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 June 30, 2001 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 June 30, 2001
COMMON STOCK ($2 Par Value) 2,119,084
--------------------------- --------------------------
(Title of Class) (Outstanding Shares)
PEOPLES FINANCIAL SERVICES CORP.
FORM 10-Q
For the Quarter Ended June 30, 2001
Contents
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Statements of Financial
Condition as of June 30, 2001
(Unaudited) and December 31, 2000 3
Consolidated Statements of Income
(Unaudited) for the Six Months and Three Months
Ended June 30, 2001 and 2000 4
Consolidated Statements of Comprehensive
Income (Unaudited) for the Six Months
Ended June 30, 2001 and 2000 5
Consolidated Statements of Shareholders'
Equity (Unaudited) for the Six Months
Ended June 30, 2001 and 2000 6
Consolidated Statements of Cash Flows
(Unaudited) for the Six Months
Ended June 30, 2001 and 2000 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosure
About Market Risks 17
PART II. OTHER INFORMATION 17
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults in Senior Securities 17
Item 4. Submission of Matters for Security Holder Vote 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
PEOPLES FINANCIAL SERVICES CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 2001 and December 31, 2000
(UNAUDITED)
(In thousands, except per share data)
ASSETS: JUNE 2001 DEC 2000
Cash and Due from Banks .................. $ 5,522 $ 5,507
Interest Bearing Deposits with Other Banks 3,081 2,090
Federal Funds Sold ....................... 0 0
Securities Available for Sale ............ 97,651 99,678
Loans .................................... 177,985 172,185
Less: Unearned Income .......... (3) (6)
Allowance for Loan Loss ......... (1,919) (1,918)
Loans, Net ...................... 176,063 170,261
Bank Premises and Equipment, Net ......... 3,399 3,411
Accrued Interest Receivable .............. 2,441 2,362
Other Assets ............................. 7,931 4,315
TOTAL Assets ............................. $ 296,088 $ 287,624
LIABILITIES
Deposits, Non-Interest Bearing ........... $ 28,570 $ 27,290
Deposits, Interest Bearing ............... 210,104 203,449
Total Deposits ........................... 238,674 230,739
Accrued Interest Payable ................. 776 853
Short-term Borrowings .................... 6,155 7,245
Long-term Borrowings ..................... 17,500 17,500
Other Liabilities ........................ 435 435
TOTAL Liabilities ........................ 263,540 256,772
SHAREHOLDERS' EQUITY
Common Stock * ........................... 4,455 4,455
Surplus .................................. 4,611 4,611
Treasury Stock at Cost ................... (2,364) (1,628)
Undivided Profit ......................... 25,074 23,544
Accumulated Other Comprehensive Income ... 772 (130)
TOTAL Shareholders' Equity ............... 32,548 30,852
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 296,088 $ 287,624
<FN>
*Common Stock, par value $2 per share,12,500,000 shares authorized: 2,119,084
and 2,149,835 shares issued and outstanding at June 30, 2001 and December 31,
2000, respectively
</FN>
See Notes to Consolidated Financial Statements
PEOPLES FINANCIAL SERVICES CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share data)
Six Months Ended 3 Months Ended
30-Jun 30-Jun 30-Jun 30-Jun
INTEREST INCOME: 2001 2000 2001 2000
Interest and Fees on Loans ................... $ 7,333 $ 6,562 $ 3,683 $ 3,361
Interest Investments, Taxable ................ 2,104 2,096 1,041 1,063
Tax Exempt ........................ 777 789 386 411
Dividends ......................... 42 43 19 22
Interest on Federal Funds Sold ............... 32 20 31 18
Interest on Deposits of Other Banks .......... 100 40 50 17
TOTAL Interest Income ........................ 10,388 9,550 5,210 4,892
Interest on Deposits ......................... 4,541 4,341 2,221 2,238
Interest on Borrowed Funds ................... 665 530 311 299
TOTAL Interest Expense ....................... 5,206 4,871 2,532 2,537
Net Interest Income .......................... 5,182 4,679 2,678 2,355
Provision for Loan Losses .................... 20 120 0 60
Net Interest Income, after Loan Loss Provision 5,162 4,559 2,678 2,295
OTHER INCOME:
Service Charges and Fees ..................... 547 468 298 208
Gains on Security Sales ...................... 29 0 0 (2)
Other Operating Income ....................... 225 205 146 135
TOTAL Other Income ........................... 801 673 444 341
OTHER EXPENSES:
Salaries and Benefits ........................ 1,488 1,408 878 684
Occupancy Expenses ........................... 142 167 68 80
Furniture and Equipment Expense .............. 197 180 98 88
FDIC Insurance and Assessments ............... 59 57 29 28
Professional Fees and Outside Services ....... 109 96 60 55
Computer Services and Supplies ............... 183 164 109 82
Taxes, Other Than Payroll and Income ......... 141 129 74 64
Other Operating Expenses ..................... 653 627 326 320
Total Non-Interest Expense ................... 2,972 2,828 1,642 1,401
Income Before Income Taxes ................... 2,991 2,404 1,480 1,235
Provision for Income Taxes ................... 732 563 362 290
Net Income ................................... $ 2,259 $ 1,841 $ 1,118 $ 945
Net Income Per Share, Basic .................. $ 1.06 $ 0.85 $ 0.53 $ 0.44
Net Income Per Share, Diluted ................ $ 1.06 $ 0.85 $ 0.53 $ 0.44
See Notes to Consolidated Financial Statements
PEOPLES FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Six Months Ended
(In thousands) June 30 June 30
2001 2000
Net Income .................................. $ 2,259 $ 1,841
Other Comp Income (loss):
Unrealized Holding Gains/Losses on Securities 1,396 83
Less: Reclassification Adjustment .. 29 0
Other Comp Income (loss) before tax ......... 1,367 83
Federal Income Tax Expense (benefit) ........ (465) 28
Other Comp Income (loss) .................... 902 55
TOTAL Comp Income ........................... $ 3,161 $ 1,896
See Notes to Consolidated Financial Statements
PEOPLES FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
Accumulated
(In thousands) Other
Common Surplus Undivided Comprehensive Treasury Total
Stock Profit Income Stock
Balance, December 31, 1999 .................................... $ 4,455 $ 4,512 $ 20,980 ($ 2,087) ($ 1,050) $ 26,810
Net Income ..................................................... 0 0 1,841 0 0 1,841
Cash Dividends Paid, 2000 ($0.30 per share) .................... 0 0 (651) 0 0 (651)
Treasury Stock Purchase ........................................ 0 0 0 0 (494) (494)
Treasury Stock Issued for DRIP and Stock Option Plan ........... 0 58 0 0 48 106
Change in unrealized gain/loss on securities available for sale,
net of deferred income taxes .................................. 0 0 0 55 0 55
Balance, June 30, 2000 ........................................ $ 4,455 $ 4,570 $ 22,170 ($ 2,032) ($ 1,496) $ 27,667
Balance, December 31, 2000 .................................... $ 4,455 $ 4,611 $ 23,544 ($ 130) ($ 1,628) $ 30,852
Net Income ..................................................... 0 0 2,259 0 0 2,259
Cash Dividends Paid, 2001($0.34 per share) ..................... 0 0 (729) 0 0 (729)
Treasury Stock Purchase ........................................ 0 0 0 0 (736) (736)
Treasury Stock Issued for DRIP and Stock Option Plan ........... 0 0 0 0 0 0
Change in unrealized gain/loss on securities available for sale,
net of deferred income taxes ................................... 0 0 0 902 902
Balance, June 30, 2001 ........................................ $ 4,455 $ 4,611 $ 25,074 $ 772 ($ 2,364) $ 32,548
See Notes to Consolidated Financial Statements
PEOPLES FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands) Six Months Ended
June 30 June 30
2001 2000
Cash Flows from Operating Activities
Net Income .................................................... $ 2,259 $ 1,841
Adjustments:Depreciation and amortization ..................... 191 301
Provision for Loan Losses ............................ 20 120
Gain/Loss on sale of equipment ........................ 0 (4)
Gain/loss on sale of other real estate ................ 16 0
Amortization of securities' premiums and accretion of discounts 21 51
Gains on sales of investment securities, net .................. (29) 0
Increase in accrued interest receivable ....................... (79) (114)
Increase/Decrease in other assets ............................. 18 (455)
Increase/Decrease in accrued interest payable ................. (77) (60)
Increase/Decrease in other liabilities ........................ 0 218
Net cash provided by operating activities ..................... 2,340 1,898
Cash Flows from investing activities
Proceeds from sale of available for sale securities ........... 4,001 1,945
Proceeds from maturities of and principal
repayments on available for sale securities ................... 6,512 3,585
Purchase of available for sale securities ..................... (7,111) (11,004)
Net increase in loans ......................................... (5,991) (9,998)
Proceeds from sale of premises and equipment .................. 0 4
Purchase of premises and equipment ............................ (179) (111)
Proceeds from sale of other real estate ....................... 54 0
Purchase of investment in life insurance ...................... (4,000) 0
Net cash used in investing activities ......................... (6,714) (15,579)
Cash flows from financing activities
Cash dividends paid ........................................... (729) (651)
Increase in deposits .......................................... 7,935 11,192
Net Increase/Decrease in short-term borrowing ................. (1,090) 5,500
Net Increase/Decrease in long-term borrowing .................. 0 (1,345)
Purchase of treasury stock .................................... (736) (467)
Net cash provided by financing activities ..................... 5,380 14,229
Net Increase/Decrease in cash/cash equivalents ................ 1,006 548
Cash and cash equivalents, beginning of year .................. 7,597 7,469
Cash and cash equivalents,end of year ......................... $ 8,603 $ 8,017
Supplemental disclosures of cash paid
Interest Paid ................................................. $ 5,283 $ 4,871
Income Taxes Paid ............................................. $ 744 $ 563
Non-cash investing and financing activities
Transfers from loans to real estate through foreclosure ....... $ 169 $ 0
See Notes to Consolidated 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 six-month period ended June 30, 2001 and 2000 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 six-month
period ended June 30, 2001, is not necessarily the result to be expected for the
full year. For further information refer to the financial statements and
footnotes thereto included in the Corporation's Annual Report on Form 10-K for
the year ended December 31, 2000.
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
Six Months Ended Three Months Ended
June 30 June 30 June 30 June 30
2001 2000 2001 2000
Net income applicable to common stock ....... $2,259,000 $1,841,000 $1,118,000 $ 945,000
Weighted average common shares outstanding .. $2,130,640 $2,166,961 $2,120,550 $2,163,946
Effect of dilutive securities, stock options $ 0 $ 0 $ 0 $ 0
Weighted average common shares outstanding
used to calculated diluted earnings per share $2,130,640 $2,166,961 $2,120,550 $2,163,946
Basic earnings per share .................... $ 1.06 $ 0.85 $ 0.53 $ 0.44
Diluted earnings per share .................. $ 1.06 $ 0.85 $ 0.53 $ 0.44
3. NEW ACCOUNTING PRONOUNCEMENTS
In July of 2001, the Financial Accounting Standards Board issued Statement No.
141, "Business Combinations", and Statement No. 142, "Goodwill and Other
Intangible Assets".
Statement No. 141 requires all business combinations to be accounted for using
the purchase method of accounting as use of the pooling-of-interests method is
prohibited. In addition, this Statement requires that negative goodwill that
exists after the basis of certain acquired assets is reduced to zero should be
recognized as an extraordinary gain. The provisions of this Statement apply to
all business combinations initiated after June 30, 2001.
Statement No. 142 prescribes that goodwill associated with a business
combination and intangible assets with an indefinite useful life should not be
amortized but should be tested for impairment at least annually. The Statement
requires intangibles that are separable from goodwill and that have a
determinable useful life to be amortized over the determinable useful life. The
provisions of this Statement will become effective for the Bank in January of
2002. Upon adoption of this Statement, goodwill and other intangible assets
arising from acquisitions completed before July 1, 2001, should be accounted for
in accordance with the provisions of this Statement. This transition provision
could require a reclassification of a previously separately recognized
intangible to goodwill and vice versa if the intangibles in question do not meet
the new criteria for classification as a separately recognizable intangible.
Adoption of these statements is not expected to have a material impact on the
Bank's financial condition or results of operations.
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
(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. In June 2001, the
Bank changed its name from Peoples National Bank of Susquehanna County to
Peoples National Bank.
FINANCIAL CONDITION
Cash and Cash Equivalents:
At June 30, 2001, cash, federal funds sold, and deposits with other banks
totaled $8.603 million; an increase of $1.006 million compared to $7.597 million
at December 31, 2000.
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. The recent decline in interest rates
has improved liquidity. The current sources of funds will enable the Corporation
to meet cash obligations as they come due.
Investments:
Investments totaled $97.651 million on June 30, 2001, decreasing $2.027 million
as compared to the December 31, 2000, total of $99.678million.
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.
Investments available for sale are accounted for at fair value with unrealized
gains or losses, net of deferred income taxes, reported as a separate component
of shareholders' equity. The carrying value of investments at June 30, 2001,
includes an unrealized gain of $1,170,000 reflected as accumulated other
comprehensive income of $772,000 in shareholders' equity, net of deferred income
taxes of 398,000. This compares to an unrealized loss of $197,000 at December
31, 2000, reflected as accumulated other comprehensive loss of $130,000, net of
deferred income taxes of $67,000.
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 borrowings 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 the FHLB.
Total short-term and long-term borrowings at June 30, 2001, were $23.655 million
as compared to $24.745 million on December 31, 2000, showing a decrease of $1.09
million. Long-term borrowings of $17.500 million at June 30, 2001, and December
31, 2000, are term funds from the FHLB under various notes. The Bank has not
taken any additional long term borrowings in the six months ended June 30, 2001.
The last term agreement was taken on November 17, 2000, for $5,000,000 to renew
an expiring agreement.
Loans:
The Bank's loan volume has continued to be steady through the second quarter of
2001. 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 June 30, 2001, net loans totaled $176.063 million as compared to $170.261
million on December 31, 2000. The loan to deposit ratio was 73.7% on June 30,
2001, as compared to 70.8% on December 31, 2000. Loans increased by $4.678
million in the second quarter as compared to $1.124 million in the first quarter
of 2001. A new mortgage product called Peoples Plus has contributed to a higher
number of mortgages being booked.
Other Assets:
Other assets increased approximately $4 million in June 2001 due to the
acquisition of insurance policies on certain employees with cash surrender
values totaling $4 million. The insurance is owned by the Bank and was purchased
to finance the cost of employee benefit plans.
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
June 30, 2001, were $238.674 million as compared to $230.739 million at December
31, 2000. Although in the past year we have not had the highest interest rates
for deposits in our market area, our deposit growth has remained steady.
Deposits for the second quarter 2001 increased $7.095 million over the March 31,
2001 total of $231.579 million.
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 June 30, 2001, regulatory capital to total assets was 9.88% as compared to
9.77% on December 31, 2000. The Company purchases PFIS stock in the open market
or from individuals as warranted to leverage the capital account and to provide
stock for our dividend reinvestment plan. In the six months ended June 30, 2001,
the Company purchased 30,751 shares for a total cost of $735,498.
The Corporation has complied with the standards of capital adequacy mandated by
the banking 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 14.91% and the total
capital ratio to total risk weighted assets ratio is 15.91% at June 30, 2001.
The Corporation is deemed to be well-capitalized under regulatory standards.
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.
Core deposits, including non-interest bearing DDA, NOW accounts, money market
deposit accounts and savings accounts reflect a 100 month decay factor within
the rate sensitivity reports. This change in methodology was adopted based on
the results of an independent evaluation of the Bank's asset/liability modeling
system in the second quarter of 2001. 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.
INTEREST RATE SENSITIVITY ANALYSIS
JUNE 30, 2001
In thousands
Maturity or Repricing In:
3 3-6 6-12 1-5 Over 5
Months Months Months Years Years
RATE SENSITIVE ASSETS
Loans ................................. 22,552 11,579 21,395 71,496 49,041
Securities/Investment in Life Insurance 9,533 2,159 8,911 41,950 42,209
Federal Funds Sold .................... 0 0 0 0
Total Rate Sensitive Assets ........... 32,085 13,738 30,306 113,446 91,250
Cummulative Rate Sensitive Assets ..... 32,085 45,823 76,129 189,575 280,825
RATE SENSITIVE LIABILITIES
Interest Bearing Checking ............. 645 645 1,290 10,321 8,601
Money Market Deposits ................. 934 934 1,868 14,944 12,453
Regular Savings ....................... 1,588 2,183 3,087 24,653 20,542
CDs and IRAs .......................... 24,092 20,910 29,599 28,038 2,777
Short-term Borrowings ................. 6,155 0 0 0 0
Long-term Borrowings .................. 0 0 0 7,500 10,000
Total Rate Sensitive Liabilities ...... 33,414 24,672 35,844 85,456 54,373
Cummulative Rate Sensitive Liabilities 33,414 58,086 93,930 179,386 233,759
Period Gap ............................ (1,329) (10,934) (5,538) 27,990 36,877
Cummulative Gap ....................... (1,329) (12,263) (17,801) 10,189 47,066
Cummulative RSA to RSL ................ 96.02% 78.89% 81.05% 105.68% 120.13%
Cummulative Gap to Total Assets ....... (0.45%) (4.14%) (6.01%) 3.44% 15.90%
RESULTS OF OPERATIONS
Net Interest Income:
Net interest income after loan loss provision increased by $603 thousand or
13.2% for the six months ended June 30, 2001, as compared to the same period in
2000. Earning assets increased $4.766 million or 1.7% for June 30, 2001, as
compared to December 31, 2000 and increased $17.231 million from June 2000 to
June 2001, a 6.5% increase. During the first six months of 2001 declining
interest rates caused deposit costs and borrowing costs to decrease and loan and
investment interest income has not decreased as quickly. The result is a better
margin for the six months ended June 30, 2001.
The earning assets of the Bank create income in two categories:
|X| Interest and fees on loans
|X| Interest on investments
Interest and fees on loans for the six-months ended June 30, 2001, totaled
$7.333 million, reflecting increases of $771 thousand or 11.7% over the
comparable period in 2000. The loan portfolio grew $15.431 million from a total
of $160.632 million in June 2000 to $176.063 million in June 2001 which is an
increase of 9.6%.
Interest on investments for the six-months ended June 30, 2001, totaled $3.055
million which reflects increases of $67 thousand or 2.2% over the comparable
period in 2000.
The other side of the net interest margin is our interest costs.
Interest expense for the six-months ended June 30, 2001, totaled $5.206 million
compared to $4.871 million in 2000, reflecting an increase of $335 thousand or
6.9% over the comparable period in 2000. For comparison purposes the deposit and
borrowing base of this cost grew $13.708 million or 5.5% from $248.621 million
on June 30, 2000 to $262.329 million on June 30, 2001.
Provision for Loan Loss:
The provision for loan loss for the second quarter ending June 30, 2001 showed a
decrease of $100 thousand from the corresponding period in 2000. In 2001 only
$20 thousand has been set aside for loan provision compared to $120 thousand in
2000. Second quarter 2001 charge-offs totaled $34,900 while net charge-offs
totaled $9,283 as compared to $15,361 and $9,703 respectively for the first
quarter of 2001. Comparing year-to-date 2001 to 2000, there have been $50,262 in
charge-offs and $18,986 in net charge-offs for 2001 compared to $77,337 and
$51,753 respectively for 2000.
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 on a monthly basis by the Board of
Directors. 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 Income:
Total other income increased $128 thousand when comparing the first six months
of 2001 to the first six months of 2000. Service Charge Fee Income increased $79
thousand for the first six months. Gains and losses on security sales are $29
thousand more this year when comparing second quarter 2000 to 2001. Other
operating income is up $20 thousand over the first six months of 2000. T.H.E.
commissions on investment and Private Business products are contributing to
other income.
Other Operating Expenses:
Non-interest expense went up by $144 thousand during the first six months of
2001 as compared to the first six months of 2000. Furniture and equipment
expenses are slightly higher comparing $180 thousand in 2000 to $197 thousand in
2001. Professional and legal fees also are slightly more with a total of $96
thousand for the second quarter of 2001 compared to $109 thousand in 2000.
Employee salaries, the largest component of non-interest, increased $80 thousand
for the first six months of 2001 compared to the first six months of 2000. The
increase is due to an employee profit sharing discretionary expense accrual that
is being provided for in 2001.
Income Tax Provision:
The income tax provision was $732 thousand and $563 thousand for the six-month
periods ended June 30, 2001 and June 30, 2000 respectively.
PRIVACY
The Board of Directors adopted a Privacy Policy on March 28, 2001, to establish
a formal and documented standard to serve as a specific guide for management and
staff to use to ensure controls for the protection of consumer data as required
under the law.
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
ITEM 1. LEGAL PROCEEDINGS
The nature of the Company's business generates a certain amount of litigation
involving matters arising out of the ordinary course of business. In the opinion
of management, there are no legal proceedings that might have a material effect
on the results of operations, liquidity, or the financial position of the
Company at this time.
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
Reports on Form 8-K that have been previously filed are as follows:
Press Release of Peoples Financial Services Corp. dated August 1, previously
submitted as Exhibit 99.011
Press Release of Peoples Financial Services Corp. dated July 24, previously
submitted as Exhibit 99.010
Press Release of Peoples Financial Services Corp. dated July 23, previously
submitted as Exhibit 99.009
Name change of Peoples National Bank dated June 22, 2001, previously submitted
as Exhibit 99.008
Amended submission of 8-K dated March 7, 2001, regarding change in accountants,
resubmitted on March 16, 2001
Amended submission of 8-K dated March 7, 2001, regarding change in accountants,
resubmitted on March 12, 2001
Letter of Peoples Financial Services Corp. regarding change in accountants
dated March 7, 2001, previously submitted as Exhibit 16
Peoples Financial Services Corp. amended by-laws dated February 9, 2001,
previously submitted as Exhibit 99.006
Press Release of Peoples Financial Services Corp. dated January 2, 2001,
previously submitted as Exhibit 99.005
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, Executive Vice president/COO