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 June 30, 1998
Commission File Number 0-28786
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 July 31, 1998
Common stock, $0.01 par value 1,848,411 common shares
DELPHOS CITIZENS BANCORP, INC.
FORM 10-Q
Quarter ended June 30, 1998
Part I - Financial Information
Page
----
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition as of June 30, 1998 and
September 30, 1997 ...................................................... 3
Consolidated Statements of Income for the three and nine months ended
June 30, 1998 and 1997................................................... 4
Condensed Consolidated Statements of Cash Flows for the nine months
ended June 30, 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............ 18
Part II - Other Information
OTHER INFORMATION.............................................................. 19
SIGNATURES .................................................................... 20
2.
PART I. FINANCIAL INFORMATION
DELPHOS CITIZENS BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
- --------------------------------------------------------------------------------
June 30, September 30,
1998 1997
---- ----
ASSETS
Cash and due from banks $ 1,364,035 $ 1,315,950
Interest-bearing deposits in other banks 171,817 3,084,500
----------------- -----------------
Total cash and cash equivalents 1,535,852 4,400,450
Investment securities held to maturity (Fair value
of $4,999,000 in 1997) 4,996,139
Mortgage-backed securities available for sale 4,968,850 739,366
Mortgage-backed securities held to maturity (Fair value
of $10,007,576 in 1998 and $11,789,418 in 1997) 9,645,781 11,367,191
Loans, net 95,206,126 84,285,038
Federal Home Loan Bank stock 905,400 833,800
Premises and equipment 668,218 660,703
Accrued interest receivable 494,895 445,461
Other assets 160,029 67,808
----------------- -----------------
Total assets $ 113,585,151 $ 107,795,956
================= =================
LIABILITIES
Deposits $ 79,356,016 $ 77,372,969
Federal Home Loan Bank Advances 6,000,000 1,000,000
Escrow accounts 321,475 236,090
Accrued interest payable 54,542 33,193
Accrued expenses and other liabilities 423,376 437,327
----------------- -----------------
Total liabilities 86,155,409 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 and outstanding 20,476 20,476
Additional paid-in capital 19,950,947 19,854,707
Retained earnings, substantially restricted 13,834,109 12,969,205
Treasury Stock (199,220 and 87,936 shares, respectively) (3,854,166) (1,479,065)
Obligation under employee stock ownership plan (1,391,121) (1,463,076)
Unearned recognition and retention plan (1,120,978) (1,186,019)
Unrealized gain (loss) on available for sale securities, net (9,525) 149
------------------ -----------------
Total shareholders' equity 27,429,742 28,716,377
----------------- -----------------
Total liabilities and shareholders' equity $ 113,585,151 $ 107,795,956
================= =================
See accompanying notes to financial statements.
3.
DELPHOS CITIZENS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
- -------------------------------------------------------------------------------
Three Months Ended Nine months ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
Interest income
First mortgage loans $ 1,756,387 $ 1,483,357 $ 5,109,107 $ 4,276,786
Consumer and other loans 31,274 30,020 96,712 81,098
Mortgage-backed and invest.
securities 243,083 315,863 772,159 879,077
FHLB stock dividends 15,454 13,898 46,206 41,505
Interest bearing deposits 35,147 115,995 145,634 367,803
--------------- -------------- -------------- ---------------
Total interest income 2,081,345 1,959,133 6,169,818 5,646,269
--------------- -------------- -------------- ---------------
Interest expense
Deposits 961,484 923,732 2,922,283 2,811,395
FHLB Advances 64,897 64,897
--------------- -------------- -------------- ---------------
Total interest expense 1,026,381 923,732 2,987,180 2,811,395
--------------- -------------- -------------- ---------------
Net interest income 1,054,964 1,035,401 3,182,638 2,834,874
Provision for loan losses 3,000 3,000 9,000 9,000
--------------- -------------- -------------- ---------------
Net interest income after
provision for loan losses 1,051,964 1,032,401 3,173,638 2,825,874
--------------- -------------- -------------- ---------------
Non-interest income
Service charges and fees 105,208 50,634 286,575 126,115
Gain on mortgage-backed
securities available for sale
Other non-interest income 12,741 1,192 39,011 24,910
--------------- -------------- -------------- ---------------
Total non-interest income 117,949 51,826 325,586 151,025
--------------- -------------- -------------- ---------------
Non-interest expense
Compensation and benefits 249,569 202,640 734,033 663,153
Occupancy and equipment 24,710 25,038 70,411 67,078
Deposit insurance 13,819 13,629 38,337 61,997
Franchise taxes 57,384 43,209 171,826 131,991
Other non-interest expense 136,951 171,803 469,482 457,952
--------------- -------------- -------------- ---------------
Total non-interest expense 482,433 456,319 1,484,089 1,382,171
--------------- -------------- -------------- ---------------
- --------------------------------------------------------------------------------
(Continued)
4.
DELPHOS CITIZENS BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
Income before income tax $ 687,480 $ 627,908 $ 2,015,135 1,594,728
Income tax expense 287,475 179,375 805,858 451,450
--------------- -------------- -------------- ---------------
Net income $ 400,005 $ 448,533 $ 1,209,277 $ 1,143,278
=============== ============== ============= ===============
Earnings per share:
Basic $ .24 $ .24 $ .70 $ .54
================== ================== ================ ==================
Diluted $ .23 $ .24 $ .69 $ .54
================== ================== ================ ==================
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
5.
DELPHOS CITIZENS BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
- --------------------------------------------------------------------------------
Nine Months Ended
June 30,
--------
1998 1997
---- ----
Net cash from operating activities $ 1,272,317 $ 1,120,637
Cash flows from 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 453,694 54,801
Investment and mortgage-backed securities held to
maturity
Proceeds from calls, maturities and paydowns 6,739,563 2,004,808
Purchase of securities held to maturity - (4,985,938)
Loan originations net of principal payment on loans (10,913,911) (8,710,692)
Purchase of FHLB Stock (25,500)
Purchases of premises and equipment (41,413) (19,424)
--------------- ----------------
Net cash from investing activities (8,485,875) (11,656,445)
--------------- -----------------
Cash flows from financing activities
Net change in deposits 1,983,047 (3,900,892)
Net increase in mortgage escrow funds 85,385 60,011
Proceeds from FHLB advances 9,000,000
Repayments of FHLB advances (4,000,000)
Cash dividends (344,371)
Purchase of treasury stock (2,375,101) (413,000)
Net proceeds from sale of stock - 18,086,567
--------------- ----------------
Net cash from financing activities 4,348,960 13,832,686
--------------- ----------------
Net change in cash and cash equivalents (2,864,598) 3,296,878
Cash and cash equivalents at beginning of period 4,400,450 4,695,277
--------------- ----------------
Cash and cash equivalents at end of period $ 1,535,852 $ 7,992,155
=============== ================
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 2,965,831 $ 2,820,832
Taxes $ 810,000 242,000
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
6.
DELPHOS CITIZENS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
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 June
30, 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: To prepare financial
statements in conformity with generally accepted accounting principles,
management makes estimates and assumptions based on available information. These
estimates and assumptions affect amounts reported in the financial statements
and disclosures provided and future results could differ. 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.
7.
DELPHOS CITIZENS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with unrealized holding gains and losses reported separately in shareholders'
equity, net of tax. Realized gains are based on the amortized cost of the
specific security sold. Securities are written down to fair value when a decline
in fair value is not temporary. Interest and dividend income includes
amortization of purchase premium or discount.
Loans: Loans are reported at the principal balance outstanding, net of deferred
loan fees and the allowance for loan losses. Interest income is reported on the
interest method and includes amortization of net deferred loan fees and costs
over the loan term.
Interest income is not reported when full repayment is in doubt, typically when
payments are past due over 90 days. Payments received on such loans are reported
as principal reductions.
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable credit losses, increased by the provision for loan losses
and decreased by charge-offs less recoveries. Management estimates the allowance
balance required based on past loan loss experience, known and inherent risks in
the portfolio, adverse situations that may affect the collateral and current
economic conditions.
Loan impairment is reported when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance loans of similar
nature such as 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, and on an individual basis for other
loans. If a loan is impaired, a portion of the allowance is allocated so that
the loans are reported, net, at the present value of estimated future cash flows
using the loan's existing rate or at the fair value of collateral if repayment
is expected solely from the collateral. Loans are evaluated for impairment when
payments are delayed, typically 30 days or more, or when it is probable that all
principal and interest amounts will not be collected according to the original
terms of the loan.
8.
DELPHOS CITIZENS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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: Income tax expense is the sum of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax consequences of temporary
differences between the carrying amounts and tax basis of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
Cash Flow Reporting: Cash and cash equivalents include cash on hand, due from
banks and interest-bearing deposits in other banks. Cash flows are reported net
for customer loan and deposit transactions and interest-bearing deposits 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
9.
DELPHOS CITIZENS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
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 nine months ended June 30,
1998 was based on earnings for the three and nine months ended June 30, 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 1,691,497 and 1,725,561 for the three months ended June 30, 1998
and 1,731,641 and 1,762,555 for the nine months ended June 30, 1998.
Basic earnings per common share for the three and nine months ended June 30,
1997 was computed based on earnings for the period November 20, 1996 (conversion
date), to June 30, 1997, divided by the weighted average number of common shares
outstanding for the periods. Pro rata earnings based on number of days was
$448,533 and $1,024,038 and the basic and diluted weighted average shares
outstanding was 1,874,130 and 1,886,897 for the three and nine months ended June
30, 1997.
10.
DELPHOS CITIZENS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 2 - INVESTMENT AND MORTGAGE-BACKED SECURITIES
Securities are summarized as follows:
June 30, 1998
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Available for sale:
GNMA Certificates $ 704,808 $ 10,405 $ 715,213
FNMA Certificates 4,278,473 $24,836 4,253,637
----------- -------- ------ -----------
4,983,281 10,405 24,836 4,968,850
----------- -------- ------ -----------
Held to maturity:
GNMA Certificates 9,526,743 356,192 9,882,935
FHLMC Certificates 119,038 5,603 124,641
----------- -------- ------- -----------
9,645,781 361,795 10,007,576
----------- -------- ------- -----------
$14,629,062 $372,200 $24,836 $14,976,426
=========== ======== ======= ===========
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
=========== ======== ======= ===========
11.
DELPHOS CITIZENS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 2 - INVESTMENT AND MORTGAGE-BACKED SECURITIES (Continued)
There were no sales of mortgage-backed securities during the three and nine
months ended June 30, 1998 and 1997.
NOTE 3 - LOANS
Loans are summarized as follows:
June 30, September 30,
1998 1997
---- ----
Real estate loans
One- to four-family $83,580,885 $73,716,294
Multi-family 1,935,117 1,288,236
Commercial real estate 6,964,776 6,272,532
Construction and land 5,217,280 3,780,811
----------- -----------
97,698,058 85,057,873
Less:
Mortgage loans in process (4,572,177) (3,162,366)
Net deferred loan origination fees (54,940) (71,117)
----------- -----------
93,070,941 81,824,390
----------- -----------
Consumer and other loans
Manufactured homes 126,968 111,657
Home equity loans 1,006,047 1,215,545
Unsecured loans 315,834 324,817
Other consumer loans 810,168 940,972
----------- -----------
2,259,017 2,592,991
Less: Non-mortgage loans in process (8,472) (25,983)
----------- -----------
2,250,545 2,567,008
----------- -----------
Less: Allowance for loan losses (115,360) (106,360)
----------- -----------
$95,206,126 $84,285,038
=========== ===========
Activity in the allowance for loan losses is summarized as follows:
Nine months ended
June 30,
1998 1997
---- ----
Balance at beginning of period $ 106,360 $ 94,360
Provision charged to income 9,000 6,000
Charge-offs - -
----------- -----------
Balance at end of period $ 115,360 $ 100,360
=========== ===========
12.
DELPHOS CITIZENS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 3 - LOANS (Continued)
As of and for the periods ended June 30, 1998 and September 30, 1997, there were
no impaired loans.
13.
DELPHOS CITIZENS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The following discussion compares the financial condition of Delphos Citizens
Bancorp, Inc. (Company) and its sole subsidiary Citizens Bank of Delphos (Bank)
at June 30, 1998 to September 30, 1997 and the results of operations for the
three and nine months ended June 30, 1998 and 1997. This discussion should be
read in conjunction with the interim financial statements and footnotes included
herein.
FINANCIAL CONDITION
Total assets grew $5.8 million, or 5.4% from $107.8 million at September 30,
1997 to $113.6 million at June 30, 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 $2.9 million to $1.5 million at June 30,
1998 compared to $4.4 million at September 30, 1997. Interest-bearing deposits
in other banks decreased $2.9 million from $3.1 million at September 30, 1997 to
$172,000 at June 30, 1998.
At June 30, 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 $347,000 at June 30, 1998. $5.0
million of the security portfolio was classified as available for sale, an
increase of $4.2 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 $10.9 million, or 13.0%, from $84.3 million at
September 30, 1997 to $95.2 million at June 30, 1998. The increase was primarily
due to the increase in one- to four-family real estate loans which grew $9.9
million, or 13.4% during the period. The increase in the loans was substantially
funded by the $5.0 million increase in FHLB advances from September 30, 1997 and
the increase in deposits. Deposits increased $2 million, or 2.6%, from $77.4
million at September 30, 1997 to $79.4 million at June 30, 1998.
RESULTS OF OPERATIONS
Net income decreased $49,000 from $449,000 for the quarter ended June 30, 1997
to $400,000 for the same period in 1998. Net income increased $66,000 from
$1,143,000 for the year to date period ended June 30, 1997 to $1,209,000 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 non-interest expense and income tax expense. The decrease in
(Continued)
14.
DELPHOS CITIZENS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
the quarterly results from the prior year are due to an increase in non-interest
expense and income tax expense, partially offset by increases in net interest
income and other income.
Net interest income increased $20,000 or 1.9%, during the quarter ended June 30,
1998 and increased $348,000 or 12.3% during the nine months ended June 30, 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 nine months
ended June 30, 1998 compared to the same periods in 1997, due to an increase in
deposits outstanding and Federal Home Loan Bank borrowings during the periods.
A provision for loan losses of $3,000 and $9,000 was recorded for the three and
nine months ended June 30, 1998 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 June
30, 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 127.6%, from $52,000 for the quarter
ended June 30, 1997 to $118,000 for the same period in 1998. Non-interest income
increased $175,000 or 115.6%, from $151,000 for the nine months ended June 30,
1997 to $326,000 for the same period in 1998.
Non-interest expense increased $26,000, or 5.7%, for the quarter ended June 30,
1998 and $102,000 or 7.4% for the nine months ended June 30, 1998 compared to
the similar periods in 1997. The increases were primarily due to increases in
compensation and benefits expense and franchise tax expense. Compensation and
benefits increased $47,000 or 23.2% for the three months ended June 30, 1998,
and increased $71,000 or 10.7% for the nine months ended June 30, 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 end of 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. Franchise tax expense
increased $14,000 or 32.9% for the three months ended June 30, 1998, and
increased $40,000 or 30.2% for the nine months ended June 30, 1998, compared to
the same periods in 1997.
(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 4% of the sum of its average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less. At
June 30, 1998, the Bank was in compliance with this requirement with a liquidity
ratio of 19.28%. 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 June 30, 1998:
(Dollars in thousands)
Tangible Capital Core Capital Risk Based Capital
---------------- ------------ ------------------
Amount % Amount % Amount %
------ - ------ - ------ -
Actual $14,364 12.6% $14,364 12.6% $14,479 25.0%
Required 1,704 1.5 4,543 3.0 4,629 8.0
------- ---- ------- ---- ------- ----
Excess $12,660 11.1% $ 9,821 9.6% $ 9,850 17.0%
======= ==== ======= ==== ======= ====
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 June 30, 1998 the Bank was considered well capitalized under Prompt
Corrective Action Regulations.
16.
DELPHOS CITIZENS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR 2000
The Year 2000 issue is the result of many computer programs being written using
two digits rather than four to define an applicable year. The Company's
hardware, data-driven automated equipment, or computer programs that have date
sensitive software, may recognize a date using "00" as the year 1900 rather than
the year 2000. This faulty recognition could result in a system failure or
miscalculation causing disruptions of operations, including, among other things,
a temporary inability to process transactions or engage in normal business
activities.
The Company is in the process of conducting a comprehensive review of all of its
information technology and non information technology systems to identify
potential Year 2000 problems and to test hardware and software for compliance.
The Company has identified mission-critical applications. An application, system
or vendor is considered mission critical if it is vital to the successful
continuance of core business activity or is an application that interfaces with
a mission-critical system. The Company evaluates its Year 2000 preparedness
based on the guidelines issued by the Federal Financial Institutions Examination
Council (FFIEC) outline. The following 5 phases were identified by the FFIEC:
Awareness, Assessment, Renovation, Validation and Implementation. At June 30,
1998, the Awareness and Assessment phases have been completed. The Company is in
various stages of Renovation, Validation and Implementation on those
applications or systems identified as mission critical. Year 2000 compliance
testing for the Company's primary outsourced information systems application is
scheduled to take place prior to September 30, 1998.
The Company is currently developing contingency plans and anticipates completion
some time in early 1999. The Company anticipates that all systems will be Year
2000 compliant by mid year 1999.
Based on current information, the Company believes that all systems will be Year
2000 compliant well before January 1, 2000, either through the modification of
existing hardware and software or through the purchase of new hardware and
software. The company currently anticipates that it will spend approximately
$60,000 related to Year 2000 issues. At this time, management does not believe
that there will be a significant negative impact to earnings due to this issue.
The Year 2000 problem could have a material impact on the operation of the
Company if not properly addressed, but management anticipates that the problem
will be resolved and thus will not have a significant impact on the Company's
delivery of products and services, or its core operations.
FORWARD LOOKING STATEMENTS
Certain statements contained in this report that are not historical facts are
forward looking statements that are subject to certain risks and uncertainties.
When used herein, the terms "anticipates", "plans", "expects", "believes", and
similar expressions as they relate to the
17.
DELPHOS CITIZENS BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Company or its management are intended to identify such forward looking
statements. The Company's actual results, performance or achievements may
materially differ from those expressed or implied in the forward looking
statements. Risks and uncertainties that could cause or contribute to such
material differences include, but are not limited to, general economic
conditions, interest rate environment, competitive conditions in the financial
services industry, changes in law, governmental policies and regulations, and
rapidly changing technology affecting financial services.
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 June 30, 1998
from the information as of September 30, 1997, which was disclosed in the
Company's 1997 Form 10-K.
18.
DELPHOS CITIZENS BANCORP, INC.
FORM 10-Q
Quarter ended June 30, 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 June 30, 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.
19.
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: August 8, 1998 /s/Joseph R. Reinemeyer
____________________________ ____________________________________
Joseph R. Reinemeyer
President and Chief Executive Officer
(Principal Executive Officer)
20.