FORM 10-K-ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended DECEMBER 31, 1999
-----------------
TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934 [NO FEE REQUIRED]
For the transition period from
to
Commission file Number: 0-21720
SLIPPERY ROCK FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25 - 1674381
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
100 SOUTH MAIN STREET
SLIPPERY ROCK, PENNSYLVANIA 16057 - 1245
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (724) 794-2210
Securities registered pursuant to Section 12(b) of the Act: Not Applicable
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $0.25 per share.
Indicate by check mark whether the registrant (I) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days. Yes X
- --------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K contained is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part Ill of this Form 10-
K or any amendment to this Form 10-K.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the price as of December 31,1999, is $37,164,040.
The number of shares outstanding of the issuer's Common Stock, as of March 30,
2000, was 2,769,048 shares of Common Stock, par value $0.25 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Part I Annual Report to Shareholders for Fiscal year Ended December 31, 1999
Part II Proxy statement for the 2000 Annual Meeting of shareholders to be held
April 18, 2000
Page 1 of 66 Pages with Exhibits
Page 1 of 12 Pages without Exhibits
Exhibit Index on Page 10
<PAGE>
Slippery Rock Financial Corporation
Form 10-K
Index
Part I Page
------
Item 1. Business 4-6
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholders Matters 7
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 7-8
Item 8. Financial Statements and Supplementary Data 9
Item 9. Changes in and disagreements with Accountants on
Accounting and Financial Disclosures 9
Part III
Item 10. Directors and Executive Officers of the Registrant 9
Item 11. Executive Compensation 9
Item 12. Security Ownership of Certain Beneficial Owners and
Management 9
Item 13. Certain Relationships and Related Transactions 9
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 10
Signatures 11-12
Index to Exhibits 13
3
<PAGE>
SLIPPERY ROCK FINANCIAL CORPORATION
FORM 10K
Part I
ITEM 1. Business
General
- -------
Slippery Rock Financial Corporation ("Company") is a one bank holding company
organized under the laws of the Commonwealth of Pennsylvania. In addition, the
Company is registered with and supervised by the Board of Governors of the
Federal Reserve System (the Federal Reserve Board). On June 30,1992, The First
National Bank of Slippery Rock (Bank) completed the reorganization of the Bank
into a holding company structure through the exchange of the outstanding
shares of common stock for shares of common stock of Slippery Rock Financial
Corporation (Company). The Company's primary business is the holding of all of
the outstanding common shares of its wholly owned subsidiary, The First
National Bank of Slippery Rock. The Company's primary source of income has
been dividends paid by the Bank.
The Bank is nationally chartered and is a member of the Federal Reserve
System. The Bank's deposit are insured by the Federal Deposit Insurance
Corporation (FDIC) and is a full-service institution that offers various
demand and time deposit products and originates secured and unsecured
commercial, consumer and mortgage loans.
The Bank has two offices located in Slippery Rock, Pennsylvania and one each
in the communities of Prospect, Portersville, Grove City, Harrisville, and New
Wilmington, Pennsylvania. The Bank's Trust Division operates from a separate
freestanding facility, which also is located in Slippery Rock. In addition to
its retail locations, the Bank has an operations center located in Slippery
Rock Township.
Supervision and Regulation
- --------------------------
The Company is subject to the jurisdiction of the Securities and Exchange
Commission ("SEC"). In addition, Slippery Rock Financial Corporation is also
subject to the provisions of the Bank Holding Company Act of 1956 as amended
("Bank Holding Company Act") and to the supervision of the Federal Reserve
Board. The Bank Holding Company Act requires Slippery Rock Financial
Corporation to receive prior approval of the Federal Reserve Board before it
owns or controls more than 5% of the voting shares of any financial
institution.
A bank holding company is prohibited from engaging in or acquiring control of
more than 5% of the voting shares of any company engaged in non-banking
activities unless the Federal Reserve Board views the activities to be closely
related to banking or managing or controlling banks. In addition, the Bank
Holding Company Act prohibits changes in control of a bank holding company
without prior notice to the Federal Reserve Board.
Slippery Rock Financial Corporation is required to file an annual report with
the Federal Reserve Board and any additional information as required. The
Federal Reserve Board may also require examinations of Slippery Rock Financial
Corporation or any or all of its subsidiaries.
The Federal Reserve Act applies certain restrictions on a bank subsidiary of a
bank holding company regarding extensions of credit to the bank holding
company or any of its other subsidiaries, investments in stocks or other
securities of the bank holding company or the use of such stocks or securities
as collateral to any borrower.
4
<PAGE>
Legislation and Regulatory Changes
- ----------------------------------
The various legislative and regulatory bodies frequently make changes and
proposed changes to laws and regulations applicable to banks and bank holding
companies. No predictions as to the impact these changes may have on Slippery
Rock Financial Corporation or its subsidiary can be made.
On September 29,1994, the President signed into law the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (the "Interstate Banking Act").
Under the Interstate Banking Act, the Federal Reserve Board, subsequent to
analytical review, may approve an application by the Company to acquire all or
substantially all of the assets of a bank located outside of the Commonwealth
of Pennsylvania regardless of whether such a transaction is prohibited under
the law of any state. In addition, the Interstate Banking Act provides that,
beginning June 1,1997, federal supervisory agencies may approve a merger of
the Bank with another bank located in a different state or the establishment
of a new branch office either by acquisition or "de novo" unless the
Commonwealth of Pennsylvania enacts legislation prior to that date which
specifically allows or prohibits a merger with a financial institution in
another state. Management currently has no plans to engage in interstate
banking activities.
FINANCIAL SERVICES MODERNIZATION ACT OF 1999
- --------------------------------------------
On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley
Act (better known as the Financial Services Modernization Act of 1999) which
will, effective March 11, 2000, permit bank holding companies to become
financial holding companies and thereby affiliate with securities firms and
insurance companies and engage in other activities that are financial in
nature. A bank holding company may become a financial holding company if each
of its subsidiary banks is well capitalized under the Federal Deposit
Insurance Corporation Act of 1991 prompt corrective action provisions, is well
managed, and has at least a satisfactory rating under the Community
Reinvestment Act by filing a declaration that the bank holding company wished
to become a financial holding company. No regulatory approval will be
required for a financial holding company to acquire a company, other than a
bank or savings association, engaged in activities that are financial in
nature or incidental to activities that are financial in nature, as determined
by the Federal Reserve Board.
The Financial Services Modernization Act defines "financial in nature"
to include:
securities underwriting, dealing and market making;
sponsoring mutual funds and investment companies;
insurance underwriting and agency;
merchant banking activities;
and activities that the Federal Reserve Board has determined to be
closely related to banking.
In addition, a financial holding company may not acquire a company that is
engaged in activities that are financial in nature unless each of the
subsidiary banks of the financial holding company has a Community Reinvestment
Act rating of satisfactory or better.
The specific effects of the enactment of the Financial Services Modernization
Act on the banking industry in general and on the Company and the Bank in
particular have yet to be determined due to the fact that the Financial
Services Modernization Act was only recently adopted.
The United States Congress has periodically considered and adopted
legislation, such as the Gramm-Leach-Bliley Act, which has resulted in further
deregulation of both banks and other financial institutions, including mutual
funds, securities brokerage firms and investment banking firms. No assurance
can be given as to whether any additional legislation will be adopted or as to
the effect such legislation would have on the business of the Bank or the
Company
Government Monetary Policy
- --------------------------
Financial institutions may be affected by legislative changes and by the
monetary and fiscal policies of various legislative and regulatory bodies. A
primary function of the Federal Reserve Board is to promote economic growth by
influencing interest rates and the national supply of money and credit. The
Federal Reserve Board accomplishes this through the use of open market
activities of the buying and selling of U. S. Government securities, by
changing the discount rate on bank borrowings and by changing the level of
reserve requirements on bank deposits.
All of these instruments of monetary policy are used in various combinations
to influence the volume of bank lending activity, the volume of investment and
deposit activity and the interest rates charged on loans and paid on deposits.
Because these instruments significantly influence short-term interest rates,
the monetary policies of the Federal Reserve Board have had a significant
effect on the operating results of banks in the past and are expected to
continue to do so in the future.
5
<PAGE>
History and Business - Bank
- ---------------------------
The Bank's headquarters are located at 100 South Main Street, Slippery Rock,
Pennsylvania 16057. The Bank had total assets, total liabilities, and total
equity of $233,022,000, $207,602,000 and $25,420,000 respectively at December
31, 1999.
The Bank is a full service financial institution, whose products and services
include the accepting of time and demand deposits, and the origination of
secured and unsecured commercial, mortgage and consumer loans. In addition to
these services, the Bank also has a full service trust division that not only
offers traditional trust services, but the sale of mutual funds and annuities
as well. The Bank's business is not seasonal in nature.
At December 31,1999, the Bank had 93 full-time employees and 22 part- time
employees.
Competition
- -----------
The Bank competes with other area commercial banks, savings and loan
institutions and credit unions. In addition, the Bank competes with major
regional financial institutions headquartered in other areas of Pennsylvania.
The Bank also competes for deposits with other non-financial institutions such
as those firms that offer mutual funds or insurance annuities. Interest
charged on loans, interest paid on deposits and service charges on deposit
accounts are all comparable to competitors in the general market place.
ITEM 2. Properties
The Bank has a full service drive through branch facility in addition to the
Main banking facility in Slippery Rock, Pennsylvania, as well as one full
service branch facility each in the communities of Prospect, Portersville,
Harrisville, New Wilmington, and Grove City, Pennsylvania. The Bank also has
an operations center located in Slippery Rock Township. In addition, in 1998,
the Bank moved its trust department to a freestanding facility in Slippery
Rock. While the Bank owns all of its facilities, it is subject to a real
estate mortgage obligation at its Prospect, Pennsylvania location. The details
of which can be found in note 9 of the notes to financial statements on page
13 of the Company's 1999 annual report.
In 1999, the Bank acquired land in New Wilmington Borough and Hickory
Township, Lawrence County, Pennsylvania for the construction of two new full
service branch facilities. Construction of the New Wilmington facility began
in the third quarter of 1999 and was completed in March 2000. Total project
costs, for the New Wilmington office, including land acquisition, approximated
$1.0 million. Construction of the Hickory Township facility is anticipated to
begin in the second quarter of 2000 with a targeted completion of fourth
quarter 2000. In addition, the Bank anticipates opening a grocery store
branch in a local Slippery Rock establishment in third quarter 2000.
Management does not anticipate that the projects will pose any significant
risk to the capital position or future earnings of the Company.
Slippery Rock Financial Corporation's headquarters are located at the Bank's
Main office facility at 100 South Main Street, Slippery Rock, Pennsylvania,
16057. The Company pays no rent or other form of consideration for the use of
the facility as its corporate headquarters.
ITEM 3. Legal Proceedings
(Not Applicable)
ITEM 4. Submission of Matters to a Vote of Security Holders
(Not Applicable)
6
<PAGE>
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
The information required by this Item pertaining to Market for Common Equity
and Related Stockholder Matters is included in the Company's 1999 Annual
report on page 34, and is incorporated herein by reference
.
ITEM 6. Selected Financial Data
The information required by this Item pertaining to Selected Financial Data is
included in the Company's 1999 Annual report on page 2, and is incorporated
herein by reference.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this Item pertaining to Management's Discussion
and Analysis of Operating Results and Financial Condition is included in the
Company's 1999 Annual report on pages 21 through 34, and is incorporated
herein by reference
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market risk for the Company is comprised primarily from interest rate risk
exposure and liquidity risk. Since virtually all of the interest-earning
assets and paying liabilities are at the Bank, virtually all of the interest
rate risk and liquidity risk lies at the Bank level. The Bank is not subject
to currency exchange risk or commodity price risk, and has no trading
portfolio, and therefore, is not subject to any trading risk. In addition, the
Bank does not participate in hedging transactions such as interest rate swaps
and caps. Changes in interest rates will impact both income and expense
recorded and also the market value of long-term interest-earning assets.
Interest rate risk and liquidity risk management is performed at the Bank
level. Although the Bank has a diversified loan portfolio, loans outstanding
to individuals and businesses are dependent upon the local economic conditions
in the immediate trade area.
One of the principal functions of the Company's asset/liability management
program is to monitor the level to which the balance sheet is subject to
interest rate risk. The goal of the asset/liability program is to manage the
relationship between interest rate sensitive assets and liabilities, thereby
minimizing the fluctuations in the net interest margin, which achieves
consistent growth of net interest income during periods of changing interest
rates.
Interest rate sensitivity is the result of differences in the amounts and
repricing dates of a bank's rate sensitive assets land rate sensitive
liabilities. These differences, or interest rate repricing "gap", provide an
indication of the extent that the Company's net interest income is affected by
future changes in interest rates. During a period of rising interest rates, a
positive gap, a position of more rate sensitive assets than rate sensitive
liabilities, is desired. During a falling interest rate environment, a
negative gap is desired, that is, a position in which rate sensitive
liabilities exceed rate sensitive assets.
At December 31,1999, the Company had a cumulative negative gap of $49,044,000
at the one year horizon. The gap analysis indicates that if interest rates
were to rise 100 basis points (1.00%), the Company's net interest income would
decline at the one year horizon because the Company's rate sensitive
liabilities would reprice faster than rate sensitive assets. Conversely, if
rates were to fall 100 basis points, the Company would earn more in net
interest income.
Management also manages interest rate risk with the use of simulation modeling
which measures the sensitivity of future net interest income as a result of
changes in interest rates. The analysis is based on repricing opportunities
for variable rate assets and liabilities and upon contractual maturities of
fixed rate instruments
7
<PAGE>
The simulation also calculates net interest income based upon estimates of the
largest foreseeable rate increase or decrease, (+ or - 200 basis points or
2.00%). The current analysis indicates that, given a 200 basis point overnight
movement in interest rates, the Bank would experience a potential $868,000 or
8% change in net interest income. It is important to note, however, that this
exercise would be of a worst case scenario. It would be more likely to have
incremental changes in interest rates, rather than a single significant
increase or decrease. When management believes interest rate movements will
occur, it can restructure the balance sheet and thereby the ratio of rate
sensitive assets to rate sensitive liabilities which in turn will effect the
net interest income. It is important to note; however, not all assets and
liabilities with similar maturities and repricing opportunities will reprice
at the same time or to the same degree and therefore, could effect forecasted
results.
Much of the Bank's deposits have the ability to reprice immediately; however,
deposit rates are not tied to an external index. As a result, although
changing market interest rates impact repricing, the Bank retains much of the
control over repricing by determining itself the extent and timing of
repricing of deposit products. In addition, the Bank maintains a significant
portion of its investment portfolio as available for sale securities and also
has a significant variable rate loan portfolio, which is used to offset rate
sensitive liabilities.
Changes in market interest rates can also affect the Bank's liquidity position
through the impact rate changes may have on the market value of the available
for sale portion of the investment portfolio. Increases in market rates can
adversely impact the market values and therefore, make it more difficult for
the Bank to sell available for sale securities needed for general liquidity
purposes without incurring a loss on the sale. This issue is addressed by the
Bank with the use of borrowings from the Federal Home Loan Bank ("FHLB") and
the selling of fixed rate mortgages as a source of liquidity to the Bank.
The Company's liquidity plan allows for the use of long-term advances or
short-term lines of credit with the FHLB as a source of funds. Borrowing from
FHLB not only provides a source of liquidity for the Company, but also serves
as a tool to reduce interest risk as well. The Company may structure
borrowings from FHLB to match those of customer credit requests, and
therefore, lock in interest rate spreads over the lives of the loans.
In addition to borrowing from the FHLB as a source for liquidity, the Company
also participates in the secondary mortgage market. Specifically, the Company
sells fixed rate, residential real estate mortgages to the Federal Home Loan
Mortgage Corporation ("Freddie Mac"). The sales to Freddie Mac not only
provide an opportunity for the Bank to remain competitive in the market place,
by allowing it to offer a fixed rate mortgage product, but also provide an
additional source of liquidity and an additional tool for management to limit
interest rate risk exposure. The Bank continues to service all loans sold to
Freddie Mac.
8
<PAGE>
ITEM 8. Financial Statement and Supplementary Data
The Company's consolidated financial statements and notes thereto contained in
the 1999 Annual Report are filed as Exhibit 13 hereto and are incorporated in
their entirety by reference under this item.
Annual Report
-Page-
Consolidated Balance Sheet 3
Consolidated Statement of Income 4
Consolidated Statement of Changes in
Stockholders equity 5
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 7 -19
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
(Not Applicable)
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The information required by this Item pertaining to directors of the Company
is included in the Company's Proxy Statement for its 2000 Annual Meeting of
Shareholders on pages 4 and 5 and page 11 and is incorporated herein by
reference
ITEM 11. Executive Compensation
The information required by this Item is included in the 2000 Proxy Statement
in the Executive Compensation section on pages 6 through 11, and is
incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item is included in the 2000 Proxy Statement
in the Voting Securities section on pages 1 through 3, and is incorporated
herein by reference.
ITEM 13. Certain Relationships and Related Transactions.
The information required by this Item is included in the 2000 Proxy Statement
in the Transactions with Management section on page 12, and is incorporated
herein by reference.
9
<PAGE>
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following table presents those exhibits required by Item 601 of
Regulation S - K
Slippery Rock Financial Corporation
FORM 10-K EXHIBIT LIST
(a) Exhibits required by Item 601 of Regulation S - K:
Exhibit Number
- --------------
2 N/A
3(i) Articles of Incorporation filed on March 6, 1992 as
Exhibit 3(i) to Registration Statement on Form S-4 (No.
33-46164) and incorporated herein by reference.
3(ii) By-laws filed on March 6, 1992 as Exhibit 3(ii) to
Registration Statement on Form S-4 (No. 33-46164) and
incorporated herein by reference.
4 N/A
9 N/A
10 N/A
11 N/A
12 N/A
13 Annual Report to Shareholders for Fiscal Year Ended
December 31, 1999 filed with the Commission on March 31,
2000 and incorporated reference.
16 N/A
18 N/A
21 List of Subsidiaries
22 N/A
23 N/A
24 N/A
27 Financial Data Table
28 N/A
9.1 Notice of Annual Meeting, Proxy Statement and form of
Proxy for Annual Meeting of Shareholders to be held on
April 18, 2000 filed with the Commission on March 31,
2000 and incorporated herein by reference.
9.2 Accountant's Opinion
(b) Reports on Form 8-K
None
10
<PAGE>
Signatures
Pursuant to the requitements of Section 13 or 15(d) of the Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Slippery Rock Financial Corporation
By : /s/ William C. Sonntag
----------------------
William C. Sonntag
President & CEO
Date: March 21, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Mark A. Volponi
-------------------
Mark A. Volponi
Treasurer
Date: March 21, 2000
By: /s/ Eleanor L. Cress
--------------------
Eleanor L. Cress
Secretary
Date: March 21, 2000
11
<PAGE>
Signatures (Continued)
By: /s/ John W. Conway
------------------
John W. Conway
Director
Date: March 21, 2000
By: /s/ Robert M. Greenberger
-------------------------
Robert M. Greenberger
Director
Date: March 21, 2000
By: /s/ Robert E. Gregg
--------------------
Robert E. Gregg
Director
Date: March 21, 2000
By: /s/ Paul M. Montgomery
----------------------
Paul M. Montgomery
Director
Date: March 21, 2000
By: /s/ S.P. Snyder
---------------
S. P. Snyder
Director
Date: March 21, 2000
By: /s/ William C. Sonntag
----------------------
William C. Sonntag
Director
Date: March 21, 2000
By: /s/ Charles C. Stoops, Jr.
--------------------------
Charles C. Stoops, Jr.
Director
Date: March 21, 2000
By: /s/ Norman P. Sundell
---------------------
Norman P. Sundell
Director
Date: March 21, 2000
By: /s/ Kenneth D. Wimer
--------------------
Kenneth D. Wimer
Director
Date: March 21, 2000
12
<PAGE>
Index to Exhibits
Item Number Description Page
- --------------------------------------------------------
21 List of Subsidiaries XX
99.2 Report of Independent Auditors XX-XX
13
Dear Shareholders:
I am pleased to report that total assets reached a new high of
$233,019,000 compared to $215,773,000 at year-end 1998. Consolidated net
income was $3,097,000 in 1999, an increase of $43,000 or 1.4% from the
$3,054,000 reported at December 31, 1998. Earnings per share of $1.12 at
December 31, 1999 compared to $1.11 per share for the same twelve-month period
in 1998. Total deposits of $197,124,000 at December 31, 1999 compared to
$190,149,000 at December 31, 1998, an increase of $6,975,000 or 3.7%.
Profitability measures produced a return on average assets of 1.37% for 1999
compared 1.45% for 1998, and a return on average equity of 12.34% compared to
13.06% at December 31, 1998.
No discussion of 1999 would be complete without mentioning Y2K. Thanks
to the diligent efforts of your bank's staff and our software provider,
year-end 1999 came and passed without incident. The intense review of our
software and hardware configurations has prepared us well to enter the next
century.
As I indicated last year in my comments, our bank has implemented a sales
training program for every employee in our institution. In addition, The
First National Bank of Slippery Rock now employs a full-time training officer,
devoted not only to operations training but to sales training as well. The
traditional banker can no longer wait for the customer to ask about services.
We must continue to enhance our selling skills as competition increases from
all parts of the financial services industry.
In October 1999, we began construction of our first Lawrence County
office in New Wilmington, Pennsylvania. Today, this full service branch is
open and operational and has been very well received by the New Wilmington
community. Due to mergers of several Lawrence County banks with out of state
institutions, your Board of Directors and management believe that a locally
owned community bank can compete very effectively in the Lawrence County
market. With that in mind, construction will begin early this summer on a
second Lawrence County office at the intersection of Routes 388 and 108 in
Hickory Township. The Laurel office will also be a full service branch and
will be able to serve a very large geographic portion of Lawrence County. All
indications are that the Laurel office is a much needed, much desired addition
to that community.
Construction will begin in June on our first ever supermarket branch in
the newly expanded Giant Eagle in Slippery Rock. When finished the office
will be open extended hours in the evenings and on the weekends to better
serve the modern American family lifestyle. Another service geared toward the
busy American family is Internet banking. Currently your bank is in the test
phase for our first Internet banking product called "NetTeller". With
"NetTeller" the customers will be able to access their account balances and
account histories, transfer between accounts, view images of their checks, and
be able to pay bills directly through the Internet. This is one of the most
technologically exciting products that we have ever offered and with the
growth of the Internet, we believe that it will be well received by those
interested in banking on the Internet. We must continue to offer traditional
banking services but at the same time keep pace with the rapidly changing
Internet environment.
The Trust Division continues to grow with both traditional trust services
and alternative investment products. I am pleased to report the addition of
two staff members to that department to meet the increased demand by our
customers for financial planning and alternative investments.
Entering the next millennium, your Board of Directors and management are
committed to traditional community banking while at the same time, keeping
current with ever changing technological innovations. I would like to thank
the shareholders, directors, and dedicated employees for all of their support
this past year and I encourage all of you to attend the Annual Meeting on
April 18, 2000 at the Slippery Rock Township Building. We look forward to
seeing you there.
Sincerely,
William C. Sonntag
President & CEO
<PAGE>
Slippery Rock Financial Corporation
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Five Years Ended December 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
SUMMARY OF EARNINGS
Interest income 16,619 16,091 15,152 13,744 $12,486
Interest expense 6,796 6,986 6,515 5,761 4,878
--------------------------------------------------------------
Net interest income 9,823 9,105 8,637 7,983 7,608
Provision for loan losses 720 310 275 200 275
--------------------------------------------------------------
Net interest income after
provision for loan losses 9,103 8,795 8,362 7,783 7,333
Other income 1,735 1,629 1,053 846 902
Other expense 6,485 6,017 5,432 4,964 4,680
--------------------------------------------------------------
Income before income taxes 4,353 4,407 3,983 3,665 3,555
Applicable income tax expense 1,256 1,353 1,100 995 1,056
--------------------------------------------------------------
NET INCOME $3,097 $3,054 $2,883 $2,670 $2,499
==============================================================
PER SHARE DATA (1)
Earnings per share $1.12 $1.11 $1.05 $0.97 $0.91
Dividends paid $0.43 $0.39 $0.35 $0.29 $0.24
Book value per share at period end $9.26 $8.79 $8.05 $7.36 $6.64
Average number of shares outstanding 2,765,086 2,759,802 2,756,278 2,756,248 2,756,248
STATEMENT OF CONDITION STATISTICS
(At end of period)
Assets $233,019 $215,773 $207,148 $195,713 $162,011
Deposits $197,124 $190,149 $181,225 $164,779 $140,664
Loans $183,142 $160,854 $157,501 $141,286 $122,747
Allowance for loan losses $ 1,681 $ 1,410 $ 1,299 $ 1,177 $ 1,098
Interest-bearing deposits in other banks $ 38 $ 8,016 $ 68 $ 287 $ 118
Investment securities $ 29,573 $ 21,841 $ 20,030 $ 37,346 $ 25,755
Short - term borrowings $ 9,000 - $ 2,000 $ 9,000 $ 1,300
Long term debt $ 304 $ 333 $ 552 $ 754 $ 939
Stockholders' equity $ 25,610 $ 24,255 $ 22,175 $ 20,297 $ 18,313
SIGNIFICANT RATIOS (2)
Return on average equity 12.34% 13.06% 13.52% 13.78% 14.32%
Return on average assets 1.37% 1.45% 1.46% 1.52% 1.64%
Loans as a percent of deposits 92.91% 84.59% 86.91% 85.74% 87.26%
Ratio of average equity to average assets 11.11% 11.07% 10.83% 11.05% 11.43%
Dividends as a percent of net income 38.39% 35.14% 33.33% 29.90% 26.37%
</TABLE>
(1) Per share data restated for the effects of 10% stock dividends paid
during 1995, and for the effects of a four for one stock split in 1996
and a two for one split in 1998.
(2) Loans as a percent of deposits calculations use actual period end volume
data, all other ratios use average daily volume data.
2
<PAGE>
SLIPPERY ROCK FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1999 1998
--------------- --------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 10,067,615 $ 8,619,657
Interest-bearing deposits in other banks 38,018 8,015,617
Federal funds sold 1,200,000 6,400,000
Mortgage loans held for sale - 2,467,803
Investment securities available for sale 26,600,031 18,196,864
Investment securities held to maturity (market value
of $2,985,634 and $3,735,582) 2,972,549 3,644,197
Loans 183,142,466 160,853,908
Less allowance for loan losses 1,681,172 1,410,309
--------------- --------------
Net loans 181,461,294 159,443,599
Premises and equipment 5,177,550 4,404,766
Accrued interest and other assets 5,502,232 4,580,645
--------------- --------------
TOTAL ASSETS $ 233,019,289 $ 215,773,148
=============== ==============
LIABILITIES
Deposits:
Noninterest-bearing demand $ 32,469,443 $ 31,244,022
Interest-bearing demand 24,547,131 22,821,004
Savings 22,187,257 20,698,137
Money market 27,349,379 23,703,562
Time 90,570,491 91,682,212
--------------- --------------
Total deposits 197,123,701 190,148,937
Short-term borrowings 9,000,000 -
Other borrowings 303,705 333,254
Accrued interest and other liabilities 982,177 1,035,883
--------------- --------------
TOTAL LIABILITIES 207,409,583 191,518,074
--------------- --------------
STOCKHOLDERS' EQUITY
Common stock, par value $.25; 12,000,000 shares authorized;
2,769,048 and 2,763,648 issued and outstanding 692,262 690,912
Capital surplus 10,547,408 10,447,869
Retained earnings 14,937,380 13,029,794
Accumulated other comprehensive income (loss) (567,344) 86,499
--------------- --------------
TOTAL STOCKHOLDERS' EQUITY 25,609,706 24,255,074
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 233,019,289 $ 215,773,148
=============== ==============
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
SLIPPERY ROCK FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
------------- -------------- -------------
<S> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 14,694,862 $ 14,139,576 $ 13,318,221
Interest-bearing deposits in other banks 185,339 1,996 20,852
Federal funds sold 266,915 745,412 347,358
Interest and dividends on investment securities:
Taxable interest 640,032 692,959 671,717
Tax-exempt interest 765,205 449,258 738,424
Dividends 66,528 62,016 55,711
-------------- -------------- --------------
Total interest and dividend income 16,618,881 16,091,217 15,152,283
-------------- -------------- --------------
INTEREST EXPENSE
Deposits 6,693,959 6,949,151 6,439,824
Short-term borrowings 76,513 2,374 29,038
Other borrowings 25,959 34,227 46,212
-------------- -------------- --------------
Total interest expense 6,796,431 6,985,752 6,515,074
-------------- -------------- --------------
NET INTEREST INCOME 9,822,450 9,105,465 8,637,209
PROVISION FOR LOAN LOSSES 720,000 310,000 275,000
-------------- -------------- --------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 9,102,450 8,795,465 8,362,209
-------------- -------------- --------------
OTHER INCOME
Service charges on deposit accounts 640,387 593,112 539,122
Trust Department income 122,928 75,452 75,882
Net gains on loan sales 219,636 289,932 66,062
Investment securities losses, net - - (14,872)
Other income 752,145 670,340 387,416
------------- -------------- --------------
Total other income 1,735,096 1,628,836 1,053,610
------------- -------------- --------------
OTHER EXPENSE
Salaries and employee benefits 3,142,051 2,857,553 2,641,258
Occupancy expense 371,050 242,570 355,920
Equipment expense 812,032 756,845 636,231
Data processing expense 226,087 292,761 176,584
Pennsylvania shares tax 224,889 203,272 182,898
Stationery, printing, and supplies 156,131 156,896 160,405
Other expense 1,552,463 1,506,921 1,279,108
------------- -------------- --------------
Total other expense 6,484,703 6,016,818 5,432,404
------------- -------------- --------------
Income before income taxes 4,352,843 4,407,483 3,983,415
Income tax expense 1,255,863 1,353,457 1,100,214
------------- -------------- --------------
NET INCOME $ 3,096,980 $ 3,054,026 $ 2,883,201
============= ============== ==============
EARNINGS PER SHARE
Basic $ 1.12 $ 1.11 $ 1.05
Diluted $ 1.12 $ 1.11 $ 1.05
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
SLIPPERY ROCK FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other
Common Capital Retained Comprehensive Comprehensive
Stock Surplus Earnings Income (Loss) Total Income
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 344,531 $ 10,676,129 $ 9,134,585 $ 141,455 $ 20,296,700
Net income 2,883,201 2,883,201 $ 2,883,201
Other comprehensive income (loss):
Net unrealized loss on available
for sale securities, net of tax
benefit of $38,268 (74,285) (74,285) (74,285)
------------
Comprehensive income $ 2,808,916
============
Cash dividends ($.35 per share) (965,290) (965,290)
Stock options exercised 300 34,500 34,800
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1997 344,831 10,710,629 11,052,496 67,170 22,175,126
Net income 3,054,026 3,054,026 $ 3,054,026
Other comprehensive income:
Net unrealized gain on available
for sale securities, net of
taxes of $9,957 19,329 19,329 19,329
------------
Comprehensive income $ 3,073,355
============
Cash dividends ($.39 per share) (1,076,728) (1,076,728)
Stock options exercised 625 82,696 83,321
Stock split 345,456 (345,456) -
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1998 690,912 10,447,869 13,029,794 86,499 24,255,074
Net income 3,096,980 3,096,980 $ 3,096,980
Other comprehensive income (loss):
Net unrealized loss on available
for sale securities, net of tax
benefit of $336,827 (653,843) (653,843) (653,843)
-----------
Comprehensive income 2,443,137
===========
Cash dividends ($.43 per share) (1,189,394) (1,189,394)
Stock options exercised 1,350 99,539 100,889
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 $ 692,262 $ 10,547,408 $ 14,937,380 $ (567,344) $ 25,609,706
============ ============ ============ ============ ============
1999 1998 1997
--------------- --------------- --------------
Components of other comprehensive income (loss):
Change in net unrealized gain (loss) on
investment available for sale securities $ (653,843) $ 19,329 $ (84,101)
Realized losses included in net income,
net of taxes of $5,057 in 1997 - - 9,816
--------------- --------------- --------------
Total $ (653,843) $ 19,329 $ (74,285)
=============== =============== ==============
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
SLIPPERY ROCK FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,096,980 $ 3,054,026 $ 2,883,201
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 720,000 310,000 275,000
Depreciation and amortization 606,838 812,004 757,725
Originations of mortgage loans held for sale (12,024,053) (15,528,429) (8,915,878)
Proceeds from sales of mortgage loans 14,498,222 14,248,558 9,379,987
Net gains on mortgage loan sales (219,636) (289,932) (66,062)
Investment securities losses, net - - 14,872
Decrease in accrued interest receivable 35,198 2,079 50,549
Increase (decrease) in accrued interest payable (26,583) (48,215) 214,720
Other, net (358,849) (334,363) 86,977
------------ ------------ ------------
Net cash provided by operating activities 6,328,117 2,225,728 4,681,091
------------ ------------ ------------
INVESTING ACTIVITIES
Decrease (increase) in time deposits in other banks, net 8,000,000 (8,000,000) 99,000
Investment securities available for sale:
Proceeds from sales - - 11,521,498
Proceeds from maturities and repayments 5,512,358 8,021,601 2,204,295
Purchases (14,913,651) (13,133,296) (650,790)
Investment securities held to maturity:
Proceeds from maturities and repayments 672,341 3,306,670 4,400,876
Purchases - - (323,705)
Increase in loans, net (32,192,223) (3,689,028) (16,435,867)
Purchases of premises and equipment (1,409,130) (1,225,459) (524,603)
Premium paid on branch acquisition - - (325,310)
Proceeds from loan sales 9,181,939 - -
Proceeds from sales of other real estate owned 235,366 - 187,597
------------ ------------ ------------
Net cash provided by (used for)
investing activities (24,913,000) (14,719,512) 152,991
------------ ------------ ------------
FINANCING ACTIVITIES
Increase in deposits, net 6,974,766 8,924,368 16,445,364
Increase (decrease) in short-term borrowings, net 9,000,000 (2,000,000) (7,000,000)
Proceeds from other borrowings 223,000 - -
Payments on other borrowings (252,549) (218,998) (201,397)
Proceeds from stock options exercised 99,420 83,321 34,800
Cash dividends paid (1,189,394) (1,076,728) (965,290)
------------ ------------ ------------
Net cash provided by financing activities 14,855,243 5,711,963 8,313,477
------------ ------------ ------------
Increase (decrease) in cash and
cash equivalents (3,729,640) (6,781,821) 13,147,559
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 15,035,273 21,817,094 8,669,535
------------ ------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 11,305,633 $ 15,035,273 $ 21,817,094
============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
6
<PAGE>
SLIPPERY ROCK FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting and reporting policies applied in the
presentation of the accompanying financial statements follows:
NATURE OF OPERATIONS AND BASIS OF PRESENTATION
- ----------------------------------------------
The consolidated financial statements include the accounts of Slippery Rock
Financial Corporation (the "Company") and its wholly-owned subsidiary, The
First National Bank of Slippery Rock (the "Bank"). All significant
intercompany transactions have been eliminated in consolidation. The
investment in subsidiary on the parent company financial statements is carried
at the parent company's equity in the underlying net assets.
The Company is a Pennsylvania corporation organized to become the holding
company of the Bank. The Bank is a national bank headquartered in Slippery
Rock, Pennsylvania. The Company's principal sources of revenue emanate from
interest earnings on its portfolio of residential real estate, commercial
mortgage, and commercial and consumer loans as well as interest earnings on
investment securities and a variety of deposit and trust services provided to
its customers through six locations. The Company is supervised by the Board
of Governors of the Federal Reserve System, while the Bank is subject to
regulation and supervision by the Office of the Comptroller of the Currency.
The accounting principles followed by the Company and its wholly-owned
subsidiary, the Bank, and the methods of applying these principles conform
with generally accepted accounting principles and with general practice within
the banking industry. In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the balance sheet date and statement of income.
Actual results could differ significantly from those estimates.
INVESTMENT SECURITIES
- ---------------------
Investment securities are classified at the time of purchase, based upon
management's intentions and ability, as securities held to maturity or
securities available for sale. Debt securities acquired with the intent and
ability to hold to maturity are stated at cost adjusted for amortization of
premium and accretion of discount which are computed using the level yield
interest method and recognized as adjustments of interest income. Certain
other securities have been classified as available for sale to serve
principally as a source of liquidity. Unrealized holding gains and losses for
available for sale securities are reported as a separate component of
stockholders' equity, net of tax, until realized. Realized securities gains
and losses, if any, are computed using the specific identification method.
Interest and dividends on investment securities are recognized as income when
earned on the accrual method.
Common stock of the Federal Home Loan Bank, Federal Reserve Bank, and Atlantic
Central Bankers Bank represents ownership in institutions which are
wholly-owned by other financial institutions. These securities are accounted
for at cost and are classified as equity securities available for sale.
LOANS
- -----
Loans are reported at their principal amount net of the allowance for loan
losses. Interest on loans is recognized as income when earned on the accrual
method. The Company's general policy has been to stop accruing interest on
loans when it is determined a reasonable doubt exists as to the collectibility
of additional interest. Income is subsequently recognized only to the extent
that cash payments are received provided the loan is not delinquent in payment
and, in management's judgment, the borrower has the ability and intent to make
future interest and principal payments.
Loan origination fees and certain direct loan origination costs are being
deferred and the net amount amortized as an adjustment of the related loan's
yield. The Company is amortizing these amounts over the contractual lives of
the related loans.
In general, fixed rate, permanent residential mortgage loans originated by the
Bank are held for sale and are carried in the aggregate at the lower of cost
or market. Such loans are sold to Federal Home Loan Mortgage Corporation
("Freddie Mac") and serviced by the Bank.
ALLOWANCE FOR LOAN LOSSES
- -------------------------
The allowance for loan losses represents the amount which management estimates
is adequate to provide for potential losses in its loan portfolio. The
allowance method is used in providing for loan losses. Accordingly, all loan
losses are charged to the allowance, and all recoveries are credited to it.
The allowance for loan losses is established through a provision for loan
losses charged to operations. The provision for loan losses is based on
management's periodic evaluation of individual loans, economic factors, past
loan loss experience, changes in the composition and volume of the portfolio,
and other relevant factors. The estimates used in determining the adequacy of
the allowance for loan losses, including the amounts and timing of future cash
flows expected on impaired loans, are particularly susceptible to changes in
the near term.
7
<PAGE>
Impaired loans are commercial and commercial real estate loans for which it is
probable that the Company will not be able to collect all amounts due
according to the contractual terms of the loan agreement. The Company
individually evaluates such loans for impairment and does not aggregate loans
by major risk classifications. The definition of "impaired loans" is not the
same as the definition of "nonaccrual loans," although the two categories
overlap. The Company may choose to place a loan on nonaccrual status due to
payment delinquency or uncertain collectibility, while not classifying the
loan as impaired if the loan is not a commercial or commercial real estate
loan. Factors considered by management in determining impairment include
payment status and collateral value. The amount of impairment for these types
of impaired loans is determined by the difference between the present value of
the expected cash flows related to the loan, using the original interest rate,
and its recorded value, or as a practical expedient in the case of
collateralized loans, the difference between the fair value of the collateral
and the recorded amount of the loans. When foreclosure is probable,
impairment is measured based on the fair value of the collateral.
Mortgage loans on one-to-four family properties and all consumer loans are
large groups of smaller-balance homogeneous loans and are measured for
impairment collectively. Loans that experience insignificant payment delays,
which are defined as 90 days or less, generally are not classified as
impaired. Management determines the significance of payment delays on a
case-by-case basis taking into consideration all circumstances surrounding the
loan and the borrower including the length of the delay, the borrower's prior
payment record, and the amount of shortfall in relation to the principal and
interest owed.
PREMISES AND EQUIPMENT
- ----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on both the straight-line and accelerated methods
over the estimated useful lives of the assets. Expenditures for maintenance
and repairs are charged against income as incurred. Costs of major additions
and improvements are capitalized.
REAL ESTATE OWNED
- -----------------
Real estate owned acquired by foreclosure is classified as a component of
other assets at the lower of the recorded investment in the property or its
fair value minus estimated costs of sale. Prior to foreclosure, the value of
the underlying collateral is written down by a charge to the allowance for
loan losses if necessary. Any subsequent write-downs are charged against
operating expenses. Operating expenses of such properties, net of related
income and losses on their disposition, are included in operations of other
real estate.
INTANGIBLE ASSETS
- -----------------
Such assets are comprised of branch acquisition core deposit premiums. These
core deposit premiums, which were quantified by specific core deposit life
studies, are amortized using the straight-line method over the estimated
average lives of the deposit accounts. Annual assessments of the carrying
values and remaining amortization periods of intangible assets are made to
determine possible carrying value impairment and appropriate adjustments as
deemed necessary. Intangible assets are a component of other assets on the
balance sheet.
TRUST DEPARTMENT
- ----------------
Trust Department assets (other than cash deposits) held by the Bank in
fiduciary or agency capacities for its customers are not included in the
consolidated balance sheet since such items are not assets of the Company. In
accordance with industry practice, Trust fees are recorded on the cash basis
and approximate the fees which would have been recognized on the accrual
basis.
INCOME TAXES
- ------------
The Company and its subsidiary file a consolidated federal income tax return.
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax rates
are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
EARNINGS PER SHARE
- ------------------
The Company provides dual presentation of basic and diluted earnings per
share. Basic earnings per share is calculated utilizing net income as
reported as the numerator and average shares outstanding as the denominator.
The computation of diluted earnings per share differs in that the dilutive
effects of any stock options, warrants, and convertible securities are
adjusted in the denominator.
EMPLOYEE BENEFITS
- -----------------
Pension and employee benefits include contributions, determined actuarially,
to a retirement plan covering the eligible employees of the Bank. The plan is
funded on a current basis to the extent that it is deductible under existing
federal tax regulations.
Pension and other employee benefits also include contributions to a defined
contribution Section 401(k) plan covering eligible employees. Contributions
matching those made by eligible employees and an elective contribution are
made annually at the discretion of the Board of Directors.
8
<PAGE>
STOCK OPTIONS
- -------------
The Company maintains a stock option plan for the directors, officers, and
employees. When the exercise price of the Company's stock options is greater
than or equal to the market price of the underlying stock on the date of the
grant, no compensation expense is recognized in the Company's financial
statements. Pro forma net income and earnings per share are presented to
reflect the impact of the stock option plan assuming compensation expense had
been recognized based on the fair value of the stock options granted under the
plan.
MORTGAGE SERVICING RIGHTS ("MSRs")
- ----------------------------------
The Company has loan agreements for the express purpose of selling these loans
in the secondary market. The Company maintains all servicing rights for these
loans. Originated MSRs are recorded by allocating total costs incurred
between the loan and servicing rights based on their relative fair values.
MSRs are amortized in proportion to the estimated servicing income over the
estimated life of the servicing portfolio. MSRs are a component of other
assets on the consolidated balance sheet.
COMPREHENSIVE INCOME
- --------------------
The Company is required to present comprehensive income in a full set of
general purpose financial statements for all periods presented. Other
comprehensive income is comprised exclusively of unrealized holding gains
(losses) on the available for sale securities portfolio. The Company has
elected to report the effects of other comprehensive income as part of the
Statement of Changes in Stockholders' Equity.
CASH FLOW INFORMATION
- ---------------------
The Company has defined cash and cash equivalents as those amounts included in
the balance sheet captions Cash and due from banks, Federal funds sold, and
the Demand deposit portion of Interest-bearing deposits in other banks.
Cash payments for interest in 1999, 1998, and 1997 were $6,823,014,
$7,033,967, and $6,300,354, respectively. Cash payments for income taxes for
1999, 1998, and 1997 amounted to $1,472,000, $1,353,000, and $1,013,000,
respectively.
PENDING ACCOUNTING PRONOUNCEMENTS
- ---------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended in June 1999 by
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities
Deferral of the Effective Date of FASB Statement No. 133." The Statement
provides accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, by
requiring the recognition of those items as assets or liabilities in the
statement of financial position, recorded at fair value. Statement No. 133
precludes a held to maturity security from being designated as a hedged item;
however, at the date of initial application of this Statement, an entity is
permitted to transfer any held to maturity security into the available for
sale or trading categories. The unrealized holding gain or loss on such
transferred securities shall be reported consistent with the requirements of
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Such transfers do not raise an issue regarding an entity's
intent to hold other debt securities to maturity in the future. This Statement
applies prospectively for all fiscal quarters of all years beginning after
June 15, 2000. Earlier adoption is permitted for any fiscal quarter that
begins after the issue date of this Statement.
RECLASSIFICATION OF COMPARATIVE AMOUNTS
- ---------------------------------------
Certain comparative amounts for the prior year have been reclassified to
conform to current year presentations. Such reclassifications had no effect
on net income or stockholders' equity.
2. EARNINGS PER SHARE
There are no convertible securities which would affect the numerator in
calculating basic and diluted earnings per share; therefore, net income as
presented on the Consolidated Statement of Income will be used as the
numerator. The following table sets forth the composition of the
weighted-average common shares (denominator) used in the basic and diluted
earnings per share computation.
1999 1998 1997
--------- --------- ---------
Weighted-average common shares
outstanding used to calculate
basic earnings per share 2,765,086 2,759,802 2,756,278
Additional common stock equivalents
(stock options) used to calculate
diluted earnings per share 4,637 2,167 -
--------- --------- ---------
Weighted-average common shares and
common stock equivalents used
to calculate diluted earnings per share 2,769,723 2,761,969 2,756,278
========= ========= =========
9
<PAGE>
3. INVESTMENT SECURITIES
Amortized cost and estimated market values of investment securities are
summarized as follows:
<TABLE>
<CAPTION>
1999
---------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
- ------------------
U.S. Government agency
securities $ 7,287,943 $ 1,096 $ (92,503) $ 7,196,536
Obligations of states and
political subdivisions 15,513,032 8,319 (705,726) 14,815,625
Other debt securities 1,027,092 - (12,535) 1,014,557
Mortgage-backed securities 2,603,977 4,293 (62,557) 2,545,713
------------- ---------- ------------ -------------
Total debt securities 26,432,044 13,708 (873,321) 25,572,431
Common stocks 1,027,600 - - 1,027,600
------------- ---------- ------------ -------------
Total $ 27,459,644 $ 13,708 $ (873,321) $ 26,600,031
============= ========== ============ =============
1999
---------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ---------- ------------ -------------
HELD TO MATURITY
- ----------------
Obligations of states and
political subdivisions $ 2,720,987 $ 20,257 $ (2,424) $ 2,738,820
Other debt securities 200,000 - (4,219) 195,781
Mortgage-backed securities 51,562 - (529) 51,033
------------- ---------- ------------ -------------
Total $ 2,972,549 $ 20,257 $ (7,172) $ 2,985,634
============= ========== ============ =============
1998
---------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ---------- ------------ -------------
AVAILABLE FOR SALE
- ------------------
U.S. Treasury securities $ 2,415,227 $ 30,741 $ - $ 2,445,968
U.S. Government agency
securities 6,032,733 15,908 (11,510) 6,037,131
Obligations of states and
political subdivisions 7,518,126 110,602 (16,974) 7,611,754
Other debt securities 100,000 - - 100,000
Mortgage-backed securities 1,007,820 11,971 (9,680) 1,010,111
------------- ---------- ------------ -------------
Total debt securities 17,073,906 169,222 (38,164) 17,204,964
Common stocks 991,900 - - 991,900
------------- ---------- ------------ -------------
Total $ 18,065,806 $ 169,222 $ (38,164) $ 18,196,864
============= ========== ============ =============
</TABLE>
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
HELD TO MATURITY
- ----------------
Obligations of states and
political subdivisions $ 3,365,361 $ 85,798 $ - $ 3,451,159
Other debt securities 200,000 4,218 - 204,218
Mortgage-backed securities 78,836 1,369 - 80,205
------------- ---------- ------------ -------------
Total $ 3,644,197 $ 91,385 $ - $ 3,735,582
============= ========== ============ =============
</TABLE>
The amortized cost and estimated market value of debt securities at
December 31, 1999, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
10
<PAGE>
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
-----------------------------------------------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Due in one year or less $ 1,827,615 $ 1,823,750 $ - $ -
Due after one year through
five years 6,501,542 6,395,462 1,263,398 1,274,075
Due after five years through
ten years 10,436,319 10,133,830 1,657,589 1,660,526
Due after ten years 7,666,568 7,219,389 51,562 51,033
------------- ------------- ------------- -------------
Total $ 26,432,044 $ 25,572,431 $ 2,972,549 $ 2,985,634
============= ============= ============= =============
</TABLE>
During the year ended December 31, 1997, proceeds from security sales totaled
$11,521,498 resulting in gross gains of $55,574 and gross losses of $70,446.
There were no security sales during the years ended December 31, 1999 and 1998.
Investment securities with an amortized cost and estimated market value of
$22,159,763 and $21,545,025 respectively, at December 31, 1999, and
$14,243,162 and $14,475,512, respectively, at December 31, 1998, were pledged
to secure public deposits and other purposes as required by law.
4. LOANS
Major classifications of loans are summarized as follows:
1999 1998
-------------- --------------
Real estate:
Construction $ 4,662,680 $ 2,693,310
Residential 100,426,388 84,379,052
Commercial 36,426,608 27,793,438
Commercial, financial, and agricultural 17,727,489 15,761,254
Consumer 23,899,301 30,226,854
-------------- --------------
183,142,466 160,853,908
Less allowance for loan losses 1,681,172 1,410,309
-------------- --------------
Net loans $ 181,461,294 $ 159,443,599
============== ==============
Real estate loans serviced for Freddie Mac, which are not included in the
consolidated balance sheet, totaled $42,834,475 and $34,009,862 at
December 31, 1999 and 1998, respectively.
In the normal course of business, loans are extended to directors, executive
officers, and their associates. A summary of loan activity for those
directors, executive officers, and their associates with aggregate loan
balances in excess of $60,000 for the year ended December 31, 1999 is as
follows:
Amounts
1998 Advances Collected 1999
------------ ------------ ------------ ------------
$ 1,076,666 $ 14,567,572 $ 14,336,749 $ 1,307,489
The Company's primary business activity is with customers located within its
local trade area. Commercial, residential, personal, and agricultural loans
are granted. Although the Company has a diversified loan portfolio at
December 31, 1999 and 1998, loans outstanding to individuals and businesses
are dependent upon the local economic conditions in the immediate trade area.
The Company had nonaccrual loans, exclusive of impaired loans, of $376,391
and $1,278,262 at December 31, 1999 and 1998, respectively. Interest income
on loans would have increased by approximately $33,560 and $72,012 during
1999 and 1998, respectively, if these loans had performed in accordance with
their original terms.
Information with respect to impaired loans as of and for the years ended
December 31, is as follows:
1999 1998
------------ ------------
Impaired loans $ 2,149,846 $ 592,787
Related allowance for loan losses 322,477 88,918
Average recorded balance of impaired loans 947,725 651,047
Interest income recognized on impaired loans 6,125 -
11
<PAGE>
5. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December 31, are
as follows:
1999 1998 1997
----------- ----------- -----------
Balance, January 1 $ 1,410,309 $ 1,298,981 $ 1,176,951
Add:
Provision charged to operations 720,000 310,000 275,000
Recoveries 73,477 44,246 35,459
Less loans charged off 522,614 242,918 188,429
----------- ----------- -----------
Balance, December 31 $ 1,681,172 $ 1,410,309 $ 1,298,981
=========== =========== ===========
6. PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows:
1999 1998
---------------- ---------------
Land $ 1,107,484 $ 654,134
Bank buildings 5,280,262 4,732,771
Furniture, fixtures, and equipment 3,743,561 3,335,273
---------------- ---------------
10,131,307 8,722,178
Less accumulated depreciation 4,953,757 4,317,412
---------------- ---------------
Total $ 5,177,550 $ 4,404,766
================ ===============
Depreciation charged to operations was $636,345, $553,848, and $514,213 in
1999, 1998, and 1997, respectively.
7. DEPOSITS
Time deposits include certificates of deposit and other time deposits in
denominations of $100,000 or more. Such deposits totaled $23,599,092 and
$22,682,188 at December 31, 1999 and 1998, respectively. Interest expense on
certificates of deposit over $100,000 amounted to $1,252,337, $1,291,458, and
$1,057,378 for the years ended December 31, 1999, 1998, and 1997, respectively.
The following table sets forth the remaining maturity of time certificates of
deposit of $100,000 or more at December 31, 1999.
Three months or less $ 7,506,686
Over three months through six months 3,654,971
Over six months through twelve months 5,655,025
Over twelve months 6,782,410
----------------
Total $ 23,599,092
================
8. SHORT-TERM BORROWINGS
The outstanding balances and related information for short-term borrowings
are summarized as follows:
1999 1998
------------------------------------------------
Amount Rate Amount Rate
----------- ------- --------- -------
Balance at year-end $ 9,000,000 5.81% $ - -
Average balance outstanding
during the year 1,367,671 5.59% 38,356 6.19%
Maximum amount outstanding
at any month-end 9,000,000 - - -
Short-term borrowings include "RepoPlus" advances with the Federal Home Loan
Bank of Pittsburgh ("FHLB"). RepoPlus advances are subject to annual
renewal, incur no service charges, bear a fixed rate of interest, and are
secured by a blanket security agreement on qualifying residential mortgages.
12
<PAGE>
9. OTHER BORROWINGS
Other borrowings consists of the following:
<TABLE>
<CAPTION>
1999 1998
------------- ---------------
<S> <C> <C>
Long-term FHLB advances $ 89,588 $ 317,584
Real estate mortgage payable, due in monthly
installments of $3,157 including interest at 8.5 percent 97,552 -
Real estate mortgage payable, due in monthly
installments of $2,521 including interest at 8.5 percent 111,065 -
Real estate mortgage payable, due in monthly
installments of $945 including interest at 10.5 percent 5,500 15,670
------------- ---------------
Total $ 303,705 $ 333,254
============= ===============
</TABLE>
Long-term advances from the FHLB consist of a borrowing maturing within one
year with a fixed interest rate of 5.73 percent. Pursuant to a collateral
agreement entered into with the FHLB, these advances are secured by stock in
the FHLB and qualifying first mortgage loans. As December 31, 1999, the
Company's remaining borrowing capacity was $56 million.
10. INCOME TAXES
The provision for federal income taxes consists of:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ----------------- -----------------
<S> <C> <C> <C>
Currently payable $ 1,392,429 $ 1,353,202 $ 1,105,150
Deferred (136,566) 255 (4,936)
---------------- ----------------- -----------------
Total provision $ 1,255,863 $ 1,353,457 $ 1,100,214
================ ================= =================
</TABLE>
The tax effects of deductible and taxable temporary differences that give
rise to significant portions of the deferred tax assets and deferred tax
liabilities are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------- ---------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 480,495 $ 388,401
Unrealized loss on securities 292,268 -
Premises and equipment 54,154 22,240
Fair market value in excess of carrying value
of loans held for sale 26,472 36,011
Other 71,985 49,482
-------------- ---------------
Total 925,374 496,134
-------------- ---------------
Deferred tax liabilities:
Unrealized gain on securities - 44,559
Prepaid pension asset 120,286 114,515
Deferred loan origination fees, net 2,791 3,469
Other - 4,687
-------------- ---------------
Total 123,077 167,230
-------------- ---------------
Net deferred tax assets $ 802,297 $ 328,904
============== ===============
</TABLE>
No valuation allowance was established at December 31, 1999 and 1998 in view
of the Company's ability to carryback taxes paid in previous years and
certain tax strategies and anticipated future taxable income as evidenced by
the Company's earnings potential.
13
<PAGE>
The reconciliation between the federal statutory rate and the Company's
effective consolidated income tax rate is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ ------------------------ ------------------------
% of % of % of
Pre-tax Pre-tax Pre-tax
Amount Income Amount Income Amount Income
------------ ------- ------------- ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax at
statutory rate $ 1,479,967 34.0 % $ 1,498,544 34.0 % $ 1,354,361 34.0 %
Tax-exempt income (270,636) (6.2) (177,373) (4.0) (306,171) (7.7)
Nondeductible interest to
carry tax-exempt assets 35,956 0.8 23,799 0.5 40,138 1.0
Other 10,576 0.3 8,487 0.2 11,886 0.3
------------ ------- ------------- ------- ------------ -------
Actual expense and
effective rate $ 1,255,863 28.9 % $ 1,353,457 30.7 % $ 1,100,214 27.6 %
============ ======= ============= ======= ============ =======
</TABLE>
11. EMPLOYEE BENEFITS
DEFINED BENEFIT PLAN
- --------------------
The Bank sponsors a trusteed, noncontributory defined benefit pension plan
covering substantially all employees and officers. The plan calls for
benefits to be paid to eligible employees at retirement based primarily upon
years of service with the Bank and compensation rates near retirement. The
Bank's policy is to make annual contributions, if needed, based upon the
funding formula developed by the plan's actuary.
The following table sets forth the change in plan assets and benefit
obligation at December 31:
1999 1998
------------- -------------
Plan assets at fair value, beginning of year $ 1,742,177 $ 1,682,945
Actual return on plan assets 283,727 255,354
Employer contribution 158,587 72,542
Benefits paid (26,133) (268,664)
------------- -------------
Plan assets at fair value, end of year 2,158,358 1,742,177
------------- -------------
Benefit obligation, beginning of year 1,823,757 1,268,681
Service cost 137,433 134,789
Interest cost 118,544 82,464
Actuarial adjustments 136,130 606,487
Benefits paid (26,133) (268,664)
------------- -------------
Benefit obligation, end of year 2,189,731 1,823,757
------------- -------------
Funded status (31,373) (81,580)
Prior service cost 7,391 8,797
Unrecognized transition asset (24,049) (28,299)
Unrecognized net (gain) loss from past experience
different from that assumed 401,121 428,275
------------- -------------
Prepaid pension cost $ 353,090 $ 27,193
============= =============
Plan assets consist primarily of certificates of deposit, money market, and
equity mutual funds.
Assumptions used in determining net period pension cost are as follows:
1999 1998 1997
------ ------ ------
Discount rate 6.50% 6.50% 7.50%
Expected return on plan assets 7.50% 6.50% 7.50%
Rate of compensation increase 5.00% 5.00% 5.00%
Net period pension costs include the following components:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Service cost of the current period $ 137,433 $ 134,789 $ 109,855
Interest cost on projected benefit obligation 118,544 82,464 81,855
Actual return on plan assets (283,727) (255,354) (251,244)
Net amortization and deferral 188,190 137,717 147,315
--------- --------- ---------
Net periodic pension cost $ 160,440 $ 99,616 $ 87,781
========= ========= =========
</TABLE>
14
<PAGE>
401(K) PLAN
- -----------
The Bank maintains a trusteed Section 401(k) plan. The Bank makes matching
contributions of 50 percent of eligible officers and employees contributions
annually, to a maximum of four percent of base salary. Substantially all
officers and employees are eligible to participate in the plan. The Bank's
contribution to this plan was $40,418, $33,503, and $31,679 for the years
ended December 31, 1999, 1998, and 1997, respectively.
12. STOCK OPTION PLAN
The Company maintains an Incentive Stock Option Plan ("ISOP") and a Directors
Stock Option Plan ("Directors Plan"). The ISOP provides for granting up to
200,000 shares of authorized but unissued common stock to eligible salaried
officers and employees. The Directors Plan provides for 72,000 authorized
but unissued shares of common stock to be granted to nonemployee directors.
The per share exercise price of an option granted cannot be less than the
fair value of a share of common stock on the date the option is granted. The
options granted under the Directors Plan are immediately vested while the
option granted under the ISOP are not exercisable for two years and then are
vested in equal installments in years three through five. The stock options
typically have expiration terms of ten years subject to certain extensions and
terminations. The following table presents share data related to the
outstanding options:
<TABLE>
<CAPTION>
Weighted- Weighted-
average average
Exercise Exercise
1999 Price 1998 Price
------ ---------- ------- ----------
<S> <C> <C> <C> <C>
Outstanding, January 1 39,650 $ 16.70 21,000 $ 14.50
Granted 24,100 19.30 23,650 18.50
Exercised 5,400 18.41 5,000 15.94
Forfeited - - - -
------ -------
Outstanding, December 31 58,350 18.37 39,650 16.70
====== =======
</TABLE>
The following table summarizes the characteristics of stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------ ----------------------
Average Average
Average exercise exercise
Exercise price Shares life price Shares price
-------------- ------- ------- -------- ------- --------
<C> <C> <C> <C> <C> <C>
$14.50 17,200 7.75 $14.50 5,719 $14.50
18.50 19,450 8.75 18.50 1,800 18.50
19.30 21,700 9.75 19.30 3,600 19.30
------- -------
58,350 11,119
======= ======
</TABLE>
For purposes of computing pro forma results, the Company estimated the fair
values of stock options using the Black-Scholes option pricing model. The
model requires the use of subjective assumptions which can materially effect
fair value estimates. Therefore, the pro forma results are estimates of
results of operations as if compensation expense had been recognized for the
stock option plans. The fair value of each stock option granted was
estimated using the following weighted-average assumptions for grants in
1999, 1998, and 1997: (1) expected dividend yields ranged from 2.0 percent
to 2.3 percent; (2) risk-free interest rates ranging from 6.4 percent to 6.5
percent; (3) expected volatility of 3.0; and (4) expected lives of options
ranged from 7.75 to 9.75 years.
The Company accounts for its stock option plans under provisions of APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Under this Opinion, no compensation expense has been
recognized with respect to the plans because the exercise price of the
Company's employee stock options equals the market price of the underlying
stock on the grant date.
Had compensation expense for the stock option plans been recognized in
accordance with the fair value accounting provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation," net income applicable to common stock and basic and diluted
net income per common share for the years ended December 31, 1999, 1998, and
1997 would have been as follows:
15
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net income applicable to common stock:
As reported $ 3,096,980 $ 3,054,026 $ 2,883,201
Pro forma 3,060,619 3,049,812 2,874,205
Basic net income per common share:
As reported $ 1.12 $ 1.11 $ 1.05
Pro forma 1.11 1.10 1.04
Diluted net income per common share:
As reported $ 1.12 $ 1.11 $ 1.05
Pro forma 1.11 1.10 1.04
</TABLE>
13. COMMITMENTS AND CONTINGENT LIABILITIES
COMMITMENTS
- -----------
In the normal course of business, there are various outstanding commitments
and contingent liabilities which are not reflected in the accompanying
consolidated financial statements. These commitments were comprised of the
following at December 31:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Commitments to extend credit $ 34,904,154 $ 33,871,291
Standby letters of credit and financial guarantees 1,214,087 620,231
------------- -------------
Total $ 36,118,241 $ 34,491,522
============= =============
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Standby
letters of credit are conditional commitments issued by the Bank guaranteeing
performance by a customer to a third party. Those guarantees are issued
primarily to support public and private borrowing arrangements including
commercial paper, bond financing, and similar transactions.
Such commitments and standby letters of credit involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount
recognized in the financial statements. The exposure to loss under these
commitments is limited by subjecting them to credit approval and
monitoring procedures. The amount of collateral obtained, if deemed necessary
by the Company, upon the extension of credit is based on
management's credit evaluation of the counterparty. Substantially all
commitments to extend credit are contingent upon customers maintaining
specific credit standards at the time of the loan funding. Management
assesses the credit risk associated with certain commitments to extend
credit in determining the level of the allowance for loan losses. Since many
of the commitments are expected to expire without being drawn
upon, the total contractual amounts do not necessarily represent future
funding requirements.
CONTINGENT LIABILITIES
- ----------------------
The Company is involved in various legal actions from normal business
activities. Management believes that the liability, if any, arising from
such litigation will not have a material adverse effect on the Company's
financial position.
14. COMMON STOCK
On November 17, 1998, the Board of Directors of the Company approved a
two-for-one stock split to shareholders of record December 4, 1998. The
par value of the stock was maintained at $.25 per share. As a result of the
stock split the outstanding shares increased by 1,381,824. All
references to per share amounts in the accompanying financial statements for
1997 have been restated to reflect the stock split.
15. REGULATORY RESTRICTIONS
CASH AND DUE FROM BANKS
- -----------------------
Included in cash and due from banks are reserves required by the district
Federal Reserve Bank of $2,606,000 and $1,969,000 and at December 31,
1999 and 1998. The required reserves are computed by applying prescribed
ratios to the classes of average deposit balances. These are held in
the form of cash on hand and a balance maintained directly with the Federal
Reserve Bank.
16
<PAGE>
DIVIDENDS
- ---------
Under the National Bank Act, the approval of the Comptroller of the Currency
is required if dividends declared by the subsidiary bank in any one year
exceed the net profits of that year as defined, combined with net retained
profit from the two preceding years. Using this formula, the amount
available for payment of dividends in 2000, without approval of the
Comptroller, will be limited to approximately $3,948,000 plus net profits
retained up to the date of the dividend declaration.
16. REGULATORY CAPITAL REQUIREMENTS
Federal regulations require the Company and the Bank to maintain minimum
amounts of capital. Specifically, each is required to maintain certain
minimum dollar amounts and ratios of Total and Tier I capital to
risk-weighted assets and of Tier I capital to average total assets.
In addition to the capital requirements, the Federal Deposit Insurance
Corporation Improvement Act ("FDICIA") established five capital categories
ranging from "well capitalized" to "critically undercapitalized." Should any
institution fail to meet the requirements to be considered "adequately
capitalized," it would become subject to a series of increasingly restrictive
regulatory actions.
As of December 31, 1999 and 1998, the FDIC categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action.
To be classified as a well capitalized financial institution, Total
risk-based, Tier 1 risk-based, and Tier 1 Leverage capital ratios must be at
least ten percent, six percent, and five percent, respectively.
The Company's actual capital ratios are presented in the following table
which shows that both met all regulatory capital requirements. The capital
position of the Bank does not differ significantly from the Company's.
<TABLE>
<CAPTION>
1999 1998
---------------------------- ---------------------------
Amount Ratio Amount Ratio
------------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Total Capital
(to Risk-weighted Assets)
Company $ 26,164,754 15.70 % $ 23,659,772 15.83 %
For Capital Adequacy Purposes 13,333,280 8.00 11,956,160 8.00
To Be Well Capitalized 16,666,600 10.00 14,945,200 10.00
Tier I Capital
(to Risk-weighted Assets)
Company $ 24,483,582 14.69 % $ 22,249,463 14.89 %
For Capital Adequacy Purposes 6,666,640 4.00 5,978,080 4.00
To Be Well Capitalized 9,999,960 6.00 8,967,120 6.00
Tier I Capital
(to Average Assets)
Company $ 24,483,582 10.63 % $ 22,249,463 10.43 %
For Capital Adequacy Purposes 9,217,342 4.00 8,530,676 4.00
To Be Well Capitalized 11,521,678 5.00 10,663,344 5.00
</TABLE>
17. FAIR VALUE DISCLOSURE
The estimated fair value of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------- ---------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Financial assets:
Cash, interest-bearing deposits
in other banks, and
federal funds sold $ 11,305,633 $ 11,305,633 $ 23,035,274 $ 23,035,274
Mortgage loans held for sale - - 2,467,803 2,467,803
Investment securities 29,572,580 29,585,665 21,841,061 21,932,446
Net loans 181,461,294 180,460,824 159,443,599 159,945,904
Accrued interest receivable 1,346,521 1,346,521 1,381,719 1,381,719
------------- ------------- ------------- -------------
Total $ 223,686,028 $ 222,698,643 $ 208,169,456 $ 208,763,146
============= ============= ============= =============
Financial liabilities:
Deposits $ 197,123,701 $ 197,546,534 $ 190,148,937 $ 191,773,942
Short-term borrowings 9,000,000 9,000,000 - -
Other borrowings 303,705 303,705 333,254 205,513
Accrued interest payable 707,081 707,081 733,664 733,664
------------- ------------- ------------- -------------
Total $ 207,134,487 $ 207,557,320 $ 191,215,855 $ 192,713,119
============= ============= ============= =============
</TABLE>
17
<PAGE>
Financial instruments are as cash, evidence of ownership interest in an
entity, or a contract which creates an obligation or right to receive or
deliver cash or another financial instrument from/to a second entity on
potentially favorable or unfavorable terms.
Fair value is defined as the amount at which a financial instrument could be
exchanged in a current transaction between willing parties other than in a
forced or liquidation sale. If a quoted market price is available for a
financial instrument, the estimated fair value would be calculated based upon
the market price per trading unit of the instrument.
If no readily available market exists, the fair value estimates for financial
instruments should be based upon management's judgment regarding current
economic conditions, interest rate risk, expected cash flows, future
estimated losses, and other factors as determined through various option
pricing formulas or simulation modeling. As many of these assumptions result
from judgments made by management based upon estimates which are inherently
uncertain, the resulting estimated fair values may not be indicative of the
amount realizable in the sale of a particular financial instrument. In
addition, changes in assumptions on which the estimated fair values are based
may have a significant impact on the resulting estimated fair values.
As certain assets such as deferred tax assets and premises and equipment are
not considered financial instruments, the estimated fair value of
financial instruments would not represent the full value of the Company.
The Company employed simulation modeling in determining the estimated fair
value of financial instruments for which quoted market prices were
not available based upon the following assumptions:
CASH AND DUE FROM BANKS, INTEREST-BEARING DEPOSITS IN OTHER BANKS, FEDERAL
- --------------------------------------------------------------------------
FUNDS SOLD, SHORT-TERM BORROWINGS, ACCRUED INTEREST RECEIVABLE, AND ACCRUED
- ---------------------------------------------------------------------------
INTEREST PAYABLE
- ----------------
The fair value is equal to the current carrying value.
INVESTMENT SECURITIES AND MORTGAGE LOANS HELD FOR SALE
- ------------------------------------------------------
The fair value of investment securities and mortgage loans held for sale is
equal to the available quoted market price. If no quoted market
price is available, fair value is estimated using the quoted market price for
similar securities and loans.
LOANS, DEPOSITS, AND OTHER BORROWINGS
- -------------------------------------
The fair value of loans is estimated by discounting the future cash flows
using a simulation model which estimates future cash flows and employs
discount rates that consider reinvestment opportunities, operating expenses,
noninterest income, credit quality, and prepayment risk. Demand, savings,
and money market deposit accounts are valued at the amount payable on demand
as of year-end. Fair values for time deposits and other borrowings are
estimated using a discounted cash flow calculation that applies contractual
costs currently being offered in the existing portfolio to current market
rates being offered for deposits and notes of similar remaining maturities.
COMMITMENTS TO EXTEND CREDIT
- ----------------------------
These financial instruments are generally not subject to sale and estimated
fair values are not readily available. The carrying value,
represented by the net deferred fee arising from the unrecognized commitment
or letter of credit, and the fair value, determined by discounting
the remaining contractual fee over the term of the commitment using fees
currently charged to enter into similar agreements with similar credit
risk, are not considered material for disclosure. The contractual amounts of
unfunded commitments and letters of credit are presented in Note 13.
18
<PAGE>
18. PARENT COMPANY
Following are condensed financial statements for the parent company:
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Cash in subsidiary bank $ 169,131 $ 103,119
Investment in bank subsidiary 25,419,846 24,130,966
Other assets 22,132 22,391
------------- -------------
TOTAL ASSETS $ 25,611,109 $ 24,256,476
============= =============
LIABILITIES
Other liabilities $ 1,403 $ 1,402
STOCKHOLDERS' EQUITY 25,609,706 24,255,074
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,611,109 $ 24,256,476
============= =============
</TABLE>
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
INCOME
Dividends from subsidiary $ 1,189,395 $ 1,076,728 $ 1,004,687
EXPENSES 53,240 42,463 52,611
------------ ------------ ------------
Income before income tax benefit 1,136,155 1,034,265 952,076
Income tax benefit (18,102) (14,437) (17,888)
------------ ------------ ------------
Income before equity in undistributed net income
of subsidiary 1,154,257 1,048,702 969,964
Equity in undistributed net income of subsidiary 1,942,723 2,005,324 1,913,237
------------ ------------ ------------
NET INCOME $ 3,096,980 $ 3,054,026 $ 2,883,201
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH Year Ended December 31,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,096,980 $ 3,054,026 $ 2,883,201
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income of subsidiary (1,942,723) (2,005,324) (1,913,237)
Other 1,729 (4,185) 7,547
------------- ------------- -------------
Net cash provided by operating activities 1,155,986 1,044,517 977,511
------------- ------------- -------------
FINANCING ACTIVITIES
Proceeds from stock options exercised 99,420 83,321 34,800
Cash dividends paid (1,189,394) (1,076,728) (965,290)
------------- ------------- -------------
Net cash used for financing activities (1,089,974) (993,407) (930,490)
------------- ------------- -------------
Increase in cash 66,012 51,110 47,021
CASH AT BEGINNING OF PERIOD 103,119 52,009 4,988
------------- ------------- -------------
CASH AT END OF PERIOD $ 169,131 $ 103,119 $ 52,009
============= ============= =============
</TABLE>
19
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Slippery Rock Financial Corporation
We have audited the accompanying consolidated balance sheet of Slippery Rock
Financial Corporation and subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in stockholders' equity,
and cash flows for the three years in the period ended December 31, 1999.
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
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 Slippery
Rock Financial Corporation and subsidiary as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles.
/s/ S.R. Snodgrass, A.C.
Wexford, PA
February 4, 2000
S.R. Snodgrass, A.C.
1000 Stonewood Drive
Suite 200
Wexford, PA 15090-8399
Phone: 724-934-0344
Facsimile: 724-934-0345
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL
- -----------------------------------------------------------------------
CONDITION
- ---------
FORWARD LOOKING STATEMENT
The Private Securities Litigation Act of
1995 contains safe harbor provisions
regarding forward looking statements.
When used in this discussion, the words
"believes," "anticipates," "contemplates,"
"expects," and similar expressions
are intended to identify forward-looking
statements. Such statements are
subject to certain risks and uncertainties
that could cause actual results to
differ materially from those projected.
Those risks and uncertainties include
changes in interest rates, the ability to
control costs and expenses, and
general economic conditions. The Company
undertakes no obligation to publicly
release the results of any revisions to
those forward looking statements,
which may be made to reflect events or
circumstances after the date hereof or
to reflect the occurrence of
unanticipated events.
OVERVIEW
Slippery Rock Financial Corporation
("Company") is the parent holding company
for The First National Bank of Slippery Annual Net Income
Rock ("Bank"). This discussion and the $ in thousands
related financial data represent the
financial condition and results of (Bar graph belongs in this area)
operations of the Bank for the three
years ended December 31, 1999, and is $2,499 $2,670 $2,883 $3,054 $3,097
presented to assist in the understanding --------------------------------------
and evaluation of the financial 1995 1996 1997 1998 1999
condition and the results of operations
of the Company and is intended to
supplement, and should be read in
conjunction with, the consolidated financial
statements and the related notes.
Management is not aware of any current
recommendations by the regulatory
agencies that will have a material effect
on future earnings, liquidity or
capital of the Company.
RESULTS OF OPERATIONS
Net income for 1999 was $3,097,000, an
increase of $43,000 from 1998's
earnings of $3,054,000. An increase in Earnings Per Share
net interest income after provision for Dollars
loan losses of $307,000 and a net
increase in total other income of (Bar graph belongs in this area)
$106,000 was offset by a net increase
in total other expense of $468,000. $0.91 $0.97 $1.05 $1.11 $1.12
Income before taxes at December 31, ---------------------------------
1999 was $4,353,000 a decrease of 1995 1996 1997 1998 1999
$55,000 or 1.24% from the $4,408,000
reported at December 31, 1998.
Federal income taxes of
$1,256,000 at December 31, 1999
represents a decrease of $98,000 from
the $1,354,000 reported at December 31,
1998.
Net income for 1998 was $3,054,000, an
increase of $171,000 from 1997's
earnings of $2,883,000. An increase in Dividends Paid Per Share
net interest income after provision for Dollars
loan losses of $433,000 and a net
increase in total other income of (Bar graph belongs in this area)
$575,000 was offset by a net increase
in total other expense of $585,000 and $0.24 $0.29 $0.35 $0.39 $0.43
an increase in federal income tax --------------------------------
expense of $253,000. 1995 1996 1997 1998 1999
21
<PAGE>
Earnings per share, on a fully diluted basis, of $1.12 at December 31,1999
compared to $1.11 at December 31, 1998 and $1.05 at December 31, 1997,
increases of $0.01 and $0.06 per share respectively.
NET INTEREST INCOME
Net interest income is the amount by which interest generated from interest
earning assets exceeds interest paid on interest-bearing liabilities. Net
interest income, on a tax equivalent basis, which is the primary component of
earnings, was $10,239,000 for 1999, as compared to $9,375,000 for 1998 and
$9,099,000 for 1997.
Slippery Rock Financial Corporation
AVERAGE BALANCE SHEETS AND NET INTEREST ANALYSIS
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------------------------------
Average Average Average
Volume Interest Yield Volume Interest Yield Volume Interest Yield
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets
Taxable investment securities $ 11,497 $ 707 6.15% $ 12,565 755 6.01% $ 11,828 $ 741 6.26%
Non-taxable investment securities (2) 16,688 1,159 6.95 9,246 680 7.35 15,315 1,118 7.30
Interest-bearing deposits in other
banks 3,781 185 4.89 33 2 6.06 290 8 2.76
Loans (1, (3) 171,974 14,717 8.56 160,218 14,179 8.85 149,370 13,400 8.97
Federal funds sold 5,241 267 5.09 13,955 746 5.35 6,349 347 5.47
---------------- ---------------- ---------------
Total interest-earning assets 209,181 17,035 8.14% 196,017 16,362 8.34% 183,152 15,614 8.53%
------- ------- -------
Noninterest-earning assets
Cash and due from banks 8,769 7,918 6,906
Allowance for loan losses (1,533) (1,353) (1,205)
Other assets 9,606 8,706 8,033
-------- -------- --------
Total assets $226,023 $211,288 $196,886
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities
Interest bearing checking $ 25,691 434 1.69% $ 24,052 523 2.17% $ 22,780 492 2.16%
Money market accounts 25,994 911 3.50 22,694 866 3.82 23,842 912 3.83
Savings deposits 22,324 478 2.14 20,736 508 2.45 18,709 462 2.47
Time deposits 91,512 4,871 5.32 88,928 5,053 5.68 81,840 4,574 5.59
Borrowed funds 1,779 102 5.73 551 37 6.72 1,216 75 6.17
---------------- ---------------- ---------------
Total interest-bearing
liabilities 167,300 6,796 4.06 156,961 6,987 4.45 148,387 6,515 4.39
------- ------- ------
Noninterest-bearing liabilities
Demand deposits 32,699 29,910 26,195
Other liabilities 917 1,028 983
Capital 25,107 23,389 21,321
-------- -------- --------
Total liabilities and stockholders'
equity $226,023 $211,288 $196,886
======== ======== --------
Net interest income and net yield on
interest-earning assets $ 10,239 4.89% $ 9,375 4.78% $ 9,099 4.97%
======== ====== ======= ====== ======= ======
Net interest spread 4.08% 3.89% 4.13%
====== ====== ======
</TABLE>
(1) - Interest on loans includes fee income.
(2) - Yields on interest-earning assets have been computed on a
taxable-equivalent basis using the federal income tax statutory rate of
34%.
(3) - Non-accrual loans and loans held for sale included.
22
<PAGE>
ANALYSIS OF CHANGES IN NET INTEREST INCOME
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 CHANGE FROM 1998 1998 CHANGE FROM 1997
------------------------------- ----------------------------
TOTAL CHANGE DUE TO TOTAL CHANGE DUE TO
CHANGE VOLUME(1) RATE(1) CHANGE VOLUME(1) RATE(1)
------ --------- ------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME ON:
Taxable investment securities $ (48) $ (66) $ 18 $ 14 $ 45 $ (31)
Non-taxable investments 479 518 (39) (438) (446) 8
Interest-bearing deposits in
other banks 183 148 35 (6) (2) (4)
Loans 538 1,014 (476) 779 960 (181)
Federal funds sold (479) (445) (34) 399 407 (8)
------------------------------- -----------------------------
TOTAL INTEREST INCOME 673 1,169 (496) 748 964 (216)
------------------------------- -----------------------------
INTEREST EXPENSE ON:
Interest-bearing checking (89) 32 (121) 31 29 2
Money market accounts 45 122 (77) (46) (44) (2)
Savings deposits (30) 37 (67) 46 50 (4)
Time deposits (182) 144 (326) 479 404 75
Borrowed funds 65 71 (6) (38) (44) 6
------------------------------- -----------------------------
TOTAL INTEREST EXPENSE (191) 406 (597) 472 395 77
------------------------------- -----------------------------
NET INTEREST INCOME $ 864 $ 763 $ 101 $ 276 $ 569 $(293)
=============================== =============================
</TABLE>
(1) Changes in interest income/expense not arising from volume or rate
variances are allocated proportionately to rate and volume.
Interest income and interest expense increases or decreases as the volumes of
interest sensitive assets and liabilities and interest rates fluctuate.
Average interest-earning assets increased $13.0 million in 1999, principally
due to an increase in average loans of $11.8 million. Although the most
significant growth, $ 6.9 million, occurred within the commercial real estate
segment of the loan portfolio, there were no concentrated efforts on
management's part to target growth within any one particular segment of the
loan portfolio. In additon to the increase in average loans, average
non-taxable investments increased $7.4 million and average interest-bearing
balances with others increased $3.6 million. These increases were offset by
a decline in average federal funds sold balances, which declined $8.7 million
during the period. The changes were brought about by the use of general
liquidity available in federal funds sold, which was used to fund the net
increases in loans and tax-free investments.
Average interest-bearing liabilities increased $10.3 million for the period
ended December 31,1999. Although each of interest-bearing products had net
increases for the period, average money market accounts, which increased $3.3
million, had the most significant growth. Money market accounts were followed
by net increases in average time deposits of $2.6 million and
interest-bearing checking of $1.6 million. Average interest-bearing deposits
increased $9.1 million or 5.8% without any concentrated efforts on management's
part to target growth within any one particular product.
As in 1999, average interest-earning assets increased $13.0 million in 1998,
principally due to an increase in average loans of $10.8 million. The most
significant average loan growth, $7.9 million, occurred within the
residential real estate portfolio. There were no concentrated efforts on
management's part to target growth within any one particular segment of the
portfolio.
Average interest-bearing liabilities increased $8.6 million in 1998, with the
most significant growth, $7.1 million, occurring in average certificates of
deposits. Growth within the certificate product resulted from various
short-term special offerings throughout the year. The specials resulted from
market pressures from competing institutions vying for deposit growth. As a
result, the bank offered an eleven month and a nineteen month certificate,
both of which offered aggressive interest rates relative to certificates of
more traditional terms and pricing. At December 31, 1998, the Bank had $5.9
million in the eleven month certificate and $3.0 million in the nineteen
month product.
(3 Bar graphs side by side in this area)
Total Assets
$ in Millions
$162.011 $195.713 $207.148 $215.773 $233.019
- ------------------------------------------------
1995 1996 1997 1998 1999
Return on Average Assets
Percentage
1.64% 1.52% 1.46% 1.45% 1.37%
- ---------------------------------
1995 1996 1997 1998 1999
Return on Average Equity
Percentage
14.32% 13.78% 13.52% 13.06% 12.34%
- --------------------------------------
1995 1996 1997 1998 1999
23
<PAGE>
Although total average earning assets and average loans increased during 1999,
the yield on average interest-earning assets decreased in 1999 to 8.14% from a
level of 8.34% in 1998. The decline occurred principally from a reduction on
loan yields which fell from a level of 8.97% at December 31,1997 to 8.85% at
December 31, 1998 to 8.56% at December 31,1999. Lower interest rate pricings
for new loan ordinations brought about by general market pressures as well as
lower interest rate repricings within the Bank's existing adjustable rate
products contributed to the decline in loan yields. Downward pressure
continued on yields on earning assets despite Federal Reserve Board ("Fed")
action in the third quarter to raise interest rates. The Bank's existing
portfolio of adjustable rate loans, specifically mortgages, continued to
reprice downward due to natural repricing time lags that occur within the
portfolio. Given that it takes the Bank's adjustable rate mortgage portfolio a
full year to reprice in its entirety, management anticipates that loan yields
will continue to decline, although the extent to which the portfolio reprices
will be dependent on future Fed action and the overall condition of the
National and local economies.
The analysis of changes in net interest income indicates that the total change
in interest income on loans of $538,000 is comprised of an increase in loan
income of $1,014,000 due to volume increases within the loan portfolio, and a
reduction in loan income of $476,000 due to changes in interest rates.
The yield on interest-bearing liabilities decreased 39 basis points (0.39%)
during the twelve month period ended December 31,1999 from a level of 4.45% at
December 31,1998 to 4.06% at December 31,1999. The decrease was due to
reductions in the yield paid on all interest bearing deposit products. The
yield paid on certificates of deposit declined from a level of 5.68% at
December 31, 1998 to a level of 5.32 at December 31, 1999, principally due to
market activity. The reductions in other "core" interest-bearing products,
specifically interest bearing checking, money market accounts, and savings
accounts were brought about by management's interest rate risk management
program. In June of 1999, management strategically reduced the rates paid on
these core products in management of the Bank's net interest margin. Although
these core deposit products are variable rate and fluctuate with market
activity, management has limited ability to control the timing and extent of
these repricings.
The rate volume table indicates a decrease in interest expense of $191,000 in
1999 due primarily to a decrease in interest expense on certificates of
deposit of $182,000. Interest expense on certificates increased $144,000 due
to volume but declined $326,000 due to reductions in interest rates.
The effect of the reduction in yields on interest-earning assets and the
decrease in cost of interest-bearing liabilities was that the net yield on
interest-earning assets ("net interest margin") at December 31,1999 increased
from that of December 31,1998. Net interest margin at December 31,1999 was
4.89% as compared to 4.78% at December 31,1998 and 4.97% at December 31, 1997.
It should be noted that there is a time lag between changes in interest rates
and their effect on the Bank's yield on earning assets and its cost of funds.
If interest rates rise, it would be expected that the yield on assets and the
cost of funds would also increase, however, the effect upon the net interest
margin would be dependent upon the extent of the increase in rates, the timing
of the change and the general composition of the mix of interest-earning
assets and interest-bearing liabilities.
OTHER INCOME
- ------------
1999- 1998
- ----------
The principal sources of other income are service charges, fees and
commissions. Other income for 1999 totaled $1,735,000 an increase of
$106,000 or 6.5% from $1,629,000 at December 31,1998. Total other income
increased due to increases in service charges on deposit accounts of $47,000,
an increase in trust fees of $47,000 and an increase in other miscellaneous
income of $101,000. These items were offset by a decline on net gains
recorded on loan sales of $89,000.
The increase in service charges on deposit accounts is due to volume activity
and pricing changes that became effective during the third quarter. Trust fee
income increased due to volume activity within the department.
The increase in other miscellaneous income is comprised of several items; an
increase in mortgage servicing fees of $20,000, an increase in insurance
commissions of $46,000, an increase in fees associated with the Bank's debit
card program of $147,000 and an increase in brokerage commission fees of
$26,000. These items were offset by a one-time gain recorded in 1998
pertaining to the sale of the Bank's former Plaza office of $145,000. No such
gains were recorded in 1999. Income from mortgage servicing increased due to
volume increases within the sold loan portfolio. Commissions from insurance
sales increased due to greater marketing efforts on the part of the Bank's
lenders to sell life and accident and health insurance on consumer and
mortgage loans. The increase in debit card fee income is due to the
implementation of an annual fee assessment and due to increased volumes. In
October 1999, in an effort to offset costs associated with the product, the
Bank implemented an annual fee for customers using the debit card product. In
addition, the Bank records interchange fees from merchants who accept the
debit card as a payment method. The fee, which is transaction based,
increases as the volume and average ticket amount increase.
In 1999, The Bank recorded gains of $7,000 on the sale of $14.0 million of
fixed rate, 1-4 family, residential mortgages, a decline of $142,000 from
1998. Gains recorded on the sale of $14.1 million of residential mortgages in
1998 totaled $149,000. Because the Bank maintains the servicing on the sold
loans, additional income of $145,000 was recorded in 1999 pertaining to
mortgage servicing rights ("MSR"). MSRs are amortized to expense in proportion
to
24
<PAGE>
the estimated servicing income over the estimated life of the servicing
portfolio. In addition to mortgage sales, the Bank also sold approximately
$9.2 million in student loans in 1999 and recorded net gains of $68,000 on the
sale.
1998 - 1997
- -----------
Other income for 1998 totaled $1,629,000, an increase of $575,000 or 54.6%
from $1,054,000 at December 31, 1997. The increase is derived principally
from three sources, an increase in service charges on deposit accounts, an
increase in net gains recorded on the sale of loans and an increase in other
miscellaneous income.
Income from service charges on deposit accounts increased $54,000 from
$539,000 at December 31, 1997 to $593,000 at December 31,1998 due to volume
activity.
In 1998, The Bank recorded gains of $149,000 on the sale of $14.1 million of
fixed rate, 1-4 family, residential mortgages. Gains recorded on the sale of
$9.3 million of residential mortgages in 1997 totaled $66,000. MSR income
totaled $141,000 in 1998.
Other miscellaneous income of $670,000 at December 31,1998 compared to
$387,000 at December 31,1997 an increase of $283,000. The increase is due to
an increase in mortgage loan servicing fee income of $21,000 due to volume
increases in the loan servicing portfolio, an increase in ATM surcharge fee
income of $52,000 and an increase in debit card interchange fee income of
$68,000. ATM surcharge income of $74,000 at December 31,1998 compared to
$22,000 at December 31,1997. The Bank began surcharging other bank's ATM
cardholders using the Bank's ATM machines in August of 1997, therefore, 1998
represents the first full year of the fee's implementation.
In December of 1997, the Bank introduced a debit card product. Fee income to
the Bank for this product, based on volume and paid by participating
merchants, totaled $72,000 at December 31, 1998 compared to $4,000 at December
31,1997. The Bank also recorded a gain of $145,000 from the sale of its former
Plaza office as part of a general reconstruction project at the local shopping
plaza where the office was located. A new office was subsequently constructed
directly across the street from the former location.
OTHER EXPENSE
- -------------
1999-1998
- ---------
Total other expenses of $6,485,000 at December 31,1999 represented an increase
of $468,000 from $6,017,000 at December 31, 1998. The major contributors of
the increase are salary and employee benefits of $285,000, net occupancy
expense of $129,000, and equipment expense of $55,000. The increase in salary
and employee benefits is attributed to normal annual increases and staff
additions to accommodate three new offices anticipated to open in 2000. In
1999, the Bank acquired land in New Wilmington Borough and Hickory Township,
Lawrence County, Pennsylvania for the construction of two new full service
branch facilities. In addition, the Bank anticipates opening a grocery store
branch in a local Slippery Rock establishment in third quarter 2000.
Occupancy expense and equipment expense increased in 1999 due to increased
costs associated with the new Plaza facility and the new Trust Division
building. These increases were offset by a decline in data processing expense
of $67,000 which was due to one-time, third party data processing charges
recorded in 1998 associated with the Bank's debit card product.
1998 - 1997
- -----------
Total other expenses of $6,017,000 at December 31,1998 represented an increase
of $585,000 from $5,432,000 at December 31, 1997. The major contributors of
the increase are salary and employee benefits of $217,000, equipment expense
of $121,000, data processing expense of $117,000 and miscellaneous expense of
$232,000. The increase in salary and employee benefits is attributed to normal
annual increases. Equipment expense increased due to acquisitions and
increased depreciation expense. Data processing increased due to increased
processing costs of $39,000 for volume increases in the Bank's ATM and debit
card products and due to one-time fee assessments of $45,000 pertaining to the
debit card program. In addition, the Bank incurred direct billings of $18,000
pertaining to year 2000 testing of its core data processing system.
The increase in other miscellaneous expense is comprised of several items. One
is a $ 34,000 increase in net losses recorded on the disbandondment of
computer hardware and software. Legal and professional expense increased
$29,000 in 1998 due to costs incurred for the expansion of trust services to
include the sales of mutual funds and annuities. Also included in the
increase in legal and professional fees were costs associated with a site
study performed for possible branch locations. An increase in collection
expense of $44,000 in 1998 pertaining to foreclosure proceedings on a single
parcel also contributed to the overall increase in other miscellaneous
expense. The Bank uses a third party data processor for its student loan
portfolio, accordingly, processing fees are based on the size of the loan
portfolio being serviced and increased $19,000 in 1998. The increase in
servicing fee expense is attributed to increased volumes within the Bank's
student loan portfolio. Another item contributing to the overall increase in
other miscellaneous expense was an increase in net losses on the sale of
other real estate owned. Net gains of $32,000 were recorded on sales
of property in 1997, however, there were no gains or losses recorded on the
sale of other real estate in 1998. The final item to affect the increase in
other expense was an increase in amortization expense for intangible assets.
Intangible asset amortization increased $20,000 for the period ended December
31, 1998. The increase was due to increased amortization pertaining to
acquisition of the Slippery Rock office of First Western Bank, F.S.B.
25
<PAGE>
INCOME TAXES
- ------------
Federal income taxes for 1999 of $1,256,000 represented a 7.2% decrease from
the $1,353,000 reported in 1998. The decrease is due to a decrease in taxable
income, which decreased $295,000 or 7.4% to $3,690,000 in 1999. The decrease
in taxable income resulted from an increase in tax-exempt income. Tax-exempt
income increased $308,000 in 1999 as a result of net increases in average
non-taxable municipal securities. These changes resulted in the Company's
effective tax rate decreasing to 28.9% in 1999 from 30.7% in 1998.
Federal income taxes for 1998 of $1,353,000 represented a 23.0% increase from
the $1,100,000 reported in 1997. The increase is due to an increase in taxable
income, which increased $745,000 or 23.0% to $4.0 million in 1998. The
increase in taxable income not only resulted from an increase in total
earnings, but also from a reduction in tax-exempt income. Tax-exempt income
declined $289,000 in 1998 as a result of net declines in average non-taxable
municipal securities. As a result, the Company's effective tax rate increased
to 30.7% in 1998 compared to 27.6% in 1997.
FINANCIAL CONDITION
- -------------------
1999 - 1998
- -----------
Average total assets at December 31,1999 were $226.0 million, an increase of
$14.7 million or 7.0% from $211.3 million at December 31,1998. Average total
interest-earning assets increased $12.9 million in 1998, primarily from
increases in average loan balances, which increased $11.8 million or 7.3% and
an increase in average non-taxable securities, which increased $7.4 million or
80.5 %. The most significant growth in the loan portfolio occurred within the
commercial real estate portfolio and the 1-4 family residential real estate
portfolio. Commercial real estate loans increased $5.7 million or 20.5% from
$27.8 million at December 31,1998 to $33.5 million at December 31, 1999.
Residential real estate loans, which includes first and secondary lien
positions, increased $12.2 million from $80.6 million at December 31, 1998 to
$92.8 million at December 31, 1999. As previously mentioned, the increase
within the loan portfolio was due to general demand within the local market
place and not due to specific management growth objectives. The growth in
average assets and in average loan balances specifically was funded by an
increase in average deposit liabilities and short-term borrowings.
Average deposit liabilities at December 31,1999 were $198.2 million, an
increase of $11.9 million or 6.4% from $186.3 million at December 31, 1998.
Average balances increased across all deposit products. The greatest net
increase occurred within the average money market accounts, which increased
$3.3 million or 14.5% from $22.7 million at December 31,1998 to $26.0 million
at December 31,1999. This was followed by an increase in average certificates
of deposit of $2.6 million or 2.9%. Average short-term borrowings increased
$1.4 million for the period ended December 31, 1999. The increase in average
borrowed funds resulted from short-term advances from the Federal Home Loan
Bank ("FHLB") used for general liquidity purposes.
Total period end assets at December 31,1999 were $233.0 million, an increase
of $17.2 million or 7.0% from $215.8 million at December 31, 1998. Total
deposits at December 31, 1999 were $197.1 million, an increase of $7.0 million
or 3.7% from $190.1 million at December 31.1998. Short-term borrowings at
December 31, 1999 totaled $9.0 million.
The Bank continued to sell fixed rate, 1-4 family, residential mortgages as
part of its strategies for managing liquidity and interest rate risk within
the loan portfolio. In 1999, the Bank sold approximately $14.0 million of
these loans to the Federal Home Loan Mortgage Corporation ("Freddie Mac").
The ratio of total loans to total deposits of 92.9% at December 31,1999,
compared to 84.6% at December 31,1998.
1998 - 1997
- -----------
Average total assets at December 31,1998 were $211.3 million, an increase of
$14.4 million or 7.3% from $196.9 million at December 31,1997. Average total
interest-earning assets increased $13.0 million in 1998, primarily from
increases in average loan balances, which increased $10.8 million or 7.3%. The
most significant growth in the loan portfolio occurred within the commercial
real estate portfolio and the 1-4 family residential real estate portfolio.
Commercial real estate loans increased $3.5 million or 14.4% from $24.3
million at December 31,1997 to $27.8 million at December 31, 1998. Residential
real estate loans, which includes first and secondary lien positions,
increased $5.6 million from $75.0 million at December 31, 1997 to $80.6
million at December 31, 1998. As previously mentioned, the increase within the
loan portfolio was due to general demand within the local market place and not
due to specific management growth objectives. The growth in average assets and
in average loan balances specifically was funded by an increase in average
deposit liabilities.
Average deposit liabilities at December 31,1998 were $186.3 million, an
increase of $12.9 million or 7.4% from $173.4 million at December 31, 1997.
Average balances increased across all deposit products except average money
markets, which declined $1 .2 million during the period. The greatest net
increase occurred within the average time certificate product, which increased
$7.0 million or 8.7% form $81.8 million at December 31,1997 to $88.9 million
at December 31,1998. The increase is due to the offering of the 11 month and
19 month certificate specials discussed earlier.
26
<PAGE>
Total assets at December 31,1998 were $215.8 million, an increase of $8.7
million or 4.2% from $207.1 million at December 31, 1997. Total deposits at
December 31, 1998 were $190.1 million, an increase of $8.9 million or 4.9%
from $181.2 million at December 31.1997.
The Bank sold approximately $14.1 million of fixed rate real estate loans to
the Federal Home Loan Mortgage Corporation ("Freddie Mac"). The ratio of
total loans to total deposits of 84.6% at December 31,1998, compared to 86.9%
at December 31, 1997.
LIQUIDITY
- ---------
Liquidity represents the ability of the Company to meet normal cash flow
requirements of both borrowers and depositors efficiently. Repayments of and
the management of maturity distributions for loans and securities provide
asset liquidity. One measure that the Bank uses to monitor liquidity is the
liquidity ratio, which assesses the relationship between certain earning
assets, customer deposits and short-term interest-bearing liabilities. This
ratio was 2.6% of total assets as of December 31,1999 compared to 8.9% at
December 31,1998.
The decrease was due primarily to a decrease in daily federal funds sold and a
decrease in certificates of deposit with others. These items decreased $5.2
million and $8.0 million respectively for the period ended December 31, 1999.
In 1999, the Bank used two short-term certificates of deposit at the Federal
Home Loan Bank ("FHLB") totaling $8.0 million as well as excess liquidity in
the daily federal funds sold account to fund investment purchases and loan
growth. Daily federal funds sold at December 31,1999 totaled $1.2 million, a
decline of $5.2 million from $6.4 million at December 31,1998.
The Statement of Cash Flows indicates that net cash was provided from
operating activities and financing activities of $6.3 million and $14.9
million respectively. Cash provided by operating activities was generated
principally from net income, while cash provided by financing activities was
generated from a net increase in deposits of $6.9 million and an increase in
short-term borrowings of $9.0 million. Investing activities for the twelve
month period ended December 31,1999 indicated that net maturities of
investment securities available for sale of $5.5 million, a decrease in time
deposits in other banks of $8.0 million, and proceeds from the sale of student
loans of $9.2 million offset the net purchases of investment securities
available for sale of $14.9 million and the net increase in loans of $32.2
million. In addition, cash was used for an increase in premises and equipment
of $1.4 million. Cash dividends paid in 1999 were $1.2 million, an increase
of $113,000 from the $1.1 million paid in 1998.
For the period ended December 31, 1998, the Statement of Cash Flows indicates
that net cash was provided from operating activities and financing activities
of $2.2 million and $5.7 million respectively. Cash provided by operating
activities was generated principally from net income, while cash provided by
financing activities was generated from a net increase in deposits of $8.9
million, of which $2.0 million was used to repay short-term borrowings from
the Federal Home Loan Bank. Investing activities for the twelve month period
ended December 31,1998 indicated that net maturities of investment securities
available for sale of $8.0 million and maturities of investment securities
held to maturity of $3.3 million offset the net purchases of investment
securities available for sale of $13.1 million and the net increase in loans
of $3.7 million. Cash dividends paid in 1998 were $1.1 million, an increase
of $111,000 from the $965,000 paid in 1997.
The Company's liquidity plan allows for the use of long-term advances or a
short-term line of credit with the FHLB as a source of funds. Borrowing from
FHLB not only provides a source of liquidity for the Company, but also serves
as a tool to reduce interest risk as well. The Company may structure
borrowings from FHLB to match those of customer credit requests, and
therefore, lock in interest rate spreads over the lives of the loans. FHLB
borrowings, generally, have a lower cost than deposits. At December 31, 1999,
the Company continued to have one such matched funding loan outstanding
totaling $90,000.
The Company's short-term borrowings with FHLB are "RepoPlus" advances.
"RepoPlus" advances are short-term advances subject to annual renewal, incur
no service charges, bear a fixed rate of interest, and are secured by a
blanket security agreement on qualifying residential mortgages.
The Company had $9.0 million of RepoPlus advances outstanding at December 31,
1999. At December 31,1998, the Company had no advances outstanding. The
Company's remaining borrowing capacity with FHLB was $56.0 million at December
31,1999.
In addition to borrowing from the FHLB as a source for liquidity, the Company
also continued activity in the secondary mortgage market. Specifically, the
Company sold fixed rate residential real estate mortgages to Freddie Mac. The
sales to Freddie Mac not only provided an opportunity for the Bank to remain
competitive in the market place, by allowing it to offer a fixed rate
mortgage product, but also provided an additional source of liquidity and an
additional tool for management to limit interest rate risk exposure. Total
fixed rate mortgage sales in 1999 were $14.0 million, with gains of $7,000.
In 1998, sales totaled $14.1 million with gains of $149,000. The Bank
continues to service all loans sold to Freddie Mac. As discussed earlier, the
Bank recorded approximately $145,000 in income for the establishment of
mortgage servicing rights ("MSR"). The MSRs will be amortized to expense in
future periods over the estimated life of the servicing portfolio. The Bank
serviced $43.0 million and $34.0 million in sold loans to Freddie Mac at
December 31,1999 and 1998 respectively. The retaining of the servicing also
provides a source of fee income to the Bank, which totaled $102,000 and
$82,000 in 1999 and 1998 respectively. The Bank has a single commitment to
fund $5.0 million in 2000.
27
<PAGE>
The following table is a schedule of the maturity distributions and weighted
average yield of investment securities as of December 31, 1999:
AVAILABLE FOR SALE
<TABLE>
<CAPTION>
AMORTIZED COST MATURING:
--------------------------------------------------------------------
After 1 After 5
Within but within but within After No Fixed
1 Year 5 Years 10 Years 10 Years Maturity Total
--------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U. S. Government agency
securities $ 1,828 $ 3,987 $ 495 $ 978 $ - $ 7,288
Obligations of states and political
subdivisions - 1,555 8,654 5,304 - 15,513
Other debt securities - 927 100 - - 1,027
Mortgage-backed securities (2) - 32 1,187 1,385 - 2,604
-------- -------- -------- -------- -------- --------
Total Debt Securities 1,828 6,501 10,436 7,667 - 26,432
Common Stocks - - - - 1,028 1,028
-------- -------- -------- -------- -------- --------
Total $ 1,828 $ 6,501 $ 10,436 $ 7,667 $ 1,028 $ 27,460
======== ======== ======== ======== ======== ========
Weighted average yield (1) 5.52 % 5.98 % 6.70 % 6.43 % - % 6.05%
======== ======== ======== ======== ======== ========
HELD TO MATURITY
AMORTIZED COST MATURING:
--------------------------------------------------------------------
After 1 After 5
Within but within but within After No Fixed
1 Year 5 Years 10 Years 10 Years Maturity Total
--------------------------------------------------------------------
(Dollars in Thousands)
Obligations of states and political
subdivisions $ - $ 1,163 $ 1,558 $ - $ - $ 2,721
Other - 100 100 - - 200
Mortgage-backed securities (2) - - - 52 - 52
-------- -------- -------- -------- -------- --------
Total $ - $ 1,263 $ 1,658 $ 52 $ - $ 2,973
======== ======== ======== ======== ======== ========
Weighted average yield (1) - % 8.01 % 7.55 % 7.02 % - % 7.74%
======== ======== ======== ======== ======== ========
</TABLE>
(1) Weighted average yields were computed on a tax equivalent basis using
the federal income tax statutory rate and were determined on the
basis of cost, adjusted for amortization of premium or accretion of
discount.
(2) Mortgage-backed securities provide for periodic principal repayments.
It is anticipated that these securities will be repaid prior to their
contractual maturity dates.
Investments maturing within one year and other short-term investments such as
interest-bearing deposits with other banks and federal funds sold were 1.32%
of total assets at December 31, 1999, a decrease from 8.07% in 1998. The
decrease is due to the decreases in interest-bearing balances at other banks,
and daily federal funds sold discussed earlier.
INTEREST RATE SENSITIVITY
One of the principal functions of the Company's asset/liability management
program is to monitor the level to which the balance sheet is subject to
interest rate risk. The goal of the asset/liability program is to manage the
relationship between interest rate sensitive assets and liabilities, thereby
minimizing the fluctuations in the net interest margin, which achieves
consistent growth of net interest income during periods of changing interest
rates.
Interest rate sensitivity is the result of differences in the amounts and
repricing dates of a bank's rate sensitive assets and rate sensitive
liabilities. These differences, or interest rate repricing "gap" provide an
indication of the extent that the Company's net interest income is affected
by future changes in interest rates. During a period of rising interest
rates, a positive gap, a position of more rate sensitive assets than rate
sensitive liabilities, is desired. During a falling interest rate
environment, a negative gap is desired, that is, a position in which rate
sensitive liabilities exceed rate sensitive assets.
The following table shows the Company's gap position for December 31, 1999,
based upon contractual repricing opportunities or maturities, with variable
rate products measured to the date of the next repricing opportunity as
opposed to contractual maturities, while fixed rate products are measured to
contractual maturity without any consideration for prepayments.
28
<PAGE>
<TABLE>
<CAPTION>
91 days
0-90 to 1 to 5 Over
Days 1 Year Years 5 Years Total
---------- ---------- ----------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits $ - $ - $ - $ - $ -
Investments (2) (3) 1,812 3,175 8,980 15,606 29,573
Federal funds sold 1,200 - - - 1,200
Loans (1) 56,752 33,070 26,106 67,214 183,142
---------- ---------- ----------- ---------- -----------
Total 59,764 36,245 35,086 82,820 213,915
---------- ---------- ----------- ---------- -----------
LIABILITIES
Interest-bearing demand 24,547 - - - 24,547
Savings 22,187 - - - 22,187
Money market 27,349 - - - 27,349
Certificates > $100,000 7,507 9,310 6,119 663 23,599
Other time deposits 14,997 30,060 19,526 2,389 66,972
Borrowed funds 9,003 93 208 - 9,304
---------- ---------- ----------- ---------- -----------
Total 105,590 39,463 25,853 3,052 173,958
---------- ---------- ----------- ---------- -----------
Interest sensitivity gap $ (45,826) $ (3,218) $ 9,233 $ 79,768 $ 39,957
========== ========== =========== ========== ===========
Cumulative interest sensitivity gap (45,826) (49,044) (39,811) 39,957 -
========== ========== =========== ========== ===========
Rate sensitive assets/rate
sensitive liabilities 0.57 0.92 1.36 - 1.23
Cumulative gap/Total assets (0.20) (0.21) (0.17) 0.17 -
</TABLE>
(1) Includes nonaccrual loans, excludes loans held for sale.
(2) Includes investments available for sale.
(3) Investments are classified by the earlier of call date or maturity
date for repricing purposes.
At December 31, 1999, the Company had a cumulative negative gap of
$49,044,000 at the one year horizon. This value compares to a negative gap
of $27,732,000 at December 31, 1998. The gap analysis indicates that if
interest rates were to rise 100 basis points (1.0%), the Company's net
interest income would decline $490,000 at the one year horizon because the
Company's rate sensitive liabilities would reprice faster than rate sensitive
assets. Conversely, if rate were to fall 100 basis points, the Company would
earn $490,000 more in net interest income. However, not all assets and
liabilities with similar maturities and repricing opportunities will reprice
at the same time or to the same degree. As a result, the Company's gap position
does not necessarily predict the impact on interest income given a change in
interest rate levels.
Management also manages interest rate risk with the use of simulation modeling
which measures the sensitivity of future net interest income as a result of
changes in interest rates. The analysis is based on repricing opportunities
for variable rate assets and liabilities and upon contractual maturities of
fixed rate instruments.
The simulation also calculates net interest income based upon estimates of the
largest foreseeable rate increase or decrease (+ or 200 basis points or
2.00%). The current analysis indicates that, given a 200 basis point
overnight movement in interest rates, the Bank would experience a potential
$ 868,000 or 8% change in net interest income. It is important to note,
however, that this exercise would be of a worst-case scenario. It would be
more likely to have incremental changes in interest rates, rather than a
single significant increase or decrease. When management believes interest
rate movements will occur, it can restructure the balance sheet and thereby
the ration of rate sensitive assets to rate sensitive liabilities which in
turn will effect the net interest income. As mentioned earlier, in gap
analysis, as well as simulation analysis, not all assets and liabilities
with similar maturities and repricing opportunities will reprice at the same
time or to the same degree and therefore, could affect forecasted results.
CAPITAL RESOURCES
Capital adequacy is the ability of the Company to support growth while
protecting the interests of shareholders and depositors. Total capital
consists of common stock, surplus, retained earnings and net unrealized gains
/ losses on securities. Equity capital increased $1,355,000 or 5.6% in 1999.
This increase is attributed, primarily, to retained net income. Historically,
the Company has generated net retained profits sufficient to support normal
growth and expansion.
Bank regulatory agencies have designated certain capital ratio requirements,
which they use to assist in monitoring the safety and soundness of financial
institutions. For 1999, management has calculated and monitored risk-based
and leverage capital ratios in order to assess compliance with regulatory
guidelines. The following schedule presents certain regulatory capital ratio
requirements along with the Company's position at December 31, 1999:
Actual
------------------ Minimum Well
Amount Ratio Ratio Capitalized
-------- ------ ------ -----------
Tier 1 risk - based capital $ 24,484 14.7 % 4.00 % 6.00 %
Total risk - based capital 26,165 15.7 8.00 10.00
Leverage capital 24,484 10.6 4.00 5.00
29
<PAGE>
As the above table illustrates, the Company exceeds both the minimum and "well
capitalized" regulatory capital requirements at December 31, 1999. Management
does not anticipate any future activity that would have a negative impact on
any of these ratios. Also, management is not aware of any current
recommendations by the regulatory agencies that will have a material effect on
future earnings, liquidity, or capital of the Company.
INFLATION AND CHANGING PRICES
Management is aware of the impact inflation has on interest rates and the
resulting impact it can have on the Company's performance. The ability of a
financial institution to cope with inflation can only be determined by the
analysis and monitoring of its asset and liability structure. The Company
does monitor its asset and liability position, with particular emphasis on the
mix of interest rate sensitive assets and liabilities, in order to reduce the
effect of inflation upon its performance. However, it must be remembered
that the asset and liability structure of a financial institution is
substantially different from that of an industrial corporation, in that
virtually all assets and liabilities are monetary in nature, meaning that
they have been or will be converted into a fixed number of dollars regardless of
changes in prices. Examples of monetary items include cash, loans and
deposits. Nonmonetary items are those assets and liabilities, which do not
gain or lose purchasing power solely as a result of general price level
changes. Examples of nonmonetary items are premises and equipment.
Inflation can have a more direct impact on the categories of other operating
income and other operating expense, such as salaries, employee benefit costs
and supplies. These expenses are closely monitored by management for both
the effects of inflation and increases relating to such items as staffing
levels, usage of supplies and occupancy costs.
INVESTMENT SECURITIES
The following schedule presents the composition of the investment portfolio as
of the three most recent years ended:
<TABLE>
<CAPTION>
Amortized
Cost
--------------------------------------------------------------------
December 31,
--------------------------------------------------------------------
(Dollars in Thousands)
1999 1998 1997
Available Held to Available Held to Available Held to
for Sale Maturity for Sale Maturity for Sale Maturity
---------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $ - $ - $ 2,415 $ - $ 4,925 $ 500
U. S. Government
agency securities 7,288 - 6,033 - 728 500
Obligation of states and
political subdivisions 15,513 2,721 7,518 3,365 5,039 5,640
Other debt securities 1,027 200 100 200 - 200
Mortgage backed securities 2,604 52 1,008 79 1,395 110
-------- -------- -------- -------- -------- --------
26,432 2,973 17,074 3,644 12,087 6,950
Restricted common stock 1,028 - 992 - 891 -
-------- -------- -------- -------- -------- --------
Total $ 27,460 $ 2,973 $ 18,066 $ 3,644 $ 12,978 $ 6,950
======== ======== ======== ======== ======== ========
</TABLE>
There are no securities in excess of 10% of stockholders' equity at December
31, 1999, deemed to be payable from and secured by the same source of revenue
or taxing authority.
LOANS
The following table presents the composition of the loan portfolio as of the
five most recent year-ends:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $ 17,727 $ 15,761 $ 18,223 $ 18,084 $ 13,283
Real estate construction 4,663 2,693 2,587 1,466 2,967
Real estate mortgage 136,853 112,173 106,308 94,213 81,717
Loans to individuals 23,899 30,227 30,385 27,539 24,852
---------- ---------- ---------- ---------- ----------
183,142 160,854 157,503 141,302 122,819
Less unearned income - - 2 17 72
---------- ---------- ---------- ---------- ----------
Total loans $ 183,142 $ 160,854 $ 157,501 $ 141,285 $ 122,747
========== ========== ========== ========== ==========
</TABLE>
30
<PAGE>
The following table presents the maturity distribution sensitivity of real
estate construction and commercial loans:
<TABLE>
<CAPTION>
December 31, 1999
------------------------------------------------------
Due After
Due in 1 1 Year
Year or Through Due After
Less 5 Years 5 Years Total
--------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 6,324 $ 7,128 $ 4,275 $ 17,727
Real estate construction 4,663 - - 4,663
--------- --------- --------- ---------
$ 10,987 $ 7,128 $ 4,275 $ 22,390
========= ========= ========= =========
Predetermined interest rates $ 2,608 $ 5,337 $ 1,774 $ 9,719
Floating interest rates 8,379 1,791 2,501 12,671
--------- --------- --------- ---------
$ 10,987 $ 7,128 $ 4,275 $ 22,390
========= ========= ========= =========
</TABLE>
Generally, loans with maturities of one year or less consist of funds drawn
on commercial lines of credit, short-term notes, and demand notes written
without alternative maturity schedules. All lines of credit and demand loans
are subject to an annual review where the account may be approved for up to
one year. Real estate construction loans have a six-month maturity, after
which the loans are generally transferred to the real estate mortgage
portfolio and amortized over their contractual lives.
ALLOWANCE FOR LOAN LOSSES
The following table presents a summary of loan loss experience for each of
the years in the five years ended December 31, 1999:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Loans outstanding at
end of period $ 183,142 $ 160,854 $ 157,501 $ 141,285 $ 122,747
========== ========== ========== ========== ==========
Average loans outstanding (1) $ 171,974 $ 160,218 $ 149,370 $ 132,278 $ 118,201
========== ========== ========== ========== ==========
Allowance for loan losses:
Balance, beginning of period $ 1,410 $ 1,299 $ 1,177 $ 1,098 $ 1,037
Loans charged off:
Commercial, financial and agricultural 7 14 35 8 -
Real estate mortgages 326 8 - 5 50
Consumer 190 221 153 139 190
---------- ---------- ---------- ---------- ----------
Total loans charged off 523 243 188 152 240
---------- ---------- ---------- ---------- ----------
Recoveries:
Commercial, financial and agricultural 3 9 5 5 4
Real estate mortgages 11 - - 4 1
Consumer 60 35 30 22 21
---------- ---------- ---------- ---------- ----------
Total recoveries 74 44 35 31 26
---------- ---------- ---------- ---------- ----------
Net loans charged off 449 199 153 121 214
---------- ---------- ---------- ---------- ----------
Provision charged to expense 720 310 275 200 275
---------- ---------- ---------- ---------- ----------
Balance, end of period $ 1,681 $ 1,410 $ 1,299 $ 1,177 $ 1,098
========== ========== ========== ========== ==========
Ratio of net charge offs during the period
to average loans outstanding during
the period 0.26% 0.12% 0.10% 0.09% 0.18%
</TABLE>
(1) Daily average balances.
31
<PAGE>
The following table presents non-performing loans including nonaccrual
accounts and loans past due 90 days or more as to interest or principal. In
addition, interest data on nonaccrual and restructured loans at December 31,
1999 is also presented:
<TABLE>
<CAPTION>
December 31,
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-performing and restructured loans
Loans past due 90 days or more $ 93 $ 50 $ 18 $ 177 $ 87
Non-accrual loans 2,526 1,871 1,335 798 783
Restructured loans - - - 597 306
-------- -------- -------- -------- --------
Total non-performing
and restructured loans 2,619 1,921 1,353 1,572 1,176
-------- -------- -------- -------- --------
Other non-performing assets
Other real estate owned 280 138 1 221 149
Repossessed assets 33 38 24 24 24
-------- -------- -------- -------- --------
Total other non-performing assets 313 176 25 245 173
-------- -------- -------- -------- --------
Total non-performing assets $ 2,932 $ 2,097 $ 1,378 $ 1,817 $ 1,349
======== ======== ======== ======== ========
Non-performing and restructured loans
as a percentage of total loans 1.4% 1.2% 0.9% 1.1% 1.0%
Non-performing assets as a
percentage of total assets 1.3% 1.0% 0.7% 0.9% 0.8%
Non-performing and restructured
loans as a percentage of loan loss
allowance 155.8% 136.2% 104.2% 133.6% 107.1%
Allowance for loan losses/loans 0.92% 0.88% 0.82% 0.83% 0.89%
Nonaccrual and restructured loan interest data:
Interest computed at
original terms:($ in 000) $ 34
=====
Interest recognized in income
($ in 000) $ 6
=====
</TABLE>
Other real estate owned increased to $280,000 during 1999, which is the
result of foreclosure activity on a single commercial property.
A loan is considered impaired when, based upon current information and
events, it is probable that the Company will be unable to collect all
principal and interest amounts due according to the contractual terms of the
loan agreement. At December 31, 1999, the Company had nonaccrual loans of
$2,526,000, of which, $2,150,000 were classified as impaired. The average
balance in 1999 of impaired loans was $948,000. Impaired loans had a related
allowance allocation of $322,000 and income recognized in 1999 for impaired
loans totaled $6,000.
While impaired loans at December 31, 1999 were comprised of several loan
accounts, three borrowers accounted for $1.9 million of the total, of which
one borrower totaled $1.3 million. Two of the borrowers have begun voluntary
liquidation of assets and are making payments as part of work out
arrangements with the Bank. The remaining borrower pertains to a
participated loan for a dairy operation. The Bank was cross-collateralized on
cattle, feed and real estate, including facilities. Prior to year-end, based
on internal analysis, the Bank determined that a loss pertaining to the
cattle portion of the credit was eminent. Accordingly, management recorded a
charge off in the amount of $300,000 during the fourth quarter of 1999, which
represented the Bank's portion of the total loss. In addition, the
remaining dairy herd has been sold with all proceeds delivered to the Bank.
Management anticipates receiving deed in lieu of foreclosure on the remaining
real estate. Management is in negotiations with an interested third party
for a lease with an option to purchase. Management does not consider any of
the remaining non-performing loans to pose any significant risk to the
capital position or future earnings of the Company.
Commercial, financial and agricultural loans are classified as nonaccrual when
the loans become 90 days or more past due, and all other loans 120 days or
more past due. In addition, a loan may also be classified as nonaccrual if,
in the opinion of management, doubts as to the collectibility of the account
arise prior to reaching certain past due parameters. At the time the account
is placed on nonaccrual status, all previously accrued interest is charged
against current earnings. At the time the accrual of interest is
discontinued, futures income is recognized only when cash is received.
Non-performing loans as a percentage of total loans at December 31, 1999 was
1.4% compared to 1.2% at December 31, 1998, the increase is due principally to
an increase in nonaccrual loans, which increased $655,000 during the period.
Management does not believe the increase in nonaccrual loans or any of the
accounts classified as non-performing will have a significant effect on
operations or liquidity during 2000. Exclusive of the dairy farm credit
mentioned above, nonaccrual loans, total non-performing and restructured loans
and total non-performing assets at December 31, 1999 would have been $1.2
million, $1.3 million and $1.6 million respectively. Non-performing and
restructured loans as a percentage of total loans would be 0.7% and
non-performing assets as a percentage of total assets would be 0.7%.
Management is not aware of any trends or uncertainties related to any loans
classified as doubtful or substandard which might have a material effect on
future earnings, liquidity or capital resources. In addition, management is
not aware of any information pertaining to material credits, which would cause
it to doubt the ability of such borrowers to comply with the loan repayment
terms.
32
<PAGE>
The risk of loan losses is one of the inherent risks associated with lending.
Management recognizes and experience indicates, that at any point in time,
possible losses may exist in the loan portfolio. Therefore, based upon
management's best estimate, each year provisions are charged against earnings
to maintain the allowance for loan losses a level sufficient to recognize this
potential risk. For 1999, management provided $720,000 to the allowance for
loan losses.
In determining the level at which the allowance for loan losses should be
maintained, management relies on in-house quarterly reviews of significant
loans and commitments outstanding, including a continuing review of problem or
non-performing loans and overall portfolio quality. Based upon this
evaluation, allocations of the current allowance are made, with accounts not
subject to specific review having fixed factors applied. The unallocated
portion of the allowance is then assessed to determine if it is deemed
sufficient to absorb any unidentified losses. A quarterly report is
presented to and approved by the Board of Directors.
To further monitor and assess the risk characteristics of the loan portfolio,
loan delinquencies are reviewed to consider any developing problem loans.
Based upon the procedures in place, considering past charge-offs and
recoveries and assessing the current risk element in the portfolio,
management believes the allowance for loan losses at December 31, 1999 is
adequate. Management believes the allowance can be allocated to commercial,
real estate and consumer categories as follows:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------------- ------------------ ------------------- ------------------- -------------------
% of % of % of % of % of
Loans in Loans in Loans in Loans in Loans in
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 256 9.7 % $ 249 9.8 % $ 269 11.6 % $ 139 12.8 % $ 169 10.8 %
Real estate construction - 2.5 - 1.7 - 1.6 - 1.0 - 2.4
Real estate mortgage 528 74.7 279 69.7 247 67.5 315 66.7 196 66.6
Consumer 449 13.1 298 18.8 271 19.3 299 19.5 312 20.2
Unallocated 448 - 584 - 512 - 424 - 421 -
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
$ 1,681 100.0 % $ 1,410 100.0 % $ 1,299 100.0 % $ 1,177 100.0 % $ 1,098 100.0 %
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
DEPOSITS
The following table presents average deposits by type and the average
interest rates paid as of 1999, 1998 and 1997:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------
1999 1998 1997
---------------------- ---------------------- ----------------------
(Dollars in thousands)
Average Average Average
Average Rate Average Rate Average Rate
Balance Paid Balance Paid Balance Paid
---------- ------ --------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Non interest-bearing
demand $ 32,699 - % $ 29,910 - % $ 26,195 - %
Interest-bearing demand 25,691 1.69 24,052 2.17 22,780 2.16
Money market 25,994 3.50 22,694 3.82 23,842 3.83
Savings 22,324 2.14 20,736 2.45 18,709 2.47
Time 91,512 5.32 88,928 5.68 81,840 5.59
---------- --------- -----------
Total $ 198,220 4.04 % $ 186,320 4.44 % $ 173,366 4.38 %
========== ====== ========= ====== =========== ======
</TABLE>
The following table presents the maturity schedule of time deposits of
$100,000 and over:
Three months or less $ 7,507
Over three through six months 3,655
Over six months through twelve months 5,655
Over twelve months 6,782
------------
Total $ 23,599
============
33
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to fourth quarter 1995, the Company's common stock was traded locally.
There was no established public trading market for Slippery Rock Financial
Corporation's common stock at that time. During the fourth quarter of 1995,
the Company began trading its stock in the local over-the-counter market
through the National Association of Securities Dealers OTC "Bulletin Board"
system, which is its automated system for reporting non-NASDAQ quotes and the
National Quotation Bureau's "Pink Sheets." Price quotations reflect
inter-dealer prices, without retail mark-up, markdown or commission and may
not represent actual transactions. The Company uses the following firms in
establishing a market for its stock:
Legg Mason Wood Walker Pittsburgh, PA
F. J. Morrissey & Co Philadelphia, PA
Monroe Securities, Inc. Rochester, NY
Ryan Beck & Co. West Orange, NJ
The following table summarizes the high and low prices and dividend
information since January 1, 1998. Prices are based on information made
available to the Company. Cash dividends were declared on a quarterly basis.
Pricing and dividends have been adjusted for the effect of a two for one
split in December 1998.
<TABLE>
<CAPTION>
1999 1998
------------------------------------- ---------------------------------------------
Stock Price Stock Price
----------------------- Dividend ----------------------------- Dividend
High Low Declared High Low Declared
----------------------- ---------- ----------------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $ 28.00 24.50 $ 0.09 $ 25.00 $ 21.88 $ 0.075
Second Quarter 25.75 22.00 0.09 25.50 23.25 0.080
Third Quarter 27.00 23.00 0.09 27.18 23.25 0.085
Fourth Quarter 25.50 23.00 0.16 26.00 21.75 0.150
</TABLE>
The Company paid cash dividends of $0.43 and $0.39 per shares in 1999 and
1998 respectively, after adjustment for the stock split in 1998. It is the
present intention of the Company's Board of Directors to continue the
dividend payment policy; however, future dividends must depend upon earnings,
financial condition and any other factors relevant at the time the Board of
Directors consider such dividends. Cash available for dividend distributions
to shareholders of the Company must initially come from dividends paid by the
Bank to the Company. Therefore, any restrictions on the Bank's dividend
payments are directly applicable to the Company.
As of December 31, 1999, the Company had approximately, 653 shareholders of
record.
34
List of Subsidiaries
The First National Bank of Slippery Rock
35
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1999
<CASH> 10,068
<INT-BEARING-DEPOSITS> 38
<FED-FUNDS-SOLD> 1,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 26,600
<INVESTMENTS-CARRYING> 2,973
<INVESTMENTS-MARKET> 2,986
<LOANS> 183,142
<ALLOWANCE> 1,681
<TOTAL-ASSETS> 233,019
<DEPOSITS> 197,124
<SHORT-TERM> 9,000
<LIABILITIES-OTHER> 982
<LONG-TERM> 304
0
0
<COMMON> 692
<OTHER-SE> 24,917
<TOTAL-LIABILITIES-AND-EQUITY> 233,019
<INTEREST-LOAN> 14,695
<INTEREST-INVEST> 1,472
<INTEREST-OTHER> 452
<INTEREST-TOTAL> 16,619
<INTEREST-DEPOSIT> 6,694
<INTEREST-EXPENSE> 6,797
<INTEREST-INCOME-NET> 9,822
<LOAN-LOSSES> 722
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,485
<INCOME-PRETAX> 4,353
<INCOME-PRE-EXTRAORDINARY> 4,353
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,097
<EPS-BASIC> 1.12
<EPS-DILUTED> 1.12
<YIELD-ACTUAL> 8.14
<LOANS-NON> 2,526
<LOANS-PAST> 93
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,410
<CHARGE-OFFS> 523
<RECOVERIES> 74
<ALLOWANCE-CLOSE> 1,681
<ALLOWANCE-DOMESTIC> 1,224
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 457
</TABLE>
NOTICE OF ANNUAL
MEETING OF SHAREHOLDERS
AND PROXY
STATEMENT
SLIPPERY ROCK FINANCIAL CORPORATION
100 SOUTH MAIN STREET
SLIPPERY ROCK, PENNSYLVANIA 16057-1245
To be held April 18, 2000
Mailed to Shareholders March 31, 2000
<PAGE>
SLIPPERY ROCK FINANCIAL CORPORATION
100 SOUTH MAIN STREET
SLIPPERY ROCK, PENNSYLVANIA 16057-1245
(724) 794-2210
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders:
NOTICE IS HEREBY GIVEN that pursuant to the call of its Board of
Directors, the Annual Meeting of Shareholders of Slippery Rock Financial
Corporation will be held at the Slippery Rock Township Building, 155 Branchton
Road, Slippery Rock, Pennsylvania 16057, on Tuesday, April 18, 2000, at 7:00
p.m., prevailing time, for the purpose of considering and voting on the
following matters:
1. Election of four directors for a term of three years.
2. Such other business as may properly come before the meeting or
any adjournment thereof.
Only those shareholders of record at the close of business on March 10,
2000 shall be entitled to receive notice of and to vote at the meeting. A
Proxy Statement, a form of proxy and self-addressed envelope are enclosed.
Complete, date and sign the proxy. Return it promptly in the envelope which
requires no postage if mailed in the United States. If you attend the
meeting, you may withdraw your proxy and vote in person.
This Notice, the accompanying Proxy Statement and form of proxy are sent
to you by order of the Board of Directors.
Eleanor L. Cress
Secretary
Slippery Rock, Pennsylvania
March 31, 2000
2
<PAGE>
PROXY STATEMENT
INTRODUCTION
The Proxy Statement and enclosed proxy are being mailed to the
shareholders of Slippery Rock Financial Corporation (the "Corporation"), on or
about March 31, 2000, in connection with the solicitation of proxies by the
Board of Directors of the Corporation. The proxies will be voted at the
Annual Meeting of the Shareholders to be held on April 18, 2000, at 7:00 p.m.,
prevailing time, at the Slippery Rock Township Building, 155 Branchton Road,
Slippery Rock, Pennsylvania 16057. Proxies may be revoked at will at any time
before they have been exercised by filing with the Secretary of the
Corporation an instrument of revocation, by submitting a duly executed proxy
bearing a later date or by appearing at the Annual Meeting and giving notice
of intention to vote in person. Proxies solicited hereby may be exercised
only at the Annual Meeting and any adjournment or postponement thereof and
will not be used for any other meeting.
The costs of the solicitation of proxies will be borne by the
Corporation. In addition to the use of the mails, directors and officers of
the Corporation may solicit proxies, without additional compensation, by
telephone or telegraph. Arrangements may be made by the Corporation with
banks, brokerage houses and other custodians, nominees and fiduciaries to
forward solicitation material to the beneficial owners of shares held by them
of record, and the Corporation may reimburse them for reasonable expense they
incur in so doing.
The Corporation's Annual Report for the year ended December 31, 1999, is
enclosed with this Proxy Statement. It should not be regarded as proxy
solicitation material.
VOTING SECURITIES
As of the close of business on March 10, 2000 (the "Record Date"), there
were outstanding 2,769,048 shares of Common Stock of the Corporation ("Common
Stock"), the only class of capital stock of the Corporation outstanding and
entitled to vote. Only shareholders of record as of the close of business on
the Record Date are entitled to receive notice of and to vote at the Annual
Meeting. Each shareholder is entitled to one vote for each such share held.
BENEFICIAL OWNERSHIP BY CERTAIN PERSONS AND MANAGEMENT
There is set forth below information with respect to the beneficial
ownership, as of the Record Date, of certain persons, including directors and
nominees for director, of shares of the Common Stock.
1
<PAGE>
Name of Beneficial Amount and Nature Percent of Class
- ------------------ ----------------- ----------------
Owner of Ownership
- ----- ------------
(1)(2)
John W. Conway
Slippery Rock, Pennsylvania 95,080 3.4%
Grady W. Cooper
St. Cloud, Florida 378,584 13.7%
Robert M. Greenberger
Butler, Pennsylvania 5,664 *
Robert E. Gregg
Grove City, Pennsylvania 10,911 (3)(4) *
William D. Kingery
New Wilmington, Pennsylvania 5,208 (3) *
Paul M. Montgomery
Slippery Rock, Pennsylvania 53,776 (3) 1.9%
S. P. Snyder
Slippery Rock, Pennsylvania 40,902 (3) 1.5%
William C. Sonntag
Slippery Rock, Pennsylvania 17,653 (5) *
Charles C. Stoops, Jr.
Pittsburgh, Pennsylvania 87,416 3.2%
Norman P. Sundell
Slippery Rock, Pennsylvania 9,112 (3) *
Kenneth D. Wimer
Grove City, Pennsylvania 33,784 (3) 1.2%
Officers, Directors and
Nominees for Directors 774,679 28.0%
as a Group (6)
- -------------
*Less than l%
(l) The securities "beneficially owned" by an individual are determined
in accordance with the definition of "beneficial ownership" set forth
in the General Rules and Regulations of the Securities and Exchange
Commission ("SEC") and may include securities owned by or for the
individual's spouse and minor children and any other relative who has
the same home, as well as securities to which the individual has or
shares voting or investment power or has the right to acquire
beneficial ownership within sixty (60) days after the Record Date.
Beneficial ownership may be disclaimed as to certain of the securities.
2
<PAGE>
(2) Information furnished by the Directors and Officers and the Corporation.
(3) Includes shares of Common Stock which may be acquired within 60 days by
exercise of stock options granted pursuant to the Non-Employee
Directors Stock Option Plan approved in 1997. Shares of Common Stock
which are subject to stock options are deemed to be outstanding for
computing the percentage of Common Stock owned by such person, but
are not deemed to be outstanding for the purpose of computing the
percentage of any other person. The number of such shares included
above are as follows:
Mr. Snyder, 600 shares; Mr. Wimer, 1,200 shares; Mr. Sundell, 600
shares; Mr. Gregg, 1,200 shares; Mr. Kingery, 1,200 shares;
Mr. Montgomery, 600 shares.
(4) Includes voting power of attorney over 3,689 shares owned by members of
Mr. Gregg's family.
(5) Includes 1,333 shares of Common Stock which may be acquired within
sixty (60) days by exercise of stock options granted to Mr. Sonntag
pursuant to the Employee Incentive Stock Option Plan approved in 1997.
(6) The group consists of 14 persons, as of the Record Date, being two
officers of the Corporation, one executive officer of The First
National Bank of Slippery Rock (the "Bank"), directors and nominees
for director.
PRINCIPAL HOLDERS OF STOCK
Except as set forth in the following table, no person is known to the
Corporation's management to own of record or beneficially 5% or more of the
outstanding Common Stock as of the Record Date:
3
<PAGE>
Common Stock
Name and Address --------------------------
of Beneficial Owner Amount Percentage
- ------------------- --------- ------------
Grady W. Cooper
St. Cloud, Florida 34769 378,584 13.7%
ELECTION OF DIRECTORS
The Corporation's Articles of Incorporation provide that there shall be
three classes of directors as nearly equal in number as possible, each class
being elected for a three-year term and only one class being elected each year
beginning in 1993. The total number of directors shall be that number from
time to time determined by a resolution adopted by a majority vote of the
directors then in office or by resolution of the shareholders at a meeting
thereof. There shall be not less than five directors. The number of
directors for 2000 has been set at 11.
The Board of Directors has nominated Messrs. Robert M. Greenberger, Paul
M. Montgomery, William C. Sonntag and Norman P. Sundell for election as Class
II directors for three-year terms to expire at the 2003 Annual Meeting of
Shareholders, or until their successors are duly elected and qualified. All
Class II directors were elected by the shareholders at the 1997 Annual
Meeting. The remaining seven directors will continue to serve in accordance
with their prior election with the terms of the Class III and Class I
directors expiring in 2001 and 2002, respectively.
Each shareholder has one vote for each share registered in his or her
name, and there are no cumulative voting rights. Unless authority is withheld
as to a particular nominee or as to all nominees, all proxies will be voted
for the nominees listed below. Directors shall be elected by a plurality of
votes cast at the meeting by holders of stock present and entitled to vote
thereat. Votes marked "WITHHOLD AUTHORITY" in the election of directors are
counted toward a quorum but have no effect on the outcome of the election.
It is intended that shares represented by proxies will be voted for the
nominees listed below, each of whom is now a director of the Corporation and
each of whom has expressed his willingness to serve, or for any substitute
nominee or nominees designated by the Board of Directors in the event any
nominee or nominees become unavailable for election. The four persons
receiving the highest number of votes for Class II directors will be elected.
The Board of Directors has no reason to believe that any of the nominees will
not serve if elected.
In the following tables are set forth as to each of the nominees for
election as Class II directors and as to each of the continuing Class III and
Class I directors his age, principal
4
<PAGE>
occupation and business experience, the period during which he has served as a
director of the Corporation, the Bank or an affiliate and other business
relationships as of the Record Date. There are no family relationships
between any of the persons listed below except Mr. Cooper and the Messrs.
Wimer are first cousins.
NOMINEES FOR ELECTION AS
CLASS II DIRECTORS
Terms Expire in 2003
Directorship
in other
Name and Principal Director Reporting
Occupation (1) Age Since (2)(3) Companies
- ------------- ----- ------------ -----------
Robert M. Greenberger 63 1995 None
Owner and President,
Harry Products, Inc.,
parent firm of Warehouse
Sales and Trader
Horn, Retail Sales
Paul M. Montgomery 75 1971 None
Retired, former
President of the
Bank
William C. Sonntag 51 1989 None
President and Chief
Executive Officer of
the Corporation and
Bank
Norman P. Sundell 56 1987 None
Vice Chairman,Partner,
Sundell Auto Specialties
THE BOARD OF DIRECTORS RECOMMENDS THE ABOVE NOMINEES BE ELECTED.
5
<PAGE>
CLASS I DIRECTORS
TERMS EXPIRE IN 2002
Directorship
in other
Name and Principal Director Reporting
Occupation (1) Age Since (2)(3) Companies
- -------------- ----- ------------ -------------
John W. Conway 75 1961 None
Vice Chairman,
Retired, former
Executive Vice
President of the Bank
William D. Kingery 46 1995 None
Vice President and
Treasurer, Springfield
Restaurant Group
Charles C. Stoops, Jr. 66 1984 None
Retired, former General Tax
Counsel, Rockwell
International Corp.
CLASS III DIRECTORS
TERMS EXPIRE IN 2001
Directorship
in other
Name and Principal Director Reporting
Occupation (1) Age Since (2)(3) Companies
- -------------- ----- ------------ -------------
Grady W. Cooper 77 1966 None
Chairman of the Board,
retired, former President
of Cooper Brothers, Inc.
Building Supplies
Robert E. Gregg 58 1987 None
Partner, Spring
Meadows Farms
S. P. Snyder, 67 1966 None
Retired, former
Owner and Partner,
Snyder Bus Company
Kenneth D. Wimer 73 197 None
Retired, former
Manager, Cooper
Brothers, Inc.
Building Supplies
6
<PAGE>
(l) All directors and nominees have held the positions indicated
or another senior executive position with the same entity or one of
its affiliates or predecessors for the past five years.
(2) Reflects the earlier of the first year as a director of the
Corporation or the Bank.
(3) All incumbent directors were elected by the shareholders.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Corporation has various committees
including a Personnel and Salary Committee and an Audit Committee. During the
year 1999 the Board of Directors of the Corporation held 5 meetings and the
Board of Directors of the Bank held 12 meetings. The Audit Committee held 11
meetings. The Audit Committees of the Corporation and the Bank comprise the
same persons, and all meetings were jointly held. Each director attended at
least 75% of the combined total of meetings of the Board of Directors and each
committee of which he was a member except Mr. Montgomery who attended 65% of
such meetings.
The Audit Committee is responsible for recommending to the Board of
Directors the appointment of independent public accountants to audit the books
and accounts of the Corporation and its subsidiaries; reviewing the reports of
the Audit Department and the reports of examination conducted by bank and bank
holding company regulators and of independent public accountants; reviewing
the adequacy of internal audit and control procedures; and reporting to the
Board of Directors. The Audit Committee is presently comprised of Messrs.
Gregg, Montgomery, Snyder and Wimer who also constitute the Audit Committee of
the Bank.
The Loan Review Committee consists of Messrs. Gregg, Montgomery, Snyder
and Sundell. The Committee met 4 times in 1999.
The Corporation presently does not have a separate Nominating Committee.
The Personnel and Salary Committee of the Bank, consisting of Messrs. Cooper,
Greenberger, Kingery, Snyder, Stoops and Sundell met 3 times in 1999. Mr.
Sonntag is ex-officio member of all committees.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Directors were paid $950.00 for each Board meeting for January through
June and $1,000.00 for each Board meeting for July through December 1999. A
total of $118,700 was paid as Directors fees in 1999.
7
<PAGE>
The Corporation has a Non-Employee Director Stock Option Plan
which was approved by the Board of Directors and adopted by the Shareholders
at the 1997 meeting. Options to purchase up to 72,000 shares of Common Stock
may be granted to directors of the Corporation or any subsidiary who are not
employees of the Corporation or a subsidiary. Under the terms of the Plan, a
compensatory stock option to purchase 600 shares of Common Stock is
automatically granted to each non-employee director as of September 30 of each
year, beginning September 30, 1997 and ending on September 30, 2006. The
option price is the fair market value per share of common stock on the date of
the grant. All options are vested on the date of the grant, but none shall be
exercisable after the expiration of 10 years from the date of the grant.
Information with respect to the number of options held by directors is set
forth under "Beneficial Ownership by Certain Persons and Management".
EXECUTIVE COMPENSATION
The following persons are considered to be Executive Officers of the
Corporation by virtue of their position with the Corporation or the Bank.
Name Age Position Business Experience(1)
---- --- -------- -------------------
William C. Sonntag 51 President and Chief
Executive Officer
of the Corporation
and the Bank
Mark A. Volponi 38 Treasurer of the
Corporation and
Controller of the Bank
Eleanor L. Cress 60 Secretary of the
Corporation and
Vice President and
Secretary of the Bank
Dale R. Wimer 54 Executive Vice
President of the Bank
(l) Each of the above persons, has held an executive position with the
Corporation or the Bank for the past five years.
The following table sets forth the cash compensation paid or to be paid
by the Bank during 1999 to Mr. Sonntag, the Chief Executive Officer. No other
officer's compensation exceeded $100,000. The Corporation pays no salaries or
benefits.
8
<PAGE>
SUMMARY COMPENSATION TABLE
Annual Compensation (l)(2)
Name and
Principal Number of All Other Annual
Position Year Salary Bonus Stock Options(4) Compensation(4)
- --------- ---- ------ ----- ---------------- ---------------
William C. 1999 $101,500 $31,198 4,000
Sonntag, 1998 $ 95,508 $30,309 4,000(5) -
President and 1997 $ 90,504 $29,166 4,000(5) -
Chief Executive
Officer (3)
(l) Information with respect to group life, health, hospitalization and
medical reimbursement plans is not included as they do not
discriminate in favor of officers or Directors and are available
generally to all salaried employees.
(2) Information with respect to the Bank's Employees Retirement Plan is
not included as it is a fixed benefit plan available to all salaried
employees on the same terms and conditions.
(3) Does not include amounts attributable to miscellaneous benefits. In
the opinion of management of the Corporation, the cost of providing
such benefits during 1999 did not exceed the lesser of $50,000 or 10%
of Mr. Sonntag's total salary and bonus.
(4) The Corporation has no restricted stock or other long-term incentive
plans. The Board of Directors approved an Employees Incentive Stock
Option Plan which was approved and adopted by Shareholders at the
1997 meeting. Information with respect to grants made pursuant to
this plan is set forth below.
(5) Restated to reflect a two for one stock split in December, 1998.
COMPENSATION COMMITTEE REPORTS ON EXECUTIVE COMPENSATION
The Personnel and Salary Committee of the Bank, acting as a compensation
committee, has the responsibility to recommend to the Bank's Board of
Directors the compensation of the Chief Executive Officer and other persons
who are deemed to be principal officers of the Bank. The Corporation pays no
salaries. The Committee also evaluates performance of management and
considers management's success, planning and related matters. The Committee
reviews with the Bank's Board of Directors all aspects of the compensation of
the highest paid officers, including stock option grants.
A salary plan is reviewed for consistency with industry peer group
surveys. The peer group consists of banks within the area of similar assets,
size and additional banks elsewhere within the same asset range. Judgments
are made with respect to the value contributed to the corporation and the Bank
by the various officer's positions, including the Chief Executive Officer.
9
<PAGE>
Individual salary levels and option awards are based on relative importance of
the job, individual performance of each officer in those positions and the
contribution that person has made to the Corporation during the year.
As a result of these reviews, salary increases and option grants are
determined by the Board of Directors. Management of the Bank determines
salary and increases for all other officers and employees based upon
performance.
Submitted by Messrs. Cooper, Greenberger, Kingery, Snyder, Stoops and
Sundell.
COMPENSATION ACCORDING TO PLANS
RETIREMENT PLAN
All eligible employees of the Bank are covered by a Defined Benefit
Pension Plan (the "Plan"). The Plan is a non-contributory, defined benefit
pension plan which provides a normal retirement benefit based upon each
participant's years of service with the Bank and the participant's average
monthly compensation, which is defined as the compensation converted to a
monthly amount and averaged over five (5) consecutive calendar years which
produces the highest monthly average within the last ten (10) completed years
of service.
Benefits are equal to 35% of average monthly compensation plus 22% of
average monthly compensation in excess of one-twelfth (1/12) of covered
compensation. "Covered Compensation" is defined as a 35 year average of the
Social Security Taxable Wage Basis in effect for each calendar year ending
with the last day of each calendar year in which a participant reaches normal
retirement age. Employees are fully vested after five or more years of
service. Actuarial equivalent benefits will be paid upon early retirement,
death or disability. An employee will receive his or her vested portion if
employment is terminated for any other reason. Employees are eligible at age
21 years and completion of one (1) year of service. Directors are not
entitled to benefits under the Retirement Plan unless they are also active
employees of the Bank. The following table sets forth the estimated annual
benefits payable to an employee retiring in 1999 under the Plan reflecting
applicable limitations under Federal tax laws.
10
<PAGE>
AVERAGE ANNUAL
COMPENSATION YEARS OF SERVICE AT RETIREMENT
10 20 30 40
$ 60,000 $ 8,400 $16,800 $21,000 $21,000
$ 80,000 $12,696 $25,392 $31,740 $31,740
$105,000 $18,396 $36,792 $45,990 $45,990
$130,000 $24,096 $48,192 $60,240 $60,240
$155,000 $29,796 $59,592 $74,490 $74,490
$180,000 $30,936 $61,872 $77,340 $77,340
As of December 31, 1999, Mr. Sonntag had been credited with 24 years of
service for purposes of the retirement plan. The approximate accrued benefit
at age 65 (or retirement if later) based on years of credited service is
$35,024 for Mr. Sonntag. Covered compensation is based on salary shown in the
Summary Compensation Table.
401(K) SAVINGS PLAN
Employees who have reached age 21 and completed one (1) year of service
(1,000 hours) are eligible to participate in the Bank's 401(k) Savings Plan.
This is a participant salary reduction plan wherein a participant may elect to
have a percentage of his or her salary (up to maximum legal limits) reduced.
Such amounts are immediately fully vested. The Bank makes an annual matching
contribution equal to a percentage of salary reduction. Currently, the
maximum matching contribution is 2% of salary.
Employer contributions are fully vested after five years eligible service.
11
<PAGE>
Investment gains and losses are allocated on the last day of the Plan
year (December 31) as follows:
Market Value of
Employee's Account
Employee's Share = x Net gain or loss to be allocated
-------------------
Market Value of all
Participant's Accounts
A participant is entitled to receive 100% of his or her account balance
at normal retirement (later of age 65 or 10th anniversary of participation).
Payments are also made on early retirement, late retirement, death or
disability. Only the vested portion is paid on termination for any other cause.
STOCKHOLDERS RETURN PERFORMANCE
Set forth below is a graph comparing the yearly percentage change in the
cumulative total shareholder return on the Corporation's Common Stock
against the cumulative total return of S&P 500 Total Return Stock Index and
Peer Group Index for the five years beginning January 1, 1995 and ending
December 31, 1999. Each assumes an investment of $100 on December 31, 1994
and retention of dividends when paid.
(Graph belongs in this area)
Valued at December 31
1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ ------
Corporation (1)) $100 $148.45 $229.22 $253.04 $289.47 $288.57
S&P 500 (2) $100 $137.45 $168.92 $225.21 $289.43 $350.26
Peer Group (2) $100 $119.92 $143.00 $204.73 $222.57 $209.45
(1) Data based upon appraised values for 1997, 1998 and 1999 and market
sales for prior years.
(2) Data obtained from Tucker Anthony Cleary Gull
12
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning the grant
of stock options to Mr. Sonntag during fiscal 1999.
Percent of
Total Options Exercise
Options Granted to Price Expiration
Name Granted(#) Employees ($/Share)(1) Date
- ---- ---------- ------------- ------------ ----------
William C.
Sonntag 4,000 22.1% $19.30 9/30/09
(1) Based upon a market value of $19.30 per share on September 30, 1999
pursuant to an independent appraisal as of that date.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND YEAR END OPTION VALUES
--------------------------------------
The following table sets forth certain information concerning exercise
of stock options granted pursuant to the Employees Incentive Stock
Option Plan by Mr. Sonntag during the year ended December 31, 1999 and
options held at December 31, 1999.
<TABLE>
<CAPTION>
Shares
Acquired Number of Unexercised Value of Unexercised
on Value Options at 12/31/99 Options at12/31/99
Name Exercise Realized Exercisable Unexercisable Exercisable(1) Unexercisable(1)
- ---- -------- -------- ----------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
William
C. Sonntag 0 0 1,333 10,667 $ 5,332.00 $7,468.00
</TABLE>
(1) Based upon a market value of $18.50 per share on December 31, 1999
pursuant to an independent appraisal as of the date.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Corporation's officers,
directors and persons owning more than 10% of the Corporation's Common Stock
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission ("SEC"). Officers, directors and such shareholders are
required by regulation to furnish the Corporation with copies of all Section
16(a) forms they file. Except as set forth above in "Principal Holders of
Stock", the Corporation knows of no person who owned 10% or more of its Common
Stock.
Based upon review of copies of the forms furnished to the Corporation,
the Corporation believes that during 1999 all Section 16(a) filing
requirements were complied with in a timely manner except Mr. Cooper was late
in filing a Form 4. This report has been filed.
13
<PAGE>
TRANSACTIONS WITH MANAGEMENT
Certain directors, nominees and executive officers and/or their
associates were customers of and had transactions with the Corporation or the
Bank during 1999. Transactions which involved loans or commitments by the
Bank were made in the ordinary course of business and on substantially the
same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons and did not involve
more than normal risk of collectability or present other unfavorable features.
AUDITORS
S. R. Snodgrass, A.C. has audited the Corporation's financial statements
for the fiscal year ended December 31, 1999, and the report on such financial
statements appears in the Annual Report to Shareholders. S. R. Snodgrass,
A.C. has been selected by the Board of Directors to perform an examination of
the consolidated financial statements of the Corporation for the year ending
December 31, 2000.
FINANCIAL INFORMATION
A copy of the Corporation's Annual Report to Shareholders for the year
ended December 31, 1999 accompanies this Proxy Statement. Such Annual Report
is not a part of the proxy solicitation materials.
REQUESTS FOR PRINTED FINANCIAL MATERIAL FOR THE CORPORATION OR ANY OF ITS
SUBSIDIARIES - ANNUAL OR QUARTERLY REPORTS, FORMS 10-K AND 10-Q AND CALL
REPORTS AND A LIST OF EXHIBITS - SHOULD BE DIRECTED TO MARK A. VOLPONI,
TREASURER, 100 SOUTH MAIN STREET, SLIPPERY ROCK, PA 16057-1245, TELEPHONE
(724) 794-2210. UPON WRITTEN REQUEST AND PAYMENT OF A COPYING FEE OF TEN
CENTS A PAGE, THE CORPORATION WILL ALSO FURNISH A COPY OF ALL EXHIBITS TO THE
FORM 10-K.
SHAREHOLDERS PROPOSALS FOR NEXT ANNUAL MEETING
Any eligible shareholder desiring to present a proposal pursuant to Rule
14a-8 promulgated by the SEC to be considered at the 2001 Annual Meeting of
Shareholders should submit the proposal in writing to: William C. Sonntag,
President, Slippery Rock Financial Corporation, 100 South Main Street,
Slippery Rock, PA 16057-1245 no later than November 26,2000. A shareholder
wishing to submit a proposal other than pursuant to Rule 14a-8 must notify the
Corporation no later than February 15, 2001. In the absence of timely notice,
management will exercise its discretionary power in voting on any such matter.
14
<PAGE>
OTHER MATTERS
The Board of Directors knows of no other matters to be presented at the
meeting. If, however, any other business should properly come before the
meeting, or any adjournment thereof, it is intended that the proxy will be
voted with respect thereto in accordance with the best judgment of the persons
named in the proxy.
By Order of the Board of Directors,
------------------------------
Eleanor L. Cress
Secretary
15
<PAGE>
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS OF
SLIPPERY ROCK FINANCIAL CORPORATION
The undersigned shareholder(s) of SLIPPERY ROCK FINANCIAL CORPORATION,
Slippery Rock, Pennsylvania (the "Corporation") do(es) hereby appoint Paul E.
Mershimer and Terry D. Dambaugh, or either one of them my (our) true
attorney(s) with full power of substitution, for me (us) and in my (our)
name(s), to vote all the common stock of the Corporation standing in my (our)
name(s) on its books on March 10, 2000 at the Annual Meeting of Shareholders
of the Corporation to be held at the Slippery Rock Township Building, 155
Branchton Road, Slippery Rock, Pennsylvania 16057, on April 18, 2000, at 7:00
p.m. or any adjournment or postponement thereof as follows:
This will ratify and confirm all that said attorney(s) may do or cause to be
done by virtue hereof. Said attorney(s) is (are) hereby authorized to
exercise all the power that I (we) would possess if present personally at said
meeting or any adjournment(s) thereof. I (we) hereby revoke all proxies by me
(us) heretofore given for any meeting of Shareholders of the Corporation.
Receipt is acknowledged of the Notice and Proxy Statement for said meeting,
each dated March 31,2000.
MAP
16
<PAGE>
THIS PROXY IS CONTINUED ON THE REVERSE SIDE. PLEASE SIGN ON THE REVERSE SIDE
AND RETURN PROMPTLY.
Mark an "X" in the box below to indicate your vote.
1. Election of Class II Directors for a three year term
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
below (Except as marked to vote for all
to the contrary below) nominees listed below
SPECIAL INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE(S), DRAW A LINE THROUGH THE NOMINEE'S NAME(S) BELOW.
Class II Director for Term Expiring in 2003
-------------------------------------------
Robert M. Greenberger William C. Sonntag
Paul M. Montgomery Norman P. Sundell
2. In accordance with the recommendations of management, to vote upon such
other matters as may properly come before the meeting or any
adjournment or postponement thereof.
IN ABSENCE OF A CONTRARY DIRECTION, THE SHARES REPRESENTED SHALL BE
VOTED IN FAVOR OF ITEM 1 AND IN ACCORDANCE WITH THE RECOMMENDATION OF
MANAGEMENT WITH RESPECT TO ITEM 2.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE
REVOKED PRIOR TO EXERCISE.
If planning on attending the meeting in person, please indicate in
the box below.
[ ] WILL ATTEND Number of Shares held of record
as of March 10, 2000:
------------------
---------------------------------
Signature of Shareholder
--------------------------------
Signature of Shareholder
17
<PAGE>
Dated: Please date and sign exactly as your
-------------------------- name(s) appear(s) hereon. When signing
as attorney, executor, administrator,
trustee, or guardian, etc., you should
indicate your full title. If stock is
in joint name(s), each joint owner
should sign.
18
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Slippery Rock Financial Corporation
We have audited the accompanying consolidated balance sheet of Slippery Rock
Financial Corporation and subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in stockholders' equity,
and cash flows for the three years in the period ended December 31, 1999.
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
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 Slippery
Rock Financial Corporation and subsidiary as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles.
/s/ S.R. Snodgrass, A.C.
Wexford, PA
February 4, 2000
S.R. Snodgrass, A.C.
1000 Stonewood Drive
Suite 200
Wexford, PA 15090-8399
Phone: 724-934-0344
Facsimile: 724-934-0345
19
