As filed with the Securities and Exchange Commission on August 2, 1999
Registration No. 333-75585
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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PENN LAUREL FINANCIAL CORP.
(Exact name of Registrant as specified in its charter)
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Pennsylvania 6711 25-1525451
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(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
Larry W. Brubaker, President
PENN LAUREL FINANCIAL CORP. PENN LAUREL FINANCIAL CORP.
434 State Street 434 State Street
Curwensville, Pennsylvania 16833 Curwensville, Pennsylvania 16833
(814) 236-2550 (814) 236-2552
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(Address, including ZIP Code, and telephone (Address, including ZIP Code, and telephone
number, including area code, of registrant's number, including area code, of registrant's
principal executive offices) principal executive offices)
With a Copy to: With a Copy to:
Nicholas Bybel, Jr., Esquire William T. Harvey, Esquire
SHUMAKER WILLIAMS, P.C. TUCKER ARENSBERG, P.C.
P.O. Box 88 1500 One PPG Place
Harrisburg, Pennsylvania 17108 Pittsburgh, Pennsylvania 15222
(717) 763-1121 (412) 594-5550
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Approximate date of commencement of the proposed sale of the securities to
the public: As soon as practicable after the effective date of the Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. _____
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CALCULATION OF REGISTRATION FEE
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Title of Each Class Amount Proposed Maximum Proposed Maximum Amount of
of Securities to to be Offering Price Aggregate Registration
be Registered Registered Offering Price Fee (2)
Per Share
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Common Stock, par value
$5.00 per share 559,505 $62.50(1) $34,969,062.50 $9,721.40
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(1) Shares to be issued in the merger computed in accordance with Rule 457
(f)(1), solely for the purpose of calculating the registration fee, at
March 29, 1999, the latest practicable date prior to the date of filing
of this Registration Statement.
(2) Fee paid prior to original filing on April 2, 1999.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to such Section
8(a), may determine.
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Proxy Statement/Prospectus
PENN LAUREL FINANCIAL CORP.
PROXY STATEMENT
AND
PROSPECTUS FOR
559,505 SHARES COMMON STOCK
TRADING SYMBOL: PELA
CLEARFIELD BANK & TRUST COMPANY
PROXY STATEMENT
We provide this proxy statement/prospectus to you in connection with the
solicitation of proxies to be used at a special meeting of shareholders of each
of Clearfield Bank & Trust Company and Penn Laurel Financial Corp. to be held on
September 8, 1999, where shareholders will vote on the merger of CSB Bank, a
subsidiary of Penn Laurel Financial Corp., into Clearfield Bank & Trust Company.
If the merger takes place, shareholders of Clearfield will have the right to
receive 0.97 shares of common stock of Penn Laurel for each share of Clearfield
common stock they own. On July 28, 1999, the closing sale price of Penn Laurel
common stock was $52.00, making the trading value of .97 shares of Penn Laurel
common stock equal to $50.44 on that date.
Penn Laurel common stock is traded on a very limited basis in the
over-the-counter market and is quoted on the OTC Bulletin Board.
Neither the Securities and Exchange Commission, the Federal Deposit Insurance
Corporation, the Board of Governors of the Federal Reserve System nor any state
securities commission has approved or disapproved these securities or passed
upon the accuracy or adequacy of this proxy statement/prospectus. Any
representation to the contrary is a criminal offense.
The shares of Penn Laurel common stock offered in this proxy statement/
prospectus are not savings accounts, deposits, or other obligations of
a bank or savings association and are not insured by the Federal Deposit
Insurance Corporation or any other governmental agency.
The date of this proxy statement/prospectus is August 2, 1999.
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We have not authorized any person to give any information or to make any
representation not contained in this proxy statement/prospectus, and if given or
made, you should not rely on any such information or representation as being
authorized by management of Clearfield or Penn Laurel. This proxy
statement/prospectus does not constitute an offer to any person to exchange or
sell, or a solicitation from any person of an offer to exchange or purchase, the
securities offered by this proxy statement/prospectus, or the solicitation of a
proxy from any person, in any jurisdiction in which it is unlawful to make such
an offer or solicitation.
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TABLE OF CONTENTS
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SUMMARY .................................................................................
The Meetings.....................................................................
Clearfield Bank & Trust Company..................................................
Penn Laurel Financial Corp.......................................................
The Merger.......................................................................
Material Conditions to the Merger................................................
Comparison of Shareholder Rights.................................................
Federal Income Tax Consequences of the Merger....................................
Accounting Treatment.............................................................
Dissenters' Rights...............................................................
Required Vote....................................................................
Regulatory Approvals.............................................................
Management and Operations Following the Merger...................................
Adjournment of the Meeting.......................................................
Opinion of Financial Advisors....................................................
Recommendation of the Board of Directors.........................................
FORWARD LOOKING STATEMENTS................................................................
COMPARATIVE PER SHARE DATA................................................................
General ........................................................................
Market Value of Securities.......................................................
Pro Forma Per Share Information..................................................
SELECTED FINANCIAL DATA AND PRO FORMA INFORMATION.........................................
THE MEETINGS..............................................................................
General ........................................................................
Voting, Revocation and Solicitation of Proxies...................................
Voting Securities and Securities Ownership.......................................
Interests of Certain Persons in the Merger.......................................
APPROVAL OF THE MERGER....................................................................
Background of the Merger, Reasons and Recommendation
of the Boards of Directors.....................................................
Clearfield Background............................................................
Penn Laurel Background...........................................................
Reasons for the Merger as Determined by Both Boards of Directors.................
Preliminary Discussions..........................................................
The Boards' Determination About the Merger.......................................
OPINION OF FINANCIAL ADVISORS.............................................................
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General..........................................................................
Ryan, Beck's Initial Analysis....................................................
Analysis of Historical Results...................................................
Detailed Comparison of Clearfield and Penn Laurel................................
Market Share Analysis............................................................
Determination of the Exchange Ratio..............................................
Exchange Ratio of 0.94 to 0.99 Shares for 1.00...................................
Potential Cost Savings...........................................................
Clearfield Opinion of Financial Advisor..........................................
INFORMATION ABOUT THE MERGER..............................................................
Penn Laurel Opinion of Financial Advisor.........................................
Dissenters' Rights...............................................................
Terms of the Merger..............................................................
Business Pending the Merger......................................................
Conditions, Amendment and Termination............................................
Effective Date...................................................................
Management and Operations Following the Merger...................................
Estimates of Future Operations...................................................
Federal Income Tax Consequences..................................................
Investment Agreement.............................................................
Accounting Treatment.............................................................
Restriction on Resale of Stock Held By Affiliates................................
COMPARATIVE STOCK PRICES AND DIVIDENDS AND RELATED SHAREHOLDER MATTERS....................
No Established Market for Shares.................................................
Common Stock of Clearfield.......................................................
Common Stock of Penn Laurel......................................................
INFORMATION CONCERNING CLEARFIELD BANK & TRUST COMPANY....................................
Information Concerning Clearfield................................................
Description of Business and Property.............................................
Employees........................................................................
Legal Proceedings................................................................
Dividends........................................................................
Information about Beneficial Ownership of Significant Shareholders, Directors
and Executive Officers.........................................................
Executive Compensation...........................................................
Defined Benefit Pension Plan.....................................................
Profit Sharing Plan..............................................................
Director Compensation............................................................
Loans ........................................................................
Description of Clearfield Common Stock...........................................
Liquidation......................................................................
Anti-takeover Provisions.........................................................
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Indemnification..................................................................
INFORMATION CONCERNING PENN LAUREL FINANCIAL CORP.........................................
Information Concerning Penn Laurel...............................................
Description of Business and Property.............................................
Employees........................................................................
Legal Proceedings................................................................
Dividends........................................................................
Information about Beneficial Ownership of Significant Shareholders, Directors
and Executive Officers.........................................................
Executive Compensation...........................................................
KSOP Plan........................................................................
Employment Contracts.............................................................
Executive Supplemental Income Agreement..........................................
Compensation of Directors........................................................
Directors' Deferred Compensation Plan............................................
Loans.............................................................................
Description of Penn Laurel Common Stock..........................................
Liquidation......................................................................
Anti-takeover Provisions.........................................................
Indemnification..................................................................
COMPARISON OF SHAREHOLDER RIGHTS..........................................................
YEAR 2000 ISSUES..........................................................................
Clearfield.......................................................................
Penn Laurel......................................................................
Readiness Efforts................................................................
Current Status..................................................................
Costs...........................................................................
Risk Assessment.................................................................
Contingency Plan................................................................
CLEARFIELD BANK & TRUST COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.....................................................
Balance Sheet Analysis..........................................................
Investment Securities...........................................................
Interest Rate Risk..............................................................
Loans .......................................................................
Allowance for Possible Loan Losses..............................................
Premises and Equipment..........................................................
Deposits .......................................................................
Capital .......................................................................
Results of Operations...........................................................
Net Interest Income.............................................................
Provision for Loan Losses.......................................................
Other Income....................................................................
Other Operating Expenses........................................................
Income Tax......................................................................
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PENN LAUREL FINANCIAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.....................................................
Balance Sheet Analysis..........................................................
Investment Securities...........................................................
Interest Rate Sensitivity.......................................................
Loans...........................................................................
Allowance for Possible Loan Losses..............................................
Deposits .......................................................................
Capital .......................................................................
Results of Operations...........................................................
Net Interest Income.............................................................
Provision for Loan Losses.......................................................
Other Income....................................................................
Other Operating Expenses........................................................
ADJOURNMENT OF THE MEETING...............................................................
EXPERTS ................................................................................
LEGAL OPINIONS...........................................................................
OTHER MATTERS............................................................................
AVAILABLE INFORMATION....................................................................
CLEARFIELD BANK & TRUST COMPANY--INDEX TO FINANCIAL STATEMENTS
AND SUPPLEMENTARY FINANCIAL INFORMATION
PENN LAUREL FINANCIAL CORP.--INDEX TO FINANCIAL STATEMENTS
AND SUPPLEMENTARY FINANCIAL INFORMATION
ANNEXES
Annex A-Agreement and Plan of Reorganization.
Annex B-Ryan, Beck & Co., Inc. Fairness Opinion.
Annex C-Garland McPherson & Associates, Inc. Fairness Opinion.
Annex D-Statutes Regarding Dissenters' Rights.
Annex E-Restated Articles of Incorporation of Penn Laurel Financial Corp.
Annex F-Amended and Restated Bylaws of Penn Laurel Financial Corp.
Annex G-Tax Opinion of Shumaker Williams, P.C.
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SUMMARY
This summary of the transaction does not contain all of the information in
the proxy statement/prospectus. It is a summary of the most significant aspects
of the merger transaction. The remainder of the proxy statement/prospectus and
the attached Annexes contain more detailed information about the merger. We urge
you to read the entire proxy statement/prospectus, including the Annexes, in
order to fully understand the merger transaction.
The Meetings
Clearfield Bank & Trust Company. The Board of Directors of Clearfield has
called a special meeting of shareholders for Wednesday, September 8, 1999, at
1:00 p.m. at The Knights of Columbus, 512 Arnold Avenue, Clearfield,
Pennsylvania 16830. Only shareholders whose ownership appears on the records of
Clearfield at the close of business on Wednesday, July 28, 1999, will be able to
attend and vote at the meeting. The main purpose of the meeting is to vote on
the merger of CSB Bank, a subsidiary of Penn Laurel with and into Clearfield. If
we complete the merger, shareholders of Clearfield will receive 0.97 shares of
Penn Laurel common stock in exchange for each share of Clearfield common stock
they hold.
Penn Laurel Financial Corp. The Board of Directors of Penn Laurel has
called a special meeting of shareholders for Wednesday, September 8, 1999, at
9 a.m. at 434 State Street, Curwensville, Pennsylvania 16833. Only shareholders
whose ownership appears on the records of Penn Laurel at the close of business
on Wednesday, July 28, 1999, will be able to attend and vote at the meeting. The
main purpose of the meeting is to vote on the merger of CSB Bank, a subsidiary
of Penn Laurel, with and into Clearfield.
Clearfield Bank & Trust Company
Clearfield is a Pennsylvania chartered bank and trust company. Clearfield
was chartered on December 17, 1901, and is headquartered in Clearfield,
Pennsylvania. The bank conducts business through 6 offices. The offices are
located in Clearfield County, Pennsylvania. The bank's deposits are insured by
the FDIC. As a full-service commercial bank, the bank offers checking, savings
and time deposits and commercial, consumer and mortgage loans. The bank's
executive offices are located at 11 North Second Street, Clearfield,
Pennsylvania 16830, and the telephone number is (814) 765-7551. As of March 31,
1999, the bank had total assets of approximately $183.4 million, total deposits
of approximately $161.6 million and shareholders' equity of approximately $20.4
million.
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Penn Laurel Financial Corp.
Penn Laurel is a Pennsylvania business corporation and a registered bank
holding company. Its principal offices are located at 434 State Street,
Curwensville, Pennsylvania 16833. Penn Laurel was incorporated on May 30, 1986.
Penn Laurel, through CSB Bank, its subsidiary, engages in general commercial and
retail banking services. CSB Bank operates 5 banking offices in Clearfield
County, Pennsylvania. The bank's principal office is located at 434 State
Street, Clearfield, Pennsylvania 16833, and the telephone number is (814)
236-2550. As of March 31, 1999, Penn Laurel had consolidated total assets of
approximately $134.9 million, total deposits of approximately $114.4 million and
shareholders' equity of $14.8 million.
The Merger
The proposed merger provides that CSB Bank will merge into Clearfield. CSB
Bank will cease to exist when the merger is complete. Clearfield will continue
operations after the merger, as a subsidiary of Penn Laurel. In addition,
Clearfield will change its name to "Penn Laurel Bank & Trust Company." The
location of its principal office will remain at 11 North Second Street,
Clearfield, Pennsylvania 16830. Shareholders of Penn Laurel will continue to own
Penn Laurel common stock after the merger. Penn Laurel will hold all the
outstanding shares of the combined banks. Shareholders of Clearfield will
receive 0.97 shares of Penn Laurel common stock in exchange for each share of
Clearfield common stock they hold, and become shareholders of Penn Laurel.
Clearfield shareholders will not receive any fractional shares of Penn
Laurel common stock in the merger. Instead, Penn Laurel will issue a cash
payment for any fractional share of Penn Laurel common stock that a shareholder
would be entitled to receive in the merger.
Penn Laurel should issue approximately 559,505 shares of Penn Laurel common
stock in this transaction. When the merger is complete, the former Clearfield
shareholders will hold approximately 61.03% of all outstanding Penn Laurel
common stock and the current Penn Laurel shareholders will hold approximately
38.97% of the combined entity.
We attach a copy of the agreement as Annex A to this proxy statement/
prospectus. Please read the agreement carefully.
Material Conditions to the Merger
The merger is subject to various conditions, including, among others:
o approval by Clearfield's shareholders;
o approval by Penn Laurel's shareholders; and
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o approval by certain banking regulatory agencies.
There are other conditions to the transaction contained in the agreement.
These conditions include that the merger qualify for a certain type of
accounting treatment. In the event that more than 10% of the outstanding shares
of Clearfield exercise dissenters' rights, the accounting condition will not be
met. If this occurs, the merger will not be completed. See "APPROVAL OF THE
MERGER--Accounting Treatment."
Penn Laurel and Clearfield may agree to amend the agreement. After the
shareholders vote, no amendment can affect the number of shares to be received
by Clearfield shareholders without the shareholders' approval. The agreement
will terminate on October 31, 1999, unless extended by the mutual agreement of
the parties. See "APPROVAL OF THE MERGER -- Business Pending the Merger."
Comparison of Shareholder Rights
On the day the merger is completed, the shareholders of Clearfield will
become shareholders of Penn Laurel. Clearfield is a Pennsylvania chartered bank
and trust company. Penn Laurel is a Pennsylvania business corporation. After the
merger is completed, the rights of former shareholders of Clearfield will be
governed by Pennsylvania corporate law as well as the articles of incorporation
and bylaws of Penn Laurel. Differences exist in the rights of the shareholders
of Clearfield and of Penn Laurel. These differences are due, in part, to the
differences in the articles of incorporation and bylaws of Clearfield and the
articles of incorporation and bylaws of Penn Laurel, as well as to the
differences in Pennsylvania corporate law and Pennsylvania banking law.
Some of the material differences between the rights of the shareholders of
Clearfield and of shareholders of Penn Laurel are:
o Penn Laurel has 2,500,000 authorized shares -- Clearfield has 617,600;
and
o Mergers require approval of 66 2/3% of the outstanding shares at
Clearfield and 75% at Penn Laurel.
See "COMPARISON OF SHAREHOLDER RIGHTS" for disclosure of the material
differences in shareholder rights.
Federal Income Tax Consequences of the Merger
Clearfield and Penn Laurel structured the transaction to qualify as a
tax-free reorganization under the Internal Revenue Code of 1986. Under the
Internal Revenue Code, Clearfield shareholders will not recognize taxable gain
or loss upon the receipt of Penn Laurel common stock in exchange for Clearfield
common stock. Clearfield shareholders who receive
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cash for fractional shares of Penn Laurel common stock will recognize taxable
gain or loss, based upon the amount of cash received. Clearfield shareholders
who exercise dissenters' rights also will recognize taxable gain or loss based
on the difference between the amount of cash received by the shareholders in
exercise of dissenters' rights and the adjusted tax basis of the shares as to
which dissenters' rights are exercised. Shumaker Williams, P. C. will provide an
opinion, on the date of the merger, confirming these and certain other federal
income tax consequences of the merger. In addition, Shumaker Williams has issued
a tax opinion, dated the date of this proxy statement/prospectus, which is
attached for your review as Annex G. You should consult with your own tax
advisers regarding the tax consequences of the merger that apply to your
particular circumstances. See, "APPROVAL OF THE MERGER -- Federal Income Tax
Consequences."
Accounting Treatment
Clearfield and Penn Laurel intend to account for the transaction as a
pooling of interests for financial reporting purposes. This means that we will
treat the companies as if they had always been combined for accounting and
financial reporting purposes.
Dissenters' Rights
The Pennsylvania Banking Code of 1965 and the Pennsylvania Business
Corporation Law of 1988 provide Clearfield and Penn Laurel shareholders with the
right to dissent from the merger and to demand and receive the "fair value" of
their shares of stock rather than enter into the merger. In order to assert
these dissenters' rights, shareholders must:
o file a written notice of intent to dissent with Clearfield or Penn
Laurel prior to the shareholder vote at the meeting;
o not vote in favor of the merger;
o file a written demand for payment and deposit the stock
certificates that represent their shares as requested by the
notice to demand payment that will be sent by Clearfield or
Penn Laurel; and
o comply with other statutory procedures set forth in Pennsylvania law.
If you sign and return your proxy without voting instructions, your proxy will
be voted in favor of the merger and you will lose any dissenters' rights that
you may have as a result of the merger. A copy of the applicable sections of the
Pennsylvania Banking Code and the Pennsylvania Business Corporation Law are
attached to this proxy statement/prospectus as Annex C. If you do not follow the
procedures set forth in the statutory provisions of the Pennsylvania law, you
may lose your dissenters' rights with respect to the merger. We urge you to read
carefully "APPROVAL OF THE MERGER -- Dissenters' Rights" and Annex C to this
proxy statement/prospectus.
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Required Vote
In order for the merger to occur, the shareholders of each of Clearfield
and of Penn Laurel must approve the agreement. By approving the agreement,
shareholders are approving the merger. Approval of the merger requires the
affirmative vote of at least 66 2/3% of the outstanding Clearfield common stock
and 75% of the outstanding Penn Laurel common stock. On July 28, 1999, the
directors and officers of Clearfield and persons or entities that they control
own 100,519 shares of Clearfield common stock, or 17.43% of the outstanding
shares, and the directors and officers of Penn Laurel and persons or entities
that they control own 64,482 shares of Penn Laurel common stock, or 18.05% of
the outstanding shares.
The Directors of Clearfield and of Penn Laurel each entered into agreements
to vote the shares they own "FOR" the merger. However, the agreements do not
include shares owned by others that may be included in the beneficial ownership
tables on pages 76 and 84, below. Each company expects its directors and
officers to vote "FOR" approval of the merger.
Each share entitled to vote at the meetings is entitled to one vote. At
least a majority of the total number of shares of Clearfield common stock
outstanding as of July 28, 1999, will be necessary to have a quorum at the
Clearfield meeting. At least a majority of the total number of shares of Penn
Laurel common stock outstanding as of July 28, 1999, will be necessary to have a
quorum at the Penn Laurel meeting. A quorum is necessary so that actions taken
at the meeting are valid. In addition to voting to approve the merger, you may
also be asked to vote on other matters that may properly come before the
meetings or any adjournments of the meetings.
Regulatory Approvals
The parties must file applications or notices to approve the merger with
certain banking regulatory agencies. These agencies are the Board of Governors
of the Federal Reserve System, the Pennsylvania Department of Banking and the
Federal Deposit Insurance Corporation.
Management and Operations Following the Merger
The agreement states that, following the merger, the Board of Directors of
Penn Laurel and Penn Laurel Bank & Trust will consist of all people who were
members of the Boards of Directors of Penn Laurel or Clearfield on December 31,
1998, and Wesley M. Weymers. One director from each board, however, chose not to
continue as a director of his respective company after the 1999 Annual Meeting
of Shareholders and, therefore, will not to be on the board of Penn Laurel or
Penn Laurel Bank & Trust. In addition, Sherwood C. Moody, President, Chief
Executive Officer and a director of Clearfield, resigned, effective June 25,
1999, to become President and Chief Executive Officer of a banking institution
in Maine, and will not be on the Boards of Penn Laurel or Penn Laurel Bank &
Trust. The rest of the persons, who were directors
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on December 31, 1998, will serve until their successor's are elected and assume
office. In addition, Clearfield's Board of Directors appointed William E. Wood,
who has replaced Mr. Moody as President and Chief Executive Officer of
Clearfield, to serve the remainder of Mr. Moody's term on the Board of
Directors. In order for Penn Laurel Bank & Trust to accommodate 22 persons on
its Board of Directors, management intends to amend the articles of
incorporation to increase the permissible size of the Board of Directors to 25
on the day of merger. In addition, Penn Laurel will amend its bylaws where
appropriate to accommodate the new board members.
The following table lists the members of the boards following the
merger:
Board of Directors
Penn Laurel and Penn Laurel Bank & Trust
George L. Beard
William L. Bertram
Larry W. Brubaker
D. Stephen Butler
Robert W. Dotts
Donald R. Fezell
Guy A. Graham
Craig L. Hile
Frank J. Hoffman, Jr.
Barbara J. Hugney-Shope
Robert M. Kurtz, Jr.
Joseph P. Leyo
Richard L. Lininnger
Michael R. Lytle
Laurance B. Seaman
Joseph A. Shaw
Darrell G. Spencer
Ray S. Walker
Wesley M. Weymers
Richard A. Wilkinson
William E. Wood
H. Rembrandt Woolridge
After the merger, the following people will hold the following offices
at Penn Laurel and at Penn Laurel Bank & Trust:
William L. Bertram Chairman of the Board of Directors of Penn Laurel
and of Penn Laurel Bank & Trust
Larry W. Brubaker President and Chief Executive Officer of Penn
Laurel and Penn Laurel Bank & Trust
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Wesley M. Weymers Executive Vice President of Penn Laurel and Penn
Laurel Bank & Trust
William E. Wood Executive Vice President of Penn Laurel and
Penn Laurel Bank & Trust
Messrs. Brubaker, Wood and Weymers entered into employment agreements in
connection with the transaction. Mr. Bertram has entered into a consulting
agreement in connection with the transaction. For a description of these
contracts, see "APPROVAL OF THE MERGER -- Interests of Certain Persons in the
Merger and -- Management and Operations Following the Merger."
Adjournment of the Meeting
If not enough votes are present to approve the merger, at either meeting,
the Boards of Directors intend to postpone or adjourn the meeting to a later
date to obtain additional affirmative votes. The affirmative vote of a majority
of the outstanding shares, present in person or by proxy, is required to approve
an adjournment of the Clearfield meeting or of the Penn Laurel meeting. The
Board of Directors of each of Clearfield and Penn Laurel recommends that
shareholders vote "FOR" the proposal to adjourn the meeting, if necessary, to
permit additional votes to be obtained to approve the agreement.
Opinion of Financial Advisors
Clearfield. The Clearfield Board of Directors asked Ryan, Beck & Co., Inc.,
its investment banking firm located at 220 South Orange Avenue, Livingston, New
Jersey 07039, to provide investment banking services in regard to the merger.
These services included providing a fairness opinion that the exchange ratio is
"fair" to Clearfield shareholders, from a financial point of view. In providing
its opinion dated December 31, 1998, Ryan, Beck did not approve or disapprove
the financial or other terms of the merger. In writing its opinion, Ryan, Beck
considered various factors, including Clearfield and Penn Laurel's operating
results, current financial condition and perceived future prospects. Ryan, Beck
has updated its opinion to the day of this proxy statement/prospectus. We
recommend that you read the updated Ryan, Beck opinion, which is attached to
this proxy statement/prospectus as Annex B. You should read the opinion in its
entirety and pay particular attention to the assumptions made and other matters
considered by Ryan, Beck in rendering its opinion. See "APPROVAL OF THE
MERGER -- Opinion of Financial Advisors."
Penn Laurel. The Penn Laurel Board of Directors asked Garland McPherson &
Associates, Inc., its investment banking firm located at 1122 Kenilworth Drive,
Suite 508, Baltimore, Maryland 21204-2188, to provide investment banking
services in regard to the merger. These services included providing a fairness
opinion, dated December 30, 1998, and updated to the day of this proxy
statement/prospectus, that the value of the Penn Laurel common stock to be paid
by the company to the Clearfield shareholders in the merger is fair, from a
financial point of view. Garland McPherson did not approve or disapprove the
financial or other terms of the merger. In writing its opinion Garland McPherson
considered various factors, including Penn Laurel and Clearfield's operating
results, current financial condition and
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perceived future prospects. We recommend that you read the updated Garland
McPherson opinion, which is attached to this proxy statement/prospectus as Annex
C. You should read the opinion in its entirety and pay particular attention to
the assumptions made and other matters considered by Garland McPherson in
rendering its opinion. See "APPROVAL OF THE MERGER -- Opinion of Financial
Advisors."
Recommendation of the Board of Directors
The Clearfield Board of Directors believes that the merger is in the best
interests of its shareholders and recommends that the shareholders vote "FOR"
approval of the merger.
The Penn Laurel Board of Directors believes that the merger is in the best
interests of its shareholders and recommends that the shareholders vote "FOR"
approval of the merger.
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FORWARD LOOKING STATEMENTS
This proxy statement/prospectus contains forward-looking statements
including statements regarding intent, belief or current expectations about
matters (including statements as to "beliefs," "expectations," "anticipations,"
"intentions" or similar words) that may or may not occur in the future.
Forward-looking statements are also statements that are not statements of
historical fact. Forward-looking statements are subject to risks, uncertainties
and assumptions. These include:
o the risk that projected trends for the continued growth of the business
of Penn Laurel and Clearfield will not occur;
o the risk that the combined companies will not realize anticipated
revenues, profitability and cost savings; and
o other risks and uncertainties.
If one or more of these risks or uncertainties occurs or if the underlying
assumptions prove incorrect, actual results, performance or achievements for the
companies in 1999 and beyond could differ materially from those expressed in, or
implied by, the forward-looking statements.
COMPARATIVE PER SHARE DATA
General
The following tables show per share financial information for Clearfield
and Penn Laurel individually, on an historical basis, and together on a pro
forma basis, for the last five years and for the first quarter of 1999 and of
1998. You should read this information in conjunction with the historical
financial statements and related notes attached to this proxy statement/
prospectus. The pro forma information assumes that Clearfield and Penn Laurel
had always been combined for accounting and financial reporting purposes
throughout the periods presented. The Penn Laurel pro forma information gives
effect to the merger, accounted for as a pooling of interests, assuming that .97
shares of Penn Laurel common stock were issued for each outstanding share of
Clearfield common stock. Clearfield equivalent share amounts are calculated by
multiplying the pro forma basic and diluted earnings per share, historical per
share dividend and historical shareholders' equity by the exchange ratio of .97
shares of Penn Laurel common stock so that the per share amounts equate to the
respective values for one share of Clearfield common stock. The combined pro
forma per share equivalent information is based on average shares outstanding
during the period, except for book value per share, which is based on period end
shares outstanding.
-9-
<PAGE>
The information shows how a share of stock that you had would have
participated in the income from continuing operations, cash dividends and book
value if the merger had been completed. You should not rely on the pro forma
information as being indicative of the historical results that Clearfield and
Penn Laurel would have had if they had been combined or the future results that
they will experience after the merger. The pro forma information does not
-10-
<PAGE>
include any expense savings anticipated as a result of the merger or any one
time merger related expenses.
SELECTED HISTORICAL, PRO FORMA
COMBINED AND EQUIVALENT PER SHARE DATA
<TABLE>
<CAPTION>
As of and for
the Three Months
Ended March 31, As of and for the Years Ended December 31,
------------------ ---------------------------------------------------------------
(unaudited)
1999 1998 1998 1997 1996 1995 1994
------ ------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>?
Penn Laurel Financial Corp.
Historical Per Common
Share:
Average Shares
Outstanding:
Basic 357,259 345,735 346,048 345,932 346,915 346,915 346,915
Diluted 357,259 345,735 346,048 345,932 346,915 346,915 346,915
Book Value $41.36 $39.42 $41.20 $38.80 $33.21 $30.89 $26.83
Cash Dividends .30 .29 1.32 1.26 1.05 .95 .90
Net Income
Basic 1.04 1.94 3.70 3.82 3.16 2.98 2.62
Diluted 1.04 1.94 3.70 3.82 3.16 2.98 2.62
Clearfield, Penn Laurel
Combined Pro Forma
Equivalent
Per Common Share:
Average Shares
Outstanding:
Basic 916,764 905,240 905,553 905,437 906,420 906,420 906,420
Diluted 916,764 905,240 905,553 905,437 906,420 906,420 906,420
Book Value $38.37 $36.56 $38.23 $36.11 $32.75 $31.24 $27.22
Cash Dividends .30 .29 1.32 1.26 1.05 .95 .90
Net Income
Basic .87 1.16 3.54 3.44 3.18 3.02 2.96
Diluted .87 1.16 3.54 3.44 3.18 3.02 2.96
</TABLE>
-11-
<PAGE>
SELECTED HISTORICAL, PRO FORMA
COMBINED AND EQUIVALENT PER SHARE DATA
<TABLE>
<CAPTION>
As of and for
the Three Months
Ended March 31, As of and for the Years Ended December 31,
------------------- ----------------------------------------------------------------
(unaudited)
1999 1998 1998 1997 1996 1995 1994
------ ------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Clearfield Bank & Trust
Company
Historical Per Common Share:
Average Shares
Outstanding:
Basic 576,809 576,809 576,809 576,809 576,809 576,809 576,809
Diluted 576,809 576,809 576,809 576,809 576,809 576,809 576,809
Book Value $35.37 $33.75 $35.30 $33.42 $31.49 $30.51 $26.64
Cash Dividends .31 .31 1.64 1.60 1.56 1.51 1.45
Net Income
Basic .74 .66 3.33 3.10 3.09 2.96 3.08
Diluted .74 .66 3.33 3.10 3.09 2.96 3.08
Combined Pro Forma
Equivalent Per Common Share
of Clearfield:
Book Value $37.32 $35.46 $37.08 $35.03 $31.77 $30.30 $26.40
Cash Dividends .29 .28 1.28 1.22 1.02 .92 .87
Net Income
Basic .84 1.13 3.43 3.33 3.08 2.93 2.87
Diluted .84 1.13 3.43 3.33 3.08 2.93 2.87
</TABLE>
-12-
<PAGE>
Market Value of Securities
Based in part on the advise of their financial advisors, the managements of
Clearfield and of Penn Laurel believe that, because of the limited trades in
each company's common stock, the trading values of the companies' shares may not
be indicative of fair value. The last reported sale of Clearfield common stock
before public announcement of the agreement and related merger was a trade of
400 shares at $55.50 per share on December 9, 1998. The last reported sale of
Clearfield common stock, prior to July 28, 1999, as reported to Clearfield
management, was 400 shares at $49.00 per share on July 26, 1999.
The last reported sale of Penn Laurel common stock before public
announcement of the agreement and related merger was a trade of 100 shares at
$46.25 per share on December 7, 1998. The last reported sale of Penn Laurel
common stock, prior to July 28, 1999, as reported to Penn Laurel management, was
200 shares at $52.00 per share on July 19, 1999.
Pro Forma Price Per Share Information
Both the Penn Laurel common stock and the Clearfield common stock have
historically traded on a very limited basis in the over-the-counter market and
are quoted, and transactions are reported, on the OTC Bulletin Board and in
privately negotiated transactions. Consequently, the stock prices may not
reflect fair market value.
On December 30, 1998, the last trading date before public announcement of
the agreement and related merger, the per share closing bid and asked quotations
for Clearfield common stock were $54.00 and $55.50 as reported by the OTC
Bulletin Board and the per share closing bid and asked quotations for Penn
Laurel common stock were $45.25 and $46.25, as reported by the OTC Bulletin
Board. On July 28, 1999, the closing sale price of Penn Laurel common stock was
$52.00, making the value of .97 shares of Penn Laurel common stock equal to
$50.44, if the merger had taken place on that date.
The pro forma equivalent price per share of common stock for each company
for December 30, 1998 (the day before the merger) has been calculated as if:
o the merger had taken place on December 30; and
o shares of Clearfield common stock were exchanged for Penn
Laurel common stock at a rate of one share of Clearfield stock
for .97 shares of Penn Laurel common stock.
The pro forma equivalent per share closing bid and asked quotations for
December 30, 1998, for each share of Clearfield common stock are $52.38 and
$53.84.
-13-
<PAGE>
The pro forma equivalent per share closing bid and asked quotations for
Clearfield and Penn Laurel on December 30, 1998, are in the table, below.
Comparative Stock Prices
December 30, 1998
<TABLE>
<CAPTION>
Pro Forma
Historical Price Equivalent Price
Per Share Per Share
---------------- ----------------
<S> <C> <C>
Clearfield Bank & Trust Company $54.00 $52.38
December 30, 1998, Bid 55.50 53.84
December 30, 1998, Asked
Penn Laurel Financial Corp
December 30, 1998, Bid $45.25 N/A
December 30, 1998, Asked 46.25 N/A
</TABLE>
-14-
<PAGE>
SELECTED FINANCIAL DATA AND
PRO FORMA INFORMATION
We provide the following financial information to aid you in your analysis
of the financial aspects of the merger. These tables contain certain selected
historical and pro forma summary financial data, for the periods and as of the
dates indicated, for Penn Laurel and for Clearfield. This data is derived from
and should be read in conjunction with, and is qualified by the financial
statements of Clearfield and Penn Laurel, including the notes to those financial
statements, appearing elsewhere in this proxy statement/prospectus. The pro
forma data is not necessarily indicative of results that would have been
achieved had the transaction been consummated and should not be construed as
representative of future operations. The pro forma data also does not include
the impact of merger-related cost savings or expenses.
-15-
<PAGE>
CLEARFIELD BANK & TRUST COMPANY
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in thousands, except per share As of and for
data) the Three Months As of and for the twelve months ended
Ended March 31, December 31
(unaudited)
---------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Income & Expense:
Interest income $2,957 $2,988 $12,165 $11,957 $10,472 $9,990 $9,670
Interest expense 1,437 1,493 5,985 5,866 5,024 4,733 3,918
------ ------ ------ ------ ------ ------ ------
Net interest income 1,520 1,495 6,180 6,091 5,448 5,257 5,752
Loan loss provision (90) (54) (341) (257) (140) (81) (210)
------ ------ ------ ------ ------ ------ ------
Net interest income after loan loss
provision 1,430 1,441 5,839 5,834 5,308 5,176 5,542
Noninterest income 281 246 1,018 972 836 978 831
Noninterest expense 1,167 1,172 4,376 4,489 3,818 3,906 3,888
------ ------ ------ ------ ------ ------ ------
Income before income taxes 544 515 2,481 2,317 2,326 2,248 2,485
Income taxes 120 132 559 527 545 543 621
Cumulative Effect of Change in
Accounting Principles 0 0 0 0 0 0 (88)
------ ------ ------ ------ ------ ------ ------
Net income $424 $383 $1,922 $1,790 $1,781 $1,705 $1,776
====== ====== ======= ====== ======= ====== ======
Per share:
Earnings per Share: Basic $.74 $.66 $3.33 $3.10 $3.09 $2.96 $3.08
Earnings per Share: Diluted .74 .66 3.33 3.10 3.09 2.96 3.08
Cash dividends paid .31 .31 1.64 1.60 1.56 1.51 1.45
Weighted average number of common
shares:
Basic 576,809 576,809 576,809 576,809 576,809 576,809 576,809
Diluted 576,809 576,809 576,809 576,809 576,809 576,809 576,809
Book Value 35.37 33.75 35.30 33.42 31.49 30.51 26.64
Average Balance Sheet:
Total Assets $183,169 $176,707 $179,688 $173,492 $155,463 $146,821 $146,316
Investments & Money Market Investments
51,041 58,113 55,677 62,359 66,010 62,282 61,525
Federal Funds Sold 3,171 2,837 2,170 1,265 1,122 1,197 410
Loans (Net of Unearned Income) 115,800 102,969 108,763 97,655 77,955 72,722 73,110
Deposits 161,225 154,891 157,775 151,101 136,367 128,475 127,968
Borrowings 0 1,000 412 2,117 165 882 1,819
Shareholders' equity 20,633 19,501 19,999 18,889 17,791 16,560 15,839
Balance Sheet at Period End:
Total Assets $183,420 $178,526 $184,703 $175,115 $162,654 $151,660 $147,407
Investments & Money Market Investments
50,895 58,073 50,761 57,690 63,883 63,783 61,896
Federal Funds Sold 3,725 3,159 3,481 2,700 0 4,900 0
Loans (Net of Unearned Income) 115,796 102,768 114,689 102,575 89,168 73,007 72,286
Deposits 161,563 156,491 162,806 153,251 140,399 132,713 127,468
Borrowings 0 1,000 0 1,000 2,700 0 2,000
Shareholders' equity 20,403 19,465 20,362 19,278 18,164 17,600 15,365
Selected Operating Ratios:
Return on average assets .94% .88% 1.07% 1.03% 1.14% 1.16% 1.21%
Return on average shareholders' equity
8.33% 7.97% 9.61% 9.29% 9.98% 10.30% 11.21%
Leverage (shareholders' equity/assets)
10.55% 10.32% 10.38% 10.31% 11.48% 11.50% 11.17%
Average total loans as a percentage of
average deposits 71.83% 66.48% 68.93% 64.63% 57.17% 56.60% 57.13%
Net interest margin* 3.88% 3.98% 3.99% 4.05% 4.16% 4.05% 4.52%
Net interest spread* 3.18% 3.45% 3.27% 3.31% 3.54% 3.68% 4.14%
Selected Asset Quality Ratios:
Nonperforming Assets/Total loans &
OREO .16% .38% .43% .42% .54% .43% .34%
Nonperforming loans/Gross loans .14% .38% .41% .42% .54% .41% .31%
Net Charge-offs/Average loans .01% .02% .31% .11% .08% .04% .32%
Loan Loss Reserve/Total loans 1.02% 1.05% .96% 1.07% 1.06% 1.19% 1.13%
Loan Loss Reserve/Nonperforming loans 752.23% 276.53% 233.05% 252.18% 216.17% 287.42% 366.37%
</TABLE>
- ------------
* Tax Equivalent Basis
-16-
<PAGE>
PENN LAUREL FINANCIAL CORP.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in thousands, except per As of and for
share data) the Three Months As of and for the twelve months ended
Ended March 31, December 31
(unaudited)
-------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Income & Expense:
Interest income $2,450 $2,352 $9,973 $9,375 $8,536 $8,154 $7,053
Interest expense 1,205 1,128 4,827 4,426 3,961 3,897 2,935
------ ------ ------ ------ ------ ------ ------
Net interest income 1,245 1,224 5,146 4,949 4,575 4,257 4,118
Loan loss provision (72) (65) (319) (300) (232) (161) (178)
------ ------ ------ ------ ------ ------ ------
Net interest income after loan loss
provision 1,173 1,159 4,827 4,649 4,343 4,096 3,940
Noninterest income 319 627 1,247 586 517 565 477
Noninterest expense 1,033 1,000 4,365 3,465 3,404 3,306 3,167
------ ------ ------ ------ ------ ------ ------
Income before income taxes 459 786 1,709 1,770 1,456 1,355 1,250
Income taxes 86 116 427 448 359 322 340
------ ------ ------ ------ ------ ------ ------
Net income $373 $670 $1,282 $1,322 $1,097 $1,033 $910
====== ====== ======= ====== ====== ====== ======
Per share:
Earnings per Share: Basic $1.04 $1.94 $3.70 $3.82 $3.16 $2.98 $2.62
Earnings per Share: Diluted 1.04 1.94 3.70 3.82 3.16 2.98 2.62
Cash dividends paid .30 .29 1.32 1.26 1.05 .95 .90
Weighted average number of common shares:
Basic 357,259 345,735 346,048 345,932 346,915 346,915 346,915
Diluted 357,259 345,735 346,048 345,932 346,915 346,915 346,915
Book Value 41.36 39.42 41.20 38.80 33.21 30.89 26.83
Average Balance Sheet:
Total assets $133,812 $122,432 $128,362 $119,196 $109,032 $101,655 $94,667
Investments & Money Market
Investments 33,126 32,664 33,852 31,998 28,268 26,590 27,947
Loans (Net of Unearned Income) 93,428 82,270 87,244 80,163 74,184 68,383 60,186
Deposits 113,376 106,500 110,390 104,649 95,318 89,687 84,083
Borrowings 3,574 16 2,269 682 614 546 531
Shareholders' equity 14,748 13,522 14,010 12,467 11,118 10,012 8,971
Balance Sheet at Period End:
Total assets $134,888 $124,603 $135,181 $121,543 $114,245 $103,819 $99,490
Investments & Money Market
Investments 32,793 34,036 35,093 32,611 30,857 25,679 27,501
Loans (Net of Unearned Income) 94,206 83,017 91,369 81,880 77,197 71,170 65,595
Deposits 114,372 108,347 113,845 105,587 99,770 90,866 88,508
Borrowings 3,461 2,628 4,307 486 1,127 565 527
Shareholders' equity 14,777 13,522 14,718 13,414 11,520 10,717 9,306
Selected Operating Ratios:
Return on average assets 1.11% 2.19% 1.00% 1.11% 1.01% 1.02% .96%
Return on average shareholders' equity
10.12% 19.82% 9.15% 10.60% 9.87% 10.32% 10.14%
Leverage (shareholders' equity/assets) 11.02% 11.04% 10.87% 11.04% 10.08% 10.32% 9.35%
Average total loans as a percentage of
average deposits 82.41% 77.25% 79.03% 76.60% 77.83% 76.25% 71.58%
Net interest margin* 4.13% 4.42% 4.48% 4.64% 4.66% 4.68% 4.90%
Net interest spread* 3.82% 4.11% 4.19% 4.38% 4.40% 4.46% 4.76%
Selected Asset Quality Ratios:
Nonperforming Assets/Total loans &
OREO .28% .89% .12% .91% .37% .21% .04%
Nonperforming loans/Gross loans .28% .88% .12% .86% .37% .21% .04%
Net Charge-offs/Average loans .06% .09% .38% .29% .33% .11% .09%
Loan Loss Reserve/Total loans .83% .93% .84% .96% .93% 1.01% .96%
Loan Loss Reserve/Nonperforming
loans 294.03% 105.41% 713.89% 157.49% 550.38% 472.55% 2200.00%
</TABLE>
- -------------
*Tax Equivalent Basis
-17-
<PAGE>
SELECTED PRO FORMA COMBINED
(In Thousands)
March 31, 1999
<TABLE>
<CAPTION>
Clearfield
Bank & Penn Laurel
Trust Financial Adjustments Pro Forma
Company Corp. (1) Combined
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Average Balance Sheet Totals:
Total Assets $183,169 $133,812 $- $316,981
Investment Securities and Money
Market Investments 51,041 33,126 - 84,167
Loans and Leases (Net of Unearned
Income) 115,800 93,428 - 209,228
Total Deposits 161,225 113,376 - 274,601
Borrowings 0 3,574 - 3,574
Shareholders' Equity 20,633 14,748 ($500) 34,881
Period End:
Total Assets $183,420 $134,888 $- $318,308
Investment Securities and Money
Market Investments 50,895 32,793 - 83,688
Loans and Leases (Net of unearned
Income) 115,796 94,206 - 210,002
Total Deposits 161,563 114,372 - 275,935
Borrowings 0 3,461 - 3,461
Shareholders' Equity 20,403 14,777 ($500) 34,680
</TABLE>
- ---------------
(1) Reflects one time merger related expenses
SELECTED PRO FORMA COMBINED
(In Thousands)
December 31, 1998
<TABLE>
<CAPTION>
Clearfield
Bank & Penn Laurel Pro
Trust Financial Adjustments Forma
Company Corp. (1) Combined
----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Average Balance Sheet Totals:
Total Assets $179,688 $128,362 $- $308,050
Investment Securities and Money
Market Investments 55,677 33,852 - 89,529
Loans and Leases (Net of Unearned
Income) 108,763 87,244 - 196,007
Total Deposits 157,775 110,390 - 268,165
Borrowings 412 2,269 - 2,681
Shareholders' Equity 19,999 14,010 ($500) 33,509
Period End:
Total Assets $184,703 $135,181 $- $319,884
Investment Securities and Money
Market Investments 50,761 35,093 - 85,854
Loans and Leases (Net of unearned
Income) 114,689 91,369 - 206,058
Total Deposits 162,806 113,845 - 276,651
Borrowings 0 4,307 - 4,307
Shareholders' Equity 20,362 14,718 ($500) 34,580
</TABLE>
- -----------
(1) Reflects one time merger related expenses
-18-
<PAGE>
<TABLE>
<CAPTION>
As of and for
the Three Months
Ended March 31, As of and for the Years Ended December 31,
------------------------ --------------------------------------------------------
(unaudited)
1999 1998 1998 1997 1996 1995 1994
------ ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income $5,407 $5,340 $22,138 $21,332 $19,008 $18,144 $16,723
Interest Expense 2,642 2,621 10,812 10,292 8,985 8,630 6,853
------ ------ ------- ------- ------- ------- -------
Net Interest Income $2,765 $2,719 $11,326 $11,040 $10,023 $9,514 $9,870
Provision for Possible
Loan Losses (162) (119) (660) (557) (372) (242) (388)
------ ------ ------- ------- ------- ------- -------
Total Other Income 600 873 2,265 1,558 1,353 1,543 1,308
Total Other Expense 2,200 2,172 8,741 7,954 7,222 7,212 7,055
------ ------ ------- ------- ------- ------- -------
Income Before Income
Taxes $1,003 $1,301 $4,190 $4,087 $3,782 $3,603 $3,735
Income Taxes 206 248 986 975 904 865 961
Cumulative Effect of
Change in Accounting
Principles 0 0 0 0 0 0 (88)
------ ------ ------- ------- ------- ------- -------
Net Income $797 $1,053 $3,204 $3,112 $2,878 $2,738 $2,686
====== ====== ======= ======= ======= ======= =======
Diluted Earnings Per
Share
Income before
Cumulative Effect of
Change in Accounting
Principles $.87 $1.16 $3.54 $3.44 $3.18 $3.02 $3.06
Cumulative Effect of
Change in Accounting
Principles 0.00 0.00 0.00 0.00 0.00 0.00 .10
------ ------ ------- ------- ------- ------- -------
Net Income $.87 $1.16 $3.54 $3.44 $3.18 $3.02 $2.96
====== ====== ======= ======= ======= ======= =======
</TABLE>
-19-
<PAGE>
THE MEETINGS
General
The Board of Directors of Clearfield provides this joint proxy
statement/prospectus to Clearfield's shareholders for a meeting that will be
held at The Knights of Columbus, 512 Arnold Avenue, Clearfield, Pennsylvania, on
Wednesday, September 8, 1999, at 1:00 p.m.
The Board of Directors of Penn Laurel provides this joint proxy
statement/prospectus to Penn Laurel's shareholders for a meeting that will be
held at 434 State Street, Curwensville, Pennsylvania, on Wednesday, September 8,
1999, at 9:00 a.m.
At the meetings, shareholders of each company will consider and vote on:
o the approval and adoption of the agreement that provides for the merger;
o the approval of the adjournment or postponement of the meetings, in the
event there are not enough votes to approve the agreement; and
o other matters that properly come before the meetings or any adjournments
of the meetings.
If shareholders approve the merger, CSB Bank, Penn Laurel's subsidiary
bank, will merge into Clearfield. When the merger is completed, CSB Bank will
cease to exist and Clearfield's shareholders will receive 0.97 shares of Penn
Laurel common stock in exchange for each share of Clearfield common stock that
they hold. A vote for approval of the agreement is a vote for approval of the
merger of CSB Bank into Clearfield and for the exchange of Clearfield common
stock for Penn Laurel common stock.
To complete the merger, at least 66 2/3% of the outstanding shares of
Clearfield must approve the agreement and at least 75% of the outstanding
shares of Penn Laurel must vote to approve the agreement.
Voting, Revocation and Solicitation of Proxies
At least a majority of the total number of shares of Clearfield common
stock and of Penn Laurel common stock, outstanding on July 28, 1999, is required
for a quorum at each of the meetings. These shares may be represented by a
shareholder in person or by completing and returning the enclosed proxy.
Revocation. If you execute a proxy, you can revoke it at any time until
after shareholders vote on the merger. Unless revoked, shares represented by
proxies will be voted at the meeting and at all adjournments or postponements of
the meeting. Your attendance at the meeting will not revoke your proxy. Proxies
may be revoked by:
-20-
<PAGE>
o delivery of a notice of revocation or of a later-dated proxy to:
William A. Shiner, Senior Vice President-Lending and Secretary
of Clearfield Bank & Trust Company, at 11 North Second Street,
Post Office Box 171, Clearfield, Pennsylvania 16830-0171, if you
are a shareholder of Clearfield; or
Janice E. Kephart, Secretary of Penn Laurel Financial Corp., at 434
State Street, Post Office Box 29, Curwensville, Pennsylvania
16833-0029, if you are a shareholder of Penn Laurel; or
o your attendance at the meeting and your notification to the
person in charge of the meeting that you wish to vote your
shares in person.
If a quorum is not present at the beginning of either meeting, the Board of
Directors of Clearfield or of Penn Laurel, as the case may be, intends to
adjourn the meeting to another place and time without further notice to the
shareholders. If for any other reason the Board of Directors of one of the
companies believes additional time should be allowed to obtain proxies, the
Board may adjourn the meeting with a vote of a majority of the shares present at
the meeting. If there is a proposal to adjourn, the persons named in the
enclosed proxy will vote all shares for which they have voting authority in
favor of the adjournment. A proxy that withholds authority or that is voted
against the merger will not be voted in favor of any adjournment or postponement
of a meeting.
Voting. The proxyholders will vote signed and returned proxies as
instructed by the shareholders. If no instructions are indicated, the
proxyholders will vote the proxies in favor of the merger and in favor of
adjournment, if necessary. A proxy also gives the persons named as proxyholders
the right to vote on other matters incidental to the conduct of the meeting. If
any other matters are properly brought before the meeting, any proxy given by
you will be voted in accordance with the recommendations of the management of
the company. Proxies marked as abstentions will not be counted as votes cast.
Shares held by brokerage companies or in street name that have been designated
by brokers on proxy cards as not voted will not be counted as votes cast.
Proxies marked as abstentions or as broker no-votes:
o will be treated as shares present for purposes of determining whether
a quorum is present; and
o will have the same effect as a vote against the merger.
In connection with the solicitation of proxies, each company will:
o bear the cost of soliciting proxies;
o reimburse brokerage firms and other custodians, nominees and fiduciaries
for their reasonable expenses; and
o may, if they so decide, solicit proxies personally or by telegraph or
telephone.
-21-
<PAGE>
Voting Securities and Securities Ownership
Clearfield. Only those shareholders whose ownership appears on the
shareholder record of Clearfield as of the close of business on July 28, 1999,
are entitled to vote at the meeting. Each share of Clearfield common stock is
entitled to one vote. On July 28, 1999, there were 576,809 shares of Clearfield
common stock outstanding. Common stock is the only issued and outstanding class
of stock of Clearfield. Except as shown on the table on page 76, Clearfield's
Board of Directors is not aware of any individual, entity or group that owns
more than 10% of the Clearfield common stock.
Penn Laurel. Only those shareholders whose ownership appears on the
shareholder record of Penn Laurel as of the close of business on July 28, 1999,
are entitled to vote at the meeting. Each share of Penn Laurel common stock is
entitled to one vote. On July 28, 1999, there were 357,259 shares of Penn Laurel
common stock outstanding. Common stock is the only issued and outstanding class
of stock of Penn Laurel. Penn Laurel's Board of Directors is not aware of any
individual, entity or group that owns more than 10% of the Penn Laurel common
stock.
Interests of Certain Persons in the Merger
When considering the recommendations of the Boards of Directors of
Clearfield and Penn Laurel, you should be aware that some executive officers and
directors of Clearfield and Penn Laurel may have interests in the transaction in
addition to their interests as shareholders, generally. These include, among
other things, provisions in the agreement relating to indemnification and
employment. Mr. Wood, President and Chief Executive Officer of Clearfield,
receives an employment agreement and Mr. Bertram, Chairman of the Board of
Clearfield, receives a consulting agreement. Messrs. Brubaker, President and
Chief Executive Officer of Penn Laurel, and Weymers, President and Chief
Executive Officer of CSB Bank, each receive a new employment agreement.
Differences exist between Mr. Brubaker's current and new employment
agreements. The new agreement increases his base salary from $114,664 per year
to $143,688 per year. In the event of a change in control of Penn Laurel, Mr.
Brubaker will receive payments equal to 2.99 times his salary plus average bonus
for the past three years under his new employment agreement. Under his current
agreement, Mr. Brubaker will receive 2.5 times his annual salary plus bonus in
the event of a change in control. In addition, under his new employment
agreement, if Mr. Brubaker resigns for good reason or is terminated without
cause, he will receive the greater of 2.99 times his compensation or his
compensation due for the remainder of the employment agreement. Under his
current contract, Mr. Brubaker will receive the greater of his current
compensation for one year or his compensation due for the remainder of the
agreement under similar circumstances.
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Mr. Wood's base salary under his new employment agreement will increase to
$101,004 from his current salary of $75,000 and he will be eligible for a
performance bonus. In addition, in the event of a change in control of Penn
Laurel, Mr. Wood will receive compensation calculated by the same method as Mr.
Brubaker, and, if Mr. Wood resigns for good reason or if he is terminated
without cause, he will receive the greater of his compensation due for the
remainder of his agreement or his compensation for one year. Neither of these
provisions is a feature of his current agreement. Under his new agreement, he
will receive 2.99 times his compensation, if there is a change in control.
Mr. Weymers's base salary under his new employment agreement will increase
to $101,004 from his current salary of $88,620. Under his current agreement, if
there is a change in control of Penn Laurel, if he resigns for good reason or if
he is terminated without cause, Mr. Weymers receives compensation calculated in
the same manner as in Mr. Brubaker's current agreement. Under his new agreement,
he will receive 2.99 times his compensation, if there is a change in control.
Mr. Bertram receives $20,500 for his services as Chairman of the Board
under his new consulting agreement, as compared to $18,000 under his old
agreement. In addition, he receives $33,500 as compensation for his non-compete
covenant, as compared to $29,000 under his current agreement.
The Boards of Directors were aware of these factors and considered them,
among other matters, in approving the agreement and the transactions
contemplated by the agreement. As of July 28, 1999, the directors and executive
officers of Clearfield beneficially own 84,764 shares of Clearfield common
stock. As of July 28, 1999, the directors and executive officers of Penn Laurel
beneficially own 64,482 shares of Penn Laurel common stock.
For a description of the additional terms of the new agreements, see
"APPROVAL OF THE MERGER--Management and Operations Following the Merger," and
for a description of the additional terms of the current agreements of Messrs,
Brubaker and Weymers, see "INFORMATION CONCERNING PENN LAUREL FINANCIAL
CORP.--Employment Contracts."
APPROVAL OF THE MERGER
In this section we describe the material terms and provisions of the
proposed merger. A copy of the agreement that provides for the merger is
attached to this proxy statement/prospectus as Annex A. This is only a
discussion of the material terms of the merger and we qualify it in its entirety
by reference to the full text of the agreement. We urge all shareholders of
Clearfield and of Penn Laurel to read the agreement.
The agreement provides that:
o CSB Bank will merge into Clearfield; and
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o Shareholders of Clearfield will receive 0.97 shares of Penn
Laurel common stock for each share of Clearfield that they own
when the merger is complete.
CSB Bank will cease to exist. Clearfield, the surviving bank will
become a wholly owned subsidiary of Penn Laurel. The parties propose to change
the name of Clearfield Bank & Trust Company, after the merger, to "Penn Laurel
Bank & Trust Company." This name is subject to necessary regulatory approval. In
connection with the merger, the parties will amend the Articles of Incorporation
of the surviving bank to permit an increase in the Board of Directors to 25
persons. The Pennsylvania Department of Banking and the Federal Deposit
Insurance Corporation will regulate the surviving bank. Penn Laurel will
continue to be a registered holding company, regulated by the Board of Governors
of the Federal Reserve System and will hold all shares of Penn Laurel Bank &
Trust. In addition, Penn Laurel will become a Section 12 reporting company, and
as such, will be subject to the Commission's periodic reporting, proxy
solicitation and insider trading requirements. Pursuant to these requirements,
Penn Laurel will make a significant amount of information available to
shareholders, potential investors and the general public, in the form of proxy
statements, periodic reports and other Commission filings. Directors, executive
officers and 10% beneficial shareholder of Penn Laurel will also be subject to
the insider trading reporting requirements and short-swing profit recapture
provisions of Section 16 of the Securities Act.
The Boards of Directors of each of Clearfield and Penn Laurel have approved
and adopted the agreement and the plan of merger. They believe the merger is in
the best interests of the shareholders of each company. The Boards of Directors
recommend that shareholders vote "FOR" the following resolutions that will be
presented at the meetings:
RESOLVED, that the Agreement and Plan of Reorganization, dated as of
December 31, 1998, by and among Penn Laurel Financial Corp., CSB Bank and
Clearfield Bank & Trust Company (the "Agreement"), entered into among the
respective entities, approved and adopted by the Board of Directors of the
respective entities, providing, among other things, for the merger of CSB
Bank into Clearfield Bank & Trust Company, the amendment of Article 6 of
the surviving bank's Articles of Incorporation to permit 25 persons to sit
on the Board of Directors, and providing that each outstanding share of the
common stock of Clearfield Bank & Trust Company shall be converted into the
right to receive 0.97 shares of Penn Laurel Financial Corp. common stock,
in accordance with the terms of the Agreement, is hereby approved, adopted,
ratified and confirmed by the shareholders; and
FURTHER RESOLVED, that the proper officers and directors of the
company are hereby authorized, empowered, directed and ordered, in the name
and on behalf of the company, to execute all such documents and take all
such other actions, as they, in their discretion, may in their discretion
deem necessary, appropriate or desirable to carry out the intent and the
purposes contemplated by the Agreement and the foregoing resolution.
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Background of the Merger, Reasons and Recommendation of the Boards of Directors
Clearfield Background. Clearfield's Board of Directors, as an ongoing part
of its long-range planning practices, annually reviews and evaluates various
strategic options and alternatives available to maximize the economic benefits
for Clearfield and its shareholders. This review and evaluation generally
includes the impact a merger might have on the institution, its shareholders,
employees and the community. The Board of Directors has considered, among other
things, the merits of maintaining Clearfield's independence or combining with a
smaller or similar size bank or bank holding company. The Board of Directors of
Clearfield has also considered the alternative of being acquired by a larger
out-of-town entity. This alternative was rejected for the following reasons:
o It would not necessarily result in a increase in market share in the
community, reducing the long term prospects for continued growth.
o It would tend to move certain of the merged bank's services, and the
related jobs, out of the community.
o It runs counter to one way in which Clearfield has differentiated
itself in the market--being a local bank for the local community.
o It runs counter to the long range goals of the Board of Directors of
enhancing shareholder value and contributing to the company's other
constituencies by either remaining independent or merging with another
local bank.
At its most recent annual review, the Board considered its long-range plan
in light of current economic, financial and regulatory conditions and their
impact on and likely future ramifications for Clearfield and the local financial
services industry. After careful analysis, and based on expert advice, the Board
of Directors concluded that, in today's financial services environment,
Clearfield could compete more effectively in its market area if it combined with
another local bank. The combined institution will have sufficient financial
resources to compete effectively and profitably in the future. The resulting
bank should have the largest market share by total deposits of any bank in
Clearfield County. The resulting bank will have the potential to create earnings
growth, cost savings and shareholder value in excess of what either entity could
do by itself. In addition, each institution offers unique products and services
that will be made available to the customers of the banks.
The Board of Directors of Clearfield received a letter dated May 10, 1999
from an out-of-town bank indicating that the out-of-town bank had an interest in
acquiring the outstanding stock of Clearfield. The Clearfield Board of Directors
determined not to respond to the letter and reaffirmed its commitment to
complete its merger with Penn Laurel at the Board of Directors Meeting held May
25, 1999. In addition to the reasons stated above, the Board of Directors noted
that:
o the letter was only an indication of interest and did not contain any
binding commitment to acquire Clearfield common stock;
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o the letter was, by its terms, to be considered only if the merger with
Penn Laurel were not to occur; and
o Clearfield had entered into the agreement with Penn Laurel and
did not wish to be in breach of that agreement, one term of
which prohibits Clearfield from discussing a merger
acquisition with a third party.
The Board continues to believe that the merger with Penn Laurel, a local
bank, which is profitable and expanding, is in the best interests of Clearfield,
its shareholders, its customers, its employees and the community.
Penn Laurel Background. As part of its long-range planning, Penn Laurel's
Board of Directors periodically reviews and evaluates various strategic options
and alternatives available to maximize economic benefits for Penn Laurel and its
shareholders, including the impact that a merger might have on Penn Laurel, its
shareholders, employees and the community. The Board has considered the merits
of maintaining Penn Laurel's independence, Penn Laurel combining with a smaller
or similar size bank or bank holding company, or merging Penn Laurel with a
larger community or regional financial institution. Management evaluates and
updates the long-range plan annually in light of economic, financial and
regulatory conditions and their impact and likely future ramifications for Penn
Laurel, specifically, and the local financial services industry, in general.
For many years, the strategy of the Penn Laurel Board of Directors was to
increase profitability on an annual basis as a means of building long-term value
for the Penn Laurel shareholders. The continuation of Penn Laurel as an
independent institution with the ability to compete effectively in the
increasingly competitive market for financial services and products was implicit
in this strategy. In the past several years, Penn Laurel has been able to
fulfill its strategy by expanding through acquisition of an insurance agency in
1998 as well as through internal growth in its market place and the effective
management of its net interest margin. The Board adopted and followed this
strategy recognizing that Penn Laurel's ability to continue to increase
shareholder value depended upon, among other things, the ability to accelerate
its loan and deposit growth in its market area and the ability to selectively
pursue other acquisitions that would enhance long term shareholder value.
The Penn Laurel Board has long recognized that, in order for Penn Laurel to
achieve the requisite scale and scope of operations necessary to remain an
effective competitor in the dramatically changing market for banking and
financial services, the Board should look to a strategic combination with
another entity that shares the culture and philosophy of Penn Laurel with a
similar commitment to long term shareholder value. The Board also realized that
the ability to grow deposits and loans in a meaningful fashion without
subsequent acquisitions would require the Board to incur substantial capital
expenditures to build or acquire branches in higher growth adjoining markets. In
addition to growth by branch banking, the technologies required to remain
competitive necessitate capital expenditures. After evaluating internal growth
methods,
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the Board of Directors of Penn Laurel determined that it should evaluate
potential acquisitions of institutions with similar goals and objectives and
evaluate a business combination or affiliation with a similarly sized company
with complimentary goals and objectives.
Reasons for the Merger as Determined by both Boards of Directors
The Boards of Directors of both Clearfield and Penn Laurel believe that the
merger represents a unique opportunity to form a strong community bank and
financial services organization. Following the merger, the combined company will
also have a substantially larger capital base to fund new products and a
significantly expanded retail customer base.
In addition, although no assurances can be given that any specific level of
expense savings will be achieved, the managements of Clearfield and Penn Laurel
have identified potential annual pretax expense savings and revenue enhancements
of $1.6 million expected to be achieved by the end of the second year after the
merger by consolidating certain operations, facilities and business lines and
eliminating redundant costs. We cannot assure that the Penn Laurel Bank & Trust
Company, the combined company, will be able to achieve these anticipated expense
savings within the time periods contemplated or otherwise.
In determining to approve the merger agreement, the Boards of Directors of
each of Clearfield and Penn Laurel also considered, among others, the following
factors:
o The Financial and Other Terms of the Merger Agreement. The Boards of
Directors of each of Clearfield and Penn Laurel considered the terms of
the merger agreement, including the terms of the investment agreements.
Each Board considered the fairness of the exchange ratio. Although each
Board took into account the historical trading ranges for the common
stock of both Clearfield and Penn Laurel in determining the exchange
ratio, they considered the trading ranges to be less important than
other factors. The advisors of each company noted that the trading
volume of each company's common stock was so small that the prices may
not accurately indicate relative value. Instead, both boards considered
other factors in determining the exchange ratio. The Boards considered:
o the relative contribution that each company's earnings was projected
to contribute to the earnings of the combined company;
o the premium-to-book value and the multiple of earnings implied by the
exchange ratio;
o the potential impact of the merger on the price of the merged
company's common stock over the next five years;
o the resulting relative interests of Clearfield and Penn Laurel
shareholders in the equity of the combined company;
o the potential for increased earnings and book value per share for its
shareholders; and
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o the existence of the option granted by the terms of each investment
agreement and certain other provisions in the merger agreement that
might discourage third parties from seeking to acquire the companies
prior to the merger.
o Advice of Financial Advisors and Fairness Opinion. Each Board
considered advice received from its financial advisor at their Board
meetings and reviewed the detailed financial analyses, pro forma
results and other information presented by the advisors. For a
discussion of the fairness opinion of each company's financial advisor
see "Opinion of Financial Advisors," below.
o Certain Financial and Other Information. Each Board reviewed
the historical financial results of the other party, the projected
financial results provided by the other party's management, and reviewed
information with respect to the other party's business, operations,
financial condition and future prospects. Each Board also considered, in
particular, the relative strengths and weaknesses of the other party's
businesses.
o Due Diligence Review. Each Board considered the results of the
due diligence review conducted by its advisors, including, among other
things, a review of the other party's credit policies, asset quality and
interest rate risk profile.
o The Tax and Accounting Treatment of the Transaction. Each Board
considered that the merger is expected to be tax-free (other than with
respect to cash paid in lieu of fractional shares) to shareholders for
federal income tax purposes and to be accounted for under the pooling of
interests method of accounting for business combinations.
o Operating Environment. Each Board took into account:
o the current and prospective economic and competitive environment
facing the financial services industry, generally, and each of
Clearfield and Penn Laurel, in particular;
o the increasing importance of size and market share as key indicators
of shareholder value;
o the ability of larger institutions to invest in technology and
leverage fixed costs over larger markets; and
o the changing legal environment for banking and financial services.
o Continuity of Management. Each Board considered the fact that
a balance has been achieved in designating the management of the merged
company. All of the continuing members of each board would continue as
directors of the combined entity. This gives each party equal
representation on the board of directors. William L. Bertram is
appointed as Chairman of the Board of Directors of Penn
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Laurel and Penn Laurel Bank & Trust, Larry W. Brubaker is appointed as
the President and Chief Executive Officer of Penn Laurel and Penn Laurel
Bank & Trust, and Messrs. Wood and Weymers are appointed as Executive
Vice Presidents of Penn Laurel and Penn Laurel Bank & Trust. The Boards
believe that these roles will enable each company's board and management
to have balanced input in the decisions concerning the future of Penn
Laurel Bank & Trust.
o Impact on Constituencies. Each Board considered the possible negative
impact the merger would have on the various constituencies served by
their respective company, including potential job loss and the economic
effect of the merger on the communities served by each of them. Each
Board took into account that the combined entity would be able to offer
a more extensive range of products and banking services to their
customers.
o Alternatives to the Merger Agreement. Each Board considered the effect
on depositors, employees, customers and the communities of their
respective company continuing as a stand-alone entity or combining with
other potential merger partners, compared to the effect of its combining
pursuant to the proposed merger agreement, and determined that the
merger under the merger agreement presented the best opportunity for
achieving each Board's long-term strategic objectives.
The foregoing discussion of the information and factors considered by each
Board of Directors is not intended to be exhaustive, but it does include all
material factors considered by each Board. In making its decision, each Board
necessarily relied on estimates and other forward looking information on the
possible benefits of the merger. We cannot assure that these benefits will be
achieved. In reaching its determination to approve the merger agreement, neither
Board assigned any relative or specific weights to the various factors
considered by it nor did either board specifically characterize any factor as
positive or negative, except as described above, and individual directors may
have given differing weights to different factors and may have viewed certain
factors more positively or negatively than others.
Preliminary Discussions
The Boards of Directors of Penn Laurel and Clearfield held preliminary
discussions in 1996 and 1997. None of these discussions resulted in an agreement
as to the terms of a potential combination until more formal discussion between
Clearfield and Penn Laurel began in August 1998. These discussions led to the
execution of the agreement on December 31, 1998. By general direction of the
boards of each company, Messrs. Bertram and Brubaker met to discuss the
advantages and issues of a potential combination between Penn Laurel and
Clearfield. The discussions covered:
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o corporate culture and operating philosophy;
o corporate goals and objectives; and
o long term impact of a combination on the relevant
constituencies.
The parties did not agree to specific terms but decided it would be advantageous
to continue an open dialogue and discussions.
The Boards of Directors of each of Penn Laurel and Clearfield formed
committees to investigate a possible combination between the two companies. Each
committee met with its company's Board of Directors to analyze the advantages
and issues of a combination. The committees discussed:
o corporate culture and operating philosophy;
o corporate goals and objectives;
o long term impact of a combination on the relevant constituencies;
o structure;
o management; and
o the Board of Directors.
The board committees from Penn Laurel and Clearfield met jointly on at least
three occasions and on each occasion talked about an individual issue. In one
case the committee discussed:
o joint goals and objectives;
o addressing relevant constituencies; and
o operating cultures and philosophies.
At the second meeting, the Board of Directors structure was considered as well
as the size of the Board of Directors, its composition and membership. The
committees also discussed age restrictions and retirement provisions. The
committees discussed the advantages and disadvantages of using the Penn Laurel
holding company structure. They agreed that, because Penn Laurel had already
formed a holding company, it would be most advantageous to continue Penn Laurel
as the holding company for the combined entity. At the third meeting of the
committees, the members discussed both short term management and long term
management of the combined entity. Committee members also discussed management
philosophy, leadership qualities of the various executive officers and ways to
ensure the executive officers' continuing participation in the combined
institution, going forward. These discussions led to the proposed management
structure and the employment contracts and the consulting contract for the
post-merger positions of Chairman of the Board, President and Chief Executive
Officer and Executive Vice Presidents.
Finally, the members discussed how to provide and plan for the requisite
shareholder value for the resulting company. The Board of Directors of
Clearfield and Penn Laurel each viewed the transaction from the best interests
of its company as well as the best interests of the resulting company. The
members of the committees jointly developed a number of assumptions
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regarding growth, cost savings and synergies necessary to provide long term
value to shareholders.
To assist in these discussions Clearfield and Penn Laurel jointly engaged
Ryan, Beck. The primary purpose of the Ryan, Beck engagement was to examine the
assumptions necessary for successful merger of the two companies and to test
those assumptions and how they would affect long term shareholder value. The key
element of the Ryan, Beck study was to establish the parameters, financial and
otherwise, to aid the resulting company to enhance shareholder value within the
context of the cultural and political structure that the companies thought was
in the best interest of shareholders. Ryan, Beck outlined a number of
assumptions. Given the historical growth rates, historical income levels,
expected future income levels and other assumptions for each company and for the
resulting company, Ryan, Beck developed an exchange ratio range of .94 to .99
shares of Penn Laurel for each share of Clearfield. Ryan, Beck then determined a
definitive ratio of .96, which attempted to balance the anticipated benefits of
the transaction to the companies going forward. The Boards of Directors of
Clearfield and Penn Laurel negotiated the exchange ratio after review of Ryan,
Beck's report. Eventually, the Boards of Directors agreed to an exchange ratio
of .97 shares of Penn Laurel common stock for each share of Clearfield common
stock.
Clearfield and Penn Laurel determined that they should each have an
independent financial advisor to review the terms of the transaction and to
ascertain that the terms were fair to the shareholders of the respective
companies, from a financial point of view. Penn Laurel engaged Garland McPherson
and Clearfield engaged Ryan, Beck. The terms of the transaction were reviewed by
the Boards of Directors of Penn Laurel and Clearfield on December 16, 1998, and
on December 23, 1998. The Boards of Directors made certain modifications to the
terms of the transaction, including providing that Clearfield would survive the
merger and change its name to "Penn Laurel Bank & Trust Company." Garland
McPherson provided a fairness opinion to Penn Laurel and Ryan, Beck provided a
fairness opinion to Clearfield. The agreement was executed by the parties as of
December 31, 1998. The Boards of Clearfield and Penn Laurel approved the merger
agreement, as modified, on December 30 and December 31, 1998.
The Boards' Determination About The Merger
For the reasons outlined in "Reasons for the Merger Determined by both
Boards of Directors," above, and in "Opinion of Financial Advisors," below, the
Clearfield Board agreed to recommend the merger transaction for shareholder
approval. The Board of Directors has received an opinion from Ryan, Beck to the
effect that the exchange ratio is "fair" to the shareholders of Clearfield from
a financial point of view. See "APPROVAL OF THE MERGER--Opinion of Financial
Advisors."
For the reasons outlined in "Reasons for the Merger Determined by both
Boards of Directors," above, and in "Opinion of Financial Advisors," below, the
Penn Laurel Board agreed to recommend the merger transaction for shareholder
approval. The Board of Directors has received an opinion from Garland McPherson
& Associates, Inc. to the effect that the terms of
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the agreement with Clearfield are fair to the shareholders of Penn Laurel from a
financial point of view. See "APPROVAL OF THE MERGER--Opinion of Financial
Advisors."
The Boards of Directors of each of Clearfield and Penn Laurel believe
that the terms of the transaction are fair to, and in the best interests of,
each company and its shareholders and have approved the merger agreement. The
Board of Directors of Clearfield recommend that their shareholders approve the
merger agreement.
OPINION OF FINANCIAL ADVISORS
General
During preliminary negotiations, Clearfield and Penn Laurel engaged Ryan,
Beck to give an initial analysis of a proposed transaction. Later, the
Clearfield Board of Directors engaged Ryan, Beck to provide financial advisory
and investment banking services to Clearfield. Penn Laurel engaged Garland
McPherson to provide financial advisory and investment banking services to Penn
Laurel and its subsidiary, CSB Bank. The terms of the engagements were contained
in letters dated December 9, 1998, and December 10, 1998.
Ryan, Beck's Initial Analysis
On October 12, 1998, Penn Laurel and Clearfield formally engaged Ryan, Beck
to:
o develop a full understanding of the business and characteristics of
each of the companies;
o create a "fair" exchange ratio for the transaction; and
o create a list of potential cost savings.
The projections furnished to Ryan, Beck were prepared by the respective
managements of Penn Laurel and Clearfield without input or guidance by Ryan,
Beck. Penn Laurel and Clearfield do not publicly disclose internal management
projections of the type provided to Ryan, Beck in connection with the review of
the merger. These projections were not prepared with a view towards public
disclosure. The public disclosure of these projections could be misleading
because the projections were based on numerous variables and assumptions that
are inherently uncertain, including, without limitation, factors related to
general economic and competitive conditions. Accordingly, actual results could
vary significantly from those set forth in the projections.
In its analyses, Ryan, Beck made numerous assumptions with respect to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Ryan,
Beck, Clearfield or Penn Laurel. Any estimates contained in the analyses are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by the analyses.
Additionally,
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estimates of the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which the businesses or securities might
actually be sold.
Analysis of Historical Results
Ryan, Beck analyzed the historical trends of Penn Laurel and Clearfield's
income statement and balance sheets for fiscal years ended December 31, 1993,
through the nine months ended September 30, 1998, and made certain observations
based on these historical operating trends.
The compounded annual growth rates for the 4.75 year period from December
31, 1993, to September 30, 1998, for certain balance sheet categories were as
follows:
Penn
Clearfield Laurel
---------- ------
Total Assets 4.64% 8.55%
One to Four Family Mortgages 6.85 12.75
Nonfarm/Nonresidential Mortgage Loans 10.25 12.55
Commercial & Industrial Loans 11.82 16.87
Total Loans 9.48 11.67
Transaction Accounts (0.96) 2.95
Money Market Deposit Accounts 3.06 12.70
Savings Accounts (3.32) (3.25)
Certificates of Deposit 10.98 11.30
Certificates of Deposit >$100K 11.26 27.88
Total Deposits 4.41 7.38
Total Shareholders' Equity 6.05 10.69
Ryan, Beck noted that Penn Laurel's total asset growth rate for the
4.75 year period from December 31, 1993 to September 30, 1998 was superior to
that of Clearfield and much of this growth was due to the growth in Penn
Laurel's loan portfolio. Penn Laurel's total deposit growth over the 4.75 year
period was also superior to the total deposit growth of Clearfield. The fastest
growing deposit category for both Penn Laurel and Clearfield was Certificates of
Deposit greater than $100,000.
The compounded annual growth rates for the period ended December 31, 1993
to annualized year to date September 30, 1998 income statement results are as
follows:
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Penn
Clearfield Laurel
---------- ------
Net Interest Income 2.87% 5.43%
Non Interest Income 8.64 12.30
Non Interest Expenses 2.62 7.16
Net Income Before Extraordinary Items 3.55 6.45
Net Income 2.24% 4.10%
Ryan, Beck noted that, in 1998, Clearfield benefited from a reassessment of
loan origination costs for FASB 91 purposes. This had the net effect of
increasing income by approximately $170,000 versus the nine months ended
December 31, 1997. Ryan, Beck also "normalized" Penn Laurel's 1998 earnings by
excluding securities gains and deducting certain non-recurring expenses.
Detailed Comparison of Clearfield and Penn Laurel
Ryan, Beck made the following observations about Penn Laurel and
Clearfield:
Loan Portfolio
o Clearfield and Penn Laurel's ratio of total loans to total assets was
62.3% and 70.4%, respectively, as of September 30, 1998.
o Clearfield's loan portfolio is dominated by real estate loans
(66.6% of the portfolio) with 1-4 family loans comprising 39.6% of the
portfolio and commercial mortgages comprising 24.9% of the portfolio.
o Penn Laurel has a more diversified and evenly balanced loan portfolio
between 1-4 family, consumer, commercial and industrial, and commercial
real estate loans.
o Consumer loans equaled 32.8% of total loans at Penn Laurel compared to
18.1% at Clearfield.
o Penn Laurel had superior loan origination capabilities as evidenced by
the compound growth rate in loans over the last 4.75 years of 11.7% as
compared to 9.5% for Clearfield. A significant factor in Penn Laurel's
strong loan growth was the 16.9% compound growth rate in commercial and
industrial loans and the 12.7% compound growth rate in 1-4 family
mortgages.
o Clearfield's loan growth has been aided by the purchase of loan
participations.
Deposits
o Deposit structure between the two organizations is very similar.
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o Penn Laurel has experienced stronger deposit growth than Clearfield over
the past 4.75 years, with a compound growth rate of 7.4% as compared to
a compound growth rate of 4.4% at Clearfield.
o Certificates of deposit in excess of $100,000, which have grown at a
4.75 year compound growth rate of 27.9%, have been the fastest growing
source of deposits at Penn Laurel.
o Certificates of deposit have generated much of the deposit growth of
both organizations.
o The addition of the Goldenrod branch, which was purchased in 1997 with
approximately $13 million in deposits, contributed to Clearfield's
deposit growth.
Non-Performing Assets
o Clearfield experienced a significant increase in the level of
nonperforming assets in the nine months ended September 30, 1998, with
nonperforming assets as a percent of loans plus OREO increasing to 0.79%
at September 30, 1998 from 0.42% at December 31, 1997.
o Penn Laurel experienced a significant increase in the level of
nonperforming assets as a percent of loans plus OREO at December 31,
1997, with an increase to 0.91% as compared to 0.37% at December 31,
1996. By September 30, 1998, the level of nonperforming assets as a
percent of loans plus OREO had declined to 0.43%.
Comparison of Benefit Expense
o Clearfield's employee benefits expense, as a percentage of salaries and
wages, has been approximately twice as much as Penn Laurel's.
o In the financial analysis included in this proxy statement/prospectus,
Ryan, Beck has assumed that the benefits cost to the new combined
company will not exceed the sum of the benefits cost of each of the
combining companies.
o Ryan, Beck recommended that the combined company retain an employee
benefits consulting firm to establish benefits plans for the combined
company.
Market Share Analysis
Clearfield County
o As separate entities, Clearfield ranked third in market share and Penn
Laurel ranked fifth in market share in Clearfield County.
o On a pro forma basis, the combined company would rank first out of
eight financial institutions in market share in Clearfield County with
$270.8 million in deposits and a combined market share of 25.91%.
o The organizations each operate five branches in Clearfield County;
There are branch overlaps in Clearfield, Curwensville and DuBois.
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Centre County
o On a pro forma basis, the combined company will operate one branch in
Philipsburg that ranks 10th out of 13 financial institutions with 1.44%
of the Centre County market share.
Determination of the Exchange Ratio
Ryan, Beck began its analysis to determine the appropriate exchange
ratio by focusing on the three most widely accepted methods of calculating an
exchange ratio in a merger of equals context. These methods are:
o Market Value for Market Value, in other words, the Market
Capitalization Basis;
o Book Value for Book Value, in other words, the Equity Basis; and
o Earnings for Earnings, in other words, the Earnings Basis
In addition to the three most common methods, Ryan, Beck also used five
other methods to establish preliminary exchange ratios. These were:
o Estimated 1999 Earnings Excluding Benefits Expense -- Ryan, Beck
made this calculation because of the significant disparity in benefits
cost between Clearfield and Penn Laurel.
o Equity Excluding Unrealized Security Gains -- Both Clearfield's
and Penn Laurel's equity was reduced by an amount equal to their
unrealized security gains (net of deferred tax). Ryan, Beck calculated
this ratio because of the sensitivity of unrealized security gains to
conditions in either the equity or debt markets.
o Diluted Estimated 1999 Earnings -- This assumes exercise of Penn
Laurel's stock options, earnings on the proceeds of the stock options
and that the shares are outstanding. Ryan, Beck calculated this ratio
because Penn Laurel had stock options and Clearfield did not.
o Diluted Equity Basis -- Equity including proceeds from assumed
exercise of Penn Laurel's stock options. Ryan, Beck calculated this
ratio because Penn Laurel had stock options and Clearfield did not.
o Diluted Equity Basis (Excluding Unrealized Security Gains) -- Equity
includes proceeds from assumed exercise of Penn Laurel's stock options
but excludes unrealized security gains for both Clearfield and Penn
Laurel. This ratio was also calculated because Penn Laurel had stock
options and Clearfield did not.
The results of this analysis produced exchange ratios ranging from
0.876 to 1.177 shares of Penn Laurel for each share of Clearfield as shown
below:
Basis of Calculation Exchange Ratio
-------------------- --------------
Market Capitalization 1.177
Equity 0.879
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Earnings 0.962
Earnings (Excluding Benefits) 1.044
Equity (Excluding Unrealized Securities Gains) 0.956
Diluted Earnings 0.990
Diluted Equity 0.876
Diluted Equity (Excluding Unrealized Securities 0.946
Gains)
Ryan, Beck eliminated the Market Capitalization Basis from consideration
after it reviewed the trading volume of Clearfield's and Penn Laurel's shares.
Ryan, Beck noted that an average weekly trading volume of 217 shares for
Clearfield and 59 shares for Penn Laurel did not provide sufficient liquidity
for the Market Capitalization Basis to produce a meaningful exchange ratio.
Exchange Ratio of 0.94 to 0.99 Shares for 1.00
Based on the results of the previous analysis, Ryan, Beck prepared a
detailed analysis of the impact of an exchange ratio of between 0.94 and 0.99
shares of Penn Laurel for each share of Clearfield. As a result of this
analysis, Ryan, Beck recommended an exchange ratio of 0.96 shares of Penn Laurel
common stock for each share of Clearfield common stock. Ryan, Beck recommended
an exchange ratio of 0.96 to attempt to achieve a relative balance in the
expected benefits of the transaction to the shareholders of each of Penn Laurel
and Clearfield. In addition to the material discussed in this section, Ryan,
Beck's initial analysis contained peer group data and discounted dividend
analysis data substantially in the form discussed below, under "Clearfield
Opinion of Financial Advisor."
Potential Cost Savings
For a discussion of the potential cost savings, please see "Potential Cost
Savings" on page 65, below.
Clearfield Opinion Of Financial Advisor
On December 9, 1998, Clearfield formally retained Ryan, Beck to render a
fairness opinion with respect to a merger of equals between Penn Laurel and
Clearfield. Ryan, Beck is regularly engaged in the valuation of banks, bank
holding companies, savings and loan associations, savings banks and savings and
loan holding companies in connection with mergers, acquisitions and other
securities-related transactions. Ryan, Beck has knowledge of, and experience
with, the Mid-Atlantic banking market and banking organizations operating within
this market, and was selected by Clearfield because of its knowledge of,
experience with, and reputation in the financial services industry.
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In its capacity as Clearfield's financial advisor, Ryan, Beck did not
participate in the negotiations with respect to the determination of the
exchange ratio and other terms and conditions of the merger. The decision as to
whether to accept the merger proposal and the final pricing of the merger was
ultimately made by the Board of Directors of Clearfield. Ryan, Beck rendered a
formal written opinion on December 31, 1998, and rendered an additional written
opinion dated the date of this joint proxy statement/prospectus, based on and
subject to the assumptions, factors, and limitations set forth in the Ryan, Beck
opinion and described below, that the exchange ratio is "fair" to Clearfield's
shareholders from a financial point of view. No limitations were imposed by the
Clearfield Board of Directors upon Ryan, Beck with respect to the investigations
made or procedures followed by it in arriving at its opinion.
The full text of the Ryan, Beck opinion, which sets forth assumptions made
and matters considered, is attached as Annex B to this joint proxy
statement/prospectus. Shareholders of Clearfield are urged to read the Ryan,
Beck opinion in its entirety. The Ryan, Beck opinion is directed only to the
financial fairness of the exchange ratio and does not constitute a
recommendation to any Clearfield shareholder as to how such shareholder should
vote at the meeting. Ryan, Beck qualifies the summary of the opinion in its
entirety by reference to the full text of the opinion. In rendering its
opinions, Ryan, Beck does not admit that it is an expert within the meaning of
the term "expert" as used within the Securities Act and the rules and
regulations promulgated thereunder, or that its opinions constitute a report or
valuation within the meaning of Section 11 of the Securities Act and the rules
and regulations promulgated thereunder.
In rendering its opinion, Ryan, Beck:
o Reviewed, among other things:
o the merger agreement and related documents;
o the joint proxy statement/prospectus;
o Penn Laurel's Annual Report to Shareholders for the years ended
December 31, 1998, 1997, 1996 and 1995;
o Penn Laurel's Quarterly Call Reports to the FDIC for the periods
ended March 31, 1999, September 30, 1998, June 30, 1998 and
March 31, 1998;
o Clearfield's Annual Report to Shareholders for the years ended
December 31, 1998, 1997, 1996 and 1995;
o Clearfield's Quarterly Call Reports to the FDIC for the periods
ended March 31, 1999, September 30, 1998, June 30, 1998 and
March 31, 1998; and
o Certain operating and financial information provided by the
managements of Penn Laurel and of Clearfield, relating to their
business and prospects;
o Held discussions with members of senior management of Penn Laurel
and Clearfield regarding:
o past and current business operations;
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o financial projections for the year ending December 31, 1999;
o strategic plans;
o regulatory standing;
o financial condition; and
o future prospects of the respective companies, including potential
synergies arising from the merger of equals;
o Reviewed the historical stock prices and trading volume of Penn Laurel
and of Clearfield common stock;
o Reviewed the publicly available financial data of commercial banking
organizations, which Ryan, Beck deemed generally comparable to Penn
Laurel;
o Reviewed the publicly available financial data of commercial banking
organizations, which Ryan, Beck deemed generally comparable to
Clearfield; and
o Conducted other studies and analyses, inquiries and examinations as
Ryan, Beck deemed appropriate.
In connection with its review, Ryan, Beck relied upon and assumed the
accuracy, completeness and fairness of the financial and other information
provided to it by the companies or that was publicly available and have not
assumed any responsibility for independently verifying such information. Ryan,
Beck relied upon the management of Clearfield and Penn Laurel with respect to
whether the financial and operating forecasts and projections (and the
assumptions and bases for them) were reasonable and achievable. In certain
instances Ryan, Beck made certain adjustments to the financial and operating
forecasts that, in its judgment, were appropriate under the circumstances. In
addition, Ryan, Beck assumed, with the consent of both Clearfield and Penn
Laurel, that the forecasts and projections (including expense savings) reflect
the best currently available estimates and judgments of the companies'
managements. Ryan, Beck is not an expert in the evaluation of allowances for
loan losses. Therefore, Ryan, Beck does not assume any responsibility for making
an independent valuation of the adequacy of the allowances for loan losses
reflected in the balance sheets of Penn Laurel and of Clearfield at March 31,
1999. Ryan, Beck assumed that the allowances were adequate and comply fully with
applicable law, regulatory policy, sound banking practice and policies of the
Securities and Exchange Commission as of the date of such financial statements.
Ryan, Beck also assumed that the merger of equals, in all respects, is, and will
be consummated, in compliance with all laws and regulations applicable to Penn
Laurel and to Clearfield. Ryan, Beck has not made or obtained any independent
evaluations or appraisals of the assets and liabilities of either Penn Laurel or
Clearfield or their respective subsidiaries, nor has it reviewed any individual
loan files of Clearfield or of Penn Laurel, including its subsidiary bank.
In conducting its analysis and arriving at the Ryan, Beck opinion, Ryan,
Beck considered financial and other factors that it deemed appropriate in the
circumstances. It assumed that, in the course of obtaining the necessary
regulatory approvals for the merger and the transactions
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contemplated by the merger agreement, no restrictions will be imposed that will
have a material adverse effect on the contemplated benefits of the merger or the
transactions contemplated by the merger agreement to Clearfield. Ryan, Beck did
not express any opinion as to the price or range of prices at which Penn Laurel
common stock might trade subsequent to the merger. The Ryan, Beck opinion as to
the fairness of the exchange ratio addresses the ownership position in the
combined company to be received by the holders of shares of Clearfield pursuant
to the exchange ratio on the terms set forth in the merger agreement. The Ryan,
Beck opinion does not address the relative merits of the merger and alternative
business strategies. In that regard, Ryan, Beck was not asked to, and did not,
solicit third party indications of interest in acquiring Clearfield or in
engaging in a business combination or any other strategic transaction with
Clearfield. Ryan, Beck was asked only to evaluate from a financial point of view
the fairness of the exchange ratio to Clearfield shareholders; and therefore,
did not consider, the third-party indication of interest received by Clearfield,
in May 1999, after the parties entered into the merger agreement.
The preparation of a fairness opinion on a transaction such as the merger
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to the particular
circumstances. Therefore, Ryan, Beck's opinion is not readily susceptible to
summary description. In arriving at its opinion, Ryan, Beck performed a variety
of financial analyses. Ryan, Beck believes that its analyses must be considered
as a whole and the consideration of portions of these analyses and the factors
considered therein, or any one method of analysis, without considering all
factors and analyses, could create an incomplete view of the analyses and the
process underlying Ryan, Beck's opinion. No one method of analysis was assigned
a greater significance than any other.
The projections furnished to Ryan, Beck were prepared by the respective
managements of Penn Laurel and Clearfield without input or guidance by Ryan,
Beck. Penn Laurel and Clearfield do not publicly disclose internal management
projections of the type provided to Ryan, Beck in connection with the review of
the merger. These projections were not prepared with a view towards public
disclosure. The public disclosure of these projections could be misleading
because the projections were based on numerous variables and assumptions that
are inherently uncertain, including, without limitation, factors related to
general economic and competitive conditions. Accordingly, actual results could
vary significantly from those set forth in the projections.
In its analyses, Ryan, Beck made numerous assumptions with respect to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Ryan,
Beck, Clearfield or Penn Laurel. Any estimates contained in the analyses are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by the analyses.
Additionally, estimates of the value of businesses or securities do not purport
to be appraisals or to reflect the prices at which the businesses or securities
might actually be sold.
After giving effect to the merger, Clearfield and Penn Laurel shareholders
would have a
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fully diluted ownership interest of approximately 61.7% and 38.3%
in the pro forma combined company, based on the 0.97 exchange ratio.
The following is a brief summary of the analyses and procedures performed
by Ryan, Beck in the course of arriving at the Ryan, Beck opinion.
Impact Analysis: Ryan, Beck analyzed the merger in terms of its effect on
Penn Laurel's projected 1999, 2000 and 2001 earnings per share, stated book
value and tangible book value based on Clearfield's projected 1999, 2000 and
2001 earnings that Ryan, Beck derived from information provided by the
managements of each of Clearfield and Penn Laurel.
Based upon certain assumptions, including those with respect to cost
savings and other synergies from the merger and the stand-alone earnings
projections provided by Clearfield and Penn Laurel, the impact analysis showed
that the merger would be accretive to Penn Laurel's projected 1999, 2000 and
2001 fiscal year earnings per share by approximately 24.50%, 25.27% and 23.33%.
The analysis further showed that the merger would be dilutive to Penn Laurel's
book value per share by approximately 7.36% and dilutive to Penn Laurel's
tangible book value by approximately 10.15%. Ryan, Beck analyzed the impact of
the merger on Penn Laurel values per Clearfield share based on the exchange
ratio of 0.97 shares of Penn Laurel common stock for each share of Clearfield
common stock using pro forma projected 1999, 2000 and 2001 fiscal year earnings
per share, pro forma stated book value per share, pro forma tangible book value
per share and dividends per share at September 30, 1998. That analysis found
that, based on the exchange ratio, Clearfield's equivalent projected 1999
earnings per share would increase by approximately 25.33%, equivalent projected
2000 earnings per share would increase by approximately 29.78% and equivalent
projected 2001 earnings per share would increase by approximately 31.49%.
Equivalent stated book value would increase by approximately 2.52% and
equivalent tangible book value would increase by approximately 4.67%.
Additionally, Clearfield's shareholders, based on an anticipated increase in
Penn Laurel's dividend level, would receive annual dividends equal to those
currently received. Many factors beyond the control of Penn Laurel and/or
Clearfield, may affect these forward looking projections, including:
o the future direction of interest rates;
o economic conditions in the companies' market place;
o the actual amount and timing of cost savings achieved through the
merger;
o the actual level of revenue enhancements brought about through the
merger;
o future regulatory changes; and
o various other factors.
The actual results achieved may vary from the projected results and the
variations may be material.
Discounted Dividend Analysis - Clearfield. Using a discounted dividend
analysis, Ryan, Beck estimated the present value of the future dividend streams
that Clearfield could produce in
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perpetuity. These projections are, by their nature, forward-looking and may
differ materially from the actual values or actual future results that may be
significantly more or less favorable than suggested by the projections. In
producing a range of per share Clearfield values, Ryan, Beck used the following
assumptions:
o discount rates range from 11.0% to 13.0%; and
o terminal price/earnings multiples range from 13.0x to 15.0x,
which when applied to terminal year estimated earnings produces a
value which approximates the net present value of the dividends in
perpetuity, given certain assumptions regarding growth rates and
discount rates.
The discounted dividend analysis produced the range of net present values per
share of Clearfield common stock illustrated in the chart below:
Discount Rate: 11.00% 12.00% 13.00%
Terminal Year 13.00X $50.28 $48.78 $47.37
Multiple 14.00X $52.22 $50.63 $49.13
Of Earnings 15.00X $54.16 $52.48 $50.89
These analyses do not purport to be indicative of actual values or expected
values or an appraisal range of the shares of Clearfield common stock. Ryan,
Beck notes that the discounted dividend analysis is a widely used valuation
methodology, but it relies on numerous assumptions, including dividend payout
rates, terminal values and discount rates, the future values of which may be
significantly more or less than the assumptions. Any variation from these
assumptions would most likely produce different results.
Discounted Dividend Analysis - Pro Forma Combined Company. Ryan, Beck also
estimated, for comparison purposes, the present value of the future dividend
streams that the pro forma combined company created by the combination of
Clearfield and Penn Laurel could produce in perpetuity. These projections are,
by their nature, forward-looking and may differ materially from the actual
values or actual future results that may be significantly more or less favorable
than suggested by the projections. In producing a range of per share pro forma
combined company values, Ryan, Beck used the following assumptions:
o discount rates range from 11.0% to 13.0%;
o terminal price/earnings multiples range from 13.0x to 15.0x, which
when applied to terminal year estimated earnings produces a value that
approximates the net present value of the dividends in perpetuity,
given certain assumptions regarding growth rates and discount rates;
and
o earnings that include estimated savings in the pro forma combined
company's non-interest expense equal to 15% in 1999 and 17.5%, in the
aggregate, in 2000, with an assumed 5% growth in synergies in years
thereafter.
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The discounted dividend analysis produced the range of net present values per
share of the pro forma combined company common stock illustrated in the chart
below:
Discount Rate: 11.00% 12.00% 13.00%
- ------------- ------ ------ ------
Terminal Year 13.00X $64.17 $62.14 $60.21
Multiple 14.00X $66.88 $64.72 $62.68
Of Earnings 15.00X $69.60 $67.31 $65.14
Ryan, Beck multiplied the 0.97 exchange ratio by the pro forma combined
company common values in the chart above to produce a range of net present
values per equivalent Clearfield share as illustrated in the chart below:
Discount Rate: 11.00% 12.00% 13.00%
- ------------- ------ ------ ------
Terminal Year 13.00X $62.24 $60.28 $58.40
Multiple 14.00X $64.87 $62.78 $60.80
Of Earnings 15.00X $67.51 $65.29 $63.19
The analyses do not purport to be indicative of actual values or expected
values or an appraisal range of the shares of the pro forma combined company's
common stock. Ryan, Beck notes that the discounted dividend analysis is a widely
used valuation methodology, but it relies on numerous assumptions, including, in
the pro forma analysis, expense savings levels and synergies growth as well as
the assumptions used in the stand-alone analysis of Clearfield, the
future values of which may be significantly more or less than the assumptions.
Any variation from these assumptions would most likely produce different
results.
Contribution Analysis. Ryan, Beck reviewed the relative contributions of
Clearfield and Penn Laurel to the combined company based on financial data as of
September 30, 1998. Ryan, Beck compared the pro forma equity ownership interest
of Clearfield and Penn Laurel of 61.70% and 38.30% with the following Clearfield
and Penn Laurel relative contribution table:
Clearfield Penn Laurel
---------- -----------
Total Assets 57.73% 42.27%
Loans, net unearned income 54.72 45.28
Loan Loss Reserve 58.84 41.16
Deposits 58.74 41.26
Total Equity 59.39 40.61
Tangible Common Equity 58.14 41.86
Market Capitalization 66.58 33.42
Nonperforming Loans 74.02 25.98
Nonperforming Assets 69.13 30.87
Last Twelve Months (9/30/98) Net Income 62.11 37.89
Estimated 1999 Net Income 61.54 38.46
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Peer Group Analysis - Individually. Ryan, Beck also compared Clearfield's
and Penn Laurel's reported financial data as of June 30, 1998, with that of a
peer group of 14 selected commercial banks located in the Mid-Atlantic region of
the United States with assets between $100 million and $250 million for which
public trading and pricing information was available.
The following 14 companies make up the peer group used in this analysis:
Abigail Adams National Bancorp
Annapolis National Bancorp
Bridge View Bancorp
Century Bancshares, Inc.
First Leesport Bancorp, Inc.
First Philson Financial Corp.
Intervest Bancshares Corp
Jeffersonville Bancorp
Long Island Commercial Bank
Madison Bancshares Group, Ltd.
Mid Penn Bancorp Inc.
Suburban Bancshares, Inc.
Sussex Bancorp
Unity Bancorp, Inc.
Ryan, Beck deemed this group to be generally comparable to both Penn Laurel and
Clearfield. The following table compares selected statistics of Penn Laurel and
Clearfield with the median ratios and average ratios for the fourteen selected
commercial banks in the peer group:
<TABLE>
<CAPTION>
Peer Group Peer Group
Clearfield Penn Laurel Average Median
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Total Equity/Total Assets 10.84% 9.18% 9.67% 9.87%
Return on Average Assets* 1.06 1.33 0.80 0.77
Return on Average Equity* 9.41 13.74 8.22 8.10
Net Interest Margin 3.75 4.35 4.61 4.73
Yield on Interest Earning Assets 7.40 8.39 8.23 8.22
Cost of Interest Bearing Liabilities 4.34 4.64 4.43 4.52
Non-Performing Loans/Total Loans 0.30 0.37 1.08 0.93
Loan Loss Reserves/Non Performing Loans 335.84 218.48 220.07 116.69
Total Loans/Total Assets 59.27 68.95 60.19 59.10
Total Loans/Deposits 67.77 79.75 70.66 68.15
1-4 Family Loans/Total Loans 39.60 29.96 30.50 26.47
Commercial Loans/Total Loans 13.31 17.70 19.63 17.71
Consumer Loans/Total Loans 18.14 33.22 6.08 4.06
Price/Latest Twelve Months Earnings* 17.09X 9.99X 21.47X 19.08X
Price/Book Value 156.17% 114.32% 168.51% 150.06%
Dividend Yield 2.94 2.85 1.44 1.53
</TABLE>
- ----------
* Penn Laurel's net income includes $504,000 in non recurring securities gains.
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Ryan, Beck noted that the performance of Clearfield, as measured by return
on average assets and return on average equity, was superior to that of the peer
group. Clearfield's yield on interest earning assets was less than that of the
companies in the peer group. Additionally, Clearfield had a slightly lower cost
of interest bearing liabilities than the peer group. Clearfield's net interest
margin was less than its peers primarily due to its relatively lower yielding
interest earning assets. Ryan, Beck also noted that Clearfield has a lower level
of nonperforming loans than the peer group and a higher loan loss reserve when
measured as a percent of nonperforming loans. Based on Clearfield stock price of
$55.50 per share as of December 21, 1998, Clearfield's price to latest twelve
months earnings per share was less than the peer group. Clearfield's price to
book value was greater than the peer group median and less than the peer group
average.
Penn Laurel's yield on interest earning assets was superior to that of
Clearfield reflecting the higher level of total loans to total assets, total
loans to total deposits and composition of the loan portfolio at Penn Laurel as
compared to Clearfield. Additionally, Penn Laurel had a higher cost of interest
bearing liabilities than Clearfield. Penn Laurel's net interest margin was
greater than Clearfield's primarily due to its higher yielding interest earning
assets. Ryan, Beck also noted that Clearfield has a higher loan loss reserve as
a percent of non-performing loans as compared to Penn Laurel. Based on Penn
Laurel's stock price of $46.25 per share and Clearfield's stock price of $55.50
as of December 21, 1998, Clearfield's price to latest twelve months earnings per
share greatly exceeded Penn Laurel's and Clearfield's price to book value was
also greater than Penn Laurel's. Ryan, Beck noted that the common stock of both
Penn Laurel and Clearfield both traded infrequently and that the current stock
prices of both Penn Laurel and Clearfield may not be indicative of fair market
value. Ryan, Beck also noted that Penn Laurel's stock trades less frequently
than Clearfield's.
Peer Group Analysis - Combined. Ryan, Beck also compared the pro forma
combined company's pro forma financial data as of June 30, 1998, with that of a
group of 17 selected commercial banks located in the Mid-Atlantic region of the
United States with assets between $250 million and $450 million for which public
trading and pricing information was available.
The following 17 companies make up the peer group used in this analysis:
Bryn Mawr Bank Corp.
Carrollton Bancorp
Codorus Valley Bancorp, Inc.
Columbia Bancorp
Comm Bancorp, Inc.
Commerce Bank/Harrisburg NA
Commercial National Financial
First Colonial Group, Inc.
First Mariner Bancorp
Greater Community Bancorp
High Point Financial Corp.
Lake Ariel Bancorp, Inc.
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Letchworth Independent BS Corp.
Norwood Financial Corp.
NSD Bancorp, Inc.
Ramapo Financial Corp.
Royal Bancshares of PA
The pro forma financial data does not include any expense savings anticipated as
a result of the merger. Ryan, Beck deemed this group to be generally comparable
to the pro forma combined company. The following table compares selected
statistics of the pro forma combined company with the median ratios and average
ratios for the seventeen selected commercial banks comprising the combined peer
group:
<TABLE>
<CAPTION>
Pro Forma Combined Combined
Combined Peer Group Peer Group
Company Average Median
--------- ---------- ----------
<S> <C> <C> <C>
Total Equity/Total Assets 10.16% 10.36% 9.55%
Return on Average Assets* 1.15 1.16 1.14
Return on Average Equity* 10.81 11.09 11.47
Net Interest Margin 3.99 4.83 4.74
Yield on Interest Earning Assets 7.80 8.27 8.13
Cost of Interest Bearing Liabilities 4.45 4.25 4.34
Non-Performing Loans/Total Loans 0.33 0.74 0.54
Loan Loss Reserves/Non Performing Loans 277.34 276.84 244.63
Total Loans/Deposits 72.64 77.15 77.24
</TABLE>
- ----------
* Includes $504,000 in non recurring securities gains.
Ryan, Beck noted that the performance of the pro forma combined company
without synergies, as measured by return on average assets, was approximately
equal to the combined peer group and return on average equity was slightly less
than the combined peer group. If synergies are included, the pro forma combined
company's return on average assets and return on average equity would exceed
that of the combined peer group. The pro forma combined company's yield on
interest earning assets was less than that of the companies comprising the
combined peer group and its cost of interest bearing liabilities was higher than
that of the combined peer group. The net effect is that the pro forma combined
company had a lower net interest margin than that of the combined peer group.
Ryan, Beck also noted that the pro forma combined company has a lower level of
non-performing loans than the combined peer group and a higher loan loss reserve
when measured as a percent of non-performing loans.
Financial Advisory Fees. The Board of Directors of Clearfield retained
Ryan, Beck as an independent contractor to act as financial advisor to
Clearfield with respect to the merger. Ryan,
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Beck received a fee for its services. Ryan, Beck, in October 1998, was jointly
engaged by Penn Laurel and Clearfield to develop a full understanding of the
business and characteristics of Penn Laurel and Clearfield to facilitate the
merger of equals by developing a suggested appropriate exchange ratio. A
detailed discussion of Ryan, Beck's analysis for this engagement is in "Ryan,
Beck's Initial Analysis," above. In December 1998, when that engagement was
complete, after the exchange ratio was negotiated by the parties and with the
consent of Penn Laurel and Clearfield, Clearfield engaged Ryan, Beck to provide
a fairness opinion with respect to the merger. Ryan, Beck has had no other
investment banking relationship with either Penn Laurel or Clearfield.
With regard to Ryan, Beck's services with respect to facilitating the
merger, Clearfield and Penn Laurel each agreed to each pay Ryan, Beck a retainer
fee of $5,000 plus each company would pay Ryan, Beck an additional fee equal to
$15,000 at the time of the announcement of the transaction. In addition,
Clearfield and Penn Laurel have agreed to reimburse Ryan, Beck for its
reasonable out-of-pocket expenses, which expense cannot exceed $7,500 without
the prior consent of Clearfield or Penn Laurel. Ryan, Beck was paid all fees.
Clearfield and Penn Laurel also agreed to indemnify Ryan, Beck and certain
related persons against certain liabilities, including liabilities under federal
securities law, incurred in connection with its services, including the
determination of the exchange ratio. The amounts of Ryan, Beck's fees were
determined by negotiation between Ryan, Beck, Clearfield and Penn Laurel.
With regard to Ryan, Beck's services in connection with the merger,
Clearfield has agreed to pay Ryan, Beck a retainer fee of $7,500 plus an
additional fee equal to $17,500 upon delivery of the fairness opinion. In
addition, Clearfield has agreed to reimburse Ryan, Beck for its reasonable
out-of-pocket expenses, which expenses cannot exceed $7,500 without the prior
consent of Clearfield. Ryan, Beck was paid all fees. Clearfield has also agreed
to indemnify Ryan, Beck and certain related persons against certain liabilities,
including liabilities under federal securities law, incurred in connection with
its services, including the fairness opinion. The amounts of Ryan, Beck's fees
were determined by negotiation between Clearfield and Ryan, Beck.
Ryan, Beck is a market maker for both Penn Laurel's and Clearfield's common
stock. Ryan, Beck's research department does not cover either Penn Laurel or
Clearfield.
Penn Laurel Opinion Of Financial Advisor
Pursuant to an engagement letter dated December 10, 1998 and accepted on
December 15, 1998, the Penn Laurel Board of Directors retained Garland McPherson
to render financial advisory and investment banking services to Penn Laurel in
connection with the possible merger of Penn Laurel with Clearfield. According to
the terms of the engagement letter, Garland McPherson was not engaged to, and
did not,
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o solicit third party indications of interest in acquiring Penn Laurel;
or
o assist Penn Laurel in negotiating the terms of the proposed merger.
Garland McPherson, as part of its investment banking and bank consulting
business, engages in the valuation of financial institution securities for a
variety of purposes, including mergers and acquisitions, and the determination
of adequate consideration in merger and acquisition transactions. The Penn
Laurel Board selected Garland McPherson on the basis of its experience in and
knowledge of the banking industry and its ability to evaluate the fairness of
the transaction from a financial point of view. Garland McPherson issued its
fairness opinion on December 24, 1998. Garland McPherson updated the opinion on
the date of this proxy statement/prospectus. The updated opinion is attached as
Annex C. Garland McPherson acted exclusively for the Penn Laurel Board of
Directors in rendering its fairness opinion and has received fees from Penn
Laurel in rendering its fairness opinion and its services. There are no
other material relationships between Garland McPherson, its affiliates and
representatives and Penn Laurel or its affiliates.
The full text of the opinion is attached as Annex C to this joint proxy
statement/prospectus. We urge you to read the opinion in its entirety for a
description of the procedures followed, assumptions made, matters considered and
qualifications and limitations on the review undertaken by Garland McPherson. We
qualify the following summary of the opinion in its entirety by the full text of
the opinion. The exchange ratio was determined by negotiation between Penn
Laurel and Clearfield and was not determined by Garland McPherson.
In rendering the opinion, Garland McPherson:
o reviewed the historical financial performances, current financial
positions and general prospects of Penn Laurel and Clearfield;
o reviewed the agreement;
o reviewed the proxy statement/prospectus;
o reviewed and analyzed the stock market performance of Penn Laurel and
Clearfield;
o reviewed the respective history of dividends paid by the two
institutions;
o considered the terms and conditions of the proposed transaction as
compared with the terms and conditions of comparable bank mergers and
acquisitions;
o discussed the foregoing with various senior officers of Penn Laurel
and Clearfield as well as other matters it believed relevant to its
opinion; and
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o conducted other analyses, studies and investigations that it deemed
appropriate.
Garland McPherson relied, without independent verification, upon the
accuracy and completeness of all the financial and other information reviewed by
and discussed with it for purposes of its opinion. With respect to the Penn
Laurel and Clearfield financial forecasts reviewed in rendering its opinion,
Garland McPherson assumed that the financial forecasts were reasonably prepared
reflecting the best currently available estimates and judgments of the
respective managements as to the future financial performance of the companies.
Garland McPherson did not make an independent evaluation or appraisal of the
assets, including loans, or liabilities of Penn Laurel or Clearfield nor was it
furnished with any appraisal. Garland McPherson also did not independently
verify, and has relied on and assumed, the adequacy all allowances for loan
losses set forth in the balance sheets of Penn Laurel and of Clearfield and
that the allowances for loan losses comply with all applicable law, regulatory
policy and sound banking practice as of the date of the financial statements.
In connection with rendering the opinion, Garland McPherson performed a
variety of financial analyses. Garland McPherson used Clearfield's budgeted 1999
earnings of $2.0 million for the first year of financial projections and based
projected income for subsequent years on the premise that future earnings would
increase approximately $100,000 per year, which appeared reasonable given
historical results. Although the evaluation of the fairness, from a financial
point of view, of the transaction and of the consideration to be paid in the
transaction was to some extent a subjective one based on the experience and
judgment of Garland McPherson and not merely the result of mathematical analysis
of financial data, Garland McPherson principally relied on the financial
evaluation methodologies summarized below to reach its determination. Garland
McPherson believes its analyses must be considered as a whole and that selecting
portions of the analyses and factors considered by Garland McPherson without
considering all the analyses and factors could create an incomplete view of the
process underlying Garland McPherson's opinion. In its analysis, Garland
McPherson made numerous assumptions with respect to business, market, monetary
and economic conditions, industry performance and other matters, the attainment
which are beyond Penn Laurel's and Clearfield's control. Any estimates contained
in Garland McPherson's analyses are not necessarily indicative of future results
or values, which may be significantly more or less favorable then the estimates.
A summary of selective analyses prepared and analyzed by Garland McPherson
follows.
Comparable Company Analysis. Garland McPherson compared selected financial
and operating data for Penn Laurel with those of Clearfield and a peer group
consisting of all FDIC insured commercial banking institutions with assets
between $100 and $300 million with three or more banking offices located in a
non-metropolitan area. This data includes, but was not limited to:
o return on average assets;
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o return on average equity;
o certain capital adequacy ratios; and
o certain asset quality ratios.
Garland McPherson excluded securities gains and items of non-recurring nature in
computing profitability ratios. The analysis is set forth in tabular form,
below.
COMPARABLE COMPANY ANALYSIS
Clearfield Penn Laurel Peers
---------- ----------- -----
Return on Average Assets 1.1% 1.0% 1.3%
Return on Average Equity 9.8% 9.2% 13.2%
Leverage Ratio 10.8% 10.6% 9.4%
Non-performing Loan/Total Loans 0.7% 0.3% 0.9%
Loan Loss Reserve/Nonaccrual Loans 151% 1251% 248%
Stock Trading History. Garland McPherson reviewed the history of the
trading price and volume of Penn Laurel and Clearfield common stock. Garland
McPherson noted that the trading volume of each institution is limited and that,
accordingly, there could be no assurance that their trading prices reflect the
true underlying value of their respective organizations.
Analysis of Key Valuation Indices. Garland McPherson computed the tangible
book value multiples and price/earnings for a sample group of selected
Pennsylvania super community banking institutions. As a preliminary step in
computing price/earnings ratios for these institutions, Garland McPherson
adjusted earnings to eliminate the effect of securities gains and non-recurring
items based on data provided by SNL Securities, a nationally recognized company.
Multiplying the median tangible book value multiple of the sample group by the
tangible book values of Penn Laurel and Clearfield implied a value of $92.51 per
share for Penn Laurel and $81.54 for Clearfield. Multiplying the median price
earnings ratio per share of the sample group by the relevant financial data for
Penn Laurel and Clearfield indicates values of $59.81 and $58.67.
Discounted Dividend Analysis. Using discounted dividend analysis, Garland
McPherson estimated the present value of the future dividend streams that Penn
Laurel could produce over a 5-year period under three earnings growth scenarios.
Garland McPherson premised the moderate scenario on earnings per share
increasing from $3.64 to $4.95 over a five-year period based on estimates by
Penn Laurel's management. They premised the optimistic scenario on earnings per
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share exceeding the moderate scenario by 5% in all years. The conservative
scenario assumes earnings per share fall short of the moderate scenario by 5%.
Garland McPherson also estimated the terminal value for Penn Laurel by applying
an earnings multiple of eighteen. The dividend streams and terminal value were
discounted to determine the present value using discount rates ranging from 9.0%
to 11.0%. The discounted dividend analysis indicated a range of per share values
from $55.38 to $66.84.
Garland McPherson also used discounted dividend analysis to estimate the
present value of the future dividend streams that Clearfield could produce over
a 5-year period under three growth scenarios. Garland McPherson premised the
moderate scenario on earnings per share increasing from $3.47 to $4.17 over a
5-year period based on estimates by Clearfield's management. They premised the
optimistic scenario on earnings per share exceeding the moderate scenario by 5%
in all years. The conservative scenario assumes earnings per share fall short of
the moderate scenario by 5%. The discounted dividend analysis indicated a range
of per share values from $49.61 to $59.72.
Pro Forma Merger Analysis. Garland McPherson analyzed, using projections
based on discussions with management of Penn Laurel and Clearfield, certain pro
forma effects resulting from the transaction. The analysis examined the
projected impact on earnings per share, including management's estimates of
transaction related savings, and the book value per share of Clearfield. In
computing pro forma combined earnings per share, Garland McPherson incorporated
Ryan Beck's estimate of merger economies, which appear reasonable to Garland
McPherson. While the combination is dilutive to Penn Laurel shareholders in
terms of book value per share, pro forma earnings per share increase 7.6% and
dividends per share increase 20.7%.
Garland McPherson applied a price/earnings ratio of 18.0 to the pro forma
combined earnings per share, which produced an implied value of $78.58 per
share. This compares to a value of $59.78 indicated by the price/earnings
approach for Penn Laurel on a stand-alone basis. The indicated value on a pro
forma combined basis is significantly higher than that on a stand-alone basis,
providing evidence that the exchange ratio is fair to Penn Laurel shareholders.
Using discounted dividend analysis, Garland McPherson estimated the present
value of the future dividend streams that the pro forma combined entity could
produce over a 5 year period under the moderate earnings growth scenario. The
discounted dividend analysis indicated a range of per share values from $66.40
to $72.35. This compares to a range of discounted cash flow values of $58.33 to
$63.66 per share for Penn Laurel on a stand-alone basis under the moderate
earnings growth scenario. The range of values on a pro forma combined basis are
significantly higher than those on a stand-alone basis, providing evidence that
the exchange ratio is fair to Penn Laurel shareholders.
In reaching its opinion as to fairness, Garland McPherson did not assign a
greater significance to any of the analyses. As a result of its consideration of
all factors present and all
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analyses performed, Garland McPherson reached the conclusion, and opines, that
the consideration, as set forth in the agreement, is fair, from a financial
point of view, to holders of Penn Laurel's securities.
In connection with delivering the updated Garland McPherson opinion,
included in Annex C, Garland McPherson updated certain of its analyses and
reviewed the assumptions on which the analyses were based and the factors
considered.
In delivering its opinion, Garland McPherson assumed that, in the course of
obtaining the necessary regulatory and governmental approvals for the
transaction, no restrictions will be imposed on Penn Laurel or Clearfield that
would have a material adverse affect on the contemplated benefits of the
transaction. Garland McPherson also assumed that no change in applicable law or
regulation would occur that would cause a material adverse change in the
prospects of operations of Clearfield after the effective date of the
transaction. Pursuant to the terms of the engagement letter, Penn Laurel has
paid Garland McPherson $25,000 and has agreed to reimburse Garland McPherson for
its reasonable out-of-pocket expenses. Whether or not the merger is consummated,
Penn Laurel has agreed to indemnify Garland McPherson and certain related
persons against certain liabilities relating to or arising out of its
engagement.
The full text of the Garland McPherson opinion, as of the date of this
proxy statement/prospectus, which sets forth assumptions made and matters
considered, is attached as Annex C to this proxy statement/prospectus. We urge
you to read the opinion in its entirety. Garland McPherson's opinion is directed
only to the consideration to be received by shareholders in the transaction and
does not constitute a recommendation as to how a shareholder should vote at the
meeting.
INFORMATION ABOUT THE MERGER
Dissenters' Rights
General. Under the Pennsylvania Banking Code of 1965, which directs that
dissenter's rights are governed by the Pennsylvania Business Corporation Law of
1988, shareholders of Clearfield common stock, have the right to dissent from
the merger and to obtain payment of the "fair value" of their shares in the
event we complete the merger. The Pennsylvania Business Corporation Law of 1988
also grants shareholders of Penn Laurel the right to dissent from the
transaction and receive the "fair value" of their shares.
If you are a shareholder of Clearfield or Penn Laurel and you contemplate
exercising your right to dissent, we urge you to read carefully the provisions
of Subchapter D of Chapter 15 of the Pennsylvania Business Corporation Law of
1988, which is attached to this proxy statement/prospectus as Annex C. A
discussion of the provisions of the statute is included here. The discussion
describes the steps that you must take if you want to exercise your right to
dissent. You should read this summary and the full text of the law.
Before the day of the shareholders meeting, send any written notice or
demand, required concerning your exercise of dissenters' rights to William A.
Shiner, Senior Vice President- Lending and Secretary, Clearfield Bank & Trust
Company, 11 North Second Street, Post Office Box 171, Clearfield, Pennsylvania
16830-0171 or to Janice E. Kephart, Secretary, Penn Laurel Financial Corp., 434
State Street, Post Office Box 29, Curwensville, Pennsylvania 16833-0029.
Fair Value. The term "fair value" means the value of a share of Clearfield
or, if you are a Penn Laurel shareholder, Penn Laurel, common stock immediately
before the day of the merger, taking into account all relevant factors, but
excluding any appreciation or depreciation in anticipation of the merger.
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Notice of Intention to Dissent. If you wish to dissent, you must:
o file a written notice of intention to demand payment of the fair value
of your shares if the merger is effected with Clearfield or Penn
Laurel, prior to the vote of shareholders on the merger at the
meeting;
o make no change in your beneficial ownership of stock from the date you
give notice through the day of the merger; and
o not vote your stock for approval of the agreement.
Neither a proxy nor a vote against approval of the merger satisfies the
necessary written notice of intention to dissent.
Notice to Demand Payment. If the merger is approved by the required vote of
shareholders, Clearfield or Penn Laurel will mail a notice to all dissenters who
gave due notice of intention to demand payment and who did not vote for approval
of the agreement. The notice will state where and when you must deliver a
written demand for payment and where you must deposit certificates for stock in
order to obtain payment. The notice will include a form for demanding payment
and a copy of the law. The time set for receipt of the demand for payment and
deposit of stock certificates will be not less than 30 days from the date of
mailing of the notice.
Failure to Comply with Notice to Demand Payment, etc. You must take each
step in the indicated order and in strict compliance with the statute to keep
your dissenters' rights. If you fail to follow the steps, you will lose your
right to dissent and you will receive 0.97 shares of Penn Laurel common stock
for each share of Clearfield common stock that you hold or, if you are a Penn
Laurel shareholder, you will continue to hold Penn Laurel common stock after the
merger.
Payment of Fair Value of Shares. Promptly after the merger, or upon timely
receipt of demand for payment if the merger already has taken place, Penn Laurel
will send dissenters, who have deposited their stock certificates, the amount
that Penn Laurel estimates to be the fair value of the stock. The remittance or
notice will be accompanied by:
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o a closing balance sheet and statement of income of Clearfield or Penn
Laurel for a fiscal year ending not more than 16 months before the
date of remittance or notice together with the latest available
interim financial statements;
o a statement of Penn Laurel's estimate of the fair value of the
Clearfield common stock or Penn Laurel common stock; and
o a notice of the right of the dissenter to demand supplemental payment,
accompanied by a copy of the law.
Estimate by Dissenter of Fair Value of Shares. If a dissenter believes that
the amount stated or remitted by Penn Laurel is less than the fair value of the
stock, the dissenter may send an estimate of the fair value of the stock to Penn
Laurel. If Penn Laurel remits payment of estimated value of a dissenter's stock
and the dissenter does not file his or her own estimate within 30 days after the
mailing by Penn Laurel of its remittance, the dissenter will be entitled to no
more than the amount remitted by Penn Laurel.
Valuation Proceeding. If any demands for payment remain unsettled within 60
days after the latest to occur of:
o the merger;
o timely receipt by Clearfield or Penn Laurel, as the case may be, of
any demands for payment; or
o timely receipt by Clearfield or Penn Laurel, as the case may be, of
any estimates by dissenters of the fair value,
then, Penn Laurel may file an application, in the Court of Common Pleas of
Clearfield County, requesting that the court determine the fair value of the
stock. If this happens, all dissenters, no matter where they reside, whose
demands have not been settled, shall be made parties to the proceeding. In
addition, a copy of the application will be delivered to each dissenter.
If Penn Laurel fails to file the application, then any dissenter, on behalf
of all dissenters who have made a demand and who have not settled their claim
against Penn Laurel, may file an application in the name of Penn Laurel at any
time within the 30-day period after the expiration of the 60-day period and
request that the Clearfield County Court determine the fair value of the shares.
The fair value determined by the Clearfield County Court may, but need not,
equal the dissenters' estimates of fair value. If no dissenter files an
application, then each dissenter entitled to do so shall be paid Penn Laurel's
estimates of the fair value of the common stock and no more, and may bring an
action to recover any amount not previously remitted, plus interest at a rate
the Clearfield County Court finds fair and equitable.
Penn Laurel intends to negotiate in good faith with any dissenting
shareholders. If, after negotiation, a claim cannot be settled, then Penn Laurel
intends to file an application requesting that the fair value of the common
stock be determined by the Clearfield County Court.
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Costs and Expenses. The costs and expenses of any valuation proceedings in
the Clearfield County Court, including the reasonable compensation and expenses
of any appraiser appointed by the Court to recommend a decision on the issue of
fair value, will be determined by the Court and assessed against Penn Laurel
except that any part of the costs and expenses may be apportioned and assessed
by the Court against all or any of the dissenters who are parties and whose
action in demanding supplemental payment the Court finds to be dilatory,
obdurate, arbitrary, vexatious or in bad faith.
Terms of the Merger
We discuss the material terms of the merger below. Our description is not
complete. We qualify the discussion in its entirety by reference to the
agreement, a copy of which is attached as Annex A to this proxy
statement/prospectus. We urge you to read the agreement.
Effect of the Merger. CSB Bank will merge into Clearfield. CSB Bank will
cease to exist. Clearfield plans to change its name to "Penn Laurel Bank & Trust
Company," and continue business as a wholly owned subsidiary of Penn Laurel.
Exchange of Shares. On the day of the merger, each outstanding share of
Clearfield common stock will become a right to receive 0.97 shares of Penn
Laurel common stock, subject to adjustment for certain stock dividends, stock
splits and similar transactions.
Penn Laurel will not issue fractional shares of common stock in the merger.
Each former shareholder of Clearfield will receive cash in an amount equal to
the fair market value of any fractional share interest.
Penn Laurel and Clearfield anticipate that the merger will occur during the
third or fourth quarter of 1999, assuming no difficulties are encountered in
obtaining the required regulatory approvals and shareholder approval, and all
other conditions to closing are satisfied without unexpected delay. If for any
reason, however, the merger does not occur by October 31, 1999, and the parties
have not agreed otherwise prior to that date, the agreement will terminate
automatically. See, "Business Pending the Merger -- Conditions, Amendment and
Termination" for a discussion of the various termination provisions.
Following the merger, former shareholders of Clearfield will be required to
surrender their Clearfield common stock certificates to Penn Laurel. Each
Clearfield shareholder will receive detailed instructions concerning the
procedure for surrendering the certificates. Upon proper surrender of the
certificates, each former shareholder of Clearfield will receive a stock
certificate representing the number of whole shares of Penn Laurel common stock
into which the shares of Clearfield common stock were converted. Each
shareholder will also receive a check in the amount of any cash to which he or
she is entitled instead of a fractional share. Shareholders of Clearfield should
not surrender their Clearfield common stock certificates for exchange until they
receive written instructions to do so.
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Following the merger and until properly requested and surrendered, each
Clearfield common stock certificate will be deemed for all corporate purposes to
represent the number of whole shares of Penn Laurel common stock that the holder
would be entitled to receive upon its surrender. However, Penn Laurel, at its
option, may withhold dividends payable after the merger to any former
shareholder of Clearfield who has received written instructions from Penn Laurel
but has not surrendered Clearfield stock certificates. Penn Laurel will pay any
dividends withheld, without interest, to former shareholders of Clearfield upon
the proper surrender of the Clearfield common stock certificates.
Clearfield shareholders must surrender all Clearfield stock certificates to
Penn Laurel within two years after the merger. In the event that any former
shareholder of Clearfield does not properly surrender his or her certificates
within that time, Penn Laurel may sell the shares of Penn Laurel common stock
that would otherwise have been issued and hold the net proceeds of the sale,
together with the cash (if any) to which the shareholder is entitled instead of
the issuance of a fractional share and any previously accrued and unpaid
dividends, in a non-interest bearing account for the shareholder's benefit.
After the sale, the former Clearfield shareholder's sole right is the right to
collect the net proceeds, cash and accumulated dividends. Subject to laws of
escheat, the net proceeds, cash and accumulated dividends will be paid to the
former shareholder of Clearfield, without interest, upon proper surrender of the
Clearfield stock certificates.
Business Pending the Merger
Clearfield and Penn Laurel agreed to conduct business in the usual, regular
and ordinary course, consistent with prudent business judgment, pending the
merger. Among other things, they will:
o not amend their Articles of Incorporation or Bylaws;
o only pay regular quarterly cash dividends in amounts and on dates
consistent with past practice;
o not authorize, purchase, issue or sell any shares of common stock or
other equity or securities or any securities convertible into
common stock of Clearfield or Penn Laurel;
o not change the presently outstanding number of shares or declare or
effect any capitalization, reclassification, stock dividend, stock
split or like change in capitalization;
o not change any method, practice or principle of accounting except as
may be required by generally accepted accounting principles or any
applicable regulator;
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o not make any loan or other credit facility commitment in excess of
$400,000 (including without limitation, lines of credit and letters of
credit) to any affiliate or compromise, expand, renew or modify any
such outstanding commitment;
o not enter into any swap or similar commitment, agreement or
arrangement, which is not consistent with past practice and which
increases the credit or interest rate risks over the levels existing
at September 30, 1998;
o not enter into any derivative, cap or floor or similar commitment,
agreement or arrangement, except in the ordinary course of business
and consistent with past practices; and
o not sell, exchange or otherwise dispose of any investment securities
or loans that are held for sale, prior to scheduled maturity and other
then pursuant to policy agreed upon from time to time by the parties.
There have been no material contracts or other transactions between
Clearfield and Penn Laurel since the signing of the agreement, nor have there
been any material contracts, arrangements, relationships or transactions between
Clearfield and Penn Laurel during the past five years, other than in connection
with the agreement and as described in this proxy statement/prospectus.
Conditions, Amendment and Termination
The obligations of Clearfield and Penn Laurel to complete the merger are
subject to a number of conditions and contingencies. These are stated in the
agreement. The most significant of these conditions include:
o approval by the shareholders of Clearfield;
o approval by the shareholders of Penn Laurel;
o approval by the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation and the Pennsylvania Department
of Banking;
o receipt of a favorable opinion from Shumaker Williams, P.C. concerning
certain federal income tax consequences relating to the transaction;
o continued effectiveness of the Registration Statement containing this
proxy statement/prospectus;
o determination that the merger can be accounted for as a pooling of
interests for financial reporting purposes;
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o determination of compliance with all applicable federal and state
securities and anti-trust laws; and
o exercise by the dissenting shareholders of dissenter's rights, which,
when added to the fractional shares required to be purchased, would
require Penn Laurel to pay cash for less than 10% of the issued and
outstanding shares of Clearfield common stock.
In connection with the required regulatory approvals, Clearfield and Penn
Laurel have filed:
o a Notice with respect to the transaction with the Board of Governors
of the Federal Reserve System, on April 10, 1999, pursuant to Section
3(a)(3) of the Bank Holding Company Act, which the Federal Reserve
Bank of Philadelphia approved by letter dated May 19, 1999;
o an Application with the Pennsylvania Department of Banking pursuant to
Section 115 of the Pennsylvania Banking Code, on April 19, 1999, and
an Application to Merge on July 8, 1999;
o an Application for Merger with the FDIC on May 28, 1999; and
o an Application for Merger with the Pennsylvania Department of Banking,
on July 8, 1999.
By letter dated May 18, 1999, the Board of Governors approved the
notification. We await final action from the FDIC and The Pennsylvania
Department of Banking.
Any term or condition of the merger agreement may be waived by the party
that would benefit from the term at any time before the completion of the
transaction, whether before or after approval of the agreement by shareholders
of Clearfield and Penn Laurel. However, the parties may not adopt a change in
the amount of consideration to be received by the Clearfield shareholders unless
the shareholders of Clearfield and Penn Laurel approve the change. In addition,
if the parties waive the requirement that a tax opinion be delivered at closing
and the tax consequences to the Clearfield or Penn Laurel shareholders are
material, Clearfield and Penn Laurel would send revised materials to the
shareholders and solicit their approval.
One of the conditions to the consummation of the merger, the approval of
the FDIC, has not yet occurred and may not occur prior to October 31. If timely
approval is not received from the FDIC, the merger agreement would terminate
regardless of whether the shareholders have approved the merger, unless both
parties agree to extend the termination date. The parties have not agreed to do
so as of the date of this proxy statement/prospectus.
The merger agreement may be terminated at any time before the effective
date, whether before or after its approval and adoption by the shareholders of
Clearfield and Penn Laurel, by:
o agreement of all the parties;
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o unilateral action either party if a material breach by the other party
of any representation, warranty or covenant is not cured within 30
days or, through no fault of the terminating party, a condition
precedent to the terminating party's obligation to close the
transaction is not satisfied by October 31, 1999; or
o automatically, in the event of a failure to close the transaction by
October 31, 1999, unless extended by the parties, in writing, prior to
that date.
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Effective Date
The agreement provides that the merger of CSB Bank into Clearfield will
take place under the terms of an agreement and plan of merger. The agreement and
plan of merger is attached as Exhibit A to the merger agreement, which is
attached as Annex A to this proxy statement/prospectus.
The transaction will close at a time and place agreed upon by the parties,
within 30 days after:
o receipt of all regulatory approvals and expiration of any applicable
waiting periods;
o the lifting, discharge or dismissal of any stay of any governmental
approval or of any injunction against the transaction; and
o receipt of all shareholder approvals.
The agreement will automatically terminate and the transaction will be
canceled if all applicable conditions have not been satisfied by October 31,
1999, unless the parties have agreed prior to that date to extend the
termination date of the merger agreement.
Management and Operations Following the Merger
Following the merger, the Board of Directors of Penn Laurel and Penn Laurel
Bank & Trust will consist of all people who were members of the Boards of
Directors of Clearfield and of Penn Laurel on December 31, 1998, and Wesley M.
Weymers, except that one director from each board elected not to continue as a
director of his respective company after the 1999 Annual Meeting of Shareholders
and will not be on the board of Penn Laurel or Penn Laurel Bank & Trust. Mr.
William T. Davis of the Clearfield Board of Directors did not stand for
re-election due to his health and Mr. Henry A. Peterson of the Penn Laurel Board
of Directors reached the mandatory retirement age of 72. Neither Mr. Davis nor
Mr. Peterson will receive any severance or other payments as a result of their
departure from their respective Boards of Directors. In addition, Sherwood C.
Moody, a director and the President and Chief Executive Officer of Clearfield
resigned, effective June 25, 1999, to become President and Chief Executive
Officer of a savings bank in Maine. The Clearfield Board of Directors appointed
William E. Wood as President and Chief Executive Officer and as a director of
Clearfield. Mr. Wood will serve as an Executive Vice President and a director of
Penn Laurel and Penn Laurel Bank & Trust. The rest of the persons will serve as
directors until their successors are elected and qualified.
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In order for Penn Laurel Bank & Trust to accommodate 22 persons on its
Board of Directors, management intends to amend the articles of incorporation to
increase the permissible size of the Board of Directors to 25 members on the day
of the merger. Penn Laurel will also amend its bylaws to permit individuals over
age 72 to serve on the Board of Directors.
The following table lists the members of the Board of Directors of Penn
Laurel & Penn Laurel Bank & Trust following the merger, their ages, their
principal occupation for the past five years and the length of their service as
directors:
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<TABLE>
<CAPTION>
Principal Occupation
Age as of for Past Five Years and Director
Name May 1 Positions Held Since
- ---- --------- ----------------------- --------
<S> <C> <C> <C>
George L. Beard 63 Retired; 1989
Director of Clearfield
William L. Bertram 66 Chairman of the 1972
Clearfield Board
Larry W. Brubaker 63 President and CEO 1986
of Penn Laurel
D. Stephen Butler 56 President, Butler Trucking; 1985
Director of Clearfield
Robert W. Dotts 75 President, Dotts Motor 1956
Company; Director of
Clearfield
Donald R. Fezell 60 Owner, Fezell Enterprise 1996
I, II, III; Director of
Penn Laurel
Guy A. Graham 58 President, Clearfield 1990
Foundation; Director of
Penn Laurel
Craig L. Hile 49 Vice President, Bloom 1986
Insurance; Director of
Clearfield
Frank J. Hoffman, Jr. 79 Chairman of the Board of 1990
Penn Laurel
Barbara J. Hugney-Shope 59 Attorney-at-law; Director 1989
of Clearfield
Robert M. Kurz, Jr. 66 President, Chairman and 1962
CEO, Kurz Bros.;
Director of Clearfield
Joseph P. Leyo 64 President, Leyo's Inc.; 1986
Director of Penn Laurel
Richard L. Lininger 71 Retired; 1986
Director of Penn Laurel
Michael R. Lytle 49 Commissioner; 1990
Director of Clearfield
</TABLE>
-62-
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Age as of for Past Five Years and Director
Name May 1 Positions Held Since
- ---- --------- ----------------------- --------
<S> <C> <C> <C>
Laurance B. Seaman 52 Attorney-at-Law, Gates 1986
& Seaman; Director of
Penn Laurel
Joseph A. Shaw 68 Retired; 1986
Director of Penn Laurel
Darrell G. Spencer 71 Director, Hepburnia Coal 1986
Co., Inc.;
Partner, Spencer Land Co.;
Director of Penn Laurel
Ray S. Walker 87 President, Walker Foundation; 1962
Director of Clearfield
Wesley M. Weymers 41 Director of Penn Laurel 1994
and President and CEO of
CSB Bank since January,
1999; prior thereto, Vice
President of Penn Laurel
Richard A. Wilkinson 64 Auto Dealer, Wilkinson's 1986
Subaru, Inc.;
Director of Penn Laurel
William E. Wood 51 President, CEO and 1997
Director of Clearfield
since June, 1999; prior
thereto, Assistant Vice
President and Commercial
Loan Officer for Clearfield
from 1997; prior thereto,
Senior Vice President U.S.
Bank and investment
representative at Paine Webber
H. Rembrandt Woolridge 85 President, Moshannon 1962
Falls Mining;
Director of Clearfield
</TABLE>
Messrs. Bertram, Brubaker, Wood and Weymers will serve as executive
officers of Penn Laurel and Penn Laurel Bank & Trust. William L. Bertram will be
Chairman of the Board of Directors of Penn Laurel and of Penn Laurel Bank &
Trust. Larry W. Brubaker will be President
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<PAGE>
and Chief Executive Officer of Penn Laurel and of Penn Laurel Bank & Trust.
Messrs. Wood and Weymers will serve as Executive Vice Presidents.
Mr. Brubaker, entered into an employment agreement with Penn Laurel in
connection with the transaction. Mr. Bertram entered into a consulting agreement
with Penn Laurel and Penn Laurel Bank & Trust Company. The agreements are
effective on the date of merger.
These agreements will replace any employment or consulting agreements
existing with Penn Laurel or Clearfield on the day of the merger. Mr. Brubaker's
agreement is for a term of three years with automatic renewals for one year
terms. His salary is $143,688 per year. If Mr. Brubaker is terminated for cause,
all payments and benefits under the agreement cease. If Mr. Brubaker is
terminated without cause, or he resigns for good reason, he will receive the
greater of 2.99 times his compensation or his compensation due for the remainder
of the employment agreement. This benefit is payable in 36 equal monthly
installments. Mr. Brubaker would also receive health and welfare benefits for 36
months subsequent to termination. The agreement contains a "change of control"
clause, which provides for a severance allowance, as defined in the agreement,
as 2.99 times his compensation, payable in 36 monthly installments and including
health and welfare benefits for 36 months. If Mr. Brubaker is disabled under the
terms of the agreement, he will receive 70% his compensation until he returns to
work, reaches age 65, dies or his employment ends.
Messrs. Wood and Weymers also entered into employment agreements with Penn
Laurel and Penn Laurel Bank & Trust Company. The terms of their agreements are
the same as those of Mr. Brubaker's except that:
o their annual salary is $101,004 per year, and
o their termination without cause provision provides for the greater of
the agreed upon compensation due for the remainder of the term of the
agreement or one times their compensation payable in 12 equal monthly
installments, with health and welfare benefits payable for 12 months.
Mr. Bertram's agreement:
o has a 3 year term;
o provides for compensation to Mr. Bertram of $20,500 per year, for 2
years for services rendered;
o contemplates that Mr. Bertram will act as Chairman of the Board of
Directors of Penn Laurel and Penn Laurel Bank & Trust for 2 years;
-64-
<PAGE>
o includes a covenant not to compete under which Mr. Bertram will
receive $33,500 in each of the 3 years of the agreement; and
o does not include any "change of control" clause.
Estimates of Future Operations
Ryan, Beck, as part of its engagement, was asked to estimate the potential
cost savings that would result from a combination of Clearfield and Penn Laurel.
Ryan, Beck had oral discussions with Penn Laurel's management regarding the
future performance of Penn Laurel for the year ending December 31, 1999. These
discussions were based on assumptions that Penn Laurel's management believed
reasonable at the time relating to the interest rate environment and to Penn
Laurel's loan portfolio growth, asset growth and deposit growth. Penn Laurel's
management's belief as to the reasonableness of its assumptions was based on
Penn Laurel's history of operations. Penn Laurel's management indicated to Ryan,
Beck that it believed that Penn Laurel's net income in 1999 would be
approximately $1.25 million, which excluded approximately $250,000 in pre-tax
security gains and excluded the expenses related to the opening of the St.
Mary's branch office.
The expectations of future performance made by Penn Laurel did not give
effect to the merger or to merger related expenses. These expectations should be
read together with the unaudited pro forma condensed combined consolidated
financial information contained in this joint proxy statement/prospectus. The
expectations of future performance made by Penn Laurel were not prepared with a
view to public disclosure. The expectations are included in this joint proxy
statement/prospectus solely because the information was discussed by Penn
Laurel. Penn Laurel's independent auditors have not examined the expectations.
The expectations as to future operations are forward-looking statements and
Penn Laurel assumes no responsibility for the accuracy of the expectations.
There can be no assurance that the expectations will be realized. The
expectations are inherently subject to significant economic and competitive
risks and uncertainties many of which are beyond Penn Laurel's control. These
risks and uncertainties could cause actual results or performance to differ
materially from our expectations as to future performance. We have described
some of the risks and uncertainties that could materially impact our respective
businesses and our expectations as to future performance under the heading
"Forward Looking Statements."
Ryan, Beck's analysis estimated that potential cost savings could range
from 15% to 19% of pro forma combined non-interest expenses and included the
following:
o Branch consolidations
o Overlapping branches are located in Clearfield, Curwensville and
DuBois
o Executive and administrative personnel
o Includes the elimination of duplicate non-branch personnel
-65-
<PAGE>
o Non-Personnel related expense savings
o Includes accounting, legal and certain marketing expenses
A summary of the total potential savings is presented in the table below:
Low High
---------- ----------
Branch Savings $ 683,858 to $ 738,359
Non-Branch Salaries and Benefits Savings 522,876 to 593,741
Non-Personnel Savings 304,500 to 304,500
---------- ----------
Total Savings $1,511,234 to $1,636,600
========== ==========
Management of Clearfield and Penn Laurel reviewed the cost savings and
determined that they were reasonable and achievable. Each company's belief that
cost savings are achievable is a forward-looking statement that is inherently
uncertain. We cannot assure that these potential cost savings or any cost
savings or synergies will be achieved as a result of the merger or as to the
timing of any actual cost savings that may be achieved. Any actual cost savings
will depend on future expense levels and operating results and general industry,
regulatory and business conditions. Many of these events will be beyond the
control of the combined company.
Federal Income Tax Consequences
The following discussion summarizes the anticipated material federal income
tax consequences of the merger. These are the material Federal tax consequences
of the merger, if the merger were to take place on the date of this proxy
statement/prospectus. This is only a general description of the federal income
tax consequences of the merger. We attach the opinion of Shumaker Williams, P.C.
as to the income tax consequences of the merger if the merger had taken place on
the date of this proxy statement/prospectus as Annex G. We recommend that you
read the opinion. However, the opinion does not consider the particular facts
and circumstances of your situation. We recommend that you consult your own tax
advisors as to particular facts and circumstances that may be unique to you and
not common to shareholders as a whole and also as to any estate, gift, state,
local or foreign tax consequences arising out of the transaction and/or any sale
of Penn Laurel common stock received in the merger. We do not anticipate that
the law will change before closing.
The following is a summary of the opinion of Shumaker Williams, P.C.:
o the merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, and Clearfield
and Penn Laurel will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code;
o neither Clearfield nor Penn Laurel will recognize any gain or loss by
reason of the merger;
o except for cash received in lieu of fractional shares, no income, gain
or loss generally will be recognized by Clearfield shareholders on the
exchange of their shares of Clearfield common stock for shares of Penn
Laurel common stock;
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<PAGE>
o the basis of the Penn Laurel common stock to be received by the
Clearfield shareholders generally will be, in each instance, the same
as the basis of the Clearfield common stock surrendered in exchange
therefor;
o the holding period of the Penn Laurel common stock to be received by
the shareholders of Clearfield, generally, will include the period
during which the surrendered Clearfield common stock was held,
provided that the Clearfield common stock surrendered is held as a
capital asset on the date of the exchange pursuant to the merger; and
o the payment of cash to the Clearfield shareholders in lieu of their
fractional share interests of Penn Laurel common stock generally will
be treated as having been received as a distribution in full payment
in exchange for the fractional share interest of Penn Laurel common
stock which the shareholders would otherwise be entitled to receive
and will qualify as capital gain or loss.
The obligations of the parties to close the transaction are conditioned
upon receipt of a ruling from the Internal Revenue Service or an opinion of
counsel substantially to the effect that the federal income tax consequences of
the merger are as summarized in this section. Unlike a ruling from the IRS, an
opinion of counsel would have no binding effect on the IRS. The ruling or
opinion will not deal with all of the tax considerations that may be relevant to
particular Clearfield shareholders, such as shareholders who are dealers in
securities, foreign persons, tax-exempt entities or the impact of the
alternative minimum tax. The ruling or opinion will not address any state, local
or foreign tax considerations, any federal estate, gift, employment, excise or
other non-income tax considerations.
Investment Agreement
Concurrently with the execution and delivery of the agreement, Clearfield
and Penn Laurel each entered into an investment agreement. The investment
agreements are attached as exhibits to the agreement which is attached to this
proxy statement/prospectus as Annex A. These agreements protect the parties from
interference from a third party during the period of time between execution of
the agreement and merger of the companies.
-67-
<PAGE>
As a condition of the agreement and as an inducement to entering the
agreement, Clearfield and Penn Laurel each entered into an investment agreement,
dated as of December 31, 1998, pursuant to which:
o Penn Laurel granted Clearfield a warrant to purchase up to 20,815
shares of Penn Laurel common stock at a purchase price of $44.00 per
share; and
o Clearfield granted Penn Laurel a warrant to purchase up to 40,791
shares of Clearfield common stock at $52.00 per share.
The terms of the investment agreements are identical in all material respects
other than with respect to the shares that may be purchased and the exercise
prices.
The warrants are exercisable upon the occurrence of the following events:
o The issuer's willful breach of the agreement that would permit the
warrantholder to terminate the agreement;
o The issuer's shareholders failing to approve the merger after an
announcement by a third party of an offer or proposal to acquire 15%
or more of the issuer's common stock, to merge with the issuer or to
purchase substantially all of the issuer's assets;
o A third party's acquisition of 15% or more of the issuer's common
stock exclusive of any of the issuer's shares of common stock sold to
the third party, directly or indirectly, by the warrantholder;
o A third party beginning a tender or exchange offer for the issuer's
common stock that would result in the third party acquiring or having
the right to acquire 15% or more of the issuer's common stock;
o Application by a third party with a bank regulatory authority to begin
a tender or exchange offer for the issuer's common stock that would
result in the third party acquiring or having the right to acquire 15%
or more of the issuer's common stock; or
o A third party's entrance into an agreement with the issuer to acquire
the issuer by any method.
The parties may exercise all or only some of their warrants.
-68-
<PAGE>
Redemption rights are also granted to the warrantholder. These rights
permit the warrantholder to require the company to redeem some or all of the
shares acquired by the warrantholder upon exercise of the warrant at a
redemption price equal to:
o 110% of the exercise price;
o the highest price paid or agreed to be paid for a share of stock by an
acquiring person, as defined; and
o in the event of sale of all or substantially all of the company's
assets, the sum of the price paid for the assets and the current
market value the remaining assets of the company, as determined by a
recognized banking firm, divided by the number of shares of common
stock then outstanding.
The redemption rights are exercisable upon the occurrence of either of the
following events:
o a third party acquiring 50% or more of the Clearfield common stock
exclusive of any shares resulting from the exercise of the warrant or
shares of Clearfield common stock purchased from Penn Laurel; or
o a third party entering into an agreement with Clearfield to acquire
Clearfield by any method.
In addition, the investment agreements provide for adjustment of the
warrants in the event of a change in the common stock of the particular issuer
by reason of a stock dividend, stock split, recapitalization, combination,
conversion, division, or exchange of shares. In each case, the number and kind
of shares issuable under the applicable warrant is adjusted appropriately.
Accounting Treatment
The agreement contemplates that the merger will be treated as a pooling of
interests for financial accounting purposes. This accounting treatment is
different from a purchase transaction. Under this accounting method, the assets
and liabilities of CSB Bank will be combined with Clearfield at their historical
recorded bases. Results of operations of Penn Laurel Bank & Trust will include
the results of both companies for the entire fiscal year in which the merger
occurs. The reported balance sheet amounts and results of operations of the
separate corporations for prior periods will be combined, reclassified and
conformed, as appropriate, to reflect the combined financial position and
results of operations for Penn Laurel Bank & Trust.
If Penn Laurel were required to purchase more than 10% of the outstanding
shares of Clearfield common stock for cash, due to the purchase of fractional
shares and the exercise of dissenters' rights by Clearfield shareholders, or if
other conditions arise that would prevent the
-69-
<PAGE>
merger from being treated as a pooling of interests for financial accounting
purposes, Clearfield and Penn Laurel have the right to terminate the agreement
and to cancel the merger.
Restriction on Resale of Stock Held By Affiliates
The shares of Penn Laurel common stock to be issued upon completion of the
merger will be registered with the Commission under the Securities Act.
Following the merger, former shareholders may freely resell or otherwise
transfer their shares, except those former shareholders who are deemed
"affiliates" of Clearfield, within the meaning of Commission Rules 144 and 145.
In general terms, any person who is an executive officer, director or 10%
shareholder of Clearfield at the time of the shareholders meeting may be deemed
to be an affiliate of Clearfield for purposes of Commission Rules 144 and 145.
This proxy statement/prospectus does not cover resales of shares of Penn Laurel
common stock to be issued to affiliates of Clearfield in connection with the
transaction.
Penn Laurel common stock received by persons who are deemed to be
affiliates of Clearfield may be resold only:
o in compliance with the provisions of Commission Rule 145(d);
o in compliance with the provisions of another applicable exemption from
the registration requirements of the Securities Act; or
o pursuant to an effective registration statement filed with the
Commission.
In general terms, Commission Rule 145(d) permits an affiliate of Clearfield to
sell shares of Penn Laurel common stock received by him or her in ordinary
brokerage transactions subject to certain limitations on the number of shares
that may be resold in any consecutive three month period. An affiliate of
Clearfield may not, as a general rule and subject to an exception in a case of
certain de minimis sales:
o sell any shares of Clearfield common stock during the 30-day period
immediately preceding the day of the merger; or
o sell any shares of Penn Laurel common stock received by him or her in
exchange for shares of Clearfield common stock until after the
publication of financial results covering at least 30 days of
post-merger combined operations.
The ability of affiliates to resell shares of Penn Laurel common stock
received in the transaction under Rule 144 or Rule 145 is subject to Penn
Laurel's having satisfied its Exchange Act reporting requirements, if any, for
specified periods prior to the time of sale. Affiliates are also permitted to
resell Penn Laurel common stock received in the transaction pursuant to an
effective registration statement under the Securities Act or another available
exemption from the Securities Act regulations requirements. This proxy
statement/prospectus does not cover any resales of Penn Laurel common stock
received by persons who may be deemed to be affiliates of Penn Laurel or
Clearfield.
-70-
<PAGE>
Each person who may be an affiliate of Clearfield is required, prior to the
closing, to provide Penn Laurel with a letter agreeing to abide by the
limitations imposed by the Commission regarding the sale or other disposition of
the shares of Penn Laurel common stock that the shareholder will receive in the
merger.
COMPARATIVE STOCK PRICES AND DIVIDENDS
AND RELATED SHAREHOLDER MATTERS
No Established Market for Shares
There is no established trading market for either company's common shares.
A review of the record of the trades for the shares of each company indicates
that for the period from January 4, 1998 through December 4, 1998 (47 weeks) no
trades were made in Clearfield common stock for 32 of the 47 weeks and no trades
were made in Penn Laurel common stock in 41 of the 47 weeks.
Common Stock of Clearfield
The last reported sale of Clearfield common stock as reported on the OTC
Bulletin Board before the record date was 400 shares at $49.00 per share on July
26, 1999. Clearfield common stock is quoted on the OTC Bulletin Board under the
symbol "CLFD." Clearfield common stock has historically traded on a very limited
basis in the over-the-counter market and is quoted and transactions are reported
on the OTC Bulletin Board and in privately negotiated transactions. The table
below shows, for the periods indicated, the high and low bid quotations for
Clearfield common stock as reported on the OTC Bulletin Board, and cash
dividends paid per share. The quotations in the table represent quotations
between dealers, do not include retail markups, markdowns or commissions, and
may not represent actual transactions. We have adjusted all information for
stock dividends and splits throughout the periods.
Cash Dividends
1999 High Low Paid Per Share
- ---- ------ ------ --------------
First Quarter $54.00 $51.50 $.31
Second Quarter 54.50 49.00 .32
Third Quarter .32*
Fourth Quarter
1998
- ----
First Quarter $52.25 $46.25 $.31
Second Quarter 53.00 52.20 .31
Third Quarter 54.75 53.00 .31
Fourth Quarter 55.50 54.25 .71
1997
- ----
First Quarter $39.50 $36.50 $.30
Second Quarter 42.00 38.50 .30
Third Quarter 44.88 40.00 .30
Fourth Quarter 46.75 42.75 .70
- ----------
* as of July 20, 1999
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<PAGE>
As of July 28, 1999, Clearfield common stock was held by approximately 458
holders of record. Clearfield has in the past paid regular quarterly dividends
to its shareholders on or about January 20, April 20, July 20 and October 20, of
each year. Clearfield, historically, has also paid a special dividend on
December 20 of each year.
Common Stock of Penn Laurel
The last reported sale of Penn Laurel common stock as reported on the OTC
Bulletin Board before the record date was 200 shares at $52.00 per share on July
19, 1999. Penn Laurel common stock is quoted on the OTC Bulletin Board under the
symbol "PELA." Penn Laurel common stock has historically traded on a very
limited basis in the over-the-counter market and is quoted and transactions are
reported on the OTC Bulletin Board and in privately negotiated transactions. The
table below shows, for the periods indicated, the high and low bid quotations
for Penn Laurel common stock as reported on the OTC Bulletin Board, and cash
dividends paid per share. The quotations in the table represent quotations
between dealers, do not include retail markups, markdowns or commissions, and
may not represent actual transactions.
Cash Dividends
1999 High Low Paid Per Share
- ---- ------ ------ --------------
First Quarter $59.50 $51.50 $.30
Second Quarter 59.50 53.00 .30
Third Quarter
Fourth Quarter
1998
- ----
First Quarter $41.00 $39.50 $.29
Second Quarter 41.25 40.50 .29
Third Quarter 44.25 44.25 .29
Fourth Quarter 46.25 45.25 .45
1997
- ----
First Quarter $31.38 $38.38 $.27
Second Quarter 36.25 31.63 .27
Third Quarter 38.00 37.00 .27
Fourth Quarter 39.00 38.00 .45
As of July 28, 1999, Penn Laurel common stock was held by approximately 327
holders of record. Penn Laurel Financial Corp. has in the past paid regular
quarterly cash dividends to its shareholders on or about January 1, April 1,
July 1 and October 1, of each year. Penn Laurel has also, historically, paid a
special dividend in the fourth quarter.
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<PAGE>
INFORMATION CONCERNING CLEARFIELD BANK & TRUST COMPANY
Information Concerning Clearfield
Clearfield engages in the general commercial and retail banking business.
The bank operates 6 banking offices in Clearfield County, Pennsylvania. The
Pennsylvania Department of Banking and the FDIC regulate the bank. The bank also
has a wholly owned subsidiary, Diamond Financial Services. Diamond Financial
Services is a Pennsylvania corporation that sells mutual funds and annuities.
The principal executive offices of Clearfield are located in Clearfield,
Pennsylvania.
Description of Business and Property
Below is a schedule of all Clearfield's properties, all of which are owned
by the bank.
Nature of Bank Office
or Facility Address Date Acquired
- --------------------- ------- -------------
Main Office 11 North Second Street June 18, 1903
Clearfield, PA 16830
Bridge Street Office Corners of North Second & July 16, 1960
Bridge Streets
Clearfield, PA 16830
Philipsburg Office Irvin Drive Extension August 23, 1993
Philipsburg, PA 16866
Curwensville Office 407 Walnut Street January 21, 1980
Curwensville, PA 16833
DuBois Office 91 Beaver Drive September 8, 1988
DuBois, PA 15801
Goldenrod Office 1935 Daisy Street March 7, 1997
Clearfield, PA 16830
Clearfield is a full service commercial bank and trust company that offers
a large range of commercial and retail banking services to its customers,
including personal and business checking, NOW accounts, commercial sweep
accounts, money market accounts, savings accounts, IRA accounts, and
certificates of deposit. The bank also offers credit cards, installment loans,
home equity loans, lines of credit, letters of credit, revolving credit,
commercial term and mortgage loans, first-time home buyer mortgages, as well as
residential and commercial construction loans.
-73-
<PAGE>
In addition, Clearfield provides debit cards, safe deposit boxes, traveler
checks, money orders, wire transfers of funds and direct deposits of social
security and payroll checks. The bank also provides credit card processing
services to local merchants and retailers and is a member of "MAC" system and
provides customers with access to this automated teller machine network.
In the event that loan requests may exceed Clearfield's lending limit to
any one customer, the bank seeks to arrange loans on a participation basis with
other financial institutions. The offering or continuation of the above
enumerated services are periodically evaluated.
Clearfield's Trust Department offers a full line of services such as
guardianships, personal trusts, estate planning, IRA and KEOGH plans, pension
and profit sharing plan administration and investment counseling.
Clearfield's wholly owned subsidiary, Diamond Financial Services, Inc.
offers nontraditional banking products such as fixed and variable rate
annuities, mutual funds and stock transactions.
Clearfield competes with other commercial banks and savings and loan
associations, most of which are larger than Clearfield. The bank also competes
with major regional banking and financial institutions headquartered elsewhere.
Clearfield generates the overwhelming majority of its deposit and loan volume
within its primary service area, i.e. Clearfield County, Pennsylvania. The
majority of the residents and business and employees within Clearfield's primary
service area are within driving time - 30 minutes from each banking office.
There are 37 offices of commercial banks headquartered or that have a presence
in the greater Clearfield area. The bank also competes with branch offices of
numerous banks and financial institutions that are headquartered elsewhere.
The primary service area constitutes the community delineated for
Clearfield's Community Reinvestment Act Statement that states the bank intends
to meet the credit needs of the entire local community. It is the bank's policy
to evaluate all applications for credit without regard to the applicant's race,
color, creed, sex, age or marital status.
Clearfield's primary service area includes a wide variety of residential
neighborhoods, commercial businesses, retail stores, industrial complexes and
service institutions. The Clearfield County area has a large number of
established businesses.
Employees
As of June 30, 1999, Clearfield had 88 full-time equivalent employees.
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<PAGE>
Legal Proceedings
The nature of the business of Clearfield generates a certain amount of
litigation involving matters in the ordinary course of business. In the opinion
of Clearfield's management, there are no proceedings pending to which Clearfield
is a party or to which its property is subject, which, if determined adversely
to the bank, would be material in relation to Clearfield's undivided profits or
financial condition, nor are there any proceedings pending, other than ordinary
routine litigation, incident to the business of Clearfield. In addition, no
material proceedings are pending or are known to be threatened or contemplated
against Clearfield by government authorities or others.
Dividends
Clearfield shareholders are entitled to receive the dividends when, as and
if declared by the Board of Directors out of legally available funds. Clearfield
has historically paid quarterly cash dividends to its shareholders on or about
January 20, April 20, July 20 and October 20 of each year, and has,
historically, paid a special dividend on December 20.
The ability of Clearfield to pay dividends to its shareholders is dependent
primarily upon the earnings and financial condition of the bank. Clearfield
expects to have funds available for the payment of dividends on common stock,
for the foreseeable future. These dividends are subject to certain statutory
limitations. In accordance with the regulatory restrictions, as of June 30,
1999, Clearfield had approximately $16,068,247 available for the payment of
dividends. The agreement permits Clearfield to make normal dividend payments
during 1999 to its shareholders, consistent with past practice.
Clearfield paid cash dividends of $1.64 per share in 1998, and $0.31 for
the first quarter and $0.32 for the second and third quarters of 1999.
Information about Beneficial Ownership of Significant Shareholders, Directors
and Executive Officers
The following table sets forth information, as of July 28, 1999, with
respect to the following beneficial owners of Clearfield common stock:
o each person who owns of record or who is known by the board of directors of
Clearfield to own more than 5% of its outstanding common stock; and
o each executive officer, each director and all executive officers and
directors as a group.
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<PAGE>
Clearfield determined beneficial ownership by applying the General Rules
and Regulations of the SEC, which state that a person may be credited with the
ownership of any common stock:
o owned by or for the person's spouse, minor children or any other
relative sharing the person's home;
o of which the person shares voting power, which includes the power to
vote or to direct the voting of the stock; and
o investment power, which includes the power to dispose or direct the
disposition of the stock, or has the right to acquire beneficial
ownership within 60 days after July 28, 1999, the record date of the
meeting.
Beneficial ownership may be disclaimed as to certain of the securities.
<TABLE>
<CAPTION>
Beneficial Ownership Table
Shares Percent of Outstanding
Name and Address of 5% Holder Beneficially Owned Common Stock Beneficially Owned
- ----------------------------- ------------------ -------------------------------
<S> <C> <C>
Cleartru Company 104,852(1) 18.18%
11 North Second Street
P.O. Box 171
Clearfield, PA 16830
Directors and Executive Officers
- --------------------------------
George L. Beard 10,015(2) 1.74%
William L. Bertram 6,000(3) 1.04%
D. Stephen Butler 5,500(4) 0.95%
Robert W. Dotts 1,100 0.19%
Craig L. Hile 1,100(5) 0.19%
Barbara J. Hugney-Shope 1,660 0.29%
Robert M. Kurtz, Jr. 8,630(6) 1.50%
Michael R. Lytle 10,075(7) 1.75%
Ray S. Walker 9,884 1.71%
William E. Wood -0- 0.00%
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<PAGE>
H. Rembrandt Woolridge 30,130(8) 5.22%
All directors and executive officers 84,764 14.70%
as a group (14 people)
</TABLE>
- ----------
(1) 101,262 shares of common stock beneficially owned by the bank are held by
the Bank's Trust and Security Department in its fiduciary capacity. The
Trust Department does not hold sole voting and disposition power over these
shares, except for sole voting power over 11,499 shares held by the trust
department on behalf of the bank's pension and profit sharing plans, the
bank's trust department intends to permit the shares over which it has
shared voting power to be voted by the other holder of the power. The trust
department intends to obtain the advice of an independent investment
adviser in voting the shares over which it has sole voting power. The
amount also includes 30,130 shares beneficially owned by Mr. & Mrs.
Woolridge.
(2) Includes 10,015 shares owned jointly by Mr. Beard and his spouse.
(3) Includes 3,700 shares owned individually by Mr. Bertram; 1,800 shares owned
individually by his spouse; and 500 shares under a trust agreement.
(4) Includes 2,000 shares owned individually by Mr. Butler; 1,000 shares owned
jointly with his spouse; and 2,500 shares owned by Butler Trucking Company
Profit Sharing Plan.
(5) Includes 100 shares owned jointly with his spouse and 1,000 shares owned by
Bloom Insurance Agency.
(6) Includes 7,630 shares owned individually and 1,000 shares owned by Kurtz
Bros.
(7) Includes 10,075 shares owned jointly with his spouse.
(8) Includes 8,130 shares held under a trust agreement for Mr. Woolridge and
22,000 shares held under a trust agreement for his spouse.
Executive Compensation
The following table sets forth information concerning the annual
compensation for services in all capacities to Clearfield for the fiscal years
ended December 31, 1998, 1997 and 1996 of the Chief Executive Officer at
December 31, 1998. There were no other executive officers of Clearfield whose
total annual salary and bonus exceeded $100,000.
<TABLE>
<CAPTION>
CLEARFIELD SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
---------------------------------------- ----------------------------------------------------
Awards Payout
------------------------ -----------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- -------------------------------------------------------------------------------------------------------------------------
Other All other
Annual Restricted Compen-
Compen- Stock Options sation ($)
Name and Salary Bonus sation Awards /SARs Payouts (1)(2)(3)(4)
Principal Position Year ($) ($) ($) ($) (#) ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sherwood C. Moody 1998 95,417 24,194
President and 1997 88,583 22,846
Chief Executive 1996 80,667 21,205
Officer(5)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes company's contributions to the Profit Sharing Plan of $14,313,
$13,288 and $12,100 for 1998, 1997 and 1996
(2) Includes Life Insurance Premiums of $1,287, $1,194 and $1,067 for 1998,
1997 and 1996
(3) Includes the payment of club dues in the amount of $727, $726 and $626 for
each of 1998, 1997 and 1996
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<PAGE>
(4) Includes company's contributions to the Defined Benefit Contribution Plan
of $7,867, $7,638 and $7,412 for 1998, 1997 and 1996.
(5) Mr. Moody resigned as President and Chief Executive Officer of Clearfield
effective June 25, 1999. William E. Wood presently serves in that position.
Defined Benefit Pension Plan
Clearfield has a defined benefit pension plan covering substantially all of
its employees. The benefits are based on years of service and employee's
compensation during the three highest consecutive years of employment.
Clearfield's funding policy is to contribute annually the maximum amount that
can be deducted for federal income tax purposes. Contributions are intended to
provide not only for benefits attributed to service date, but also for those
expected to be earned in the future.
Profit Sharing Plan
Clearfield employees become eligible to participate in the profit sharing
plan upon meeting the attained age and service requirements. The annual
contribution to the trust fund established under the plan is authorized by the
Board of Directors. The contribution was $271,134 in 1998, $244,255 in 1997 and
$212,325 in 1996.
Director Compensation
During 1998, Clearfield's Board of Director's held 25 meetings. Each
outside director receives a fee of $11,000 per year, payable in installments of
$2,750 each quarter. Each director is permitted 4 absences per year. Directors
quarterly installment payments are reduced by $417 for each meeting missed in
excess of 4. The bank also provides life and health insurance for directors. Mr.
Bertram currently receives $18,000 annually for his services as Chairman of the
Clearfield Board of Directors and $29,000 annually as compensation for his
covenant not to compete.
Loans
Clearfield grants loans and makes other credit available to the general
public. The bank structures the extensions of credit to meet the varying needs
of businesses, individuals, and institutional customers. The bank's loans
include mortgages, lines of credit, term loans, leases and letters of credit.
The interest income generated by loans comprises a major source of revenue for
the bank and also exposes Clearfield to potential losses upon borrower default.
To minimize loss, the bank follows strict loan underwriting and risk weighing
policies. While collateral continues to play an important part in lending
decisions, the bank places primary emphasis on borrowers' underlying ability to
pay. Clearfield, generally, confines its lending activity to customers who live
or are based in its primary trade area, Clearfield County and the contiguous
counties surrounding Clearfield County. By limiting lending activities to a
general geographic area, the bank's staff becomes more knowledgeable about local
market conditions and can make better credit risk assessments and, consequently,
more prudent lending decisions.
-78-
<PAGE>
Clearfield believes that this local knowledge, when combined with prudent
underwriting standards, overcomes the risks associated with the geographic
concentration of loans.
The bank does participate in loans with other financial institutions that
meet the terms and conditions under the bank's lending policy.
Description of Clearfield Common Stock
Clearfield is authorized to issue 617,600 shares of common stock of which
576,809 shares were issued and outstanding as of July 28, 1999.
Liquidation
In the event of liquidation, dissolution or winding up of the bank
shareholders are entitled to share ratably in all assets remaining after payment
of liabilities.
Anti-takeover Provisions
Clearfield's Articles of Incorporation and Bylaws, Pennsylvania's Banking
Code of 1965, as well as certain applicable provisions of Pennsylvania Business
Corporation Law of 1988, contain provisions that may be deemed to be
"anti-takeover" in nature.
For example Clearfield's Articles of Incorporation eliminate cumulative
voting. Cumulative voting permits a shareholder with a large minority holding of
common stock to elect one or more persons to the Board of Directors. Elimination
of cumulative voting prevents a minority shareholder from electing one or more
persons to the Board of Directors.
In addition, Clearfield's Bylaws require that nominations to the Board of
Directors must comply with extensive notice and information requirements. This
provision gives the Board of Directors advance warning of a possible proxy
contest enabling the Board to prepare to fight it.
The Pennsylvania Banking Code requires that at least 66 2/3% of the
outstanding shares approve a bank merger.
Clearfield elects directors for staggered terms of office (a classified
board). The Board of Directors believes that a classified board consisting of
three classes helps ensure continuity and stability of corporate leadership and
policy. In addition, a classified board will help moderate the pace of any
change in control of the Board of Directors by extending the time required to
elect a majority of the directors to at least two successive annual meetings.
However, since this extension of time also tends to discourage a tender offer or
takeover bid, this provision may also be deemed to be anti-takeover in nature.
In addition, a classified board makes it more difficult for a majority of the
shareholders to change the composition of the Board of Directors even though
this may be considered desirable by them.
-79-
<PAGE>
Clearfield's Articles of Incorporation and Bylaws contain an additional
anti-takeover provision that enables the Board of Directors to oppose a tender
offer on the basis of factors other than economic benefit. Based on the Board's
responsibilities to certain constituent groups, including Clearfield's
subsidiaries and the communities that they serve, the Board may consider factors
such as:
o the impact the acquisition of Clearfield would have on the community;
o the effect of the acquisition upon shareholders, employees,
depositors, suppliers and customers; and
o the reputation and business practices of the tender offeror.
Anti-takeover provisions may prolong the terms of the existing Board of
Directors giving management a veto power over certain acquisitions regardless of
whether the acquisition is desired by, or beneficial to, a majority of the
shareholders, assisting management in retaining its present position. Also, the
super-majority voting requirements of the Pennsylvania Banking Code can give the
holders of a minority of the bank's outstanding shares a veto power over any
merger of consolidation of Clearfield, even if management and/or a majority of
the shareholders believes the transaction to be desirable and beneficial.
Indemnification
Clearfield's bylaws provide for indemnification of its directors, officers,
employees and agents provided that the person seeking indemnification acted in a
manner that does not constitute self-dealing, willful misconduct or
recklessness.
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<PAGE>
INFORMATION CONCERNING PENN LAUREL FINANCIAL CORP.
Information Concerning Penn Laurel
Through its subsidiary, CSB Bank, Penn Laurel engages in the general
commercial and retail banking business. CSB Bank operates 5 banking offices in
Clearfield County, Pennsylvania. The Pennsylvania Department of Banking and the
FDIC regulate the bank. CSB Bank has a wholly owned subsidiary, CSB Financial
Corporation, a Pennsylvania corporation that sells various lines of insurance.
As a registered bank holding company, Penn Laurel is subject to regulation
under the Bank Holding Company Act of 1956, and the rules and regulations of the
Board of Governors of the Federal Reserve System. Under applicable Board of
Governors of the Federal Reserve System policies, a bank holding company, such
as Penn Laurel is expected to act as a source of financial strength to each of
its subsidiary bank and to commit resources to support the bank in circumstances
when it might not do so absent such a policy.
The principal executive offices of Penn Laurel are located in Curwensville,
Pennsylvania.
Description of Business and Property
Penn Laurel was incorporated on October 10, 1986, to act as a holding
company for Curwensville State Bank of Curwensville, PA. The Curwensville State
Bank commenced operations on August 4, 1924, as a state banking association
chartered under the laws of the Commonwealth of Pennsylvania. On March 8, 1995,
Curwensville State Bank changed its name to CSB Bank. As a state chartered bank,
CSB Bank is subject to regulation and periodic examination by Pennsylvania
Department of Banking and the Federal Deposit Insurance Corporation. CSB Bank's
deposits are insured by the Federal Deposit Insurance Corporation. CSB Bank's
principal executive offices are located at 424 State Street, Curwensville, PA
16833.
Below is a schedule of all Penn Laurel's properties, all of which are owned
by the bank with the exception of the DuBois Office. Penn Laurel leases this
branch to CSB Bank.
<TABLE>
<CAPTION>
Nature of Office or Facility Address Date Acquired
- ---------------------------- ------- -------------
<S> <C> <C>
Main Office 434 State Street August 4, 1924
Curwensville, PA 16833
Target Square Office Route 879 February 24, 1974
Clearfield Curwensville Highway
Clearfield, PA 16830
</TABLE>
-81-
<PAGE>
<TABLE>
<CAPTION>
Nature of Office or Facility Address Date Acquired
- ---------------------------- ------- -------------
<S> <C> <C>
Coalport Office Main Street October 18, 1976
P.O. Box 354
Coalport, PA 16627
K-Mart Plaza Office River Road October 28, 1991
R.D. Box 257 A-1
Clearfield, PA 16830
DuBois Office Corner Maple Avenue & Shaffer Road December 20, 1993
P.O. Box 465
DuBois, PA 15801
</TABLE>
CSB Bank, Penn Laurel's wholly owned subsidiary, is a full service
commercial bank that offers a large range of commercial and retail banking
services to its customers, including personal and business checking, NOW
accounts, money market accounts, savings accounts, IRA accounts, and
certificates of deposit. The bank also offers installment loans, home equity
loans, lines of credit, letters of credit, revolving credit, term loans and
commercial mortgage loans, as well as residential and commercial construction
loans. In addition, CSB Bank provides safe deposit boxes, traveler checks, money
orders, wire transfers of funds and direct deposits of social security and
payroll checks. The bank also provides credit card processing services to local
merchants and retailers and is a member of "MAC" system. In the event that loan
requests may exceed Penn Laurel's lending limit to any one customer, the bank
seeks to arrange the loans on a participation basis with other financial
institutions. Penn Laurel's management periodically evaluates the offering or
continuation of these services.
CSB Bank competes with other commercial banks and savings and loan
associations, most of which are larger than CSB Bank. The bank also competes
with major regional banking and financial institutions headquartered elsewhere.
The bank generates the overwhelming majority of its deposit and loan volume
within its primary service area, i.e. Clearfield County, Pennsylvania. The
majority of the residents and business and employees within the bank's primary
service area are within 30 minutes driving time from the bank. There are 37
offices of commercial banks headquartered or which have a presence in the
greater Clearfield/DuBois area where the bank is located.
The primary service area constitutes the community delineated for CSB
Bank's Community Reinvestment Act Statement that states the bank intends to meet
the credit needs of the entire local community. It is the policy of the bank to
evaluate all applications for credit without regard to the applicant's race,
color, creed, sex, age or marital status.
The primary service area includes a wide variety of residential
neighborhoods, commercial businesses, retail stores, industrial complexes and
service institutions. The Clearfield County area has a large number of
established businesses and a substantial employment base.
-82-
<PAGE>
Employees
As of June 30, 1999, Penn Laurel and CSB Bank had 55 full-time equivalent
employees.
Legal Proceedings
The nature of Penn Laurel's business generates a certain amount of
litigation involving matters in the ordinary course of business. In the opinion
of Penn Laurel's management, there are no proceedings pending to which Penn
Laurel or CSB Bank are a party or to which their property is subject, which, if
determined adversely to Penn Laurel or the bank, would be material in relation
to Penn Laurel's undivided profits or financial condition, nor are there any
proceedings pending, other than ordinary routine litigation, incident to the
business of Penn Laurel or the bank. In addition, no material proceedings are
pending or are known to be threatened or contemplated against Penn Laurel or the
bank by government authorities or others.
Dividends
Penn Laurel shareholders are entitled to receive the dividends when, as and
if declared by the Board of Directors out of legally available funds. Penn
Laurel has paid quarterly cash dividends to its shareholders on or about January
1, April 1, July 1, and October 1 of each year. In addition, Penn Laurel has,
historically, paid a special dividend in the fourth quarter.
The ability of Penn Laurel to pay dividends to its shareholders is
dependent primarily upon the earnings and financial condition of CSB Bank. Penn
Laurel expects to obtain funds from the payment of dividends on Penn Laurel
common stock, for the foreseeable future, primarily from dividends paid to Penn
Laurel by the bank. These dividends are subject to certain statutory
limitations. In accordance with the regulatory restrictions, as of June 30,
1999, Penn Laurel had approximately $9,764,809 available for the payment of
dividends. The merger agreement permits Penn Laurel to make normal dividend
payments, during 1999 to its shareholders, consistent with past practices.
Penn Laurel paid cash dividends of $1.32 per share in 1998, and $.30 for
the first and second quarters of 1999.
-83-
<PAGE>
Information about Beneficial Ownership of Significant Shareholders, Directors
and Executive Officers
The following table sets forth information, as of July 28, 1999, with
respect to the following beneficial owners of Penn Laurel common stock:
o each person who owns of record or who is known by the board of
directors of Penn Laurel to own more than 5% of its outstanding common
stock; and
o each executive officer, each director and all executive officers and
directors as a group.
Penn Laurel determined beneficial ownership by applying the General Rules
and Regulations of the SEC, which state that a person may be credited with the
ownership of any common stock:
o owned by or for the person's spouse, minor children or any other
relative sharing the person's home;
o of which the person shares voting power, which includes the power to
vote or to direct the voting of the stock; and
o investment power, which includes the power to dispose or direct the
disposition of the stock, or has the right to acquire beneficial
ownership within 60 days after July 28, 1999, the record date of the
meeting.
Beneficial ownership may be disclaimed as to certain of the securities.
<TABLE>
<CAPTION>
Beneficial Ownership Table
Shares Percent of Outstanding
Name and Address of 5% Holder Beneficially Owned Common Stock Beneficially Owned
- ----------------------------- ------------------ -------------------------------
<S> <C> <C>
Co-Bank Company 26,460 7.41%
c/o County National Bank
P.O. Box 42
Clearfield, PA 16830
Director and Officer Share Ownership
- ------------------------------------
Name of Director
- ----------------
Larry W. Brubaker 9,438(1) 2.64%
Richard L. Lininger 600(2) 0.17%
</TABLE>
-84-
<PAGE>
<TABLE>
<S> <C> <C>
Darrell G. Spencer 14,364(3) 4.02%
Guy A. Graham 3,287(4) 0.92%
Frank J. Hoffman, Jr. 5,927(5) 1.66%
Henry A. Peterson 6,109(6) 1.71%
Joseph A. Shaw 2,750(7) 0.77%
Donald R. Fezell 400(8) 0.11%
Joseph P. Leyo 6,107(9) 1.71%
Laurance B. Seaman 2,749(10) 0.77%
Wesley M. Weymers 428(11) 0.12%
Richard A. Wilkinson 12,323(12) 3.45%
All directors and executive 64,482 18.05%
officers as a group (14 persons)
</TABLE>
- ----------
(1) Includes 2,877 shares held in KSOP, 2,001 shares held jointly with Mr.
Brubaker's spouse and 36 shares held individually by his spouse.
(2) Includes 200 shares held jointly with Mr. Lininger's spouse.
(3) Includes 1,715 shares held jointly with Mr. Spencer's daughter; 9,856
shares held individually by his spouse; 800 shares held jointly with his
grandchildren; and 1,453 shares held jointly by his spouse and their
daughter.
(4) Includes 3,087 shares held jointly with Mr. Graham's spouse.
(5) Includes 4,902 shares held jointly with Mr. Hoffman's spouse.
(6) Includes 5,609 shares held jointly with Mr. Peterson's spouse and 300
shares held jointly with his son.
(7) Includes 2,550 shares held jointly with Mr. Shaw's spouse.
(8) Includes 100 shares held jointly with Mr. Fezell's spouse.
(9) Includes 4,329 shares held jointly with Mr. Leyo's spouse and 141 shares
held individually by his spouse.
(10) Includes 1,209 shares held jointly with Mr. Seaman's spouse and 900 shares
held individually by his spouse.
(11) Includes 228 shares held in KSOP.
(12) Includes 8,650 shares held jointly with Mr. Wilkinson's spouse; 500 shares
held by Wilkinson's Subaru, Inc.; and 2,973 shares held by his spouse.
Executive Compensation
The following table sets forth information concerning the annual
compensation for services in all capacities to Penn Laurel for the fiscal years
ended December 31, 1998, 1997 and 1996 of the Chief Executive Officer at
December 31, 1998. There were no other executive officers of the company whose
total annual salary and bonus exceeded $100,000.
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<PAGE>
<TABLE>
<CAPTION>
PENN LAUREL SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
---------------------------------------- ----------------------------------------------------
Awards Payout
------------------------ -----------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- -------------------------------------------------------------------------------------------------------------------------
Other All other
Annual Restricted Compen-
Compen- Stock Options sation ($)
Name and Salary Bonus sation Awards /SARs Payouts (1)(2)(3)
Principal Position Year ($) ($) ($) ($) (#) ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Larry W. Brubaker 1998 114,664 6,027 12,733
President and 1997 100,659 1,621 10,800
Chief Executive 1996 93,427 1,098 9,121
Officer
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes company's contribution to 401(k) Plan of $3,688, $3,105 and $2,637
for 1998, 1997 and 1996.
(2) Includes Life Insurance Premiums of $1,383, $1,358 and $755 for 1998, 1997
and 1996.
(3) Includes the payment of club dues in the amount of $3,846, $2,521 and
$2,379 for each of 1998, 1997 and 1996, as well as the value of Mr.
Brubaker's use of a vehicle, estimated at $3,816 for each of 1998 and 1997
and $3,350 for 1996.
KSOP Plan
During 1998, Penn Laurel adopted an Employee Stock Ownership Plan that
contains 401(k) provisions. We refer to this plan as a KSOP. The KSOP is a plan
of deferred compensation in which Penn Laurel contributions provide
participating employees with stock in Penn Laurel. The KSOP also provides that
participants may make contributions to the plan on a before-tax basis, under
Internal Revenue Code Section 401(k). As contributions are made to the KSOP,
shares of Penn Laurel common stock, or other investments, are credited to
accounts set up for employee participants. To be eligible, participants must be
18 years of age and employed in a full-time position requiring the completion of
at least 1,000 hours of service for the plan year.
During 1998, CSB Bank made a total contribution of $70,189 to the KSOP
Plan. The amounts allocated to the five most highly compensated officers
pursuant to the KSOP Plan in 1998 are as follows: Mr. Brubaker, $6,388; Mr.
Capatch, $3,090; Mr. Mullins, $3,015; Mr. Weymers, $5,627; and Mr. Johnson,
$3,154. These amounts do not include additional discretionary contributions.
-86-
<PAGE>
Employment Contracts
Wesley M. Weymers has an Employment Agreement with Penn Laurel and CSB
Bank. The agreement is for 2 years, beginning January 1, 1999 and ending January
1, 2001. Mr. Weymers serves as the President and Chief Operating Officer of CSB
Bank and as a member of the Board of Directors of Penn Laurel and CSB Bank. Mr.
Weymers will devote substantially all his working time to the business of Penn
Laurel and CSB Bank. He agreed not to enter into any business arrangement deemed
to be competitive to Penn Laurel's interest. The Board of Directors determines
Mr. Weymers base salary for 1999 and 2000. The Board of Directors may also pay a
bonus to Mr. Weymers. Mr. Weymers receives fringe benefits equal to benefits
received by other employees of the bank.
If Mr. Weymers' employment is terminated without cause, or he resigns for
good reason, he can receive the greater of 12 months' salary or an amount equal
to the payment of his salary from the date of termination through the remaining
term of the agreement. The agreement also contains a noncompete provision, under
which Mr. Weymers agrees to keep certain information confidential and not
compete with Penn Laurel for 3 years.
The agreement contains a "change of control" clause that provides a
severance allowance, as defined in the agreement, equal to 2 1/2 times his
annual salary, including any bonus, for the most recent 12 month period, if Penn
Laurel undergoes a "change of control." The agreement defines a "change of
control" as:
o the acquisition of the beneficial ownership of at least 25% of Penn
Laurel's voting securities other than by Penn Laurel or a person or
persons who are officers or directors of Penn Laurel; and
o during any period of 2 consecutive terms of this agreement,
individuals who, at the beginning of such period, constituted the
Board of Directors of Penn Laurel cease, for any reason, to constitute
at least a majority of the Board, unless the election of each director
who was not a director at the beginning of the period has been
approved in advance by directors representing at least 2/3 of the
directors then in office who were directors at the beginning of the
period.
An Addendum to the Agreement excludes a merger with Clearfield from the
definition of a "change of control."
Larry W. Brubaker also entered into an employment agreement with Penn
Laurel and CSB Bank. The terms of Mr. Brubaker's agreement are the same as those
of Mr. Weymers, except that:
o Mr. Brubaker serves as Chief Executive Officer of Penn Laurel and of
CSB Bank;
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<PAGE>
o The bank will purchase or lease a vehicle for Mr. Brubaker and
reimburse him for certain operating expenses; and
o Mr. Brubaker's noncompete provision is for a term of 2 years.
After the merger, the agreements described on page 87, between Penn Laurel,
Penn Laurel Bank & Trust Company and each of Messrs. Brubaker and Weymers, will
supercede these agreements.
Executive Supplemental Income Agreement
In 1998, CSB Bank entered into an Executive Supplemental Income Agreement
with a select management group at CSB Bank. The bank employs the covered
officers in a management capacity. CSB Bank determined that the bank should try
to retain the valuable services of these officers and to encourage them to
remain with CSB Bank in an executive or management capacity. Retention of these
officers should protect the bank from a possible financial loss, if an officer
were to leave and enter the employ of a competitor. The plan encourages
continuous service by these officers until retirement age and provides increased
retirement benefit levels as years of service increase.
The plan contains a pre-retirement death benefit, which will pay an
officer's beneficiary, if the officer dies prior to retirement age. If the
officer attains retirement age, the benefit is fully vested. Retirement benefits
are paid in 12 monthly payments after retirement. The plan also contains
provisions for early retirement and for disability.
Officers covered under the plan may not engage in any activity or similar
employment capacity for any business enterprise, which competes to a substantial
degree with the bank, while employed or while receiving benefits. In the event
of violation of this provision, all future benefits are canceled and payments
discontinued.
The agreement provides that upon a change of control, the officer shall be
fully vested in the benefit.
The bank's obligation under this agreement is an unfunded and an unsecured
promise to pay. The bank is not required under any circumstances to fund its
obligation under this agreement. The rights of the officer or the beneficiary
are solely those of an unsecured general creditor of the bank. The bank
purchased life insurance contracts to fund the death benefit, should the officer
die prior to retirement. In the event that the officer is discharged for cause,
the agreement is terminated and neither the officer nor the officer's
beneficiary have any claim against the bank. The bank paid a total of $258,486
in life insurance premiums during 1998 in order to fund the plan.
-88-
<PAGE>
Compensation of Directors
During 1998, Penn Laurel's Directors held 17 meetings. Directors of the CSB
Bank held 25 meetings during 1998. Directors were paid $282 per meeting. In
addition, the members of committees of the Board of Directors were paid $54 per
hour with a maximum of $162 per committee meeting attended. In the aggregate,
Directors received $117,621 in Directors fee's and committee fees for meetings
of Penn Laurel and CSB Bank in 1998.
Director's Deferred Compensation Plan
The Bank maintains two deferred income plans for the directors.
In Plan 1, each participating director has an account balance equal to the
director's fees deferred plus compounded interest. These funds will be disbursed
to the participating director or his designated beneficiary during a period of
10 years after the director reaches age 65.
In Plan 2, which was formed in 1998, each participating director has the
opportunity to defer the next five years of directors compensation. The deferred
fees will be retained and compounded until the selected pay-out age. The
deferred and compounded fees will be paid out over a 10 year period beginning at
the directors selected pay-out age.
Loans
Penn Laurel, through CSB Bank, grants loans and makes other credit
available to the general public. These extensions of credit are structured to
meet the varying needs of businesses, individuals, and institutional customers
and include mortgages, lines of credit, term loans, leases and letters of
credit. This activity comprises a major source of revenue for CSB Bank and it
also exposes Penn Laurel and CSB Bank to potential losses upon borrower default.
In order to minimize the occurrence of loss, CSB Bank follows strict loan
underwriting and risk weighing policies. While collateral continues to play an
important part in lending decisions, primary emphasis is placed upon borrowers'
underlying ability to pay. CSB Bank confines its lending activity to customers
who live or are based in its market area. By limiting lending activities to a
specific geographic area, the bank's staff becomes more knowledgeable about
local market conditions and can thereby make better credit risk assessments and
consequently more prudent lending decisions. Penn Laurel believes that this
local knowledge, when combined with prudent underwriting standards, overcomes
the risks associated with the geographic concentration of loans.
Description of Penn Laurel Common Stock
Penn Laurel is authorized to issue 2,500,000 shares of Penn Laurel common
stock of which 357,259 shares were issued and outstanding as of July 28, 1999.
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<PAGE>
Liquidation
In the event of liquidation, dissolution or winding up of Penn Laurel
shareholders are entitled to share ratably in all assets remaining after payment
of liabilities.
Anti-takeover Provisions
The Pennsylvania Business Corporation Law of 1988 and Penn Laurel's amended
articles of incorporation and amended bylaws provide numerous provisions that
may be deemed to be anti-takeover in nature, both as to purpose and effect.
The overall effect of the various anti-takeover provisions might be to
deter a tender offer that a majority of the company's shareholders might view to
be in their best interests. The offer could include, among other things, a
substantial premium over the market price of Penn Laurel common stock at that
time. In addition, anti-takeover provisions may have the effect of assisting
Penn Laurel's current management in retaining its position and placing it in a
better position to resist changes that shareholders want to make if they were
dissatisfied with the conduct of Penn Laurel's business.
Penn Laurel's articles of incorporation and bylaws contain a number of
provisions that could be considered anti-takeover in purpose and effect. These
provisions include:
o authorization of 2,500,000 shares of Penn Laurel common stock; and
o lack of preemptive rights for shareholders to subscribe to purchase
additional shares of stock on a pro rata basis.
These anti-takeover provisions generally permit the Board of Directors to have
as much flexibility as possible to issue additional shares, without further
shareholder approval, for proper corporate purposes, including financing,
acquisitions, stock dividends, stock splits, employee incentive plans and other
similar purposes. These additional shares may, however, also be used by the
Board of Directors to deter future attempts to gain control over Penn Laurel.
In addition, the following bylaw provisions may be considered anti-takeover
in nature:
o the necessity for the affirmative vote of the holders of 75% of
Penn Laurel's common stock to approve an amendment to Penn Laurel's
bylaws or to change an amendment to its bylaws that was approved by
the Board of Directors; and
o the necessity for the affirmative vote of the holders of 75% of
Penn Laurel's common stock to approve a merger, consolidation,
liquidation, or sale of substantially all assets.
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These provisions could give the holders of a minority of Penn Laurel's
outstanding shares a veto power over any merger, consolidation, dissolution or
liquidation of Penn Laurel, the sale of all or substantially all of its assets
or an amendment to its bylaws unless 75% of the shareholders believe that the
transaction is desirable and beneficial. Without these provisions in Penn
Laurel's articles of incorporation and bylaws, the affirmative vote of at least
a majority of Penn Laurel's common stock outstanding and entitled to vote would
be required to approve any merger, consolidation, dissolution, liquidation, the
sale of all of its assets or an amendment to the bylaws.
Provisions for a classified or staggered board are included in Penn
Laurel's bylaws. A classified board has the effect of moderating the pace of any
change in control of the Board of Directors by extending the time required to
elect a majority of the directors to at least two successive annual meetings.
However, this extension of time also tends to discourage a tender offer or
takeover bid. This provision may also be deemed to be anti-takeover in nature.
In addition, a classified board makes it more difficult for a majority of the
shareholders to promptly change the composition of the board of directors even
though such prompt change may be considered desirable for them.
Penn Laurel's Articles of Incorporation contain an additional anti-takeover
provision that enables the Board of Directors to oppose a tender offer on the
basis of factors other than economic benefit. Based on the Board's
responsibilities to certain constituent groups, including Penn Laurel's
subsidiaries and the communities that they serve, the Board may consider factors
such as:
o the impact the acquisition of Penn Laurel would have on the community;
o the effect of the acquisition upon shareholders, employees,
depositors, suppliers and customers; and
o the reputation and business practices of the tender offeror.
At this time, Penn Laurel's common stock is not registered under Section
12(g) of the Securities Exchange Act of 1934, and therefore, Penn Laurel does
not file periodic reports with the SEC. The shares that Penn Laurel proposes to
issue in connection with the merger are registered on a Registration Statement
filed under the Securities Act of 1933. Upon consummation of the merger, Section
15(d) of the Securities Exchange Act of 1934 requires Penn Laurel to file
periodic reports with the SEC under Section 13. In addition, Penn Laurel will be
required to register with the SEC under Section 12 of the Securities Exchange
Act of 1934 within 120 days of the end of the calender year 1999 because it will
have more than 500 shareholders of record. Penn Laurel may voluntarily register
under Section 12(g) of the Securities Exchange Act earlier, if management so
desires.
Pennsylvania law gives certain strong anti-takeover provisions to
corporations that have their securities registered with the Securities and
Exchange Commission under Section 12 of the Securities Exchange Act of 1934. The
law calls these "Registered Corporations." Although Penn Laurel will not attain
the status of "Registered Corporation" on the day of the merger, when
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Penn Laurel's common stock is registered under the Securities Exchange Act of
1934, the company will obtain "Registered Corporation" Status under the
Pennsylvania Business Corporation Law and the following statutory provisions
will be applicable to Penn Laurel. These provisions are in addition to
provisions contained in the company's Articles of Incorporation.
Two of these statutory provisions eliminate the rights of the shareholders
of registered corporations to call a meeting of shareholders and to propose an
amendment to a company's Articles of Incorporation. One effect of these
provisions will be to prevent the calling of a special meeting of shareholders
for the purpose of considering a merger, consolidation or other corporate
combination that does not have the approval of a majority of the members of the
Board of Directors. This provision may have the effect of making Penn Laurel
less attractive as a potential takeover candidate by depriving shareholders of
the opportunity to initiate special meetings at which a possible business
combination might be proposed. There is an important exception, however, in that
an interested shareholder who owns at least 20% of the shares that would be
entitled to vote in an election of directors of the corporation may generally
call a special meeting for the purpose of approving a business combination
within five years after the interested shareholder's acquisition date.
In the opinion of Penn Laurel's Board of Directors, the elimination of
these two rights would discourage attempts by shareholders to disrupt the
company's business between annual meetings of the shareholders by calling a
special meeting. Furthermore, these provisions provide a greater time for
consideration of any shareholder proposal to the extent that his, her or its
proposal must be deferred until the next annual meeting of shareholders and must
comply with certain notice requirements and proxy solicitation rules in advance
thereof. These provisions do affect the calling of a special meeting by the
Chairman of the Board or by a majority of the members of the Board of Directors
or of its Executive Committee if, in their judgment, there are matters to be
acted upon which are in the best interests of the company and its shareholders.
Another provision to which Penn Laurel will be subject, upon obtaining
registered corporation status, assures that all shareholders will receive the
"fair value" for their shares as the result of a "control transaction." "Fair
Value" means not less than the highest price paid per share by a controlling
person or group at any time during the 90-day period ending on and including the
date of the control transaction plus an increment representing any value,
including, without limitation, any proportion of any value payable for
acquisition of control of the company, that may not be reflected in the price.
"Control Transaction" means the acquisition by a person who has, or a group of
persons acting together that has, voting power over Penn Laurel's voting shares
that would entitle the holders to cast at least 20% of the votes that all
shareholders would be entitled to vote in an election of Penn Laurel's
directors. After the occurrence of a control transaction, any shareholder may,
within a specified time period, make written demand on the person or group
controlling at least 20% of the voting power of Penn Laurel's shares for payment
in an amount equal to the fair value of each voting share as of the date on
which the control transaction occurs.
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It is a relatively common practice in corporate takeovers to pay cash to
acquire controlling equity in a company and then to acquire the remaining equity
interest in the company by paying the balance of the shareholders a price for
their shares that is lower than the price paid to acquire control or is in a
less desirable form of consideration, frequently, in securities of the purchaser
that do not have an established trading market at the time of issue. The Board
of Directors considers such "two-tier pricing" tactics to be unfair to Penn
Laurel's shareholders. By their very nature, such tactics tend (and are
designed) to cause concern on the part of shareholders that if they do not act
promptly, they risk either being relegated to the status of minority
shareholders in a controlled company or being forced to accept a lower price for
all of their shares. Thus, two-tier pricing unduly pressures shareholders into
selling as many of their shares as quickly as possible, either to the purchaser
or in the open market, without having genuine opportunity to make a considered
investment choice between remaining a shareholder of the company or disposing of
their shares. Moreover, these sales in turn facilitate the purchaser's
acquisition of a sufficient interest in the company and thereby enable the
purchaser to force the exchange of remaining shares for a lower price in a
business combination.
While the fair price provision in Pennsylvania law is designed to help
assure fair treatment of all shareholders vis-a-vis other shareholders in the
event of a takeover, it is not the purpose of the fair price provision to assure
that shareholders will receive a premium price for their shares in a takeover.
Accordingly, the fair price provision would not preclude the Board of Directors'
opposition to any future takeover proposal which it believes not to be in the
best interest of Penn Laurel and its shareholders, whether or not the proposal
satisfies the minimum price, form of consideration and procedural requirements
of the Pennsylvania fair price provision.
Another provision of Pennsylvania law relates to a "Business Combination"
involving a registered corporation. Business combination means any one of the
following transactions involving an "Interested Shareholder":
o a merger or consolidation of Penn Laurel with an interested
shareholder or any other corporation that is, or after the merger
or consolidation would be, an affiliate or associate of the
interested shareholder;
o a sale, lease, exchange, mortgage, pledge, transfer or other
disposition to or with the interested shareholder or any
affiliate or associate of the interested shareholder of Penn
Laurel's assets or any subsidiary of Penn Laurel having an
aggregate market value equal to 10% or more of Penn Laurel's
consolidated assets, its outstanding shares or its consolidated
earning power and net income;
o Penn Laurel's or a subsidiary's issuance or transfer of any Penn
Laurel shares that has an aggregate market value at least equal
to 5% of the
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aggregate market value of all the outstanding shares to an
interested shareholder or any affiliate or associate;
o Penn Laurel's adoption of any plan for the company's liquidation
or dissolution proposed by, or pursuant to any agreement with,
the interested shareholder or any affiliate or associate;
o a reclassification of securities or recapitalization of Penn
Laurel or any merger or consolidation of Penn Laurel with any
subsidiary of Penn Laurel or any other transaction proposed by,
or pursuant to any agreement with, the interested shareholder or
any affiliate or associate, which has the effect, directly or
indirectly, of increasing the proportionate share of the
outstanding shares of Penn Laurel owned by the interested
shareholder; or
o the receipt by the interested shareholder or any affiliate or
associate of the benefit, directly or indirectly, of any loans,
advances, guarantees, pledges or other financial assistance or
any tax credits or other tax advantages provided by or through
Penn Laurel.
An "interested shareholder" is any person that is the beneficial owner, directly
or indirectly, of shares entitling that person to cast at least 20% of the votes
that all shareholders would be entitled to cast in an election of Penn Laurel's
directors.
Under Pennsylvania law, Penn Laurel may not engage in a business
combination with an interested shareholder other than:
o a business combination approved by the Board of Directors prior
to the date on which the Interested Shareholder acquires at least
20% of the shares or where the purchase of shares by the
interested shareholder has been approved by Penn Laurel's Board
of Directors;
o a business combination approved by a majority of the votes that
all shareholders would be entitled to cast not including those
shares held by the interested shareholder, at a meeting called
for such purpose no earlier than three months after the
interested shareholder became, and if at the time of the meeting
the interested shareholder is, the beneficial owner, directly or
indirectly, of shares entitling the interested shareholder to
cast at least 80% of the votes that all shareholders would be
entitled to cast in an election of Penn Laurel directors if the
business combination satisfies certain minimum conditions, which
are discussed below;
o a business combination approved by the affirmative vote of all of
the shareholders of the outstanding shares;
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o a business combination approved by a majority of the votes that
all shareholders would be entitled to cast not including those
shares beneficially owned by the interested shareholder at a
meeting called for such purpose no earlier than 5 years after the
interested shareholder's share acquisition date; and
o a business combination approved at a shareholders' meeting called
for that purpose no earlier than 5 years after the interested
shareholder's share acquisition date and that meets certain
minimum conditions, which are discussed below.
The conditions discussed above generally require that the aggregate amount
of cash and the market value of consideration other than cash, such as stock,
bonds or debentures, to be received per share by the Penn Laurel shareholders be
at least equal to the highest per share price paid by the interested shareholder
at a time when the interested shareholder was the beneficial owner of shares
entitling him to cast at least 5% of the votes that all shareholders would be
entitled to cast in an election of directors.
The Pennsylvania provision relating to business combinations is designed to
help assure that if, despite a company's best efforts to remain independent, the
company is nevertheless taken over, each shareholder will be treated fairly
vis-a-vis every other shareholder and that arbitragers and professional
investors will not profit at the expense of the company's long-term public
shareholders. We note that while the business combination provision is designed
to help assure fair treatment of all shareholders vis-a-vis other shareholders
in the event of a takeover, it is not the purpose of the business combination
provision to assure that shareholders will receive premium price for their
shares in a takeover. Accordingly, the Board of Directors believes that the
business combination provision would not preclude the Board of Director's
opposition to any future takeover proposal that it believes not to be in the
best interests of the company and its shareholders, whether or not such a
proposal satisfies the requirements of the business combination provision or
fair price provision or both.
Subchapter G of Chapter 25 of the Pennsylvania Business Corporation Law
also applies to registered corporations. Under Subchapter G, the acquisition of
shares that increase the acquiror's control of the corporation above 20%, 33
1/3% or 50% of the voting power able to elect the Board of Directors cannot be
voted until a majority of disinterested shareholders approve the restoration of
the voting rights of those shares in two separate votes:
o all disinterested shares of the corporation; and
o all voting shares of the corporation.
Voting rights that are restored by shareholder approval will lapse if any
proposed control-share-acquisition that is approved is not consummated within
90 days after shareholder approval is
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obtained. Furthermore, control-shares that are not accorded voting rights
or whose rights lapse will regain such voting rights on transfer to another
person who is not an affiliate of the acquiror's. If they constitute
control-shares for the transferee, this subchapter must be applied to that
person as well. If the acquiror does not request a shareholder meeting to
approve restoration of voting rights within 30 days of the acquisition or if
voting rights are denied by the shareholders or if they lapse, the corporation
may redeem the control shares at the average of the high and low price on the
date of the notice of redemption.
Subchapter H of Chapter 25 of the Pennsylvania Business Corporation Law
also applies to Registered Corporations. Under Subchapter H, a control person (a
person who owns shares with 20% or more voting power) must disgorge to the
corporation any profits from the disposition of any equity securities if the
disposition occurs within 18 months of becoming a control person, and the
security was acquired 24 months before to 18 months after becoming a control
person. This provision seeks to prevent speculative takeover attempts.
Finally, Pennsylvania law grants a registered corporation the express
authority to treat shareholders on a disparate basis and therefore may take
advantage of "poison pills." "Poison pills" generally consist of a shareholder
rights plan whereby a corporation gives its shareholders the right to buy common
stock upon the occurrence of certain specified events, such as a merger, which
decreases the value of the acquiror's holdings and the acquiror's percentage of
ownership.
The overall effect of these provisions may be to deter a future offer or
other merger or acquisition proposal that a majority of the shareholders might
view to be in their best interests as the offer might include a substantial
premium over the market price of Penn Laurel's common stock at that time. In
addition, these provisions may have the effect of assisting Penn Laurel's
management in retaining its position and placing it in a better position to
resist changes that the shareholders may want to make if dissatisfied with the
conduct of Penn Laurel's business.
Indemnification
Penn Laurel's bylaws provide for indemnification of its directors,
officers, employees and agents to the fullest extent permitted under the laws of
the Commonwealth of Pennsylvania, provided that the person seeking
indemnification acted in good faith, in a manner he or she reasonably believed
to be in the best interest of the company, and without willful misconduct or
recklessness.
COMPARISON OF SHAREHOLDER RIGHTS
After the merger, the shareholders of Clearfield will become shareholders
of Penn Laurel. There are certain differences in the rights of shareholders of
these two companies. These differences arise out of differences in the articles
of incorporation and bylaws of the two companies and the differences in the laws
that govern the two companies. The most significant of these differences are
those relating to anti-takeover protection and public registration.
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The bylaws of Penn Laurel and Clearfield both provide for a classified
Board of Directors under which there are three classes of directors and,
accordingly, one-third of the directors are elected each year for a term of
three years.
The articles of incorporation and bylaws of Penn Laurel, among other things
require a vote of 75% of the shareholders to approve a merger. They also include
a number of other provisions that are intended to protect the shareholders of
Penn Laurel but may be considered anti-takeover in nature and may serve to
entrench the current management of Penn Laurel. These protections will be
available to the present shareholders of Clearfield, who will become
shareholders of Penn Laurel following the merger. See "INFORMATION CONCERNING
PENN LAUREL AND DESCRIPTION OF PENN LAUREL COMMON STOCK--Anti-takeover
Provisions."
The material differences between Clearfield common stock and Penn Laurel
common stock and the rights of their respective holders, as of December 31,
1998, are summarized in the following table:
<TABLE>
<CAPTION>
Clearfield Penn Laurel
---------- -----------
<S> <C> <C>
Title Capital Stock, $1.5625 par value per share Common Stock, $5.00 par value per share
Shares Authorized 617,600 2,500,000
Shares Issued and Outstanding 576,809 357,259
Preferred Stock None authorized None authorized
Preemptive Rights None None
Voting: Election of Directors Non-cumulative Non-cumulative
Classification of Board of Board divided into 3 classes with 3 year Board divided into 3 classes with 3 year
Directors terms; approximately 1/3 elected each year terms; approximately 1/3 elected each year
Voting: Other Matters One vote for each share of record One vote for each share of record
Mergers, Consolidations, Approval of at least 66 2/3% of the Approval of at least 75% of the outstanding
Liquidations Sales of Substantially outstanding stock is required shares of common stock is required
All Assets
Special Shareholder Meetings Special shareholders meetings may be Special shareholders meetings may be called
called at any time by the Chairman, at any time by the Chairman, President, a
President, the Board of Directors or majority of the members of the Board or by
holders of not less than 1/5 of all shares shareholders entitled to cast 51% of the
outstanding and entitled to vote at the votes that all shareholders are entitled to
particular meeting. cast.
Authorization to Issue Additional Approval by a majority vote of the Board Approval of a majority vote of the Board of
Shares of Directors. Directors.
</TABLE>
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<TABLE>
<S> <C> <C>
Repurchase of Additional Shares Stock may be repurchased by resolution of Stock can be repurchased up to the extent of
the Board and with prior approval of the unrestricted or unreserved undivided profits
Banking Department as long as surplus and as much of its unrestricted surplus as
remains at least equal to amount of capital has been made available for such purpose
after the repurchase. by the prior affirmative vote of
shareholders; stock cannot be repurchased when
Penn Laurel is insolvent or would be made
insolvent by the purchase; and no more than 10
percent of the outstanding shares can be
repurchased in any twelve (12) month period
without prior regulatory approval; and
provisions of the Securities Act restrict the
timing, nature and amount of repurchases.
Stock Incentive Plan No Yes
Dissenters' Rights Yes Yes
Dividend Reinvestment Plan No No
Market Listed for quotation on the OTC Bulletin Listed for quotation on the OTC Bulletin
Board Board
Registered Under Exchange Act No No
</TABLE>
YEAR 2000 ISSUES
The following section contains forward-looking statements that involve
risks and uncertainties. The actual impact of the Year 2000 on Clearfield or
Penn Laurel could materially differ from that which management anticipates in
these forward-looking statements as a result of changes in factors that we
identified below.
The Y2K problem arose because many existing computer programs use only the
last two digits to refer to the year. Therefore, many computer programs will not
be able to determine whether "00" represents the year 2000 or 1900. This
problem, if not corrected, could cause many computer applications to fail or
create erroneous results by or at the year 2000. This could cause entire system
failures, miscalculations, and disruptions of normal business operations
including, among other things, a temporary inability to process transactions,
generate statements, compute payments, interest or delinquencies, or engage in
similar daily business activities. While we do not yet know the extent of the
potential impact of Y2K problems, it could affect the global economy if not
corrected in a timely manner.
Clearfield
Clearfield is subject to regulation and oversight by the Pennsylvania
Department of Banking and the Federal Deposit Insurance Corporation. This
oversight requires Clearfield to
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comply with specific timetables, programs and guidance regarding the Y2K
issue. Regulators examine Clearfield's Y2K progress on a regular basis. In
addition, Clearfield's internal auditor provides written reports to the Board of
Directors on a quarterly basis.
Clearfield is committed to ensuring that the Bank's daily operations suffer
little or no impact from the century date change. Clearfield has applied due
diligence throughout the Y2K process, following the guidelines contained in a
series of Federal Financial Institutions Examination Council's Interagency
Guideline statements. The following table provides a summary of the current
status of the project phases and the projected timetable for completion.
Project Phase % Completed Projected Completion
- ------------- ----------- --------------------
Awareness 100 Completed
Assessment 100 Completed
Renovation or Remediation 76 June 30, 1999
Testing or Validation 100 Completed
Implementation 100 Completed
Overall 95
In 1996, management initiated a bank wide program to prepare the bank for
the year 2000. Clearfield has developed a comprehensive inventory of all
mainframe and personal computer-based applications, third-party relationships,
environmental systems, proprietary programs and non-computer related systems.
This assessment identified 38 relationships as mission critical that could be
impacted by the century date change. Clearfield's processing and account
operations are computer reliant and could be affected by the Y2K issue.
Clearfield developed a plan to make these systems Y2K ready and tested all of
its mission critical applications by March 31, 1999 with successful results.
In 1998 Clearfield initiated communications with all of its significant
vendors, suppliers and large commercial customers to determine the extent to
which Clearfield is vulnerable to those third-parties' failure to remedy their
own Y2K problems.
As of March 31, 1999, nine of Clearfield's significant vendors had not
completed testing of their systems. Each of these vendors is a commercial bank
and each has indicated to Clearfield that it expects to be compliant by June 30,
1999. The following table summarizes the responses of Clearfield's material loan
customers, vendors and service providers.
<TABLE>
<CAPTION>
Responses Compliant
Inquiry --------- ---------
Number Number % Number %
------- ------ --- ------ ---
<S> <C> <C> <C> <C> <C>
Material Loan Customers 84 43 51 42 98
Vendors and Service Providers 49 48 91 39 81
Mission Critical 38 38 100 29 76
Non-Mission Critical 11 10 91 10 100
</TABLE>
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Management reviewed our material loan customers, vendors and service
providers through discussions and questionnaires for their Y2K preparedness. The
level of their Y2K compliance is a factor in evaluating Clearfield's loan
portfolio. Fifty percent of all material loan customers are compliant.
Management performed a risk assessment on material loan customers, vendors and
service providers who did not respond to the questionnaire. Supporting
collateral and other sources of repayment were reviewed to ensure that a lack of
Y2K preparedness will not create a loss due to a business disruption. Management
and the Board of Directors determined that the amount of risk is acceptable.
Management continues to monitor the progress of its material loan customers and
other significant third parties. However, Clearfield can give no guarantee that
the systems of these third parties will be timely renovated. If any of these
third parties experience Y2K problems, Clearfield cannot assure that the third
parties can be held legally liable for their problems.
As of December 31, 1998, Clearfield expensed $30,000 in Y2K costs.
Management expects to spend a total of $50,000 for the entire project. The Bank
does not expect the amounts required to be expensed over the next six months to
have a material adverse effect on its financial position or results of
operations.
At present, Management believes its progress in remedying systems, programs
and applications and installing Y2K compliant upgrades is on target. Despite
Clearfield's affirmative steps to remedy the Y2K problem, we are not certain
that a partial or total systems interruption, or the cost necessary to upgrade
hardware or software, would not have a material effect on Clearfield's business,
financial condition, results of operations and business prospects.
As a precaution, Clearfield developed a Y2K contingency plan. The plan
provides operating procedures in the event that there is a partial or total
system interruption with respect to the century date change. While the
contingency plan is complete, it will be updated as necessary throughout 1999.
Penn Laurel
Readiness Efforts
In 1997, the Board of Directors developed, approved and implemented a
comprehensive project plan to address the Year 2000 issue and related problems
with regard to CSB Bank's operations. The scope of the plan includes five
phases: Awareness, Assessment, Renovation, Validation and Implementation, as
identified by the Federal Financial Institutions Examination Council and the
banking regulatory agencies that oversee CSB Bank.
The bank appointed a project team consisting of key members of CSB Bank's
technology staff, representatives of all business units and senior management.
This team reports quarterly to the Board of Directors.
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The bank has completed assessment of the impact of the Year 2000 issue on
CSB Bank's computer systems. The scope of the project also includes operational
and environmental systems because the Year 2000 issue may impact these systems
through the embedded computer chips that control their functions.
CSB Bank relies on third party vendors and service providers for its data
processing capabilities, and for maintenance of its computer systems. The bank
initiated formal communications with its providers of data processing services
and other external third parties in 1997 and 1998 to assess the Year 2000
readiness of their products and services. The bank is monitoring their progress
in meeting their targeted schedules for an indication that they may not be able
to address the problems in time. Thus far, responses indicate that all of the
significant providers currently have compliant versions available or are well
into the renovation and testing phases. CSB Bank has identified and prioritized
those systems deemed to be mission critical and those that may have a
significant impact on normal operations. CSB Bank identified six mission
critical vendors. These vendors have all responded with favorable Y2K readiness
status, and expressed with confidence that their systems are Y2K compliant.
However, CSB Bank can give no guarantee that the service providers and vendors
will timely renovate the systems on which CSB Bank relies. If the service
providers experience Y2K problems, CSB Bank cannot assure that the service
providers can be held legally liable for their problems.
Additionally, CSB Bank has implemented a plan to manage the potential risk
posed by the impact of the Year 2000 issue on its major customers. Formal
communications have been initiated, and assessment is completed for CSB Bank's
loan customers and deposit customers. As of May 15, 1999, CSB Bank has received
a response of 77% from loan customers, and 67% from the deposit customers. Of
those respondents, 90% of the loan customers claim to be Y2K compliant and 100%
of the deposit customers claim to be Y2K compliant. CSB Bank assessed the
responses for Y2K risk based on the level of technology associated with each
individual or business.
Current Status
The project team estimates that as of May 15, 1999, CSB Bank's Year 2000
readiness project is 94% complete. The following table provides a summary of the
current status of the five phases of the project and a projected timetable for
completion of each phase. CSB Bank has substantially completed all phases of Y2K
readiness. The final part of our renovation, validation and implementation
phases revolve around our reader/sorter. The current reader/sorter is not Y2K
compliant. However, CSB Bank will install a new reader/sorter in the fourth
quarter of 1999 if the merger is not consummated or does not occur as
contemplated. If the merger takes place, the resulting institution proposes to
use the present Clearfield reader/sorter which is Y2K compliant.
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Project Phase % Completed Projected Completion
- ------------- ----------- --------------------
Awareness 100 Completed
Assessment 100 Completed
Renovation of Critical Systems 90 June 30, 1999
Validation 90 June 30, 1999
Implementation 90 June 30, 1999
Overall 94
Costs
CSB Bank has primarily used internal resources to implement its readiness
plan and to upgrade or replace and test systems affected by the Year 2000 issue.
The total cost to CSB Bank for its Year 2000 readiness has not been and is not
anticipated to be material to its financial position in any given year. To date,
the bank has expended $38,000 to obtain Y2K readiness. In total, CSB Bank
estimates that its costs will be under $400,000. The majority of this cost is
for a replacement of the Bank's current reader/sorter and its associated
software, at a cost of $320,000, if necessary. The cost for the reader/sorter
and its associated software will be capitalized over a five-year period. The
costs of implementing the new reader/sorter are part of the bank's regular
information technology budget. This is a standard cost of upgrading equipment.
The current reader/sorter was scheduled for replacement in 1999 regardless of
the Year 2000 issue. This expenditure will not have a material impact on
Penn Laurel's financial condition or results of operations, or defer any other
technology investments. If the merger takes place, the resulting bank will use
the Clearfield reader/sorter that is Y2K compliant.
Risk Assessment
Based upon current information related to the progress of its major vendors
and service providers, management has determined that the Year 2000 issue will
not pose significant operational problems for its computer systems. This
determination is based on the ability of those vendors and service providers to
renovate, in a timely manner, the products and services on which CSB Bank's
systems rely. However, CSB Bank can give no guarantee that the systems of these
third parties will be timely renovated.
Contingency Plan
CSB Bank developed contingency plans for its mission critical systems in
the event that system disruption or failure occurs to one or more of those
systems. In a worst case scenario, the software that processes CSB Bank's
customer accounts would fail. Should this occur, CSB Bank would maintain manual
accounting of its accounts until the main processing software is corrected. CSB
Bank is committed to making available the human resources necessary to
accommodate this temporary situation.
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CLEARFIELD BANK & TRUST COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On the following pages we present management's discussion and analysis of
the financial condition and results of operations of Clearfield, and its
wholly-owned subsidiary, Diamond Financial Service, Inc. Management's discussion
and analysis discusses the significant changes in the results of operations,
capital resources and liquidity presented in its accompanying financial
statements for Clearfield. Current performance does not guarantee, assure, and
may not be indicative of similar performance in the future.
The following discussion focuses on and highlights certain information
regarding Clearfield. We recommend that you read this discussion in conjunction
with the financial statements and related notes appearing elsewhere in this
proxy statement/prospectus.
We caution you not to place undue reliance on forward-looking statements in
this section, they reflect management's analysis only as of this date.
Clearfield undertakes no obligation to publicly revise or update these
forward-looking statements to reflect subsequent events or circumstances.
Balance Sheet Analysis
The table below presents the major asset and liability categories on an
average daily basis for the periods presented, along with interest income and
expense, and key rates and yields.
Distribution of assets, liabilities and shareholders equity,
interest/return rates and interest differential:
<TABLE>
<CAPTION>
For the three months ended March 31,
------------------------------------
(unaudited)
1999 1998
---- ----
Average Average Average Average
(Dollars in thousands) Balance Rate Interest Balance Rate Interest
------- ---- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investment securities:
Taxable investments $ 36,870 5.43% $ 494 $ 42,145 5.60% $ 582
Nontaxable
investments (1) 14,171 7.61 266 15,968 8.10 319
-------- ------ -------- ------
Total investment
securities 51,041 6.04 760 58,113 6.29 901
Loans (1) 115,800 7.93 2,265 102,969 8.52 2,163
Other rate-sensitive
assets 3,483 4.54 39 2,880 5.35 38
-------- ------ -------- ------
Total earning assets 170,324 7.30 3,064 163,962 7.67 3,102
Noninterest-earning
assets 12,845 - - 12,745 - -
-------- ---- ------ -------- ---- ------
Total assets $183,169 $3,064 $176,707 $3,102
======== ====== ======== ======
Liabilities and
Shareholders' Equity
Deposits:
Demand $ 19,622 -% $ - $ 17,936 -% $ -
Savings 55,048 2.46 334 53,890 2.72 361
Time 86,555 5.17 1,103 83,065 5.45 1,117
-------- ------ -------- ------
Total $161,225 3.61% $1,437 $154,891 3.87% $1,478
Borrowings and other
interest-bearing
liabilities - - - 1,000 6.08 15
-------- ------ -------- ------
Total interest-bearing
liabilities 161,225 3.61 1,437 155,891 3.85 1,493
Other liabilities 1,311 - - 1,315 - -
-------- ---- ------ -------- ---- ------
Total liabilities 162,536 - 1,437 157,206 - 1,493
Shareholders' equity 20,633 - - 19,501 - -
------ -------- ---- ------
Total liabilities and
shareholders' equity $183,169 - $1,437 $176,707 - $1,493
======== ==== ====== ======== ==== ======
Average effective rate
on interest-bearing
liabilities $141,603 4.12% $1,437 $137,955 4.22% $1,493
======== ==== ====== ======== ==== ======
Interest
Income/Earning
Assets $170,324 7.30% $3,064 $163,962 7.67% $3,102
Interest
Expense/Earning
Assets $170,324 3.42% $1,437 $163,962 3.69% $1,493
-------- ---- ------ -------- ---- ------
Net interest margin 3.88% 3.98%
==== =====
Net interest
spread 3.18% 3.45%
==== =====
</TABLE>
- -------------------------
(1) The interest earned on nontaxable investment securities and loans is shown
on a tax equivalent basis.
-103-
<PAGE>
<TABLE>
<CAPTION>
For the year ended December 31,
-------------------------------
1998 1997
---- ----
Average Average Average Average
(Dollars in thousands) Balance Rate Interest Balance Rate Interest
------- ---- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investment securities:
Taxable investments $ 39,694 5.53% $ 2,197 $ 47,317 5.91% $2,795
Nontaxable
investments (1) 15,893 8.10 1,294 15,042 8.34 1,255
-------- ------ -------- ------
Total investment
securities 55,677 6.27 3,491 62,359 6.49 4,050
Loans (1) 108,763 8.29 9,015 97,655 8.48 8,286
Other rate-sensitive
assets 2,508 5.50 138 1,305 5.67 74
-------- ------ -------- ------
Total earning assets 166,948 7.57 12,644 161,319 7.69 12,410
Noninterest-earning
assets 12,740 - - 12,173 - -
-------- ---- ------ -------- ---- ------
Total assets $179,688 $12,644 $173,492 $12,410
======== ======= ======== =======
Liabilities and
Shareholders' Equity
Deposits:
Demand $ 18,862 - $ - $ 18,576 - $ -
Savings 55,251 2.64 1,457 53,115 2.61 1,385
Time 83,662 5.38 4,500 79,410 5.49 4,362
-------- ------ -------- ------
Total $157,775 3.78% $5,957 $151,101 3.80% $5,747
Borrowings and other
interest-bearing
liabilities 412 6.80 28 2,117 5.62 119
Total interest-bearing
liabilities 158,187 3.78 5,985 153,218 3.83 5,866
Other liabilities 1,502 - - 1,385 - -
-------- ---- ------ -------- ---- ------
Total liabilities 159,689 - 5,985 154,603 - 5,866
Shareholders' equity 19,999 - - 18,889 - -
-------- ---- ------ -------- ---- ------
Total liabilities and
shareholders' equity $179,688 - $5,985 $173,492 - $5,866
======== ==== ====== ======== ==== ======
-104-
<PAGE>
Average effective rate
on interest-bearing
liabilities $139,325 4.30% $5,985 $134,642 4.36% $5,866
======== ==== ====== ======== ==== ======
Interest
Income/Earning
Assets $166,948 7.57% $12,644 $161,319 7.69% $12,410
Interest
Expense/Earning
Assets $166,948 3.58% $5,985 $161,319 3.64% $ 5,866
---- -----
Net interest margin 3.99% 4.05%
==== =====
Net interest
spread 3.27% 3.31%
==== =====
</TABLE>
- -------------
(1) The interest earned on nontaxable investment securities and loans is shown
on a tax equivalent basis.
-105-
<PAGE>
Investment Securities
The investment portfolio is an interest earning asset, second only in size
to the loan portfolio. Investment securities serve as an important source of
revenue, a primary source of liquidity, and as collateral for public deposits.
Clearfield established an investment policy that addresses the various
aspects of portfolio management including, but not limited to, quality
standards, liquidity and maturity limits, investment concentrations, and
regulatory guidelines. The Board of Directors regularly reviews compliance with
the policy.
Total investment securities of $50,895,225 decreased $7,177,891 from March
31, 1998 to March 31, 1999. The decrease is the result of the available for sale
portfolios increasing by $942,854, while the held to maturity portfolio
decreased by $8,120,745.
Total investment securities of $50,761,483 decreased $6,928,754 from
December 31, 1997 to December 31, 1998. The decrease is the result of the
available for sale portfolio increasing by $2,267,017, while the held to
maturity portfolio decreased by $9,195,771. This decrease is part of the
strategic plan to increase the loans outstanding while decreasing the investment
portfolio.
The March 31, 1999 federal funds sold of $3,725,000 was $566,000 higher
than March 31, 1998, balance of $3,159,000.
-106-
<PAGE>
On December 31, 1998, the federal funds sold balance of $3,481,000 was
$781,000 higher than the December 31, 1997, balance of $2,700,000.
The maturity analysis of investment securities held to maturity, including
the weighted average yield for each category as of March 31, 1999, is as
follows:
<TABLE>
<CAPTION>
Under 1-5 5-10 Over
(Dollars in thousands) 1 year years years 10 years Total
------ ----- ----- -------- -----
<S> <C> <C> <C> <C> <C>
U. S. Treasury securities:
Carrying value $1,001 $ 0 $ 0 $0 $ 1,001
Weighted average yield 5.73% 0.00% 0.00% 0.00% 5.73%
Weighted average maturity 7 Months
Obligations of other U.S. Government agencies
and corporations:
Carrying value $2,499 $6,500 $ 0 $0 $ 8,999
Weighted average yield 4.29% 3.79% 0.00% 0.00% 3.72%
Weighted average maturity 1 Year,
6 Months
</TABLE>
<TABLE>
<CAPTION>
Under 1-5 5-10 Over
(Dollars in thousands) 1 year years years 10 years Total
------ ----- ----- -------- -----
<S> <C> <C> <C> <C> <C>
Obligations of state and political subdivisions:
Carrying value $ 0 $ 0 $ 971 $ 1,078 $2,049
Weighted average yield 0.00% 0.00% 7.43% 7.82% 7.64%
Weighted average maturity 1 Year,
7 Months
Total:
Carrying value $3,500 $6,500 $ 971 $ 1,078 $12,049
Weighted average yield 4.70% 3.79% 7.43% 7.82% 4.71%
Weighted average maturity 1 Year,
4 Months
</TABLE>
The maturity analysis of securities available for sale, including the
weighted average yield for each category, as of March 31, 1999 is as follows:
<TABLE>
<CAPTION>
Under 1-5 5-10 Over
(Dollars in thousands) 1 year years years 10 years Total
------ ----- ----- -------- -----
<S> <C> <C> <C> <C> <C>
U. S. Treasury securities:
Carrying value $2,003 $ 5,856 $ 0 $ 0 $ 7,859
Weighted average yield 6.02% 6.21% 0.00% 0.00% 6.16%
Weighted average maturity 1 Year,
3 Months
Obligations of other U.S. Government agencies
and corporations:
Carrying value $ 0 $11,999 $4,495 $ 956 $17,450
Weighted average yield 0.00% 5.69% 6.75% 7.00% 6.03%
Weighted average maturity 3 Years,
2 Months
</TABLE>
-107-
<PAGE>
<TABLE>
<CAPTION>
Under 1-5 5-10 Over
(Dollars in thousands) 1 year years years 10 years Total
------ ----- ----- -------- -----
<S> <C> <C> <C> <C> <C>
Obligations of state and political subdivisions:
Carrying value $ 500 $ 598 $ 5,915 $ 5,053 $12,066
Weighted average yield 8.71% 9.17% 7.21% 7.84% 7.63%
Weighted average maturity 6 Years,
7 Months
Taxable Obligations of state and political subdivisions:
Carrying value $ 0 $ 0 $ 605 $ 0 $ 605
Weighted average yield 0.00% 0.00% 7.35% 0.00% 7.35%
Weighted average maturity 1 Year,
5 Months
Equity Securities:
Carrying value $ 0 $ 0 $ 589 $ 0 $ 589
Weighted average yield 0.00% 0.00% 6.02% 0.00% 6.02%
Weighted average maturity
Total:
Carrying value $2,503 $18,453 $11,604 $ 6,009 $ 38,569
Weighted average yield 5.96% 5.97% 6.98% 7.71% 6.58%
Weighted average maturity 3 Years,
8 Months
</TABLE>
Weighted average yield is computed by dividing the annualized interest
income, including the accretion of discounts and the amortization of premiums,
by the carrying value. Tax-exempt securities were adjusted to a tax-equivalent
basis and are based on the federal statutory tax rate of 34%.
The amortized cost and fair value of investment securities are as follows:
<TABLE>
<CAPTION>
March 31, 1999
--------------
(unaudited)
Available for Sale Gross Gross Estimated
- ---------------------- Amortized Unrealized Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 7,859 $110 $ 8 $ 7,961
Obligations of other U.S. Governmental agencies
and corporations 17,450 66 115 17,401
Obligations of states and political subdivisions 12,066 245 33 12,278
Taxable Obligations of states and political
subdivisions 605 12 0 617
Equity securities 589 0 0 589
--- - - ---
Totals $38,569 $438 $156 $38,846
======= ==== ==== =======
</TABLE>
-108-
<PAGE>
<TABLE>
<CAPTION>
March 31, 1999
--------------
(unaudited)
Held to Maturity Gross Gross Estimated
- ---------------------- Amortized Unrealized Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 1,001 $ 6 $ 0 $ 1,007
Obligations of other U.S. Governmental agencies
and corporations 8,999 0 261 8,738
Obligations of states and political subdivisions 2,049 44 0 2,093
Taxable Obligations of states and political
subdivisions 0 0 0 0
Equity securities 0 0 0 0
- - - -
Totals $12,049 $50 $261 $11,838
======= === ==== =======
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
--------------
(unaudited)
Available for Sale Gross Gross Estimated
- ---------------------- Amortized Unrealized Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 8,823 $ 97 $ 0 $ 8,920
Obligations of other U.S. Governmental agencies
and corporations 17,887 121 74 17,934
Obligations of states and political subdivisions 9,651 230 0 9,877
Taxable Obligations of states and political
subdivisions 605 12 0 621
Equity securities 551 0 0 551
- - - -
Totals $37,517 $460 $74 $37,903
======= ==== === =======
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
--------------
(unaudited)
Held to Maturity Gross Gross Estimated
- ---------------------- Amortized Unrealized Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 1,004 $ 2 $ 0 $ 1,006
Obligations of other U.S. Governmental agencies
and corporations 12,498 4 440 12,062
Obligations of states and political subdivisions 6,668 52 0 6,720
Taxable Obligations of states and political
subdivisions 0 0 0 0
Equity securities 0 0 0 0
- - - -
Totals $20,170 $58 $440 $19,788
======= === ==== =======
</TABLE>
-109-
<PAGE>
<TABLE>
<CAPTION>
December 31, 1998
-----------------
(unaudited)
Available for Sale Gross Gross Estimated
- ---------------------- Amortized Unrealized Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 6,802 $164 $ 0 $ 6,966
Obligations of other U.S. Governmental agencies
and corporations 17,624 123 65 17,682
Obligations of states and political subdivisions 11,591 334 0 11,925
Taxable Obligations of states and political
subdivisions 605 20 0 625
Equity securities 589 0 0 589
--- - - ---
Totals $37,211 $641 $65 $37,787
======= ==== === =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-----------------
(unaudited)
Held to Maturity Gross Gross Estimated
- ---------------------- Amortized Unrealized Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 1,002 $ 8 $ 0 $ 1,010
Obligations of other U.S. Governmental agencies
and corporations 8,999 0 245 8,754
Obligations of states and political subdivisions 2,973 52 0 3,025
Taxable Obligations of states and political
subdivisions 0 0 0 0
Equity securities 0 0 0 0
- - - -
Totals $12,974 $60 $245 $12,789
======= === ==== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
-----------------
(unaudited)
Available for Sale Gross Gross Estimated
- ---------------------- Amortized Unrealized Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 8,832 $ 95 $ 0 $ 8,927
Obligations of other U.S. Governmental agencies
and corporations 17,069 143 98 17,114
Obligations of states and political subdivisions 8,052 255 0 8,307
Taxable Obligations of states and political
subdivisions 605 16 0 621
Equity securities 551 0 0 551
- - - -
Totals $35,109 $509 $98 $35,520
======= ==== === =======
</TABLE>
-110-
<PAGE>
<TABLE>
<CAPTION>
December 31, 1997
-----------------
Held to Maturity Gross Gross Estimated
- ---------------------- Amortized Unrealized Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 1,004 $ 2 $ 0 $ 1,006
Obligations of other U.S. Governmental agencies
and corporations 14,498 4 508 13,994
Obligations of states and political subdivisions 6,668 65 0 6,733
Taxable Obligations of states and political
subdivisions 0 0 0 0
Equity securities 0 0 0 0
- - - -
Totals $22,170 $71 $508 $21,733
======= === ==== =======
</TABLE>
Interest Rate Risk
As a financial institution, Clearfield's income is sensitive to changes in
interest rates. Changes in interest rates affect a large portion of the bank's
assets and liabilities. These changes also impact the market value of all
interest sensitive assets. The Asset Liability Committee establishes policies to
increase net interest income without undue interest rate risk.
The bank monitors interest rate risk through the use of two methods:
o static gap; and
o income simulation.
Static Gap. Static gap provides an approximation of projected repricing of
assets and liabilities at a certain point in time. Gap is the difference between
the principal amount of assets and liabilities that mature or reprice within
selected periods of time. By managing gap, management minimizes fluctuations in
net interest income, thereby achieving consistent growth in net interest income
during periods of changing interest rates.
The bank's cumulative one year gap was $44,217,096 and $7,220,396 on March
31, 1999 and 1998, and $33,956,518 and $7,971,371 on December 31, 1998 and 1997.
Clearfield is in a negative gap position. This means more liabilities are
repricing than assets. Since December 1997, investments and loans repricing and
maturing within one year has decreased by $18,880,021 and the deposits maturing
and repricing during the same period have increased by $17,365,707. Customers
prefer to have the longest term possible on loans and the shortest term possible
on deposits.
The static gap model has several shortcomings. While certain assets and
liabilities may have similar maturities or repricings, they may not react in the
same manner to changes in interest rates. Some interest rates change when market
rates change, while other interest rates may lag behind changes in market rates.
Prepayment and early withdrawal rates will change as interest rates change.
Because of these shortcomings, the bank also uses income simulation to monitor
changes in interest rates.
-111-
<PAGE>
Income Simulation. The Asset Liability Management Committee also uses
income simulation as a tool to measure and manage interest rate risk. Management
simulates possible economic conditions and interest rate scenarios in order to
quantify their impact on net income.
The income simulation model simulates the effect of various interest rate
environments on earnings. DRI/McGraw Hill, the economic forecasting firm,
provides the interest rate projections for the simulation model.
The purpose of the DRI Economic scenarios is to provide a set of realistic
rate projections for use in forecasting, planning and budgeting. The projections
are predicated on explicit underlying assumptions, documented in a narrative,
and are assigned subjective probabilities by economists.
DRI produces the economic scenarios by running a general econometric model
of the economy. DRI bases its projections on past patterns of changes in
interest rates and yield curves, calibrated to recent conditions. Rates do not
change lineally over time, nor are the upward and downward changes equal. If the
actual rate is already near its historical level, then rates will change only
modestly.
The following table summarizes the affect on changes in interest rates on
net income:
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998 December 31, 1998 December 31, 1997
------------------- ------------------ ------------------- -------------------
Rates Income Rates Income Rates Income Rates Income
----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Most Likely +.25% .10% -.50% .02% -.25% 1.00% -.25% 4.85%
Rising +1.50% (4.40%) +2.00% (3.99%) +1.50% (5.13%) +2.00% (8.34%)
Falling -1.25% .98% -.75% 2.88% -1.25% 2.99% -2.50% 27.09%
</TABLE>
By the use of computer generated models, the Asset Liability Committee
continues to monitor the effect of changes in interest rates on net income.
Actual results could differ significantly from these results.
Loans
Clearfield grants commercial loans, residential mortgages, and consumer
loans to customers located primarily within Clearfield and its contiguous
counties. Clearfield has a concentration of credit in commercial loans and
exposure to credit loss can be adversely impacted by downturns in local economic
and employment conditions.
Loans grew $13,027,335 or 12.7% from $102,768,168 on March 31, 1998 to
$115,795,503 on March 31, 1999. The growth was in the real estate, commercial
and industrial,
-112-
<PAGE>
municipal and all other loans. The bank's credit quality is reflected by the
ratio of net charge offs to total loans of .01% for the first quarter of 1999
versus .02% for the first quarter of 1998. The ratio of nonperforming assets to
total assets of .14% at March 31, 1999 compared to .38% at March 31, 1998.
Loans grew $12,113,997, or 11.8% from $102,575,087 at December 31, 1997, to
$114,689,084. The growth was in the real estate, municipal and all other loan
areas. The bank's credit quality is reflected by the annualized ratio of net
charge offs to total loans of .31% for 1998 versus .11% for the year 1997, and
the ratio of nonperforming assets to total assets of .41% at December 31, 1998,
compared to .42% at December 31, 1997.
Major classifications of loans are summarized as follows at March 31, 1999
and 1998, and December 31, 1998 and 1997:
<TABLE>
<CAPTION>
March 31, December 31,
-------------------- --------------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Real estate loans - construction $ 1,453 $ 1,502 $ 2,165 $ 1,809
Real estate loans - other 77,305 68,597 77,884 65,339
Commercial & industrial loans 14,472 13,401 12,513 12,988
Installment loans 19,782 21,084 18,913 21,335
Municipal loans 2,629 829 2,567 818
All other loans 155 351 647 286
--- --- --- ---
Total 115,796 102,768 114,689 102,575
Less:
Unearned discount 0 0 0 0
Allowance for possible loan
losses (1,181) (1,084) (1,100) (1,097)
------- ------- ------- -------
Net Loans $114,615 $101,684 $113,589 $101,478
======== ======== ======== ========
</TABLE>
A loan is generally classified as nonaccrual when principal or interest has
consistently been in default for a period of 90 days or more or because of a
deterioration in the financial condition of the borrower or payment in full of
principal or interest is not expected. Delinquent loans past due 90 days or more
and still accruing interest are generally well-secured and expected to be
restored to a current status in the near future. The following table details
those loans that were placed on nonaccrual status, were accounted for as
troubled debt restructurings or were delinquent 90 days or more and still
accruing interest:
-113-
<PAGE>
<TABLE>
<CAPTION>
March 31, December 31,
-------------------- --------------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Nonaccrual loans $82 $258 $397 $187
Trouble debt restructurings 0 0 0 0
Delinquent loans 75 134 75 247
-- -- -- --
Total $157 $392 $472 $434
==== ==== ==== ====
</TABLE>
Allowance for Possible Loan Losses
A summary of the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
As of and for
the Three Months
Ended March 31, As of and for the year ended December 31,
---------------------- ----------------------------------------------------------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Average loans $115,800 $102,969 $108,763 $ 97,655 $ 77,955 $ 72,722 $ 73,110
======== ======== ======== ======== ======== ======== ========
Allowance, beginning of
period $ 1,100 $ 1,097 $ 1,097 $ 949 $ 869 $ 817 $ 841
-------- -------- -------- -------- -------- -------- --------
Loans charged off:
Commercial and
industrial 0 0 125 1 0 0 211
Installment and other 10 83 229 125 85 43 53
Real estate 7 0 10 26 0 11 0
Lease financing 0 0 0 0 0 0 0
-------- -------- -------- -------- -------- -------- --------
Total loans charged off 17 83 364 152 85 54 264
-------- -------- -------- -------- -------- -------- --------
Recoveries:
Commercial and
industrial 0 0 0 0 0 0 0
Installment and other 8 16 26 43 25 25 30
Real estate 0 0 0 0 0 0 0
Lease financing 0 0 0 0 0 0 0
-------- -------- -------- -------- -------- -------- --------
Total recoveries 8 16 26 43 25 25 30
-------- -------- -------- -------- -------- -------- --------
Net loans charged off 9 67 338 109 60 29 234
-------- -------- -------- -------- -------- -------- --------
Provision for loan losses 90 54 341 257 140 81 210
-------- -------- -------- -------- -------- -------- --------
Allowance, end of period $ 1,181 $ 1,084 $ 1,100 $ 1,097 $ 949 $ 869 $ 817
======== ======== ======== ======== ======== ======== ========
Ratio of net charge offs to
average loans
outstanding 0.01% 0.02% 0.31% 0.11% 0.08% 0.04% 0.32%
======== ======== ======== ======== ======== ======== ========
</TABLE>
The allowance for possible loan losses is increased by the provision
charged to current operating income and is reduced by loans charged off, net of
recovery. The provision is based upon a credit review of the loan portfolio,
past loan loss experience, current economic conditions and other pertinent
factors which form a basis for determining the adequacy of the allowance for
-114-
<PAGE>
possible loan losses. Management deems the aggregate amount reserved to be
adequate to absorb future loan losses. Management maintains an allowance that is
adequate to absorb losses as required by SFAS 5 and the AICPA Bank Credit Guide.
The allowance for possible loan losses of $1,181,041 at March 31, 1999 was
1.02% of loans, compared to 1.05% of loans on March 31, 1998.
The allowance for possible loan losses of $1,100,181 at December 31, 1998,
was 0.96% of loans, compared to 1.07% of loans on December 31, 1997.
Transactions in the allowance for possible loan losses account for the
periods ended March 31, 1999 and 1998, and for the years ended December 31, 1998
and 1997 are summarized as follows:
<TABLE>
<CAPTION>
As of and for As of and for
the Three Months the Year Ended
Ended March 31, December 31,
--------------------- --------------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Beginning balance $1,100 $1,097 $1,097 $ 949
Provision charged to operations 90 54 341 257
Recovery of loans previously
charged off 8 16 26 43
- -- -- --
1,198 1,167 1,464 1,249
Loans charged off 17 83 364 152
-- -- --- --
Ending balance $1,181 $1,084 $1,100 $1,097
====== ====== ====== ======
</TABLE>
Premises and Equipment
Clearfield's premises and equipment are summarized as follows at March 31,
1999 and 1998, and December 31, 1998 and 1997:
<TABLE>
<CAPTION>
March 31, December 31,
---------------------- ----------------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Land $ 792 $ 792 $ 792 $ 792
Clearfield premises 5,532 5,435 5,532 5,435
Furniture & Equipment 2,212 2,446 2,214 2,225
------- ------- ------- -------
8,536 8,673 8,538 8,452
Less accumulated depreciation (3,353) (3,320) (3,281) (3,240)
------- ------- ------- -------
Clearfield premises and equipment, net $ 5,183 $ 5,353 $ 5,257 $ 5,212
======= ======= ======= =======
</TABLE>
Deposits
-115-
<PAGE>
The following table is a distribution of average balances and average rates
paid on the deposit categories for March 31, 1999 and 1998, and December 31,
1998 and 1997.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
--------------------
(unaudited)
1999 1998
-------------------- ------------------
(Dollars in thousands) Amount Rate Amount Rate
------ ---- ------ ----
<S> <C> <C>
Noninterest-bearing $ 19,622 -% $ 17,936 -%
Interest-bearing
checking accounts 13,421 1.00 13,509 1.32
Money market
accounts 13,819 3.40 13,914 3.99
Savings 27,807 2.70 26,466 2.76
Time--under $100,000 73,173 5.15 72,526 5.41
Time--over $100,000 13,383 5.27 10,540 5.77
-------- --------
Total $161,225 3.61 $154,891 3.87
======== ========
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1998 1997
-------------------- ------------------
(Dollars in thousands) Amount Rate Amount Rate
------ ---- ------ ----
<S> <C> <C>
Noninterest-bearing $ 18,862 -% $ 18,576 -%
Interest-bearing
checking accounts 13,991 1.18 13,259 1.33
Money market
accounts 13,710 3.87 17,766 4.09
Savings 27,550 2.77 22,090 2.18
Time--under
$100,000 71,821 5.32 70,617 5.58
Time--over
$100,000 11,841 5.72 8,793 4.77
------ -----
Total $157,775 3.78 $151,101 3.80
======= =======
</TABLE>
A maturity distribution of total certificates of deposit of $100,000 and
over is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
---------- ------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Three months or less $ 5,491 $ 3,634 $ 3,779 $ 2,803
Over three months to six months 2,049 1,051 3,726 672
Over six months to twelve months 3,232 743 1,920 696
Over twelve months 2,898 5,775 4,477 5,379
------- ------- ------- -------
Total $13,670 $11,203 $13,902 $ 9,550
======= ======= ======= =======
</TABLE>
-116-
<PAGE>
Deposits are the primary source of funding for loans and investment
securities. Total deposits of $161,562,429 on March 31, 1999 were $5,071,042 or
3.2% higher than on March 31, 1998. This increase was primarily the result of
increases in noninterest-bearing, savings and time deposits. These increases are
partially offset by decreases in interest-bearing checking and money market
accounts.
Total deposits of $162,806,314 on December 31, 1998 were $9,554,956, or
6.2% higher than the December 31, 1997 balance of $153,251,358. This increase
was primarily the result of increases in noninterest-bearing and interest
checking accounts, savings accounts and time deposits. These increases are
partially offset by decreases in money market accounts.
Deposits are summarized as follows at March 31, 1999 and 1998, and December
31, 1998 and 1997:
<TABLE>
<CAPTION>
March 31, December 31,
----------- ------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Noninterest-bearing $ 20,098 $ 18,720 $ 20,579 $ 18,437
Interest-bearing checking accounts 13,083 13,621 14,243 13,961
Money market accounts 14,023 14,349 14,073 14,116
Savings 27,467 26,932 27,156 25,176
Time, under $100,000 73,222 71,666 72,853 72,011
Time, over $100,000 13,670 11,203 13,902 9,550
------ ------ ------ -----
Total Deposits $161,563 $156,491 $162,806 $153,251
======== ======== ======== ========
</TABLE>
Capital
Quantitative measures established by regulations to ensure capital adequacy
require the maintenance of minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets. Management believes, as of March 31, 1999 that
Clearfield meets all capital adequacy requirements.
The minimum for the Tier 1 ratio is 4.0%, and the total capital ratio (Tier
1 plus Tier 2 capital divided by risk-adjusted assets) minimum is 8.0%. At March
31, 1999, Clearfield's Tier 1 risk-adjusted capital ratio was 17.4% and the
total risk-adjusted capital ratio was 18.5%. At December 31, 1998, Clearfield's
Tier 1 risk-adjusted capital ratio was 17.1%, and the total risk- adjusted
capital ratio was 18.1%, both well above the regulatory requirements.
March 31, December 31,
----------- ------------
(unaudited)
1999 1998 1998 1997
---- ---- ---- ----
Tier 1 Capital Ratio 17.4% 17.9% 17.1% 17.3%
Total Capital Ratio 18.5 19.0 18.1 18.4
Leverage Ratio 10.6 10.3 10.4 10.3
-117-
<PAGE>
Shareholders' equity increased by $938,243 or 4.8% from March 31, 1998 to
March 31, 1999. This increase is due to the retention of earnings. Cash
dividends paid during the first quarter of 1999 were unchanged from the first
quarter of 1998.
Shareholders' equity increased by $1,084,158 or 5.6% in 1998 to
$20,362,026. This increase was primarily due to the retention of earnings. Cash
dividends paid in 1998 increased $23,072 or 2.5%.
Results of Operations
Consolidated net income for the first quarter of 1999 was $423,824 or 10.7%
above first quarter of 1998 income of $382,709. Earnings per share were $.74
during the first quarter of 1999 compared to $.66 during the first quarter of
1998.
Consolidated net income for 1998 was $1,921,547 or 7.3% above 1997 net
income of $1,790,465. Earnings per share were $3.33 in 1998 compared to $3.10 in
1997.
Net income as a percentage of stockholders' equity was an annualized 8.33%
for the first quarter of 1999, compared to an annualized 7.97% for the first
quarter of 1998. Net income as a percentage of average assets was an annualized
.94% for the first quarter of 1999, compared to an annualized .88% for the first
quarter of 1998.
Net income as a percentage of stockholders' equity was 9.61% for 1998,
compared to 9.29% for 1997. Net income as a percentage of average assets was
1.07% for 1998, compared to 1.03% for 1997.
During 1998, Clearfield adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standards Number 130, "Reporting Comprehensive
Income." Comprehensive income is the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
non-owner sources. Comprehensive income consists of operating income and net
unrealized gains on investment securities available for sale. Subsequent to the
adoption date all prior periods are required to be restated to conform to the
provisions. Comprehensive income for the first quarter of 1999 was $225,869
compared to $366,015 for the first quarter of 1998. Comprehensive income in 1998
was $2,030,124, compared to $2,042,670 in 1997.
Net Interest Income
Net interest income is Clearfield's primary source of income. It is the
difference between interest income on assets and interest expense on
liabilities. The change in net interest income
-118-
<PAGE>
from year to year is caused by changes in interest rates, and changes in volume
or mix of rate sensitive assets and liabilities.
Net interest income increased $25,131 or 1.7% to $1,519,837 in the first
quarter of 1999 from the first quarter of 1998 amount of $1,494,706. This
increase in interest income was the result of the 12.5% growth in average loans
outstanding of $12,830,694 to $115,799,923.
Net interest income increased $88,110 or 1.4% to $6,179,882 in 1998 from
the 1997 amount of $6,091,772. This increase in interest income was the result
of the 11.4% growth in average loans outstanding of $11,108,778 to $108,763,399.
Interest expense decreased $55,636 or 3.7% to $1,437,394 during the first
quarter of 1999 from the first quarter 1998 amount of $1,493,030.
Interest expense increased $119,905 or 2.0% to $5,985,502 in 1998 from the
1997 amount of $5,865,597.
For analytical purposes, the following table reflects tax-equivalent net
interest income in recognition of the income tax savings on tax-exempt items
such as interest on municipal securities and tax-exempt loans. Adjustments are
made using a statutory federal tax rate of 34%.
<TABLE>
<CAPTION>
As of and for As of and for
the Three Months the Year Ended,
Ended March 31, December 31,
---------------- ---------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997 1996
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Interest income $2,957 $2,988 $12,165 $11,957 $10,472
Interest expense 1,437 1,493 5,985 5,866 5,024
----- ----- ----- ----- -----
Net interest income 1,520 1,495 6,180 6,091 5,448
Tax equivalent adjustment 107 114 479 453 427
--- --- --- --- ---
Net interest income
(fully taxable equivalent) $1,627 $1,609 $ 6,659 $ 6,544 $ 5,875
====== ====== ======= ======= =======
</TABLE>
-119-
<PAGE>
Three Months Ended
March 31, 1998
vs.
March 31, 1999
------------------
Increase(decrease)
due to changes in
------------------
(Dollars in thousands) Net
Change Rate Volume
------ ----- ------
Interest Income:
Investment securities(1) $(141) $ 304 $(445)
Loans(1) 102 (991) 1,093
Other assets 1 (31) 32
----- ----- -----
Total (38) (718) 680
----- ----- -----
Interest
Expense:
Savings deposits (27) (58) 31
Time deposits (14) (204) 190
Borrowings and
other interest-
bearing liabilities (15) 46 (61)
----- ----- -----
Total (56) (216) 160
----- ----- -----
Changes in net
interest income $ 18 $(502) $ 520
===== ===== =====
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
vs. vs.
December 31, 1997 December 31, 1996
------------------ ------------------
Increase(decrease) Increase(decrease)
due to changes in due to changes in
------------------ ------------------
(Dollars in Net Net
thousands) Change Rate Volume Change Rate Volume
------ ---- ------ ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Investment
securities(1) ($ 559) ($ 125) ($ 434) ($ 201) $ 34 ($ 235)
Loans(1) 729 (214) 943 1,706 (43) 1,663
Other assets 64 (4) 68 6 (2) 8
------- ------- ------- ------- ------- -------
Total 234 (343) 577 1,511 75 1,436
------- ------- ------- ------- ------- -------
Interest
Expense:
Savings deposits 72 (16) 56 (45) 33 (12)
Time deposits 138 96 234 777 (41) 736
Borrowings and
other interest-
bearing
liabilities (91) 5 (96) 110 4 106
------- ------- ------- ------- ------- -------
Total 119 (75) 194 842 (12) 830
------- ------- ------- ------- ------- -------
Changes in net
interest income $ 115 ($ 268) $ 383 $ 669 $ 63 $ 606
======= ======= ======= ======= ======= =======
</TABLE>
- ----------------------
(1) The interest earned on nontaxable investment securities and loans is shown
on a tax equivalent basis.
-120-
<PAGE>
Provision for Loan Losses
The provision for loan losses is determined by a periodic review of
individual loans, loss experience, current economic conditions, the risk
characteristics of various categories of loans and other important factors.
Based on these factors, the provision for loan losses was $90,000 during the
first quarter of 1999 compared to $54,000 during the first quarter of 1998.
Clearfield experienced net charge offs during the first quarter of 1999 of
$9,140 compared to $66,844 during the first quarter of 1998.
In 1998, the provision for loan losses was $341,000, compared to $257,000
in 1997. Clearfield experienced net charge offs in 1998 of $337,590 compared to
$109,342 in 1997.
Based on its analysis of the loan portfolio, management believes that the
allowance for loan losses at March 31, 1999 is adequate to absorb potential loan
losses. Management maintains an allowance that is adequate to absorb losses as
required by SFAS 5 and the AICPA Bank Credit Guide.
Other Income
Other income grew 13.9% from $246,524 for the first quarter of 1998 to
$280,874 for the first quarter of 1999. Other income grew 4.7% from $971,982 for
1997, to $1,018,137 for 1998. The increases are due primarily to increased
revenues from fiduciary activities, return check charges, debit card fees, ATM
surcharging and commissions from the sale of other financial products.
The bank generates revenues from fiduciary activities through its Trust
Department. The Trust Department offers a full line of services such as
guardianships, personal trusts, estate planning, IRA and Keogh plans, pension
and profit sharing plan administration and investment counseling.
Through the establishment of Diamond Financial Services, the bank has been
able to increase revenues through the sale of non-traditional banking products
such as fixed and variable rate annuities, mutual funds and stock transactions.
Other Operating Expenses
Other operating expenses of $1,166,773 during the first quarter of 1999,
were $5,324 lower than the first quarter of 1998. Other operating expenses of
$4,376,324 in 1998, were $113,055 lower than in 1997. This decrease was a result
of lower advertising and supplies and printing expenses. Salaries, wages and
employee benefits, and depreciation of premises and fixed assets increased
during 1998.
-121-
<PAGE>
Income Tax
The provision for federal income taxes was $120,144 for the first quarter
of 1999, compared to $132,424 for the first quarter of 1998. The provision for
federal income taxes was $559,148 for 1998, compared to $526,910 for 1997. The
increase in the current tax provision is due to a higher level of taxable
income. The overall tax provision has decreased because of a decrease in the
deferred federal income taxes.
-122-
<PAGE>
PENN LAUREL FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On the following pages we present management's discussion and analysis of
the consolidated financial condition and results of operations of Penn Laurel.
Management's discussion and analysis discusses the significant changes in the
results of operations, capital resources and liquidity presented in its
accompanying consolidated financial statements for Penn Laurel. Current
performance does not guarantee, assure, and may not be indicative of similar
performance in the future.
The following discussion focuses on and highlights certain information
regarding Penn Laurel. We recommend that you read this discussion in conjunction
with the consolidated financial statements and related notes appearing elsewhere
in this proxy statement/prospectus.
We caution you not to place undue reliance on forward-looking statements in
this section, they reflect management's analysis only as of this date. Penn
Laurel undertakes no obligation to publicly revise or update these
forward-looking statements to reflect subsequent events or circumstances.
-123-
<PAGE>
Balance Sheet Analysis
The table below presents the major asset and liability categories on an
average daily basis for the periods presented, along with interest income and
expense, and key rates and yields. During the first three months of 1999, the
assets showing the greatest increase were loans. On the liability side, the most
significant source of new funds was time deposits.
Distribution of assets, liabilities and shareholders equity, interest rates and
interest differential:
<TABLE>
<CAPTION>
As of and for
the Three Months
Ended March 31,
----------------
(unaudited)
1999 1998
------- -------
(Dollars in thousands) Average Average Average Average
Balance Rate Interest Balance Rate Interest
-------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investment securities:
Taxable investments $ 22,850 4.90% $ 280 $ 23,088 5.58% $ 322
Nontaxable investments (1) 10,276 6.89 177 9,576 6.94 166
-------- ------ -------- ------
Total investment securities 33,126 5.52 457 32,664 5.98 488
Loans (1) 93,428 8.79 2,054 82,270 9.29 1,911
Other rate-sensitive assets - - - - - -
- - - - - -
-------- ------- ------ -------- ----- ------
Total earning assets 126,554 7.94 2,511 114,934 8.35 2,399
Noninterest-earning assets 7,258 - - 7,498 - -
-------- ------- ------ -------- ----- ------
Total assets $133,812 $2,511 $122,432 $2,399
======== ====== ======== ======
Liabilities and Shareholders' Equity
Deposits:
Demand $ 9,042 - - $ 8,222 - $ -
Savings 40,312 2.66 268 39,484 2.94 290
Time 64,022 5.57 891 58,794 5.70 837
-------- ------ -------- ------
Total $113,376 4.09 $1,159 $106,500 4.24 $1,127
Borrowings and other interest-bearing
liabilities 3,574 5.15 46 16 25.00 1
-------- ------ -------- ------
Total interest bearing liabilities 116,950 4.12 1,205 106,516 4.24 1,128
Other liabilities 2,114 - - 2,394 - -
Total liabilities 119,064 - - 108,516 - -
Shareholders' equity 14,748 - - 13,522 - -
Total liabilities and shareholders equity $133,812 - $1,205 $122,432 - $1,128
======== ====== ======== ======
Average effective rate on interest-bearing
liabilities $107,908 4.47 $1,205 $ 98,294 4.59 $1,128
======== ==== ====== ======== ===== ======
Interest Income/Earning Assets $126,554 7.94 $2,511 $114,934 8.35 $1,128
Interest Expense/Earning Assets $126,554 3.81 $1,205 $114,934 3.93 $2,399
---- -----
Net Interest Margin 4.13 4.42
==== =====
Net Interest Spread 3.82 4.11
==== =====
</TABLE>
-124-
<PAGE>
<TABLE>
<CAPTION>
As of and for the Year Ended December 31,
-----------------------------------------
1998 1997
(Dollars in thousands) Average Average Average Average
Balance Rate Interest Balance Rate Interest
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investment securities:
Taxable investments $ 23,751 5.36 $ 1,273 $ 23,228 5.97 $1,371
Nontaxable investments (1) 10,101 7.62 770 8,770 7.54 661
-------- ---- -------- -------- ---- ------
Total investment securities 33,852 6.04 2,043 31,998 6.40 2,032
Loans (1) 87,244 9.42 8,215 80,163 9.46 7,587
Other rate-sensitive assets -- -- -- -- -- --
-------- ---- -------- -------- ---- ------
Total earning assets 121,096 8.47 10,258 112,161 8.58 9,619
Noninterest-earning assets 7,266 -- -- 7,035 -- --
-------- ---- -------- -------- ---- ------
Total assets $128,362 $ 10,258 $119,196 $9,619
======== ======== ======== ======
Liabilities and Shareholders' Equity
Deposits:
Demand $ 8,863 -- $ 8,851 -- $ --
Savings 40,485 2.99 1,210 39,033 2.93 1,142
Time 61,042 5.75 3,509 56,765 5.77 3,273
-------- ---- -------- -------- ---- ------
Total $110,390 4.27 $ 4,719 $104,649 4.22 $4,415
Borrowings and other interest-bearing
liabilities 2,269 4.76 108 188 5.85 11
-------- ---- -------- -------- ---- ------
Total interest bearing liabilities 112,659 4.28 4,827 104,837 4.20 4,426
Other liabilities 1,693 -- -- 1,892 -- --
Total liabilities 114,352 4,827 106,729 4,426
Shareholders' equity 14,010 -- -- 12,467 -- --
Total liabilities and shareholders' equity $128,362 $ 4,827 $119,196 $4,426
======== ======== ======== ======
Average effective rate on interest-bearing
liabilities $103,796 4.65 $ 4,827 $ 95,986 4.61 $4,426
======== ==== ======== ======== ==== ======
Interest Income/Earning Assets $121,096 8.47 $ 10,258 $112,161 8.58 $9,619
Interest Expense/Earning Assets $121,096 3.99 $ 4,827 $112,161 3.94 $4,415
---- ----
Net Interest Margin 4.48 4.64
==== ====
Net Interest Spread 4.19 4.38
==== ====
</TABLE>
- ------------------
(1) The interest earned on nontaxable investment securities and loans is shown
on a tax equivalent basis.
Investment Securities
Investments, which are Penn Laurel's secondary use of funds, decreased
$1,243,000 or 3.7% from $34,036,000 at March 31, 1998 to $32,793,000 at March
31, 1999. During the period, the available for sale category showed slight
increases in obligations of states and political subdivisions and marketable
securities; however, the greatest change was a decrease in other obligations of
U.S. Government Agencies. The March 31, 1999 portfolio decreased $2,300,000 or
6.6% over the December 31, 1998 portfolio. The March 31, 1999 portfolio did not
change significantly over the December 31, 1997 portfolio.
-125-
<PAGE>
The March 31, 1999 federal funds sold of $1,675,000 was $650,000 lower than
the March 31, 1998 balance of $2,325,000.
The maturity analysis of investment securities held to maturity,
including the weighted average yield for each category as of March 31, 1999, is
as follows:
<TABLE>
<CAPTION>
Under 5-10 Over
(Dollars in thousands) 1 year 1-5 years years 10 years Total
------ --------- ----- -------- -----
<S> <C> <C> <C> <C> <C>
Corporate Debt Securities:
Carrying value $995 - - - $995
Weighted average yield 4.88% - - - 4.88%
Weighted average maturity 1 month
Total:
Carrying value $995 - - - $995
Weighted average yield 4.88% - - - 4.88%
Weighted average maturity 1 month
</TABLE>
The maturity analysis of securities available for sale, including the
weighted average yield for each category, as of March 31, 1999 is as follows:
<TABLE>
<CAPTION>
Under 1-5 5-10 Over
(Dollars in thousands) 1 year years years 10 years Total
------ ----- ----- -------- -----
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities:
Carrying value $1,499 - $1,989 - $3,488
Weighted average yield 5.61% - 5.90% - 5.77%
Weighted average maturity 1 year
3 months
Obligations of other U.S. Government agencies:
Carrying value $500 $4,500 - - $5,000
Weighted average yield 5.60% 5.74% - - 5.72%
Weighted average maturity 3 years
5 months
Obligations of states and political subdivisions:
Carrying value - $1,983 $3,617 $4,459 $10,059
Weighted average yield 6.68% 7.06% 6.91% 6.92%
Weighted average maturity 10 years
0 months
Equity Securities:
Carrying value - - $3,388 - $3,388
Weighted average yield - - 4.47% - 4.47%
Weighted average maturity 0 years
0 months
Corporate Debt Securities:
Carrying value $1,141 $1,550 - - $2,691
</TABLE>
-126-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Weighted Average Yield 7.59% 5.68% - - 6.48%
Weighted Average Maturity 2 years
0 months
Mortgage Backed and Asset Backed Securities
Carrying Value $35 $1,883 $515 $585 $3,018
Weighted Average Yield 6.79% 5.99% 6.00% 6.36% 6.07%
Weighted Average Maturity 11 years
1 month
Other Securities:
Carrying value $1,675 - - - $1,675
Weighted average maturity 4.75% - - - 4.75%
Weighted average yield 1 month
Total:
Carrying value $4,850 $9,916 $9,509 $5,044 $29,319
Weighted average yield 5.79% 5.97% 5.84% 6.84% 6.39%
Weighted average maturity 6 years
3 months
</TABLE>
The maturity analysis of investment securities held to maturity, including
the weighted average yield for each category as of December 31, 1998, is as
follows:
<TABLE>
<CAPTION>
Under 1-5 5-10 Over
(Dollars in thousands) 1 year years years 10 years Total
------ ----- ----- -------- -----
<S> <C> <C> <C> <C> <C>
Corporate Debt Securities:
Carrying value $1,977 - - - $1,977
Weighted average yield 5.58% - - - 5.58%
Weighted average maturity 1 month
Total:
Carrying value $1,977 - - - $1,977
Weighted average yield 5.58% - - - 5.58%
Weighted average maturity 1 month
</TABLE>
The maturity analysis of securities available for sale, including the
weighted average yield for each category, as of December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Under 1-5 5-10 Over
(Dollars in thousands) 1 year years years 10 years Total
------ ----- ----- -------- -----
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities:
Carrying value $999 $2,987 - - $3,986
Weighted average yield 5.95% 5.81% - - 5.84%
Weighted average maturity 1 year
4 months
</TABLE>
-127-
<PAGE>
<TABLE>
Obligations of other U.S. Government agencies:
<S> <C> <C> <C> <C> <C>
Carrying value $0 $5,499 $1,500 - $6,999
Weighted average yield 0 5.94% 7% - 6.17%
Weighted average maturity 3 years
9 months
Obligations of states and political subdivisions:
Carrying value $220 $2,266 $3,974 $4,274 $10,734
Weighted average yield 10.0% 7.02% 7.55% 7.30% 7.48%
Weighted average maturity 9 years
10 months
Equity Securities:
Carrying value - - $3,076 - $3,076
Weighted average yield - - 4.78% - 4.78%
Weighted average maturity 0 years
0 months
Corporate Debt Securities:
Carrying value $2,137 $1,554 - - $3,691
Weighted Average Yield 6.47% 5.68% - - 6.12%
Weighted Average Maturity 1 year
8 months
Mortgage Backed and Asset Backed Securities
Carrying Value $42 $662 $949 $186 $1,839
Weighted Average Yield 6.79% 6.02% 6.20% 5.66% 6.09%
Weighted Average Maturity 10 years
10 months
Total:
Carrying value $3,398 $12,968 $9,499 $4,460 $30,325
Weighted average yield 6.53% 6.07% 6.42% 7.22% 6.40%
Weighted average maturity 5 years
4 months
</TABLE>
Weighted average yield is computed by dividing the annualized interest
income, including the accretion of discounts and the amortization of premiums,
by the carrying value. Tax-exempt securities were adjusted to a tax-equivalent
basis and are based on the federal statutory tax rate of 34%.
The amortized cost and fair value of investment securities are as follows:
-128-
<PAGE>
<TABLE>
<CAPTION>
March 31, 1999
--------------
(unaudited)
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Securities Available for Sale:
- ------------------------------
U.S. Treasury Securities $3,488,117 $36,610 $0 $3,524,727
Obligations of Other U.S. Government Agencies 5,000,178 2,560 19,460 4,983,278
Obligations of States and Political Subdivision 10,058,976 158,893 66,767 10,151,102
Marketable Equities 3,388,146 2,500,658 133,574 5,755,230
Other Securities 7,383,874 24,121 24,386 7,383,609
--------- ------ ------ ---------
TOTAL $29,319,291 $2,722,842 $244,187 $31,797,946
=========== ========== ======== ===========
Securities Held to Maturity:
- ----------------------------
Other Securities $995,527 $ - $ - $995,527
======== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
--------------
(unaudited)
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Securities Available for Sale:
- ------------------------------
U.S. Treasury Securities $3,977,340 $20,161 $1,353 $3,996,148
Obligations of Other U.S. Government Agencies 7,994,434 28,522 11,936 8,016,020
Obligations of States and Political Subdivision 8,842,110 84,426 41,504 8,885,032
Marketable Equities 2,096,903 2,241,561 - 4,338,464
Other Securities 7,154,259 28,180 11,210 7,171,229
--------- ------ ------ ---------
TOTAL $30,070,046 $2,402,850 $66,003 $32,406,893
=========== ========== ======= ===========
Securities Held to Maturity:
- ----------------------------
Obligations of States and Political Subdivision $1,628,653 $44,760 $ - $1,673,413
========== ======= ======= ==========
</TABLE>
-129-
<PAGE>
<TABLE>
<CAPTION>
December 31, 1998
-----------------
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Securities Available for Sale:
- ------------------------------
U.S. Treasury Securities $3,985,703 $58,047 $ - $4,043,750
Obligations of Other U.S. Government Agencies 6,999,471 60,648 4,359 7,055,760
Obligations of States and Political Subdivision 10,734,135 247,384 15,348 10,966,171
Marketable Equities 3,075,968 2,605,495 170,431 5,511,032
Other Securities 5,529,844 27,769 18,379 5,539,234
--------- ------ ------ ---------
TOTAL $30,325,121 $2,999,343 $208,517 $33,115,947
=========== ========== ======== ===========
Securities Held to Maturity:
- ----------------------------
Other Securities $1,977,044 $ - $ - $1,977,044
========== ======= ======= ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Securities Available for Sale:
- ------------------------------
U.S. Treasury Securities $3,989,754 $15,733 $12,675 $3,992,812
Obligations of Other U.S. Government Agencies 8,752,786 52,731 15,770 8,789,747
Obligations of States and Political Subdivisions 7,514,517 112,688 53 7,627,152
Marketable Equities 1,591,809 2,514,906 - 4,106,715
Other Securities 5,472,006 23,273 24,206 5,471,073
--------- ------ ------ ---------
TOTAL $27,320,872 $2,719,331 $52,704 $29,987,499
=========== ========== ======= ===========
Securities Held to Maturity:
- ---------------------------
Obligations of States and Political Subdivisions $1,628,598 $51,926 $ - $1,680,524
Other Securities 995,087 - - 995,087
------- ------- ------ -------
TOTAL $2,623,685 $51,926 $ - $2,675,611
========== ======= ====== ==========
</TABLE>
Interest Rate Sensitivity
The level and volatility of interest rates can have a significant impact on
Penn Laurel's profitability. The objective of interest rate management is to
identify and manage the sensitivity of net interest income to changing interest
rates and other market factors in order to achieve overall financial goals.
The Asset and Liability Committee is responsible for establishing policies
to increase net interest income and to monitor the interest rate risk. Penn
Laurel's Asset and Liability Committee monitors interest rate risk through the
use of two methods:
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<PAGE>
o static gap; and
o income simulation.
Static gap classifies assets and liabilities into maturity and repricing
time frames in order to identify potential mismatches among these positions. The
cumulative one year gap was ($23,234,210) and $9,391,815 on March 31, 1999 and
1998 and ($14,148,899) and $7,572,479 on December 31, 1998 and 1997. Currently,
Penn Laurel is in a negative gap position which means more liabilities will
reprice than assets during the year. During 1999, the gap position will be
affected by a large volume of maturing certificates of deposits.
Penn Laurel's Asset and Liability Committee also uses income simulation as
another tool to measure and manage interest rate risk. Management simulates
possible economic conditions and interest rate scenarios in order to forecast
the impact on net income. The following table summarizes the effect on changes
in interest rates on net income:
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998 December 31, 1998 December 31, 1997
-------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Rising rates (+200/-200 basis points) (6.00%) 7.0% 3.8% 6.8%
Falling rates (+200/-200 basis points) 4.40% (8.6%) (6.1%) (8.7%)
</TABLE>
Penn Laurel's Asset and Liability Committee will continue to monitor the
effect of changes in interest rates on net income through these computer
generated models.
Loans
Penn Laurel grants commercial loans, residential mortgages, and consumer
loans to customers located primarily within Central Pennsylvania. Loans grew
$11,189,000 or 13.5% from $83,017,000 at March 31, 1998 to $94,206,000 at March
31, 1999. The growth was primarily the result of an increase in real estate
related loans. The March 31, 1999 loan balance was 3.1% higher than the December
31, 1998 loan balance and 15.1% higher than the December 31, 1997 loan balance.
The increase in loans from December 31, 1997 to March 31, 1999 was also
primarily the result of increased real estate related loans.
Major classifications of loans are summarized as follows at March 31, 1999
and 1998, and December 31, 1998 and 1997:
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<PAGE>
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
(unaudited)
1999 1998 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $27,192,780 $25,718,843 $26,472,381 $25,956,075
Real Estate 36,821,995 29,616,555 35,200,147 28,608,637
Installment 31,180,243 29,065,687 30,739,970 28,861,122
----------- ----------- ----------- -----------
95,195,018 84,401,085 92,412,498 83,425,834
Unearned discount (200,850) (604,582) (271,846) (757,169)
----------- ----------- ----------- -----------
94,994,168 83,796,503 92,140,652 82,668,665
Allowance for loan losses (788,226) (779,534) (771,478) (788,807)
----------- ----------- ----------- -----------
$94,205,942 $83,016,969 $91,369,174 $81,879,858
=========== =========== =========== ===========
</TABLE>
A loan is generally classified as nonaccrual when principal or interest has
consistently been in default for a period of 90 days or more or because of a
deterioration in the financial condition of the borrower or payment in full of
principal or interest is not expected. Delinquent loans past due 90 days or more
and still accruing interest are generally well-secured and expected to be
restored to a current status in the near future. The following table details
those loans that were placed on nonaccrual status or were delinquent 90 days or
more and still accruing interest:
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Nonaccrual loans $268 $740 $121 $501
Delinquent loans 32 91 27 210
---- ---- ---- ----
Total $300 $831 $148 $711
==== ==== ==== ====
</TABLE>
Allowance for Possible Loan Losses
The allowance for possible loan losses of $788,000 at March 31, 1999 was
.84% of loans, compared to .94% of loans at March 31, 1998. This decrease is
primarily due to the increase in the volume of loans. The allowance for possible
loan losses of $771,000 at December 31, 1998 was .84% of loans compared to .95%
of loans at December 31, 1997.
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<PAGE>
A summary of the allowance for loan losses is as follows:
As of and for
the Three Months
Ended March 31,
----------------
(unaudited)
(Dollars in thousands) 1999 1998
---- ----
Average loans $93,428 $82,270
======= =======
Allowance, beginning of period $771 $789
---- ----
Loans charged off:
Commercial, financial and agricultural 4 108
Installment 54 67
Real estate - residential 7 13
- --
Total loans charged off 65 188
-- ---
Recoveries:
Commercial, financial and agricultural 5 77
Installment 5 20
Real estate - residential 0 17
- --
Total recoveries 10 114
-- ---
Net loans charged off 55 74
Provision for loan losses 72 65
Allowance, end of period $788 $780
==== ====
Ratio of net charge offs to average loans outstanding 0.24% 0.36%
===== =====
<TABLE>
<CAPTION>
As of and for the Year Ended December 31,
-----------------------------------------
(Dollars in thousands) 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average loans $87,244 $80,163 $74,184 $68,383 $60,186
======= ======= ======= ======= =======
Allowance, beginning of period $789 $721 $723 $638 $516
---- ---- ---- ---- ----
Loans charged off:
Commercial, financial and agricultural 177 10 142 22 18
Installment 293 381 209 153 77
Real estate - residential 16 9 145 1 121
-- - --- - ---
Total loans charged off 486 400 496 176 216
--- --- --- --- ---
Recoveries:
Commercial, financial and agricultural 76 65 149 46 18
Installment 56 103 100 53 26
Real estate - residential 17 0 13 1 116
-- - -- - ---
Total recoveries 149 168 262 100 160
--- --- --- --- ---
Net loans charged off 337 232 234 76 56
Provision for loan losses 319 300 232 161 178
Allowance, end of period $771 $789 $721 $723 $638
==== ==== ==== ==== ====
Ratio of net charge offs to average loans outstanding 0.39% 0.29% 0.32% 0.11% 0.09%
===== ===== ===== ===== =====
</TABLE>
The provision for loan losses is based upon a credit review of the loan
portfolio, past loan loss experience, current economic conditions and other
pertinent factors which form a basis for determining the adequacy of the
allowance for possible loan losses. In the opinion of management, the aggregate
amount reserved is deemed to be adequate to absorb future loan losses.
Transactions in the allowance for possible loan losses account for the
periods ended March 31, 1999 and 1998 and for the years ended December 31, 1998
and 1997 are summarized as follows:
-133-
<PAGE>
<TABLE>
<CAPTION>
As of and for As of and for the
the Three Months Year Ended
Ended March 31, December 31,
---------------- -----------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Beginning balance $771 $789 $ 789 $ 721
Provision charged to operations 72 65 319 300
Recovery of loans previously charged off 10 114 149 168
---- ---- ------ ------
853 968 1,257 1,189
Loans charged off 65 188 486 400
---- ---- ------ ------
Ending balance $788 $780 $ 771 $ 789
==== ==== ====== ======
</TABLE>
Penn Laurel premises and equipment are summarized as follows at March 31,
1999 and 1998 and December 31, 1998 and 1997:
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Land $ 471 $ 517 $ 471 $ 519
Buildings 1,906 1,744 1,770 1,744
Furniture & Equipment 2,013 2,052 2,104 2,004
----- ----- ------ ------
4,390 4,313 4,345 4,267
Less accumulated depreciation 2,511 2,333 2,464 2,283
----- ----- ------ ------
Penn Laurel premises and equipment, net $1,879 $1,980 $1,881 $1,984
====== ====== ====== ======
</TABLE>
Deposits
Total deposits of $114,372,000 at March 31, 1999 were $6,025,000 or 5.6%
higher than March 31, 1998. This increase is primarily the result of increases
in money market accounts and time deposits. These increases were particularly
offset by decreases in non-interest bearing and interest bearing checking
accounts and savings accounts. Total deposits of $113,845,000 December 31, 1998
were $8,258,000, or 7.8% higher than at December 31, 1997. This increase is
primarily the result of increases in non-interest bearing deposits,
interest-bearing checking deposits, money market deposits and time deposits.
These increases were partially offset by a decrease in savings deposits.
The following table is a distribution of average balances and average rates
paid on the deposit categories for March 31, 1999 and 1998.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
--------------------
(unaudited)
1999 1998
---- ----
(Dollars in thousands) Amount Rate Amount Rate
------ ---- ------ ----
<S> <C> <C> <C> <C>
Noninterest-bearing $ 9,042 -% $ 8,222 -%
Interest-bearing checking
accounts 16,889 2.03 17,246 2.39
Money market accounts 8,308 4.07 6,463 4.65
Savings 15,115 2.65 15,774 2.88
Time--under $100,000 53,693 5.57 50,204 5.68
Time--over $100,000 10,329 5.54 8,591 5.81
-------- --------
Total $113,376 $106,500
======== ========
</TABLE>
-134-
<PAGE>
The following table is a distribution of average balances and average rates
paid on the deposit categories for December 31, 1998 and 1997.
<TABLE>
<CAPTION>
For the Year Ended
December 31,
------------------
1998 1997
---- ----
(Dollars in thousands) Amount Rate Amount Rate
------ ---- ------ ----
<S> <C> <C> <C> <C>
Noninterest-bearing $ 8,863 -% $ 8,851 -%
Interest-bearing checking
accounts 17,244 2.37 16,484 2.39
Money market accounts 7,509 4.58 5,843 4.60
Savings 15,731 2.91 16,706 2.87
Time--under $100,000 51,893 5.74 49,209 5.75
Time--over $100,000 9,150 5.75 7,556 5.87
-------- --------
Total $110,390 $104,649
======== ========
</TABLE>
A maturity distribution of certificates of deposit of $100,000 and over is
as follows:
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Three months or less $ 4,123 $1,708 $1,791 $1,899
Over three months to six months 1,990 402 3,825 1,705
Over six months to twelve months 2,931 1,615 2,230 432
Over twelve months 2,013 5,338 2,053 4,164
------- ------ ------ ------
Total $11,057 $9,063 $9,899 $8,200
======= ====== ====== ======
</TABLE>
Deposits are summarized as follows at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
(Dollars in thousands) March 31, December 31,
--------- ------------
(unaudited)
1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Noninterest-bearing $ 8,572 $ 8,919 $ 9,734 $ 8,000
Interest-bearing checking accounts 16,903 17,447 17,281 17,082
Money market accounts 8,889 6,606 8,301 6,672
Savings 15,167 15,686 15,128 15,884
Time -- under $100,000 53,784 50,626 53,502 49,749
Time -- over $100,000 11,057 9,063 9,899 8,200
-------- -------- -------- --------
Total Deposits $114,372 $108,347 $113,845 $105,587
======== ======== ======== ========
</TABLE>
-135-
<PAGE>
Capital
Quantitative measures established by regulation to ensure capital adequacy
require the maintenance of minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets. Management believes, as of March 31, 1999 that
Penn Laurel meets all capital adequacy requirements.
The minimum for the Tier 1 ratio is 4.0%, and the total capital ratio (Tier
1 plus Tier 2 capital divided by risk-adjusted assets) minimum is 8.0%. At March
31, 1999, Penn Laurel's Tier 1 risk-adjusted capital ratio was 12.77% and the
total risk-adjusted capital ratio was 14.73%, both well above the regulatory
requirements.
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
(unaudited)
1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Tier 1 Capital Ratio 12.97% 13.69% 11.35% 12.39%
Total Capital Ratio 14.73 15.63 12.50 13.31
Leverage Ratio 11.08 11.26 9.30 7.53
</TABLE>
Results of Operations
Consolidated net income at March 31, 1999 was $373,999 or 44.3% below March
31, 1998. This decrease in net income is primarily the result of $348,000
decrease in security gains. The December 31, 1998 was $1,282,000 or 3.03% below
December 31, 1997. The decrease in net income is the result of higher operating
expenses experienced during 1998. The December 31, 1997 net income of $1,322,000
was 20.5% higher than the December 31, 1996 net income of $1,097,000. This
increase was the result of a higher net interest income.
On January 1, 1998, the Corporation adopted the Financial Accounting
Standards Board's SFAS No. 130 "Reporting Comprehensive Income." Comprehensive
income is the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. Other
comprehensive income consists of net unrealized gains on investment securities
available for sale. Subsequent to the adoption date, all prior- period amounts
are required to be restated to confirm to the provision of SFAS No. 130.
Comprehensive income for the first three months of 1999 was ($166,000) compared
to ($316,000) for the first three months of 1998. Comprehensive income for
December 31, 1998 and 1997 was ($1,225,000) and $2,368,000 respectively.
Net Interest Income
Net interest income at March 31, 1999 of $1,245,000 was 1.7% higher than
the March 31, 1998 net interest income of $1,224,000. This increase was the
result of 10.1%
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<PAGE>
increase in earning assets during this period. Partially offsetting this
increase was a reduction in the net interest margin during the first three
months of 1999, compared to the same period in 1998. The net interest margin for
the first three months in 1999 and 1998 was 4.13% and 4.42% respectively. This
reduction in net interest margin was due primarily to a decrease in yield on
average earning assets.
Net interest income at December 31, 1998 of $5,146,000 was 10.5% higher
than the December 31, 1997 net interest income of $4,949,000. The net interest
margin for December 31, 1998 and 1997 was 4.19% and 4.38% respectively.
The net interest margin for the period earning December 31, 1997 of 4.38%
was lower than the 4.40% for December 31, 1996 and lower than the 4.46% for
December 31, 1995.
<TABLE>
<CAPTION>
For the Three Months For the Year Ended
Ended March 31, December 31,
-------------------- ------------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income $2,450 $2,352 $9,973 $9,375 $8,536
Interest expense 1,205 1,128 4,827 4,426 3,961
------ ------ ------ ------ ------
Net interest income 1,245 1,224 5,146 4,949 4,575
Tax equivalent adjustment 67 62 274 232 221
------ ------ ------ ------ ------
Net interest income
(fully taxable equivalent) $1,312 $1,286 $5,420 $5,181 $4,796
====== ====== ====== ====== ======
</TABLE>
-137-
<PAGE>
Three Months Ended
March 31, 1998
vs.
March 31, 1999
--------------
Increase(decrease)
due to changes in
-----------------
(Dollars in Net
thousands) Change Rate Volume
------ ---- ------
Interest Income:
Investment
securities (1) $ (38) $(37) $ (1)
Loans (1) 141 (19) 160
Other assets 0 0 0
-- -- --
Total 103 (56) 159
----- ---- ----
Interest Expense:
Savings deposits (14) (13) (1)
Time deposits 53 (22) 75
Borrowings and
other interest-
bearing 38 19 19
----- ---- ----
liabilities
Total 77 (16) 93
----- ---- ----
Changes in net
interest income $ 26 $(40) $ 66
===== ==== ====
- ------------
(1) The interest earned on nontaxable investment securities and loans is shown
on a tax equivalent basis.
Year Ended Year Ended
December 31, 1998 December 31, 1997
vs. vs.
December 31, 1997 December 31, 1996
----------------- -----------------
Increase(decrease) Increase(decrease)
due to changes in due to changes in
----------------- -----------------
Net Net
Change Rate Volume Change Rate Volume
------ ---- ------ ------ ---- ------
$14 $ (91) $105 $104 $ 5 $ 99
--- ----- ---- ---- ---- ----
629 (18) 647 727 190 537
--- ----- ---- ---- ---- ----
(3) (3) - 19 5 14
--- ----- ---- ---- ---- ----
640 (112) 752 850 200 650
--- ----- ---- ---- ---- ----
67 35 32 33 10 23
--- ----- ---- ---- ---- ----
237 (11) 248 470 - 470
--- ----- ---- ---- ---- ----
97 (2) 99 (38) - (38)
--- ----- ---- ---- ---- ----
401 22 379 465 10 455
--- ----- ---- ---- ---- ----
$239 (134) $373 $385 $190 $195
==== ===== ==== ==== ==== ====
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<PAGE>
Provision for Loan Losses
The provision for loan losses for the first three months of 1999 was
$72,000, compared to $65,000 for the same period in 1998. Penn Laurel
experienced a $55,000 net charge-off on loans during the first three months of
1999, compared to a $74,000 net charge-off during the same period in 1998. The
provision for loan losses for the year ending December 31, 1998 and 1997 was
$319,000 and $300,000 respectively. Net charge-offs for the year ending December
31, 1998 and 1997 was $337,000 and $232,000 respectively.
Other Income
Other income decreased 49% from $627,000 during the first three months of
1998 to $319,000 during the same period in 1999. The decrease was primarily due
to security gains being reduced from $481,000 during the first three months of
1998 to $133,000 for the same period in 1999.
Other income for 1998 of $1,247,000 was $661,000 higher than the 1997 other
income of $586,000. This increase was primarily due to security gains, ATM
surcharges and increased fees on NSF checks. Other income for 1997 of $586,000
was 13.4% higher than the $517,000 for 1996.
Other Operating Expenses
Other operating expenses of $1,033,000 for the first three months of 1999,
was $33,000 or 3.3% higher than the same period in 1998. This increase was the
result of higher salaries, wages and benefits. During the year 1998, other
operating expenses of $4,365,000 was $900,000 higher than the 1997 other
operating expenses of $3,465,000. This increase was the result of higher
salaries, wages, employee benefits and other expenses. Other operating expenses
for 1997 of $3,465,000 was 1.8% higher than the $3,404,000 for 1996.
-139-
<PAGE>
ADJOURNMENT OF THE MEETING
If there are not enough votes at the meeting to approve the agreement, the
companies' Boards of Directors intend to adjourn the meetings to a later date to
permit further solicitation of votes in favor of the agreement. The affirmative
vote of a majority of the shares present is required in order to approve any
such adjournment. At the meeting, management will announce the place and date to
which the meeting would be adjourned. It is not necessary to give any notice of
the time and place of the adjourned meeting other than the announcement at the
meeting.
The Clearfield Board of Directors and the Penn Laurel Board of Directors
recommend that you vote "FOR" the proposal to adjourn the meeting if necessary
to permit further solicitation of proxies to approve the agreement.
EXPERTS
The financial statements of Clearfield as of December 31, 1998, 1997 and
1996, included in this proxy statement/prospectus have been audited by Young,
Oakes, Brown & Company, P.C., independent public accountants, as indicated in
its reports with respect to the financial statements, and are included in
reliance upon the authority of the firm as experts in accounting and auditing.
The consolidated financial statements of Penn Laurel and subsidiaries as of
December 31, 1998 and 1997, and for each of the years in the three-year period
ended December 31, 1998, included in this proxy statement have been audited by
Walter Hopkins & Company, independent certified public accountants, as indicated
in its reports with respect to the financial statements and are included in
reliance upon the authority of the firm as experts in accounting and auditing.
LEGAL OPINIONS
The legality of the shares of Penn Laurel common stock to be issued in
connection with the merger and certain other legal matters relating to the
transaction will be passed upon by the law firm of Shumaker Williams, P.C., Camp
Hill, Pennsylvania, Special Counsel to Penn Laurel.
OTHER MATTERS
Neither Clearfield's Board of Directors nor Penn Laurel's Board of
Directors knows of matters, other than those discussed in this proxy
statement/prospectus, that will be presented at the meeting. However, if any
other matters are properly brought before the meeting
-140-
<PAGE>
and any adjournment thereof, any proxy given pursuant to this solicitation will
be voted in accordance with the recommendations of the management of the
company.
AVAILABLE INFORMATION
Neither Clearfield nor Penn Laurel is subject to the information
requirements of the Exchange Act. Neither Clearfield common stock nor Penn
Laurel common stock is authorized for quotation on the Nasdaq or on any stock
exchange, but trades on a limited basis in the over-the-counter market and is
quoted and transactions are reported on the OTC Bulletin Board and in privately
negotiated transactions.
This proxy statement/prospectus forms a part of a Registration Statement
that Penn Laurel has filed with the Commission under the Securities Act of 1933,
with respect to the Penn Laurel common stock that Penn Laurel intends to issue
in the merger. This proxy statement/prospectus does not contain all of the
information in the Registration Statement. The Commission's rules and
regulations permit omission of certain information. You may inspect and copy the
Registration Statement, including any amendments and exhibits at the executive
offices of Penn Laurel at 434 State Street, Curwensville, Pennsylvania.
Statements contained in this proxy statement/prospectus as to the contents of
any contract or other document are not necessarily complete. We refer you to the
copy of the contract or other document, filed as an exhibit to the Registration
Statement. We also qualify our discussions by these documents.
All information which relates to Clearfield has been provided or verified
by Clearfield. All information in this proxy statement/prospectus that relates
to Penn Laurel has been provided or verified by Penn Laurel.
-141-
<PAGE>
CLEARFIELD BANK & TRUST COMPANY
INDEX TO FINANCIAL STATEMENTS AND
SUPPLEMENTARY FINANCIAL INFORMATION
Page
----
Selected Financial Data and Pro Forma Information 11
Management's Discussion and Analysis 101
INDEPENDENT AUDITOR'S REPORT F-2
AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 1998 (unaudited)
Consolidated Statement of Condition F-3
Consolidated Statement of Income F-5
Consolidated Statement of Changes in Stockholders' Equity F-7
Consolidated Statement of Cash Flows F-8
YEARS ENDED DECEMBER 31, 1998 AND 1997
Consolidated Statement of Condition F-4
Consolidated Statement of Income F-6
Consolidated Statement of Changes in Stockholders' Equity F-7
Consolidated Statement of Cash Flows F-9
NOTES TO FINANCIAL STATEMENTS F-10
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Clearfield Bank & Trust Company
We have audited the accompanying consolidated statements of condition of the
Clearfield Bank & Trust Company as of December 31, 1998 and 1997, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1998.
These consolidated financial statements are the responsibility of the Bank's
Management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by Management, as well as, evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Clearfield Bank
& Trust Company as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Young, Oakes, Brown & Company, P.C.
Altoona, Pennsylvania
January 21, 1999
F-2
<PAGE>
CLEARFIELD BANK & TRUST COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CONDITION
As of the Three Months Ended March 31, 1999 and 1998 (unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and Balances Due from Banks $ 5,884,736 $ 7,367,672
Interest Bearing Deposits with Banks 63,006 57,947
Federal Funds Sold 3,725,000 3,159,000
Investment Securities Available for Sale 38,845,918 37,903,064
Investment Securities to be Held to Maturity 12,049,307 20,170,052
Loans $ 120,650,666 $ 107,716,997
Less: Unearned Income (4,855,163) (4,948,829)
Allowance for Possible Loan Losses (1,181,041) (1,083,927)
------------- -------------
Net Loans $ 114,614,462 $ 101,684,241
------------- -------------
Bank Premises and Equipment $ 5,183,435 $ 5,353,511
Accrued Income and Other Assets 3,053,860 2,831,005
------------- -------------
TOTAL ASSETS $ 183,419,724 $ 178,526,492
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Demand Deposits $ 20,097,710 $ 18,720,546
Savings and NOW Deposits 54,573,312 54,901,706
Time Deposits 86,891,407 82,869,135
------------- -------------
Total Deposits $ 161,562,429 $ 156,491,387
Other Borrowed Money -0- 1,000,000
Accrued Expense and Other Liabilities 1,453,979 1,570,032
------------- -------------
Total Liabilities $ 163,016,408 $ 159,061,419
------------- -------------
STOCKHOLDERS' EQUITY
Common Stock (Par Value $1.5625)
Authorized 617,600 Shares: Issued and Outstanding
576,809 Shares $ 901,264 $ 901,264
Surplus 3,500,000 3,500,000
Undivided Profits 15,819,536 14,808,611
Accumulated Other Comprehensive Income 182,516 255,198
------------- -------------
Total Stockholders' Equity $ 20,403,316 $ 19,465,073
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 183,419,724 $ 178,526,492
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Consolidated Statement of Condition
As of December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
Assets
- ------
<S> <C> <C>
Cash and Balances Due from Banks $ 8,710,713 $ 5,269,635
Interest Bearing Deposits with Banks 100,887 49,873
Federal Funds Sold 3,481,000 2,700,000
Investment Securities Available for Sale 37,787,413 35,520,396
Investment Securities to be Held to Maturity 12,974,070 22,169,841
Loans $ 119,978,900 $ 107,442,758
Less: Unearned Income (5,289,816) (4,867,671)
Allowance for Possible Loan Losses (1,100,181) (1,096,771)
- -----------------------------------------------------------------------------------------------------------------------
Net Loans $ 113,588,903 $ 101,478,316
- -----------------------------------------------------------------------------------------------------------------------
Bank Premises and Equipment $ 5,256,610 $ 5,211,599
Accrued Income and Other Assets 2,803,214 2,715,273
- -----------------------------------------------------------------------------------------------------------------------
Total Assets $ 184,702,810 $ 175,114,933
=======================================================================================================================
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities
Demand Deposits $ 20,578,680 $ 18,437,260
Savings and NOW Deposits 55,471,804 53,253,319
Time Deposits 86,755,830 81,560,779
- -----------------------------------------------------------------------------------------------------------------------
Total Deposits $ 162,806,314 $ 153,251,358
Other Borrowed Money - 0 - 1,000,000
Accrued Expense and Other Liabilities 1,534,470 1,585,707
- -----------------------------------------------------------------------------------------------------------------------
Total Liabilities $ 164,340,784 $ 155,837,065
- -----------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Common Stock (Par Value $1.5625)
Authorized 617,600 Shares: Issued and Outstanding
576,809 Shares $ 901,264 $ 901,264
Surplus 3,500,000 3,500,000
Undivided Profits 15,580,292 14,604,711
Accumulated Other Comprehensive Income 380,470 271,893
- -----------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity $ 20,362,026 $ 19,277,868
- -----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 184,702,810 $ 175,114,933
=======================================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-4
<PAGE>
CLEARFIELD BANK & TRUST COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
For the Three Months Ended March 31, 1999 and 1998 (unaudited)
<TABLE>
<CAPTION>
INTEREST INCOME 1999 1998
---- ----
<S> <C> <C>
Interest and Fees on Loans $ 2,248,558 $ 2,156,432
Interest on Investment Securities Available for Sale 545,614 538,115
Interest on Investment Securities to be Held to Maturity 124,290 254,691
Interest on Federal Funds Sold 34,987 37,892
Interest on Deposits with Banks 3,782 606
----------- -----------
Total Interest Income $ 2,957,231 $ 2,987,736
----------- -----------
INTEREST EXPENSE
Interest on Deposits:
Savings and NOW Deposits $ 333,790 $ 361,010
Time Deposits 1,103,604 1,116,732
----------- -----------
Total Interest on Deposits $ 1,437,394 $ 1,477,742
----------- -----------
Interest on Federal Funds Purchased - 0 - - 0 -
Interest on Other Borrowed Money - 0 - 15,288
----------- -----------
Total Interest Expense $ 1,437,394 $ 1,493,030
----------- -----------
Net Interest Income $ 1,519,837 $ 1,494,706
Provision for Possible Loan Losses (90,000) (54,000)
----------- -----------
Net Interest Income After Provision for
Possible Loan Losses $ 1,429,837 $ 1,440,706
----------- -----------
OTHER INCOME
Income from Fiduciary Activities $ 122,509 $ 125,960
Service Charges on Deposit Accounts 81,747 80,424
Net Realized Gains (Losses) on Sales of Investment
Securities Available for Sale - 0 - - 0 -
Other Operating Income 76,618 40,140
----------- -----------
Total Other Income $ 280,874 $ 246,524
----------- -----------
OTHER EXPENSE
Salaries and Wages $ 481,329 $ 473,213
Pension, Profit Sharing and Other Employee Benefits 253,353 239,358
Net Occupancy Expense 109,390 115,213
Furniture and Equipment Expense 116,091 103,282
Other Operating Expense 206,610 241,031
----------- -----------
Total Other Expense $ 1,166,773 $ 1,172,097
=========== ===========
Income Before Income Taxes $ 543,938 $ 515,133
Applicable Income Taxes 120,114 132,424
----------- -----------
NET INCOME $ 423,824 $ 382,709
=========== ===========
Earnings Per Share: Based on Average Shares Outstanding
Earnings Before Taxes $ 0.94 $ 0.89
Applicable Income Taxes 0.21 0.23
Net Earnings $ 0.73 0.66
=========== ===========
Cash Dividends Declared $ 0.32 $ 0.31
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Consolidated Statement of Income
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Interest Income 1998 1997 1996
- --------------- ---- ---- ----
<S> <C> <C> <C>
Interest and Fees on Loans $ 8,976,633 $8,260,244 $6,558,305
Interest on Investment Securities Available for Sale 2,220,559 2,503,801 2,340,232
Interest on Investment Securities to be Held to Maturity 830,690 1,119,289 1,505,570
Interest on Federal Funds Sold 119,529 71,784 64,700
Interest on Deposits with Banks 17,973 2,251 2,571
- ------------------------------------------------------------------------------------------------------------------------
Total Interest Income $12,165,384 $11,957,369 $10,471,378
- ------------------------------------------------------------------------------------------------------------------------
Interest Expense
Interest on Deposits:
Savings and NOW Deposits $ 1,457,299 $2,104,243 $2,070,102
Time Deposits 4,499,361 3,643,082 2,944,754
- ------------------------------------------------------------------------------------------------------------------------
Total Interest on Deposits $ 5,956,660 $5,747,325 $5,014,856
- ------------------------------------------------------------------------------------------------------------------------
Interest on Federal Funds Purchased $6,333 $80,496 $8,938
Interest on Other Borrowed Money 22,509 37,776 - 0 -
- ------------------------------------------------------------------------------------------------------------------------
Total Interest Expense $ 5,985,502 $5,865,597 $5,023,794
- ------------------------------------------------------------------------------------------------------------------------
Net Interest Income $ 6,179,882 $6,091,772 $5,447,584
Provision for Possible Loan Losses (341,000) (257,000) (140,000)
- ------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for
Possible Loan Losses $ 5,838,882 $5,834,772 $5,307,584
- ------------------------------------------------------------------------------------------------------------------------
Other Income
Income from Fiduciary Activities $ 456,342 $435,278 $402,000
Service Charges on Deposit Accounts 333,782 304,012 265,175
Net Realized Gains (Losses) on Sales of Investment
Securities Available for Sale 7,343 36,797 (6,497)
Other Operating Income 220,670 195,895 175,739
- ------------------------------------------------------------------------------------------------------------------------
Total Other Income $ 1,018,137 $971,982 $836,417
- ------------------------------------------------------------------------------------------------------------------------
Other Expense
Salaries and Wages $ 1,927,756 $1,789,731 $1,516,115
Pension, Profit Sharing and Other Employee Benefits 922,763 890,300 829,113
Net Occupancy Expense 470,604 437,138 389,784
Furniture and Equipment Expense 447,015 341,334 312,364
Other Operating Expense 608,186 1,030,876 770,660
- ------------------------------------------------------------------------------------------------------------------------
Total Other Expense $ 4,376,324 $4,489,379 $3,818,036
- ------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes $ 2,480,695 $2,317,375 $2,325,965
Applicable Income Taxes 559,148 526,910 544,758
- ------------------------------------------------------------------------------------------------------------------------
Net Income $ 1,921,547 $1,790,465 $1,781,207
========================================================================================================================
Earnings Per Share: Based on Average Shares Outstanding
Earnings Before Taxes $ 4.30 $4.01 $4.03
Applicable Income Taxes 0.97 0.91 0.94
Net Earnings $ 3.33 $3.10 $3.09
========================================================================================================================
Cash Dividends Declared $ 1.64 $1.61 $1.57
========================================================================================================================
The accompanying notes are an integral part of financial statements.
</TABLE>
F-6
<PAGE>
Clearfield Bank & Trust Company
- ------------------------------------------------------------------------------
Consolidated Statement of Changes in Stockholders' Equity
For the Period Ended March 31, 1999 and December 31, 1998, 1997 and 1996
(unaudited)
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Undivided Comprehensive Stockholders'
Stock Surplus Profits Income Equity
-------- ---------- ----------- ------------- -------------
Balance - January 1, 1996 $901,264 $3,500,000 $12,867,291 $331,436 $17,599,99
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 Additions (Deductions):
Comprehensive Income
Net Income - 0 - - 0 - 1,781,207 - 0 - 1,781,207
Unrealized Gains/Losses
Net of Income Taxes of ($10,142) - 0 - - 0 - - 0 - (311,748) (311,748)
- --------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income $1,469,459
- -------------------------------------------------------------------------------------------------------------------
Cash Dividends Declared
($1.57 Per Share) - 0 - - 0 - (905,590) - 0 - (905,590)
- --------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1996 $901,264 $3,500,000 $13,742,908 $19,688 $18,163,860
- --------------------------------------------------------------------------------------------------------------------
1997 Additions (Deductions):
Comprehensive Income
Net Income - 0 - - 0 - 1,790,465 - 0 - 1,790,465
Unrealized Gains/Losses
Net of Income Taxes of ($140,066) - 0 - - 0 - - 0 - 252,205 252,205
- -------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income $2,042,670
- -------------------------------------------------------------------------------------------------------------------
Cash Dividends Declared
($1.61 Per Share) - 0 - - 0 - (928,662) - 0 - (928,662)
- -------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1997 $901,264 $3,500,000 $14,604,711 $271,893 $19,277,868
- -------------------------------------------------------------------------------------------------------------------
1998 Additions (Deductions):
Comprehensive Income
Net Income - 0 - - 0 - 1,921,547 - 0 - 1,921,547
Unrealized Gains/Losses
Net of Income Taxes
of ($196,000) - 0 - - 0 - - 0 - 108,577 108,577
- --------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income $2,030,124
- --------------------------------------------------------------------------------------------------------------------
Cash Dividends Declared
($1.64 Per Share) - 0 - - 0 - (945,966) - 0 - (945,966)
- --------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1998 $901,264 $3,500,000 $15,580,292 $380,470 $20,362,026
- --------------------------------------------------------------------------------------------------------------------
1999 Additions (Deductions):
Comprehensive Income
Net Income - 0 - - 0 - 423,824 - 0 - 423,824
Unrealized Gains/Losses
Net of Income Taxes of ($94,023) - 0 - - 0 - - 0 - (197,955) (197,955)
Total Comprehensive Income $225,869
- -------------------------------------------------------------------------------------------------------------------
Cash Dividends Declared
($.32 Per Share) - 0 - - 0 - (184,879) - 0 - (184,579)
- -------------------------------------------------------------------------------------------------------------------
Balance - March 31, 1999 $901,264 $3,500,000 $15,819,537 $182,515 $20,403,316
===================================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-7
<PAGE>
CLEARFIELD BANK & TRUST COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 1999 and 1998 (unaudited)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998
---- ----
<S> <C> <C>
Net Income
Adjustments to Reconcile Net Income to Net $ 423,824 $ 382,709
Cash Provided by Operating Activities:
Depreciation and Amortization 129,637 112,583
Provision for Possible Loans Losses 90,000 54,000
Deferred Income Taxes (20,073) 1,554
Net Realized (Gains) Losses on Investment Securities
Available for Sale - 0 - - 0 -
Net Amortization of Premiums (Accretion
of Discounts) on Investment Securities (4,278) (4,347)
(Increase) Decrease in Accrued Income
and Other Assets (150,948) 3,199
Increase (Decrease) in Accrued Expense
and Other Liabilities (83,491) (15,675)
----------- -----------
Net Cash Provided by Operating Activities $ 384,671 $ 534,023
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Interest Bearing
Deposits with Banks $ 37,881 ($ 8,074)
Net (Increase) Decrease in Federal Funds Sold (244,000) (459,000)
Purchases of Investment Securities Available for Sale (3,528,470) (4,103,358)
Proceeds from Sales of Investment Securities
Available for Sale - 0 - - 0 -
Proceeds from Maturities of Investment Securities
Available for Sale 2,174,075 1,568,065
Purchases of Investment Securities to be Held
to Maturity - 0 - - 0 -
Proceeds from Maturities of Investment Securities
to be Held to Maturity 925,000 2,000,000
Net (Increase) Decrease in Loans (1,115,559) (259,925)
Purchases of Premises and Equipment (36,879) (234,912)
Purchases of Goodwill from Branch Acquisition - 0 - - 0 -
----------- -----------
Net Cash Used by Investing Activities ($1,787,952) ($1,497,204)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Demand Deposits,
Savings and NOW Accounts ($1,379,462) 1,931,673
Net Increase (Decrease) in Time Deposits 135,577 1,308,356
Net Increase (Decrease) in Federal Funds Purchased
Net Increase (Decrease) in Other Borrowed Money - 0 - - 0 -
Cash Dividends Paid (178,811) (178,811)
----------- -----------
Net Cash Provided by Financing Activities ($1,422,696) 3,061,218
----------- -----------
Increase (Decrease) in Cash and Due from Banks ($2,825,977) $ 2,098,037
Cash and Due from Banks at the Beginning of the Year 8,710,713 5,269,635
----------- -----------
Cash and Due from Banks at the End of the Year $ 5,884,736 $ 7,367,672
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Income Taxes Paid - 0 - 843
=========== ===========
Interest Paid $ 1,927,234 $ 1,997,565
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
Clearfield Bank & Trust Company
- ------------------------------------------------------------------------------
Consolidated Statement of Cash Flows
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Cash Flows from Operating Activities: 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net Income $1,921,547 $1,790,465 $1,781,207
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 452,577 354,976 262,041
Provision for Possible Loans Losses 341,000 257,000 140,000
Deferred Income Taxes 8,305 (41,916) (50,456)
Net Realized (Gains) Losses on Investment Securities
Available for Sale (7,343) (36,797) 6,497
Net Amortization of Premiums (Accretion
of Discounts) on Investment Securities (11,471) 25,474 65,135
(Increase) Decrease in Accrued Income
and Other Assets (230,511) (24,576) (125,527)
Increase (Decrease) in Accrued Expense
and Other Liabilities (51,237) 189,101 38,475
- --------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities $2,422,867 $2,513,727 $2,117,372
- -------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Net (Increase) Decrease in Interest Bearing
Deposits with Banks ($51,014) ($17,074) $21,862
Net (Increase) Decrease in Federal Funds Sold (781,000) (2,700,000) 4,900,000
Purchases of Investment Securities Available for Sale (15,481,866) (7,533,892) (13,004,106)
Proceeds from Sales of Investment Securities
Available for Sale - 0 - 3,036,797 4,157,188
Proceeds from Maturities of Investment Securities
Available for Sale 13,383,944 10,743,759 8,577,366
Purchases of Investment Securities to be Held
to Maturity - 0 - - 0 - (1,374,901)
Proceeds from Maturities of Investment Securities
to be Held to Maturity 9,210,000 340,000 1,000,000
Net (Increase) Decrease in Loans (12,451,587) (13,516,197) (16,221,696)
Purchases of Premises and Equipment (419,256) (1,138,197) (178,680)
Purchases of Goodwill from Branch Acquisition - 0 - (1,174,959) - 0 -
- -------------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities ($6,590,779) ($11,959,763) ($12,122,967)
- -------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net Increase (Decrease) in Demand Deposits,
Savings and NOW Accounts $4,359,905 $826,455 $2,521,059
Net Increase (Decrease) in Time Deposits 5,195,051 12,025,453 5,165,047
Net Increase (Decrease) in Federal Funds Purchased - 0 - (2,700,000) 2,700,000
Net Increase (Decrease) in Other Borrowed Money (1,000,000) 1,000,000 - 0 -
Cash Dividends Paid (945,967) (922,894) (899,822)
- -------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities $7,608,989 $10,229,014 $9,486,284
- -------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Due from Banks $3,441,077 $782,978 ($519,311)
Cash and Due from Banks at the Beginning of the Year 5,269,636 4,486,657 5,005,968
- -------------------------------------------------------------------------------------------------------------------
Cash and Due from Banks at the End of the Year $8,710,713 $5,269,635 $4,486,657
====================================================================================================================
Supplemental Disclosures:
Income Taxes Paid $590,000 $552,038 $615,407
====================================================================================================================
Interest Paid $6,016,706 $5,759,569 $5,020,671
===================================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-9
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies:
Nature of Operations: The Bank provides a variety of financial services to
individual and corporate customers through its branches in Clearfield,
Curwensville, DuBois and Philipsburg, Pennsylvania. The Bank provides a full
range of banking services including interest bearing checking accounts and
certificates of deposits. The primary lending products are real estate
mortgages, installment loans and commercial business loans.
Basis for Financial Reporting and Accounting Estimates: The accounting policies
of the Bank and its wholly-owned subsidiary conform with generally accepted
accounting principles. In preparing the accompanying financial statements,
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expense during the reporting period.
Actual results could differ from those estimates.
Principles of Consolidation: The consolidated financial statements include the
accounts of the Clearfield Bank & Trust Company and its wholly-owned subsidiary,
Diamond Financial Services. All significant intercompany transactions and
balances have been eliminated in consolidation.
Cash and Balances Due from Banks: Cash and Balances Due from Banks represents
cash in the vault and balances held with correspondent banks.
Investment Securities: The classification of investment securities is determined
at the time of purchase and reevaluated periodically. Investment securities are
classified as to be held to maturity based on Management's positive intent and
ability to hold such securities to maturity. Held to maturity securities are
reported at cost, adjusted for amortization of premiums and accretion of
discounts.
Investment securities available for sale are those securities that
Management intends to hold for an indefinite period of time but not necessarily
to maturity. Available for sale securities are stated at market value, with
unrealized holding gains and losses, net of taxes, reported as a separate
component of stockholders' equity. The amortization of premiums and accretion of
discounts are recognized in interest income.
Realized gains and losses, determined on the basis of the cost of specific
securities sold, and declines in value judged to be more than temporary are
included in net realized gains (losses) on sale of investment securities
available for sale.
Allowance for Possible Loan Losses: The allowance is maintained at a level
adequate to absorb probable losses in the loan portfolio. Management determines
the adequacy of the allowance based upon a continuing review of individual
loans, recent loss experience, current economic conditions, the risk
characteristics of the various categories of loans and other pertinent factors.
Loans deemed uncollectible are charged off and deducted from the allowance.
Provision for loan losses and recoveries on loans previously charged off
are added to the allowance. Because of uncertainties inherent in the estimation
process, Management's estimate of credit losses, inherent in the loan portfolio
and the related allowance, may change in the near term.
Premises and Equipment: Premises and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation is computed on the
straight-line method for financial reporting. Depreciation for tax purposes is
computed using the applicable permissible Internal Revenue methods. The cost of
maintenance and repairs is charged to operating expenses as incurred, and the
cost of major additions and improvements is capitalized.
Goodwill: In 1997, the Bank acquired the Mid-State Bank's Clearfield Community
Office including all deposits, equipment and real estate. Acquisition costs
exceeded the fair value of net assets by $1,174,959. This amount of goodwill is
being amortized using the straight-line method over fifteen years for both book
and tax purposes. Amortization expense was $78,331 and $65,276 for 1998 and
1997, respectively.
Other Real Estate Owned (OREO): Other Real Estate Owned represents properties
acquired through foreclosure or other proceedings and is initially recorded at
the lower of cost or fair market valued at the date acquired in Accrued Income
and Other Assets on the consolidated statement of condition. Losses arising at
the time of the acquisition of such properties are charged against the allowance
for possible loan losses. Revenue and expenses from the operation of OREO and
changes in value are charged to other operating expense.
Interest Income on Loans: Interest on loans is accrued and credited to income
based upon the principal amount outstanding.
The accrual of interest on loans is discontinued when, in the opinion of
Management, there is an indication that the borrower may be unable to meet
payments as they become due. When a loan is placed in non-accrual status, all
interest previously accrued but not collected is reversed against current period
income. Income on such loans is then recognized only to the extent that cash is
received.
F-10
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Loan Origination Fees and Costs: Loan origination fees and certain direct loan
origination costs are capitalized and recognized over the life of the related
loan as an adjustment to interest income.
Income Taxes: Provisions for income taxes are based on amounts reported in the
consolidated statement of income (after exclusion of nontaxable income such as
interest on state and municipal securities) and include deferred income taxes on
temporary differences in the recognition of income and expense for tax and
financial statement purposes. Deferred tax assets and liabilities are included
in the consolidated financial statements at currently enacted income tax rates
applicable to the period in which the deferred tax assets and liabilities are
expected to be realized or settled as prescribed in Financial Accounting
Standards Board Statement of Financial Accounting Standard (FASB) Number 109,
"Accounting for Income Taxes." As changes in tax laws or rates are enacted,
deferred tax assets and liabilities are adjusted through the provision for
income taxes.
Charitable Contributions: In accordance with Financial Accounting Standards
Board Statement of Financial Accounting Standard (FASB) Number 116, "Accounting
for Contributions Received and Contributions Made,"the Bank has reflected as an
expense and corresponding liability any unpaid unconditional promise to give in
the period made at their fair value.
Earnings Per Common Share: Earnings per common share is computed by dividing net
income by the weighted average number of shares of common stock outstanding
during the period.
Reclassification: Certain prior year amounts have been reclassified to conform
with the 1998 presentation.
Trust Assets and Income: Assets of the Trust Department, other than cash on
deposit for its customers, are not included in the consolidated financial
statements since such items are not assets of the Bank. Income from the Trust
Department is reported on the cash basis, which is not materially different from
the accrual basis.
2. Investment Securities:
The aggregate book and market values of all Investment Securities as of
December 31, were:
<TABLE>
<CAPTION>
Investment Securities Available for Sale- Book Market Unrealized Unrealized
December 31, 1998 Value Value Gain Loss
----- ----- ---- ----
<S> <C> <C> <C> <C>
U.S. Treasury Securities $6,801,683 $6,966,164 $164,481 $ - 0 -
U.S. Government Agencies and Corporations 16,493,352 16,528,080 99,772 65,044
Mortgage Backed Securities-U.S. Government 1,130,687 1,154,303 23,616 - 0 -
State and Municipal Securities 11,591,072 11,924,816 333,744 - 0 -
State and Municipal Securities - Taxable 605,000 624,900 19,900 - 0 -
Other Securities 589,150 589,150 - 0 - - 0 -
- ------------------------------------------------------------------------------------------------------------------------
Total Investment Securities Available for Sale $37,210,944 $37,787,413 $641,513 $65,044
=========================================================================================================================
Investment Securities to be Held to Maturity- Book Market Unrealized Unrealized
December 31, 1998 Value Value Gain Loss
----- ----- ---- ----
U.S. Treasury Securities $1,001,796 $1,010,310 $8,514 $ - 0 -
U.S. Government Agencies and Corporations 8,999,202 8,753,870 - 0 - 245,332
Mortgage Backed Securities-U.S. Government - 0 - - 0 - - 0 - - 0 -
State and Municipal Securities 2,973,072 3,025,427 52,355 - 0 -
State and Municipal Securities - Taxable - 0 - - 0 - - 0 - - 0 -
Other Securities - 0 - - 0 - - 0 - - 0 -
- -------------------------------------------------------------------------------------------------------------------------
Total Investment Securities to be Held to
Maturity $12,974,070 $12,789,607 $60,869 $245,332
================================================== ================ ================= ================= ================
</TABLE>
F-11
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Investment Securities Available for Sale - Book Market Unrealized Unrealized
December 31, 1997 Value Value Gain Loss
----- ----- ---- ----
<S> <C> <C> <C> <C>
U.S. Treasury Securities $8,832,183 $8,926,918 $95,265 $530
U.S. Government Agencies and Corporations 15,475,660 15,480,470 102,411 97,601
Mortgage Backed Securities-US Government 1,593,263 1,634,499 41,236 - 0 -
State and Municipal Securities 8,051,831 8,306,809 254,978 - 0 -
State and Municipal Securities - Taxable 605,000 621,200 16,200 - 0 -
Other Securities 550,500 550,500 - 0 - - 0 -
- -------------------------------------------------------------------------------------------------------------------------
Total Investment Securities Available for Sale $35,108,437 $35,520,396 $510,090 $98,131
=========================================================================================================================
=========================================================================================================================
Investment Securities to be Held to Maturity - Book Market Unrealized Unrealized
December 31, 1997 Value Value Gain Loss
----- ----- ---- ----
U.S. Treasury Securities $1,004,073 $1,005,630 $1,557 $ - 0 -
U.S. Government Agencies and Corporations 14,498,110 13,994,175 3,630 507,565
Mortgage Backed Securities-US Government - 0 - - 0 - - 0 -
State and Municipal Securities 6,667,658 6,732,671 65,112 99
State and Municipal Securities - Taxable - 0 - - 0 - - 0 - - 0 -
Other Securities - 0 - - 0 - - 0 - - 0 -
- -------------------------------------------------------------------------------------------------------------------------
Total Investment Securities to be Held to
Maturity $22,169,841 $21,732,476 $70,299 $507,664
=========================================================================================================================
</TABLE>
Securities with a book value of $9,298,539 and $9,316,187, as of
December 31, 1998 and 1997, respectively, were pledged as collateral for public
and trust funds and for other purposes required by law.
Gross realized gains and losses on sale of investment securities available
for sale for the three years ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Gross Realized Gains: 1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities $- 0 - $ - 0 - $ - 0 -
U.S. Government Agencies and Corporations - 0 - 10,313 - 0 -
Mortgage Backed Securities-U.S. Government - 0 - - 0 - - 0 -
State and Municipal Securities - 0 - - 0 - 5,815
State and Municipal Securities - Taxable 7,343 34,297 - 0 -
Other Securities - 0 - - 0 - - 0 -
- ------------------------------------------------------------------------------------------------------------------------
Gross Realized Gains $7,343 $44,610 $5,815
========================================================================================================================
Gross Realized Losses: 1998 1997 1996
---- ---- ----
U.S. Treasury Securities $ - 0 - $ - 0 - $12,312
U.S. Government Agencies and Corporations - 0 - 7,813 - 0 -
Mortgage Backed Securities-U.S. Government - 0 - - 0 - - 0 -
State and Municipal Securities - 0 - - 0 - - 0 -
State and Municipal Securities - Taxable - 0 - - 0 - - 0 -
Other Securities - 0 - - 0 - - 0 -
- ------------------------------------------------------------------------------------------------------------------------
Gross Realized Losses $ - 0 - $7,813 $12,312
- ------------------------------------------------------------------------------------------------------------------------
Net Realized Gains (Losses) on Sale of
Investment Securities Available for Sale $7,343 $36,797 ($6,497)
=================================================== ==================== ======================== ====================
</TABLE>
In 1998 and 1997 the Bank received a distribution from the Taxable
Municipal Bond Securities Litigation Settlement Fund. The Gross Realized Gains
on State and Municipal Securities - Taxable represents this recovery of an
amount previously reported as a Gross Realized Loss.
F-12
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
The following presentation summarizes the maturities of the investment
security portfolio as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998
----
Investment Securities to be Investment Securities
Held to Maturity Available for Sale
---------------- ------------------
Book Market Book Market
Value Value Value Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Due in One Year or Less $2,585,740 $2,581,842 $3,595,536 $3,614,162
Due from One Year to Five Years 7,999,922 7,769,381 16,392,569 16,539,044
Due from Five Years to Ten Years 1,012,431 1,022,269 10,540,334 10,769,095
Due After Ten Years 1,375,977 1,416,115 6,682,505 6,865,112
- ------------------------------------------------------------------------------------------------------------------------
Total Investment Securities $12,974,070 $12,789,607 $37,210,944 $37,787,413
========================================================================================================================
1997
----
Investment Securities to be Investment Securities
Held to Maturity Available for Sale
---------------- ------------------
Book Market Book Market
Value Value Value Value
----- ----- ----- -----
Due in One Year or Less $1,798,904 $1,781,328 $4,158,024 $4,141,515
Due from One Year to Five Years 10,531,741 10,220,695 13,604,684 13,747,854
Due from Five Years to Ten Years 7,015,653 6,870,282 9,988,689 10,104,487
Due After Ten Years 2,823,543 2,860,171 7,357,040 7,526,540
- ------------------------------------------------------------------------------------------------------------------------
Total Investment Securities $22,169,841 $21,732,476 $35,108,437 $35,520,396
========================================================================================================================
</TABLE>
3. Loans
The composition of the loan portfolio as of December 31, was as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Commercial Loans $45,852,465 38.2% $37,462,026 34.9%
Consumer Loans 32,803,200 27.3% 30,978,749 28.8%
Real Estate Loans 39,190,269 32.7% 37,189,888 34.6%
Home Equity Loans 1,492,853 1.3% 1,542,314 1.4%
Personal Lines of Credit 640,113 0.5% 269,781 0.3%
- ---------------------------------------------------------------------------------------------------------------------------
Total Loans $119,978,900 100.0% $107,442,758 100.0%
===========================================================================================================================
</TABLE>
The following presentation summarizes the maturities of the loan portfolio
as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Due in One Year or Less $11,375,452 $8,512,661
Due from One Year to Five Years 35,408,485 36,689,185
Due from Five Years to Ten Years 33,543,796 34,816,233
Due After Ten Years 39,651,167 27,424,679
- ------------------------------------------------------------------------------------------------------------------------
Total Loans $119,978,900 $107,442,758
========================================================================================================================
</TABLE>
F-13
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
4. Non-performing and Past Due Loans:
Non-performing and Past Due Loans as of December 31, were as follows:
<TABLE>
<CAPTION>
Nonaccural Loans: 1998 1997
---- ----
<S> <C> <C>
Commercial Loans $152,275 $40,052
Consumer Loans 73,890 50,830
Real Estate Loans 157,024 96,480
Home Equity Loans 14,056 - 0 -
Personal Lines of Credit - 0 - - 0 -
- ------------------------------------------------------------------------------------------------------------------------
Total Nonaccrual Loans $397,245 $187,362
Restructured Loans - 0 - - 0 -
- ------------------------------------------------------------------------------------------------------------------------
Total Non-performing Loans $397,245 $187,362
========================================================================================================================
Loans Past Due 90 days or more and still accruing interest $75,304 $247,421
========================================================================================================================
Interest Not Recognized in Operations $7,790 $13,476
========================================================================================================================
</TABLE>
5. Allowance for Possible Loan Losses:
Transactions in the Allowance for Possible Loan Losses for the three years
ended December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance at Beginning of Year $1,096,771 $949,113 $869,142
Amounts Charged Off (363,210) (151,952) (84,751)
Recoveries of Charged Off Loans 25,620 42,610 24,722
- ------------------------------------------------------------------------------------------------------------------------
Net Charged Off ($337,590) ($109,342) ($60,029)
- ------------------------------------------------------------------------------------------------------------------------
Provision Charged to Operating Expense 341,000 257,000 140,000
- ------------------------------------------------------------------------------------------------------------------------
Balance at End of Year $1,100,181 $1,096,771 $949,113
========================================================================================================================
</TABLE>
6. Bank Premises and Equipment:
The composition of the Bank Premises and Equipment accounts as of
December 31, was as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Land $791,665 $791,665
Bank Premises and Improvements 5,531,749 5,435,326
Furniture, Fixtures and Equipment 2,213,755 2,225,088
- ------------------------------------------------------------------------------------------------------------------------
Total Cost $8,537,169 $8,452,079
Less: Accumulated Depreciation and Amortization (3,280,559) (3,240,480)
- ------------------------------------------------------------------------------------------------------------------------
Net Bank Premises and Equipment $5,256,610 $5,211,599
========================================================================================================================
</TABLE>
Depreciation expense on Bank Premises and Equipment was $374,307, $289,700,
and $262,041, for 1998, 1997, and 1996, respectively.
7. Accrued Income and Other Assets:
The composition of the Accrued Income and Other Assets account as of
December 31, was as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Income Earned, Not Collected on Loans $478,176 $427,032
Income Earned, Not Collected on Investments 604,815 746,186
Net Deferred Income Taxes 139,175 203,414
Other Real Estate Owned 23,192 1
Intangible Assets (Net of Amortization) 1,031,353 1,109,684
Other Assets 526,503 228,956
- ----------------------------------------------------------------------------------------------------------------------
Total Accrued Income and Other Assets $2,803,214 $2,715,273
======================================================================================================================
</TABLE>
F-14
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
8. Deposits:
Deposits as of December 31, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
% of Total % of Total
Amount Deposits Amount Deposits
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Demand Deposits $20,578,680 12.6% $18,437,260 12.0%
- ------------------------------------------------------------------------------------------------------------------------
Savings Deposits $27,156,015 16.7% $25,176,208 16.5%
NOW Accounts 14,242,921 8.8% 13,960,846 9.1%
Insured Money Market Accounts 14,072,868 8.6% 14,116,265 9.2%
- ------------------------------------------------------------------------------------------------------------------------
Total Savings Deposits $55,471,804 34.1% $53,253,319 34.8%
- ------------------------------------------------------------------------------------------------------------------------
Time Deposits with Maturities of:
Less than $100,000
Due in Three Months or Less $9,966,787 6.1% $22,140,356 14.5%
Due from Three Months to Six Months 13,382,332 8.2% 10,148,668 6.6%
Due from Six Months to Twelve Months 15,863,095 9.8% 7,472,208 4.9%
Due from One Year to Two Years 29,416,032 18.1% 28,044,260 18.3%
Due from Two Years to Five Years 4,225,007 2.6% 4,205,452 2.7%
- ------------------------------------------------------------------------------------------------------------------------
Total Time Deposits Less Than $100,000 $72,853,253 44.8% $72,010,944 47.0%
- ------------------------------------------------------------------------------------------------------------------------
Greater Than or Equal to $100,00
Due in Three Months or Less $3,778,790 2.3% $2,802,624 1.8%
Due from Three Months to Six Months 3,725,913 2.3% 672,597 0.4%
Due from Six Months to Twelve Months 1,920,116 1.2% 695,905 0.5%
Due from One Year to Two Years 3,264,048 2.0% 5,152,259 3.4%
Due from Two Years to Five Years 1,213,710 0.7% 226,450 0.1%
- ------------------------------------------------------------------------------------------------------------------------
Total Time Deposits Greater Than or Equal to
$100,000 $13,902,577 8.5% $9,549,835 6.2%
- ------------------------------------------------------------------------------------------------------------------------
Total Time Deposits $86,755,830 53.3% $81,560,779 53.2%
- ------------------------------------------------------------------------------------------------------------------------
Total Deposits $162,806,314 100.0% $153,251,358 100.0%
========================================================================================================================
</TABLE>
9. Other Borrowed Money:
The Bank has lines of credit established with various financial
institutions for overnight funding needs. These lines of credit were $6,500,000
on December 31, 1998 and $9,500,000 on December 31, 1997, with interest payable
at the daily federal funds rate. There were no borrowings as of December 31,
1998 and 1997. Additionally, the Bank has a line of credit with the Federal Home
Loan Bank of Pittsburgh (FHLB) for its overnight funding needs. This line of
credit was $4,081,000 and $3,729,000 on December 31, 1998 and 1997,
respectively. There were no borrowings with the FHLB as of December 31, 1998 and
1997.
The Bank has a long term line of credit established with FHLB of Pittsburgh
with a maximum borrowing capacity of $46,276,000 and $40,246,000 as of December
31, 1998 and 1997, respectively. The Bank is required to maintain certain
eligible assets as collateral. As of December 31, other borrowings with the FHLB
consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Total Federal Home Loan Advance 6.20% due 9/16/99 $ - 0 - $1,000,000
- -------------------------------------------------------------------------------------------------------------------
Total Federal Home Loan Advances - 0 - $1,000,000
===================================================================================================================
</TABLE>
10. Accrued Expense and Other Liabilities:
The composition of the Accrued Expense and Other Liabilities accounts as
of December 31, as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Interest Accrued and Unpaid on Deposits $686,004 $710,684
Other Expenses Accrued and Unpaid 669,655 684,059
Other Liabilities 178,811 190,964
- -----------------------------------------------------------------------------------------------------------------------
Total Accrued Expense and Other Liabilities $1,534,470 $1,585,707
=======================================================================================================================
</TABLE>
F-15
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
11. Operating Leases:
Certain Bank equipment is leased under various operating leases. Rental
expense was $51,167 for 1998, $51,930 for 1997 and $46,347 for 1996. Future
minimum rental commitments under noncancelable leases are:
<TABLE>
<CAPTION>
Total
Equipment
---------
<S> <C>
1999 $53,972
2000 28,076
2001 6,754
2002 - 0 -
2003 - 0 -
Thereafter - 0 -
- ------------------------------------------------------------------------------------------------------
Total Minimum Rental Commitments $88,802
======================================================================================================
</TABLE>
12. Retirement and Benefit Plans:
PENSION PLAN - The Bank has a defined benefit pension plan covering
substantially all of its employees. The benefits are based on years of service
and employee's compensation during the three highest consecutive years of
employment. The Bank's funding policy is to contribute annually the maximum
amount that can be deducted for federal income tax purposes. Contributions are
intended to provide not only for benefits attributed to service date, but also
for those expected to be earned in the future.
The following summarizes the components of the net periodic pension cost:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Service Cost - Benefits Earned During the Period $87,318 $84,796
Interest Costs on Projected Benefit Obligation 85,437 84,674
Actual Return on Plan Assets (68,628) (57,166)
Gain / (Loss) Deferral - 0 - - 0 -
Net Amortization and Deferral 12,426 10,575
Pension Obligation Settlements - 0 - - 0 -
- -----------------------------------------------------------------------------------------------------------------------
Net Periodic Pension Cost $116,553 $122,879
=======================================================================================================================
</TABLE>
The following summarizes the plan's funded status and amounts recognized in
the Bank's consolidated statement of financial position as of December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Actuarial Present Value of Benefit Obligations:
Accumulated Benefit Obligation, including Vested Benefits
of $819,563 in 1998 and $657,330 in 1997 ($835,725) $708,006
=======================================================================================================================
Projected Benefit Obligations for Service Rendered to Date ($1,226,097) ($1,163,423)
Plan Assets at Fair Value, Primarily Listed Stocks and U.S. Bonds 1,011,337 802,641
- -----------------------------------------------------------------------------------------------------------------------
Funded Status ($214,760) ($360,782)
Unrecognized Transition Obligation (Asset) 68,692 79,267
Unrecognized Prior Service Cost 29,242 - 0 -
Unrecognized Net (Gain) Loss (26,991) 90,428
- -----------------------------------------------------------------------------------------------------------------------
Net Prepaid Pension Cost (Pension Liability) ($143,817) ($191,087)
=======================================================================================================================
</TABLE>
The actuarial assumptions used in determinating the projected benefit
obligation are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Return on Assets 8.00% 8.00%
Discount Rate 8.00% 8.00%
Salary Scale 4.00% 5.00%
Cost of Living 4.00% 4.00%
</TABLE>
F-16
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
PROFIT SHARING PLAN - Employees become eligible to participate in the profit
sharing plan upon meeting the attained age and service requirements. The annual
contribution to the trust fund established under the plan is authorized by the
Board of Directors. The contribution was $217,134 in 1998, $244,255 in 1997 and
$212,325 in 1996.
POSTRETIREMENT BENEFITS - The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (FASB) Number 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." FASB 106 requires
sponsors of plans that provide certain life and health care benefits to retired
employees to expense the cost of these benefits over the estimated working lives
of those employees, rather than expense the cost as paid.
The Bank shares in the cost of providing certain health care and life
insurance benefits for certain retired employees. These health care benefits may
include the cost of medicare supplement and major medical programs.
Effective December 31, 1994, the Bank adopted FASB 106 by electing to
recognize the entire accrued obligation of retirees into expense. A deferred tax
benefit was also recognized due to the timing difference of this expense for tax
purposes; a tax deduction may be taken only when payments are actually made. The
postretirement benefit for fully eligible and other active plan participants is
being amortized over twenty years.
<TABLE>
<CAPTION>
Accumulated Postretirement Benefit Obligation: 1998 1997
---- ----
<S> <C> <C>
Retirees ($175,032) ($151,435)
Fully Eligible Active Plan Participants (59,851) (103,732)
Other Active Plan Participants (79,331) (87,067)
- -----------------------------------------------------------------------------------------------------------------------
Total Accumulated Postretirement Benefit Obligation (314,214) (342,234)
Unrealized Net Gains (Losses) (21,362) 18,253
Unrecognized Transition Amount 104,388 110,529
- -----------------------------------------------------------------------------------------------------------------------
Accrued Postretirement Cost ($231,188) ($213,452)
=======================================================================================================================
Net Periodic Postretirement Benefit Costs:
Service Cost $15,409 $15,856
Interest Cost on Accumulated Postretirement Benefit Obligation 20,995 22,705
Amortization of Transition Obligation 6,141 6,141
- -----------------------------------------------------------------------------------------------------------------------
Net Periodic Postretirement Benefit Cost $42,545 $44,702
=======================================================================================================================
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.00% and 7.50% as of December 31, 1998 and 1997,
respectively.
13. Income Taxes:
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (FASB) Number 109, "Accounting for Income Taxes." FASB 109
requires an asset and liability method of accounting for income taxes.
Under the asset and liability method of FASB 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax carry forwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years whose temporary differences are expected to
be recovered or settled. Under FASB 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Current and deferred income taxes for the years ended December 31,
consists of the following:
<TABLE>
<CAPTION>
Taxes on Operating Income: 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Deferred Income Taxes on:
Allowance for Possible Loan Losses ($1,160) ($50,204) ($27,190)
Depreciation and Amortization (346) 27,213 4,074
Loan Origination Fees and Costs (2,163) (6,306) (9,050)
Employee Retirement Benefits 10,041 (10,388) (19,145)
Other 1,933 (2,231) 855
- -----------------------------------------------------------------------------------------------------------------------
Deferred Tax Expense $8,305 ($41,916) ($50,456)
Current Income Taxes 550,843 568,826 595,214
- -----------------------------------------------------------------------------------------------------------------------
Total Tax Expense $559,148 $526,910 $544,758
=======================================================================================================================
</TABLE>
F-17
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
The reasons for the differences between current income tax assets expense
and the amount computed by using applicable statutory federal income tax rate to
operating income are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Operating Income $843,436 $787,907 $790,827
Tax Exempt Income (324,355) (306,727) (288,689)
Depreciation and Amortization (24,610) (27,119) (4,074)
TEFRA Interest Limitation 39,587 37,025 33,635
Bond Discounts (9,120) (6,877) (3,835)
Bad Debt Deductions 1,159 50,204 27,190
Tax Gain on Securities Matured 18,668 7,544 565
Loan Organization Fees and Costs 2,137 6,306 9,050
Postretirement Benefits 6,030 9,388 19,145
Employee Retirements Benefits (16,072) 1,000 1,759
Other 13,983 10,175 9,641
Current Income Taxes $550,843 $568,826 $595,214
=======================================================================================================================
Statutory Federal Tax Rate Used 34% 34% 34%
=======================================================================================================================
</TABLE>
The temporary differences which give rise to the deferred tax and
liabilities at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Deferred Tax Assets: 1998 1997
---- ----
<S> <C> <C>
Allowance for Possible Loan Losses $249,742 $248,583
Employee Retirement Benefits 48,898 64,969
Loan Origination Fees and Costs 35,786 33,622
Postretirement Benefits 78,604 72,574
Other 2,649 4,582
- -----------------------------------------------------------------------------------------------------------------------
Total Deferred Tax Assets $415,679 $424,330
Valuation Allowance for Deferred Tax Assets - 0 - - 0 -
- -----------------------------------------------------------------------------------------------------------------------
Net Deferred Tax Assets $415,679 $424,330
- ------------------------------------------------------ ---------------------- --------------------------------------
Deferred Tax Liabilities:
Net Unrealized Appreciation on
Investment Securities Available for Sale $196,000 $140,066
Depreciation and Amortization 80,504 80,850
- -----------------------------------------------------------------------------------------------------------------------
Net Deferred Tax Liabilities $276,504 $220,916
- -----------------------------------------------------------------------------------------------------------------------
Net Deferred Tax $139,175 $203,414
=======================================================================================================================
</TABLE>
F-18
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
14. Related Party Transactions:
The Bank has entered into transactions with its directors, executive
officers, principal shareholders and their related interests. Such transactions
were made in the ordinary course of business on substantially the same terms and
conditions, including collateral and interest rates, as those prevailing at the
same time for comparable transactions with other customers, and did not, in the
opinion of Management, involve more than a normal credit risk or present other
unfavorable features. The aggregate amount of loans to such related parties at
December 31, was as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance at Beginning of Year $630,737 $264,957
New Loans 712,368 504,454
Repayments (542,367) (138,674)
- -----------------------------------------------------------------------------------------------------------------------
Balance at End of Year $800,738 $630,737
=======================================================================================================================
Loans Past Due 30 Days or More $ - 0 - $ - 0 -
=======================================================================================================================
Unused Lines of Credit $2,359,259 $2,417,808
=======================================================================================================================
</TABLE>
15. Commitments and Contingencies:
The consolidated financial statements do not reflect various commitments,
such as commitments to extend credit, letters of credit, and loan guarantees
undertaken in the normal course of business. Management uses the same credit
policies in making these commitments and contingencies as it does for balance
sheet loans. Management does not anticipate any significant risk of loss as a
result of these transactions.
The following is a summary of significant commitments as of December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Standby Letters of Credit $346,965 $264,500
Commitments to Extend Credit:
Commercial Loans Secured by Real Estate $2,067,689 $639,163
Home Equity Loans 1,332,509 1,366,241
Personal Lines of Credit 2,109,009 851,704
Other Unused Commitments 13,641,669 10,597,639
</TABLE>
Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. All significant
letters of credit have been issued for one year or less. Commitments to extend
credit are agreements to lend to a customer under certain conditions established
in the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the standby
letters of credit and commitments are expected to expire without being drawn
upon, the total amounts do not necessarily represent future cash requirements.
The Bank evaluates each customer's credit worthiness and the collateral obtained
on a case by case basis using the Bank's established credit policies.
The Bank is also involved in various litigation of a routine nature
arising in the ordinary course of business. It is the opinion of Management that
the ultimate resolution will not have a material effect on the Bank's financial
position.
16. Regulatory Matters:
The Pennsylvania Banking Code has a restriction on the availability of
surplus for dividend purposes. As of December 31, 1998, $3,500,000 was not
available for dividends.
The Bank is also required to maintain minimum amounts and ratios of total
and Tier I capital to risk weighted assets, and Tier I capital to average
assets, as defined by banking regulators. Total capital includes common stock,
capital surplus and undivided profits. Tier I capital includes the allowance for
possible loan losses up to 1.25% of risk adjusted assets. Tier I leverage ratio
divides total capital by average assets.
The capital requirements are summarized as follows:
<TABLE>
<CAPTION>
Well Minimum
1998 1997 Capitalized Requirements
---- ---- ----------- ------------
<S> <C> <C> <C> <C>
Total Capital to Risk Weighted Assets 18.09% 18.41% 10.00% 8.00%
Tier I Capital to Risk Weighted Assets 17.10% 17.33% 6.00% 4.00%
Tier I Leverage Capital to Average Assets 10.38% 10.31% 5.00% 4.00%
</TABLE>
F-19
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
17. Fair Value of Financial Instruments:
The Financial Accounting Standards Board Statement of Financial Accounting
Standards (FASB) Number 107, "Disclosure About the Fair Value of Financial
Instruments", requires disclosure of the estimated fair values of the Bank's
financial instruments. The following describes the estimated fair values of the
Bank's financial instruments as well as the significant methods and assumptions
used to determine these estimated values.
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a force liquidation sale. Because no quoted market prices exist
for a significant part of the Bank's financial instruments, the fair values have
been derived based on Management's assumptions with respect to future economic
conditions, the amount and timing of future cash flows and estimated discount
rates. The estimation methods are described in more detail below.
In addition, the estimates are only indicative of the financial
instrument's value and should not be considered an indication of the fair value
of the Bank.
Cash and Balances Due from Banks, Interest Bearing Deposits with Banks and
Federal Funds Sold - The fair value approximates the carrying amount due to the
short maturity of these instruments.
Investment Securities Available for Sale - The fair value is determined by
quoted market prices.
Investment Securities to be Held to Maturity - The fair value is determined
by quoted market prices.
Loans - The fair values are estimated for the loan portfolio with similar
financial characteristics. Loans are segregated by type. Each loan category is
further segmented into fixed and variable rate terms. The floating rate loans
are segregated by index and repricing frequency. The fair value of loans was
estimated by discounting estimated cash flows using the Bank's December 31 rate
for similar loans. Prepayments are calculated using the Bank's historical
averages.
Income Earned Not Collected - The fair value approximates the carrying
amount.
Deposits - The fair values for fixed rate deposits with stated maturities
were calculated by discounting the difference between the cash flows on a
contractual basis and the Bank's December 31 rate for instruments of similar
maturities. For variable rate deposits, the carrying amount was considered to
approximate fair value.
Other Borrowed Money - The fair values are estimated by discounting
estimated cash flows using the Banks December 31 rate for similar borrowings.
Interest Accrued and Unpaid on Deposits - The fair value approximates the
carrying amount.
The book and fair values of financial instruments on December 31, were as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
Book Market Book Market
Financial Assets Value Value Value Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Cash and Balances Due from Banks $8,710,713 $8,710,713 $5,269,635 $5,269,635
Interest Bearing Deposits with Banks 100,887 100,887 49,873 49,873
Federal Funds Sold 3,481,000 3,481,000 2,700,000 2,700,000
Investment Securities Available for Sale 37,787,413 37,787,413 35,520,396 35,520,396
Investment Securities to be Held to
Maturity 12,974,070 12,789,607 22,169,841 21,732,476
Loans, Net of Unearned Income 114,689,084 115,373,037 102,575,087 103,507,726
Allowance for Possible Loan Losses (1,100,181) - 0 - (1,096,771) - 0 -
Income Earned Not Collected 1,082,991 1,082,991 1,173,218 1,173,218
- -------------------------------------------------------------------------------------------------------------------------
Total Financial Assets $177,725,977 $179,325,648 $168,361,279 $169,953,324
=========================================================================================================================
Financial Liabilities
Demand Deposits $20,578,680 $20,578,680 $18,437,260 $18,437,260
Savings and NOW Deposits 55,471,804 55,471,804 52,253,319 52,253,319
Time Deposits 86,755,830 87,648,222 81,560,779 82,151,061
Other Borrowed Money - 0 - - 0 - 1,000,000 999,418
Interest Accrued and Unpaid on Deposits 686,004 686,004 710,684 710,684
- -------------------------------------------------------------------------------------------------------------------------
Total Financial Liabilities $163,492,318 $164,384,710 $153,962,042 $154,551,742
=========================================================================================================================
</TABLE>
F-20
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
18. Year 2000 Compliance:
The Bank has adopted a Year 2000 policy to address the concern that certain
information systems and automated equipment will not properly recognize and
process dates beyond January 1, 2000. If not corrected, these systems could
produce inaccurate or unpredictable results beginning January 1, 2000. Potential
problems to the Bank may arise from software, computer hardware and other
equipment, both within and outside of the Bank's direct control.
In order to address the issue, the Bank has developed and implemented a
five phase compliance plan divided into the following components: awareness,
assessment, renovation, validation and testing, and implementation. The Bank has
successfully tested the major mission critical applications. It is expected that
any remaining applications will be tested by March 1999.
Another important segment is to identify those suppliers and customers
whose lack of preparedness might expose the bank to financial loss, and to
highlight any services that might present Year 2000 operating problems.
The Bank anticipates that the total Year 2000 cost will not exceed $50,000.
This estimated project cost is based on current available information. This cost
estimate may change as the Bank obtains additional information and conducts
further testing.
Despite the Bank's activities in regard to the Year 2000 issue, there can
be no assurance that partial or total systems interruption, or the cost
necessary to update hardware and software, would not have a material or adverse
effect on the Bank's business, financial condition, results of operations, and
business prospects.
19. Subsidiary Information:
During 1998, the Bank formed a wholly-owned subsidiary, Diamond Financial
Services, Inc., for the purpose of marketing insurance products and related
services. The corporation was capitalized with $1,000. During 1998, total
commissions earned were $12,341 less applicable expenses of $5,247, for a net
income of $7,094. These amounts are included in the financial statements with
all intercompany balances eliminated in the consolidation.
20. Subsequent Events :
On December 31, 1998 the Board of Directors of the Clearfield Bank & Trust
Company and Penn Laurel Financial Corp., parent company of CSB Bank, announced
that they have reached a definitive agreement where the Clearfield Bank & Trust
Company and CSB Bank will merge. This agreement provides that the resulting bank
of the merger will be named Penn Laurel Bank & Trust Company and will be
headquartered in Clearfield, Pennsylvania. The resulting institution will be a
wholly-owned subsidiary of Penn Laurel Financial Corp.
Under the terms of the agreement, stockholders of the Clearfield Bank &
Trust Company will receive .97 shares of Penn Laurel Financial Corp. common
stock, par value $5.00 per share, for each share of Clearfield Bank & Trust
Company common stock, par value $1.5625 per share, previously owned. The
transaction will result in a company with approximately $317 million in assets
and a leading banking franchise in Clearfield County.
Subject to the receipt of all required regulatory and stockholder
approvals, the parties anticipate consummating the transaction by the late
second quarter of 1999.
F-21
<PAGE>
PENN LAUREL FINANCIAL CORP.
INDEX TO FINANCIAL STATEMENTS AND
SUPPLEMENTARY FINANCIAL INFORMATION
Page
----
Selected Financial Data and Pro Forma Information 11
Management's Discussion and Analysis 121
Independent Auditor's Report F-23
AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 1998 (unaudited)
Consolidated Statements of Condition F-24
Consolidated Statements of Income F-26
Consolidated Statements of Comprehensive Income F-28
Consolidated Statements of Cash Flows F-30
Consolidated Statements of Changes in Stockholders' Equity F-32
YEARS ENDED DECEMBER 31, 1998 AND 1997
Consolidated Statements of Condition F-25
Consolidated Statements of Income F-27
Consolidated Statements of Comprehensive Income F-29
Consolidated Statements of Cash Flows F-31
Consolidated Statements of Changes in Stockholders' Equity F-32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-33
F-22
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and
Board of Directors
Penn Laurel Financial Corp.
We have audited the accompanying consolidated statements of condition of Penn
Laurel Financial Corp. and its wholly-owned subsidiary, CSB Bank, as of December
31, 1998 and 1997 and the related consolidated statements of income,
comprehensive income, changes in stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Penn Laurel
Financial Corp. and its wholly-owned subsidiary, CSB Bank, as of December 31,
1998 and 1997, and the results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
WALTER HOPKINS & COMPANY
Clearfield, Pennsylvania
January 20, 1999
F-23
<PAGE>
PENN LAUREL FINANCIAL CORP. AND SUBSIDIARY
Curwensville, Pennsylvania
CONSOLIDATED STATEMENTS OF CONDITION
AS OF AND FOR
THE THREE MONTHS
ENDED MARCH 31
(unaudited)
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,665,934 $ 3,712,380
Federal Funds Sold 1,675,000 2,325,000
Securities available for sale 30,122,948 30,082,149
Securities held to maturity 995,527 1,628,653
Total Loans 95,195,018 84,401,085
Less: Unearned Discount (200,850) (604,582)
Reserve for Loan Losses (788,226) (779,534)
------------- -------------
Net Loans 94,205,942 83,016,969
Bank premises and equipment 1,879,430 1,979,732
Goodwill 85,219 -0-
Other assets 2,257,912 1,858,329
------------- -------------
TOTAL ASSETS $ 134,887,912 $ 124,603,212
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest Bearing Deposits $ 8,571,529 $ 8,918,541
Interest Bearing Deposits 105,800,535 99,428,423
------------- -------------
Total Deposits 114,372,064 108,346,964
Other Borrowings 3,461,161 -0-
Other Liabilities 2,277,838 2,626,727
Total liabilities 120,111,063 110,973,691
------------- -------------
Stockholders' equity:
Common stock 1,800,000 1,800,000
Additional paid-in capital 1,754,401 1,500,975
Retained earnings 9,655,272 9,135,857
Treasury stock, at cost (67,240) (349,810)
Accumulated other comprehensive income 1,634,416 1,542,499
Total stockholders' equity 14,776,849 13,629,521
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 134,887,912 $ 124,603,212
============= =============
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F-24
<PAGE>
PENN LAUREL FINANCIAL CORP. AND SUBSIDIARY
Curwensville, Pennsylvania
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, 1998 AND 1997
1998 1997
------------ ------------
ASSETS
- ------
Cash and due from banks $ 4,637,490 $ 3,450,367
Securities available for sale 33,115,947 29,987,499
Securities held to maturity 1,977,044 2,623,685
Loans, less allowance for loan losses of
$771,478 and $788,807, respectively 91,369,174 81,879,858
Bank premises and equipment 1,880,517 1,983,621
Other assets 2,200,646 1,617,499
------------ ------------
TOTAL ASSETS $135,180,818 $121,542,529
------------ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits: $ 9,733,429 $ 7,999,628
Demand 104,111,487 97,587,235
------------- -------------
Time and savings 113,844,916 105,586,863
Funds purchased and security
repurchase agreements 1,306,525 --
Accrued interest 537,538 510,537
Other liabilities 1,773,365 1,545,300
Long-term debt -- 485,845
FHLB advances 3,000,000 --
Total liabilities 120,462,344 108,128,545
------------- -------------
Stockholders' equity:
Common stock, par value $5;
Authorized 2,500,000 shares,
360,000 shares issued, 357,259 and 345,735
shares outstanding 1,800,000 1,800,000
Additional paid-in capital 1,754,401 1,500,974
Retained earnings 9,389,355 8,565,240
Accumulated other comprehensive income 1,841,958 1,897,580
Treasury stock, at cost (67,240) (349,810)
Total stockholders' equity 14,718,474 13,413,984
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 135,180,818 $ 121,542,529
============= =============
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE>
PENN LAUREL FINANCIAL CORP. AND SUBSIDIARY
Curwensville, Pennsylvania
CONSOLIDATED STATEMENTS OF INCOME
AS OF AND FOR
THE THREE MONTHS
ENDED MARCH 31,
(unaudited)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Interest Income:
Interest and fees on loans $2,048,663 $1,908,051
Interest on Federal Funds Sold 12,658 12,092
Taxable Interest on Investments 229,673 285,447
Non Taxable Interest on Investments 121,296 113,880
Dividends 37,851 32,102
Interest on Balances with Banks 357 762
---------- ----------
Total Interest Income 2,450,498 2,352,334
---------- ----------
Interest Expenses:
Interest on deposits 1,158,964 1,127,488
Interest on Borrowed Funds 46,207 607
---------- ----------
Total Interest Expense 1,205,171 1,128,095
---------- ----------
Net interest income 1,245,327 1,224,239
Less: Provision for Loan Losses 72,000 65,100
---------- ----------
Net interest income after provision for loan losses 1,173,327 1,159,139
---------- ----------
Other Income:
Service fees on Deposit Accounts 99,949 85,693
Other Service Charges & Fees 49,001 50,828
Other Income 36,668 9,862
Security Gains (Losses) 133,226 480,959
---------- ----------
Total Other Income 318,844 627,342
---------- ----------
Other Expenses:
Salaries & Employee Benefits 559,608 504,225
Occupancy Expense 77,688 85,374
Equipment & Processing Expense 145,422 163,515
Other operating expenses 250,558 246,485
---------- ----------
1,033,276 999,599
---------- ----------
Income before income taxes 458,895 786,882
Provision for Income Taxes 85,799 116,000
---------- ----------
NET INCOME $ 373,096 $ 670,882
========== ==========
Net income per share $ 1.04 $ 1.94
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-26
<PAGE>
PENN LAUREL FINANCIAL CORP. AND SUBSIDIARY
Curwensville, Pennsylvania
CONSOLIDATED STATEMENTS OF INCOME
DECEMBER 31, 1998 AND 1997
1998 1997
---------- ----------
Interest Income:
Interest and fees on loans $8,191,944 $7,567,946
Interest on investment securities:
U.S. Treasury securities 223,852 235,690
Obligations of other U.S. government agencies 496,710 537,134
Obligations of state and political subdivisions 508,162 436,050
Other securities 484,175 526,722
Interest on federal funds sold 67,957 71,161
---------- ----------
9,972,800 9,374,703
---------- ----------
Interest Expenses:
Interest on deposits 4,810,988 4,419,031
Interest on federal funds purchased and
repurchase agreements 15,788 6,606
---------- ----------
4,826,766 4,425,637
---------- ----------
Net interest income 5,146,024 4,949,066
Provision for loan losses 319,100 300,000
---------- ----------
Net interest income after provision for loan 4,826,924 4,649,066
losses
---------- ----------
Other Income:
Service fees 447,553 364,853
Security gains 534,239 67,639
Other 264,802 153,197
---------- ----------
1,246,594 585,689
---------- ----------
Other Expenses:
Salaries 1,746,319 1,392,055
Pension and other employee benefits 439,245 331,271
Occupancy expense 326,078 315,782
Other operating expenses 1,853,364 1,426,014
---------- ----------
4,365,006 3,465,122
---------- ----------
Income before income taxes 1,708,512 1,769,633
Applicable income taxes 427,396 447,930
---------- ----------
Net income $1,281,116 $1,321,703
========== ==========
Net income per share of common stock
(based on weighted average shares outstanding)
Net income per share $ 3.70 $ 3.82
========== ==========
The accompanying notes are an integral part of the financial statements.
F-27
<PAGE>
PENN LAUREL FINANCIAL CORP. AND SUBSIDIARY
Curwensville, Pennsylvania
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
AS OF AND FOR
THE THREE MONTHS
ENDED MARCH 31
(unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Net Income $ 373,096 $ 670,882
--------- ---------
Other comprehensive income, before tax:
Unrealized holding gains arising during period 237,989 726,540
Less: Reclassification adjustment for gains included in net income (133,226) (480,959)
--------- ---------
Other comprehensive income, before tax: 477,859 916,463
Income tax expense related to other comprehensive income (104,763) (245,581)
Other comprehensive income, net of tax (207,542) (355,081)
--------- ---------
Comprehensive income $ 165,554 $ 315,801
========= =========
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F-28
<PAGE>
PENN LAUREL FINANCIAL CORP. AND SUBSIDIARY
Curwensville, Pennsylvania
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net Income $ 1,281,116 $ 1,321,703
----------- -----------
Other comprehensive income, before tax:
Unrealized gains on securities
Unrealized holding gains arising during period 657,092 1,445,083
Less: Reclassification adjustment for gains included in net
income (534,239) (67,639)
----------- -----------
Other comprehensive income, before tax: 122,853 1,377,444
Income tax expense related to other comprehensive income 178,475 330,727
Other comprehensive income, net of tax (55,622) 1,046,717
----------- -----------
Comprehensive income $ 1,225,494 $ 2,368,420
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-29
<PAGE>
PENN LAUREL FINANCIAL CORP. AND SUBSIDIARY
Curwensville, Pennsylvania
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 373,096 $ 670,882
Adjustment to reconcile net income to
net cash provided by operating activities:
Depreciation 46,519 49,308
Provision for loan losses 72,000 65,100
Provision for deferred taxes (3,201) --
Gain on sale of investment securities (133,226) (480,959)
(Decrease) increase in taxes payable 89,000 99,859
(Increase) decrease in interest receivable 51,321 70,805
Increase (decrease) in interest payable (4,461) 8,093
Increase (decrease) in accrued expenses (12,841) (44,766)
Decrease (increase) in other assets (190,605) (311,635)
----------- -----------
Net cash provided by operating activities 287,602 126,687
----------- -----------
Cash flows from investing activities:
Securities held to maturity - net 981,517 56,786
Securities available for sale - net 2,813,919 995,032
Net increase in loans (2,908,768) (1,202,211)
Capital expenditures (45,432) (45,419)
----------- -----------
Net cash provided (used) in investing activities 841,236 (195,812)
----------- -----------
Cash flows from financing activities:
Net increase in demand, time and savings deposits 527,148 2,760,101
Dividends paid (107,178) (100,263)
Increase (decrease) in funds purchased and security repurchase agreements (845,364) 0
Payments on long-term debt 0 (3,700)
----------- -----------
Net cash provided by financing activities (425,394) 2,656,138
----------- -----------
Net increase in cash and cash equivalents 703,444 2,587,013
Cash and due from banks at beginning of year 4,637,490 3,450,367
----------- -----------
Cash and due from banks, March 31 $ 5,340,934 $ 6,037,380
=========== ===========
Supplemental disclosures:
Interest paid $ 1,209,632 $ 1,120,002
Income taxes paid $ 0 $ 16,141
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F-30
<PAGE>
PENN LAUREL FINANCIAL CORP. AND SUBSIDIARY
Curwensville, Pennsylvania
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Net Income $ 1,281,116 $ 1,321,703
Adjustment to reconcile net income to
net cash provided by operating activities:
Depreciation 180,861 192,427
Provision for loan losses 319,100 300,000
Provision for deferred taxes (31,245) 59,491
Gain on sale of investment securities (534,239) (67,639)
(Decrease) increase in taxes payable 3,000 (7,895)
(Increase) decrease in interest receivable (26,252) (120,394)
Increase (decrease) in interest payable 27,001 67,546
Increase (decrease) in accrued expenses 38,212 (161,858)
Decrease (increase) in other assets (517,271) (36,690)
------------ ------------
Net cash provided by operating activities 740,283 1,546,691
------------ ------------
Cash flows from investing activities:
Proceeds from maturities of securities held to maturity 4,614,955 2,134,457
Proceeds from sales of securities available for sale 7,045,587 4,993,010
Proceeds from maturities of securities available for sale 5,705,000 4,831,054
Purchase of securities available for sale (15,221,944) (11,272,446)
Purchase of securities held to maturity (3,968,314) (995,086)
Net increase in loans (9,808,416) (4,982,406)
Capital expenditures (77,757) (288,730)
------------ ------------
Net cash used in investing activities (11,710,889) (5,580,147)
------------ ------------
Cash flows from financing activities:
FHLB advances 3,000,000 --
Net increase in demand, time and savings deposits 8,258,053 5,816,560
Dividends paid (457,001) (435,626)
Increase (decrease) in funds purchased and security
repurchase agreements 1,306,525 (625,000)
Payments on long-term debt (485,845) (15,926)
Sale (purchase) treasury stock 535,997 (38,940)
------------ ------------
Net cash provided by financing activities 12,157,729 4,701,068
------------ ------------
Net increase (decrease) in cash and cash equivalents 1,187,123 667,612
------------ ------------
Cash and due from banks at beginning of year 3,450,367 2,782,755
------------ ------------
============ ============
Cash and due from banks at end of year $ 4,637,490 $ 3,450,367
============ ============
Supplemental disclosures:
Interest paid on deposits $ 4,799,775 $ 4,358,091
Income taxes paid $ 453,958 $ 396,334
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-31
<PAGE>
PENN LAUREL FINANCIAL CORP. AND SUBSIDIARY
Curwensville, Pennsylvania
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIODS ENDING MARCH 31, 1999 AND DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-In Retained Comprehensive Treasury Stockholders'
Stock Capital Earnings Income Stock Equity
------------ ------------ ------------ ------------ ------------ ------------
Balance
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996 $ 1,800,000 $ 1,500,974 $ 7,679,163 $ 850,863 $ (310,870) $ 11,520,130
============ ============ ============ ============ ============ ============
Net income $ 1,321,703 $ 1,321,703
Cash dividends declared
(435,626) (435,626)
Comprehensive income
$ 1,046,717 1,046,717
Purchase treasury stock
$ (38,940) (38,940)
------------ ------------ ------------ ------------ ------------ ------------
Balance
December 31, 1997 $ 1,800,000 $ 1,500,974 $ 8,565,240 $ 1,897,580 $ (349,810) $ 13,413,984
============ ============ ============ ============ ============ ============
Net income $ 1,281,116 $ 1,281,116
Cash dividends declared
(457,001) (457,001)
Comprehensive income
$ (55,622) (55,622)
Sale treasury stock $ 253,427 $ 282,570 535,997
------------ ------------ ------------ ------------ ------------ ------------
Balance
December 31, 1998 $ 1,800,000 $ 1,754,401 $ 9,389,355 $ 1,841,958 $ (67,240) $ 14,718,474
============ ============ ============ ============ ============ ============
Net Income $ 73,096 $ 373,096
Cash Dividends declared (107,178) (107,178)
Comprehensive income $ (207,542) (207,542)
------------ ------------ ------------ ------------ ------------ ------------
Balance
March 31, 1999 $ 1,800,000 $ 1,754,401 $ 9,655,273 $ 1,634,416 $ (67,240) $ 14,776,850
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-32
<PAGE>
PENN LAUREL FINANCIAL CORP. AND SUBSIDIARY
Curwensville, Pennsylvania
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1. Summary of Significant Accounting Policies
Business and Organization - Penn Laurel Financial Corp. (the "Corporation") is a
Pennsylvania corporation organized as the holding company of CSB Bank (the
"Bank"). The Bank is a state chartered commercial bank located in Curwensville,
Pennsylvania, which provides a full range of banking and related services to
individual and corporate customers within the central region of Pennsylvania.
On September 19, 1998, CSB Bank purchased an independent insurance agency. CSB
Financial Services, Inc. provides all lines of insurance products and services.
Principles of Consolidation - The consolidated financial statements include the
accounts of: Penn Laurel Financial Corp. the parent company; its wholly owned
banking subsidiary CSB Bank, and its subsidiary CSB Financial Services, Inc.
These statements have been prepared in accordance with generally accepted
accounting principles. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Statement of Cash Flows - For purposes of the statement of cash flows, cash and
due from banks are the only items considered as cash and cash equivalents.
Investment Securities - Securities are classified when purchased as either held
to maturity, available for sale or trading securities.
Management classifies securities as held to maturity when it has both the
ability and positive intent to hold the securities to maturity. Securities held
to maturity are stated at cost adjusted for amortization of premium and
accretion of discount computed under the interest method.
Management classifies securities as trading securities when its intent is to
sell them in the near term. Trading securities are carried at market value with
unrealized gains and losses included in other income. Management had no
securities classified as trading at December 31, 1998 and 1997.
Securities not classified as held to maturity or trading securities are
designated as available for sale. Securities available for sale are recorded at
fair value, with aggregate unrealized holding gains and losses reported net of
tax as a separate component of shareholders' equity until realized.
Realized gains and losses on the sale of securities available for sale and held
to maturity are computed on the specific identification method.
F-33
<PAGE>
The fair value of securities is based on quoted market prices or bid quotations
received from securities dealers.
Loans and Allowance for Loan Losses - Loans are stated at the amount of unpaid
principal, reduced by unearned discount and an allowance for loan losses.
Unearned discount on installment loans is recognized as income over the terms of
the loans by the interest method. Interest on other loans is calculated by using
the simple interest method on daily balances of the principal amount
outstanding. The allowance for loan losses is established through a provision
for loan losses charged to expenses. Loans are charged against the allowance for
loan losses when management believes that the collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb possible losses on existing loans that may become uncollectible, based
on evaluations of the collectibility of loans and prior loan loss experience.
The evaluations take into consideration such factors as changes in the nature
and volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, and current economic conditions that may affect the borrowers'
ability to pay. Accrual of interest is discontinued on a loan when management
believes, after considering economic and business conditions and collection
efforts, that the borrowers' financial condition is such that collection of
interest is doubtful.
Loan Fees - Loan origination fees and certain direct incremental loan
origination costs are deferred and amortized over the life of the related loans
as yield adjustments using primarily the level yield method. When the loans are
sold or paid off, the unamortized fees and costs are transferred to income.
Premises and Equipment - Office premises and equipment are stated at cost less
accumulated depreciation computed on both the straight-line and accelerated
methods over the estimated useful lives of the assets. Costs incurred for
maintenance and repairs are expensed currently.
Other Assets - Included in this caption is other real estate which consists of
real estate acquired through foreclosure or in settlement of debt and is stated
at the lower of fair value or cost. Loan losses arising from the acquisition of
such property are charged as current operating expense. For December 31, 1998
and 1997 other real estate recorded was $132,291 and $42,000, respectively.
Income Taxes - The Bank follows the Financial Accounting Standards Board's
Statement No. 109, "Accounting for Income Taxes" (FAS 109). Under the asset and
liability method provided for by FAS 109, deferred tax assets and liabilities
are recognized for the tax consequences of temporary differences by applying
enacted statutory tax rates applicable to future years to differences between
financial statement carrying amounts and the tax bases of existing assets and
liabilities.
Earnings per Share - Earnings per share are calculated on the weighted average
number of common shares outstanding during the year. For December 31, 1998 and
1997 the weighted average number of shares was 346,048 and 345,932,
respectively.
Comprehensive Income - On January 1, 1998, the Corporation adopted the Financial
Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards to provide prominent disclosure of
comprehensive income items. Comprehensive income is the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. Other comprehensive income consists of net
unrealized gains on investment securities available for sale. Subsequent to the
adoption date, all prior-period amounts are required to be restated to confirm
to the provision of SFAS No. 130. Comprehensive income for December 31, 1998 and
1997 was $(55,622) and $1,046,717, respectively. The adoption of SFAS No. 130
did not have a material impact on the Corporation's financial position or
results of operation.
Treasury Stock - The acquisition of treasury stock is recorded under the cost
method. The subsequent disposition or sale of the treasury stock is recorded
using the average cost inventory method.
F-34
<PAGE>
Segment Reporting - In June 1997, the Financial Accounting Standards Board
issued Statement 131, "Disclosures About Segments of an Enterprise and Related
Information," which was effective for the December 31, 1998 financial
statements. This statement redefines how operating segments are determined and
requires disclosure of certain financial and descriptive information about a
company's operating segments. Management has determined, under current
conditions, the corporation will report as one business segment.
2. Investment Securities
The fair value, gross unrealized holding gains and losses, and amortized
cost of securities at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
December 31, 1998:
Securities Available for Sale:
U.S. Treasury Securities $ 3,985,703 $ 58,047 $ -- $ 4,043,750
Obligations of Other U.S.
Government Agencies 6,999,471 60,648 4,359 7,055,760
Obligations of States and
Political Subdivisions 10,734,135 247,384 15,348 10,966,171
Marketable Equities 3,075,968 2,605,495 170,431 5,511,032
Other Securities 5,529,844 27,769 18,379 5,539,234
----------- ----------- ----------- -----------
TOTAL $30,325,121 $ 2,999,343 $ 208,517 $33,115,947
=========== =========== =========== ===========
Securities Held to Maturity:
Other Securities $ 1,977,044 $ -- $ -- $ 1,977,044
=========== =========== =========== ===========
December 31, 1997:
Securities Available for Sale:
U.S. Treasury Securities $ 3,989,754 $ 15,733 $ 12,675 $ 3,992,812
Obligations of Other U.S.
Government Agencies 8,752,786 52,731 15,770 8,789,747
Obligations of States and
Political Subdivisions 7,514,517 112,688 53 7,627,152
Marketable Equities 1,591,809 2,514,906 -- 4,106,715
Other Securities 5,472,006 23,273 24,206 5,471,073
----------- ----------- ----------- -----------
TOTAL $27,320,872 $ 2,719,331 $ 52,704 $29,987,499
=========== =========== =========== ===========
F-35
<PAGE>
Securities Held to Maturity
Obligations of States and
Political Subdivisions $1,628,598 $ 51,926 $ -- $1,680,524
Other Securities 995,087 -- -- 995,087
---------- ---------- ---------- ----------
$2,623,685 $ 51,926 $ -- $2,676,611
========== ========== ========== ==========
</TABLE>
Investment securities with a par value of $4,805,000 and
$4,655,000 at December 31, 1998 and 1997 were pledged to secure public deposits
and for other purposes as required or permitted by law.
The following is a schedule of the contractual maturity of securities
except marketable equities at December 31, 1998:
Amortized Fair
Cost Value
----------- -----------
1 year or less $ 5,333,350 $ 5,352,377
1 year - 5 years 14,999,253 15,189,914
5 years - 10 years 3,139,699 3,237,862
Thereafter 3,914,867 3,961,507
Collateralized mortgage obligations
and other asset-backed securities 1,839,028 1,840,299
Total Securities $29,226,197 $29,581,959
=========== ===========
Collateralized mortgage obligations and other asset-backed securities are
not due at a single date; periodic payments are received based on the payment
patterns of the underlying collateral.
3. Loans
The Bank grants commercial and residential loans to customers primarily in
central Pennsylvania. Although the Bank has a diversified portfolio, its
debtors' ability to honor their contracts is substantially dependent upon the
general economic conditions of the region. The Bank manages its loan portfolio
to avoid concentration by industry or loan size to minimize its credit exposure.
Commercial loans may be collateralized by the assets underlying the borrowers'
business such as accounts receivable, equipment, inventory and real property.
Residential mortgage and home equity loans are generally secured by the real
property financed. Commercial real estate loans are generally secured by the
underlying real property and lease agreements.
Major classifications of loans are as follows:
December 31
1998 1997
------------ ------------
Commercial, financial and agricultural $ 26,472,381 $ 25,956,075
Real estate 35,200,147 28,608,637
Installment 30,739,970 28,861,122
------------ ------------
92,412,498 83,425,834
Unearned discount (271,846) (757,169)
------------ ------------
92,140,652 82,668,665
Allowance for loan losses (771,478) (788,807)
------------ ------------
$ 91,369,174 $ 81,879,858
============ ============
Changes in the allowance for loan losses were as follows:
F-36
<PAGE>
December 31
1998 1997
--------- ---------
Balance, beginning of year $ 788,807 $ 720,949
Provision charged to operations 319,100 300,000
Loans charged of (486,281) (400,290)
Recoveries 149,852 168,148
--------- ---------
Balance, end of year $ 771,478 $ 788,807
========= =========
Non-accrual loans on which the accrual of interest has been discontinued
amounted to $121,132 and $523,114 for December 31, 1998 and 1997, respectively.
4. Bank Premises and Equipment
Major classifications of these assets are summarized as follows:
December 31
1998 1997
---------- ----------
Land $ 471,041 $ 519,018
Buildings 1,769,743 1,744,463
Equipment 1,967,720 1,867,267
Leasehold improvements 136,360 136,360
---------- ----------
4,344,864 4,267,108
Accumulated depreciation and amortization 2,464,347 2,283,487
---------- ----------
$1,880,517 $1,983,621
========== ==========
Depreciation expense amounted to $180,861 in 1998 and $192,427 in 1997.
5. Income Taxes
The total income taxes in the statements of income are as follows:
December 31
1998 1997
--------- ---------
Currently payable $ 458,641 $ 388,439
Deferred (31,245) 59,491
--------- ---------
$ 427,396 $ 447,930
========= =========
Deferred income taxes according to the timing differences which caused them
were as follows:
F-37
<PAGE>
December 31
1998 1997
-------- --------
Depreciation $ (321) $(11,149)
Deferred compensation (7,569) 44,471
Other (23,355) 26,169
-------- --------
Deferred tax expense (credit) $(31,245) $ 59,491
======== ========
Interest income on obligations of states and political subdivisions
totaling $531,720 and $450,304 for 1998 and 1997, respectively, is exempt from
federal income taxes; accordingly, the tax provision is less than that obtained
by using the statutory federal corporate income tax rate.
6. Leases
The Bank leases Banking facilities and equipment under long-term lease
agreements which expire in various years between April 20, 1997 and April 23,
2002. Total rental payments were $176,059 and $136,950 in 1998 and 1997
respectively.
Operating Leases
Schedule of Minimum Future Rental Payments
Year Ending
December 31
1999 $ 144,403
2000 120,600
2001 118,834
2002 29,561
----------
$ 413,398
==========
7. Commitments and Contingencies
In the normal course of business, the Bank makes various commitments and
incurs certain contingent liabilities that are not presented in the accompanying
financial statements. The commitments and contingent liabilities include various
guarantees, commitments to extend credit, and standby letters of credit. The
Bank does not anticipate any material losses as a result of these transactions.
The following is a summary of significant commitments as of December 31:
1998 1997
---------- ----------
Standby letters of credit $ 129,000 $ 184,000
Commitments to extend credit:
Commercial loans secured by real estate 271,000 503,000
Home equity lines 2,530,000 2,413,000
Other unused commitments 6,184,000 4,796,000
---------- ----------
$9,114,000 $7,896,000
========== ==========
8. Related Party Transactions
In the ordinary course of business, the Bank has transactions, including
loans, with their officers, directors and their affiliated companies. These
transactions are on substantially the same terms as those prevailing at the time
for comparable transactions with unaffiliated parties and do not involve more
than the normal risk. These loans totaled $2,651,010 and $2,278,924 at December
31, 1998 and 1997 respectively. Aggregate loan transactions with related parties
are as follows:
F-38
<PAGE>
December 31
-----------
1998 1997
----------- -----------
Balance, beginning of
year $ 2,278,924 $ 2,270,986
New Loans 1,171,769 256,911
Payments (799,683) (248,973)
----------- -----------
Balance, end of year $ 2,651,010 $ 2,278,924
=========== ===========
9. Restrictions and Capital Requirements
The amount of funds available to the parent from its subsidiary Bank is
limited by restrictions imposed by the Pennsylvania Department of Banking. As of
December 31, 1998, dividends from the subsidiary Bank were restricted not to
exceed $8,740,579.
As of December 31, 1998 and 1997, the Bank was required by the Federal
Reserve Bank to maintain an average cash balance of approximately $572,000 and
$548,000 respectively.
The Bank maintains an investment in Federal Home Loan Bank of Pittsburgh
stock of $355,500 and $336,300, as of December 31, 1998 and 1997, respectively,
which is included with investment securities.
The Bank is also required to maintain minimum amounts and ratios of total
and Tier I capital to risk weighted assets, and Tier I capital to average
assets, as defined by banking regulators. Total capital includes common stock,
capital surplus and undivided profits. Tier I capital includes the allowance for
possible loan losses up to 1.25% of risk adjusted assets. Tier I leverage ratio
divides total capital by average assets.
The capital requirements are summarized as follows:
<TABLE>
<CAPTION>
Well Minimum
1998 1997 Capitalized Requirements
---- ---- ----------- ------------
<S> <C> <C> <C> <C>
Total Capital to Risk Weighted Assets 12.50% 13.31% 10.00% 8.00%
Tier I Capital to Risk Weighted Assets 11.35% 12.39% 6.00% 4.00%
Tier I Leverage Capital to Average Assets 9.30% 9.53% 5.00% 4.00%
</TABLE>
10. Employee Savings Plan
The Bank maintains a 401(K) deferred savings plan, to which eligible
participating employees may elect to contribute up to 20% of their gross
compensation to an investment trust, not to exceed the employee deferral limit.
The limit is indexed annually by the Internal Revenue Service. In addition, a
discretionary employer contribution shall be determined for each plan year by a
resolution passed by the employer's board of directors.
In December 1998, the Employee's Savings Plan acquired 10,672 shares of
Penn Laurel Financial Corporation's treasury stock for the purpose of
integrating the 401(K) into a KSOP plan.
The expense for the above plan amounted to $54,000 and $51,152 for December
31, 1998 and 1997, respectively.
Group-based incentive plans include both long-term and annual incentive
programs designed to focus management and employee efforts on profit performance
objectives and revenue growth targets. An executive supplemental income plan was
established in 1998 and indirectly funded by purchasing corporate owned life
insurance products. At December 31, 1998, the Bank has recorded assets of
$276,917 and liabilities of $16,742. The expense of the plan for 1998 was
$16,742,
F-39
<PAGE>
11. Directors' Deferred Income Plans
The Bank maintains two deferred income plans for its directors.
In 1997, Plan 1 was amended, eliminating the unrecognized obligation. Each
director now has an account balance equal to the director's fee deferred, plus
compounded interest. This plan is partially funded with Bank owned life
insurance policies.
In 1998, Plan 2 was formed, providing the directors an opportunity to defer
the next five years compensation. The deferred fees would be retained and
compounded until selected pay-out age. This plan is supplemented with Bank owned
insurance policies where the Bank is also the beneficiary.
The following sets forth the funded status and amounts recognized in the
consolidated statements of condition as of December 31:
1998 1997
--------- ---------
Plan 1
Cash surrender value of life insurance $ 217,362 $ 229,314
========= =========
Accrued plan cost $(447,005) $(469,269)
========= =========
Net periodic cost $ 43,810 $(105,538)
========= =========
Plan 2
Insurance assets $ 66,483 --
=========
Accrued plan costs $ (50,800) --
=========
Net periodic cost $ 57,800 --
=========
12. Long-Term Debt
A Bank promissory note with an interest rate of 8.00%, due in monthly
installments of $4,475 including interest, maturing in March 2014, but retired
early, has an outstanding balance of $0 and $485,845 at December 31, 1998 and
1997, respectively.
13. FHLB Advances
The Bank is a member of the FHLB of Pittsburgh and, as such, is eligible
for advances.
Pursuant to a blanket collateral agreement, advances from the FHLB are
collateralized by first mortgage loans and securities. Advances available under
this agreement are limited by available and qualifying collateral and the amount
of FHLB stock held by the borrower.
Advances from the FHLB at December 31, 1998 are summarized as follows:
Due April 25, 2005, 5.5% $1,000,000
Due May 27, 2008, 5.02% 2,000,000
----------
$3,000,000
==========
14. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
Cash and Short Term Assets:
The carrying amount approximates fair value because of the short maturity
of these instruments. For purposes of this disclosure only, short-term assets
include due from Bank and federal funds sold.
F-40
<PAGE>
Investment Securities:
The fair value of investment securities are based on quoted market prices
or bid quotations received from securities dealers.
Loans:
For fixed rate loans, fair value is estimated by discounting contractual
cash flows adjusted for prepayment estimates using discount rates adjusted to
reflect operating costs. For variable rate loans, fair value is estimated by
discounting scheduled cash flows through the estimated maturity using discount
rates that reflect the credit and interest rate risk inherent in the loan.
Deposits:
The fair value of deposits with no stated maturity, such as non-interest
bearing demand deposits, savings, now, money market and checking accounts, is
equal to the amount payable on demand as of December 31. The fair value of
certificates of deposit is based on the discounted value of contractual cash
flows.
Short Term Borrowings:
The carrying amount approximates fair value because of the short-term
nature of these borrowings.
Long Term Borrowings:
The fair value is calculated by discounting scheduled cash flows through
the estimated maturity.
The fair value of financial instruments as of December 31 (in thousands) is
as follows:
1998 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
Assets:
Cash and short term assets $ 4,637 $ 4,637 $ 3,450 $ 3,450
Investment securities 35,093 35,093 32,611 32,663
Loans 91,369 92,687 81,880 83,066
Liabilities:
Deposits $113,845 $115,414 $105,587 $106,254
Short term borrowing 4,307 4,307 -- --
Long term debt -- -- 486 528
15. Parent Company Financial Information
Penn Laurel Financial Corp. (parent company only) financial information is
as follows:
December 31
STATEMENTS OF CONDITION 1998 1997
------------ ------------
ASSETS
Cash $ 265,692 $ 174,268
Investments in:
Bank subsidiary 11,895,360 11,479,172
Securities available for sale 2,485,023 1,936,761
Bank premises 761,072 795,622
Other assets 34,613 3,411
------------ ------------
TOTAL ASSETS $ 15,441,760 $ 14,389,234
============ ============
F-41
<PAGE>
LIABILITIES
Dividend payable $ 163,225 $ 161,665
Long-term debt -- 485,845
Deferred income taxes 560,061 327,740
SHAREHOLDERS EQUITY 14,718,474 13,413,984
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $ 15,441,760 $ 14,389,234
============ ============
STATEMENTS OF INCOME
INCOME
Dividends from:
Bank subsidiary $ 732,000 $ 610,626
Other non-subsidiary investments 42,890 36,468
Rental income 60,000 60,025
Security gains (loss) 30,378 (2,898)
------------ ------------
Total income 865,268 704,221
EXPENSES 102,214 78,562
------------ ------------
Income before income taxes and equity
in undistributed net income of Banking
subsidiary 763,054 625,659
Equity in undistributed net income of
Banking subsidiary 518,062 696,044
------------ ------------
NET INCOME $ 1,281,116 $ 1,321,703
============ ============
STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income $ 1,281,116 $ 1,321,703
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 11,854 11,800
(Gain) on sale of investment securities (30,378) 2,898
Equity in undistributed net income of
subsidiary (518,062) (696,044)
Decrease (increase) in other assets (31,202) 150
Increase (decrease) in payables 1,560 (4,049)
------------ ------------
Net cash provided by operating
activities 714,888 636,458
------------ ------------
Cash flows from investing activities:
Capital Expenditures (25,281) (156,584)
Proceeds from sales of securities available
for sale 192,222 92,865
Proceeds of investments (431,533) (96,586)
Proceeds from sale of assets 47,977 --
------------ ------------
Net cash provided (used) by investing activities (216,615) (160,305)
------------ ------------
F-42
<PAGE>
Cash flow from financing activities:
Payments on long-term debt (485,845) (15,926)
Dividends paid (457,001) (435,626)
Sale (purchase) Treasury Stock 535,997 (38,940)
------------ ------------
Net cash used by financing activities (406,849) (490,492)
------------ ------------
Net increase (decrease) in cash and cash
equivalents 91,424 (14,339)
Cash and cash equivalents, beginning 174,268 188,607
------------ ------------
Cash and cash equivalents, ending $ 265,692 $ 174,268
============ ============
16. Subsequent Events
On September 16, 1998, the Bank entered into a building and land lease
agreement for the construction of a banking facility in St. Marys, Pennsylvania
with a tentative opening date of July 1999. The amount and term of the lease
will be determined upon completion of the facility.
On December 31, 1998, Penn Laurel Financial Corp. announced that an
agreement to merge CSB Bank and Clearfield Bank & Trust Company had been
reached. Clearfield Bank & Trust Company is approximately a $181 million bank
and trust company with its main office in Clearfield, Pennsylvania, and five
branches in Clearfield County.
Subject to the receipt of all required regulatory and shareholder
approvals, the parties anticipate consummating the transaction by late in the
second quarter of 1999.
F-43
<PAGE>
ANNEXES
A Agreement and Plan of Reorganization
B Ryan, Beck & Co., Inc. Fairness Opinion
C Garland McPherson & Associates, Inc. Fairness Opinion
D Statutes Regarding Dissenters' Rights
E Restated Articles of Incorporation of Penn Laurel Financial Corp.
F Amended and Restated Bylaws of Penn Laurel Financial Corp.
G Tax Opinion of Shumaker Williams, P.C.
<PAGE>
Annex A
Agreement and Plan of Reorgaization
PREVIOUSLY FILED
<PAGE>
Annex B
Ryan, Beck & Co., Inc.
Fairness Opinion
PREVIOUSLY FILED
<PAGE>
Annex C
Garland McPherson & Associates, Inc.
Fairness Opinion
PREVIOUSLY FILED
<PAGE>
ANNEX D
PENNSYLVANIA BANKING CODE OF 1965, AS AMENDED
PREVIOUSLY FILED
<PAGE>
ANNEX E
PENN LAUREL FINANCIAL CORP.
RESTATED
ARTICLES OF INCORPORATION
PREVIOUSLY FILED
<PAGE>
ANNEX F
RESTATED
BY-LAWS
OF
PENN LAUREL FINANCIAL CORP.
PREVIOUSLY FILED
<PAGE>
Annex G
Tax Opinion of Shumaker Williams, P.C.
PREVIOUSLY FILED
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Subchapter D of Chapter 17 of the Pennsylvania Business Corporation Law of
1988, as amended (15 Pa. C.S. ss.1101-4162) provides that a business
corporation shall have the power under certain circumstances to indemnify its
directors, officers, employees and agents against certain expenses incurred by
them in connection with any threatened, pending or completed action, suit or
proceeding.
Article 10 of the Amended Bylaws of Penn Laurel Financial Corp. provides
for the indemnification of its directors, officers, employees and agents in
accordance with, and to the maximum extent permitted by, the provisions of
Subchapter D of Chapter 17 of the Pennsylvania Business Corporation Law of 1988,
as amended.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits:
---------
<TABLE>
<CAPTION>
<S> <C>
2.1 Agreement and Plan of Reorganization (the "Agreement") dated
December 31, 1998, among Penn Laurel Financial Corp., CSB Bank
and Penn Laurel Financial Corp. (Included in Annex A to the Proxy
Statement contained herein).
2.2 Agreement and Plan of Merger of Penn Laurel Financial Corp. and
CSB Bank (Included as Exhibit A to the Agreement, which Agreement
is included in Annex A to the Proxy Statement/Prospectus
contained herein).
2.3 Investment Agreement, dated as of December 31, 1998, between
Clearfield Bank & Trust Company and Penn Laurel Financial Corp.
(Included in Annex A to the Proxy Statement/Prospectus.)
2.4 Investment Agreement, dated December 31, 1998,
between Penn Laurel Financial Corp. and Penn Laurel
Financial Corp. (Included in Annex A to the Proxy
Statement/Prospectus.)
3(i) Penn Laurel Financial Corp. Restated Articles of
Incorporation (Included at Annex E to the Proxy
Statement.)
3(ii) Penn Laurel Financial Corp. Amended and Restated
Bylaws (Included at Annex F to the Proxy Statement.)
4.1 Penn Laurel Financial Corp. Restated Articles of
Incorporation (Included at Annex E to the Proxy
Statement.)
4.2 Penn Laurel Financial Corp. Amended and Restated
Bylaws (Included at Annex F to the Proxy Statement.)
5 Opinion of Shumaker Williams, P.C. re: Legality.*
8 Opinion of Shumaker Williams, P.C. re: Tax Matters.
(Included at Annex G to the Proxy Statement/Prospectus).
<PAGE>
10.1 Penn Laurel Financial Corp. Employee Incentive Stock
Option Plan.*
10.2 Employment Agreement, dated January 1, 1999, between
Larry W. Brubaker and Penn Laurel Financial Corp.*
10.3 Employment Agreement, dated July 22, 1999,
between Penn Laurel Financial Corp., Penn Laurel Bank
& Laurel Company and Larry W. Brubaker.*
10.4 Employment Agreement, dated July 22, 1999,
between Penn Laurel Financial Corp., Penn Laurel Bank
& Laurel Company and William E. Wood.*
10.5 Employment Agreement, dated July 22, 1999,
between Penn Laurel Financial Corp., Penn Laurel Bank
& Laurel Company and Wesley M. Weymers.*
10.6 Engagement Agreement, Dated May 27, 1999, among Penn Laurel
Financial Corp., Penn Laurel Bank & Trust Company and William L.
Bertram.*
11 Statement re: Computation of Earnings Per Share. (Included at
page __ of the proxy statement/prospectus contained herein.)
12 Computation of Ratios (Included at page __ of the proxy
statement/prospectus contained herein.)
21 Subsidiaries of Registrant.*
23.1 Consent of Shumaker Williams, P.C. (Included as part of
Exhibit 5.)
23.2 Consent of Young, Oakes, Brown & Company, P.C.*
23.3 Consent of Walter Hopkins & Company, Certified Public
Accountants.*
23.4 Consent of Ryan, Beck & Co., Inc.*
23.5 Consent of Garland McPherson & Associates, Inc.*
24 Power of Attorney (Included on Signature Page.)
99.1 Form of Penn Laurel Proxy.*
99.2 Letter to Shareholders of Penn Laurel.*
99.3 Notice of Meeting - Penn Laurel.*
<PAGE>
99.4 Form of Clearfield Proxy.*
99.5 Letter to Shareholders of Clearfield.*
99.6 Notice of Meeting - Clearfield.*
99.7 Statutes Relating to Dissenters' Rights (Included at
Annex D to the Proxy Statement.)
- --------------
* Previously Filed.
</TABLE>
(b) Financial Statement Schedules:
None required.
(c) Opinion of Financial Advisors:
The opinion of financial advisors are included in the proxy
statement/prospectus as Annex B and Annex C.
Item 22. Undertakings.
(a)
1. The undersigned Registrant hereby undertakes as follows:
(A) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) to reflect
in the prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
<PAGE>
information set forth in the registration statement; (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
Provided, however, that paragraphs (1)(a)(i) and (1)(a)(ii) above do not
apply if the registration statement is on Form S-3 or Form S-8 and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registration pursuant
to Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in the registration statement.
(B) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(C) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
2. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
3. The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to the reofferings
by persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The registrant undertakes that every prospectus (i) that is filed pursuant
to the preceding paragraph, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act,
each such post-operative amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
<PAGE>
4. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the bylaws of the registrant, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one (1) business day of receipt
of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supplement by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement No 333-75585,
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Curwensville, Commonwealth of Pennsylvania on
August 2, 1999.
PENN LAUREL FINANCIAL CORP.
By: /s/ Larry W. Brubaker
---------------------------
Larry W. Brubaker
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Capacity Date
-------- ----
<S> <C> <C>
/s/ Larry W. Brubaker President and Chief Executive August 2, 1999
- ---------------------------------------- Officer
Larry W. Brubaker (Principal Executive Officer)
/s/ C. Ben Mullins, Jr. Vice President and Chief August 2, 1999
- ---------------------------------------- Financial Officer
C. Ben Mullins, Jr. (Principal Accounting or
Financial Officer)
/s/ Donald R Fezell
- ---------------------------------------- Director August 2, 1999
Donald R Fezell
<PAGE>
/s/ Guy A. Graham
- ----------------------------------------- Director August 2, 1999
Guy A. Graham
/s/ Frank J. Hoffman, Jr.
- ----------------------------------------- Chairman of the August 2, 1999
Frank J. Hoffman, Jr. Board of Directors
/s/ Joseph P. Leyo
- ----------------------------------------- Director August 2, 1999
Joseph P. Leyo
/s/ Richard L. Lininger
- ----------------------------------------- Director August 2, 1999
Richard L. Lininger
/s/ Laurence B. Seaman
- ----------------------------------------- Director August 2, 1999
Laurence B. Seaman
/s/ Joseph A. Shaw
- ----------------------------------------- Director August 2, 1999
Joseph A. Shaw
/s/ Darrell G. Spencer
- ----------------------------------------- Director August 2, 1999
Darrell G. Spencer
/s/ Richard A. Wilkinson
- ----------------------------------------- Director August 2, 1999
Richard A. Wilkinson
/s/ Wesley M. Weymers
- ----------------------------------------- Director August 2, 1999
Wesley M. Weymers
/s/ Larry W. Brubaker
- -----------------------------------------
Larry W. Brubaker
(Attorney-in-Fact)
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Title Page Number in
------ ----- Sequential Number
System
------
<S> <C> <C>
2.1 Agreement and Plan of Reorganization (the "Agreement") dated
December 31, 1998, among Penn Laurel Financial Corp., CSB Bank
and Penn Laurel Financial Corp. (Included in Annex A to the Proxy
Statement contained herein).
2.2 Agreement and Plan of Merger of Penn Laurel Financial Corp. and
CSB Bank (Included as Exhibit A to the Agreement, which Agreement
is included in Annex A to the Proxy Statement/Prospectus
contained herein).
2.3 Investment Agreement, dated as of December 31, 1998, between
Clearfield Bank & Trust Company and Penn Laurel Financial Corp.
(Included in Annex A to the Proxy Statement/Prospectus.)
2.4 Investment Agreement, dated December 31, 1998,
between Penn Laurel Financial Corp. and Penn Laurel
Financial Corp. (Included in Annex A to the Proxy
Statement/Prospectus.)
3(i) Penn Laurel Financial Corp. Restated Articles of
Incorporation (Included at Annex E to the Proxy
Statement.)
3(ii) Penn Laurel Financial Corp. Amended and Restated
Bylaws (Included at Annex F to the Proxy Statement.)
4.1 Penn Laurel Financial Corp. Restated Articles of
Incorporation (Included at Annex E to the Proxy
Statement.)
4.2 Penn Laurel Financial Corp. Amended and Restated
Bylaws (Included at Annex F to the Proxy Statement.)
5 Opinion of Shumaker Williams, P.C. re: Legality.*
8 Opinion of Shumaker Williams, P.C. re: Tax Matters.
(Included at Annex G to the Proxy Statement/Prospectus).
<PAGE>
10.1 Penn Laurel Financial Corp. Employee Incentive Stock
Option Plan.*
10.2 Employment Agreement, dated January 1, 1999, between
Larry W. Brubaker and Penn Laurel Financial Corp.*
10.3 Employment Agreement, dated July 22, 1999,
between Penn Laurel Financial Corp., Penn Laurel Bank
& Laurel Company and Larry W. Brubaker.*
10.4 Employment Agreement, dated July 22, 1999,
between Penn Laurel Financial Corp., Penn Laurel Bank
& Laurel Company and William E. Wood.*
10.5 Employment Agreement, dated July 22, 1999,
between Penn Laurel Financial Corp., Penn Laurel Bank
& Laurel Company and Wesley M. Weymers.*
10.6 Engagement Agreement, Dated May 27, 1999, among Penn Laurel
Financial Corp., Penn Laurel Bank & Trust Company and William L.
Bertram.*
11 Statement re: Computation of Earnings Per Share. (Included at
page __ of the proxy statement/prospectus contained herein.)
12 Computation of Ratios (Included at page __ of the proxy
statement/prospectus contained herein.)
21 Subsidiaries of Registrant.*
23.1 Consent of Shumaker Williams, P.C. (Included as part of
Exhibit 5.)
23.2 Consent of Young, Oakes, Brown & Company, P.C.*
23.3 Consent of Walter Hopkins & Company, Certified Public
Accountants.*
23.4 Consent of Ryan, Beck & Co., Inc.*
23.5 Consent of Garland McPherson & Associates, Inc.*
24 Power of Attorney (Included on Signature Page.)
99.1 Form of Penn Laurel Proxy.*
99.2 Letter to Shareholders of Penn Laurel.*
99.3 Notice of Meeting - Penn Laurel.*
<PAGE>
99.4 Form of Clearfield Proxy.*
99.5 Letter to Shareholders of Clearfield.*
99.6 Notice of Meeting - Clearfield.*
99.7 Statutes Relating to Dissenters' Rights (Included at
Annex D to the Proxy Statement.)
- --------------
* Previously Filed.
</TABLE>
