SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Amendment No. [ ])
[xx] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the Appropriate Box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a6(e)(2))
[xx] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec.
240.14a-12
CITIZENS FINANCIAL SERVICES, INC.
(Name of Registrant as Specified in Its Charter)
__________________________________________________
(Name of Person(s) Filing Proxy Statement if
other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[xx] $125 per Exchange Act Rule 0-11 (c)(1)(ii), 14a-6(i)(1),
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A
[ ] $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3)
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)
(4) and 0-11.
1) Title of each class of securities to which transaction
applies:
2) Aggregate number of securities to which transaction
applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a) (2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
CITIZENS FINANCIAL SERVICES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 16, 1996
TO THE SHAREHOLDERS OF CITIZENS FINANCIAL SERVICES, INC.:
Notice is hereby given that the Annual Meeting of Shareholders of
CITIZENS FINANCIAL SERVICES, INC. (the "Corporation") will be held
at 12:00 p.m., prevailing time, on Tuesday, April 16, 1996 at the
Tioga County Fairgrounds Youth Building, Whitneyville,
Pennsylvania, 16901, for the following purposes:
1. To elect five (5) Class 1 Directors to serve for a three-year term
and until their successors are elected and qualified; and
2. To transact such other business as may properly come
before the Annual Meeting and any adjournment or
postponement thereof.
In accordance with the Bylaws of the Corporation and action of the
Board of Directors, only those shareholders of record at the close
of business on March 13, 1996 will be entitled to notice of and to
vote at the Annual Meeting and any adjournment or postponement
thereof.
A copy of the Corporation's Annual Report for the fiscal year ended
December 31, 1995 is being mailed with this Notice. Copies of the
Corporation's Annual Report for the 1994 fiscal year may be
obtained at no cost by contacting Richard E. Wilber, President, 15
South Main Street, Mansfield, Pennsylvania 16933, telephone: 800-326-9486.
You are urged to mark, sign, date and promptly return your Proxy in
the enclosed envelope so that your shares may be voted in
accordance with your wishes and in order that the presence of a
quorum may be assured. The prompt return of your signed Proxy,
regardless of the number of shares you hold, will aid the
Corporation in reducing the expense of additional proxy
solicitation. The giving of such Proxy does not affect your right
to vote in person if you attend the meeting and give written notice
to the Secretary of the Corporation.
By Order of the Board of Directors,
/s/ Richard E. Wilber
Richard E. Wilber, President
March 20, 1996
<PAGE>
CITIZENS FINANCIAL SERVICES, INC.
PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON APRIL 16, 1996
GENERAL
Introduction, Date, Time and Place of Annual Meeting
This Proxy Statement is being furnished in connection with the
solicitation by the Board of Directors of Citizens Financial
Services, Inc. (the "Corporation"), a Pennsylvania business
corporation, of proxies to be voted at the Annual Meeting of
Shareholders of the Corporation to be held at 12:00 p.m.,
prevailing time, on Tuesday, April 16, 1996 at the Tioga County
Fairgrounds Youth Building, Whitneyville, Pennsylvania 16901.
The principal executive office of the Corporation is located at
First Citizens National Bank (the "Bank"), 15 South Main Street,
Mansfield, Pennsylvania 16933. The telephone numbers for the
Corporation are 717-662-2121 or 800-326-9486. All inquiries should
be directed to Richard E. Wilber, President and Chief Executive
Officer of the Corporation.
Solicitation and Voting of Proxies
This Proxy Statement and the enclosed form of the proxy (the
"Proxy") are first being sent to shareholders of the Corporation on
or about March 20, 1996.
Shares represented by proxies on the accompanying Proxy, if
properly signed and returned, will be voted in accordance with the
specifications made thereon by the shareholders. Any Proxy not
specifying to the contrary will be voted FOR the election of the
nominees for Class 1 Director named below to serve for a three-year
term and until their successors are elected and qualified, and FOR
the transaction of such other business as may properly come before
the Annual Meeting and any adjournment or postponement thereof.
Execution and return of the enclosed Proxy will not affect a
shareholder's right to attend the Annual Meeting and vote in
person, after giving written notice to the Secretary of the
Corporation. The cost of preparing, assembling, printing, mailing
and soliciting proxies, and any additional material which the
Corporation may furnish shareholders in connection with the Annual
Meeting, will be borne by the Corporation. In addition to the use
of the mail, certain directors, officers and employees of the
Corporation and the Bank may solicit proxies personally, by
telephone, telegraph and by telecopier. Arrangements will be made
with brokerage houses and other custodians, nominees and
fiduciaries to forward proxy solicitation material to the
beneficial owners of stock held of record by these persons, and,
upon request therefore, the Corporation will reimburse them for
their reasonable forwarding expenses.
Revocability of Proxy
A shareholder who returns a Proxy may revoke the Proxy at any time
before it is voted only (1) by giving written notice of revocation
to Terry B. Osborne, Secretary of Citizens Financial Services,
Inc., at 15 South Main Street, Mansfield, Pennsylvania 16933, (2)
by executing a later-dated proxy and giving written notice thereof
to the Secretary of the Corporation or (3) by voting in person
after giving written notice to the Secretary of the Corporation.
Voting Securities, Record Date and Quorum
At the close of business on March 13, 1996, the Corporation had
outstanding 1,347,323 shares of common stock, par value $1.00 per
share, the only authorized class of stock (the "Common Stock").
Page 1
<PAGE>
Only holders of Common Stock of record at the close of business on
March 13, 1996 will be entitled to notice of and to vote at the
Annual Meeting. Cumulative voting rights do not exist with respect
to the election of directors. On all matters to come before the
Annual Meeting, each share of Common Stock is entitled to one vote
and a majority of shares must be cast at the meeting in order to
become binding upon the Corporation.
Under Pennsylvania law and the Bylaws of the Corporation, the
presence of a quorum is required for each matter to be acted upon
at the Annual Meeting. Pursuant to the Bylaws of the Corporation,
the presence, in person or by proxy, of shareholders entitled to
cast at least a majority of the votes which all shareholders are
entitled to cast shall constitute a quorum for the transaction of
business at the Annual Meeting. Votes withheld and abstentions
will be counted in determining the presence of a quorum for the
particular matter. Broker non-votes will not be counted in
determining the presence of a quorum for the particular matters as
to which the broker withheld authority.
Assuming the presence of a quorum, the five nominees for director
receiving the highest number of votes cast by shareholders entitled
to vote for the election of directors shall be elected. Votes
withheld from a nominee and broker non-votes will not be cast for
such nominee.
PRINCIPAL BENEFICIAL OWNERS OF THE CORPORATION'S STOCK
Principal Owners
As of March 13, 1996, there are no persons who own of record or who
are known by the Board of Directors to be the beneficial owners of
more than five percent (5%) of the Corporation's outstanding Common
Stock.
Beneficial Ownership by Officers, Directors and Nominees
The following table sets forth as of February 29, 1996, the amount
and percentage of the Common Stock beneficially owned by each
director, each nominee and all executive officers and directors of
the Corporation and subsidiary as a group.
Name of Beneficial Amount and Nature of
Owner Beneficial Ownership (1) (2) Percent of Class
Bruce L. Adams (5) 1,501 (7) .11%
Carol J. Bond (3) (6) 33,801 2.51%
R. Lowell Coolidge(3) (6) 67,024 (8) 4.97%
Larry J. Croft (3) (6) 11,117 (9) .83%
Robert E. Dalton (4) 15,484 (10) 1.15%
Robert J. Landy (4) 9,601 (11) .71%
John E. Novak (4) 1,605 (12) .12%
John M. Thomas, M.D. (3) (6) 22,280 (13) 1.65%
William D. Van Etten (5) 2,871 (14) .21%
Rudolph J. van der Hiel (4) 8,319 (15) .62%
Richard E. Wilber (3) (6) 4,504 (16) .33%
All Nominees, Directors 179,577 13.33%
and Executive Officers
as a Group - 16 persons
Page 2
<PAGE>
(1) The securities "beneficially owned" by an individual are
determined in accordance with the definitions of "beneficial
ownership" set forth in the General Rules and Regulations of
the Securities and Exchange Commission and may include
securities owned by or for the individual's spouse and minor
children and any other relative who has the same home, as well
as securities to which the individual has or shares voting or
investment power or has the right to acquire beneficial
ownership within 60 days after March 13, 1996. Beneficial
ownership may be disclaimed as to certain of the securities.
(2) Information furnished by the directors and the Corporation.
(3) A Class 1 Director whose term expires in 1996.
(4) A Class 2 Director whose term expires in 1998.
(5) A Class 3 Director whose term expires in 1997.
(6) A Nominee for Class 1 Director whose term expires in 1999.
(7) Mr. Adams holds 1,357 shares individually, 144 shares jointly
with his spouse.
(8) Mr. Coolidge holds 53,426 shares individually, 13,598 shares
are held by his spouse.
(9) Mr. Croft holds 6,353 shares individually, 4,506 shares
jointly with his spouse, 258 shares are held by his spouse.
(10) Mr. Dalton holds 1,203 shares individually, 14,281 shares are
held by his spouse.
(11) Mr. Landy holds 7,848 shares individually, 584 shares are held
under a profit sharing plan, 1,169 shares are held jointly
with his spouse.
(12) Mr. Novak holds 1,562 shares individually, 43 shares are held
by his spouse.
(13) Dr. Thomas holds 22,030 shares individually, 250 shares are
held by his spouse.
(14) Mr. Van Etten holds 2,443 shares individually, 428 shares are
held jointly with his spouse.
(15) Mr. van der Hiel holds 7,601 shares individually, 11 shares
are held jointly with his spouse, 707 shares are held by his
spouse.
(16) Mr. Wilber holds 3,169 shares individually, 341 shares are
held jointly with his spouse, 240 shares are held by his
spouse, 754 shares are held by his wife as custodian.
ELECTION OF DIRECTORS
The Articles of Incorporation provide that the Board of Directors
shall consist of not less than five (5) nor more than twenty-five
(25) shareholders, the exact number to be fixed and determined from
time to time by resolution of a majority of the full Board of
Directors or by resolution of the shareholders at any annual or
special meeting. The number of Directors is currently set at
eleven (11). The Articles further provide that the Directors shall
be divided into three (3) classes, as nearly equal in number as
possible, known as Class 1, Class 2 and Class 3. The Class 1
Directors elected at this Annual Meeting will serve for a three (3)
year term. The Class 3 and 2 Directors at this Annual Meeting will
continue to serve for one and two years, respectively in order to
complete their three year terms.
Page 3
<PAGE>
It is intended that the Proxies solicited hereunder will be voted
FOR (unless otherwise directed) the five (5) nominees named below.
The Corporation does not contemplate that any nominee will be
unable to serve as Director for any reason. Each nominee has
agreed to serve if elected. However, in the event one or more of
the nominees should be unable to stand for election, the vote will
be cast for the remaining nominees in accordance with the best
judgement of the Board of Directors.
There is no cumulative voting for the election of directors. Each
share of Common Stock is entitled to cast only one vote for each
nominee. For example, if a shareholder owns ten shares of Common
Stock, he or she may cast up to ten votes for the Directors on the
class to be elected.
INFORMATION AS TO NOMINEES AND DIRECTORS
The following table contains certain information with respect to
current Class 1 Directors and nominees for Class 1 Director whose
term expires in 1999 and the Class 3 Directors and Class 2
Directors whose terms expire in 1997 and 1998, respectively. The
date appearing in parenthesis opposite each Director's name in the
"Director Since" column represents the year in which each such
nominee became a Director of the Bank, or any predecessor
institution acquired by the Bank. Each nominee presently serves as
Director of the Bank, as well as Director of the Corporation. All
Directors have been engaged in the principal occupation indicated
for five years or more, with no exceptions.
Principal Occupation
for Past Five Years Director Since
and Position Held with the Corporation/
Name Age Corporation and the Subsidiary Subsidiary
CURRENT CLASS 1 DIRECTORS WHOSE TERM EXPIRES IN 1996
AND NOMINEES FOR CLASS 1 DIRECTOR WHOSE TERM EXPIRES IN 1999
Carol J. Bond 55 President of Monaghan Transportation
Company; Vice President of Keystone 1986
Parts Manufacturing, Inc. (1984)
R. Lowell Coolidge 55 Attorney-at-Law with the firm of 1984
Walrath and Coolidge (1984)
Richard E. Wilber 47 President of Citizens Financial 1984
Services, Inc. & First Citizens (1983)
National Bank
John M. Thomas, 62 Retired Executive Chairman of 1990
M.D. Guthrie Healthcare System; (1985)
President of Chemung
Spring Water Company
Larry J. Croft 60 General Manager of Croft Ford, 1990
Inc.; Secretary of Croft (1969)
Lumber Co. Inc.
Page 4
<PAGE>
CURRENT CLASS 3 DIRECTORS WHOSE TERM EXPIRES IN 1997
Bruce L. Adams 59 President of Bru-Cel 1991
Distributing Co., Inc. (1991)
William D. Van 62 Dairy Farmer 1984
Etten (1978)
CURRENT CLASS 2 DIRECTORS WHOSE TERM EXPIRES IN 1998
Robert E. Dalton 63 Retired President of Keystone Parts 1984
Manufacturing, Inc.; Secretary of (1957)
Keystone North, Inc.; Real Estate &
Insurance Broker; Chairman of the
Board, First Citizens National Bank
John E. Novak 59 Retired School Administrator with 1984
Southern Tioga School District; (1976)
since 1993 has supervised Student
Teachers at Elmira College
Rudolph J. van der 56 Attorney-at-law with the firm of 1984
Hiel van der Hiel & Mansfield; Vicar at (1975)
St. James Episcopal Church, Mansfield
and Trinity Episcopal Church, Antrim
Robert J. Landy 68 Attorney-at-Law with the firm of 1990
Landy and Landy; Retired Chairman of (1960)
Board, Guthrie Healthcare System
THE BOARD OF DIRECTORS AND ITS COMMITTEES
During 1996, there were four (4) regular meetings of the Board of
Directors of the Corporation and twenty-three (23) regular meetings
of the Board of Directors of the Bank. All Directors attended at
least seventy-five percent of the Corporation's Board of Directors
Meetings.
There is no family relationship, by blood, marriage, or adoption,
between any of the Directors and any other Director, Officer, or
full-time Employee, of the Corporation or the Bank.
None of the Directors are involved in any legal action in his/her
individual capacity which is material to an evaluation of his
ability or integrity to act as a Director.
The Corporation has no standing audit committee or nominating
committee of the Board of Directors. Matters within the
jurisdiction of these committees are considered by the Board of
Directors of the Bank.
NOMINATIONS FOR DIRECTORS
Nominations for Directors other than those made by or on behalf of
the existing Board of Directors to be elected at an annual meeting
of shareholders must be submitted to the Secretary of the
Corporation in writing not less than ninety (90) days nor more than
one-hundred twenty (120) days prior to the date of the meeting.
Such nominations must be in accordance with Section 202 of the
Corporation's Bylaws and contain information specified therein.
Page 5
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities and Exchange Act of 1934 requires
the Corporation's officers and directors, and persons who own more
than 5% of the registered class of the Corporation's equity
securities, to file reports of ownership and changes of ownership
with the Securities and Exchange Commission ("SEC"). Officers,
directors and greater than 5% shareholders are required by SEC
regulation to furnish the Corporation with copies of all Section
16(a) forms that they file. There are no 5% shareholders of the
Corporation's equity securities.
Based solely on its review of the copies of such forms received by
it, and written representations from certain reporting persons that
no Forms 5 were required for those persons, the Corporation
believes that during the period January 1, 1995 through December
31, 1995, its officers and directors were in compliance with all
applicable filing requirements except for two reports which covered
two transactions were filed late by Mr. Bruce Adams, a director of
the Corporation.
EXECUTIVE COMPENSATION
Shown below is information concerning the annual compensation for
services in all capacities to the Corporation for the fiscal years
ended December 31, 1995, 1994 and 1993 of those persons who were,
as of December 31, 1995 (I) the Chief Executive Officer, and (ii)
the four other most highly compensated executive officers of the
Corporation to the extent that such persons' total annual salary
and bonus exceeded $100,000:
<TABLE>
Summary Compensation Table
Long-term Compensation
Annaul Compensation Awards Payout
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Salary Bonus Compensation Award(s) Options/SARs Payouts Compensation
Principal Position Year ($)(1) ($) ($) ($) (#) ($) ($)(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Richard E. Wilber 1995 $119,123 $6,329 None None None None $6,329
President & CEO 1994 $109,952 $6,268 $6,268
1993 $ 95,923 $5,897 $5,897
</TABLE>
(1) The "Salary" column includes fees paid as a director of the
Corporation and Subsidiary totaling $8,475, $8,395, $8,000 for
years 1995, 1994, and 1993 respectively.
(2) Represents the tax deferred profit sharing contribution paid
by the Bank to the Chief Executive Officer in 1995, 1994 and
1993 respectively.
Retirement Plan
The Bank has a noncontributory defined benefit pension plan (the
"Plan") for all employees meeting certain age and length of service
requirements. Benefits are based primarily on years of service and
the average annual compensation during the highest five consecutive
years within the final ten years of employment. The Bank's funding
policy is consistent with the funding requirements of Federal Law
and regulations. The First Citizens National Bank Trust Department
is trustee of the pension plan.
The following table sets forth the estimated annual benefits
payable on retirement at age 65 by a participating employee,
assuming final average earnings as shown. Although the pension
plan is integrated with Social Security, this table reflects the
benefit available through the pension plan exclusive of social
security. Because of funding limitations by the Internal Revenue
Service, no contributions were allowed in 1994 and 1993. Such
funding limitations no longer applied in 1995 and the Bank
therefore contributed the maximum allowed of $106,921.
Page 6
<PAGE>
Average Annual Annual Pension Benefits Upon Retirement
Earnings with Years of Service Indicated
10 20 30 40
--- --- --- ---
$60,000 10,056 20,111 30,167 30,167
$80,000 14,056 28,111 42,167 42,167
$100,000 18,056 36,111 54,167 54,167
$120,000 22,056 44,111 66,167 66,167
$140,000 26,056 52,111 78,167 78,167
$160,000 28,056 56,111 84,167 84,167
Richard E. Wilber, President and Chief Executive Officer of the
Corporation, has 14 years of credited service to the Corporation
and Subsidiary. Average salary upon which benefits would be
calculated at December 31, 1995 is $103,282.
Profit Sharing Plan
The Bank has a profit-sharing plan, covering substantially all
employees, which provides tax deferred salary savings to plan
participants. Contributions to the profit-sharing plan are
allocated to participants based upon a percentage of their
compensation. The total amount of the profit-sharing contribution
is determined by the Board of Directors annually on a discretionary
basis. Total contributions for 1995, 1994, and 1993 were $86,239,
$119,630, and $112,271 respectively. As reported in the Summary
Compensation Table, the contributions paid by the Bank on behalf of
Richard E. Wilber, President and Chief Executive Officer of the
Corporation, were $6,329 in 1995, $6,268 in 1994 and $5,897 in
1993.
Compensation of Directors
Directors of the Corporation receive a fee of $115 per meeting.
Directors of the Subsidiary, except for the Chairman, receive $460
per month plus fees for attending various committee meetings at $85
per meeting. The Chairman receives a fixed annual sum of $10,400.
In addition to the above fees, each director is provided a $50,000
life insurance benefit. In the aggregate, the Board of Directors
received $86,433.36 for all Board of Directors meetings and
committee meetings attended in 1995. Total premiums paid in 1995
for life insurance on behalf of the directors was $1,855.
Compensation Committee Interlocks and Insider Participation in
Compensation Decisions
Mr. Richard E. Wilber, President and Chief Executive Officer of the
Corporation and the Bank, is a member of the Human Resource
Committee which makes recommendations on compensation policies and
practices to the Board of Directors. Mr. Wilber does not
participate in conducting his review nor does he vote on his annual
compensation package.
Board Compensation Committee Report on Executive Compensation
The Board of Directors of the Corporation is responsible for the
governance of the Corporation and its subsidiary, First Citizens
National Bank. In fulfilling its fiduciary duties, the Board of
Directors engages competent persons who undertake to accomplish
strategic goals and objectives with integrity and in a cost-effective manner.
The Human Resource Committee, comprised of the President and three
outside directors (Directors Novak, Croft and Adams), makes
recommendations on compensation policies and practices to the Board
of Directors. The fundamental philosophy of the Corporation's and
the Bank's compensation program is to offer competitive
compensation opportunities for all employees based on the
individual's contribution and personal performance. Compensation
policies are designed to attract and motivate competent and
dedicated individuals to enhance the Corporation's growth and
profitability and the ultimate financial return to shareholders.
Page 7
<PAGE>
The compensation of the President and the Executive Vice President
is reviewed and approved in April of each year by the Board of
Directors. As a basis for determining compensation, the Board of
Directors examines information from a peer group of banks relative
to performance and compensation. The peer group for overall bank
performance analysis consists primarily of those contained within
the Uniform Bank Performance Report prepared by the Office of the
Comptroller of the Currency (banks with assets of $100 million to
$300 million throughout the United States).
The peer group for analysis of compensation paid to other bank
holding company and banking institution executives is obtained
primarily from L.R. Weber Associates, Inc. and Bank Administration
Institute (such peer data is compiled on both a regional and asset
size basis). These peer groups are different from the peer group
utilized in the performance chart appearing below.
The Board of Directors does not deem Section 162(m) of the Internal
Revenue Code ("IRC") to be applicable to the Corporation at this
time. The Board of Directors intends to monitor the future
application of Section 162(m) of the IRC to the compensation paid
to its executive officers and in the event that this section does
become applicable it is the intent of the Board of Directors to
amend the Corporation's and the Bank's compensation plans to
preserve the deductibility of the compensation payable under such
plans.
Compensation of the President/Executive Vice President
As mentioned previously, the Board of Directors evaluated the
compensation of the President and the Executive Vice President in
April 1995. Compensation increases were determined based on an
analysis of the contribution of these individuals in achieving the
Corporation's strategic goals and objectives. In determining
whether strategic goals had been achieved, the Board of Directors
considered among numerous factors the following: the Corporation's
performance as measured by earnings, revenues, return on assets,
return on equity, market share, total assets and non-performing
loans. Although the performance and increases in compensation were
measured in light of these factors, there was no direct correlation
between any specific criterion and compensation of these
executives, nor was there any specific weight provided to any such
criteria.
The Board of Directors believes that the President's 1995
compensation of $110,648 is appropriate in light of the of the
Corporation's 1995 accomplishments (an 8.0% increase in net income;
a 14.4% return on average equity; and a 6.3% increase in assets).
In addition to this compensation, the President and Executive Vice
President participate in the Bank's profit-sharing plan on the same
basis as all other eligible employees.
HUMAN RESOURCE COMMITTEE
Richard E. Wilber John E. Novak
Larry J. Croft Bruce L. Adams
Page 8
<PAGE>
SHAREHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly change in the
cumulative total return on the Corporation's Common Stock against
the cumulative total return of the S&P 500 Index and selected peer
groups for the period of five (5) years commencing on January 1,
1991, and ended December 31, 1995. Shareholder return shown on the
graph below is not necessarily indicative of future performance.
________________________________________________________________________________
[PERFORMANCE GRAPH OMITTED. Following is a description of the performance graph
in tabular format.]
1990 1991 1992 1993 1994 1995
Peer Group Index 97.38 90.28 99.64 139.48 165.85 194.24
Citizens Financial 99.70 89.68 114.16 136.22 184.73 198.32
Services, Inc.
S&P 500 Index 93.44 118.02 123.29 131.99 129.96 186.52
________________________________________________________________________________
NOTE: Peer group information appearing above includes the
following companies: CNB Financial Corporation, Citizens
& Northern Corporation, Columbia Financial Corporation,
Comm. Bancorp, Inc., Mid Penn Bancorp, Inc., Heritage
Bancorp, Inc., Penn Security Bank & Trust Co., Penns
Woods Bancorp, Inc., Pioneer American Holding Company,
and Wayne Bank. Such financial institutions and bank
holding companies were selected based on four criteria:
total assets between $150 million and $600 million,
market capitalization greater than $20 million;
headquarters located in Pennsylvania; and not listed on
NASDAQ national market.
CERTAIN TRANSACTIONS
Certain of the Corporation's Directors and Executive Officers and
their associates are and have been customers of the Bank and have
had transactions with the Bank in the ordinary course of business.
In addition, certain Directors are and have been Directors and
Officers of corporations which are customers of the Bank and have
had transactions with the Bank in the ordinary course of business.
All such transactions with these Directors and Officers of the
Corporation and their associates referred to above were made on
substantially the same terms (including interest rates and
collateral) as those prevailing at the time of such transactions.
These transactions did not involve more than a normal risk of
collectibility or present other unfavorable features.
Page 9
<PAGE>
During 1995, business and law firms of which Directors Rudolph J.
van der Hiel, R. Lowell Coolidge and Robert J. Landy were Officers
and/or Partners rendered services or sold products to the
Corporation and/or the Bank in the normal course of business.
Directors Rudolph J. van der Hiel and R. Lowell Coolidge each
received $19,562.64 and $23,575.14, respectfully, for all legal
services rendered to the Corporation and/or Bank during 1995. Also
during 1995, Dalton Insurance Agency was paid $63 thousand in
premiums for various insurance coverages for the Corporation and
the Bank. Such agency is owned and operated by an immediate family
member of Robert E. Dalton, director to the Corporation and the
Bank.
Total loans outstanding from the Corporation and the Bank at
December 31, 1995, to the Corporation's and the Bank's officers and
directors as a group and members of their immediate families and
companies in which they had an ownership interest of ten percent
(10%) or more was $2,037,067.20, or approximately ten percent (10%)
of the total equity capital of the Bank. Loans to such persons
were made in the ordinary course of business, were made on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with other persons, and did not involve more than the
normal risk of collectibility or present other unfavorable
features. The aggregate amount of indebtedness outstanding as of
the latest practicable date, February 29, 1996, to the above
described group was $2,000,354.99.
Principal Officers of Corporation
The following table sets forth the selected information about the
Executive Officers of the Corporation, as of March 13, 1996.
Please refer to the footnotes below under the caption entitled
"Principal Officers of First Citizens National Bank."
Held Employee Number of Shares Age as of
Name and Position Since Since Beneficially Owned March 13, 1996
Richard E. Wilber 1984 1984 4,504 47
President
Terry B. Osborne 1984 1984 396 (2) 42
Secretary
Thomas C. Lyman 1988 1988 2 50
Treasurer
Each of the above Executive Officers has served in these capacities
for the past five years.
Page 10
<PAGE>
Principal Officers of First Citizens National Bank
The following table sets forth the selected information about the
Executive Officers of First Citizens National Bank, subsidiary of
the Corporation, as of March 13, 1996:
Held Employee Number of Shares Age as of
Name and Position Since Since Beneficially Owned March 13, 1996
Robert E. Dalton 1985 (1) 15,484 63
Chairman of the Board
Richard E. Wilber 1983 1981 4,504 47
President
Terry B. Osborne 1991 1975 396 42
Executive Vice
President
Thomas C. Lyman 1988 1988 2 50
Finance/Control
Division Manager
William W. Wilson 1991 1979 171 (3) 46
Vice President
Operations
Division Manager
Deborah E. Scott 1991 1981 550 (4) 36
Vice President
Trust and
Investment
Services Manager
Cynthia T. Pazzaglia 1985 1983 351 (5) 37
Administration
Services
Division Manager
(1) Is not an employee of First Citizens National Bank.
(2) Mr. Osborne holds 306 shares jointly with his spouse, 24
shares in his name alone, 66 shares held by his spouse.
(3) Mr. Wilson holds 171 shares jointly with his spouse.
(4) Mrs. Scott holds 463 shares jointly with her spouse, and 87
shares as custodian.
(5) Mrs. Pazzaglia holds 351 shares jointly with her spouse.
Page 11
<PAGE>
ANNUAL REPORT
A copy of the Corporation's Annual Report for its fiscal year ended
December 31, 1995, is enclosed with this Proxy Statement. A
representative of S.R. Snodgrass, A.C., Certified Public
Accountants, of Wexford, Pennsylvania, the independent auditors who
prepared the Annual Report, will be present at the Annual Meeting
of Shareholders. The representative will have an opportunity to
make a statement, if he desires to do so, and will be available to
respond to any appropriate questions concerning the Annual Report
presented by shareholders at the Annual Meeting.
INDEPENDENT PUBLIC ACCOUNTANTS
S.R. Snodgrass, A.C. ("Snodgrass"), Certified Public Accountants,
of Wexford, Pennsylvania, served as the Corporation's independent
public accountants for its 1995 fiscal year. The Corporation has
been advised by Snodgrass that none of its members has any
financial interest in the Corporation. In addition to performing
customary audit services, Snodgrass assisted the Corporation and
the Bank with preparation of their federal and state tax returns,
and provided assistance in connection with regulatory matters,
charging the Bank for such services at its customary hourly billing
rates. These non-audit services were approved by the Corporation's
and the Bank's Boards of Directors after due consideration of the
effect of the performance thereof on the independence of the
auditors and after the conclusion by the Corporation's and the
Bank's Boards of Directors that there was no effect on the
independence of the auditors. Snodgrass will serve as the
Corporation's independent public accountants for its 1996 fiscal
year.
On April 19, 1994, the Board of Directors of the Corporation
approved a resolution, based upon the recommendations of the Audit
Committee of the Board of Directors of the Corporation, to engage
Snodgrass as the Corporation's independent accountants, replacing
Parente, Randolph, Orlando, Carey & Associates ("Parente"), its
prior independent accountants. Parente's report on the
Corporation's consolidated financial statements for the prior two
years contained no adverse opinion or disclaimer of opinion or
qualification as to uncertainty, audit scope or accounting
principles. In connection with the audits of the two most recent
fiscal years and subsequent interim period prior to dismissal,
there were no disagreements with Parente on any matter of
accounting principle or practice, financial statement disclosure,
or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of the former accountants, would have
caused them to reference in connection with their report to the
subject matter of the disagreement. The Corporation acknowledges
that disagreements required to be reported in response to the
proceeding sentence include both those resolved to the former
accountants' satisfaction and those not resolved to the former
accountants' satisfaction. The Corporation further acknowledges
that disagreements contemplated by this rule are those which
occurred at the decision-making level; i.e., between personnel of
the Corporation responsible for the presentation of its financial
statements and personnel of the accounting firm responsible for
rendering its report. There have been no "reportable events,"
within the meaning of Item 304 of Securities and Exchange
Commission Regulation S-K.
On April 26, 1994, the Corporation filed a Current Report on Form
8-K with the Securities and Exchange Commission (the "SEC") to
notify the SEC of the Corporation's change in accountants. The
Corporation provided Parente with a copy of the Form 8-K and
requested that they furnish the Corporation with a letter addressed
to the SEC stating whether such firm agreed with the statements
made by the Corporation contained in the Form 8-K and, if not,
stating the respects in which the firm disagreed. Parente's letter
of response indicated no disagreements with the statements made, as
described above. The letter was attached as an exhibit to the
above-referenced Current Report on Form 8-K. Parente is not
expected to be represented at the Annual Meeting.
Page 12
<PAGE> SHAREHOLDER PROPOSALS
Securities and Exchange Commission Regulations permit shareholders
to submit proposals for consideration at Annual Meetings of
Shareholders. Any such proposals for the Corporation's Annual
Meeting of Shareholders to be held in 1997, must be submitted to
the President of Citizens Financial Services, Inc., at its
principal office of 15 South Main Street, Mansfield, Pennsylvania
16933 on or before Thursday, November 21, 1996, in order to be
included in proxy materials relating to that Annual Meeting.
OTHER MATTERS
The Board of Directors of the Corporation is not aware of any other
matters to be presented for action other than described in the
accompanying Notice of Annual Meeting of Shareholders, but if any
other matters properly come before the Meeting, and any
adjournments or postponements thereof, the holder(s) of any Proxy
is (are) authorized to vote thereon in accordance with their best
judgment.
ADDITIONAL INFORMATION
Upon written request of any shareholder, a copy of the
Corporation's Annual Report or SEC Form 10-K for its fiscal year
ended December 31, 1995, including the financial statements and the
schedules thereto, required to be filed with the Securities and
Exchange Commission pursuant to Rule 13a-1 under the Securities
Exchange Act of 1934, as amended, may be obtained without charge,
from Thomas C. Lyman, Treasurer, Citizens Financial Services, Inc.,
15 South Main Street, Mansfield, Pennsylvania 16933.
Next year's Annual Meeting is scheduled to be held on Tuesday,
April 15, 1997.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Richard E. Wilber
Richard E. Wilber
President
Page 13
<PAGE>
CITIZENS FINANCIAL SERVICES, INC.
PROXY
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 16, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Terry B. Osborne
and Jerald J. Rumsey and each or any of them, proxies of the
undersigned, with full power of substitution, to vote all of the
shares of Citizens Financial Services, Inc. (the "Corporation")
that the undersigned may be entitled to vote at the Annual Meeting
of Shareholders of the Corporation to be held at the Tioga County
Fairgrounds Youth Building, Whitneyville, Pennsylvania 16901, on
Tuesday, April 16, 1996 at 12:00 p.m., prevailing time, and at any
adjournment or postponement thereof as follows:
1. ELECTION OF CLASS 1 DIRECTORS TO SERVE FOR A THREE-YEAR TERM
Carol J. Bond, R. Lowell Coolidge, Richard E. Wilber, John M.
Thomas, M.D., Larry J. Croft
[ ] For all nominees [ ] WITHHOLD AUTHORITY
listed above (except to vote for all
as marked to the nominees listed
contrary below) above
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY
INDIVIDUAL NOMINEE, WRITE THAT NOMINEE'S NAME ON THE SPACE
PROVIDED BELOW.)
__________________________________________________________________
2. In their discretion, the proxies are authorized to vote upon
such other business as may properly come before the meeting
and any adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY SIGNED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED FOR ALL NOMINEES LISTED ABOVE.
Dated:_________________, 1996
_____________________________
_____________________________
Signature(s) (Seal)
Number of Shares Held of Record
on March 13, 1996 Indicated Above
THIS PROXY MUST BE DATED, SIGNED BY THE SHAREHOLDER AND RETURNED
PROMPTLY TO THE CORPORATION IN THE ENCLOSED ENVELOPE. WHEN SIGNING
AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE
GIVE FULL TITLE. IF MORE THAN ONE TRUSTEE, ALL SHOULD SIGN. IF
STOCK IT IS HELD JOINTLY, EACH OWNER SHOULD SIGN.
EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
_________________________
The Spirit
of
Community
Banking
CITIZENS
FINANCIAL SERVICES
__________________
INCORPORATED
Annual Report 1995
______________________________________________________________________________
[GRAPHIC OMITTED: Fireworks bursting, approximately 10 inches in length by 2.5
inches width on right side of cover page]
______________________________________________________________________________
<PAGE>
[GRAPHIC OMITTED: Silhouette of colonial rider on horseback, upper left hand
corner of page, one inch square]
______________________________________________________________________________
[GRAPHIC OMITTED: Photograph of building with American flag and balloons,
approximately 10 inches in length by 2.5 inches width on right side of page]
______________________________________________________________________________
THE STRATEGY FOR FINANCIAL GROWTH
______________________________________________________________________________
"In this new era of bank mergers and acquisitions, First Citizens remains
dedicated to our goal of leading the Twin Tiers as the region's premier
community banking system."
______________________________________________________________________________
THE YEAR 1995 was an historic one for banking customers across the Twin Tiers.
In a series of successive shock waves that rolled across the region during one
of the hottest summers on record, customers of several of the region's largest
banking institutions were advised that, once again, their banks were being sold
to even larger and even more impersonal big-market banks.
But not First Citizens' customers. Today the differences between First Citizens'
philosophies and the strategies of our largest competitors have never been
greater. In stark contrast to the others, we remain resolutely close to our
customers. Intensely focused on the communities we serve. And, like our own
customers, fiercely independent.
Today, as never before, First Citizens sees unfolding opportunity in our
steadfast commitment to our principles of true community banking. The signs of
our strategic success are all around us. And as we review the successful year
just completed, we look ahead with great anticipation to a future of even
greater opportunity-- and even greater growth.
_____
1
<PAGE>
[GRAPHIC OMITTED: Silhouette of a colonial rider on horseback, upper left hand
corner of page, one inch square]
______________________________________________________________________________
"Nearly 76% of our deposits are directly loaned within our market, which we
believe is a tremendous method to support the economic development of the Twin
Tiers."
______________________________________________________________________________
TO OUR SHAREHOLDERS, CUSTOMERS AND EMPLOYEES:
It is with a great sense of accomplishment that we end this annual report for
1995. The following narrative is designed to cover only a few of the
"highlights" of the past year, but cannot do justice to the many achievements
we are so proud of. Needless to say, the record performance of 1995 is a
culmination of outstanding effort and devotion by all directors and employees
to serve our customers, communities, and shareholders.
FINANCIAL PERFORMANCE
In the twelve months since year-end 1994, we have seen assets grow 6.3% from
$232.5 million to $247.1 million. Deposits grew 9.7% from $194.5 million to
$213.3 million. This strong deposit growth substantially diminished our
reliance on the "borrowed funds" utilized in late 1994. Loan growth was a more
modest 3.2%, increasing $5.1 million to $161.6 million. Nearly 76% of our
deposits are loaned within our market to meet consumer and commercial credit
needs. We believe this is a tremendous method to support the economic
development of our area.
Assets managed by the Trust and Investment Services division grew a dramatic 15%
to surpass $41 million. This outstanding growth was the result of hiring an
experienced business development officer and implementing an employee referral
program. This making the growth during the past two years nearly 50%.
The quality of the loan portfolio remains quite good with past due loans equal
to 2.76% of total loans, up from the 2.03% at year-end 1994. Loans not
accruing interest were down from $l.6 million to $1.5 million at year-end 1994
and 1995 respectively. The more loans, either classified as non-actual or
over 90 days past due, are collateralized by mortgage liens and, therefore,
any significant loss exposure is minimized. Net loan losses in 1995 were
$51 thousand. The allowance for possible loan losses grew by 6.5% during 1995
to $1.8 million and represents 1.13% of outstanding loans.
Net income was a record $2.8 million or 8% over the prior year with earnings
per share equaling $2.10 versus $1.95 for 1994.The primary factors
influencing the earnings growth were a moderate 2% ($179 thousand) growth in
net interest income, a $92 thousand decline in the provision for possible loan
losses, a 25% increase in trust income and very modest growth in salary and
benefit expense, as well as other operating expense. During 1995 the insurance
premiums paid into the Bank Insurance Fund of the Federal Deposit Insurance
Corporation were reduced from 23 cents per hundred of deposits to 4 cents per
hundred. Even with this premium reduction, this component of the FDIC fund
became fully capitalized and prompted a refund to First Citizens of $91
thousand in September. In total, our FDIC insurance expense declined $117
thousand from that paid in 1994.
Total stockholders' equity was $21.3 million, an increase of 12.7%. This Strong
growth was due to the earnings of $2.8 million, minus a $1.1 million declaration
of cash dividends plus a $713 thousand improvement (net of tax) in the market
value of available-for-sale securities. The improvement in the market value of
available-for-sale securities was a direct result of the decline in national
interest rates during 1995 Stockholders' equity now represents 8.6% of total
assets versus 8.1% at year-end 1994. This substantially exceeds the 5% ratio
defined by regulatory agencies as "well capitalized."
The bid and ask price of our common shares were $23.50 and $25.50 at December
31,1995, averaging 5% over the prior year.
______________________________________________________________________________
[GRAPHIC OMITTED: Photograph of the Corporation's President presenting a plaque
to an employee of the Corporation, center right third of page, approximately 4
inches square]
______________________________________________________________________________
_____
2
<PAGE>
_____________________________________________________________________________
Opposite: Gina M Boor, secretary to the president, receives the Employee of the
Year award from Richard Wilber, President. Gina joined First Citizens in 1991
and was honored at the annual Christmas Party for her outstanding professional
contributions.
______________________________________________________________________________
[GRAPHIC OMITTED: Photograph of a gaslight in the town of Wellsboro,
Pennsylvania, top right one third of page, approximately 2.5 inches square]
______________________________________________________________________________
Above: The warm glow of gaslights in downtown Wellsboro is reflective of the
close hometown relationship we share With our communities.
______________________________________________________________________________
[GRAPHIC OMITTED: Photograph of a farmer's field, top left one third of page,
approximately two inches by 4 inches]
______________________________________________________________________________
Left: Our agricultural industries are a major factor in our region's growth.
______________________________________________________________________________
[GRAPHIC OMITTED: Photograph of the Corporation's President, approximately 10
inches in length by 2.5 inches width on right side of page]
______________________________________________________________________________
A MESSAGE FROM THE PRESIDENT
______________________________________________________________________________
OPERATING AND STRATEGIC INITIATIVES
In early 1995, we engaged a professional marketing firm to generate creatively
that would perpetuate our outstanding growth in this increasingly competitive
business. We were delighted to adopt an exciting new logo ("The Spirit of
Independence Lives On"), as well as a very appealing radio jingle. This highly
focused marketing has been very effective not only in strengthening our
corporation's name recognition, but also emphasizing our philosophy of hometown
community banking--a style that is rapidly disappearing as bank mergers and
acquisitions accelerate.
A revolutionary new form of technology known as "check imaging" was implemented
in mid 1995 and has had a profound impact on our ability to deliver cost-
effective checking account services. This technology has allowed us to reduce
postage expense, while eliminating the need for three positions in statement
preparation and the related "back-office" area of the bank. Customer acceptance
of this service has been outstanding.
We continue to closely examine additional technology applications and recently
completed a comprehensive assessment culminating in a clearly defined technology
plan. We recognize that changing consumer expectations and preferences will
dictate changes in our delivery of banking services. Our challenge will be to
select cost effective technology that will allow us to satisfy both customer
demands and shareholder performance expectations.
_____
3
<PAGE>
[GRAPHIC OMITTED: Silhouette of a colonial rider on horseback, upper left hand
corner of page, one inch square]
______________________________________________________________________________
"The opportunity to expand our community of office network to nine locations has
created tremendous excitement and enthusiasm."
______________________________________________________________________________
On November 28,1995 we signed an agreement to acquire the Gillett and Canton
community offices from Meridian Bank, headquartered in Reading, Pennsylvania.
This opportunity to expand our community office network to nine locations has
created tremendous excitement and enthusiasm. Our initial reception by these
customers and communities has been very heartwarming and gives us a great deal
of confidence as we move beyond the $250 million asset milestone.
HUMAN RESOURCES
This corporation's strength and success depends on the quality of its directors
and employees. Although there were no changes in our corporate board of
directors, there were two Wellsboro local board members who resigned due to
relocating out of the area. The contributions of Mr. Oliver Richard Bartlett and
Wilson Gridley, III will be sorely missed.
In September 1995, Timothy Gooch was appointed to the Wellsboro local board.
Mr. Gooch is a CPA at Pennypacker and Ziegler, P.C., Wellsboro. He is a director
of the Wellsboro Area Chamber of Commerce and has served both the Wellsboro Area
United Way and the American Cancer Society. He is also treasurer and part-owner
of Laurel Racquetball Club.
Employees of this corporation have been working very hard to further their
professional knowledge. ln 1995, over 50% of employees attended educational
programs away from the bank. In August Phillip Vaughn, Assistant Vice President
and Office Manager in Ulysses, completed the three year Advanced School of
Banking conducted by the Pennsylvania Bankers Association (PBA). Other
individuals are working through this three year program or have completed
various one-week "academies" also available through the PBA. We are fortunate
to have employees willing to invest more of their personal time to enhance their
banking skills.
THE FUTURE
With the year 2000 in sight, it seems clear that dramatic changes in the banking
industry will continue unabated. The long-predicted industry consolidation is in
full swing. Fifteen of the country's fifty largest banks were involved with
mergers or acquisitions. Even smaller banks are buying each other, as evidenced
by a 10% decline in Pennsylvania bank charters (from 261 to 235). Liberalized
legislation, such as the Reigle-Neal Interstate Banking and Branching Efficiency
Act of 1994 and early "opt-in" legislation by the Commonwealth of Pennsylvania,
allowing for reciprocal interstate banking and branching, will encourage further
consolidation. We continue to believe opportunities will arise from these
trends. Consumers finding their accounts taken over by acquiring banks with
higher fees and less personal service will search anew for a true community
bank with an independent spirit like First Citizens. In addition, large bank
acquisitions of other large banks cause, in some cases, regulatory mandates to
shed duplicate branches within the same markets. Furthermore, large
______________________________________________________________________________
[GRAPHIC OMITTED: Photograph of employees of the Corporation be recognized for
years of service, bottom middle of page, approximately 3.5 inches by 5.5 inches]
______________________________________________________________________________
First Citizens employees were recognized for their five-year intervals of
service. Standing from left: Irene Douglass (10), Linda Nowak (15), Jean Knapp
(15), Paula Johnson (15), Joanne Marvin (25), and Kathy Swain (10). Seated from
left: Terry Osborne (20), Dot Rakoski (10), Jerry Rumsey (30), Karen Jacobson
(25) and Phillip Vaughn (5). Not shown: Valerie Davis (5), Jennifer Heath (5),
Sandra Harris (5), Beth Pfleegor (15), and Jane McGee (30).
______________________________________________________________________________
_____
4
<PAGE>
banks in metropolitan areas may decide to dispose of entire geographic markets
that may be desirable to us.
New technologies are being introduced at a dizzying pace. Some believe
electronic banking (through personal computers, telephones, and even more
sophisticated ATM cards) will evolve so rapidly that "brick and mortar" branch
networks will be obsolete. They further say banks will become indistinguishable
from each other in the electronic environment all products will be come
commodities in the eyes of consumers. They warn that the "technologically
challenged" banks will not succeed while those who invested heavily in
technology will flourish. In my judgement, these scenarios seem somewhat
extreme and do not do justice to the customer who demands high quality personal
service. We will, however, be sensitive to the customer's increasing demand for
convenience and cost-effective delivery of financial services in an increasingly
technological age.
One matter which is yet to be resolved, but will impact 1996 in a potentially
significant way, pertains to actions by the Federal Deposit Insurance
Corporation (FDIC"). Our premiums are paid into two different funds under the
administration by the FDIC. As mentioned previously, the Bank Insurance Fund
became fully funded in 1995. Because the Savings Association Insurance Fund is
not fully Funded, the premium remains at 23 cents per hundred in deposits and
applies to approximately $52 million of our deposits. Congress is considering
a one-time assessment to fully capitalize this fund which, if implemented, would
reduce net income by $290 thousand after tax in 1996.
Further impacting net income will be the uncertainty of interest rates, an
expected weakness in loan demand, and uncertainties with rising unemployment
levels.
We hope to formulate definitive plans on a new operations and administration
center. Our substantial growth during the first half of the nineties ($75
million growth in five years) has renewed our conviction to see this project
to a conclusion.
Although there are many uncertainties and challenges confronting us, we also
look forward to the numerous opportunities. We will work very hard to meet these
challenges and capitalize on opportunities and continue the success this
corporation has been accustomed to.
Sincerely,
/s/ Richard E. Wilber
Richard E. Wilber
President
______________________________________________________________________________
[GRAPHIC OMITTED: Photograph of the Corporation's President, center of page,
approximately 2.5 inches square]
______________________________________________________________________________
_____
5
<PAGE>
[GRAPHIC OMITTED: Silhouette of colonial rider on horseback, upper left hand
corner of page, one inch square]
______________________________________________________________________________
"A bright new day is dawning for the future of First Citizens in communities
all across the Twin Tiers--and beyond."
______________________________________________________________________________
[GRAPHIC OMITTED: Photograph of a house with American flags, approximately 2
inches by 5.5 inches on top third center of page]
______________________________________________________________________________
THE YEAR 1995 was an historic one for First Citizens National Bank. Following
months of careful analysis and development, in March of this past year First
Citizens introduced our new corporate identity--an American patriot riding
confidently into the future on horseback--to symbolize the strength, dedication
and independence we represent as our region's leading community banking system.
Accompanying our new identity was our new corporate position: The Spirit Of
Independence. Today, just one year later, this bold new campaign has captured
the imagination of the public and of our customers. In communities all across
the Twin Tiers, citizens are discovering the true power of Independence Banking
and the impact it can make on their lives--and in their communities.
COMMUNITY VALUES
REFLECT OUR SYSTEM'S
STRENGTHS.
Throughout 1995, First Citizens National Bank again demonstrated, as we have
over so many years in the past, that as a truly independent bank we not only can
compete successfully against our more distant big-market competitors we can
thrive.
In the harsh business climate of today, sudden and unexpected reorganizations at
other area institutions have often left their employees and their customers
alike bitter and resentful of the resulting changes. But at First Citizens, for
generations we've nurtured the subtle and delicate balance of offering national
caliber products while delivering services with the helping hand of a true
community banking institution.
CUSTOMER SATISFACTION:
OUR PATH TO THE FUTURE.
The image of neighbor helping neighbor is both a welcome and a powerful one for
the citizens of the Twin Tiers. And at First Citizens, with our intense focus
on community involvement, it's an image which we have both carefully sought and
diligently earned with our customers.
Our success has established us as the premier community banking system in the
region and points the way to a bright future of expanding growth and
opportunity.
For example, as a result of our newest efforts over the past year, in early 1996
we will proudly add two new Patriot Riders to join the original seven which ride
across our system maps (see pages 8-9). In late 1995 we announced the
acquisition of our two newest community offices in Canton and Gillett. Already
these two communities are applauding our plans to return local financial
independence to their citizens as we've done for decades for the thousands of
other citizens all across the Twin Tiers.
And that's only the beginning. We believe that the future of banking in the Twin
Tiers belongs to that institution which remains closest to the many unique
communities which dot our rolling landscapes. This is precisely why our special
relationship with the citizens and the communities of our region provide the
keys to renewed and ongoing growth and prosperity as, day by day, First
Citizens works to further establish our leadership in community banking
throughout our region.
Three stars light our path into the future at First Citizens National Bank. And
as we have for generations, we continue to grow with a special focus on our
flexibility, financial stability, and service reliability. In addition to
demanding superior customer service, our customers today increasingly place
their trust and confidence in those financial institutions which embody these
three attributes.
FLEXIBILITY
For First Citizens' customers, flexibility has always mean the convenience of
banking with an institution which offers an array of programs, options and
top-flight banking products combined with personal banking choices. In 1995,
new programs built on our reputation for offering customer flexibility.
Powerful new checking products featuring low-cost customer options have met with
tremendous acceptance. Our move to Image-Checking exemplifies convenience
banking for our customers. And new checking account alternatives now allow
_____
6
<PAGE>
______________________________________________________________________________
[GRAPHIC OMITTED: Photograph of barn with horses, on left top third of page,
approximately 2.5 inches by 1.5 inches]
______________________________________________________________________________
"Our growth as a banking institution is directly tied to the strength of our
rural farming communities."
______________________________________________________________________________
[GRAPHIC OMITTED: Man selling balloons and cotton candy, approximately 10
inches in length by 2.5 inches width on right side of page]
______________________________________________________________________________
WHERE LOCAL DECISIONS STILL COUNT
______________________________________________________________________________
our customers to design their own programs with popular no-cost features like
free checks, interest-bearing checking, direct-deposit, and more.
But our service flexibility extends far beyond mere products. Today at First
Citizens, key lending decisions are reviewed directly by our board members who
are intimately involved with our local communities. When special lending
considerations are called for, they are reflected in our approval processes.
Across the Twin Tiers, no institution is closer to its customers than First
Citizens.
STABILITY.
In today's volatile business climate, change is the only certain constant. Yet
at First Citizens, our long-standing success is anchored in our commitment to
promote and to protect the core financial strength of our institution at all
times.
We recognize, after all, that the true basis of our financial independence is
our own financial self-reliance. That is why, in the face of massive corporate
downsizing and the banking mergers and acquisitions appearing regularly in
regional and national headlines, the citizens of the Twin Tiers have grown to
depend on the steady leadership of First Citizens as the premier banking system
in our region.
Our community-based business philosophy has proven to be vital because it means
that the decisions by our Board of Directors continually reflect the inherent
strengths of the citizens of our communities.
RELIABILITY.
At First Citizens, we're right here, ready for the long haul. "When you need
us... we'll be here!" is more than just another bank slogan at First Citizens.
Our customers recognize that it reflects our special confidence in them and the
communities we serve. As their community's bank, they know they can count on
us--and so increasingly, they do.
Market leadership. It's a constant, ongoing challenge. But every day the results
prove to be worth the effort. We are succeeding at providing the region's finest
banking products with a level of friendly service the citizens of our area have
grown to depend on from First Citizens. Today more than ever, all across the
Twin Tiers, First Citizens customers in every station of life "Just Ask Us"
for the financial counsel and service they rely upon.
_____
7
<PAGE>
______________________________________________________________________________
[GRAPHIC OMITTED: Silhouette of colonial rider on horseback, upper left hand
corner of page, one inch square]
______________________________________________________________________________
"We proudly support the quality community organizations and programs which
enrich the lives of our area's citizens."
______________________________________________________________________________
"Everywhere you look, First Citizens is here: supporting local fire companies,
hospitals, schools, little leagues and so much more. We are proud to be an
integral part of our communities."
______________________________________________________________________________
[GRAPHIC OMITTED: Roadmap of upper Pennsylvania and lower New York, with small
silhouettes of a colonial rider on horseback marking the bank's branch locations
from left to right, at Genesee, Ulysses, Wellsboro, Blossburg, Mansfield,
Gillett (shaded), Troy, Canton (shaded), and Sayre, across center of page. The
roadmap has photographs adjacent to the branch locations. They are: 1. man
skiing, 2. barn, 3. band, 4. Victorian homes, 5. town, 6. First Citizens
signage, 7. sail boat, and 8. Victorian home]
______________________________________________________________________________
THE FIRST CITIZENS of this region demonstrated the spirit of neighbor helping
neighbor. From colonial days, the determination and dedication of our earliest
settlers enabled them to conquer a new territory which stretched across the
pristine forests of the Twin Tiers. As citizens increasingly populated the area,
the established settlers welcomed newer visitors. Soon, industrialization
brought the emerging railroading industry as our communities grew and prospered.
Today, throughout the rolling endless mountains, our citizens still join
together in events that have become as traditional as the changing seasons of
the region.
Everywhere you look, First Citizens is here: supporting local fire companies,
hospitals, schools, little leagues and so much more. And we are proud to play
such a key role in the lives of the citizens of our region.
A PART OF COMMUNITY LIFE
"Giving something back" to our communities is of great importance in keeping the
communication lines open between ourselves and the communities we serve. We
proudly support the quality organizations and programs which enrich the lives of
our area's residents.
Among our many other routine commitments to community charities and volunteer
efforts throughout the region, in
_____
8
<PAGE>
______________________________________________________________________________
Genesee--Situated directly on the New York boarder, this scenic, pastoral
community is home to the Lumber Museum and the gateway to Pennsylvania's Twin
Tiers for hundreds of thousands of New York's visitors each year.
Ulysses--Centered in the heart of one of Pennsylvania's key northern
agricultural regions, this small agrarian community lies within easy reach of
the area's most popular winter play land, Denton hill Family Ski Resort, Inc.
Wellsboro--Gateway to The Pennsylvania Grand Canyon, this gaslight-era tourist
community is renowned for its charming turn-of-the-century Victorian homes and
architecture.
Mansfield--Nationally acclaimed as the site of America's first night football
game, this community is home for Mansfield University and serves as First
Citizens' corporate headquarters.
Blossburg--This attractive rural community boasts one of America's leading
historic and industrial events, the annual Blossburg Coal Festival.
Troy--Each summer, the region's most spectacular outdoor event, The Troy Fair,
features big-name country singers, award-winning livestock, rides, and other
special family events.
Sayre--Home of First Citizens' oldest branch (chartered 1899) and Guthrie
Health Services, one of America's premier health care stems; Guthrie's Life
Flight air support operation serves all of the Twin Tiers.
______________________________________________________________________________
1995 First Citizens made substantial contributions to the North Penn Hospice
Care Program. In addition, ongoing programs such as "Adopt-A-Highway," and
annual programs like "The FCNB Scholarship" and "A" programs serve to encourage
environmental and educational awareness in the region.
And while some area banks keep moving farther away from their customers, First
Citizens continues to grow stronger right here at home. A majority of our own
directors and officers--as well as nearly all of our 1,400 shareholders--have
vested interests in the communities we serve. After all, we live here. And every
decision we make as an institution reflects that important fact.
MAPPING THE FUTURE:
A GROWING SERVICE AREA
Building on the successes of our past, First Citizens National Bank remains
dedicated to the future growth of every community throughout the Twin Tiers.
We look forward in 1996 to adding our newest offices in the communities of
Gillett and Canton to our service map. We're proud to be strengthening our
commitment to this important region. And we look forward to playing a
continuous role in leading our region to a new era of prosperous growth.
______________________________________________________________________________
[GRAPHIC OMITTED: Marching bank, approximately 10 inches in length by 2.5
inches width on right side of page]
______________________________________________________________________________
SEVEN COMMUNITIES...ONE BANKING SYSTEM
______________________________________________________________________________
_____
9
<PAGE>
______________________________________________________________________________
FINANCIAL HIGHLIGHTS
______________________________________________________________________________
<TABLE>
(dollars in thousands, except per share data) 1995 1994
<S> <C> <C>
BALANCE SHEET
Assets $247,094 $232,537
Deposits 213,316 194,478
Net Loans 159,794 154,848
Stockholders' Equity 21,297 18,903
STATEMENT OF INCOME
Interest Income 19,422 17,336
Interest Expense 9,851 7,944
Net Interest Income 9,571 9,392
Net Income 2,834 2,625
PER SHARE DATA
Net Income 2.10 1.95
Cash Dividends 0.85 0.81
TRUST DEPARTMENT
Trust Assets Managed 41,172 35,596
</TABLE>
______________________________________________________________________________
[GRAPHICS OMITTED: Six bar charts depicting 1. total assets, 2. net income,
3. stockholders' equity, 4. deposits, 5. net loans, and 6. cash dividends
declared, each from 1991 to 1995. Tabular representation of those graphs are
set forth as follows:
TOTAL ASSETS
(Dollars in Thousands)
1991 1992 1993 1994 1995
$186,079 $202,155 $216,237 $232,537 $247,094
__________
NET INCOME
(Dollars in Thousands)
1991 1992 1993 1994 1995
$1,318 $2,248 $2,424 $2,625 $2,834
__________
STOCKHOLDERS' EQUITY
(Dollars in Thousands)
1991 1992 1993 1994 1995
$14,898 $16,329 $18,340 $18,903 $21,297
__________
DEPOSITS
(Dollars in Thousands)
1991 1992 1993 1994 1995
$164,402 $178,033 $191,013 $194,478 $213,316
__________
NET LOANS
(Dollars in Thousands)
1991 1992 1993 1994 1995
$120,747 $128,326 $140,391 $154,848 $159,794
__________
CASH DIVIDENDS DECLARED
(Dollars in Thousands)
1991 1992 1993 1994 1995
$908 $960 $1,023 $1,088 $1,153
______________________________________________________________________________
_____
10
<PAGE>
Citizens Financial Services, Inc.
______________________________________________________________________________
CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEET
December 31, 1995 and 1994
______________________________________________________________________________
<TABLE>
(in thousands) 1995 1994
ASSETS:
Cash and due from banks:
<S> <C> <C>
Noninterest-bearing $ 5,536 $ 5,479
Interest-bearing 37 32
Total cash and cash equivalents 5,573 5,511
Available-for-sale securities 21,444 14,640
Held-to-maturity securities (estimated market
value 1995, $53,589; 1994, $47,897) 52,271 49,617
Loans (net of allowance for possible loan losses
1995, $1,833;1994, $1,721) 159,794 154,848
Foreclosed assets held for sale 208 168
Premises and equipment 4,175 4,124
Accrued interest receivable and other assets 3,629 3,629
TOTAL ASSETS $247,094 $232,537
LIABILITIES:
Deposits:
Noninterest-bearing $ 15,140 $ 14,495
Interest-bearing 198,176 179,983
Total deposits 213,316 194,478
Borrowed funds 8,855 16,030
Accrued interest payable 2,106 1,692
Dividends payable 579 547
Other liabilities 941 887
TOTAL LIABILITIES 225,797 213,634
STOCKHOLDERS' EQUITY:
Common Stock
$1.00 par value; authorized 5,000,000 shares
in 1995 and 2,000,000 shares in 1994; issued
and outstanding 1,347,323 and 1,334,543
shares in 1995 and 1994, respectively 1,347 1,334
Additional paid-in capital 6,512 6,224
Retained earnings 13,089 11,709
TOTAL 20,948 19,267
Unrealized holding gains (losses) on
available-for-sale securities 349 (364)
TOTAL STOCKHOLDERS' EQUITY 21,297 18,903
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $247,094 $232,537
</TABLE>
See notes to consolidated financial statements.
_____
11
<PAGE>
1995 Annual Report
______________________________________________________________________________
CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF INCOME
Years Ended December 31, 1995 1994, and 1993
______________________________________________________________________________
<TABLE>
(in thousands, except per share data) 1995 1994 1993
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $14,799 $12,918 $12,053
Interest on federal funds sold -- -- 1
Interest on interest-bearing deposits with banks 135 25 54
Interest and dividends on investments:
Taxable 4,233 4,046 4,045
Nontaxable 179 281 324
Dividends 76 66 74
TOTAL INTEREST INCOME 19,422 17,336 16,551
INTEREST EXPENSE:
Interest on deposits 9,340 7,521 7,670
Interest on borrowed funds 511 423 183
TOTAL INTEREST EXPENSE 9,851 7,944 7,853
NET INTEREST INCOME 9,571 9,392 8,698
Provision for possible loan losses 163 255 315
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 9,408 9,137 8,383
OTHER OPERATING INCOME:
Service charge income 732 707 685
Trust income 255 204 191
Realized securities gains, net 10 63 50
Other income 255 162 140
TOTAL OTHER OPERATING INCOME 1,252 1,136 1,066
OTHER OPERATING EXPENSES:
Salaries and employee benefits 3,150 3,088 2,782
Occupancy expenses 413 391 363
Furniture and equipment expenses 574 599 600
FDIC insurance expense 289 406 405
Other expenses 2,239 2,006 1,967
TOTAL OTHER OPERATING EXPENSES 6,665 6,490 6,117
Income before provision for income taxes 3,995 3,783 3,332
Provision tor income taxes 1,161 1,158 908
NET INCOME $ 2,834 $ 2,625 $ 2,424
EARNINGS PER SHARE $ 2.10 $ 1.95 $ 1.80
</TABLE>
See notes to consolidated financial statements.
_____
12
<PAGE>
Citizens Financial Services, Inc.
______________________________________________________________________________
CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1994 and 1993
______________________________________________________________________________
<TABLE>
Unrealized
Additional Holding
Common Stock Paid-in Retained Gains/(Losses)
(in thousands, except per share data) Shares Amount Capital Earnings on Securities Total
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,1992 1,309,363 $1,309 $5,770 $ 9,250 $16,329
Net income 2,424 2,424
Stock dividend 12,524 12 206 (218)
Cash dividends, $.76 per share
($.77 per share on an historical basis) (1,023) (1,023)
Unrealized gains on available-for-sale
securities $610 610
Balance, December 31,1993 1,321,887 1,321 5,976 10,433 610 18,340
Net income 2,625 2,625
Stock dividend 12,656 13 248 (261)
Cash dividends, $.81 per share (1,088) (1,088)
($.81 per share on an historical basis)
Unrealized losses on available-for-sale securities (974) (974)
Balance, December 31,1994 1,334,543 1,334 6,224 11,709 (364) 18,903
Net income 2,834 2,834
Stock dividend 12,780 13 288 (301)
Cash dividends, $.85 per share (1,153) (1,153)
Unrealized gains on available-for-sale securities 713 713
Balance, December 31,1995 $1,347,323 $1,347 $6,512 $13,089 $349 $21,297
</TABLE>
See notes to consolidated financial statements.
_____
13
<PAGE>
1995 Annual Report
______________________________________________________________________________
CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended December 31, 1995, 1994 and 1993
______________________________________________________________________________
<TABLE>
(in thousands) 1995 1994 1993
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 2,834 $ 2,625 $ 2,424
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 163 255 315
Provision for depreciation 412 440 438
Amortization and accretion of investment securities 248 190 194
Deferred income taxes 25 20 (189)
Realized gains on securities (10) (63) (50)
Realized gains on loans sold (37) (12) (20)
Gain on sales or disposals of premises and equipment -- (2) --
(Gain) loss on sales of foreclosed assets held
for sale (45) (24) 7
(Increase) decrease in accrued interest receivable
and other assets (393) 247 (418)
Increase (decrease) in accrued interest payable
and other liabilities 468 82 (91)
Net cash provided by operating activities 3,665 3,758 2,610
Cash Flows from Investing Activities:
Available-for-sale securities:
Proceeds from sale of securities -- 3,063 --
Proceeds from maturity of securities 1,000 -- --
Purchases of securities (6,797) (3,003) --
Held-to-maturity securities:
Proceeds from sale of securities -- -- 39
Proceeds from maturity and principal repayments
of securities 5,556 3,203 10,072
Purchases of securities (8,375) (6,478) (12,234)
Net increase in loans (5,250) (14,713) (12,432)
Capital expenditures (463) (602) (460)
Proceeds from sale of premises and equipment -- 4 --
Proceeds from sale of foreclosed assets held for sale 184 100 164
Net cash used in investing activities (14,145) (18,426) (14,851)
Cash Flows from Financing Activities:
Net increase in deposits 18,838 3,465 12,980
Proceeds from long-term borrowings 1,844 2,844 1,335
Repayments of long-term borrowing (186) (390) --
Net increase (decrease) in short-term borrowed
funds (8,833) 9,704 (2,184)
Dividends paid (1,121) (1,056) (992)
Net cash provided by financing activities 10,542 14,567 11,139
Net increase (decrease) in cash and cash
equivalents 62 (101) (1,102)
Cash and Cash Equivalents at Beginning of Year 5,511 5,612 6,714
Cash and Cash Equivalents at End of Year $ 5,573 $ 5,511 $ 5,612
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 9,437 $ 7,970 $ 7,905
Income taxes paid $ 1,135 $ 1,097 $ 1,311
</TABLE>
See notes to consolidated financial statements.
_____
14
<PAGE>
Citizens Financial Services, Inc.
______________________________________________________________________________
CITIZENS FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________________
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
______________________________________________________________________________
Citizens Financial Services, Inc. (individually and collectively, the "Company")
is a Pennsylvania corporation organized as the holding company of its
wholly-owned subsidiary, First Citizens National Bank (the "Bank"). The Bank is
a national banking association headquartered in Mansfield, Pennsylvania and
operating seven full-service banking offices in Potter, Tioga and Bradford
counties. The Bank provides a comprehensive range of services including consumer
loans, residential real estate loans, commercial loans, and loans to various
state and municipal entities. Deposit programs encompass the full range of
consumer as well as commercial checking and savings accounts. Deposit products
also include certificates of deposit and individual retirement accounts. A
comprehensive menu of trust and investment services are also available. The
Company's principal sources of revenue are derived from its loan and investment
portfolios. The Company is supervised by the Board of Governors of the Federal
Reserve System, while the Bank is subject to regulation and supervision by the
Office of the Comptroller of the Currency.
A summary of significant accounting and reporting policies applied in the
presentation of the accompanying financial statements follows:
BASIS OF PRESENTATION
The accounting policies followed by the Company and the methods of applying
these principles conform with generally accepted accounting principles and with
general practice within the banking industry. All material intercompany balances
and transactions have been eliminated in consolidation. 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.
INVESTMENT SECURITIES
As of December 31, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 115, ("SFAS No.115"), "Accounting for Certain
Investments in Debt and Equity Securities," for accounting and reporting for
investment securities. In accordance with SFAS No. 115, such investments are
accounted for as follows:
Held-to-Maturity Securities - includes securities that the Company has the
positive intent and ability to hold to maturity. These securities are reported
at amortized cost.
Trading Securities - includes debt and equity securities bought and held
principally for the purpose of selling them in the near term. Such securities
are reported at fair value with unrealized holding gains and losses included in
earnings. The Company had no trading securities as of December 31, 1995 and
1994.
Available-for-Sale Securities - includes debt and equity securities not
classified as held-to-maturity or trading securities. Such securities are
reported at fair value, with unrealized holding gains and losses excluded from
earnings and reported as a separate component of stockholders' equity, net of
estimated income tax effect.
The amortized cost of investment debt securities are adjusted for amortization
of premiums and accretion of discounts, computed by a method that approximates
the effective interest method. Gains and losses on the sale of investment
securities are computed on the basis of specific identification of the adjusted
cost of each security.
Common stock of the Federal Reserve Bank and Federal Home Loan Bank represents
ownership in institutions which are wholly-owned by other financial
institutions. These equity securities are accounted for at cost, and are
classified as restricted equity securities held-to-maturity.
The fair value of investments, except certain state and municipal securities, is
estimated based on bid prices published in financial newspapers or bid
quotations received from securities dealers. The fair value of certain state and
municipal securities is not readily available through market sources other than
dealer quotations, so fair value estimates are based on quoted market prices of
similar instruments, adjusted for differences between the quoted instruments and
the instruments being valued.
LOANS
Interest on installment loans originated after 1992 is recognized on the accrual
basis based upon the principal amount outstanding. Interest on installment loans
originated before 1993 is recognized on the accrual basis using a method which
approximates the interest method. Interest income on all other loans is
recognized on the accrual basis based upon the principal amount outstanding. The
accrual of interest income on loans is discontinued when, in the opinion of
management, there exists doubt as to the ability to collect such interest. Loans
are returned to the accrual status when factors indicating doubtful
collectibility cease to exist.
The Company recognizes nonrefundable loan origination fees and certain direct
loan origination costs over the life of the related loan as an adjustment of
loan yield using the interest method.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
Effective January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 114, ("SFAS No. 114") "Accounting by Creditors for Impairment of
a Loan," as amended by SFAS No. 118. Under this Standard, the Company estimates
credit losses on impaired loans based on the present value of expected cash
flows or the fair value of the underlying collateral if the loan repayment is
expected to come from the sale or operation of such collateral. For purposes of
this Standard, nonaccrual commercial, commercial real estate and restructured
loans are considered to be impaired. Prior to 1995, the loan losses related to
these loans were estimated based on undiscounted cash flows or the fair value of
the underlying collateral.
The allowance is maintained at a level believed by management to be sufficient
to absorb estimated potential loan losses. Management's determination of the
adequacy of the allowance is based on periodic evaluations of the loan portfolio
and other relevant factors. This evaluation is inherently subjective as it
requires material estimates, including the amounts and timing of expected future
cash flows on impaired loans, which may be susceptible to significant change.
The allowance for loan losses on impaired loans pursuant to SFAS No. 114 is one
component of the methodology for determining the allowance for loan losses. The
remaining components of the allowance for loan losses provide for estimated
losses on consumer loans and residential real estate mortgages, and general
amounts for historical loss experience, uncertainties in estimating losses and
inherent risks in the various loan portfolios.
FORECLOSED ASSETS HELD FOR SALE
Foreclosed assets held for sale are carried at the lower of fair value minus
estimated costs to sell or cost. Prior to foreclosure, the value of the
underlying loan is written down to fair market value of the real estate or other
assets to be acquired by a charge to the allowance for loan losses, if
necessary. Any subsequent write-downs are charged against operating expenses.
Operating expenses of such properties, net
_____
15
<PAGE>
1995 Annual Report
______________________________________________________________________________
CITIZENS FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
______________________________________________________________________________
of related income and losses on disposition are included in other expenses and
gains are included in other income.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation. Repair
and maintenance expenditures which extend the useful life of an asset are
capitalized and other repair expenditures are expensed as incurred.
When premises or equipment are retired or sold, the remaining cost and
accumulated depreciation are removed from the accounts and any gain or loss is
credited or charged to income. Depreciation expense is computed on the
straight-line method.
INCOME TAXES
During 1993, the Company changed its method of accounting for income taxes to
conform with the requirements of Statement of Financial Accounting Standards No.
109 ("SFAS No. 109"), "Accounting for Income Taxes." SFAS No. 109 requires an
asset and liability approach for accounting and reporting for income taxes. The
cumulative effect of the adoption of SFAS No. 109 as of January 1, 1993, was not
material.
EMPLOYEE BENEFIT PLANS
The Company has a noncontributory pension plan covering substantially all
employees. It is the Company's policy to fund pension costs on a current basis
to the extent deductible under existing tax regulations. Such contributions are
intended to provide not only for benefits attributed to service to date, but
also for those expected to be earned in the future. The Company's net periodic
pension cost is based on the provisions of Statement of Financial Accounting
Standards No. 87.
The Company also has a profit-sharing plan which provides tax deferred salary
savings to plan participants.
STATEMENT OF CASH FLOWS
Cash equivalents include amounts due from banks and federal funds sold.
TRUST ASSETS AND INCOME
Assets held by the Bank in a fiduciary or agency capacity for its customers are
not included in the consolidated financial statements since such items are not
assets of the Bank.
Trust income is reported on a cash basis, which is not materially different from
the accrual basis.
EARNINGS PER SHARE
Earnings per share calculations give retroactive effect to the issuances of
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,
1994, and 1993.
RECLASSIFICATION
Certain of the 1994 and 1993 amounts have been reclassified to conform with the
1995 presentation.
______________________________________________________________________________
2. RESTRICTIONS ON CASH AND DUE FROM BANKS
______________________________________________________________________________
The Bank is required to maintain reserves, in the form of cash and balances with
the Federal Reserve Bank, against its deposit liabilities. The amount of such
reserves was $937,000 and $939,000 at December 31, 1995 and 1994, respectively.
Deposits with one financial institution are insured up to $100,000. The Company
maintains cash and cash equivalents with other financial institutions in excess
of the insured amount.
______________________________________________________________________________
3. INVESTMENT SECURITIES
______________________________________________________________________________
The amortized cost and estimated fair value of investment securities at
December 31, 1995 and 1994 were as follows (in thousands):
<TABLE>
Gross Gross
Unrealized Unrealized Estimated
Amortized Holding Holding Fair
December 31,1995 Cost Gains Losses Value
<S> <C> <C> <C> <C>
Held-to-Maturity Securities:
U.S. Treasury securities $42,700 $1,209 $ (4) $43,905
Obligations of state and
political subdivisions 1,311 37 -- 1,348
Corporate obligations 4,744 103 (2) 4,845
Mortgage-backed securities 2,377 2 (27) 2,352
Total debt securities 51,132 1,351 (33) 52,450
Restricted equity securities 1,139 -- -- 1,139
Total Held-to-Maturity $52,271 $1,351 $ (33) $53,589
Available-for-Sale Securities:
U.S. Treasury securities $15,201 $390 $ -- $15,591
Corporate obligations 5,711 67 -- 5,778
Equity securities 4 71 -- 75
Total Available-for-Sale $20,916 $528 $ -- $21,444
</TABLE>
<TABLE>
Gross Gross
Unrealized Unrealized Estimated
Amortized Holding Holding Fair
December 31,1994 Cost Gains Losses Value
<S> <C> <C> <C> <C>
Held-to-Maturity Securities:
U.S. Treasury securities $36,042 $ 10 $(1,671) $34,381
Obligations of other
U.S. governmental
agencies and corporations 500 6 -- 506
Obligations of state and
political subdivisions 2,735 97 -- 2,832
Corporate obligations 6,729 59 (1) 6,787
Mortgage-backed securities 2,513 1 (221) 2,293
Total debt securities 48,519 173 (1,893) 46,799
Restricted equity securities 1,098 -- -- 1,098
Total Held-to-Maturity $49,617 $173 $(1,893) $47,897
Available-for-Sale Securities:
U.S. Treasury securities $15,188 $ 23 $ (617) $14,594
Equity securities 4 42 -- 46
Total Available-for-Sale $15,192 $ 65 $ (617) $14,640
</TABLE>
There were no sales of debt securities in 1995. Proceeds from the sale of
available-for-sale debt securities during 1994 amounted to $3,063,000, with a
gain of $59,000 realized on sales. In 1995, 1994 and 1993 gains of $10,000,
$4,000 and $14,000, respectively, resulted from early calls of debt securities.
There were no sales of equity securities in 1995 and 1994. Net realized gains of
$36,000 on sales of equity securities were recorded in 1993.
_____
16
<PAGE>
Citizens Financial Services, Inc.
______________________________________________________________________________
CITIZENS FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
______________________________________________________________________________
Investment securities with an approximate carrying value of $40,615,000 and
$28,728,000 at December 31, 1995 and 1994, were pledged to secure public funds
and certain other deposits as provided by law.
The amortized cost and estimated carrying value of debt securities at December
31, 1995, by contractual maturity, are shown below (in thousands). Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
Estimated
Amortized Cost Fair Value
<S> <C> <C>
Held-to-Maturity Securities:
Due in one year or less $ 7,266 $ 7,330
Due after one year through five years 36,182 37,245
Due after five years through ten years 5,307 5,523
48,755 50,098
Mortgage-backed securities 2,377 2,352
Total $51,132 $52,450
Estimated
Amortized Cost Fair Value
Available-for-Sale Securities:
Due in one year or less $ 2,006 $ 2,029
Due after one year through five years 17,838 18,223
Due after five years through ten years 1,068 1,117
Total $20,912 $21,369
</TABLE>
______________________________________________________________________________
4. LOANS
______________________________________________________________________________
The Company grants commercial, industrial, residential, and consumer loans
primarily to customers throughout North central Pennsylvania and Southern New
York. Although the Company has a diversified loan portfolio, a substantial
portion of its debtors' ability to honor their contracts is dependent on the
economic conditions within this region.
<TABLE>
Major classifications of loans are as follows (in thousands):
December 31,
1995 1994
<S> <C> <C>
Real estate loans - residential $ 96,594 $ 97,359
Real estate loans - commercial 24,167 21,915
Real estate loans - agricultural 8,027 7,125
Real estate loans - construction 1,018 1,271
Loans to individuals for household,
family and other purchases 13,198 11,886
Commercial and other loans 10,535 10,285
State and political subdivision loans 8,347 7,303
161,886 157,144
Less unearned income on loans 259 575
Less allowance for possible loan losses 1,833 1,721
Loans, net $159,794 $154,848
</TABLE>
At December 31, 1995 and 1994, net unamortized loan fees and costs of $850,000
and $857,000, respectively, have been deducted from the carrying value of loans.
At December 31, 1995, the recorded investment in loans that are considered to be
impaired in accordance with SFAS No. 114 was $696,000, all of which were on a
nonaccrual basis. All of the $696,000 of impaired loans do not have an allowance
for loan losses allocated as a result of the loans being collateral dependent,
and the value of the collateral exceeding the recorded investment in the loan.
The average recorded investment in impaired loans during the year ended December
31, 1995, was approximately $696,000. For the year ended December 31, 1995, the
Company recognized interest income on impaired loans of $3,000, all of which was
recognized using the cash basis method of income recognition.
Loans on which the accrual of interest has been discontinued or reduced amounted
to $1,459,000 (which included the impaired loans in accordance with SFAS No.
114) and $1,557,000 at December 31, 1995 and 1994, respectively. If interest had
been recorded at the original rate on those loans, such income would have
approximated $147,000, $131,000, and $147,000 for the years ended December 31,
1995, 1994, and 1993 respectively. Interest income on such loans, which is
recorded as received, amounted to approximately $58,000, $40,000, and $77,000
for the years ended December 31, 1995, 1994, and 1993, respectively.
Transactions in the allowance for possible loan losses were as follows (in
thousands):
<TABLE>
Years Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Balance, beginning of year $1,721 $1,516 $1,201
Provisions charged to income 163 255 315
Recoveries on loans previously
charged against the allowance 18 18 71
1,902 1,789 1,587
Loans charged against the allowance (69) (68) (71)
Balance, end of year $1,833 $1,721 $1,516
</TABLE>
The following is a summary of the past due and nonaccrual loans as
of December 31, 1995 and 1994 (in thousands):
<TABLE>
December 31, 1995
Past Due Past Due
30-89 days 90 days or more Nonaccrual
<S> <C> <C> <C>
Real estate loans $1,875 $622 $1,442
Installment loans 13 19 --
Credit cards and related loans 35 4 --
Commercial and all other loans 430 44 17
Total $2,353 $689 $1,459
December 31, 1994
Past Due Past Due
30-89 days 90 days or more Nonaccrual
Real estate loans $1,193 $215 $1,437
Installment loans 33 -- --
Credit cards and related loans 5 2 --
Commercial and all other loans 124 50 120
Total $1,355 $267 $1,557
</TABLE>
_____
17
<PAGE>
1995 Annual Report
______________________________________________________________________________
CITIZENS FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
______________________________________________________________________________
5. PREMISES & EQUIPMENT
______________________________________________________________________________
Premises and equipment are summarized as follows (in thousands):
<TABLE>
December 31,
1995 1994
<S> <C> <C>
Land $ 897 $ 897
Buildings 3,694 3,615
Furniture, fixtures and
equipment 3,624 3,541
8,215 8,053
Less accumulated depreciation 4,040 3,929
Premises and equipment, net $4,175 $4,124
</TABLE>
Depreciation expense amounted to $412,000, $440,000, and $438,000 for 1995,
1994 and 1993, respectively.
______________________________________________________________________________
6. DEPOSITS
______________________________________________________________________________
Certificates of deposit of $100,000 or more amounted to $18,542,000 and
$16,378,000 at December 31, 1995 and 1994, respectively. Interest expense on
certificates of deposit of $100,000 or more amounted to $1,089,000, $861,000,
and $732,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
______________________________________________________________________________
7. BORROWED FUNDS
______________________________________________________________________________
Borrowed funds include the following (in thousands):
<TABLE>
December 31,
1995 1994
<S> <C> <C>
Securities sold under agreements
to repurchase (a) $ 5,331 $ 4,756
FlexLine (b) 1,650 9,400
Other borrowed funds 1,874 1,874
Total borrowed funds (d) $ 8,855 $16,030
</TABLE>
(a) Securities sold under agreements to repurchase mature within one to five
years. The weighted average interest rate for the periods ended December 31,
1995, 1994 and 1993 was 5.9%, 4.5% and 4.5%, respectively. The carrying value of
the underlying securities at December 31, 1995 and 1994 was $6,615,000 and
$5,967,000, respectively. The respective market values were $6,786,000 and
$5,664,000. The maximum outstanding balance was $5,331,000 and $5,224,000 for
those same periods.
(b) FlexLine is a line of credit with the Federal Home Loan Bank of Pittsburgh
used on an overnight basis. The total amount available under the line is
approximately 10% of qualifying assets or $23,045,000 at December 31, 1995. The
weighted average interest rate for the periods ended December 31, 1995, 1994,
and 1993 was 6.2%, 5.2% and 3.3%, respectively. The maximum outstanding balance
was $10,400,000 in 1995 and $9,400,000 in 1994.
(c) Other borrowed funds consist of advances from the Federal Home Loan Bank of
Pittsburgh as follows (in thousands):
December 31,
Fixed Rate Maturity 1995 1994
7.25% May 15, 2000 $ 166 $ 166
7.40% May 15, 2001 245 245
7.52% May 15, 2002 229 229
7.60% May 15, 2003 216 216
7.56% May 17, 2004 201 201
7.61% May 16, 2005 188 188
7.65% May 15, 2006 175 175
7.68% May 15, 2007 163 163
7.72% May 15, 2008 151 151
7.76% May 15, 2009 140 140
Total borrowed funds $1,874 $1,874
The Bank has pledged, as collateral for advances from the Federal Home Loan Bank
of Pittsburgh (the FHLB), all stock in the FHLB and certain other qualifying
investment securities held at the FHLB, equal to 100% of the unpaid amount of
the outstanding advances.
(d) The aggregate average borrowed funds for the years ended December 31, 1995
and 1994 was $8,031,000 and $8,440,000, respectively. The weighted average
interest rate was 6.4%, 5.0%, and 4.4% for 1995, 1994, and 1993, respectively.
Following are maturities of borrowed funds as of December 31, 1995 (in
thousands):
1996 $4,662
1997 1,049
1998 728
1999 272
2000 436
Thereafter 1,708
Total borrowed funds $8,855
______________________________________________________________________________
8. EMPLOYEE BENEFIT PLANS
______________________________________________________________________________
The Company has a noncontributory defined benefit pension plan (the "Plan") for
all employees meeting certain age and length of service requirements. Benefits
are based primarily on years of service and the average annual compensation
during the highest five consecutive years within the final ten years of
employment. The Company's funding policies are consistent with the funding
requirements of federal law and regulations. Plan assets are comprised of common
stock, U.S. government and corporate debt securities. Plan assets included 4,936
and 4,888 shares of the Company's common stock at December 31, 1995 and 1994,
respectively.
Pension cost for 1995, 1994, and 1993 include the following components (in
thousands):
<TABLE>
Years Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Service cost benefits earned
during the period $ 85 $ 70 $ 63
Interest cost on projected benefit obligation 104 83 75
Return on assets (331) (26) (93)
Net amortization and deferral 18 (117) (45)
Net pension cost $ 47 $ 10 $ --
</TABLE>
_____
18
<PAGE>
Citizens Financial Services, Inc.
______________________________________________________________________________
CITIZENS FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
______________________________________________________________________________
As of December 31, 1995, the Plan's total accumulated benefit obligation was
$1,087,000 including vested benefits of $1,063,000.
The funded status of the Plan and amount recognized in the Company's
consolidated balance sheet are summarized as follows (in thousands):
<TABLE>
December 31,
1995 1994
<S> <C> <C>
Projected benefit obligation $(1,699) $(1,180)
Plan assets at fair value 1,937 1,536
Excess of assets over projected benefit obligation 238 356
Prior service costs (76) (82)
Unrecognized net (loss) gain from past experience
different from that assumed and effects
of changes in assumptions 92 (63)
Unrecognized net transition gain (144) (159)
Prepaid pension cost $ 110 $ 52
The projected benefit obligation for the Plan at December 31, 1995, 1994 and
1993 were determined using an assumed discount rate of 7%, 8% and 7%,
respectively, and an assumed long-term rate of compensation increase of 4.5% at
December 31, 1995 and 5% at December 31, 1994 and 1993. The assumed long-term
rate of return on Plan assets was 8% at December 31, 1995, 1994 and 1993.
The Company also has a profit-sharing plan, covering substantially all
employees, which provides tax-deferred salary savings to plan participants. The
Company's contributions to the profit-sharing plan are allocated to the
participants based upon a percentage of their compensation. The Company's
profit-sharing contribution is determined by management on a discretionary
basis. The Company's contributions for 1995, 1994 and 1993 were $86,000,
$120,000, and $112,000, respectively.
______________________________________________________________________________
9. INCOME TAXES
______________________________________________________________________________
The provision for income taxes consists of the following (in thousands):
</TABLE>
<TABLE>
Years Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Currently payable
Federal $1,136 $1,138 $1,157
State -- -- (60)
1,136 1,138 1,097
Deferred liability (benefit) 25 20 (189)
Provision for income taxes $1,161 $1,158 $ 908
</TABLE>
The following temporary differences gave rise to the net deferred tax asset at
December 31, 1995 and 1994 (in thousands):
<TABLE>
1995 1994
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $440 $402
Deferred compensation 184 163
Loan fees and costs 99 137
Unrealized losses on available-for-sale
securities -- 188
Capital loss carry forward 5 --
Total 728 890
Deferred tax liabilities:
Unrealized gains on available-for-sale
securities (180) --
Depreciation (108) (91)
Bond accretion (73) (58)
Pension expense (37) (18)
Total (398) (167)
Deferred tax asset, net $330 $723
</TABLE>
The total provision for income taxes is different from that computed at the
statutory rates due to the following items (in thousands):
<TABLE>
Years Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Provision at statutory rates on
pre-tax income $1,358 $1,286 $1,133
Effect of tax - exempt income (188) (170) (182)
Nondeductible interest 23 19 21
State tax -- -- (60)
Other items (32) 23 (4)
Provision for income taxes $1,161 $1,158 $ 908
Statutory tax rates 34% 34% 34%
Effective tax rates 29.1% 30.6% 27.3%
</TABLE>
The 1993 credit for state income taxes represents the reversal of an over
accrual in a prior year.
______________________________________________________________________________
10. RELATED PARTY TRANSACTIONS
______________________________________________________________________________
Certain executive officers, corporate directors or companies in which they have
10 percent or more beneficial ownership were indebted to the Bank.
A summary of loan activity with officers, directors, stockholders and associates
of such persons is listed below (in thousands):
<TABLE>
Beginning Ending
Balance Additions Repayments Balance
<S> <C> <C> <C> <C>
1995 $1,501 $ 181 $ 303 $1,379
1994 1,541 618 658 1,501
1993 1,341 602 402 1,541
</TABLE>
Such loans were made in the ordinary course of business at the Banks normal
credit terms and do not present more than a normal risk of collection.
_____
19
<PAGE>
1995 Annual Report
______________________________________________________________________________
CITIZENS FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
______________________________________________________________________________
11. REGULATORY MATTERS
______________________________________________________________________________
The approval of the Comptroller of the Currency is required for a national bank
to pay dividends up to the Company if the total of all dividends declared in any
calendar year exceeds the Banks net income (as defined) for that year, combined
with its retained net income for the preceding two calendar years. Under this
formula, the Bank can declare dividends in 1996 without approval of the
Comptroller of the Currency of approximately $3,217,000, plus the Bank's net
income for 1996.
The Bank is subject to regulatory restrictions which limit its ability to loan
funds to the Company. At December 31, 1995, the regulatory lending limit
amounted to approximately $2,308,000.
This annual report has not been reviewed, or confirmed for accuracy or
relevance, by the Federal Deposit Insurance Corporation.
______________________________________________________________________________
12. OFF-BALANCE-SHEET RISK
______________________________________________________________________________
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying degrees, elements of
credit and interest rate or liquidity risk in excess of the amount recognized in
the consolidated balance sheet.
The Company's exposure to credit loss from nonperformance by the other party to
the financial instruments for commitments to extend credit and standby letters
of credit is represented by the contractual amount of these instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
Financial instruments whose contract amounts represent credit risk at December
31, 1995 and 1994 are as follows (in thousands):
<TABLE>
1995 1994
<S> <C> <C>
Commitments to extend credit $13,228 $15,057
Standby letters of credit $ 863 $ 1,117
</TABLE>
Commitments to extend credit are legally binding agreements to lend to
customers. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of fees. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future liquidity requirements.
The Company evaluates each customers credit-worthiness on a case-by-case basis.
The amount of collateral obtained if deemed necessary by the Company on
extension of credit is based on Management's credit assessment of the counter
party.
Standby letters of credit are conditional commitments issued by the Company
guaranteeing performance by a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending normal loan commitments to customers. The Company generally holds
collateral supporting standby letters of credit.
______________________________________________________________________________
13. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:
______________________________________________________________________________
Statement of Financial Accounting Standards (SFAS) No. 107, disclosures about
Fair Value of Financial Instruments requires that the Company disclose estimated
fair values for its financial instruments. Fair value estimates are made at a
specific point in time, based on relevant market information and information
about the financial instrument. These estimates do not reflect any premium or
discount that could result from offering for sale at one time the Company's
entire holdings of a particular financial instrument. Also, it is the Company's
general practice and interest to hold its financial instruments to maturity and
not to engage in trading or sales activities. Because no market exists for a
significant portion of the Company's financial instruments, fair value estimates
are based on judgments regarding future expected loss experience, current
economic conditions, risk characteristics of various financial instruments and
other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions can significantly affect the
estimates.
Estimated fair values have been determined by the Company using historical data,
as generally provided in the Company's regulatory reports, and an estimation
methodology suitable for each category of financial instruments. The estimated
fair value of the Company's investment securities is described in Note 3. The
Company's fair value estimates, methods and assumptions are set forth below for
the Company's other financial instruments.
Cash and due from banks:
The carrying amounts for cash and due from banks approximate fair value because
they mature in 90 days or less and do not present unanticipated credit concerns.
Loans:
Fair values are estimated for portfolios of loans with similar financial
characteristics.
The fair value of performing loans has been estimated by discounting expected
future cash flows. The discount rate used in these calculations is derived from
the Treasury yield curve adjusted for credit quality, operating expense and
prepayment option price and is calculated by discounting scheduled cash flows
through the estimated maturity, using estimated market discount rates that
reflect the credit and interest rate risk inherent in the loan. The estimate of
maturity is based on the Company's historical experience with repayments for
each loan classification, modified, as required, by an estimate of the effect of
current economic and lending conditions.
Fair value for significant nonperforming loans is based on recent external
appraisals. If appraisals are not available, estimated cash flows are discounted
using a rate commensurate with the risk associated with the estimated cash
flows.
Assumptions regarding credit risk, cash flows, and discount rates are
judgmentally determined using available market information and specific borrower
information.
The following table presents information for loans (in thousands):
DECEMBER 31, 1995 DECEMBER 31, 1994
BOOK ESTIMATED BOOK ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
Net loans $159,794 $160,681 $154,848 $152,317
_____
20
<PAGE>
Citizens Financial Services, Inc.
______________________________________________________________________________
CITIZENS FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
______________________________________________________________________________
Deposits:
The fair value of deposits with no stated maturity, such as noninterest bearing
demand deposits, savings and NOW accounts, and money market and checking
accounts, is equal to the amount payable on demand as of December 31, 1995 and
1994. The fair value of certificates of deposit is based on the discounted value
of contractual cash flows. The discount rate is estimated using the rates
currently offered for deposits of similar remaining maturities (in thousands).
DECEMBER 31, 1995 DECEMBER 31, 1994
BOOK ESTIMATED BOOK ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
Noninterest-bearing
demand $ 15,140 $ 15,140 $14,495 $14,495
Interest-bearing deposits:
Savings and NOW 48,998 48,998 50,065 50,065
Money market investors 24,096 24,096 20,799 20,799
Certificates of deposit
less than $100,000 106,540 107,929 92,742 91,894
Certificates of deposit
more than $100,000 18,542 18,636 16,378 16,087
The fair value estimates above do not include the benefit that results from the
low-cost funding provided by the deposit liabilities compared to the cost of
borrowing funds in the market, commonly referred to as the core deposit
intangible.
Borrowed Funds
Rates available to the Company for borrowed funds with similar terms and
remaining maturities are used to estimate the fair value of borrowed funds (in
thousands):
DECEMBER 31, 1995 DECEMBER 31, 1994
BOOK ESTIMATED BOOK ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
Securities sold
under agreements
to repurchase $5,331 $5,331 $4,756 $4,756
FlexLine 1,650 1,650 9,400 9,400
Other borrowed funds 1,874 1,976 1,874 1,802
Commitments to Extend Credit and Standby Letters of Credit:
There is no material difference between the notional amount and the estimated
fair value of off-balance sheet items which are primarily comprised of unfunded
loan commitments which are generally priced at market at the time of funding
(see Note 12).
______________________________________________________________________________
14. MORTGAGE SERVICING RIGHTS
______________________________________________________________________________
In May of 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 122, "Accounting for Mortgage
Servicing Rights," an amendment of SFAS No. 65. This Statement, which is
required to be adopted during the first quarter of 1996, allows enterprises
engaging in mortgage banking activities to recognize as separate assets rights
to service mortgage loans for loans originated for sale by the enterprise. As
the Company does not significantly engage in the sale of mortgage loans, the
impact of this Statement is not anticipated to have a material impact on the
Company's results of operations or financial position.
______________________________________________________________________________
15. BRANCH ACQUISITIONS
______________________________________________________________________________
On November 28, 1995, the Bank and Meridian Bank of Pennsylvania (Seller)
entered into a Purchase and Assumption Agreement (Agreement) pursuant to which
the Bank has agreed to purchase certain assets and assume certain liabilities of
the Seller's Canton and Gillett, Pennsylvania branch offices. Pursuant to the
agreement, and subject to certain conditions set forth therein, the Bank has
agreed to: (i) assume approximately $16,000,000 of deposit liabilities; (ii)
purchase approximately $3,600,000 of loans, comprised of consumer residential
mortgages, commercial, home equity, and installment loans; (iii) purchase all
real estate, with improvements thereon; (iv) purchase furniture, fixtures and
equipment owned by Seller and located at each branch office; (v) purchase the
safe deposit box business conducted at the branches; (vi) assume any contracts
that relate to the operation of the branch offices, and; (vii) purchase all cash
funds on hand at each office.
In consideration for the assumption of the deposit liabilities, the Bank will
pay the Seller a deposit premium of 8.25% or approximately $1,000,000. Loans are
being purchased at a price commensurate with fair value plus accrued but unpaid
interest, and real estate will be purchased at a price equal to its market value
as of the effective date.
_____
21
<PAGE>
1995 Annual Report
______________________________________________________________________________
CITIZENS FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
______________________________________________________________________________
16. CONDENSED FINANCIAL INFORMATION PARENT COMPANY ONLY
______________________________________________________________________________
CITIZENS FINANCIAL SERVICES, INC.
CONDENSED BALANCE SHEET
December 31, 1995 and 1994
<TABLE>
(in thousands) 1995 1994
<S> <C> <C>
Assets
Cash $ 49 $ 31
Dividends receivable - subsidiary 579 547
Investment in subsidiary,
First Citizens National Bank 21,248 18,872
Total assets $21,876 $19,450
Liabilities & stockholder' equity
Dividends payable $ 579 $ 547
Stockholders' equity 21,297 18,903
Total liabilities and
stockholders' equity $21,876 $19,450
</TABLE>
<TABLE>
CITIZENS FINANCIAL SERVICES, INC.
CONDENSED STATEMENT OF INCOME
Years Ended December 31, 1995, 1994 and 1993
(in thousands) 1995 1994 1993
<S> <C> <C> <C>
Dividend income $1,235 $1,136 $1,073
Expenses 64 65 43
Income before equity
in undistributed earnings
of subsidiary 1,171 1,071 1,030
Equity in undistributed
earnings - First Citizens National Bank 1,663 1,554 1,394
Net income $2,834 $2,625 $2,424
</TABLE>
<TABLE>
CITIZENS FINANCIAL SERVICES, INC.
CONDENSED STATEMENT OF CASH FLOWS
Years Ended December 31, 1995, 1994 and 1993
(in thousands) 1995 1994 1993
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $2,834 $2,625 $2,424
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed earnings
of subsidiary (1,663) (1,554) (1,394)
Increase in other assets (32) (19) (31)
Net cash provided by
operating activities 1,139 1,052 999
Cash Flows Used in Financing Activities:
Cash dividends paid (1,121) (1,056) (992)
Net (decrease) increase in cash 18 (4) 7
Cash at Beginning of Year 31 35 28
Cash at End of Year $ 49 $ 31 $ 35
</TABLE>
_____
22
<PAGE>
CITIZENS FINANCIAL SERVICES, INC.
______________________________________________________________________________
REPORT OF INDEPENDENT AUDITORS
______________________________________________________________________________
SNODGRASS
Certified Public Accountants
[LOGO OMITTED]
To the Stockholders and Board of Directors of
Citizens Financial Services, Inc.
We have audited the consolidated balance sheet of Citizens Financial Services,
Inc. and subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The consolidated
financial statements of Citizens Financial Services, Inc. and subsidiary for the
year ended December 31, 1993, were audited by other auditors whose report dated
February 11, 1994, expressed an unqualified opinion on those consolidated
financial statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Citizens Financial
Services, Inc. and subsidiary as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
As discussed in the notes to the consolidated financial statements, effective
January 1, 1995, the Company changed its method of accounting for impairment of
loans and related allowance for loan losses, and changed its method of
accounting for income taxes and investment securities in 1993.
______________________________________________________________________________
/s/ S. R. Snodgrass, A.C.
______________________________________________________________________________
Wexford, PA
February 16, 1996
S.R. Snodgrass, A.C.
101 Bradford Road Wexford, PA 15090-6909 Phone: 412-934-0344 Facsimile:
412-934-0345
_____
23
<PAGE>
1995 Annual Report
______________________________________________________________________________
SELECTED FINANCIAL DATA
FIVE YEAR SUMMARY OF OPERATIONS
______________________________________________________________________________
<TABLE>
(dollar amounts in thousands) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Interest Income $ 19,422 $ 17,336 $ 16,551 $ 16,684 $ 17,017
Interest Expense 9,851 7,944 7,853 8,895 10,347
Net Interest Income 9,571 9,392 8,698 7,789 6,670
Provision for Possible
Loan Losses 163 255 315 324 170
Net Interest Income After Provision
for Possible Loan Losses 9,408 9,137 8,383 7,465 6,500
Other Operating Income 1,242 1,073 1,016 991 839
Realized Securities Gains
(Losses), Net 10 63 50 35 (46)
Other Operating Expenses 6,665 6,490 6,117 5,423 5,195
Income Before Provision
for Income Taxes 3,995 3,783 3,332 3,068 2,098
Provision for Income Taxes 1,161 1,158 908 820 780
Net Income $ 2,834 $ 2,625 $ 2,424 $ 2,248 $1,318
Per Share Data:
Net Income $ 2.10 $ 1.95 $ 1.80 $ 1.67 $ 0.98
Cash Dividends 0.85 0.81 0.77 0.73 0.70
Book Value 15.81 14.03 13.61 12.12 11.06
Total Investments $ 73,715 $ 64,257 $ 62,645 $ 59,742 $ 50,906
Loans, Net 159,794 154,848 140,391 128,326 120,747
Total Assets 247,094 232,537 216,237 202,155 186,079
Total Deposits 213,316 194,478 191,013 178,033 164,402
Stockholders' Equity 21,297 18,903 18,340 16,329 14,898
</TABLE>
COMMON STOCK
Common stock issued by Citizens Financial Services, Inc. is traded in the local
over-the-counter market, primarily in Pennsylvania and New York. Prices
presented in the table below are bid prices between broker-dealers published by
the National Association of Securities Dealers through the NASD OTC "Bulletin
Board", its automated system for reporting non-NASDAQ quotes, and the National
Quotation Bureau's "Pink Sheets." The prices do not include retail mark-ups or
mark-downs or any commission to the broker-dealer. The bid prices do not
necessarily reflect prices in actual transactions. Cash dividends are declared
on a semi-annual basis and the effects of stock dividends have been stated
retroactively in the table below (also see dividend restrictions in Note 11).
<TABLE>
Dividends Dividends
1995 declared 1994 declared
High Low per share High Low per share
<S> <C> <C> <S> <C> <C> <C>
First quarter $23.00 $20.50 First quarter $18.25 $17.00
Second quarter 23.00 20.50 $0.42 Second quarter 20.00 17.75 $0.40
Third quarter 22.75 22.50 Third quarter 22.25 19.25
Fourth quarter 23.50 21.50 $0.43 Four quarter 22.63 21.75 $0.41
</TABLE>
_____
24
<PAGE>
Citizens Financial Services, Inc.
______________________________________________________________________________
CONSOLIDATED QUARTERLY DATA
______________________________________________________________________________
<TABLE>
(dollar amounts in thousands) Three Months Ended
1995 March 31 June 30 Sept 30 Dec 31
<S> <C> <C> <C> <C>
Interest income $4,628 $4,783 $4,964 $5,047
Interest expense 2,313 2,436 2,515 2,587
Net interest income 2,315 2,347 2,449 2,460
Provision for possible loan losses 50 38 38 37
Other operating income 287 335 291 329
Realized securities gains, net 5 -- 5 --
Other operating expenses 1,709 1,740 1,582 1,634
Income before provision for income taxes 848 904 1,125 1,118
Provision for income taxes 240 257 324 340
Net income $ 608 $ 647 $ 801 $ 778
Net Income Per Share $ 0.45 $ 0.48 $ 0.59 $0.58
Three Months Ended
1994 March 31 June 30 Sept 30 Dec 31
Interest income $4,081 $4,167 $4,477 $4,611
Interest expense 1,829 1,878 2,052 2,185
Net interest income 2,252 2,289 2,425 2,426
Provision for possible loan losses 75 60 61 60
Other operating income 277 293 259 244
Realized securities gains, net 43 20 -- --
Other operating expenses 1,605 1,598 1,634 1,653
Income before provision for income taxes 892 944 990 957
Provision for income taxes 270 290 303 295
Net income $ 622 $ 654 $ 687 $ 662
Net Income Per Share $ 0.46 $ 0.49 $ 0.51 $0.49
</TABLE>
_____
25
<PAGE>
1995 Annual Report
______________________________________________________________________________
TRUST AND INVESTMENT SERVICES
STATEMENT OF CONDITION
______________________________________________________________________________
<TABLE>
1995 1994
<S> <C> <C>
INVESTMENTS:
Bonds $19,161 $15,957
Stock 8,713 8,312
Savings and Money Market Funds 8,666 7,294
Mutual Funds 3,556 3,061
Mortgages 578 526
Real Estate 236 405
Miscellaneous 96 (10)
Cash 166 51
TOTAL $41,172 $35,596
ACCOUNTS:
Estates $ 314 $ 684
Trusts 20,751 18,450
Guardianships 116 142
Pension/Profit Sharing 7,412 5,905
Investment Management 3,884 5,577
Custodial 8,695 4,838
TOTAL $41,172 $35,596
</TABLE>
The following graph shows personal trust asset growth over the past five years.
______________________________________________________________________________
[GRAPHIC OMITTED: A bar chart depicting personal trust assets from 1991 to
1995. A tabular presentation of the graph is set forth as follows:
PERSONAL TRUST ASSETS
(Dollars in Thousands)
1991 1992 1993 1994 1995
$21,827 $23,706 $26,085 $27,781 $31,786
______________________________________________________________________________
_____
26
<PAGE>
Citizens Financial Services, Inc.
______________________________________________________________________________
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
______________________________________________________________________________
This narrative is provided to assist in the understanding and evaluation of the
financial condition and results of operations of Citizens Financial Services,
Inc. and its subsidiary (the "Company") and should be read in conjunction with
the preceding consolidated financial statements and related footnotes. Such
financial condition and results of operations are not intended to be indicative
of future performance. Except as noted, tabular information is presented in
thousands of dollars.
Financial Condition
The following table presents the growth (dollars in millions) during the past
two years:
<TABLE>
Growth in: 1995 1994
$ % $ %
<S> <C> <C> <C> <C>
Total Assets 14.5 6.3 16.3 7.5
Total Deposits 18.8 9.7 3.5 1.8
Total Loans 4.9 3.2 14.5 10.3
Total Investments
(including available-for-sale
and held-to-maturity) 9.5 14.7 1.6 2.6
Total Stockholders'
Equity 2.4 12.7 0.6 3.1
</TABLE>
Deposits
Deposit growth was strong in 1995 with an $18.8 million or 9.7% increase while
1994 had an increase of $3.5 million or 1.8%. Transaction accounts increased
$381,000 or 1% in 1995, while total certificates of deposit increased $16
million or 14.6%. Certificates of deposit growth in 1994 was $7.9 million or
7.8%. During 1995, the interest cost of certificates of deposit remained high
while the interest rate paid on interest-bearing transaction and savings
accounts declined. This rate environment (high rates for certificates of deposit
and lower rates for interest-bearing transaction and savings accounts) resulted
in substantial growth in certificates of deposit and a modest reduction in NOW
and savings deposit volume. Money market deposit accounts (which are paid a
higher interest rate than savings and NOW accounts) had strong growth of $3.3
million or 15.9%. The net result was a substantial growth in total deposits.
The following table shows the composition of deposit accounts over the last
three years as of December 31:
<TABLE>
Deposits by Major Classification:
1995 1994 1993
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Noninterest-
bearing
deposits $ 15,140 7.1 $ 14,495 7.5 $ 14,779 7.7
NOW accounts 23,681 11.1 23,963 12.3 27,537 14.4
Savings deposits 25,317 11.9 26,102 13.4 27,081 14.2
Money market
deposit
accounts 24,096 11.3 20,799 10.7 20,392 10.7
Certificates
of deposit 125,082 58.6 109,119 56.1 101,224 53.0
Total deposits $213,316 100.0 $194,478 100.0 $191,013 100.0
</TABLE>
<TABLE>
Remaining maturities of certificates of deposit of $100,000 or more:
1995 1994 1993
<S> <C> <C> <C>
3 months or less $ 2,708 $ 4,339 $ 2,549
3 through 6 months 2,474 3,813 3,108
6 through 12 months 4,538 2,323 3,039
Over 12 months 8.822 5.903 5.990
Total $18,542 $16,378 $14,686
As a percent of total
certificates of deposit 14.82% 15.01% 14.51%
</TABLE>
<TABLE>
Deposits by Type of Depositor:
1995 1994 1993
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Individual,
Partnerships &
Corporations $188,471 88.4 $173,879 89.4 $170,430 89.2
United States
Government 132 0.1 214 0.1 255 0.1
State & Political
Subdivisions 23,279 10.9 18,868 9.7 17,554 9.2
Other 1,434 0.6 1,517 0.8 2,774 1.5
Total deposits $213,316 100.0 $194,478 100.0 $191,013 100.0
</TABLE>
Over the last few years the Company, responding to the demand for new
competitive products in the market area, began to tier interest-bearing
transaction and savings accounts by deposit size (larger balances receive higher
rates). The Company has been offering a wide variety of deposit instruments, as
have its competitors. Limited transaction deposit accounts with interest rates
that vary as often as daily, unlimited transaction interest-bearing accounts,
Premier 55 Club, Premier 55 Plus Club, Gold Club, individual retirement accounts
(5-year IRA CDS grew by $2 million in 1995), longer-term certificates of deposit
(generally of five-year maturity), promotional 30-month and Roll-Up certificates
of deposit (allows the customer to adjust the interest rate up once during the
term by a maximum of 100 basis points) were some of the deposit product
variations.
Growth in deposits of state and political subdivisions ($4.4 million or 23.4%)
was significant, which was the result of marketing specifically designed savings
products (money market and NOW accounts) priced at current market rates for
large balance (greater than $100,000) accounts.
Deposit growth increased during 1995 as a result of the previously mentioned
market priced certificates of deposit. This deposit growth enabled the reduction
in its short-term borrowing from the Federal Home Loan Bank (a reduction of $7.7
million).
During 1994 and 1995, interest rates have moved upward particularly in the
short-term, resulting in a nearly flat yield curve. The Company, as well as its
other bank competitors, has experienced a decline of net interest income as the
result of declining spreads. This resulted in management having to price
interest-bearing liabilities and interest-bearing assets with a more narrow than
normal spread to the yield curve. Further discussion in this area is provided
later in the net interest income section of the management discussion and
analysis.
The methods used by the Company to attract and retain deposits (in addition to
competitive interest rates) have been increased marketing and business
development efforts, continuous emphasis on quality personal service, expanded
trust and investment management services
_____
27
<PAGE>
1995 Annual Report
______________________________________________________________________________
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
______________________________________________________________________________
and more convenient hours. In the seven community offices, lobby hours now
include Wednesday afternoons (when they were traditionally closed) as well as
Saturday hours. The Company currently provides eight MAC automated teller
machines, which are part of the MAC regional and PLUS national network.
On November 28, 1995, the Bank and Meridian Bank, a wholly-owned subsidiary of
Meridian Bancorp, Inc., signed a definitive agreement whereby the Bank will
purchase two retail banking offices located at Canton and Gillett, Pennsylvania,
with deposits totaling approximately $16 million. The sale is subject to
obtaining all regulatory approvals and, therefore, the final closing of the
transaction is not expected until April 1996 (see footnote 15). The impact of
this acquisition is discussed later in the loan and liquidity sections of the
management discussion and analysis.
The Company, in the later half of 1994, engaged a professional marketing firm to
improve communication with current and prospective customers and enhance the
Company's identity. The Company expects to continue this marketing effort into
1996.
Loans
Total loans grew by $4.9 million in 1995, or 3.2%, slowing the strong 10.3%
increase during 1994. The residential mortgage loan portfolio decreased 0.8% as
a result of lower demand during 1995. In addition, $1.7 million in conforming
mortgage loans were originated and sold on the secondary market through the
Federal Home Loan Mortgage Corporation, providing over $37,000 of income in
origination fees and premiums on loans sold, compared to $1.1 million in loans
originated and $22,000 of income in 1994. Residential mortgage lending was down
during 1995 because of fewer properties being sold, less debt being consolidated
using mortgage refinancing, and the Company's interest rates being somewhat
higher than its competitors. However, residential mortgage lending is a
principal business activity and one the Company expects to continue by providing
a full compliment of competitively-priced conforming, nonconforming and home
equity mortgage programs.
Total commercial real estate, commercial and other loans increased by a strong
$2.5 million or 7.8% (down slightly from the 11.5% gain in 1994). Commercial
lending activity is primarily focused on small businesses and the Company's
commercial lending officers have been very successful in attracting new business
loans.
Loans to individuals increased $1.3 million or 11% during 1995 compared to an
increase of $.2 million in 1994. This growth was the result of fewer consumer
loans being combined and refinanced with residential mortgage loans in 1995, as
discussed above.
State and political subdivision loans increased $1 million or 14.3% compared to
an increase of $2.1 million in 1994. Over the last few years, management has
been successful in obtaining tax-exempt loans from local municipalities and
school districts to replace the maturing tax-exempt securities in the investment
portfolio.
Historically, the majority of lending activity has been mortgage loans secured
by one-to four-family residential property. The Company does offer a 25-year
fixed rate mortgage product; however, since 1987 the growth in the mortgage
portfolio has been in the area of one-to-five-year adjustable rate mortgages. As
of December 31, 1995, residential real estate and real estate construction loans
made up 60.3% of the Company's total loan portfolio.
Management expects that when the acquisition of the two branches of Meridian
Bank is completed during the second quarter of 1996, the result will be the
acquisition of approximately $3.6 million in loans. In addition, a strong effort
to increase loan growth by marketing and competitive pricing will be implemented
to utilize the funds provided by the new deposit base.
In 1996 the Company's primary goal is to be the premier mortgage lender in its
market area by expanding its menu of conforming mortgages (including "jumbo" and
low-to-moderate income home buyer mortgages) through North American Mortgage
Company, Farmers Home Administration (FmHA) and Pennsylvania Housing Finance
Agency (PHFA). Continued training of branch office personnel and the focus on
flexibility and fast "turn around time" will aid in meeting this goal. (Also see
the discussion in footnote 4).
<TABLE>
Five Year Breakdown of Loans by Type
December 31,
1995 1994 1993 1992 1991
Amount % Amount % Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate - residential $ 96,594 59.7 $ 97,359 62.0 $ 92,149 64.3 $ 85,196 64.5 $ 71,714 57.9
Real estate - commercial 24,167 14.9 21,915 13.9 19,926 13.9 15,994 12.1 13,430 10.9
Real estate - agricultural 8,027 5.0 7,125 4.5 4,216 2.9 5,011 3.8 2,920 2.4
Real estate - construction 1,018 0.6 1,271 0.8 1,102 0.8 803 0.6 1,505 1.2
Loans to individuals for
family and other purchases 13,198 8.1 11,886 7.7 11,696 8.2 12,637 9.6 16,420 13.3
Commercial and other 10,535 6.5 10,285 6.5 8,959 6.3 8,811 6.7 12,227 9.9
State and political
subdivision loans 8,347 5.2 7,303 4.6 5,170 3.6 3,581 2.7 5,548 4.4
Total loans 161,886 100.0 157,144 100.0 143,218 100.0 132,033 100.0 123,764 100.0
Unearned income 259 575 1,311 2,506 2,021
Allowance for possible loan
losses 1,833 1,721 1,516 1,201 996
Net loans $159,794 $154,848 $140,391 $128,326 $120.747
</TABLE>
_____
28
<PAGE>
Citizens Financial Services, Inc.
______________________________________________________________________________
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
______________________________________________________________________________
The measurement of sensitivity to interest rate change in both earning assets
and funding sources is crucial to the process of asset/liability management. The
predominant source of earning assets is from the loan portfolio. The following
table shows the maturity of commercial and agricultural loans and commercial
loans secured by real estate as of December 31, 1995, classified according to
the sensitivity to changes in interest rates within various time intervals:
<TABLE>
Commercial,
financial, Real estate
agricultural construction Total
<S> <C> <C> <C>
Maturity of loans:
One year or less $ 5,943 $ 29 $5,972
Over one year but less than five years 8,418 -- 8,418
Over five years 28,368 989 29,357
Total $42,729 $1,018 $43,747
Sensitivity of loans to changes in
interest rates - loans due after one year:
Predetermined interest rate $ 7,667 $ 564 $8,231
Floating or adjustable interest rate 29,119 425 29,544
Total $36,786 $ 989 $37,775
</TABLE>
Investments
The investment portfolio, including available-for-sale and held-to-maturity
securities, increased by $9.5 million or 14.7% in 1995 as compared to growth of
$1.6 million in 1994. The primary growth in the investment portfolio occurred in
U. S. Treasury securities of $7.7 million or a 15.1% increase as compared to an
increase of $3.8 million in 1994. Corporate obligations increased by $3.8
million and investments in obligations of state and political subdivisions
declined $1.4 million during 1995.
The 1995 growth in the investment portfolio was the result of strong deposit
growth and slow loan growth described above. The funds that are not used to fund
loans are placed in investments which are of less risk and, therefore, lower
yield. The impact on net interest income is discussed later in the net interest
income section.
The following table shows the year-end composition of the investment portfolio
for the five years ended December 31, 1995:
<TABLE>
Book Value at December 31,
% of % of % of % of % of
1995 Total 1994 Total 1993 Total 1992 Total 1991 Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities $15,591 21.2 $14,594 22.7 $16,126 25.7
Corporate obligations 5,778 7.8 -- -- -- --
Equity securities 75 0.1 46 0.1 45 0.1
Held-to-maturity:
U.S. Treasury securities 42,700 57.9 36,042 56.1 30,686 49.0 $38,942 65.2 $19,441 38.2
Federal agency obligations -- -- 500 0.8 502 0.8 1,000 1.7 5,089 10.0
Obligations of state & political
subdivisions 1,311 1.8 2,735 4.3 3,498 5.6 4,106 6.9 4,915 9.7
Corporate obligations 4,744 6.4 6,729 10.4 7,715 12.3 10,108 16.9 11,334 22.3
Mortgage-backed securities 2,377 3.2 2,513 3.9 3,066 4.9 4,606 7.7 6,829 13.4
Restricted equity securities 1,139 1.6 1,098 1.7 1,007 1.6 980 1.6 3,298 6.4
Total $73,715 100.0 564,257 100.0 $62,645 100.0 $59,742 100.0 $50,906 100.0
</TABLE>
_____
29
<PAGE>
1995 Annual Report
______________________________________________________________________________
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION - continued
______________________________________________________________________________
Maturities and Average Weighted Yields of Investment Securities
Expected maturities and average weighted yields for the above investment
portfolio as of December 31, 1995. Yields on tax-exempt securities are
presented on a fully taxable equivalent basis assuming a 34% tax rate:
<TABLE>
Within One- Five- After
One Five Ten Ten
Year Yield (%) Years Yield (%) Years Yield (%) Years Yield (%) Total Yield (%)
<S> <C> <C> <C> <C> <C> <C> <C> <S> <C> <C>
Held-to-maturity securities:
U.S. Treasury $ 3,517 6.60 $33,884 6.33 $ 5,299 6.33 $ -- -- $42,700 6.35
State & political subdivisions,
general obligation 254 13.02 7 8.33 8 8.33 -- -- 269 12.76
State & political subdivisions,
revenue 200 12.88 592 12.68 -- -- -- -- 792 12.73
State & political subdivisions,
industrial development authority 250 13.07 -- -- -- -- -- -- 250 13.07
Corporate obligations 3,245 8.67 1,499 9.24 -- -- -- -- 4,744 8.85
Mortgage-backed securities 271 6.89 2,106 5.70 -- -- -- -- 2,377 5.83
Restricted equity securities -- -- -- -- -- -- 1,139 6.00 1,139 6.00
Total held-to-maturity $ 7,737 8.06 $38,088 6.51 $ 5,307 6.33 $1,139 6.00 $52,271 6.71
Available-for-sale securities:
U.S. Treasury $ 2,029 6.73 $12,445 7.26 $ 1,117 6.42 $ -- -- $15,591 7.13
Corporate obligations -- -- 5,778 6.27 -- -- -- -- 5,778 6.27
Equity securities -- -- -- -- -- -- 75 1.50 75 1.50
Total available-for-sale $ 2,029 6.73 $18,223 6.94 $ 1,117 6.42 $ 75 1.50 $21,444 6.88
</TABLE>
During 1990 through 1995, the concentration of the Company's investment
portfolio has shifted dramatically, as U.S. Treasury securities now comprise
79.1% of the total portfolio. No new investments have been made in state and
political subdivisions since 1985. In 1995 the Company invested $5.7 million in
corporate obligations (investment grade securities). This investment strategy
reflects management's conservative investment philosophy and its reluctance to
pursue other types of securities that carry more interest rate and credit risk
but offer only a marginally higher rate of return.
Approximately 88% of the amortized cost of debt securities are scheduled to
mature within five years or less (average expected maturity 3.4 years), as
evidenced in footnote 3.
As discussed in footnote 1, as of December 31, 1993, the Company implemented
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." In accordance with SFAS No.
115, investment securities have been segregated between the "available-for-sale"
and "held-to-maturity" categories. The available-for-sale portfolio is "marked
to market" and adjusted against stockholders' equity monthly (net of tax
effect). The accounting for held-to-maturity securities remains the same
(amortized cost method) as in prior years.
It is management's intention to hold substantially all debt securities purchased
to maturity. Further, the Company expects that earnings from operations, the
high liquidity level of the securities, growth of deposits and the availability
of borrowings from the Federal Home Loan Bank is sufficient to meet future
liquidity needs and management does not anticipate selling securities for
liquidity requirements. Accordingly, the majority of the securities portfolio is
classified as held-to-maturity.
The Company has no securities from a single issuer representing more than 10% of
stockholders' equity.
Results of Operations
Net income during 1995 increased to $2.8 million (net income per share of
$2.10), an increase of $209,000 or 8% over the $2.6 million reported in 1994
(net income per share of $1.95).
The following table sets forth certain performance ratios of the Company for the
periods indicated:
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Return on Assets (net income to average total assets) 1.18% 1.17% 1.16%
Return on Equity (net income to average total equity) 14.10% 14.06% 14.22%
Dividend Payout Ratio (dividends declared divided by net income) 40.69% 41.45% 42.20%
Equity to Asset Ratio (average equity to average total assets) 8.38% 8.33% 8.13%
</TABLE>
Net income is influenced by five key elements: net interest income, other
operating income, other operating expenses, provision for income taxes and the
provision for possible loan losses. A discussion of these five elements
follows.
_____
30
<PAGE>
Citizens Financial Services, Inc.
______________________________________________________________________________
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
______________________________________________________________________________
Net Interest Income
The most significant source of revenue is net interest income, the amount by
which interest earned on interest-bearing assets exceeds interest expense on
interest-bearing liabilities. Net interest income in 1995 was $9.6 million (an
increase of $ .2 million or 1.9%) as compared to $9.4 million in 1994 and $8.7
million in 1993.
Factors which influence net interest income are changes in volume of
interest-bearing assets and liabilities as well as changes in the associated
interest rates. The following tables set forth the Company's average balances
of, and the interest earned or incurred on, each principal category of assets,
liabilities and stockholders' equity, the related rates, net interest income and
rate "spread" created:
<TABLE>
Analysis of Average Balances and Interest Rates (1)
1995 1994 1993
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
$ $ % $ $ % $ $ %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Short-term investments:
Interest-bearing deposits at banks 2,334 135 5.78 605 25 4.13 1,790 54 3.02
Federal funds sold -- -- -- -- -- -- 34 1 2.94
Total short-term investments 2,334 135 5.78 605 25 4.13 1,824 55 3.02
Investment securities:
Taxable 64,990 4,309 6.63 61,215 4,111 6.72 58,071 4,119 7.09
Tax-exempt(3) 2,150 271 12.61 2,997 427 14.26 3,791 491 12.95
Total investment securities 67,140 4,580 6.82 64,212 4,538 7.07 61,862 4,610 7.45
Loans:
Residential mortgage loans 96,998 9,018 9.30 93,697 8,229 8.78 85,703 7,690 8.97
Commercial & farm loans 38,615 3,829 9.92 32,937 2,887 8.77 27,238 2,179 8.00
Loans to state & political subdivisions 7,152 644 9.00 6,427 482 7.50 4,027 355 8.82
Other loans 13,989 1,501 10.73 13,833 1,448 10.47 19,057 1,964 10.31
Loans, net of discount (2)(3)(4) 156,754 14,992 9.56 146,894 13,046 8.88 136,025 12,188 8.96
Total interest-earning assets 226,228 19,707 8.71 211,711 17,609 8.32 199,711 16,853 8.44
Cash and due from banks 4,737 4,694 4,295
Bank premises and equipment 4,128 3,999 3,887
FASB 115 adjustment 46 125
Other assets 2,653 3,419 1,860
Total noninterest-bearing assets 11,564 12,237 10,042
Total assets 237,792 233,948 209,753
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
NOW accounts 24,152 557 2.31 26,052 593 2.28 26,252 678 2.58
Savings accounts 25,722 628 2.44 27,388 635 2.32 26,743 746 2.79
Money market accounts 23,003 1,089 4.73 21,363 728 3.41 21,187 676 3.19
Certificates of deposit 119,260 7,067 5.93 105,455 5,565 5.28 98,735 5,570 5.64
Total interest-bearing deposits 192,137 9,341 4.86 180,258 7,521 4.17 172,917 7,670 4.44
Other borrowed funds 8,031 510 6.35 8,440 423 5.01 4,129 183 4.43
Total interest-bearing liabilities 200,168 9,851 4.92 188,698 7,944 4.21 177,046 7,853 4.44
Demand deposits 14,647 14,318 12,166
Other liabilities 2,837 2,268 3,495
Total noninterest-bearing liabilities 17,484 16,586 15,661
Stockholders' equity 20,140 18,664 17,046
Total liabilities & stockholders'
equity 237,792 223,948 209,753
Net interest income 9,856 9,665 9,000
Net interest spread (5) 3.79% 4.11% 4.00%
Net interest income as a percentage
of average interest-earning assets 4.36% 4.57% 4.51%
Ratio of interest-earning assets
to interest-bearing liabilities 1.13 1.12 1.13
</TABLE>
(1) Averages are based on daily balances.
(2) Includes loan origination and commitment fees of $155, $180, and $114 for
1995, 1994 and 1993, respectively.
(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 nonaccrual 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.
_____
31
<PAGE>
1995 Annual Report
______________________________________________________________________________
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
______________________________________________________________________________
The following table shows the effect of changes in volume and rates on interest
income and expense. Rate/Volume variances are allocated to rate and volume
variances based upon the absolute change in each. Tax exempt interest revenue is
shown on a tax equivalent basis for proper comparison using a statutory federal
income tax rate of 34%.
<TABLE>
1995 vs. 1994 1994 vs. 1993
Change in Change Change in Total Change in Change Change in Total
Volume in Rate Rate & Volumes Change Volume in Rate Rate & Volumes Change
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Short-term investments:
Interest-bearing deposits
at banks $ 71 $ 10 $ 29 $ 110 $ (36) $ 20 $ (13) $ (29)
Federal funds sold -- -- -- -- (1) (1) 1 (1)
Total short-term
investments 71 10 29 110 (37) 19 (12) (30)
Investment securities:
Taxable 254 (55) (1) 198 223 (219) (12) (8)
Tax-exempt (121) (49) 14 (156) (103) 50 (11) (64)
Total investments 133 (104) 13 42 120 (169) (23) (72)
Loans:
Residential mortgage loans 290 487 12 789 717 (163) (15) 539
Commercial and farm loans 498 379 65 942 456 208 44 708
Loans to state & political
subdivisions 54 96 12 162 212 (53) (32) 127
Other loans 16 36 1 53 (538) 30 (8) (516)
Total loans - net of
discount (2)(3)(4) 858 998 90 1,946 847 22 (11) 858
Total interest income 1,062 904 132 2,098 930 (128) (46) 756
Interest expense:
Interest bearing deposits:
NOW accounts (43) 8 (1) (36) (5) (81) 1 (85)
Savings accounts (39) 33 (1) (7) 18 (126) (3) (111)
Money market accounts 56 282 23 361 6 46 -- 52
Certificates of deposit 729 685 88 1,502 379 (360) (24) (5)
Total interest-bearing
deposits 703 1,008 109 1,820 398 (521) (26) (149)
Other borrowed funds (20) 113 (6) 87 191 24 25 240
Total interest expense 683 1,121 103 1,907 589 (497) (1) 91
Net interest income $ 379 $ (217) $ 29 $ 191 $ 341 $ 369 $ (45) $ 665
</TABLE>
As can be seen from the preceding tables, tax equivalent net interest income
rose from $9,000,000 in 1993 to $9,665,000 in 1994 and increased to $9,856,000
in 1995. In 1995, net interest income increased $191,000 as overall spread
decreased from 4.11% to 3.79%. The increased volume of interest-earning assets
generated an increase in income of $1,062,000 while increased interest-bearing
liabilities produced $683,000 of interest expense. The change in rate resulted
in an increase of $904,000 in interest income, however, the change in interest
expense was $1,121,000 resulting in a net change of $217,000. The yield on
interest-earning assets increased 39 basis points from 8.32% to 8.71% and the
average interest rate on interest-bearing liabilities increased 71 basis points
from 4.21% to 4.92%. This spread decline fully reflects the nearly 300 basis
point increase in short-term interest rates during 1994. The reduction in rates
during 1995 will be felt during 1996 as the normal loan and deposit rate lag
takes effect. Analysis of the Company's current net interest income in early
1996 indicates that the effects of recent interest rate decreases and the effect
of the yield curve remaining relatively level, might continue to have a negative
effect on interest margin. Management is currently evaluating alternatives to
maintain or improve the interest spread.
Between 1993 and 1994, total interest on earning assets increased $756,000 while
interest expense increased $91,000. Of this $665,000 net interest income growth,
$341,000 was due to changes in volume and $369,000 was due to changes in
interest rates.
Other Operating Income
The Company achieved other operating income of $1,252,000 in 1995, which was an
increase of $116,000 or 10.2% from $1,136,000 in 1994. An increase of $25,000
occurring in service charges on deposit accounts and $9,700 in gains were
realized on the sale and maturity of securities (causing $3,300 of additional
taxes) as compared to $63,000 (causing $21,000 of additional taxes) in 1994.
Other operating income increased $93,000 in 1995 or 57.4% over that of 1994,
primarily as a result of gains in other real estate sold of $45,000 and
additional insurance fees (premiums on credit life and disability insurance) of
$34,000.
Trust income of $255,000 increased 25% from the $204,000 earned during 1994,
primarily as the result of growth in traditional trust and investment business
and estate settlements through a recently instituted employee referral program.
In 1996, management plans to continue to expand small business relationships by
working with the community offices and commercial lending staff.
_____
32
<PAGE>
Citizens Financial Services, Inc.
______________________________________________________________________________
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
______________________________________________________________________________
Other Operating Expenses
Salaries and employee benefits, the largest category of noninterest expense,
increased $62,000 or 2% from $3.1 million in 1994 to $3.2 million in 1995. This
increase was primarily the result of normal annual salary increases offset by
staff reductions made possible through implementation of check imaging and power
proof operations. Management expects further savings in 1996 as the result of
these operational changes. In 1994, salaries and employee benefits expense
increased $306,000 or 11% as the result of the culmination of a restructuring
plan begun in 1993. The restructuring included the hiring of five highly
qualified officers in the Banking Services, Data Processing, Audit,
Finance/Control and Trust and Investment Services Departments. In addition,
specialized departments were created in 1993 for loan processing, collections
and tele-services.
Occupancy expense increased $22,000 in 1995, or 5.6%, as compared to an increase
of $28,000 in 1994. Furniture and equipment expense declined $25,000 or 4.2% and
was virtually unchanged in 1994 compared to 1993. Reduced depreciation expense
accounted for most of the decline.
FDIC insurance costs declined significantly, $117,000 or 29%, as the result of
the Bank Insurance Fund ("BIF") meeting its statutorily mandated reserve
requirements and deposit premiums being reduced. The FDIC has authorized an
additional premium reduction effective in 1996 (BIF to be reduced to a minimum
of $2,000 per year while Savings Association Insurance Fund ("SAIF") deposit
balances continue at a premium of $.23 per hundred).
The Company also currently pays a deposit premium to the FDIC for the SAIF (a
result of the deposits obtained with the acquisition of Star Savings and Loan
Association in 1990). Congress is currently evaluating proposals to recapitalize
SAIF and, although no agreement has been reached between the House and Senate
regarding recapitalization of the SAIF fund, it appears that the Company, as
well as other financial institutions with SAIF deposits, may be required to pay
a one-time special assessment that could approximate 85 basis points on such
deposits, possibly during the first half of 1996. The special assessment may
adversely effect earnings and liquidity by approximately $290,000 when paid if
the current proposals are enacted into law.
Other expenses increased in 1995 by $233,000 or 11.6% compared to an increase of
$39,000 in 1994. The increase during 1995 was a result of an additional $69,000
repossession foreclosure expense and increases in software maintenance and
computer supply expenses relating to the implementation of check imaging.
A recent reorganization by the Company's current computer application software
vendor has made it necessary for the Company to begin the process of evaluating
new computer software and hardware alternatives. This evaluation process will be
completed during 1996 with the actual implementation of the new processing to
occur in 1997. The associated costs have yet to be determined but it may
adversely impact future short-term earnings. Management anticipates that
increased productivity and additional customer services will help mitigate an
adverse impact over the long term.
In addition, the Company expects to evaluate a number of other strategic
technology issues such as a call center, voice response system and computer
networking during 1996. It is management's intention that (based upon current
expectations and market conditions) none of the proposed strategic technology
projects will have a material impact on liquidity of the Company, and capital
expenditures will be offset by improved operating efficiency.
Provision for Income Taxes
The provision for income taxes for 1995 increased by $3,000 to $1.2 million,
compared to the $250,000 increase in 1994, due to increased earnings adjusted by
tax-free interest income.
An additional variance between 1994 and 1993 was the impact of a 1993 credit for
state income not applicable in 1994, resulting in a net increase of $119,000.
Loan Quality and Provision for Possible Loan Losses
As discussed above, the loan portfolio contains a large portion of real estate
secured loans (generally residential home mortgages, mortgages on small business
properties, etc.), and consumer installment loans and other commercial loans.
Footnote 4 provides further details on the composition of the loan portfolio and
is incorporated herein.
Management follows quality credit underwriting policies and collection practices
and is supplemented by an internal loan review program. In addition, as part of
the restructuring discussed above, a separate collections department was
established in 1993 to focus on the collection and workout of problem loans. The
board of directors and management believe all of these initiatives have led to
relatively low levels of non-performing loans and loan chargeoffs. The following
tables indicate the level of non-performing loans, net chargeoffs and charges
against the allowance for losses on real estate owned over the past five years
ending December 31:
<TABLE>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Nonperforming loans:
Nonaccruing loans $ 763 $1,557 $1,566 $ 689 $ 154
Impaired loans 696 -- -- -- --
Accrual loans - 90 days
or more past due 689 267 418 439 977
Total nonperforming
loans $2,148 $1,824 $1,984 $1,128 $1,131
Net chargeoffs
(recoveries)
for loan losses $ 51 $ 50 $ -- $ 119 $ 88
Net chargeoffs
(recoveries) for real
estate owned losses $ -- $ -- $ -- $ -- $ 26
</TABLE>
The composition of nonaccrual loans at December 31, 1995, consists predominately
of one-to four-family residential loans where the accrual of interest has been
discontinued.
Another way to view the credit quality exposure of the loan portfolio is by
reviewing the "watch list" categories used by management (and as required by the
regulatory agencies). This monitoring process is reviewed and reported monthly
to identify problems or potential problems.
Loans classified on the "watch list" as of December 31:
1995 1994 1993
Special mention $ 232 $1,106 $1,856
Substandard 4,093 2,781 2,250
Doubtful 41 10 16
Loss -- -- --
Total $4,366 $3,897 $4,122
Percent of total loans 2.73% 2.52% 2.94%
_____
33
<PAGE>
1995 Annual Report
______________________________________________________________________________
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
______________________________________________________________________________
Based upon current information available and upon measures taken to maintain the
allowance for loan losses at an appropriate level, management does not believe
there are any loans classified for regulatory purposes as loss, doubtful,
substandard, special mention or otherwise which will result in losses which
would reasonably be expected to have a material impact on future operations,
liquidity or capital reserves. At December 31, 1995, there were no loans which
were not included as past due, nonaccrual or restructured troubled debt, where
known information about possible credit problems of borrowers causes management
to have serious doubts as to the ability of such borrowers to comply over the
next six months with present loan repayment terms. Management is not aware of
any other information which causes it to have serious doubts as to the ability
of borrowers in general to comply with repayment terms.
The following table presents an analysis of the allowance for possible loan
losses for the five years ending December 31:
<TABLE>
Summary of Loan Loss Experience
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Balance at
beginning of period $1,721 $1,516 $1,201 $ 996 $ 914
Charge-offs (domestic only):
Real estate - construction -- -- -- -- --
Real estate - mortgage 23 31 25 1 11
Installment and credit plans 42 28 43 63 40
Commercial, financial, agricultural 4 9 3 87 103
Lease financing
Total loans charged-off 69 68 71 151 154
Recoveries (domestic only):
Real estate - construction -- -- -- -- --
Real estate - mortgage -- -- 3 30 --
Installment and credit plans 15 14 60 1 45
Commercial, financial, agricultural 3 4 8 1 21
Lease financing
Total loans recovered 18 18 71 32 66
Net loans charged-off 51 50 -- 119 88
Provisions charged to expense 163 255 315 324 170
Balance at end of year $1,833 $1,721 $1,516 $1,201 $ 996
Loans outstanding at end of
year $161,627 $156,569 $141,907 $129,527 $121,743
Average loans outstanding, net $156,754 $146,894 $136,025 $126,604 $116,911
Net charge-offs to average loans 0.03% 0.03% 0.00% 0.09% 0.08%
Year-end allowance to total loans 1.13% 1.10% 1.07% 0.93% 0.82%
Year-end allowance to total
non-performing loans 85.38% 94.35% 76.41% 106.47% 88.06%
</TABLE>
As detailed in footnote 4 and the above tables, total past due (90 days or more)
and non-performing loans increased 18% from December 31, 1994, to December 31,
1995, primarily the result of a single large credit collateralized by real
estate. Nonaccural loans decreased by 6% from 1994. The majority of the loan
volume is well collateralized by real estate or guaranteed by the Small Business
Administration or Farmers Home Administration. Total charge-offs for 1996 are
still expected to approximate the moderate historic levels.
Allowance For Possible Loan Losses
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 annual 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 nonperforming
assets, and other relevant factors. While management evaluates all of this
information, 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 possible 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 allowance for possible loan losses has steadily increased as a percentage of
total loans, amounting to 1.07%, 1.10%, and 1.13% as of December 31, 1993, 1994,
and 1995, respectively. The 1995 growth is the combined result of a $163,000
charge to earnings and $51,000 in net loan losses. The level of charge-offs and
recoveries were relatively the same as 1994.
_____
34
<PAGE>
Citizens Financial Services, Inc.
______________________________________________________________________________
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
______________________________________________________________________________
<TABLE>
Allocation of the Allowances for Loan Losses
Balance at end of period applicable to: 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Commercial and other $ 646 $ 660 $ 546 $ 477 $ 469
Real estate- construction -- -- -- -- --
Real estate - residential, agricultural 433 542 400 344 262
Installment loans to individuals 360 264 267 289 257
Unallocated 394 255 303 91 8
Total allowance for
possible loan losses $1,833 $1,721 $1,516 $1,201 $ 996
</TABLE>
<TABLE>
The following table provides the percentage distribution of the allowance for
possible loan losses and the various loan categories:
1995 1994 1993 1992 1991
Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and other 35.3 26.6 38.3 25.0 36.0 23.8 39.7 21.5 47.1 25.2
Real estate - construction -- 0.6 -- 0.8 -- 0.8 -- 0.6 -- 1.2
Real estate - residential, agricultural 23.6 64.7 31.6 66.5 26.4 67.2 28.6 68.3 26.3 60.3
Installment loans to individuals 19.6 8.1 15.3 7.7 17.6 8.2 24.1 9.6 25.8 13.3
Unallocated 21.5 -- 14.8 -- 20.0 -- 7.6 -- 0.8 --
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
</TABLE>
As described in footnote 1 and footnote 4, in 1995 the Company has implemented
SFAS 114 as amended by SFAS 118, which impacted management's method for
determining the allowance for loan losses. Management does not believe any
material impact on earnings will occur as a result of the implementation of SFAS
114 in the future.
Stockholders' Equity
Stockholders' equity is evaluated in relation to total assets and the risk
associated with those assets. The greater the capital resources, the more likely
a corporation is to meet its cash obligations and absorb unforeseen losses. For
these reasons capital adequacy has been, and will continue to be, of paramount
importance.
Stockholders' equity has grown by 12.7% in 1995, 3.1% in 1994, and 12.3% in
1993, to the current level of $21.3 million. Adjustments made to equity for
gains and losses on available-for-sale securities resulted in an increase of
$349,000 in 1995 compared to a decrease of $364,000 in 1994. Total equity has
been consistently increasing (approximately 8.6% of total assets at December 31,
1995, as compared to 8.1% at December 31, 1994).
Management does not currently anticipate that any of the major equipment and
software purchases discussed previously will have a material adverse effect on
stockholders' equity during 1996. In addition, management expects the
acquisition of two branches discussed previously will reduce the bank's leverage
ratio but it is anticipated that it will remain well above federal minimums.
The Company pays cash dividends on a semiannual basis. The dividend rate is
determined by the Board of Directors after considering the Company's capital
requirements, current and projected net income, and other factors. In 1995 and
1994, 40.7% and 41.5% of net income was paid out in dividends, respectively.
The Company paid a one percent stock dividend in July 1995. The one percent
stock dividend resulted in 12,780 additional common shares outstanding. For the
year ended December 31, 1995, the total number of common shares outstanding was
1,347,323. For comparative purposes, outstanding shares for prior periods were
adjusted for the 1995 stock dividend in computing earnings and cash dividends
per share.
There are currently three federal regulatory measures of capital adequacy. The
following table presents ratios and shows that the Company's ratios
substantially exceed all federal regulatory standards. The Company has computed
its risk-based capital ratios as follows:
<TABLE>
December 31,
1995 1994 1993
<S> <C> <C> <C>
Tier 1 - Total stockholders' equity $ 21,297 $ 18,903 $ 18,340
Less: Unrealized holding
gains (losses) on
available-for-sale securities 349 (364) 609
Tier 1, net 20,948 19,267 17,731
Tier ll - Allowance for loan losses (1) 1,719 1,625 1,467
Total qualifying capital $ 22,667 $ 20,892 $ 19,198
Risk-adjusted
on-balance sheet assets $131,247 $123,077 $112,271
Risk-adjusted off-balance
sheet exposure (2) 6,242 6,956 5,079
Total risk-adjusted assets $137,489 $130,033 $117,350
December 31,
Ratios: 1995 1994 1993
Tier I risk-based capital ratio 15.2% 14.8% 15.1%
Federal minimum required 4.0 4.0 4.0
Total capital ratio - actual 16.5% 16.1% 16.4%
Federal minimum required 8.0 8.0 8.0
Leverage ratio (3) 8.7% 8.6% 8 5%
Federal minimum required 4.0 4.0 4.0
</TABLE>
(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.
_____
35
<PAGE>
1995 Annual Report
______________________________________________________________________________
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
______________________________________________________________________________
Liquidity
The Company has implemented asset/liability management along with investment
policies to assure its liquidity requirements to depositors, credit customers
and shareholders can be met.
There are seasonal and cyclical timing differences between growth in loans and
core deposits. A basic objective of liquidity management is to accommodate these
timing differences by ensuring the availability of funds to meet customers' loan
and deposit withdrawal needs in a cost-efficient manner. A further objective is
to minimize the adverse impact of loan and core deposit activity in the event of
a disruption in normal funding sources, whether such disruption is market-wide
or specific to the Company.
Liquidity is managed on both the asset and liability sides of the balance sheet.
Asset-based liquidity is liquidity that is created by building a stable funding
base greater than what is currently used to fund less liquid assets (primarily
loans), with the excess stored in the form of short-term investments and the
available-for-sale portion of the investment portfolio. Liability-based
liquidity is liquidity that is created through access to wholesale funding
markets (short-term borrowings), where volume can be rapidly increased to
accommodate loan demand. Management prefers to provide the Company with asset-
based liquidity by building a core deposit base with strong customer
relationships when possible.
The Company's historical activity in this area can be seen in the Consolidated
Statement of Cash Flows from investing and financing activities.
Investing activity in the available-for-sale and held-to-maturity securities
increased to reinvest the funds received from matured securities and additional
amounts provided by increased deposit growth not utilized by loan demand.
At year-end 1995, the Company had short-term borrowings, using the Federal Home
Loan Bank ("FHLB") FlexLine, of $1.7 million compared to $9.4 million at year-
end 1994. It is management's intent to minimize short term borrowing by
increasing the volume of core deposits and the funding of some future loan
demand by selling conforming mortgages as previously discussed.
To assure the maintenance of liquidity reserves, the Company monitors and places
various internal constraints on the level of loans relative to core deposits and
other stable funding sources; the liquidity characteristics of investments; and
the volume and maturity structure of wholesale funding.
The following table shows the maturity or repricing of the Company's assets and
liabilities at December 31, 1995, based on amortized cost.
<TABLE>
0-3 months 3-12 months 1-3 years 3-5 years 5-10 years Over 10 years Total
<S> <C> <C> <C> <C> <C> <C> <C>
Investment securities and
interest-bearing deposits $ 2,901 $ 6,882 $ 27,752 $28,171 $ 7,519 $ 527 $ 73,752
Loans, net 45,636 43,235 32,937 19,011 15,572 3,403 159,794
Total interest-earning assets $ 48,537 $ 50,117 $ 60,689 $47,182 $ 23,091 $ 3,930 $233,546
Interest-bearing demand
and savings deposits $ 20,197 $ 10,711 $ 22,587 $19,599 $ -- $ -- $ 73,094
Certificates of deposit 23,818 49,017 36,258 15,927 62 -- 125,082
Borrowed funds 2,987 1,675 1,777 708 1,079 629 8,855
Total interest-bearing
liabilities $ 47,002 $ 61,403 $ 60,622 $36,234 $ 1,141 $ 629 $207,031
Excess interest-earning
assets (liabilities) $ 1,535 $(11,286) $ 67 $10,948 $ 21,950 $ 3,301
Cumulative interest-earning
assets $ 48,537 $ 98,654 $159,343 $206,525 $229,616 $233,546
Cumulative interest-bearing
liabilities 47,002 108,405 169,027 205,261 206,402 207,031
Cumulative gap $ 1,535 $ (9,751) $ (9,684) $ 1,264 $ 23,214 $ 26,515
Cumulative interest rate
sensitivity ratio (1) 1.03 0.91 0.94 1.01 1.11 1.13
</TABLE>
(1) Cumulative interest-earning assets divided by interest-bearing liabilities.
This table 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. While placing the balances in the various time intervals may reflect the
contractual right or ability to change interest rate on these items, it does not
reflect the actual pricing behavior nor does it capture rate-volume
interactions. This is one of the limitations of gap analysis as an interest rate
risk management tool.
_____
36
<PAGE>
Citizens Financial Services, Inc.
______________________________________________________________________________
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
______________________________________________________________________________
Because of the limitations of gap reports, the Company uses a simulation model
as its primary method of measuring interest rate risk. The simulation model,
because of its dynamic nature, forecasts the effects of future balance sheet
trends, changing slopes of the yield curve, different patterns of rate movement,
and changing relationships between rates. The results of simulation analyses are
used by management to evaluate possible corrective actions to reduce negative
impact to net interest margin.
Capital expenditures of $463,000 in 1995 was less than 1994 by $139,000, of
which approximately $395,000 was a final payment on the check imaging system
installed during the second half of 1995. Management expects normal equipment
replacements of about $100,000 for 1996. These purchases will allow greater
operating efficiencies and provide the customer with a higher quality product.
The proposed acquisition of two branches discussed previously will have a net
positive impact to liquidity by the addition of the proceeds from the settlement
purchase of approximately $16 million in deposits, reduced by approximately $3.6
million in loans, fixed assets and a deposit premium.
Management has begun the process to find a solution to the space issue it is
experiencing at its main office. As the result of recent growth and related
needs to hire personnel, the Company is currently renting office space in three
separate buildings as a temporary solution. Management is continuing to evaluate
alternative sites for construction of the new facility. Preliminary estimates
are that the earliest start of any construction will be in 1997.
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 non-interest expenses, which tend to rise during periods of general
inflation. The level of inflation over the last few years has been declining.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the "Act")
was signed into law on December 19, 1991. The Act addresses the recapitalization
of the bank insurance fund and is designed to limit risk within the banking
industry. Much of the impact of the legislation has taken place and management
does not believe that full implementation of the Act will have a material impact
on liquidity, capital resources or reported results of operations in future
periods.
The passage of the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 and the Riegle Community Development and Regulatory Improvement Act may
have a significant impact upon the Company. The key provisions pertain to
interstate banking and interstate branching as well as a reduction in the
regulatory burden on the banking industry. Since September 1995, bank holding
companies may acquire banks in other states without regard to state law. In
addition, banks can merge with other banks in another state beginning in June
1997. States may adopt laws preventing interstate branching but, if so, no
out-of-state bank can establish a branch in such state and no bank in such state
may branch outside the state. Pennsylvania recently amended the provisions of
its Banking code to authorize full interstate banking and branching under
Pennsylvania law and to facilitate the operations of interstate banks in
Pennsylvania.
As a result of legal and industry changes, management predicts that
consolidations will continue as the financial services industry strives for
greater cost efficiencies and market share. Management believes that such
consolidation may enhance its competitive position as a community bank.
There are numerous proposals before Congress to modify the financial services
industry and the way commercial banks operate. However, it is difficult to
determine at this time what effect such provisions may have until they are
enacted into law.
Normal examinations of the Company by the Comptroller of the Currency occurred
during 1995. The last Community Reinvestment Act performance evaluation by the
same agency during 1993 resulted in a rating of "Satisfactory Record of Meeting
Community Credit Needs".
Aside from those matters described above, management does 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, nor is it
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 the Company's results of operations.
_____
37
<PAGE>
______________________________________________________________________________
[GRAPHIC OMITTED: Silhouette of a colonial rider on horseback, approximately 1
inch square, top center of page]
______________________________________________________________________________
FIRST CITIZENS NATIONAL BANK
______________________________________________________________________________
FULL SERVICE
COMMUNITY BANKING HOURS
MANSFIELD*
M,T,W,Th: 8:30 am - 4:30 pm
Fri.: 8:30 am - 6:00 pm
Sat.:8:30 am - Noon
BLOSSBURG*
M,T,W,Th: 8:30 am - 4:30 pm
Fri.:8:30 am - 6:00 pm
Sat.: 8:30 am - Noon
ULYSSES*
M,T,W,Th: 8:30 am - 4:30 pm
Fri.: 8:30 am - 6:00 pm
Sat.: 8:30 am - Noon
GENESEE*
M,T,W,Th: 8:30 am - 4:30 pm
Fri.: 8:30 am - 6:00 pm
Sat.: 8:30 am - Noon
SAYRE*
M,T,W,Th: 8:30 am - 4:30 pm
Fri.: 8:30 am - 6:00 pm
Sat.: 8:30 am - Noon
WELLSBORO*
M,T,W,Th: 8:30 am - 4:30 pm
Fri.: 8:30 am - 6:00 pm
Sat.: 8:30 am - Noon
TROY*
M,T,W,Th: 8:30 am - 4:30 pm
Fri.: 8:30 am - 6:00 pm
Sat.: 8:30 am - Noon
* Drive-up opens at 8:00 am
______________________________________________________________________________
CITIZENS FINANCIAL SERVICES, INCORPORATED
______________________________________________________________________________
15 SOUTH MAIN STREET
MANSFIELD, PA 16933
717-662-2121
800-326-9486
FAX 717-662-2365
DIRECTORS
Robert E. Dalton
Chairman of the Board
Bruce L. Adams
Carol J. Bond
R. Lowell Coolidge, Esquire
Larry J. Croft
Robert J. Landy, Esquire
John E. Novak
John M. Thomas, MD
Rudolph J. van der Hiel, Esquire
William D. VanEtten
Richard E. Wilber
DIRECTORS EMERITI
Edward Kosa
Constantine Kurzejewski
John G. Kuster
Robert G. Messinger
Wilber Wagner
DIRECTORS
Robert E. Dalton
Chairman of the Board
Bruce L. Adams
Carol J. Bond
R. Lowell Coolidge, Esquire
Larry J. Croft
Robert J. Landy, Esquire
John E. Novak
John M. Thomas, MD
Rudolph J. van der Hiel, Esquire
William D. VanEtten
Richard E. Wilber
President
Chief Executive Officer
OFFICERS
Administrative Services
Cynthia T. Pazzaglia
Administrative Services Division Manager
Human Resources Manager
Audit/Compliance
V. Guy Abell
Auditor
Robert D. Wrisley
Vice President
Loan Compliance and Review
Karen R. Jacobson
Assistant Auditor/Security Officer
Banking Services
Terry B. Osborne
Executive Vice President
Secretary, Citizens Financial Services, Inc.
Jerald J. Rumsey
Senior Vice President
Credit Services Manager
Robert L. Champion
Commercial Services Officer
Pamela A. Hazelton
Appraiser
Wendy L. Southard
Marketing Coordinator
Finance/Control
Thomas C. Lyman
Treasurer, Citizens Financial Services, Inc.
Finance/Control Division Manager
Randall E. Black
Controller
Operations
William W. Wilson
Vice President
Operations Division Manager
Michael D. Miller
Data Operations Manager
Joanne W. Marvin
Banking Operations Manager
Trust and Investment Services
Deborah E. Scott
Vice President
Trust/Investment Services Division Manager
Douglas P. Smith
Trust Investment Officer
Jean A. Knapp
Trust Administrator
Sara J. Roupp
Trust Administrator
_____
38
<PAGE>
______________________________________________________________________________
[GRAPHIC OMITTED: Silhouette of a colonial rider on horseback, approximately
one inch square, top of page]
______________________________________________________________________________
MISSION
STATEMENT
We Recognize That Our Customers Are The Reason For Our Existence.
Our mission is to be the dominant financial services provider in our
marketplace. We will establish ourselves apart from other financial vendors by
providing service excellence to our customers through satisfied, motivated,
professionalemployees and a profitable range of financial services to meet the
customers' changing needs. It is also our mission to profitably satisfy
shareholder performance expectations and to be an active citizen of the
communities we serve.
______________________________________________________________________________
[LOGO OMITTED: F.D.I.C. EQUAL HOUSING LENDER]
______________________________________________________________________________
COMMUNITY OFFICES
Toll free to all locations: 800-326-9486
________________________________________________
MANSFIELD 717-662-2121
15 South Main Street
Mansfield, PA 16933 FAX 717-662-3278
Local Board
William J. Waldman
Chairman
Anthony D. Fiamingo
Allan K. Reed
Stephen A. Saunders
William J. Smith
Officers
Allan K. Reed
Assistant Vice President/Office Manager
James T. Hepp
Assistant Office Manager
Shari L. Bolt
Customer Service Counselor
Kristina M. Payne
Customer Service Counselor
________________________________________________
BLOSSBURG 717-638-2115
300 Main Street
Blossburg, PA 16912 FAX 717-638-3178
Local Board
Mark L. Dalton
Chairman
Terrance M. Asalone
Harold K. House
George D. Lloyd
Thomas Phinney
Officers
Terrance M. Asalone
Office Manager
Michele E. Litzelman
Customer Service Counselor
________________________________________________
ULYSSES 814-848-7572
502 Main Street
Ulysses, PA 16948 FAX 814-848-7633
Local Board
Ronald G. Bennett
Chairman
Lloyd R. Dugan
D. Thomas Eggler
Phillip D. Vaughn
James A. Wagner
Officers
Phillip D. Vaughn
Assistant Vice President/Office Manager
L. Abbie Lerch
Customer Service Counselor
________________________________________________
GENESEE 814-228-3201
RD 1 Box 58
Genesee, PA 16923 FAX 814-228-3395
Local Board
Gene E. Kosa
Chairman
William R. Austin
John K. Hyslip
Stephen B. Richard
Dennis C. Smoker
Officers
William R. Austin
Assistant Vice President/Office Manager
Christine M. Miller
Customer Service Counselor
________________________________________________
SAYRE 717-888-6602
306 West Lockhart Street
Sayre, PA 18840 FAX 717-888-3198
Local Board
Joseph Burkhart
Chairman
Blaine W. Cobb, MD
Robert Elsbree
Russell Knight
Chester L. Reed
Officers
Chester L. Reed
Assistant Vice President/Office Manager
Toni Tracy
Customer Service Counselor
________________________________________________
TROY 717-297-4131
303 West Main Street
Troy, PA 16947 FAX 717-297-4133
Local Board
Lyle A. Haflett
Chairman
Thomas A. Calkins, III
Richard H. Packard
David E. Carlson
Donald D. White
Officers
David E. Carlson
Office Manager
________________________________________________
WELLSBORO 717-724-2600
99 Main Street
Wellsboro, PA 16901 FAX 717-724-4381
Local Board
William A. Hebe, Esquire
Chairman
Robin K. Carleton
Timothy J. Gooch
Jeffrey L. Wilson
Officers
Jeffrey L. Wilson
Assistant Vice President/Office Manager
MAC
Money Access Card
______________________________________________________________________________
[MAC LOGO OMITTED]
______________________________________________________________________________
24 Hour Automated Teller
*Mansfield
*Mansfield University
*Mansfield WalMart
*Soldiers and Sailors Memorial Hospital
*Wellsboro
*Genesee
*Ulysses
*Sayre
_____
39
<PAGE>
______________________________________________________________________________
THE BUSINESS OF CITIZENS FINANCIAL SERVICES, INC.
______________________________________________________________________________
SHAREHOLDER INFORMATION
ANNUAL MEETING
The Annual Meeting and Luncheon for the shareholders of Citizens Financial
Services, Inc. will be held at the Tioga County Fairgrounds Youth Building in
Whitneyville, PA on Tuesday, April 16, 1996 at 12:00 noon.
FORM 10-K
The Annual Report to the Securities and Exchange Commission, Form 10-K, will be
made available upon request.
Contact:
Thomas C. Lyman
Treasurer
Citizens Financial Services, Inc.
15 South Main Street
Mansfield, PA 16933
The Annual Report and other Company reports are also filed electronically
through the Electronic Data Gathering, Analysis, and Retrieval System ("EDGAR")
which performs automated collection, validation, indexing, acceptance, and
forwarding of submissions to the Securities and Exchange Commission (SEC) and
is accessible by the public using the Internet at
http://www.sec.gov./edgarhp.htm.
TRANSFER AGENT
Citizens Financial Services, Inc.
15 South Main Street
Mansfield, PA 16933
Telephone: 717-662-2121 / 800-326-9486
SHAREHOLDER SERVICES
Shareholder inquiries and requests for assistance should be directed to the
Transfer Agent listed above.
STOCK PURCHASING INFORMATION
The stock symbol for Citizens Financial Services, Inc. is "CZFS". Citizens
Financial Services, Inc. stock is traded Over the Counter ("OTC") through the
following Market Makers:
Market Makers
Ferris-Baker-Watts
6 Bird Cage Walk
Hollidaysburg, PA 16648
Telephone: 800-343-5149
Ryan, Beck & Co.
80 Main Street
West Orange, NJ 07052
Telephone: 800-342-2325
Hopper Soliday & Co., Inc.
1703 Oregon Pike
Lancaster, PA 17601-4201
Telephone: 800-646-8647
W H Newbolds Son & Co.
1500 Walnut Street
Philadelphia, PA 19102
Telephone: 800-441-4132
Janney Montgomery Scott
1601 Market Street
Philadelphia, PA 19103
Telephone: 800-JANNEYS
PaineWebber Incorporated
10 Park Street
PO Box 2636
Concord, NH 03302
Telephone: 800-678-0619
_____
40
<PAGE>
