PEOPLES FINANCIAL SERVICES CORP.
50 MAIN STREET
HALLSTEAD, PA 18822
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TIME................................10:30 a.m. E. S. T., on Saturday, April 24,
1999
PLACE...............................The Montrose Bible Conference
Lake Avenue
Montrose, PA 18801
ITEMS OF BUSINESS...................(1) To elect two Class I Directors to
hold office for three years from
the date of election and until
their successors shall have been
elected and qualified.
(2) To ratify the appointment by the
Board of Directors for Prociak &
Associates, LLC, Certified Public
Accountants, as the independent
auditors for the year ending
December 31, 1999.
(3) To transact such other business as
may properly be presented at the
Meeting and any adjournment or
postponement thereof.
RECORD DATE.........................Holders of Common Shares of record at the
close of business on February 26, 1999
are entitled to vote at the Meeting.
ANNUAL REPORT...................... The Company's 1998 Annual Report,
which is not a part of the proxy soliciting
material, is enclosed.
PROXY VOTING....................... It is important that your Shares be
represented and voted at the Meeting. Mark,
sign, date and promptly return the enclosed
proxy card in the postage-paid envelope
furnished for that purpose. Any proxy may be
revoked in the manner described in the
accompanying Proxy Statement at any time
prior to its exercise at the Meeting.
JOHN W. ORD
PRESIDENT AND CEO
February 26, 1999
1
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TABLE OF CONTENTS
- ------------------------------------------------------------------------------
PROXY STATEMENT............................................................. 3
Proxies ............................................................. 3
Required Vote.......................................................... 3
Cost of Proxy Solicitation............................................. 4
Advance Notice Procedures.............................................. 4
Shareholder Communications............................................ 4
GOVERNANCE OF THE COMPANY................................................... 5
Committees of the Board of Directors................................... 5
Compensation of Directors.............................................. 6
Compensation Committee Interlocks and Insider Participation............ 6
Relationship with Independent Public Accountants....................... 7
Section 16(a) Beneficial Ownership Reporting Compliance................ 7
SHARE OWNERSHIP OF MANAGEMENT AND DIRECTORS................................. 7
ELECTION OF DIRECTORS....................................................... 8
Nominees for Terms Expiring in 2002.................................... 9
Directors Whose Terms Will Expire in 2000.............................. 9
Directors Whose Terms Will Expire in 2001...............................10
EXECUTIVE COMPENSATION.......................................................10
Board Compensation Committee Report on Executive Compensation............10
Summary Compensation Table...............................................13
Option Grants in Last Fiscal Year........................................14
Pension Plans............................................................14
Performance Graph........................................................16
Executive Employment Agreements and Other Arrangements...................16
OTHER MATTERS................................................................17
PROXY CARD...................................................................18
2
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PROXY STATEMENT
-----------------------------------------------------------------------------
This Proxy Statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Peoples Financial Services Corp. (the "Company"),
parent company of Peoples National Bank of Susquehanna County (the "Bank"), for
use at the Company's Annual Meeting of Shareholders to be held on April 24,
1999, (the "Meeting") at 10:30 a.m. E.S.T. at the Montrose Bible Conference,
Lake Avenue, Montrose, Pennsylvania. The Proxy Statement and the accompanying
proxy are first being mailed to Shareholders of the Company on or about March
22, 1999.
PROXIES
The execution and return of the enclosed proxy will not affect a Shareholder's
right to attend the Meeting and vote in person. Any Shareholder giving a proxy
may revoke it at any time before it is exercised by submitting written notice of
its revocation or a subsequently executed proxy to the Secretary of the Company,
Virginia Turner, 50 Main Street, P0 Box A, Hallstead, Pennsylvania, 18822, or by
attending the Meeting and electing to vote in person after giving written notice
thereof to the Secretary of the Company. Shareholders of record at the close of
business on February 26, 1999 are entitled to notice of, and to vote at, the
Meeting. On that date, the Company had 2,175,031 shares of common stock
outstanding (the "Common Stock"), par value $2.00 per share, each of which will
be entitled to one vote at the Meeting.
If the enclosed proxy is appropriately marked, signed, and returned in time to
be voted at the Meeting, the shares represented by the proxy will be voted in
accordance with the instructions marked thereon. Any proxy not specifying to the
contrary will be voted FOR the election of the nominees for Class I Directors,
and FOR the appointment of Prociak & Associates, LLC, Certified Public
Accountants, as the independent auditors for the year ending December 31, 1999.
Shares represented by properly executed proxies on the accompanying form will be
voted FOR the nominees named unless otherwise specified on the proxy by the
Shareholder. Any Shareholder who wishes to withhold authority from the
proxyholders to vote for the election of Directors or to withhold authority to
vote for any individual nominee may do so by marking his or her proxy to that
effect. No proxy may be voted for a greater number of persons than the number of
nominees named. If any nominee should become unable to serve, the persons named
in the proxy may vote for another nominee. The Company's Board of Directors and
management, however, have no present reason to believe that any nominee listed
will be unable to serve as a Director, if elected.
REQUIRED VOTE
The presence, in person or by proxy, of the holders of a majority of
the Shares entitled to vote generally for the election of Directors is
necessary to constitute a quorum at the Meeting. Abstentions and broker
"non-votes" are counted as present and entitled to vote for purposes of
determining a quorum. A broker "non-vote" occurs when a nominee holding
Shares for a beneficial owner does not vote on a particular proposal
because the nominee does not have discretionary voting power with respect
to that item and has not received instructions from the beneficial owner.
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The affirmative vote of the holders of a majority of the outstanding
Common Shares entitled to vote is required to ratify the appointment by the
Board of Directors for Prociak & Associates, LLC, Certified Public
Accountants, as the independent auditors for the year ending December 31,
1999. The affirmative vote of the holders of a majority of the Common
Shares present in person or represented by proxy and entitled to vote is
required to approve the other matters to be acted upon at the Meeting. An
abstention is counted as a vote against the Board's proposal and such other
matters. A broker "non-vote" is counted as a vote against the Board's
proposal and is not counted for purposes of approving the other matters.
COST OF PROXY SOLICITATION
The expense of soliciting proxies will be borne by the Company. It is expected
that the solicitation of proxies will be primarily by mail. The Company's
Directors, Officers and Employees may also solicit proxies personally.
ADVANCE NOTICE PROCEDURES
The By-Laws of the Company permit nominations for election to the Board of
Directors to be made by the Board of Directors or by any Shareholder of the
Company. All nominations are referred to the Board of Directors for
consideration. The By-Laws require that any nomination for Director by a
Shareholder (other than by the Board of Directors) must be made by notice, in
writing, delivered to the Secretary of the Company not less than 60 days prior
to the date of a Shareholders' Meeting.
Any Shareholder proposal for consideration at the Company's Annual Meeting of
Shareholders to be held in 2000 must be received by the Company at its principal
office not later than December 3, 1999, in order to be considered at the 2000
Annual Meeting of Shareholders. A copy of the full text of the By-Law provisions
discussed above may be obtained by writing to the Corporate Secretary, PO Box A,
Hallstead, PA 18822.
SHAREHOLDER COMMUNICATIONS
Highlights of the Meeting will be included in a quarterly report to Shareholders
following the Meeting. You can obtain a transcript of the Meeting by writing to
Shareholders' Meeting Transcript Requests, 50 Main Street, PO Box A, Hallstead,
PA 18822.
As a Shareholder, your comments pertaining to any aspect of Company business are
welcome. Although Shareholder comments are not answered on an individual basis,
they do assist Company Management in understanding the concerns of Shareholders.
4
<PAGE>
GOVERNANCE OF THE COMPANY
- -------------------------------------------------------------------------------
Pursuant to the Pennsylvania General Corporate Law and the Company's By-Laws,
the business, property and affairs of the Company are managed under the
direction of the Board of Directors. Members of the Board are kept informed of
the Company's business through discussions with the CEO and Officers, by
reviewing materials provided to them and by participation in meetings of the
Board and its committees.
During 1998, all of the Directors of the Company attended at least 75% of the
aggregate of all meetings of the Company's and the Bank's Boards of Directors
and Board committees on which they served.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors met five times during 1998 and the Bank's Board
of Directors met 12 times during 1998.
The Company's Board of Directors is authorized, under the Company's By-Laws, to
create an Executive Committee and other Board committees. At present, no such
committees have been established, and all committee functions are performed by
committees of the Bank's Board. The Bank's Board has seven standing
committees--Executive, Compensation, Audit, Asset/Liability, Human Resources and
Marketing, Loan Administration and Branch. There is no Nominating Committee.
The Executive Committee of the Bank met one time during 1998. It is a fixed
committee comprised of the Chairman, the Vice Chairman, the President and one
other Director appointed on a yearly basis. This committee may exercise the
authority of the Bank's Board to the extent permitted by law during intervals
between meetings of the Board. The Executive Committee of the Bank may also be
assigned other duties by the Bank's Board.
The Compensation Committee of the Bank met one time during 1998. This committee
reviews and recommends compensation policies and plans. Carl F. Pease was the
Chairman of the Committee. The other Committee members were: Jack M. Norris,
Gerald R. Pennay, and John W. Ord. Mr. Ord is the current CEO and President of
Peoples National Bank. While Mr. Ord was specifically excluded from any
Committee discussion concerning his own compensation, he does participate in the
Committee's discussion concerning other key Executive's compensation.
The Audit Committee of the Bank met four times during 1998. It supervises the
compliance and internal audit program of the Bank and recommends the appointment
of, and serves as the principal liaison between, the Board and the Company's
independent accountants. The Audit Committee also reports to the Board on the
general financial condition of the Bank.
The Asset/Liability Committee of the Bank met 12 times during 1998. It monitors
and helps control the Bank's risk position by recommending the allocation of
funds within guidelines for rate sensitivity, time deposits, liquidity, Federal
Funds borrowing, loans, investments, dividends and tax position. The
Asset/Liability Committee is responsible for developing such guidelines, guiding
the Bank's investments, and coordinating the Bank's budget process.
5
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The Human Resources and Marketing Committee of the Bank met four times during
1998. It is responsible for sound human resources management (e.g., in
employment, compensation, and performance appraisals). This Committee is also
responsible for evaluation, planning and supervision of the marketing of the
Bank's products and services and also oversees community relations and other
public relations activities.
The Loan Administration Committee of the Bank met four times during 1998. It
assists the Bank's Board of Directors in discharging its responsibility for the
lending activities of the Bank by reviewing loans, lines of credit, floor plans,
and compliance. The Loan Administration Committee recommends lending
authorizations and is responsible for assuring that the Bank's loan activities
are carried out in accordance with loan policies. The Loan Administration
Committee is also responsible for ensuring the adequacy of the Bank's loan loss
reserve.
The Branch Committees of the Bank each met 10 times during 1998. There is one
committee assigned to each branch of the Bank. These Committees are responsible
for monitoring the operations, goals, and profitability of the branches.
COMPENSATION OF DIRECTORS
Each member of the Board of Directors receives $350 for each Bank Board meeting
and all committee members, except Mr. Ord, receive $150 for each committee
meeting they attend. The Chairman of the Board receives an additional $200 per
month.
DIRECTORS STOCK OPTIONS
On May 1, 1998, each non-employee Director received an option to purchase 625
shares of Common Stock. These options have an exercise price of $22.20. The
option vests after five years of service and will expire ten years from the date
of the grant. (shares have been adjusted to reflect the Company's September 1998
five-for-two stock split)
DIRECTORS LIFE INSURANCE
Each Director has $50,000 of split dollar life insurance with premiums paid by
the Bank. The total of premiums paid in 1998 was $27,485. Under this split
dollar life insurance agreement, the Company will receive an amount from the
cash value or death proceeds of the policy equal to its premium advances.
DIRECTORS HEALTH INSURANCE
Health insurance is provided to Directors under the same terms and conditions as
the Employees of the Bank. The total of premiums paid in 1998 was $30,986.
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
John W. Ord is the only employee serving on the Compensation Committee of the
Board of Directors. Mr. Ord is excluded from any discussion concerning his own
compensation.
6
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RELATIONSHIP WITH INDEPENDENT
PUBLIC ACCOUNTANTS
Representatives of Prociak & Associates, LLC, the accounting firm which examined
the financial statements, are expected to be present at the Annual Meeting and
will be afforded an opportunity to make a statement if they desire to do so. The
representatives of Prociak & Associates, LLC, will be available to respond to
appropriate questions concerning the Annual Report presented by the Shareholders
at the Annual Meeting.
SECTION 16 (a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16 (a) of the Securities Exchange Act of 1934 requires the Company's
Directors and Executive Officers to file reports of holdings and transactions in
Shares with the SEC. Based on Company records and other information, the Company
believes that all SEC filing requirements applicable to its Directors and
Executive Officers with respect to the Company's 1998 fiscal year were met.
SHARE OWNERSHIP OF MANAGEMENT AND DIRECTORS
- -------------------------------------------------------------------------------
The following table sets forth information concerning the beneficial ownership
of the Company's Common Shares as of 12/31/98, for: (a) each incumbent Director
and each of the nominees for Director; (b) the two most highly compensated
Executive Officers who are not also Directors; and (c) the Directors and
Executive Officers as a group. Except as otherwise noted, the named individuals
or family members had sole voting and investment power with respect to such
securities.
<TABLE>
BENEFICIAL OWNERSHIP OF COMMON SHARES
<CAPTION>
Amount and Nature
of Beneficial Percent of
Beneficial Owners and Management Ownership Class
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Carl F. Pease ......................... 30,000 1.38%(1)
Gerald R. Pennay 20,499 .............. .94%(2)
Virginia M. Turner .................... 98,887 4.54%
John W. Ord ........................... 46,666 2.14%(3)
Thomas F. Chamberlain ................. 4,230 .19%(4)
Judith Ely Kelly ...................... 9,450 .43%(5)
Jack M. Norris ........................ 8,303 .38%(6)
George H. Stover, Jr .................. 49,012 2.25%(7)
William S. Crock ...................... 2,950 .14%(8)
Michael S. Karhnak .................... 6,699 .31%(9)
Debra E. Dissinger .................... 6,952 .32%(10)
All Directors and Executive Officers as
a Group (11) .......................... 283,648 13.02%
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<FN>
(1) All shares are held jointly with spouse.
(2) Includes 10,137 shares held jointly with spouse.
(3) Includes shares of the Company's Employee Stock Ownership Plan ("ESOP")
which have been allocated to Mr. Ord's account. All other Shares are
held jointly with spouse.
(4) Includes 675 shares held jointly with spouse.
(5) Includes 4,500 shares held jointly with spouse and 75 shares held in
custodial account for each of her three children.
(6) All shares are held jointly with spouse.
(7) All shares are held jointly with spouse.
(8) All Shares are held jointly with spouse.
(9) Includes shares of the Company's ESOP which have been allocated to Mr.
Karhnak's account. All other shares are held jointly with spouse.
(10) Includes shares of the Company's ESOP which have been allocated to Ms.
Dissinger's account. All other shares are held jointly with spouse.
</FN>
</TABLE>
ELECTION OF DIRECTORS
- -------------------------------------------------------------------------------
The By-Laws of the Company provide that the Company's business shall be managed
by a Board of Directors of not less than nine, and not more than twenty-five
persons. The Board of Directors of the Company, as provided in the Company's
By-Laws, is divided into three classes: Class I, Class II, and Class III, with
each class being as nearly equal in number as possible. The Board of Directors
of the Company presently consists of nine members. The term of office of the
Class l Directors elected at the Meeting will expire on the date of the
Company's Annual Meeting of Shareholders in 2002. The term of office of each
continuing Director in Class Il and Class IIl will expire on the date of the
Company's Annual Meeting of Shareholders in 2000 and 2001, respectively.
The persons named in the enclosed proxy intend to vote such proxy for the
election of each of the two nominees named below, unless you indicate that your
vote should be withheld from any or all of them. Each nominee elected as a
Director will continue in office until his or her successor has been duly
elected and qualified, or until the earliest of his or her death, resignation or
retirement.
The Board of Directors has proposed the following nominees for election as
Directors at the Annual Meeting.
NOMINEES FOR TERMS EXPIRING AT THE ANNUAL MEETING TO BE HELD IN THE YEAR 2002:
JACK M. NORRIS
GEORGE H. STOVER, JR.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE ABOVE-NAMED
NOMINEES FOR ELECTION AS DIRECTORS.
The Company expects each nominee for election as a Director at the Annual
Meeting to be able to serve if elected. If any nominee is unable to serve if
elected, proxies will be voted in favor of the remainder of those nominated.
The principal occupation and certain other information are set forth regarding
such nominees and other Directors whose terms of office will continue after the
Annual Meeting. Information about the Share ownership of the nominees and other
Directors can be found on page 7.
- -------------------------------------------------------------------------------
NOMINEES FOR TERMS EXPIRING IN 2002
- -------------------------------------------------------------------------------
JACK M. NORRIS, Director of Peoples Financial Services Corp. since 1986 and of
Peoples National Bank since 1985. Retired owner of B. K. Norris Distributor
(beverage distributorship) since 1995. Committees: Member of the Bank's
Asset/Liability Committee, Executive Committee, Susquehanna Branch Committee
and Compensation Committee. Age: 65
GEORGE H. STOVER, JR., Director of Peoples Financial Services Corp. and Peoples
National Bank since 1992. Real Estate Appraiser since 1972. Committees: Member
of the Bank's Asset/Liability Committee and Hallstead Branch Committee. Age: 52
- -------------------------------------------------------------------------------
CLASS II DIRECTORS WHOSE TERMS WILL EXPIRE IN 2000
- -------------------------------------------------------------------------------
JOHN W. ORD, Director of Peoples Financial Services Corp. since 1986 and of
Peoples National Bank since 1969. President and Chief Executive Officer of the
Company and of the Bank since 1974. Committees: Bank's Executive Committee and
Compensation Committee. Age: 58
CARL F. PEASE, Director of Peoples Financial Services Corp. since 1986 and of
Peoples National Bank since 1985. Retired Director, Susquehanna County Planning
Commission since 1992. Committees: Member of the Bank's Executive Committee,
Compensation Committee, Montrose Branch Committee and Chairman of the Bank's
Loan Administration Committee. Age: 68
WILLIAM S. CROCK, Director of Peoples Financial Services Corp. and Peoples
National Bank since 1992. President of W.S. Crock & Sons, Inc. (retail store)
since 1976. Committees: Member of the Bank's Loan Administration Committee and
Hop Bottom/Nicholson Branch Committee. Age: 52.
9
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CLASS lll DIRECTORS WHOSE TERM WILL EXPIRE IN 2001
- -------------------------------------------------------------------------------
GERALD R. PENNAY, Director of Peoples Financial Services Corp. since 1986 and
Director of Peoples National Bank since 1985. Owner, Gerald R. Pennay & Son
Auctioneers since 1958. Committees: Member of the Bank's Executive Committee,
Compensation Committee, Asset/Liability Committee and Hop Bottom/Nicholson
Branch Committee. Age: 63
THOMAS F. CHAMBERLAIN, Director of Peoples Financial Services Corp. and Peoples
National Bank since 1994. Nationwide Insurance Agent since 1972. Committees:
Chairman of the Bank's Audit Committee and member of the Bank's Susquehanna
Branch Committee. Age: 50
VIRGINIA M. TURNER, Director of Peoples Financial Services Corp. since 1986 and
of Peoples National Bank since 1981. Investor since 1982. Committees: Chairman
of the Bank's Marketing & Human Resources Committee and member of the Bank's
Hallstead Branch Committee. Age: 63
EXECUTIVE COMPENSATION
- -------------------------------------------------------------------------------
The aggregate cash compensation paid to all three Executive Officers of the
Company and the Bank for services performed during 1998 was $254,235.
The Bank has in effect a Directors' and Officers' liability insurance policy
from the Fidelity and Deposit Company of Maryland to cover certain liabilities,
losses, damages, and expenses that the Bank's Directors and Officers may incur
in such capacities. Annual premiums for this policy are $5,267.
The Bank provides an automobile for its Executive Officers in connection with
the Bank's business. The value of any resulting personal benefit, which is not
directly related to job performance, is not included above.
The following Report of the Compensation Committee on Executive Compensation
shall not be deemed incorporated by reference by any general statement
incorporating this Policy Statement into any filing under the Securities Act of
1933 or under the Securities Exchange Act of 1934, except to the extent the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
BOARD COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
This Report of the Compensation Committee covers the following topics:
Role of the Corporate Governance and Compensation Committee relative to
the compensation program.
10
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Executive Compensation Guiding Principles
Components of the Compensation Program
Compensation of the Chief Executive Officer
ROLE OF THE CORPORATE GOVERNANCE AND COMPENSATION COMMITTEE
The Committee is made up of four members of the Board of Directors. Three of
them are not current or former employees of the Company. The Committee sets the
overall compensation principles of the Company and reviews the entire program at
least annually. This includes each element described below, the measurement used
to make payments of awards under the Company's incentive plans and the overall
effectiveness of the program. The committee specifically reviews and establishes
the individual compensation levels for the top three members of the senior
leadership team, including the Chief Executive Officer. The committee has
considered the advice of an independent outside consultant in determining the
appropriateness and the level of compensation.
EXECUTIVE COMPENSATION GUIDING PRINCIPLES
Peoples National Bank has developed a compensation program that is intended to
motivate and retain the key talent it needs to be a market leader in a highly
competitive industry. The Committee and the Company's leadership team developed
this program to support the Company's aggressive business strategy. The
following principles guided the development of the program:
Compensation opportunity should be related to performance. That is, if
Peoples National Bank's and the individual's performance are at the median
of those companies with whom we compete for talent, then pay should also be
at the median. Opportunity should increase proportionately if Peoples
National Bank's or the individual's performance is above the median. On the
other hand, if performance is at less than the median, any award payment
will be at the Committee's discretion.
Ownership of the Company's shares should be pervasive throughout the
Company with each individual having a number of opportunities to own
Peoples Financial Services Corp. stock. To that end, we have made a stock
option grant to all employee population in May 1998. The overall intent is
to encourage each employee to be, and to behave like, an owner of the
business.
As described later in this report, our compensation programs are
designed to balance short- and long-term financial objectives, build
Shareholder value and reward for individual, team and corporate performance.
The proportion of total pay that is at risk against individual and
Company performance objectives increase with the more senior positions. For
example, in 1998, approximately 16% of the President's total target pay
opportunity was at risk against short- and long-term performance goals.
Survey data is compiled by an independent outside consultant to ensure that our
total program is competitive. Compensation data includes 148 institutions which
includes 111 commercial banks or bank holding companies, 35 savings
institutions, and 2 credit unions.
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COMPONENTS OF THE COMPENSATION PROGRAM
The three components of the total compensation program are:
Base Salary
Short-Term Incentives
Long-Term Incentives
1. Base Salary
Base salaries for all Officers have been set at levels that are comparable to
similar positions at other companies with whom we compare for compensation
purposes.
2. Short-Term Incentives
The annual bonus component of incentive compensation is designed to align
executive pay with short-term (annual) performance of the Company.
In 1998, the annual bonus opportunity was based on an increased corporate net
income objective of 10%; other factors may be used or added in subsequent years.
Distribution of bonuses was based on years of service, salary, part-time or
full-time status, and management level classification.
3. Long-Term Incentives:
The Bank has an employee stock ownership plan covering substantially all
Employees. Contributions to the plan are at the discretion of the Board of
Directors. Employer contributions are allocated to participant accounts based on
their percentage of total base and short-term incentive compensation for the
plan year.
The Bank also maintains a profit sharing plan under the provisions of Section
401(k) of the Internal Revenue Code. The plan covers substantially all Employees
who have completed one year of service. Contributions to the plan by the Bank
equal 50% of the employee contribution up to a maximum of 6% of annual salary.
The Company made a grant of stock options to substantially all Employees. Grants
for 1998 were made May 1, 1998. These options have an exercise price of $22.20.
The option vests after five years of service and will expire ten years from the
date of the grant. (price adjusted to reflect the Company's September 1998
five-for-two stock split)
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In fiscal 1998, the Company's most highly compensated Officer was John W. Ord,
CEO and President. Based on the sample of peers provided through the consultant,
approximately 75% of CEO's total annual compensation is in base salary, 20% in
short-term incentive compensation and 5% in long-term compensation. In 1998, Mr.
Ord's total compensation included 68.44% in base salary, 11.92% in short-term
incentive, and 19.64% in long-term compensation.
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<PAGE>
The guidelines and factors considered by the Committee in determining
compensation include corporate profitability measured by return on assets, stock
prices, asset quality, loan loss reserve levels, market share, regulatory
capital strength, cost control, and regulatory examination. The Committee based
compensation and benefit levels on the contribution to the Company in meeting
the goals and objectives as set forth in the strategic plan of the Company and
the Bank.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
OTHER
NAME AND ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
<S> <C> <C> <C> <C>
John W. Ord ... 1998 $114,800(1) $20,000 $32,951(2)
President And
Chief Executive
Officer ....... 1997 $103,500(3) $11,117 $24,825(4)
1996 $ 89,000(5) $32,250 $31,879(6)
<FN>
(1) Includes Director's fees of $4,800.
(2) Includes Peoples National Bank's contribution to 401(k) plan of $3,299,
ESOP Contribution of $4,844, Split Dollar Life Insurance premium payment
of $1,504 and Supplemental Employee Retirement Plan contribution of
$23,304.
(3) Includes Director's fees of $3,500.
(4) Includes Peoples National Bank's contribution to 401(k) plan of $2,999,
ESOP Contribution of $4,490, Split Dollar Life Insurance premium payment
of $1,504 and Supplemental Employee Retirement Plan contribution of
$15,832.
(5) Includes Director's fees of $4,000.
(6) Includes Peoples National Bank's contribution to 401(k) plan of $1,634,
ESOP Contribution of $7,555, Split Dollar Life Insurance premium payment
of $1,504 and Supplemental Employee Retirement Plan contribution of
$21,185.
</FN>
</TABLE>
Base Salary:
The Committee increased Mr. Ord's base salary from $103,500 in 1997 to $114,800
in 1998. This increase includes an increase in Director's fees, which were
$3,500 in 1997 and $4,800 in 1998.
Short-Term Incentives:
The Committee assessed Mr. Ord's performance in determining his short-term
incentives awards. The goals and objectives set forth in the strategic plan
were met and additional stretch goals were achieved through the leadership
efforts of Mr. Ord, therefore he was awarded a bonus of $20,000.
13
<PAGE>
Long-Term Incentives:
The Bank has an employee stock ownership plan covering substantially all
Employees. Contributions to the plan are at the discretion of the Board of
Directors. Employer contributions are allocated to participant accounts based on
their percentage of total base and short-term incentive compensation for the
plan year. $4,844 was contributed to Mr. Ord's account for the year-ending 1998.
The Bank also maintains a profit sharing plan under the provisions of Section
401(k) of the Internal Revenue Code. The plan covers substantially all Employees
who have completed one year of service. Contributions to the plan by the Bank
equal 50% of the employee contribution up to a maximum of 6% of annual salary.
Mr. Ord received $3,299 in employer contributions in 1998.
The Company made a grant of stock options to substantially all Employees. Grants
for 1998 were made May 1, 1998. These options have an exercise price of $22.20.
The option vests after five years of service and will expire ten years from the
date of the grant. A total of 1,250 shares were granted to Mr. Ord under the
1998 Stock Option.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
INDIVIDUAL GRANTS (1)
---------------------------------------------------------
NUMBER OF
SHARES GRANT
UNDERLYING % OF TOTAL DATE
OPTIONS OPTIONS EXERCISE PRESENT
GRANTED GRANTED TO PRICE EXPIRATION VALUE
NAME (#) EMPLOYEES ($/SH) DATE ($)
- ---------- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John W. Ord 1,250 8.6% $ 22.20 5/1/08 $27,750
<FN>
(1) All Share and per Share amounts have been adjusted to reflect the Company's
September 1998 five-for-two stock split.
</FN>
</TABLE>
Peoples National Bank maintains an excess benefit plan for Mr. Ord. Under this
plan, which is a non-qualified plan, Mr. Ord will receive a supplemental payment
in order to provide him with an annual retirement benefit.
PENSION PLANS
The Bank's Pension Plan is available to Bank Employees who have attained age 21,
and have completed one year of service. Employees do not contribute to the plan.
Each year, the Bank contributes under the plan an actuarially determined amount
for distribution to eligible Employees at their retirement. Benefits are payable
at normal retirement (age 65) and early retirement (age 55). Disability benefits
are payable at age 55 with vesting at five years. The following table shows the
annual retirement benefits payable at normal retirement (age 65) under the
Bank's plan for a range of compensation levels and years of service. The amounts
are based on an employee who became a participant in 1998 and will have the
service and salary at normal retirement.
14
<PAGE>
<TABLE>
ANNUAL RETIREMENT BENEFITS
<CAPTION>
YEARS OF SERVICE
Salary 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$ 25,000 $ 3,000 $ 4,000 $ 5,000 $ 6,000 $ 7,000
$ 50,000 $ 6,000 $ 8,000 $10,000 $12,000 $14,000
$ 75,000 $ 9,000 $12,000 $15,000 $18,000 $21,000
$100,000 $12,000 $16,000 $20,000 $24,000 $28,000
$125,000 $15,000 $20,000 $25,000 $30,000 $35,000
$150,000 $18,000 $24,000 $30,000 $36,000 $42,000
</TABLE>
Employee Stock Ownership Plan The Company maintains an Employee Stock Ownership
Plan (the "ESOP") that was established as of January 1, 1983. The purpose of the
ESOP is to promote in Employees the strongest interest in the successful
operation of the Company's business and loyalty to the organization, in addition
to increasing efficiency in their work. The ESOP also provides the Employees
with an opportunity to share in the prosperity of the Company's business by
means of stock ownership.
In general, each employee of the Bank who has attained the age of 21 years is
eligible to participate in the ESOP, provided he or she has been employed for at
least one year and is credited with at least 500 hours of service. Contributions
to the plan are at the discretion of the Board of Directors. Employer
contributions are allocated to participant accounts based on their percentage of
total compensation for the plan year. Shares of Company stock owned by the plan
are included in the earnings per share calculation, and dividends on these
shares are deducted from undivided profits. During 1998, contributions to the
plan charged to operations were $67,930. Under the terms of the ESOP, the
Trustee (Benefit Plans Administrators) must invest assets primarily in Common
Stock of the Company.
Under the ESOP, the Trustee possesses power and authority to vote the stock in
the ESOP's related trust in the manner it determines, in its sole discretion.
Employee-participants may be entitled to direct the Trustee as to the exercise
of any voting rights attributable to stock allocated to their accounts as to any
matter which (as required by Pennsylvania law or the Company's articles of
incorporation) must be approved by more than a majority of the outstanding
common shares. If an employee-participant does not give instructions as to how
to vote the shares allocated to such person's account, the Trustee is not
required, except to the extent required under applicable law, to obtain
direction from the employee-participants regarding a decision whether or not to
tender stock of the Company in response to a tender or exchange offer. Although,
the Trustee may, under such circumstances, choose to obtain such direction.
Effective August 1, 1994, the Bank maintains a profit sharing plan under the
provisions of Section 401(K) of the Internal Revenue Code. The plan covers
substantially all Employees who have completed one year of service.
Contributions to the plan by the Bank equal 50% of the employee contribution up
to a maximum of 6% of annual salary. During 1998, employer contributions to the
plan charged to operations were $37,498.
15
<PAGE>
Performance Graph
The following graph and table compare the cumulative total shareholder return on
the Corporation's Common Stock during the period of December 31, 1993, through
and including December 31, 1998, with the S&P 500 Index and the NASDAQ Bank
Index. The comparison assumes $100 was invested on December 31, 1993, in the
Corporation's Common Stock and in each of the indices below and assumes further
the reinvestment of dividends into the applicable securities. The shareholder
return shown on the graph and table below is not necessarily indicative of
future performance.
[OBJECT OMITTED]
<TABLE>
PERFORMANCE GRAPH
<CAPTION>
Period Ending
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
<S> <C> <C> <C> <C> <C> <C>
Peoples Financial Svc Corp 100.0 112.0 139.0 159.0 223.0 329.00
NASDAQ - Bank Index 100.0 100.0 148.0 196.0 328.0 325.00
S&P 500 Index 100.0 101.0 139.0 171.0 229.0 294.00
</TABLE>
EXECUTIVE EMPLOYMENT AGREEMENTS
AND OTHER ARRANGEMENTS
In February 1997, the Company entered into an employment agreement with John W.
Ord, President and Chief Executive Officer of the Company. The agreement is for
an initial three-year term and is renewed annually for a three-year term unless
notice of nonrenewal is given by either party in which case the agreement will
expire at the end of the existing term.
The agreement provides for a base salary of a minimum of $100,000 per year and
for such incentive bonuses as may be awarded to the Executive under any
incentive compensation plan which may be in effect or otherwise in the
discretion of the Board of Directors. If the Executive 's employment is
terminated without "cause" (as defined in the agreement) or the Executive
terminates his employment for "good reason" (as defined in the agreement)
following a "change in control" of the Company, the Executive becomes entitled
to severance benefits under the agreement. "Good reason" includes a reduction in
title, responsibilities, or authority, a reassignment which requires the
Executive to move his principal residence, a reduction in salary, or a failure
to provide the Executive with comparable benefits following a "change in
control." If any such termination occurs following a "change in control," the
Executive will be entitled generally to a lump-sum payment equal to 2.99 times
his average annual compensation for the five years preceding the year of
termination. In the event that the Executive 's employment is terminated by the
Company without "cause" in the absence of a "change in control," the Executive
will be entitled generally to a lump-sum payment equal to 2.0 times the sum of
his highest annual compensation in the prior three years plus certain pension
and welfare benefits received in the relevant year.
16
<PAGE>
Mr. Ord's agreement contains provisions restricting his ability to compete with
the Company under certain circumstances following termination of his employment.
In February 1997, the Company also entered into severance agreements with two
other Executive Officers of the Company, which provided for certain severance
benefits in the event the Executive 's employment is terminated or the Executive
resigns for specified reasons following a "change in control" of the Company.
Under these agreements, the Executive would be entitled generally to a severance
benefit equal to 2.0 times the Executive 's average annual compensation for the
five years preceding the year of termination. No benefits are payable under
these agreements in the event the Executive 's employment is terminated for
"cause" or in the event the Executive 's employment is terminated for any reason
prior to a "change in control." The specified reasons for termination under
these agreements are substantially similar to the events of "good reason"
contained in Mr. Ord's agreement.
Some of the Directors and Officers of the Company, and the companies with which
they are associated, are customers of, and during 1998 had banking transactions
with, the Bank in the ordinary course of the Bank's business, and intend to do
so in the future. All loans and commitments to loan included in such
transactions were made under substantially the same terms, including interest
rates, collateral, and repayment terms, as those prevailing at the time for
comparable transactions with other persons and, in the opinion of the Bank's
Management, do not involve more than the normal risk of collection or present
other unfavorable features.
OTHER MATTERS
- -------------------------------------------------------------------------------
Management knows of no business other than as described previously that is
planned to be brought before the Meeting. Should any other matters arise,
however, the persons named on the enclosed proxy will vote thereon according to
their best judgment.
17
<PAGE>
PROXY CARD
PEOPLES FINANCIAL SERVICES CORP.
PROXY
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 24, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Barbara A. Hinkley and Nancy A. Hinkley, each of
them attorneys with full power of substitution and revocation, to attend the
Annual meeting of Shareholders of Peoples Financial Services Corp. (the
"Company") to be held on April 24, 1999, at the Montrose Bible Conference, Lake
Avenue, Montrose, Pennsylvania, at 10:30 AM (eastern Time), and any
adjourrnments or postponements thereof, and to vote all shares that the
undersigned would be entitled to vote, if personnally present, upon the
following matters and on such other issues as may properly come before said
Annual Meeting and any adjournments or postponemnts thereof.
(Continued and to be marked, dated and signed on other side)
Please mark your vote as in this example. [X]
1. Election of Class Dirctors I to serve for a Three-Year Term:
[ ] FOR all nominees listed to the right NOMINEES:
(except as marked to the contrary below) JACK. M. NORRIS
GEORGE H. STOVER, JR.
[ ] WITHHOLD AUTHORITY to vote for all
nominees listed at right
INSTRUCTIONS: To whithhold authority to vote
for an individual nominee, strike a line
through the nominee's name in the list at right
2. Proposal to ratify the selection of Prociak & Associates, LLC, Certified
Public Accountants, as independent auditors for the year ending December
31, 1999.
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
THE BORAD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL NOMINEES LISTED AT LEFT, AND FOR PROPOSAL 2.
The undersigned hereby acknowledges receipt of the Proxy Statement dated
February 26, 1999, and hereby revokes any proxies heretofore given to vote
shares at the Meeting and any adjournments or postponements thereof.
Signature(s): _________________________________________ Date _____________
Note: This proxy must be dated, signed by the shareholder, and returned
promptly in the enclosed envelope. When signing as attorney, executor,
administrator, trustee or guardian, please give full title. If more that one
trustee, all should sign. If stock is held jointly, each owner should sign.
<PAGE>
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 hereunto duly authorized.
PEOPLES FINANCIAL SERVICES CORP.
Dated: March 19, 1999
By/s/ John W. Ord
John W. Ord
President and
Chief Executive Officer
