UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-Q

(X) Quarterly report pursuant to Section 13 or 15(d) of the
    Securities Exchange Act of 1934 for the quarterly period
    ended March 31,June 30, 1999 or
( ) Transition report pursuant to Section 13 or 15 (d) of the Securities
    Exchange Act of 1934 for the transition period from

                                  No. 0-23863
                            (Commission File Number)

                        PEOPLES FINANCIAL SERVICES 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)     (Zip Code)

(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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X NO____

                Number of shares outstanding as of March 31,June 30, 1999

COMMON STOCK ($2 Par Value)                       2,174,5852,171,966
(Title of Class)                             (Outstanding Shares)



                        PEOPLES FINANCIAL SERVICES CORP.
                                   FORM 10-Q

                      For the Quarter Ended March 31,June 30, 1999

Contents


PART I.           FINANCIAL INFORMATION.                              Page No.

         Item 1.           Financial Statements.

                           Consolidated Statement of Financial
                           Condition as of March 31,June 30, 1999
                           (Unaudited) and MarchDecember 31, 1998.              4

                           Consolidated Statement of Income
                           (Unaudited) for the Six and Three
                           Month PeriodPeriods Ended March 31,June 30,
                           1999 and 1998.                                  5

             Consolidated Statement of Comprehensive
             Income (Unaudited) for the Six and Three
                   Month PeriodPeriods Ended March 31,June 30,
                         1999 and 1998. 6

             Consolidated Statement of Shareholders'
                           Equity (Unaudited) for the ThreeSix Month
                           Period Ended March 31,June 30, 1999 and 1998.            7

                           Consolidated Statement of Cash Flows
                           (Unaudited) for the ThreeSix Month Period
                           Ended March 31,June 30, 1999 and 1998.                   8

                           Notes to Consolidated Statements.               9

         Item 2.           Management's Discussion and Analysis of
                           Financial Condition and Results of Operations. 10

         Item 3.           Quantitative and Qualitative Disclosure
                           About Market Risks.                            1514

PART II.          OTHER INFORMATION                                       1615

         Item 6.           Exhibits and Reports on Form 8-K.              1615



PART I
Item 1
                        PEOPLES FINANCIAL SERVICES CORP.
                                 AND SUBSIDIARY
                 CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
                      March 31,June 30, 1999 and MarchDecember 31, 1998
                                  (UNAUDITED)
(in thousands) MarchJune 1999 DecemberDec 1998 ASSETS: ............................................ Cash Due from Banks ................................ 2,098 2,0482,531 2,084 Interest Bearing Deposits with Other Banks ......... 1,9494,721 2,725 Federal Funds Sold ................................. 1,4800 0 Securities Available for Sale ...................... 89,07392,642 93,175 Loans Net of.............................................. 142,503 141,283 Less: Unearned Discount .................... 144,751 141,249Income ............................. -20 -34 Allowance for Loan Loss ............................ -1,693-1,707 -1,713 Loans, Net ......................................... 143,058140,776 139,536 Bank Premises and Equipment, Net ................... 3,5123,502 3,523 Accrued Interest Receivable ........................ 1,6741,826 1,781 Other Assets ....................................... 4,8855,165 4,378 TOTAL Assets ....................................... 247,729251,163 247,202 LIABILITIES Deposits, Non-Interest Bearing ..................... 22,99425,317 24,263 Deposits, Interest Bearing ......................... 188,513189,764 185,618 Total Deposits ..................................... 211,507215,081 209,881 Accrued Interest Payable ........................... 670657 703 Borrowed Funds ..................................... 7,5418,286 9,032 Other Liabilities .................................. 789504 541 TOTAL Liabilities .................................. 220,507224,528 220,157 SHAREHOLDERS' EQUITY Common Stock * ..................................... 4,455 4,455 Surplus ............................................ 4,4554,465 4,455 Treasury Stock at Cost ............................. -826-905 -748 Undivided Profit ................................... 18,91119,523 18,322 Accumulated Other Comprehensive Income ............. 227-903 561 TOTAL Shareholders' Equity ......................... 27,22226,635 27,045 TOTAL LIABILITIES CAPITAL .......................... 247,729251,163 247,202 * Common Stock, par value $2 per share, 12,500,000 shares authorized; 2,174,585authorized: 2,171,966 and 2,177,576*2,177,576 shares issued and outstanding at March 31,June 30, 1999 and December 31, 1998 respectively.
See notes to financial statements PEOPLES FINANCIAL SERVICES CORP. AND SUBSIDIARY CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(in thousands, except per share data) March MarchSix Months Ended Three Months Ended June 30 June 30 1999 1998 1999 1998 INTEREST INCOME: .............................................. Interest and Fees on Loans .................................... 2,913 2,761................. 5,861 5,567 2,948 2,806 Interest Investments, Taxable ................................. 892 884.............. 1,794 1,713 902 829 Tax Exempt ......................................... 374 366...................... 733 736 359 370 Dividends .......................................... 20....................... 39 24 19 12 Interest on Federal Funds Sold ................................ 10 1............. 56 34 46 33 Interest on Deposits of Other Banks ........................... -1 17........ 0 26 1 9 TOTAL Interest Income ......................................... 4,208 4,041...................... 8,483 8,100 4,275 4,059 Interest on Deposits .......................................... 1,952 1,932....................... 3,916 3,880 1,964 1,948 Interest on Borrowed Funds .................................... 116 84................. 197 142 81 58 Interest Expense .............................................. 2,068 2,016........................... 4,113 4,022 2,045 2,006 Net Interest Income ........................................... 2,140 2,025........................ 4,370 4,078 2,230 2,053 Provision for Loan Losses ....................................................... 120 75 60 3837 Net Interest Income, after Loan Loss Provision ................ 2,080 1,987.................. 4,250 4,003 2,170 2,016 OTHER INCOME: Service Charges and Fees ...................................... 244 248................... 489 489 245 241 Gains on Security Sales ........................................................... 63 33 57 6 27 Other Operating Income ........................................ 31 22..................... 73 27 42 5 TOTAL Other Income ............................................ 281 297......................... 625 549 344 252 OTHER EXPENSES: Salaries and Benefits ......................................... 643 613...................... 1,295 1,157 652 544 Occupancy Expenses ............................................ 83 79......................... 159 157 76 78 Furniture and Equipment Expense ........................................... 182 210 91 104106 FDIC Insurance and Assessments ............................................. 46 44 23 22 Professional Fees and Outside Services ........................ 40 53..... 91 116 51 63 Computer Services and Supplies ................................ 79 62............. 161 125 82 63 Taxes, Other Than Payroll and Income .......................... 58 54....... 120 110 62 56 Other Operating Expenses ...................................... 281 299................... 595 565 314 266 Total Non-Interest Expense .................................... 1,298 1,286................. 2,649 2,484 1,351 1,198 Income Before Income Taxes .................................... 1,063 998................. 2,226 2,068 1,163 1,070 Provision for Income Taxes .................................... 212 205................. 478 433 266 228 Net Income .................................................... 851 793 Earnings................................. 1,748 1,635 897 832 Net Income Per Share, Basic .................................... .39 .36 Earnings Per Share,and Diluted .................................. .39 .36.80 .75
See notes to financial statements PEOPLES FINANCIAL SERVICES CORP. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands) Six Months Ended Three Months Ended June 30 June 30 1999 1998 1999 1998 Net Income .................................. 851 793.............................. 1,748 1,635 897 842 Other Comp Income (loss) before tax Unrealized holding gains/losses on securities -502 160........................... -2,282 232 -1,780 72 Less: reclassification Adjustment ........... 6....... -63 -27 -69 0 Other Comp Income (loss) before tax ......... -508 133tax...... -2,219 205 -1,711 72 Federal Income Tax expense (benefit) ........ -173 45..... 754 70 927 25 Other Comp Income (loss), Net of tax(benefit) -335 88..................... -1,465 135 -1,130 47 TOTAL Comp income ........................... 516 881....................... 283 1,770 -233 889
See notes to financial statements PEOPLES FINANCIAL SERVICES CORP. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE THREESIX MONTHS ENDED MARCH 31,JUNE 30, 1999 AND 1998 (UNAUDITED)
(in thousands) Accumulated Other Common Undivided Comprehensive Treasury Stock Surplus Profit Income Stock Total Balance, December 31, 1997 ..4,455. 4,455 4,455 15,912 371 -549 24,644 Net Income 1998 for the three ....0 0 793six months ended June 30, 1998 . 0 0 793 months ended March 31, 19981,635 0 0 1,635 Cash Dividends Paid, 1998 ......... 0 0 -227-480 0 0 -227-480 Treasury Stock Purchase ............. 0 0 0 0 -31 -31-43 -43 Change in unrealized gain/loss on securities available for sale, net of deferred income taxes......0taxes. 0 0 88 0 88135 0 135 Balance, March 31,June 30, 1998 .....4,455...... 4,455 16,478 459 -580 25,2674,455 17,067 506 -592 25,891 Balance, December 31, 1998 ..4,455. 4,455 4,455 18,322 562 -748 27,046 Net Income 1999 for the three.....0 0 851six 0 0 8511,748 0 0 1,748 months ended March 31,June 30, 1999 Cash Dividends Paid, 1999 ........0 0 -262.. 0 0 -262 Treasury Stock Purchase ..........0-547 0 0 0 -78 -78Treasury Stock Activity .... 0 10 0 0 -157 -694 Change in unrealized gain/loss on securities available for sale, net of deferred income taxes......0taxes. 0 0 -335 0 -335-1,465 0 -1,465 Balance, March 31,June 30, 1999 .....4,455..... 4,455 18,911 227 -826 27,2224,465 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) Cash Flow 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES Net Income 851 793.................................................... 1,748 1,635 Adjustments: Depreciation....Depreciation and amortization 154 174amoritization ............... 310 350 Provision for Loan Losses 60 38.................... 120 75 Gain/Loss on sale of equipment ............... 0 02 Gain/loss on sale of other real estate 0 -18....... 27 2 Amortization of securities' premiums and accretion of discounts 63 22132 52 Gains on sales of investment securities, NET -6.................. -63 -27 Deferred Income Tax (benefit) 0 0 Increase in accrued interest receivable 108 55....................... -44 6 Increase/Decrease in other assets -257 -201............................. -165 -154 Increase/Decrease in accrues interest payable -33 -8................. -46 -4 Increase/Decrease in other liabilities 248 138........................ -37 -12 Net cash provided by operating activities 1,188 966..................... 1,982 1,925 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of available for sale securities 2,006 3,701........... 4,514 3,674 Proceeds from maturities of available for sale securities 3,975 8,730..... 6,257 10,228 Purchase of available for sale securities -6,579 -6,268..................... -19,074 -10,460 Principal payments on mortgage-backed securities 4,135 766.............. 6,548 2,317 Net increase in loans -3,767 -4,024......................................... -1,597 -7,080 Proceeds from sale of premises and equipment .................. 0 01 Purchase of premises and equipment -78 -39............................ -160 -68 Proceeds from sale of other real estate 43 0....................... 213 30 Purchase of intangible assets ................................. 0 0 Net cash used in investing activities -265 2,866......................... -3,299 -1,358 CASH FLOWS FROM FINANCING ACTIVITIES Cash dividends paid -262 -227........................................... -547 -480 Increase in deposits 1,626 3,595.......................................... 5,200 4,990 Net Increase/Decrease in long-term borrowing .................. 0 0 Net Increase/Decrease in short-term borrowing -1,491 -5,874 Purchase of treasury stock -78 -31................. -746 -4,350 Treasury Stock Activity ....................................... -147 -43 Net cash provided by financing activities -205 -2,537..................... 3,760 117 Net Increase/Decrease in cash/cash equivalents 718 1,295................ 2,443 684 Cash and cash equivalents, beginning of year .................. 4,809 5,549 Cash and cash equivalents,end of year 5,527 6,844......................... 7,252 6,233 SUPPLEMENTAL DISCLOSURES OF CASH PAID Interest Paid 2,101 2,025................................................. 4,159 4,026 Income Taxes Paid 10 0 NON-CASH INVESTMENT AND FINANCING ACTIVITIES............................................. 478 364 Non-cash investing and financing activities Transfers from loans to real estate through foreclosure 185 308....... 237 306 Proceeds from sales of foreclosed real estate ................. 0 115200 TOTAL Increase/Decrease in unrealized gain/loss on securities avail for sale -507 134..................................... 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 three-monthsix-month period ended March 31,June 30, 1999 and 1998 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 three-monthsix-month period ended March 31,June 30, 1999, is not necessarily the result to be expected for the full year. 2. RECENT ACCOUNTING PRONOUNCEMENTS ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES SFAS No. 133 In June 1998, SFAS No.133,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 accounting 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.134,No. 134, "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise", effective January 1, 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 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 isif they conform to the requirements of SFAS 115. The Statement is effective for the first fiscal quarter beginning after December 15, 1998. The adoption of this statement had no impact on the Company's financial position or results of 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 its Articles of Incorporation to authorize 12,500,000 shares of $2 par value common stock. The Company's Common Stock is not listed on the exchange or quoted on the National Association of Securities Dealers, Inc. Automated Quotation (NASDAQ) system. The Company's Common Stock is traded sparodically in the over-the-counter market and, accordingly, there is no established public trading market at this time. The investment firm of Hopper Soliday and Co., Inc. Lancaster, Pennsylvania, makes a limited market in the Company's Common Stock. As of March 31, 1999, the number of shares of Common Stock outstanding was 2,174,585. On March 31, 1999, there was 20,863 outstanding options or warrants to purchase. Earnings per share, basic and diluted, are both $0.39 as of March 31, 1999. 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 March 31,June 30, 1999, cash, federal funds sold and deposits with other banks totaled $5.527$7.252 million; a decreasean increase of $1.317$1.619 million compared to $6.844$5.633 million at March 31,June 30, 1998 and a decreasean increase of $754 thousand$2.443 million compared to $4.773 million on 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 $89.073$92.642 million on March 31,June 30, 1999; increasing $7.714$10.072 million as compared to March 31, 1998,June 30, 1998's total of $81.359$82.570 million and decreasing $4.102$533 thousand compared to the total of $93.175 million as compared toheld 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: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 March 31,June 30, 1999, were $7.541$8.286 million as compared to $3.401$4.925 million on March 31,June 30, 1998, showing an increase of $4.140$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 MarchJune of 1998. Borrowings have decreased $1.491 million compared to the 1998 year end balance of $9.032 million. Loans:LOANS: The Bank's loan volume has continued to be strongbeen steady through the first three quarterssix months of 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 March 31,June 30, 1999, net loans totaled $143.058$140.776 million as compared to $128.902$132.009 million on March 31,June 30, 1998 showing an increase of $14.156$8.767 million in the past year. The loan to deposit ratio was 68.44%66.38% on March 31,June 30, 1999, as compared to 66.24%67.23% on March 31,June 30, 1998. During the firstsecond quarter of 1999 net loans grewdeclined $ 3.5222.282 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 balancetotal of $139.536 million. Deposits: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 March 31,June 30, 1999, were $211.507$215.081 million as compared to $197.187$198.582 million at March 31,June 30, 1998. This is an increase in deposits of $14.320$16.499 million or 17%8.3%. The Bank experienced $2.119Deposits totaled $209.881 million inon December 31, 1998. Of the $5.2 million growth in non-interest1999, $3.574 million occurred in the second quarter. Although we are not the highest payer for deposits and $12,201 increase in interest bearing deposits over the March 1998 numbers. During the first quarter of 1999, deposits increased $1.626 million over the December 31, 1998 total of $207.881 million. Capital:our market, our deposit 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 March 31,June 30, 1999, regulatory capital to total assets was 9.51% as compared to 9.49% on March 31,June 30, 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 16.56%16.96% and the total capital ratio to total risk weighted assets ratio is 17.76%18.17%. The Corporation is deemed to be well-capitalized under regulatory standards. 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 March 31,June 30, 1999. INTEREST RATE SENSITIVITY ANALYSIS March 31,June 30, 1999
(in thousands) Maturity or Repricing In: 3 3-6 6-12 1-5 Over 5 RATE SENSITIVE ASSETS Months Months Months Years Years RATE SENSITIVE ASSETS Loans 24,645 11,028 18,774 48,421 41,882.................... 19,838 10,507 17,667 51,874 42,596 Securities 24,180 6,023 9,650 38,135 13,034............... 27,174 3,101 9,602 43,267 14,220 Federal Funds Sold 1,480....... 0 0 0 0 0 Total Rate 50,305 17,051 28,424 86,556 54,916Sensitive Assets .... 47,012 13,608 27,269 95,141 56,816 Cummulative Rate 50,305 67,356 95,780 182,336 237,252Sensitive Assets .... 47,012 60,620 87,889 183,030 239,846 RATE SENSITIVE LIABILITIES Interest Bearing Checking 1,3871,646 0 0 0 12,48314,818 Money Market Deposits 30,670 1,685.... 27,680 1,771 0 0 8,4268,857 Regular Savings 3,400 35 607 0 28,023.......... 4,537 939 23 1 28,184 CDs and IRAs 27,016 13,399 25,343 34,105 1,935............. 18,503 15,822 29,471 35,996 1,514 Short-term Borrowings 2,541.... 2,280 0 0 0 0 Long-term Borrowings ..... 0 0 0 5,000 0 Total Rate Sensitive Liabilities 65,014 15,119 25,950 39,105 50,86754,646 18,532 29,494 40,997 53,373 Cummulative Rate Sensitive Liabilities 65,014 80,133 106,083 145,188 196,05554,646 73,178 102,672 143,669 197,042 Period Gap -14,709 1,932 2,474 47,451 4,049............... -7,634 -4,924 -2,225 54,144 3,443 Cummulative Gap -14,709 -12,777 -10,303 37,148 41,197.......... -7,634 -12,558 -14,783 39,361 42,804 Cummulative RSA to RSL 77.38% 84.06% 90.29% 125.59% 121.01%... 86.03% 82.84% 85.60% 127.40% 121.72% Cummulative Gap to Total Assets -5.94% -5.16% -4.16% 15.01% 16.65%.......... -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 on mortgage backed securities are projected by expected cash flows as evidenced by recent history. Repayment of principal for loan categories is 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 $115$247 thousand or 5.7%6.2% for the three-monthssix-months and quarter ended March 31,June 30, 1999, as compared to the same periods in 1998. Earning assets increased $20.333$19.345 million or 9.44%8.8% for March 31,June 30, 1999, as compared to March 31,June 30, 1998. Interest earning sources of funds increased $18, 460 thousand or 9.2% for the same period. Interest Income:INTEREST INCOME: Interest and fees on loans for the three-monthssix-months and quarter ended March 31,June 30, 1999, totaled $2.913$5.861 million, reflecting increases of $152$294 thousand or 5.5%5.3% over the comparable periods in 1998. The loan portfolio grew $14.156$8.767 million from a total of $128.902$132.009 million in MarchJune 1998 to $143.058$140.776 million in March 1999.June 1999 in comparison. Interest on investments for the three-monthssix-months and the quarter ended March 31,June 30, 1999, totaled $1.295$2.622 million which reflects increases of $15$89 thousand or 1.1%3.5% over the comparable period in 1998. The investment portfolio has increased by $7.7$10.072 million over the MarchJune 1998 total of $81.359$82.570 million. Interest Expense:INTEREST EXPENSE: Interest expense for the three-monthssix-months and the quarter ended March 31,June 30, 1999, totaled $2.068$4.113 million compared to $2.016$4.022 million in 1998, reflecting an increase of $52$91 thousand or 2.5%2.3% over the comparable periods in 1998. Provision for Loan Loss:PROVISION FOR LOAN LOSS: The provision for loan loss for the thirdsecond quarter ending March 31,June 30, 1999, increased by $22$45 thousand from the corresponding period in 1998. FirstSecond quarter 1999 charge-offs totaled $86,625 thousand$145,272 while net charge-offs totaled $79,735$125,868 as compared to $ 8,30155,318 and $ 037,863 respectively for the same three monthsix months period in 1998. Senior management utilizes detailed analysis of the loan portfolio monthly to determine loan loss reserve adequacy. The process considers all 'problem loans'"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. 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: Other operating income decreased $16increased $76 thousand when comparing the first quartertwo quarters of 1999 to the first quartertwo quarters of 1998. Service Charge Fee Income is down $4 thousandflat for the first threesix months. Gains and losses on security sales are $21$46 thousand lessmore this year when comparing first quarter 1998 year to 1999. Other Operating Expenses:date to 1999 year to date. OTHER OPERATING EXPENSES: Non-Interest expense went up by $12$165 thousand during the firstsecond quarter of 1999 as compared to the firstsecond quarter of 1998. All fluctuationsProfessional fees and outside services are considered to be minimal and acceptablelower by management.$25 thousand for the quarter. Employee salaries, the largest component of non-interest expense, increased $30$138 thousand for the first quarter 1999 compared to the same quarter in 1998. Professional fees and outside services are lower by $13 thousand for the first quarter 1999 compared to the same quarter in 1998. Computer expenses have increased $17 thousand in the first quarter 1999 over the same period in 1998. Furniture and fixture costs are $13 thousand lower in the first threesix months of 1999 than in 1998. Occupancy expense has increased $4 thousand during the first quarter of 1999 compared to the same quarter in 1998. Tax expense increased $4 thousand in the first quarter of 1999 as compared to the first six months of 1998. This increase reflects both salary increases as well as the filling of some new positions. When comparing just the first quarter to the second quarter of 1998. Total other expenses decreased $181999, salaries only increased $9 thousand in the first quarter of 1999 as compared to the first quarter of 1998. Income Tax Provision:second quarter. INCOME TAX PROVISION: The income tax provision was $212 thousand$1.478 million and $205 thousand$1.433 million for the three-monthsix-month periods ended March 31,June 30, 1999 and March 31,June 30, 1998 respectively. Year 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 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. The Bank has participated and continues to participate in a public awareness campaign through mailings, lobby materials, survey cards, and calling officer visits. The testing has been completed and contingency planning 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""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 developmentdevelopments 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 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 8K April 16, 1999 May 5, 1999 (c) Other Events Press Release of Peoples Financial Services Corp. dated April 16, 1999, previously submitted as Exhibit 99.1 Press Release of Peoples Financial Services Corp. dated May 5, 1999,5,1999, previously submitted as Exhibit 99.2 SIGNATURES Pursuant to the requirements 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. PEOPLES FINANCIAL SERVICES CORP By/s/ Debra E. Dissinger Debra E. Dissinger Vice President Operations