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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one): |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 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 0-17912
FIRST CITIZENS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1638667
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
22 Firstfield Road, Gaithersburg, Maryland 20878
- ------------------------------------------ --------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (301) 527-2400
-------------------------
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 the number of shares outstanding for the issuer's classes of
common stock, as of May 9, 1997.
$.01 par value of common stock 2,943,820
------------------------------ ------------
(class) (outstanding)
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FIRST CITIZENS FINANCIAL CORPORATION
AND SUBSIDIARY
FORM 10-Q
INDEX
Part I Financial Information Page
- ------ --------------------- ----
Item 1 Financial Statements of First Citizens Financial Corporation
and Subsidiary:
Unaudited Consolidated Statements of Financial Condition
as of March 31, 1997 and December 31, 1996.................... 3
Unaudited Consolidated Statements of Income for the three
months ended March 31, 1997 and 1996.......................... 4
Unaudited Consolidated Statements of Cash Flows for the three
months ended March 31, 1997 and 1996.......................... 5
Notes to Unaudited Consolidated Financial Statements as
of and for the three months ended March 31, 1997 and 1996..... 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 8
Part II Other Information
- ------- -----------------
Item 6 Exhibits and Reports on Form 8-K................................ 12
Signature Page.................................................. 13
Exhibit Index................................................... 14
2
FIRST CITIZENS FINANCIAL CORPORATION AND SUBSIDIARY
Unaudited Consolidated Statements of Financial Condition
(Dollars in thousands, except per share data)
March 31, December 31,
Assets 1997 1996
----------- ----------
Cash and cash equivalents................................................................ $ 16,764 $ 16,342
Investment securities available-for-sale, at estimated fair value........................ 83,028 81,387
Investment securities held-to-maturity, net (estimated fair value of $55,985 at
March 31, 1997 and $56,788 at December 31, 1996)....................................... 55,740 56,035
Loans receivable, net of allowance for losses of $6,921 and $6,931 at March 31, 1997
and December 31, 1996, respectively.................................................... 505,248 497,291
Loans held for sale, net, at lower of cost or market..................................... 6,735 8,801
Stock in the Federal Home Loan Bank of Atlanta, at cost.................................. 3,935 3,862
Real estate owned, net of allowance for losses of $1,022 and $1,049 at March 31, 1997
and December 31, 1996, respectively.................................................... 8,979 9,772
Accrued interest receivable.............................................................. 4,273 3,848
Premises and equipment, net.............................................................. 3,505 3,450
Deferred income taxes, net .............................................................. 1,355 1,392
Prepaid expenses and other assets........................................................ 4,241 5,016
--------- ---------
Total Assets........................................................................ $ 693,803 $ 687,196
======= =======
Liabilities
Deposit accounts......................................................................... $ 544,461 $ 538,897
Advances from the Federal Home Loan Bank of Atlanta...................................... 73,350 74,800
Other borrowed money..................................................................... 24,305 24,238
Accounts payable and accrued expenses.................................................... 9,319 7,644
--------- ---------
Total Liabilities................................................................... 651,435 645,579
------- -------
Stockholders' Equity
Preferred stock, $.01 per share par value, 2,000,000 shares authorized, none issued and
outstanding........................................................................... --- ---
Common stock, $.01 per share par value, 8,000,000 shares authorized, 2,943,820 and
2,937,860 shares issued and outstanding at March 31, 1997 and December 31, 1996,
respectively....................................................................... 29 29
Additional paid-in capital............................................................... 27,325 27,307
Retained earnings........................................................................ 15,782 14,367
Unrealized net holding losses on investment securities available-for-sale, net of
taxes................................................................................. (768) (86)
--------- ---------
Total Stockholders' Equity.......................................................... 42,368 41,617
-------- ---------
Total Liabilities and Stockholders' Equity.......................................... $ 693,803 $ 687,196
======= =======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
3
FIRST CITIZENS FINANCIAL CORPORATION AND SUBSIDIARY
Unaudited Consolidated Statements of Income
(In thousands, except per share data)
Three Months Ended
March 31,
---------------------
1997 1996
---- ----
Interest income
Loans receivable ................................. $ 10,380 $ 9,328
Investment securities ............................ 2,521 2,012
Other interest ................................... 3 67
-------- -------
Total interest income ........................ 12,904 11,407
-------- -------
Interest expense
Deposit accounts ................................. 6,105 5,911
Advances from the Federal Home Loan Bank
of Atlanta ..................................... 1,183 1,086
Other borrowed money ............................. 361 --
-------- -------
Total interest expense ....................... 7,649 6,997
-------- -------
Net interest income .............................. 5,255 4,410
Provision for loan losses ............................ -- 148
-------- -------
Net interest income after provision for
loan losses ........................................ 5,255 4,262
-------- -------
Other income
Deposit service charges .......................... 354 289
Gain on sale of loans ............................ 93 776
Loan fees and service charges .................... 97 149
Servicing fee income, net ........................ 52 84
Gains on sale of investment securities ........... -- 4
Other ............................................ 56 49
-------- -------
Total other income ........................... 652 1,351
-------- -------
Operating expense
Compensation and employee benefits ............... 2,102 2,033
Equipment, maintenance and data processing ....... 380 360
Federal insurance premiums ....................... 120 306
Occupancy ........................................ 302 324
Professional services ............................ 190 170
Advertising and promotion ........................ 191 182
(Gain) loss from real estate, net ................ (113) 204
Other ............................................ 408 405
-------- -------
Total operating expense ...................... 3,580 3,984
-------- -------
Income before income taxes ........................... 2,327 1,629
Provision for income taxes ....................... 912 551
-------- -------
Net income ........................................... $ 1,415 $ 1,078
======== =======
Earnings per common and common equivalent
share (note 2) ..................................... $ .44 $ .34
======== =======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
FIRST CITIZENS FINANCIAL CORPORATION AND SUBSIDIARY
Unaudited Consolidated Statements of Cash Flows
(In thousands)
Three Months Ended
March 31,
-------------------
Operating activities 1997 1996
---- ----
Net income ............................................. $ 1,415 $ 1,078
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for losses on assets ....................... 102 263
Amortization of loan fees, premiums, discounts and
deferred interest ................................... (174) (226)
Loans originated for sale, net of repayments ......... (3,961) (11,019)
Sale of loans held for sale .......................... 6,032 37,870
Increase in accrued interest receivable, prepaid
expenses and other assets ........................... (77) (2,181)
Depreciation and amortization of premises and
equipment ........................................... 125 107
Increase in accounts payable and accrued expenses .... 2,568 448
Deferred income tax provision ........................ -- 587
Other ................................................ (37) 25
-------- --------
Net cash provided by operating activities ......... 5,993 26,952
-------- --------
Investing activities
Loans originated, net of repayments and sales ........ (7,717) (11,761)
Loans purchased ...................................... -- (181)
Investment securities purchased ...................... (9,545) (58,477)
Investment securities sold ........................... -- 4,979
Principal repayments, maturities and calls of
investment securities ............................... 7,027 26,875
Purchases of Federal Home Loan Bank of
Atlanta stock ....................................... (780) (410)
Sales of Federal Home Loan Bank of Atlanta stock ..... 707 282
Capitalized additions to real estate owned ........... (13) (973)
Proceeds from sale of real estate owned .............. 731 251
Net additions to premises and equipment .............. (180) (102)
-------- --------
Net cash used in investing activities ............. (9,770) (39,517)
-------- --------
Financing activities
Net increase in deposits ............................. 5,564 13,140
Proceeds from Federal Home Loan Bank of
Atlanta advances .................................... 88,008 32,425
Repayments of Federal Home Loan Bank of
Atlanta advances .................................... (89,458) (29,875)
Proceeds from other borrowings ....................... 67 --
Net proceeds from exercise of stock options .......... 18 112
-------- --------
Net cash provided by financing activities ......... 4,199 15,802
-------- --------
Increase in cash and cash equivalents ............. 422 3,237
Cash and cash equivalents at beginning of period .. 16,342 15,711
-------- --------
Cash and cash equivalents at end of period ........ $ 16,764 $ 18,948
======== ========
Supplemental information
Interest paid on deposits and borrowed funds ......... $ 2,083 $ 1,573
Loans to facilitate the sale of real estate owned .... -- 865
Income tax payment ................................... -- 530
Loans transferred to held for sale, net .............. -- 1,254
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
FIRST CITIZENS FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
As of and for the Three Months Ended March 31, 1997 and 1996
________________________________________________________________________________
1) Basis of Presentation
First Citizens Financial Corporation ("First Citizens Financial") is the
holding company of Citizens Savings Bank F.S.B. ("Citizens" or the "Bank"), a
wholly-owned federal savings bank subsidiary of First Citizens Financial. The
consolidated financial statements include the accounts of First Citizens
Financial, Citizens and wholly-owned subsidiaries of Citizens (collectively, the
"Company").
The financial statements as of March 31, 1997 and for the three months ended
March 31, 1997 and 1996 are unaudited but, in the opinion of management of the
Company, contain all adjustments, consisting solely of normal recurring entries,
necessary to present fairly the consolidated financial condition as of March 31,
1997 and the results of consolidated operations for the three months ended March
31, 1997 and 1996 and consolidated cash flows for the three months ended March
31, 1997 and 1996. The consolidated statement of financial condition as of
December 31, 1996 is derived from audited financial statements. These condensed
financial statements should be read in conjunction with the financial statements
and notes thereto included in First Citizens Financial's latest report on Form
10-K.
The results of consolidated operations for the three months ended March 31,
1997 are not necessarily indicative of results that may be expected for the
entire year ending December 31, 1997. The proposed acquisition of the Company by
Provident Bankshares Corporation is discussed in Management's Discussion and
Analysis of Financial Condition.
2) Earnings Per Share
Earnings per share for the three months ended March 31, 1997 and 1996 were
determined by dividing net income by 3,241,299 and 3,178,512, the weighted
average number of shares outstanding during these periods, respectively.
Outstanding shares also include common stock equivalents which consist of
outstanding stock options, if such options are dilutive. The Company has not
separately reported fully diluted earnings per share as it is not materially
different from earnings per share.
3) Stock Option Plans
At March 31, 1997, the Company had three stock-based compensation plans that
provide for the grant of stock options to directors and/or officers and key
employees of the Company and its subsidiary at prices at least equal to the
market value at the date of grant. The maximum term of all options granted under
the plan is ten years and vesting occurs either immediately or over a period of
up to five years. A total of 638,626 shares of Company common stock were
reserved for issuance at March 31, 1997.
The Company calculates the fair value of its stock options granted after
December 31, 1994 in accordance with SFAS No. 123, Accounting for Stock-Based
Compensation. Accordingly, the stated net income and earnings per share in the
Consolidated Statements of Income, in addition to the proforma net income and
earnings per share reflecting the compensation costs for stock options granted
during the three months ended March 31, 1997 and 1996, are disclosed in the
table below:
Three Months Ended
March 31,
------------------
1997 1996
---- ----
Net income:
As reported ............................ $1,415 $1,078
Proforma ............................... 1,387 1,061
Earnings per share:
As reported ............................ .44 .34
Proforma ............................... .43 .33
Weighted-average assumptions:
Expected lives (years) ................. 10.00 10.00
Risk-free interest rate (%) ............ 6.75 5.73
Expected volatility (%) ................ 48.55 50.31
Expected dividends (annual per share) .. -- --
6
The Company did not record any compensation costs during the three months
ended March 31, 1997 and 1996 relating to any of its stock option plans. In
addition, no significant modifications to the plans were made during the
periods. The fair values of the stock options granted which are used to
determine the proforma impact of the options to compensation expense, and thus,
net income and earnings per share, were based on the Black-Scholes option
pricing model for each grant made during the three months ended March 31, 1997
and 1996, using the key assumptions detailed above.
Compensation cost charged against historical net income in the above table
was increased by the fair value of stock-based compensation grants. The pre-tax
adjustments amounted to $46,035 and $25,091 for the three months ended March 31,
1997 and 1996, respectively. During the initial phase-in period, the effects of
applying SFAS No. 123 to historical net income to provide proforma disclosures
are not likely to be representative of the effects on reported net income for
future years because options vest over several years and additional grants
generally are made each year.
A summary of the status of the Company's three fixed stock option plans as of
March 31, 1997 and 1996, respectively, and changes during the three months ended
on those dates is presented below. Average prices and shares subject to options
have been adjusted to reflect stock dividends.
1997 1996
------------------------- --------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
------ ---------------- ------ ----------------
Outstanding at beginning of year........... 539,749 $ 8.99 518,112 $ 7.40
Granted.................................... 6,000 20.00 1,650 16.19
Exercised.................................. (5,960) 4.46 (21,563) 5.19
Forfeited.................................. -- (2,346) 12.44
Expired.................................... -- --
--------- -------
Outstanding at March 31.................... 539,789 9.16 495,853 7.50
======= =======
Options exercisable at March 31............ 486,250 433,078
Weighted average fair value of options
granted during the period............... $ 12.27 $ 10.80
The following table summarizes information about fixed stock options
outstanding at March 31, 1997.
Options Outstanding Options Exercisable
--------------------------------------------------- ---------------------------------
Weighted Average
Range of Number Remaining Weighted Average Number Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- --------------- ----------- ---------------- -------------- ----------- --------------
(years)
$ 1.32 - 1.33 121,461 4.8 $ 1.32 121,461 $ 1.32
3.38 - 3.39 39,615 5.6 3.38 39,615 3.38
5.17 - 5.72 6,294 1.9 5.44 6,294 5.44
6.00 102,880 5.9 6.00 102,880 6.00
10.23 -10.95 68,365 7.2 10.55 54,918 10.45
11.36 12,100 7.9 11.36 9,407 11.36
13.74 -13.85 8,148 7.5 13.77 4,518 13.79
15.68 -15.70 95,481 8.6 15.68 77,163 15.68
16.00 -16.37 6,395 8.6 16.29 5,028 16.35
17.625 -17.75 10,050 9.2 17.70 4,633 17.72
18.00 -18.125 60,000 9.8 18.12 57,333 18.12
19.00 3,000 9.5 19.00 1,000 19.00
20.00 6,000 9.8 20.00 2,000 20.00
-------- -------
539,789 486,250
======= =======
There were 60 option holders at March 31, 1997. Options exercised during the
three months ended March 31, 1997 had exercise prices ranging from $1.32 to
$16.00. Closing price of the Company's stock at March 31, 1997 was $26.1875 per
share.
7
FIRST CITIZENS FINANCIAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollars in the tables in thousands)
________________________________________________________________________________
This discussion and analysis includes a description of material changes which
have affected the Company's consolidated financial condition and consolidated
results of operations during the periods included in the Company's financial
statements.
PROPOSED ACQUISITION OF THE COMPANY BY PROVIDENT BANKSHARES
On March 10, 1997, the Company and Provident Bankshares Corporation
("Provident") entered into an Agreement and Plan of Merger (the "Merger
Agreement") pursuant to which the Company will merge with and into Provident
(the "Merger"). As a result of the Merger, each share of common stock, par value
$.01 per share, of the Company outstanding on the effective date of the Merger
will (subject to certain exceptions) be converted into the right to receive .73
shares of common stock, par value $1.00 per share, of Provident, together with
the corresponding number of rights attached thereto. In addition, if the average
closing price of Provident common stock for the ten trading days immediately
preceding receipt of the last regulatory approval for the Merger (determined
without regard to any related waiting periods) is below $35.625, the Company may
terminate the Merger Agreement unless Provident increases the exchange ratio in
the Merger such that the value of Provident common stock (based on such average
closing price) to be received in the Merger is not less than $26.006 per share
of Company common stock. The Merger is expected to qualify as a tax-free
reorganization for Federal income tax purposes and to be accounted for as a
pooling of interests. The Merger is expected to close in the third quarter of
1997, and is subject to a number of conditions, including, but not limited to
the approval of the Merger by the requisite vote of the stockholders of both the
Company and Provident and the receipt of all required regulatory approvals.
Due to the 5% stock dividend declared by Provident Bankshares Corporation on
April 16, 1997, each First Citizens share will be converted into .7665 shares of
Provident under the Merger Agreement.
FINANCIAL CONDITION (March 31, 1997 compared to December 31, 1996)
Total assets increased by $6.6 million, or 1.0%, at March 31, 1997 compared
to December 31, 1996. Such increase was primarily due to an increase in loans by
$5.9 million, net, which reflects originations net of repayments. Investment
securities increased by $1.4 million.
Nonperforming assets, net (including nonaccrual loans and real estate owned,
net) amounted to $10.4 million and $10.7 million at March 31, 1997 and December
31, 1996, respectively. During the three months ended March 31, 1997, the Bank
sold one real estate owned project. Total nonperforming assets, net, as a
percentage of total assets were 1.5% at March 31, 1997 and 1.6% at December 31,
1996. Total loss reserves as a percentage of total nonperforming assets, gross,
were 69.6% at March 31, 1997 and 67.7% at December 31, 1996. Troubled debt
restructurings, net, amounted to $2.9 million and $3.9 million, at March 31,
1997 and December 31, 1996, respectively.
The Bank regularly reviews assets in its portfolio to determine whether any
require classification. On the basis of such review, the following assets, which
include nonperforming assets, were classified at the dates indicated:
Classified Assets March 31, 1997 December 31, 1996
-------------- -----------------
Substandard .............................. $ 13,350 $ 14,126
Doubtful ................................. 129 138
Loss ..................................... 2,399 2,412
-------- --------
15,878 16,676
Specific loss reserves ................... (2,399) (2,412)
-------- --------
Classified assets, net ................... $ 13,479 $ 14,264
======== ========
8
The Bank also identifies assets which possess credit deficiencies or
potential weaknesses deserving management's close attention as "special
mention". These assets totaled $23.4 million at March 31, 1997 compared to $22.8
million at December 31, 1996.
The allowance for losses on loans is established through a provision for loan
losses based upon management's evaluation of the risk inherent in the loan
portfolio and changes in the nature and volume of loan activity. Such evaluation
considers, among other factors, the estimated fair value of the underlying
collateral, current economic conditions and historical loan loss experience.
While management uses available information in establishing the allowance for
possible loan losses, future adjustments to the allowance may be necessary if
economic conditions differ substantially from the assumptions used in making the
evaluations. Additions to the allowance are charged to operations; realized
losses, net of recoveries, are charged to the allowance. In addition, various
regulatory agencies, as part of their examination process, periodically review
the Company's allowance for possible loan losses. Such agencies may require the
Company to recognize additions to the allowance based on their judgments about
information available to them at the time of their examinations.
The Bank did not make any additional provisions to the allowance for loan
losses for the first quarter ended March 31, 1997, and incurred $9,700 of net
charge-offs during the period.
The Bank also establishes allowances for losses on real estate owned based
upon their fair values. The Bank recovered $177,000 of loss provisions on real
estate owned during the first quarter ended March 31, 1997 and incurred $102,000
of charge-offs during the period. The valuations of real estate owned properties
are reviewed periodically (at least quarterly) and updated as necessary based on
the Bank's expectations of holding periods, leasing or sales activity, and other
changes in market conditions.
Based on available information, management believes that current loss
reserves are adequate at this time to cover potential losses in the portfolio.
There can be no assurance, however, that additional loss provisions will not be
necessary in the future if market conditions deteriorate.
The Bank had unrealized gains of $.4 million and unrealized losses of $1.6
million on its investment securities available-for-sale portfolio at March 31,
1997. The amortized cost of this portfolio was $84.2 million at that date. There
were unrealized losses amounting to $166,000 and $411,000 in unrealized gains on
the investment securities held-to-maturity portfolio at that date. The Bank's
investment securities portfolio includes both agency obligations and
mortgage-backed securities.
Deposits, before interest was credited, decreased by $44,000 during the three
months ended March 31, 1997. Deposits, including interest credited, increased by
$5.6 million, a 1.0% increase. Also during the three months ended March 31,
1997, advances from the Federal Home Loan Bank decreased $1.4 million, or 1.9%.
Federal Home Loan Bank advances had an average interest rate of 6.3% at March
31, 1997. Other borrowed money increased to $24.3 million at March 31, 1997 and
had an average interest rate of 6.0% at that date.
At March 31, 1997, stockholders' equity totaled $42.4 million, or 6.1% of
total assets, and reflected $.8 million of net unrealized holding losses, net of
applicable taxes, on investment securities available-for-sale. At March 31,
1997, the Bank was considered "well capitalized" under regulatory definitions.
See "Liquidity and Capital Resources".
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
MARCH 31, 1996
General. The Company recorded net income of $1.4 million, or $.44 per share,
for the three months ended March 31, 1997 as compared to net income of $1.1
million, or $.34 per share, for the three months ended March 31, 1996.
Net interest income, after provision for loan losses, increased $993,000 when
compared to 1996. There was a $1.5 million, or 13.1%, increase in interest
income which was partially offset by a $652,000, or 9.3%, increase in interest
expense. Provision for loan losses decreased $148,000. Other income decreased by
$699,000, or 51.7%. This was primarily due to the $683,000 decrease in gain on
sale of loans. Operating expenses decreased by $404,000, or 10.1%, during the
three months ended March 31, 1997 compared to the same period in the prior year.
9
Net Interest Income. The Company's net interest income, before provision for
loan losses, increased $845,000, or 19.2%, during the three months ended March
31, 1997 as compared to the same period of 1996. Interest income on loans
increased by $1.1 million, or 11.3%, due to an increase in average loans
outstanding during the three months ended March 31, 1997 compared to the same
period in the prior year. Interest income on investment securities increased by
$509,000 which was primarily due to a $19.0 million increase in average
outstanding balances during the three months ended March 31, 1997 compared to
the same period in the prior year.
Interest paid on deposits increased $194,000, or 3.3%, due to a $40.4 million
increase in average outstanding balances. Interest rates on deposits decreased
from 4.8% to 4.7% during the three months ended March 31, 1997 compared to the
same period in the prior year. Interest on borrowed funds increased $458,000 due
to a $29.3 million increase in average outstanding balances. Interest rates on
borrowed funds increased from 5.8% to 6.0% during the three months ended March
31, 1997 compared to the same period in the prior year.
Provision for Loan Losses. During the first quarter of 1996, the Company
provided $148,000 of additional reserves to the allowance for loan losses.
Management believes that the current loss reserves appear adequate at this time
to cover potential losses in the loan portfolio. Therefore, no additional loss
reserves were provided during the first quarter of 1997. There can be no
assurance, however, that additional reserves will not be necessary if market
conditions change.
Other Income. Total other income decreased $699,000, or 51.7%, during the
three months ended March 31, 1997 as compared to the three months ended March
31, 1996. Gain on sale of loans decreased $683,000 primarily due to the fact
that Citizens Savings Bank recognized a gain of approximately $.6 million from
the sale of $26.3 million of 30-year fixed-rate loans to improve its interest
sensitivity position during the first quarter of 1996.
Operating Expense. Operating expense decreased by $404,000, or 10.1%, during
the three months ended March 31, 1997 as compared to the three months ended
March 31, 1996. Federal insurance premiums decreased by $186,000, or 60.8%, due
to Congress recapitalizing the Savings Association Insurance Fund in 1996. Due
to the Company selling one of the real estate owned projects during the first
quarter of 1997, the Company recovered the $102,000 reserve for loan losses
provided for this property, which accounts for most of the $113,000 gain from
real estate, net.
Income Taxes. For the quarter ended March 31, 1997, the Company's effective
tax rate was substantially equal to the statutory tax rate. For the quarter
ended March 31, 1996, the Company's effective tax rate was less than the
statutory tax rate due to the tax effects of the exercise of non-incentive stock
options granted to directors and employees.
LIQUIDITY AND CAPITAL RESOURCES
Under current regulations, a savings association, such as the Bank, generally
is required to maintain liquid assets at 5.0% or more of its net withdrawable
deposits plus short-term borrowings. The Bank is in compliance with this
requirement. At March 31, 1997, the Bank had outstanding loan commitments
totaling $14.5 million.
SAIF-insured institutions, such as the Bank, are required to maintain minimum
levels of capital. At March 31, 1997, the Bank continued to exceed all currently
applicable core, tangible and risk-based capital requirements.
10
At March 31, 1997, the Bank had the following amounts of capital:
Actual % of Required % of Excess % of
Amount Assets* Amount Assets* Amount Assets*
------ ------- ------ ------- ------ -------
Core ** ....... $42,036 6.1% $27,724 4.0% $14,312 2.1%
Tangible ...... 42,036 6.1 10,396 1.5 31,640 4.6
Risk-weighted** 47,238 10.6 35,675 8.0 11,563 2.6
- ------------
* Based upon adjusted total assets for the core and tangible capital
requirements, and risk-weighted assets for the risk-based capital
requirement.
** 5.0% core and 10.0% risk-based capital required to be considered "well
capitalized" and 4.0% core and 8.0% risk-based capital required to be
considered "adequately capitalized" under the OTS "Prompt Corrective
Action" regulations. Under current OTS capital regulations, the minimum
core capital requirement is 3.0% and the minimum risk-based capital
requirement is 8.0%.
In August 1993, the OTS issued a final rule which adds an interest-rate-risk
("IRR") component to its risk-based capital rule. Under the rule, savings
institutions with greater than normal interest rate exposure would be required
to deduct from risk-based capital one-half of the difference between the
institution's actual measured exposure and the normal level of exposure. The
amount to be deducted would be provided by OTS. The OTS has indefinitely delayed
implementation of the final rule. Based on financial data as of March 31, 1997,
management believes that compliance with the new IRR would not have had a
material impact on the Bank's risk-based capital position at that date.
Legislation enacted in 1996 contemplates the merger of the SAIF with the Bank
Insurance Fund, which generally insures deposits in national and state chartered
banks. The combined deposit insurance fund, which will be formed no earlier than
January 1, 1999, will insure deposits at all FDIC-insured depository
institutions. As a condition to the combined insurance fund, however, no insured
depository institution can be chartered as a savings association. The Secretary
of the Treasury is required to report to the Congress no later than March 31,
1997 with respect to the development of a common charter for all insured
depository institutions but has not yet done so. If legislation with respect to
the development of a common charter is enacted, the Bank may be required to
convert its Federal charter to either a new Federal type of bank charter or
state depository institution charter. Future legislation also may result in the
Company becoming regulated as a bank holding company by the Federal Reserve
Board rather than a savings and loan holding company regulated by the OTS.
Regulation by the Federal Reserve Board could subject the Company to capital
requirements that are not currently applicable to the Company as a holding
company under OTS regulation and may result in statutory limitations on the type
of business activities in which the Company may engage at the holding company
level, which business activities currently are not restricted. The Company and
the Bank are unable to predict whether such legislation will be enacted.
At March 31, 1997, First Citizens Financial Corporation, on an unconsolidated
basis, had a $1.3 million of cash. First Citizens Financial Corporation's
expenses primarily consist of certain shareholder-related activities. First
Citizens Financial Corporation believes it can fund its working capital needs
from its own cash account, throughout the next year, without payment of
dividends from the Bank.
IMPACT OF ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of outstanding stock options will be excluded. The impact of SFAS No. 128 on the
calculation of primary earnings per share and fully diluted earnings per share
for the first quarter ended March 31, 1997 is not expected to be material.
11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
11. Computation of Primary and Fully Diluted Earnings Per Share.
27. Financial Data Schedule.
(b) Reports on Form 8-K.
A Form 8-K was filed on March 4, 1997 to announce the date for the
1997 Annual Meeting of Stockholders.
A Form 8-K was filed on March 14, 1997 to announce the proposed
merger with Provident Bankshares Corporation.
A Form 8-K was filed on March 25, 1997 to announce that the 1997
Annual Meeting will be delayed due to the proposed merger with
Provident Bankshares Corporation.
12
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.
FIRST CITIZENS FINANCIAL CORPORATION
------------------------------------
(Registrant)
Date: May 14, 1997 By: /s/ Enos K. Fry
------------------- --------------------------------
Enos K. Fry
Vice Chairman and
President
Date: May 14, 1997 By: /s/ William C. Scott
------------------- --------------------------------
William C. Scott
Senior Vice President and
Chief Financial Officer
13
FIRST CITIZENS FINANCIAL CORPORATION AND SUBSIDIARY
EXHIBIT INDEX
-------------
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE
- ----------- ------------------- ----
11 Computation of Primary and Fully Diluted
Earnings Per Share...................................... 15
27 Financial Data Schedule................................. 16
14