SCHEDULE 14A
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant: Yes.
Filed by a Party other than the Registrant: No.
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as Permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
CITIZENS BANCORP
(Name Of Registrant As Specified In Its Charter)
CITIZENS BANCORP
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
(1) Title of each class of securities to which transaction
applies: N/A
(2) Aggregate number of securities to which transaction
applies: N/A
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined): N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing. N/A
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
Citizens Bancorp
60 South Main Street
P.O. Box 635
Frankfort, Indiana 46041
(765) 654-8533
----------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
----------------------------------------
To Be Held On October 13, 1998
Notice is hereby given that the Annual Meeting of Shareholders of Citizens
Bancorp (the "Holding Company") will be held at the Frankfort Country Club, 100
Country Club Drive, Frankfort, Indiana, on Tuesday, October 13, 1998, at 3:00
p.m., Eastern Standard Time.
The Annual Meeting will be held for the following purposes:
1. Election of Directors. Election of two directors of the Holding
Company to serve three-year terms, with terms expiring in 2001.
2. Other Business. Such other matters as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on September 9, 1998, are
entitled to vote at the meeting or any adjournment thereof.
We urge you to read the enclosed Proxy Statement carefully so that you may
be informed about the business to come before the meeting, or any adjournment
thereof. At your earliest convenience, please sign and return the accompanying
proxy in the postage-paid envelope furnished for that purpose.
A copy of our Annual Report for the fiscal year ended June 30, 1998, is
enclosed. The Annual Report is not a part of the proxy soliciting material
enclosed with this letter.
By Order of the Board of Directors
/s/ Fred W. Carter
Fred W. Carter,
President and Chief Executive Officer
Frankfort, Indiana
September 17, 1998
IT IS IMPORTANT THAT THE PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT
YOU PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE SIGN, DATE AND
COMPLETE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
Citizens Bancorp
60 South Main Street
P.O. Box 635
Frankfort, Indiana 46041
(765) 654-8533
---------------
PROXY STATEMENT
---------------
FOR
ANNUAL MEETING OF SHAREHOLDERS
October 13, 1998
This Proxy Statement is being furnished to the holders of common stock,
without par value (the "Common Stock"), of Citizens Bancorp (the "Holding
Company"), an Indiana corporation, in connection with the solicitation of
proxies by the Board of Directors of the Holding Company to be voted at the
Annual Meeting of Shareholders to be held at 3:00 p.m., Eastern Standard Time,
on October 13, 1998, at the Frankfort Country Club, 100 Country Club Drive,
Frankfort, Indiana, and at any adjournment of such meeting. The principal asset
of the Holding Company consists of 100% of the issued and outstanding shares of
common stock, $.01 par value per share, of Citizens Savings Bank of Frankfort
(the "Bank"). This Proxy Statement is expected to be mailed to the shareholders
of the Holding Company on or about September 17, 1998.
The proxy solicited hereby, if properly signed and returned to the Holding
Company and not revoked prior to its use, will be voted in accordance with the
instructions contained therein. If no contrary instructions are given, each
proxy received will be voted for each of the matters described below and, upon
the transaction of such other business as may properly come before the meeting,
in accordance with the best judgment of the persons appointed as proxies.
Any shareholder giving a proxy has the power to revoke it at any time
before it is exercised by (i) filing with the Secretary of the Holding Company
written notice thereof (Cindy S. Chambers, 60 South Main Street, P.O. Box 635,
Frankfort, Indiana 46041), (ii) submitting a duly executed proxy bearing a later
date, or (iii) by appearing at the Annual Meeting and giving the Secretary
notice of his or her intention to vote in person. Proxies solicited hereby may
be exercised only at the Annual Meeting and any adjournment thereof and will not
be used for any other meeting.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only shareholders of record at the close of business on September 9, 1998
("Voting Record Date"), will be entitled to vote at the Annual Meeting. On the
Voting Record Date, there were 1,058,000 shares of the Common Stock issued and
outstanding, and the Holding Company had no other class of equity securities
outstanding. Each share of Common Stock is entitled to one vote at the Annual
Meeting on all matters properly presented at the Annual Meeting. The holders of
over 50% of the outstanding shares of Common Stock as of the Voting Record Date
must be present in person or by proxy at the Annual Meeting to constitute a
quorum. In determining whether a quorum is present, shareholders who abstain,
cast broker non-votes, or withhold authority to vote on one or more director
nominees will be deemed present at the Annual Meeting.
<PAGE>
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of September 9, 1998, 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 Beneficial Owner(1) Beneficially Owned of Class
- ---------------------- ------------------ --------
The Farmers Bank, as Trustee
9 East Clinton Street
Frankfort, Indiana 46041 84,640 (2) 8.0%
Sandler O'Neill Asset Management LLC
SOAM Holdings, LLC
Malta Partners, L.P.
Malta Partners II, L.P.
Malta Hedge Fund, L.P.
Malta Hedge Fund II, L.P.
Terry Maltese
712 Fifth Avenue
22nd Floor
New York, New York, 10015 102,000 (3) 9.6%
(1) The information in this chart is based on a Schedule 13G Report filed
by the above-listed person with the Securities and Exchange Commission
(the "SEC") containing information concerning shares held by it. It
does not reflect any changes in those shareholdings which may have
occurred since the date of such filing.
(2) These shares are held by the Trustee of the Citizens Bancorp Employee
Stock Ownership Plan and Trust (the "ESOP"). The Employees
participating in that Plan are entitled to instruct the Trustee how to
vote shares held in their accounts under the Plan. Unallocated shares
held in a suspense account under the Plan are required under the Plan
terms to be voted by the Trustee in the same proportion as allocated
shares are voted. Prior to the initial allocation of shares, the ESOP
shares will be voted by the ESOP committee.
(3) Malta Partners, L.P. and Malta Partners II, L.P., each a Delaware
limited partnership, and Malta Hedge Fund, L.P. and Malta Hedge Fund
II, L.P., each a Delaware limited partnership, beneficially own these
shares. These entities are private partnerships engaged in investment
in securities for their own accounts. SOAM Holdings, LLC, a Delaware
limited liability company ("Holdings"), is the general partner of each
of these entities. Sandler O'Neill Asset Management LLC, a New York
limited liability company ("SOAM"), provides administrative and
management services to these entities. Terry Maltese is president and
managing member of Holdings and SOAM. Each of the listed parties shares
investment and dispositive power with respect to these shares.
<PAGE>
PROPOSAL I -- ELECTION OF DIRECTORS
The Board of Directors consists of five members. The By-Laws provide that
the Board of Directors is to be divided into three classes as nearly equal in
number as possible. The members of each class are to be elected for a term of
three years and until their successors are elected and qualified. One class of
directors is to be elected annually. Directors must have their principal
domicile in Clinton County, Indiana, must have had a loan or deposit
relationship with the Bank for a continuous period of 12 months prior to their
nomination to the Board, and non-employee directors must have served as a member
of a civic or community organization based in Clinton County, Indiana for at
least a continuous period of 12 months during the five years prior to their
nomination to the Board. The nominees for director this year are Perry W. Lewis
and John J. Miller, each of whom is a current director of the Holding Company.
If elected by the shareholders at the Annual Meeting, the terms of Messrs. Lewis
and Miller will expire in 2001.
Unless otherwise directed, each proxy executed and returned by a
shareholder will be voted for the election of the nominees listed below. If any
person named as a nominee should be unable or unwilling to stand for election at
the time of the Annual Meeting, the proxy holders will nominate and vote for a
replacement nominee recommended by the Board of Directors. At this time, the
Board of Directors knows of no reason why the nominees listed below may not be
able to serve as directors if elected.
The following table sets forth certain information regarding the directors
continuing in office and 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 the Voting Record Date. Unless
otherwise indicated, each nominee has sole investment and/or voting power with
respect to the shares shown as beneficially owned by him. No nominee for
director is related to any other nominee for director or executive officer of
the Holding Company by blood, marriage, or adoption, and there are no
arrangements or understandings between any nominee and any other person pursuant
to which such nominee was selected. 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 Director Beneficially
Term as Holding of the Bank Owned as of Percentage
Name Director Company Since Since September 9, 1998 of Class(1)
---- -------- ------------- ----- ----------------- -----------
<S> <C> <C> <C> <C> <C>
Director
Nominees
Perry W. Lewis 2001 1997 1975 24,116 (2) 2.28%
John J. Miller 2001 1997 1995 40,616 (3) 3.84
Directors Continuing
in Office
Fred W. Carter 2000 1997 1960-1966 32,580 (4) 3.08
1971-Present
Robert F. Ayres 1999 1997 1979 7,116 (2) .67
Billy J. Wray 1999 1997 1992 22,116 (2) 2.09
All directors and
executive officers
as a group (8 persons) 181,066 (5) 17.11%
</TABLE>
<PAGE>
(1) Based upon information furnished by the respective directors and 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) Does not include stock options for 5,290 shares granted to the director
under the Citizens Bancorp Stock Option Plan (the "Option Plan"), which are
not exercisable within 60 days of the Voting Record Date.
(3) Includes 10,000 shares owned by a company deemed to be controlled by Mr.
Miller, and 1,500 shares held by a profit sharing plan of which Mr. Miller
is a beneficiary. Does not include stock options for 5,290 shares granted
to the director under the Option Plan which are not exercisable within 60
days of the Voting Record Date.
(4) Includes 12,000 shares owned jointly by Mr. Carter and his spouse. Does not
include 26,450 shares subject to a stock option granted under the Option
Plan which is not exercisable within 60 days of the Voting Record Date.
(5) Excludes 71,415 shares subject to stock options granted under the Option
Plan which are not exercisable within 60 days of the Voting Record Date.
Presented below is certain information concerning the directors and
director nominees of the Holding Company:
Robert F. Ayres (age 73) 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 66) has served as Chairman, President and Chief
Executive Officer of the Holding Company since 1997 and President and Chief
Executive Officer of the Bank 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 77) is retired. He formerly 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 67) 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.
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.
THE DIRECTORS SHALL BE ELECTED UPON RECEIPT OF A PLURALITY OF VOTES CAST AT
THE ANNUAL SHAREHOLDERS MEETING. PLURALITY MEANS THAT INDIVIDUALS WHO RECEIVE
THE LARGEST NUMBER OF VOTES CAST ARE ELECTED UP TO THE MAXIMUM NUMBER OF
DIRECTORS TO BE CHOSEN AT THE MEETING. ABSTENTIONS, BROKER NON-VOTES, AND
INSTRUCTIONS ON THE ACCOMPANYING PROXY TO WITHHOLD AUTHORITY TO VOTE FOR ONE OR
MORE OF THE NOMINEES WILL RESULT IN THE RESPECTIVE NOMINEE RECEIVING FEWER
VOTES. HOWEVER, THE NUMBER OF VOTES OTHERWISE RECEIVED BY THE NOMINEE WILL NOT
BE REDUCED BY SUCH ACTION.
<PAGE>
The Board of Directors and its Committees
During the fiscal year ended June 30, 1998, the Board of Directors of the
Holding Company acted by written consent one time. No director attended fewer
than 75% of the aggregate total number of meetings during the last fiscal year
of the Board of Directors of the Holding Company held while he served as
director and of meetings of committees which he served during that fiscal year.
The Board of Directors of the Holding Company has an Audit Committee and a Stock
Compensation Committee, among its other Board Committees. All committee members
are appointed by the Board of Directors.
The Audit Committee, comprised of all directors except Fred W. Carter,
recommends the appointment of the Holding Company's independent accountants, and
meets with them to outline the scope and review the results of such audit. The
Audit Committee met one time during the fiscal year ended June 30, 1998.
The Stock Compensation Committee administers the Option Plan and the
Holding Company's Recognition and Retention Plan and Trust (the "RRP"). The
members of that Committee are all directors except Fred W. Carter. It met one
time during fiscal 1998.
The Board of Directors of the Holding Company nominated the slate of
directors set forth in the Proxy Statement. Although the Board of Directors of
the Holding Company will consider nominees recommended by shareholders, it has
not actively solicited recommendations for nominees from shareholders nor has it
established procedures for this purpose. Directors must satisfy certain
qualification requirements set forth in the Holding Company's By-Laws. Article
III, Section 12 of the Holding Company's By-Laws provides that shareholders
entitled to vote for the election of directors may name nominees for election to
the Board of Directors but there are certain requirements that must be satisfied
in order to do so. Among other things, written notice of a proposed nomination
must be received by the Secretary of the Holding Company not less than 120 days
prior to the Annual Meeting; provided, however, that in the event that less than
130 days' notice or public disclosure of the date of the meeting is given or
made to shareholders (which notice or public disclosure includes the date of the
Annual Meeting specified in the Holding Company's By-Laws if the Annual Meeting
is held on such date), notice must be received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made.
Management Remuneration and Related Transactions
Remuneration of Named Executive Officer
During the fiscal year ended June 30, 1998, no cash compensation was paid
directly by the Holding Company to any of its executive officers. Each of such
officers was compensated by the Bank.
<PAGE>
The following tables set forth information as to annual, long term and
other compensation for services in all capacities to the President and Chief
Executive Officer of the Holding Company for the three fiscal years ended June
30, 1998 (the "Named Executive Officer"). There were no other executive officers
of the Holding Company who earned over $100,000 in salary and bonuses during the
fiscal year ended June 30, 1998.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
------------------------------------------------
Name and Principal Fiscal Other Annual All Other
Position Year Salary (1) Bonus Compensation (3) Compensation
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fred Carter, President and 1998 $103,500 $56,729 (2) -- $120 (4)
Chief Executive Officer 1997 91,000 39,600 (2) -- 120 (4)
1996 85,200 35,667 -- 120 (4)
</TABLE>
(1) Includes fees received for service on the Bank's Board of Directors.
(2) Beginning with calendar year 1997, Mr. Carter receives a bonus equal to 10%
of the profits of the Bank in excess of $626,000 after deducting certain
expenses incurred by the Bank.
(3) 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.
(4) This column includes amounts paid by the Bank for insurance premiums with
respect to a $10,000 term life insurance policy for the benefit of Mr.
Carter.
Stock Options
The following table sets forth information related to options granted
during fiscal year 1998 to the Named Executive Officer.
<TABLE>
<CAPTION>
Option Grants - Last Fiscal Year
Individual Grants
% of Total
Options Granted Exercise or
Options to Employees Base Price Expiration
Name Granted(#)(1) In Fiscal Year ($/Share)(2) Date
---- ------------- -------------- ------------ ----
<S> <C> <C> <C> <C>
Fred W. Carter 26,450 52.6% $15.25 3/23/2008
</TABLE>
(1) Options to acquire shares of the Holding Company's Common Stock. These
options become exercisable as to 5,290 shares on March 24th of each year
during a five year period commencing on March 24, 1999 and ending on March
24, 2003.
(2) The option exercise price may be paid in cash or with the approval of the
Stock Compensation Committee beginning on September 19, 2000, in shares of
Holding Company Common Stock or a combination thereof. The option exercise
price equaled the market value of a share of the Holding Company Common
Stock on the date of grant.
<PAGE>
The following table includes the number of shares covered by
exercisable and unexercisable stock options held by the Named Executive Officer
as of June 30, 1998. Also reported are the values for "in-the-money" options
(options whose exercise price is lower than the market value of the shares at
fiscal year end) which represent the spread between the exercise price of any
such existing stock options and the fiscal year-end market price of the stock.
Outstanding Stock Option Grants and Value Realized as of 6/30/98
<TABLE>
<CAPTION>
Number of Value of Unexercised
Securities Underlying In-the-Money
Unexercised Options Options at
at Fiscal Year End (#) Fiscal Year End ($) (1)
---------------------------------- ----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Fred W. Carter --- 26,450 --- ---
</TABLE>
(1) Since the average between the high asked and low bid prices for the
shares on June 30, 1998, was $14.625 per share, and this price is below
the $15.25 per share excercise price of the options, none of Mr. Carter's
options were "in-the-money" on June 30, 1998.
No stock options were exercised during fiscal 1998 by the Named Executive
Officer.
Employment Contract
The Bank 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 the Bank's 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 the Bank 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 the Bank's employees. Mr. Carter may
terminate his employment upon 60 days' written notice to the Bank. The Bank may
discharge Mr. Carter for cause (as defined in the contract) at any time or in
certain specified events. If the Bank 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 the Bank's 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 the Bank 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 the Bank, are deemed to be payments in violation of the "golden
parachute" rules of the Internal Revenue Code of 1986, as amended (the "Code"),
such payments will be reduced to the largest amount which would not cause the
Bank 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 after a change of control of the Holding
Company, without cause by the Bank, or for cause by Mr. Carter, would be
$300,000. 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 the Bank's confidential business
information and protects the Bank from competition by Mr. Carter should he
voluntarily terminate his employment without cause or be terminated by the Bank
for cause.
Compensation of Directors
The Bank 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,
1998 were approximately $41,200.
The Bank's 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 the Bank.
Directors of the Holding Company 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.
Transactions With Certain Related Persons
The Bank has followed a policy of offering to their directors,
officers, and employees real estate mortgage loans secured by their principal
residence and other loans. These loans are made in the ordinary course of
business with the same collateral, interest rates and underwriting criteria as
those of comparable transactions prevailing at the time and do not involve more
than the normal risk of collectibility or present other unfavorable features.
Loans to advisory directors, directors, executive officers and their
associates totaled approximately $2,766,000, or approximately 18.2% of
consolidated shareholders' equity at June 30, 1998. This amount includes two
loans to directors Billy J. Wray and John J. Miller, neither of whom were
directors or employees of the Bank 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. In October,
1997, the loan was refinanced by the Bank to change it from a 3-year adjustable
mortgage loan to a 7-year adjustable mortgage loan, with a term of 15 years and
an amortization of 20 years. The interest rate on the loan adjusts based on the
7-year Treasury Constant Maturities index plus a 200 basis point margin. At June
30, 1998, this loan was current with a balance of approximately $1,311,000. 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, 1998, this loan was
also current with a balance of approximately $380,000. The Bank is not obligated
to advance additional funds pursuant to this line of credit. In the opinion of
the Bank's management, these loans are adequately collateralized.
<PAGE>
Current law authorizes the Bank 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, the
Bank's loans to executive officers, directors, principal shareholders and
employees are made on the same terms generally available to the public. The Bank
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 the Bank's 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. The Bank's policy regarding loans to directors and all
employees meets the requirements of current law.
ACCOUNTANTS
Ernst & Young has served as auditors for the Bank since 1967, and for the
Holding Company since its formation in 1997. A representative of Ernst & Young
may be present at the Annual Meeting with the opportunity to make a statement if
he so desires. He will also be available to respond to any appropriate questions
shareholders may have. The Board of Directors of the Holding Company has not yet
completed the process of selecting an independent public accounting firm to
audit its books, records and accounts for the fiscal year ended June 30, 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 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.
There were no filing requirements applicable to the Holding Company's
officers, directors and greater than 10% beneficial owners with respect to
Section 16(a) of the 1934 Act during the fiscal year ended June 30, 1998.
SHAREHOLDER PROPOSALS
Any proposal which a shareholder wishes to have presented at the next
Annual Meeting of the Holding Company must be received at the main office of the
Holding Company for inclusion in the proxy statement no later than 120 days in
advance of September 17, 1999. Any such proposal should be sent to the attention
of the Secretary of the Holding Company at 60 South Main Street, P.O. Box 635,
Frankfort, Indiana 46041. A shareholder proposal being submitted outside the
process of Rule 14a-8 promulgated under the 1934 Act will be considered untimely
if it is received by the Holding Company later than 45 days in advance of
September 17, 1999.
OTHER MATTERS
Management is not aware of any business to come before the Annual Meeting
other than those matters described in the Proxy Statement. However, if any other
matters should properly come before the Annual Meeting, it is intended that the
proxies solicited hereby will be voted with respect to those other matters in
accordance with the judgment of the persons voting the proxies.
The cost of solicitation of proxies will be borne by the Holding Company.
The Holding Company will reimburse brokerage firms and other custodians,
nominees and fiduciaries for reasonable expenses incurred by them in sending
proxy material to the beneficial owners of the Common Stock. In addition to
solicitation by mail, directors, officers, and employees of the Holding Company
may solicit proxies personally or by telephone without additional compensation.
Each shareholder is urged to complete, date and sign the proxy and return
it promptly in the enclosed envelope.
By Order of the Board of Directors
/s/ Fred W. Carter
Fred W. Carter
September 17, 1998
<PAGE>
REVOCABLE PROXY CITIZENS BANCORP
Annual Meeting of Shareholders
October 13, 1998
The undersigned hereby appoints Stephen D. Davis and Cindy S. Chambers, with
full powers of substitution, to act as attorneys and proxies for the undersigned
to vote all shares of common stock of Citizens Bancorp which the undersigned is
entitled to vote at the Annual Meeting of Shareholders to be held at the
Frankfort Community Public Library, 208 West Clinton Street, Frankfort, Indiana,
on Tuesday, October 13, 1998, at 3:00 p.m., and at any and all adjournments
thereof, as follows:
1. The election as directors of all nominees listed below, except as marked to
the contrary [ ] FOR [ ] VOTE WITHHELD
INSTRUCTIONS: To withhold authority to vote for any individual nominee, strike a
line through the nominee's name on the list below:
Perry W. Lewis John J. Miller
(each for a three year term)
In their discretion, the proxies are authorized to vote on any other business
that may properly come before the Meeting or any adjournment thereof.
The Board of Directors recommends a vote "FOR" the listed proposition.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
<PAGE>
This Proxy may be revoked at any time prior to the voting thereof.
The undersigned acknowledges receipt from Citizens Bancorp, prior to the
execution of this Proxy, of a Notice of the Meeting, a Proxy Statement and an
Annual Report to Shareholders.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS STATED. IF ANY OTHER BUSINESS
IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS
PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS
OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
________________________, 1998
------------------------- -------------------------
Print Name of Shareholder Print Name of Shareholder
------------------------- -------------------------
Signature of Shareholder Signature of Shareholder
Please sign as your name appears on the envelope in
which this card was mailed. When signing as attorney,
executor, administrator, trustee or guardian, please
give your full title. If shares are held jointly, each
holder should sign.
Message to Shareholders.................................................. 1
Selected Consolidated Financial Data..................................... 2
Management's Discussion and Analysis..................................... 3
Report of Independent Auditors........................................... 16
Consolidated Statements of Condition..................................... 17
Consolidated Statements of Income........................................ 18
Consolidated Statements of Changes in
Shareholders' Equity................................................ 19
Consolidated Statements of Cash Flows.................................... 20
Notes to Consolidated Financial Statements............................... 21
Directors and Officers................................................... 39
Shareholder Information.................................................. 41
================================================================================
Citizens Bancorp (the "Holding Company" and together with the Bank, as
defined below, the "Company") is an Indiana corporation organized in June, 1997,
to become a savings and loan holding company upon its acquisition of all the
issued and outstanding capital stock of Citizens Savings Bank of Frankfort
("Citizens" or the "Bank") in connection with the Bank's conversion from mutual
to stock form. The Holding Company became the Bank's holding company on
September 18, 1997; therefore, all historical financial and other data contained
for periods prior to September 18, 1997 herein relate solely to the Bank while
historical financial and other data contained herein for the period after
September 18, 1997 relate to the Company. The principal asset of the Holding
Company currently consists of 100% of the issued and outstanding shares of
capital stock, $.01 par value per share, of the Bank.
The Bank is a federal savings bank which conducts its business from a
full-service office located in Frankfort, Indiana. The Bank offers a variety of
lending, deposit and other financial services to its retail and commercial
customers. The Bank's principal business consists of attracting deposits from
the general public and originating mortgage loans, most of which are secured by
one- to four-family residential real property in Clinton County, Indiana. The
Bank also offers multi-family loans, construction loans, non-residential real
estate loans, home equity loans and consumer loans, including single-pay loans,
loans secured by deposits, and installment loans. The Bank derives most of its
funds for lending from deposits of its customers, which consist primarily of
certificates of deposit, demand accounts and savings accounts.
<PAGE>
TO OUR SHAREHOLDERS:
It gives me great pleasure to present the 1998 Fiscal Year Report of
Citizens Bancorp and its subsidiary, Citizens Savings Bank of Frankfort,
Indiana. This report also presents our first nine-months of experience as a
public company.
The past twelve months have certainly been a busy time for all of us at
Citizens. On September 18, 1997, we converted from a mutual to a stock savings
bank, and our stock began trading on the OTC Electronic Bulletin Board under the
ticker symbol "CIBC." In the initial public offering, we sold 1,058,000 shares
of common stock at $10 per share.
We reported net income for the fiscal year ended June 30, 1998 of
$874,000, which is an increase of $503,000 over the $371,000 earned during the
same period last year. This increase in earnings is attributable, in part, to a
net pre-tax gain of $172,000 during 1998 on the sale of a parcel of real estate
owned and to increased interest income from loans and investments we made with
the proceeds from the sale of common stock. Net income during the 1997 fiscal
year was reduced as the result of the one-time assessment of $127,000
(after-tax) by the Federal Deposit Insurance Corporation in connection with the
replenishment of the Savings Association Insurance Fund, and from a loss of
$60,000 from our sale of investment securities during that period.
During fiscal year 1998, our total assets increased from $46.4 million
to $53.4 million, an increase of 15.3%, and our net loans receivable increased
from $38.4 million to $46.9 million, an increase of 22.1%. Also during fiscal
year 1998, our deposits decreased by 6.3%, from $36.4 million to $34.1 million.
As of June 30, 1998, our total shareholders' equity was $15.2 million, an
increase of $9.5 million from $5.7 million at June 30, 1997. This increase is
attributable to our receipt of the net proceeds from the sale of common stock
and from our net income of $874,000 for the year. Our Return on Assets (ROA) for
the twelve months ended June 30, 1998 was 1.69% and our Return on Equity (ROE)
was 6.65%. The Board of Directors of Citizens Bancorp declared a $0.05 per share
dividend for each of the March and June, 1998 quarters, amounting to total
dividend of $105,800 paid to our shareholders for the two quarters.
Again this year, Citizens Savings Bank received the Bauer Financial
Reports "Five Star Superior" rating for the 39th consecutive quarter and the
Sheshunoff "Highest Rated Bank" designation. Both Bauer & Sheshunoff are
independent rating companies. The success of our conversion to a stock
institution and of our performance during the past year was the result of
dedicated and knowledgeable Directors, Officers and Staff working together to
serve our customers' needs in a courteous and professional manner.
We thank you for your business, your support and your confidence in
Citizens Savings Bank, and encourage you to recommend Citizens to your friends
and associates.
Sincerely,
/s/ Fred W. Carter
Fred W. Carter
President, Chief Executive Officer
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF
CITIZENS BANCORP AND SUBSIDIARIES
The following selected consolidated financial data of the Company is
qualified in its entirety by, and should be read in conjunction with, the
consolidated financial statements, including notes thereto, included elsewhere
in this Annual Report. In the opinion of management of the Company, all
adjustments necessary for a fair presentation of results for such periods, which
consisted only of normal, recurring adjustments, have been included.
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------------------
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Summary of Selected Consolidated
Financial Condition Data:
Total assets....................................... $53,442 $46,353 $44,235 $39,727 $38,523
Loans receivable, net (1).......................... 46,936 38,435 34,391 29,275 26,141
Cash on hand and in other institutions (2)......... 2,533 4,125 3,308 4,310 7,210
Investment securities available for sale........... 315 161 3,003 2,832 2,677
Cash surrender value of life insurance contract.... 1,119 1,076 1,035 991 943
FHLB advances...................................... 3,500 4,000 3,000 1,500 ---
Deposits........................................... 34,067 36,355 35,600 33,175 34,037
Total shareholders equity.......................... 15,168 5,691 5,320 4,841 4,435
Unrealized gain (loss) on investment securities
available for sale (net)........................ 3 --- (51) (49) (50)
Year Ended June 30,
-------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Summary of Selected Consolidated Operating Data:
Total interest income.............................. $ 4,052 $3,509 $3,186 $2,742 $2,424
Total interest expense............................. 1,738 1,814 1,653 1,370 1,273
-------- ------- ------- ------- --------
Net interest income............................. 2,314 1,695 1,533 1,372 1,151
Provision for loan losses.......................... 72 83 80 32 12
-------- ------- ------- ------- --------
Net interest income after
provision for loan losses..................... 2,242 1,612 1,453 1,340 1,139
Other income:
Fees and service charges........................ 142 138 152 151 120
Loss on sale of investments..................... --- (60) --- --- ---
Gain on sale of real estate..................... 180 17 33 2 ---
Other........................................... 62 64 61 68 77
-------- ------- ------- ------- --------
Total other income............................ 384 159 246 221 197
Other expense:
Salaries and employee benefits.................. 565 485 415 387 331
Occupancy expense............................... 119 114 118 109 105
Data processing expense......................... 122 108 101 105 98
Federal insurance premiums...................... 23 259 77 75 71
Other........................................... 343 251 256 248 258
-------- ------- ------- ------- --------
Total other expense........................... 1,172 1,217 967 924 863
-------- ------- ------- ------- --------
Income before income taxes......................... 1,454 554 732 637 473
Income taxes....................................... 580 183 253 231 166
-------- ------- ------- ------- --------
Income before cumulative effect of
change in accounting principle.................. 874 371 479 406 307
Cumulative effect of change in
accounting for income taxes..................... --- --- --- --- (26)
-------- ------- ------- ------- --------
Net income...................................... $ 874 $ 371 $ 479 $ 406 $ 281
======== ======= ======= ======= ========
</TABLE>
Table continued on following page
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------------------------
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Supplemental Data:
Interest rate spread during period................. 3.77% 3.75% 3.75% 3.69% 3.14%
Net yield on interest-earning assets (3)........... 4.78 4.02 3.99 3.92 3.38
Return on assets (4)............................... 1.69 .82 1.15 1.07 .77
Return on equity (5)............................... 6.65 6.81 9.52 8.89 6.58
Net income per share of Common Stock (6)........... $ .94 --- --- --- ---
Equity to assets (7)............................... 28.38% 12.28 11.91 12.06 11.38
Average interest-earning assets to average
interest-bearing liabilities.................... 127.93 106.31 105.61 105.84 106.54
Non-performing assets to total assets (7).......... .32 .74 .50 .35 .61
Allowance for loan losses to total loans
outstanding (7)................................. .57 .55 .40 .16 .19
Allowance for loan losses to
non-performing loans (7)........................ 158.53 61.57 62.51 33.19 20.89
Net (charge-offs) recoveries to average
total loans outstanding ........................ (.03) (.03) .04 (.12) (.004)
Other expenses to average assets (8).............. 2.27 2.67 2.32 2.44 2.38
Number of full service offices (7)................. 1 1 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) Pro forma earnings per share. See Note 1 to the Consolidated
Financial Statements.
(7) At end of period.
(8) Other expenses divided by average total assets.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Holding Company was incorporated for the purpose of owning all of
the outstanding shares of Citizens. The following discussion and analysis of
Citizens' financial condition as of June 30, 1998 and 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
Average Balances and Interest Rates and Yields
The following tables present at the fiscal years ended June 30, 1998,
1997 and 1996, 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.
AVERAGE BALANCE SHEET/YIELD ANALYSIS
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------ ----------------------------- -------------------------------
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....... $4,557 $292 6.40% $ 3,446 $ 179 5.21% $ 3,109 $ 182 5.85%
FHLB stock...................... 336 27 8.07 332 26 7.84 332 26 7.91
Investment securities
available for sale (1)........ 232 10 4.23 1,527 94 6.14 3,001 174 5.81
Loans receivable (2)............ 43,318 3,723 8.60 36,843 3,210 8.71 31,980 2,804 8.77
------- ----- ------- ------ ------- ------
Total interest-earning assets. 48,443 4,052 8.36 42,148 3,509 8.33 38,422 3,186 8.29
======= ===== ======= ====== ======= ======
Interest-bearing liabilities:
Deposits........................ 36,137 1,653 4.57 36,436 1,641 4.50 34,456 1,539 4.47
FHLB advances................... 1,731 86 4.96 3,212 173 5.41 1,923 114 5.94
------- ----- ------- ------ ------- ------
Total interest-bearing
liabilities.............. 37,868 1,739 4.59 39,648 1,814 4.58 36,379 1,653 4.54
------- ----- ------- ------ ------- ------
Net interest-earning assets........$10,575 $ 2,500 $ 2,043
======= ======= =======
Net interest income................ $2,313 $1,695 $1,533
====== ====== ======
Interest rate spread (3)........... 3.77% 3.75% 3.75%
==== ==== ====
Net yield on weighted average
interest-earning assets (4)..... 4.78% 4.02% 3.99%
==== ==== ====
Average interest-earning assets
to average interest-
bearing liabilities............. 127.93% 106.31% 105.61%
====== ====== ======
</TABLE>
<PAGE>
(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.
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.
Year Ended June 30,
-------------------------
1998 1997 1996
---- ---- ----
Weighted average interest rate earned on:
Interest-bearing deposits................... 6.40% 5.21% 5.85%
FHLB stock.................................. 8.07 7.84 7.91
Investment securities....................... 4.23 6.14 5.81
Loans receivable............................ 8.60 8.71 8.77
Total interest-earning assets............. 8.36 8.33 8.29
Weighted average interest rate cost of:
Deposits.................................... 4.57 4.50 4.47
FHLB advances............................... 4.96 5.41 5.94
Total interest-bearing liabilities........ 4.59 4.58 4.54
Interest rate spread (1)....................... 3.77% 3.75% 3.75%
==== ==== ====
Net yield on weighted average
interest-earning assets (2)................. 4.78% 4.02% 3.99%
==== ==== ====
(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.
Increase (Decrease) in
Net Interest Income
--------------------------------
Total
Due to Due to Net
Rate Volume Change
---- ------ ------
(In thousands)
Year ended June 30, 1998 compared
to year ended June 30, 1997
- --------------------------------------------------------------------------------
Interest-earning assets:
Interest-bearing deposits ............. $ 46 $ 66 $ 112
FHLB stock ............................ 1 -- 1
Investment securities ................. (22) (62) (84)
Loans receivable ...................... (41) 555 514
----- ----- -----
Total ............................... (16) 559 543
----- ----- -----
Interest-bearing liabilities:
Deposits .............................. 25 (13) 12
FHLB advances ......................... (13) (75) (88)
----- ----- -----
Total ............................... 12 (88) (76)
----- ----- -----
Net change in net interest income ....... $ (28) $ 647 $ 619
===== ===== =====
Year ended June 30, 1997 compared
to year ended June 30, 1996
- --------------------------------------------------------------------------------
Interest-earning assets:
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
===== ===== =====
<PAGE>
Financial Condition at June 30, 1998 Compared to Financial Condition at June 30,
1997
Total consolidated assets of the Company increased by $7.0 million, or 15.3%, to
$53.4 million at June 30, 1998 from $46.4 million at June 30, 1997. Net loans
receivable increased $8.5 million, or 22.1%, to $46.9 million at June 30, 1998.
The increase in loans was funded primarily with the net proceeds from the sale
of the Holding Company's common stock on September 18, 1997. Cash decreased by
$555,000, while interest-bearing deposits decreased by $1.0 million during the
year.
Deposits decreased by $2.3 million primarily as a result of a decrease in the
amount of public funds on deposit. Borrowings at the Federal Home Loan Bank
decreased by $500,000 as a result of net repayments during the period.
Shareholders' equity increased $9.5 million primarily as a result of stock
issued by the Holding Company in the conversion, less the conversion expenses
and the ESOP shares, plus the net profit for the year. Shareholders' equity
decreased by $667,000 as a result of Citizens' purchase of shares of the Holding
Company's common stock for the Recognition and Retention Plan. Shareholders'
equity also decreased by $97,000 as a result of the declaration of dividends on
the Holding Company's common stock during the year.
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.
Comparison of Operating Results For Fiscal Years Ended June 30, 1998 and 1997
Net Income. Net income increased $503,000, or 135.6%, to $874,000 in 1998 from
$371,000 in 1997. The increase primarily resulted from Citizens' recognition of
the one-time, non-recurring SAIF special assessment of $211,000 ($127,000 net of
tax) and the sale of an investment at a loss of approximately $60,000 during
1997, as well as the sale of a tract of real estate for a profit of $172,000
($103,000 net of tax) during 1998. There was also an increase of $619,000 in net
interest income for 1998, offset by an increase in other expenses, excluding the
SAIF assessment, of $167,000. Excluding the gain on the sale of real estate, the
SAIF assessment and the loss on the sale of the investment, net income would
have increased $236,000, or 44.2%, to $770,000 for the year ended June 30, 1998
from $534,000 in 1997.
Net Interest Income. Net interest income increased $619,000, or 36.5%, to $2.3
million in 1998 from $1.7 million in 1997. The increase resulted primarily from
an increase in earning assets and a decrease in costing liabilities in 1998 due
to the sale of the Holding Company's common stock.
Provisions for Loan Losses. Provisions for loan losses for 1998 and 1997 were
$72,000 and $83,000, respectively. Citizens had charge-offs of $12,000 and
recoveries of $2,000 in 1997. Citizens had charge-offs of $17,000 and recoveries
of $2,000 in 1998 and its allowance for loan loss as of June 30, 1998 was
$269,000.
Other Income. Other income increased approximately $226,000, or 142.1%, in 1998
as compared to 1997. This increase resulted from an increase in the gain on the
sale of real estate of $163,000 in 1998 and the $60,000 loss on the sale of an
investment in 1997, plus an increase of $3,000 in 1998 in fees and service
charges and miscellaneous income.
Other Expense. Other expenses decreased $44,000, or 3.7%, in 1998. The decrease
was primarily due to a $236,000 decrease in SAIF insurance premiums offset by an
$80,000 increase in salaries and benefits due to compensation expense related to
the ESOP and the RRP. Office occupancy and data processing expenses increased by
$19,000 during 1998 and other expenses, consisting primarily of legal and
accounting expenses, increased by $93,000 due to the increased reporting
requirements of public companies. Income Tax Expense.
Income tax expense increased $397,000, or 216.6%, to $580,000 in 1998 from
$183,000 in 1997. This primarily resulted from the gain on the sale of real
estate, which increased non-interest income in 1998, and from the FDIC special
assessment, which decreased non-interest income in 1997, as well as the increase
in net interest income for 1998.
Comparison of Operating Results For Fiscal 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 decreased gains on sales of real estate.
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.
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, 1998, 1997 and 1996, it originated total loans in the
amounts of $25.8 million, $17.5 million and $15.4 million, respectively.
Citizens purchased loans totaling $2.5 million in the fiscal year ended June 30,
1998. Loan principal repayments totaled $19.7 million, $13.3 million and $10.3
million during the respective periods.
During the years ended June 30, 1998, 1997, and 1996, Citizens purchased
securities in the amounts of $148,000, $65,000 and $169,000, respectively.
Citizens did not receive any proceeds for the sale of securities during 1998 or
1996. 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 $309,000 and unused lines of
credit of approximately $2.65 million at June 30, 1998. The unused lines
primarily 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, 1998 totaled $10.6 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
$3.5 million at June 30, 1998.
The following is a summary of Citizens' cash flows, which are of three
major types. Cash flows from operating activities consist primarily of net
income generated by cash. Investing activities generate cash flows through the
origination and principal collection on loans as well as purchases and sales of
securities. Investing activities will generally result in negative cash flows
when Citizens experiences loan growth. Cash flows from financing activities
include savings deposits, withdrawals and maturities and changes in borrowings.
The following table summarizes cash flows for each year in the three-year period
ended June 30, 1998.
Year Ended June 30,
--------------------------------
1998 1997 1996
-------- -------- --------
(Dollars in thousands)
Operating activities ........................$ 1,427 $ 266 $ 518
Investing activities:
Purchases of FHLB stock .................. (20) -- --
Purchases of
investment securities .................. (148) (65) (169)
Sales of investment securities ........... -- 2,932 --
Principal collected on loans ............. 19,696 13,251 10,279
Loans originated ......................... (25,763) (17,474) (15,419)
Loans sold ............................... -- 91 --
Loans purchased .......................... (2,494) -- (64)
Change in land held
for development ........................ 31 77 (3)
Purchases of equipment ................... (30) (16) (69)
-------- -------- --------
Total from investing activities ............. (8,728) (1,204) (5,445)
Financing activities:
Increase/(decrease) in NOW,
MMDA and passbook deposits ............. (258) 305 460
Increase/(decrease) in certificates
of deposit ............................. (2,030) 450 1,965
Advances from FHLB ....................... 3,500 14,500 4,500
Payments to FHLB ......................... (4,000) (13,500) (3,000)
Sale of common stock, net of costs ....... 9,216 -- --
Purchase of RRP shares ................... (667) -- --
Dividend paid on common stock ............ (53) -- --
-------- -------- --------
Total from financing activities ............. 5,708 1,755 3,925
-------- -------- --------
Net increase/(decrease) in cash
and cash equivalents .....................$ (1,593) $ 817 $ (1,002)
======== ======== ========
Federal law requires that savings associations maintain a minimum
average daily balance of liquid assets in an amount not less than 4% or more
than 10% of their withdrawable accounts 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.
The OTS recently amended its regulation that implements this statutory liquidity
requirement to reduce the amount of liquid assets a savings association must
hold from 5% of net withdrawable accounts and short-term borrowings to 4%. The
OTS also eliminated the requirement that savings associations maintain
short-term liquid assets constituting at least 1% of their average daily balance
of net withdrawable deposit accounts and current borrowings. The revised OTS
rule also permits savings associations to calculate compliance with the
liquidity requirement based upon their average daily balance of liquid assets
during each quarter rather than during each month, as was required under the
prior rule. The OTS may impose monetary penalties on savings associations that
fail to meet these liquidity requirements. As of June 30, 1998, Citizens had
liquid assets of $4.4 million, and a regulatory liquidity ratio of 10.2%.
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, 1998, Citizens' tangible capital ratio was 17.7%, its core capital
ratio was 17.7%, and its risk-based capital to risk-weighted assets ratio was
29.2%. Therefore, at June 30, 1998, 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, 1998:
<TABLE>
<CAPTION>
At June 30, 1998
----------------------------------------------------------------------------
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% $ 787 17.7% $9,285 $8,498
Core capital (2)........... 3.0 1,574 17.7 9,285 7,711
Risk-based capital......... 8.0 2,614 29.2 9,554 6,940
</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.
As of June 30, 1998, 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.
Current Accounting Issues
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, "Reporting Comprehensive Income" ("SFAS 130"). This Statement
establishes standards for reporting and displaying comprehensive income and its
components in the financial statements. Comprehensive income consists of the net
income or loss of the entity, plus or minus the change in equity of the entity
during the period from transactions, other events, and circumstances resulting
from nonowner sources. SFAS 130 is effective for years beginning after December
15, 1997, and will require financial statements of earlier periods that are
presented for comparative purposes to be reclassified. The adoption of SFAS 130
is not expected to have a material effect on the Company's financial condition.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 established
information about operating segments of their business in both their annual and
interim financial reports provided to shareholders. SFAS 131 is effective for
financial statement periods beginning after December 15, 1997. In the initial
year of application, comparative information for earlier years is to be
restated, unless impracticable. In addition, the provisions of SFAS 131 need not
be applied to interim financial statements issued in the initial year of
application. The adoption of SFAS 131 is not expected to have a material effect
on the Company's financial condition.
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.
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.
Year 2000 Compliance
Because computer memory was so expensive on early mainframe computers,
some computer programs used only the final two digits for the year in the date
field while maintaining the first two digits of each year constant. As a result,
some computer applications may be unable to interpret the change from year 1999
to year 2000. The Holding Company is actively monitoring its year 2000 computer
compliance issues. The bulk of the Holding Company's computer processing is
provided under contract by BISYS, Inc. in Houston, Texas ("BISYS"). BISYS
expects to be in year 2000 compliance by June, 1999. BISYS will assist the
Holding Company with other phases of year 2000 compliance throughout the
remainder of 1998 and 1999.
Citizens' loan documentation system is provided by Banker's Systems and is
also expected to be in year 2000 compliance within the next year. The Holding
Company has also appointed one of its executive officers to address all aspects
of year 2000 compliance. The Holding Company's expense in connection with year
2000 compliance is not expected to exceed $50,000.
Asset/Liability Management
An important component of Citizens' asset/liability management policy
includes examining the interest rate sensitivity of its assets and liabilities
and monitoring the expected effects of interest rate changes on its net
portfolio value.
An asset or liability is interest rate sensitive within a specific time
period if it will mature or reprice within that time period. If Citizens' assets
mature or reprice more quickly or to a greater extent than its liabilities,
Citizens' net portfolio value and net interest income would tend to increase
during periods of rising interest rates but decrease during periods of falling
interest rates. Conversely, if Citizens' assets mature or reprice more slowly or
to a lesser extent than its liabilities, its net portfolio value and net
interest income would tend to decrease during periods of rising interest rates
but increase during periods of falling interest rates. Citizens' policy has been
to mitigate the interest rate risk inherent in the historical business of
savings associations, the origination of long-term loans funded by short-term
deposits, by pursuing certain strategies designed to decrease the vulnerability
of its earnings to material and prolonged changes in interest rates.
Because of the lack of customer demand for adjustable rate loans in its
market area, Citizens primarily originates fixed-rate real estate loans, which
accounted for approximately 59% of its loan portfolio at June 30, 1998. To
manage the interest rate risk of this type of loan portfolio, Citizens limits
maturities of fixed-rate loans to no more than 20 years. In addition, Citizens
continues to offer and attempts to increase its volume of adjustable rate loans
when market interest rates make these loans more attractive to customers.
Management believes it is critical to manage the relationship between
interest rates and the effect on Citizens' 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.
It is estimated that at June 30, 1998, NPV would decrease 9.8% and
22.6% in the event of 200 and 400 basis point increases in market interest
rates, respectively, compared to 14.9% and 32.6% for the same increases at June
30, 1997. Citizens' NPV at June 30, 1998 would increase 3.1% and 8.2% in the
event of 200 and 400 basis point decreases in market rates respectively. A year
earlier, 200 and 400 basis point decreases in market rates would have increased
NPV 2.5% and 3.1%, respectively.
Presented below, as of June 30, 1998 and 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 200 basis
point increments, up and down 400 basis points.
<TABLE>
<CAPTION>
June 30, 1998
Net Portfolio Value Summary Performance
NPV as % of
Present Value
Net Portfolio Value of Assets
Change ----------------------------------------------------- ------------------------------
In Rates $ Amount $ Change % Change NPV Ratio Change
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+ 400 bp* $9,193 $(2,690) (22.64)% 17.82% (371) bp
+ 200 bp 10,725 (1,158) (9.79)% 20.03% (151) bp
0 bp 11,883 --- ---% 21.54% --- bp
- 200 bp 12,251 368 3.10% 21.86% 32 bp
- 400 bp 12,859 976 8.21% 22.49% 95 bp
</TABLE>
Interest Rate Risk Measures: 200 Basis Point Rate Shock
Pre-Shock NPV Ratio: NPV as % of PV of Assets.....................21.54%
Exposure Measure: Post-Shock NPV Ratio............................20.03%
Sensitivity Measure: Change in NPV Ratio..........................151 bp
Change in NPV as % of PV of Assets................................7.0%
<TABLE>
<CAPTION>
June 30, 1997
Net Portfolio Value Summary Performance
NPV as % of
Present Value
Net Portfolio Value of Assets
Change ----------------------------------------------------- ------------------------------
In Rates $ Amount $ Change % Change NPV Ratio Change
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+400 bp* $4,933 $(2,387) (32.61)% 11.02% (422) bp
+200 bp 6,232 (1,088) (14.86)% 13.40% (184) bp
0 bp 7,320 --- ---% 15.24% --- bp
-200 bp 7,504 184 2.51% 15.40% 16 bp
-400 bp 7,543 223 3.05% 15.30% 6 bp
</TABLE>
Interest Rate Risk Measures: 200 Basis Point Rate Shock
Pre-Shock NPV Ratio: NPV as % of PV of Assets..................... 15.24%
Exposure Measure: Post-Shock NPV Ratio............................ 13.40%
Sensitivity Measure: Change in NPV Ratio.......................... 184 bp
Change in NPV as % of PV of Assets................................ 12.07%
* Basis points
<PAGE>
Report of Independent Auditors
To the Board of Directors and Shareholders
Citizens Bancorp
We have audited the accompanying consolidated statements of condition of
Citizens Bancorp and subsidiaries as of June 30, 1998 and 1997, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended June 30, 1998. These
financial statements are the responsibility of the Company'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 Bancorp
and subsidiaries at June 30, 1998 and 1997, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1998, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Indianapolis, Indiana
August 19, 1998, except for Note 14,
as to which the date is September 3, 1998
<PAGE>
CITIZENS BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
June 30,
------------------------------
1998 1997
------------------------------
Assets
<S> <C> <C>
Cash on hand and in other institutions $ 305,908 $ 861,360
Interest-bearing deposits 2,226,658 3,263,687
Investment securities available for sale 315,041 160,995
Stock in Federal Home Loan Bank of Indianapolis 351,600 331,600
Loans receivable, net 46,936,403 38,435,416
Land held for development 964,582 995,908
Cash surrender value of life insurance contracts 1,118,883 1,075,840
Property and equipment 564,638 578,343
Other assets 657,956 650,161
------------------------------
Total assets $ 53,441,669 $ 46,353,310
==============================
Liabilities and Shareholders' Equity
Liabilities
Deposits $ 34,067,481 $ 36,355,213
Federal Home Loan Bank advances 3,500,000 4,000,000
Other liabilities 706,162 307,303
------------------------------
Total liabilities 38,273,643 40,662,516
Shareholders' Equity
Preferred stock (no par value);
2,000,000 shares authorized, no shares issued -- --
Common stock (no par value); 5,000,000 shares
authorized;1,058,000shares outstanding 10,062,369 --
Additional paid-in capital 41,100 --
Unearned Employee Stock Ownership Plan ("ESOP") shares (765,060) --
Unearned Recognition and Retention Plan ("RRP") (641,117) --
Retained income - substantially restricted 6,467,337 5,690,794
Unrealized gain on investment
securities available for sale, net of tax 3,397 --
------------------------------
15,168,026 5,690,794
------------------------------
Total liabilities and shareholders' equity $ 53,441,669 $ 46,353,310
==============================
</TABLE>
See accompanying notes.
<PAGE>
CITIZENS BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended June 30,
--------------------------------------------
1998 1997 1996
--------------------------------------------
Interest income:
<S> <C> <C> <C>
Interest and fees on loans $ 3,723,529 $ 3,210,018 $ 2,803,774
Other interest income 328,592 299,370 382,453
--------------------------------------------
4,052,121 3,509,388 3,186,227
Interest expense:
Interest on deposits 1,652,668 1,640,868 1,538,886
Interest on borrowings 85,921 173,668 114,253
--------------------------------------------
1,738,589 1,814,536 1,653,139
--------------------------------------------
Net interest income 2,313,532 1,694,852 1,533,088
Provision for loan losses 72,000 83,000 80,000
--------------------------------------------
Net interest income after provision
for loan losses 2,241,532 1,611,852 1,453,088
Other income:
Fees and service charges 141,983 138,342 152,379
Loss on sale of investments -- (60,243) --
Gain on sale of real estate 180,174 17,307 32,941
Other 62,443 63,426 61,156
--------------------------------------------
384,600 158,832 246,476
Other expense:
Salaries and employee benefits 564,693 485,151 414,730
Occupancy expense 118,646 114,449 117,967
Data processing expense 122,584 107,764 101,675
Federal insurance premium 23,115 258,685 76,868
Other 343,037 250,468 256,137
--------------------------------------------
1,172,075 1,216,517 967,377
--------------------------------------------
Income before income taxes 1,454,057 554,167 732,187
Income taxes 580,179 183,225 253,257
--------------------------------------------
Net income $ 873,878 $ 370,942 $ 478,930
============================================
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
Unrealized
Gain/(Loss)
Retained Investment
Additional Income Securities Unearned
Common Paid-In Substantially Available for Sale, ESOP
Stock Capital Restricted Net of Tax Shares
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance as of June 30, 1995 $ --- $ --- $4,840,922 $(48,962) $ ---
Net income --- --- 478,930 --- ---
Net change in unrealized gain/
(loss) on investment securities
available for sale, net of tax --- --- --- (1,891) ---
-------------------------------------------------------------------------------
Balance as of June 30, 1996 --- --- 5,319,852 (50,853) ---
Net income --- --- 370,942 --- ---
Net change in unrealized gain/
(loss) on investment securities
available for sale, net of tax --- --- --- 50,853 ---
- --------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 1997 --- --- 5,690,794 --- ---
Net income --- --- 873,878 --- ---
Net change in unrealized gain/
(loss) on investment securities
available for sale, net of tax --- --- --- 3,397 ---
Dividends declared
($.10 per share) --- --- (97,335) --- ---
Sale of common stock 9,215,969 --- --- --- ---
Common stock acquired by ESOP 846,400 --- --- --- (846,400)
Release of ESOP shares --- 41,100 --- --- 81,340
Purchase of 42,320 shares for RRP --- --- --- --- ---
Allocation of RRP shares --- --- --- --- ---
- --------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 1998 $ 10,062,369 $41,100 $ 6,467,337 $ 3,397 $ (765,060)
====================================================================================================================
</TABLE>
Unearned
Recognition Total
and Retention Shareholders'
Plan Equity
- ---------------------------------------------------------------------
Balance as of June 30, 1995 $ --- $4,791,960
Net income --- 478,930
Net change in unrealized gain/
(loss) on investment securities
available for sale, net of tax --- (1,891)
-----------------------------
Balance as of June 30, 1996 --- 5,268,999
Net income --- 370,942
Net change in unrealized gain/
(loss) on investment securities
available for sale, net of tax --- 50,853
- ---------------------------------------------------------------------
Balance as of June 30, 1997 --- 5,690,794
Net income --- 873,878
Net change in unrealized gain/
(loss) on investment securities
available for sale, net of tax --- 3,397
Dividends declared
($0.10 per share) --- (97,335)
Sale of common stock --- 9,215,969
Common stock acquired by ESOP --- ---
Release of ESOP shares --- 122,440
Purchase of 42,320 shares for RRP (666,957) (666,957)
Allocation of RRP shares 25,840 25,840
- ----------------------------------------------------------------------
Balance as of June 30, 1998 $ (641,117) $ 15,168,026
======================================================================
See accompanying notes.
<PAGE>
CITIZENS BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended June 30,
------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
Operating activities
<S> <C> <C> <C>
Net income $ 873,878 $ 370,942 $ 478,930
Adjustments to reconcile net income to net
cash provided by operating activities:
Loss on sale of investments -- 60,243 --
Provision for loan losses 72,000 83,000 80,000
Depreciation and amortization 30,519 45,587 48,055
Deferred federal income tax credit (101,594) (76,326) (74,473)
Increase (decrease) in other assets and cash
surrender value of life insurance contract 59,219 (158,418) (140,525)
Increase (decrease) in other liabilities 344,731 (58,854) 126,311
Release of ESOP/RRP shares 148,280 -- --
------------------------------------------------
Net cash provided by operating activities 1,427,033 266,174 518,298
Investing activities
Purchase of stock in Federal Home Loan Bank (20,000) -- --
Purchases of investment securities (148,420) (65,481) (169,304)
Proceeds from sale of investment securities -- 2,931,693 --
Principal collected on loans 19,696,267 13,251,130 10,279,567
Loans originated (25,762,982) (17,473,565) (15,419,000)
Loans purchased (2,494,252) -- (64,000)
Proceeds from sale of loans -- 91,455 --
(Increase) decrease in land held for development 31,326 76,892 (3,342)
Purchases of property and equipment (29,833) (16,498) (69,117)
------------------------------------------------
Net cash used by investing activities (8,727,894) (1,204,374) (5,445,196)
Financing activities
Increase (decrease) in NOW, MMDA and
passbook deposits (257,971) 304,545 460,126
Increase (decrease) in certificates of deposit (2,029,761) 450,528 1,965,007
Advances from Federal Home Loan Bank 3,500,000 14,500,000 4,500,000
Payments to Federal Home Loan Bank (4,000,000) (13,500,000) (3,000,000)
Sale of common stock, net of costs 9,215,969 -- --
Purchase of RRP shares (666,957) -- --
Dividend paid on common stock (52,900) -- --
------------------------------------------------
Net cash provided by financing activities 5,708,380 1,755,073 3,925,133
------------------------------------------------
Increase (decrease) in cash and cash equivalents (1,592,481) 816,873 (1,001,765)
Cash and cash equivalents at beginning of year 4,125,047 3,308,174 4,309,939
------------------------------------------------
Cash and cash equivalents at end of year $ 2,532,566 $ 4,125,047 $ 3,308,174
================================================
</TABLE>
See accompanying notes.
<PAGE>
1. Significant Accounting Policies
Organization
Citizens Bancorp ("Citizens") was formed in June, 1997 and purchased all of the
stock of Citizens Savings Bank of Frankfort ("Bank") with the proceeds of a
subscription stock offering completed in September, 1997. Simultaneous to the
stock offering, the Bank converted from a federally-chartered mutual savings
bank to a federally-chartered capital stock savings bank. Prior to June, 1997,
Citizens had no assets or liabilities. All financial information prior to fiscal
year 1998 related to the Bank only.
Citizens issued 1,058,000 shares of common stock following the subscription
stock offering. Net proceeds to Citizens were $9,215,969 of which $5,031,185 was
paid to the Bank in exchange for all of the common stock of the Bank. Expenses
related to the offering totaled $517,631 and $846,400 was loaned by Citizens to
the Employee Stock Ownership Plan.
The significant accounting and reporting policies for Citizens Bancorp and its
subsidiaries (collectively, the "Company") follow:
Principles of Consolidation
The consolidated financial statements include the accounts of Citizens, its
wholly-owned subsidiary, the Bank and the Bank's wholly-owned subsidiary
Citizens Loan and Service Corporation ("Service Corp."). Citizens is a unitary
savings and loan holding company engaged in the business of managing its
investments and directing, planning, and coordinating the business activities of
the Bank. The Bank operates as a traditional savings bank in Clinton County, IN.
The Service Corp. develops land for residential housing. All significant
intercompany accounts and transactions have been eliminated in consolidation.
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, 1998 and 1997, investment securities, which consist of equity
securities, are classified as available-for-sale and carried at fair value with
the unrealized gain as a separate component of equity, net of tax. At June 30,
1998, 1997, and 1996, the cost basis of investment securities available for sale
was $309,416, $160,995 and $3,087,450, respectively and the gross unrealized
gain (loss) was $5,625, $0, and ($84,208) 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.
1. Significant Accounting Policies (continued)
Loans Receivable
The Company 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 Company 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 Company 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.
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 1998, 1997 or
1996.
Property and Equipment
Property and equipment are 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.
1. Significant Accounting Policies (continued)
Pro Forma Earnings Per Share (Unaudited)
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share" (SFAS 128). SFAS 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share.
Historical earnings per share is not presented on the consolidated statements of
income because it is not meaningful due to the stock offering occurring and the
formation of the ESOP in September, 1997. Both pro forma basic earnings per
share and pro forma diluted earnings per share would have been $ 0.94 in 1998.
Earnings per share on a pro forma basis assumes the stock offering and the
formation of the ESOP had occurred on July 1, 1997 and includes the increase in
earnings associated with the investment of the net proceeds raised in regard to
the issuance of common stock in the subscription stock offering.
Pro forma basic earnings per share is computed by dividing pro forma net income
by the weighted average number of common shares outstanding during the year
assuming the stock offering occurred on July 1, 1997. Pro forma diluted earnings
per share is computed by dividing pro forma net income, by the weighted average
number of common shares outstanding during the year assuming the stock offering
and the formation of the ESOP occurred on July 1, 1997. The weighted average
shares used in the computation of both pro forma basic earnings per share and
the pro forma diluted earnings per share were 978,648 shares in 1998. Earnings
per share information for 1997 and 1996 is not applicable as no shares were
issued or outstanding prior to the subscription stock offering in 1998.
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 1997 and 1996 consolidated financial statements have
been reclassified to conform with the 1998 presentation herein.
Recent Accounting Pronouncements
Reporting Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). This Statement establishes
standards for reporting and displaying comprehensive income and its components
in the financial statements. Comprehensive income consists of the net income or
loss of the entity, plus or minus the change in equity of the entity during the
period from transactions, other events, and circumstances resulting from
nonowner sources. SFAS 130 is effective for years beginning after December 15,
1997, and will require financial statements of earlier periods that are
presented for comparative purposes to be reclassified. The adoption of SFAS 130
is not expected to have a material effect on the Company's financial condition.
1. Significant Accounting Policies (continued)
Disclosures about Segments of an Enterprise and Related Information
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 established
information about operating segments of their business in both their annual and
interim financial reports provided to shareholders. SFAS 131 is effective for
financial statement periods beginning after December 15, 1997. In the initial
year of application, comparative information for earlier years is to be
restated, unless impracticable. In addition, the provisions of SFAS 131 need not
be applied to interim financial statements issued in the initial year of
application. The adoption of SFAS 131 is not expected to have a material effect
on the Company's financial condition.
2. Loans Receivable
Loans receivable consist of the following:
June 30
1998 1997
- --------------------------------------------------------------------------------
Real estate mortgage loans:
One-to-four family residential $35,928,334 $29,887,850
Commercial 3,656,862 2,375,245
Construction loans 611,000 1,419,800
Installment loans 7,064,802 5,475,168
Loans secured by deposits 149,973 193,111
---------------------------
47,410,971 39,351,174
Less:
Allowance for loan losses 268,837 211,635
Deferred loan fees 109,376 101,140
Undisbursed portion of loan proceeds 96,355 602,983
---------------------------
474,568 915,758
---------------------------
$46,936,403 $38,435,416
===========================
Changes in the allowance for loan losses are as follows:
Years ended June 30,
---------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------
Balance at beginning of year $ 211,635 $ 138,606 $ 46,416
Provision for losses 72,000 83,000 80,000
Charge-offs (16,443) (11,597) --
Recoveries 1,645 1,626 12,190
---------------------------------------
Balance at end of year $ 268,837 $ 211,635 $ 138,606
=======================================
<PAGE>
2. Loans Receivable (continued)
At June 30, 1998 the Company had loan commitments of approximately $309,000. Of
the $309,000 loan commitments, $205,000 are fixed rate commitments at 7.27%. The
Company also had approximately $2,650,000 of unused lines of credit at June 30,
1998.
The Company'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 Company's market area primarily includes some
diversified industries and agriculture. At June 30, 1998 and June 30, 1997, and
for the years then ended, the Company 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 Company's one-to-four family residential
mortgage loans (see Note 7).
3. Loans to Related Parties
The Company 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
$2,766,000 and $2,211,000 at June 30, 1998 and 1997, respectively. During the
year ended June 30, 1998, related party loans were increased $2,686,000 by loan
advances and reduced $2,131,000 by loan repayments. During 1997, related party
loans were increased $890,000 by loan advances and reduced $323,000 by loan
repayments.
4. Land Held for Development
The Company, through its Service Corp., has been developing 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, 1998, 1997, and 1996,
approximately $34,000, $68,000, and $240,000, respectively, were expended to
create the infrastructure for the development, to provide further improvements
to the first and second phase of the project, and to capitalize interest. During
the years ended June 30, 1998, 1997, and 1996 approximately $69,000, $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 $9,000, $17,000, and
$33,000 for each year, respectively. The Service Corp. owns an additional 45
acres of land for future development.
During the year ended June 30, 1998, a plot of land not included in the above
development was sold for proceeds equaling $177,000 resulting in a gain from the
sale of $172,000.
5. Property and Equipment
Property and equipment consists of the following:
June 30
-------------------------
1998 1997
- ---------------------------------------------------------------
Land $ 137,307 $ 137,307
Office building 647,154 647,154
Furniture, fixtures and equipment 274,796 255,327
-------------------------
1,059,257 1,039,788
Less accumulated depreciation 494,619 461,445
-------------------------
$ 564,638 $ 578,343
=========================
6. Deposits
Deposits consist of the following:
June 30
---------------------------
1998 1997
- --------------------------------------------------------------------
Savings accounts:
Fixed rate, passbook $ 6,421,631 $ 6,904,561
Variable rate, money market 3,081,666 3,354,231
---------------------------
9,503,297 10,258,792
Negotiable order of withdrawal (NOW)
accounts 4,569,764 4,072,240
Certificates 19,994,420 22,024,181
---------------------------
$34,067,481 $36,355,213
===========================
<PAGE>
6. Deposits (continued)
The following table presents interest expense on deposits for the years ended
June 30, 1998, 1997 and 1996.
Years ended June 30,
1998 1997 1996
- -------------------------------------------------------------------------
Fixed rate, passbooks $ 216,059 $ 216,388 $ 224,314
Variable rate, money markets 106,756 108,991 107,232
NOWs 106,303 86,551 79,569
Certificates 1,223,550 1,228,938 1,127,771
-----------------------------------------
Total interest on deposits $1,652,668 $1,640,868 $1,538,886
=========================================
Accrued interest payable, which relates primarily to certificate accounts,
totaled $31,000 and $69,000 at June 30, 1998 and 1997, respectively, and is
included in other liabilities. Cash paid for interest on deposits was
$1,691,000, $1,611,000, and $1,539,000 for the years ended June 30, 1998, 1997,
and 1996, respectively. Deposit accounts with balances in excess of $100,000
totaled $4,526,000 with a weighted average interest rate of 4.45% as of June 30,
1998. Deposits over $100,000 are not federally insured.
Contractual maturities of certificates of deposit at June 30, 1998 were:
Certificates over All other
Year ended June 30, $100,000 Certificates Total
- -----------------------------------------------------------------------------
1999 $ 1,585,993 $ 8,998,109 $10,584,102
2000 306,397 4,874,223 5,180,620
2001 303,228 1,389,689 1,692,917
2002 118,456 2,087,285 2,205,741
2003 - 267,981 267,981
Thereafter - 63,059 63,059
-----------------------------------------------
$2,314,074 $17,680,346 $19,994,420
===============================================
7. Advances from Federal Home Loan Bank of Indianapolis
Advances from the Federal Home Loan Bank of Indianapolis totaling $3,500,000 at
June 30, 1998 bear fixed and variable interest rates and are due at various
dates through December 1998. The Company 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.
The following table presents certain information relating to advances at or for
the years ended June 30, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Years ended June 30,
---------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
FHLB Advances:
Outstanding at end of period $3,500,000 $4,000,000 $3,000,000
Average balance outstanding for period 1,730,769 3,212,000 1,923,000
Maximum amount outstanding at any
month-end during the period 3,500,000 5,000,000 3,000,000
Weighted average interest rate
during the period 4.96% 5.41% 5.94%
Weighted average interest rate
at end of period 6.21 6.51 5.82
</TABLE>
8. Income Taxes
Income tax expense is summarized as follows:
Years ended June 30,
1998 1997 1996
- ---------------------------------------------------------------
Federal:
Current $ 550,558 $ 204,275 $ 255,830
Deferred (80,259) (62,054) (58,491)
---------------------------------------
470,299 142,221 197,339
State:
Current 131,215 55,276 71,900
Deferred (21,335) (14,272) (15,982)
---------------------------------------
109,880 41,004 55,918
---------------------------------------
Income tax expense $ 580,179 $ 183,225 $ 253,257
=======================================
<PAGE>
8. Income Taxes (continued)
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
Company's effective income tax is as follows:
Years ended June 30,
--------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Tax rate of federal statutory rate 34.0% 34.0% 34.0%
State franchise tax, net of federal benefit 5.0 4.9 5.0
Income on cash surrender value of life
insurance policy (1.0) (7.5) (5.9)
Other 1.9 1.7 1.5
-------------------------------
Effective tax rate 39.9% 33.1% 34.6%
===============================
The components of the Company's net deferred tax asset included in other assets
as of June 30 are as follows:
1998 1997 1996
- --------------------------------------------------------------------------------
Deferred tax assets:
Deferred loan origination fees $137,596 $ 124,563 $ 118,904
Unrealized loss on investment -- -- 35,698
Officer supplemental retirement plan 106,362 99,263 67,681
Allowance for loan losses 114,256 89,945 58,908
Capital loss carryover 25,604 -- --
RRP compensation expense 10,982 -- --
ESOP compensation expense 34,248 -- --
Other 24,336 21,484 15,621
------------------------------------
453,384 335,255 296,812
Deferred tax liabilities:
FHLB stock dividend (27,132) (27,132) (27,132)
Deferred loan origination costs (91,112) (81,579) (78,680)
Percentage bad debt deduction (4,345) (49,107) (58,915)
Other (24,844) (15,669) (13,116)
------------------------------------
(147,433) (173,487) (177,843)
------------------------------------
Net deferred tax asset $ 305,951 $ 161,768 $ 118,969
====================================
The Company and the Bank file separate federal income tax returns. The Bank and
its wholly owned subsidiary file a consolidated federal income tax return. The
Company paid $262,538, $431,009 and $248,646 of federal and state income taxes
in 1998, 1997 and 1996, respectively.
9. Shareholders' Equity
Citizens has authorized the issuance of 2,000,000 shares of preferred stock with
no par value. Preferred stock may be issued by the Board of Directors from time
to time on terms set by the Board of Directors without further authorization
from the shareholders.
The Board of Directors may declare dividends to be paid on the Company's common
stock. Such payments may depend on dividends paid by the Bank to the Company.
The amount the Bank can pay in dividends is limited by Office of Thrift
Supervision rules that generally allow for capital distributions in any calendar
year equal to the higher of net income for the calendar year to date plus an
amount that would reduce by one-half the surplus capital ratio at the beginning
of the calendar year or 75% of the net income over the previous four quarters.
As of June 30, 1998, the Bank's allowable capital distribution amount was
approximately $4,012,000.
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.
9. Shareholders' Equity (continued)
<TABLE>
<CAPTION>
Capital
Requirements Actual Capital Amount
% $ % $ of Excess
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
June 30, 1998:
Risk-based 8.0% $2,614,000 29.2% $9,554,000 $6,940,000
Leverage 3.0 1,574,000 17.7 9,285,000 7,711,000
Tangible 1.5 787,000 17.7 9,285,000 8,498,000
June 30, 1997:
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
</TABLE>
At June 30, 1998 and 1997, the Bank had approximately $953,000 and $993,000,
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, 1998 and 1997. 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:
<TABLE>
<CAPTION>
Capital
Requirements Actual Capital
% $ % $
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 30, 1998:
Risk-based 10.0% $3,267,000 29.2% $9,554,000
Tier 1 risk-based 6.0 1,960,000 28.4 9,285,000
Tier 1 leverage 5.0 2,624,000 17.7 9,285,000
June 30,1997:
Risk-based 10.0% $2,717,000 18.1% $4,910,000
Tier 1 risk-based 6.0 1,630,000 17.3 4,698,000
Tier 1 leverage 5.0 2,276,000 10.3 4,698,000
</TABLE>
<PAGE>
9. Shareholders' Equity (continued)
The Bank 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.
The Bank established a liquidation account at the time of conversion from a
mutual savings bank to a capital stock savings bank. The account balance was
equal to the amount of the Bank's net worth on June 30, 1997. The account will
be maintained for the benefit of eligible deposit account holders and
supplemental eligible account holders who continue to maintain deposit accounts
following the conversion. In the unlikely event of a complete liquidation, each
eligible deposit account holder and supplemental eligible account holder will be
entitled to receive a liquidation distribution of any assets remaining after
payment of all valid creditor's claims, including the claims of all depositors
to the withdrawal values of their deposit accounts, but before any liquidation
distribution may be made with respect to the Company's common stock. Eligible
deposit account holders have a subaccount in the liquidation account for each
deposit account as of December 31, 1995. Supplemental eligible account holders
have a subaccount in the liquidation account for each deposit account as of June
30, 1997. The liquidation account balance will gradually decrease as eligible
deposit account holders' and supplemental eligible account holders' subaccount
balances are required or cease to exist. Dividends cannot be paid from the
liquidation account.
10. Employee and Director Benefit Plans
Pension Plan - 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 Company as an individual entity within the multi-employer
group. Pension expense which includes plan administration costs amounted to
approximately $1,649, $20,556, and $1,300 in 1998, 1997, and 1996, respectively.
Supplemental Non-qualified Pension Plan - The Company 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 Company 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 $1,119,000 and $1,076,000 at June 30,
1998 and 1997, respectively. During the years ended June 30, 1998, 1997, and
1996, $16,700, $74,300, and $69,000, respectively, were charged to expense under
this plan.
Employee Stock Ownership Plan ("ESOP") - In conjunction with Citizens'
subscription stock offering, an ESOP was created and 84,640 shares of Citizens'
stock were purchased for future allocation to employees. The purchase was funded
with a loan from Citizens. Shares will be allocated to all eligible employees
annually on the last day of the fiscal year based on a pro rata share of total
compensation for the year. Employees with at least one year of employment with
the Company and who have attained age 21 are eligible to participate. Benefits
vest in full upon completion of ten years of qualified service. The ESOP shares
are released in proportion to the annual principal and interest payments on the
loan. The Company recognizes expense based upon the fair value of the shares as
they are released. Compensation expense for the ESOP was $122,000 for the year
ended June 30, 1998. The shares are considered outstanding for earnings per
share purposes once they are released.
10. Employee and Director Benefit Plans (continued)
The following table reflects the shares held by the ESOP:
June 30, 1998
-------------
Shares allocated to participants 8,134
Unallocated shares 76,506
Total 84,640
----------
Fair value of unallocated shares $1,099,774
==========
The Bank will make minimum contributions to the ESOP sufficient to meet annual
principal and interest obligations on the loan from Citizens. Contributions in
excess of this amount may be made at the Bank's discretion. Cash dividends
received with respect to unallocated shares, if any, will be applied to
principal and interest due on the loan.
Recognition and Retention Plan - The Recognition and Retention Plan ("RRP") was
approved with an effective date of March 24, 1998. The RRP purchased, with funds
contributed by the Company, 42,320 shares in the open market during the fourth
quarter of fiscal 1998. Directors and officers become vested in the shares of
common stock awarded to them under the RRP at a rate of 20 percent per year,
commencing one year after the grant date, and 20 percent on each anniversary
date thereof for the following four years. As of June 30, 1998, 32,798 shares
have been awarded to officers and directors. RRP compensation expense was
$26,000 for the year ended June 30, 1998. The Bank accounts for its RRP in
accordance with Accounting Principle Board Statement 25 (APB No.25).
Compensation expense is recognized over the vesting period for shares awarded
under the plan.
Stock Option Plans - At a special shareholders' meeting on March 24, 1998, the
1998 Stock Option Plan ("SOP") was approved. The Board of Directors reserved an
amount of stock equal to 105,800 shares, or 10 percent of the common stock sold
in the conversion for issuance under the SOP. The options will be granted by a
Committee, comprised of directors, to key employees and directors based on their
services. The exercise price of options granted must be at least equal to the
fair market value of the common stock on the date the option is granted. Options
granted will vest over a five year period and become exercisable over a ten year
period.
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement 123,
"Accounting for Stock-Based Compensation," ("SFAS 123") requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is required.
Pro forma information regarding net income and earnings per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Sholes
option pricing model with the following weighted average assumptions:
1998
-------
Number of options granted 81,995
Risk-free interest rate 5.38%
Expected life, in years 8
Expected volatility 19.9%
Expected dividend yield 1.31%
<PAGE>
10. Employee and Director Benefit Plans (continued)
The Black-Sholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including expected stock price volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For the purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Had
compensation cost for the Company's stock options been determined based on the
fair market value consistent with the method of SFAS 123, the Company's net
income for 1998 would have been reduced by $12,969. Both pro forma basic and
diluted earnings per share, which assumes that the stock offering and the
formation of the ESOP occurred on July 1, 1997, would have been $0.93
(unaudited) for 1998.
A summary of the Company's stock option activity, and the related information
for the year ended June 30, 1998 follow:
1998
Weighted-
average
Options Exercise Price
- --------------------------------------------------------------------
Outstanding at beginning of year -- $ --
Granted 81,995 15.25
Exercised -- --
Outstanding at end of year 81,995 15.25
Exercisable at end of year -- --
Weighted-average fair value per option
of options granted during the year $ 4.86
The exercise price for the options outstanding as of June 30, 1998 was $15.25.
The weighted-average remaining contractual life of those options is almost 10
years.
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 Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and interest bearing deposits: The carrying amounts 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.
<PAGE>
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.
11. Fair Value of Financial Instruments (continued)
The estimated fair values of the Company's financial instruments at June 30,
1998 are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
- ---------------------------------------------------------------------------------------
Assets:
<S> <C> <C>
Cash on hand and in other institutions $ 305,908 $ 305,908
Interest bearing deposits 2,226,658 2,226,658
Investment securities available for sale 315,041 315,041
Stock in Federal Home Loan Bank of Indianapolis 351,600 351,600
Loans receivable 46,936,403 49,410,000
Liabilities:
Deposits 34,067,481 34,219,000
Federal Home Loan Bank advances 3,500,000 3,500,000
</TABLE>
12. Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for 1998:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $ 940,672 $1,016,436 $1,030,593 $1,064,419
Interest Expense 466,234 412,866 422,213 437,276
Net Interest Income 474,438 603,570 608,380 627,143
Provision for loan losses 12,000 28,000 17,000 15,000
Net income 266,888 197,795 217,512 191,683
Pro forma basic earnings per share $0.32 $0.20 $0.22 $0.20
Pro forma diluted earnings per share $0.32 $0.20 $0.22 $0.20
</TABLE>
13. Parent Company Information
The condensed financial information for Citizens Bancorp, prepared on a parent
company unconsolidated basis, is presented as follows:
June 30, 1998
-------------
Condensed statement of condition
Assets:
Cash on deposit with Citizens Savings Bank $ 4,014,235
Investment securities available for sale at market
value, cost $139,375 145,000
Investment in Citizens Savings Bank 10,237,433
ESOP loan receivable 825,240
Other assets 43,248
-----------
Total assets $15,265,156
===========
Liabilities and shareholders' equity
Liabilities $ 97,128
Shareholders' Equity 15,168,028
-----------
Total liabilities and shareholders' equity $15,265,156
===========
Year ended
June 30
1998
---------
Condensed statement of income
Interest income on investments $ 53,683
Interest income on ESOP loan 55,481
---------
Total interest income 109,164
Expenses 115,814
---------
Loss before income tax expense (6,650)
Income tax expense --
---------
Loss before equity in undistributed net income
of subsidiary (6,650)
Equity in undistributed net income of Citizens
Savings Bank 880,528
---------
Net income $ 873,878
=========
<PAGE>
13. Parent Company Information (continued)
Year ended
June 30
1998
------------
Condensed statement of cash flows
Operating activities
Net income $ 873,878
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed Net income of Citizens Savings Bank (880,528)
Increase in other assets (34,784)
Increase in other liabilities 42,000
------------
Net cash provided by operating activities 566
Investing activities
Purchases of available for sale securities (139,375)
Loan to ESOP for stock purchase (846,400)
ESOP loan repayment 21,160
------------
Net cash provided by investing activities (964,615)
Financing activities:
Dividend paid on common stock (52,900)
Proceeds from sale of common stock 10,062,369
Purchase of Citizens Savings Bank common stock (5,031,185)
------------
Net cash provided by financing activities 4,978,284
------------
Increase in cash and cash equivalents 4,014,235
Cash and cash equivalents as beginning of year --
------------
Cash and cash equivalents at end of year $ 4,014,235
============
14. Subsequent Event
The Board of Directors has authorized the Company to repurchase up to 5% of its
outstanding 1,058,000 shares of common stock, or 52,900 shares, in the open
market. On August 21, 1998, notice of the proposed repurchase program was sent
to the OTS for their approval. As OTS regulations restrict stock repurchases in
the first year after conversion, on September 2, 1998, the Company applied for a
waiver of regulatory requirements so the repurchase program may commence
immediately. On September 3, 1998, the Company received approval from the OTS of
both the repurchase plan and the waiver of the one year restriction on
repurchases. The repurchases will be executed in open market or block
transactions and will be subject to market conditions. Management does not
believe the repurchases will have any adverse effect on the financial position
of the Company.
<PAGE>
Directors and Officers
BOARD OF DIRECTORS
Fred W. Carter Robert F. Ayres
Chairman of the Board Retired Educator
President and Chief Executive Officer
Citizens Savings Bank of Frankfort
Perry W. Lewis John J. Miller
Former Chairman, Lewis Ford President, Goodwin
Sales, Inc. (Retired) Funeral Homes, Inc.
Billy J. Wray
Co-Owner, Premium Auto
Center, Inc.
================================================================================
OFFICERS OF CITIZENS BANCORP
Fred W. Carter Cindy S. Chambers Stephen D. Davis
Chairman of the Board Secretary Treasurer
President and
Chief Executive Officer
================================================================================
OFFICERS OF CITIZENS SAVINGS BANK OF FRANKFORT
Fred W. Carter Cindy S. Chambers
President and Secretary, Customer
Chief Executive Officer Service Manager
Stephen D. Davis Ralph C. Peterson, II
Controller Senior Loan Officer
<PAGE>
Directors and Officers
Fred W. Carter, (age 66) has served as a director of the Holding Company
since its formation and of the Bank since 1972. Mr. Carter has also served as
President and Chief Executive Officer of the Bank and CLSC since 1972, and has
been an employee of the Bank since 1966. Mr. Carter is the father of Cindy S.
Chambers, the Bank's Secretary and Customer Service Manager.
Robert F. Ayres (age 73) has served as a director of the Holding Company
since its formation and of the Bank since 1979. Mr. Ayres 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.
Cindy S. Chambers, (age 44) has served as the Bank's Corporate Secretary
since 1988 and Customer Service Manager since 1982.
Stephen D. Davis (age 42) has served as the Bank's Controller since 1989.
Perry W. Lewis (age 77) has served as a director of the Holding Company
since its formation and of the Bank since 1975. Mr. Lewis served as the Chairman
of Lewis Ford Sales, Inc. in Frankfort from 1984 until his retirement in 1997.
John J. Miller (age 59) has served as a director of the Holding Company
since its formation and of the Bank since 1995. Mr. Miller has served as
President of Goodwin Funeral Home, Inc. in Frankfort since 1979.
Ralph C. Peterson, II (age 49) has served as the Bank's senior Loan Officer
since 1989.
Billy J. Wray (age 66) has served as a director of the Holding Company
since its formation and of the Bank since 1992. Mr. Wray is part owner of
Premium Auto Center, Inc., a used car dealership located in Lebanon, Indiana. He
also owns interests in various real estate developments around Frankfort.
<PAGE>
SHAREHOLDER INFORMATION
MARKET INFORMATION
The Bank converted from a federal mutual savings bank to a federal
stock savings bank effective September 18, 1997, and simultaneously formed a
savings and loan holding company, the Holding Company. The Holding Company's
Common Stock, is quoted on the OTC "Electronic Bulletin Board" under the symbol
"CIBC." As of June 30, 1998, there were approximately 657 record holders of the
Holding Company's Common Stock including shares held in broker accounts.
Any dividends paid by the Holding Company will be subject to
determination and declaration by the Board of Directors in its discretion. In
determining the level of any future dividends, the Board of Directors will
consider, among other factors, the following: tax considerations; industry
standards; economic conditions; capital levels; regulatory restrictions on
dividend payments by the Bank to the Holding Company; and, general business
practices.
The Holding Company is not subject to OTS regulatory restrictions on
the payment of dividends to its shareholders although the source of such
dividends will depend in part upon the receipt of dividends from the Bank. The
Holding Company is subject, however, to the requirements of Indiana law, which
generally limit the payment of dividends to amounts that will not affect the
ability of the Holding Company, after the dividend has been distributed, to pay
its debts in the ordinary course of business and will not exceed the difference
between the Holding Company's total assets and total liabilities plus
preferential amounts payable to shareholders with rights superior to those of
the holders of the Holding Company's common stock.
In addition to the foregoing, the portion of the Bank's earnings which
has been appropriated for bad debt reserves and deducted for federal income tax
purposes cannot be used by the Bank to pay cash dividends to the Holding Company
without the payment of federal income taxes by the Bank at the then current
income tax rate on the amount deemed distributed, which would include any
federal income taxes attributable to the distribution. The Holding Company does
not contemplate any distribution by the Bank that would result in a recapture of
the Bank's bad debt reserve or otherwise create federal tax liabilities.
Stock Price* Dividends
Month Ended High Low Per Share
September 30, 1997 $14 1/4 $13 7/8 $ ---
October 31, 1997 15 1/2 14 1/4 $ ---
November 30, 1997 15 14 5/16 $ ---
December 31, 1997 15 1/8 14 1/2 $ ---
January 31, 1998 15 3/8 14 7/8 $ ---
February 28, 1998 15 1/2 15 $ ---
March 31, 1998 16 15 1/4 $ .05
April 30, 1998 16 15 1/4 $ ---
May 31, 1998 16 15 $ ---
June 30, 1998 15 14 $ .05
* Based upon high and low daily closing prices for the Holding Company's
Common Stock as reported on the OTC Electronic Bulletin Board during each
indicated month.
<PAGE>
TRANSFER AGENT AND REGISTRAR
The Fifth Third Bank
Corporate Trust Operations
38 Fountain Square Plaza, MD - 1090F5
Cincinnati, Ohio 45202
(513) 579-5320 or (800) 837-2755
GENERAL COUNSEL
Barnes & Thornburg
11 South Meridian Street
Indianapolis, Indiana 46204
INDEPENDENT AUDITORS
Ernst & Young LLP
One Indiana Square, Suite 3400
Indianapolis, Indiana 46204
SHAREHOLDERS AND GENERAL INQUIRIES
On or before September 28, 1998, the Company will file an Annual Report on
Form 10-K for its fiscal year ended June 30, 1998 with the Securities and
Exchange Commission. Copies of this annual report may be obtained without charge
upon written request to:
Fred W. Carter
President and Chief Executive Officer
Citizens Bancorp
60 South Main Street
Frankfort, Indiana 46041
