<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, 1998
------------------------------------------------
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, 1998
----- -----------------
Common Stock ($2.00 par value) 662,703
This report contains 29 pages.
1
<PAGE>
FORM 10-Q
CITIZENS FINANCIAL CORP.
Quarter Ended June 30, 1998
INDEX
Page No.
--------
Part I. Financial Information
Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997................ 3
Condensed Consolidated Statements of Income
Three Months Ended
June 30, 1998 and June 30, 1997
and Six Months Ended
June 30, 1998 and June 30, 1997.................... 4
Condensed Consolidated Statements of
Changes in Shareholders' Equity
Six Months Ended
June 30, 1998 and June 30, 1997.................... 5
Condensed Consolidated Statements of
Cash Flows
Six Months Ended
June 30, 1998 and June 30, 1997.................... 6
Statements of Comprehensive Income
Three Months Ended
June 30, 1998 and June 30, 1997
and Six Months Ended
June 30, 1998 and June 30, 1997.................... 7
Notes to Condensed Consolidated
Financial Statements............................... 8 - 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................................... 13 - 20
Part II. Other Information and Index to Exhibits........ 21
Signatures.......................................... 22
2
<PAGE>
PART I - FINANCIAL INFORMATION
CITIZENS FINANCIAL CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
(Unaudited) *
<S> <C> <C>
ASSETS
- ------
Cash and due from banks $ 4,731 $ 3,312
Federal funds sold 100 200
Securities available for sale (Note 2) 33,958 31,921
Securities held to maturity (estimated fair value
$7,832 and $6,690, respectively) (Note 2) 7,756 6,598
Loans, less allowance for loan losses of
$1,117 and $1,094, respectively (Notes 3 and 4) 84,131 86,400
Premises and equipment 1,513 1,588
Accrued interest receivable 745 1,197
Other assets 1,516 916
-------- --------
Total Assets $134,450 $132,132
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Deposits:
Noninterest bearing $ 14,848 $ 13,163
Interest bearing 96,334 97,239
-------- --------
Total deposits 111,182 110,402
Short-term borrowings 4,996 3,597
Long-term borrowings 1,046 1,078
Other liabilities 1,010 960
-------- --------
Total liabilities 118,234 116,037
-------- --------
Commitments and contingencies (Note 5)
SHAREHOLDERS' EQUITY
- --------------------
Common stock, authorized 2,250,000 and
1,250,000 shares of $2.00 par value,
respectively; issued 750,000 shares 1,500 1,500
Additional paid in capital 2,100 2,100
Retained earnings 14,013 13,407
Net unrealized gain on available for
sale securities 142 93
Treasury stock, at cost, 87,297 and 68,047
shares, respectively (1,539) (1,005)
-------- --------
Total shareholders' equity 16,216 16,095
-------- --------
Total Liabilities and Shareholders' Equity $134,450 $132,132
======== ========
</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,
------------------ ----------------
1998 1997 1998 1997
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
- ---------------
Interest and fees on loans $1,938 $2,021 $3,894 $4,007
Interest and dividends on
securities:
Taxable 510 428 1,017 878
Tax-exempt 93 67 168 134
Interest on federal funds sold 14 20 30 22
------ ------ ------ ------
Total interest income 2,555 2,536 5,109 5,041
------ ------ ------ ------
INTEREST EXPENSE
- ----------------
Interest on deposits 941 929 1,893 1,845
Interest on short-term borrowings 60 35 110 71
Interest on long-term borrowings 15 17 30 25
------ ------ ------ ------
Total interest expense 1,016 981 2,033 1,941
------ ------ ------ ------
Net interest income 1,539 1,555 3,076 3,100
Provision for loan losses 30 42 60 102
------ ------ ------ ------
Net interest income after
provision for loan losses 1,509 1,513 3,016 2,998
------ ------ ------ ------
NONINTEREST INCOME
- ------------------
Trust department income 42 26 69 26
Service fees 74 61 139 115
Insurance commissions 8 8 14 15
Other 34 29 73 127
------ ------ ------ ------
Total noninterest income 158 124 295 283
------ ------ ------ ------
NONINTEREST EXPENSE
- -------------------
Salaries and employee benefits 551 526 1,064 1,033
Net occupancy expense 71 70 142 142
Equipment rentals, depreciation
and maintenance 71 60 146 116
Data processing 94 88 195 176
Advertising 24 27 48 54
Other 269 252 518 522
------ ------ ------ ------
Total noninterest expense 1,080 1,023 2,113 2,043
------ ------ ------ ------
Income before income taxes 587 614 1,198 1,238
Income tax expense 192 221 393 446
------ ------ ------ ------
Net income $ 395 $ 393 $ 805 $ 792
====== ====== ====== ======
Basic earnings per common
share (Note 6) $ .60 $ .57 $ 1.21 $ 1.16
====== ====== ====== ======
Weighted average shares outstanding 662,703 683,553 664,830 683,553
Dividends per common share $ .15 $ .10 $ .30 $ .20
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CITIZENS FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998 and 1997
-------------------------------------------------
(Unaudited)
Net Total
Common Stock Additional Unrealized Share-
------------ Paid In Retained Gain/(Loss) on Treasury holders'
Shares Amount Capital Earnings Securities Stock Equity
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 750,000 $1,500 $2,100 $12,381 $ (77) $ (961) $14,943
Net income 792 792
Net change in unrealized gain/
(loss) on securities 12 12
Cash dividends declared
($.20 per share) (136) (136)
----------------------------------------------------------------------------
Balance, June 30, 1997 750,000 $1,500 $2,100 $13,037 $ (65) $ (961) $15,611
============================================================================
Balance, January 1, 1998 750,000 $1,500 $2,100 $13,407 $ 93 $(1,005) $16,095
Net income 805 805
Net change in unrealized gain/
(loss) on securities 49 49
Cash dividends declared
($.30 per share) (199) (199)
Purchase of 19,250 shares
of treasury stock (534) (534)
----------------------------------------------------------------------------
Balance, June 30, 1998 750,000 $1,500 $2,100 $14,013 $ 142 $(1,539) $16,216
============================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
CITIZENS FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
1998 1997
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 805 $ 792
Adjustments to reconcile net income to
cash provided by operating activities:
Provision for loan losses 60 102
Depreciation and amortization 171 152
Amortization and accretion on securities 86 60
Decrease (increase) in accrued
interest receivable 452 (14)
(Increase) decrease in other assets (632) 70
Increase (decrease) in other liabilities 24 (191)
------- -------
Cash provided by operating activities 966 971
------- -------
Cash flows from investing activities:
Proceeds from principal payments received
on securities available for sale 28 83
Proceeds from principal payments received
on securities held to maturity 0 449
Proceeds from maturities and calls of securities
available for sale 1,500 1,000
Proceeds from maturities and calls of
securities held to maturity 1,045 3,362
Proceeds from sales of securities
available for sale 502 0
Purchases of securities available for sale (4,083) (4,638)
Purchases of securities held to maturity (2,198) 0
Purchases of premises and equipment (64) (111)
Decrease in loans 2,209 809
------- -------
Cash provided (used) by investing activities (1,061) 954
------- -------
Cash flows from financing activities:
Cash dividends paid (199) (136)
Acquisition of treasury stock (534) 0
Increase (decrease) in short-term borrowing 1,399 (459)
(Decrease) increase in long-term borrowing (32) 779
Increase (decrease) in time deposits 817 (232)
Decrease in other deposits (37) (177)
------- -------
Cash provided (used) by financing activities 1,414 (225)
------- -------
Net increase in cash and cash equivalents 1,319 1,700
Cash and cash equivalents at beginning of period 3,512 2,774
------- -------
Cash and cash equivalents at end of period $ 4,831 $ 4,474
======= =======
Supplemental disclosure of non cash investing
and financing activities:
Cash paid during the period for:
Interest $ 2,057 $ 1,971
Income Taxes $ 423 $ 487
Acquisition of other real estate owned and
other repossessed assets $ 43 $ 134
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
CITIZENS FINANCIAL CORP.
STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------ --------------------
1998 1997 1998 1997
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net income $395 $ 393 $ 805 $ 792
Other comprehensive income,
net of tax:
Unrealized gains/(losses) on
securities
Gain/(loss)arising during
the period 49 101 49 12
Reclassification adjustment 0 0 0 0
Other comprehensive income,
net of tax 0 0 0 0
---- ----- ----- -----
Comprehensive income $444 $ 494 $ 854 $ 804
==== ===== ===== =====
</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 preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
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, 1998 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' 1997
Annual Report to Shareholders and Form 10-K.
The Company was required to adopt Statement of Financial Accounting
Standards No. 130, (SFAS No. 130) "Reporting of Comprehensive Income" for fiscal
year 1998. Comprehensive income includes any change in equity of the Company
during the period resulting from transactions and other events and circumstances
from nonowner sources. A statement of Comprehensive Income has been included in
these condensed consolidated financial statements to comply with SFAS No. 130.
Prior interim periods have been reclassified to provide comprehensive
information.
8
<PAGE>
NOTE 2 - SECURITIES
----------
The amortized cost, unrealized gains, unrealized losses and estimated fair
values of securities at June 30, 1998 and December 31, 1997 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1998
---------------------------------------------------
Carrying
Value Estimated
(Amortized Unrealized Unrealized Fair
Cost) Gains Losses Value
- -------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Held to maturity:
Tax-exempt state and political
subdivisions.................. $ 7,756 $ 94 $ 18 $ 7,832
------- ------- ------- -------
Total securities
held to maturity............. $ 7,756 $ 94 $ 18 $ 7,832
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Carrying
Value
(Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury securities............ $ 4,534 $ 31 $ 0 $ 4,565
U.S. Government agencies
and corporations................... 10,794 87 3 10,878
Mortgage backed securities-
U.S. Government agencies
and corporations................... 583 0 1 582
Corporate debt securities........... 15,752 85 18 15,819
Obligations of state and political
subdivisions-taxable............... 1,534 36 0 1,570
Federal Reserve Bank stock.......... 108 0 0 108
Federal Home Loan Bank stock........ 436 0 0 436
-------- ------- ---- --------
Total securities available
for sale......................... $ 33,741 $ 239 $ 22 $ 33,958
======== ======= ==== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997*
----------------------------------------------------
Carrying
Value Estimated
(Amortized Unrealized Unrealized Fair
Cost) Gains Losses Value
---------------------------------------------------
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to maturity:
Taxable corporate
debt securities.............. $ 999 $ 2 $ 0 $ 1,001
Tax-exempt state and political
subdivisions................. 5,599 102 12 5,689
------- ------- ------- --------
Total securities
held to maturity............. $ 6,598 $ 104 $ 12 $ 6,690
======= ======= ======= ========
</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:
U.S. Treasury securities........ $ 4,542 $ 39 $ 0 $ 4,581
U.S. Government agencies
and corporations............... 11,805 60 15 11,850
Mortgage-backed securities -
U.S. Government
agencies and corporations...... 612 0 5 607
Corporate debt securities....... 12,719 71 24 12,766
Taxable state and
political subdivisions......... 1,556 17 0 1,573
Federal Reserve Bank stock...... 108 0 0 108
Federal Home Loan Bank stock.... 436 0 0 436
------- ---- --- -------
Total securities available for
sale........................... $31,778 $187 $44 $31,921
======= ==== === =======
</TABLE>
The maturities, amortized cost and estimated fair values of the Bank's
securities at June 30, 1998 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 $ 394 $ 399 $ 7,516 $ 7,529
Due after 1 but within 5 years 5,415 5,488 25,162 25,332
Due after 5 but within 10 years 1,947 1,945 519 553
Due after 10 years 0 0 0 0
Equity securities 0 0 544 544
------ ------ ------- -------
$7,756 $7,832 $33,741 $33,958
====== ====== ======= =======
</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 Company's equity securities are required to be
held for membership in the Federal Reserve and Federal Home Loan Bank.
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, 1998 and 1997
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, 1998:
Securities held to maturity $ 0 $ 1,045 $ 0 $ 0 $ 0
Securities available for sale 503 1,000 28 0 0
---- --------- -------- ---- ----
$ 503 $ 2,045 $ 28 $ 0 $ 0
===== ========= ======== ==== ====
June 30, 1997:
Securities held to maturity $ 0 $ 3,362 $ 449 $ 0 $ 0
Securities available for sale 0 1,000 83 0 0
---- --------- -------- ---- ----
$ 0 $ 4,362 $ 532 $ 0 $ 0
===== ========= ======== ==== ====
</TABLE>
At June 30, 1998 and December 31, 1997 securities carried at $9,073,000 and
$9,543,0000 respectively, with estimated fair values of $9,080,000 and
$9,593,000, respectively, were pledged to secure public deposits, securities
sold under agreements to repurchase, and for other purposes required or
permitted by law.
At June 30, 1998, the company has a concentration within its corporate debt
securities classification which included obligations of financial services
industry companies having an approximate amortized cost of $9,115,000 and an
estimated fair value of $9,154,000. There were no concentrations with any one
issuer.
*From audited financial statements.
10
<PAGE>
NOTE 3 - LOANS
-----
Total loans are summarized as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
-------------- -----------------
(Unaudited) *
<S> <C> <C>
Commercial, financial and agricultural $11,001 $12,927
Real estate - construction 1,178 1,715
Real estate - mortgage 59,011 56,382
Installment loans to individuals 13,010 15,387
Credit card loans 928 1,018
Other 134 28
------- -------
Total loans 85,262 87,457
Net deferred loan origination costs 24 77
Less unearned income 38 40
------- -------
Total loans net of unearned income and
net deferred loan origination costs 85,248 87,494
Less allowance for loan losses 1,117 1,094
------- -------
Loans, net $84,131 $86,400
======= =======
</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,
------------------- -----------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Balance at beginning of period $1,080 $1,008 $1,094 $ 990
Loans charged off:
Commercial and industrial 0 0 3 0
Real estate - mortgage 1 0 1 3
Consumer and other 15 17 45 39
Credit card 2 7 21 28
------ ------ ------ ------
Total 18 24 70 70
------ ------ ------ ------
Recoveries:
Commercial and industrial 0 1 1 1
Real estate - mortgage 20 0 20 0
Consumer and other 4 3 7 6
Credit card 1 0 5 1
------ ------ ------ ------
Total recoveries 25 4 33 8
------ ------ ------ ------
Net (recoveries) losses (7) 20 37 62
Provision for loan losses 30 42 60 102
------ ------ ------ ------
Balance at end of period $1,117 $1,030 $1,117 $1,030
====== ====== ====== ======
</TABLE>
*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, 1998
and 1997 the weighted average number of shares were 664,830 and 683,553,
respectively. The weighted average number of shares outstanding during the three
month periods then ended were 662,703 and 683,553, 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 1997 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. This discussion may include forward
looking statements based upon management's expectations, actual results may
differ.
EARNINGS SUMMARY
- ----------------
Net income for the second quarter of 1998 of $395,000 was nearly unchanged
from the $393,000 earned during the second quarter of 1997. On a year-to-date
basis net income of $805,000 is approximately 1.6% in excess of last year's
$792.000. Among the other key earnings measures return on average assets has
decreased slightly from 1.25% to 1.23% as has return on average equity which
decreased from 10.49% to 10.18% for the first six months of the year. Earnings
per share for the six month periods increased from $1.16 to $1.21. Details
concerning these and other aspects of the Company's results of operations are
addressed in the following sections of this report.
NET INTEREST INCOME
- -------------------
Net interest income represents the primary component of Citizens' earnings.
It is the difference between interest and fee income related to earning assets
and interest expense incurred to carry interest bearing liabilities. Net
interest income is impacted by changes in the volume and mix of interest earning
assets and interest bearing liabilities, as well as by changing interest rates.
In order to manage these changes, their impact on net interest income and the
risks associated with them, the Company utilizes an ongoing asset/liability
management program. This program includes analysis of the Company's gap,
earnings sensitivity to rate changes, and sources and uses of funds. A
discussion of net interest income and the factors impacting it is presented
below.
Net interest income for the second quarter fell from $1,555,000 in 1997 to
$1,539,000 in 1998. This reflects an increase in interest expense of $35,000
due to an increase in the average volume of interest bearing liabilities of $3.6
million to $101,739,000. Although these funds were utilized to increase the
average earning asset base by more than $3.4 million, total interest income for
the quarter increased by only $19,000 to $2,555,000. This is due to a change in
the relative mix of earning assets. On average, the earning asset base
consisted of 67% loans and 33% securities and other investments during the
second quarter of 1998. This compares to 72% loans and 28% securities in the
second quarter of 1997. On a tax equivalent basis, net interest income of
$1,587,000 produced a net interest margin of 5.02% for the three months ended
June 30, 1998. During the second quarter of 1997 these figures were $1,590,000
and 5.19%, respectively.
On a year to date basis net interest income decreased $24,000 to
$3,076,000. The factors which caused this decrease are similar to those
impacting the second quarter. An increase in average interest bearing
liabilities of $3.7 million resulted in higher interest expense of $2,033,000,
up $92,000. However, the consequent rise in interest earning assets of $3.4
million produced only $68,000 in additional interest income due to the shifting
of assets from higher yielding loans to lower yielding investment securities. A
discussion of the Company's funding base, as well as its' loan and investment
portfolios, may be found elsewhere in this report.
Despite the changes noted above, tax equivalent net interest income for the
13
<PAGE>
six month period was nearly unchanged at $3,163,000 in 1998 and $3,169,000 in
1997 due to increased holdings of tax exempt securities. The tax equivalent net
interest margin, however, still fell from 5.20% to 5.04% again reflecting an
earning asset mix which includes more securities and fewer loans than in the
first half of 1997.
NONINTEREST INCOME
- ------------------
Noninterest income includes all revenues which are not included in interest
and fee income relating to earning assets. Total noninterest income for the
second quarter of 1998 and 1997 was $158,000 and $124,000, respectively. The
biggest change in this area was trust department income, up $16,000 to $42,000.
Trust income is reported on the cash basis of accounting in keeping with
industry practices. This does not effect income materially. Despite the change
in reported trust income, neither the scope or the nature of trust operations
have changed. Annual trust income, however, is now expected to surpass the 1997
total. Among the other components of noninterest income service fees increased
by $13,000 to $74,000 due to higher overdraft fees and charges assessed to
noncustomers for the use of Citizens' ATMs.
On a year-to-date basis noninterest income of $295,000 exceeded the 1997
total of $283,000 by $12,000. Included in the 1997 total, however, was a one
time item of $60,000 as explained in prior reports. Absent this, the total
increase in noninterest income would have been $72,000.
As with the quarterly analysis, the largest contributor to this improvement
is trust income. Total trust income for the six months of $69,000 is $43,000 in
excess of the June, 1997 total. The increase of $24,000 in service fees is
again mostly due to higher levels of overdraft and ATM fees. Overdrafts are up
by $16,000 to $73,000 while ATM fees have risen approximately $6,000 to $9,000.
Another component of service fees, commercial account analysis, totaled
approximately $13,000 through June 30, 1998. However, due to the loss of one
commercial deposit account this source of income is expected to drop by
approximately $2,000 per month.
The remaining components of noninterest income, when adjusted for the one
time $60,000 item, have not changed significantly.
NONINTEREST EXPENSE
- -------------------
Noninterest expense includes all items of expense other than interest
expense, the provision for loan losses and income taxes. Total noninterest
expense for the second quarter of $1,080,000 were $57,000, or 5.6%, higher than
in the same quarter of 1997. The largest contributor to this increase was a
$25,000 increase in salaries and benefits, nearly all of which may be linked to
higher salaries.
The category of other noninterest expense increased $17,000, or 6.7%, to
$269,000. This was due to several factors including higher costs for legal
services, telephone expense, subscriptions and memberships, costs associated
with other real estate owned, state franchise tax expense, and fees related to
the Bank's credit card program. Several of these items, including legal
services, franchise tax, and other real estate costs, reflect one time expenses.
Data processing costs continue to rise as noted in the March 31, 1998 Form
10-Q. For the second quarter data processing costs totaled $94,000, up from
$88,000 in the second quarter of 1997. In addition, depreciation expense
increased by nearly $10,000 over its second quarter 1997 level. This reflects
the purchase of several items after June 30, 1997 including new teller machines
and an ATM. The remaining components of noninterest expense, including
advertising and net occupancy expense, were little changed during the quarter.
14
<PAGE>
On a year-to-date basis total noninterest expense increased $70,000, or
3.4%, to $2,113,000. This increase may be traced to several items including
salaries and benefits, the maintenance and depreciation of equipment, and data
processing. Occupancy expenses, advertising, and other noninterest expense were
all stable or slightly less than in the first half of 1997.
Salaries expense increased by 5.6%,or $43,000, to $774,000 during the first
six months. The cost of some benefits, particularly pension costs, decreased to
partially offset the higher salaries. Depreciation exceeded its mid year 1997
total by approximately $20,000 for the reasons cited earlier while maintenance
costs rose by more than $9,000 reflecting price changes on certain maintenance
contracts as well as maintenance on certain newly acquired items including the
teller machines.
As discussed earlier in this report, as well as in previous reports, data
processing costs have continued to increase due to the installation of new
systems and products. Additional costs are expected as a result of the Year
2000 Issue. The Bank has devoted significant resources to this issue and has
formed a year 2000 task team. This team has inventoried all computer related or
dependent hardware and software and assessed its compliancy with year 2000
needs. Although this task is ongoing it is now estimated that capital
expenditures of approximately $100,000 and noncapital expenditures of
approximately $41,000 are needed to ensure compliancy. The testing of both
primary and backup systems will continue as Citizens National Bank remains
committed to making the transition into the next century as smoothly as
possible.
INCOME TAXES
- ------------
The Company's provision for income taxes during the second quarter of 1998
and 1997 was $192,000 and $221,000, respectively. Included in these figures are
both federal and state income taxes. For the year-to-date period total income
tax expense, including deferred tax benefits, was $393,000, in 1998 and $446,000
in 1997. This represents 32.8% of pretax income in 1998 and 36.0% in 1997,
partially reflecting an increase in tax exempt income. The Company is not
currently subject to the federal alternative minimum tax.
FINANCIAL CONDITION
- -------------------
Total assets of $134,450,000 at June 30, 1998 were $2,318,000, or
approximately 1.8%, in excess of their year end 1997 total of $132,132,000.
Average assets for the first six months of 1998 were $131,825,000. A detailed
discussion of the Bank's financial condition follows.
LOAN PORTFOLIO
- --------------
The loan portfolio, which represents Citizens' largest earning asset,
decreased by 2.5%, or approximately $2.2 million, during the first half of 1998
to $85,262,000. Included in this decrease is the payoff of one commercial loan
with a balance of approximately $1.6 million. Absent this item decreases in
both the total portfolio and the commercial portfolio would have been minimal.
During 1995 and 1996 the Bank increased the size of its loan portfolio by
focusing on installment lending, particularly the financing of automobiles. In
1997 management reduced the emphasis on auto lending as certain strategic goals
relative to that type of lending activity were satisfied. Throughout 1998
emphasis has been placed on developing better commercial loan relationships.
Despite the loan payoff noted earlier, management believes the effort will be
successful and recognizes that a considerable amount of time and resources will
be required. Excluding the payoff of $1.6 million, the commercial loan portfolio
has fallen approximately $326,000 in the first half of 1998. However, some
loans to commercial enterprises may be secured by real property. As such they
are
15
<PAGE>
considered to be mortgage loans secured by nonfarm, nonresidential property;
these loans have increased by $2.2 million in the first six months of 1998.
As management de-emphasized the installment loan portfolio it began to
shrink in size during 1997 and continues to do so in 1998 as repayments exceed
new loan originations. During the first half of 1998 the installment loan
portfolio has fallen nearly $2.4 million, or 15%.
This rate of decrease is greater than management had anticipated partly due
to the incentives recently offered by various auto manufacturers on the purchase
of new cars. These incentives have made it difficult for the Bank to compete for
new cars and have encouraged consumers who would typically purchase used cars to
look toward new car purchases. Thus, both new and used car lending have been
negatively impacted. During the second quarter of 1998 the Bank did more
aggressively seek used car loans, however. As a result, the number of loans made
during May and June of 1998 equaled those made during the same time period in
1997.
Mortgage lending continues to be the Bank's largest loan portfolio. Total
mortgage loans of $59,011,000 at June 30, 1997 represent 69% of all loans and is
up approximately $2.6 million since year end 1997. Most of this growth came in
the nonfarm, nonresidential portfolio as noted earlier. Nonetheless,
traditional 1 to 4 family mortgages continue to be the Bank's largest source of
mortgage loans. Such loans totaled $39,762,000 at June 30, 1998 and $39,414,000
at December 31, 1997. The majority of these loans are one year adjustable rate
loans none of which are held for resale.
The Bank's remaining portfolios, including construction and credit card
loans, are relatively small and do not have a major impact on the Company's
overall financial position.
Company policy requires those loans which are past due 90 days or more be
placed on nonaccrual status unless they are both well secured and in the process
of collection. At June 30, 1998 the level of nonaccrual loans remained quite
low. The following table illustrates this by providing a summary of past due and
nonperforming assets.
Summary of Past Due Loans and Nonperforming Assets
--------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
June 30 December 31
--------------------- -----------
1998 1997 1997
(Unaudited) *
<S> <C> <C> <C>
Loans past due 90 or more days
still accruing interest $ 27 $ 16 $ 9
===== ===== =====
Nonperforming assets:
Nonaccruing loans $ 41 $ 258 $ 2
Other Real Estate Owned 42 62 0
----- ----- -----
$ 83 $ 320 $ 2
===== ===== =====
</TABLE>
* From the Company's Form 10-K filing dated December 31, 1997
All losses which may be reasonably anticipated are accounted for in the
allowance for loan losses. Management makes this determination by its analysis
of overall loan quality, changes in the mix and size of the loan portfolio,
previous loss experience, general economic conditions, information about
specific borrowers and other factors. At June 30, 1998, the allowance for loan
losses was $1,117,000, up $23,000 from $1,094,000 at December 31, 1997. These
levels, which represented 1.31% and 1.25% of total loans outstanding, were
considered adequate and management is not aware of any trends, uncertainties or
other information relating to the loan portfolio which it expects will
materially impact future operating results, liquidity or capital resources.
16
<PAGE>
The provision for loan losses is a charge to earnings which is made to
maintain the allowance for loan losses at a sufficient level. The provision
totaled $60,000 during the first half of 1998, down from $102,000 in the first
half of 1997. This decrease is based upon the improvement in past-due and
nonperforming loans described above and its relation to the allowance for loan
losses. During the first half of 1998 and 1997 net loan charge-offs totaled
$37,000, and $62,000, respectively as more fully illustrated in Note 4 to the
accompanying condensed financial statements.
SECURITIES PORTFOLIO AND FEDERAL FUNDS SOLD
- -------------------------------------------
The Bank's securities portfolio consists of available for sale and held to
maturity securities while no securities are maintained in a trading account. At
June 30, 1998, the held to maturity portfolio totaled $7,756,000 consisting
solely of tax-exempt municipal securities which are expected to be held until
they mature in order to benefit from their tax advantaged status. Management is
attempting to take full advantage of such tax saving opportunities when
available. Since year end 1997 the tax exempt portfolio has increased in size by
over 38%, or $2.1 million.
Management also attempts to emphasize the available for sale portfolio due
to the flexibility it allows in managing the balance sheet structure and
addressing asset/liability issues. At June 30, 1998 this portfolio had an
estimated fair value of $33,958,000, $217,000 in excess of the amortized cost.
Such excess represents an unrealized gain. This portfolio, which represents
nearly 81% of the total securities portfolio, is invested primarily in U.S.
Treasury and agency obligations and investment grade corporate debt instruments.
At quarter-end the U.S. Treasury and agency component of the portfolio totaled
$15,443,000, or 45.5%, while the corporate component totaled $15,819,000 or
46.6%. The remainder of the portfolio, $2,696,000, consists of mortgage backed
securities, taxable municipal obligations, and stock which the Bank is required
to hold for membership in the Federal Reserve Bank and the Federal Home Loan
Bank.
The Bank has traditionally favored investments with maturities of five
years or less which have known cash flow patterns. Such instruments typically
provide greater safety, less market value fluctuation and more simplified
asset/liability issues. However, future investments may include increased
holdings of callable and mortgage backed securities in order to improve yield.
Currently, callable securities total $3.3 million while mortgage backed
securities total just $582,000.
The Bank generally tries to minimize its involvement in the overnight
federal funds sold market, instead relying on the continually maturing
securities portfolio to provide the liquidity needed to fund loans or meet
deposit withdraw demands. Nonetheless, at any given time the execution of
specific investing or funding strategies, or normal fluctuations in deposit and
loan balances, may require the bank to sell, or buy, funds on an overnight
basis.
At June 30, 1998 and December 31, 1997 the balances of federal funds sold
were $100,000 and $200,000, respectively. The average federal funds sold balance
during the first half of 1998 was $1,104,000.
DEPOSITS AND OTHER FUNDING SOURCES
- ----------------------------------
Like many banks, Citizens has had difficulty increasing its deposit base in
recent years as customers have placed a larger portion of their funds in
accounts which provide higher levels of dividend or interest income. However, an
increase in both deposits and borrowings during the first half of 1998 helped
produce a $3.4 million increase in average earning assets. Total deposits, which
increased $780,000 to $111,182,000 at June 30, 1998 averaged $109,888,000 during
the first half of the year. Borrowings increased $1,367,000 to $6,042,000 at
June 30, 1998 as the balances held by local governmental units in repurchase
agreements rose.
17
<PAGE>
These balances, however, can change daily based on the needs of the governmental
entities. Total borrowings averaged approximately $4.9 million during the six
month period.
Noninterest bearing deposits averaged $13,119,000 during the first six
months of 1998 and totaled $14,848,000 at quarter-end. The quarter end total
represents 13.4% of total deposits. This increased quarter end total, however,
is expected to be temporary. Management believes the core level of noninterest
bearing deposits to more closely approximate the average.
Interest bearing deposits totaled $96,334,000 at June 30, 1998,
$905,000 less than at year end 1997 and $435,000 less than the year to date
average of $96,769,000. Among interest bearing deposits savings accounts
experienced the biggest change falling $2,009,000, or 7.3% to $25,682,000.
Savings accounts have averaged $25,880,000 throughout the first six months of
the year. Included in the June 30 total are corporate sweep accounts of
$4,593,000. These sweep accounts totaled $4,902,000 at year end 1997 and
averaged $3,917,000 during the first six months of 1998.
Certificates of deposit continue to represent the Bank's largest
source of funds totaling $41,380,000 at June 30, 1998, up $1,001,000 from year
end. This increase is due to a $2,376,000 increase in certificates of deposit
of $100,000 or more. Total certificates of $100,000 or more are now
$10,184,000, or 24.6% of all certificates of deposit. In addition, another $1.1
million of large certificates are held in individual retirement accounts (IRAs).
IRA CDs, however, have been fairly stable in the first half of the year
decreasing $373,000 to $10,032,000.
The Bank does not actively seek these large deposits and manages their
pricing on a weekly basis. Such parameters are used to ensure the Bank does not
engage in pricing practices which could be detrimental to earnings. The Bank
does believe, however, that operating efficiencies may be gained when holders of
multiple certificates combine them into one instrument and encourages customers
to do so. Such combinations have created approximately $1.2 million in large
certificates. This is the primary cause of the $1,375,000 decrease in
certificates of deposit of under $100,000 during the first half of the year.
The Banks' other types of deposits, including interest bearing
checking and money market accounts, have been very stable over the first half of
1998 totaling $18,923,000 at June 30, 1998 and $18,651,000 at December 31, 1997.
In addition to deposits the Bank uses various forms of borrowings to
fund its assets. The Bank's long term borrowings consist of several advances
from the Federal Home Loan Bank of Pittsburgh and are used to fund specific
loans or groups of loans. No additional long term borrowings were obtained in
the first half of 1998. Future borrowings are likely to depend on the existence
of beneficial loan opportunities.
Short term borrowings consist of two repurchase agreements with local
governmental authorities. Each of these accounts was acquired through
competitive bids. The balances in these accounts fluctuate daily based on the
cash needs of the customers. The June 30, 1998 balance of $4,996,000 is in
excess of the average balance for the six month period of $3,865,000.
CAPITAL RESOURCES
- -----------------
Total shareholders' equity of $16,216,000 at June 30, 1998 is $121,000
greater than at year end 1997 and represents 12.1% of total assets. During the
first six months of 1998 net income of $805,000 and unrealized gains on
available for sale securities of $49,000 increased the capital base. Conversely
dividends of $199,000, or $.30 per share, and the purchase of 19,250 shares of
treasury stock for $534,000, reduced capital. The purchase of treasury stock is
conducted under
18
<PAGE>
the company's stock repurchase policy and is not part of a specific repurchase
program. The Company has no specific plans for those shares now held in
treasury.
The Bank continues to exceed all risk based 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 18.76% 8.0%
Tier I capital to risk weighted assets 17.54% 4.0%
Tier I capital to adjusted total assets 12.15% 3.0%
</TABLE>
The Company is unaware of any trends or uncertainties, nor do any plans
exist, which may materially impair its capital position.
LIQUIDITY AND INTEREST RATE SENSITIVITY
- ---------------------------------------
The objective of the Company's liquidity management program is to
ensure the continuous availability of funds to meet the withdrawal demands of
depositors and the credit needs of borrowers. The basis of Citizens' liquidity
comes from the stability of its core deposits. Liquidity is also available
through the available for sale securities portfolio, held to maturity securities
due within one year, and short-term funds such as federal funds sold. At June
30, 1998 these sources totaled $41,814,000 or 31.1% of total assets. In
addition, liquidity may be generated through loan repayments and over
$52,000,000 of available borrowing arrangements with correspondent banks. Each
quarter management tests the Bank's ability to satisfy its anticipated liquidity
needs over the next twelve months. At June 30, 1998 this test indicates the
bank is well positioned and has ample liquidity to satisfy those needs. Details
on both the sources and uses of cash are presented in the Statements of Cash
Flows contained in the financial statements.
The objective of the Company's interest rate sensitivity management
program, also known as asset/liability management, is to maximize net interest
income while minimizing the risk of adverse effects from changing interest
rates. This is done by controlling the mix and maturities of interest sensitive
assets and liabilities. The Bank has established an asset/liability committee
for this purpose.
One common interest rate risk measure is the gap, or difference
between rate sensitive assets and rate sensitive liabilities. As of June 30,
1998, the Company's cumulative one year gap to total assets ratio was a negative
2.17% compared to a negative 9.51% at December 31, 1998. This indicates the
Bank is now less sensitive to changes in interest rates than it was at year-end.
The primary reason for this change is the renewal of maturing 36 month
certificates of deposit.
The Bank also utilizes financial modeling programs to measure and
control its interest rate risk. In such programs changes in net interest income
are forecast under various interest rate scenarios. Instantaneous shifts in
interest rates of up to 200 basis points are regularly tested. At June 30, 1998
such tests indicate that for any given interest rate change of 100 basis points
the effect on net interest income is less than 5%.
YEAR 2000 COMPLIANCE
- --------------------
The Company has established a Year 2000 Committee to pursue solutions
to the Year 2000 Issue. This committee has full senior and executive management
support. As noted in the discussion of noninterest expense this committee has
inventoried
19
<PAGE>
all computer related or dependent hardware and software to assess compliance
with year 2000 needs. The committee is now in the process of identifying and
developing backup systems and testing of mission critical systems. Management's
current estimate of the cost to become 2000 compliance was disclosed in the
noninterest expense section of this discussion.
IMPACT OF INFLATION
- -------------------
The consolidated financial statements and related data included in
this report were prepared in accordance with generally accepted accounting
principles, which require the Company's financial position and results of
operations to be measured in terms of historical dollars except for the
available for sale securities portfolio. Consequently, the relative value of
money generally is not considered. Nearly all of the Company's assets and
liabilities are monetary in nature and, as a result, interest rates and
competition in the market area tend to have a more significant impact on the
Company's performance than the effect of inflation.
20
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings :
-----------------
As of June 30, 1998 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 shareholders of Citizens Financial Corp. was
held on April 18, 1998. The shareholders determined that the maximum
number of directors shall be increased from nine to ten and that directors
Chabut, DeMotto, Schoonover and Thompson will serve three year terms ending
in April, 2001. All of these directors were unopposed.
The shareholders also approved an Amendment to the Certificate of
Incorporation to increase the number of authorized shares of common stock
from one million two hundred fifty thousand (1,250,000) to two million two
hundred fifty thousand (2,250,000), the par value per share remaining two
dollars ($2.00) by a vote of 470,024 shares for, 4,380 shares against with
6,875 shares obstaining. The Corporation's capital remained unchanged as a
result of this amendment.
Item 5. Other Information: None.
-----------------
Item 6. Exhibits and Reports on Form 8-K:
--------------------------------
(a) Exhibits: 3(i) Articles of Incorporation, page 23
(b) Reports on Form 8-K:
On April 21, 1998 the Company filed a Current Report on Form 8-K
reporting the Amendment to the Certificate of Incorporation referred to in
Part II, Item 4 above and exhibited in Exhibit 3(i) which follows.
21
<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: 7/31/98 /s/ Robert J. Schoonover
-------------------- -------------------------------
Robert J. Schoonover
President
Chief Executive Officer
Date: 7/31/98 /s/ Thomas K. Derbyshire
-------------------- -------------------------------
Thomas K. Derbyshire
Treasurer
Principal Financial Officer
22
<PAGE>
Exhibit 3(i)
The Articles of Incorporation of Citizens Financial Corp. were originally
filed with the Secretary of State of the State of Delaware on October 2, 1986.
Said Articles were subsequently amended by filings with the same office on April
20, 1993 and April 24, 1998. Each of these amendments pertained to article
FOURTH of the Articles. A complete copy of said Articles, as amended, is made a
part of this filing on Form 10-Q in Exhibit 3(i).
<PAGE>
Exhibit 3(i) (cont.)
CERTIFICATE OF INCORPORATION
OF
CITIZENS FINANCIAL CORP.
The undersigned incorporators do hereby incorporate or organize a
corporation under the General Corporation Law of Delaware, for the purpose and
on the terms hereinafter set forth:
FIRST. The name of this corporation shall be CITIZENS FINANCIAL CORP.
SECOND. The corporation's registered office in the State of Delaware shall
be at 4305 Lancaster Pike, in the City of Wilmington, New Castle County,
Delaware. The corporation's registered agent at such address shall be
Corporation Service Company, whose mailing address is P.O. Box 591, Wilmington,
Delaware 19899.
THIRD. The purposes of this corporation are, primarily, to purchase, own
and hold the stock of national banking associations, state banking institutions
and other corporations, subject to such regulatory approval as may be required,
to perform such actions as may be usual and customary in directing the
operations of the entities so acquired, and, generally, to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The corporation shall have authority to issue two million two
hundred fifty thousand (2,250,000) shares of stock, and the par value of each
such share shall be two dollars ($2.00).
FIFTH: The names and mailing addresses of the incorporators are as
follows:
Max L. Armentrout Route 1, Box 306A
Chenoweth Creek Road
Elkins, WV 26241
Raymond L. Fair Route 1
Chenoweth Creek Road
Elkins, WV 26241
<PAGE>
Exhibit 3(i) (cont.)
John F. Harris 1008 South Davis Avenue
Elkins, WV 26241
Emery Thompson, Jr. 317 Wilson Street
Elkins, WV 26241
L. T. Williams Route 2, Box 6
Elkins, WV 26241
SIXTH. The powers of the incorporators shall terminate upon the filing of
this Certificate of Incorporation, and the names and mailing addresses of the
persons who are to serve as directors until the first annual meeting of
stockholders or until their successors are elected and qualified as follows:
Max L. Armentrout Route 1, Box 306A
Chenoweth Creek Road
Elkins, WV 26241
Raymond L. Fair Route 1
Chenoweth Creek Road
Elkins, WV 26241
John F. Harris 1008 South Davis Avenue
Elkins, WV 26241
W. H. Scheel, Jr. Box 2207
Elkins, WV 26241
Emery Thompson, Jr. 317 Wilson Street
Elkins, WV 26241
L. T. Williams Route 2, Box 6
Elkins, WV 26241
SEVENTH. The following provisions shall apply to the management of the
business and to the conduct of the affairs of the corporation:
(A) Directors. The board of directors shall consist of not less than five
---------
(5) nor more than twenty-five (25) stockholders, the exact number to be fixed
and determined from time to time by resolutions of a majority of the
stockholders at any annual or special meeting thereof. The directors shall be
divided into three classes, as nearly equal in number as possible, to be
designated as Class 1, consisting of not more than eight (8) directors; Class 2,
consisting of not more than (8) directors; and Class 3, consisting of not more
than nine (9) directors.
<PAGE>
Exhibit 3(i) (cont.)
The term of office of the initial directors of Class 1 shall expire at
the first annual meeting of stockholders following their election, and their
successors shall be elected for three-year terms. The term of office of the
initial directors of Class 2 shall expire at the second annual meeting of
stockholders following their election, and their successors shall be elected to
three-year terms. The term of office of the initial directors of Class 3 shall
expire at the third annual meeting of stockholders following their election, and
their successors shall be elected to three-year terms. Thereafter, all
directors shall be elected to three-year terms. Each director shall serve until
his or her successor shall have been elected and shall qualify or until his or
her earlier resignation or removal.
(B) Cumulative Voting. Each stockholder shall be entitled to one
-----------------
vote for each share of stock by such stockholder. No stockholder shall have the
right to cumulate his or her votes with respect to any election of directors.
(C) Tender Offers. The board of directors, if it deems it advisable,
-------------
may oppose a tender or other offer for the corporation's securities, whether the
offer is in cash or securities of a corporation or otherwise. When considering
whether to oppose an offer, the board of directors shall consider all pertinent
issues which, by way of illustration and not of limitation, may include any and
all of the following:
(1) Whether the offer price is acceptable based on the historical and
present operating results or financial condition of the corporation;
(2) Whether a more favorable price could be obtained for the
corporation's securities in the future;
(3) The impact which an acquisition of the corporation would have on
the employees, depositors, or customers of the corporation and its subsidiaries
in the community which they serve;
<PAGE>
Exhibit 3(i) (cont.)
(4) The reputation and business practices of the offeror and its
management and affiliates as they would affect the employees, depositors and
customers of the corporation and its subsidiaries and the future value of the
corporation's stock;
(5) The value of the securities, if any, which the offeror is
offering in exchange for the corporation's securities, based on analysis of the
worth of the corporation as compared to the corporation or other entity whose
securities are being offered;
(6) Any antitrust of other legal or regulartory issues that are raised
by the offeror.
If the board of directors upon consideration of all pertinent issues
determines that an offer should be rejected or opposed, it may take any lawful
action to accomplish such purpose, including, but not limited to any and all of
the following: Advising stockholders not to accept the offer; litigation
against the offeror; filing compliants with all governmental and regulatory
authorities; issuing the authorized but unissued securities or treasury stock of
the corporation or granting options with respect thereto; and obtaining a more
favorable offer from an individual or other entity.
(D) Preemptive Rights. No stockholder shall have any preemptive
-----------------
right to subscribe to any additional issue of stock of the corporation or to any
security convertible into such stock.
(E) Directors' Personal Liability. No director shall be personally
-----------------------------
liable to the corporation or its stockholders for monetary damages for any
breach of fiduciary duty by such director as a director. Notwithstanding the
foregoing sentence, a director shall be liable to the extend provided by
applicable law (i) for breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law (iii)
pursuant to Section 174 of the Delaware General Corporation law or (iv) for any
transaction from which the director derived an improper personal benefit. No
amendment to or repeal of the Article SEVENTH (E) shall apply to or have any
effect on the liability or alleged
<PAGE>
Exhibit 3 (i) (cont.)
liability of any director of the corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment.
(F) Directors' and Officers' Liability Insurance. The corporation
--------------------------------------------
shall use its best efforts to purchase and maintain insurance, on behalf of any
person who is or was director or officer of the corporation, or is or was
serving at the request of the corporation as a director or officer of another
corporation or other enterprise, in such amount or limits as may from time to
time be determined to be reasonable as provided in the by-laws, against any
liability asserted against such person and incurred by him or her in any such
capacity, or arising out of his or her status as such director or officer,
whether or not the corporation would have the power to indemnify him or her
against such liability under law. This provision for directors' and officers'
liability insurance is in addition to and not exclusive of all other rights to
which directors or officers seeking indemnification may be entitled under any
law, by-law, agreement, vote of stockholders or disinterested directors, or
otherwise.
(G) By-laws. All other provisions, not inconsistent with law or with
-------
this Certificate of Incorporation, relating to the business of the corporation,
the conduct of its affairs and its rights or powers or the rights or powers of
its stockholders, directors or officers, shall be established by the by-laws.
The power to adopt, amend or repeal by-laws is hereby conferred upon the
directors, to the extent permitted by law.
THE UNDERSINGED INCORPORATORS, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation and do certify that the facts herein are true;
and we have accordingly set our respective hands to duplicate original hereof
this 29th day of September, 1986.
---- ---------
/s/ Max L. Armentrout
-------------------------------------
MAX L. ARMENTROUT, INCORPORATOR
<PAGE>
Exhibit 3(i) (cont.)
/s/ Raymond L. Fair
------------------------------------
RAYMOND L. FAIR, INCORPORATOR
/s/ John F. Harris
------------------------------------
JOHN F. HARRIS, INCORPORATOR
/s/ Emery Thompson, Jr.
------------------------------------
EMERY THOMPSON, JR., INCORPORATOR
/s/ L. T. Williams
------------------------------------
L. T. WILLIAMS, INCORPORATOR
STATE OF WEST VIRGINIA,
COUNTY OF RANDOLPH, to-wit:
The undersigned notary public in and for the county and state
aforesaid does hereby certify that MAX L. ARMENTROUT, RAYMOND L. FAIR, JOHN F.
HARRIS, EMERY THOMPSON, JR. AND L. T. WILLIAMS, whose names are signed to the
foregoing Certificate of Incorporation bearing date the 29th day of September,
---- ---------
1986, this day personally appeared before me in my said county and severally
acknowledged that such instrument is the act and deed of each and all of them
and that the facts stated therein are true.
GIVEN under my hand and official seal this 29th day of
----
September, 1986.
- ---------
Official Seal: /s/ Frank A. Jackson
--------------------------------------
Frank A. Jackson, Notary Public
STAMP
This instrument prepared by:
Richard G. Herndon RECEIVED FOR RECORD
F. A. Jackson OCT. 6, 1986
Attorneys-at-law LEO J. DUGAN, JR., Recorder
84 Fifteenth Street
Wheeling, WV 26003
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1998 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,731
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 33,958
<INVESTMENTS-CARRYING> 7,756
<INVESTMENTS-MARKET> 7,832
<LOANS> 85,262
<ALLOWANCE> 1,117
<TOTAL-ASSETS> 134,450
<DEPOSITS> 111,182
<SHORT-TERM> 4,996
<LIABILITIES-OTHER> 1,010
<LONG-TERM> 1,046
0
0
<COMMON> 1,500
<OTHER-SE> 14,716
<TOTAL-LIABILITIES-AND-EQUITY> 134,450
<INTEREST-LOAN> 3,894
<INTEREST-INVEST> 1,185
<INTEREST-OTHER> 30
<INTEREST-TOTAL> 5,109
<INTEREST-DEPOSIT> 1,893
<INTEREST-EXPENSE> 2,033
<INTEREST-INCOME-NET> 3,076
<LOAN-LOSSES> 60
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,113
<INCOME-PRETAX> 1,198
<INCOME-PRE-EXTRAORDINARY> 1,198
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 805
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
<YIELD-ACTUAL> 5.04
<LOANS-NON> 41
<LOANS-PAST> 27
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,094
<CHARGE-OFFS> 70
<RECOVERIES> 33
<ALLOWANCE-CLOSE> 1,117
<ALLOWANCE-DOMESTIC> 1,117
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 100
</TABLE>
