UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period ended March 31, 1998
Commission File Number 333-10639
DELPHOS CITIZENS BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 34-1840187
- -------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
114 East 3rd Street, Delphos, Ohio 45833
----------------------------------------
(Address of principal executive offices)
(419) 692-2010
----------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the issuer was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
------ ------
State the number of shares outstanding of each of the registrant's classes of
common equity, as of the latest practicable date.
Class: Outstanding at April 30, 1998
Common stock, $0.01 par value 1,894,411 common shares
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1.
DELPHOS CITIZENS BANCORP, INC.
FORM 10-Q
Quarter ended March 31, 1998
Part I - Financial Information
Page
----
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition as of March 31, 1998 and
September 30, 1997 ............................................................................. 3
Consolidated Statements of Income for the three and six months ended
March 31, 1998 and 1997......................................................................... 4
Condensed Consolidated Statements of Cash Flows for the six months
ended March 31, 1998 and 1997................................................................... 6
Notes to Consolidated Financial Statements ..................................................... 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................................................... 14
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................... 17
Part II - Other Information
OTHER INFORMATION..................................................................................... 18
SIGNATURES ........................................................................................... 19
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2.
PART I. FINANCIAL INFORMATION
DELPHOS CITIZENS BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
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March 31, September 30,
1998 1997
------------------ -----------------
ASSETS
Cash and due from banks $ 1,923,714 $ 1,315,950
Interest-bearing deposits in other banks 1,634,358 3,084,500
----------------- -----------------
Cash and cash equivalents 3,558,072 4,400,450
Investment securities held to maturity 4,996,139
Mortgage-backed securities available for sale 5,425,044 739,366
Mortgage-backed securities held to maturity 10,269,253 11,367,191
Loans receivable, net 91,201,626 84,285,038
Federal Home Loan Bank stock 864,500 833,800
Premises and equipment 654,106 660,703
Accrued interest receivable 493,091 445,461
Other assets 156,932 67,808
----------------- -----------------
Total assets $112,622,624 $107,795,956
================= =================
LIABILITIES
Deposits $ 78,903,493 $ 77,372,969
Federal Home Loan Bank Advances 5,000,000 1,000,000
Escrow accounts 257,245 236,090
Accrued interest payable 52,252 33,193
Accrued expenses and other liabilities 302,485 437,327
----------------- -----------------
Total liabilities 84,515,475 79,079,579
----------------- -----------------
SHAREHOLDERS' EQUITY
Preferred stock, authorized 1,000,000 shares, no shares
issued and outstanding
Common stock, $.01 par value, 4,000,000 shares
authorized, 2,047,631 shares issued 20,476 20,476
Additional paid-in capital 19,929,660 19,854,707
Retained earnings, substantially restricted 13,546,091 12,969,205
Treasury stock (153,220 and 87,936 shares, respectively) (2,852,916) (1,479,065)
Obligation under employee stock ownership plan (1,415,106) (1,463,076)
Unearned recognition and retention plan (1,122,935) (1,186,019)
Unrealized loss on available for sale securities, net 1,879 149
----------------- -----------------
Total shareholders' equity 28,107,149 28,716,377
----------------- -----------------
Total liabilities and shareholders' equity $112,622,624 $107,795,956
================= =================
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See accompanying notes to financial statements.
3.
DELPHOS CITIZENS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended Six months ended
March 31, March 31,
--------- ---------
1998 1997 1998 1997
---- ---- ---- ----
INTEREST INCOME
First mortgage loans $1,678,322 $1,420,744 $3,352,720 $2,793,429
Consumer and other loans 31,827 26,687 65,438 51,078
Mortgage-backed and invest.
securities 234,431 300,184 529,076 563,214
FHLB stock dividends 15,515 13,923 30,752 27,607
Interest bearing deposits 67,513 172,570 110,487 251,808
--------------- -------------- -------------- ---------------
Total interest income 2,027,608 1,934,108 4,088,473 3,687,136
--------------- -------------- -------------- ---------------
INTEREST EXPENSE
Deposits 972,991 893,990 1,960,799 1,887,663
--------------- -------------- -------------- ---------------
NET INTEREST INCOME 1,054,617 1,040,118 2,127,674 1,799,473
Provision for loan losses 3,000 3,000 6,000 6,000
--------------- -------------- -------------- ---------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,051,617 1,037,118 2,121,674 1,793,473
--------------- -------------- -------------- ---------------
NON-INTEREST INCOME
Service charges and fees 106,161 41,037 181,367 75,481
Gain on mortgage-backed
securities available for sale
Other non-interest income 12,123 11,139 26,270 23,718
--------------- -------------- -------------- ---------------
Total non-interest income 118,284 52,176 207,637 99,199
--------------- -------------- -------------- ---------------
NON-INTEREST EXPENSE
Compensation and benefits 231,890 175,166 484,464 460,513
Occupancy and equipment 26,018 23,711 45,701 42,040
Deposit insurance 12,146 2,880 24,518 48,368
Franchise taxes 57,384 45,100 114,442 88,782
Other non-interest expense 187,954 151,560 332,531 286,149
--------------- -------------- -------------- ---------------
Total non-interest expense 515,392 398,417 1,001,656 925,852
--------------- -------------- -------------- ---------------
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(Continued)
4.
DELPHOS CITIZENS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
(Unaudited)
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Three Months Ended Six Months Ended
March 31, March 31,
--------- ---------
1998 1997 1998 1997
---- ---- ---- ----
INCOME BEFORE INCOME TAX $654,509 $690,877 $1,327,655 $966,820
Income tax expense 244,978 193,625 518,383 272,075
--------------- -------------- -------------- ---------------
NET INCOME $409,531 $497,252 $ 809,272 $694,745
=============== ============== ============= ===============
Earnings per share:
Basic $ .24 $ .26 $ .46 $ .30
=============== ============== ============= ===============
Diluted $ .23 $ .26 $ .45 $ .30
=============== ============== ============= ===============
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See accompanying notes to financial statements.
5.
DELPHOS CITIZENS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Six Months Ended
March 31,
---------
1998 1997
---- ----
NET CASH (USED) PROVIDED FROM OPERATING ACTIVITIES $ 718,576 $ 627,764
CASH FLOWS USED IN INVESTING ACTIVITIES
Mortgage-backed securities available for sale
Purchase of mortgage backed securities available
for sale (4,698,308)
Proceeds from principal payments on mortgage-
backed securities 15,152 26,358
Investment and mortgage-backed securities held to
maturity
Proceeds from calls, maturities and paydowns 6,110,947 1,461,881
Purchase of securities held to maturity - (4,985,938)
Loan originations net of principal payment on loans (6,917,669) (5,625,845)
Purchases of premises and equipment (16,518) (13,316)
--------------- ----------------
Net cash used in investing activities (5,506,396) (9,136,860)
--------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 1,530,524 (3,827,319)
Net increase in mortgage escrow funds 21,155 8,329
Proceeds from FHLB advances 5,000,000
Repayments of FHLB advances (1,000,000)
Cash dividends (232,386)
Purchase of treasury stock (1,373,851)
Net proceeds from sale of stock - 18,086,567
--------------- ----------------
Net cash from financing activities 3,945,442 14,267,577
--------------- ----------------
Net change in cash and cash equivalents (842,378) 5,758,481
Cash and cash equivalents at beginning of period 4,400,450 4,695,277
--------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $3,558,072 $10,453,758
=============== ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR:
Interest $1,979,858 $ 1,879,833
Taxes $ 625,000 $ 20,000
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See accompanying notes to financial statements.
6.
DELPHOS CITIZENS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: These interim financial statements are prepared without
audit and reflect all adjustments which, in the opinion of management, are
necessary to present fairly the financial position of Delphos Citizens Bancorp,
Inc. (Company) and its sole subsidiary, Citizens Bank of Delphos (Bank) at March
31, 1998, and its results of operations and cash flows for the periods
presented. All such adjustments are normal and recurring in nature. The
accompanying financial statements do not purport to contain all the necessary
financial disclosures required by generally accepted accounting principles that
might otherwise be necessary in the circumstances. The annual report for the
Bank for the year ended September 30, 1997, contains financial statements and
related notes which should be read in conjunction with the accompanying
unaudited consolidated financial statements.
Effective November 20, 1996, Citizens Federal Savings & Loan Association,
(Association) converted from a federally chartered mutual savings and loan
association to a federally chartered stock savings bank (Citizens Bank of
Delphos) with the concurrent formation of a holding company (Delphos Citizens
Bancorp, Inc.). The conversion was accomplished through an amendment of the
Association's articles of incorporation and the sale of the Company's common
stock in an amount equal to the pro forma market value of the Association after
giving effect to the conversion.
Consolidation Policy: The consolidated financial statements include the accounts
of the Company and the Bank. All significant intercompany transactions and
balances have been eliminated.
Industry Segment Information: The Company is engaged in the business of banking
with operations conducted through its office located in Delphos, Ohio. The
Company originates and holds primarily residential and consumer loans to
customers throughout the Allen and Van Wert County area in Northwest Ohio. The
Company's primary deposit products are interest-bearing checking and
certificates of deposit. There are no branch operations.
Use of Estimates in Preparation of Financial Statements: In preparing financial
statements, management must make estimates and assumptions. These estimates and
assumptions affect the amounts reported for assets, liabilities, revenues and
expenses as well as affecting the disclosures provided. Future results could
differ from current estimates.
Areas involving the use of management's estimates and assumptions primarily
include the allowance for loan losses, the realization of deferred tax assets,
fair value of certain securities and the determination and carrying value of
impaired loans.
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7.
DELPHOS CITIZENS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities: The Company classifies securities as held to maturity, trading or
available for sale. Securities classified as held to maturity are those that
management has the positive intent and ability to hold to maturity. Securities
held to maturity are stated at cost, adjusted for amortization of premiums and
accretion of discounts.
Securities classified as available for sale are those that management intends to
sell or that could be sold for liquidity, investment management, or similar
reasons, even if there is not a present intention for such a sale. Securities
available for sale are carried at fair value with unrealized gains and losses
included as a separate component of shareholders' equity, net of tax. Gains or
losses on dispositions are based on net proceeds and the adjusted carrying
amount of securities sold, using the specific identification method.
Loans Receivable: Loans receivable are stated at unpaid principal balances, less
the allowance for loan losses, and net deferred loan origination fees. The
allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on the Company's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the collateral and current economic conditions.
Uncollectible interest on loans that are contractually past due is charged off,
or an allowance is established based on management's periodic evaluation. The
allowance is established by a charge to interest income equal to all interest
previously accrued and unpaid, and income is subsequently recognized only to the
extent that cash payments are received until, in management's judgment, the
borrower demonstrates the ability to make periodic interest payments in which
case the loan is returned to accrual status.
In accordance with SFAS No.114, certain loans considered to be impaired, as
identified according to internal loan review standards, are reduced to the
present value of expected future cash flows or to the fair value of collateral
by allocating a portion of the allowance for loan losses to such loans.
Allocations which require an increase in the allowance for loan losses are
reported as a provision for loan losses charged to operations.
Management analyzes loans on an individual basis and classifies a loan as
impaired when an analysis of the borrower's operating results and financial
condition indicates that underlying cash flows are not adequate to meet its debt
service requirements. Often this is associated with a delay or shortfall in
payments of 30 days or more. Smaller balance homogeneous loans are
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8.
DELPHOS CITIZENS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
evaluated for impairment in total. Such loans include residential first mortgage
loans secured by one to four family residences, residential construction loans,
home equity, and other consumer loans, with balances less than $200,000. Loans
are generally considered for non-accrual status when 90 days or more past due.
These loans may also be considered impaired.
Impaired loans, or portions thereof, are charged off when deemed uncollectible.
The nature of the disclosures for impaired loans is considered generally
comparable to prior nonaccrual loans and non-performing and past due asset
disclosures. The adoption of SFAS No. 114 had no impact on the comparability of
the March 31, 1998 or September 30, 1997 allowance for loan losses to prior
periods.
Loan Fees and Costs: Loan fees and costs are deferred, and are recognized as an
adjustment to interest income using the interest method over the contractual
life of the loans, adjusted for estimated prepayments based on the Company's
historical prepayment experience.
Other Real Estate: Other real estate owned is recorded at the lower of cost or
fair value, less estimated costs to sell. Any reduction in fair value is
reflected in a valuation allowance account established by a charge to income.
Costs incurred to carry the real estate are charged to expense.
Premises and Equipment: Land is carried at cost. Buildings, furniture and
fixtures, and equipment are carried at cost, less accumulated depreciation.
Buildings, furniture and fixtures, and equipment are depreciated using
straight-line and accelerated methods over the estimated useful lives of the
respective assets, which range from five to forty years.
Income Taxes: The Company follows the liability method in accounting for income
taxes. The liability method provides that deferred tax assets and liabilities
are recorded based on the difference between the tax basis of assets and
liabilities and their carrying amounts for financial reporting purposes,
referred to as "temporary differences."
Statement of Cash Flows: For purposes of this statement, cash and cash
equivalents are defined to include the Company's cash on hand, due from banks
and interest-bearing deposits in other banks. The Company reports net cash flows
for customer loan transactions, deposit transactions and interest-bearing
deposits made with other financial institutions.
Earnings Per Share: On March 3, 1997, the Financial Accounting Standards Board
(FASB) issued SFAS No. 128, "Earnings Per Share," which is effective for
financial statements beginning with the quarter ended December 31, 1997. SFAS
No. 128 simplifies the calculation of earnings per share (EPS) by replacing
primary EPS with basic EPS. It also requires dual presentation of basic EPS and
diluted EPS for entities with complex capital structures. Basic EPS includes no
dilution and is computed by dividing income available to common shareholders by
the weighted-average common shares outstanding for the period. Diluted EPS will
reflect the potential dilution of securities that could share in earnings, such
as stock options, warrants or
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9.
DELPHOS CITIZENS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
other common stock equivalents. All prior period EPS data has been restated to
conform with the new presentation methods.
Basic earnings per common share for the three and six months ended March 31,
1998 was based on earnings for the three and six months ended March 31, 1998,
divided by the weighted average number of common shares outstanding for the
periods. Diluted earnings per common share represents the additional dilution
related to the stock options. The basic and diluted weighted average shares
outstanding was 1,739,189 and 1,775,701, respectively for the three months ended
March 31, 1998 and 1,751,713 and 1,781,121, respectively for the six months
ended March 31, 1998.
Basic earnings per common share for the three and six months ended March 31,
1997 was computed based on earnings for the period November 20, 1996 (conversion
date), to March 31, 1997, divided by the weighted average number of common
shares outstanding for the periods. Pro rata earnings based on number of days
was $497,252 and $575,505 respectively, and the basic and diluted weighted
average shares outstanding was 1,894,954 and 1,889,740 for the three and six
months ended March 31, 1997, respectively.
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10.
DELPHOS CITIZENS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTE 2 - INVESTMENT AND MORTGAGE-BACKED SECURITIES
Securities are summarized as follows:
March 31, 1998
----------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------- ---------------- ---------------- -----------------
AVAILABLE FOR SALE:
GNMA Certificates $ 724,019 $ 9,201 $ 2,111 $ 731,109
FNMA Certificates 4,698,178 4,243 4,693,935
---------------- ---------------- ---------------- ----------------
5,422,197 9,201 6,354 5,425,044
---------------- ---------------- ---------------- ----------------
HELD TO MATURITY:
GNMA Certificates 10,142,612 380,407 832 10,522,187
FHLMC Certificates 126,641 7,566 134,207
---------------- ---------------- ---------------- ----------------
10,269,253 387,973 832 10,656,394
---------------- ---------------- ---------------- ----------------
$15,691,450 $397,174 $ 7,186 $16,081,438
================ ================ ================ ================
September 30, 1997
----------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------- ---------------- ---------------- ----------------
INVESTMENT SECURITIES
HELD TO MATURITY:
U.S. Treasury security $ 4,996,139 $ 2,861 $ 4,999,000
MORTGAGE-BACKED SECURITIES
AVAILABLE FOR SALE:
GNMA Certificates 739,141 7,081 $ 6,856 739,366
MORTGAGE-BACKED SECURITIES
HELD TO MATURITY:
GNMA Certificates 11,218,082 420,972 5,565 11,633,489
FHLMC Certificates 149,109 6,820 155,929
---------------- ---------------- ---------------- ----------------
11,367,191 427,792 5,565 11,789,418
---------------- ---------------- ---------------- ----------------
$17,102,471 $437,734 $12,421 $17,527,784
================ ================ ================ ================
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11.
DELPHOS CITIZENS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTE 2 - INVESTMENT AND MORTGAGE-BACKED SECURITIES (Continued)
There were no sales of mortgage-backed securities during the three and six
months ended March 31, 1998 and 1997.
NOTE 3 - LOANS RECEIVABLE
Loans receivable are summarized as follows:
March 31, September 30,
1998 1997
--------------- ----------------
Real estate loans
One- to four-family $80,816,760 $73,716,294
Multi-family 1,554,119 1,288,236
Commercial real estate 6,993,256 6,272,532
Construction and land 3,996,197 3,780,811
--------------- ----------------
93,360,332 85,057,873
Less:
Mortgage loans in process (4,327,526) (3,162,366)
Net deferred loan origination fees (66,198) (71,117)
--------------- ----------------
88,966,608 81,824,390
--------------- ----------------
Consumer and other loans
Manufactured homes 124,700 111,657
Home equity loans 1,005,101 1,215,545
Unsecured loans 296,728 324,817
Other consumer loans 936,530 940,972
--------------- ----------------
2,363,059 2,592,991
Less: Non-mortgage loans in process (15,681) (25,983)
--------------- ----------------
2,347,378 2,567,008
--------------- ----------------
Less: Allowance for loan losses (112,360) (106,360)
--------------- ----------------
$91,201,626 $84,285,038
=============== ================
Activity in the allowance for loan losses is summarized as follows:
Six months ended
March 31,
1998 1997
---- ----
Balance at beginning of period $106,360 $ 94,360
Provision charged to income 6,000 6,000
Charge-offs - -
----------- -----------
Balance at end of period $112,360 $100,360
=========== ===========
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12.
DELPHOS CITIZENS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTE 3 - LOANS RECEIVABLE (Continued)
As of and for the periods ended March 31, 1998 and September 30, 1997, there
were no impaired loans.
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13.
DELPHOS CITIZENS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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The following discussion compares the financial condition of Delphos Citizens
Bancorp, Inc. (Company) and its sole subsidiary Citizens Savings Bank (Bank) at
March 31, 1998 to September 30, 1997 and the results of operations for the three
and six months ended March 31, 1998 and 1997. This discussion should be read in
conjunction with the interim financial statements and footnotes included herein.
FINANCIAL CONDITION
Total assets grew $4.8 million, or 4.4% from $107.8 million at September 30,
1997 to $112.6 million at March 31, 1998. The growth is primarily attributable
to increases in mortgage-backed securities available for sale and loans
receivable, partially offset by the maturity of investment securities held to
maturity. The increase was funded by increases in deposits and Federal Home Loan
Bank advances.
Cash and cash equivalents decreased $842,000 to $3.6 million at March 31,
1998 compared to $4.4 million at September 30, 1997. Interest-bearing
deposits in other banks decreased $1.5 million from $3.1 million at
September 30, 1997 to $1.6 million at March 31, 1998.
At March 31, 1998, the Company's mortgage-backed securities portfolio was
comprised of FNMA, FHLMC and GNMA fixed and adjustable rate securities. The net
unrealized gain on these securities totaled $390,000 at March 31, 1998. $5.4
million of the security portfolio was classified as available for sale, an
increase of $4.7 million from September 30, 1997. The increase in
mortgage-backed securities available for sale was funded by the maturity of an
investment security held to maturity. The remainder of the securities portfolio
was classified as held to maturity as the Company does not anticipate the need
to sell these securities in the near future. Management's strategy emphasizes
investment in mortgage-backed securities guaranteed by U.S. government agencies
in order to minimize credit risk.
Loans receivable increased $6.9 million, or 8.1%, from $84.3 million at
September 30, 1997 to $91.2 million at March 31, 1998. The increase was
primarily due to the increase in one- to four-family real estate loans which
grew $7.1 million, or 9.6% during the period. The increase in the loans was
substantially funded by the $4 million increase in FHLB advances from September
30, 1997 and the increase in deposits. Deposits increased $1.5 million, or 2.0%,
from $77.4 million at September 30, 1997 to $78.9 million at March 31, 1998.
RESULTS OF OPERATIONS
Net income decreased $87,000 from $497,000 for the quarter ended March 31, 1997
to $410,000 for the same period in 1998. Net income increased $114,000 from
$695,000 for the year to date period ended March 31, 1997 to $809,000 for the
same period in 1998. The 1998 year to date increase was primarily due to the
increase in net interest income and non-interest income, partially offset by
increases in compensation and benefits and other noninterest expense. The
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(Continued)
14.
DELPHOS CITIZENS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
decrease in the quarterly results from the prior year are due to an increase in
compensation and benefits and other non-interest expense.
Net interest income increased $15,000, or 1.4%, during the quarter ended March
31, 1998 and increased $329,000 or 18.3% during the six months ended March 31,
1998 compared to the same periods in 1997. The increases were primarily due to
the increases in average loans during the 1998 periods as compared to the 1997
periods. The increase in loan income was partially offset by a reduction in
income from mortgage-backed securities due to the decrease in the average
balance of mortgage-backed securities during the 1998 period as compared to the
1997 period. Management has used paydowns on mortgage-backed securities to fund
higher yielding loans. Interest expense increased in the three and six months
ended March 31, 1998 compared to the same period in 1997, due to an increase in
deposits outstanding during the periods.
A provision for loan losses of $3,000 and $6,000 was recorded for the three and
six months ended March 31, 1998, respectively, based on management's assessment
of risk factors affecting the allowance for loan losses. The allowance for loan
losses was approximately 0.12% of loans, net of deferred and unearned income, as
of March 31, 1998 and September 30, 1997. Management believes the allowance for
loan loss is adequate to absorb potential losses; however, future additions to
the allowance may be necessary based on changes in economic conditions.
Non-interest income increased $66,000, or 126.7%, from $52,000 for the quarter
ended March 31, 1997 to $118,000 for the same period in 1998. Non-interest
income increased $108,000 or 109.3%, from $99,000 for the six months ended March
31, 1997 to $208,000 for the same period in 1998.
Non-interest expense increased $117,000, or 29.4%, for the quarter ended March
31, 1998 and $76,000 or 8.2% for the six months ended March 31, 1998 compared to
the similar periods in 1997. The increases were primarily due to increases in
compensation and benefits expense and other non-interest expense. Compensation
and benefits increased $57,000 or 32.4% for the three months ended March 31,
1998, and increased $24,000 or 5.2% for the six months ended March 31, 1998,
compared to the same periods in 1997 primarily due to the effect of the employee
stock ownership plan and the stock incentive plan. An expense was recorded in
fiscal 1998 for the stock incentive plan shares, however, no such expense was
recorded during the similar periods in 1997 as the stock incentive plan shares
were not granted until the third quarter of 1997. In addition, increases in the
market value of the stock resulted in increases to the expense recognized in
connection with the employee stock ownership plan.
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(Continued)
15.
DELPHOS CITIZENS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
LIQUIDITY
Federally insured banks are required to maintain minimum levels of liquid
assets. The Bank is currently required to maintain an average daily balance of
liquid assets of at least 5% of the sum of its average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less. At
March 31, 1998, the Bank was in compliance with this requirement with a
liquidity ratio of 18.48%. Management considers this liquidity position adequate
to meet its expected needs for the foreseeable future.
CAPITAL RESOURCES
Savings institutions insured by the Federal Deposit Insurance Corporation are
required by federal law 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,
placing the institution in receivership or conservatorship.
The following table presents the Bank's compliance with its capital requirements
at March 31, 1998:
(Dollars in thousands)
Tangible Capital Core Capital Risk Based Capital
------------------------- -------------------------- -------------------------
Amount % Amount % Amount %
-------------- ------- --------------- ------- -------------- --------
Actual $ 13,912 12.4% $ 13,912 12.4% $ 14,024 25.2%
Required 1,689 1.5 4,504 3.0 4,447 8.0
-------------- ------- --------------- ------- -------------- --------
Excess $ 12,223 10.9% $ 9,408 9.4% $ 9,577 17.2%
============== ======= =============== ======= ============== ========
The Bank's tangible capital consists solely of shareholders' equity. Core
capital consists of tangible capital plus certain intangible assets, of which
the Bank has none. Risk based capital consists of core capital plus general loan
loss allowances less certain assets required to be deducted.
At March 31, 1998 the Bank was considered well capitalized under Prompt
Corrective Action Regulations.
YEAR 2000
Management has initiated a company wide program to review and prepare the
Company's computer systems and applications for the year 2000 and is developing
an implementation plan to resolve the issue. The Year 2000 problem is the result
of computer programs being written
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16.
DELPHOS CITIZENS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
using two digits rather than four to define the applicable year. Any of the
Company's programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a major
system failure or miscalculations. The Company continues to evaluate appropriate
courses of corrective action, including replacement of certain systems whose
associated costs would be recorded as assets and amortized and review of plans
and the testing results of the Company's third party providers for certain
systems. Accordingly, the Company does not expect the amounts required to be
expensed over the next two years to have a material effect on its financial
position or results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in information regarding
quantitative and qualitative disclosures about market risk as of March 31, 1998
from the information as of September 30, 1997, which was disclosed in the
Company's 1997 Form 10-K.
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17.
DELPHOS CITIZENS BANCORP, INC.
FORM 10-Q
Quarter ended March 31, 1998
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Items 1-5 are not applicable.
Item 6- Exhibits and Reports on Form 8-K:
(a) Exhibits
Exhibit
Number Description
------- -----------
3.1 Certificate of Incorporation of Delphos Citizens
Bancorp, Inc. (1)
3.2 Bylaws of Delphos Citizens Bancorp, Inc. (1)
4.0 Stock Certificate of Delphos Citizens Bancorp, Inc.
(1)
27 Financial Data Schedule (2)
(b) No current reports on Form 8-K were filed by the Company
during the quarter ended March 31, 1998.
(1) Incorporated herein by reference from the Exhibits to the
Registration Statement on Form S-1, as amended, filed on
August 22, 1996, Registration No. 333-10639
(2) Filed only in electronic format pursuant to Item 601(b)(27)
of Regulation S-K.
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18.
DELPHOS CITIZENS BANCORP, INC.
SIGNATURES
Pursuant to the requirement 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.
DELPHOS CITIZENS BANCORP INC.
_____________________________
(Registrant)
Date: May 8, 1998 /s/ Joseph R. Reinemeyer
___________________________ _____________________________
Joseph R. Reinemeyer
President and Chief Executive Officer
(Principal Executive Officer)
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19.