UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 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 March 31, 2000
COMMON STOCK ($2 Par Value) 2,172,029
- --------------------------- --------------------------
(Title of Class) (Outstanding Shares)
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
FORM 10-Q
For the Quarter Ended March 31, 2000
Contents
PART I. FINANCIAL INFORMATION. Page No.
--------
Item 1. Financial Statements.
Consolidated Statement of Financial
Condition as of March 31, 2000
(Unaudited) and March 31, 1999. 3
Consolidated Statement of Income
(Unaudited) for the Three Month Period
Ended March 31, 2000 and 1999. 4
Consolidated Statement of Comprehensive
Income (Unaudited) for the Three Month
Period Ended March 31, 2000 and 1999. 5
Consolidated Statement of Shareholders'
Equity (Unaudited) for the Three Month
Period Ended March 31, 2000 and 1999. 6
Consolidated Statement of Cash Flows
(Unaudited) for the Three Month Period
Ended March 31, 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. 13
PART II. OTHER INFORMATION 14
Item 6. Exhibits and Reports on Form 8-K. 15
<PAGE>
PART I
Item 1
PEOPLES FINANCIAL SERVICES CORP.
AND SUBSIDIARY
CONSLOIDATED STATEMENT OF FINANCIAL CONDITION
March 31, 2000 and March 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
(in thousands)
ASSETS: March 2000 December 1999
<S> <C> <C>
Cash Due from Banks ................................ 2,724 3,373
Interest Bearing Deposits with Other Banks ......... 3,696 4,096
Federal Funds Sold ................................. 0 0
Securities Available for Sale ...................... 93,495 92,066
Loans, Net of Unearned Discount .................... 157,657 152,396
Less: Unearned Income ............................. -9 -11
Allowance for Loan Loss ............................ -1,791 -1,755
Loans, Net ......................................... 155,857 150,630
Bank Premises and Equipment, Net ................... 3,469 3,455
Accrued Interest Receivable ........................ 1,797 1,996
Other Assets ....................................... 5,804 5,703
TOTAL Assets ....................................... 266,842 261,319
LIABILITIES
Deposits, Non-Interest Bearing ..................... 26,631 25,419
Deposits, Interest Bearing ......................... 193,355 190,005
Total Deposits ..................................... 219,986 215,424
Accrued Interest Payable ........................... 690 718
Borrowed Funds ..................................... 17,922 17,850
Other Liabilities .................................. 760 517
TOTAL Liabilities .................................. 239,358 234,509
SHAREHOLDERS' EQUITY
Common Stock * ..................................... 4,455 4,455
Surplus ............................................ 4,526 4,512
Treasury Stock at Cost ............................. -1,036 -1,050
Undivided Profit ................................... 21,551 20,980
Accumulated Other Comprehensive Income ............. -2,012 -2,087
TOTAL Shareholders' Equity ......................... 27,484 26,810
TOTAL LIABILITIES CAPITAL .......................... 266,842 261,319
<FN>
Common Stock, par value $2 per share, 12,500,000 shares authorized; 2,172,029
and 2,167,968 shares issued and outstanding at March 31, 2000 and 1999
respectively.
</FN>
</TABLE>
See notes to financial statements
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
AND SUBSIDIARY
CONSLOIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
(in thousands)
March March
INTEREST INCOME: 2000 1999
<S> <C> <C>
Interest and Fees on Loans ............................. 3,201 2,913
Interest Investments, Taxable .......................... 1,033 892
Tax Exempt .................................. 378 374
Dividends ................................... 21 20
Interest on Federal Funds Sold ......................... 2 10
Interest on Deposits of Other Banks .................... 23 -1
TOTAL Interest Income .................................. 4,658 4,208
Interest on Deposits ................................... 2,103 1,952
Interest on Borrowed Funds ............................. 231 116
Interest Expense ....................................... 2,334 2,068
Net Interest Income .................................... 2,324 2,140
Provision for Loan Losses .............................. 60 60
Net Interest Income, after Loan Loss Provision ......... 2,264 2,080
OTHER INCOME:
Service Charges and Fees ............................... 260 244
Gains on Security Sales ................................ 2 6
Other Operating Income ................................. 70 31
TOTAL Other Income ..................................... 332 281
OTHER EXPENSES:
Salaries and Benefits .................................. 724 643
Occupancy Expenses ..................................... 87 83
Furniture and Equipment Expense ........................ 92 91
FDIC Insurance and Assessments ......................... 29 23
Professional Fees and Outside Services ................. 41 40
Computer Services and Supplies ......................... 82 79
Taxes, Other Than Payroll and Income ................... 65 58
Other Operating Expenses ............................... 307 281
Total Non-Interest Expense ............................. 1,427 1,298
Income Before Income Taxes ............................. 1,169 1,063
Provision for Income Taxes ............................. 273 212
Net Income ............................................. 896 851
Net Income Per Share, Basic ............................ 0.412 0.390
Net Income Per Share, Diluted .......................... 0.412 0.390
</TABLE>
See notes to financial statements
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
CONSLOIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
(in thousands)
March March
2000 1999
<S> <C> <C>
Net Income .............................................. 896 851
Other Comp Income (loss) before tax
Unrealized Holding Gains/Losses on Securities ........... 114 -502
Less: Reclassification Adjustment ....................... 2 6
Other Comp Income (loss) before tax ..................... 112 -508
Federal Income Tax Expense (benefit) .................... 38 -173
Other Comp Income (loss) before tax ..................... 74 -335
TOTAL Comp Income ....................................... 970 516
</TABLE>
See notes to financial statements
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
CONSLOIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHE ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
(in thousands)
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 1998 for the three months ........... 0 0 851 0 0 851
ended March 31, 1999
Cash Dividends Paid, 1999 ...................... 0 0 -261 0 0 -261
Treasury Stock Purchase ........................ 0 0 0 0 -78 -78
Change in unrealized gain/loss on securities
available for sale, net of deferred income taxes 0 0 0 -335 0 -335
Balance, March 31, 1999 ....................... 4,455 4,455 18,912 227 -826 27,223
Balance, December 31, 1999 .................... 4,455 4,512 20,980 -2,087 -1,050 26,810
Net Income 2000 for the three months............ 0 0 896 0 0 896
ended March 31, 1999
Cash Dividends Paid, 2000 ...................... 0 0 -325 0 0 -326
Treasury Stock Purchase ........................ 0 0 0 0 0 0
Shares issued from treasury
related to DRIP and Stock Option Plan ......... 0 14 0 0 14 28
Change in unrealized gain/loss on securities
available for sale, net of deferred income taxes 0 0 0 74 0 74
Balance, March 31, 2000 ....................... 4,455 4,526 21,551 -2,013 -1,036 27,484
</TABLE>
See notes to financial statements
<PAGE>
PEOPLES FINANCIAL SERVICES CORP. AND SUBSIDIARY
CONSLOIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
(in thousands)
Mar Mar
Cash Flows from Operating Activities 2000 1999
<S> <C> <C>
Net Income ................................................................... 896 851
Adjustments: Depreciation and amortization................................ 150 154
Provision for Loan Losses ................................... 60 60
Gain/Loss on sale of equipment .............................. 2 0
Gain/loss on sale of other real estate ...................... 0 0
Amortization of securities' premiums and accretion of discounts .............. 28 63
Gains on sales of investment securities, NET ................................. -2 -6
Deferred Income Tax (benefit) ................................................ 0 0
Increase in accrued interest receivable ...................................... 199 108
Increase/Decrease in other assets ............................................ -267 -257
Increase/Decrease in accrues interest payable ................................ -28 -33
Increase/Decrease in other liabilities ....................................... 243 248
Net cash provided by operating activities .................................... 1,281 1,188
Cash Flows from investing activities
Proceeds from sale of available for sale securities .......................... 945 2,006
Proceeds from maturities of available for sale securities .................... 295 3,975
Purchase of available for sale securities .................................... -3,330 -6,579
Principal payments on mortgage-backed securities ............................. 742 4,135
Net increase in loans ........................................................ -5,228 -3,767
Proceeds from sale of premises and equipment ................................. 2 0
Purchase of premises and equipment ........................................... -93 -78
Proceeds from sale of other real estate ...................................... 0 43
Purchase of intangible assets ................................................ 0 0
Net cash used in investing activities ........................................ -6,667 -265
Cash flows from financing activities
Cash dividends paid .......................................................... -325 -262
Increase in deposits ......................................................... 4,562 1,626
Net Increase/Decrease in long-term borrowing ................................. 0 0
Net Increase/Decrease in short-term borrowing ................................ 72 -1,491
Purchase of treasury stock ................................................... 28 78
Net cash provided by financing activities .................................... 4,337 -205
Net Increase/Decrease in cash/cash equivalents ............................... -1,049 718
Cash and cash equivalents, beginning of year ................................. 7,469 4,809
Cash and cash equivalents,end of year ........................................ 6,420 5,527
Supplemental disclosures of cash paid
Interest Paid ................................................................ 2,334 2,101
Income Taxes Paid ............................................................ 0 10
Non-cash investing and financing activities
Transfers from loans to real estate through foreclosure ...................... 8 185
Proceeds from sales of foreclosed real estate ................................ 0 0
TOTAL Increase/Decrease in unrealized gain/loss on securities avail for sale.. 112 -508
</TABLE>
See notes to financial statements
<PAGE>
PEOPLES FINANCIAL SERVICES CORP.
NOTES TO CONSLOIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
pursuant to rules and regulations of the Securities and Exchange Commission
(SEC) and in compliance with generally accepted accounting principles. Because
this report is based on an interim period, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
The registrant believes that the disclosures made are adequate to make the
information presented a fair representation of the Corporation's financial
status.
In the opinion of management, the accompanying consolidated financial
statements for the three-month period ended March 31, 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
three-month period ended March 31, 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.
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.
<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 March 31, 2000, cash, federal funds sold, and deposits with other
banks totaled $6.420 million; a decrease of $1.049 million compared to $5.527
million at March 31, 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 $93.495million on March 31, 2000; increasing $4.43
million as compared to March 31, 1999, total of $89.073 million. This is an
increase of 4.96%
The total investment portfolio is held as available for sale. This
strategy was implemented in 1995 to provide more flexibility in using the
investment portfolio for liquidity purposes as well as providing more
flexibility in selling when market opportunities occur.
Management monitors the earnings performance and effectiveness of the
liquidity of the investment portfolio on a monthly basis through the
Asset/Liability Committee ("ALCO") meetings. The ALCO also reviews and manages
interest rate risk for the Corporation. Through active balance sheet management
and analysis of the investment securities portfolio, the Corporation maintains
sufficient liquidity to satisfy depositor requirements and various credit needs
of its customers.
Borrowings:
The Bank utilizes borrowing as a source of funds for its
asset/liability management. Advances are available from the FHLB provided
certain standards related to credit worthiness have been met. Repurchase and
term agreements are also available from FHLB.
Total borrowings at March 31, 2000, were $17.922 million as compared to $7.541
million on March 31, 1999, showing an increase of $10.39 million. Term
borrowings are term funds from the FHLB under various notes. There was a note
taken March 17, 2000, in the amount of $5,000,000 with a fixed interest rate of
6.40%. The note has a final maturity date of September 18, 2000. This note
replaces a note for the same amount that matured on March 17, 2000.
Loans:
The Bank's loan volume has continued to be steady through the first
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 March 31, 2000, net loans totaled $155.858 million as compared to
$143.058 million on March 31, 1999 showing an increase of $12.80 million in the
past year. The loan to deposit ratio was 71% on March 31, 2000, as compared to
68% on March 31, 1999. During the first quarter of 2000 net loans grew $5.225
million.
Deposits:
Deposits are attracted from within the Bank's primary market area
through the offering of various deposit instruments including NOW accounts,
money market accounts, savings accounts, certificates of deposit and IRAs. Total
deposits at March 31, 2000, were $219.986 million as compared to $211.507
million at March 31, 1999. This is an increase in deposits of $8.479million or
4.01%. Although we are not the highest payer for deposits in our market area,
our deposit growth has remained steady.
Capital:
The adequacy of the Corporation's capital is reviewed on an ongoing
basis with reference to the size, composition and quality of the Corporation's
resources and regulatory guidelines. Management seeks to maintain a level of
capital sufficient to support existing assets and anticipated asset growth,
maintain favorable access to capital markets and preserve high quality credit
ratings. As of March 31, 2000, regulatory capital to total assets was 9.99% as
compared to 9.51% on March 31, 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
16.57% and the total capital ratio to total risk weighted assets ratio is
17.71%. The Corporation is deemed to be well-capitalized under regulatory
standards.
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.
<PAGE>
The following table sets forth the Bank's interest rate sensitivity as of March
31, 2000.
<TABLE>
INTEREST RATE SENSITIVITY ANALYSIS
March 31, 2000
<CAPTION>
(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 ................................ 19,522 11,419 17,319 63,283 46,105
Securities ........................... 20,106 8,639 9,168 38,839 20,439
Federal Funds Sold ................... 0 0 0 0 0
Total Rate ........................... 39,628 20,058 26,487 102,122 66,544
Cummulative Rate ..................... 39,628 59,686 86,173 188,295 254,839
RATE SENSITIVE LIABILITIES
Interest Bearing Checking ............ 1,561 0 0 0 14,050
Money Market Deposits ................ 24,877 1,527 0 0 7,632
Regular Savings ...................... 14,756 28 503 2 26,414
CDs and IRAs ......................... 22,132 16,860 23,781 37,675 1,556
Short-term Borrowings ................ 5,922 0 0 0 1,168
Long-term Borrowings ................. 2,000 5,000 0 5,000 0
Total Rate Sensitive Liabilities ..... 71,248 23,415 24,284 42,677 50,820
Cummulative Rate Sensitive Liabilities 71,248 94,663 118,947 161,624 212,444
Period Gap ........................... -31,620 -3,357 2,203 59,445 15,724
Cummulative Gap ...................... -31,620 -34,977 -32,774 26,671 42,395
Cummulative RSA to RSL ............... 55.62% 63.05% 72.45% 116.50% 119.96%
Cummulative Gap to Total Assets ...... -11.85% -13.11% -12.28% 10.00% 15.89%
</TABLE>
The following assumptions have been made in the foregoing model.
Non-interest bearing categories are shown to reprice 10% of balances in the
"within 3 months" period (all repricing within the first month) and the
remaining balances in the last period. NOW accounts and regular Savings accounts
also reprice 10% of balances in the "within 3 months" and the remaining balances
in the last period. Management can change these rates, but such changes are
infrequent and incrementally small. History has shown a strong core deposit
relationship in these accounts and little or no run-off if rates change in these
products. Repayment for principal on mortgage backed securities are projected by
expected cash flows as evidenced by recent history. Repayment of principal for
loan categories is projected at expected maturity (amortization) for fixed rate
products and the next repricing date for variable rate products.
RESULTS OF OPERATIONS
Net Interest Income:
Net interest income after loan loss provision increased by $184
thousand or 8.8% for the three-months and quarter ended March 31, 2000, as
compared to the same periods in 1999. Earning assets increased $17.221 million
or 7.4% for March 31, 2000, as compared to March 31, 1999.
Interest Income:
Interest and fees on loans for the three-months and quarter ended March
31, 2000 totaled $3.201million, reflecting increases of $288 thousand or 9.9%
over the comparable periods in 1999. The loan portfolio grew $12.8 million from
a total of $143.058 million in March 1999 to $155.858 million in March 2000
which is an increase of 8.9%.
Interest on investments for the three-months and the quarter ended
March 31, 2000, totaled $1.457 million which reflects increases of $162 thousand
or 12.5% over the comparable period in 1999. The investment portfolio has
increased by $4.422 million over the March 1999 total of $89.073 million which
is an increase of 4.9%.
Interest Expense:
Interest expense for the three-months and the quarter ended March 31,
2000, totaled $2.334 million compared to $2.068 million in 1999, reflecting an
increase of $266 thousand or 12.9% over the comparable period in 1999.
Provision for Loan Loss:
The provision for loan loss for the first quarter ending March 31, 2000
showed no increase from the corresponding period in 1999.
First quarter 2000 charge-offs totaled $3,984 while net charge-offs
totaled $1,498 as compared to $86,625 and $ 79,735 respectively for the same
three 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 $51 thousand when comparing the first quarter
2000 to the first quarter 1999. Service Charge Fee Income is up $16 thousand for
the three months. Gains and losses on security sales are $4 thousand less this
year when comparing 1999 to 2000. Other operating income is up $39 thousand over
the first quarter of 1999 due to T.H.E. commissions on investment sales of $22
thousand in 2000 and $0 in first quarter 1999. In this category, there is also a
$5 thousand increase over 2000 from 1999 because of the new Private Business
products fee income.
Other Operating Expenses:
Non-Interest expense went up by $129 thousand during the first quarter
of 2000 as compared to the first quarter of 1999. Postage costs have gone up by
$8 thousand for the first quarter of 2000 compared to the first quarter of 1999.
Forms supplies have gone up $5 thousand over last year. ATM expenses have gone
up $7 thousand. FDIC insurance costs have gone up $7 thousand. Losses on bad
checks have increased by $5 thousand. Taxes have increased $7 thousand over the
first quarter of 1999.
Employee salaries, the largest component of non-interest, increased $81
thousand for the first quarter of 2000 compared to the first 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.
<PAGE>
Income Tax Provision:
The income tax provision was $273 thousand and $212 thousand for the three-month
periods ended March 31, 2000 and March 31, 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 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
January 27, 2000
(c) Other Events
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
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PEOPLES FINANCIAL SERVICES CORP
By/s/ Debra E. Dissinger
Debra E. Dissinger
Vice President Operations
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