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FORM 10-K
UNITED STATES
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, 2000
[ ] 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. 000-23277
CITIZENS BANCORP/OR
(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)
Registrant's 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 approximate aggregate market value of registrant's voting and
non-voting common equity held by non-affiliates is $45,665,539 based on the most
recent reported sale of registrant's common stock on March 2, 2001 at a price of
$10.90 per share. As of March 2, 2001 there were 4,189,499 shares of
registrant's common stock issued and outstanding, of which 3,226,676 were held
by non-affiliates.
DOCUMENTS INCORPORATED BY REFERENCE. Part III of this Form 10-K
incorporates by reference portions of the definitive 2001 Annual Meeting Proxy
Statement sent to the Company's shareholders in connection with its April 19,
2001 Annual Meeting of Shareholders.
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INDEX
PAGE
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS 1
PART I
ITEM 1 - BUSINESS 1
ITEM 2 - PROPERTIES 14
ITEM 3 - LEGAL PROCEEDINGS 15
ITEM 4 - SUBMISSION 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 34
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 38
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 65
ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT 65
ITEM 11 - EXECUTIVE COMPENSATION AND REPORT OF COMMITTEES 65
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 65
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 65
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K 65
SIGNATURES 67
EXHIBIT INDEX 68
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DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
In addition to historical information, this report contains certain "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. This statement is included for the purpose of availing the
Company the protection of the safe harbor provisions of this Act. The forward
looking statements contained in this report are subject to factors, risks and
uncertainties that may cause actual results to differ materially from those
projected. Factors that might result in such material difference include, but
are not limited to economic conditions, the regulatory environment, rapidly
changing technology, new legislation, competitive factors, the interest rate
environment and the overall condition of the banking industry. Forward looking
statements can be identified by such words as "estimate", "believe", "expect",
"intend", "anticipate", "should", "may", "will", or other similar words or
phrases. Although the Company believes that the expectations reflected in such
forward looking statements are reasonable, it can give no assurances that such
expectations will prove to have been correct. Readers are therefore cautioned
not to place undue reliance on such forward looking statements, which reflect
management's analysis only as of the date of the statement. The Company does not
intend to update these forward looking statements other than in its periodic
filings under applicable security laws.
PART I
ITEM 1. BUSINESS
Citizens Bancorp ("the Company"), an Oregon Corporation and financial bank
holding company, was formed in 1996 for the purpose of becoming the holding
company of Citizens Bank. The Company is headquartered in Corvallis, Oregon. Its
principal business activities are conducted through its full-service, commercial
bank subsidiary, Citizens Bank. The Company provided the Federal Reserve Board
of San Francisco its declaration to elect to become a financial holding company,
pursuant to the Gramm-Leach-Bliley Act ("GLBA") of 1999, on February 15, 2000.
The Company received notice of approval from the Board of Governors of the
Federal Reserve System on March 13, 2000. The Company has no current plan to
engage in any of the financial activities permissible for a financial holding
company under GLBA. The Company made its declaration only to be prepared to take
advantage of any future business opportunities.
ORGANIZATIONAL STRUCTURE OF BANCORP
The Company operates through a two-tiered corporate structure. At the holding
company level the affairs of the Company are overseen by a Board of Directors
elected by the shareholders of the Company at the annual meeting of
shareholders. The business of the Bank is overseen by a Board of Directors
elected by the Company, the sole owner of the Bank. As of the date of this Form
10-K the respective members of the Board of Directors of the Bank and the Board
of Directors of the Company are identical.
The Company is authorized to issue up to 10,000,000 shares of common stock, no
par value. The Company has registered 1,575,000 shares for issuance under its
Dividend Reinvestment Plan, of which 100,755 shares had been issued thereunder
as of December 31, 2000. As of December 31, 2000 there were a total of 4,137,630
shares of the Company common stock issued
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and outstanding. Citizens Bank is the registered transfer agent for the
Company's common stock.
THE BANK
Citizens Bank ("the Bank") was chartered October 1, 1957 (charter #333) by the
State of Oregon as a commercial bank. Since its beginning with a single office
in Corvallis, Citizens Bank has expanded to an additional eight locations in the
four counties of Benton, Linn, Lane, and Yamhill. Branches are located in the
communities of Corvallis, Philomath, Albany, Junction City, Veneta, and
McMinnville.
The Company's culture focuses on the tenets of collaborative leadership, branch
autonomy, assertive business development, a positive working environment, a
commitment to the community, outstanding customer service, and relationship
banking. Management believes that a healthy corporate culture together with a
progressive management style will result in constantly improved shareholder
value.
The Company's primary goal is to improve shareholder value through increased
earnings while maintaining a high level of safety and soundness. The Company is
committed to independence and long-term performance strategies. As a result of
its corporate culture the Company continues to show good growth as evidenced by
the five-year history of growth in the following selected areas:
(Thousands) 2000 1999 1998 1997 1996
NET INCOME $3,612 $3,254 $3,840 $ 3,341 $ 3,138
RETURN ON AVERAGE EQUITY 13.81% 13.22% 17.64% 17.53% 19.27%
RETURN ON AVERAGE ASSETS 1.52% 1.36% 1.83% 1.79% 1.81%
AVERAGE ASSETS TO AVERAGE EQUITY 11.03% 10.29% 10.36% 10.21% 9.42%
DIVIDEND PAYOUT RATIO 41.25% 45.64% 36.48% 39.11% 34.38%
TOTAL LOANS (NET) $157,784 $139,123 $130,707 $120,269 $114,648
TOTAL DEPOSITS $200,960 $194,350 $188,235 $161,700 $161,834
TOTAL ASSETS $244,380 $239,606 $233,978 $200,117 $191,887
TOTAL EQUITY $27,063 $24,342 $22,585 $19,411 $16,805
The long-term benefit to the Company of its cultural and management style is
consistent growth and development of the Bank over time. Risk levels have been
greatly reduced because of expertise in loan, investment, operational, human
resource, and technology management.
The Company's primary market focus is to provide commercial bank services to
businesses, professionals, and individuals. The Company emphasizes the
development of meaningful customer relationships and a high level of service.
Its employees are well-trained banking professionals who are committed to these
objectives.
The Bank offers deposit accounts, safe-deposit boxes, consumer loans, commercial
loans, agricultural loans, and commercial and residential real estate loans.
Commercial loans include operating lines of credit, equipment and real estate
financing, capital needs, and other traditional financing products.
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The Bank has a growing emphasis in financing farm operations, equipment, and
property. The Bank has also emphasized loans to professionals with its
professional line of credit products.
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 a debit card, check guarantee card, ATM card as well as a
MasterCard and 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 nine (9) 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.
The Bank, in a continuing effort to meet its customers' needs, has successfully
released its new on-line banking product. The on-line banking product offers
services to both individuals and business account customers. Business customers
have a comprehensive cash management option. All online users have the
availability of the "bill payment" feature. The Bank expects to continually
enhance its on-line banking product while maintaining its quality "people to
people" customer service. The Bank's on-line banking can be reached at
www.CitizensEBank.com.
EMPLOYEES
At December 31, 2000 the Bank had 121 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.
COMPETITION
At December 31, 2000, Citizens Bank was among the top 10 largest commercial
banks headquartered in the State of Oregon as measured by the State of Oregon's
division of Finance and Corporate Securities. 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 not in Oregon. They include Wells Fargo Bank, US Bank,
Key Bank, Washington Mutual 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
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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 loans in
distant places.
GOVERNMENTAL POLICIES
The earnings and growth of the Company 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 Bank. 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 paid on 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 interest paid on customer deposits), 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 the Company and its subsidiary.
BANCORP
As a financial bank holding company, the Company is subject to the Bank Holding
Company Act of 1956 ("BHCA"), as amended, which places the Company 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 commonly referred to as "Financial Modernization - The
Gramm-Leach-Bliley Act" was designed to expand opportunities for banks and bank
holding companies. The opportunities of this legislation for the Company are
unclear at this time.
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HOLDING COMPANY STRUCTURE
FRB REGULATION. The Company 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.
The Company 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 conducts periodic examinations of the Company.
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 the Company 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. The Company 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 the Company 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 holding
company.
STATE LAW RESTRICTIONS. As a corporation chartered under the laws of the State
of Oregon, the Company 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 Company is subject to the
registration and reporting requirements of the Federal Securities Laws. The
periodic reports, Proxy Statements, and other information filed by the Company
with the Securities and Exchange Commission ("SEC") can be inspected and copied
or obtained from the Washington, D.C., office of the SEC. In addition, the
securities issued by the Company 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 if 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 the Company, or obtain control
over the Company.
BANKING
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 significant federal
legislation affecting state-chartered banks, are generally discussed below.
REGULATION OF STATE BANKS
Oregon state-chartered banks are subject to primary regulation and examination
by the Oregon Department of Consumer and Business Services Division of Finance
and Corporate Securities. 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.
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 Bank, 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.
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DIVIDEND RESTRICTIONS
Dividends paid by the Bank to the Company are a material source of all of the
Company's cash flow. Various federal and state statutory provisions limit the
amount of dividends the Bank is permitted to pay to the Company 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.
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
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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.
INTERSTATE BANKING AND BRANCHING
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Act") generally authorizes interstate branching and relaxes federal
law restrictions on interstate banking. Individual states had the authority to
"opt out" of certain of these provisions. The Interstate Act allowed states to
enact "opting-in" legislation that (i) permitted interstate mergers within their
own borders before June 1, 1997, and (ii) permitted out-of-state banks to
establish de novo branches within the state. As of September 29, 1996, bank
holding companies could purchase banks in any state, and states may not prohibit
such purchases. Additionally, beginning June 1, 1997, banks were 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.
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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 was
not expected to have profound impact on banking in Oregon or on the Company or
the Bank's operations in particular.
GRAMM-LEACH-BLILEY ACT
The Gramm-Leach-Bliley Act ("GLBA") was signed into law on November 12, 1999,
and became effective March 11, 2000. The GLBA establishes the legal ability and
regulatory framework to banking organizations to provide broad-based financial
services to meet its expanding customer needs. The GLBA establishes three types
of financial activities that are permissible for banking organizations: those
that are financial in nature; those that are incidental to financial activity;
and those that are complimentary to financial activity.
The GLBA sets forth a list of activities deemed financial in nature. Such
activities include lending, exchanging, transferring, investing for others, or
safeguarding money or securities; insurance underwriting and sales (brokerage)
activities; investment or economic advisory services; securitizations;
securities underwriting and dealing activities; all "closely related to banking"
activities previously approved for bank holding companies by the Federal Reserve
Board; certain products offered overseas, such as travel agency services; and
merchant banking/equity investment activities.
In general, these expanded powers are reserved to bank holding companies, to be
known as financial holding companies ("FHC") and banks, where all depository
institutions affiliated with them are well capitalized, well managed based on
applicable banking regulations, and meet specified Community Reinvestment Act
ratings. GLBA authorizes the Federal Reserve Bank and the United States
Treasury, in cooperation with one another, to determine what additional
activities are permissible as financial in nature. Such activities will require
FHCs and banks to continue to satisfy applicable well capitalized and well
managed requirements. Bank holding companies which do not qualify for FHC status
are limited to non-banking activities deemed closely related to banking prior to
GLBA.
To become a FHC, a declaration of intent to engage in activities permissible for
a FHC must be filed with the Federal Reserve Bank certifying that all
requirements for eligibility have been met. The Company filed such a letter of
intent with the Federal Reserve Board on February 15, 2000. At this time, the
Company has no plans to expand into any of the activities approved under the
GLBA, but may wish to do so in the future.
In addition to the creation of FHCs, GLBA establishes a primacy of oversight
regulation of financial service businesses by the regulators routinely
responsible for such activities and entities. This applies both in allocating
responsibility for supervising different companies within a FHC and in
supervising different activities within the same company. GLBA clarifies the
regulation by the States of insurance products sold by depository institutions,
and repeals some of the exemptions for banks under federal securities laws in
relation to securities offered by banks and the licensing of broker-dealers and
investments.
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The GLBA also changed the membership requirements to join the Federal Home Loan
Bank ("FHLB") for banks with $500 million or less in assets. The GLBA defines a
"community financial institution" as a depository institution insured by the
Federal Deposit Insurance Corporation ("FDIC") with less than $500 million in
average total assets during the three years immediately proceeding the date of
the membership application. These community financial institutions will not be
required to hold at least 10 percent of their assets in residential mortgages in
order to join the FHLB system. The section of the GLBA will not affect the
Company's subsidiary, Citizens Bank, as it already holds membership in the FHLB.
The GLBA also adopts restrictions on financial institutions regarding the
sharing of customer non-public personal information with non-affiliated third
parties unless the customer has had an opportunity to opt out of the disclosure.
The GLBA also imposes periodic disclosure requirements concerning financial
institution policies and practices regarding data sharing with affiliated and
non-affiliated parties.
The GLBA will be the subject of extensive rule making by federal banking
regulators and others. The effects and/or benefits of the GLBA on the Company
and its subsidiary Citizens Bank are unknown at this time.
The Company provided the Federal Reserve Board of San Francisco its declaration
to elect to become a financial holding company, pursuant to the GLBA of 1999, on
February 15, 2000. The Company received notice of approval from the Board of
Governors of the Federal Reserve System on March 13, 2000. The Company has no
current plan to engage in any of the financial activities permissible for a
financial holding company under GLBA. The Company made its declaration only to
be prepared to take advantage of any future business opportunities.
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
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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%.
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
severe 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, 2000, 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. The Company 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
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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.
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 started considering exposure to declines in the economic
value of a 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 the Company 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
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depository institutions that hold SAIF-insured deposits. The one-time assessment
is designed to place the SAIF at its 1.25 reserve ratio goal.
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 no thrift institutions exist on that date.
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).
CHANGES IN BANKING LAWS AND REGULATIONS
The laws and regulations that affect banks and bank holding companies frequently
undergo significant changes at the federal and state levels. Bills are
introduced from time to time in the United States Congress that contain
proposals to alter the structure, regulation, and competitive relationships of
the nation's financial institutions. Any changes in laws and regulations could
have the effect of increasing or decreasing the cost of doing business, limiting
or expanding permissible activities (including activities in the insurance and
securities fields), or affecting the competitive balance among banks, savings
associations, and other financial institutions. Such changes could also reduce
the extent of federal deposit insurance, broaden the powers or the geographical
range of operations of bank holding companies, alter the extent to which banks
could engage in securities activities, alter the taxation of banks, bank holding
companies and other financial services organizations, and change the structure
and jurisdiction of various financial institution regulatory agencies. Such
ongoing changes in laws and regulations, and the extent to which the business of
the Company might be affected thereby, cannot be predicted with certainty.
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ITEM 2. PROPERTIES
The principal properties of the Company 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 in Corvallis, Oregon. The building was constructed in 1977 and has
approximately 30,000 square feet of space on two levels above ground and a full
basement. The second floor is occupied by the administrative support team, which
includes the President/Chief Executive Officer, the Chief Financial Officer, the
Chief Operating Officer, the Chief Marketing Officer, the Chief Lending Officer,
Administrative Assistants, the Financial Officer, and the Loan Service Center.
The first floor serves as the main banking office for the Bank. It is occupied
by a manager, a lending staff, an operations staff, tellers, marketing officer,
new accounts staff, and mortgage department staff.
The basement is occupied by the Accounts Service Center. It includes a manager,
two operations officers, proof and data processing staff, inventory, 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 eight (8) other branches, of which five (5) 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 Bank has a lease on the land on
which the West Albany branch is located. The aggregate monthly rental of leased
buildings and land is $11,683. The following sets forth all branch offices of
the Bank.
Main Office Junction City Office East Albany Office
275 SW Third Street 955 Ivy Street 2315 14th Ave SE
Corvallis, Oregon Junction City, Oregon Albany, Oregon
Circle Office (1) Philomath Office West Albany Office (4)
978 NW Circle Blvd. 1224 Main Street 2230 Pacific Blvd SE
Corvallis, Oregon Philomath, Oregon Albany, Oregon
University Office (2) Veneta Office (3) McMinnville Office
855 NW Kings Blvd. 88312 Territorial Road 455 NE Baker Street
Corvallis, Oregon Veneta, Oregon McMinnville, Oregon 97128
(1) Premises leased under an original lease agreement dated May 1, 1970
and a supplemental lease agreement dated August 16, 1994. The lease
expires January 1, 2020.
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(2) Premises leased under a lease agreement dated August 1, 1998. The
lease expires July 31, 2003.
(3) Premises leased under a supplemental lease agreement dated October
30, 1998. The lease expires on December 31, 2003 which the right to
renew for two additional periods of five years each.
(4) Ground lease under ground lease agreement dated May 29, 1998. The
lease expires in year 2048.
On September 27, 2000 Citizens Bank purchased the land and building located next
to its Main Branch parking lot. The building, in poor condition, was demolished.
At this time, the Bank intends to use the land as additional parking for its
customers. The Main Branch has grown its customer base substantially since the
building was constructed in 1977 with no space to accommodate the need for
additional parking. The improvements for the additional parking, which will add
10 new spaces, are anticipated to be completed by second quarter 2001.
ITEM 3. LEGAL PROCEEDINGS
As of the date of filing this Form 10K neither the Company 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 the Company
or its subsidiary which, if determined adversely, would have a material effect
on the business or financial position of either of them. The Company 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 through 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, 2000, no matters were
submitted to the Company's 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 the Company'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 the
Company's common stock. As the transfer agent for the Company's common stock,
Citizens Bank keeps an informal record of persons expressing an interest in
buying or selling the Company's common stock and introduces prospective buyers
and sellers. Citizens Bank also keeps some informal records of prices paid and
received for the Company's common stock by certain persons. Neither the Company
nor Citizens Bank does or will recommend prices for the Company's common stock.
The following table sets forth certain transaction prices per share for shares
of Citizens Bank in 1996 and the Company's common stock for the periods shown.
This information is based solely
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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 the Company 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
1996 $15.00 $ 9.00
1997 $15.00 $ 9.00
1998 $15.00 $14.50
1999 $16.60 $12.90
2000 $14.44 $10.00
Per share information for the current and prior
periods reflect the effect of the stock dividends and
stock splits.
The following table sets forth certain transaction prices per share for shares
of the Company's common stock for the quarterly periods shown. This information
is subject to the qualifications set forth above.
HIGH LOW
1999
FIRST QUARTER $16.60 $15.92
SECOND QUARTER $16.60 $15.20
THIRD QUARTER $16.00 $15.00
FOURTH QUARTER $15.25 $12.90
2000
FIRST QUARTER $14.44 $12.00
SECOND QUARTER $12.95 $10.00
THIRD QUARTER $11.45 $10.00
FOURTH QUARTER $12.00 $11.37
CITIZENS BANK/BANCORP, COMMON EQUITY HOLDING. As of December 31, 2000, there
were 4,137,629.927 shares outstanding, held by 844 shareholders of record. As of
March 1, 2001, there were 855 holders of Citizens Bancorp and 4,189,498.927
shares outstanding. All of the shares issued since December 31, 2000 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 a husband and wife or a parent and child.
The Company has no formal dividend policy. The amount of any dividend is
determined by the Bancorp Board of Directors and depends on the amount of
profits generated and the growth objectives of the Company and the Bank,
together with other factors considered by the Board in
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its discretion. 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.
The following sets forth, for the calendar years shown, the cash and stock
dividends per share of common stock declared by Citizens Bancorp in 1998, 1999
and 2000 and by Citizens Bank for the preceding years.
CASH DIVIDEND STOCK DIVIDEND STOCK SPLIT
1996 $ .29 -- 2 for 1 stock split
1997 $ .32 5% --
1998 $ .34 -- 2 for 1 stock split
1999 $ .36 5% --
2000 $ .36 -- --
Per share information for the current and prior periods reflect the
effect of the stock dividends and stock splits.
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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.
(In thousands, except share data)
Year ended December 31,
% increase
(decrease)
2000 1999 1999 to 2000 1998 1997 1996
-------- -------- ------------ -------- -------- --------
EARNINGS
Total interest income $ 18,436 $ 17,023 8.30% $ 16,947 $ 15,152 $ 13,704
Total interest expense 6,241 6,046 3.23% 5,917 5,286 5,034
Net interest income 12,195 10,977 11.10% 11,030 9,866 8,670
Provision for credit losses 454 264 71.32% 236 165 135
Net interest income after
provision for credit losses 11,741 10,713 9.60% 10,794 9,701 8,535
Total non-interest income 2,672 2,403 11.19% 2,226 1,857 1,569
Total non-interest expense 8,587 8,079 6.29% 7,153 6,194 5,306
Income before taxes 5,826 5,037 15.66% 5,867 5,364 4,798
Income taxes 2,214 1,783 24.17% 2,027 2,023 1,660
Net income $ 3,612 $ 3,254 11.00% $ 3,840 $ 3,341 $ 3,138
PER COMMON SHARE (1)
Net income $ .87 $ .79 10.13% $ .94 $ .83 $ .79
Cash dividends .36 .36 0% .34 .32 .29
Book value 6.54 5.90 10.85% 5.53 4.81 4.24
PERIOD END BALANCES
Total assets $244,380 $239,606 1.99% $233,978 $200,117 $191,887
Net loans 157,784 139,123 13.41% 130,707 120,269 114,648
Deposits 200,960 194,350 3.40% 188,235 161,700 161,834
Repurchase agreements 12,651 13,425 (5.77%) 16,299 14,086 10,040
Shareholders' equity 27,063 24,342 11.18% 22,585 19,411 16,805
PERFORMANCE RATIOS
Return on Average Assets 1.52% 1.36% 1.83% 1.79% 1.81%
Return on Average Equity 13.81% 13.22% 17.64% 17.53% 19.27%
Average Assets to Average 11.03% 10.29% 10.36% 10.21% 9.42%
Equity
(1) Per share amounts and the average number of shares outstanding have been
restated for, stock dividends of 5% in 1999 and 5% in 1997, a 2-for-1 stock
split in 1998, and a 2-for-1 stock split in 1996.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997.
NET INCOME. For the three years ended December 31, 2000, the Company's net
income was $3.612 million, $3.254 million and $3.840 million, respectively. 2000
net income increased $.4 million or 11.0% as compared to 1999, which decreased
$.6 million or 15.3% over 1998. The Company's increased net income in 2000 is
primarily due to increased income from loans and investments. The increase in
interest income on loans was primarily due to volume increases. The increase in
investments was due to rate increases.
The average rate on loans for 2000, 1999, and 1998 was 9.6%, 9.3%, and 10.1%,
respectively. The net increase in the average loan yield was due to better
pricing on loans based on a risk rating model. Management believes that the
addition of experienced loan officers and new loan administration contributed to
the increase in loan volumes in 2000.
The increase in the investment portfolio was due to reinvestment of maturing
securities in the first six months of the year at higher yields.
The Company's increase in net income was also benefited by a net increase in
earning assets to total assets. Average earning assets to total assets for the
years 2000, 1999, and 1998 were 92.3%, 91.1%, and 92.6%, respectively. Increases
in loan volumes were the primary reason for the increase in average earning
assets in 2000. Average yields on earning assets for 2000, 1999, and 1998 were
8.5%, 7.9%, and 8.7%, respectively.
The Company's net income was benefited by an increase in net interest margin.
For the three years ended December 31, 2000, the Company's net interest margin
was 5.6%, 5.1%, and 5.7%, respectively.
INTEREST INCOME. Interest income totaled $18.4 million for the year ended
December 31, 2000, an 8.3% increase over the $17.0 million for 1999, which was a
.5% increase over the $16.9 million for 1998. The 2000 increase was primarily
due to increased loan volume while the 1999 increase was due to increased
investment volume.
INTEREST EXPENSE. Interest expense for the year ended December 31, 2000 was $6.2
million, a 3.2% increase over the $6.0 million expense for 1999, which was a
2.2% increase over the $5.9 million expense for 1998. The 2000 increase was due
to deposit volume and rate increases. In 1999, volumes went up and rates went
down, while 1998 was primarily due to volume increases.
NET INTEREST INCOME. Net interest income for the years 2000, 1999, and 1998 were
$12.2 million, $11.0 million, and $11.0 million, respectively. Additionally, for
the same periods beginning with 2000, net interest margins were 5.6%, 5.1%, and
5.7%, respectively. The increase in the net interest margin from 1999 to 2000
was primarily due to the increased average rate on loans and the increased
percentage of average earning assets represented by loans (68% versus 62%). The
decrease in net interest margin from 1998 to 1999 was primarily due to the
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decreased average interest rate on loans, and the reduced percentage of earning
assets represented by loans (62% versus 67%).
The following table sets forth, for the periods indicated, interest income and
interest expense with the resulting average yield or rate by category of average
earning assets and average interest bearing liabilities.
AVERAGE BALANCES AND TAX-EQUIVALENT NET INTEREST MARGIN
YEAR ENDED DECEMBER 31, 2000 1999 1998
------------------------------ ----------------------------- -----------------------------
Int. Avg.Rate Int. Avg. Rate Int. Avg. Rate
Average Income Earned/ Average Income Earned/ Average Income Earned/
(In thousands) Balance (Expense) Paid Balance (Expense) Paid Balance (Expense) Paid
--------- -------- -------- -------- -------- --------- ------- --------- ---------
ASSETS
Loans (2) $ 151,164 $ 14,470 9.57% $135,032 $ 12,614 9.34% $130,895 $ 13,167 10.05%
INVESTMENT SECURITIES:
Taxable 57,490 3,333 5.80% 58,142 3,191 5.49% 5,022 2,693 5.98%
Tax-exempt(1) 8,418 571 6.78% 8,986 533 5.93% 5,787 373 6.45%
TOTAL
INVESTMENT
SECURITIES 65,908 3,904 5.92% 67,128 3,724 5.55% 50,809 3,066 6.03%
Interest bearing
deposits in banks and
federal funds sold 3,393 256 7.54% 15,820 866 5.47% 14,937 843 5.64%
TOTAL EARNING ASSETS 220,465 18,630 8.45% 217,980 17,204 7.87% 196,722 17,076 8.68%
Cash and due from banks 6,608 12,388 8,357
Premises and equipment 5,197 4,689 2,904
Other assets 7,185 5,707 3,424
Allowance for credit
losses (1,302) (1,417) (1,299)
TOTAL $238,153 $239,377 $210,198
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Savings, MMDA, NOW $ 102,738 (2,163) 2.11% $100,438 (2,336) 2.33% $ 74,518 (1,960) 2.63%
Time 62,103 (3,401) 5.48% 56,127 (2,865) 5.10% 60,014 (3,226) 5.38%
TOTAL INTEREST-
BEARING DEPOSITS 168,841 (5,564) 3.30% 156,565 (5,201) 3.32% 134,532 (5,186) 3.85%
Repurchase agreements 14,163 (527) 3.72% 15,935 (505) 3.17% 14,225 (525) 3.69%
Other borrowings 2,244 (150) 6.73% 5,603 (340) 6.07% 3,961 (206) 5.20%
TOTAL INTEREST-BEARING
LIABILITIES 181,248 (6,241) 3.44% 178,103 (6,046) 3.39% 152,718 (5,917) 3.87%
Demand deposits 29,264 33,565 34,792
Other liabilities 1,377 3,088 918
Shareholders' equity 26,264 24,621 21,770
TOTAL $238,153 $239,377 $210,198
Net interest margin(1) $ 12,389 $ 11,158 $11,159
Interest income as a
% of avg. earning
assets 8.45% 7.89% 8.68%
Interest expense as a %
of avg. earning assets 2.83% 2.77% 3.01%
Net interest margin 5.62% 5.12% 5.67%
(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 $423,
$486, and $971 are included in interest income for 2000, 1999 and 1998.
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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.
2000 versus 1999 1999 versus 1998
Increase (decrease) Increase (decrease)
Due to change in Due to change in
-------------------------- ----------------------------
Average Average Net Average Average Net
Volume Rate Change Volume Rate Change
-------- ------ -------- -------- ------ -------
(in thousands)
INTEREST INCOME
Loans $ 1,538 $ 318 $ 1,856 $ 407 $ (960) $ (553)
Investment securities (69) 249 180 921 (263) 658
Interest-bearing deposits in
banks and federal funds sold (854) 244 (610) 47 (24) 23
TOTAL INTEREST INCOME 615 811 1,426 1,375 (1,247) 128
INTEREST EXPENSE
Savings deposits 53 (226) (173) 623 (247) 376
Time deposits 318 218 536 (203) (158) (361)
Repurchase agreements (60) 82 22 59 (79) (20)
Other borrowings (222) (32) (190) 96 38 134
TOTAL INTEREST EXPENSE 89 116 195 575 (446) 129
CHANGES IN NET
INTEREST INCOME $ 526 $ 705 $ 1,231 $ 800 $ (801) $ (1)
The following chart further reflects changes in average balances and rates from
December 31, 2000 to December 31, 1999.
INCREASE (DECREASE) IN AVERAGE BALANCE: INCREASE (DECREASE) IN AVERAGE RATE:
Loans 11.95% Loans 2.46%
Investments (1.82)% Investments 6.67%
Fed Funds & Deposits (78.55)% Fed Funds & Deposits 37.84%
TOTAL EARNING ASSETS 1.14% TOTAL EARNING ASSETS 7.10%
Savings, NOW, MMDA 2.29% Savings, NOW, MMDA (9.44)%
Time 10.65% Time 7.45%
Repurchase Agreements (11.12)% Repurchase Agreements 17.35%
Other Borrowings (59.95)% Other Borrowings 10.05%
TOTAL INT BEAR LIABILITIES 1.77% TOTAL INT BEAR LIABILITIES 1.47%
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The following table further reflects changes in average balances and rates from
December 31, 1999 to December 31, 1998.
INCREASE (DECREASE) IN AVERAGE BALANCE: INCREASE (DECREASE) IN AVERAGE RATE:
Loans 3.16% Loans (7.06)%
Investments 32.09% Investments (7.96)%
Fed Funds & Deposits 5.92% Fed Funds & Deposits (3.01)%
TOTAL EARNING ASSETS 10.82% TOTAL EARNING ASSETS (9.10)%
Savings, NOW, MMDA 34.78% Savings, NOW, MMDA (11.41)%
Time (6.48)% Time (5.20)%
Repurchase Agreements 12.02% Repurchase Agreements (14.09)%
Other Borrowings 41.45% Other Borrowings 16.73%
TOTAL INT BEAR LIABILITIES 16.62% TOTAL INT BEAR LIABILITIES (12.40)%
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES. Net interest income after
provision for credit losses was $11.7 million at December 31, 2000, $10.7
million at December 31, 1999, and $10.8 million at December 31, 1998. Total
provision for credit losses for the three years ending December 31, 2000 was
$454,000, $264,000, and $236,000, respectively. The Company increased the
provision for credit losses based on its loan loss reserve analysis of the loan
portfolio derived from the loan grading system and the loss analysis of impaired
loans. Recoveries were $63,000, $20,000, and $14,000, respectively. Charge-offs
of $78,000, $632,000, and $32,000 were realized during the same periods.
Historically, the Company's loan charge-off levels have been very low compared
to its peers. Management attributes part of the increases in charge-offs to what
would be expected as a result of growth in the loan portfolio. More than half of
the increase to $632,000 in 1999 was attributable to a single commercial loan.
Management has no reason to believe the increase is a trend in the overall
quality of the loan portfolio. Management will continue to monitor and analyze
charge-off levels closely. Management's assessment of the allowance for credit
losses includes various factors such as current delinquent and non-performing
loans, historical analysis of credit loss experience, knowledge of the present
and anticipated economic future of this market area, and loan grades. Management
believes the quality of the loan portfolio is outstanding due to strong internal
controls, excellent loan policy standards, experienced loan officers,
conservative underwriting practices, and the good economy in Oregon. Management
believes the allowance for credit losses at December 31, 2000 of $1.5 million is
adequate. The allowance for credit losses to total loans at December 31, 2000,
1999, and 1998 respectively was .95%, .77%, and 1.07%.
NON-INTEREST INCOME. Non-interest income was $2.7 million for the year ended
December 31, 2000, an 11.2% increase from $2.4 million in 1999, which was 8.0%
higher than the $2.2 million in 1998. These increases are due to increased
service charges, customer fee income, and Bankcard income, which is primarily a
function of increased volumes of accounts. Part of the increase came from
Merchant Bankcard processing and fees associated with ATM and debit cards. The
Company also instituted an overdraft protection program for individual account
holders. The program covers non-sufficient funds (NSF) up to an account specific
amount and
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charges the normal NSF fee. This product protects the customer against returned
checks and provides the Company other non-interest income for this service.
NON-INTEREST EXPENSE. Non-interest expenses consist primarily of employee
salaries and benefits, occupancy, data processing, Bankcard services, office
supplies, professional services and other non-interest expenses. Overall
increases are a result of the Company's increased volume, management's emphasis
on business development, start-up cost associated with its new on-line banking
product, marketing, and staff training.
Non-interest expense was $8.6 million for the year ended December 31, 2000, an
increase of $.5 million (6.3%) from the year ended December 31, 1999, which was
an increase of $.9 million (13.0%) over the period ended December 31, 1998.
At the end of 2000, the Company employed 121 full time equivalent employees
compared to 119 at the end of 1999 and 111 at the end of 1998. The increase in
2000 was due to hiring of two new officers, one in the mortgage department and
one in marketing. The increase from 1998 to 1999 was primarily due to the
staffing of two new branch offices opened in that year. The Company has
continued to increase staff productivity through training, education, and hiring
practices.
INCOME TAXES. Income tax expense for 2000 was $2.2 million or 38.0% of income
before taxes, 1999 was $1.8 million or 35.4% of income before taxes, and 1998
was $2.0 million or 34.5% of income before taxes.
ASSET/LIABILITY MANAGEMENT. The Company uses an asset/liability modeling system
called ALX to estimate the degree of interest rate risk and market risk inherent
in its mix of interest earning assets and interest bearing liabilities. The
Company's profitability is dependent to a large extent on net interest income.
The Company is very slightly asset sensitive, meaning that interest earning
assets mature or are otherwise subject to repricing at a slightly faster rate
than interest bearing liabilities. A significant decrease in market rates could
adversely impact the net earnings of the Company. In contrast, an inclining
interest rate environment could have a positive affect on net interest income.
The Company's strategy is to keep a position that is very close to "balanced".
That is, the repricing of assets and liabilities would move much at the same
rate. Because the current position is only slightly asset sensitive the net
interest margin should increase slightly when rates increase and decrease
slightly when rates fall.
LIQUIDITY AND SOURCES OF FUNDS. The Company'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. The Company 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 a primary source of new funds. At December 31, 2000, total deposits
were $201.0 million, $194.4 million at December 31, 1999 and $188.2 million at
December 31, 1998. The
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Company also had REPO's (securities sold under agreements to repurchase) for the
periods of December 31, 2000, 1999, and 1998 of $12.7 million, $13.4 million,
and $16.2 million, respectively. The overall cost of funds was as follows:
COST OF FUNDS
2000 1999 1998
---- ---- ----
3.4% 3.4% 3.9%
Management anticipates that the Company 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 the Company 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:
2000 1999 1998
-------------------- ------------------ -------------------
(In Thousands) Amount $ Rate % Amount $ Rate % Amount $ Rate %
DEPOSITS
Demand $29,264 -- $33,565 -- $34,792 --
Savings $102,738 2.11% $100,438 2.33% $74,518 2.63%
Time $62,103 5.48% $56,127 5.10% $60,014 5.38%
TOTAL $194,105 $190,130 $169,324
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, 2000.
Maturity Period Certificates of Deposit
--------------- -----------------------
In Thousands
3 months or less 7,467
3 months through 6 months 4,576
6 months through 12 months 6,108
Over 12 months 4,389
TOTAL $22,540
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The following table is a summary of securities sold under repurchase agreement
(REPO) for each of the last three years.
(Dollars in Thousands)
2000 1999 1998
--------- --------- ---------
Securities sold under agreement to repurchase:
Average interest rate
At year end 3.29% 3.26% 3.10%
For the year 3.72% 3.17% 3.69%
Average amount outstanding
during the year $ 14,163 $ 15,935 $ 14,225
Maximum amount outstanding at
any month end $ 15,433 $ 18,124 $ 16,299
Amount outstanding at year end $ 12,651 $ 13,425 $ 16,299
CAPITAL RESOURCES. The Company is subject to various capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines that involve quantitative measures of the Company's assets, and
certain off-balance-sheet items as calculated under regulatory accounting
practices, the Company's capital classification is also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
As of December 31, 2000, 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 Company must maintain at least 10% total
risk based capital, 6% Tier 1 risk based capital and 5% Tier 1 leverage capital.
There are no conditions or events since that notification that management
believes have changed its category rating.
Shareholders' equity increased to $27.1 million at December 31, 2000, from $24.3
million in 1999 and $22.6 million in 1998. This increase reflects net income of
$3.6 million, other comprehensive income of $.4 million and $.2 million from the
dividend reinvestment plan. These increases were primarily offset by a cash
dividend declared of $1.5 million. The Company's shareholder average equity, as
a percentage of average assets, was 11.0% for the year ended December 31, 2000,
10.3% for the year ended December 31, 1999, and 10.4% for the year ended
December 31, 1998.
As interest rates change, the value of the Bank's "available for sale"
investment portfolio, which is reported at fair value, may be positively or
negatively impacted and therefore may cause an increase or a reduction in
reported shareholders' equity. Equity grew at 11.2% over the period between
December 31, 1999 and December 31, 2000, while assets grew by 2.0% over the same
period.
At December 31, 2000, the Company had no material commitment for capital
expenditures that would negatively impact the Company's capital position.
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The following table indicates the Company's capital adequacy position at
December 31, 2000 and at December 31, 1999 and compares those positions to
capital adequacy requirements.
Citizens Bancorp
----------------
For Capital
(in thousands) Actual Adequacy Purposes
-------------- ---------------------- ---------------------------
AS OF DECEMBER 31, 2000: Amount Ratio Amount Ratio
------------------------ ------ ----- ------ -----
Total Risk-Based Capital (to
Risk-Weighted Assets) $28,025 16.7% $13,450 (greater than or equal to)8%
Tier 1 Capital (to
Risk-Weighted Assets) $26,515 15.8% $ 6,725 (greater than or equal to)4%
Tier 1 Capital (to average
Total Assets) $26,515 11.0% $ 9,678 (greater than or equal to)4%
AS OF DECEMBER 31, 1999:
------------------------
Total Risk-Based Capital (to
Risk-Weighted Assets) $25,531 17.1% $11,963 (greater than or equal to)8%
Tier 1 Capital (to
Risk-Weighted Assets) $24,460 16.4% $ 5,982 (greater than or equal to)4%
Tier 1 Capital (to average
Total Assets) $24,460 10.1% $ 9,677 (greater than or equal to)4%
Shareholders equity increased to $27.1 million at December 31, 2000 from $24.3
million in 1999 and $22.6 million in 1998.
INVESTMENT PORTFOLIO
The following table shows Investments Held to Maturity.
In Thousands
------------
Outstanding Balance at December 31,
2000
Estimated Fair Value Amortized Cost % of Portfolio
-------------------- -------------- --------------
Obligations of States and
Political Subdivisions 8,335 8,304 13.92%
TOTAL $8,335 $8,304 13.92%
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In Thousands
------------
Outstanding Balance at December 31,
1999
Estimated Fair Value Amortized Cost % of Portfolio
-------------------- -------------- --------------
Federal Agency Obligations 487 485 .70%
Obligations of States and
Political Subdivisions 7,720 7,937 11.49%
TOTAL $8,207 $8,422 12.19%
In Thousands
------------
Outstanding Balance at December 31,
1998
Estimated Fair Value Amortized Cost % of Portfolio
-------------------- -------------- --------------
U.S. Treasury Securities $2,036 $2,014 3.33%
Federal Agency Obligations 501 484 .80%
Obligations of States and
Political Subdivisions 7,320 7,235 11.94%
TOTAL $9,857 $9,733 16.07%
The following table sets forth the maturities and weighted average yields of
securities held to maturity at December 31, 2000.
IN THOUSANDS
After 1 year, but After 5 years, but
Amount Within 1 year before 5 years before 10 years After 10 years
- ------ ------------- ----------------- ------------------ --------------
Obligations of States and
Political Subdivisions 550 3,002 4,063 689
TOTAL $550 $3,002 $4,063 $689
Weighted Average Yield*
- -----------------------
Obligations of States and
Political Subdivisions 4.96% 5.88% 5.92% 5.97%
TOTAL 4.96% 5.88% 5.92% 5.97%
* Yield on tax exempt obligations have computed on a tax equivalent basis of 34%
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The following tables show Investments Available for Sale.
In Thousands
------------
Outstanding Balance at December 31,
2000
Estimated Fair Value Amortized Cost % of Portfolio
-------------------- -------------- --------------
U.S. Treasury Securities $24,617 $24,578 41.26%
Federal Agency Obligations 25,958 25,985 43.50%
Other Securities 792 792 1.32%
TOTAL $51,367 $51,355 86.08%
In Thousands
------------
Outstanding Balance at December 31,
1999
Estimated Fair Value Amortized Cost % of Portfolio
-------------------- -------------- --------------
U.S. Treasury Securities $30,485 $30,711 44.12%
Federal Agency Obligations 29,452 29,900 43.30%
Other Securities 741 741 1.08%
TOTAL $60,678 $61,352 87.81%
In Thousands
------------
Outstanding Balance at December 31,
1998
Estimated Fair Value Amortized Cost % of Portfolio
-------------------- -------------- --------------
U.S. Treasury Securities $26,864 $26,679 44.34%
Federal Agency Obligations 23,334 23,137 38.51%
Other Securities 657 657 1.08%
TOTAL $50,855 $50,473 83.93%
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 $16,039 $8,578 0 0
Federal Agency Obligations 13,965 11,993 0 0
Other Securities 792 0 0 0
TOTAL $30,796 $20,571 $0 $0
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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 5.85% 5.40% 0 0
Federal Agency Obligations 5.68% 5.70% 0 0
Other Securities 6.59% 0% 0 0
TOTAL 5.77% 5.61% 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 the Company. Net loans represented 64.6% of total assets as of December 31,
2000 as compared to 58.1% at December 31, 1999. The Bank's goal is to serve the
credit needs of the communities in which its offices are located. The primary
focus for lending is small-to-medium sized businesses, professionals, and
individuals. The Bank offers a broad base of loan products. 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, the type and level of risk
changes with different types of loans. The primary source of repayment is the
income generated by a business or by an individual. Loan risk is mitigated by
lending to borrowers with proven credit histories and demonstrated ability to
repay. Collateral provides an additional measure of security. The Bank manages
risk in the loan portfolio through its loan policies, underwriting practices and
continuing education for the lending professionals it employs.
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.
2000 1999 1998 1997 1996
--------------- -------------- --------------- -------------- --------------
Type of Loan Amount % Amount % Amount % Amount % Amount %
- ------------ ------- --- ------- --- ------- --- ------- --- ------ ---
Commercial $ 29,088 18% $ 26,520 19% $ 26,234 20% $ 23,507 20% $ 21,975 19%
Agriculture 14,816 9% 13,875 10% 12,402 9% 10,992 9% 9,072 8%
Real Estate
Construction 8,651 6% 7,352 5% 7,900 6% 5,459 4% 3,865 3%
1-4 Family 29,066 18% 29,776 20% 31,390 24% 34,625 28% 34,322 29%
Other 73,505 46% 59,537 43% 50,421 38% 42,142 35% 40,300 35%
Consumer 4,710 3% 3,718 3% 4,393 3% 5,423 4% 6,861 6%
TOTAL LOANS $159,836 $140,778 $132,740 $122,148 $116,395
Less Deferred
Loan Fees (542) (584) (614) (678) (709)
Less Allowance
for Credit Losses (1,510) (1,071) (1,419) (1,201) (1,038)
NET LOANS $157,784 100% $139,123 100% $130,707 100% $120,269 100% $114,648 100%
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Interest income on loans is accrued daily on the principal balance outstanding.
Generally, no interest is accrued on loans deemed to be uncollectible, or when
the principal or interest payment becomes 90 days past due. At December 31, 2000
the Bank no loans that were 90 days or more past due and still accruing interest
because in management's judgement the loans were well secured and in the process
of collection.
The following table shows the contractual maturity of the Bank's gross loans at
December 31, 2000. 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, After 5 years,
Within 1 year but before 5 but before 10 After 10 years
years years
------------- ------------- -------------- --------------
Commercial $11,062 $12,017 $3,391 $2,740
Agriculture 10,133 2,027 138 291
Real Estate
Construction 4,265 0 622 3,679
1-4 Family 2,102 2,558 6,100 19,284
Other 3,139 7,679 19,812 43,585
Consumer 1,238 2,896 483 53
TOTAL $31,939 $27,177 $30,546 $69,632
The following table sets forth the dollar amount of all loans due one year or
more after December 31, 2000, which have fixed interest rates and have floating
or adjustable interest rates.
In Thousands
------------
Floating or
Fixed Rates Adjustable Rates
----------- ----------------
Commercial $8,819 $9,329
Agriculture 1,303 1,153
Real Estate
Construction 0 4,301
1-4 Family 11,133 16,809
Other 28,685 42,391
Consumer 2,470 962
TOTAL $52,410 $74,945
PROVISION FOR CREDIT LOSSES. The provision for credit losses represents charges
made to operating expense to maintain an appropriate allowance for credit
losses. Management considers various factors in establishing an appropriate
allowance. These factors include an assessment of the financial condition of the
borrower, a determination of the borrower's ability to service the debt from
cash flow, a conservative assessment of the value of the underlying collateral,
the condition of the specific industry of the borrower, the economic health of
the local community, a
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comprehensive analysis of the levels and trends of loan types, and a review of
past due classified loans, and impaired loans.
It is Bank policy that once each quarter, Bank management makes recommendations
to the Board regarding the adequacy of the Bank's allowance for credit losses
and the amount of the provision that should be charged against earnings for the
next three months. Management's recommendations are based on an internal loan
review process to determine specific potential loss factors on classified loans,
risk factor of loan grades, historical loss factors derived from actual net
charge-off experience, trends in non-performing loans, and other potential risks
in the loan portfolio such as industry concentration, the local economy, and the
volume of loans.
Management uses a loan grading system wherein loan officers assign a risk grade
to each of their loans at inception and at intervals based on receipt of
financial information, renewal, or when there is an indication that a credit may
have improved or weakened. The risk grades in the loan portfolio are used in
determining a factor that is used in analyzing the adequacy of the allowance for
credit losses.
The Bank's policy is to charge off loans when, in management's opinion, the loan
or a portion of the loan is deemed uncollectible following a concerted
collection effort. Management continues to pursue collection after a loan is
charged-off until all possibilities for collection have been exhausted.
For the years ended December 31, 1998 through 2000, the Company charged
$236,000, $264,000, and $454,000, respectively, to its provision for credit
losses.
It is the opinion of management that the allowance for credit loss at December
31, 2000 of $1.5 million is adequate.
The following table represents information with respect to non-performing loans
and other assets:
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
Loans on non-accrual status $ 1,117 $ 654 $ 173 $ 0 $ 4
Loans past due greater than 90 days 2 73 447 438 23
------- ------- ------- ------- -------
Total non-performing loans 1,119 727 620 438 27
Other real estate owned 205 0 0 240 59
------- ------- ------- ------- -------
Total non-performing assets $ 1,324 $ 727 $ 620 $ 678 $ 86
======= ======= ======= ======= =======
Allowance for loan losses $ 1,510 $ 1,071 $ 1,419 $ 1,201 $ 1,039
Allowance for loan losses/non-performing assets 114% 147% 229% 177% 1,208%
Non-performing loans/total loans .70% .51% .47% .36% .02%
Non-performing assets/total assets .54% .30% .27% .34% .04%
Interest income which would have been realized on non-accrual loans was not
significant to the accompanying consolidated financial statements. In addition
loans past due 90 days or more and still accruing interest were not significant
to the accompanying consolidated financial statements.
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The Company has a policy that places loans on nonaccrual status after they
become 90 days past due unless the loan is well secured and in the process of
collection. The Company may place loans that are not contractually past due or
that are fully collateralized on nonaccrual status as a management tool to
actively oversee specific loans. Loans on nonaccrual status at December 31, 2000
were approximately $1,117,000, $654,000 at December 31, 1999, and $173,000 at
December 31, 1998. Of the $1,117,000 on non-accrual status as of December 31,
2000 approximately $453,000 represents the SBA guaranteed balance on one
commercial loan. The Company anticipates that this loan will be paid-off by the
SBA sometime in the second quarter 2001.
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35
The following table summarizes transactions in the allowance for credit losses
and details the charge-offs, recoveries, and net credit losses by loan category
for the last five years.
IN THOUSANDS
-------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
ALLOWANCE AT BEGINNING OF
PERIOD: $1,071 $1,419 $1,201 $1,038 $ 896
Provision for Credit Losses 454 264 236 165 134
CHARGE-OFFS:
Commercial 24 560 28 0 0
Agriculture 0 0 0 0 0
Real Estate 0 0 0 0 0
Construction 0 0 0 0 0
1-4 Family 0 61 0 0 0
Other 1 0 0 0 0
Consumer 53 11 4 2 8
TOTAL CHARGE-OFFS: $ 78 $ 632 $ 32 $ 2 $ 8
RECOVERIES:
Commercial 63 1 14 0 15
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 19 0 0 0
TOTAL RECOVERIES
$ 63 $ 20 $ 14 $ 0 $ 15
NET RECOVERIES
(CHARGE-OFFS) (15) (612) (18) (2) 7
BALANCE AT
END OF PERIOD $1,510 $1,071 $1,419 $1,201 $1,038
RATIO OF NET CHARGE-OFFS
TO AVG. LOANS OUTSTANDING .01% .45% .01% .00% .00%
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES. The Company does not normally allocate
the allowance for loan losses to specific loan categories. An allocation to the
major categories is made below for presentation purposes. This allocation
process does not necessarily measure anticipated future credit losses; rather it
seeks to measure the Bank's assessment on a quarterly basis the perceived credit
loss exposure and the impact of current and anticipated economic conditions. The
following table is the allocation for the last five years:
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2000 1999 1998 1997 1996
-------------- -------------- -------------- -------------- ---------------
% of % of % of % of % of
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Commercial $ 271 18% $ 203 19% $ 283 20% $ 240 20% $ 197 19%
Agriculture 136 9% 108 10% 129 9% 108 9% 83 8%
Real Estate
Construction 91 6% 53 5% 85 6% 48 4% 31 3%
1-4 Family 272 18% 214 20% 340 24% 336 28% 301 29%
Other 695 46% 460 43% 539 38% 421 35% 363 35%
Consumer 45 3% 33 3% 43 3% 48 4% 63 6%
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
$1,510 100% $1,071 100% $1,419 100% $1,201 100% $1,038 100%
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, 2000 and 1999, the Bank had no materially impaired
loans.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET-LIABILITY MANAGEMENT AND INTEREST RATE SENSITIVITY
The Company's results of operations are largely dependent on its ability to
manage net interest income. The principal purpose of asset-liability management
is to manage the Bank's sources and uses of funds under various interest rate
and economic conditions in order to stabilize net income and minimize risk.
The Bank analyzes its interest rate risk by simulation modeling and by
traditional interest rate gap analysis. The model analyzes the Bank's current
position and anticipated future results based on assumptions and estimations
that management deems reasonable, although actual results may vary
substantially.
The main component of asset-liability management is the management of the Bank's
interest rate sensitivity and market risk. Interest-rate sensitivity is defined
as the volatility in earnings resulting from changes in interest rates and/or
the mismatch of repricing intervals between assets and liabilities. The Bank's
management attempts to manage its assets and liabilities to maximize earnings
growth by minimizing the effects of changing market rates, asset and liability
mix, and prepayment trends. This is a "balanced position" strategy which lessens
the volatility in interest
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37
income. Management actively manages the relationship between its interest rate
sensitive assets and interest rate sensitive liabilities.
If assets and liabilities do not mature or reprice simultaneously, and in equal
amounts, a gap is present and exposure to interest rate risk exists. An interest
rate sensitivity gap occurs when there is a different amount of rate sensitive
assets than rate sensitive liabilities scheduled to reprice over the same period
of time. The gap is considered positive when rate sensitive assets exceed rate
sensitive liabilities, and negative when rate sensitive liabilities exceed rate
sensitive assets. During a period of rising interest rates, a negative gap would
generally tend to adversely impact net interest income while a positive gap
would generally tend to result in an increase in net interest income. During a
period of declining interest rates, a negative gap would generally tend to
result in increased net interest income, while a positive gap would generally
tend to adversely affect net interest income.
The following table sets forth the interest rate sensitivity of the Bank's
assets and liabilities over various contracted repricing periods and maturities
as of December 31, 2000. Certain shortcomings are inherent in the traditional
gap analysis presented in the table. For instance, although certain assets and
liabilities may have similar repricing periods or maturities, historically they
have been proven to react in different timings and degree to changes in market
interest rates. Additionally, loan repayments and early withdrawals of
certificates of deposits could cause the interest sensitivities to vary from
those which appear in the table.
December 31, 2000 (in thousands)
0 - 3 3 - 6 6 - 12 1 - 5 Over 5
months months months years years Total
---------- ---------- --------- ---------- ---------- ----------
INTEREST EARNING - ASSETS
Interest Bearing Deposits 5,444 -- -- -- -- 5,444
Loans 45,905 8,235 11,054 62,910 31,190 152,294
Investments 10,238 5,278 15,830 23,572 4,753 59,671
--------- --------- -------- -------- ------- ---------
TOTAL INTEREST - EARNING
ASSETS $ 61,587 $ 13,513 $ 26,884 $ 86,482 $35,943 $224,409
INTEREST BEARING -
LIABILITIES
Demand Deposits 31,629 -- -- -- -- 31,629
Savings Deposits 105,183 -- -- -- -- 105,183
Time Deposits 20,984 15,748 14,407 13,009 -- 64,148
REPO'S 12,651 -- -- -- -- 12,651
Other Borrowings 1,216 -- -- -- -- 1,216
--------- --------- -------- -------- ------- ---------
TOTAL INTEREST-BEARING
LIABILITIES $ 171,663 $ 15,748 $ 14,407 $ 13,009 $ 0 $214,827
$(110,076) $ (2,235) $ 12,477 $ 73,473 $35,943 $ 9,582
CUMULATIVE INTEREST RATE
SENSITIVITY GAP $(110,076) $(112,311) $(99,834) $(26,361) $ 9,582
========= ========= ======== ======== ========
CUMULATIVE GAP AS A
PERCENT OF ASSETS (44.9)% (45.8)% (40.7)% (10.3)% 4.4%
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On a straight gap measurement of interest rate sensitivity, the Company is asset
sensitive. Using the financial model with historical timings and degree of
market rate change effecting the components of the balance sheet, the Company is
very slightly asset sensitive. The Company will see little effect on its equity
in either a rising or declining interest rate environment based on the balance
sheet as of December 31, 2000. Management strives to maintain a balanced
interest sensitivity position.
The Company sensitivity to gains or losses in future earnings due to
hypothetical increases or decreases in the Fed Funds rate as measured by its
financial model are as follows.
Decrease in
Increase in Net Interest Interest Net Interest
Interest Rates Margin Change Rates Margin Change
-------------- ------------- ----------- -------------
+1% $240,000 -1% $(210,000)
+2% $593,000 -2% $(466,000)
Rate increases will generally increase the Company's equity, while rate
decreases will generally reduce equity.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS. In addition to the other
information contained in this report, the following risks may affect the
Company. If any of these risks occurs, our business, financial condition or
operating results could be adversely affected.
1. Growth and Management. Our financial performance and profitability will
depend on our ability to manage recent and possible future growth. Although
management believes that it has substantially integrated the business and
operations of recent acquisitions, there can be no assurance that unforeseen
issues relating to the acquisitions will not adversely affect us. In addition,
any future acquisitions and continued growth may present operating and other
problems that could have an adverse effect on our business, financial condition
and results of operations. Accordingly, there can be no assurance that we will
be able to execute our growth strategy or maintain the level of profitability
that we have recently experienced.
2. Changes in Market Interest Rates. Our earnings are impacted by changing
interest rates. Changes in interest rates impact the demand for new loans, the
credit profile of existing loans, the rates received on loans and securities and
rates paid on deposits and borrowings. The relationship between the rates
received on loans and securities and the rates paid on deposits and borrowings
is known as interest rate spread. Given our current volume and mix of
interest-bearing liabilities and interest-earning assets, our interest rate
spread could be expected to increase during times of rising interest rates and,
conversely, to decline during times of falling interest rates. The 50 basis
point decrease in the target Fed Funds rate by the Federal Reserve announced
January 3, 2001 and the additional 50 basis point decrease announced January 31,
2001, may result in a basis point drop in the Bank's interest rate spread. With
any further declines in interest rates, our ability to proportionately decrease
the rates on our deposit sources may not be possible due to competitive
pressures. This may result in a larger decrease in our interest rate spread.
Although we believe our current level of interest rate sensitivity is
reasonable, significant fluctuations in interest rates may have an adverse
effect on our business, financial condition and results of operations.
36
39
3. Geographic Factors. Economic conditions in the communities we serve could
adversely affect our operations. As a result of community bank focus, our
results depend largely upon economic and business conditions in our service
areas. A deterioration in economic and business conditions in our market areas
could have a material adverse impact on the quality of our loan portfolio, and
the demand for our products and services, which in turn may have a material
adverse effect on our results of operations. Further, a downturn in the national
economy might further exacerbate local economic conditions. The extent of the
future impact of these events on economic and business conditions cannot be
predicted.
4. Regulation. We are subject to government regulation that could
limit or restrict our activities, which in turn could adversely impact our
operations. The financial services industry is regulated extensively. Federal
and state regulation is designed primarily to protect the deposit insurance
funds and consumers, and not to benefit our shareholders. These regulations can
sometimes impose significant limitations on our operations. In addition, these
regulations are constantly evolving and may change significantly over time.
Significant new laws or changes in existing laws or repeal of existing laws may
cause our results to differ materially. Further, federal monetary policy,
particularly as implemented through the Federal Reserve System, significantly
affects credit conditions for us.
5. Competition. Competition may adversely affect our performance. The financial
services business in our market areas is highly competitive. It is becoming
increasingly competitive due to changes in regulation, technological advances,
and the accelerating pace of consolidation among financial services providers.
We face competition both in attracting deposits and in making loans. We compete
for loans principally through the interest rates and loan fees we charge and the
efficiency and quality of services we provide. Increasing levels of competition
in the banking and financial services businesses may reduce our market share or
cause the prices we charge for our services to fall. Our results may differ in
future periods depending upon the nature or level of competition.
6. Credit Risk. If a significant number of borrowers, guarantors and related
parties fail to perform as required by the terms of their loans, we will sustain
losses. A significant source of risk arises from the possibility that losses
will be sustained if a significant number of our borrowers, guarantors and
related parties fail to perform in accordance with the terms of their loans. We
have adopted underwriting and credit monitoring procedures and credit policies,
including the establishment and review of the allowance for credit losses, that
management believes are appropriate to minimize this risk by assessing the
likelihood of nonperformance, tracking loan performance and diversifying our
credit portfolio. These policies and procedures, however, may not prevent
unexpected losses that could materially adversely affect our results of
operations.
37
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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......................39
Consolidated Balance Sheets.............................................40
Consolidated Statements of Income.......................................41
Consolidated Statements of Shareholders' Equity.........................42
Consolidated Statements of Cash Flows...................................44
Notes to Consolidated Financial Statements..............................46
38
41
INDEPENDENT AUDITORS' REPORT
Board of Directors
CITIZENS BANCORP
Corvallis, Oregon
We have audited the accompanying consolidated balance sheets of CITIZENS BANCORP
AND SUBSIDIARY as of December 31, 2000 and 1999, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 2000. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our 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
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, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000, in conformity with generally accepted accounting principles.
Knight Vale & Gregory PLLC
January 11, 2001
Tacoma, Washington
39
42
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
(Dollars in Thousands)
Citizens Bancorp and Subsidiary
December 31, 2000 and 1999
2000 1999
--------- ----------
ASSETS
Cash and due from banks $ 11,218 $ 17,990
Interest bearing deposits in banks 5,444 2,870
Securities available for sale 51,367 60,678
Securities held to maturity (fair value $8,335 and $8,207) 8,304 8,422
Loans held for sale 1,136 1,643
Loans 159,294 140,194
Allowance for credit losses 1,510 1,071
NET LOANS 157,784 139,123
Premises and equipment 5,191 5,283
Foreclosed real estate 205 --
Accrued interest receivable 2,142 2,032
Other assets 1,589 1,565
TOTAL ASSETS $ 244,380 $ 239,606
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $ 31,629 $ 32,843
Savings and interest-bearing demand 105,183 97,880
Time 64,148 63,627
TOTAL DEPOSITS 200,960 194,350
Short-term borrowings 13,867 15,577
Long-term borrowings -- 2,973
Accrued interest payable 223 207
Other liabilities 2,267 2,157
TOTAL LIABILITIES 217,317 215,264
SHAREHOLDERS' EQUITY
Common stock (no par value); authorized 10,000,000 shares;
issued and outstanding: 2000 - 4,137,630 shares;
1999 - 4,124,091 shares 20,085 19,868
Retained earnings 6,971 4,849
Accumulated other comprehensive income (loss) 7 (375)
TOTAL SHAREHOLDERS' EQUITY 27,063 24,342
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 244,380 $ 239,606
See notes to consolidated financial statements.
40
43
CONSOLIDATED STATEMENTS OF INCOME
- ------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Amounts)
Citizens Bancorp and Subsidiary
Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
------- ------- --------
INTEREST INCOME
Loans $14,470 $12,614 $13,167
Federal funds sold and deposits in banks 256 866 843
Securities available for sale - taxable 3,333 3,111 2,578
Securities held to maturity:
Taxable -- 80 115
Tax-exempt 377 352 244
TOTAL INTEREST INCOME 18,436 17,023 16,947
INTEREST EXPENSE
Deposits 5,564 5,201 5,186
Short-term borrowings 657 555 580
Long-term borrowings 20 290 151
TOTAL INTEREST EXPENSE 6,241 6,046 5,917
NET INTEREST INCOME 12,195 10,977 11,030
PROVISION FOR CREDIT LOSSES 454 264 236
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 11,741 10,713 10,794
NON-INTEREST INCOME
Service charges on deposit accounts 1,247 1,048 934
Gains on sales of securities available for sale -- -- 20
Bankcard income 1,157 1,047 797
Other 268 308 475
TOTAL NON-INTEREST INCOME 2,672 2,403 2,226
NON-INTEREST EXPENSE
Salaries 3,331 3,225 2,736
Employee benefits 1,196 1,056 998
Occupancy 643 623 555
Furniture and equipment 703 599 529
Bankcard expense 940 864 673
Other 1,774 1,712 1,662
TOTAL NON-INTEREST EXPENSE 8,587 8,079 7,153
INCOME BEFORE INCOME TAXES 5,826 5,037 5,867
INCOME TAXES 2,214 1,783 2,027
NET INCOME $ 3,612 $ 3,254 $ 3,840
EARNINGS PER SHARE
Basic and diluted $ .87 $ .79 $ .94
See notes to consolidated financial statements.
41
44
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
(Dollars in Thousands)
Citizens Bancorp and Subsidiary
Years Ended December 31, 2000, 1999 and 1998
ACCUMULATED
SHARES OF OTHER
COMMON COMMON RETAINED COMPREHENSIVE
STOCK STOCK EARNINGS INCOME (LOSS) TOTAL
--------- --------- --------- -------------- ---------
Balance at December 31, 1997 1,922,321 $ 15,517 $ 3,832 $ 62 $ 19,411
Comprehensive income:
Net income -- -- 3,840 -- 3,840
Other comprehensive income,
net of tax:
Change in unrealized gain
on securities -- -- -- 183 183
COMPREHENSIVE INCOME 4,023
Two-for-one stock split 1,945,569 -- -- -- --
Cash dividend reinvestment
($11.31 per share) 23,247 552 -- -- 552
Cash dividends declared
($.34 per share) -- -- (1,401) -- (1,401)
BALANCE AT DECEMBER 31, 1998 3,891,137 16,069 6,271 245 22,585
Comprehensive income:
Net income -- -- 3,254 -- 3,254
Other comprehensive income,
net of tax:
Change in unrealized loss
on securities -- -- -- (620) (620)
COMPREHENSIVE INCOME 2,634
5% stock dividend 196,385 3,191 (3,191) -- --
Cash dividend reinvestment
($16.60 per share) 36,569 608 -- -- 608
Cash dividends declared
($.36 per share) -- -- (1,485) -- (1,485)
BALANCE AT DECEMBER 31, 1999 4,124,091 19,868 4,849 (375) 24,342
(continued)
See notes to consolidated financial statements.
42
45
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
(concluded) (Dollars in Thousands)
Citizens Bancorp and Subsidiary
Years Ended December 31, 2000, 1999 and 1998
ACCUMULATED
SHARES OF OTHER
COMMON COMMON RETAINED COMPREHENSIVE
STOCK STOCK EARNINGS INCOME (LOSS) TOTAL
--------- --------- --------- -------------- ---------
Balance at December 31, 1999 4,124,091 $ 19,868 $ 4,849 ($ 375) $ 24,342
Comprehensive income:
Net income -- -- 3,612 -- 3,612
Other comprehensive income,
net of tax:
Change in unrealized gain
on securities -- -- -- 382 382
COMPREHENSIVE INCOME 3,994
Cash dividend reinvestment
($16.08 per share) 13,539 217 -- -- 217
Cash dividends declared
($.36 per share) -- -- (1,490) -- (1,490)
BALANCE AT DECEMBER 31, 2000 4,137,630 $ 20,085 $ 6,971 $ 7 $ 27,063
See notes to consolidated financial statements.
43
46
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
(Dollars in Thousands)
Citizens Bancorp and Subsidiary
Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,612 $ 3,254 $ 3,840
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 454 264 236
Depreciation and amortization 622 487 396
Deferred income tax (benefit) 19 77 (30)
Loans originated for sale (2,668) (1,643) --
Proceeds from loans held for sale 3,175 -- --
Gains on sales of securities available for sale -- -- (20)
Gain on sale of equipment (2) -- --
Stock dividends received (51) (52) (48)
Increase in interest receivable (110) (179) (186)
Increase (decrease) in interest payable 16 (20) 27
Other (117) 97 373
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,950 2,285 4,588
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest bearing deposits in banks (2,574) 20,537 (8,107)
Net decrease in federal funds sold -- -- 2,800
Activity in securities available for sale:
Sales 2,001 4,983 11,521
Maturities, prepayments and calls 22,000 25,630 7,000
Purchases (13,990) (41,581) (32,868)
Activity in securities held to maturity:
Maturities, prepayments and calls 605 2,590 5,444
Purchases (496) (1,303) (5,182)
Increase in loans made to customers,
net of principal collections (19,383) (8,669) (10,623)
Purchases of premises and equipment (544) (2,276) (1,041)
Other -- 6 236
NET CASH USED IN INVESTING ACTIVITIES (12,381) (83) (30,820)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 6,610 6,115 26,535
Net decrease in short-term borrowings (1,710) (1,067) (256)
Net increase (decrease) in long-term borrowings (2,973) (1,238) 4,211
Cash dividends paid (1,268) (793) (755)
NET CASH PROVIDED BY FINANCING ACTIVITIES 659 3,017 29,735
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (6,772) 5,219 3,503
CASH AND DUE FROM BANKS
Beginning of year 17,990 12,771 9,268
END OF YEAR $ 11,218 $ 17,990 $ 12,771
(continued)
See notes to consolidated financial statements.
44
47
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
(concluded) (Dollars in Thousands)
Citizens Bancorp and Subsidiary
Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
------- ------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 6,226 $ 6,065 $ 5,890
Income taxes paid 2,185 1,705 2,351
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Fair value adjustment of assets available for sale, net of tax $ 382 ($ 620) $ 183
Stock dividend -- 3,191 --
Dividend reinvestment 217 608 552
Foreclosed real estate acquired in settlement of loans (205) -- --
See notes to consolidated financial statements.
45
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Citizens Bancorp and Subsidiary
December 31, 2000 and 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Citizens Bancorp
(the Company) and its wholly owned subsidiary, Citizens Bank (the Bank). All
significant intercompany transactions and balances have been eliminated.
NATURE OF OPERATIONS
The Company is a financial holding company which operates primarily through its
subsidiary, the Bank. The Bank operates nine branches in Western Oregon in
Benton, Lane, Yamhill and Linn Counties. The Bank's primary source of revenue is
providing loans with a focus on small- to medium-sized businesses. The principal
source of the Bank's funds is deposits by customers in its market area.
CONSOLIDATED FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and practices within the banking
industry. The preparation of consolidated 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 the disclosure of contingent assets and liabilities, as of the
date of the balance sheet, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ significantly from
those estimates. Material estimates that are particularly susceptible to
significant change in the near term relate to the determination of the allowance
for credit losses and the valuation of deferred tax assets and foreclosed real
estate.
Certain prior year amounts have been reclassified to conform to the 2000
presentation. All dollar amounts, except per share information, are stated in
thousands.
SECURITIES AVAILABLE FOR SALE
Securities available for sale consist of debt securities which may be sold to
implement the Bank's asset/liability management strategies and in response to
changes in interest rates and similar factors, and certain equity securities.
Securities available for sale are reported at fair value. Unrealized gains and
losses, net of the related deferred tax effect, are reported as a net amount in
a separate component of shareholders' equity entitled "accumulated other
comprehensive income (loss)." Realized gains and losses on securities available
for sale, determined using the specific identification method, are included in
earnings. Amortization of premiums and accretion of discounts are recognized in
interest income over the period to maturity.
Declines in the fair value of individual securities held to maturity and
available for sale below their carrying value that are other than temporary
result in write-downs of the individual securities to their fair value. Such
write-downs are included in earnings as realized losses.
(continued)
46
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Citizens Bancorp and Subsidiary
December 31, 2000 and 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
SECURITIES HELD TO MATURITY
Debt securities for which the Bank has the positive intent and ability to hold
to maturity are reported at cost, adjusted for amortization of premiums and
accretion of discounts, which are recognized in interest income over the period
to maturity.
LOANS HELD FOR SALE
Government guaranteed mortgage loans originated for sale in the secondary market
are carried at the lower of cost or estimated market value. Net unrealized
losses are recognized through a valuation allowance established by charges to
income.
LOANS
Loans are stated at the amount of unpaid principal, reduced by net deferred loan
origination fees and an allowance for credit losses. Interest on loans is
accrued daily based on the principal amount outstanding.
Generally the accrual of interest on loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due or when
they are past due 90 days as to either principal or interest, unless they are
well secured and in the process of collection. When interest accrual is
discontinued, all unpaid accrued interest is reversed against current income. If
management determines that the ultimate collectibility of principal is in doubt,
cash receipts on nonaccrual loans are applied to reduce the principal balance.
Loan origination and commitment fees and certain direct loan origination costs
are deferred and amortized as an adjustment of the yield of the related loan.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is maintained at a level considered adequate to
provide for estimated losses based on evaluating known and inherent risks in the
loan portfolio. The allowance is reduced by loans charged off, and increased by
provisions charged to earnings and recoveries on loans previously charged off.
The allowance is based on management's periodic evaluation of factors underlying
the quality of the loan portfolio, including changes in the size and composition
of the loan portfolio, the estimated value of any underlying collateral, actual
loan loss experience, current economic conditions, and detailed analysis of
individual loans for which full collectibility may not be assured. This
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.
(continued)
47
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Citizens Bancorp and Subsidiary
December 31, 2000 and 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ALLOWANCE FOR CREDIT LOSSES (concluded)
When available information confirms that specific loans or portions thereof are
uncollectible, these amounts are charged off against the allowance for credit
losses. The existence of some or all of the following criteria will generally
confirm that a loss has been incurred: the loan is significantly delinquent and
the borrower has not evidenced the ability or intent to bring the loan current;
the Bank has no recourse to the borrower, or if it does, the borrower has
insufficient assets to pay the debt; the estimated fair value of the loan
collateral is significantly below the current loan balance, and there is little
or no near-term prospect for improvement.
When management determines that it is probable that a borrower will be unable to
repay all amounts due according to the terms of the loan agreement, including
scheduled interest payments, the loan is considered impaired. Factors considered
by management in determining impairment include payment status, collateral
value, and the probability of collecting scheduled principal and interest
payments when due. Loans that experience insignificant payment delays and
payment shortfalls are generally not classified as impaired. Management
determines the significance of payment delays and payment shortfalls on a
case-by-case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the delay, the
reasons for the delay, the borrower's prior payment record, and the amount of
shortfall in relation to the principal and interest owed. The amount of
impairment is measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, when the primary source of
repayment is provided by real estate collateral, at the fair value of the
collateral less estimated selling costs.
The ultimate recovery of all loans is susceptible to future market factors
beyond the Company's control. These factors may result in losses or recoveries
differing significantly from those provided for in the financial statements.
FORECLOSED REAL ESTATE
Real estate properties acquired through, or in lieu of, foreclosure are to be
sold and are initially recorded at the lower of cost or fair value of the
properties less estimated costs of disposal. Any write-down to fair value at the
time of transfer to foreclosed real estate is charged to the allowance for
credit losses. Properties are evaluated regularly to ensure that the recorded
amounts are supported by their current fair values. Any subsequent reductions in
carrying values are charged to income.
TRANSFERS OF FINANCIAL ASSETS
Transfers of financial assets are accounted for as sales when control over the
assets has been surrendered. Control over transferred assets is deemed to be
surrendered when (1) the assets have been isolated from the Bank, (2) the
transferee obtains the right (free of conditions that constrain it from taking
advantage of that right) to pledge or exchange the transferred assets, and (3)
the Bank does not maintain effective control over the transferred assets through
an agreement to repurchase them before their maturity.
(continued)
48
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Citizens Bancorp and Subsidiary
December 31, 2000 and 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation, which
is computed on the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized over the term of the lease or the
estimated useful life of the improvement, whichever is less. Gains or losses on
dispositions are reflected in earnings.
INCOME TAXES
Deferred tax assets and liabilities result from differences between the
financial statement carrying amounts and the tax bases of assets and
liabilities, and are reflected at currently enacted income tax rates applicable
to the period in which the deferred tax assets or liabilities are expected to be
realized or settled. The deferred tax provision represents the difference
between the net deferred tax asset/liability at the beginning and end of the
year. As changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
CASH EQUIVALENTS
The Company considers all amounts included in the balance sheet caption "Cash
and due from banks" and "Interest bearing deposits in banks" to be cash
equivalents.
The Bank maintains its cash in depository institution accounts which, at times,
may exceed federally insured limits. The Bank has not experienced any losses in
such accounts.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating the
fair values of financial instruments disclosed in these financial statements:
CASH AND SHORT-TERM INSTRUMENTS
The carrying amounts of cash and short-term instruments approximate
their fair value.
SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY
Fair values for securities, excluding restricted equity securities, are
based on quoted market prices. The carrying values of restricted equity
securities approximate fair values.
LOANS
For variable rate loans that reprice frequently and have no significant
change in credit risk, fair values are based on carrying values. Fair
values for fixed rate loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality. Fair values for
impaired loans are estimated using discounted cash flow analyses or
underlying collateral values, where applicable.
(continued)
49
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Citizens Bancorp and Subsidiary
December 31, 2000 and 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (concluded)
FAIR VALUES OF FINANCIAL INSTRUMENTS (concluded)
DEPOSIT LIABILITIES
The fair values disclosed for demand deposits are, by definition, equal
to the amounts payable on demand at the reporting date (that is, their
carrying amounts). The carrying amounts of variable rate, fixed term
money market accounts and certificates of deposit approximate their fair
values at the reporting date. Fair values for fixed rate certificates of
deposit are estimated using a discounted cash flow calculation based on
interest rates currently being offered on similar certificates.
SHORT-TERM AND LONG-TERM BORROWINGS
The carrying amounts of repurchase agreements and other short-term
borrowings maturing within 90 days approximate their fair values. Fair
values of other borrowings are estimated using discounted cash flow
analyses based on the Company's current incremental borrowing rates for
similar types of borrowing arrangements.
EARNINGS PER SHARE
Basic earnings per share exclude dilution and are computed by dividing net
income by the weighted average number of common shares outstanding. Diluted
earnings per share reflect the potential dilution that could occur if common
shares were issued pursuant to the exercise of options under the Company's stock
option plans. In 2000 and 1999, the options did not have a dilutive effect on
earnings per share.
COMPREHENSIVE INCOME
The Bank applies Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income (SFAS No. 130). SFAS No. 130 requires that an entity report
and display comprehensive income in a financial statement that is displayed with
the same prominence as other financial statements. Comprehensive income is
defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. It
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners. With regard to the Bank,
comprehensive income includes net income reported in the statement of income and
changes in fair value of its securities available for sale, reported as a
component of shareholders' equity.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in its balance sheet and measure those instruments at fair value.
Under this statement, an entity that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will use for
assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. Those methods must
be consistent with the entity's approach to managing risk. This statement is
effective for all fiscal years beginning after June 15, 2000. The Bank had no
derivatives as of December 31, 2000, nor does the Bank engage in any hedging
activities. The Company does not anticipate that the adoption of SFAS No. 133
will have a material effect on its financial position or results of operations.
50
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Citizens Bancorp and Subsidiary
December 31, 2000 and 1999
NOTE 2 - RESTRICTED ASSETS
Federal Reserve Board regulations require that the Bank maintain certain minimum
reserve balances on hand in the vault or on deposit with the Federal Reserve
Bank. The amounts of such balances at December 31, 2000 and 1999 were
approximately $1,468 and $1,857, respectively.
NOTE 3 - DEBT AND RESTRICTED EQUITY SECURITIES
Debt and restricted equity securities have been classified according to
management's intent. The carrying amount of securities and their approximate
fair values were as follows:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ---------- ---------- --------
SECURITIES AVAILABLE FOR SALE
DECEMBER 31, 2000
U.S. Government and agency securities $50,563 $93 ($81) $50,575
Restricted equity securities 792 -- -- 792
TOTAL $51,355 $93 ($81) $51,367
DECEMBER 31, 1999
U.S. Government and agency securities $60,611 $ 2 ($676) $59,937
Restricted equity securities 741 -- -- 741
TOTAL $61,352 $ 2 ($676) $60,678
SECURITIES HELD TO MATURITY
DECEMBER 31, 2000
State and municipal securities $ 8,304 $71 ($40) $8,335
DECEMBER 31, 1999
State and municipal securities $ 8,422 $14 ($229) $8,207
(continued)
51
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Citizens Bancorp and Subsidiary
December 31, 2000 and 1999
NOTE 3 - DEBT AND RESTRICTED EQUITY SECURITIES (concluded)
The contractual maturities of debt securities held to maturity and available for
sale at December 31, 2000 are as follows:
HELD TO MATURITY AVAILABLE FOR SALE
----------------------- ---------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ------- -------- --------
Due in one year or less $ 550 $ 550 $30,000 $30,005
Due from one year to five years 3,001 3,011 20,563 20,570
Due from five to ten years 4,064 4,088 -- --
Due after ten years 689 686 -- --
TOTAL $8,304 $8,335 $50,563 $50,575
Securities carried at approximately $27,684 at December 31, 2000 and $30,910 at
December 31, 1999 were pledged to secure public deposits and repurchase
agreements, and for other purposes required or permitted by law.
Gross realized gains on sales of securities available for sale were $1 and $20
for the years ended December 31, 1999 and 1998, respectively. Gross realized
losses on sales of securities available for sale were $1 in 1999. There were no
gross realized gains or losses in 2000.
NOTE 4 - LOANS
Loans at December 31 consist of the following:
2000 1999
--------- ---------
Agriculture $ 14,816 $ 13,875
Commercial 29,088 26,520
Real estate:
Residential 1-4 family 29,066 29,776
Construction 8,651 7,352
Other 73,505 59,537
Consumer 4,710 3,718
159,836 140,778
Less net deferred loan fees 542 584
TOTAL LOANS $159,294 $140,194
(continued)
52
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Citizens Bancorp and Subsidiary
December 31, 2000 and 1999
NOTE 4 - LOANS (concluded)
Changes in the allowance for credit losses for the years ended December 31 are
as follows:
2000 1999 1998
------ ------ ------
Balance at beginning of year $1,071 $1,419 $1,201
Provision for credit losses 454 264 236
Charge-offs (78) (632) (32)
Recoveries 63 20 14
NET CHARGE-OFFS (15) (612) (18)
BALANCE AT END OF YEAR $1,510 $1,071 $1,419
Following is a summary of information pertaining to impaired loans:
2000 1999
------- ------
DECEMBER 31
Impaired loans without a valuation allowance $ 921 $499
Impaired loans with a valuation allowance 116 65
TOTAL IMPAIRED LOANS $1,037 $564
VALUATION ALLOWANCE RELATED TO IMPAIRED LOANS $42 $59
YEARS ENDED DECEMBER 31
Average investment in impaired loans $686 $477
Interest income recognized on a cash basis on impaired loans -- --
At December 31, 2000, there were no commitments to lend additional funds to
borrowers whose loans had been modified. No loans 90 days and over past due were
still accruing interest at December 31, 2000. Loans 90 days and over past due
still accruing interest were $73 at December 31, 1999.
Certain related parties of the Company, principally Company directors, their
associates and key officers, were loan customers of the Bank in the ordinary
course of business during 2000 and 1999. Total loans outstanding at December 31,
2000 and 1999 to key officers and directors were $4,531 and $2,124,
respectively. During 2000, advances totaled $4,463 and repayments totaled $2,056
on these loans.
53
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Citizens Bancorp and Subsidiary
December 31, 2000 and 1999
NOTE 5 - PREMISES AND EQUIPMENT
The components of premises and equipment at December 31 are as follows:
2000 1999
------ ------
Land and buildings $6,557 $5,536
Furniture and equipment 2,620 2,664
Construction in progress 41 842
9,218 9,042
Less accumulated depreciation 4,027 3,759
TOTAL PREMISES AND EQUIPMENT $5,191 $5,283
The Bank leases branch premises under operating leases which expire at various
dates through January 31, 2020. Rental expense for leased premises was $138,
$134 and $111 for 2000, 1999 and 1998, respectively, which is included in
occupancy expense.
Minimum net rental commitments under noncancellable leases having an original or
remaining term of more than one year are as follows at December 31, 2000:
2001 $ 118
2002 118
2003 98
2004 53
2005 53
Thereafter 1,275
TOTAL MINIMUM PAYMENTS REQUIRED $1,715
Certain leases contain renewal options from five to ten years and escalation
clauses based on increases in property taxes and other costs.
NOTE 6 - DEPOSITS
The aggregate amount of certificates of deposit with balances in excess of one
hundred thousand dollars was approximately $22,540 and $19,697 at December 31,
2000 and 1999, respectively.
At December 31, 2000, the scheduled maturities of certificates of deposit are as
follows:
2001 $51,139
2002 9,527
2003 2,581
2004 407
2005 494
$64,148
54
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Citizens Bancorp and Subsidiary
December 31, 2000 and 1999
NOTE 7 - SHORT-TERM BORROWINGS
Securities sold under agreements to repurchase, federal funds purchased, and
treasury tax and loan deposits represent short-term borrowings with maturities
which do not exceed 90 days. The following is a summary of such short-term
borrowings for the years ended December 31:
2000 1999
------- -------
Average balance during the year $16,407 $21,526
Average interest rate during the year 4.1% 3.9%
Maximum month-end balance during the year 17,864 23,638
Balance at December 31 13,867 18,550
Weighted average interest rate at December 31 3.9% 3.4%
NOTE 8 - LONG-TERM BORROWINGS
The Bank has a line of credit with the Federal Home Loan Bank of Seattle (FHLB)
totaling 15% of assets, of which $2,973 was used at December 31, 1999. All of
the borrowings were repaid during 2000.
NOTE 9 - EMPLOYEE BENEFITS
The Bank has a 401(a) profit sharing plan covering substantially all employees
who have completed one year or more of service. Contributions to the 401(a)
profit sharing plan consist of employer contributions (up to a maximum of 15% of
employee salaries), which are at the discretion of the Board of Directors. Total
contributions by the Bank to this plan in 2000, 1999 and 1998 were $360, $335
and $339, respectively.
The Company has a discretionary bonus plan for all employees. The amount of the
bonus paid is determined at the end of the year by the Board of Directors. The
Company paid bonuses of $170, $156 and $148 for the years ended December 31,
2000, 1999 and 1998, respectively.
NOTE 10 - INCOME TAXES
Income taxes are comprised of the following for the years ended December 31:
2000 1999 1998
------ ------ ------
Current:
Federal $1,814 $1,386 $1,657
State 381 320 400
Deferred (benefit) 19 77 (30)
TOTAL INCOME TAXES $2,214 $1,783 $2,027
(continued)
55
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Citizens Bancorp and Subsidiary
December 31, 2000 and 1999
NOTE 10 - INCOME TAXES (concluded)
The following is a reconciliation between the statutory and the effective
federal income tax rates for the years ended December 31:
2000 1999 1998
---------------------- -------------------- ----------------------
PERCENT PERCENT PERCENT
OF PRE-TAX OF PRE-TAX OF PRE-TAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
------ ---------- ------ ---------- ------ -----------
Income tax at statutory rates $1,981 34.0% $1,713 34.0% $1,995 34.0%
Increase (decrease) resulting from:
Tax-exempt income (113) (1.9) (105) (2.1) (74) (1.3)
State income taxes, net of
federal income tax effect 253 4.3 211 4.2 264 4.5
Other 93 1.6 (36) (.7) (158) (2.7)
TOTAL INCOME TAX EXPENSE $2,214 38.0% $1,783 35.4% $2,027 34.5%
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities at December 31 are:
2000 1999 1998
---- ---- ----
DEFERRED TAX ASSETS
Allowance for credit losses $435 $475 $494
Other 28 54 51
Unrealized loss on securities available for sale -- 299 --
TOTAL DEFERRED TAX ASSETS 463 828 545
DEFERRED TAX LIABILITIES
Accumulated depreciation (20) (42) (31)
Deferred income (95) (120) (70)
Unrealized gain on securities available for sale (5) -- (137)
TOTAL DEFERRED TAX LIABILITIES (120) (162) (238)
NET DEFERRED TAX ASSETS $343 $666 $307
56
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Citizens Bancorp and Subsidiary
December 31, 2000 and 1999
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Bank is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized in the consolidated balance sheets.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual amount of those instruments.
The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. A summary of the Bank's
commitments at December 31 is as follows:
2000 1999
-------- --------
Commitments to extend credit:
Real estate secured $ 1,058 $ 3,896
Other 27,330 29,564
TOTAL COMMITMENTS TO EXTEND CREDIT $28,388 $33,460
Standby letters of credit $2,518 $2,206
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Bank's experience has been that approximately 70% of loan commitments are drawn
upon by customers. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's credit evaluation of
the party. Collateral held varies, but may include accounts receivable,
inventory, property and equipment, residential real estate, and income-producing
commercial properties.
The Bank has agreements with commercial banks for lines of credit totaling
$9,000, none of which was used at December 31, 2000 and 1999.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. Collateral held varies
as specified above, and is required in instances where the Bank deems necessary.
Because of the nature of its activities, the Company is subject to various
pending and threatened legal actions which arise in the ordinary course of
business. In the opinion of management, liabilities arising from these claims,
if any, will not have a material effect on the financial position of the
Company.
57
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Citizens Bancorp and Subsidiary
December 31, 2000 and 1999
NOTE 12 - SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
Most of the Bank's business activity is with customers located in the State of
Oregon. Investments in state and municipal securities involve governmental
entities primarily within the State. Loans are generally limited, by federal and
state banking regulations, to 15% of the Bank's shareholder's equity, excluding
accumulated other comprehensive income (loss) for loans not fully secured by a
first lien on real estate, and 25% for loans fully secured by a first lien on
real estate.
NOTE 13 - CASH DIVIDEND REINVESTMENT PLAN
In July 1997, the Company instituted a dividend reinvestment plan which allows
for 50% or 100% of the cash dividends to be reinvested in shares of Company
common stock based upon shareholder election. Under the plan, 1,575,000 shares
are authorized for dividend reinvestment, of which 100,755 shares have been
issued through December 31, 2000.
NOTE 14 - STOCK SPLITS AND STOCK DIVIDENDS
In 1999, the Board of Directors declared a 5% stock dividend, and 196,385 shares
were issued. In 1998, the Board of Directors declared a two-for-one stock split,
and 1,945,569 shares were issued. Per share information for the current and
prior periods and share information under the dividend reinvestment plan have
been adjusted to reflect the effect of the stock dividends and stock split.
NOTE 15 - STOCK OPTIONS
In 1999, the Company's shareholders approved a stock option plan, which is
described below. The Company applies APB Opinion No. 25 and related
interpretations in accounting for the plan. Accordingly, no compensation cost
has been recognized for the plan. Had compensation cost for the Company's stock
option plan been determined based on the fair value at the grant dates under the
plan, consistent with the method of SFAS No. 123, the Company's net income and
earnings per share would have been reduced to these pro forma amounts at
December 31:
2000 1999
------ ------
Net income:
As reported $3,612 $3,254
Pro forma 3,585 3,253
Earnings per share:
Basic and diluted:
As reported $.87 $.79
Pro forma .87 .79
(continued)
58
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Citizens Bancorp and Subsidiary
December 31, 2000 and 1999
NOTE 15 - STOCK OPTIONS (concluded)
EMPLOYEE STOCK OPTION PLAN
Under the Company's qualified incentive stock option plan, the Company may grant
incentive options for up to 1% of issued and outstanding shares of its common
stock to certain key employees. The exercise price of each option equals the
fair market value of the Company's stock on the date of grant, and an option's
maximum term is ten years. All options granted vest over a four-year period at
25% per year. No options have been exercised under the Plan.
The fair value of each option grant is estimated on the date of grant, based on
the Black-Scholes option pricing model and using the following weighted-average
assumptions:
2000 1999
---- ----
Dividend yield 3.09% 2.77%
Expected life 10yrs 10yrs
Risk-free interest rate 5.25% 6.55%
The weighted average fair value of options granted during 2000 and 1999 was
$1.63 and $3.04, respectively.
A summary of the status of the Company's stock option plan as of December 31,
2000 and 1999, and changes during the years ending on those dates, is presented
below:
2000 1999
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------ -------- ------ --------
Outstanding at beginning of year 14,500 $13.00 -- $ --
Granted 31,500 11.65 14,500 13.00
OUTSTANDING AT END OF YEAR 46,000 $12.12 14,500 $13.00
The following summarizes information about stock options outstanding and
exercisable at December 31, 2000:
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
-------------- ----------- ----------- -------- ----------- ---------
$11.50 - 13.41 46,000 9.66 $12.12 3,625 $13.00
59
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Citizens Bancorp and Subsidiary
December 31, 2000 and 1999
NOTE 16 - REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory -- and possibly additional
discretionary -- actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines on the regulatory framework for prompt corrective action, the Bank
must meet specific capital adequacy guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Bank's capital
classification is 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 Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of Tier 1 capital (as defined in the regulations) to
total average assets (as defined), and minimum ratios of Tier 1 and total
capital (as defined) to risk-weighted assets (as defined). Management believes,
as of December 31, 2000, that the Company and the Bank meet all capital
requirements to which they are subject.
As of December 31, 2000, the most recent notification from the Bank's regulator
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
The Company's and the Bank's actual capital amounts and ratios are also
presented in the table:
TO BE WELL CAPITALIZED
UNDER PROMPT
CAPITAL ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- -------------- ---- ------------------ -----
DECEMBER 31, 2000
Tier 1 capital (to average assets):
Consolidated $26,515 10.96% $ 9,678 4.00% N/A N/A
Bank 26,600 11.03 9,646 4.00 $12,058 5.00%
Tier 1 capital (to risk-weighted assets):
Consolidated 26,515 15.77 6,725 4.00 N/A N/A
Bank 26,600 15.84 6,717 4.00 10,076 6.00
Total capital (to risk-weighted assets):
Consolidated 28,025 16.67 13,450 8.00 N/A N/A
Bank 28,110 16.74 13,434 8.00 16,793 10.00
(continued)
60
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Citizens Bancorp and Subsidiary
December 31, 2000 and 1999
NOTE 16 - REGULATORY MATTERS (concluded)
TO BE WELL CAPITALIZED
UNDER PROMPT
CAPITAL ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- --------------- ----- ----------------- -----
DECEMBER 31, 1999
Tier 1 capital (to average assets):
Consolidated $24,460 10.11% $ 9,677 4.00% N/A N/A
Bank 24,298 10.05 9,673 4.00 $12,091 5.00%
Tier 1 capital (to risk-weighted assets):
Consolidated 24,460 16.36 5,982 4.00 N/A N/A
Bank 24,298 16.26 5,977 4.00 8,966 6.00
Total capital (to risk-weighted assets):
Consolidated 25,531 17.07 11,963 8.00 N/A N/A
Bank 25,369 16.98 11,954 8.00 14,943 10.00
RESTRICTIONS ON RETAINED EARNINGS
At December 31, 2000, there were no restrictions on the Company's or the Bank's
retained earnings regarding payment of dividends.
NOTE 17 - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
CONDENSED BALANCE SHEETS - DECEMBER 31
2000 1999
-------- -------
ASSETS
Cash $ 1,592 $ 1,487
Investment in subsidiary 26,810 24,180
Other 151 160
TOTAL ASSETS $28,553 $25,827
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Dividends payable $ 1,490 $ 1,485
SHAREHOLDERS' EQUITY 27,063 24,342
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $28,553 $25,827
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
61
64
Citizens Bancorp and Subsidiary
December 31, 2000 and 1999
NOTE 17 - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (concluded)
CONDENSED STATEMENTS OF INCOME - YEARS ENDED DECEMBER 31
2000 1999 1998
------ ------ ------
INCOME
Dividend income from subsidiary $1,628 $1,640 $1,520
EXPENSES
Amortization and other expense 93 130 142
INCOME BEFORE INCOME TAX BENEFIT 1,535 1,510 1,378
INCOME TAX BENEFIT 47 44 51
INCOME BEFORE EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARY 1,582 1,554 1,429
EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY 2,030 1,700 2,411
NET INCOME $3,612 $3,254 $3,840
CONDENSED STATEMENTS OF CASH FLOWS - YEARS ENDED DECEMBER 31
2000 1999 1998
------ ------ ------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $3,612 $3,254 $3,840
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 6 5 5
Equity in undistributed income of subsidiary (2,030) (1,700) (2,411)
Other, net 2 (67) (52)
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,590 1,492 1,382
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of software -- (6) --
Investment in Bank (217) (607) (552)
NET CASH USED IN INVESTING ACTIVITIES (217) (613) (552)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid (1,268) (793) (755)
NET INCREASE IN CASH 105 86 75
CASH
Beginning of year 1,487 1,401 1,326
END OF YEAR $1,592 $1,487 $1,401
62
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Citizens Bancorp and Subsidiary
December 31, 2000 and 1999
NOTE 18 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments at December 31
were as follows:
2000 1999
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- --------- --------- ----------
FINANCIAL ASSETS
Cash and due from banks, interest
bearing deposits with banks $ 16,740 $ 16,740 $ 19,347 $ 19,347
Securities available for sale 51,367 51,367 60,678 60,678
Securities held to maturity 8,304 8,335 8,422 8,207
Loans receivable, net 157,784 157,777 140,766 141,096
FINANCIAL LIABILITIES
Deposits $200,960 $200,942 $194,350 $199,177
Short-term borrowings 13,867 13,867 15,577 15,577
Long-term borrowings -- -- 2,973 2,973
NOTE 19 - COMPREHENSIVE INCOME
Net unrealized gains and losses are as follows for the years ended December 31:
BEFORE-TAX TAX NET-OF-TAX
AMOUNT EXPENSE AMOUNT
---------- ------- ----------
2000
Unrealized holding gains arising during the year $686 $304 $382
Less reclassification adjustments for gains realized
in net income -- -- --
NET UNREALIZED GAINS $686 $304 $382
1999
Unrealized holding losses arising during the year $1,057 $437 $620
Less reclassification adjustments for gains realized
in net income -- -- --
NET UNREALIZED LOSSES $1,057 $437 $620
1998
Unrealized holding gains arising during the year $311 $115 $196
Less reclassification adjustments for gains realized
in net income 20 7 13
NET UNREALIZED GAINS $291 $108 $183
63
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Citizens Bancorp and Subsidiary
December 31, 2000 and 1999
NOTE 20 - EARNINGS PER SHARE DISCLOSURES
Following is information regarding the calculation of basic and diluted earnings
per share for the years indicated.
NET INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------ ----------
YEAR ENDED DECEMBER 31, 2000
Basic earnings per share:
Net income $3,612 4,135,887 $.87
Effect of dilutive securities:
Options -- 1,328 --
Diluted earnings per share:
NET INCOME $3,612 4,137,215 $.87
YEAR ENDED DECEMBER 31, 1999
Basic earnings per share:
Net income $3,254 4,122,989 $.79
Effect of dilutive securities:
Options -- 2,895 --
Diluted earnings per share:
NET INCOME $3,254 4,125,884 $.79
YEAR ENDED DECEMBER 31, 1998
Basic earnings per share:
Net income $3,840 4,073,488 $.94
Effect of dilutive securities:
Options -- -- --
Diluted earnings per share:
NET INCOME $3,840 4,073,488 $.94
64
67
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is included in the Company's definitive
proxy statement for its annual meeting of shareholders scheduled for April 19,
2001 and is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION AND REPORT OF COMMITTEES
The information required by this item is included in the Company's definitive
proxy statement for its annual meeting of shareholders scheduled for April 19,
2001 and is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included in the Company's definitive
proxy statement for its annual meeting of shareholders scheduled for April 19,
2001 and is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included in the Company's definitive
proxy statement for its annual meeting of shareholders scheduled for April 19,
2001 and is incorporated herein by this reference.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Exhibits.
Pursuant to Item 601 of Regulation S-K, the following exhibits are attached
hereto or are incorporated herein by reference.
(Note: The per share earnings computation statement required by Item 601(b)(11)
of Regulation S-K is contained in Note 20 to the consolidated financial
statements contained in Part II, Item 8 of this Form 10-K, and are hereby
incorporated herein by this reference.)
3(i) Articles of Incorporation. (Regulation S-K, Item 601, Exhibit Table Item
(3)). The Company's Articles of Incorporation, as amended, are attached
as Exhibit 3(i) to the Company's Form 10-Q for the period ending June
30, 1999 and are incorporated herein by this reference.
65
68
3(ii) Bylaws. (Regulation S-K, Item 601, Exhibit Table Item (3)). The
Company's Bylaws are attached as Exhibit 3(ii) to the Company's Form
10-K for the year ending December 31, 1997 and are incorporated herein
by this reference.
10.1 Incentive Stock Option Plan. (Regulation S-K, Item 601, Exhibit Table
Item (10)). The Company's Incentive Stock Option Plan is attached as
Exhibit 99.1 to the Company's Form S-8 filed with the Securities and
Exchange Commission on June 23, 1999 and is incorporated herein by this
reference.
10.2 Stock Bonus Plan. (Regulation S-K, Item 601, Exhibit Table Item (10)).
The Company's Stock Bonus Plan is attached as Exhibit 99.2 to the
Company's Form S-8 filed with the Securities and Exchange Commission on
June 23, 1999 and is incorporated herein by this reference.
21.1 List of Subsidiaries. (Regulation S-K, Item 601, Exhibit Table
Item (21)). Attached hereto is a list of the Company's subsidiaries as
of December 31, 2000.
27.1 Financial Data Schedule. (Regulation S-K, Item 601, Exhibit Table
Item (27)). The Company's Financial Data Schedule is attached hereto.
(b) Financial Statements.
The Company's consolidated financial statements and related documents are set
forth in Item 8 of this Form 10-K and are filed as part of this report. All
other schedules to the consolidated financial statements referenced in
Regulation S-X are omitted because they are not applicable or are not material,
or because the information is already included in the Company's consolidated
financial statements and the notes thereto.
(c) Reports on Form 8-K.
The Company filed no reports on Form 8-K in the fourth quarter of 2000.
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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 12th day of March,
2001.
CITIZENS BANCORP
(Registrant)
By: /s/ William V. Humphreys
--------------------------------------
William V. Humphreys
President and Chief Executive Officer
Each person whose individual signature appears below hereby authorizes and
appoints William V. Humphreys and Lark E. 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 12th day of March 2001.
PRINCIPAL EXECUTIVE OFFICER:
/s/ William V. Humphreys
- ----------------------------------------
William V. Humphreys
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ Lark E. Wysham
- ----------------------------------------
Lark E. Wysham
DIRECTORS:
/s/ Jock Gibson /s/ William V. Humphreys
- ---------------------------------------- ------------------------------------
Jock Gibson William V. Humphreys
/s/ Rosetta C. Venell /s/ James E. Richards
- ---------------------------------------- ------------------------------------
Rosetta C. Venell James E. Richards
/s/ John Truax /s/ Scott A. Fewel
- ---------------------------------------- ------------------------------------
John Truax Scott A. Fewel
/s/ Duane L. Sorensen /s/ Eric C. Thompson
- ---------------------------------------- ------------------------------------
Duane L. Sorensen Eric C. Thompson
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EXHIBIT INDEX
EXHIBIT PAGE
- ------- ----
1. Exhibits Incorporated Reference.
The following exhibits are incorporated in this Form 10-K by reference
as described in Part IV above.
3(i) Articles of Incorporation, as amended.
3(ii) Bylaws.
10.1 Incentive Stock Option Plan.
10.2 Stock Bonus Plan.
2. Exhibits Attached.
21.1 List of Subsidiaries. 69
68