizens Bancorp Employee Stock Ownership Plan and Trust Agreement
(5) Employment Agreement between Citizens Savings Bank of Frankfort and
Fred W. Carter is incorporated by reference to Exhibit 10(5) to the
Registration Statement
(6) Director Deferred Compensation Agreement -- Fred W. Carter is
incorporated by reference to Exhibit 10(6) to the Registration
Statement
(7) Executive Supplemental Retirement Agreement -- Fred W. Carter is
incorporated by reference to Exhibit 10(7) to the Registration
Statement
(8) Executive Supplemental Retirement Agreement -- Stephen D. Davis is
incorporated by reference to Exhibit 10(8) to the Registration
Statement
(9) Executive Supplemental Retirement Agreement -- Cindy S. Chambers is
incorporated by reference to Exhibit 10(9) to the Registration
Statement
(10) Exempt Loan and Share Purchase Agreement between Trust under
Citizens Bancorp Employee Stock Ownership Plan and Trust Agreement
and Citizens Bancorp
21 Subsidiaries of the Registrant
27 Financial Data Schedule
CITIZENS BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN AND
TRUST AGREEMENT
(EFFECTIVE JULY 1, 1997)
<PAGE>
CITIZENS BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN AND
TRUST AGREEMENT
(EFFECTIVE JULY 1, 1997)
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.................................................1
Section 1.1. Accrued Company Contributions
Benefit...................................1
Section 1.2. Act....................................................1
Section 1.3. Anniversary Date.......................................1
Section 1.4. Annual Addition........................................1
Section 1.5. Bank...................................................1
Section 1.6. Beneficiary............................................2
Section 1.7. Code...................................................2
Section 1.8. Committee..............................................2
Section 1.9. Company................................................2
Section 1.10. Company Contributions Account..........................2
Section 1.11. Compensation...........................................2
Section 1.12. Date of Employment.....................................3
Section 1.13. Date of Separation.....................................3
Section 1.14. Deferred Retirement....................................3
Section 1.15. Deferred Retirement Date...............................3
Section 1.16. Defined Benefit Fraction...............................3
Section 1.17. Defined Contribution Fraction..........................4
Section 1.18. Effective Date.........................................4
Section 1.19. Employee...............................................4
Section 1.20. Exempt Loan............................................5
Section 1.21. Fund...................................................5
Section 1.22. Highly Compensated Employee............................5
Section 1.23. Holding Company........................................6
Section 1.24. Hour of Service........................................6
Section 1.25. Leave of Absence.......................................6
Section 1.26. Normal Retirement......................................6
Section 1.27. Normal Retirement Date.................................6
Section 1.28. One Year Service Break.................................7
Section 1.29. Participant............................................7
Section 1.30. Period of Separation...................................7
Section 1.31. Period of Service......................................7
Section 1.32. Period of Severance....................................7
Section 1.33. Plan...................................................8
Section 1.34. Plan Year..............................................8
Section 1.35. Re-employed Individual.................................8
Section 1.36. Section 415 Compensation...............................9
Section 1.37. Stock.................................................10
Section 1.38. Top Paid Group........................................10
Section 1.39. Total Disability......................................11
Section 1.40. Trust.................................................11
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Section 1.41. Trustee...........................................11
Section 1.42. Valuation Date....................................11
Section 1.43. Year of Service...................................11
ARTICLE II ELIGIBILITY AND PARTICIPATION..........................12
Section 2.1. Eligibility.......................................12
Section 2.2. Entry Dates.......................................12
Section 2.3. Certification by Company..........................12
Section 2.4. Deferred Retirement...............................12
ARTICLE III COMPANY CONTRIBUTIONS..................................13
Section 3.1. Company Contributions.............................13
Section 3.2. Form of Contributions.............................13
Section 3.3. Holding by Trustee................................13
Section 3.4. Expenses..........................................13
Section 3.5. No Company Liability for Benefits.................13
Section 3.6. No Rollover Contributions.........................14
ARTICLE IV ALLOCATION TO PARTICIPANTS' ACCOUNTS...................14
Section 4.1. Company Contributions Accounts....................14
Section 4.2. Allocation of Company
Contributions.........................14
Section 4.3. Limitations on Annual Additions...................14
Clause (a). Basic Limitations.........................14
Clause (b). Participation in Other Plans..............15
Section 4.4. Effective Date of Allocations.....................15
Section 4.5. Cash Dividends....................................16
Section 4.6. Allocation of Forfeitures.........................16
Section 4.7. Special Allocation Rules..........................16
Section 4.8. Rehire after Military Service.....................17
ARTICLE V VALUATIONS AND ADJUSTMENTS.............................18
Section 5.1. Valuation of Fund.................................18
Clause (a). Valuations................................18
Clause (b). Frequency.................................18
Clause (c). Records...................................18
Section 5.2. Adjustments.......................................19
Section 5.3. Amount of Adjustments.............................19
Section 5.4. Effective Date of Adjustments.....................19
Section 5.5. Notice to Participants............................19
ARTICLE VI BENEFITS..........................................20
Part A. Retirement Benefits.............................................20
Section 6.1. Retirement........................................20
Part B. Termination Benefits............................................20
Section 6.2. Effect of Termination.............................20
Section 6.3. Vesting...........................................20
Section 6.4. Payment...........................................21
Part C. Death Benefits..................................................21
Section 6.5. Benefits upon Death...............................21
Section 6.6. Beneficiaries.....................................22
Section 6.7. Lack of Beneficiaries.............................22
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Section 6.8. Termination or Retirement prior
to Death........................22
Part D. General...................................................22
Section 6.9. Date of Distribution........................22
Section 6.10. Form of Distribution........................23
Section 6.11. Liability...................................23
Section 6.12. Right of First Refusal......................24
Section 6.13. Put Options.................................24
Section 6.14. Eligible Rollover Distributions.............25
ARTICLE VII ADMINISTRATIVE COMMITTEE.........................26
Section 7.1. Establishment...............................26
Section 7.2. Duties......................................26
Section 7.3. Actions.....................................27
Section 7.4. Disqualification............................27
Section 7.5. Powers......................................27
Section 7.6. Discrimination Prohibited...................27
Section 7.7. Statements and Forms........................28
Section 7.8. Liability...................................28
Section 7.9. Determination of Right to Benefits..........28
Section 7.10. Investment Directions.......................28
Section 7.11. Voting Power................................28
ARTICLE VIII THE TRUSTEE......................................29
Section 8.1. Assets Held in Trust........................29
Section 8.2. Investments.................................29
Section 8.3. Directions of Committee.....................29
Section 8.4. Receipt of Additional Shares................30
Section 8.5. Delivery of Materials to Committee..........30
Section 8.6. Powers......................................30
Section 8.7. Loans to the Trust..........................31
Clause (a). Interest............................31
Clause (b). Use of Proceeds.....................31
Clause (c). Terms of Exempt Loan................32
Clause (d). Collateral..........................32
Clause (e). Limited Recourse....................32
Clause (f). Repayment...........................32
Clause (g). Agreement by Companies..............33
Clause (h). Release of Collateral...............33
Clause (i). Default.............................33
Clause (j). Termination of Plan.................33
Section 8.8. Annual Accounting...........................34
Section 8.9. Audit.......................................34
Section 8.10. Uncertainty Concerning Payment
of Benefits.....................34
Section 8.11. Compensation................................34
Section 8.12. Standard of Care............................34
Section 8.13. Request for Instructions....................35
Section 8.14. Resignation of Trustee......................35
Section 8.15. Vacancies in Trusteeship....................35
Section 8.16. Information to Be Furnished.................35
Section 8.17. Voting Rights of Participants...............36
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Section 8.18. Delegation of Authority......................37
Section 8.19. Diversification of Company
Contributions Account............37
Section 8.20. Tender Offer.................................37
ARTICLE IX AMENDMENT, TERMINATION AND MERGER.................38
Section 9.1. Amendment....................................38
Section 9.2. Termination or Complete
Discontinuance of Contributions..39
Section 9.3. Determination by Internal Revenue
Service .........................39
Section 9.4. Nonreversion.................................39
Section 9.5. Merger.......................................40
ARTICLE X MISCELLANEOUS.....................................40
Section 10.1. Creation of Plan Voluntary..................40
Section 10.2. No Employment Contract......................40
Section 10.3. Limitation on Rights Created................41
Section 10.4. Waiver of Claims............................41
Section 10.5. Spendthrift Provision.......................41
Section 10.6. Payment of Benefits to Others...............41
Section 10.7. Payments to Missing Persons.................42
Section 10.8. Severability................................42
Section 10.9. Captions....................................42
Section 10.10. Construction................................42
Section 10.11. Counterparts................................42
Section 10.12. Indemnification.............................42
Section 10.13. Standards of Interpretation
and Administration..............43
Section 10.14. Governing Law...............................43
Section 10.15. Successors and Assigns......................43
Section 10.16. Adoption of Plan............................43
Section 10.17. Withdrawal from Plan........................43
ARTICLE XI TEFRA TOP-HEAVY RULES.............................43
Section 11.1. Application.................................43
Section 11.2. Determination...............................43
Section 11.3. Accrued Benefits............................45
Section 11.4. Vesting Provisions..........................46
Section 11.5. Minimum Contribution........................47
Section 11.6. Code Section 415 Limitations................47
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<PAGE>
CITIZENS BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN AND
TRUST AGREEMENT
(EFFECTIVE JULY 1, 1997)
ARTICLE I
DEFINITIONS
Section 1.1. "Accrued Company Contributions Benefit" shall mean the
balance of a Participant's Company Contributions Account as of the last
preceding Valuation Date.
Section 1.2. "Act" shall mean the Employee Retirement Income Security
Act of 1974, as now in effect or hereafter amended, and shall also include all
regulations promulgated thereunder.
Section 1.3. "Anniversary Date" shall mean the last calendar day of any
Plan Year.
Section 1.4. "Annual Addition" shall mean, with respect to any
Participant for any Plan Year and with respect to this Plan and to all other
qualified defined contribution plans maintained by a Company, the sum of:
(a) Company contributions credited to his Company Contributions
Account for that Plan Year under this Plan;
(b) that Participant's non-deductible contributions;
(c) forfeitures; and
(d) amounts allocated to an individual medical account as defined
in Section 415(1)(2) of the Code which is part of a qualified
defined benefit plan maintained by a Company shall be treated
as Annual Additions to a qualified defined contribution plan,
and amounts derived from Company contributions paid or accrued
in taxable years ending after such date which are attributable
to post-retirement medical benefits allocated to the separate
account of a key employee as defined in Section 416 of the
Code under a welfare benefit fund as defined in Section 419(e)
of the Code maintained by a Company shall also be treated as
Annual Additions to a qualified defined contribution plan.
Annual Additions shall not include any amounts allocated as income to a
Participant's Company Contributions Account in accordance with Section 8.7(j).
Section 1.5. "Bank" means the Citizens Savings Bank of Frankfort and
any successor thereto.
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Section 1.6. "Beneficiary" shall mean the person(s) entitled under the
provisions of Section 6.5 to receive benefits after the death of a Participant.
Section 1.7. "Code" shall mean the Internal Revenue Code of 1986, as
now in effect or hereafter amended, and shall also include all regulations
promulgated thereunder.
Section 1.8. "Committee" shall mean the administrative committee
appointed and acting in accordance with the provisions of Article VII. The
Committee shall be deemed to be the Plan Administrator for purposes of the Act.
Section 1.9. "Company" shall mean the Holding Company, the Bank, any
Company which becomes a participating employer pursuant to Section 10.16, and
any successors thereto. Solely for the purpose of:
(a) computing an Employee's Years of Service and Period of Service
to determine his eligibility to participate in and the vesting
of his benefits under this Plan;
(b) applying the limitations contained in Section 4.3;
(c) determining whether this Plan is a Top Heavy Plan under
Section 11.2 and, thus, subject to the provisions of Article
XI; and
(d) determining whether an Employee terminated his employment with
the Companies,
"Company" shall also include any entity which, together with a participating
Company, constitutes a member of a controlled group of corporations, a member of
a commonly controlled group of trades or businesses or a member of an affiliated
service group within the meaning of Section 414(b), Section 414(c) or Section
414(m) of the Code or any entity which is required to be aggregated with a
participating Company under Section 414(o) of the Code.
Section 1.10. "Company Contributions Account" shall mean the account
maintained for each Participant to which contributions made by the Companies
shall be allocated.
Section 1.11. "Compensation" shall mean the total of all amounts paid
or payable in cash by the Companies by reason of services performed by an
Employee during any period, including bonuses, overtime, any over cash payments
included on an Employee's W-2, amounts deferred by the Employee under any cash
or deferred arrangement maintained by a Company under Section 401(k) of the Code
and any salary reductions elected by the Employee pursuant to a salary reduction
plan maintained by a Company under Section 125 of the Code but excluding, with
respect to any Employee, any other
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amounts contributed by a Company for or on account of that Employee under this
Plan or under any other employee benefit plan; provided, however, that
Compensation in a Plan Year in excess of one hundred and fifty thousand
($150,000), as adjusted pursuant to Section 401(a)(17) of the Code, shall be
disregarded.
Section 1.12. "Date of Employment" means any date on which an Employee
first completes an Hour of Service.
Section 1.13. "Date of Separation" means the earlier of:
(a) the date an Employee's employment with the Companies
terminates by reason of a quit, discharge, retirement
(including disability retirement) or death; or
(b) the first anniversary of the first date of a period in which
the Employee remains absent from active employment with the
Companies for some reason other than a quit, discharge,
retirement, death, approved leave of absence or military
service.
Section 1.14. "Deferred Retirement" shall mean retirement after a
Participant's Normal Retirement Date in accordance with Section 2.4.
Section 1.15. "Deferred Retirement Date" shall mean the first (1st)
calendar day of the month after a Participant's Normal Retirement Date as of
which he retires or his employment with the Companies is terminated for any
reason other than his death.
Section 1.16. "Defined Benefit Fraction" shall mean for a given Plan
Year a fraction:
(a) the numerator of which is the projected annual benefit of a
Participant under all qualified defined benefit plans
maintained by a Company (determined as of the Anniversary Date
of that Plan Year), and
(b) the denominator of which is the lesser of:
(i) the product of one and twenty-five one hundredths
(1.25) multiplied by ninety thousand dollars
($90,000), as adjusted pursuant to Section
415(b)(1)(A) and (d)(1) of the Code, or
(ii) the product of one and four tenths (1.4) multiplied
by one hundred percent (100%) of that Participant's
average Section 415 Compensation for his three (3)
consecutive highest paid Years of Service with the
Companies.
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Section 1.17. "Defined Contribution Fraction" shall mean for a given
Plan Year a fraction:
(a) the numerator of which is the sum of the Annual Additions to a
Participant's accounts under all qualified defined
contribution plans maintained by a Company as of the
Anniversary Date of that Plan Year, and
(b) the denominator of which is the sum of the lesser of the
following amounts determined for that Plan Year and for each
prior year of service with the Companies:
(i) the product of one and twenty-five one hundredths
(1.25) multiplied by the dollar limit in effect for
that Plan Year pursuant to Section 415(c)(1)(A) of
the Code, or
(ii) the product of one and four tenths (1.4) multiplied
by twenty-five percent (25%) of that Participant's
Section 415 Compensation for that Plan Year.
Section 1.18. "Effective Date" shall mean July 1, 1997; provided,
however, that if prior to December 31, 1997, the Bank shall not have completed
its conversion from mutual to stock form, this Plan shall be null and void and
any shares of Stock and other assets held hereunder shall be returned to the
Companies.
Section 1.19. "Employee" shall mean any person employed by a Company,
and shall also include any individual deemed to be a leased employee (as defined
below) of the Companies but only to the extent required by the Code. For
purposes of this Plan, the term "leased employee" means any person (other than
an employee of the recipient) who pursuant to an agreement between the recipient
and any other person ("leasing organization") has performed services for the
recipient (or for the recipient and related persons determined in accordance
with Section 414(n)(6) of the Code) on a substantially full-time basis for a
period of at least one (1) year, and such services are of a type historically
performed by employees in the business field of the recipient employer;
provided, however, that a leased employee shall not be considered an employee of
the recipient if (a) such employee is covered by a money purchase pension plan
providing a nonintegrated employer contribution rate of at least ten percent
(10%) of Compensation, immediate participation and full and immediate vesting
and (b) leased employees do not constitute more than twenty percent (20%) of the
recipient's non-highly compensated workforce. A leased employee within the
meaning of Section 414(n)(2) of the Code shall become a Participant in the Plan
based on service as a leased employee only as provided in provisions of the Plan
other than this Section. Contributions or benefits provided a leased employee by
the leasing organization which are attributable to services
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performed for the recipient employer shall be treated as provided by the
recipient employer.
Section 1.20. "Exempt Loan" shall mean a loan made to this Plan by a
party in interest or disqualified person or a loan to this Plan which is
guaranteed by a party in interest or disqualified person, including a direct
loan of cash, a purchase-money transaction and an assumption of any obligation
of this Plan. For purposes of this definition, a guarantee shall include an
unsecured guarantee and the use of assets of a party in interest or disqualified
person as collateral for a loan even though the use of assets may not constitute
a guarantee under any applicable State laws.
Section 1.21. "Fund" shall mean all cash, investments and other
properties held by the Trustee hereunder.
Section 1.22. "Highly Compensated Employee" shall include any Employee
described in Section 414(q) of the Code who:
(a) is a five percent (5%) or more owner (as then defined
in Section 416(i)(1) of the Code) of the Company at
any time during that Plan Year or the immediately
preceding Plan Year; or
(b) received more than eighty thousand dollars ($80,000),
as automatically adjusted pursuant to Sections
414(q)(1) and 415(d) of the Code without the
necessity of any amendment to the Plan, of Section
415 Compensation from the Company in the immediately
preceding Plan Year and was in the Top Paid Group for
that immediately preceding Plan Year.
For purposes of determining whether an Employee is a Highly
Compensated Employee and notwithstanding anything else
contained in this Section, the following rules shall
apply:
(c) A former Employee shall be treated as a Highly
Compensated Employee if he was a Highly Compensated
Employee in the Plan Year during which his employment
with the Company terminated or in any Plan Year
during which occurs or commencing after his
fifty-fifth (55th) birthday.
(d) Section 415 Compensation shall include any amount
which is contributed by the Company pursuant to a
salary reduction agreement and which is not
includible in the gross income of an Employee under
Sections 125, 401(k), 402(a)(8), 402(h)(1)(B) and
403(b) of the Code.
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(e) An Employee shall only be deemed to be a Highly
Compensated Employee to the extent required by the
Code.
Section 1.23. "Holding Company" shall mean Citizens Bancorp.
Section 1.24. "Hour of Service" shall mean:
(a) each hour for which an Employee is paid, or entitled to
payment, for the performance of duties for a Company; these
hours shall be credited to the Employee for the computation
period or periods in which the duties are performed; and
(b) each hour for which an Employee is paid, or entitled to
payment, by a Company on account of a period of time during
which no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation,
holiday, illness, incapacity (including disability but
excluding payments made because of Total Disability under
Section 6.3), layoff, jury duty, military duty or leave of
absence; no more than five hundred and one (501) Hours of
Service shall be credited under this Subsection (b) for any
single continuous period (whether or not such period occurs in
a single computation period); hours under this Subsection (b)
shall be calculated and credited pursuant to Section
2530.200b-2 of the Department of Labor Regulations which are
incorporated herein by this reference; and
(c) each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by a Company; the same
Hours of Service shall not be credited both under Subsection
1.24(a) or Subsection 1.24(b), as the case may be, and under
this Subsection 1.24(c); these hours shall be credited to the
Employee for the computation period or periods to which the
award or agreement pertains, rather than to the computation
period in which the award, agreement or payment is made.
Section 1.25. "Leave of Absence" shall mean a leave granted by a
Company, in accordance with rules uniformly applied to all Employees in a
non-discriminatory manner, for reasons of health, public service or other
satisfactory reasons.
Section 1.26. "Normal Retirement" shall mean retirement on a
Participant's Normal Retirement Date.
Section 1.27. "Normal Retirement Date" shall mean the first (1st)
calendar day of the month immediately following a Participant's sixty-fifth
(65th) birthday. A Participant's benefits under this Plan shall be fully vested
and non-forfeitable
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on and after the date he attains age sixty-five (65), which is deemed to be the
normal retirement age under this Plan, regardless of his Period of Service and
regardless of the vesting schedules in Section 6.3 and in Section 11.4.
Section 1.28. "One Year Service Break" shall mean a consecutive twelve
(12) month Period of Severance.
Section 1.29. "Participant" shall mean any Employee who has commenced
participation in this Plan pursuant to Section 2.2. Participation in this Plan
shall continue until such time as the Participant has received all of the
benefits to which he is entitled under the terms of this Plan.
Section 1.30. "Period of Separation" means, for an Employee, the period
of time commencing with the date such Employee separates from service with the
Companies and ending with the date such Employee resumes his employment with the
Companies.
Section 1.31. "Period of Service" means, for an Employee, the period
commencing on the later of the following dates:
(a) such Employee's Date of Employment; or
(b) the date on which such Employee's Employer is required to be
aggregated with the Company under Code Section 414(b), (c),
(m) or (o), whichever is applicable,
and ending on the date a Period of Severance begins, including any Period of
Separation of less than twelve (12) consecutive months; provided, however, that
in the case of any person who terminates his employment with the Employers but
later resumes his employment with the Companies, the Period of Service before
such resumption of employment shall be aggregated only if that person is a
Re-employed Individual.
Section 1.32. "Period of Severance" means, for an Employee, the period
of time commencing with the earlier of:
(a) the date on which such Employee terminates his employment with
the Companies by reason of quitting, retirement, death or
discharge, or
(b) the date twelve (12) consecutive months after the date a
person remains absent from service with the Companies (with or
without pay) for any reason other than quitting, retirement,
death or discharge,
and ending, in the case of an Employee who terminates his employment with the
Companies by reason other than death, with the date such Employee resumes his
employment with the Companies. Solely for purposes of determining whether a One
Year Service Break
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has occurred for participation and vesting purposes has occurred, an Employee
who is absent from work for maternity or paternity reasons shall receive credit
at least one (1) year. For purposes of this Section 1.32, an absence from work
for maternity and paternity reasons means an absence:
(d) by reason of the pregnancy of the Employee,
(e) by reason of the birth of a child of the Employee,
(f) by reason of the placement of a child with the Employee in
connection with the adoption of that child by the Employee, or
(g) for purposes of caring for such a child for the period
beginning immediately following such birth or placement.
Section 1.33. "Plan" shall mean the employee stock ownership plan and
trust established pursuant to the provisions of this Agreement, as amended from
time to time, which shall be known as the "Citizens Bancorp Savings Employee
Stock Ownership Plan." This Plan is intended to be an employee stock ownership
plan under Section 4975(e)(7) of the Code and under Section 407(d)(6) of the
Act.
Section 1.34. "Plan Year" shall mean the consecutive twelve (12) month
period beginning each July 1 and ending on the following June 30. The Plan Year
shall also be the limitation year for purposes of Section 415 of the Code for
this Plan and for all other qualified retirement plans maintained by a Company.
Section 1.35. "Re-employed Individual" shall mean a person who, after
having terminated his employment with the Companies, resumes his employment with
the Companies:
(a) with any vested interest in his Company Contributions Account
as provided in Section 6.3 or 11.4, or
(b) with no such vested interest but who resumes his employment
with the Companies either:
(i) before a One Year Service Break,
(ii) after a One Year Service Break but before his latest
Period of Severance equals or exceeds his Period of
Service, or
(iii) after a One Year Service Break but before the number
of his consecutive One Year Service Breaks equals or
exceeds the greater of five (5) or his Period of
Service.
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Section 1.36. "Section 415 Compensation" shall mean with respect to any
Plan Year and shall:
(a) include amounts accrued to a Participant (regardless of
whether he was a Participant during the entire Plan Year and
regardless of whether in cash):
(i) as wages, salaries, fees for professional services
and other amounts received for personal services
actually rendered in the course of his employment
with the Companies including but not limited to
commissions, compensation for services on the basis
of a percentage of profits and bonuses;
(ii) for purposes of Subsection (a)(i) above, earned
income from sources outside the United States (as
defined in Section 911(b) of the Code), whether or
not excludible from gross income under Section 911 of
the Code or deductible under Section 913 of the Code;
(iii) amounts described in Sections 104(a)(3), 105(a) and
115(h) of the Code but only to the extent that these
amounts are includible in the gross income of that
Participant; and
(iv) amounts paid or reimbursed by the Companies for
moving expenses incurred by that Participant, but
only to the extent that these amounts are not
deductible by that Participant under Section 217 of
the Code;
(b) not include:
(i) notwithstanding Subsection (a)(i) above, there shall
be excluded from Section 415 Compensation amounts
contributed to a plan as contributions to a qualified
cash or deferred plan under Section 401(k) of the
Code;
(ii) other contributions made by a Company to any plan of
deferred compensation to the extent that, before the
application of the Section 415 of the Code
limitations to that plan, the contributions are not
includible in the gross income of that Participant
for the taxable year in which contributed; in
addition, Company contributions made on behalf of
that Participant to a simplified employee pension
plan described in Section 408(k) of the Code shall
not be considered as Section 415 Compensation for the
Plan Year in which contributed; additionally, any
distributions from a plan of deferred
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compensation shall not be considered as Section 415
Compensation, regardless of whether such amounts are
includible in the gross income of that Participant
when distributed; however, any amounts received by
that Participant pursuant to an unfunded nonqualified
plan shall be considered as Section 415 Compensation
in the Plan Year in which such amounts are includible
in the gross income of that Participant; and
(iii) other amounts which receive special federal income
tax benefits, such as premiums for group term life
insurance (but only to the extent that the premiums
are not includible in the gross income of that
Participant);
provided, however, that Section 415 Compensation in a Plan Year in excess of one
hundred and fifty thousand ($150,000), as adjusted pursuant to Section
401(a)(17) of the Code, shall be disregarded. Notwithstanding anything in this
Section 1.36 to the contrary, for Plan Years beginning on or after January 1,
1998, Section 415 Compensation shall include any elective deferral (as defined
in Section 402(g) of the Code) and any amount contributed or deferred at the
election of the Participant that is not includible in that Participant's gross
income by reason of Section 125 or Section 457 of the Code.
Section 1.37. "Stock" shall mean any duly-issued shares of common stock
of the Holding Company, without par value, which shares constitute employer
securities under Section 409(1) and Section 4975(e)(8) of the Code.
Section 1.38. "Top Paid Group" shall mean the Employees who are in the
top twenty percent (20%) of the Employees of the Company in terms of Section 415
Compensation for such Plan Year; provided, however, that for purposes of
determining the number of Employees to be included in the Top Paid Group, the
following Employees shall be excluded to the extent permitted by Section
414(q)(4) of the Code:
(a) Employees who have not completed six (6) months of
service with the Group;
(b) Employees who normally work less than seventeen and
one-half (17 1/2) hours per week or less than six (6)
months during a Plan Year;
(c) Employees who have not attained age twenty-one (21);
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(d) except as provided by regulations promulgated under
the Code, Employees who are covered by a collectively
bargained agreement; and
(e) Employees who are non-resident aliens and who receive
no earned income (within the meaning of Section
911(d)(2) of the Code) from the Company which
constitutes income from sources in the United States
(within the meaning of Section 861(a)(3) of the
Code).
Section 1.39. "Total Disability" shall mean a mental or physical
condition which, in the judgment of the Committee based upon medical reports and
other evidence satisfactory to the Committee, presumably permanently prevents a
Participant from satisfactorily performing his usual duties for his employing
Company or the duties of such other position or job which his employing Company
makes available to that Participant and for which that Participant is qualified
by reason of training, education or experience.
Section 1.40. "Trust" shall mean the employee stock ownership trust
established pursuant to the provisions of this Agreement, as amended from time
to time, which shall be known as the "Citizens Bancorp Employee Stock Ownership
Trust."
Section 1.41. "Trustee" shall mean The Farmers Bank, and any successors
thereto.
Section 1.42. "Valuation Date" shall mean each December 31 and each
other date as of which the Committee shall cause the Trustee to determine the
value of the Trust assets as prescribed in Section 5.1.
Section 1.43. "Year of Service" shall mean for purposes of
participation the consecutive twelve (12) month period computed with reference
to the date on which the Employee first (1st) completes an Hour of Service and
any Plan Year beginning after such date during which twelve (12) month period an
Employee has completed at least one thousand (1,000) Hours of Service.
Notwithstanding the foregoing, periods of time during which an Employee or
Participant:
(a) is on an approved Leave of Absence continuing for a period of
not more than two (2) consecutive years; or
(b) is on military leave for training or service, or both, with
the Armed Forces of the United States under any form of law
requiring military service; provided, however, that he shall
make application for re-employment by a Company within ninety
(90) calendar days after discharge or release from such Armed
Forces or from hospitalization
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continuing after such discharge for a period of not more than
one (1) year;
shall also be credited towards his Years of Service and shall not constitute a
Break in Service for purposes of this Plan. A Participant's Years of Service
shall be calculated taking into account employment before the Effective Date.
ARTICLE II
ELIGIBILITY AND PARTICIPATION
Section 2.1. Eligibility. Each Employee in the employ of a Company
shall become eligible to participate in this Plan on the date on which he
completes one (1) Year of Service or, if later, on the date on which he attains
age twenty-one (21).
Section 2.2. Entry Dates. Each Employee who was eligible to participate
under Section 2.1 on the Effective Date automatically became a Participant in
this Plan as of the Effective Date. Each other Employee shall become a
Participant in this Plan on the first day of January or July coincident with or
next following the first (1st) date on which he meets the eligibility
requirements of Section 2.1. A re-employed Employee who has once met the one (1)
Year of Service requirement for eligibility shall become (or, if formerly a
Participant, be reinstated as) a Participant in this Plan on his re-employment
date or, if later, on the first day of January or July coincident with or next
following the date he attains age twenty-one (21).
Section 2.3. Certification by Company. Not later than thirty (30)
calendar days after an Employee shall become a Participant in this Plan, his
employing Company shall certify such fact in writing to the Committee, together
with such additional facts regarding such Participant as the Committee may
request. Except as otherwise provided by the Act, each such certification shall
be final and conclusive and the Committee shall be entitled to rely thereon
without any investigation, but it may correct any errors discovered in any such
certificate.
Section 2.4. Deferred Retirement. A Participant who continues in the
employment of a Company after his Normal Retirement Date shall continue to
participate in this Plan, and contributions shall be allocated to his Company
Contributions Account as otherwise provided in this Plan. Any such Participant
who elects Deferred Retirement shall be entitled to benefits under this Plan
payable at his Deferred Retirement Date in the same manner as if he had retired
on his Normal Retirement Date; provided, however, that the deferral of benefit
payments after a Participant's Normal Retirement Date shall be permitted only to
the extent authorized by and in compliance with all requirements
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imposed under Section 2530.203-3 of the Department of Labor Regulations which
are incorporated herein by reference.
ARTICLE III
COMPANY CONTRIBUTIONS
Section 3.1. Company Contributions. For the initial Plan Year and for
each Plan Year thereafter, the Companies shall make contributions to the Trust
in one (1) or more installments in such amounts as the Board of Directors of the
Bank may determine.
If Company contributions are paid to the Trust by reason of a mistake
in fact made in good faith or a mistake made in good faith in determining the
deductibility of such Company contributions for federal income tax purposes
under Section 404 of the Code, such Company contributions may, except as
otherwise provided in Section 8.7, be returned to the Companies by the Trustee
(upon the written direction of the Committee) within one (1) year after the
payment to the Trust or after the date the federal income tax deduction is
denied, whichever is applicable.
Section 3.2. Form of Contributions. The Companies' contributions, if
any, for each Plan Year shall be paid to the Trustee either in cash or in Stock
valued at the fair market value thereof as of the date of the contribution (as
determined consistent with Section 5.1(a)) and within such period as is provided
for in Section 404 of the Code or any other statute of similar import or any
rule or regulations thereunder.
Section 3.3. Holding by Trustee. All contributions made by the
Companies under Section 3.1 shall be a part of the Fund and shall be held in
trust by the Trustee until distributed as provided in this Plan.
Section 3.4. Expenses. In addition to the contributions to be made
under Section 3.1, the Companies shall pay all reasonable expenses incident to
the operation of this Plan; in the event of any failure by the Companies to make
such payment, the same shall be a charge against and paid from the Fund but only
to the extent permitted under the Code and under the Act.
Section 3.5. No Company Liability for Benefits. The benefits under this
Plan shall be only such as can be provided by the Fund, and there shall be no
liability or obligation on the part of the Company to make any further
contributions or payments. Except as otherwise provided by the Act, no liability
for the payment of benefits under this Plan shall be imposed upon the Companies
or upon the officers, directors or shareholders of the Companies.
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Section 3.6. No Rollover Contributions. Rollover contributions (within
the meaning of Section 402(a)(5) of the Code) shall not be permitted nor
accepted.
ARTICLE IV
ALLOCATION TO PARTICIPANTS' ACCOUNTS
Section 4.1. Company Contributions Accounts. For purposes of allocating
the Company contributions, the Committee shall establish and maintain a separate
Company Contributions Account in the name of each Participant.
Section 4.2. Allocation of Company Contributions. Except as provided in
Section 4.7, the Company contributions for each Plan Year shall be allocated
among the Company Contributions Accounts of all Employees:
a) who were or became Participants on the Anniversary Date of
that Plan Year and who completed at least one thousand (1,000)
Hours of Service during such Plan Year, or
(b) whose employment with the Companies terminated during that
Plan Year because of death, Total Disability or Deferred or
Normal Retirement
proportionately in the ratio that the Compensation paid to such Participant, if
any, for that Plan Year or since becoming a Participant in this Plan if he
became a Participant within that Plan Year bears to the aggregate Compensation
paid to all Participants for that Plan Year or since becoming Participants in
this Plan if they became Participants within that Plan Year. To the extent cash
dividends are applied to pay of an Exempt Loan under Section 4.5 and
notwithstanding anything contained herein to the contrary, Company contributions
shall first be applied towards crediting the Participant's Company Contributions
Account to which the cash dividends would have been allocated before they are
allocated under the preceding provisions of this Section.
Section 4.3. Limitations on Annual Additions.
Clause (a). Basic Limitations. Notwithstanding any other
provision of this Plan, the maximum Annual Addition during any Plan Year for any
Participant under this Plan and under any other qualified defined contribution
plans maintained by the Companies shall in no event exceed the lesser of:
(i) twenty-five percent (25%) of that Participant's Section 415
Compensation for that Plan Year, or
(ii) thirty thousand dollars ($30,000), or, if greater, one-fourth
(1/4) of the dollar limitation in effect for
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that Plan Year pursuant to Section 415(b)(1)(A) of the Code;
provided, however, that such adjustments shall only apply to
the Plan Years ending on or after the date in which the
adjustment was made.
Any Company contributions which are applied by the Trustee (not later
than the due date, including extensions, for filing a Company's federal income
tax return for that Plan Year) to pay interest on an Exempt Loan shall not be
included as Annual Additions under this Section 4.3; provided, however, that the
provisions of this Section shall be applicable only in Plan Years for which not
more than one-third (1/3) of the Company contributions applied to pay principal
and interest on an Exempt Loan are allocated among Highly Compensated Employees.
The Committee may reallocate Company contributions in order to satisfy this
special limitation.
If due to a reasonable error in estimation of a Participant's
Compensation or due to the allocation of forfeitures these maximum Annual
Additions would be exceeded as to any Participant, any excess amount shall be
used to reduce Company Contributions for that Participant in the next, and
succeeding, Plan Years. If that Participant was not covered by this Plan at the
Anniversary Date of that Plan Year, such excess shall be reallocated among the
Company Contributions Accounts of the other Participants under Section 4.2 to
the fullest extent possible without exceeding the limitations with respect to
any other Participant for that Plan Year. Any excess amount which cannot be so
allocated to any Participant's Company Contributions Account by reason of these
limitations shall be allocated under this Section 4.3(a) for the next succeeding
Plan Years (prior to the allocation of Company Contributions for such succeeding
Plan Years).
Clause (b). Participation in Other Plans. In any case in which
an Employee is a participant in one (1) or more qualified defined contribution
plans and in one (1) or more qualified defined benefit plans (as these terms are
defined in Section 415(k) of the Code) maintained by a Company and for Plan
Year, beginning before January 1, 2000, the sum of the Defined Benefit Fraction
and of the Defined Contribution Fraction, computed as of the Anniversary Date of
that Plan Year, shall not exceed one (1.0).
Section 4.4. Effective Date of Allocations. For all purposes of this
Plan, allocations to the Participants' Company Contributions Accounts under this
Article shall be deemed to have been made on the Anniversary Date to which they
relate although they may actually be determined at some later date. The fact
that such allocations are made, however, shall not vest in any Participant or in
his spouse or other Beneficiary any right, title or interest in or to any part
of the Fund except at the times, to the extent and on the terms and conditions
specified in this Plan.
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Section 4.5. Cash Dividends. Any cash dividends received by the Trustee
on Stock allocated to the Company Contributions Accounts of Participants shall
be credited to the applicable Participants' Company Contributions Accounts
unless the Bank, in its sole discretion, elects to pay the cash dividends
directly to the applicable Participants or directs the Trustee to pay the cash
dividends to the Participants (or, if applicable, their Beneficiaries) within
ninety (90) calendar days of the close of the Plan Year in which the cash
dividends were paid by the Holding Company to the Fund. Notwithstanding anything
contained in this Section to the contrary, the Bank may direct cash dividends,
including dividends on non-allocated shares, be applied to repay an Exempt Loan,
but only to the extent shares of Stock with an aggregate fair market value equal
to the amount of dividends so applied are allocated to the Company Contributions
Accounts of the applicable Participants and to the extent the cash dividends are
deductible under Section 404(k) of the Code.
Section 4.6. Allocation of Forfeitures. The Trustee, shall, as soon as
practicable following the Anniversary Date marking the close of each Plan Year,
allocate the forfeitures which have occurred in that Plan Year first to
reinstate any forfeitures of any reemployed Participant under Section 6.2 and
second, if any forfeitures are remaining after the reinstatements described
above are completed, among the Company Contributions Accounts of all Employees
who were or became Participants on the Anniversary Date of that Plan Year or
whose Years of Service terminated during that Plan Year because of death, Total
Disability or Deferred or Normal Retirement. The forfeitures shall be allocated
among such Accounts in the same manner provided for under Section 4.2.
Section 4.7. Special Allocation Rules. Notwithstanding any other
provision in this Plan to the contrary, no Stock acquired by this Plan in a sale
to which Section 1042 of the Code applies may be allocated directly or
indirectly under this Plan:
(a) during the non-allocation period (as such term is defined
below), for the benefit of: (i) any Participant who makes an
election under Section 1042(a) of the Code with respect to
Stock sold to this Plan, or (ii) any Participant who is
related to the Participant making the election under Section
1042(a) of the Code or to the deceased Participant (within the
meaning of Section 267(b) of the Code); provided, however,
that this Subsection (a)(ii) shall not apply to any
Participant who is a lineal descendent of a Participant as
long as the aggregate amount allocated to the benefit of all
such lineal descendants during the non-allocation period (as
such term is defined below) does not exceed more than five
percent (5%) of the Stock (or amounts allocated in lieu
thereof) held by this Plan which are attributable to the sale
to this Plan by any person related to such
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descendants (within the meaning of Section 267(c)(4)) in
a transaction to which Section 1042 of the Code applies,
or
(b) for the benefit of any Participant who owns (after the
application of the attribution rules contained in Section
318(a) of the Code, but disregarding Section 318(a)(2)(B)(i)
of the Code) more than twenty-five percent (25%) of: (i) any
class of the outstanding stock of the Holding Company or of
any other corporation which is a member of a controlled group
of corporations (within the meaning of Section 409(1)(4) of
the Code) which includes the Holding Company, or (ii) the
total value of any class of outstanding stock of the Holding
Company or of any other corporation which is a member of the
controlled group of corporations (within the meaning of
Section 409(1)(4) of the Code) which includes the Holding
Company.
For purposes of this Section 4.7, the "non-allocation period" shall mean a
period beginning on the date of the sale of the stock to the Plan and ending on
the later of:
(c) the date which is ten (10) years after the sale of the Stock
to this Plan to which Section 1042 of the Code applies, or
(d) the date of the Plan allocation of Stock attributable to the
final payment of any acquisition indebtedness incurred in
connection with a sale of such Stock to this Plan to which
Section 1042 of the Code applies.
For purposes of this Section 4.7 a Participant shall be deemed to be a
twenty-five percent (25%) or greater shareholder if such Participant owns more
than twenty-five percent (25%) of the shares at any time during a one (1) year
period ending:
(e) on the date of a sale of the Stock to this Plan to which
Section 1042 of the Code applies, or
(f) on the date as of which the Stock sold to this Plan through a
sale to which Section 1042 of the Code applies is allocated to
Participants.
The provisions contained in this Section 4.7 shall be interpreted consistent
with and in accordance with Section 409(n) of the Code.
Section 4.8. Rehire after Military Service. The provisions relating to
qualified retirement plans which are set forth in the Uniformed Services
Employment and Reemployment Rights Act of 1994
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("USERRA") are hereby incorporated into, and made a part of, this Plan by
reference. The Committee shall apply the provisions of the USERRA with respect
to any Participant who is reemployed after completing covered military service
in a manner consistent with the USERRA and all other applicable law and
regulations.
ARTICLE V
VALUATIONS AND ADJUSTMENTS
Section 5.1. Valuation of Fund.
Clause (a). Valuations. The Committee shall provide the
Trustee with a written valuation showing the fair market value of the Stock,
upon which valuation the Trustee may fully rely. For all purposes of this Plan,
fair market value shall be determined by an independent appraiser (as such term
is defined in Treasury Regulations promulgated under Section 170(a)(1) of the
Code) unless the Stock is readily tradeable on an established securities market
at the date of valuation. The Committee shall also direct the Trustee to
determine the fair market value of all other assets of the Fund on each
Valuation Date.
Clause (b). Frequency. The Fund shall be valued as soon as
practical after the Anniversary Date of each Plan Year and as soon as practical
after the removal or resignation of the Trustee on the basis of fair market
values determined as of the Anniversary Date of the Plan Year or as of the
effective date of the resignation or removal of the Trustee, respectively. The
Committee may require valuation of the Fund on such other dates as it may
prescribe.
Clause (c). Records. Records of valuation of the Fund shall be
prepared by the Trustee in such manner and within such time after each Valuation
Date as may be prescribed in this Section 5.1, and such records shall be filed
with the Committee, including a written statement reflecting the value of the
assets and liabilities of the Fund and the receipts and disbursements of the
Fund since the last previous statement filed with the Committee. As to the fair
market value of Stock, the Trustee shall rely solely upon the most recent
valuation furnished by the Committee as provided in Section 5.1(a). If
information necessary to ascertain the fair market value of the Fund assets
other than Stock is not readily available to the Trustee or if the Trustee is
unable in its sole discretion fairly to determine the fair market value of the
other Fund assets, the Trustee may request the Committee in writing to instruct
the Trustee as to such values to be used for all purposes under this Plan; in
such event, the values as determined by the Committee shall be binding and
conclusive, except as otherwise provided by the Act. If the Committee shall fail
or refuse to instruct the Trustee as to such values within a
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reasonable time after receipt of the Trustee's written request therefor, the
Trustee may take such action as it deems necessary or advisable to ascertain
such values. Except for the Trustee's negligence, willful misconduct or lack of
good faith, upon the expiration of ninety (90) calendar days from the filing of
such records and except as otherwise provided by the Act, the Trustee shall be
forever released and discharged from all liability and accountability to anyone
with respect to the propriety of its acts or transactions as set forth in such
records unless written objection is filed with the Trustee within the said
ninety (90) calendar day period by the Committee or by the Bank.
Section 5.2. Adjustments. As of each Valuation Date the Committee shall
cause the Trustee to allocate to each Participant's Company Contributions
Account, by credit thereto or deduction therefrom as the case may be, a
proportion of the increase or decrease in the fair market value of the Fund
since the last preceding Effective Date or Valuation Date. Such allocation shall
be made in the proportion that each Participant's Company Contributions Account
on such date bears to the total of all such Company Contributions Accounts on
such date.
Section 5.3. Amount of Adjustments. The increase or decrease
in the Fund to be allocated shall be the difference between:
(a) the fair market value of the Fund on the last preceding
Effective Date or Valuation Date (excluding any amounts
withdrawn from the Fund as of such Date for the payment of
benefits hereunder), and
(b) the fair market value of the Fund on the current Valuation
Date (including any amounts to be withdrawn from the Fund as
of such Date for the payment of benefits hereunder).
Section 5.4. Effective Date of Adjustments. For all purposes of this
Plan, allocations to the Participants' Company Contributions Accounts under this
Article shall be deemed to have been made on the Effective Date or Valuation
Date to which they relate although they may actually be determined at some later
date. The fact that such allocations are made, however, shall not vest in any
Participant or in his spouse or other Beneficiary any right, title or interest
in or to any part of the Fund except at the times, to the extent and on the
terms and conditions specified in this Plan.
Section 5.5. Notice to Participants. Promptly after the allocations
herein described shall be completed, the Committee shall advise each Participant
in writing of the fair market value of the Stock and other Fund assets then
credited to his Company Contributions Account.
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ARTICLE VI
BENEFITS
Part A. Retirement Benefits.
Section 6.1. Retirement. Each Participant who retires on his Normal
Retirement Date or Deferred Retirement Date shall be entitled to receive the
entire balance credited to his Company Contributions Account as of the Valuation
Date coincidental with or immediately following such Retirement Date plus any
Company contributions to which he is entitled pursuant to Section 4.2 for the
Plan Year in which his Normal Retirement or Deferred Retirement occurs. Payment
of such benefits shall be made in accordance with the provisions of Section
6.10.
Part B. Termination Benefits.
Section 6.2. Effect of Termination. If a Participant's employment with
the Companies is terminated before his Normal Retirement Date for any reason
other than his death, that Participant shall cease to be a Participant in this
Plan and shall not be entitled to any benefits under this Plan except as
expressly provided in this Part B.
Section 6.3. Vesting. Any Participant whose employment with the
Companies is terminated as set forth in Section 6.2 shall be entitled to a
percentage (as determined below) of the entire balance credited to his Company
Contributions Account as of the Valuation Date coincidental with or immediately
following the date of termination of his employment. The percentage of his
Company Contributions Account to which a terminated Participant is entitled
shall be determined on the basis of his Period of Service on such date of
termination of employment, as follows:
Period of Service Vested Percentage
Less than five (5) years 0
Five (5) years or more 100%
Any portion of the terminated Participant's Company Contributions Account which
is not vested shall be treated as a forfeiture; provided, however, that such
forfeiture shall not be allocated to the other Plan Participants until the first
(1st) to occur of the following:
(a) that Participant's Period of Severance is at least five (5)
years; or
(b) that Participant's death;
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provided, further, that if that Participant is reemployed prior to his
completion of a five (5) year Period of Severance, the forfeited amount shall be
reinstated as the beginning balance of that Participant's Company Contribution
Account. A Participant whose vested percentage of his Company Contributions
Account is zero (0) at the date of his termination of employment shall be deemed
to have received a distribution upon his termination of employment.
In the case of any Participant whose Period of Severance is at least
five (5) years, that Participant's pre-break service shall count in vesting of
his post-break Company Contributions Account balance only if either:
(a) that Participant has any nonforfeitable interest in his
Company Contributions Account balance at the time of his
separation from service with the Companies; or
(b) upon returning to service with a Company his Period of
Severance is less than five (5) or, if greater, less than his
Period of Service completed prior to his Period of Severance.
In the case of any Participant whose Period of Separation is at least
five (5) years, all service after such Period of Severance shall be disregarded
for the purpose of vesting the Company Contributions Account balance that
accrued before such Period of Severance.
Separate sub-accounts shall be maintained for that Participant's
pre-break and post-break Company Contributions Account. Both sub-accounts shall
share in the earnings and losses of the Fund.
Any Participant whose employment with the Companies is terminated
because of his Total Disability shall be entitled to his entire Company
Contributions Account balance and shall also be entitled to receive any Company
contributions to which he is entitled pursuant to Section 4.2 for the Plan Year
in which his employment is so terminated.
Section 6.4. Payment. All benefits payable under Part B shall be paid
in accordance with the provisions of Section 6.10.
Part C. Death Benefits.
Section 6.5. Benefits upon Death. If the death of any Employee occurs
while he is still a Participant in this Plan and prior to his actual retirement
or other termination of employment with the Companies, the entire balance
credited to his Company Contributions Account as of the Valuation Date
coincidental with or immediately preceding the date of his death plus any
Company
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contributions to which he is entitled pursuant to Section 4.2 for the Plan Year
in which his death occurs shall be paid to the Beneficiary of that deceased
Participant in accordance with the provisions of Section 6.10.
Section 6.6. Beneficiaries. Each Participant shall notify the Committee
in writing of one (1) or more primary and contingent Beneficiaries to receive on
his death any benefits payable under this Part C. Each such Beneficiary
designation may be revoked, amended or changed by a Participant by like notice
in writing delivered to the Committee prior to his death. The Beneficiary
designation of any Participant who is married at the date such a designation is
made or changed shall be signed by that Participant's spouse and witnessed by
the Committee or by a Notary Public if it results in a designation of a
Beneficiary other than that Participant's spouse. Notwithstanding anything
contained in this Section to the contrary, the Beneficiary of a married
Participant shall be his spouse unless his spouse consents to the designation of
a non-spouse Beneficiary in a writing witnessed by the Committee or by a Notary
Public.
Section 6.7. Lack of Beneficiaries. Any portion of the amounts payable
under Section 6.5 which is undisposed of because all or some of the designated
Beneficiaries have predeceased a Participant or because of a Participant's
failure to designate a Beneficiary in writing prior to his death shall be paid
to the deceased Participant's surviving spouse, if any, and, if none, to the
deceased Participant's estate.
Section 6.8. Termination or Retirement prior to Death. On and after the
actual retirement of a Participant from the employ of the Companies or other
termination of his employment, the rights of such Participant and his spouse or
other Beneficiary to any benefits under this Part C shall cease and the benefits
payable to such Participant or to any person claiming through or under him shall
be limited to the benefits provided in Parts A or B of this Article.
Part D. General.
Section 6.9. Date of Distribution. Unless the Participant or, if
deceased, his Beneficiary, surviving spouse or estate, as the case may be,
otherwise elects, the payment of benefits to which any such person is entitled
shall begin not later than sixty (60) calendar days after the latest of the
Anniversary Date of the Plan Year in which:
(a) the Participant attains age sixty-five (65),
(b) occurs the tenth (10th) anniversary of the date on which the
Participant initially became eligible to participate in this
Plan, or
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(c) the Participant terminates his employment with the
Companies;
provided, however, that the distribution of benefits to a Participant shall
commence on or before April 1 of the calendar year following the calendar year
during which that Participant attains age seventy and one-half (70 1/2) or, if
the Participant is not a five percent (5%) owner of a Company and if later, of
the calendar year during which his employment with the Company is terminated.
Section 6.10. Form of Distribution. The distributions provided under
this Article VI shall be made by the Trustee, as directed by the Participant or,
if deceased, his Beneficiary, in a single lump sum distribution of the amount to
be paid to the Participant or, if deceased, to his Beneficiary; provided,
however, that except as otherwise provided in Section 6.9, payment shall be made
as soon as practicable after the Plan Year during which the employment of the
Participant from the Companies terminated; provided, further, that in no event
shall payments to a deceased Participant's estate or to any Beneficiary other
than the surviving spouse of a deceased Participant extend more than five (5)
years after the date of the Participant's death. Notwithstanding the above, a
Participant whose Company Contributions Account at the initial distribution date
or at any subsequent distribution date (when aggregated with other
distributions) is greater than five thousand dollars ($5,000), may elect to
defer the commencement of the distribution of his Company Contributions Account
to the date on which he attains age sixty-five (65). Distributions under this
Section 6.10 shall be distributed in Stock with fractional share interests
distributed in cash. If shares of Stock are distributed and the shares of Stock
available for distribution consist of more than one (1) class of security, a
distributee shall receive substantially the same proportion of each such class.
If the Trust purchases shares of Stock from a Company shareholder who
is eligible to elect and so elects nonrecognition of gain under Section 1042 of
the Code in connection with such purchase and notwithstanding anything contained
herein to the contrary, no distribution that would be made within three (3)
years after the date of such purchase shall be made to a Participant before he
incurs a One Year Service Break, unless his employment with the Companies
terminates as a result of his Normal Retirement, Total Disability or death or
unless the distribution is made pursuant to Section 8.19.
Section 6.11. Liability. Any payment to a Participant or to that
Participant's legal representative, Beneficiary, surviving spouse or estate, in
accordance with the provisions of this Plan, shall to the extent thereof be in
full satisfaction of all claims hereunder against the Trustee, the Committee and
the Companies, any of whom may require such Participant, legal representative,
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Beneficiary, surviving spouse or estate, as a condition precedent to such
payment, to execute a receipt and release therefor in such form as shall be
determined by the Trustee, the Committee or the Companies. The Companies do not
guarantee the Trust, the Participants or, if deceased, their Beneficiaries,
surviving spouses or estates, as the case may be, against the loss of or
depreciation in value of any right or benefit that any of them may acquire under
the terms of this Plan.
Section 6.12. Right of First Refusal. If any recipient of shares of
Stock from this Plan elects at any time to sell all or any part of such shares,
the Trustee shall have a right of first refusal to purchase all or any part of
such shares of Stock for the Fund. The price to be paid by the Trustee for
shares of Stock purchased pursuant to this Section 6.12 shall be no less than
the greater of:
(a) the fair market value of such shares of Stock at the date
of their purchase, or
(b) the price offered to the recipient by another potential buyer
(other than a Company) making a good faith, bona fide offer to
buy such shares of Stock,
and the terms of the purchase may not be less favorable to the recipient than
the terms offered in the bona fide offer. This right of first refusal shall
lapse no later than fourteen (14) calendar days after the recipient gives
written notice to the Trustee that an offer by a third party to purchase his
shares of Stock has been received. The right of first refusal granted by this
Section 6.12 shall only exist if the Stock is not publicly traded within the
meaning of Treasury Regulations ss. 54.4975-7(b)(1)(iv).
Section 6.13. Put Options. The Holding Company shall issue a put option
to any Participant, Beneficiary, surviving spouse or estate of a deceased
Participant, or any other person (including distributees of an estate) to whom
shares of Stock distributed under this Plan may pass by reason of a
Participant's death (herein collectively referred to as the "Recipient"). This
put option shall permit the Recipient to sell such Stock to the Holding Company,
at any time during two (2) option periods, at the then fair market value. The
first put option period shall be a period of at least sixty (60) calendar days
beginning on the actual date of distribution of such Stock to the Recipient. The
second put option period shall be a period of at least sixty (60) calendar days
beginning after the determination of the fair market value of such Stock is made
by the Committee (and notice of same is given in writing to the Recipient) for
the next succeeding Plan Year. Such Recipient shall be deemed to have a put
option as herein provided with respect to the shares of Stock and may exercise
this put option by delivering to the Holding Company a written notice of his
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election to sell such shares of Stock, or any portion thereof, together with the
certificates representing the shares of Stock to be sold duly endorsed for
transfer. The Holding Company shall be obligated to purchase the shares of
Stock, or the designated portion thereof, at their fair market value at the date
the put option is exercised; provided, however, that the Holding Company may
grant the Trustee an option to assume on behalf of this Plan and Trust the
Holding Company's rights and obligations with respect to the put option at the
date the put option is actually exercised by the Recipient. Except as
hereinafter provided, the Holding Company (or the Trustee, if it assumes the
Holding Company's obligation) shall pay for the shares of Stock so sold to it by
check within thirty (30) calendar days following the date of sale.
Notwithstanding anything contained herein to the contrary, the Holding Company
(or, if applicable, the Trustee) may pay the purchase price in substantially
equal periodic payments (not less frequently than annually) over a period
beginning not later than thirty (30) calendar days after the exercise of the put
option and not exceeding five (5) years as long as reasonable interest is paid
on the unpaid amounts and adequate security is provided to the Recipient. If the
Stock is readily tradeable on an established market on the date of distribution,
the put option granted by this Section 6.13 shall not exist; provided, however,
that if the Stock ceases to be publicly traded within either of the sixty (60)
day calendar periods as provided herein, the Holding Company shall notify the
Recipient in writing within a reasonable time after the Stock ceases to be so
publicly traded that the Stock shall be subject to the put option for the
remainder of the applicable sixty (60) day calendar period. If the date of
actual written notice to the Recipient by the Holding Company is later than ten
(10) calendar days after the Stock ceases to be so publicly traded, the put
option shall automatically be extended to the extent that the date on which
written notice is actually given to the Recipient is more than ten (10) calendar
days later.
Section 6.14. Eligible Rollover Distributions. Notwithstanding any
provision of the Plan to the contrary that would otherwise limit a distributee's
election under this Section, a distributee may elect, at the time and in the
manner prescribed by the Committee, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by the
distributee in a direct rollover. For purposes of this Section, the following
terms shall have the meanings set forth below:
(a) Eligible rollover distribution: An eligible rollover distribution
is any distribution of all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does not include: (1)
any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life
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expectancies) of the distributee and the distributee's designated beneficiary,
or for a specified period of ten (10) years or more; (2) any distribution to the
extent such distribution is required under Section 401(a)(9) of the Code; and
(3) the portion of any distribution that is not includible in gross income.
(b) Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in Section 408(a) of the Code, an
individual retirement annuity described in Section 408(b) of the Code, an
annuity plan described in Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code, that accepts the distributee's eligible
rollover distribution. However, in the case of an eligible rollover distribution
to the surviving spouse, an eligible retirement plan is an individual retirement
account or individual retirement annuity.
(c) Distributee: A distributee includes an Employee or former Employee.
In addition, the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is an alternate
payee under a qualified domestic relations order, as defined in Section 414(p)
of the Code, are distributees with regard to the interest of the spouse or
former spouse.
ARTICLE VII
ADMINISTRATIVE COMMITTEE
Section 7.1. Establishment. The Committee shall consist of at least two
(2) members to be appointed by the Board of Directors of the Bank, and the
members shall hold office at the pleasure of such Board of Directors. The
members of the Committee shall be individuals and may, but need not, be
officers, shareholders or Directors of the Holding Company or the Bank,
Participants or Beneficiaries. The Bank may, at its sole discretion, designate
to serve as the Committee its Board of Directors as duly-constituted from time
to time.
Section 7.2. Duties. The Committee shall discharge its duties and
powers in conformance with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of a like
character and with like aims. It shall have complete control of the
administration of this Plan and shall have all powers necessary or convenient to
enable it to exercise such control. In connection therewith, it may provide
rules and regulations, not inconsistent with the provisions hereof or with
requirements imposed under the Code or under the Act, for the administration of
this Plan and may from time to time amend or rescind such rules and regulations.
In addition, it may employ or appoint a secretary and such advisors, agents or
representatives as it may deem desirable and may consult
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with and employ counsel (who may, but need not, be counsel to a Company or to
the Trustee) or actuaries with regard to any questions arising in connection
with this Plan. All reasonable expenses incurred by the Committee in connection
with this Plan shall be paid as provided in Section 3.4.
Section 7.3. Actions. The Committee may decide any questions hereunder
and may take or authorize or direct the taking of any action hereunder with the
approval of a majority of the members of the Committee. The approval of such
members, expressed from time to time by a vote at a meeting or in writing
without a meeting, shall constitute the action of the Committee and shall be
valid and effective for all purposes of this Plan. The fact that any member of
the Committee shall be a Participant, former Participant or Beneficiary shall
not disqualify or debar him from participating in any action or decision
affecting any class of Participants, former Participants or Beneficiaries, but
he shall not participate in any action or decision affecting his own separate
interest as a Participant, former Participant or Beneficiary.
Section 7.4. Disqualification. The fact that any member of the
Committee is a Director, shareholder or officer of a Company or a Participant or
Beneficiary shall not disqualify him from doing any act or thing which this Plan
authorizes or requires him to do as a member of the Committee (except as
otherwise provided in Section 7.3) or render him accountable for any allowance
or distribution or other pecuniary or material profit or advantage received by
him.
Section 7.5. Powers. The Committee shall have the power to construe
this Plan and to determine all questions of fact or law arising under it. It may
correct any defect, supply any omission or reconcile any inconsistency in this
Plan in such manner and to such extent as it may deem expedient and, except as
otherwise provided by the Act, it shall be the sole and final judge of such
expediency. Except as otherwise provided in Section 7.9, all acts and
determinations of the Committee made in good faith within the scope of its
authority shall be final and conclusive on all the parties hereto and on all
Employees, Participants and their Beneficiaries, surviving spouses or estates
hereunder and shall not be subject to appeal or review.
Section 7.6. Discrimination Prohibited. The Committee shall not take
any action or direct the Trustee to take any action with respect to any of the
benefits provided hereunder or otherwise in pursuance of the powers conferred
herein upon the Committee which would be discriminatory in favor of Employees
who are officers, Directors, shareholders, persons whose principal duties
consist of supervising the work of other Employees or Highly Compensated
Employees or which would result in benefiting one (1) Participant or group of
Participants at the expense of another or in discrimination as between
Participants similarly situated or in the
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application of different rules to substantially-similar sets of facts.
Section 7.7. Statements and Forms. The Committee shall be authorized to
require of a Company and of any person claiming any rights hereunder a written
statement of any information or the execution of any forms or instruments it may
deem necessary or desirable for the administration of this Plan.
Section 7.8. Liability. Except as otherwise provided by the Act, no
member of the Committee shall be directly or indirectly responsible or under any
liability by reason of any action or default by him as a member of the Committee
or the exercise of or failure to exercise any power or discretion as such member
except for his own fraud or bad faith shown in the exercise of or failure to
exercise such power or discretion, and no member of the Committee shall be
liable in any way for the acts or defaults of any other member. The Committee
may consult with counsel (who may, but need not, be counsel to a Company or to
the Trustee) or accountants selected by it and, except as otherwise provided by
the Act, the opinion of such counsel or the recommendations of such accountants
shall be full and complete authority and protection for any action or conduct
pursued by the Committee in good faith and in accordance with such opinion or
recommendations.
Section 7.9. Determination of Right to Benefits. The Committee shall
make all determinations as to the right of any person to a benefit under the
provisions of this Plan. Any denial by the Committee of a claim for benefits
under this Plan by an Employee or, if deceased, by such Employee's spouse or
other Beneficiary, shall be stated in writing by the Committee and delivered or
mailed to the Employee, spouse or other Beneficiary, as the case may be, within
ninety (90) calendar days after receipt of such benefit claim by the Committee.
Such notice shall set forth the specific reasons for the denial and such
additional information as is required under Section 503 of the Act, written to
the best of the Committee's ability in a manner that may be understood without
legal or actuarial counsel. In addition, the Committee shall afford a reasonable
opportunity to any Employee, spouse or other Beneficiary, as the case may be,
whose claim for benefits has been denied, for a review of the decision denying
the claim in accordance with Section 503 of the Act.
Section 7.10. Investment Directions. The Committee may direct the
investment of the Fund, by written directions to the Trustee, but such direction
shall not be inconsistent with the provisions of this Plan, of the Act or of the
Code.
Section 7.11. Voting Power. Except as otherwise provided in Section
8.17, the Committee shall be authorized to vote, either in person or by proxy,
the Stock or other securities which are held by the Trustee as part of the Fund.
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ARTICLE VIII
THE TRUSTEE
Section 8.1. Assets Held in Trust. The Trustee shall hold the Fund and
shall accept and hold all contributions thereto and all investments and
reinvestments thereof in trust for the persons ultimately entitled thereto under
the terms of this Plan.
Section 8.2. Investments. This Plan is designed to invest primarily in
shares of Stock. Except as otherwise provided in this Plan, the Trustee shall
invest the cash contributed or accruing to the Fund in Stock and shall not make
any other investment for the Fund. There shall be no limit on the permissible
investment in shares of Stock. The Trustee may purchase such shares of Stock
from the Holding Company or from any other source, and such shares of Stock may
be outstanding, newly-issued or treasury shares. All such purchases shall be
made at fair market value (as determined consistent with Section 5.1(a)). If no
shares of Stock are available for purchase, the Trustee may retain cash
uninvested or may invest all or any part thereof in any other investment if such
retention or investment is prudent under all the facts and circumstances then
prevailing. The Trustee shall have the power at any time to enter into
legally-binding agreements to purchase shares of Stock from any person or
entity, whether or not such person or entity shall own such shares of Stock at
the date such purchase agreement is entered into, including but not limited to
Participants in and Beneficiaries of this Plan, except as otherwise provided in
the Act and in Treasury Regulations ss. 54.4975-11(a)(7). Except as otherwise
required by Section 6.12, the purchase price set forth in any such purchase
agreement shall be determined by the fair market value of such shares of Stock
at the date of purchase (as determined consistent with Section 5.1(a)).
Section 8.3. Directions of Committee. The powers granted to the Trustee
under this Plan shall be exercised by the Trustee in its sole discretion. Except
as provided in Section 8.20, the Committee may at any time and from time to time
by written direction to the Trustee require the Trustee to invest in, to retain
or to dispose of any security or other form of investment as may be specified in
such direction, limited, however, to investments permitted under this Plan,
under the Act and under the Code. Neither the Trustee nor any other person shall
be under any duty to question any such written direction of the Committee, and
the Trustee shall as promptly as possible comply with any such written
direction. Any such direction may be of a continuing nature or otherwise and may
be revoked in writing by the Committee at any time. The Trustee shall not be
liable in any manner or for any reason for the making, retention or disposition
of any investment pursuant to the lawful written direction of the Committee.
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Section 8.4. Receipt of Additional Shares. Any securities received by
the Trustee as a stock split or a stock dividend or as a result of a
reorganization or other recapitalization shall be allocated as of each Valuation
Date in the same manner as the Stock to which it is attributable is then
allocated. If any rights, warrants or options are issued on common shares or
other securities held in the Fund, the Trustee shall exercise them for the
acquisition of additional common shares or other securities to the extent that
cash is then available. Any common shares or other securities acquired in this
fashion shall be treated as common shares or other securities bought by the
Trustee for the net price paid. Any rights, warrants or options on common shares
or other securities which cannot be exercised for lack of cash may be sold by
the Trustee with the proceeds thereof treated as a current cash dividend
received on such common shares or other securities.
Section 8.5. Delivery of Materials to Committee. Except as otherwise
provided in Section 8.17 and Section 8.20, the Trustee shall deliver or cause to
be delivered to the Committee copies of all notices, prospectuses and financial
statements relating to investments held in the Fund.
Section 8.6. Powers. The Trustee shall have power with
regard to all property in the Fund at any time and from time to
time:
(a) to sell, convey, transfer, mortgage, pledge, lease, exchange
or otherwise dispose of the same, without the necessity of
approval of any court therefor or notice to any person,
natural or legal, thereof and without obligation on the part
of any person dealing with the Trustee to see to the
application of any money or property delivered to it;
(b) except as otherwise provided in Section 7.11, Section 8.17 and
Section 8.20, to exercise any and all rights or options
pertaining to any share of Stock held as part of the assets of
the Fund and to enter into agreements and consent to or oppose
the reorganization, consolidation, merger, readjustment of
financial structure or sale of assets of any corporation or
organization, the securities of which are held in the Fund;
(c) except as otherwise provided in Section 4.5, to collect the
principal and income of such property as the same shall become
due and payable and to give binding receipt therefor;
(d) to take such action, whether by legal proceedings, compromise,
abandonment or otherwise, as the Trustee, in its sole
discretion, shall deem to be in the best interest of the Fund,
but the Trustee shall be under no
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obligation to take any legal action unless it shall have been
first indemnified by the Companies with respect to any
expenses or losses to which it may be subjected through taking
such action;
(e) to register any securities and to hold any other property in
the Fund in its own name or in the name of a nominee with or
without the addition of words indicating that such securities
or other property are held in a fiduciary capacity;
(f) pending the selection or the purchase of suitable investments
or the payment of expenses or the making of any other payment
required or permitted under this Plan, to retain in or to
convert to cash, without liability for interest or any other
return thereon, such portion of the Fund as it shall deem
reasonable under the circumstances, including, but not by way
of limitation, the power to retain sufficient cash to permit
the acquisition of large blocks of shares of Stock as the same
may from time to time become available for purchase;
(g) to borrow from banks or similar lending institutions
reasonable sums of money for the purchase of shares of Stock
for the Company Contributions Accounts of Participants in
accordance with the provisions of Section 8.7; provided,
however, that the Trustee may not borrow from itself or from
an affiliated institution even if the Trustee is a bank or
similar lending institution except to the extent specifically
permitted by the Act and by the Code; and
(h) to do all other acts in its judgment necessary or desirable
for the proper administration of the Trust and permissible
under the Act and under the Code although the power to do such
acts is not specifically set forth herein.
Section 8.7. Loans to the Trust. The following conditions shall be met
with respect to any Exempt Loan to the Trust:
Clause (a). Interest. The rate of interest on any Exempt Loan
shall not be in excess of a reasonable rate of interest. At the date an Exempt
Loan is made, the interest rate for the Exempt Loan and the price of any shares
of Stock to be purchased with the Exempt Loan proceeds shall not be such that
the Plan assets might be drained off.
Clause (b). Use of Proceeds. The proceeds of an Exempt
Loan shall be used within a reasonable time after receipt by the
Trustee for any or all of the following purposes:
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(i) to acquire Stock;
(ii) to repay that Exempt Loan; or
(iii) to repay a prior Exempt Loan.
Except as otherwise provided in Section 6.12 and Section 6.13, no Stock acquired
with Exempt Loan proceeds shall be subject to a put, call or other option or a
buy-sell or similar arrangement while held by the Trustee and when distributed
from this Plan.
Clause (c). Terms of Exempt Loan. The terms of each Exempt
Loan shall be, at the time that Exempt Loan is made, as favorable to this Plan
as the terms of a comparable loan resulting from arm's-length negotiations
between independent parties. Each Exempt Loan shall be for a specific term and
shall not be payable at the demand of any person, except in the case of default.
Clause (d). Collateral. Any collateral pledged to the lender
by the Trustee shall consist only of Stock purchased with the borrowed funds or
Stock that was used as collateral for a prior Exempt Loan repaid with the
proceeds of the current Exempt Loan; provided, however, that in addition to such
collateral, the Companies may guarantee the repayment of an Exempt Loan.
Clause (e). Limited Recourse. Under the terms of each
Exempt Loan, the lender shall not have any recourse against the
Fund or the Trust except with respect to the collateral.
Clause (f). Repayment. No person entitled to payment
under any Exempt Loan shall have any right to assets of the Fund or
the Trust other than:
(i) collateral given for that Exempt Loan;
(ii) contributions (other than contributions of Stock)
that are made by the Companies under this Plan to
meet this Plan's obligations under that Exempt Loan;
(iii) earnings attributable to such collateral and the
investment of such contributions; and
(iv) to the extent directed by the Holding Company under
Section 4.5, cash dividends on allocated shares of
Stock.
Payments made with respect to an Exempt Loan by the Trustee during any Plan Year
shall not exceed an amount equal to the sum of such contributions and earnings
received during or prior to that Plan Year less such payments in prior Plan
Years. Such contributions
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and earnings shall be accounted for separately in the books of account of this
Plan and Trust until that Exempt Loan is repaid.
Clause (g). Agreement by Companies. The Companies shall agree
in writing with the Trustee to contribute to the Fund amounts sufficient to
enable the Trustee to pay each installment of principal and interest on each
Exempt Loan on or before the date such installment is due, even if no tax
benefit to the Companies results from such contribution.
Clause (h). Release of Collateral. All assets of the Fund
acquired by this Plan and Trust with Exempt Loan proceeds and all collateral
pledged to secure an Exempt Loan shall be held in a suspense account and
considered encumbered by the Exempt Loan. For each Plan Year during the duration
of an Exempt Loan, the number of assets to be released from encumbrance and
withdrawn from the suspense account shall be based upon the ratio that the
payment of principal and interest on that Exempt Loan for that Plan Year bears
to the total projected payments of principal and interest over the duration of
the Exempt Loan period. Assets released from encumbrance and withdrawn from the
suspense account shall be allocated to the various Company Contributions
Accounts in the Plan Year during which such portion is paid off and in the same
manner as if the assets had been obtained by the Trustee when no Exempt Loan was
involved. Income with respect to shares of Stock acquired with Exempt Loan
proceeds and held in the suspense account shall be allocated to Company
Contributions Accounts along with other income earned by the Fund, except to the
extent that such income is to be used to repay an Exempt Loan.
Clause (i). Default. In the event of any default upon an
Exempt Loan, the value of Trust assets transferred in satisfaction of that
Exempt Loan shall not exceed the amount of the default. If the lender is a
disqualified person within the meaning of Section 4975(e)(2) of the Code, the
Exempt Loan shall provide for a transfer of Trust assets upon default only upon
and to the extent of the failure of the Trustee to meet the payment schedule of
that Exempt Loan; provided, however, that the making of a guarantee shall not
make a person a lender within the meaning of this Clause (i).
Clause (j). Termination of Plan. Upon a complete termination
of the Plan but only to the extent permitted by the Code and the Act, any
unallocated Stock shall be sold to the Corporation at a price no less than fair
market value or on the open market. To the extent permitted by Code and the Act,
the proceeds of such sale shall be used to satisfy any outstanding Exempt Loan
and the balance of any funds remaining shall be allocated as income to each
Participant's Company Contributions Account based on the proportion that the
Participant's Company Contributions Account balance as of the immediately
preceding Valuation Date bears to the aggregate Company Contributions Account
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balances of all Participants as of the immediately preceding Valuation Date.
Section 8.8. Annual Accounting. At least annually the Trustee shall
render to the Committee a written account of its administration of the Fund
during the period since the establishment of this Plan or the last accounting
thereafter. Pursuant to this requirement, Stock acquired by the Trustee shall be
accounted for as provided in Treasury Regulations ss. 1.402(a)-1(b)(2)(ii).
Unless written notice of disapproval is furnished to the Trustee by the
Committee within ninety (90) calendar days after receipt of such account, such
account shall be deemed to have been approved.
Section 8.9. Audit. In the case of any disapproval as provided in
Section 8.8 and unless a satisfactory corrected written account is furnished to
the Committee, an audit of the Trustee's account shall be made by a certified
public accountant selected jointly by the Holding Company and the Trustee, but
at the expense of the Companies. Upon completion of any such audit, the
inaccuracies in the Trustee's account, if any, shall be corrected to conform to
such audit and a corrected written account shall be delivered to the Committee
by the Trustee. Except as otherwise provided by the Act, an approved account or
an account corrected pursuant to such an audit shall be final and binding upon
the Companies and upon all other persons who shall then or thereafter have any
interest under this Plan.
Section 8.10. Uncertainty Concerning Payment of Benefits. In the event
of any dispute or uncertainty as to the person to whom payment of any funds or
other property shall be made under this Plan, the Trustee may, in its sole
discretion, withhold such payment or delivery until such dispute or uncertainty
shall have been determined or resolved by a court of competent jurisdiction or
otherwise settled by the parties concerned.
Section 8.11. Compensation. The Trustee shall be entitled to receive
fair and reasonable compensation for its services hereunder, taking into account
the amount and nature of its services and the responsibilities involved, and
shall also be entitled to be reimbursed for all reasonable out-of-pocket
expenses, including, but not by way of limitation, legal, actuarial and
accounting expenses and all costs and expenses incurred in prosecuting or
defending any action concerning this Plan or the Trust or the rights or
responsibilities of any person hereunder, brought by or against the Trustee.
Such reasonable compensation and expenses shall be paid by the Companies as
provided in Section 3.4.
Section 8.12. Standard of Care. The Trustee shall use its best judgment
in exercising any duties or powers or in taking any action hereunder and shall
be bound at all times to act in good
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faith and in accordance with all requirements imposed under the Act and under
the Code. Except as otherwise provided by the Act, the Trustee shall not incur
any liability by reason of any error of judgment, mistake of law or fact or any
act or omission hereunder of itself or of any agent, proxy or attorney so long
as it has acted in good faith. The Trustee may act on any paper or document
believed by it to be genuine and to have been signed and presented by the proper
person. The Trustee may consult with counsel (who may, but need not, be counsel
to a Company), accountants or actuaries selected by it and, except as otherwise
provided by the Act, the written opinion of such counsel or the written
recommendations of such accountants or actuaries shall be full and complete
authority and protection for any action or conduct pursued by the Trustee in
good faith and in accordance with such written opinion or recommendations.
Except as otherwise provided by the Act, the Trustee shall not be liable for any
action taken by it pursuant to the written direction of the Committee.
Section 8.13. Request for Instructions. In addition to written
instructions relating to valuation and except as otherwise provided in Section
8.20, at any time the Trustee may, by written request, seek written instructions
from the Committee on any matter and may await such written instructions from
the Committee without incurring any liability whatsoever. If at any time the
Committee should fail to give written directions to the Trustee, the Trustee may
act, and shall be protected in acting, without such written directions, in such
manner as in its sole discretion seems appropriate and advisable under the
circumstances for carrying out the purposes of the Trust.
Section 8.14. Resignation of Trustee. The Trustee may resign at any
time by giving sixty (60) calendar days' prior written notice to the Bank, and
the Trustee may be removed, with or without cause, by the Bank on sixty (60)
calendar days' prior written notice to the Trustee. Such prior written notice
may be waived by the party entitled to receive it. Upon any such resignation or
removal becoming effective, the Trustee shall render to the Committee a written
account of its administration of the Fund for the period since the last written
accounting and shall do all necessary acts to transfer the assets of the Fund to
the successor Trustee or Trustees.
Section 8.15. Vacancies in Trusteeship. In the event of any vacancy in
the trusteeship of the Trust hereby created, the Bank may designate and appoint
a qualified successor Trustee or Trustees. Any such successor Trustee or
Trustees shall have all the powers herein conferred upon the original Trustee.
Section 8.16. Information to Be Furnished. The Companies shall furnish
to the Trustee, and the Trustee shall furnish to the Companies, such information
relevant to this Plan and Trust as may be required under the Code and under the
Act. The Trustee shall
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keep such records, make such identification and file with the Internal Revenue
Service and with the U.S. Department of Labor such returns and other information
concerning this Plan and Trust as may be required of it under the Code and under
the Act. The Companies shall fulfill any reporting and disclosure obligations
imposed on it by the Act, and each Participant shall be given any reports
required by the Act. To the extent that the Trustee assumes any such Company
obligations, it may charge a reasonable fee for its services apart from its
normal fee and its expenses as provided in Section 8.11.
Section 8.17. Voting Rights of Participants. Each Participant (or, if
applicable, his Beneficiary) shall have the right to direct the Trustee as to
the manner in which voting rights of shares of Stock which are allocated to his
Company Contributions Account are to be exercised with respect to any corporate
matter which involves the voting of such shares with respect to the approval or
disapproval of any corporate merger or consolidation, recapitalization,
reclassification, liquidation, dissolution, sale of substantially all assets of
a trade or business, or such similar transactions which may be prescribed by the
Secretary of Treasury in regulations. Each Participant (or, if applicable, his
Beneficiary) shall also have the right to direct the Trustee as to the manner in
which voting rights of shares of Stock which are allocated to his Company
Contributions Account are to be exercised at any time the Holding Company has a
class of securities that are required to be registered under Section 12 of the
Securities Exchange Act of 1934 or that would be required to be so registered
except for the exemption from registration provided by Section 12(g)(2)(H) of
the Securities Exchange Act of 1934. In all other cases, the Committee shall be
authorized to vote the Stock held by the Trustee as part of the Fund as provided
in Section 7.11. Not less than thirty (30) calendar days prior to each annual or
special meeting of shareholders of the Holding Company at which one (1) or more
Participants are entitled to vote shares of Stock allocated to their Company
Contributions Accounts under this Section 8.17, the Trustee shall cause to be
prepared and delivered to each such Participant who has a Company Contributions
Account as of the record date established by the Holding Company a copy of the
notice of the meeting and form of proxy directing the Trustee as to how it shall
vote at such meeting or at any adjournment thereof with respect to each issue.
Upon receipt of such proxies, the Trustee shall vote or may grant the Committee
a proxy to vote the shares of Stock in accordance with the proxies received by
the Participants. The shares of Stock for which no direction is received by the
Participant (or, if applicable, his Beneficiary) or held by the Trustee in any
unallocated account shall be tendered in proportion to the tendering directions
received by the Trustee with respect to the allocated shares of Stock. The
Trustee shall take steps to keep a Participant's voting directions confidential
and shall not provide them to the Companies.
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Section 8.18. Delegation of Authority. The Trustee may delegate any of
its ministerial powers or duties under this Plan, including the signing of any
checks drawn on the Fund, to any of its agents or employees.
Section 8.19. Diversification of Company Contributions Account.
Notwithstanding anything contained in Article VI to the contrary, a Participant
who has attained age fifty-five (55) and who has completed at least ten (10)
years of participation in this Plan shall be permitted to elect that during a
six (6) year period beginning with the Plan Year during which he had obtained
age fifty-five (55) or, if later, during which he completed his tenth (10th)
year of participation in this Plan a portion of his vested Company Contribution
Account be distributed. In the first (1st) Plan Year for which the Participant
has an election under this Section 8.19, the Participant may elect a
distribution of up to twenty-five percent (25%) of his vested Company
Contribution Account as of the end of such Plan Year. In the second (2nd), third
(3rd), fourth (4th) and fifth (5th) Plan Year for which the Participant has an
election under this Section 8.19, the Participant may elect a distribution
which, when aggregated to any earlier distributions made by reason of this
Section 8.19, does not exceed twenty-five percent (25%) of the vested balance
held in his Company Contribution Account as of the end of the Plan Year for
which the election is made. In the final Plan Year for which a Participant has
an election under this Section 8.19, the Participant may elect a distribution of
an amount which, when aggregated with any other distribution made by reason of
this Section 8.19, does not exceed fifty percent (50%) of his vested Company
Contribution Account balance as of the end of such Plan Year. The Trustee shall
provide Participants eligible for an election under this Section 8.19 with
information relating to the election before the end of the first (1st) Plan Year
for which the election relates. A Participant electing a distribution under this
Section 8.19 shall have until the ninetieth (90th) calendar day immediately
following the end of the Plan Year for which the election is made to make his
election. Any distribution made by reason of this Section 8.19 shall be in cash
and shall be made within one hundred and eighty (180) calendar days after the
end of the Plan Year for which the election is made.
Section 8.20. Tender Offer. Each Participant (or, if applicable, his
Beneficiary) shall have the right to direct the Trustee as to whether the shares
of Stock which are allocated to his Company Contributions Account are to be
tendered pursuant to any tender offer made for the Stock of the Holding Company.
The Trustee shall as soon as practical (and in no event later than five (5)
calendar days) after its receipt of the tender offer documents shall cause to be
prepared and delivered to each Participant (and, if applicable, his Beneficiary)
who has a Company Contributions Account as of the date of the tender offer a
copy of all relevant information as to the tender offer and a written election
form
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which will direct the Trustee as to whether it should tender the shares of Stock
held in such Participant's Company Contributions Account. The shares of Stock
for which no direction is received by the Participant (or, if applicable, his
Beneficiary) or held by the Trustee in any unallocated account shall be tendered
in proportion to the tendering directions received by the Trustee with respect
to the allocated shares of Stock. The Trustee shall take steps to keep a
Participant's decision whether or not to tender shares of Stock confidential and
shall not provide the information to the Companies.
ARTICLE IX
AMENDMENT, TERMINATION AND MERGER
Section 9.1. Amendment. Except for such amendments as are permitted
under this Section 9.1 and as otherwise provided in Section 1.18 and Section
9.3, the Trust is irrevocable. The Bank reserves the right to amend this Plan,
at any time and from time to time, in whole or in part, including without
limitation, retroactive amendments necessary or advisable to qualify this Plan
and the Trust under the provisions of Sections 401(a) and 501(a) of the Code or
the corresponding provisions of any similar statute hereafter enacted. However,
the Bank's right to amend this Plan shall remain at all times subject to the
provisions of Section 9.4.
Further, no amendment of this Plan shall:
(a) alter, change or modify the duties, powers, or liabilities of
the Trustee hereunder without their written consent;
(b) permit any part of the Fund to be used to pay premiums or
contributions of the Companies under any other employee
benefit plan maintained by the Companies for the benefit of
its Employees;
(c) effect any discrimination among the Participants;
(d) change the vesting schedule in Section 6.3 or, if applicable,
in Section 11.4 unless each Participant who has completed
three (3) or more Years of Service as of the effective date of
the amendment is permitted to elect, within sixty (60)
calendar days after he is notified by the Committee of his
rights under this Subsection (d), to have his vested interest
determined without regard to such amendment;
(e) decrease the accrued benefit of any Participant unless the
amendment is approved by the Department of Labor because of
substantial business hardship; or
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(f) decrease a Participant's Company Contributions Account balance
or eliminate an optional form of distribution for the accrued
benefits of a Participant determined as of the date of the
amendment.
Section 9.2. Termination or Complete Discontinuance of Contributions.
The Companies are not and shall not be under any obligation or liability
whatsoever to continue their contributions pursuant to this Plan or to maintain
this Plan for any given length of time, except as otherwise provided in Section
8.7. A Company may, in its sole discretion, discontinue Company contributions to
this Plan completely, except as otherwise provided in Section 8.7, with or
without notice, or partially or totally terminate this Plan in accordance with
its provisions at any time without any liability whatsoever for such
discontinuance or termination. If this Plan shall be partially or totally
terminated or if contributions of a Company shall be completely discontinued,
the rights of all Participants directly affected by the partial or total
termination or the complete discontinuance of contributions in their Company
Contributions Accounts shall thereupon become fully vested and non-forfeitable
notwithstanding any other provisions of this Plan. However, the Trust shall
continue until all Participants' Company Contributions Accounts have been
completely distributed to, or for the benefit of, the Participants in accordance
with this Plan.
Section 9.3. Determination by Internal Revenue Service. Notwithstanding
any other provisions of this Plan, if the Internal Revenue Service shall fail or
refuse to issue a favorable written determination or ruling with respect to the
initial qualification of this Plan and the initial exemption of the Trust from
tax under Sections 401(a) and 501(a) of the Code, the Trustee shall, within a
reasonable time after receiving a written direction from the Committee to do so,
return to the Companies the current value of all Company contributions
theretofore made. As a condition to such repayment, the Companies shall execute,
acknowledge and deliver to the Trustee its written undertaking, in form
satisfactory to the Trustee, to indemnify, defend and hold the Trustee harmless
from all claims, actions, demands, or liabilities arising in connection with
such repayment. If for any reason the Key District Director of the Internal
Revenue Service should at any time after initial qualification fail to approve
any of the terms, conditions or amendments contained in or implied from this
Plan and Trust for continuing qualification and tax exemption under Sections
401(a) and 501(a) of the Code, then the Holding Company shall make such
modifications, alterations and amendments of this Plan as are necessary to
retain such approval and such modifications, alterations and amendments shall be
effective retroactively to the Effective Date or to such later date as is
required to retain such approval.
Section 9.4. Nonreversion. Except as otherwise provided in Section 3.1
and Section 9.3:
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(a) The Bank shall have no power to amend or to terminate this
Plan in such a manner which would cause or permit any part of
the Fund to be diverted to purposes other than for the
exclusive benefit of Participants or, if deceased, of their
spouse or other Beneficiaries or as would cause or permit any
portion of the Fund to revert to or to become the property of
the Companies, and
(b) The Bank shall have no right to modify or to amend this Plan
retroactively in such a manner as to deprive any Participants,
or if deceased, their spouses or other Beneficiaries of any
benefits to which they are entitled under this Plan by reason
of contributions made by the Companies prior to the
modification or amendment, unless such modification or
amendment is necessary to meet the qualification requirements
of Sections 401(a) and 501(a) of the Code.
Section 9.5. Merger. The Bank shall have the right, by action of its
Board of Directors, to merge or to consolidate this Plan with, or to transfer
the assets or liabilities of the Fund to, any other qualified retirement plan
and trust at any time, except that no such merger, consolidation or transfer
shall be authorized unless each Participant in this Plan would receive a benefit
immediately after the merger, consolidation or transfer (if the merged,
consolidated or transferred plan and trust then terminated) equal to or greater
than the benefit to which he would have been entitled immediately before the
merger, consolidation or transfer (if this Plan then terminated).
ARTICLE X
MISCELLANEOUS
Section 10.1. Creation of Plan Voluntary. The Plan hereby created is
purely voluntary on the part of the Companies and, except as otherwise provided
in Section 8.7, any Company may suspend or discontinue payments hereunder at any
time or from time to time as it may decide in accordance with Section 10.17, but
no suspension or discontinuance shall operate retroactively with respect to the
rights of any Participant hereunder or his spouse or other Beneficiary.
Section 10.2. No Employment Contract. Except as may be required by the
Act, no contributions or other payments under this Plan shall constitute any
contract on the part of the Company to continue such contributions or other
payments hereunder. Participation hereunder shall not give any Participant the
right to be retained in the service of the Companies or any right or claim to
any benefits hereunder unless the right to such benefits has accrued under this
Plan. All Participants shall remain subject to assignment, reassignment,
promotion, transfer, layoff, reduction,
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suspension and discharge by the Companies to the same extent as if this Plan had
never been established.
Section 10.3. Limitation on Rights Created. Nothing contained in this
Plan or any modification of the same or act done in pursuance hereof shall be
construed as giving any person whomsoever any legal or equitable right against
the Companies, the Committee, the Trustee or the Fund, unless specifically
provided herein or granted by the Act.
Section 10.4. Waiver of Claims. Except as otherwise provided by the
Act, no liability whatsoever shall attach to or be incurred by any shareholder,
officer or Director, as such, of the Companies under or by reason of any
provision of this Plan or any act with reference to this Plan, and any and all
rights and claims thereof, as such, whether arising at common law or in equity
or created by statute, constitution or otherwise, are hereby expressly waived
and released to the fullest extent permitted by law by every Participant and by
his spouse or other Beneficiary as a condition of and as part of the
consideration for the payments by the Companies under this Plan and for the
receipt of benefits hereunder.
Section 10.5. Spendthrift Provision. To the fullest extent permitted by
law, none of the benefits, payments, accounts, funds or proceeds of any contract
held hereunder shall be subject, voluntarily or involuntarily, to any claim of
any creditor of any Participant or of his spouse or other Beneficiary, nor shall
the same be subject to attachment, garnishment or other legal or equitable
process by any creditor of a Participant or of his spouse or other Beneficiary,
nor shall any Participant or his spouse or other Beneficiary have any right to
alienate, anticipate, commute, pledge, encumber or assign any such benefits,
payments, accounts, funds or proceeds of any such contract. The preceding
sentence shall also apply to the creation, assignment or recognition of a right
to any benefit payable with respect to a Participant pursuant to a domestic
relations order, unless such order is determined to be a qualified domestic
relations order as defined in Section 414(p) of the Code. It is the intention of
the Companies that benefit payments hereunder shall be made only at the times,
in the amounts and to the distributees as specified in this Plan regardless of
any marital dissolution, bankruptcy or other legal proceedings to which such
distributees may be a party to the fullest extent permitted by law.
Section 10.6. Payment of Benefits to Others. If any person to whom
benefit payments are due or payable under this Plan shall be unable to care for
his affairs because of illness or accident, any such payment may be made (unless
prior claim thereto shall have been made by a duly-qualified guardian or other
legal representative) to the spouse, parent, brother, sister or other person
deemed by the Committee, in its sole discretion, to have
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incurred expense for such person and on such terms as the Committee, in its sole
discretion, may impose. Any such payment and any payment to a Participant or to
his legal representative or, if deceased, to his spouse or other Beneficiary
made pursuant to the provisions of this Plan shall to the extent thereof be in
full satisfaction of all claims arising hereunder against this Plan, the Fund,
the Committee, the Trustee and the Companies.
Section 10.7. Payments to Missing Persons. If the Trustee is unable to
effect delivery of any amounts payable under this Plan to the person entitled
thereto or, upon such person's death, to such person's personal representative,
they shall so advise the Committee in writing, and the Committee shall give
written notice by certified mail to said person at the last known address of
such person as shown in the Companies' records. If such person or the personal
representative thereof shall not have responded to the Committee within three
(3) years from the date of mailing such certified notice, the Committee shall
direct the Trustee to distribute such amount, including any amount thereafter
becoming due to such person or the personal representative thereof, in the
manner provided in Section 6.7 with respect to the death of a Participant when
there is no valid designation of Beneficiary on file.
Section 10.8. Severability. If any provisions of this Plan shall be
held illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining part of this Plan and it shall be construed and enforced as
if such illegal or invalid provisions had never been inserted herein.
Section 10.9. Captions. Titles of Articles, Sections and Clauses herein
are for general information only and shall be ignored in any construction of the
provisions hereof.
Section 10.10. Construction. Words in the masculine gender shall be
construed to include the feminine gender in all cases where appropriate, and
words in the singular or plural shall be construed as being in the plural or
singular where appropriate.
Section 10.11. Counterparts. This Plan may be executed in any number of
counterparts, each of which shall be deemed to be an original. All the
counterparts shall constitute but one (1) and the same instrument and may be
sufficiently evidenced by any one (1) counterpart.
Section 10.12. Indemnification. The Companies shall indemnify and hold
harmless each member of the Committee and any individual Trustee who is also an
Employee of the Company from any and all claims, loss, damage, expense and
liability arising from any act or omission of such member or Trustee, as the
case may be, except when the same is judicially determined to be due to the
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fraud or bad faith of such member or Trustee, as the case may be,
if possible.
Section 10.13. Standards of Interpretation and Administration. This
Plan and the Fund held hereunder shall be for the exclusive benefit of Employees
of the Companies and their spouses or other Beneficiaries and defraying
reasonable costs of administration. This Plan shall be interpreted and
administered in a manner consistent with the requirements of the Code relating
to qualified stock bonus plans and trusts and the requirements imposed by the
Act. Wherever in this Plan discretionary powers are given to any party or
wherever any interpretation may be necessary, such powers shall be exercised and
such interpretation shall be made in a non-discriminatory manner and in
conformity with the fiduciary duties imposed under Section 404 of the Act.
Section 10.14. Governing Law. Except as otherwise provided by the Act,
this Plan shall be administered and construed and its validity determined under
the laws of the State of Indiana.
Section 10.15. Successors and Assigns. This Plan shall be binding upon
the successors and assigns of the Companies and of the Trustee.
Section 10.16. Adoption of Plan. Any corporation, who together with the
Holding Company, constitutes a member of a controlled group of corporations
under Section 414(b) of the Code, with the approval of the Board of Directors of
the Holding Company may adopt this Plan and participate as a Company in this
Plan by the execution of an instrument of adoption of this Plan which shall
specify the Effective Date as to such party. A listing of the subsidiaries and
affiliates who have adopted this Plan is shown as Appendix A.
Section 10.17. Withdrawal from Plan. Any Company in this Plan may, by
resolution of its Board of Directors or other governing body, withdraw from
participation as a Company in this Plan.
ARTICLE XI
TEFRA TOP-HEAVY RULES
Section 11.1. Application. The rules set forth in this Article XI shall
be applicable with respect to any Plan Year beginning on or after the Effective
Date in which this Plan is determined to be a Top-Heavy Plan. The provisions of
this Article XI shall be applied only to the extent necessary to comply with
Section 416 of the Code and in a manner consistent with all requirements imposed
under Section 416 of the Code.
Section 11.2. Determination. This Plan shall be considered a Top-Heavy
Plan with respect to any Plan Year if as of the
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Anniversary Date of the immediately preceding Plan Year or, if the determination
is to be made for this Plan's first (1st) Plan Year, the last calendar day of
the first (1st) Plan Year (the "determination date"):
(a) the present value of the Accrued Benefits (as such term is
defined in Section 11.3) of Key Employees (as such term is
defined below) exceeds sixty percent (60%) of the present
value of the Accrued Benefits of all Employees and former
Employees (other than former Key Employees (as such term is
defined below)); provided, however, that the Accrued Benefits
of any Participant who has not completed an Hour of Service
for the Company during a five (5) year period ending on the
determination date (as such term is defined above) shall be
disregarded, or
(b) this Plan is part of a required aggregation group (as such
term is defined below) and the required aggregation group is
top-heavy;
provided, however, that this Plan shall not be considered a Top-Heavy Plan with
respect to any Plan Year in which this Plan is part of a required or permissive
aggregation group (as such terms are defined below) which is not top-heavy. For
purposes of this Article XI, the term "Key Employee" shall include for any Plan
Year any Employee or former Employee who at any time during that Plan Year or
any of the four (4) preceding Plan Years is:
(c) an officer of a Company whose Section 415 Compensation from
the Companies is greater than fifty percent (50%) of the
maximum dollar limitation under Section 415(b)(1)(A) of the
Code in effect for the calendar year in which the
determination date (as such term is defined above) falls,
(d) one (1) of the ten (10) Employees owning (or considered as
owning within the meaning of Section 318 of the Code) the
largest interest in a Company whose ownership interest in that
Company is at least one-half of one percent (0.5%) and whose
Section 415 Compensation from the Companies is equal to or
greater than the maximum dollar limitation under Section
415(c)(1)(A) of the Code in effect for the calendar year in
which the determination date (as such term is defined above)
falls; provided, however, that if two (2) Employees have the
same interest in a Company, the Employee whose annual Section
415 Compensation from the Companies is greater shall be
treated as having a larger interest in the Company,
(e) a five percent (5%) owner (determined without regard to
Sections 414(b),(c) and (n) of the Code) of a Company,
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(f) a one percent (1%) owner (determined without regard to
Sections 414(b),(c) and (n) of the Code) of a Company whose
Section 415 Compensation from the Companies is in excess of
one hundred and fifty thousand dollars ($150,000);
provided, however, that the Beneficiary of any deceased Employee or of any
deceased former Employee who was included as a Key Employee by reason of this
Section 11.2 shall also be included as a Key Employee; provided, further, that
an individual shall only be included as a Key Employee to the extent required by
Section 416(i) of the Code. For purposes of this Article XI, "Non-Key Employee"
is any Employee or former Employee who is not a Key Employee. For purposes of
determining who is a key employee, Section 415 Compensation shall include
amounts deferred or redirected by an Employee pursuant to Sections 401(k) and
125 of the Code. For purposes of this Section 11.2, the term "required
aggregation group" shall include:
(g) all qualified retirement plans maintained by a Company in
which a Key Employee (as such term is defined above) is a
participant; provided, however, that the term "required
aggregation group" shall also include all qualified retirement
plans previously maintained by a Company but terminated within
the five (5) year period ending on the determination date (as
such term is defined above) in which a key employee (as such
term is defined above) was a participant; and
(h) any other qualified retirement plans maintained by a Company
which enable any qualified retirement plan described in
Subsection (g) above to meet the requirements of Section
401(a)(4) or of Section 410 of the Code.
For purposes of this Section 11.2, the term "permissive aggregation group" shall
include all qualified retirement plans that are part of a required aggregation
group (as such term is defined above) and any other qualified retirement plans
maintained by a Company if such group will continue to meet the requirements of
Section 401(a)(4) and of Section 410 of the Code.
Section 11.3. Accrued Benefits. For purposes of this Article XI,
Accrued Benefits with respect to any Plan Year shall be determined as of the
determination date (as such term is defined in Section 11.2) for that Plan Year
based on the Company Contributions Account balances as of the most recent
Valuation Date within a consecutive twelve (12) month period ending on such
determination date; provided, however, that such Company Contributions Account
balances shall be adjusted to the extent required by Section 416 of the Code to
increase the Company Contributions Accounts balances by the amount of any
Company Contributions made and allocated after
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the Valuation Date but on or before such determination date and by any
distributions made to Participants prior to the Valuation Date during any of the
five (5) consecutive Plan Years immediately preceding the Plan Year for which
the determination as to whether this Plan is a Top-Heavy Plan is being made
(including distributions from a terminated plan which if not terminated would
have been part of a required aggregation group (as such term is defined in
Section 11.7)) and to reduce the Company Contributions Account balances by any
rollovers or plan to plan transfers made to this Plan before the Valuation Date
which are initiated by a Participant from any qualified retirement plan
maintained by an unrelated employer and by any deductible employee
contributions.
Section 11.4. Vesting Provisions. Notwithstanding the provisions of
Section 6.3, with respect to any Plan Year in which this Plan is determined to
be a Top-Heavy Plan, a Participant's Accrued Benefit which is derived from
Company Contributions shall vest in accordance with the following vesting
schedule if it would result in a larger vested percentage than the percentage
determined under Section 6.3:
Period of Service Vested Percentage
Less than two (2) years 0
Two (2) years or more but
less than three (3) years 20%
Three (3) years or more but
less than four (4) years 40%
Four (4) years or more but
less than five (5) years 60%
Five (5) years or more but
less than six (6) years 80%
Six (6) years or more 100%
provided, however, that if this Plan becomes a Top-Heavy Plan and subsequently
ceases to be such:
(a) the vesting schedule shown above shall continue to apply but
only with respect to Participants whose Period of Service is
as least three (3) years as of the Anniversary Date of the
final Top-Heavy Plan Year,
(b) the vesting schedule shown above shall continue to apply but
only with respect to the Accrued Benefits of all other
Participants as of the Anniversary Date of the final Top-Heavy
Plan Year, and
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(c) the vesting schedule in Section 6.3 shall apply to any
additional Accrued Benefits of the Participants described in
Subsection (b) above which accrue after the Anniversary Date
of the final Top-Heavy Plan Year.
Section 11.5. Minimum Contribution. Notwithstanding the provisions of
Section 4.2, with respect to any Plan Year in which this Plan is a Top-Heavy
Plan, the Company contributions for such Plan Year shall be allocated in the
following order of priority:
(a) first, among the Company Contributions Accounts of all
eligible Participants who had not separated from service with
the Companies as of the Anniversary Date of that Plan Year
regardless of the number of Hours of Service completed by each
such Participant during that Plan Year according to the ratio
that each Participant's Compensation for that Plan Year bears
to the total Compensation of all eligible Participants;
provided, however, that the portion of the Company
contributions to be allocated pursuant to this Subsection (a)
shall not exceed three percent (3%) of the total Compensation
of all eligible Participants for that Plan Year;
(b) next, the remaining portion, if any, of the Company
contributions for such Plan Year shall be allocated in
accordance with Section 4.2;
provided, however, that if a Participant also participates in a top-heavy
defined benefit plan, he shall receive the minimum benefit for such Plan Year
under the defined benefit plan.
Section 11.6. Code Section 415 Limitations. With respect to any Plan
Year in which this Plan is a Top-Heavy Plan, Section 4.3 shall be read by
substituting the number one (1.00) for the number one and twenty-five one
hundredths (1.25) wherever it appears therein; provided, however, that such
substitution shall not have the effect of reducing a Participant's Accrued
Benefit under any qualified defined benefit plan maintained by a Company prior
to the first (1st) calendar day of the Plan Year in which this Article XI
initially becomes applicable.
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This Plan has been adopted on this day of , 1997, but is to be
effective as of July 1, 1997.
CITIZENS BANCORP
By:
Its:
Attest:
By:
Its:
CITIZENS SAVINGS BANK OF
FRANKFORT
By:
Its:
Attest:
By:
Its:
THE FARMERS BANK
By:
Its:
Attest:
By:
Its:
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EXEMPT LOAN AND SHARE PURCHASE AGREEMENT
between
TRUST UNDER
CITIZENS BANCORP
EXEMPT STOCK OWNERSHIP PLAN AND TRUST AGREEMENT
(EFFECTIVE AS OF JULY 1, 1997)
and
CITIZENS BANCORP
Dated September 12, 1997
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TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND INTERPRETATION.................................2
Section 1.1 General Interpretation...................2
Section 1.2 Certain Definitions......................2
ARTICLE II TRUST LOAN; TRUST NOTE; PAYMENTS...............................2
Section 2.1 Trust Loan...............................2
Section 2.2 Use of Trust Loan Proceeds...............3
Section 2.3 Trust Note...............................3
Section 2.4. Interest.................................3
Section 2.5 Payments.................................3
Section 2.6 Optional Prepayment......................4
Section 2.7 Place and Time of Payment................4
Section 2.8 Application of Certain Payments..........4
Section 2.9 Due Date Extension.......................5
Section 2.10 Computations.............................5
Section 2.11 Interest on Overdue Amounts..............5
ARTICLE III SECURITY.......................................................5
Section 3.1 Security.................................5
Section 3.2 Release of Shares........................5
ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS......................5
Section 4.1 Representations and
Warranties of Trustee................5
Section 4.2 Representations and
Warranties of Company................6
Section 4.3 Covenants of Company.....................8
ARTICLE V CONDITIONS PRECEDENT...........................................9
Section 5.1 Documentation Satisfactory to Company....9
Section 5.2 Other Conditions Precedent
to Company Obligations...............9
Section 5.3 Documentation Satisfactory to Trustee....9
Section 5.4 Other Conditions Precedent
to Trustee's Obligation..............9
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ARTICLE VI EVENTS OF DEFAULT AND THEIR EFFECT.............................10
Section 6.1 Events of Default; Effect................10
ARTICLE VII SHARE PURCHASES................................................10
Section 7.1 Purchase of Shares.......................10
Section 7.2 Manner of Purchase.......................10
Section 7.3 Readily Tradeable........................10
Section 7.4 No Prohibited Transactions...............10
Section 7.5 Maximum Number of Shares.................11
ARTICLE VIII GENERAL........................................................11
Section 8.1 Waivers; Amendments......................11
Section 8.2 Confirmations; Information...............11
Section 8.3 Captions.................................11
Section 8.4 Governing Law............................11
Section 8.5 Notices..................................11
Section 8.6 Expenses.................................12
Section 8.7 Reimbursement............................12
Section 8.8 Entire Agreement.........................12
Section 8.9 Severability.............................12
Section 8.10 No Assignment............................12
Section 8.11 Counterparts.............................12
ARTICLE IX LIMITED RECOURSE...............................................12
Section 9.1 Limited Recourse.........................12
Section 9.2 No Personal Recourse Against Trustee.....13
Exhibit A TRUST NOTE
Exhibit B SHARE PLEDGE AGREEMENT
Exhibit C CERTIFICATE OF TRUSTEE
Exhibit D CERTIFICATE OF THE COMPANY
-ii-
<PAGE>
EXEMPT LOAN AND SHARE PURCHASE AGREEMENT
THIS EXEMPT LOAN AND SHARE PURCHASE AGREEMENT (this "Agreement" or
"Loan Agreement"), dated September 12, 1997, between the Trust (the "Trust")
established pursuant to the provisions of the CITIZENS BANCORP EMPLOYEE STOCK
OWNERSHIP PLAN AND TRUST AGREEMENT (EFFECTIVE AS OF JULY 1, 1997) (the "ESOP")
by THE FARMERS BANK, as Trustee (the "Trustee"), and CITIZENS BANCORP, an
Indiana corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Company has duly established the ESOP in connection with
which the Trust has been created;
WHEREAS, pursuant to the ESOP and direction of the Company pursuant to
Section 8.7 of the ESOP, the Trust desires to borrow from the Company, and the
Company desires to lend to the Trust, an aggregate principal amount equal to up
to Eight Hundred Forty-Six Thousand Four Hundred Dollars ($846,400) (the "Trust
Loan"), representing the cost of 8% of the shares of Common Stock, without par
value, of the Company (the "Common Stock"), offered in the Subscription Offering
and the Community Offering of the Company's Common Stock being made in
connection with the Company's acquisition of the common stock of Citizens
Savings Bank of Frankfort (the "Bank") upon conversion of the Bank from a
federal mutual savings bank to a federal stock savings bank (the "Conversion"),
on the terms and conditions hereof;
WHEREAS, the parties hereto intend that the Trust Loan constitute an
"exempt loan" within the meaning of Section 4975(d)(3) of the Code, Treasury
Regulation ss. 54.4975-7(b), Section 408(b)(3) of ERISA, and Department of Labor
Regulation ss. 2550.408b-3 (collectively, the "Exempt Loan Rules") and an
"Exempt Loan" within the meaning of Sections 1.20 and 8.7 of the ESOP;
WHEREAS, the parties intend that the Trustee will utilize the Trust
Loan for the purpose of effecting purchases in the Subscription Offering and
Community Offering (collectively, the "Offering") or otherwise of shares of
Company Common Stock, without par value ("Shares"), to be held in the Trust for
participants in the ESOP.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained and other good and valuable
consideration (the receipt, adequacy and sufficiency of which each party hereto
respectively acknowledges by its execution hereof), the parties hereto intending
legally to be bound do hereby agree as follows:
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ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1. General Interpretation. This Agreement shall be construed
and interpreted so as to maintain the status of the ESOP as a qualified
leveraged employee stock ownership plan under Sections 401(a) and 4975(e)(7) of
the Code, the Trust as exempt from taxation under Section 501(a) of the Code,
and the Trust Loan as an "exempt loan" under the Exempt Loan Rules, and as an
"Exempt Loan" under Section 8.7 of the ESOP (collectively, the "Required
Status").
Section 1.2. Certain Definitions. In this Agreement, unless a clear
contrary intention appears, the terms set forth below have the following
meanings when used herein. Other terms are defined elsewhere herein.
(a) "Business Day" means a day, other than a Saturday, Sunday or public
holiday, on which commercial banks are open in Frankfort, Indiana for the
purpose of conducting commercial banking business.
(b) "Code" means the Internal Revenue Code of 1986, as amended, and
regulations promulgated thereunder.
(c) "Default" means an event or circumstance which, with notice or
lapse of time or both, would constitute an Event of Default as defined in
Section 6.1.
(d) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and regulations promulgated thereunder.
(e) "Loan Documents" shall mean, collectively, this Agreement, the
Trust Note, the Share Pledge Agreement and any other instruments or documents
required to be delivered pursuant hereto or thereto, in each case as amended and
in effect from time to time.
ARTICLE II
TRUST LOAN; TRUST NOTE; PAYMENTS
Section 2.1. Trust Loan. Subject to the terms and conditions of this
Agreement, the Company agrees to make available to the Trust, and the Trust may
borrow from the Company, on the Closing Date (hereinafter defined), the Trust
Loan under this Agreement in an amount up to Eight Hundred Forty-Six Thousand
and Four Hundred Dollars ($846,400), representing the cost of 8% of the Shares
offered in the Offering. The Company shall, upon fulfillment of the applicable
conditions set forth in Article V, on the Closing Date make the Trust Loan up to
such amount available to the Trustee in immediately available funds, at its
principal office. Notwithstanding the foregoing, the Company shall not be
obligated to make any portion of the Trust Loan available to the Trust if the
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Conversion is not consummated, or if the ESOP is not permitted to purchase any
shares because of an oversubscription in the first category of eligible
subscribers. The Closing of the Trust Loan (the "Closing") will occur at the
offices of Barnes & Thornburg, 1313 Merchants Bank Building, 11 South Meridian
Street, Indianapolis, Indiana 46204, on the same date that the Conversion
closes, or such later date as the parties shall agree upon (the "Closing Date").
Section 2.2. Use of Trust Loan Proceeds. The Trust will use the
proceeds of the Trust Loan to purchase Shares in the Offering, in accordance
with Article VII hereof.
Section 2.3. Trust Note. The Trust Loan will be represented by a
promissory note of the Trust (the "Trust Note"), substantially in the form of
Exhibit A hereto, appropriately completed, dated the Closing Date, payable to
the order of the Company in the original principal amount of the Trust Loan, or
so much thereof as may at any time have been advanced hereunder and thereunder,
on the maturity date thereof.
Section 2.4. Interest. The portion of the Trust Loan principal
outstanding at any time shall accrue and bear daily interest at a fixed rate per
annum equal to the prime rate as published in "The Wall Street Journal" on the
Closing Date (the "Interest Rate"), payable annually in accordance with Section
2.5. On any stated or accelerated maturity of the Trust Loan all accrued and
unpaid interest thereon shall be forthwith due and payable.
Section 2.5. Payments. The Trust shall pay the principal amount of the
Trust Loan together with accrued interest as follows:
(a) an initial principal installment of one fortieth (1/40) of
the initial principal amount of the Trust Loan, shall be due and
payable on December 31, 1997, together with all interest accrued on the
Trust Loan from the Closing Date through and including December 31,
1997; and
(b) thereafter, payments of principal and interest shall be
made in annual installments due and payable on the last business day of
December of each year, commencing on December 31, 1998, through and
including December 31, 2006, which annual installments shall include a
principal payment in the amount of one-tenth of the initial principal
amount of the Trust Loan, plus all interest accrued on the Trust Loan
through and including the date of such payment; and
(c) a final payment of principal in the amount of
three-fortieths (3/40) of the initial principal amount of the Trust
Loan, together with all interest accrued on the Trust Loan through and
including the date of such payment shall be due and payable on
September 30, 2007.
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The outstanding principal of the Trust Loan, together with all accrued and
unpaid interest and any other obligations then outstanding, will in any event be
due and payable in full on September 30, 2007.
Section 2.6. Optional Prepayment.
(a) Upon compliance with this Section 2.6, the Trust, at its
option, may prepay the Trust Note at any time and from time to time,
either in whole or in part, by payment of the principal amount of the
Trust Note or portion thereof to be prepaid and accrued interest
thereon to the date of such prepayment.
(b) The Trustee will give notice of any prepayment of the
Trust Note pursuant to this Section 2.6 to the Company not less than 3
days nor more than 60 days before the date fixed for such optional
prepayment specifying (i) such date, (ii) that prepayment is to be made
under Section 2.6 of this Agreement, (iii) the principal amount of the
Trust Note to be prepaid on such date, and (iv) accrued interest
applicable to the prepayment. Such notice of prepayment shall be signed
by the Trustee. Notice of prepayment having been so given, the
aggregate principal amount of the Trust Note specified in such notice,
together with accrued interest thereon shall become due and payable on
the prepayment date.
(c) Partial prepayments of the Trust Note made pursuant to
this Section 2.6 shall be credited in each case against remaining
scheduled payments on the Trust Note in the inverse order of the due
dates of such payments.
(d) No such prepayment shall, however, be permitted if such
prepayment would adversely affect the Required Status.
Section 2.7. Place and Time of Payment. All payments of principal of,
or interest on, the Trust Note shall be made by the Trust to the Company in same
day funds at Frankfort, Indiana, not later than 11:00 a.m. on the date due.
Funds received after that hour shall be deemed to have been received on the next
following Business Day.
Section 2.8. Application of Certain Payments. If, and to the extent,
Shares acquired with proceeds of the Trust Loan, held in the Trust and not yet
allocated to participant accounts are sold, then, to the extent allowable by the
Exempt Loan Rules and applicable law, the Trustee, at the direction of the ESOP
Committee administering the ESOP (the "Committee"), may apply the proceeds
thereof toward the repayment of the Trust Loan. Dividends or other cash
distributions paid on the Shares purchased with the proceeds of the Trust Loan
(whether or not allocated to the accounts of Participants) shall be used by the
Trustee, at the discretion of the Committee, to the extent permissible to repay
the Trust Loan in accordance with the provisions of Section 4.5 of the ESOP.
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Section 2.9. Due Date Extension. If any payment of principal of, or
interest on, the Trust Note falls due on a day that is not a Business Day, then
such due date shall be extended to the next following Business Day, and
additional interest shall accrue and be payable for the period of such
extension.
Section 2.10. Computations. All computations of interest on the Trust
Loan and other amounts due hereunder shall be based on a year of 360 days,
comprising twelve 30-day months.
Section 2.11. Interest on Overdue Amounts. If any payment of principal
of, or interest on, the Trust Note is not made when due, interest shall accrue
on the amount thereof, commencing on such due date through the date on which
such amount is paid in full, at a rate per annum equal to the Interest Rate plus
two percent (2%).
ARTICLE III
SECURITY
Section 3.1. Security. Payment of the Trust Note and performance by the
Trust of its obligations under this Agreement and the Trust Note will be secured
by a pledge of, and the grant of a security interest in, the Shares by the
Trustee on behalf of the Trust to and in favor of the Company under a Share
Pledge Agreement, substantially in the form of Exhibit B hereto (the "Share
Pledge Agreement").
Section 3.2. Release of Shares. Notwithstanding any provision of this
Agreement or the Share Pledge Agreement to the contrary contained or implied,
the Company will release from the pledge and security interest under the Share
Pledge Agreement, such Shares as must be allocated to ESOP participants under
the ESOP pursuant to Section 8.7(h) of the ESOP and otherwise under the Code,
the Exempt Loan Rules or other applicable law, provided that Section 8.7(h) of
the ESOP shall not be amended without the Trustee's prior consent.
ARTICLE IV
REPRESENTATIONS, WARRANTIES
AND COVENANTS
Section 4.1. Representations and Warranties of Trustee. To induce the
Company to enter this Agreement and to make the Trust Loan, the Trustee
represents and warrants to the Company as follows:
(a) The Trustee has determined that the Trust Loan is
primarily for the benefit of ESOP participants and their beneficiaries
and bears interest at a rate not in excess of a reasonable rate and
that the terms of the loan are at least as favorable to the Trust and
the
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ESOP participants as the terms of a comparable loan resulting from
arm's-length negotiations between completely independent parties;
(b) The Trustee is a bank, legally existing and in good
standing under Indiana law, has corporate power and authority and is
duly authorized to enter into and perform the Trust;
(c) The Trustee has full right, power and authority to
execute, deliver and perform on behalf of the Trust under the Trust
Agreement, the ESOP and otherwise the obligations set forth in the Loan
Documents, and the execution and performance of such obligations will
not conflict with or result in a breach of the terms of the ESOP or the
Trust or result in a breach or violation of the Trustee's Articles of
Incorporation or By-Laws or of any law or regulation, order, writ,
injunction or decree of any court or governmental authority binding on
the Trust or Trustee;
(d) The ESOP (and related Trust) has been duly authorized by
all necessary corporate action on the part of the Trustee, if any, has
been duly executed by an authorized officer of the Trustee and
delivered and constitutes a legal, valid and binding obligation of the
Trustee and declaration of trust enforceable in accordance with its
terms;
(e) The Loan Documents have been duly authorized, executed and
delivered by the Trustee and constitute legal, valid and binding
obligations, contracts and agreements of the Trustee on behalf of the
Trust, enforceable in accordance with their respective terms;
(f) The execution, delivery and performance of the Loan
Documents do not conflict with, or result in the creation or imposition
of any lien or encumbrance upon any of the property of the Trustee
(other than the Collateral, as defined in the Share Pledge Agreement)
pursuant to the provisions of the ESOP (and related Trust) or any other
agreement or other instrument to which the Trustee is a party or may be
bound; and
(g) No approval, consent or withholding of objection on the
part of, or filing, registration or qualification with, any
governmental body, Federal, state or local, is necessary in connection
with the execution, delivery and performance by the Trustee of the Loan
Documents.
Section 4.2. Representations and Warranties of Company. To induce the
Trust to enter this Agreement and undertake the obligations hereunder, the
Company represents and warrants to the Trust as follows:
(a) The Company is a corporation duly organized and validly
existing under the laws of the State of Indiana, has corporate power
and authority and is duly authorized to enter into and perform its
obligations under this Agreement;
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(b) Neither the execution and delivery of this Agreement, nor
the performance of the terms hereof nor the establishment of the ESOP
or the Trust violates, conflicts with or constitutes a default under
Company's Articles of Incorporation or By-Laws or any material
agreement to which the Company is a party or by which the Company or
any of its assets is bound, or violates any law, regulation, order or
decree of any court, arbitration or governmental authority applicable
to the Company, in any manner that would have a material adverse effect
on the Trust, the ESOP, the Required Status or the Company;
(c) The Company and the Bank have taken all actions required
to be taken by it to establish the ESOP and the related Trust. The ESOP
and related Trust are intended to, and the terms thereof have been
drafted with the purpose to, comply with the requirements of Sections
401(a) and 501(a) of the Code, as applicable, with the requirements for
treatment as a leveraged employee stock ownership plan, as that term is
defined in Section 4975(e)(7) of the Code, and with other applicable
laws;
(d) The Bank has duly appointed the Trustee as trustee of the
Trust and the Committee under the ESOP;
(e) The Company has delivered to Trustee copies of its
Articles of Incorporation and its By-Laws, the ESOP, and resolutions of
its Board of Directors with respect to approval of this Agreement and
entering into of the transactions and execution of all documents
contemplated by this Agreement, in each case certified by the Secretary
of the Company, which copies are true, correct and complete. None of
such documents or resolutions has been amended or modified in any
respect and such documents and resolutions remain in full force and in
effect, in the form previously delivered to the Trustee;
(f) Other than the Common Stock, the Company has no other
classes of shares outstanding or treasury shares.
(g) The Company's ability to honor put options (the "Put
Options"), which would obligate the Company to repurchase shares of
Common Stock distributed from time to time to ESOP participants and
beneficiaries under Section 6.13 of the ESOP, is not presently
restricted by the provisions of any law, rule or regulation in effect
on the date hereof (except for capital, liquidation account,
requirements to obtain regulatory approval of repurchase transactions,
and similar constraints imposed by regulatory authorities on savings
associations) or by the terms of any loan, financing or other agreement
or instrument to which the Company is a party or by which the Company
is or may be bound.
(h) There are no actions, proceedings, or investigations
pending or, to the Company's knowledge, threatened against or affecting
the Company or any of its property or rights at law or in equity or
before or by any court or tribunal that have not been disclosed to the
Trustee and may have a material adverse effect on the value of the
Common Stock.
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(i) All employee plans of the Bank and the Company are in
compliance, in all material respects, with all applicable reporting,
disclosure and filing requirements pertaining to employee benefit plans
set forth in the Code and ERISA.
(j) No consent, approval or other authorization or notice to
any governmental authority or expiration of any government-imposed
waiting period is required in connection with the execution or delivery
of this Agreement, except such as has been obtained, given or expired.
(k) The shares of Common Stock constitute "qualifying employer
securities" within the meaning of Section 409(l) of the Code.
Section 4.3. Covenants of Company. The Company covenants that:
(a) The Company shall submit or cause to be submitted to the
Internal Revenue Service within ninety (90) days following the Closing
Date an application for a determination letter confirming that the
ESOP, effective as of July 1, 1997, and the related Trust are qualified
and exempt from taxation under Sections 401(a) and 501(a),
respectively, of the Code and that the ESOP meets the requirements of
Section 4975(e)(7) of the Code.
(b) The Company and the Bank shall make all changes reasonably
requested by the Internal Revenue Service as a condition of obtaining a
determination letter from the Internal Revenue Service with respect to
the ESOP, effective July 1, 1997. The Company and the Bank shall
continue to do all things necessary to cause the ESOP and the Trust at
all times to be operated and administered such that the ESOP remains
qualified under Section 401(a) and remains an employee stock ownership
plan under Section 4975(e)(7) of the Code and the Trust remains
tax-exempt under Section 501(a) of the Code.
(c) If at any time the ESOP is required, by applicable law,
court order, or otherwise, to make distributions of Shares that
otherwise would be in violation of Federal or state securities laws,
the Company shall take all actions necessary to permit such required
distributions to be made in full compliance with such laws.
(d) The Company shall honor the Put Options if, and to the
extent, required by Section 409(h) of the Code and regulations
thereunder, and shall not permit its ability to honor such Options to
be materially restricted in any way.
(e) The Company or the Bank shall provide to the Trustee all
governmental filings relating to the ESOP and all ESOP amendments
within sixty days of the date on which such filing or amendment is
effected, and, on an annual basis, shall provide complete financial
statements of the ESOP and the Company.
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ARTICLE V
CONDITIONS PRECEDENT
Section 5.1. Documentation Satisfactory to Company. The obligation of
the Company to make the Trust Loan is, in addition to the conditions precedent
contained in Section 5.2, subject to the condition precedent that the Company
shall have received each of the following, duly executed and dated as of the
Closing Date (or such earlier date as shall be satisfactory to the Company) and
in form and substance satisfactory to the Company:
(a) the Trust Note;
(b) the Share Pledge Agreement; and
(c) a certificate of the Trustee, substantially in the form of
Exhibit C hereto, with such changes thereto as shall be acceptable to
the Company and its counsel, and with respect to such other matters as
the Company may reasonably request.
Section 5.2. Other Conditions Precedent to Company Obligations. In
addition to the condition precedent contained in Section 5.1, the obligation of
the Company to make the Trust Loan available is subject to the conditions
precedent that (i) the Conversion is consummated, (ii) the representations and
warranties made by the Trustee herein shall be true and correct in all material
respects on the Closing Date as if made on and as of the Closing Date; and (iii)
the ESOP shall be permitted to purchase Shares in the Conversion.
Section 5.3. Documentation Satisfactory to Trustee. The obligation of
the Trust to enter into the Trust Loan is subject to the condition precedent
that the Trustee shall have received each of the following, duly executed and
dated as of the Closing Date (or such earlier date as shall be satisfactory to
Trustee) and in form and substance satisfactory to Trustee:
(a) The Share Pledge Agreement; and
(b) A certificate of the Company, substantially in the form of
Exhibit D hereto, with such changes thereto as shall be acceptable to
the Trustee and its counsel, and with respect to such other matters as
the Trustee may reasonably request.
Section 5.4. Other Conditions Precedent to Trustee's Obligation. The
obligation of the Trustee to enter into the Trust Loan is subject to the
conditions precedent that (i) the Conversion is consummated, (ii) the
representations and warranties made by the Company herein shall be true and
correct in all material respects on the Closing Date as if made on and as of the
Closing Date, and (iii) no injunction or restraining order shall be in effect or
litigation pending or threatened to forbid or enjoin the consummation of the
transaction contemplated by this Agreement.
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ARTICLE VI
EVENTS OF DEFAULT AND THEIR EFFECT
Section 6.1. Events of Default; Effect. If default in the payment when
due of any principal of, or default (and continuance thereof for 5 days) in the
payment when due of interest on, the Trust Note (an "Event of Default") occurs,
unless the effect thereof as an Event of Default has been waived in writing by
the Company, then the Company may declare the Trust Note to be due and payable,
whereupon the Trust Note shall become immediately due and payable, without
presentment, demand, protest or notice to the Trust or other action by the
Company of any kind whatsoever, all of which actions the Trust hereby waives to
the maximum extent permitted by law. The Company shall promptly advise the Trust
of any declaration of default, but failure to do so or delay in doing so shall
not impair the effect of such declaration. Notwithstanding anything to the
contrary herein or in the Trust Note or the Share Pledge Agreement contained or
implied, if a Default or Event of Default occurs with respect to the Trust Loan
by the Trust, the value of Trust assets transferred in satisfaction thereof
shall not exceed the amount of such default. In addition, such a transfer of
such Trust assets shall only occur upon and to the extent of the failure of the
Trust to meet the payment schedule of the Trust Loan provided in Article II.
ARTICLE VII
SHARE PURCHASES
Section 7.1. Purchase of Shares. The Company is making the Trust Loan
available to the Trustee for the purpose of allowing the Trustee to purchase
Shares in the Conversion. To the extent the ESOP is permitted to purchase up to
84,640 Shares in the Conversion, the Trustee agrees to use all of the proceeds
of the Trust Loan to purchase Shares in accordance with this Article VII.
Section 7.2. Manner of Purchase. The Trustee shall timely subscribe to
purchase the Shares the ESOP is permitted to purchase in the Conversion pursuant
to the Bank's Plan of Conversion. The Trustee shall draw upon the Trust Loan and
use the proceeds thereof to purchase the number of Shares the ESOP may purchase
in the Offering, simultaneously with consummation of the Conversion.
Section 7.3. Readily Tradeable. The Company agrees to use reasonable
efforts to cause the Shares to be, and to maintain the Shares' status as,
"readily tradeable on an established securities market" within the meaning of
Section 409(l)(1) of the Code.
Section 7.4. No Prohibited Transactions. The Trustee in the performance
of its obligations under this Agreement, shall observe its fiduciary obligations
under Section 404 of ERISA, shall not engage in any transaction prohibited by
ERISA or contrary to such fiduciary obligations, and, in acquiring Shares, shall
not (and shall not be deemed obligated to) pay more than "adequate
consideration," as defined in Section 3(18) of ERISA.
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Section 7.5. Maximum Number of Shares. The Trust shall not purchase
Shares with proceeds of the Trust Loan in excess of 8% of the outstanding Shares
of the Company at the time of purchase.
ARTICLE VIII
GENERAL
Section 8.1. Waivers; Amendments. No delay on the part of the Company,
or the holder of the Trust Note in the exercise of any right, power or remedy
shall operate as a waiver thereof, nor shall any single or partial exercise by
any of them of any right, power or remedy preclude other or further exercise
thereof, or the exercise of any other right, power or remedy. No amendment,
modification or waiver of, or consent with respect to, any provision of this
Agreement, the Trust Note or the Share Pledge Agreement shall in any event be
effective unless the same shall be in writing and signed and delivered by the
Company and then any such amendment, modification, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
Section 8.2. Confirmations; Information. The Company and the Trust (or
holder of the Trust Note) agree from time to time, upon written request received
by it from the other, to confirm to the other in writing the aggregate unpaid
principal balance then outstanding under the Trust Note and such other matters
relating to the Trust Loan, the Trust, the ESOP or the purchase of Shares as may
reasonably be the subject of inquiry.
Section 8.3. Captions. Section captions used in this Agreement are for
convenience only, and shall not affect the construction of this Agreement.
Section 8.4. Governing Law. To the extent not preempted by ERISA, this
Agreement and the Trust Note shall be a contract made under and governed by the
laws of the State of Indiana, without regard to conflict of laws principles. All
obligations of the Trust and rights of the Company and other holder of the Trust
Note expressed herein or in such Trust Note shall be in addition to and not in
limitation of those provided by law.
Section 8.5. Notices. All communications and notices hereunder shall be
in writing and shall be deemed to be given when sent by registered or certified
mail, postage prepaid, return receipt requested, or by telecopier, duly
confirmed, and addressed to such party at the address indicated below or to such
other address as such party may designate in writing pursuant to this Section
8.5.
Citizens Bancorp
60 South Main Street
Frankfort, Indiana 46041
Attention: Fred W. Carter, President
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The Farmers Bank
9 East Clinton
Frankfort, Indiana 46041-0129
Section 8.6. Expenses. All expenses of the transaction contemplated by
this Agreement shall be paid by the Company.
Section 8.7. Reimbursement. If the Trustee uses proceeds from the Trust
Loan to purchase Common Stock directly from the Company and it is subsequently
determined by a court of competent jurisdiction that the Trustee paid in excess
of "adequate consideration" within the meaning of ERISA for such shares, the
Company shall, as soon as practicable following such judgment, reimburse the
Trustee for the amount of the excess payment.
Section 8.8. Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings between the parties.
Section 8.9. Severability. Should any clause, paragraph or part of this
Agreement be held or declared to be void or illegal for any reason, all other
clauses, paragraphs or parts of this Agreement which can be affected without
such illegal clause, paragraph or part shall nevertheless remain in full force
and effect.
Section 8.10. No Assignment. This Agreement and the obligations of the
parties herein may not be assigned or assumed by any other parties.
Section 8.11. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
put together shall constitute one and the same instrument.
ARTICLE IX
LIMITED RECOURSE
Section 9.1. Limited Recourse. Notwithstanding anything to the contrary
herein or in the Trust Note, the Share Pledge Agreement or any other instrument,
agreement or document contained or implied, the obligations of the Trust under
this Agreement, the Trust Note and the Share Pledge Agreement (collectively, the
"Trust Loan Obligations") shall be enforceable to the extent permitted under
law, including (without limitation) the Exempt Loan Rules, only against the
Trust to the extent of the Collateral (as defined in the Share Pledge Agreement)
not theretofore released from the pledge and security interest under the Share
Pledge Agreement as provided in Section 3.2 and contributions and other payments
(other than contributions of employer securities) made to the Trust in
accordance with the ESOP to enable the Trust to pay and satisfy the Trust Loan
Obligations and from earnings attributable to the Shares purchased with Trust
Loan proceeds and the investment of such
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contributions and payments (collectively, the "Trust Loan Collateral"). No
recourse shall be had to or against the Trust or the assets thereof (other than
the Trust Loan Collateral) for any deficiency judgment against the Trust for the
purpose of obtaining payment or other satisfaction of the Trust Loan
Obligations.
Section 9.2. No Personal Recourse Against Trustee. Without limiting the
provisions of Section 9.1, the Trustee of the Trust shall have no personal
liability for any of the Trust Loan Obligations.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their respective representatives thereunto duly
authorized as of the date first above written.
TRUST UNDER CITIZENS BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN
AND TRUST AGREEMENT
By: The Farmers Bank, Trustee
By:
Printed:
Its:
CITIZENS BANCORP
By:
Printed: Fred W. Carter
Its: President
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Exhibit A
TRUST NOTE
$___________ September ___, 1997
Due: September 30, 2007
FOR VALUE RECEIVED, the undersigned, the Trust (the "Trust")
established pursuant to the provisions of the CITIZENS BANCORP EMPLOYEE STOCK
OWNERSHIP PLAN AND TRUST AGREEMENT, DATED AND EFFECTIVE AS OF JULY 1, 1997 (the
"Plan") by THE FARMERS BANK, as Trustee (the "Trustee"), promises to pay to the
order of CITIZENS BANCORP, an Indiana corporation (together with its successors,
endorsees and assigns, the "Company"), at such place and in such other manner as
the Company may direct in writing, and when required pursuant to the provisions
of that certain Exempt Loan and Share Purchase Agreement, dated September ___,
1997 (the "Loan Agreement"), by and among the Trustee and the Company, the
principal amount of ____________________________ Dollars ($__________) or so
much thereof as may be advanced by the Company to the Trust hereunder and under
the Loan Agreement, said amount being due and payable together with accrued
interest in such installments and at such times as provided in the Loan
Agreement, with the entire unpaid principal balance due and payable with accrued
interest in full on September 30, 2007, as provided in the Loan Agreement.
The principal balance hereof from time to time outstanding shall bear
interest from the date of each disbursement of the Trust Loan evidenced by this
Trust Note through and including the date on which such principal amount is paid
in full, at the times provided in the Loan Agreement, at the Interest Rate, as
defined in the Loan Agreement which is _____________ percent (_____%) per annum
(or, in the case of overdue principal and, to the extent legally enforceable,
overdue interest, at the Interest Rate plus two percent (2%) per annum).
This Trust Note has been issued by the Trust in accordance with the
terms of the Loan Agreement to evidence the Trust Loan made by the Company to
the Trust under the Loan Agreement, to which reference is hereby made for the
statement of the terms thereof. This Trust Note and the Company are entitled to
the benefits of the Loan Agreement and the Company may enforce the agreements of
the Trust contained therein and in the Loan Documents, and may exercise the
respective remedies provided for thereby or otherwise available in respect
thereof, all in accordance with the respective terms thereof. All capitalized
terms used in this Trust Note which are not otherwise defined herein have the
respective meanings assigned to them in the Loan Agreement.
The Trust has the right to prepay the principal amount of this Trust
Note without penalty on the terms and conditions specified in the Loan
Agreement.
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If any Event of Default shall occur, the entire unpaid principal amount
of this Trust Note and all of the accrued but unpaid interest thereon may become
or be due and payable in the manner and with the effect provided in the Loan
Agreement. The collection and enforcement of this Trust Note are subject to the
provisions and limitations of Section 9.1 of the Loan Agreement.
To the extent not preempted by ERISA, this Trust Note and the
obligations of the Trust hereunder shall be governed by the laws of the State of
Indiana without regard to principles of conflict of laws.
All parties to this Trust Note, including endorsers, sureties and
guarantors, if any, hereby waive presentment, demand, protest, notice, relief
from valuation and appraisement laws and any and all other notices and demands
in connection with the delivery, acceptance, performance and enforcement of this
Trust Note and also hereby assent to extensions of the time of payment or
forbearance or other indulgences without notice, and agree to remain bound until
the principal, premium, if any, and interest are paid in full, notwithstanding
any extensions of time for payment which may be granted, even though the period
or periods of extension may be indefinite, and notwithstanding any inaction by,
or failure to assert any legal rights available to, the holder of this Trust
Note.
IN WITNESS WHEREOF, the Trust has caused this instrument to be executed
by the Trustee, the day and year first above written.
TRUST UNDER CITIZENS BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN
AND TRUST AGREEMENT
By: The Famers Bank, Trustee
By:
-2-
<PAGE>
Exhibit B
SHARE PLEDGE AGREEMENT
between
TRUST UNDER
CITIZENS BANCORP
STOCK OWNERSHIP PLAN AND TRUST AGREEMENT
(EFFECTIVE AS OF JULY 1, 1997)
and
CITIZENS BANCORP
Dated: September ___, 1997
-1-
<PAGE>
SHARE PLEDGE AGREEMENT
THIS SHARE PLEDGE AGREEMENT (this "Agreement" or "Share Pledge
Agreement"), dated as of September ___, 1997, between the Trust (the "Trust")
established pursuant to the provisions of CITIZENS BANCORP EMPLOYEE STOCK
OWNERSHIP PLAN AND TRUST AGREEMENT (EFFECTIVE AS OF JULY 1, 1997) (the "Plan")
by THE FARMERS BANK, as Trustee ("Trustee"), and CITIZENS BANCORP, an Indiana
corporation (the "Company").
WITNESSETH:
WHEREAS, contemporaneously herewith, the Trust and the Company have
entered into that certain Exempt Loan and Share Purchase Agreement (the "Loan
Agreement"; definitions of terms appearing in which have the same meanings
herein, unless a clear contrary intention appears), dated September ____, 1997,
pursuant to which the Company has agreed to lend to the Trust, and the Trust has
agreed to borrow from the Company, the Trust Loan, and the Trust, to evidence
its indebtedness to the Company with respect to the Trust Loan, has executed and
delivered the Trust Note to the Company; and
WHEREAS, it is a condition precedent to the obligation of the Company
to make the Trust Loan that, among other things, the Trust execute and deliver
this Agreement to the Company,
NOW, THEREFORE, in consideration of the Loan Agreement and the Trust
Loan and other good and valuable consideration (the receipt, adequacy and
sufficiency of which the Trust acknowledges by its execution hereof, the Trust
intending to be legally bound does hereby covenant and agree with the Company as
follows:
Section 1. Pledge. To secure the due and punctual payment and
performance of the obligations of the Trust hereunder and under the Loan
Agreement and the Trust Note (collectively, the "Liabilities"), the Trustee on
behalf of the Trust hereby pledges, hypothecates, assigns, transfers, sets over
and delivers unto the Company, its successors and assigns and hereby grants to
the Company, its successors and assigns a security interest in:
(a) All Shares of Company Common Stock purchased or to be
purchased with the proceeds of the Trust Loan (collectively, the
"Pledged Shares") and the certificates representing or evidencing the
Pledged Shares, and, to the extent permitted by Section 4975(e)(7) of
the Internal Revenue Code of 1986, as amended, and Reg. ss.
54.4975-7(b)(5) promulgated thereunder, all cash, securities, interest,
dividends, rights and other property at any time and from time to time
received in respect of or in exchange for any or all of the Pledged
Shares; and
(b) all proceeds of all of the foregoing
-2-
<PAGE>
(all such Pledged Shares, certificates, cash, securities, interest, dividends,
rights and other property, and proceeds thereof, other than as released, sold or
otherwise applied by the Company pursuant to the' terms hereof, being herein
collectively called the "Collateral"), TO HAVE AND TO HOLD such Collateral,
together with all rights, titles, interests, privileges and preferences
appertaining or incidental thereto, forever, subject, however, to the terms,
covenants and conditions hereafter set forth.
Section 2. Warranties and Covenants.
(a) The Trust represents and warrants to the Company that the
Trust is, or at the time of any future delivery, pledge, assignment or
transfer will be, the lawful owner of the Collateral, free of all
claims and liens other than the security interest hereunder, with full
right to deliver, pledge, assign and transfer the Collateral to the
Company as Collateral hereunder.
(b) So long as any of the Liabilities remain outstanding, the
Trust will, unless the Company shall otherwise consent in writing:
(i) promptly deliver to the Company from time to time
certificates representing Pledged Shares as the Trustee
acquires them and, upon request of the Company, such stock
powers and other documents, satisfactory in form and substance
to the Company, with respect to the Collateral as the Company
may reasonably request to preserve and protect, and to enable
the Company to enforce, its rights and remedies hereunder;
(ii) not create or suffer to exist any lien, security
interest or other charge or encumbrance against, in or with
respect to any of the Collateral except for the pledge
hereunder and the security interest created hereby;
(iii) not make or consent to any amendment or other
modification or waiver with respect to any of the Collateral
or enter into any agreement or permit to exist any restriction
with respect to any of the Collateral other than pursuant
hereto; and
(iv) not take or fail to take any action which would
in any manner impair the value or enforceability of the
Company's security interest in any of the Collateral.
Section 3. Care of Collateral. The Company shall be deemed to have
exercised reasonable care with respect to the interest of the Trust in the
custody and preservation of the Collateral if it takes such action for that
purpose as the Trust shall request in writing or as it would with respect to
similar assets of its own, but failure of the Company to comply with any such
request shall not of itself be deemed a failure to exercise reasonable care.
-3-
<PAGE>
Section 4. Certain Rights Regarding Collateral and Liabilities.
(a) The Company may from time to time, whether before or after any of
the Liabilities shall become due and payable, without notice to the Trust, to
the extent otherwise permitted (i) retain or obtain a security interest in the
Collateral, to secure payment and performance of any of the Liabilities, (ii)
retain or obtain the primary or secondary liability of any party or parties, in
addition to the Trust, with respect to any of the Liabilities, (iii) extend or
renew for any period (whether or not longer than the original period) or
exchange any of the Liabilities or release or compromise any obligation of any
nature of any party with respect thereto, and (iv) surrender, release or
exchange all or any part of any property, in addition to the Collateral,
securing payment and performance of any of the Liabilities, or compromise or
extend or renew for any period (whether or not longer than the original period)
any obligations of any nature of any party with respect to any such property.
(b) The Company shall have no right to vote the Pledged Shares prior to
the occurrence of an Event of Default (hereinafter in Section 6(a) hereof
defined). After the occurrence of an Event of Default, the Trust shall have the
right to vote any and all of the Pledged Shares in accordance with the Plan
unless and until it receives notice from the Company that such right has been
terminated with respect to shares subject to execution as a result of the
Default.
Section 5. Dividends, etc.
(a) So long as no Default or Event of Default, shall have occurred and
be continuing, the Trust shall be entitled to receive any and all cash dividends
on the Pledged Shares which it is otherwise entitled to receive, and to vote the
Pledged Shares in accordance with the terms of the Plan and to give consents,
waivers and ratifications in respect of the Pledged Shares, but any and all
stock and/or liquidating dividends, distributions in property, returns of
capital or other distributions made on or in respect of the Pledged Shares,
whether resulting from a subdivision, combination or reclassification of the
outstanding capital stock of any issuer thereof or received in exchange for the
Pledged Shares or any part thereof or as a result of any merger, consolidation,
acquisition or other exchange of assets to which any issuer may be a party or
otherwise, and any and all cash and other property received in exchange for any
Collateral shall be, and become part of the Collateral pledged hereunder and, if
received by the Trust, shall forthwith be delivered to the Company or its
designated nominee (accompanied, if appropriate, by proper instruments of
assignment and/or stock powers executed by the Trust in accordance with the
Company's instructions) to be held subject to the terms of this Agreement and
the Plan.
(b) Upon the occurrence and during the continuance of an Event of
Default, subject to the terms of Section 4(b) hereof, all rights of the Trust
pursuant to Section 5(a) hereof shall cease and the Company shall have the sole
and exclusive right and authority to receive and retain the dividends which the
Trust would otherwise be authorized to retain and, to the extent permitted by
law, to vote and give consents, waivers and ratifications pursuant to Section
5(a) hereof. Any and all money and other property paid over to or received by
the Company pursuant to the provisions of this paragraph
-4-
<PAGE>
(b) shall be retained by the Company as additional Collateral hereunder and be
applied in accordance with the provisions hereof.
Section 6. Event of Default.
(a) The occurrence of any of the following shall constitute an Event
of Default hereunder nonpayment, when due, whether by acceleration or otherwise,
of any amount payable on any of the Liabilities; an Event of Default as defined
in the Loan Agreement; any representation or warranty of the Trust contained
herein or given pursuant hereto being untrue in any material respect; or the
Trust's failure to perform any covenant or agreement contained herein.
(b) Upon the occurrence of an Event of Default, (i) the Company may
exercise from time to time any rights and remedies available to it under the
Uniform Commercial Code as in effect from time to time in Indiana or otherwise
available to it, including, but not limited to, sale, assignment, or other
disposal of the Pledged Shares in exchange for cash or credit, and (ii) the
Company may, without demand or notice of any kind, but subject to Section 7,
appropriate and apply toward the payment of such of the Liabilities, and in such
order of application, as the Company may from time to time elect, any balances,
credits, deposits, accounts or moneys of the Trust. If any notification of
intended disposition of any of the Collateral is required by law, such
notification, if mailed, shall be deemed reasonably and properly given if mailed
at least five (5) days before such disposition, postage prepaid, addressed to
the Trust, either at the address of the Trust shown below, or at any other
address of the Trust appearing on the records of the Company. Any proceeds of
any disposition of Collateral shall be applied as provided in Section 7 hereof.
All rights and remedies of the Company expressed hereunder are in addition to
all other rights and remedies possessed by it, including those under any other
agreement or instrument relating to any of the Liabilities or security therefor.
No delay on the part of the Company in the exercise of any right or remedy shall
operate as a waiver thereof, and no single or partial exercise by the Company of
any right or remedy shall preclude other or further exercise thereof or the
exercise of any other right or remedy. No action of the Company permitted
hereunder shall impair or affect the rights of the Company in and to the
Collateral.
(c) The Trust agrees that in any sale of any of the Collateral
whenever an Event of Default hereunder shall have occurred and be continuing,
the Company is hereby authorized to comply with any limitation or restriction in
connection with such sale as it may be advised by counsel is necessary in order
to avoid any violation of law (including, without limitation, compliance with
such procedures as may restrict the number of prospective bidders and
purchasers, require that such prospective bidders and purchasers have certain
qualification, and restrict such prospective bidders and purchasers to persons
who will represent and agree that they are purchasing for their own account for
investment and not with a view to the distribution or resale of such
Collateral), or in order to obtain any required approval of the sale or of the
purchaser by any governmental regulatory authority or official, and the Trust
further agrees that such compliance shall not result in such sale being
considered or deemed not to have been made in a commercially reasonable manner,
nor shall the Company be liable nor accountable to the Trust for any discount
allowed by the reason of the fact that such Collateral is sold in compliance
with any such limitation or restriction.
-5-
<PAGE>
(d) Notwithstanding anything to the contrary herein or in the Trust
Note or the Loan Agreement contained or implied, if an Event of Default occurs
with respect to the Trust Loan by the Trust, the value of Trust assets
transferred in satisfaction thereof shall not exceed the amount of such default.
In addition, such a transfer of such Trust assets shall only occur upon, and to
the extent of the failure of, the Trust to meet the payment schedule of the
Trust Loan provided in Article II of the Loan Agreement.
Section 7. Application of Proceeds of Sale or Cash Held as
Collateral. The proceeds of sale of Collateral sold pursuant to the terms of
Section 6 hereof and/or, after an Event of Default, the cash held as Collateral
hereunder, shall be applied by the Company, to the extent permitted by
applicable law, as follows:
First: to payment of the costs and expenses of such sale,
including the out-of-pocket costs and expenses of the Company and the
reasonable fees and out-of-pocket costs and expenses of counsel
employed in connection therewith, and to the payment of all advances
made by the Company for the account of the Trust hereunder and the
payment of all costs and expenses incurred by the Company in
connection with the administration and enforcement of this Agreement,
to the extent that such advances, costs and expenses shall not have
been reimbursed to the Company;
Second: to the payment in full of the Liabilities; and
Third: the balance, if any, of such proceeds shall be paid to
the Trust, its successors and assigns, or as a court of competent
jurisdiction may direct.
Section 8. Authority of Company. The Company shall have and be
entitled to exercise all such powers hereunder as are specifically delegated to
the Company by the terms hereof, together with such powers as are incidental
thereto. The Company may execute any of its duties hereunder by or through
agents or employees and shall be entitled to retain counsel and to act in
reliance upon the advice of such counsel concerning all matters pertaining to
its duties hereunder. Neither the Company, nor any director, officer or employee
of the Company, shall be liable for any action taken or omitted to be taken by
it or them hereunder or in connection herewith, except for its or their own
gross negligence or wilful misconduct. The Trust hereby agrees, to the extent
permitted by applicable law, to reimburse the Company, on demand, for all costs
and expenses incurred by the Company in connection with the enforcement of this
Agreement (including costs and expenses incurred by any agent employed by the
Company).
Section 9. Termination. This Agreement shall terminate when all the
Liabilities have been fully paid and performed, at which time the Company shall
reassign and redeliver (or cause to be reassigned and redelivered) to the Trust,
or to such person or persons as the Trust shall designate, against receipt, such
of the Collateral (if any) as shall not have been theretofore released, sold or
otherwise applied by the Company pursuant to the terms hereof and shall still be
held by it hereunder,
-6-
<PAGE>
together with any appropriate instruments of reassignment and release. Any such
reassignment shall be without recourse upon, or representation or warranty by,
the Company.
Section 10. Required Release of Collateral. Notwithstanding any
provision of this Agreement or the Loan Agreement to the contrary, the Company
from time to time will release from the pledge and security interest under the
Loan Agreement, such Collateral as must be allocated to participants under the
Plan pursuant to Section 8.7(h) of the Plan and otherwise under the Code, the
Exempt Loan Rules or other applicable law.
Section 11. Limited Recourse. Notwithstanding anything to the
contrary herein or in the Trust Note, the Loan Agreement or any other
instrument, agreement or document contained or implied, the Liabilities shall be
enforceable to the extent permitted under applicable law, including, without
limitation, the Exempt Loan Rules, only against the Trust to the extent of the
Collateral not theretofore released from the pledge and security interest under
this Agreement as provided herein and contributions (other than contributions of
employer securities) made to the Trust in accordance with the Plan to enable the
Trust to pay and satisfy the Liabilities and from earnings attributable to the
Shares and the investment of such contributions (collectively, the "'Trust Loan
Collateral"). No recourse shall be had to or against the Trust or the assets
thereof (other than the Trust Loan Collateral) for any deficiency judgment
against the Trust for the purpose of obtaining payment or other satisfaction of
the Liabilities. Without limiting the foregoing, the Trustee of the Trust shall
have no personal liability for any of the Liabilities, other than as required by
or arising under applicable law.
Section 12. Notices. All communications and notices hereunder shall
be in writing and, if mailed, shall be deemed to be given when sent by
registered or certified mail, postage prepaid, return receipt requested, or by
telecopier, duly confirmed, and addressed to such party at the address indicated
below or to such other address as such party may designate in writing pursuant
to this Section 12.
CITIZENS BANCORP
60 South Main Street
P.O. Box 635
Frankfort, Indiana 46041
Attention: Fred W. Carter, President
THE FARMERS BANK
9 East Clinton Street
Frankfort, Indiana 46041-0129
Section 13. Binding Agreement Assignment. This Agreement, and the
terms, covenants and conditions hereof, shall be binding upon and inure to the
benefit of the parties hereto, and their respective successors and assigns,
except the Trust shall not be permitted to assign this Agreement or any interest
herein or in the Collateral, or any part thereof, or otherwise grant any option
with respect to the Collateral, or any part thereof and the Company shall not
assign any interest herein or
-7-
<PAGE>
in the Collateral unless such assignment is expressly made subject to the terms
of the Loan Documents.
Section 14. Miscellaneous Provisions. Neither this Agreement nor any
provision hereof may be amended, modified, waived, discharged or terminated nor
may any of the Collateral be released or the pledge or the security interest
created hereby extended, except by an instrument in writing duly signed by or on
behalf of the Company hereunder. The section headings used herein are for
convenience of reference only and shall not define or limit the provisions of
this Agreement. This Agreement may be executed in any number of counterparts and
by the different parties on separate counterparts and each such counterpart
shall be deemed to be an original, but all such counterparts shall together
constitute but one and the same Agreement.
Section 15. Governing Law; Interpretation. This Agreement has been
made and delivered at Spencer, Indiana, and, except to the extent preempted by
ERISA, shall be governed by the internal laws of the State of Indiana, without
regard to principles of conflict of laws. Wherever possible each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be prohibited
by or invalid under such law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
Section 16. Filing as a Financing Statement. At the option of the
Company, this Agreement, or a carbon, photographic or other reproduction of this
Agreement or of any Uniform Commercial Code financing statement covering the
Collateral or any portion thereof shall be sufficient as a Uniform Commercial
Code financing statement and may be filed as such.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective representatives thereunto duly authorized
as of the date first above written.
TRUST UNDER CITIZENS BANCORP
EMPLOYEE STOCK OWNERSHIP PLAN
AND TRUST AGREEMENT
By: The Farmers Bank, Trustee
By:
Printed:
Its:
-8-
<PAGE>
CITIZENS BANCORP
By:
Printed:Fred W. Carter
Its: President
-9-
<PAGE>
Exhibit C
CERTIFICATE OF TRUSTEE
The undersigned, The Farmers Bank, an Indiana bank, in its capacity
as Trustee ("Trustee") of the Trust under Citizens Bancorp Employee Stock
Ownership Plan and Trust Agreement (Effective as of July 1, 1997) (the "Trust")
hereby certifies, pursuant to Section 5.1(c) of that certain Exempt Loan and
Share Purchase Agreement between the Trust and Citizens Bancorp of even date
herewith (the "Loan Agreement") that:
(i) it has determined that the Trust Loan, as defined in the
Loan Agreement, is primarily for the benefit of ESOP participants and
their beneficiaries and bears interest at a rate not in excess of a
reasonable rate and that the terms of the loan are at least as
favorable to the Trust and the ESOP participants as the terms of a
comparable loan resulting from arm's-length negotiations between
completely independent parties;
(ii) the other representations and warranties of the Trust
contained in the Loan Agreement are true in all material respects as of
the date of this Certificate; and
(iii) the conditions set forth in Article V of the Loan
Agreement, to the extent their satisfaction depends upon action on the
part of the Trust or the Trustee, have been satisfied as of the date of
this Certificate.
EXECUTED this ____ day of September, 1997.
The Farmers Bank, as Trustee of the Trust under the
Citizens Bancorp Employee Stock Ownership Plan
and Trust Agreement (Effective as of July 1, 1997)
By:
-10-
<PAGE>
Exhibit D
CERTIFICATE OF THE COMPANY
The undersigned, Citizens Bancorp, an Indiana corporation (the
"Company"), pursuant to Section 5.3(b) of that certain Exempt Loan and Share
Purchase Agreement between The Farmers Bank, an Indiana bank, in its capacity as
Trustee of the Trust under the Citizens Bancorp Employee Stock Ownership Plan
and Trust Agreement (Effective as of July 1, 1997) and the Company of even date
herewith (the "Loan Agreement"), hereby certifies that the representations and
warranties of the Company contained in the Loan Agreement are true and correct
in all material respects, and the Company is in compliance with its covenants
set forth in the Loan Agreement in all material respects, as of the date of this
Certificate.
EXECUTED as of this ___ day of September, 1997.
CITIZENS BANCORP
By:
Fred W. Carter, President
-11-
SUBSIDIARIES OF CITIZENS BANCORP
Name Jurisdiction of Incorporation
Citizens Savings Bank of Frankfort Federal
CLSC Service Corp. Indiana
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED JUNE
30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<CIK> 0001040734
<NAME> Citizens Bancorp
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 861
<INT-BEARING-DEPOSITS> 3,264
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 161
<INVESTMENTS-CARRYING> 332
<INVESTMENTS-MARKET> 332
<LOANS> 38,435
<ALLOWANCE> 212
<TOTAL-ASSETS> 46,353
<DEPOSITS> 36,355
<SHORT-TERM> 4,000
<LIABILITIES-OTHER> 307
<LONG-TERM> 0
<COMMON> 0
0
0
<OTHER-SE> 5,691
<TOTAL-LIABILITIES-AND-EQUITY> 46,353
<INTEREST-LOAN> 3,210
<INTEREST-INVEST> 120
<INTEREST-OTHER> 179
<INTEREST-TOTAL> 3,509
<INTEREST-DEPOSIT> 1,641
<INTEREST-EXPENSE> 1,814
<INTEREST-INCOME-NET> 1,695
<LOAN-LOSSES> 83
<SECURITIES-GAINS> (60)
<EXPENSE-OTHER> 1,217
<INCOME-PRETAX> 554
<INCOME-PRE-EXTRAORDINARY> 371
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 371
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.02
<LOANS-NON> 0
<LOANS-PAST> 303
<LOANS-TROUBLED> 41
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 138
<CHARGE-OFFS> (11)
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 212
<ALLOWANCE-DOMESTIC> 0
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<ALLOWANCE-UNALLOCATED> 212
</TABLE>
