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As filed with the Securities and Exchange Commission on January 12, 2001
Registration No. 333-49234
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2 TO THE
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
CITIZENS FIRST BANCORP, INC.
CITIZENS FIRST SAVINGS BANK
401(k) Plan
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 6036 38-0421485
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer Identification No.)
Incorporation or Organization) Classification Code Number)
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525 Water Street
Port Huron, Michigan 48060
(810) 987-8300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Larry J. Moeller, Sr.
President, Chief Executive Office and Chairman of the Board
Citizens First Savings Bank
525 Water Street
Port Huron, Michigan 48060
(810) 987-8300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Lawrence M. F. Spaccasi, Esquire
John R. Hall, Esquire
Muldoon Murphy & Faucette LLP
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
(202) 362-0840
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / X /
----
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
----
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
----
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
----
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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<CAPTION>
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Calculation of Registration Fee
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Proposed Maximum Proposed Maximum Amount of
Title of each Class of Amount to Offering Price Aggregate Offering Registration
Securities to be Registered be Registered Per Unit Price (2) Fee
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<S> <C> <C> <C> <C>
Common Stock 9,526,761
$.01 par value Shares(1) $10.00 $95,267,610 $25,151(3)
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Participation (4) ________ $ 1,648,607 (5)
Interests
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(1) Includes shares of common stock to be issued to Citizens First Foundation,
a private foundation.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) A registration fee of $21,871 was previously paid upon the initial filing of
the Form S-1 on November 3, 2000. An additional fee of $3,280 was paid upon
the filing of the Pre-Effective Amendment No.1 to the Form S-1.
(4) In addition, pursuant to Rule 416(c) under the Securities Act, this
registration statement also covers an indeterminate amount of interests to
be offered or sold pursuant to the employee benefit plan described herein.
(5) The securities of Citizens First Bancorp, Inc. to be purchased by Citizens
First Savings Bank 401(k) Plan are included in the amount shown for common
stock. Accordingly, no separate fee is required for the participation
interests. In accordance with Rule 457(h) of the Securities Act, as amended,
the registration fee has been calculated on the basis of the number of
shares of common stock that may be purchased with the current assets of such
Plan.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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INTERESTS IN
THE CITIZENS FIRST SAVINGS BANK
401(K) PLAN
AND
OFFERING OF 164,860 SHARES OF
CITIZENS FIRST BANCORP, INC.
COMMON STOCK ($.01 PAR VALUE)
This prospectus supplement relates to the offer and sale to participants in
the Citizens First Savings Bank 401(k) Plan of participation interests and
shares of common stock of Citizens First Bancorp, Inc.
The Board of Directors of Citizens First has adopted a plan that will
convert the structure of Citizens First from a mutual savings bank to a stock
savings bank. As part of the conversion, Citizens First Bancorp has been
established to acquire all of the stock of Citizens First and simultaneously
offer Citizens First Bancorp common stock to the public under certain purchase
priorities in the plan of conversion. 401(k) Plan participants are now permitted
to direct the trustee of the 401(k) Plan to use their current account balances
to subscribe for and purchase shares of Citizens First Bancorp common stock
through the Citizens First Bancorp Stock Fund. Based upon the value of the
401(k) Plan assets at September 30, 2000, the trustee of the 401(k) Plan could
purchase up to 164,860 shares of Citizens First Bancorp common stock, assuming a
purchase price of $10.00 per share. This prospectus supplement relates to the
election of 401(k) Plan participants to direct the trustee of the 401(k) Plan to
invest all or a portion of their 401(k) Plan accounts in Citizens First Bancorp
common stock.
The prospectus dated January __, 2001 of Citizens First Bancorp, which we
have attached to this prospectus supplement, includes detailed information
regarding the conversion of Citizens First, Citizens First Bancorp common stock
and the financial condition, results of operations and business of Citizens
First. This prospectus supplement provides information regarding the 401(k)
Plan. You should read this prospectus supplement together with the prospectus
and keep both for future reference.
Please refer to "Risk Factors" beginning on page _ of the attached
prospectus.
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation, nor any other state or
federal agency or any state securities commission, has approved or disapproved
these securities. Any representation to the contrary is a criminal offense.
These securities are not deposits or accounts and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
This prospectus supplement may be used only in connection with offers and
sales by Citizens First Bancorp of interests or shares of common stock under the
401(k) Plan to employees of Citizens First. No one may use this prospectus
supplement to reoffer or resell interests or shares of common stock acquired
through the 401(k) Plan.
You should rely only on the information contained in this prospectus
supplement and the attached prospectus. Citizens First Bancorp, Citizens First
and the 401(k) Plan have not authorized anyone to provide you with information
that is different.
This prospectus supplement does not constitute an offer to sell or
solicitation of an offer to buy any securities in any jurisdiction to any person
to whom it is unlawful to make an offer or solicitation in that jurisdiction.
Neither the delivery of this prospectus supplement and the prospectus nor any
sale of common stock shall under any circumstances imply that there has been no
change in the affairs of Citizens First or the 401(k) Plan since the date of
this prospectus supplement, or that the information contained in this prospectus
supplement or incorporated by reference is correct as of any time after the date
of this prospectus supplement.
The date of this prospectus supplement is January __, 2001.
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TABLE OF CONTENTS
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THE OFFERING .................................................................................... 1
Securities Offered ........................................................................... 1
Value of Participation Interests ............................................................. 1
Election to Purchase Citizens First Bancorp Common Stock in the Conversion of Citizens First.. 1
Maximum and Minimum Purchases ................................................................ 1
Purchase Priorities .......................................................................... 1
Purchase Price of Citizens First Bancorp Common Stock ........................................ 2
Method of Directing Transfer ................................................................. 2
Time for Directing Transfer .................................................................. 2
Irrevocability of Transfer Direction in Connection with the Conversion ....................... 2
Nature of a Participant's Interest in Citizens First Bancorp Common Stock .................... 2
Voting Rights of Citizens First Bancorp Common Stock ......................................... 2
Tender Rights of Citizens First Bancorp Common Stock ......................................... 2
DESCRIPTION OF THE 401(k) Plan .................................................................. 3
Introduction ................................................................................. 3
Eligibility and Participation ................................................................ 3
Contributions Under the 401(k) Plan .......................................................... 3
Limitations on Contributions ................................................................. 3
Investment of Contributions .................................................................. 5
Benefits Under the 401(k) Plan ............................................................... 5
Withdrawals and Distributions From the 401(k) Plan ........................................... 6
Administration of the 401(k) Plan ............................................................ 6
Reports to 401(k) Plan Participants .......................................................... 7
Plan Administrator ........................................................................... 7
Amendment and Termination .................................................................... 7
Merger, Consolidation or Transfer ............................................................ 7
Federal Income Tax Consequences .............................................................. 7
Restrictions on Resale ....................................................................... 9
SEC Reporting and Short-Swing Profit Liability ............................................... 9
LEGAL OPINION ................................................................................... 10
CHANGE OF INVESTMENT ALLOCATION FORM
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THE OFFERING
Securities Offered
The securities offered in connection with this prospectus supplement are
participation interests in the 401(k) Plan. Assuming a purchase price of $10.00
per share, the trustee may acquire up to 164,860 shares of Citizens First
Bancorp common stock for the Citizens First Bancorp Stock Fund. The interests
offered under this prospectus supplement are conditioned on the completion of
the conversion of Citizens First. Your investment in the Citizens First Bancorp
Stock Fund in connection with the conversion of Citizens First is also governed
by the purchase priorities contained in the plan of conversion of Citizens
First.
This prospectus supplement contains information regarding the 401(k) Plan.
The attached prospectus contains information regarding the conversion of
Citizens First and the financial condition, results of operations and business
of Citizens First. The address of the principal executive office of Citizens
First is 525 Water Street, Port Huron, Michigan 48060. The telephone number of
Citizens First is (810) 966-8710.
Value of Participation Interests
As of September 30, 2000, the market value of the assets of the 401(k) Plan
equaled approximately $1,648,607 The plan administrator has informed each
participant of the value of his or her beneficial interest in the 401(k) Plan as
of September 30, 2000. The value of 401(k) Plan assets represents past
contributions to the 401(k) Plan on your behalf, plus or minus earnings or
losses on the contributions, less previous withdrawals.
Election to Purchase Citizens First Bancorp Common Stock in the Conversion of
Citizens First
In connection with the conversion of Citizens First, the 401(k) Plan will
permit you to direct the trustee to transfer all or part of the funds which
represent your current beneficial interest in the assets of the 401(k) Plan to
the Citizens First Bancorp Stock Fund. The trustee of the 401(k) Plan will
subscribe for Citizens First Bancorp common stock offered for sale in connection
with the conversion of Citizens First, in accordance with each participant's
direction.
Minimum and Maximum Purchases
The minimum purchase of Citizens First Bancorp common stock in the
subscription offering is $250. The maximum purchase is $250,000.
Purchase Priorities
All plan participants are eligible to direct a transfer of funds to the
Citizens First Bancorp Stock Fund. However, such directions are subject to the
purchase priorities in the plan of conversion of Citizens First. Your order will
be filled based on your status as an eligible account holder or supplemental
eligible account holder in the conversion of Citizens First. An eligible account
holder is a depositor whose deposit account(s) totaled $50.00 or more on July
31, 1999. A supplemental eligible account holder is a depositor whose deposit
account(s) totaled $50.00 or more on December 31, 2000. If you fall into one of
the above subscription offering categories, you have subscription rights to
purchase shares of Citizens First Bancorp common stock in the subscription
offering and you may use funds in the 401(k) plan account to pay for the shares
of Citizens First Bancorp common stock which you are eligible to purchase.
If Citizens First Bancorp receives subscriptions for more shares than are
to be sold in the offering, shares will be allocated to subscribers in the order
of the priorities established in Citizens First's plan of conversion under a
formula outlined within the plan of conversion. In that case, as a result of the
allocation, the trustee for the 401(k) Plan may not be able to purchase all of
the common stock you requested in the conversion. The trustee would purchase in
the conversion as many shares as it is able and would pro-rate those shares to
each participant's account based on the purchase priorities contained in the
plan of conversion of Citizens First and outlined above. The trustee would then
purchase shares of common stock in the open market after the conversion to
complete your initial purchase request.
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Purchase Price of Citizens First Bancorp Common Stock
If the trustee is able to purchase shares of Citizens First Bancorp common
stock on your behalf in the conversion, the trustee will pay $10.00 per share.
This is the same price that all other persons who purchase shares of Citizens
First Bancorp common stock in the conversion will pay. If the trustee must
purchase shares on your behalf in the open market in order to complete your
initial purchase request, those purchases will be made at prevailing market
prices, which may be higher or lower than $10.00 per share. If the market price
is higher than $10.00 per share, fewer shares of Citizens First Bancorp common
stock will be allocated to your 401(k) Plan account. Similarly, if the market
price is less than $10.00 per share, more shares may be allocated to your 401(k)
Plan account.
Method of Directing Transfer
The last two pages of this prospectus supplement are a form for you to
direct a transfer to the Citizens First Bancorp Stock Fund. If you wish to
transfer all, or part, of your funds in multiples of at least 1%, of your
beneficial interest in the assets of the 401(k) Plan to the Citizens First
Bancorp Stock Fund, you should complete the Change of Investment Allocation
Form. If you do not wish to make an election at this time, you do not need to
take any action.
Time for Directing Transfer
The deadline for submitting a Change in Investment Allocation Form to
Citizens First is ______, 2001. You should return the Change of Investment
Allocation Form to ____ in the Human Resources Department of Citizens First by
4:00 p.m. on _______, 2001.
Irrevocability of Transfer Direction in Connection with the Conversion
You may not change your direction to transfer amounts credited to your
account in the 401(k) Plan to the Citizens First Bancorp Stock Fund in
connection with the conversion.
Nature of a Participant's Interest in Citizens First Bancorp Common Stock
The trustee will hold Citizens First Bancorp common stock in the name of
the 401(k) Plan. The trustee will allocate the shares of Citizens First Bancorp
common stock acquired at your direction to your account under the 401(k) Plan.
Your interest in the fund will be reported on your account statement in units
and valued daily. In addition, your account will also be credited with a portion
of any cash held in the Citizens First Bancorp Stock Fund. Therefore, earnings
on your account will not be affected by the investment designations of other
participants in the 401(k) Plan.
Voting Rights of Citizens First Bancorp Common Stock
The 401(k) Plan provides that you may direct the trustee as to how the
trustee should vote any shares of Citizens First Bancorp common stock held by
the Citizens First Bancorp Stock Fund Trust and credited to your account. If the
trustee does not receive your voting instructions, Citizens First can direct the
trustee to vote your shares in the same manner as the shares of common stock for
which instructions were given. All voting instructions will be kept
confidential.
Tender Rights of Citizens First Bancorp Common Stock
If there is a tender offer for Citizens First Bancorp common stock, the
401(k) Plan provides that you may direct the trustee as to whether the trustee
should tender any shares of Citizens First Bancorp common stock held by the
Citizens First Bancorp Stock Fund Trust and credited to your account. If the
trustee does not receive tender instructions, the trustee will tender a
percentage of your shares equal to the percentage of your shares of Citizens
First Bancorp common stock held in the Citizens First Bancorp Stock Fund for
which favorable tender instructions were received. The remaining shares of
Citizens First Bancorp common stock held in the Citizens First Bancorp Stock
Fund will not be tendered. All tender instructions will be kept confidential.
2
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DESCRIPTION OF THE 401(k) Plan
Introduction
Effective January 1, 2000, Citizens First Savings Bank adopted the Citizens
First Savings Bank 401(k) Plan. Citizens First intends for the 401(k) Plan to
comply, in form and in operation, with all applicable provisions of the Internal
Revenue Code and the Employee Retirement Income Security Act of 1974 ("ERISA").
Citizens First may change the 401(k) Plan from time to time in the future to
ensure continued compliance with these laws. Citizens First may also amend the
401(k) Plan from time to time in the future to add, modify, or eliminate certain
features of the plan, as it sees fit. Because the 401(k) Plan is governed by
ERISA, you have various rights and protections under federal law as a plan
participant.
Reference to Full Text of Plan. The following portions of this prospectus
supplement provide an overview of the material provisions of the 401(k) Plan.
Citizens First qualifies this overview in its entirety by reference to the full
text of the 401(k) Plan. You may obtain copies of the full 401(k) Plan document
by sending a request to _______ at Citizens First. You should carefully read the
full text of the 401(k) Plan document to understand your rights and obligations
under the plan.
Eligibility and Participation
If you have completed one (1) year of service with Citizens First and
attained age 18 you are eligible to participate in the 401(k) Plan as of the
first day of the month coinciding with, or following, the date you meet these
requirements.
As of ______, 2000, _____ of the _____ eligible employees of Citizens First
elected to participate in the 401(k) Plan.
Contributions Under the 401(k) Plan
401(k) Plan Participant Contributions. The 401(k) Plan permits each
participant to defer receipt of amounts ranging from 1% to 15% of the annual
base compensation that Citizens First would otherwise pay. Participants may
modify the amount contributed to the plan on a quarterly basis and may cease
deferrals at anytime, provided the Plan is informed in writing at least (30)
days before the beginning of the Plan year.
Citizens First Contributions. Citizens First currently makes matching
contributions to the 401(k) Plan equal to 50% of a participant's contributions,
up to a maximum of 4% of a participant's annual base compensation.
Limitations on Contributions
Limitation on Employee Salary Deferral. Although the terms of the 401(k)
Plan permit you to defer as much as 15% of your annual compensation, the IRS
limits your contributions to the 401(k) Plan, along with any similar plans, to a
combined total of $10,500 for the year 2000. Contributions of more than $10,500
are known as excess deferrals. If you make excess deferrals, you must pay
federal income tax on the excess amount in the year that you make the excess
deferral. You must also pay federal income tax on your excess deferrals in the
year that you receive them as distributions from the 401(k) Plan, unless you
receive the deferrals, and any additional income earned, before the April 15th
following the close of the tax year. If you receive income on excess deferrals
before that date, however, you must pay income tax in the year that you receive
it.
Limitations on Annual Additions and Benefits. The Internal Revenue Code
requires the 401(k) Plan to limit the total amount of contributions and
forfeitures (annual additions) allocated to your account during any year to the
lesser of 25% of your compensation for that year, or $30,000. The 401(k) Plan
will also limit annual additions to the extent necessary to prevent these IRS
limitations for all of the qualified defined contribution plans maintained by
Citizens First from being exceeded.
3
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Limitation on Plan Contributions for Highly Compensated Employees. Special
provisions of the Internal Revenue Code limit the amount of salary deferrals and
matching contributions that may be made to the 401(k) Plan in any year on behalf
of highly compensated employees, in relation to the amount of deferrals and
matching contributions made by or on behalf of all other employees eligible to
participate in the 401(k) Plan. A highly compensated employee includes any
employee who (1) was a 5% owner of Citizens First Bancorp at any time during the
current or preceding year, or (2) had compensation for the preceding year of
more than $80,000 and, if Citizens First Bancorp so elects, was in the top 20%
of employees by compensation for the preceding year. The dollar amounts in the
foregoing sentence are for 2000, but may be adjusted annually to reflect
increases in the cost of living. If these limitations are exceeded, the level of
deferrals by highly compensated employees may have to be adjusted.
Top-Heavy Plan Requirements. The 401(k) Plan is subject to certain
top-heavy plan requirements. A plan is top-heavy plan if, on the last day of
the previous calendar year, the aggregate balance of the accounts of
participants considered key employees is more than 60% of the balance of all
participants in the plan. A key employee, as defined by the Internal Revenue
Service for the 2000 calendar year, includes any employee who, at any time
during the calendar year, or any of the past 4 calendar years, is:
(1) an officer of Citizens First whose annual compensation is more than
$60,000, who is in an administrative or policy-making capacity;
(2) one of the 10 employees whose annual compensation in more than
$30,000 and who owns, directly or indirectly, the largest interests
in Citizens First Bancorp;
(3) a person who owns, directly or indirectly, more than 5% of the stock
of Citizens First Bancorp, or who possesses more than 5% of the total
combined voting power of all stock of Citizens First Bancorp; or
(4) a person who owns directly or indirectly, combined voting power of
more than 1% of the total stock of Citizens First Bancorp, and whose
annual compensation in more than $150,000.
If the 401(K) Plan is a top-heavy plan, as defined above, Citizens First
may be required to make certain minimum contributions to the 401(k) Plan on
behalf of those individuals who are not considered key employees. If the 401(k)
Plan is top-heavy, certain additional restrictions would apply with respect to
the combination of contributions to the 401(k) Plan and projected annual
benefits under any defined benefit plan maintained by Citizens First.
Investment of Contributions
All amounts credited to participants' accounts under the 401(k) Plan are
held in trust. A trustee appointed by the Board of Directors of Citizens First
administers the trust.
Before the Conversion, the 401(k) Plan offered the following investment
choices with an annual percentage return for the past three (3) years as noted
below.
Investment Fund 2000 1999 1998
------ ------ ------
% % %
% % %
% % %
The 401(k) Plan now provides the Citizens First Bancorp Stock Fund as an
additional choice to these investment alternatives. The Citizens First Bancorp
Stock Fund invests primarily in the common stock of Citizens First
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Bancorp. Participants in the 401(k) Plan may direct the trustee to invest all or
a portion of their 401(k) Plan account balances in the Citizens First Bancorp
Stock Fund.
The Citizens First Bancorp Stock Fund consists primarily of investments in
the common stock of Citizens First Bancorp made on the effective date of the
conversion of Citizens First. After the conversion, the trustee of the 401(k)
Plan will, to the extent practicable, use all amounts held by it in the Citizens
First Bancorp Stock Fund, including cash dividends paid on the common stock held
in the fund, to purchase additional shares of common stock of Citizens First
Bancorp.
As of the date of this prospectus supplement, none of the shares of
Citizens First Bancorp common stock have been issued or are outstanding and
there is no established market for the Citizens First Bancorp common stock.
Accordingly, there is no record of the historical performance of the Citizens
First Bancorp Stock Fund. Performance of the Citizens First Bancorp Stock Fund
depends on a number of factors, including the financial condition and
profitability of Citizens First Bancorp and Citizens First and market conditions
for Citizens First Bancorp common stock generally.
Investments in the Citizens First Bancorp Stock Fund involve special risks
common to investments in the common stock of Citizens First Bancorp. For a
discussion of the material risk factors, see "Risk Factors" beginning on page
__ of the attached prospectus.
Benefits Under the 401(k) Plan
Vesting. A participant is always 100% vested in his or her salary reduction
contributions. Employer matching contributions vest upon the completion of 3
years of service.
Withdrawals and Distributions From the 401(k) Plan
Withdrawals Before Termination of Employment. You may receive in-service
distributions from the 401(k) Plan under limited circumstances, in the form of
hardship distributions and withdrawal of rollover contributions. In order to
qualify for a hardship withdrawal, you must have an immediate and substantial
need to meet certain expenses and have no other reasonably available resources
to meet the financial need. If you qualify for a hardship distribution, the
trustee will make the distribution proportionately from the investment funds in
which you have invested your account balances. Restrictions are imposed upon
your participation in the 401(k) Plan if you take a hardship withdrawal.
Distribution Upon Disability or Retirement. Upon retirement, you may elect
to receive your benefits in one of the following forms: (1) lump sum payment;
(2) purchase from an insurer of a nontransferable annuity contract; or (3)
installment payments over a fixed period of time or in fixed amounts. Your
distributable benefit will be equal to the value of your accounts under the
401(k) Plan.
Distribution Upon Death. If you die before your benefits are paid from the
401(k) Plan, your benefits will be paid to your surviving spouse, or if you are
single or your spouse consents, to your named beneficiary, in one or more of
the forms available under the 401(k) Plan.
Distribution Upon Termination for Any Other Reason. If you terminate
employment for any reason other than retirement, disability or death, and your
account balance exceeds $5,000, the trustee will make your distribution on your
normal retirement date, unless you request otherwise. If your account balances
do not exceed $5,000, the trustee will generally distribute your benefits to you
as soon as administratively practicable following termination of employment.
Nonalienation of Benefits. Except with respect to federal income tax
withholding and as provided with respect to a qualified domestic relations
order, benefits payable under the 401(k) Plan will not be subject to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
charge, garnishment, execution, or levy of any kind, either voluntary or
involuntary. Any attempt to anticipate, alienate, sell, transfer, assign,
pledge, encumber, charge or otherwise dispose of any rights to benefits payable
under the 401(k) Plan will be void.
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Applicable federal tax law requires the 401(k) Plan to impose substantial
restrictions on your right to withdraw amounts held under the plan before your
termination of employment with Citizens First . Federal law may also impose an
excise tax on withdrawals made from the 401(k) Plan before you attain 59 1/2
years of age regardless of whether the withdrawal occurs during your employment
with Citizens First or after termination of employment.
Administration of the 401(k) Plan
The trustee and the Plan Administrator are the named fiduciaries of the
401(k) Plan for purposes of the Employee Retirement Income Security Act of 1974.
Trustee. Citizens First acts as trustee of the 401(k) Plan.
The trustee receives, holds and invests the contributions to the 401(k)
Plan in trust and distributes them to participants and beneficiaries in
accordance with the terms of the 401(k) Plan and the directions of the plan
administrator. The trustee is responsible for investment of the assets of the
trust in accordance with the directions of individual participants.
Reports to 401(k) Plan Participants
The plan administrator will furnish you a statement at least quarterly
showing the balance in your account as of the end of that period, the amount of
contributions allocated to your account for that period, and any adjustments to
your account to reflect earnings or losses.
Plan Administrator
The current plan administrator of the 401(k) Plan is Citizens First. The
plan administrator is responsible for the administration of the 401(k) Plan,
interpretation of the provisions of the 401(k) Plan, prescribing procedures for
filing applications for benefits, preparation and distribution of information
explaining the 401(k) Plan, maintenance of 401(k) Plan records, books of account
and all other data necessary for the proper administration of the 401(k) Plan,
and preparation and filing of all returns and reports relating to the 401(k)
Plan which are required to be filed with the U.S. Department of Labor and the
Internal Revenue Service, and for all disclosures required to be made to
participants, beneficiaries and others under ERISA.
Amendment and Termination
Citizens First intends to continue the 401(k) Plan indefinitely.
Nevertheless, Citizens First may terminate the 401(k) Plan at any time. Citizens
First reserves the right to make, from time to time, changes which do not cause
any part of the trust to be used for, or diverted to, any purpose other than the
exclusive benefit of participants or their beneficiaries. Citizens First may
amend the plan, however, as it determines to be necessary or desirable, with or
without retroactive effect, to comply with ERISA, as amended, or the Internal
Revenue Code of 1986, as amended.
Merger, Consolidation or Transfer
If the 401(k) Plan merges or consolidates with another plan or transfers
the trust assets to another plan, and if either the 401(k) Plan or the other
plan is then terminated, the 401(k) Plan requires that you would receive a
benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit you would have been entitled to receive
immediately before the merger, consolidation or transfer, if the 401(k) Plan had
then terminated.
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Federal Income Tax Consequences
The following is a brief summary of the material federal income tax
aspects of the 401(k) Plan. You should not rely on this summary as a complete or
definitive description of the material federal income tax consequences relating
to the 401(k) Plan. Statutory provisions change, as do their interpretations,
and their application may vary in individual circumstances. Finally, the
consequences under applicable state and local income tax laws may not be the
same as under the federal income tax laws. Please consult your tax advisor with
respect to any distribution from the 401(k) Plan and transactions involving the
plan.
As a "tax-qualified retirement plan," the Internal Revenue Code affords the
401(k) Plan special tax treatment, including:
(1) the sponsoring employer is allowed an immediate tax deduction for the
amount contributed to the Plan each year;
(2) participants pay no current income tax on amounts contributed by the
employer on their behalf; and
(3) earnings of the Plan are tax-deferred, thereby permitting the tax-
free accumulation of income and gains on investments.
Citizens First will administer the 401(k) Plan to comply with the
requirements of the Internal Revenue Code as of the applicable effective date of
any change in the law. If Citizens First receives an adverse determination
letter regarding its tax-exempt status from the Internal Revenue Service, all
participants would generally recognize income equal to their vested interest in
the 401(k) Plan, the participants would not be permitted to transfer amounts
distributed from the 401(k) Plan to an Individual Retirement Account or to
another tax-qualified retirement plan, and Citizens First would be denied
certain deductions taken with respect to the 401(k) Plan.
Lump Sum Distribution. A distribution from the 401(k) Plan to a participant
or the beneficiary of a participant will qualify as a lump sum distribution if
it is made within one taxable year, on account of the participant's death,
disability or separation from service, or after the participant attains age 59
1/2; and consists of the balance credited to participants under the 401(k) Plan
and all other profit sharing plans, if any, maintained by Citizens First. The
portion of any lump sum distribution required to be included in your taxable
income for federal income tax purposes consists of the entire amount of the lump
sum distribution, less the amount of after-tax contributions, if any, you have
made to this plan and any other profit sharing plans maintained by Citizens
First, which is included in the distribution.
Averaging Rules. The portion of any lump sum distribution that must be
included in your federal taxable income, attributable to participation after
1973 in the 401(k) Plan or in any other profit-sharing plan maintained by
Citizens First, also known as the "ordinary income portion," will be taxable
generally as ordinary income for federal income tax purposes. However, if you
have completed at least five 5 years of participation in the 401(k) Plan before
the taxable year in which the distribution is made, or receive a lump sum
distribution on account of your death, regardless of the period of your
participation in this 401(k) Plan or any other profit-sharing plan maintained by
Citizens First, you may elect to have the ordinary income portion of the lump
sum distribution taxed according to a special five-year averaging rule. The
election of the special five-year averaging rules may apply only to one lump sum
distribution you or your beneficiary receive, provided you receive the
distribution on or after the date you turn 59 1/2 and you elect to have any
other lump sum distribution from a qualified plan received in the same taxable
year taxed under the special five-year averaging rule. The special five-year
averaging rule is not available for distributions made after December 31, 1999.
Under a special grandfather rule, individuals who attained age 50 by 1986 may
elect to have their lump sum distribution taxed under the prior law ten-year
averaging rule. These individuals also may elect to have the ordinary portion of
the lump sum distribution attributable to pre-1974 participation in the plan
taxed at a flat 20% income rate, as gain from the sale of a capital asset.
Citizens First Bancorp Common Stock Included in Lump Sum Distribution. If a
lump sum distribution includes Citizens First Bancorp common stock, the
distribution generally will be taxed in the manner described above, except that
the total taxable amount may be reduced by the amount of any net unrealized
appreciation with respect to Citizens First Bancorp common stock; that is, the
excess of the value of Citizens First Bancorp common stock at the time
7
<PAGE>
of the distribution over its cost or other basis of the securities to the trust.
The tax basis of Citizens First Bancorp common stock, for purposes of computing
gain or loss on its subsequent sale, equals the value of Citizens First Bancorp
common stock at the time of distribution, less the amount of net unrealized
appreciation. Any gain on a subsequent sale or other taxable disposition of
Citizens First Bancorp common stock, to the extent of the amount of net
unrealized appreciation at the time of distribution, will constitute long-term
capital gain, regardless of the holding period of Citizens First Bancorp common
stock. Any gain on a subsequent sale or other taxable disposition of Citizens
First Bancorp common stock, in excess of the amount of net unrealized
appreciation at the time of distribution, will be considered either short-term,
mid-term or long-term capital gain, depending upon the length of the holding
period of Citizens First Bancorp common stock. The recipient of a distribution
may elect to include the amount of any net unrealized appreciation in the total
taxable amount of the distribution, to the extent allowed by regulations to be
issued by the Internal Revenue Service.
Distributions: Rollovers and Direct Transfers to Another Qualified Plan or
to an IRA. You may roll over virtually all distributions from the 401(k) Plan to
another qualified plan or to an individual retirement account generally in
accordance with the terms of the other plan or account.
We have provided you with a brief description of the material federal
income tax aspects of the 401(k) Plan under the Internal Revenue Code. The above
summary is not intended to be a complete or definitive description of the
federal income tax consequences of participating in or receiving distributions
from the 401(k) Plan. Accordingly, you are urged to consult a tax advisor
concerning the federal, state and local tax consequences of participating in,
and receiving distributions from, the 401(k) Plan.
Restrictions on Resale
Any person receiving a distribution of shares of common stock under the
401(k) Plan who is an affiliate of Citizens First Bancorp, as affiliate is
defined under Rules 144 and 405 under the Securities Act of 1933 (the Securities
Act), as amended, may reoffer or resell such shares only under a registration
statement filed under the Securities Act, under Rule 144, or under some other
exemption to the registration requirements of the Securities Act. Directors,
officers and substantial shareholders of Citizens First Bancorp are generally
considered affiliates. Any person who may be an affiliate may wish to
consult with counsel before transferring any common stock they own. In addition,
participants are advised to consult with counsel as to the applicability of
Section 16 of the Securities Exchange Act of 1934, as amended, which may
restrict the sale of Citizens First Bancorp common stock acquired under the
401(k) Plan, or other sales of Citizens First Bancorp common stock.
Persons who are not deemed to be affiliates of Citizens First at the time
of resale will be free to resell any shares of Citizens First Bancorp common
stock distributed to them under the 401(k) Plan, either publicly or privately,
without regard to the registration and prospectus delivery requirements of the
Securities Act or compliance with the restrictions and conditions contained in
the exemptive rules under federal law. An affiliate of Citizens First is someone
who directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, Citizens First. Normally, a
director, principal officer or major shareholder of a corporation may be deemed
to be an affiliate of that corporation. An affiliate of Citizens First will be
permitted to make public resales of the common stock only under a "reoffer"
prospectus, or in accordance with the restrictions and conditions contained in
Rule 144 under the Securities Act, or some other exemption from registration,
and will not be permitted to use this prospectus in connection with any such
resale. In general, the amount of common stock which any affiliate may publicly
resell under Rule 144 in any 3 month period may not exceed the greater of 1% of
Citizens First Bancorp common stock then outstanding, or the average weekly
trading volume reported on the Nasdaq National Market during the 4 calendar
weeks before the sale. Such sales may be made only through brokers without
solicitation, and only at a time when Citizens First Bancorp is current in
filing the reports required of it under the Securities Exchange Act of 1934, as
amended.
SEC Reporting and Short-Swing Profit Liability
Section 16 of the Securities Exchange Act of 1934, as amended, imposes
reporting and liability requirements on officers, directors and persons
beneficially owning more than 10% of public companies such as Citizens First
Bancorp. Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the filing of reports of beneficial
8
<PAGE>
ownership. Within 10 days of becoming a person required to file reports under
Section 16(a), a Form 3 reporting initial beneficial ownership must be filed
with the Securities and Exchange Commission. Certain changes in beneficial
ownership must be reported periodically, either on a Form 4 within 10 days after
the end of the month in which a change occurs, or annually on a Form 5 within 45
days after the close of Citizens First Bancorp's fiscal year.
In addition to the reporting requirements described above, Section 16(b) of
the Securities Exchange Act of 1934 provides for the recovery by Citizens First
Bancorp of profits realized by any officer, director or any person beneficially
owning more than 10% of the common stock resulting from the purchase and sale or
sale and purchase of the common stock within any 6 month period.
The Securities and Exchange Commission has adopted rules that exempt many
transactions involving the 401(k) Plan from the Section 16(a) reporting
requirements and the "short-swing" profit recovery provisions of Section 16(b).
However, certain transactions may be subject to reporting and/or short-swing
profit recovery. Plan participants who are subject to the Section 16
requirements should consult with counsel regarding the applicability of Section
16 to specific transactions involving the 401(k) Plan or otherwise.
LEGAL OPINION
The validity of the issuance of the common stock of Citizens First Bancorp
will be passed upon by Muldoon, Murphy & Faucette LLP, Washington, D.C. Muldoon
Murphy & Faucette LLP acted as special counsel for Citizens First Savings Bank
in connection with its conversion from the mutual to the stock form of
organization.
9
<PAGE>
CITIZENS FIRST SAVINGS BANK 401(k) PLAN
CHANGE OF INVESTMENT ALLOCATION
-------------------------------
1. Participant Data
<TABLE>
<S> <C> <C>
___________________________________________________________________________________________________
Print your full name above (Last, first, middle initial) Social Security Number
___________________________________________________________________________________________________
Street Address City State Zip
</TABLE>
2. Instructions
Citizens First is giving participants a special opportunity to invest their
401(k) Plan account balances in a new investment fund - the Citizens First
Bancorp Stock Fund - which is comprised primarily of common stock issued by
Citizens First Bancorp in connection with the conversion of Citizens First from
the mutual to the stock form of ownership. The percentage of a participant's
account transferred at the direction of the participant into the Citizens First
Bancorp Stock Fund will be used to purchase shares of common stock during the
Subscription and Community Offering. Please review the prospectus and the
prospectus supplement before making any decision.
If there is not enough common stock in the conversion to fill all subscriptions,
the common stock will be apportioned according to the priority rules of the plan
of conversion as described in the attached prospectus under the heading "The
Conversion--The Subscription, Direct Community and Syndicated Community
Offerings" and the trustee for the Plan may not be able to purchase all of the
common stock you requested. In such case, the trustee will purchase shares in
the open market on your behalf, after the conversion, to fulfill your initial
request. Such purchases may be at prices higher than the initial public offering
price.
Investing in common stock entails some risks, and we encourage you to discuss
this investment decision with your investment advisor. The 401(k) Plan trustee
and the Plan Administrator are not authorized to make any representations about
this investment other than what appears in the prospectus and prospectus
supplement, and you should not rely on any information other than what is
contained in the prospectus and prospectus supplement. For a discussion of the
material risks that should be considered by each participant as to an investment
in the common stock, see "Risk Factors" beginning on page __ of the prospectus.
Any shares purchased by the Plan pursuant to your election will be subject to
the conditions or restrictions otherwise applicable to common stock, as
discussed in the prospectus and prospectus supplement.
3. Investment Directions (Applicable to Accumulated Balances Only)
To direct a transfer of all or part of the funds credited to your 401(k) Plan
accounts to the Citizens First Bancorp Stock Fund, you should complete and file
this form with __________ at Citizens First, no later than _______, 2001 at
4:00 p.m. If you need any assistance in completing this form, please contact
_______. If you do not complete and return this form to _________ by 4:00 p.m.,
the funds credited to your accounts under the Plan will continue to be invested
in accordance with your prior investment direction, or in accordance with the
terms of the 401(k) Plan, if no investment direction had been provided.
I hereby revoke any previous investment direction and now direct that the market
value of the units that I have invested in the following funds, to the extent
permissible, be transferred out of the specified fund and invested (in whole
percentages) in the Citizens First Bancorp Stock Fund as follows:
Fund Percentage to be transferred
---- ----------------------------
-----%
-----%
-----%
-----%
-----%
Note: The total amount transferred may not exceed the total value of your
accounts.
<PAGE>
4. Investment Directions (Applicable to Future Contributions After ______,
2001 Only)
I hereby revoke any previous investment instructions and now direct that any
future contributions and/or loan repayments, if any, made by me or on my behalf
by Citizens First, including those contributions and/or repayments received by
the Citizens First 401(k) Plan during the same reporting period as this form, be
invested in the following whole percentages.
Fund Percentage
---- ----------
-----%
-----%
-----%
100%
=====
5. Participant Signature and Acknowledgment - Required
By signing this change of investment allocation form, I authorize and direct the
Plan Administrator and trustee to carry out my instructions. I acknowledge that
I have been provided with a copy of the prospectus and the prospectus supplement
relating to the issuance of common stock. I am aware of the risks involved in
the investment in common stock, and understand that the trustee and Plan
Administrator are not responsible for my choice of investment. By signing this
acknowledgment, I understand that I am not waiving any of my rights under the
Federal securities laws, including the Securities Act of 1933 and the Securities
Exchange Act of 1934.
PARTICIPANT'S SIGNATURE
____________________________________ ____________________
Signature of Participant Date
_____________ is hereby authorized to make the above listed change(s) to this
participant's record.
____________________________________ ____________________
Signature of Citizens First Date
Authorized Representative
Minimum Stock Purchase is $250
Maximum Stock Purchase is $250,000
PLEASE COMPLETE AND RETURN TO ____________ AT
CITIZENS FIRST BY 4:00 P.M. ON_______________, 2001.
<PAGE>
PROSPECTUS [LOGO]
Citizens First Bancorp, Inc.
(Proposed Holding Company for Citizens First Savings Bank)
7,670,500 Shares of Common Stock
Citizens First Savings Bank is converting from the mutual form to the stock form
of organization. As part of the conversion, Citizens First Bancorp, Inc. is
offering its shares of common stock to depositors and borrowers of Citizens
First and, if necessary to complete the offering, to the general public. After
the conversion, Citizens First Bancorp will own Citizens First.
Price Per Share: $10
Minimum Purchase: 25 shares ($250)
Expected Trading Market and Symbol: Nasdaq National Market "CTZN"
<TABLE>
<CAPTION>
Minimum Maximum
----------- -----------
<S> <C> <C>
Number of shares: 5,669,500 7,670,500
Gross offering proceeds: $56,695,000 $76,705,000
Estimated underwriting commissions
and other offering expenses: $ 2,246,000 $ 2,518,000
Estimated net proceeds: $54,449,000 $74,187,000
Estimated net proceeds per share: $ 9.60 $ 9.67
</TABLE>
With regulatory approval, we may increase the maximum number of shares by up to
15%, to 8,821,075 shares, without any further notice.
Trident Securities, a Division of McDonald Investments Inc., will use its best
efforts to assist us in selling at least the minimum number of shares, but does
not guarantee that this number will be sold. Trident Securities is not
obligated to purchase any shares of common stock in the offering. Trident
Securities intends to make a market in the common stock.
The offering to depositors of Citizens First will end at 12:00 Noon, Eastern
time, on ________, 2001. An offering to the general public may also be held and
may end as early as 12:00 Noon, Eastern time, on _________ __, 2001. If the
conversion is not completed by _________ __, 2001, and the Michigan Office of
Financial and Insurance Services and the Federal Deposit Insurance Corporation
allow more time to complete the conversion, all subscribers will be able to
increase, decrease or cancel their orders. All extensions together may not go
beyond ________, 2003. We will hold all funds of subscribers in an interest-
bearing savings account at Citizens First until the conversion is completed or
terminated. Funds will be returned promptly with interest if the conversion is
terminated.
--------------------------------------------------------------------------------
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
Investing in Citizens First Bancorp's common stock involves risk, including the
possible loss of principal. See "Risk Factors" beginning on page _.
Neither the Securities and Exchange Commission, the Michigan Office of Financial
and Insurance Services, the Federal Deposit Insurance Corporation nor any state
securities commission has approved or disapproved of these securities or
determined whether this prospectus is truthful or complete. Anyone who tells
you otherwise is committing a crime.
--------------------------------------------------------------------------------
For assistance, please contact our stock information center at (810) ___-____.
TRIDENT SECURITIES, A DIVISION OF
McDONALD INVESTMENTS INC.
The date of this prospectus is January __, 2001.
<PAGE>
Map Page
Map of the southeastern part of Michigan including the location of Citizens
First's corporate office and thirteen banking offices. The map also lists the
names and addresses of the corporate office and each banking office. The
banking offices are located in Port Huron, Marysville, St. Clair, Marine City,
Algonac, Lapeer, Imlay City, Croswell, Sandusky, Harbor Beach and Bad Axe,
Michigan.
<PAGE>
Questions and Answers about the Stock Offering
The following are answers to frequently asked questions. You should
read this entire prospectus, including "Risk Factors" beginning on page __ and
"The Conversion" beginning on page __, for more information.
Q. Why is Citizens First converting to stock form?
A. We have decided to convert to a stock company to increase our potential for
long-term growth and financial strength in ways not available to us as a
mutual company. The conversion will be important to our future growth and
performance because it will allow us to compete more effectively in our
market.
Q. How many shares of stock are being offered, and at what price?
A. We are offering for sale up to 7,670,500 shares of common stock at a
subscription price of $10.00 per share. We must sell at least 5,669,500
shares. If, as a result of changing stock market or financial conditions,
the independent appraiser retained by us to determine the market value of
Citizens First concludes that the market value has increased, we may sell
up to 8,821,075 shares without notice to you.
Q. Will I be charged a commission?
A. No. You will not be charged a commission or fee to purchase shares in the
conversion.
Q. How much stock may I buy?
A. The minimum order is 25 shares. Generally, no person or group of persons
on a single account may purchase more than $250,000 of common stock (which
equals 25,000 shares) in the subscription offering, and no person, either
alone or together with associates and persons acting in concert with such
person, may purchase more than 1.5% of common stock offered (which equals
115,057 shares).
Q. Will Citizens First Bancorp pay dividends on the stock?
A. We intend to adopt a policy of paying regular cash dividends, but we have
not yet decided on the amount or frequency of payments.
Q. How do I sell my stock after I purchase it?
A. After shares of the common stock begin trading, you may contact a
stockbroker to buy or sell shares. We intend to have our stock quoted on
the Nasdaq National Market under the symbol "CTZN." We cannot assure you
that there will be an active trading market for our stock. You should
consider the possibility that you may be unable to easily sell our stock.
Q. Will my stock be covered by deposit insurance or guaranteed by any
government agency?
A. No. Unlike insured deposit accounts at Citizens First, our stock will not
be insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
Q. When is the deadline for subscribing for stock?
A. We must receive a properly signed and completed order form with the
required payment on or before 12:00 noon, Eastern time on ___________,
2001.
-i-
<PAGE>
Q. How do I purchase stock?
A. First, you should read this entire prospectus carefully. Then, complete,
sign and return the enclosed stock order and certification form, together
with your payment. Subscription orders may be delivered in person to our
office during regular banking hours, or by mail in the enclosed business
reply envelope. Subscription orders received after the subscription
offering expiration date may be held for participation in any community
offering.
Q. Can I change my mind after I place an order to subscribe for stock?
A. No. Once we receive your order, you cannot cancel or change it without our
consent. If we intend to sell fewer than 5,669,500 shares or more than
8,821,075 shares, all subscribers will be notified and given the
opportunity to change or cancel their orders. If you do not respond to
this notice, we will return your funds promptly with interest.
Q. How can I pay for the stock?
A. You have two options: (1) you can pay by cash, check or money order, or
(2) you can authorize a withdrawal from your deposit account at Citizens
First (without any penalty for early withdrawal). Please do not send cash
in the mail.
Q. Will I receive interest on my subscription funds?
A. Yes. You will receive interest on your subscription funds at our passbook
rate from the time we receive your funds until completion or termination of
the conversion. If you authorize payment by withdrawal from an account at
Citizens First, your funds will continue to earn interest at the account
rate until completion of the conversion.
Q. Can I subscribe for shares using funds in my individual retirement account
at Citizens First?
A. Yes. However, you may have to transfer funds to a new self-directed IRA
with Citizens First to subscribe for stock using your IRA funds. Please
call our stock information center at (___) __________ to get more
information. The transfer of IRA funds takes time, so please make
arrangements at least one week before the expiration of the subscription
offering.
Q. Who is eligible to purchase stock in the subscription offering?
A. Certain past and present depositors of Citizens First, along with Citizens
First's employee stock ownership plan, are eligible to purchase stock in
the subscription offering. Depositors with at least $50 on deposit as of
July 31, 1999 will have first priority in the subscription offering.
Q. What happens if there are not enough shares of stock to fill all orders?
A. If there is an oversubscription, then you may not receive any or all of the
shares you want to purchase. We will allocate shares in the order of
priority established in our plan of conversion.
Q. Who can help answer any other questions I may have about the stock
offering?
A. For answers to other questions, we encourage you to read this prospectus.
Questions may also be directed to our stock information center at (___)
_________ during weekdays between the hours of 9:00 a.m. and 5:00 p.m,
Eastern time. You may also visit our stock information center, which is
located at ___ Water Street, Port Huron, Michigan.
-ii-
<PAGE>
Summary
You should read this entire document carefully before you decide to invest. For
assistance, please contact our stock information center at (810) ___-____.
The Companies
<TABLE>
<S> <C>
Citizens First Bancorp, Inc. Citizens First formed Citizens First Bancorp to be its
525 Water Street holding company. To date, Citizens First Bancorp has
Port Huron, Michigan 48060 only conducted organizational activities. After the
(810) 987-8300 conversion, Citizens First Bancorp will own all of
Citizens First's capital stock and will direct, plan
and coordinate Citizens First's business activities.
In the future, Citizens First Bancorp might become an
operating company or acquire or organize other
operating subsidiaries, including other financial
institutions or financial services companies, although
it currently has no specific plans or agreements to do
so.
Citizens First Savings Bank Citizens First is a community-oriented financial
525 Water Street institution dedicated to meeting the financial service
Port Huron, Michigan 48060 needs of consumers within its market area. Citizens
(810) 987-8300 First currently operates out of its main office in
Port Huron, Michigan and its thirteen branch offices
located throughout eastern Michigan. At August 31,
2000, Citizens First had total assets of $794.4
million, deposits of $637.0 million and total equity
of $67.0 million.
For a discussion of Citizens First's business strategy
and recent results of operations, see "Management's
Discussion and Analysis of Financial Condition and
Results of Operations." For a discussion of Citizens
First's business activities, see "Business of Citizens
First Savings Bank."
The Conversion
What is the Conversion? (page __) The conversion is a change in Citizens First's legal
form of organization. As a mutual savings bank, Citizens
First currently has no stock or stockholders. Instead,
Citizens First operates for the mutual benefit of its depositors,
who elect directors and vote on other important matters. Through
the conversion, Citizens First will change its corporate form
to become a stock savings bank with all of its shares owned by
Citizens First Bancorp. Voting rights in Citizens First
Bancorp will belong to its stockholders.
Citizens First is conducting the conversion under the terms of
its plan of conversion. The Michigan Office of Financial and
Insurance Services has approved the plan of conversion with the
condition that it be approved by Citizens First's members.
Citizens First has called a special meeting for _____________, 2001
to vote on the plan of conversion, including establishment
</TABLE>
1
<PAGE>
<TABLE>
<S><C>
of the foundation. In addition, the Federal Deposit
Insurance Corporation has informed Citizens First
that, subject to certain conditions, it does not
intend to object to the conversion. If Citizens
First fulfills those conditions, the Federal
Deposit Insurance Corporation will issue a final
non-objection letter.
Reasons for the Conversion The Board of Directors determined to convert to a stock
(page __) company to increase Citizens First's potential for long-term
growth and financial strength in ways not available to it
as a mutual company. The conversion will be important to
Citizens First's future growth and performance because it will:
. facilitate balance sheet growth;
. expand its ability to serve the public;
. enhance its ability to expand through adding new products
and services and through the acquisition of other financial
institutions or their assets;
. enhance its ability to diversify into other financial services
related activities; and
. enhance its ability to attract and retain qualified management
through stock-based compensation plans.
Currently, Citizens First does not have any specific plans or
arrangements for diversification or expansion.
Citizens First Foundation To continue its long-standing commitment to its local communities,
(page __) Citizens First intends to establish a charitable foundation, Citizens
First Foundation, as part of the conversion. This foundation will be
in addition to Citizens First's current foundation, Citizens First
Savings Charitable Foundation. The foundation will be funded with
Citizens First Bancorp common stock equal to 8% of the shares sold in
the conversion. This would range from 453,560 shares, assuming 5,669,500
shares are sold in the conversion, to 613,640 shares, assuming
7,670,500 shares are sold in the conversion, or 705,686 shares if the
number of shares sold in the conversion is increased to 8,821,075 shares.
Based on the purchase price of $10.00 per share, the foundation would be
funded with between $4.5 million and $6.1 million of common stock, or
$7.1 million, if the number of shares sold in the conversion is increased
to 8,821,075 shares. Citizens First Foundation will make grants and
donations to non-profit and community groups and projects located within
the communities in which Citizens First operates. If Citizens First
Foundation was not established as part of the conversion, the amount
of common stock sold would be greater than if the conversion was completed
with the foundation. For a further discussion of the financial impact of
the foundation, including its dilutive effect on those who purchase shares
in the conversion, see "Risk Factors--The
</TABLE>
2
<PAGE>
<TABLE>
<S><C>
contribution to Citizens First Foundation means that a stockholder's total
ownership interest will be 7.4% less after the contribution."
Benefits of the Conversion to Citizens First Bancorp and Citizens First intend to adopt the following
Management (page __) benefit plans and arrangements:
. Employee Stock Ownership Plan. This plan intends to purchase 8% of the shares
issued in the conversion. Citizens First will allocate these shares to employees
over a period of years in proportion to their compensation.
. Stock-Based Incentive Plan. Under this plan, which will be adopted after the
conversion and submitted to stockholders for their approval, Citizens First
Bancorp may award stock options and shares of restricted stock to key employees
and directors of Citizens First Bancorp and its affiliates. The number of
options available under this plan will be equal to 10% of the number of shares
issued in the conversion. The number of shares available for restricted stock
awards will equal 4% of the number of shares issued in the conversion. Shares of
restricted stock will be awarded at no cost to the recipient.
. Employment and Change in Control Agreements. Citizens First Bancorp and Citizens
First intend to enter into employment agreements with Larry J. Moeller, Sr.,
President and Chief Executive Officer of Citizens First. Citizens First also
intends to enter into Change in Control Agreements with four senior executive
officers. These agreements will provide for severance benefits if the executives
are terminated following a change in control of Citizens First Bancorp or
Citizens First.
. Employee Severance Compensation Plan. This plan will provide severance benefits
to eligible employees if there is a change in control of Citizens First Bancorp
or Citizens First.
The following table summarizes the total number and dollar value of the shares of
common stock that the employee stock ownership plan expects to acquire and the
total value of all restricted stock awards that are expected to be available under
the stock-based incentive plan, based on the issuance of 8,284,140 shares in the
conversion. The table assumes the value of the shares is $10.00 per share. The
table does not include a value for the options because their exercise price would
be equal to the fair market value of the common stock on the day that the options
are granted. As a result, financial gains can be realized on an option only if the
market price of
</TABLE>
3
<PAGE>
the common stock increases above the price at
which the option is granted.
<TABLE>
<CAPTION>
Percentage
of Shares
Number Estimated Issued
of Value in the
Shares of Shares Conversion
-----------------------------------------------
<S> <C> <C> <C>
Employee stock ownership plan......... 662,731 $6,627,310 8.0%
Restricted stock awards............... 331,366 3,313,656 4.0
Stock options......................... 828,414 -- 10.0
--------- ---------- ----
Total.......................... 1,882,511 $9,940,996 22.0%
========= ========== ====
</TABLE>
THE OFFERING
<TABLE>
<S><C>
Persons Who Can Order Stock in the Citizens First Bancorp is offering shares of its
Offering (page __) common stock in a "subscription offering" in the
following order of priority to:
Note: Subscription rights are not 1. Persons with $50 or more on deposit at
transferable, and persons with Citizens First as of July 31, 1999.
subscription rights may not subscribe
for shares for the benefit of any 2. The Citizens First employee stock ownership plan,
other person. If you violate this which provides retirement benefits to Citizens First's
prohibition, you may lose your rights employees.
to purchase shares and may face criminal
prosecution and/or other sanctions. 3. Persons with $50 or more on deposit at Citizens First as of
December 31, 2000.
If the offering is oversubscribed, shares will be allocated in order of the
priorities described above under a formula outlined in the plan of conversion.
Citizens First Bancorp may offer shares not sold in the subscription offering to
the general public in a community offering. People and trusts of people who are
residents of St. Clair, Sanilac, Huron and Lapeer Counties, Michigan will have
first preference to purchase shares in a community offering. The community
offering, if held, may begin at any time during the subscription offering or
immediately after the end of the subscription offering.
Deadline for Ordering Stock The subscription offering will end at 12:00 Noon, Eastern time, on _________ __,
2001. Citizens First expects that the community offering will terminate at the same
time, although it may continue for up to 45 days after the end of the subscription
offering, or longer if regulators approve a later date. All extensions, in the
aggregate, may not go beyond ______________, 2003.
</TABLE>
4
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<TABLE>
<S> <C>
Purchase Price The purchase price is $10.00 per share. The Boards of Directors of Citizens First
Bancorp and Citizens First consulted with Trident Securities in determining this
price. You will not pay a commission to buy any shares in the conversion.
Number of Shares to be Sold Citizens First Bancorp is offering for sale between 5,669,500 and 7,670,500 shares
of its common stock in this offering. With regulatory approval, Citizens First
Bancorp may increase the number of shares to be sold to 8,821,075 shares without
giving you further notice or the opportunity to change or cancel your order.
How the Offering Range was The offering range is based on an independent appraisal of Citizens First by Keller
Determined (page __) & Company, Inc., an appraisal firm experienced in appraisals of savings
institutions. Keller has estimated that as of November 17, 2000, Citizens First's
market value ranged between $56.7 million and $76.7 million, with a midpoint of
$66.7 million. This results in an offering of between 5,669,500 and 7,670,500
shares of stock at an offering price of $10.00 per share. Keller's appraisal was
based in part on Citizens First's financial condition and results of operations and
the effect on Citizens First of the additional capital raised by the sale of common
stock in this offering. Keller's independent appraisal will be updated before the
conversion is completed.
The independent appraisal does not indicate market value. Citizens First Bancorp
cannot guarantee that anyone who purchases shares in the conversion will be able to
sell their shares at or above the $10.00 purchase price.
Purchase Limitations (page __) Citizens First's plan of conversion establishes limitations on the purchase of
stock in the offering. These limitations include the following:
. The minimum purchase is 25 shares.
. The maximum purchase in the subscription offering by any person, or group of
persons through a single deposit account or similarly titled deposit accounts,
is $250,000 of common stock, which equals 25,000 shares.
. The maximum purchase by any person in the community offering is $250,000 of
common stock, which equals 25,000 shares.
. The maximum purchase in the subscription offering and community offering
combined by any person, related persons or persons acting together is 1.5% of
the common stock offered in the offering, which equals 115,057 shares.
</TABLE>
5
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<TABLE>
<S> <C>
How to Purchase Common Stock If you want to place an order for shares in the conversion, you must complete an
(page __) original stock order form and send it together with full payment to Citizens First.
You must sign the certification that is on the reverse side of the stock order
form. Citizens First must receive your stock order form before the end of the
subscription offering or the end of the community offering, as appropriate. Once
Citizens First receives your order, you cannot cancel or change it without Citizens
First's consent.
To ensure that Citizens First properly identifies your subscription rights, you
must list all of your deposit accounts as of the eligibility dates on the stock
order form. If you fail to do so, your subscription may be reduced or rejected if
the offering is oversubscribed.
Citizens First Bancorp and Citizens First may, in their sole discretion, reject
orders received in the community offering either in whole or in part. If your order
is rejected in part, you cannot cancel the remainder of your order.
You may pay for shares in the subscription offering or the community offering in
any of the following ways:
. By cash, if paid in person.
. By check or money order made payable to Citizens First Bancorp.
. By authorizing withdrawal from an account at Citizens First. To use funds in an
Individual Retirement Account at Citizens First, you may have to transfer funds
to a new individual retirement account with Citizens First. Please contact the
stock information center at least one week before the end of the subscription
offering for assistance.
Citizens First will pay interest on your subscription funds at the rate it pays on
passbook accounts, which is currently __%, from the date it receives your funds
until the conversion is completed or terminated. All funds authorized for
withdrawal from deposit accounts with Citizens First will earn interest at the
applicable account rate until the conversion is completed. There will be no early
withdrawal penalty for withdrawals from certificates of deposit used to pay for
stock. If, as a result of a withdrawal from a certificate of deposit, the balance
falls below the minimum balance requirement, the remaining funds will earn interest
at Citizens First's passbook rate.
How Citizens First Bancorp and Citizens First Bancorp will use 50% of the net offering proceeds to buy
Citizens First Will Use the Proceeds of all of the common stock of Citizens First. Citizens First will use the
this Offering (page __) funds it receives for general business purposes, including the repayment of
borrowings, originating loans and purchasing securities.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Citizens First Bancorp also will loan an amount equal to 8% of the gross proceeds
of the offering to the employee stock ownership plan to fund its purchase of common
stock in the subscription offering. If the employee stock ownership plan's
subscription is not filled in its entirety, it may purchase shares in the open
market or directly from Citizens First Bancorp with applicable regulatory approval.
Citizens First Bancorp will keep the remainder of the net proceeds for general
business purposes. These purposes may include, for example, investment in
securities, paying cash dividends or buying back shares of common stock.
Citizens First Bancorp and Citizens First may also use the proceeds of the offering
to expand and diversify their businesses, although they have no specific plans to
do so at this time.
Purchases by Directors and Executive Citizens First's directors and officers intend to subscribe for 157,500 shares,
Officers (page __) which equals 2.05% of the shares that would be sold at the maximum of the offering
range. If fewer shares are sold in the conversion, then directors and executive
officers may own a greater percentage of Citizens First Bancorp. Directors and
executive officers will pay the same $10.00 per share price as everyone else who
purchases shares in the conversion.
Market for Citizens First Bancorp Citizens First Bancorp intends to have its common stock quoted on the Nasdaq
Common Stock (page __) National Market under the symbol "CTZN." After shares of the common stock begin
trading, you may contact a stock broker to buy or sell shares. Citizens First
Bancorp cannot assure you that there will be an active trading market for the
common stock. See "Risk Factors - Citizens First Bancorp's stock price may decline
when trading commences."
Citizens First Bancorp's Dividend Citizens First Bancorp intends to adopt a policy of paying regular cash dividends,
Policy (page __) but has not yet decided on the amount or frequency of payments.
</TABLE>
7
<PAGE>
Risk Factors
You should consider carefully the following risk factors and all other
information contained in this prospectus before purchasing Citizens First
Bancorp common stock. You are encouraged to consult with your financial advisor
regarding the suitability of purchasing Citizens First Bancorp common stock.
Citizens First expects that its return on equity will initially decline after
conversion
Return on equity, which equals net income divided by average equity, is a
ratio used by many investors to compare the performance of a particular company
with other companies. Citizens First Bancorp expects that its return on equity
will initially decline after the offering as a result of the time needed to
effectively deploy the additional capital raised in this offering and the net
proceeds to generate a market rate of return. Over time, Citizens First Bancorp
intends to use the net proceeds from this offering to increase earnings per
share and book value per share, without assuming undue risk, with the goal of
achieving a return on equity competitive with other publicly-traded financial
institutions. This goal could take a number of years to achieve, and Citizens
First Bancorp cannot assure you that this goal will be attained. Consequently,
you should not expect a competitive return on equity in the near future. See
"Pro Forma Data" for an illustration of the financial effects of this offering.
Citizens First's increased emphasis on commercial and consumer lending may hurt
both asset quality and profits
At August 31, 2000, commercial business, commercial and multi-family real
estate, and consumer loans, with the exception of home equity consumer loans,
represented 28.2% of Citizens First's total loan portfolio as compared to 13.2%
of its loan portfolio at March 31, 1996. Citizens First intends to continue to
emphasize these types of lending, which generally provide higher rates of return
but also possess a greater risk of loss than loans secured by residential real
estate. The greater risk results from generally higher loan balances and
dependence on the performance of the property in the case of commercial real
estate and multi-family loans and loans which are secured by business assets
other than real estate, such as equipment, inventory and accounts receivable in
the case of commercial loans. Additionally, consumer loans entail greater risk
than residential real estate loans because they are generally secured by rapidly
depreciating assets such as automobiles, or to a lesser extent, are unsecured.
Automobile loans originated by Citizens First may be made in amounts up to 100
percent of the retail value of the automobile securing the loan and therefore
entail a greater risk of loss due to the rapid depreciation of the collateral
securing the loan.
While Citizens First had no charge-offs for the first five months of fiscal
2001, in fiscal 2000, 1999, and 1998, charge-offs for commercial business,
commercial and multi-family real estate and consumer loans amounted to $230,000
(or 97.9% of total charge-offs), $167,000 (or 100% of total charge-offs) and
$187,000 (or 97.9% of total charge-offs), respectively. Additionally, its level
of nonperforming loans has increased from $507,000 (or 0.12% of total loans) at
March 31, 1996 to $2.1 million (or 0.36% of total loans) at August 31, 2000.
Citizens First cannot assure that its level of nonperforming loans or its
level of charge-offs of commercial business loans, commercial and multi-family
real estate and consumer loans, as well as other types of loans, will not be
higher in future periods, which could lead to a significant increase in the
provision for loan losses in future periods and reduce net income.
Additionally, because Citizens First's emphasis on commercial business and
commercial real estate loans began in January of 1995 and its commencement of
indirect automobile loans began in March of 1999, Citizens First has had a
limited time period to evaluate the loss experience of such loans and the
effectiveness of its underwriting practices in these areas. Accordingly, such
loans could experience higher levels of nonperformance in future periods. See
"Business of Citizens First Savings Bank--Lending Activities" for additional
information.
8
<PAGE>
Strong competition could hurt Citizens First's profits
Citizens First faces intense competition both in making loans and attracting
deposits. This competition has made it more difficult for Citizens First to
make new loans and at times has forced it to offer higher deposit rates in its
market area. Citizens First expects competition to increase in the future as a
result of legislative, regulatory and technological changes and the continuing
trend of consolidation in the financial services industry. Technological
advances, for example, have lowered barriers to market entry, allowed banks to
expand their geographic reach by providing services over the Internet and made
it possible for non-depository institutions to offer products and services that
traditionally have been provided by banks. Recent changes in federal banking
law now permit affiliation among banks, securities firms and insurance
companies, which also will change the competitive environment in which Citizens
First conducts business. Some of the institutions with which Citizens First
competes are significantly larger than Citizens First and, therefore, have
significantly greater resources. For more information about Citizens First's
market area and the competition it faces, see "Business of Citizens First
Savings Bank--Market Area" and "Business of Citizens First Savings Bank--
Competition."
A downturn in the local economy could hurt Citizens First's profits
Nearly all of Citizens First's loans are made to borrowers who live and work
in the counties surrounding Port Huron, Michigan. As a result of this
concentration, a downturn in the Michigan or Port Huron economy would likely
cause significant increases in nonperforming loans and assets, which could hurt
Citizens First's profits. For a discussion of Citizens First's market area, see
"Business of Citizens First Savings Bank -- Market Area."
Loss of key personnel could hurt Citizens First's future performance
The successful operation of Citizens First depends significantly upon the
efforts of its senior management, including Larry J. Moeller, Sr., President and
Chief Executive Officer. Mr. Moeller currently is on a temporary leave of
absence for treatment of his recent diagnosis of leukemia. Although Mr. Moeller
is expected to resume his duties early in 2001, there is no assurance that he
will be able to do so. Citizens First believes that its senior management has
sufficient banking background and experience to provide continuity of qualified
management. If, however, Mr. Moeller did not continue as President and Chief
Executive Officer, there can be no assurance that Citizens First future
performance would not be affected. See "Management of Citizens First Savings
Bank--Executive Officers."
The contribution to Citizens First Foundation means that a stockholder's total
ownership interest will be 7.4% less after the contribution
Purchasers of shares will have their ownership and voting interests in
Citizens First Bancorp diluted by 7.4% at the close of the conversion when
Citizens First Bancorp issues an additional 8% of shares sold in the conversion
and contributes those shares to the foundation. For a further discussion
regarding the effect of the contribution to the foundation, see "Pro Forma Data"
and "Comparison of Independent Valuation and Pro Forma Financial Information
With and Without the Foundation."
Contribution to Citizens First Foundation may not be tax deductible which could
hurt Citizens First Bancorp's profits
Citizens First Bancorp believes that its contribution to the Citizens First
Foundation should be deductible for federal income tax purposes. However,
Citizens First Bancorp does not have any assurance that the Internal Revenue
Service will grant tax-exempt status to the foundation. If the contribution,
which based on the sale of 7,670,500 shares would be $6.1 million, is not
deductible, Citizens First Bancorp would not receive any tax benefit from the
contribution. In addition, even if the contribution is tax deductible, Citizens
First Bancorp may not have sufficient profits to be able to fully use the
deduction. The ability to use such deduction will also be affected by the $4.4
million of carryforward deduction remaining from its prior contribution to the
Citizens First Savings Charitable
9
<PAGE>
Foundation. For a further discussion of the contribution to the charitable
foundation, see "The Conversion--Establishment of the Charitable Foundation--Tax
Considerations."
Establishment of Citizens First Foundation will hurt Citizens First Bancorp's
profits for the year 2001
Citizens First Bancorp intends to contribute to Citizens First Foundation
shares of its common stock equal to 8% of the shares sold in the conversion.
This contribution, which based on the sale of 7,670,500 shares would be $6.1
million, will hurt net income during the fiscal year in which the foundation is
established, which is expected to be 2001, possibly resulting in an operating
loss for that year. If the contribution to the foundation had been made during
the year ending March 31, 2000, pro forma net income would have been $3,714,000
rather than $7,714,000. For a further discussion regarding the effect of the
contribution to the foundation, see "The Conversion--Establishment of the
Charitable Foundation."
Changing interest rates could hurt Citizens First's profits
Like most financial institutions, Citizens First's ability to make a profit
depends largely on its net interest income, which is the difference between
interest income it receives from its loans and securities and interest it pays
on deposits and borrowings. If interest rates increase, Citizens First
anticipates that its net interest income would decline with interest paid on its
deposits increasing more quickly than interest earned on its assets. For
further discussion of how changes in interest rates could have an impact on
Citizens First, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Management of Interest Rate Risk and Market Risk
Analysis."
Implementation of new benefit plans will increase Citizens First's future
compensation expense
Citizens First will recognize additional material employee compensation and
benefit expenses stemming from the shares purchased or granted to employees and
executives under new benefit plans. These new expenses will reduce Citizens
First's future profits. Citizens First cannot predict the actual amount of
these new expenses because applicable accounting practices require that they be
based on the fair market value of the shares of common stock at specific points
in the future. Citizens First would recognize expenses for its employee stock
ownership plan when shares are committed to be released to participants'
accounts and would recognize expenses for restricted stock awards over the
vesting period of awards made to recipients. These expenses have been estimated
in the pro forma financial information under "Pro Forma Data" assuming the
$10.00 per share purchase price as fair market value. Actual expenses, however,
may be higher or lower, depending on the price of Citizens First Bancorp's
common stock. For further discussion of these plans, see "Management of
Citizens First Savings Bank--Benefits."
Issuance of shares for benefit programs may reduce your ownership interest
If Citizens First Bancorp adopts the stock-based incentive plan, it intends to
issue shares to its officers and directors through this plan. If the restricted
stock awards under the stock-based incentive plan are funded from authorized but
unissued stock, your ownership interest could be reduced by up to approximately
3.85%. If the shares issued upon the exercise of stock options under the stock-
based incentive plan are issued from authorized but unissued stock, your
ownership interest could be reduced by up to approximately 9.09%. See "Pro
Forma Data" and "Management of Citizens First Savings Bank--Benefits."
Various factors could make takeover attempts that you want to occur more
difficult to achieve
Provisions of Citizens First Bancorp's articles of incorporation and bylaws,
federal and state regulations and various other factors may make it more
difficult for companies or persons to acquire control of Citizens First Bancorp
without the consent of Citizens First Bancorp's Board of Directors. You may
believe a takeover would be advantageous because, for example, the potential
acquiror could be offering a premium over the then prevailing price of Citizens
First Bancorp common stock. The factors that may discourage takeover attempts or
make them more difficult include:
10
<PAGE>
. Anti-takeover provisions and statutory provisions. Provisions in
Citizens First Bancorp's articles of incorporation and bylaws, the
corporate law of the State of Delaware (the state in which Citizen First
Bancorp is incorporated), and federal regulations may make it difficult
and expensive to pursue a takeover attempt that management opposes.
These provisions will also make the removal of the current Board of
Directors or management of Citizens First Bancorp, or the appointment of
new directors, more difficult. These provisions include: limitations on
voting rights of beneficial owners of more than 10% of Citizens First
Bancorp's common stock; supermajority voting requirements for certain
business combinations; certain qualifications to stand for election to
and serve on the board of directors and the election of directors to
staggered terms of three years. The bylaws of Citizens First Bancorp
also contain provisions regarding the timing and content of stockholder
proposals and nominations. For further information about these
provisions, see "Restrictions on Acquisition of Citizens First Bancorp
and Citizens First."
. Expected voting control by management and employees. The shares of
common stock that Citizens First's directors and executive officers
intend to purchase in the conversion, when combined with the shares that
may be awarded to participants under Citizens First's and Citizens First
Bancorp's benefit plans, could result in management and employees
controlling a significant percentage of Citizens First Bancorp's common
stock. If these individuals were to act together, they could have
significant influence over the outcome of any stockholder vote. In
addition, based on the issuance of 8,284,140 shares, the total, direct
and indirect, voting power of management and employees may be 1,975,011
shares or approximately 24% of Citizens First Bancorp's outstanding
stock. That level would enable management and employees as a group to
defeat any stockholder matter that requires an 80% vote. For information
about management's intended stock purchases and the number of shares
that may be awarded under new benefit plans, see "Management of Citizens
First Savings Bank--Benefits" and "Shares to Be Purchased by Management
with Subscription Rights."
. Required change in control payments. If a change in control had occurred
at August 31, 2000 and all current executive officers and employees of
Citizens First were terminated, the aggregate value of the severance
benefits required to be paid under employment and change in control
agreements with executive officers and the employee severance plan,
based on 2000 compensation data, would have been approximately $4.4
million. This estimate does not take into account future salary
adjustments or bonus payments or the value of the continuation of other
employee benefits. These payments may have the effect of increasing the
costs of acquiring Citizens First Bancorp, thereby discouraging future
attempts to take over Citizens First Bancorp. For information about the
proposed employment and severance agreements and severance plan, see
"Management of Citizens First Savings Bank--Executive Compensation."
Citizens First Bancorp's stock price may decline when trading commences
Citizens First Bancorp cannot guarantee that if you purchase shares in the
conversion you will be able to sell them at or above the $10.00 purchase price.
In several recent cases, common stock issued by converted financial institutions
has commenced trading at a price that is below the price at which those shares
were sold in the initial offerings of those companies. After the shares of
Citizens First Bancorp begin trading, the trading price of the common stock will
be determined by the marketplace, and will be influenced by many factors,
including prevailing interest rates, investor perceptions and general industry
and economic conditions.
11
<PAGE>
RECENT DEVELOPMENTS
The following tables contain certain information concerning the financial
position and results of operations of Citizens First at and for the dates
indicated. The data presented at November 30, 2000 and for the eight month
periods ended November 30, 2000 and 1999 are derived from unaudited condensed
consolidated financial statements but, in the opinion of management, reflect all
adjustments necessary to present fairly the results for these interim periods.
These adjustments consist only of normal recurring adjustments. The results of
operations for the eight months ended November 30, 2000 are not necessarily
indicative of the results of operations that may be expected for the year ended
March 31, 2001. This information should be read in conjunction with the
Consolidated Financial Statements included in this prospectus.
<TABLE>
<CAPTION>
At At
November 30, March 31,
2000 2000
------------- ---------
(In thousands)
<S> <C> <C>
Selected Consolidated Financial Data:
Total assets.............................................. $792,022 $741,570
Cash and cash equivalents................................. 23,880 45,182
Loans, net (1)............................................ 656,926 568,503
Securities available-for-sale (2)......................... 87,531 99,407
Deposits.................................................. 612,086 601,008
FHLB advances............................................. 96,004 70,502
Total equity.............................................. 68,459 63,259
</TABLE>
<TABLE>
<CAPTION>
At or For the Eight
Months
Ended November 30,
-----------------------
2000 1999
--------- --------
(In thousands)
<S> <C> <C>
Selected Operating Data:
Total interest income..................................... $ 39,163 $ 33,877
Total interest expense.................................... 22,217 17,279
Net interest income..................................... 16,946 16,598
Provision for loan losses................................. 106 -
Net interest income after provision for loan losses...... 16,840 16,598
Noninterest income........................................ 2,900 2,681
Noninterest expense....................................... 11,839 11,129
Income before income taxes................................ 7,901 8,150
Income taxes.............................................. 2,608 2,674
Net income............................................... 5,293 5,476
(See footnotes on next page)
</TABLE>
12
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<TABLE>
<CAPTION>
At or For the
Eight Months
Ended November 30,
------------------
2000 1999
------ -------
<S> <C> <C>
Selected Operating Ratios and Other Data (3):
Performance Ratios:
Average yield on interest-earning assets (4)................................ 7.92% 7.75%
Average rate paid on interest-bearing liabilities........................... 4.87 4.60
Average interest rate spread (5)............................................ 3.05 3.15
Net interest margin (6)..................................................... 3.38 3.49
Ratio of interest-bearing assets to interest-bearing liabilities............ 109.40 114.43
Net interest income after provision for loan losses to noninterest expense.. 142.20 149.15
Noninterest expense as a percent of average assets.......................... 2.24 2.42
Return on average assets.................................................... 1.09 1.19
Return on average equity.................................................... 12.09 12.17
Ratio of average equity to average assets................................... 9.04 8.93
</TABLE>
<TABLE>
<CAPTION> At At
November 30, March 31,
2000 2000
-------------- ----------
<S> <C> <C>
Regulatory Capital Ratios:
Leverage capital ratio...................................................... 8.76% 8.50%
Risk-based capital ratio.................................................... 12.11 13.10
Asset Quality Ratios:
Nonperforming loans and troubled debt restructurings as a percent
of total loans (8)......................................................... 0.42 0.22
Nonperforming assets and troubled debt restructurings as a
percent of total assets (9)................................................ 0.35 0.18
Allowance for loan losses as a percent of total loans....................... 1.58 1.80
Allowance for loan losses as a percent of nonperforming loans and troubled
debt restructurings (1)(8)................................................. 384.19 839.57
Net loans charged-off to average interest-earning loans..................... 0.04 0.04
</TABLE>
---------------
(1) Loans, net, represents gross loans receivable net of the allowance for loan
losses, loans in process and deferred loan origination fees. The allowance
for loan losses at November 30, 2000 and March 31, 2000 was $10.6 million
and $10.5 million, respectively.
(2) The Bank adopted Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
during fiscal 1994. Concurrently with the adoption of SFAS 133 in March of
2000, all held-to-maturity investments were transferred to available-for-
sale classification.
(3) Asset Quality Ratios and Regulatory Capital Ratios are end of period ratios.
With the exception of end of period ratios, all ratios are based on average
monthly balances during the indicated periods.
(4) Calculations of yield for 2000 and 1999 are presented on a taxable
equivalent basis using the combined Federal and state income tax rate of 34%
for 2000 and 1999.
(5) The average interest rate spread represents the difference between the
weighted average yield on average interest-earning assets and the weighted
average cost of average interest-bearing liabilities.
(6) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(7) For definitions and further information relating to the Bank's regulatory
capital requirements, see "Regulation and Supervision-- Savings Institution
Regulation--Capital Requirements." See "Regulatory Capital Compliance" for
the Bank's pro forma capital levels as a result of the Offerings.
(8) Nonperforming loans consist of all nonaccrual loans and all other loans 90
days or more past due. It is the policy of the Bank to cease accruing
interest on loans 90 days or more past due (unless the loan principal and
interest are determined by management to be fully secured and in the process
of collection) and to charge off all accrued interest. See "Business of
Citizens First Savings Bank--Nonperforming Assets and Delinquencies."
(9) Nonperforming assets consist of nonperforming loans, other repossessed
assets and real estate owned.
13
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Comparison of Financial Condition at November 30, 2000 and March 31, 2000
Total assets increased $50.5 million, or 6.8%, from $741.6 million at March
31, 2000 to $792 million at November 30, 2000, primarily as a result of a $88.4
million, or 15.6%, increase in net loans. The increase in loans was mainly due
to a $38.9 million, or 10.0%, increase in one- to four-family residential
mortgage loans, a $16.6 million, or 22.9%, increase in commercial real estate
loans, a $10.6 million, or 29.2%, increase in automobile loans and a $9.0
million, or 47.3%, increase in commercial loans. The increase in commercial
real estate loans and commercial loans was primarily due to Citizens First's
continued emphasis and increased marketing of commercial real estate and
commercial loans which resulted in increased originations. The increase in
automobile loans resulted from the continued expansion in the indirect
automobile financing market through the establishment of additional
relationships with automobile dealers.
Total cash and cash equivalents decreased $21.3 million, or 47.2%, from
$45.2 million at March 31, 2000 to $23.9 million at November 30, 2000 and
investment securities decreased $11.9 million or 12.0% from $99.4 million at
March 31, 2000 to $87.5 million at November 30, 2000. These decreases resulted
from the use of maturing investment securities and excess cash and equivalents
to fund loan growth. Federal Home Loan Bank advances increased $25.5 million, or
36.2%, from $70.5 million at March 31, 2000 to $96.0 million at November 30,
2000 primarily to fund loan growth. To a lesser extent, loan growth was funded
by a $11.1 million, or 1.8%, increase in deposits from $601.0 million at March
31, 2000 to $612.1 million at November 30, 2000. The increase in deposits was
primarily due to a $20 million, or 6.16%, increase in certificates of deposits
primarily from municipal and governmental entities which were offset, in part,
by a $10.3 million, or 9.7%, decrease in money market deposits.
Total equity was $68.5 million at November 30, 2000 compared to $63.3
million at March 31, 2000. The increase in retained earnings was due to net
income of $5.3 million.
Comparison of Operating Results for the Eight Months Ended November 30, 2000 and
November 30, 1999
Net Income. Net income decreased $183,000, or 3.4%, from $5.476 million for
the eight months ended November 30, 1999 to $5.293 million for the eight months
ended November 30, 2000. The decrease was primarily attributable to an increase
of approximately $800,000 in salaries and benefits due to additional staff in
connection with the establishment of the trust department, additional staff in
the internal audit department along with normal salary increases offset by a
$348,000 increase in net interest income and a $205,000 increase in service
charges and other fees.
Net Interest Income. Net interest income increased $348,000, or 2.10%, to
$16.9 million for the eight months ended November 30, 2000 compared to $16.6
million for the eight months ended November 30, 1999, primarily due to a $38.6
million, or 5.4%, increase in the average balance of interest-earning assets due
to growth in the investment portfolio, cash and cash equivalents. The increase
from higher average balances of investment securities and cash were offset by a
$29.6 million, or 4.8%, decrease in the average balance of loans from $616.5
million for the eight months ended November 30, 1999 to $587.0 million at
November 30, 2000. The decrease in the average balance of loans and increase in
the average balance of investment securities and cash is the result of a $130.8
million loan sale in December 1999 the proceeds of which were initially used to
purchase investment securities and later used during 2000 to fund loan growth.
Interest income increased $5.3 million, or 15.6%, from $33.9 million for
the eight months ended November 30, 1999 to $39.2 million for the eight months
ended November 30, 2000. The increase in interest income resulted from a higher
overall balance of interest earning assets and an increase in the average yield
on interest earning assets due to higher market interest rates and increased
commercial real estate, commercial and consumer loans which bear higher rates
than one- to four-family loans. Interest expense increased $4.9 million, or
28.6%, from $17.3 million for the eight months ended November 30, 1999 to $22.2
million for the eight months ended November 30, 2000. The increase in interest
expense was primarily due to a $4.2 million, or 28.9%, increase in deposit
expense and a $680,000, or 26.8%, increase in interest expense on FHLB advances
due to increased balances. The increase in deposit expense was primarily
attributable to an increase in certificates of deposit accounts to $345.2
million at November 30, 2000 from $283.2 million at November 30, 1999 coupled
with a rise in
14
<PAGE>
market interest rates. The average rate on certificates of deposit increased by
103 basis points, from 5.16% to 6.19%, primarily due to increases in the
average balance of certificates of deposit of government and municipal entities,
which deposits are typically priced by a competitive bid process and have rates
which are higher than other retail certificates of deposit.
Provision for Loan Losses. The provision for loan losses was $106,000 for
the eight months ended November 30, 2000 compared to no provision for the eight
months ended November 30, 1999. The increase in the provision reflects
management's assessment of the need to increase the allowance primarily as a
result of the growth in commercial real estate, multi-family real estate,
commercial and consumer loans and the increase in non-accruing one-to-four
family loans, which such factors were, in part, offset by management's
consideration of the better than estimated loss performance of commercial real
estate, commercial and consumer loans, as indicated by the minimal charge-off
activity related to such loans. Despite increased growth in commercial real
estate, commercial and automobile loans and an increase in the overall
concentration of such higher risk loans which would indicate higher overall
inherent risk in the loan portfolio, management considered the continuing loss
performance of commercial real estate, commercial and consumer loans at levels
which were better than estimated in 1999 when it revised its loan loss
methodology to increase the loss factors applicable to such higher risk loans.
Although the levels and concentration of non-one- to four-family loans
increased, net loan charge-offs remained minimal totalling $6,000 for the eight
months ended November 30, 2000. As a result, the loan loss allowance as a
percentage of total loans and non-accruing loans at November 30, 2000 was 1.58%
and 384%, respectively, as compared to 1.62% and 941% at November 30, 1999,
respectively. The level of the loan loss allowance at November 30, 2000 is
consistent with management's targeted range of 1.50% to 1.70% of total loans
based on its assessment of the current loan portfolio and market and economic
conditions.
Income Taxes. Income taxes for the eight months ended November 30, 2000
were $2.61 million, a decrease of $68,000, or 2.5%, from $2.67 million for the
eight months ended November 30, 1999. The decrease is due to the decrease in
income before taxes of $249,000, or 3.1%. The effective tax rates for the eight
months ended November 30, 2000 and the eight months ended November 30, 1999 were
33.0% and 32.8%, respectively.
15
<PAGE>
Selected Financial And Other Data
The selected consolidated financial and other data of Citizens First set
forth below is derived in part from, and should be read in conjunction with, the
Consolidated Financial Statements of Citizens First and Notes thereto presented
elsewhere in this Prospectus. The data presented at August 31, 2000 and 1999
and for the five months period ended are derived from unaudited financial
statements and, in the opinion of management, reflect all adjustments necessary
to present fairly the results for these interim periods. These adjustments
consisted only of normal recurring adjustments. The results of operations for
the five months ended August 31, 2000 are not necessarily indicative of the
results of operations that may be expected for the year ending March 31, 2001.
<TABLE>
<CAPTION>
At August 31, At March 31,
--------------------------------------------------------------------------------
2000 1999 2000 1999 1998
--------------------------------------------------------------------------------
(unaudited) (In thousands)
<S> <C> <C> <C> <C> <C>
Selected Consolidated Financial Data:
Total assets......................... $794,428 $682,641 $741,570 $645,756 $605,951
Cash and cash equivalents............ 44,654 16,036 45,182 16,264 21,184
Loans, net (1)....................... 631,166 636,311 568,503 590,637 548,893
Securities available-for-sale (2):... 90,780 7,099 99,407 6,549 12,469
Deposits............................. 637,023 547,652 601,008 526,840 503,445
FHLB advances........................ 77,302 64,517 70,502 54,267 41,610
Total equity......................... 66,963 60,876 63,259 57,513 55,138
Real estate owned, net............... 224 75 80 75 75
Total nonperforming assets........ 2,324 853 1,326 939 1,436
<CAPTION>
At March 31,
--------------------------
1997 1996
--------------------------
<S> <C> <C>
Selected Consolidated Financial Data:
Total assets......................... $552,386 $487,641
Cash and cash equivalents............ 28,226 30,335
Loans, net (1)....................... 489,108 431,254
Securities available-for-sale (2):... 6,464 5,531
Deposits............................. 457,540 424,070
FHLB advances........................ 41,800 14,000
Total equity......................... 47,410 43,913
Real estate owned, net............... -- --
Total nonperforming assets........ 681 507
</TABLE>
<TABLE>
<CAPTION>
For the Five Months
Ended August 31, For the Year Ended March 31,
-------------------------------------------------------------------------
2000 1999 2000 1999 1998
-------------------------------------------------------------------------
(unaudited) (In thousands)
<S> <C> <C> <C> <C> <C>
Selected Operating Data:
Total interest income.................. $23,880 $20,692 $51,928 $49,764 $46,222
Total interest expense................. 13,493 10,686 27,063 26,240 25,095
------- ------- ------- ------- -------
Net interest income................. 10,387 10,006 24,865 23,524 21,127
Provision for loan losses.............. 106 -- (483) 3,800 714
------- ------- ------- ------- -------
Net interest income after provision
for loan losses.................. 10,281 10,006 25,348 19,724 20,413
Noninterest income:
Net gain on sale of securities...... 16 -- -- 6,082 859
Other............................... 1,381 1,328 (314) 3,949 2,324
Noninterest expense.................... 6,676 6,321 16,248 22,612 14,718
------- ------- ------- ------- -------
Income before income taxes............. 5,002 5,013 8,786 7,143 8,878
Income taxes........................... 1,635 1,652 2,880 539 2,669
------- ------- ------- ------- -------
Net income.......................... $ 3,367 $ 3,361 $ 5,906 $ 6,604 $ 6,209
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended March 31,
---------------------------
1997 1996
---------------------------
<S> <C> <C>
Selected Operating Data:
Total interest income.................. $40,594 $36,545
Total interest expense................. 21,926 20,039
------- -------
Net interest income................. 18,668 16,506
Provision for loan losses.............. 757 816
------- -------
Net interest income after provision
for loan losses.................. 17,911 15,690
Noninterest income:
Net gain on sale of securities...... -- --
Other............................... 2,199 1,696
Noninterest expense.................... 15,607 12,518
------- -------
Income before income taxes............. 4,503 4,868
Income taxes........................... 1,619 1,463
------- -------
Net income.......................... $ 2,884 $ 3,405
======= =======
</TABLE>
(See footnotes on next page)
16
<PAGE>
<TABLE>
<CAPTION>
At or For the Five
Months Ended
August 31, At or For the Year Ended March 31,
----------------------------- ------------------------------------------------------
2000 1999 2000 1999 1998 1997 1996
----------------------------- ------.....-------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Operating Ratios and
Other Data (3):
Performance Ratios:
Average yield on interest-
earning assets (4)..................... 8.05% 7.78% 7.97% 7.87% 7.79% 7.90% 7.97%
Average rate paid on interest-bearing
liabilities............................ 4.79 4.37 4.44 4.62 4.75 4.75 4.84
Average interest rate spread (5).......... 3.26 3.42 3.53 3.25 3.04 3.15 3.13
Net interest margin (6)................... 3.50 3.76 3.82 3.72 3.56 3.43 3.56
Ratio of interest-earning assets to
interest-bearing liabilities............ 105.39 108.62 106.90 111.30 112.25 111.08 108.39
Net interest income after provision
for loan losses to noninterest expense 154.00 158.30 156.01 87.23 138.69 114.76 125.34
Noninterest expense as a percent of
average assets.......................... 2.11 2.26 2.35 3.46 2.38 2.86 2.70
Return on average assets.................. 1.07 1.20 0.85 1.01 1.01 0.53 0.71
Return on average equity.................. 12.81 14.26 9.35 12.29 12.11 6.32 8.16
Ratio of average equity to
average assets......................... 8.32 8.45 9.11 8.23 8.30 8.35 8.74
Regulatory Capital Ratios: (7)
Leverage capital ratio.................... 8.80 8.91 8.50 8.80 8.30 7.40 8.20
Risk-based capital ratio.................. 12.10 14.09 13.10 14.20 13.50 12.20 13.90
Asset Quality Ratios:
Nonperforming loans and troubled
debt restructurings as a percent
of total loans (8)..................... 0.33 0.13 0.22 0.14 0.24 0.14 0.12
Nonperforming assets and troubled
debt restructurings as a percent
of total assets (9).................... 0.26 0.12 0.18 0.15 0.24 0.12 0.10
Allowance for loan losses as a percent
of total loans.......................... 1.65 1.71 1.80 1.85 1.35 1.40 1.45
Allowance for loan losses as a percent
of nonperforming loans and troubled
debt restructurings (1)(8)............. 506.33 1,427.76 839.57 1,281.78 553.06 1,025.28 1,268.38
Net loans charged-off to average
interest-earning loans................. (0.01) 0.01 0.04 0.03 0.03 0.03 0.01
Full service offices at end of period........ 14 14 14 14 13 13 13
</TABLE>
_________________________________
(1) Loans, net, represents gross loans receivable net of the allowance for loan
losses, loans in process and deferred loan origination fees. The allowance
for loan losses at August 31, 2000 and 1999 and March 31, 2000, 1999, 1998,
1997 and 1996 was $10.6 million, $11.1 million, $10.4 million, $11.2
million, $7.5 million, $7.0 million and $6.4 million, respectively.
(2) Citizens First adopted Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," during fiscal 1994. Concurrently with the adoption of SFAS
133 in March of 2000, all held-to-maturity investments were transferred to
available-for-sale classification.
(3) Asset Quality Ratios and Regulatory Capital Ratios are end of period
ratios. With the exception of end of period ratios, all ratios are based
on average daily balances during the indicated periods.
(4) Calculations of yield for 2000 and 1999 are presented on a taxable
equivalent basis using the combined Federal and state income tax rate of
34% for 2000 and 1999.
(5) The average interest rate spread represents the difference between the
weighted average yield on average interest-earning assets and the weighted
average cost of average interest-bearing liabilities.
(6) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(7) For definitions and further information relating to Citizens First's
regulatory capital requirements, see "Regulation and Supervision-- Savings
Institution Regulation--Capital Requirements." See "Regulatory Capital
Compliance" for the Bank's pro forma capital levels as a result of the
Offerings.
(8) Nonperforming loans consist of all nonaccrual loans and all other loans 90
days or more past due. It is the policy of the Bank to cease accruing
interest on loans 90 days or more past due (unless the loan principal and
interest are determined by management to be fully secured and in the
process of collection) and to charge off all accrued interest. See
"Business of Citizens First Savings Bank--Nonperforming Assets and
Delinquencies."
(9) Nonperforming assets consist of nonperforming loans, other repossessed
assets and real estate owned.
17
<PAGE>
Use of Proceeds
The following table shows how Citizens First Bancorp intends to use
the net proceeds of the offering. The actual net proceeds will depend on the
number of shares of common stock sold in the offering and the expenses incurred
in connection with the offering. See "Pro Forma Data" for the assumptions used
to arrive at these amounts.
<TABLE>
<CAPTION>
5,669,500 7,670,500 8,821,075
Shares at Shares at Shares at
$10.00 $10.00 $10.00
Per Share Per Share Per Share
--------------- ---------------- ----------------
(In thousands)
<S> <C> <C> <C>
Offering proceeds............................................ $ 56,595 $ 76,705 $ 88,211
Less: estimated underwriting commissions and
other offering expenses............................ 2,246 2,518 2,675
---------- ---------- ----------
Net offering proceeds........................................ 54,349 74,187 85,536
Less:
Proceeds used to purchase Citizens First common stock..... 27,175 37,094 42,768
Proceeds used for loan to employee stock ownership plan... 4,898 6,627 7,621
---------- ---------- ----------
Proceeds remaining for Citizens First Bancorp................ $ 22,277 $ 30,467 $ 35,147
========== ========== ==========
</TABLE>
Citizens First Bancorp may use the proceeds it retains from the offering:
. for general corporate purposes;
. to invest in securities;
. to pay dividends to stockholders;
. to repurchase shares of its common stock; and
. to finance the possible acquisition of financial institutions or other
businesses related to banking.
Citizens First may use the proceeds it receives from the offering:
. to fund new loans and develop new loan products;
. to invest in securities;
. to finance the possible expansion of its business activities; and
. for general corporate purposes.
Citizens First Bancorp and Citizens First may need regulatory approvals to
engage in some of the activities listed above. See "Regulation and
Supervision." Additionally, the Company's ability to engage in stock
repurchases during the one-year period following conversion will be limited by
the regulations of the Federal Deposit Insurance Corporation which prohibit
stock repurchases during such one-year period unless such repurchases do not
exceed 5% of the outstanding shares and valid and compelling business reasons
are established to the satisfaction of the Federal Deposit Insurance
Corporation. With respect to the use of proceeds to pay cash dividends, the
Company does not currently expect to engage in an extraordinary dividend
distribution which would result in this distribution being treated as a return
of capital during the first year after conversion, see "Citizens First Bancorp's
Dividend Policy." Neither Citizens First Bancorp nor Citizens First currently
has any specific plans or agreements regarding any expansion activities or
acquisitions.
18
<PAGE>
Except as described above, neither Citizens First Bancorp nor Citizens
First has specific plans for the investment of the proceeds of this offering.
Although Citizens First's capital currently exceeds regulatory requirements, it
is converting to stock form primarily to structure itself in the form of
organization used by commercial banks and most other financial services
companies and to increase its potential for long-term growth. For a discussion
of management's business reasons for undertaking the conversion, see "The
Conversion--Reasons for the Conversion."
Citizens First Bancorp's Dividend Policy
Citizens First Bancorp's Board of Directors intends to adopt a policy of
paying regular cash dividends after the conversion, but has not decided the
amount that may be paid or when payments may begin. In addition, the Board of
Directors may declare and pay periodic special cash dividends in addition to, or
in lieu of, regular cash dividends. In determining whether to declare or pay
any dividends, whether regular or special, the Board of Directors will take into
account Citizens First Bancorp's financial condition and results of operations,
tax considerations, capital requirements, industry standards, and economic
conditions. The regulatory restrictions that affect the payment of dividends by
Citizens First to Citizens First Bancorp discussed below will also be
considered. Citizens First Bancorp cannot guarantee that it will pay dividends
or that, if paid, that dividends will not be reduced or eliminated in the
future.
Citizens First Bancorp is subject to Delaware law, which generally limits
dividends to an amount equal to an excess of the net assets of a company (the
amount by which total assets exceed total liabilities) over statutory capital,
or if there is no excess, to the company's net profits for the current and/or
immediately preceding fiscal year.
Dividends from Citizens First Bancorp may depend, in part, upon receipt of
dividends from Citizens First because Citizens First Bancorp initially will have
no source of income other than dividends from Citizens First and earnings from
the investment of the net proceeds retained by Citizens First Bancorp from the
offering. Regulations limit distributions from Citizens First to Citizens First
Bancorp. In addition, Citizens First may not declare or pay a cash dividend on
its capital stock if the effect would be to reduce the regulatory capital of
Citizens First below the amount required for the liquidation account required to
be established by Citizens First's plan of conversion. See "Regulation and
Supervision--Michigan Banking Law and Regulation--Dividends" and "The
Conversion--Effects of Conversion to Stock Form--Liquidation Account."
Any payment of dividends by Citizens First to Citizens First Bancorp that
would be deemed to be drawn out of Citizens First's bad debt reserves would
require the payment of federal income taxes by Citizens First at the then
current income tax rate on the amount deemed distributed. See "Federal and
State Taxation--Federal Income Taxation" and note 9 of the notes to financial
statements included in this prospectus. Citizens First Bancorp does not
contemplate any distribution by Citizens First that would result in this type of
tax liability.
Additionally, Citizens First Bancorp has represented to the Federal Deposit
Insurance Corporation that during the one-year period following the Conversion
it will not make any distribution to stockholders that represents a tax-free
return of capital for federal income tax purposes without the prior written
consent of the Federal Deposit Insurance Corporation. An extraordinary dividend
would be treated as a tax-free return of capital to the extent the aggregate
amount of such dividend exceeds the current and accumulated earnings and
profits, as defined by the Internal Revenue Code, of Citizens First Bancorp.
The amount of the dividend that would be treated as a tax free return of capital
would be that portion which exceeds such accumulated and current earnings and
profits.
19
<PAGE>
Market for the Common Stock
Citizens First Bancorp has not previously issued common stock and there is
currently no established market for its common stock. Citizens First Bancorp
intends to have its common stock quoted on the Nasdaq National Market after the
conversion under the symbol "CTZN." To receive that approval, Citizens First
Bancorp must satisfy various conditions, including selling the stock and meeting
certain listing criteria. There can be no assurance that the common stock will
be able to meet the applicable listing criteria to maintain its quotation on the
Nasdaq National Market or that an active and liquid trading market will develop
or, if developed, will be maintained. No assurance can be given that an
investor will be able to resell the common stock at or above the purchase price
of the common stock after the conversion. Trident Securities has agreed to make
a market for the common stock following the conversion, although it has no
obligation to do so, and will assist Citizens First Bancorp in encouraging
additional market makers to establish and maintain a market in the common stock.
20
<PAGE>
Capitalization
The following table presents the historical capitalization of Citizens
First at August 31, 2000, and the capitalization of Citizens First Bancorp
reflecting the conversion (referred to as "pro forma" information). The pro
forma capitalization gives effect to the assumptions listed under "Pro Forma
Data," based on the sale of the number of shares of common stock indicated in
the table. This table does not reflect the issuance of additional shares under
the proposed stock-based incentive plan. A change in the number of shares to be
issued in the conversion may materially affect pro forma capitalization.
<TABLE>
<CAPTION>
Citizens First Bancorp Pro Forma
Capitalization Based Upon the Sale(1) of
----------------------------------------
Citizens First
Capitalization,
Deposits and 5,669,500 7,670,500
Borrowings Shares at Shares at
as of $10.00 $10.00
August 31, 2000 Per Share Per Share
--------------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Deposits (2)................................................ $637,023 $ 637,023 $ 637,023
Advances from Federal Home Loan Bank........................ 77,302 77,302 77,302
-------- ---------- ----------
Total deposits and borrowed funds........................... $714,325 $ 714,325 $ 714,325
======== ========== ==========
Stockholders' equity:
Preferred stock:
1,000,000 shares, $.01 par value per share,
authorized; none issued or outstanding............. $ -- $ -- $ --
Common stock:
20,000,000, $.01 par value per share,
authorized; specified number of shares
assumed to be issued and outstanding............... -- 61 83
Additional paid-in capital.................................. -- 54,388 74,104
Retained earnings (3)....................................... 66,786 66,786 66,786
Net unrealized gain on available-for-sale securities, net... 177 177 177
Plus:
Contribution to Foundation............................... -- 4,536 6,136
Less:
Foundation contribution expense, net (4)................. -- 2,994 4,050
Common stock acquired by employee
stock ownership plan (5).............................. -- 4,898 6,627
Common stock to be acquired by stock-based
incentive plan (6).................................... -- 2,449 3,314
-------- ---------- ----------
Total stockholders' equity.................................. $ 66,963 $ 115,607 $ 133,295
======== ========== ==========
<CAPTION>
Citizens First Bancorp Pro Forma
Capitalization Based Upon the Sale(1) of
----------------------------------------
8,821,075
Shares at
$10.00
Per Share
----------
<S> <C>
Deposits (2)................................................ $ 637,023
Advances from Federal Home Loan Bank........................ 77,302
----------
Total deposits and borrowed funds........................... $ 714,325
==========
Stockholders' equity:
Preferred stock:
1,000,000 shares, $.01 par value per share,
authorized; none issued or outstanding............. $ --
Common stock:
20,000,000, $.01 par value per share,
authorized; specified number of shares
assumed to be issued and outstanding............... 95
Additional paid-in capital.................................. 85,441
Retained earnings (3)....................................... 66,786
Net unrealized gain on available-for-sale securities, net... 177
Plus:
Contribution to Foundation............................... 7,057
Less:
Foundation contribution expense, net (4)................. 4,658
Common stock acquired by employee
stock ownership plan (5).............................. 7,621
Common stock to be acquired by stock-based
incentive plan (6).................................... 3,811
----------
Total stockholders' equity.................................. $ 143,466
==========
</TABLE>
--------------------
(1) Total shares to be issued will include, in addition to shares sold, shares
issued to the foundation. Accordingly, total shares issued, which is the
number upon which the number of shares to be acquired by the employee stock
ownership plan and the stock-based incentive plan will be based, are
6,123,060; 8,284,140; and 9,526,761 at the minimum, maximum and 15% above
the maximum of the range, respectively. Total offering expenses are
estimated to be between $2.2 million and $2.7 million.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
common stock in the offering. Withdrawals to purchase common stock will
reduce pro forma deposits by the amounts of the withdrawals. The amount of
the Liquidation Account as of August 31, 2000, would have been $67.0
million
(3) Retained earnings are restricted by applicable regulatory capital
requirements. Additionally, Citizens First will be prohibited from paying
any dividend that would reduce its regulatory capital below the amount in
the liquidation account, which will be established for the benefit of
Citizens First's eligible depositors as of July 31, 1999 and December 31,
2000 at the time of the conversion and decreased subsequently as these
account holders reduce their balances or cease to be depositors. See "The
Conversion--Effects of Conversion to Stock Form--Liquidation Account."
(4) Represents the expense, net of tax, of the contribution of common stock to
Citizens First Foundation based on an estimated tax rate of 34%. The
realization of the tax benefit is limited annually to 10% of Citizens First
Bancorp's annual taxable income. However, for federal and state tax
purposes, Citizens First Bancorp can carry forward any unused portion of
the deduction for five years following the year in which the contribution
is made. The realization of the entire tax benefit is anticipated based on
the assumptions that the net proceeds earn a return of approximately 6.1%
and that Citizens First experiences an annual taxable income growth rate of
10%. The growth rate estimation is based on a approximate average asset
growth rate of 11% over the past four fiscal years.
(5) Assumes that 8% of the common stock sold and issued in the conversion,
including shares issued to the foundation, will be acquired by the employee
stock ownership plan in the conversion with funds borrowed from Citizens
First Bancorp. Under generally accepted accounting principles, the amount
of common stock to be purchased by the employee stock ownership plan
represents unearned compensation and is, accordingly, reflected as a
reduction of capital. As shares are released to plan participants'
accounts, a corresponding reduction in the charge against capital will
occur. Since the funds are borrowed from Citizens First Bancorp, the
borrowing will be eliminated in consolidation and no liability or interest
expense will be reflected in the consolidated financial statements of
Citizens First Bancorp. See "Management of Citizens First Savings Bank--
Benefits--Employee Stock Ownership Plan."
(6) Assumes the purchase in the open market at $10.00 per share, under the
proposed stock-based incentive plan, of a number of shares equal to 4% of
the shares of common stock sold and issued in the conversion, including
shares issued to the foundation. The shares are reflected as a reduction
of stockholders' equity. See "Risk Factors--Issuance of shares for benefit
programs may reduce your ownership interest," "Pro Forma Data" and
"Management of Citizens First Savings Bank--Benefits--Stock-Based Incentive
Plan."
21
<PAGE>
Regulatory Capital Compliance
At August 31, 2000, Citizens First exceeded all regulatory capital
requirements. The following table presents Citizens First's capital position
relative to its regulatory capital requirements at August 31, 2000, on a
historical and pro forma basis. The table reflects receipt by Citizens First of
50% of the net proceeds of the offering. For purposes of the table, the amount
expected to be borrowed by the employee stock ownership plan and the cost of the
shares expected to be awarded under the stock-based incentive plan as restricted
stock are deducted from pro forma regulatory capital. For a discussion of the
assumptions underlying the pro forma capital calculations presented below, see
"Use of Proceeds," "Capitalization" and "Pro Forma Data." The definitions of
the terms used in the table are those provided in the capital regulations issued
by the Federal Deposit Insurance Corporation. For a discussion of the capital
standards applicable to Citizens First, see "Regulation and Supervision--Savings
Institution Regulation--Capital Requirements."
<TABLE>
<CAPTION>
Pro Forma at August 31, 2000
---------------------------------------------------
Minimum of Maximum of
Offering Range Offering Range
-------------- --------------
Citizens First
Historical at 5,669,500 Shares 7,670,500 Shares at
August 31, 2000 at $10.00 Per Share $10.00 Per Share
----------------------- ------------------- ---------------------
Amount Percent(1) Amount Percent(1) Amount Percent(1)
------ --------- ------ --------- ------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Generally accepted accounting
principles capital................ $66,963 8.43% $86,840 10.66% $ 94,116 11.46%
======= ===== ======= ===== ======== =====
Tangible Capital:
Capital level (2)................. $66,786 8.41% $86,663 10.64% $ 93,939 11.43%
Requirement....................... 11,916 1.50 12,215 1.50 12,324 1.50
------- ----- ------- ----- -------- -----
Excess............................ $54,870 6.91% $74,448 9.14% $ 81,615 9.93%
======= ===== ======= ===== ======== =====
Core Capital:
Capital level (2)................. $66,414 8.36% $86,291 10.60% $ 93,567 11.39%
Requirement....................... 31,777 4.00 32,572 4.00 32,863 4.00
------- ----- ------- ----- -------- -----
Excess............................ $34,637 4.36% $53,719 6.60% $ 60,703 7.39%
======= ===== ======= ===== ======== =====
Total Risk-Based Capital:
Total risk-based capital (3)...... $73,333 13.34% $93,210 16.83% $100,485 18.10%
Requirement....................... 43,983 8.00 44,301 8.00 44,418 8.00
------- ----- ------- ----- -------- -----
Excess............................ $29,350 5.34% $48,908 8.83% $ 56,068 10.10%
======= ===== ======= ===== ======== =====
<CAPTION>
15% Above
Maximum of
Offering Range
--------------
8,821,075 Shares
at $10.00 Per Share
----------------------------
Amount Percent(1)
------ ---------
<S> <C> <C>
Generally accepted accounting
principles capital................ $ 98,299 11.90%
======== =====
Tangible Capital:
Capital level (2)................. $ 98,122 11.88%
Requirement....................... 12,386 1.50
-------- -----
Excess............................ $ 85,735 10.38%
======== =====
Core Capital:
Capital level (2)................. $ 97,750 11.84%
Requirement....................... 33,031 4.00
-------- -----
Excess............................ $ 64,719 7.84%
======== =====
Total Risk-Based Capital:
Total risk-based capital (3)...... $104,669 18.82%
Requirement....................... 44,485 8.00
-------- -----
Excess............................ $ 60,184 10.82%
======== =====
</TABLE>
(1) Tangible capital and core capital levels are shown as a percentage of
adjusted total assets of $794.4 million. Risk-based capital levels are
shown as a percentage of risk-weighted assets of $549.8 million.
(2) A portion of the net unrealized losses on available-for-sale securities
account for the difference between generally accepted accounting principles
capital and each of tangible capital and core capital. See note 11 to the
notes to financial statements for additional information.
(3) Pro forma amounts and percentages assume net proceeds are invested in
assets that carry a 20% risk-weighting.
22
<PAGE>
Pro Forma Data
The following table shows information about the net income and
stockholders' equity of Citizens First Bancorp reflecting the conversion. The
information provided illustrates the pro forma net income and stockholders'
equity of Citizens First Bancorp based on the sale of common stock at the
minimum of the offering range, the maximum of the offering range and 15% above
the maximum of the offering range. The actual net proceeds from the sale of the
common stock cannot be determined until the conversion is completed. Net
proceeds indicated in the following tables are based upon the assumption that
conversion expenses, excluding the fee paid to Trident Securities, will total
approximately $1.5 million regardless of the number of shares sold in the
conversion. Actual expenses may vary from this estimate, and the fees paid will
depend upon whether a syndicate of broker-dealers or other means is necessary to
sell the shares, and other factors.
Pro forma net income for the five months ended August 31, 2000 and the
year ended March 31, 2000 has been calculated as if the conversion were
completed at the beginning of each period, and the net proceeds had been
invested at 6.10% at the beginning of each period, which represents the one-year
U.S. Treasury Bill yield as of August 31, 2000. In light of the changes in the
market interest rates in recent periods, Citizens First believes that the U.S.
Treasury Bill yield represents a more realistic yield on the investment of the
offering proceeds than the arithmetic average of the weighted average yield
earned by Citizens First on its interest-earning assets and the rates paid on
its deposits as required by Federal Deposit Insurance Corporation regulation.
A pro forma after-tax return of 4.03% is used for both Citizens First
Bancorp and Citizens First for both the five months ended August 31, 2000 and
the year ended March 31, 2000, after giving effect to a combined federal and
state income tax rate of 34%. Historical and pro forma per share amounts have
been calculated by dividing historical and pro forma amounts by the number of
shares of common stock indicated in the table.
When reviewing the following table you should consider the following:
. The final column gives effect to a 15% increase in the offering
range, which may occur without any further notice if Keller
increases its appraisal to reflect the results of this offering or
changes in the financial condition or results of operations of
Citizens First or changes in market conditions after the offering
begins. See "The Conversion--Stock Pricing and Number of Shares to
be Issued."
. Since funds on deposit at Citizens First may be withdrawn to
purchase shares of common stock, the amount of funds available to
Citizens First Bancorp for investment will be reduced by the amount
of withdrawals for stock purchases. The pro forma tables do not
reflect withdrawals from deposit accounts.
. Historical per share amounts have been computed as if the shares of
common stock expected to be issued in the conversion had been
outstanding at the beginning of the period covered by the table.
However, neither historical nor pro forma stockholders' equity has
been adjusted to reflect the investment of the estimated net
proceeds from the sale of the shares in the conversion, the
additional employee stock ownership plan expense or the proposed
stock-based incentive plan.
. Pro forma stockholders' equity ("book value") represents the
difference between the stated amounts of Citizens First's assets and
liabilities. The amounts shown do not reflect the liquidation
account, which will be established for the benefit of eligible
depositors as of July 31, 1999 and December 31, 2000, or the federal
income tax consequences of the restoration to income of Citizens
First's special bad debt reserves for income tax purposes, which
would be required in the unlikely event of liquidation. See "Federal
and State Taxation" and "The Conversion--Effects of Conversion to
Stock Form." The amounts shown for book value do not represent fair
market values or amounts available for distribution to stockholders
in the unlikely event of liquidation.
23
<PAGE>
. The amounts shown as pro forma stockholders' equity per share do not
represent possible future price appreciation of Citizens First
Bancorp's common stock.
. The amounts shown do not account for the shares to be reserved for
issuance under the stock-based incentive plan, which requires
stockholder approval at a meeting following the conversion.
The following tables assume that Citizens First Foundation is funded as
part of the conversion and therefore gives effect to the issuance of authorized
but unissued shares of Citizens First Bancorp common stock to Citizens First
Foundation. The valuation range accounts for the dilutive impact of the
issuance of shares to Citizens First Foundation.
24
<PAGE>
<TABLE>
<CAPTION>
At or For the Five Months Ended August 31, 2000
--------------------------------------------------
15% Above
Minimum of Maximum of Maximum of
Offering Offering Offering
Range Range Range
------------- ------------ ------------
5,669,500 7,670,500 8,821,075
Shares Shares Shares
at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share
------------- ------------ ------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Gross proceeds ........................................................ $ 56,695 $ 76,705 $ 88,221
Less: estimated expenses ............................................. (2,246) (2,518) (2,675)
----------- ----------- -----------
Estimated net proceeds ................................................ 54,449 74,187 85,536
Less: common stock acquired by employee stock ownership plan (1) ..... (4,898) (6,627) (7,621)
Less: common stock to be acquired by stock-based incentive plan (2) .. (2,449) (3,314) (3,811)
----------- ----------- -----------
Net investable proceeds ............................................ $ 47,102 $ 64,246 $ 74,104
=========== =========== ===========
Pro Forma Net Income (3):
Pro forma net income:
Historical ......................................................... $ 3,367 $ 3,367 $ 3,367
Pro forma income on net investable proceeds ........................ 790 1,078 1,243
Less: pro forma employee stock ownership plan adjustments (1) ..... (90) (122) (140)
Less: pro forma stock-based incentive plan adjustments (2) ........ (135) (182) (210)
----------- ----------- -----------
Pro forma net income ............................................ $ 3,932 $ 4,141 $ 4,260
=========== =========== ===========
Pro forma net income per share:
Historical ......................................................... $ 0.60 $ 0.44 $ 0.38
Pro forma income on net investable proceeds ........................ 0.14 0.14 0.14
Less: pro forma employee stock ownership plan adjustments (1) ..... (0.02) (0.02) (0.02)
Less: pro forma stock-based incentive plan adjustments (2) ........ (0.02) (0.02) (0.02)
----------- ----------- -----------
Pro forma net income per share .................................. $ 0.70 $ 0.54 $ 0.48
=========== =========== ===========
Number of shares used to calculate pro forma net income per share (4).. 5,646,860 7,639,783 8,785,736
Purchase price as a multiple of pro forma net income per share ........ 5.95x 7.72x 8.68x
Pro Forma Stockholders' Equity:
Pro forma stockholders' equity (book value): (4)
Historical ......................................................... $ 66,963 $ 66,963 $ 66,963
Estimated net proceeds ............................................. 54,449 74,187 85,536
Plus: shares issued to the foundation .............................. 4,536 6,136 7,056
Less: after-tax cost of the foundation ............................. (2,994) (4,050) (4,657)
Less: common stock acquired by employee stock ownership plan (1) .. (4,898) (6,627) (7,621)
Less: common stock to be acquired by stock-based incentive plan (2) (2,449) (3,314) (3,811)
----------- ----------- -----------
Pro forma stockholders' equity .................................. $ 115,607 $ 133,295 $ 143,466
=========== =========== ===========
Pro forma stockholders' equity per share: (4)
Historical ......................................................... $ 10.94 $ 8.08 $ 7.03
Estimated net proceeds ............................................. 8.89 8.96 8.98
Plus: tax benefit of the contribution to the foundation ........... 0.25 0.25 0.25
Less: common stock acquired by employee stock ownership plan (1) .. (0.80) (0.80) (0.80)
Less: common stock to be acquired by stock-based incentive plan (2) (0.40) (0.40) (0.40)
----------- ----------- -----------
Pro forma stockholders' equity per share ........................ $ 18.88 $ 16.09 $ 15.06
=========== =========== ===========
Number of shares used to calculate pro forma stockholders' equity
per share .......................................................... 6,123,100 8,284,100 9,526,700
Purchase price as a percentage of pro forma stockholders' equity
per share .......................................................... 52.97% 62.15% 66.40%
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended March 31, 2000
--------------------------------------------------
15% Above
Minimum of Maximum of Maximum of
Offering Offering Offering
Range Range Range
------------- ------------ ------------
5,669,500 7,670,500 8,821,075
Shares Shares Shares
at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share
------------- ------------ ------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Gross proceeds....................................................... $ 56,695 $ 76,705 $ 88,211
Less: estimated expenses............................................ (2,246) (2,518) (2,675)
---------- ----------- ----------
Estimated net proceeds............................................... 54,449 74,187 85,536
Less: common stock acquired by employee stock ownership plan (1).... (4,898) (6,627) (7,621)
Less: common stock to be acquired by stock-based incentive plan (2) (2,449) (3,314) (3,811)
---------- ----------- ----------
Net investable proceeds........................................... $ 47,102 $ 64,246 $ 74,104
========== =========== ==========
Pro Forma Net Income:
Pro forma net income:
Historical........................................................ $ 5,906 $ 5,906 $ 5,906
Pro forma income on net investable proceeds....................... 1,896 2,587 2,983
Less: pro forma employee stock ownership plan adjustments (1).... (216) (292) (335)
Less: pro forma stock-based incentive plan adjustments (2)....... (323) (437) (503)
---------- ----------- ----------
Pro forma net income........................................... $ 7,263 $ 7,764 $ 8,051
========== =========== ==========
Pro forma net income per share:
Historical........................................................ $ 1.04 $ 0.77 $ 0.67
Pro forma income on net investable proceeds....................... 0.33 0.34 0.34
Less: pro forma employee stock ownership plan adjustments (1).... (0.04) (0.04) (0.04)
Less: pro forma stock-based incentive plan adjustments (2)....... (0.06) (0.06) (0.06)
---------- ----------- ----------
Pro forma net income per share................................. $ 1.27 $ 1.01 $ 0.91
========== =========== ==========
Number of shares used to calculate pro forma net income per share (4) 5,665,909 7,665,554 8,815,373
Purchase price as a multiple of pro forma net income per share....... 7.87x 9.90x 10.99x
Pro Forma Stockholders' Equity:
Pro forma stockholders' equity (book value): (4)
Historical........................................................ $ 63,259 $ 63,259 $ 63,259
Estimated net proceeds............................................ 54,449 74,187 85,536
Plus: shares issued to the foundation............................. 4,536 6,136 7,056
Less: after-tax cost of the foundation............................ (2,994) (4,050) (4,657)
Less: common stock acquired by employee stock ownership plan (1) (4,898) (6,627) (7,621)
Less: common stock to be acquired by stock-based incentive plan (2) (2,449) (3,314) (3,811)
---------- ----------- ----------
Pro forma stockholders' equity................................. $ 111,903 $ 129,591 $ 139,762
========== =========== ==========
Pro forma stockholders' equity per share: (4)
Historical........................................................ $ 10.33 $ 7.64 $ 6.64
Estimated net proceeds............................................ 8.89 8.96 8.98
Plus: tax benefit of the contribution to the foundation.......... 0.25 0.25 0.25
Less: common stock acquired by employee stock ownership plan (1) (0.80) (0.80) (0.80)
Less: common stock to be acquired by stock-based incentive plan (2) (0.40) (0.40) (0.40)
---------- ----------- ----------
Pro forma stockholders' equity per share....................... $ 18.27 $ 15.65 $ 14.67
========== =========== ==========
Number of shares used to calculate pro forma stockholders' equity
per share......................................................... 6,123,100 8,284,100 9,526,700
Purchase price as a percentage of pro forma stockholders' equity
per share......................................................... 54.73% 63.90% 68.17%
</TABLE>
__________________________________
26
<PAGE>
(1) Assumes that the employee stock ownership plan will acquire an amount of
stock equal to 8% of the shares of common stock sold and issued in the
conversion. The employee stock ownership plan will borrow the funds used to
acquire these shares from the net proceeds from the conversion retained by
Citizens First Bancorp. The amount of this borrowing has been reflected as
a reduction from gross proceeds to determine estimated net investable
proceeds. This borrowing will have an interest rate equal to the prime rate
as published in The Wall Street Journal, which is currently 9.5%. Citizens
First intends to make contributions to the employee stock ownership plan in
amounts at least equal to the principal and interest requirement of the
debt. As the debt is paid down, stockholders' equity will be increased.
Citizens First's payment of the employee stock ownership plan debt is based
upon equal installments of principal over a 15-year period, assuming a
combined federal and state income tax rate of 34%. Interest income earned
by Citizens First Bancorp on the loan to the employee stock ownership plan
offsets the interest paid on the loan by Citizens First. No reinvestment is
assumed on proceeds contributed to fund the employee stock ownership plan.
Applicable accounting principles require that compensation expense for the
employee stock ownership plan be based upon shares committed to be released
and that unallocated shares be excluded from earnings per share
computations. The valuation of shares committed to be released would be
based upon the average market value of the shares during the year, which,
for purposes of this calculation, was assumed to be equal to the $10.00 per
share purchase price. See "Management of Citizens First Savings Bank--
Benefits--Employee Stock Ownership Plan."
(2) In calculating the pro forma effect of the restricted stock awards, it is
assumed that the required stockholder approval has been received, that the
shares used to fund the awards (4% of the shares sold and issued in the
conversion) were acquired at the beginning of the respective period in open
market purchases at the $10.00 per share purchase price, that 20% of the
amount contributed was an amortized expense during the period, and that the
federal income tax rate is 34%. The issuance of authorized but unissued
shares of the common stock instead of open market purchases would dilute the
voting interests of existing stockholders by approximately 3.85%.
For purposes of this table, shares of restricted stock issued under the
stock-based incentive plan vest 20% per year and compensation expense is
recognized on a straight-line basis over each vesting period. If the fair
market value per share is greater than $10.00 per share on the date shares
are awarded under the stock-based incentive plan, total stock-based
incentive plan expense would be greater. The total estimated expense was
multiplied by 20%, which is the total percent of shares for which expense is
recognized in the first year.
The following table shows the estimated pro forma net income and
stockholders' equity per share if restricted shares awarded under the stock-
based incentive plan were authorized but unissued shares instead of
repurchased shares. The table also shows the estimated pre-tax stock-based
incentive plan expense. The number of shares used to calculate pro forma net
income per share in the following table is the total number of shares issued
at the indicated point in the offering range, minus the number of shares
sold to the employee stock ownership plan assumed not to be committed to be
released within the first year following the conversion and plus the number
of shares that may be awarded as restricted stock under the planned stock-
based benefit plan. The number of shares used to calculate pro forma
stockholders' equity per share in the following table is the total number of
shares issued at the indicated point in the offering range, plus the number
of shares that may be awarded as restricted stock under the planned stock-
based benefit plan.
27
<PAGE>
<TABLE>
<CAPTION>
15% Above
Minimum Maximum Maximum
of Offering of Offering of Offering
Range Range Range
------------ -------------- --------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Pro forma net income per share:
Five months ended August 31, 2000........................... $0.67 $0.53 $0.47
Year ended March 31, 2000................................... 1.25 0.99 0.89
Number of shares used to calculate pro forma net income
per share:
Five months ended August 31, 2000........................... 5,891,784 7,971,147 9,166,804
Year ended March 31, 2000................................... 5,910,833 7,996,918 9,196,441
Pro forma stockholders' equity per share:
At August 31, 2000.......................................... $18.54 $15.86 $14.86
At March 31, 2000........................................... 17.96 15.43 14.49
Number of shares used to calculate pro forma stockholders'
equity per share............................................... 6,368,024 8,615,464 9,907,768
Pre-tax stock-based incentive plan expense:
Five months ended August 31, 2000........................... $204 $276 $318
Year ended March 31, 2000................................... 490 663 762
</TABLE>
(3) Does not give effect to the non-recurring expense that will be recognized
in fiscal 2001 as a result of the contribution of common stock to Citizens
First Foundation. The following table shows the estimated after-tax expense
associated with the contribution to the foundation, as well as pro forma
net income and pro forma net income per share assuming the contribution to
the foundation was expensed during the periods presented. The pro forma
data assumes that Citizens First Bancorp will realize 100% of the income
tax benefit as a result of the contribution to the foundation based on a
34% tax rate. The realization of the tax benefit is limited annually to 10%
of Citizens First Bancorp's annual taxable income. However, for federal and
state tax purposes, Citizens First Bancorp can carry forward any unused
portion of the deduction for five years following the year in which the
contribution is made.
<TABLE>
<CAPTION>
15% Above
Minimum Maximum Maximum
of Estimated of Estimated of Estimated
Valuation Valuation Valuation
Range Range Range
------------ ------------ ------------
5,669,500 7,670,500 8,821,075
Shares Shares Shares
at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share
------------ ------------ ------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
After-tax expense of contribution to foundation:
Year ended March 31, 2000........................... $2,993 $4,050 $4,658
Pro forma net income:
Year ended March 31, 2000........................... $4,270 $3,714 $3,393
Pro forma net income per share:
Year ended March 31, 2000........................... .75 .48 .38
</TABLE>
(4) Number of shares used to calculate pro forma net income per share is the
total number of shares issued, including both shares sold and shares issued
to Citizens First Foundation at the indicated point in the offering range,
minus the number of shares sold to the employee stock ownership plan
assumed not to be committed to be released within the first five months
following the conversion for pro forma net income for the five months ended
August 31, 2000 and within the first year following the conversion for the
year ended March 31, 2000.
28
<PAGE>
Comparison of Independent Valuation and Pro Forma
Financial Information With and Without the Foundation
As set forth in the following table, if Citizens First Foundation was
not established and funded as part of the conversion, Keller estimates that the
pro forma valuation of Citizens First Bancorp and Citizens First would be
greater than if the foundation is included. This would result in an increase in
the amount of common stock offered for sale in the conversion. If the foundation
were not established, there is no assurance that the appraisal prepared at the
time of conversion would conclude that the pro forma market value of Citizens
First Bancorp and Citizens First would be the same as the estimate set forth in
the table below. Any appraisal prepared at the time of conversion would be based
on the facts and circumstances existing at that time, including, among other
things, market and economic conditions.
The information presented in the following table is for comparative
purposes only. It assumes that the conversion was completed at August 31, 2000,
based on the assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
At the Maximum,
At the Minimum At the Maximum as Adjusted,
of Estimated of Estimated of Estimated
Valuation Range Valuation Range Valuation Range
------------------------ ------------------------ -----------------------
With No With No With No
Foundation Foundation Foundation Foundation Foundation Foundation
----------- ----------- ----------- ----------- ----------- -----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Estimated pro forma valuation (1)............... $ 56,695 $ 63,835 $ 76,705 $ 86,365 $88,211 $99,320
Pro forma market capitalization................. 61,231 63,835 82,841 86,365 95,268 99,320
Total assets.................................... 841,529 848,249 858,674 867,764 868,532 878,986
Total liabilities............................... 725,922 727,465 725,379 727,465 725,066 727,465
Pro forma stockholders' equity.................. 115,607 120,784 133,295 140,299 143,466 151,521
Pro forma net income............................ 3,932 4,036 4,141 4,280 4,260 4,421
Pro forma stockholders' equity per share........ 18.88 18.92 16.09 16.24 15.06 15.25
Pro forma net income per share.................. 0.70 0.68 0.54 0.53 0.48 0.51
Pro Forma Pricing Ratios:
Offering price as a percentage of
pro forma stockholders' equity............ 52.97% 52.85% 62.15% 61.58% 66.40% 65.57%
Offering price as a multiple of pro
forma net income per share................ 5.95 5.79 7.72 7.31 8.68 8.17
Offering price to assets..................... 7.28 7.53 9.65 9.95 10.97 11.30
Pro Forma Financial Ratios:
Return on assets (annualized)................ 1.12 1.14 1.16 1.18 1.18 1.21
Return on stockholders' equity
(annualized).............................. 8.16 8.02 7.46 7.32 7.13 7.00
Stockholders' equity to total assets......... 13.74 14.24 15.52 16.17 16.52 17.24
</TABLE>
___________________
(1) Based on the independent valuation prepared by Keller as of November 17,
2000.
29
<PAGE>
Citizens First Savings Bank and Subsidiary
Consolidated Statements of Income
The Consolidated Statements of Income for each of the years in the
three year period ended March 31, 2000 have been audited by Plante & Moran, LLP,
independent certified public accountants. The report of Plante & Moran, LLP on
these Consolidated Statements of Income appears on page F-2 of this prospectus.
Information for the five months ended August 31, 2000 and 1999, which is
unaudited, includes all adjustments which, in the opinion of management, are of
a normal recurring nature and are necessary for a fair presentation of these
interim periods. Results for the five months ended August 31, 2000 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 2001. These statements should be read in conjunction with the
Consolidated Financial Statements and Notes and with the Management's Discussion
and Analysis of Financial Condition and Results of Operations included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
Five Months Ended
August 31 Year Ended March 31
------------------ -------------------------------
2000 1999 2000 1999 1998
------------------ -------------------------------
(unaudited) (In thousands)
<S> <C> <C> <C> <C> <C>
Interest Income
Loans ..................................................... $ 20,688 $ 20,201 $ 48,839 $ 48,255 $ 44,698
Federal funds sold and other cash equivalents ............. 533 172 1,257 847 933
Securities:
Tax-exempt ............................................. 242 -- 17 -- --
Taxable ................................................ 2,417 319 1,815 662 591
-------- -------- -------- -------- --------
Total interest income ........................ 23,880 20,692 51,928 49,764 46,222
Interest Expense
Deposits .................................................. 11,508 9,169 22,745 23,206 22,448
FHLB advances ............................................. 1,985 1,517 4,318 3,034 2,647
-------- -------- -------- -------- --------
Total interest expense ....................... 13,493 10,686 27,063 26,240 25,095
-------- -------- -------- -------- --------
Net Interest Income - Before provision for loan losses ....... 10,387 10,006 24,865 23,524 21,127
Provision for Loan Losses (Note 5) ........................... 106 -- (483) 3,800 714
-------- -------- -------- -------- --------
Net Interest Income .......................................... 10,281 10,006 25,348 19,724 20,413
Noninterest Income (Loss)
Service charges and other fees ............................ 670 541 1,331 1,158 913
Mortgage banking activities ............................... 362 534 (2,307) 1,181 870
Gain on contributed investment securities ................. -- -- -- 6,082 859
Gain on sale of investments ............................... 16 -- -- -- --
Gain on sale of investment property ....................... -- -- 1,065 --
Other ..................................................... 349 253 662 545 541
-------- -------- -------- -------- --------
Total noninterest income (loss) .............. 1,397 1,328 (314) 10,031 3,183
Noninterest Expenses
Compensation, payroll taxes and employee benefits (Note 10) 3,262 2,796 7,799 7,179 7,098
Office occupancy and equipment ............................ 1,337 1,148 2,893 3,539 1,995
Deposit insurance premiums ................................ 39 128 307 365 265
Advertising and business promotion ........................ 203 376 554 483 468
Stationery, printing and supplies ......................... 464 409 1,018 932 841
Data processing ........................................... 171 205 476 492 451
Deposit statement preparation and collection .............. 228 183 478 451 436
Legal and audit fees ...................................... 103 216 549 672 247
State of Michigan taxes ................................... 118 108 192 453 316
Contributions (Note 2) .................................... -- -- 140 6,239 941
Appraisal fee ............................................. 178 223 468 773 484
Other ..................................................... 573 529 1,374 1,034 1,176
-------- -------- -------- -------- --------
Total noninterest expenses ................... 6,676 6,321 16,248 22,612 14,718
-------- -------- -------- -------- --------
Income - Before federal income tax expense ................... 5,002 5,013 8,786 7,143 8,878
Federal Income Tax Expense (Note 9) .......................... 1,635 1,652 2,880 539 2,669
-------- -------- -------- -------- --------
Net Income ................................................... $ 3,367 $ 3,361 $ 5,906 $ 6,604 $ 6,209
======== ======== ======== ======== ========
</TABLE>
30
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The objective of this section is to help potential investors understand
management's views on Citizens First's financial condition and results of
operations. You should read this discussion in conjunction with the financial
statements and the notes to the financial statements that appear at the end of
this prospectus.
General
Citizens First Bancorp will own all of the outstanding common stock of
Citizens First. Citizens First Bancorp initially will not transact any business
other than through Citizens First. Citizens First's results of operations depend
primarily on net interest income, which is the difference between the interest
income earned on its interest-earning assets, such as loans and securities, and
the interest expense on its interest-bearing liabilities, such as deposits and
borrowings. Citizens First also generates noninterest income primarily from fees
charged on customers' accounts and fees earned on its trust services. Gains on
the sales of securities are another source of noninterest income. Citizens
First's noninterest expenses primarily consist of employee compensation and
benefits, occupancy expense, advertising and other operating expenses. Citizens
First's results of operations are also affected by general economic and
competitive conditions, notably changes in market interest rates, government
policies and regulations. Citizens First exceeded all of its regulatory capital
requirements at August 31, 2000.
Forward Looking Statements
This prospectus contains forward looking statements that are based on
assumptions and describe future plans, strategies, and expectations of Citizens
First and Citizens First Bancorp. These forward looking statements are generally
identified by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project," or similar expressions. Citizens First's and Citizens
First Bancorp's ability to predict results or the actual effect of future plans
or strategies is inherently uncertain. Factors which could have a material
adverse effect on the operations of Citizens First and Citizens First Bancorp
include, but are not limited to, changes in interest rates, general economic
conditions, legislative/regulatory changes, monetary and fiscal policies of the
U.S. Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality and composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
Citizens First's and Citizens First Bancorp's market area and changes in
relevant accounting principles. These risks and uncertainties should be
considered in evaluating forward looking statements and undue reliance should
not be placed on such statements.
Operating Strategy
Citizens First is an independent, community-oriented savings bank,
delivering quality customer service and offering a wide range of deposit, loan
and investment products to its customers. In recent years, Citizens First's
strategy has been to enhance profitability through controlled balance sheet
growth and broader diversification of its loan products and portfolio. Beginning
in 1995, Citizens First determined that it would originate all of its fixed-rate
one- to four-family loans for sale. Also, during that time, Citizens First
emphasized the origination of residential, commercial real estate loans, home
equity loans and automobile and other consumer loans, increasing sources of
noninterest income and by improving operating efficiencies while managing its
capital position and limiting its credit and interest rate risk exposure. To
accomplish these objectives, Citizens First has sought to:
. Operate as a full service community bank by expanding the
services and products it offers, particularly its commercial
business products and deposit products offered to local
municipalities and government organizations.
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. Provide superior customer service and innovative products by expanding
delivery systems through the use of new technology, increasing the
functionality of its ATM network and expanding the capability of its
call center.
. Increase fee income by broadening non-depository product offerings and
services, including expansion of its trust services, and expanding the
offering of insurance products through its current insurance agency
subsidiary and a future potential affiliation with another insurance
agency.
. Restructure its balance sheet and loan portfolio composition by
generally selling fixed-rate one- to four-family mortgage loans and
retaining adjustable-rate loans to better position itself for changes in
market interest rates.
. Continue to increase its emphasis on high quality commercial, commercial
real estate and consumer loans to increase the yields earned on its
overall loan portfolio, without incurring unacceptable credit risk.
. Increase its consumer lending presence by beginning to originate
automobile loans on a direct and indirect basis beginning in March 1999.
. Control credit risk by continuing to employ conservative underwriting
standards to minimize the level of new problem assets.
. Manage interest rate risk by emphasizing investments in shorter-term
loans and investment securities.
. Invest primarily in debt instruments and money market type equity
investments to provide adequate liquidity, meet cash flow needs and earn
a reasonable return on investment.
Comparison of Financial Condition at August 31, 2000 and March 31, 2000
Total assets increased $52.9 million, or 7.1%, from $741.6 million at March
31, 2000 to $794.4 million at August 31, 2000, primarily as a result of a $62.6
million, or 11.2%, increase in net loans, which was offset in part by an $8.6
million reduction in securities available for sale. The increase in loans was
primarily due to a $17.9 million increase in one- to four-family residential
mortgage loans due primarily to increased marketing efforts and a $10.4 million
increase in automobile loans. The increase in automobile loans was due to an
expanded presence in the indirect automobile market through additional
relationships with car dealers in late 1999 and early 2000 and increased
originations by existing dealers. The increase in loans was also due to a $11.2
million increase in residential construction loans. The decrease in securities
resulted from maturing securities the proceeds of which were primarily used to
fund loan demand.
Asset growth was funded primarily by a $49.2 million, or 7.2%, increase in
liabilities from $678.3 million at March 31, 2000 to $727.5 million at August
31, 2000. The increase was primarily attributable to a $36.0 million, or 6.0%,
increase in deposits from $601.0 million at March 31, 2000 to $637.0 million at
August 31, 2000. This increase was primarily due to a $39.7 million, or 12.2%,
increase in certificates of deposit due to increased penetration of deposit
products to municipal and governmental entities because of a new government
banking program established by Citizens First in October 1999. Asset growth was
also funded by advances from the Federal Home Loan Bank of Indianapolis which
increased $6.8 million, or 9.7%, from $70.5 million at March 31, 2000 to $77.3
million at August 31, 2000. Management has determined to fund asset growth
through additional borrowings and more aggressive pricing of deposits.
Nonperforming assets increased $998,000, or 75.3%, from $1.3 million at
March 31, 2000 to $2.3 million at August 31, 2000, due primarily to a $765,000,
or 80.2%, increase in nonaccruing one- to four-family loans.
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Total equity was $67.0 million at August 3l, 2000 compared to $63.3 million
at March 3l, 1999. The increase in retained earnings was due to net income of
$3.4 million, enhanced by an increase in net accumulated unrealized gains on
available for sale securities of $337,000.
Comparison of Financial Condition at March 31, 2000 and 1999
Total assets increased $95.8 million, or 14.8%, to $741.6 million at March
31, 2000 from $645.8 million at March 31, 1999, primarily due to a $125.2
million increase in securities and cash and cash equivalents, which was offset,
in part by a $22.1 million decrease in net loans. The increase in securities
and cash and cash equivalents primarily reflects the proceeds from the sale of
$130.8 million of fixed-rate one- to four-family loans to Freddie Mac in
December 1999. The sale of such loans was completed to restructure the balance
sheet and manage the interest rate risk position of Citizens First and to
increase its liquidity position in late 1999 in anticipation of possible year
2000 liquidity needs. Citizens First's net loans to assets ratio at March 31,
2000 was 76.7% compared to 91.5% at March 31, 1999. The proceeds from the loan
sale were invested in short-term securities which increased by $92.3 million
and deposits in other depository institutions and federal funds sold, which
increased $30.1 million. Despite the sale of such loans, loans decreased by
only $22.1 million due to increased originations of consumer, commercial and
commercial and multi-family real estate loans. One- to four-family loans
decreased to $341.3 million and commercial and multi-family, commercial and
consumer loans increased to $214.3. Accrued interest receivable increased $2.5
million, or 23.3%, to $13.3 million at March 31, 2000 from $10.8 million at
March 31, 1999.
Total liabilities increased $90.1 million, or 15.3%, from $588.2 million at
March 31, 1999 to $678.3 million at March 31, 2000. The increase was primarily
due to a $74.2 million, or 14.1%, increase in deposits to $601.0 million at
March 31, 2000 from $526.8 million at March 31, 1999, due primarily to an
increase in certificate of deposit accounts particularly from commercial
entities and municipalities, which increased $62.1 million, or 23.6%, to $324.6
million at March 31, 2000 from $262.6 million at March 31, 1999 due to increased
marketing efforts and continuing growth of the government banking program
established in 1999. NOW accounts also increased $8.0 million, or 13.9%, to
$65.9 million from $57.8 million, due primarily to growth in business deposit
accounts. Federal Home Loan Bank advances increased $16.2 million, or 29.9%, to
$70.5 million from $54.3 million at March 31, 1999, and were used primarily to
fund loan growth.
Nonperforming assets totaled $1.3 million at March 31, 2000 compared to
$939,000 at March 31, 1999, an increase of $387,000, or 41.2%. This increase
was primarily due to a $797,000 increase in nonaccruing one-to four-family
loans offset by a $267,000 decrease in nonaccruing commercial loans and a
$148,000 decrease in nonaccruing consumer loans.
Total equity was $63.3 million at March 31, 2000 compared to $57.5 million
at March 31, 1999, an increase of $5.7 million, or 10.0% due to net income of
$5.9 million offset by $160,000 in net unrealized losses in the securities
portfolio.
Comparison of Operating Results for the Five Months Ended August 31, 2000 and
August 31, 1999
Net Income. Net income increased $6,000, or 0.2%, from $3.361 million for
the five months ended August 31, 1999 to $3.367 million for the five months
ended August 31, 2000. The increase was primarily attributable to a $3.2
million increase in interest income primarily due to higher interest income from
securities, offset by a $2.8 million increase in interest expense primarily due
to the growth in the average balance of certificates of deposits.
Net Interest Income. Net interest income increased $381,000, or 3.8%, to
$10.4 million for the five months ended August 31, 2000 compared to $10.0
million for the five months ended August 31, 1999, primarily due to an increase
in the average balance of interest earning assets due to growth in the
securities portfolio, cash and cash equivalents. These increases were offset by
a $29.6 million, or 4.8%, decrease in the average balance of loans from $616.5
million for the five months ended August 31, 1999 to $587.0 million at August
31, 2000. Interest income increased $3.2 million, or 15.4%,
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from $20.7 million for the five months ended August 31, 1999 to $23.8 million
for the five months ended August 31, 2000, primarily due to a $95.3 million
increase in the average balance of investment securities and cash and cash
equivalents which reflects the use of proceeds from the sale of $130.8 million
of one- to four-family residential mortgage loans in December 1999. The increase
in interest income was also due to a 58 basis point increase in the average
yield on loans which rose from 7.88% for the five months ended August 31, 1999
to 8.46% for the five months ended August 31, 2000. The rate increase was due to
a higher percentage of commercial and multi-family real estate, commercial and
consumer loans in the portfolio due in part to the sale of the mortgage loans
and increased commercial and consumer originations and higher market interest
rates.
Interest expense increased $2.8 million, or 26.3%, from $10.7 million for
the five months ended August 31, 1999 to $13.5 million for the five months ended
August 31, 2000. The increase in interest expense was primarily due to a $84.6
million, or 32.6%, increase in average certificate of deposit accounts to $344.3
million for the five months ended August 31, 2000 from $259.7 million for the
five months ended August 31, 1999. The increase in interest expenses was also
attributable to a rise in market interest rates and a higher rate on government
and municipal deposits, which resulted in a 38 basis point increase in the
average rate paid on certificates of deposit from 5.33% to 5.79%.
Provision for Loan Losses. The provision for loan losses was $106,000 for
the five months ended August 31, 2000 compared to no provision for the five
months ended August 31, 1999. The increase in the provision reflects
management's assessment of the need to increase the allowance primarily as a
result of the growth in commercial real estate, multi-family real estate,
commercial and consumer loans, which have a greater inherent risk than one- to-
four family loans, and the greater inherent risk in the loan portfolio due to
the greater concentration of such loans in the portfolio. As of August 31, 2000
commercial loans, commercial real estate, multi-family real estate loans and
consumer loans, excluding home equity loans, totaled $181.7 million or 28.2%
of total loans as compared to $99.1 million and 15.3% of total loans as of
August 31, 1999. Also, management considered the increase in non-accruing one-
to-four family loans. Non-accrual loans increased from $778,000 (or 0.12% of
total loans) at August 31, 1999 to $2.1 million (or 0.34% of total loans) at
August 31, 2000. Offsetting the factors that indicated increased inherent risk
in the loan portfolio, management considered the continuing loss performance of
commercial and consumer loans at levels which was better during the period than
was estimated in 1999, when it revised its loan loss methodology and increased
the loss factors applied to such loans. As a result, the loan loss allowance as
a percentage of non-performing loans at August 31, 2000 was 506.33% as compared
to 1,427% at August 31, 1999. The loan loss allowance as a percentage of total
loans decreased from 1.71% at August 31, 1999 to 1.65% at August 31, 1999, which
level is consistent with management's targeted range of 1.50% to 1.70% of total
loans which such range is based upon the current composition of the portfolio
and market and economic conditions.
Provisions for loan losses are charges to earnings to bring the total
allowance for loan losses to a level considered by management as adequate to
provide for estimated loan losses based on management's evaluation of the
collectibility of the loan portfolio. Management assesses the adequacy of the
allowance for loan losses based on known and inherent risks in the loan
portfolio and upon management's continuing analysis of the factors underlying
the quality of the loan portfolio.
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In this regard, management assesses the estimated losses inherent in it
portfolio primarily by applying its estimates of losses for various types of
loan categories which yields an aggregate estimate of estimated losses. Such
estimate is then considered by management in relation to other factors such as
trends in real estate and collateral values and trends in the regional and local
economies. While management believes that, based on information currently
available, Citizens First's allowance for loan losses is sufficient to cover
losses inherent in its loan portfolio at this time, no assurances can be given
that Citizens First's level of allowance for loan losses will be sufficient to
cover future loan losses incurred by Citizens First or that future adjustments
to the allowance for loan losses will not be necessary if economic and other
conditions differ substantially from the economic and other conditions used by
management to determine the current level of the allowance for loan losses.
Management may increase its level of allowance for loan losses as a percentage
of total loans and nonperforming loans if the level of commercial real estate,
commercial or consumer lending as a percentage of its total loan portfolio
increases. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review Citizens First's allowance for
loan losses. These agencies may require Citizens First to provide additions to
the allowance based upon judgments different from management. See "Business of
Citizens First Savings Bank-Lending Activities-Allowance for Loan Losses."
Noninterest Income. Noninterest income totaled $1.4 million for the five
months ended August 31, 2000 and $1.33 million for the five months ended August
31, 1999, an increase of $69,000, or 5.2%. This increase was primarily due to a
$241,000, or 30.4%, increase in service fees and other charges to $1.04 million
for the five months ended August 31, 2000 from $794,000 for the five months
ended August 31, 1999, due to a $89,000 increase in NOW checking account fees, a
$24,500 increase in trust fees, the addition of new safety deposit boxes and a
$58,000 increase from fees collected through customer use of debit cards
introduced in late 1999. Offsetting these increases was a $45,000, or 20.2%,
decrease in appraisal fee income due to a lower volume of mortgage loan
applications from $223,000 for the five months ended August 31, 1999 to $178,000
for the five months ended August 31, 2000.
Noninterest Expense. Noninterest expense increased $355,000, or 5.6%, to
$6.7 million for the five months ended August 31, 2000, compared to $6.3 million
for the five months ended August 31, 1999. The increase was primarily due to a
$466,000, or 16.7%, increase in salaries and benefits from $2.8 million for the
five months ended August 31, 1999 to $3.3 million for the five months ended
August 31, 2000 due to additional staff in connection with the establishment of
Citizens First's trust department and the addition of an internal auditing
function which was previously outsourced, along with normal salary increases.
Also contributing to the increase in noninterest expense was $189,000 in costs
associated with office occupancy due to an increase in depreciation costs and
service management agreements. These costs were offset by a $173,000 reduction
in advertising and a $113,000 reduction in legal and audit fees, resulting
primarily from internally administering the auditing function.
Income Taxes. Income taxes for the five months ended August 31, 2000 were
$1.64 million, a decrease of $17,000, or 1.0%, from $1.65 million for the five
months ended August 31, 1999. The effective tax rates for the five months ended
August 31, 2000 and the five months ended August 31, 1999 were 32.7% and 33.0%,
respectively. The lower effective tax rate for the 2000 period was attributable
to the addition of tax-exempt securities to the investment portfolio.
Comparison of Operating Results for the Years Ended March 31, 2000 and 1999
Net Income. Net income decreased $698,000, or 10.6%, to $5.9 million for
2000 from $6.6 million for the previous year, primarily due to a normalization
in federal tax provisions from year to year due to a $2.3 million deferred tax
benefit from the contribution of appreciated Freddie Mac stock to Citizens First
Savings Charitable Foundation in 1999. Also contributing to this decrease was a
decrease in noninterest income of $10.3 million, or 103.1%, due to a decrease of
$6.1 million in gains on appreciated securities and a decrease of $1.1 million
in gains on the sale of our investment in a mobile home park. The securities
gain in 1999 represented the excess of the market value of the contributed
securities over the cost basis of the securities at the date of transfer. The
combined income impact in 1999 of the non-recurring transactions related to the
contribution to the foundation including the gain on appreciated securities of
$6.1 million, contribution expense of $6.2 million and non-taxable treatment of
the gain generating a tax benefit of $2.0 million was
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approximately $1.9 million. A $3.5 million loss from a $130.8 million loan sale
in December 1999 in connection with the balance sheet restructuring also
contributed to the decrease. These decreases were offset by a credit of $483,000
to the allowance for loan losses and a $6.4 million, or 28.1%, decrease in
noninterest expense to $16.2 million for 2000 from $22.6 million for 1999. This
decrease was a result of the contribution expense taken in 1999 from the
establishment of the charitable foundation.
Net Interest Income. Net interest income increased by $1.3 million, or
5.7%, to $24.9 million for 2000 from $23.5 million for 1999. Total interest
income rose $2.2 million, or 4.4%, to $51.9 million for 2000 from $49.8 million
for 1999, offset in part by an $823,000, or 3.14%, increase in interest expense
to $27.1 million for 2000 from $23.5 million for 1999. The increase in interest
income was primarily due to a $22.7 million increase in the average balance of
investment securities and an $11.7 million increase in the average balance of
interest-earning deposits, as the funds from the loan sale were invested. A 28
basis point increase in the average yield of loans from 7.98% for 1999 to 8.26%
for 2000 also contributed to the increase in net interest income. These
increases were offset by a $13.4 million decrease in the average balance of
loans due to the loan sales in December 1999 and a 99 basis point decrease in
the average yield of investment securities as the proceeds from the loan sales
were invested in lower-yielding shorter-term government agency and treasury
obligations and corporate funds. The increase in interest expense of $823,000
was primarily due to a $24.5 million increase in the average balance of Federal
Home Loan Bank advances, mainly offset by a 37 basis point rate decrease on
certificates of deposit from 5.65% for 1999 to 5.28% for 2000, attributable to a
lower market interest rate environment. The additional advances were used to
fund loan growth.
Provision for Loan Losses. The provision for loan losses decreased $4.3
million, or 112.7%, from a provision of $3.8 million for fiscal 1999 to a
$483,000 credit for fiscal 2000. The adjustment to the allowance for loan losses
and corresponding credit for fiscal 2000 reflects management's determination to
decrease the overall loan loss allowance in consideration of the decrease in the
loan portfolio due to the sale of a $130.8 million pool of fixed-rate, one- to
four-family loans which occurred in December 1999, and the better than expected
loss experience for commercial real estate, commercial and consumer loans. Those
factors supporting a decreased allowance were partly offset by loan growth and
by the increase in non-accruing one- to four-family loans. Even though the
increase in non-accruing one- to four-family loans was partly offset by the
better than anticipated performance of commercial real estate, commercial and
consumer loans, management considered the increasing origination of those types
of loans, which, despite better than expected performance, bear a higher degree
of risk than one to four family loans. Because of continuing loan originations,
total loans decreased by only $23.2 million from $603.6 million at March 31,
1999 to $580.3 million at March 31, 2000, despite the sale of the pool of loans.
As a result, the loan loss allowance as percentage of total loans remained
stable, decreasing from 1.85% at March 31, 1999 to 1.80% at March 31, 2000. The
allowance for loan losses as a percentage of non-performing loans decreased from
1,281% at March 31, 1999 to 839% at March 31, 2000.
The amount of the decrease in the allowance for loan losses for fiscal 2000
reflects management's assessment of loss experience during fiscal 2000 of its
commercial real estate, commercial and consumer loans that it believed in 1999
would have experienced greater losses and delinquencies than actually occurred
during fiscal 2000. During fiscal 1999, in recognition of its strategy of
increasing multifamily real estate, commercial real estate, commercial and
consumer (particularly indirect automobile) loans, the overall increase in the
risk inherent in a loan portfolio with an increased amount of those types of
loans, which generally bear a higher degree of risk than one- to four-family
loans, and the relative lack of loss experience with those types of loans,
management reevaluated its loan loss allowance methodology. As a result,
management determined to increase the loss factors it applied to these types of
loans and also determined that it should maintain an overall loan loss allowance
which would be at historically higher levels as a percentage of total loans and
which would be closer to the loan loss allowance averages maintained by
commercial banks operating in Michigan. Based on the revised methodology, the
loan loss allowance was increased to $11.1 million, or 1.85% of total loans at
March 31, 1999. However, during fiscal 2000, despite an increase in the
aggregate balance of commercial real estate, commercial and consumer loans, non-
accruing commercial and consumer loans decreased and commercial and consumer
loans experienced delinquencies at lower levels than were expected in 1999.
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Noninterest Income. For 2000 noninterest income decreased by $10.3
million, or 103.1% from $10.0 million in 1999 to a loss of $314,000 in 2000.
The decrease was primarily due to a $6.1 million decrease in gains on
appreciated securities from the formation of the Citizens First Savings
Charitable Foundation and a $1.1 million decrease in gains from the sale of an
investment in a mobile home park which occurred in 1999. Citizens First also
had a $3.5 million, or 295.3%, decrease in non-interest income due to a $4.5
million loss on the sale of a pool of $130.8 million in mortgage loans in
December 1999. These loans were sold at market prices to Freddie Mac to assist
in reorganizing the balance sheet, manage interest rate risk, and provide
liquidity and funding for other lending activities. The substantial majority of
the proceeds from the sale of such loans was invested in investment grade
securities with shorter maturities than the loans sold and utilized for the
origination of consumer loans. Loan sale proceeds were also used to repay FHLB
borrowings at such time. The loss on the sale resulted primarily from the
market value of the pool of such loans being lower due to higher market interest
rates at the time of the sale than the interest rates on such pool of loans.
This sale was an unusual sale, not associated with loan sales which occur in the
normal course of business. Citizens First generally does not sell loans from
its portfolio and generally only originates one-to-four family mortgage loans
with maturities or repricing periods of 15 years or more for sale and sells such
loans at the time of origination. The decreases in non-interest income due to
the loss on the loan sale and decrease in gains on appreciated securities were
offset, in part, by an increase in service charge fees which increased
$290,000, or 17.0%, due to increased volume, primarily in commercial deposit
accounts.
Noninterest Expense. Noninterest expense decreased $6.4 million, or 28.1%,
to $16.2 million for 2000, compared to $22.6 million for 1999, primarily due to
the $6.1 million, or 97.8%, decrease in contributions after the formation of the
Citizens First Savings Charitable Foundation. Excluding that contribution,
noninterest expense decreased $125,000, or 0.8% from $16.4 million for fiscal
1999 to $16.2 million for fiscal 2000. The decrease was primarily due to a
$646,000, or 18.3%, decrease in office occupancy and equipment expense due to a
$600,000 write-off related to obsolete or missing equipment. The increased
reorganization expenses in 1999 was primarily due to equipment purchases made in
connection with the reorganization and the write-off of outdated equipment. A
$305,000, or 39.5%, decrease in appraisal fees due to a decrease in mortgage
loan application volume also contributed to this decrease. These decreases were
offset by a $620,000, or 8.7%, increase in compensation and benefits expense.
Income Taxes. Income taxes for the year ended March 31, 2000 were $2.9
million, an increase of $2.3 million, or 434.3%, from $539,000 for the year
ended March 31, 1999. The effective tax rates for 2000 and 1999 were 32.8% and
7.6%, respectively. The lower effective tax rate in 1999 was partially
attributable to a contribution deduction of appreciated Freddie Mac securities
in connection with the establishment of Citizens First Savings Charitable
Foundation. Under the Internal Revenue Code, Citizens First may only deduct up
to 10% of its consolidated taxable income before the charitable contribution in
any one year. The excess of the deductible amount will be deductible over each
of the five succeeding taxable years, subject to a 10% limitation each year.
Comparison of Operating Results for the Years Ended March 31, 1999 and 1998
Net Income. Net income increased by $395,000, or 6.4%, from $6.2 million
for 1998 to $6.6 million for 1999. The increase was primarily due to the
increased tax benefits received in fiscal 1999 in connection with the
establishment and funding of Citizens First Savings Charitable Foundation. This
increase was also attributable to a $2.4 million, or 11.4%, increase in net
interest income, an increase of $6.8 million, or 215.1%, in noninterest income
offset by a $7.9 million, or 53.6%, increase in noninterest expense and a $3.1
million, or 432.2% increase in the provision for loan losses.
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Net Interest Income. Net interest income increased $2.4 million, or 11.4%,
to $23.5 million for 1999 from $21.1 million for 1998. This increase was
primarily due to an increase in interest income on loans due to an increase in
the average balance of loans of $39.7 million, or 7.0%, to $604.9 million for
1999 from $565.2 million for 1998 due to a higher level of one- to four-family
mortgage loans and commercial real estate loans. The increase in interest
income from loans was partially enhanced by a 7 basis point increase in the
average yield to 7.98% from 7.91% due to an increase of higher yielding
commercial real estate loans. The increase in interest income was partially
offset by a $1.1 million, or 4.6%, increase in interest expense, primarily due
to increased deposits and Federal Home Loan Bank advances. The increase in
interest expense on deposits was due to a higher average balance of interest-
bearing deposits of $33.4 million, or 6.9%, to $520.2 million for the year ended
March 31, 1999 from $486.8 million for the year ended March 31, 1998. The
increase in deposits was partially offset by an 15 basis point decrease in the
average rate paid on deposits from 4.61% for 1998 to 4.46% for 1999 due to the
lower interest rate environment. Also contributing to the increase in the
interest expense was a $6.5 million, or 15.5%, increase in the average balance
of Federal Home Loan Bank advances to $48.2 million for 1999 from $41.7 million
for 1998. The additional Federal Home Loan Bank advances were used primarily to
fund loan growth.
Provision for Loan Losses. The provision for loan losses increased $3.1
million to $3.8 million in 1999 from $714,000 in 1998. The increase in the
provision and the increase in the overall allowance for loan losses for 1999
occurred primarily as a result of a change in the loan loss allowance
methodology and management's determination to maintain the allowance at higher
levels in consideration of the change in lending strategy which resulted in an
increase in multi-family real estate, commercial real estate, commercial and
consumer (particularly indirect automobile) loans. Management recognized that
the overall increase in the risk inherent in a loan portfolio with an increased
amount of such loans, which generally bear a higher degree of risk than one- to-
four family loans, and the relative lack of loss experience with those types of
loans, required a reevaluation of loan loss allowance methodology. The revision
in the methodology resulted in the application of higher loss factors to
commercial real estate, consumer and commercial loans based on the expected
performance of such loans and a determination to maintain an overall loan loss
allowance which would be at historically higher levels as a percentage of total
loans and which would more closely approximate the industry average level
maintained by commercial banks operating in Michigan. Management also considered
its relative lack of loss experience with such types of loans, particularly its
lack of loss experience with commercial real estate loans, commercial loans and
indirect automobile loans. This change in methodology resulted in approximately
$2.5 million of the increased provision. To a lesser extent, the increased
provision for fiscal 1999 and the higher level of the allowance for loan losses
maintained in fiscal 1999 as compared to fiscal 1998 reflects an increase in
total loans, which increased from $558.3 million at March 31, 1998 to $603.6
million at March 31, 1999. The increase in the provision occurred despite a
decrease in total non-performing loans, which decreased from $1.4 million at
March 31, 1998 to $939,000 at March 31, 1999. As a result, the loan loss
allowance as a percentage of total loans and non-performing loans at March 31,
1999 was 1.85% and 1,282%, respectively, as compared to 1.35% and 553% at March
31, 1998, respectively.
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Noninterest Income. Noninterest income totaled $10.0 million and $3.2
million for the years ended March 31, 1999 and 1998, respectively. The $6.8
million increase in noninterest income was attributable to the one-time gain of
$6.2 million recognized on the donation of appreciated marketable equity
securities to Citizens First Savings Charitable Foundation. The remainder of
the increase consisted of an increase of $311,000, or 35.8%, in mortgage banking
activities and a $245,000, or 26.8%, increase in service charge fees due to
increased loan sales because of increased originations.
Noninterest Expense. Noninterest expense totaled $22.6 million for fiscal
1999, an increase of $7.9 million, or 53.6%, from $14.7 million for fiscal 1998,
primarily due to the donation of $6.2 million of appreciated securities to
Citizens First Savings Charitable Foundation in 1999 compared to a donation of
$941,000 made in 1998. Also contributing to the increase in noninterest expense
was a $1.5 million, or 77.4%, increase in office occupancy and equipment expense
from $2.0 million for 1998 to $3.5 million for 1999 due primarily to a change in
the fixed-asset capitalization policy in fiscal 1999, preparation for the year
2000 and a write-off of obsolete or missing office equipment. The change in the
fixed-asset capitalization policy and the preparation for the year 2000
accounted for approximately $400,000 of the increased cost, the write-off of
obsolete and missing office equipment accounted for approximately $600,000 of
the increase in costs with the remainder of the increase in cost primarily due
to renovations and improvements of existing facilities. Also contributing to the
increase in non-interest expense in fiscal 1999 was $425,000, or 172.0%,
increase in legal and audit fees due to department related reorganization
projects, a $289,000, or 59.7%, increase in appraisal fee expense due to
increased mortgage loan application volume and a $137,000, or 43.4%, increase in
Michigan taxes.
Income Taxes. Income taxes decreased $2.1 million, or 79.8%, to $539,000
for 1999 from $2.7 million for 1998 resulting in effective tax rates of 7.55%
and 30.1% for 1999 and 1998, respectively. The lower effective tax rate in 1999
was partially attributable to a $2.3 million tax benefit from the contribution
deduction of appreciated Freddie Mac securities in connection with the
establishment of Citizens First Savings Charitable Foundation
39
<PAGE>
Average Balances, Interest and Average Yields/Cost
The following table presents certain information regarding average balances
of assets and liabilities, as well as the total dollar amounts of interest
income from average interest-earning assets and interest expense on average
interest-bearing liabilities and the resulting average yields and costs. The
yields and costs for the periods indicated are derived by dividing income or
expense by the average balances of assets or liabilities, respectively, for the
periods presented. Average balances were derived from monthly balances.
<TABLE>
<CAPTION>
Five Months Ended August 31,
--------------------------------------------------------------
At August 31, 2000 2000 1999
------------------- --------------------------------- ----------------------------
Average Average
Yield/ Average Yield/ Average Yield/
Balance Rate Balance Interest Rate Balance Interest Rate
------- ------ -------- -------- -------- -------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans (1)................................ $633,483 8.28% $586,995 $20,688 8.46% $616,544 $20,201 7.86%
Securities (2)........................... 85,661 6.68 97,256 2,518 6.21 2,003 56 6.71
Federal Home Loan Bank stock............. 5,119 5.63 5,353 141 6.32 5,597 144 6.17
Federal funds sold....................... -- -- 1,334 35 6.30 3,299 84 6.11
Interest-earning deposits................ 35,766 5.40 21,096 498 5.67 10,711 207 4.64
-------- ---- -------- ------- ------ -------- ------- ------
Total interest-earning assets.......... 760,029 7.77 712,034 23,880 8.05 638,154 20,692 7.78
Noninterest-earning assets.................. 34,399 46,294 31,365
-------- -------- --------
Total assets........................ $794,428 $758,327 $669,519
-------- -------- --------
Interest-bearing liabilities:
Deposits:
Savings accounts...................... $ 87,669 2.24 $ 88,194 $ 891 2.42 $ 86,185 832 2.32
NOW accounts.......................... 66,702 2.07 68,422 556 2.04 63,096 528 2.01
Money market accounts................. 98,608 4.08 101,734 1,760 4.15 120,132 2,041 4.08
Certificates of deposit............... 364,369 6.26 344,282 8,301 5.79 259,723 5,768 5.33
-------- ---- -------- ------- ------ -------- ------- ------
Total deposits...................... 617,348 4.89 599,632 11,508 4.61 529,135 9,169 4.16
Federal Home Loan Bank advances.......... 77,302 6.07 75,987 1,985 6.27 58,367 1,517 6.24
-------- ---- -------- ------- ------ -------- ------- ------
Total interest-bearing liabilities..... 694,652 5.02 675,619 13,493 4.79 587,502 10,686 4.37
Noninterest-bearing deposits............. 19,675 14,774 13,457
Other noninterest-bearing liabilities.... 13,140 4,863 11,983
-------- -------- --------
Total liabilities................... 727,465 695,256 612,942
Equity................................... 66,963 63,071 56,577
-------- -------- --------
Total liabilities and equity........ $794,428 $758,327 $669,519
======== ========= ========
Net interest-earning assets.............. $ 65,377 $ 36,415 $ 50,652
======== ========= ========
Net interest income...................... $10,387 $10,006
======= =======
Interest rate spread (3)................. 3.26% 3.42%
Net interest margin as a percentage
of interest-earning assets (4)......... 3.50 3.76%
Ratio of interest-earning assets
to interest-bearing liabilities....... 105.39% 108.62%
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
For the Fiscal Years Ended March 31,
---------------------------------------------------------------------------------------
2000 1999 1998
--------------------------- --------------------------- ---------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- -------- -------- -------- -------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans (1)................................ $591,549 $48,839 8.26% $604,987 $48,255 7.98% $565,209 $44,698 7.91%
Securities (2)........................... 24,928 1,281 5.14 2,204 135 6.13 2,204 128 5.81
Federal Home Loan Bank stock............. 5,586 326 5.84 5,583 342 6.13 6,471 376 5.81
Federal funds sold....................... 2,928 151 5.16 5,097 289 5.67 3,363 194 5.7
Interest-earning deposits................ 26,345 1,331 5.05 14,647 743 5.07 16,020 826 5.16
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest-earning assets....... 651,336 51,928 7.97 632,518 49,764 7.87 593,267 46,222 7.79
-------- ------- ------ -------- ------- ------ -------- ------- ------
Noninterest-earning assets.................. 41,492 20,569 24,483
-------- -------- --------
Total assets........................... $692,828 $653,087 $617,750
======== ======== ========
Interest-bearing liabilities:
Deposits:
Savings accounts...................... $ 86,199 2,053 2.38 $ 83,027 1,929 2.32 $ 80,781 1,860 2.30
NOW accounts.......................... 65,765 1,305 1.98 60,037 1,228 2.05 47,955 978 2.04
Money market accounts................. 105,954 4,669 4.41 110,257 4,969 4.51 93,306 4,370 4.68
Certificates of deposit............... 278,680 14,718 5.28 266,843 15,080 5.65 264,761 15,240 5.76
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total deposits....................... 536,598 22,745 4.24 520,164 23,206 4.46 486,803 22,448 4.61
Federal Home Loan Bank advances.......... 72,675 4,318 5.94 48,151 3,034 6.30 41,705 2,647 6.35
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest-bearing liabilities..... 609,273 27,063 4.44 568,315 26,240 4.62 528,508 25,095 4.75
Noninterest-bearing deposits............. 13,669 11,065 9,087
Other noninterest-bearing liabilities.... 6,735 19,978 28,881
-------- -------- --------
Total liabilities...................... 629,677 599,358 566,476
Equity................................... 63,151 53,729 51,274
-------- -------- --------
Total liabilities and equity........... $692,828 $653,087 $617,750
-------- -------- --------
Net interest-earning assets.............. $ 42,063 $ 64,203 $ 64,759
======== ======== ========
Net interest income...................... $24,865 $23,524 $21,127
======= ======= =======
Interest rate spread (3)................. 3.53% 3.25% 3.04%
Net interest margin as a percentage
of interest-earning assets (4)......... 3.82% 3.72% 3.56%
Ratio of interest-earning assets
to interest-bearing liabilities....... 106.90% 111.30% 112.25%
</TABLE>
________________________________
(1) Balances are net of deferred loan origination costs, undisbursed proceeds
of construction loans in process, and include nonperforming loans.
(2) Includes investment securities available-for-sale and held-to-maturity.
(3) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(4) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
41
<PAGE>
Rate/Volume Analysis. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected Citizens First's interest income
and interest expense during the periods indicated. Information is provided in
each category with respect to: (i) changes attributable to changes in volume
(changes in volume multiplied by prior rate); (ii) changes attributable to
changes in rate (changes in rate multiplied by prior volume); and (iii) the net
change (the sum of the prior columns). The changes attributable to the combined
impact of volume and rate have been allocated on a proportional basis between
changes in rate and volume.
<TABLE>
<CAPTION>
Year Ended
Five Months Ended August 31, March 31, 2000
2000 Compared to Five Compared to
Months Ended Year Ended
August 31, 1999 March 31, 1999
----------------------------- --------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
----------------- ----------------
Rate Volume Net Rate Volume Net
-------- ------ ------- -------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans.............................. $1,455 $ (968) $ 487 $ 1,656 $(1,072) $ 584
Securities......................... (201) 2,663 2,462 (246) 1,392 1,146
Federal Home Loan Bank stock....... 3 (6) (3) (16) - (16)
Federal funds sold................. 1 (50) (49) (15) (123) (138)
Interest-earning deposits.......... 90 201 291 (5) 593 588
------ ------ ------ ------- ------- ------
Total interest-earning....... 1,348 1,840 3,188 1,374 790 2,164
assets.................... ------ ------ ------ ------- ------- ------
Interest-bearing liabilities:
Deposits:
Savings accounts................ 40 19 59 50 74 124
NOW accounts.................... 9 19 28 (40) 117 77
Money market accounts........... 32 (313) (281) (106) (194) (300)
Certificates of deposit......... 655 1,878 2,533 (1,031) 669 (362)
------ ------ ------ ------- ------- ------
Total deposits............... 736 1,603 2,339 (1,127) 666 (461)
FHLB advances and other
borrowings................... 10 458 468 (261) 1,545 1,284
------ ------ ------ ------- ------- ------
Total interest-bearing
liabilities............... 746 2,061 2,807 (1,388) 2,211 823
------ ------ ------ ------- ------- ------
Increase(decrease) in net
interest income.................... $ 602 $ (221) $ 381 $ 2,762 $(1,421) $1,341
====== ====== ====== ======= ======= ======
<CAPTION>
Year Ended
March 31, 1999
Compared to
Year Ended
March 31, 1998
----------------------------
Increase (Decrease)
Due to
----------------
Rate Volume Net
-------- ------ -------
<S> <C> <C> <C>
Interest-earning assets:
Loans.............................. $ 411 $3,146 $3,557
Securities......................... 7 - 7
Federal Home Loan Bank stock....... 18 (52) (34)
Federal funds sold................. (5) 100 95
Interest-earning deposits.......... (12) (71) (83)
----- ------ ------
Total interest-earning....... 419 3,123 3,542
assets.................... ----- ------ ------
Interest-bearing liabilities:
Deposits:
Savings accounts................ 17 52 69
NOW accounts.................... 4 246 250
Money market accounts........... (195) 794 599
Certificates of deposit......... (280) 120 (160)
----- ------ ------
Total deposits............... (454) 1,212 758
FHLB advances and other
borrowings................... (19) 406 387
----- ------ ------
Total interest-bearing
liabilities............... (473) 1,618 1,145
----- ------ ------
Increase(decrease) in net
interest income.................... $ 892 $1,505 $2,397
===== ====== ======
</TABLE>
Management of Interest Rate Risk and Market Risk Analysis
Qualitative Aspects of Market Risk. Citizens First's most significant form
of market risk is interest rate risk. The principal objectives of Citizens
First's interest rate risk management are to evaluate the interest rate risk
inherent in certain balance sheet accounts, determine the level of risk
appropriate given Citizens First's business strategy, operating environment,
capital and liquidity requirements and performance objectives, and manage the
risk consistent with the Board of Director's approved guidelines. Citizens First
has an Asset/Liability Management Committee, responsible for reviewing its
asset/liability policies and interest rate risk position, which meets monthly
and reports trends and interest rate risk position to the Board of Directors
quarterly. The extent of the movement of interest rates is an uncertainty that
could have a negative impact on the earnings of Citizens First.
Citizens First's assets include a high percentage of fixed-rate mortgage
loans. This exposes Citizens First to the risk that during periods of rising
interest rates, Citizens First's interest expense will increase faster than its
interest income. In recent years, Citizens First has used the following
strategies to manage interest rate risk: (1) emphasizing the origination
42
<PAGE>
of adjustable-rate loans and the sale of longer-term, fixed-rate loans; (2)
emphasizing shorter term consumer loans; (3) maintaining a high quality
portfolio of short to intermediate term securities; (4) maintaining high levels
of liquidity; and (5) using Federal Home Loan Bank advances to better structure
maturities of its interest rate sensitive liabilities. Citizens First uses
forward sales contracts to protect the value of residential mortgage loans that
are being underwritten or warehoused for future sale to investors in the
secondary market. Adverse market interest rate changes, between the time that a
customer receives a rate-lock commitment and when the fully-funded mortgage loan
is sold to an investor, can erode the value of that mortgage. Therefore,
Citizens First enters into forward sales contracts to mitigate the interest rate
risk associated with the origination and sale of mortgage loans. Citizens First
accepts credit risk in forward sales contracts to the extent of nonperformance
by a counterparty, in which case Citizens First would be compelled to sell the
mortgages to another party at the current market price. The credit exposure of
forward sales represents the aggregate value of contracts with a positive fair
value. More recently, Citizens First has used some of its excess liquidity to
increase its loan portfolio. As liquidity is reduced, Citizens First's
sensitivity to interest rate movements is expected to increase.
Quantitative Aspects of Market Risk. The matching of assets and
liabilities may be analyzed by examining the extent to which such assets and
liabilities are "interest rate sensitive" and by monitoring a bank's interest
rate sensitivity "gap." An asset or liability is said to be interest rate
sensitive within a specific time period if it will mature or reprice within that
time period. The interest rate sensitivity gap is defined as the difference
between the amount of interest-earning assets maturing or repricing within a
specific time period and the amount of interest-bearing liabilities maturing or
repricing within that same time period. At August 31, 2000, Citizens First's
one-year gap position, the difference between the amount of interest-earning
assets maturing or repricing within one year and interest-bearing liabilities
maturing or repricing within one year, was a negative 16.15%. A gap is
considered negative when the amount of interest rate sensitive liabilities
exceeds the amount of interest rate sensitive assets. Accordingly, during a
period of rising interest rates, Citizens First, having a negative gap position,
would be in a worse position to invest in higher yielding assets which,
consequently, may result in the cost on its interest-bearing liabilities
increasing at a rate faster than its yield on interest-earing assets than if it
had a positive gap. During a period of falling interest rates, an institution
with a negative gap would tend to have its interest-bearing liabilities
repricing downward at a faster rate than one with a negative gap, which
consequently, may tend to positively affect its net income.
The following table sets forth the amount of interest-earning assets and
interest-bearing liabilities outstanding at August 31, 2000, which are
anticipated by Citizens First, based upon certain assumptions, to reprice or
mature in each of the future time periods shown. Except as stated below, the
amount of assets and liabilities shown which reprice or mature during a
particular period were determined in accordance with the earlier of term to
repricing or the contractual maturity of the asset or liability. The table sets
forth an approximation of the projected repricing of assets and liabilities at
August 31, 2000, on the basis of contractual maturities, anticipated
prepayments, and scheduled rate adjustments within a series of time intervals.
For loans on residential mortgages, adjustable-rate loans, and fixed-rate loans,
prepayment rates were assumed to range from 1% to 50% annually. All securities
are presented based on stated maturities. NOW accounts were assumed to decay at
0, 30%, 30%, 10%, 10% and 20%, respectively, for each of the following periods:
one year, one to two years, two to three years, three to four years, four to
five years and over five years. Noninterest-bearing demand deposit accounts and
savings accounts were assumed to decay at 20%, 20%, 20%, 10%, 10% and 20%,
respectively, for each of the following periods: one year, one to two years,
two to three years, three to four years, four to five years, and over five
years. Money market accounts were assumed to decay at 50%, 25%, 25%, 0%, 0% and
0%, respectively, for each of the following periods: one year, one to two
years, two to three years, three to four years, four to five years, and over
five years. Prepayment of deposit rates can have a significant impact on
Citizens First's estimated gap. While Citizens First believes such assumptions
to be reasonable, there can be no assurance that assumed prepayment rates and
decay rates will approximate actual future loan repayment and deposit withdrawal
activity. See "Business of Citizens First Savings Bank--Lending Activities,"
"Business of Citizens First Savings Bank--Investment Activities" and "Business
of Citizens First Savings Bank--Deposit Activities and Other Sources of Funds."
43
<PAGE>
<TABLE>
<CAPTION>
At August 31, 2000
----------------------------------------------------------------------------------------------
More than More than More than More than
One Year Two Years Three Years Four Years
One Year to to to to More Than Total Fair
or Less Two Years Three Years Four Years Five Years Five Years Amount Value
------------ ----------- ----------- ---------- ----------- ----------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Securities:
U.S. treasuries................. $ 2,993 $ 7,956 $ -- $ -- $ -- $ -- $ 10,949 $ 10,949
U.S. agencies................... -- 2,969 16,251 7,579 -- -- 26,799 26,799
Municipal securities............ -- -- -- 1,274 2,062 7,733 11,069 11,069
Corporate securities............ 3,982 9,850 4,039 14,766 1,969 2,238 36,844 36,844
Interest-bearing deposits......... 24,465 -- -- -- -- -- 24,465 24,465
Other investments................. -- -- -- -- -- 5,119 5,119 5,119
---------- --------- --------- ---------- --------- --------- --------- ---------
Total investments.............. 31,440 20,755 20,290 23,619 4,031 15,090 115,245 115,245
---------- --------- --------- ---------- --------- --------- --------- ---------
Loans............................. 179,384 186,598 43,326 44,310 45,815 143,867 643,300 630,437
---------- --------- --------- ---------- --------- --------- --------- ---------
Total interest-earning assets.... $ 210,824 $ 207,373 $ 63,616 $ 67,929 $ 49,846 $ 158,957 $ 758,545 $ 745,682
========== ========= ========= ========== ========= ========= ========= =========
Interest-bearing liabilities:
Money market accounts............. $ 49,304 $ 24,652 $ 24,652 $ -- $ -- $ -- $ 98,608 $ 98,608
Savings accounts.................. 16,959 17,435 17,435 8,960 8,960 17,920 87,669 87,669
Transaction accounts.............. -- 20,001 20,001 6,667 6,667 13,366 66,702 66,702
Certificates of deposit........... 245,061 41,956 41,956 17,698 17,698 -- 364,369 363,507
Advances from Federal
Home Loan Bank................... 22,000 27,600 -- 10,000 3,200 14,502 77,302 75,656
---------- --------- --------- ---------- --------- --------- --------- ---------
Total interest-bearing
liabilities................ $ 333,324 $ 131,644 $ 104,044 $ 43,325 $ 36,525 $ 45,788 $ 694,650 $ 692,142
========== ========= ========= ========== ========= ========= ========= =========
Interest rate sensitivity gap..... $ (122,500) $ 75,729 $ (40,428) $ 24,604 $ 13,321 $ 113,169 $ 63,895
Cumulative interest-rate
sensitivity gap.................. $ (122,500) $ (46,771) $ (87,199) $ (62,595) $ (49,274) $ 63,895 --
Interest-rate gap as a
percentage of total
interest-earning assets.......... (16.15)% 9.98% (5.33)% 3.24% 1.76% 14.92% --
Cumulative interest-rate gap
as a percentage of total
interest-earning assets.......... (16.15)% (6.17)% (11.50)% (8.25)% (6.50)% 8.42% --
Cumulative interest-earning
assets as a percentage of
cumulative interest-bearing
liabilities...................... 63.25% 89.94% 84.68% 89.78% 92.41% 109.20% 109.20%
Cumulative interest-earning
assets........................... $ 210,824 $ 418,197 $ 481,813 $ 549,742 $ 599,588 $ 758,545 $ 758,545
Cumulative interest-bearing
liabilities...................... $ 333,324 $ 464,968 $ 569,012 $ 612,337 $ 648,862 $ 694,650 $ 694,650
</TABLE>
The notional and estimated fair value of forward sales contracts used
to manage risk positions associated with residential mortgage loans were as
follows:
Notional Estimated
Amount Fair Value
---------- ----------
(In thousands)
August 31, 2000........ $ 2,066 $ 2
March 31, 2000......... $ 880 $ 5
March 31, 1999......... $ 19,500 $ 39
Forward sales contracts as of August 31, 2000 have settlement dates of
less than 90 days. The weighted average settlement interest rate for these
contracts was 8.40%.
44
<PAGE>
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations
of a short-term nature. Citizens First further defines liquidity as the ability
to have funds available to respond to the needs of depositors and borrowers as
well as maintaining the flexibility to take advantage of investment
opportunities. Citizens First's primary sources of funds consist of deposit
inflows, loan repayments, maturities and sales of investment securities and
borrowings from the Federal Home Loan Bank. While maturities and scheduled
amortization of loans and securities are predictable sources of funds, deposit
flows and mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition.
Liquidity management is both a daily and long-term responsibility of
management. Citizens First adjusts its investments in liquid assets based upon
management's assessment of (1) expected loan demand, (2) expected deposit flows,
(3) yields available on interest-earning deposits and securities, and (4) the
objectives of its asset/liability management program. Excess liquid assets are
invested generally in interest-earning overnight deposits and short- and
intermediate-term U.S. Government and agency obligations.
Federal and state regulations require Citizens First to maintain minimum
levels of liquid assets. The required percentage has varied from time to time
based upon economic conditions and savings flows and is currently 4.0% of net
withdrawable savings deposits and borrowings payable on demand or in one year or
less during the preceding calendar month. Liquid assets for purposes of this
ratio include cash, certain time deposits, U.S. Government, government agency
and corporate securities and other obligations generally having remaining
maturities of less than five years. Citizens First has historically maintained
its liquidity ratio for regulatory purposes at levels in excess of those
required. At August 31, 2000, Citizens First's liquidity ratio for regulatory
purposes was 17.8%.
Citizens First's most liquid assets are cash and short-term investments
(securities maturing in one year or less). The levels of these assets are
dependent on Citizens First's operating, financing, lending and investing
activities during any given period. At August 31, 2000, cash and short-term
investments totaled $56.7 million. Securities classified as available-for-sale
totaled $85.7 million at August 31, 2000. In addition, at August 31, 2000,
Citizens First had the ability to borrow a total of approximately $285.0 million
from the Federal Home Loan Bank of Indianapolis. On that date, Citizens First
had advances outstanding of $77.3 million.
The primary investing activities of Citizens First are the origination of
loans and the purchase of securities. In the first five months of fiscal 2001,
Citizens First originated $137.1 million of loans and purchased $7.5 million of
securities. In fiscal 2000, Citizens First originated $292.5 million of loans
and purchased $95.9 million of securities. In fiscal 1999, Citizens First
originated $295.8 million of loans and purchased $824,000 of securities.
Citizens First originates fixed-rate loans conforming to Freddie Mac
guidelines generally for sale in the secondary market. The proceeds of such
sales provide funds for both additional lending and liquidity to meet current
obligations. In December 1999, Citizens First sold $130.8 million of mortgage
loans for the purpose of reorganizing the balance sheet, managing interest rate
risk and providing liquidity. This transaction was unusual and management does
not have any current plans to engage in another such loan sale.
Financing activities consist primarily of activity in deposit accounts and
Federal Home Loan Bank advances. Citizens First experienced a net increase in
total deposits of $36.0 million, $74.2 million and $23.4 million for the first
five months of fiscal 2001, and fiscal 2000 and 1999, respectively. Deposit
flows are affected by the overall level of interest rates, the interest rates
and products offered by Citizens First and its local competitors and other
factors. Citizens First generally manages the pricing of its deposits to be
competitive and to increase core deposit relationships. Occasionally, Citizens
First offers promotional rates on certain deposit products in order to attract
deposits. In the first five months of fiscal 2001, Federal Home Loan Bank
advances increased $6.8 million. During fiscal 2000 and 1999, Federal Home Loan
Bank advances increased $16.2 million and $2.7 million, respectively.
45
<PAGE>
At August 31, 2000, Citizens First had outstanding commitments to originate
loans of $30.6 million, $14.6 million of which had fixed interest rates. These
loans are to be secured by properties located in its market area. Citizens
First anticipates that it will have sufficient funds available to meet its
current loan commitments. Loan commitments have, in recent periods, been funded
through liquidity or through Federal Home Loan Bank borrowings. Certificates of
deposit that are scheduled to mature in one year or less from August 31, 2000
totaled $247.3 million. Management believes, based on past experience, that a
significant portion of those deposits will remain with Citizens First. Based on
the foregoing, Citizens First considers its liquidity and capital resources
sufficient to meet its outstanding short-term and long-term needs.
Citizens First is subject to various regulatory capital requirements
administered by the Federal Deposit Insurance Corporation including a risk-based
capital measure. The risk-based capital guidelines include both a definition of
capital and a framework for calculating risk-weighted assets by assigning
balance sheet assets and off-balance sheet items to broad risk categories. At
August 31, 2000, Citizens First exceeded all of its regulatory capital
requirements. Citizens First is considered "well capitalized" under regulatory
guidelines. See "Regulation and Supervision-Savings Institution Regulation -
Capital Requirements" and "Regulatory Capital Compliance" and note 11 of the
notes to the financial statements.
The capital from the conversion will significantly increase liquidity and
capital resources. Over time, the initial level of liquidity will be reduced as
net proceeds from the stock offering are used for general corporate purposes,
including the funding of lending activities. Citizens First's financial
condition and results of operations will be enhanced by the capital from the
conversion, resulting in increased net interest-earning assets and net income.
However, due to the large increase in equity resulting from the capital
injection, return on equity will be adversely impacted following the conversion
until that capital can be effectively deployed at market rates, a goal that may
take a number of years to achieve.
Impact of Accounting Pronouncements
Accounting for Derivative Instruments and Hedging Activities. Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," issued in June 1998 (as amended by SFAS No. 137),
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts. The Statement requires
entities to carry all derivative instruments in the statement of financial
position at fair value. The accounting for changes in the fair value, gains and
losses, of a derivative instrument depends on whether it has been designated and
qualifies as part of a hedging relationship and, if so, on the reasons for
holding it. If certain conditions are met, entities may elect to designate a
derivative instrument as a hedge of exposures to changes in fair value, cash
flows or foreign currencies. The statement was adopted by Citizens First during
fiscal year 2000 and did not have a material effect on the consolidated
financial position or results of operations.
Effect of Inflation and Changing Prices
The consolidated financial statements and related financial data presented
in this prospectus have been prepared following generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars without considering the change in the
relative purchasing power of money over time due to inflation. The primary
impact of inflation is reflected in the increased cost of Citizens First's
operations. Unlike most industrial companies, virtually all the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than do general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services.
46
<PAGE>
Business of Citizens First Bancorp
General
Citizens First Bancorp was organized as a Delaware business corporation at
the direction of Citizens First in October 2000 to become the holding company
for Citizens First upon completion of the conversion. As a result of the
conversion, Citizens First will be a wholly owned subsidiary of Citizens First
Bancorp and all of the issued and outstanding capital stock of Citizens First
will be owned by Citizens First Bancorp.
Business
Before the completion of the conversion, Citizens First Bancorp will not
engage in any significant activities other than those of an organizational
nature. Following completion of the conversion, Citizens First Bancorp's
business activity will be the ownership of the outstanding capital stock of
Citizens First and management of the investment of proceeds retained from the
conversion. In the future, Citizens First Bancorp may acquire or organize other
operating subsidiaries. There are no current plans, arrangements, agreements or
understandings, written or oral, to do so.
Initially, Citizens First Bancorp will neither own nor lease any property
but will instead use the premises, equipment and furniture of Citizens First
with the payment of appropriate rental fees, as required by applicable law and
regulations.
Since Citizens First Bancorp will hold the outstanding capital stock of
Citizens First after the conversion, the competitive conditions applicable to
Citizens First Bancorp will be the same as those confronting Citizens First.
See "Business of Citizens First Savings Bank--Competition."
Business of Citizens First Savings Bank
General
Citizens First was founded in 1938 as a federal savings and loan
association under the name "Citizens Federal Savings and Loan Association of
Port Huron." In 1990, Citizens First became a federal savings bank under the
name "Citizens Federal Savings Bank." In 1997, Citizens First converted to a
Michigan-chartered mutual savings bank with the name "Citizens First Savings
Bank." Citizens First is regulated by the Michigan Office of Financial and
Insurance Services and the Federal Deposit Insurance Corporation. Citizens
First's deposits are insured to the maximum allowable amount by the Savings
Association Insurance Fund of the Federal Deposit Insurance Corporation.
Citizens First has been a member of the Federal Home Loan Bank System since
1938.
Citizens First operates as a community-oriented financial institution,
specializing in the acceptance of retail deposits from the general public in the
areas surrounding its 14 full-service banking offices and using those funds,
together with funds generated from operations and borrowings, to originate
loans. The principal lending activity of Citizens First is the origination of
mortgage loans for the purpose of purchasing or refinancing one- to four-family
residential property. Citizens First also originates commercial real estate
loans, construction loans, commercial loans, automobile loans, home equity loans
and lines of credit and a variety of consumer loans. Citizens First currently
originates one- to four-family mortgage loans primarily for sale in the
secondary market, while generally retaining the servicing rights. See "--
Lending Activities." Citizens First's revenues are derived principally from the
generation of interest and fees on loans originated and, to a lesser extent,
interest and dividends on investments. Citizens First's primary sources of
funds are deposits, principal and interest payments on loans and investments and
advances from the Federal Home Loan Bank of Indianapolis.
47
<PAGE>
Market Area
Citizens First's main office is in Port Huron, Michigan in St. Clair
County. Citizens First's primary deposit gathering and lending areas are
concentrated in and around the communities surrounding its 14 full-service
offices located in St. Clair, Sanilac, Huron and Lapeer Counties, Michigan.
However, Citizens First also makes some loans beyond these areas throughout
southeastern Michigan.
Port Huron, the population center for St. Clair county, is located
approximately sixty miles northeast of Detroit and sixty miles east of Flint.
St. Clair County, is bounded by the counties of Macomb to the south and west,
Lapeer to the west and Sanilac to the north. The eastern boundary of the county
is the St. Clair river and Canada. Almost half of the county's total land area
is rural and approximately one-third of the resident labor force commutes to
jobs outside of the county. As of 2000, St. Clair County had a population of
approximately 163,870, while the other three counties in its primary market area
had a population of approximately 169,730. The largest employment sectors in
this area are manufacturing, services, retail and government. Citizens First's
market area has a higher per capita median household income when compared to
Michigan and the United States.
Economic activity in St. Clair County and Michigan appear to be mirroring
national trends with strong forward momentum. At July 2000, the county's
unemployment rate was 4.3%, the state's unemployment rate was 3.5%, and the
national level was 4.2%. Employment growth, while below the pace of recent
years, has not contracted and automobile production remains at a high level.
Although automobiles continue to be a major factor in Michigan's economic
picture, other elements such as technology, biotechnology and agriculture also
have an effect. However, there are limited signs of economic softening, such as
a slowdown in light-vehicle sales and a slowing trend in housing and bank
lending.
Competition
Citizens First faces intense competition for the attraction of deposits and
origination of loans in its market area. Its most direct competition for
deposits has historically come from the several financial institutions operating
in Citizens First's market area and, to a lesser extent, from other financial
service companies, such as brokerage firms, credit unions and insurance
companies. Citizens First's competition for loans comes primarily from
financial institutions in its market area, and to a lesser extent from other
financial service providers, such as mortgage companies and mortgage brokers.
Additionally, competition for loans may increase due to the increasing number of
non-depository financial service companies entering the mortgage market, such as
insurance companies, securities companies and specialty finance companies.
Citizens First expects competition to increase in the future as a result of
legislative, regulatory and technological changes and the continuing trend of
consolidation in the financial services industry. Technological advances, for
example, have lowered barriers to market entry, allowed banks to expand their
geographic reach by providing services over the Internet and made it possible
for non-depository institutions to offer products and services that
traditionally have been provided by banks. The Gramm-Leach-Bliley Act, which
permits affiliation among banks, securities firms and insurance companies, also
will change the competitive environment in which Citizens First conducts
business. Some of the institutions with which Citizens First competes are
significantly larger than Citizens First and, therefore, have significantly
greater resources. Competition for deposits and the origination of loans could
limit Citizens First's growth in the future. See "Risk Factors--Strong
competition could hurt Citizens First's profits."
48
<PAGE>
Lending Activities
General. Citizens First's loan portfolio primarily consists of one- to
four-family loans, commercial real estate loans, home equity loans and lines of
credit and automobile loans. To a lesser degree, Citizens First's loan
portfolio also includes commercial loans, construction loans and a variety of
consumer loans.
Citizens First's loans are subject to federal and state laws and
regulations. Interest rates charged by Citizens First on loans are affected
principally by Citizens First's current asset/liability strategy, the demand for
various types of loans, the supply of money available for lending purposes and
the rates offered by competitors. These factors are, in turn, affected by
general and economic conditions, monetary policies of the federal government,
including the Federal Reserve Board, legislative tax policies and governmental
budgetary matters.
49
<PAGE>
Loan Portfolio Analysis. The following table sets forth the composition
of Citizens First's loan portfolio in dollar amounts and as a percentage of the
portfolio at the dates indicated.
<TABLE>
<CAPTION>
At August 31, At March 31,
------------------ ---------------------------------------------------------------
2000 2000 1999 1998
------------------ --------------------- --------------------- -------------------
Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total
-------- --------- ---------- ---------- ---------- ---------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family............. $359,271 55.85% $341,308 58.81% $427,555 70.83% $399,616 71.58%
Commercial and multi-
family real estate (1)......... 93,378 14.52 83,536 14.40 62,500 10.36 42,805 7.67
Residential construction........ 35,926 5.58 24,750 4.26 31,040 5.14 31,336 5.61
======== ====== ======== ======= ======== ====== ======== ======
Total real estate loan.... 488,575 75.95 449,594 77.47 521,095 86.33 473,757 84.86
Consumer loans:
Home equity loans and
lines of credit.............. 66,385 10.32 56,991 9.82 42,417 7.02 44,844 8.03
Vehicles (2).................... 51,467 8.00 41,066 7.08 7,100 1.18 5,329 0.96
Other........................... 12,988 2.02 13,882 2.39 16,348 2.71 21,361 3.82
======== ====== ======== ======= ======== ====== ======== ======
Total consumer loans 130,840 20.34 111,939 19.29 65,865 10.91 71,534 12.81
Commercial loans................... 23,885 3.71 18,824 3.24 16,638 2.76 13,011 2.33
======== ====== ======== ======= ======== ====== ======== ======
Total loans.................. 643,300 100.00% 580,357 100.00% 603,598 100.00% 558,302 100.00%
====== ======= ====== ======
Less:
Deferred loan origination fees
and discounts................. 1,501 1,393 1,800 1,882
Allowance for loan losses....... 10,633 10,461 11,161 7,527
======== ======== ======== ========
Total loans, net............. $631,166 $568,503 $590,637 $548,893
======== ======== ======== ========
<CAPTION>
-------------------------------------------
1997 1996
--------------------- ---------------------
Percent Percent
Amount of Total Amount of Total
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Real estate loans:
One- to four-family................. $ 363,142 72.93% $ 325,712 74.11%
Commercial and multi-
family real estate (1)............. 31,713 6.37 13,153 2.99
Residential construction............ 23,361 4.69 21,249 4.84
========== ======== ========= ========
Total real estate loan 418,216 83.99 360,114 81.94
Consumer loans:
Home equity loans and
lines of credit.................. 40,547 8.15 34,505 7.85
Vehicles (2)........................ 4,127 0.83 3,657 0.83
Other............................... 27,309 5.48 34,660 7.89
========== ======== ========= ========
Total consumer loans 71,983 14.46 72,822 16.57
Commercial loans....................... 7,715 1.55 6,550 1.49
========== ======== ========= ========
Total loans...................... 497,914 100.00% 439,486 100.00%
======== ========
Less:
Deferred loan origination fees
and discounts..................... 1,824 1,852
Allowance for loan losses........... 6,982 6,380
========== =========
Total loans, net................. $ 489,108 $ 431,254
========== =========
</TABLE>
_____________________
(1) Includes commercial construction loans which at August 31, 2000 and March
31, 2000 totaled $9.5 million and $9.6 million, respectively.
(2) Includes loans secured by automobiles, motorcycles, mobile homes, campers
and other recreational vehicles.
50
<PAGE>
The following table presents certain information at August 31, 2000
regarding the dollar amount of loans maturing in Citizens First's portfolio
based on their contractual terms to maturity or scheduled amortization, but does
not include potential prepayments. Demand loans, loans having no stated schedule
of repayments and no stated maturity, and overdrafts are reported as becoming
due in one year or less. Loan balances do not include undisbursed loan proceeds,
net deferred loan origination costs and allowance for loan losses.
<TABLE>
<CAPTION>
At August 31, 2000
------------------------------------------------------------------------------
Commercial
One- to and
Four- Multi-Family Residential Total
Family Real Estate Construction Consumer Commercial Loans
--------- ------------ ------------ ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> C>
Amounts due in:
One year or less...................... $ 17,543 $13,196 $ 35,926 $ 2,418 $ 3,183 $ 72,266
After one year:
More than one year to three years..... 12,429 22,364 -- 6,649 -- 41,442
More than three years to five years... 14,629 16,345 -- 64,504 9,003 104,481
More than five years to 10 years...... 49,522 38,521 -- 48,499 6,906 143,448
More than 10 years to 15 years........ 97,704 2,606 -- 7,596 4,793 112,699
More than 15 years.................... 167,444 346 -- 1,174 -- 168,964
-------- ------- -------- ---------- -------- --------
Total amount due................... $359,271 $93,378 $ 35,926 $ 130,840 $ 23,885 $643,300
======== ======= ======== ========== ======== ========
</TABLE>
Scheduled contractual principal repayments of loans do not reflect the
actual life of the loans. The average life of a loan is substantially less than
its contractual term because of prepayments. In addition, due-on-sale clauses on
loans generally give Citizens First the right to declare loans immediately due
and payable if, among other things, the borrower sells the real property with
the mortgage and the loan is not repaid. The average life of a mortgage loan
tends to increase, however, when current mortgage loan market rates are
substantially higher than rates on existing mortgage loans and, conversely,
tends to decrease when rates on existing mortgage loans are substantially higher
than current mortgage loan market rates.
The following table sets forth, at August 31, 2000, the dollar amount
of loans contractually due after August 31, 2001, and whether such loans have
fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
Due After August 31, 2001
-------------------------------------------------
Fixed Adjustable Total
-------------- -------------- --------------
(In thousands)
<S> <C> <C> <C>
Real estate loans:
One- to four-family....................................... $148,302 $193,426 $341,728
Commercial and multi-family real estate................... 71,784 8,398 80,182
-------- -------- --------
Total real estate loans................................ 220,086 201,824 421,910
Consumer loans............................................... 121,440 6,982 128,422
Commercial loans............................................. 10,332 10,370 20,702
-------- -------- --------
Total loans............................................ $351,858 $219,176 $571,034
======== ======== ========
</TABLE>
One- to Four-Family Loans. Citizens First's primary lending activity is
the origination of loans secured by one- to four-family residences located in
its market area. Citizens First offers various types of adjustable-rate mortgage
loans and fixed-rate mortgage loans. At August 31, 2000, 43.0% of Citizens
First's residential mortgage loans had fixed interest rates and 57.0% had
adjustable interest rates.
51
<PAGE>
Citizens First originates fixed-rate fully amortizing loans with maturities
of 10, 15, 20 and 30 years. Management establishes the loan interest rates based
on market conditions, with consideration given to the type of the loan and the
quality and liquidity of the collateral securing the loan. Citizens First offers
mortgage loans that generally conform to Freddie Mac guidelines, as well as
jumbo loans, which presently are loans in amounts over $252,700. Fixed-rate
conforming loans are generally originated for sale in the secondary market while
primarily retaining the servicing rights. Citizens First will underwrite one-to
four-family owner-occupied residential mortgage loans with a loan to value ratio
of 97%, provided that private mortgage insurance will generally be required on
loans that exceed 80% of the lower of the appraised value or the purchase price
of the real estate. Citizens First may begin to originate loans with a loan to
value ratio of 103%. Such loans would generally be sold in the secondary market,
with servicing released. Citizens First also offers a seven year balloon
mortgage loan, in which the borrower pays a fixed monthly payment for the first
seven years, at which point the entire balance of the loan becomes due.
Citizens First currently also offers adjustable-rate mortgage loans, with
an interest rate based on the U.S. Treasury securities index, which adjust
annually after a one, three, five or seven year initial fixed period and with
terms of up to 30 years. The maximum amount by which the interest rate may be
increased or decreased on Citizens First's adjustable-rate mortgage loans is
generally 2% per year and no more than 5% over the life of the loan.
Additionally, Citizens First offers an adjustable-rate loan with a conversion
option where the borrower has the option to convert the loan to a fixed rate
after a predetermined period of time, without the cost of refinancing the
mortgage.
Adjustable-rate mortgage loans help reduce Citizens First's exposure to
changes in interest rates. There are, however, unquantifiable credit risks
resulting from the potential of increased costs due to changed rates to be paid
by the borrower. During periods of rising interest rates the risk of default on
adjustable-rate mortgage loans may increase as a result of repricing and the
increased payments required by the borrower. In addition, although adjustable-
rate mortgage loans help make Citizens First's asset base more responsive to
changes in interest rates, the extent of this interest sensitivity is limited by
the annual and lifetime interest rate adjustment limits. Because of these
considerations, yields on adjustable-rate mortgage loans may not be sufficient
to offset increases in Citizens First's cost of funds during periods of rising
interest rates.
Citizens First requires all properties securing its mortgage loans to be
appraised by an approved independent state-licensed appraiser. Citizens First
also requires that fire, casualty, title, hazard and, if appropriate, flood
insurance be maintained on most properties securing real estate loans made by
Citizens First.
In an effort to provide financing for low- and moderate-income families,
Citizens First offers Federal Housing Authority and Veterans Administration
residential mortgage loans to qualified individuals with adjustable- and fixed-
rates of interest and terms of up to 30 years. Such loans are secured by one-
to four-family residential property and are underwritten using modified
underwriting guidelines.
Residential Construction Loans. Citizens First originates construction
loans to individuals for the construction of one- to four-family residences.
Citizens First's residential construction loans generally provide for the
payment of interest only during the construction phase, which is usually between
six and twelve months. At the end of the construction phase, the loan converts
to a permanent mortgage loan. Loans can be made with a maximum loan to value
ratio of 95%, provided that the borrower obtains private mortgage insurance on
the loan if the loan balance exceeds 80% of the appraised value or sales price,
whichever is less, of the secured property. Citizens First will also originate
residential construction loans to builders with which Citizens First has an
established relationship. Construction loans to individuals are generally made
on the same terms as Citizens First's one- to four-family mortgage loans. At
August 31, 2000, the largest outstanding residential construction loan
commitment was for $1.7 million, all of which was outstanding. This loan was
performing according to its terms at August 31, 2000.
52
<PAGE>
Before making a commitment to fund a construction loan, Citizens First
requires an appraisal of the property by an independent licensed appraiser.
Citizens First also reviews and inspects each property before disbursement of
funds during the term of the construction loan. Loan proceeds are disbursed
after each stage of work is completed. The final 10% of the loan is held until
the house is completed.
Construction lending generally involves a higher degree of risk than
single-family permanent mortgage lending because of the greater potential for
disagreements between borrowers and builders and the failure of builders to pay
subcontractors. Additional risk often exists because of the inherent difficulty
in estimating both a property's value and the estimated cost of the property. If
the estimate of construction cost proves to be inaccurate, Citizens First may be
required to advance funds beyond the amount originally committed to protect the
value of the property. If the estimate of value upon completion proves to be
inaccurate, Citizens First may be confronted with a property whose value is
insufficient to assure full repayment.
Commercial and Multi-Family Real Estate Loans. Citizens First originates
commercial real estate loans that are generally secured by properties used for
business purposes such as small office buildings, industrial facilities or
retail facilities primarily located in Citizens First's primary market area,
under the direction of an experienced staff of commercial loan officers.
Citizens First also, to a lesser extent, originates multi-family loans that are
generally secured by five or more unit apartment buildings in Citizens First's
primary market area.
Most of the commercial and multi-family loans originated by Citizens First
are fully amortizing loans with terms of up to twenty years. Generally, the
maximum loan-to-value ratio for a commercial or multi-family real estate loan is
80%. In reaching its decision on whether to make a commercial or multi-family
real estate loan, Citizens First considers the net operating income of the
property, the borrower's expertise, credit history and profitability and the
value of the underlying property. In addition, with respect to commercial real
estate rental properties, Citizens First will also consider the term of the
lease and the quality of the tenants. Citizens First has generally required that
the properties securing these real estate loans have debt service coverage
ratios (the ratio of earnings before debt service to debt service) of between
1.10x and 1.30x. Citizens First requires written appraisals prepared by a
certified independent appraiser of all properties securing commercial or multi-
family real estate loans greater than $250,000, or as required by FIRREA.
Additionally, environmental surveys are required prior to funding of certain
larger commercial real estate in excess of $1.0 million and may be required on
commercial real estate loans greater than $500,000 or where a risk of
contamination exists. At August 31, 2000, Citizens First's largest commercial or
multi-family real estate loan had an outstanding balance of $3.6 million. The
loan is secured by an undeveloped piece of property and was at August 31, 2000,
performing according to its terms.
Citizens First also makes construction loans for commercial development
projects, including multi-family, commercial properties, single-family
subdivisions and condominiums. These loans generally have an interest-only
phase during construction then convert to permanent financing. The permanent
mortgage loan must be approved at the time the initial approval is made.
Disbursement of funds are at the sole discretion of Citizens First and are based
on the progress of construction. The maximum loan to value ratio for these
loans depends upon the type of commercial development project being undertaken,
but generally will not exceed 80%. At August 31, 2000, the largest outstanding
commercial construction loan was $2.7 million. This loan was performing
according to its terms at August 31, 2000.
Multi-family and commercial real estate lending affords Citizens First an
opportunity to receive interest at rates higher than those generally available
from one- to four-family residential lending. However, loans secured by these
properties usually are greater in amount and are more difficult to evaluate and
monitor and, therefore, involve a greater degree of risk than one- to four-
family residential mortgage loans. Because payments on loans secured by income
producing properties are often dependent on the successful operation and
management of the properties, repayment of these loans may be affected by
adverse conditions in the real estate market or the economy. Citizens First
seeks to minimize these risks by generally limiting the maximum loan-to-value
ratio to 80% for commercial
53
<PAGE>
and multi-family real estate loans and by strictly scrutinizing the financial
condition of the borrower, the cash flow of the project, the quality of the
collateral and the management of the property securing the loan.
Consumer Loans. Citizens First offers a variety of consumer loans,
including home equity loans and lines of credit, automobile loans, mobile home
loans, other secured loans, collateral loans, personal loans and unsecured
loans.
Citizens First offers home equity loans and lines of credit secured by
owner-occupied one- to four-family residences. At August 31, 2000, home equity
loans and lines of credit totaled $66.4 million, or 10.3% of Citizens First's
total loans and 50.7% of consumer loans. Additionally, at August 31, 2000, the
unadvanced amounts of home equity lines of credit totaled $10.7 million. The
underwriting standards employed by Citizens First for home equity loans and
lines of credit include a determination of the applicant's credit history, an
assessment of the applicant's ability to meet existing obligations and payments
on the proposed loan and the value of the collateral securing the loan. Home
equity loans will not be made if the borrower's outstanding monthly debt exceeds
40% of the borrower's gross monthly income. Loan to value ratios and the maximum
loan amounts vary depending on the amount of insurance coverage on the
underlying property. Generally, home equity loans are made with fixed interest
rates and with terms up to 15 years.
Home equity lines of credit have adjustable rates of interest which are
indexed to the prime rate as reported in The Wall Street Journal. Generally,
the maximum combined loan-to-value ratio on home equity lines of credit is 85%
and loans may be made up to $500,000. A home equity line of credit may be drawn
down by the borrower for an initial period of five years from the date of the
loan agreement. During this period, the borrower has the option of paying, on a
monthly basis, either principal and interest or only the interest. If not
renewed, the borrower has to pay back the amount outstanding under the line of
credit over a term not to exceed 15 years, beginning at the end of the five year
period.
Citizens First offers fixed-rate automobile loans on a direct and indirect
basis with terms of up to 72 months. Citizens First will generally make such
loans up to 100% of the retail price for new cars and up to 90% of the retail
value as stated in the NADA Used Car Guide for used cars. The interest rates
offered depend on the age of the automobile, market conditions and current
interest rates.
In March 1999, Citizens First commenced an indirect consumer lending
program, which is managed by an experienced consumer loan officer. Citizens
First originates automobile loans through approximately 34 automobile dealers in
its primary market area. These dealers provide Citizens First applications to
finance new and, to a lesser extent, used vehicles sold by their dealerships.
Citizens First has the opportunity to accept or reject each loan. Generally,
Citizens First pays a fee to the automobile dealer based on the interest rate on
the loan. This fee, or dealer reserve, is paid to the dealer monthly. If a loan
is paid off or charged off within a specified time period, Citizens First is
credited with 100% of the dealer reserve, which it may withhold from the
dealer's account or credit against future payments to the dealer. For the first
five months of fiscal 2001 and for fiscal year 2000, Citizens First originated
$16.9 million and $39.7 million of automobile loans, respectively, of which
88.8% and 90.0% were originated indirectly. At August 31, 2000, Citizens First
held $38.9 million of indirect auto loans, or 6.0% of total loans and 29.7% of
consumer loans.
Citizens First also originates consumer loans secured by mobile homes.
Historically, such loans were primarily originated indirectly through dealer
relationships. However, in recent years management has decided to stop
originating such loans on an indirect basis, which has reduced the amount of
mobile home originations. As a result, mobile home loans have declined from
$33.3 million, or 7.6% of total loans and 45.7% of consumer loans, to $11.5
million, or 1.7% of total loans and 8.8% of consumer loans at August 31, 2000.
Citizens First originates loans on new or used mobile homes (up to fifteen years
old) with terms ranging from seven to fifteen years and with fixed interest
rates. Citizens First generally will finance up to a maximum of 90% of the
purchase price of the mobile home unit or the retail value as stated in the NADA
book, whichever is less.
54
<PAGE>
Citizens First also originates consumer loans secured by boats,
motorcycles, campers and other recreational vehicles. These loans have fixed
interest rates and terms ranging from a maximum of five years to fifteen years
depending on the type of collateral securing the loan.
Citizens First offers collateral loans, personal loans and unsecured loans.
Collateral loans are generally secured by a savings account or a certificate of
deposit. Personal loans generally have a borrowing capacity of $5,000 and a
maximum term of four years. Citizens First also makes unsecured personal loans
to individuals who have been homeowners for at least four years. These loans
will be made up to $10,000 with terms of up to seven years.
Citizens First believes that it will benefit from the higher yields earned
on consumer loans and that the shorter duration of consumer loans will improve
Citizens First's interest rate risk position. However, consumer loans entail
greater risk than do residential mortgage loans, particularly in the case of
loans that are unsecured or secured by rapidly depreciating assets such as
automobiles. In these cases, any repossessed collateral for a defaulted consumer
loan may not provide an adequate source of repayment of the outstanding loan
balance as a result of the greater likelihood of damage, loss or depreciation.
The remaining deficiency often does not warrant further substantial collection
efforts against the borrower beyond obtaining a deficiency judgment. In
addition, consumer loan collections are dependent on the borrower's continuing
financial stability, and thus are more likely to be adversely affected by job
loss, divorce, illness or personal bankruptcy. Citizens First expects that it
will increase its allowance for loan losses as its consumer loan portfolio grows
by charging a provision for loan losses against income.
Commercial Loans. Citizens First, under the direction of an experienced
staff of commercial loan officers, makes commercial business loans primarily in
its market area to a variety of professionals, sole proprietorships and small
businesses. Citizens First offers a variety of commercial lending products,
including term loans for fixed assets, working capital, lines of credit and
loans with a single principal payment at maturity. Additionally, Citizens First
originates Small Business Administration guaranteed loans. Citizens First offers
secured commercial term loans, with terms of up to ten years and the payment of
which is dependent on future earnings. Business lines of credit have adjustable
rates of interest with terms of up to three years. Loans that require a one-time
payment of principal at its termination will be originated on terms of up to
three years provided the borrower is paying interest at least semi-annually or
up to one year if the borrower will pay all of the interest due upon maturity.
Business loans with variable rates of interest are generally indexed to the
prime rate as reported in The Wall Street Journal. Citizens First also makes
unsecured commercial loans. At August 31, 2000, such loans totaled $8.8 million,
or 7.5% of commercial loans. At August 31, 2000, Citizens First's largest
outstanding commercial loan was an unsecured $3.0 million line of credit, $2.1
million of which was outstanding. Additionally, at August 31, 2000, Citizens
First's largest outstanding commercial loan commitment was a $4.0 million line
of credit, secured by certificates of deposit, $384,000 of which was
outstanding. Both of these loans were performing according to their terms at
August 31, 2000.
When making commercial business loans, Citizens First considers the
financial statements of the borrower, Citizens First's lending history with the
borrower, the debt service capabilities of the borrower, the projected cash
flows of the business, and the value of the collateral. Commercial business
loans are generally secured by a variety of collateral, primarily accounts
receivable, inventory and equipment, and are generally supported by personal
guarantees. Depending on the collateral used to secure the loans, commercial
loans are made in amounts of up to 100% of the value of the collateral securing
the loan.
Unlike residential mortgage loans, which generally are made on the basis of
the borrower's ability to make repayment from his or her employment or other
income, and which are secured by real property whose value tends to be more
easily ascertainable, commercial loans are of higher risk and typically are made
on the basis of the borrower's ability to make repayment from the cash flow of
the borrower's business. As a result, the availability of funds for the
repayment of commercial loans may depend substantially on the success of the
business itself.
55
<PAGE>
Further, any collateral securing such loans may depreciate over time, may be
difficult to appraise and may fluctuate in value. See "Risk Factors--Citizens
First's increased emphasis on commercial and consumer lending may hurt both
asset quality and profits."
Loans to One Borrower. The maximum amount that Citizens First may lend to
one borrower is limited by regulation. At August 31, 2000, Citizens First's
regulatory limit on loans to one borrower was $10.1 million or $16.8 million for
loans approved by two-thirds of the Board of Directors. At that date, Citizens
First's largest amount of outstanding loans to one borrower, including the
borrower's related interests, was approximately $5.6 million and consisted of
four commercial real estate loans. Additionally, at August 31, 2000, Citizens
First's largest outstanding commitment to one borrower was approximately $8.6
million, approximately $4.0 million of which was outstanding, and consisted of a
commercial real estate loan, an unsecured line of credit and a line of credit
secured by certificates of deposit. All of these loans were performing according
to their original terms at August 31, 2000.
Loan Approval Procedures and Authority. Citizens First's lending
activities follow written, non-discriminatory, underwriting standards and loan
origination procedures established by Citizens First's Board of Directors and
management.
Residential real estate loans greater than $700,000 require the approval of
the Board of Directors. Additionally, various officers and underwriters of
Citizens First have been delegated authority to approve different types of real
estate loans. The approval authorities range from the authority of certain
staff underwriters to approve residential mortgage loans up to $100,000 to the
authority of the President and Chief Executive Officer to approve any real
estate loan up to $700,000. The Senior Vice President, Retail Banking may
approve any type of loan up to $400,000. In addition, certain employees may
combine their authority to jointly approve a loan that exceeds their individual
lending authority.
Consumer loans greater than $700,000 require the approval of the entire
Board of Directors. Additionally, various bank personnel have been delegated
authority to approve consumer loans. The President and Chief Executive Officer
may individually approve any consumer loan up to $700,000. The Senior Vice
President, Retail Banking may approve loans up to $400,000. The Vice President,
Consumer Loans may approve loans up to $100,000. Two assistant vice presidents
in the consumer loan department and the consumer department lenders may each
approve loans up to $50,000.
All commercial and commercial real estate loans in excess of $3.0 million
require the approval of the Board of Directors. Commercial and commercial real
estate loans between $1.0 and $3.0 million require the approval of the Directors
Loan Committee, which consists of three directors, the President and Chief
Executive Officer and the Senior Vice President, Commercial Banking. Commercial
and commercial real estate loans between $500,000 and $1.0 million require the
approval of the Officers Credit Committee, which consists of the President and
Chief Executive Officer, the Senior Vice President, Commercial Banking, certain
commercial officer and other officers as designated. Additionally, various bank
personnel have been delegated authority to approve loans less than $500,000.
Officers may combine their authority to jointly approve a loan that exceeds
their individual lending authority.
Loan Originations, Purchases and Sales. Citizens First lending activities
are conducted by its salaried and commissioned loan personnel and through its
relationship with dealers. Currently, Citizens First has contractual
relationships with approximately 40 vehicle dealers, approximately 34 of which
originate automobile loans for Citizens First. Citizens First underwrites and
funds such loans. These automobile dealers accounted for approximately 39.0% and
45.0% of the consumer loans originated by Citizens First in the first five
months of fiscal 2001 and for the year ended March 31, 2000, respectively. The
automobile dealers are compensated based on the interest rate on the loan
offered. This fee, or dealer reserve, is paid to the dealer monthly.
56
<PAGE>
Except in connection with its indirect automobile lending, Citizens
First relies on advertising, referrals from realtors and customers, and personal
contact by Citizens First's staff to generate loan originations. Citizens First
does not use loan correspondents or other third-parties to originate loans.
Citizens First generally does not purchase either participation interests in
loans or whole loans. Citizens First's ability to originate adjustable-rate and
fixed-rate loans is dependent upon the relative customer demand for such loans,
which is affected by the current and expected future level of interest rates.
Generally, all fixed-rate loans which conform to the underwriting
standards specified by Freddie Mac are originated for sale in the secondary
market to Freddie Mac, and to a lesser extent private investors. Additionally,
Citizens First was recently approved to sell loans in the secondary market to
Fannie Mae. Citizens First generally retains the servicing rights on the loans
sold. Citizens First currently has a best efforts contract with a third party,
under which Citizens First is not required to replace loans which fail to close
for any reason. Additionally, Citizens First has entered into forward contracts
with Freddie Mac in the past and at August 31, 2000, Citizens had outstanding
forward contracts to sell loans of approximately $2.1 million. Sales of loans
are made without recourse to Citizens First in the event of default by the
borrower. Citizens First generally originates adjustable-rate loans for its
portfolio but will from time to time sell such loans in the secondary market
based on prevailing market interest rate conditions, liquidity needs and
Citizens First's interest rate risk position.
The following table sets forth Citizens First's loan originations,
sales and principal repayments for the periods indicated:
<TABLE>
<CAPTION>
For the Five Months
Ended August 31, For the Year Ended March 31,
---------------------- -----------------------------------
2000 1999 2000 1999 1998
---------- ---------- ----------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Loans at beginning of period ...................... $ 580,537 $ 603,598 $ 603,598 $ 558,302 $ 497,914
Originations:
Real estate:
One- to four-family ...................... 48,441 60,845 110,854 177,492 130,882
Commercial and multi-family real estate... 16,762 22,097 37,812 30,036 14,709
Residential construction ................. 19,513 16,739 37,625 39,631 24,823
--------- --------- --------- --------- ---------
Total real estate loans ............... 84,716 99,681 186,291 247,159 170,414
Consumer:
Home equity loans and lines of credit .... 15,136 16,384 31,723 20,463 20,334
Vehicles ................................. 19,334 16,679 43,732 6,291 6,291
--------- --------- --------- --------- ---------
Total consumer loans .................. 34,470 33,063 75,455 26,754 26,625
Commercial .................................. 17,925 12,952 30,713 21,865 20,853
--------- --------- --------- --------- ---------
Total loans originated ................ 137,111 145,696 292,459 295,778 217,892
--------- --------- --------- --------- ---------
Deduct:
Principal loan repayments and prepayments ...... 62,346 69,886 122,773 156,227 114,293
Loan sales .................................. 11,822 30,286 192,927 94,255 43,211
--------- --------- --------- --------- ---------
Sub-total ................................ 74,168 100,172 315,700 250,482 157,504
--------- --------- --------- --------- ---------
Net loan activity ................................. 62,943 45,524 (23,241) 45,296 60,388
--------- --------- --------- --------- ---------
Loans at end of period (1) .................. $ 643,300 $ 649,122 $ 580,357 $ 603,598 $ 558,302
========= ========= ========= ========= =========
</TABLE>
_____________________________
(1) Loans at end of period include loans in process of $17.5 million, $18.1
million, $11.4 million, $12.4 million and $11.7 million for the five months
ended August 31, 2000 and 1999 and for fiscal years 2000, 1999 and 1998,
respectively.
57
<PAGE>
Loan Commitments. Citizens First issues loan commitments to its
prospective borrowers conditioned on the occurrence of certain events.
Commitments are made in writing on specified terms and conditions and are
honored for up to 30 days from approval for residential real estate loans and
180 days on multi-family and commercial real estate loans. At August 31, 2000,
Citizens First had loan commitments and unadvanced loans and lines of credit
totaling $56.0 million. See note 12 of the notes to financial statements
included in this prospectus.
Loan Fees. In addition to interest earned on loans, Citizens First
receives income from fees in connection with loan originations, loan
modifications, late payments and for miscellaneous services related to its
loans. Income from these activities varies from period to period depending upon
the volume and type of loans made and competitive conditions.
Citizens First charges loan origination fees, which are calculated as a
percentage of the amount borrowed, subject to a minimum amount. As required by
applicable accounting principles, loan origination fees, discount points and
certain loan origination costs are deferred and recognized over the contractual
remaining lives of the related loans on a level yield basis. At August 31,
2000, Citizens First had $1.5 million of net deferred loan fees.
Nonperforming Assets and Delinquencies. When a borrower on a loan fails to
make a required loan payment, Citizens First attempts to cure the deficiency by
contacting the borrower and seeking the payment. A late notice is mailed after
16 days of delinquency for residential mortgage loans. In most cases,
deficiencies are cured promptly. After that, Citizens First attempts to contact
the borrower by either telephone, letter or in person in order to determine the
cause of the delinquency and to arrange for curing the default. Generally,
after the 90th day of delinquency, Citizens First commences foreclosure
proceedings under the terms of the security instrument and applicable law.
When a borrower on a consumer or commercial loan fails to make a required
loan payment, a late notice is mailed after 10 days of delinquency and Citizens
First follows up with a letter and a phone call to the borrower. Additional
contact and correspondence continues until the 90th day of delinquency at which
point Citizens First may take action to repossess the property securing the
loan.
Management informs the Board of Directors monthly of the amount of loans
delinquent more than 60 days, all loans in foreclosure, and all foreclosed and
repossessed property that Citizens First owns.
Citizens First ceases accruing interest on loans when principal or interest
payments are delinquent 90 days or more unless the loan is adequately
collateralized and in the process of collection. Once the accrual of interest
on a loan is discontinued, all interest previously accrued is reversed against
current period interest income once management determines that interest is
uncollectible.
58
<PAGE>
<TABLE>
<CAPTION>
At August 31, At March 31,
------------------- ------------------------------------------------------
2000 1999 2000 1999 1998 1997 1996
--------- -------- ---------- ---------- ---------- --------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Non-accruing loans:
Real estate....................... $1,719 $187 $ 954 $157 $ 578 $187 $330
Consumer.......................... 99 94 64 212 207 104 177
Commercial........................ 282 497 228 495 576 390 --
------ ---- ------ ---- ------ ---- ----
Total(1)....................... 2,100 778 1,246 864 1,361 681 507
Real estate owned (REO)(2)........... 224 75 80 75 75 -- --
------ ---- ------ ---- ------ ---- ----
Total nonperforming assets(3).. $2,324 $853 $1,326 $939 $1,436 $681 $507
====== ==== ====== ==== ====== ==== ====
Total nonperforming loans as a
percentage of total loans......... 0.33% 0.13% 0.22% 0.14% 0.24% 0.14% 0.12%
Total nonperforming loans as a
percentage of total assets........ 0.26% 0.12% 0.17% 0.13% 0.22% 0.12% 0.10%
</TABLE>
___________________
(1) Total non-accruing loans equals total nonperforming loans.
(2) Real estate owned balances are shown net of related loss allowances and
include repossessed automobiles which at August 31, 2000, totaled $80,000.
(3) Nonperforming assets consist of nonperforming loans (and impaired loans),
other repossessed assets and REO.
Interest income that would have been recorded for the five months ended
August 31, 2000 and the year ended March 31, 2000 had nonaccruing loans been
current according to their original terms amounted to approximately $154,000 and
$132,000, respectively. Interest related to these loans was not included in
interest income for the five months ended August 31, 2000 and the year ended
March 31, 2000, respectively.
59
<PAGE>
The following table sets forth the delinquencies in Citizens
First's loan portfolio as of the dates indicated.
<TABLE>
<CAPTION>
At August 31, 2000 At August 31, 2000
-----------------------------------------------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
-------------------- -------------------- -------------------- -------------------
Number Principal Number Principal Number Principal Number Principal
of Balance of of Balance of of Balance of of Balance of
Loans Loans Loans Loans Loans Loans Loans Loans
---------- --------- --------- --------- --------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family....... 14 $1,452 13 $1,719 7 $ 912 14 $ 954
Residential construction.. -- -- -- -- 2 197 -- --
Consumer Loans:
Home equity loans and
lines of credit......... 4 66 -- -- 3 30 -- --
Vehicles.................. 38 437 4 99 16 190 3 64
Commercial loans............. 2 252 2 282 5 258 2 228
-- ------ -- ------ -- ------ -- ------
Total.................. 58 $2,207 19 $2,100 33 $1,587 19 $1,246
== ====== == ====== == ====== == ======
Delinquent loans to
total loans............... 0.34% 0.33% 0.27% 0.21%
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
At March 31, 1999 At March 31, 1998
------------------------------------------ -----------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
-------------------- -------------------- -------------------- -------------------
Number Principal Number Principal Number Principal Number Principal
of Balance of of Balance of of Balance of of Balance of
Loans Loans Loans Loans Loans Loans Loans Loans
---------- --------- --------- --------- -------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family....... 5 $ 362 2 $157 10 $ 467 8 $ 578
Residential construction.. -- -- -- -- 1 38 -- --
Consumer Loans:
Home equity loans and
lines of credit......... -- -- -- -- 6 147 3 54
Vehicles.................. 25 320 11 212 15 217 7 153
Commercial loans............. 5 495 5 495 11 824 6 576
-- ------- -- ---- -- ------- -- ------
Total.................. 35 $ 1,177 18 $864 43 $ 1,693 24 $1,361
== ======= == ==== == ======= == ======
Delinquent loans to
total loans............... 0.19% 0.14% 0.30% 0.24%
======= ==== ======= ======
</TABLE>
Real Estate Owned. Real estate acquired by Citizens First as a result of
foreclosure, real estate acquired by deed-in-lieu of foreclosure is classified
as real estate owned until sold. Under Michigan law, there is generally a six-
month redemption period with respect to one- to four-family residential
properties during which the borrower has the right to repurchase the property.
When property is acquired it is recorded at the lower of its cost, which is the
unpaid principal balance of the loan plus foreclosure costs, or fair market
value at the date of foreclosure, establishing a new cost basis. Holding costs
and declines in fair value after acquisition of the property result in charges
against income. At August 31, 2000, Citizens First had $224,000 in real estate
owned, which consisted of two residential real estate loans and $80,000 of
repossessed automobiles.
60
<PAGE>
Asset Classification. Regulators have adopted various regulations and
practices regarding problem assets of savings institutions. Under such
regulations, examiners have authority to identify problem assets during
examinations and, if appropriate, require them to be classified.
There are three classifications for problem assets: substandard, doubtful
and loss. Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible
and of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes specific allowances for loan losses for the full amount
of the portion of the asset classified as loss. All or a portion of general
loan loss allowances established to cover probable losses related to assets
classified substandard or doubtful can be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital. Assets that do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are designated "special mention." Citizens First monitors "special mention"
assets. Citizens First's Asset/Liability Management Committee, which consists
of the President and Chief Executive Officer and three senior vice presidents,
classifies assets on a monthly basis based upon delinquency reports, real estate
owned, asset review summaries and assets brought to their attention by senior
officers.
At August 31, 2000, Citizens First had $1.3 million, or 0.17%, of assets
designated as Substandard, consisting of nine one- to four-family loans, two
home equity lines of credit, six automobile loans, ten mobile home loans and
nine other consumer loans. Citizens First had no loans designated as Loss or
Doubtful at August 31, 2000. At August 31, 2000, Citizens First had $171,000,
or 0.02%, of assets designated as Special Mention, consisting of one commercial
real estate loan and one home equity line of credit. At August 31, 2000, these
classified assets represented 0.23% of total loans.
Allowance for Loan Losses. The provision for loan losses reflects
management's evaluation of the adequacy of the allowance for loan losses. The
allowance for loan loses represents management's assessment of probable credit
losses inherent in Citizens First's loan portfolio, including all binding
commitments to lend. The allowance provides for probable losses that have been
identified with specific customer relationships and for probable losses believed
to be inherent but that have not been specifically identified.
Citizen First's methodology for assessing the adequacy its loan loss
allowance consists of management assessing the expected losses inherent in the
loan portfolio by first performing detailed review of multi-family real estate,
commercial real estate and other loans with significant balances that are
assigned higher credit risk ratings upon their origination. A detailed credit
quality review is also performed for other loans which have deteriorated below
certain levels of credit risk or which have been identified as classified or
watch list loans. Such review results in management determining a specified loss
allowance attributable to such reviewed loans. An appropriate level of loss
allowance is then determined for the remaining balance of the loan portfolio by
applying estimated projected loss factors to each specific type of loan category
in the portfolio with varying loss factors being applied to specific sub-
categories of loans within such broader categories. The estimated loss factors
applied are primarily determined by management based on recent loan loss
experience, industry averages and trends in loan delinquencies and non-accruals
for each type of loan. The determination of the estimated loss factors applied
to each type of loan is determined based on information known to management at
such time and projections by management based on such information and,
therefore, actual loss ratios experienced in the future could vary from those
projected. After the review yields an aggregate amount of loss allowance
attributable to specific loans and attributable the application of the loss
factors to the remaining balance of loans by type, management analyzes the
adequacy of such combined amount of loan loss allowance by considering other
factors that may have an impact on the performance of the loan portfolio, such
as trends in real estate and collateral values, trends and forecasts for the
national and local economies, geographic dispersion of borrowers and other
expected trends which may effect the performance of the loan portfolio. Based on
this analysis, management then adjusts the overall allowance determined by the
specific review of loans and application of the loss factors to the remaining
balance of the loan portfolio to reflect its
61
<PAGE>
assessment of the potential impact of such other factors which results in an
adjustment to the allowance and may result in an unallocated portion of the loan
loss allowance. This necessity for the unallocated portion of the allowance
occurs because other factors affecting the determination of probable losses
inherent in the loan portfolio may exist which are not necessarily captured by
the application of estimated loss factors. Management also considers industry
norms and the expectations from rating agencies and banking regulators in
determining the adequacy of the allowance. The existence of an unallocated
portion of the loan loss allowance reflects management's view that the allowance
should have a margin that recognizes the imprecision underlying the process of
estimating expected credit losses and the adequacy of the loan loss allowance.
Determination of the probable losses inherent in the portfolio, which are not
necessarily captured by the allocated methodology discussed above, involves the
exercise of judgment. Recent factors which were considered in the evaluation of
the adequacy of Citizens First's unallocated loan loss reserve include the
relative lack of loss experience with indirect automobile loans, and increases
in commercial real estate, commercial and construction loans. The unallocated
reserve was $613,000 at August 31, 2000, which represented 0.1% of total loans
at August 31, 2000.
At August 31, 2000, Citizens First's allowance for loan losses represented
1.65% of total loans and 506.33% of nonperforming loans as compared to 1.80% and
839% at March 31, 2000, 1.85% and 1,281% at March 31, 1999 and 1.35% and 533% at
March 31, 1998. During fiscal 1999, in recognition of its strategy of increasing
multifamily real estate, commercial real estate, commercial and consumer
(particularly indirect automobile) loans, the overall increase in the risk
inherent in a loan portfolio with an increased amount of such loans, which
generally bear a higher degree of inherent risk than one-to-four family loans,
and the relative lack of loss experience with those types of loans, management
reevaluated its loan loss allowance methodology. As a result, management
determined to increase the loss factors it applied to its commercial real
estate, commercial and consumer loans and also determined that it should
maintain an overall loan loss allowance which would be at historically higher
levels as a percentage of total loans and which would be closer to the loan loss
allowance averages maintained by commercial banks operating in Michigan. Based
on the revised methodology, the loan loss allowance was increased to $11.1
million or 1.85% of total loans at March 31, 1999 of which $2.1 million was
unallocated to any specific loan category. However, during fiscal 2000, despite
an increase in the aggregate balance of commercial and consumer loans, non-
accruing commercial and consumer loans decreased and commercial and consumer
loans experienced delinquencies at lower levels than were expected in 1999 which
resulted in an overall reduction in the loan loss allowance in fiscal 2000 to
1.65% of total loans. This level is consistent with management's target range of
1.5% to 1.7% of total loans based on the current composition of the portfolio
and market and economic conditions. Although management believes that it uses
the best information available to establish the allowance for loan losses,
future adjustments to the allowance for loan losses may be necessary and results
of operations could be adversely affected if circumstances differ substantially
from the assumptions used in making the determinations. Furthermore, while
Citizens First believes it has established its existing allowance for loan
losses in conformity with generally accepted accounting principles, there can be
no assurance that regulators, in reviewing Citizens First's loan portfolio, will
not request Citizens First to increase its allowance for loan losses. Any
material increase in the allowance for loan losses may adversely affect Citizens
First's financial condition and results of operations.
62
<PAGE>
63
<PAGE>
The following table presents an analysis of Citizens First's allowance
for loan losses.
<TABLE>
<CAPTION>
Five Months Ended Year Ended
August 31, March 31,
------------------------ ----------------------------------------------------------------
2000 1999 2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- ----------- ----------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for loan losses,
beginning of year.................. $ 10,461 $ 11,161 $ 11,161 $ 7,527 $ 6,982 $ 6,380 $ 5,618
Charged-off loans:
Real estate........................ -- -- (5) -- (4) (31) (4)
Consumer........................... -- (57) (230) (50) (187) (170) (85)
Commercial......................... -- -- -- (117) -- -- --
-------- -------- -------- -------- -------- -------- --------
Total charged-off loans......... -- (57) (235) (167) (191) (201) (89)
Recoveries on loans previously
charged off:
Real estate........................ -- -- 6 -- 1 -- 6
Consumer........................... 8 4 12 1 21 45 29
Commercial......................... 58 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total recoveries................ 66 4 18 1 22 45 35
Net loans charged-off................. 66 (53) (217) (166) (169) (156) (54)
Provision for loan losses............. 106 -- (483) 3,800 714 758 816
-------- -------- -------- -------- -------- -------- --------
Allowance for loan losses,
end of period..................... $ 10,633 $ 11,108 $ 10,461 $ 11,161 $ 7,527 $ 6,982 $ 6,380
======== ======== ======== ======== ======== ======== ========
Net loans charged-off to average
interest-earning loans............. (0.01)% 0.01% 0.04% 0.03% 0.03% 0.03% 0.01%
Allowance for loan losses
to total loans..................... 1.65% 1.71% 1.80% 1.85% 1.35% 1.40% 1.45%
Allowance for loan losses to
nonperforming loans................ 506.33% 1,427.76% 839.57% 1,281.78% 553.06% 1,025.28% 1,268.38%
Net loans charged-off to
allowance for loan losses.......... (0.82)% 0.48% 2.07% 1.49% 2.25% 2.23% 0.85%
Recoveries to charge-offs............. 1.00% 7.02% 7.86% 0.60% 11.52% 22.39% 38.33%
</TABLE>
64
<PAGE>
The following table presents the approximate allocation of the
allowance for loan losses by loan category at the dates indicated. Management
believes that the allowance can be allocated by category only on an approximate
basis. The allocation of the allowance to each category is not indicative of
future losses and does not restrict the use of any of the allowance to absorb
losses in any category.
<TABLE>
<CAPTION>
At August 31, At March 31,
---------------------------- ---------------------------------------------------------
2000 2000 1999
---------------------------- ---------------------------- ---------------------------
% of Percent % of Percent % of Percent
Allowance of Loans Allowance of Loans Allowance of Loans
in each in Each in each in Each in each in Each
Category Category Category Category Category Category
to Total to Total to Total to Total to Total to Total
Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans
------ --------- -------- ------ --------- -------- ------ --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate....... $ 5,687 53.48% 74.05% $ 5,717 54.65% 75.41% $ 6,440 57.70% 84.37%
Consumer.......... 3,496 32.88 20.34 3,120 29.83 19.29 1,853 16.60 10.91
Commercial........ 837 7.87 5.61 784 7.49 5.30 720 6.45 4.72
Unallocated....... 613 5.77 -- 840 8.03 -- 2,148 19.25 --
------- ------ ------ ------- ------ ------ ------ ------ ------
Total allowance
for loan losses. $10,633 100.00% 100.00% $10,461 100.00% 100.00% $11,161 100.00% 100.00%
======= ====== ====== ======= ====== ====== ====== ====== ======
<CAPTION>
At March 31,
----------------------------------------------------------------------------------------
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
% of Percent % of Percent % of Percent
Allowance of Loans Allowance of Loans Allowance of Loans
in each in Each in each in Each in each in Each
Category Category Category Category Category Category
to Total to Total to Total to Total to Total to Total
Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans
------ --------- -------- ------ --------- -------- ------ --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate....... $ 2,332 30.98% 83.68% $ 2,737 39.20% 82.92% $ 2,963 46.44% 80.89%
Consumer.......... 1,430 19.00 12.81 1,643 23.53 14.46 1,926 30.19 16.57
Commercial........ 646 8.58 3.51 386 5.53 2.62 306 4.83 2.54
Unallocated....... 3,119 41.44 -- 2,216 31.74 -- 1,183 18.54 --
------- ------ ------ ------- ------ ------ ------ ------ ------
Total allowance
for loan losses. $ 7,527 100.00% 100.00% $ 6,982 100.00% 100.00% $ 6,380 100.00% 100.00%
======= ====== ====== ======= ====== ====== ======= ====== =======
</TABLE>
Securities Investment Activities
Under Michigan law, Citizens First has authority to purchase a wide
range of investment securities. As a result of federal banking laws, however,
financial institutions such as Citizens First may not engage as principals in
any activities that are not permissible for a national bank, unless the Federal
Deposit Insurance Corporation has determined that the investments would not pose
a significant risk to the Savings Association Insurance Fund and Citizens First
is in compliance with applicable capital standards.
65
<PAGE>
Citizens First's Board of Directors has the overall responsibility for
Citizens First's investment portfolio. The Board of Directors has authorized
the Investment Committee of the Board of Directors to execute the investment
strategies as prescribed by the Board of Directors. The Board of Directors also
receives a monthly portfolio report. The Investment Committee is authorized to
delegate investment and compliance duties to an Investment consultant and/or
Investment Manager. The Investment Manager is authorized to make investment
decisions consistent with Citizens First's investment policy and the
recommendations of Citizens First's Investment Committee and is primarily
responsible for daily investment activities.
The primary objectives of Citizens First's investment portfolio are to
provide liquidity necessary to meet day-to-day, cyclical and long-term
requirements for funds; provide a place for investment of funds not currently
needed to fulfill loan demands; and provide a flow of dependable earnings with
minimum risk arising from potential changes in interest rates or from
concentration of investments in a particular issuer or sector. Investment
decisions are made in accordance with Citizens First's investment policy and are
based upon consideration of Citizens First's cash and borrowed funds position;
the quality, maturity, stability, and earnings of loans; the nature and
stability of deposits; and Citizens First's excess capital.
Under Citizens First's investment policy, the investment portfolio is to be
comprised of investments in marketable obligations in the form of bonds, notes,
or debentures which are salable under ordinary circumstances with reasonable
promptness at fair value. Citizens First's investment policy prohibits
investment in stock of any corporation or securities which are convertible into
stock at the option of the issuer. The policy also prohibits investments in
futures, options, private placements, collateralized mortgage obligations and
derivatives. Debt securities authorized for investment by the investment policy
include U.S. Treasury securities; government agency securities; corporate
securities; municipal securities; certificates of deposit; bankers acceptances;
demand obligations; repurchase agreements; and commercial paper.
The investment policy provides that all bonds, when purchased, must be of
investment grade as determined by at least one nationally recognized securities
rating organization and generally must carry a rating of "A/Mig2" or better or
the equivalent or "A1/P1" for commercial paper. Citizens First's investment
policy limits investments in non-U.S. Treasury securities to no more than five
percent of the value of the investment portfolio for any one issue and ten
percent of the value of the investment portfolio for any one issuer. Also, the
total amount of investment securities of any of issuer may not exceed twenty
percent of Citizens First's capital, surplus, and subordinated notes and
debentures.
Generally accepted accounting principles require that securities be
categorized as either "held to maturity," "trading securities" or "available for
sale," based on management's intent as to the ultimate disposition of each
security. Debt securities may be classified as "held to maturity" and reported
in financial statements at amortized cost only if the reporting entity has the
positive intent and ability to hold those securities to maturity. Securities
that might be sold in response to changes in market interest rates, changes in
the security's prepayment risk, increases in loan demand, or other similar
factors cannot be classified as "held to maturity." Debt and equity securities
held for current resale are classified as "trading securities." These
securities are reported at fair value, and unrealized gains and losses on the
securities would be included in earnings. Citizens First does not currently use
or maintain a trading account. Debt and equity securities not classified as
either "held to maturity" or "trading securities" are classified as "available
for sale." These securities are reported at fair value, and unrealized gains and
losses on the securities are excluded from earnings and reported, net of
deferred taxes, as a separate component of equity. Citizens First currently
classifies all of its securities as available for sale.
At August 31, 2000, Citizens First did not own any securities, other than
U.S. Government and agency securities, that had an aggregate book value in
excess of 10% of Citizens First's retained earnings at that date.
66
<PAGE>
The following table sets forth certain information regarding the
amortized cost and fair value of Citizens First's securities at the dates
indicated.
<TABLE>
<CAPTION>
At August 31, At March 31,
------------------- -------------------------------------------------------------
2000 2000 1999 1998
------------------- ------------------- ------------------- -------------------
Amortized Fair Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value Cost Value
--------- -------- ---------- ------- --------- -------- --------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt securities available-for-sale:
Obligations of U.S. Treasury and
U.S. government agencies............ $37,664 $37,790 $47,255 $47,150 $ 2,003 $ 2,003 $ 2,205 $ 2,205
Other securities....................... 47,729 47,871 47,275 47,138 -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total.................................. 85,393 85,661 94,530 94,288 2,003 2,003 2,205 2,205
------- ------- ------- ------- ------- ------- ------- -------
Equity securities available-for-sale:
Federal Home Loan Bank stock........... 5,119 5,119 5,119 5,119 4,546 4,546 3,722 3,722
Freddie Mac stock...................... -- -- -- -- -- -- 135 6,542
------- ------- ------- ------- ------- ------- ------- -------
Total equity securities
available-for-sale.................. 5,119 5,119 5,119 5,119 4,546 4,546 3,857 10,264
------- ------- ------- ------- ------- ------- ------- -------
Total debt and equity securities....... $90,512 $90,780 $99,649 $99,407 $ 6,549 $ 6,549 $ 6,062 $12,469
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The following table sets forth Citizens First's securities activities
for the periods indicated.
<TABLE>
<CAPTION>
For the
Five Months
Ended August 31, For the Year Ended March 31,
----------------------- -----------------------------------
2000 1999 2000 1999 1998
----------- ----------- ----------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Securities:
Securities, beginning of period(1)................ $99,407 $6,549 $ 6,549 $12,469 $ 9,638
Purchases......................................... 7,500 551 95,860 824 548
Sales............................................. (9,631) -- -- (6,542) (18)
Maturities........................................ (7,146) -- (3,000) (200) --
Increase (decrease) in net premium................ 140 (1) 240 (2) (1)
Increase (decrease) in unrealized gain............ 510 -- (242) -- 2,302
------- ------- ------- -------- -------
Net increase (decrease) in investment
securities..................................... (8,603) 550 92,834 (5,920) 2,831
------- ------- ------- -------- -------
Securities, end of period......................... $90,780 $7,099 $99,407 $ 6,549 $12,469
======= ======= ======= ======== =======
</TABLE>
_________________________________
(1) Includes securities available-for-sale including those transferred from
held-to-maturity concurrently with the adoption of SFAS 133 in the period
ended March 31, 2000.
67
<PAGE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of Citizens First's
debt securities as of August 31, 2000.
<TABLE>
<CAPTION>
At August 31, 2000
----------------------------------------------------------------------------------------------
More than One Year More than Five Years
One Year or Less to Five Years to Ten Years
------------------------------- ------------------------- ----------------------------
Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield
--------------- ----------- --------- ---------- ---------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Available-for-sale securities:
Municipal securities (1).... $ -- --% $ 2,867 5.01% $7,733 5.17%
Obligations of the U.S.
Treasury ................ 2,993 6.20 7,956 6.47 -- --
Obligations of U.S.
government agencies...... -- -- 26,799 6.89 -- --
Other investments........... 3,982 6.85 32,862 7.25 -- --
Federal Home Loan
Bank stock.................. 5,119 5.63 -- -- -- --
------- ------- ---------
Total securities
at fair value......... $12,094 6.17% $70,484 6.93% $7,733 5.17%
======= ======= =========
<CAPTION>
-----------------------------------------------------
More than Ten Years Total
------------------------ ------------------------
Weighted Weighted
Carrying Average Carrying Average
Value Yield Value Yield
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Available-for-sale securities:
Municipal securities (1).. $469 5.33% $11,069 5.13%
Obligations of the U.S.
Treasury............... -- -- 10,949 6.40
Obligations of U.S.
government agencies.... -- -- 26,799 6.89
Other investments......... -- -- 36,844 7.21
Federal Home Loan
Bank stock................ -- -- 5,119 5.63
--------- -------
Total securities
at fair value....... $469 5.33% $90,780 6.68%
========= =======
</TABLE>
___________________________
(1) Weighted average yield data for municipal securities is presented on a tax
equivalent basis based on an assumed tax rate of 34%.
Deposit Activities and Other Sources of Funds
General. Deposits are the major external source of funds for Citizens
First's lending and other investment activities. In addition, Citizens First
generates funds internally from loan principal repayments and prepayments and
maturing securities. Scheduled loan repayments are a relatively stable source of
funds, while deposit inflows, outflows and loan prepayments are influenced
significantly by general interest rates and money market conditions. Citizens
First may use borrowings from the Federal Home Loan Bank of Indianapolis to
compensate for reductions in the availability of funds from other sources.
Presently, Citizens First has no other borrowing arrangements aside from the
Federal Home Loan Bank.
Deposit Accounts. Nearly all of Citizens First's depositors reside in
Michigan. Citizens First offers a wide variety of deposit accounts with a range
of interest rates and terms. Citizens First's deposit accounts consist of a
variety of savings accounts, checking and NOW accounts, certificates of deposit,
individual retirement accounts and money market accounts. The maturities of
Citizens First's certificate of deposit accounts range from seven days to six
years. Deposit account terms vary with the principal differences being the
minimum balance deposit, early withdrawal penalties, limits on the number of
transactions and the interest rate. Citizens First reviews its deposit mix on a
monthly basis and its pricing weekly.
In October 1999, Citizens First began offering a wide range of commercial
deposit products and checking accounts to cities, towns and municipal school
districts located within Citizens First's primary market area. At August 31,
2000, Citizens First was working with approximately 17 municipalities. At August
31, 2000, these entities accounted for approximately $81.2 million of Citizens
First's certificate of deposits and $3.4 million of Citizens First's NOW
accounts. Such municipal and governmental deposits tend to be more interest rate
sensitive than other consumer deposit accounts and are typically subject to
competitive bidding processes. Additionally, the balance of such deposit
accounts tend to fluctuate more than consumer deposit accounts due to the
budgeting and tax collection timing of the municipal entity. Accordingly, such
municipal deposits tend to be more volatile than consumer deposits and no
assurance can be made that Citizens First will be able to maintain the levels of
such accounts in future periods.
68
<PAGE>
Citizens First believes it is competitive in the interest rates it offers
on its deposit products. Citizens First determines the rates paid based on a
number of factors, including rates paid by competitors, Citizens First's need
for funds and cost of funds, borrowing costs and movements of market interest
rates. Citizens First does not utilize brokers to obtain deposits and at August
31, 2000 had no brokered deposits.
In the unlikely event Citizens First is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to Citizens First Bancorp as the sole stockholder of Citizens
First.
The following table presents the deposit activity of Citizens First's for
the periods indicated:
<TABLE>
<CAPTION>
For the Five Months
Ended August 31, For the Year Ended March 31,
--------------------------------- -------------------------------------------------
2000 1999 2000 1999 1998
-------------- --------------- --------------- -------------- --------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Beginning balance............................. $601,008 $526,840 $526,840 $503,445 $457,540
Increase before interest credited............. 26,948 13,344 50,698 1,505 26,969
Interest credited............................. 9,067 7,468 23,470 21,890 18,936
-------- -------- -------- -------- --------
Net increase.................................. 36,015 20,812 74,168 23,395 45,905
-------- -------- -------- -------- --------
Ending balance................................ $637,023 $547,652 $601,008 $526,840 $503,445
======== ======== ======== ======== ========
</TABLE>
At August 31, 2000, Citizens First had $115.7 million in certificate
accounts in amounts of $100,000 or more maturing as follows:
<TABLE>
<CAPTION>
Weighted
Average
Maturity Period Amount Rate
-------------------------------------------- --------------- ---------------
(Dollars In Thousands)
<S> <C> <C>
Three months or less.......................... $ 73,529 5.91%
Over 3 through 6 months....................... 9,250 5.88
Over 6 through 12 months...................... 14,091 6.46
Over 12 months................................ 18,813 6.54
--------
Total.................................... $115,683 6.08
========
</TABLE>
69
<PAGE>
The following table presents by various rate categories, the amount of
certificates of deposit outstanding at the dates indicated and the periods to
maturity of the certificates of deposit outstanding at August 31, 2000.
<TABLE>
<CAPTION>
Period to Maturity from August 31, 2000
---------------------------------------------------------------
Less One Two Over Total at
than One to Two to Three Three August 31,
Year Years Years Years 2000
--------------- ------------- ------------- ------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit:
0 to 2.00%............... $ -- $ -- $ -- $ -- $ --
2.01 to 4.00%............ 18,760 56 -- -- 18,816
4.01 to 5.00%............ 18,782 1,273 1,674 3,040 24,769
5.01 to 6.00%............ 84,900 12,120 4,070 7,606 108,696
6.01 to 7.00%............ 124,663 43,917 15,263 22,805 206,648
7.01 to 8.00%............ 216 3,039 101 2,084 5,440
Over 8.00%............... -- -- -- -- --
-------- ------- ------- ------- --------
Total certificates
accounts........... $247,321 $60,405 $21,108 $35,535 $364,369
======== ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
At March 31,
------------------------------------------------
2000 1999 1998
------------ --------------- ---------------
<S> <C> <C> <C>
Certificates of deposit:
0 to 2.00%............... $ 4,562 $ 1 $ 3
2.01 to 4.00%............ 22,020 -- 73
4.01 to 5.00%............ 53,981 128,932 22,828
5.01 to 6.00%............ 162,295 79,831 155,571
6.01 to 7.00%............ 81,732 53,730 86,437
7.01 to 8.00%............ 73 67 334
Over 8.00%............... -- 51 47
-------- -------- --------
Total certificates
accounts $324,663 $262,612 $265,293
======== ======== ========
</TABLE>
Borrowings. Citizens First has the ability to use advances from the Federal
Home Loan Bank of Indianapolis to supplement its supply of lendable funds and to
meet deposit withdrawal requirements. The Federal Home Loan Bank of
Indianapolis functions as a central reserve bank providing credit for savings
banks and certain other member financial institutions. As a member of the
Federal Home Loan Bank of Indianapolis, Citizens First is required to own
capital stock in the Federal Home Loan Bank of Indianapolis and is authorized to
apply for advances on the security of the capital stock and certain of its
mortgage loans and other assets, principally securities that are obligations of,
or guaranteed by, the U.S. Government or its agencies, provided certain
creditworthiness standards have been met. Advances are made under several
different credit programs. Each credit program has its own interest rate and
range of maturities. Depending on the program, limitations on the amount of
advances are based on the financial condition of the member institution and the
adequacy of collateral pledged to secure the credit. At August 31, 2000,
Citizens First had the ability to borrow a total of approximately $285.0 million
from the Federal Home Loan Bank of Indianapolis, of which $77.3 million was
borrowed at such date.
The following table presents certain information regarding Citizens First's
borrowed funds at or for the periods ended on the dates indicated:
<TABLE>
<CAPTION>
Five Months Ended
August 31, Year Ended March 31,
------------------------- -----------------------------------------
2000 1999 2000 1999 1998
---------- ----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Federal Home Loan Bank advances
and other borrowings:
Average balance outstanding....................... $75,987 $58,367 $72,675 $48,151 $41,705
Maximum amount outstanding at any month-end
during the period.............................. 77,408 64,517 97,370 54,267 41,800
Balance outstanding at end of period.............. 77,302 64,517 70,502 54,267 41,610
Weighted average interest rate during the period.. 6.27% 6.24% 5.94% 6.30% 6.35%
Weighted average interest rate at end of period... 6.07% 5.95% 6.08% 5.91% 6.28%
</TABLE>
70
<PAGE>
Properties
Citizens First currently conducts its business through its main office located
in Port Huron, Michigan, and thirteen other full-service banking offices, all of
which it owns. Citizens First also operates ATM machines at six other
locations.
<TABLE>
<CAPTION>
Net Book Value
of Property
Original or Leasehold
Year Improvements at
Location Acquired August 31, 2000
--------- -------------- -------------------
Main/Executive Office: (In thousands)
<S> <C> <C>
525 Water Street 1978 $2,230
Port Huron, Michigan 48060
Branch Offices:
4778 24th Avenue
Fort Gratiot, Michigan 48059 1998 1,102
1527 Hancock
Port Huron, Michigan 48060 1971 93
3136 Lapeer Road
Port Huron, Michigan 48060 1976 142
2015 Gratiot Boulevard
Marysville, Michigan 48040 1976 103
270 Clinton Avenue
St. Clair, Michigan 48079 1974 127
210 S. Parker
Marine City, Michigan 48039 1987 186
301 Summer Street
Algonac, Michigan 48001 1975 112
807 S. Main Street
Lapeer, Michigan 48446 1993 313
380 N. Cedar Street
Imlay City, Michigan 48444 1975 89
37 N. Howard
Croswell, Michigan 48422 1980 54
48 S. Elk Street
Sandusky, Michigan 48471 1972 42
204 S. Huron
Harbor Beach, Michigan 48441 1980 59
123 N. Port Crescent
Bad Axe, Michigan 48413 1973 82
Other Properties:
550 Water Street
Port Huron, Michigan 48060 (1) 1986 52
555 Water Street
Port Huron, Michigan 48060 (2) 1998 872
500 Water Street
Port Huron, Michigan 48060 (3) 2000 358
------
Total $6,020
</TABLE>
______________________________
(1) The property consists of a drive-up ATM facility.
(2) The property houses Citizens First's trust and financial services
operations.
(3) The property consists of a drive-up banking center.
71
<PAGE>
Personnel
As of August 31, 2000, Citizens First had 204 full-time employees and 14
part-time employees, none of whom is represented by a collective bargaining
unit. Citizens First believes its relationship with its employees is good.
Legal Proceedings
Periodically, there have been various claims and lawsuits involving
Citizens First, such as claims to enforce liens, condemnation proceedings on
properties in which Citizens First holds security interests, claims involving
the making and servicing of real property loans and other issues incident to
Citizens First's business. Citizens First is not a party to any pending legal
proceedings that it believes would have a material adverse effect on the
financial condition or operations of Citizens First.
Trust Services
Established in 1999, Citizens First maintains the Asset Management and
Trust Department which primarily provides trust and investment services to
individuals, partnerships, corporations and institutions and also acts as a
fiduciary of estates and conservatorships and as a trustee under various wills,
trusts and other plans. Citizens First, in establishing the Trust Department,
has hired four experienced trust personnel from other local trust companies and
financial institutions. Citizens First believes that the trust department
allows it to provide investment opportunities and fiduciary services to both
current and prospective customers. Consistent with Citizens First's operating
strategy, Citizens First will continue to emphasize the growth of its trust
service operations to grow assets and increase fee-based income. Citizens First
has implemented several policies governing the practices and procedures of the
trust department, including policies relating to maintaining confidentiality of
trust records, investment of trust property, handling conflicts of interest, and
maintaining impartiality. At August 31, 2000, the trust department managed 115
accounts with aggregate assets of $55.7 million, of which the largest
relationship totaled $23.8 million, or 42.7% of the trust department's total
assets.
Subsidiaries
Citizens Financial Services, Inc. Citizens Financial Services, Inc.,
formerly 525 Riverside Corporation, was established in 1974 as a service
corporation. Although Citizens Financial Services previously participated in
real estate development currently it only has an investment in the stock of a
life insurance company and acts as the parent corporation for CFS Appraisal
Company, CFS Survey L.L.C. and CFS Title Agency, which together provide a wide
range of service for customers of Citizens First. Citizens Financial Services
also offers through its insurance agency, CFS Insurance Agency, a variety of
life insurance and annuity products and may in the future offer other personal
insurance products through an affiliation arrangement with a third party
insurance agency. CFS Appraisal Company, established in 1995, primarily handles
appraisal business for Citizens First and on occasion, for third parties. CFS
Survey L.L.C., was established in 1999 to complete mortgage survey reports for
Citizens First. CFS Title Agency was established in 1998 as a joint venture
between Citizens First and Lawyers Title Insurance Agency, a Virginia
corporation, to provide title insurance for customers of Citizens First. At
August 31, 2000, Citizens Financial Services had assets totaling $1.4 million.
For the five months ended August 31, 2000 and the year ended March 31, 2000,
Citizens Financial Services had generated net income before taxes of $100,000
and $167,000, respectively.
Citizens First Savings Charitable Foundation, Inc.
In 1998, Citizens First established a private charitable foundation,
Citizens First Savings Charitable Foundation, Inc. This foundation, which is
not a subsidiary of Citizens First, provides grants to public charities operated
for charitable, scientific, literary or educational purposes, within the
communities that Citizens First serves. In 1998, Citizens First contributed
Freddie Mac stock with a cost basis and fair market value of $153,000 and
72
<PAGE>
$7.0 million, respectively, at the date of contribution and transfer. Such stock
was subsequently sold and the foundation currently utilizes a third party
investment consultant to manage its assets. At August 31, 2000, the foundation
had assets of approximately $7.8 million. The foundation's current five member
Board of Directors consists of current and former directors and officers of
Citizens First. After the conversion, Citizens First will continue to maintain
the foundation. However, Citizens First does not expect to make any further
contributions to the foundation. The existence of Citizens First's current
foundation is not expected to impact the business and affairs of Citizens First
Foundation which is being established in connection with Citizens First's
conversion. See "The Conversion--Establishment of the Charitable Foundation."
Management of Citizens First Bancorp
Citizens First Bancorp's Board of Directors consists of five persons
divided into three classes, each of which contains approximately one third of
the Board. The following persons are the current directors of Citizens First
Bancorp:
<TABLE>
<CAPTION>
Name Term Expires
----------------------------------------- ----------------
<S> <C>
Marshall A. Campbell 2003
Ronald W. Cooley 2002
Christopher A. Kellerman 2003
Larry J. Moeller, Sr. 2002
Timothy D. Regan 2001
</TABLE>
Information regarding the directors is provided below. Unless otherwise
stated, each person has held his current occupation for the last five years.
Ages presented are as of August 31, 2000.
Marshall J. Campbell is the President and Chief Executive Officer of
Marshall E. Campbell Company, Inc., a wholesale distributor of industrial and
electrical products. Mr. Campbell served as a director of Commercial & Savings
Bank of St. Clair for nine years and as a director of its holding company,
Seaway Financial Corporation, for three years prior to their sale in 1997. Mr.
Campbell also serves as a trustee of Blue Water Health Systems, Inc., the parent
corporation of Port Huron Hospital, on whose board he served from 1989 until
1999. Mr. Campbell has also previously served as a trustee to the Port Huron
School District and was President of the Board of Education. Age 49. Director
since 1997.
Ronald W. Cooley is a real estate developer and real estate broker. Mr.
Cooley is the principal owner of Cooley Enterprises, a real estate development
firm, and a former owner of O'Connor Realty, a real estate brokerage, both of
which operate in the Port Huron, Michigan area. Mr. Cooley has served as a Board
member and president of the Port Huron/Marysville Chamber of Commerce,
Councilman for the City of Marysville and was member of the Board of Directors
of a commercial bank located in Port Huron. He is currently an advisory trustee
for the St. Clair County Community Foundation. Age 53.
Christopher A. Kellerman is the President and a Director of the Star Oil
Company, Inc., a gas and oil distributor located in Port Huron, Michigan. Age
58. Director since 1997.
Larry J. Moeller, Sr. has served as President and Chief Executive Officer
of Citizens First since 1998 and as a Director since 1992. Prior to joining
Citizens First, Mr. Moeller worked in the Port Huron Area School District for 31
years, including serving as Superintendent of Schools from 1980 until 1997. Mr.
Moeller has also been appointed by the Governor to serve on the Education
Commission for the State, the State Chapter II Federal Advisory Commission, the
Michigan State Tenure Commission and the Michigan Public School Employee
Retirement System Board. Age 56.
73
<PAGE>
Timothy D. Regan has served as Senior Vice President/Controller of Citizens
First since 1988 and has been employed by Citizens First since 1983. Mr. Regan
has also served as Secretary of Citizens First since 1988. Mr. Regan is Mr.
Cutler's brother-in-law. Age 39.
The Board of Directors of Citizens First Bancorp has established the
following committees: the Audit Committee consisting of Messrs. Campbell,
Cooley and Kellerman; the Compensation Committee consisting of Messrs. Campbell,
Kellerman and Moeller; the Pricing Committee consisting of the full board of
directors; and the Nominating Committee consisting of the full board of
directors. Mr. Campbell has been appointed as Chairman of the Board of
Directors.
Executive Officers
The executive officers of Citizens First Bancorp are elected annually and
hold office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors. The executive
officers of Citizens First Bancorp are:
<TABLE>
<CAPTION>
Name Position
------ -----------
<S> <C>
Larry J. Moeller, Sr. President and Chief Executive Officer
Timothy D. Regan Secretary and Treasurer
</TABLE>
Since the formation of Citizens First Bancorp, none of the executive
officers, directors or other personnel has received remuneration from Citizens
First Bancorp.
Management of Citizens First Savings Bank
Directors
The Board of Directors of Citizens First Savings Bank presently is composed
of six members who are elected for terms of three years, one third of whom are
elected annually as required by the Bylaws of Citizens First Savings Bank. All
of the directors of Citizens First Savings Bank are independent of management,
except for Mr. Moeller. The following persons are the current directors of
Citizens First Savings Bank:
<TABLE>
<CAPTION>
Name Term Expires
----------------------------------------- ----------------
<S> <C>
Marshall A. Campbell 2003
Thomas E. Kaczperski 2001
Christopher A. Kellerman 2003
Larry J. Moeller, Sr. 2002
Dr. Daniel J. Wilhelm 2002
Janice U. Whipple 2001
</TABLE>
Information regarding those directors who are not members of the board of
directors of Citizens First Bancorp is provided below. Unless otherwise stated,
each person has held his current occupation for the last five years. Ages
presented are as of August 31, 2000.
74
<PAGE>
Thomas E. Kaczperski is the owner and President of Omega Plastics, Inc., a
plastics tooling manufacturer and molding company located in Michigan. In 1998,
Mr. Kaczperski started a similar operation in the United Kingdom as a joint
venture with a United Kingdom corporation. Age 59. Director since 1998.
Janice U. Whipple is the President, Chief Executive Officer and Chairman of
the Board of Women's Life Insurance Society, a fraternal organization for women
which provides life insurance and financial products to its membership. Ms.
Whipple has served as National President since 1990. Age 48. Director since
1995.
Dr. Daniel J. Wilheim is a pediatrician with a practice in the Port Huron area
and President of Children's Health Care of Port Huron, P.C. Dr. Wilheim is also
part owner of two minor league hockey franchises. Age 64. Director since
1990.Executive Officers Who are Also Not Directors
Executive Officers Who are Also Not Directors
The executive officers of Citizens First are elected annually by the Board
of Directors and serve at the Board's discretion. Below is information
regarding the executive officers of Citizens First who are not also directors.
Unless otherwise stated, each executive officer has held his or her current
position for at least the last five years. Ages presented are as of August 31,
2000.
J. Stephen Armstrong has served as Senior Vice President, Commercial
Banking of Citizens First since 1999 and has been employed by Citizens First
since 1995. Age 48.
Randy J. Cutler has served as Senior Vice President, Retail Banking and
Branch Operations of Citizens First since 1985 and has been employed by Citizens
First since 1977. Mr. Cutler is Mr. Regan's brother-in-law. Age 44.
B. Scott Nill has served as Vice President, Human Resources and Planning of
Citizens First since 1998. Prior to joining Citizens First, Mr. Nill was the
chief executive officer of I.M.P.A.C.T. Corporation, a center for human
resources located in Port Huron, Michigan for seven years. Age 48.
75
<PAGE>
Meetings of the Board of Directors
The business of Citizens First is conducted through meetings and activities
of the Board of Directors and its committees. The Board of Directors held 13
regular meetings and four special meetings during the year ended March 31, 2000.
The Board of Directors has established the following committees, all of which
meet on an ad hoc basis.
The Compliance/Audit Review Committee consists of Messrs. Campbell, Moeller
and Wilhelm and Ms. Whipple. This committee reviews Citizens First's
consolidated financial statements, supervises the internal auditor and engages
the external auditors. The committee met six times in fiscal 2000.
The Compensation Committee, which consists of Messrs. Campbell, Kaczperski,
Kellerman and Moeller, is responsible for all matters regarding compensation and
fringe benefits for executive officers. The committee met six times in fiscal
2000.
The Investment Committee consists of Messrs. Kaczperski, Kellerman, and
Moeller. This committee oversees the implementation of the investment policy of
Citizens First, as adopted by the Board of Directors and reviews investments
made. The committee met four times in fiscal 2000.
The Trust Committee, which consists of Messrs. Campbell and Moeller and Ms.
Whipple, oversees Citizens First's Asset Management and Trust Department
activities. Such oversight includes the review and approval of the department's
policies, the coordination of the annual audit and review of the department's
examination reports. The committee met eight times in fiscal 2000.
The Board of Directors has also established a Loan Committee, a
Nominating/Evaluation Committee and a Proxy Committee.
Directors' Compensation
Fees. Non-employee directors of Citizens First receive an annual retainer
of $6,000 for membership on the Board of Directors. In addition, non-employee
directors each receive $400 for each board meeting attended and $300 for each
committee meeting attended. Each committee chairman receives $400 for each
committee meeting they attend.
Deferred Fee Arrangements. Citizens First has entered into deferred fee
arrangements with all six of its directors to encourage continuity of service on
the Board. These arrangements provide that a director may establish a deferral
account and elect on an annual basis to defer up to 100% of Board remuneration.
Upon the director's attainment of age 70 and 10 years of service, Citizens First
pays the balance of the director's deferral account, either in a lump sum or in
monthly installments, as elected by the director. Upon a change in control of
Citizens First, followed by a termination of service, each director will be
entitled to receive the balance of the deferral account in either one lump sum
payment or in monthly installments over a length of time determined by the
director. The deferred fee arrangements also provide the payments of deferral
amounts in the case of disability or death. If a director terminates service
due to disability, Citizens First will pay the director the deferral account
balance as of the termination, in a lump sum or in monthly installments. If the
Director dies during active service on the Board of Directors, the director's
beneficiary will receive the director's deferral account balance in the form
previously elected by the Director (lump sum or monthly installments). Deferred
amounts are held in a Rabbi Trust maintained
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by Citizens First which such trust will be amended to permit participants to
purchase Citizens First Bancorp stock in the conversion or thereafter with
deferred funds. As of March 31, 2000, Citizens First had accrued $888,545 in
liabilities under its deferred fee arrangements with directors.
Executive Compensation
Summary Compensation Table. The following information is furnished for
Messrs. Moeller, Regan and Cutler for the fiscal year ended March 31, 2000. No
other executive officer of Citizens First received salary and bonus of $100,000
or more during 1999.
<TABLE>
<CAPTION>
Annual Compensation (1)
--------------------------------------------------------------------
All Other
Name and Fiscal Other Annual Compensation
Position Year Salary Bonus Compensation (2) (3)
--------- -------------- ------------ ------------ ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Larry J. Moeller, Sr. 2000 $256,500 $142,075 -- $1,440
Chairman, President and
Chief Executive Officer
Randy J. Cutler 2000 92,830 29,000 -- 1,765
Senior Vice President, Retail Banking
Timothy D. Regan 2000 81,915 26,000 -- 1,558
Senior Vice President, Controller
</TABLE>
_______________________
(1) Compensation information for the fiscal years ended March 31, 1999 and 1998
has been omitted as Citizens First was neither a public company nor a
subsidiary of a public company at that time.
(2) Does not include the aggregate amount of perquisites and other personal
benefits, which was less than $50,000 or 10% of the total annual salary and
bonus reported.
(3) Consists of employer contribution to 401(k) plan.
Employment Agreements. Citizens First has an existing employment agreement
with Larry J. Moeller, Sr. Upon completion of the conversion, Citizens First
and Citizens First Bancorp each intends to enter into an employment agreement
with Larry J. Moeller. The employment agreements are intended to ensure that
Citizens First and Citizens First Bancorp will be able to retain the services of
Mr. Moeller after the conversion. The continued success of Citizens First and
Citizens First Bancorp depends to a significant degree on the skills and
competence of Mr. Moeller.
The employment agreements will provide for a three-year term. The term of
the Citizens First Bancorp employment agreement will extend on a daily basis
until written notice of non-renewal is given by the Board of Directors or by Mr.
Moeller. The term of the Citizens First employment agreement will be renewable
by its Board of Directors on an annual basis. The employment agreements provide
that Mr. Moeller's base salary will be reviewed annually. Mr. Moeller's initial
base salary under the employment agreements will be $267,000. In addition to
the base salary, the employment agreements provide for, among other things,
participation in stock benefits plans and other fringe benefits applicable to
executive personnel. The employment agreements provide for termination by
Citizens First or Citizens First Bancorp for cause, as defined in the employment
agreements, at any time. If Citizens First or Citizens First Bancorp chooses to
terminate Mr. Moeller's employment for reasons other than for cause, or if Mr.
Moeller resigns from Citizens First or Citizens First Bancorp after specified
circumstances that would constitute constructive termination, Mr. Moeller or, if
Mr. Moeller dies, his beneficiary, would be entitled to receive an amount equal
to the benefit plan base salary payments that would have been paid to him for
the remaining term of the
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employment agreement and the contributions that would have been made on his
behalf to any employee benefit plans of Citizens First and Citizens First
Bancorp during the remaining term of the employment agreement. Citizens First
and Citizens First Bancorp would also continue to pay for Mr. Moeller's health
and welfare benefit plan coverage for the remaining term of the employment
agreement. Upon termination of Mr. Moeller for reasons other than cause or a
change in control, he must adhere to a one-year non-competition agreement.
Under the employment agreements, if, following a change in control of
Citizens First or Citizens First Bancorp, Mr. Moeller's employment is
involuntarily terminated or if Mr. Moeller voluntarily terminates his employment
in connection with circumstances specified in the agreement, then Mr. Moeller
or, if Mr. Moeller dies, his beneficiary, would be entitled to a severance
payment equal to the greater of the payments and benefits that would have been
paid for the remaining term of the agreement or three times the average of the
executive's five preceding taxable years' annual compensation. Citizens First
and Citizens First Bancorp would also continue Mr. Moeller's health and welfare
benefits coverage for thirty-six months. Even though both employment agreements
provide for a severance payment if a change in control occurs, Mr. Moeller would
not receive duplicate payments or benefits under the agreements. Under
applicable law, an excise tax would be triggered by change in control-related
payments that equal or exceed three times Mr. Moeller's average annual
compensation over the five years preceding the change in control. The excise
tax would equal 20% of the amount of the payment in excess of one times Mr.
Moeller's average compensation over the preceding five-year period. In the
event that payments related to a change in control of Citizens First Bancorp are
subject to this excise tax, Citizens First Bancorp will provide Mr. Moeller with
an additional amount sufficient to enable Mr. Moeller to retain the full value
of his change in control benefits as if the excise tax had not applied. If a
change in control of Citizens First and Citizens First Bancorp occurred, the
total amount of payments due under the employment agreements, based solely on
Mr. Moeller's cash compensation received in the fiscal year ending March 31,
2000 (and without regard to future base salary adjustments or bonuses and
excluding any benefits under any employee benefit plan which may be payable),
would be approximately $1.0 million.
Citizens First Bancorp will guarantee the payments to Mr. Moeller under
Citizens First's employment agreement if they are not paid by Citizens First.
Citizens First Bancorp will also make all payment due under the Citizens First
Bancorp's employment agreement. Citizens First or Citizens First Bancorp will
pay or reimburse all reasonable costs and legal fees incurred by Mr. Moeller
under any dispute or question of interpretation relating to the employment
agreements, if Mr. Moeller is successful on the merits in a legal judgment,
arbitration or settlement. The employment agreements also provide that Citizens
First and Citizens First Bancorp will indemnify Mr. Moeller to the fullest
extent legally allowable for all expenses and liabilities he may incur in
connection with any suit or proceeding in which he may be involved by reason of
his having been a director or officer of Citizens First Bancorp or Citizens
First.
Change in Control Agreements. Upon the completion of the conversion,
Citizens First intends to enter into change in control agreements with four
senior officers who will not be covered by an employment agreement. Each change
in control agreement will be renewable on an annual basis. The change in
control agreements will have terms of three years. The change in control
agreements will provide that if involuntary termination, other than for cause,
or voluntary termination (upon the occurrence of circumstances specified in the
agreements) follows a change in control of Citizens First and Citizens First
Bancorp, the officers would be entitled to receive a severance payment equal to
three times their average annual compensation (as described in the agreements)
for the five most recent taxable years. Citizens First would also continue to
pay for the officers' health and welfare benefits coverage for thirty-six months
following termination. If a change in control of Citizens First and Citizens
First Bancorp occurred and all officers covered by such agreements were
terminated, the total payments that would be due under the change in control
agreements, based solely on the cash compensation paid in the fiscal year ended
March 31, 2000 to the officers covered by the change in control agreements and
excluding any benefits under any employee benefit plan which may be payable,
would equal approximately $1.2 million.
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Benefits
Pension Plan. Citizens First participates in a multiple-employer defined
benefit pension plan known as the Financial Institutions Retirement Fund.
Generally, salaried employees of Citizens First become members of the pension
plan upon the completion of one (1) year of service. Citizens First makes
annual contributions to the Financial Institutions Retirement Fund sufficient to
fund retirement benefits for its employees, as determined in accordance with a
formula set forth in the plan document. Participants generally become vested in
their accrued benefits under the pension plan after completing five (5) years of
service. Participants are automatically vested at age sixty-five (65),
regardless of completed years of employment. In general, accrued benefits under
the pension plan, including normal retirement benefits and reduced benefits
payable upon early retirement or disability, are based on an individual's years
of benefit service (as described in the plan document) and the average of the
participant's highest five (5) years' salary. The pension plan also provides
lump sum death benefits for participants who die while in active service and
after retirement. For participants who die while in active service, the death
benefit is equal to one hundred percent (100%) of the last twelve (12) months'
salary, plus an additional ten percent (10%) of salary for each year of service,
up to a maximum of 300% of salary after 20 or more years of service. The lump
sum retirement death benefit is twelve (12) times the participant's annual
retirement benefit, less the sum of any payments received by the participant
before death.
401(k) Plan. Citizens First maintains a 401(k) Plan for the benefit of
eligible employees of Citizens First. The 401(k) Plan is intended to be a tax-
qualified plan under Sections 401(a) and 401(k) of the Internal Revenue Code.
Employees of Citizens First who have completed one (1) year of service and who
have attained age eighteen (18) are eligible to participate in the 401(k) Plan
beginning on the first day of the month coinciding with or following the date
these requirements are satisfied. Eligible participants may elect to defer
between 1% and 15% of their annual compensation, up to the applicable limits
under federal law ($10,500 in 2000), to the 401(k) Plan through a salary
reduction election. Citizens First matches participant contributions at the
rate of fifty percent (50%) up to a maximum of four percent (4%) of a
participant's annual compensation. Employer matching contributions vest upon
the completion of three (3) years of service.
Generally, distributions from the 401(k) Plan may commence upon a
participant's separation from service for any reason. However, participants may
request in-service distributions from the 401(k) Plan in the form of hardship
withdrawals, withdrawals of rollover contributions and withdrawals of unmatched
after-tax contributions. Distributions from the 401(k) Plan must generally
comply with federal and state income tax withholding requirements, and
distributions made before a participant attains age 59 1/2 are generally subject
to a federal excise tax.
The investment of 401(k) Plan assets is directed by plan participants. In
connection with the conversion, Citizens First intends to add, as an investment
option, an employer stock fund, in which participants may invest a portion of
their account balances primarily in Citizens First Bancorp, Inc. common stock.
A participant in the 401(k) Plan will receive the same subscription priority and
be subject to the same individual purchase limitations as if the participant had
elected to make a purchase of the common stock using other funds.
Employee Stock Ownership Plan. In connection with the conversion, Citizens
First's Board of Directors has authorized the adoption of an employee stock
ownership plan for employees of Citizens First and Citizens First Bancorp.
Generally, salaried employees of Citizens First Bancorp and Citizens First will
become eligible to participate in the employee stock ownership plan upon the
completion of one-year of service and attainment of age 21; provided, however,
that all salaried employees who are aged 21 and employed at the date of the
conversion will immediately become participants in the plan.
Citizens First Bancorp intends for the trustee of the employee stock
ownership plan to purchase 8% of the shares issued in the conversion. This
would range between 489,844 shares, assuming 6,123,060 shares are issued in the
conversion, and 662,731 shares assuming 8,284,140 shares are issued in the
conversion. If 9,526,761 shares are
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issued in the conversion, the employee stock ownership plan will purchase
762,140 shares. It is anticipated that the employee stock ownership plan will
borrow funds from Citizens First Bancorp to purchase the stock in the
conversion. The loan will equal 100% of the aggregate purchase price of the
common stock. The loan to the employee stock ownership plan will be repaid
principally from Citizens First's contributions to the employee stock ownership
plan and dividends payable on common stock held by the employee stock ownership
plan over the anticipated 15-year term of the loan. The interest rate for the
employee stock ownership plan loan is expected to be the prime rate as published
in The Wall Street Journal on the closing date of the conversion. See "Pro Forma
Data." If the employee stock ownership plan is unable to acquire 8% of the
common stock sold in the offering, it is anticipated that additional shares may
be acquired following the conversion through open market purchases, subject to
approval by the Michigan Office of Financial and Insurance Services and the
Federal Deposit Insurance Corporation. If such shares purchased in the open
market for the employee stock ownership plan at a higher price than the $10.00
per share offering price, the amount of the loan to the employee stock ownership
plan will be correspondingly higher.
In any plan year, Citizens First may make additional discretionary
contributions (beyond those necessary to satisfy the loan obligation) to the
employee stock ownership plan for the benefit of plan participants in either
cash or shares of common stock, which may be acquired through the purchase of
outstanding shares in the market or from individual stockholders or which
constitute authorized but unissued shares or shares held in treasury by Citizens
First Bancorp. The timing, amount, and manner of discretionary contributions
will be affected by several factors, including applicable regulatory policies,
the requirements of applicable laws and regulations, and market conditions.
Citizens First's contributions to the employee stock ownership plan are not
fixed, so benefits payable under the employee stock ownership plan cannot be
estimated.
Shares purchased by the employee stock ownership plan with the proceeds of
the loan from Citizens First Bancorp will be held in a suspense account and
released on a pro rata basis as the loan is repaid. Discretionary contributions
to the employee stock ownership plan and shares released from the suspense
account will be allocated among participants on the basis of each participant's
proportional share of compensation.
Participants will vest in their accrued benefits under the employee stock
ownership plan after the completion of three years of service. Participants who
are employed at the completion of the conversion will be fully vested in their
accounts. A participant will also become fully vested at retirement, upon death
or disability, a change in control or upon termination of the employee stock
ownership plan. Benefits are generally distributable upon a participant's
separation from service. Any forfeitures will be reallocated among the
remaining plan participants.
It is anticipated that Citizens First will appoint an independent trustee.
The trustee votes all allocated shares held in the employee stock ownership plan
as instructed by the plan participants and unallocated shares and allocated
shares for which no instructions are received must be voted in the same ratio on
any matter as those shares for which instructions are given, subject to the
fiduciary responsibilities of the trustee.
Under applicable accounting requirements, compensation expense for a
leveraged employee stock ownership plan is recorded at the fair market value of
the employee stock ownership plan shares when committed to be released to
participants' accounts. See "Pro Forma Data."
The employee stock ownership plan must meet certain requirements of the
Internal Revenue Code and the Employee Retirement Income Security Act. Citizens
First intends to request a determination letter from the Internal Revenue
Service regarding the tax-qualified status of the employee stock ownership plan.
Citizens First expects to receive a favorable determination letter, but cannot
guarantee that it will.
Supplemental Executive Retirement Plan. Citizens First currently has a
Supplemental Executive Retirement Plan Agreement with Mr. Moeller. Upon Mr.
Moeller's disability or death, Citizens First has agreed to
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pay Mr. Moeller or his beneficiaries the sum of $94,000 per year for ten (10)
years. Upon Mr. Moeller's retirement, Citizens First will pay him, or his
beneficiary(ies), $94,000 per year for twenty (20) years. In exchange for
Citizens First's promises under this agreement, Mr. Moeller has agreed not
render services, directly or indirectly, or to otherwise engage in any competing
business in St. Clair County, Michigan, without the prior consent of Citizens
First. Citizens First's commitments under this Supplemental Executive Retirement
Plan Agreement are binding upon successors to Citizens First.
Following the conversion, Citizens First intends to implement an additional
supplemental executive retirement plan to provide for supplemental retirement
benefits with respect to the employee stock ownership plan and the 401(k) Plan.
The plan will provide participating executives with benefits otherwise limited
by other provisions of the Internal Revenue Code or the terms of the employee
stock ownership plan loan. Specifically, the plan will provide benefits to
eligible individuals (those designated by the Board of Directors of Citizens
First or its affiliates) that cannot be provided under the employee stock
ownership plan and the 401(k) Plan as a result of the limitations imposed by the
Internal Revenue Code, but that would have been provided under the employee
stock ownership plan and the 401(k) Plan but for such limitations. In addition
to providing for benefits lost under tax-qualified plans as a result of
limitations imposed by the Internal Revenue Code, the new plan will also provide
supplemental benefits to designated individuals upon a change of control before
the complete scheduled repayment of the employee stock ownership plan loan.
Generally, upon such an event, the supplemental executive retirement plan will
provide the individual with a benefit equal to what the individual would have
received under the employee stock ownership plan had he or she remained employed
throughout the term of the employee stock ownership plan loan, less the benefits
actually provided under the employee stock ownership plan on behalf of such
individual. An individual's benefits under the supplemental executive
retirement plan will generally become payable upon retirement in accordance with
the employee stock ownership plan or the 401(k) Plan, or upon the change in
control of Citizens First or Citizens First Bancorp with regard to supplemental
stock ownership benefit. The Board of Directors intends to designate Mr. Moeller
as a participant in the supplemental executive retirement plan.
Citizens First may utilize a grantor trust in connection with the
supplemental executive retirement plan in order to set funds aside with which to
ultimately pay benefits under the plan. The assets of the grantor trust would
be subject to the claims of Citizens First's general creditors in the event of
Citizens First's insolvency until paid to the individual according to the terms
of the supplemental executive retirement plan.
Stock-Based Incentive Plan. Following the conversion, the Board of
Directors of Citizens First Bancorp intends to adopt a stock-based incentive
plan that will provide for the granting of options to purchase common stock and
awards of restricted stock to eligible officers, employees, and directors of
Citizens First Bancorp and Citizens First. As required by applicable
regulation, the stock-based incentive plan will not be implemented until at
least six months after the completion of the conversion. Citizens First Bancorp
will submit the stock-based incentive plan to stockholders for their approval at
which time stockholders will be provided with detailed information about the
plan.
Under the stock-based incentive plan, Citizens First Bancorp intends to
reserve shares for the grant of stock options in an amount equal to 10% of the
shares of common stock issued in the conversion. The amount reserved would
range from 612,306 shares, assuming 6,123,060 shares are issued in the
conversion to 828,414 shares, assuming 8,284,140 shares are issued in the
conversion. If 9,526,761 shares are issued in the conversion, 952,676 shares
will be reserved for grants of stock options. Additionally, Citizens First
Bancorp intends to reserve shares for the grant of stock awards in an amount
equal to 4% of the shares of common stock issued in the conversion. The amount
reserved would range from 244,922 shares, assuming 6,123,060 shares are issued
in the conversion to 331,365 shares, assuming 8,284,140 shares are issued in the
conversion. If 9,526,761 shares are issued in the conversion, 381,070 shares
would be reserved for stock awards. Any common stock awarded under the Stock-
Based Incentive Plan will be awarded at no cost to the recipients. The plan may
be funded through the purchase of common stock by a trust established in
connection with the stock-based incentive plan or from authorized but
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unissued shares. If additional authorized but unissued shares are acquired by
the stock-based incentive plan after the conversion, the interests of existing
shareholders would be diluted. See "Pro Forma Data."
Employee Severance Compensation Plan. Citizens First's Board of Directors
intends to adopt an employee severance compensation plan in connection with the
conversion. The severance plan will provide benefits to eligible employees upon
a change in control of Citizens First Bancorp or Citizens First. Citizens
First expects eligible employees to include those employees who have completed a
minimum of one year of service with Citizens First. Eligible employees will not
include any individual who enters into an employment or change in control
agreement with Citizens First or Citizens First Bancorp. Under the severance
plan, if a change in control of Citizens First Bancorp or Citizens First occurs,
eligible employees whose employment is terminated or who terminate employment
upon the occurrence of events specified in the severance plan, within 12 months
of the effective date of a change in control will be entitled to a severance
payment based on the individual's compensation and years of service. Generally,
the severance benefit equals one month of cash compensation for each year of
service up to a maximum of two years of cash compensation. Assuming that a
change in control had occurred at August 31, 2000, and resulted in the
termination of all eligible employees, the maximum aggregate payment due under
the severance plan would be approximately $2.2 million.
Transactions with Citizens First
Federal regulations require that all loans or extensions of credit to
executive officers and directors must generally be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, must not involve more than
the normal risk of repayment or present other unfavorable features.
Notwithstanding this rule, federal regulations permit Citizens First to make
loans to executive officers and directors at reduced interest rates if the loan
is made under a benefit program generally available to all other employees and
does not give preference to any executive officer or director over any other
employee.
Citizens First offers all employees, officers and members of the Board who
have completed two years of continuous full-time employment and who satisfy the
general underwriting standards of Citizens First, mortgage loans with interest
rates of 0.50% below the current interest rates in effect. However, the
discounted rate is never less than Citizens First's cost of funds nor greater
than the rate paid for similar loans paid by customers. This reduced rate is
available only on the borrower's primary residence and only once every five
years. Additionally, such borrowers receive a reduced service charge and all
application and appraisal fees are waived. If the individual leaves the employ
of Citizens First, the loan rate reverts to the contract rate in effect at the
time the loan was originated.
Additionally, Citizens First offers all employees, officers and members of
the Board who have completed one year of continuous full-time employment and who
satisfy the general underwriting standards of Citizens First, consumer loans
with interest rates of 0.50% below the current interest rates in effect.
However, the discounted rate is never less than Citizens First's cost of funds
nor greater than the rate paid for similar loans paid by customers.
Additionally, such borrowers receive a reduced service charge and all
application and appraisal fees are waived. If the individual leaves the employ
of Citizens First, the loan rate reverts to the contract rate in effect at the
time the loan was originated.
In addition, loans made to a director or executive officer in an amount
that, when aggregated with the amount of all other loans to the person and his
or her related interests, are in excess of the greater of $25,000 or 5% of
Citizens First'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. See "Regulation and Supervision--Savings Institution Regulation--
Transactions with Related Parties."
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The aggregate amount of loans by Citizens First to its executive officers
and directors was $2.9 million at August 31, 2000, or approximately 2.2% of pro
forma stockholders' equity assuming that 8,284,140 shares are issued in the
conversion. These loans were performing according to their original terms at
August 31, 2000.
Indemnification for Directors and Officers
Citizens First Bancorp's certificates of incorporation contain provisions
that limit the liability of and provide indemnification for its directors and
officers. These provisions provide that directors and officers will be
indemnified and held harmless by Citizens First Bancorp when that individual is
made a party to civil, criminal, administrative and investigative proceedings.
Directors and officers will be indemnified to the fullest extent authorized by
Delaware Law against all expense, liability and loss reasonably incurred.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of Citizens
First Bancorp pursuant to the certificate of incorporation or otherwise,
Citizens First Bancorp has been advised that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable.
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Regulation and Supervision
General
As a savings and loan holding company, Citizens First Bancorp will be
required by federal law to file reports with, and otherwise comply with, the
rules and regulations of the Office of Thrift Supervision. Citizens First
Bancorp is subject to extensive regulation, examination and supervision by the
Office of Thrift Supervision, as its primary federal regulator. Citizens First
is a member of the Federal Home Loan Bank System and, with respect to deposit
insurance, of the Savings Association Insurance Fund managed by the Federal
Deposit Insurance Corporation. Citizens First must file reports with the
Michigan Banking Commissioner and the Federal Deposit Insurance Corporation
concerning its activities and financial condition in addition to obtaining
regulatory approvals prior to entering into certain transactions such as mergers
with, or acquisitions of, other savings institutions. The Michigan Banking
Commissioner and/or the Federal Deposit Insurance Corporation conduct periodic
examinations to test Citizens First's safety and soundness and compliance with
various regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulatory requirements and policies, whether by the Office of
Thrift Supervision, the Federal Deposit Insurance Corporation, the Michigan
Office of Financial and Insurance Services or the U.S. Congress, could have a
material adverse impact on Citizens First Bancorp, Citizens First and their
operations. Certain of the regulatory requirements applicable to Citizens First
and to Citizens First Bancorp are referred to below or elsewhere in this
prospectus. The description of statutory provisions and regulations applicable
to savings institutions and their holding companies included in this prospectus
does not purport to be a complete description of such statutes and regulations
and their effects on Citizens First and Citizens First Bancorp.
Michigan Banking Law and Regulation
Michigan savings banks are regulated and supervised by the Commissioner of
the Michigan Office of Financial and Insurance Services. State-chartered banks
are subject to periodic examination by the Michigan Commissioner either with or
without notice. The approval of the Michigan Commissioner is required to
determine whether the banks transacts its business in the manner prescribed by
law. The approval of the Michigan Commissioner is required for a bank to merge
with another bank, to reorganize, to issue stock or to undertake many other
activities. The Michigan Commissioner must be notified in writing before any
branches or agencies are closed.
Enforcement. Under Michigan law, the Michigan Department of Consumer and
Industry Services has broad enforcement authority over Michigan Banks and, under
certain circumstances, affiliated parties, insiders, and agents. If a Michigan
bank does not operate in accordance with the regulations, policies and
directives of the Michigan Commissioner or is engaging, has engaged, or is about
to engage in an unsafe or unsound practice in conducting the business of the
bank, the Michigan Commissioner may issue and serve upon the bank a notice of
charges with respect to the practice or violation. The Michigan Commissioner's
enforcement authority includes: cease and desist orders, receivership,
conservatorship, removal and suspension of officers and directors, assessment of
monetary penalties, emergency closures, liquidation, and the power to issue
orders and declaratory rulings to enforce the Savings Bank Act provisions.
The Federal Deposit Insurance Corporation also regulates many of the areas
regulated by the Michigan Commissioner and federal law may limit some of the
authority provided to Citizens First by Michigan law. The Federal Deposit
Insurance Corporation has primary federal enforcement responsibility over
savings institutions,
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such as Citizens First, and has the authority to bring actions against the
institution and all institution-affiliated parties, including stockholders, and
any attorneys, appraisers and accountants who knowingly or recklessly
participate in wrongful action likely to have an adverse effect on an insured
institution. Formal enforcement action may range from the issuance of a capital
directive or cease and desist order to removal of officers and/or directors to
institution of receivership, conservatorship or termination of deposit
insurance. Civil penalties cover a wide range of violations and can amount to
$25,000 per day, or even $1 million per day in especially egregious cases.
Federal law also establishes criminal penalties for certain violations.
The powers which Michigan-chartered savings banks can exercise under the law
are summarized below.
Lending Activities. A Michigan-chartered savings bank may make a wide
variety of loans. They may make, sell, purchase, arrange, participate in,
invest in, or otherwise deal in loans or extensions of credit for consumer,
agricultural, business, corporate or commercial purposes, which are unsecured or
secured by liens or interests in personal property or real estate.
Dividends. Dividends must be paid out of net profits after deducting losses
and bad debts. A Michigan-chartered savings bank may only pay dividends on its
common stock if the savings bank has a surplus amounting to not less than 20% of
its capital after the payment of the dividend. If a bank has a surplus less
than the amount of its capital, it may not declare or pay any dividend until an
amount equal to at least 10% of net profits for the preceding one-half year (in
the case of quarterly or semi-annual dividends) or full-year (in the case of
annual dividends) has been transferred to surplus. A savings bank with the
approval of the Commissioner and by a vote of shareholders owning 2/3 of the
stock entitled to vote may increase its capital stock by a declaration of a
stock dividend on the capital stock. A savings bank may pay dividends on its
preferred stock at a rate as may be applicable without limitations.
Federal law generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. The Federal Deposit Insurance Corporation may prevent an
insured bank from paying dividends if the bank is in default of payment of any
assessment due to the Federal Deposit Insurance Corporation. In addition, the
Federal Deposit Insurance Corporation may prohibit the payment of dividends by a
bank, if such payment is determined, by reason of the financial condition of the
bank, to be an unsafe and unsound banking practice.
Branching Activities. Michigan banks, such as Citizens First, have the
authority under Michigan law to establish branches anywhere in the State of
Michigan, subject to receipt of all required regulatory approvals (including the
approval of the Michigan Banking Commissioner and the Federal Deposit Insurance
Corporation).
Commissioner Assessments. Michigan banks are required to pay supervisory
fees to the Commissioner to fund the operations of the Commissioner. The amount
of supervisory fees paid by a bank is based upon the bank's total assets, as
reported to the Commissioner.
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Savings Institution Regulation
Business Activities. The activities of state savings banks are governed by
state law and regulations. These laws and regulations delineate the nature and
extent of the investments and activities in which state institutions may engage.
In particular, many types of lending authority for state institutions e.g.,
commercial, non-residential real property loans and consumer loans, are limited
to a specified percentage of the institution's capital or assets. Some of the
authority granted by Michigan law may be qualified or restricted by federal law
or regulation.
Capital Requirements. Under Federal Deposit Insurance Corporation
regulations, federally-insured state-chartered banks that are not members of the
Federal Reserve System ("state non-member banks"), such as Citizens First, are
required to comply with minimum leverage capital requirements. For an
institution determined by the Federal Deposit Insurance Corporation to not be
anticipating or experiencing significant growth and to be in general a strong
banking organization, rated composite 1 under the Uniform Financial Institutions
Ranking System (the rating system) established by the Federal Financial
Institutions Examination Council, the minimum capital leverage requirement is a
ratio of Tier 1 capital to total assets of 3%. For all other institutions, the
minimum leverage capital ratio is not less than 4%. Tier 1 capital is the sum of
common stockholders' equity, noncumulative perpetual preferred stock (including
any related surplus) and minority investments in certain subsidiaries, less
intangible assets (except for certain servicing rights and credit card
relationships).
Citizens First must also comply with the Federal Deposit Insurance
Corporation risk-based capital guidelines. The Federal Deposit Insurance
Corporation guidelines require state non-member banks to maintain certain levels
of regulatory capital in relation to regulatory risk-weighted assets. The ratio
of regulatory capital to regulatory risk-weighted assets is referred to as
Citizens First's "risk-based capital ratio." Risk-based capital ratios are
determined by allocating assets and specified off-balance sheet items to four
risk-weighted categories ranging from 0% to 100%, with higher levels of capital
being required for the categories perceived as representing greater risk. For
example, under the Federal Deposit Insurance Corporation's risk-weighting
system, cash and securities backed by the full faith and credit of the U.S.
Government are given a 0% risk weight, loans secured by one- to four-family
residential properties generally have a 50% risk weight and commercial loans
have a risk weighting of 100%.
State non-member banks must maintain a minimum ratio of total capital to
risk-weighted assets of at least 8%, of which at least one-half must be Tier 1
capital. Total capital consists of Tier 1 capital plus Tier 2 or supplementary
capital items, which include allowances for loan losses in an amount of up to
1.25% of risk-weighted assets, cumulative preferred stock, a portion of the net
unrealized gain on equity securities and other capital instruments. The
includable amount of Tier 2 capital cannot exceed the amount of the
institution's Tier 1 capital.
The Federal Deposit Insurance Corporation Improvement Act required each
federal banking agency to revise its risk-based capital standards for insured
institutions to ensure that those standards take adequate account of interest-
rate risk, concentration of credit risk, and the risk of nontraditional
activities, as well as to reflect the actual performance and expected risk of
loss on multi-family residential loans. The Federal Deposit Insurance
Corporation, along with the other federal banking agencies, has adopted a
regulation providing that the agencies will take into account the exposure of a
bank's capital and economic value to changes in interest rate risk in assessing
a bank's capital adequacy. See "Regulatory Capital Compliance."
Prompt Corrective Regulatory Action. Federal law requires, among other
things, that federal bank regulating authorities take certain supervisory
actions against undercapitalized institutions, the severity of which depends
upon the institution's degree of undercapitalization. Generally, a savings
institution that has a ratio of total capital to risk weighted assets of less
than 8%, a ratio of Tier 1 (core) capital to risk-weighted assets of less than
4% or a ratio of core capital to total assets of less than 4% (3% or less for
institutions with the highest examination rating) is considered to be
"undercapitalized." A savings institution that has a total risk-based capital
ratio less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio
that is less than 3% is considered to be "significantly undercapitalized" and a
savings institution that has a tangible capital to assets ratio equal to or less
than 2% is
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deemed to be "critically undercapitalized." Subject to a narrow exception, the
Federal Deposit Insurance Corporation is required to appoint a receiver or
conservator for an institution that is "critically undercapitalized." The
regulation also provides that a capital restoration plan must be filed with the
Federal Deposit Insurance Corporation within 45 days of the date a savings
institution receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." Compliance with the plan
must be guaranteed by any parent holding company. In addition, numerous
mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion. The Federal Deposit Insurance Corporation could also take any one of
a number of discretionary supervisory actions, including the issuance of a
capital directive and the replacement of senior executive officers and
directors.
Insurance of Deposit Accounts. Citizens First is a member of the Savings
Association Insurance Fund. The Federal Deposit Insurance Corporation maintains
a risk-based assessment system by which institutions are assigned to one of
three categories based on their capitalization and one of three subcategories
based on examination ratings and other supervisory information. An
institution's assessment rate depends upon the categories to which it is
assigned. Assessment rates for insured institutions are determined semiannually
by the Federal Deposit Insurance Corporation and currently range from zero basis
points for the healthiest institutions to 27 basis points for the riskiest.
In addition to the assessment for deposit insurance, institutions are
required to make payments on bonds issued in the late 1980s by the Financing
Corporation to recapitalize the predecessor to the Savings Association Insurance
Fund. During 1999, payments for Savings Association Insurance Fund members
approximated 6.1 basis points, while Bank Insurance Fund members paid 1.2 basis
points. Since January 1, 2000, there has been equal sharing of Financing
Corporation payments between members of both insurance funds.
The Federal Deposit Insurance Corporation has authority to increase
insurance assessments. A significant increase in Savings Association Insurance
Fund insurance premiums would likely have an adverse effect on the operating
expenses and results of operations of Citizens First. Management cannot predict
what insurance assessment rates will be in the future.
Insurance of deposits may be terminated by the Federal Deposit Insurance
Corporation upon a finding that the institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or condition imposed by the
Federal Deposit Insurance Corporation or the Office of Thrift Supervision. The
management of Citizens First does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
Loans to One Borrower. State law provides that stock savings banks may not
provide loans or extensions of credit to a person in excess of 15% of the
capital and surplus of the stock savings bank. The limit, however, may be
increased to 25% of capital and surplus if approval of two-thirds of the bank's
board of directors is granted. If the Michigan Commissioner determines that the
interests of a group of more than one person, co-partnership, association or
corporation are so interrelated that they should be considered as a unit for the
purpose of extending credit, the total loans and extensions of credit of that
group shall be combined. At August 31, 2000, Citizens First did not have any
loans with one borrower that exceeded its regulatory limit.
A number of loans are exempted from the above limitations. They include
among others loans on commercial paper, loans to financial institutions, and
loans secured by bonds, notes and certificates of indebtedness.
QTL Test. To be regulated as a savings and loan holding company by the
Office of Thrift Supervision (rather than as a bank holding company by the
Federal Reserve Board), Citizens First must qualify as a Qualified Thrift
Lender. To qualify as a Qualified Thrift Lender, Citizens First must either
qualify as a "domestic building and loan association" under the Internal Revenue
Code or maintain at least 65% of its "portfolio assets" (total assets less: (1)
specified liquid assets up to 20% of total assets; (2) intangibles, including
goodwill; and (3) the value of
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property used to conduct business) in certain "qualified thrift investments"
(primarily residential mortgages and related investments, including certain
mortgage-backed securities) in at least 9 months out of each 12 month period.
A savings institution that fails the qualified thrift lender test is
subject to certain operating restrictions and may be required to convert to a
bank charter. As of August 31, 2000, Citizens First met the qualified thrift
lender test. Recent legislation has expanded the extent to which education
loans, credit card loans and small business loans may be considered "qualified
thrift investments."
Assessments. Savings banks are required to pay assessments to the Michigan
Division of Financial Institutions to fund the agency's operations. The general
assessments, paid on a semi-annual basis, are computed upon the savings
institution's total assets, including consolidated subsidiaries, as reported in
Citizens First's latest quarterly thrift financial report. The assessments paid
by Citizens First for the fiscal year ended March 31, 2000 totaled $52,573.
Transactions with Related Parties. Citizens First's authority to engage in
transactions with "affiliates" (e.g., any company that controls or is under
common control with an institution, including Citizens First Bancorp and its
non-savings institution subsidiaries) is limited by federal law. The aggregate
amount of covered transactions with any individual affiliate is limited to 10%
of the capital and surplus of the savings institution. The aggregate amount of
covered transactions with all affiliates is limited to 20% of the savings
institution's capital and surplus. Certain transactions with affiliates are
required to be secured by collateral in an amount and of a type described in
federal law. The purchase of low quality assets from affiliates is generally
prohibited. The transactions with affiliates must be on terms and under
circumstances that are at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. In addition, savings institutions are prohibited from lending to any
affiliate that is engaged in activities that are not permissible for bank
holding companies and no savings institution may purchase the securities of any
affiliate other than a subsidiary.
Citizens First's authority to extend credit to executive officers,
directors and 10% shareholders ("insiders"), as well as entities such persons
control, is also governed by federal law. Such loans are required to be made on
terms substantially the same as those offered to unaffiliated individuals and
not involve more than the normal risk of repayment. An exception exists for
loans made pursuant to a benefit or compensation program that is widely
available to all employees of the institution and does not give preference to
insiders over other employees. The law limits both the individual and aggregate
amount of loans Citizens First may make to insiders based, in part, on Citizens
First's capital position and requires certain board approval procedures to be
followed. Loans to executive officers are subject to additional restrictions.
Standards for Safety and Soundness. The federal banking agencies have
adopted Interagency Guidelines prescribing Standards for Safety and Soundness.
The guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. The guidelines address internal
controls and information systems, internal audit system, credit underwriting,
loan documentation, interest rate risk exposure, asset growth, asset quality,
earnings and compensation, and fees and benefits. If the appropriate federal
banking agency determines that a savings institution fails to meet any standard
prescribed by the guidelines, the agency may require the institution to submit
an acceptable plan to achieve compliance with the standard.
Investment Activities
Since the enactment of the Federal Deposit Insurance Corporation
Improvement Act, all state-chartered Federal Deposit Insurance Corporation
insured banks, including savings banks, have generally been limited to
activities as principal and equity investments of the type and in the amount
authorized for national banks, notwithstanding state law. The Federal Deposit
Insurance Corporation Improvement Act and the Federal Deposit Insurance
Corporation permit exceptions to these limitations. For example, state-
chartered banks, such as Citizens First, may, with Federal Deposit Insurance
Corporation approval, continue to exercise state authority to invest in
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common or preferred stocks listed on a national securities exchange or the
Nasdaq National Market and in the shares of an investment company registered
under the Investment Company Act of 1940, as amended. In addition, the Federal
Deposit Insurance Corporation is authorized to permit such institutions to
engage in state authorized activities or investments that do not meet this
standard (other than non-subsidiary equity investments) for institutions that
meet all applicable capital requirements if it is determined that such
activities or investments do not pose a significant risk to the Savings
Association Insurance Fund. The Federal Deposit Insurance Corporation has
recently adopted revisions to its regulations governing the procedures for
institutions seeking approval to engage in such activities or investments. These
revisions, among other things, streamline the application procedures for healthy
banks and impose quantitative and qualitative restrictions on a bank's dealings
with its subsidiaries engaged in activities not permitted for national bank
subsidiaries. All non-subsidiary equity investments, unless otherwise authorized
or approved by the Federal Deposit Insurance Corporation, must have been
divested by December 19, 1996, under a Federal Deposit Insurance Corporation-
approved divestiture plan, unless such investments were grandfathered by the
Federal Deposit Insurance Corporation. Citizens First did not receive
grandfathered authority from the Federal Deposit Insurance Corporation to invest
in listed stocks and/or registered shares and maintains no such investments.
Interstate Banking and Branching
As a savings and loan holding company, Citizens First Bancorp will be
limited under the Home Owners' Loan Act with respect to its acquisition of a
savings association located in a state other than Michigan. In general, a
savings and loan holding company may not acquire an additional savings
association subsidiary that is located in a state other than the home state of
its first savings association subsidiary unless such an interstate acquisition
is permitted by the statutes of such other state. Many states permit such
interstate acquisitions if the statutes of the home state of the acquiring
savings and loan holding company satisfy various reciprocity conditions.
Michigan is one of a number of states that permit, subject to the reciprocity
conditions of the Michigan Savings Bank Act, out-of-state bank and savings and
loan holding companies to acquire Michigan savings associations.
In contrast, bank holding companies are generally authorized to acquire
banking subsidiaries in more than one state irrespective of any state law
restrictions on such acquisitions. The Interstate Banking Act, which was
enacted on September 29, 1994, permits approval under the Bank Holding Company
Act of the acquisition of a bank located outside of the holding company's home
state regardless of whether the acquisition is permitted under the law of the
state of the acquired bank. The Federal Reserve Board may not approve an
acquisition under the Bank Holding Company Act that would result in the
acquiring holding company controlling more than 10% of the deposits in the
United States or more than 30% of the deposits in any particular state.
Until recently, branching across state lines was generally not available to
a state bank such as Citizens First. Out-of-state branches of banking
institutions are authorized under the Michigan Banking Law, but similar
authority did not exist generally under the laws of most other states.
Beginning June 1, 1997, the Interstate Banking Act permitted the responsible
federal banking agencies to approve merger transactions between banks located in
different states, regardless of whether the merger would be prohibited under the
law of the two states. The Interstate Banking Act also permitted a state to
"opt in" to the provisions of the Interstate Banking Act before June 1, 1997,
and permitted a state to "opt out" of the provisions of the Interstate Banking
Act by adopting appropriate legislation before that date. Michigan did not "opt
out" of the provisions of the Interstate Banking Act. Accordingly, beginning
June 1, 1997, the Interstate Banking Act permitted a bank, such as Citizens
First, to acquire an institution by merger in a state other than Michigan unless
the other state had opted out of the Interstate Banking Act. The Interstate
Banking Act also authorizes de novo branching into another state if the host
state enacts a law expressly permitting out of state banks to establish such
branches within its borders.
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Federal Home Loan Bank System
Citizens First is a member of the Federal Home Loan Bank System, which
consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank
provides a central credit facility primarily for member institutions. Citizens
First, as a member of the Federal Home Loan Bank of Indianapolis, is required to
acquire and hold shares of capital stock in that Federal Home Loan Bank in an
amount at least equal to 1.0% of the aggregate principal amount of its unpaid
residential mortgage loans and similar obligations at the beginning of each
year, or 1/20 of its advances (borrowings) from the Federal Home Loan Bank,
whichever is greater. Citizens First was in compliance with this requirement
with an investment in Federal Home Loan Bank stock at August 31, 2000 of $5.1
million.
The Federal Home Loan Banks are required to provide funds for the
resolution of insolvent thrifts in the late 1980s and to contribute funds for
affordable housing programs. These requirements could reduce the amount of
dividends that the Federal Home Loan Banks pay to their members and could also
result in the Federal Home Loan Banks imposing a higher rate of interest on
advances to their members. If dividends were reduced, or interest on future
Federal Home Loan Bank advances increased, Citizens First's net interest income
would likely also be reduced. Recent legislation has changed the structure of
the Federal Home Loan Banks funding obligations for insolvent thrifts, revised
the capital structure of the Federal Home Loan Banks and implemented entirely
voluntary membership for Federal Home Loan Banks. Management cannot predict the
effect that these changes may have with respect to its Federal Home Loan Bank
membership.
Federal Reserve System
The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The regulations generally
provide that reserves be maintained against aggregate transaction accounts as
follows: for accounts aggregating $44.3 million or less (subject to adjustment
by the Federal Reserve Board) the reserve requirement is 3%; and for accounts
aggregating greater than $44.3 million, the reserve requirement is $1.329
million plus 10% (subject to adjustment by the Federal Reserve Board between 8%
and 14%) against that portion of total transaction accounts in excess of $44.3
million. The first $5.0 million of otherwise reservable balances (subject to
adjustments by the Federal Reserve Board) are exempted from the reserve
requirements. Citizens First complies with the foregoing requirements.
Prospective Legislation
Citizens First is, and Citizens First Bancorp as a savings and loan holding
company will be, extensively regulated and supervised. Regulations, which
affect Citizens First on a daily basis, may be changed at any time, and the
interpretation of the relevant law and regulations may also change because of
new interpretations by the authorities who interpret those laws and regulations.
Any change in the regulatory structure or the applicable statutes or
regulations, whether by the Office of Thrift Supervision, the Federal Deposit
Insurance Corporation or the U.S. Congress, could have a material impact on
Citizens First Bancorp, Citizens First, its operations or the conversion.
Legislation enacted several years ago provided that the Bank Insurance Fund
and the Savings Association Insurance Fund would have merged on January 1, 1999
if there had been no more savings associations as of that date. Congress did
not enact legislation eliminating the savings association charter by that date.
Citizens First is unable to predict whether the Savings Association Insurance
Fund and Bank Insurance Fund will eventually be merged and what effect, if any,
that may have on its business.
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Holding Company Regulation
Federal law allows a state savings bank that qualifies as a "Qualified
Thrift Lender," discussed below, to elect to be treated as a savings association
for purposes of the savings and loan holding company provisions of the Home
Owners' Loan Act. Such election allows its holding company to be regulated as a
savings and loan holding company by the Office of Thrift Supervision rather than
as a bank holding company by the Federal Reserve Board. Citizens First has made
such election and expects Citizens First Bancorp to receive approval from the
Office of Thrift Supervision to become a savings and loan holding company.
Citizens First Bancorp will be regulated as a savings and loan holding company
within the meaning of the Home Owners' Loan Act. As such, Citizens First
Bancorp will be required to register with the Office of Thrift Supervision and
will have to adhere to the Office of Thrift Supervision's regulations and
reporting requirements. In addition, the Office of Thrift Supervision may
examine and supervise Citizens First Bancorp and the Office of Thrift
Supervision has enforcement authority over Citizens First Bancorp and its non-
savings institution subsidiaries. Among other things, this authority permits
the Office of Thrift Supervision to restrict or prohibit activities that are
determined to be a serious risk to the subsidiary savings institution.
Additionally, Citizens First will be required to notify the Office of Thrift
Supervision at least 30 days before declaring any dividend to Citizens First
Bancorp. By regulation, the Office of Thrift Supervision may restrict or
prohibit Citizens First from paying dividends. Citizens First Bancorp will be a
nondiversified unitary savings and loan holding company within the meaning of
federal law. Under prior law, a unitary savings and loan holding company, such
as Citizens First Bancorp, was not generally restricted as to the types of
business activities in which it may engage, provided that Citizens First
continued to be a qualified thrift lender. See "--Savings Institution
Regulation--QTL Test." The Gramm-Leach-Bliley Act of 1999, however, restricts
unitary savings and loan holding companies not existing or applied for before
May 4, 1999 to activities permissible for financial holding companies under the
law or for multiple savings and loan holding companies. Citizens First Bancorp
will not qualify for the grandfather and will be limited to the activities
permissible for financial holding companies or multiple savings and loan holding
companies. A financial holding company may engage in activities that are
financial in nature, incidental to financial activities or complementary to a
financial activity. A multiple savings and loan holding company is generally
limited to activities permissible for bank holding companies under Section
4(c)(8) of the Bank Holding Company Act, subject to the prior approval of the
Office of Thrift Supervision, and certain additional activities authorized by
Office of Thrift Supervision regulation.
A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
institution or savings and loan holding company without prior written approval
of the Office of Thrift Supervision and from acquiring or retaining control of a
depository institution that is not insured by the Federal Deposit Insurance
Corporation. In evaluating applications by holding companies to acquire savings
institutions, the Office of Thrift Supervision considers the financial and
managerial resources and future prospects of the holding company and institution
involved, the effect of the acquisition on the risk to the deposit insurance
funds, the convenience and needs of the community and competitive factors.
The Office of Thrift Supervision may not approve any acquisition that would
result in a multiple savings and loan holding company controlling savings
institutions in more than one state, subject to two exceptions: (1) the
approval of interstate supervisory acquisitions by savings and loan holding
companies and (2) the acquisition of a savings institution in another state if
the laws of the state of the target savings institution specifically permit such
acquisitions. The states vary in the extent to which they permit interstate
savings and loan holding company acquisitions.
Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, federal regulations do prescribe such restrictions
on subsidiary savings institutions as described below. Citizens First must
notify the Office of Thrift Supervision 30 days before declaring any dividend to
Citizens First Bancorp. In addition, the financial impact of a holding company
on its subsidiary institution is a matter that is evaluated by the Office of
Thrift Supervision and the
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agency has authority to order cessation of activities or divestiture of
subsidiaries deemed to pose a threat to the safety and soundness of the
institution.
Federal Securities Laws
Citizens First Bancorp has filed with the Securities and Exchange
Commission a registration statement under the Securities Act for the
registration of the common stock to be issued in the conversion. Upon
completion of the conversion, Citizens First Bancorp's common stock will be
registered with the Securities and Exchange Commission under the Securities
Exchange Act. Citizens First Bancorp will then have to observe the information,
proxy solicitation, insider trading restrictions and other requirements under
the Securities Exchange Act.
The registration under the Securities Act of shares of the common stock to
be issued in the conversion does not cover the resale of those shares. Shares
of the common stock purchased by persons who are not affiliates of Citizens
First Bancorp may be resold without registration. The resale restrictions of
Rule 144 under the Securities Act govern shares purchased by an affiliate of
Citizens First Bancorp. As defined under Rule 144, an affiliate of Citizens
First Bancorp is a person that directly or indirectly controls, is controlled
by, or is under common control with Citizens First Bancorp. Generally,
executive officers and directors will be considered affiliates of Citizens First
Bancorp. If Citizens First Bancorp meets the current public information
requirements of Rule 144 under the Securities Act, each affiliate of Citizens
First Bancorp which complies with the other conditions of Rule 144 (including
those that require the affiliate's sale to be aggregated with those of other
persons) would be able to sell in the public market, without registration, a
number of shares not to exceed, in any three-month period, the greater of (1) 1%
of the outstanding shares of Citizens First Bancorp or (2) the average weekly
volume of trading in such shares during the preceding four calendar weeks.
Provision may be made in the future by Citizens First Bancorp to permit
affiliates to have their shares registered for sale under the Securities Act
under specific circumstances.
Federal and State Taxation
Federal Income Taxation
General. Citizens First Bancorp and Citizens First intend to report their
income on a fiscal year basis using the accrual method of accounting. The
federal income tax laws apply to Citizens First Bancorp and Citizens First in
the same manner as to other corporations with some exceptions, including
particularly Citizens First's reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to
Citizens First or Citizens First Bancorp. Citizens First's federal income tax
returns have been either audited or closed under the statute of limitations
through tax year 1995. For its 2000 tax year, Citizens First's maximum federal
income tax rate was 34%.
Bad Debt Reserves. For fiscal years beginning before December 31, 1996,
thrift institutions that qualified under certain definitional tests and other
conditions of the Internal Revenue Code were permitted to use certain favorable
provisions to calculate their deductions from taxable income for annual
additions to their bad debt reserve. A reserve could be established for bad
debts on qualifying real property loans, generally secured by interests in real
property improved or to be improved, under the percentage of taxable income
method or the experience method. The reserve for nonqualifying loans was
computed using the experience method.
Federal legislation enacted in 1996 repealed the reserve method of
accounting for bad debts and the percentage of taxable income method for tax
years beginning after 1995 and required savings institutions to recapture or
take into income certain portions of their accumulated bad debt reserves.
Approximately $6.6 million of Citizens First's accumulated bad debt reserves
would not be recaptured into taxable income unless Citizens First makes a "non-
dividend distribution" to Citizens First Bancorp as described below.
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Distributions. If Citizens First makes "non-dividend distributions" to
Citizens First Bancorp, they will be considered to have been made from Citizens
First's unrecaptured tax bad debt reserves, including the balance of its
reserves as of December 31, 1988, to the extent of the "non-dividend
distributions," and then from Citizens First's supplemental reserve for losses
on loans, to the extent of those reserves, and an amount based on the amount
distributed, but not more than the amount of those reserves, will be included in
Citizens First's taxable income. Non-dividend distributions include
distributions in excess of Citizens First's current and accumulated earnings and
profits, as calculated for federal income tax purposes, distributions in
redemption of stock, and distributions in partial or complete liquidation.
Dividends paid out of Citizens First's current or accumulated earnings and
profits will not be so included in Citizens First's taxable income.
The amount of additional taxable income triggered by a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Therefore, if Citizens
First makes a non-dividend distribution to Citizens First Bancorp, approximately
one and one-half times the amount of the distribution not in excess of the
amount of the reserves would be includable in income for federal income tax
purposes, assuming a 35% federal corporate income tax rate. Citizens First does
not intend to pay dividends that would result in a recapture of any portion of
its bad debt reserves.
State Taxation
The State of Michigan imposes a Single Business Tax (the "SBT"), which is
an annual value-added tax imposed on the privilege of doing business in the
state. Every person with business activity in Michigan is subject to the tax.
Most organizations exempt from federal income tax are also exempt from the SBT.
The major components of the SBT are compensation, depreciation and federal
taxable income, increased by net operating losses, if any, utilized in arriving
at federal taxable income. For tax years beginning before 2000, the SBT base is
decreased by the cost of depreciable tangible assets acquired during the year.
For tax years beginning after 1999, an investment tax credit is claimed for the
acquisition of depreciable tangible assets. Effective January 1, 1999, the SBT
rate is 2.2% and will be phased out during a 23-year period.
Delaware State Taxation. As a Delaware holding company not earning income
in Delaware, Citizens First Bancorp will be exempt from Delaware corporate
income tax.
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Shares to be Purchased by Management
with Subscription Rights
The following table presents certain information as to the approximate
purchases of common stock by the directors and executive officers of Citizens
First, including their associates, as defined by applicable regulations. No
individual has entered into a binding agreement to purchase these shares and,
therefore, actual purchases could be more or less than indicated. Directors and
executive officers and their associates may not purchase more than 25% of the
shares sold in the conversion. For purposes of the following table, sufficient
shares are assumed to be available to satisfy subscriptions in all categories.
<TABLE>
<CAPTION>
Percent of Percent of
Shares at Shares at
Anticipated Anticipated Minimum Maximum
Number of Dollar of Estimated of Estimated
Shares to be Amount to be Valuation Valuation
Name Purchased (1) Purchased (1) Range Range
----- ------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
J. Stephen Armstrong 5,000 $ 50,000 0.09% 0.07%
Marshall J. Campbell 40,000 400,000 0.71 0.52
Ronald W. Cooley 5,000 50,000 0.09 0.07
Randy J. Cutler 5,000 50,000 0.09 0.07
Thomas E. Kaczperski. 15,000 150,000 0.26 0.20
Christopher A. Kellerman 30,000 300,000 0.53 0.39
Larry J. Moeller, Sr. 25,000 250,000 0.44 0.33
B. Scott Nill 7,500 75,000 0.13 0.10
Timothy D. Regan 15,000 150,000 0.26 0.20
Janice U. Whipple 5,000 50,000 0.09 0.07
Daniel J. Wilheim 5,000 50,000 0.09 0.07
------- ---------- ---- ----
All Directors and Executive Officers
as a Group (11 persons) (2) 157,500 $1,575,000 2.78% 2.05%
======= ========== ==== ====
</TABLE>
_____________________________
(1) Does not include shares to be awarded under the employee stock ownership
plan and stock-based incentive plan or options to acquire shares under the
stock-based incentive plan.
(2) Including the effect of shares issued to Citizens First Foundation, the
aggregate beneficial ownership of all directors and executive officers as a
group would be 2.57% and 1.90% at the minimum and maximum of the estimated
valuation range, respectively.
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The Conversion
The Michigan Office of Financial and Insurance Services has approved Citizens
First's plan of conversion, provided that it is approved by the members of
Citizens First and that Citizens First Bancorp and Citizens First satisfy
certain other conditions. Michigan Banking Commissioner approval is not a
recommendation or endorsement of the plan of conversion and is not a
recommendation to purchase common stock in the offering.
General
On September 19, 2000, the Board of Directors of Citizens First unanimously
adopted the plan of conversion. Under the plan of conversion, Citizens First
will convert from a state-chartered mutual savings bank to a state-chartered
stock savings bank and become a wholly-owned subsidiary of Citizens First
Bancorp, a newly formed Delaware corporation. In addition, the plan provides
that Citizens First Bancorp will offer its common stock in a subscription
offering and, if necessary, through a community offering and/or a syndicate of
registered broker-dealers. The following discussion of the plan of conversion
contains all material terms about the conversion. Nevertheless, you should read
carefully the plan of conversion, which accompanies Citizens First's proxy
statement and is available to members of Citizens First upon request. The plan
of conversion is also filed as an exhibit to the registration statement that
Citizens First Bancorp has filed with the Securities and Exchange Commission.
See "Where You Can Find More Information."
The Michigan Office of Financial and Insurance Services has approved and
Citizens First has received from the Federal Deposit Insurance Corporation a
notice of intent not to object to the plan of conversion, subject to, among
other things, approval of the plan of conversion by Citizens First's members.
Citizens First has called a special meeting of its members for this purpose on
_________, 2001. Depositors as of _______, 2000 will be entitled to vote at the
special meeting. Citizens First will complete the conversion only upon
completion of the sale of at least the minimum number of shares of Citizens
First Bancorp common stock offered through this prospectus and approval of the
plan of conversion by Citizens First's voting members.
The Board of Directors established the aggregate price of the shares of
common stock to be issued in the conversion based upon an independent appraisal
of Citizens First giving effect to the conversion. Keller, a consulting firm
experienced in the valuation and appraisal of savings institutions, prepared the
appraisal. Keller will affirm or, if necessary, update its appraisal at the
completion of the offering.
The completion of the offering depends on market conditions and other factors
beyond Citizens First's control. No assurance can be given as to the length of
time after the approval of the plan of conversion at the special meeting that
will be required to complete the sale of the common stock. If delays are
experienced, significant changes may occur in the appraisal of Citizens First
Bancorp and Citizens First as converted, which would require a change in the
offering range. A change in the offering range would result in a change in the
net proceeds realized by Citizens First Bancorp from the sale of the common
stock. If the conversion is terminated, Citizens First would be required to
charge all conversion expenses against current income.
Reasons for the Conversion
After considering the advantages and disadvantages of the conversion, the
Board of Directors of Citizens First unanimously approved the conversion as
being in the best interests of Citizens First, its customers and employees and
the communities it serves. The Board of Directors concluded that the conversion
offers a number of advantages that will be important to the future growth and
performance of Citizens First.
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Formation of Citizens First as a capital stock savings bank subsidiary of
Citizens First Bancorp will permit Citizens First Bancorp to sell common stock,
which is a source of capital not available to mutual savings banks. The capital
raised through the sale of common stock in the conversion will support Citizens
First's future lending and operational growth and may also support possible
future branching activities or the acquisition of other financial institutions
or financial service companies or their assets. Additional capital also will
increase Citizens First's ability to render services to the communities it
serves, although Citizens First has no current specific plans, arrangements or
understandings regarding these activities.
After completion of the conversion, the unissued common and preferred stock
authorized by Citizens First Bancorp's certificate of incorporation will permit
Citizens First Bancorp to raise additional capital through further sales of
securities and to issue securities in connection with possible acquisitions,
subject to market conditions and any required regulatory approvals. Citizens
First Bancorp currently has no plans with respect to additional offerings of
securities.
The conversion will afford Citizens First's management, members and others
the opportunity to become stockholders of Citizens First Bancorp and participate
more directly in, and contribute to, any future growth of Citizens First Bancorp
and Citizens First. Citizens First Bancorp will use stock-related incentive
programs to attract and retain executive and other personnel.
Effects of Conversion to Stock Form
General. Each depositor in a mutual savings bank has both a deposit account
in the institution and a pro rata ownership interest in the net worth of the
institution based upon the balance in his or her account. However, this
ownership interest is tied to the depositor's account and has no value separate
from such deposit account. Furthermore, this ownership interest may only be
realized in the unlikely event that the institution is liquidated. In such
event, the depositors of record at that time, as owners, would be able to share
in any residual surplus and reserves after payment of other claims, including
claims of depositors to the amounts of their deposits. Any depositor who opens
a deposit account obtains a pro rata ownership interest in the net worth of the
institution without any additional payment beyond the amount of the deposit. A
depositor who reduces or closes his account receives a portion or all of the
balance in the account but nothing for his or her ownership interest in the net
worth of the institution, which is lost to the extent that the balance in the
account is reduced.
When a mutual savings bank converts to stock form, depositors lose all rights
to the net worth of the mutual savings bank, except the right to claim a pro
rata share of funds representing the liquidation account established in
connection with the conversion. Additionally, permanent nonwithdrawable capital
stock is created and offered to depositors which represents the ownership of the
institution's net worth. The common stock of Citizens First Bancorp is separate
and apart from deposit accounts and cannot be and is not insured by the Federal
Deposit Insurance Corporation or any other governmental agency. Certificates
are issued to evidence ownership of the permanent stock. The stock certificates
are transferable, and therefore the stock may be sold or traded if a purchaser
is available with no effect on any deposit account the seller may hold in the
institution.
No assets of Citizens First Bancorp or Citizens First will be distributed in
connection with the conversion other than the payment of those expenses incurred
in connection with the conversion.
Continuity. While the conversion is being accomplished, the normal business
of Citizens First will continue without interruption, including being regulated
by the Michigan Office of Financial and Insurance Services and the Federal
Deposit Insurance Corporation. After conversion, Citizens First will continue
to provide services for depositors and borrowers under current policies by its
present management and staff.
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The directors of Citizens First at the time of conversion will serve as
directors of Citizens First after the conversion. The directors of Citizens
First Bancorp will be primarily composed of individuals who served on the Board
of Directors of Citizens First. All officers of Citizens First at the time of
conversion will retain their positions after the conversion.
Deposit Accounts and Loans. Citizens First's deposit accounts, account
balances and existing Federal Deposit Insurance Corporation insurance coverage
of deposit accounts will not be affected by the conversion. Furthermore, the
conversion will not affect the loan accounts, loan balances or obligations of
borrowers under their individual contractual arrangements with Citizens First.
Effect on Voting Rights. Voting rights in Citizens First, as a mutual savings
bank, belong to its depositor members. After the conversion, depositors will no
longer have voting rights in Citizens First and, therefore, will no longer be
able to elect directors of Citizens First or control its affairs. Instead,
Citizens First Bancorp, as the sole stockholder of Citizens First, will possess
all voting rights in Citizens First. The holders of the common stock of
Citizens First Bancorp will possess all voting rights in Citizens First Bancorp.
Depositors of Citizens First will not have voting rights after the conversion
except to the extent that they become stockholders of Citizens First Bancorp by
purchasing common stock.
Tax Effects. Citizens First has received an opinion from Muldoon Murphy &
Faucette LLP, Washington, D.C., that addresses all the material federal income
tax consequences of the conversion. The opinion, which relies upon factual
representations given by Citizens First, concludes that the conversion will
constitute a nontaxable reorganization under Section 368(a)(1)(F) of the
Internal Revenue Code. Among other things, the opinion states the following,
which constitutes all of the material federal tax consequences of the
conversion:
. no gain or loss will be recognized to Citizens First in its mutual or
stock form by reason of the conversion;
. no gain or loss will be recognized to Citizens First's account holders
upon the issuance to them of accounts in Citizens First immediately
after the conversion, in the same dollar amounts and on the same terms
and conditions as their accounts at Citizens First in its mutual form
plus interest in the liquidation account;
. the tax basis of account holders' accounts in Citizens First immediately
after the conversion will be the same as the tax basis of their accounts
immediately before conversion;
. the tax basis of each account holder's interest in the liquidation
account will be equal to the value, if any, of that interest;
. the tax basis of the common stock purchased in the conversion will be
the amount paid and the holding period for the stock will begin on the
date of purchase; and
. no gain or loss will be recognized to account holders upon the receipt
or exercise of subscription rights in the conversion, except if
subscription rights are deemed to have value as discussed below.
Unlike a private letter ruling issued by the Internal Revenue Service, an
opinion of counsel is not binding on the Internal Revenue Service and the
Internal Revenue Service could disagree with the conclusions reached in the
opinion. If there is a disagreement, no assurance can be given that the
conclusions reached in an opinion of counsel would be sustained by a court if
contested by the Internal Revenue Service.
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Based upon past rulings issued by the Internal Revenue Service, the opinion
provides that the receipt of subscription rights by eligible account holders,
supplemental eligible account holders and other individuals under the plan of
conversion will be taxable if the subscription rights are deemed to have a fair
market value. Keller, whose findings are not binding on the Internal Revenue
Service, has issued a letter indicating that the subscription rights do not have
any value, based on the fact that the rights are acquired by the recipients
without cost, are nontransferable and of short duration and afford the
recipients the right only to purchase shares of the common stock at a price
equal to its estimated fair market value, which will be the same price paid by
purchasers in the community offering for unsubscribed shares of common stock.
If the subscription rights are deemed to have a fair market value, the receipt
of the rights may only be taxable to those persons who exercise their
subscription rights. Citizens First could also recognize a gain on the
distribution of subscription rights. Holders of subscription rights are
encouraged to consult with their own tax advisors as to the tax consequences if
the subscription rights are deemed to have a fair market value.
Citizens First has also received an opinion from Plante & Moran, LLP,
Auburn Hills, Michigan, that, assuming the conversion does not result in any
federal income tax liability to Citizens First, its account holders, or Citizens
First Bancorp, implementation of the plan of conversion will not result in any
Michigan income tax liability to those entities or persons.
The opinions of Muldoon Murphy & Faucette LLP and Plante & Moran, LLP, and
the letter from Keller are filed as exhibits to the registration statement that
Citizens First Bancorp has filed with the Securities and Exchange Commission.
See "Where You Can Find More Information."
You should consult with your own tax advisor regarding the tax consequences
of the conversion particular to you.
Liquidation Account. In the unlikely event of a complete liquidation of
Citizens First, before the conversion, each depositor in Citizens First would
receive a pro rata share of any assets of Citizens First remaining after payment
of claims of all creditors, including the claims of all depositors up to the
withdrawal value of their accounts. Each depositor would receive a pro rata
share of the remaining assets in the same proportion as the value of his or her
deposit account to the total value of all deposit accounts in Citizens First at
the time of liquidation.
After the conversion, holders of withdrawable deposit(s) in Citizens First,
including certificates of deposit, will not be entitled to share in any residual
assets upon liquidation of Citizens First. However, under applicable
regulations, Citizens First will, at the time of the conversion, establish a
liquidation account in an amount equal to its total equity as of the date of the
latest statement of financial condition contained in the final prospectus
relating to the conversion.
Citizens First will maintain the liquidation account after the conversion
for the benefit of eligible account holders and supplemental eligible account
holders who retain their savings accounts in Citizens First. Each eligible
account holder and supplemental eligible account holder will, with respect to
each deposit account held, have a related inchoate interest in a sub-account
portion of the liquidation account balance.
The initial sub-account balance for a savings account held by an eligible
account holder or a supplemental eligible account holder will be determined by
multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of the holder's "qualifying deposit" in the
deposit account and the denominator is the total amount of the "qualifying
deposits" of all eligible or supplemental eligible account holders. The initial
subaccount balance will not be increased, but it will be decreased as provided
below.
If the deposit balance in any deposit account of an eligible account holder
or supplemental eligible account holder at the close of business on any annual
closing day of Citizens First (which is March 31) after July 31, 1999, or
December 31, 2000 is less than the lesser of the deposit balance in a deposit
account at the close of business on
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any other annual closing date after July 31, 1999 or December 31, 2000, or the
amount of the "qualifying deposit" in a savings account on July 31, 1999 or
December 31, 2000, then the subaccount balance for a savings account will be
adjusted by reducing the subaccount balance in an amount proportionate to the
reduction in the savings balance. Once reduced, the subaccount balance will not
be subsequently increased, notwithstanding any increase in the savings balance
of the related savings account. If any savings account is closed, the related
subaccount balance will be reduced to zero.
Upon a complete liquidation of Citizens First, each eligible account holder
and supplemental eligible account holder will be entitled to receive a
liquidation distribution from the liquidation account in the amount of the then
current adjusted subaccount balance(s) for deposit account(s) held by the holder
before any liquidation distribution may be made to stockholders. No merger,
consolidation, bulk purchase of assets with assumptions of savings accounts and
other liabilities or similar transactions with another federally insured
institution in which Citizens First is not the surviving institution will be
considered to be a complete liquidation. In any of these transactions, the
liquidation account will be assumed by the surviving institution.
In the unlikely event Citizens First is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to Citizens First Bancorp as the sole stockholder of Citizens
First.
Establishment of the Charitable Foundation
General. In furtherance of Citizens First's commitment to its local
community, the plan of conversion provides that Citizens First and Citizens
First Bancorp will establish Citizens First Foundation and will fund it with
Citizens First Bancorp common stock, as further described below. Citizens First
Bancorp and Citizens First believe that the funding of Citizens First Foundation
with Citizens First Bancorp common stock is a means of establishing a bond
between Citizens First and its community and thereby enables Citizens First's
community to share in the potential growth and success of Citizens First Bancorp
over the long-term. By further enhancing Citizens First's visibility and
reputation in its local community, Citizens First believes that the foundation
will enhance the long-term value of Citizens First's community banking
franchise.
Purpose of Citizens First Foundation. Citizens First emphasizes community
lending and community activities. In 1998, Citizens First formed Citizens First
Savings Charitable Foundation, Inc., a foundation that provides grants to public
charities that are operated for charitable, scientific, literary or educational
purpose, within the communities in which Citizens First operates. See "Business
of Citizens First Savings Bank - Citizens First Savings Charitable Foundation,
Inc."
Citizens First Foundation is being formed to complement Citizens First's
existing community activities. Citizens First intends to continue to emphasize
community lending and community activities following the conversion. However,
such activities are not Citizens First's sole corporate purpose. Citizens First
Foundation, conversely, will be completely dedicated to community activities and
the promotion of charitable causes, and may be able to support such activities
in manners that are not presently available to Citizens First. Citizens First
believes that Citizens First Foundation will enable Citizens First Bancorp and
Citizens First to assist the communities in which Citizens First operates in
areas beyond community development and lending and will enhance its current
activities under the CRA. Citizens First received a "Satisfactory" CRA rating
in its last CRA examination by the Federal Deposit Insurance Corporation and the
Michigan Office of Financial and Insurance Services.
The Board of Directors believes the establishment of Citizens First
Foundation is consistent with Citizens First's commitment to community service.
The Board further believes that the funding of Citizens First Foundation with
Citizens First Bancorp common stock will allow Citizens First's community to
share in the potential growth and success of Citizens First Bancorp long after
the conversion. Citizens First Foundation will accomplish that goal
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by providing for continued ties between it and Citizens First, thereby forming a
partnership within the communities in which Citizens First operates.
Citizens First, however, does not expect the contribution to Citizens First
Foundation to take the place of Citizens First's traditional community lending
and charitable activities. For the five months ended August 31, 2000, Citizens
First and Citizens First Savings Charitable Foundation contributed approximately
$188,000 to community organizations. Citizens First and Citizens First Savings
Charitable Foundation expect to continue making charitable contributions within
its communities. Upon conversion, Citizens First Bancorp intends to contribute
to Citizens First Foundation shares of its common stock equal to 8% of the
common stock sold in the conversion, or stock valued at between approximately
$4.5 million based on the purchase price of $10.00 per share, if 5,669,500
shares are sold in the conversion and approximately $6.1 million, based on the
purchase price of $10.00 per share if 7,670,500 shares are sold in the
conversion. If the number of shares sold in the conversion is increased to
8,821,075 shares, the foundation would be funded with common stock valued at
$7.1 million. The conversion presents Citizens First and Citizens First Bancorp
with a unique opportunity to provide a substantial and continuing benefit to the
communities in which Citizens First operates, and to receive the associated tax
benefits, without any significant cash outlay by Citizens First and without any
significant adverse impact to the depositors of Citizens First.
Structure of Citizens First Foundation. Citizens First Foundation will be
incorporated under Delaware law as a non-stock corporation. Under its Bylaws,
Citizens First Foundation's Board of Directors will be composed of individuals
who are existing or former directors or officers of Citizens First Bancorp or
Citizens First. The Certificate of Incorporation of Citizens First Foundation
will provide that the corporation is organized exclusively for charitable
purposes as set forth in Section 501(c)(3) of the Internal Revenue Code.
Citizens First Foundation's Certificate of Incorporation will further provide
that no part of the net earnings of the foundation will inure to the benefit of,
or be distributable to, its directors, officers or members.
The Board of Directors of Citizens First Foundation will be responsible for
establishing its grant and donation policies, consistent with the purposes for
which it was established. As directors of a nonprofit corporation, directors of
Citizens First Foundation will at all times be bound by their fiduciary duty to
advance Citizens First Foundation's charitable goals, to protect its assets and
to act in a manner consistent with the charitable purposes for which Citizens
First Foundation was established. The directors of Citizens First Foundation
will also be responsible for directing the activities of the foundation,
including the management and voting of the common stock of Citizens First
Bancorp held by Citizens First Foundation. However, all shares of common stock
held by Citizens First Foundation must be voted in the same ratio as all other
shares of the common stock on all proposals considered by stockholders of
Citizens First Bancorp.
Citizens First Foundation's place of business will be located at Citizens
First Bancorp' administrative offices. The Board of Directors of Citizens First
Foundation will appoint such officers and employees as may be necessary to
manage its operations.
Citizens First Foundation will receive working capital from: (1) any
dividends that may be paid on Citizens First Bancorp's common stock in the
future; (2) loans collateralized by the common stock within the limits of
applicable federal and state laws, or (3) the proceeds of the sale of any of the
common stock in the open market from time to time. As a private foundation
under Section 501(c)(3) of the Internal Revenue Code, Citizens First Foundation
will be required to distribute annually in grants or donations, a minimum of 5%
of the average fair market value of its net investment assets. One of the
conditions imposed on the gift of common stock by Citizens First Bancorp is that
the amount of common stock that may be sold by Citizens First Foundation in any
one year shall not exceed 5% of the average market value of the assets held by
Citizens First Foundation, except where the Board of Directors of Citizens First
Foundation determines that the failure to sell an amount of common stock greater
than such amount would result in a long-term reduction of the value of its
assets and/or would otherwise jeopardize its capacity to carry out its
charitable purposes. Upon completion of the conversion and the contribution
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of shares to Citizens First Foundation immediately following the conversion,
Citizens First Bancorp will have 6,123,060 and 8,284,140 shares issued and
outstanding at the minimum and maximum of the offering range. The gift of common
stock to Citizens First Foundation by Citizens First Bancorp will increase the
number of shares outstanding and, therefore, dilute the voting and ownership
interests of stockholders in Citizens First Bancorp by 7.4%, compared to their
interests in Citizens First Bancorp if Citizens First Foundation were not
established. For additional discussion of the dilutive effect, see "Pro Forma
Data."
Tax Considerations. Citizens First Bancorp and Citizens First have been
advised by their independent tax advisors that an organization created for the
above purposes should qualify as a Section 501(c)(3) exempt organization under
the Internal Revenue Code and should be classified as a private foundation.
Citizens First Foundation will submit a request to the Internal Revenue Service
to be recognized as an exempt organization. As long as Citizens First
Foundation files its application for tax-exempt status within 15 months from the
date of its organization, and provided the Internal Revenue Service approves the
application, its effective date as a Section 501(c)(3) organization will be the
date of its organization. Citizens First Bancorp's independent tax advisors,
however, have not rendered any advice on whether Citizens First Foundation's tax
exempt status will be affected by the requirement of the regulatory authorities
that all shares of common stock of Citizens First Bancorp held by Citizens First
Foundation must be voted in the same ratio as all other outstanding shares of
common stock of Citizens First Bancorp on all proposals considered by
stockholders of Citizens First Bancorp. See "--Regulatory Conditions Imposed on
Citizens First Foundation."
Delaware law authorizes Citizens First Bancorp to make charitable
contributions. Delaware case law has recognized the benefits of such
contributions to a Delaware corporation. Delaware case law provides that a
charitable gift must be within reasonable limits as to amount and purpose to be
valid. Citizens First Bancorp and Citizens First believe that the conversion
presents a unique opportunity to establish and fund a charitable foundation
given the substantial amount of additional capital being raised. In making such
a determination, Citizens First Bancorp and Citizens First considered the
dilutive impact of the contribution of common stock to Citizens First Foundation
on the amount of common stock to be sold in the conversion. Citizens First
Bancorp and Citizens First believe that the contribution to Citizens First
Foundation in excess of the 10% annual limitation on charitable deductions
described below is justified given Citizens First's capital position and its
earnings, the substantial additional capital being raised in the conversion and
the potential benefits of Citizens First Foundation within the communities in
which Citizens First operates. See "Capitalization," "Regulatory Capital
Compliance," and "Comparison of Independent Valuation and Pro Forma Financial
Information With and Without the Foundation." The amount of the contribution
will not adversely affect the financial condition of Citizens First Bancorp and
Citizens First. Citizens First Bancorp and Citizens First therefore believe
that the amount of the charitable contribution is reasonable given Citizens
First Bancorp's and Citizens First's pro forma capital positions and does not
raise safety and soundness concerns.
Citizens First Bancorp and Citizens First have received an opinion from
their independent tax advisors that Citizens First Bancorp's contribution of its
stock to Citizens First Foundation should not constitute an act of self-dealing
and that Citizens First Bancorp should be entitled to a deduction in the amount
of the fair market value of the stock at the time of the contribution less the
nominal amount that Citizens First Foundation is required to pay Citizens First
Bancorp for such stock. Citizens First Bancorp is only permitted to deduct an
amount equal to 10% of its annual taxable income in any one year. However,
Citizens First Bancorp is permitted under the Internal Revenue Code to carry the
excess contribution over the five year period following the contribution to
Citizens First Foundation. Citizens First Bancorp estimates that substantially
all of the contribution should be deductible over the six-year period. However,
Citizens First Bancorp does not have any assurance that the Internal Revenue
Service will grant tax-exempt status to the foundation. Furthermore, even if
the contribution is deductible, Citizens First Bancorp may not have sufficient
earnings to be able to use the deduction in full. Neither Citizens First
Bancorp nor Citizens First expect to make any further contributions to Citizens
First Foundation or to Citizens First Savings Charitable Foundation within the
first five years following the initial contribution, unless such contributions
would be deductible under the Internal Revenue Code. Any such decisions would
be based on an assessment of, among
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other factors, the financial condition of Citizens First Bancorp and Citizens
First at that time, the interests of stockholders and depositors of Citizens
First Bancorp and Citizens First, and the financial condition and operations of
the foundations.
Although Citizens First Bancorp and Citizens First have received an opinion
from their independent tax advisors that Citizens First Bancorp should be
entitled to a deduction for the charitable contribution, there can be no
assurances that the Internal Revenue Service will recognize Citizens First
Foundation as a Section 501(c)(3) exempt organization or that the deduction will
be permitted. In such event, Citizens First Bancorp's contribution to Citizens
First Foundation would be expensed without tax benefit, resulting in a reduction
in earnings in the year in which the Internal Revenue Service makes such a
determination. See "Risk Factors--Contribution to Citizens First Foundation may
not be tax deductible which could hurt Citizens First Bancorp's profits."
As a private foundation, earnings and gains, if any, from the sale of
common stock or other assets are exempt from federal and state income taxation.
However, investment income, such as interest, dividends and capital gains, is
generally taxed at a rate of 2.0%. Citizens First Foundation will be required
to file an information return with the Internal Revenue Service within four and
one-half months after the close of its fiscal year. Citizens First Foundation
will be required to make its annual information return available for public
inspection for a three-year period. The information return for a private
foundation must include, among other things, an itemized list of all grants made
or approved, showing the amount of each grant, the recipient, any relationship
between a grant recipient and the foundation's managers and a concise statement
of the purpose of each grant.
Regulatory Conditions Imposed on Citizens First Foundation. Establishment
of Citizens First Foundation is expected to be subject to the following
conditions to be agreed to by Citizens First Foundation as a condition to
receiving the Federal Deposit Insurance Corporation's non-objection to the
conversion:
1. the Federal Deposit Insurance Corporation can examine the foundation;
2. the foundation must comply with all supervisory directives imposed by
the Federal Deposit Insurance Corporation;
3. the foundation will operate according to written policies adopted by its
board of directors, including a conflict of interest policy acceptable
to the Federal Deposit Insurance Corporation;
4. the foundation shall not engage in self-dealing and shall comply with
all laws necessary to maintain its tax-exempt status under the Internal
Revenue Code; and
5. the foundation must vote its shares in the same ratio as all other
holders of shares.
The Federal Deposit Insurance Corporation may waive the voting restriction
under certain circumstances, such as if the restriction would result in the loss
of the foundation's tax-exempt status. The Federal Deposit Insurance
Corporation may impose additional conditions as part of the granting of such
waiver.
Citizens First Foundation will also need to comply with substantially
similar conditions imposed by the State of Michigan. Additionally, the
establishment and funding of Citizens First Foundation must be approved by
Citizens First's voting members at a special meeting called for such purpose.
Subscription Offering and Subscription Rights
Under the plan of conversion, Citizens First has granted rights to
subscribe for Citizens First Bancorp common stock to the following persons in
the following order of priority:
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1. Persons with deposits in Citizens First with balances aggregating $50 or
more ("qualifying deposits") as of July 31, 1999 ("eligible account
holders"). For this purpose, deposit accounts include all savings, time,
and demand accounts, not including escrow accounts.
2. Tax-qualified benefit plans of Citizens First Bancorp or Citizens First,
including Citizens First's employee stock ownership plan.
3. Persons with qualifying deposits in Citizens First as of December 31,
2000 ("supplemental eligible account holders").
The amount of common stock that any person may purchase will depend on the
availability of the common stock after satisfaction of all subscriptions having
prior rights in the subscription offering and to the maximum and minimum
purchase limitations set forth in the plan of conversion. See "--Limitations on
Purchases of Shares." All persons on a joint account will be counted as a
single depositor for purposes of determining the maximum amount that may be
subscribed for by owners of a joint account.
Subscription rights are nontransferable. If you sell or otherwise transfer
your rights to subscribe for common stock in the subscription offering or
subscribe for common stock on behalf of another person, you may forfeit those
rights and face possible further sanctions and penalties imposed by the Michigan
Office of Financial and Insurance Services, the Federal Deposit Insurance
Corporation or another agency of the U.S. Government. If you exercise your
subscription rights, you will be required to certify that you are purchasing
shares solely for your own account and that you have no agreement or
understanding with any other person for the sale or transfer of the shares. Once
tendered, subscription orders cannot be revoked without the consent of Citizens
First and Citizens First Bancorp.
Category 1: Eligible Account Holders. Each eligible account holder has the
right to subscribe for up to the greater of:
. $250,000 of common stock (which equals 25,000 shares);
. one-tenth of one percent of the total offering of common stock; or
. 15 times the product, rounded down to the next whole number, obtained by
multiplying the total number of shares of common stock to be issued by a
fraction of which the numerator is the amount of qualifying deposit of
the eligible account holder and the denominator is the total amount of
qualifying deposits of all eligible account holders.
If there are not sufficient shares to satisfy all subscriptions by eligible
account holders, shares first will be allocated so as to permit each subscribing
eligible account holder, if possible, to purchase a number of shares sufficient
to make the person's total allocation equal 100 shares or the number of shares
actually subscribed for, whichever is less. After that, unallocated shares will
be allocated among the remaining subscribing eligible account holders whose
subscriptions remain unfilled in the proportion that the amounts of their
respective qualifying deposits bear to the total qualifying deposits of all
remaining eligible account holders whose subscriptions remain unfilled.
Subscription rights of eligible account holders who are also executive officers
or directors of Citizens First or their associates will be subordinated to the
subscription rights of other eligible account holders to the extent attributable
to increased deposits in Citizens First in the one year period preceding July
31, 1999.
To ensure a proper allocation of stock, each eligible account holder must
list on his or her stock order form all deposit accounts in which such eligible
account holder had an ownership interest at July 31, 1999. Failure to list an
account, or providing incorrect information, could result in the loss of all or
part of a subscriber's stock allocation.
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Category 2: Tax-Qualified Employee Benefit Plans. Citizens First's tax-
qualified employee benefit plans have the right to purchase up to 10% of the
shares of common stock issued in the conversion. As a tax-qualified employee
benefit plan, Citizens First's employee stock ownership plan intends to purchase
8% of the shares of common stock issued in the conversion. Subscriptions by the
employee stock ownership plan will not be aggregated with shares of common stock
purchased by any other participants in the offering, including subscriptions by
the officers and directors of Citizens First, for the purpose of applying the
purchase limitations in the plan of conversion. If the plan's subscription is
not filled in its entirety, the employee stock ownership plan may purchase
shares in the open market or may purchase shares directly from Citizens First
Bancorp with the approval of the Michigan Office of Financial and Insurance
Services and the Federal Deposit Insurance Corporation, if required.
Category 3: Supplemental Eligible Account Holders. Each supplemental
eligible account holder has the right to subscribe for up to the greater of:
. $250,000 of common stock (which equals 25,000 shares);
. one-tenth of one percent of the total offering of common stock; or
. 15 times the product, rounded down to the next whole number, obtained by
multiplying the total number of shares of common stock to be issued by a
fraction of which the numerator is the amount of qualifying deposit of
the supplemental eligible account holder and the denominator is the
total amount of qualifying deposits of all supplemental eligible account
holders.
If eligible account holders and Citizens First's employee stock ownership
plan subscribe for all of the shares being sold by Citizens First Bancorp, no
shares will be available for supplemental eligible account holders. If shares
are available for supplemental eligible account holders but there are not
sufficient shares to satisfy all subscriptions by supplemental eligible account
holders, shares first will be allocated so as to permit each subscribing
supplemental eligible account holder, if possible, to purchase a number of
shares sufficient to make that person's total allocation equal 100 shares or the
number of shares actually subscribed for, whichever is less. After that,
unallocated shares will be allocated among the remaining subscribing
supplemental eligible account holders whose subscriptions remain unfilled in the
proportion that the amounts of their respective qualifying deposits bear to the
total qualifying deposits of all remaining supplemental eligible account holders
whose subscriptions remain unfilled.
To ensure a proper allocation of stock, each supplemental eligible account
holder must list on his or her stock order form all deposit accounts in which
such supplemental eligible account holder had an ownership interest at December
31, 2000. Failure to list an account, or providing incorrect information, could
result in the loss of all or part of a subscriber's stock allocation.
Expiration Date for the Subscription Offering. The subscription offering
and all subscription rights under the plan of conversion will expire at 12:00
Noon, Eastern time, on ___________, 2001. Citizens First will not accept orders
for common stock in the subscription offering received in hand after that time.
Citizens First Bancorp and Citizens First may extend the subscription offering
to up to ______________, 2001 without regulatory approval. Citizens First
Bancorp and Citizens First will make reasonable attempts to provide a prospectus
and related offering materials to holders of subscription rights, however all
subscription rights will expire on the expiration date, as extended, whether or
not Citizens First has been able to locate each person entitled to subscription
rights.
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Applicable regulations require that Citizens First Bancorp complete the
sale of common stock within 45 days after the close of the subscription
offering. If the sale of the common stock is not completed within that period,
all funds received will be returned promptly with interest at Citizens First's
passbook rate and all withdrawal authorizations will be canceled unless Citizens
First receives approval of the State of Michigan and the Federal Deposit
Insurance Corporation, if required, to extend the time for completing the
offering. If regulatory approval of an extension of the time period has been
granted, all subscribers will be notified of the extension and of the duration
of any extension that has been granted, and will be given the right to increase,
decrease or rescind their orders. If Citizens First Bancorp does not receive an
affirmative response from a subscriber to any resolicitation, the subscriber's
order will be rescinded and all funds received will be promptly returned with
interest, or withdrawal authorizations will be canceled. No single extension can
exceed 90 days, and all extensions in the aggregate, may not last beyond
___________________, 2003.
Persons in Non-Qualified States. Citizens First Bancorp and Citizens First
will make reasonable efforts to comply with the securities laws of all states in
the United States in which persons entitled to subscribe for stock under the
plan of conversion reside. However, Citizens First Bancorp and Citizens First
are not required to offer stock in the subscription offering to any person who
resides in a foreign country or who resides in a state of the United States in
which only a small number of persons otherwise eligible to subscribe for shares
of common stock reside and where Citizens First Bancorp or Citizens First
determines that compliance with that state's securities laws would be
impracticable for reasons of cost or otherwise. Citizens First may determine
compliance with state securities laws to be impracticable based on a request or
requirement that Citizens First Bancorp and Citizens First or their officers or
directors register as a broker, dealer, salesman or selling agent under the
securities laws of the state, or a request or requirement to register or
otherwise qualify the subscription rights or common stock for sale or submit any
filing in the state.
Community Offering
To the extent that shares remain available for purchase after satisfaction
of all subscriptions received in the subscription offering, Citizens First
Bancorp may offer shares pursuant to the plan of conversion in a community
offering to the following persons in the following order of priority:
1. Persons who are residents of Huron, Lapeer, Sanilac and St. Clair
Counties, Michigan.
2. Other persons to whom Citizens First delivers a prospectus.
Purchasers in the community offering, together with any associate or
persons acting in concert with the purchaser, are eligible to purchase up to
$250,000 of common stock (which equals 25,000 shares). If not enough shares are
available to fill orders in the community offering, the available shares will be
allocated first to each subscriber whose order is accepted by Citizens First in
an amount equal to the lesser of 100 shares or the number of shares subscribed
for by each such subscriber, if possible. After that, unallocated shares will
be allocated among such subscribers whose orders remain unsatisfied on a 100
shares per order basis until all such orders have been filled or the remaining
shares have been allocated.
The community offering, if held, may commence concurrently with or
subsequent to the subscription offering and will terminate no later than 45 days
after the close of the subscription offering unless extended by Citizens First
Bancorp and Citizens First, with approval of the State of Michigan and the
Federal Deposit Insurance Corporation, if required. Citizens First Bancorp
presently intends to terminate the community offering as soon as it has received
orders for all shares available for purchase in the conversion. If Citizens
First receives regulatory approval of an extension of time, all subscribers will
be notified of the extension and of the duration of any extension that has been
granted, and will be given the right to increase, decrease or rescind their
orders. If Citizens First Bancorp does not receive an affirmative response from
a subscriber to any resolicitation, the subscriber's order will be rescinded and
all funds received will be promptly returned with interest. Citizens First and
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Citizens First Bancorp have the absolute right to accept or reject in whole or
in part any orders to purchase shares in the community offering. If any order
is rejected in part, the purchaser does not have the right to cancel the
remainder of the order.
The opportunity to subscribe for shares of common stock in the community
offering is subject to the right of Citizens First Bancorp and Citizens First to
reject orders, in whole or part, either at the time of receipt of an order or as
soon as practicable following the expiration date of the offering. If your
order is rejected in part, you will not have the right to cancel the remainder
of your order.
Syndicated Community Offering
The plan of conversion provides that, if necessary, all shares of common
stock not purchased in the subscription offering and community offering may be
offered for sale to the general public in a syndicated community offering
through a syndicate of registered broker-dealers to be formed and managed by
Trident Securities, acting as agent of Citizens First Bancorp. Alternatively,
Citizens First Bancorp may sell any remaining shares in an underwritten public
offering. Citizens First and Citizens First Bancorp have the right to reject
orders, in whole or in part, in their sole discretion in the syndicated
community offering. Neither Trident Securities nor any registered broker-dealer
will have any obligation to take or purchase any shares of the common stock in
the syndicated community offering; however, Trident Securities has agreed to use
its best efforts in the sale of shares in the syndicated community offering.
Citizens First Bancorp has not selected any particular broker-dealers to
participate in a syndicated community offering. The syndicated community
offering will terminate no later than 45 days after the expiration of the
subscription offering, unless extended by Citizens First Bancorp and Citizens
First, with approval of the Michigan Office of Financial and Insurance Services
and the Federal Deposit Insurance Corporation, if required. See "--Community
Offering" above for a discussion of rights of subscribers in the event an
extension is granted.
The opportunity to subscribe for shares of common stock in the syndicated
community offering is subject to the right of Citizens First Bancorp and
Citizens First to reject orders, in whole or part, either at the time of receipt
of an order or as soon as practicable following the expiration date of the
offering. If your order is rejected in part, you will not have the right to
cancel the remainder of your order.
Stock sold in the syndicated community offering also will be sold at the
$10.00 purchase price. See "--Stock Pricing and Number of Shares to be Issued."
Purchasers in the syndicated community offering, together with any associate or
persons acting in concert with the purchaser, are eligible to purchase up to
$250,000 of common stock (which equals 25,000 shares).
If Citizens First is unable to find purchasers from the general public for
all unsubscribed shares, other purchase arrangements will be made by the Board
of Directors of Citizens First, if feasible. Other purchase arrangements must
be approved by the Michigan Office of Financial and Insurance Services and the
Federal Deposit Insurance Corporation, if required, and may provide for
purchases for investment purposes by directors, officers, their associates and
other persons in excess of the limitations provided in the plan of conversion
and in excess of the proposed director purchases discussed earlier, although no
purchases are currently intended. If other purchase arrangements cannot be
made, the plan of conversion will terminate.
Marketing and Underwriting Arrangements
Citizens First and Citizens First Bancorp have retained Trident Securities
to consult with and advise Citizens First and to assist Citizens First and
Citizens First Bancorp, on a best efforts basis, in the distribution of shares
in the offering. Trident Securities is a broker-dealer registered with the
Securities and Exchange Commission and a member of the National Association of
Securities Dealers, Inc. Trident Securities will assist Citizens First in the
conversion by acting as marketing advisor with respect to the subscription
offering and will represent Citizens
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First as placement agent on a best efforts basis in the sale of the common stock
in the community offering if one is held. Trident Securities will conduct
training sessions with directors, officers and employees of Citizens First
regarding the conversion process, assist in the establishment and supervision of
Citizens First's stock information center and, with management's input, train
Citizens First's staff to record properly and tabulate orders for the purchase
of common stock and to respond appropriately to customer inquiries.
Based on negotiations between Citizens First and Citizens First Bancorp
concerning the fee structure, Trident Securities will receive a fee equal to
1.50% of the aggregate amount of all common stock sold in the subscription and
community offerings, excluding any shares sold to Citizens First's directors,
executive officers and their associates and Citizens First's employee stock
ownership plan. Total marketing fees paid to Trident Securities are expected to
range from $746,000 to $1.0 million from the minimum to the maximum of the
offering range. Citizens First will pay Trident Securities's fee upon
completion of the conversion. Citizens First will reimburse Trident Securities
for its reasonable out-of-pocket expenses, including legal fees in an amount not
to exceed $75,000. In addition, Trident Securities will receive a records
management fee of $40,000.
Trident Securities has not prepared any report or opinion constituting a
recommendation or advice to Citizens First Bancorp or Citizens First or to
persons who subscribe for stock, nor has it prepared an opinion as to the
fairness to Citizens First Bancorp or Citizens First of the purchase price or
the terms of the stock to be sold. Trident Securities expresses no opinion as
to the prices at which common stock to be issued may trade. Trident Securities
and selected dealers participating in the syndicated community offering may
receive a commission in the syndicated community offering in a maximum amount to
be agreed upon by Citizens First Bancorp and Citizens First to reflect market
requirements at the time of the allocation of shares in the syndicated community
offering but in no event will the commission exceed 4.5% of the aggregate dollar
amount of any common stock sold in the syndicated community offering.
With certain limitations, Citizens First Bancorp and Citizens First have
also agreed to indemnify Trident Securities against liabilities and expenses,
including legal fees, incurred in connection with certain claims or litigation
arising out of or based upon the performance of Trident Securities of its
services in connection with the conversion.
Description of Sales Activities
Citizens First Bancorp will offer the common stock in the subscription
offering and community offering principally by the distribution of this
prospectus and through activities conducted at Citizens First's stock
information center. The stock information center is expected to operate during
normal business hours throughout the subscription offering and community
offering. It is expected that at any particular time one or more Trident
Securities employees will be working at the stock information center. Employees
of Trident Securities will be responsible for mailing materials relating to the
offering, responding to questions regarding the conversion and the offering and
processing stock orders.
Sales of common stock will be made by registered representatives affiliated
with Trident Securities or by the selected dealers managed by Trident
Securities. The management and employees of Citizens First may participate in
the offering in clerical capacities, providing administrative support in
effecting sales transactions or, when permitted by state securities laws,
answering questions of a mechanical nature relating to the proper execution of
the order form. Management of Citizens First may answer questions regarding the
business of Citizens First when permitted by state securities laws. Other
questions of prospective purchasers, including questions as to the advisability
or nature of the investment, will be directed to registered representatives. The
management and employees of Citizens First Bancorp and Citizens First have been
instructed not to solicit offers to purchase common stock or provide advice
regarding the purchase of common stock.
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No officer, director or employee of Citizens First or Citizens First
Bancorp will be compensated, directly or indirectly, for any activities in
connection with the offer or sale of securities issued in the conversion.
None of Citizens First's personnel participating in the offering is
registered or licensed as a broker or dealer or an agent of a broker or dealer.
Citizens First's personnel will assist in the above-described sales activities
under an exemption from registration as a broker or dealer provided by Rule 3a4-
1 promulgated under the Securities Exchange Act of 1934. Rule 3a4-1 generally
provides that an "associated person of an issuer" of securities will not be
deemed a broker solely by reason of participation in the sale of securities of
the issuer if the associated person meets certain conditions. These conditions
include, but are not limited to, that the associated person participating in the
sale of an issuer's securities not be compensated in connection with the
offering at the time of participation, that the person not be associated with a
broker or dealer and that the person observe certain limitations on his or her
participation in the sale of securities. For purposes of this exemption,
"associated person of an issuer" is defined to include any person who is a
director, officer or employee of the issuer or a company that controls, is
controlled by or is under common control with the issuer.
Procedure for Purchasing Shares in the Subscription and Community Offerings
Use of Order Forms. To purchase shares in the subscription offering, you
must submit a properly completed and executed order form to Citizens First by
12:00 Noon, Eastern time, on _________ __, 2001. Your order form must be
accompanied by full payment for all of the shares subscribed for or include
appropriate authorization in the space provided on the order form for withdrawal
of full payment from a deposit account with Citizens First. In order to
purchase shares in the community offering, you must submit a properly completed
and executed order form to Citizens First, accompanied by the required payment
for each share subscribed for, before the community offering terminates, which
may be on or at any time after the end of the subscription offering.
In order to ensure that your stock purchase eligibility and priority are
properly identified, you must list all accounts on the order form, giving all
names in each account and the account number.
Citizens First Bancorp need not accept order forms that are received after
the expiration of the subscription offering or community offering, as the case
may be, or that are executed defectively or that are received without full
payment or without appropriate withdrawal instructions. In addition, Citizens
First and Citizens First Bancorp are not obligated to accept orders submitted on
photocopied or facsimilied stock order forms. Citizens First Bancorp and
Citizens First have the right to waive or permit the correction of incomplete or
improperly executed order forms, but do not represent that they will do so.
Notwithstanding the foregoing, Citizens First and Citizens First Bancorp will
have the right, each in their sole discretion, to permit institutional investors
to submit irrevocable orders together with a legally binding commitment for
payment and to thereafter pay for the shares of common stock for which they
subscribe in the community offering at any time prior to 48 hours before the
completion of the conversion. Under the plan of conversion, the interpretation
by Citizens First Bancorp and Citizens First of the terms and conditions of the
plan of conversion and of the order form will be final. Once received, an
executed order form may not be modified, amended or rescinded without the
consent of Citizens First unless the conversion has not been completed within 45
days after the end of the subscription offering, unless extended.
The reverse side of the order form contains a regulatory mandated
certification form. Citizens First Bancorp will not accept order forms on which
the certification form is not executed. By executing and returning the
certification form, you will be certifying that you received this prospectus and
acknowledging that the common stock is not a deposit account and is not insured
or guaranteed by any federal or state governmental agency. You will also be
acknowledging that you received disclosure concerning the risks involved in this
offering. The certification form could be used as support to show that you
understand the nature of this investment.
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To ensure that each purchaser receives a prospectus at least 48 hours
before the end of the offering as required by Rule 15c2-8 under the Securities
Exchange Act of 1934, no prospectus will be mailed any later than five days
before that date or hand delivered any later than two days before that date.
Execution of the order form will confirm receipt or delivery under Rule 15c2-8.
Order forms will be distributed only when preceded or accompanied by a
prospectus.
Payment for Shares. Payment for subscriptions may be made by cash, check,
bank draft or money order, or by authorization of withdrawal from deposit
accounts maintained with Citizens First. Appropriate means by which withdrawals
may be authorized are provided on the order form. No wire transfers or third
party checks will be accepted. Interest will be paid on payments made by cash,
check, bank draft or money order at Citizens First's passbook rate from the date
payment is received at the stock information center until the completion or
termination of the conversion. Any orders received in the subscription or
community offering which aggregate $25,000 or more must be paid by official or
certified check or by withdrawal authorization from a deposit account at
Citizens First. If payment is made by authorization of withdrawal from deposit
accounts, the funds authorized to be withdrawn from a deposit account will
continue to accrue interest at the contractual rates until completion or
termination of the conversion, unless the certificate matures after the date of
receipt of the order form but before closing, in which case funds will earn
interest at the passbook rate from the date of maturity until the conversion is
completed or terminated, but a hold will be placed on the funds, making them
unavailable to the depositor until completion or termination of the conversion.
When the conversion is completed, the funds received in the offering will be
used to purchase the shares of common stock ordered. The shares of common stock
issued in the conversion cannot and will not be insured by the Federal Deposit
Insurance Corporation or any other government agency. If the conversion is not
consummated for any reason, all funds submitted will be promptly refunded with
interest as described above.
If a subscriber authorizes Citizens First to withdraw the amount of the
purchase price from his or her deposit account, Citizens First will do so as of
the effective date of conversion, though the account must contain the full
amount necessary for payment at the time the subscription order is received.
Citizens First will waive any applicable penalties for early withdrawal from
certificate accounts. If the remaining balance in a certificate account is
reduced below the applicable minimum balance requirement at the time funds are
actually transferred under the authorization, the certificate will be canceled
at the time of the withdrawal, without penalty, and the remaining balance will
earn interest at Citizens First's passbook rate.
The employee stock ownership plan will not be required to pay for the
shares subscribed for at the time it subscribes, but rather may pay for shares
of common stock subscribed for upon the completion of the conversion; provided
that there is in force from the time of its subscription until that time, a loan
commitment from an unrelated financial institution or Citizens First Bancorp to
lend to the employee stock ownership plan, at that time, the aggregate purchase
price of the shares for which it subscribed.
Some individual retirement deposit accounts maintained in Citizens First
may not permit investment in the common stock. In that case, a depositor
interested in using his or her individual retirement deposit account funds to
purchase common stock must do so through a self-directed individual retirement
account. Citizens First will allow a depositor to transfer funds from an
existing individual retirement account to a new self-directed individual
retirement account program with Citizens First whereby such transferred funds
may be used to purchase Citizens First Bancorp's common stock in the offering.
There will be no early withdrawal or Internal Revenue Service interest penalties
for transfers. Citizens First as trustee would hold the common stock in a self-
directed account in the same manner as Citizens First now holds the depositor's
individual retirement deposit account funds. An annual administrative fee may be
payable to Citizens First. Depositors interested in using funds in an
individual retirement deposit account at Citizens First to purchase common stock
should contact the stock information center as soon as possible so that the
necessary forms may be forwarded for execution and returned before the
subscription offering ends. In addition, federal laws and regulations require
that officers, directors and 10% shareholders who use self-
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directed individual retirement deposit account funds to purchase shares of
common stock in the subscription offering, make purchases for the exclusive
benefit of individual retirement accounts.
Certificates representing shares of common stock purchased, and any refund
due, will be mailed to purchasers at the address specified in properly completed
order forms or to the last address of the persons appearing on the records of
Citizens First as soon as practicable following the sale of all shares of common
stock. Any certificates returned as undeliverable will be disposed of as
required by applicable law. Purchasers may not be able to sell the shares of
common stock which they purchased until certificates for the common stock are
available and delivered to them, even though trading of the common stock may
have begun.
Stock Pricing and Number of Shares to be Issued
The plan of conversion requires that the aggregate purchase price of the
securities sold in connection with the conversion be based upon an estimated pro
forma value of Citizens First Bancorp and Citizens First as converted (i.e.,
taking into account the expected receipt of proceeds from the sale of securities
in the conversion), as determined by an independent appraisal. Citizens First
and Citizens First Bancorp have retained Keller, which is experienced in the
evaluation and appraisal of business entities, to prepare an appraisal of the
pro forma market value of Citizens First Bancorp and Citizens First, as
converted, and to assist Citizens First in preparing a business plan. Keller
will receive a fee expected to total approximately $41,000 for its appraisal
services and assistance in the preparation of a business plan, plus reasonable
out-of-pocket expenses incurred in connection with the appraisal. Citizens First
has agreed to indemnify Keller under certain circumstances against liabilities
and expenses, including legal fees, arising out of, related to, or based upon
the conversion.
Keller has prepared an appraisal of the estimated pro forma market value of
Citizens First Bancorp and Citizens First, as converted. For its analysis,
Keller undertook substantial investigations to learn about Citizens First's
business and operations. Management supplied financial information, including
annual financial statements, information on the composition of assets and
liabilities, and other financial schedules. In addition to this information,
Keller reviewed Citizens First's conversion application as filed with the
Michigan Office of Financial and Insurance Services and the Federal Deposit
Insurance Corporation and Citizens First Bancorp's registration statement as
filed with the Securities and Exchange Commission. Furthermore, Keller visited
Citizens First's facilities and had discussions with Citizens First's management
and its special conversion legal counsel, Muldoon Murphy & Faucette LLP. Keller
did not perform a detailed individual analysis of the separate components of
Citizens First Bancorp's or Citizens First's assets and liabilities.
Keller's analysis utilized three selected valuation procedures, the
price/book method, the price/earnings method, and price/assets method, all of
which are described in its report. Keller placed the greatest emphasis on the
price/earnings and price/book methods in estimating pro forma market value. In
applying these procedures, Keller reviewed, among other factors, the economic
make-up of Citizens First's primary market area, Citizens First's financial
performance and condition in relation to publicly traded institutions that
Keller deemed comparable to Citizens First, the specific terms of the offering
of Citizens First Bancorp's common stock, the pro forma impact of the additional
capital raised in the conversion, conditions of securities markets in general,
and the market for thrift institution common stock in particular. Keller's
analysis provides an approximation of the pro forma market value of Citizens
First Bancorp and Citizens First, as converted, based on the valuation methods
applied and the assumptions outlined in its report. Included in its report were
certain assumptions as to the pro forma earnings of Citizens First Bancorp after
the conversion that were utilized in determining the appraised value. These
assumptions included estimated expenses and an assumed after-tax rate of return
on the net conversion proceeds as described under "Pro Forma Data," purchases by
the employee stock ownership plan of an amount equal to 8% of the common stock
sold in the conversion and purchases in the open market by the stock-based
incentive plan of a number of shares equal to 4% of the common stock sold in the
conversion at the $10.00 purchase price. See "Pro Forma Data" for additional
information concerning these assumptions. The use of different assumptions may
yield different results.
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On the basis of the analysis in its report, Keller has advised Citizens
First Bancorp and Citizens First that, in its opinion, as of November 17, 2000,
the estimated pro forma market value of Citizens First Bancorp and Citizens
First, as converted, was within the valuation range of $6.7 million to $76.7
million with a midpoint of $66.7 million. After reviewing the methodology and
the assumptions used by Keller in the preparation of the appraisal, the Board of
Directors established the offering range, which is equal to the valuation range,
of $56.7 million to $76.7 million with a midpoint of $66.7 million. Assuming
that the shares are sold at $10.00 per share in the conversion, the estimated
number of shares would be between 5,669,500 and 7,670,500 with a midpoint of
6,670,000. The purchase price of $10.00 was determined by discussion among the
Boards of Directors of Citizens First and Citizens First Bancorp and Trident
Securities, taking into account, among other factors, the requirement that the
common stock be offered in a manner that will achieve the widest distribution of
the stock and desired liquidity in the common stock after the conversion. Since
the outcome of the offering relates in large measure to market conditions at the
time of sale, it is not possible to determine the exact number of shares that
will be issued by Citizens First Bancorp at this time. The offering range may be
amended, with the approval of the Michigan Office of Financial and Insurance
Services and the Federal Deposit Insurance Corporation, if necessitated by
developments following the date of the appraisal in, among other things, market
conditions, the financial condition or operating results of Citizens First,
regulatory guidelines or national or local economic conditions. Keller's
appraisal report is filed as an exhibit to the registration statement that
Citizens First Bancorp has filed with the Securities and Exchange Commission.
See "Where You Can Find More Information."
If, upon completion of the subscription offering, at least the minimum
number of shares are subscribed for, Keller, after taking into account factors
similar to those involved in its prior appraisal, will determine its estimate of
the pro forma market value of Citizens First Bancorp and Citizens First, as
converted, as of the close of the subscription offering.
No shares will be sold unless Keller confirms that, to the best of its
knowledge and judgment, nothing of a material nature has occurred that would
cause it to conclude that the actual total purchase price on an aggregate basis
was materially incompatible with its estimate of the total pro forma market
value of Citizens First Bancorp and Citizens First, as converted, at the time of
the sale. If, however, the facts do not justify that statement, the offering may
be canceled, a new offering range and price per share set and new subscription,
community and syndicated community offerings held. Under those circumstances,
subscribers would have the right to modify or rescind their subscriptions and to
have their subscription funds returned promptly with interest and holds on funds
authorized for withdrawal from deposit accounts would be released or reduced.
Depending upon market and financial conditions, the number of shares sold
may be more than 8,821,075 shares or less than 5,669,500 shares. If the total
amount of shares sold is less than 5,669,500 or more than 8,821,075 (15% above
the maximum of the offering range), for aggregate gross proceeds of less than
$56.7 million or more than $88.2 million, subscription funds will be returned
promptly with interest to each subscriber unless he or she indicates otherwise.
If Keller establishes a new valuation range, it must be approved by the Michigan
Office of Financial and Insurance Services and the Federal Deposit Insurance
Corporation.
The number of shares to be issued and outstanding as a result of the sale
of common stock in the conversion will be increased by the number of shares
contributed to Citizens First Foundation, which is expected to be 8% of the
common stock sold in the conversion. Assuming the sale of shares at the maximum
of the estimated valuation range, Citizens First Bancorp will issue 613,640
shares of its common stock from authorized but unissued shares to Citizens First
Foundation immediately following the completion of the conversion. In that
event, Citizens First Bancorp will have total common stock outstanding of
8,284,140 shares. Of that amount, Citizens First Foundation will own 7.4%.
Funding Citizens First Foundation with authorized but unissued shares will have
the effect of diluting the ownership and voting interests of persons purchasing
shares in the conversion by 7.4% since a greater number of shares will be
outstanding upon completion of the conversion than would be if Citizens First
Foundation were not established. See "Pro Forma Data."
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In formulating its appraisal, Keller relied upon the truthfulness, accuracy
and completeness of all documents Citizens First furnished to it. Keller also
considered financial and other information from regulatory agencies, other
financial institutions, and other public sources, as appropriate. While Keller
believes this information to be reliable, Keller does not guarantee the accuracy
or completeness of the information and did not independently verify the
financial statements and other data provided by Citizens First and Citizens
First Bancorp or independently value the assets or liabilities of Citizens First
Bancorp and Citizens First. The appraisal is not intended to be, and must not be
interpreted as, a recommendation of any kind as to the advisability of voting to
approve the plan of conversion or of purchasing shares of common stock.
Moreover, because the appraisal must be based on many factors which change
periodically, there is no assurance that purchasers of shares in the conversion
will be able to sell shares after the conversion at prices at or above the
purchase price.
Copies of the appraisal report of Keller including any amendments to the
report, and the detailed memorandum of the appraiser setting forth the method
and assumptions for such appraisal are available for inspection at the main
office of Citizens First and the other locations specified under "Where You Can
Find More Information."
Limitations on Purchases of Shares
The plan of conversion imposes limitations upon the purchase of common
stock by eligible subscribers and others in the conversion. In addition to the
purchase limitations described above under "-Subscription Offering and
Subscription Rights," "-Community Offering" and "-Syndicated Community
Offering," the plan of conversion provides for the following purchase
limitations:
. Except for Citizens First's tax-qualified employee benefit plans, no
person, either alone or together with associates of or persons acting in
concert with such person, may purchase in the aggregate more than 1.5%
of the common stock offered (which equals 115,057 shares), subject to
increase as described below.
. The Board of Directors and the executive officers of Citizens First,
together with their associates, may purchase up to 25.0% of the common
stock sold in the offering.
. Each subscriber must subscribe for a minimum of 25 shares.
The 1.5% limitation applies to individual purchases in the offering,
aggregated with purchases by the person's associates and those persons acting in
concert with the purchaser. If you purchase $250,000 of common stock in the
subscription offering, you may still purchase up to $900,570 of common stock in
the community offering. Alternatively, if you purchase $250,000 of common stock
in the subscription offering, your associates and persons acting in concert with
you may purchase in the aggregate up to $900,570 of common stock in the
subscription offering and/or community offering.
For purposes of the plan of conversion, the directors are not deemed to be
acting in concert solely by reason of their Board membership. Pro rata
reductions within each subscription rights category will be made in allocating
shares if the maximum purchase limitations are exceeded.
Citizens First's and Citizens First Bancorp's Boards of Directors may, in
their sole discretion, increase the maximum purchase limitation up to 9.99% of
the shares of common stock sold in the conversion, provided that orders for
shares that exceed 5% of the shares of common stock sold in the conversion may
not exceed, in the aggregate, 10% of the shares sold in the conversion. Citizens
First and Citizens First Bancorp do not intend to increase the maximum purchase
limitation unless market conditions warrant an increase in the maximum purchase
limitation and the sale of a number of shares in excess of the minimum of the
offering range. If the Boards of Directors decide to increase the purchase
limitations, persons who subscribed for the maximum number of shares of
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common stock will be given the opportunity to increase their subscriptions
accordingly, subject to the rights and preferences of any person who has
priority subscription rights. Citizens First Bancorp and Citizens First, in
their discretion, also may give other large subscribers the right to increase
their subscriptions.
The plan of conversion defines "acting in concert" to mean knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not by an express agreement; or a combination
or pooling of voting or other interests in the securities of an issuer for a
common purpose under any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise. In general, a person who acts
in concert with another party will also be deemed to be acting in concert with
any person who is also acting in concert with that other party. Citizens First
Bancorp and Citizens First may presume that certain persons are acting in
concert based upon, among other things, joint account relationships and the fact
that persons may have filed joint Schedules 13D or 13G with the Securities and
Exchange Commission with respect to other companies.
The plan of conversion defines "associate," with respect to a particular
person, to mean:
1. any corporation or organization (other than Citizens First or a
majority-owned subsidiary of Citizens First) of which a person is an
officer or partner or is, directly or indirectly, the beneficial owner
of 10% or more of any class of equity securities;
2. any trust or other estate in which a person has a substantial beneficial
interest or as to which a person serves as trustee or in a similar
fiduciary capacity; and
3. any relative or spouse of a person, or any relative of a spouse, who
either has the same home as a person or who is a director or officer of
Citizens First or any of its parents or subsidiaries.
For example, a corporation of which a person serves as an officer would be
an associate of that person and, therefore, all shares purchased by the
corporation would be included with the number of shares that the person could
purchase individually under the purchase limitations described above.
The plan of conversion defines "officer" to mean an executive officer of
Citizens First, including its Chief Executive Officer, President, Executive Vice
Presidents, Senior Vice Presidents, Vice Presidents in charge of principal
business functions, Secretary, Treasurer and Controller.
Restrictions on Transfer of Shares After the Conversion Applicable to Officers,
Directors and NASD Members
Common stock purchased in the conversion will be freely transferable,
except for shares purchased by directors and officers of Citizens First and
Citizens First Bancorp and by NASD members.
Shares of common stock purchased by directors and officers of Citizens
First and Citizens First Bancorp may not be sold for a period of one year
following the conversion, except upon the death of the stockholder or unless
approved by the Michigan Office of Financial and Insurance Services. Shares
purchased by these persons after the conversion will be free of this
restriction. Shares of common stock issued by Citizens First Bancorp to
directors and officers will bear a legend giving appropriate notice of the
restriction and, in addition, Citizens First Bancorp will give appropriate
instructions to the transfer agent for Citizens First Bancorp's common stock
with respect to the restriction on transfers. Any shares issued to directors and
officers as a stock dividend, stock split or otherwise with respect to
restricted common stock will be similarly restricted.
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Purchases of outstanding shares of common stock of Citizens First Bancorp
by directors, officers, or any person who was an officer or director of Citizens
First after adoption of the plan of conversion, and their associates during the
three-year period following the conversion may be made only through a broker or
dealer registered with the Securities and Exchange Commission, except with the
prior written approval of the Michigan Office of Financial and Insurance
Services. This restriction does not apply, however, to negotiated transactions
involving more than 1% of Citizens First Bancorp's outstanding common stock or
to the purchase of stock under stock benefit plans.
Citizens First Bancorp has filed with the Securities and Exchange
Commission a registration statement under the Securities Act of 1933 for the
registration of the common stock to be issued in the conversion. This
registration does not cover the resale of the shares. Shares of common stock
purchased by persons who are not affiliates of Citizens First Bancorp may be
resold without registration. Shares purchased by an affiliate of Citizens First
Bancorp will have resale restrictions under Rule 144 of the Securities Act. If
Citizens First Bancorp meets the current public information requirements of Rule
144, each affiliate of Citizens First Bancorp who complies with the other
conditions of Rule 144, including those that require the affiliate's sale to be
aggregated with those of certain other persons, would be able to sell in the
public market, without registration, a number of shares not to exceed, in any
three-month period, the greater of 1% of the outstanding shares of Citizens
First Bancorp or the average weekly volume of trading in the shares during the
preceding four calendar weeks. Provision may be made in the future by Citizens
First Bancorp to permit affiliates to have their shares registered for sale
under the Securities Act under certain circumstances.
Under guidelines of the National Association of Securities Dealers, Inc.,
members of that organization and their associates face restrictions on the
transfer of securities purchased with subscription rights and reporting
requirements upon purchase of the securities.
Interpretation, Amendment and Termination
To the extent permitted by law, all interpretations of the plan of
conversion by Citizens First will be final; however, such interpretations have
no binding effect on the Michigan Office of Financial and Insurance Services and
the Federal Deposit Insurance Corporation. The plan of conversion provides
that, if deemed necessary or desirable by the Board of Directors, the plan of
conversion may be substantively amended by the Board of Directors as a result of
comments from regulatory authorities or otherwise, without the further approval
of Citizens First's members.
Completion of the conversion requires the sale of all shares of the common
stock within 24 months following approval of the plan of conversion by Citizens
First's members. If this condition is not satisfied, the plan of conversion
will be terminated and Citizens First will continue its business in the mutual
form of organization. Citizens First's Board of Directors may terminate the
plan of conversion at any time prior to the approval of the plan by Citizens
First's members and, thereafter, with the concurrence of the Michigan Banking
Commissioner and the Federal Deposit Insurance Corporation, if required.
Restrictions on Acquisition of Citizens First Bancorp
And Citizens First
General
The plan of conversion provides for the conversion of Citizens First from
the mutual to stock form of organization and, as part of the conversion, the
adoption of new articles of incorporation and bylaws by Citizens First's
members. See "The Conversion--General." As described below and elsewhere in
this prospectus, certain provisions in Citizens First Bancorp's certificate of
incorporation and bylaws, may have anti-takeover effects. In
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addition, provisions in Citizens First's articles of incorporation and bylaws
may also have anti-takeover effects. Finally, Delaware corporate law and
regulatory restrictions may make it difficult for persons or companies to
acquire control of Citizens First Bancorp or Citizens First.
Restrictions in Citizens First Bancorp's Certificate of Incorporation and Bylaws
Citizens First Bancorp's certificate of incorporation and bylaws contain
provisions that could make an acquisition of Citizens First Bancorp by means of
a tender offer, proxy contest or otherwise more difficult. Some provisions will
also render the removal of the incumbent Board of Directors or management of
Citizens First Bancorp more difficult. These provisions may have the effect of
deterring a future takeover attempt that is not approved by the directors of
Citizens First Bancorp but which Citizens First Bancorp stockholders may deem to
be in their best interests or in which stockholders may receive a substantial
premium for their shares over then current market prices. As a result,
stockholders who might desire to participate in such a transaction may not have
an opportunity to do so. The following description of these provisions is only
a summary and does not provide all of the information contained in Citizens
First Bancorp's certificate of incorporation and bylaws. See "Where You Can
Find More Information" as to how to obtain a copy of these documents.
Limitation on Voting Rights. The certificate of incorporation of Citizens
First Bancorp provides that no record owner of any outstanding Citizens First
Bancorp common stock which is beneficially owned, directly or indirectly, by a
person who beneficially owns in excess of 10% of the then outstanding shares of
Citizens First Bancorp common stock will be entitled or permitted to any vote in
respect of the shares held in excess of the 10% limit. Beneficial ownership is
determined by federal securities laws and includes shares beneficially owned by
such person or any of his or her affiliates (as defined in the certificate of
incorporation), shares which such person or his or her affiliates have the right
to acquire under any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options or otherwise
and shares as to which such person and his or her affiliates have or share
voting or investment power. Beneficial ownership does not include shares under
a publicly solicited revocable proxy or shares that are not otherwise deemed to
be beneficially owned by such person and his affiliates. No director or officer
(or any affiliate thereof) of Citizens First Bancorp shall, solely by reason of
any or all of such directors or officers acting in their capacities as such, be
deemed to beneficially own any shares beneficially owned by any other director
or officer (or affiliate thereof) nor will the employee stock ownership plan or
any similar plan of Citizens First Bancorp or Citizens First or any director
with respect thereto (solely by reason of such director's capacity) be deemed to
beneficially own any shares held under any such plan.
Classified Board of Directors. The Board of Directors of Citizens First
Bancorp is divided into three classes, each of which contains approximately one-
third of the number of directors. The stockholders elect one class of directors
each year for a term of three years. The classified Board is intended to
provide for continuity of the Board of Directors and to make it more difficult
and time consuming for a stockholder group to fully use its voting power to gain
control of the Board of Directors without the consent of the incumbent Board of
Directors of Citizens First Bancorp.
Filling of Vacancies; Removal. Citizens First Bancorp's certificate of
incorporation and bylaws provide that any vacancy occurring in the Board,
including a vacancy created by an increase in the number of directors or
resulting from death, resignation, retirement, disqualification, removal from
office or other cause, can be filled for the remainder of the unexpired term
only by a majority vote of the Directors then in office. Directors may be
removed by the stockholders only for cause by the affirmative vote of the
holders of at least 80% of the outstanding shares of voting stock. These
provisions make it more difficult for stockholders to remove directors and
replace than with their own nominees. In the absence of these provisions, the
vote of the holders of a majority of the shares could remove any director or the
entire Board, with or without cause and replace the director or directors with
persons of such holder's choice.
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Director Qualifications. Citizens First Bancorp's bylaws require that to
be eligible to serve on the Board of Directors, an individual: (1) not have been
the subject of certain enumerated regulatory actions by a financial regulatory
agency within the last ten years; (2) not have been convicted of or be currently
charged in any crime involving dishonesty or breach of trust which is punishable
for a term exceeding one year; (3) be a resident for at least one year of a
county in which Citizens First maintains a banking office, or of a county
contiguous to such county or have significant ties to such communities; and (4)
not be a director or officer of another state or federally chartered financial
institution that engages in business activities in the same market area as
Citizens First Bancorp or any of its subsidiaries. Additionally, no person
shall be eligible for election to the Board of Directors if such person is the
representative or nominee of a person or acting in concert with a person who is
ineligible for election to the Board of Directors. In addition, no person 70
years of age or older may serve on the Board of Directors. These provisions
will limit the individuals that can be nominated for election or serve on the
Board of Directors.
Cumulative Voting, Special Meetings and Action by Written Consent. The
certificate of incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of stockholders of Citizens First Bancorp
may be called only by a resolution adopted by a majority of the Board of
Directors of Citizens First Bancorp. The certificate of incorporation also
provides that any action required or permitted to be taken by the stockholders
of Citizens First Bancorp may be taken only at an annual or special meeting and
prohibits stockholder action by written consent in lieu of a meeting.
Authorized Shares. The certificate of incorporation authorizes the
issuance of 20,000,000 shares of common stock and 1,000,000 shares of preferred
stock. The shares of common stock and preferred stock were authorized in an
amount greater than that to be issued in the conversion to provide Citizens
First Bancorp's Board of Directors with as much flexibility as possible to
effect, among other transactions, financings, acquisitions, stock dividends,
stock splits and employee stock options. However, these additional authorized
shares may also be used by the Board of Directors consistent with its fiduciary
duty to deter future attempts to gain control of Citizens First Bancorp. The
Board of Directors also has sole authority to determine the terms of any one or
more series of preferred stock, including voting rights, conversion rates, and
liquidation preferences. Although Citizens First Bancorp's Board of Directors
has no intention at the present time of doing so, it could, to the extent
consistent with its fiduciary duty, issue a series of preferred stock to persons
friendly to management to attempt to block a post-tender offer merger or other
transaction by which a third party seeks control, and thereby assist management
to retain its position.
Stockholder Vote Required to Approve Business Combinations with Interested
Stockholders. The certificate of incorporation requires the approval of the
holders of at least 80% of Citizens First Bancorp's outstanding shares of voting
stock entitled to vote to approve certain "business combinations" with an
"interested stockholder." Under Delaware law, absent this provision, business
combinations, including mergers, consolidations and sales of all or
substantially all of the assets of a corporation must be approved by a majority
of the outstanding shares of common stock of Citizens First Bancorp and any
other affected class of stock. This supermajority voting requirement will not
apply in cases where the proposed transaction has been approved by a majority of
those members of Citizens First Bancorp's Board of Directors who are
unaffiliated with the interested stockholder and who were directors before the
time when the interested stockholder became an interested stockholder or if the
proposed transaction meets certain conditions that are designed to afford the
stockholders a fair price in consideration for their shares. In each such case,
the approval of only a majority of the outstanding shares of voting stock is
sufficient.
The term "interested stockholder" includes any individual, group acting in
concert, corporation, partnership, association or other entity (other than
Citizens First Bancorp or its subsidiary) who or which is the beneficial owner,
directly or indirectly, of 10% or more of the outstanding shares of voting stock
of Citizens First Bancorp.
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A "business combination" includes:
1. any merger or consolidation of Citizens First Bancorp or any of its
subsidiaries with any interested stockholder or affiliate of an
interested stockholder or any corporation which is, or after such merger
or consolidation would be, an affiliate of an interested stockholder;
2. any sale or other disposition to or with any interested stockholder or
affiliate of 25% or more of the assets of Citizens First Bancorp or of
the combined assets of Citizens First Bancorp and its subsidiaries;
3. the issuance or transfer to any interested stockholder or its affiliate
by Citizens First Bancorp (or any subsidiary) of any securities of
Citizens First Bancorp (or any subsidiary) in exchange for cash,
securities or other property, the value of which equals or exceeds 25%
of the fair market value of the common stock of Citizens First Bancorp;
4. the adoption of any plan for the liquidation or dissolution of Citizens
First Bancorp proposed by or on behalf of any interested stockholder or
its affiliate; and
5. any reclassification of securities, recapitalization, merger or
consolidation of Citizens First Bancorp with any of its subsidiaries
which has the effect of increasing the proportionate share of common
stock or any class of equity or convertible securities of Citizens First
Bancorp or subsidiary owned directly or indirectly, by an interested
stockholder or affiliate thereof.
The directors and executive officers of Citizens First are purchasing
approximately 2.05% of the shares of the common stock to be issued in the
conversion based on the maximum of the offering range. In addition, the
employee stock ownership plan intends to purchase 8% of the common stock issued
in connection with the conversion. Additionally, if stockholders approve the
proposed stock-based incentive plan, Citizens First Bancorp expects to grant
stock awards to executive officers and directors equal to 4% of the outstanding
common stock issued in connection with the conversion and options to purchase up
to 10% of the common stock issued in connection with the conversion. As a
result, directors, executive officers and employees may control the voting of
approximately 20.96% of the common stock to be issued in the conversion on a
diluted basis at the maximum of the offering range, thereby enabling them to
prevent the approval of the transactions requiring the approval of at least 80%
of Citizens First Bancorp's outstanding shares of voting stock. The voting
power of directors, executive officers and employees will be further enhanced by
the regulatory condition imposed on Citizens First Foundation that any shares
held by it must be voted in the same ratio as all other shares of Citizens First
Bancorp common stock.
Evaluation of Offers. The certificate of incorporation of Citizens First
Bancorp provides that the Board of Directors of Citizens First Bancorp, when
evaluating a transaction that may involve a change in control of Citizens First
Bancorp, may, in connection with the exercise of its judgment in determining
what is in the best interest of Citizens First Bancorp and its stockholders,
give consideration to a variety of factors, including the social and economic
effects of acceptance of such offer on Citizens First Bancorp's present and
future customers and employees and those of its subsidiaries (including Citizens
First) and the communities in which Citizens First Bancorp and Citizens First
operate or are located, the ability of Citizens First Bancorp to fulfill its
corporate objectives as a savings and loan holding company and the ability of
Citizens First to fulfill the objectives of a stock savings bank under
applicable statutes and regulations. By having these standards in the
certificate of incorporation of Citizens First Bancorp, the Board of Directors
may be in a stronger position to oppose such a transaction if the Board
concludes that the transaction would not be in the best interest of Citizens
First Bancorp, even if the price offered is significantly greater than the then
market price of any equity security of Citizens First Bancorp.
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Amendment of Certificate of Incorporation and Bylaws. Citizens First
Bancorp's certificate of incorporation requires the affirmative vote of 80% of
the outstanding voting stock entitled to vote to amend or repeal certain
provisions of the certificate of incorporation, including the provision limiting
voting rights, the provisions relating to approval of certain business
combinations with related persons, calling special meetings, the number and
classification of directors, director and officer indemnification by Citizens
First Bancorp and the provisions allowing for the amendment of Citizens First
Bancorp's bylaws and certificate of incorporation.
Citizens First Bancorp's bylaws may be amended by a majority of the Board
of Directors or by a vote of 80% of the total votes eligible to be voted at a
duly constituted meeting of stockholders.
Advance Notice Provisions for Stockholder Nominations and Proposals.
Citizens First Bancorp's bylaws establish an advance notice procedure for
stockholders to nominate directors or bring other business before an annual
meeting of stockholders of Citizens First Bancorp. A person may not be
nominated for election as a director unless that person is nominated by or at
the direction of the Citizens First Bancorp's Board of Directors or by a
stockholder who has given appropriate notice to Citizens First Bancorp before
the meeting. Similarly, a stockholder may not bring business before an annual
meeting unless the stockholder has given Citizens First Bancorp appropriate
notice of its intention to bring that business before the meeting. Citizens
First Bancorp's Secretary must receive notice of the nomination or proposal not
less than 90 days prior to the annual meeting, provided Citizens First Bancorp
gives at least 100 days notice of the meeting. A stockholder who desires to
raise new business must provide certain information to Citizens First Bancorp
concerning the nature of the new business, the stockholder and the stockholder's
interest in the business matter. Similarly, a stockholder wishing to nominate
any person for election as a director must provide Citizens First Bancorp with
certain information concerning the nominee and the proposing stockholder.
Advance notice of nominations or proposed business by stockholders gives
Citizens First Bancorp's Board of Directors time to consider the qualifications
of the proposed nominees, the merits of the proposals and, to the extent deemed
necessary or desirable, to inform stockholders and make recommendations about
those matters.
Anti-Takeover Effects of Citizens First Bancorp's Certificate of Incorporation
and Bylaws and Management Remuneration Adopted in Conversion
The provisions described above are intended to reduce Citizens First
Bancorp's vulnerability to takeover attempts and other transactions which have
not been negotiated with and approved by members of its Board of Directors.
Additionally, provisions of the stock-based incentive plan may provide for
accelerated benefits to participants if a change in control of Citizens First
Bancorp or Citizens First occurs or a tender or exchange offer for their stock
is made. See "Management of Citizens First Savings Bank--Benefits--Stock-Based
Incentive Plan." Citizens First Bancorp and Citizens First have also entered
into agreements with key officers and intends to establish the Employee
Severance Compensation Plan, all of which will provide eligible employees with
additional payments and benefits on the officer's or employee's termination in
connection with a change in control of Citizens First Bancorp or Citizens First.
See "Management of Citizens First Savings Bank--Executive Compensation--
Employment Agreements," and "Management of Citizens First Savings Bank--
Benefits--Employee Severance Compensation Plan." The foregoing provisions and
limitations may make it more difficult for companies or persons to acquire
control of Citizens First Bancorp. Additionally, the provisions could deter
offers to acquire the outstanding shares of Citizens First Bancorp which might
be viewed by stockholders to be in their best interests.
Citizens First Bancorp's Board of Directors believes that the provisions of
the certificate of incorporation and bylaws are in the best interest of Citizens
First Bancorp and its stockholders. An unsolicited non-negotiated takeover
proposal can seriously disrupt the business and management of a corporation and
cause it great expense. Accordingly, the Board of Directors believes it is in
the best interests of Citizens First Bancorp and its stockholders to encourage
potential acquirors to negotiate directly with management and that these
provisions will encourage such negotiations and discourage non-negotiated
takeover attempts.
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Anti-Takeover Effects of Provisions of Delaware Law
Delaware law provides Delaware corporations with additional protection
against hostile takeovers by impeding the ability of a hostile acquiror to
engage in certain transactions with the target company.
In general, the takeover statute provides that a "Person" who owns 15% or
more of the outstanding voting stock of a Delaware corporation (an "interested
stockholder") may not consummate a merger or other business combination
transaction with such corporation at any time during the three-year period
following the date such "person" became an interested stockholder. The term
"business combination" is defined broadly to cover a wide range of corporate
transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of the
statute:
1. any business combination if, before the date a person became an
interested stockholder, the board of directors approved either the
business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
2. any business combination involving a person who acquired at least 85% of
the outstanding voting stock in the transaction in which he became an
interested stockholder, excluding, for purposes of determining the
number of shares outstanding, shares owned (a) by the corporation's
directors who are also officers and (b) specific employee stock plans;
3. any business combination with an interested stockholder that is approved
by the board of directors and by a two-thirds vote of the outstanding
voting stock not owned by the interested stockholder; and
4. certain business combinations that are proposed after the corporation
had received other acquisition proposals and which are approved or not
opposed by a majority of certain continuing members of the board of
directors.
A corporation may exempt itself from the requirements of the statute by
adopting an amendment to its certificate of incorporation or bylaws electing not
to be governed by Section 203. Citizens First Bancorp's certificate of
incorporation and bylaws do not currently contain such provision and, at the
present time, the Board of Directors does not intend to propose any such
amendment.
Restrictions in Citizens First's Amended and Restated Articles of Incorporation
and Bylaws
Although the Board of Directors of Citizens First is not aware of any
effort that might be made to obtain control of Citizens First after the
conversion, the Board of Directors believes that it is appropriate to adopt
provisions permitted by Michigan law to protect the interests of the converted
bank and its stockholders from any hostile takeover. These provisions may,
indirectly, inhibit a change in control of Citizens First Bancorp, as Citizens
First's sole stockholder. See "Risk Factors--Various factors could make
takeover attempts that you want to occur more difficult to achieve."
Citizens First's amended and restated articles of incorporation will
contain a provision whereby the acquisition of beneficial ownership of more than
10% of the issued and outstanding shares of any class of equity securities of
Citizens First by any person (i.e., any individual, corporation, group acting in
concert, trust, partnership, joint stock company or similar organization),
either directly or through an affiliate thereof, will be prohibited for a period
of five years following the date of completion of the conversion without the
prior written notice to Citizens First and the prior written approval of the
Michigan Banking Commissioner. If shares are acquired in violation of this
provision, all shares beneficially owned by any person in excess of the 10%
limit shall
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be considered "excess shares" and will not be counted as shares entitled to vote
and will not be voted by any person or counted as voting shares in connection
with any matters submitted to the stockholders for a vote. These limitations
shall not apply to any transaction in which Citizens First forms a holding
company without a change in the respective beneficial ownership interests of its
stockholders other than by the exercise of any dissenter or appraisal rights. If
holders of revocable proxies for more than 10% of the shares of the common stock
of Citizens First Bancorp seek, among other things, to elect one-third or more
of Citizens First Bancorp's Board of Directors, to cause Citizens First
Bancorp's stockholders to approve the acquisition or corporate reorganization of
Citizens First Bancorp or to exert a continuing influence on a material aspect
of the business operations of Citizens First Bancorp, which actions could
indirectly result in a change in control of Citizens First, the Board of
Directors of Citizens First will be able to assert this provision of Citizens
First's amended and restated articles of incorporation against such holders.
Although the Board of Directors of Citizens First is not currently able to
determine when and if it would assert this provision, the Board, in exercising
its fiduciary duty, may assert this provision if it were deemed to be in the
best interests of Citizens First, Citizens First Bancorp and its stockholders.
It is unclear, however, whether this provision, if asserted, would be successful
against such persons in a proxy contest which could result in a change in
control of Citizens First indirectly through a change in control of Citizens
First Bancorp.
In addition, stockholders are not permitted to cumulate their votes in the
election of Directors. Furthermore, Citizens First's bylaws provide for the
election of three classes of directors to staggered terms.
Finally, the amended and restated articles of incorporation provide for the
issuance of shares of preferred stock on terms, including conversion and voting
rights, as may be determined by Citizens First's Board of Directors without
stockholder approval. Although Citizens First has no arrangements,
understandings or plans at the present time for the issuance or use of
undesignated preferred stock proposed to be authorized, the Board believes that
the availability of such shares will provide Citizens First with increased
flexibility in structuring possible future financings and acquisitions and in
meeting other corporate needs which may arise. If a proposed merger, tender
offer or other attempt to gain control of Citizens First occurs of which
management does not approve, the Board can authorize the issuance of one or more
series of preferred stock with rights and preferences which could impede the
completion of such a transaction. An effect of the possible issuance of such
preferred stock, therefore, may be to deter a future takeover attempt. The
Board does not intend to issue any preferred stock except on terms which the
Board deems to be in the best interest of Citizens First and its then existing
stockholders.
Regulatory Restrictions
Change in Bank Control Act. The acquisition of 10% or more of the common
stock outstanding may trigger the provisions of the Change in Bank Control Act.
The Federal Deposit Insurance Corporation has also adopted a regulation under
the Change in Bank Control Act which generally requires persons who at any time
intend to acquire control of a Federal Deposit Insurance Corporation-insured
state-chartered non-member bank, including a savings bank such as Citizens
First, to provide 60 days prior written notice and certain financial and other
information to the Federal Deposit Insurance Corporation.
The 60-day notice period does not commence until the information is deemed
to be substantially complete. Control for the purpose of this Act exists in
situations in which the acquiring party has voting control of at least 25% of
any class of Citizens First's voting stock or the power to direct the management
or policies of Citizens First. However, under Federal Deposit Insurance
Corporation regulations, control is presumed to exist where the acquiring party
has voting control of at least 10% of any class of Citizens First's voting
securities if specified "control factors" are present. The statute and
underlying regulations authorize the Federal Deposit Insurance Corporation to
disapprove a proposed acquisition on certain specified grounds.
Federal Reserve Board Regulations. If Citizens First does not maintain its
qualification as a qualified thrift lender, attempts to acquire control of
Citizens First will trigger the regulations of the Federal Reserve Board under
the Change in Bank Control Act.
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<PAGE>
Description of Citizens First Bancorp Capital Stock
----------------------------------------------------------------------------
The common stock of Citizens First Bancorp will represent nonwithdrawable
capital, will not be an account of any type, and will not be insured by the
Federal Deposit Insurance Corporation or any other government agency.
----------------------------------------------------------------------------
The following summarizes the material terms of Citizens First Bancorp's
capital stock but does not purport to be complete. This discussion is qualified
in its entirety by reference to the applicable provisions of federal law
governing savings and loan holding companies, Delaware law, and Citizens First
Bancorp's certificate of incorporation and bylaws. See "Where You Can Find More
Information" as to where to obtain a copy of these documents.
Common Stock
General. Citizens First Bancorp is authorized to issue 20,000,000 shares
of common stock having a par value of $.01 per share. Citizens First Bancorp
currently expects to issue up to 9,526,761 shares of common stock. Citizens
First Bancorp will not issue any shares of preferred stock in the conversion.
Each share of Citizens First Bancorp's common stock will have the same relative
rights as, and will be identical in all respects with, each other share of
common stock. Upon payment of the purchase price for the common stock, as
required by the plan of conversion, all stock will be duly authorized, fully
paid and nonassessable.
Dividends. Citizens First Bancorp can pay dividends out of statutory
surplus or from certain net profits if declared by its Board of Directors. The
payment of dividends by Citizens First Bancorp is limited by law and applicable
regulation. See "Dividend Policy" and "Regulation and Supervision." The holders
of common stock of Citizens First Bancorp will be entitled to receive and share
equally in any dividends declared by the Board of Directors of Citizens First
Bancorp. If Citizens First Bancorp issues preferred stock, the holders of
preferred stock may have a priority over the holders of the common stock with
respect to dividends.
Voting Rights. After the conversion, the holders of common stock of
Citizens First Bancorp will possess exclusive voting rights in Citizens First
Bancorp. They will elect Citizens First Bancorp's Board of Directors and act on
other matters as are required to be presented to them under Delaware law or as
are otherwise presented to them by the Board of Directors. Except as discussed
in "Restrictions on Acquisition of Citizens First Bancorp and Citizens First,"
each holder of common stock will be entitled to one vote per share and will not
have any right to cumulate votes in the election of directors. If Citizens
First Bancorp issues preferred stock, holders of Citizens First Bancorp
preferred stock may also possess voting rights. Certain matters require a vote
of 80% of the outstanding shares entitled to vote. See "Restrictions on
Acquisition of Citizens First Bancorp and Citizens First."
Liquidation. Upon liquidation, dissolution or winding up of Citizens First
Bancorp, the holders of its common stock would be entitled to receive all of the
assets of Citizens First Bancorp available for distribution after payment or
provision for payment of all its debts and liabilities. If Citizens First
Bancorp issues preferred stock, the preferred stock holders may have a priority
over the holders of the common stock upon liquidation or dissolution.
Indemnification and Limit on Liability. Citizens First Bancorp's
certificate of incorporation contains provisions which limit the liability of
and indemnify its directors, officers and employees. Such provisions provide
that each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was a director or officer of Citizens First Bancorp shall be indemnified
and held harmless by Citizens First Bancorp to the fullest extent authorized by
the Delaware General Corporation Law against all expense, liability and
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<PAGE>
loss reasonably incurred. Under certain circumstances, the right to
indemnification shall include the right to be paid by Citizens First Bancorp the
expenses incurred in defending any such proceeding in advance of its final
disposition. In addition, a director of Citizens First Bancorp shall not be
personally liable to Citizens First Bancorp or its stockholders for monetary
damages except for liability for any breach of the duty of loyalty, for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of the law, under Section 174 of the Delaware General Corporation Law,
or for any transaction from which the director derived an improper personal
benefit.
Preemptive Rights; Redemption. Holders of the common stock of Citizens
First Bancorp will not be entitled to preemptive rights with respect to any
shares that may be issued. The common stock cannot be redeemed.
Preferred Stock
Citizens First Bancorp is authorized to issue 1,000,000 shares of preferred
stock having a par value of $0.01 per share. Citizens First Bancorp will not
issue any preferred stock in the conversion and it has no current plans to issue
any preferred stock after the conversion. Preferred stock may be issued with
designations, powers, preferences and rights as the Board of Directors may from
time to time determine. The Board of Directors can, without stockholder
approval, issue preferred stock with voting, dividend, liquidation and
conversion rights that could dilute the voting strength of the holders of the
common stock and may assist management in impeding an unfriendly takeover or
attempted change in control.
Restrictions on Acquisition
Acquisitions of Citizens First Bancorp are restricted by provisions in its
certificate of incorporation and bylaws and by rules and regulations of various
regulatory agencies. See .'Regulation and Supervision" and "Restrictions on
Acquisition of Citizens First Bancorp and Citizens First."
Description of Citizens First Stock
Common Stock
General. The amended and restated articles of incorporation of Citizens
First, to be effective upon the conversion, authorize the issuance of 1,000
shares of common stock, having a par value of $1.00 per share. Each share of
common stock of Citizens First will have the same relative rights as, and will
be identical in all respects with, each other share of common stock. After the
conversion, the Board of Directors will be authorized to approve the issuance of
common stock up to the amount authorized by the amended and restated articles of
incorporation without the approval of Citizens First's stockholders. All of the
issued and outstanding common stock of Citizens First will be held by Citizens
First Bancorp. Citizens First stock will represent non-withdrawable capital,
will not be an account of an insurable type and will not be insured by the
Federal Deposit Insurance Corporation.
Dividends. The holders of Citizens First's common stock will be entitled
to receive and to share equally in any dividends as may be declared by the Board
of Directors of Citizens First. See "Dividend Policy" for certain restrictions
on the payment of dividends and "Federal and State Taxation--Federal Income
Taxation" for a discussion of the consequences of the payment of cash dividends
from income appropriated to bad debt reserves.
Voting Rights. As a mutual savings bank, corporate powers and control of
Citizens First are currently vested in (1) its members who elect Citizens
First's directors, and (2) its Board of Directors, who elect the officers of
Citizens First and who fill vacancies on the Board of Directors. Immediately
after the conversion, the holders of Citizens First's common stock will possess
exclusive voting rights in Citizens First. Each holder of shares of common
stock will be entitled to one vote for each share held. Stockholders will not
be entitled to cumulate their
122
<PAGE>
votes for the election of directors. See "Restrictions on Acquisition of
Citizens First Bancorp and Citizens First--Anti-Takeover Effects of Citizens
First Bancorp's Certificate of Incorporation and Bylaws and Management
Remuneration Adopted in Conversion."
Liquidation. In the event of any liquidation, dissolution, or winding up
of Citizens First, Citizens First Bancorp, as the holder of all of the
outstanding common stock of Citizens First, will be entitled to receive, after
payment of all Citizens First's debts and liabilities (including all deposit
accounts and accrued interest thereon) and distribution of the balance in the
special liquidation account to eligible and supplemental eligible account
holders, all assets of Citizens First available for distribution in cash or in
kind. If additional preferred stock is issued after the conversion, the holders
thereof may also have priority over the holders of common stock in the event of
liquidation or dissolution.
Preemptive Rights; Redemption. Holders of Citizens First's common stock
will not be entitled to preemptive rights with respect to any shares of Citizens
First which may be issued. As a result, a stockholder's percentage of
outstanding stock owned would be diluted if additional common stock were issued
without the stockholders being able to maintain their preexisting percentage
ownership. Upon receipt by Citizens First of the full specified purchase price
therefor, the common stock will be fully paid and nonassessable.
Preferred Stock
The amended and restated articles of incorporation of Citizens First, to be
effective upon completion of the conversion, authorize the issuance of 1,000
shares of preferred stock, having a par value of $1.00 per share. The preferred
stock may be issued in series and classes having such rights, preferences,
privileges and restrictions as the Board of Directors may determine.
Transfer Agent and Registrar
The transfer agent and registrar for Citizens First Bancorp's common stock
is ________________________.
Registration Requirements
Citizens First Bancorp has registered its common stock with the Securities
and Exchange Commission under Section 12(g) of the Securities Exchange Act of
1934, as amended, and will not deregister its common stock for a period of at
least three years following the conversion. As a result of registration, the
proxy and tender offer rules, insider trading reporting and restrictions, annual
and periodic reporting and other requirements of that statute will apply.
Legal and Tax Opinions
The legality of the common stock has been passed upon for Citizens First
Bancorp by Muldoon Murphy & Faucette LLP, Washington, D.C. The federal tax
consequences of the conversion have been opined upon by Muldoon Murphy &
Faucette LLP and the state tax consequences of the conversion have been opined
upon by Plante & Moran, LLP, Auburn Hills, Michigan. Muldoon Murphy & Faucette
LLP and Plante & Moran, LLP have consented to the references to their opinions
in this prospectus. Certain legal matters will be passed upon for Trident
Securities, a Division of McDonald Investments Inc., by Michael Best and
Friedrich LLP, Milwaukee, Wisconsin.
123
<PAGE>
Experts
The financial statements of Citizens First as of March 31, 2000 and 1999,
and for the three years then ended are included in this prospectus and in the
registration statement in reliance upon the report of Plante & Moran, LLP,
independent certified public accountants, included elsewhere in this prospectus,
and upon the authority of said firm as experts in accounting and auditing.
Keller has consented to the summary in this prospectus of its report to
Citizens First setting forth its opinion as to the estimated pro forma market
value of Citizens First Bancorp and Citizens First, as converted, and its letter
with respect to subscription rights, and to the use of its name and statements
with respect to it appearing in this prospectus.
Where You Can Find More Information
Citizens First Bancorp has filed with the Securities and Exchange
Commission a Registration Statement on Form S-1 (File No. 333-49234) under the
Securities Act of 1933, as amended, with respect to the common stock offered in
the conversion. This prospectus does not contain all the information contained
in the registration statement, certain parts of which are omitted as permitted
by the rules and regulations of the Securities and Exchange Commission. This
information may be inspected at the public reference facilities maintained by
the Securities and Exchange Commission at 450 Fifth Street, NW, Room 1024,
Washington, D.C. 20549 and at its regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies may be obtained at prescribed rates from the
Public Reference Room of the Securities and Exchange Commission at 450 Fifth
Street, NW, Washington, D.C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the Securities and Exchange
Commission at 1-800-SEC-0330. The registration statement also is available
through the Securities and Exchange Commission's World Wide Web site on the
Internet at http://www.sec.gov.
Citizens First has filed an application for approval of conversion with the
Michigan Office of Financial and Insurance Services and a notice of intent to
convert with the Federal Deposit Insurance Corporation, which includes proxy
materials for Citizens First's special meeting of members and certain other
information. This prospectus omits certain information contained in that
application and notice. The conversion application may be examined at Michigan
Office of Financial and Insurance Services, 333 South Capital Avenue, Suite A,
Lansing, Michigan 48909. The notice of intent to convert may be examined at the
Federal Deposit Insurance Corporation's offices at 500 West Monroe Street, Suite
3300, Chicago, Illinois 60661.
Citizens First Bancorp has filed with the Office of Thrift Supervision an
application to become the holding company for Citizens First. This prospectus
omits certain information contained in that application. The application may be
inspected, without charge, at the offices of the Office of Thrift Supervision,
1700 G Street, NW, Washington, D.C. 20552 and at the offices of the Regional
Director of the Office of Thrift Supervision at the Central Regional Office of
the Office of Thrift Supervision, 200 West Madison Street, Suite 1300, Chicago,
Illinois 60606.
A copy of the plan of conversion, Citizens First Bancorp's certificate of
incorporation and bylaws and Citizens First's amended and restated articles of
incorporation and bylaws are available without charge from Citizens First.
124
<PAGE>
Index to Financial Statements
Citizens First Savings Bank
<TABLE>
<CAPTION>
Page
----
Report of Independent Auditors F-1
<S> <C>
Consolidated Balance Sheets as of August 31, 2000 and March 31, 2000 and 1999........................ F-2
Consolidated Statements of Income for the Five Months Ended August 31, 2000 and 1999 and
for the Years Ended March 31, 2000, 1999 and 1998.......................................... 30
Consolidated Statements of Changes in Equity for the Five Months Ended August 31, 2000 and 1999 and
for the Years Ended March 31, 2000, 1999 and 1998.......................................... F-3
Consolidated Statements of Cash Flows for the Five Months Ended August 31, 2000 and 1999 and
for the Years Ended March 31, 2000, 1999 and 1998.......................................... F-4
Notes to Consolidated Financial Statements........................................................... F-5
</TABLE>
* * *
All schedules are omitted as the required information either is not applicable
or is included in the financial statements or related notes.
Separate financial statements for Citizens First Bancorp have not been included
in this prospectus because Citizens First Bancorp, which has engaged only in
organizational activities to date, has no significant assets, contingent or
other liabilities, revenues or expenses.
125
<PAGE>
Independent Auditor's Report
To the Board of Directors
Citizens First Savings Bank and Subsidiary
Port Huron, Michigan
We have audited the accompanying consolidated balance sheet of Citizens First
Savings Bank and subsidiary as of March 31, 2000 and 1999 and the related
consolidated statements of income, changes in equity and cash flows for the
three years ended March 31, 2000. These consolidated financial statements are
the responsibility of the Bank's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Citizens First Savings Bank and subsidiary as of March 31, 2000 and 1999 and the
consolidated results of their operations and their cash flows for the three
years ended March 31, 2000, in conformity with generally accepted accounting
principles.
/s/ Plante & Moran, LLP
May 9, 2000 except
as to Note 10
which is as of
January 10, 2001
F-1
<PAGE>
Citizens First Savings Bank and Subsidiary
================================================================================
Consolidated Balance Sheet
(000s omitted)
<TABLE>
<CAPTION>
August 31 March 31
------------- ----------------------------
2000 2000 1999
------------- ------------- -------------
(unaudited)
<S> <C> <C> <C>
Assets
Cash and cash equivalents:
Cash and due from depository institutions $ 8,888 $ 5,194 $ 6,344
Interest-bearing deposits in other depository institutions 35,766 34,788 9,170
Federal funds sold - 5,200 750
---------- ----------- -----------
Total cash and cash equivalents 44,654 45,182 16,264
Securities available for sale (Note 3) 85,661 94,288 2,003
Loans held for sale (Note 4) 2,317 5,740 12,527
Loans - Net (Note 5) 631,166 568,503 590,637
Federal Home Loan Bank stock 5,119 5,119 4,546
Accrued interest receivable and other assets (Note 9) 15,733 13,270 10,767
Premises and equipment - Net (Note 6) 9,778 9,468 9,012
---------- ----------- -----------
Total assets $ 794,428 $ 741,570 $ 645,756
========== =========== ===========
Liabilities and Equity
Liabilities
Deposits:
Noninterest-bearing $ 19,675 $ 15,867 $ 11,531
Interest-bearing (Note 7) 617,348 585,141 515,309
---------- ----------- -----------
Total deposits 637,023 601,008 526,840
Federal Home Loan Bank advances (Note 8) 77,302 70,502 54,267
Accrued interest and other liabilities 13,140 6,801 7,136
---------- ----------- -----------
Total liabilities 727,465 678,311 588,243
Equity
Retained earnings 66,786 63,419 57,513
Accumulated other comprehensive income (loss) 177 (160) -
---------- ----------- -----------
Total equity 66,963 63,259 57,513
---------- ----------- -----------
Total liabilities and equity $ 794,428 $ 741,570 $ 645,756
========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
Citizens First Savings Bank and Subsidiary
================================================================================
Consolidated Statement of Changes in Equity
(000s omitted)
<TABLE>
<CAPTION>
Accumulated
Other
Retained Comprehensive
Earnings Income (Loss) Total
----------- -------------- ---------
<S> <C> <C> <C>
Balance - April 1, 1998 $ 50,909 $ 4,229 $ 55,138
Comprehensive income:
Net income 6,604 - 6,604
Change in net unrealized loss on securities
available for sale - Net of reclassification
adjustment and tax effect - (4,229) (4,229)
---------
Total comprehensive income 2,375
----------- ----------- ---------
Balance - March 31, 1999 57,513 - 57,513
Comprehensive income:
Net income 5,906 - 5,906
Change in net unrealized loss on securities
available for sale - Net of reclassification
adjustment and tax effect - (160) (160)
---------
Total comprehensive income 5,746
----------- ----------- ---------
Balance - March 31, 2000 63,419 (160) 63,259
Comprehensive income (unaudited):
Net income 3,367 - 3,367
Change in net unrealized gain on securities
available for sale - Net of reclassification
adjustment and tax effect - 337 337
---------
Total comprehensive income 3,704
----------- ----------- ---------
Balance - August 31, 2000 (unaudited) $ 66,786 $ 177 $ 66,963
=========== =========== =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
Citizens First Savings Bank and Subsidiary
--------------------------------------------------------------------------------
Consolidated Statement of Cash Flows
(000s omitted)
<TABLE>
<CAPTION>
Five Months
Ended August 31 Year Ended March 31
---------------- ---------------------------
2000 1999 2000 1999 1998
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 3,367 $ 3,361 $ 5,906 $ 6,604 $ 6,209
Adjustments to reconcile net income to net cash from operating
activities:
Provision for deferred taxes - 280 900 (2,296) (250)
Provision for loan losses 106 - (483) 3,800 714
Depreciation 452 230 888 870 878
(Accretion) amortization (164) 1 - 1 -
Proceeds from sale of mortgage loans held for sale 11,877 32,416 188,848 94,233 43,505
Origination of mortgage loans held for sale (8,392) (22,232) (186,257) (98,009) (40,363)
Gain on sale of investment securities (16) - - - -
Gain on sale of investment property - - - (1,065) -
(Gain) loss on sale of mortgage loans (62) (62) 4,196 (574) (327)
Gain on charitable contribution of securities available for sale - - - (6,082) (859)
Charitable contribution of securities available for sale - - - 6,217 877
Changes in assets and liabilities:
Increase in accrued interest receivable and other assets (2,636) (845) (3,320) (1,270) (1,069)
Increase (decrease) in accrued interest payable and other liabilities 6,339 2,462 (336) 3,556 122
--------- -------- -------- -------- --------
Net cash provided by operating activities 10,871 15,611 10,342 5,985 9,437
Cash Flows from Investing Activities
Proceeds from maturities of securities available for sale 7,186 - 3,000 201 -
Proceeds from sale of securities available for sale 9,631
Purchase of FHLB stock - (551) (573) (824) (548)
Purchase of available-for-sale securities (7,500) - (95,527) - -
Net increase in loans (62,769) (45,674) 22,617 (45,544) (60,499)
Purchases of premises and equipment (762) (674) (1,344) (790) (1,449)
Other - - - - 302
--------- -------- -------- -------- --------
Net cash used in investing activities (54,214) (46,899) (71,827) (46,957) (62,194)
Cash Flows from Financing Activities
Net increase in deposits 36,015 20,812 74,168 23,395 45,905
Repayment of FHLB advances (9,000) (7,000) (15,800) (14,600) (6,790)
Proceeds from FHLB advances 15,800 17,250 32,035 27,257 6,600
--------- -------- -------- -------- --------
Net cash provided by financing activities 42,815 31,062 90,403 36,052 45,715
--------- -------- -------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents (528) (226) 28,918 (4,920) (7,042)
Cash and Cash Equivalents - Beginning of year 45,182 16,264 16,264 21,184 28,226
--------- -------- -------- -------- --------
Cash and Cash Equivalents - End of year $ 44,654 $ 16,038 $ 45,182 $ 16,264 $ 21,184
========= ======== ======== ======== ========
Supplemental Disclosure of Cash Flow Information - Cash paid for
Interest $ 11,103 $ 9,023 $ 26,689 $ 26,290 $ 24,949
Federal income taxes 670 1,100 1,650 3,700 4,207
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
Citizens First Savings Bank and Subsidiary
================================================================================
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
with August 31, 2000 and 1999 (unaudited)
Note 1 - Summary of Significant Accounting Policies
The accounting and reporting policies of Citizens First Savings Bank
and subsidiary conform to generally accepted accounting principles.
Management is required to make estimates and assumptions that affect
the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates
and assumptions.
Unaudited Interim Financial Statements - The consolidated financial
statements and related notes as of August 31, 2000 and for the five
months ended August 31, 2000 and 1999 are unaudited. All adjustments,
consisting of only normal recurring adjustments, which in the opinion
of management are necessary for fair presentation of financial
position, results of operations and cash flows, have been made. The
results of operations for the five months ended August 31, 2000 are not
necessarily indicative of the results that may be expected for a full
year.
Principles of Consolidation - The consolidated financial statements
include the accounts of Citizens First Savings Bank (the "Bank") and
its wholly owned subsidiary, Citizens Financial Services, Inc. Citizens
Financial Services, Inc. includes the accounts of its wholly owned
subsidiaries, CFS Insurance Agency, CFS Appraisal and CFS Survey. All
significant intercompany transactions and balances have been eliminated
in consolidation.
Nature of Operations - The Bank, a state-chartered mutual, operates
predominately in the mideastern portion of Michigan's lower peninsula.
The Bank's primary services include accepting deposits, making
commercial and mortgage loans and engaging in mortgage banking
activities. Citizens Financial Services, Inc. receives revenue from its
three subsidiaries.
The Bank's loan portfolio is concentrated in residential first-mortgage
loans, commercial loans, simple-interest mobile home and property
improvement loans. The Bank is not dependent upon any single industry
or customer.
Securities - Securities are classified as held to maturity when
management has the intent and ability to hold them to maturity.
Held-to-maturity securities are reported at amortized cost. All other
securities are classified as available for sale and are reported at
fair value, with unrealized gains and losses, net of related deferred
income taxes, included in equity as a component of accumulated other
comprehensive income. Federal Home Loan Bank stock is considered
restricted investment security and is carried at cost.
F-5
<PAGE>
Citizens First Savings Bank and Subsidiary
================================================================================
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
with August 31, 2000 and 1999 (unaudited)
Note 1 - Summary of Significant Accounting Policies (Continued)
Loan Interest and Fee Income - Loans are generally reported at the
principal amount outstanding, net of unearned income. Nonrefundable
loan origination fees and certain direct loan origination costs are
deferred and included in interest income over the term of the related
loan as a yield adjustment.
Interest on loans is accrued and credited to income based on the
principal amount outstanding. The accrual of interest on loans is
discontinued when, in the opinion of management, there is an indication
that the borrower may be unable to meet payments as they become due.
Upon such discontinuance, all unpaid interest accrued is reversed.
Interest accruals are generally resumed when all delinquent principal
and/or interest has been brought current or the loan becomes both well-
secured and in the process of collection.
Allowance for Possible Loan Losses - The allowance for possible loan
losses is maintained at a level considered by management to be adequate
to absorb losses inherent in existing loans and loan commitments. The
adequacy of the allowance is based on evaluations that take into
consideration such factors as prior loss experience, changes in the
nature and volume of the portfolio, overall portfolio quality, loan
concentrations, specific impaired or problem loans and commitments, and
current economic conditions that may affect the borrower's ability to
pay.
Federal Home Loan Bank Stock - The Bank is required to maintain an
investment in the stock of the Federal Home Loan Bank of Indianapolis
(FHLB) in an amount equal to at least 1 percent of the unpaid principal
balances of the Bank's residential mortgage loans or .3 percent of its
total assets, whichever is greater. Purchases and sales of stock are
made directly with the FHLB at par value.
Investment in Joint Venture - Citizens Financial Services, Inc.
participated in two joint ventures, both of which were sold during
fiscal 1999. The joint ventures were involved in real estate
developments and were accounted for under the equity method. Although
the ownership percentages varied, the operating agreements of the joint
ventures specified that net income be allocated evenly between the
participants.
Premises and Equipment - Premises and equipment are carried at cost,
less accumulated depreciation. Depreciation is computed on a straight-
line method over the estimated useful lives of the related assets.
Leasehold improvements are amortized over the terms of their respective
leases or the estimated useful lives of the improvements, whichever is
shorter.
F-6
<PAGE>
Citizens First Savings Bank and Subsidiary
================================================================================
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
with August 31, 2000 and 1999 (unaudited)
Note 1 - Summary of Significant Accounting Policies (Continued)
Other Real Estate - Other real estate includes properties acquired
through foreclosure or deed in lieu of foreclosure. Other real estate
is recorded in other assets at the lower of its cost, the amount of the
loan balance plus unpaid accrued interest at foreclosure, or the
current estimated fair value less selling costs. Any write-down of the
loan balance to estimated fair value when the property is foreclosed is
charged to the allowance for loan losses. Subsequent market write-
downs, operating expenses and gains or losses on disposition of other
real estate are charged or credited to other operating expense.
Income Taxes - Deferred tax assets and liabilities are recognized for
temporary differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized.
Mortgage Banking Activities - The Bank routinely sells to investors its
originated residential mortgage loans. The mortgage loans serviced for
others are not included in the consolidated statements of financial
condition. Loans serviced for others were approximately $287,409,000,
$293,700,000 and $152,600,000 at August 31, 2000 and March 31, 2000 and
1999, respectively.
When the Bank acquires mortgage servicing rights through the
origination of mortgage loans and sells those loans with servicing
rights retained, it allocates the total cost of the mortgage loans to
the mortgage servicing rights based on their relative fair value.
Capitalized mortgage servicing rights are amortized as a reduction of
servicing fee income in proportion to, and over the period of,
estimated net servicing income by use of a method that approximates the
level-yield method. Capitalized mortgage servicing rights are
periodically evaluated for impairment. If impairment is identified, the
amount of impairment is charged to earnings with the establishment of a
valuation allowance against the capitalized mortgage servicing
rights.
F-7
<PAGE>
Citizens First Savings Bank and Subsidiary
================================================================================
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
with August 31, 2000 and 1999 (unaudited)
Note 1 - Summary of Significant Accounting Policies (Continued)
March 31,
August 31, ---------------
2000 2000 1999
------ ------ ------
Carrying value - Beginning of year $2,805 $1,519 $ 651
Originated mortgage servicing rights capitalized 89 1,465 1,179
Amortization of mortgage servicing rights (79) (179) (311)
------ ------ ------
Subtotal 2,815 2,805 1,519
Impairment valuation allowance -- -- --
------ ------ ------
Carrying value-End of year $2,815 $2,805 $1,519
====== ====== ======
The fair value of mortgage servicing rights approximates its carrying
value. The impairment valuation allowance is $0 as of August 31, 2000
and March 31, 2000 and 1999. There has been no activity in the
impairment valuation allowance for the five months ended August 31,
2000 and 1999 and for the years ended March 31, 2000 and 1999.
In the last quarter of fiscal year 2000, the Bank sold one group of
loans with a gross loan value of approximately $130,000,000 to increase
liquidity and to fund future operations. The Bank realized a net loss
of approximately $4,500,000 from this sale.
Off-balance-sheet Instruments Used for Risk Management Purposes - The
Bank uses forward contracts as part of its mortgage banking activities.
Forward contracts provide for the delivery of financial instruments at
a specified future date and at a specified price or yield. Forward
contracts are accounted for on a fair value basis. As a result, the
fair value of these instruments are recorded in the consolidated
balance sheet with both realized and unrealized gains and losses
recognized currently in non-interest income.
Pension Costs - Pension costs are charged to salaries and employee
benefits expense as earned and are funded consistent with the
requirements of federal laws and regulations.
Postretirement Benefits - Postretirement benefits are recognized in the
consolidated financial statements over the period earned by the
employees.
Statement of Cash Flows - For purposes of reporting cash flows, the
Bank considers cash and cash equivalents to include cash and amounts
due from depository institutions, trust demand notes and federal funds
sold. Generally, federal funds are sold for one-day periods.
Other Comprehensive Income - Accounting principles generally require
that recognized revenue, expenses, gains and losses be included in net
income. Certain changes in assets and liabilities, however, such as
unrealized gains and losses on available-for-sale securities, are
reported as a separate component in the equity section of the balance
sheet. Such items, along with net income, are components of
comprehensive income.
Accumulated other comprehensive income at August 31, 2000 and March 31,
2000 and 1999 is comprised solely of unrealized gains and losses on
available-for-sale securities, net of applicable income taxes. During
1999, the change in net unrealized gains on securities includes
reclassification adjustments of $4,014,000 for gains included in
income.
F-8
<PAGE>
Citizens First Savings Bank and Subsidiary
================================================================================
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
with August 31, 2000 and 1999 (unaudited)
Note 1 - Summary of Significant Accounting Policies (Continued)
Derivative Instruments and Hedging Activities - In June 1998, Statement
of Financial Account Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"), was issued. SFAS 133
requires all derivative instruments to be recorded on the balance sheet
at estimated fair value. Changes in the fair value of derivative
instruments are to be recorded each period either in current earnings
or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, on the type of
hedge transaction. SFAS 133 was adopted by the Bank during fiscal year
2000 and accordingly, forward contracts used in mortgage banking
activities are now accounted for on a fair value basis. Previously,
these forward contracts were accounted for at settlement. The adoption
of SFAS 133 did not have a material effect on the consolidated
financial position or results of operations.
Reclassifications - Certain amounts in the prior year's consolidated
financial statements have been reclassified to conform to the current
year's presentation.
Note 2 - Charitable Foundation
The Bank has created a charitable foundation. The Bank contributed all
of its shares of Freddie Mac stock to the foundation in 1999 and 1998.
The Bank transferred approximately $6,217,000 worth of the stock to the
foundation in 1999. The gain on the contributions of the stock and
related contribution expense was recognized in the March 31, 1999
consolidated financial statements. The Bank contributed $140,000 during
the fiscal year 2000 to cover taxes incurred by the foundation.
F-9
<PAGE>
Citizen First Savings Bank and Subsidiary
================================================================================
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
with August 31, 2000 and 1999 (unaudited)
Note 3 - Securities
The amortized cost and estimated market value of available-for-sale
securities are as follows (000s omitted):
<TABLE>
<CAPTION>
August 31, 2000
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 37,664 $ 139 $ 13 $ 37,790
Obligations of state and political subdivisions 10,927 218 17 11,128
Corporate securities 36,802 63 122 36,743
--------- --------- --------- ----------
Total available-for-sale securities $ 85,393 $ 420 $ 152 $ 85,661
========= ========= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
March 31, 2000
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- -------- --------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 47,255 $ - $ 105 $ 47,150
Obligations of state and political subdivisions 3,612 18 - 3,630
Corporate securities 43,663 - 155 43,508
--------- --------- --------- ----------
Total available-for-sale securities $ 94,530 $ 18 $ 260 $ 94,288
========= ========= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 2,003 $ - $ - $ 2,003
========= ========== ========= =========
</TABLE>
Proceeds from sales of securities were $9,631,000, $0, $0 and $0 for
the five months ended August 31, 2000 and fiscal years ended March 31,
2000, 1999 and 1998, respectively. There were no commitments to buy or
sell securities during the five months ended August 31, 2000 and
fiscal years ended March 31, 2000, 1999 and 1998.
Concurrently with the adoption of SFAS 133, the Bank transferred
securities with a cost and market value of $2,003,000 from held-to-
maturity to available for sale.
F-10
<PAGE>
Citizens First Savings Bank and Subsidiary
================================================================================
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
with August 31, 2000 and 1999 (unaudited)
Note 3 - Securities (Continued)
The amortized cost and estimated market value of available-for-sale
securities by contractual maturity are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties (000s omitted):
<TABLE>
<CAPTION>
August 31, 2000 March 31, 2000
------------------------------ ----------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
------------- --------------- ------------- ------------
<S> <C> <C> <C> <C>
Due in one year or less $ 7,116 $ 6,975 $ 9,975 $ 9,971
Due in one year through five years 70,330 70,484 81,327 81,079
Due after five years through ten years 7,481 7,733 3,101 3,112
Due after ten years 466 469 127 126
-------- -------- -------- --------
Total $ 85,393 $ 85,661 $ 94,530 $ 94,288
======== ======== ======== ========
</TABLE>
Note 4 - Mortgage Banking Activities
The Bank routinely sells to investors its originated residential
mortgage loans. Fixed rate residential mortgages of 30-year terms,
recently originated or financed, are identified as held for sale. They
are accounted for at the lower of cost or market on an aggregate basis.
Loans held for sale are as follows (000s omitted):
<TABLE>
<CAPTION>
August 31 March 31
---------------------
2000 2000 1999
-------- --------- ---------
<S> <C> <C> <C>
Loans held for sale $ 2,456 $ 5,886 $ 12,556
Allowance for lower of cost or
market adjustment (139) (146) (29)
------- ------- --------
Total $ 2,317 $ 5,740 $ 12,527
======= ======= ========
</TABLE>
The Bank had outstanding forward contracts to sell mortgage loans of
approximately $2,066,000, $880,000 and $19,500,000 at August 31,
2000 and March 31, 2000 and 1999, respectively.
F-11
<PAGE>
Citizens First Savings Bank and Subsidiary
================================================================================
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
with August 31, 2000 and 1999 (unaudited)
Note 5 - Loans
Balances of loans are as follows (000s omitted):
<TABLE>
<CAPTION>
August 31, March 31
--------------------------
2000 2000 1999
------- --------- --------
<S> <C> <C> <C>
One- to four-family mortgage $ 359,271 $ 341,308 $ 427,555
Commercial real estate 81,157 71,611 50,650
Construction 35,926 24,750 31,040
Mobile home and property improvement 79,373 70,873 58,765
Automobile 51,467 41,066 7,100
Commercial 36,106 30,749 28,488
--------- --------- ---------
Total loans 643,300 580,357 603,598
Less:
Allowance for loan losses 10,633 10,461 11,161
Deferred loan origination and other fees 1,501 1,393 1,800
--------- --------- ---------
Net loans $ 631,166 $ 568,503 $ 590,637
========= ========= =========
</TABLE>
Related parties, including senior officers and directors of the Bank, had loans
totaling approximately $2,857,000, $2,963,000 and $8,244,000 at August 31,
2000, March 31, 2000 and 1999, respectively. For the five months ended August
31, 2000 and for the year ended March 31, 2000, $852,000 and $813,000 of new
loans were made and repayments totaled $958,000 and $6,094,000, respectively.
Activity in the allowance for loan losses was as follows (000s omitted):
<TABLE>
<CAPTION>
August 31, March 31
---------------------
2000 2000 1999
---------- --------- ---------
<S> <C> <C> <C>
Balance - Beginning of year $ 10,461 $ 11,161 $ 7,527
Provision for loan losses 106 (483) 3,800
Net (charge-offs) recoveries 66 (217) (166)
--------- --------- ---------
Balance - End of year $ 10,633 $ 10,461 $ 11,161
========= ========= =========
</TABLE>
The recorded investment in impaired loans at August 31, 2000, March 31, 2000 and
1999 was $357,000, $303,000 and $717,000, respectively, for which there were no
specific allowance for the loan losses.
F-12
<PAGE>
Citizens First Savings Bank and Subsidiary
================================================================================
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
with August 31, 2000 and 1999 (unaudited)
Note 6 - Premises and Equipment
Premises and equipment were as follows (000s omitted):
<TABLE>
<CAPTION>
March 31
August 31, -------------------------
2000 2000 1999
----------- ---------- ----------
<S> <C> <C> <C>
Land $ 1,711 $ 1,711 $ 1,711
Office buildings 10,266 9,848 9,505
Furniture, fixtures and equipment 6,484 6,140 5,283
--------- --------- ---------
Total premises and equipment 18,461 17,699 16,499
Less accumulated depreciation (8,683) (8,231) (7,487)
--------- --------- ---------
Net carrying amount $ 9,778 $ 9,468 $ 9,012
========= ========= =========
</TABLE>
Note 7 - Deposits
Interest-bearing deposit balances are summarized as follows (000s
omitted):
<TABLE>
<CAPTION>
March 31
August 31, ------------------------
2000 2000 1999
----------- ---------- ----------
<S> <C> <C> <C>
Interest-bearing:
Passbook and savings deposits $ 87,669 $ 88,049 $ 84,215
NOW accounts 66,702 65,865 57,853
Money market variable rate accounts 98,608 106,564 110,629
Certificates of deposit 364,369 324,663 262,612
---------- ---------- ----------
Total interest-bearing $ 617,348 $ 585,141 $ 515,309
========== ========== ==========
</TABLE>
Certificates of deposit individually exceeding $100,000 were
approximately $115,683,000, $84,580,000 and $25,350,000 at August 31,
2000, March 31, 2000 and March 31, 1999, respectively.
Scheduled annual maturities of certificates of deposit were as follows
(000s omitted):
<TABLE>
<CAPTION>
August 31, March 31,
2000 2000
---------- ----------
<S> <C> <C>
1-12 months $ 176,880 $ 197,337
13-24 months 101,728 52,278
25-36 months 42,286 41,182
37-48 months 13,807 12,975
49-60 months 16,563 7,767
61 months and thereafter 13,105 13,124
---------- ----------
Total $ 364,369 $ 324,663
========== ==========
</TABLE>
<PAGE>
Citizens First Savings Bank and Subsidiary
================================================================================
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
with August 31, 2000 and 1999 (unaudited)
Note 8 - Federal Home Loan Bank Advances
Advances from the Federal Home Loan Bank consist of fixed rate
advances that bear interest at rates ranging from 4.96 percent to
7.31 percent payable monthly. The advances are collateralized by
approximately $464,000,000 and $456,000,000 of mortgage loans and
investment securities as of August 31, 2000 and March 31, 2000,
respectively, under a blanket collateral agreement.
The advances are subject to prepayment penalties subject to the
provisions and conditions of the credit policy of the Federal Home
Loan Bank. Future maturities of the advances are as follows (000s
omitted):
Years Ending August 31, 2000 March 31, 2000
------------------- --------------- --------------
2001 $ 15,000 $ 15,000
2002 27,600 16,000
2003 7,000 7,000
2004 10,000 6,000
2005 3,200 8,000
2006 and thereafter 14,502 18,502
-------- --------
Total $ 77,302 $ 70,502
======== ========
Note 9 - Federal Income Taxes
The consolidated provision for federal income taxes consisted of
the following (000s omitted):
<TABLE>
<CAPTION>
August 31 March 31
-------------------- ---------------------------------
2000 1999 2000 1999 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Current tax expense $ 1,635 $ 1,372 $ 1,980 $ 2,835 $ 2,919
Deferred tax expense (benefit) - 280 900 (2,296) (250)
------- ------- ------- ------- -------
Total income tax expense $ 1,635 $ 1,652 $ 2,880 $ 539 $ 2,669
======= ======= ======= ======= =======
</TABLE>
F-14
<PAGE>
Citizens First Savings Bank and Subsidiary
================================================================================
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
with August 31, 2000 and 1999 (unaudited)
Note 9 - Federal Income Taxes (Continued)
Federal income tax expense differed from the amounts computed by
applying the statutory income tax rate of 34 percent to income before
federal income tax expense as a result of the following (000s omitted):
<TABLE>
<CAPTION>
August 31 March 31
-------------------- ---------------------------------
2000 1999 2000 1999 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statutory rates $ 1,701 $ 1,704 $ 2,987 $ 2,429 $ 3,019
Increase (decrease) resulting from:
Dividend received deduction (14) (15) (32) (35) (38)
Nontaxable gain - - - (1,852) (292)
Nontaxable interest income (82) - (28) - -
Other 30 (37) (47) (3) (20)
------- ------- ------- ------- -------
Total income tax expense $ 1,635 $ 1,652 $ 2,880 $ 539 $ 2,669
======= ======= ======= ======= =======
</TABLE>
The net deferred tax asset was comprised of the following temporary
differences (000s) omitted):
<TABLE>
<CAPTION>
August 31 March 31
--------------------- ---------------------
2000 1999 2000 1999
------ ---- ---- ----
<S> <C> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 3,340 $ 3,481 $ 3,264 $ 3,427
Contribution carryover 1,491 1,602 1,594 1,803
Depreciation 226 319 212 381
Deferred loan fees 231 318 268 259
Employee benefits 1,312 1,134 1,254 1,062
Net unrealized loss on available-for-sale securities - - 82 -
Other 216 201 209 194
-------- ------- ------- -------
Total Deferred tax assets 6,816 7,055 6,883 7,126
Less valuation allowance (500) (500) (500) (500)
-------- ------- ------- -------
Net deferred tax assets 6,316 6,555 6,383 6,626
Deferred tax Liabilities:
Federal Home Loan Bank stock dividends 126 126 126 126
Original issue discount 812 824 788 689
Mortgage servicing 957 567 954 516
Installment sale 198 237 215 253
Net unrealized gain on available-for-sale securities 91 - - -
Other 95 53 90 14
-------- ------- ------- -------
Total deferred tax liabilities 2,279 1,807 2,173 1,598
-------- ------- ------- -------
Net deferred tax asset $ 4,037 $ 4,748 $ 4,210 $ 5,028
======== ======= ======= =======
</TABLE>
<PAGE>
Citizens First Savings Bank and Subsidiary
================================================================================
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
with August 31, 2000 and 1999 (unaudited)
Note 9 - Federal Income Taxes (Continued)
The Bank has not recognized a deferred tax liability for tax bad debt
reserves of approximately $6,600,000 that existed at December 31,
1987, because it is not expected that this temporary difference will
reverse in the foreseeable future.
Note 10 - Employee Benefits
The Bank is a participant in the multiemployer Financial Institutions
Retirement Fund (FIRF or the "Plan"), which covers substantially all
of its officers and employees. The defined benefit plan, for all full-
time employees with one year of service, provides benefits based on
basic compensation and years of service. The Bank's contributions are
determined by FIRF and generally represent the normal cost of the
Plan. Specific Plan assets and accumulated benefit information for the
Bank's portion of the Plan are not available. Under the Employee
Retirement Income Security Act of 1974 (ERISA), a contributor to a
multiemployer pension plan may be liable in the event of complete or
partial withdrawal for the benefit payments guaranteed under ERISA.
The Bank has no present intention to withdraw from the Plan. The Bank
was fully funded in the Plan as of August 31, 2000 and March 31, 2000.
The expense of the Plan allocated to the Bank for the five months
ended August 31, 2000 and 1999 and for the years ended March 31, 2000,
1999 and 1998 amounted to $0.
The Bank participates in the Financial Institutions Thrift Plan
(FITP). The FITP covers all of the Bank's employees who have completed
at least one year of service. Eligible employees may contribute up to
15 percent of their annual compensation, subject to certain maximums
established by the Internal Revenue Service. The Bank will match up to
50 percent of the first 4 percent of the employees' compensation
deferred each year. The Bank's cost of the FITP for the five months
ended August 31, 2000 and 1999 and the fiscal years 2000 and 1999 was
approximately $25,000, $29,000, $68,500 and $70,000, respectively.
In 2000, the Bank entered into an agreement to provide salary
continuation supplemental payments at retirement to its President. The
agreement is currently unfunded. The amount recorded under the
agreement, as determined by accruing the benefit over the expected
work life of its president, totaled approximately $635,000 and
$615,000 at August 31, 2000 and March 31, 2000, respectively. The
expense associated with the agreement was $20,000 and $615,000 for the
five months ended August 31, 2000 and the year ended March 31, 2000,
respectively.
The Bank has entered into deferred arrangements with certain of its
Directors. The amounts deferred under the arrangements are transferred
into a trust. At August 31, 2000, March 31, 2000 and 1999, the Bank
had recorded $990,000, $888,000 and $480,000, respectively, as an
asset with a corresponding liability in the statement of condition.
Note 11 - Regulatory Matters
The Bank is subject to regulatory capital requirements administered by
federal banking agencies. Capital adequacy guidelines and prompt
corrective action regulations involve quantitative measures of assets,
liabilities and certain off-balance-sheet items calculated under
regulatory accounting practices. Capital amounts and classifications
are also subject to qualitative judgments by regulators about
components, risk weightings and other factors, and the regulators can
lower classifications in certain cases. Failure to meet various
capital requirements can initiate regulatory action that could have a
direct material effect on the financial statements.
F-16
<PAGE>
Citizens First Savings Bank and Subsidiary
--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
with August 31, 2000 and 1999 (unaudited)
Note 11 - Regulatory Matters (Continued)
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios,
which are shown in the table below.
As of August 31, 2000 and March 31, 2000, the most recent
notification from the Bank's regulators categorized the Bank as well-
capitalized under the regulatory framework for prompt corrective
action. To be categorized as well-capitalized, minimum capital amounts
and ratios must be maintained as shown in the following table. There
are no conditions or events since that notification that management
believes have changed the Bank's capital category.
At August 31, 2000 and March 31, 2000 and 1999, consolidated actual
capital levels and minimum required levels were as follows (000s
omitted):
<TABLE>
<CAPTION>
For Capital
Actual Adequacy Purposes To be Well-capitalized
------ ----------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
August 31, 2000:
Total capital (to risk-
weighted assets) $73,300 13.3% $43,900 * 8.0% $54,900 * 10.0%
Tier 1 capital (to risk-
weighted assets) $66,400 12.1% $22,000 * 4.0% $32,900 * 6.0%
Tier 1 capital (to average
assets) $66,400 8.8% $22,500 * 3.0% $37,500 * 5.0%
March 31, 2000:
Total capital (to risk-
weighted assets) $69,100 14.3% $38,600 * 8.0% $48,300 * 10.0%
Tier 1 capital (to risk-
weighted assets) $63,000 13.1% $19,300 * 4.0% $28,900 * 6.0%
Tier 1 capital (to average
assets) $63,000 8.5% $22,200 * 3.0% $37,000 * 5.0%
March 31, 1999:
Total capital (to risk-
weighted assets) $62,500 15.5% $32,300 * 8.0% $40,400 * 10.0%
Tier I capital (to risk-
weighted assets) $57,400 14.2% $16,200 * 4.0% $24,200 * 6.0%
Tier 1 capital (to average
assets) $57,400 8.8% $19,600 * 3.0% $32,700 * 5.0%
</TABLE>
* greater than or equal to
F-17
<PAGE>
Citizens First Savings Bank and Subsidiary
================================================================================
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
with August 31, 2000 and 1999 (unaudited)
Note 12 - Off-balance-sheet Risk Commitments and Contingencies
Off-balance-sheet Risk - The Bank is party to financial instruments
with off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers and to reduce its own exposure to
fluctuations in interest rates. These financial instruments include
commitments to extend credit and forward contracts to sell mortgage
loans. These instruments involve, to varying degrees, elements of
credit and interest rate risk that are not recognized in the
consolidated balance sheet.
Commitments to extend credit are agreements to lend to a customer as
long as there are no violations of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Fees from
issuing these commitments to extend credit are recognized over the
period to maturity. Since a portion of the commitments is expected to
expire without being drawn upon, the total commitments do not
necessarily represent future cash requirements. The Bank evaluates
each customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained upon extension of credit is based on
management's credit evaluation of the customer.
Exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and
financial guarantees written is represented by the contractual amount
of those items. The Bank generally requires collateral to support such
financial instruments in excess of the contractual amount of those
instruments.
Forward contracts are used to manage risk positions associated with
mortgage origination activities. Substantially all forward contracts
mature within 90 days of origination. Forward contracts are traded in
the over-the-counter markets and do not have standardized terms.
Counterparties to the Bank's forward contracts are primarily U.S.
government agencies and brokers and dealers in mortgage-backed
securities. In the event the counterparty is unable to meet
contractual obligations, the Bank may be exposed to selling mortgage
loans at prevailing market prices. There were no counterparty default
losses on forward contracts during the five months ended August 31,
2000 and the years ended March 31, 2000 and 1999.
F-18
<PAGE>
Citizens First Savings Bank and Subsidiary
================================================================================
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
with August 31, 2000 and 1999 (unaudited)
Note 12 - Off-balance-sheet Risk Commitments and Contingencies
(Continued)
A summary of the notional or contractual amounts of financial
instruments with off-balance-sheet risk at year end follows
(000s omitted):
<TABLE>
<CAPTION>
August 31, March 31
-------------------------
2000 2000 1999
---------- --------- ---------
<S> <C> <C> <C>
Letters of credit $ 700 $ 700 $ 600
Unused lines of credit
25,200 28,200 19,100
Commitments to originate loans or to refinance
existing loans:
Mortgage 10,800 51,500 50,200
Consumer 6,500 6,900 3,700
Commercial 12,800 23,100 24,600
--------- --------- ---------
Total commitments to extend credit $ 56,000 $ 110,400 $ 98,200
========= ========= =========
</TABLE>
The Bank had $2,066,000, $880,000 and $19,500,000 in forward contracts
to sell mortgage loans for the five months ended August 31, 2000 and
for the years ended March 31, 2000 and 1999, respectively.
NOTE 13 - Fair Values of Financial Instruments
Fair Values of Financial Instruments - The carrying amounts and
estimated fair values of the Bank's financial instruments are
presented below. Certain assets, the most significant being premises
and equipment and the deposit base and other customer relationship
intangibles, do not meet the definition of a financial instrument and
are excluded from this disclosure. Accordingly, this fair value
information is not intended to, and does not, represent Citizens First
Savings Bank and subsidiary's underlying value. Many of the assets
and liabilities subject to the disclosure requirements are not
actively traded, requiring fair values to be estimated by management.
These estimates necessarily involve the use of judgment about a wide
variety of factors, including, but not limited to, relevancy of market
prices of comparable instruments, expected future cash flows and
appropriate discount rates.
F-19
<PAGE>
Citizens First Savings Bank and Subsidiary
================================================================================
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
with August 31, 2000 and 1999 (unaudited)
Note 13 - Fair Values of Financial Instruments (Continued)
The carrying amounts and estimated fair values of financial instruments
were as follows (000s omitted):
<TABLE>
<CAPTION>
March 31
---------------------------------------------
August 31, 2000 2000 1999
--------------------- --------------------- ---------------------
Carrying Estimated Carrying Estimated Carrying Estimated
--------- ---------- --------- ---------- --------- ---------
Amount Fair Value Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 44,654 $ 44,654 $ 45,182 $ 45,182 $ 16,264 $ 16,264
Securities available for sale 85,661 85,661 94,288 94,288 2,003 2,003
Loans held for sale 2,317 2,317 5,740 5,740 12,527 12,527
Loans in portfolio 631,166 618,303 568,503 552,926 590,637 592,885
FHLB stock 5,119 5,119 5,119 5,119 4,546 4,546
Accrued interest receivable 5,282 5,282 3,315 3,315 3,235 3,235
Financial liabilities:
Deposits 637,023 636,161 601,008 599,695 526,840 528,220
FHLB advances 77,302 75,656 70,502 70,223 54,267 54,680
Advance payments by borrowers 1,532 1,532 1,725 1,725 2,283 2,283
Accrued interest payable 3,355 3,355 965 965 591 591
</TABLE>
The terms and short-term nature of certain assets and liabilities result in
their carrying amount approximating fair value. These include cash and due
from banks, interest-bearing deposits in banks, federal funds sold and
accrued interest receivable and payable. The following methods and
assumptions were used by the Bank to estimate the fair value of the
remaining classes of financial instruments:
Mortgages held for sale are valued at the lower of aggregate cost or market
value primarily as determined using quoted market prices.
Securities are valued based on quoted market prices, where available. If
quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.
For variable rate loans that reprice frequently, fair values are based on
carrying amounts, as adjusted for estimated credit losses. The fair values
for other loans are estimated using discounted cash flow analyses and
employ interest rates currently being offered for loans with similar terms
to borrowers of similar credit quality.
F-20
<PAGE>
Citizens First Savings Bank and Subsidiary
================================================================================
Notes to Consolidated Financial Statements
March 31, 2000, 1999 and 1998
with August 31, 2000 and 1999 (unaudited)
Note 13 - Fair Values of Financial Instruments
The fair values of demand deposits, savings accounts and money market
deposits are, by definition, equal to the amount payable on demand.
The fair values of fixed rate time deposits are estimated by
discounting cash flows using interest rates currently being offered on
certificates with similar maturities.
The fair value of the Bank's fixed rate long-term debt is based on
quoted market prices or, in the absence of quoted market prices,
discounted cash flows using rates for similar debt with the same
maturities. The fair value of variable rate notes is based on their
carrying amount.
The fair value of loan commitments and standby letters of credit,
valued on the basis of fees currently charged for commitments for
similar loan terms to new borrowers with similar credit profiles, is
not considered material.
The fair value of off-balance-sheet financial instruments used for
risk management purposes, which consists solely of forward contracts
extending from 45-90 days to sell mortgage loans, is estimated by
obtaining quotes from brokers and U.S. government agencies or by cash
flow analysis comparing forward with current rates. The notional
amount of forward contracts at August 31, 2000 and March 31, 2000 and
1999 was $2,066,000, $880,000 and $19,500,000, respectively. The
carrying amount is $0. The fair value of these contracts is not
material.
F-21
<PAGE>
<TABLE>
<S> <C>
=============================================================== =========================================================
You should rely only on the information contained in this
prospectus. Neither Citizens First Bancorp nor Citizens
First Savings Bank has authorized anyone to provide you with
different information. This prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any of the
securities offered by this prospectus to any person or in any 7,670,500 Shares
jurisdiction in which an offer or solicitation is not
authorized or in which the person making an offer or
solicitation is not qualified to do so, or to any person to
whom it is unlawful to make an offer or solicitation in those
jurisdictions. The information contained in this prospectus
is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or of Citizens First Bancorp, Inc.
any sale of the Citizens First Bancorp common stock. (Proposed Holding Company for
______________________________ Citizens First Savings Bank)
TABLE OF CONTENTS
Page
----
Questions and Answers about the Stock Offering...................... COMMON STOCK
Summary.............................................................
Risk Factors........................................................
Recent Developments.................................................
Selected Financial and Other Data. .................................
Use of Proceeds..................................................... ______________
Citizens First Bancorp's Dividend Policy............................
Market for the Common Stock.........................................
Capitalization...................................................... PROSPECTUS
Regulatory Capital Compliance.......................................
Pro Forma Data...................................................... ______________
Comparison of Independent Valuation and Pro Forma Financial
Information With and Without the Foundation
Citizens First Consolidated Statements of Income....................
Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. Trident Securities, a Division of
Business of Citizens First Bancorp.................................. McDonald Investments Inc.
Business of Citizens First Savings Bank.............................
Management of Citizens First Bancorp................................
Management of Citizens First Savings Bank...........................
Regulation and Supervision..........................................
Federal and State Taxation.......................................... _________________
Shares to be Purchased by Management with
Subscription Rights............................................
The Conversion......................................................
Restrictions on Acquisition of Citizens First Bancorp
and Citizens First Savings Bank.................................
Description of Citizens First Bancorp Capital Stock.................
Description of Citizens First Savings Bank Capital Stock............
Registration Requirements...........................................
Legal and Tax Opinions..............................................
Experts.............................................................
Change in Accountants...............................................
Where You Can Find More Information.................................
Index of Financial Statements.......................................
_____________________________
DEALER PROSPECTUS DELIVERY OBLIGATION
Until ___________, 2001, all dealers that buy, sell or trade
these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in
addition to the dealers' obligation to deliver a prospectus
when acting as underwriters and with respect to their unsold
allotments or subscriptions.
=============================================================== =========================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
<TABLE>
<S> <C>
Michigan filing fee.............................................. $ 1,750
SEC filing fee (1)............................................... 25,151
OTS holding company filing fee................................... 2,000
NASD filing fee (1).............................................. 10,027
Stock Market listing fee (1)..................................... 75,625
Printing, postage and mailing.................................... 400,000
Legal fees and expenses (including underwriter's counsel fees)... 600,000
Accounting fees and expenses..................................... 150,000
Appraiser's fees and expenses (including business plan).......... 41,000
Marketing fees and selling commission............................ 1,174,650
Underwriter's expenses (excluding counsel fees).................. 50,000
Conversion agent fees and expenses............................... 40,000
Transfer agent and registrar fees and expenses................... 20,000
Certificate printing............................................. 10,000
Telephone, temporary help and other equipment.................... 25,000
Edgarization expenses............................................ 25,000
Miscellaneous.................................................... 24,447
----------
Total....................................................... $2,674,650
==========
</TABLE>
______________________
/(1)/ Estimated expenses based on the registration of 9,526,761 shares at
$10.00 per share.
Item 14. Indemnification of Directors and Officers.
In accordance with the General Corporation Law of the State of Delaware
(being Chapter 1 of Title 8 of the Delaware Code), Articles 10 and 11 of the
registrant's Certificate of Incorporation provide as follows:
TENTH:
A. Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent, or in any other capacity while serving as a Director,
Officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered by
such indemnitee in connection therewith; provided, however, that, except as
provided in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
B. The right to indemnification conferred in Section A of this Article TENTH
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition
<PAGE>
(hereinafter an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses incurred
by an indemnitee in his or her capacity as a Director or Officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, services to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (hereinafter a "final adjudication")
that such indemnitee is not entitled to be indemnified for such expenses under
this Section or otherwise. The rights to indemnification and to the advancement
of expenses conferred in Sections A and B of this Article TENTH shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a Director, Officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in full
by the Corporation within sixty days after a written claim has been received by
the Corporation, except in the case of a claim for an advancement of expenses,
in which case the applicable period shall be twenty days, the indemnitee may at
any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim. If successful in whole or in part in any such suit, or in
a suit brought by the Corporation to recover an advancement of expenses pursuant
to the terms of an undertaking, the indemnitee shall be entitled to be paid also
the expenses of prosecuting or defending such suit. In (i) any suit brought by
the indemnitee to enforce a right to indemnification hereunder (but not in a
suit brought by the indemnitee to enforce a right to an advancement of expenses)
it shall be a defense that, and (ii) in any suit by the Corporation to recover
an advancement of expenses pursuant to the terms of an undertaking the
Corporation shall be entitled to recover such expenses upon a final adjudication
that, the indemnitee has not met any applicable standard for indemnification set
forth in the Delaware General Corporation Law. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article TENTH or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses conferred
in this Article TENTH shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, the Corporation's Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or Disinterested
Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect itself
and any Director, Officer, employee or agent of the Corporation or subsidiary or
Affiliate or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
<PAGE>
ELEVENTH:
A Director of this Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
Director, except for liability: (i) for any breach of the Director's duty of
loyalty to the Corporation or its stockholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (iii) under Section 174 of the Delaware General Corporation Law; or (iv)
for any transaction from which the Director derived an improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
Directors, then the liability of a Director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a Director of
the Corporation existing at the time of such repeal or modification.
Item 15. Recent Sales of Unregistered Securities
None.
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
The exhibits and financial statement schedules filed as a part of this
registration statement are as follows:
(a) List of Exhibits (filed herewith unless otherwise noted)
<TABLE>
<S> <C>
1.1 Engagement Letter between Citizens First Savings Bank and Trident
Securities, A Division of McDonald Investments, Inc.*
1.2 Draft Form of Agency Agreement*
2.1 Amended Plan of Conversion (including the Amended and Restated Articles of
Incorporation and Stock Bylaws of Citizens First Savings Bank)
3.1 Certificate of Incorporation of Citizens First Bancorp, Inc.*
3.2 Bylaws of Citizens First Bancorp, Inc.*
3.3 Amended and Restated Articles of Incorporation and Stock Bylaws of
Citizens First Savings Bank (See Exhibit 2.1 hereto)
4.0 Specimen Stock Certificate of Citizens First Bancorp, Inc.*
5.0 Opinion of Muldoon Murphy & Faucette LLP re: legality*
8.0 Opinion of Muldoon Murphy & Faucette LLP re: Federal Tax Matters*
8.1 Opinion of Plante & Moran, LLP re: State Tax Matters*
10.1 Draft ESOP Loan Commitment Letter and ESOP Loan Documents*
10.2 Form of Citizens First Savings Bank Employment Agreement *
10.3 Form of Citizens First Bancorp, Inc. Employment Agreement *
10.4 Form of Citizens First Savings Bank Employee Severance Compensation Plan *
10.5 Form of Citizens First Savings Bank Supplemental Executive Retirement
Plan *
10.6 Form of Citizens First Savings Bank Change in Control Agreement *
10.7 Form of Citizens First Savings Bank Director's Deferred Fee Agreement*
23.1 Consent of Muldoon Murphy & Faucette LLP *
23.2 Consent of Plante & Moran, LLP
23.3 Consent and Subscription Rights Opinion of Keller & Company, Inc.*
24.1 Powers of Attorney *
27.0 Financial Data Schedule *
99.1 Appraisal Report of Keller & Company, Inc. (P)
99.2 Draft of Citizens First Foundation Gift Instrument *
99.3 Draft Stock Order Form*
</TABLE>
______________________________________
*Previously filed
(P) Previously filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
CONFORMED
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Port Huron, State of
Michigan, on January 11, 2001.
Citizens First Bancorp, Inc.
By: /s/ Timothy D. Regan
------------------------------------
Timothy D. Regan
Secretary, Treasurer and Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
* President, Chief Executive Officer
---------------------------- and Director
Larry J. Moeller, Sr. (principal executive officer)
/s/ Timothy D. Regan Secretary, Treasurer and Director January 11, 2001
---------------------------- (principal accounting
Timothy D. Regan and financial officer)
* Director
----------------------------
Marshall J. Campbell
* Director
----------------------------
Christopher A. Kellerman
/s/ Ronald W. Cooley Director January 11, 2001
----------------------------
Ronald W. Cooley
</TABLE>
* Pursuant to the Power of Attorney filed as Exhibit 24.1 to the Registration
Statement on Form S-1 for Citizens First Bancorp. Inc., filed on November 3,
2000.
<TABLE>
<S> <C> <C>
/s/ Timothy D. Regan Secretary, Treasurer and Director January 11, 2001
---------------------------- (principal accounting
Timothy D. Regan and financial officer)
</TABLE>
<PAGE>
As filed with the Securities and Exchange Commission on January 12, 2001
Registration No. 333-49234
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
EXHIBITS
TO THE
PRE-EFFECTIVE AMENDMENT NO. 2 TO THE
FORM S-1
Registration Statement
Under
THE SECURITIES ACT OF 1933
--------------------
Citizens First Bancorp, Inc.
(Exact name of registrant as specified in its charter)
================================================================================
<PAGE>
TABLE OF CONTENTS
List of Exhibits (filed herewith unless otherwise noted)
<TABLE>
<S> <C>
1.1 Engagement Letter between Citizens First Savings Bank and Trident
Securities, A Division of McDonald Investments, Inc.*
1.2 Draft Form of Agency Agreement*
2.1 Amended Plan of Conversion (including the Amended and Restated Articles of
Incorporation and Stock Bylaws of Citizens First Savings Bank)
3.1 Certificate of Incorporation of Citizens First Bancorp, Inc.*
3.2 Bylaws of Citizens First Bancorp, Inc.*
3.3 Amended and Restated Articles of Incorporation and Stock Bylaws of Citizens
First Savings Bank (See Exhibit 2.1 hereto)
4.0 Specimen Stock Certificate of Citizens First Bancorp, Inc.*
5.0 Opinion of Muldoon Murphy & Faucette LLP re: legality*
8.0 Opinion of Muldoon Murphy & Faucette LLP re: Federal Tax Matters*
8.1 Opinion of Plante & Moran, LLP re: State Tax Matters*
10.1 Draft ESOP Loan Commitment Letter and ESOP Loan Documents*
10.2 Form of Citizens First Savings Bank Employment Agreement *
10.3 Form of Citizens First Bancorp, Inc. Employment Agreement *
10.4 Form of Citizens First Savings Bank Employee Severance Compensation Plan *
10.5 Form of Citizens First Savings Bank Supplemental Executive Retirement Plan *
10.6 Form of Citizens First Savings Bank Change in Control Agreement *
10.7 Form of Citizens First Savings Bank Director's Deferred Fee Agreement*
23.1 Consent of Muldoon Murphy & Faucette LLP *
23.2 Consent of Plante & Moran, LLP
23.3 Consent and Subscription Rights Opinion of Keller & Company, Inc.*
24.1 Powers of Attorney *
27.0 Financial Data Schedule *
99.1 Appraisal Report of Keller & Company, Inc. (P)
99.2 Draft of Citizens First Foundation Gift Instrument *
99.3 Draft Stock Order Form*
</TABLE>
--------------------------------------
*Previously filed
(P) Previously filed pursuant to Rule 202 of Regulation S-T.
