proxy, proxy card, audit charter 2005
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the Securities
Exchange
Act of 1934 (Amendment No. [ ]) |
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Definitive
Proxy Statement |
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Definitive
Additional Materials |
[
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Soliciting
Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12 |
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Citizens
Financial Services, Inc.
(Name
of Registrant as Specified in Its Charter) |
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(Name
of Person(s) Filing Proxy Statement if other than the
Registrant) |
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CITIZENS
FINANCIAL SERVICES, INC.
PROXY
STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS
TO BE HELD ON APRIL 19, 2005
GENERAL
INFORMATION
Date,
Time and Place of Annual Meeting
This
proxy statement is furnished in connection with the solicitation by the Board of
Directors of Citizens Financial Services, Inc., a Pennsylvania business
corporation, of proxies to be voted at the corporation’s Annual Meeting of
Shareholders to be held at 12:00 p.m., prevailing time, on Tuesday, April 19,
2005 at the Tioga County Fairgrounds Main Building, Whitneyville, Pennsylvania
16901.
Description
of the Corporation
The
principal executive office of the corporation is located at First Citizens
National Bank, 15 South Main Street, Mansfield, Pennsylvania 16933. The
telephone numbers for the corporation are 570-662-2121 or 800-326-9486. All
inquiries regarding the annual meeting should be directed to Randall E. Black,
Chief Executive Officer and President of the corporation.
Citizens
Financial Services, Inc. was established in 1984 as a one-bank holding company
under the laws of Pennsylvania and the Bank Holding Company Act of 1956. Thus,
the corporation’s activities consist of owning and supervising First Citizens
National Bank, its wholly-owned depository subsidiary. In March 2001, First
Citizens National Bank established a subsidiary, First Citizens Insurance
Agency, Inc. This agency, which was not activated until October 1, 2001, allows
the bank to sell insurance and insurance products within our marketing area. In
December 2003, the corporation formed a special purpose entity, the Citizens
Financial Statutory Trust. This entity was formed solely to facilitate a
$7,500,000 trust preferred pooled offering.
Included
with this proxy statement is the corporation’s notice of meeting, your proxy
card, and a copy of the corporation’s Annual Report to Shareholders for the
fiscal year ended December 31, 2004. You may obtain a copy of the Annual Report
to Shareholders for the 2003 fiscal year at no cost by contacting Randall E.
Black, Chief Executive Officer and President, via mail at 15 South Main Street,
Mansfield, Pennsylvania 16933 or via telephone at 800-326-9486.
We have
not authorized anyone to provide you with information about the corporation;
therefore, you should rely only on the information contained in this document or
on documents to which we refer you. Although we believe we have provided you
with all the information helpful to you in your decision to vote, events may
occur at Citizens Financial Services, Inc. subsequent to printing this proxy
statement that might affect your decision or the value of your
stock.
VOTING
PROCEDURES
Solicitation
and Voting of Proxies
This
proxy statement and the enclosed form of proxy are first being sent to the
corporation’s shareholders on or about March 9, 2005.
Shares
represented by proxies on the accompanying proxy, if properly signed and timely
returned, will be voted in accordance with the specifications made by the
shareholders. Any properly signed and timely returned proxy not specifying to
the contrary will be voted FOR the
election of the nominees for Class 1 Director named below to serve for a
three-year term and until their successors are elected and qualified, and
FOR
the
election of the nominee for Class 3 Director named below to serve for a one-year
term and until his successor is elected and qualified.
Execution
and return of the enclosed proxy will not affect a shareholder’s right to attend
the annual meeting and vote in person, after giving written notice to the
Secretary of the corporation. The cost of preparing, assembling, printing,
mailing and soliciting proxies, and any additional material which the
corporation may furnish shareholders in connection with the annual meeting, will
be borne by the corporation. In addition to the use of the mail, certain
directors, officers and employees of the corporation and the bank may solicit
proxies personally, by telephone, telecopier, or other electronic means.
Arrangements will be made with brokerage firms and other custodians, nominees
and fiduciaries to forward proxy solicitation material to the beneficial owners
of stock held of record by these persons. The corporation will reimburse them
for their reasonable forwarding expenses.
Quorum
and Vote Required For Approval
At the
close of business on March 2, 2005, the corporation had outstanding 2,840,254
shares of common stock, par value $1.00 per share, the only authorized class of
stock.
Only
holders of record of common stock at the close of business on March 2, 2005 are
entitled to vote at the annual meeting. Cumulative voting rights do not exist
with respect to the election of directors. On all matters to come before the
annual meeting, each share of common stock is entitled to one vote.
Under
Pennsylvania law and the corporation’s Bylaws, the presence of a quorum is
required for each matter to be acted upon at the annual meeting. Pursuant to the
corporation’s Bylaws, the presence, in person or by proxy, of shareholders
entitled to cast at least a majority of the votes which all shareholders are
entitled to cast constitutes a quorum for the transaction of business at the
annual meeting. Votes withheld and abstentions are counted as “present” for
determining the presence of a quorum for the particular matter.
Assuming
the presence of a quorum, the five nominees for director receiving the highest
number of votes cast by shareholders entitled to vote for the election of
directors will be elected. The proxy holders will not cast votes for or against
any director candidate where the broker or shareholder withheld
authority.
Revocability
of Proxy
A
shareholder who returns a proxy may revoke the proxy at any time before it is
voted at the annual meeting only:
• |
by
giving written notice of revocation to Terry B. Osborne, Secretary of
Citizens Financial Services, Inc., at 15 South Main Street, Mansfield,
Pennsylvania 16933, |
• |
by
executing a later-dated proxy and giving written notice to the Secretary
of the corporation, or |
• |
by
attending the annual meeting and voting in person after giving written
notice to the Secretary of the corporation. |
Methods
of Voting
Proxy
Voting:
• |
Date
your proxy and sign your name exactly as it appears on your
proxy. |
• |
Mail
the proxy to Citizens Financial Services, Inc. in the enclosed
postage-paid envelope. |
Voting in
Person:
• |
Attend
the annual meeting and show proof of eligibility to
vote. |
• |
Date
your ballot and sign your name exactly as it appears in the corporation’s
transfer books. |
BOARD
OF DIRECTORS AND EXECUTIVE OFFICERS
Directors
of Citizens Financial Services, Inc.
The
following table sets forth, as of March 2, 2005, (in alphabetical order)
selected information about the directors of the corporation.
Name |
Class
of
Director |
Director
Since |
Age
as of
March
2, 2005 |
Randall
E. Black |
1 |
2004 |
38 |
R.
Lowell Coolidge |
1 |
1984 |
64 |
Larry
J. Croft |
1 |
1990 |
69 |
Mark
L. Dalton |
2 |
1998 |
50 |
Roger
C. Graham, Jr. |
3 |
2001 |
49 |
E.
Gene Kosa |
3 |
2001 |
58 |
R.
Joseph Landy |
3 |
2001 |
50 |
John
E. Novak |
2 |
1984 |
68 |
Carol
J. Tama |
1 |
1986 |
64 |
Rudolph
J. van der Hiel |
2 |
1984 |
65 |
James
A. Wagner |
3 |
2004 |
58 |
Executive
Officers of Citizens Financial Services, Inc.
The
following table sets forth, as of March 2, 2005, selected information about the
executive officers of the corporation, each of whom is elected by the Board of
Directors and each of whom holds office at the discretion of the Board of
Directors.
Name
and Position
|
Held
Since
|
Employee
Since
|
Number
of Shares
Beneficially
Owned(1)
|
Age
as of
March
2, 2005
|
R.
Lowell Coolidge
Chairman
of the Board |
1984 |
(2) |
154,018 |
|
64 |
Randall
E. Black
Chief
Executive Officer and President |
2004
|
1993
|
1,193
|
|
38
|
Terry
B. Osborne
Secretary |
1984
|
1984
|
1,294
|
|
51
|
Rudolph
J. van der Hiel
Assistant
Secretary |
1984
|
(2)
|
17,805
|
|
65
|
Thomas
C. Lyman
Treasurer |
1988
|
1988
|
402
|
|
59
|
Mickey
L. Jones
Assistant
Treasurer |
2004
|
2004
|
0
|
|
44
|
(1) |
See
Table entitled “Share Ownership by Directors, Officers and Nominees” on
page 14 for additional share ownership
information. |
(2) |
This
individual is not an employee of Citizens Financial Services, Inc. or
First Citizens National Bank. |
Governance
The Board
of Directors oversees all of the corporation’s business, property, and affairs.
The Chairman and the corporation’s officers keep the members of the Board
informed of the corporation’s business through discussions at Board meetings and
by providing them reports and other materials.
The
Board of Directors and its Committees
During
2004, the corporation’s Board of Directors held 8 regular meetings. Each of the
directors attended at least 75% of the total number of meetings of the
corporation’s and committee meetings. All directors of the corporation attended
the 2004 Annual Meeting of Shareholders and all are expected to attend the 2005
Annual Meeting of Shareholders. Citizens Financial Services, Inc. maintains a
standing Audit Committee.
The
corporation’s Board of Directors does not maintain a standing nominating
committee, or compensation committee. Matters within the jurisdiction of a
nominating committee are considered by the corporation’s and the bank’s Board of
Directors. The bank’s Human Resource Committee currently performs the functions
of the corporation’s compensation committee.
There is
no family relationship, by blood, marriage, or adoption, between any of the
directors and any other director, officer, or full-time employee, of the
corporation or of the bank.
Compensation
of the Board of Directors
Directors
of the corporation, except for the Chairman, receive a fee of $250 per meeting.
Directors of the bank, except for the Chairman, receive a $5,000 retainer plus
$500 per month plus fees of $175 per meeting, for attendance at various
committee meetings held on the same day as the Board meetings, and $250 per
additional committee meeting held on a day other than Board meeting. A fee of
$250 is paid for any special meeting of the Board plus $100 per conference call
instance. Additionally, committee chairpersons receive a $500 retainer. Mr.
Coolidge, who serves as the corporation’s and the bank’s Chairman, receives a
fixed annual sum of $35,160 in lieu of all director’s fees. Directors are
permitted to defer their fees subject to provisions of the director’s deferred
compensation plan. The plan provides for the bank to distribute funds to a
director whenever they are no longer a member of the Board. In addition to these
fees, each director is provided a $50,000 life insurance benefit. Once a
director retires, insurance coverage continues but the benefit declines as the
age of the retired director increases. In the aggregate, the Board of Directors
received $209,903.64 for all Board of Directors meetings of the corporation, of
the bank and various committee meetings attended in 2004. Total premiums paid,
in 2004, for life insurance on behalf of the current and retired directors was
$1,360.
Employee
Code of Ethics
Since
December 2002, we have had a code of conduct for executive officers of the
corporation. In 2003, as required by law and regulation, we amended our code of
conduct. Our employee code of ethics is applicable to our directors, officers
and employees. The code of conduct encourages individuals to report any conduct
that they believe in good faith to be an actual or apparent violation of the
code or ethics. The Board periodically receives reports on our compliance
program. The Code of Ethics is posted on our website at
www.firstcitizensbank.com. We have filed a copy of the Code of Ethics with the
SEC as Exhibit 14 to our December 31, 2003 Annual Report on Form
10-K.
NOMINATIONS
FOR DIRECTORS
As
mentioned previously, the corporation’s Board of Directors does not maintain a
nominating committee. Matters within the jurisdiction of this committee are
considered by the corporation’s and bank’s Board of Directors. Because the
entire board performs the function of a nominating committee, there is no
nominating committee charter. We are not listed on the NASDAQ or New York Stock
Exchange. We believe that all directors meet the NASDAQ independence standards,
except for Directors R. Lowell Coolidge, R. Joseph Landy, Rudolph J. van der
Hiel, Larry J. Croft, and Mark L. Dalton who were officers and/or partners,
rendered services or sold products to the corporation and/or bank in the normal
course of business in 2004.
Nominations
for directors, other than those made by or on behalf of the existing Board of
Directors, to be elected at an annual meeting of shareholders must be submitted
to the Secretary of the corporation in writing not less than ninety (90) days
nor more than one-hundred twenty (120) days prior to the date of the meeting.
The nominations must be in accordance with Section 202 of the corporation's
Bylaws and contain the specified information, including but not limited to: name
and address, age, principal occupation, and the number of shares of the
corporation held for each proposed nominee.
No third
party fees are paid to assist in the process of identifying or evaluating
candidates.
When
considering potential candidates, the Board of Directors considers, among other
things, geographic location, principal occupation, financial expertise, and
individual qualifications. The corporation has never received outside
nominations for directors.
AUDIT
COMMITTEE REPORT
The Audit
Committee of the Board of Directors is comprised of directors who meet the
NASDAQ independence standards. On October 19, 2004 Director Mark L. Dalton
resigned from the Audit Committee. Prior to this resignation, Mark L. Dalton
rendered services or sold products to the corporation and/or bank in the normal
course of business in 2004. The Audit Committee operates under a written charter
adopted by the Board of Directors, which was reviewed and revised in November
2004 and which is attached to this proxy statement as Appendix A. The Audit
Committee met six times in 2004.
The Audit
Committee met with management periodically during the year to consider the
adequacy of the company’s internal controls and the objectivity of its financial
reporting. The Audit Committee discussed these matters with the company’s
independent auditors and with appropriate company financial personnel and
internal auditors. The Audit Committee also discussed with the company’s senior
management and independent auditors the process used for certifications by the
company’s chief executive officer and chief financial officer which are required
for certain of the company’s filings with the Securities and Exchange
Commission.
The Audit
Committee met privately at its regular meeting with both the independent
auditors and the internal auditors, as well as with the chief financial officer,
the risk manager, and the investments & strategic planning officer on a
number of occasions, each of whom has unrestricted access to the Audit
Committee.
The Audit
Committee appointed S.R. Snodgrass, A.C., Certified Public Accountants as the
independent auditors for the company after reviewing the firm’s performance and
independence from management.
Management
has primary responsibility for the company’s financial statements and the
overall reporting process, including the company’s system of internal
controls.
The
independent auditors audited the annual financial statements prepared by
management, expressed an opinion as to whether those financial statements fairly
present the financial position, results of operations and cash flows of the
company in conformity with generally accepted accounting principles and
discussed with the Audit Committee any issues they believe should be raised with
the Audit Committee.
The Audit
Committee reviewed with management and S.R. Snodgrass, A.C., Certified Public
Accountants, the company’s independent auditors, the company’s audited financial
statements and met separately with both management and S.R. Snodgrass, A.C.,
Certified Public Accountants to discuss and review those financial statements
and reports prior to issuance. Management has represented, and S.R. Snodgrass,
A.C., Certified Public Accountants has confirmed, to the Audit Committee, that
the financial statements were prepared in accordance with generally accepted
accounting principles.
The Audit
Committee received from and discussed with S.R. Snodgrass, A.C., Certified
Public Accountants the written disclosure and the letter required by
Independence Standards Board Standard No. 1. (Independence Discussions with
Audit Committees). These items relate to that firm’s independence from the
company. The Audit Committee also discussed with S.R. Snodgrass, A.C., Certified
Public Accountants matters required to be discussed by the Statement on Auditing
Standards No. 61. (Communication with Audit Committees) of the Auditing
Standards Board of the American Institute of Certified Public Accountants to the
extent applicable. The Audit Committee implemented a procedure to monitor
auditor independence, reviewed audit and non-audit services performed by S.R.
Snodgrass, A.C., Certified Public Accountants and discussed with the auditors
their independence.
In
reliance on these reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the company’s audited financial
statements be included in the company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2004, for filing with the Securities and Exchange
Commission. The Audit Committee and the Board have also recommended the
selection of S.R. Snodgrass, A.C., Certified Public Accountants, as the
company’s independent auditors for the year.
Aggregate
fees billed to the company by S.R. Snodgrass, A.C., Certified Public Accountants
for services rendered are presented below:
Year End December 31,
|
2003 |
2004 |
Audit Fees (1) |
$69,661 |
$70,508 |
Audit Related Fees |
$0 |
$0 |
Tax Services (2) |
$6,550 |
$7,550 |
All Other Fees (3) |
$95,007 |
$45,009 |
(1) |
Audit
fees consist of fees for professional services rendered for the audit of
Citizens Financial Services, Inc.’s financial statements and review of
financial statements included in Citizens Financial Services, Inc.’s
quarterly reports and services normally provided by the independent
auditor in connection with statutory and regulatory filings or
engagements. |
(2) |
Tax
service fees consist of compliance fees for the preparation of original
tax returns. Tax service fees also include fees relating to other tax
advices, tax consulting and planning other than for tax compliance and
preparation. |
(3) |
Other
services consisted primarily of consulting services for the facilitating
of strategic planning meetings, loan servicing quality control review and
regulatory compliance review |
The Audit
Committee pre-approved all audit and non-audit services during
2004.
The Audit
Committee has considered whether, and determined that, the provision of the
non-audit services is compatible with maintaining S.R. Snodgrass, A.C.,
Certified Public Accountant’s independence.
Audit
Committee:
E. Gene
Kosa (Chairman)
James A.
Wagner(Audit Committee Member)
John E.
Novak (Audit Committee Member)
We have
no “audit committee financial expert.” We believe the cost to retain a financial
expert at this time is prohibitive. However, the Board of Directors believes
that each Audit Committee member has sufficient knowledge in financial and
auditing matters to serve on the committee. The committee has the authority to
engage legal counsel or other experts or consultants as it deems appropriate to
carry out its responsibilities.
BOARD
OF DIRECTORS’ REPORT ON EXECUTIVE COMPENSATION
Board
Committee Report on Compensation
The
corporation’s Board of Directors is responsible for the governance of the
corporation and its principal operating subsidiary, First Citizens National
Bank. In fulfilling its fiduciary duties, the Board of Directors engages
competent persons who undertake to accomplish strategic goals and objectives
with integrity and in a cost-effective manner.
The
bank’s Human Resource Committee, comprised of five outside directors (Directors
Novak, Croft, van der Hiel, Dalton and Kosa), makes recommendations on
compensation policies and practices to the Board of Directors. The Human
Resource Committee met five times in 2004. The fundamental philosophy of the
corporation’s and the bank’s compensation program is to offer competitive
compensation opportunities for all employees based on the individual’s
contribution and personal performance. Compensation policies are designed to
attract and motivate competent and dedicated individuals to enhance the
corporation’s and bank’s growth and profitability and the ultimate financial
return to shareholders.
The
compensation of the senior executives is reviewed and approved in December of
each year by the Board of Directors. As a basis for determining compensation,
the Board of Directors examines information from a peer group of banks relative
to performance and compensation. The peer group for overall bank performance
analysis consists primarily of those contained within the Uniform Bank
Performance Report prepared by the Office of the Comptroller of the Currency
(banks with assets of $300 million to $500 million throughout the United
States). The peer group for analysis of compensation paid to other bank holding
company and banking institution executives is obtained primarily from L.R. Weber
Associates, Inc. and Bank Administration Institute (such peer data is compiled
on both a regional and asset size basis). These peer groups are different from
the peer group utilized in the performance graph appearing on page
16.
The Board
of Directors does not deem Section 162(m) of the Internal Revenue Code to be
applicable to the corporation at this time. The Board of Directors intends to
monitor the future application of Section 162(m) of the IRC to the compensation
paid to its executive officers and in the event that this section does become
applicable, the Board of Directors would amend the corporation’s and the bank’s
compensation plans to preserve the deductibility of the compensation payable
under such plans should such amendment become necessary.
Compensation
of the Executive Officers
On
September 2, 2003, John M. Thomas, M.D. was appointed Interim President of the
corporation and of the bank to replace Richard E. Wilber, who retired as
President and Chief Executive Officer effective September 30, 2003. Dr. Thomas
ended his term as Interim President at the Organizational Meeting following our
Annual Meeting of Shareholders on April 20, 2004. On the same date, Randall E.
Black was appointed as Chief Executive Officer and President of the corporation
and the bank.
The Board
of Directors evaluated the compensation of the President and Chief Executive
Officer, and the Executive Vice President in April 2004. Compensation increases
were determined based on an analysis of the contribution of these individuals in
achieving the corporation’s strategic goals and objectives. In determining
whether strategic goals had been achieved, the Board of Directors considered,
among numerous factors, the following: the corporation’s performance as measured
by earnings, revenues, return on assets, return on equity, market share, total
assets, and non-performing loans. Although the performance and increases in
compensation were measured in light of these factors, there was no direct
correlation between any specific criterion and compensation of these executives,
nor was any specific weight provided to any such criteria.
The Board
of Directors believes that the Chief Executive Officer and President’s 2004
salary of $104,600, the Executive Vice President’s 2004 salary of $125,214 and
the Senior Vice President/Senior Credit Officer’s 2004 salary of $103,750 is
appropriate in light of the corporation’s 2004 accomplishments (a 13.40% return
on average equity and a 7.6% increase in assets). Executive officers’
compensation is evaluated in October of each year by the Chief Executive Officer
and President. In addition to this compensation, the Chief Executive Officer and
President, Executive Vice President, and Senior Vice President/Senior Credit
Officer participate in the bank’s deferred profit-sharing plan on the same basis
as all other eligible employees. The bank maintains a corporation wide incentive
compensation plan whereby employees including the Chief Executive Officer and
President, Executive Vice President, and Senior Vice President/Senior Credit
Officer may receive cash bonuses based upon varying corporation performance
objectives.
HUMAN
RESOURCE COMMITTEE
Larry
J. Croft |
Mark
L. Dalton |
Rudolph
J. van der Hiel |
John
E. Novak |
|
E.
Gene Kosa |
BOARD
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr.
Randall E. Black, Chief Executive Officer and President of the corporation and
of the bank, is a member of the Human Resource Committee which makes
recommendations on compensation policies and practices to the Board of
Directors. Mr. Black does not participate in conducting his review nor does he
vote on his annual compensation package.
EXECUTIVE
COMPENSATION
Information
concerning the annual cash and non-cash compensation paid, awarded or earned for
services in all capacities to the corporation and the bank for the fiscal years
ended December 31, 2004, 2003 and 2002 of those persons who were, as of December
31, 2004, (i) the President and Chief Executive Officer, and (ii) the three
other most highly compensated executive officers of the corporation, is set
forth below. No other executive officer’s total annual salary and bonus exceeded
$100,000 during 2004.
Summary
Compensation Table |
Name
and
Principal
Position |
Year |
|
Long
Term Compensation |
|
Annual
Compensation |
Awards |
Payouts |
|
Salary
($) |
Bonus
($) |
Other
Annual
Compensation
($) |
Restricted
Stock
Award(s)
($) |
Securities
Underlying
Options/SARs
(#) |
LTIP
Payouts
($) |
All
Other
Compensation
($) |
John
M. Thomas, M.D. Interim President of the corporation and
bank |
2004
2003 |
None |
None |
$29,897
(1)
$13,080
(1) |
None |
None |
None |
$21,155
(2)
$4,850
(2) |
Terry
B. Osborne
Executive
Vice
President
& Secretary of the
corporation
and bank |
2004
2003
2002 |
$125,214
$117,431
$111,688 |
$10,908
$16,545
$19,941 |
$4,560
(3)
$4,455
(3)
$4,020
(3) |
None |
None |
None |
$5,073
(4)
$3,990
(4)
$8,227
(4) |
Randall
E. Black
CEO
& President of the corporation and bank |
2004
2003 |
$104,600
$100,600 |
$9,847
$12,090 |
$1,082
(5)
None |
None |
None |
None |
$3,724
(6)
$3,099
(6) |
Alexander
D. Nadalini
Senior
Vice President/
Senior
Credit Officer |
2004
2003 |
$103,750
$96,154 |
$9,961
$5,937 |
None |
None |
None |
None |
$4,696
(7)
$803
(7) |
(1) |
In
2004, this amount includes $17,474 in taxes paid by the corporation on
behalf of Dr. Thomas and $12,423 in reimbursed temporary living expenses
including rent, utilities, and airfare. In 2003, this amount included
$4,991 in taxes paid by the corporation on behalf of Dr. Thomas and $8,089
in reimbursed temporary living expenses including rent, utilities, and
airfare. |
(2
) |
In
2004, this amount includes $16,130 non-cash compensation received by Dr.
Thomas in the form of stock and $5,025 in deferred director’s fees earned
by Dr. Thomas. In 2003, this amount includes $4,850 in deferred directors
fees earned by Dr. Thomas. |
(3) |
In
2004, this amount includes $4,560 in fees paid to Mr. Osborne as Secretary
of the corporation. In 2003, this amount included $4,455in fees paid to
Mr. Osborne. In 2002, this amount included $4,020 in fees paid to Mr.
Osborne. |
(4) |
In
2004, this amount includes approximately $4,245 for tax deferred profit
sharing for Mr. Osborne and $828 for imputed income for life insurance. In
2003, this amount included approximately $3,461 for tax deferred profit
sharing for Mr. Osborne and $529 for imputed income for life insurance. In
2002, this amount included approximately $7,732 for tax deferred profit
sharing for Mr. Osborne and $495 for imputed income for life insurance.
|
(5) |
In 2004, this amount includes golf fee reimbursement to
Mr. Black. |
(6) |
In
2004, this amount includes approximately $3,442 for tax deferred
profit-sharing for Mr. Black and $282 for imputed income for life
insurance. In 2003, this amount included approximately $2,830 for tax
deferred profit sharing and $269 for imputed income for life insurance.
|
(7) |
In
2004, this amount includes approximately $3,449 for tax deferred profit
sharing for Mr. Nadalini and $1,247 for imputed income for life insurance.
In 2003, this amount included $803 for imputed income for life insurance.
|
Consulting
and Non-Compete Agreement with Former Executive Officer
On
September 30, 2003, Richard E. Wilber resigned as the corporation’s and bank’ s
President and Chief Executive Officer and as a director of both the corporation
and bank. Mr. Wilber and the corporation agreed to terminate his employment
agreement and to enter into a Consulting and Non-Compete Agreement. Pursuant to
the terms of the agreement dated September 30, 2003, Mr. Wilber was retained by
the corporation and the bank in an advisory and consulting capacity to, among
other things, assist the corporation and the bank review, outline, evaluate and
implement goals, opportunities, risks and best practices for the corporation and
the bank. For his services, which shall not exceed 150 hours per year, Mr.
Wilber will receive an annual payment of $100,000 offset by (i) annual payments
from the bank’s defined benefit pension plan and (ii) annual payments from
social security. The duration of the agreement shall continue until such time
that the parties mutually terminate it or a party terminates it for
non-performance, as defined in the agreement. The agreement contains a covenant
not to compete that prohibits Mr. Wilber, during the period that he receives
compensation pursuant to the agreement, from engaging in certain activities and
performing certain services in a defined geographic area that may compete with
the corporation’s or bank’s business.
An
employment agreement with Randall E. Black is currently being negotiated with
the Board of Directors.
Retirement
Plans
The bank
has a noncontributory defined benefit pension plan for all employees meeting
certain age and length of service requirements. Benefits are based primarily on
years of service and the average annual compensation during the highest five
consecutive years within the final ten years of employment. The bank’s funding
policy is consistent with the funding requirements of federal law and
regulations. The First Citizens National Bank Division of Investment and Trust
Services is the trustee of the pension plan.
The
following table sets forth the estimated annual benefits payable on retirement
at age 65 by a participating employee, assuming final average earnings as shown.
This table reflects the benefit available through the pension plan exclusive of
social security. For 2004, a minimum contribution of $395,942 was required.
(Note: This is only the minimum contribution - not what the corporation
contributed)
Average
Annual
Earnings
|
|
Annual
Pension Benefits Upon Retirement
with
Years of Service Indicated |
|
|
15
---- |
20
---- |
25
---- |
30
---- |
35
---- |
$20,000 |
|
3,900 |
5,200 |
6,500 |
7,800 |
7,800 |
$40,000 |
|
7,800 |
10,400 |
13,000 |
15,600 |
15,600 |
$60,000 |
|
13,140 |
17,520 |
21,900 |
26,280 |
26,280 |
$80,000 |
|
19,140 |
25,520 |
31,900 |
38,280 |
38,280 |
$100,000 |
|
25,140 |
33,520 |
41,900 |
50,280 |
50,280 |
$120,000 |
|
31,140 |
41,520 |
51,900 |
62,280 |
62,280 |
$140,000 |
|
37,140 |
49,520 |
61,900 |
74,280 |
74,280 |
$160,000 |
|
43,140 |
57,520 |
71,900 |
86,280 |
86,280 |
$180,000 |
|
49,140 |
65,520 |
81,900 |
98,280 |
98,280 |
$200,000 |
|
55,140 |
73,520 |
91,900 |
110,280 |
110,280 |
$220,000 |
|
56,640 |
75,520 |
94,400 |
113,280 |
113,280 |
$240,000 |
|
56,640 |
75,520 |
94,400 |
113,280 |
113,280 |
Randall
E. Black, Chief Executive Officer and President has 11 years of credited service
to the bank. His average salary upon which his benefits would be calculated at
December 31, 2004 is $91,730. Terry B. Osborne, Executive Vice President and
Secretary of the corporation and bank, has 29 years of credited service to the
corporation and bank. His average salary upon which his benefits would be
calculated at December 31, 2004 is $128,172. Alex Nadalini, Senior Vice
President/Senior Credit Officer has 2 years of credited service to the bank. His
average salary upon which his benefits would be calculated at December 31, 2004
is $108,950.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Certain
of the corporation’s directors and executive officers and their associates are
and have been customers of the bank and have had transactions with the bank in
the ordinary course of business. In addition, certain directors are and have
been directors and officers of corporations which are customers of the bank and
have had transactions with the bank in the ordinary course of business. All
transactions with these directors and officers of the corporation and their
associates were made on substantially the same terms (including interest rates
and collateral) as those prevailing at the time of the transactions. These
transactions did not involve more than a normal risk of collectibility or
present other unfavorable features.
During
2004, business and law firms, of which Directors Rudolph J. van der Hiel, R.
Lowell Coolidge, R. Joseph Landy, James A. Wagner and Mark L. Dalton were
officers and/or partners, rendered services or sold products to the corporation
and/or the bank in the normal course of business. Van der Hiel & Chappell,
Walrath and Coolidge, and Landy & Landy received $7,988.41, $33,001.95 and
$21,291.57, respectively, for legal services rendered to the corporation and/or
bank during 2004. Also during 2004, Robert E. Dalton General Insurance, which
Director Mark L. Dalton owns, was paid $194,178.00 in premiums for various
insurance coverages maintained by the corporation and the bank. Also during
2004, Wagner Ace Hardware, which Director James A. Wagner is President, was paid
$1,217.05 for various purchases.
Total
loans outstanding from the corporation and the bank at December 31, 2004, to the
corporation’s and the bank’s officers and directors as a group and members of
their immediate families and companies in which they had an ownership interest
of 10% or more was $3,090,305.10, or approximate 7.6% of the total equity
capital of the bank. Loans to such persons were made in the ordinary course of
business, were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons, and did not involve more than the normal risk of collectibility
or present other unfavorable features. The aggregate amount of indebtedness
outstanding as of the latest practicable date, February 23, 2005, to the above
described group was $3,237,725.15.
ELECTION
OF DIRECTORS
Qualification
and Nomination of Directors
The
Articles of Incorporation provide that the Board of Directors shall consist of
not less than five (5) nor more than twenty five (25) directors, the exact
number to be fixed and determined from time to time by resolution of a majority
of the full Board of Directors or by resolution of the shareholders at any
annual or special meeting. The number of directors is currently set at 11. The
Articles further provide that the directors shall be divided into three classes,
as nearly equal in number as possible, known as Class 1, Class 2 and Class 3.
The Class 1 Directors elected at this annual meeting will serve for a three year
term. The Class 3 Director elected at this annual meeting will serve for a one
year term. The Class 3 and Class 2 Directors will continue to serve for one and
two years, respectively, in order to complete their three year
terms.
The
proxies solicited hereunder will be voted FOR (unless
otherwise directed) the five nominees named below. The corporation does not
contemplate that any nominee will be unable to serve as a director for any
reason. Each nominee has agreed to serve if elected. However, in the event one
or more of the nominees should be unable to stand for election, the vote will be
cast for the remaining nominees in accordance with the best judgment of the
Board of Directors.
Cumulative
voting rights do not exist with respect to the election of directors. Each share
of common stock entitles the holder to cast one vote for each nominee. For
example, if a shareholder owns ten shares of common stock, he or she may cast up
to ten votes for each of the directors in the class to be elected.
Information
as to Nominees and Directors
The
following table contains certain information with respect to the corporation’s
directors as well as the nominees for Class 1 and Class 3 Director. The date
appearing in parenthesis opposite each director’s name in the “Director Since”
column represents the year in which each individual became a director of the
bank, or any predecessor institution acquired by the bank. Each nominee
presently serves as a director of the bank, as well as a director of the
corporation. All directors have been engaged in the principal occupation
indicated for five years or more. Footnotes appear on page 17.
Name |
Age
as of
March
2, 2005 |
Principal
Occupation
for
Past Five Years |
Director
Since
Corporation/Bank |
CURRENT
CLASS 1 DIRECTORS WHOSE TERM EXPIRES IN 2005
AND
NOMINEES FOR CLASS 1 DIRECTOR WHOSE TERM EXPIRES IN
2008 |
Carol
J. Tama |
64 |
Retired
President of Monaghan Transportation Company |
1986
(1984) |
R.
Lowell Coolidge |
64 |
Attorney-at-Law
with the firm of Walrath and Coolidge, located in Wellsboro,
PA |
1984
(1984) |
Larry
J. Croft |
69 |
Owner
of Croft Ford, Inc., located in Athens, PA |
1990
(1969) |
Randall
E. Black |
38 |
Chief
Executive Officer and President of Citizens Financial Services, Inc. and
First Citizens National Bank |
2004
(2004) |
CURRENT
CLASS 3 DIRECTOR WHOSE TERM EXPIRES IN 2005
AND
NOMINEE FOR CLASS 3 DIRECTOR WHOSE TERM EXPIRES IN
2006 |
James
A. Wagner |
58 |
President
of Wagner Ace Hardware, with stores located in Ulysses, PA and
Coudersport, PA |
2004
(2004) |
CURRENT
CLASS 3 DIRECTORS WHOSE TERM EXPIRES IN 2006 |
E.
Gene Kosa |
58 |
Partner
in EDKO Farms, a vegetable and dairy farm, located in Ulysses,
PA |
2001
(2001) |
R.
Joseph Landy |
50 |
Attorney-at-Law
with the firm of Landy & Landy, located in Sayre, PA |
2001
(2001) |
Roger
C. Graham, Jr. |
49 |
Retired
Owner of Graham Excavating |
2001
(2001) |
CURRENT
CLASS 2 DIRECTORS WHOSE TERM EXPIRES IN 2007 |
John
E. Novak |
68 |
Retired
School Administrator with Southern Tioga School District; retired from
supervising student teachers at Elmira College, located in Elmira,
NY |
1984
(1976) |
Rudolph
J. van der Hiel |
65 |
Attorney-at-Law
with the Law Offices of van der Hiel & Chappell, located in Mansfield,
PA; Rector at St. James Episcopal Church, Mansfield, PA; and Trinity
Episcopal Church, Antrim, PA |
1984
(1975) |
Mark
L. Dalton |
50 |
Owner
of Robert E. Dalton General Insurance, located in Blossburg,
PA |
1998
(1997) |
BENEFICIAL
OWNERSHIP OF THE CORPORATION’S STOCK
OWNED
BY PRINCIPAL OWNERS AND MANAGEMENT
Principal
Shareholders
The
following table sets forth, as of March 2, 2005, the name and address of each
person who owns of record or who is known by the Board of Directors to be the
beneficial owner of more than 5% of the corporation’s outstanding common stock,
the number of shares beneficially owned by such person and the percentage of the
corporation’s outstanding common stock so owned.
Name
and Address |
Number
of Shares
Beneficially
Owned
(1) |
Percent
of Outstanding
Common
Stock
Beneficially
Owned (2) |
R.
Lowell Coolidge
Post
Office Box 41
Wellsboro,
Pennsylvania 16901 |
154,018
|
5.42%
|
(1) |
The
securities “beneficially owned” by an individual are determined in
accordance with the definitions of “Beneficial Ownership” set forth in the
general rules and regulations of the Securities and Exchange Commission
and may include securities owned by or for the individual’s spouse and
minor children and any other relative who has the same home, as well as
securities to which the individual has or shares voting or investment
power or has the right to acquire beneficial ownership within 60 days
after March 2, 2005. Beneficial ownership may be disclaimed as to certain
of the securities. |
(2) |
Mr.
Coolidge holds 124,016 shares individually, and 30,002 shares are held by
his spouse. |
Share
Ownership by Directors, Officers and Nominees
The
following table sets forth as of March 2, 2005, the amount and percentage of the
common stock beneficially owned by each director, each nominee for director and
all executive officers and directors of the corporation and bank as a group.
This information is furnished by the directors and the corporation. All shares
are held individually unless otherwise noted.
Name
of Beneficial
Owner |
Amount
and Nature of
Beneficial
Ownership (1) |
Percent
of Class |
CURRENT
CLASS 1 DIRECTORS WHOSE TERM EXPIRES IN 2005 AND
NOMINEES
FOR CLASS 1 DIRECTOR WHOSE TERM EXPIRES IN
2008 |
Carol
J. Tama |
79,385 |
(2) |
2.79% |
R.
Lowell Cooldige |
154,018 |
(3) |
5.42% |
Larry
J. Croft |
28,337 |
(4) |
1.00% |
Randall
E. Black |
1,193 |
(5) |
.04% |
CURRENT
CLASS 3 DIRECTOR WHOSE TERM EXPIRES IN 2005 AND
NOMINEE
FOR CLASS 3 DIRECTOR WHOSE TERM EXPIRES IN
2006 |
James
A. Wagner |
20,042 |
(6) |
.71% |
CURRENT CLASS 3 DIRECTORS WHOSE
TERM EXPIRES IN 2006 |
E.
Gene Kosa |
1,062 |
(7) |
.04% |
R.
Joseph Landy |
7,416 |
(8) |
.26% |
Roger
C. Graham, Jr. |
13,527 |
|
.48% |
CURRENT CLASS 2 DIRECTORS WHOSE
TERM EXPIRES IN 2007 |
John
E. Novak |
3,606 |
(9) |
.13% |
Rudolph
J. van der Hiel |
17,805 |
(10) |
.63% |
Mark
L. Dalton |
1,208 |
|
.04% |
|
|
|
|
All
Nominees, Directors and Executive Officers as a Group
11
directors, 8 officers, 19 persons |
332,328 |
11.70% |
(1) |
The
securities “beneficially owned” by an individual are determined in
accordance with the definitions of “Beneficial Ownership” set forth in the
general rules and regulations of the Securities and Exchange Commission
and may include securities owned by or for the individual’s spouse and
minor children and any other relative who has the same home, as well as
securities to which the individual has or shares voting or investment
power or has the right to acquire beneficial ownership within 60 days
after March 2, 2005. Beneficial ownership may be disclaimed as to certain
of the securities. |
(2) |
Mrs.
Tama holds 74,578 shares individually, and 4,807 shares in a
partnership. |
(3) |
Mr.
Coolidge holds 124,016 shares individually, and 30,002 shares are held by
his spouse. |
(4) |
Mr.
Croft holds 17,928 shares individually, 9,850 shares jointly with his
spouse, and 559 shares are held by his spouse.
|
(5) |
Mr.
Black holds 1,193 shares jointly with his
spouse. |
(6) |
Mr.
Wagner holds 7,501 shares individually, and 12,541 shares jointly with his
father and brother. |
(7) |
Mr.
Kosa holds 985 shares jointly with his spouse, 20 shares are held by his
spouse, and 57 shares are held in an investment
club. |
(8) |
Mr.
Landy holds 3,882 shares individually, 2,586 shares jointly with his
spouse, and 948 as custodian for his
children. |
(9) |
Mr.
Novak holds 3,419 shares individually, and 187 shares are held by his
spouse. |
(10) |
Mr.
van der Hiel holds 16,241 shares individually, 22 shares are held jointly
with his spouse, and 1,542 shares are held by his spouse.
|
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires the
corporation’s officers and directors, and persons who own more than 10% of the
registered class of the corporation’s equity securities, to file reports of
ownership and changes of ownership with the Securities and Exchange Commission.
Officers, directors and greater than 10% shareholders are required by SEC
regulation to furnish the corporation with copies of all Section 16(a) forms
that they file.
Based
solely on its review of the copies of such forms received by it, and written
representations from certain reporting persons that no Forms 5 were required for
those persons, the corporation believes that during the period January 1, 2004,
through December 31, 2004, its officers, directors and 10% shareholders were in
compliance with all applicable filing requirements, except for Director Carol J.
Tama and officer Thomas C. Lyman.
PERFORMANCE
GRAPH
The Stock
Price Performance Graph below shall not be deemed incorporated by reference by
any general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933, as amended, or under the Securities
Exchange Act of 1934, as amended, except to the extent that the corporation
specifically incorporates this information by reference, and shall not otherwise
be deemed under such Acts.
The graph
compares the corporation’s stock performance from December 31, 1999 through
December 31, 2004, against the performance of the S&P 500 Index, NASDAQ
Composite and Mid-Atlantic Custom Peer Group for the same period. The graph
shows the cumulative investment return to shareholders, based on the assumption
that a $100 investment was made on December 31, 1999, in each of the
corporation’s common stock, the S&P 500 Index, NASDAQ Composite, and the
Mid-Atlantic Custom Peer Group, and that all dividends were reinvested in such
securities over the past five fiscal years. Shareholder return shown on the
graph below is not necessarily indicative of future performance.
|
|
Period
Ending |
|
Index |
12/31/99 |
12/31/00 |
12/31/01 |
12/31/02 |
12/31/03 |
12/31/04 |
Citizens
Financial Services, Inc. |
100.00 |
73.76 |
92.25 |
152.14 |
172.18 |
179.52 |
S&P
500* |
100.00 |
101.90 |
80.42 |
62.64 |
80.62 |
89.47 |
NASDAQ
Composite |
100.00 |
60.82 |
48.16 |
33.11 |
49.93 |
54.49 |
Mid-Atlantic
Custom Peer Group** |
100.00 |
90.64 |
107.51 |
135.15 |
182.03 |
204.59 |
|
|
|
|
|
|
|
NOTE:
The Mid-Atlantic Custom Peer Group consists of Mid-Atlantic commercial
banks with assets less than $1 billion. |
|
|
|
|
|
|
Source:
CRSP, Center for Research in Security Prices, Graduate School of Business,
The University of Chicago 2005. Used with permission. All
rights reserved. crsp.com. |
PROPOSALS
1. |
To
Elect Four Class 1 Directors |
Nominees
for Class 1 Director are:
• |
Carol
J. Tama (director since 1984). |
• |
R.
Lowell Coolidge (director since 1984). |
• |
Larry
J. Croft (director since 1990). |
• |
Randall
E. Black (director since 2004). |
2. |
To
Elect One Class 3 Director |
Nominee
for Class 3 Director is:
• |
James
A. Wagner (director since 2004). |
Each
nominee for Class 1 Director has consented to serve a three year term. The
nominee for Class 3 Director as consented to serve a one year term. (See page 12
for more information.)
If any
director is unable to stand for re-election, the Board may designate a
substitute. The proxy holders will vote in favor of a substitute nominee. The
Board of Directors has no reason to believe the four nominees for Class 1
Director and the one nominee for Class 3 Director will be unable to serve if
elected.
Cumulative
voting rights do not exist with respect to the election of directors. The
individuals receiving the highest number of votes of the shares present (in
person or by proxy and entitled to vote at the annual meeting) will be elected
as a director.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF THE FOUR
NOMINEES AS CLASS 1 DIRECTOR AND THE ONE NOMINEE FOR CLASS 3
DIRECTOR.
INDEPENDENT
AUDITORS
S.R.
Snodgrass, A.C., Certified Public Accountants, of Wexford, Pennsylvania, served
as the corporation’s independent public accountants for its 2004 fiscal year.
The corporation has been advised by S.R. Snodgrass that none of its members has
any financial interest in the corporation. In addition to performing customary
audit services, S.R. Snodgrass assisted the corporation and the bank with
preparation of their federal and state tax returns, and provided assistance in
connection with regulatory matters, charging the bank for such services at its
customary hourly billing rates. These non-audit services were approved by the
corporation’s and the bank’s Board of Directors after due consideration of the
effect of the performance thereof on the independence of the auditors and after
the conclusion by the corporation’s and the bank’s Board of Directors that there
was no effect on the independence of the auditors. S.R. Snodgrass will serve as
the corporation’s independent public accountants for its 2005 fiscal year. A
representative of S.R. Snodgrass will be present at the Annual Meeting of
Shareholders. The representative will have an opportunity to make a statement,
if he desires to do so, and will be available to respond to any appropriate
questions presented by shareholders at the annual meeting.
SHAREHOLDER
PROPOSALS FOR 2005 ANNUAL MEETING
Securities
and Exchange Commission Regulations permit shareholders to submit proposals for
consideration at the Annual Meeting of Shareholders. Any proposals for the
corporation’s Annual Meeting of Shareholders to be held in 2006, must be
submitted to the Chief Executive Officer and President of Citizens Financial
Services, Inc., at its principal office at 15 South Main Street, Mansfield,
Pennsylvania 16933 on or before Wednesday, November 10, 2005, in order to be
included in proxy materials relating to that annual meeting.
Next
year’s annual meeting currently is scheduled to be held on Tuesday, April 18,
2006.
OTHER
MATTERS THAT MAY COME BEFORE THE ANNUAL MEETING
The Board
of Directors of the corporation is not aware of any other matters to be
presented for action other than described in this proxy statement or the
accompanying Notice of Annual Meeting of Shareholders, but if any other matters
properly come before the meeting, and any adjournments or postponements of the
meeting, the proxy holders are authorized to vote them in accordance with the
recommendation of the Board of Directors.
ADDITIONAL
INFORMATION
Upon
written request of any shareholder, a copy of the corporation’s Annual Report on
SEC Form 10-K for its fiscal year ended December 31, 2004, including the
financial statements and the schedules thereto, required to be filed with the
Securities and Exchange Commission pursuant to Rule 13a-1 under the Securities
Exchange Act of 1934, as
amended,
may be obtained without charge, from Mickey L. Jones, Assistant Treasurer,
Citizens Financial Services, Inc., 15 South Main Street, Mansfield, Pennsylvania
16933.
SHAREHOLDER
COMMUNICATIONS WITH DIRECTORS
The Board
of Directors does not have a formal process for shareholders to send
communications to the Board. Due to the infrequency of shareholder
communications to the Board of Directors, the Board does not believe that a
formal process is necessary. Shareholders may contact in writing any director of
the corporation at its principal office located at 15 South Main Street,
Mansfield, Pennsylvania 16933.
APPENDIX
A
CITIZENS
FINANCIAL SERVICES, INC.
AMENDED
AND RESTATED
AUDIT
COMMITTEE CHARTER
November
2004
AUDIT
COMMITTEE MISSION
The Audit
Committee is appointed by the Board of Directors to assist the Board in
fulfilling its oversight responsibilities. The Audit Committee's primary duties
and responsibilities are to:
· |
Monitor
the integrity of the Corporation's financial reporting process and systems
of internal controls regarding finance, accounting and regulatory
compliance. |
· |
Monitor
the independence and performance of the Corporation's independent auditors
and internal auditing department. |
· |
Provide
an avenue of communication among the independent auditors,
|
management,
the internal auditing department, and the Board of
Directors.
· |
Perform
the Audit Committee Function for such subsidiaries of the Corporation as
determined by the Board of Directors to the extent permissible under
applicable law. |
To
effectively perform his or her role, each Committee member will obtain an
understanding of the detailed responsibilities of Committee
membership.
AUDIT
COMMITTEE ORGANIZATION
Audit
Committee members shall meet the requirements of the Self-Regulatory
Organization or Exchange on which the corporation is listed and any other
applicable regulatory requirements. The Audit Committee shall be comprised of
three or more directors as determined by the Board, each of whom shall be
independent, non-executive directors, free from any relationship that would
interfere with the exercise of his or her independent judgment. All members
shall have a basic understanding of finance and accounting and be able to read
and understand fundamental financial statements, including a balance sheet,
income statement, and cash flow statement. The Audit Committee has no “audit
committee financial expert.” However, the Board of Directors believes that each
Audit Committee member has sufficient knowledge in financial and auditing
matters to serve on the committee. The committee has the authority to engage
legal counsel or other experts or consultants as it deems appropriate to carry
out its responsibilities. One of the members shall be designated "Chairman."
The
Committee shall meet quarterly, or more frequently as circumstances
dictate.
The
Committee believes that the above mission statement sets fourth its primary
roles and responsibilities. In that connection, the following is meant to serve
as a guide in achieving that mission.
ROLES
AND RESPONSIBILITIES
FINANCIAL
STATEMENT REVIEW PROCEDURES
1.
|
Review
the Corporation's interim financial results and annual audited financial
statements prior to filing or distribution. The review should include
discussion with management and independent auditors of significant issues
regarding accounting principles, practices, and judgments. Discuss with
Independent Auditors its judgment about the quality, not just
acceptability, of the Corporation's accounting principles as applied in
its financial reporting. |
2.
|
In
consultation with management, independent auditors, and internal auditors,
consider the integrity of the Corporation's financial reporting processes
and controls. Discuss significant financial risk exposures and steps taken
by management to monitor, control, and report such
exposures. |
3.
|
Review
significant findings prepared by the independent auditors and the internal
auditors together with management's responses. Gain an understanding of
whether internal control recommendations made by internal and independent
auditors have been implemented by
management. |
4. |
Review
the adequacy of the Corporation's internal controls.
|
5. |
The
Committee's job is one of oversight as set forth in this Audit Charter. It
is not the duty of the Committee to prepare the Corporation's financial
statements, to plan or conduct audits, or to determine that the
Corporation's financial statements are complete and accurate and are in
accordance with generally accepted accounting principles. The
Corporation's management is responsible for preparing the Corporation's
financial statements and for maintaining internal control, and the
independent auditors are responsible for auditing the financial
statements. |
6. |
In
performing their duties and responsibilities, as permitted under the
Pennsylvania Business Corporation Law, as amended, Committee members are
entitled to rely in good faith on information, opinions, reports or
statements prepared or presented by: |
· |
One
or more officers or employees of the Corporation whom the Committee member
reasonably believes to be reliable and competent in the matters
presented; |
· |
Counsel,
independent auditors, or other persons as to matters which the Committee
member reasonably believes to be within the professional or expert
competence of such person; or |
· |
Another
committee of the Board as to matters within its designated authority which
committee the Committee member reasonably believes to merit
confidence. |
INDEPENDENT
AUDITORS
1.
|
The
independent auditors are ultimately accountable to the Audit Committee and
the Board of Directors. The Audit Committee shall review the independence
and performance of the auditors and annually recommend to the Board of
Directors the appointment of the independent auditors or approve any
discharge of auditors when circumstances
warrant. |
2.
|
Review
the independent auditors' timetable, scope and approach of the quarterly
reviews and annual examination of the financial
statements. |
3.
|
Obtain
from the independent auditors their annual communication to the Audit
Committee in satisfaction of SAS 61 regarding communication with the Audit
Committee, and, if applicable, any commentary on internal contracts or
other recommendations. |
4.
|
Review
and discuss with the independent auditors all significant relationships
they have with the Corporation that could impair the auditors'
independence. |
INTERNAL AUDITORS
1.
|
Approve
an Annual Risk Assessment and Audit Plan developed by the internal
auditors. |
2.
|
Meet
quarterly with the internal auditors to gain an understanding of the
effectiveness of the internal audit function. These meetings will also
serve in evaluating their performance. |
3.
|
Review
significant reports prepared by the internal auditors together with
management's response and follow-up to these
reports. |
4.
|
The
Audit Committee may contract for internal audit services as necessary to
assess the adequacy and effectiveness of internal controls, the accuracy
of management reporting and compliance with laws, regulations and bank
policy. The Audit Committee will set forth the outsourcing vendor's
responsibilities in a written contract the terms of which comply with the
"Interagency Policy Statement of Internal Audit and Internal Audit
Outsourcing." |
COMPLIANCE
WITH LAWS AND REGULATIONS
1. |
Periodically
obtain updates from management and compliance auditors regarding
compliance with laws and regulations. |
2. |
Review
the findings of any examination by regulatory agencies such as the Board
of Governors of the Federal Reserve System, the Office of the Comptroller
of the Currency, or the Securities and Exchange
Commission. |
3. |
3. Be
familiar with Management's response to regulatory
examinations. |
OTHER
COMMITTEE RESPONSIBILITIES
1.
|
Review
and update the Audit Charter annually and submit the charter to the Board
of Directors for approval. Ensure that the charter is included within the
Corporation's proxy statement once every three years or as may otherwise
be required by applicable laws and
regulations. |
2.
|
Prepare
an annual Audit Committee Report for inclusion in the Corporation's Annual
Proxy Statement that states a formal audit charter has been approved and
that the Audit Committee has satisfied its responsibility during the
year. |
3.
|
Perform
other oversight functions as requested by the Board of Directors. Further,
the Audit Committee shall have the power to conduct or authorize
investigations into any matters within the committee's scope of
responsibilities. |
4.
|
Maintain
minutes of meetings and periodically report to the Board of Directors on
significant results of the foregoing
activities. |
5.
|
Meet
periodically with the internal auditors, the independent accountants, and
management in separate executive sessions to discuss any matters that the
committee or these groups believe should be discussed privately with the
audit committee. |
6.
|
Report
Audit Committee actions to the Board of Directors with such
recommendations, as the Audit Committee may deem
appropriate. |
7. |
Establish
procedures with regard to the receipt, retention and treatment of
complaints regarding accounting, internal accounting controls or auditing
matters. |
SUBSIDIARY
BANK AUDIT COMMITTEE
1.
|
Where
the Committee is performing the duties required by law to be performed by
an audit committee for a subsidiary bank of the Corporation that does not
have its own audit committee, will review with management and the
independent auditors the basis for the reports required to be filed by
management and by the independent auditors with the FDIC pursuant to 12
C.F.R. Sections 363. |
2. |
Perform
the duties required to be performed by the fiduciary audit committee for
any bank subsidiary of the Corporation exercising fiduciary powers that
does not have its own audit committee, in each case to the extent
permitted, and in the manner required, by applicable laws and
regulations. |
ANNEX
A
CITIZENS
FINANCIAL SERVICES, INC.
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
TO
BE HELD ON APRIL 19, 2005
TO THE
SHAREHOLDERS OF CITIZENS FINANCIAL SERVICES, INC.:
Notice is
hereby given that the Annual Meeting of Shareholders of CITIZENS FINANCIAL
SERVICES, INC. will be held at 12:00 p.m., prevailing time, on Tuesday, April
19, 2005 at the Tioga County Fairgrounds Main Building, Whitneyville,
Pennsylvania, 16901, for the following purposes:
|
1. |
To
elect four Class 1 Directors to serve for a three-year term and until
their successors are elected and qualified. |
|
2. |
To
elect one Class 3 Director to serve for a one-year term and until his
successor is elected and qualified |
|
3. |
To
transact such other business as may properly come before the annual
meeting or any adjournment or postponement
thereof. |
In
accordance with the corporation’s Bylaws and action by the Board of Directors,
only those shareholders of record at the close of business on March 2, 2005 are
entitled to vote at the annual meeting and any adjournment or postponement
thereof.
A copy of
the corporation’s Annual Report to Shareholders for the fiscal year ended
December 31, 2004 is enclosed with this Notice. Copies of the corporation’s
Annual Report to Shareholders for the 2003 fiscal year may be obtained at no
cost by contacting Randall E. Black, Chief Executive Officer and President, 15
South Main Street, Mansfield, Pennsylvania 16933, telephone:
800-326-9486.
You are
urged to mark, sign, date and promptly return your proxy in the enclosed
envelope so that your shares may be voted in accordance with your wishes and in
order that the presence of a quorum may be assured. The
prompt return of your signed proxy, regardless of the number of shares you hold,
will aid the corporation in reducing the expense of additional proxy
solicitation. Even if
you return a proxy, you may vote in person if you attend the meeting and give
written notice to the Secretary of the corporation.
By
Order of the Board of Directors, |
|
Randall E. Black |
Chief Executive Officer and
President |
March 9,
2005
Mansfield,
Pennsylvania
ANNEX
B
CITIZENS
FINANCIAL SERVICES, INC.
PROXY
ANNUAL
MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 19, 2005
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned hereby constitutes and appoints Terry B. Osborne and Thomas C. Lyman
and each or any of them, proxies of the undersigned, with full power of
substitution, to vote all of the shares of Citizens Financial Services, Inc.
that the undersigned may be entitled to vote at the corporation’s Annual Meeting
of Shareholders to be held at the Tioga County Fairgrounds Main Building,
Whitneyville, Pennsylvania 16901, on Tuesday, April 19, 2005 at 12:00 p.m.,
prevailing time, and at any adjournment or postponement thereof as
follows:
1. |
ELECTION
OF CLASS 1 DIRECTORS TO SERVE FOR A THREE-YEAR
TERM |
Carol
J. Tama |
R.
Lowell Coolidge |
Larry
J. Croft |
Randall
E. Black |
r |
FOR
all nominees
listed
above (except
as
marked to the
contrary
below) |
r |
WITHHOLD
AUTHORITY
to
vote for all nominees
listed
above |
The
Board of Directors recommends a vote FOR
these nominees.
(INSTRUCTION:
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THAT NOMINEE'S
NAME ON THE SPACE PROVIDED BELOW.)
2.
|
ELECTION
OF CLASS 3 DIRECTOR TO SERVE FOR A ONE-YEAR
TERM |
r |
FOR
all nominees
listed
above (except
as
marked to the
contrary
below) |
r |
WITHHOLD
AUTHORITY
to
vote for all nominees
listed
above |
The
Board of Directors recommends a vote FOR
these nominees.
(INSTRUCTION:
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THAT NOMINEE'S
NAME ON THE SPACE PROVIDED BELOW.)
3. |
In
their discretion, the proxyholders are authorized to vote upon such other
business as may properly come before the meeting and any adjournment or
postponement thereof. |
THIS
PROXY, WHEN PROPERLY SIGNED AND DATED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE
ELECTION OF THE NAMED NOMINEES.
|
Dated:
,
2005 |
|
|
Number
of Shares Held of Record
on
March 2, 2005 (Indicated Above) |
Signature(s) (Seal) |
THIS
PROXY MUST BE DATED, SIGNED BY THE SHAREHOLDER AND RETURNED PROMPTLY TO THE
CORPORATION IN THE ENCLOSED ENVELOPE. WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE. IF MORE THAN ONE
TRUSTEE, ALL SHOULD SIGN. IF STOCK IS HELD JOINTLY, EACH OWNER SHOULD
SIGN.
Luncheon
Reservation
r I will attend the luncheon, please include my
reservation for
person(s)
r I will be unable to attend the
luncheon
*
This proxy may be revoked at any time before it is voted.
*