SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
SEC File Number 000-23230
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PHS Bancorp, Inc.
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(Exact Name of registrant as specified in its charter)
PENNSYLVANIA 23-2744266
- ------------ ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
744 Shenango Road
P.O. Box 1568
Beaver Falls, Pennsylvania 15010
(724) 846 - 7300
---------------------------
(Address, including zip code, and
telephone number, including area
code of Principal Executive Offices)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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] No [ ]
As of July 23, 1999 there were 2,721,000 shares outstanding of the issuer's
class of common stock.
<PAGE>
PHS BANCORP, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Page
Number
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Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet (unaudited) as of June 30, 1999
and December 31, 1998 3
Consolidated Statement of Income (unaudited) for the Six
Months ended June 30, 1999 and 1998 4
Consolidated Statement of Changes in Stockholders' Equity
(unaudited) for the Six Months ended June 30, 1999 5
Consolidated Statement of Cash Flows (unaudited) for the
Six Months ended June 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 15
Part II Other Information 16 - 17
Signatures 18
2
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PHS BANCORP, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- ----------------
<S> <C> <C>
ASSETS
Cash and amounts due from other institutions $ 1,858,848 $ 2,136,601
Interest - bearing deposits with other institutions 1,968,306 9,332,219
Investment securities:
Available for sale 26,993,685 25,197,294
Held to maturity (market value $ 18,493,498
and $18,581,867) 18,459,971 18,145,662
Mortgage - backed securities:
Available for sale 37,313,583 32,877,841
Held to maturity (market value $ 45,838,448
and $48,767,611) 47,046,663 48,287,244
Loans (net of allowance for loan losses of $1,304,577
and $1,287,496) 110,388,266 99,913,716
Accrued interest receivable 1,521,895 1,516,677
Premises and equipment 4,498,519 4,501,659
Federal Home Loan Bank stock 1,944,800 1,544,800
Other assets 1,437,193 798,957
-------------- ------------
TOTAL ASSETS $ 253,431,729 $ 244,252,670
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 184,608,013 $ 181,112,564
Advances from Federal Home Loan Bank 38,894,800 30,894,800
Other borrowings 141,593 1,387,618
Accrued interest payable and other liabilities 1,998,602 1,673,579
-------------- ------------
Total liabilities 225,643,008 215,068,561
-------------- ------------
Preferred stock, 2,000,000 shares authorized, none issued - -
Common stock, $.10 par value 10,000,000 shares authorized,
2,760,000 shares issued 276,000 276,000
Additional paid in capital 10,568,954 10,588,940
Retained earnings - substantially restricted 18,802,192 18,489,177
Accumulated other comprehensive income (loss) (79,386) 1,088,415
Unallocated ESOP shares (72,660 and 77,460 shares) (1,141,113) (1,215,723)
Unallocated RSP shares (32,917 and 3,713 shares) (378,551) (42,700)
Treasury stock, at cost (25,000 shares) (259,375) -
-------------- -------------
Total stockholders' equity 27,788,721 29,184,109
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 253,431,729 $ 244,252,670
============== =============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
3
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PHS BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
-------------- -------------- ------------- -------------
INTEREST AND DIVIDEND INCOME
<S> <C> <C> <C> <C>
Loans $ 2,171,870 $ 2,077,672 $ 4,234,308 $ 4,160,957
Investment securities:
Taxable 467,968 312,773 926,801 573,905
Exempt from federal income tax 239,367 239,618 472,820 504,849
Mortgage - backed securities 1,390,523 1,265,077 2,754,530 2,512,282
Interest - bearing deposits with other institut 39,944 78,571 99,728 147,882
-------------- -------------- ------------- -------------
Total interest income 4,309,672 3,973,711 8,488,187 7,899,875
-------------- -------------- ------------- -------------
INTEREST EXPENSE
Deposits 1,744,402 1,832,723 3,452,869 3,653,787
Advances from Federal Home Loan Bank 508,131 257,658 969,159 470,349
Other borrowings 26,404 28,526 52,216 53,725
-------------- -------------- ------------- -------------
Total interest expense 2,278,937 2,118,907 4,474,244 4,177,861
-------------- -------------- ------------- -------------
Net interest income 2,030,735 1,854,804 4,013,943 3,722,014
PROVISION FOR LOAN LOSSES 90,000 90,000 185,000 180,000
-------------- -------------- ------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,940,735 1,764,804 3,828,943 3,542,014
-------------- -------------- ------------- -------------
NONINTEREST INCOME
Service charges on deposit accounts 106,318 120,066 204,981 222,538
Investment securities gains, net - - - 116,858
Gain on sale of loans, net - 26,933 - 27,765
Rental income, net 22,134 18,974 44,439 41,109
Other income 30,898 35,402 67,643 77,479
-------------- -------------- ------------- -------------
Total noninterest income 159,350 201,375 317,063 485,749
-------------- -------------- ------------- -------------
NONINTEREST EXPENSE
Compensation and employee benefits 824,688 806,010 1,646,291 1,618,218
Occupancy and equipment costs 272,550 263,384 569,925 510,399
Deposit insurance premium 26,360 26,751 52,933 53,655
Data processing costs 6,924 22,302 21,220 60,926
Other expenses 390,654 390,341 761,325 760,936
-------------- -------------- ------------- -------------
Total noninterest expense 1,521,176 1,508,788 3,051,694 3,004,134
-------------- -------------- ------------- -------------
Income before income taxes 578,909 457,391 1,094,312 1,023,629
Income taxes 158,755 83,677 288,502 213,677
-------------- -------------- ------------- -------------
NET INCOME $ 420,154 $ 373,714 $ 805,810 $ 809,952
============== ============== ============= =============
Earnings Per Share
Basic $ $0.16 $0.14 $ $0.30 $0.30
Diluted $ $0.16 $ N/A $ $0.30 $ N/A
Weighted average number of shares outstanding
Basic 2,678,207 2,678,385 2,681,173 2,681,202
Diluted 2,678,207 N/A 2,681,173 N/A
See accompanying notes to the unaudited consolidated financial statements.
</TABLE>
4
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PHS BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Additional Accumulated Unallocated Unallocated
Paid Other Shares Shares
Common in Retained Comprehensive Held Held Treasury
Stock Capital Earnings Income (Loss) by ESOP by RSP Stock
---------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 $276,000 $10,588,940 $18,489,177 $1,088,415 ($1,215,723) ($42,700) $ 0
Net Income 805,810
Other comprehensive income (loss):
Unrealized gain (loss) on available
for sale securities (1,167,801)
Comprehensive income (loss)
Cash dividends paid (386,400)
Treasury stock purchased, at cost (259,375)
ESOP shares earned (19,986) 74,610
Common stock acquired by RSP (106,395) (400,107)
RSP shares earned 64,256
---------------------------------------------- -----------------------------------
Balance, June 30, 1999 $276,000 $10,568,954 $18,802,192 ($79,386) ($1,141,113) ($378,551) $259,375
============================================== ===================================
</TABLE>
Total
Stockholders' Comprehensive
Equity Income (Loss)
----------------------------
Balance, December 31, 1998 $29,184,109
Net Income $805,810 805,810
Other comprehensive income (loss):
Unrealized gain (loss) on available
for sale securities ($1,167,801) (1,167,801)
---------------
Comprehensive income (loss) ($361,991)
===============
Cash dividends paid ($386,400)
Treasury stock purchased, at cost $0
ESOP shares earned $54,624
Common stock acquired by RSP ($506,502)
RSP shares earned 64,256
------------
Balance, June 30, 1999 $28,048,096
============
See accompanying notes to the unaudited consolidated financial statements.
5
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PHS BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six months ended June 30,
1999 1998
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $805,810 $809,952
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 185,000 180,000
Depreciation, amortization and accretion 257,482 243,524
Amortization of discounts, premiums and
loan origination fees 322,262 539,554
Gains on sale of investment securities, net - (116,858)
Gains on sale of loans, net - (27,765)
Increase (decrease) in loans held for sale (21,934) 1,070,061
Increase in accrued interest receivable (5,218) (11,843)
Increase (decrease) in accrued interest payable (1,574) 76,260
Amortization of ESOP unearned compensation 54,624 94,236
Amortization of RSP unearned compensation 64,256 -
Other, net 185,287 121,750
------------ ----------------
Net cash provided by operating activities 1,845,995 2,978,871
------------ ----------------
INVESTING ACTIVITIES
Investment and mortgage-backed securities available for sale:
Proceeds from sales - 2,259,493
Proceeds from maturities and principal repayments 5,315,716 3,708,306
Purchases (13,309,977) (13,116,911)
Investment and mortgage-backed securities held to maturity:
Proceeds from maturities and principal repayments 26,393,029 8,211,412
Purchases (25,376,117) (10,091,197)
(Increase) decrease in loans receivable, net (11,093,493) 1,860,300
Proceeds from sale of repossessed assets 140,376 306,784
Purchase of premises and equipment, net (254,342) (405,698)
Purchase of Federal Home Loan Bank Stock (400,000) (164,200)
------------ ----------------
Net cash used for investing activities (18,584,808) (7,431,711)
------------ ----------------
FINANCING ACTIVITIES
Net increase in deposits 3,495,449 2,825,449
Advances from Federal Home Loan Bank 8,000,000 5,377,800
Proceeds from other borrowings - 295,111
Repayment of other borrowings (1,246,025) (49,771)
Common stock acquired by ESOP - (448,512)
Common stock acquired by RSP (506,502) -
Cash dividends paid (386,400) (331,200)
Treasury stock purchased (259,375) -
------------ ----------------
Net cash provided by financing activities 9,097,147 7,668,877
------------ ----------------
Increase (decrease) in cash and cash equivalents (7,641,666) 3,216,037
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,468,820 5,696,236
------------ ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $3,827,154 $8,912,273
============ ================
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
6
<PAGE>
PHS Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of PHS Bancorp, Inc. (the ACompany)
include the accounts of Peoples Home Savings Bank (the "Bank") and its
wholly-owned subsidiary, HOMECO (the "Subsidiary"). All significant intercompany
balances and transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with instructions to Form 10-Q and, therefore, do not necessarily
include all information which would be included in audited financial statements.
The information furnished reflects all normal recurring adjustments which are,
in the opinion of management, necessary for the fair statement of the results of
the period. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full year or any
other period. The unaudited consolidated financial statements should be read in
conjunction with the audited financial statements and the notes thereto for the
year ended December 31, 1998.
NOTE 2 - EARNINGS PER SHARE
The Company provides dual presentation of basic and diluted earnings per share.
Basic earnings per share utilizes net income as reported as the numerator, and
the actual average shares outstanding as the denominator. Diluted earnings per
share includes any dilutive effects of options, warrants, and convertible
securities.
Shares outstanding do not include ESOP shares that were purchased and
unallocated in accordance with SOP 93-6, "Employers' Accounting for Stock
Ownership Plans."
7
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
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 which could cause actual results to differ
materially from those projected. Those risks and uncertainties include changes
in interest rates, risks associated with the effect of opening a new branch, the
ability to control costs and expenses, and general economic conditions. The Bank
and the Company undertake 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.
Financial Condition
Total assets at June 30, 1999 increased $9.2 million or 3.8% from December 31,
1998. Increases in investment and mortgage-backed securities of $5.3 million and
loans receivable of $10.5 million were partially offset by a decrease in
interest-bearing deposits with other institutions of $7.4 million.
Loans receivable at June 30, 1999, of $110.4 million represented an increase of
$10.5 million or 10.5% from $99.9 million at December 31, 1998. The growth in
the loan portfolio was primarily attributable to an increase in automobile loans
of $5.5 million. The increase in automobile loans was primarily due to one of
the Bank's primary competitors terminating this type of lending.
Investment and mortgage-backed securities increased $5.3 million to $129.8
million at June 30, 1999, from $124.5 million at December 31, 1998. This
increase was the result of purchases of $38.7 million which were funded by
maturities of $22.2 million, principal repayments of $9.5 million and increased
Federal Home Loan Bank advances and deposits of $8.0 million and $3.5 million
respectively. The purchases funded by fixed rate borrowings were part of the
Bank's leverage strategy.
Total deposits after interest credited at June 30, 1999 were $184.6 million, an
increase of $3.5 million or 1.9% from $181.1 million at December 31, 1998.
Advances from the Federal Home Loan Bank of Pittsburgh increased $8.0 million to
$38.9 million at June, 1999 from $30.9 million at December 31, 1998. This
increase was the result of additional borrowings to fund securities purchases
and increased loan demand, as discussed above.
Other borrowings decreased $1.2 million or 90.0% to 141,000 at June 30, 1999.
This decrease was the result of the Company acquiring the loan on the Bank's
Employee Stock Ownership Plan (ESOP). At December 31, 1998, the ESOP loan was an
obligation to an unaffiliated third party.
Stockholders' equity decreased $1.4 million for the six month period ended June
30, 1999. This decrease was due to a decrease in net unrealized gain on
securities of $1.2 million, increases in unallocated RSP and treasury shares of
$336,000 and $259,000, respectively and cash dividends paid of $386,000. During
the three months ended June 30, 1999, the Company repurchased 25,000 shares of
its common stock at an average price of $10.375 per share. These decreases to
stockholders' equity were partially offset by net income of $806,000.
8
<PAGE>
Results of Operations
Comparison of Operating Results for the Three Months Ended June 30, 1999 and
June 30, 1998.
General.
Net income for the three months ended June 30, 1999 increased by $46,000 to
$420,000, from $374,000 for the three months ended June 30, 1998. This increase
was primarily due to an increase in net interest income of $176,000. This
increase to net income was partially offset by a decrease in non-interest income
of $42,000 and increases in non-interest expense of $12,000 and income tax
provisions of $75,000.
Net Interest Income.
Reported net interest income increased $176,000 or 9.5% for the three months
ended June 30, 1999. Net interest income on a tax equivalent basis increased by
$276,000 or 13.9% in a period when both average interest earning assets and
average interest-bearing liabilities increased (increased $28.4 million and
$28.8 million, respectively). The Bank's net interest rate spread increased 11
basis points (with 100 basis points being equal to 1%) to 3.27% for the three
months ended June 30, 1999. The increase in average earning assets of $28.4
million was primarily due to a $19.5 million increase in average investment and
mortgage-backed securities along with a $8.9 million increase in average loans.
Interest Income.
Interest income on a tax equivalent basis totaled $4.5 million for the three
months ended June 30, 1999, an increase of $438,000 or 10.7% over the total of
$4.1 million for the three months ended June 30, 1998. This increase was mainly
due to an increase in the Bank's average interest-earning assets of $28.4
million for the three months ended June 30, 1999. Interest earned on loans
increased $94,000 or 4.5%, in 1999. The increase was due to an $8.9 million
increase in the average balance of loans partially offset by a 34 basis point
decrease in the yield. Interest earned on investment and mortgage-backed
securities (including securities held for sale) increased $344,000 or 17.0%, in
1999. The increase was due to a $19.5 million increase in the average balance of
investment and mortgage-backed securities along with a 5 basis point increase in
the yield earned.
Interest Expense.
Interest expense increased $162,000 to $2.3 million for the three months ended
June 30, 1999. The increase in interest expense was due to a $28.8 million
increase in the average balance of interest-bearing liabilities due to increased
borrowings pursuant to the Bank's leverage strategy partially offset by a 27
basis point decrease in the average cost of interest-bearing liabilities.
Provision for Losses on Loans.
The provision for loan losses remained at $90,000 for both the three month
periods ended June 30, 1999 and June 30, 1998. While management believes that
the allowance for loan losses is sufficient, there can be no assurance that
regulators, in reviewing the Bank's loan portfolio, will not request the Bank to
significantly increase its allowance for loan losses, or that a deteriorating
real estate market will cause the Bank to significantly increase its allowance
for loans losses, therefore negatively effecting the Bank's financial condition
and earnings.
9
<PAGE>
Non-interest Income.
Non-interest income decreased $42,000 to $159,000 for the three months ended
June 30, 1999, from $201,000 for the three months ended June 30, 1998. This
decrease was primarily due to gains on the sale of loans of $28,000 for the
three months ended June 30, 1998.
Non-interest Expense.
Non-interest expense increased $12,000 to $1,521,000 for the three months ended
June 30, 1999, from $1,509,000 for the three months ended June 30, 1998. This
increase was primarily due to increases in compensation and employee benefits of
$18,000 and occupancy and equipment costs of $10,000 for the three months ended
June 30, 1999. These increases were partially offset by a decrease in data
processing costs of $15,000 for the three months ended June 30, 1999.
Income Tax Expense.
Income tax expense increased $75,000 to $159,000 for the three months ended June
30, 1999, from $84,000 for the three months ended June 30, 1998.
Comparison of Operating Results for the Six Months Ended June 30, 1999 and June
30, 1998.
General.
Net income for the six months ended June 30, 1999 decreased by $4,000 to
$806,000, from $810,000 for the six months ended June 30, 1998. This decrease
was primarily due to a decrease in non-interest income of $169,000 and increases
in non-interest expense of $48,000, loan loss provisions of $5,000 and income
tax provisions of $75,000. These decreases to net income were partially offset
by an increase in net interest income of $292,000.
Net Interest Income.
Reported net interest income increased $292,000 or 7.8% for the six months ended
June 30, 1999. Net interest income on a tax equivalent basis increased by
$376,000 or 9.4% in a period when both average interest earning assets and
average interest-bearing liabilities increased (increased $27.0 million and
$27.2 million, respectively). The Bank's net interest rate spread decreased 3
basis points to 3.20% for the six months ended June 30, 1999. The increase in
average earning assets of $27.0 million was primarily due to a $21.7 million
increase in average investment and mortgage-backed securities along with a $5.3
million increase in average loans.
Interest Income.
Interest income on a tax equivalent basis totaled $8.8 million for the six
months ended June 30, 1999, an increase of $674,000 or 8.3% over the total of
$8.2 million for the six months ended June 30, 1998. This increase was mainly
due to an increase in the Bank's average interest-earning assets of $27.0
million for the six months ended June 30, 1999. Interest earned on loans
increased $73,000 or 1.8%, in 1999. The increase was due to by a $5.3 million
increase in the average balance of loans partially offset by a 28 basis point
decrease in the yield earned. Interest earned on investment and mortgage-backed
securities (including securities held for sale) increased $601,000 or 15.0%, in
1999. The increase was due to a $21.7 million increase in the average balance of
investment and mortgage-backed securities partially offset by a 43 basis point
decrease in the yield earned.
Interest Expense.
Interest expense increased $298,000 to $4.5 million for the six months ended
June 30, 1999. The increase in interest expense was due to a $26.7 million
increase in the average balance of interest-bearing liabilities due to increased
borrowings pursuant to the Bank's leverage strategy partially offset by a 27
basis point
10
<PAGE>
decrease in the average cost of interest-bearing liabilities.
Provision for Losses on Loans.
The provision for loan losses increased by $5,000 to $185,000 for the six months
ended June 30, 1999, from $180,000 for the six months ended June 30, 1998. While
management believes that the allowance for loan losses is sufficient, there can
be no assurance that regulators, in reviewing the Bank's loan portfolio, will
not request the Bank to significantly increase its allowance for loan losses, or
that a deteriorating real estate market will cause the Bank to significantly
increase its allowance for loans losses, therefore negatively effecting the
Bank's financial condition and earnings.
Non-interest Income.
Non-interest income decreased $169,000 to $158,000 for the six months ended June
30, 1999, from $486,000 for the six months ended June 30, 1998. This decrease
was primarily due to gains on the sale of securities and loans of $117,000 and
$28,000 for the six months ended June 30, 1998. There were no securities or loan
gains for the six months ended June 30, 1999.
Non-interest Expense.
Non-interest expense increased $48,000 to $3,052,000 for the six months ended
June 30, 1999, from $3,004,000 for the six months ended June 30, 1998. This
increase was primarily due to increases in occupancy and equipment costs of
$60,000 and compensation and employee benefits of $28,000 for the six months
ended June 30, 1999. These increases were partially offset by a decrease in data
processing costs of $40,000 for the six months ended June 30, 1999. The increase
in occupancy and equipment costs were primarily the result of the in-house
computer system which the Bank converted to during the first quarter of 1998.
Income Tax Expense.
Income tax expense increased $75,000 to $289,000 for the six months ended June
30, 1999, from $214,000 for the six months ended June 30, 1998.
Liquidity and Capital Requirements
Liquidity refers to the Company's ability to generate sufficient cash to meet
the funding needs of current loan demand, savings deposit withdrawals, and to
pay operating expenses. The Company has historically maintained a level of
liquid assets in excess of regulatory requirements. Maintaining a high level of
liquid assets tends to decrease earnings, as liquid assets tend to have a lower
yield than other assets with longer terms (e.g. loans). The Company adjusts
liquidity as appropriate to meet its asset/liability objectives.
The Company's primary sources of funds are deposits, amortization and prepayment
of loans and mortgage-backed securities, maturities of investment securities and
funds provided from operations. While scheduled loan and mortgage-backed
securities repayments are a relatively predictable source of funds, deposit
flows and loan and mortgage-backed securities prepayments are greatly influenced
by interest rates, economic conditions and competition. In addition, the Company
invests excess funds in overnight deposits, which provide liquidity to meet
lending requirements
The primary activity of the Company is originating loans and purchasing
investment and mortgage-backed securities. During the six month periods ended
June 30, 1999, and 1998, the Company originated loans in the amounts of $34.7
and $22.3 million, respectively. The Company also purchases investment and
mortgage-backed securities to invest excess liquidity and to supplement local
loan demand. During the six month periods ended June 30, 1999, and 1998, the
Company purchased investment and mortgage-backed
11
<PAGE>
securities in the amounts of $38.7 and $23.2 million, respectively.
The Company has other sources of liquidity if a need for additional funds
arises, such as FHLB of Pittsburgh advances. At June 30, 1999 the Bank had
borrowed $38.9 million of it's $136.3 million maximum borrowing capacity with a
remaining borrowing capacity of approximately $97.4 million. Additional sources
of liquidity can be found in the Company's balance sheet, such as investment
securities and unencumbered mortgage-backed securities that are readily
marketable. Management believes that the Company has adequate resources to fund
all of its commitments.
The Bank may not declare or pay a cash dividend on any of its stock if the
effect thereof would cause the Bank's regulatory capital to be reduced below (1)
the amount required for the liquidation account established in connection with
the Bank's mutual holding company reorganization and stock issuance, or (2) the
regulatory capital requirements imposed by the Pennsylvania Department of
Banking (the "Department") and the Federal Deposit Insurance Corporation
("FDIC").
Regulatory Capital Requirements.
As a condition of deposit insurance, current FDIC regulations require that the
Bank calculate and maintain a minimum regulatory capital level on a quarterly
basis and satisfy such requirement at the calculation date and throughout the
ensuing quarter.
At June 30, 1999, the Bank's Tier I risk-based and total risk-based capital
ratios were 23.3% and 24.4%, respectively. Current regulations require Tier I
risk-based capital of 6% and total risk - based capital of 10% risk-based assets
to be considered well capitalized. The Bank's leverage ratio was 10.3% at June
30, 1999. Current regulations require a leveraged ratio 5% to be considered well
capitalized.
Impact of Inflation and Changing Prices
The Company's financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money over time due to inflation. Unlike industrial companies, virtually all
of the assets and liabilities of a financial institution are monetary in nature.
As a result, interest rates have a more significant impact on a financial
institution's performance than the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or with the same
magnitude as the prices of goods and services.
Inflation can have a more direct impact on categories of non-interest expenses
such as salaries and wages, supplies and employee benefit costs. These expenses
normally fluctuate more in line with changes in the general price level and are
very closely monitored by management for both the effects of inflation and
increases related to such items as staffing levels, usage of supplies and
occupancy costs.
12
<PAGE>
Year 2000 Compliance
The following discussion of the implications of the year 2000 problem for the
Bank, contains numerous forward looking statements based on inherently uncertain
information. The cost of the project and the completion of the internal year
2000 modifications are based on management's best estimates, which are derived
utilizing a number of assumptions of future events including the availability of
internal and external resources, third party modifications and other factors.
However, there can be no guarantee that these statements will be achieved and
actual results could differ. Moreover, although management believes it will be
able to make the necessary modifications in advance, there can be no guarantee
that failure to modify the systems would not have a material adverse effect on
the Bank or the Company.
During fiscal 1998, the Company adopted a Year 2000 Compliance Plan (the "Plan")
and established a Year 2000 Compliance Committee (the "Committee"). The
objectives of the Plan and the Committee are to prepare the Company for the new
millennium. As recommended by the Federal Financial Institutions Examination
Council, the Plan encompasses the following phases: Awareness, Assessment,
Renovation, Validation and Implementation. These phases enabled the Company to
identify risks, develop an action plan, perform adequate testing and complete
certification that its processing systems will be Year 2000 ready. Execution of
the plan is currently on schedule. The Company has currently completed all
phases of this plan. Prioritization of the most critical applications has been
addressed, along with contract and service agreements.
The primary operating software for the Company is obtained and maintained by an
external provider of software (the "External Provider"). The Company has
maintained ongoing contact with this vendor so that modification of the software
is a top priority and has been completed. The Company has contacted all other
material vendors and suppliers regarding their Year 2000 readiness. Each of
these third parties has delivered written assurance to the Company that they
expect to be Year 2000 compliant prior to the Year 2000. No contracts, written
assurances, or oral assurances with the Bank's External Provider, material
vendors, and suppliers include any type of remedy or penalty for breach of
contract in the event that any of these parties are not year 2000 compliant. The
Company has contacted material customers and non-information technology
suppliers (i.e., utility systems, telephone systems and security systems)
regarding their Year 2000 state of readiness. The only critical vendors that
have not confirmed that they are Year 2000 compliant are the utility companies
and some of our correspondent banks. The Company is unable to test the Year 2000
readiness of its significant suppliers of utilities and is relying on the
utility companies' internal testing and representations to provide the required
services that drive the Bank's data systems.
As a practical matter, individual mortgage loan, consumer loan and small
commercial loan customers were not contacted regarding their Year 2000
readiness. It was deemed to be beyond the scope of our testing parameters to
contact these borrowers. Further, most of these are individuals with adequate
collateral for their loans.
The Company expects to incur internal staffing costs as well as consulting and
other expenses related to testing and enhancements to prepare the systems for
the Year 2000. The Company does not anticipate that the related costs will be
material in any single year. In total, the Company estimates that it's cost for
compliance will amount to approximately $155,000 over the two year period from
1998 - 1999. A significant portion of these costs are not likely to be
incremental costs to the Company, but rather the redeployment of existing
resources. As of June 30, 1999 the Company estimates that approximately $110,000
of these costs have been incurred. No assurance can be given that the Year 2000
Compliance
13
<PAGE>
Plan will be completed successfully by the Year 2000, in which event the Company
could incur significant costs. The Company has completed testing of the software
provided by the External provider and material third party providers. During the
course of this testing, no material problems or exceptions were encountered,
however, if the External Provider or a material third party provider is unable
to resolve the potential problem in time, the Company would likely experience
significant data processing delays, mistakes or failures. These delays, mistakes
or failures could have a significant adverse impact on the financial statements
of the Company.
The Bank is currently developing contingency plans to address the Year 2000
issues of the Bank which could negatively affect the Bank or necessitate
transacting business manually. Among other things, failure of utility companies
to provide necessary service, failure of the primary software and other third
party providers is addressed in the plan. The Bank will attempt to monitor these
uncertainties by continuing to request updates on all critical providers
throughout the remainder of 1999. If the Bank identifies any concern related to
any critical application, the contingency plans will be implemented immediately
to assure continued service to the Bank's customers.
Despite the best efforts of management to address this issue, the vast number of
external entities that have direct and indirect business relationships with the
Bank, such as customers, vendors, payment system providers and other financial
institutions, makes it impossible to assure that a failure to achieve compliance
by one of these entities would not have a material impact on the operations of
the Bank.
Quantitative and Qualitative Disclosures About Market Risk
Quantitative and qualitative disclosures about market risk are presented at
December 31, 1998 in the Company's 1998 Annual Report. See "Market Risk
Analysis". Management believes there have been no material changes in the Bank's
market risk since the data presented in its Annual Report to stockholders for
the year ended December 31, 1998.
14
<PAGE>
Risk Elements
Nonperforming Assets
The following schedule presents information concerning nonperforming assets
including nonaccrual loans, loans 90 days or more past due, and other real
estate owned at June 30, 1999 and December 31, 1998. A loan is classified as
nonaccrual when, in the opinion of management, there are serious doubts about
collectibility of interest and principal. At the time the accrual of interest is
discontinued, future income is recognized only when cash is received.
June 30, December 31,
1999 1998
--------- ------------
(Dollars in Thousands)
Loans on nonaccrual basis $ 412 $ 392
Loans past due 90 days or more 118 135
---- ----
Total non-performing loans 530 527
---- ----
Real estate owned 0 0
---- ----
Total non-performing assets $ 530 $ 527
==== ====
Total non-performing loans to
total loans 0.48% 0.52%
==== ====
Total non-performing loans to
total assets 0.21% 0.22%
==== ====
Total non-performing assets to
total assets 0.21% 0.22%
==== ====
Combined non-performing loans and other non-performing assets at June 30, 1999,
represented 0.48% of total loans which was down from 0.52% at year-end 1998. The
allowance for loan losses was 246.1% of total non-performing assets at June 30,
1999 and 244.6% at December 31, 1998. The allowance for loan losses was 1.17% of
total loans at June 30, 1999 and 1.27% at December 31, 1998.
15
<PAGE>
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in rights of the Company's Security holders.
None.
Item 3. Defaults by the Company on its senior securities.
None.
Item 4. Results of Votes of Security Holders.
On April 22, 1999, the Company held its annual meeting of
stockholders and the following items were presented:
Election of Directors Howard B. Lenox and James P. Wetzel, Jr.
for terms of three years ending in 2002. Mr. Lenox received
2,025,035 votes in favor and 14,575 votes were withheld. Mr.
Wetzel received 2,025,735 votes in favor and 13,875 votes were
withheld.
Ratification of the appointment of S.R. Snodgrass, A.C. as the
Bank's auditors for the 1999 fiscal year. S.R. Snodgrass, A.C.
was ratified as the Company's auditors with 2,024,410 votes for,
14,450 votes against, and 750 abstentions.
Item 5. Other Information.
None.
16
<PAGE>
Item 6. Exhibits and Reports on Form 8 - K.
The following exhibits are filed as part of this report.
2.0 Agreement and Plan of Reorganization *
3.1 Articles of Incorporation of PHS Bancorp, Inc. *
3.2 Bylaws of PHS Bancorp, Inc. *
4.0 Stock Certificate of PHS Bancorp, Inc. *
10.1 Amended employment agreement between Peoples Home Savings Bank
and James P. Wetzel, Jr. *
10.2 1998 Restricted Stock Plan *
10.3 1998 Stock Option Plan *
11 Statement regarding computation of earnings per share (see Note 2
to the Notes to Unaudited Consolidated Financial Statements in
the Form 10-Q)
20.1 Dividend Reinvestment Plan
27.0 Financial Data Schedule (in electronic filing only)
Reports on Form 8 - K.
On May 26 and 27, 1999, the Company filed current reports on form 8-K
and 8-K/A, announcing the adoption of a repurchase plan for up to 10%
of the shares of stock held by persons other than PHS Bancorp, M.H.C.
- ---------------------------
* Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the Quarter Ended September 30, 1998 and filed with the Securities and
Exchange Commission on November 13, 1998.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: July 23, 1999
PHS Bancorp, Inc.
- -----------------
(Registrant)
By: /s/ James P. Wetzel, Jr.
-------------------------------------
James P. Wetzel, Jr.
President and Chief Executive Officer
By: /s/ Richard E. Canonge
-------------------------------------
Richard E. Canonge
Chief Financial Officer and Treasurer
18
EXHIBIT 20.1
<PAGE>
PHS BANCORP, INC.
BEAVER FALLS, PENNSYLVANIA
AUTOMATIC DIVIDEND REINVESTMENT PLAN
FOR
SHAREHOLDERS
OF COMMON STOCK
A convenient way for you to increase
your investment in PHS Bancorp, Inc.
(parent corporation for Peoples Home Savings Bank, Beaver Falls, Pennsylvania)
<PAGE>
PHS BANCORP, INC.
AUTOMATIC DIVIDEND REINVESTMENT PLAN
FOR SHAREHOLDERS OF COMMON STOCK
Plan Summary
This Plan offers you a convenient method of investing your cash dividends paid
and additional voluntary contributions for the purchase of additional shares of
common stock of PHS Bancorp, Inc. ("PHSB") without incurring brokerage
commissions or administrative costs.
The Plan
Your cash dividends and additional voluntary contributions are automatically
invested in additional shares of PHSB common stock ("Common Stock"). These
shares earn additional dividends which further increase your investment in
Common Stock.
Cost to You
Your cost for the purchase of additional shares of Common Stock is limited to
the price of the shares of Common Stock purchased for you. The purchase price is
the average price of all shares purchased in connection with a given dividend
payment date. There are no brokerage commissions or service charges connected
with such stock purchases.
Eligibility to Participate
Participation in the Plan is limited to owners of Common Stock who own a minimum
of one hundred (100) shares. If such Common Stock is held in your name, you
simply complete an enrollment form to participate. If such shares are in the
name of a brokerage account or nominee, you will need to arrange for the record
owner to participate on your behalf.
Optional Cash Contributions
In addition to reinvestment of cash dividends, you may invest option cash
contributions of between $100 and $1,000 per quarter for the purchase of
additional Common Stock. Such funds should be received by the Plan Administrator
between 5 and 30 days prior to the next dividend payment date.
Account Statement
A statement is sent to you from the Plan Administrator each time your dividends
are invested. You should retain all account statements as your personal record
of all Plan transactions.
Termination at any Time
Participation in the Plan is entirely voluntary and you may terminate it at any
time as outlined in the Plan, a copy of which is enclosed. Your investments
under the Plan may be distributed to you in the form of stock certificates or
such stock held in your account may be sold at your request with you receiving
the proceeds from such sale, less the brokerage commission. There is a $10.00
administrative fee to terminate participation in the Plan.
Income Tax Information
Even though your cash dividends will be reinvested in Common Stock, they are
subject to income taxes as if they were paid to you in cash.
<PAGE>
In addition, the Internal Revenue Service has ruled that any brokerage
commissions and service charges paid by PHSB on your behalf are treated as
dividend income to you. We estimate that the total additional income reportable
for most participants related to such service charges will be minimal. The
information return sent to you and the Internal Revenue Service on Form 1099-DIV
at year-end will show each of the amounts paid on your behalf.
More Information
Please refer to the attached copy of the Plan for more information related to
enrollment, participation and other matters regarding the Plan. Questions
related to your Plan account or enrollment may be directed to the Plan
Administrator at the address noted below.
Voting of Shares
You will be given the opportunity to direct the Plan Administrator regarding the
voting of any shares credited to your Plan account on the record date for a
vote.
It's Easy to Enroll
Holders of Common Stock may enroll in the Plan by signing and mailing the
enclosed authorization form in the envelope provided directly to:
Registrar and Transfer Company
10 Commerce Street
Cranford, New Jersey 07016
Attention: Dividend Reinvestment Department
All communications concerning the Plan should be sent to the above address.
<PAGE>
PHS BANCORP, INC.
DIVIDEND REINVESTMENT PLAN
The Board of Directors of PHS Bancorp, Inc. (the "Company") has adopted
the PHS Bancorp, Inc. Dividend Reinvestment Plan (the "Plan") in accordance with
which shares of the Company's common stock (the "Common Stock") are available
for purchase by the stockholders of the Company by means of reinvestment of cash
dividends paid on the Common Stock and by voluntary contribution of additional
cash payments. Purchases of Common Stock under the Plan will be made in the open
market. The Plan will remain in effect until amended, altered or terminated by
the Company. Stockholders who do not participate in the Plan will continue to
receive cash dividends, as declared, in the usual manner. The Plan is set forth
below as a series of questions and answers.
PURPOSE AND ADVANTAGES
1. What is the purpose of the Plan?
The purpose of the Plan is to provide participants with a simple,
convenient and economical procedure for purchasing additional shares of Common
Stock by using the cash dividends paid on Common Stock currently held by a
participant and additional voluntary cash contributions by such participant. The
Plan allows participants to have all cash dividends paid on their Common Stock
automatically reinvested in Common Stock.
2. What are the advantages of the Plan?
Participants may increase their holdings of Common Stock with the
reinvestment of cash dividends received on previously owned Common Stock and by
payment of additional voluntary cash contributions without incurring any service
charges and without the payment of brokerage commissions in connection with
stock purchases made under the Plan. Regular statements of account provide each
participant with a record of each transaction. Participation in the Plan is
entirely voluntary. You may join or terminate your participation at any time
prior to a particular dividend record date by making timely written notice to
the Plan Administrator (see Question 3).
PLAN ADMINISTRATION
3. Who administers the Plan for participants?
Registrar and Transfer Company, Cranford, New Jersey, the Company's
stock transfer agent, (hereinafter referred to as "Plan Administrator")
administers the Plan for participants by maintaining records, sending statements
of account to participants and performing other duties relating to the Plan.
Shares of Common Stock purchased under the Plan are registered in the name of
the Plan Administrator's nominee and are credited to the accounts of the
participants in the Plan. The Plan Administrator acts in the capacity as agent
for participants in the Plan. The Company may replace the Plan Administrator at
any time within its sole discretion.
<PAGE>
PARTICIPATION
4. Who is eligible to participate?
All holders of record of a minimum of one hundred (100) shares of
Common Stock are eligible to participate in the Plan. Beneficial owners of
shares of Common Stock whose shares are registered in names other than their own
(for instance, in the name of a broker or nominee) may become stockholders of
record by requesting their broker or nominee to transfer such shares into their
own names. Alternatively, beneficial owners of Common Stock may request that the
broker or nominee enroll in the Plan on your behalf. The right to participate in
the Plan is not transferable to another person apart from a transfer of a
Participant's shares of Common Stock. Stockholders who reside in jurisdictions
in which it is unlawful for a stockholder to participate in the Plan are not
eligible to participate in the Plan.
5. How does an eligible stockholder participate?
To participate in the Plan, a stockholder of record (or a broker or
nominee) must simply complete an Authorization Form and return it to the Plan
Administrator. An Authorization Form is enclosed herewith. Additional copies of
the Authorization Form will be provided from time to time to the holders of the
Common Stock, and may be obtained at any time by written request to Registrar
and Transfer Company, 10 Commerce Drive, Cranford, New Jersey 07016, Attn:
Dividend Reinvestment Department.
6. When may an eligible stockholder join the Plan?
A stockholder of record (or a broker or nominee) owning a minimum of
one hundred (100) shares of Common Stock may enroll in the Plan at any time. If
the Authorization Form is received by the Plan Administrator on or before the
record date for a dividend payment, and the participant elects to reinvest the
dividends in shares of Common Stock, such reinvestment of dividends will begin
with that dividend payment. Please note that the Plan does not represent any
change in the Company's dividend policy or a guarantee of the payment of any
future dividends.
7. What does the Authorization Form provide?
The Authorization Form directs the Company to pay to the Plan
Administrator for the account of the participating stockholder of record all
cash dividends on the Common Stock registered in the name of the participant as
reflected in the records of the Company's stock transfer agent, as well as
dividends paid on the Common Stock credited to the participant's account under
the Plan. It also appoints the Plan Administrator (or such other plan
administrator as the Company may from time to time designate) as agent for the
participant and directs such agent to apply all cash dividends towards the
purchase of additional shares of Common Stock in accordance with the terms and
conditions of the Plan. Such Authorization Form may also authorize the
investment of additional cash contributions for the purchase of Common Stock as
of the next Investment Date.
2
<PAGE>
8. Is there a minimum level of dividend reinvestment under the Plan?
No, provided that the participant is the record owner of not less than
one hundred (100) shares of Common Stock as of the dividend record date, and the
dividends associated with such Common Stock are used for reinvestment under the
Plan.
9. May a stockholder/participant have dividends reinvested under the
Plan with respect to less than all the Common Stock registered in that
stockholder/participant's name?
Reinvestment of dividends is required for all dividends paid on all
Common Stock registered in the stockholder/participant's name. Also, the Common
Stock held in a stockholder/participant's brokerage or trust account is eligible
for enrollment for dividend reinvestment.
OPTIONAL CASH PAYMENTS
10. May a participant elect to make additional cash payments under the
Plan?
Yes. In addition to the reinvestment of dividends paid on Common Stock,
participants may make optional cash contributions of between $100 and $1,000 per
calendar quarter for the purchase of additional shares of Common Stock. The
Company will not approve investment of optional cash contributions in excess of
the stated limit. Participants wishing to make optional cash contributions may
forward such funds to the Plan Administrator no earlier than 30 days prior to
the next dividend payment date and no later than 5 days preceding such dividend
payment date. No interest earnings will be paid on such funds. Funds submitted
prior to 30 days before the next dividend payment date will be returned.
OPTIONAL CASH CONTRIBUTIONS DO NOT CONSTITUTE DEPOSITS OR SAVINGS ACCOUNTS
ISSUED BY A SAVINGS INSTITUTION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
Upon written request addressed to the Plan Administrator received at
least 5 business days prior to the next dividend payment date, any optional cash
contributions received which have not yet been invested in Common Stock will be
reimbursed to the participant.
STOCK PURCHASES UNDER THE PLAN
11. When will the Plan purchase Common Stock?
Stock purchases under the Plan will be made during each calendar
quarter on each "Investment Date," which will be the first business day
following a dividend payment date or as soon as practicable thereafter.
Purchases of Common Stock will be made at the direction of the Plan
Administrator or its selected broker/dealer. Such purchases will be made in
accordance with applicable federal securities laws and regulations. No interest
earnings will be paid by the Plan
3
<PAGE>
Administrator on dividend payments or optional cash contributions pending their
investment in Common Stock.
In the event applicable law or the closing of the securities markets
requires temporary curtailment or suspension of open market purchases of Common
Stock, the Plan Administrator is not accountable for its inability to purchase
Common Stock at such time. If shares of Common Stock are not available for
purchase for a period longer than 30 days from the applicable dividend payment
date, the Plan Administrator will promptly mail to each participant a check in
the amount of any unapplied funds in the participant's account.
12. How many shares of Common Stock will be purchased for participants?
The number of shares of Common Stock that will be purchased for each
participant on any dividend payment date will depend on the amount of the
participant's cash dividend for reinvestment, any additional cash contributions
received, and the purchase price of the shares of Common Stock. Each
participant's account will be credited with that number of shares (including
fractional shares computed to three decimal places) equal to the total amount to
be invested, divided by the applicable purchase price (computed to four decimal
places).
13. What will be the price of shares of Common Stock purchased under
the Plan?
In making purchases of Common Stock for a participant's account
associated with each Investment Date, the Plan Administrator will commingle the
participant's funds with those of other participants under the Plan. The price
of shares of Common Stock purchased for participants under the Plan with
reinvested dividends on their Common Stock for each Investment Date will be
equal to the average price of all shares of the Common Stock purchased on the
Investment Date by the Plan Administrator on behalf of the Plan. The Plan
Administrator shall have no responsibility with respect to the market value of
the Common Stock acquired under the Plan for participant's accounts. The Company
will bear all costs of administering the Plan, except as described under
Question 15 below.
14. How are dividends on Common Stock purchased through the Plan
applied?
The purpose of the Plan is to provide the participant with a convenient
method of purchasing Common Stock and to have the dividends on the Common Stock
reinvested. Accordingly, dividends paid on Common Stock held in the Plan will be
automatically reinvested in additional shares of Common Stock unless and until
the participant elects in writing to terminate participation in the Plan.
4
<PAGE>
COSTS TO PARTICIPANTS
15. Are there any expenses to participants in connection with purchases
under the Plan?
No. Participants will make purchases of Common Stock under the Plan
without the payment of brokerage commissions and the Company will pay all fees
in connection with purchases of Common Stock under the Plan, except for costs
associated with the actual purchase price of the Common Stock purchased on the
Investment Date. There are no service charges to participants in connection with
purchases of Common Stock under the Plan. All costs of administration of the
Plan are paid by the Company. However, if a participant requests the Plan
Administrator to sell his or her shares in the event of his or her withdrawal
from the Plan (rather than you receiving stock certificates upon such
withdrawal), the participant will pay the applicable brokerage commission
associated with the sale of such Common Stock, any required transfer tax, and
applicable service charges.
REPORTS TO PARTICIPANTS
16. How will participants be advised of their purchases of stock?
As soon as practicable after each stock purchase, each participant will
receive a statement of account from the Plan Administrator. These statements are
the participant's continuing record of the purchase price of the Common Stock
acquired and the number of shares acquired, and should be retained by each
participant for tax purposes. Participants will also receive, from time to time,
communications sent to all record holders of the Common Stock.
DIVIDENDS
17. Will participants be credited with dividends on Common Stock held
in their account under the Plan?
Yes. The participant's account will be credited with dividends paid on
full shares of Common Stock and fractional shares of Common Stock credited to
the participant's account. The Plan Administrator will automatically reinvest
the cash dividends received for the purchase of additional shares of Common
Stock.
STOCK CERTIFICATES
18. Will stock certificates be issued for shares of Common Stock
purchased?
The Plan Administrator will hold all stock certificates representing
the Common Stock purchased under the Plan in the name of its nominee. Normally,
certificates for Common Stock purchased under the Plan will not be issued to
participants. The number of shares of Common Stock credited to an account under
the Plan will be shown on the participant's statement of account.
5
<PAGE>
The Participant may receive stock certificates for full shares of
Common Stock accumulated in his or her account under the Plan by sending a
written request to the Plan Administrator. Participants may request periodic
issuance of stock certificates for all full shares of Common Stock in their
account. When stock certificates are issued to the participant, future dividends
on such shares of Common Stock will be reinvested in additional shares of Common
Stock. Any undistributed shares of Common Stock will continue to be reflected in
the participant's account. No stock certificates representing fractional shares
will be issued.
A participant's rights under the Plan and Common Stock credited to the
account of the participant under the Plan may not be pledged. A participant who
wishes to pledge such Common Stock must request that stock certificates for such
Common Stock be issued in his or her name.
Accounts under the Plan are maintained in the names in which the stock
certificates of participants were registered at the time they entered the Plan.
Additional stock certificates for whole shares of Common Stock will be similarly
registered when issued.
WITHDRAWAL FROM THE PLAN
19. How does a participant withdraw from the Plan?
A participant may withdraw from the Plan at any time by sending a
written withdrawal notice to the Plan Administrator and including payment of the
$10 termination fee. Notice received after a particular dividend record date
will be effective following the payment date of such dividend. (See Question 5
for the full name and address of the Plan Administrator). When a participant
withdraws from the Plan, or upon termination of the Plan by the Company, stock
certificates for whole shares of Common Stock credited to the participant's
account under the Plan will be issued and a cash payment will be made in lieu of
any fraction of a share of Common Stock (see Question 20).
Upon withdrawal from the Plan, the participant may also request that
all of the Common Stock credited to his or her account be sold by the Plan
Administrator. If such sale is requested, the Plan Administrator will place a
sale order, as promptly as possible after the processing of the request for
withdrawal, for the account of the participant through an agent designated by
the Plan Administrator at the prevailing market price at the time of such sale.
The participant will receive from the Plan Administrator a check for the
proceeds of the sale less any applicable brokerage commission and any transfer
tax.
20. What happens to a fraction of a share of Common Stock when a
participant withdraws from the Plan?
When a participant withdraws from the Plan, a cash adjustment
representing the value of any fraction of a share of Common Stock then credited
to the participant's account will be mailed directly to the participant. The
cash adjustment will be based on the closing price of the Common
6
<PAGE>
Stock on the effective date of the withdrawal. In no case will stock
certificates representing a fractional share of Common Stock interest be issued.
OTHER INFORMATION
21. What happens when a participant's record ownership of Common Stock
is less than one hundred (100) shares as of a dividend record date?
If a participant disposes of Common Stock registered in his or her name
(including shares credited to his or her account under the Plan) so that the
total number of shares of Common Stock held in the name of the participant is
less than one hundred (100) shares of Common Stock, the Plan Administrator will
discontinue the reinvestment of cash dividends on the Common Stock credited to
the participant's account under the Plan and the investment of additional cash
contributions until such participant's record ownership of Common Stock
increases to at least one hundred (100) shares in the aggregate. All applicable
dividends will be paid in the form of cash until such participant's stock
ownership increases to at least one hundred (100) shares. If following a
disposition of stock, a participant's aggregate record ownership of the Common
Stock contains less than one hundred (100) shares of Common Stock, then at the
Company's election, a cash payment will be made for any fractional shares, any
uninvested cash balance in the account will be paid to the participant, and the
account will be terminated.
22. What happens if the Company issues a stock dividend, declares a
stock split or makes a rights offering?
Any shares of Common Stock representing stock dividends or stock splits
distributed by the Company on Common Stock credited to the account of a
participant under the Plan will be added to the participant's account. Common
Stock representing stock dividends or split shares distributed on Common Stock
registered in the name of the participant will be mailed directly to such
participant in the same manner as to stockholders who are not participating in
the Plan.
In the event the Company makes a rights offering of any of its
securities to holders of Common Stock, participants in the Plan will be notified
by the Company in advance of the commencement of the offering. A participant
should instruct the Plan Administrator to transfer full shares of Common Stock
held by the Plan into the name of such participant prior to the record date for
such offering the participant wishes to exercise such rights. If no such
instructions are received by the Plan Administrator prior to such record date,
then such rights shall terminate with respect to both the participant and the
Plan Administrator.
23. How will a participant's shares of Common Stock held under the Plan
be voted?
Common Stock credited to the account of a participant under the Plan
will be automatically added to the Common Stock covered by the proxy sent to the
stockholder with respect to his or her other Common Stock and may be voted by
such holder pursuant to such proxy. The Plan Administrator will forward any
proxy solicitation materials relating to the Common Stock held by
7
<PAGE>
the Plan to the participating stockholder. Where no instructions are received
from a participant with respect to a participant's Common Stock held under the
Plan, or otherwise, such Common Stock shall not be voted unless the participant
votes such Common Stock in person.
24. What are the income tax consequences of participation in the Plan?
In general, a participant in the Plan has the same federal and state
income tax obligations with respect to dividends credited to his or her account
under the Plan as other holders of Common Stock who elect to receive cash
dividends directly. A participant is treated for income tax purposes as having
received, on the dividend payment date, a dividend in an amount equal to the
fair market value of the Common Stock credited to his or her account under the
Plan, even though that amount was not actually received by the participant in
cash, but, instead, was applied to the purchase of additional shares for his or
her account. In addition, any brokerage commissions and service charges paid by
the Company on behalf of the participant is deemed to constitute dividend income
by the Internal Revenue Service ("IRS"). Such amounts, if any, will be included
on any annual information return filed with the IRS, a copy of which will be
sent to the participant.
The tax basis of each share of Common Stock credited to a participant's
account pursuant to the dividend reinvestment aspect of the Plan is the fair
market value of the Common Stock on the Investment Date (plus any brokerage
commissions and service charges paid by the Company on behalf of the
participant). The holding period for such Common Stock begins on the day
following the Investment Date.
The receipt by a participant of stock certificates representing whole
shares of Common Stock previously credited to his or her account under the Plan
upon withdrawal from the Plan or pursuant to the request of the participant will
not result in the recognition of taxable income. A participant will recognize a
gain or loss when shares of Common Stock are sold on behalf of the participant
upon withdrawal from the Plan or when the participant sells Common Stock after
the participant's withdrawal from the Plan.
All participants are advised to consult with their own tax advisors to
determine the particular tax consequences which may result from their
participation in the Plan and their subsequent sale of Common Stock purchased
pursuant to the Plan.
25. What are the responsibilities of the Company under the Plan?
The Company and the Plan Administrator in administering the Plan will
not be liable for any act done in good faith or for the good faith omission to
act, including, without limitation, any claim of liability arising out of
failure to terminate a participant's account upon such participant's death or
judicially declared incompetency or with respect to the prices at which shares
of Common Stock are purchased for the participant's account, and the times when
such purchases are made, with respect to any loss or fluctuation in the market
value after purchase of shares, or with respect to any sales of Common Stock
made under the Plan on behalf of the participant.
8
<PAGE>
The Company shall interpret the Plan; all such interpretations and
determinations made by the Company shall be conclusive. The terms and conditions
of the Plan, the Authorization Form, the Plan's operation, and a participant's
account will be governed by the laws of the Commonwealth of Pennsylvania and the
Rules and Regulations of the Securities and Exchange Commission. The terms of
the Plan and the Authorization Form cannot be changed by oral agreement.
26. Who bears the risk of market price fluctuations in the Common
Stock?
The participant bears the risk of loss and realizes the benefits of any
gain from market price changes with respect to all the Common Stock held in the
Plan, or otherwise. A participant's investment in Common Stock acquired under
the Plan is no different from direct investment in the Common Stock. Neither the
Company nor the Plan Administrator makes any representations with respect to the
future value of the Common Stock purchased under the Plan. The participant
should recognize that the Company, the Plan Administrator and related parties
cannot assure the participant of realizing any profits or protect the
participant against a loss related to investment in the Common Stock. THE COMMON
STOCK PURCHASED IN ACCORDANCE WITH THE PLAN DOES NOT CONSTITUTE SAVINGS ACCOUNTS
OR DEPOSITS ISSUED BY A SAVINGS INSTITUTION OR BANK AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
27. May the Plan be changed or discontinued?
The Plan may be amended, suspended, modified, or terminated at any time
by the Board of Directors of the Company without the approval of the
participants. Notice of any such suspension or termination or material amendment
or modification will be sent to all participants, who shall at all times have
the right to withdraw from the Plan.
The Company or the Plan Administrator may terminate a
stockholder/participant's individual participation in the Plan at any time by
written notice to the stockholder/participant. In such event, the Plan
Administrator will request instructions from the stockholder/participant for
disposition of the Common Stock in the account. If the Plan Administrator does
not receive instructions from the participant, it will send the participant a
stock certificate for the number of full shares of Common Stock held for the
participant under the Plan and a check for the value of any fractional share of
Common Stock in such participant's account.
9
<PAGE>
TO: REGISTRAR AND TRANSFER COMPANY AUTHORIZATION FOR AUTOMATIC DIVIDEND
REINVESTMENT FOR SHAREHOLDERS OF PHS BANCORP, INC.
[_] I hereby authorize PHS Bancorp, Inc. to pay to Registrar and Transfer
Company, as my agent for my account all cash dividends due me on common stock of
PHS Bancorp, Inc. ("Common Stock") for which I am the holder of record, as set
forth on this card. I want to reinvest dividends on all Common Stock registered
in my name for the purchase of full or fractional shares of Common Stock in
accordance with the terms of the PHS Bancorp, Inc. Dividend Reinvestment Plan
("Plan").
[_] I further authorize the investment of $________________ for the
purchase of additional shares of Common Stock as of the next Investment Date
(minimum of $100.00, maximum of $1,000.00 per quarter), in accordance with the
Plan. Please make checks payable to: Registrar and Transfer Company. Please do
not transmit funds earlier than 30 days before the next dividend payment date
(but not later than 5 days prior to such date).
I understand that the purchase of Common Stock will be made subject to
the terms and conditions of the Plan, and that I may terminate this
authorization at any time by notifying Registrar and Transfer Company.
This authorization form, when signed, should be mailed to: Registrar
and Transfer Company, Attention: Dividend Reinvestment Department, 10 Commerce
Drive, Cranford, New Jersey 07016. An addressed envelope is provided for that
purpose.
NOTE: THIS IS NOT A PROXY
---
- -------------------------------------
Shareholder
Please sign exactly as name(s) appears on this card. If shares of Common Stock
are held jointly, each stockholder must sign.
- -------------------------------------
Date
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,859
<INT-BEARING-DEPOSITS> 1,968
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 64,307
<INVESTMENTS-CARRYING> 65,507
<INVESTMENTS-MARKET> 64,332
<LOANS> 110,388
<ALLOWANCE> 1,305
<TOTAL-ASSETS> 253,432
<DEPOSITS> 184,608
<SHORT-TERM> 3,000
<LIABILITIES-OTHER> 1,999
<LONG-TERM> 36,036
0
0
<COMMON> 276
<OTHER-SE> 27,513
<TOTAL-LIABILITIES-AND-EQUITY> 253,432
<INTEREST-LOAN> 4,234
<INTEREST-INVEST> 4,154
<INTEREST-OTHER> 100
<INTEREST-TOTAL> 8,488
<INTEREST-DEPOSIT> 3,453
<INTEREST-EXPENSE> 4,474
<INTEREST-INCOME-NET> 4,014
<LOAN-LOSSES> 185
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,052
<INCOME-PRETAX> 1,094
<INCOME-PRE-EXTRAORDINARY> 1,094
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 806
<EPS-BASIC> 0.30
<EPS-DILUTED> 0.30
<YIELD-ACTUAL> 3.59
<LOANS-NON> 412
<LOANS-PAST> 118
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,287
<CHARGE-OFFS> 190
<RECOVERIES> 23
<ALLOWANCE-CLOSE> 1,305
<ALLOWANCE-DOMESTIC> 1,305
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
