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 20, 1999
Notice is hereby given that the Annual Meeting of Shareholders of Citizens
Bancorp (the "Holding Company") will be held at the Frankfort Community Public
Library, 208 West Clinton Street, Frankfort, Indiana, on Wednesday, October 20,
1999, at 2:30 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 2002.
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, 1999, 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, 1999, 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 20, 1999
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 20, 1999
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 2:30 p.m., Eastern Standard Time,
on October 20, 1999, at the Frankfort Community Public Library, 208 West Clinton
Street, 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 20,
1999.
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, 1999
("Voting Record Date"), will be entitled to vote at the Annual Meeting. On the
Voting Record Date, there were 965,754 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.
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of September 9, 1999, 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.
<TABLE>
<CAPTION>
Number of Shares
Name and Address of Common Stock Percent
of Beneficial Owner Beneficially Owned (1) of Class
- --------------------- ---------------------- --------
<S> <C> <C> <C> <C>
The Farmers Bank, as Trustee
9 East Clinton Street
Frankfort, Indiana 46041 84,640 (2) 8.8%
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 95,000 (3) 9.8%
</TABLE>
(1) The information in this chart is based on Schedule 13D/13G Reports
filed by the above-listed persons with the Securities and Exchange
Commission (the "SEC") containing information concerning shares held by
them, and information received directly from such persons. It does not
reflect any changes in those shareholdings which may have occurred
since the dates of such filings or receipt of information.
(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.
(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.
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 Robert F. Ayres
and Billy J. Wray, each of whom is a current director of the Holding Company. If
elected by the shareholders at the Annual Meeting, the terms of Messrs. Ayres
and Wray will expire in 2002.
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, 1999 of Class(1)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Director Nominees
Robert F. Ayres 2002 1997 1979 8,174 (2) .85%
Billy J. Wray 2002 1997 1992 23,174 (2) 2.4%
Directors Continuing
in Office
Fred W. Carter 2000 1997 1960-1966 40,011 (3) 4.1%
1971-Present
Perry W. Lewis 2001 1997 1975 25,174 (2) 2.6%
John J. Miller 2001 1997 1995 41,674 (4) 4.3%
All directors and
executive officers
as a group (8 persons) 198,445 (5) 20.2%
</TABLE>
(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) Includes stock options for 1,058 shares granted under the Citizens
Bancorp Stock Option Plan (the "Option Plan") and 1,693 shares held
under the Citizens Savings Bank of Frankfort Recognition and Retention
Plan and Trust (the "RRP"). Does not include stock options for 4,232
shares granted to the director under the Option Plan, which are not
exercisable within 60 days of the Voting Record Date.
Footnotes continued on following page.
<PAGE>
(3) Includes 15,116 shares owned jointly by Mr. Carter and his spouse,
8,464 shares held under the RRP, 5,290 shares subject to stock options
granted under the Option Plan and 1,141 shares allocated to Mr.
Carter's account as of June 30, 1998, under the Citizens Bancorp
Employe Stock Ownership Plan and Trust (the "ESOP"). Does not include
21,160 shares subject to a stock option granted under the Option Plan
which is not exercisable within 60 days of the Voting Record Date.
(4) Includes 10,000 shares owned by a company deemed to be controlled by
Mr. Miller, 1,500 shares held by a profit sharing plan of which Mr.
Miller is a beneficiary, 1,693 shares held under the RRP, and 1,058
shares subject to stock options granted under the Option Plan. Does not
include stock options for 4,232 shares granted to the director under
the Option Plan which are not exercisable within 60 days of the Voting
Record Date.
(5) Includes 22,853 shares held under the RRP, 14,283 shares subject to
stock options granted under the Option Plan, and 2,099 whole shares
allocated to employees' accounts as of June 30, 1998 under the ESOP.
Excludes 57,132 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 74) 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 67) 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 78) is retired. He formerly served as the Chairman of
Lewis Ford Sales, Inc. in Frankfort.
John J. Miller (age 59) has served as President of Goodwin Funeral Home,
Inc. in Frankfort since 1979.
Billy J. Wray (age 68) 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.
The Board of Directors and its Committees
During the fiscal year ended June 30, 1999, the Board of Directors of the
Holding Company met 13 times. 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 three times during the fiscal year ended June 30, 1999.
The Stock Compensation Committee administers the Option Plan and the
Holding Company's RRP. The members of that Committee are all directors except
Fred W. Carter. It met one time during fiscal 1999.
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, 1999, 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.
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 each of the last three fiscal years
(the "Named Executive Officer"). There were no other executive officers of the
Holding Company who earned over $100,000 in salary and bonuses during the fiscal
year ended June 30, 1999.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards
Other Annual Restricted Securities
Name and Fiscal Compen- Stock Underlying All Other
Principal Position Year Salary (1)($) Bonus ($) sation(3) Awards($) Options(#) Compensation
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fred Carter, President and 1999 $109,100 $53,083 (2) -- --- --- $120 (5)
Chief Executive Officer 1998 103,500 56,729 (2) -- 105,800(4) 26,450 120 (5)
1997 91,000 39,600 (2) -- --- --- 120 (5)
</TABLE>
(1) Includes fees received for service on the Bank's Board of Directors.
(2) Mr. Carter received a bonus equal to 10% of the profits of the Bank in
excess of $626,000, $676,000, and $726,000, respectively, for the fiscal
years ended June 30, 1997, 1998 and 1999, respectively.
Footnotes continued on following page.
<PAGE>
(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) The value of the restricted stock awards was determined by multiplying the
fair market value of the Common Stock on the date the shares were awarded
by the number of shares awarded. These shares vest over a five year period,
commencing March 24, 1998. As of June 30, 1999, the number and aggregate
value of restricted stock holdings of Mr. Carter were 8,464 and $107,387,
respectively. Dividends paid on the restricted shares are payable to the
grantee as the shares are vested and are not included in the table.
(5) This column includes amounts paid by the Bank for insurance premiums with
respect to a $10,000 term life insurance policy for the benefit of Mr.
Carter.
The following table includes the number of shares covered by
exercisable and unexercisable stock options held by the Named Executive Officer
as of June 30, 1999. Also reported are the values for "in-the-money" options
(options whose exercise price is lower than the market value of the shares at
fiscal year end) which represent the spread between the exercise price of any
such existing stock options and the fiscal year-end market price of the stock.
Outstanding Stock Option Grants and Value Realized as of 6/30/99
<TABLE>
<CAPTION>
Number of Value of Unexercised
Securities Underlying In-the-Money
Unexercised Options Options at
at Fiscal Year End (#) Fiscal Year End ($) (1)
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Fred W. Carter 5,290 21,160 --- ---
</TABLE>
(1) Since the average between the high asked and low bid prices for the
shares on June 30, 1999, was $12.6875 per share, and this price is below
the $15.25 per share exercise price of the options, none of Mr. Carter's
options were "in-the-money" on June 30, 1999.
No stock options were granted to or exercised by the Named Executive
Officer during fiscal 1999.
Employment Contract
The Bank has entered into a three-year employment contract with Mr. Carter.
The contract with Mr. Carter 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 his current salary under the contract, 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 $315,000. 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.
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 $300 for each
month in which they attend one or more meetings. Rawl V. Ransom and Ralph C.
Hinshaw receive $600 per monthly meeting attended as advisory directors. Total
fees paid to its directors and advisory directors for the year ended June 30,
1999 were approximately $45,700.
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 $3,094,000, or approximately 21.1% of
consolidated shareholders' equity at June 30, 1999. 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, 1999, this loan was current with a balance of approximately $1,227,000. The
second loan, dated February, 1994, was a construction line of credit in the
original amount of $620,000 to Mr. Miller, secured by condominiums, other real
estate located in Tipton, Indiana, and securities. At June 30, 1999, this loan
was also current with a balance of approximately $321,600. 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.
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
Olive LLP has served as auditors for the Holding Company and the Bank since
March, 1999. A representative of Olive LLP 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, 2000.
On March 22, 1999, the Holding Company engaged the accounting firm of Olive
LLP to examine the consolidated financial statements of the Holding Company for
the fiscal year ending June 30, 1999. The Audit Committee, which is composed of
the entire Board of Directors, recommended and approved the change in auditors
on March 9, 1999. Ernst & Young LLP, which had acted as the independent public
accountant for the Holding Company since its formation in 1997 and audited its
consolidated financial statements for the years ended June 30, 1998 and 1997,
was notified of the Holding Company's decision. When Ernst & Young LLP was
informed by the Holding Company that the Holding Company was seeking proposals
for auditing services for the year ended June 30, 1999, Ernst & Young LLP
declined to stand for reappointment.
The audit reports issued by Ernst & Young LLP with respect to the Holding
Company's consolidated financial statements for 1998 and 1997 did not contain an
adverse opinion or disclaimer of opinion, and were not qualified as to
uncertainty, audit scope or accounting principles. During 1997 and 1998 (and any
subsequent interim period), there have been no disagreements between the Holding
Company and Ernst & Young LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Ernst & Young LLP, would
have caused it to make a reference to the subject matter of the disagreement in
connection with its audit report. Moreover, none of the events listed in Item
304(a)(1)(v) of Regulation S-K promulgated by the Securities and Exchange
Commission occurred during 1997 or 1998 or any subsequent interim period.
Prior to its engagement by the Holding Company, Olive LLP had not been
consulted by the Holding Company as to the application of accounting principles
to a specific completed or contemplated transaction or the type of audit opinion
that might be rendered on the Holding Company's financial statements.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended (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.
Based solely on its review of the copies of such forms received by it,
and/or written representations from certain reporting persons that no Forms 5
were required for those persons, the Holding Company believes that during the
fiscal year ended June 30, 1999, all filing requirements applicable to its
officers, directors and greater than 10% beneficial owners with respect to
Section 16(a) of the 1934 Act were satisfied in a timely manner except that Fred
W. Carter filed a Form 4 one day late in reporting his purchase of 1,000 shares
of Common Stock on September 16, 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 20, 2000. 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 20, 2000.
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 20, 1999
<PAGE>
REVOCABLE PROXY CITIZENS BANCORP
Annual Meeting of Shareholders
October 20, 1999
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 Wednesday, October 20, 1999, at 2:30 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:
Robert F. Ayres Billy J. Wray
(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.
This Proxy may be revoked at any time prior to the voting thereof.
The Board of Directors recommends a vote "FOR" the listed proposition.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
<PAGE>
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.
__________________, 1999
------------------------------------------------------------
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.
TABLE OF CONTENTS
Message to Shareholders.................................................... 2
Selected Consolidated Financial Data....................................... 3
Management's Discussion and Analysis....................................... 4
Independent Auditor's Report............................................... 18
Consolidated Balance Sheet................................................. 19
Consolidated Statement of Income........................................... 20
Consolidated Statement of Shareholders' Equity............................. 21
Consolidated Statement of Cash Flows....................................... 22
Notes to Consolidated Financial Statements................................. 23
Directors and Officers..................................................... 39
Shareholder Information.................................................... 41
DESCRIPTION OF BUSINESS
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:
On behalf of the Board of Directors, it is my pleasure to present the 1999
Fiscal Year Report of Citizens Bancorp and its subsidiary, Citizens Savings Bank
of Frankfort, Indiana. This report presents the results of our first full fiscal
year as a public company.
Our net income for the fiscal year ended June 30, 1999 of $832,000 was a
decrease of $42,000 from the $874,000 earned during the same period in 1998.
This decrease is due primarily to the one time pre-tax gain of $172,000 during
1998 on the sale of a parcel of real estate.
During fiscal year 1999, we initiated two separate 5.0% stock repurchase
programs under which Citizens Bancorp repurchased an aggregate amount of 92,246
shares of its common stock at a cost of $1.1 million, or an average of $11.97
per share. These share repurchases are intended to further our continuing
long-term goal of enhancing shareholder value. As the result of the share
repurchase programs and our earnings during the period, our earnings per share
for the 1999 fiscal year increased to $0.87 from $0.80 reported for fiscal year
1998. Our total shareholders' equity at year-end was $14.6 million, which is a
$400,000 decrease from $15.0 million at June 30, 1998.
During the period, our assets increased $6.1 million, or 11.3%, to $59.5
million. Our deposits increased $2.9 million, or 8.5%, to $37.0 million, and
total loans increased $6.2 million, or 13.1%, to $53.1 million. Our Return on
Assets was 1.43% and our Return on Equity was 5.53%.
The Year 2000 computer date change problem, now known as "Y2K," has been a major
topic of the media and you will continue to hear about it during the remainder
of 1999. We believe that we have taken the necessary precautions to address any
foreseeable complications that may arise in connection with the date change from
the year 1999 to the year 2000. Citizens Savings Bank's Y2K Committee has been
working on this project for over 18 months. Earlier this year we replaced
virtually all of our computer equipment with new Y2K compliant equipment. The
equipment that we did not replace was upgraded and has been tested for Y2K
compliance. We have made hundreds of test transactions with our data processing
firm, BISYS, Inc., to confirm that their systems will successfully handle the
transition to the year 2000. We also intend to send additional communications to
our customers to give them additional information on Y2K issues at various times
during the remainder of 1999. As a result of these steps that we have taken, we
believe that our systems are Year 2000 compliant.
In 1999, we again received the Bauer Financial Reports "Five Star Superior"
rating for the 44th consecutive quarter, and the Sheshunoff "Highest Rated Bank"
designation. The success of Citizens Bancorp is the direct result of our
dedicated Board of Directors, Officers and Staff working together to serve our
customers' needs in a courteous and professional manner. I sincerely thank them
for their continuing loyalty and dedication.
To our Shareholders, we thank you for your continued confidence and we encourage
you to mention Citizens Savings Bank 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,
---------------------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------------------------
(Dollars in thousands)
Summary of Selected Consolidated
Financial Condition Data:
<S> <C> <C> <C> <C> <C>
Total assets....................................... $59,470 $53,442 $46,353 $44,235 $39,727
Loans receivable, net (1).......................... 53,104 46,936 38,435 34,391 29,275
Cash on hand and in other institutions (2)......... 2,082 2,533 4,125 3,308 4,310
Investment securities available for sale........... 388 315 161 3,003 2,832
Cash surrender value of life insurance contract.... 1,162 1,119 1,076 1,035 991
FHLB advances...................................... 7,000 3,500 4,000 3,000 1,500
Deposits........................................... 36,976 34,067 36,355 35,600 33,175
Total shareholders' equity......................... 14,640 15,046 5,691 5,320 4,841
Year Ended June 30,
---------------------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------------------------
(Dollars in thousands)
Summary of Selected Consolidated Operating Data:
Total interest income.............................. $ 4,439 $ 4,052 $3,509 $3,186 $2,742
Total interest expense............................. 1,919 1,738 1,814 1,653 1,370
--------- -------- ------ ------ ------
Net interest income............................. 2,520 2,314 1,695 1,533 1,372
Provision for loan losses.......................... 65 72 83 80 32
--------- -------- ------ ------ ------
Net interest income after
provision for loan losses..................... 2,455 2,242 1,612 1,453 1,340
Other income:
Fees and service charges........................ 136 142 138 152 151
Loss on sale of investments..................... --- --- (60) --- ---
Gain on sale of real estate..................... 16 180 17 33 2
Other........................................... 58 62 64 61 68
--------- -------- ------ ------ ------
Total other income............................ 210 384 159 246 221
Other expense:
Salaries and employee benefits.................. 669 558 479 412 402
Net occupancy expenses.......................... 71 67 65 65 68
Equipment expenses.............................. 94 82 81 81 63
Data processing fees............................ 141 122 108 101 105
Deposit insurance expense....................... 23 23 259 77 75
Legal and professional fees..................... 74 96 32 32 28
Other expenses.................................. 240 224 193 199 183
--------- -------- ------ ------ ------
Total other expense........................... 1,312 1,172 1,217 967 924
--------- -------- ------ ------ ------
Income before income taxes......................... 1,353 1,454 554 732 637
Income taxes.................................. 521 580 183 253 231
--------- -------- ------ ------ ------
Net income.........................................$ 832 $ 874 $ 371 $ 479 $ 406
========= ======== ====== ====== ======
</TABLE>
Table continued on following page
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------------------
Supplemental Data:
<S> <C> <C> <C> <C> <C>
Interest rate spread during period................. 3.58% 3.77% 3.75% 3.75% 3.69%
Net yield on interest-earning assets (3)........... 4.60 4.78 4.02 3.99 3.92
Return on assets (4)............................... 1.43 1.69 .82 1.15 1.07
Return on equity (5)............................... 5.53 6.67 6.81 9.52 8.89
Net income per share of Common Stock .............. $ .87 --- --- --- ---
Equity to assets (6)............................... 24.62% 28.15% 12.28% 11.91% 12.06%
Average interest-earning assets to average
interest-bearing liabilities.................... 129.16 127.93 106.31 105.61 105.84
Non-performing assets to total assets (6).......... .33 .32 .74 .50 .35
Allowance for loan losses to total loans
outstanding (6)................................. .61 .57 .55 .40 .16
Allowance for loan losses to
non-performing loans (6)........................ 165.36 158.53 61.57 62.51 33.19
Net (charge-offs) recoveries to average
total loans outstanding ........................ (.02) (.03) (.03) .04 (.12)
Other expenses to average assets (7).............. 2.25 2.27 2.67 2.32 2.44
Number of full service offices (6)................. 1 1 1 1 1
</TABLE>
(1) Net of allowance for loan losses and deferred fees.
(2) Includes certificates of deposit in other financial institutions.
(3) Net interest income divided by average interest-earning assets.
(4) Net income divided by average total assets.
(5) Net income divided by average total equity.
(6) At end of period.
(7) Other expenses divided by average total assets.
<PAGE>
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, 1999 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
<PAGE>
Average Balances and Interest Rates and Yields
The following tables present at the fiscal years ended June 30, 1999,
1998 and 1997, 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,
-------------------------------------------------------------------------------------
1999 1998 1997
--------------------------- --------------------------- ---------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance InterestYield/Cost Balance Interest Yield/Cost
-------------------------------------------------------------------------------------
(Dollars in thousands)
Assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits.......$ 3,286 $168 5.12% $ 4,557 $292 6.40% $ 3,446 $ 179 5.21%
FHLB stock...................... 367 29 8.03 336 27 8.07 332 26 7.84
Investment securities
available for sale (1)........ 340 13 3.94 232 10 4.23 1,527 94 6.14
Loans receivable (2)............ 50,746 4,229 8.33 43,318 3,723 8.60 36,843 3,210 8.71
------- ----- ------- ----- -------- -----
Total interest-
earning assets........... 54,739 4,439 8.11 48,443 4,052 8.36 42,148 3,509 8.33
----- ----- -----
Noninterest-earning assets......... 3,583 3,165 3,343
------- ------- --------
Total assets................$58,322 $51,608 $ 45,491
======= ======= ========
Liabilities and shareholders' equity:
Interest-bearing liabilities:
Deposits........................$36,573 1,589 4.35 $36,137 1,653 4.57 $ 36,436 1,641 4.50
FHLB advances................... 5,808 330 5.68 1,731 86 4.96 3,212 173 5.41
Total interest-
bearing liabilities...... 42,381 1,919 4.53 37,868 1,739 4.59 39,648 1,814 4.58
Noninterest-bearing liabilities.... 893 640 395
------- ------- --------
Total liabilities........... 43,274 38,508 40,043
Shareholders' equity............... 15,048 13,100 5,448
------- ------- --------
Total liabilities and
shareholders' equity......$58,322 $51,608 $ 45,491
======= ======= =========
Net interest-earning assets........$12,358 $10,575 $ 2,500
======= ======= =========
Net interest income................ $2,520 $2,313 $1,695
====== ====== ======
Interest rate spread (3)........... 3.58% 3.77% 3.75%
==== ==== ====
Net yield on weighted average
interest-earning assets (4)..... 4.60% 4.78% 4.02%
==== ==== ====
Average interest-earning assets
to average interest-
bearing liabilities............. 129.16% 127.93% 106.31%
====== ====== ======
</TABLE>
(1) Includes securities available for sale at amortized cost prior to SFAS No.
115 adjustments.
(2) Total loans less loans in process. Average balances include non-accrual
loans.
(3) Interest rate spread is calculated by subtracting weighted average interest
rate cost from weighted average interest rate yield for the period
indicated.
(4) The net yield on weighted average interest-earning assets is calculated by
dividing net interest income by weighted average interest-earning assets
for the period indicated.
Interest Rate Spread
Citizens' results of operations have been determined primarily by net
interest income and, to a lesser extent, fee income, miscellaneous income and
general and administrative expenses. Citizens' net interest income is determined
by the interest rate spread between the yields it earns on interest-earning
assets and the rates paid on interest-bearing liabilities, and by the relative
amounts of interest-earning assets and interest-bearing liabilities.
The following table sets forth the weighted average effective interest
rate that Citizens earned on its loan and investment portfolios, the weighted
average effective cost of its deposits and advances, the interest rate spread,
and net yield on weighted average interest-earning assets for the periods and as
of the dates shown. Average balances are based on average monthly balances.
Management believes that the use of month-end average balances instead of daily
average balances has not caused any material difference in the information
presented.
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------
1999 1998 1997
---- ---- ----
Weighted average interest rate earned on:
<S> <C> <C> <C>
Interest-bearing deposits......................... 5.12% 6.40% 5.21%
FHLB stock........................................ 8.03 8.07 7.84
Investment securities............................. 3.94 4.23 6.14
Loans receivable.................................. 8.33 8.60 8.71
Total interest-earning assets................... 8.11 8.36 8.33
Weighted average interest rate cost of:
Deposits.......................................... 4.35 4.57 4.50
FHLB advances..................................... 5.68 4.96 5.41
Total interest-bearing liabilities.............. 4.53 4.59 4.58
Interest rate spread (1)............................. 3.58% 3.77% 3.75%
==== ==== ====
Net yield on weighted average
interest-earning assets (2)....................... 4.60% 4.78% 4.02%
==== ==== ====
</TABLE>
(1) Interest rate spread is calculated by subtracting combined weighted
average interest rate cost from combined weighted average interest rate
earned for the period indicated. Interest rate spread figures must be
considered in light of the relationship between the amounts of
interest-earning assets and interest-bearing liabilities.
(2) The net yield on weighted average interest-earning assets is calculated
by dividing net interest income by weighted average interest-earning
assets for the period indicated.
The following table describes the extent to which changes in interest
rates and changes in volume of interest-related assets and liabilities have
affected Citizens' interest income and expense during the periods indicated. For
each category of interest-earning asset and interest-bearing liability,
information is provided on changes attributable to (1) changes in rate (changes
in rate multiplied by old volume) and (2) changes in volume (changes in volume
multiplied by old rate). Changes attributable to both rate and volume which
cannot be segregated have been allocated proportionally to the change due to
volume and the change due to rate.
<TABLE>
<CAPTION>
Increase (Decrease) in Net Interest Income
---------------------------------------------
Total
Due to Due to Net
Rate Volume Change
---- ------ ------
(In thousands)
Year ended June 30, 1999 compared
to year ended June 30, 1998
Interest-earning assets:
<S> <C> <C> <C>
Interest-bearing deposits.................................. $ (52) $ (72) $(124)
FHLB stock................................................. (1) 3 2
Investment securities...................................... (1) 4 3
Loans receivable........................................... (119) 625 506
------- ---- ----
Total.................................................... (173) 560 387
------- ---- ----
Interest-bearing liabilities:
Deposits................................................... (83) 19 (64)
FHLB advances.............................................. 14 230 244
------- ---- ----
Total.................................................... (69) 249 180
------- ---- ----
Net change in net interest income............................ $(104) $ 311 $ 207
======= ==== ====
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
======= ==== ====
</TABLE>
<PAGE>
Financial Condition at June 30, 1999 Compared to Financial Condition at June 30,
1998
Total consolidated assets of the Company increased $6.1 million, or 11.3%, to
$59.5 million at June 30, 1999, from $53.4 million at June 30, 1998. Cash
increased $138,000 to $444,000 at June 30, 1999, from $306,000 at June 30, 1998,
while interest-bearing deposits, consisting primarily of overnight deposits at
the Federal Home Loan Bank ("FHLB") of Indianapolis and certificates of deposit
at other FDIC insured financial institutions, decreased to $1.6 million at June
30, 1999, from $2.2 million at June 30, 1998. Net loans receivable increased
$6.2 million, or 13.1%, to $53.1 million at June 30, 1999. The increase in loans
was funded by an increase in deposits and borrowings during the year.
Deposits increased $2.9 million primarily as a result of an increase in the
amount of public funds on deposit. Borrowings at the FHLB of Indianapolis
increased $3.5 million to $7.0 million as of June 30, 1999, from $3.5 million at
June 30, 1998.
Shareholders' equity decreased $406,000 during the year ended June 30, 1999.
This was primarily a result of the profit of $832,000 for the year, which
increased shareholders' equity, less the cost of the Company's repurchase of
$1.1 million of its common stock at various times and market prices during the
year. Shareholders' equity also decreased $215,000 as a result of the
declaration of dividends on the Holding Company's common stock during the year.
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 $9.4 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.
Comparison of Operating Results For Fiscal Years Ended June 30, 1999 and 1998
Net Income. Net income decreased $42,000, or 4.8%, to $832,000 in 1999 from
$874,000 in 1998. The decrease primarily resulted from the sale of a tract of
real estate for a profit of $172,000 ($103,000 net of tax) included in 1998.
There was an increase of $207,000 in net interest income in 1999, offset by an
increase in other expenses of $140,000 during the year.
Net Interest Income. Net interest income increased $207,000, or 8.9%, to $2.5
million in 1999 from $2.3 million in 1998. The increase resulted primarily from
an increase in earnings assets during 1999.
Provision for Loan Losses. The provision for loan losses was $65,000 for 1999,
compared to $72,000 for 1998. Citizens had charge-offs of $12,000 and recoveries
of $5,000 in 1999, compared to charge-offs of $17,000 and recoveries of $2,000
in 1998. At June 30, 1999, the allowance for loan losses was $326,000, or 0.61%
of total loans, compared to $269,000, or 0.57% of total loans at June 30, 1998.
Other income. Total non-interest income decreased $174,000, or 45.5%, to
$210,000 in 1999 from $385,000 in 1998. The decrease resulted primarily from a
decrease in the gain on the sale of real estate of $164,000 in 1999. Fees and
service charges decreased by $6,000 in 1999 and miscellaneous income decreased
by $4,000.
Other Expenses. Total non-interest expense increased $140,000, or 12.0%, to $1.3
million in 1999 from $1.2 million in 1998. The increase was primarily due to an
increase in salaries and benefits of $111,000 in 1999 due to compensation
expense related to the ESOP and the RRP. Office occupancy, equipment and data
processing expenses increased $35,000 in 1999, due primarily to increased
expenses related to the Year 2000 computer issue. Legal and professional fees
decreased $22,000 in 1999 due to fees incurred in 1998 related to the special
meeting of shareholders held in March of 1998. Miscellaneous other expenses
increased $16,000 in 1999.
Income Tax Expense. Income tax expense decreased $59,000, or 10.3%, to $521,000
in 1999 from $580,000 in 1998. This primarily resulted from a decrease in net
income before income taxes in 1999 as a result of the gain on the sale of real
estate that increased non-interest income in 1998.
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 a
$79,000 increase in salaries and benefits due to compensation expense related to
the ESOP and the RRP. Office occupancy, equipment and data processing expenses
increased by $17,000 during 1998 and other expenses increased by $31,000. Legal
and professional expenses increased by $64,000 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.
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, 1999, 1998 and 1997, it originated total loans in the
amounts of $29.7 million, $25.8 million and $17.5 million, respectively.
Citizens purchased loans totaling $61,000 in the fiscal year ended June 30,
1999. Loan principal repayments totaled $23.6 million, $19.7 million and $13.3
million during the respective periods.
During the years ended June 30, 1999, 1998 and 1997, Citizens purchased
securities in the amounts of $109,000, $148,000 and $65,000, respectively.
Citizens did not receive any proceeds for the sale of securities during 1999 or
1998. 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 $607,000 and unused lines of
credit of approximately $2.98 million at June 30, 1999. 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, 1999 totaled $11.5 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
$7.0 million at June 30, 1999.
<PAGE>
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, 1999.
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------------------------
1999 1998 1997
-------- ------ ----
(In thousands)
<S> <C> <C> <C>
Operating activities............................. $ 866 $ 1,522 $ 266
-------- ------ ----
Investing activities:
Net change in interest-bearing deposits....... 297 693 (695)
Purchases of investment securities........... (109) (148) (65)
Sales of investment securities................ --- --- 2,932
Net change in loans........................... (6,232) (8,655) (4,223)
Loans sold.................................... --- --- 91
Purchases of equipment........................ (55) (30) (16)
Change in land held for development........... 52 31 77
Purchases of FHLB stock....................... (67) (20) ---
-------- ------ ----
Total from investing activities.................. (6,114) (8,129) (1,899)
-------- ------ ----
Financing activities:
Increase/(decrease) in NOW,
MMDA and passbook deposits.................. 3 (258) 305
Increase/(decrease) in certificates
of deposit.................................. 2,905 (2,030) 450
Advances from FHLB............................ 7,000 3,500 14,500
Payments to FHLB.............................. (3,500) (4,000) (13,500)
Dividends paid on common stock................ (210) (53) ---
Repurchase of common stock.................... (1,104) --- ---
Sale of common stock, net of costs............ --- 9,216 ---
Purchase of RRP shares........................ --- (667) ---
-------- ------ ----
Total from financing activities.................. 5,094 5,708 1,755
-------- ------ ----
Net increase/(decrease) in cash
and cash equivalents.......................... $ (154) $ (899) $122
======== ====== ====
</TABLE>
<PAGE>
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 regulation that implements this statutory liquidity requirement provides
that a savings association must hold liquid assets in an amount not less than 4%
of the association's net withdrawable accounts and short-term borrowings. The
OTS no longer requires savings associations to maintain short-term liquid assets
constituting at least 1% of their average daily balance of net withdrawable
deposit accounts and current borrowings. In determining their compliance with
this liquidity requirement,savings associations may calculate their liquidity
requirement based upon their average daily balance of liquid assets during each
quarter rather than during each month. The OTS may impose monetary penalties on
savings associations that fail to meet these liquidity requirements. As of June
30, 1999, Citizens had liquid assets of $3.0 million, and a regulatory liquidity
ratio of 7.5%.
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, 1999, Citizens' tangible capital ratio was 17.8%, its core capital
ratio was 17.8%, and its total risk-based capital to risk-weighted assets ratio
was 29.0%. Therefore, at June 30, 1999, 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, 1999:
<TABLE>
<CAPTION>
At June 30, 1999
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% $ 876 17.8% $10,388 $9,512
Core capital (2)........................ 3.0 1,751 17.8 10,388 8,637
Risk-based capital...................... 8.0 2,957 29.0 10,714 7,757
</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 recently adopted a core capital requirement for savings
associations comparable to that adopted by the OCC for national banks. The
new regulation requires core capital of 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. Citizens is in compliance with these new requirements.
As of June 30, 1999, 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
Accounting for Derivative Instruments and Hedging Activities. Statement of
Financial Accounting Standards ("SFAS") No. 133 requires companies to record
derivatives on the balance sheet at their fair value. SFAS No. 133 also
acknowledges that the method of recording a gain or loss depends on the use of
the derivative. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction.
o For a derivative designated as hedging the exposure to changes in the
fair value of a recognized asset or liability or a firm commitment
(referred to as a fair value hedge), the gain or loss is recognized in
earnings in the period of change together with the offsetting loss or
gain on the hedged item attributable to the risk being hedged. The
effect of that accounting is to reflect in earnings the extent to
which the hedge is not effective in achieving offsetting changes in
fair value.
o For a derivative designated as hedging the exposure to variable cash
flows of a forecasted transaction (referred to as a cash flow hedge),
the effective portion of the derivative's gain or loss is initially
reported as a component of other comprehensive income (outside
earnings) and subsequently reclassified into earnings when the
forecasted transaction affects earnings. The ineffective portion of
the gain or loss is reported in earnings immediately.
o For a derivative designated as hedging the foreign currency exposure
of a net investment in a foreign operation, the gain or loss is
reported in other comprehensive income (outside earnings) as part of
the cumulative translation adjustment. The accounting for a fair value
hedge described above applies to a derivative designated as a hedge of
the foreign currency exposure of an unrecognized firm commitment or an
available-for-sale security. Similarly, the accounting for a cash flow
hedge described above applies to a derivative designated as a hedge of
the foreign currency exposure of a foreign-currency-denominated
forecasted transaction.
o For a derivative not designated as a hedging instrument, the gain or
loss is recognized in earnings in the period of change.
The new Statement applies to all entities. If hedge accounting is elected
by the entity, the method of assessing the effectiveness of the hedging
derivative and the measurement approach of determining the hedge's
ineffectiveness must be established at the inception of the hedge.
SFAS No. 133 amends SFAS No. 52 and supercedes SFAS Nos. 80, 105, and 119.
SFAS No. 107 is amended to include the disclosure provisions about the
concentrations of credit risk from SFAS No. 105. Several Emerging Issues Task
Force consensuses are also changed or nullified by the provisions of SFAS No.
133.
SFAS No. 133 was to be effective for all fiscal years beginning after June
15, 1999. The implementation date was deferred, and SFAS No. 133 will now be
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000.
Accounting for Mortgage-Backed Securities Retained after the Securitization
of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise. SFAS No. 134
establishes accounting standards for certain activities of mortgage banking
enterprises and for other enterprises with similar mortgage operations. This
Statement amends SFAS No. 65.
SFAS No. 65, as previously amended by SFAS Nos. 115 and 125, required a
mortgage banking enterprise to classify a mortgage-backed security as a trading
security following the securitization of the mortgage loan held for sale. This
Statement further amends SFAS No. 65 to require that after the securitization of
mortgage loans held for sale, an entity engaged in mortgage banking activities
must classify the resulting mortgage-backed security or other retained interests
based on the entity's ability and intent to sell or hold those investments.
The determination of the appropriate classification for securities retained
after the securitization of mortgage loans by a mortgage banking enterprise now
conforms to SFAS No. 115. The only requirement the new SFAS No. 134 adds is that
if an entity has a sales commitment in place, the security must be classified
into trading.
This Statement is effective for the first fiscal quarter beginning after
December 15, 1998. On the date this Statement is initially applied, an entity
may reclassify mortgage-backed securities and other beneficial interest retained
after the securitization of mortgage loans held for sale from the trading
category, except for those with sales commitments in place. Those securities and
other interest shall be classified based on the entity's present ability and
intent to hold the investments.
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
The Company's lending and deposit activities, like those of most financial
institutions, depend significantly upon computer systems. The Company is
addressing the potential problems associated with the possibility that the
computers which control its operating systems, facilities and infrastructure may
not be programmed to read four-digit date codes. This could cause some computer
applications to be unable to recognize the change from the year 1999 to the year
2000, which could cause computer systems to generate erroneous data or to fail.
The Company is working with the companies that supply or service its
systems that rely on computers to identify and remedy any Year 2000 related
problems. As of June 30, 1999, the Company has completed the renovation of all
systems that could be significantly affected by Year 2000 related problems and
has begun testing its renovated systems. The Company expects to substantially
complete testing of all systems by September 30, 1999. The bulk of the Company's
computer processing is provided under contract by BISYS, Inc. in Houston, Texas
("BISYS"). BISYS has completed the renovation phase of its Year 2000 efforts and
has tested its upgraded systems and interfaces with the Company. BISYS will
assist the Company with other phases of Year 2000 compliance throughout the
remainder of 1999. Banker's Systems, which provides Citizens' loan document
preparation system, has certified that its systems are Year 2000 compliant as of
June 30, 1999. Testing of the system is expected to be complete by September 30,
1999.
The Company has contacted the approximately twenty other companies that
supply or service its material operations requesting that they certify that they
have plans to make their respective computer systems Year 2000 compliant. As of
June 30, 1999, the Company has received such certification from nearly all of
these companies. Once the Company receives certification from a service
provider, it continuously monitors the progress that it makes in meeting its
targeted schedule for becoming Year 2000 compliant. Should the Company find that
a provider is not making satisfactory progress in its Year 2000 compliance
efforts, the Company intends to identify and contract with an alternative
service provider. The Company does not expect the expense of such changes in
suppliers or servicers to be material to its operations, financial condition or
results. Notwithstanding the efforts the Company has made, no assurances can be
given that the systems of its service providers will be timely renovated to
address the Year 2000 issue.
The Company's Board of Directors reviews on a monthly basis the progress
made in addressing Year 2000 issues. Management estimates that the Company's
expenses related to upgrading its systems and software for Year 2000 compliance
will not exceed $80,000. At June 30, 1999, the Company had spent approximately
$55,000 in connection with Year 2000 compliance. Although management believes it
is taking the necessary steps to address the Year 2000 compliance issue, no
assurances can be given that some problems will not occur or that the Company
will not incur significant additional expenses in future periods. In the event
that the Company is ultimately required to purchase replacement computer
systems, programs and equipment, or to incur substantial expenses to make its
current systems, programs and equipment Year 2000 compliant, its net income and
financial condition could be adversely affected.
In addition to possible expenses related to the Company's own systems and
those of its service providers, the Company could incur losses if Year 2000
problems affect any of its depositers or borrowers. Such problems could include
delayed loan payments due to Year 2000 problems affecting any of the Company's
significant borrowers or impairing the payroll systems of large employers in its
market area. Because the Company's loan portfolio to individual borrowers is
diversified and its market area does not depend significantly on one employer or
industry, management does not expect any such Year 2000 related difficulties
that may affect the Company's depositors and borrowers to significantly affect
net earnings or cash flows.
Because the Company has only two commercial borrowers and neither loan is
of a material amount, the Company has not requested certification from those
borrowers that their computer systems are Year 2000 compliant. The Company will
require borrowers under new commercial loans in excess of $50,000 that it
originates to certify that they are aware of the Year 2000 issue and will give
all necessary attention to insure that their information technology will be Year
2000 compliant.
The Company has developed contingency plans to be implemented in the event
of the failure of all or part of its Year 2000 program or of the Year 2000
programs of any of its service providers. These contingency plans involve, among
other actions, manual workarounds, adjusting staffing strategies and temporarily
discontinuing services or products which are not considered by management to be
critical to the Company's operations. The contingency plans include business
resumption procedures, event planning and a strategy for managing cash reserves.
Additionally, management has assessed employee training needs and determined a
method for testing the viability of business resumption procedures. This testing
is expected to be completed by September 30, 1999. The Company has also
broadened its customer awareness campaign to keep customers informed of the
progress of its Year 2000 efforts.
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 65% of its loan portfolio at June 30, 1999. 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, 1999, NPV would decrease 9.0% in the
event of a 200 basis point increase in market interest rates, compared to 9.8%
for the same increase at June 30, 1998. Citizens' NPV at June 30, 1999 would
increase 0.5% in the event of a 200 basis point decrease in market rates. A year
earlier, a 200 basis point decrease in market rates would have increased NPV
3.1%.
Presented below, as of June 30, 1999 and 1998, 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 up and down 200
basis points.
<TABLE>
<CAPTION>
June 30, 1999
Net Portfolio Value Summary Performance
NPV as % of
Present Value
Change Net Portfolio Value of Assets
In Rates $ Amount $ Change % Change NPV Ratio Change
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
+ 200 bp* $11,973 $(1,183) (8.99)% 20.53% (115) bp
0 bp 13,156 --- --- 21.68% --- bp
- 200 bp 13,215 59 0.45% 21.28% (40) bp
</TABLE>
Interest Rate Risk Measures: 200 Basis Point Rate Shock
Pre-Shock NPV Ratio: NPV as % of PV of Assets................ 21.68%
Exposure Measure: Post-Shock NPV Ratio....................... 20.53%
Sensitivity Measure: Change in NPV Ratio..................... 115 bp
Change in NPV as % of PV of Assets........................... 5.3%
<TABLE>
<CAPTION>
June 30, 1998
Net Portfolio Value Summary Performance
NPV as % of
Present Value
Change Net Portfolio Value of Assets
In Rates $ Amount $ Change % Change NPV Ratio Change
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
+ 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
</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%
* Basis points
<PAGE>
Independent Auditor's Report
To the Shareholders and
Board of Directors
Citizens Bancorp
We have audited the consolidated balance sheet of Citizens Bancorp and
subsidiaries as of June 30, 1999, and the related consolidated statements of
income, shareholders' equity, and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. The financial statements as of June 30,
1998, and for the years ended June 30, 1998 and 1997, were audited by other
auditors whose report dated August 19, 1998, expressed an unqualified opinion on
those statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of
Citizens Bancorp and subsidiaries as of June 30, 1999, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
Olive LLP
/s/ Olive LLP
Indianapolis, Indiana
July 23, 1999
<PAGE>
CITIZENS BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30 1999 1998
- -----------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Cash and due from banks $ 443,757 $ 305,908
Interest-bearing demand deposits 152,289 443,673
------------ ------------
Cash and cash equivalents 596,046 749,581
Interest-bearing time deposits 1,485,972 1,782,985
Investment securities--available for sale 388,362 315,041
Loans, net of allowance for loan losses of $326,249 and $268,837 53,103,518 46,936,403
Land held for development 912,542 964,582
Cash surrender value of life insurance contracts 1,161,519 1,118,883
Premises and equipment 567,486 564,638
Federal Home Loan Bank stock 419,100 351,600
Other assets 835,264 657,956
------------ ------------
Total assets $ 59,469,809 $ 53,441,669
============ ============
Liabilities
Interest bearing deposits $ 36,976,322 $ 34,067,481
Federal Home Loan Bank advances 7,000,000 3,500,000
Other liabilities 604,632 706,162
------------ ------------
Total liabilities 44,580,954 38,273,643
------------ ------------
Equity Received From Contributions to the ESOP 248,891 122,440
------------ ------------
Shareholders' Equity
Preferred stock, no par value
Authorized and unissued--2,000,000 shares
Common stock, no par value
Authorized--5,000,000 shares
Issued and outstanding--881,114 and 973,360 shares 8,293,509 9,215,969
Unearned Recognition and Retention Plan ("RRP") (537,762) (641,117)
Retained earnings 6,902,537 6,467,337
Accumulated other comprehensive income (18,320) 3,397
------------ ------------
Total shareholders' equity 14,639,964 15,045,586
------------ ------------
Total liabilities and shareholders' equity $ 59,469,809 $ 53,441,669
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CITIZENS BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended June 30 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
Interest Income
<S> <C> <C> <C>
Loans receivable $ 4,228,607 $ 3,723,529 $ 3,210,018
Investment securities 42,868 36,918 119,730
Deposits with financial institutions 168,158 291,674 179,640
----------- ----------- -----------
Total interest income 4,439,633 4,052,121 3,509,388
----------- ----------- -----------
Interest Expense
Deposits 1,589,279 1,652,668 1,640,868
Borrowings 329,982 85,921 173,668
----------- ----------- -----------
Total interest expense 1,919,261 1,738,589 1,814,536
----------- ----------- -----------
Net Interest Income 2,520,372 2,313,532 1,694,852
Provision for loan losses 65,000 72,000 83,000
----------- ----------- -----------
Net Interest Income After Provision for Loan Losses 2,455,372 2,241,532 1,611,852
----------- ----------- -----------
Other Income
Service charges on deposit accounts and other 135,542 141,983 138,342
Net realized losses on sales of available-for-sale securities (60,243)
Gain on sales of land held for development 15,747 180,174 17,307
Other income 58,498 62,443 63,426
----------- ----------- -----------
Total other income 209,787 384,600 158,832
----------- ----------- -----------
Other Expenses
Salaries and employee benefits 668,818 557,509 478,566
Net occupancy expenses 70,780 66,509 65,112
Equipment expenses 93,951 82,305 81,512
Data processing fees 140,865 122,584 107,764
Deposit insurance expense 23,685 23,115 258,685
Legal and professional fees 73,751 95,839 32,197
Other expenses 240,347 224,214 192,681
----------- ----------- -----------
Total other expenses 1,312,197 1,172,075 1,216,517
----------- ----------- -----------
Income Before Income Tax 1,352,962 1,454,057 554,167
Income tax expense 520,704 580,179 183,225
----------- ----------- -----------
Net Income $ 832,258 $ 873,878 $ 370,942
=========== =========== ===========
Basic Earnings per Share $ .87
===========
Diluted Earnings per Share $ .87
===========
Weighted Average Shares Outstanding 957,389
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Unearned Accumulated
Common Stock Recognition Other
Shares Comprehensive Retained and Comprehensive
Outstanding Amount Income Earnings Retention Plan Income Total
----------- ------ ------ -------- -------------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, July 1, 1996 $5,319,852 $(50,853)$ 5,268,999
Comprehensive income
Net income $370,942 370,942 370,942
Other comprehensive income, net of tax
Unrealized gains on securities 50,853 50,853 50,853
---------
Comprehensive income $421,795
=========
------- -------- -------- ----------
Balances, June 30, 1997 5,690,794 5,690,794
Comprehensive income
Net income $873,878 873,878 873,878
Other comprehensive income, net of tax
Unrealized gains on securities 3,397 3,397 3,397
---------
Comprehensive income $877,275
=========
Sale of common stock 973,360 $9,215,969 9,215,969
Cash dividends ($.10 per share) (97,335) (97,335)
Purchase of shares for RRP $(666,957) (666,957)
RRP shares earned 25,840 25,840
------- -------- -------- ----------
Balances, June 30, 1998 973,360 9,215,969 6,467,337 (641,117) 3,397 15,045,586
Comprehensive income
Net income $832,258 832,258 832,258
Other comprehensive income, net of tax
Unrealized losses on securities (21,717) (21,717) (21,717)
---------
Comprehensive income $810,541
=========
Cash dividends ($.23 per share) (215,140) (215,140)
RRP shares earned 103,355 103,355
Purchase of stock (92,246) (922,460) (181,918) (1,104,378)
------- -------- -------- ----------
Balances, June 30, 1999 881,114 $8,293,509 $6,902,537 $(537,762) $(18,320) $14,639,964
======= ========== ========== ========= ======== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CITIZENS BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Operating Activities
<S> <C> <C> <C>
Net income $ 832,258 $ 873,878 $ 370,942
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 65,000 72,000 83,000
Depreciation and amortization 51,762 30,519 45,587
Deferred income tax (63,588) (101,594) (76,326)
Investment securities losses 60,243
ESOP and RRP shares earned 229,806 148,280
Net change in
Other assets and cash surrender value (142,110) 63,236 (158,418)
Other liabilities (106,575) 435,290 (58,854)
------------ ------------ ------------
Net cash provided by operating activities 866,553 1,521,609 266,174
------------ ------------ ------------
Investing Activities
Net change in interest-bearing deposits 297,013 693,015 (695,000)
Purchases of securities available for sale (109,284) (148,420) (65,481)
Proceeds from sales of securities available for sale 2,931,693
Net change in loans (6,232,115) (8,655,543) (4,222,435)
Proceeds from sale of loans 91,455
Purchases of premises and equipment (54,610) (29,833) (16,498)
Net change in land held for development 52,040 31,326 76,892
Purchase of FHLB stock (67,500) (20,000)
------------ ------------ ------------
Net cash used by investing activities (6,114,456) (8,129,455) (1,899,374)
------------ ------------ ------------
Financing Activities
Net change in
Interest-bearing demand and savings deposits 3,308 (257,971) 304,545
Certificates of deposit 2,905,533 (2,029,761) 450,528
Proceeds from borrowings 7,000,000 3,500,000 14,500,000
Repayment of borrowings (3,500,000) (4,000,000) (13,500,000)
Cash dividends (210,095) (52,900)
Purchase of stock (1,104,378)
Sale of stock 9,215,969
Purchase of RRP shares (666,957)
------------ ------------ ------------
Net cash provided by financing activities 5,094,368 5,708,380 1,755,073
------------ ------------ ------------
Net Change in Cash and Cash Equivalents (153,535) (899,466) 121,873
Cash and Cash Equivalents, Beginning of Year 749,581 1,649,047 1,527,174
------------ ------------ ------------
Cash and Cash Equivalents, End of Year $ 596,046 $ 749,581 $ 1,649,047
============ ============ ============
Additional Cash Flows Information
Interest paid $ 1,891,000 $ 1,781,000 $ 1,784,000
Income tax paid 910,097 262,538 431,009
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CITIZENS BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Nature of Operations and Summary of Significant Accounting Policies
The accounting and reporting policies of Citizens Bancorp ("Company"), its
wholly owned subsidiary, Citizens Savings Bank of Frankfort ("Bank") and the
Bank's wholly owned subsidiary, Citizens Loan and Service Corporation ("Service
Corp"), conform to generally accepted accounting principles and reporting
practices followed by the thrift industry. The more significant of the policies
are described below.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
The Company is a thrift holding company whose principal activity is the
ownership and management of the Bank. The Bank operates under a federal thrift
charter and provides full banking services. As a federally chartered thrift, the
Bank is subject to regulation by the Office of Thrift Supervision, and the
Federal Deposit Insurance Corporation.
The Bank generates commercial mortgage, residential mortgage and consumer loans
and receives deposits from customers located primarily in Clinton County,
Indiana and surrounding counties. The Bank's loans are generally secured by
specific items of collateral including real property and consumer assets.
The Service Corp develops land for residential housing.
The Company was formed in June 1997 and purchased all of the stock of the 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, the Company had no assets or liabilities. All
financial information prior to fiscal year 1998 relate to the Bank and Service
Corp only.
The Company issued 1,058,000 shares of common stock following the subscription
stock offering. Net proceeds to the Company 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
the Company to the Employee Stock Ownership Plan ("ESOP").
Consolidation--The consolidated financial statements include the accounts of the
Company and subsidiaries after elimination of all material intercompany
transactions.
Investment Securities--Debt securities are classified as held to maturity when
the Company has the positive intent and ability to hold the securities to
maturity. Securities held to maturity are carried at amortized cost. Debt
securities not classified as held to maturity or included in the trading account
and marketable equity securities are classified as available for sale.
Securities available for sale are carried at fair value with unrealized gains
and losses reported separately in accumulated other comprehensive income, net of
tax.
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net security
gains (losses). Gains and losses on sales of securities are determined on the
specific-identification method.
<PAGE>
CITIZENS BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loans are carried at the principal amount outstanding. A loan is impaired when,
based on current information or events, it is probable that the Bank will be
unable to collect all amounts due (principal and interest) according to the
contractual terms of the loan agreement. Loans where payments have insignificant
delays not exceeding 90 days outstanding are not considered impaired. Certain
nonaccrual and substantially delinquent loans may be considered to be impaired.
The Bank considers its investment in one-to-four family residential loans and
consumer loans to be homogeneous and therefore, excluded from separate
identification for evaluation of impairment. Interest income is accrued on the
principal balances of loans. The accrual of interest on impaired and nonaccrual
loans is discontinued when, in management's opinion, the borrower may be unable
to meet payments as they become due. Mortgage loans are placed on nonaccrual
status when they become 90 days delinquent. When interest accrual is
discontinued, all unpaid accrued interest is reversed when considered
uncollectible. Interest income is subsequently recognized only to the extent
cash payments are received. Certain loan fees and direct costs are being
deferred and amortized as an adjustment of yield on the loans over the
contractual lives of the loans. When a loan is paid off or sold, any unamortized
loan origination fee balance is credited to income.
Allowance for loan losses is maintained to absorb loan losses based on
management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolio, the current condition and amount of loans
outstanding, and the probability of collecting all amounts due. Impaired loans
are measured by the present value of expected future cash flows, or the fair
value of the collateral of the loan, if collateral dependent.
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that as of June
30, 1999 the allowance for loan losses is adequate based on information
currently available. A worsening or protracted economic decline in the areas
within which the Bank operates would increase the likelihood of additional
losses due to credit and market risks and could create the need for additional
loss reserves.
Premises and equipment are carried at cost net of accumulated depreciation.
Depreciation is principally computed using both the straight-line method and the
declining balance method based on the estimated useful lives of the assets.
Maintenance and repairs are expensed as incurred while major additions and
improvements are capitalized. Gains and losses on dispositions are included in
current operations.
Federal Home Loan Bank ("FHLB") stock is a required investment for institutions
that are members of the Federal Home Loan Bank system. The required investment
in the common stock is based on a predetermined formula.
Stock options are granted for a fixed number of shares with an exercise price
equal to the fair value of the shares at the date of grant. The Company accounts
for and will continue to account for stock option grants in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly,
recognizes no compensation expense for the stock option grants.
Income tax in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes.
Earnings per share have been computed based upon the weighted average common
shares outstanding during the year ended June 30, 1999. Unearned ESOP shares
have been excluded from the computation of average common shares outstanding.
Historical earnings per share information is not presented on the 1998 and 1997
consolidated statements of income because it is not meaningful due to the stock
offering occurring in September 1997.
<PAGE>
CITIZENS BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reclassifications of certain amounts in the 1998 and 1997 consolidated financial
statements have been made to conform to the 1999 presentation.
Note 2 -- Investment Securities Available for Sale
Investment securities available for sale at June 30, 1999 and 1998 consist of
marketable equity securities. At June 30, 1999 and 1998, the securities have a
fair value of $388,362 and $315,041, and an amortized cost of $418,699 and
$309,416, respectively. The gross unrealized gain (loss) was $(30,337) and
$5,625 at June 30, 1999 and 1998, respectively.
Note 3 -- Loans and Allowance
June 30 1999 1998
- --------------------------------------------------------------------------------
Commercial real estate $ 3,341,351 $ 3,656,862
Real estate loans 41,663,334 35,928,334
Construction loans 1,383,500 611,000
Individuals' loans for household
and other personal expenditures 7,764,172 7,064,802
Other loans 149,313 149,973
------------ ------------
54,301,670 47,410,971
Allowance for loan losses (326,249) (268,837)
Deferred loan fees and costs, net (125,608) (109,376)
Undisbursed portion of loans (746,295) (96,355)
------------ ------------
Total loans $ 53,103,518 $ 46,936,403
============ ============
Year Ended June 30 1999 1998 1997
- --------------------------------------------------------------------------------
Allowance for loan losses
Balances, beginning of year $ 268,837 $ 211,635 $ 138,606
Provision for losses 65,000 72,000 83,000
Recoveries on loans 4,910 1,645 1,626
Loans charged off (12,498) (16,443) (11,597)
--------- --------- ---------
Balances, end of year $ 326,249 $ 268,837 $ 211,635
========= ========= =========
Note 4 -- Land Held for Development
The Company, through the 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, 1999, 1998 and 1997,
approximately $30,600, $34,000 and $68,000, 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, 1999, 1998 and 1997, approximately $98,000, $69,000,
and $166,000, respectively, was received from the sale of lots in the
development resulting in gains from sale of these lots of approximately $16,000,
$9,000, and $17,000, for each year, respectively. The Service Corp owns an
additional 45 acres of land for future development.
<PAGE>
CITIZENS BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended June 30, 1998, land not included in the above development
was sold for proceeds equaling $177,000 resulting in a gain from the sale of
$172,000.
Note 5 -- Premises and Equipment
June 30 1999 1998
- --------------------------------------------------------------------------------
Land $ 137,307 $ 137,307
Buildings 647,154 647,154
Equipment 329,406 274,796
Total cost 1,113,867 1,059,257
Accumulated depreciation (546,381) (494,619)
----------- -----------
Net $ 567,486 $ 564,638
=========== ===========
Note 6 -- Deposits
June 30 1999 1998
- --------------------------------------------------------------------------------
Demand deposits $ 4,714,398 $ 4,569,764
Savings deposits 9,361,971 9,503,297
Certificates of $100,000 or more 4,973,049 2,314,074
Other certificates 17,926,904 17,680,346
----------- -----------
Total deposits $36,976,322 $34,067,481
=========== ===========
Certificates maturing in years ending June 30
2000 $11,489,597
2001 7,415,908
2002 2,892,761
2003 262,288
2004 352,339
Thereafter 487,060
-----------
$22,899,953
===========
<PAGE>
CITIZENS BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 -- Borrowings
June 30 1999 1998
- --------------------------------------------------------------------------------
Federal Home Loan Bank advances, at fixed
and variable rates ranging
from 4.90% to 6.06%, due at various
dates through October 7, 2008 $7,000,000 $3,500,000
========== ==========
The Federal Home Loan Bank advances are secured by first-mortgage loans totaling
$42,274,000. The Company is required to maintain eligible loans in its portfolio
of at least 170% of outstanding advances as collateral for advances from the
FHLB. Advances are subject to restrictions or penalties in the event of
prepayment.
Maturities in years ending June 30
- --------------------------------------------------------------------------------
2000 $1,000,000
2008 6,000,000
----------
$7,000,000
==========
<TABLE>
<CAPTION>
Note 8 -- Income Tax
Year Ended June 30 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense
Currently payable
Federal $ 460,153 $ 550,558 $ 204,275
State 124,139 131,215 55,276
Deferred
Federal (52,331) (80,259) (62,054)
State (11,257) (21,335) (14,272)
--------- --------- ---------
Total income tax expense $ 520,704 $ 580,179 $ 183,225
========= ========= =========
Reconciliation of federal statutory to actual tax expense
Federal statutory income tax at 34% $ 460,007 $ 494,379 $ 188,417
Effect of state income taxes 74,502 72,521 27,063
Other (13,805) 13,279 (32,255)
--------- --------- ---------
Actual tax expense $ 520,704 $ 580,179 $ 183,225
========= ========= =========
</TABLE>
<PAGE>
CITIZENS BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A cumulative net deferred tax asset is included in other assets. The components
of the asset are as follows:
June 30 1999 1998
- --------------------------------------------------------------------------------
Assets
Allowance for loan losses $107,796 $114,256
Loan fees 151,136 137,596
Pensions and employee benefits 193,807 151,592
Other 16,103 24,336
Capital loss carryover 25,604 25,604
-------- --------
Total assets 494,446 453,384
-------- --------
Liabilities
Loan costs 97,753 91,112
FHLB stock dividend 27,132 27,132
Other 28,184 29,189
-------- --------
Total liabilities 153,069 147,433
-------- --------
$341,377 $305,951
======== ========
Retained earnings include approximately $1,349,000 for which no deferred income
tax liability has been recognized. This amount represents an allocation of
income to bad debt deductions as of June 30, 1988 for tax purposes only.
Reduction of amounts so allocated for purposes other than tax bad debt losses
including redemption of bank stock or excess dividends, or loss of "bank"
status, would create income for tax purposes only, which income would be subject
to the then-current corporate income tax rate. The unrecorded deferred income
tax liability on the above amounts was approximately $459,000.
Note 9 -- Other Comprehensive Income
<TABLE>
<CAPTION>
1999
---------------------------------------------------------
Before-Tax Tax Net-of-Tax
Year Ended June 30 Amount Benefit Amount
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized losses on securities
Unrealized holding losses arising during the year $(35,961) $14,244 $(21,717)
======== ======= ========
1998
---------------------------------------------------------
Before-Tax Tax Net-of-Tax
Year Ended June 30 Amount Expense Amount
- ----------------------------------------------------------------------------------------------------------------
Unrealized gains on securities
Unrealized holding gains arising during the year $5,625 $(2,228) $3,397
====== ======= ======
</TABLE>
<PAGE>
CITIZENS BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1997
---------------------------------------------------------
Before-Tax Tax (Expense) Net-of-Tax
Year Ended June 30 Amount Benefit Amount
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized gains on securities
Unrealized holding gains arising during the year $23,964 $ (9,492) $14,472
Less: reclassification adjustment for losses
realized in net income (60,243) 23,862 (36,381)
------- -------- -------
Net unrealized gains $84,207 $(33,354) $50,853
======= ======== =======
</TABLE>
Note 10 -- Commitments and Contingent Liabilities
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit, which are not
included in the accompanying financial statements. The Bank's exposure to credit
loss in the event of nonperformance by the other party to the financial
instruments for commitments to extend credit is represented by the contractual
or notional amount of those instruments. The Bank uses the same credit policies
in making such commitments as it does for instruments that are included in the
consolidated balance sheet.
Financial instruments whose contract amount represents credit risk consist
solely of commitments to extend credit, and these commitments totalled
$3,565,000 and $2,959,000 as of June 30, 1999 and 1998, respectively.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation. Collateral held varies but may include accounts receivable,
inventory, property and equipment, and income-producing commercial properties.
The Company and subsidiaries are also subject to claims and lawsuits which arise
primarily in the ordinary course of business. It is the opinion of management
that the disposition or ultimate resolution of such claims and lawsuits will not
have a material adverse effect on the consolidated financial position of the
Company.
Note 11 -- Year 2000
Like all entities, the Company and subsidiaries are exposed to risks associated
with the Year 2000 Issue, which affects computer software and hardware;
transactions with customers, vendors, and other entities; and equipment
dependent upon microchips. The Company has begun and is continuing its efforts
to identify and remediate potential Year 2000 problems. It is not possible for
any entity to guarantee the results of its own remediation efforts or to
accurately predict the impact of the Year 2000 Issue on third parties with which
the Company and subsidiaries do business. If remediation efforts of the Company
or third parties with which the Company and subsidiaries do business are not
successful, the Year 2000 Issue could have negative effects on the Company's
financial condition and results of operations in the near term.
<PAGE>
CITIZENS BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 -- Dividend and Capital Restrictions
Without prior approval, current regulations allow the Bank to pay dividends to
the Company not exceeding net profits (as defined) for the current calendar year
to date plus those for the previous two years which amounts to $1,994,000. The
Bank normally restricts dividends to a lessor amount because of the need to
maintain an adequate capital structure.
At the time of conversion, a liquidation account was established in an amount
equal to the Bank's net worth as reflected in the latest statement of condition
used in its final conversion offering circular. The liquidation account is
maintained for the benefit of eligible deposit account holders who maintain
their deposit account in the Bank after conversion. In the event of a complete
liquidation, and only in such event, each eligible deposit account holder will
be entitled to receive a liquidation distribution from the liquidation account
in the amount of the then current adjusted subaccount balance for deposit
accounts then held, before any liquidation distribution may be made to
shareholders. Except for the repurchase of stock and payment of dividends, the
existence of the liquidation account will not restrict the use or application of
net worth. The initial balance of the liquidation account was approximately
$5,691,000. At June 30, 1999, total shareholder's equity of the Bank was
$11,300,845.
Note 13 -- Stock Transactions
During the year ended June 30, 1999, the Company's Board of Directors approved
the repurchase of 52,900 of the Company's shares of common stock outstanding.
The Company repurchased 52,900 shares under this plan during the year ended June
30, 1999. Additionally, the Company's Board of Directors approved the repurchase
of an additional 50,255 shares of the Company's outstanding shares of common
stock. These purchases will be made subject to market conditions in the open
market or block transactions. At June 30, 1999, the Company has repurchased
39,346 shares under this plan.
Note 14 -- Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies and is assigned to a capital category. The assigned
capital category is largely determined by ratios that are calculated according
to the regulations. The ratios are intended to measure capital relative to
assets and credit risk associated with those assets and off-balance sheet
exposures of the entity. The capital category assigned to an entity can also be
affected by qualitative judgments made by regulatory agencies about the risk
inherent in the entity's activities that are not part of the calculated ratios.
There are five capital categories defined in the regulations, ranging from well
capitalized to critically undercapitalized. Classification of a bank in any of
the undercapitalized categories can result in actions by regulators that could
have a material effect on a bank's operations. At June 30, 1999 and 1998, the
Bank is categorized as well capitalized and met all subject capital adequacy
requirements. There are no conditions or events since June 30, 1999 that
management believes have changed the Bank's classification.
<PAGE>
CITIZENS BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bank's actual and required capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
Required
for Adequate To Be Well
Actual Capital 1 Capitalized 1
------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1999
Total risk-based capital 1
(to risk-weighted assets) $10,714,000 29.0% $2,957,000 8.0% $3,696,000 10.0%
Tier 1 risk-based capital 1
(to risk-weighted assets) 10,388,000 28.1% 2,957,000 8.0% 3,696,000 10.0%
Core capital 1
(to adjusted tangible assets) 10,388,000 17.8% 1,751,000 3.0% 3,502,000 6.0%
Core capital 1
(to adjusted total assets) 10,388,000 17.8% 1,751,000 3.0% 2,919,000 5.0%
As of June 30, 1998
Total risk-based capital 1
(to risk-weighted assets) $9,554,000 29.2% $2,614,000 8.0% $3,267,000 10.0%
Tier 1 risk-based capital 1
(to risk-weighted assets) 9,285,000 28.4% 2,614,000 8.0% 3,267,000 10.0%
Core capital 1
(to adjusted tangible assets) 9,285,000 17.7% 1,574,000 3.0% 3,149,000 6.0%
Core capital 1
(to adjusted total assets) 9,285,000 17.7% 1,574,000 3.0% 2,624,000 5.0%
</TABLE>
1 As defined by regulatory agencies
<PAGE>
CITIZENS BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15 -- Employee Benefit Plans
The Bank provides pension benefits for substantially all of the Bank's employees
and is a participant in a pension fund known as the Pentegra Group. The plan is
a multi-employer plan; separate actuarial valuations are not made with respect
to each participating employer. Pension expense was $1,708; $1,649; and $20,556
for 1999, 1998 and 1997.
The Bank has purchased life insurance on certain officers, which insurance had a
cash value of $1,161,519 and $1,118,883 at June 30, 1999 and 1998. The Bank has
also approved arrangements that provide additional retirement benefits to
certain officers covered by the keyman policies. The benefits to be paid will be
funded primarily by the keyman policies and are being accrued over the period of
active service to eligibility dates. The accrual of benefits totaled $7,079,
$16,700, and $74,300 for 1999, 1998 and 1997.
The Bank has a Recognition and Retention Plan ("RRP"). Effective on March 24,
1998, awards of grants for 32,798 shares were issued to various directors and
officers of the Bank. These awards generally are to vest and be earned by the
recipient at a rate of 20 percent per year, commencing March 24, 1999. The
expense under the RRP was $103,355 and $26,000 for the years ended June 30, 1999
and 1998.
An ESOP covers substantially all employees of the Bank. The ESOP acquired 84,640
shares at $10.00 per share in the conversion with funds provided by a loan from
the Company. The ESOP provides for the Company to issue a put option ("option")
to any participant who receives a distribution of Company stock. The option
permits the participant to sell the stock to the Company at any time during two
option periods, as defined in the plan, at the fair market value of the stock.
Accordingly, the $846,400 of stock acquired by the ESOP was reflected as a
reduction to the ESOP equity accounts. Unearned ESOP shares totaled 66,192 and
76,506 at June 30, 1999 and 1998 and had a fair value of $835,674 at June 30,
1999 and $1,099,774 at June 30, 1998. Shares are released to participants
proportionately as the loan is repaid. Dividends on allocated shares are
recorded as dividends and charged to retained earnings. Cash dividends on
unallocated shares will be applied to principal and interest due on the loan.
Compensation expense is recorded equal to the fair market value of the stock
when contributions, which are determined annually by the Board of Directors of
the Bank, are made to the ESOP. The expense under the ESOP was $126,451 and
$122,440 for the years ended June 30, 1999 and 1998. At June 30, 1999 and 1998,
the ESOP had 13,414 and 2,855 allocated shares and 71,226 and 81,785 suspense
shares.
Below are the transactions affecting the ESOP equity accounts:
<TABLE>
<CAPTION>
Additional Unearned
Common Paid-in ESOP
Stock Capital Shares Total
----- ------- ------ -----
<S> <C> <C> <C> <C>
Common stock acquired by ESOP $846,400 $(846,400)
ESOP shares earned $41,100 81,340 $122,440
-------- ------- --------- --------
Balance, June 30, 1998 846,400 41,100 (765,060) 122,440
ESOP shares earned 23,311 103,140 126,451
-------- ------- --------- --------
Balance, June 30, 1999 $846,400 $64,411 $(661,920) $248,891
======== ======= ========= ========
</TABLE>
<PAGE>
CITIZENS BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16 -- Related Party Transactions
The Bank has entered into transactions with certain directors, executive
officers, significant shareholders and their affiliates or associates (related
parties). Such transactions were made in the ordinary course of business on
substantially the same terms and conditions, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with other customers, and did not, in the opinion of management, involve more
than normal credit risk or present other unfavorable features. The aggregate
amount of loans, as defined, to such related parties were as follows:
- --------------------------------------------------------------------------------
Balances, July 1, 1998 $ 2,766,000
New loans, including renewals 710,000
Payments, etc., including renewals (382,000)
-----------
Balances, June 30, 1999 $ 3,094,000
===========
Deposits from related parties held by the Bank at June 30, 1999 totaled
$1,206,000.
Note 17 -- Stock Option Plan
Under the Company's stock option plan approved in 1998, which is accounted for
in accordance with Accounting Principles Board Opinion (APB) No. 25, Accounting
for Stock Issued to Employees, and related interpretations, the Company grants
key employees and directors stock option awards which vest and become fully
exercisable at the end of five years of continued employment. During the year
ended June 30, 1998, the Company authorized the grant of options for up to
105,800 shares of the Company's common stock. The exercise price of each option,
which has a ten-year life, must be equal to the market price of the Company's
stock on the date of grant; therefore, no compensation expense is recognized.
Although the Company has elected to follow APB No. 25, Statement of Financial
Accounting Standards (SFAS) No. 123 requires pro forma disclosures of net income
and earnings per share as if the Company had accounted for its employee stock
options under that Statement. The fair value of each option grant in 1998 was
estimated on the grant date using an option-pricing model with the following
assumptions:
1998
- --------------------------------------------------------------------------------
Risk-free interest rates 5.38%
Dividend yields 1.31%
Volatility factors of expected market price of common stock 19.9%
Weighted-average expected life of the options 8 years
<PAGE>
CITIZENS BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense over the options'
vesting period. The pro forma effect on net income and earnings per share of
this statement are as follows:
1999 1998
- --------------------------------------------------------------------------------
Net income As reported $832,258 $873,878
Pro forma 764,779 860,909
Basic earnings per share As reported .87
Pro forma .80
Diluted earnings per share As reported .87
Pro forma .80
The following is a summary of the status of the Company's stock option plan and
changes in that plan as of and for the years ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
Year Ended June 30 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Weighted- Weighted-
Average Average
Options Shares Exercise Price Shares Exercise Price
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 81,995 $15.25
Granted 81,995 $15.25
------- -------
Outstanding, end of year 81,995 $15.25 81,995 $15.25
======= =======
Options exercisable at year end 16,399
Weighted-average fair value of
options granted during the year $4.86
</TABLE>
As of June 30, 1999, the options outstanding have an exercise price of $15.25
and a weighted-average remaining contractual life of nine years.
<PAGE>
CITIZENS BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18 -- Earnings Per Share
Earnings per share (EPS) were computed as follows:
<TABLE>
<CAPTION>
Year Ended June 30, 1999
----------------------------------------------------------
Weighted-
Net Average Per-Share
Income Shares Amount
- -----------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share
<S> <C> <C> <C>
Income available to common shareholders $832,258 957,389 $.87
Effect of Dilutive Securities
Stock options ---
------------------------------
Diluted Earnings Per Share
Income available to common shareholders
and assumed conversions $832,258 957,389 $.87
======== ======= =====
</TABLE>
Options to purchase 81,995 shares of common stock at $15.25 per share were
outstanding at June 30, 1999, but were not included in the computation of
diluted EPS because the options' exercise price was greater than the average
market price of the common shares.
Note 19 -- Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and Cash Equivalents--The fair value of cash and cash equivalents
approximates carrying value.
Interest-bearing Time Deposits--The fair value of interest-bearing time deposits
approximates carrying value.
Securities--Fair values are based on quoted market prices.
Loans--For both short-term loans and variable-rate loans that reprice frequently
and with no significant change in credit risk, fair values are based on carrying
values. The fair value for other loans is estimated using discounted cash flow
analyses using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
Cash Surrender Value Of Life Insurance Contracts--The fair value of cash
surrender value of life insurance contracts approximates carrying value.
FHLB Stock--Fair value of FHLB stock is based on the price at which it may be
resold to the FHLB.
<PAGE>
CITIZENS BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deposits--The fair values of noninterest-bearing, interest-bearing demand and
savings accounts are equal to the amount payable on demand at the balance sheet
date. 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 such time deposits.
Federal Home Loan Bank Advances--The fair value of these borrowings are
estimated using a discounted cash flow calculation, based on current rates for
similar debt.
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------------------
Carrying Fair Carrying Fair
June 30 Amount Value Amount Value
- -------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C> <C> <C>
Cash and due from banks $443,757 $443,757 $305,908 $305,908
Interest-bearing demand deposits 152,289 152,289 443,673 443,673
Interest-bearing time deposits 1,485,972 1,482,703 1,782,985 1,782,985
Investment securities available for sale 388,362 388,362 315,041 315,041
Loans 53,103,518 53,256,987 46,936,403 49,410,000
Cash surrender value of life insurance 1,161,519 1,161,519 1,118,883 1,118,883
Stock in FHLB 419,100 419,100 351,600 351,600
Liabilities
Deposits 36,976,322 36,891,592 34,067,481 34,219,000
FHLB advances 7,000,000 6,633,200 3,500,000 3,500,000
</TABLE>
Note 20 -- Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
1999
--------------------------------------------------------------------------
First Second Third Fourth
June 30 Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $1,081,463 $1,142,129 $1,100,223 $1,115,818
Interest expense 456,555 513,181 472,086 477,439
Net interest income 624,908 628,948 628,137 638,379
Provision for loan losses 15,000 20,000 15,000 15,000
Net income 186,190 194,103 227,273 224,692
Basic earnings per share 0.19 0.20 0.24 0.24
Diluted earnings per share 0.19 0.20 0.24 0.24
1998
--------------------------------------------------------------------------
First Second Third Fourth
June 30 Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------------------------------
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
</TABLE>
<PAGE>
CITIZENS BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 21 -- Condensed Financial Information (Parent Company Only)
Presented below is condensed financial information as to financial position,
results of operations and cash flows of the Company:
Condensed Balance Sheet
<TABLE>
<CAPTION>
June 30 1999 1998
- ------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Cash and due from banks $ 2,648,829 $ 4,014,235
Investment securities available for sale 209,706 145,000
ESOP loan receivable 740,600 825,240
Investment in common stock of subsidiaries 11,300,845 10,237,433
Other assets 57,321 43,248
------------ ------------
Total assets $ 14,957,301 $ 15,265,156
============ ============
Liabilities $ 68,446 $ 97,130
Equity Received from ESOP 248,891 122,440
Shareholders' Equity 14,639,964 15,045,586
------------ ------------
Total liabilities and shareholders' equity $ 14,957,301 $ 15,265,156
============ ============
Condensed Statement of Income
Year Ended June 30 1999 1998
- ------------------------------------------------------------------------------------------------
Income--interest and dividends $ 107,342 $ 109,164
Expenses 108,692 115,814
------------ ------------
Loss before income tax and equity in undistributed
income of subsidiaries (1,350) (6,650)
Income tax expense -- --
------------ ------------
Loss before equity in undistributed income of subsidiaries (1,350) (6,650)
Equity in undistributed income of subsidiaries 833,608 880,528
------------ ------------
Net Income $ 832,258 $ 873,878
============ ============
</TABLE>
<PAGE>
CITIZENS BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended June 30 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 832,258 $ 873,878
Adjustments to reconcile net income to net cash provided
by operating activities (862,117) (873,312)
------------ ------------
Net cash provided (used) by operating activities (29,859) 566
------------ ------------
Investing Activities
Purchase of securities available for sale (100,669) (139,375)
Loan to ESOP (846,400)
ESOP loan repayment 84,640 21,160
------------ ------------
Net cash used by investing activities (16,029) (964,615)
------------ ------------
Financing Activities
Cash dividends (215,140) (52,900)
Sale of stock 10,062,369
Purchase of stock (1,104,378)
Acquisition of subsidiary stock (5,031,185)
------------ ------------
Net cash provided (used) by financing activities (1,319,518) 4,978,284
------------ ------------
Net Change in Cash and Cash Equivalents (1,365,406) 4,014,235
Cash and Cash Equivalents at Beginning of Year 4,014,235
------------ ------------
Cash and Cash Equivalents at End of Year $ 2,648,829 $ 4,014,235
============ ============
</TABLE>
<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 67) 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 74) 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 43) has served as the Bank's Controller since 1989.
Perry W. Lewis (age 78) 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 60) 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 50) has served as the Bank's senior Loan Officer
since 1989.
Billy J. Wray (age 67) 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, 1999, there were approximately 604 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
Quarter Ended High Low Per Share
September 30, 1997 $14 1/4 $13 7/8 $ ---
December 31, 1997 15 1/2 14 1/4 ---
March 31, 1998 16 14 7/8 .05
June 30, 1998 16 14 .05
September 30, 1998 14 3/4 11 1/8 .05
December 31, 1998 13 11 1/2 .06
March 31, 1999 12 11 .06
June 30, 1999 12 5/8 11 5/8 .06
* 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
quarter.
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
Olive LLP
201 North Illinois Street
Indianapolis, Indiana 46204
SHAREHOLDERS AND GENERAL INQUIRIES
On or before September 28, 1999, the Company will file an Annual Report on
Form 10-K for its fiscal year ended June 30, 1999 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
