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UNITED STATES
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, 1998
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)
PENNSYLVANIA 23-2265045
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15 South Main Street, Mansfield, Pennsylvania 16933
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (717)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)
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 March 5, 1999, is estimated to have been
approximately $52,660,000.
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 March 5, 1999, 2,773,434 shares of Common Stock, par value
$1.00.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Parts I, III and IV are
incorporated by reference to Registrant's Definitive Proxy
Statement for the Annual Meeting of Stockholders to be held April
20, 1999.
Certain information required by Parts II and IV are incorporated by
reference to Registrant's Annual Report to Stockholders for the
Year Ended December 31, 1998.
Citizens Financial Services, Inc.
Form 10-K
INDEX
Part I Page
Item 1-Business 1-4
Item 2-Properties 5
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 7
Item 6-Selected Financial Data 7
Item 7-Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 7A-Quantitative and Qualitative Disclosure
About Market Risk 8
Item 8-Financial Statements and Supplementary Data 8
Item 9-Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 8
Part III
Item 10-Directors and Executive Officers of the Registrant 8
Item 11-Executive Compensation 8
Item 12-Security Ownership of Certain Beneficial Owners and
Management 8
Item 13-Certain Relationships and Related Transactions 8
Part IV
Item 14-Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 9
Signatures 10
Part I
Item 1-Business
Citizens Financial Services, Inc. (the "Company") is a
Pennsylvania business corporation, incorporated April 30, 1984 to
form a bank holding company. On April 30, 1984, First Citizens
National Bank (the "Bank") became a wholly owned subsidiary
of our Company by means of a merger in which the stockholders of
our Bank 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, our Company acquired Star Savings and
Loan Association (the "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 our Bank terminating the Association's
separate operations as a savings and loan.
On April 20, 1996 our Bank purchased two branch offices of Meridian
Bank in Canton and Gillett, Pennsylvania.
On October 31, 1996, our Bank opened a branch office in the new Weis
supermarket in Wellsboro, Pennsylvania.
As of December 31, 1998, our Bank employed 128 full time
equivalent employees at our ten banking facilities.
We are not dependent upon a few customers, which would cause a
material impact on us if their business were lost.
We are dependent geographically upon the economic conditions in
north central Pennsylvania and western New York. Additional information
related to our business and the competition is detailed in the
Management's Discussion and Analysis of the 1998 Annual Report to the
Stockholders, which information is included at Exhibit 13, hereof and
incorporated herein by reference.
1
REGULATION AND SUPERVISION
The operations of our Bank are subject to federal and state
statutes applicable to banks chartered under our banking laws of
the United States, to members of the Federal Reserve System and
to banks whose deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC"). Bank operations are also subject
to regulations of the Office of the Comptroller of the Currency
("Comptroller").
The primary supervisory authority of our Bank is the
Comptroller, who regularly examines our Bank. The Comptroller
has the authority under the Financial Institutions Supervisory
Act to prevent a national bank from engaging in unsafe or unsound
practice while conducting our business.
Our Company is subject to regulation under our Bank Holding
Company Act of 1956, as amended (the "Act"), and is registered
with the Board of Governors of the Federal Reserve System (AFederal
Reserve@). Under the Act, bank holding companies are not permitted, with
certain exceptions, to acquire direct or indirect ownership or control of
more than 5% of the voting shares of any company which is not a bank and
are prohibited from engaging in any business other than that of banking,
managing and controlling banks or furnishing services to our subsidiary
banks, except that they may, upon application, engage in, and may own
shares of companies engaged in, certain businesses found by the
Federal Reserve to be so closely related to banking as to be a
proper incident thereto (if the Federal Reserve determines that
such acquisition will be, on balance, beneficial to the public).
The Act does not place territorial restrictions on the activities
of non-bank subsidiaries of bank holding companies. 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.
The so-called "anti-tie-in" provisions state generally that a bank
may not extend credit, lease property, sell property or furnish any
service to a customer on the condition that the customer provide
additional credit or service to our Bank, to our bank holding company or
to any other subsidiary of our bank holding company. Our Company can not
require a condition that the customer not obtain other credit or service
from a competitor of ours.
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.
2
PERMITTED NON-BANKING ACTIVITIES
The Federal Reserve permits our bank holding companies to
engage in non-banking activities so closely related to banking or
managing or controlling banks as to be a proper incident thereto.
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
our Bank. Most of our Company's revenues, including funds
available for payment of dividends and for operating expenses,
are provided by dividends from our Bank. Certain
limitations exist on the availability of our Bank's
undistributed net assets for the payment of dividends to our
parent without prior approval of our Bank regulatory authorities
as further described in Footnote 14 of the 1998 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 our Bank. Congress has
proposed a modernization of the financial services industry. This
proposed modernization will have the effect of deregulating and expanding
the business activities of financial institutions. These additional
activities may include broader insurance powers, securities underwriting
activities and equity investments by commercial banks. We cannot predict
whether such legislation will be adopted or, if adopted, how such
legislation would affect the business of our Company or our Bank. 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 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 14 of the 1998 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 the 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.
3
Futher, the business of our Company is also affected by the state of
the financial services industry in general. 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.
EFFECT OF GOVERNMENT MONETARY POLICIES
The earnings of our Company are and will be affected by
domestic economic conditions and the monetary and fiscal policies
of the United States government and our agencies.
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 53 of Management's
Discussion and Analysis of the 1998 Annual Report to the Stockholders,
which information is included at Exhibit 13, hereof and incorporated
herein by reference).
4
Item 2-Properties
The headquarters of our Company is located in Mansfield,
Pennsylvania. The building contains the central offices of the
Company and our Bank. Our Bank also owns eight other banking
facilities. All buildings are owned by our Bank and are
free of any liens or encumbrances.
PROPERTIES Current Building
Construction Date
(Renovation Date)
Main office:
15 South Main St.
Mansfield, PA 16933 1971
Branch offices:
320 Main St.
Blossburg, PA 16912 1988
502 Main St.
Ulysses, PA 16948 1977
Main St.
Genesee, PA 16923 1985
306 West Lockhart St.
Sayre, PA 18840 1989
99 Main St.
Wellsboro, PA 16901 1979
103 West Main St.
Troy, PA 16947 1988
29 West Main
Canton, PA 17724 1974 (1997)
Main St.
Gillett, PA 16925 1970 (1997)
The net book value for these properties, as of December 31, 1998 was
$5,606,000. The properties are adequate to meet the needs of the
employees and customers. The Mansfield office includes the corporate
headquarters (currently occupying rental facilities) and is in need of
expansion which is currently being reviewed by management and the board
of directors as discussed further in Management's Discussion and Analysis
on pages 50 of the 1998 Annual Report to the Stockholders, which
information is included at Exhibit 13, hereof and incorporated herein by
reference. All of the facilities are equipped 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.
5
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. There are no proceedings pending other than
ordinary, routine litigation incidental to the business of the
Company and our subsidiary. In addition, no material proceedings
are pending or are known to be threatened or contemplated against
our Company and our subsidiary by government authorities.
Item 4-Submission of Matters to a Vote of Stockholders
There were no matters submitted to a vote of security
holders in the fourth quarter of 1998.
Part II
Item 5-Market for the Registrant's Common Stock and Related
Shareholder Matters
Our Company's common stock is traded by local brokerage
firms and is not listed on any stock exchange.
Market and dividend information is incorporated by reference to
pages 21, 35, and 56 of our Company's 1998 Annual Report to the
Stockholders which are included in Exhibit 13 hereto.
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 our Bank. Therefore, restrictions on
the ability of our Bank 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 its total assets are greater than the
sum of our total liabilities.
As of March 5, 1999, our Company has approximately 1,479
stockholders of record.
Item 6-Selected Financial Data
The information required by this item is incorporated by
reference to page 35 of the 1998 Annual Report to the Stockholders, which
information is included at Exhibit 13, hereof and incorporated herein by
reference.
Item 7-Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information required by this item is incorporated by
reference to pages 37 - 53 of the 1998 Annual Report to the Stockholders,
which information is included at Exhibit 13, hereof and incorporated
herein by reference.
6
Item 7A-Quantitative and Qualitative Disclosures About Market Rate Risk
The information required by this item 7A is incorporated by
reference to pages 50 - 53 of the 1998 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
The information required by this item is incorporated by
reference to pages 13 - 33 and 36 of the 1998 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, 1998 and 1997
Consolidated Statement of Income for the Years Ended
December 31, 1998, 1997 and 1996
Consolidated Statement of Changes in Stockholders' Equity
for the Years Ended December 31, 1998, 1997 and 1996
Consolidated Statement of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
Item 9-Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
Part III
Item 10-Directors and Executive Officers of the Registrant
Information appearing in the definitive Proxy Statement under the
caption "Information as to Nominees, Directors and Executive Officers"
and "Principal Officers" to the Annual Meeting of Stockholders to be held
April 20, 1999, is incorporated herein by reference in response to this
item.
Item 11-Executive Compensation
Information appearing in the definitive Proxy Statement under the
caption "Remuneration of Officers and Directors" related to the Annual
Meeting of Stockholders to be held April 20, 1999, is incorporated herein
by reference in response to this item.
Item 12-Security Ownership of Certain Beneficial Owners and
Management
Information appearing in the definitive Proxy Statement under the
caption "Principal Beneficial Owners of the Corporation's Stock" related
to the Annual Meeting of Stockholders to be held April 20, 1999, is
incorporated herein by reference in response to this item.
Item 13-Certain Relationships and Related Transactions
Information appearing in the definitive Proxy Statement under the
caption "Certain Transactions" related to the Annual Meeting of
Stockholders to be held April 20, 1999, is incorporated herein by
reference in response to this item.
7
Part IV
Item 14-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 1998 Annual Report:
Consolidated Balance Sheet as of December 31, 1998 and 1997
Consolidated Statement of Income for the Years Ended
December 31, 1998, 1997 and 1996
Consolidated Statement of Changes in Stockholders' Equity
for the Years Ended December 31, 1998, 1997 and 1996
Consolidated Statement of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996
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.
(3)-Exhibits:
(3)(i) - Articles of Incorporation of the Corporation, as amended.
(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.
(i) Employment Agreement between the 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.)
(ii) Directors Deferred
(11) - Computation of Earnings Per Share. (Incorporated by Reference
to the 1998 Annual Report to Stockholders, which is included at page 20
of Exhibit 13, hereof and incorporated berein by reference.
(13) - Annual Report to Stockholders for the year ended
December 31, 1998.
(21) - Subsidiaries of Citizens Financial Services, Inc.
(27) - Financial Data Schedule
8
14(b)Reports on Form 8-K.
No current report on Form 8-K was filed by the Registrant during
the fourth quarter of the 1998 fiscal year.
9
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/ Thomas C. Lyman
By: Richard E. Wilber By: Thomas C. Lyman
President, Chief Executive Officer Treasurer
(Principal Executive Officer) (Principal Financial &
Accounting Officer)
Date: March 16, 1999 Date: March 16, 1999
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 16, 1999
Richard E. Wilber, President, Chief Executive Officer, Director
(Principal Executive Officer)
/s/ Carol J. Tama March 16, 1999
Carol J. Tama, Director
/s/ R. Lowell Coolidge March 16, 1999
R. Lowell Coolidge, Director
/s/ Rudolph J. van der Hiel March 16, 1999
Rudolph J. van der Hiel, Director
/s/ John E. Novak March 16, 1999
John E. Novak, Director
/s/ Bruce L. Adams March 16, 1999
Bruce L. Adams, Director
/s/ William D. VanEttan March 16, 1999
William D. VanEttan, Director
/s/ Larry J. Croft March 16, 1999
Larry J. Croft, Director
/s/ John M. Thomas, MD March 16, 1999
John M. Thomas, MD, Director
/s/ Mark L. Dalton March 16, 1999
Mark L. Dalton, Director
/s/ Thomas C. Lyman March 16, 1999
Thomas C. Lyman, Treasurer
(Principal Financial and Accounting Officer)
10
EXHIBIT INDEX
(3)(i) - Articles of Incorporation of the Corporation, as amended.
(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.
(i) 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.)
(ii) Directors Deferred
(11) - Computation of Earnings Per Share. (Incorporated by Reference to
the 1998 Annual Report to Stockholders, which is included at page 20 of
Exhibit 13, hereof and incorporated berein by reference.
(13) - Annual Report to Stockholders for the year ended December 31,
1998.
(21) - Subsidiaries of Citizens Financial Services, Inc.
(27) - Financial Data Schedule
11