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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
 FORM 10 - Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004 Commission File No.: 0-27740 CITIZENS FIRST FINANCIAL CORP.  DELAWARE
(State or other jurisdiction of
incorporation or organization)
    
    37-1351861
(I.R.S. Employer I.D. No.)
 2101 North Veterans Parkway, Bloomington, Illinois 61704
(Address of principal executive offices) Registrants telephone number: (309) 661-8700 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for past 90 days. x o
 Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes o No x The Registrant had 1,498,656 shares of Common Stock outstanding as of August 1,
2004.




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TABLE OF CONTENTS  
 PAGEPART I  FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003
    
    
    1Condensed Consolidated Statements of Income for the Six Months Ended June 30, 2004 and 2003
    
    
    2Condensed Consolidated Statements of Income for the Three Months Ended June 30, 2004 and 2003
    
    
    3Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    
    9Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    17Item 4. Controls and Procedures
    
    
    17PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    18Item 2. Changes in Securities, Use of Proceeds and Issuer Purchase Of Equity Securities
    
    
    18Item 3. Defaults Upon Senior Securities
    
    
    18Item 4. Submission of Matters to a Vote of Security Holders
    
    
    18Item 5. Other Information
    
    
    19Item 6. Exhibits and Reports on Form 8-K
    
    
    19Signatures
    
    
    20Statement re: Computation of Per Share EarningsCertification of C. William Landefeld Required by Rule 13a-14(a)Certification of Dallas G. Smiley Required by Rule 13a-14(a)Certification of C. William Landefeld Required by Section 906Certification of Dallas G. Smiley Required by Section 906
  Statements contained in this Form 10-Q which are not historical facts are
forward-looking statements, as that term is described in the Private Securities
Litigation Reform Act of 1995. The forward-looking statements are generally
identifiable by the use of such words as believes, expects, anticipates,
estimates, projects, intends or similar expressions. Such
forward-looking statements are subject to risk and uncertainties which could
cause actual results to differ materially from those projected. Such risks and
uncertainties include potential changes in interest rates, competitive factors
in the financial services industry, general and local economic conditions, the
effect of new legislation and other risks detailed in documents filed by the
Company with the Securities and Exchange Commission from time to time.




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PART I.  FINANCIAL INFORMATION Citizens First Financial Corp. and Subsidiary 
 Condensed Consolidated Balance Sheets
As of June 30, 2004 and December 31, 2003
(in thousands except share data)
 June 30,
    
    December 31,2004
    
    2003(Unaudited)ASSETSCash and due from banks
    
    $
    6,671
    
    
    $
    6,692Interest-bearing deposits and federal funds sold
    
    
    32,079
    
    
    
    10,139Cash and cash equivalents
    
    
    38,750
    
    
    
    16,831Available for sale securities
    
    
    22,945
    
    
    
    20,746Mortgage loans held for sale
    
    
    1,762
    
    
    
    376Loans
    
    
    244,388
    
    
    
    282,477Allowance for loan losses
    
    
    (3,137
    )
    
    
    (3,072
    )Net loans
    
    
    241,251
    
    
    
    279,405Land in real estate joint venture
    
    
    
    
    
    
    683Premises and equipment
    
    
    5,844
    
    
    
    6,183Federal Home Loan Bank stock
    
    
    15,682
    
    
    
    15,206Foreclosed assets
    
    
    708
    
    
    
    2,135Mortgage servicing rights
    
    
    412
    
    
    
    469Cash surrender value of bank owned life insurance
    
    
    4,214
    
    
    
    4,115Other assets
    
    
    2,657
    
    
    
    3,366Total assets
    
    $
    334,225
    
    
    $
    349,515LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesDeposits
    
    $
    239,557
    
    
    $
    250,013Long-term debt
    
    
    58,825
    
    
    
    63,975Other liabilities
    
    
    2,187
    
    
    
    2,153Total liabilities
    
    
    300,569
    
    
    
    316,141Minority interest in real estate joint venture
    
    
    
    
    
    
    382Commitments and Contingent LiabilitiesStockholders EquityPreferred stock, $.01 par valueAuthorized and unissued  1,000,000 shares
    
    
    
    
    
    
    Common stock, $.01 par value; authorized 8,000,000
shares; 2,817,500 shares issued and outstanding
    
    
    28
    
    
    
    28Additional paid-in-capital
    
    
    26,666
    
    
    
    27,910Retained earnings
    
    
    29,119
    
    
    
    26,870Accumulated other comprehensive loss
    
    
    (109
    )
    
    
    (20
    )Less:Treasury shares, 1,318,844 and 1,318,025, respectively
    
    
    (22,048
    )
    
    
    (21,796
    )Total stockholders equity
    
    
    33,656
    
    
    
    32,992Total liabilities and stockholders equity
    
    $
    334,225
    
    
    $
    349,515
 See notes to condensed consolidated financial statements 1




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Citizens First Financial Corp. and Subsidiary 
 Condensed Consolidated Statements of Income
 For the six months
    
    For the six monthsended June 30, 2004
    
    ended June 30, 2003(Unaudited and in thousands except share data)Interest incomeInterest on loans
    
    $
    8,063
    
    
    $
    9,032Interest on investments, deposits with banks,
federal funds sold and other
    
    
    967
    
    
    
    790Total interest income
    
    
    9,030
    
    
    
    9,822Interest expenseInterest on deposits
    
    
    2,528
    
    
    
    3,016Interest on borrowings
    
    
    1,011
    
    
    
    1,571Total interest expense
    
    
    3,539
    
    
    
    4,587Net interest income
    
    
    5,491
    
    
    
    5,235Provision
(credit) for loan losses
    
    
    (250
    )
    
    
    391Net interest income after provision for loan losses
    
    
    5,741
    
    
    
    4,844Noninterest incomeService charges on deposit accounts
    
    
    558
    
    
    
    451Net gains on loan sales
    
    
    32
    
    
    
    819Gains on sales of land in joint venture
    
    
    230
    
    
    
    194Other
    
    
    156
    
    
    
    119Total noninterest income
    
    
    976
    
    
    
    1,583Noninterest expenseSalaries and employee benefits
    
    
    2,025
    
    
    
    2,044Net occupancy and equipment expenses
    
    
    690
    
    
    
    629Net loss on sale or write-down of foreclosed assets
    
    
    472
    
    
    
    61Deposit insurance expense
    
    
    19
    
    
    
    20Data processing expense
    
    
    184
    
    
    
    175Minority interest in net income of real estate joint venture
    
    
    97
    
    
    
    97Other
    
    
    974
    
    
    
    1,020Total noninterest expense
    
    
    4,461
    
    
    
    4,046Income before income tax
    
    
    2,256
    
    
    
    2,381Income tax expense
    
    
    838
    
    
    
    918Net income
    
    
    1,418
    
    
    
    1,463Other comprehensive loss, net of tax:Unrealized depreciation on available for sale securities
    
    
    (89
    )
    
    
    (29
    )Comprehensive income
    
    $
    1,329
    
    
    $
    1,434Basic earnings per share
    
    $
    0.94
    
    
    $
    1.00Weighted average shares outstanding
    
    
    1,510,776
    
    
    
    1,461,537Diluted earnings per share
    
    $
    0.89
    
    
    $
    0.91Weighted average shares outstanding
    
    
    1,602,301
    
    
    
    1,603,021
 See notes to condensed consolidated financial statements 2




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Citizens First Financial Corp. and Subsidiary 
 Condensed Consolidated Statements of Income
 For the three months
    
    For the three monthsended June 30, 2004
    
    ended June 30, 2003(Unaudited and in thousands except share data)Interest incomeInterest on loans
    
    $
    3,888
    
    
    $
    4,455Interest on investments, deposits with banks,
federal funds sold and other
    
    
    473
    
    
    
    385Total interest income
    
    
    4,361
    
    
    
    4,840Interest expenseInterest on deposits
    
    
    1,211
    
    
    
    1,411Interest on borrowings
    
    
    415
    
    
    
    781Total interest expense
    
    
    1,626
    
    
    
    2,192Net interest income
    
    
    2,735
    
    
    
    2,648Provision
(credit) for loan losses
    
    
    (76
    )
    
    
    306Net interest income after provision for loan losses
    
    
    2,811
    
    
    
    2,342Noninterest incomeService charges on deposit accounts
    
    
    282
    
    
    
    234Net (loss) gain on loan sales
    
    
    (13
    )
    
    
    475Other
    
    
    38
    
    
    
    81Total noninterest income
    
    
    307
    
    
    
    790Noninterest expenseSalaries and employee benefits
    
    
    1,010
    
    
    
    1,002Net occupancy and equipment expenses
    
    
    338
    
    
    
    314Net loss (gain) on sale or write-down of foreclosed assets
    
    
    12
    
    
    
    Deposit insurance expense
    
    
    9
    
    
    
    10Data processing expense
    
    
    91
    
    
    
    86Other
    
    
    493
    
    
    
    552Total noninterest expense
    
    
    1,953
    
    
    
    1,964Income before income tax
    
    
    1,165
    
    
    
    1,168Income tax expense
    
    
    434
    
    
    
    447Net income
    
    
    731
    
    
    
    721Other comprehensive income (loss), net of tax:Unrealized appreciation (depreciation) on available for
sale securities
    
    
    (148
    )
    
    
    31Comprehensive income
    
    $
    583
    
    
    $
    752Basic earnings per share
    
    $
    0.48
    
    
    $
    0.49Weighted average shares outstanding
    
    
    1,512,954
    
    
    
    1,466,422Diluted earnings per share
    
    $
    0.46
    
    
    $
    0.45Weighted average shares outstanding
    
    
    1,600,514
    
    
    
    1,606,125
 See notes to condensed consolidated financial statements 3




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Citizens First Financial Corp. and Subsidiary
CITIZENS FIRST FINANCIAL CORP. AND SUBSIDIARY 
 Condensed Consolidated Statements of Cash Flows
 For the six
    
    For the sixmonths ended
    
    months endedJune 30, 2004
    
    June 30, 2003(Unaudited and in thousands)Operating activitiesNet income
    
    $
    1,418
    
    
    $
    1,463Adjustments to reconcile net income to net cash
Provided (used) by operating activities:Provision for loan losses
    
    
    (250
    )
    
    
    391Increase in cash surrender value of life insurance policies
    
    
    (99
    )
    
    
    Investment securities amortization, net
    
    
    48
    
    
    
    110Minority interest in net income of real estate joint venture
    
    
    97
    
    
    
    97Net gain on sale of land in real estate joint venture
    
    
    (230
    )
    
    
    (194
    )Net loss on sale or write-down of foreclosed assets
    
    
    472
    
    
    
    61Net gains on sale of mortgage loans
    
    
    (32
    )
    
    
    (819
    )Amortization of mortgage servicing rights
    
    
    77
    
    
    
    147Depreciation
    
    
    515
    
    
    
    364Mortgage loans originated for sale
    
    
    (4,752
    )
    
    
    (42,992
    )Proceeds from sale of mortgage loans
    
    
    3,378
    
    
    
    44,307Federal Home Loan Bank dividends
    
    
    (476
    )
    
    
    (207
    )Change in:Other assets
    
    
    764
    
    
    
    279Other liabilities
    
    
    17
    
    
    
    481Net cash provided by operating activities
    
    
    947
    
    
    
    3,488Investing ActivitiesPurchase of available for sale securities
    
    
    (4,906
    )
    
    
    (9,705
    )Proceeds from maturities and principal paydowns
on available for sale securities
    
    
    2,515
    
    
    
    6,765Net change in loans
    
    
    38,338
    
    
    
    15,111Reimbursement from land in real estate joint venture
    
    
    
    
    
    
    108Proceeds from sales of land real estate joint venture
    
    
    913
    
    
    
    427Net distribution of minority interest portion of
real estate joint venture
    
    
    (479
    )
    
    
    (261
    )Purchases of premises and equipment
    
    
    (176
    )
    
    
    (26
    )Proceeds from sales of foreclosed assets
    
    
    1,021
    
    
    
    1,615Investment in bank-owned life insurance
    
    
    
    
    
    
    (4,000
    )Net cash provided by investing activities
    
    
    37,226
    
    
    
    10,034
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For the six
    
    For the sixmonths ended
    
    months endedJune 30, 2004
    
    June 30, 2003(Unaudited and in thousands)Financing ActivitiesNet change in deposits
    
    $
    (10,456
    )
    
    $
    (9,175
    )Proceeds from borrowings
    
    
    25,000
    
    
    
    Repayment of borrowings
    
    
    (30,150
    )
    
    
    (2,150
    )Purchase of treasury stock shares
    
    
    (602
    )
    
    
    (1,155
    )Cash dividends paid on common stock
    
    
    (307
    )
    
    
    (301
    )Exercise of stock options
    
    
    244
    
    
    
    790Net change in advances by borrowers for taxes and insurance
    
    
    17
    
    
    
    96Net cash used in financing activities
    
    
    (16,254
    )
    
    
    (11,895
    )Net change in cash and cash equivalents
    
    
    21,919
    
    
    
    1,627Cash and cash equivalents, beginning of period
    
    
    16,831
    
    
    
    33,583Cash and cash equivalents, end of period
    
    $
    38,750
    
    
    $
    35,210Additional cash flows information:Interest paid
    
    $
    3,623
    
    
    $
    4,554Income tax paid
    
    $
    778
    
    
    $
    1,115Loans transferred to foreclosed assets
    
    $
    66
    
    
    $
    4,614
 See notes to condensed consolidated financial statements 5




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Citizens First Financial Corp. 
 Notes to Condensed Consolidated Financial Statements 1. Background Information Citizens First Financial Corp. (the Company) was incorporated in January 1996
and on May 1, 1996 acquired all of the outstanding shares of common stock of
Citizens Savings Bank (the Bank) upon the Banks conversion from a federally
chartered mutual savings bank to a federally chartered stock savings bank. The
Company purchased 100% of the outstanding capital stock of the Bank using 50%
of the net proceeds from the Companys initial stock offering which was
completed on May 1, 1996. In April 1999, the Bank was converted from a
federally chartered savings bank to an Illinois state savings bank. The Company sold 2,817,500 shares of common stock in the initial offering at
$10.00 per share, including 225,400 shares purchased by the Banks Employee
Stock Ownership Plan (the ESOP). The ESOP shares were acquired by the Bank
with proceeds from a Company loan totaling $2,254,000. The net proceeds of the
offering totaled $27,012,000; $28,175,000 less $1,163,000 in underwriting
commissions and other expenses. The Companys stock is traded on the NASDAQ
National Market under the symbol CFSB. 2. Statement of Information Furnished The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with Form 10-Q instructions and Rule 10-01 of
Regulation S-X, and in the opinion of management reflect all adjustments
necessary to present a fair statement of the consolidated financial position as
of June 30, 2004 and December 31, 2003, and the consolidated statements of
income for the six and three months ended June 30, 2004 and 2003 and statement
of cash flows for the six months ended June 30, 2004 and 2003. All adjustments
to the financial statements were of a normal recurring nature. These results
have been determined on the basis of accounting principles generally accepted
in the United States of America. The results of operations for the six and
three months ended June 30, 2004 are not necessarily indicative of the results
to be expected for the entire fiscal year. The condensed consolidated financial statements are those of the Company and
the Bank. These condensed consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Companys 2003 Annual Report to Stockholders. 3. Earnings Per Share Basic earnings per share have been computed based upon the weighted average
common shares outstanding for the six and three months ended June 30, 2004 and
2003. Diluted earnings per share for the six and three months ended June 30,
2004 reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that then shared in the earnings of
the Company. 6




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4. Stock Options The Company has a stock-based employee compensation plan, which is described
more fully in Notes to Financial Statements included in the December 31, 2003
Annual Report to Shareholders. The Company accounts for this plan under the
recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. No stock-based
employee compensation cost is reflected in net income, as all options granted
under the plan had an exercise price equal to the market value of the
underlying common stock on the grant date. The following table illustrates the
effect on net income and earnings per share if the Company had applied the fair
value provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation. Three Months
    
    Three Months
    
    Six Months
    
    Six MonthsEnded
    
    Ended
    
    Ended
    
    EndedJune 30, 2004
    
    June 30, 2003
    
    June 30, 2004
    
    June 30, 2003Net income, as reported
    
    $
    731
    
    
    $
    721
    
    
    $
    1,418
    
    
    $
    1,463Less: Total stock-based employee
compensation cost determined under the
fair value based method, net of income
taxes
    
    
    (21
    )
    
    
    (24
    )
    
    
    (42
    )
    
    
    (48
    )Pro forma net income
    
    $
    710
    
    
    $
    697
    
    
    $
    1,376
    
    
    $
    1,415Earnings per share:Basic  as reported
    
    $
    0.48
    
    
    $
    0.49
    
    
    $
    0.94
    
    
    $
    1.00Basic  pro forma
    
    $
    0.47
    
    
    $
    0.48
    
    
    $
    0.91
    
    
    $
    0.97Diluted  as reported
    
    $
    0.46
    
    
    $
    0.45
    
    
    $
    0.89
    
    
    $
    0.91Diluted  pro forma
    
    $
    0.44
    
    
    $
    0.43
    
    
    $
    0.86
    
    
    $
    0.88
 7




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5. Recent Accounting Pronouncements In March 2004, the SEC issued Staff Accounting Bulletin No. 105 (SAB 105),
Application of Accounting Principles to Loan Commitments. Current accounting
guidance requires the commitment to originate mortgage loans to be held for
sale be recognized on the balance sheet at fair value from inception through
expiration or funding. SAB 105 requires that the fair-value measurement include
only differences between the guaranteed interest rate in the loan commitment
and a market interest rate, excluding any expected future cash flows related to
the customer relationship or loan servicing. SAB 105 is effective for
commitments to originate mortgage loans to be held for sale that are entered
into after March 31, 2004. Its adoption did not have a material impact on the
consolidated financial position or results of operations of the Company. In March 2004, the FASBs Emerging Issues Task Force reached a consensus on
EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments. The guidance prescribes a three-step model
for determining whether an investment is other-than-temporarily impaired and
requires disclosures about unrealized losses on investments. The accounting
guidance is effective for reporting periods beginning after June 15, 2004,
while the disclosure requirements are effective for annual reporting periods
ending after June 15, 2004. The adoption of this EITF is not expected to have a
material effect on the consolidated financial position or results of operation
of the Company. 8




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION GENERAL Citizens First Financial Corp. (the Company) is the holding company for
Citizens Savings Bank (the Bank). The Bank was originally chartered in 1888
by the State of Illinois and in 1989 became a federally chartered savings bank.
In April 1999, the Bank was converted from a federally chartered savings bank
to an Illinois state savings bank. The Banks principal business consists of
the acceptance of retail deposits from the general public in the areas
surrounding its main and branch offices and the investment of these deposits,
together with funds generated from operations and borrowings into loans and
investment securities. The Bank originates one-to-four family residential
mortgages, commercial, multi-family, construction and land, commercial real
estate, agricultural, consumer and other loans. The Bank has a wholly-owned
service corporation, CSL Service Corporation (CSL), which is an
Illinois-chartered corporation that had invested in Williamsburg LLC
(Williamsburg), a real estate development joint venture. CSL, who was a 50%
owner of Williamsburg, sold its interest in May 2004. The results of
Williamsburg until May 2004 are consolidated into the Companys financial
statements. COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2004 and DECEMBER 31, 2003 Total assets decreased from $349.5 million at December 31, 2003 to $334.2
million at June 30, 2004. The $15.3 million or 4.4% decrease was primarily due
to the decrease in loans and mortgage loans held for sale, offset by an
increase in interest-bearing deposits and federal funds sold. Cash and cash equivalents increased from $16.8 million at December 31, 2003 to
$38.8 million at June 30, 2004, an increase of $22.0 million or 131.0%. The
increase occurred primarily because of the decrease of loans and mortgage loans
held for sale of $36.7 million, offset by the decreases of $10.5 million in
deposits and $5.2 million in long-term debt. Available for sale securities increased from $20.7 million at December 31, 2003
to $22.9 million at June 30, 2004, an increase of $2.2 million or 10.6%. The
increase was primarily due to the purchase of $4.9 million of investment
securities which was offset by $2.5 million in maturities and principal
paydowns. Loans, net of allowance for loan losses and including loans held for sale,
decreased from $279.8 million at December 31, 2003 to $243.0 million at June
30, 2004, a decrease of $38.8 million or 13.9%. The decrease was primarily due
to a decrease of $12.6 million in construction and land development loans, $9.7
million in loans secured by 1-4 family residential properties, $5.7 million in
non-farm/non-residential real estate loans, $6.4 million of commercial &
industrial loans and $1.2 million of multi-family real estate loans. The
decreases were due to loan repayments. The Company sells primarily fixed rate
residential loans in the secondary market (primarily to the Federal Home Loan
Mortgage Corporation) as a source of income from gains on sale and servicing
fees and as a means of controlling interest rate risk. The Company sold $4.7
million in loans during the first six months of 2004. The Company serviced
$88.0 million and $96.1 million at June 30, 2004 and December 31, 2003,
respectively. The Company has a significant concentration in construction and commercial real
estate loans related to the real estate market in Bloomington-Normal, Illinois.
Management believes that due to the continued strength of this market, this
concentration does not pose a significant risk to the Company. The allowance for loan losses is established through a provision for loan
losses based on managements evaluation of the risks inherent in the loan
portfolio and the general economy. The allowance for loan losses is maintained
at an amount management considers adequate to cover estimated losses in loans
receivable which are deemed probable and can be estimated based on information
available to management at such time. While management believes the allowance
for loan losses is sufficient to cover future loan losses inherent in its loan
portfolio at this time, no assurances can be given that the level of the
allowance for loan losses will be sufficient to cover future loan losses
incurred or that future adjustments to the allowance for loan losses will not
be necessary if economic and other conditions differ substantially from the
economic and 9




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other conditions used by management to determine the current level of the
allowance for loan losses. The allowance is based upon a number of factors,
including asset classification, economic trends, industry experience and
trends, industry and geographic concentrations, estimated collateral value,
managements assessments of the credit risk inherent in the portfolio,
historical loan loss experience, and the Companys underwriting policies.
Management will continue to monitor and modify the allowance for loan losses as
conditions dictate. Various regulatory agencies, as an integral part of their
examination process, periodically review the allowance for loan losses. These
agencies may require additional valuation allowances, based on their judgments
of the information available at the time of the examination. The Companys policy is to charge off loans when it is determined that they are
no longer collectible. The policy for loans secured by real estate, which
comprises the majority of the loan portfolio, is to establish loss reserves in
accordance with the loan classification process, based on accounting principles
generally accepted in the United States of America. The Companys policy is to
obtain an appraisal or evaluation on all real estate acquired through
foreclosure at the time of foreclosure. The allowance for loan losses increased from $3,072,000 at December 31, 2003 to
$3,137,000 at June 30, 2004, an increase of $65,000 or 2.1%. The increase was
primarily due to recoveries in the first six months of 2004 of charged-off
loans in prior years of $405,000. Included in these recoveries was a $389,000
payment from the bankruptcy trustee for a commercial developer. Due to the
large amount of recoveries, decrease in the loan portfolio and the Companys
review of the adequacy of its allowance for loan losses, the Company recorded a
credit to the provision for loan losses of $250,000 during the first six months
of 2004. The decrease is also due to a 1-4 family loan being transferred to
foreclosed assets during the first quarter of 2004 that had a specific reserve
in the prior year of approximately $63,000. During the first six months of 2004,
$26,000 of loans were charged-off to the allowance for loan losses. The Companys non-performing and potential problem loans increased from
$8,428,000 at December 31, 2003 to $21,517,000 at June 30, 2004, an increase of
$13,089,000. The increase was primarily attributable to the classification as a
potential problem a loan of $11,437,000 for a commercial real estate
development because of the concentration of loans to this borrower and the slow
sales in this development. This loan is contractually current on all required
payments. In addition to the collateralized property the borrower has
personally guaranteed a portion of the outstanding balance. Management believes
that there is adequate collateral for this loan and anticipates that there will
be no loss on this loan. The non-performing and potential problem loans were
considered impaired as of June 30, 2004 and December 31, 2003. The Company has
established a loss reserve of $1,965,000 for non-performing and potential
problem loans and believes that it has adequately reserved for any potential
loss. Non-performing loans, which are loans past due 90 days or more and non-accruing
loans, increased from $2,459,000 at December 31, 2003 to $2,611,000 at June 30,
2004. The ratio of the Companys allowance for loan losses to total
non-performing loans was 120.1% and 124.9% at June 30, 2004 and December 31,
2003, respectively. Management believes that the problems with these borrowers
are identified and not indicative of the loan portfolio in total. Non-accruing loans increased from $2,452,000 at December 31, 2003 to $2,476,000
at June 30, 2004, an increase of $24,000 or 1.0%. At June 30, 2004, non-accrual
loans consist of two non-farm/non-residential loans with a balance of $553,000,
two construction and land development loan with a balance of $796,000, seven
1-4 family residential loans with a balance of $598,000 and five commercial &
industrial loans with a balance of $529,000. The Company has established a loss
reserve of $557,000 for non-accrual loans. Loans delinquent greater than 90 days increased from $7,000 at December 31,
2003 to $135,000 at June 30, 2004, an increase of $128,000. Loans delinquent
greater than 90 days at June 30, 2004 consist of two construction and land
development loans with a balance of $95,000 and one commercial & industrial
loan with a balance of $40,000. The Company has established loss reserves of
$59,000 for the delinquent loans. Potential problem loans are loans that are not classified as non-accrual or 90
days or more delinquent, but due to factors regarding the borrower, the loan or
the economy may represent a possible loss to the Company. Potential problem
loans increased from $5,969,000 at December 31, 2003 to $18,906,000 at June 30,
2004, an increase of $12,937,000. The reason for the increase was primarily due
to the classification as 10




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potential problem of a loan of $11,437,000 for a commercial real estate
development. This loan, which had previously been classified as an OAEM asset,
had been classified as a potential problem loan because of the concentration of
loans to this borrower. This loan is contractually current on all required
payments and no reserve for loss has been established for this loan. The
Company has established loan loss reserves of $1,349,000 at June 30, 2004 for
all potential problem loans. As of June 30, 2004, $4,254,000 of the total
potential problem loans relates to five borrowers. The first borrower with
potential problem loans of $1,616,000 is a manufacturing and sales company,
which has experienced recent losses. The second borrower with potential problem
loans of $821,000 is a land development venture, which is a concern to the
Company because of delays in the sale of properties. The third borrower has
potential problem loans of $657,000 for a self-storage facility. Subsequent to
June 30, 2004 the borrower gave the Company a deed in lieu of foreclosure for
this property. The Company has established a reserve of $102,000 for this
property. The fourth borrower is a retail facility that has been experiencing
financial difficulties. The loans to this borrower of $632,000 are
contractually current. The fifth borrower, with $528,000 in loans, is a
single-family home contractor, which is a concern to the Company because of
delays in loan payments and sales of properties. The remaining potential
problem loans have a balance of $3,215,000 and consist of twenty-four
residential loans with a balance of $2,620,000, two commercial & industrial
loans with a balance of $315,000, two non-farm/non-residential loan with a
balance of $174,000, and eleven consumer loans with a balance of $106,000. For
all of the potential problem loans, the Company believes that it has adequately
reserved for any potential loss. Other assets especially mentioned (OAEM) loans decreased from $15,638,000 at
December 31, 2003 to $4,207,000 at June 30, 2004, a decrease of $11,431,000.
The primary reason for the decrease was the previously discussed $11,437,000
commercial development loan which prior to being classified as a potential
problem loan at June 30, 2004, had been classified as an OAEM asset. OAEM loans
are loans that are not classified as non-accrual, delinquent or potential
problem, but still require monitoring by the Company due to factors regarding
the borrower, the loan or the economy. At June 30, 2004, $1,699,000 of the
balance pertained to one borrower who has been experiencing slow sales. The
remaining $2,508,000 balance of OAEM loans consists primarily of twenty-six
residential loans with a balance of $2,144,000, one non-farm/non-residential
loans with a balance of $272,000, one commercial & industrial loan with a
balance of $46,000, six consumer loans with a balance of $25,000 and a secured
agricultural loan for $21,000. Foreclosed assets decreased from $2,135,000 at December 31, 2003 to $708,000 at
June 30, 2004, a decrease of $1,427,000 or 66.8%. The decrease was primarily
due to the sale of foreclosed assets and the increase in the loss reserves for
foreclosed assets of $484,000. The additional reserves consisted of $246,000
additional reserves for a retail development property based on a lower revised
offer price, $225,000 for land near the retail development property based on a
lack of buyer interest at the previous carrying value and $13,000 for two 1-4
family residential properties. The retail development property was sold in the
second quarter of 2004. During the first six months of 2004, $66,000 in loans
were transferred to foreclosed assets and $947,000 of foreclosed assets were
sold with a net gain of $12,000. In addition, $86,000 was depreciated for
certain foreclosed assets held greater than one year. Foreclosed assets at June
30, 2004 consist of $613,000 of undeveloped commercial properties and $95,000
in residential properties. Properties being transferred to foreclosed assets
are appraised or evaluated and, if required, loss reserves are established by
management. Other assets decreased from $3.4 million at December 31, 2003 to $2.7 million
at June 30, 2004, a decrease of $700,000 or 20.6%. The decrease was primarily
due to a $551,000 decrease in accrued interest receivable on loans and
investments. Deposits decreased from $250.0 million at December 31, 2003 to $239.6 million
at June 30, 2004, a decrease of $10.4 million or 4.2%. The decrease was
primarily due to a decrease of $8.4 million in certificate of deposit accounts.
With the increased balances of cash and cash equivalents, the Bank did not
aggressively compete for certificate of deposit accounts during the first six
months of 2004. Long-term debt decreased from $64.0 million at December 31, 2003 to $58.8
million at June 30, 2004, a decrease of $5.2 million or 8.1%, due to repayments
during the first six months of 2004. During the first quarter of 2004, the Bank
repaid $30.0 million of maturing Federal Home Loan Bank (FHLB) advances with
an average interest rate of 4.9% and obtained $25.0 million of new FHLB
advances at an average rate of 1.6%. 11




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##### Table of Contents



Minority interest in real estate joint venture decreased from $382,000 at
December 31, 2003 to $-0- at June 30, 2004 due to the sale in May 2004 of the
Companys interest in the real estate joint venture. Total stockholders equity increased by $664,000, from $32,992,000 at December
31, 2003 to $33,656,000 at June 30, 2004. The increase resulted from the
earnings of the Company of $1,418,000 for the six months ended June 30, 2004
and exercised stock options of $244,000, offset by the purchase of treasury
shares of $602,000, a decrease in unrealized appreciation on available-for-sale
securities of $89,000, and payment of $307,000 in dividends to stockholders. COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2004 and JUNE
30, 2003 GENERAL Net income decreased by $45,000 from $1,463,000 for the six months ended June
30, 2003 to $1,418,000 for the six months ended June 30, 2004. The decrease was
due primarily to a decrease in net gains on loan sales and an increase in net
loss on sale or write-down of foreclosed assets, offset by a negative provision
for loan losses and an increase in net interest income. INTEREST INCOME Interest on loans decreased by $969,000 or 10.7%, from $9,032,000 for the six
months ended June 30, 2003 to $8,063,000 for the six months ended June 30,
2004. Interest on loans decreased due to a decrease of 39 basis points in the
average yield on loans outstanding of and a $12.2 million decrease in the
average balance of outstanding loans. Interest on securities, deposits with banks, federal funds sold and other
increased from $790,000 for the six months ended June 30, 2003 to $967,000 for
the six months ended June 30, 2004, an increase of $177,000 or 22.4%. The
increase was primarily due to a $7.6 million increase in the average balance of
investment securities, FHLB stock and interest-bearing deposits and a 20 basis
point increase in the average yield of these assets in 2004. INTEREST EXPENSE Interest on deposits decreased by $488,000 or 16.2%, from $3,016,000 for the
six months ended June 30, 2003 to $2,528,000 for the six months ended June 30,
2004. The decrease was primarily due to a 48 basis point decrease in the
average cost of deposits, offset by a $3.6 million increase in the average
balance of deposits. The interest on borrowings decreased by $560,000 or 35.6%, from $1,571,000 for
the six months ended June 30, 2003 to $1,011,000 for the six months ended June
30, 2004 as a result of a 108 basis point decrease in the average cost of
borrowings and a $10.5 million decrease in the average balance of borrowings. PROVISION FOR LOAN LOSSES There was a negative provision for loan losses of $250,000 for the six months
ended June 30, 2004, compared to a provision for loan losses of $391,000 for
the six months ended June 30, 2003, a change of $641,000. The change was
primarily due to recoveries of prior charged-off loans of $405,000 during the
first six months of 2004 and the decrease in the size of the loan portfolio. NONINTEREST INCOME Total noninterest income decreased by $607,000 or 38.3%, from $1,583,000 for
the six months ended June 30, 2003 to $976,000 for the six months ended June
30, 2004. The decrease was due primarily to a decrease in gains on loan sales
of $787,000, offset by increases in cash surrender value of life insurance of
$89,000, service charges on deposit accounts of $107,000 and gains on sales of
land in a real estate joint venture of $36,000. The net gains on loan sales
decreased due to decreased loan sales resulting from the level interest rate
environment during 2004. The increase in service charges was due to a $127,000
increase in overdraft fees on demand deposits. 12




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##### Table of Contents



NONINTEREST EXPENSE Total noninterest expense increased from $4,046,000 for the six months ended
June 30, 2003 to $4,461,000 for the six months ended June 30, 2004, an increase
of $415,000 or 10.3%. Other noninterest expense increased primarily because of
an increase of $411,000 in net loss on sale and write-down of foreclosed
assets. The increased write-down was primarily due to additional reserves taken
in the first quarter of 2004 of $246,000 for a retail development property
based on a lower revised offer and $225,000 for land near the retail
development property based on a lack of buyer interest at the previous carrying
value. The Bank recorded a loss of approximately $2,000 when the retail
development property was sold in the second quarter of 2004. INCOME TAX EXPENSE Total income tax expense was $838,000 for the six months ended June 30, 2004,
compared to $918,000 for the six months ended June 30, 2003, a decrease of
$80,000 or 8.7%. The decrease was attributable to the decreased taxable income
for the six months ended June 30, 2004 and an increase in non-taxable assets.
The effective tax rates were 37.1% and 38.6% for the six months ended June 30,
2004 and 2003, respectively. 13




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##### Table of Contents



COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2004 and
JUNE 30, 2003 GENERAL Net income increased by $10,000 from $721,000 for the three months ended June
30, 2003 to $731,000 for the three months ended June 30, 2004. The increase was
due primarily to the negative provision for loan losses and an increase in net
interest income, offset by a decrease in the net gains (losses) on loan sales. INTEREST INCOME Interest on loans decreased by $567,000 or 12.7%, from $4,455,000 for the three
months ended June 30, 2003 to $3,888,000 for the three months ended June 30,
2004. Interest on loans decreased due to a decrease of 53 basis points in the
average yield on loans outstanding of and a $13.8 million decrease in the
average balance of outstanding loans. Interest on securities, deposits with banks, federal funds sold and other
increased from $385,000 for the three months ended June 30, 2003 to $473,000
for the three months ended June 30, 2004, an increase of $88,000 or 22.9%. The
increase was primarily due to a $10.1 million increase in the average balance
of investment securities, FHLB stock and interest-bearing deposits and a 8
basis point increase in the average yield of these assets in 2004. INTEREST EXPENSE Interest on deposits decreased by $200,000 or 14.2%, from $1,411,000 for the
three months ended June 30, 2003 to $1,211,000 for the three months ended June
30, 2004. The decrease was primarily due to a 43 basis point decrease in the
average cost of deposits, offset by a $5.4 million increase in the average
balance of deposits. The interest on borrowings decreased by $366,000 or 46.9%, from $781,000 for
the three months ended June 30, 2003 to $415,000 for the three months ended
June 30, 2004 as a result of a 159 basis point decrease in the average cost of
borrowings and a $11.9 million decrease in the average balance of borrowings. PROVISION FOR LOAN LOSSES There was a negative provision for loan losses of $76,000 for the three months
ended June 30, 2004, compared to a provision for loan losses of $306,000 for
the three months ended June 30, 2003, a change of $382,000. The change was
primarily due to the decrease in the size of the loan portfolio. NONINTEREST INCOME Total noninterest income decreased by $483,000 or 57.3%, from $790,000 for the
three months ended June 30, 2003 to $307,000 for the three months ended June
30, 2004. The decrease was due primarily to a decrease in gains (losses) on
loan sales of $488,000, offset by increases in cash surrender value of life
insurance of $36,000 and service charges on deposit accounts of $48,000. The
net gains on loan sales decreased due to decreased loan sales resulting from
the level interest rate environment during 2004. The higher interest rate
environment in the second quarter of 2004 resulted in a $31,000 write-down of
loans available for sale. NONINTEREST EXPENSE Total noninterest expense decreased from $1,964,000 for the three months ended
June 30, 2003 to $1,953,000 for the three months ended June 30, 2004, a
decrease of $11,000 or 0.6%. INCOME TAX EXPENSE Total income tax expense was $434,000 for the three months ended June 30, 2004,
compared to $447,000 for the three months ended June 30, 2003, a decrease of
$13,000 or 2.9%. The effective tax rates were 37.3% and 38.3% for the three
months ended March 31, 2004 and 2003, respectively. 14




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting standards
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and the related disclosure of contingent
assets and liabilities. Actual results could differ from those estimates under
different assumptions and conditions. Management believes that its critical
accounting policies and significant estimates include determining the allowance
for loan losses, the valuation of loan servicing rights and the valuation of
foreclosed assets. Allowance for Loan Losses The allowance for loan losses is a significant estimate that can and does
change based on managements assumptions about specific borrowers and current
general and economic and business conditions, among other factors. Management
reviews the adequacy of the allowance for loan losses on at least a quarterly
basis. The evaluation by management includes consideration of past loss
experience, changes in the composition of the loan portfolio, the current
economic condition and amount of loans outstanding, identified problem loans
and the probability of collecting all amounts due. The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. A worsening or protracted economic
decline would increase the likelihood of additional losses due to credit and
market risk and could create the need for additional loss reserves. Mortgage Servicing Rights The Company recognizes the rights to service loans as a separate asset on its
consolidated balance sheet. The total cost of loans when sold is allocated
between loans and loan servicing rights based on the relative fair value of
each. Mortgage servicing rights are subsequently carried at the lower of the
initial carrying value, adjusted for amortization or fair value. Mortgage
servicing rights are evaluated for impairment based on the fair value of those
rights. Factors included in the calculation of fair value of the loan servicing
rights include estimating the present value of future net cash flows, market
loan prepayment speeds for similar loans, discount rates, servicing costs, and
other economic factors. Servicing rights are amortized over the estimated
period of net servicing revenue. It is likely that these economic factors will
change over the life of the mortgage servicing rights, resulting in different
valuations of the mortgage servicing rights. The differing valuations will
affect the carrying value of the mortgage servicing rights on the consolidated
balance sheet as well as the income recorded from mortgage servicing on the
income statement. As of June 30, 2004 and December 31, 2003, mortgage servicing
rights had carrying values of $412,000 and $469,000, respectively. Foreclosed Assets Foreclosed assets are carried at the lower of cost or fair value less estimated
selling costs. Management estimates the fair value of the properties based on
current appraisal information. Fair value estimates are particularly
susceptible to significant changes in the economic environment, market
conditions, and the real estate market. A worsening or protracted economic
decline would increase the likelihood of a decline in property values and could
create the need to write down the properties through current operations. 15




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##### Table of Contents



OFF BALANCE SHEET ARRANGEMENTS The only material off balance sheet obligations incurred routinely by the
Company are its commitments to extend credit and its standby letters of credit.
At June 30, 2004 the Company had unused loan commitments of $25.0 million and
financial standby letters of credit of $847,000. LIQUIDITY AND CAPITAL RESOURCES The Companys primary sources of funds are deposits, principal and interest
payments on loans and securities, sales of loans and securities and FHLB
advances. While maturing and scheduled amortization of loans are predictable
sources of funds, deposit outflows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and competition. The
Banks liquidity requirement, which may be varied at the direction of the
Banks regulators depending on economic conditions and deposit flows, is based
upon a percentage of the Banks deposits and short-term borrowings. At June 30, 2004, the Bank exceeded all of its regulatory capital requirements
with Tier 1 capital of $31.3 million, or 9.3% of average total assets, which is
above the required level of $13.5 million or 4.0%; and risk-based capital of
$34.0 million or 16.0% of risk-weighted assets, which is above the required
level of $17.0 million or 8.0%. The Companys most liquid assets are cash and interest-bearing demand accounts.
The level of these accounts is dependent on the operating, financing, lending
and investing activities during any given period. At June 30, 2004, cash and
interest-bearing deposits totaled $38.8 million. The Company has other sources of liquidity if a need for additional funds
arises, including FHLB advances, loan sales, brokered deposits and Fed funds.
At June 30, 2004, the Bank had outstanding advances with the FHLB of $56.8
million. The FHLB maintains two limitations on borrowing availability based on
(1) FHLB stock ownership and (2) total assets. The Bank currently meets the
stock limitation; however, this limit may be raised by the purchase of
additional FHLB stock. Based on the total assets limitations, the Bank may
increase its borrowings with the FHLB by approximately $58.8 million. The
ability to borrow this amount would require meeting regulatory mandated loan
and collateral limits. Depending upon market conditions and the pricing of
deposit products and FHLB borrowings, the Bank may utilize FHLB advances to
fund loan originations. At June 30, 2004 the Bank had commitments to originate loans and unused letters
of credit totaling $25.8 million. Certificate accounts which are scheduled to
mature in one year or less from June 30, 2004 totaled $84.0 million. The Bank
anticipates that it will have sufficient funds to meet its current commitments
and
maturing deposits. 16




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Sources of market risk include interest rate risk, foreign currency exchange
rate risk, commodity price risk and equity price risk. The Company is only
subject to interest rate risk. The Company purchased no financial instruments
for trading purposes during the six months ended June 30, 2004 and 2003. The principal objective of the Companys interest rate risk management function
is to evaluate the interest rate risk included in balance sheet accounts,
determine the level of risk appropriate given the Companys business strategy,
operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with Board of Director approved
guidelines. Through such management, the Company seeks to reduce the
vulnerability of its operations to changes in interest rates. The Company
monitors its interest rate risk as such risk relates to its operating
strategies. The Companys Board of Directors reviews the Companys interest
rate risk position on a quarterly basis. The Companys Asset/Liability
Committee is comprised of the Companys senior management under the direction
of the Board of Directors, with the Committee responsible for reviewing with
the Board of Directors its activities and strategies, the effect of those
strategies on the Companys net interest margin, the market value of the
portfolio and the effect that changes in the interest rates will have on the
Companys portfolio and its exposure limits. The extent of the movement of
interest rates is an uncertainty that could have a negative impact on the
earnings of the Company. In recent years, the Company has utilized the following strategies to manage
interest rate risk: (1) originating for investment adjustable-rate residential
mortgage and fixed-rate one-to-four family loans with maturities of 10 years or
less; (2) generally selling fixed-rate one-to-four family loans with maturities
exceeding 10 years in the secondary market without recourse and on a servicing
retained basis; (3) increasing its origination of shorter term and/or
adjustable rate commercial loans; and (4) investing in shorter term investment
securities which may generally bear lower yields as compared to longer term
investments, but which may better position the Company for increases in market
interest rates. The Companys interest rate and market risk profile has not materially changed
from the year ended December 31, 2003. Please refer to the Companys 2003 Form
10-K for further discussion of the Companys market and interest rate risk. 
 ITEM 4. CONTROLS AND PROCEDURES (a) Disclosure controls and procedures. We evaluated the effectiveness
of the design and operation of our disclosure controls and procedures as of
June 30, 2004. Our disclosure controls and procedures are the controls and
other procedures that we designed to ensure that we record, process, summarize
and report in a timely manner the information we must disclose in reports that
we file with or submit to the SEC. C. William Landefeld, our President and
Chief Executive Officer, and Dallas G. Smiley, our Senior Vice President and
Chief Financial Officer, reviewed and participated in this evaluation. Based
on this evaluation, Messrs. Landefeld and Smiley concluded that, as of the date
of their evaluation, our disclosure controls were effective. (b) Internal controls. There have not been any significant changes in our
internal accounting controls or in other factors that could significantly
affect those controls during the quarter ended June 30, 2004. 17




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##### Table of Contents



PART II.  OTHER INFORMATION 
  Item 1. Legal Proceedings  The Company is not involved in any legal proceedings of a material nature
at this time other than those occurring in the ordinary course of
business, which in the aggregate involve amounts which are believed by
management to be immaterial to the financial condition of the Company. 
  Item 2. Changes in Securities and Use of Proceeds and Issuer Purchase of
Equity Securities(e) The following table information about purchases of the
Companys stock by the Company during the quarter ended June 30,
2004.ISSUER PURCHASES OF EQUITY SECURITIES (c) TotalNumber of
    
    (d) MaximumShares
    
    Number of sharesPurchased as
    
    that May(a) Total
    
    (b)
    
    Part of Publicly
    
    Yet BeNumber of
    
    Average
    
    Announced
    
    PurchasedShares
    
    Price Paid
    
    Plans or
    
    Under the PlansPeriod
    
    Purchased
    
    Per Share
    
    Programs
    
    Or Programs04/01/04 
04/30/04
    
    
    -0-
    
    
    
    n/a
    
    
    
    -0-
    
    
    
    8,36605/01/04 -
05/31/04
    
    
    -0-
    
    
    
    n/a
    
    
    
    -0-
    
    
    
    8,36606/01/04 
06/30/04
    
    
    25,000
    
    
    $
    24.00
    
    
    
    25,000
    
    
    
    59,555Total
    
    
    25,000
    
    
    $
    24.00
    
    
    
    25,000
    
    
    
    59,555
  (1)
    
    We repurchased 25,000 shares of our common stock
pursuant to the repurchase programs that we announced on
September 6, 2002 (the 2002 Program) and July 28, 2003 (the
2003 Program). The 2003 Program authorized the purchase of
76,189 shares of our common stock. The purchase in June 2004
completed the 2002 Program. Unless terminated earlier by
resolution by our board of directors, the 2003 Program will
expire when we have repurchased all shares authorized for
repurchase under the 2003 Program. 
  Item 3. Defaults Upon Senior Securities  Not applicable. 
  Item 4. Submission of Matters to a Vote of Security Holders  a.
    
    The Companys Annual Meeting of Shareholders was
held on April 26, 2004.b.
    
    See Item 4-c below.c.
    
    At such meeting the shareholders approved the
following matters:  1.
    
    The election of the following
individuals as Directors: Votes For
    
    Votes Withheld
    
    TermDr. Lowell M. Thompson
    
    
    1,376,950
    
    
    
    25,839
    
    
    3 yearsMary Ann Webb
    
    
    1,375,848
    
    
    
    26,941
    
    
    3 years
 18




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##### Table of Contents



Additionally, the following individuals are the other Directors whose
term of office as Directors continued after the meeting:L. Carl Borngasser
Harold L. Hoeferle
Martin L. Hogan
C. William Landefeld
Arthur W. Mier  2.
    
    The ratification of BKD, LLP as
independent auditor of the Company for the fiscal year
ending December 31, 2004 as reflected by 1,381,354 votes
for, 12,470 votes against and 8,965 abstain. 
  Item 5. Other Information  Not applicable. 
  Item 6. Exhibits and Reports on Form 8-K  a.
    
    Exhibits
See Exhibit Index.
b. Reports on Form 8-K  Citizens First Financial Corp. filed the following Form 8-K
during the quarter ended June 30, 2004:

Citizens First Financial Corp. filed a Form 8-K on May 3,
2004 related to the announcement of financial results for the
first quarter of 2004. 19




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. Citizens First Financial Corp.Date: August 13, 2004
    
    /s/ C. William LandefeldC. William LandefeldPresidentDate: August 13, 2004
    
    /s/ Dallas G. SmileyDallas G. SmileyChief Financial Officer
 20




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##### Table of Contents



Exhibit Index 11.0
    
    Statement re: Computation of Per Share Earnings31.1
    
    Certification of C. William Landefeld Required by Rule 13a-14(a)31.2
    
    Certification of Dallas G. Smiley Required by Rule 13a-14(a)32.1
    
    Certification of C. William Landefeld required by Rule 13a-14(b) and
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 135032.2
    
    Certification of Dallas G. Smiley required by Rule 13a-14(b) and
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350