UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q/A
AMENDMENT NO. 1
(Mark One)
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004
or
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from___________________to___________________
Commission File Number 0-32041
CITIZENS FIRST BANCORP, INC.
| Delaware | 38-3573582 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 525 Water Street, Port Huron, Michigan | 48060 | |
| (Address of principal executive offices) | (Zip Code) |
(810) 987-8300
Not Applicable
Indicate by check mark whether the Registrant (1) has 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 whether the registrant is an accelerated filerYes [X] No [ ]
The Issuer had 8,519,652 shares of common stock, par value $0.01 per share, outstanding as of May 3, 2004.
Citizens First Bancorp, Inc. files this Amendment No. 1 on Form 10-Q/A to amend its Quarterly Report on Form 10-Q filed on May 10, 2004 for the quarter ended March 31, 2004. In this Amendment No. 1 Citizens First Bancorp, Inc. amends Part I, Items 1 and 2 of its Quarterly Report for the quarter ended March 31, 2004 (1) to correct inaccuracies in its unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and 2003, (2) to add Note 5 to its unaudited Consolidated Financial Statements to report Comprehensive Income and (3) to state more clearly the impact of its acquisition of Metro Bancorp, Inc. in the quarter ended March 31, 2004, in the section of its Management’s Discussion and Analysis of Financial Condition and Results of Operations captioned “Comparison of Financial Condition at March 31, 2004 and December 31, 2003.”
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CITIZENS FIRST BANCORP, INC. AND SUBSIDIARIES
| Unaudited | ||||||||
| March 31, | December 31, | |||||||
| 2004 | 2003 | |||||||
| (Dollars in thousands) | ||||||||
ASSETS | ||||||||
| Cash and cash equivalents: | ||||||||
| Cash and due from depository institutions | $ | 18,904 | $ | 30,426 | ||||
| Federal funds sold | 1,614 | 2,165 | ||||||
| Interest-bearing deposits in other depository institutions | 26,778 | 1,056 | ||||||
| Total cash and cash equivalents | 47,296 | 33,647 | ||||||
| Securities available for sale, at fair value | 113,342 | 79,672 | ||||||
| Federal Home Loan Bank stock, at cost | 10,142 | 9,416 | ||||||
| Loans held for sale | — | 1,984 | ||||||
| Loans — less allowance for loan losses of $12,647 and $11,664 | 1,052,175 | 929,201 | ||||||
| Premises and equipment — Net | 29,520 | 23,268 | ||||||
| Accrued interest receivable and other assets | 34,214 | 17,072 | ||||||
| Total assets | $ | 1,286,689 | $ | 1,094,260 | ||||
LIABILITIES | ||||||||
| Deposits: | ||||||||
| Noninterest-bearing | $ | 100,348 | $ | 51,498 | ||||
| Interest-bearing | 810,058 | 697,033 | ||||||
| Total deposits | 910,406 | 748,531 | ||||||
| Federal Home Loan Bank advances | 195,945 | 172,534 | ||||||
| Bank Line of Credit | 10,000 | |||||||
| Accrued interest payable and other liabilities | 11,309 | 15,008 | ||||||
| Total liabilities | 1,127,660 | 936,073 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock — $.01 par value; Authorized - 1,000,000 shares; No shares issued and outstanding | — | — | ||||||
| Common stock — $.01 par value; Authorized - 20,000,000 shares; Issued - 9,526,761 | 95 | 95 | ||||||
| Additional paid-in capital | 92,911 | 92,911 | ||||||
| Retained earnings | 93,856 | 92,684 | ||||||
| Accumulated other comprehensive income | 205 | 613 | ||||||
| Treasury stock at cost 1,207,017 shares and 1,206,517 | (21,800 | ) | (21,787 | ) | ||||
| Deferred compensation obligation | 2,145 | 2,054 | ||||||
| Unearned compensation — ESOP | (8,383 | ) | (8,383 | ) | ||||
| Total stockholders’ equity | 159,029 | 158,187 | ||||||
| Total liabilities and stockholders’ equity | $ | 1,286,689 | $ | 1,094,260 | ||||
See accompanying notes to unaudited consolidated financial statements.
1
CITIZENS FIRST BANCORP, INC. AND SUBSIDIARIES
| Unaudited | ||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2004 | 2003 | |||||||
| (Dollars in thousands) | ||||||||
| INTEREST INCOME | ||||||||
| Loans, including fees | $ | 15,561 | $ | 14,317 | ||||
| Federal funds sold and interest bearing deposits | 167 | 99 | ||||||
| Securities: | ||||||||
| Tax-exempt | 196 | 121 | ||||||
| Taxable | 661 | 960 | ||||||
| Total interest income | 16,585 | 15,497 | ||||||
| INTEREST EXPENSE | ||||||||
| Deposits | 3,620 | 3,892 | ||||||
| Federal Home Loan Bank advances | 2,528 | 2,309 | ||||||
| Total interest expense | 6,148 | 6,201 | ||||||
| NET INTEREST INCOME | 10,437 | 9,296 | ||||||
| PROVISION FOR LOAN LOSSES | 90 | 360 | ||||||
| NET INTEREST INCOME, after provision for loan losses | 10,347 | 8,936 | ||||||
| NONINTEREST INCOME | ||||||||
| Service charges and other fees | 1,198 | 630 | ||||||
| Loan servicing fees | 352 | 188 | ||||||
| Mortgage banking activities | (373 | ) | 1,753 | |||||
| Gain on sale of securities | 438 | — | ||||||
| Other | 380 | 382 | ||||||
| Total noninterest income | 1,995 | 2,953 | ||||||
| NONINTEREST EXPENSE | ||||||||
| Compensation, payroll taxes and employee benefits | 4,183 | 3,452 | ||||||
| Office occupancy and equipment | 1,445 | 875 | ||||||
| Advertising and business promotion | 397 | 283 | ||||||
| Stationery, printing and supplies | 411 | 334 | ||||||
| Data processing | 334 | 146 | ||||||
| Professional fees | 583 | 436 | ||||||
| Appraisal fees | 93 | 275 | ||||||
| Outside services | 501 | 333 | ||||||
| Other | 1,512 | 663 | ||||||
| Total noninterest expense | 9,459 | 6,797 | ||||||
| INCOME — Before federal income tax expense | 2,883 | 5,092 | ||||||
| FEDERAL INCOME TAX EXPENSE | 999 | 1,891 | ||||||
| NET INCOME | $ | 1,884 | $ | 3,201 | ||||
| EARNINGS PER SHARE, BASIC | $ | 0.24 | $ | 0.40 | ||||
| EARNINGS PER SHARE, DILUTED | $ | 0.24 | $ | 0.40 | ||||
| DIVIDENDS PER SHARE | $ | 0.09 | $ | 0.08 | ||||
See accompanying notes to unaudited consolidated financial statements.
2
CITIZENS FIRST BANCORP, INC. AND SUBSIDIARIES
| Unaudited Three Months Ended | ||||||||
| March 31, | ||||||||
| 2004 | 2003 | |||||||
| (Dollars in thousands) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | 1,884 | $ | 3,201 | ||||
| Adjustments to reconcile net income to net cash from operating activities: | ||||||||
| Provision for loan losses | 90 | 360 | ||||||
| Depreciation and amortization | 560 | 249 | ||||||
| Amortization (accretion) of Securities | (304 | ) | (93 | ) | ||||
| Proceeds from sale of mortgage loans held for sale | 23,454 | 98,004 | ||||||
| Origination of mortgage loans held for sale | (21,151 | ) | (95,833 | ) | ||||
| Gain on sale of mortgage loans | (319 | ) | (2,308 | ) | ||||
| Gain on sale of investment securities | (438 | ) | — | |||||
| ESOP expense | 311 | 348 | ||||||
| Changes in assets and liabilities: | ||||||||
| (Increase) decrease in accrued interest receivable and other assets | (441 | ) | 936 | |||||
| Increase (decrease) in accrued interest payable and other liabilities | (7,310 | ) | 2,470 | |||||
| Net cash (used in)/provided by operating activities | (3,664 | ) | 7,334 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Proceeds from maturities of securities available for sale | 15,181 | 133 | ||||||
| Proceeds from sale of securities available for sale | 9,687 | — | ||||||
| Purchase of available for sale securities | (15,557 | ) | (25,242 | ) | ||||
| Purchase of Federal Home Loan Bank Stock | (398 | ) | — | |||||
| Acquisition, net of cash acquired | (22,183 | ) | — | |||||
| Net increase in loans | (28,208 | ) | (8,660 | ) | ||||
| Purchases of premises and equipment | (1,265 | ) | (1,549 | ) | ||||
| Net cash used in investing activities | (42,743 | ) | (35,318 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Net increase in deposits | 27,279 | 48,138 | ||||||
| Proceeds from exercises of stock options | 3 | |||||||
| Payment of dividends | (712 | ) | (633 | ) | ||||
| Purchase of treasury stock | (16 | ) | (376 | ) | ||||
| Awards from ESOP | 91 | — | ||||||
| Repayment of FHLB advances | (89 | ) | (3,522 | ) | ||||
| Proceeds from long-term debt | 10,000 | — | ||||||
| Proceeds from FHLB advances | 23,500 | — | ||||||
| Net cash provided by financing activities | 60,056 | 43,607 | ||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | 13,649 | 15,623 | ||||||
CASH AND CASH EQUIVALENTS- Beginning of period | 33,647 | 40,356 | ||||||
CASH AND CASH EQUIVALENTS- End of period | $ | 47,296 | $ | 55,979 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -Cash paid for: | ||||||||
| Interest | $ | 6,287 | $ | 5,724 | ||||
| Federal income taxes | 1,500 | 1,500 | ||||||
See accompanying notes to unaudited consolidated financial statements.
3
CITIZENS FIRST BANCORP, INC. AND SUBSIDIARIES
(UNAUDITED)
(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated interim financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and with the instructions to Form 10-Q. Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements are not included herein. The interim statements should be read in conjunction with the financial statements of the Company and the notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2003.
All adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary for a fair presentation of financial position, results of operation and cash flows, have been made. The results of operations for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for another quarterly period or for a full year.
Certain amounts in the prior period’s financial statements have been reclassified to conform to the current period’s presentation.
(2) STOCK BASED COMPENSATION
Under the Company's stock based incentive plan, the Company may grant up to 476,338 stock awards and 1,429,014 stock options under the recognition and measurement principles of APB Opinion No. 25 and related interpretations. No stock based employee compensation cost related to stock options is reflected in net income as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. Had the Company applied the fair value recognition provisions of FASB Statement No. 123, the Company's net income and earnings per share would have been adjusted to the pro forma amounts indicated below (000’s omitted, except per share data):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2004 | 2003 | |||||||
| Net income, as reported | $ | 1,884 | $ | 3,201 | ||||
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | (28 | ) | (8 | ) | ||||
| Pro forma net income | $ | 1,856 | $ | 3,193 | ||||
| Earnings per share | ||||||||
| Basic — as reported | $ | 0.24 | $ | 0.40 | ||||
| Basic — pro forma | $ | 0.24 | $ | 0.40 | ||||
| Diluted — as reported | $ | 0.24 | $ | 0.40 | ||||
| Diluted — pro forma | $ | 0.24 | $ | 0.40 | ||||
(3) EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued by the Company relate to outstanding stock options and restricted stock awards and are determined using the treasury stock method. Treasury and unallocated ESOP shares are not considered outstanding for purposes of calculating basic or diluted earnings per share.
Earnings per common share have been computed based on the following (000s omitted):
4
| Three Months Ended | Three Months Ended | |||||||
| At March 31, | At March 31, | |||||||
| 2004 | 2003 | |||||||
| Net income | $ | 1,884 | $ | 3,201 | ||||
| Average number of common shares used in the basic earnings per share calculation | 7,847,715 | 7,904,191 | ||||||
| Effect of dilutive stock options | 44,782 | 93 | ||||||
| Dilutive common shares outstanding | 7,892,497 | 7,904,284 | ||||||
(4) ACQUISITION
On January 9, 2004, the Company completed the acquisition of Metro Bancorp, Inc., and its subsidiary Metrobank, a Michigan savings bank headquartered in Farmington Hills, Michigan. (“Metrobank”) Under the terms of this transaction, the Company acquired all of the outstanding stock of Metro Bancorp in exchange for cash of $30,000,000.
The acquisition was accounted for using the purchase method of accounting, and accordingly, the purchase price was allocated to the assets purchased and the liabilities assumed based upon the estimated fair values at the date of acquisition. The purchase accounting fair value adjustments are being amortized under various methods and over the lives of the corresponding assets and liabilities. Goodwill recorded for the acquisition amounted to $9.4 million. Intangible assets recorded for the acquisition that are subject to amortization were as follows in thousands of dollars as of March 31, 2004: (000s omitted)
| Gross | Accumulated | |||||||
| Amount | Amortization | |||||||
| Core Deposit Intangible | $ | 4,400 | $ | 157 | ||||
The amount of the core deposits intangible asset recorded was small relative to the total purchase price and reflects that the Metrobank deposit portfolio was weighted towards higher interest rate account types.
Core deposit intangibles are being amortized on an accelerated method over a period of ten years. Amortization expense through March 31, 2004 was $157,000. Estimated amortization expense for the next five years is as follows in thousands of dollars: (000s omitted)
| 2004 | $ | 660 | ||
| 2005 | 561 | |||
| 2006 | 477 | |||
| 2007 | 405 | |||
| 2008 | 345 |
5
The estimated fair values of significant assets purchased and liabilities assumed were as follows as of the acquisition date: (000s omitted)
| Cash and cash equivalents | $ | 8,227 | ||
| Securities | 43,185 | |||
| Loans | 94,856 | |||
| Premises and equipment | 5,389 | |||
| Acquisition intangibles | 13,818 | |||
| Deposits | 134,598 |
The consolidated statements of income reflect the operating results of the Company since the effective date of the acquisition. The following table presents pro forma information for the three months ended March 31, 2003 as if the acquisition of Metro Bancorp, Inc. had occurred at the beginning of 2003. The pro forma information includes adjustments for the amortization of core deposit intangible arising from the transaction, the elimination of acquisition related expenses and the related income tax effects. The pro forma financial information is not necessarily indicative of the results of operations as they would have been, had the transaction been effected on the assumed dates. (000s omitted)
| Three Months | ||||
| Ended | ||||
| March 31, 2003 | ||||
| (proforma) | ||||
| Interest income | $ | 17,633 | ||
| Interest expense | 6,619 | |||
| Net interest income | 11,014 | |||
| Provision for loan losses | 415 | |||
| Net interest income after provision for loan losses | 10,599 | |||
| Non interest income | 3,392 | |||
| Non interest expense | 8,439 | |||
| Income before federal income tax expense | 5,552 | |||
| Federal income tax expense | 2,021 | |||
| Net income | $ | 3,531 | ||
| Basic earnings per share | $ | 0.45 | ||
| Diluted earnings per share | $ | 0.45 | ||
(5) COMPREHENSIVE INCOME
Comprehensive income and its components consist of the following (000s omitted):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2004 | 2003 | |||||||
| Net income | $ | 1,884 | $ | 3,201 | ||||
| Other comprehensive income, net of tax: | 436 | 78 | ||||||
| Unrealized holding gains arising during period on securities Less: Reclassification adjustment for gains included in net income | (226 | ) | — | |||||
| Other comprehensive income | 210 | 78 | ||||||
| Comprehensive income | $ | 2,094 | $ | 3,279 | ||||
(6) LINE OF CREDIT
The Company obtained a line of credit from an unrelated bank in the amount of $50 million on January 9, 2004 of which $10 million was drawn upon. The effective rate on the line of credit is based on the three month LIBOR rate plus 1.40 percent effectively 2.51 percent as of March 31, 2004. A commitment fee of 1/4% is payable quarterly on the unused portion of the line of credit. Under the terms of the Agreement, the Company is required to be categorized as “well capitalized” under regulatory guidelines. The line is collateralized by the common stock of the bank, expires on January 9, 2005.
6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following analysis discusses changes in the financial condition and results of operations of the Company as of and for the three months ended March 31, 2004 and 2003 and should be read in conjunction with the Company’s Consolidated Financial Statements and the notes thereto, appearing in Part I, Item 1 of this document.
FORWARD-LOOKING STATEMENTS. The Company or the Bank may from time to time make written or oral “forward-looking statements.” These forward-looking statements may be contained in the Company’s Annual Report to Stockholders, in the Company’s Form 10-K filed with the Securities and Exchange Commission (the “SEC”), in other filings with the SEC and in other communications by the Company, which are made in good faith pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements with respect to anticipated future operating and financial performance, including revenue creation, lending origination, operating efficiencies, loan sales, charge-offs, loan loss allowances and provisions, growth opportunities, interest rates, acquisition and divestiture opportunities, capital and other expenditures and synergies, efficiencies, cost savings and funding and other advantages expected to be realized from various activities. The words “may,” “could,” “should,” “would,” “will”, “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “project,” “predict,” “continue” and similar expressions are intended to identify forward-looking statements.
Forward-looking statements include statements with respect to the Company’s beliefs, plans, strategies, objectives, goals, expectations, anticipations, estimates or intentions that are subject to significant risks or uncertainties or that are based on certain assumptions. Future results and the actual effect of plans and strategies are inherently uncertain, and actual results could differ materially from those anticipated in the forward-looking statements, depending upon various important factors, risks or uncertainties. Those factors, many of which are subject to change based on various other factors, including factors beyond the Company’s control, and other factors, including others discussed in the Company’s Annual Report to Stockholders, in the Company’s Form 10-K, other factors identified in the Company’s other filings with the SEC, as well as other factors identified by management from time to time, could have a material adverse effect on the Company, and its operations or cause its financial performance to differ materially from the plans, objectives, expectations, estimates or intentions expressed in the Company’s forward-looking statements.
OPERATING STRATEGY. The Company is a community-oriented financial institution, offering a wide range of deposit and loan products to its customers. In recent years, the Company’s strategy has been one of controlled balance sheet growth and broader diversification of its loan products and loan portfolio. Beginning in 1995, the Company determined that it would originate its fixed-rate one-to-four-family residential mortgage loans primarily for sale, while generally retaining the servicing rights as to those mortgages. Since that time, the Company has emphasized originating residential mortgage loans, commercial and multi-family real estate loans, construction loans, commercial loans, automobile loans, home equity loans and lines of credit and a variety of consumer loans. It has also emphasized increasing sources of noninterest income.
CRITICAL ACCOUNTING POLICIES. The Company’s “critical accounting policies” are described in the financial section of its 2003 Annual Report. Management believes its “critical accounting policies” relate to the allowance for loan losses and the valuation of mortgage servicing rights.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2004 AND DECEMBER 31, 2003
Total assets increased $192.4 million, or 17.67%, to $1.286 billion at March 31, 2004 from $1.094 billion at December 31, 2003, primarily due to the completed acquisition of Metro Bancorp, Inc. (“Metrobank”) located in Farmington Hills, Michigan. Metrobank’s total assets as of the acquisition date were $152.3 million (including investment securities of $43.2 million and net loans of $94.9 million) and total liabilities were $135.6 million (including total deposits of $134.6 million). Including the impact of the acquisition, net loans increased $123.0 million or 13.2%, securities available for sale increased $33.7 million or 42.3% and cash and cash equivalents increased $13.6 million or 40.6%. The increase in net loans was primarily due to the acquisition of Metrobank and was also accompanied by loan growth of $27.5 million at Citizens First. The increase in net loans was a result of increased originations including an increase of $14.1 million one- to four-family residential mortgages and a $19.7 million increase in consumer loans. Premises and Equipment increased $6.3 million, $5.4 million of which was due to the acquisition. Accrued interest receivable and other assets increased $17.1 million, $13.8 million of which was a result of intangible assets recorded due to the acquisition.
Nonperforming assets totaled $6.6 million at March 31, 2004 compared to $4.4 million at December 31, 2003, an increase of $2.2 million, or 51.3%. This increase was primarily due to $2.9 million in nonaccruing loans at Metrobank and $739,000 in real estate owned at Metrobank. Nonaccruing loans at Citizens First decreased $1.3 million, or 35.1%.
7
The following table sets forth information regarding non-accrual loans and real estate owned.
| March 31, | December 31, | |||||||
| 2004 | 2003 | |||||||
| (Dollars in thousands) | ||||||||
| Nonaccrual loans: | ||||||||
| Real Estate | $ | 3,758 | $ | 3,268 | ||||
| Consumer | 326 | 452 | ||||||
| Commercial | 1,322 | 195 | ||||||
| Total nonaccrual loans (1) | 5,406 | 3,915 | ||||||
| Real estate owned (2) | 1,188 | 443 | ||||||
| Total non-performing assets | $ | 6,594 | $ | 4,358 | ||||
| Total non-performing loans as a percentage of total loans | 0.50 | % | 0.42 | % | ||||
| Total non-performing loans as a percentage of total assets | 0.42 | % | 0.36 | % | ||||
| Total non-performing assets as a percentage of total assets | 0.51 | % | 0.40 | % | ||||
| (1) | Total nonaccruing loans equal total non-performing loans. | |
| (2) | Real estate owned balances are shown net of related loss allowances at March 31, 2004 and December 31, 2003, respectively. |
The allowance for loan losses was $12.6 million at March 31, 2004, or 1.18% of total loans, as compared to $11.7 million, or 1.24% of total loans, at December 31, 2003. The following table sets forth activity in the allowance for loan losses for the periods set forth in the table.
| Three Months | ||||||||
| Ended March 31, | ||||||||
| 2004 | 2003 | |||||||
| (Dollars in thousands) | ||||||||
| Balance, beginning of period | $ | 11,664 | $ | 11,082 | ||||
| Acquired in acquisition | 1,134 | — | ||||||
| Net charge-offs (recoveries) | 242 | 858 | ||||||
| Provision for loan losses | 90 | 1,440 | ||||||
| Balance, end of period | $ | 12,646 | $ | 11,664 | ||||
| Allowance for loan losses to total loans | 1.18 | % | 1.24 | % | ||||
| Allowance for loans losses to nonperforming loans | 233.90 | % | 309.72 | % | ||||
Total liabilities increased $191.6 million, or 20.5%, from $936.1 million at December 31, 2003 to $1.128 billion at March 31, 2004. Total deposits increased $161.7 million primarily due to the acquisition of Metrobank. This acquisition increase was accompanied by a $24.3 million increase in deposits at Citizens First. Interest bearing deposits increased from $697.0 million at December 31, 2003 to $810.1 million at March 31, 2004. The $113.1 million increase in interest-bearing deposits consisted of increases in NOW checking accounts (which increased $34.5 million, or 60.7%, to $107.8 million), increases in money market deposit accounts (which increased $6.0 million, or 2.1%, to $285.7 million primarily due to new accounts from municipalities and other public entities as well as
8
reallocation of maturing certificates of deposits), increases in passbook and savings accounts (which increased $14.8 million, or 17.2%, to $101.0 million) and increases in certificates of deposit (which increased $57.8 million, or 22.4%, to $315.6 million). Non-interest bearing deposits increased $48.9 million, or 94.9%, to $100.3 million at March 31, 2004 from $51.5 million at December 31, 2003. Federal Home Loan Bank advances also increased $23.5 million.
Total equity was $159.0 million at March 31, 2004 compared to $158.2 million at December 31, 2003, an increase of $842,000, or 0.5%, primarily due to net income offset by the payment of dividends and a $408,000 decrease (net of tax) in unrealized gains on available for sale securities.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
Net Income. Net income decreased $1.3 million, or 41.1%, to $1.9 million for the three months ended March 31, 2004 from $3.2 million for the previous period. The decrease was primarily due to a decrease of $958,000 or 32.4% in noninterest income, a $2.7 million or 39.2% increase in noninterest expense, primarily offset by a $1.4 million or 15.8% increase in net interest income after provision for loan losses and an $892,000 or 47.2% decrease in federal income tax expense due to lower net income. Included in the net income for the three months ended March 31, 2004, is approximately $91,000 related to Metrobank.
Net Interest Income. Net interest income, after provision for loan losses, increased $1.1 million, or 12.3%, to $10.4 million for the three months ended March 31, 2004 from $9.3 million at March 31, 2003 primarily due to a $1.0 million, or 7.0%, increase in total interest income and a $53,000, or 1.0%, decrease in interest expense. The increase in interest income was due to a $1.2 million, or 8.7%, increase in interest income on loans due primarily to growth and the acquisition of Metrobank.
Provision for Loan Losses. The provision for loan losses decreased $270,000, from $360,000 for the three months ended March 31, 2003 to $90,000 for the three months ended March 31, 2004. The decreased provision for loan losses is the result of management’s estimates and loan loss methodology. The loan loss allowance as a percentage of total loans decreased from 1.24% at December 31, 2003 to 1.18% at March 31, 2004, and the allowance for loan losses as a percentage of non-performing loans decreased from 309.72% at December 31, 2003 to 233.9% at March 31, 2004. Management considers its allowance for loan losses to be one of its critical accounting policies, meaning that in order to determine the allowance and provision for loan losses, management must make estimates and assumptions about matters that are highly uncertain and as to which different estimates and assumptions would have a material impact on the Company’s net income and on the Company’s overall financial condition and results of operations. For more information, see the caption “Critical Accounting Policies” in this section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Noninterest Income. Non-interest income decreased $958,000, or 32.4%, primarily due to the decrease of $1.9 million, in income from mortgage banking activities. This decline is due primarily to a decrease in gains from the reduction of sale of fixed-rate residential mortgage loans to third parties as a result of increased interest rates from the same period in 2003. In addition, a provision was made for a potential shortage in the custodial account used for the servicing of Freddie Mac loans amounting to approximately $400,000. The bank has conservatively provided for a potential shortage was discovered in the first quarter of 2004 and management continues to investigate the reason for the shortage. The decrease is partially offset by a $568,000, increase in service charges and other fees due primarily to an increase in fees for the quarter and the addition of Metrobank. Loan servicing fees increases $164,000, due to the increase in serviced loans from March 31, 2003. Additionally, noninterest income increased $438,000 due to the sale of investment securities to facilitate liquidity for the Metrobank acquisition.
Noninterest Expense. Noninterest expense increased $2.7 million, or 39.2%, to $9.5 million for the three months ended March 31, 2004, compared to $6.8 million in the three months ended March 31, 2003. The increase was primarily due to a $731,000, or 21.2%, increase in compensation and employee benefits due to increases to wages, additions of staff due to the Metrobank acquisition and increased direct costs of benefits. Also contributing to the increase was a $147,000 increase in professional fees due to acquisition and increased costs associated with being a public company including regulatory changes. In addition, stationery, printing and supplies increased $77,000 advertising and business promotion expenses increased $114,000 data processing expenses increased $188,000 and office occupancy and equipment increased $570,000, or 65.1% partially due to renovations at Citizens First branches and also as a result of the lease payment for branch offices of Metrobank and other noninterest expenses increased $849,000.
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Income Taxes. Income taxes for the three months ended March 31, 2004 were $999,000, a decrease of $892,000, or 47.2%, from $1.9 million for the three months ended March 31, 2003.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability to meet current and future financial obligations. Citizens First further defines liquidity as the ability to have funds available to respond to the needs of depositors and borrowers as well as maintaining the flexibility to take advantage of investment opportunities. Citizens First’s primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of investment securities and borrowings from the Federal Home Loan Bank. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.
Liquidity management is both a daily and long-term responsibility of management. Citizens First adjusts its investments in liquid assets based upon management’s assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, and (4) the objectives of its asset/liability management program. Excess liquid assets are invested generally in interest-earning overnight deposits and short- and intermediate-term U.S. Government and agency obligations.
The primary investing activities of Citizens First are the origination of loans and the purchase of securities. In the three months ended March 31, 2004, Citizens First originated $130.4 million of loans and purchases $14.2 million of securities. In fiscal 2003, Citizens First originated $761.9 million of loans and purchases $82.8 million of securities.
Citizens First’s most liquid assets are cash and short-term investments (securities maturing in one year or less). The levels of these assets are dependent on Citizens First’s operating, financing, lending and investing activities during any given period. At March 31, 2004, cash and short-term investments totaled $56.0 million and securities classified as available-for-sale totaled $125.4 million. In addition, at March 31, 2004, Citizens First had the ability to borrow a total of approximately $282.2 million from the Federal Home Loan Bank of Indianapolis. On that date, Citizens First had advances outstanding of $195.9 million from the Federal Home Loan Bank.
Citizens First originates fixed-rate loans conforming to Freddie Mac guidelines generally for sale in the secondary market. The proceeds of such sales provide funds for both additional lending and liquidity to meet current obligations. In the first three months of 2004, Citizens First sold $34.1 million of fixed rate mortgage loans. Citizens First sold $325.0 million of fixed-rate mortgage loans in 2003.
Financing activities consist primarily of activity in deposit accounts and Federal Home Loan Bank advances. Citizens First experienced a net increase in total deposits of $161.9 million for the three months ended March 31, 2004 and a net increase of $76.7 million for fiscal 2003. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by Citizens First and its local competitors and other factors. Citizens First generally manages the pricing of its deposits to be competitive and to increase core deposit relationships. Occasionally, Citizens First offers promotional rates on certain deposit products in order to attract deposits. In the three months ended March 31, 2004, Federal Home Loan Bank advances increased $23.5 million. During fiscal 2003, Federal Home Loan Bank advances decreased $469,000. The company also obtained a bank line of credit in the amount of $50,000,000, of which $10,000,000 has been drawn upon at March 31, 2004.
At March 31, 2004, Citizens First had outstanding commitments to originate loans of $103.0 million, of which $36.1 million had fixed interest rates. These loans are to be secured by properties located in its market area. Citizens First anticipates that it will have sufficient funds available to meet its current loan commitments. Loan commitments have, in recent periods, been funded through liquidity or through Federal Home Loan Bank borrowings. Certificates of deposit that are scheduled to mature in one year or less from March 31, 2004 totaled $254.1 million. Management believes, based on past experience that a significant portion of those deposits will remain with Citizens First. Based on the foregoing, Citizens First considers its liquidity and capital resources sufficient to meet its outstanding short-term and long-term needs.
Citizens First is subject to various regulatory capital requirements administered by the Federal Deposit Insurance Corporation including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At March 31, 2004, Citizens First exceeded all of its regulatory capital requirements. Citizens First is considered “well capitalized” under regulatory guidelines.
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The primary sources of funding for the Company are maturities of investment securities and, to a lesser extent, earnings on investments and deposits held by the Company. These funds have been used to pay dividends, repurchase the Company’s common stock and pay general corporate expenses. The Company may utilize future dividend payments from the Bank as an additional funding source. The Bank’s ability to pay dividends and other capital distributions to the Company is generally limited by the Michigan Banking Commissioner and Federal Deposit Insurance Corporation. Additionally, the Michigan Banking Commissioner and Federal Deposit Insurance Corporation may prohibit the payment of dividends by the Bank to the Company, which are otherwise permissible by regulation for safety and soundness reasons.
The capital from the conversion significantly increased liquidity and capital resources. Over time, the initial level of liquidity will be reduced as net proceeds from the stock offering are used for general corporate purposes, including the funding of lending activities. Citizens First’s financial condition and results of operations will be enhanced by the capital from the conversion, resulting in increased net interest-earning assets and net income. However, due to the large increase in equity resulting from the capital injection, return on equity will be adversely impacted until that capital can be effectively deployed at market rates, a goal that may take a number of years to achieve.
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SIGNATURES
Pursuant to the requirements 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.
| CITIZENS FIRST BANCORP, INC. | ||||||
| Dated: May 19, 2004 | By: | /s/ Marshall J. Campbell | ||||
| Marshall J. Campbell | ||||||
| President and Chief Executive Officer | ||||||
| (Principal Executive Officer) | ||||||
| Dated: May 19, 2004 | By: | /s/ Timothy D. Regan | ||||
| Timothy D. Regan | ||||||
| Secretary, Treasurer and Director | ||||||
| (Principal Financial and Accounting Officer) | ||||||
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Exhibit Index
| Exhibit No. | Description | |
| 31.1 | Certification of Chief Executive Officer | |
| 31.2 | Certification of Chief Financial Officer | |
| 32.1 | Section 1350 Certifications | |
| 32.2 | Section 1350 Certifications |
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