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
September 30, 1999 or
( ) Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the transition period
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 September 30, 1999
COMMON STOCK ($2 Par Value) 2,165,441
(Title of Class) (Outstanding Shares)
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
FORM 10-Q
For the Quarter Ended September 30, 1999
Contents
PART I. FINANCIAL INFORMATION. Page No.
Item 1. Financial Statements.
Consolidated Statement of Financial
Condition as of September 30, 1999
(Unaudited) and December 31, 1998. 4
Consolidated Statement of Income
(Unaudited) for the Nine and Three
Month Periods Ended September 30,
1999 and 1998. 5
Consolidated Statement of Comprehensive
Income (Unaudited) for the Nine and Three
Month Periods Ended September 30,
1999 and 1998. 6
Consolidated Statement of Shareholders'
Equity (Unaudited) for the Nine Month
Period Ended September 30, 1999 and 1998. 7
Consolidated Statement of Cash Flows
(Unaudited) for the Nine Month Period
Ended September 30, 1999 and 1998. 8
Notes to Consolidated Statements. 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 10
Item 3. Quantitative and Qualitative Disclosure
About Market Risks. 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 17
<PAGE>
PART I
Item 1
PEOPLES FINANCIAL SERVICES CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
September 30, 1999 and December 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
(in thousands) SEPTEMBER DECEMBER
1999 1998
---- ----
<S> <C> <C>
ASSETS:
Cash Due from Banks ................................ 2,958 2,084
Interest Bearing Deposits with Other Banks ......... 5,196 2,725
Federal Funds Sold ................................. 120 0
Securities Available for Sale ...................... 94,609 93,175
Loans .............................................. 147,428 141,283
Less: Unearned Income ............................. -13 -34
Allowance for Loan Loss ............................ -1,750 -1,713
Loans, Net ......................................... 145,665 139,536
Bank Premises and Equipment, Net ................... 3,483 3,523
Accrued Interest Receivable ........................ 1,788 1,781
Other Assets ....................................... 5,744 4,378
TOTAL Assets ....................................... 259,563 247,202
======= =======
LIABILITIES:
Deposits, Non-Interest Bearing ..................... 26,775 24,263
Deposits, Interest Bearing ......................... 195,296 185,618
Total Deposits ..................................... 222,071 209,881
Accrued Interest Payable ........................... 672 703
Borrowed Funds ..................................... 9,620 9,032
Other Liabilities .................................. 525 541
TOTAL Liabilities .................................. 232,888 220,157
------- -------
SHAREHOLDERS' EQUITY
Common Stock * ..................................... 4,455 4,455
Surplus ............................................ 4,471 4,455
Treasury Stock at Cost ............................. -1,084 -748
Undivided Profit ................................... 20,305 18,322
Accumulated Other Comprehensive Income ............. -,1472 561
TOTAL Shareholders' Equity ......................... 26,675 27,045
------ ------
TOTAL LIABILITIES CAPITAL .......................... 259,563 247,202
======= =======
<FN>
* Common Stock, par value $2 per share, 12,500,000 shares authorized:
2,165,441 and 2,177,576 shares issued and outstanding at September 30, 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>
Nine Months Three Months
Ended Ended
(in thousands) September 30 September 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and Fees on Loans ................. 8,864 8,464 3,003 2,897
Interest Investments, Taxable .............. 2,810 2,553 1,016 840
Tax Exempt ...................... 1,090 1,109 357 373
Dividends ....................... 59 39 20 15
Interest on Federal Funds Sold ............. 112 41 56 7
Interest on Deposits of Other Banks ........ 9 40 9 14
TOTAL Interest Income ...................... 12,944 12,246 4,461 4,146
------ ------ ----- -----
Interest on Deposits ....................... 5,936 5,916 2,020 2,036
Interest on Borrowed Funds ................. 299 202 102 60
Interest Expense ........................... 6,235 6,118 2,122 2,096
Net Interest Income ........................ 6,709 6,128 2,339 2,050
Provision for Loan Losses .................. 180 130 60 55
Net Interest Income,
after Loan Loss Provision .................. 6,529 5,998 2,279 1,995
OTHER INCOME:
Service Charges and Fees ................... 751 759 262 270
Gains on Security Sales .................... 104 48 41 15
Other Operating Income ..................... 150 53 77 26
TOTAL Other Income ......................... 1,005 860 380 311
----- --- --- ---
OTHER EXPENSES:
Salaries and Benefits ...................... 1,841 1,759 546 602
Occupancy Expenses ......................... 232 232 73 75
Furniture and Equipment Expense ............ 271 320 89 110
FDIC Insurance and Assessments ............. 69 66 23 22
Professional Fees and Outside Services ..... 141 168 50 52
Computer Services and Supplies ............. 235 196 74 71
Taxes, Other Than Payroll and Income ....... 182 166 62 56
Other Operating Expenses ................... 896 871 301 306
Total Non-Interest Expense ................. 3,867 3,778 1,218 1,294
----- ----- ----- -----
Income Before Income Taxes ................. 3,667 3,080 1,441 1,012
Provision for Income Taxes ................. 855 635 377 202
Net Income ................................. 2,812 2,445 1,064 810
Net Income Per Share, Basic and Diluted .... 1.30 1.12
</TABLE>
See notes to financial statements
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
(in thousands) Nine Months Three Months
Ended Ended
September 30 September 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income ................................. 2,812 2,445 1,064 810
Other Comp Income (loss) before tax
Unrealized holding gains/losses
on securities .............................. -3,082 750 -800 518
Less: reclassification Adjustment .......... 104 -48 167 -21
Other Comp Income (loss) before tax ........ -2,978 702 -759 497
Federal Income Tax expense (benefit) ....... 1,013 239 259 169
Other Comp Income (loss),
Net of tax(benefit) ........................ -1,965 463 -500 328
TOTAL Comp income .......................... 847 2,908 564 1,138
=== ===== === =====
</TABLE>
See notes to financial statements
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Other
Common Undivided Comprehensive Treasury
Stock Surplus Profit Income Stock Total
----- ------- ------- ------ ----- -----
(in thousands)
<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 nine
months ended September 30, 1998 . 2,445 2,445
Cash Dividends Paid, 1998 ....... -734 -734
Treasury Stock Purchase ......... -125 -125
Change in unrealized gain/loss
on securities available for sale,
net of deferred income taxes .... 463 463
Balance,
September 30, 1998 .......4,455 4,455 17,623 834 -674 26,693
Balance,
December 31, 1998 ........4,455 4,455 18,322 562 -748 27,046
Net Income 1999 ................. 2,812 2,812
Cash Dividends Paid, 1999 ....... -829 -829
Treasury Stock Activity ......... 16 -336 -320
Change in unrealized gain/loss
on securities available for sale,
net of deferred income taxes .... -2,034 -2,034
Balance,
September 30, 1999 .......4,455 4,471 20,305 -1,472 -1,084 26,675
</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)
1999 1998
---- ----
<S> <C> <C>
Cash Flow
Cash Flows from Operating Activities
Net Income .................................................... 2,812 2,445
Adjustments: Depreciation and amortization .................... 466 527
Provision for Loan Losses ........................ 180 130
Gain/Loss on sale of equipment ................... 0 2
Gain/loss on sale of other real estate ........... 24 2
Amortization of securities' premiums and accretion of discounts 180 87
Gains on sales of investment securities, NET .................. -104 -48
Increase in accrued interest receivable ....................... -7 112
Increase/Decrease in other assets ............................. -547 -126
Increase/Decrease in accrues interest payable ................. -31 0
Increase/Decrease in other liabilities ........................ -16 -6
Net cash provided by operating activities ..................... 2,957 3,125
------ ------
Cash Flows from investing activities
Proceeds from sale of available for sale securities ........... 9,909 7,111
Proceeds from maturities of available for sale securities ..... 8,942 11,978
Purchase of available for sale securities ..................... -31,573 -22,420
Principal payments on mortgage-backed securities .............. 8,130 3,374
Purchase of Fed Funds Sold .................................... -120 0
Net increase in loans ......................................... -6,546 -11,785
Proceeds from sale of premises and equipment .................. 0 1
Purchase of premises and equipment ............................ -232 -137
Proceeds from sale of other real estate ....................... 249 30
Purchase of intangible assets ................................. 0 0
Net cash used in investing activities ......................... -11,241 -11,848
------ ------
Cash flows from financing activities
Cash dividends paid ........................................... -829 -734
Increase in deposits .......................................... 12,190 11,110
Net Increase/Decrease in long-term borrowing .................. 0 0
Net Increase/Decrease in short-term borrowing ................. 588 -2,945
Treasury Stock Activity ....................................... -320 -125
Net cash provided by financing activities ..................... 11,629 7,306
Net Increase/Decrease in cash/cash equivalents ................ 3,345 -1,417
Cash and cash equivalents, beginning of year .................. 4,809 5,549
Cash and cash equivalents,end of year ......................... 8,154 4,132
------ ------
Supplemental disclosures of cash paid
Interest Paid ................................................. 6,266 6,119
Income Taxes Paid ............................................. 858 579
------ ------
Non-cash investing and financing activities
Transfers from loans to real estate through foreclosure ....... 237 601
Proceeds from sales of foreclosed real estate ................. 0 200
TOTAL Increase/Decrease in unrealized gain/loss
on securities avail for sale .................................. -3,082 702
</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 nine-month period ended September 30, 1999 and 1998 include
all adjustments, consisting of only normal recurring adjustments, necessary for
a fair presentation of the financial condition and the results of operations
for the period. The financial performance reported for the Corporation for the
nine-month period ended September 30, 1999, is not necessarily the result to be
expected for the full year.
2. RECENT ACCOUNTING PRONOUNCEMENTS
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
SFAS No. 133
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. This Statement requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The accounting
for changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. This Statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999, and will not be
applied retroactively to financial statements of prior periods. Management of
the Bank is in the process of evaluating the impact, if any, this Statement will
have on the Bank's consolidated results of operations or financial position
when adopted.
ACCOUNTING FOR MORTGAGE-BACKED SECURITIES RETAINED AFTER THE SECURITIZATION OF
MORTGAGE LOANS HELD FOR SALE BY A MORTGAGE BANKING ENTERPRISE
SFAS No. 134
The Company adopted SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise", effective January 1, 1999. The Statement
amends SFAS 65, "Accounting for Certain Mortgage Banking Activities".
Statement 65, as amended, requires that after the securitization of a mortgage
loan held for sale, an entity engaged in mortgage banking activities classify
the resulting mortgage-backed security as a trading security. This Statement
further amends SFAS 65 to require that after the securitization of mortgage
loans held for sale, an entity engaged in mortgage banking activities classify
the resulting mortgage-backed securities or other retained interest based on
its ability and intent to sell or hold those investments.
<PAGE>
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.
3. COMMON STOCK
On September 15, 1998, the Corporation effected a 5-for-2 stock split
to shareholders of record on August 15, 1998.
Earnings per share amounts and weighted average shares outstanding
have been restated to give effect to the stock split. In connection with the
stock split, the Corporation amended its Articles of Incorporation to authorize
12,500,000 shares of $2 par value common stock.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation
The following discussion and analysis of the consolidated financial
statements of the Corporation is presented to provide insight into management's
assessment of financial results. The Corporation's only subsidiary, Peoples
National Bank of Susquehanna County (the "Bank") provides financial services to
individuals and businesses within the Bank's market area made up of Susquehanna,
Wyoming and northern Lackawanna counties in Pennsylvania, and southern Broome
County in New York. The Bank is a member of the Federal Reserve System and
subject to regulation, supervision and examination by the Office of the
Comptroller of the Currency.
FINANCIAL CONDITION
Cash and Cash Equivalents:
At September 30, 1999, cash, federal funds sold and deposits with
other banks totaled $8.274 million; an increase of $4.142 million compared to
$4.132 million at September 30, 1998 and an increase of $3.465 million compared
to December 31, 1998.
Management believes the liquidity needs of the Corporation are
satisfied by the current balance of cash and cash equivalents, readily available
access to traditional funding sources, and the portion of the investment and
loan portfolios that matures within one year. These sources of funds will
enable the Corporation to meet cash obligations as they come due. Management
is also aware of the possible public demand of cash due to the concerns over
the Year 2000 and has taken necessary steps to address possible extra liquidity
needs.
<PAGE>
Investments:
Investments totaled $94.609 million on September 30, 1999; increasing
$5.839 million as compared to September 30, 1998's total of $88.770 million and
increasing $1.434 thousand compared to the total of $93.175 million held on
December 31, 1998.
The total investment portfolio is held as available for sale. This
strategy was implemented in 1995 to provide more flexibility in using the
investment portfolio for liquidity purposes as well as providing more
flexibility in selling when market opportunities occur.
Management monitors the earnings performance and effectiveness of the
liquidity of the investment portfolio on a monthly basis through the
Asset/Liability Committee ("ALCO") meetings. The ALCO also reviews and manages
interest rate risk for the Corporation. Through active balance sheet management
and analysis of the investment securities portfolio, the Corporation maintains
sufficient liquidity to satisfy depositor requirements and various credit needs
of its customers.
Borrowings:
The Bank utilizes borrowing as a source of funds for its
asset/liability management. Advances are available from the FHLB provided
certain standards related to credit worthiness have been met. Repurchase and
term agreements are also available from FHLB.
Total borrowings at September 30, 1999, were $9.620 million as
compared to $6.331 million on September 30, 1998, showing an increase of
$3.289 million and an increase of $588 thousand compared to the December
31, 1998 total of $9.032 million. On November 16, 1998, the Bank entered into
a term borrowing agreement with FHLB for $5 Million. This accounts for a large
part of the increase over September of 1998.
Loans:
The Bank's loan volume has been steady through the first nine months
of 1999. Increasing the loan to deposit ratio is a goal of the Bank, but loan
quality is a requisite in this effort. Management has continued its efforts to
create tighter underwriting standards for both commercial and consumer credit.
The Bank's lending consists primarily of retail lending which includes single
family residential mortgage and other consumer lending, and also commercial
lending primarily to locally owned small businesses.
On September 30, 1999, net loans totaled $145.665 million as compared
to $136.364 million on September 30, 1998 showing an increase of $9.301 million
in the past year. The loan to deposit ratio was 66.057% on September 30, 1999,
as compared to 66.707% on September 30, 1998.
During the third quarter of 1999 net loans increased $4.889 million
from the prior quarter end total of $140.776 million. Since December 31, 1998,
loans have grown $6.129 million in 1999 and since September 30, 1998, loans have
grown $9.301 million.
<PAGE>
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 September 30, 1999, were $222.071 million as compared to
$204.702 million at September 30, 1998. This is an increase in deposits of
$17.369 million or 8.49%. Deposits totaled $209.881 million on December
31, 1998. Of the $12.190 million growth in 1999, $6.990 million occurred in
the third quarter. Although we are not the highest payer for deposits in our
market, our deposit growth has remained steady.
Capital:
The adequacy of the Corporation's capital is reviewed on an ongoing
basis with reference to the size, composition and quality of the Corporation's
resources and regulatory guidelines. Management seeks to maintain a level of
capital sufficient to support existing assets and anticipated asset growth,
maintain favorable access to capital markets and preserve high quality credit
ratings. As of September 30, 1999, regulatory capital to total assets was
9.64% as compared to 9.51% on September 30, 1998.
The Corporation has complied with the standards of capital adequacy
mandated by the banking regulators. The bank regulators have established
"risk-based" capital requirements designed to measure capital adequacy.
Risk-based capital ratios reflect the relative risks of various assets banks
hold in their portfolios. A weight category of either 0% (lowest risk asset),
20%, 50% or 100% (highest risk assets) is assigned to each asset on the balance
sheet. Capital is being maintained in compliance with risk-based capital
guidelines. The Company's Tier 1 capital to total risk weighted assets ratio
is 16.62% and the total capital ratio to total risk weighted assets ratio is
17.81%. The Corporation is deemed to be well-capitalized under regulatory
standards.
On July 30, 1999, the Corporation mailed a prospective date July 30,
1999 with the option to have all or partial dividend payments paid through a
dividend reinvestment plan.
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 Corporation has included liquidity planning in the business
resumption plan as part of the Y2K project. Although management cannot predict
depositors' behavior, public awareness programs and cash contingency plans are
in place in preparation of unusual withdrawal activity.
<PAGE>
The following table sets forth the Bank's interest rate sensitivity as of
September 30, 1999.
INTEREST RATE SENSITIVITY ANALYSIS
September 30, 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> <C>
RATE SENSITIVE ASSETS
Loans .................... 18,192 8,267 21,511 55,474 43,971
Securities ............... 23,756 5,812 7,314 44,890 18,033
Federal Funds Sold ....... 120 0 0 0 0
Total
Rate Sensitive Assets .... 42,068 14,079 28,825 100,364 62,004
====== ====== ====== ======= ======
Cummulative
Rate Sensitive Assets .... 42,068 56,147 84,972 185,336 247,340
====== ====== ====== ======= =======
RATE SENSITIVE LIABILITIES
Interest Bearing Checking 1,607 0 0 0 14,462
Money Market Deposits .... 29,770 1,713 0 0 8,566
Regular Savings .......... 7,421 30 24 4 27,259
CDs and IRAs ............. 22,110 17,744 30,209 32,798 1,579
Short-term Borrowings .... 4,620 0 0 0 1,032
Long-term Borrowings ..... 0 0 0 5,000 0
Total
Rate Sensitive Liabilities 65,528 19,487 30,233 37,802 52,898
====== ====== ====== ====== ======
Cummulative
Rate Sensitive Liabilities 65,528 85,015 115,248 153,050 205,948
====== ====== ======= ======= =======
Period Gap ............... -23,460 -5,408 -1,408 62,562 9,106
Cummulative Gap .......... -23,460 -28,868 -30,276 32,286 41,392
Cummulative RSA to RSL ... 64.20% 66.04% 73.73% 121.10% 121.10%
Cummulative Gap to
Total Assets ............. -9.04% -11.12% -11.66% 12.44% 15.95%
==== ===== ===== ===== =====
</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 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.
<PAGE>
RESULTS OF OPERATIONS
Net Interest Income:
Net interest income after loan provisions increased by $531 thousand or
8.85% for the nine-months and quarter ended September 30, 1999, as compared to
the same periods in 1998. Earning assets increased $18.603 million or 8.20% for
September 30, 1999, as compared to September 30, 1998.
Interest Income:
Interest and fees on loans for the nine-months and quarter ended
September 30, 1999 totaled $8.864 million, reflecting increases of $400
thousand or 4.73% over the comparable periods in 1998. The loan portfolio grew
$9.301 million from a total of $136.364 million in September 1998 to $145.665
million in September 1999 in comparison.
Interest on investments for the nine-months and the quarter ended
September 30, 1999, totaled $4.080 million which reflects increases of $298
thousand or 7.88% over the comparable period in 1998. The investment portfolio
has increased by $5.839 million over the September 1998 total of $88.770
million.
Interest Expense:
Interest expense for the nine-months and the quarter ended September
30, 1999, totaled $6.235 million compared to $6.118 million in 1998, reflecting
an increase of $117 thousand or 1.91% over the comparable periods in 1998.
Provision for Loan Loss:
The provision for loan loss for the third quarter ending September 30,
1999 increased by $5 thousand from the corresponding three month period in 1998
and increased $50 thousand for the corresponding nine month period.
As of third quarter 1999, charge-offs totaled $179,799 while net
charge-offs totaled $142,382 as compared to $125,091 and $94,661 respectively
for the same nine months period in 1998.
Senior management utilizes detailed analysis of the loan portfolio
monthly to determine loan loss reserve adequacy. The process considers all
"problem loans" including classified, criticized and monitored loans. Prior
loan loss history and current market trends, both nationally and locally, are
taken into consideration. A watch list of potential problem loans is maintained
and monitored monthly. This list is reviewed by the Board of Directors on a
monthly basis. The Bank has not had nor presently has any foreign loans. In
addition, the Bank does not have any concentrations of credit. Based upon this
analysis, senior management has concluded that the allowance of loan loss is
adequate.
<PAGE>
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.
Total Other Operating Income:
The total for this entire category increased $145 thousand for the
first nine months of 1999 as compared to the first nine months of 1998. There
are three major accounts that make up this total.
Service Charge Fee Income decreased $8 thousand when comparing the
nine month and three month periods of 1999 to the same periods in 1998.
Gains and Losses on Securities are $56 thousand more this year when
comparing the first nine months of 1999 to 1998. Of that increase, $26 thousand
occurred in the third quarter.
In Other Income there was an increase of $97 thousand when comparing
the first nine months of 1999 to 1998. Of that increase, $51 thousand occurred
in the third quarter. Mick Saravitz's efforts as a joint employee of the Bank
and T.H.E. Financial Group, Ltd. of Mechanicsburg, PA, have added $18.7 thousand
of additional income as of September 30, 1999. The alternative investment
products available through T.H.E. have been well received. The Bank has also
offered a new service for accounts receivable servicing which has added $13.5
thousand to income as of the end of the third quarter.
Other Operating Expenses:
Non-Interest expense went up by $89 thousand during the first three
quarters of 1999 as compared to the same quarters in 1998. Professional fees
and outside services are lower by $27 thousand for the same periods.
Employee salaries, the largest component of non-interest, increased
$82 thousand for the first nine months of 1999 as compared to the first nine
months of 1998. This increase reflects both salary increases as well as the
filling of some new positions.
Income Tax Provision:
The income tax provision was $855 thousand and $635 thousand for the
nine-month periods ended September 30, 1999 and September 30, 1998 respectively.
<PAGE>
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
developments which could materially affect business and operations.
Item 3. Quantitative and Qualitative Disclosure About Market Risks
The information set forth under the caption "Liquidity and Interest
Sensitivity" under Item 2, Part I is incorporated herein by reference.
<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
July 22, 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
Press Release of Peoples Financial Services Corp. dated July
22, 1999, previously submitted as Exhibit 99.3
Shareholder Automatic Dividend Reinvestment and Stock
Purchase Plan dated July 30, 1999, previously submitted as
Form S-3
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PEOPLES FINANCIAL SERVICES CORP
By/s/ Debra E. Dissinger
Debra E. Dissinger
Executive Vice President/COO
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