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, 1997
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)
(937) 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, 1997
--------------------- --------------
$.01 par value 8,638,486
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, 1997
and March 31, 1997 1
Consolidated Statements of Operations
for the Three Months ended June 30,
1997 and June 30, 1996 2
Consolidated Statement of Stockholders'
Equity for the Three Months ended
June 30, 1997 3
Consolidated Statements of Cash Flows
for the Three Months ended
June 30, 1997 and 1996 4
Notes to Consolidated Financial
Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
PART II. Other Information
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibit 11
Exhibit 27
3
CITFED BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1997 AND MARCH 31, 1997
(Dollars in thousands)
Part 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
JUNE 30, MARCH 31,
1997 1997
------------ -------------
(unaudited)
ASSETS
------
CASH AND DEMAND DEPOSITS $ 10,508 $ 31,453
Interest-bearing time deposits and cash equivalents 25,921 22,866
------------ ------------
TOTAL CASH AND EQUIVALENTS 36,429 54,319
Mortgage-backed securities available for sale 760,077 780,862
Investment securities held to maturity 236,187 235,197
Loans held for sale 57,915 35,443
Loans (less allowance for loan losses of $18,062 and $16,823
at June 30, 1997 and March 31, 1997, respectively) 1,820,967 1,638,514
Accrued interest receivable:
Mortgage-backed securities 4,146 4,301
Investment securities 3,720 3,520
Loans 9,848 8,790
Real estate held for sale, net 5,648 7,156
Federal Home Loan Bank stock, at cost 43,641 42,866
Office properties and equipment, net 18,436 18,322
Cost in excess of fair value of net assets acquired 19,594 20,319
Other assets 80,907 87,660
------------ ------------
TOTAL $3,097,515 $2,937,269
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Deposits $1,725,779 $1,683,998
Advances from Federal Home Loan Bank 825,568 720,482
Other borrowings 308,310 312,373
Other liabilities 40,621 34,429
------------ ------------
TOTAL LIABILITIES 2,900,278 2,751,282
------------ ------------
STOCKHOLDERS' EQUITY:
Serial Preferred Stock, ($.01 par value),
Authorized 5,000,000 shares; none outstanding
Common Stock ($.01 par value),
Authorized 20,000,000 shares; 8,638,486 and 8,613,086 outstanding
at June 30, 1997 and March 31, 1997, respectively 86 86
Additional paid-in capital 56,741 56,492
Retained earnings-substantially restricted 142,610 136,634
Unearned compensation - restricted stock awards (14) (21)
Net unrealized loss on securities available for sale (2,186) (7,204)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 197,237 185,987
------------ ------------
TOTAL $3,097,515 $2,937,269
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 1
4
CITFED BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 1997 and 1996
(Dollars in thousands, except for per share data)
Three Months Ended
June 30,
-----------------------
1997 1996
------------ ---------
(unaudited)
INTEREST INCOME:
Loans $34,280 $29,535
Mortgage-backed securities 13,047 10,666
Investments 3,839 3,410
Other 1,104 608
------- -------
Total interest income 52,270 44,219
------- -------
INTEREST EXPENSE:
Deposits 18,991 18,037
Borrowings 15,488 10,362
------- -------
Total interest expense 34,479 28,399
------- -------
NET INTEREST INCOME 17,791 15,820
Provision for loan losses 1,600 450
------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 16,191 15,370
------- -------
NON-INTEREST INCOME:
Servicing Fees and Charges:
Consumer banking 3,921 2,836
Trust and investment services 769 901
Mortgage banking operations, net 2,929 2,412
Gain(loss) on sale:
Provision for losses on real estate held for sale (130) (9)
Other 776 463
------- -------
Total non-interest income 8,265 6,603
------- -------
NON-INTEREST EXPENSES:
Salaries and benefits 6,362 6,451
Occupancy and equipment 3,418 3,208
Amortization of cost in excess of fair value of
net assets acquired 725 725
FDIC premiums and OTS assessments 364 1,005
Marketing and advertising 636 472
Franchise Tax 411 397
Other 2,904 2,468
------- -------
Total non-interest expenses 14,820 14,726
------- -------
INCOME BEFORE INCOME TAXES 9,636 7,247
Income tax provision 2,970 2,210
------- -------
NET INCOME $6,666 $5,037
======= =======
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $.75 $.57
======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 2
5
CITFED BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Three Months Ended June 30, 1997
(Dollars in thousands)
ADDITIONAL NET UNREALIZED OTHER TOTAL
OUTSTANDING COMMON PAID-IN RETAINED LOSS ON SECURITIES EQUITY STOCKHOLDERS'
(unaudited) SHARES STOCK CAPITAL EARNINGS AVAILABLE FOR SALE ADJUSTMENTS EQUITY
----------- ------ ------------ -------- ----------------------- ----------- -------------
BALANCE, MARCH 31, 1997 8,613,086 $86 $56,492 $136,634 ($7,204) ($21) $185,987
Net income 6,666 6,666
Dividends paid (690) (690)
Change in net unrealized
Loss on securities
available for sale 5,018 5,018
Stock options exercised 25,400 249 249
Restricted stock awards-
compensation 7 7
----------- ------ ----------- -------- -------- -------- ---------
BALANCE, JUNE 30, 1997 8,638,486 $86 $56,741 $142,610 ($2,186) ($14) $197,237
=========== ====== ========== ======== ========= ======== =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 3
6
CITFED BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30, 1997 and 1996
(Dollars in thousands)
Three Months Ended
June 30,
---------------------
(Unaudited) 1997 1996
--------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,666 $ 5,037
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 830 898
Amortization of intangibles 1,422 467
Amortization of deferred loan fees (14) (262)
(Increase) decrease in loans held for sale (22,748) 29,843
FHLB stock dividends (775) (561)
Loss on sale of earning assets 272 1,094
Provision for loan and REO losses 1,730 459
ESOP & RRP and other 7 36
Increase in accrued interest receivable (1,103) (1,510)
Decrease in other assets 14,966 4,358
Increase in other liabilities, net 3,490 205
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,743 50,064
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment securities:
Purchased (9,001) (43,688)
Matured/principal collected 8,001 9,249
Mortgage-backed securities available for sale:
Purchased (62,229)
Principal collected 28,547 28,249
Loans held for investment:
Originated (260,057) (125,875)
Principal collected 75,840 82,903
Purchased and originated mortgage servicing rights (8,857) (1,763)
Purchases/Redemptions of FHLB stock (3,133)
Proceeds from real estate sold 1,761 462
Real estate acquired for development and sale (201) (52)
Office properties and equipment, net (1,029) (119)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (164,996) (115,996)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits 41,781 (22,619)
FHLB advances:
Borrowings 291,000 297,000
Payments (185,914) (210,686)
Reverse repurchase agreement payments (3,491)
Other borrowing payments (572) (49)
Common stock issuances 249 11
Cash dividends paid (690) (398)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 142,363 63,259
--------- ---------
NET DECREASE IN CASH AND EQUIVALENTS (17,890) (2,673)
Cash and equivalents, beginning of period 54,319 52,724
--------- ---------
CASH AND EQUIVALENTS, END OF PERIOD $ 36,429 $ 50,051
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 32,968 $ 26,249
========= =========
SUPPLEMENTAL OF NON-CASH INVESTING ACTIVITIES:
Transfer of loans to foreclosed real estate $ 182 $ 803
========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 4
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CITFED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended June 30, 1997 and 1996
(Unaudited)
1. BASIS OF PRESENTATION
The foregoing consolidated financial statements as of June 30, 1997 and
1996, and for the three months ended June 30, 1997 and 1996 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, 1997, the Bank had outstanding commitments to originate and
purchase loans aggregating approximately $67.1 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 $62.1 million; the remainder are at floating rates. The Bank had
outstanding mandatory and optional forward commitments to sell loans and
mortgage-backed securities of $95.4 million at June 30, 1997.
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
or results of operations.
3. SUBSIDIARY OPERATIONS
CitFed Bancorp has four subsidiaries:
Citizens Federal Bank, F.S.B. CitFed Mortgage Corporation of America
(federal savings bank) (mortgage banking)
C. F. Property Management Company Dayton Financial Services Corporation
(which does business as CitFed Investment (residential land development)
Group) (mutual fund and insurance sales)
Earnings (losses): THREE MONTHS ENDED
(In thousands) JUNE 30,
---------------------------
(Unaudited) 1997 1996
------------- ------------
Citizens Federal Bank $6,174 $4,707
CitFed Mortgage 839 736
CitFed Investment Group 48 97
Dayton Financial (58)
CitFed Bancorp (including consolidating entries) (395) (445)
--------- ---------
NET INCOME $6,666 $5,037
========= =========
Page 5
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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, 1997 and 1996 are divided by the weighted average number of common
shares and common share equivalents outstanding during the period. Average
common and common stock equivalents outstanding for the three month period
ended June 30, 1997 and 1996 were 8,926,161 and 8,855,691, respectively. Stock
options are considered common share equivalents.
5. DIVIDEND
The Board of Directors declared on July 25, 1997, a quarterly dividend of
$0.09 per share payable August 30, 1997 to stockholders of record on August 15,
1997. The total amount of the dividend will be approximately $777,000.
6. CURRENT ACCOUNTING ISSUES
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share"
("SFAS 128"). SFAS 128 provides computation, presentation, and disclosure
requirements for earnings per share. The current presentation of primary and
fully diluted earnings per share will be replaced with basis and diluted
earnings per share. The Statement is effective for financial statements for
both interim and annual periods ending after December 15, 1997, and earlier
application is not permitted. Although basic earnings per share under SFAS 128
excludes dilutive securities, management expects that the new basic earnings
per share will not be significantly different from primary earnings per share,
which includes the effect of potentially dilutive securities. Diluted earnings
per share, as required by SFAS 128, is not expected to materially change from
the current fully diluted earnings per share presentation.
In connection with SFAS 128, the FASB also issued SFAS No. 129,
"Disclosure of Information about Capital Structure" ("SFAS 129"). While SFAS
128 applies only to public companies, SFAS 129 is applicable to both public and
nonpublic companies. This statement is not expected to have a material impact
on disclosures currently made by the Corporation.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which will require disclosure in the financial statements of all the
changes in equity during a period from transactions and other events and
circumstances from non-owner sources. Items included in comprehensive income
will include separate classification of items based upon their nature. The
Statement requires that comparative information for prior years to be restated.
SFAS No. 130 is effective for financial statements for fiscal years beginning
after December 15, 1997. The effect on the Corporation's financial statements
has not yet been determined.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which will require new segment
information in public companies' annual financial statements. Additionally,
selected information will be required in interim financial statements. The
Statement requires that comparative information for prior years be restated.
SFAS No. 131 is effective for financial statements for periods beginning after
December 15, 1997. The effect on the Corporation's financial statements has
not yet been determined.
Page 6
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7. 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
The Corporation is a Delaware corporation organized on January 25, 1991
for the purpose of acquiring all of the outstanding capital stock of 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 35 offices in a seven county area that comprises the greater Dayton area.
In addition, through the Bank's wholly owned subsidiary, CitFed Mortgage
Corporation of America (the "CitFed Mortgage"), it operates fifteen mortgage
loan origination offices in Dayton, Columbus and Cincinnati, Ohio; Indiana,
Kentucky, Virginia and North Carolina.
FORWARD-LOOKING STATEMENT
When used in this Quarterly Report on Form 10-Q, the words or phrases
"will likely result", "are expected to", "will continue", "is anticipated",
"estimate", "project" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks
and uncertainties - including, changes in economic conditions in the
Corporation's market area, changes in policies by regulatory agencies,
fluctuations in interest rates, demand for loans in the Corporation's market
area and competition, that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The
Corporation wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The
Corporation wishes to advise readers that the factors listed above could affect
the Corporation's financial performance and could cause the Corporation's
actual results for future periods to differ materially from any opinions or
statements expressed with respect to future periods in any current statements.
The Corporation does not undertake -- and specifically disclaims any
obligation -- to publicly release the result of any revisions which may be made
to any forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
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 and service charges, and
affected by the level of its non-interest expenses, including its provision for
loan losses and 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.
Page 7
10
Net Income: Net income for the three months ended June 30, 1997, was
$6.7 million as compared to $5.0 million for the three months ended June 30,
1996, resulting in an increase of 32.3%.
Interest Income: Total interest income increased $8.1 million, or 18.2%
from $44.2 million for the first quarter of fiscal 1997 to $52.3 million for
the first quarter of fiscal 1998. Of this increase, $7.3 million resulted from
an increase of $395.2 million in the average balance of interest-earning
assets, primarily loans receivable and mortgage-backed securities. The
remaining $734,000 increase resulted from a 12 basis point increase in the
weighted average yield on interest-earning assets caused by a slight increase
in market rates of interest.
Management decided, throughout fiscal 1997 and 1998, to grow the Bank's
assets by increasing its permanent portfolio of consumer and one- to
four-family loans held for investment. As a result, the average balance of
loans increased $237.2 million from the three months ended June 30, 1996 to
June 30, 1997. In addition, purchases during this same period have resulted in
an increase in the average balance of mortgage-backed securities and investment
securities of $121.4 million and $26.8 million, respectively.
Interest Expense: Total interest expense increased $6.1 million, or
21.4% from $28.4 million for the first quarter of fiscal 1997 to $34.5 million
for the first quarter of fiscal 1998. Of this increase, $6.0 million was the
result of an increase of $370.3 million in the average balance of
interest-bearing liabilities. The remaining $64,000 increase related to a 24
basis point increase in the cost of funds.
The Bank's average deposits increased $71.0 million for the first quarter
of fiscal 1998 as compared to the first quarter of fiscal 1997 primarily due to
an $84.3 million increase in retail certificates of deposit, partially offset
by a $13.3 million decrease in demand and money market deposits, and NOW
accounts. In addition, the average balance of FHLB advances and securities
sold under agreements to repurchase increased $133.3 million and $166.2
million, respectively. These increases were necessary to fund the asset growth
planned by management.
Page 8
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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,
1997 vs 1996
Increase (Decrease) Due To
Volume Rate Total
------ ---- -----
(Dollars in thousands)
Interest-Earning Assets:
Loans receivable $4,670 $ 75 $4,745
Mortgage-backed securities 2,025 356 2,381
Investment securities 501 (72) 429
Other 121 375 496
------ ----- -------
Total interest-earning assets $7,317 $ 734 $8,051
====== ===== =======
Interest-Bearing Liabilities:
Deposits:
NOW accounts $ 115 $(252) $ (137)
Savings deposits (11) (5) (16)
Money Market deposits (183) 140 (43)
Certificates of deposit 1,791 (641) 1,150
FHLB advances 1,910 654 2,564
Securities sold under agreements
to repurchase 2,399 185 2,584
Other borrowings (5) (17) (22)
------ ----- -------
Total interest-bearing liabilities $6,016 $ 64 $6,080
====== ===== -------
Net interest income $1,971
=======
Net Interest Margin. The following table presents, for the periods
indicated, the total dollar amount of interest income from average
interest-earning assets and the resultant yields, as well as the interest
expense on average interest-bearing liabilities, and the resultant 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 102.9% for the three months ended June 30, 1997, as
compared to 102.3% for the same period last year. Although the weighted
average interest rate for both interest-earning assets and interest-bearing
liabilities rose, there was a decrease in the net interest rate spread. This
is a result of the Bank's deposit liabilities and short-term borrowings
repricing slightly faster than its interest-earning assets. In addition, the
Bank's planned asset growth was substantially funded by an increase in the
balances of short-term borrowings, which bears a higher average rate than the
average rate of deposits.
Page 9
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Three months ended June 30,
1997 1996
----------- --------- ----------- ----------- -------- --------
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) $1,739,424 $34,280 7.88% $1,502,215 $29,535 7.86%
Mortgage-backed securities 779,966 13,047 6.69 658,557 10,666 6.48
Investment securities 235,520 3,839 6.52 208,700 3,410 6.54
Other 65,883 1,104 6.70 56,079 608 4.34
---------- -------- ------- ----------- -------- ------
Total interest-earning assets $2,820,793 $52,270 7.41% $2,425,551 $44,219 7.29%
========== -------- ------- =========== -------- ------
Interest-Bearing Liabilities:
Deposits:
NOW account $ 182,389 $ 859 1.88% $ 179,124 $ 996 2.22%
Demand deposits 122,045 0.00 128,598 0.00
Savings deposits 212,096 1,297 2.45 213,819 1,313 2.46
Money Market deposits 123,708 1,048 3.39 131,983 1,091 3.31
Certificates of deposit 1,056,470 15,787 5.98 972,140 14,637 6.02
FHLB advances 738,056 10,771 5.84 604,757 8,207 5.43
Securities sold under agreements
to repurchase 266,201 3,873 5.82 100,000 1,289 5.16
Other borrowings 40,962 844 8.24 41,209 866 8.41
---------- -------- ------- ----------- -------- ------
Total interest-bearing liabilities $2,741,927 34,479 5.03% $2,371,630 28,399 4.79%
========== -------- ------- =========== -------- ------
Net interest income; interest
rate spread $17,791 2.38% $15,820 2.50%
======== ======= ======== ======
Net interest margin (2) 2.52% 2.61%
======= ======
Average interest-earning assets to
average interest-bearing liabilities 102.88% 102.27%
====== ======
(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.
Provision for Loan Losses. The Bank's provision for loan losses was $1.6
million for the three months ended June 30, 1997, compared to a provision of
$450,000 for the three months ended June 30, 1996. The growth in consumer and
non-residential real estate loans (which have traditionally carried more risk
than one- to four-family real estate loans) and the overall growth of the
Bank's loan portfolio contributed to the increase in the provision for loan
losses. Both provisions reflect the Bank's continuing evaluation of its loan
portfolio, the growth of the 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.
Page 10
13
The following table sets forth an analysis of the Bank's allowance for
loan losses at the dates indicated.
Three Months Ended
June 30,
1997 1996
--------- ---------
(Dollars in thousands)
Balance at beginning of period $16,823 $16,330
--------- ---------
Charge-offs:
One-to four-family real estate (110) (46)
Other real estate (1) (5)
Consumer (670) (92)
Commercial business (15)
--------- ---------
Total charge-offs (781) (158)
--------- ---------
Recoveries:
One-to four-family real estate 20 13
Other real estate 6 50
Consumer 392 19
Commercial business 2 9
--------- ---------
Total recoveries 420 91
--------- ---------
Net charge-offs (361) (67)
Provisions 1,600 450
--------- ---------
Balance at end of period $18,062 $16,713
========= =========
Ratio of net charge-offs during the period
to average loans outstanding during the period (0.02%) (0.00%)
========= =========
Ratio of allowance to non-performing loans
at end of period 231.0% 83.2%
========= =========
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 11
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The ratio of the allowance to non-performing loans increased to 231.0% at
June 30, 1997, compared to 83.2% for the same period one year ago primarily
because of the decrease in non-performing loans from $20.1 million to $7.8
million. This decrease was primarily due to one loan for $9.3 million, secured
by two commercial office buildings, being repaid during fiscal 1997 and the
Bank charging approximately $1.8 million against its loan loss reserves in the
third quarter of fiscal 1997.
Non-Interest Income: Non-interest income for the three months ended June
30, 1997, totaled $8.3 million as compared to $6.6 million for the same period
a year ago, an increase of $1.7 million, or 25.2%.
Consumer banking fees and charges increased 38.3% to $3.9 million for the
three months ended June 30, 1997, up from $2.8 million for the same period last
year. This increase continued to reflect the benefits of growth in consumer
checking accounts and increased fees associated with consumer and commercial
loan activities.
Although trust and investor services fee income declined 14.7% to $769,000
for the first quarter, down from $901,000 from the same quarter last year,
administered trust assets increased 5.0% to $438.8 million at June 30, 1997,
compared with $418.0 million at June 30, 1996. The decline in fee income
primarily resulted from lower sales of mutual funds and insurance products sold
through the Bank's retail branches by CitFed Investment Group. This decrease
was caused by a temporary decline in the number of sales representatives
combined with reduced sales due to market fluctuations.
Mortgage banking fee income increased by 21.4% in the first quarter to
$2.9 million, compared to $2.4 million for the same period a year ago. This
increase was due to increases in the Mortgage Company's mortgage loan servicing
portfolio which was $6.1 billion at June 30, 1997, with $4.4 billion of
mortgage loans being serviced for other investors, compared to $4.5 billion at
June 30, 1996, with $3.0 billion of mortgage loans being serviced for other
investors. The growth in the mortgage servicing portfolio was mainly a result
of purchasing $840 million of mortgage servicing rights during the quarter
ending June 30, 1997. Mortgage loan closings totaled $261.0 million for the
quarter ended June 30, 1997, compared to $223.0 million for the quarter ended
June 30, 1996, an increase of 17.1%.
Non-Interest Expenses: Non-interest expenses for the three months ended
June 30, 1997 were $14.8 million, compared to $14.7 million for the three
months ended June 30, 1996, an increase of $94,000, or 0.6%. Normal increases
in operating expenses were offset by the $650,000 decrease in the Savings
Association Insurance Fund ("SAIF") premiums as a result of federal legislation
passed in the previous fiscal year to recapitalize the SAIF fund.
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Income Tax Provision. The Bank's income tax provision for the three
months ended June 30, 1997, was 30.8%, compared to 30.5% for the three months
ended June 30, 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,
1997 1997
---------- ----------
(Dollars in thousands)
Non-Performing Assets
Non-accruing loans:
One- to four-family $ 6,979 $ 6,140
Multi-family and commercial real estate 583 550
Consumer 84 207
Commercial business 174
---------- ----------
Total 7,820 6,897
---------- ----------
Foreclosed assets:
One- to four-family 2,072 3,452
Multi-family and commercial real estate 2,669 2,786
---------- ----------
Total 4,741 6,238
---------- ----------
Total non-performing assets $12,561 $13,135
========== ==========
Non-performing loans to total loans 0.43% 0.42%
========== ==========
Non-performing assets to total assets 0.41% 0.45%
========== ==========
The $574,000 decrease in non-performing assets from March 31, 1997 to June
30, 1997, was the result of several factors. Non-accruing one-to four-family
mortgage loans increased $839,000 during the period. Twenty-six loans totaling
$2.1 million were placed on non-accrual status, 3 loans totaling $216,000 were
transferred to foreclosed assets, 5 loans totaling $162,000 were returned to
accruing status and 9 loans totaling $888,000 million were paid off.
Non-accruing multi-family and commercial real estate loans increased
$33,000 for the period. Three loans for $583,000 were added to non-accrual
status, one loan totaling $20,000 was paid in full and one loan for $530,000
was returned to accruing status.
Foreclosed assets decreased $1.5 million for the period. Three
residential properties totaling $182,000 (net of $34,000 in loss reserves) were
added, and eleven properties totaling $1.8 million were sold. Residential
construction costs of $201,000 were incurred during the quarter. One
commercial property totaling $34,000 was sold. The reserve for foreclosed
assets increased by $80,000 from a provision of $130,000, offset by net
charge-offs of $50,000.
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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 are dividends from the Bank. The Bank meets the 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 25,
1997, a dividend on its common stock of nine cents ($0.09) per share. The
dividend will be paid on August 30, 1997 to stockholders of record on August
15, 1997.
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. The one year interest rate
sensitivity "gap" is the difference between interest-earning assets and
interest-bearing liabilities maturing or repricing within one year. The
Corporation mitigates its exposure to interest rate risk by striving to
maintain a neutral "gap" between the maturities of its interest-earning assets
and interest-bearing liabilities. This strategy results in a more stabilized
net interest margin in periods of either rising or falling interest rates. At
June 30, 1997, the Corporation's one-year gap was a negative 7.14%.
The cumulative interest rate sensitivity gap reflects the Corporation's
sensitivity to interest rate changes over time. It is a static indicator, and
does not attempt to predict the net interest income of a dynamic business in a
rapidly changing environment. Significant adjustments are made when the
interest rate outlook changes. Generally, the Corporation's negative one-year
gap would mean that 7.14% of the Corporation's liabilities will reprice within
one year without a corresponding repricing of the assets funded by them.
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 13.72% at June 30, 1997.
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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 the mortgage banking subsidiary and held for
re-sale, (iii) expected deposit flows, (iv) yields available on
interest-earning deposits, and (v) the objective of its asset/liability
management program. Excess liquidity is invested generally in interest-earning
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, 1997, the Bank had commitments to
purchase from CitFed Mortgage loans totaling $47.6 million. CitFed Mortgage
had commitments to fund loans of $67.1 million and to sell loans of $95.4
million.
CAPITAL--Savings institutions insured by the Federal Deposit Insurance
Corporation 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, 1997:
---------------
(Dollars in thousands) Amount %(1)
---------------
Tangible Capital:
Bank's $180,067 5.88%
Requirement 45,925 1.50
-------- -----
Excess $134,142 4.38%
======== =====
Core Capital
Bank's $180,067 5.88%
Requirement 91,849 3.00
-------- -----
Excess $ 88,218 2.88%
======== =====
Risk-Based Capital:
Bank's $197,222 13.22%
Requirement 119,349 8.00
-------- -----
Excess $ 77,873 5.22%
======== =====
(1) 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.
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A reconciliation of the Corporation's GAAP Capital is as follows:
(Dollars in thousands) June 30, 1997
-------------
Bank's stockholder's equity $198,712
Less additional capital contributed to
Bank by the Corporation (22,000)
Plus Corporation's stockholders'
equity not available for regulatory capital 20,525
----------
Stockholders' equity of the Corporation $197,237
==========
Minimum capital requirements, as required by the Federal Deposit Insurance
Corporation Improvement Act of 1991, 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%, core capital to risk-weighted assets of at least 6% and risk-based
capital of at least 10%. The Bank's ratios at June 30, 1997 were 5.88%, 12.07%
and 13.22%, respectively. As a result, the Bank meets the capital requirements
of a well capitalized institution.
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19
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 6. Exhibits and Reports on Form 8-K
a) Exhibit - Index
Exhibit Number Description
11 Statement regarding computation
of per share earnings
27 Financial Data Schedule
b) Report on Form 8-K - There were no reports on Form 8-K
filed during the three months ended June 30, 1997.
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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.
CITFED BANCORP, INC.
(Registrant)
Date August 13, 1997 By /s/ Jerry L. Kirby
----------------------- -------------------------------
Jerry L. Kirby
Chairman of the Board, President and
Chief Executive Officer
(Duly Authorized Representative)
Date August 13, 1997 By /s/ William M. Vichich
----------------------- -------------------------------
William M. Vichich
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
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EXHIBIT INDEX
Exhibit Number Description
11 Statement regarding computation
of per share earnings
27 Financial Data Schedule