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, 2000
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 September 30, 2000
COMMON STOCK ($2 Par Value) 2,156,808
--------------------------- --------------------------
(Title of Class) (Outstanding Shares)
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
FORM 10-Q
For the Quarter Ended September 30, 2000
Contents
PART I. FINANCIAL INFORMATION. Page No.
--------
Item 1. Financial Statements.
Consolidated Statement of Financial
Condition as of September 30, 2000
(Unaudited) and December 31, 1999. 4
Consolidated Statement of Income
(Unaudited) for the Nine Month Period
Ended September 30, 2000 and 1999. 5
Consolidated Statement of Comprehensive
Income (Unaudited) for the Nine Month
Period Ended September 30, 2000 and 1999. 6
Consolidated Statement of Shareholders'
Equity (Unaudited) for the Nine Month
Period Ended September 30, 2000 and 1999. 7
Consolidated Statement of Cash Flows
(Unaudited) for the Nine Month Period
Ended September 30, 2000 and 1999. 8
Notes to Consolidated Statements. 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 10
Item 3. Quantitative and Qualitative Disclosure
About Market Risks. 14
PART II. OTHER INFORMATION 15
Item 6. Exhibits and Reports on Form 8-K. 15
<PAGE>
PART I
Item 1
PEOPLES FINANCIAL SERVICES CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
September 30, 2000 and December 31, 1999
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
ASSETS: Sep 1999 Sep 2000 Dec 1999
<S> <C> <C> <C>
Cash Due from Banks ........................... 2,958 4,869 3,373
Interest Bearing Deposits with Other Banks .... 5,196 2,100 4,096
Federal Funds Sold ............................ 120 945 0
Securities Available for Sale ................. 94,609 96,834 92,066
Loans ......................................... 147,428 167,989 152,396
Less: Unearned Income ........................ -13 -6 -11
Allowance for Loan Loss ....................... -1,750 -1,871 -1,755
Loans, Net .................................... 145,665 166,112 150,630
Bank Premises and Equipment, Net .............. 3,483 3,421 3,455
Accrued Interest Receivable ................... 1,788 2,158 1,996
Other Assets .................................. 5,744 5,373 5,703
TOTAL Assets .................................. 259,563 281,812 261,319
LIABILITIES
Deposits, Non-Interest Bearing ................ 26,775 26,837 25,419
Deposits, Interest Bearing .................... 195,296 202,565 190,005
Total Deposits ................................ 222,071 229,402 215,424
Accrued Interest Payable ...................... 672 757 718
Borrowed Funds ................................ 9,620 22,130 17,850
Other Liabilities ............................. 525 563 517
TOTAL Liabilities ............................. 232,888 252,852 234,509
SHAREHOLDERS' EQUITY
Common Stock * ................................ 4,455 4,455 4,455
Surplus ....................................... 4,471 4,570 4,512
Treasury Stock at Cost ........................ -1,084 -1,496 -1,050
Undivided Profit .............................. 20,305 22,861 20,980
Accumulated Other Comprehensive Income ........ -1,472 -1,430 -2,087
TOTAL Shareholders' Equity .................... 26,675 28,960 26,810
TOTAL LIABILITIES CAPITAL ..................... 259,563 281,812 261,319
</TABLE>
[FN]
Common Stock, par value $2 per share, 12,500,000 shares authorized; 2,156,808
and 2,165,441 shares issued and outstanding at September 30, 2000 and 1999
respectively.
</FN>
See notes to financial statements
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(in thousands)
<TABLE>
<CAPTION>
9 Months Ended 3 Months Ended
30-Sep 30-Sep
INTEREST INCOME: 2000 1999 2000 1999
<S> <C> <C> <C> <C>
Interest and Fees on Loans ................... 10,105 8,864 3,543 2,948
Interest Investments, Taxable ................ 3,295 2,810 1,199 902
Tax Exempt ........................ 1,107 1,090 318 359
Dividends ......................... 66 59 23 19
Interest on Federal Funds Sold ............... 44 112 24 46
Interest on Deposits of Other Banks .......... 73 9 33 1
TOTAL Interest Income ........................ 14,690 12,944 5,140 4,275
Interest on Deposits ......................... 6,903 5,936 2,562 1,964
Interest on Borrowed Funds ................... 722 299 192 81
Interest Expense ............................. 7,625 6,235 2,754 2,045
Net Interest Income .......................... 7,065 6,709 2,386 2,230
Provision for Loan Losses .................... 180 180 60 60
Net Interest Income, after Loan Loss Provision 6,885 6,529 2,326 2,170
OTHER INCOME:
Service Charges and Fees ..................... 883 751 295 245
Gains on Security Sales ...................... 12 104 12 57
Other Operating Income ....................... 152 150 67 42
TOTAL Other Income ........................... 1,047 1,005 374 344
OTHER EXPENSES:
Salaries and Benefits ........................ 2,049 1,841 641 652
Occupancy Expenses ........................... 251 232 84 76
Furniture and Equipment Expense .............. 273 271 93 91
FDIC Insurance and Assessments ............... 86 69 29 23
Professional Fees and Outside Services ....... 150 141 54 51
Computer Services and Supplies ............... 264 235 100 82
Taxes, Other Than Payroll and Income ......... 192 182 63 62
Other Operating Expenses ..................... 918 896 291 314
Total Non-Interest Expense ................... 4,183 3,867 1,355 1,351
Income Before Income Taxes ................... 3,749 3,667 1,345 1,163
Provision for Income Taxes ................... 871 855 308 266
Net Income ................................... 2,878 2,812 1,037 897
Net Income Per Share, Basic .................. 1.320 1.300
Net Income Per Share, Diluted ................ 1.320 1.300
</TABLE>
See notes to financial statements
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
9 Months 3 Months
Ended Ended
Sept Sept
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net Income .................................. 2,878 2,812 1,037 1,064
Other Comp Income (loss) before tax
Unrealized Holding Gains/Losses on Securities 1,007 -3,082 924 -800
Less: Reclassification Adjustment ........... 12 104 12 167
Other Comp Income (loss) before tax ......... 995 -2,978 912 -759
Federal Income Tax Expense (benefit) ........ -338 1,013 -310 259
Other Comp Income (loss) before tax ......... 657 -1,965 602 -500
TOTAL Comp Income ........................... 3,535 847 1,639 564
</TABLE>
See notes to financial statements
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHE ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Common Surplus Undivided Comprehensive Treasury Total
Stock Profit Income Stock
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 ................................... 4,455 4,455 18,322 562 -748 27,046
Net Income 1999 for the nine months ended September 30, 1999 .. 0 0 2,812 0 0 2,812
Cash Dividends Paid, 1999 ..................................... 0 0 -829 0 0 -829
Treasury Stock Purchase ....................................... 0 16 0 0 -336 -320
Change in unrealized gain/loss on securities available for sale
net of deferred income taxes ................................. 0 0 0 -2,034 0 -2,034
Balance, September 30, 1999 .................................. 4,455 4,471 20,305 -1,472 -1,084 26,675
Balance, December 31, 1999 ................................... 4,455 4,512 20,980 -2,087 -1,050 26,810
Net Income 2000 ............................................... 0 0 2,878 0 0 2,878
Cash Dividends Paid, 2000 ..................................... 0 0 -997 0 0 -997
Treasury Stock Purchase ....................................... 0 0 0 0 -494 -494
Shares issued from treasury
related to DRIP and Stock
Option Plan .................................................. 0 58 0 0 48 106
Change in unrealized gain/loss on securities
available for sale,
net of deferred income taxes .................................. 0 0 0 657 657
Balance, Spetember 30, 2000 .................................. 4,455 4,570 22,861 -1,430 -1,496 28,960
</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)
(in thousands)
<TABLE>
<CAPTION>
Sept Sept
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ..................................................................... 2,878 2,812
Adjustments:Depreciation and amortization ...................................... 454 466
Provision for Loan Losses ................................................. 180 180
Gain/Loss on sale of equipment ............................................ -4 0
Gain/loss on sale of other real estate .................................... 0 24
Amortization of securities' premiums and accretion of discounts ................ 66 180
Gains on sales of investment securities, NET ................................... -12 -104
Deferred Income Tax (benefit) .................................................. 0 0
Increase in accrued interest receivable ........................................ -162 -7
Increase/Decrease in other assets .............................................. -714 -547
Increase/Decrease in accrued interest payable .................................. 39 -31
Increase/Decrease in other liabilities ......................................... 8 -16
Net cash provided by operating activities ...................................... 2,733 2,957
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of available for sale securities ............................ 7,845 9,909
Proceeds from maturities of available for sale securities ...................... 2,988 8,942
Purchase of available for sale securities ...................................... -18,197 -31,573
Principal payments on mortgage-backed securities ............................... 2,522 8,130
Purchase of Fed Funds Sold ..................................................... 945 -120
Net increase in loans .......................................................... -15,482 -6,546
Proceeds from sale of premises and equipment ................................... 4 0
Purchase of premises and equipment ............................................. -161 -232
Proceeds from sale of other real estate ........................................ 8 249
Purchase of intangible assets .................................................. 0 0
Net cash used in investing activities .......................................... -19,528 -11,241
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid ............................................................ -996 -829
Increase in deposits ........................................................... 13,978 12,190
Net Increase/Decrease in long-term borrowing ................................... 5,000 0
Net Increase/Decrease in short-term borrowing .................................. -1,220 588
Purchase of treasury stock ..................................................... -467 -320
Net cash provided by financing activities ...................................... 16,295 11,629
Net Increase/Decrease in cash/cash equivalents ................................. -500 3,345
Cash and cash equivalents, beginning of year ................................... 7,469 4,809
Cash and cash equivalents,end of year .......................................... 6,969 8,154
SUPPLEMENTAL DISCLOSURES OF CASH PAID
Interest Paid .................................................................. 7,625 6,266
Income Taxes Paid .............................................................. 874 858
NON-CASH INVESTING AND FINANCING ACTIVITIES
Transfers from loans to real estate through foreclosure ........................ 44 237
Proceeds from sales of foreclosed real estate .................................. 8 0
Total Increase/Decrease in unrealized gain/loss on securities available for sale 995 -3,082
</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, 2000 and 1999 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, 2000, is not necessarily the result to be
expected for the full year.
2. RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 137
During 2000, the Company adopted "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the effective date of SFAS No. 133". This
statement defers the effective date of SFAS No. 133 to all fiscal quarters of
fiscal years beginning after June 15, 2000. SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities" requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measures 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. The adoption of this statement had no
impact on the Company's financial position or results of operations.
SFAS No. 140
In September of 2000, SFAS No. 140 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" - a replacement of FASB
Statement No. 125, was issued. This Statement replaces FASB No. 125, "
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities". It revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires certain
disclosures, but it carries over most of Statement 125's provisions without
reconsideration. This Statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishements of liabilities.
Those standards are based on consistent application of a financial-components
approach that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when extinguished.
This Statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings. This
Statement is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. This Statement is
effective for recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000. Disclosures about securitization and collateral
accepted need not be reported for periods ending on or before December 15, 2000,
for which financial statements are presented for comparative purposes.
Management is in the process of evaluating the impact, if any, this Statement
will have on the Company's financial position or results of operations.
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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation
The following discussion and analysis of the consolidated financial
statements of the Corporation is presented to provide insight into management's
assessment of financial results. The Corporation's only subsidiary, Peoples
National Bank of Susquehanna County (the "Bank") provides financial services to
individuals and businesses within the Bank's market area made up of Susquehanna,
Wyoming and northern Lackawanna counties in Pennsylvania, and southern Broome
County in New York. The Bank is a member of the Federal Reserve System and
subject to regulation, supervision and examination by the Office of the
Comptroller of the Currency.
FINANCIAL CONDITION
Cash and Cash Equivalents:
At September 30, 2000, cash, federal funds sold, and deposits with
other banks totaled $7.914 million; a decrease of $360 thousand compared to
$8.274 million at September 30, 1999.
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 $96.834 million on September 30, 2000;increasing
$2.225 million as compared to September 30, 1999, total of $94.609 million. This
is an increase of 2.35%
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, 2000, were $22.130 million as compared to
$9.620 million on September 30, 1999, showing an increase of $12.510 million.
The large increase over last year is due to the Management's decision to use
borrowed funds as opposed to customer deposits. This is due to the current
rising rate environment and the competitive pricing strategies for customer
deposits in the marketplace. Borrowed funds totaled $17.850 million as of
December 31, 1999, and $22.005 million as of June 30, 2000. Term borrowings are
term funds from the FHLB under various notes. The following notes are still
outstanding as of September 30, 2000:
<TABLE>
<CAPTION>
Issue Date Maturity Interest Rate Amount
<S> <C> <C> <C>
11/16/98 11/17/03 4.64% $5,000,000
05/02-00 05/03/10 6.37% $5,000,000
05/18/00 05/18/05 7.03% $2,500,000
09/22/00 09/22/00 6.10% $5,000,000
</TABLE>
<PAGE>
Loans:
The Bank's loan volume has continued to be steady through the third
quarter of 2000. 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, 2000, net loans totaled $166.112 million as compared
to $145.665 million on September 30, 1999 showing an increase of $20.447 million
in the past year. The loan to deposit ratio was 73.22% on September 30, 2000, as
compared to 66.37% on September 30, 1999. During the third quarter of 2000 net
loans grew $5.480 million as compared to $4.775 million in growth during the
third quarter of 2000.
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, 2000, were $229.402 million as compared to $222.071
million at September 30, 1999. This is an increase in deposits of $7.331 million
or
3.3%. Although our strategy has not been keyed on the highest payer for deposits
in our market area, our deposit growth has remained steady. Deposits for the
second quarter 2000 increased $6.630 million or 3.0% and the third quarter
increased another $2.786 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 September 30, 2000, regulatory capital to total assets was 9.75%
as compared to 9.64% on September 30, 1999.
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
15.67% and the total capital ratio to total risk weighted assets ratio is
16.75%. 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
September 30, 2000.
INTEREST RATE SENSITIVITY ANALYSIS
September 30, 2000
(in thousands)
<TABLE>
<CAPTION>
Maturity or Repricing In:
3 Months 3-6 Months 6-12 Months 1-5 Years Over 5 Years
<S> <C> <C> <C> <C> <C>
RATE SENSITIVE ASSETS
Loans ................................ 18,262 8,402 27,069 65,804 48,446
Securities ........................... 20,451 9,787 10,537 36,349 21,810
Federal Funds Sold ................... 945 0 0 0 0
Total Rate Sensitive Assets .......... 39,658 18,189 37,606 102,153 70,256
Cummulative Rate Sensitive Assets .... 39,658 57,847 95,453 197,606 267,862
RATE SENSITIVE LIABILITIES
Interest Bearing Checking ............ 8,821 0 0 0 12,352
Money Market Deposits ................ 24,848 1,377 0 0 6,884
Regular Savings ...................... 21,424 21 26 1 25,325
CDs and IRAs ......................... 18,735 14,054 29,628 37,191 1,879
Short-term Borrowings ................ 4,630 0 0 0 0
Long-term Borrowings ................. 5,000 0 7,500 5,000 0
Total Rate Sensitive Liabilities ..... 83,458 15,452 37,154 42,192 46,440
Cummulative Rate Sensitive Liabilities 83,458 98,910 136,064 178,256 224,696
Period Gap ........................... -43,800 2,737 452 59,961 23,816
Cummulative Gap ...................... -43,800 -41,063 -40,611 19,350 43,166
Cummulative RSA to RSL ............... 47.52% 58.48% 70.15% 110.86% 119.21%
Cummulative Gap to Total Assets ...... -15.54% -14.57% -14.41% 6.87% 15.32%
</TABLE>
The following assumptions are used for our 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 loss provision increased by $356
thousand or 5.3% for the nine months ended September 30, 2000, as compared to
the same period in 1999. Earning assets increased $19.199 million or 7.78% for
September 30, 2000, as compared to December 31, 1999, and $20.401 million from
September 1999 to September 2000, an 8.31% increase. Interest earning
liabilities increased $19.779 million or 9.6% in the first nine months of 2000
as compared to the first nine months of 1999. Rising interest rates caused
deposit costs and borrowing costs to increase and loan investment income has not
increased as quickly. The result is a smaller margin.
Interest Income:
Interest and fees on loans for the nine-months and quarter ended
September 30, 2000 totaled $10.105 million, reflecting increases of $1.241
thousand or 14.0% over the comparable periods in 1999. The loan portfolio grew
$20.561 million from a total of $147.428 million in September 1999 to $167.989
million in September 2000 which is an increase of 13.95%.
Interest on investments for the nine-months and the quarter ended
September 30, 2000, totaled $4.585 million which reflects increases of $505
thousand or 12.38% over the comparable period in 1999. The investment portfolio
has increased by $2.225 million over the September 1999 total of $94.609 million
which is an increase of 2.35%. The higher income percentage growth over the
portfolio growth is a by-product of a higher interest rate environment.
Interest Expense:
Interest expense for the nine-months and the quarter ended September
30, 2000, totaled $7.625 million compared to $6.235 million in 1999, reflecting
an increase of $1.390 million or 22.29% over the comparable period in 1999.
Provision for Loan Loss:
The provision for loan loss for the third quarter ending September 30,
2000 showed no increase from the corresponding period in 1999.
Third quarter 2000 charge-offs totaled $98,999 while net charge-offs
totaled $64,932 as compared to $179,799 and $142,631 respectively for the same
nine months period in 1999.
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 on a monthly basis by the Board of
Directors. The Bank has not had nor presently has any foreign loans. In
addition, the Bank does not have any concentrations of credit. Based upon this
analysis, senior management has concluded that the allowance of loan loss is
adequate.
The Bank's loan volume continues to be strong. One of the Bank's main
goals is to increase the loan to deposit ratio without jeopardizing loan
quality. To reach its goal, management has continued its efforts to create
tighter underwriting standards for both commercial and consumer credit. The
Bank's lending consists primarily of retail lending which includes single family
residential mortgages and other consumer lending and commercial lending
primarily to locally owned small businesses.
Other Income:
Other income increased $42 thousand when comparing the first nine
months of 2000 to the first nine months of 1999. Service Charges and Fee Income
is up $132 thousand for the nine months. Gains and losses on security sales are
$92 thousand less this year when comparing 1999 to 2000. Other operating income
is up $2 thousand over the first nine months of 1999.
<PAGE>
Other Operating Expenses:
Non-Interest expense went up by $316 thousand during the first nine months
of 2000 as compared to the first nine months of 1999. Legal and Professional
Fees have gone up by $9 thousand for the first three quarters of 2000 as
compared to the first three quarters of 1999. Forms and supplies have gone up $5
thousand over last year. ATM expenses have gone up $24 thousand. FDIC insurance
costs have gone up $18 thousand. Losses on bad checks have increased by $6
thousand. Taxes have increased $5 thousand over the third quarter of 1999.
Employee salaries, the largest component of non-interest, increased
$204 thousand for the third quarter of 2000 compared to the third quarter of
1999. The increase is due to additions in staff, pay increases, and increases in
health care benefits.
Income Tax Provision:
The income tax provision was $871 thousand and $855 thousand for the nine-month
periods ended September 30, 2000 and September 30, 1999 respectively.
Year 2000 Compliance:
The Company adopted a Year 2000 policy to address the "Year 2000" issue
concerning the inability of certain information systems and automated equipment
to properly recognize and process dates containing the Year 2000 and beyond. If
not corrected, these systems and equipment could have produced inaccurate or
unpredictable results. The Company, similar to most financial service providers,
was particularly vulnerable to the potential impact of the Year 2000 issue due
to the nature of financial information.
In order to address the Year 2000 issue, the company developed and implemented a
five-phase compliance plan divided into the following major components:
Awareness
Assessment
Renovation
Validation & Testing
Implementation
Financial institution regulators intensively focused upon Year 2000 exposure,
issuing guidance concerning the responsibilities of senior management and
directors. Year 2000 testing and certification was addressed as a key safety and
soundness issue in conjunction with regulatory exams. The FFIEC highly
prioritized Year 2000 compliance in order to avoid major disruptions to the
operations of financial institutions and the country's financial systems when
the new century begins. The Bank is subject to supervision by the Office of the
Comptroller of the Currency, which regularly conducted reviews of the safety and
soundness of the Banks operations, including Year 2000.
There was no interruption of the company's business due to Year 2000.
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
The nature of the Company's business generates a certain amount of
litigation involving matters arising out of the ordinary course of
business. In the opinion of management, there are no legal proceedings
that might have a material effect on the results of operations,
liquidity, or the financial position of the Company at this time.
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
July 18, 2000
May 5, 2000
January 27, 2000
(c) Other Events
Press Release of Peoples Financial Services Corp. dated
July 18, 2000, previously submitted as Exhibit 99.003
Press Release of Peoples Financial Services Corp. dated
May 5, 2000, previously submitted as Exhibit 99.002
Press Release of Peoples Financial Services Corp. dated
January 27, 2000, previously submitted as Exhibit 99.001
Exhibits required by Item 601 of Regulation S-K that have
previously been filed are as follows:
(3.1) Articles of Incorporation of Peoples Financial
Services Corp.
(3.2) By laws of Peoples Financial Service Corp. as
amended in the 10-Q filed August 16, 1999
(10.1) Agreement dated January 14, 1997, between John
W. Ord and Peoples Financial Services Corp.
(10.2) Excess Benefit Plan dated January 14, 1992, for
John W. Ord.
(10.4) Termination Agreement dated January 1, 1997,
between Debra E.Dissinger and Peoples Financial
Services Corp.
(21) Subsidiaries of Peoples Financial Services
Corp.
(23) Consent of Independent Auditors
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
