SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to___________________
Commission file number 0-13222
CITIZENS FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in our charter)
15 South Main Street, Mansfield, Pennsylvania 16933
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (570) 662-2121
Securities registered pursuant to section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
NOT APPLICABLE NOT APPLICABLE
Securities registered pursuant to section 12 (g) of the Act:
Common Stock, par value $1.00 per share.
(Title of class)
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Indicate by checkmark whether the registrant (1) has filed all reports to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes__X___No_____
The total market value of the voting stock of the Registrant held by non-affiliates (for this purpose, persons or entities other than executive officers, directors, or 5% or more stockholders) of the Registrant, as of February 7, 2003, is $55,470,425.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 or Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ___
The number of shares outstanding of the Registrant's Common
Stock, as of February 14, 2003, is 2,826,908 shares of Common Stock, par
value $1.00.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Parts I, III and IV is incorporated by reference to Registrant's Definitive Proxy Statement for the Annual Meeting of Stockholders to be held April 15, 2003.
Certain information required by Parts I, II and IV is
incorporated by reference to Registrant's Annual Report to Stockholders
for the Year Ended December 31, 2002.
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Citizens Financial Services, Inc.
Form 10-K
INDEX
Part I Page
Item 3-Legal Proceedings 6
Item 4-Submission of Matters to a Vote of Stockholders 6
Part II
Item 5-Market for Registrant's Common Stock and Related
Shareholder Matters
6
Item 6-Selected Financial Data 6
Item 7-Management's Discussion and Analysis of Financial
Condition and Results of Operations
7
Item 7A-Quantitative and Qualitative Disclosure
About Market Risk
7
Item 8-Financial Statements and Supplementary Data 7
Item 9-Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
7
Part III
Item 10-Directors and Executive Officers of the Registrant 7
Item 11-Executive Compensation 7
Item 12-Security Ownership of Certain Beneficial Owners
and
Management
7
Item 13-Certain Relationships and Related Transactions 8
Item 14-Controls and Procedures 8
Part IV
Item 15-Exhibits, Financial Statement Schedules, and Reports
on
Form 8-K
8-9
Signatures 10-11
Certifications 12-13
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Part I
Item 1-Business
Citizens Financial Services, Inc. is a Pennsylvania business corporation, incorporated April 30, 1984 to form a bank holding company. On April 30, 1984, First Citizens National Bank became a wholly owned subsidiary of our company by means of a merger in which the stockholders of First Citizens became stockholders of our company.
In 1932, First National Bank opened for business in Mansfield, Pennsylvania. In 1970, the First National Bank in Mansfield merged with Citizens National Bank of Blossburg, Pennsylvania, to form First Citizens National Bank. In 1971, the Bank expanded into Potter County through the acquisition of the Grange National Bank, which had offices in Ulysses and Genesee, Pennsylvania.
On November 16, 1990, we acquired Star Savings and Loan Association, originally organized as a Pennsylvania-chartered mutual savings and loan association in 1899 and converted to a Pennsylvania-chartered permanent reserve fund stock savings and loan association on March 27, 1986. On December 31, 1991, the Association merged with First Citizens terminating the Association's separate operations as a savings and loan.
On April 20, 1996, First Citizens purchased two branch offices of Meridian Bank in Canton and Gillett, Pennsylvania.
October 1996, we opened an office in Weis supermarket in Wellsboro, Pennsylvania.
August 2000, we opened an office in Wal-Mart supercenter in Mansfield, Pennsylvania.
On October 27, 2000, we purchased six branch offices of Sovereign Bank in Bradford County, Pennsylvania. In February 2001, we consolidated two of these six branches.
As of December 31, 2002, First Citizens employed 179 full time equivalent employees at our 15 banking facilities.
Our company's profitability does not depend upon a few customers. Losing the business of any one customer or group of customers would not cause a material impact on our business.
We are dependent geographically upon the economic conditions in north central Pennsylvania and the southern tier of New York. Additional information related to our business and the competition is detailed in the Management's Discussion and Analysis, which information is included at Exhibit 13, hereof and incorporated herein by reference.
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REGULATION AND SUPERVISION
Our company's operations and those of First Citizens are regulated by several federal and state entities, including the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.
The Comptroller is the primary supervisory authority over First Citizens. The Comptroller regularly examines our bank and has the authority, under the Financial Institutions Supervisory Act, to prevent us from engaging in unsafe or unsound practices in the conduct of our business.
Our company is subject to regulation under the Bank Holding Company Act of 1956, as amended. The Act generally does not permit bank holding companies:
To acquire direct or indirect ownership of any company that is not a bank;
To acquire control of more than 5% of the voting shares of any company that is not a bank; or
To engage in any business other than that of:
Banking;
Managing and controlling banks;
Furnishing services to subsidiary banks; orThe Act also prohibits our company from engaging in "tie-in" arrangements with our customers in which we would extend credit to a customer, and in exchange, the customer would perform services for First Citizens.Engaging in any other activity that the Federal Reserve deems to be closely related to banking.
The Act requires our company to obtain the approval of the Federal Reserve before we acquire more that 5% of the voting stock of another bank. The Act also requires us to file annual reports with the Federal Reserve. The Act also permits the Federal Reserve to examine the operations of our company.
The Act requires prior approval by the Federal Reserve of the acquisition by our company of more than 5% of the voting stock of any additional bank. Our company is required by the Act to file annual reports of our operations with the Federal Reserve and of any additional information that the Federal Reserve may require. The Federal Reserve may also make examinations of our company and any or all of our subsidiaries. Further, under Section 106 of the 1970 amendments to the Act and the Federal Reserve's regulations, a bank holding company and our subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or provision of credit or provision of any property or service.
Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the Federal Reserve Act on any extensions of credit to our bank holding company or any of our subsidiaries, or investments in the stock or other securities of our bank holding company and on taking of such stock or securities as collateral for loans to any borrower.
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PERMITTED NON-BANKING ACTIVITIES
The Federal Reserve permits our bank holding companies to engage in non-banking activities, which are closely related to banking or managing or controlling banks. Our company presently does not engage in any such activities nor does it intend to in the near future.
Neither our company nor our subsidiary anticipates that compliance with environmental laws and regulations will have any material effect on capital expenditures, earnings, or on our competitive position.
Our company is a legal entity, separate and distinct from
First Citizens. Most of our company's revenues, including funds available
for payment of dividends and for operating expenses, are provided by dividends
from First Citizens. Certain limitations exist on the availability of First
Citizen's undistributed net assets for the payment of dividends to our
parent without prior approval of First Citizens regulatory authorities
as further described in Footnote 11 of the 2002 Annual Report to the Stockholders,
which information is included at Exhibit 13, hereof and incorporated herein
by reference.
LEGISLATION AND REGULATORY CHANGES
From time to time, various types of federal and state legislation have been proposed that could result in additional regulation of and restrictions on the business of our company and First Citizens. We cannot predict whether such legislation will be adopted or, if adopted, how such legislation would affect the business of our company or First Citizens. As a consequence of the extensive regulation of commercial banking activities in the United States, the company's and bank's business is particularly susceptible to being affected by new and revised federal legislation and regulations that may increase the cost of doing business.
Risk-Based Capital Guidelines. The Federal Reserve, the FDIC and the Comptroller have issued certain risk-based capital guidelines, which supplement existing capital requirements and have been discussed in Footnote 11 of the 2002 Annual Report to the Stockholders, which information is included at Exhibit 13, hereof and incorporated herein by reference.
We are not aware of any other current specific recommendations by regulatory authorities or proposed legislation, which if it were adopted, would have a material adverse effect upon our company's liquidity, capital resources, or results of operations, although the general cost of compliance with numerous federal and state laws and regulations does have, and in the future may have, a negative impact on our company's results of operations.
The state of the financial services industry effects the business of our company. As a result of legal and industry changes, we believe that the industry will continue to experience an increase in consolidations and mergers as the financial services industry strives for greater cost efficiencies and market share. We believe that such consolidations and mergers may enhance our competitive position as a community bank by creating the customer perception of poor service at large institutions.
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EFFECT OF GOVERNMENT MONETARY POLICIES
The monetary and fiscal policies of the United States government and agencies greatly affect domestic economic conditions and the economic conditions in the United States affect the earnings of our company.
The monetary policies of the Federal Reserve Board have had and will likely continue to have, an important impact on the operating results of commercial banks through our power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The Federal Reserve Board has a major effect upon the levels of bank loans, investments and deposits through our open market operations in United States securities and through our regulation of, among other things, the discount rate on borrowings of member banks and the reserve requirements against member bank deposits. It is not possible to predict the nature and impact of future changes in monetary and fiscal policies (also see page 66 of Management's Discussion and Analysis of the 2002 Annual Report to the Stockholders, which information is included at Exhibit 13, hereof and incorporated herein by reference).
Item 2-Properties
The headquarters of our company is located in Mansfield, Pennsylvania. The building contains the central offices of the company and First Citizens. Our bank also owns fifteen other banking facilities. All buildings are owned by First Citizens and are free of any liens or encumbrances.
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PROPERTIES Current Building (Renovation Date)
Main office:
15 South Main St.
Mansfield, PA 16933
1971 (New building completed 2001)
Branch offices:
300 Main St.
Blossburg, PA 16912
1988
502 Main St.
Ulysses, PA 16948
1977
391 Main St.
Genesee, PA 16923
1985
306 West Lockhart St.
Sayre, PA 18840
1989
430 North Keystone Ave.
Sayre, PA 18840
1959 (1978)
102 Desmond Street.
Sayre, PA 18840
1963 (1989)
99 Main St.
Wellsboro, PA 16901
1979
103 West Main St.
Troy, PA 16947
1988
Exchange St and Main St.
Troy, PA 16947
1895 (1983)
29 West Main
Canton, PA 17724
1974 (1997)
Main St.
Gillett, PA 16925
1970 (1997)
Main St., Route 328
Millerton, PA 16936
1970
Main St., Route 467
LeRaysville, PA 18829
1890 (1991)
111 Main St.
Towanda, PA 18848
1974
Operations Center
1163 South Main St.
Mansfield, PA 16933
1999 (New addition completed 2001)
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The net book value for these properties, as of December 31, 2002, was $9,297,000. The properties are adequate to meet the needs of the employees and customers. We have equipped all of our facilities with current technological improvements for data and word processing.
Inflation has an impact on our company's operating costs, however, unlike many industrial companies, substantially all of our company's assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our company's performance than the general level of inflation. Over short periods of time, interest rates may not necessarily move in the same direction or in the same magnitude as prices of goods and services.
Item 3-Legal Proceedings
We are not aware of any litigation that would have a material adverse effect on the consolidated financial position of our company. We know of no proceedings pending other than ordinary, routine litigation incidental to the business of the company and our subsidiary. In addition, we know of no material proceedings that are pending or are known to be threatened or contemplated against our company and our bank subsidiary by government authorities.
Item 4-Submission of Matters to a Vote of Stockholders
We submitted no matters to a vote of security holders in the fourth quarter of 2002.
Part II
Item 5-Market for the Registrant's Common Stock and Related
Shareholder Matters
Our company's stock is not listed on any stock exchange, but it is listed on the National Association of Securities Dealers OTC Bulletin Board electronic system, under the trading symbol CZFS.
You can find our market and dividend information on pages 27 and 46-47 of our company's 2002 Annual Report to the Stockholders, which is included at Exhibit 13, hereof and incorporated herein by reference.
Our company has paid dividends since April 30, 1984, the effective date of our formation as a bank holding company. Our company's Board of Directors intends to continue the dividend payment policy; however, future dividends necessarily depend upon earnings, financial condition, appropriate legal restrictions and other factors as in existence at the time the Board of Directors considers dividend policy. Cash available for dividend distributions to stockholders of our company comes from dividends paid to our company by First Citizens. Therefore, restrictions on the ability of First Citizens to make dividend payments are directly applicable to our company.
Under the Pennsylvania Business Corporation Law of 1988, our company may pay dividends only if, after payment, our company would be able to pay our debts as they become due in the usual course of our business and our total assets will be greater than the sum of our total liabilities. See page 36 of the 2002 Annual Report to the Stockholders, for dividend restrictions of a national bank.
As of February 6, 2003, our company had approximately 1,568 stockholders of record. The computation of stockholders of record excludes individual participants in securities positions listings.
Item 6-Selected Financial Data
You can find the discussion required by this item on page 46 of the 2002 Annual Report to the Stockholders, which information is included at Exhibit 13, hereof and incorporated herein by reference.
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Item 7-Management's Discussion and Analysis of Financial
Condition and Results of Operations
You can find information required by this item on pages 48 - 66 of the 2002 Annual Report to the Stockholders, which information is included at Exhibit 13, hereof and incorporated herein by reference.
Item 7A-Quantitative and Qualitative Disclosures About Market Rate Risk
You can find information required by this item 7A on pages 64 - 66 of the 2002 Annual Report to the Stockholders, which information is included at Exhibit 13, hereof and incorporated herein by reference.
Item 8-Financial Statements and Supplementary Data
You can find information required by this item on pages 17 - 46 of the 2002 Annual Report to the Stockholders, which information is included at Exhibit 13, hereof and incorporated herein by reference.
Financial Statements:
Consolidated Balance Sheet as of December 31, 2002 and 2001Item 9-Changes in and Disagreements with Accountants on
Consolidated Statement of Income for the Years Ended December 31, 2002, 2001 and 2000
Consolidated Statement of Changes in Stockholders' Equity for the Years Ended December 31, 2002, 2001 and 2000
Consolidated Statement of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
Accounting and Financial Disclosure
None
Part III
Item 10-Directors and Executive Officers of the Registrant
You can find this information appearing in our Proxy Statement under the caption "Board of Directors and Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" for the Annual Meeting of Stockholders to be held April 15, 2003, which sections are incorporated herein by reference.
Item 11-Executive Compensation
You can find this information appearing in our Proxy Statement under the caption "Executive Compensation", which section is incorporated herein by reference.
Item 12-Security Ownership of Certain Beneficial Owners and
Management
You can find this information appearing in our Proxy Statement under the caption "Beneficial Ownership of the Corporation's Stock Owned by Principal Owners and Management," which section is incorporated herein by reference.
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Item 13-Certain Relationships and Related Transactions
You can find this information appearing in our Proxy Statement under the caption "Certain Relationships and Related Transactions" which section is incorporated herein by reference.
Item 14-Controls and Procedures
We maintain a system of controls and procedures designed to provide reasonable assurance as to the reliability of the financial statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. We evaluated the effectiveness of the design and operation of our disclosure controls and procedures under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, within 90 days prior to the filing date of this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic Securities and Exchange Commission filings. No significant changes were made to our internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation.
Part IV
Item 15-Exhibits, Financial Statement Schedules and Reports on Form 8-K.
a(1)-Financial Statements. The following consolidated financial statements of Citizens Financial Services, Inc. and subsidiary are incorporated by reference to the 2002 Annual Report:
Consolidated Balance Sheet as of December 31, 2002 and 2001
Consolidated Statement of Income for the Years Ended December 31, 2002, 2001 and 2000
Consolidated Statement of Changes in Stockholders' Equity for the Years Ended December 31, 2002, 2001 and 2000
Consolidated Statement of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants(2)-Financial Statement Schedules.
Financial Statement Schedules are omitted because the required information is either not applicable, not required or is shown in the respective financial statement or in the notes thereto.
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(3)-Exhibits: The following Exhibits are filed herewith, or incorporated by reference as a part of this report.
(3)(ii)- By-laws of the Corporation, as amended. (Incorporated by Reference to Exhibit (3)(ii) to the Annual Report of Form 10-K for the fiscal year ended December 31, 1995, as filed with the Commission on March 26, 1996.)
(4) - Instruments Defining the Rights of Stockholders. (Incorporated by reference to the Registrant's Registration Statement No.2-89103 on Form S-14, as filed with the Commission on February 17, 1984.)
(10) - Material Contracts. Employment Agreement between our company and Richard E. Wilber. (Incorporated by Reference to Exhibit (10) to the Annual Report of Form 10-K for the fiscal year ended December 31, 1998, as filed with the Commission on March 17, 1998.)
(13) - The Annual Report to Stockholders for the year ended December 31, 2002.
(99.1) - Certification of Principal Executive Officer.
(99.2) - Certification of Chief Financial Officer.
(b) Reports on Form 8-K.
(d) Not applicable.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on our behalf by the undersigned, there unto duly authorized.
Citizens Financial Services, Inc.
(Registrant)
/s/ Richard E. Wilber
/s/ Randall E. Black
By: Richard E. Wilber
By: Randall E. Black
President, Chief Executive Officer
Assistant Treasurer
(Principal Executive Officer)
(Principal Financial &
Accounting Officer)
Date: March 4, 2003 Date: March 4, 2003
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature and Capacity Date
/s/ Richard E. Wilber
March 4, 2003
Richard E. Wilber, President, Chief Executive Officer,
Director (Principal Executive Officer)
/s/ Carol J. Tama
March 4, 2003
Carol J. Tama, Director
/s/ R. Lowell Coolidge
March 4, 2003
R. Lowell Coolidge, Director
/s/ Rudolph J. van der Hiel
March 4, 2003
Rudolph J. van der Hiel, Director
/s/ John E. Novak
March 4, 2003
John E. Novak, Director
/s/ William D. VanEttan
March 4, 2003
William D. VanEttan, Director
/s/ Larry J. Croft
March 4, 2003
Larry J. Croft, Director
/s/ John M. Thomas, MD
March 4, 2003
John M. Thomas, MD, Director
/s/ Mark L. Dalton
March 4, 2003
Mark L. Dalton, Director
/s/ R. Joseph Landy
March 4, 2003
R. Joseph Landy, Director
/s/ Roger C. Graham
March 4, 2003
Roger C. Graham, Director
/s/ E. Gene Kosa
March 4, 2003
E. Gene Kosa, Director
/s/ Randall E. Black
March 4, 2003
Randall E. Black, Assistant Treasurer
(Principal Financial and Accounting Officer)
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CERTIFICATION
I, Richard E. Wilber, Chief Executive Officer, certify, that:
1. I have reviewed this annual report on Form 10-K of Citizens Financial Services, Inc.;
2. Based on my knowledge, the quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
Date: March 4, 2003
By: /s/ Richard E. Wilber
By: Richard E. Wilber
President
(Chief Executive Officer)
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