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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File No. __________
CITIZENS BANCORP
(Name of registrant in its charter)
91-1841688
Oregon (I.R.S. Employer
(State of incorporation) Identification No.)
275 Southwest Third Street
P. O. Box 30
Corvallis, Oregon 97339
(Address of principal executive offices)
Registrants's telephone number: (541) 752-5161
Agent for service: Lark E. Wysham, CFO
275 Southwest Third Street
Telephone number: (541) 752-5161
Securities registered under Section 12(b) of the Exchange Act: none
Securities registered under Section 12(g) of the Exchange Act: common stock, no
par value
Indicate by check mark whether registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ].
The aggregate market value of registrant's voting and non-voting
common equity held by non-affiliates is $41,430,396 based on the most recent
reported sale of registrant's common stock on March 23, 1998 at a price of
$28.00 per share. As of March 27, 1998 there were 1,945,568 shares of
registrant's common stock issued and outstanding, of which 1,479,657 were held
by non-affiliates.
DOCUMENTS INCORPORATED BY REFERENCE. Part III of this Form 10-K
incorporates by reference the 1998 Annual Meeting Proxy Statement sent to
registrant's shareholders in connection with the April 21, 1998 Annual Meeting
of shareholders.
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INDEX
PART I PAGE
ITEM 1 - BUSINESS: GENERAL RECENT DEVELOPMENTS . . . . . . . . . . . 2
ITEM 2 - PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . 14
ITEM 3 - LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . 15
ITEM 4 - SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . 15
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . 15
ITEM 6 - SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . 18
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . 19
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK . . . . . . . . . . . . . . . . . . . . . . 37
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . 40
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . 60
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT . . . . . . . 61
ITEM 11 - EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . 62
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . 62
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . 62
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . 62
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PART I
ITEM 1. BUSINESS
Citizens Bancorp ("Bancorp"), an Oregon Corporation, was organized
under an agreement and plan of reorganization and merger for formation of
one-bank holding company dated October 15, 1996, (ref. Agreement and Plan of
Reorganization Exhibit (2) attached). Pursuant to the Agreement, Bancorp
acquired all of the common stock of Citizens Bank (the "Bank"), an Oregon
State-Chartered Bank, in a transaction effective July 1, 1997. Citizens
Bancorp shareholders received one (1) share of Bancorp Common Stock in
exchange for every one (1) share of Citizens Bank common stock held by each
shareholder. Prior to the effective date, on June 30, 1997, Citizens Bank
issued one (1) share of common stock to Bancorp representing the entire
ownership of Citizens Bank by Bancorp.
Bancorp was formed at the direction of the Board of Directors of
Citizens Bank for the sole and express purpose of becoming the holding company
of the Bank.
ORGANIZATIONAL STRUCTURE OF BANCORP
Since the effective date of formation of the holding company, the Bank
has operated through a two-tiered corporate structure. At the holding company
level the affairs of Bancorp have been overseen by a Board of Directors
elected by the shareholders of Bancorp at the annual meeting of shareholders
held April 15, 1997. The affairs of the Bank are overseen by a Board of
Directors elected by Bancorp, the sole owner of the Bank. As of the date of
this report, the respective members of the Board of Directors of the Bank and
of the Board of Directors of Bancorp are identical.
Article II of the Bancorp Articles of Incorporation (ref. Exhibit
(3)(i) attached) authorizes the issuance of 5,000,000 no par shares of common
stock. Bancorp issued 1,830,782 to effect the merger (one-for-one exchange),
leaving 3,169,218 shares authorized but unissued. 750,000 shares have been set
aside for the purposes of the dividend reinvestment plan, (ref. Citizens
Bancorp Dividend Reinvestment Plan Exhibit (10.1)), which was considered and
adopted by the Board of Directors of Citizens Bancorp on July 15, 1997. The
capital structure of the consolidated balance sheet for Bancorp and Citizens
Bank remained substantially unchanged from the capital structure of the Bank
prior to its formation of the holding company.
Bancorp plans no business at this time other than the supervision of
its only subsidiary Citizens Bank.
THE BANK
Citizens Bank was chartered October 1, 1957 (charter #333) by the
State of Oregon as a commercial bank. The Bank's main office is located in
Corvallis, Oregon, at 275 S. W. 3rd Street. The Bank has two additional
branches in Corvallis, Circle Blvd. Office at 978 N. W. Circle Blvd., and
University Office at 855 N. W. Kings Blvd.
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The Bank also has branch offices located in Albany, Oregon, at 2315 S.
E. 1th Ave.; Philomath, Oregon, at 1224 Main Street; Junction City, Oregon, at
955 Ivy Street; and in Veneta, Oregon, at 88312 Territorial Road.
With the retirement of long-time President and Chief Executive
Officer, Ray Stephensen,
in February 1996, came a change of management as well as culture for Citizens
Bank. The new President/Chief Executive Officer, William Humphreys, who had
served as a Community Bank President for 16 of his 28 years of banking in
Oregon, brought a new style of management to Citizens Bank that included:
collaborative decision-making, focus on human resources management, a shift to
branch autonomy, and a large commitment to business development.
New branch managers were hired for six of the Bank's seven offices.
Two new lending officers were hired for the Albany office to serve that fast
growing marketplace. Two existing officers were promoted to senior lender
status in the main office, a move to penetrate a larger transaction market, and
to provide lending leadership to the smaller offices serving the Corvallis area
marketplace.
New hires were made in the areas of financial management and human
resources management as well as operations management.
The immediate result of the new culture, new focus and new people was
an increase in profitability and growth in assets. The following chart gives a
five year history of growth in selected areas.
(THOUSANDS) 1997 1996 1995 1994 1993
-----------------------------------------------------------------------------------------
Net Income $ 3,342 $ 3,138 $ 2,659 $ 2,208 $ 1,934
-----------------------------------------------------------------------------------------
Return on Average
Equity 17.53% 19.27% 19.05% 18.27% 19.55%
-----------------------------------------------------------------------------------------
Return on Average
Assets 1.77% 1.77% 1.66% 1.45% 1.56%
-----------------------------------------------------------------------------------------
Average Assets to
Average Equity 10.21% 9.42% 8.85% 7.99% 7.98%
-----------------------------------------------------------------------------------------
Dividend Payout
Ratio 39.11% 34.38% 39.75% 39.18% 36.50%
-----------------------------------------------------------------------------------------
Total Loans 120,269 114,648 100,715 89,396 75,382
-----------------------------------------------------------------------------------------
Total Deposits 161,700 161,834 138,694 134,924 132,482
-----------------------------------------------------------------------------------------
Total Assets 200,117 191,887 162,907 155,600 149,692
-----------------------------------------------------------------------------------------
The long-term benefit to the Bank of these cultural and management
changes is consistent growth and development of the Bank over time. Risk
levels have been greatly reduced because of better expertise in loan and
investment management, and in managing human resources.
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The primary business strategy of the Bank is to provide community
banking and related services to individuals, professionals, and small and
medium-sized businesses. The Bank emphasizes customer relationships, attention
to the needs of the customer, and a high level of service. The Banks primary
marketing focus is on small to medium-sized businesses and commercial
customers.
The Bank offers deposit accounts, safe-deposit boxes, consumer
lending, commercial lending, and commercial and residential real estate
lending. Commercial loans include operating lines of credit, equipment and
real estate financing, capital needs, and other traditional financing products.
The Bank also has a growing emphasis in financing farm operations,
equipment and property.
The Bank's loan portfolio has some concentrations in real estate
secured loans, primarily commercial properties.
Deposit products include regular and "package" checking accounts,
savings accounts, certificates of deposit, money market accounts, and IRA
accounts.
The Bank offers, but has a very limited volume of student loans, as
well as a VISA card as part of its retail banking services. The Bank also
operates a small residential mortgage loan origination department that
originates loans and sells them into the secondary market. The Bank offers
extended banking hours in selected locations as well as Saturday banking. ATM
machines are also available at six (6) locations offering 24 hour transaction
services, including cash withdrawals, deposits, account transfers, and balance
inquiries.
The Bank also offers its customers a 24 hour automated telephone
service that offers account transfers and balance inquiries.
EMPLOYEES
At December 31, 1997 Citizens Bank had approximately 108 full-time
equivalent employees. None of these employees are represented by Labor Unions.
A number of benefit programs are available to eligible employees including
group medical insurance plans, paid vacation, paid sick leave, group life
insurance, and a 401(A) plan. The 401(A) plan is a profit sharing plan that
was re-written by the Board of Directors on December 16, 1997. (ref. Citizens
Bank Profit Sharing Plan 401(A) Exhibit (10.2)).
The Bank also provides a deferred compensation plan to the
President/Chief Executive Officer. This plan is referred to as a "Top Hat"
plan, and it defers a designated portion of the President's salary. The plan
constitutes a promise by the employer to make benefit payments in the future.
The employee has the status of general unsecured creditor of the employer.
This plan was adopted on December 30, 1997 by the chairman of the Bancorp
Board. (ref. Citizens Bank Deferred Compensation Plan Exhibit (10.3)).
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COMPETITION
At December 31, 1997, Citizens Bank was among the top 10 largest
commercial banks headquartered in the State of Oregon. The Bank competes with
other commercial banks as well as savings and loan associations, credit unions,
mortgage companies, insurance companies, investment banks, securities
brokerages and other non-bank financial service providers. Banking in the
State of Oregon has been substantially dominated by several very large banking
institutions whose headquarters are out of state. They include Wells Fargo
Bank, U. S. Bank, Key Bank, Washington Mutual Bank, First Security Bank, and
Bank of America. Together these large organizations hold a majority of the
deposit and loan balances held by banks in the State of Oregon. Citizens Bank
attempts to offset some of the advantages of these larger competitors through
superior relationship building with the customer, better service, quicker
response to the customers' needs, and local decision-making. We rely on the
fact that many businesses and individuals within small Oregon communities want
to see their money stay within the local economy, rather than see it used to
fund properties in distant places.
GOVERNMENTAL POLICIES
The earnings and growth of Bancorp and its subsidiary, Citizens Bank,
as well as their existing and future business activities, are affected not only
by general economic conditions, but also by the fiscal and monetary policies of
the Federal government and its agencies, particularly the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board"). The Federal Reserve
Board implements monetary policies (intended to curb inflation and combat
recession) by its open-market operations in United States Government
securities, by adjusting the required level of reserves for financial
institutions subject to its reserve requirements, and by varying the discount
rates applicable to borrowings by banks from the Federal Reserve Banks. The
actions of the Federal Reserve Board in these areas influence the growth of
bank loans, investments and deposits, and also affect interest rates charged on
loans and deposits. As banking is a business which depends largely on interest
rate differentials (in general, the difference between the interest rates
received by the banks on loans extended to their customers and on securities
held in the banks' investment portfolios), the influence of economic conditions
and monetary policies on interest rates will directly affect earnings. The
nature and impact of any future changes in monetary policies cannot be
predicted.
SUPERVISION AND REGULATION -- GENERAL
The following generally refers to certain statutes and regulations
affecting the banking industry. These references provide brief summaries only
and are not intended to be complete. These references are qualified in their
entirety by the referenced statutes and regulations. In addition, some
statutes and regulations which apply to and regulate the operation of the
banking industry might exist which are not referenced below. Changes in
applicable statutes and regulations may have a material effect on the business
of Bancorp and its subsidiary.
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BANCORP
As a bank holding company, Bancorp is subject to the Bank Holding
Company Act of 1956 ("BHCA"), as amended, which places Bancorp under the
supervision of the Board of Governors of the Federal Reserve System ("FRB").
In general, the BHCA limits the business of bank holding companies to owning or
controlling banks and engaging in other activities related to banking. Certain
recent legislation designed to expand interstate branching and relax federal
restrictions on interstate banking may expand opportunities for bank holding
companies (for additional information see below under the heading "The Bank --
Interstate Banking and Branching"). However, the full impact of this
legislation on Bancorp is unclear at this time.
HOLDING COMPANY STRUCTURE
FRB REGULATION. Bancorp must obtain the approval of the FRB: (1)
before acquiring direct or indirect ownership or control of any voting shares
of any bank if, after such acquisition, it would own or control, directly or
indirectly, more than 5% of the voting shares of such a bank; (2) before
merging or consolidating with another bank holding company; and (3) before
acquiring substantially all of the assets of any additional banks.
Bancorp is required by the BHCA to file annual and quarterly reports
and such other reports as may be required from time to time by the FRB. In
addition, the FRB periodic examinations of Bancorp and its subsidiary Bank.
HOLDING COMPANY CONTROL OF NON-BANKS. With certain exceptions, the
BHCA prohibits bank holding companies from acquiring direct or indirect
ownership or control of voting shares in any company which is not a bank or a
bank holding company unless the FRB determines that the activities of such
company are so closely related to banking or managing or controlling banks as
to be a proper incident thereto. In making such determinations, the FRB
considers whether the performance of such activities by a bank holding company
would offer to the public that would outweigh possible adverse effects. The
Economic Growth and Regulatory Paperwork Reduction Act of 1996 ("Economic
Growth Act) amended to BHCA to eliminate the requirement that bank holding
companies seek FRB approval before engaging de novo in permissible non-banking
activities if the holding company is well capitalized and meets certain other
specified criteria. A bank holding company meeting the specifications is now
required only to notify the FRB within 10 business days after the activity has
begun. The Economic Growth Act also established an expedited procedure for
well-capitalized bank holding companies meeting the criteria to obtain the FRB
approval to acquire smaller companies that engage in permissible non-banking
activities as well as to engage in non-banking activities that the FRB has
approved by order.
On February 28, 1997, the FRB issued a final rule incorporating the
changes enacted by the Economic Growth Act. Effective April 1, 1997, a
well-run bank holding company, without any prior notice or FRB approval, may
commence immediately any activity that is currently or at the commencement
included in the FRB's list of acceptable non-banking activities.
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TRANSACTIONS WITH AFFILIATES. Bancorp and its subsidiary will be
deemed affiliated within the meaning of the Federal Reserve Act and
transactions between affiliates are subject to certain restrictions. Covered
transactions include, subject to specific exceptions, loans by banking
subsidiaries to affiliates, investments by bank subsidiaries in securities
issued by an affiliate, the taking of such securities as collateral, and the
purchase of assets by a bank subsidiary from an affiliate. Bancorp and its
subsidiary are also subject to certain restrictions with respect to engaging in
the underwriting, public sale and distribution of securities.
SUPPORT OF SUBSIDIARIES. Under FRB policy, a bank holding company is
expected to act as a source of financial and managerial strength to, and commit
resources to support, each of its subsidiaries. Any capital loans Bancorp makes
to its subsidiary are subordinate to deposits and to certain other indebtedness
of the subsidiary. The Crime Control Act of 1990 provides that, in the event of
a bank holding company's bankruptcy, the bankruptcy trustee will assume any
commitment the bank holding company has made to a federal bank regulatory agency
to maintain the capital of a subsidiary and this obligation will be entitled to
a priority of payment.
TIE-IN ARRANGEMENTS. Bancorp and the subsidiary are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit, sale or lease of property or furnishing of services. For example, with
certain exceptions, neither Bancorp nor its subsidiary may condition an
extension of credit to a customer on either (1) a requirement that the customer
obtain additional services provided by it or (2) an agreement by the customer
to refrain from obtaining other services from a competitor. Until recently,
the FRB extended its bank-tying restrictions to bank holding companies and
their non-bank subsidiaries. However, effective April 21, 1997, the bank
anti-tying rules will no longer apply to the non-bank subsidiaries of a bank
company.
STATE LAW RESTRICTIONS. As a corporation chartered under the laws of
the State of Oregon, Bancorp is also subject to certain limitations and
restrictions under applicable Oregon corporate law. For example, these include
limitations and restrictions relating to: indemnification of directors,
distributions to shareholders, transactions involving directors, officers or
interested shareholders, maintenance of books, records, and minutes, and
observance of certain corporate formalities.
SECURITIES REGISTRATION AND REPORTING. The common stock of Bancorp
is registered as a class with the Securities and Exchange Commission ("SEC")
under the Securities Exchange Act of 1934 and thus is subject to the periodic
reporting and proxy solicitation requirements and the insider-trading
restrictions of that Act. The periodic reports, Proxy Statements, and other
information filed by Bancorp under that Act can be inspected and copied or
obtained from the Washington, D.C., office of the SEC. In addition, the
securities issued by Bancorp are subject to the registration requirements of
the Securities Act of 1933 and applicable state securities laws unless
exceptions to registrations are available.
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CONTROL TRANSACTIONS
The Change in Bank Control Act of 1978, as amended, prohibits a person
or group of persons from acquiring "control" of a bank holding company unless
the FRB has been given 60 days prior written notice of the proposed
acquisition, and within that time period, the FRB has not issued a notice
disapproving the proposed acquisition, or extended for up to another 30 days
the period during which such a disapproval may be issued. An acquisition may
be made prior to the expiration of the disapproval period of the FRB issues
written notice of its intent not to disapprove the action. Under a rebuttable
resumption established by the FRB, the acquisition of 10% or more of a class of
voting stock of a bank holding company with a class of securities registered
under Section 12 of the Exchange Act would, under the circumstances set forth
in the presumption, constitute the acquisition of control.
In addition, any "Company" would be required to obtain the approval of
the FRB under the BHCA before acquiring 25% (5% if the company is a bank
holding company) or more of the outstanding shares of Bancorp, or obtain
control over Bancorp.
THE BANK
Despite some recent legislative initiatives to reduce regulatory
burdens, banking remains a highly regulated industry. Legislation enacted from
time to time may increase the cost of doing business, limit or expand
permissible activities, or affect the competitive balance between banks and
other financial and non-financial institutions. Proposals to change the laws
and regulations governing the operations and taxations of banks and other
financial institutions are frequently made in Congress, in the Oregon State
Legislature, and before various bank regulatory agencies. In addition, there
continue to be proposals in Congress to restructure the banking system.
Some of the significant areas of bank regulation, including significan
federal legislation affecting state-chartered banks, are generally below.
REGULATION OF STATE BANKS
Oregon state-chartered banks are subject to primary regulation and
examination by the Oregon Director of Consumer and Business Services. The Bank
is also subject to supervision, examination, and regulation by certain federal
banking agencies. The Bank is insured (to applicable limits) by, and therefore
is subject to regulation by, the FDIC.
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Applicable federal and state statutes and regulations governing a
bank's operations relate, among other matters, to capital requirements,
required reserves against deposits, investments, loans, legal lending limits,
certain interest rates payable, mergers and consolidations, borrowings,
issuance of securities, payment of dividends (see below), establishment of
branches, and dealings with affiliated persons. The FDIC has authority to
prohibit banks under their supervision from engaging in what they consider to
be an unsafe and unsound practice in conducting their business. Depository
institutions, such as the Banks, are affected significantly by the actions of
the FRB as it attempts to control the money supply and credit availability in
order to influence the economy.
DIVIDEND RESTRICTIONS
Dividends paid by the Bank to Bancorp are a material source of all of
Bancorp's cash flow. Various federal and state statutory provisions limit the
amount of dividends the Bank is permitted to pay to Bancorp without regulatory
approval. FRB policy further limits the circumstances under which the bank
holding companies may declare dividends. For example, a bank holding company
should not continue its existing rate of cash dividends on its common stock
unless its net income is sufficient to fully fund each dividend and its
prospective rate of earnings retention appears consistent with its capital
needs, asset quality, and overall financial condition.
If, in the opinion of the applicable federal banking agency, a
depository institution under its jurisdiction is engaged in or is about to
engage in an unsafe or unsound practice (which, depending on the financial
condition of the institution could include the payment of dividends), the
agency may require, after notice and hearing, that such institution cease and
desist from such practice. In addition, the FRB and the FDIC have issued
policy statements which provide that insured banks and bank holding companies
should generally pay dividends only out of current operating earnings.
Under Oregon law, the Oregon regulatory authorities have the authority
to suspend payment of any dividend of an Oregon institution if it is determined
that the payment would result in the stockholders' equity in the institution,
after payment of the dividend, to be inadequate for the safe and sound
operation of the institution.
REGULATION OF MANAGEMENT
Federal law: (1) sets forth circumstances under which officers or
directors of a bank may be removed by the institution's federal supervisory
agency; (2) places restraints on lending by a bank to its executive officers,
directors, principal shareholders, and their related interests; and (3)
prohibits management personnel of a bank from serving as a director or in other
management positions of another financial institution whose assets exceed a
specified amount or which has an office within a specified geographic area.
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CONTROL OF FINANCIAL INSTITUTIONS
No person may acquire "control" of a bank unless the appropriate
federal agency has been given 60 days prior written notice and within that time
the agency has not disapproved the acquisition. Substantial monetary penalties
may be imposed for violation of the change in control or other provisions of
banking laws.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") was enacted into law in late 1991. As required by FDICIA, numerous
regulations have been adopted by federal bank regulatory agencies, including
the following: (1) federal bank regulatory authorities have established five
different capital levels for banks and, as a general matter, enable banks with
higher capital levels to engage in a broader rage of activities; (2) the FRB
has issued regulations requiring standardized disclosures with respect to
interest paid on deposits; (3) the FDIC has imposed restrictions on the
acceptance of brokered deposits by weaker banks; (4) the FDIC has implemented
risk-based insurance premiums; and (5) the FDIC has issued regulations
requiring state-chartered banks to comply with certain restrictions with
respect to equity investments and activities in which the banks act as a
principal.
FDICIA recapitalized the Bank Insurance Fund ("BIF") and required the
FDIC to maintain the BIF and Savings Association Insurance Fund ("SAIF") at
1.25% of insured deposits by increasing deposit insurance premiums as necessary
to maintain such ratio. FDICIA also required federal bank regulatory
authorities to prescribe, by December 1, 1998, (1) non-capital standards of
safety and soundness; (2) operational and managerial standards for banks; (3)
asset and earnings standards for banks and bank holding companies addressing
such areas as classified assets, capital, and stock price, and (4) standards
for compensation of executive officers and directors of banks. However, this
provision was modified by recent legislation to allow federal regulatory
agencies to implement these standards through either guidelines or regulations.
FIRREA
The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") became effective on August 9, 1989. Among other things, this
far-reaching legislation (1) phased in significant increases in the FDIC
insurance premiums paid by commercial banks; (2) created two deposit insurance
pools within the FDIC, one to insure commercial banks and savings bank deposits
and the other to insure savings association deposits; (3) for the first time,
permitted bank holding companies to acquire healthy savings associations; (4)
permitted commercial banks that meet certain housing-related asset requirements
to secure advances and other federal services from their local Federal Home
Loan Banks; and (5) greatly enhanced the regulators' enforcement powers by
removing procedural barriers and sharply increasing the civil and criminal
penalties for violating statutes and regulations.
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INTERSTATE BANKING AND BRANCHING
The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Act") will, over the next few months, permit nationwide
interstate banking and branching under certain circumstances. This legislation
generally authorizes interstate branching and relaxes federal law restrictions
on interstate banking. Individual states have the authority to "opt out" of
certain of these provisions. The Interstate Act currently allows states to
enact "opting-in" legislation that (I) permits interstate mergers within their
own borders before June 1, 1997, and (ii) permits out-of-state banks to
establish de novo branches within the state. As of September 29, 1996, bank
holding companies may purchase banks in any state, and states may not prohibit
such purchases. Additionally, beginning June 1, 1997, banks will be permitted
to merge with banks in other states as long as the home state of neither
merging bank has opted out. The Interstate Act requires regulators to consult
with community organizations before permitting an interstate institution to
close a branch in a low-income area.
Oregon, effective February 27, 1995, enacted "opting in" legislation
generally permitting interstate mergers, subject to certain restrictions.
Given that Oregon permitted interstate banking for a number of years, this
legislation is not expected to have profound impact on banking in Oregon or on
Bancorp or the Bank's operations in particular. Nevertheless, the impact that
the Interstate Act might have on Bancorp is impossible to predict.
CAPITAL ADEQUACY REQUIREMENTS
The FRB, the FDIC, and the OCC (collectively, the "Federal Banking
Agencies") have established uniform capital requirements for all commercial
banks. Bank holding companies are also subject to certain minimum capital
requirements. A bank that does not achieve and maintain required capital
levels may be subject to supervisory action through the issuance of a capital
directive to ensure the maintenance of adequate capital levels. In addition,
banks are required to meet certain guidelines concerning the maintenance of an
adequate allowance for loan and lease losses.
The Federal Banking Agencies' "risk-based" capital guidelines
establish a systematic, analytical framework that makes regulatory capital
requirements more sensitive to differences in risk profiles among banking
organizations, takes off-balance sheet exposures into explicit account in
assessing capital adequacy, and minimizes disincentives to holding liquid,
low-risk assets. The risk-based ratio is determined by allocating assets and
specified off-balance sheet commitments into several categories, with high
levels of capital being required for the categories perceived as representing
greater risk. The risk weights assigned to assets and credit equivalent amounts
of off-balance sheet items are based primarily on credit risk. Other types of
exposure, such as interest rate, liquidity and funding risks, as well as asset
quality problems, are not factored into the risk-based ratio. Such risks,
however, will be taken into account in determining a final assessment of an
organization's capital adequacy. Under these regulations, banks were required
to achieve a minimum total risk-based capital ratio of 8% and a minimum Tier 1
risk-based capital ratio of 4%.
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The Federal Banking Agencies also have adopted leverage ratio
standards that require commercial banks to maintain a minimum ratio of core
capital to total assets (the "Leverage Ratio") of 3%. Any institution
operating at or near this level is expected to have well-diversified risk,
including no undue interest rate risk exposure, excellent asset quality , high
liquidity and good earnings, and in general, to be a strong banking
organization without any supervisory, financial, or operational weaknesses or
deficiencies. Any institutions experiencing or anticipating significant growth
would be expected to maintain capital ratios, including tangible capital
positions, well above the minimum levels (e.g., an additional cushion of at
least 100 to 200 basis points, depending upon the particular circumstances and
risk profile).
Regulations adopted by the Federal Banking Agencies as required by
FDICIA impose even more stringent capital requirements. The regulators require
the OCC and other Federal Banking Agencies to take certain "prompt corrective
action" when a bank fails to meet certain capital requirements. The
regulations establish and define five capital levels at which an institution is
deemed to be "well-capitalized," "adequately capitalized," "undercapitalized,"
significantly undercapitalized" or "critically undercapitalized." In order to
be "well-capitalized," an institution must maintain, at least 10% total
risk-based capital, 6% Tier 1 risk-based capital, and a 5% Leverage Ratio.
Increasingly sever restrictions are imposed on the payment of dividends and
mortgage fees, asset growth and other aspects of the operations of institutions
that fall below the category of "adequately capitalized" (which requires at
least 8% total risk-based capital, 4% Tier 1 risk-based capital, and a 4%
Leverage Ratio).
Undercapitalized institutions are required to develop and implement
capital plans acceptable to the appropriate federal regulatory agency. Such
plans must require that any company that controls the undercapitalized
institution must provide certain guarantees that the institution will comply
with the plan until it is adequately capitalized. As of December 31, 1997, the
Bank was not subject to any regulatory order, agreement, or directive to meet
and maintain a specific capital level for any capital measure.
Under Oregon law, an Oregon commercial bank may reduce its paid-in
capital to eliminate or reduce deficits in retained earnings arising from
losses, or in order to redeem shares. Prior approval of the Oregon Director is
required in either case, and may be refused if the Oregon Director determines
that the remaining paid-in capital of the bank would be inadequate for its safe
and sound operation.
The minimum ratio of total capital to risk-adjusted assets (including
certain off-balance sheet items, such as stand-by letters of credit) required
by the FRB for bank-holding companies is 8%. At least one-half of the total
capital must be Tier 1 capital; the remainder may consist of Tier 2 capital.
Bancorp is also subject to minimum Leverage Ratio guidelines. These guidelines
provide for a minimum Leverage Ratio of 3% for bank holding companies meeting
certain specified criteria, including achievement of the highest supervisory
rating. All other bank holding companies are required to maintain a Leverage
Ratio which is at least 100 to 200 basis points higher (4% to 5%). These
guidelines provide that banking organizations experiencing internal growth or
making acquisitions are expected to maintain strong capital positions
substantially above the minimum supervisory levels, without significant
reliance on intangible assets.
12
14
In August of 1995, the Federal Banking Agencies adopted a final rule
implementing the portion of Section 305 of FDICIA that requires the banking
agencies to revise their risk-based capital standards to ensure that those
standards take adequate account of interest rate risk. Effective September 1,
1995, when evaluating the capital adequacy of a bank, the Federal Banking
Agencies' examiners stated considering exposure to declines in the economic
value of the bank's capital due to changes in interest rates. A bank may be
required to hold additional capital for interest rate risk if it has a
significant exposure or a weak interest rate risk management process.
Concurrent with the publication of this final rule, the Federal Banking
Agencies proposed for comment a joint policy statement describing the process
the Federal Banking Agencies will use to measure and assess a bank's interest
rate risk.
This joint policy statement was superseded by an updated Joint Policy
Statement in June of 1996. Any impact the joint final rules and the Joint
Policy Statement may have on Bancorp or its subsidiary cannot be predicted at
this time.
In addition, the Federal Banking Agencies published a joint final rule
on September 6, 1996, amending their respective risk-based capital standards to
incorporate a measure for market risk to cover all positions located in an
institution's trading account and foreign exchange and commodity positions
wherever located. This final rule, effective January 1, 1997, implements an
amendment to the Basle Capital Accord that sets forth a supervisory framework
for measuring market risk. The final rule effectively requires banks and bank
holding companies with significant exposure to market risk to measure that risk
using its own internal value-at-risk model, subject to the parameters of the
final rule, and to hold a sufficient amount of capital to support the
institution's risk exposure.
Institutions subject to this final rule must be in compliance with it
by January 1, 1998. This final rule applies to any bank or bank holding
company, regardless of size, whose trading activity equals 10% or more of its
total assets or amounts to $1 billion or more. The Federal Banking Agencies
may require an institution not otherwise subject to the final rule to comply
with it for safety and soundness reasons and, under certain circumstances, also
may exempt an institution otherwise subject to the final rule from compliance.
FDIC INSURANCE
Generally, customer deposit accounts in banks are insured by the
Federal Deposit Insurance Corporation (FDIC) for up to a maximum amount of
$100,000. The FDIC has adopted a risk-based insurance assessment system.
Under this system, depository institutions, such as the Bank with BIF-insured
deposits, are required to pay an assessment to the BIF ranging from $.0 to $.27
per $100 of deposits based on the institution's risk classification. On
September 30, 1996, the Deposit Insurance Funds Act of 1996 ("Funds Act") was
enacted. The Funds Act provides, among other things, for the recapitalization
of the SAIF through a special assessment on all depository institutions that
hold SAIF-insured deposits. The one-time assessment is designed to place the
SAIF at its 1.25 reserve ratio goal.
13
15
The Funds Act, for the three-year period beginning in 1997, subjects
BIF-insured deposits to a Financing Corporation ("FICO") premium assessment on
domestic deposits at one-fifth the premium rate (roughly 1.3 basis points)
imposed on SAIF-imposed deposits (roughly 6.5 basis points). In addition,
service debt funding on FICO bonds for the first half of 1997 resulted in BIF
insured institutions paying .64 cents for each $100 of assessed deposits, and
SAIF insured institutions paying 3.2 cents on each $100 of deposits. Beginning
in the year 2000, BIF insured institutions will be required to pay the FICO
obligations on a pro-rata basis with all thrift institutions; annual
assessments are expected to equal approximately 2.4 basis points until 2017, to
be phased out completely by 2019.
Banking regulators are empowered under the Funds Act to prohibit
insured institutions and their holding companies from facilitating or
encouraging the shifting deposits from the SAIF to the BIF in order to avoid
higher assessment rates. Accordingly, the FDIC recently proposed a rule that
would, if adopted as proposed, impose entrance and exit fees on depository
institutions attempting to shift deposits from the SAIF to the BIF as
contemplated by the Funds Act. The Funds Act also provides for the merger of
the BIF and SAIF on January 1, 1999, only if not thrift institutions exist on
that date. It is expected that Congress will address comprehensive legislation
on the merger of the funs and elimination of the thrift charter during the 1998
session.
The risk classification is based on an assignment of the institution
by the FDIC to one of three capital groups and to one of three supervisory
subgroups. The capital groups are "well capitalized," "adequately
capitalized," and "undercapitalized." The three supervisory subgroups are
Group "A" (for financially sound institutions with only a few minor
weaknesses), Group "B" (for those institutions with weaknesses which, if
uncorrected, could cause substantial deterioration of the institution and
increase risk to the deposit insurance fund), and Group "C" (for those
institutions with a substantial probability of loss to the fund absent
effective corrective action).
ITEM 2. PROPERTIES
The principal properties of Bancorp and its subsidiary, Citizens Bank,
are comprised of banking facilities owned by the subsidiary.
The main office of Citizens Bank is located in the heart of the
business and retail center ("downtown") Corvallis, Oregon. The building was
built in 1977 and has approximately 30,000 square feet of space on two levels
above ground and a full basement. The upper (2nd) floor is occupied by the
administrative support team, which includes the President/Chief Executive
Officer, the Chief Financial Officer, the Human Resources Officer, the
Marketing Officer, the Compliance Officer, the Loan Administrator and the Loan
Service Center.
The 1st floor serves as the main banking office for the Bank. It is
occupied by a manager, a lending staff, an operations staff, tellers, bankcard
center clerks, and mortgage department staff.
14
16
The basement is occupied by the Accounts Service Center. It includes
a manager, two operations officers, proof and data processing staff, accounts
payable, inventory, payroll, wire transfer, telephone and courier staff. All
of the Bank's centralized functions, i.e., management, proof and data
information, loan documentation, loan administration, cash services, mail
services, accounting and human resources, occur in this building. The Bank
owns this building.
The Bank also operates six (6) other branches, of which three (3) are
owned and three (3) are leased. These buildings range in size from 2500 square
feet to approximately 9,000 square feet. Their primary function and use is to
provide banking service to the Bank's customers. The aggregate monthly rental
of leased buildings is $8700. Two of three leases will be re-negotiated due to
expiring in 1998.
ITEM 3. LEGAL PROCEEDINGS
As of the date of filing of this Form 10K neither Bancorp nor its
subsidiary were a party to any material legal proceedings. Further, management
is not aware of any threatened or pending lawsuits or other proceedings against
Bancorp or its subsidiary which, if determined adversely, would have a material
effect on the business or financial position of either of them. Bancorp or the
Bank may from time to time become a party to litigation in the ordinary course
of business, such as debt collection litigation or an appearance as a creditor
in a bankruptcy case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ended December 31, 1997, no
matters were submitted to the security holders through the solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no established market for Bancorp's common stock, and the
stock is not listed on and does not trade on or through any exchange or
quotation system. There is no expectation that an established market will
develop for Bancorp's common stock. As the transfer agent for Bancorp common
stock, Citizens Bank keeps an informal record of persons expressing an interest
in buying or selling Bancorp common stock and introduces prospective buyers and
sellers. Citizens Bank also keeps some informal records of prices paid and
received for Bancorp common stock by certain persons. Neither Bancorp nor
Citizens Bank does or will recommend prices for Bancorp common stock.
15
17
The following table sets forth certain transaction prices per share
for shares of Citizens Bank and Bancorp common stock for the periods shown.
This information is based solely on prices and information reported to Citizens
Bank by those persons whose transactions have come to its attention. The
reported prices do not represent all transactions in Bancorp and Citizens Bank
stock, and Citizens Bank can give no assurances as to the accuracy of the
reported prices or the completeness of this information.
--------------------------------------------------------------------
High Low
--------------------------------------------------------------------
--------------------------------------------------------------------
1992 $ 17.50 $ 14.50
--------------------------------------------------------------------
1993 24.00 18.00
--------------------------------------------------------------------
1994 29.00 24.27
--------------------------------------------------------------------
1995 29.00 22.50*
--------------------------------------------------------------------
1996 30.00 18.00**
--------------------------------------------------------------------
1997 30.00 18.00
--------------------------------------------------------------------
* In 1995 Citizens Bank declared a 1 for 5 stock split. The
split became effective on August 4, 1995.
--------------------------------------------------------------------
** In 1996 Citizens Bank declared a 2 for 1 stock split. The
split became effective on October 5, 1996.
--------------------------------------------------------------------
The following table sets forth certain transaction prices per share
for shares of Citizens Bank and Bancorp common stock for the quarterly periods
shown. This information is subject to the qualifications set forth above.
--------------------------------------------------------------------
HIGH LOW
--------------------------------------------------------------------
--------------------------------------------------------------------
First quarter 1996 $ 26.50 $ 26.00
--------------------------------------------------------------------
Second quarter 1996 $ 27.50 $ 26.50
--------------------------------------------------------------------
Third quarter 1996 $ 30.00 $ 27.50
--------------------------------------------------------------------
Fourth quarter 1996 $ 18.00* $ 18.00*
--------------------------------------------------------------------
--------------------------------------------------------------------
First quarter 1997 $ 21.75 $ 18.00
--------------------------------------------------------------------
Second quarter 1997 $ 23.00 $ 21.00
--------------------------------------------------------------------
Third quarter 1997 $ 23.50 $ 23.00
--------------------------------------------------------------------
Fourth quarter 1997 $ 30.00 $ 25.00
--------------------------------------------------------------------
* In 1996 Citizens Bank declared a 2 for 1 stock split. The
split became effective on October 5, 1996.
--------------------------------------------------------------------
16
18
CITIZENS BANK/BANCORP, COMMON EQUITY HOLDING. As of December 31,
1997, there were 1,922,321.304 shares outstanding, held by 689 holders of
record. As of March 15, 1998, there were 697 holders of Citizens Bancorp and
1,945,568.304 shares outstanding. All of the shares issued since December 31,
1997 were issued under the terms of the dividend reinvestment plan.
Holders are determined on the basis of ownership. Each entity that
owns one or more shares is determined to be a holder. Holders can be
individuals, partnerships, corporations, trusts, or any entity that can legally
hold assets in the State of Oregon. Two or more individuals together can also
be a holder, such as: husband and wife, parent and child, etc.
Bancorp has no formal dividend policy. The amount of any dividend
will be determined by the Bancorp Board of Directors and will depend on the
amount of profits generated and the growth objectives of Bancorp and the Bank.
Under Oregon law certain restrictions on the payment of dividends apply. Under
these restrictions, a Bank or Holding Company may not declare or pay any
dividend in an amount greater than its retained earnings, without prior
approval from the State Division of Finance and Corporate Securities.
Bancorp's management intends to follow the same practices and methods
for declaring dividends that were followed by Citizens Bank, and expects to pay
yearly dividends. The following sets forth, for the calendar years shown, the
cash and stock dividends per share of common stock declared by Citizens Bancorp
in 1997 and by Citizens Bank for the preceding years.
----------------------------------------------------------------------------
Cash Dividend Stock Dividend Stock Split
----------------------------------------------------------------------------
----------------------------------------------------------------------------
1991 $ .95 -- --
----------------------------------------------------------------------------
1992 1.00 10% --
----------------------------------------------------------------------------
1993 1.10 10% --
----------------------------------------------------------------------------
1994 1.20 10% --
----------------------------------------------------------------------------
1995 1.20 -- 1 for 5 stock
split
----------------------------------------------------------------------------
1996 .60* -- 2 for 1 stock
split
----------------------------------------------------------------------------
1997 .68** 5% --
----------------------------------------------------------------------------
* Reflects adjustment for 2 for 1 stock split effective on
October 5, 1996.
----------------------------------------------------------------------------
** Declared December 16, 1997, payable on January 12, 1998
----------------------------------------------------------------------------
17
19
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with the Company's consolidated financial statements and accompanying notes
presented herein.
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands except share data)
- ---------------------------------------------------------------------------------------------------------------------------
% increase
(decrease)
1997 1996 1997 to 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
EARNINGS
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income $ 15,410 $ 13,929 11% $ 12,732 $ 10,928 $ 8,811
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense 5,286 5,034 5% 4,725 3,655 3,027
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 10,124 8,895 14% 8,007 7,273 5,784
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Provision for possible loan losses 165 135 22% 100 72 40
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for possible loan
losses 9,959 8,760 14% 7,907 7,201 5,744
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total other operating income 1,857 1,569 18% 1,503 1,311 1,065
- ---------------------------------------------------------------------------------------------------------------------------
Total other operating expense 6,451 5,531 17% 5,212 5,132 4,025
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Income before taxes 5,365 4,798 12% 4,198 3,380 2,784
- ---------------------------------------------------------------------------------------------------------------------------
Income taxes 2,023 1,660 22% 1,539 1,172 850
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 3,342 $ 3,138 7% $ 2,659 $ 2,208 $ 1,934
- ---------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE (1)
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 1.73 $ 1.66 4% $ 1.44 $ 1.22 $ 1.09
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends 0.68 0.60 13% 0.60 0.47 0.38
- ---------------------------------------------------------------------------------------------------------------------------
Book value 10.10 8.90 13% 7.71 6.76 5.97
- ---------------------------------------------------------------------------------------------------------------------------
Weighted average number of
common shares outstanding
1,922,321 1,888,289 1,849,573 1,815,657 1,777,994
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
PERIOD END BALANCES
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $ 200,117 $ 191,887 4% $ 162,907 $ 155,600 $ 149,692
- ---------------------------------------------------------------------------------------------------------------------------
Net loans 120,269 114,648 5% 100,715 89,396 75,382
- ---------------------------------------------------------------------------------------------------------------------------
Deposits 161,700 161,834 0% 138,694 134,924 132,482
- ---------------------------------------------------------------------------------------------------------------------------
Repurchase agreements 14,086 10,040 40% 7,891 5,774 3,602
- ---------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 19,411 16,805 16% 14,269 12,274 10,609
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
(1) Per share amounts and the average number of shares outstanding have been restated for stock dividends of 10% in 1994
and 5% in 1997, a 2-for-1 stock split in 1996, and a 1 for 5 stock split in 1995.
- ---------------------------------------------------------------------------------------------------------------------------
18
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995.
Earnings per share for the three years ended 1997, 1996, and 1995 was
$1.73, $1.66 and $1.44, respectively.
NET INCOME. For the three years ended December 31, 1997, Citizens
Bancorp's (in year 1997) and Citizens Bank's (in years 1996 and 1995) net
income was $3.341 million, $3.138 million, and $2.659 million, respectively.
1997 net income increased $.203 million or 6.4% over 1996, which increased
$.479 million or 18.0% over 1995. Bancorp's 1997 net income was negatively
impacted by the costs related to the formation of the Holding Company,
increased expenses in salary and benefits from new hires in the middle and
upper-middle management areas of the Bank, and the acquisition of new proof and
information processing equipment. Management sees these expenditures as
investments in increased productivity and capacity and should result in
consistent year-to-year future earnings growth.
Bancorp's increased net income in 1997 is primarily due to increased
income from loans and loan fees. This increase was due to volume increases.
Average yield on loans remained relatively constant over the year. Net income
was assisted by an increase in earning assets to total assets. Earning assets
to a total asset ratio for the years 1997, 1996 and 1995 are 94.72%, 93.94%,
and 91.44%, respectively. Yield on earning assets for the same periods was
8.91%, 8.73% and 8.82 %, respectively.
INTEREST INCOME. Interest income totaled $15.4 million for the year
ended December 31, 1997, a 10.6% increase over the $13.9 million for 1996,
which was 9.4% over the $12.7 million generated in 1995. This increase in
income was due primarily to increased loan volume.
INTEREST EXPENSE. Interest expense for the year ended December 31,
1997 was $5.3 million, a 5.0% increase over the $5.0 million expense for 1996,
and a 6.5% increase over the $4.7 million expense in 1996, these increases are
due to deposit volume increases.
NET INTEREST INCOME. Net interest income during the years 1997, 1996,
and 1995 grew to $10.1 million from $8.9 million and $8.0 million,
respectively. Additionally, for the same periods beginning with 1997, net
interest margins were 5.88%, 5.61% and 5.60%, respectively. Changes in the net
interest margins were primarily due to increased volumes and the changing
interest rate environment. The Bank was able to reprice interest-sensitive
liabilities at a faster rate than interest-sensitive assets.
19
21
The following table presents for the periods indicated, information
regarding average balances of assets and liabilities as well as the total dollar
amounts of interest income from average interest-bearing liabilities, resulting
yield and cost ratios, interest rate spread, ratio of interest-earning assets to
interest-bearing liabilities and net interest margin for Bancorp. Average
balances for the period have been calculated using daily average balances.
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES AND TAX-EQUIVALENT NET INTEREST MARGIN
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED 1997 1996 1995
----------------------------------- -------------------------------- -----------------------------
Int. Int.
DECEMBER 31 Average Int. Income Avg. Rate Average Income Avg. Rate Average Income Avg. Rate
(In thousands) Balance (Expense) Earned/Paid Balance (Expense) Earned/Paid Balance (Expense) Earned/Paid
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Loans (2) $ 119,157 $ 12,250 10.28% $ 107,718 $ 10,850 10.07% $ 97,155 $ 9,733 10.02%
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES:
- ------------------------------------------------------------------------------------------------------------------------------------
Taxable 39,265 2,386 6.08% 38,610 2,315 6.00% 37,257 2,349 6.30%
- ------------------------------------------------------------------------------------------------------------------------------------
Tax-exempt (1) 3,918 330 8.43% 5,603 455 8.11% 7,904 600 7.59%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL
INVESTMENT
SECURITIES 43,183 2,716 6.29% 44,213 2,770 6.26% 45,161 2,949 6.53%
- ------------------------------------------------------------------------------------------------------------------------------------
Interest bearing
deposits in banks
and federal funds sold 11,915 557 4.67% 9,430 464 4.92% 4,288 255 5.95%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS 174,255 15,523 8.91% 161,361 14,084 8.73% 146,604 12,937 8.82%
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 7,548 8,367 6,260
- ------------------------------------------------------------------------------------------------------------------------------------
Premises and equipment 2,717 2,694 2,675
- ------------------------------------------------------------------------------------------------------------------------------------
Other assets 3,393 1,469 3,123
- ------------------------------------------------------------------------------------------------------------------------------------
Reserve for possible
loan losses (1,128) (962) (877)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL $ 186,785 $ 172,929 $ 157,785
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Deposits:
- ------------------------------------------------------------------------------------------------------------------------------------
Savings $ 68,601 (1,903) 2.77% $ 64,358 (1,798) 2.79% $ 61,427 (1,858) 3.02%
- ------------------------------------------------------------------------------------------------------------------------------------
Time 53,673 (2,872) 5.35% 52,130 (2,798) 5.37% 47,237 (2,466) 5.22%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST- 122,274 (4,775) 3.91% 116,488 (4,596) 3.95% 108,664 (4,324) 3.98%
BEARING DEPOSITS
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements 11,361 (450) 3.96% 9,883 (390) 3.95% 7,408 (344) 4.64%
- ------------------------------------------------------------------------------------------------------------------------------------
Treasury, tax & loan 1,349 (62) 4.60% 1,123 (48) 4.27% 1,163 (57) 4.90%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING
LIABILITIES 134,984 (5,287) 3.92% 127,494 (5,034) 3.95% 117,235 (4,725) 4.03%
- ------------------------------------------------------------------------------------------------------------------------------------
Demand deposits 31,713 28,299 25,686
- ------------------------------------------------------------------------------------------------------------------------------------
Other liabilities 1,022 850 904
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 19,066 16,286 13,960
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL $ 186,785 $ 172,929 $ 157,785
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest margin (1) $ 10,236 $ 9,050 $ 8,212
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income as a % of avg. earning assets 8.91% 8.73% 8.82%
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense as a % of avg. earning assets 3.03% 3.12% 3.22%
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest margin 5.88% 5.61% 5.60%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Includes taxable equivalent adjustments related to income on securities that is exempt form federal income taxes. The federal
statutory rate was 34%
- ------------------------------------------------------------------------------------------------------------------------------------
(2) For purposes of these calculations, nonaccrual loans are included in the average loan balance outstanding. Loan fees and late
charges of $812,065 and $572,639 are included in interest income for 1997 and 1996.
- ------------------------------------------------------------------------------------------------------------------------------------
20
22
The following table sets forth, on a tax-equivalent basis, a summary of
the changes in net interest income resulting from changes in volumes and rates.
CHANGES NOT DUE SOLELY TO VOLUME OR RATE CHANGES ARE ALLOCATED TO VOLUME AND
RATE IN PROPORTION TO THE RELATIONSHIP OF THE ABSOLUTE DOLLAR AMOUNTS OF THE
CHANGE IN EACH.
-----------------------------------------------------------------------------------------------------------------------
1997 versus 1996 1996 versus 1995
-----------------------------------------------------------------------------------------------------------------------
Increase (decrease) Increase (decrease)
due to change in due to change in
-----------------------------------------------------------------------------------------------------------------------
Average Average Net Average Average Net
(in thousands) Volume Rate Change Volume Rate Change
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
-----------------------------------------------------------------------------------------------------------------------
Loans $ 1,172 $ 228 $ 1,400 $ 1,064 $ 53 $ 1,117
-----------------------------------------------------------------------------------------------------------------------
Investment securities (65) 11 (54) (61) (118) (179)
-----------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits in banks and federal funds sold 117 (24) 93 260 (51) 209
-----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 1,224 215 1,439 1,263 (116) 1,147
-----------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
-----------------------------------------------------------------------------------------------------------------------
Savings deposits 118 (13) 105 86 (146) (60)
-----------------------------------------------------------------------------------------------------------------------
Time deposits 83 (9) 74 261 71 332
-----------------------------------------------------------------------------------------------------------------------
Repurchase agreement and other short-term borrowings 69 5 74 103 (66) 37
-----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 270 (17) 253 450 (141) 309
-----------------------------------------------------------------------------------------------------------------------
CHANGES IN NET INTEREST INCOME $ 954 $ 232 $ 1,186 $ 813 $ 25 $ 838
-----------------------------------------------------------------------------------------------------------------------
The following table further reflects changes in average balances and
rates from December 31, 1997 to December 31, 1996.
------------------------------------------ ------------------------------------------
INCREASE (DECREASE) IN AVERAGE BALANCE: INCREASE (DECREASE) IN AVERAGE RATE:
------------------------------------------ ------------------------------------------
Loans 10.62 % Loans 2.06 %
------------------------------------------ ------------------------------------------
Investments (2.33)% Investments 0.39 %
------------------------------------------ ------------------------------------------
Fed Funds & Deposits 26.35 % Fed Funds & Deposits (4.99)%
------------------------------------------ ------------------------------------------
------------------------------------------ ------------------------------------------
TOTAL EARNING ASSETS 7.99 % TOTAL EARNING ASSETS 2.06 %
------------------------------------------ ------------------------------------------
------------------------------------------ ------------------------------------------
Savings, NOW, MMA 6.59 % Savings, NOW, MMA (0.71)%
------------------------------------------ ------------------------------------------
Time 2.96 % Time (0.31)%
------------------------------------------ ------------------------------------------
Other Liabilities 15.48 % Other Liabilities 1.22 %
------------------------------------------ ------------------------------------------
TOTAL INT BEAR TOTAL INT BEAR
LIABILITIES 5.87 % LIABILITIES (0.80)%
------------------------------------------ ------------------------------------------
21
23
The following chart further reflects changes in average balances and
rates from December 31, 1996 to December 31, 1995.
------------------------------------------ ------------------------------------------
INCREASE (DECREASE) IN AVERAGE BALANCE: INCREASE (DECREASE) IN AVERAGE RATE:
------------------------------------------ ------------------------------------------
Loans 10.87 % Loans 0.54 %
------------------------------------------ ------------------------------------------
Investments (2.10)% Investments (4.06)%
------------------------------------------ ------------------------------------------
Fed Funds & Deposits 119.92 % Fed Funds & Deposits (7.26)%
------------------------------------------ ------------------------------------------
------------------------------------------ ------------------------------------------
TOTAL EARNING ASSETS 10.07 % TOTAL EARNING ASSETS (1.09)%
------------------------------------------ ------------------------------------------
------------------------------------------ ------------------------------------------
Savings, NOW, MMA 4.77 % Savings, NOW, MMA (7.64)%
------------------------------------------ ------------------------------------------
Time 10.36 % Time 2.81 %
------------------------------------------ ------------------------------------------
Other Liabilities 28.41 % Other Liabilities (14.94)%
------------------------------------------ ------------------------------------------
TOTAL INT BEAR TOTAL INT BEAR
LIABILITIES 8.75 % LIABILITIES (2.03)%
------------------------------------------ ------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES. Net
interest income after provision for possible loan losses was $9.9 million at
December 31, 1997, $8.7 million at December 31, 1996, and $7.9 million at
December 31, 1995. Total provision for possible loan loss expense for the
three years ending December 31, 1997, was $165,000, $134,500, and $100,000
respectively. Total provision expense was increased due to loan volume
increases. Total loan losses were $2,000, $8,000, and $53,000 for the years
1997, 1996, and 1995, respectively. The reserve for possible loan losses to
total loans for the years ended December 31, 1997, 1996, and 1995,
respectively, were .99%, .90%, and .88%. These percentages reflect a history
of very low loan loss experience. At December 31, 1997, the Bank had no
non-accrual loans.
NON-INTEREST INCOME. Non-interest income (total other operating
income) was $1.8 million for the year ended December 31, 1997, an 18.3%
increase from $1.6 million for 1996, and a 4.4% increase from $1.5 million in
1995. These increases are due to increased service charges and customer fee
income which is primarily a function of increased volumes of accounts. Very
few rate increases have been made in service charges and fees during this
period. During 1997, the low and declining interest rate environment on term
loans generated refinance activity and new home purchases, resulting in an
increased volume of home loans made for sale into the secondary market. Gains
on the sale of these loans represented a substantial portion of the increase
the Bank experienced in other operating income.
22
24
NON-INTEREST EXPENSE. Non-interest expenses (other operating
expenses) have increased during the last three years ending December 31, 1997
to $6.4 million from $5.5 million in 1996 and $5.2 million in 1995. A 16.6%
increase or a $.9 million increase occurred from 1996 to 1997 and a 5.8% or a
$.3 million increase occurred from 1995 to 1996. These increases in
non-interest expense are in correlation and are a direct result of increased
non-interest income. The specific areas of increase occurred in increased
salaries and benefits, equipment, occupancy, professional fees, marketing,
printing, office supplies, communications, and other expenses. These increases
are a result of the Bank's increased volume, and management's increased
emphasis on business development, marketing, auditing, and human resource
management.
Bancorp intends to grow through strategically placed offices through
1998. At least one additional full service facility will be opened and
potentially a loan origination office. Opening new offices results in higher
operating costs, which are not offset until a certain level of growth in loans
and deposits is achieved. Initially, new branch offices will increase
non-interest expenses, thus having an adverse effect on net income for Bancorp.
At the end of 1997, Bancorp employed 108 full-time equivalent employees
compared to 102 at year end 1996 and 99 at year end 1995.
Increases in non-interest expense is generally caused by higher
operating levels associated with growth in business volume. Bancorps total
assets at December 31, 1997, were 23% greater than total assets of the Bank at
December 31, 1995.
INCOME TAXES. Income tax expense for 1997 was $2,023,000 or 37.7% of
net income before taxes, 1996 was $1,659,672 or 34.5% of net income before
taxes. In 1995 the tax provision was $1,538,922 or 36.6% of net income before
taxes. Bancorp's tax rate of 37.7% is higher than in previous years due to a
smaller percentage of Bancorp's income being generated by tax exempt items,
primarily in the Bank's investment portfolio. It is anticipated that this rate
will remain at the 1997 level or perhaps increase slightly as the Bank's
portfolio of municipal bond investments matures.
INTEREST RATE SENSITIVITY. Bancorp uses an asset/liability modeling
system called ALX to estimate the degree of interest rate risk inherent in its
mix of interest earning assets and interest bearing liabilities. Bancorps
profitability is dependent to a large extent on net interest income. Bancorp
is slightly asset sensitive, meaning that interest earning assets mature or are
otherwise subject to repricing at a faster rate than interest bearing
liabilities. A significant decrease in market rates could adversely impact
the net earnings of Bancorp. In contrast, an inclining interest rate
environment could have a positive affect on net interest income. Bancorps
strategy is to keep a position that is very close to "balanced". That is, that
the repricing of assets and liabilities would move much at the same rate.
Because the current position is slightly asset sensitive, Bancorp has been
taking measures to extend maturities on its asset base until a "balanced"
position is achieved.
23
25
LIQUIDITY AND SOURCES OF FUNDS. Bancorp's primary sources of funds
for liquidity purposes are customer deposits, maturities of investment
securities, sales of "available for sale" securities, loan repayments, advances
on lines of credit from correspondent banks and from the Federal Home Loan Bank
of Seattle, and the purchase of federal funds. Bancorp can anticipate the
availability of funds from scheduled loan repayments, maturities of securities
and from borrowed funds. Customer deposits and unscheduled payments of loans
are influenced by the interest rate environment, the condition of the economy,
competition and other factors.
Deposits are Bancorp's primary source of new funds. At December 31,
1997, total deposits were $161.7 million, down from $161.8 million at December
31, 1996, and up from $138.7 million at December 31, 1995. During 1997 the
Bank experienced a shift from insured deposits to securities sold under
repurchase agreement (REPO's). Total REPO holdings for the periods December
31, 1997, 1996, and 1995 were $14.1 million, $10.0 million and $7.8 million,
respectively. The Bank also changed its policy of competitive bidding for
premium rate time certificates of deposit. This caused a significant run-off
in large interest rate sensitive time certificates of deposit which were almost
entirely replaced by lower rate, less interest rate sensitive funds. The
result was a reduced overall cost of funds as follows:
---------------------------------
COST OF FUNDS
---------------------------------
1997 1996 1995
---------------------------------
3.92% 3.95% 4.03%
---------------------------------
Management anticipates that Bancorp will rely primarily on deposit
growth, maturities of investment securities, sales of available for sale
securities, and loan repayments to meet its liquidity needs. Borrowings can be
used to provide liquidity for short-term needs but it is the practice of
Bancorp to attempt to fund long-term loans and investments with core deposits
and earnings, not short-term borrowings. A limited amount of borrowings may be
used on a long-term basis to fund lending activities and to match maturities or
repricing intervals of assets.
The average daily amount of deposits and rates paid on deposits is
summarized for the periods indicated in the following table:
1997 1996 1995
------------------------------------------------------------------------------------------------------------
(In Thousands) Amount $ Rate % Amount $ Rate % Amount $ Rate %
------------------------------------------------------------------------------------------------------------
DEPOSITS
------------------------------------------------------------------------------------------------------------
Demand $31,713 -- $28,299 -- $25,686 --
------------------------------------------------------------------------------------------------------------
Savings $68,601 2.77% $64,358 2.79% $61,427 3.02%
------------------------------------------------------------------------------------------------------------
Time $53,673 5.35% 52,130 5.37% $47,237 5.22%
------------------------------------------------------------------------------------------------------------
TOTAL $153,987 $144,787 $134,350
------------------------------------------------------------------------------------------------------------
24
26
The following table indicates the amount of the Bank's certificates of deposits
with
balances equal to or greater than $100,000 classified by time remaining until
maturity as of December 31, 1997.
---------------------------------------------------------------------
Maturity Period Certificates of Deposit
---------------------------------------------------------------------
In Thousands
---------------------------------------------------------------------
3 months or less $ 8,067
---------------------------------------------------------------------
3 months through 6 months $ 1,055
---------------------------------------------------------------------
6 months through 12 months $ 2,811
---------------------------------------------------------------------
Over 12 months $ 2,367
---------------------------------------------------------------------
TOTAL $14,300
---------------------------------------------------------------------
The following table is a summary of securities sold under repurchase
agreement (REPO) for each of the last three years.
---------------------------------------------------------------------------
(Dollars in Thousands)
---------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------------
Securities sold under agreement to repurchase:
---------------------------------------------------------------------------
Average interest rate
---------------------------------------------------------------------------
At year end 3.28% 3.24% 3.86%
---------------------------------------------------------------------------
For the year 3.96% 3.95% 4.64%
---------------------------------------------------------------------------
Average amount outstanding during
the year $11,361 $ 9,883 $ 7,408
---------------------------------------------------------------------------
Maximum amount outstanding at any
month end $14,086 $11,231 $ 8,674
---------------------------------------------------------------------------
Amount outstanding at year end $14,086 $10,040 $ 7,892
---------------------------------------------------------------------------
CAPITAL RESOURCES. The Bank is subject to various capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirement can initiate certain mandatory, and possibly
additional discretionary actions by regulators, that if undertaken, could have
a direct material effect on the Bank's financial statements. Under capital
adequacy guidelines that involve quantitative measures of the Bank's assets,
and certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital classification is also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
As of December, 31, 1997, the most recent notification from the Bank's
regulator categorized the Bank as well-capitalized under the applicable
regulations. To be categorized as "well-capitalized," the Bank must maintain
at least 10% total risk based capital, 6% Tier 1 risk based capital and 5% Tier
1 leverage capital. There are not conditions or events since that notification
that management believes have changed the institution's category.
25
27
The following table indicates Citizens Bancorp/Citizens Bank's capital
adequacy position at December 31, 1997, and at December 31, 1996, and compares
those positions to capital adequacy requirements.
--------------------------------------------------------------------------------------------------
Citizens Bancorp/Citizens Bank
--------------------------------------------------------------------------------------------------
For Capital
Actual Adequacy Purposes
--------------------------------------------------------------------------------------------------
(in thousands)
-------------
AS OF DECEMBER 31, 1997: Amount Ratio Amount Ratio
--------------------------------------------------------------------------------------------------
Total Risk-Based Capital
(to Risk-Weighted Assets) $20,239 16.3 % $9,734 >8%
-
--------------------------------------------------------------------------------------------------
Tier 1 Capital
(to Risk-Weighted Assets) $19,038 15.6 % $3,042 >4%
-
--------------------------------------------------------------------------------------------------
Tier 1 Capital
(to average Total Assets) $19,038 9.69% $7,867 >4%
-
--------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1996:
------------------------
Total Risk-Based Capital
(to Risk-Weighted Assets) $17,406 13.5 % $10,304 >8%
-
--------------------------------------------------------------------------------------------------
Tier 1 Capital
(to Risk-Weighted Assets) $16,368 12.7 % $5,152 >4%
-
--------------------------------------------------------------------------------------------------
Tier 1 Capital
(to Average Total Assets) $16,368 8.8 % $7,419 >4%
-
--------------------------------------------------------------------------------------------------
Shareholders equity increased to $19.4 million at December 31, 1997
from $16.8 million in 1996 and $14.3 million in 1995. Bancorp's shareholders
average equity, as a percentage of average assets were 10.21% at December 31,
1997, 9.42% at December 31, 1996, and 8.85% at December 31, 1995. The change
is primarily the result of equity growth outpacing asset growth.
In a changing interest rate environment the value of the Bank's
available for sale portfolio may be negatively impacted and therefore cause a
reduction in reported shareholders equity. Equity grew at 15.51% over the
period between December 31, 1996 and December 31, 1997, while assets grew by
4.28% over the same period.
At December 31, 1997, the Bank had no material commitment for capital
expenditures that would negatively impact Bancorp's capital position.
26
28
INVESTMENT PORTFOLIO
The following table shows Investments Held to Maturity.
In Thousands
----------------------------------------------------------------------------------------------------------------
Outstanding Balance at December 31,
----------------------------------------------------------------------------------------------------------------
1997
----------------------------------------------------------------------------------------------------------------
Estimated Fair Value Amortized Cost % of Portfolio
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities $6,036 $6,000 12.98%
----------------------------------------------------------------------------------------------------------------
Federal Agency Obligations 500 482 1.04%
----------------------------------------------------------------------------------------------------------------
Obligations of State and
Political Subdivisions 3,561 3,501 7.57%
----------------------------------------------------------------------------------------------------------------
TOTAL $10,097 $9,983 21.59%
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
In Thousands
----------------------------------------------------------------------------------------------------------------
Outstanding Balance at December 31,
----------------------------------------------------------------------------------------------------------------
1996
----------------------------------------------------------------------------------------------------------------
Estimated Fair Value Amortized Cost % of Portfolio
----------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities $10,066 $10,007 21.21%
----------------------------------------------------------------------------------------------------------------
Federal Agency Obligations 657 650 1.38%
----------------------------------------------------------------------------------------------------------------
Obligations of State and
Political Subdivisions 5,042 5,078 9.72%
----------------------------------------------------------------------------------------------------------------
TOTAL $15,765 $15,735 32.31%
----------------------------------------------------------------------------------------------------------------
In Thousands
----------------------------------------------------------------------------------------------------------------
Outstanding Balance at December 31,
----------------------------------------------------------------------------------------------------------------
1995
----------------------------------------------------------------------------------------------------------------
Estimated Fair Value Amortized Cost % of Portfolio
----------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities $21,305 $20,851 43.56%
----------------------------------------------------------------------------------------------------------------
Federal Agency Obligations 642 646 1.35%
----------------------------------------------------------------------------------------------------------------
Obligations of State and
Political Subdivisions 6,870 6,776 14.15%
----------------------------------------------------------------------------------------------------------------
TOTAL $28,817 $28,273 59.06%
----------------------------------------------------------------------------------------------------------------
27
29
The following table sets forth the maturities and weighted average
yields of securities held to maturity at December 31, 1997.
----------------------------------------------------------------------------------------------------------------
IN THOUSANDS
----------------------------------------------------------------------------------------------------------------
After 1 year, but After 5 years, but
----------------------------------------------------------------------------------------------------------------
Amount Within 1 year before 5 years before 10 years After 10 years
----------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities $3,966 $2,034 0 0
----------------------------------------------------------------------------------------------------------------
Federal Agency Obligations 0 0 482 0
----------------------------------------------------------------------------------------------------------------
Obligations of State and
Political Subdivisions 1,442 1,310 749 0
----------------------------------------------------------------------------------------------------------------
TOTAL $5,408 $3,344 $1,231 $0
----------------------------------------------------------------------------------------------------------------
Weighted Average Yield*
U.S. Treasury Securities 7.47% 6.03% 0% 0%
----------------------------------------------------------------------------------------------------------------
Federal Agency Obligations 0 0 5.06 0
----------------------------------------------------------------------------------------------------------------
Obligations of State and
Political Subdivisions 4.92 3.67 4.99 0
----------------------------------------------------------------------------------------------------------------
TOTAL 6.79% 4.91% 5.02% 0%
----------------------------------------------------------------------------------------------------------------
* Yield on tax exempt delegations have not been computed on a tax equivalent basis
The following tables show Investments Available for Sale.
----------------------------------------------------------------------------------------------------------------
In Thousands
----------------------------------------------------------------------------------------------------------------
Outstanding Balance at December 31,
----------------------------------------------------------------------------------------------------------------
1997
----------------------------------------------------------------------------------------------------------------
Estimated Fair Value Amortized Cost % of Portfolio
----------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities $22,075 $22,027 47.73%
----------------------------------------------------------------------------------------------------------------
Federal Agency Obligations 13,570 13,527 29.35%
----------------------------------------------------------------------------------------------------------------
Obligations of State and
Political Subdivisions 0 0 0
----------------------------------------------------------------------------------------------------------------
Other Securities 613 613 1.33%
----------------------------------------------------------------------------------------------------------------
TOTAL $36,258 $36,167 78.41%
----------------------------------------------------------------------------------------------------------------
28
30
----------------------------------------------------------------------------------------------------------------
In Thousands
----------------------------------------------------------------------------------------------------------------
Outstanding Balance at December 31,
----------------------------------------------------------------------------------------------------------------
1996
----------------------------------------------------------------------------------------------------------------
Estimated Fair Value Amortized Cost % of Portfolio
----------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities $23,564 $23,540 50.42%
----------------------------------------------------------------------------------------------------------------
Federal Agency Obligations 7,535 7,517 16.12%
----------------------------------------------------------------------------------------------------------------
Obligations of State and
Political Subdivisions 0 0 0
----------------------------------------------------------------------------------------------------------------
Other Securities 0 0 1.15%
----------------------------------------------------------------------------------------------------------------
TOTAL $31,099 $31,057 66.54%
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
In Thousands
----------------------------------------------------------------------------------------------------------------
Outstanding Balance at December 31,
----------------------------------------------------------------------------------------------------------------
1995
----------------------------------------------------------------------------------------------------------------
Estimated Fair Value Amortized Cost % of Portfolio
----------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities $19,100 $19,086 39.90%
----------------------------------------------------------------------------------------------------------------
Federal Agency Obligations 0 0 0
----------------------------------------------------------------------------------------------------------------
Obligations of State and
Political Subdivisions 0 0 0
----------------------------------------------------------------------------------------------------------------
Other Securities 499 499 1.05%
----------------------------------------------------------------------------------------------------------------
TOTAL $19,599 $19,585 40.94%
----------------------------------------------------------------------------------------------------------------
The following table sets forth the maturities, weighted average
maturities, and weighted average yields of securities available for sale.
----------------------------------------------------------------------------------------------------------------
After 1 year, but After 5 years, but
Amount Within 1 year before 5 years before 10 years After 10 years
----------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities $16,500 $5,527 0 0
----------------------------------------------------------------------------------------------------------------
Federal Agency Obligations 1,999 11,528 0 0
----------------------------------------------------------------------------------------------------------------
Obligations of State and
Political Subdivisions 0 0 0 0
----------------------------------------------------------------------------------------------------------------
Other Securities 0 613 0 0
----------------------------------------------------------------------------------------------------------------
TOTAL $18,499 $17,668 0 0
----------------------------------------------------------------------------------------------------------------
29
31
Investments Available For Sale
----------------------------------------------------------------------------------------------------------------
After 1 year, but After 5 years, but
Within 1 Year before 5 years before 10 years After 10 years
----------------------------------------------------------------------------------------------------------------
Weighted Average Yield*
----------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities 5.80% 5.95% 0 0
----------------------------------------------------------------------------------------------------------------
Federal Agency Obligations 5.97% 6.17% 0 0
----------------------------------------------------------------------------------------------------------------
Obligations of State and
Political Subdivisions 0 0 0 0
----------------------------------------------------------------------------------------------------------------
Other Securities 8.52% 0 0 0
----------------------------------------------------------------------------------------------------------------
TOTAL 6.10% 6.09% 0 0
----------------------------------------------------------------------------------------------------------------
* Yield information is computed using amortized cost balances and does not give effect to changes in fair value
that are reflected as a component of shareholders equity.
----------------------------------------------------------------------------------------------------------------
LENDING AND CREDIT MANAGEMENT. Interest on loans is the primary
source of income for Bancorp. Net loans represented 60.0% of total assets as
of December 31, 1997. The Bank works to serve the credit needs of the entire
community, however its primary focus for lending is small-to-medium sized
businesses, professionals, and individuals for commercial and real estate
related financing needs. Substantially all of the Bank's loans are to
customers located within the Bank's service areas.
Although the risk of non-payment always exists, type and level of risk
changes with different types of loans. In the Bank's loan portfolio, real
estate is frequently used as collateral. The primary source of repayment is
the income generated by a business or by an individual, but real estate as
collateral provides an additional measure of security. There are risks
associated with taking real estate as collateral. The risks are changing
property values, changes in property tax laws, and changes in economic
conditions.
Loan risk is mitigated by lending to borrowers with proven credit
histories and demonstrated ability to repay. The Bank manages risk in the loan
portfolio by following loan policies and underwriting practices designed to
result in minimal risk.
30
32
At December 31, the following table sets forth the composition of the
Bank's Loan Portfolio by type of loan as of the dates indicated.
- ------------------------------------------------------------------------------------------------------------------------------
In Thousands
- ------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
Type of Loan Amount % Amount % Amount % Amount % Amount %
- ------------------------------------------------------------------------------------------------------------------------------
Commercial $ 23,507 20% $ 21,975 19% $ 21,169 21% $ 21,858 24% $ 17,572 23%
- ------------------------------------------------------------------------------------------------------------------------------
Agriculture 10,992 9% 9,072 8% 8,834 9% 7,742 9% 7,156 9%
- ------------------------------------------------------------------------------------------------------------------------------
Real Estate
- ------------------------------------------------------------------------------------------------------------------------------
Construction 5,459 4% 3,865 3% 4,065 4% 2,543 3% 2,228 3%
- ------------------------------------------------------------------------------------------------------------------------------
1-4 Family 34,625 28% 34,322 29% 30,993 31% 25,080 28% 25,583 33%
- ------------------------------------------------------------------------------------------------------------------------------
Other 42,142 35% 40,300 35% 31,833 32% 25,317 28% 15,657 21%
- ------------------------------------------------------------------------------------------------------------------------------
Other -- -- -- -- 105 -- 9 -- 153 1%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer 5,423 4% 6,861 6% 5,240 4% 8,187 8% 8,163 10%
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS $ 122,148 $ 116,395 $ 102,239 $ 90,736 $ 76,512
- ------------------------------------------------------------------------------------------------------------------------------
Less
Deferred
Loan Fees (678) (709) (628) (496) (351)
- ------------------------------------------------------------------------------------------------------------------------------
Less
Allowance
for Loan
Loss
Reserve (1,201) (1,038) (896) (844) (779)
- ------------------------------------------------------------------------------------------------------------------------------
NET LOANS $ 120,269 100% $ 114,648 100% $ 100,715 100% $ 89,396 100% $ 75,382 100%
- ------------------------------------------------------------------------------------------------------------------------------
Interest income on loans is accrued daily on the principal balance
outstanding. Generally, no interest is accrued on loans deemed to be
uncollectable, or when the principal or interest payment becomes 90 days past
due. At December 31, 1997, the Bank had loans totaling $438,000 that were 90
days or more past due and still accruing interest because in management's
judgement all of the principal and accrued interest was deemed imminently
collectable and not subject to loss.
31
33
The following table shows the contractual maturity of the Bank's gross
loans at December 31, 1997. Loans having no stated schedule of repayments and
no stated maturity, demand loans, and overdrafts are reported as due in one
year or less. Loan balances do not include undisbursed loan proceeds,
deferred loan fees and discounts and allowance for losses on loans. The table
does not reflect any estimate of prepayments, which significantly shorten the
average life of all loans and may cause the Bank's actual repayment experience
to differ from that shown below.
- ------------------------------------------------------------------------------------------
In Thousands
- ------------------------------------------------------------------------------------------
After 1 year, but After 5 years, but
Within 1 year before 5 years before 10 years After 10 years
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Commercial $ 8,596 $ 7,652 $ 1,012 $ 6,134
- ------------------------------------------------------------------------------------------
Agriculture $ 8,384 $ 2,315 $ 293 0
- ------------------------------------------------------------------------------------------
Real Estate
Construction $ 5,459 0 0 0
- ------------------------------------------------------------------------------------------
1-4 Family $ 3,176 $ 1,997 $ 2,946 $26,133
- ------------------------------------------------------------------------------------------
Other $ 2,583 $ 4,860 $ 2,240 $32,459
- ------------------------------------------------------------------------------------------
Consumer $ 745 $ 3,473 $ 693 $ 319
- ------------------------------------------------------------------------------------------
TOTAL $28,943 $20,297 $ 7,185 $65,045
- ------------------------------------------------------------------------------------------
The following table sets forth the dollar amount of all loans due one
year or more after December 31, 1997, which have fixed interest rates and have
floating or adjustable interest rates.
----------------------------------------------------------------------
In Thousands
----------------------------------------------------------------------
Fixed Rates Floating or Adjustable Rates
----------------------------------------------------------------------
Commercial $ 7,317 $ 7,481
----------------------------------------------------------------------
Agriculture $ 950 $ 1,659
----------------------------------------------------------------------
Real Estate
Construction $ 0 $ 0
----------------------------------------------------------------------
1-4 Family $13,586 $17,490
----------------------------------------------------------------------
Other $13,709 $25,850
----------------------------------------------------------------------
Consumer $ 4,290 $ 195
----------------------------------------------------------------------
TOTAL $39,852 $52,675
----------------------------------------------------------------------
RESERVE FOR POSSIBLE LOAN LOSSES AND PROVISION.
The provision for loan losses charged to operating expense is based on
the Bank's loan loss experience and certain other factors determined by
management that deserve recognition in estimating loan losses. Management
monitors the loan portfolio to ensure that the reserve for possible loan losses
is adequate to cover outstanding loans.
32
34
It is Bank policy that once each quarter, (in January, April, July,
and October) Bank management makes recommendations to the Board regarding the
adequacy of the Bank's loan loss reserves and the amount of the provision that
should be charged against earnings for the next three months. The Board then
makes a decision regarding these amounts and these decisions are communicated
to the Banks' Lending Officers.
When determining loan reserve amounts the Board is given information
divided into the following categories.
1. Specific. Specific reserves are for loans graded substandard or
doubtful to cover the amount of exposure the Bank has calculated for
each loan.
2. General. For all loans graded higher than substandard or doubtful,
the Bank uses estimates based on its previous experience for each
category of loans.
3. Special. From time to time special reserves will be established to
facilitate a change in bank strategy. This happens only when the Bank
intentionally embarks on a strategy that has more than a normal amount
of credit risk associated with it. Special allocations are also made
to cover suspected shortfalls in other real estate owned (OREO) or to
establish a reserve for some other form of special asset.
4. Unallocated. The Board may from time to time increase the loan loss
reserve to an amount that is larger than is needed to meet specific,
general, and special reserves requirements. The Board does this by
adding unallocated reserves. The Board does this when it is
uncomfortable with the amount of the calculated allocation, when it
foresees an economic downturn, or it otherwise sees a need for
additional reserves.
Management also uses a loan grading system wherein officers grade each
of their Commercial loans at inception, annually thereafter when financial
statements are received if the loan has an annual maturity, and at other times
when there is an indication that a credit may have weakened or improved. It is
the responsibility of the loan review officer to ensure the integrity of the
loan grading system.
Loans graded substandard or doubtful, either by the Bank or by a
regulator, receive special attention in the analysis and specific reserve
amounts are set aside for each loan based upon the total principal dollar
amount of the loan. Specific reserves for doubtful and substandard loans are
50% and 25%, respectively. Estimated loss percentages are used for all other
loans by type as follows: installment (consumer loans to individual) .57%, real
estate mortgage loans .23%, and all other loans (general) .55%. These loss
percentage factors establish the required reserve amount by multiplying the
factor times the total of loans in each category.
As of December 31, 1997, the Bank held in its reserve for possible
loan losses a total of $1.2 million.
33
35
The following table presents the relationship of the reserve for
possible loan loss to the loan portfolio as of December 31, 1997, 1996, 1995,
1994, and 1993.
- ------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF PERIOD:
- ------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
$ Amount % of $ Amount % of $ Amount % of $ Amount % of $ Amount % of
Loans Loans Loans Loans Loans
to to to to to
Total Total Total Total Total
Loans Loans Loans Loans Loans
- ------------------------------------------------------------------------------------------------------------------------------
DOMESTIC:
- ------------------------------------------------------------------------------------------------------------------------------
Commercial,
Financial, &
Agricultural 403 28% 216 27% 207 29% 211 33% 202 32%
- ------------------------------------------------------------------------------------------------------------------------------
Real Estate -
Construction 27 5% 89 3% 94 4% 58 3% 51 3%
- ------------------------------------------------------------------------------------------------------------------------------
Real Estate -
Mortgage 107 63% 170 64% 143 62% 115 55% 94 54%
- ------------------------------------------------------------------------------------------------------------------------------
Installment
Loans to
Individuals 46 4% 39 6% 30 5% 46 9% 46 11%
- ------------------------------------------------------------------------------------------------------------------------------
UNALLOCATED 618 N/A 524 N/A 422 N/A 414 N/A 386 N/A
- ------------------------------------------------------------------------------------------------------------------------------
Total Allowance
for Possible Loan
Losses 1,201 100% 1,038 100% 896 100% 844 100% 779 100%
- ------------------------------------------------------------------------------------------------------------------------------
The total reserve for possible loan losses represents the Boards'
opinion at December 31, of each year as to an amount that would meet the Bank's
needs in the event of an economic downturn or unforeseen event.
It is the opinion of the management that the total reserve for
possible loan loss at December 31, 1997 was adequate to meet the policy
portfolio requirements of the Bank. Total allowance represented .99% of total
loans at that date.
34
36
The following table summarizes transactions in the reserve for
possible loan losses and details the charge-offs, recoveries, and net loan
losses by loan category for the last five years.
- -----------------------------------------------------------------------------------------------------
IN THOUSANDS
- -----------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
ALLOWANCE AT BEGINNING OF
PERIOD: $1,038 $ 896 $ 844 $ 779 $ 800
- -----------------------------------------------------------------------------------------------------
Provision for Possible Loan
Losses 165 134 100 72 40
- -----------------------------------------------------------------------------------------------------
CHARGE-OFFS:
Commercial 0 0 44 0 60
- -----------------------------------------------------------------------------------------------------
Agriculture 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------
Real Estate 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------
Construction 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------
1-4 Family 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------
Other 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------
Consumer 2 8 10 7 5
- -----------------------------------------------------------------------------------------------------
TOTAL CHARGE-OFFS: $ 2 $ 8 $ 53 $ 7 $ 65
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
RECOVERIES:
- -----------------------------------------------------------------------------------------------------
Commercial 0 16 5 0 4
- -----------------------------------------------------------------------------------------------------
Agriculture 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------
Real Estate 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------
Construction 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------
1-4 Family 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------
Other 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------
Consumer 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------
TOTAL RECOVERIES $ 0 $ 16 $ 5 $ 0 $ 4
- -----------------------------------------------------------------------------------------------------
NET RECOVERIES (CHARGE-OFFS) (2) 8 (48) (7) (61)
- -----------------------------------------------------------------------------------------------------
BALANCE AT
END OF PERIOD $1,201 $1,038 $ 896 $ 844 $ 779
- -----------------------------------------------------------------------------------------------------
RATIO OF NET CHARGE-OFFS TO
AVG. LOANS OUTSTANDING .00% .00% .05% .01% .08%
- -----------------------------------------------------------------------------------------------------
35
37
In May 1993, the Financial Accounting Standards Board (FASB) issued
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" and in October
1996 issued SFAS No. 118," "Accounting by Creditors for Impairment of a Loan --
Income Recognition Disclosures, an amendment to SFAS No. 114." The Bank
measures impaired loans based on the present value of expected future cash
flows discounted at the loan's effective interest rate, or as a practical
expedient, at the loan's observable market price or the fair market value of
the collateral if the loan is collateral dependent. The Bank excludes loans
that are currently measured at fair value or at lower of cost or fair value,
and certain large groups of smaller balance homogeneous loans that are
collectively measured for impairment. At December 31, 1997 and 1996, the Bank
had no material impaired loans.
YEAR 2000 ISSUES.
Bancorp has adopted a year 2000 management plan to ensure that its
data processing, communications and other systems will not be adversely
impacted by issues surrounding passing into the year 2000. The plan is divided
into four phases: awareness, assessment, testing, and implementation. Bancorp
has completed the awareness phase. In this phase, potential impacts on the
Company are identified. This includes addressing each software and hardware
system as well as potential effects on the Bancorp's vendors and larger
customers, especially those who borrow money from the Bank.
The assessment phase has also been completed. This includes
evaluating all hardware and software and hardware systems and categorizing the
perceived risk into a prioritization of risk. Risk is prioritized into those
applications critical to the mission of Bancorp and the Bank, and those that
are not.
Management is in the process of working through the testing phase of
the year 2000 plan. First with the mission critical applications and then the
non-mission critical applications. The Bank's main data processing hardware
and software were not developed by Bancorp or the Bank, but were purchased from
national vendors to the financial services industry. Management is working
closely with these vendors to test critical applications and see that support
and maintenance systems are in place.
Bancorp anticipates that costs associated with assuring maximum
compliance with the year 2000 plan implementation will not be material.
36
38
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK.
Bancorp's results of operations are largely dependent upon its ability
to manage interest rate risk. Management considers interest rate risk to be a
significant element of market risk that could have a material effect on
Bancorp's financial conditions and results of operations. Bancorp does not
currently use derivatives to manage market risk and interest rate risk.
Historically, Bancorp has managed its maturities between assets and
liabilities to be substantially "balanced." Currently there is a small amount
of mismatching so that the total position is slightly asset sensitive. The
Bank's deposit rates do not change as much as asset rates when rates change.
If rates change rapidly the change will be greater than if they change slowly.
These assumptions regarding rate changes also assume no changes in customer
behavior.
It is currently Bancorp's goal to extend slightly the maturities of
certain investment portfolio instruments and allow loan administration to
approve some new moderate-term (3 to 5 years) fixed-rate business loans. This
will reverse the mismatch between assets and liability maturities and bring
Bancorp into a more "balanced" position thus, substantially eliminating the
current interest rate risk position.
In addition to moderate-term fixed-rate business loans and
investments, Bancorp uses a number of additional strategies to minimize the
negative impact on net income during significant changes in interest rates.
They include origination of moderate term fixed-rate consumer loans, purchase
of fixed-rate non-collable treasury securities, and growth in non-interest
bearing demand accounts.
The following table sets forth the balances of Bancorp's financial
instruments at December 31, 1997. The expected maturities take into
consideration no estimated principal prepayments for loans and securities.
Principal prepayments are the amounts of principal reduction over and above the
normal amortization. Financial instruments are expected to mature on their
respective maturity dates. Although some instruments are amortized over longer
periods, such as 180 months, most have 36, 60 or 84 months "call" provisions,
which allows the Bank to renegotiate the interest rate. This use of interest
rate "call" provisions in long-term instruments act to reduce exposure to
interest rate risk. The amortization period for principal reduction usually
remains unchanged when the instrument is "called" for interest rate
renegotiation.
The expected maturities for financial liabilities with no stated
maturity reflect assumptions based on historical and estimated future roll-off
rates. The roll-off rates for non-interest bearing deposits, interest-bearing
checking accounts, money market accounts, and savings accounts are 14 percent,
20 percent, 20 percent and 20 percent, respectively. The weighted average
interest rates for financial instruments presented are actual as of December
31, 1997.
37
39
The estimated fair value amounts have been determined by Bancorp using
available market information and appropriate valuation methodologies. However,
considerable judgement is necessary to interpret market data in the development
of the estimates of fair value amounts. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts Bancorp could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts. The carrying value of cash and cash equivalents and accrued interest
receivable is a reasonable estimate of the fair value for such financial
assets. The fair values of securities available for sale, and securities held
to maturity are based on quoted market rates and dealer quotes. The fair value
of fixed-rate loans is based on quoted market rates for similar loans. The
fair value for adjustable rate loans is based on discounted cash flows, using
estimated interest rates currently offered for loans of similar
characteristics. The fair value of deposits with no stated maturity, such as
checking accounts, money market accounts and savings accounts, is equal to the
amount payable on demand as of December 31, 1997. The fair value of
certificates of deposit is based on the discounted value of contractual cash
flows using a discount rate based on the current average rate for deposits of
like maturities of other local institutions. The fair value of FHLB advances
and securities sold under agreements to repurchase are estimated to be the rate
offered on similar borrowings with similar maturities as of December 31, 1997,
which approximates the carrying value. The fair value estimates presented are
based on information available as of December 31, 1997.
38
40
The following table sets forth the balances Bancorp's financial instruments at
the expected maturity dates as well as the fair value of those financial
instruments at December 31, 1997.
Year ended December 31, 1997
$ in thousands EXPECTED MATURITY
1998 1999 2000 2001 2002 Thereafter Total Fair Value
FINANCIAL ASSETS
Cash and due from banks $ 9,268 $ 9,268 $ 9,268
Interest-bearing deposits at other banks $15,299 $15,299 $15,299
Weighted average interest rate 5.35%
Federal funds sold
Fixed rate $ 2,800 $ 2,800 $ 2,800
Weighted average interest rate 5.13%
Securities available for sale $ -
Fixed rate $18,523 $13,061 $ - $ - $4,674 $ - $36,258 $36,258
Weighted average interest rate 6.10% 6.01% 0.00% 0.00% 6.32% 0.00%
Securities held to maturity
Fixed rate $ 5,408 $ 2,624 $ 455 $ 120 $ 145 $ 1,231 $ 9,983 $10,097
Weighted average interest rate 6.79% 6.14% 4.93% 4.60% 5.00% 5.02%
Loans receivable, net $ -
Fixed rate $10,566 $ 2,034 $ 3,059 $6,408 $3,989 $21,375 $47,431 $47,399
Weighted average interest rate 9.75% 9.55% 9.95% 9.81% 10.04% 9.22%
Adjustable rate $18,377 $ 553 $ 639 $1,645 $1,767 $49,857 $72,838 $72,838
Weighted average interest rate 10.21% 10.44% 10.21% 10.10% 9.24% 9.28%
FINANCIAL LIABILITIES
Non-interest bearing deposits $ 4,996 $ 4,297 $ 3,695 $3,178 $2,733 $16,784 $35,683 $35,683
Interest bearing checking accounts $ 6,076 $ 4,861 $ 3,889 $3,111 $2,489 $ 9,952 $30,378 $30,378
Weighted average interest rate 1.75% 1.75% 1.75% 1.75% 1.75% 1.75%
Money market accounts $ 4,932 $ 3,946 $ 3,157 $2,526 $2,021 $ 8,078 $24,660 $24,660
Weighted average interest rate 2.75% 2.75% 2.75% 2.75% 2.75% 2.75%
Savings accounts $ 3,105 $ 2,484 $ 1,987 $1,590 $1,272 $ 5,086 $15,524 $15,524
Weighted average interest rate 2.78% 2.78% 2.78% 2.78% 2.78% 2.78%
Certificates of deposit
Fixed rate $45,020 $ 5,575 $ 2,070 $ 504 $ 1,064 $ 30 $54,263 $54,357
Weighted average interest rate 5.35% 5.44% 5.70% 5.82% 6.00% 5.75%
Adjustable rate $ 769 $ 413 $ -- $ -- $ 10 $ -- $ 1,192 $ 1,052
Weighted average interest rate 5.12% 5.13% 0.00% 0.00% 5.75% 0.00%
Repurchase Agreements
Fixed rate $14,086 $14,086 $14,086
Weighted average interest rate 3.28%
Treasury Tax and Loan
Fixed rate $ 2,814 $ 2,814 $ 2,814
Weighted average interest rate 4.5%
39
41
While the table presented on the previous page helps provide some
information about Bancorp's interest sensitivity, it does not predict the
trends of future earnings. For this reason, Bancorp uses financial modeling to
forecast earnings under different interest rate projections. While this
modeling is helpful in managing interest rate risk, it does require significant
assumptions for the projection of liability funding sources that may prove to
be inaccurate.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following audited consolidated financial statements and related documents
are set forth in this Annual Report on Form 10-K on the pages indicated:
Pages
-----
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . 41
Consolidated Statements of Condition . . . . . . . . . . . . . . . . . . . . . . . 42
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . 43
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . 44
Consolidated Statements of Changes in Shareholders' Equity . . . . . . . . . . . . 46
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . 47
40
42
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Citizens Bancorp and Subsidiary (Citizens Bank)
Corvallis, Oregon
We have audited the accompanying consolidated balance sheets of Citizens
Bancorp and Subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of income and changes in shareholders' equity for each
of the three years in the period ended December 31, 1997, and the consolidated
statements of cash flows for the years ended December 31, 1997 and 1996 and
1995. These consolidated financial statements are the responsibility of the
Citizens Bancorp 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 audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated 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 financial position of Citizens Bancorp
and subsidiary as of December 31, 1997 and 1996 and 1995 and the results of its
operations for each of the three years in the period ended December 31, 1997,
and its cash flows for the years ended December 31, 1997 and 1996 and 1995, in
conformity with generally accepted accounting principles.
/s/ DAVE CHRISTENSEN
Dave Christensen
Certified Public Accountant
Portland, Oregon
February 27, 1998
41
43
CITIZENS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CONDITION
DECEMBER 31, 1997 AND 1996
- ------------------------------------------------------------------------------------------
ASSETS: 1997 1996
- ------------------------------------------------------------------------------------------
Cash and Due from Banks (Note 21) $ 9,268,406 $ 8,415,515
Interest-Bearing Deposits at Banks 15,299,483 16,380,480
Investment Securities (Notes 1 and 2 )
U.S. Treasury & U.S. Agencies Securities 41,646,142 44,013,602
States and Political Subdivisions 4,595,811 2,820,062
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES $ 46,241,953 $ 46,833,664
Federal Funds Sold 2,800,000 --
Loans, Net (Notes 1, 3 and 16) 120,268,770 114,647,608
Premises and Equipment, Net (Note 4) 2,755,773 2,567,489
Other Real Estate Owned (Note 1) 239,852 59,303
Core Deposit Intangible 310,000 350,000
Other Assets 2,933,221 2,632,751
- ------------------------------------------------------------------------------------------
TOTAL ASSETS (NOTE 15) $200,117,458 $191,886,810
==========================================================================================
- ------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------------
Demand Deposits 35,682,828 43,874,759
Savings Deposits 70,562,032 66,551,764
Time Deposits (Note 5 and 16) 55,455,119 51,407,640
- ------------------------------------------------------------------------------------------
TOTAL DEPOSITS $161,699,979 $161,834,163
Repurchase Agreements (Note 10) 14,085,719 10,040,409
Treasury Tax and Loan 2,814,167 1,581,686
Other Liabilities 2,106,549 1,625,918
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES $180,706,414 $175,082,176
==========================================================================================
- ------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
- ------------------------------------------------------------------------------------------
Common Stock, No Par Value,
5,000,000 Shares Authorized, 1,922,321
Issued and Outstanding at December 31,
1997 and 1,798,397 Issued and Outstanding
at December 31, 1996 (Note 12) 9,245,450 8,991,984
Surplus 4,715,331 4,349,051
Undivided Profits 5,387,946 3,435,685
Unrealized Gain/Loss on Securities (Note 16) 62,317 27,914
- ------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY (NOTE 15) $ 19,411,044 $ 16,804,634
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $200,117,458 $191,886,810
==========================================================================================
The accompanying notes are an integral part of these statements.
42
44
CITIZENS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- ------------------------------------------------------------------------------------------------
INTEREST INCOME: 1997 1996 1995
- ------------------------------------------------------------------------------------------------
Interest and Fees on Loans (Note 1) $12,249,564 $10,849,524 $ 9,732,617
Interest on Investments 2,603,729 2,615,212 2,744,756
Interest on Federal Funds Sold 8,043 9,495 5,762
Interest on Other Deposits 549,038 454,632 248,990
- ------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME $15,410,374 $13,928,863 $12,732,125
INTEREST EXPENSE:
- ------------------------------------------------------------------------------------------------
Interest on Deposits 4,775,237 4,595,699 4,324,320
Interest on Other Borrowings 511,445 438,226 400,932
- ------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE $ 5,286,682 $ 5,033,925 $ 4,725,252
NET INTEREST INCOME $10,123,692 $ 8,894,938 $ 8,006,873
================================================================================================
PROVISION FOR POSSIBLE LOAN
LOSSES (Notes 1 and 3) 165,000 134,500 100,000
- ------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES $ 9,958,692 $ 8,760,438 $ 7,906,873
- ------------------------------------------------------------------------------------------------
OTHER OPERATING INCOME:
- ------------------------------------------------------------------------------------------------
Service Charges on Deposit Accounts 819,585 691,359 654,165
Gains on Sales of Securities 938 11,852 4,041
Other Operating Income 1,036,898 865,844 845,371
- ------------------------------------------------------------------------------------------------
TOTAL OTHER OPERATING INCOME $ 1,857,421 $ 1,569,055 $ 1,503,577
OTHER OPERATING EXPENSE:
- ------------------------------------------------------------------------------------------------
Salaries & Employee Benefits (Notes 1 & 6) 3,413,295 2,976,150 2,694,618
Net Occupancy Expense 982,003 939,985 813,603
Other Operating Expenses (Note 14) 2,056,261 1,615,220 1,703,929
- ------------------------------------------------------------------------------------------------
TOTAL OTHER OPERATING EXPENSE $ 6,451,559 $ 5,531,355 $ 5,212,150
INCOME BEFORE INCOME TAXES $ 5,364,554 $ 4,798,138 $ 4,198,300
================================================================================================
PROVISION FOR INCOME TAXES (Note 8) $ 2,023,000 $ 1,659,672 $ 1,538,922
- ------------------------------------------------------------------------------------------------
NET INCOME $ 3,341,554 $ 3,138,466 $ 2,659,378
================================================================================================
EARNINGS PER COMMON SHARE (Note 11)
- ------------------------------------------------------------------------------------------------
Income Before Extraordinary Items $ 1.73 $ 1.66 $ 1.44
Extraordinary Items -- -- --
NET INCOME $ 1.73 $ 1.66 $ 1.44
================================================================================================
AVERAGE COMMON SHARES OUTSTANDING 1,992,321 1,888,289 1,849,573
================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
43
45
CITIZENS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) (NOTE 1)
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
Interest and fees received $ 15,357 $ 14,168 $ 12,371
Service charges and other income 1,857 1,569 1,504
Interest paid (5,304) (5,037) (4,713)
Cash paid to bank suppliers and staff (7,356) (5,167) (5,139)
Income taxes paid (2,195) (1,792) (1,539)
- --------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,359 3,741 2,484
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- --------------------------------------------------------------------------------------------------------------
Purchases of available-for-sale securities (24,337) (21,391) (10,198)
Proceeds from sale of available-for-sale securities 2,000 3,000 2,000
Proceeds from maturity of available-for-sale securities 21,000 9,000 --
Purchases of held to maturity securities (449) (201) (9,556)
Proceeds from maturities of held-to-maturity securities 6,205 10,435 17,080
Proceeds from sale of held to maturity securities -- 3,053 --
Net increase in loans (5,755) (14,536) (11,263)
Proceeds from sale of fixed assets -- 14 288
Capital expenditures (46) (54) (121)
Other (3,899) -- --
Net decrease in interest-bearing deposits 1,081 -- --
Net (Increase) in Federal Funds (2,800) -- --
(Increase)/decrease Other Real Estate owned (181) -- 455
Purchases of Certificates of Deposit -- (10,500) --
- --------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (7,181) (21,180) (11,315)
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- --------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in demand deposits and savings accounts (4,182) 21,705 (817)
Net increase in time deposits and repurchase agreements 8,093 3,584 6,705
Increase in treasury tax and loan note 1,233 986 (849)
Fed Funds Sold and Other -- 302 197
Dividends paid (declared in prior year) (1,079) (1,057) (865)
Dividends reinvested in stock 528 458 375
Other -- 30 (567)
- --------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,593 26,008 4,179
NET INCREASE OR (DECREASE) IN CASH AND CASH EQUIVALENTS (229) 8,569 (4,652)
- --------------------------------------------------------------------------------------------------------------
Cash/cash equivalents at beginning of year 24,796 16,227 20,879
Cash/cash equivalents at end of year 24,567 24,796 16,227
==============================================================================================================
44
46
CITIZENS BANCORP AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
(CONTINUED) (IN THOUSANDS)
Reconciliation of net income to net cash provided by operating activities:
1997 1996 1995
- -------------------------------------------------------------------------------------------
NET INCOME $ 3,342 3,138 2,659
- -------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 347 420 290
Provision for possible loan losses 165 135 100
(Increase)/decrease in interest receivable (53) 239 (361)
Increase/(decrease) in other liabilities (841) 142 153
(Increase)/decrease in other assets (601) (333) (357)
- -------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS (983) 603 (176)
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,359 $ 3,741 2,484
===========================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
45
47
CITIZENS BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
UNREALIZED
GAIN
COMMON UNDIVIDED (LOSS ON)
STOCK SURPLUS PROFITS SECURITIES TOTAL
- ----------------------------------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 1994 $ 3,602,494 $ 5,005,903 $ 3,673,778 $ (7,825) $ 12,274,350
- ----------------------------------------------------------------------------------------------------------------------
Net Income for 1995 -- -- 2,659,378 -- 2,659,378
Cash Dividend Reinvestment (Note 7)
($27.87 Per Share) 67,293 307,802 -- -- 375,095
Transfer from Undivided Profits to Surplus -- 900,000 (900,000) -- --
Stock Split (1 for 5)
(Note 12) 733,958 (733,958) -- -- --
Unrealized Gain/Loss on Securities -- -- -- 17,171 17,171
Cash dividend ($0.60 Per Share) (Note 12) -- -- (1,056,899) -- (1,056,899)
- ----------------------------------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 1995 $ 4,403,745 $ 5,479,747 $ 4,376,257 $ 9,346 $ 14,269,095
- ----------------------------------------------------------------------------------------------------------------------
Net Income for 1996 (Note 20) -- -- 3,138,466 -- 3,138,466
Cash Dividend Reinvestment
(Note 7) ($ 24.80 Per Share) 92,247 365,296 -- -- 457,543
Transfer from Undivided Profits to Surplus -- 3,000,000 (3,000,000) -- --
Stock Split (2- for-1) (Note 12) 4,495,992 (4,495,992) -- -- --
Unrealized Gain/Loss on Securities -- -- 18,568 18,568
Cash dividend ($0.60 Per Share) (Note 12) -- -- (1,079,038) -- (1,079,038)
- ----------------------------------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 1996 $ 8,991,984 $ 4,349,051 $ 3,435,685 $ 27,914 $ 16,804,634
- ----------------------------------------------------------------------------------------------------------------------
Net Income for 1997 -- -- 3,341,554 -- 3,341,554
Cash Dividend Reinvestment (Note 7)
($ 16.31 Per Share) 161,927 366,280 -- -- 528,207
Prior Percent Adjustment (Note 20) -- -- 9,424 -- 9,424
5% Stock Dividend (Note 12) 91,539 -- (91,539) -- --
Unrealized Gain/Loss on Securities -- -- -- 34,403 34,403
Cash dividend ($0.68 Per Share) (Note 12) -- -- (1,307,178) -- (1,307,178)
- ----------------------------------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 1997 $ 9,245,450 $ 4,715,331 $ 5,387,946 $ 62,317 $ 19,411,044
======================================================================================================================
The accompanying notes are an integral part of these statements.
46
48
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting and reporting policies of Citizens Bancorp and subsidiary
(Citizens Bank) conform with generally accepted accounting principles. The
following is a description of significant policies.
NATURE OF OPERATIONS
The company provides a variety of financial services to individuals and
corporate customers in Lane, Linn, and Benton Counties in Oregon.
FORMATION AND COMBINATION OF CITIZENS BANCORP AND CITIZENS BANK
Citizens Bancorp was incorporated on September 18, 1996, and became the parent
holding company of Citizens Bank through a pooling-of-interests merger and a
one-for-one stock exchange. The effective date of the merger was July 1, 1997.
As a result of the merger, Citizens Bancorp acquired 100% of the common stock
of Citizens Bank, and the shareholders of the Citizens Bank became shareholders
of Citizens Bancorp.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Citizens Bancorp
and its wholly owned subsidiary, Citizens Bank. All material intercompany
balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of foreclosed real estate. In connection with the
determination of the estimated losses on loans and foreclosed real estate,
management obtains independent appraisals for significant properties.
A majority of the Company's loan portfolio consist of single-family residential
loans and commercial loans secured by real estate in the Lane, Linn and Benton
County areas. Real estate prices in this market are stable at this time. The
ultimate collectibility of a substantial portion of the Company's loan
portfolio may be susceptible to change in local market conditions in the
future.
47
49
While management uses available information to recognize losses on loans,
further reductions in the carrying amounts of loans may be necessary based on
changes in local economic conditions. In addition, regulatory agencies, as an
integral part of their examination process, periodically review the estimated
losses on loans. Such agencies may require the Company to recognize additional
losses based on their judgments about information available to them at the time
of their examination. Because of these factors, it is reasonably possible
that the estimated losses on loans may change materially in the near term.
However, the amount of the change that is reasonably possible cannot be
estimated.
Investment Securities
The Company accounts for its investment securities using Financial Accounting
Standards Board Statement SFAS No. 115 "Accounting for Certain Investments in
Debt and Equity Securities." Under the standard, investment securities are
classified as either available for sale or held to maturity. Available for
sale securities are carried at fair value with unrealized gains and losses, net
of any tax effect, added to or deducted directly from stockholders' equity.
Held to maturity securities are carried at amortized cost.
Loans and Loan Fee Income
Loans are stated at the amount of unpaid principal, reduced by an allowance for
loan losses. Interest on loans is calculated by using the simple interest
method on daily principal amounts outstanding. Loan fee income is recognized
net of costs over the life of the loan. The direct incremental costs are not
reduced or amortized over the life of the loan as the amounts are not
considered material to the financial statements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
considered necessary to secure the loan is based on the amount of the loan and
management's credit evaluation of the customer. Collateral may include
accounts receivable, inventory, property, plant and equipment, real estate,
marketable securities and other income producing property. The loans are
generally expected to be repaid from the income and cash flow of the customer
or from the sale of selected assets of the customer.
Reserve for Possible Loan Losses
The reserve for possible loan losses is based upon management's periodic
analysis of the loan portfolio, evaluation of current economic conditions, and
other pertinent factors. Ultimate losses may vary from the current estimates
and, as additions to the reserve become necessary, are reported in earnings in
the period in which they become known. Losses are charged and recoveries are
credited to the reserve.
Other Real Estate Owned
Other real estate owned, which represents real estate acquired through
foreclosure, is stated at the lower of the carrying value of the loan or the
estimated fair market value of the related real estate. Loan balances in
excess of the fair market values of the real estate at the date of acquisition
are charges against the allowance for loan losses. Any subsequent operating
expenses or income and gains or losses on sales of such properties are charged
to current operations.
Statement of Cash Flows
The company considers all cash, amounts due from depository institutions and
interest-bearing deposits in other banks to be cash equivalents for purposes
of the statements of cash flows.
48
50
Reclassifications
Certain amounts in 1996 and 1995 have been reclassified to conform with the 1997
financial statement presentation.
2. INVESTMENT SECURITIES:
The book value and approximate market value of securities, and the unrealized
gains and losses on these securities were as follows (in thousands):
AVAILABLE-FOR-SALE
---------------------------------------
BOOK MARKET UNREALIZED UNREALIZED
VALUE VALUE GAIN LOSS
----------------------------------------------------
DECEMBER 31,1997
U.S. Treasury & U.S. Agency Securities 35,554 35,645 97 (6)
States & Political Subdivisions 613 613 -- --
----------------------------------------------------
36,167 36,258 97 (6)
====================================================
AVAILABLE-FOR-SALE
------------------------------------------------
BOOK MARKET UNREALIZED UNREALIZED
VALUE VALUE GAIN LOSS
------------------------------------------------
DECEMBER 31, 1996
U.S. Treasury & U.S. Agency Securities 31,057 31,099 41 --
States & Political Subdivisions -- -- -- --
------------------------------------------------
31,057 31,099 41 --
================================================
--------------------------------------------------
HELD-TO-MATURITY
--------------------------------------------------
BOOK MARKET UNREALIZED UNREALIZED
VALUE VALUE GAIN LOSS
--------------------------------------------------
DECEMBER 31, 1997
U.S. Treasury & U.S. Agency Securities 6,000 6,036 36 --
States & Political Subdivisions 3,983 4,061 78 --
--------------------------------------------------
9,983 10,097 114 --
==================================================
-------------------------------------------------------
HELD-T-TO-MATURITY
-------------------------------------------------------
BOOK MARKET UNREALIZED UNREALIZED
VALUE VALUE GAIN LOSS
-------------------------------------------------------
DECEMBER 31, 1996
U.S. Treasury & U.S. Agency Securities 10,007 10,066 59 --
States & Political Subdivisions 5,728 5,699 -- (29)
----------------------------------------------------
15,735 15,765 59 (29)
====================================================
49
51
As of December 31, 1997 and 1996, securities carried at $28,738,000
(Market value $28,843,960) and approximately $31,865,967 (Market value
$32,029,905), respectively, were pledged to secure public funds on deposit and
for other purposes required by law.
The book value and approximate market value of securities summarized by
their maturity dates were as follows (in thousands):
DATES OF MATURITIES
----------------------------------------------
AVAILABLE-FOR-SALE
----------------------------------------------
UNDER 1-5 6-10 OVER
1 YEAR YEARS YEARS 10 YEARS
----------------------------------------------
U.S. Treasury & U.S. Agency Securities
Book Value 18,499 17,055 -- --
Market Value 18,523 17,123 -- --
States & Political Subdivisions
Book Value -- 612 -- --
Market Value -- 612 -- --
------------------------------------------------
DATES OF MATURITIES
------------------------------------------------
HELD-TO-MATURITY
------------------------------------------------
UNDER 1-5 6-10 OVER
1 YEAR YEARS YEARS 10 YEARS
------------------------------------------------
U.S. Treasury & U.S. Agency Securities
Book Value 3,966 2,034 -- --
Market Value 3,988 2,048 -- --
States & Political Subdivisions
Book Value 1,442 1,310 1,134 97
Market Value 1,450 1,339 1,171 101
For the years ended December 31, 1997, 1996 and 1995, proceeds from
the sale of available-for-sale securities were approximately $2,000,000,
$3,018,464 and $19,585,000, respectively. In 1997, the gross realized gains on
these sales were $1,000. In 1996, the gross realized losses on these sales were
$2,798. In 1995, the gross realized losses on these sales were $14,000.
50
52
3. LOANS AND RESERVE FOR POSSIBLE LOAN LOSSES: The loan portfolio consisted of
the following (in thousands):
FOR YEARS ENDED DECEMBER 31,
-----------------------------
1997 1996
-----------------------------
Commercial $ 23,507 $ 21,975
Agriculture 10,992 9,072
Real Estate
Construction 5,459 3,865
1-4 Family 34,625 34,322
Other 42,142 40,300
Consumer 5,423 6,861
Less: unearned income and deferred fees (678) (709)
TOTAL LOANS $ 121,470 $ 115,686
-----------------------------
Less: reserve for possible loan losses (1,201) (1,038)
-----------------------------
NET LOANS $ 120,269 $ 114,648
=============================
As of December 31, 1997 and 1996, the Bank had loans to persons serving as
directors, officers and entities related to such individuals. An analysis of
activity with respect to these loans at December 31, 1997 was as follows:
Balance at December 31, 1996 $ 2,003,111
Additions 1,223,111
Repayments (1,066,350)
-----------
Balance at December 31, 1997 $ 2,159,872
The following, is an analysis of the changes in the reserve for possible loan
losses (in thousands):
FOR YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
-----------------------------------------
Beginning Balance $ 1,038 $ 896 $ 844
Provision for Possible Loan Losses 165 134 100
Recoveries -- 16 5
Losses (2) (8) (53)
-----------------------------------------
Ending Balance $ 1,201 $ 1,038 $ 896
=========================================
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NON-PERFORMING LOANS (IN THOUSANDS):
FOR YEARS ENDED
DECEMBER 31,
-------------------
1997 1996
-------------------
Loans 90 days or more past due and still
accruing interest $438 $ 23
Non-Accrual loans -- 4
-------------------
$438 $ 27
===================
4. BANK PREMISES AND EQUIPMENT:
Bank premises, furniture and equipment consisted of the following (in
thousands):
DECEMBER 31,
-----------------------
1997 1996
-----------------------
Land and Buildings 3,935 3,863
Furniture and Equipment 2,134 2,006
-----------------------
6,069 5,869
Less: Accumulated Depreciation (3,313) (3,302)
-----------------------
2,756 2,567
=======================
The provision for depreciation is computed using straight-line and
accelerated methods and totaled $307,299, $350,303, and $289,502, in 1997,
1996 and 1995, respectively. Depreciation is based on useful lives of 10
to 40 years for buildings and components; 10 to 15 years for leasehold
improvements, or terms of lease, whichever is less; and 3 to 10 years for
furniture and equipment.
5. TIME DEPOSITS:
Time certificates of deposit in excess of $100,000 aggregated approximately
$14,300,000 and $13,953,984 at December 31, 1997 and 1996, respectively.
6. EMPLOYEE BENEFIT PLANS:
The Bank maintains a non-contributory, profit-sharing plan which covers
substantially all full-time employees. Contributions to the Plan were $280,991,
$251,719, and $270,275, in 1997, 1996 and 1995, respectively. Contributions in
similar amounts are expected to continue. The Bank follows the policy of funding
all accrued contributions to the Plan. The Plan is administered under the terms
of the Citizens Bank profit sharing and Salary Deferral 401(A) Plan.
7. CASH DIVIDEND REINVESTMENT PLAN:
The Bank established a cash dividend reinvestment plan in 1990 and Citizens
Bancorp adopted a revised plan on July 15, 1997. The revised reinvestment plan
allows for 50% or 100% of the cash dividends to be reinvested based upon
shareholder election. The plan is for shareholders who may reinvest their cash
dividends to receive shares of additional stock. For the years ended December
31, 1997 and 1996, $528,207 of cash dividends were reinvested in 32,385 shares
of stock valued at $16.31 per share, and $457,543 of cash dividends were
reinvested in 18,449 shares of stock valued at $24.80 per share, respectively.
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8. INCOME TAXES:
The company and Subsidiary Bank file consolidated federal income tax returns on
a calendar-year basis (in thousands):
FOR YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
----------------------------------------
Currently Payable:
Federal $ 1,752 $ 1,415 $ 1,250
State 213 330 140
Deferred Tax Expense/(Benefit):
Federal 48 (80) 148
State 10 (6) 1
----------------------------------------
$ 2,023 $ 1,659 $ 1,539
========================================
Deferred tax assets and liabilities included in other assets at December 31
consist of the following:
FOR YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
-----------------------------------
Deferred Tax Assets:
Allowance for loan losses $ 414 $ 525 $ 280
Deferred compensation 51 (54) 58
-----------------------------------
465 $ 471 338
Deferred tax liabilities:
Accumulated depreciation (32) (54) (114)
Other (19) -- 22
-----------------------------------
(51) (54) (92)
-----------------------------------
Net deferred tax asset $ 414 $ 417 $ 246
===================================
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As a result of the following items, the total tax expense for 1997 was more, and
1996 and 1995 were less, that the amount computed by applying the statutory U.S.
Federal income tax rate to income before taxes (in thousands):
FOR YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1997 1996 1995
-------------------------------------------------------------------------------------
PERCENT PERCENT PERCENT
OF OF OF
PRETAX PRETAX PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
-------------------------------------------------------------------------------------
Federal rate $ 1,836 34% $ 1,635 34% $ 1,427 34%
Changes due to
State income tax, net of
Federal tax benefit 140 195 92 --
Exempt interest (59) -- (108) -- (128) --
Other 106 -- (63) -- 148 --
-------------------------------------------------------------------------------------
Total $ 2,023 37% $ 1,659 35% $ 1,539 36%
=====================================================================================
The tax provision differs from the Federal statutory rate of 34% due principally
to the effect of tax exemptions for interest received on state and municipal
bonds and the change in the temporary differences between the company expense
and tax return deduction.
9. LEASES
The Applegate office building the Circle building and the University office
building are being leased by the Company under a noncancelable leases. The
Applegate office lease has two five-year option periods after 1998. The Circle
office is being leased under a noncancelable lease expiring on January 31, 2020.
The following is a schedule of minimum future rental payments to be made under
operating leases as of December 31, 1997:
YEARS ENDING DECEMBER 31,
--------------------------------------------------
1998 91,000
1999 93,000
2000 93,000
2001 93,000
2002 93,000
--------------------------------------------------
Total $463,000
10. REPURCHASE AGREEMENTS:
At December 31, 1997 and 1996, the securities sold under repurchase agreements
aggregated $14,085,719 and $10,040,409, respectively. U.S. Treasury Notes
aggregating $20,024,748 and $10,040,409 were pledged to these agreements at
December 31, 1997 and 1996, respectively. Fair market values of the securities
pledged were approximately $20,073,129 and $10,051,900 at December 31, 1997 and
1996, respectively.
11. EARNINGS PER SHARE:
Net income per share is based upon the weighted average number of shares
outstanding during each period and adjusted retroactively to reflect stock
splits, and stock dividends.
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12. COMMON STOCK:
A total of 32,385, 18,449 and 13,459 shares were issued in 1997, 1996, and 1995,
respectively, as a result of the cash dividend reinvestment plan. A 5% stock
dividend, a 2-for-1 stock split, and a 20% stock split were declared in 1997,
1996, and 1995, respectively. The number of shares issued and outstanding, as
well as all stock-related transactions, and dividends per share have been
adjusted retroactively in the financial statements and the accompanying notes
for all periods presented prior to 1997 to give effect for these transactions.
The par value of the stock has not been changed due to a legal requirement. If
the par value of the 2-for-1 stock split in 1996 had been adjusted, then the
balance of Common Stock would have been $4,495,992, as of December 31, 1996 and
as of December 31, 1997, and total Shareholders Equity unchanged.
13. COMMITMENTS:
In the normal course of business, the Bank enters into financial instruments
with off-balance-sheet risk to meet financing needs of its customers. These
instruments, which include commitments to extend credit and standby letters of
credit, involve varying degrees of credit and interest rate risk which are not
reflected in the financial statements. These instruments generally have fixed
expiration dates and do not necessarily represent future cash requirements since
they often expire without being drawn upon. The Bank's criterion for issuing
such instruments are the same as those for loans made in the normal course of
business.
Those financial instruments whose contract amount represents the maximum credit
risk were as follows (in thousands):
DECEMBER 31,
-----------------------
1997 1996
-----------------------
Loan Commitments $18,716 $20,097
Standby Letters of Credit 2,165 2,365
14. OTHER EXPENSES
The following is a breakdown of other operating expenses for the years ended
December 31, 1997, 1996 and 1995 (in thousands):
1997 1996 1995
------------------------------------
Advertising 108 54 61
Bank Card Expense 481 391 --
Cash Management Fees 83 82 81
Postage 130 108 116
Travel 56 37 23
Office Supplies 182 151 145
Other 1041 783 1,278
------------------------------------
Total $2,081 $1,606 $1,704
====================================
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15. REGULATORY CAPITAL MATTERS:
Citizens Bank is subject to various regulatory capital requirements administered
by its federal regulator, the Federal Deposit Insurance Corporation (FDIC) and
the Federal Reserve. Failure to meet the minimum regulatory capital requirements
can initiate certain mandatory, and possible additional discretionary actions by
regulators, that if undertaken, could have a direct material affect on the
Bank's financial statements. Under the regulatory capital adequacy guidelines
and the regulatory framework for prompt corrective action, the bank must meet
specific capital guidelines involving quantitative measures of the bank's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classification
under the prompt corrective action guidelines are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total risk-based
capital and Tier 1 capital to risk-weighted assets (as defined in the
regulation), and Tier 1 capital to adjusted total assets. Management believes,
as of December 31, 1997, and 1996, and by the most recent notification from the
FDIC, the Bank was categorized as well capitalized under the regulatory
framework for prompt corrective action. To remain categorized as well
capitalized, the Bank will have to maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as disclosed in the table below. There
are no conditions or events since the most recent notification that management
believes have changed the Bank's prompt corrective action category.
TO BE WELL CAPITALIZED
CITIZENS BANK UNDER PROMPT
FOR CAPITAL CORRECTIVE ACTION
ACTUAL ADEQUACY PURPOSES PROVISIONS
(IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------------- ------ ----- ------ ----- ------ -----
AS OF DECEMBER 31, 1997:
- ------------------------
Total Risk-Based Capital
(to Risk-Weighted Assets) 20,239 16.3% 9,734 >8% 12,167 >10%
- -
Tier 1 Capital
(to Risk-Weighted Assets) 19,038 15.6% 3,042 >4% 6,084 >6%
- -
Tier 1 Capital
(To average Total Assets) 19,038 9.69% 7,867 >4% 9,834 >5%
- -
AS OF DECEMBER 31, 1996:
- ------------------------
Total Risk-Based Capital 17,406 13.5% 10,304 >8% 12,881 >10%
- -
(to Risk-Weighted Assets)
Tier 1 Capital
(to Risk-Weighted Assets) 16,368 12.7% 5,152 >4% 7,729 >6%
- -
Tier 1 Capital
(To average Total Assets) 16,368 8.8% 7,419 >4% 9,274 >5%
- -
16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
Financial accounting standards require disclosure in the footnotes to the
financial statements information about the fair value of financial
instruments. The following methods and assumptions were used to estimate
the fair value of financial instruments:
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INVESTMENT SECURITIES
For U.S. Treasury and U.S. Government Agency securities, fair values are
based on market prices. For other investment securities, fair value
equals quoted market price if available. If a quoted market price is not
available, the value is estimated using quoted market prices for similar
securities.
LOANS
The fair value for loans with variable interest rates is the carrying
amount. The fair value of fixed rate loans is derived by calculating the
discounted value of the future cash flows expected to be received by the
various homogeneous categories of loans.
DEPOSITS
The fair value of demand deposits, savings deposits, savings accounts,
and NOW accounts is defined as the amount payable on demand at December
31, 1997. The fair value of fixed maturity certificates of deposit is
estimated based on the discounted value of the future cash flows expected
to be paid on the deposits, or current market value.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
parties involved. For fixed-rate loan commitments, fair value also
considered the difference between current levels of interest rates and
committed rates. The fair values of guarantees and letters of credit are
based on fees currently charged for similar agreements or on the
estimated cost to terminate them or otherwise settle the obligations with
parties involved at December 31, 1997. The estimated fair values of
Citizens Bancorp financial instruments are as follows:
(IN THOUSANDS) DECEMBER 31, 1997 DECEMBER 31, 1997
CARRYING AMOUNT FAIR VALUE
-------- --------
FINANCIAL ASSETS
Cash and due from banks $ 9,268 $ 9,268
Investment securities 46,242 46,356
Loans, gross 121,470 121,438
FINANCIAL LIABILITIES
Certificates of deposit 55,455 55,409
Other deposits 106,245 106,245
Repurchase agreements 14,086 14,086
UNRECOGNIZED FINANCIAL INSTRUMENTS
Commitments to extend credit 18,716 18,716
Standby letters of credit 2,165 2,165
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17. CONDENSED FINANCIAL INFORMATION OF CITIZENS BANCORP (PARENT COMPANY)
(IN THOUSANDS:)
STATEMENTS OF CONDITION
ASSETS 1997 1996
Cash 1,326 1
Investments in Subsidiary 19,270 --
Prepaid and Other 59 --
------ ------
TOTAL ASSETS 20,655 1
================================================================================
LIABILITIES
Dividends Payable 1,307 --
Loan Payable -- 10
STOCKHOLDER'S EQUITY
Common Stock 13,960 --
Retained Earnings 5,388 (9)
------ ------
Total Stockholders Equity 19,348 (9)
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 20,655 1
================================================================================
STATEMENTS OF INCOME
INCOME 1997 1996
Interest and other income -- --
EXPENSE
Amortization and other expense 59 9
Interest expense 1 --
Net (Loss) Income Before Tax Benefit (60) (9)
Tax benefit of parent's operating expenses 24 4
--- ---
TOTAL INCOME (LOSS) (36) (5)
================================================================================
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17. CONDENSED PARENT COMPANY:
(IN THOUSANDS) (CONTINUED)
STATEMENTS OF CASH FLOW
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Transfer from Bank for Dividends 1,307 --
Dividend received from Citizens Bank 92 --
Interest Paid (1) --
Cash paid for operating expenses (59) (9)
---- ---
Net Cash Provided (Used) by Operating Activities 1,339 (9)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Software (15) --
CASH FLOWS FROM FINANCING ACTIVITIES
Short-Term debt 20 10
Other 11 --
Principal payment on short- term debit (30) --
Net Cash Provided (Used) by Financing Activities 1 1
----- --
NET INCREASE/(DECREASE) IN CASH 1,325 1
CASH, beginning of year 1 --
CASH, end of year 1,326 1
====================================================================================================================
RECONCILIATION OF NET INCREASE TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net Income (Loss) (59) (9)
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Amortization 3 --
Distribution for Dividends to be paid 1,307 --
(Increase)/decrease in prepaid and other 36 --
Other 52 --
----- --
Total Adjustments 1,398 --
----- --
Net Cash Provided by Operating Activities 1,339 (9)
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18. RESTRICTION ON TRANSFERS OF FUNDS TO PARENT
There are legal limitations on the ability of the Bank to provide funds to
the company. Dividends declared by the Bank may not exceed, in any
calendar year, without the approval of the State Banking Department, net
income for the year and the retained net income for the preceding two
years. Section 23A of the Federal Reserve Act restricts the Bank from
extending credit to the Parent Company amounting to more than 20% of its
contributed capital and retained earnings.
19. CONTINGENCIES:
The Bank is presently involved in certain legal matters arising from the
normal course of business. In the opinion of management and the Bank's
legal counsel, adverse disposition of any such legal matters will not have
a material effect on the Bank's financial statements.
20. PRIOR PERIOD ADJUSTMENT:
In 1996, the Bank paid approximately $9,424 of Citizens Bancorp expenses
prior to formation of the Holding Company. This amount was reflected as a
reduction of undivided profits and was also reflected in consolidated net
income of the combined company in 1997.
21. RESTRICTED ASSETS:
Federal Reserve board regulations require that the Company maintain
certain minimum reserve balances on deposit with the Federal Reserve Bank.
The amounts of such balances for the years ended December 31, 1997 and
1996 were approximately $2,023,000 and $2,351,000, respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
DISCLOSURE
Within the 24 months prior to December 31, 1997, Citizens Bancorp has
neither changed independent accountants, David O. Christensen, CPA, at either
Citizens Bancorp's election or by reason of the accountant's resignation, nor
had any disagreements in regards to matters of accounting principles, practices
or financial statement disclosure.
FISCAL 1998
In December of 1997 Bancorp's management recommended to the
Audit/Examination Committee of the Board of Directors that Bancorp solicit bids
from independent certified public accountants to perform its accounting and
auditing work beginning in the 1998 fiscal year. The Committee approved the
recommendation, and directed management to schedule interviews to evaluate
qualified candidates to serve as Bancorp's independent accountant.
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62
The Audit/Examination Committee scheduled interviews with three
accounting firms as part of its review and evaluation process. David O.
Christensen, C.P.A., Bancorp's auditor and independent accountant was invited to
be considered as a candidate for Bancorp's future accounting and auditing work
and to be included among firms interviewed. Mr. Christensen notified Bancorp on
January 9, 1998 that he declined to stand for consideration or for re-election
as Bancorp's independent accountant. The Committee held its interviews on
February 11, 1998, and thereafter recommended that the accounting firm of
Knight, Vale and Gregory, Inc., P.S. ("KVG") be retained as Bancorp's
independent accountant. The recommendation was approved by the Bancorp Board of
Directors on February 17, 1998.
The recommendation did not arise from any disagreements, within the
meaning of Item 304 of SEC Regulation S-K, between Bancorp and David O.
Christensen, and there have been no such disagreements, or any "reportable
events" under paragraph (a)(1)(v) of Item 304, with respect to any financial
statement, audit, report or tax return or any matters relating thereto for
Bancorp's two most recent fiscal years or any subsequent interim period through
January 9, 1998. In particular, with respect to such financial statements, Mr.
Christensen's report did not contain an adverse opinion or a disclaimer of
opinion, and was not qualified or modified as to uncertainty, audit scope or
accounting principles.
Mr. Christensen was retained by Bancorp to complete Bancorp's fiscal
1997 financial statements, audit, and tax return. Beginning on February 18, 1998
KVG commenced providing accounting and audit services to Bancorp for matters
arising in fiscal 1998.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information regarding "Directors and Executive Officers" of
Bancorp, see pages 2-11 of Bancorp's 1997 Annual Meeting Proxy Statement ("Proxy
Statement"), which is herein incorporated by reference.
Section 16(a) Beneficial Ownership Reporting Compliance
With respect to Item 405 of Regulation S-K, the following executive
officers did not timely report initial acquisitions of Bancorp common stock
during the 1997 fiscal year.
1. Scott Zimbrick, Senior Vice President and Branch Manager of
Citizens Bank, and his spouse jointly acquired 40 shares of
Bancorp common stock on 11/14/97 at a price of $25.00 per
share. The first report of this acquisition was on Form 5
file on or about March 17, 1998. There were no other stock
acquisitions or untimely filings during fiscal 1997 for
this individual.
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2. Lark E. Wysham, Chief Financial Officer of Bancorp and
Citizens Bank, and her spouse jointly acquired 40 shares of
Bancorp common stock on 11/14/97 at a price of $25.00 per
share. The first report of this was on Form 5 filed on or
about March 17, 1998. There were no other stock
acquisitions or untimely filings during fiscal 1997 for
this individual.
ITEM 11. EXECUTIVE COMPENSATION
For information regarding executive compensation, see "Executive
Compensation" on pages 8-9 in the Proxy Statement, which is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information regarding the security ownership of certain
beneficial owners and management, see page 5 "Bancorp Stock Ownership of Board
Nominees, Board Members and Executive Officers" and page 6 "Bancorp Stock
Ownership Holders of more than 5% Stock" in the Proxy Statement, which is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information regarding certain relationships and related
transactions, see pages 2-11 and see page 10 "Transactions Involving Executive
Officers and Directors of Bancorp and Citizens Bank" in the Proxy Statement,
which is incorporated herein by reference.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K.
List of Financial Statements and Financial Statement Schedules (a)
(1) and (2) Financial Statements:
The financial statements and related documents listed in the index
set forth in Item 8 of this report are filed as part of this report.
All other schedules to the consolidated financial statements required
by Regulation S-X are omitted because they are not applicable, not material, or
because the information is included in the consolidated financial statements or
related notes.
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(c) LIST OF EXHIBITS
EXHIBIT NUMBER Page
- ----------------
(2) Agreement and Plan of Reorganization and Merger for Formation of
One-Bank Holding Company...................................................... ii
(3)(i) Articles of Incorporation Citizens Bancorp.................................... x
(ii) Bylaws of Citizens Bancorp.................................................... xv
(10.1) Citizens Bancorp Dividend Reinvestment Plan .................................. xxi
(10.2) Citizens Bank Profit Sharing Plan and Trust [401(A)].......................... xxxvi
(10.3) Citizens Bank Deferred Compensation Plan...................................... clxv
(16) Letter Re: Change in Certifying Accountant.................................... clxxvii
No Reports on Form 8K were filed during the fourth quarter of the
1997 calendar year.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned; thereunto duly authorized, on the ___ day of
March, 1998.
CITIZENS BANCORP
(Registrant)
By: /s/
-------------------------------------
William V. Humphreys
President and Chief Executive Officer
Each person whose individual signature appears below hereby
authorizes and appoints William V. Humphreys and Lark Wysham, and each of them,
with full power of substitution and full power to act without the other, as
his/her true and lawful attorney-in-fact and agent to act in his name, place and
stead and to execute in the name and on behalf of each person individually and
in each capacity stated below, and to file any and all amendments to this
Registration Statement, including any and all post-effective amendments.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 30th day of March 1998.
PRINCIPAL EXECUTIVE OFFICER:
/s/ William V. Humphreys President and Chief Executive Officer
- --------------------------------------------------------------------------
William V. Humphreys
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ Lark Wysham Senior Vice President and Chief Financial Officer
- --------------------------------------------------------------------------
Lark Wysham
REMAINING DIRECTORS:
/s/ /s/
- ------------------------------- ---------------------------------
Gene Thompson Jock Gibson
/s/ /s/
- ------------------------------- ---------------------------------
Rosetta Venell Jim Richards
/s/ /s/
- ------------------------------- ---------------------------------
John Truax Scott Fewel
/s/
- -------------------------------
Larry Hunter
64