UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 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 June 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 June 30, 2000
Contents
PART I. FINANCIAL INFORMATION. Page No.
--------
Item 1. Financial Statements.
Consolidated Statement of Financial
Condition as of June 30, 2000
(Unaudited) and December 30, 1999. 3
Consolidated Statement of Income
(Unaudited) for the Six Month Period
Ended June 30, 2000 and 1999. 4
Consolidated Statement of Comprehensive
Income (Unaudited) for the Six Month
Period Ended June 30, 2000 and 1999. 5
Consolidated Statement of Shareholders'
Equity (Unaudited) for the Six Month
Period Ended June 30, 2000 and 1999. 6
Consolidated Statement of Cash Flows
(Unaudited) for the Six Month Period
Ended June 30, 2000 and 1999. 7
Notes to Consolidated Statements. 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 9
Item 3. Quantitative and Qualitative Disclosure
About Market Risks. 17
PART II. OTHER INFORMATION 18
Item 6. Exhibits and Reports on Form 8-K. 18
<PAGE>
PART I
Item 1
PEOPLES FINANCIAL SERVICES CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
June 30, 2000 and December 31, 1999
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
ASSETS: June 1999 June 2000 Dec 1999
<S> <C> <C> <C>
Cash Due from Banks ........................... 2,531 2,654 3,373
Interest Bearing Deposits with Other Banks .... 4,721 4,293 4,096
Federal Funds Sold ............................ 0 1,070 0
Securities Available for Sale ................. 92,642 97,569 92,066
Loans ......................................... 142,503 162,463 152,396
Less: Unearned Income ........................ -20 -7 -11
Allowance for Loan Loss ....................... -1,707 -1,824 -1,755
Loans, Net .................................... 140,776 160,632 150,630
Bank Premises and Equipment, Net .............. 3,502 3,399 3,455
Accrued Interest Receivable ................... 1,826 2,110 1,996
Other Assets .................................. 5,165 5,954 5,703
TOTAL Assets .................................. 251,163 277,681 261,319
LIABILITIES
Deposits, Non-Interest Bearing ................ 25,317 32,269 25,419
Deposits, Interest Bearing .................... 189,764 194,347 190,005
Total Deposits ................................ 215,081 226,616 215,424
Accrued Interest Payable ...................... 657 658 718
Borrowed Funds ................................ 8,286 22,005 17,850
Other Liabilities ............................. 504 735 517
TOTAL Liabilities ............................. 224,528 250,014 234,509
SHAREHOLDERS' EQUITY
Common Stock * ................................ 4,455 4,455 4,455
Surplus ....................................... 4,465 4,570 4,512
Treasury Stock at Cost ........................ -905 -1,496 -1,050
Undivided Profit .............................. 19,523 22,170 20,980
Accumulated Other Comprehensive Income ........ -903 -2,032 -2,087
TOTAL Shareholders' Equity .................... 26,635 27,667 26,810
TOTAL LIABILITIES CAPITAL ..................... 251,163 277,681 261,319
<FN>
Common Stock, par value $2 per share, 12,500,000 shares authorized; 2,156,808
and 2,171,966 shares issued and outstanding at June 30, 2000 and 1999
respectively.
</FN>
</TABLE>
See notes to financial statements
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(in thousands)
<TABLE>
<CAPTION>
6 Months Ended 3 Months Ended
30-Jun 30-Jun 30-Jun 30-Jun
INTEREST INCOME: 2000 1999 2000 1999
<S> <C> <C> <C> <C>
Interest and Fees on Loans ..................... 6,562 5,861 3,361 2,948
Interest Investments, Taxable .................. 2,096 1,794 1,063 902
Tax Exempt .......................... 789 733 411 359
Dividends ........................... 43 39 22 19
Interest on Federal Funds Sold ................. 20 56 18 46
Interest on Deposits of Other Banks ............ 40 0 17 1
TOTAL Interest Income .......................... 9,550 8,483 4,892 4,275
Interest on Deposits ........................... 4,341 3,916 2,238 1,964
Interest on Borrowed Funds ..................... 530 197 299 81
Interest Expense ............................... 4,871 4,113 2,537 2,045
Net Interest Income ............................ 4,679 4,370 2,355 2,230
Provision for Loan Losses ...................... 120 120 60 60
Net Interest Income, after Loan Loss Provision . 4,559 4,250 2,295 2,170
OTHER INCOME:
Service Charges and Fees ....................... 588 489 328 245
Gains on Security Sales ........................ 0 63 -2 57
Other Operating Income ......................... 85 73 15 42
TOTAL Other Income ............................. 673 625 341 344
OTHER EXPENSES:
Salaries and Benefits .......................... 1,408 1,295 684 652
Occupancy Expenses ............................. 167 159 80 76
Furniture and Equipment Expense ................ 180 182 88 91
FDIC Insurance and Assessments ................. 57 46 28 23
Professional Fees and Outside Services ......... 96 91 55 51
Computer Services and Supplies ................. 164 161 82 82
Taxes, Other Than Payroll and Income ........... 129 120 64 62
Other Operating Expenses ....................... 627 595 320 314
Total Non-Interest Expense ..................... 2,828 2,649 1,401 1,351
Income Before Income Taxes ..................... 2,404 2,226 1,235 1,163
Provision for Income Taxes ..................... 563 478 290 266
Net Income ..................................... 1,841 1,748 945 897
Net Income Per Share, Basic .................... 0.848 0.803 0 0
Net Income Per Share, Diluted .................. 0.848 0.803 0 0
</TABLE>
See notes to financial statements
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June June June June
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net Income ..................................... 1,841 1,748 945 897
Other Comp Income (loss) before tax
Unrealized Holding Gains/Losses on Securities .. 83 -2,282 -32 -1,780
Less: Reclassification Adjustment .............. 0 -63 2 -69
Other Comp Income (loss) before tax ............ 83 -2,219 -30 -1,711
Federal Income Tax Expense (benefit) ........... 28 754 -10 927
Other Comp Income (loss) before tax ............ 55 -1,465 -40 -784
TOTAL Comp Income .............................. 1,896 283 905 113
</TABLE>
See notes to financial statements
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHE ENDED JUNE 30, 1999 AND 1998
(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 six months ended June 30, 1999 ........ 0 0 1,748 0 0 1,748
Cash Dividends Paid, 1999 ..................................... 0 0 -547 0 0 -547
Treasury Stock Purchase ....................................... 0 10 0 0 -157 -147
Change in unrealized gain/loss on securities available for sale
net of deferred income taxes ................................. 0 0 0 -1,465 0 -1,465
Balance, June 30, 1999 ....................................... 4,455 4,465 19,523 -903 -905 26,635
Balance, December 31, 1999 ................................... 4,455 4,512 20,980 -2,087 -1,050 26,810
Net Income 2000 ............................................... 0 0 1,841 0 0 1,841
Cash Dividends Paid, 2000 ..................................... 0 0 -651 0 0 -651
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 55 55
Balance, June 30, 2000 ....................................... 4,455 4,570 22,170 -2,032 -1,496 27,667
</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>
June June
2000 1999
<S> <C> <C>
Cash Flows from Operating Activities
Net Income ................................................................. 1,841 1,748
Adjustments:Depreciation and amortization .................................. 301 310
Provision for Loan Losses ................................................ 120 120
Gain/Loss on sale of equipment ........................................... -4 0
Gain/loss on sale of other real estate ................................... 0 27
Amortization of securities' premiums and accretion of discounts ............ 51 132
Gains on sales of investment securities, NET ............................... 0 -63
Deferred Income Tax (benefit) .............................................. 0 0
Increase in accrued interest receivable .................................... -114 -44
Increase/Decrease in other assets .......................................... -455 -165
Increase/Decrease in accrued interest payable .............................. -60 -46
Increase/Decrease in other liabilities ..................................... 218 -37
Net cash provided by operating activities .................................. 1,898 1,982
Cash Flows from investing activities
Proceeds from sale of available for sale securities ........................ 1,945 4,514
Proceeds from maturities of available for sale securities .................. 1,883 6,257
Purchase of available for sale securities .................................. -11,004 -19,074
Principal payments on mortgage-backed securities ........................... 1,702 6,548
Net increase in loans ...................................................... -9,998 -1,597
Proceeds from sale of premises and equipment ............................... 4 0
Purchase of premises and equipment ......................................... -111 -160
Proceeds from sale of other real estate .................................... 0 213
Purchase of intangible assets .............................................. 0 0
Net cash used in investing activities ...................................... -15,579 -3,299
Cash flows from financing activities
Cash dividends paid ........................................................ -651 -547
Increase in deposits ....................................................... 11,192 5,200
Net Increase/Decrease in long-term borrowing ............................... 5,500 0
Net Increase/Decrease in short-term borrowing .............................. -1,345 -746
Purchase of treasury stock ................................................. -467 -147
Net cash provided by financing activities .................................. 14,229 3,760
Net Increase/Decrease in cash/cash equivalents ............................. 548 2,443
Cash and cash equivalents, beginning of year ............................... 7,469 4,809
Cash and cash equivalents,end of year ...................................... 8,017 7,252
Supplemental disclosures of cash paid
Interest Paid .............................................................. 4,871 4,159
Income Taxes Paid .......................................................... 563 478
Non-cash investing and financing activities
Transfers from loans to real estate through foreclosure .................... 0 237
Proceeds from sales of foreclosed real estate .............................. 0 0
TOTAL Increase/Decrease in unrealized gain/loss on securities avail for sale 83 2,219
</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 six-month period ended June 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
six-month period ended June 30, 2000, is not necessarily the result to be
expected for the full year.
2. RECENT ACCOUNTING PRONOUNCEMENTS
Accounting for Mortgage-Backed Securities Retained after the Securitization
of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise
SFAS No. 134
During 1999, 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". The Statement amends SFAS 65, "Accounting for
Certain Mortgage Banking Activities." Statement 65, as amended, requires that
after the securitization of a mortgage loan held for sale, an entity engaged in
mortgage banking activities classify the resulting mortgage-backed security as a
trading security. This Statement further amends SFAS 65 to require that after
the securitization of mortgage loans held for sale, an entity engaged in
mortgage banking activities classify the resulting mortgage-backed securities or
other retained interest based on its ability and intent to sell or hold those
investments. This Statement conforms the subsequent accounting for securities
retained after securitization of mortgage loans by a mortgage banking entity
with the subsequent accounting for securities retained after the securitization
of other types of assets by nonmortgage banking enterprises. This means that
such securities can be classified as held-to-maturity if they conform to the
requirements of SFAS 115. The adoption of this statement had no impact on the
Company's financial position or results of operations.
<PAGE>
Accounting Principles Issued and Not Yet Adopted In June 1999
SFAS No. 137
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
effective date of SFAS No. 133" was issued. 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. 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.
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.
<PAGE>
FINANCIAL CONDITION
Cash and Cash Equivalents:
At June 30, 2000, cash, federal funds sold, and deposits with other
banks totaled $8.017 million; an increase of $548 thousand compared to $57.469
million at June 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 $97.569 million on June 30, 2000; increasing $5.503
million as compared to June 30, 1999, total of $92.066 million. This is an
increase of 6%
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 June 30, 2000, were $22.005 million as compared to $17.850
million on June 30, 1999, showing an increase of $4.155 million. Term borrowings
are term funds from the FHLB under various notes. The following notes are still
outstanding:
Issue Date Maturity Interest Rate Amount
11/16/98 11/17/03 4.64% $5,000,000
03/17/00 09/18/00 6.40% $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
<PAGE>
Loans:
The Bank's loan volume has continued to be steady through the second
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 June 30, 2000, net loans totaled $162.463 million as compared to
$152.396 million on June 30, 1999 showing an increase of $10.067 million in the
past year. The loan to deposit ratio was 70.8% on June 30, 2000, as compared to
65.4% on June 30, 1999. During the second quarter of 2000 net loans grew $6.606
million as compared to $5.225 million in the first 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 June 30, 2000, were $226.616 million as compared to $215.081 million
at June 30, 1999. This is an increase in deposits of $811.535 million or 5.36%.
Although we are not the highest payer for deposits in our market area,
our deposit growth has remained steady. Deposits for the first quarter 2000
increased $4.572 million or 21.2% and the second quarter increased another $6.63
million, making the cummulative growth over the last six months $11.192 million
or 5.19% in the year.
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 June 30, 2000, regulatory capital to total assets was 9.77% as
compared to 9.51% on June 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
15.87% and the total capital ratio to total risk weighted assets ratio is
16.97%. 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 June
30, 2000.
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ANALYSIS
June 30, 2000
(in thousands)
Maturity or Repricing In:
RATE SENSITIVE ASSETS 3 Months 3-6 Months 6-12 Months 1-5 Years Over 5 Years
<S> <C> <C> <C> <C> <C>
Loans ................................ 19,299 10,537 22,593 63,091 46,934
Securities ........................... 26,681 5,176 9,074 38,657 22,274
Federal Funds Sold ................... 1,070 0 0 0 0
Total Rate Sensitive Assets .......... 47,050 15,713 31,667 101,748 69,208
Cummulative Rate Sensitive Assets .... 47,050 62,763 94,430 196,178 265,386
RATE SENSITIVE LIABILITIES
Interest Bearing Checking ............ 6,264 0 0 0 12,294
Money Market Deposits ................ 25,153 1,473 0 0 7,363
Regular Savings ...................... 17,982 566 20 1 26,301
CDs and IRAs ......................... 21,845 15,400 24,772 37,878 1,933
Short-term Borrowings ................ 4,505 0 0 0 1,211
Long-term Borrowings ................. 5,000 0 7,500 5,000 0
Total Rate Sensitive Liabilities ..... 80,749 17,439 32,292 42,879 49,102
Cummulative Rate Sensitive Liabilities 80,749 98,188 130,480 173,359 222,461
Period Gap ........................... -33,699 -1,726 -625 58,869 20,106
Cummulative Gap ...................... -33,699 -35,425 -36,050 22,819 42,925
Cummulative RSA to RSL ............... 58.26% 63.92% 72.37% 113.16% 119.29%
Cummulative Gap to Total Assets ...... -12.16% -12.78% -13.01% 8.23% 15.49%
</TABLE>
<PAGE>
The following assumptions have been made in the foregoing model.
Non-interest bearing categories are shown to reprice 10% of balances in the
"within 3 months" period (all repricing within the first month) and the
remaining balances in the last period. NOW accounts and regular Savings accounts
also reprice 10% of balances in the "within 3 months" and the remaining balances
in the last period. Management can change these rates, but such changes are
infrequent and incrementally small. History has shown a strong core deposit
relationship in these accounts and little or no run-off if rates change in these
products. Repayment for principal on mortgage backed securities are projected by
expected cash flows as evidenced by recent history. Repayment of principal for
loan categories is projected at expected maturity (amortization) for fixed rate
products and the next repricing date for variable rate products.
RESULTS OF OPERATIONS
Net Interest Income:
Net interest income after loan loss provision increased by $309
thousand or 7.27% for the six months ended June 30, 2000, as compared to the
same period in 1999. Earning assets increased $16.772 million or 6.80% for June
30, 2000, as compared to December 31, 1999 and $25.425 million from June 1999 to
June 2000, a 10.68% increase. 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 six-months and quarter ended June
31, 2000 totaled $6.562 million, reflecting increases of $701 thousand or 11.96%
over the comparable periods in 1999. The loan portfolio grew $19.856 million
from a total of $140.776 million in June 1999 to $160.632 million in June 2000
which is an increase of 14.10%.
Interest on investments for the six-months and the quarter ended June
30, 2000, totaled $2.988 million which reflects increases of $366 thousand or
13.96% over the comparable period in 1999. The investment portfolio has
increased by $4.927 million over the June 1999 total of $92.642 million which is
an increase of 5.32%. The higher income percentage growth over the portfolio
growth is a by-product of a higher interest rate environment.
<PAGE>
Interest Expense:
Interest expense for the six-months and the quarter ended June 30,
2000, totaled $4.871 million compared to $4.113 million in 1999, reflecting an
increase of $758 thousand or 18.43% over the comparable period in 1999.
Provision for Loan Loss:
The provision for loan loss for the Second quarter ending June 30, 2000
showed no increase from the corresponding period in 1999.
Second quarter 2000 charge-offs totaled $77,337 while net charge-offs
totaled $51,753 as compared to $145,272 and $125,868 respectively for the same
six 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.
<PAGE>
Other Income:
Other income increased $48 thousand when comparing the first six months
of 2000 to the first six months of 1999. Service Charge Fee Income is up $99
thousand for the six months. Gains and losses on security sales are $63 thousand
less this year when comparing 1999 to 2000. Other operating income is up $12
thousand over the first six months of 1999. T.H.E. commissions on investment and
Private Business products are contributing to other income.
Other Operating Expenses:
Non-Interest expense went up by $179 thousand during the first six
months of 2000 as compared to the first six months of 1999. Postage costs have
gone up by $9.348 thousand for the first two quarters of 2000 compared to the
first two quarters of 1999. Forms supplies have gone up $9.850 thousand over
last year. ATM expenses
have gone up $13.667 thousand. FDIC insurance costs have gone up $11.497
thousand. Losses on bad checks have increased by $4.671 thousand. Taxes have
increased $4.468 thousand over the Second quarter of 1999.
Employee salaries, the largest component of non-interest, increased
$112.708 thousand for the second quarter of 2000 compared to the second quarter
of 1999. The increase is due to the addition of several new positions as well as
pay increases in salaries and benefits for employees.
Income Tax Provision:
The income tax provision was $563 thousand and $748 thousand for the six-month
periods ended June 30, 2000 and June 30, 1999 respectively.
<PAGE>
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 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.
ANNUAL MEETING
The Corporation held its Annual Shareholders' Meeting on April 29, 2000, at
10:30 a.m. at the Montrose Bible Conference. John Hovan, Associate Board Member,
was the moderator. John W. Ord spoke about the overall performance of the Bank
during the past year. Wayne Whipple spoke on the new sales efforts. He was
followed by Debbie Dissinger who told about the operational side of the Bank and
Joe Ferretti from Loan Administration. Carl Pease, Jon Ord, and Russell
Shurtleff were elected to the Board.
<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
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
<PAGE>
(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
