0000739421-95-000001.txt : 19950810 0000739421-95-000001.hdr.sgml : 19950810 ACCESSION NUMBER: 0000739421-95-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950809 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITIZENS FINANCIAL SERVICES INC CENTRAL INDEX KEY: 0000739421 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 232265045 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13222 FILM NUMBER: 95559949 BUSINESS ADDRESS: STREET 1: 15 S MAIN ST CITY: MANSFIELD STATE: PA ZIP: 16933 BUSINESS PHONE: 7176622121 MAIL ADDRESS: STREET 1: 15 S MAIN ST CITY: MANSFIELD STATE: PA ZIP: 16933 10-Q 1 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 June 30, 1995 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 of 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: (717) 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 August 1, 1995, 1,347,323 shares of Common Stock, par value $1.00. Citizens Financial Services, Inc. Form 10-Q INDEX Page Part I FINANCIAL INFORMATION (UNAUDITED) Item 1-Financial Statements Consolidated Balance Sheet as of June 30, 1995 and December 31, 1994 1 Consolidated Statement of Income for the Three Months and Six Months Ended June 30, 1995 and 1994 2 Consolidated Statement of Cash Flows for the Six Months Ended June 30, 1995 and 1994 3 Notes to Consolidated Financial Statements 4 Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations 5-12 Part II OTHER INFORMATION AND SIGNATURES Item 1-Legal Proceedings 13 Item 2-Changes in Securities 13 Item 3-Defaults upon Senior Securities 13 Item 4-Submission of Matters to a Vote of Security Holders 13 Item 5-Other Information 13 Item 6-Exhibits and Reports on Form 8-K 13 Signatures 14 CITIZENS FINANCIAL SERVICES, INC. CONSOLIDATED BALANCE SHEET (UNAUDITED) June 30, December 31, 1995 1994 ASSETS: Cash and due from banks: Noninterest-bearing $ 5,446,860 $ 5,479,295 Interest-bearing 800,772 32,005 Total cash and cash equivalents 6,247,632 5,511,300 Available-for-sale securities 16,491,004 14,639,874 Held-to-maturity securities (estimated market value 1995, $49,897,000; December 31, 1994, $47,897,000) 49,222,794 49,617,504 Loans (net of allowance for possible loan losses 1995, $1,780,942; December 31, 1994, $1,721,343) 154,677,229 154,847,712 Foreclosed assets held for sale 271,794 167,969 Premises and equipment 4,207,522 4,123,658 Accrued interest receivable and other assets 3,764,481 3,628,671 TOTAL ASSETS $234,882,456 $232,536,688 LIABILITIES: Deposits: Noninterest-bearing $ 14,724,358 $ 14,494,727 Interest-bearing 190,953,750 179,983,170 Total deposits 205,678,108 194,477,897 Borrowed funds 6,063,494 16,030,406 Accrued interest payable 1,350,359 1,691,646 Dividends payable 573,799 547,163 Other liabilities 1,100,915 886,444 TOTAL LIABILITIES 214,766,675 213,633,556 STOCKHOLDERS' EQUITY: Common Stock $1.00 par value; authorized 5,000,000 shares in 1995; and 2,000,000 in 1994; issued and outstanding 1,347,323 and 1,334,323 shares in 1995 and 1994, respectively 1,347,323 1,334,543 Additional paid-in capital 6,512,129 6,224,579 Retained earnings 12,089,172 11,708,435 TOTAL 19,948,624 19,267,557 Unrealized holding gains (losses) on available-for-sale securities 167,157 (364,425) TOTAL STOCKHOLDERS' EQUITY 20,115,781 18,903,132 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $234,882,456 $232,536,688 The accompanying notes are an integral part of these financial statements. 1 CITIZENS FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) Three Months Ended Six Months Ended June 30 June 30 1995 1994 1995 1994 INTEREST INCOME: Interest and fees on loans $3,662,519 $3,065,410 $ 7,215,279 $6,046,965 Interest on interest-bearing deposits with banks 24,045 15,074 24,539 23,187 Interest and dividends on investments Taxable 1,020,337 1,007,692 2,025,988 1,986,561 Nontaxable 49,756 63,325 102,180 159,413 Dividends 19,355 15,514 36,521 32,047 Total interest and dividends on investments 1,089,448 1,086,531 2,164,689 2,178,021 TOTAL INTEREST INCOME 4,776,012 4,167,015 9,404,507 8,248,173 INTEREST EXPENSE: Interest on deposits 2,337,035 1,813,499 4,446,451 3,592,188 Interest on borrowed funds 98,753 64,546 302,490 114,747 TOTAL INTEREST EXPENSE 2,435,788 1,878,045 4,748,941 3,706,935 NET INTEREST INCOME 2,340,224 2,288,970 4,655,566 4,541,238 Provision for possible loan losses 37,500 60,000 87,500 135,000 NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 2,302,724 2,228,970 4,568,066 4,406,238 OTHER OPERATING INCOME: Service charge income 184,748 192,668 348,087 347,014 Trust income 49,071 39,126 125,613 102,288 Other income 100,136 61,615 147,357 120,412 Realized securities gains, net 0 19,820 4,700 63,347 TOTAL OTHER OPERATING INCOME 333,955 313,229 625,757 633,061 OTHER OPERATING EXPENSES: Salaries and employee benefits 801,136 743,512 1,609,126 1,504,249 Occupancy expenses 106,968 88,390 215,218 204,144 Furniture and equipment expenses 150,064 151,792 289,812 294,332 FDIC insurance expense 110,849 108,260 221,698 216,520 Other expenses 564,455 506,298 1,106,549 983,835 TOTAL OTHER OPERATING EXPENSES 1,733,472 1,598,252 3,442,403 3,203,080 Income before provision for income taxes 903,207 943,947 1,751,420 1,836,219 Provision for income taxes 256,554 290,000 496,554 560,000 NET INCOME $ 646,653 $ 653,947 $ 1,254,866 $ 1,276,219 Earnings per share $0.48 $0.49 $0.93 $0.95 Cash dividend declared $0.42 $0.40 $0.42 $0.40 Weighted average number of shares outstanding 1,347,323 1,347,323 1,347,323 1,347,323
The accompanying notes are an integral part of these financial statements. 2 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 intercompany 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 June 30, 1995, and the results of operations for the interim periods presented. 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, 1994. The results of operations for the six months ended June 30, 1995 and 1994 are not necessarily indicative of the results to be expected for the full year. 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 1,347,323 for 1995 and 1994. Note 3 - Impaired Loans On January 1, 1995, the Company adopted Statement of Financial Accounting Standards No.114 ("SFAS No. 114"), "Accounting for Certain Investments in Debt and Equity Securities." The statement establishes accounting measurement, recognition, and reporting standards for impaired loans. SFAS 114 provides that a loan is impaired when, based on current information and events, it is probable that the creditor will be unable to collect all amounts due according to the contractual terms (both principal and interest). SFAS 114 requires that when a loan is impaired, impairment should be measured based on the present value of the expected cash flows, discounted at the loan's effective interest rate, except that as a practical expedient, a creditor may measure impairment based on a loan's observable market price, or the fair value of the collateral if the loan is collateral dependent. The value of the loan is adjusted through a valuation allowance created though a charge against income. Residential mortgages, consumer installment obligations and credit cards are excluded. 4 Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors which have affected the Company's financial position and operating results during the periods indicated in the accompanying consolidated financial statements. Financial Condition For the six month period ended June 30, 1995, the assets of the Company have increased by $2.4 million versus an increase of $5.9 million in 1994. Net loans decreased by $.2 million for the current period as compared to the $4.2 million increase in 1994. Lower loan demand because of the higher interest rates was the primary reason for the stagnant loan growth. Total investments increased $1.5 million compared to an increase of $2.5 million in 1994. During 1995, corporate securities in the held-to-maturity category, totaling $2 million, matured. $3 million U. S Treasury securities were purchased with 6 year maturities ($2 million in the held-to-maturity category and $1 million in the available-for-sale category). Cash and cash equivalents increased $.7 million in 1995 compared to a decrease of $1.1 million in 1994. The Company's loan growth during 1994 stemmed from low interest rates and its commitment to the local communities and servicing their needs. The primary concentration of loans continues to be in residential real estate-consisting of loans to purchase and improve real estate, debt consolidation and home equity lines of credit. Loan demand was weak during the last 6 months of 1994 because of the approximately 300 basis point increase in interest rates. A slight decline in interest rates during the first half of 1995 has had little positive impact on the demand for residential real estate loans. During the remainder of 1995, management expects that loan demand will continue to be slow as interest rates are anticipated to decline only slightly nationwide and in the local market area. The loan portfolio consists of the following (in thousands): June 30, December 31, June 30, 1995 1994 1994 Real estate loans - residential $ 97,076 $ 98,630 $ 95,862 Real estate loans - commercial 23,490 21,915 18,457 Real estate loans - agricultural 6,529 7,125 5,926 Loans to individuals for household, family and other purchases 12,409 11,886 11,427 Commercial and other loans 10,533 10,285 10,020 State and political subdivision loans 6,840 7,303 5,415 156,877 157,144 147,107 Less: unearned income on loans 419 575 854 Loans net of unearned income $156,458 $156,569 $146,253 Deposits increased by $11.2 million or 6.1% versus a modest increase of $.8 million in 1994. The creation of some promotional certificates of deposit with attractive rates resulted in the deposit growth for 1995. As discussed in the Management's Discussion and Analysis section of the 1994 annual report, during 1994 the rate paid on certificates of deposit increased more rapidly then the rates paid on NOW and savings accounts. This trend, which continued into 1995, increased the growth of certificates of deposit and offset the decrease in NOW and savings accounts. Borrowed funds decreased by a repayment of $10 million during 1995 (made possible by the deposit growth discussed above) compared to an increase of $5.5 million in 1994. This decrease was the result of a repayment of the short term borrowing from the Federal Home Loan Bank. The Company's daily cash requirements are now being met by using the financial instruments available through the Federal Home Loan Bank rather than using federal funds market. The modest increase in loan demand as well as a significant increase in deposits for this period resulted in the elimination of short term borrowings. 5 Capital The Company has computed its risk-based capital ratios as follows (dollars in thousands): June 30, December 31, 1995 1994 Tier I - Total stockholders' equity $ 20,116 $ 18,903 Less: Unrealized holding gains (losses) on available-for-sale securities 167 (364) ----------- ------------ Tier I, net 19,949 19,267 Tier II - Allowance for loan losses(1) 1,606 1,625 ----------- ------------ Total qualifying capital $ 21,555 $ 20,892 =========== ============ Risk-adjusted on-balance sheet assets $122,226 $123,077 Risk-adjusted off-balance sheet exposure (2) 6,273 6,956 ----------- ------------ Total risk-adjusted assets $128,499 $130,033 =========== ============ June 30, December 31, Ratios: 1995 1994 Tier I risk-based capital ratio 15.5% 14.8% Federal minimum required 4.0 4.0 Total risk-based capital ratio 16.8% 16.1% Federal minimum required 8.0 8.0 Leverage ratio (3) 8.5% 8.6% Federal minimum required 4.0 4.0 (1) Allowance for loan losses is limited to 1.25% of total risk-adjusted assets. (2) Off-balance sheet exposure is caused primarily by standby letters of credit and loan commitments with a remaining maturity exceeding one year. These obligations have been converted to on-balance sheet credit equivalent amounts and adjusted for risk. (3) Tier I capital divided by average total assets. Management does not anticipate that any of the equipment purchase discussed below will have a negative impact on stockholder's equity during 1995. Results of Operations Net income for the six month period ending June 30, 1995 was $1,255,000 a decrease of $21,000 over the 1994 related period. Earnings per share was $.93 during the first six months of 1995 compared to $.95 during the 1994 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 1995 period, after provision for possible loan losses, was $4,568,000 an increase of $162,000 or 3.7% compared to an increase of $355,000 or 8.8% during the same time period in 1994. 6 Analysis of Average Balances and Interest Rates (1) June 30, 1995 June 30, 1994 Average Average Average Average Balance Interest Rate Balance Interest Rate ASSETS $ $ % $ $ % Short-term investments: Interest-bearing deposits in other banks 811 25 6.17% 1,209 23 3.80% Total short-term investments 811 25 6.17% 1,209 23 3.80% Investment securities: Taxable 61,935 2,063 6.66% 61,209 2,019 6.60% Tax-exempt (3) 2,433 155 12.74% 3,133 241 15.38% Total investments 64,368 2,218 6.89% 64,342 2,260 7.02% Loans: Residential mortgage loans 97,092 4,438 9.14% 91,056 3,898 8.56% Commercial and farm loans 38,256 1,863 9.74% 31,214 1,292 8.28% Loans to State & Political Subdivisions 7,242 307 8.48% 5,468 186 6.80% Other loans 13,980 697 9.97% 14,809 714 9.64% Loans-net of discount (2)(3)(4) 156,570 7,305 9.33% 142,547 6,090 8.54% Total interest-earning assets 221,749 9,548 8.61% 208,098 8,373 8.05% Cash and due for banks 2,951 4,011 Bank premises and equipment 4,083 3,959 Available-for-sale securities adjustment (186) (72) Other assets 5,113 3,185 Total non-interest bearing assets 11,961 11,083 Total assets 233,710 219,181 LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: NOW accounts 23,772 286 2.41% 26,760 286 2.14% Savings accounts 25,988 330 2.54% 27,615 303 2.19% Money Market accounts 21,660 510 4.71% 20,882 311 2.98% Certificates of deposit 115,844 3,321 5.73% 103,364 2,692 5.21% Total interest-bearing deposits 187,264 4,447 4.75% 178,621 3,592 4.02% Other borrowed funds 9,722 302 6.21% 5,489 115 4.19% Total interest-bearing liabilities 196,986 4,749 4.82% 184,110 3,707 4.03% Demand deposits 14,189 13,874 Other liabilities 3,025 2,830 Total non-interest-bearing liabilities 17,214 16,704 Stockholders' equity 19,510 18,367 Total liabilities and stockholders' equity 233,710 219,181 Net interest income 4,799 4,666 Net interest spread (5) 3.79% 4.02% Net interest income as a percentage of average interest-earning assets 4.33% 4.48% Ratio of interest-earning assets to interest-bearing liabilities 1.13 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. 7 The yield on earning assets, on a tax-equivalent basis, was 8.61% and 8.05% in the first six months of 1995 and 1994, respectively, which resulted in an increase of 56 basis points. The cost of funds was 4.82% and 4.03% in the six months of 1995 and 1994, respectively, as deposit costs increased 79 basis points. During the first half of 1995, savings and NOW accounts were effected by the upward pressure in interest rates as well as certificates of deposit. This trend reflects the general increase in interest rates that occurred during 1994 and the first half of 1995 which resulted in a decrease in the net interest spread of 23 basis points during the current period. As described above, the Company has experienced a narrowing of it's margin during the first half of 1995 as has a number of the banks competing in the same market area. Upward pressure in the cost of funds is expected in the near future. The Company continues to review various pricing strategies to enhance deposit growth without margin compression. Provision for possible loan losses decreased $47,500 to $87,500 in 1995, compared to a provision of $135,000 in the same three month period of 1994. This decrease was appropriate given management's quarterly review of the allowance for loan and lease losses which 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 economic conditions, historical loss experience, OCC qualitative adjustments and peer comparisons. 8 Total other operating income decreased by $7,000 compared to the same period in 1994. Trust income was up $23,000 and other income was up $27,000 but realized securities gains was down $59,000. Additionally, the lack of securities gains was offset by a gain of $45,000 from the sale of other real estate owned. Total other operating expense was $3.4 million in the first six months of 1995 which reflected an increase of $239,000 or 7.5% over the 1994 period. Salaries and benefits increased 7% or $105,000 for the current six month period reflecting normal merit increases when compared to the same period in 1994. Occupancy expense increased by $11,000 or 5.4% and furniture and equipment expenses remained nearly the same as 1994. Federal Deposit Insurance Corporation(FDIC) insurance expense increased $5,000 or 2.4%. Other expenses increased $123,000 or 12.5% in the first six months of 1995 over the 1994 related period representing an increase in postage, recruitment and marketing costs. The FDIC (Federal Deposit Insurance Corporation) is currently evaluating a significant premium reduction that may begin as early as September 1995. Congress, on the other hand, is considering a possible one time charge to fund the savings and loan reserve fund which may more that offset any anticipated premium expense reduction. The provision for income taxes was $497,000 during the first six months of 1995 compared to $560,000 during the 1994 related period. Income before taxes decreased $63,000 in the 1995 period as compared to the same time period in 1994 because of lower taxable income and due to $56,000 of additional non-taxable interest income along with other changes in temporary tax differences used in federal income tax calculations. Liquidity Liquidity is a measure of the Company's ability to efficiently meet normal cash flow requirements of both borrowers and depositors. In order to maintain proper liquidity, the Company uses funds management policies along with its investment policies to assure it can meet its financial obligations to depositors, credit customers and shareholders. Liquidity is needed to meet depositors' withdrawal demands, extend credit to meet borrowers' needs, provide funds for normal operating expenses and cash dividends, as well as fund other capital expenditures. Management projected that capital expenditures for 1995 would increase approximately $495,000 for optical check imaging and needed renovations to branches and capital expenditures to keep pace with current technology needs. During the first six months of 1995 $308,000 was expended as compared to capital acquisitions of $279,000 during the same period in 1994. Management is currently renting three properties as a temporary solution to the space limitations it has experienced at the main office. Efforts are continuing to evaluate various long term alternatives. Liquidity is achieved primarily by having temporary or short-term investments in the Federal Home Loan Bank of Pittsburgh, PA, federal funds sold and investments which mature in a relatively short time period (maturities under one year). The Company also maintains a credit line of approximately 10% of qualifying assets with the Federal Home Loan Bank as an additional source of liquidity. 9 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. An asset or liability is considered to be interest-sensitive if the rate it yields or bears is subject to change within a predetermined time period. If interest-sensitive assets exceeds interest-sensitive liabilities during a prescribed time period, a positive gap results. Conversely, when interest-sensitive liabilities exceeds interest-sensitive assets during a time period, a negative gap results. A positive gap tends to indicate that earnings will be impacted favorably if interest rates rise during the period and negatively when interest rates fall during the time period. A negative gap tends to indicate that earnings will be effected inversely to interest rate changes. In other words, as interest rates fall, a negative gap should tend to produce a positive effect on earnings and when interest rates rise, a negative gap should tend to affect earnings negatively. 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 (individuals over 59 1/2), money market deposits, savings deposits, N.O.W. accounts and short-term borrowing. The Company's six to twelve-month asset/liability position at June 30, 1995, was again liability sensitive, with a dollar gap of $9.9 million or .91 (at December 31, 1994 the Company's liability sensitivity was at $(9.6) million or .91). Management was able to move to within its policy range (positive 1.25 to negative .75) by the selection and pricing of assets and liabilities acquired. Gap analysis does not necessarily indicate the precise impact of specific interest rate movements on the 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, reprice at different times and at different rate levels. Another method used by the Company to measure the impact of interest rate changes on net interest income is to simulate the potential effects of changing interest rates through computer modeling. The Company is then able to evaluate strategies which would include an acceleration of a deposit rate reduction or rate increase and the related repricing strategies for loans. Credit Quality Risk The following table identifies amounts of loan losses and non-performing loans. Past due loans are those which were contractually past due 90 days or more as to interest or principal payments. June 30, December 31, 1995 1994 1993 1992 1991 (dollars in thousands) Loans in nonaccrual status $ 1,369 $1,557 $ 1,566 $ 689 $ 154 Accrual loans - 90 days or more past due 82 267 418 439 977 Total non-performing loans $ 1,451 $1,824 $ 1,984 $ 1,128 $ 1,131 Other real estate owned $ 272 $ 168 $ 231 $ 330 $ 188 Loans outstanding at end of period $156,458 $156,569 $141,907 $129,527 $121,743 Non-performing loans as percent of total loans .93% 1.16% 1.40% .87% .87% Provision for possible loan losses $ 1,781 $ 1,721 $ 1,516 $ 1,201 $ 906 Net charge-offs $ 28 $ 50 $ 0 $ 119 $ 88 Provision for possible loan losses as percent of loans outstanding 1.14% 1.10% 1.07% .93% .82% Total non-performing assets as a percent of loans, net of unearned income, and foreclosed assets held for sale 1.10% 1.27% 1.56% 1.12% 1.08%
Transactions in the allowance for possible loan losses were as follows (in thousands): At June 30, Years Ended December 31, 1995 1994 1993 1992 Balance, beginning of year $1,721 $1,516 $1,201 $ 996 Provision charged to income 88 255 315 324 Recoveries on loans previously charged against the allowance 8 18 71 32 1,817 1,789 1,587 1,352 Loans charged against the allowance (36) (68) (71) (151) Balance, end of year $1,781 $1,721 $1,516 $1,201
The allowance is maintained at a level to absorb potential future loan losses. The allowance is increased by provisions charged to operating expense and reduced by net charge-offs. Management's basis for the level of the allowance and the quarterly provision is its evaluation of the loan portfolio, current and projected economic conditions, the historical loan loss experience, present and prospective financial condition of the borrowers, the level of non-performing assets, and other relevant factors. While management evaluates all of this information quarterly, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, various regulatory agencies, as an integral part of their examination process, review the Company's allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their evaluation of information available to them at the time of their examination. Based on this process, management believes that the current allowance is adequate to offset any exposure that may exist for under- collateralized or uncollectible loans. The following information concerns impaired loans as described in note 3: Impaired Loans: Nonaccrual Loans $282,480 Restructured Loans 0 --------- $282,480 ========= Impaired loans with specific loss allowances: $282,480 ========= Loss allowances reserved on impaired loans: $ 0 ========= Income recognized on impaired loans during 1995 $ 0 ========= The Company has one loan as of June 30, 1995 that it considers impaired and management believes that the liquidation of the collateral would exceed principal, plus interest and fees, thus no allowance reserve is required. 11 The Company does not accrue interest income on impaired loans and subsequent cash payments received are applied to the outstanding principal balance or recorded as interest income, depending upon management's assessment of it's ultimate ability to collect principal and interest. General Recently the Governor of Pennsylvania signed a bill opting into the Riegle- Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Banking and Branch Act"). The legislation permits interstate banking twelve months after its enactment into law. Bank holding companies, pursuant to an amendment to the Bank Holding Company Act, can acquire a bank located in any state, as long as the acquisition does not result in the bank holding company controlling more than 10% or the deposits in the United States, or 30% of the deposits in the target bank's state. The legislation permits states to waive the concentration limits and require that the target institution be in existence for up to five years before it can be acquired by an out-of-state bank or bank holding company. Interstate branching and merging of existing banks is permitted after three years from enactment, if the bank is adequately capitalized and demonstrates good management. Branch merging will be permitted earlier if a state undertakes to enact a law which allows it and states may also enact a law to permit banks to branch de novo. Various congressional bills have been passed and other proposals have been made for significant changes to the banking system, including provisions for: limitations 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 to own affiliates that engage in securities, mutual funds and insurance activities. Management believes that the effect of the provisions of this legislation on liquidity, capital resources, and the results of operations of the company will be immaterial. Aside from those matters described above, management does not believe that there are any trends or uncertainties which would have a material impact on future operating results, liquidity or capital resources nor is it aware of any current recommendations by the regulatory authorities 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 the company's results of operations. 12 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 - None. (b) Reports - None. 13 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) August 9, 1995 /s/ Richard E. Wilber ------------------------------------ By: Richard E. Wilber President and Chief Financial Officer (Principal Executive Officer) August 9, 1995 /s/ Thomas C. Lyman ------------------------------------ By: Thomas C. Lyman Treasurer (Principal Financial & Accounting Officer) 14 EX-27 2
9 1,000 6-MOS DEC-31-1995 JUN-30-1995 6,248 801 0 0 16,491 49,223 49,897 154,677 1,781 234,883 205,678 4,190 3,025 1,874 1,347 0 0 18,769 234,883 7,215 2,165 25 9,405 4,447 4,749 4,656 88 5 3,442 1,751 0 0 0 1,255 .93 .93 4.33 1,451 82 0 0 1,721 36 8 1,781 1,781 0 0