Item 1. Business (Dollars in the tables in thousands)
General
First Citizens Financial Corporation (the "Company"), a Delaware Corporation, was incorporated in February 1989 for the purpose of becoming the savings and loan holding company for Citizens Savings Bank f.s.b. ("Citizens" or the "Bank"). The holding company formation was completed on August 2, 1989.
At December 31, 1996, the business of the Company consisted primarily of the business of Citizens. Citizens is a Federally chartered savings bank which conducts its business through offices located in Montgomery and Frederick counties in central Maryland. At December 31, 1996, Citizens also had a mortgage origination office in Montgomery County. The Bank was originally incorporated in 1929 as a state-chartered savings and loan association and converted to a Federally chartered savings bank in July 1986. The Bank converted from a Federal mutual to a Federal stock form on December 24, 1986.
Financial information contained in this Form 10-K concerning the Company is presented on a consolidated basis, unless otherwise indicated.
Subsequent Event
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.
Lending Activities
General. The Bank's lending activities include the origination of residential and commercial real estate, consumer and corporate loans. The Bank's loan portfolio has become more diversified over the past few years, with increased emphasis on the origination of consumer and corporate loans.
Real estate loans secured by single-family homes are originated through the Bank's subsidiary, First Citizens Mortgage Corporation ("FCMC"), whose lending area includes the District of Columbia, Northern Virginia, Montgomery, Anne Arundel, Calvert, Charles, Frederick, Howard, Prince George's and St. Mary's Counties in Maryland. These loans are then either sold to Citizens or sold by FCMC in the secondary market on a servicing-released basis. All other types of loans are originated through the Bank's executive office or branch network and are administered at the Bank's executive office.
At December 31, 1996, approximately 82.9% of Citizens' total real estate loans were secured by real estate located in Maryland. The majority of these loans are secured by property located in Montgomery County. Under applicable Federal regulations, the Bank is currently authorized to make real estate loans throughout the United States, however, Citizens concentrates its lending activities on serving the credit needs of its local market.
Mortgage Loans Secured by 1-4 Family Units. Citizens offers 1- and 3-year adjustable-rate as well as fixed-rate mortgage loans. The adjustable-rate loans are retained in the Bank's loan portfolio; substantially all fixed-rate first trust mortgage loans have been originated for sale in the secondary market on a servicing-released basis. The Bank also offers adjustable-rate loans with options, at various dates and for various fees, to convert to fixed-rate loans.
Construction Loans. Citizens makes construction loans to professional builders and developers to acquire, develop and construct residential subdivisions, neighborhood shopping centers and warehouses and, to a lesser extent, office and professional buildings, apartment buildings and nursing homes. Additionally, the Bank has offered land acquisition and development loans for the acquisition of land to be developed into finished lots by the borrower-developer, who then constructs single-family homes or commercial buildings or resells the improved lots to other builders. At December 31, 1996, construction loans outstanding, including acquisition and development loans, totaled $40.6 million, or 8.2% of the Bank's loan portfolio, compared to $34.2 million, or 8.3% of the Bank's loan portfolio, at December 31, 1995.
The Bank attempts to provide the permanent financing on residential subdivision loans secured by construction loans originated by the Bank. During the construction phase, the borrower pays only interest on commercial or residential construction loans. All construction loans originated by the Bank during 1996 were adjustable-rate loans, with the rate tied to The Wall Street Journal's ("WSJ") prime rate.
Acquisition and development loans adjust monthly to an index based on the WSJ's prime lending rate and have maturities of one to three years. Interest only, which has generally been paid out-of-pocket by the borrower, is payable on these loans until maturity.
Multi-family, Commercial Real Estate and Land Loans. Citizens offers permanent mortgage loans secured by multi-family residential properties, commercial real estate and land. Such loans have maturities ranging up to 10 years, with principal amortized over a period of up to 30 years. The interest rate on such loans adjusts either monthly, annually or every three years. The interest rate is tied to the WSJ's prime lending rate, the Federal Home Loan Bank ("FHLB") of Atlanta's cost of funds or the constant maturity Treasury yield.
At December 31, 1996, loans secured by multi-family residential properties, commercial real estate and land totaled $136.8 million, or 27.5% of the Bank's loan portfolio, compared to $106.1 million, or 25.7% of the Bank's loan portfolio, at December 31, 1995.
Loans secured by land, multi-family residential and commercial properties involve greater risks than single-family residential mortgage loans. Because the payment experience of loans secured by such property is often dependent upon the successful operation or management of the security property, or, in the case of land loans, the
ultimate development or sale of the property, repayment of the loan may be subject, to a greater extent, to adverse conditions in the real estate market or the economy than is generally the case with single-family residential mortgage loans. The commercial real estate business is cyclical and subject to downturns, overbuilding and local economic conditions. The Bank seeks to minimize these risks in a variety of ways, including adherence to strict underwriting standards and originating loans using property located within its market area as collateral.
Non-residential real estate loans by savings institutions are limited to 400% of total capital (approximately $183.5 million at December 31, 1996 for the Bank). The Bank's non-residential real estate loans amounted to $119.6 million at December 31, 1996.
Under Federal and state environmental laws, lenders may be liable for the costs of cleaning up hazardous materials found on security properties. No assurance can be given that the value of properties securing loans in the Bank's portfolio will not be adversely affected by the presence of hazardous materials or that future changes in Federal or state laws will not increase the Bank's exposure to liability for environmental cleanup.
Consumer. The Bank offers a wide range of loans to consumers, including automobile loans, 15-year adjustable-rate open and closed end home equity line of credit loans, 5- to 15-year fixed-rate second trust loans, unsecured personal loans and lines of credit, recreational vehicle loans, boat loans, loans secured by deposit accounts and overdraft protection on checking accounts. The Bank has increased its origination of home equity lines of credit and second mortgages from prior years due to the shorter terms and the low level of credit risk associated with such loans. The interest rate on home equity line of credit loans can adjust monthly and, at December 31, 1996, was equal to the WSJ's prime lending rate. Prior to maturity, interest only is payable on these loans. Office of Thrift Supervision ("OTS") regulations generally permit Federally chartered savings institutions to originate secured and unsecured consumer loans comprising up to 35% of the institution's total assets. The Bank was in compliance with this limitation at December 31, 1996.
Corporate Loans. Corporate loans include commercial lines of credit, equipment term loans, asset-based revolving credit loans and loans for the purpose of acquiring real estate for use by businesses. This portfolio includes loans guaranteed by the U.S. Small Business Administration. The Bank stresses the importance of asset quality as well as the development of new marketing programs. OTS regulations authorize Federally chartered savings institutions to invest up to 10% of their assets in commercial (corporate) loans. An additional 10% of assets may be invested in small business loans. The Bank was in compliance with this limitation at December 31, 1996.
Loan Maturities and Rate Sensitivity. See Note 3 to the Consolidated Financial Statements for the composition of the Bank's loan portfolio. The following table sets forth certain information at December 31, 1996 as to maturities within the Bank's loan portfolio, and is based on scheduled repayments. Loans which "roll over" at maturity were amortized over the original amortization period. Loans which were past maturity were assumed to repay within one year.
After 1 Within Year Within After 1 Year 5 Years 5 Years Total ------ ------- ------- ----- Loan Maturities Residential mortgage ............. $ 16,559 $ 22,070 $211,245 $249,874 Construction loans ............... 28,722 13,336 -- 42,058 Commercial real estate ........... 45,151 48,421 21,499 115,071 Home equity and second trust .......................... 5,047 20,186 41,325 66,558 Consumer non-real estate ......... 8,383 27,216 1,653 37,252 Corporate non-real estate ........ 5,356 9,744 754 15,854 ----- ----- --- ------ Total loans .................... $109,218 $140,973 $276,476 $526,667 ======== ======== ======== ========
Rate Sensitivity Fixed-rate ....................... $ 46,650 $ 64,743 $ 28,871 $140,264 One-step ......................... 1,355 6,455 87,074 94,884 Adjustable-rate .................. 61,213 69,775 160,531 291,519 ------ ------ ------- ------- Total loans .................... $109,218 $140,973 $276,476 $526,667 ======== ======== ======== ========
Purchase and Sale of Loans and Loan Servicing. From time to time, the Bank has purchased whole loans and loan participations. At December 31, 1996, purchased loans and loan participations serviced by others totaled $.2 million, or .05% of the Bank's total loan portfolio.
Historically, substantially all 30-year fixed-rate loans made by FCMC have been originated subject to 60- to 90-day forward commitments to sell. These loans have been sold on a servicing-released basis. At December 31, 1996, loans sold with unelapsed recourse provisions amounted to $4.1 million.
See Note 3 to the Consolidated Financial Statements for information on loans serviced for others.
Fee Income from Lending Activities. In addition to interest earned on loans, the Bank receives fees for originating loans and may charge for making loan commitments. Loan origination and commitment fee income can be volatile because it is primarily dependent upon the volume of loan originations. Such income is also affected by the type of loans and commitments made and by competitive and economic conditions. The Bank also charges fees for late payments and for related miscellaneous services.
Nonperforming Assets. The following table sets forth the amount of the Bank's nonperforming assets, by category, past due loans and troubled debt restructurings at the dates indicated.
During 1996, the Bank's nonperforming assets, net, decreased by $4.4 million. The primary causes of the decrease were sales of real estate owned properties amounting to $9.0 million and $1.4 million of nonperforming loans returning to accrual status in 1996. Offsetting increases include costs capitalized on several real estate projects of $2.6 million, additions to real estate owned of $2.8 million and eight new nonperforming loans amounting to $.6 million.
At December 31, 1996, there were no loans with respect to which known information about the possible credit problems of the borrowers or the cash flows of the security properties have caused management to have serious doubts as to the ability of the borrowers to comply with the present loan repayment terms and which may result in the future inclusion of such loans in nonperforming assets.
The Bank regularly (at least quarterly) classifies its assets in accordance with applicable regulations. On the basis of such review, the following assets were classified at the dates indicated. The following table includes all of the nonperforming assets and troubled debt restructurings included in the previous table.
At December 31, ---------------------------------------- 1996 1995 1994 ---- ---- ---- Substandard ....................... $ 14,126 $ 20,446 $ 30,379 Doubtful .......................... 138 186 354 Loss .............................. 2,412 2,387 2,999 ----- ----- ----- 16,676 23,019 33,732 Specific loss allowances .......... (2,412) (2,387) (2,999) ------ ------ ------ Classified assets, net ............ $ 14,264 $ 20,632 $ 30,733 ======== ======== ========
The Bank also identifies assets which possess credit deficiencies or potential weaknesses deserving management's close attention as "special mention". These assets totaled $22.8 million at December 31, 1996 compared to $25.3 million at December 31, 1995 and $23.9 million at December 31, 1994.
Investment Activities
Federally chartered associations have authority to invest in various types of liquid assets, including short-term United States Treasury obligations, securities of various Federal agencies, certain certificates of deposit at insured banks and savings and loan associations, certain bankers' acceptances and Federal funds. Subject to various restrictions, Federally chartered associations may also invest a portion of their assets in commercial paper, corporate debt securities and in certain kinds of mutual funds. The Bank has maintained its liquid assets at levels above the minimum requirements imposed by Federal Deposit Insurance Corporation ("FDIC") regulations and at levels believed adequate to meet requirements of normal business activities. See Part II -- Item 7, "Management's Discussion and Analysis -- Liquidity and Capital Resources".
The Bank increases or decreases its liquid investments depending upon the availability of funds and comparative yields on other investments in relation to its return on loans. The Bank's investments primarily include overnight funds, United States Treasury and Federal agency obligations and certain mortgage-backed securities. See Note 2 to the Consolidated Financial Statements for information on the Company's investment securities portfolio.
Sources of Funds
General. The Bank's primary sources of funds are deposits and loan principal payments received in connection with normal loan amortization and loan prepayments. The Bank supplements these funds by obtaining FHLB advances and other borrowings. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows are significantly influenced by prevailing interest rates and general economic conditions. Borrowings may be used on a
short-term basis to compensate for reductions in normal sources of funds or on a longer-term basis to support expanded lending activities. See Part II -- Item 7, "Management's Discussion and Analysis -- Liquidity and Capital Resources".
Deposit Activities. The Bank offers a variety of deposit products currently ranging from transaction accounts to certificates with maturities of up to seven years. The Bank's deposits are primarily derived from the areas where its branch offices are located, with its Montgomery County branch offices comprising 95.8% of its deposits. There were no brokered deposits at any time during 1996. The Bank collects penalties for early withdrawal of funds on certain certificates of deposit.
Deposits increased by $51.8 million, or 10.6%, during the year ended December 31, 1996, after including interest credited of $21.9 million. During 1995, deposits increased $30.1 million, or 6.6%, after including interest credited of $20.3 million.
The Bank prices its deposits to take advantage of opportunities for profitable investment of the funds through its regular lending activities. Interest rates are primarily based on prevailing market conditions and the Bank's need for funds. Interest rates paid by the Bank generally are competitive with the rates offered by other institutions in its primary market area. The Bank continues to emphasize checking and money market demand accounts and short-term deposits in an effort to build its relationships with its customers.
See Note 6 to the Consolidated Financial Statements for the amounts and maturities of certificate accounts by interest rate category. See Part II -- Item 7, "Management's Discussion and Analysis -- Yield Analysis" for average balances of money market accounts and certificates of deposit.
At December 31, 1996, maturities on certificates of deposit of more than $100,000 were as follows:
Within three months ......................... $ 10,545 After three months but within six months ..... 5,923 After six months but within twelve months .... 13,262 After twelve months........................... 2,916 ----- $ 32,646 ========
Advances from the Federal Home Loan Bank of Atlanta. The FHLB System functions in a reserve credit capacity for savings institutions and certain other home financing member institutions. As a member of the FHLB System, the Bank is required to own capital stock in the FHLB of Atlanta and is authorized to apply for advances on the security of such stock, selected home mortgages and specific other assets, provided certain creditworthiness standards have been met. The maximum amount which the FHLB of Atlanta will advance fluctuates from time to time and generally is reduced by borrowings from any other source. Long-term advances may be made only for the purpose of providing funds for residential housing finance. At December 31, 1996, the Bank had total advances outstanding of $74.8 million, of which $72.3 million were fixed-rate advances and $2.5 million were variable-rate advances. See Note 7 to the Consolidated Financial Statements for information as to highest and average month-end balances, interest rates and maturities.
Other Borrowed Money. The Bank entered into sales of agency securities under agreements to repurchase the same securities at specified dates and prices. The securities underlying the agreements are book entry securities, and the broker retains possession of the securities collateralizing the reverse repurchase agreements. At December 31, 1996, the Bank had other borrowed money totaling $24.2 million. See Note 8 to the Consolidated Financial Statements for additional disclosure information.
Service Corporation Activities
The Bank has five service corporation subsidiaries. See Note 1 to the Consolidated Financial Statements. Federal regulations generally permit a Federally chartered savings institution to invest up to 2% of its assets in subsidiary service corporations engaged in certain activities. Federally chartered savings institutions that meet minimum regulatory capital requirements also may invest up to an additional 50% of regulatory capital in conforming loans to service corporations. Investments in and advances to the service corporation subsidiaries totaled $13.1 million at December 31, 1996.
Employees
At December 31, 1996, the Company had 168 full-time employees and 17 part-time employees, none of whom were represented by a collective bargaining group. Employee benefits include the Bank's pension and 401(k) plans, and life and health insurance. Management considers its relations with its employees to be excellent.
Competition
The Bank experiences substantial competition in attracting and retaining deposits and in making mortgage and other loans. The primary factors in competing for deposits are interest rates, the quality and range of financial services offered, convenience of office locations, office hours and automatic teller machines. Competition for deposits comes primarily from other financial institutions, money market funds and other investment alternatives. The primary factors in competing for loans are interest rates, loan origination fees and the quality and range of lending services offered. Competition for origination of first mortgage loans comes primarily from other financial institutions, mortgage banking firms and insurance companies. Federal legislation has removed most state law barriers to interstate acquisitions of banks and will ultimately permit multi-state banking operations to merge into a single bank. Although savings institutions, such as the Bank, already have similar authority,
enactment of this legislation is expected to increase marketplace competition for the Bank.
Regulation
General. The Company, as a savings and loan holding company, and the Bank, as a Federally chartered savings bank, are subject to extensive regulation, supervision and examination by the OTS as their primary Federal regulator. The Bank also is subject to regulation, supervision and examination by the FDIC and as to certain matters by the Board of Governors of the Federal Reserve System. See discussion elsewhere herein and Notes to Consolidated Financial Statements as to the impact of certain laws, rules and regulations on the operations of the Company and the Bank.
Regulatory Capital Requirements. A reconciliation of the Bank's capital, computed using generally accepted accounting principles ("GAAP"), to regulatory capital as of December 31, 1996 follows:
Tangible Core Risk-based Capital Capital(a) Capital ------- ---------- ------- GAAP capital $ 40,619 $ 40,619 $ 40,619 Additional capital item - general valuation allowances on loans (b) -- -- 5,256 -------- --------- -------- Regulatory capital - actual 40,619 40,619 45,875 Minimum capital requirement 10,303 27,474 35,396 ------ ------ ------ Excess regulatory capital $ 30,316 $ 13,145 $ 10,479 ======== ======== ========
Regulatory capital - actual ratio 5.9% 5.9% 10.4% Minimum capital requirement ratio 1.5 4.0 8.0 --- --- --- Excess regulatory capital ratio 4.4% 1.9% 2.4% === === ===
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(a) Under current OTS capital regulations, the minimum core capital requirement is 3.0%. Under the OTS "Prompt Corrective Action" regulations, the minimum core capital requirement to be considered "adequately capitalized" is 4.0%.
(b) Limited to 1.25% of risk-weighted assets.
Qualified Thrift Lender Requirement. In order for the Bank to exercise the powers granted to Federally chartered savings associations and maintain full access to FHLB advances, and in order for the Company to continue to engage in the activities currently authorized for unitary savings and loan holding companies, the Bank must either maintain 65% of its assets in certain investments and otherwise qualify as a "qualified thrift lender" ("QTL") or satisfy the definition of a domestic building and loan association under the Internal Revenue Code of 1986, as amended. Any savings association that fails to meet the QTL test must either convert to a bank charter (but must retain its Savings Association Insurance Fund ("SAIF") insurance until its conversion to Bank Insurance Fund membership), or limit its future investments and activities (including branching and payment of dividends) to those permitted for both savings associations and national banks. At December 31, 1996, the Bank was in compliance with the QTL test.
Recently Enacted Legislation. 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. 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.
Taxation
Federal. The Company, on behalf of itself and the Bank, files a calendar year Federal income tax return and reports income and expenses using the accrual method of accounting.
Savings institutions are generally taxed in the same manner as other corporations. Additionally, for the tax years beginning before January 1, 1996, qualifying savings institutions are allowed to establish a reserve for bad debts and, for each tax year, are permitted to deduct additions to that reserve for losses on "qualifying real property loans" using the more favorable of two alternative methods: (i) a method based on the institution's actual loss experience (the "experience method") or (ii) a method based on a specified percentage of the institution's taxable income (the "percentage of taxable income method").
Under the percentage of taxable income method, a qualifying institution may deduct up to 8% of its taxable income, after certain adjustments and subject to certain limitations. The net effect of the percentage of taxable income method deduction is that the maximum effective Federal income tax rate is generally 31.28%. The Company's actual effective tax rate (state and Federal) was 32.6% in 1995 and 31.8% in 1994. Under the experience method, a savings institution is permitted to deduct an amount based on average loan losses over
the current and previous five years. In 1995 and 1994, the Company elected to use the experience method bad debt deduction.
The Company's actual effective tax rate (state and Federal) was 33.7% in 1996. Provisions that repealed the bad debt reserve provisions of the Internal Revenue Code for savings institutions were included in the Small Business Job Protection Act of 1996 and effective for tax years beginning after December 31, 1995. Accordingly, for 1996 and later years, the Bank is no longer able to use the percentage of taxable income or experience methods to complete its bad debt deduction. Beginning with 1996 and thereafter, the Bank is allowed to deduct only actual loan losses incurred during each tax year. Additionally, this legislation (i) exempted pre-1988 bad debt deductions from recapture and (ii) suspended for two years post-1987 bad debt deductions from recapture, provided that a savings institution meets a new residential mortgage originations test. The legislation exempted from recapture $4.0 million in pre-1988 bad debt deductions taken by the Bank and will defer up to two years, subject to the Bank's compliance with the new residential mortgage originations test, recapture of an additional $.6 million. Since the Company has not recognized a deferred tax liability of $1.6 million for the tax effects of the "base year" tax bad debt reserve, no tax liability related to the recapture of that reserve has been reflected in the financial statements.
The amount of the bad debt deduction that a savings institution may claim is subject to certain limitations. As of December 31, 1996, the Bank does not expect that these restrictions will limit the amount of its otherwise allowable bad debt deduction.
The Bank's cumulative book allowance for loan losses exceeds its cumulative tax bad debt reserves by $2.7 million. Earnings appropriated to bad debt reserves and deducted for Federal income tax purposes are not available for payment of cash dividends or other distributions to stockholders, including distributions on redemption, dissolution or liquidation, with payment of such taxes by the Company on the amount of such earnings removed from the reserves for such distribution at the then-current tax rate. Under applicable Internal Revenue Code provisions, the amount which would be deemed removed from such reserves by the Company, in the event of any such distribution to stockholders, and which would be subject to taxation at the Company level at the normal tax rate, would approximate twice the net amount actually distributed to the stockholders.
No portion of the Bank's net deferred tax asset is required to be deducted for regulatory capital purposes at December 31, 1996. Net operating losses of savings institutions may be carried back three years and forward 15 years.
The Company's Federal income tax returns for 1992, 1993 and 1994 are currently under examination by the Internal Revenue Service.
State. Maryland imposes a franchise tax on mutual and stock savings banks that subjects the Maryland net earnings of such savings banks to a 7% tax. Maryland net earnings is substantially similar to Federal taxable income, with adjustments for items such as interest income on obligations of any state or political subdivision thereof.
Item 2.

Item 2. Properties
The Company neither owns nor leases any real property. For the present, it uses the premises, equipment and furniture of the Bank without direct payment of any rental fees to the Bank.
The corporate offices of the Bank, and four of its five subsidiaries, are located at 22 Firstfield Road, Gaithersburg, Maryland 20878. In addition to its corporate offices, the Bank conducted business at December 31, 1996 through 14 other offices, and, through FCMC, one additional office. The Bank and FCMC lease two offices which are totally sublet. Seven offices are owned and the remaining eleven are leased, with expiration dates on the leases ranging from 1997 to 2003. All but two offices are located in Montgomery County, Maryland. The remaining two offices are in Frederick County, Maryland. The Bank is attempting to sell its former headquarters building and lease back the Bank's branch office located therein. As of December 31, 1996, the net book value of owned offices was $1.6 million and the net book value of leasehold improvements was $.2 million.
The Bank owns computers, peripheral equipment and terminals which are used for the purpose of providing data processing services to Citizens. The net book value at December 31, 1996 of such equipment was $1.3 million.
Item 3.

Item 3. Legal Proceedings
The Bank is a party to certain litigation incidental to its business, including foreclosure actions. At December 31, 1996, the Company was involved in various other claims and legal actions arising in its business. The outcome of these claims and actions are not presently determinable; however, in the opinion of the Company's management, after consulting with the Company's legal counsel, the ultimate disposition of these matters is not expected to have a material adverse impact on the Company's consolidated financial condition or results of operations.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of the fiscal year to a vote of the Company's stockholders, through the solicitation of proxies or otherwise.
PART II
Item 5.

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Information required by this Item is set forth on page 1 hereof.
Item 6.

Item 6. Selected Financial Data
Information required by this Item is set forth on pages 8 and 9 hereof.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Information required by this Item is set forth on pages 10 through 16 hereof.
Item 8.

Item 8. Financial Statements and Supplementary Data
Information required by this Item is set forth on pages 17 through 37 hereof.
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant
Directors
The following table sets forth certain information regarding the Company's Board of Directors.
Age at Position(s) Held March 31, Director Term with the Name 1997 Since (1) to Expire Company - - ---- ---- --------- --------- ------- Stanley Betts(2) 72 1976 1997 Director and Chairman Emeritus
Enos K. Fry 53 1987 1997 Vice Chairman and President
Melvin O. Wright 68 1994 1997 Director
Herbert W. Jorgensen 68 1990 1998 Chairman of the Board and Chief Executive Officer
N. Richard Kimmel 67 1986 1998 Vice Chairman
Albert M. Cowell, Jr. 65 1987 1998 Director
William J. Walsh, III 52 1989 1999 Director
H. Deets Warfield, Jr. 65 1973 1999 Director
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(1) Each of the Company's directors (except for Messrs. Jorgensen, Walsh and Wright) has served as a director of the Company since its formation in 1989. Messrs. Jorgensen and Walsh became directors of the Company in 1990. Mr. Wright became a director of the Company in 1994. Each director of the Company also serves as a director of Citizens Savings Bank f.s.b. (the "Bank"), the Company's principal subsidiary. The dates shown reflect the year in which these persons were first elected directors of the Bank.
(2) Mr. Betts, who currently serves as a director in the class of directors whose terms of office expire in 1997, has reached the age limitation for directors set forth in the Company's bylaws.
Stanley Betts is the former president and owner of Bogley, Harting & Betts Inc., an insurance agency. Mr. Betts was named a vice chairman of the board of the Bank in 1987 and chairman of the board of the Bank in 1988. Mr. Betts became chairman of the Company in 1989, and was named chief executive officer of the Company and the Bank in October 1990. He retired as chairman and chief executive officer of the Company and the Bank in April 1994 but continued as a director and chairman emeritus.
Enos K. Fry has served in various executive capacities since joining the Bank in 1974. In 1974, he became vice president of the loan division, and in 1978 he was elected executive vice president. He was promoted to president of the Bank in 1982. Mr. Fry was elected a director of the Bank in 1987. Mr. Fry has served as president and a
director of the Company since its formation in 1989. He was named a vice chairman of the Board of Directors of the Company and the Bank in April 1994.
Melvin O. Wright was formerly a senior vice president and senior executive with Dean Witter Reynolds, Inc. He became a director of the Company and the Bank in September 1994. Mr. Wright is currently a trustee and past chairman of the Securities Industries Institute at Wharton School of Business. Presently, he is active as a business and financial consultant.
Herbert W. Jorgensen became chairman of the board and chief executive officer of the Company and the Bank in April 1994. Prior thereto, he served as a vice chairman of the Boards of Directors of the Company and the Bank. From 1989 until April 1994, Mr. Jorgensen also served as the Company's outside general counsel and from 1968 until April 1994 he served as the Bank's outside general counsel.
N. Richard Kimmel retired in 1989 as secretary and treasurer of Kimmel & Kimmel, Inc., general contractors. He is now engaged in real estate development activities through Kimmel Properties. Mr. Kimmel was named a vice chairman of the Bank in December 1988 and has served as a vice chairman of the Company since 1989.
Albert M. Cowell, Jr. has been president of A. Myron Cowell, Inc., a masonry contracting firm located in Gaithersburg, Maryland, since 1970. He is a past director of Montgomery General Hospital in Olney, Maryland; past president of the Olney Rotary Club; and past director of the Masonry Institute located in Bethesda, Maryland.
William J. Walsh, III is a senior vice president of Donohoe Real Estate Services, the leasing and management division of the Donohoe Companies, Inc., a full-service real estate, development and construction company. He has served as a director of the Donohoe Companies, Inc., as well as Federal Center Plaza Corp., a real estate corporation, and is a member of the Executive Committee and past president of the Apartment and Office Building Association of Washington, D.C.
H. Deets Warfield, Jr. has been president of Damascus Motor Co., Inc., a Chevrolet dealership in Damascus, Maryland, since 1974, and has been with Damascus Motor Co., Inc. since 1955. He has been a member of the Board of Directors of Farmers & Mechanics National Bank, Frederick, Maryland, since 1974 and also serves on the Board of Directors of F&M Bancorp. The Depository Institution Management Interlocks Act imposes restrictions on service as an officer or director of more than one insured depository institution or depository institution holding company operating in the same metropolitan statistical area. Mr. Warfield's service as a director of the Company and the Bank is grandfathered under the grandfathering provisions of such Act until November 1998.
Executive Officers
The following sets forth certain information with respect to persons who currently serve as executive officers of Citizens followed by a description of each such person's principal occupations during the past five years.
Charles R. Duda (48) has served as executive vice president and chief operating officer of the Company and the Bank since March 1994. Mr. Duda joined the Company and the Bank in January 1994. Mr. Duda was chairman of credit policy and executive vice president of First American Bankshares, Inc. during 1992 and 1993. From 1989 to 1992, Mr. Duda was the executive vice president and chief credit officer of First American Metro Corporation.
William C. Scott (51) has served as senior vice president and chief financial officer of the Company and the Bank since July 1994. Mr. Scott joined the Company and the Bank in May 1994. From 1991 until joining the Bank, Mr. Scott consulted with various financial institutions. Mr. Scott is a Certified Public Accountant with over 26 years' experience in financial management.
Benjamin O. Delaney, Jr. (51) has served as president of First Citizens Mortgage Corporation, the Bank's mortgage banking subsidiary, since December 1983.
David H. Bowman (37) has served as senior vice president, real estate division of the Bank, since March 1993. Mr. Bowman joined the Bank in September 1991 as vice president of the real estate division. Just prior to joining the Bank, Mr. Bowman acted as a consultant to the RTC Northeast Consolidated Office.
Timothy E. Hall (51) has served as senior vice president, corporate lending division of the Bank, since August 1994. Mr. Hall joined the Bank in March 1994. From 1990 through 1992, Mr. Hall was a regional executive with First National Bank of Maryland and from 1992 to 1994 was group vice president, deputy director - - - real estate resolution group, at First American Bank.
LuAnn Loeber (41) has served as senior vice president, community banking division of the Bank, since October 1995. From 1991 until joining the Bank, Ms. Loeber was an independent consultant to financial institutions.
Mark A. Schissler (36) has served as a senior vice president, human resources division of the Bank, since November 1995. Mr. Schissler joined the Bank as vice president, human resources, in July 1994. From 1989 until joining the Bank, Mr. Schissler served in various positions, including regional human resources officer and commercial banking executive, at First National Bank of Maryland.
J. Terry Thomas (53) has served as senior vice president, consumer lending division of the Bank, since February 1995. Mr. Thomas joined the Bank as vice president, consumer lending division, in March 1994. Mr. Thomas was group vice president, consumer
lending risk management, for First American Metro Corporation from 1991 to 1994.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors, officers and beneficial owners of more than 10 percent of the outstanding common stock to file with the SEC initial reports of ownership of the Company's equity securities and to file subsequent reports when there are changes in such ownership. Based on a review of reports submitted to the Company in 1996, the Company believes that all Section 16(a) filing requirements for that year applicable to such persons were complied with on a timely basis, except for Ms. Loeber and Mr. Kimmel who were each late in filing one change of ownership report.
Item 11.

Item 11. Executive Compensation
Compensation of Directors
During 1996, the Company's Board of Directors held six meetings and Citizens' Board of Directors held 11 meetings. No separate board fees were paid to directors for attending meetings of the Company's Board of Directors during 1996. Each director of the Company also serves as a director of the Bank. In 1996, non-employee directors of the Bank were each paid an annual retainer of $12,500, except for the Bank's non-employee vice chairman who received $17,500 and the chairman emeritus/director who received $25,000. In addition, during 1996, non-employee directors of the Bank received $750 for each Board of Directors meeting of the Bank attended and $450 for each meeting of committees of the Board of Directors of the Bank attended (or $225 if these committees met on the same day as the Board of Directors). During 1996, the Bank also paid premiums on term life insurance for the Bank's non-employee directors. The annual premium expense was $65 for each non-employee director. Employee directors of the Bank do not receive fees for attendance at board or committee meetings.
Pursuant to the Company's Directors' Stock Option Plan, any new non-employee directors of the Company each receive a grant of a non-qualifying option under the Plan for 6,669 shares of common stock upon the first anniversary of their election as non-employee directors of the Company. Subsequently elected vice chairmen will receive additional option grants of 6,669 shares each upon their election as vice chairmen. Subsequently elected chairmen will receive additional option grants for 13,339 shares each upon their election to such position, reduced by any option granted to them while serving as a vice chairman of the board. In each case, the grant is subject to the person not serving at the time of grant as an officer or employee of the Company or any of its subsidiaries. The per share exercise price of such options equals the fair market value of a share of Company common stock on the date of grant.
Directors of the Company or the Bank, as well as a director or an advisory director of any successor entity to the Company or the Bank, who have completed at least three years of service as a director of the Company or the Bank are eligible to receive annual retirement payments under the 1995 Directors Retirement Plan ("Plan"). The annual retirement payment equals the annual retainer payable to directors (or chairman or vice chairman, as applicable) in effect at the time of a Qualified Retirement (as defined), reduced by an amount equal to the retirement benefit received under the Bank's pension plan (but not the Bank's 401(k) plan) for any director who served as a full-time employee of the Company or any subsidiary thereof. The annual retirement payments are payable for a period equal to the number of full years, plus whole months, of service at the time of a Qualified Retirement but in no event longer than 10 years. Notwithstanding the foregoing, any person who served as a director of the Bank on December 21, 1991, and who executed the supervisory agreement entered into by the Bank with the Office of Thrift Supervision (the "OTS") (which agreement was subsequently terminated by the OTS), and who otherwise meets the eligibility requirements, is entitled to receive retirement payments for 10 years, regardless of the actual length of service to the Company or the Bank. If an eligible director serves as a director emeritus or chairman emeritus of the Company or the Bank, or both, after a Qualified Retirement, such director also is entitled to receive 50% of the annual retainer then paid to a director or chairman and 50% of the regular meeting attendance fee for each meeting of the Board of Directors actually attended by such director emeritus or chairman emeritus.
Under the 1995 Directors Retirement Plan, service as a director of either the Company or the Bank or as a director of both is counted in determining the retirement period, but concurrent service as a director of both the Company and the Bank is counted as the same period of service. In the case of a person serving as a director of both the Company and the Bank, such director does not become entitled to receive retirement payments under the Plan until such director has ceased to be director of both the Company and the Bank by reason of a Qualified Retirement. A "Qualified Retirement" under the Plan includes: (i) the failure of a director of the Company or the Bank to be renominated by reason of age, (ii) resignation by reason of physical or other disability, (iii) resignation or a determination not to stand for reelection after attaining the age of 65 or older, (iv) death while serving as a director of the Company or the Bank, (v) resignation or retirement in the event that continued service becomes prohibited under the Depository Institution Management Interlocks Act, or (vi) ceasing to be a director in connection with a "change in control"
(as defined under OTS regulations). The Board of Directors of the Company may terminate or amend the Plan at any time without any further liability on the part of the Company, unless a change in control of the Company or the Bank has occurred; however, in no event may vested retirement benefits to retired directors be reduced or terminated. Mr. Betts will be entitled to receive an annual payment of $25,000 for ten years following his retirement as a director effective as of the Annual Meeting.
Under a director deferred fee plan adopted by the Company and the Bank in November 1995, effective commencing in 1996, directors of the Company and the Bank are permitted to defer all or a portion of their director and committee fees until they cease to be directors. Directors of the Company and the Bank currently receive fees only for attending meetings of the Board of Directors of the Bank or committees thereof. Interest is credited on the director's deferred account on each December 15 at an annual rate compounded monthly equal to the "prime rate" of interest published by Dow Jones & Company, Inc. in The Wall Street Journal on the first publication date of the calendar year. The interest crediting rate adjusts annually on the first day of each year. A director's deferred account balance, including interest, generally is payable to the director upon termination of service as a director, in the event of a director's disability or following a change in control of the Company or the Bank. A director may elect to receive a lump sum payment of his deferral account balance or to receive payment over ten years. If the ten-year payment period is elected, the amount of the accrued benefit payment will be calculated using the interest crediting rate on the date the benefit payment commences. In the event of financial hardship (as defined in the plan), a director may receive early payment of his account balance. For 1996, Mr. Cowell elected to defer 80 percent of his annual retainer and all committee fees; Mr. Warfield elected to defer his annual retainer and all of the fees he received; and Mr. Wright elected to defer his annual retainer. In the event of a director's death, if life insurance is obtained on the life of any director, the plan also provides for a death benefit equal to the projected age 70 benefit based on the director's deferral account balance and projected further deferrals until age 70. If life insurance is not obtained on the life of the director, the benefit equals the deferral account balance on the date of death of such director. Any death benefits are payable in 120 equal monthly installments commencing following the director's death. The Bank has purchased life insurance on the lives of Messrs. Cowell, Warfield and Wright.
Summary of Cash and Certain Other Compensation
The following table shows, for the years ended December 31, 1996, 1995 and 1994, the cash compensation paid by the Bank, as well as certain other compensation paid or accrued for those years, to the Company's chief executive officer and each of the four other highest paid executive officers of the Company whose total annual salary and bonus exceeded $100,000 (the "named executive officers"). The Company has not paid any compensation to its executive officers since its formation in 1989. Each of the executive officers of the Company currently holds a position with, and receives compensation from, the Bank.
Summary Compensation Table
Option Grants
The following table contains information with respect to stock options granted during 1996 under the Company's Employee Stock Option Plan to each of the named executive officers. All options granted in 1996 were ten-year non-qualified options.
Option Grants in Last Fiscal Year
Options Exercises and Holdings
The following table sets forth information with respect to each of the named executive officers of the Company concerning the exercise of stock options during 1996, the number of securities underlying unexercised options at the 1996 year-end and the 1996 year-end value of all unexercised in-the-money options held by such individuals.
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
Pension Plan
The Bank maintains a pension plan for the benefit of full-time employees. Effective January 1, 1989, the benefit is based upon 1% of an employee's final average earnings up to covered compensation (the FICA-taxable wage base) times years of credited service, plus 1.65% of the employee's final average earnings in excess of covered compensation times years of credited service (to a maximum of 35 years). The following table illustrates annual pension benefits under the Bank's pension plan at age 65 for various levels of average remuneration and years of service. Annual pension benefits are currently subject to a statutory maximum of $120,000, subject to cost-of-living adjustments. Additionally, for years beginning on or after 1994, compensation in excess of $160,000 (subject to cost-of-living increases) may not be used in calculation of retirement benefits.
Pension Plan Table
Years of Service -------------------------------------------------- Remuneration 15 20 25 30 35 - - ------------ -- -- -- -- -- $ 125,000 $ 28,249 $ 37,665 $ 47,081 $ 56,498 $ 65,914 150,000 or more 34,436 45,915 57,394 68,873 80,351
Messrs. Jorgensen, Fry, Delaney, Duda and Bowman have 3, 23, 13, 3 and 5 years, respectively, of credited service under the pension plan. Pursuant to supplemental retirement agreements entered into with Messrs. Fry and Delaney, Messrs. Fry and Delaney are entitled to receive certain supplemental retirement benefits. See "Employment and Other Agreements".
Employment and Other Agreements
In January 1995, the Company and the Bank entered into new employment agreements with Enos K. Fry and Charles R. Duda, as amended. Pursuant to these employment agreements, Mr. Fry serves as president and Mr. Duda serves as chief operating officer of the Company and the Bank. The initial terms of the employment agreements were for one year. The Company and the Bank may give written notice of an offer to renew the employment agreements for one additional year on or before September 30 of each year, in the event they desire to renew the agreements, and the employee has 15 days within which to accept or decline any renewal offer. The employment agreements were renewed in 1996 for additional terms of one year each expiring on December 31, 1997. (In the event of a "change in control" (as defined in OTS regulations) of the Company or the Bank, the terms of the employment agreements convert from one-year terms to three-year terms commencing on the date the change in control occurs). Messrs. Fry and Duda's salaries for 1997 are $182,941 and $150,000, respectively. The salary of the employee
may not be decreased without the employee's consent. Pursuant to the employment agreements, Messrs. Fry and Duda are eligible to receive bonuses as determined in the discretion of the Boards of Directors of the Company and of the Bank of up to 50% of the employee's annual salary. Messrs. Fry and Duda are also eligible to participate in retirement and other benefit plans that the Company or the Bank may adopt for the benefit of executive employees.
The employment agreements with Messrs. Fry and Duda may be terminated by the Boards of Directors of the Company and the Bank at any time. The employee would not be entitled to any benefits under his employment agreement if his employment were terminated for "cause", as defined in the agreement. If the employee is terminated "without cause", the employee would be entitled to receive a lump sum cash payment as liquidated damages equal to the employee's then-current salary (discounted to present value). If during the term of the employment agreements a "change in control" occurs and the employee's employment is terminated, voluntarily or involuntarily, in connection with or within one year after the change in control (other than by reason of normal retirement, permanent and total disability or death), the employee would be entitled to receive a severance payment equal to (i) one year's current salary (discounted to present value), if the employee's employment is voluntarily terminated without "good reason" (as defined) or (ii) three times the employee's average annual compensation which was payable by the Bank and includible in the employee's gross income for Federal income tax purposes (excluding for this purpose any income associated with the exercise of stock options) with respect to the five most recent taxable years of the employee ending prior to such change in control (or such portion of such period during which the employee was a full-time employee of the Company or the Bank discounted to present value), if the employee's termination was either voluntary with "good reason" or involuntary. In the event of termination of employment without cause or following a change in control, the employee also would be entitled to be paid for all accrued and unused vacation and sick days, to continue to participate for the remaining term of the employment agreement in all retirement and other employee benefit plans maintained by the Bank (to the extent permissible under the terms of the plans and applicable law) and to have all director and officer liability insurance and indemnification continue in effect until the running of applicable statutes of limitations. The employee may elect to defer the payment of any liquidated damage or severance amounts, in accordance with the terms of the employment agreements. It is currently estimated that, in the event of an involuntary termination of employment or a voluntary termination with "good reason" following a change in control, the severance amounts payable to Messrs. Fry and Duda would be approximately $579,948 and $409,011, respectively.
In November 1995, the Company and the Bank entered into a new employment agreement with Mr. Jorgensen, as amended, pursuant to which Mr. Jorgensen serves as chief executive officer of the Company and the Bank. Mr. Jorgensen's employment agreement is subject to annual renewal on the same basis as the employment agreements with Messrs. Fry and Duda, and has been extended through December 31, 1997. Other provisions of Mr. Jorgensen's employment agreement are substantially the same as the employment agreements with Messrs. Fry and Duda, except that Mr. Jorgensen would be entitled to receive a severance payment equal to three years' current salary and bonus (discounted to present value) in the event his employment were terminated in 1997 either involuntarily or voluntarily with "good reason" in connection with or within one year following a change in control of the Company or the Bank, or approximately $243,050 (but not to exceed three times the employee's average compensation from the Company and the Bank for the five calendar years preceding the year in which a change in control occurs, less one dollar.)
Pursuant to the Merger Agreement between the Company and Provident Bankshares Corporation (see Item 1, "Business -- Subsequent Event"), all cash severance payable to Messrs. Fry and Jorgensen pursuant to their respective employment agreements will be paid at the closing of the Merger.
First Citizens Mortgage Corporation ("FCMC"), the Bank's mortgage banking subsidiary, has entered into an employment agreement with Mr. Delaney dated as of January 1, 1994, as amended, pursuant to which Mr. Delaney serves as president of FCMC. The initial term of Mr. Delaney's employment agreement was for three years ending on December 31, 1996. FCMC may renew the employment agreement for one additional year on each December 31 during the term of the agreement, unless Mr. Delaney gives contrary written notice prior to such renewal date. Mr. Delaney's employment agreement was renewed in 1996 and currently expires on December 31, 1999. Mr. Delaney's salary for 1997 under his employment agreement is $150,000, and is subject to annual cost of living increases and performance or merit increases as determined by the Board of Directors of FCMC. Mr. Delaney would not be entitled to any benefits under his employment agreement if his employment were terminated for "cause", as defined in the employment agreement. If the employee is terminated "without cause", the employee would be entitled to receive a lump sum cash payment as liquidated damages equal to the employee's then-current salary applied to the remaining term of the agreement (discounted to present value). Such payment would be approximately $523,337, based on his salary in effect for 1997. He would also be entitled to have all director and officer liability insurance and indemnification continue in effect until the running of applicable statutes of limitations. In no event may the aggregate of such payments, however, exceed three times Mr. Delaney's average
annual compensation for the five most recent taxable years. Mr. Delaney would also be entitled to receive a similar severance payment in the event his employment was terminated voluntarily with "good reason" or involuntarily after a change in control of the Company or the Bank.
The Bank and FCMC, respectively, have entered into supplemental retirement agreements with Messrs. Fry and Delaney, as amended, under which Messrs. Fry and Delaney are to receive annual payments equal to 70 percent and 60 percent, respectively, of their respective final two-year average annual cash compensation, less amounts payable to them under certain qualified retirement plans, for a period of 15 years or life (whichever is longer) commencing following their retirement after age 65. Mr. Fry has agreed to perform consulting services to the Bank and Mr. Delaney to FCMC during the 60-month period immediately following retirement from active employment for up to 120 hours per year. No supplemental retirement benefit will be paid for any month during which Mr. Fry or Mr. Delaney, as applicable, is employed by a "substantial competitor" (as defined). If either Mr. Fry or Mr. Delaney voluntarily terminates his employment before attaining age 65 for any reason other than for "good reason" (as defined), he will be entitled to receive a prorated supplemental retirement benefit (reduced by five percent for each full year by which his age is less than 55 years) commencing at age 65 but he will be subject to a noncompetition agreement for a period of 36 months after such termination. If Mr. Fry's or Mr. Delaney's employment is terminated for cause (as defined) before age 65, he will forfeit his right to the supplemental retirement benefit. If the Bank or FCMC, as the case may be, terminates the employment of Mr. Fry or Mr. Delaney before age 65 other than for cause, or he terminates his employment for "good reason", he will be entitled to the prorated supplemental retirement benefit beginning at age 65. If Mr. Fry or Mr. Delaney dies before the supplemental benefit becomes payable, the beneficiary would receive 180 monthly payments beginning on the first day of the month following the date of death, equal to the monthly amount the decedent would have received at age 65.
Report on Executive Compensation of the Boards of Directors of the Company and the Bank and the Company's Stock Option Committee
Decisions on executive compensation are made by the Bank's Board of Directors, except for the grant of stock options. The Company's Stock Option Committee, consisting of three of the Company's non-employee directors, makes all decisions concerning stock option grants. The decisions of the Stock Option Committee are taken into account by the Board of Directors of the Bank in determining overall compensation levels for executive officers.
The executive compensation policies of the Company and the Bank are intended to provide competitive levels of compensation designed to integrate pay with achievement of performance goals. Underlying this objective are the following concepts: an individual pay-for-performance policy that differentiates compensation levels based on corporate and individual performance, motivating key senior officers to achieve strategic business objectives and rewarding them for that achievement, providing competitive compensation levels to enable the Company and the Bank to compete for and retain talented executives who are critical to the Company's long-term success, and aligning the interests of executives with the long-term interests of the Company's stockholders.
Compensation paid to the Bank's executive officers in fiscal 1996 consisted of the following components:
Base Salary. The Board of Directors of the Bank reviews executive base salaries annually. In determining the level of salaries for 1996, the Bank's Board of Directors considered, among other factors, individual performance, the number of employees and departments supervised, the individual's contribution to the success of the Bank and the Bank's earnings performance.
Incentive Bonuses. Incentive bonuses paid to executive officers for 1996 were calculated under the Bank's 1996 Management Incentive Compensation Plan, which was implemented in 1996 to provide an opportunity for senior management to share in the rewards of successful Bank performance. Under the Plan, incentive bonuses for the president and the chief operating officer were based on attainment of a net income goal for the Bank. The determination of bonuses for other executive officers was based on two criteria: achievement of the Bank's net income goal (50%) and achievement of department operating goals (50%). Potential incentive bonus payments ranged from up to 25% of base pay for the president, 20% of base pay for the chief operating officer and up to 15% for the other executive officers, with a possible 5% increase in the bonus amount with each 5% increase in the Bank's net income over budget. One of the Bank's executive officers received a discretionary bonus for 1996 of approximately 50 percent of base salary.
Stock Options. The Company provides a long-term incentive through the Company's stock option plans. Key employees, including executive officers, are eligible to receive stock option grants. Awards are intended to provide incentives for executive officers and key employees to enhance long-term corporate performance, as reflected in stock price, thereby increasing stockholder value, and to provide non-cash compensation to such individuals as part of their overall compensation package. During 1996, the Stock Option Committee made option grants to executive officers to coincide with the following officer levels: chief executive officer - 10,000; president - 10,000; executive vice president and the president of FCMC - 7,500; senior vice presidents - l,000; and vice presidents - 750.
Other. In addition to the compensation paid to executive officers as described above, executive officers receive, along with and on the same terms as other employees, certain benefits pursuant to the Bank's pension plan, matching contributions under the Bank's 401(k) plan and participation in the Bank's employee and insider loan program. The Bank and FCMC also have entered into supplemental retirement agreements with two executive officers. See "Employment and Other Agreements".
CEO Compensation. The annual salary for the chairman and chief executive officer of the Bank was increased from $100,000 to $136,000 commencing in April 1995. For 1996, the Board of Directors also awarded Mr. Jorgensen a bonus of $54,400. During 1996, Mr. Jorgensen also was granted a stock option for 10,000 shares of common stock. The per share exercise price was $18.125, which equaled the fair market value of a share of the Company's common stock on the date of grant. In setting the chief executive officer's annual salary at $136,000, the Board of Directors of the Bank took into consideration the amount of time required by the position, the salaries paid chief executive officers of similar-sized banks, and the overall performance of the Bank and the increase in the Bank's profitability.
Boards of Directors Stock Option Committee of the Company and the Bank of the Company - - ------------------------------ ------------------------------- Herbert W. Jorgensen, Chairman Albert M. Cowell, Jr., Chairman Enos K. Fry N. Richard Kimmel N. Richard Kimmel Melvin O. Wright Stanley Betts Albert M. Cowell, Jr. William J. Walsh, III H. Deets Warfield, Jr. Melvin O. Wright
Compensation Committee Interlocks and Insider Participation
Messrs. Jorgensen and Fry serve on the Boards of Directors of the Company and Bank. As such, they participate in executive officer compensation decisions. Neither Mr. Jorgensen nor Mr. Fry vote on or participate in decisions on their own compensation. Mr. Betts, who is retiring as a member of the Board of Directors of the Company and the Bank effective as of the upcoming Annual Meeting, is a former chief executive officer of the Company and the Bank.
Mr. Jorgensen is an attorney with, and during 1996 served on the compensation committee of, the law firm of Heise Jorgensen & Stefanelli P.A., which performs various legal work for the Company and the Bank. During 1996, the Bank paid $177,933 in legal fees to Heise Jorgensen & Stefanelli P.A. The Bank paid $269,514 in fees to Fenton Title Company during 1996 in connection with home equity loan settlement services performed for customers of the Bank by that company. In March 1996, Mr. Jorgensen retired as president of Fenton Title
Company. His daughter is a 57 percent stockholder of Fenton Title Company. The Company believes the fees paid to the law firm of Heise Jorgensen & Stefanelli P.A. and Fenton Title Company were no less favorable to the Bank than fees that would have been paid to other firms providing comparable services. Mr. Jorgensen does not perform legal work for either the Company or the Bank.
In 1996, the Bank listed for sale a residential real estate owned property with the Long & Foster real estate firm. Mr. Walsh's spouse was the listing agent for the property. The sale price of the property was $246,000. The Bank paid Long & Foster a 5.5% sales commission on the sale of the property, of which Mrs. Walsh received $6,150. The Company believes the brokerage fees paid to Long & Foster were no less favorable to the Bank than brokerage fees that would have been paid to other firms providing comparable services.
The Company, through the Bank, makes loans to its directors, executive officers and other employees for the financing of their homes, as well as deposit account-secured, other consumer and commercial loans. In the ordinary course of business, the Bank also makes loans to relatives and affiliates of the Company's directors, executive officers and employees. It is the belief of management that these loans are made in the ordinary course of business and neither involve more than the normal risk of collectibility nor present other unfavorable features. Except for loans on owner-occupied residences and automobile loans made to directors, executive officers and employees, all loans to such persons are made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with non-affiliated persons. Effective November 21, 1996, following enactment of the Economic Growth and Regulatory Paper Reduction Act of 1996, the Bank modified its Employee and Insider Discounted Interest Rate Loan Policies to provide discounted rate loans to directors and executive officers on the same basis as made available to full-time employees of the Bank. On loans on owner-occupied residences made to directors, executive officers and other employees (with at least one year of service), the rate charged on the loan is generally 1% below the rate offered to the public, but not below the Bank's current cost of funds. The Bank offers a one-half percent interest rate discount on new or used automobile loans for full-time employees and insiders of the Bank. Interest charged is at the discounted rate until such time, if at all, that the borrower's employment or service is terminated with less than ten years of service (unless following a change in control of the Bank) or the borrower were to refinance the loan at a lower prevailing rate of interest. The Bank pays up to two points and a one point
origination fee on residential mortgage loans to directors, executive officers and employees.
The following table sets forth certain information with regard to loans at a discounted rate to directors of the Company which were outstanding in amounts greater than $60,000 in the aggregate at any time since January 1, 1996.
Stock Performance Graph
The following graph shows a five-year comparison of cumulative to total returns for the Company, the Nasdaq-US Composite Index and the Nasdaq-Financial Composite Index.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN FIRST CITIZENS FINANCIAL CORPORATION, NASDAQ-US AND NASDAQ-FINANCIAL
[Chart inserted here]
Assumes $100 invested on December 31, 1991 with full reinvestment of dividends, if any.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management
Stock Owned By Management
The following table sets forth information as of March 7, 1997 with respect to the shares of common stock beneficially owned by each director of the Company, each named executive officer of the Company and by all directors and executive officers as a group. All persons shown in the table have sole investment or voting power, except as otherwise indicated.
Name and Position(s) Amount and Nature of Percent of Common with the Company Beneficial Ownership(1) Stock Outstanding - - ---------------- ----------------------- ------------------ Herbert W. Jorgensen ................. 81,372(2)(3) 2.71% Chairman of the Board and Chief Executive Officer Enos K. Fry .......................... 82,891(3) 2.76 Vice Chairman and President N. Richard Kimmel .................... 180,750(4) 6.09 Vice Chairman Stanley Betts ........................ 69,294 2.32 Director and Chairman Emeritus Albert M. Cowell, Jr ................. 38,882(5) 1.31 Director William J. Walsh, III ................ 23,525(6) * Director H. Deets Warfield, Jr ................ 37,862(3) 1.28 Director Melvin O. Wright ..................... 7,878 * Director Benjamin O. Delaney, Jr .............. 47,837 1.60 President, First Citizens Mortgage Corporation Charles R. Duda ...................... 42,370 1.42 Executive Vice President and Chief Operating Officer David H. Bowman ...................... 10,293 * Sr. Vice President, Real Estate Lending All directors and executive .......... 622,954 18.94 officers as a group (11 persons) - - ------------ *Less than 1%.
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended, a person is deemed to be the beneficial owner of a security for purposes of the Rule if he or she has or shares voting power or investment power with respect to such security or has the right to acquire such ownership within 60 days after March 7, 1997. This table includes 345,137 shares of common stock subject to outstanding options which are exercisable within 60 days of March 7, 1997. Of such shares, Mr. Jorgensen holds options to purchase 60,381 shares; Mr. Fry holds options to purchase 61,020 shares; Mr. Kimmel holds options to purchase 24,578 shares; Mr. Betts holds options to purchase 38,019 shares; Messrs. Cowell and Walsh each hold options to purchase 20,006 shares; Mr. Warfield holds options to purchase 17,908 shares; Mr. Wright holds options to purchase 6,668 shares; Mr. Duda holds options to purchase 41,160 shares; Mr. Delaney holds options to purchase 45,098 shares and Mr. Bowman holds options to purchase 10,293 shares.
(2) Includes 11,763 shares held by Mr. Jorgensen as trustee of the Heise Jorgensen & Stefanelli P.A. Profit Sharing Plan and Trust.
(3) Includes 4,154 shares, 673 shares, and 11,420 shares, respectively, owned individually by the director's spouse.
(4) Includes 29,504 shares held by the Kimmel Grandchildren Trust, of which Mr. Kimmel serves as trustee.
(5) Includes 11,861 shares held by two trust funds for which Mr. Cowell serves as trustee.
(6) Includes 105 shares held individually by the director's children.
Principal Holders Of Voting Securities
The following table sets forth information as of March 7, 1997 with respect to the ownership of shares of Company common stock by each person believed by management to be the beneficial owner of more than 5% of the Company's outstanding common stock. The information is based on the most recent Schedule 13D filed on behalf of such persons or other information made available to the Company. Except as otherwise indicated, the reporting persons have stated that they possess sole voting and sole dispositive power over the entire number of shares reported.
Name and Address of Amount and Nature of Percent of Common Beneficial Owner Beneficial Ownership Stock Outstanding - - ---------------- -------------------- ------------------ Able Associates, Inc. Box 180 Swarthmore, Pennsylvania 19081 336,839 (1) 11.44%
N. Richard Kimmel 15821 Crabbs Branch Way Rockville, Maryland 20855 180,750 6.09%
- - -----------------
(1) The Company's certificate of incorporation prohibited, until after December 24, 1991, any person or company from directly or indirectly offering to acquire or acquiring beneficial ownership of more than 10% of any class of equity security of the Company. Thereafter, no person may offer to acquire 10% or more of the outstanding voting stock of the Company unless the offer shall first have been approved by the Company's Board of Directors or the person making the offer shall have received required regulatory approvals to consummate the proposed acquisition of shares, and no person may acquire 10% or more of the outstanding voting stock of the Company unless the acquisition has been approved prior to its consummation by the affirmative vote of stockholders holding at least two-thirds of the outstanding shares. Pursuant to the certificate of incorporation, any shares beneficially owned by any person in excess of such 10% limit in effect until December 24, 1991 shall be considered "excess shares" and shall not be voted by any person or counted as voting shares in connection with any matter submitted to stockholders for a vote. The Company believes that 49,128 of the shares held by Able Associates, Inc. should be considered "excess shares", which, pursuant to the terms of the certificate of incorporation, may not be voted or counted as voting shares in connection with any matter submitted to stockholders for a vote.
In June 1993, Able Associates, Inc. and Dale L. Reese, Able Associates, Inc.'s sole stockholder, entered into a rebuttal agreement with the OTS with respect to Able Associates' ownership of shares of Company common stock. The rebuttal agreement, in general, provides that Able Associates and Dale Reese will not, unless they shall have first filed a notice under the Change in Control Act , or an application under the Savings and Loan Holding Company Act, as appropriate and either shall have obtained approval of the application or clearance of the notice in accordance with applicable Federal regulations: (i) seek or accept representation of more than one member of the Board of Directors of the Company or the Bank; (ii) have or seek to have any representative serve as chairman of the Board of Directors, or chairman of an executive or similar committee of the Company or the Bank's Board of Directors or as president or chief executive officer of the Company or the Bank; (iii) engage in any intercompany transaction with the Company, the Bank or their affiliates; (iv) propose a director in opposition to nominees proposed by the management of the Company or the Bank for the Board of Directors of the Company or the Bank, other than as permitted under
(i) above; (v) solicit proxies or participate in any solicitation of proxies with respect to any matter presented to the stockholders of the Company other than in support of, or in opposition to, a solicitation conducted on behalf of management of the Company; and (vi) do any of the following, except as necessary solely in connection with the performance by any representative of Able Associates as a member of the Company or the Bank's Board of Directors: (a) influence or attempt to influence in any respect the loan and credit decisions or policies of the Company or the Bank, the pricing of services, any personnel decision, the location of any offices, branching, the hours of operation or similar activities of the Company or the Bank; (b) influence or attempt to influence the dividend policies and practices of the Company or the Bank or any decisions or policies of the Company or the Bank as to the offering or exchange of any securities; (c) seek to amend, or otherwise take action to change, the bylaws, articles of incorporation, or character of the Company or the Bank; (d) exercise, or attempt to exercise, directly or indirectly, control or controlling influence over the management, policies or business operations of the Company or the Bank; or (e) seek or accept any non-public information concerning the Company or the Bank.
Item 13.

Item 13. Certain Relationships and Related Transactions
In December 1996, the Bank made a $300,000 residential mortgage loan to Mr. Duda. The interest rate on the loan is 6.375% which represents a one percent discount from the interest rate in effect at the time the loan was made. The Bank also paid two points and a one point origination fee on the loan, which was made under the Bank's Employee and Insider Discounted Interest Rate Loan Policies.
For a description of certain transactions involving the Company and certain of its directors, see "Compensation Committee Interlocks and Insider Participation" under Item 11 above.
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) List of documents filed as part of this Report. (a)(1) Financial Statements.
Page Reference --------- Consolidated Statements of Financial Condition - December 31, 1996 and 1995................................... 17 Consolidated Statements of Income - Years Ended December 31, 1996, 1995 and 1994............................. 18 Consolidated Statements of Stockholders' Equity - Years Ended December 31, 1996, 1995 and 1994................. 19 Consolidated Statements of Cash Flows - Years Ended December 31, 1996, 1995 and 1994............................. 20 Notes to Consolidated Financial Statements..................... 21-35 Independent Auditors' Reports.................................. 36
(a)(2) Financial Statement Schedules.
All financial statement schedules are omitted because the required information is inapplicable or the information is presented in the Consolidated Financial Statements or related notes.
(a)(3) Exhibits.
The following exhibits are either filed as part of this Report or are incorporated herein by reference:
Exhibit No. 3. Certificate of Incorporation and Bylaws.
(a) Certificate of Incorporation, as amended, of the Company (incorporated herein by reference to Annex C to the Prospectus/Proxy Statement filed as part of the Pre-Effective Amendment No. 1 to the Company's Registration Statement on Form S-4 (Registration No. 33-27259) filed on March 16, 1989).
(b) Amended Bylaws of the Company.**
Exhibit No. 10. Material Contracts.
(a) Stock Option Plan, as amended (incorporated herein by reference to Exhibit 4.4 of the Post-Effective Amendment No. 1 to the Company's Form S-4 Registration Statement on Form S-8 (Registration No. 33-27259) filed on October 4, 1989).
(b) Directors' Stock Option Plan (incorporated herein by reference to the Company's Form S-8 Registration Statement (Registration No. 33-62466) filed on May 7, 1993).
(c) Employee Stock Option Plan (incorporated herein by reference to the Company's Form S-8 Registration Statement (Registration No. 33-91612) filed on April 26, 1995).
(d) Directors' Retirement Plan, as amended.*
(e) Deferred Fee Plan for Directors, effective as of January 1, 1996.*
(f) Employment Agreement between and among First Citizens Financial Corporation, Citizens Savings Bank f.s.b. and Herbert W. Jorgensen, dated November 22, 1995, as amended.*
(g) Amended Employment Agreement between and among First Citizens Financial Corporation, Citizens Savings Bank f.s.b. and Enos K. Fry, dated September 7, 1995.*
(h) Amended Employment Agreement between and among First Citizens Financial Corporation, Citizens Savings Bank f.s.b. and Charles R. Duda, dated September 7, 1995.*
(i) Employment Agreement, as amended, between First Citizens Mortgage Corporation and Benjamin O. Delaney, Jr., dated January 1, 1994, as amended.*
(j) Supplemental Retirement Agreement by and between Citizens Savings Bank f.s.b. and Enos K. Fry dated March 7, 1996.*
(k) Supplemental Retirement Agreement by and between First Citizens Mortgage Corporation and Benjamin O. Delaney, Jr. dated March 7, 1996.*
(l) 1996 Incentive Bonus Plan.*
(m) 1997 Incentive Bonus Plan.
(n) Dividend Agreement dated August 3, 1989 as to dividends by the Bank to the Company.*
Exhibit No. 11. Computation of Primary and Fully Diluted Earnings Per Share.
Exhibit No. 21. List of Subsidiaries.***
Exhibit No. 23. Consents of Experts.
(a) Consent of KPMG Peat Marwick LLP (Registration Nos. 33-27259, 33-62466 and 33-91612).
(b) Consent of Arthur Andersen LLP (Registration Nos. 33-27259, 33-62466 and 33-91612).
Exhibit No. 27. Financial Data Schedule
(b) Reports on Form 8-K.
No Forms 8-K were filed during the quarter ended December 31, 1996.
(c) Exhibits.
See Item 14(a)(3) above.
- - ---------------------- * incorporated herein by reference to exhibit 10 to the Company's 1995 Form 10-K.
** incorporated herein by reference to exhibit 3(b) to the Company's 1994 Form 10-K.
*** incorporated herein by reference to exhibit 21 to the Company's 1993 Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: Herbert W. Jorgensen March , 1997 Chairman and Chief Executive Officer (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on March 20, 1997 on behalf of the Registrant in the capacities indicated.
By: Herbert W. Jorgensen Chairman and Chief Executive Officer (Principal Executive Officer)
By: Enos K. Fry President and Vice Chairman
By: Charles R. Duda Executive Vice President and Chief Operating Officer
By: William C. Scott Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
By: N. Richard Kimmel Vice Chairman
By: Stanley Betts Albert M. Cowell, Jr. William J. Walsh, III H. Deets Warfield, Jr. Melvin O. Wright Directors
Investor Services Directory
Stockholder Information
First Citizens Financial Corporation's periodic reports filed with the Securities and Exchange Commission are available without charge to stockholders and other interested parties. To request these publications, or if you have questions about First Citizens Financial Corporation, you are invited to contact:
Investor Relations
First Citizens Financial Corporation 22 Firstfield Road Gaithersburg, MD 20878 (301) 527-2400 or 1 (800) 573-8700
Transfer Agent and Registrar Registrar and Transfer Company 10 Commerce Drive Cranford, NJ 07016 1 (800) 368-5948
Communications concerning change of address, lost certificates and transfer requirements should be directed to the Transfer Agent.
General Counsel Robert E. Gough Heise Jorgensen & Stefanelli P.A. 18310 Montgomery Village Avenue, Suite 400 Gaithersburg, MD 20879
Special Counsel Hogan & Hartson L.L.P. 555 - 13th Street, N.W. Washington, DC 20004
Annual Meeting
The 1997 Annual Meeting of Stockholders will be held on a date to be determined. See Item 1, "Business-- Subsequent Event" of Form 10-K.
1996 Annual Report and Form 10-K
This report is submitted for the general information of the stockholders of First Citizens Financial Corporation and is not intended to be used in connection with any sale or purchase of securities. Copies of this report are available from the Corporate Secretary of First Citizens Financial Corporation.
Corporate Headquarters 22 Firstfield Road Gaithersburg, MD 20878 (301) 527-2400
Citizens Savings Bank f.s.b. Locations Branch Locations:
MAIN OFFICE* 8485 Fenton Street Silver Spring, MD 20910 (301) 589-9610 Manager: Roger Harris
BETHESDA* 4405 East-West Highway Bethesda, MD 20814 (301) 654-2411 Manager: Carlos Molina
CHEVY CHASE* 5416 Wisconsin Avenue Chevy Chase, MD 20815 (301) 654-2154 Manager: Shabnam Das
DAMASCUS* 9801 Main Street Damascus, MD 20872 (301) 253-2000 Manager: Chandra Bappanad
FLOWER HILL* 18261 Flower Hill Way Gaithersburg, MD 20879 (301) 840-5600 Manager: Marie Thomas
FREDERICK* Frederick County Square Shopping Mall 1003 West Patrick Street Frederick, MD 21702 Metro-(301) 831-4272 Local-(301) 662-9420 Manager: Erin Funk
GAITHERSBURG* 205 North Frederick Avenue Gaithersburg, MD 20877 (301) 926-0560 Manager: Dick Reed
KENSINGTON* 3720 Farragut Avenue Kensington, MD 20895 (301) 949-2200 Manager: Ron Perrell
LEISUREWORLD* 3866 International Drive Silver Spring, MD 20906 (301) 598-4215 Manager: Lisa Pellegrino
OLNEY* 17920 Georgia Avenue Olney, MD 20832 (301) 774-2300 Manager: Richard Irvin
POTOMAC* Potomac Place Shopping Center 10100 River Road Potomac, MD 20854 (301) 299-8230 Manager: Kathleen Mayer
QUINCE ORCHARD* 12110 Darnestown Road Gaithersburg, MD 20878 (301) 977-8313 Manager: Ann Blake
ROCKVILLE* 414 Hungerford Drive Rockville, MD 20850 (301) 762-3101 Manager: Cynthia White
WHEATON-GLENMONT* 2335 Glenallen Avenue Wheaton, MD 20906 (301) 946-4787 Manager: Diana Lueben
WHITE OAK* 11161 New Hampshire Avenue Silver Spring, MD 20904 (301) 593-7600 Manager: Marc Hall
Mortgage Originations:
First Citizens Mortgage Corporation 12501 Prosperity Drive, Suite 130 Silver Spring, MD 20904 (301) 622-9002
Board of Directors and Corporate Officers
Board of Directors
Herbert W. Jorgensen Chairman and Chief Executive Officer Senior Attorney, Heise Jorgensen & Stefanelli P.A.
Enos K. Fry Vice Chairman of the Board President, Citizens Savings Bank f.s.b.
N. Richard Kimmel Vice Chairman of the Board Owner, Kimmel Properties
Stanley Betts Retired Insurance Broker
Albert M. Cowell, Jr. President, A. Myron Cowell, Inc.
William J. Walsh, III Senior Vice President, Donohoe Real Estate Services
H. Deets Warfield, Jr. President, Damascus Motor Co., Inc.
Melvin O. Wright Retired Investment Banker
Chairman Emeritus Stanley Betts
Directors Emeriti T.W. Perry, Jr. President, T.W. Perry, Inc.
Evelyn K. Stevens Retired Corporate Secretary of Citizens Savings Bank f.s.b.
Corporate Officers
First Citizens Financial Corporation
Herbert W. Jorgensen Chief Executive Officer
Enos K. Fry President
Charles R. Duda Executive Vice President and Chief Operating Officer
William C. Scott Senior Vice President and Chief Financial Officer
Barbara J. Guy Corporate Secretary
John V. Romagna Treasurer
Citizens Savings Bank f.s.b.
Herbert W. Jorgensen Chief Executive Officer
Enos K. Fry President
Charles R. Duda Executive Vice President and Chief Operating Officer
John V. Romagna Senior Vice President and Treasurer
William C. Scott Senior Vice President and Chief Financial Officer
David H. Bowman Senior Vice President, Real Estate
Timothy E. Hall Senior Vice President, Corporate Lending
LuAnn Loeber Senior Vice President, Community Banking
Mark A. Schissler Senior Vice President, Human Resources
J. Terry Thomas Senior Vice President, Consumer Lending
Barbara J. Guy Corporate Secretary
Vice Presidents Juline H. Anderson Savings Administration
V. Ann Blake Quince Orchard Branch
Margaret H. Blewitt Construction Servicing
C R Carder IV Asset Quality and Compliance, CRA Officer
Rosemary Z. Chamblin Residential Servicing
Alan E. Good Administrative Services
Gary D. Houston Real Estate Lending
Richard J. Hunt, Jr. Corporate Lending
Mark L. Joyce Consumer Lending
James P. Kerr, III Staff Appraiser and Inspector
J. Martin Kline Real Estate Lending
Wylie Mitchell Loan Review
Jeanne Chappuis Petrykanyn Real Estate Lending
Guy J. Tegler Corporate Lending
Michael B. Vavreck Deposit Operations
John M. Wright Accounting
Lowell W. Yoder Corporate Lending
Assistant Vice Presidents David A. Blaszczak Joyce B. Cane Thomas H. Hedgpeth, Sr. Judith G. Judkins
Henry P. Kistner Maria P. Lampos Debbie J. MacArthur Kathleen S. Mayer David B. O'Berry Richard B. Reed Merle J. Sabatini Cynthia R. White John A. Yerrick, Jr.
David W. Frasier Director of Internal Audit
Myrian E. Fuentes Assistant Secretary
First Citizens Corporation
Herbert W. Jorgensen Chairman and Chief Executive Officer
Enos K. Fry President
David H. Bowman Vice President
James P. Kerr, III Vice President
Gary D. Houston Assistant Vice President
Barbara J. Guy Secretary
John V. Romagna Treasurer
First Citizens Development Corporation
Albert M. Cowell, Jr. Chairman
Herbert W. Jorgensen Chief Executive Officer
Enos K. Fry President
David H. Bowman Executive Vice President
Barbara J. Guy Secretary
John V. Romagna Treasurer
First Citizens Mortgage Corporation
William J. Walsh, III Chairman
Herbert W. Jorgensen Chief Executive Officer
Benjamin O. Delaney, Jr. President
Thomas L. Bean Senior Vice President
Kimberly C. Bean Vice President
John M. Wright Secretary-Treasurer
NOTES
NOTES
[LOGO] FIRST CITIZENS FINANCIAL CORPORATION
22 FIRSTFIELD ROAD - GAITHERSBURG, MD 20878 Telephone (301) 527-2400
EX-10 EXHIBIT 10(M)
Exhibit 10(m)
MANAGEMENT INCENTIVE COMPENSATION PLAN OF CITIZENS SAVINGS BANK F.S.B. FOR THE YEAR ENDING DECEMBER 31, 1997
A. Description
This INCENTIVE COMPENSATION PLAN FOR MANAGEMENT INDIVIDUALS OF CITIZENS SAVINGS BANK F.S.B., is a means by which additional compensation shall be made available to designated Senior Management Officers who contribute to the successful operation of the Bank. The purpose of this plan is to provide an opportunity for these individuals to share in the rewards of successful Bank performance, in recognition of their leadership, excellence in performance, and achievement of Bank profit and growth objectives.
This plan shall be effective for the year beginning January 1, 1997, and ending December 31, 1997. This plan may be continued, amended, or discontinued in subsequent years at the discretion of the Board of Directors.
B. Definitions
1. Base Salary - the amount of regular wages and/or salary paid to the management participant as regular earnings during the year, exclusive of any other form of additional compensation.
2. Management Participant - in order to participate in this plan, management individuals named herein must be in the active employment of the Bank at the end of the plan year and occupy one of the management positions named in this plan; any individual who ceases to be employed, regardless of cause, by the Bank prior to the time that distribution is made, shall forfeit all rights to receiving any incentive payment which may otherwise be due under this plan.
3. Incentive Payment - shall be those amounts payable to management participants as determined in accord with this plan; incentive payments are expressed and calculated as a percentage of each participant's base salary; incentive payments shall be made in the form of a one-time cash distribution to the management participant and shall be subject to deductions for income tax withholding. Payment shall be made after the close of the plan year within twenty (20) days after the yearly earnings have been made public.
4. Net Income - is the difference between total receipts and total expenses after taxes for the year, 1997, as reported in the Bank's annual statement and verified by the Bank's independent auditors.
C. Determination of Incentive Payment
1. The determination of incentives payable to Executive Management (Enos K. Fry and Charles R. Duda) will be based solely upon the attainment of the Company's net income goal.
2. The determination of incentives payable to Senior Management participants shall be based upon two criteria listed below:
a. The performance of the Bank as measured by achievements of net income goals (50%).
b. Achieving the department's operating goals for the year (50%).
The base incentive for the attainment of these goals for the Bank is as follows:
Enos K. Fry 25% Charles R. Duda 20% All other Senior Officers 15%
The bonus pool shall be tiered as follows:
Budget Net Income Bonus Potential Pool
100% $5,600,000 100% $179,863 105% $5,880,000 105% $226,686 110% $6,160,000 110% $273,509
The incentive percentage of the bonus moves up 5% with each 5% increase in net income over the budget. The accrual for the bonus pool will be included in the attainment of the net income calculation. In the event the incentive accrual is the determining factor in making the budget, the incentive pool will be lowered by the amount needed to attain the budgeted net income.
Management Participants
Enos K. Fry Charles R. Duda Dave Bowman Tim Hall LuAnn Loeber Mark Schissler Bill Scott Terry Thomas
EX-11 EXHIBIT 11
Exhibit No. 11
FIRST CITIZENS FINANCIAL CORPORATION AND SUBSIDIARIES COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE (a)
Year ended December 31, -------------------------------------------- 1996 1995 1994 ---- ---- ---- (Dollars in thousands except per share data) PRIMARY: Net income $ 3,168 $ 4,107 $ 3,635 ========== ========== ==========
Shares: Weighted average number of common shares outstanding 2,919,295 2,872,157 2,827,886 Dilutive effect of exercise of stock options 276,421 299,327 284,129 ---------- ---------- ---------- Weighted average number of common shares outstanding, as adjusted 3,195,716 3,171,484 3,112,014 ========== ========== ========== Net income per share $ 0.99 $ 1.29 $ 1.17 ========== ========== ==========
ASSUMING FULL DILUTION:
Shares: Weighted average number of common shares as adjusted, for primary computation 3,195,716 3,171,484 3,112,014 Additional dilutive effect of exercise of stock options 11,444 3,049 -- ---------- ---------- ---------- Weighted average number of common shares outstanding, as adjusted 3,207,160 3,174,533 3,112,014 ========== ========== ========== Net income per share $ 0.99 $ 1.29 $ 1.17 ========== ========== ==========
(a) restated for the effects of a 10% stock dividend distributed June 3, 1996
EX-23 EXHIBIT 23(A)
EXHIBIT 23(a)
Consent of Independent Auditors -------------------------------
The Board of Directors First Citizens Financial Corporation Gaithersburg, Maryland:
We consent to incorporation by reference in the registration statements (Nos. 33-27259, 33-62466 and 33-91612) on Form S-8 of our report dated February 3, 1995, related to the consolidated statements of income, stockholders' equity and cash flows of First Citizens Financial Corporation and subsidiary for the year ended December 31, 1994, which report is incorporated by reference in the December 31, 1996 annual report on Form 10-K of First Citizens Financial Corporation.
KPMG PEAT MARWICK LLP
Washington, D.C. March 24, 1997
EX-23 EXHIBIT 23(B)
Exhibit 23(b)
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K of our report dated January 22, 1997 included in First Citizens Financial Corporation's (the "Corporation") Registration Statement File Nos. 33-27259, 33-62466 and 33-91612. It should be noted that we have not audited any financial statements of the Corporation subsequent to December 31, 1996 or performed any audit procedures subsequent to the date of our report.
/s/ Arthur Andersen LLP
Washington, D.C. March 24, 1997
EX-27 EXHIBIT 27
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