UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the quarterly period ended September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934For 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
November 5, 1999 2,800,563 shares of Common Stock, par value $1.00.<PAGE>
Citizens Financial Services, Inc.
Form 10-Q
INDEX
|
|
Part I FINANCIAL INFORMATION (UNAUDITED) | |
Item 1-Financial Statements | |
Consolidated
Balance Sheet as of September 30, 1999,
December 31, 1998 and September 30, 1998 |
|
Consolidated
Statement of Income for the Three Months and
Nine Months Ended September 30, 1999 and 1998 |
|
Consolidated
Statement of Comprehensive Income for the Three
Months and Nine Months Ended September 30, 1999 and 1998 |
|
Consolidated
Statement of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998 |
|
Notes to Consolidated Financial Statements |
|
Item
2 -Management's Discussion and Analysis of Financial Condition
and Results of Operations |
|
Item 3-Quantitative and Qualitative Disclosure About Market Risk |
|
Part II OTHER INFORMATION AND SIGNATURES | |
Item 1-Legal Proceedings |
|
Item 2-Changes in Securities |
|
Item 3-Defaults upon Senior Securities |
|
Item 4-Submission of Matters to a Vote of Security Holders |
|
Item 5-Other Information |
|
Item 6-Exhibits and Reports on Form 8-K |
|
Signatures |
|
<PAGE>
CONSOLIDATED BALANCE SHEET | ||||
(UNAUDITED) | ||||
|
|
|
||
|
|
|
||
ASSETS: | ||||
Cash and due from banks: | ||||
Noninterest-bearing |
$ 6,840,748
|
$ 7,175,095
|
$ 7,717,279
|
|
Interest-bearing |
167,075
|
129,708
|
4,096,320
|
|
Total cash and cash equivalents |
7,007,823
|
7,304,803
|
11,813,599
|
|
Available-for-sale securities |
94,629,420
|
93,082,429
|
24,492,406
|
|
Held-to-maturity securities (estimated | ||||
Market value $65,331,000) |
0
|
0
|
63,584,815
|
|
Loans (net of allowance for loan losses 1999, $2,347,000; | ||||
December 31, 1998, $2,292,000; | ||||
September 30, 1998, $2,232,000) |
224,185,333
|
203,582,637
|
196,786,163
|
|
Foreclosed assets held for sale |
667,037
|
528,630
|
514,372
|
|
Premises and equipment |
5,916,544
|
5,605,686
|
5,606,656
|
|
Accrued interest receivable |
2,177,108
|
2,188,372
|
2,399,621
|
|
Other assets |
2,596,182
|
1,271,240
|
1,740,881
|
|
TOTAL ASSETS |
$ 337,179,447
|
$ 313,563,797
|
$ 306,938,513
|
|
LIABILITIES: | ||||
Deposits: | ||||
Noninterest-bearing |
$ 22,741,948
|
$ 20,977,843
|
$ 21,173,112
|
|
Interest-bearing |
261,540,354
|
253,215,120
|
247,592,513
|
|
Total deposits |
284,282,302
|
274,192,963
|
268,765,625
|
|
Borrowed funds |
21,788,681
|
7,333,610
|
7,260,903
|
|
Accrued interest payable |
2,141,668
|
2,362,596
|
2,142,376
|
|
Other liabilities |
1,336,108
|
1,076,164
|
1,466,933
|
|
TOTAL LIABILITIES |
309,548,759
|
284,965,333
|
279,635,837
|
|
STOCKHOLDERS' EQUITY: | ||||
Common Stock | ||||
$1.00 par value; authorized 10,000,000 shares; issued and outstanding 2,800,563 shares in 1999 | ||||
and 2,773,434 in 1998, respectively |
2,800,563
|
2,773,434
|
2,773,434
|
|
Additional paid-in capital |
8,374,160
|
7,912,967
|
7,912,967
|
|
Retained earnings |
17,930,272
|
16,934,349
|
16,549,135
|
|
Treasury
stock, at cost
(8,855 shares for 1999) |
(154,805)
|
|||
TOTAL |
28,950,190
|
27,620,750
|
27,235,536
|
|
Accumulated
other
comprehensive (loss) income |
(1,319,502)
|
977,714
|
67,140
|
|
TOTAL STOCKHOLDERS' EQUITY |
27,630,688
|
28,598,464
|
27,302,676
|
|
TOTAL LIABILITIES AND | ||||
STOCKHOLDERS' EQUITY |
$ 337,179,447
|
$ 313,563,797
|
$ 306,938,513
|
The accompanying notes are an
integral part of these financial statements.
1
<PAGE>
CONSOLIDATED STATEMENT OF INCOME | ||||
(UNAUDITED) | ||||
|
|
|||
|
|
|||
|
|
|
|
|
INTEREST INCOME: | ||||
Interest and fees on loans |
$ 4,582,065
|
$ 4,499,398
|
$13,492,696
|
$13,146,207
|
Interest-bearing deposits with banks |
2,618
|
88,916
|
57,540
|
219,363
|
Investment securities: | ||||
Taxable |
1,031,527
|
1,097,238
|
2,947,228
|
3,463,044
|
Nontaxable |
239,781
|
143,110
|
704,513
|
313,670
|
Dividends |
41,326
|
28,133
|
117,729
|
73,368
|
TOTAL INTEREST INCOME |
5,897,317
|
5,856,795
|
17,319,706
|
17,215,652
|
INTEREST EXPENSE: | ||||
Deposits |
2,869,110
|
2,924,090
|
8,499,821
|
8,578,299
|
Borrowed funds |
177,325
|
110,108
|
324,758
|
328,284
|
TOTAL INTEREST EXPENSE |
3,046,435
|
3,034,198
|
8,824,579
|
8,906,583
|
NET INTEREST INCOME |
2,850,882
|
2,822,597
|
8,495,127
|
8,309,069
|
Provision for loan losses |
90,000
|
52,500
|
210,000
|
157,500
|
NET INTEREST INCOME AFTER | ||||
PROVISION FOR LOAN LOSSES |
2,760,882
|
2,770,097
|
8,285,127
|
8,151,569
|
OTHER OPERATING INCOME: | ||||
Service charges |
378,477
|
287,203
|
1,034,243
|
769,131
|
Trust |
80,604
|
90,809
|
284,836
|
257,039
|
Other |
26,574
|
68,004
|
290,842
|
212,669
|
Arbitration settlement |
0
|
0
|
28,595
|
111,548
|
Realized securities gains, net |
3,962
|
201,929
|
231,007
|
374,306
|
TOTAL OTHER OPERATING INCOME |
489,617
|
647,945
|
1,869,523
|
1,724,693
|
OTHER OPERATING EXPENSES: | ||||
Salaries and employee benefits |
1,128,236
|
1,036,812
|
3,204,665
|
2,909,638
|
Occupancy |
124,096
|
134,191
|
392,009
|
396,825
|
Furniture and equipment |
172,873
|
173,132
|
512,886
|
530,566
|
Professional fees |
95,186
|
66,771
|
410,746
|
223,045
|
Other |
718,694
|
664,397
|
2,177,612
|
2,008,508
|
TOTAL OTHER OPERATING EXPENSES |
2,239,085
|
2,075,303
|
6,697,918
|
6,068,582
|
Income before provision for income taxes |
1,011,414
|
1,342,739
|
3,456,732
|
3,807,680
|
Provision for income taxes |
206,798
|
374,672
|
810,613
|
1,078,083
|
Net Income |
$ 804,616
|
$ 968,067
|
$ 2,646,119
|
$ 2,729,597
|
Earnings Per Share |
$ 0.290
|
$ 0.350
|
$ 0.950
|
$ 0.990 |
Cash Dividend Declared |
$ 0.140
|
$ 0.130
|
$ 0.415
|
$ 0.385
|
The accompanying notes are an
integral part of these financial statements.
2
<PAGE>
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | |||||||||||||||
(UNAUDITED) | |||||||||||||||
|
|
||||||||||||||
|
|
||||||||||||||
|
|
|
|
||||||||||||
Net income |
$ 804,616
|
$ 968,067
|
$ 2,646,119
|
$ 2,729,597
|
|||||||||||
Other comprehensive income: | |||||||||||||||
Unrealized gains(losses) on available for sale securities |
$(690,036)
|
$ 3,677
|
$(3,711,637)
|
$ (791,836)
|
|||||||||||
Less: Reclassification adjustment for gain | |||||||||||||||
included in net income |
(3,962)
|
(693,998)
|
(201,929) |
(198,252)
|
231,007
|
(3,480,630)
|
374,306
|
(417,530)
|
|||||||
Other comprehensive income before tax |
(693,998)
|
(198,252)
|
(3,480,630)
|
(417,530)
|
|||||||||||
Income tax expense related to other comprehensive income |
(235,959)
|
(67,406)
|
(1,183,414)
|
(141,960)
|
|||||||||||
Other comprehensive income, net of tax |
(458,039)
|
(130,846)
|
(2,297,216)
|
(275,570)
|
|||||||||||
Comprehensive income |
$ 346,577
|
$ 837,221
|
$ 348,903
|
$ 2,454,027
|
|||||||||||
The accompanying notes are an
integral
part of these financial statements.
3
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS | |||
(UNAUDITED) | |||
|
|||
|
|||
|
|
||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||
Net income |
$ 2,646,118
|
$ 2,729,597
|
|
Adjustments to reconcile net income to net | |||
Cash provided by operating activities: | |||
Provision for loan losses |
210,000
|
157,500
|
|
Provision for depreciation and amortization |
574,472
|
567,707
|
|
Amortization and accretion of investment securities |
296,180
|
249,361
|
|
Deferred income taxes |
(52,436)
|
5,976
|
|
Realized gains on securities |
(231,007)
|
(374,306)
|
|
Realized gains on loans sold |
(19,680)
|
(50,413)
|
|
Gain on sales or disposals of premises and equipment |
(6,698)
|
0
|
|
Originations of loans held for sale |
(2,447,755)
|
(2,879,886)
|
|
Proceeds from sales of loans held for sale |
2,467,435
|
2,930,299
|
|
(Gains)Losses on sale of foreclosed assets held for sale |
(48,187)
|
6,629
|
|
Increase in accrued | |||
interest receivable and other assets |
(159,404)
|
(81,246)
|
|
Decrease in accrued interest payable and other liabilities |
39,017
|
346,177
|
|
Net cash provided by operating activities |
3,268,055
|
3,607,395
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: | |||
Available-for-sale securities: | |||
Proceeds from sales of available-for-sale securities |
22,334,939
|
12,962,002
|
|
Proceeds from maturity and principal repayments of securities |
10,766,431
|
4,051,175
|
|
Purchase of securities |
(38,194,164)
|
(16,794,848)
|
|
Held-to-maturity securities: | |||
Proceeds from maturity and principal repayments of securities |
0
|
7,440,375
|
|
Purchase of securities |
0
|
(9,444,636)
|
|
Net (increase)decrease in loans |
(21,220,417)
|
(7,371,561)
|
|
Capital expenditures |
(836,535)
|
(338,761)
|
|
Proceeds from sales of premises and equipment |
39,480
|
0
|
|
Proceeds from sale of foreclosed assets held for sale |
317,501
|
54,796
|
|
Net cash used in investing activities |
(26,792,765)
|
(9,441,458)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: | |||
Net increase in deposits |
10,089,339
|
11,982,851
|
|
Proceeds from long-term borrowings |
4,439,363
|
742,180
|
|
Repayments of long-term borrowings |
(370,999)
|
(515,520)
|
|
Net increase (decrease) in short-term borrowed funds |
10,386,706
|
170,050
|
|
Acquisition of Treasury Stock |
(154,805)
|
0
|
|
Dividends paid |
(1,161,874)
|
(1,074,258)
|
|
Net cash provided by financing activities |
23,227,730
|
11,305,303
|
|
Net (decrease)increase in cash and cash equivalents |
(296,980)
|
5,471,240
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
7,304,803
|
6,342,359
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ 7,007,823
|
$ 11,813,599
|
|
Supplemental Disclosures of Cash Flow Information: | |||
Interest paid |
$ 9,045,507
|
$ 9,095,646
|
|
Income taxes paid |
$ 835,000
|
$ 980,000
|
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 September 30, 1999, 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, 1998.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133, (SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement establishes accounting and reporting standards for derivative instruments and for hedging activities. The Company implemented this statement effective October 1, 1998 and has reclassified all of its securities as available-for-sale. The impact of the reclassification resulted in a significant change in net unrealized holding gains on available-for-sale securities during the 4th quarter of 1998.
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 2,781,493 for 1999 and 2,755,521 for 1998.
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 (the "Company"). Our Company's consolidated financial condition and results of operations consist almost entirely of our wholly owned subsidiary's (First Citizens National Bank) financial conditions and results of operations. Our discussion should be read in conjunction with the preceding September 30, 1999 Financial Report. The results of operations for the nine months ended September 30, 1999 and 1998 are not necessarily indicative of the results to be expected 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:
5
<PAGE>
*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 quarterly reports on Form 10-K to be filed by our Company and any current reports on Form 8-K filed by our Company.
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.
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, increased by $1.6 million or 1.7% from December 31, 1998 to September 30, 1999, and increased by $6.7 million from September 30, 1998 to September 30, 1999.
From 1990 through 1996, the concentration
of our Company's investment portfolio shifted to U.S. Treasury securities
and, until two years ago, no new investments had been made in state and
political subdivisions. During 1997, 1998 and 1999, we have been selling
U. S. Treasury notes to restructure the investment portfolio. We then invested
the proceeds by purchasing AAA municipal bonds, investment grade corporate
bonds and U S agency mortgage backed securities.
6
<PAGE>
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.
As shown in the following tables,
the change in loans grew by $28 million or 13.8% for the year compared
to the 1998 period, the result of continued demand and attractive interest
rates. In addition, $2.4 million in conforming mortgage loans were originated
and sold on the secondary market through the Federal Home Loan Mortgage
Corporation, providing over $20,000 of income in origination fees and premiums
on loans sold. 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.
|
|
|
||||||
|
|
|
||||||
|
|
|
|
|
|
|||
Real estate: | ||||||||
Residential |
$144,102
|
63.6
|
$132,287
|
64.2
|
$129,990
|
65.3
|
||
Commercial |
28,906
|
12.8
|
27,164
|
13.2
|
25,578
|
12.8
|
||
Agricultural |
9,143
|
4.0
|
9,266
|
4.5
|
7,757
|
3.9
|
||
Loans to individuals | ||||||||
for household, | ||||||||
family and other purchases |
14,871
|
6.6
|
14,489
|
7.0
|
14,088
|
7.1
|
||
Commercial and other loans |
11,791
|
5.2
|
12,457
|
6.0
|
11,708
|
5.9
|
||
State and political subdivision loans |
17,755
|
7.8
|
10,272
|
5.0
|
9,969
|
5.0
|
||
Total loans |
226,568
|
100.0
|
205,935
|
100.0
|
199,090
|
100.0
|
||
Unearned income |
36
|
60
|
72
|
|||||
Net loans |
$226,532
|
$205,875
|
$199,018
|
|||||
|
|
|||||||
|
|
|||||||
|
|
|||||||
|
|
|
|
|||||
Real estate: | ||||||||
Residential |
11,815
|
8.9
|
14,112
|
10.9
|
||||
Commercial |
1,742
|
6.4
|
3,328
|
13.0
|
||||
Agricultural |
(123)
|
(1.3)
|
1,386
|
17.9
|
||||
Loans to individuals | ||||||||
for household, | ||||||||
family and other purchases |
382
|
2.6
|
783
|
5.6
|
||||
Commercial and other loans |
(666)
|
(5.3)
|
83
|
0.7
|
||||
State and political subdivision loans |
7,483
|
72.8
|
7,786
|
78.1
|
||||
Total loans |
20,633
|
10.0
|
27,478
|
13.8
|
Commercial lending activity is primarily focused 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 1999.
7
<PAGE>
Deposits increased by $15.5 million
or 5.8% during the September 30, 1999/1998 period.
|
|
|
||||||
|
|
|
||||||
|
|
|
|
|
|
|||
Noninterest-bearing deposits |
$ 22,742
|
8.0
|
$ 20,978
|
7.7
|
$ 21,173
|
7.9
|
||
NOW accounts |
39,242
|
13.8
|
37,113
|
13.5
|
32,558
|
12.1
|
||
Savings deposits |
29,339
|
10.3
|
26,421
|
9.6
|
26,834
|
10.0
|
||
Money market deposit accounts |
43,020
|
15.1
|
39,584
|
14.4
|
39,436
|
14.7
|
||
Certificates of deposit |
149,939
|
52.7
|
150,097
|
54.7
|
148,765
|
55.4
|
||
Total deposits |
$284,282
|
100.0
|
$274,193
|
100.0
|
$268,766
|
100.0
|
||
|
|
|||||||
|
|
|||||||
|
|
|||||||
|
|
|
|
|||||
Noninterest-bearing deposits |
1,764
|
8.4
|
1,569
|
7.4
|
||||
NOW accounts |
2,129
|
5.7
|
6,684
|
20.5
|
||||
Savings deposits |
2,918
|
11.0
|
2,505
|
9.3
|
||||
Money market deposit accounts |
3,436
|
8.7
|
3,584
|
9.1
|
||||
Certificates of deposit |
(158)
|
(0.1)
|
1,174
|
0.8
|
||||
Total deposits |
10,089
|
3.7
|
15,516
|
5.8
|
Borrowed funds increased $14.5 million during the first nine months of 1999 compared with the same increase from the 1998 period. $8 million of the increase was the result of an investment leverage using borrowings from the FHLB to fund increasing mortgage-backed securities and corporate bonds in our investment portfolio. The other $6.5 million increase was used to fund the strong loan growth and other investments. 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):
September 30, December
31,
1999
1998
Amount Ratio Amount Ratio
Total capital (to risk-weighted
assets)
Company
$30,745 14.35%
$29,296 14.99%
For capital adequacy purposes
17,146 8.00%
15,632 8.00%
To be well capitalized
21,432 10.00%
19,540 10.00%
Tier I capital (to risk-weighted
assets)
Company
$28,398 13.25%
$26,893 13.96%
For capital adequacy purposes
8,573 4.00%
7,816 4.00%
To be well capitalized
12,859 6.00%
11,724 6.00%
Tier I capital (to average assets)
Company
$28,398 8.59%
$26,893 8.66%
For capital adequacy purposes
13,224 4.00%
12,423 4.00%
To be well capitalized
16,530 5.00%
15,529 5.00%
See the discussion of liquidity
below for details regarding future expansion
plans and the impact on capital.
8
<PAGE>
Due to the significant rise in market interest rate levels during the past year, our available-for-sale investment portfolio declined in value by $1.4 million net of federal taxes. This decline is the reason why our total shareholders' equity increased by only $328,000 over September 30, 1998.
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. The purchases are to be funded by using available excess capital.
RESULTS OF OPERATIONS
Net income for the nine month period ending September 30, 1999 was $2,646,000, a decrease of $84,000 or 3.1% over the $2,730,000 for the 1998 related period. Earnings per share was $.95 during the first nine months of 1999 compared with $.99 during the comparable 1998 period. Details of the reasons for this decline are discussed on the following pages.
Net income for the three month period was $804,000, a decrease of $165,000 or 16.9% from the $968,000 for the 1998 related period.
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 September 30, 1999, after provision for loan losses, was $2,761,000 a decrease of $9,000 compared to with a decrease of $66,000 at September 30, 1998.
Net interest income for the current
nine month period, after provision for loan losses, was $8,285,000, an
increase of $134,000 or 1.6% compared with a decrease of $37,000 during
the same period in 1998.
9
<PAGE>
Analysis of Average Balances and Interest Rates for the Nine Month Period Ending (1) | ||||||||||||
|
|
|
||||||||||
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
||||
ASSETS |
|
|
|
|
|
|
|
|
|
|||
Short-term investments: | ||||||||||||
Interest-bearing deposits at banks |
1,627
|
58
|
4.73%
|
5,423
|
219
|
5.40%
|
4,255
|
175
|
5.50%
|
|||
Total short-term investments |
1,627
|
58
|
4.73%
|
5,423
|
219
|
5.40%
|
4,255
|
175
|
5.50%
|
|||
Investment securities: | ||||||||||||
Taxable |
68,588
|
3,065
|
5.96%
|
75,812
|
3,537
|
6.22%
|
83,445
|
3,976
|
6.35%
|
|||
Tax-exempt (3) |
20,509
|
1,067
|
6.94%
|
8,750
|
476
|
7.25%
|
604
|
58
|
12.80%
|
|||
Total investment securities |
89,097
|
4,132
|
6.18%
|
84,562
|
4,013
|
6.33%
|
84,049
|
4,034
|
6.40%
|
|||
Total All Investments |
90,724
|
4,190
|
6.16%
|
89,985
|
4,232
|
6.27%
|
88,304
|
4,209
|
6.36%
|
|||
Loans: | ||||||||||||
Residential mortgage loans |
136,837
|
8,648
|
8.45%
|
125,923
|
8,403
|
8.92%
|
118,003
|
8,149
|
9.23%
|
|||
Commercial and farm loans |
48,788
|
3,328
|
9.12%
|
45,451
|
3,354
|
9.87%
|
43,669
|
3,246
|
9.94%
|
|||
Loans to state and political subdivisions |
13,089
|
822
|
8.40%
|
10,380
|
668
|
8.60%
|
9,666
|
614
|
8.49%
|
|||
Other loans |
14,491
|
975
|
9.00%
|
13,836
|
948
|
9.16%
|
13,855
|
1,009
|
9.74%
|
|||
Loans, net of | ||||||||||||
Discount (2)(3)(4) |
213,205
|
13,773
|
8.64%
|
195,590
|
13,373
|
9.14%
|
185,193
|
13,018
|
9.40%
|
|||
Total interest-earning assets |
303,929
|
17,963
|
7.90%
|
285,575
|
17,605
|
8.24%
|
273,497
|
17,227
|
8.42%
|
|||
Cash and due from banks |
6,853
|
6,536
|
4,002
|
|||||||||
Bank premises and equipment |
5,891
|
5,722
|
4,950
|
|||||||||
Other assets |
2,803
|
886
|
4,958
|
|||||||||
Total non-interest bearing assets |
15,547
|
14,030
|
13,910
|
|||||||||
Total assets |
319,476
|
298,719
|
287,407
|
|||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||
Interest-bearing liabilities: | ||||||||||||
NOW accounts |
35,976
|
479
|
1.78%
|
33,120
|
536
|
2.16%
|
32,488
|
586
|
2.41%
|
|||
Savings accounts |
27,976
|
372
|
1.78%
|
26,795
|
444
|
2.22%
|
28,040
|
465
|
2.22%
|
|||
Money market accounts |
41,020
|
1,326
|
4.32%
|
36,754
|
1,343
|
4.89%
|
27,812
|
941
|
4.52%
|
|||
Sub-total |
104,972
|
2,177
|
2.77%
|
96,669
|
2,323
|
3.21%
|
88,340
|
1,992
|
3.01%
|
|||
Certificates of deposit |
152,128
|
6,323
|
5.56%
|
145,702
|
6,255
|
5.74%
|
143,955
|
6,270
|
5.82%
|
|||
Total interest-bearing deposits |
257,100
|
8,500
|
4.42%
|
242,371
|
8,578
|
4.73%
|
232,295
|
8,262
|
4.76%
|
|||
Other borrowed funds |
8,019
|
325
|
5.42%
|
7,025
|
328
|
6.24%
|
8,542
|
396
|
6.20%
|
|||
Total interest-bearing liabilities |
265,119
|
8,825
|
4.45%
|
249,396
|
8,906
|
4.77%
|
240,837
|
8,658
|
4.81%
|
|||
Demand deposits |
21,998
|
19,549
|
18,887
|
|||||||||
Other liabilities |
4,316
|
3,424
|
3,617
|
|||||||||
Total non-interest-bearing liabilities |
26,314
|
22,973
|
22,504
|
|||||||||
Stockholders' equity |
28,043
|
26,350
|
24,066
|
|||||||||
Total liabilities and stockholders' | ||||||||||||
Equity |
319,476
|
298,719
|
287,407
|
|||||||||
Net interest income |
9,138
|
8,699
|
8,569
|
|||||||||
10
<PAGE>
Net interest spread (5) |
3.45%
|
3.47%
|
3.62%
|
||||||
Net interest income as a percentage | |||||||||
of average interest-earning assets |
4.02%
|
4.07%
|
4.19%
|
||||||
Ratio of interest-earning assets | |||||||||
to interest-bearing iabilities |
1.15
|
1.15
|
1.14
|
||||||
(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. |
|||||||||
As described in the table above, the yield on earning assets, on a tax-equivalent basis, was 7.90% and 8.24% during the first nine months of 1999 and 1998, respectively (a decline of 34 basis points). The cost of funds was 4.45% and 4.77% during the same nine month period (a decrease of 32 basis points).
Previously we have experienced
the narrowing of our interest margin percentage. The trend has slowed and
become more stable during the nine months of 1999. Our longer term interest-bearing
liabilities are repricing almost as fast or faster than our interest-earning
assets. The current yield curve has become steeper during 1999 increasing
our future opportunity to increase margin with new business and as the
existing investments and loans mature or repay. We continue to review various
pricing and investment strategies to enhance deposit growth while maintaining
or expanding the current interest margin.
11
<PAGE>
|
|
||||||||||
|
|
|
|
|
|
||||||
|
|
|
|
|
|
||||||
Interest Income: | |||||||||||
Short-term investments: | |||||||||||
Interest-bearing deposits at banks |
(136)
|
(26)
|
(162)
|
47
|
(3)
|
44
|
|||||
Total short-term investments |
(136)
|
(26)
|
(162)
|
47
|
(3)
|
44
|
|||||
Investment securities: | |||||||||||
Taxable |
(326)
|
(146)
|
(472)
|
(357)
|
(81)
|
(439)
|
|||||
Tax-exempt |
610
|
(18)
|
592
|
432
|
(14)
|
418
|
|||||
Total investment securities |
284
|
(164)
|
120
|
75
|
(95)
|
(21)
|
|||||
Loans: | |||||||||||
Residential mortgage loans |
654
|
(356)
|
298
|
510
|
(256)
|
254
|
|||||
Commercial and farm loans |
216
|
(119)
|
97
|
131
|
(23)
|
108
|
|||||
Loans to state and political subdivisions |
170
|
(16)
|
154
|
46
|
8
|
54
|
|||||
Other loans |
55
|
(204)
|
(149)
|
(1)
|
(60)
|
(61)
|
|||||
Loans, net of | |||||||||||
Discount |
1,095
|
(695)
|
400
|
686
|
(331)
|
355
|
|||||
Total Interest Income |
1,243
|
(885)
|
358
|
808
|
(430)
|
378
|
|||||
Interest Expense: | |||||||||||
Interest-bearing deposits: | |||||||||||
NOW accounts |
54
|
(111)
|
(57)
|
12
|
(62)
|
(50)
|
|||||
Savings accounts |
21
|
(93)
|
(72)
|
(21)
|
0
|
(21)
|
|||||
Money Market accounts |
178
|
(195)
|
(17)
|
322
|
80
|
402
|
|||||
Certificates of deposit |
244
|
(176)
|
68
|
82
|
(97)
|
(15)
|
|||||
Total interest-bearing deposits |
497
|
(575)
|
(78)
|
395
|
(79)
|
316
|
|||||
Other borrowed funds |
47
|
(50)
|
(3)
|
(71)
|
3
|
(68)
|
|||||
Total interest expense |
544
|
(625)
|
(81)
|
324
|
(76)
|
248
|
|||||
Net interest income |
699
|
(260)
|
439
|
415
|
(285)
|
130
|
|||||
(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. |
The above table details the change in net interest income and shows an increase of $1,243,000 resulting from volume changes in investments and loans. The volume of interest expense increased the cost of interest-bearing deposits and borrowings by $544,000. The positive gain from volume of $699,000 when combined with decrease of income due to rate of $260,000 resulted in a net increase of $439,000 compared to a net decrease of $130,000 for the same period in 1998.
The provision for loan losses was $90,000 and $210,000 for the three-month and nine-month periods ended September 30, 1999 compared to $52,500 and $157,500 for the same periods in 1998.
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.
12
<PAGE>
OTHER OPERATING INCOME
|
|||||
|
|
|
|||
|
|
|
|
||
Service charges |
$378
|
$287
|
91
|
31.7
|
|
Trust |
81
|
91
|
(10)
|
(11.0)
|
|
Other |
27
|
68
|
(41)
|
(60.3)
|
|
Realized securities gains, net |
4
|
202
|
(198)
|
(98.0)
|
|
Total |
$490
|
$648
|
(158)
|
(24.4)
|
|
|||||
|
|
Change
|
|||
|
|
|
%
|
||
Service charges |
$1,034
|
$ 769
|
265
|
34.5
|
|
Trust |
285
|
257
|
28
|
10.9
|
|
Other |
291
|
213
|
78
|
36.6
|
|
Arbitration settlement |
29
|
112
|
(83)
|
(74.1)
|
|
Realized securities gains, net |
231
|
374
|
(143)
|
(38.2)
|
|
Total |
$1,870
|
$1,725
|
145
|
8.4
|
As indicated in the above table, other income was $490,000 and $1,870,000 for the three-month and nine-month periods ended September 30, 1999 compared to $648,000 and $1,725,000 for the same periods in 1998.
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 a result of an adjustment to insurance income.
The 1998 increase in realized securities gain was primarily the result of the restructuring of the investment portfolio by selling U. S Treasury Notes and using the proceeds to purchase other securities.
We continue to evaluate means
of increasing other operating income to off-set the loss of net interest
income described above. Our approach, recently, is to apply service charges
on business 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.
13
<PAGE>
OTHER OPERATING EXPENSES
|
||||||
|
|
|
||||
|
|
|
|
|||
Salaries and employee benefits |
$1,128
|
$1,037
|
91
|
8.8
|
||
Occupancy |
124
|
134
|
(10) |
(7.5)
|
||
Furniture and equipment |
173
|
173
|
0
|
0
|
||
Professional fees |
95
|
67
|
28
|
41.8
|
||
Other |
719
|
664
|
55
|
8.3
|
||
Total |
$2,239
|
$2,075
|
164
|
7.9
|
||
|
||||||
|
|
|
||||
|
|
|
|
|||
Salaries and employee benefits |
$3,204
|
$2,910
|
294
|
10.1
|
||
Occupancy |
392
|
397
|
(5)
|
(1.3)
|
||
Furniture and equipment |
513
|
530
|
(17)
|
(3.2)
|
||
Professional fees |
411
|
223
|
188
|
84.3
|
||
Other |
2,178
|
2,008
|
170
|
8.5
|
||
Total |
$6,698
|
$6,068
|
630
|
10.4
|
Other operating expenses detailed above were $2.2 million and $6.7 million for the three-month and nine-month periods ended September 30, 1999 compared to $2.1 million and $6.1 million for the same periods in 1998.
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 |
|
||||
|
|||||
|
|
|
|
||
|
|
||||
Other professional fees |
$ 67
|
$ 42
|
25
|
59.5
|
|
Legal fees |
11
|
15
|
(4)
|
(26.7)
|
|
Examinations and audits |
17
|
10
|
7
|
70.0
|
|
Total |
$ 95
|
$ 67
|
28
|
41.8
|
|
|
|||||
|
|||||
|
|
|
|
||
|
|
||||
Other professional fees |
$ 343
|
$ 166
|
177
|
106.6
|
|
Legal fees |
29
|
25
|
4
|
16.0
|
|
Examinations and audits |
39
|
32
|
7
|
21.9
|
|
Total |
$ 411
|
$ 223
|
188
|
84.3
|
Professional fees increase reflects management's efforts to implement strategic growth initiatives and process improvements which will be completed in 1999.
Provision for Income Taxes
The provision for income taxes
was $207,000 and $811,000 for the three-month and nine-month periods ended
September 30, 1999 compared to $375,000 and $1,078,000 for the same periods
in 1998. The decrease was primarily a result of increased levels of tax
exempt income.
14
<PAGE>
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.
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.
Capital expenditures were $837,000 in 1999, $498,000 more than 1998, primarily the result of the acquisition of property that is now our operations center described below.
These purchases will allow greater operating efficiency and provide our customers with a higher quality product.
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 administration and/or operations facility. We expect the costs of acquisition and remodeling to 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 May 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 (AFHLB@), and investments that mature in less than one year. The Company also has a maximum borrowing capacity at the FHLB 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.
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<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.
|
|
||||||||
|
|
|
|
|
|||||
Non-performing loans: | |||||||||
Non-accruing loans |
$1,292
|
$1,495
|
$1,169
|
$ 844
|
$ 762
|
||||
Impaired loans |
1,054
|
382
|
382
|
414
|
697
|
||||
Accrual loans - 90 days or | |||||||||
More past due |
105
|
15
|
170
|
723
|
689
|
||||
Total non-performing loans |
2,451
|
1,892
|
1,721
|
1,981
|
2,148
|
||||
Foreclosed assets held for sale |
667
|
529
|
238
|
164
|
208
|
||||
Total non-performing assets |
$3,118
|
$2,421
|
$1,959
|
$2,145
|
$2,356
|
||||
Non-performing loans as a percent | |||||||||
of loans net of unearned income |
1.08%
|
0.92%
|
0.90%
|
1.09%
|
1.33%
|
||||
Non-performing assets as a percent | |||||||||
of loans net of unearned income |
1.38%
|
1.18%
|
1.02%
|
1.18%
|
1.46%
|
||||
Allowance for possible loan loasses: |
|
|
|||||||
|
|
|
|
|
|||||
Balance at beginning of period |
$2,292
|
$2,138
|
$1,995
|
$1,833
|
$1,721
|
||||
Charge-offs |
(199)
|
(112)
|
(83)
|
(64)
|
(69)
|
||||
Recoveries |
44
|
48
|
16
|
21
|
18
|
||||
Provision for loan losses |
210
|
218
|
210
|
205
|
163
|
||||
Balance at end of period |
$2,347
|
$2,292
|
$2,138
|
$1,995
|
$1,833
|
||||
Allowance for losses as a percent | |||||||||
of total loans |
1.04%
|
1.13%
|
1.11%
|
1.09%
|
1.13%
|
The Company does not accrue interest income 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.
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).
16
<PAGE>
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 uses the model as part of our risk management process that will effectively identify, measure, and monitor our Company's risk exposure.
Numerous interest rate simulations using a variety of assumptions are used by us to evaluate our interest rate risk exposure. A shock analysis at September 30, 1999, indicated that a 200 basis point movement in interest rates in either direction would not have a significant adverse impact on our Company's anticipated net interest income over the next twenty-four months.
YEAR 2000 COMPUTER PROBLEM
- Bank's State of Readiness
We have assessed the extent of vulnerability of our Company's computer systems to the problem. Our Company's conversion, in August 1997, to Jack Henry and Associates (JHA) for core banking application software and the purchase of a new IBM AS/400 hardware system on which to run the core processing software, has greatly minimized our exposure to these problems. The JHA Silverlake System software was certified by the Information Technology Association of America (ITAA) on March 16, 1998 while the IBM AS\400 received the first ever Year 2000 certification by that organization. Most internal testing and validation for these primary mission critical systems was successfully completed in November 1998. The testing process of other critical systems was completed in June 1999.
- Risk Assessment of Year 2000
- Cost of Year 2000
17
<PAGE>
- Contingency Plans
On October 11, 1999 an employee seminar was held to review the contingency plan procedures. This in-house review was successful in providing our employees with the information necessary to plan for a possible Y2K event both at work and at home. This seminar represented a review and positive validation of our contingency plan.
- Customer Awareness
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 level of inflation over the last few years has been declining.
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; expanding the power of banks by removing restrictions on bank underwriting activities; tightening the regulation of bank derivatives' activities; allowing commercial enterprises to own banks; and permitting bank holding companies, such as our Company, to own or control affiliates that engage in securities, mutual funds and insurance activities.
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 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, 1998.
18
<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 - Nothing to report.
Item 5 - Other Information - Nothing to report.
Item 6 - Exhibits and reports on Form 8-K.
(a) Exhibits.
- (3)(i) - Articles of
Incorporation of the Corporation, as amended. (Incorporated by Reference
to Exhibit (3)(i) to the Annual Report of Form 10-K for the fiscal year
ended December 31, 1998, as filed with the Commission on March 17, 1999.)
(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.
(b) Reports on Form 8-K - - None.
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)
November 10, 1999
/s/ Richard E. Wilber
By: Richard E. Wilber
President
(Principal Executive Officer)
November 10, 1999
/s/ Thomas C. Lyman
By: Thomas C. Lyman
Treasurer
(Principal Financial Officer &
Principal Accounting Officer)
20
<PAGE>
EXHIBITS INDEX
(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.)
(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.
<PAGE>