1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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 0-19611
CITFED BANCORP, INC.
--------------------
(Exact name of registrant as specified in its charter)
DELAWARE 31-1332674
(State of other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
ONE CITIZENS FEDERAL CENTRE, DAYTON, OHIO 45402
(Address of principal executive offices) (Zip code)
(513) 223-4234
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
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 report),
and (2) has been subject to such filing requirements for the past 90
days.
YES X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock July 31, 1996
- --------------------- --------------
$ .01 par value 5,691,322
2
CITFED BANCORP, INC.
FORM 10-Q
INDEX
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Statements of Financial
Condition as of June 30, 1996 and
March 31, 1996 1
Consolidated Statements of Operations
for the Three Months ended
June 30, 1996 and 1995 2
Consolidated Statement of Stockholders'
Equity for the Three Months ended
June 30, 1996 3
Consolidated Statements of Cash Flows
for the Three Months ended
June 30, 1996 and 1995 4
Notes to Consolidated Financial
Statements 5
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of
Operations 7
PART II. Other Information
Item 1. Legal Proceedings 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
3
CITFED BANCORP, INC. AND SUBSIDIARIES
FORM 10Q
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1996 AND MARCH 31, 1996
(Dollars in thousands)
Part 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS JUNE 30, MARCH 31,
1996 1996
--------------- ----------------
(unaudited)
ASSETS
CASH AND DEMAND DEPOSITS $ 16,680 $ 23,047
Interest-bearing time deposits and cash equivalents 33,371 29,677
----------- -----------
TOTAL CASH AND EQUIVALENTS 50,051 52,724
Investment securities held to maturity 223,185 188,743
Mortgage-backed securities available for sale 684,060 655,679
Loans (less allowance for loan losses of $16,713 and $16,330
at June 30, 1996 and March 31, 1996, respectively) 1,487,828 1,445,844
Loans held for sale 44,796 75,656
Accrued interest receivable:
Investment securities 3,535 2,479
Loans 9,165 8,929
Mortgage-backed securities 3,798 3,578
Real estate held for sale, net 6,166 5,862
Federal Home Loan Bank stock, at cost 35,602 31,908
Office properties and equipment, net 19,481 20,039
Cost in excess of fair value of net assets acquired 22,494 23,219
Other assets 70,845 83,226
----------- -----------
TOTAL $ 2,661,006 $ 2,597,886
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 1,626,646 $ 1,649,265
Advances from Federal Home Loan Bank 688,818 602,504
Other borrowings 145,508 145,557
Other liabilities 24,763 26,451
----------- -----------
TOTAL LIABILITIES 2,485,735 2,423,777
STOCKHOLDERS' EQUITY:
Serial Preferred Stock,($.01 par value),
Authorized 5,000,000 shares; none outstanding
Common Stock($.01 par value),
Authorized 10,000,000 shares; 5,691,322 outstanding 57 57
Additional paid-in capital 54,747 54,718
Retained earnings-substantially restricted 128,382 123,743
Unearned ESOP shares (632) (632)
Net unrealized loss on securities available for sale (6,926) (3,402)
Unearned compensation - restricted stock awards (357) (375)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 175,271 174,109
----------- -----------
TOTAL $ 2,661,006 $ 2,597,886
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 1 of 24
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CITFED BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 1996 and 1995
(Dollars in thousands, except for per share data)
Three Months Ended
June 30,
-------------------------
1996 1995
---------- ----------
(unaudited)
INTEREST INCOME:
Loans $29,535 $27,719
Mortgage-backed securities 10,666 8,600
Investments 3,410 2,972
Other 608 495
-------- --------
TOTAL INTEREST INCOME 44,219 39,786
-------- --------
INTEREST EXPENSE:
Deposits 18,037 17,848
Borrowings 10,362 8,505
-------- ---------
TOTAL INTEREST EXPENSE 28,399 26,353
-------- --------
NET INTEREST INCOME 15,820 13,433
Provision for loan losses 450 300
-------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 15,370 13,133
-------- --------
NON-INTEREST INCOME:
Servicing Fees and Charges:
Consumer banking 2,836 2,119
Trust 901 600
Mortgage banking operations, net 2,412 1,811
Gain(loss) on sale of earning assets:
Mortgage servicing rights 1,602
Investments 1
Loans and mortgage-backed securities 24
Land held for development (80) (17)
Gain(loss) on sales:
Office properties and equipment 36
Provision for losses on real estate held for sale (9) (10)
Other 507 210
-------- --------
TOTAL NON-INTEREST INCOME 6,603 6,340
-------- --------
NON-INTEREST EXPENSES:
Salaries and benefits 6,451 6,001
Occupancy and equipment 3,208 3,230
Amortization of cost in excess of fair value of
net assets acquired 725 752
FSLIC/FDIC premiums and OTS assessments 1,005 916
Marketing and advertising 472 443
Franchise Tax 397 431
Other 2,468 2,427
-------- --------
TOTAL NON-INTEREST EXPENSES 14,726 14,200
-------- --------
INCOME BEFORE INCOME TAXES 7,247 5,273
Income tax provision 2,210 1,590
-------- --------
NET INCOME $5,037 $3,683
======== ========
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE $.85 $.63
===== =====
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 2 of 24
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CITFED BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Three Months Ended June 30, 1996
(Dollars in thousands)
ADDITIONAL NET REALIZED OTHER TOTAL
OUTSTANDING COMMON PAID-IN RETAINED (LOSS)GAIN ON SECURITIES EQUITY STOCKHOLDERS'
(unaudited) SHARES STOCK CAPITAL EARNINGS AVAILABLE FOR SALE ADJUSTMENTS EQUITY
----------- ------ ---------- -------- ------------------------ ----------- -------------
BALANCE, MARCH 31, 1996 5,685,567 $57 $54,718 $123,743 ($3,402) ($1,007) $174,109
Net Income 5,037 5,037
Dividends Paid (398) (398)
Change in net unrealized
(Loss) Gain on securities
Available for sale (3,524) (3,524)
Stock options exercised 7,277 11 11
Shares retired (2,022)
Restricted Stock awards:
Compensation 36 36
Issuance 500 18 (18)
--------- --- ------- -------- -------- ------- --------
BALANCE, JUNE 30, 1996 5,691,322 $57 $54,747 $128,382 ($6,926) ($989) $175,271
========= === ======= ======== ======== ====== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 3 of 24
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CITFED BANCORP, INC. AND SUBIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30, 1996 and 1995
(Dollars in thousands)
Three Months Ended
June 30,
------------------
1996 1995
-------- --------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,037 $ 3,683
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 898 945
Amortization of intangibles 467 2,644
Amortization of deferred loan fees (262) (394)
(Increase) decrease in loans held for sale 29,843 (23,657)
FHLB stock dividends (561) (431)
Gain on sale of earning assets 1,094 (282)
Provision for loan and REO losses 459 310
ESOP and RRP 36 107
Increase in accrued interest receivable (1,510) (1,356)
(Increase) decrease in other assets 14,358 (3,667)
Increase (decrease) in other liabilities, net 205 (1,329)
--------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 50,064 (23,427)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment securities:
Purchased (43,688) (10,533)
Matured/principal collected 9,249 12,001
Mortgage-backed securities held to maturity:
Principal collected 6,245
Mortgage-backed securities available for sale:
Purchased (62,229) (9,701)
Principal collected 28,249 4,285
Loans held for investment:
Originated (125,875) (45,799)
Principal collected 82,903 40,555
Gain on sale of mortgage servicing rights 1,602
Purchased and originated mortgage servicing rights (1,763) (1,822)
Purchases of FHLB stock (3,133) (4,457)
Proceeds from real estate sold 462 171
Real estate acquired for development and sale (52) (76)
Office properties and equipment (119) (478)
--------- ----------
NET CASH USED IN INVESTING ACTIVITIES (115,996) (8,007)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits, net (22,619) 50,570
FHLB advances:
Borrowings 297,000 384,000
Payments (210,686) (402,590)
Payments on other borrowings (49) (18)
Common stock issuances (purchases) 11 22
Cash dividends paid (398) (419)
--------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 63,259 31,565
--------- ----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (2,673) 131
Cash and equivalents, beginning of year 52,724 72,660
--------- ----------
CASH AND EQUIVALENTS, END OF YEAR $ 50,051 $ 72,791
========= ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 26,249 $ 22,741
========= ==========
Income taxes paid $ 0 ($ 1,100)
========= ===========
SUPPLEMENTAL OF NON-CASH INVESTING ACTIVITIES:
Transfer of loans to foreclosed real estate $ 803 $ 414
========= ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 4 of 24
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CITFED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months June 30, 1996 and 1995
(Unaudited)
1. BASIS OF PRESENTATION
The foregoing consolidated financial statements as of June 30, 1996
and for the three months ended June 30, 1996 and 1995 are unaudited. However,
in the opinion of management, all adjustments (which consist of normal
recurring accruals) necessary for a fair presentation of the consolidated
financial statements have been included. Results for any interim period are
not necessarily indicative of results to be expected for the year. The interim
consolidated financial statements include the accounts of CitFed Bancorp, Inc.
(the "Corporation"), its subsidiary, Citizens Federal Bank, F.S.B. (the "Bank"
or "Citizens Federal") and the Bank's subsidiaries.
2. COMMITMENTS AND CONTINGENCIES
At June 30, 1996, the Bank had outstanding commitments to originate
and purchase loans aggregating approximately $65.5 million. The commitments
extend over varying periods of time with the majority being disbursed within
thirty days. Loan commitments with interest rates established with the
borrower amounted to $15.6 million; the remainder are at floating rates. The
Bank had outstanding mandatory and optional forward commitments to sell loans
and mortgage-backed securities of $68.0 million at June 30, 1996.
The Corporation and its subsidiaries are defendants in certain
lawsuits arising in the ordinary course of business. Management, after review
with its legal counsel, is of the opinion that the resolution of these legal
matters will not have a material adverse effect on the Corporation's financial
position.
3. NET INCOME BY SUBSIDIARY
CitFed Bancorp has four subsidiaries:
Citizens Federal Bank, F.S.B. CitFed Mortgage Corporation of America
(federal savings bank) (mortgage banking)
CitFed Investment Group Dayton Financial Services Corporation
(mutual fund and insurance (residential land development)
sales)
Earnings:
THREE MONTHS ENDED JUNE 30,
1996 1995
-------- --------
(In thousands)
Citizens Federal Bank $4,707 $3,097
CitFed Mortgage 736 1,000
CitFed Investment Group 97 17
Dayton Financial (58) (35)
CitFed Bancorp (including consolidating entries) (445) (396)
------ ------
NET INCOME $5,037 $3,683
====== ======
Page 5 of 24
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4. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share for the three months
ended June 30, 1996 and 1995 are divided by the weighted average number of
common shares and common share equivalents outstanding during the period
(5,903,794 for the three months ended June 30, 1996 and 5,840,060 for the three
months ended June 30, 1995). Stock options are considered common share
equivalents.
5. DIVIDEND
The Corporation declared on July 26, 1996 its quarterly dividend of
$0.08 per share payable August 30, 1996 to stockholders of record on August 15,
1996. The total amount of the dividend will be approximately $455,000.
6. ACCOUNTING FOR MORTGAGE SERVICING RIGHTS
Effective April 1, 1996, the Corporation adopted the provisions of
Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights" ("SFAS 122"). SFAS 122 requires that a mortgage banking
enterprise recognize, as separate assets, rights to service mortgage loans for
others that have been acquired through either the purchase or origination of a
loan. A mortgage banking enterprise that sells or securitizes those loans with
servicing rights retained should allocate the total cost of the mortgage loans
sold or securitized to the mortgage servicing rights ("MSR's") and the loans
based on their relative fair values. Additionally, SFAS 122 requires that
MSR's be periodically assessed for impairment and reported on the Consolidated
Statement of Financial Condition at the lower of cost or fair value. As a
result of adopting SFAS 122, the Corporation capitalized $1.6 million of MSR's
from its retail lending operations.
The fair value of capitalized MSR's is calculated, on a disaggregated
basis, by discounting estimated expected future cash flows using a discount
rate commensurate with the risk involved. In using this valuation method, the
Bank used assumptions that market participants would use in estimating future
net servicing income which included estimates of the cost of servicing per
loan, the discount rate, float value, inflation rate, ancillary income per
loan, prepayment speeds and default rates. The Bank conducts its periodic
impairment analyses using a disaggregated method, based on the underlying
loans' interest rates and loan type. There was no valuation allowance recorded
at June 30, 1996.
7. ACCOUNTING FOR STOCK-BASED COMPENSATION
On April 1, 1996, the Corporation adopted Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation". SFAS 123 establishes optional financial accounting standards
and additional disclosure requirements for stock-based employee compensation
plans. The Corporation is retaining its current accounting method for its
stock-based employee compensation plans, and as such, its adoption has had no
material impact on the Corporation's financial condition or results of its
operations.
8. ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-
LIVED ASSETS TO BE DISPOSED OF
On April 1, 1996, the Corporation adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long- Lived
Assets and for Long-Lived Assets to Be Disposed
Page 6 of 24
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of" ("SFAS 121"). SFAS 121 requires that long-lived assets and certain
identifiable intangibles, and goodwill related to those assets to be held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Adoption of this statement did not have a material impact on the
financial condition or results of operations of the Corporation.
9. RECLASSIFICATIONS
Certain amounts for prior periods have been reclassified for
comparative purposes to conform with the current year's presentation.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
CitFed Bancorp, Inc., a Delaware corporation, was organized on January
25, 1991 for the purpose of acquiring all of the outstanding capital stock of
Citizens Federal Bank, F.S.B. (the "Bank" or "Citizens Federal") which was
issued on January 29, 1992. Citizens Federal is a federally-chartered stock
savings bank headquartered in Dayton, Ohio. The Bank has 33 offices in a six
county area that comprises the greater Dayton area. In addition, through the
Bank's wholly owned subsidiary, CitFed Mortgage Corporation of America ("CitFed
Mortgage"), it operates 11 mortgage loan origination offices in Dayton,
Columbus and Cincinnati, Ohio; Kentucky, Virginia and North Carolina.
RESULTS OF OPERATIONS
Citizens Federal's results of operations depend primarily upon the
level of net interest income, which is the difference between the interest
income earned on its interest-earning assets such as loans and investments, and
the costs of the Bank's interest-bearing liabilities, primarily deposits and
borrowings. Results of operations are also dependent upon the level of the
Bank's non-interest income, including fee income, gains or losses on the sale
of interest-earning assets and service charges, and affected by the level of
its non-interest expenses, including its general and administrative expenses.
Net interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities and the interest rate earned or paid on them,
respectively.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1996 AND 1995
Net Income: Net income for the three month period ended June 30,
1996 was $5.0 million as compared to $3.7 million for the three month period
ended June 30, 1995, resulting in an increase of $1.3 million, or 36.8%.
Interest Income: Total interest income increased by 11.1% from $39.8
million for the first quarter of fiscal 1996 to $44.2 million for the first
quarter of fiscal 1997. Of this increase, $7.3 million resulted from a $271.4
million increase in the average balance of interest-earning assets, primarily
loans receivable and mortgage-backed securities. The offsetting $2.9 million
decrease resulted from a 10 basis point decrease in the weighted average yield
on interest-earning assets.
Page 7 of 24
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Management decided, throughout fiscal 1996 and fiscal 1997, to grow
the Bank's assets by increasing its permanent portfolio of loans held for
investment. As a result, the average balance of loans increased $100.8
million. In addition, purchases throughout the year caused the average balance
of mortgage-backed securities and investment securities to increase $140.0
million and $33.1 million, respectively.
Interest Expense: Total interest expense increased by 7.8% from
$26.4 million for the first quarter of fiscal 1996 to $28.4 million for the
first quarter of fiscal 1997. Of this increase, $9.5 million was the result of
an increase in the average balance of interest-bearing liabilities of $255.2
million. The offsetting $7.5 million decrease related to a 19 basis point
decrease in the cost of funds.
The Bank's average deposits increased by $31.5 million for the first
quarter of fiscal 1997 as compared to the first quarter of fiscal 1996
primarily due to $35.1 million increase in retail certificates of deposits. In
addition, FHLB advances and securities sold under agreements to repurchase
increased $191.1 million and $32.6 million, respectively. These increases were
necessary to fund the asset growth planned by management.
Rate/Volume Analysis. The following table presents the dollar amount
of changes in interest income and interest expense for major components of
interest-earning assets and interest-bearing liabilities. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (i) changes in rate (i.e., changes in rate
multiplied by old volume) and (ii) changes in volume (i.e., changes in volume
multiplied by old rate). For purposes of this table, changes attributable to
both rate and volume which cannot be segregated have been allocated
proportionately to the change due to rate and the change due to volume.
RATE/VOLUME ANALYSIS
Three Months Ended June 30,
1996 vs 1995
Increase (Decrease) Due To
Volume Rate Total
------ ---- -----
(Dollars in thousands)
Interest-Earning Assets:
Loans receivable $ 2,963 $ (1,141) $ 1,822
Mortgage-backed securities 3,415 (1,355) 2,060
Investment securities 1,055 (617) 438
Other (133) 246 113
------- -------- -------
Total interest-earning assets $ 7,300 $ (2,867) $ 4,433
======= ======== =======
Interest-Bearing Liabilities:
Deposits:
NOW accounts $ 22 $ 24 $ 46
Savings deposits (17) (76) (93)
Money Market deposits (195) 72 (123)
Certificates of deposit 1,278 (919) 359
FHLB advances 6,967 (5,302) 1,665
Securities sold under agreements
to repurchase 1,466 (1,290) 176
Other borrowings (11) 27 16
------- -------- -------
Total interest-bearing liabilities $ 9,510 $ (7,464) $ 2,046
======= ======== -------
Net interest income $ 2,387
=======
Page 8 of 24
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Net Interest Margin. The following table presents, for the periods
indicated, the total dollar amount of interest income earned on average
interest-earning assets, as well as the interest expense paid on average
interest-bearing liabilities, expressed both in dollars and rates, and the net
interest margin. No tax equivalent adjustments have been made. All average
balances are daily average balances.
The ratio of average interest-earning assets to average interest
bearing liabilities increased to 102.3% at June 30, 1996, as compared to 101.8%
at June 30, 1995. Although the weighted average interest rate declined for
both interest-earning assets and interest-bearing liabilities, the decline was
greater for interest-bearing liabilities resulting in an increased interest
spread. In addition, the average outstanding balance of interest-earning
assets increased $271.4 million compared to an increase of $255.2 million of
interest-bearing liabilities.
Three months ended June 30,
1996 1995
-----------------------------------------------------------------------
Average Interest Yield/ Average Interest Yield/
Outstanding Earned/ Weighted Outstanding Earned/ Weighted
Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ----
(Dollars in thousands)
Interest-Earning Assets:
Loans receivable (1) $1,502,215 $29,535 7.86% $1, 401,372 $27,719 7.91%
Mortgage-backed securities 658,557 10,666 6.48 518,574 8,600 6.64
Investment securities 208,700 3,410 6.54 175,638 2,972 6.77
Other 56,079 608 4.34 58,595 495 3.38
---------- ------- ----- ----------- ------- -------
Total interest-earning assets $2,425,551 $44,219 7.29% $2,154,179 $39,786 7.39%
========== ======= ====== ========== ======= ======
Interest-Bearing Liabilities:
Deposits:
NOW account $ 179,124 $ 996 2.22% $ 175,260 $ 950 2.17%
Demand deposits 128,598 0 0.00 117,143
0 0.00
Savings deposits 213,819 1,313 2.46 216,510 1,406 2.60
Money Market deposits 131,983 1,091 3.31 148,137 1,214 3.28
Certificates of deposit 972,140 14,637 6.02 937,087 14,278 6.09
FHLB advances 604,757 8,207 5.43 413,661 6,542 6.33
Securities sold under agreements
to repurchase 100,000 1,289 5.16 67,351 1,113 6.61
Collateralized obligations
Other borrowings 41,209 866 8.41 41,290 850 8.23
---------- ------- ----- ----------- ------- -------
Total interest-bearing liabilities $2,371,630 $28,399 4.79% $2,116,439 $26,353 4.98%
========== ======= ====== ========== ======= ======
Net interest income; interest
rate spread $15,820 2.50% $13,433 2.41%
======= ====== ======= ======
Net interest margin (2) 2.61% 2.49%
==== ======
Average interest-earning assets to
average interest-bearing liabilities 102.27% 101.78%
====== ======
(1) Average balances for loans receivable include average balances for
non-accrual loans.
(2) Net interest margin is net interest income divided by average
interest-earning assets.
Page 9 of 24
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Allowance for Loan Losses. The following table sets forth an analysis
of the Bank's allowance for loan losses at the dates indicated.
Three Months Ended
June 30,
1996 1995
---- ----
(Dollars in thousands)
Balance at beginning of period $16,330 $15,782
------- -------
Charge-offs:
Real estate
1-4 Family (46) (22)
Other (5) (247)
Consumer (92) (21)
Commercial business (15) 0
------- -------
Total charge-offs (158) (290)
------- -------
Recoveries:
Real estate
1-4 Family 13 22
Other 50 52
Consumer 19 14
Commercial business 9 39
------- -------
Total recoveries 91 127
------- -------
Net charge-offs (67) (163)
Transfer from REO (for adoption of FAS #114) 110
Provisions 450 300
------- -------
Balance at end of period $16,713 $16,029
======= =======
Ratio of net charge-offs during the period to
average loans outstanding during the period 0.00% 0.00%
===== ======
Ratio of allowance to non-performing loans
at end of period. 83.24% 214.49%
====== =======
The Bank's provision for loan losses was $450,000 for the first
quarter of fiscal 1997, compared to a provision of $300,000 for the first
quarter of fiscal 1996. Both provisions reflect the Bank's continuing
evaluation of its loan portfolio and the effect thereon from general economic
conditions. Management's estimate of the adequacy of its general allowances
for loan losses is based upon an analysis of the Bank's loan portfolio
including such factors as prior loan loss experiences, economic conditions
affecting the real estate market, regulatory considerations and other matters.
Management believes that the relationship of the allowance to total
loans and to non-performing loans is adequate based on all information
currently available. See "Asset Quality."
Page 10 of 24
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The ratio of allowance to non-performing loans decreased to 83.24% at
June 30, 1996, compared to 214.49% for the same period one year ago primarily
because of the increase in non-performing loans from $9.0 million to $20.1
million. This increase was the result of the Bank placing its 1% participation
in a first mortgage loan on two office buildings in New York City amounting to
$9.3 million into nonaccrual status during the December 1995 quarter. This was
the result of the debtors filing for Chapter 11 bankruptcy protection. The
Bank has a $2.5 million reserve recorded on this loan at June 30, 1996, and no
additional reserves were considered necessary based on management's analysis of
this loan.
Non-Interest Income: Non-interest income for the first quarter of
fiscal 1997 totalled $6.6 million as compared to $6.3 million for the first
quarter of fiscal 1996, an increase of $263,000 or 4.1%.
Consumer banking fees and charges increased 33.8% to $2.8 million for
the quarter ended June 30, 1996, up from $2.1 million for the same period last
year. The increase in fee income was primarily attributable to the increased
number of transaction and savings accounts, which totaled approximately 165,000
accounts at June 30, 1996, compared to 144,000 accounts at June 30, 1995.
Trust and investment services fee income for the first quarter of
fiscal 1997 increased 50.2% to $901,000, compared to $600,000 for the first
quarter of fiscal 1996. Administered trust assets were $418.0 million at June
30, 1996, compared with $393.4 million at June 30, 1995. The Bank formed
CitFed Investment Group, a wholly-owned subsidiary, during the first quarter of
fiscal 1996 to facilitate the sale of mutual funds and insurance products
through the Bank's retail branches. Commission revenue from this new
subsidiary was $341,000 for the first quarter of fiscal 1997, compared to only
$118,000 for the first quarter of fiscal 1996.
Income from mortgage banking operations increased by 33.2% in the
first quarter to $2.4 million, up from $1.8 million for the same period a year
ago. This increase was due primarily to $1.6 million of income recognized from
the adoption of SFAS 122 during the period. Without the effects of SFAS 122,
mortgage banking fee income would have declined by $985,000. This decline was
primarily due to loan servicing fees which were $495,000 lower than the same
period a year ago, as a result of lower servicing balances. In addition,
secondary marketing losses were $700,000 higher than the same period a year
ago.
CitFed Mortgage maintains the flexibility to either sell servicing
rights for current income and cash flow or retain servicing for future income.
The decision to sell or retain servicing is based on current market conditions
as well as CitFed Mortgage's financial objectives. To help offset lower
origination revenues in the first quarter of fiscal 1996, CitFed Mortgage sold
$135 million of mortgage loan servicing rights generating a gain of $1.6
million. During the first quarter of fiscal 1997 there were no servicing
rights sold. Mortgage loan closings totaled $223.0 million for the three
months ended June 30, 1996, compared to $186.3 million for the three months
ended June 30, 1995, an increase of 19.7%.
Non-Interest Expenses: Non-interest expenses during the first
quarter of fiscal 1997 were $14.7 million as compared to $14.2 million for the
first quarter of fiscal 1996, an increase of $526,000, or 3.7%.
Salaries and benefits increased $450,000 over the prior year's first
quarter. Included in this were increases in health care claim expenses of
$130,000. Also, commission expense and related benefits for CitFed Investment
Group increased $90,000 over the first quarter of fiscal 1996, which was the
subsidiary's first quarter of operations. Commissioned sales for CitFed
Investment Group increased 188.2% for first quarter fiscal 1997 as compared to
the same period last year. The balance of the increase was primarily in salary
expense from normal wage increases during the quarter.
Page 11 of 24
14
The Bank's premium for the Savings Association Insurance Fund ("SAIF")
has increased $94,000 over first quarter fiscal 1996 primarily because of
growth in average deposit balances of $32 million. See "Regulatory
Developments".
Income Tax Provision. The Bank's income tax provision rose slightly to
30.5% during the first quarter of fiscal 1997 as compared to 30.2% for the same
period in fiscal 1996.
ASSET QUALITY
Non-Performing Assets. The table below sets forth the amounts and
categories of non-performing assets in the Bank's loan portfolio as of the
dates indicated below.
June 30, March 31,
1996 1996
---- ----
(Dollars in thousands)
Non-Performing Assets
Non-accruing loans:
One- to four-family $ 6,531 $ 4,595
Multi-family and commercial real estate 13,181 12,760
Consumer 119 38
Commercial business 246 303
------- -------
Total 20,077 17,696
------- -------
Foreclosed assets:
One- to four-family 1,263 823
Multi-family and commercial real estate 3,428 3,449
------- -------
Total 4,691 4,272
------- -------
Total non-performing assets $24,768 $21,968
======= =======
Non-performing loans to total loans 1.35% 1.21%
==== ====
Non-performing assets to total assets 0.93% 0.85%
==== ====
The $2.8 million increase in non-performing assets from March 31, 1996
to June 30, 1996 was the result of several factors. Non-accruing one-to
four-family mortgage loans increased $1.9 million during the period.
Thirty-one loans totaling $3.1 million were placed in non-accrual status, five
loans for $269,000 were transferred to foreclosed assets, six loans totaling
$249,000 were returned to accruing status and six loans totaling $640,000 were
paid off.
Non-accruing multi-family and commercial real estate loans increased
$421,000 for the first quarter in fiscal 1997. Two loans for $561,000 were
added to non-accrual status and two loans totaling $140,000 were paid in full.
Foreclosed assets increased $419,000 for the period. Seven residential
properties totaling $803,000 (net of $71,000 in loss reserves) were added, and
two properties totaling $194,000 were sold. Three commercial properties for
$198,000 were sold. The reserve for foreclosed assets decreased by $21,000
from net charge-off's of $30,000 offset by a provision of $9,000.
Page 12 of 24
15
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY--The Corporation conducts its business through its subsidiary,
Citizens Federal and Citizens Federal's subsidiaries. The main source of funds
for the Corporation is dividends from the Bank. The Bank meets the Office of
Thrift Supervision ("OTS") regulatory capital requirements that would allow the
Bank to declare and pay capital distributions to the Corporation. The
Corporation is not subject to any OTS regulatory restrictions on the payment of
dividends to its stockholders. The Board of Directors of the Corporation
declared on July 26, 1996, a cash dividend on its common stock of eight cents
($0.08) per share, payable August 30, 1996 to stockholders of record on August
15, 1996.
The Bank's principal sources of funds include deposits, advances from the FHLB,
reverse repurchase agreements, repayments on loans and mortgage-backed
securities, maturities of investment securities, proceeds from the sale of
loans, mortgage-backed and investment securities available for sale, funds
provided by operations and capital invested by the Corporation. Investment
maturities and scheduled amortization of loans and mortgage-backed securities
are generally a predictable source of funds. Deposit flows and mortgage
prepayments are influenced by the general level of interest rates, economic
conditions, competition and the restructuring of the thrift industry.
Management also considers the Corporation's interest sensitivity "gap" when
considering alternative sources of funds. At June 30, 1996, the Corporation's
one-year gap was a negative 14.75%.
The Bank is required to maintain minimum levels of liquid assets as
defined by OTS regulations. This requirement, which may vary at the discretion
of the OTS depending upon economic conditions and deposit flows, is based upon
a percentage of deposits and short-term borrowings. The required ratio is
currently 5.0%. While the Bank's liquidity ratio varies from time to time, it
has generally maintained liquid assets substantially in excess of the minimum
requirement. The Bank's liquid asset ratio was 16.0% at June 30, 1996.
Liquidity management is both a daily and long-term responsibility of
management. The Bank adjusts its investments in liquid assets based upon
management's assessment of (i) expected loan demand, (ii) the projected amount
of loans to be originated by CitFed Mortgage and held for re-sale, (iii)
expected deposit flows, (iv) yields available on interest-bearing deposits, and
(v) the objective of its asset/liability management program. Excess liquidity
is invested generally in interest-bearing overnight deposits and other
short-term government and agency obligations. If Citizens Federal requires
funds beyond its ability to generate them internally, the Bank has additional
borrowing capacity with the FHLB and collateral eligible for reverse repurchase
agreements.
The Bank anticipates that it will have sufficient funds available to
meet current loan commitments. At June 30, 1996, the Bank had commitments to
purchase from CitFed Mortgage loans totalling $36.4 million. CitFed Mortgage
had commitments to fund loans of $65.5 million and to sell loans of $68.0
million.
CAPITAL--Savings institutions insured by the Federal Deposit Insurance
Corporation ("FDIC") are required to meet three regulatory capital
requirements. If a requirement is not met, regulatory authorities may take
legal or administrative actions, including restrictions on growth or operations
or, in extreme cases, seizure. Institutions not in compliance may apply for an
exemption from the requirements and submit a recapitalization plan. The
following table demonstrates the Bank's compliance with each of these
requirements as of June 30, 1996:
Page 13 of 24
16
Fully Phased-in
Requirement (1)
-------------------------------
(Dollars in thousands) Amount (2)%
-------------------------------
Tangible Capital:
Bank's $164,541 6.24%
Requirement 39,569 1.50
-------- ----
Excess $124,972 4.74%
======== ====
Core Capital:
Bank's $164,541 6.24%
Requirement 79,138 3.00
-------- ----
Excess $ 85,403 3.24%
======== ====
Risk-Based Capital:
Bank's $179,440
14.53%
Requirement 98,790 8.00
-------- ----
Excess $ 80,650 6.53%
======== ====
(1) Entire investment in non-qualifying subsidiary is excluded for fully
phased-in calculations.
(2) Tangible and core capital levels are shown as a percentage of total
adjusted assets, risk-based capital levels are a percentage of
risk-weighted assets.
A reconciliation of the Corporation's GAAP Capital is as follows:
(Dollars in thousands) June 30, 1996
-------------
Bank's stockholder's equity $182,163
Less additional capital contributed to
Bank by the Corporation (22,000)
Plus holding company stockholders'
equity not available for regulatory capital 15,108
--------
Stockholders' equity of the Corporation $175,271
========
Minimum capital requirements, as required by the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), to determine whether
an institution is well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, or critically undercapitalized became effective
December 19, 1992. Well capitalized institutions are defined as having core
capital of at least 5.0%, core capital to risk-weighted assets of at least 6%
and risk-based capital of at least 10.0%. The Bank's ratios at June 30, 1996
were 6.24%, 13.30% and 14.53%, respectively. As a result, the Bank meets the
capital requirements of a well capitalized institution.
Page 14 of 24
17
The Corporation's management believes that, under the current
regulations, the Bank will continue to meet its capital requirements in the
coming year. Further changes to the capital regulations are possible, however,
which may affect Citizens Federal's financial position, or encourage a change
in asset size or mix. In particular, an interest-rate risk component will be
incorporated into the risk-based capital framework effective at a future date.
Based on the Bank's interest-rate risk profile and the level of interest rates
at June 30, 1996, as well as the Bank's level of risk-based capital, it appears
that the amendment will not affect the Bank's compliance with its risk-based
capital requirements.
Regulatory Developments
Various Committees of Congress and various federal regulatory banking
agencies, including the FDIC, are currently discussing changes to the federal
deposit insurance system to narrow or eliminate the difference in financial
characteristics between the Bank Insurance Fund ("BIF") and the SAIF. One of
the proposals being discussed would, among other things, assess thrifts, such
as the Bank, a one-time fee to bring the SAIF fund into parity with the BIF
fund, In the event that such a proposal was to become law, the Bank would be
required to record a one-time charge to pre-tax earnings of approximately
$14,600,000 based on March 31, 1996 deposit balances and a fee of 90 basis
points. Thereafter, the Bank's annual deposit insurance expense would be
reduced for the foreseeable future by approximately 80% of 100% of current
premiums. A premium reduction of this magnitude would represent annual pre-tax
cost savings to the Bank of approximately $3.5 million based upon the actual
1996 deposit insurance premiums incurred by the Bank. If such a proposal is
enacted and the Bank recognizes this one-time charge to its earnings during the
quarter that the proposal is enacted, the Bank would remain well-capitalized
for prompt corrective action purposes.
Congress is also considering requiring all federal thrift
institutions, such as Citizens Federal, to either convert to a national bank or
a state-chartered depository institution by January 1, 1998. The OTS also
would be abolished and its functions transferred among the other federal
banking regulators. Other proposed legislation before Congress would require
the recapture of a portion of Citizens Federal's tax bad debt reserve. As
proposed, the recapture would occur over a six-year period and would begin with
Citizens Federal's fiscal year ending March 30, 1997.
Page 15 of 24
18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In August 1995, the Corporation filed suit against the United
States Government for reneging on contracts with the Bank
regarding the treatment of supervisory goodwill as capital.
Although, the U. S. Supreme Court recently decided for the
plaintiff in three pending supervisory goodwill cases
involving other entities it is uncertain as to how
this will affect the Corporation's claim.
Item 5. Other Information
a) Press release dated July 26, 1996, announcing quarterly cash
dividend attached hereto as Exhibit 99.1.
b) Press release dated July 30, 1996, announcing first quarter
earnings for fiscal year ending March 31, 1997, attached
hereto as Exhibit 99.2.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit - Index
Exhibit Number Description Page No.
11 Statement regarding computation 18
of per share earnings
27 Financial Data Schedule 19
99.1 Annual Meeting News Release 20
99.2 Earnings Release 21
b) Report on Form 8-K - There were no reports on Form 8-K filed
during the three months ended June 30, 1996.
Page 16 of 24
19
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.
CITFED BANCORP, INC. (Registrant)
Date August 13, 1996 By /s/ Jerry L. Kirby
----------------------------- ----------------------------------
Jerry L. Kirby
Chairman of the Board, President and
Chief Executive Officer
(Duly Authorized Representative)
Date August 13, 1996 By /s/ William M. Vichich
----------------------------- ----------------------------------
William M. Vichich
Executive Vice President
Chief Operating Officer
Chief Financial Officer
(Principal Financial and Accounting
Officer)
Page 17 of 24
20
EXHIBIT INDEX
Exhibit Number Description
11 Statement regarding computation
of per share earnings
27 Financial Data Schedule
99.1 Annual Meeting News Release
99.2 Earnings Release