<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 JUNE 30, 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 June 30, 1995
----- ---------------
Common Stock ($2.00 par value) 688,288
This report contains 19 pages.
1
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FORM 10-Q
CITIZENS FINANCIAL CORP.
Quarter Ended June 30, 1995
INDEX
Page No.
--------
Part I. Financial Information
Condensed Consolidated Balance Sheets
June 30, 1995 and December 31, 1994................3
Condensed Consolidated Statements of Income
Three Months Ended
June 30, 1995 and June 30, 1994
and Six Months Ended
June 30, 1995 and June 30, 1994..................4-5
Condensed Consolidated Statements of
Changes in Shareholders' Equity
Six Months Ended
June 30, 1995 and June 30, 1994....................6
Condensed Consolidated Statements of
Cash Flows
Six Months Ended
June 30, 1995 and June 30, 1994....................7
Notes to Condensed Consolidated
Financial Statements............................8-12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................................13-17
Part II. Other Information and Index to Exhibits.............18
Signatures.........................................19
2
<PAGE>
PART I - FINANCIAL INFORMATION
CITIZENS FINANCIAL CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------- ------------
(Unaudited) *
<S> <C> <C>
ASSETS
- ------
Cash and due from banks $ 3,182 $ 3,184
Federal funds sold 0 0
Securities available for sale (Note 2) 513 539
Securities held to maturity (estimated fair value
$43,348 and $47,712, respectively) (Note 2) 43,376 49,008
Loans, less allowance for loan losses of
$1,029 and $1,000, respectively (Notes 3 and 4) 75,730 67,716
Premises and equipment 1,444 1,534
Accrued interest receivable 1,142 1,241
Other assets 770 705
-------- --------
Total Assets $126,157 $123,927
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Deposits:
Noninterest bearing $ 14,556 $ 14,544
Interest bearing 93,695 93,519
-------- --------
Total deposits 108,251 108,063
Short-term borrowings 3,583 2,131
Long-term borrowings 240 203
Other liabilities 602 554
-------- --------
Total liabilities 112,676 110,951
-------- --------
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 10,732 10,151
Treasury stock, at cost, 61,712 and 58,080
shares, respectivley (851) (775)
-------- --------
Total shareholders' equity 13,481 12,976
-------- --------
Total Liabilities and Shareholders' Equity $126,157 $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 Six Months Ended
June 30, June 30,
------------------- -----------------
1995 1994 1995 1994
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
- ---------------
Interest and fees on loans $1,697 $1,396 $3,237 $2,737
Interest and dividends on
securities:
Taxable 552 671 1,138 1,291
Tax-exempt 75 30 150 99
Interest on federal funds sold 2 8 12 27
------ ------ ------ ------
Total interest income 2,326 2,105 4,537 4,154
------ ------ ------ ------
INTEREST EXPENSE
- ----------------
Interest on deposits 832 770 1,603 1,557
Interest on short-term borrowings 19 19 30 33
Interest on long-term borrowings 3 0 4 0
------ ------ ------ ------
Total interest expense 854 789 1,637 1,590
------ ------ ------ ------
Net interest income 1,472 1,316 2,900 2,564
Provision for loan losses 15 0 30 0
------ ------ ------ ------
Net interest income after
provision for loan losses 1,457 1,316 2,870 2,564
------ ------ ------ ------
OTHER INCOME
- ------------
Trust department income 30 12 31 20
Service fees 56 61 111 102
Insurance commissions 8 7 15 14
Securities gains,net 0 0 0 0
Other 47 8 70 19
------ ------ ------ ------
Total other income 141 88 227 155
------ ------ ------ ------
OTHER EXPENSES
- --------------
Salaries and employee benefits 511 502 980 989
Net occupancy expense 69 64 135 127
Equipment rentals, depreciation
and maintenance 70 73 141 138
Data processing 79 77 148 152
Advertising 21 20 42 40
FDIC insurance 60 62 121 124
Other 186 215 424 444
------ ------ ------ ------
Total other expense 996 1,013 1,991 2,014
------ ------ ------ ------
Income before income taxes 602 391 1,106 705
Income tax expense
225 139 387 243
------ ------ ------ ------
Net income $ 377 $ 252 $ 719 $ 462
====== ====== ====== ======
</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 Six Months Ended
June 30, June 30,
------------------ -------- -------
1995 1994 1995 1994
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Earnings per common share (Note 6) $ .54 $ .36 $ 1.04 $.67
======= ======= ======= ====
Weighted average shares outstanding 688,288 691,920 688,907 691,920
Dividends per common share $ .10 $ .10 $ .20 $.20
</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>
Six Months Ended June 30, 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) $12,282
Net income 462 462
Cash dividends declared
($.20 per share) (139) (139)
------- ------ -------- -------- -------- -------
Balance, June 30, 1994 750,000 $1,500 $2,100 $ 9,780 $(775) $12,605
======= ====== ======== ======== ======== =======
Balance, January 1, 1995 750,000 $1,500 $2,100 $10,151 $(775) $12,976
Net income 719 719
Cost of 3,632 shares acquired
as treasury stock (76) (76)
Cash dividends declared
($.20 per share) (138) (138)
------- ------ -------- -------- -------- -------
Balance June 30, 1995 750,000 $1,500 $2,100 $10,732 $(851) $13,481
======= ====== ======== ======== ======== =======
</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>
Six Months Ended
June 30,
-------------------
1995 1994
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 719 $ 462
Adjustments to reconcile net income to
cash provided by operating activities:
Provision for loan losses 30 0
Depreciation and amortization 157 158
Amortization and accretion on securities 308 362
Gain on sale of loans (24) 0
Decrease in accrued interest receivable 99 17
(Increase) decrease in other assets (97) 33
Increase (decrease) in other liabilities 48 (4)
-------- -------
Cash provided by operating activities 1,240 1,028
-------- -------
Cash flows from investing activities:
Proceeds from principal payments received
on securities held to maturity 164 529
Proceeds from calls of securities
available for sale 26 0
Proceeds from maturities and calls of
securities held to maturity 5,675 4,445
Purchases of securities available for sale 0 (63)
Purchases of securities held to maturity (515) (4,072)
Purchases of premises and equipment (35) (54)
Proceeds from sale of other real estate owned
and other repossessed assets 0 3
Proceeds from sale of loans 2,511 0
Increase in loans (10,531) (1,937)
-------- -------
Cash used by investing activities (2,705) (1,149)
-------- -------
Cash flows from financing activities:
Cash dividends paid (138) (139)
Acquisition of treasury stock (76) 0
Increase (decrease) in short-term borrowing 1,452 (121)
Increase in long-term borrowing 37 0
Increase in time deposits 2,060 24
Decrease in other deposits
(1,872) (2,723)
Cash provided (used) by financing activities -------- -------
1,463 (2,959)
-------- -------
Net decrease in cash and cash equivalents (2) (3,080)
Cash and cash equivalents at beginning of period 3,184 7,129
-------- -------
Cash and cash equivalents at end of period $ 3,182 $ 4,049
======== =======
Supplemental disclosure of non cash investing
and financing activities:
Cash paid during the period for:
Interest $ 1,607 $ 1,613
Income Taxes $ 380 $ 264
Acquisition of other real estate owned and
other repossessed assets $ 3 $ 3
</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 six months ended June 30, 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 June 30, 1995 and December 31, 1994 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
June 30, 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...................... $13,115 $ 63 $ 29 $13,149
U.S. Government agencies
and corporations............................. 8,101 30 49 8,082
Mortgage backed securities-
U.S. Government agencies
and corporations............................. 2,783 23 33 2,773
Corporate debt securities..................... 14,236 20 100 14,156
------- ---- ------- -------
Total taxable................................ 38,235 136 211 38,160
------- ---- ------- -------
Tax-exempt state and political
subdivisions................................. 5,141 74 27 5,188
------- ---- ------- -------
Total securities
held to maturity............................ $ 43,376 $ 210 $238 $43,348
======= ==== ======= =======
Carrying
Value
(Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value)
- ---------------------------------------------- ----------- ---------- ---------- --------
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
======= ==== ======= =======
December 31, 1994
----------------------------------------------
Carrying
Value Estimated
(Amortized Unrealized Unrealized Fair
Cost) Gains Losses Value
---------- ---------- ---------- --------
*
- --------------------------------------------------------------------------------------------
Held to maturity:
U.S. Treasury securities...................... $15,208 $ 5 $ 301 $14,912
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 2,810
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>
<CAPTION>
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 June 30, 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 $19,551 $19,486 $ 0 $ 0
Due after 1 but within 5 years 21,558 21,583 0 0
Due after 1 but within 10 years 2,267 2,279 0 0
Due after 10 years 0 0 513 513
------- ------- ---- ----
$43,376 $43,348 $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 six month periods ended June 30, 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>
June 30, 1995:
Securities held to maturity $ 0 $ 5,675 $ 164 $ 0 $ 0
Securities available for sale 0 26 0 0 0
----- ---------- --------- ----- ----
$ 0 $ 5,701 $ 164 $ 0 $ 0
===== ========== ========= ===== ====
June 30, 1994:
Securities held to maturity $ 0 $ 4,445 $ 529 $ 0 $ 0
Securities available for sale 0 0 0 0 0
----- ---------- --------- ----- ----
$ 0 $ 4,445 $ 529 $ 0 $ 0
===== ========== ========= ===== ====
</TABLE>
At June 30, and December 31, 1994 securities carried at $5,152,000 and
$5,158,000, respectively, with estimated fair values of $5,168,000 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>
June 30, 1995 December 31, 1994
-------------- -----------------
(Unaudited) *
<S> <C> <C>
Commercial, financial and agricultural $ 9,732 $ 6,856
Real estate - construction 1,025 734
Real estate - mortgage 50,777 49,444
Installment loans to individuals 14,773 11,639
Other 489 49
------- -------
Total loans 76,796 68,722
Less unearned income 37 6
------- -------
Total loans net of unearned income 76,759 68,716
Less allowance for loan losses 1,029 1,000
------- -------
Loans, net $75,730 $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 Six Months Ended
June 30, June 30,
------------------ ----------------
1995 1994 1994 1995
<S> <C> <C> <C> <C>
Balance at beginning of period $1,013 $1,033 $1,000 $1,043
Loans charged off:
Commercial and industrial 0 1 0 4
Real estate - mortgage 0 0 0 6
Consumer and other 1 15 13 17
------ ------ ------ ------
Total 1 16 13 27
------ ------ ------ ------
Recoveries:
Commercial and industrial 0 0 3 0
Real estate - mortgage 0 0 6 0
Consumer and other 2 0 3 1
------ ------ ------ ------
Total recoveries 2 0 12 1
------ ------ ------ ------
Net losses (recoveries) (1) 16 1 26
Provision for loan losses 15 0 30 0
------ ------ ------ ------
Balance at end of period $1,029 $1,017 $1,029 $1,017
====== ====== ====== ======
</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 effectiv 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 six month periods ended June 30, 1995
and 1994 the weighted average number of shares were 688,907 and 691,920,
respectively. The weighted average number of shares outstanding during the
three month periods then ended were 688,288 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 second quarter of 1995 was $377,000 or $.54 per
share. This is up 50% from the second quarter of 1994 when the Company earned
$252,000 or $.36 per share. For the first six months of 1995 net income of
$719,000 is 56% above 1994's $462,000.
The improved quarterly and year-to-date results primarily reflect an
improvement in net interest income. This and other facotrs 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.
For the second quarter of 1995 net interest income was $1,472,000, up 11.9% from
the $1,316,000 recorded during the second quarter of 1994. With total interest
earning assets remaining almost stable, the quarterly net interest margin of
5.08% was much improved from the second quarter of 1994 when it was 4.47%.
This improvement reflects both greater volumes and improved yields within
the Company's loan portfolio. Total loans increased $4,279,000 during the
quarter to $76,796,000. This is $6,349,000 greater than at June 30, 1994. At
the same time the yield on the loan portfolio rose from 7.96% in the second
quarter of 1994 to 9.17% in the second quarter of 1995.
Loan growth occurred in all three of the major loan categories with real
estate loans rising $1,670,000 during the quarter, commercial loans rising
$1,615,000 and consumer loans rising $996,000. In addition, student loans,
which are reported as consumer loans, totaling $2,476,000 were sold during the
quarter in order to improve income opportunities. These rising 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. These results have been achieved strictly through improved marketing
as credit standards have not been relaxed. The Company intends to continue to
seek responsible loan growth in this manner having set a long-term goal of
reaching a loan to deposit ratio of 75%. Currently this ratio stands at 71%.
As noted previously, improved yields also helped increase net interest
income. Yields during the second quarter of 1995 compare very favorably to
those of the second quarter of 1994 especially real estate and commercial
yields. In the case of real estate lending the quarterly yield improved to
8.91% from 7.56% while commercial yields were up 122 basis points to 10.12%.
Much of this reflects the trend toward higher interest rates during this time
and the fact that the majority of these portfolios are variable rate loans.
Unlike loans, the Company's deposit base did not grow significantly during
the quarter. As of June 30, 1995 total deposits of $108,251,000 were $754,000
more than at March 31, 1995 but $1,038,000 below the June 30, 1994 level of
13
<PAGE>
$109,289,000. The cost of these deposits rose to 3.59% during the second
quarter of 1995 as the need to utilize short-term borrowings and attract short-
term deposits to fund loan growth arose. The cost of funds was 3.32% in the
first quarter of the year and 3.23% in the second quarter of 1994.
The use of these short-term funding mechanisms is expected to continue
through much of 1995 until sufficient funds become available from the securities
portfolio. At that time it is expected that such strategies may be discontinued
thereby lowering the cost of funds. A more complete discussion of liquidity is
presented later in this report.
Analyzing net interest income on a year-to-date basis shows many of the
same indicators as noted above. Net interest income improved $336,000 and the
net interest margin rose from 4.42% to 5.05% due to rising loan volumes and
yields coupled with controlled deposit levels and cost of funds. Total loan
growth during the first six months of 1995 was $8,074,000.
Management employs various asset/liability management practices to reduce
interest rate risk and protect earnings from the effects of changing interest
rates. Among these practices is gap management. The Bank's gap is measured as
the difference between rate sensitive assets and rate sensitive liabilities
during a given time period. When rate sensitive assets exceed rate sensitive
liabilities the gap is positive; a condition which is usually favorable in
rising interest rate enviornments. The opposite case, a negative gap, is
normally beneficial in falling interest rate enviornments.
While the Company does not attempt to forecast interest rates recent data
indicates that interest rate decreases could occur over the next six to twelve
months. Although some $48,200,000 of interest bearing liabilities could
immediately reprice in response to any such rate decrease, such an event is
unlikely. Consequently, management perceives the Company to be positively
gapped over the next twelve months. While this may result in downward pressure
on the Company's net interest income management expects to limit this by
reinvesting some $17,000,000 of securities, currently yielding 5.47%, in higher
yielding 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 $30,000 was made in the first half of 1995. No provision was
made during the first half of 1994. At $1,029,000, or 1.34% of gross loans, the
allowance is considered adequate to absorb potential loan losses. Net charge-
offs for the first six months of 1995 were only $1,000. Past due loans, which
comprise 2.33% of gross loans, and nonaccrual loans totaling $43,000 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 $141,000 in the second quarter of 1995, up 60%
from the second quarter 1994 total of $88,000. Much of this improvement was due
to the timing of trust revenues, which are recorded on the cash basis of
accounting, and a $24,000 gain on the sale of student loans. On a year-to-date
14
<PAGE>
basis noninterest income has improved greatly increasing $72,000 to $227,000.
In addition to the impact of trust revenues and the student loan sale the
introduction of a revised fee schedule has had a positive effect. These fees,
including minimum balance fees, a revised overdraft policy, returned item fees
and several others provided additional revenues of $16,000 during the first half
of the year. While several other fee analyses are ongoing management expects
the positive impact from a more competitive fee structure to continue in the
future.
Noninterest expense for the second quarter of the year decreased slightly
to $996,000 from $1,013,000. The largest item of noninterest expense, salaries
and employee benefits, increased slightly despite a $12,000 reduction in group
insurance expense. This is the result of the establishment of an executive
supplemental income plan. Under the plan certain key executives are entitled to
receive specified postretirement benefits provided they remain with the Bank
until retirement. As prescribed by Statement of Financial Accounting Standards
No. 106, Accounting for Postretirement Benefits Other Than Pensions, the Company
accrues the present value of those benefits. This expense totaled $19,000
during the second quarter and is expected to total approximately $61,000 for
fiscal year 1995. The remaining areas of noninterest expense have been well
controlled and show only minor variations from the prior year except the
category of other where several items, including cash outages, resulted in a
$29,000 improvement.
On a year-to-date basis total noninterest expense of $1,991,000 is $23,000
below 1994's $2,014,000. Again, most categories show only minor changes. Other
noninterest expense provides the greatest improvement of $20,000 which is
primarily due to the 1994 loss following the robbery of a branch facility.
Another significant improvement is group insurance expense, down $31,000. This,
however, is offset by the $19,000 executive supplemental income cost and a
$9,000 increase in incentive compensation.
Income tax expense for the first half of the year totaled $387,000 or 35%
of pretax income compared to $243,000, 34.5% of pretax income, in 1994.
FINANCIAL CONDITION
- -------------------
Total assets of $126,157,000 at June 30, 1995 are $2,230,000, or 1.8%, in
excess of the December 31, 1994 total of $123,927,000. This growth has been
driven by increased loan demand. As noted previously, although the local
economy is not growing in a significant manner the Company is actively seeking
quality loans by improving its marketing efforts. In addition, the recent
completion of a highway has made nearby communities more accessible and provided
a significant boost to the Bank's lending opportunities.
Along with this loan growth has been a change in the composition of the
loan portfolio. Commercial loans have grown by nearly 42% in the first half of
the year reflecting management's strategy to further penetrate this market. At
quarter-end, such loans comprised 12.67% of total loans, up from 9.98% at year-
end. And, despite the sale of $2,476,000 of student loans, the consumer loan
portfolio is up nearly 27% and now makes up 19.24% of the total portfolio. Real
estate mortgages continue to be the dominant component of the loan portfolio
however, comprising 66.12% and 71.95% of the total portfolio at June 30, 1995
and December 31, 1994, respectively.
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 historically
been low due to continual monitoring and 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>
June 30 December 31
------------------------ -----------
1995 1994 1994
(Unaudited) *
<S> <C> <C> <C>
Loans past due 90 or more days
still accruing interest $ 79 $ 50 $ 143
===== ===== =====
Nonperforming assets:
Nonaccruing loans $ 43 $ 425 $ 282
Other Real Estate Owned 75 75 75
----- ----- -----
$ 118 $ 500 $ 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, liquidity or capital resources.
Management has determined that it can fund the desired loan growth and
reach its goals without significantly increasing the deposit base. Instead,
needed funds are being provided by the securities portfolio. As such, total
securities have decreased $5,658,000 during the first half of the year. The
portfolio currently reflects the Bank's conservative investment philosophy and
is expected to continue to do so. As of June 30, 1995, 48.34% of the portfolio
is in U. S. Treasury and agency obligations with another 32.44% in corporate
debt which carries a rating of A3 or higher and matures 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 Bank 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.
The Bank does plan to further establish its available for sale portfolio as
it is able to. Such action could help reduce the need for short-term funding,
as currently being experienced, and provide greater flexibility in product
delivery, asset/liability management and liquidity management.
16
<PAGE>
Total deposits have been relatively stable throughout the first half of
1995. The June 30, 1995 total of $108,251,000 is only slightly higher than the
year-end total of $108,063,000. Noninterest bearing deposits comprised 13.45%
of the total at both measurement dates.
While total deposits have been generally stable changes among the different
types of deposits have occurred. Both savings and money market accounts
decreased during the first half of the year, savings by 7.08% to $28,922,000 and
money markets by 11.01% to $7,238,000. These reductions appear to be related to
continuing low interest rates of 2.75% and 2.50%, respectively. In the case of
money markets, a net loss of $895,000 resulted from a decrease of only 11
accounts.
Offsetting this, certificates of deposit and checking plus accounts have
increased a combined $2,964,000 or 6.61%. This too appears to be rate related
as certificates of deposit have been subject to upward rate movements throughout
the year. They have also become a preferred source of short-term funding.
Nonetheless, management does not attempt to maintain deposit levels by
implementing overly aggressive pricing mechanisms which are likely to impair
profitability.
Total shareholders' equity of $13,481,000 at June 30, 1995 is 10.69% of
total assets. This compares to $12,976,000, or 10.47%, at year-end 1994. Cash
dividends declared and paid totaled $.20 in the first six months of 1995 and
1994, representing dividend payout ratios of 19% and 30%, respectively.
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 17.73% 8.0%
Tier I capital to risk weighted assets 16.48% 4.0%
Tier I capital to adjusted total assets 10.67% 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 $13,274,000 in liquidity from October, 1995 through
February, 1996. At that time maturing securities will be used to retire short-
term borrowings , fund additional loan growth and establish an available for
sale portfolio. Projections indicate that this strategy will permit the
achievement of a 75% loan to deposit ratio which is desired in the long-term.
At the present time the Bank has available to it over $17,000,000 in lines
of credit with correspondent banks as well as the ability to utilize reverse
repurchase agreements totaling $6,000,000.
17
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
-----------------
As of June 30, 1995 Citizens Financial Corp. was not involved in any
material legal proceedings. The Bank is currently involved, in the
normal course of business, in various legal proceedings. After
consultation with legal counsel, management believes that all such
litigation will be resolved without materially effecting on the
financial position or results of operations. In addition, there are no
material proceedings known to be threatened or contemplated against
the Company or the Bank.
Item 2. Changes in Securities: None.
---------------------
Item 3. Defaults upon Senior Securities: None.
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders:
---------------------------------------------------
The annual meeting of stockholders of Citizens Financial
Corp. was held on April 22, 1995. The stockholders
determined that the maximum number of directors will continue
at nine and that directors Chabut, DeMotto and Thompson will serve
additional three year terms ending in April, 1998.
Item 5. Other Information: None.
-----------------
Item 6. Exhibits and Reports on Form 8-K:
--------------------------------
(a) Exhibits: None
(b) Reports on Form 8-K: None
18
<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: August 1, 1995 /s/ Robert J. Schoonover
-------------------- -------------------------------
Robert J. Schoonover
President
Chief Executive Officer
Date: August 1, 1995 /s/ Thomas K. Derbyshire
-------------------- -------------------------------
Thomas K. Derbyshire
Treasurer
Principal Financial Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1995 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 3,182
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 513
<INVESTMENTS-CARRYING> 43,376
<INVESTMENTS-MARKET> 43,348
<LOANS> 76,796
<ALLOWANCE> 1,029
<TOTAL-ASSETS> 126,157
<DEPOSITS> 108,251
<SHORT-TERM> 3,583
<LIABILITIES-OTHER> 602
<LONG-TERM> 240
<COMMON> 1,500
0
0
<OTHER-SE> 11,981
<TOTAL-LIABILITIES-AND-EQUITY> 126,157
<INTEREST-LOAN> 3,237
<INTEREST-INVEST> 1,288
<INTEREST-OTHER> 12
<INTEREST-TOTAL> 4,537
<INTEREST-DEPOSIT> 1,603
<INTEREST-EXPENSE> 1,637
<INTEREST-INCOME-NET> 2,900
<LOAN-LOSSES> 30
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,991
<INCOME-PRETAX> 1,106
<INCOME-PRE-EXTRAORDINARY> 1,106
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 719
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.04
<YIELD-ACTUAL> 5.08
<LOANS-NON> 43
<LOANS-PAST> 79
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,000
<CHARGE-OFFS> 13
<RECOVERIES> 12
<ALLOWANCE-CLOSE> 1,029
<ALLOWANCE-DOMESTIC> 1,029
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 287
</TABLE>
