<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1995
------------------------------------------------
Commission file number 2-96144
-------
CITIZENS FINANCIAL CORP.
- - ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 55-0666598
- - -----------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
213 Third Street, Elkins, West Virginia 26241
- - -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(304) 636-4095
- - -----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- - -----------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------- --------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
Class March 31, 1995
----- ----------------
Common Stock ($2 par value) 688,288
This report contains 20 pages.
1
<PAGE>
FORM 10-Q
CITIZENS FINANCIAL CORP.
Quarter Ended March 31, 1995
INDEX
Page No.
--------
Part I. Financial Information
Condensed Consolidated Balance Sheets
March 31, 1995 and December 31, 1994.............. 3
Condensed Consolidated Statements of Income
Three Months Ended
March 31, 1995 and March 31, 1994................. 4 & 5
Condensed Consolidated Statements of
Changes in Shareholders' Equity
Three Months Ended
March 31, 1995 and March 31, 1994................. 6
Condensed Consolidated Statements of
Cash Flows
Three Months Ended
March 31, 1995 and March 31, 1994................. 7
Notes to Condensed Consolidated
Financial Statements.............................. 8 - 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................................... 13 - 18
Part II. Other Information and Index to Exhibits............. 19
Signatures......................................... 20
2
<PAGE>
PART I - FINANCIAL INFORMATION
CITIZENS FINANCIAL CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
----------- ------------
(Unaudited) *
<S> <C> <C>
ASSETS
- - ------
Cash and due from banks $ 2,568 $ 3,184
Federal funds sold 0 0
Securities available for sale (Note 2) 513 539
Securities held to maturity (estimated fair
value $44,066 and $47,712, respectively) (Note 2) 44,608 49,008
Loans, less allowance for loan losses of
$1,013 and $1,000, respectively (Notes 3 and 4) 71,465 67,716
Premises and equipment 1,487 1,534
Accrued interest receivable 1,201 1,241
Other assets 790 705
-------- --------
Total Assets $122,632 $123,927
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
Deposits:
Noninterest bearing $ 13,960 $ 14,544
Interest bearing 93,537 93,519
-------- --------
Total deposits 107,497 108,063
Short-term borrowings 993 2,131
Long-term borrowings 240 203
Other liabilities 729 554
-------- --------
Total liabilities 109,459 110,951
-------- --------
Commitments and contingencies (Note 5)
SHAREHOLDERS' EQUITY
- - --------------------
Common stock, authorized, 1,250,000 shares of
$2.00 par value; issued 750,000 shares 1,500 1,500
Additional paid in capital 2,100 2,100
Retained earnings 10,424 10,151
Treasury stock, at cost, 61,712 and 58,080
shares, respectively (851) (775)
-------- --------
Total shareholders' equity 13,173 12,976
-------- --------
Total Liabilities and Shareholders' Equity $122,632 $123,927
======== ========
</TABLE>
*From audited financial statements.
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
CITIZENS FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1995 1994
(Unaudited)
<S> <C> <C>
INTEREST INCOME
- - ---------------
Interest and fees on loans $1,540 $1,341
Interest and dividends on
securities:
Taxable 586 620
Tax-exempt 75 69
Interest on federal funds sold 10 19
------ ------
Total interest income 2,211 2,049
------ ------
INTEREST EXPENSE
- - ----------------
Interest on deposits 771 787
Interest on short-term borrowing 11 14
Interest on long-term borrowing 1 0
------ ------
Total interest expense 783 801
------ ------
Net interest income 1,428 1,248
Provision for loan losses 15 0
------ ------
Net interest income after
provision for loan losses 1,413 1,248
------ ------
OTHER INCOME
- - ------------
Trust department income 1 8
Service fees 55 41
Insurance commissions 7 7
Realized securities gains, net 0 0
Other 23 11
------ ------
Total other income 86 67
------ ------
OTHER EXPENSES
- - --------------
Salaries and employee benefits 469 487
Net occupancy expense 66 63
Equipment rentals, depreciation
and maintenance 71 65
Data processing 69 75
Advertising 21 20
FDIC insurance 61 62
Other 238 229
------ ------
Total other expenses 995 1,001
------ ------
Income before income taxes 504 314
Income tax expense 162 104
------ ------
Net income $ 342 $ 210
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CITIZENS FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars, except per share data)
(Continued)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1995 1994
(Unaudited)
<S> <C> <C>
Earnings per common share (Note 6) $ .50 $ .30
======== ========
Weighted average shares outstanding 689,539 691,920
Dividends per common share $ .10 $ .10
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
CITIZENS FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1995 and 1994
--------------------------------------------------------
(unaudited)
Total
Additional Share-
Common Stock Paid-in Retained Treasury holders'
Shares Amount Capital Earnings Stock Equity
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 750,000 $1,500 $2,100 $ 9,457 $(775) $12,282
Net income 210 210
Cash dividends declared
($.10 per share) (69) (69)
---------------------------------------------------------
Balance, March 31, 1994 750,000 $1,500 $2,100 $ 9,598 $(775) $12,423
=========================================================
Balance, January 1, 1995 750,000 $1,500 $2,100 $10,151 $(775) $12,976
Net income 342 342
Cost of 3,632 shares acquired
as treasury stock (76) (76)
Cash dividends declared
($.10 per share) (69) (69)
---------------------------------------------------------
Balance March 31, 1995 750,000 $1,500 $2,100 $10,424 $(851) $13,173
=========================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
CITIZENS FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1995 1994
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 342 $ 210
Adjustments to reconcile net income to
cash provided by operating activities:
Provision for loan losses 15 0
Depreciation and amortization 78 79
Amortization and accretion on securities 162 191
Decrease (increase) in accrued interest
receivable 40 (80)
Increase in other assets (101) (46)
Increase in other liabilities 175 108
------- -------
Cash provided by operating activities 711 462
------- -------
Cash flows from investing activities:
Proceeds from principal payments received
on securities held to maturity 133 285
Proceeds from calls of securities
available for sale 26 0
Proceeds from maturities and calls of
securities held to maturity 4,105 315
Purchases of securities available for sale 0 (63)
Purchases of securities held to maturity 0 (1,063)
Purchases of premises and equipment (15) (42)
Increase in loans (3,764) (979)
------- -------
Cash provided (used) by investing
activities 485 (1,547)
------- -------
Cash flows from financing activities:
Cash dividends paid (69) (69)
Acquisition of treasury stock (76) 0
Decrease in short-term borrowing (1,138) (151)
Increase in long-term borrowing 37 0
Increase in time deposits 1,730 120
Decrease in other deposits (2,296) (1,597)
------- -------
Cash used by financing activities (1,812) (1,697)
------- -------
Net decrease in cash and cash equivalents ( 616) (2,782)
Cash and cash equivalents at beginning of period 3,184 7,129
------- -------
Cash and cash equivalents at end of period $ 2,568 $ 4,347
======= =======
Supplemental disclosure of noncash investing
and financing activities:
Cash paid during the period for:
Interest $ 757 $ 816
Income Taxes $ 26 $ 28
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
CITIZENS FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
---------------------
The accounting and reporting policies of Citizens Financial Corp. and
Subsidiary ("Citizens" or "the Company") conform to generally accepted
accounting principles and to general policies within the financial services
industry. The consolidated statements include the accounts of Citizens
Financial Corp. and its wholly-owned subsidiary Citizens National Bank ("the
Bank"). All significant intercompany balances and transactions have been
eliminated. The information contained in the financial statements is unaudited
except where indicated. In the opinion of management, all adjustments for a
fair presentation of the results of the interim periods have been made. All
such adjustments were of a normal, recurring nature. The results of operations
for the three months ended March 31, 1995 are not necessarily indicative of the
results to be expected for the full year. The financial statements and notes
included herein should be read in conjunction with those included in Citizens'
1994 Annual Report to Shareholders and Form 10-K.
RECLASSIFICATIONS
- - -----------------
Certain amounts in the financial statements for 1994, as previously
presented, have been reclassified to conform to current period classifications.
8
<PAGE>
NOTE 2 - SECURITIES
----------
The amortized cost, unrealized gains, unrealized losses and estimated fair
values of securities at March 31, 1995 and December 31, 1994 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1995
------------------------------------------------
Carrying
Value Estimated
(Amortized Unrealized Unrealized Fair
Cost) Gains Losses Value
- - ----------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Held to maturity:
U.S. Treasury securities.............. $14,159 $ 27 $126 $14,060
U.S. Government agencies
and corporations..................... 8,123 14 164 7,973
Mortgage backed securities-
U.S. Government agencies
and corporations..................... 2,814 2 62 2,754
Corporate debt securities............. 14,332 0 246 14,086
------- ---- ---- -------
Total taxable........................ 39,428 43 598 38,873
------- ---- ---- -------
Tax-exempt state and political
subdivisions......................... 5,180 59 46 5,193
------- ---- ---- -------
Total securities
held to maturity.................... $44,608 $102 $644 $44,066
======= ==== ==== =======
</TABLE>
<TABLE>
<CAPTION>
Carrying
Value
(Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value)
- - -----------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Available for sale:
Federal Reserve Bank stock........... $ 108 $ 0 $ 0 $ 108
Federal Home Loan Bank stock......... 405 0 0 405
------- ---- ---- -------
Total securities available for sale.. $ 513 $ 0 $ 0 $ 513
======= ==== ==== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
------------------------------------------------
Carrying
Value Estimated
(Amortized Unrealized Unrealized Fair
Cost) Gains Losses Value
- - ----------------------------------------------------------------------------------------
*
<S> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------
Held to maturity:
U.S. Treasury securities.............. $15,208 $ 5 $ 301 $14,911
U.S. Government agencies
and corporations..................... 9,146 4 325 8,825
Mortgage backed securities-
U.S. Government agencies
and corporations..................... 2,946 0 136 2,811
Corporate debt securities............. 16,427 1 468 15,960
------- --- ------ -------
Total taxable........................ 43,727 10 1,230 42,507
------- --- ------ -------
Tax-exempt state and political
subdivisions......................... 5,281 48 124 5,205
------- --- ------ -------
Total securities
held to maturity.................... $49,008 $58 $1,354 $47,712
======= === ====== =======
</TABLE>
*From audited financial statements.
9
<PAGE>
<TABLE>
Carrying
Value
(Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value)
-------------------------------------------------
*
- - ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Federal Reserve Bank stock........... $ 108 $ 0 $ 0 $ 108
Federal Home Loan Bank stock......... 431 0 0 431
------- --- ------ -------
Total securities available for sale.. $ 539 $ 0 $ 0 $ 539
======= === ====== =======
</TABLE>
The maturities, amortized cost and estimated fair values of the Bank's
securities at March 31, 1995 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Held to maturity Available for sale
---------------- ------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
------------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Due within 1 year $18,786 $18,601 $ 0 $ 0
Due after 1 but within 5 years 23,849 23,493 0 0
Due after 5 but within 10 years 1,973 1,972 0 0
Due after 10 years 0 0 513 513
------- ------- ---- ----
$44,608 $44,066 $513 $513
======= ======= ==== ====
</TABLE>
Mortgage backed and other securities not due at a single maturity date have
been allocated in the above maturity categories based on their anticipated
average lives to maturity. The available for sale securities are equity
securities which have no maturity date. These securities have been placed in
the longest maturity category since they are required to be held for membership
in the Federal Reserve and Federal Home Loan Bank; memberships which are
expected to continue indefinitely.
The proceeds from sales, calls and maturities of securities, including
principal payments received on mortgage backed securities, and the related gross
gains and losses realized for the three month periods ended March 31, 1995 and
1994 are as follows (in thousands):
<TABLE>
<CAPTION>
Proceeds From Gross Realized
----------------------------- ------------------
Calls and Principal
Sales Maturities Payments Gains Losses
----------------------------- ------------------
<S> <C> <C> <C> <C> <C>
March 31, 1995
Securities held to maturity $ 0 $ 4,105 $ 133 $ 0 $ 0
Securities available for sale 0 26 0 0 $ 0
------ -------- -------- ------ -------
$ 0 $ 4,131 $ 133 $ 0 $ 0
====== ======== ======== ====== =======
March 31, 1994
Securities held to maturity $ 0 $ 315 $ 285 $ 0 $ 0
Securities available for sale 0 0 0 0 $ 0
------ -------- -------- ------ ------
$ 0 $ 315 $ 285 $ 0 $ 0
====== ======== ======== ====== =======
</TABLE>
At March 31, 1995 and December 31, 1994 securities carried at $5,175,000
and $5,158,000, respectively, with estimated fair values of $5,132,000 and
$5,027,000, respectively, were pledged to secure public deposits, securities
sold under agreements to repurchase, and for other purposes required or
permitted by law.
*From audited financial statements.
10
<PAGE>
NOTE 3 - LOANS
-----
Total loans are summarized as follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
--------------- -----------------
(Unaudited) *
<S> <C> <C>
Commercial, financial and agricultural $ 8,117 $ 6,856
Real estate - construction 817 734
Real estate - mortgage 49,315 49,444
Installment loans to individuals 13,777 11,639
Other 491 49
------- -------
Total loans 72,517 68,722
Less unearned income 39 6
------- -------
Total loans net of unearned income 72,478 68,716
Less allowance for loan losses 1,013 1,000
------- -------
Loans, net $71,465 $67,716
======= =======
</TABLE>
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Analyses of the allowance for loan losses are presented below (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1995 1994
<S> <C> <C>
Balance at beginning of period $ 1,000 $ 1,043
------- -------
Loans charged off:
Commercial and industrial 0 3
Real estate - mortgage 0 6
Consumer and other 12 2
------- -------
Total 12 11
------- -------
Recoveries:
Commercial and industrial 3 0
Real estate - mortgage 6 0
Consumer and other 1 1
------- -------
Total recoveries 10 1
------- -------
Net losses 2 10
Provision for loan losses 15 0
------- -------
Balance at end of period $ 1,013 $ 1,033
======= =======
</TABLE>
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
(SFAS No. 114). Under SFAS No. 114, certain impaired loans are required to be
reported at the present value of expected future cash flows discounted using the
loan's original effective interest rate or, alternatively, at the loan's
observable market price or at the fair value of the loan's collateral if the
loan is collateral dependent. The adoption of SFAS No. 114 did not materially
impact the Company's financial condition or results of operations.
*From audited financial statements.
11
<PAGE>
NOTE 5 - COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company is not aware of any commitments or contingencies which may
reasonably be expected to have a material impact on operating results, liquidity
or capital resources. Known commitments and contingencies include the
maintenance of reserve balances with the Federal Reserve, various legal actions
arising in the normal course of business and commitments to extend credit.
NOTE 6 - EARNINGS PER SHARE
------------------
Earnings per share is based on the weighted average number of shares
outstanding during the period. For the three months ended March 31, 1995 and
1994 the weighted average number of shares were 689,539 and 691,920,
respectively.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis presents the significant changes
in financial condition and the results of operations of Citizens Financial Corp.
and Subsidiary for the periods indicated. This discussion and analysis should be
read in conjunction with the Company's 1994 Annual Report to Shareholders and
Form 10-K. Since the primary business activities of Citizens Financial Corp. are
conducted through the Bank, this discussion focuses primarily on the financial
condition and operations of the Bank.
EARNINGS SUMMARY
- - ----------------
Net income for the first quarter of 1995 was $342,000, up from
$210,000 in the first quarter of 1994. These levels of income represent
annualized returns on average assets of 1.12% and .68%, respectively. Return on
equity, meanwhile, rose from 6.95% in the first quarter of 1994 to 10.60% in the
most recent quarter. Earnings per share also improved from $.30 to $.50.
The primary factors contributing to the 62.9% improvement in quarterly
earnings was a $180,000 increase in net interest income. This and other factors
relating to the results of operations are more fully addressed in the following
sections of this report.
NET INTEREST INCOME
- - -------------------
Net interest income represents the primary component of Citizens'
earnings. Net interest income for the first quarter of 1995 totaled $1,428,000,
$180,000 or 14.4%, in excess of the $1,248,000 earned in the first quarter of
1994. This improvement is largely due to the upward repricing of the Company's
real estate loan portfolio. At $50,132,000 the real estate portfolio is the
Company's largest earning asset. Most of the portfolio, approximately
$45,400,000, is variable rate in nature, which provided improved yields during
the quarter due to rising interest rates. In total, the real estate portfolio
yielded 8.64% during the first quarter of 1995 compared to 7.36% in the first
quarter of 1994. This change was also the major reason the Company's tax-
equivalent net interest margin for the quarter rose to 5.01% from 4.35% in the
first quarter of 1994.
Several other changes within the loan portfolio have also taken place.
Total loans during the quarter increased $3,795,000 to $72,517,000. Most of
this growth occurred in the areas of commercial lending, up $1,261,000, and
consumer lending which rose $2,138,000. Due to the timing of this growth,
average loans for the quarter of $69,940,000 exceeded the first quarter 1994
average of $69,300,000 by only $640,000. Hence, increased loan revenues due to
higher volumes are expected in upcoming periods.
These increased commercial and consumer volumes reflect the Company's
efforts to more aggressively seek loan business. To date much of this business
has taken the form of consumer auto financing and floor plan lending.
Management has achieved these results strictly through improved marketing and
has not reduced its credit standards. The Company will continue to seek
responsible loan growth in this manner having set a long-term goal of reaching a
loan to deposit ratio of 75%.
13
<PAGE>
Unlike loans, the Company's deposit base has not grown during the
quarter. This was by design as management has elected not to aggressively price
deposits due to the potentially negative impact on net interest income. At
quarter-end total deposits of $107,497,000 were only $496,000 below budgeted
levels. The cost of interest-bearing liabilities during the quarter of 3.32%
was only 2 basis points in excess of the 3.30% incurred during the first quarter
of 1994. Nonetheless, despite management's efforts this cost is likely to rise
in future periods due to pricing pressures within the local markets which caused
the Company to increase rates on certificates of deposit to maintain market
share.
The lack of deposit growth caused the Company to fund its loan demand
by reducing its federal funds sold position and utilizing funds from maturing
securities. This transferring of funds from securities to loans resulted in a
$34,000 decline in taxable security income from $620,000 to $586,000. The
effect of such repositioning on liquidity will be discussed later in this
report.
As of March 31, 1995 the Company held approximately $48,374,000 in
interest-bearing demand and savings deposits which are deemed to be immediately
repriceable. Management believes that continued improvement in the Company's
net interest income is tied closely to its ability to limit the rate of upward
increase in rates paid on such deposits. The Company's net interest income may
be negatively impacted should the rates paid on these deposits rise faster than
the rates earned on the Company's interest earning assets.
PROVISION FOR LOAN LOSSES
- - -------------------------
In order to maintain a balance in the allowance for loan losses which
is sufficient to absorb potential loan losses, a charge to operating expense is
made. This charge is known as the provision for loan losses. Various factors
are considered when determining the amount of the provision for loan losses
including trends in loan volume, delinquencies, economic conditions, past
experience and other relevant factors.
Based on management's analysis of the factors noted above, a provision
for loan losses of $15,000 was made in the first quarter of 1995. No provision
was made during the first quarter of 1994. At $1,013,000, or 1.40% of gross
loans, the allowance is considered adequate to absorb potential loan losses.
Net charge-offs for the first quarter of 1995 were less than $2,000. Past due
loans, which comprise only 1.90% of gross loans, and nonaccrual loans totaling
only $9,000 are considered to be adequately addressed within the allowance.
Management will continue to evaluate the adequacy of the allowance for loan
losses in light of the inherent risk of the loan portfolio.
NONINTEREST INCOME AND EXPENSE
- - ------------------------------
Noninterest income totaled $86,000 in the first quarter of 1995, up
more than 28% from the first quarter 1994 total of $67,000. Much of this
improvement resulted from the introduction of a revised service fee schedule in
December, 1994. These fees, including revised minimum balance fees on DDA and
savings accounts, returned item fees and the adoption of a revised overdraft
policy, caused service fees to increase from $41,000 in the first quarter of
1994 to $55,000 in the first quarter of 1995. Other changes in the fee
structure, together with higher levels of safe deposit income, resulted in the
rise in
14
<PAGE>
other income from $11,000 to $23,000. The positive impact from the revised fee
structure is expected to continue although the effect may be somewhat reduced as
market adjustments occur.
Noninterest expense for the first quarter of 1995 of $995,000 was
nearly level with the first quarter 1994 total of $1,001,000. Among the
components of noninterest expense net occupancy expense, equipment rental, data
processing, advertising and FDIC insurance, although exhibiting some minor
individual variances, remained relatively stable. These five items totaled
$288,000 and $285,000 in the first quarter of 1995 and 1994, respectively.
More significant was an $18,000 decrease in salaries and employee
benefits. This improvement is primarily due to savings on group insurance costs
due to a change in plan administrators and better performance. The Company's
medical plan is partially self-funded.
Other expenses increased from $229,000 in the first quarter of 1994 to
$238,000 this year due to several factors including higher costs for supplies,
professional services, memberships and nonincome based taxes. While some
expense levels cannot be strictly controlled management has implemented a
program to help ensure such expenditures remain within budgeted levels.
As of March 31, 1995 Citizens' income tax expense of $162,000 was
$58,000 in excess of the $104,000 recorded in the first quarter of 1994. The
Company's effective tax rates for the two periods were 32.1% and 33.1,
respectively.
FINANCIAL CONDITION
- - -------------------
Total assets of $122,632,000 at March 31, 1995 are down $1,295,000
from $123,927,000 at year-end 1994. Management does not believe this decrease
is significant and believes the Bank's asset base is stable. This belief
reflects a local economy which exhibits neither signs of significant growth or
contraction.
Despite the lack of growth in the economy management is actively
seeking quality loans. Such efforts are based on more effective marketing
efforts and, together with the completion of a highway which has made nearby
communities more accessible, have been very successful. Total loans grew
$3,795,000 during the quarter representing a 5.5% increase. Management expects
the first quarter trend of rising levels of commercial and consumer loans to
continue as current efforts are expanded.
These efforts have caused the relative makeup of the loan portfolio to
change somewhat. Commercial loans, which comprised 9.98% of the portfolio at
year-end, are now 11.19% of the total. Similarly, consumer loans have increased
from 16.94% to 19.00% of total loans. Real estate mortgages, meanwhile, have
decreased from 71.95% of total loans to 68.00%.
15
<PAGE>
It is the Company's policy to place loans on a nonaccrual status when
full collection of principal and interest are unlikely or when a loan is 90 or
more days past due as to principal or interest and is not both well secured and
in the process of collection. Both nonaccrual and past due loans have been kept
at low levels due to continual monitoring and the enforcement of high credit
standards. A summary of past due loans and nonperforming assets is provided in
the following table.
Summary of Past Due Loans and Nonperforming Assets
--------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
March 31 December 31
---------------------------- -----------
1995 1994 1994
(unaudited) *
<S> <C> <C> <C>
Loans past due 90 or more days
still accruing interest $ 199 $ 95 $ 143
===== ===== =====
Nonperforming assets:
Nonaccruing loans $ 9 $ 371 $ 282
Other Real Estate Owned 75 76 75
----- ----- -----
$ 84 $ 447 $ 357
===== ===== =====
</TABLE>
* From the Company's Form 10-K filing dated December 31, 1994
Management performs a comprehensive loan evaluation quarterly in order
to identify all potential problem credits, including but not limited to past due
and nonaccrual loans. Based on this review management is unaware of any trends
or uncertainties which it reasonably expects may materially impact future
operating results or capital resources and is of the opinion that the allowance
for loan losses adequately provides for any potential loan losses which may
reasonably be expected.
The Bank's securities portfolio decreased a total of $4,426,000 during
the first quarter as maturing issues were redirected for the purpose of funding
loans. The composition of the portfolio continues to reflect the Bank's
conservative philosophy. A significant portion of the portfolio, 31.76%, is
held in corporate debt instruments all of which carry a rating of A3 or higher
and mature within three years. Effective January 1, 1994 the Company adopted
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities, (SFAS 115). With the exception of
its two equity securities, those of the Federal Reserve and the Federal Home
Loan Bank, the Company elected to classify all of its securities as held to
maturity. These equity securities are not actively traded and are held as
requirements for membership in the Federal Reserve Bank and Federal Home Loan
Bank. Because there is no active market for these issues book value
approximates market value. Hence, no unrealized holding gains or losses are
recognized and the Company maintains no trading account. Classification of
securities purchased subsequent to the adoption date is determined at the time
of the purchase.
A further discussion on the classification of securities and
liquidity will be presented later in this report.
16
<PAGE>
Total deposits declined slightly in the first quarter from
$108,063,000 to $107,497,000. Noninterest bearing deposits represented 12.99%
and 13.46% of the total at March 31, 1995 and December 31, 1994, respectively.
Interest bearing deposits, which now represent 87.01% of total deposits,
remained generally stable during the quarter although both savings deposits and
certificates of deposit showed some variance. Savings accounts fell $1,528,000,
or 4.91%, during the quarter while certificates of deposit increased $1,397,000.
These changes appear to be interest rate driven as savings accounts presently
carry the same interest rate, 2.75%, as they have throughout 1994. Certificates
of deposit, meanwhile, have been subject to upward interest rate movements in
recent months. Management will continue to attempt to maintain deposit levels
without becoming involved in aggressive deposit pricing despite significant
local competition.
Total shareholders' equity of $13,173,000 at March 31, 1995 is 10.74%
of total assets. This compares with $12,976,000, 10.47%, at year end 1994.
Cash dividends declared and paid during the quarter were $.10 per share
representing a dividend payout ratio of 20%. Dividends are determined quarterly
by the board of directors.
The Federal Reserve's risk based capital guidelines provide for the
relative weighting of both on-balance-sheet and off-balance-sheet items based on
their degree of risk. The Company continues to exceed all regulatory capital
requirements as shown in the following table:
<TABLE>
<CAPTION>
Minimum Capital Standard Ratios
- - -----------------------------------------------------------------------------------------------
Citizens Regulatory
Financial Corp. Requirements
- - -----------------------------------------------------------------------------------------------
<S> <C> <C>
Total capital to risk weighted assets 18.38% 8.0%
Tier I capital to risk weighted assets 17.13% 4.0%
Tier I capital to adjusted total assets 10.45% 3.0%
</TABLE>
The Company is unaware of any trends or uncertainties, nor do any
plans exist, which may materially impair its capital position.
The Bank assures that there is sufficient cash flow to meet the
requirements of customers who may be either depositors wanting to withdraw funds
or borrowers needing to satisfy their credit needs through a system of liquidity
management. Historically, the Bank has generated sufficient liquidity through
internal operations to satisfy these needs. Due to the Bank's strategic
decisions to seek loan growth without significant increases in deposits, short-
term borrowings are currently being utilized to provide needed liquidity. This
situation is seen as a temporary one as the held to maturity portfolio will
provide approximately $13,352,000 in liquidity from October, 1995 through
February, 1996. At that time maturing securities will be used to retire short-
term borrowings and fund additional loan growth. Projections indicate that this
strategy will permit the achievement of a 75% loan to deposit ratio which is
desired in the long-term.
17
<PAGE>
At the present time the Bank has available to it over $17,000,000 in
lines of credit with several correspondent banks. Additional sources of
liquidity being evaluated include the sale of a portion of the current loan
portfolio, the establishment of a reverse repurchase agreement for short-term
borrowing needs, and the designation of an available for sale securities
portfolio.
18
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings: None.
-----------------
Item 2. Changes in Securities: None.
---------------------
Item 3. Defaults upon Senior Securities: None.
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders: None.
----------------------------------------------------
Item 5. Other Information: None.
------------------
Item 6. Exhibits and Reports on Form 8-K:
---------------------------------
(a) Exhibits: None.
(b) Reports on Form 8-K: None.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CITIZENS FINANCIAL CORP.
Date: April 28, 1995 /s/ Robert J. Schoonover
____________________ _______________________________
Robert J. Schoonover
President
Chief Executive Officer
Date: April 28, 1995 /s/ Thomas K. Derbyshire
____________________ _______________________________
Thomas K. Derbyshire
Treasurer
Principal Financial Officer
20
<PAGE>
[ARTICLE] 9
[LEGEND]
This schedule contains summary financial information extracted from the
March 31, 1995 Form 10-Q and is qualified in its entirety by reference to
such financial statements.
[/LEGEND]
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1994
[PERIOD-START] JAN-01-1995
[PERIOD-END] MAR-31-1995
[CASH] 2,568
[INT-BEARING-DEPOSITS] 0
[FED-FUNDS-SOLD] 0
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 513
[INVESTMENTS-CARRYING] 44,608
[INVESTMENTS-MARKET] 44,066
[LOANS] 72,517
[ALLOWANCE] 1,013
[TOTAL-ASSETS] 122,632
[DEPOSITS] 107,497
[SHORT-TERM] 993
[LIABILITIES-OTHER] 729
[LONG-TERM] 240
[COMMON] 1,500
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 11,673
[TOTAL-LIABILITIES-AND-EQUITY] 122,632
[INTEREST-LOAN] 1,540
[INTEREST-INVEST] 661
[INTEREST-OTHER] 10
[INTEREST-TOTAL] 2,211
[INTEREST-DEPOSIT] 771
[INTEREST-EXPENSE] 783
[INTEREST-INCOME-NET] 1,428
[LOAN-LOSSES] 15
[SECURITIES-GAINS] 0
[EXPENSE-OTHER] 995
[INCOME-PRETAX] 504
[INCOME-PRE-EXTRAORDINARY] 504
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 342
[EPS-PRIMARY] .50
[EPS-DILUTED] .50
[YIELD-ACTUAL] 5.01
[LOANS-NON] 9
[LOANS-PAST] 199
[LOANS-TROUBLED] 0
[LOANS-PROBLEM] 0
[ALLOWANCE-OPEN] 1,000
[CHARGE-OFFS] 12
[RECOVERIES] 10
[ALLOWANCE-CLOSE] 1,013
[ALLOWANCE-DOMESTIC] 1,013
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 100
</TABLE>
