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, 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 June 30, 1999
COMMON STOCK ($2 Par Value) 2,171,966
(Title of Class) (Outstanding Shares)
PEOPLES FINANCIAL SERVICES CORP.
FORM 10-Q
For the Quarter Ended June 30, 1999
Contents
PART I. FINANCIAL INFORMATION. Page No.
Item 1. Financial Statements.
Consolidated Statement of Financial
Condition as of June 30, 1999
(Unaudited) and December 31, 1998. 4
Consolidated Statement of Income
(Unaudited) for the Six and Three
Month Periods Ended June 30,
1999 and 1998. 5
Consolidated Statement of Comprehensive
Income (Unaudited) for the Six and Three
Month Periods Ended June 30,
1999 and 1998. 6
Consolidated Statement of Shareholders'
Equity (Unaudited) for the Six Month
Period Ended June 30, 1999 and 1998. 7
Consolidated Statement of Cash Flows
(Unaudited) for the Six Month Period
Ended 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. 14
PART II. OTHER INFORMATION 15
Item 6. Exhibits and Reports on Form 8-K. 15
PART I
Item 1
PEOPLES FINANCIAL SERVICES CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
June 30, 1999 and December 31, 1998
(UNAUDITED)
(in thousands) June 1999 Dec 1998
ASSETS:
Cash Due from Banks ................................ 2,531 2,084
Interest Bearing Deposits with Other Banks ......... 4,721 2,725
Federal Funds Sold ................................. 0 0
Securities Available for Sale ...................... 92,642 93,175
Loans .............................................. 142,503 141,283
Less: Unearned Income ............................. -20 -34
Allowance for Loan Loss ............................ -1,707 -1,713
Loans, Net ......................................... 140,776 139,536
Bank Premises and Equipment, Net ................... 3,502 3,523
Accrued Interest Receivable ........................ 1,826 1,781
Other Assets ....................................... 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 Deposits ..................................... 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 CAPITAL .......................... 251,163 247,202
<FN>
* Common Stock, par value $2 per share, 12,500,000 shares authorized:
2,171,966 and 2,177,576 shares issued and outstanding at June 30, 1999 and
December 31, 1998 respectively.
</FN>
See notes to financial statements
PEOPLES FINANCIAL SERVICES CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(in thousands, except per share data) Six Months Ended Three Months Ended
June 30 June 30
1999 1998 1999 1998
INTEREST INCOME:
Interest and Fees on Loans ................. 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 Federal Funds Sold ............. 56 34 46 33
Interest on Deposits of Other Banks ........ 0 26 1 9
TOTAL Interest Income ...................... 8,483 8,100 4,275 4,059
Interest on Deposits ....................... 3,916 3,880 1,964 1,948
Interest on Borrowed Funds ................. 197 142 81 58
Interest Expense ........................... 4,113 4,022 2,045 2,006
Net Interest Income ........................ 4,370 4,078 2,230 2,053
Provision for Loan Losses .................. 120 75 60 37
Net Interest Income,
after Loan 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 Operating Income ..................... 73 27 42 5
TOTAL Other Income ......................... 625 549 344 252
OTHER EXPENSES:
Salaries and Benefits ...................... 1,295 1,157 652 544
Occupancy Expenses ......................... 159 157 76 78
Furniture and Equipment Expense ............ 182 210 91 106
FDIC Insurance and Assessments ............. 46 44 23 22
Professional Fees and Outside Services ..... 91 116 51 63
Computer Services and Supplies ............. 161 125 82 63
Taxes, Other Than Payroll and Income ....... 120 110 62 56
Other Operating Expenses ................... 595 565 314 266
Total Non-Interest Expense ................. 2,649 2,484 1,351 1,198
Income Before Income Taxes ................. 2,226 2,068 1,163 1,070
Provision for Income Taxes ................. 478 433 266 228
Net Income ................................. 1,748 1,635 897 832
Net Income Per Share, Basic and Diluted .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 .............................. 1,748 1,635 897 842
Other Comp Income (loss) before tax
Unrealized holding gains/losses
on securities ........................... -2,282 232 -1,780 72
Less: reclassification Adjustment ....... -63 -27 -69 0
Other Comp Income (loss) before tax...... -2,219 205 -1,711 72
Federal Income Tax expense (benefit)..... 754 70 927 25
Other Comp Income (loss),
Net of tax(benefit) ..................... -1,465 135 -1,130 47
TOTAL Comp income ....................... 283 1,770 -233 889
See notes to financial statements
PEOPLES FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED 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 15,912 371 -549 24,644
Net Income 1998 for the six
months ended June 30, 1998 . 0 0 1,635 0 0 1,635
Cash Dividends Paid, 1998 .. 0 0 -480 0 0 -480
Treasury Stock Purchase .... 0 0 0 0 -43 -43
Change in unrealized
gain/loss on securities
available for sale,
net of deferred income taxes. 0 0 0 135 0 135
Balance,June 30, 1998 ...... 4,455 4,455 17,067 506 -592 25,891
Balance, December 31, 1998 . 4,455 4,455 18,322 562 -748 27,046
Net Income 1999 for the six 0 0 1,748 0 0 1,748
months ended June 30, 1999
Cash Dividends Paid, 1999 .. 0 0 -547 0 0 0
Treasury Stock Activity .... 0 10 0 0 -157 -694
Change in unrealized
gain/loss on securities
available for sale,
net of deferred income taxes. 0 0 0 -1,465 0 -1,465
Balance, June 30, 1999 ..... 4,455 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)
Cash Flow 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income .................................................... 1,748 1,635
Adjustments: ....Depreciation and amoritization ............... 310 350
Provision for Loan Losses .................... 120 75
Gain/Loss on sale of equipment ............... 0 2
Gain/loss on sale of other real estate ....... 27 2
Amortization of securities' premiums and accretion of discounts 132 52
Gains on sales of investment securities, NET .................. -63 -27
Increase in accrued interest receivable ....................... -44 6
Increase/Decrease in other assets ............................. -165 -154
Increase/Decrease in accrues interest payable ................. -46 -4
Increase/Decrease in other liabilities ........................ -37 -12
Net cash provided by operating activities ..................... 1,982 1,925
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of available for sale securities ........... 4,514 3,674
Proceeds from maturities of available for sale securities ..... 6,257 10,228
Purchase of available for sale securities ..................... -19,074 -10,460
Principal payments on mortgage-backed securities .............. 6,548 2,317
Net increase in loans ......................................... -1,597 -7,080
Proceeds from sale of premises and equipment .................. 0 1
Purchase of premises and equipment ............................ -160 -68
Proceeds from sale of other real estate ....................... 213 30
Purchase of intangible assets ................................. 0 0
Net cash used in investing activities ......................... -3,299 -1,358
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid ........................................... -547 -480
Increase in deposits .......................................... 5,200 4,990
Net Increase/Decrease in long-term borrowing .................. 0 0
Net Increase/Decrease in short-term borrowing ................. -746 -4,350
Treasury Stock Activity ....................................... -147 -43
Net cash provided by financing activities ..................... 3,760 117
Net Increase/Decrease in cash/cash equivalents ................ 2,443 684
Cash and cash equivalents, beginning of year .................. 4,809 5,549
Cash and cash equivalents,end of year ......................... 7,252 6,233
SUPPLEMENTAL DISCLOSURES OF CASH PAID
Interest Paid ................................................. 4,159 4,026
Income Taxes Paid ............................................. 478 364
Non-cash investing and financing activities
Transfers from loans to real estate through foreclosure ....... 237 306
Proceeds from sales of foreclosed real estate ................. 0 200
TOTAL Increase/Decrease in unrealized gain/loss on
securities avail for sale ..................................... 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 six-month period ended
June 30, 1999 and 1998 include all adjustments, consisting of
only normal recurring adjustments, necessary for 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, 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, "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, "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 if 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.
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:
At June 30, 1999, cash, federal funds sold and deposits
with other banks totaled $7.252 million; an increase of $1.619
million compared to $5.633 million at June 30, 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.
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 $92.642 million on June 30, 1999;
increasing $10.072 million as compared to June 30, 1998's total
of $82.570 million and decreasing $533 thousand compared to the
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:
The Bank's loan volume has been steady through the first
six 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 June 30, 1999, net loans totaled $140.776 million as
compared to $132.009 million on June 30, 1998 showing an increase
of $8.767 million in the past year. The loan to deposit ratio was
66.38% on June 30, 1999, as compared to 67.23% on June 30, 1998.
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 June 30,
1999, were $215.081 million as compared to $198.582 million at
June 30, 1998. This is an increase in deposits of $16.499 million
or 8.3%. Deposits totaled $209.881 million on December 31, 1998.
Of the $5.2 million growth in 1999, $3.574 million occurred in
the second quarter. Although we are not the highest payer for
deposits in 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 June 30, 1999, regulatory capital to total
assets was 9.51% as compared to 9.49% on June 30, 1998.
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 16.96% and the total
capital ratio to total risk weighted assets ratio is 18.17%. 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.
The following table sets forth the Bank's interest rate
sensitivity as of June 30, 1999.
INTEREST RATE SENSITIVITY ANALYSIS
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
Loans .................... 19,838 10,507 17,667 51,874 42,596
Securities ............... 27,174 3,101 9,602 43,267 14,220
Federal Funds Sold ....... 0 0 0 0 0
Total
Rate Sensitive Assets .... 47,012 13,608 27,269 95,141 56,816
Cummulative
Rate Sensitive Assets .... 47,012 60,620 87,889 183,030 239,846
RATE SENSITIVE LIABILITIES
Interest Bearing Checking 1,646 0 0 0 14,818
Money Market Deposits .... 27,680 1,771 0 0 8,857
Regular Savings .......... 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 0
Long-term Borrowings ..... 0 0 0 5,000 0
Total
Rate Sensitive Liabilities 54,646 18,532 29,494 40,997 53,373
Cummulative Rate Sensitive
Liabilities 54,646 73,178 102,672 143,669 197,042
Period Gap ............... -7,634 -4,924 -2,225 54,144 3,443
Cummulative Gap .......... -7,634 -12,558 -14,783 39,361 42,804
Cummulative RSA to RSL ... 86.03% 82.84% 85.60% 127.40% 121.72%
Cummulative Gap
to Total Assets .......... -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 increased by $247 thousand or 6.2%
for the six-months and quarter ended June 30, 1999, as compared
to the same periods in 1998. Earning assets increased $19.345
million or 8.8% for June 30, 1999, as compared to June 30, 1998.
INTEREST INCOME:
Interest and fees on loans for the six-months and
quarter ended June 30, 1999, totaled $5.861 million, reflecting
increases of $294 thousand or 5.3% over the comparable periods in
1998. The loan portfolio grew $8.767 million from a total of
$132.009 million in June 1998 to $140.776 million in June 1999 in
comparison.
Interest on investments for the six-months and the
quarter ended June 30, 1999, totaled $2.622 million which
reflects increases of $89 thousand or 3.5% over the comparable
period in 1998. The investment portfolio has increased by $10.072
million over the June 1998 total of $82.570 million.
INTEREST EXPENSE:
Interest expense for the six-months and the quarter
ended June 30, 1999, totaled $4.113 million compared to $4.022
million in 1998, reflecting an increase of $91 thousand or 2.3%
over the comparable periods in 1998.
PROVISION FOR LOAN LOSS:
The provision for loan loss for the second quarter
ending June 30, 1999, increased by $45 thousand from the
corresponding period in 1998.
Second quarter 1999 charge-offs totaled $145,272 while
net charge-offs totaled $125,868 as compared to $ 55,318 and $
37,863 respectively for the same six 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" 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 increased $76 thousand when
comparing the first two quarters of 1999 to the first two
quarters of 1998. Service Charge Fee Income is flat for the six
months. Gains and losses on security sales are $46 thousand more
this year when comparing 1998 year to date to 1999 year to date.
OTHER OPERATING EXPENSES:
Non-Interest expense went up by $165 thousand during the
second quarter of 1999 as compared to the second quarter of 1998.
Professional fees and outside services are lower by $25 thousand
for the quarter.
Employee salaries, the largest component of non-interest
expense, increased $138 thousand for the first six months 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 1999, salaries only increased $9 thousand in the
second quarter.
INCOME TAX PROVISION:
The income tax provision was $1.478 million and $1.433
million for the six-month periods ended June 30, 1999 and June
30, 1998 respectively.
YEAR 2000 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," 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
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,
previously submitted as Exhibit 99.2
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