UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(x)(X) Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended SeptemberJune 30, 19981999 or
( ) Transition report pursuant to Section 13 or 15(d)15 (d) of the Securities
Exchange Act of 1934 for the transition period from
.
No. 0-23863
(Commission File Number)
PEOPLES FINANCIAL SERVICESERVICES CORP.
(Exact Name of Registrant as Specified in its Charter)
Pennsylvania 23-2931852
(State of Incorporation) (IRS Employer ID Number)
50 Main Street
Hallstead, PA 18822
(Address of principal executive offices)Principal Executive Offices) (Zip Code)
(717)(570) 879-2175
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months or
for such shorter period that the registrant was required to file
such reports)reports, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____NO____
Number of shares outstanding as of SeptemberJune 30, 19981999
COMMON STOCK ($2.002 Par Value) 2,180,4362,171,966
(Title of Class) (Outstanding Shares)
PEOPLES FINANCIAL SERVICES CORP.
FORM 10-Q
For the Quarter Ended SeptemberJune 30, 19981999
Contents
Page No.
PART I. FINANCIAL INFORMATION. Page No.
Item 1. Financial Statements.
Consolidated Statement of Financial
Condition as of SeptemberJune 30, 19981999
(Unaudited) and December 31, 1997. 31998. 4
Consolidated Statement of Income
(Unaudited) for the NineSix and Three
Month Periods Ended SeptemberJune 30,
19981999 and 1997. 41998. 5
Consolidated Statement of Comprehensive
Income (Unaudited) for the NineSix and Three
Month Periods Ended SeptemberJune 30,
19981999 and 1997. 51998. 6
Consolidated Statement of Shareholders'
Equity (Unaudited) for the NineSix Month
PeriodsPeriod Ended SeptemberJune 30, 19981999 and 1997. 61998. 7
Consolidated Statement of Cash Flows
(Unaudited) for the NineSix Month PeriodsPeriod
Ended SeptemberJune 30, 19981999 and 1997. 71998. 8
Notes to Consolidated Financial Statements. 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 1110
Item 3. Quantitative and Qualitative Disclosure
18
About Market RisksRisks. 14
PART IIII. OTHER INFORMATION 1915
Item 6. Exhibits and Reports on Form 8-K. 1915
PART I
Item 1
PEOPLES FINANCIAL SERVICES CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
SeptemberJune 30, 19981999 and December 31, 19971998
(UNAUDITED)
(in thousands)
September 30, December 31,June 1999 Dec 1998 1997
(unaudited)
ASSETSASSETS:
Cash and dueDue from banks $ 2,279 $ 2,402
Interest-bearing deposits in other banks 1,853 3,147Banks ................................ 2,531 2,084
Interest Bearing Deposits with Other Banks ......... 4,721 2,725
Federal Funds Sold ................................. 0 0
Investment securities availableSecurities Available for sale 88,770 88,149Sale ...................... 92,642 93,175
Loans 138,118 126,853.............................................. 142,503 141,283
Less: Unearned income (43) (67)Income ............................. -20 -34
Allowance for loan losses (1,711) (1,676)Loan Loss ............................ -1,707 -1,713
Loans, Net loans 136,364 125,110......................................... 140,776 139,536
Bank Premises and equipment 3,558 3,756Equipment, Net ................... 3,502 3,523
Accrued interest receivable 1,665 1,777Interest Receivable ........................ 1,826 1,781
Other assets 4,440 4,379Assets ....................................... 5,165 4,378
TOTAL Assets ....................................... 251,163 247,202
LIABILITIES
Deposits, Non-Interest Bearing ..................... 25,317 24,263
Deposits, Interest Bearing ......................... 189,764 185,618
Total assets $238,929 $228,720Deposits ..................................... 215,081 209,881
Accrued Interest Payable ........................... 657 703
Borrowed Funds ..................................... 8,286 9,032
Other Liabilities .................................. 504 541
TOTAL Liabilities .................................. 224,528 220,157
SHAREHOLDERS' EQUITY
Common Stock * ..................................... 4,455 4,455
Surplus ............................................ 4,465 4,455
Treasury Stock at Cost ............................. -905 -748
Undivided Profit ................................... 19,523 18,322
Accumulated Other Comprehensive Income ............. -903 561
TOTAL Shareholders' Equity ......................... 26,635 27,045
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 22,366 $ 20,104
Interest bearing 182,336 173,488
Total deposits 204,702 193,592
Short-term borrowings 6,331 9,275
Accrued interest payable 663 663
Other liabilities 540 546
Total liabilities 212,236 204,076
Stockholders' equity:CAPITAL .......................... 251,163 247,202
* Common stock,Stock, par value $2 per share, 12,500,000 shares authorized; 2,180,436authorized:
2,171,966 and 2,185,8252,177,576 shares issued and outstanding at SeptemberJune 30, 19981999 and
December 31, 1997, respectively 4,455 4,455
Surplus 4,455 4,455
Undivided profits 17,623 15,912
Unrealized gain (loss) on securities
available for sale, net of applicable
deferred income taxes 834 371
Less: treasury stock, at cost (47,064 in
1998 and 41,675 in 1997) (674) (549)
Total stockholders' equity 26,693 24,644
Total liabilities and stockholders'
equity $238,929 $228,720respectively.
See notes to financial statements
PEOPLES FINANCIAL SERVICES CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTSSTATEMENT OF INCOME
(in thousands)(UNAUDITED)
Nine(in thousands, except per share data) Six Months Ended NineThree Months Ended
SeptemberJune 30 SeptemberJune 30
1999 1998 19971999 1998 1997
(unaudited) (unaudited)
Interest income:INTEREST INCOME:
Interest and feesFees on loans $8,464 $7,279 $2,897 $2,556Loans ................. 5,861 5,567 2,948 2,806
Interest Investments, Taxable .............. 1,794 1,713 902 829
Tax Exempt ...................... 733 736 359 370
Dividends ....................... 39 24 19 12
Interest on investments:
Taxable 2,553 3,222 840 1,119
Tax exempt 1,109 918 373 354
Dividends 39Federal Funds Sold ............. 56 34 46 16 1433
Interest on deposits in other banks 40 92 14 7Deposits of Other Banks ........ 0 26 1 9
TOTAL Interest Income ...................... 8,483 8,100 4,275 4,059
Interest on federal funds sold 41 17 7 13
Total interest income 12,246 11,574 4,147 4,063
Interest expense:Deposits ....................... 3,916 3,880 1,964 1,948
Interest on deposits 5,916 5,723 2,036 2,026Borrowed Funds ................. 197 142 81 58
Interest on borrowed funds 202 117 60 22
Total interest expense 6,118 5,840 2,096 2,048Expense ........................... 4,113 4,022 2,045 2,006
Net interest income 6,128 5,734 2,051 2,015Interest Income ........................ 4,370 4,078 2,230 2,053
Provision for loan losses 130 90 55 30Loan Losses .................. 120 75 60 37
Net interestInterest Income,
after provision
for loan losses 5,998 5,644 1,996 1,985Loan Loss Provision .................. 4,250 4,003 2,170 2,016
OTHER INCOME:
Service Charges and Fees ................... 489 489 245 241
Gains on Security Sales .................... 63 33 57 6
Other income:
Service charges and customer
service fees 759 628 270 239Operating Income ..................... 73 27 42 5
TOTAL Other income 48 151 21 24
Investment securities gains, net 53 15 20 6
Total other income 860 794 311 269
Other expenses:Income ......................... 625 549 344 252
OTHER EXPENSES:
Salaries and employee benefits 1,759 1,730 602 610Benefits ...................... 1,295 1,157 652 544
Occupancy expense, net 232 227 75 97Expenses ......................... 159 157 76 78
Furniture and Equipment expense 320 238 110 82Expense ............ 182 210 91 106
FDIC insuranceInsurance and assessments 66 60 22Assessments ............. 46 44 23 22
Professional feesFees and outside services 168 126 52 47Outside Services ..... 91 116 51 63
Computer serviceServices and supplies 196 299 72 151Supplies ............. 161 125 82 63
Taxes, other than payrollOther Than Payroll and income 166 151Income ....... 120 110 62 56
50
Other operating expenses 871 894 306 315Operating Expenses ................... 595 565 314 266
Total other expense 3,778 3,725 1,295 1,374Non-Interest Expense ................. 2,649 2,484 1,351 1,198
Income before taxes 3,080 2,713 1,012 880Before Income Taxes ................. 2,226 2,068 1,163 1,070
Provision for income tax 635 576 202 209Income Taxes ................. 478 433 266 228
Net income $2,445 $2,137 $ 810 $ 671Income ................................. 1,748 1,635 897 832
Net income per share (Basic & Diluted) $ 1.12 $ 0.98 $ 0.37 $ 0.31Income Per Share, Basic and Diluted .80 .75
See notes to financial statements
PEOPLES FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
(in thousands)
NineSix Months Ended Three Months Ended
SeptemberJune 30 SeptemberJune 30
---------------------- -----------------------1999 1998 19971999 1998 1997
---------- ---------- ---------- -----------
(unaudited) (unaudited)
Net Income $2,445 $2,137 $ 810 $ 671.............................. 1,748 1,635 897 842
Other Comprehensive Income:Comp Income (loss) before tax
Unrealized holding gains/losslosses
on available for sale securities 750 878 518 560........................... -2,282 232 -1,780 72
Less: reclassification adjustment for loss
included in net income <48><66><21> 61Adjustment ....... -63 -27 -69 0
Other Comprehensive Income/Loss Before Tax 702 812 497 621
ApplicableComp Income (loss) before tax...... -2,219 205 -1,711 72
Federal Income Tax Expense 239 276 169 211expense (benefit)..... 754 70 927 25
Other Comprehensive Income/Loss,Comp Income (loss),
Net of Taxes 463 536 328 410
------ ------ ------ ------tax(benefit) ..................... -1,465 135 -1,130 47
TOTAL Comprehensive Income 2,908 2,673 1,138 1,081
====== ====== ====== ======Comp income ....................... 283 1,770 -233 889
See notes to financial statements
PEOPLES FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 1999 AND 1998
AND 1997 (UNAUDITED)
(in thousands)
Unrealized Loss
on Investment and
Mortgage-backed
SecuritiesAccumulated
Other
Common Undivided Available-for-saleComprehensive Treasury
Stock Surplus Profits Net of TaxesProfit Income Stock Total
------------- ----------- ---------- ------------------- ---------- ----------
BALANCE,Balance, December 31, 1996 $1997 . 4,455 $ 4,455 $13,636 $ (346) $ (487) $21,71315,912 371 -549 24,644
Net Income 1998 for the ninesix
months ended June 30, 1997 2,137 2,1371998 . 0 0 1,635 0 0 1,635
Cash dividends paid (525) (525)Dividends Paid, 1998 .. 0 0 -480 0 0 -480
Treasury stock purchase (30) (30)Stock Purchase .... 0 0 0 0 -43 -43
Change in unrealized
gain (loss)gain/loss on securities
available for sale,
net of taxes _______ _______ _______ 536 ________ 536deferred income taxes. 0 0 0 135 0 135
Balance, SeptemberJune 30, 1997 (unaudited) $1998 ...... 4,455 $ 4,455 $15,248 $ 190 $ (517) $23,831
======= ======= ======= ======== ======== =======
BALANCE,17,067 506 -592 25,891
Balance, December 31, 1997 $1998 . 4,455 $ 4,455 $15,912 $ 371 $ (549) $24,64418,322 562 -748 27,046
Net Income 1999 for the ninesix 0 0 1,748 0 0 1,748
months ended SeptemberJune 30, 1998 2,445 2,4451999
Cash dividends paid (734) (734)Dividends Paid, 1999 .. 0 0 -547 0 0 0
Treasury stock purchase (125) (125)Stock Activity .... 0 10 0 0 -157 -694
Change in unrealized
gain (loss)gain/loss on securities
available for sale,
net of taxes _______ _______ _______ 463 ________ 463deferred income taxes. 0 0 0 -1,465 0 -1,465
Balance, SeptemberJune 30, 1998 (unaudited) $1999 ..... 4,455 $ 4,455 $17,623 $ 834 $ (674) $26,693
======= ======= ======= ======== ======== =======4,465 19,523 -903 -905 26,635
See notes to financial statements
PEOPLES FINANCIAL SERVICES CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
(in thousands)
Nine Months Ended
September 30Cash Flow 1999 1998 1997
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 2,445 $ 2,137
Adjustments to reconcile net
income to net cash provided
by operating activities:
DepreciationACTIVITIES
Net Income .................................................... 1,748 1,635
Adjustments: ....Depreciation and amortization 527 417amoritization ............... 310 350
Provision for loan losses 130 90
(Gain) lossLoan Losses .................... 120 75
Gain/Loss on sale of equipment ............... 0 2
6
(Gain) Gain/loss on sale of other real estate ....... 27 2 6
Amortization of securities' premiumpremiums and accretion of Discounts 87 (58)
Losses (gains)discounts 132 52
Gains on salesales of investment securities, net (48) (66)
(Increase)NET .................. -63 -27
Increase in accrued interest receivable 112 (415)
(Increase) decrease....................... -44 6
Increase/Decrease in other assets (126) (64)
Increase (decrease)............................. -165 -154
Increase/Decrease in accruedaccrues interest payable -0- 98
Increase (decrease)................. -46 -4
Increase/Decrease in other liabilities (6) 70
Total Adjustments........................ -37 -12
Net cash provided by operating activities 3,125 2,221..................... 1,982 1,925
CASH FLOWS FROM INVESTING ACTIVITIES:ACTIVITIES
Proceeds from sale of available for sale securities 7,111 9,781........... 4,514 3,674
Proceeds from maturities of available for sale securities 11,978 32,171..... 6,257 10,228
Purchase of available for sale securities (22,420) (68,811)..................... -19,074 -10,460
Principal paymentpayments on mortgage-backed securities 3,374 1,430.............. 6,548 2,317
Net increase in loans (11,785) (11,904)......................................... -1,597 -7,080
Proceeds from sale of premises and equipment .................. 0 1 5
Purchase of premises and equipment (137) (898)............................ -160 -68
Proceeds from sale of other real estate ....................... 213 30 80
Purchase of intangible assets ................................. 0 (3,875)0
Net cash used in investing activities (11,848) (42,021)......................... -3,299 -1,358
CASH FLOWS FROM FINANCING ACTIVITIES:ACTIVITIES
Cash dividends paid (734) (525)........................................... -547 -480
Increase in deposits 11,110 41,592.......................................... 5,200 4,990
Net decreaseIncrease/Decrease in long-term borrowing .................. 0 0
Net increase (decrease)Increase/Decrease in short-
termshort-term borrowing (2,945) 1,019
Purchase of treasury stock (125) (30)................. -746 -4,350
Treasury Stock Activity ....................................... -147 -43
Net cash provided by financing activities 7,306 42,056
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,417) 2,256..................... 3,760 117
Net Increase/Decrease in cash/cash equivalents ................ 2,443 684
Cash and cash equivalents, beginning of periodyear .................. 4,809 5,549
3,069
CASH AND CASH EQUIVALENTS, END OF
PERIOD 4,132 5,325Cash and cash equivalents,end of year ......................... 7,252 6,233
SUPPLEMENTAL DISCLOSURES OF CASH PAID:PAID
Interest paid 6,119 5,741Paid ................................................. 4,159 4,026
Income taxes paid 579 783
NON-CASH INVESTING AND FINANCING
ACTIVITIES:Taxes Paid ............................................. 478 364
Non-cash investing and financing activities
Transfers from loans to real estate acquired through foreclosure $601 $163
==== ====....... 237 306
Proceeds from sales of foreclosed real estate financed through
loans $200 $0
==== ====
Total increase (decrease)................. 0 200
TOTAL Increase/Decrease in unrealized gain (loss)gain/loss on
securities availableavail for sale $702 $812
==== ====..................................... 2,219 205
See notes to financial statements
PEOPLES FINANCIAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have
been prepared pursuant to rules and regulations of the Securities
and Exchange Commission (SEC) and in compliance with generally
accepted accounting principles. Because this report is based on
an interim period, certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted. The registrant believes that the disclosures made are
adequate to make the information presented a fair representation
of the Corporation's financial status.
In the opinion of management, the accompanying
consolidated financial statements for the nine-month periodssix-month period ended
SeptemberJune 30, 19981999 and 19971998 include all adjustments, consisting of
only normal recurring adjustments, necessary for a fair
presentation of the financial condition and the results of
operations for the period. The financial performance reported for
the Corporation for the nine-monthsix-month period ended SeptemberJune 30, 1998,1999, is
not necessarily the result to be expected for the full year.
2. RECENT ACCOUNTING PRONOUNCEMENTS
REPORTING COMPREHENSIVE INCOMEACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
SFAS No. 130133
In June 1998, SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" was issued. This Statement
requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and
measure those instruments at fair value. The Corporationaccounting for
changes in the fair value of a derivative depends on the intended
use of the derivative and the resulting designation. This
Statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999, and will not be applied
retroactively to financial statements of prior periods.
Management of the Bank is in the process of evaluating the
impact, if any, this Statement will have on the Bank's
consolidated results of operations or financial position when
adopted.
ACCOUNTING FOR MORTGAGE-BACKED SECURITIES RETAINED AFTER THE SECURITIZATION OF
MORTGAGE LOANS HELD FOR SALE BY A MORTGAGE BANKING ENTERPRISE
SFAS No. 134
The Company adopted SFAS No. 130, "Reporting
Comprehensive Income"134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise",
effective January 1, 1998.1999. The Statement amends SFAS 65,
"Accounting for Certain Mortgage Banking Activities". Statement
65, as amended, requires that after the securitization of a
mortgage loan held for sale, an entity engaged in mortgage
banking activities classify the resulting mortgage-backed
security as a trading security. This statement
establishes standardsStatement further amends
SFAS 65 to require that after the securitization of mortgage
loans held for sale, an entity engaged in mortgage banking
activities classify the resulting mortgage-backed securities or
other retained interest based on its ability and intent to sell
or hold those investments.
This Statement conforms the subsequent accounting for
securities retained after securitization of mortgage loans by a
mortgage banking entity with the subsequent accounting for
securities retained after the securitization of other types of
assets by nonmortgage banking enterprises. This means that such
securities can be classified as held-to-maturity if they conform
to the requirements of SFAS 115. The Statement is effective for
the reporting and display of
comprehensive income and its components. Comprehensive income
includes net income and all other changes in shareholder's equity
except those resulting from investments and distributions to
owners.first fiscal quarter beginning after December 15, 1998. The
adoption of SFAS No. 130this statement had no impact on the Corporation's net incomeCompany's
financial position or shareholder's equity. Prior year
financial statements have been restated to conform to the
requirementsresults of Statement 130. The statement requires that the
accumulated other comprehensive income be descriptively labeled
in the shareholder's equity (loss) on available for sale
securities that were previously reported. The Corporation has
included this new reporting information in Part I of this
Form 10-Q.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION
SFAS No. 131
The Company adopted SFAS No. 131 on January 1, 1998. This
Statement establishes standards for the way public companies
report information about operating segments in interim financial
reports issued to stockholders. It also establishes standards
for related disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 need not be
applied to interim financial statements in the initial year of
its application, therefore adoption of this Statement had no
impact on the accompanying consolidated financial statements.
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT
BENEFITS
SFAS No. 132
The Company adopted SFAS No. 132 on January 1, 1998. This
Statement: (1) revises employers' disclosures about pension and
other post-retirement benefit plans; (2) standardizes the
disclosure requirements for benefits of such plans; (3) requires
additional information on changes in the benefit obligations and
fair value of plan assets that will facilitate financial
analysis; and (4) eliminates certain disclosures that are no
longer useful. Most of the changes in the disclosure provisions
of this Statement address defined benefit plans. The Company's
adoption of SFAS No. 132 had no effect on disclosure requirements
nor did it have any effect on operating results or financial
position.operation.
3. COMMON STOCK
On September 15, 1998, the Corporation effected a
5-for-2 stock split to shareholders of record on August 15, 1998.
Earnings per share amounts and weighted average shares
outstanding have been restated to give effect to the stock split.
In connection with the stock split, the Corporation amended it'sits
Articles of Incorporation to authorize 12,500,000 shares of $2
par value common stock. The following schedule shows the
resultant weighted average shares outstanding for the period.
Nine Months Ended Three Months Ended
September 30, September 30,
1998 1997 1998 1997
Basic 2,184,011 2,188,963 2,183,382 2,188,569
Diluted 2,185,345 2,188,963 2,186,049 2,188,569
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation
The following discussion and analysis of the
consolidated financial statements of the Corporation is presented
to provide insight into management's assessment of financial
results. The Corporation's only subsidiary, Peoples National Bank
of Susquehanna County (the "Bank") provides financial services to
individuals and businesses within the Bank's market area made up
of Susquehanna, Wyoming and northern Lackawanna counties in
Pennsylvania, and southern Broome County in New York. The Bank is
a member of the Federal Reserve System and subject to regulation,
supervision and examination by the Office of the Comptroller of
the Currency.
FINANCIAL CONDITION
Cash and Cash Equivalents:CASH AND CASH EQUIVALENTS:
At SeptemberJune 30, 1998,1999, cash, federal funds sold and deposits
with other banks totaled $4.132$7.252 million; a decreasean increase of $1.193$1.619
million compared to $5.325$5.633 million at SeptemberJune 30, 1997.1998 and an
increase of $2.443 million compared to December 31, 1998.
Management believes the liquidity needs of the
Corporation are satisfied by the current balance of cash and cash
equivalents, readily available access to traditional funding
sources, and the portion of the investment and loan portfolios
that matures within one year. These sources of funds will enable
the Corporation to meet cash obligations as they come due.
Investments:Management is also aware of the possible public demand of cash
due to the concerns over the Year 2000 and has taken necessary
steps to address possible extra liquidity needs.
INVESTMENTS:
Investments totaled $88.770$92.642 million on SeptemberJune 30, 1998;
decreasing $9.7261999;
increasing $10.072 million as compared to SeptemberJune 30, 1997,
totaling $98.496 million. The decrease in the investment
portfolio is directly attributable1998's total
of $82.570 million and decreasing $533 thousand compared to the
increase in loan
demand.total of $93.175 million held on December 31, 1998.
The total investment portfolio is held as available for
sale. This strategy was implemented in 1995 to provide more
flexibility in using the investment portfolio for liquidity
purposes as well as providing more flexibility in selling when
market opportunities occur.
Management monitors the earnings performance and
effectiveness of the liquidity of the investment portfolio on a
monthly basis through the Asset/Liability Committee ("ALCO")
meetings. The ALCO also reviews and manages interest rate risk
for the Corporation. Through active balance sheet management and
analysis of the investment securities portfolio, the Corporation
maintains sufficient liquidity to satisfy depositor requirements
and various credit needs of its customers.
BORROWINGS:
The Bank utilizes borrowing as a source of funds for its
asset/liability management. Advances are available from the FHLB
provided certain standards related to credit worthiness have been
met. Repurchase and term agreements are also available from FHLB.
Total borrowings at June 30, 1999, were $8.286 million
as compared to $4.925 million on June 30, 1998, showing an
increase of $3.361 million and a decrease of $746 thousand
compared to the December 31, 1998 total of $9.032 million. On
November 16, 1998, the Bank entered into a term borrowing
agreement with FHLB for $5 Million. This accounts for a large
part of the increase over June of 1998.
Loans:LOANS:
The Bank's loan volume has continued to be strongbeen steady through the first
three quarterssix months of 1998.1999. Increasing the loan to deposit ratio is a
goal of the Bank, but loan quality is a requisite in this effort.
Management has continued its efforts to create tighter
underwriting standards for both commercial and consumer credit.
The Bank's lending consists primarily of retail lending which
includes single family residential mortgage and other consumer
lending, and also commercial lending primarily to locally owned
small businesses.
On SeptemberJune 30, 1998,1999, net loans totaled $136.364$140.776 million as
compared to $117.138$132.009 million on SeptemberJune 30, 1997;1998 showing an increase
of $19.226$8.767 million in the past year. The loan to deposit ratio was
67.45%66.38% on September 30, 1998; compared to 59.87% on September
30, 1997. During the third quarter of 1998 net loans grew from
$132.009 million to $136.364 million. On June 30, 1998, the loan
deposit ratio was 67.23%1999, as compared to 67.45%67.23% on SeptemberJune 30, 1998.
Deposits:During the second quarter of 1999 net loans declined $ 2.282
million from the prior quarter end total of $143.058 million
which ended the first quarter at $3.42 million over the 1998 year
end total of $139.536 million.
DEPOSITS:
Deposits are attracted from within the Bank's primary
market area through the offering of various deposit instruments
including NOW accounts, money market accounts, savings accounts,
certificates of deposit and IRAs. Total deposits at SeptemberJune 30,
1998,1999, were $204.702 million;$215.081 million as compared to $198.521$198.582 million at
SeptemberJune 30, 1997.1998. This is an increase in deposits of $6.181$16.499 million
or 3%8.3%. ComparingDeposits totaled $209.881 million on December 31, 1998.
Of the third quarter ending
balance to$5.2 million growth in 1999, $3.574 million occurred in
the second quarter ending balance,quarter. Although we are not the highest payer for
deposits in our market, our deposit balance
at September 30, 1998, was $204.702 million and the June 30, 1998
deposit balance was $198.582 million, an increase of $6.12
million.
Borrowings:
The Bank utilizes borrowing as a source of funds for its
asset/liability management. Advances are available from the FHLB
provided certain standards related to credit worthiness have been
met. Repurchase and term agreements are also available from
FHLB.
Total borrowings at September 30, 1998, were $6.330 million
as compared to $7.732 million on September 30, 1997 a decrease of
$1.402 million. Comparing the second and third quarters of 1998,
borrowings were $4.925 million on June 30, 1998, showing an
increase of $1.405 million during the third quarter.
Capital:growth has remained steady.
CAPITAL:
The adequacy of the Corporation's capital is reviewed on
an ongoing basis with reference to the size, composition and
quality of the Corporation's resources and regulatory guidelines.
Management seeks to maintain a level of capital sufficient to
support existing assets and anticipated asset growth, maintain
favorable access to capital markets and preserve high quality
credit ratings. As of SeptemberJune 30, 1998,1999, regulatory capital to total
assets was 9.44%9.51% as compared to 8.99%9.49% on SeptemberJune 30, 1997.1998.
The Corporation has complied with the standards of
capital adequacy mandated by the banking regulator.regulators. The bank
regulators have established "risk-based" capital requirements
designed to measure capital adequacy. Risk-based capital ratios
reflect the relative risks of various assets banks hold in their
portfolios. A weight category of either 0% (lowest risk asset),
20%, 50% or 100% (highest risk assets) is assigned to each asset
on the balance sheet. Capital is being maintained in compliance
with risk-based capital guidelines. The Company's Tier 1 capital
to total risk weighted assets ratio is 16.53%16.96% and the total
capital ratio to total risk weighted assets ratio is 17.77%18.17%. The
Corporation is deemed to be well capitalizedwell-capitalized under regulatory
standards.
On September 15, 1998, the Corporation effected a 5-for-2
stock split to shareholders of record on August 15, 1998.
Liquidity and Interest Rate Sensitivity:LIQUIDITY AND INTEREST RATE SENSITIVITY:
Liquidity measures an organization's ability to meet
cash obligations as they come due. The consolidated statement of
cash flows presented in the accompanying financial statements
included in Part I of this Form 10-Q provide analysis of the
Corporation's cash and cash equivalents. Additionally, management
considers that portion of the loan and investment portfolio that
matures within one year as part of the Corporation's liquid
assets.
The ALCO addresses the liquidity needs of the Bank to
see that sufficient funds are available to meet credit demands
and deposit withdrawals as well as to the placement of available
funds in the investment portfolio. In assessing liquidity
requirements, equal consideration is given to the current
position as well as the future outlook.
The following table sets forth the Bank's interest rate
sensitivity as of SeptemberJune 30, 1998.1999.
INTEREST RATE SENSITIVITY ANALYSIS
SeptemberJune 30, 19981999
(in thousands)
Maturity or Repricing In:
Rate Sensitive Assets 3 Months 3-6 Months 6-12 Months 1-5 Years Over 5
RATE SENSITIVE ASSETS Months Months Months Years Years
Loans 18,350 9,511 28,184 44,178 36,141.................... 19,838 10,507 17,667 51,874 42,596
Securities 21,192 5,449 11,635 36,122 16,226............... 27,174 3,101 9,602 43,267 14,220
Federal Funds Sold ....... 0 0 0 0 0
Total
Rate Sensitive Assets 39,542 14,960 39,819 80,300 52,367
Cumulative.... 47,012 13,608 27,269 95,141 56,816
Cummulative
Rate Sensitive Assets 39,542 54,502 94,321 174,621 226,988
Rate Sensitive Liabilities 3 Months 3-6 Months 6-12 Months 1-5 Years Over 5 Years
.... 47,012 60,620 87,889 183,030 239,846
RATE SENSITIVE LIABILITIES
Interest Bearing Checking 1,5281,646 0 0 0 13,75614,818
Money Market Deposits 25,021 2,489.... 27,680 1,771 0 0 12,4448,857
Regular Savings 3,085.......... 4,537 939 23 1 28,184
CDs and IRAs ............. 18,503 15,822 29,471 35,996 1,514
Short-term Borrowings .... 2,280 0 0 0 27,761
CDs and IRAs 15,978 17,777 27,824 31,305 2,089
Short-term0
Long-term Borrowings 6,330..... 0 0 0 1,1275,000 0
Total
Rate Sensitive Liabilities 51,942 20,266 27,824 31,305 57,177
Cumulative54,646 18,532 29,494 40,997 53,373
Cummulative Rate Sensitive
Liabilities 51,942 72,208 100,032 131,337 188,51454,646 73,178 102,672 143,669 197,042
Period Gap -12,400 -5,306 11,995 48,995 -4,810
Cumulative............... -7,634 -4,924 -2,225 54,144 3,443
Cummulative Gap -12,400 -17,706 -5,711 43,284 38,474
Cumulative.......... -7,634 -12,558 -14,783 39,361 42,804
Cummulative RSA to RSL 76.13% 75.48% 94.29% 132.96% 120.41%
Cumulative... 86.03% 82.84% 85.60% 127.40% 121.72%
Cummulative Gap
to Total Assets -5.20% -7.43% -2.40% 18.15% 16.14%.......... -3.04% -5.00% -5.89% 15.68% 17.05%
The following assumptions have been made in the
foregoing model. Non-interest bearing categories are shown to
reprice 10% of balances in the "within 3 months" period (all
repricing within the first month) and the remaining balances in
the last period. NOW accounts and regular Savings accounts also
reprice 10% of balances in the "within 3 months" and the
remaining balances in the last period. Management can change
these rates, but such changes are infrequent and incrementally
small. History has shown a strong core deposit relationship in
these accounts and little or no run-off if rates change in these
products. Repayment for principal foron mortgage backed securities
are projected by expected cash flows as evidenced by recent
history. Repayment of principal for loan categories areis projected
at expected maturity (amortization) for fixed rate products and
the next repricing date for variable rate products.
RESULTS OF OPERATIONS
Net Interest Income:NET INTEREST INCOME:
Net interest income increased by $394 thousand and $36$247 thousand or 6.87% and 1.79%, respectively6.2%
for the nine monthssix-months and quarter ended SeptemberJune 30, 1998,1999, as compared
to the same periods in 1997.1998. Earning assets increased $8.175$19.345
million or 3.7%8.8% for SeptemberJune 30, 1998,1999, as compared to SeptemberJune 30, 1997.
Interest bearing liabilities have increased less than 1% or 1.4
million over September 1997 totals. The net interest margin was
3.663% for September 1998 and 3.735% for the period ended
September 30, 1997.
Interest Income:1998.
INTEREST INCOME:
Interest and fees on loans for the nine monthssix-months and
quarter ended SeptemberJune 30, 1998,1999, totaled $8.4 million and $2.9$5.861 million, reflecting
increases of $1.185 million or 16.3% and $341$294 thousand or 13.3% respectively,5.3% over the comparable periods in
1997.1998. The loan portfolio grew $19.1$8.767 million from a total of
$118.9$132.009 million in September 1997June 1998 to $138.1$140.776 million in September 1998.June 1999 in
comparison.
Interest on investments for the nine monthssix-months and the
quarter ended SeptemberJune 30, 1998,1999, totaled $3.8$2.622 million year to date, and
$1.2 million for the quarter which
reflects decreasesincreases of $513$89 thousand or 11.9% and $257 thousand or 17% respectively,3.5% over the comparable
period in 1997. Reinvestments1998. The investment portfolio has increased by $10.072
million over the June 1998 total of maturing investments
in loans increased because of loan demand which shows in these
numbers.
Interest Expense:$82.570 million.
INTEREST EXPENSE:
Interest expense for the nine monthssix-months and the quarter
ended SeptemberJune 30, 1998,1999, totaled $6.118 million and $2.096$4.113 million compared to $5.840 million and $2.048$4.022
million in 1997,1998, reflecting an increase of $278$91 thousand or 4.76%, year to date, and $48
thousand or 2.34% for quarter end, respectively,2.3%
over the comparable periods in 1997. The larger difference in the nine
months comparison reflects the effect of the extra deposits costs
in January and February of 1998 for the acquired deposits from
the branch purchases in Wyoming County in March of 1997.
Although deposit rates were dropped on statement savings on
September 1st, our interest expense for the quarter does not show
significant reduction in cost of funds for deposits. This is
because of the added volume of $6.2 million, year to date, and
$1.8 million in additional deposits for the quarter.
Provision for Loan Loss:1998.
PROVISION FOR LOAN LOSS:
The provision for loan loss for the thirdsecond quarter
ending SeptemberJune 30, 19981999, increased by $3$45 thousand from the
corresponding period in 1997.
As of the end of the third1998.
Second quarter 1998,1999 charge-offs totaled $125 thousand,$145,272 while
net charge-offs totaled $95 thousand$125,868 as compared to $64 thousand$ 55,318 and $46 thousand$
37,863 respectively for the same ninesix months period in 1997.1998.
Senior management utilizes detailed analysis of the loan
portfolio monthly to determine loan loss reserve adequacy. The
process considers all "problem loans" including classified,
criticized and monitored loans. Prior loan loss history and
current market trends, both nationally and locally, are taken
into consideration. A watch list of potential problem loans is
maintained and monitored monthly. This list is reviewed by the
Board of Directors on a monthly basis. The Bank has not had nor
presently has any foreign loans. In addition, the Bank does not
have any concentrations of credit. Based upon this analysis,
senior management has concluded that the allowance of loan loss
is adequate.
Other Operating Income:The Bank's loan volume continues to be strong. One of
the Bank's main goals is to increase the loan to deposit ratio
without jeopardizing loan quality. To reach its goal, management
has continued its efforts to create tighter underwriting
standards for both commercial and consumer credit. The Bank's
lending consists primarily of retail lending which includes
single family residential mortgages and other consumer lending
and commercial lending primarily to locally owned small
businesses.
OTHER OPERATING INCOME:
Other operating income increased $42$76 thousand when
comparing the same three month period, third quarter 1998first two quarters of 1999 to third quarter
1997, and increased $66 thousand over the nine months period
comparisonfirst two
quarters of September 1998 to September 1997.1998. Service Charge Fee Income is up $131 thousandflat for the entire nine months, with
the third quarter contributing $31 thousand.six
months. Gains and losses on security sales were $3are $46 thousand lessmore
this year when comparing third quarter 1997 to 1998. The total gains and losses1998 year to date in 1998 is $103 thousand less than theto 1999 year to date total in
1997.
Other Operating Expenses:date.
OTHER OPERATING EXPENSES:
Non-Interest expense went downup by $79$165 thousand during the
thirdsecond quarter of 19981999 as compared to the thirdsecond quarter of 1997.
For the nine months ended September 30, 1998, total non-interest
expenses increased by $53 thousand over the same nine months
period in 1997. The decrease in the third quarter comparison is
due to the one-time charges that were incurred when the new
software was installed in 1997. The higher nine-month year to
date numbers reflects the additional costs for staff and
occupancy of the new buildings. Also furniture and equipment
costs are $28 thousand higher for the third quarter and $82
thousand higher for the nine month year to date period reflecting
the cost of the new equipment and software purchased in 1997.1998.
Professional fees and outside services are higherlower by $5$25 thousand
for the quarter and $42 thousand higher for the first three
quarters of 1998 over 1997. This increase is due to additional
costs involved in legal fees for recovery on problem loans.quarter.
Employee salaries, the largest component of non-interest
decreased $8expense, increased $138 thousand for the third quarterfirst six months of 1998 and increased
only $29 thousand,1999
as compared to the same year to date periodfirst six months of 1997. It is1998. This increase
reflects both salary increases as well as the goalfilling of the Bank to be fair and competitive in
remuneration to employees and wages and salaries are adjusted at
least annually. Attrition and the use of more part time
employees have been a factor in the slower growth in this non-
interest expense for the periods being compared. In January
1998, management implemented an employee task force to work on
staffing efficiencies. Some impact can be seen in the quarter
and year to date numbers due to these efforts. Insome new
positions. When comparing just the first quarter to the second
quarter of 1998, employee expenses1999, salaries only increased significantly from
the additional salaries$9 thousand in the
Tunkhannock and Meshoppen offices
that were applicable in 1997 which has carried forward in the
year to date totals.
Income Tax Provision:second quarter.
INCOME TAX PROVISION:
The income tax provision was $202 thousand$1.478 million and $635 thousand$1.433
million for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 1999 and June
30, 1998 compared to $209 thousand and $576 thousand for the same
periods in 1997.
Yearrespectively.
YEAR 2000 Compliance:COMPLIANCE:
The Bank utilizes software and related computer technologies
essential to its operations that can be affected by the Year 2000
issues.
In 1997,1998, the Bank assigned a senior officer and the
compliance committee the responsibility to address the risks of
the critical internal bank systems as well as external and
environmental systems.
A comprehensive plan was developed for assessment,
review, remediation testing, and contingency planning.
The assessment, review and remediation stages involved
creating inventory listings of internal and external sources of
hardware, software, and environmental systems, and then
installing all the necessary updates to put all systems at the
required Year 2000 level or version. The loan portfolio was also
inventoried. Selected borrowers were contacted to assess their
Year 2000 readiness to determine the adequacy of our allowances
for loan losses.
In the third quarter, theThe Bank has participated and continues to participate
in a public awareness campaign through mailings, lobby materials,
survey cards, and calling officer visits.
The project is now at the testing has been completed and contingency planning
phase.is ongoing.
ANNUAL MEETING
Peoples Financial Services Corp's annual meeting was held on
April 24, 1999, at 10:00 a.m.
The setting was the Montrose Bible Conference with about
175 people in attendance. Following a welcome from Mike Karhnak,
Executive Vice President of PNB, Director Judy Kelly proceeded
through the formalities of the election of directors: Jack Norris
and George Stover, Jr., and the ratification of the selection of
the CPA firm; Prociak and Associates, LLC. Debra Dissinger,
Executive Vice President and Chief Operations Officer spoke on
both Y2K issues and the new technology that will be added to
PNB's quality customer service line.
Next on the agenda was Jack Ord, President and CEO, who
cited some historical facts and reminded shareholders that
Peoples Financial Services Corp. stock has always proved to be a
sound investment. Ord informed shareholders that the first
quarter in 1999, loans are up 11 percent and deposits are up 7.3
percent. He added that PNB will begin to offer annuities, mutual
funds, and insurance products. "This was a missing piece from
being able to provide one-stop financial services to our
customers," Ord said. Ord spoke of another component that should
be functional by the third quarter of 1999 and that is the
Dividend Reinvestment Program.
Following the meeting, shareholders enjoyed a
family-style lunch.
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING INFORMATION
Except for historical information, this Report may be
deemed to contain "forward looking" information. Examples of
forward looking information may include, but are not limited to
(a) projections of or statements regarding future earnings,
interest income, other income, earnings or loss per share, asset
mix and quality, growth prospects, capital structure and other
financial terms, (b) statements of plans and objectives of
management or the Board of Directors, (c) statements of future
economic performance, and (d) statements of assumptions, such as
economic conditions in the market areas served by the Corporation
and the Bank, underlying other statements and statements about
the Corporation and the Bank or their respective businesses. Such
forward looking information can be identified by the use of
forward looking terminology such as "believes," "expects," "may,"
"intends," "will," "should," "anticipates," or the negative of
any of the foregoing or other variations thereon or comparable
terminology, or by discussion of strategy. No assurance can be
given that the future results covered by the forward looking
information will be achieved. Such statements are subject to
risks, uncertainties, and other factors which could cause actual
results to differ materially from future results expressed or
implied by such forward looking information. Important factors
that could impact operating results include, but are not limited
to, (i) the effects of changing economic conditions in both the
market areas served by the Corporation and the Bank and
nationally, (ii) credit risks of commercial, real estate,
consumer and other lending activities, (iii) significant changes
in interest rates, (iv) changes in federal and state banking laws
and regulations which could affect operations, (v) funding costs,
and (vi) other external developments which could materially
affect business and operations.
Item 3. Quantitative and Qualitative Disclosure About Market Risks
The information set forth under the caption "Liquidity
and Interest Sensitivity" under Item 2, Part I is incorporated
herein by reference.
PART II
PEOPLES FINANCIAL SERVICES CORP.CORP
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS IN SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS FOR SECURITY HOLDER VOTE
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits
3.2 By-Laws of Peoples Financial Services Corp.
27 Financial Data Schedule
(b) Reports on Form 8-K8K
April 16, 1999
May 5, 1999
(c) The Corporation filed a Current Report on Form 8-K,Other Events
Press Release of Peoples Financial Services Corp. dated August 14, 1998, to report earnings for the second quarterApril 16, 1999,
previously submitted as Exhibit 99.1
Press Release of 1998, announce the declaration of a cash dividend of $.29 per
share and announce the 5-for-2 stock split effected on
September 15, 1998.
SIGNATURESPeoples Financial Services Corp. dated May 5,1999,
previously submitted as Exhibit 99.2
Pursuant to the requirementrequirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: November 13, 1998 PEOPLES FINANCIAL SERVICES INC.
(Registrant)CORP
By/s/ Debra E. Dissinger
Debra E. Dissinger
Chief Accounting Officer
Vice President Operations