UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2000
or
[ ] TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_____________________
to ___________________
Commission file number 0-13222
CITIZENS FINANCIAL SERVICES,
INC.
(Exact name of registrant as
specified in its charter)
PENNSYLVANIA
23-2265045
(State or other jurisdiction
of
(I.R.S. Employer
incorporation or organization)
Identification No.)
15 South Main Street, Mansfield,
Pennsylvania
16933
(Address of principal executive
offices)
(Zip Code)
Registrant's telephone number,
including area code:
(570) 662-2121
Indicate by checkmark whether
the registrant (1) has filed all reports
to be filed by Section 13 or
15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months
(or for such shorter period that the
registrant was required to file
such reports), and (2) has been subject to
such filing requirements for
the past 90 days. Yes__X___ No_____
The number of shares outstanding
of the Registrant's Common Stock, as of
May 2, 2000 2,745,401 shares
of Common Stock, par value $1.00.
<PAGE>
Citizens Financial Services,
Inc.
Form 10-Q
INDEX
Page
Part I FINANCIAL INFORMATION (UNAUDITED)
Item 1-Financial Statements
Consolidated
Balance Sheet as of March 31, 2000,
December 31, 1999
1
Consolidated
Statement of Income for the
Three Months Ended March 31, 2000 and 1999
2
Consolidated
Statement of Comprehensive Income for the
Three Months Ended March 31, 2000 and 1999
3
Consolidated
Statement of Cash Flows for the Three Months Ended
March 31, 2000 and 1999
4
Notes
to Consolidated Financial Statements
5
Item 2 -Management's Discussion
and Analysis of Financial Condition
and
Results of Operations
5-16
Item 3-Quantitative and Qualitative
Disclosure About Market Risk
17
Part II OTHER INFORMATION AND
SIGNATURES
Item 1-Legal Proceedings
18
Item 2-Changes in Securities
18
Item 3-Defaults upon Senior Securities
18
Item 4-Submission of Matters
to a Vote of Security Holders
18
Item 5-Other Information
18
Item 6-Exhibits and Reports on
Form 8-K
18-19
Signatures
&nbs
20
<PAGE>
| CITIZENS
FINANCIAL SERVICES, INC. |
|
|
| CONSOLIDATED
BALANCE SHEET |
|
|
| (UNAUDITED) |
|
|
|
March 31
|
December 31
|
|
2000
|
1999
|
| ASSETS: |
|
|
| Cash
and due from banks: |
|
|
| Noninterest-bearing |
$ 6,306,171
|
$ 8,363,742
|
| Interest-bearing |
311,674
|
158,051
|
|
|
|
| Total
cash and cash equivalents |
6,617,845
|
8,521,793
|
|
|
|
| Available-for-sale
securities |
89,617,692
|
91,695,667
|
|
|
|
| Loans
(net of allowance for loan losses 2000, $2,374,000; December 31, 1999,
$2,270,000) |
|
|
|
|
|
231,962,470
|
229,159,271
|
|
|
|
| Foreclosed
assets held for sale |
441,054
|
573,054
|
| Premises
and equipment |
6,004,077
|
5,942,078
|
| Accrued
interest receivable |
2,251,814
|
2,120,148
|
| Other
assets |
2,924,980
|
2,767,268
|
|
|
|
| TOTAL
ASSETS |
$339,819,932
|
$340,779,279
|
|
|
|
| LIABILITIES: |
|
|
| Deposits: |
|
|
| Noninterest-bearing |
$ 24,443,767
|
$ 23,434,754
|
| Interest-bearing |
260,271,920
|
260,882,983
|
|
|
|
| Total
deposits |
284,715,687
|
284,317,737
|
|
|
|
| Borrowed
funds |
24,629,018
|
25,852,980
|
| Accrued
interest payable |
1,988,885
|
2,557,303
|
| Other
liabilities |
1,476,950
|
968,646
|
|
|
|
| TOTAL
LIABILITIES |
312,810,540
|
313,696,666
|
|
|
|
| STOCKHOLDERS'
EQUITY: |
|
|
| Common
Stock |
|
|
| $1.00
par value; authorized 10,000,000 shares; |
|
|
| Issued
2,800,563 shares in 2000 and
at December 31, 1999, respectively |
2,800,563
|
2,800,563
|
| Additional
paid-in capital |
8,374,160
|
8,374,160
|
| Retained
earnings |
18,969,208
|
18,432,375
|
|
|
|
| TOTAL |
30,143,931
|
29,607,098
|
|
|
|
| Accumulated
other comprehensive (loss) |
(2,185,372)
|
(2,064,150)
|
| Less:
Treasury Stock at cost |
|
|
| 55,162
shares at March 31, 2000 |
(949,167)
|
|
| 26,585
shares at December 31, 1999 |
|
(460,335)
|
| TOTAL
STOCKHOLDERS' EQUITY |
27,009,392
|
27,082,613
|
| TOTAL
LIABILITIES AND |
|
|
| STOCKHOLDERS'
EQUITY |
$339,819,932
|
$340,779,279
|
The accompanying notes are an integral part
of these financial statements.
1
<PAGE>
| CITIZENS
FINANCIAL SERVICES, INC. |
|
|
| CONSOLIDATED
STATEMENT OF INCOME |
|
|
| (UNAUDITED) |
|
|
|
Three Months Ended
|
|
March 31
|
|
2000
|
1999
|
| INTEREST
INCOME: |
|
|
| Interest
and fees on loans |
$4,879,236
|
$4,449,017
|
| Interest-bearing
deposits with banks |
10,422
|
5,485
|
| Investment
securities: |
|
|
| Taxable |
1,012,032
|
997,813
|
| Nontaxable |
232,900
|
224,954
|
| Dividends |
109,943
|
35,619
|
|
|
|
| TOTAL
INTEREST INCOME |
6,244,533
|
5,712,888
|
|
|
|
| INTEREST
EXPENSE: |
|
|
| Deposits |
2,933,560
|
2,792,098
|
| Borrowed
funds |
408,845
|
94,920
|
|
|
|
| TOTAL
INTEREST EXPENSE |
3,342,405
|
2,887,018
|
|
|
|
| NET
INTEREST INCOME |
2,902,128
|
2,825,870
|
| Provision
for loan losses |
99,999
|
60,000
|
| NET
INTEREST INCOME AFTER |
|
|
| PROVISION
FOR LOAN LOSSES |
2,802,129
|
2,765,870
|
|
|
|
| OTHER
OPERATING INCOME: |
|
|
| Service
charges |
405,691
|
289,242
|
| Trust |
116,991
|
99,686
|
| Other |
99,769
|
133,371
|
| Arbitration
settlement |
-
|
28,595
|
| Realized
securities gains, net |
19,622
|
95,482
|
|
|
|
| TOTAL
OTHER OPERATING INCOME |
642,073
|
646,376
|
|
|
|
| OTHER
OPERATING EXPENSES: |
|
|
| Salaries
and employee benefits |
1,081,089
|
1,011,575
|
| Occupancy |
141,456
|
136,190
|
| Furniture
and equipment |
178,031
|
165,945
|
| Professional
fees |
131,189
|
182,644
|
| Other |
730,080
|
732,049
|
|
|
|
| TOTAL
OTHER OPERATING EXPENSES |
2,261,845
|
2,228,403
|
|
|
|
| Income
before provision for income taxes |
1,182,357
|
1,183,843
|
| Provision
for income taxes |
244,845
|
295,491
|
|
|
|
| Net
Income |
$ 937,512
|
$ 888,352
|
|
|
|
| Earnings
Per Share |
$ 0.34
|
$ 0.32
|
| Cash
Dividend Declared |
$ .145
|
$ .135
|
|
|
|
| Weighted
average number of shares outstanding |
2,756,675
|
2,800,563
|
The accompanying notes are an integral part
of these financial statements.
2
<PAGE>
| CITIZENS
FINANCIAL SERVICES, INC. |
|
|
|
|
| CONSOLIDATED
STATEMENT OF COMPREHENSIVE INCOME |
|
|
|
|
| (UNAUDITED) |
|
|
|
|
|
Three Months Ended
March 31
|
|
|
|
2000
|
|
1999
|
|
|
|
|
|
| Net
income |
|
$ 937,512
|
|
$
888,352 |
| Other
comprehensive income: |
|
|
|
|
| Unrealized
gains(losses) on available for sale securities |
(164,048)
|
|
(824,204)
|
|
| Less:
Reclassification adjustment for gain included in net income |
(19,622)
|
(183,670)
|
(95,482)
|
(919,686)
|
| Other
comprehensive income before tax |
|
(183,670)
|
|
(919,686)
|
| Income
tax expense related to other comprehensive income |
|
(62,448)
|
|
(312,693)
|
| Other
comprehensive income, net of tax |
|
(121,222)
|
|
(606,993)
|
| Comprehensive
income |
|
$ 816,290
|
|
$ 281,359
|
|
|
|
|
|
The accompanying notes are an
integral part of these financial statements.
3
<PAGE>
| CITIZENS
FINANCIAL SERVICES, INC. |
|
|
| CONSOLIDATED
STATEMENT OF CASH FLOWS |
|
|
| (UNAUDITED) |
|
|
|
Three Months Ended
|
|
March 31,
|
|
2000
|
1999
|
| CASH
FLOWS FROM OPERATING ACTIVITIES: |
|
|
| Net
income |
$ 937,512
|
$ 888,352
|
| Adjustments
to reconcile net income to net |
|
|
| Cash
provided by operating activities: |
|
|
| Provision
for loan losses |
99,999
|
60,000
|
| Provision
for depreciation and amortization |
205,812
|
190,721
|
| Amortization
and accretion of investment securities |
56,380
|
114,800
|
| Deferred
income taxes |
(50,748)
|
16,251
|
| Realized
gains on securities |
(19,622)
|
(95,482)
|
| Realized
gains on loans sold |
(1,800)
|
(9,180)
|
| Losses
(Gains) on sales or disposals of
Premises and equipment |
2,699
|
(377)
|
| Originations
of loans held for sale |
(270,975)
|
(998,500)
|
| Proceeds
from sales of loans held for sale |
272,775
|
1,007,680
|
| Gains
on sale of foreclosed assets held for sale |
(8,400)
|
(11,607)
|
| (Increase)
decrease in interest receivable and
other assets |
(203,375)
|
5,207
|
| Decrease
in interest payable and other liabilities |
(60,114)
|
(320,902)
|
| Net
cash provided by operating activities |
960,143
|
846,963
|
|
|
|
| CASH
FLOWS FROM INVESTING ACTIVITIES: |
|
|
| Available-for-sale
securities: |
|
|
| Proceeds
from sales of available-for-sale securities |
5,805,150
|
8,843,777
|
| Proceeds
from maturity and principal repayments
of securities |
876,295
|
4,536,541
|
| Purchase
of securities |
(4,823,897)
|
(9,133,405)
|
| Net
increase in loans |
(2,868,248)
|
(1,900,017)
|
| Capital
expenditures |
(243,318)
|
(484,034)
|
| Proceeds
from sales of premises and equipment |
-
|
4,480
|
| Proceeds
from sale of foreclosed assets held for sale |
105,450
|
50,000
|
| Net
cash (used) provided in investing activities |
(1,148,568)
|
1,917,342
|
|
|
|
| CASH
FLOWS FROM FINANCING ACTIVITIES: |
|
|
| Net
increase in deposits |
397,950
|
569,966
|
| Proceeds
from long-term borrowings |
698,950
|
249,033
|
| Repayments
of long-term borrowings |
(149,841)
|
(203,172)
|
| Net
decrease in short-term borrowed funds |
(1,773,070)
|
(3,152,144)
|
| Acquisition
of Treasury Stock |
(488,832)
|
-
|
| Dividends
paid |
(400,680)
|
(374,414)
|
| Net
cash used by financing activities |
(1,715,523)
|
(2,910,731)
|
|
|
|
| Net
decrease in cash and cash equivalents |
(1,903,948)
|
(146,426)
|
|
|
|
| CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
8,521,793
|
7,304,803
|
|
|
|
| CASH
AND CASH EQUIVALENTS AT END OF PERIOD |
$ 6,617,845
|
$ 7,158,377
|
|
|
|
| Supplemental
Disclosures of Cash Flow Information: |
|
|
| Interest
paid |
$ 3,910,823
|
$ 3,488,337
|
|
|
|
| Income
taxes paids |
$ -
|
$ -
|
The accompanying notes are an
integral part of these financial statements.
4
<PAGE>
CITIZENS FINANCIAL SERVICES,
INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The consolidated financial statements
include the accounts of Citizens Financial Services, Inc. and its wholly-owned
subsidiary, First Citizens National Bank (the "bank"), (collectively, the
"company"). All material inter-company balances and transactions have been
eliminated in consolidation.
The accompanying interim financial
statements have been prepared by the company without audit and, in the
opinion of management, reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the company's financial
position as of March 31, 2000, and the results of operations for the interim
periods presented. In preparing the consolidated financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period. Actual results could differ
significantly from those estimates. For further information refer to the
consolidated financial statements and footnotes thereto incorporated by
reference in the company's Annual Report on Form 10-K for the year ended
December 31, 1999.
Note 2 - Earnings per Share
Earnings per share calculations
give retroactive effect to stock dividends declared by the company. The
number of shares used in the earnings per share and dividends per share
calculation was 2,756,675 for 2000 and 2,800,563 for 1999.
Item 2 - MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's
discussion and analysis of the significant changes in the results of operations,
capital resources and liquidity presented in its accompanying consolidated
financial statements for Citizens Financial Service, Inc., a bank holding
company and its subsidiary. Our company's consolidated financial condition
and results of operations consist almost entirely of our wholly owned subsidiary
First Citizens National Bank. The financial conditions and results of operations.
You should read our discussion should be read in conjunction with the preceding
March 31, 2000 Financial Report. The results of operations for the three
months ended March 31, 2000 and 1999 are not necessarily indicative of
the results you may expect for the full year.
Forward-looking statements may
prove inaccurate. We have made forward-looking statements in this document,
and in documents that we incorporate by reference, that are subject to
risks and uncertainties. Forward-looking statements include the information
concerning possible or assumed future results of operations of Citizens
Financial Services, Inc., First Citizens National Bank, or the combined
company. When we use such words as "believes", "expects", "anticipates",
or similar expressions, we are making forward-looking statements.
You should note that many factors,
some of which are discussed elsewhere in this document and in the documents
we incorporate by reference, could affect the future financial results.
These factors include, but are not limited to, the following:
*operating,
legal and regulatory risks;
*economic,
political and competitive forces affecting our banking,
securities, asset management and credit services;
*risk
that our analysis of these risks and forces could be incorrect
and/or the strategies developed to address them could be unsuccessful.
Readers should carefully review
the risk factors described in other documents our company files from time
to time with the Securities and Exchange Commission, including the annual
report on Form 10-K to be filed by our company and any current reports
on Form 8-K filed by our company.
5
<PAGE>
Our company currently engages
in the general business of banking throughout our service area of Potter,
Tioga and Bradford counties in North Central Pennsylvania and Allegany,
Steuben, Chemung and Tioga counties in Southern New York. We maintain our
central office in Mansfield, Pennsylvania. Presently we operate banking
facilities in Mansfield, Blossburg, Ulysses, Genesee, Wellsboro, Troy,
Sayre, Canton, Gillett and the Wellsboro Weis Market store. Additionally,
we have automatic teller machines (ATMs) located in Soldiers and Sailors
Memorial Hospital in Wellsboro, Mansfield Wal-Mart and at Mansfield University.
Our company's lending and deposit products and investment services are
offered primarily within the vicinity of the service area.
On April 18, 2000, our company
executed an agreement whereby we will be acquiring all Bradford County
Pennsylvania offices of Sovereign Bank. These six offices located in Sayre,
Troy, State Line, Leraysville and Towanda, have total deposits of nearly
$80 million. We will also receive Sovereign's Bradford County loan portfolio
totaling approximately $30 million. We expect the consummation date for
this acquisition to be around September 30, 2000.
Our company faces strong competition
in the communities it serves from other commercial banks, savings banks,
and savings and loan associations, some of which are substantially larger
institutions than our subsidiary. In addition, personal and corporate trust
services are offered by insurance companies, investment counseling firms,
and other business firms and individuals.
We also compete with credit unions,
issuers of money market funds, securities brokerage firms, consumer finance
companies, mortgage brokers and insurance companies. These entities are
strong competitors for virtually all types of financial services.
In recent years, the financial
services industry has experienced tremendous change to competitive barriers
between bank and non-bank institutions. We not only must compete with traditional
financial institutions, but also with other business corporations that
have begun to deliver competing financial services. Competition for banking
services is based on price, nature of product, quality of service, and
in the case of certain activities, convenience of location.
Our company offers the following
trust and investment services:
*Investment
management accounts that assume managerial duties for
investment accounts.
*Custody
services for safekeeping and preservation of assets.
*Mutual
funds that provide an asset allocation program.
*Personal
trust services that include stand-by, living and testamentary
trusts.
*Estate
planning and administration to provide financial planning.
*Retirement
plan services for individuals and businesses.
FINANCIAL CONDITION
INVESTMENTS
The investment portfolio, including
available-for-sale and held-to-maturity securities, decreased by $2.1 million
or 2.27% from December 31, 1999 to March 31, 2000. Primarily the result
of principal payments received on mortgage-backed securities.
LOANS
Historically, loans have been
originated by our company to customers in North Central Pennsylvania and
the Southern Tier of New York. Loans have been originated primarily through
direct loans to our existing customer base, with new customers generated
by referrals from real estate brokers, building contractors, attorneys,
accountants and existing customers. We also do a limited amount of indirect
loans through new and used car dealers in the primary lending area.
6
<PAGE>
As shown in the following tables,
the change in loans grew by $2.9 million or 1.3% for the period compared
to the December 31, 1999, reflecting a normal seasonal slow down. Residential
mortgage lending is a principal business activity and one our company expects
to continue by providing a full complement of competitively priced conforming,
nonconforming and home equity mortgages (dollars in thousands).
|
March 31,
|
December 31,
|
|
2000
|
1999
|
|
Amount
|
Percent
|
Amount
|
Percent
|
|
|
|
|
|
| Real
estate: |
|
|
|
|
| Residential |
$142,710
|
60.9
|
$143,877
|
62.2
|
| Commercial |
32,453
|
13.8
|
32,159
|
13.9
|
| Agricultural |
11,891
|
5.1
|
9,392
|
4.1
|
| Loans
to individuals |
|
|
|
|
| for
household, |
|
|
|
|
| family
and other purchases |
15,621
|
6.7
|
15,569
|
6.7
|
| Commercial
and other loans |
13,103
|
5.6
|
12,313
|
5.3
|
| State
and political subdivision loans |
18,582
|
7.9
|
18,148
|
7.8
|
|
|
|
|
|
| Total
loans |
234,360
|
100.0
|
231,458
|
100.0
|
|
|
|
|
|
| Unearned
income |
24
|
|
29
|
|
|
|
|
|
|
| Net
loans |
$234,336
|
|
$231,429
|
|
|
|
|
|
|
|
March 31, 2000/
|
|
|
|
December 31, 1999
|
|
|
|
Change
|
|
|
|
|
$
|
%
|
|
|
| Real
estate: |
|
|
|
|
| Residential |
(1,167)
|
(0.8)
|
|
|
| Commercial |
294
|
0.9
|
|
|
| Agricultural |
2,499
|
26.6
|
|
|
| Loans
to individuals |
|
|
|
|
| for
household, |
|
|
|
|
| family
and other purchases |
52
|
0.3
|
|
|
| Commercial
and other loans |
790
|
6.4
|
|
|
| State
and political subdivision loans |
434
|
2.4
|
|
|
|
|
|
|
|
| Total
loans |
2,902
|
1.3
|
|
|
|
|
|
|
|
We focus our commercial lending
activity primarily on small businesses and our company's commercial lending
officers have been successful in attracting new business loans.
We expect loans to state and
political subdivisions will continue to increase for the remainder of 2000.
There was virtually no change
in total deposits during the March 31, 2000 period. However, money market
funds decreased as customers moved funds to certificates of deposit to
"lock-in" higher long term rates.
7
<PAGE>
(dollars in thousands)
|
March 31, 2000
|
December 31,
|
|
2000
|
1999
|
|
Amount
|
Percent
|
Amount
|
Percent
|
|
|
|
|
|
| Noninterest-bearing
deposits |
$24,445
|
8.6
|
$23,435
|
8.3
|
| NOW
accounts |
36,873
|
12.9
|
36,081
|
12.7
|
| Savings
deposits |
27,504
|
9.7
|
26,276
|
9.2
|
| Money
market deposit accounts |
34,082
|
12.0
|
39,831
|
14.0
|
| Certificates
of deposit |
161,812
|
56.8
|
158,695
|
55.8
|
|
|
|
|
|
| Total
deposits |
$284,716
|
100.0
|
$284,318
|
100.0
|
|
|
|
|
|
|
March 31, 2000/
|
|
|
|
December 31, 1999
|
|
|
|
Change
|
|
|
|
$
|
%
|
|
|
| Noninterest-bearing
deposits |
1,010
|
4.3
|
|
|
| NOW
accounts |
792
|
2.2
|
|
|
| Savings
deposits |
1,228
|
4.7
|
|
|
| Money
market deposit accounts |
(5,749)
|
(14.4) |
|
|
| Certificates
of deposit |
3,117
|
2.0
|
|
|
|
|
|
|
|
| Total
deposits |
398
|
0.1
|
|
|
|
|
|
|
|
Borrowed funds decreased $1.2
million during the first three months of 2000. The company's daily cash
requirements or short-term investments are met by using the financial instruments
available through the Federal Home Loan Bank.
CAPITAL
The company has computed its
risk-based capital ratios as follows (dollars
in thousands):
March 31,
December 31,
2000
1999
Amount Ratio
Amount Ratio
Total capital (to risk-weighted
assets)
company
$30,673 13.76% $30,610
14.09%
For capital adequacy purposes
17,836 8.00%
17,382 8.00%
To be well capitalized
22,294 10.00% 21,728
10.00%
Tier I capital (to risk-weighted
assets)
company
$28,300 12.69% $28,341
13.04%
For capital adequacy purposes
8,918 4.00%
8,691 4.00%
To be well capitalized
13,377 6.00%
13,037 6.00%
Tier I capital (to average assets)
company
$28,300 8.27% $28,341
8.32%
For capital adequacy purposes
13,690 4.00%
13,620 4.00%
To be well capitalized
17,112 5.00%
17,025 5.00%
8
<PAGE>
See the discussion of liquidity
below for details regarding future expansion
plans and the impact on capital.
Due to the significant rise in
market interest rate levels during 1999 and 2000, our available-for-sale
investment portfolio continued to decline in value by $100,000 net of federal
taxes. Dividend payments, stock repurchase and the rise in market rates
resulted the decline in our total shareholders' equity of $73,000 from
December 31, 1999.
July 30, 1999 our company began
a plan to purchase, in open market or privately negotiated transactions,
up to 135,000 shares of its outstanding common stock. A total of 55,162
shares have been repurchase at a cost of $1 million as of March 31, 2000.
RESULTS OF OPERATIONS
Net income for the three month
period ending March 31, 2000 was $938,000, an increase of $49,000 or 5.5%
over the $888,000 for the 1999 related period. Earnings per share was $.34
during the first three months of 2000 compared with $.32 during the comparable
1999 period. Details of the reasons for this increase are discussed on
the following pages (dollars in thousands).
Net interest income, the most
significant component of earnings, is the amount by which interest generated
from earning assets exceeds interest expense on liabilities.
Net interest income for the three
month period ending March 31, 2000, after provision for loan losses, was
$2,802,000 an increase of $36,000 compared to an increase of $75,000 at
March 31, 1999.
9
<PAGE>
Analysis of Average Balances
and Interest Rates (1)
|
March 31, 2000
|
March 31, 1999
|
March 31, 1998
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Average
|
Average
|
|
Average
|
Average
|
|
Average
|
|
Balance
|
Interest
|
Rate
|
Balance
|
Interest
|
Rate
|
Balance
|
Interest
|
Rate
|
| ASSETS |
$
|
$
|
%
|
$
|
$
|
%
|
$
|
$
|
%
|
| Short-term
investments: |
|
|
|
|
|
|
|
|
|
| Interest-bearing
deposits at banks |
796
|
10
|
5.05
|
408
|
5
|
4.97
|
2,635
|
36
|
5.54
|
| Investment
securities: |
|
|
|
|
|
|
|
|
|
| Taxable |
72,990
|
1,144
|
6.27
|
70,457
|
1,035
|
5.88
|
76,236
|
1,252
|
6.57
|
| Tax-exempt
(3) |
20,634
|
353
|
6.84
|
19,724
|
341
|
6.92
|
6,061
|
102
|
6.73
|
| Total
investment securities |
93,624
|
1,497
|
6.40
|
90,181
|
1,376
|
6.10
|
82,297
|
1,354
|
6.58
|
|
|
|
|
|
|
|
|
|
|
| Loans: |
|
|
|
|
|
|
|
|
|
| Residential
mortgage loans |
143,415
|
2,997
|
8.40
|
132,546
|
2,827
|
8.65
|
123,627
|
2,732
|
8.96
|
| Commercial
and farm loans |
57,294
|
1,292
|
9.07
|
49,341
|
1,157
|
9.51
|
45,794
|
1,112
|
9.85
|
| Loans
to state and political subdivisions |
18,492
|
380
|
8.26
|
10,051
|
211
|
8.51
|
10,256
|
221
|
8.74
|
| Other
loans |
15,355
|
340
|
8.91
|
14,616
|
326
|
9.05
|
12,900
|
313
|
9.84
|
| Loans,
net of |
|
|
|
|
|
|
|
|
|
| Discount
(2)(3)(4) |
234,556
|
5,009
|
8.59
|
206,554
|
4,521
|
8.88
|
192,577
|
4,378
|
9.22
|
|
|
|
|
|
|
|
|
|
|
| Total
interest-earning assets |
328,976
|
6,516
|
7.97
|
297,143
|
5,902
|
8.06
|
277,509
|
5,768
|
8.43
|
| Cash
and due from banks |
6,844
|
|
|
7,016
|
|
|
6,142
|
|
|
| Bank
premises and equipment |
5,927
|
|
|
5,757
|
|
|
5,760
|
|
|
| Other
assets |
1,092
|
|
|
1,752
|
|
|
4,967
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total
non-interest bearing assets |
13,863
|
|
|
14,469
|
|
|
16,374
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total
assets |
342,839
|
|
|
311,668
|
|
|
294,378
|
|
|
|
|
|
|
|
|
|
|
|
|
| LIABILITIES
AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
| Interest-bearing
liabilities: |
|
|
|
|
|
|
|
|
|
| NOW
accounts |
35,668
|
163
|
1.84
|
34,984
|
155
|
1.80
|
32,146
|
180
|
2.27
|
| Savings
accounts |
26,607
|
108
|
1.63
|
26,782
|
124
|
1.88
|
26,452
|
144
|
2.21
|
| Money
market accounts |
36,147
|
433
|
4.82
|
39,246
|
418
|
4.32
|
35,601
|
425
|
4.84
|
| Certificates
of deposit |
160,983
|
2,229
|
5.57
|
151,348
|
2,095
|
5.61
|
144,677
|
2,055
|
5.76
|
| Total
interest-bearing deposits |
259,405
|
2,933
|
4.55
|
252,360
|
2,792
|
4.49
|
238,876
|
2,804
|
4.76
|
| Other
borrowed funds |
27,695
|
409
|
5.94
|
7,335
|
95
|
5.25
|
7,191
|
111
|
6.26
|
|
|
|
|
|
|
|
|
|
|
| Total
interest-bearing liabilities |
287,100
|
3,342
|
4.68
|
259,695
|
2,887
|
4.51
|
246,067
|
2,915
|
4.80
|
| Demand
deposits |
22,993
|
|
|
20,333
|
|
|
19,060
|
|
|
| Other
liabilities |
3,721
|
|
|
3,142
|
|
|
3,105
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total
non-interest-bearing liabilities |
26,714
|
|
|
23,475
|
|
|
22,165
|
|
|
| Stockholders'
equity |
29,025
|
|
|
28,498
|
|
|
26,146
|
|
|
| Total
liabilities and stockholders' |
|
|
|
|
|
|
|
|
|
| Equity |
342,839
|
|
|
311,668
|
|
|
294,378
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
interest income |
|
3,174
|
|
|
3,015
|
|
|
2,853
|
|
|
|
|
|
|
|
|
|
|
|
| Net
interest spread (5) |
|
|
3.28%
|
|
|
3.55%
|
|
|
3.63%
|
| Net
interest income as a percentage |
|
|
|
|
|
|
|
|
|
| Of
average interest-earning assets |
|
|
3.88%
|
|
|
4.12%
|
|
|
4.17%
|
| Ratio
of interest-earning assets |
|
|
|
|
|
|
|
|
|
| To
interest-bearing liabilities |
|
|
1.15
|
|
|
1.14
|
|
|
1.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1)
Averages are based on daily averages. |
|
|
|
|
|
|
|
|
| (2)
Includes loan origination and commitment fees. |
|
|
|
|
|
|
|
| (3)
Tax exempt interest revenue is shown on a tax equivalent basis for proper
comparison using |
|
|
| a
statutory federal income tax rate of 34%. |
| (4)
Income on non-accrual loans is accounted for on a cash basis, and the loan
balances are included
in interest-earning assets. |
| (5)
Interest rate spread represents the difference between the average rate
earned on interest-earning assets |
| and
the average rate paid on interest-bearing liabilities. |
|
|
|
|
|
|
We have experienced
a narrowing interest margin percentage during 1999 and the first quarter
of 2000, continuing the trend in recent years. The 1998 flat yield curve
limited our opportunity to increase margin with new business as the existing
investments and loans mature or repay. When the yield curve became steeper
in 1999, interest rates began to rise resulting in our short-term liabilities
repricing faster than our short term assets. Currently the yield curve
is slightly inverted (not a normal up slope) beyond 10 years. However,
most of the
10
<PAGE>
company's investments,
loans, deposits and borrowings are priced or repriced along the three month
to five year portion of the yield curve. We continue to review various
pricing and investment strategies to enhance deposit growth while maintaining
or expanding the current interest margin.
We continue
to review various pricing and investment strategies to enhance deposit
growth
while
maintaining or expanding the current interest margin.
Analysis of Changes in Net
Interest Income on a Tax Equivalent Basis (in thousands) for the Three
Month Period Ended March 31,
| |
2000 vs. 1999 (1)
|
|
1999 vs. 1998 (1)
|
|
Change in
|
Change
|
Total
|
|
Change in
|
Change
|
Total
|
|
Volume
|
In Rate
|
Change
|
Volume
|
In Rate
|
Change
|
| Interest
Income: |
|
|
|
|
|
|
|
| Short-term
investments: |
|
|
|
|
|
|
|
| Interest-bearing
deposits
at banks |
5
|
-
|
5
|
|
(28)
|
(3)
|
(31)
|
| Investment
securities: |
|
|
|
|
|
|
|
| Taxable |
38
|
71
|
109
|
|
(91)
|
(126)
|
(217)
|
| Tax-exempt |
16
|
(4)
|
12
|
|
236
|
3
|
239
|
| Total
investment securities |
54
|
67
|
121
|
|
145
|
(123)
|
22 |
| Loans: |
|
|
|
|
|
|
|
| Residential
mortgage loans |
226
|
(56)
|
170
|
|
185
|
(91)
|
94
|
| Commercial
and farm loans |
177
|
(42)
|
135
|
|
82
|
(37)
|
45
|
| Loans
to state and political subdivisions |
174
|
(5)
|
169
|
|
(4)
|
(5)
|
(9)
|
| Other
loans |
16
|
(2)
|
14
|
|
33
|
(20)
|
13
|
| Loans,
net of |
|
|
|
|
|
|
|
| Discount |
593
|
(105)
|
488
|
|
296
|
(153)
|
143
|
|
|
|
|
|
|
|
|
| Total
Interest Income |
652
|
(38)
|
614
|
|
413
|
(279)
|
134
|
|
|
|
|
|
|
|
|
| Interest
Expense: |
|
|
|
|
|
|
|
| Interest-bearing
deposits: |
|
|
|
|
|
|
|
| NOW
accounts |
3
|
5
|
8
|
|
19
|
(44)
|
(25)
|
| Savings
accounts |
(1)
|
(15)
|
(16)
|
|
2
|
(22)
|
(20)
|
| Money
Market accounts |
(26)
|
41
|
15
|
|
136
|
(143)
|
(7)
|
| Certificates
of deposit |
134
|
-
|
134
|
|
90
|
(50)
|
40
|
| Total
interest-bearing deposits |
110
|
31
|
141
|
|
247
|
(259)
|
(12)
|
| Other
borrowed funds |
79
|
235
|
314
|
|
5
|
(21)
|
(16)
|
| Total
interest expense |
189
|
266
|
455
|
|
252
|
(280)
|
(28)
|
|
|
|
|
|
|
|
|
| Net
interest income |
463
|
(304)
|
159
|
|
161
|
1
|
162
|
|
|
|
|
|
|
|
|
| (1)
The portion of the total change attributable to both volume and rate changes
during the year has been allocated to volume and rate components based
upon the absolute dollar amount of the change in each component prior to
allocation. |
As can be seen from
the preceding tables, tax equivalent net interest income rose from $2,853,000
in 1998 to $3,015,000 in 1999 and increased to $3,174,000 in 2000. In the
period ending March 31, 2000, net interest income increased $159,000 while
overall spread decreased from 3.55% to 3.28%. The increased volume of interest-earning
assets generated an increase in interest income of $652,000 while increased
volume of interest-bearing liabilities produced $189,000 of interest expense.
The change in volume resulted in an increase of $463,000 in net interest
income. The net change in rate was a negative $304,000 resulting in a total
positive net change of $159,000 when combined with change in volume. The
yield on interest-earning assets decreased 9 basis points from 8.06% to
7.97% and the average interest rate on interest-bearing liabilities increased
17 basis points from 4.51% to 4.68%. We are currently evaluating ways to
improve the interest spread.
The provision for loan losses was
$100,000 for the three-month period ended March 31, 2000 compared to $60,000
for the same period in 1999.
This provision was appropriate
given management's quarterly review of the allowance for loan losses that
is based on the following information: migration analysis of delinquent
and non accrual loans, estimated future losses on loans, recent review
of large problem credits, local and national economic conditions, historical
loss experience, OCC qualitative adjustments, purchase of loans through
acquisitions and peer comparisons.
11
<PAGE>
OTHER OPERATING INCOME (dollars
in thousands)
|
Three months ended
|
|
|
|
March 31,
|
Change
|
|
2000
|
1999
|
$
|
%
|
| Service
charges |
$405
|
$289
|
116
|
40.1
|
| Trust |
117
|
100
|
17
|
17.0
|
| Other |
100
|
133
|
(33)
|
(24.8)
|
| Arbitration
settlement |
-
|
29
|
(29)
|
|
| Realized
securities gains, net |
20
|
95
|
(75)
|
(78.9)
|
| Total |
$642
|
$646
|
(4)
|
(0.6)
|
|
|
|
|
|
As indicated in the table above,
other income was $642,000 for the three-month period ended March 31, 2000
compared to $646,000 for the same period in 1999.
The increase in service charges
is directly attributable to increased checking account, ATM and MasterMoney
Card charges.
The trust income increase is
the result of a change in our fee structure and additional business.
The decrease in other income
was primarily a result of an adjustment to insurance income.
We continue to evaluate means
of increasing other operating income to off-set the loss of net interest
income described above. Our approach is to apply service charges on transaction
accounts by charging fees on transaction activity (reduced by earnings
credit based on customers' balances) to more equitably recover costs. We
expect to continue this analysis for our other products.
OTHER OPERATING EXPENSES (dollars
in thousands)
|
Three months ended
|
|
|
|
March 31,
|
Change
|
|
2000
|
1999
|
$
|
%
|
| Salaries
and employee benefits |
$1,081
|
$1,011
|
70
|
6.9
|
| Occupancy |
142
|
136
|
6
|
4.4
|
| Furniture
and equipment |
178
|
166
|
12
|
7.2
|
| Professional
fees |
131
|
183
|
(52)
|
(28.4)
|
| Other |
730
|
732
|
(2)
|
(0.3)
|
| Total |
$2,262
|
$2,228
|
34
|
1.5
|
|
|
|
|
|
Other operating expenses detailed
above were $2.3 million for the three-month period ended March 31, 2000
compared to $2.2 million for the same period in 1999.
The increase in salaries and
employee benefits was a result of normal merit increases.
Occupancy and furniture and equipment
expense had very little change in either period.
The other operating expense increase
reflects the cost of loan promotions and other normal operating expenses.
| PROFESSIONAL
FEES (dollars in thousands) |
Three months ended
|
|
|
|
March 31,
|
|
|
|
2000
|
1999
|
Change
|
|
|
|
|
$
|
%
|
| Other
professional fees |
113
|
165
|
(52)
|
(31.5)
|
| Legal
fees |
5
|
5
|
-
|
- |
| Examinations
and audits |
13
|
13
|
-
|
-
|
| Total |
131
|
183
|
(52)
|
(28.4)
|
|
|
|
|
|
Professional fees increase reflects
management's efforts to implement strategic growth initiatives and process
improvements most of which were completed in 1999.
12
<PAGE>
Provision for Income Taxes
The provision for income taxes
was $245,000 for the three-month period ended March 31, 2000 compared to
$296,000 for the same period in 1999. The decrease was primarily a result
of increased levels of tax exempt income.
In November 1999, we entered
into a limited partnership agreement to establish a low income housing
project in Bradford County, Pa. As a result of this agreement we expect
to receive approximately $900,000 of tax credits over a ten year period
once the project has been completed.
BRANCH ACQUISITION
On April 18, 2000, our company
executed an agreement whereby we will be acquiring all Bradford County
Pennsylvania offices of Sovereign Bank. These six offices located in Sayre,
Troy, State Line, Leraysville and Towanda, have total deposits of nearly
$80 million. We will also receive Sovereign's Bradford County loan portfolio
totaling approximately $30 million. The consummation date for this acquisition
is expected to be around September 30, 2000.
Our acquisition of Sovereign
Bank's loans consist primarily of small business and consumer loans. Future
growth in residential mortgage lending in anticipated.
$80 million from the Bradford
County offices to be acquired will provide a significant addition to our
core deposit base and will have a positive impact upon our liquidity.
The consummation of the acquisition
of Bradford County branches will enable us to eliminate all of our short-term
and long-term borrowings from the Federal Home Loan Bank.
We believe this transaction will
increase earnings in 2001 and beyond.
LIQUIDITY
As detailed in the Consolidated
Statement of Cash Flows, our company incurred a negative net cash flow
from operating, investing and financing activities during the 1999 period.
The major components have been discussed previously in the financial condition
section relating to investments, loans and deposits.
Liquidity is a measure of our
company's ability to efficiently meet normal cash flow requirements of
both borrowers and depositors. To maintain proper liquidity, we use funds
management policies along with our investment policies to assure we can
meet our financial obligations to depositors, credit customers and stockholders.
Liquidity is needed to meet depositors' withdrawal demands, extend credit
to meet borrowers' needs, provide funds for normal operating expenses and
cash dividends, and fund other capital expenditures.
Our company's historical activity
in this area can be seen in the Consolidated Statement of Cash Flows from
investing and financing activities.
Cash generated by operating activities,
investing activities and financing activities influences liquidity management.
The most important source of funds is the deposits that are primarily core
deposits (deposits from customers with other relationships). Short-term
debt from the Federal Home Loan Bank supplements our company's availability
of funds.
Our company's use of funds is
shown in the investing activity section of the Consolidated Statement of
Cash Flows, where the net increase in loans is detailed. Other significant
uses of funds include capital expenditures. Surplus funds are then invested
in investment securities.
13
<PAGE>
Capital expenditures during the
first quarter of 2000 were $243,000, $241,000 less than the same period
in 1999.
On February 8, 1999, we acquired
a property near the Mansfield Wal-Mart consisting of a large office building
on 2 acres, to be used as an operations facility. The cost of acquisition
and the expected remodeling will be approximately $1.8 million
In addition, our company has
contracted with Wal-Mart to include a First Citizens branch in their new
Supercenter scheduled to be opened August 2000.
Our company continues to plan
for an approximate $2.4 million renovation or replacement of the Mansfield
community office. This effort has been in various stages of planning for
more than nine years. We expect construction to take place in 2000.
We believe our company has sufficient
resources to complete these projects from our normal operations and that
they will have a long-term positive effect on revenues, efficiency and
the capacity for future growth.
Our company achieves liquidity
primarily from temporary or short-term investments in the Federal Home
Loan Bank of Pittsburgh, PA, and investments that mature in less than one
year. The company also has a maximum borrowing capacity at the Federal
Home Loan Bank of approximately $89 million as an additional source of
liquidity.
Apart from those matters described
above, management does not currently believe that there are any current
trends, events or uncertainties that would have a material impact on capital.
14
<PAGE>
CREDIT QUALITY RISK
The following table identifies
amounts of loan losses and non-performing loans. Past due loans are those
that were contractually past due 90 days or more as to interest or principal
payments (dollars in thousands).
|
March 31,
|
December 31,
|
|
2000
|
1999
|
1998
|
1997
|
1996
|
| Non-performing
loans: |
|
|
|
|
|
| Non-accruing
loans |
$ 303
|
$ 421
|
$ 1,495
|
$ 1,169
|
$ 844
|
| Impaired
loans |
847
|
1,334
|
382
|
382
|
414
|
| Accrual
loans - 90 days or |
|
|
|
|
|
| More
past due |
228
|
78
|
15
|
170
|
723
|
|
|
|
|
|
|
| Total
non-performing loans |
1,378
|
1,833
|
1,892
|
1,721
|
1,981
|
| Foreclosed
assets held for sale |
441
|
573
|
529
|
238
|
164
|
| Total
non-performing assets |
$ 1,819
|
$ 2,406
|
$ 2,421
|
$ 1,959
|
$ 2,145
|
|
|
|
|
|
|
| Non-performing
loans as a percent |
|
|
|
|
|
| of
loans net of unearned income |
0.59%
|
0.79%
|
0.92%
|
0.90%
|
1.09%
|
| Non-performing
assets as a percent |
|
|
|
|
|
| of
loans net of unearned income |
0.78%
|
1.04%
|
1.18%
|
1.02%
|
1.18%
|
|
|
|
|
|
|
|
|
|
|
|
|
| Allowance
for possible loan loasses: |
March 31,
|
December 31,
|
|
2000
|
1999
|
1998
|
1997
|
1996
|
|
|
|
|
|
|
| Balance
at beginning of period |
$ 2,270
|
$ 2,292
|
$ 2,138
|
$ 1,995
|
$ 1,833
|
|
|
|
|
|
|
| Charge-offs |
(22)
|
(551)
|
(112)
|
(83)
|
(64)
|
| Recoveries |
26
|
54
|
48
|
16
|
21
|
| Provision
for loan losses |
100
|
475
|
218
|
210
|
205
|
|
|
|
|
|
|
| Balance
at end of period |
$ 2,374
|
$ 2,270
|
$ 2,292
|
$ 2,138
|
$ 1,995
|
|
|
|
|
|
|
| Allowance
for losses as a percent |
|
|
|
|
|
| of
total loans |
1.01%
|
0.98%
|
1.13%
|
1.11%
|
1.09%
|
|
|
|
|
|
|
Interest does not accrue on impaired
loans. Subsequent cash payments received are applied to the outstanding
principal balance or recorded as interest income, depending upon management's
assessment of its ultimate ability to collect principal and interest.
INTEREST RATE AND MARKET RISK
MANAGEMENT
The objective of interest rate
sensitivity management is to maintain an appropriate balance between the
stable growth of income and the risks associated with maximizing income
through interest sensitivity imbalances and the market value risk of assets
and liabilities.
Because of the nature of our
operations, we are not subject to foreign currency exchange or commodity
price risk and, since our company has no trading portfolio, it is not subject
to trading risk.
Currently our company has equity
securities that represent only 4% of our investment portfolio and, therefore,
equity risk is not significant.
15
<PAGE>
The primary components of interest-sensitive
assets include adjustable-rate loans and investments, loan repayments,
investment maturities and money market investments. The primary components
of interest-sensitive liabilities include maturing certificates of deposit,
IRA certificates of deposit and short-term borrowings. Savings deposits,
NOW accounts and money market investor accounts are considered core deposits
and are not short-term interest sensitive (except for the top-tier money
market investor accounts which are paid current market interest rates).
Gap analysis, one of the methods
used by us to analyze interest rate risk, does not necessarily show the
precise impact of specific interest rate movements on our company's net
interest income because the repricing of certain assets and liabilities
is discretionary and is subject to competitive and other pressures. In
addition, assets and liabilities within the same period may, in fact, be
repaid at different times and at different rate levels. We have not experienced
the kind of earnings volatility that might be indicated from gap analysis.
Our company currently uses a
computer simulation model to better measure the impact of interest rate
changes on net interest income. We use the model as part of our risk management
process that will effectively identify, measure, and monitor our company's
risk exposure.
We us numerous interest rate
simulations employing a variety of assumptions are used by us to evaluate
our interest rate risk exposure. A shock analysis at March 31, 2000, indicated
that a 200 basis point movement in interest rates in either direction would
have a minor impact on our company's anticipated net interest income over
the next twenty-four months.
GENERAL
The majority of assets and liabilities
of a financial institution are monetary in nature and, therefore, differ
greatly from most commercial and industrial companies that have significant
investments in fixed assets or inventories. However, inflation does have
an important impact on the growth of total assets and on noninterest expenses,
which tend to rise during periods of general inflation. The recent action
by the Federal Reserve of increasing short-term interest rates will help
ensure that the level of inflation remains at a relatively low level.
Various congressional
bills have been passed and other proposals have been made for significant
changes to the banking system, including provisions for: limitation on
deposit insurance coverage; changing the timing and method financial institutions
use to pay for deposit insurance; and tightening the regulation of bank
derivatives' activities.
On November 12, 1999,
President Clinton signed into law the Gramm-Leach-Bliley Act of 1999, which
is also known as the Financial Services Modernization Act. The act repeals
some depression-era banking laws and will permit banks, insurance companies
and securities firms to engage in each others' business after complying
with certain conditions and regulations which are yet to be finalized.
The act grants to community banks the power to enter new financial markets
as a matter of right that larger institutions have managed to do on an
ad hoc basis. At this time, our company has no plans to pursue these additional
possibilities.
Our company does not
believe that the Financial Services Modernization Act will have an immediate
positive or negative material impact on our operations. However, the act
may have the result of increasing the amount of competition that our company
faces from larger financial service companies, many of whom have substantially
more financial resources than our company, which may now offer banking
services in addition to insurance and brokerage products.
Aside from those matters
described above, we do not believe that there are any trends, events or
uncertainties which would have a material adverse impact on future operating
results, liquidity or capital resources. We are not aware of any current
recommendations by the regulatory authorities (except as described herein)
which, if they were to be implemented, would have such an effect, although
the general cost of compliance with numerous and multiple federal and state
laws and regulations does have, and in the future may have, a negative
impact on our company's results of operations.
Item 3- Quantitative and Qualitative
Disclosure About Market Risk
In the normal course of conducting
business activities, the company is exposed to market
16
<PAGE>
risk, principally interest rate
risk, through the operations of its banking subsidiary. Interest rate risk
arises from market driven fluctuations in interest rates that affect cash
flows, income, expense and values of financial instruments and was disussed
previously in this Form 10-Q. Interest rate risk is managed by management
and a committee of the board of directors.
No material changes in market
risk strategy occurred during the current period. A detailed discussion
of market risk is provided in the SEC Form 10-K for the period ended December
31, 1999.
17
<PAGE
PART II - OTHER INFORMATION AND
SIGNATURES
Item 1 - Legal Proceedings
Management is not aware of any
litigation that would have a material
adverse effect on the consolidated
financial position of the company. Any
pending proceedings are ordinary,
routine litigation incidental to the
business of the company and
its subsidiary. In addition, no material
proceedings are pending or are
known to be threatened or contemplated against
the company and its subsidiary
by government authorities.
Item 2 - Changes in Securities
- - Nothing to report.
Item 3 - Defaults Upon Senior
Securities - Nothing to report.
Item 4 - Submission of Matters
to a Vote of Security Holders.
Results of the voting at the
Annual Meeting of Shareholders held on April 18, 1999 at 12:00 p.m. at
the Tioga County Fairgrounds Youth Building, Whitneyville, Pennsylvania,
16901
1. Election of Class 1 Directors
whose term will expire in 2003
For
Withhold Authority
Bruce L. Adams
2,129,147 53,852
William D. Van Etten
2,129,147 53,852
Continuing Directors:
Mark L. Dalton
Class 2 Term Expires
2001
John E. Novak
Class 2 Term Expires
2001
Rudolph J. van der Heil Class 2
Term Expires 2001
Carol J. Tama
Class 1 Term Expires
2002
R. Lowell Coolidge Class 1
Term Expires 2002
Richard E. Wilber Class
1 Term Expires 2002
John M. Thomas, M.D. Class 1
Term Expires 2002
Larry J. Croft
Class 1 Term Expires
2002
2. Proposal to Amend Article
Twelfth of the Articles of Incorporation of Citizens Financial Services,
Inc., as amended, to read in full an its entirety as follows: "TWELFTH:
Commencing with the 2000 Annual Meeting of Shareholders, no Director of
the Corporation shall be eligible to stand for election or continue to
serve as a Director at the next Annual Meeting if, as of the date of the
Annual Meeting change, such Director has attainde the age of 70 years.
For 1,956,236
Against 172,870
Abstain 53,897
Item 5 - Other Information -
Nothing to report.
18
<PAGE>
Item 6 -Exhibits and reports
on Form 8-K.
(a) Exhibits.
(3)(i) - Articles of Incorporation
of the Corporation, as amended.
(3)(ii)- By-laws of the Corporation,
as amended. (Incorporated by Reference to Exhibit (3)(ii) to the Annual
Report of Form 10-K for the fiscal year ended December 31, 1995, as filed
with the Commission on March 26, 1996.)
(4) - Instruments Defining
the Rights of Stockholders. (Incorporated by reference to the Registrant's
Registration Statement No.2-89103 on Form S-14, as filed with the Commission
on February 17, 1984.)
(10) - Material Contracts. Employment
Agreement between our company and Richard E. Wilber. (Incorporated by Reference
to Exhibit (10)to the Annual Report of Form 10-K for the fiscal year ended
December 31, 1998, as filed with the Commission on March 17, 1998.)
(11) - Computation of Earnings
Per Share included on page 5 of this Form 10-Q.
(27) - Financial Data Schedules,
which are submitted electronically to the Securities and Exchange Commission
for information only and not filed.
(99) - Independent accountant's
review of financial statements for the period ended March 31, 2000.
(b)Reports on Form 8-K. Press
release dated April 19, 2000 and filed May 9, 2000.
19
<PAGE>
Signatures
Pursuant to the requirements
of the Securities Exchange Act of 1934, the
undersigned Registrant has duly
caused this report to be signed on its behalf
by the undersigned hereunto
duly authorized.
Citizens Financial Services, Inc.
(Registrant)
May 10, 2000
/s/ Richard E. Wilber
By: Richard E. Wilber
President
(Principal Executive Officer)
May 10, 2000
/s/ Thomas C. Lyman
By: Thomas C. Lyman
Treasurer
(Principal Financial Officer &
Principal Accounting Officer)
20
<PAGE>
EXHIBITS INDEX
(3)(i) - Articles of Incorporation
of the Corporation, as amended.
(3)(ii)- By-laws of the Corporation,
as amended. (Incorporated by Reference to Exhibit (3)(ii) to the Annual
Report of Form 10-K for the fiscal year ended December 31, 1995, as filed
with the Commission on March 26, 1996.)
(4) - Instruments Defining
the Rights of Stockholders. (Incorporated by reference to the Registrant's
Registration Statement No.2-89103 on Form S-14, as filed with the Commission
on February 17, 1984.)
(10) - Material Contracts. Employment
Agreement between our company and Richard E. Wilber. (Incorporated by Reference
to Exhibit (10)to the Annual Report of Form 10-K for the fiscal year ended
December 31, 1998, as filed with the Commission on March 17, 1998.)
(11) - Computation of Earnings
Per Share included on page 5 of this Form 10-Q.
(27) - Financial Data Schedule,
which are submitted electronically to the Securities and Exchange Commission
for information only and not filed.
(99) - Independent accountant's
review of financial statements for the period ended March 31, 2000.
21
<PAGE>