UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1997
----------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from to
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Commission file number 000-20163
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FIRST PHILSON FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 25-1511866
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
534 Main Street, Berlin, PA 15530
- ------------------------------- -------------------------------
(Address of principal executive (Zip code)
offices)
(Registrant's telephone number,including area code)(814)267-4666
-------------
Not Applicable
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(Former name, former address and former fiscal year, if changed
since last report)
Check whether the registrant (1) 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
----- -----
As of November 7, 1997, there were 1,742,400 shares outstanding
of the issuer's common stock.
1
<PAGE>
First Philson Financial Corporation
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet (Unaudited) as of
September 30, 1997 and December 31, 1996 3
Consolidated Statement of Income (Unaudited)
for the Three Months and Nine Months Ended
September 30, 1997 and 1996 4
Consolidated Statement of Cash Flows (Unaudited)
for the Nine Months Ended September 30, 1997 and
1996 5
Notes to Consolidated Financial Statements
(Unaudited) 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-14
PART II - OTHER INFORMATION 15
Item 1. Legal Proceedings
2. Changes in Securities
3. Defaults Upon Senior Securities
4. Submission of Matters to a Vote of Security Holders
5. Other Information
6. Exhibits and Reports on Form 8-K
Signatures 16
2
<PAGE>
<TABLE>
First Philson Financial Corporation
CONSOLIDATED BALANCE SHEET (Unaudited)
(Dollars in thousands)
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,506 $ 8,916
Interest-bearing deposits in
other banks 510 -
Federal funds sold 9,800 6,500
Investment securities available
for sale 12,596 579
Investment securities held to
maturity (market values of
$65,015 and $78,750) 64,709 78,702
Total loans 105,508 100,654
Less allowance for loan losses 2,586 3,017
------------- ------------
Net loans 102,922 97,637
Premises and equipment, net 2,749 2,393
Accrued interest receivable 1,904 1,707
Other assets 1,233 1,231
------------- ------------
TOTAL ASSETS $ 203,929 $ 197,665
============= ============
LIABILITIES
Deposits:
Noninterest-bearing demand $ 22,678 $ 20,567
Interest-bearing demand 26,884 25,094
Savings 35,416 35,614
Money market 12,236 12,193
Time 80,001 80,012
------------- ------------
Total deposits 177,215 173,480
Securities sold under agreements
to repurchase 876 1,168
U. S. Treasury demand notes 1,821 845
Accrued interest payable 587 552
Other liabilities 462 421
------------- ------------
TOTAL LIABILITIES 180,961 176,466
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STOCKHOLDERS' EQUITY
Common stock ($2.50 par value,
10,000,000 shares authorized,
1,742,400 shares issued and
outstanding) 4,356 4,356
Capital surplus 11,644 2,354
Retained earnings 6,822 14,470
Net unrealized gain on securities 146 19
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 22,968 21,199
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 203,929 $ 197,665
============= ============
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
<TABLE>
First Philson Financial Corporation
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
(Dollars in thousands, except per share amounts)
<CAPTION>
Three Months Ended September 30,
1997 1996
-------------- --------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 2,365 $ 2,182
Interest-bearing deposits in
other banks 7 -
Interest on federal funds sold 136 92
Investment securities:
Taxable interest 1,020 1,073
Tax exempt interest 156 167
-------------- --------------
Total interest and
dividend income 3,684 3,514
-------------- --------------
INTEREST EXPENSE
Interest on deposits 1,452 1,462
Interest on borrowed funds 22 13
-------------- --------------
Total interest expense 1,474 1,475
-------------- --------------
NET INTEREST INCOME 2,210 2,039
Provision for loan losses - -
-------------- --------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,210 2,039
-------------- --------------
OTHER INCOME
Service charges on deposit
accounts 163 148
Other income 109 108
-------------- --------------
Total other income 272 256
-------------- --------------
OTHER EXPENSE
Salaries and employee benefits 786 758
Premises and equipment expense 217 266
Other expense 476 471
-------------- --------------
Total other expense 1,479 1,495
-------------- --------------
Income before income taxes 1,003 800
Income tax expense 281 207
-------------- --------------
NET INCOME $ 722 $ 593
============== ==============
EARNINGS PER SHARE $ 0.41 $ 0.34
CASH DIVIDENDS PER SHARE $ 0.09 $ 0.08
WEIGHTED AVERAGE SHARES
OUTSTANDING 1,742,400 1,742,400
<CAPTION>
Nine Months Ended September 30,
1997 1996
-------------- --------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 6,918 $ 6,440
Interest-bearing deposits in
other banks 7 -
Interest on federal funds sold 434 265
Investment securities:
Taxable interest 2,998 3,307
Tax exempt interest 483 487
-------------- --------------
Total interest and
dividend income 10,840 10,499
-------------- --------------
INTEREST EXPENSE
Interest on deposits 4,292 4,387
Interest on borrowed funds 69 114
-------------- --------------
Total interest expense 4,361 4,501
-------------- --------------
NET INTEREST INCOME 6,479 5,998
Provision for loan losses - -
-------------- --------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 6,479 5,998
-------------- --------------
OTHER INCOME
Service charges on deposit
accounts 441 396
Other income 297 294
-------------- --------------
Total other income 738 690
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OTHER EXPENSE
Salaries and employee benefits 2,355 2,286
Premises and equipment expense 621 726
Other expense 1,345 1,322
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Total other expense 4,321 4,334
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Income before income taxes 2,896 2,354
Income tax expense 797 614
-------------- --------------
NET INCOME $ 2,099 $ 1,740
============== ==============
EARNINGS PER SHARE $ 1.20 $ 1.00
CASH DIVIDENDS PER SHARE $ 0.26 $ 0.23
WEIGHTED AVERAGE SHARES
OUTSTANDING 1,742,400 1,742,400
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
<TABLE>
First Philson Financial Corporation
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(Dollars in thousands)
<CAPTION>
Nine Months Ended September 30,
1997 1996
------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 2,099 $ 1,740
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation, amortization
and accretion, net 157 246
Increase in accrued interest
receivable (197) (41)
Increase(decrease)in accrued
interest payable 35 (29)
Other, net (25) (78)
------------- --------------
Net cash provided by
operating activities 2,069 1,838
------------- --------------
INVESTING ACTIVITIES
Net increase in interest-bearing
deposits in other banks (510) -
Proceeds from maturities and
repayments of investment
securities held to maturity 18,014 22,533
Purchase of investment securities
Held to maturity (3,972) (17,126)
Available for sale (11,819) (451)
Net increase in loans (5,282) (7,585)
Purchase of premises and
equipment (572) (96)
Proceeds from sales of other
real estate owned - 62
------------- --------------
Net cash used for investing
activities (4,141) (2,663)
------------- --------------
FINANCING ACTIVITIES
Net increase in deposits 3,735 4,138
Decrease in securities sold
under agreements to repurchase (292) (6,716)
Increase in U.S. Treasury demand
notes 976 1,191
Cash dividends paid (457) (392)
------------- --------------
Net cash provided by (used
for) financing activities 3,962 (1,779)
------------- --------------
Increase (decrease) in cash
and cash equivalents 1,890 (2,604)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 15,416 15,387
------------- --------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 17,306 $ 12,783
============= ==============
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
First Philson Financial Corporation
Notes to Consolidated Financial Statements (Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
The consolidated financial statements include the accounts of
First Philson Financial Corporation (the "Company") and its
wholly-owned subsidiaries, First Philson Bank, National
Association (the "Bank") and Flex Financial Consumer Discount
Company ("Flex Financial"). All significant intercompany
balances and transactions have been eliminated in the
consolidation.
On May 19, 1997, Flex Financial Consumer Discount Company ("Flex
Financial") was incorporated. Flex Financial will be operated as
a solely owned subsidiary of the Company. On July 16, 1997, the
applications for a consumer discount company license and a
secondary mortgage license were filed with the Pennsylvania
Department of Banking. The Department of Banking had up to 90
days to review the applications and either approve or disapprove
the same. Approval was granted as of July 30, 1997 for Flex
Financial to conduct business and the appropriate licenses were
received. On September 22, 1997 Flex Financial commenced
business operations.
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q
and therefore, do not necessarily include all information that
would be included in audited financial statements. The
information furnished reflects all adjustments which are, in the
opinion of Management, necessary for a fair statement of the
results of operations. All such adjustments are of a normal
recurring nature. The results of operations for the interim
periods are not necessarily indicative of the results to be
expected for the full year.
Reclassification of Comparative Amounts
- ---------------------------------------
Certain comparative amounts for the previous period have been
reclassified to conform to the current period classifications.
NOTE 2 - COMMON STOCK
On August 19, 1997, the Board of Directors approved a
four-for-one stock split to shareholders, subject to shareholder
approval at a special meeting on October 21, 1997. At the
special meeting on October 21, 1997, the shareholders approved an
increase in the number of shares authorized from 500,000 to
10,000,000 with a reduction in the par value of the stock from
$10.00 per share to $2.50 per share. As the result of the stock
split the number of shares outstanding increased from 435,600 to
1,742,400 shares.
6
<PAGE>
Average shares outstanding and all per share amounts included in
the financial statements are based on the increased number of
shares giving retroactive effect to the stock split.
NOTE 3 - PENDING ACCOUNTING PRONOUNCEMENT
In June 1996, the Financial Accounting Standards Board ("FASB")
issued Statement No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." The
Statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that
are secured borrowings based on control-oriented
"financial-components" approach. Under this approach, after a
transfer of financial assets, an entity recognizes the financial
and servicing assets it controls and liabilities it has incurred,
derecognizes financial assets when control has been surrendered
and derecognizes liabilities when extinguished. The provisions
of Statement No. 125 are effective for transactions occurring
after December 31, 1996, except those provisions relating to
repurchase agreements, securities lending, and other similar
transactions and pledged collateral, which have been delayed
until after December 31, 1997 by Statement No. 127, "Deferral of
the Effective Date of Certain Provisions of FASB Statement No.
125, an amendment of FASB Statement No. 125." The adoption of
these statements is not expected to have a material impact on
financial position or results of operations.
On March 3, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings Per
Share." Statement No. 128 will become effective for the Company
beginning in December 1997. This statement re-defines the
standards for computing earnings per share ("EPS") previously
found in Accounting Principles Board Opinion No. 15, Earnings Per
Share. Statement No. 128 establishes new standards for computing
and presenting EPS and requires dual presentation of "basic" and
"diluted" EPS on the face of the income statement for all
entities with complex capital structures. Under Statement No.
128, basic EPS is to be computed based upon income availability
to common shareholders and the weighted average number of common
shares outstanding for the period. Diluted EPS is to reflect the
potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company. Statement No. 128
also requires the restatement of all prior-period EPS data
presented. The Company will adopt Statement No. 128 as of
December 31, 1997 and based on current estimates, does not
believe the effect of adoption will have a significant impact on
the Company's financial position or results of operations.
In July 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income." Statement No. 130 will become effective
for the Company beginning in December 1997. This statement
establishes standards for reporting and presentation of
comprehensive income and its components (revenues, expenses,
gains, and losses) in a full set of general purpose financial
statements. It requires that all items that are required to be
recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is
presented with the same prominence as other financial statements.
Statement No. 130 requires that companies (i) classify items of
other comprehensive income by their
7
<PAGE>
nature in a financial statement and (ii) display the accumulated
balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of
the statement of financial condition. The Company will adopt
Statement No. 130 as of December 31, 1997. Reclassification of
financial statements for earlier periods provided for
comprehensive purposes is required.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
Total assets at September 30, 1997 increased by $6,264,000 from
that reported at December 31, 1996. Increases in federal funds
sold of $3,300,000, investment securities available for sale of
$12,017,000, and net loans of $5,285,000 were funded primarily by
a decrease in investment securities held to maturity of
$13,993,000 and an increase in total deposits of $3,735,000.
The increase in investment securities available for sale was the
result of Management's decision to invest in available for sale
securities in 1997 in order to enhance the liquidity within the
investment portfolio. The decrease in investment securities held
to maturity resulted from maturities and calls.
The increase in net loans of $5,285,000 resulted primarily from
an increase in mortgage loans and commercial loans. The increase
in mortgage loans occurred essentially in fixed rate home equity,
residential, and commercial real estate loans. The increase in
commercial loans was primarily in fixed rate and non-taxable
loans. The allowance for loan losses decreased $431,000 or
14.29% as the result of charge offs exceeding recoveries for the
first nine months of 1997. As of September 30, 1997, the
allowance for loan losses represents 2.45% of the outstanding
loan balances as compared to 3.00% for December 31, 1996. As in
1996 and 1995, Management continues to emphasize consumer and
small business lending. This has permitted the Company to meet
the needs of the communities for which it serves.
The increase in equity capital was attributed to net earnings of
$2,099,000 and the change in net unrealized gains on available
for sale securities of $127,000, less dividend payments totaling
$457,000. During the first quarter of 1997, Management made a
decision to transfer $9,290,000 from Retained Earnings to Capital
surplus as permanent capital for the Company.
Strategic planning is a vital activity of the Board of Directors
and Management. An integral part of this planning is constant
monitoring of the market area for ways to improve the Company's
service to the market area. Utilizing an in-depth study of the
market demographics, the Board of Directors endorsed a plan to
form a consumer discount company. On May 19, 1997, Flex
Financial Consumer Discount Company ("Flex Financial") was
incorporated. Flex Financial is operated as a solely owned
subsidiary of the Company. On July 16, 1997, the applications
for a consumer discount company license and a secondary mortgage
license were filed with the Pennsylvania Department of Banking.
The Department of Banking had up to 90 days to review the
applications and either approve or disapprove the same. Approval
was granted as of July 30, 1997 for Flex Financial to conduct
business and the appropriate licenses were received. Operations
began on September 22, 1997, but the results of operation did not
have a significant impact on the total operations of the Company
as of September 30, 1997.
9
<PAGE>
Results of Operations
Comparison of Nine Months Ended September 30, 1997 and 1996.
The Company's net income increased by $359,000 for the first nine
months of 1997, as compared to net income for the first nine
months of 1996. Effecting net income positively was an increase
in interest and dividend income of $341,000 and a decrease in
interest expense of $140,000. Negative effects to net income
consisted of an increase in income taxes of $183,000.
Net interest income for 1997 increased $481,000 from 1996 due to
an increase in interest and dividend income and a decrease in
interest expense. The increase in interest and dividend income
resulted primarily from increases in interest and fees on loans
of $478,000 and interest on federal funds sold of $169,000,
offset by a decrease in interest on investment securities of
$313,000. The increase in interest and fees on loans is
attributable to an increase in the average outstanding balance of
mortgage loans of $6.2m, primarily fixed rate residential and
commercial real estate loans. The increase in interest on
federal funds sold is due to a $4.0m increase in the average
outstanding balance. The decrease in interest on investment
securities is due to an $8.6m decrease in the average outstanding
balance. The decrease of $140,000 in interest expense resulted
from a $2.5m reduction in the average balance of repurchase
agreements and an 11 basis point decrease in the cost of
interest-bearing deposits, as well as a $1.4m increase in the
average outstanding balance on noninterest-bearing demand
deposits.
Other expense decreased $13,000 for 1997 from 1996, primarily as
the result of a decrease in premises and equipment expense of
$105,000, offset by an increase in salaries and employee benefits
of $69,000. The decrease in premises and equipment expense in
1997 was the result of repairs and maintenance at several offices
during 1996. The increase in salaries and employee benefits is
due to annual employee increases.
The increase in income taxes was due to an increase in pretax
income of $542,000. The effective tax rates were 27.52% for 1997
and 26.08% for 1996.
Results of Operations
Comparison of Three Months Ended September 30, 1997 and 1996.
The Company's net income increased by $129,000 for the third
quarter of 1997, as compared to net income for the third quarter
of 1996. Effecting net income positively was an increase in
interest and dividend income of $170,000. Negative effects to
net income consisted of an increase in income taxes of $74,000.
Net interest income for the third quarter of 1997 increased
$171,000 as compared to the third quarter of 1996 from an
increase in interest and dividend income and a decrease in
interest expense. The increase in interest and dividend income
resulted primarily from increases in interest and fees on loans
10
<PAGE>
of $183,000 and interest on federal funds sold of $44,000, offset
by a decrease in interest on investment securities of $64,000.
The increase in interest and fees on loans from the third quarter
of 1996 to the third quarter of 1997 is attributable to an
increase in the average outstanding balance of mortgage loans of
$5.0m, primarily fixed rate residential and commercial real
estate loans. The increase in interest on federal funds sold is
due to a $2.9m increase in the average outstanding balance and a
14 basis point increase in the net yield. The decrease in
interest on investment securities is due to a $5.1m decline in
the average outstanding balance. The decrease in interest
expense resulted from a reduction in the cost of interest-bearing
demand of 37 basis points and savings deposits of 8 basis points,
as well as an increase of $1.1m in the average outstanding
balance of noninterest-bearing demand deposits.
Other expense decreased for the third quarter of 1997 as compared
to that of 1996 primarily due to a decrease in premises and
equipment expense, offset by an increase in salaries and employee
benefits. The decrease in premises and equipment expense in 1997
was the result of repairs and maintenance at several offices
during 1996. The increase in salaries and employee benefits is
due to annual employee increases.
The increase in income taxes for the third quarter of 1997 as
compared to the third quarter of 1996 was due to an increase in
pretax income of $203,000. The effective tax rates were 28.01%
for 1997 and 25.88% for 1996.
Liquidity and Cash Flows
To ensure that the Bank can satisfy customer credit needs for
current and future commitments and depository withdrawal
requirements, the Bank manages the liquidity position by ensuring
that there are adequate short-term funding sources available for
those needs. Liquid assets consist of cash and due from banks,
interest-bearing deposits in other banks, federal funds sold,
investment securities available for sale and investment
securities held to maturity, maturing in one year or less. The
following table shows these liquidity sources, minus short-term
borrowings as of September 30, 1997 and December 31, 1996,
(dollars in thousands). Management feels that the liquidity
position is strong and adequate to cover any potential customer
withdrawals and credit needs.
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Cash and due from banks $ 7,506 $ 8,916
Interest-bearing deposits in
other banks 510 -
Federal funds sold 9,800 6,500
Investment securities available
for sale 12,596 579
Investment securities held to
maturity, maturing in one year
or less 20,891 18,512
------------- ------------
Total 51,303 34,507
Less short-term borrowings 2,697 2,013
------------- ------------
Net liquidity position $ 48,606 $ 32,494
As a percent of total assets 23.83% 16.44%
</TABLE>
11
<PAGE>
Capital Resources
Capital management is an ongoing process that consists of
providing equity for both current and future financial
positioning. The Company and Bank manage their capital to
execute strategic business plans and support growth and
investments. During the first nine months of 1997, the Company
increased its capital base by $1,769,000 or 8.34%, primarily
through retained earnings. For the first nine months of 1996,
capital increased by $1,352,000 or 6.99%.
Regulatory agencies have capital adequacy and risk-based capital
adequacy guidelines by which they monitor the capital adequacy of
financial institutions and holding companies. The Company and
Bank have complied with the regulatory requirements and expect to
remain in compliance in the future.
The first measure is risk-based capital which measures the
relationship between capital, segregated between Tier 1 and Tier
2 capital, and risk-weighted assets, as defined.
Tier 1 capital generally consists of stockholders' equity,
non-cumulative perpetual preferred stock and minority interest in
consolidated subsidiaries. Tier 2 capital includes the allowance
for loan losses up to 1.25% of risk-weighted assets, cumulative
preferred stock, term subordinated debt and other hybrid capital
instruments. Total capital is reduced by such items as goodwill
and other certain intangible assets. Additionally, Tier 2
capital cannot exceed 50% of the minimum capital requirements,
which is 8% for 1997. Risk-weighted assets are derived by
applying certain predetermined percentages, ranging from 0 to
100% to on-balance sheet assets and off-balance sheet items based
upon their defined measure of credit risk.
The secured measure is the leverage capital ratio which evaluates
capital adequacy based upon Tier 1 capital in relation to
quarterly average assets, adjusted for the allowance for loan
losses, goodwill and certain other intangible assets. The
minimum leverage capital ratio for the highest rated institutions
is 3%, with all other institutions expected to maintain higher
ratios.
Furthermore, pursuant to the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), the Federal
Banking Regulators have set the minimum risk-based capital ratios
for a well capitalized banking institution at 6% Tier 1 capital,
10% total capital and 5% leverage capital. The Company and Bank
have exceeded all these capital ratios and expect to exceed these
ratios in the future to continue to be classified as well
capitalized.
Management has calculated and monitored the following capital
ratios in order to assess compliance with these regulatory
guidelines for the Company at September 30, 1997 and December 31,
1996, (dollars in thousands):
12
<PAGE>
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
Amount Ratio Amount Ratio
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Total Capital
(to Weighted Assets)
Actual $ 24,324 20.43% $ 22,588 20.34%
For Capital Adequacy
Purposes 9,525 8.00 8,884 8.00
Tier 1 Capital Ratio
(to Weighted Assets)
Actual $ 22,822 19.17% $ 21,180 19.07%
For Capital Adequacy
Purposes 4,762 4.00 4,442 4.00
Tier 1 Capital
(to Average Assets)
Actual $ 22,822 11.24% $ 21,180 10.58%
For Capital Adequacy
Purposes 8,121 4.00 8,006 4.00
</TABLE>
Management is not aware of any current recommendations by
regulatory authorities which, if implemented, would have a
material effect on the Company's liquidity, capital resources or
operations other than what has been disclosed.
<TABLE>
<CAPTION>
SIGNIFICANT RATIOS September 30, 1997 December 31, 1996
- ----------------------- ------------------ -----------------
<S> <C> <C>
Return on Average Assets
(Annualized) 1.40% 1.20%
Return on Average Equity
(Annualized) 12.67% 11.76%
Dividend Payout Ratio 21.73% 22.78%
</TABLE>
Non-performing Assets and Risk Elements
Reviews of the loan portfolio are conducted by an internal
committee quarterly and annually by an outside consultant. The
results of the outside consultant are then compared to the
internal reviews with detailed explanations of differences, if
any. Commercial loans and residential mortgages are placed on a
non-accrual status when principal and interest become 90 days
past due. Delinquent loans are reviewed monthly by senior
management and the Loan Committee of the Board. Generally, all
consumer loans and commercial loans less than $100,000 and not
secured by real estate, will be charged off at 90 days past due,
while all loans secured by real estate and in the process of
foreclosure will be charged off at 180 days past due. All
commercial loans greater than $100,000 and not secured by real
estate, will be subject to the conditions of the action plan
between the Bank and the customer to correct the default.
A loan remains on a non-accrual status until principal and
interest become current and a consistent track record of payments
is established, or it is determined to be uncollectible and is
charged off against the allowance for loan losses. A loan would
be classified as restructured when the terms have been modified,
because of deterioration in the financial position of the
borrowers, to provide for a reduction
13
<PAGE>
of either interest or principal. It is Management's opinion that
the Company did not have any loans that met the definition of a
restructured loan as of September 30, 1997 and December 31, 1996.
The following table presents information concerning
non-performing loans and assets at September 30, 1997 and
December 31, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Loans on non-accrual status $ 409 $ 676
Loans past due 90 days or more 329 23
------------- ------------
Total non-performing loans 738 699
------------- ------------
Other real estate 1 1
------------- ------------
Total non-performing assets $ 739 $ 700
============= ============
Non-performing loans as a percent
of total loans 0.70% 0.69%
Non-performing assets as a percent
of total loans 0.70% 0.70%
Non-performing assets as a percent
of total assets 0.36% 0.35%
</TABLE>
14
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None.
Item 2 - Changes in Securities
None.
Item 3 - Defaults upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
(a) Special Meeting October 21, 1997
(b) A special meeting of stockholders was called for
the purpose of voting on amending Article Four of
the Certificate of Incorporation to read as
follows:
"The total number of shares of stock which the
Corporation shall have the authority to issue
is ten million (10,000,000) shares, consisting
of one class of common stock, having a par
value of two dollars and fifty cents ($2.50)
per share."
This would change the number of shares authorized
from five hundred thousand (500,000) to ten
million (10,000,000) and the par value from ten
dollars ($10.00) to two dollars and fifty cents
($2.50) per share. Increasing the number of
shares authorized to 10,000,000, has allowed the
Company to apply for listing on the American Stock
Exchange (AMEX). As of November 7, 1997 approval
had not been obtained.
The results of the special meeting for amending the
certificate of incorporation were as follows:
FOR AGAINST ABSTAINED
--------- --------- -----------
347,405 2,223 4,916
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K
No reports have been filed for 1997.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
FIRST PHILSON FINANCIAL CORPORATION
--------------------------------------
(Registrant)
Date November 10, 1997 By /s/ George W. Hay
----------------------- ------------------------
George W. Hay
President and Chief
Executive Officer
By /s/ Theodore Deskevich
---------------------------
Theodore Deskevich
Executive Vice President and
Chief Financial Officer
16
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