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, 1998 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 SERVICE 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)
(717) 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, 1998
COMMON STOCK ($5.00 Par Value) 873,465
(Title of Class) (Outstanding Shares)
PAGE 1
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
FORM 10-Q
For the Quarter Ended June 30, 1998
Contents
Page No.
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
Consolidated Statement of Financial
Condition as of June 30, 1998
(Unaudited) and December 31, 1997. 3
Consolidated Statement of Income
(Unaudited) for the Six and Three
Month Periods Ended June 30, 1998
and 1997. 4
Consolidated Statement of Comprehensive
Income (Unaudited) for the Six and
Three Month Periods Ended June 30,
1998 and 1997. 5
Consolidated Statement of Shareholders'
Equity (Unaudited) for the Six Month
Periods Ended June 30, 1998 and 1997. 6
Consolidated Statement of Cash Flows
(Unaudited) for the Six Month Periods
Ended June 30, 1998 and 1997. 7
Notes to Consolidated Financial Statements. 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. 11
PART II OTHER INFORMATION 18
Item 4. Submission of Matters to a Vote of
Security Holders. 18
Item 6. Exhibits and Reports on Form 8-K. 19
PAGE 2
<PAGE>
PART I
Item 1
PEOPLES FINANCIAL SERVICES CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
June 30, 1998 and December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
(unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,018 $ 2,402
Interest-bearing deposits in other banks 3,615 3,147
Federal Funds Sold 600 0
Investment securities available for sale 82,570 88,149
Loans 133,770 126,853
Less: Unearned income (48) (67)
Allowance for loan losses (1,713) (1,676)
Net loans 132,009 125,110
Premises and equipment 3,600 3,756
Accrued interest receivable 1,771 1,777
Other assets 4,408 4,379
Total assets $230,591 $228,720
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 21,940 $ 20,104
Interest bearing 176,642 173,488
Total deposits 198,582 193,592
Short-term borrowings 4,925 9,275
Accrued interest payable 659 663
Other liabilities 534 546
Total liabilities 204,700 204,076
Stockholders' equity:
Common stock, par value $5 per share,
5,000,000 shares authorized; 873,465
and 874,300 shares issued and
outstanding at June 30, 1998 and
December 31, 1997, respectively 4,455 4,455
Surplus 4,455 4,455
Undivided profits 17,067 15,912
Unrealized gain (loss) on securities
available for sale, net of applicable
deferred income taxes 506 371
Less: treasury stock, at cost (17,535 in
1998 and 15,375 in 1997) (592) (549)
Total stockholders' equity 25,891 24,644
Total liabilities and stockholders'
equity $230,591 $228,720
</TABLE>
See notes to financial statements
PAGE 3
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
1998 1997 1998 1997
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $5,567 $4,723 $2,806 $2,397
Interest on investments:
Taxable 1,713 2,103 813 1,182
Tax exempt 736 564 370 300
Dividends 24 32 12 14
Interest on deposits in other banks 34 4 32 2
Interest on federal funds sold 26 85 25 30
Total interest income 8,100 7,511 4,058 3,925
Interest expense:
Interest on deposits 3,880 3,697 1,948 1,967
Interest on borrowed funds 142 95 57 11
Total interest expense 4,022 3,792 2,005 1,978
Net interest income
Provision for loan losses 75 60 37 50
Net interest after provision
for loan losses 4,003 3,659 2,016 1,897
Other income:
Service charges and customer
service fees 489 389 233 212
Other income 33 9 19 9
Investment securities gains, net 27 127 0 107
Total other income 549 525 252 328
Other expenses:
Salaries and employee benefits 1,157 1,120 544 549
Occupancy expense, net 157 129 78 63
Equipment expense 210 156 106 93
FDIC insurance and assessments 44 38 22 19
Professional fees and outside services 116 79 63 42
Computer service and supplies 125 148 63 89
Taxes, other than payroll and income 110 101 56 53
Other operating expenses 565 579 276 351
Total other expense 2,484 2,350 1,208 1,259
Income before taxes 2,068 1,834 1,060 966
Provision for income tax 433 368 228 186
Net income $1,635 $1,466 $ 832 $ 780
Net income per share $ 1.88 $ 1.67 $ 0.96 $ 0.89
</TABLE>
See notes to financial statements
PAGE 4
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
---------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net Income $1,635 $1,466 $ 832 $ 780
Other Comprehensive Income:
Unrealized gains/loss on available for sale securities 232 318 71 1,041
Less: reclassification adjustment for gain
included in net income (27) (127) 0 (107)
Other Comprehensive Income/Loss Before Tax 205 191 71 934
Applicable Income Tax Expense 70 65 24 318
Other Comprehensive Income/Loss, Net of Taxes 135 126 47 616
------ ------ ------ ------
TOTAL Comprehensive Income 1,770 1,592 879 1,396
</TABLE>
See notes to financial statements
PAGE 5
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION> Unrealized Loss
on Investment and
Mortgage-backed
Securities
Common Undivided Available-for-sale Treasury
Stock Surplus Profits Net of Taxes Stock Total
------------- ----------- ---------- ------------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 $ 4,455 $ 4,455 $13,636 $ (346) $ (487) $21,713
Net Income for the six months ended
June 30, 1997 1,466 1,466
Cash dividends paid (350) (350)
Treasury stock purchase (9) (9)
Change in unrealized gain (loss)
on securities available for sale,
net of taxes _______ _______ _______ 126 ________ 126
Balance, June 30, 1997 (unaudited) $ 4,455 $ 4,455 $14,752 $ (220) $ (496) $22,946
======= ======= ======= ======== ======== =======
BALANCE, December 31, 1997 $ 4,455 $ 4,455 $15,912 $ 371 $ (549) $24,644
Net Income for the six months ended
June 30, 1998 1,635 1,635
Cash dividends paid (480) (480)
Treasury stock purchase (43) (43)
Change in unrealized gain (loss)
on securities available for sale,
net of taxes _______ _______ _______ 135 ________ 135
Balance, June 30, 1998 (unaudited) $ 4,455 $ 4,455 $17,067 $ 506 $ (592) $25,891
======= ======= ======= ======== ======== =======
See notes to financial statements
</TABLE>
PAGE 6
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1998 1997
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 1,635 $ 1,466
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 350 259
Provision for loan losses 75 60
(Gain) loss on sale of equipment 2 7
(Gain) loss on sale of other real
estate 2 6
Amortization of securities' premium
and accretion of Discounts 52 (53)
Losses (gains) on sale of investment
securities, net 27 (127)
(Increase) in accrued interest
receivable 6 (287)
(Increase) decrease in other assets (154) (159)
Increase (decrease) in accrued
interest payable (4) (52)
Increase (decrease) in other
liabilities (12) 80
Total Adjustments 290 (162)
Net cash provided by (used by)
operating activities 1,925 1,304
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of available for
sale securities 3,674 7,096
Proceeds from maturities of available
for sale securities 10,228 23,807
Purchase of available for sale
securities (10,460) (54,557)
Principal payment on mortgage-backed
securities 2,317 1,160
Net increase in loans (7,080) (4,451)
Proceeds from sale of premises
and equipment 1 0
Purchase of premises and equipment (68) (827)
Proceeds from sale of other real
estate 30 80
Purchase of intangible assets 0 (3,875)
<PAGE 7>
Net cash used in investing
activities (1,358) (31,567)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (480) (350)
Increase in deposits 4,990 37,296
Net decrease in long-term borrowing 0 0
Net increase (decrease) in short-
term borrowing (4,350) (1,958)
Purchase of treasury stock (43) (9)
Net cash provided by financing
activities 117 34,979
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 684 4,716
Cash and cash equivalents, beginning
of period 5,549 3,069
CASH AND CASH EQUIVALENTS, END OF
PERIOD 6,233 7,785
SUPPLEMENTAL DISCLOSURES OF CASH PAID:
Interest paid 4,026 3,739
Income taxes paid 364 410
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Transfers from loans to real
estate acquired through
foreclosure 306 121
Proceeds from sales of foreclosed
real estate financed through
loans 200 0
Total increase (decrease) in
unrealized gain (loss) on
securities available for sale 205 191
</TABLE>
See notes to financial statements
PAGE 8
<PAGE>
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 periods ended June 30,
1998 and 1997 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, 1998, is not necessarily the
result to be expected for the full year.
2. RECENT ACCOUNTING PRONOUNCEMENTS
REPORTING COMPREHENSIVE INCOME
SFAS No. 130
The Corporation adopted SFAS No. 130, "Reporting
Comprehensive Income" effective January 1, 1998. This statement
establishes standards for the reporting and display of
comprehensive income and its components. Comprehensive income
includes net income and all other changes in shareholder's equity
except those resulting from investments and distributions to
owners. The adoption of SFAS No. 130 had no impact on the
Corporation's net income or shareholder's equity. Prior year
financial statements have been restated to conform to the
requirements of Statement 130. The statement requires that the
accumulated other comprehensive income be descriptively labeled
in the shareholder's equity (loss) on available for sale
securities that were previously reported. The Corporation has
included this new reporting information in Part I of this
Form 10-Q.
<PAGE 9>
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION
SFAS No. 131
The Company adopted SFAS No. 131 on January 1, 1998. This
Statement establishes standards for the way public companies
report information about operating segments in interim financial
reports issued to stockholders. It also establishes standards
for related disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 need not be
applied to interim financial statements in the initial year of
its application, therefore adoption of this Statement had no
impact on the accompanying consolidated financial statements.
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT
BENEFITS
SFAS No. 132
The Company adopted SFAS No. 132 on January 1, 1998. This
Statement: (1) revises employers' disclosures about pension and
other post-retirement benefit plans; (2) standardizes the
disclosure requirements for benefits of such plans; (3) requires
additional information on changes in the benefit obligations and
fair value of plan assets that will facilitate financial
analysis; and (4) eliminates certain disclosures that are no
longer useful. Most of the changes in the disclosure provisions
of this Statement address defined benefit plans. The Company's
adoption of SFAS No. 132 had no effect on disclosure requirements
nor did it have any effect on operating results or financial
position.
PAGE 10
<PAGE>
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, 1998, cash, federal funds sold and deposits with
other banks totaled $6.233 million, a decrease of $1.511 million
compared to $7.784 million at June 30, 1997.
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:
Investments totaled $82.570 million on June 30, 1998;
decreasing $12.426 million compared to June 30, 1997, totaling
$94.996 million. The decrease in the investment portfolio can be
attributed to the effect of the increase in the loan portfolio
and slower deposit growth.
The total investment portfolio is held in 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.
<PAGE 11>
Loans:
The Bank's loan volume has continued to be strong through
the first two quarters of 1998. 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, 1998, net loans totaled $132.009 million as
compared to $109.755 million on June 30, 1997; an increase of
$22.254 million in the past year. The loan to deposit ratio was
67.23% on June 30, 1998; compared to 57.30% on June 30, 1997.
During the second quarter of 1998 net loans grew from $128.902
million to $132.009 million. On March 31, 1998, the loan to
deposit ratio was 65.76% as compared to 67.23% on June 30, 1998.
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,
1998, were $198.582 million; compared to $194.225 million at
June 30, 1997. This is an increase in deposits of $4.357 million
or 2%. Comparing the second quarter 1998 ending balance to the
first quarter 1998 ending balance, the deposit balance at
June 30, 1998 was $198.582 million and the March 31, 1998 deposit
balance was $197.187 million, an increase of $1.395 million.
Borrowings:
The Bank utilizes borrowing as a source of funds for its
asset/liability management. Advances are available from the FHLB
provided certain standards related to credit worthiness have been
met. Repurchase and term agreements are also available from
FHLB.
Total borrowings at June 30, 1998 were $4.925 million as
compared to $4.755 million on June 30, 1997, a slight increase of
$170 thousand. Comparing the first two quarters of 1998,
borrowings were $3.401 million on March 31, 1998, showing an
increase of $1.524 million during the second quarter.
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
<PAGE 12> credit ratings. As of June 30, 1998, regulatory
capital to total assets was 9.65% as compared to 8.97% on
June 30, 1997.
The Corporation has complied with the standards of capital
adequacy mandated by the banking regulator. 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 assets), 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 17.06% and the total capital
ratio to total risk-weighted assets ratio is 18.31%. 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, 1998.
INTEREST RATE SENSITIVITY ANALYSIS
June 30, 1998
(in thousands)
<TABLE>
<CAPTION>
Maturity or Repricing In:
Rate Sensitive Assets 3 Months 3-6 Months 6-12 Months 1-5 Years Over 5 Years
<S> <C> <C> <C> <C> <C>
Loans 23,616 10,861 19,132 43,092 35,308
Securities 24,964 3,049 9,019 36,624 12,529
Federal Funds Sold 600 0 0 0 0
Total Rate Sensitive Assets 49,180 13,910 28,151 79,716 47,837
Cumulative Rate Sensitive Assets 49,180 63,090 91,241 170,957 218,794
<PAGE 13>
<CAPTION>
Rate Sensitive Liabilities 3 Months 3-6 Months 6-12 Months 1-5 Years Over 5 Years
<S> <C> <C> <C> <C> <C>
Interest Bearing Checking 1,579 0 0 0 14,213
Money Market Deposits 20,907 2,619 0 0 13,095
Regular Savings 3,182 0 0 0 28,639
CDs and IRAs 14,513 13,096 29,565 32,347 1,912
Short-term Borrowings 4,925 0 0 0 0
Total Rate Sensitive Liabilities 45,106 15,715 29,565 32,347 57,859
Cumulative Rate Sensitive
Liabilities 45,106 60,821 90,386 122,733 180,592
Period Gap 4,074 -1,805 -1,414 47,369 -10,022
Cumulative Gap 4,074 2,269 855 48,224 38,202
Cumulative RSA to RSL 109.03% 103.73% 100.95% 139.29% 121.15%
Cumulative Gap to Total Assets 1.77% 0.98% 0.37% 20.92% 16.50%
</TABLE>
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 for mortgage backed securities are
projected by expected cash flows as evidenced by recent history.
Repayment of principal for loan categories are 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 $344 thousand and $119
thousand, or 9.40% and 6.27%, respectively for the six months and
quarter ended June 30, 1998, as compared to the same periods in
1997. Average interest earning assets increased $37.795 million
or 21% for the six months and quarter ended June 30, 1998, as
compared to the same periods in 1997. Average interest-bearing
liabilities increased only $13.229 million or 7% for the same six
months and quarter end comparison. The net interest margin was
3.925% for the period ended June 30, 1998 and 3.766% for the
period ended June 30, 1997.
Interest Income:
Interest and fees on loans for the six months and quarter
ended June 30, 1998, totaled $5.6 million and $2.8 million,
reflecting increases of $844 thousand, or 17.9%, and $409
thousand, or 17.1%, respectively, over the comparable periods in
1997.
<PAGE 14>
Interest on investments for the six months and the quarter
ended June 30, 1998, totaled $2.5 million and $1.3 million,
reflecting decreases of $255 thousand or 9.1% and $276 thousand
or 22.1% respectively, over the comparable periods in 1997.
These amounts reflect the transition of asset utilization:
as more loans are being made, funds are being provided in a large
part by maturing investments.
Interest Expense:
Interest expense for the six months and the quarter ended
June 30, 1998, totaled $4.022 million and $2.005 million,
compared to $3.792 million and $1.977 million in 1997, reflecting
an increase of $230 thousand, or 6.1%, and $28 thousand, or 1.4%
respectively, over the comparable periods in 1997. The larger
difference in the six months comparison reflects the effect of
the extra deposits costs in January and February 1998 for the
acquired deposits from the branch purchases in Wyoming County in
March 1997.
Provision for Loan Loss:
The provision for loan losses for the quarter ending
June 30, 1998 increased by $15,000 from the corresponding period
in 1997. This increase reflects the rise in charge-offs for the
first six months of 1998.
As of the end of the second quarter of 1998, charge-offs
totaled $55.7 thousand as compared to $20.1 thousand for the same
six-month period in 1997.
Senior management utilizes detailed analysis of the
portfolio to determine the adequacy of the loan loss allowance
and to establish monthly provisions. The process considers all
"problem loans" including classified, criticized and monitored
loans. Prior loss history and current trends, both nationally
and locally, are taken into consideration. A watch list of
potential problem loans is maintained and updated monthly. This
list is reviewed by the ALCO on a monthly basis. The Bank has
not had nor presently has any foreign loans outstandings. In
addition, no know concentrations of credit presently exist.
Based upon this analysis, senior management has concluded that
the allowance for loan loss is adequate.
Other Operating Income:
Other operating income decreased $76 thousand when comparing
the same three-month periods, second quarter 1998 to second
quarter 1997, but increased $24 thousand over the six-month
periods comparison of June 1998 to June 1997. This difference is
due to $107 thousand in gains on security sales realized in the
second quarter of 1997 and no gains realized in the second
quarter of 1998. Service charges on deposit accounts increased
$21 thousand comparing second quarter 1997 and 1998. This
<PAGE 15> increase is due to a greater emphasis on collecting a
higher percentage of demand deposit service charges, notably for
overdrafts and returned checks. Other operating income also
increased $11 thousand for the second quarter of 1998 as compared
to the same quarter in 1997. This was largely due to a
settlement from membership fees disbursed at the dissolution of a
local credit bureau association.
Other Operating Expenses:
Non-interest expense went down by $51 thousand during the
second quarter of 1998 as compared to the second quarter of 1997.
For the six months ended June 30, 1998, total non-interest
expenses increased by $133 thousand over the same six months
period in 1997. The decrease in the three months comparison is
due to the one-time charges that were incurred when new offices
were added in Wyoming County and new software was installed
during the second quarter of 1997. The higher six months numbers
reflect the additional costs for staff and occupancy of the new
buildings. Also furniture and equipment costs are $13 thousand
higher for the three months period and $54 thousand higher for
the six months period reflecting the cost of the new equipment
and software purchased in 1997. Professional fees and outside
services are higher by $21 thousand for the quarter and $37
thousand higher for the first two quarters of 1998 over 1997.
This increase is due to additional costs involved in legal fees
for recovery on problem loans.
Employee salaries, the largest component of non-interest
expense, increased $5 thousand and $37 thousand respectively, for
the three-month and six-month periods ended June 30, 1998
compared to 1997. It is the goal of the Bank to be fair and
competitive in remuneration to employees and wages and salaries
are adjusted at least annually. Attrition and the use of more
part-time employees have been a factor in the slower growth in
this non-interest expense for the periods being compared. In
January 1998, management implemented an employee task force to
work on staffing efficiencies. Some impact can be seen in the
second quarter numbers due to these efforts. The comparison of
the six-month results is affected by the acquisition of the two
Wyoming County offices in March 1997. In the first quarter of
1998, employee expenses increased significantly from the
additional salaries in the Tunkhannock and Meshoppen offices that
were not applicable in 1997.
Income Tax Provision:
The income tax provision was $228 thousand and $433 thousand
for the three-month and six-month periods ended June 30, 1998
compared to $186 thousand and $368 thousand for the same periods
in 1997.
<PAGE 16>
Year 2000 Compliance:
The Bank utilizes software and related computer technologies
essential to its operations that can be effected by the Year 2000
issues. In 1997, 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
detailing an inventory of systems, actions to be taken and a time
frame for implementation.
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 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
Risk
The information set forth under the caption "Liquidity and
Interest Sensitivity" under Item 2, Part I is incorporated herein
by reference.
PAGE 17
<PAGE>
PART II
PEOPLES FINANCIAL SERVICES, INC
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
The Corporation held its 1998 Annual Meeting of Shareholders
(the "Meeting") on April 25, 1998 for the purpose of (i) electing
three Class III Directors to hold office for a period of three
years from the date of election and until their successors shall
have been elected and qualified, (ii) ratifying the appointment
by the Board of Directors of Prociak & Associates, LLC, Certified
Public Accountants, as the independent auditors for the year
ending December 31, 1998 and (iii) acting upon the Peoples
Financial Services Corp. 1998 Stock Option Plan (the "1998 Stock
Option Plan").
At the Meeting, all of the nominees of the Corporation's
Board of Directors were elected, the 1998 Stock Option Plan was
approved and the Board of Directors' appointment of Prociak &
Associates, LLC was ratified by the Corporation's shareholders,
as follows:
1. Election of Class III Directors:
Nominee Votes For Votes Withheld
Gerald R. Pennay 624,361 11,436
Thomas F. Chamberlain 621,141 14,656
Virginia M. Turner 634,982 815
2. Approval of 1998 Stock Option Plan:
Abstentions and
Votes For Votes Against Broker Nonvotes
595,876 23,261 16,660
<PAGE 18>
3. Ratification of Prociak & Associates, LLC as
Independent Auditors:
Abstentions and
Votes For Votes Against Broker Nonvotes
607,251 15,366 13,180
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits
10.1 Peoples Financial Services Corp. 1998 Stock
Option Plan
27 Financial Data Schedule
(B) Reports on Form 8-K
None.
PAGE 19
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: August 14, 1998 PEOPLES FINANCIAL SERVICES, INC.
(Registrant)
By/s/ Debra Dissinger
Debra Dissinger
Chief Accounting Officer
<PAGE 20>
EXHIBIT 10.1
PEOPLES FINANCIAL SERVICES CORP.
1998 STOCK OPTION PLAN
(February 28, 1998)
<PAGE>
Article 1. PURPOSE OF THE PLAN
1.1 Purpose - The Peoples Financial Services Corp. 1998
Stock Option Plan (the "Plan") is intended to advance
the interests of the Corporation by providing
officers and key employees who have substantial
responsibility for the direction and management of
the Corporation with additional incentive for them to
promote the success of the Corporation's business, to
increase their proprietary interest in the success of
the Corporation, and to encourage them to remain in
its service. These goals will be effectuated through
the granting of certain stock options. In addition,
pursuant to the provisions of Article 10,
non-employee directors will receive annual grants of
a fixed number of stock options hereunder.
1.2 Stock Options to be Granted - Incentive Stock Options
within the meaning of Code Section 422(b) and
Nonqualified Stock Options may be granted within the
limitations of the Plan herein described.
Article 2. DEFINITIONS
2.1 "Agreement" - The written instrument evidencing the
grant of an Option. A Participant may be issued one
or more Agreements from time to time, reflecting one
or more options.
2.2 "Bank" - Peoples National Bank of Susquehanna County,
a wholly-owned subsidiary of the Corporation.
2.3 "Board" - The Board of Directors of the Corporation.
2.4 "Code" - The Internal Revenue Code of 1986, as
amended.
2.5 "Committee" - The Committee which the Board appoints
to administer the Plan.
2.6 "Common Stock" - The common stock of the Corporation
($5.00 par value) as described in the Corporation's
Articles of Incorporation, or such other stock as
shall be substituted therefor.
2.7 "Corporation" - Peoples Financial Services Corp. or
any Subsidiary.
2.8 "Director" - A member of the Board who is not an
Employee.
2.9 "Employee" - Any employee (including officers,
executives and supervisory personnel) of the
Corporation or the Bank, including officers who also
serve as members of the Board of Directors of the
Corporation or the Bank. <PAGE 1>
2.10 "Exchange Act" - The Securities Exchange Act of 1934,
as amended.
2.11 "Incentive Stock Option" - A stock option intended to
satisfy the Requirements of Code Section 422(b).
2.12 "Nonqualified Stock Option" - A stock option other
than an incentive stock option.
2.13 "Optionee" - A Participant who is awarded a Stock
Option pursuant to the provisions of the Plan.
2.14 "Participant" - An Employee selected by the Committee
to receive a grant of an Option under the Plan.
2.15 "Permanent and Total Disability" shall have the
meaning given to such term in Code Section 22(e)(3).
2.16 "Plan" - The Peoples Financial Services Corp. 1998
Stock Option Plan.
2.17 "Retirement" - Any date an Employee is entitled to
retire under the Corporation's retirement plans and
shall include normal retirement at age 65, early
retirement at age 62, and retirement at age 60 after
thirty (30) years of service.
2.18 "Securities Act" - The Securities Act of 1933, as
amended.
2.19 "Stock Option" or "Option" - An award of a right to
purchase Common Stock pursuant to the provisions of
the Plan.
2.20 "Subsidiary" - A subsidiary corporation as defined in
Code Section 424(f) that is a subsidiary of the
Corporation.
Article 3. ADMINISTRATION OF THE PLAN
3.1 The Committee - The Plan shall be administered by a
Committee of the Board (the "Committee") composed of
members of the Board (at least three in number) who
are not employees of the Corporation. The Board may
from time to time remove members from, or add members
to, the Committee. Vacancies on the Committee,
howsoever caused, shall be filled by the Board.
3.2 Powers of the Committee -
(a) The Committee shall be vested with full
authority to make such rules and regulations as
it deems necessary or desirable to administer
the Plan and to interpret the provisions of the
Plan, unless otherwise determined by the Board.
<PAGE 2> Any determination, decision or action
of the Committee in connection with the
construction, interpretation, administration or
application of the Plan shall be final,
conclusive and binding upon all optionees and
any person claiming under or through an
Optionee, unless otherwise determined by the
Board.
(b) Subject to the terms, provisions and conditions
of the Plan and subject to review and approval
by a majority of the Board, the Committee shall
have exclusive jurisdiction to:
(i) determine and select the Employees to be
granted Options (it being understood that
more than one Option may be granted to the
same person);
(ii) determine the number of shares subject to
each Option;
(iii) determine the date or dates when the
Options will be granted;
(iv) determine the purchase price of the shares
subject to each Option in accordance with
Article 5 of the Plan;
(v) determine the date or dates when each
Option may be exercised within the term of
the Option specified pursuant to Article 7
of the Plan;
(vi) determine whether or not an Option
constitutes an Incentive Stock Option;
(vii) determine whether or not Options will be
assignable or transferable other than by
the laws of descent and distribution; and
(viii) prescribe the form, which shall be
consistent with the Plan, of the Agreement
evidencing any Options granted under the
Plan.
3.3 Terms - The grant of an Option under the Plan shall
be evidenced by an Agreement and may include any
terms and conditions consistent with this Plan, as
the Committee may determine.
3.4 Liability - No member of the Board or the Committee
shall be liable for any action or determination made
in good faith by the Board or the Committee with
<PAGE 3> respect to this Plan or any Options granted
under this Plan.
Article 4. COMMON STOCK SUBJECT TO THE PLAN
4.1 Common Stock Authorized - The aggregate number of
shares of Common Stock for which Options may be
granted under the Plan shall not exceed 50,000
shares. The limitation established by the preceding
sentence shall be subject to adjustment as provided
in Article 9 of the Plan.
4.2 Shares Available - The Common Stock to be issued upon
exercise of Options granted under the Plan shall be
the Corporation's Common Stock which shall be made
available at the discretion of the Board, either from
authorized but unissued Common Stock or from Common
Stock acquired by the Corporation, including shares
purchased in the open market. In the event that any
outstanding Option under the Plan for any reason
expires or is terminated, the shares of Common Stock
allocable to the unexercised portion of such Option
may thereafter be regranted subject to Option under
the Plan.
Article 5. STOCK OPTIONS
5.1 Exercise Price - The exercise price of Common Stock
shall be, in the case of an Incentive Stock Option,
100 percent of the fair market value of one share of
Common Stock on the date the Option is granted,
except that the purchase price per share shall be
110 percent of such fair market value in the case of
an Incentive Stock Option granted to any individual
described in Section 6.2 of the Plan. The exercise
price of Common Stock shall be, in the case of a
Nonqualified Stock Option, not less than 100 percent
of the fair market value of one share of Common Stock
on the date the Option is granted, unless otherwise
determined by the Committee. The exercise price
shall be subject to adjustment only as provided in
Article 9 of the Plan.
5.2 Limitation on Incentive Stock Options - The aggregate
fair market value (determined as of the date an
option is granted) of the Common Stock with respect
to which Incentive Stock Options are exercisable for
the first time by any individual in any calendar year
(under the Plan and all other plans maintained by the
Corporation) shall not exceed $100,000.
<PAGE 4>
5.3 Determination of Fair Market Value -
(a) During such time as Common Stock is not listed
on an established stock exchange or exchanges
but is listed in the NASDAQ National Market
System, the fair market value per share shall be
the closing sale price for the Common Stock on
the day the Option is granted. If no sale of
Common Stock has occurred on that day, the fair
market value shall be determined by reference to
such price for the next preceding day on which a
sale occurred.
(b) During such time as the Common Stock is not
listed on an established stock exchange or in
the NASDAQ National Market System, fair market
value per share shall be the mean between the
closing dealer "bid" and "asked" prices for the
Common Stock for the day of the grant, and if no
"bid" and "asked" prices are quoted for the day
of the grant, the fair market value shall be
determined by reference to such prices on the
next preceding day on which such prices were
quoted.
(c) If the Common Stock is listed on an established
stock exchange or exchanges, the fair market
value shall be deemed to be the closing price of
Common Stock on such stock exchange or exchanges
on the day the Option is granted or, if no sale
of Common Stock has been made on any stock
exchange on that day, the fair market value
shall be determined by reference to such price
for the next preceding day on which a sale
occurred.
(d) In the event that the Common Stock is not traded
on an established stock exchange or in the
NASDAQ National Market system, and no closing
dealer "bid" and "asked" prices are available on
the date of a grant, then fair market value will
be the price established by the Committee in
good faith.
5.4 Cashless Exercise - In addition, at the request of a
Participant and to the extent permitted by applicable
law, the Corporation may, in its sole discretion,
selectively approve arrangements with a brokerage
firm under which such brokerage firm, on behalf of
the Participant, shall pay to the Corporation the
exercise price of the Stock Options being exercised,
and the Corporation, pursuant to an irrevocable
notice from the Participant, shall promptly deliver
the shares being purchased to such firm.
<PAGE 5>
Article 6. ELIGIBILITY
6.1 Participation - Options shall be granted only to
persons who are Employees of the Corporation, as
determined by the Committee, based upon the
recommendation of the Chief Executive Officer and
ratified by a majority of the members of the Board.
Neither the members of the Committee nor any member
of the Board who is not an Employee of the
Corporation shall be eligible to receive an Option
under the Plan, except as otherwise provided in
Article 10.
6.2 Incentive Stock Option Eligibility - Notwithstanding
any other provision of the Plan, an individual who
owns more than 10 percent of the total combined
voting power of all classes of outstanding stock of
the Corporation shall not be eligible for the grant
of an Incentive Stock Option, unless the special
requirements set forth in Sections 5.1 and 7.1 of the
Plan are satisfied. For purposes of this
Section 6.2, in determining stock ownership, an
individual shall be considered as owning the stock
owned, directly or indirectly, by or for his or her
brothers and sisters (whether by the whole or half
blood), spouse, ancestors and lineal descendants.
Stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be
considered as being owned proportionately by or for
its shareholders, partners or beneficiaries.
"Outstanding stock" shall include all stock actually
issued and outstanding immediately before the grant
of the Option. "Outstanding stock" shall not include
shares authorized for issue under outstanding Options
held by the Optionee or by any other person.
6.3 Board Participation - Notwithstanding the provisions
of Section 6.1, any Director shall be granted Options
under this Plan only pursuant to Article 10.
Article 7. TERM AND EXERCISE OF OPTIONS
7.1 Termination - Each Option granted under the Plan
shall terminate on the date determined by the
Committee and approved by a majority of the members
of the Board, and specified in the Agreement;
provided, however, that (i) each intended Incentive
Stock Option granted to an individual described in
Section 6.2 of the Plan shall terminate not later
than five years after the date of the grant,
(ii) each other intended Incentive Stock option shall
terminate not later than ten years after the date of
grant, and (iii) each Option granted under the Plan
which is intended to be a Nonqualified Stock Option
shall terminate not later than ten years and one
<PAGE 6> month after the date of grant. Except as
otherwise provided below, in addition to any other
provisions regarding the dates upon which Options can
be exercised established by the Committee, each
Option granted under the Plan shall become
exercisable only after the Optionee has completed one
year of continuous employment with the Corporation or
the Bank immediately following the date of the grant
of the Option or a Change of Control occurs. If a
Change of Control occurs, Stock Options granted
hereunder shall become immediately exercisable. The
Committee at its discretion may provide further
limitations on the exercisability of Options granted
under the Plan. An Option may be exercised only
during the continuance of the Optionee's employment
or the optionee's service as a Director, as the case
may be, except as provided in Article 8 and shall not
be assignable or transferable by the Optionee other
than by will or the laws of descent and distribution,
except as otherwise permitted by the Committee in
accordance with applicable law, and during the
lifetime of an Optionee shall be exercisable only by
such Optionee.
7.2 Exercise -
(a) A person electing to exercise an option shall
give written notice to the Corporation of such
election and of the number of shares they have
elected to purchase, in such form as the
Committee shall have prescribed or approved, and
shall at the time of exercise tender the full
purchase price of the shares they have elected
to purchase. The purchase price shall be paid
in full, in cash, upon the exercise of the
Option, provided, however, that in lieu of cash,
an optionee may exercise an option by tendering
to the Corporation shares of Common Stock owned
by such optionee and having a fair market value
equal to the cash exercise price applicable to
the Option (with the fair market value of such
stock to be determined in the manner provided in
Section 5.3 hereof) or by delivering a
combination of cash and such shares.
Notwithstanding the foregoing, Common Stock
acquired pursuant to the exercise of an
Incentive Stock Option may not be tendered as
payment unless the holding period requirements
of Code Section 422(a)(1) have been satisfied,
and Common Stock not acquired pursuant to the
exercise of an Incentive Stock Option may not be
tendered as payment unless it has been held,
beneficially and of record, for at least one
year.
<PAGE 7>
(b) A person holding more than one Option at any
relevant time may, in accordance with the
provisions of the Plan, elect to exercise such
options in any order.
7.3 Change in Control - For purposes of this Article 7, a
Change of Control will be deemed to have occurred
(a) if the Corporation or its shareholders execute an
agreement to dispose of all or substantially all of
the Corporation's assets or Common Stock by means of
sale, merger, consolidation, reorganization,
liquidation or otherwise, as a result of which the
Corporation's shareholders immediately before such
transaction will not own at least seventy-five
percent (75%) of the total combined voting power of
all classes of voting Common Stock of the surviving
entity (be it the Corporation or otherwise)
immediately after the consummation of such
transaction or (b) if there is an actual or
threatened change in the ownership of at least
twenty-five percent (25%) of all classes of voting
Common Stock of the Corporation through the
acquisition of, or an offer to acquire such
percentage of the Corporation's voting Common Stock
by any persons or other entities acting as a group,
and such acquisition or offer has not been duly
approved by the Board.
Article 8. TERMINATION OF EMPLOYMENT OR SERVICE
8.1 Retirement - In the event of Retirement, an Option
shall lapse at the earlier of the term of the Option
or:
(a) in the case of an Incentive Stock Option, three
months from the date of Retirement; and
(b) in the case of options other than Incentive
Stock Options, up to 24 months, at the
discretion of the Committee, from the date of
Retirement.
8.2 Termination of Employment or Service - In the event
of voluntary termination of employment or service at
the election of the Optionee or termination at the
election of the Corporation prior to a Change in
Control, all Options shall lapse as of the date of
termination. In the event of termination by the
Corporation or any successor within one year after a
Change in Control, all Options shall lapse at the
earlier of (i) the term of the Option, (ii) three
months from the date of termination in the case of an
Incentive Stock Option, and (iii) six months from the
date of termination in the case of a Nonqualified
Stock Option. <PAGE 8>
8.3 Death or Disability - In the event of termination due
to death or Permanent and Total Disability, the
Option shall lapse at the earlier of the term of the
Option or one year after termination due to such
causes.
Article 9. ADJUSTMENT PROVISIONS
9.1 Share Adjustments -
(a) In the event that the shares of Common Stock of
the Corporation, as presently constituted, shall
be changed into or exchanged for a different
number or kind of shares of stock or other
securities of the Corporation or of another
corporation (whether by reason of merger,
consolidation, recapitalization,
reclassification, split-up, combination of
shares or otherwise) or if the number of such
shares of stock shall be increased through the
payment of a stock split or stock dividend,
then, subject to the provisions of
Subsection (c) below, there shall be substituted
for or added to each share of stock of the
Corporation which was theretofore appropriated,
or which thereafter may become subject to an
Option under the Plan, the number and kind of
shares of stock or other securities into which
each outstanding share of the stock of the
Corporation shall be so changed or for which
each such share shall be exchanged or to which
each such share shall be entitled, as the case
may be. Outstanding Options shall also be
appropriately amended as to price and other
terms, as may be necessary to reflect the
foregoing events.
(b) If there shall be any other change in the number
or kind of the outstanding shares of the stock
of the Corporation, or of any stock or other
securities in which such stock shall have been
changed, or for which it shall have been
exchanged, and if a majority of the members of
the Board shall, in its sole discretion,
determine that such change equitably requires an
adjustment in any option which was theretofore
granted or which may thereafter be granted under
the Plan, then such adjustment shall be made in
accordance with such determination.
(c) The grant of an Option pursuant to the Plan
shall not affect in any way the right or power
of the Corporation to make adjustments,
reclassifications, reorganizations or changes of
its capital or business structure, to merge, to
<PAGE 9> consolidate, to dissolve, to liquidate
or to sell or transfer all or any part of its
business or assets.
9.2 Corporate Changes - A dissolution or liquidation of
the Corporation, or a merger or consolidation in
which the Corporation is not the surviving
Corporation, shall cause each outstanding Option to
terminate, except to the extent that another
corporation may and does in the transaction assume
and continue the Option or substitute its own
options.
9.3 Fractional Shares - Fractional shares resulting from
any adjustment in Options pursuant to this Article 9
may be settled as the Board or the Committee (as the
case may be) shall determine.
9.4 Binding Determination - To the extent that the
foregoing adjustments relate to stock or securities
of the Corporation, such adjustments shall be made by
the Board, whose determination in that respect shall
be final, binding and conclusive. Notice of any
adjustment shall be given by the Corporation to each
holder of an Option which shall have been so
adjusted.
Article 10. GRANTS OF STOCK OPTIONS TO NON-EMPLOYEE DIRECTORS
Grant - Contemporaneous with the effective date of
this Plan and in accordance with the requirements of
Section 11.1, or as soon as practicable thereafter,
each non-employee Director shall automatically be
granted Nonqualified Stock Options to purchase such
number of shares of Common Stock as are determined by
the Board at an exercise price equal to 100 percent
of the fair market value on the date of grant.
Thereafter, annually beginning in 1999 on the date of
the reorganization meeting of the Board following the
annual meeting of shareholders of the Corporation,
each non-employee director shall automatically be
granted Nonqualified Stock Options to purchase such
number of shares of Common Stock as may be determined
by the Board from time to time at an exercise price
equal to 100 percent of the fair market value of one
share of Common Stock on the date the Option is
granted. For purposes of this Article 10, the term
"non-employee director" shall be deemed to include
associate directors of the Bank.
<PAGE 10>
Article 11. GENERAL PROVISIONS
11.1 Effective Date - The Plan shall become effective upon
its adoption by the Board, provided that any grant of
an Incentive Stock Option is subject to the approval
of the Plan by the shareholders of the Corporation
within 12 months of adoption by the Board.
11.2 Termination of the Plan - Unless previously
terminated by the Board of Directors, the Plan shall
terminate on, and no Options shall be granted after,
the tenth anniversary of its adoption by the Board.
11.3 Limitation on Termination, Amendment or Modification
(a) The Board may at any time terminate, amend,
modify or suspend the Plan, provided that
without the approval of the shareholders of the
Corporation no amendment or modification shall
be made by the Board which:
(i) increases the maximum number of shares of
Common Stock as to which Options may be
granted under the Plan; or
(ii) changes the class of eligible Employees.
(b) No amendment, modification, suspension or
termination of the Plan shall in any manner
affect any option theretofore granted under the
Plan without the consent of the Optionee or any
person validly claiming under or through the
Optionee.
11.4 No Right to Employment - Neither anything contained
in the Plan or in any instrument under the Plan nor
the grant of any Option hereunder shall confer upon
any Optionee any right to continue in the employ of
the Corporation or of any Subsidiary or limit in any
respect the right of the Corporation or of any
Subsidiary to terminate the optionee's employment at
any time and for any reason.
11.5 Withholding Taxes -
(a) Subject to the provisions of Subsection (b), the
Corporation will require that an Optionee, as a
condition of the exercise of an Option, other
than an Incentive Stock Option or any other
person or entity receiving Common Stock upon
exercise of an option, pay or reimburse any
taxes which the Corporation is required to
withhold in connection with the exercise of the
Option.
<PAGE 11>
(b) An Optionee may satisfy the withholding
obligation described in Subsection (a), in whole
or in part, by electing to have the Corporation
withhold shares of Common Stock (otherwise
issuable upon the exercise of an Option) having
a fair market value equal to the amount required
to be withheld. An election by an optionee to
have shares withheld for this purpose shall be
subject to the following restrictions:
(i) it must be made prior to the date on which
the amount of tax to be withheld is
determined (the "Tax Date");
(ii) it shall be irrevocable;
(iii) it shall be subject to disapproval by the
Committee;
(iv) if the Optionee is an officer of the
Corporation within the meaning of
Section 16 of the Exchange Act (an
"Officer"), such election may not be made
within six (6) months of the grant of the
Option (except that this restriction shall
not apply in the event of the death or
disability of the Optionee prior to the
expiration of the six-month period);
(v) the Optionee is an officer, such election
must be made either at least six months
prior to the Tax Date or in the ten-day
"window period" beginning on the third day
following the release of the Corporation's
quarterly or annual summary statement of
revenues and earnings; and
(vi) where the Tax Date of an officer is
deferred up to six months after the
exercise of an Option, the full number of
option shares will be issued or
transferred upon exercise, but the officer
will be unconditionally obligated to
tender back to the Corporation the proper
number of shares of Common Stock on the
Tax Date.
11.6 Listing and Registration of Shares
(a) No Option granted pursuant to the Plan shall be
exercisable in whole or in part if at any time
the Board shall determine in its discretion that
the listing, registration or qualification of
the shares of Common Stock subject to such
Option on any securities exchange or under any
<PAGE 12> applicable law, or the consent or
approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in
connection with, the granting of such Option or
the issue of shares thereunder, unless such
listing, registration, qualification, consent or
approval shall have been effected or obtained
free of any conditions not acceptable to the
Board.
(b) If a registration statement under the Securities
Act with respect to the shares issuable upon
exercise of any Option granted under the Plan is
not in effect at the time of exercise, as a
condition of the issuance of the shares the
person exercising such Option shall give the
Committee a written statement, satisfactory in
form and substance to the Committee, that they
are acquiring the shares for their own account
for investment and not with a view to their
distribution. The Corporation may place upon
any stock certificate for shares issuable upon
exercise of such Option the following legend or
such other legend as the Committee may prescribe
to prevent disposition of the shares in
violation of the Securities Act or other
applicable law:
"THE SHARES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 ("ACT") AND MAY
NOT BE SOLD, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT WITH RESPECT TO
THEM UNDER THE ACT OR A WRITTEN OPINION OF
COUNSEL FOR THE CORPORATION THAT
REGISTRATION IS NOT REQUIRED." <PAGE 13>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
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0
0
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</TABLE>
