PAGE
|
||
Part I
|
FINANCIAL INFORMATION
|
|
Item 1.
|
Financial Statements (unaudited):
|
|
Consolidated Balance Sheet as of June 30, 2010 and December 31, 2009
|
1
|
|
Consolidated Statement of Income for the Three Months and Six Months Ended June 30, 2010 and 2009
|
2
|
|
Consolidated Statement of Comprehensive Income for the Three Months and Six Months Ended June 30, 2010 and 2009
|
3
|
|
Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2010 and 2009
|
4
|
|
Notes to Consolidated Financial Statements
|
5-15
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
16-38
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
38
|
Item 4.
|
Controls and Procedures
|
38
|
Part II
|
OTHER INFORMATION
|
|
Item 1.
|
Legal Proceedings
|
39
|
Item 1A.
|
Risk Factors
|
39
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
39
|
Item 3.
|
Defaults upon Senior Securities
|
40
|
Item 4.
|
[Removed and Reserved]
|
40
|
Item 5.
|
Other Information
|
40
|
Item 6.
|
Exhibits
|
40
|
Signatures
|
41
|
CITIZENS FINANCIAL SERVICES, INC.
|
||
CONSOLIDATED BALANCE SHEET
|
||
(UNAUDITED)
|
||
June 30,
|
December 31,
|
|
(in thousands except share data)
|
2010
|
2009
|
ASSETS:
|
||
Cash and due from banks:
|
||
Noninterest-bearing
|
$ 9,656
|
$ 9,505
|
Interest-bearing
|
30,728
|
21,944
|
Total cash and cash equivalents
|
40,384
|
31,449
|
Available-for-sale securities
|
217,261
|
198,582
|
|
||
Loans (net of allowance for loan losses:
|
||
2010, $5,302 and 2009, $4,888)
|
467,037
|
451,496
|
|
||
Premises and equipment
|
12,694
|
12,227
|
Accrued interest receivable
|
3,228
|
3,141
|
Goodwill
|
10,256
|
10,256
|
Bank owned life insurance
|
12,917
|
12,667
|
Other assets
|
9,900
|
9,659
|
|
|
|
TOTAL ASSETS
|
$ 773,677
|
$ 729,477
|
|
|
|
LIABILITIES:
|
||
Deposits:
|
||
Noninterest-bearing
|
$ 63,954
|
$ 60,061
|
Interest-bearing
|
582,709
|
545,498
|
Total deposits
|
646,663
|
605,559
|
Borrowed funds
|
52,763
|
54,115
|
Accrued interest payable
|
1,787
|
2,037
|
Other liabilities
|
5,861
|
6,239
|
TOTAL LIABILITIES
|
707,074
|
667,950
|
STOCKHOLDERS' EQUITY:
|
||
Preferred stock | ||
$1.00 par value; authorized 3,000,000 shares at June 30, 2010 and none at | ||
December 31, 2009; none issued at June 30, 2010 and December 31, 2009 | - | - |
Common stock
|
||
$1.00 par value; authorized 15,000,000 shares at June 30, 2010 and 10,000,000 at
|
||
December 31, 2009; issued 3,076,253 shares at June 30, 2010 and
|
||
December 31, 2009
|
3,076
|
3,076
|
Additional paid-in capital
|
13,486
|
13,457
|
Retained earnings
|
51,575
|
47,353
|
Accumulated other comprehensive income
|
3,112
|
2,041
|
Treasury stock, at cost: 212,486 shares at June 30, 2010
|
||
and 204,437 shares at December 31, 2009
|
(4,646)
|
(4,400)
|
TOTAL STOCKHOLDERS' EQUITY
|
66,603
|
61,527
|
TOTAL LIABILITIES AND
|
||
STOCKHOLDERS' EQUITY
|
$ 773,677
|
$ 729,477
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
|
CITIZENS FINANCIAL SERVICES, INC.
|
||||
CONSOLIDATED STATEMENT OF INCOME
|
||||
(UNAUDITED)
|
||||
Three Months Ended
|
Six Months Ended
|
|||
|
June 30,
|
June 30,
|
||
(in thousands, except share and per share data)
|
2010
|
2009
|
2010
|
2009
|
INTEREST INCOME:
|
||||
Interest and fees on loans
|
$ 7,752
|
$ 7,558
|
$ 15,486
|
$ 15,035
|
Interest-bearing deposits with banks
|
17
|
10
|
31
|
12
|
Investment securities:
|
|
|
|
|
Taxable
|
1,264
|
1,541
|
2,599
|
3,181
|
Nontaxable
|
727
|
514
|
1,368
|
985
|
Dividends
|
7
|
6
|
13
|
13
|
TOTAL INTEREST INCOME
|
9,767
|
9,629
|
19,497
|
19,226
|
INTEREST EXPENSE:
|
||||
Deposits
|
2,519
|
2,863
|
5,061
|
5,778
|
Borrowed funds
|
439
|
496
|
880
|
1,019
|
TOTAL INTEREST EXPENSE
|
2,958
|
3,359
|
5,941
|
6,797
|
NET INTEREST INCOME
|
6,809
|
6,270
|
13,556
|
12,429
|
Provision for loan losses
|
235
|
150
|
540
|
300
|
NET INTEREST INCOME AFTER
|
||||
PROVISION FOR LOAN LOSSES
|
6,574
|
6,120
|
13,016
|
12,129
|
NON-INTEREST INCOME:
|
||||
Service charges
|
937
|
894
|
1,790
|
1,706
|
Trust
|
135
|
113
|
281
|
276
|
Brokerage and insurance
|
141
|
53
|
223
|
153
|
Gains on loans sold
|
35
|
162
|
48
|
209
|
Investment securities gains, net
|
35
|
102
|
99
|
118
|
Earnings on bank owned life insurance
|
125
|
115
|
249
|
236
|
Other
|
116
|
96
|
224
|
191
|
TOTAL NON-INTEREST INCOME
|
1,524
|
1,535
|
2,914
|
2,889
|
NON-INTEREST EXPENSES:
|
||||
Salaries and employee benefits
|
2,416
|
2,329
|
4,857
|
4,625
|
Occupancy
|
297
|
296
|
603
|
617
|
Furniture and equipment
|
111
|
124
|
217
|
234
|
Professional fees
|
153
|
164
|
333
|
295
|
FDIC insurance
|
217
|
378
|
454
|
753
|
Other
|
1,162
|
1,200
|
2,220
|
2,339
|
TOTAL NON-INTEREST EXPENSES
|
4,356
|
4,491
|
8,684
|
8,863
|
Income before provision for income taxes
|
3,742
|
3,164
|
7,246
|
6,155
|
Provision for income taxes
|
815
|
692
|
1,573
|
1,337
|
NET INCOME
|
$ 2,927
|
$ 2,472
|
$ 5,673
|
$ 4,818
|
|
||||
Earnings Per Share
|
$ 1.02
|
$ 0.86
|
$ 1.98
|
$ 1.68
|
Cash Dividends Paid Per Share
|
$ 0.255
|
$ 0.245
|
$ 0.505
|
$ 0.485
|
Weighted average number of shares outstanding
|
2,870,299
|
2,874,101
|
2,870,390
|
2,873,292
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
|
CITIZENS FINANCIAL SERVICES, INC.
|
||||||||
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
|
||||||||
(UNAUDITED)
|
||||||||
Three Months Ended
|
Six Months Ended
|
|||||||
June 30,
|
June 30,
|
|||||||
(in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||
Net income
|
$ 2,927
|
$ 2,472
|
$ 5,673
|
$ 4,818
|
||||
Other comprehensive income:
|
||||||||
Unrealized gains on available for sale securities
|
1,560
|
401
|
1,969
|
671
|
||||
Change in unrealized (loss) gain on interest rate swap
|
(150)
|
224
|
(247)
|
238
|
||||
Less: Reclassification adjustment for gain included in net income
|
(35)
|
(102)
|
(99)
|
(118)
|
||||
Other comprehensive income before tax
|
1,375
|
523
|
1,623
|
791
|
||||
Income tax expense related to other comprehensive income
|
468
|
178
|
552
|
269
|
||||
Other comprehensive income, net of tax
|
907
|
345
|
1,071
|
522
|
||||
Comprehensive income
|
$ 3,834
|
$ 2,817
|
$ 6,744
|
$ 5,340
|
||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
|
CITIZENS FINANCIAL SERVICES, INC.
|
||
CONSOLIDATED STATEMENT OF CASH FLOWS
|
||
(UNAUDITED)
|
Six Months Ended
|
|
June 30,
|
||
(in thousands)
|
2010
|
2009
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||
Net income
|
$ 5,673
|
$ 4,818
|
Adjustments to reconcile net income to net
|
||
cash provided by operating activities:
|
||
Provision for loan losses
|
540
|
300
|
Depreciation and amortization
|
241
|
305
|
Amortization and accretion of investment securities
|
355
|
100
|
Deferred income taxes
|
(33)
|
15
|
Investment securities gains, net
|
(99)
|
(118)
|
Realized gains on loans sold
|
(48)
|
(209)
|
Stock Award Compensation
|
157
|
71
|
Earnings on bank owned life insurance
|
(249)
|
(236)
|
Originations of loans held for sale
|
(3,204)
|
(10,597)
|
Proceeds from sales of loans held for sale
|
3,252
|
10,806
|
(Gain) loss on sale of foreclosed assets held for sale
|
(45)
|
49
|
Decrease (increase) in accrued interest receivable
|
(87)
|
126
|
Decrease in accrued interest payable
|
(250)
|
(185)
|
Other, net
|
(882)
|
404
|
Net cash provided by operating activities
|
5,321
|
5,649
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||
Available-for-sale securities:
|
||
Proceeds from sales of available-for-sale-securities
|
8,871
|
6,778
|
Proceeds from maturity and principal repayments of securities
|
22,995
|
27,988
|
Purchase of securities
|
(48,931)
|
(41,557)
|
Purchase of regulatory stock
|
-
|
(586)
|
Net increase in loans
|
(17,066)
|
(9,582)
|
Purchase of premises and equipment
|
(788)
|
(855)
|
Proceeds from sale of premises and equipment
|
-
|
1,405
|
Proceeds from sale of foreclosed assets held for sale
|
606
|
231
|
Net cash used in investing activities
|
(34,313)
|
(16,178)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||
Net increase in deposits
|
41,104
|
35,790
|
Proceeds from long-term borrowings
|
1,159
|
10,040
|
Repayments of long-term borrowings
|
(3,310)
|
(12,050)
|
Net increase in short-term borrowed funds
|
799
|
189
|
Purchase of treasury stock
|
(374)
|
(192)
|
Dividends paid
|
(1,451)
|
(1,381)
|
Net cash provided by financing activities
|
37,927
|
32,396
|
Net increase in cash and cash equivalents
|
8,935
|
21,867
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
31,449
|
19,856
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
$ 40,384
|
$ 41,723
|
Supplemental Disclosures of Cash Flow Information:
|
||
Interest paid
|
$ 6,192
|
$ 6,982
|
Income taxes paid
|
$ 1,675
|
$ 1,350
|
Loans transferred to foreclosed property
|
$ 1,091
|
$ 374
|
|
||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
|
Three months ended
|
Six months ended
|
|||
|
June 30,
|
June 30,
|
||
|
2010
|
2009
|
2010
|
2009
|
|
||||
Net income applicable to common stock
|
$2,927,000
|
$2,472,000
|
$5,673,000
|
$4,818,000
|
Weighted average common shares outstanding
|
2,870,299
|
2,874,101
|
2,870,390
|
2,873,292
|
Earnings per share
|
$1.02
|
$0.86
|
$1.98
|
$1.68
|
Gross
|
Gross
|
|||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|
June 30, 2010
|
Cost
|
Gains
|
Losses
|
Value
|
Available-for-sale securities:
|
||||
U.S. Agency securities
|
$ 80,176
|
$ 1,878
|
$ -
|
$ 82,054
|
Obligations of state and
|
||||
political subdivisions
|
73,274
|
1,475
|
(136)
|
74,613
|
Corporate obligations
|
2,998
|
193
|
-
|
3,191
|
Mortgage-backed securities
|
53,165
|
3,405
|
-
|
56,570
|
Equity securities
|
826
|
36
|
(29)
|
833
|
Total available-for-sale securities
|
$ 210,439
|
$ 6,987
|
$ (165)
|
$ 217,261
|
Gross
|
Gross
|
|||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|
December 31, 2009
|
Cost
|
Gains
|
Losses
|
Value
|
Available-for-sale securities:
|
||||
U.S. Agency securities
|
$ 64,583
|
$ 888
|
$ (248)
|
$ 65,223
|
Obligations of state and
|
||||
political subdivisions
|
58,651
|
1,085
|
(162)
|
59,574
|
Corporate obligations
|
2,998
|
168
|
-
|
3,166
|
Mortgage-backed securities
|
67,026
|
3,168
|
-
|
70,194
|
Equity securities
|
371
|
54
|
-
|
425
|
Total available-for-sale securities
|
$ 193,629
|
$ 5,363
|
$ (410)
|
$ 198,582
|
June 30, 2010
|
Less than Twelve Months
|
Twelve Months or Greater
|
Total
|
||||
Gross
|
Gross
|
Gross
|
|||||
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
||
Value
|
Losses
|
Value
|
Losses
|
Value
|
Losses
|
||
Obligations of states and
|
|||||||
political subdivisions
|
$ 13,825
|
$ 126
|
$ 486
|
$ 10
|
$ 14,311
|
$ 136
|
|
Equity securities
|
63
|
29
|
63
|
29
|
|||
Total securities
|
$ 13,888
|
$ 155
|
$ 486
|
$ 10
|
$ 14,374
|
$ 165
|
|
December 31, 2009
|
Less than Twelve Months
|
Twelve Months or Greater
|
Total
|
||||
Gross
|
Gross
|
Gross
|
|||||
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
||
Value
|
Losses
|
Value
|
Losses
|
Value
|
Losses
|
||
U.S. Agency securities
|
$ 28,665
|
$ 248
|
$ -
|
$ -
|
$ 28,665
|
$ 248
|
|
Obligations of states and
|
|||||||
political subdivisions
|
11,326
|
120
|
454
|
42
|
11,780
|
162
|
|
Total securities
|
$ 39,991
|
$ 368
|
$ 454
|
$ 42
|
$ 40,445
|
$ 410
|
Three Months Ended
|
Six Months Ended
|
|||
June 30,
|
June 30,
|
|||
2010
|
2009
|
2010
|
2009
|
|
Gross gains
|
$ 35
|
$ 157
|
$ 99
|
$ 209
|
Gross losses
|
-
|
55
|
-
|
91
|
Net gains
|
$ 35
|
$ 102
|
$ 99
|
$ 118
|
Amortized
|
|||
Cost
|
Fair Value
|
||
Available-for-sale securities:
|
|||
Due in one year or less
|
$ 3,366
|
$ 3,402
|
|
Due after one year through five years
|
51,382
|
|
52,312
|
Due after five years through ten years
|
34,187
|
|
35,494
|
Due after ten years
|
120,678
|
125,220
|
|
Total
|
$ 209,613
|
$ 216,428
|
June 30,
|
December 31,
|
||
2010
|
2009
|
||
(in thousands)
|
Amount
|
Amount
|
|
Real estate:
|
|||
Residential
|
$ 192,548
|
$ 194,989
|
|
Commercial
|
138,129
|
133,953
|
|
Agricultural
|
19,768
|
19,485
|
|
Construction
|
12,781
|
5,619
|
|
Loans to individuals
|
|||
for household, family and other purchases
|
11,933
|
11,895
|
|
Commercial and other loans
|
50,057
|
44,101
|
|
State & political subdivision loans
|
47,123
|
46,342
|
|
Total loans
|
472,339
|
456,384
|
|
Less allowance for loan losses
|
5,302
|
4,888
|
|
Net loans
|
$ 467,037
|
$ 451,496
|
June 30, 2010
|
December 31, 2009
|
||
Impaired loans without related allowance for loan losses
|
$ 5,008
|
$ 4,345
|
|
Impaired loans with related allowance for loan losses
|
6,651
|
799
|
|
Related allowance for loan losses
|
304
|
115
|
|
Average recorded balance of impaired loans
|
6,993
|
2,980
|
June 30,
|
June 30,
|
||
(in thousands)
|
2010
|
2009
|
|
Balance, at beginning of period
|
$ 4,888
|
$ 4,378
|
|
Provision charged to income
|
540
|
300
|
|
Recoveries on loans previously
|
|||
charged against the allowance
|
124
|
43
|
|
5,552
|
4,721
|
||
Loans charged against the allowance
|
(250)
|
(99)
|
|
Balance, at end of period
|
$ 5,302
|
$ 4,622
|
June 30, 2010
|
|||||
30 - 90 Days
|
90 Days Past
|
Non-
|
|||
(in thousands)
|
Past Due
|
Due Accruing
|
accrual
|
||
Real estate:
|
|||||
Residential
|
$ 1,133
|
$ 196
|
$ 823
|
||
Commercial
|
1,180
|
121
|
790
|
||
Agricultural
|
367
|
29
|
2,358
|
||
Loans to individuals for household,
|
|||||
family and other purchases
|
36
|
43
|
1
|
||
Commercial and other loans
|
68
|
77
|
1,563
|
||
Total
|
$ 2,784
|
$ 466
|
$ 5,535
|
||
December 31, 2009
|
|||||
30 - 90 Days
|
90 Days Past
|
Non-
|
|||
(in thousands)
|
Past Due
|
Due Accruing
|
accrual
|
||
Real estate:
|
|||||
Residential
|
$ 1,629
|
$ 75
|
$ 775
|
||
Commercial
|
1,558
|
635
|
1,863
|
||
Agricultural
|
75
|
-
|
2,094
|
||
Construction
|
-
|
-
|
749
|
||
Loans to individuals for household,
|
|||||
family and other purchases
|
88
|
10
|
36
|
||
Commercial and other loans
|
610
|
164
|
354
|
||
Total
|
$ 3,960
|
$ 884
|
$ 5,871
|
Three Months Ended
|
Six Months Ended
|
||||
June 30,
|
June 30,
|
||||
2010
|
2009
|
2010
|
2009
|
||
Service cost
|
$ 45
|
$ 35
|
$ 214
|
$ 150
|
|
Interest cost
|
59
|
49
|
282
|
193
|
|
Expected return on plan assets
|
(77)
|
(11)
|
(369)
|
(189)
|
|
Net amortization and deferral
|
6
|
56
|
31
|
62
|
|
Net periodic benefit cost
|
$ 33
|
$ 130
|
$ 158
|
$ 217
|
Level I:
|
Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
|
Level II:
|
Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.
|
Level III:
|
Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.
|
|
|
(In thousands)
|
June 30, 2010
|
||||||||
Level 1
|
Level II
|
Level III
|
Total
|
||||||
Fair value measurements on a recurring basis:
|
|||||||||
Securities available for sale:
|
|||||||||
U.S. Agency securities
|
$ 82,054
|
$ 82,054
|
|||||||
Obligations of state and
|
|||||||||
political subdivisions
|
74,613
|
74,613
|
|||||||
Corporate obligations
|
3,191
|
3,191
|
|||||||
Mortgage-backed securities
|
56,570
|
56,570
|
|||||||
Equity securities
|
$ 833
|
833
|
|||||||
Trust Preferred Interest Rate Swap
|
(413)
|
(413)
|
|||||||
Fair value measurements on non-recurring basis:
|
|||||||||
Impaired Loans
|
1,751
|
$ 9,603
|
11,354
|
||||||
Other real estate owned
|
795
|
795
|
|||||||
(In thousands)
|
December 31, 2009
|
||||||||
Level 1
|
Level II
|
Level III
|
Total
|
||||||
Fair value measurements on a recurring basis:
|
|||||||||
Securities available for sale:
|
|||||||||
U.S. Agency securities
|
$ 65,223
|
$ 65,223
|
|||||||
Obligations of state and
|
|||||||||
political subdivisions
|
59,574
|
59,574
|
|||||||
Corporate obligations
|
3,166
|
3,166
|
|||||||
Mortgage-backed securities
|
70,194
|
70,194
|
|||||||
Equity securities
|
$ 425
|
425
|
|||||||
Trust Preferred Interest Rate Swap
|
(166)
|
(166)
|
|||||||
Fair value measurements on non-recurring basis:
|
|||||||||
Impaired Loans
|
5,029
|
5,029
|
|||||||
Other real estate owned
|
101
|
101
|
June 30
|
December 31
|
||||
2010
|
2009
|
||||
Carrying
|
Carrying
|
||||
Amount
|
Fair Value
|
Amount
|
Fair Value
|
||
Financial assets:
|
|||||
Cash and due from banks
|
$ 40,384
|
$ 40,384
|
$ 31,449
|
$ 31,449
|
|
Available-for-sale securities
|
217,261
|
217,261
|
198,582
|
198,582
|
|
Net loans
|
467,037
|
481,020
|
451,496
|
466,967
|
|
Bank owned life insurance
|
12,917
|
12,917
|
12,667
|
12,667
|
|
Regulatory stock
|
3,957
|
3,957
|
3,957
|
3,957
|
|
Accrued interest receivable
|
3,228
|
3,228
|
3,141
|
3,141
|
|
Financial liabilities:
|
|||||
Deposits
|
$ 646,663
|
$ 653,967
|
$ 605,559
|
$ 611,705
|
|
Borrowed funds
|
52,763
|
50,184
|
54,115
|
50,582
|
|
Trust preferred interest rate swap
|
413
|
413
|
166
|
166
|
|
Accrued interest payable
|
1,787
|
1,787
|
2,037
|
2,037
|
·
|
Interest rates could change more rapidly or more significantly than we expect.
|
·
|
The economy could change significantly in an unexpected way, which would cause the demand for new loans and the ability of borrowers to repay outstanding loans to change in ways that our models do not anticipate.
|
·
|
The stock and bond markets could suffer a significant disruption, which may have a negative effect on our financial condition and that of our borrowers, and on our ability to raise money by issuing new securities.
|
·
|
It could take us longer than we anticipate to implement strategic initiatives designed to increase revenues or manage expenses, or we may not be able to implement those initiatives at all.
|
·
|
Acquisitions and dispositions of assets could affect us in ways that management has not anticipated.
|
·
|
We may become subject to new legal obligations or the resolution of litigation may have a negative effect on our financial condition.
|
·
|
We may become subject to new and unanticipated accounting, tax, or regulatory practices, regulations or requirements, including the costs of compliance with such changes.
|
·
|
We could experience greater loan delinquencies than anticipated, adversely affecting our earnings and financial condition. We could also experience greater losses than expected due to the ever increasing volume of information theft and fraudulent scams impacting our customers and the banking industry.
|
·
|
We could lose the services of some or all of our key personnel, which would negatively impact our business because of their business development skills, financial expertise, lending experience, technical expertise and market area knowledge.
|
·
|
Exploration and drilling of the natural gas reserves in the Marcellus Shale in our market area may be affected by federal, state and local laws and regulations such as restrictions on production, permitting, changes in taxes and environmental protection, which could negatively impact our customers and, as a result, negatively impact our loan and deposit volume.
|
Analysis of Average Balances and Interest Rates (1)
|
||||||
Six Months Ended
|
||||||
June 30, 2010
|
June 30, 2009
|
|||||
Average
|
Average
|
Average
|
Average
|
|||
Balance (1)
|
Interest
|
Rate
|
Balance (1)
|
Interest
|
Rate
|
|
(dollars in thousands)
|
$
|
$
|
%
|
$
|
$
|
%
|
ASSETS
|
||||||
Short-term investments:
|
||||||
Interest-bearing deposits at banks
|
21,886
|
31
|
0.29
|
18,336
|
12
|
0.12
|
Total short-term investments
|
21,886
|
31
|
0.29
|
18,336
|
12
|
0.12
|
Investment securities:
|
||||||
Taxable
|
145,877
|
2,612
|
3.58
|
129,173
|
3,195
|
4.95
|
Tax-exempt (3)
|
64,460
|
2,073
|
6.43
|
46,574
|
1,493
|
6.41
|
Total investment securities
|
210,337
|
4,685
|
4.45
|
175,747
|
4,688
|
5.33
|
Loans:
|
||||||
Residential mortgage loans
|
201,497
|
7,110
|
7.12
|
205,237
|
7,464
|
7.33
|
Commercial & farm loans
|
204,283
|
6,933
|
6.84
|
174,692
|
6,092
|
7.03
|
Loans to state & political subdivisions
|
46,649
|
1,374
|
5.94
|
46,422
|
1,438
|
6.25
|
Other loans
|
11,537
|
501
|
8.76
|
11,277
|
501
|
8.96
|
Loans, net of discount (2)(3)(4)
|
463,966
|
15,918
|
6.92
|
437,628
|
15,495
|
7.14
|
Total interest-earning assets
|
696,189
|
20,634
|
5.98
|
631,711
|
20,195
|
6.44
|
Cash and due from banks
|
9,310
|
9,684
|
||||
Bank premises and equipment
|
12,400
|
11,770
|
||||
Other assets
|
28,806
|
27,476
|
||||
Total non-interest earning assets
|
50,516
|
48,930
|
||||
Total assets
|
746,705
|
680,641
|
||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||
Interest-bearing liabilities:
|
||||||
NOW accounts
|
144,714
|
582
|
0.81
|
119,847
|
497
|
0.84
|
Savings accounts
|
52,006
|
78
|
0.30
|
45,508
|
73
|
0.32
|
Money market accounts
|
43,023
|
122
|
0.57
|
41,268
|
185
|
0.90
|
Certificates of deposit
|
323,669
|
4,279
|
2.67
|
297,391
|
5,023
|
3.41
|
Total interest-bearing deposits
|
563,412
|
5,061
|
1.81
|
504,014
|
5,778
|
2.31
|
Other borrowed funds
|
53,143
|
880
|
3.34
|
57,777
|
1,019
|
3.56
|
Total interest-bearing liabilities
|
616,555
|
5,941
|
1.94
|
561,791
|
6,797
|
2.44
|
Demand deposits
|
61,198
|
55,793
|
||||
Other liabilities
|
7,602
|
8,895
|
||||
Total non-interest-bearing liabilities
|
68,800
|
64,688
|
||||
Stockholders' equity
|
61,350
|
54,162
|
||||
Total liabilities & stockholders' equity
|
746,705
|
680,641
|
||||
Net interest income
|
14,693
|
13,398
|
||||
Net interest spread (5)
|
4.04%
|
4.00%
|
||||
Net interest income as a percentage
|
||||||
of average interest-earning assets
|
4.26%
|
4.27%
|
||||
Ratio of interest-earning assets
|
||||||
to interest-bearing liabilities
|
1.13
|
1.13
|
||||
(1) Averages are based on daily averages.
|
||||||
(2) Includes loan origination and commitment fees.
|
||||||
(3) Tax exempt interest revenue is shown on a tax equivalent basis for proper comparison using
|
||||||
a statutory federal income tax rate of 34%.
|
||||||
(4) Income on non-accrual loans is accounted for on a cash basis, and the loan balances are included in interest-earning assets.
|
||||||
(5) Interest rate spread represents the difference between the average rate earned on interest-earning assets
|
||||||
and the average rate paid on interest-bearing liabilities.
|
Analysis of Average Balances and Interest Rates (1)
|
||||||
Three Months Ended
|
||||||
June 30, 2010
|
June 30, 2009
|
|||||
Average
|
Average
|
Average
|
Average
|
|||
Balance (1)
|
Interest
|
Rate
|
Balance (1)
|
Interest
|
Rate
|
|
(dollars in thousands)
|
$
|
$
|
%
|
$
|
$
|
%
|
ASSETS
|
||||||
Short-term investments:
|
||||||
Interest-bearing deposits at banks
|
24,598
|
17
|
0.27
|
28,062
|
10
|
0.14
|
Total short-term investments
|
24,698
|
17
|
0.27
|
28,062
|
10
|
0.14
|
Investment securities:
|
||||||
Taxable
|
148,636
|
1,271
|
3.42
|
128,082
|
1,547
|
4.83
|
Tax-exempt (3)
|
68,734
|
1,101
|
6.41
|
48,346
|
779
|
6.45
|
Total investment securities
|
217,370
|
2,372
|
4.36
|
176,428
|
2,326
|
5.27
|
Loans:
|
||||||
Residential mortgage loans
|
202,335
|
3,561
|
7.06
|
203,680
|
3,717
|
7.32
|
Commercial & farm loans
|
208,180
|
3,468
|
6.68
|
178,297
|
3,111
|
7.00
|
Loans to state & political subdivisions
|
46,551
|
682
|
5.88
|
45,613
|
704
|
6.19
|
Other loans
|
11,544
|
250
|
8.69
|
11,276
|
250
|
8.89
|
Loans, net of discount (2)(3)(4)
|
468,610
|
7,961
|
6.81
|
438,866
|
7,782
|
7.11
|
Total interest-earning assets
|
710,678
|
10,350
|
5.84
|
643,356
|
10,118
|
6.30
|
Cash and due from banks
|
9,555
|
10,516
|
||||
Bank premises and equipment
|
12,535
|
11,770
|
||||
Other assets
|
28,998
|
27,652
|
||||
Total non-interest earning assets
|
51,088
|
49,938
|
||||
Total assets
|
761,666
|
693,294
|
||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||
Interest-bearing liabilities:
|
||||||
NOW accounts
|
152,234
|
315
|
0.83
|
124,630
|
249
|
0.80
|
Savings accounts
|
53,599
|
40
|
0.30
|
46,111
|
37
|
0.32
|
Money market accounts
|
44,933
|
61
|
0.54
|
41,901
|
85
|
0.81
|
Certificates of deposit
|
324,777
|
2,103
|
2.60
|
301,066
|
2,492
|
3.32
|
Total interest-bearing deposits
|
575,543
|
2,519
|
1.76
|
513,708
|
2,863
|
2.23
|
Other borrowed funds
|
52,858
|
439
|
3.33
|
57,861
|
496
|
3.44
|
Total interest-bearing liabilities
|
628,401
|
2,958
|
1.89
|
571,569
|
3,359
|
2.36
|
Demand deposits
|
63,319
|
57,553
|
||||
Other liabilities
|
7,526
|
9,224
|
||||
Total non-interest-bearing liabilities
|
70,845
|
66,777
|
||||
Stockholders' equity
|
62,420
|
54,948
|
||||
Total liabilities & stockholders' equity
|
761,666
|
693,294
|
||||
Net interest income
|
7,392
|
6,759
|
||||
Net interest spread (5)
|
3.95%
|
3.94%
|
||||
Net interest income as a percentage
|
||||||
of average interest-earning assets
|
4.17%
|
4.21%
|
||||
Ratio of interest-earning assets
|
||||||
to interest-bearing liabilities
|
1.13
|
1.13
|
||||
(1) Averages are based on daily averages.
|
||||||
(2) Includes loan origination and commitment fees.
|
||||||
(3) Tax exempt interest revenue is shown on a tax equivalent basis for proper comparison using a statutory federal income tax rate of 34%.
|
||||||
(4) Income on non-accrual loans is accounted for on a cash basis, and the loan balances are included in interest-earning assets.
|
||||||
(5) Interest rate spread represents the difference between the average rate earned on interest-earning assets
|
For the Three Months
|
For the Six Months
|
||||
(dollars in thousands)
|
Ended June 30
|
Ended June 30
|
|||
2010
|
2009
|
2010
|
2009
|
||
Interest and dividend income from investment securities
|
|||||
and interest bearing deposits at banks (non-tax adjusted)
|
$ 2,015
|
$ 2,071
|
$ 4,011
|
$ 4,191
|
|
Tax equivalent adjustment
|
374
|
265
|
705
|
509
|
|
Interest and dividend income from investment securities
|
|||||
and interest bearing deposits at banks (tax equivalent basis)
|
$ 2,389
|
$ 2,336
|
$ 4,716
|
$ 4,700
|
|
Interest and fees on loans (non-tax adjusted)
|
$ 7,752
|
$ 7,558
|
$ 15,486
|
$ 15,035
|
|
Tax equivalent adjustment
|
209
|
224
|
432
|
460
|
|
Interest and fees on loans (tax equivalent basis)
|
$ 7,961
|
$ 7,782
|
$ 15,918
|
$ 15,495
|
|
Total interest income
|
$ 9,767
|
$ 9,629
|
$ 19,497
|
$ 19,226
|
|
Total interest expense
|
2,958
|
3,359
|
5,941
|
6,797
|
|
Net interest income
|
6,809
|
6,270
|
13,556
|
12,429
|
|
Total tax equivalent adjustment
|
583
|
489
|
1,137
|
969
|
|
Net interest income (tax equivalent basis)
|
$ 7,392
|
$ 6,759
|
$ 14,693
|
$ 13,398
|
Analysis of Changes in Net Interest Income on a Tax-Equivalent Basis (1)
|
||||||
Three months ended June 30, 2010 vs. 2009 (1)
|
Six months ended June 30, 2010 vs. 2009 (1)
|
|||||
Change in
|
Change
|
Total
|
Change in
|
Change
|
Total
|
|
(in thousands)
|
Volume
|
in Rate
|
Change
|
Volume
|
in Rate
|
Change
|
Interest Income:
|
||||||
Short-term investments:
|
||||||
Interest-bearing deposits at banks
|
$ (1)
|
$ 8
|
$ 7
|
$ 1
|
$ 18
|
$ 19
|
Investment securities:
|
||||||
Taxable
|
223
|
(499)
|
(276)
|
513
|
(1,096)
|
(583)
|
Tax-exempt
|
327
|
(5)
|
322
|
575
|
5
|
580
|
Total investments
|
550
|
(504)
|
46
|
1,088
|
(1,091)
|
(3)
|
Loans:
|
||||||
Residential mortgage loans
|
(25)
|
(131)
|
(156)
|
(134)
|
(220)
|
(354)
|
Commercial & farm loans
|
503
|
(146)
|
357
|
999
|
(158)
|
841
|
Loans to state & political subdivisions
|
14
|
(36)
|
(22)
|
7
|
(71)
|
(64)
|
Other loans
|
6
|
(6)
|
-
|
24
|
(24)
|
-
|
Total loans, net of discount
|
498
|
(319)
|
179
|
896
|
(473)
|
423
|
Total Interest Income
|
1,047
|
(815)
|
232
|
1,985
|
(1,546)
|
439
|
Interest Expense:
|
||||||
Interest-bearing deposits:
|
||||||
NOW accounts
|
57
|
9
|
66
|
99
|
(14)
|
85
|
Savings accounts
|
6
|
(3)
|
3
|
10
|
(5)
|
5
|
Money Market accounts
|
6
|
(30)
|
(24)
|
8
|
(71)
|
(63)
|
Certificates of deposit
|
185
|
(574)
|
(389)
|
510
|
(1,254)
|
(744)
|
Total interest-bearing deposits
|
254
|
(598)
|
(344)
|
627
|
(1,344)
|
(717)
|
Other borrowed funds
|
(41)
|
(16)
|
(57)
|
(79)
|
(60)
|
(139)
|
Total interest expense
|
213
|
(614)
|
(401)
|
548
|
(1,404)
|
(856)
|
Net interest income
|
$ 834
|
$ (201)
|
$ 633
|
$ 1,437
|
$ (142)
|
$ 1,295
|
(1) The portion of the total change attributable to both volume and rate changes, which cannot be separated, has been
|
||||||
allocated proportionally to the change due to volume and the change due to rate prior to allocation.
|
·
|
The average balance of taxable securities increased by $16.7 million while tax-exempt securities increased by $17.9 million, which had the effect of increasing interest income by $513,000 and $575,000, respectively, due to volume.
|
·
|
This increase was offset by a decrease in the yield on investment securities of 88 basis points from 5.33% to 4.45%, which corresponds to a decrease in interest income of $1,091,000. The majority of this decrease is attributable to the change in yield on taxable securities, which experienced a decrease of 137 basis points from 4.95% to 3.58%.
|
·
|
Interest income on residential mortgage loans decreased $354,000 of which $134,000 was due to volume and $220,000 was due to a decrease in rate. The average balance decreased $3.7 million due to the continuing recessionary pressures within the economy, high unemployment rates and other negative economic factors that resulted in lower loan demand for non-conforming residential mortgages and home equity lines. Management also believes that a portion of the decreased loan demand for home equity loans is the result of customers receiving monies related to exploration and drilling of the natural gas reserves in the Marcellus Shale in our market area. As a result, customers are less reliant on home equity loans.
|
·
|
The average balance of commercial and farm loans increased $29.6 million from a year ago primarily due to our emphasis to grow this segment of the loan portfolio utilizing disciplined underwriting standards. This had a positive impact of $999,000 on total interest income due to volume, which was offset by a reduction due a decrease in rate of $158,000.
|
·
|
Interest expense on certificates of deposits decreased $744,000 over the same period last year. The average balance of certificates of deposit increased $26.3 million causing an increase in interest expense of $510,000. Offsetting this was a decrease in the average rate on certificates of deposit from 3.41% to 2.67% resulting in a decrease in interest expense of $1,254,000.
|
·
|
The average balance of NOW accounts also increased $24.9 million accounting for an increase of $99,000 in interest expense. The change in the average rate from 84 basis points to 81 basis points, contributed to a decrease in interest expense of $14,000 resulting in an overall increase of $85,000.
|
·
|
The average balance of borrowed funds decreased by $4.6 million resulting in a decrease in interest expense of $79,000. The average interest rate paid on borrowed funds also decreased by 22 basis points accounting for a decrease in interest expense of $60,000 due to rate. Borrowed funds decreased due to the significant increase in deposits, which continued to limit our need for borrowings from the Federal Home Loan Bank.
|
·
|
Of this amount, $1,047,000 was due to an increase in volume and $815,000 was due to a decrease in rate.
|
·
|
Total investment income increased by $46,000 compared to last year. This was predominantly due to a change in volume of $40.9 million in average investment securities offset by a 91 point decrease in rate.
|
·
|
Total loan interest income increased $179,000 compared to last year. This was predominantly due to a change in volume as a result of $29.7 million increase in average loans outstanding offset by a decrease of 30 points in rate.
|
Six months ended June 30,
|
Change
|
|||
2010
|
2009
|
Amount
|
%
|
|
Service charges
|
$ 1,790
|
$ 1,706
|
$ 84
|
4.9
|
Trust
|
281
|
276
|
5
|
1.8
|
Brokerage and insurance
|
223
|
153
|
70
|
45.8
|
Gains on loans sold
|
48
|
209
|
(161)
|
(77.0)
|
Investment securities gains, net
|
99
|
118
|
(19)
|
(16.1)
|
Earnings on bank owned life insurance
|
249
|
236
|
13
|
5.5
|
Other
|
224
|
191
|
33
|
17.3
|
Total
|
$ 2,914
|
$ 2,889
|
$ 25
|
0.9
|
Three months ended June 30,
|
Change
|
|||
2010
|
2009
|
Amount
|
%
|
|
Service charges
|
$ 937
|
$ 894
|
$ 43
|
4.8
|
Trust
|
135
|
113
|
22
|
19.5
|
Brokerage and insurance
|
141
|
53
|
88
|
166.0
|
Gains on loans sold
|
35
|
162
|
(127)
|
(78.4)
|
Investment securities gains, net
|
35
|
102
|
(67)
|
(65.7)
|
Earnings on bank owned life insurance
|
125
|
115
|
10
|
8.7
|
Other
|
116
|
96
|
20
|
20.8
|
Total
|
$ 1,524
|
$ 1,535
|
$ (11)
|
(0.7)
|
Six months ended June 30,
|
Change
|
|||
2010
|
2009
|
Amount
|
%
|
|
Salaries and employee benefits
|
$ 4,857
|
$ 4,625
|
$ 232
|
5.0
|
Occupancy
|
603
|
617
|
(14)
|
(2.3)
|
Furniture and equipment
|
217
|
234
|
(17)
|
(7.3)
|
Professional fees
|
333
|
295
|
38
|
12.9
|
Amortization of intangibles
|
8
|
80
|
(72)
|
(90.0)
|
FDIC Insurance
|
454
|
753
|
(299)
|
(39.7)
|
ORE expenses
|
171
|
169
|
2
|
1.2
|
Other
|
2,041
|
2,090
|
(49)
|
(2.3)
|
Total
|
$ 8,684
|
$ 8,863
|
$ (179)
|
(2.0)
|
Six months ended June 30,
|
Change
|
|||
|
2010
|
2009
|
Amount
|
%
|
Other professional fees
|
$ 170
|
$ 145
|
$ 25
|
17.2
|
Legal fees
|
53
|
38
|
15
|
39.5
|
Examinations and audits
|
110
|
112
|
(2)
|
(1.8)
|
Total
|
$ 333
|
$ 295
|
$ 38
|
12.9
|
Three months ended June 30,
|
Change
|
|||
2010
|
2009
|
Amount
|
%
|
|
Salaries and employee benefits
|
$ 2,416
|
$ 2,329
|
$ 87
|
3.7
|
Occupancy
|
297
|
296
|
1
|
0.3
|
Furniture and equipment
|
111
|
124
|
(13)
|
(10.5)
|
Professional fees
|
153
|
164
|
(11)
|
(6.7)
|
Amortization of intangibles
|
4
|
40
|
(36)
|
(90.0)
|
FDIC Insurance
|
217
|
378
|
(161)
|
(42.6)
|
ORE expenses
|
90
|
93
|
(3)
|
(3.2)
|
Other
|
1,068
|
1,067
|
1
|
0.1
|
Total
|
$ 4,356
|
$ 4,491
|
$ (135)
|
(3.0)
|
Three months ended June 30,
|
Change
|
|||
|
2010
|
2009
|
Amount
|
%
|
Other professional fees
|
$ 67
|
$ 73
|
$ (6)
|
(8.2)
|
Legal fees
|
31
|
30
|
1
|
3.3
|
Examinations and audits
|
55
|
61
|
(6)
|
(9.8)
|
Total
|
$ 153
|
$ 164
|
$ (11)
|
(6.7)
|
Estimated Fair Market Value of Investment Portfolio
|
||||
June 30, 2010
|
December 31, 2009
|
|||
(dollars in thousands)
|
Amount
|
%
|
Amount
|
%
|
Available-for-sale:
|
||||
U. S. Agency securities
|
$ 82,054
|
37.8
|
$ 65,223
|
32.8
|
Obligations of state & political
|
||||
subdivisions
|
74,613
|
34.3
|
59,574
|
30.0
|
Corporate obligations
|
3,191
|
1.5
|
3,166
|
1.6
|
Mortgage-backed securities
|
56,570
|
26.0
|
70,194
|
35.3
|
Equity securities
|
833
|
0.4
|
425
|
0.3
|
Total
|
$ 217,261
|
100.0
|
$ 198,582
|
100.0
|
June 30, 2010/
|
||
December 31, 2009
|
||
Change
|
||
(dollars in thousands)
|
Amount
|
%
|
Available-for-sale:
|
||
U. S. Agency securities
|
$ 16,831
|
25.8
|
Obligations of state & political
|
||
subdivisions
|
15,039
|
25.2
|
Corporate obligations
|
25
|
0.8
|
Mortgage-backed securities
|
(13,624)
|
(19.4)
|
Equity securities
|
408
|
96.0
|
Total
|
$ 18,679
|
9.4
|
June 30,
|
December 31,
|
|||
2010
|
2009
|
|||
(in thousands)
|
Amount
|
%
|
Amount
|
%
|
Real estate:
|
||||
Residential
|
$ 192,548
|
40.8
|
$ 194,989
|
42.7
|
Commercial
|
138,129
|
29.2
|
133,953
|
29.4
|
Agricultural
|
19,768
|
4.2
|
19,485
|
4.3
|
Construction
|
12,781
|
2.7
|
5,619
|
1.2
|
Loans to individuals
|
||||
for household, family and other purchases
|
11,933
|
2.5
|
11,895
|
2.6
|
Commercial and other loans
|
50,057
|
10.6
|
44,101
|
9.7
|
State & political subdivision loans
|
47,123
|
10.0
|
46,342
|
10.1
|
Total loans
|
472,339
|
100.0
|
456,384
|
100.0
|
Less allowance for loan losses
|
5,302
|
4,888
|
||
Net loans
|
$ 467,037
|
$ 451,496
|
June 30, 2010/
|
||
December 31, 2009
|
||
Change
|
||
(in thousands)
|
Amount
|
%
|
Real estate:
|
||
Residential
|
$ (2,441)
|
(1.3)
|
Commercial
|
4,176
|
3.1
|
Agricultural
|
283
|
1.5
|
Construction
|
7,162
|
127.5
|
Loans to individuals
|
||
for household, family and other purchases
|
38
|
0.3
|
Commercial and other loans
|
5,956
|
13.5
|
State & political subdivision loans
|
781
|
1.7
|
Total loans
|
$ 15,955
|
3.5
|
June 30,
|
December 31,
|
||||
(dollars in thousands)
|
2010
|
2009
|
2008
|
2007
|
2006
|
Balance
|
|||||
at beginning of period
|
$ 4,888
|
$ 4,378
|
$ 4,197
|
$ 3,876
|
$ 3,664
|
Charge-offs:
|
|||||
Real estate:
|
|||||
Residential
|
47
|
76
|
31
|
64
|
37
|
Commercial
|
53
|
236
|
36
|
6
|
86
|
Agricultural
|
-
|
1
|
20
|
-
|
-
|
Loans to individuals for household,
|
|||||
family and other purchases
|
9
|
80
|
44
|
103
|
103
|
Commercial and other loans
|
141
|
153
|
115
|
13
|
64
|
Total loans charged-off
|
250
|
546
|
246
|
186
|
290
|
Recoveries:
|
|||||
Real estate:
|
|||||
Residential
|
-
|
1
|
6
|
2
|
6
|
Commercial
|
12
|
1
|
-
|
79
|
115
|
Agricultural
|
-
|
-
|
20
|
-
|
-
|
Loans to individuals for household,
|
|||||
family and other purchases
|
22
|
52
|
19
|
52
|
39
|
Commercial and other loans
|
90
|
77
|
52
|
9
|
12
|
Total loans recovered
|
124
|
131
|
97
|
142
|
172
|
Net loans charged-off
|
126
|
415
|
149
|
44
|
118
|
Provision charged to expense
|
540
|
925
|
330
|
365
|
330
|
Balance at end of period
|
$ 5,302
|
$ 4,888
|
$ 4,378
|
$ 4,197
|
$ 3,876
|
Loans outstanding at end of period
|
$ 472,339
|
$ 456,384
|
$ 432,814
|
$ 423,379
|
$ 414,773
|
Average loans outstanding, net
|
$ 463,966
|
$ 442,921
|
$ 423,382
|
$ 411,927
|
$ 400,507
|
Non-performing assets:
|
|||||
Non-accruing loans
|
$ 5,535
|
$ 5,871
|
$ 2,202
|
$ 1,915
|
$ 1,668
|
Accrual loans - 90 days or more past due
|
466
|
884
|
383
|
275
|
1,690
|
Total non-performing loans
|
$ 6,001
|
$ 6,755
|
$ 2,585
|
$ 2,190
|
$ 3,358
|
Foreclosed assets held for sale
|
832
|
302
|
591
|
203
|
758
|
Total non-performing assets
|
$ 6,833
|
$ 7,057
|
$ 3,176
|
$ 2,393
|
$ 4,116
|
Annualized net charge-offs to average loans
|
0.05%
|
0.09%
|
0.04%
|
0.01%
|
0.03%
|
Allowance to total loans
|
1.12%
|
1.07%
|
1.01%
|
0.99%
|
0.93%
|
Allowance to total non-performing loans
|
88.35%
|
72.36%
|
169.36%
|
191.64%
|
115.43%
|
Non-performing loans as a percent of loans
|
|||||
net of unearned income
|
1.27%
|
1.48%
|
0.60%
|
0.52%
|
0.81%
|
Non-performing assets as a percent of loans
|
|||||
net of unearned income
|
1.45%
|
1.55%
|
0.73%
|
0.57%
|
0.99%
|
June 30, 2010
|
December 31, 2009
|
||||||||
Non-Performing Loans
|
Non-Performing Loans
|
||||||||
30 - 90 Days
|
90 Days Past
|
Non-
|
Total Non-
|
30 - 90 Days
|
90 Days Past
|
Non-
|
Total Non-
|
||
(in thousands)
|
Past Due
|
Due Accruing
|
accrual
|
Performing
|
Past Due
|
Due Accruing
|
accrual
|
Performing
|
|
Real estate:
|
|||||||||
Residential
|
$ 1,133
|
$ 196
|
$ 823
|
$ 1,019
|
$ 1,629
|
$ 75
|
$ 775
|
$ 850
|
|
Commercial
|
1,180
|
121
|
790
|
911
|
1,558
|
635
|
1,863
|
2,498
|
|
Agricultural
|
367
|
29
|
2,358
|
2,387
|
75
|
-
|
2,094
|
2,094
|
|
Construction
|
-
|
-
|
-
|
-
|
-
|
-
|
749
|
749
|
|
Loans to individuals for household,
|
|||||||||
family and other purchases
|
36
|
43
|
1
|
44
|
88
|
10
|
36
|
46
|
|
Commercial and other loans
|
68
|
77
|
1,563
|
1,640
|
610
|
164
|
354
|
518
|
|
Total
|
$ 2,784
|
$ 466
|
$ 5,535
|
$ 6,001
|
$ 3,960
|
$ 884
|
$ 5,871
|
$ 6,755
|
Change in Non-Performing Loans
|
||
(in thousands)
|
Amount
|
%
|
Real estate:
|
||
Residential
|
$ 169
|
19.9
|
Commercial
|
(1,587)
|
(63.5)
|
Agricultural
|
293
|
14.0
|
Construction
|
(749)
|
-
|
Loans to individuals for household,
|
|
|
family and other purchases
|
(2)
|
(4.3)
|
Commercial and other loans
|
1,122
|
216.6
|
Total
|
$ (754)
|
(11.2)
|
§
|
Level of and trends in charge-offs and recoveries
|
§
|
Trends in volume, terms and nature of the loan portfolio
|
§
|
Effects of any changes in risk selection and underwriting standards and any other changes in lending and recovery policies, procedures and practices
|
§
|
Changes in the quality of the Company’s loan review system
|
§
|
Experience, ability and depth of lending management and other relevant staff
|
§
|
National, state, regional and local economic trends and business conditions
|
§
|
Industry conditions including the effects of external factors such as competition, legal, and regulatory requirements on the level of estimated credit losses.
|
§
|
Existence and effect of any credit concentrations, and changes in the level of such concentrations
|
June 30
|
December 31
|
|||||||||
2010
|
2009
|
2008
|
2007
|
2006
|
||||||
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
|
Real estate loans:
|
||||||||||
Residential
|
$ 791
|
40.8
|
$ 801
|
42.7
|
$ 694
|
46.0
|
$ 599
|
47.7
|
$ 614
|
49.7
|
Commercial, agricultural
|
3,070
|
33.4
|
2,864
|
33.6
|
2,303
|
28.8
|
2,128
|
27.7
|
1,676
|
26.8
|
Construction
|
29
|
2.7
|
20
|
1.2
|
5
|
2.6
|
-
|
2.7
|
-
|
1.7
|
Loans to individuals
|
||||||||||
for household,
|
||||||||||
family and other purchases
|
117
|
2.5
|
131
|
2.6
|
449
|
2.7
|
424
|
3.1
|
734
|
3.0
|
Commercial and other loans
|
1,029
|
10.6
|
918
|
9.7
|
807
|
8.8
|
736
|
8.2
|
582
|
7.9
|
State & political subdivision loans
|
101
|
10.0
|
93
|
10.1
|
19
|
11.1
|
22
|
10.6
|
22
|
10.9
|
Unallocated
|
165
|
N/A
|
60
|
N/A
|
101
|
N/A
|
288
|
N/A
|
248
|
N/A
|
Total allowance for loan losses
|
$ 5,302
|
100.0
|
$ 4,888
|
100.0
|
$ 4,378
|
100.0
|
$ 4,197
|
100.0
|
$ 3,876
|
100.0
|
§
|
An agricultural customer with a total loan relationship of $3.4 million is considered non-accrual as of June 30, 2010. Included within this relationship is $1.1 million of loans which are subject to Farm Service Agency guarantees. The current economic struggles of dairy farmers, caused primarily from decreased milk prices, have created cash flow difficulties for this customer. While we are hopeful that increased milk prices would significantly improve cash flows for this borrower, there is no certainty that this will occur. Without a sizable and sustained increase in milk prices, we will need to rely upon the collateral for repayment of interest and principal. A real estate appraisal was completed in October, 2009, which together with a collateral analysis on equipment and livestock, resulted in an updated collateral value of approximately $4.0 million. Based upon this analysis, management determined not to allocate a specific reserve to this loan.
|
§
|
A real estate rental customer with a total loan relationship of $412,000 is considered non-accrual as of June 30, 2010. The current recessionary economic conditions have significantly impacted the cash flows from the customer’s rental properties. Based upon an analysis of the collateral value, management determined not to allocate a specific reserve to this loan. During the second quarter of 2010, the Bank completed a foreclosure action on a loan associated with this customer that had a balance of $678,000 at the time the foreclosure was completed. As of June 30, 2010, other assets include $626,000 related to this foreclosure.
|
§
|
A commercial customer with a total relationship of $469,000 composed of commercial real estate and other commercial loans was placed on non-accrual in 2010 due to inadequate cash flows as a result of the downturn in the economy, which has had a significant impact on his modular home business. Based upon an analysis of the collateral value 2010, management determined not to allocate a specific reserve to this loan.
|
§
|
A real estate rental customer with a total loan relationship of $530,000 is considered non-accrual as of June 30, 2010. The current recessionary economic conditions have significantly impacted the cash flows from the customer’s rental properties. Based upon an analysis of the collateral values, management determined not to allocate a specific reserve to this loan.
|
June 30,
|
December 31,
|
|||
2010
|
2009
|
|||
(in thousands)
|
Amount
|
%
|
Amount
|
%
|
Non-interest-bearing deposits
|
$ 63,954
|
9.9
|
$ 60,061
|
9.9
|
NOW accounts
|
157,373
|
24.3
|
136,153
|
22.5
|
Savings deposits
|
55,229
|
8.6
|
49,049
|
8.1
|
Money market deposit accounts
|
49,950
|
7.7
|
42,210
|
7.0
|
Certificates of deposit
|
320,157
|
49.5
|
318,086
|
52.5
|
Total
|
$ 646,663
|
100.0
|
$ 605,559
|
100.0
|
June 30, 2010/
|
||
December 31, 2009
|
||
Change
|
||
(in thousands)
|
Amount
|
%
|
Non-interest-bearing deposits
|
$ 3,893
|
6.5
|
NOW accounts
|
21,220
|
15.6
|
Savings deposits
|
6,180
|
12.6
|
Money market deposit accounts
|
7,740
|
18.3
|
Certificates of deposit
|
2,071
|
0.7
|
Total
|
$ 41,104
|
6.8
|
June 30,
|
December 31,
|
|||||
(dollars in thousands)
|
2010
|
2009
|
||||
Total capital (to risk-weighted assets)
|
Amount
|
Ratio
|
Amount
|
Ratio
|
||
Company
|
$ 67,326
|
14.31%
|
$ 62,751
|
13.77%
|
||
For capital adequacy purposes
|
37,647
|
8.00%
|
36,464
|
8.00%
|
||
To be well capitalized
|
47,058
|
10.00%
|
45,580
|
10.00%
|
||
Tier I capital (to risk-weighted assets)
|
||||||
Company
|
$ 62,020
|
13.18%
|
$ 57,839
|
12.69%
|
||
For capital adequacy purposes
|
18,823
|
4.00%
|
18,232
|
4.00%
|
||
To be well capitalized
|
28,235
|
6.00%
|
27,348
|
6.00%
|
||
Tier I capital (to average assets)
|
||||||
Company
|
$ 62,020
|
8.36%
|
$ 57,839
|
8.15%
|
||
For capital adequacy purposes
|
29,669
|
4.00%
|
28,381
|
4.00%
|
||
To be well capitalized
|
37,087
|
5.00%
|
35,478
|
5.00%
|
June 30,
|
December 31,
|
|||||
(dollars in thousands)
|
2010
|
2009
|
||||
Total capital (to risk-weighted assets)
|
Amount
|
Ratio
|
Amount
|
Ratio
|
||
Bank
|
$ 61,959
|
13.21%
|
$ 57,182
|
12.56%
|
||
For capital adequacy purposes
|
37,530
|
8.00%
|
36,414
|
8.00%
|
||
To be well capitalized
|
46,912
|
10.00%
|
45,518
|
10.00%
|
||
Tier I capital (to risk-weighted assets)
|
||||||
Bank
|
$ 56,656
|
12.08%
|
$ 52,286
|
11.49%
|
||
For capital adequacy purposes
|
18,765
|
4.00%
|
18,207
|
4.00%
|
||
To be well capitalized
|
28,147
|
6.00%
|
27,311
|
6.00%
|
||
Tier I capital (to average assets)
|
||||||
Bank
|
$ 56,656
|
7.54%
|
$ 52,286
|
7.38%
|
||
For capital adequacy purposes
|
30,044
|
4.00%
|
28,348
|
4.00%
|
||
To be well capitalized
|
37,555
|
5.00%
|
35,436
|
5.00%
|
Commitments to extend credit
|
$ 82,873
|
Standby letters of credit
|
4,873
|
$ 87,746
|
ISSUER PURCHASES OF EQUITY SECURITIES
|
||||
Period
|
Total Number of Shares
(or units Purchased)
|
Average Price Paid per Share (or Unit)
|
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans of Programs
|
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1)
|
4/1/10 to 4/30/10
|
-
|
-
|
-
|
49,000
|
5/1/10 to 5/31/10
|
8,586
|
$ 28.04
|
8,586
|
40,414
|
6/1/10 to 6/30/10
|
3,161
|
$ 27.89
|
3,161
|
37,253
|
Total
|
11,747
|
$ 28.00
|
11,747
|
37,253
|
(1)
|
On January 7, 2006, the Company announced that the Board of Directors authorized the Company to repurchase up to 140,000 shares. The repurchases will be conducted through open-market purchases or privately negotiated transactions and will be made from time to time depending on market conditions and other factors. No time limit was placed on the duration of the share repurchase program. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes.
|
3.1
|
Articles of Incorporation of Citizens Financial Services, Inc., as amended (1)
|
|
3.2
|
Bylaws of Citizens Financial Services, Inc.(2)
|
|
4.1
|
Instrument defining the rights of security holders.(3)
|
|
4.2
|
No long term debt instrument issued by the Company exceeds 10% of consolidated assets or is registered. In accordance with paragraph 4(iii) of Item 601(b) of Regulation S-K, the Company will furnish the Securities and Exchange Commission copies of long-term debt instruments and related agreements upon request.
|
|
31.1
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
|
|
31.2
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
|
|
32.1
|
Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
|
Citizens Financial Services, Inc.
(Registrant)
|
|||
August 12, 2010
|
By:
|
/s/ Randall E. Black | |
By: Randall E. Black | |||
President and Chief Executive Officer
(Principal Executive Officer
|
|||
August 12, 2010
|
By:
|
/s/ Mickey L. Jones | |
By: Mickey L. Jones | |||
Chief Financial Officer
(Principal Accounting Officer)
|
|||