UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1999 or
( ) Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the transition period from
No. 0-23863
(Commission File Number)
PEOPLES FINANCIAL SERVICES CORP.
(Exact Name of Registrant as Specified in its Charter)
Pennsylvania 23-2931852
(State of Incorporation) (IRS Employer ID Number)
50 Main Street
Hallstead, PA 18822
(Address of Principal Executive Offices) (Zip Code)
(570) 879-2175
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months or for such shorter period that the registrant was
required to file such reports, and (2) has been subject to such filing
requirements for the past 90 days. Yes X NO____
Number of shares outstanding as of March 31, 1999
COMMON STOCK ($2 Par Value) 2,174,585
(Title of Class) (Outstanding Shares)
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
FORM 10-Q
For the Quarter Ended March 31, 1999
Contents
PART I. FINANCIAL INFORMATION. Page No.
Item 1. Financial Statements.
Consolidated Statement of Financial
Condition as of March 31, 1999
(Unaudited) and March 31, 1998. 4
Consolidated Statement of Income
(Unaudited) for the Three Month Period
Ended March 31, 1999 and 1998. 5
Consolidated Statement of Comprehensive
Income (Unaudited) for the Three Month
Period Ended March 31, 1999 and 1998. 6
Consolidated Statement of Shareholders'
Equity (Unaudited) for the Three Month
Period Ended March 31, 1999 and 1998. 7
Consolidated Statement of Cash Flows
(Unaudited) for the Three Month Period
Ended March 31, 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. 15
PART II. OTHER INFORMATION 16
Item 6. Exhibits and Reports on Form 8-K. 16
<PAGE>
PART I
Item 1
PEOPLES FINANCIAL SERVICES CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
March 31, 1999 and March 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
(in thousands)
March 1999 December 1998
<S> <C> <C>
ASSETS: ............................................
Cash Due from Banks ................................ 2,098 2,048
Interest Bearing Deposits with Other Banks ......... 1,949 2,725
Federal Funds Sold ................................. 1,480 0
Securities Available for Sale ...................... 89,073 93,175
Loans, Net of Unearned Discount .................... 144,751 141,249
Allowance for Loan Loss ............................ -1,693 -1,713
Loans, Net ......................................... 143,058 139,536
Bank Premises and Equipment, Net ................... 3,512 3,523
Accrued Interest Receivable ........................ 1,674 1,781
Other Assets ....................................... 4,885 4,378
TOTAL Assets ....................................... 247,729 247,202
LIABILITIES
Deposits, Non-Interest Bearing ..................... 22,994 24,263
Deposits, Interest Bearing ......................... 188,513 185,618
Total Deposits ..................................... 211,507 209,881
Accrued Interest Payable ........................... 670 703
Borrowed Funds ..................................... 7,541 9,032
Other Liabilities .................................. 789 541
TOTAL Liabilities .................................. 220,507 220,157
SHAREHOLDERS' EQUITY
Common Stock * ..................................... 4,455 4,455
Surplus ............................................ 4,455 4,455
Treasury Stock at Cost ............................. -826 -748
Undivided Profit ................................... 18,911 18,322
Accumulated Other Comprehensive Income ............. 227 561
TOTAL Shareholders' Equity ......................... 27,222 27,045
TOTAL LIABILITIES CAPITAL .......................... 247,729 247,202
<FN>
Common Stock, par value $2 per share, 12,500,000 shares authorized; 2,174,585
and 2,177,576* shares issued and outstanding at March 31, 1999 and December 31,
1998 respectively.
</FN>
</TABLE>
See notes to financial statements
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
(in thousands, except per share data)
March March
1999 1998
<S> <C> <C>
INTEREST INCOME: ..............................................
Interest and Fees on Loans .................................... 2,913 2,761
Interest Investments, Taxable ................................. 892 884
Tax Exempt ......................................... 374 366
Dividends .......................................... 20 12
Interest on Federal Funds Sold ................................ 10 1
Interest on Deposits of Other Banks ........................... -1 17
TOTAL Interest Income ......................................... 4,208 4,041
Interest on Deposits .......................................... 1,952 1,932
Interest on Borrowed Funds .................................... 116 84
Interest Expense .............................................. 2,068 2,016
Net Interest Income ........................................... 2,140 2,025
Provision for Loan Losses ..................................... 60 38
Net Interest Income, after Loan Loss Provision ................ 2,080 1,987
OTHER INCOME:
Service Charges and Fees ...................................... 244 248
Gains on Security Sales ....................................... 6 27
Other Operating Income ........................................ 31 22
TOTAL Other Income ............................................ 281 297
OTHER EXPENSES:
Salaries and Benefits ......................................... 643 613
Occupancy Expenses ............................................ 83 79
Furniture and Equipment Expense ............................... 91 104
FDIC Insurance and Assessments ................................ 23 22
Professional Fees and Outside Services ........................ 40 53
Computer Services and Supplies ................................ 79 62
Taxes, Other Than Payroll and Income .......................... 58 54
Other Operating Expenses ...................................... 281 299
Total Non-Interest Expense .................................... 1,298 1,286
Income Before Income Taxes .................................... 1,063 998
Provision for Income Taxes .................................... 212 205
Net Income .................................................... 851 793
Earnings Per Share, Basic .................................... .39 .36
Earnings Per Share, Diluted .................................. .39 .36
</TABLE>
See notes to financial statements
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
(in thousands)
1999 1998
<S> <C> <C>
Net Income .................................. 851 793
Other Comp Income (loss) before tax
Unrealized holding gains/losses on securities -502 160
Less: reclassification Adjustment ........... 6 -27
Other Comp Income (loss) before tax ......... -508 133
Federal Income Tax expense (benefit) ........ -173 45
Other Comp Income (loss), Net of tax(benefit) -335 88
TOTAL Comp income ........................... 516 881
</TABLE>
See notes to financial statements
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
(in thousands)
Accumulated
Other
Common Undivided Comprehensive Treasury
Stock Surplus Profit Income Stock Total
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 ..4,455 4,455 15,912 371 -549 24,644
Net Income 1998 for the three ....0 0 793 0 0 793
months ended March 31, 1998
Cash Dividends Paid, 1998 ....... 0 0 -227 0 0 -227
Treasury Stock Purchase ......... 0 0 0 0 -31 -31
Change in unrealized gain/loss on securities available for sale,
net of deferred income taxes......0 0 0 88 0 88
Balance, March 31, 1998 .....4,455 4,455 16,478 459 -580 25,267
Balance, December 31, 1998 ..4,455 4,455 18,322 562 -748 27,046
Net Income 1999 for the three.....0 0 851 0 0 851
months ended March 31, 1999
Cash Dividends Paid, 1999 ........0 0 -262 0 0 -262
Treasury Stock Purchase ..........0 0 0 0 -78 -78
Change in unrealized gain/loss on securities available for sale,
net of deferred income taxes......0 0 0 -335 0 -335
Balance, March 31, 1999 .....4,455 4,455 18,911 227 -826 27,222
</TABLE>
See notes to financial statements
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
(in thousands)
Cash Flow 1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income 851 793
Adjustments: Depreciation and amortization 154 174
Provision for Loan Losses 60 38
Gain/Loss on sale of equipment 0 0
Gain/loss on sale of other real estate 0 -18
Amortization of securities' premiums and accretion of discounts 63 22
Gains on sales of investment securities, NET -6 -27
Deferred Income Tax (benefit) 0 0
Increase in accrued interest receivable 108 55
Increase/Decrease in other assets -257 -201
Increase/Decrease in accrues interest payable -33 -8
Increase/Decrease in other liabilities 248 138
Net cash provided by operating activities 1,188 966
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of available for sale securities 2,006 3,701
Proceeds from maturities of available for sale securities 3,975 8,730
Purchase of available for sale securities -6,579 -6,268
Principal payments on mortgage-backed securities 4,135 766
Net increase in loans -3,767 -4,024
Proceeds from sale of premises and equipment 0 0
Purchase of premises and equipment -78 -39
Proceeds from sale of other real estate 43 0
Purchase of intangible assets 0 0
Net cash used in investing activities -265 2,866
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid -262 -227
Increase in deposits 1,626 3,595
Net Increase/Decrease in long-term borrowing 0 0
Net Increase/Decrease in short-term borrowing -1,491 -5,874
Purchase of treasury stock -78 -31
Net cash provided by financing activities -205 -2,537
Net Increase/Decrease in cash/cash equivalents 718 1,295
Cash and cash equivalents, beginning of year 4,809 5,549
Cash and cash equivalents,end of year 5,527 6,844
SUPPLEMENTAL DISCLOSURES OF CASH PAID
Interest Paid 2,101 2,025
Income Taxes Paid 10 0
NON-CASH INVESTMENT AND FINANCING ACTIVITIES
Transfers from loans to real estate through foreclosure 185 308
Proceeds from sales of foreclosed real estate 0 115
TOTAL Increase/Decrease in unrealized gain/loss
on securities avail for sale -507 134
</TABLE>
See notes to financial statements
<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 three-month period ended March 31, 1999 and 1998 include all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of the financial condition and the results of operations for
the period. The financial performance reported for the Corporation for the
three-month period ended March 31, 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 is 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.
<PAGE>
3. COMMON STOCK
On September 15, 1998, the Corporation effected a 5-for-2 stock split
to shareholders of record on August 15, 1998. Earnings per share amounts and
weighted average shares outstanding have been restated to give effect to the
stock split. In connection with the stock split, the Corporation amended its
Articles of Incorporation to authorize 12,500,000 shares of $2 par value common
stock. The Company's Common Stock is not listed on the exchange or quoted on
the National Association of Securities Dealers, Inc. Automated Quotation
(NASDAQ) system. The Company's Common Stock is traded sparodically in the
over-the-counter market and, accordingly, there is no established public trading
market at this time. The investment firm of Hopper Soliday and Co., Inc.
Lancaster, Pennsylvania, makes a limited market in the Company's Common Stock.
As of March 31, 1999, the number of shares of Common Stock outstanding
was 2,174,585. On March 31, 1999, there was 20,863 outstanding options or
warrants to purchase. Earnings per share, basic and diluted, are both $0.39 as
of March 31, 1999.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation
The following discussion and analysis of the consolidated financial
statements of the Corporation is presented to provide insight into management's
assessment of financial results. The Corporation's only subsidiary, Peoples
National Bank of Susquehanna County (the "Bank") provides financial services to
individuals and businesses within the Bank's market area made up of Susquehanna,
Wyoming and northern Lackawanna counties in Pennsylvania, and southern Broome
County in New York. The Bank is a member of the Federal Reserve System and
subject to regulation, supervision and examination by the Office of the
Comptroller of the Currency.
FINANCIAL CONDITION
Cash and Cash Equivalents:
At March 31, 1999, cash, federal funds sold and deposits with other
banks totaled $5.527 million; a decrease of $1.317 million compared to $6.844
million at March 31, 1998 and a decrease of $754 thousand compared to $4.773
million on December 31, 1998.
Management believes the liquidity needs of the Corporation are
satisfied by the current balance of cash and cash equivalents, readily available
access to traditional funding sources, and the portion of the investment and
loan portfolios that matures within one year. These sources of funds will
enable the Corporation to meet cash obligations as they come due.
Investments:
Investments totaled $89.073 million on March 31, 1999; increasing
$7.714 million as compared to March 31, 1998, total of $81.359 million and
decreasing $4.102 million as compared to 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 March 31, 1999, were $7.541 million as compared to $3.401
million on March 31, 1998, showing an increase of $4.140 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 March 1998.
Borrowings have decreased $1.491 million compared to the 1998 year end balance
of $9.032 million.
<PAGE>
Loans:
The Bank's loan volume has continued to be strong through the first
three quarters of 1999. Increasing the loan to deposit ratio is a goal of the
Bank, but loan quality is a requisite in this effort. Management has continued
its efforts to create tighter underwriting standards for both commercial and
consumer credit. The Bank's lending consists primarily of retail lending which
includes single family residential mortgage and other consumer lending, and also
commercial lending primarily to locally owned small businesses.
On March 31, 1999, net loans totaled $143.058 million as compared to
$128.902 million on March 31, 1998 showing an increase of $14.156 million in the
past year. The loan to deposit ratio was 68.44% on March 31, 1999, as compared
to 66.24% on March 31, 1998. During the first quarter of 1999 net loans grew
$ 3.522 million over the 1998 year end balance 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 March 31, 1999, were $211.507 million as compared to $197.187
million at March 31, 1998. This is an increase in deposits of $14.320 million
or 17%. The Bank experienced $2.119 million in growth in non-interest deposits
and $12,201 increase in interest bearing deposits over the March 1998 numbers.
During the first quarter of 1999, deposits increased $1.626 million
over the December 31, 1998 total of $207.881 million.
Capital:
The adequacy of the Corporation's capital is reviewed on an ongoing
basis with reference to the size, composition and quality of the Corporation's
resources and regulatory guidelines. Management seeks to maintain a level of
capital sufficient to support existing assets and anticipated asset growth,
maintain favorable access to capital markets and preserve high quality credit
ratings. As of March 31, 1999, regulatory capital to total assets was 9.51% as
compared to 9.49% on March 31, 1998.
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 asset),
20%, 50% or 100% (highest risk assets) is assigned to each asset on the balance
sheet. Capital is being maintained in compliance with risk-based capital
guidelines. The Company's Tier 1 capital to total risk weighted assets ratio is
16.56% and the total capital ratio to total risk weighted assets ratio is
17.76%. The Corporation is deemed to be well-capitalized under regulatory
standards.
<PAGE>
Liquidity and Interest Rate Sensitivity:
Liquidity measures an organization's ability to meet cash obligations
as they come due. The consolidated statement of cash flows presented in the
accompanying financial statements included in Part I of this Form 10-Q provide
analysis of the Corporation's cash and cash equivalents. Additionally,
management considers that portion of the loan and investment portfolio that
matures within one year as part of the Corporation's liquid assets.
The ALCO addresses the liquidity needs of the Bank to see that
sufficient funds are available to meet credit demands and deposit withdrawals as
well as to the placement of available funds in the investment portfolio. In
assessing liquidity requirements, equal consideration is given to the current
position as well as the future outlook.
The following table sets forth the Bank's interest rate sensitivity as of March
31, 1999.
INTEREST RATE SENSITIVITY ANALYSIS
March 31, 1999
<TABLE>
<CAPTION>
(in thousands)
Maturity or Repricing In:
3 3-6 6-12 1-5 Over 5
Months Months Months Years Years
<S> <C> <C> <C> <C> <C>
RATE SENSITIVE ASSETS
Loans 24,645 11,028 18,774 48,421 41,882
Securities 24,180 6,023 9,650 38,135 13,034
Federal Funds Sold 1,480 0 0 0 0
Total Rate 50,305 17,051 28,424 86,556 54,916
Cummulative Rate 50,305 67,356 95,780 182,336 237,252
RATE SENSITIVE LIABILITIES
Interest Bearing Checking 1,387 0 0 0 12,483
Money Market Deposits 30,670 1,685 0 0 8,426
Regular Savings 3,400 35 607 0 28,023
CDs and IRAs 27,016 13,399 25,343 34,105 1,935
Short-term Borrowings 2,541 0 0 5,000 0
Total Rate Sensitive Liabilities 65,014 15,119 25,950 39,105 50,867
Cummulative
Rate Sensitive Liabilities 65,014 80,133 106,083 145,188 196,055
Period Gap -14,709 1,932 2,474 47,451 4,049
Cummulative Gap -14,709 -12,777 -10,303 37,148 41,197
Cummulative RSA to RSL 77.38% 84.06% 90.29% 125.59% 121.01%
Cummulative Gap to Total Assets -5.94% -5.16% -4.16% 15.01% 16.65%
</TABLE>
<PAGE>
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 $115 thousand or 5.7% for the
three-months and quarter ended March 31, 1999, as compared to the same periods
in 1998. Earning assets increased $20.333 million or 9.44% for March 31, 1999,
as compared to March 31, 1998. Interest earning sources of funds increased
$18, 460 thousand or 9.2% for the same period.
Interest Income:
Interest and fees on loans for the three-months and quarter ended March
31, 1999 totaled $2.913 million, reflecting increases of $152 thousand or 5.5%
over the comparable periods in 1998. The loan portfolio grew $14.156 million
from a total of $128.902 million in March 1998 to $143.058 million in March
1999.
Interest on investments for the three-months and the quarter ended
March 31, 1999, totaled $1.295 million which reflects increases of $15 thousand
or 1.1% over the comparable period in 1998. The investment portfolio has
increased by $7.7 million over the March 1998 total of $81.359 million.
Interest Expense:
Interest expense for the three-months and the quarter ended March 31,
1999, totaled $2.068 million compared to $2.016 million in 1998, reflecting an
increase of $52 thousand or 2.5% over the comparable periods in 1998.
Provision for Loan Loss:
The provision for loan loss for the third quarter ending March 31, 1999
increased by $22 thousand from the corresponding period in 1998.
First quarter 1999 charge-offs totaled $86,625 thousand while net
charge-offs totaled $79,735 as compared to $ 8,301 and $ 0 respectively for the
same three month 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.
<PAGE>
Other Operating Income:
Other operating income decreased $16 thousand when comparing the first
quarter 1999 to first quarter 1998. Service Charge Fee Income is down $4
thousand for the first three months. Gains and losses on security sales are $21
thousand less this year when comparing first quarter 1998 to 1999.
Other Operating Expenses:
Non-Interest expense went up by $12 thousand during the first quarter of
1999 as compared to the first quarter of 1998. All fluctuations are considered
to be minimal and acceptable by management.
Employee salaries, the largest component of non-interest expense, increased
$30 thousand for the first quarter 1999 compared to the same quarter in 1998.
Professional fees and outside services are lower by $13 thousand for the
first quarter 1999 compared to the same quarter in 1998.
Computer expenses have increased $17 thousand in the first quarter 1999
over the same period in 1998.
Furniture and fixture costs are $13 thousand lower in the first three
months of 1999 than in 1998.
Occupancy expense has increased $4 thousand during the first quarter of
1999 compared to the same quarter in 1998.
Tax expense increased $4 thousand in the first quarter of 1999 as compared
to the first quarter of 1998.
Total other expenses decreased $18 thousand in the first quarter of 1999 as
compared to the first quarter of 1998.
Income Tax Provision:
The income tax provision was $212 thousand and $205 thousand for the
three-month periods ended March 31, 1999 and March 31, 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.
<PAGE>
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 development
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.
<PAGE>
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
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
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PEOPLES FINANCIAL SERVICES CORP
By/s/ Debra E. Dissinger
Debra E. Dissinger
Vice President Operations
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