SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________TO_____________
COMMISSION FILE NUMBER 33-88802
PEOPLES FINANCIAL CORP., INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 25-1469914
------------------------------ ------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
323 FORD STREET, FORD CITY, PA 16226
-------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (814) 275-3133
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered under Section 12(g) of the Exchage Act: None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B 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 III of this Form 10K or any amendment to this
Form 10-KSB. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: $19,599,453 (based upon estimated values from securities
brokers)
Indicate the number of shares outstanding of the registrant's common stock, as
of March 1, 1997: Peoples Financial Corp., Inc. Common Stock, par value $0.30
per share: 879,990 shares
DOCUMENTS INCORPORATED BY REFERENCE
The following documents have been incorporated by reference as Exhibits:
1) The 1996 Annual Report to Shareholders for use at the 1997 Annual Meeting.
2) Proxy Statement pursuant to Regulation 14A promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934.
<PAGE>
DESCRIPTION OF PEOPLES FINANCIAL CORP, INC. AND PFC BANK
Part I
ITEM 1 - DESCRIPTION OF BUSINESS
Peoples Financial Corp., Inc., (PFC) is a Pennsylvania business corporation,
incorporated under Pennsylvania law, in June, 1984. PFC was organized to hold
all of Peoples Bank of PA's (Peoples) outstanding common stock. Peoples in turn
owned approximately 53% of New Bethlehem Bank (New Bethlehem) common stock. In
March 1994, PFC redeemed approximately 41% of the PFC common stock outstanding
that was beneficially owned by two trusts created by Paul L. Dunmire. Effective
April 1, 1995, New Bethlehem merged with and into Peoples. Peoples concurrently
changed its name to PFC Bank.
PFC Bank (the Bank) is a Pennsylvania-chartered banking institution and, as
successor to Peoples and New Bethlehem, traces its origins to 1914 and 1895,
respectively. PFC Bank offers a full range of banking services through six
banking offices in Pennsylvania, two of which are located in Ford City, two in
New Bethlehem, and one each in Clarion and Indiana. As of December 31, 1996, the
Bank had total assets of $210.8 million and shareholders equity of $26.7
million. All of PFC Bank's outstanding common stock is owned by PFC.
Employees
As of December 31, 1996, PFC and PFC Bank had 89 full-time employees and 17
part-time employees.
Competition
PFC Bank competes actively with other financial institutions in its market area.
Many of the other financial institutions, including those that operate within
PFC Bank's market area but are headquartered elsewhere, are larger than the
Bank. PFC Bank believes that it is generally competitive with the other
institutions in its market area with respect to interest rates paid on time and
savings deposits, service charges on deposit accounts and interest rates charged
on loans.
Supervision and Regulation of PFC and PFC Bank
PFC is subject to the provisions of the Bank Holding Company Act of 1956, as
amended, and to supervision by the Board of Governors of the Federal Reserve
System (the Federal Reserve Board). Under Federal Reserve Board policy, PFC, as
a holding company, is expected to act as a source of financial strength to its
subsidiaries and to commit resources to support the subsidiaries. This support
may be required at times when, absent such Federal Reserve Board policy, PFC may
not be in a position to provide it. The Bank Holding Company Act requires PFC to
obtain prior approval by the Federal Reserve Board before it acquires or
controls, directly or indirectly, more than 5 percent of the voting shares or
substantially all of the assets of any institution including another bank, as
referenced to the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (The Interstate Banking and Branch Act). The Bank Holding Company Act
prohibits acquisition by PFC of more than 5 percent of the voting shares of, or
interest in all or substantially all of the assets of, any bank located outside
Pennsylvania unless such an acquisition is specifically authorized by laws of
the state in which such bank is located.
<PAGE>
As a bank holding company, PFC is prohibited from engaging in or acquiring
direct or indirect control of more than 5 percent of the voting shares of any
company engaged in non-banking activities unless the Federal Reserve Board, by
order or regulation, has found such activities to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto. In
making this determination, the Federal Reserve Board considers whether the
performance of these activities by a bank holding company would offer benefits
to the public that outweigh possible adverse effects.
As a bank holding company, PFC is required to file reports with the Federal
Reserve Board and is subject to examinations thereby.
PFC Bank is subject to supervision, regulation and examination by the
Commonwealth of Pennsylvania Department of Banking (the Department of Banking)
and the Federal Deposit Insurance Corporation (FDIC). In addition, the Bank is
subject to a variety of local, state and federal laws that affect its operation.
The laws of the Commonwealth of Pennsylvania applicable to PFC Bank include,
among other things, provisions that: (i) require the maintenance of certain
reserves against deposits; (ii) limit the type and amount of loans that may be
made and the interest that may be charged thereon; (iii) restrict investments
and other activities; and, (iv) limit the payment of dividends. The amount of
funds that the Bank may lend to a single borrower is generally limited under
Pennsylvania law to 15 percent of the aggregate of its capital, surplus,
undivided profits, loan loss reserves and capital securities of the Bank, all as
defined by statute and regulation.
Applicable Pennsylvania law also requires that a bank obtain the approval of the
Department of Banking prior to effecting any merger where the surviving bank
would be a Pennsylvania-chartered bank. In reviewing merger applications,
consideration is given, among other things, to whether the merger would be
consistent with adequate and sound banking practices and in the public interest
on the basis of several factors, including the potential effect of the merger on
competition and the convenience and needs of the area primarily to be served by
the bank resulting from the merger.
Applicable Pennsylvania law permits Pennsylvania-chartered banks to engage in
banking activity in other states (interstate banking) provided that such
activity is within a state that permits reciprocal privileges.
In September of 1994 the Interstate Banking and Branching Act was signed into
law. This legislation permitted interstate banking twelve months after its
enactment into law. Bank holding companies such as PFC are permitted to acquire
a bank located in any state, as long as the acquisition does not result in the
bank holding company controlling more than 10 percent of the total deposits in
the United States, or 30 percent of the total deposits in the target bank's
state. The legislation permits states to waive these concentration limits and
pose additional restrictions on acquisitions by out-of-state banks or bank
holding companies. Interstate branching and merging of existing banks will be
permitted after three years from the enactment of the Interstate Banking and
Branching Act, if the subject bank is adequately capitalized and demonstrates
good management. Interstate branch merging of existing banks will be permitted
earlier if a state undertakes to enact legislation permitting it, which
Pennsylvania enacted on July 6, 1995. The Interstate Banking and Branching Act
also amends the International Banking Act to allow a foreign bank to establish
and operate a federal branch or agency, upon approval by the appropriate federal
and state banking regulators.
<PAGE>
As a bank, PFC Bank's earnings are affected by domestic economic conditions and
by the monetary and fiscal policies of the United States government and its
agencies. An important function of the Federal Reserve Board is to regulate the
monetary supply and interest rates. Among the instruments used to implement
these objectives are open market operations in United States government
securities. These instruments are used in varying combinations to influence
overall growth and the distribution of bank loans, investments and deposits. The
manner in which they are employed typically affects rates charged on loans or
paid on deposits.
PFC Bank's deposits are insured by the FDIC pursuant to the system of federal
deposit insurance initially established by the Banking Act of 1933. This
insurance covers $100,000 per deposit account. The Bank pays insurance premiums
into a fund according to rates established by the FDIC. The Federal Deposit
Insurance Corporation Improvement Act of 1991 (FDICIA) was enacted, in part, to
prevent the deposit insurance funds from becoming insolvent. FDICIA authorized
the FDIC to raise insurance premium assessments in order to achieve and maintain
an adequate level of funds. The depletion of the deposit insurance funds had
been due, in part, to a large number of failed financial institutions in the
1980's, as well as increases in coverage per deposit account. As a result, the
future cost of deposit insurance for the Bank is in large part dependent upon
the extent of future banking failures and the amount of insurance coverage
provided by the FDIC per deposit account, neither of which is within the Bank's
control. Moreover, FDICIA required the FDIC to establish a risk-based insurance
premium assessment system in order to differentiate between higher and lower
risk institutions and to assess lower premiums against institutions in a lower
risk category. As a result, the Bank's future cost of deposit insurance will
depend, in part, upon its risk rating.
The FDIC has issued risk-based capital guidelines which supplement leverage
capital requirements. These guidelines require PFC Bank to maintain the minimum
risk-based capital ratio of 8 percent, of which at least 4 percent must be in
the form of stockholders' equity. Assets are assigned to four risk categories
with higher levels of capital required for those categories perceived as
representing greater risk. The required capital ratios represent equity capital
as a percentage of total risk-weighted assets. The risk-based capital rules are
designed to make regulatory capital requirements more sensitive to the
differences in risk profiles among financial institutions and to minimize
disincentives for holding highly liquid assets. It is not expected that these
risk-based capital rules will have a material impact on the Bank's business or
capital plans.
Under FDICIA, financial institutions such as PFC Bank are subject to increased
regulatory scrutiny and are expected to comply with certain operational,
managerial and compensatory standards developed by regulators. FDICIA also
requires regulators to issue rules establishing certain minimum standards to
which institutions must adhere with respect to assets, capital and earnings,
internal control, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits.
Environmental Laws
Neither the Registrant nor the Bank anticipate that compliance with
environmental laws and regulations will have any material effect on capital,
expenditures, earnings, or on its competitive position. However, environmentally
related hazards have become a source of high risk and potentially unlimited
liability for financial institutions. Environmentally contaminated properties
owned by an institution's borrowers may result in a drastic reduction in the
value of the collateral securing the institution's loans to such borrowers, high
environmental clean up costs to the borrower affecting its ability to repay the
loans, the subordination of any lien in favor of the institution to a state or
federal lien securing clean up costs, and liability to the institution for clean
up costs if it forecloses on the contaminated property or becomes involved in
the management of the borrower. To minimize this risk, the Bank may require an
environmental examination of and report with respect to the property of any
borrower or prospective borrower if circumstances affecting the property
indicate a potential for contamination taking into consideration a potential
loss to the institution in relation to the borrower. Such examination must be
performed by an engineering firm experienced in environmental risk studies and
acceptable to the institution, and the cost of such examinations and reports are
the responsibility of the borrower. These costs may be substantial and may deter
prospective borrower from entering into a loan transaction with
<PAGE>
the Bank. The Registrant is not aware of any borrower who is currently subject
to any environmental investigation or clean up proceeding that is likely to have
a material adverse effect on the financial condition or results of operations of
the Bank.
In 1995, the Pennsylvania General Assembly enacted the Economic Development
Agency, Fiduciary and Lender Environmental Liability Protection Act which, among
other things, provides protection to lenders from environmental liability and
remediation costs under the environmental laws for releases and contamination
caused by others. A lender who engages in activities involved in the routine
practices of commercial lending, including, but not limited to, the providing of
financial services, holding of security interests, workout practices,
foreclosure or the recovery of funds from the sale of property shall not be
liable under the environmental acts or common law equivalents to the
Pennsylvania Department of Environmental Resources or to any other person by
virtue of the fact that the lender engages in such commercial lending practice.
A lender, however, will be liable if it, its employees or agents, directly cause
an immediate release or directly exacerbate a release of regulated substances on
or from the property, or knowingly and willfully compelled the borrower to
commit an action which caused such release or violate an environmental act. The
Economic Development Agency, Fiduciary and Lender Environmental Liability
Protection Act, however, does not limit federal liability which still exists
under certain circumstances.
ITEM 2 - DESCRIPTION OF PROPERTIES
PFC Bank occupies approximately 8,300 square feet at 323 Ford Street, Ford City,
Pennsylvania, which serves as its Corporate office facility. This space is
leased from Armstrong Properties pursuant to operating leases at the rate of
$1,416 per month. PFC Bank owns the following five facilities and certain
parking facilities which are free and clear of any lien. The Manor office is in
a 1,600 square foot facility. The Indiana office is located in a 4,000 square
foot facility. The New Bethlehem Drive-Thru occupies a 2,800 square foot
facility. The Clarion office is in a 7,101 square foot facility, and the
operations center and New Bethlehem office is located in a 11,867 square foot
facility located at 363 Broad Street, New Bethlehem, Pennsylvania.
Substantially, all of the bank's available space is currently utilized. In
management's opinion, the above properties are in good condition and are
adequate for the Bank's purposes.
ITEM 3 - LEGAL PROCEEDINGS
Management believes there are no proceedings pending to which PFC or the Bank is
a party or to which its property is subject, which, if determined adversely,
would be material in relation to its undivided profits or financial condition.
There are no proceedings pending other than routine litigation incidental to the
business of PFC and the Bank. In addition, no material proceedings are pending
or are known to be threatened or contemplated against PFC or the Bank by
governmental authorities. See Note L, Regulatory Matters, of the attached
Exhibit 1, Consolidated Financial Statements of Peoples Financial Corp., Inc.
and Subsidiary.
ITEM 4 - SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
Part II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PFC's common stock is held by 355 shareholders of record as of March 1, 1997,
and is rarely traded. Although there is no public trading market, management of
PFC believes that a few securities dealers are attempting to form a market for
the PFC common stock. As of March 1, 1997, there were 879,990 shares
outstanding. PFC reports no sales of unregistered securities. PFC paid dividends
of $0.23 per share each quarter during the calendar year ended December 31,
1996. Quarterly dividends of $0.08, $0.22, $0.22, and $0.22 per share were paid
by PFC during 1995. Because corporate and banking laws limit the amount of
dividends that can be paid generally, there can be no assurance that dividends
will be paid in the future and, if paid, the amount of such dividends. See Note
L, Regulatory Matters, of the attached Exhibit 13.
The following table summarizes quarterly highs and lows of Peoples Financial
Corp., Inc. common stock since the merger date, April 1, 1995. Quotations were
received from Elmer Powell and Associates and reflect inter-dealer prices,
without retail markup, mark down or commission and may not represent actual
transactions.
Common Stock
Market Performance
(in dollars)
-----------------------------------
Qtr. High Low
-----------------------------------
1995
-----------------------------------
2 24.00 24.00
3 25.00 24.00
4 25.25 24.00
-----------------------------------
1996
-----------------------------------
1 25.25 24.00
2 27.00 24.00
3 29.75 28.25
4 38.25 29.00
-----------------------------------
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of the consolidated
financial condition and results of operations of PFC and its wholly owned
subsidiary, PFC Bank. This consolidated financial information should be read in
conjunction with the consolidated financial statements appearing as Exhibit 1 to
this report. Substantially all of the income and expenses of PFC are
attributable to PFC Bank.
Selected Financial Data
The following table sets forth certain selected historical financial data for
PFC. Dollar amounts are in thousands, except per share data.
<TABLE>
<CAPTION>
Years Ended
----------------------------------
Summary of Operations 12/31/96 12/31/95 12/31/94
----------------------------------
<S> <C> <C> <C>
Total interest income $ 13,933 $ 13,168 $ 12,792
Net interest income 7,457 6,869 7,506
Provision for loan losses 75 60 192
Gains on securities 1,053 1,253 2,405
Other operating income 1,067 661 568
Other operating expenses 6,830 6,835 6,578
Net income before deducting minority interest 2,110 1,542 2,679
Net income 2,110 1,378 1,872
Earnings per share 2.40 1.76 3.03
Average Balance Sheet Totals
Total assets (1) 185,907 180,598 190,810
Investment securities (1) 41,846 56,678 70,088
Loans & leases (net of unearned income
and allowance for loan losses) 123,115 110,803 106,390
Total deposits 164,496 156,450 155,774
Stockholders' equity 17,737 19,075 24,980
Historical number of shares outstanding
at period end (2) 879,990 879,990 498,864
Weighted average number of shares
outstanding (2) 879,990 785,057 617,042
Period End Total assets (3) 210,812 186,888 181,259
</TABLE>
(1) Excludes the effect of SFAS No. 115 (Statement of Financial Accounting
Standards No. 115 - Accounting for Certain Debt and Equity Securities).
(2) Reflects retroactive effect of 333 to 1 stock split in August 1994.
(3) Reflects the adoption of SFAS No. 115.
<PAGE>
Financial Condition
The total assets of PFC at December 31, 1996 were $210.8 million, an increase of
$23.9 million, or 12.78% over total assets at December 31, 1995 of $186.9
million.
The increase in total assets as of December 31, 1996 was comprised primarily of
an increase of over $22.4 million in loan balances in addition to increases of
$2.7 million in securities available-for-sale and over $5.0 million in federal
funds sold. These increases more than offset a decrease of over $7.0 million in
held-to-maturity securities.
The total liabilities of PFC at December 31, 1996 were $183.9 million, an
increase of $20.4 or 12.48% over total liabilities at December 31, 1995 of
$163.5 million.
The increase in liabilities during the 12 months ended December 31, 1996
resulted primarily from interest bearing deposit increases of $16.8 and a
deferred tax increase of almost $1.1 million due to the tax effects of Statement
of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities.
Operations
PFC reported net income, before deducting the pre-merger minority interest and
income taxes for the 12 month period ended December 31, 1996 of $2,673,000 as
compared to $1,888,000 for the 12 month period ended December 31, 1995, an
increase of $785,000 or 41.58%. An increase in interest income of $765,000 was
offset by an increase in interest expense of $176,000 primarily the result of an
increase in interest bearing deposits. An increase of $15,000 in the provision
for loan losses was based on management's evaluation of the loan portfolio.
PFC's net income for the period ended December 31, 1996, after deducting
minority interest and taxes, was $2,110,000 as compared to $1,378,000 for the
year ended December 31, 1995. PFC reported net income, before deducting minority
interest and taxes, for the year ended December 31, 1995 of $1,888,000 which was
a decrease of $1,821,000 or 49.10% as compared to $3,709,000 for the year ended
December 31, 1994. The decrease in net income from 1994 to 1995 resulted
primarily from a decrease of $637,000 in net interest income and an increase of
$257,000 in other operating expenses. These negative influences were partially
offset by a decrease in the provision for loan losses of $132,000. PFC's net
income for the year ended December 31, 1995, after deducting the minority
interest and taxes, was $494,000 lower than for the year ended December 31,
1994.
Earnings per share, after deducting minority interest, for the 12 month periods
ended December 31, 1996, 1995, and 1994, was $2.40, $1.76, and $3.03,
respectively. All per share data has been restated to reflect the 333 for 1
stock split occurring in August, 1994.
Since most of the assets and liabilities of banks are monetary in nature,
changes in interest rates can have a significant effect on earnings. PFC,
through its asset and liability management, positions itself to react and
compensate for the volatility of interest rates. See additional analysis of
interest rate sensitivity presented below.
<PAGE>
Interest Income and Expenses
Total interest income increased to $13,933,000 in 1996 from 13,168,000 in 1995,
an increase of $765,000 or 5.81%. This increase is primarily attributable to an
increase in interest earned on loans of $947,000 or 9.52% offsetting a decrease
in interest on investment securities of $113,000. The average yield on
interest-earning assets decreased from 7.81% for the 12 months period ended
December 31, 1995 to 7.53% for the 12 months period ended December 31, 1996. The
increase in total interest income results from an increase in earning assets of
$23.2 million. Total net loans increased by $22.4 million while federal funds
sold increased by over $5.0 million.
Total interest income increased to $13,168,000 in 1995 from $12,792,000 for the
year ended December 31, 1994, an increase of $376,000 or 2.94%. This increase is
primarily attributable to an increase in interest earned on loans.
Total interest expense increased to $6,475,000 in 1996 from $6,299,000 in 1995,
an increase of $176,000, or 2.79%. This increase is the result of an environment
of increasing interest rates and an increase in interest bearing deposits of
$16.8 million. The average rate on interest-bearing liabilities was 4.52% for
the 12 months ended December 31, 1996 and 4.56% for the 12 months ended December
31, 1995.
Total interest expense increased to $6,299,000 in 1995 from $5,285,000 in 1994,
an increase of $1,014,000 or 19.19%. The increase is primarily a result of an
increase in interest bearing deposits of $3,376,000 or 24.96% for the year ended
December 31, 1995.
Net interest income is the difference between the interest earned on loans and
other investments, including dividends received on equity securities, and the
interest paid on deposits and other sources of funds. Net interest income for
the 12 months period ended December 31, 1996 was $7,457,000 as compared to
$6,869,000 for the 12 month period ended December 31, 1995, an increase of
$588,000 or 8.56%. Net interest income decreased to $6,869,000 for the year
ended December 31, 1995 as compared to $7,506,000 for the year ended December
31, 1994, a decrease of $637,000 or 8.49%.
PFC obtains a substantial portion of its funds from non-interest-bearing
deposits. Therefore, the rate paid for all funds is lower than the rate on
interest bearing funds alone. PFC has been able to retain a significant base of
inexpensive deposits, which consists of checking and savings accounts. These
deposits comprise, approximately 54.43% of the total deposits of PFC at December
31, 1996.
The following tables present the average major asset and liability categories
for the 12 month periods ended December 31, 1996 and 1995 along with interest
income and yields. The average balances shown consist of daily average balances.
Non-performing loans are included in the average balance and yield calculations.
<PAGE>
Interest Income and Expense (continued)
Average Balance Sheets & Net Interest Analysis for 1996
(in thousands)
<TABLE>
<CAPTION>
Selected Asset Categories Average Balances Interest Yield/rate
- ------------------------- ---------------- -------- ----------
<S> <C> <C> <C>
Interest-bearing assets
Loans & direct lease financing $124,380 $ 10,891 8.76%
Investment securities 54,657 2,738 5.00%
Federal funds sold & securities purchased 5,885 304 5.17%
Non-interest-bearing assets
Cash and due from banks 7,101 N/A N/A
Premises and equipment 3,788 N/A N/A
Other assets 2,907 N/A N/A
Selected Liability Categories
- -----------------------------
Interest-bearing liabilities
Demand deposits $ 41,665 $ 1,465 3.52%
Savings deposits 29,172 931 3.19%
Time deposits 72,339 4,079 5.64%
Short-term borrowings 27 2 7.41%
Non-interest-bearing liabilities
Demand deposits 21,320 N/A N/A
Other 7,673 N/A N/A
Net interest income $ 7,446
Net interest margin 4.02%
Average yield on interest-bearing assets 7.53%
Average rate on interest-bearing liabilities 4.52%
</TABLE>
<PAGE>
Interest Income and Expense (continued)
Average Balance Sheets & Net Interest Analysis for 1995
(in thousands)
<TABLE>
<CAPTION>
Selected Asset Categories Average Balances Interest Yield/rate
- ------------------------- ---------------- -------- ----------
<S> <C> <C> <C>
Interest-bearing assets
Loans & direct lease financing $111,927 $ 9,946 8.88%
Investment securities 50,275 2,848 5.36%
Federal funds sold & securities purchased 6,403 374 5.84%
Non-interest-bearing assets
Cash and due from banks 6,497 N/A N/A
Premises and equipment 4,007 N/A N/A
Other assets 2,613 N/A N/A
Selected Liability Categories
- -----------------------------
Interest-bearing liabilities
Demand deposits $ 38,696 $ 1,376 3.56%
Savings deposits 29,798 960 3.22%
Time deposits 68,898 3,933 5.71%
Short-term borrowings 676 30 4.44%
Non-interest-bearing liabilities
Demand deposits 19,058 N/A N/A
Other 4,832 N/A N/A
Net interest income $ 6,869
Net interest margin 4.07%
Average yield on interest-bearing assets 7.81%
Average rate on interest-bearing liabilities 4.56%
</TABLE>
<PAGE>
Investment Securities (continued)
Maturity Distribtution of Investment Securities
(in thousands and excluding SFAS No. 115)
<TABLE>
<CAPTION>
No Maturity Yield Within 1 Year Yield 1 to 5 Years Yield 5 to 10 Years Yield Total
----------- ----- ------------- ----- ------------ ----- ------------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasuries/Agencies $ 7,047 6.54% $11,090 5.79% $ 1,891 6.74% $20,028
State/Municipal 950 3.70% 1,645 4.06% 277 5.43% 2,872
Other Securities 775 6.18% 1,999 7.50% 2,774
Equity Securities $11,677 7.48% 11,677
------- ---- ------
Totals $11,677 7.48% $ 8,772 6.20% $14,734 5.83% $ 2,168 6.57% $37,351
======= ==== ======= ==== ======= ==== ======= ==== =======
</TABLE>
Short-term Borrowings
(in thousands)
For each period: 12/31/96 12/31/95
-------- --------
Balance at period end $ 0 $ 0
Weighted average interest rate 5.67% 4.00%
Maximum amount outstanding 2,100 2,000
Maximum amount at any month end 0 2,000
Average amount outstanding 27 500
<PAGE>
Other Income
Other income for the twelve month period ended December 31, 1996 totaled
$2,121,000 as compared to $1,914,000 for the same period ended 1995, an increase
of $207,000 or 10.82%. Other income for the year ended December 31, 1995
decreased from the total in 1994 of $2,974,000 by $1,060,000. Changes in the
level of other income during the periods is primarily attributable to
fluctuations in net investment securities gain consisting of a decrease of
$200,000 from 1995 to 1996 and a decrease of $1,152,000 from 1994 to 1995.
Other Expenses
Other expenses for the twelve month period ended December 31, 1996 totaled
$6,830,000 compared to $6,835,000 for the same period in 1995, a decrease of
$5,000 or 0.07%. The decrease includes an $884,000 decrease in other operating
expenses, related to the 1995 merger of Peoples and New Bethlehem. The decrease
was offset by $447,000 in expenses related to flooding and by $544,000 in
severance packages to executive officers.
Other expenses for the year ended December 31, 1995 increased $257,000 or 3.91%
from $6,578,000 in 1994. The increase is primarily attributable to a $123,000
increase in occupancy expense, including an increase in depreciation expenses of
$68,000, and non-capitalized other operating expenses incident to the merger.
Allowance/Provision for Loan Losses
An allowance for possible loan losses is maintained at a level that management
considers adequate to provide for potential losses based upon an evaluation of
known and inherent risks in the loan portfolio. Management's judgment is based
upon evaluation of individual loans, past loss experience, current economic
conditions and other relevant factors. While management used the best
information available to make such evaluations, future adjustments to the
allowance may be necessary if conditions differ substantially from the
assumptions used in making the evaluation. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's allowance for loan losses. Such agencies may require the Bank to
recognize additions to the allowance based on their judgment of information
available to them at the time of their examination.
The evaluation of the adequacy of the allowance for loan losses includes a
consideration of the following factors: the level and trends in loan
delinquencies and non-accrual loans, the current and anticipated local, regional
and national economic outlook; concentrations of credit risk; historical
charge-off and recovery experience; trends in loan classifications; an
assessment of inherent risk and overall portfolio quality; and, consideration of
PFC Bank's loan origination standards.
Based on this information, management concluded that the Bank's allowance for
loan losses was adequate to provide for known and inherent losses which may
exist in the loan portfolio as of December 31, 1996.
<PAGE>
The provision for loan losses was $75,000 for the twelve month period ended
December 31, 1996 and $60,000 for the same period ended December 31. 1995. The
allowance for loan losses was $1,254,000 at December 1996, which was $10,000
more than the amount at December 31, 1995, of $1,244,000.
The provision for loan losses for the year ended December 31, 1995 as compared
to the year ended December 31, 1994, decreased $132,000 from $192,000 or 68.75%.
The allowance for loan losses of $1,244,000 at December 31, 1995, was $139,000
less than the amount reported at December 31, 1994.
Management recognizes the need to maintain an adequate reserve to meet the
ongoing risks associated with a growing loan portfolio and intends to continue
to maintain the allowance at appropriate levels based on ongoing evaluations of
the loan portfolio. Net loan charge-offs were $64,000 for the twelve month
period ended December 31, 1996. Net loan charge-offs were $199,000 for the year
ended December 31, 1995 as compared to $120,000 for 1994.
Non-performing assets at December 31, 1996 were at 122.48% of the allowance for
possible loan losses at December 31, 1996. At December 31, 1995, non-performing
loans were at 120.89% of allowance for loan losses. Non-performing assets were
at 93.1% of the allowance for possible loan losses at December 31, 1994.
Non-performing assets consist of loans no longer accruing interest, loans
accruing interest past due more than 90 days, restructured loans and other real
estate owned (foreclosed assets).
The following table summarizes the loan portfolio and loan charge-offs for the
five years ended December 31, 1996.
<PAGE>
Allowance/Provision for Loan Losses (continued)
Loan Loss Summary
(in thousands)
<TABLE>
<CAPTION>
Years Ended
----------------------------------------------------------------
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Amount of loans outstanding at end
of period, net of unearned income $137,304 $114,845 $112,818 $103,867 $ 99,380
======== ======== ======== ======== ========
Daily average amounts of loans $124,380 $111,927 $107,758 $101,990 $ 98,202
======== ======== ======== ======== ========
Allowance for loan losses
at the beginning of period $ 1,244 $ 1,383 $ 1,311 $ 1,214 $ 1,132
Loans Charged-off:
Commercial, financial, agriculture 0 113 164 80 831
Real - estate construction 0 0 0 0 0
Real - estate mortgage 0 0 0 0 34
Consumer 107 110 136 135 90
Leasing and other 0 0 0 0 0
-------- -------- -------- -------- --------
Totals 107 223 300 215 955
Recoveries of loans previously charged-off:
Commercial, financial, agriculture 9 10 148 13 10
Real estate - construction 0 0 0 0 0
Real estate - mortgage 28 2 2 12 0
Consumer 5 12 30 15 11
Leasing and other 0 0 0 0 0
-------- -------- -------- -------- --------
Totals 42 24 180 40 21
-------- -------- -------- -------- --------
Net loans charged off $ 65 $ 199 $ 120 $ 175 $ 934
Additions to allowance charged
to operations 75 60 192 272 1,016
-------- -------- -------- -------- --------
Allowance for loan losses $ 1,254 $ 1,244 $ 1,383 $ 1,311 $ 1,214
======== ======== ======== ======== ========
Ratio of net charge-offs during period
to average loans outstanding 0.05% 0.17% 0.11% 0.17% 0.95%
Ratio of reserves to loans at end
of period 0.91% 1.08% 1.23% 1.26% 1.22%
Allocation of Allowance for Loan Losses
Loan Type
Commercial, financial, agriculture $ 600 $ 600 $ 439 $ 481 $ 661
Real estate - construction/mortgage 100 164 193 175 168
Consumer and other 118 140 189 159 110
Not allocated 436 340 562 496 275
-------- -------- -------- -------- --------
Totals $ 1,254 $ 1,244 $ 1,383 $ 1,311 $ 1,214
======== ======== ======== ======== ========
</TABLE>
<PAGE>
Investment Securities
Investments are second only to the loan portfolio when analyzing the source of
PFC's earning assets. In addition to generating revenue, securities provide the
primary source of liquidity and also serve as collateral for public deposits.
PFC historically invests in U.S. Treasury securities, obligations of U.S.
government agencies, obligations of state and political subdivisions, selected
corporate notes and equity securities of other local and regional financial
institutions. Effective January 1, 1995, PFC adopted SFAS No. 115, Accounting
for Certain Investments in Debt and Equity Securities, which requires PFC to
classify investment securities as either held-to-maturity, available-for-sale or
trading. Management has the ability and intent to hold held-to-maturity
securities until maturity. PFC has classified all equity securities as
available-for-sale. There are no securities held in PFC's investment portfolio
which are considered trading securities. Under SFAS No. 115, PFC is required to
adjust the carrying value of its available-for sale securities to market value.
These unrealized gains (losses) are recognized as an increase (decrease) to the
carrying value of such securities; the offset of which is an increase (decrease)
to PFC's net equity, adjusted for the deferred income tax effects thereof. For
the period ended December 31, 1996, PFC's net unrealized gain on
available-for-sale securities was $14.2 million. As of December 31, 1995, the
net unrealized gain was $10.9 million.
PFC's average securities balance for the twelve month period ended December 31,
1996, was $54.7 million, a $4.4 million or 8.75% decrease over the period ended
December 31, 1995. Management elected to deploy funds available primarily from
loan repayments and increases in deposit activity and security maturities into
the loan area in 1995 and 1996, due to declining yields available in investment
markets.
Average federal funds sold and securities sold under agreement to repurchase
were $5.9 million and $6.4 million for the year ended December 31, 1996 and
1995, respectively.
<PAGE>
Loans
As of December 31, 1996, the net loan portfolios of PFC Bank comprised 64.54% of
total consolidated assets as compared with 60.79% and 61.48% for the years
ending December 31, 1995, and 1994, respectively.
Traditionally, PFC Bank has been highly dependent on home mortgage lending.
While this type of loan comprises a large portion of the loan portfolio, PFC
Bank has a wide range of other loans.
While the Bank offers a variety of loans to individual and corporate customers
in Armstrong, Clarion and Indiana Counties of Pennsylvania, they concentrate
their lending activities in residential mortgages in their local market area.
These loans comprised approximately 65.65% of PFC Bank's gross loan portfolio as
of December 31. 1996. As of that date, the remainder of the portfolio was made
up of real estate construction loans comprising loans of 1.86%, commercial and
agricultural loans of 10.09%, consumer loans of 20.23%; and, other loans
comprising 2.17% of the loan portfolio. Although PFC Bank has a significant
concentration of residential and commercial mortgage loans collateralized by
first mortgage liens located in the New Bethlehem Bank and Ford City area, there
is no concentration of loans to borrowers engaged in similar economic activities
which exceed 10% of the loans at December 31, 1996.
The risks associated with the various types of loans placed by PFC Bank are
varied. The practices employed by the Bank in addressing these risks constantly
evolves in response to economic conditions.
With respect to secured real estate lending, PFC Bank has traditionally placed
heavy reliance on collateral value but has recently tightened its lending
policies and is placing more reliance on the borrower's ability to repay. This
has resulted in enhanced formal credit analyses and the addition of a Loan
Review Officer. Because the Bank's market is comprised largely of an outlying
but moderately prosperous section of Pennsylvania, PFC Bank has been somewhat
cushioned from the real estate recessions as well as real estate booms, leaving
values at very conservative levels through the years. The Bank experienced a
decrease in non-performing assets from 1995 to 1996 of $50,000 or 3.3%. Although
foreclosed assets increased by $148,000 or 180.0% both non-accrual and loans 90
days or more past-due decreased by 50% and 18.52%, respectively. The tightening
of lending policies has not decreased loan demand. In fact, total loans as of
December 31, 1996, have increased over the balances at December 31, 1995, but
management believes that the composition of the portfolio has improved. The Bank
intends to continue its policy of performing formal credit analyses in support
of loan requests.
PFC's total consolidated loans (net of unearned income and the allowance for
loan losses) at December 31, 1996, were $136,050,000, an increase of $22,449,000
or 19.76% as compared to $113,601,000 at December 31, 1995. The December 31,
1995, balance increased $2,166,000 or 1.94% over the year ended December 31,
1994. The increase in 1996 was due primarily to an increase in residential
loans. The increase in 1995 over 1994 was due primarily to an increase in
residential and commercial loans, changes in PFC's pricing structure relative to
the marketplace, and a general increase in loan demand due to the economic
environment.
<PAGE>
Loans (continued)
(in thousands and net of unearned income, but not the allowance for loan losses)
<TABLE>
<CAPTION>
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial, financial, agriculture $ 13,859 $ 9,918 $ 7,555 $ 7,871 $ 6,807
Real estate - construction 2,558 947 1,002 1,368 324
Real estate - mortgage 90,129 71,038 73,992 65,509 59,684
Consumer 27,774 30,303 28,403 25,974 27,513
Other 2,984 2,639 1,866 3,145 5,052
-------- -------- -------- -------- -------
Totals $137,304 $114,845 $112,818 $103,867 $99,380
======== ======== ======== ======== =======
</TABLE>
Percent of Loan Categories to Total Loans
<TABLE>
<CAPTION>
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial, financial, agriculture 10.09% 8.63% 6.70% 7.58% 6.85%
Consumer/Other 22.40% 28.69% 26.83% 28.03% 32.77%
Real estate 67.51% 62.68% 66.47% 64.39% 60.38%
------ ------ ------ ------ ------
100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
</TABLE>
Maturity Table as of December 31, 1996
<TABLE>
<CAPTION>
Due
1 year or less 1 - 5 years After 5 years Totals
-------------- ----------- ------------- ------
<S> <C> <C> <C> <C>
Floating rate $ 2,099 $ 0 $ 0 $ 2,099
Fixed rate 25,076 61,541 48,588 135,205
------- ------- ------- --------
$27,175 $61,541 $48,588 $137,304
</TABLE>
<PAGE>
Non-Performing Assets
The table below presents non-performing assets at December 31, 1996, 1995, 1994,
1993 and 1992. Management is not aware of any significant loans outstanding
which are current, but for which there is a serious doubt as to whether the
customer can comply with loan repayment terms.
PFC Bank's non-performing assets consist of: (i) non-accrual loans; (ii) loans
past due 90 days or more as to interest or principal and still accruing
interest; (iii) restructured loans; and, (iv) other real estate acquired through
foreclosure, including in-substance foreclosures.
As part of its policy, PFC Bank places all loans that are past due 90 days or
more on non-accrual status, unless they are adequately capitalized and in the
process of collection.
Properties acquired by foreclosure, or deed in lieu of foreclosure, and
properties classified as in-substance foreclosed are transferred to other real
estate and recorded at the lower of cost or fair market value, less estimated
disposal costs. This method of accounting is consistent with the American
Institute of Certified Public Accountants' Statement of Position 92-3,
Accounting for Foreclosed Assets (SOP 92-3). Management of PFC believes that the
adoption of SOP 92-3 has not had a material impact on the financial statements
of PFC Bank.
Non-Performing Assets
(in thousands)
<TABLE>
<CAPTION>
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 332 $ 498 $ 518 $ 718 $ 858
Accruing loans past due 90 days or more 799 947 1,002 1,368 324
Restructured loans 155 167 83 176 104
Other real estate 230 82 271 163 175
------ ------ ------ ------ ------
Totals $1,516 $1,566 $1,288 $1,475 $1,699
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest income which would have been
recorded under original terms $ 27 $32 $34 $65 $78
Interest income recorded during period 9 14 21 34 20
Commitments to lend additional funds N/A N/A N/A N/A N/A
</TABLE>
<PAGE>
Deposits
PFC Bank continues to rely upon deposits as its primary source of funds.
Deposits consist of interest bearing and non-interest bearing demand deposits,
savings deposits and time deposits.
The table below presents average daily deposits and interest rates and
maturities of time deposits of $100,000 or more for the years ended December 31,
1996, and 1995.
(in thousands)
Deposits
<TABLE>
<CAPTION>
Average Amount Average Rate
--------------------------------------------------
1996 1995 1996 1995
--------------------------------------------------
<S> <C> <C> <C> <C>
Non-interest bearing demand deposits $ 21,320 $ 19,058 -- --
Interest bearing demand deposits 41,665 38,696 3.52% 3.56%
Savings deposits 29,172 29,798 3.19% 3.22%
Time deposits 72,339 68,898 5.64% 5.71%
-------- --------
Totals $164,496 156,450
======== ========
</TABLE>
Maturities of Time Deposits of $100,000 or more
1996 1995
------- -------
Three months or less $ 6,710 $ 3,646
Over three through six months 1,857 2,651
Over six through twelve months 4,536 295
Over twelve months 9,998 8,281
------- -------
Totals $23,101 $12,013
PFC's consolidated deposits balance as of December 31, 1996 was $176,264,000
which was a $19,172,000 increase over December 31, 1995's balance of
$157,092,000. The majority of the deposit growth experienced in 1996 occurred in
time deposits and interest bearing demand deposits.
Liquidity
PFC Bank's liquidity is a measure of its ability to fund loans, withdrawals of
deposits and other cash outflows in a cost effective and timely manner.
PFC Bank's principal sources of funds are deposits, scheduled payments and
pre-payments of loan principal, maturities of investment securities and
short-term investments, and other funds provided by operations. While loan
payments and maturing investments are a relatively predictable source of funds,
deposit flows are greatly influenced by general interest rates, economic
conditions and competition. In order to meet the cash needs for 1996, PFC Bank
maintained an average balance of federal funds sold of $5.9 million for the 12
months ended December 31, 1996, as compared to $6.4 million at December 31,
1995. At December 31, 1996, PFC held $8.8 million of investment securities and
$27.2 million of loans maturing in less than one year. PFC Bank also has the
option to borrow funds from the Federal Home Loan Bank and the Federal Reserve
Bank. Management believes that the Bank's liquidity position is adequate at the
present time.
<PAGE>
Interest Rate Sensitivity
The objective of interest rate sensitivity management is to minimize the Bank's
risks associated with changing interest rates by managing interest sensitive
assets and liabilities in such a manner that they can be repriced in response to
changes in market interest rates. PFC Bank's objective is to maintain a
reasonable balance between rate sensitive assets and rate sensitive liabilities.
The difference between interest sensitive assets and liabilities (i.e. balance
sheet gap) cannot solely be used to control interest rate sensitivity. Interest
rates themselves must be monitored and adjusted to maintain an acceptable return
on assets. Management's ability to forecast and simulate rate movements allows
changes to be made quickly and advantageously. Although management recognizes
PFC Bank's highly liability sensitive position, it continues to evaluate its
earning assets versus liabilities to reduce this gap. Management believes the
gap ratio, as indicated in the table below, is acceptable. Management's study of
the Bank's primary core deposit base revealed that even in times of interest
rate fluctuation, the base has remained stable. As a result, management believes
that these core deposits (demand, NOW and savings accounts) are not necessarily
tied to interest rate sensitivity.
Interest Sensitivity Cumulative Gap Analysis
(in thousands)
<TABLE>
<CAPTION>
December 31, 1996
0-3 0-6 0-12 0-5
Assets: Months Months Months Years
------ ------ ------ -----
<S> <C> <C> <C> <C>
Investment Securities $ 1,495 $ 5,318 $ 8,798 $ 23,533
Loans 9,676 15,908 28,065 89,653
Federal Funds sold 7,325 7,325 7,325 7,325
Other 22 22 22 22
-------- -------- -------- --------
Total Earning Assets $ 18,516 $ 28,573 $ 44,210 $120,533
======== ======== ======== ========
Liabilities:
NOW Accounts $ 7,544 $ 7,544 $ 7,544 $ 7,544
MMDA 13,308 13,308 13,308 13,308
(more than) $100,000 6,710 8,567 13,103 23,001
(less than) $100,000 10,936 21,153 34,890 56,461
-------- -------- -------- --------
Total interest-bearing liabilities $ 38,498 $ 50,572 $ 68,845 $100,314
======== ======== ======== ========
Cumulative gap (19,982) (21,999) (24,635) 20,219
Cumulative gap ratio .48 .57 .64 1.20
</TABLE>
<PAGE>
Peoples Financial Corp., Inc.
Changes in Interest Income/Expense
(in thousands)
<TABLE>
<CAPTION>
December 31
1996 vs. 1995
Increase/Decrease due
to change in
-----------------------------------
Interest income on: Volume Rate Net
------- ----- -----
<S> <C> <C> <C>
Loans $ 1,106 $(161) $ 945
Investment securities (748) 628 (110)
Tax-free investment securities 0 0 0
Federal funds sold and securities purchased (30) (40) (70)
------- ----- -----
Total interest-earning assets $ 328 $ 427 $ 765
=====
Interest expense on:
Demand deposits $ 106 $ (17) $ 89
Savings deposits (20) (9) (29)
Time deposits 197 (51) 146
Short-term borrowings (48) 20 (28)
------- ----- -----
Total interest-bearing liabilities $ 235 $ (57) $ 178
======= ===== =====
</TABLE>
<TABLE>
<CAPTION>
December 31
1995 vs. 1994
Increase/Decrease due
to change in
-------------------------------------
Interest income on: Volume Rate Net
------ ----- ------
<S> <C> <C> <C>
Loans $188 $ 318 $ 506
Investment securities (203) (52) (255)
Tax-free investment securities 0 0 0
Federal funds sold and securities purchased 243 (118) 125
---- ----- ------
Total interest-earning assets $228 $ 148 $ 376
==== ===== ======
Interest expense on:
Demand deposits $ (9) $ 0 $ (9)
Savings deposits (85) 31 (54)
Time deposits 527 605 1,132
Short-term borrowings (55) 0 (55)
---- ----- ------
Total interest-bearing liabilities
$378 $ 636 $1,014
==== ===== ======
</TABLE>
<TABLE>
<CAPTION>
December 31
1994 vs. 1993
Increase/Decrease due
to change in
-------------------------------------
Interest income on: Volume Rate Net
------- ------ -----
<S> <C> <C> <C>
Loans $ 816 $ (766) $ 50
Investment securities (1,456) 1,267 (189)
Tax-free investment securities 0 0 0
Federal funds sold and securities purchased (6,302) 6,296 (6)
------- ------ -----
Total interest-earning assets $(6,942) $6,797 $(145)
======= ====== =====
Interest expense on:
Demand deposits $ (219) $ 79 $(140)
Savings deposits 28 100 128
Time deposits 60 16 77
Short-term borrowings 55 0 55
------- ------ -----
Total interest-bearing liabilities $ (76) $ 195 $ 120
======= ====== =====
</TABLE>
<PAGE>
Capital Resources
Capital resources are provided by common stock, capital surplus and retained
earnings. The objective of management is to emphasize current and future capital
needs based upon anticipated growth.
PFC Bank has historically maintained an adequate capital position. The
regulations of the FDIC require it to maintain a Leverage Ratio, Tier I Capital
to Risk-Weighted Assets Ratio, and a Total Capital to Risk-Weighted Asset Ratio
of 3%, 4%, and 8%, respectively. PFC Bank exceeds each of these ratios as shown
in the following table representing PFC Bank at December 31, 1996, not including
SFAS No. 115.
PFC Bank
Leverage Ratio 8.62%
Tier I Capital to Risk
Weighted Assets 13.23%
Total Capital to Risk
Weighted Assets 14.21%
Return on Equity and Assets
<TABLE>
<CAPTION>
12/31/96 12/31/95 12/31/94 12/31/93
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Return on Assets
(net income divided by avg. total assets) 1.13% 0.76% 0.98% 1.25%
Return on Equity
(net income divided by average equity) 11.90% 7.22% 7.49% 17.78%
Equity to assets ratio
(average equity divided by avg. total assets) 9.54% 10.56% 13.15% 7.03%
</TABLE>
ITEM 7 - FINANCIAL STATEMENTS
The financial statements required by this Item are set forth in Part II, Item 6
hereof.
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
Part III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS
The following information details the age, principal business
experience during the past five years, the period during which the person has
served, the position and office that each person has held with PFC or PFC Bank,
a description of the family relationships among the directors and the executive
officers, and any material legal proceedings involving the director within the
last five years. Each director was elected in 1996 to serve a one-year term.
Frank T. Baker, Ph.D. (Age 61). Dr. Baker recently retired as a
professor at Indiana University of Pennsylvania. He has served as a director of
PFC since its formation in 1984 and has served as a director of Peoples since
1973. Mr. Baker has served as a director of PFC Bank since 1995.
E. Andrew Dunmire (Age 33). Mr. Dunmire is an architect, presently
employed with the company of Eat'n Park Restaurants. He has served as a director
of both PFC and Peoples since 1992. He has served as a director of PFC Bank
since 1995. He also served as a director of the merged New Bethlehem Bank. Mr.
Dunmire is the son of C. Edward Dunmire.
C. Edward Dunmire (Age 59). Mr. Dunmire was recently terminated as
President/CEO of both PFC and PFC Bank in April 1996. He has served as a
director of PFC since its formation in 1984 and has served as a director of
Peoples since 1965. He has served as a director of PFC Bank since 1995. He also
served as a director of the merged New Bethlehem Bank. Mr. Dunmire is the father
of E. Andrew Dunmire.
David P. Fennell (Age 53). Mr. Fennell recently retired as President of
both PFC and PFC Bank in December 1996. He has served as a director of PFC since
its formation in 1984 and has served as a director of Peoples since 1976. He
also served as a director of the merged New Bethlehem Bank. Mr. Fennell has also
served as a director of PFC Bank since 1995.
Marlin F. Foreman (Age 93). Mr. Foreman has been retired for more than
five years. He has served as a director of PFC since its formation in 1984 and
has served as a director of Peoples since 1977. Mr. Foreman has served as a
director of PFC Bank since 1995.
Darl Hetrick (Age 74). Mr. Hetrick is a partner of Hetrick Farm Supply.
He has served as a director of Peoples since 1993. He also served as director of
the merged New Bethlehem Bank since 1983 and as Vice President of New Bethlehem
Bank from 1986 until its merger. Mr. Hetrick has served as a director of PFC
Bank since 1995.
Francis E. Kane (Age 77). Mr. Kane has been retired for more than five
years. He has served as a director of PFC since its formation in 1984 and has
served as a director of Peoples since 1955. Mr. Kane has served as a director of
PFC Bank since 1995.
Raleigh B. Robertson (Age 68). Mr. Robertson is Chairman and CEO of PFC
and PFC Bank. He has served as a director of PFC and Peoples since 1993. He has
served as a director of PFC Bank since 1995. He also served as director of
the merged New Bethlehem Bank. Mr. Robertson is the father of Raleigh B.
Robertson, Jr.
William H. Toy (Age 67). Mr. Toy is self-employed in the dry cleaning
and wholesale linen business. He has served as a director of PFC and Peoples
since 1992. He has served as a director of PFC Bank since 1995.
Frank L. Doverspike (Age 90). Mr. Doverspike retired in 1995 as owner
of Doverspike's General Store in Distant, Pennsylvania. He has served as a
director of PFC and PFC Bank since 1995. He also served as a director of the
merged New Bethlehem Bank since 1949.
<PAGE>
Brian Henry (Age 43). Mr. Henry is self-employed in the health care
industry. He serves as Secretary of PFC and PFC Bank. He has served as a
director of PFC and PFC Bank since 1995. He also served as a director of the
merged New Bethlehem Bank.
Raleigh B. Robertson, Jr. (Age 45). Mr. Robertson is a partner in R.B.
Robertson & Son, a gas and oil business. He has served as a director of PFC and
PFC Bank since 1995. He also served as a director of the merged New Bethlehem
Bank. He is the son of Raleigh B. Robertson.
J. Jack Sherman ( Age 59). Mr. Sherman is President of Tionesta Sand &
Gravel, Inc., an aggregates supplier. He has served as a director of PFC and PFC
Bank since 1995. He also served as a director of the merged New Bethlehem Bank.
Howard H. Shreckengost (Age 59). Mr. Shreckengost is employed by the
Char-Val Candy Company. He has served as a director of PFC and PFC Bank since
1995. He also served as a director of the merged New Bethlehem Bank.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Corporation's officers and directors, and persons who own more than 10 percent
of the registered class of the Corporation's equity securities, to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Officers, directors and greater than 10 percent shareholders
are required by SEC regulation to furnish the Corporation with copies of all
Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it or written
representations from certain reporting persons that no Forms 5 were required for
those persons, the Corporation believes that during the period January 1, 1996
through December 31, 1996, its officers and directors were in compliance with
all filing requirements applicable to them.
<PAGE>
ITEM 10 - EXECUTIVE COMPENSATION
The following table provides information concerning the aggregate annual
remuneration of the highest paid persons (exceeding $100,000) who were officers
or directors of PFC and PFC Bank during 1996.
Summary Compensation Table
Annual Compensation 1994 - 1996
<TABLE>
<CAPTION>
NAME TITLE YEAR SALARY BONUS OTHER
---- ----- ---- ------ ----- -----
<S> <C> <C> <C> <C> <C>
C. Edward Dunmire Terminated Pres./CEO 1996 66,710 3,000 5,670 (1)
4/96 1995 204,734 12,000 --
1994 197,065 50,000 --
David P. Fennell Retired President 1996 124,659 -0- --
12/96 1995 135,593 12,000 --
1994 129,738 53,000 --
Raleigh B. Robertson Chairman/CEO 1996 62,330 40,000 47,084 (2)
1995 -- 42,000 86,977 (3)
1994 128,880 38,000 3,780 (4)
</TABLE>
- ----------
(1) Includes $5,670 in Directors Fees paid by PFC Bank.
(2) Includes $38,000 appraisal fees and $9,084 in Directors fees.
(3) Includes $36,000 Consulting Fee, $32,914 appraisal fees, and $18,063 in
Directors Fees.
(4) Includes $3,780 in Directors Fees paid by Peoples.
On April 17, 1996, the employment of C. Edward Dunmire as President and Chief
Executive Officer of PFC and PFC Bank was terminated. Mr. Dunmire had employment
agreements with three year terms that, without a non-renewal notice by the Board
of Directors, would automatically extend for an additional twelve months upon
the anniversary date of the agreements. Mr. Dunmire filed a complaint with the
Equal Employment Opportunity Commission and made certain claims against PFC, as
described in the Settlement Agreement, which is attached as Exhibit 10.1 to this
Report. PFC made certain claims, also as described in the Settlement Agreement,
against Mr. Dunmire. On December 30, 1996, PFC, PFC Bank and Mr. Dunmire entered
into a Settlement Agreement under which each party denied the other's respective
allegations and mutually released each party from all claims arising out of any
transaction or event that occurred prior to the date of the Settlement
Agreement. The Settlement Agreement also provided that Mr. Dunmire withdraw,
with prejudice, his outstanding complaint before the Equal Employment
Opportunity Commission. Mr. Dunmire also released PFC and PFC Bank from payment
of any compensation under the employment agreements, PFC or PFC Bank's various
health and welfare plans and qualified and non-qualified pension plans, except
those certain insurance coverages and monthly pension benefits, all as fully
described in the Settlement Agreement. Pursuant to the Settlement Agreement a
one-time payment of $467,594.54 was made to Mr. Dunmire. The description of the
terms of the Settlement Agreement is qualified in its entirety by reference to
Exhibit 10.1 attached hereto, and incorporated herein by reference.
On December 27, 1996, PFC and PFC Bank offered voluntary early retirement to
then President David P. Fennell, which Mr. Fennell subsequently accepted. The
General Release, which is attached as Exhibit 10.2 to this Report, provides for
continuation of current benefits and salary until the expiration date of Mr.
Fennell's then current employment agreement. In addition, the General Release
provides Mr. Fennell with a non-qualified pension benefit, equal to the
difference between Mr. Fennell's benefit, had he continued to be employed to age
fifty-five and the amount of individual COBRA premiums for a period of eighteen
months from June 1, 1998, or until the termination of those COBRA rights under
the law, whichever occurs first. PFC Bank established a specific reserve of
$230,000.00 to fund the non-qualified pension benefit and a specific reserve of
$191,977.08 to fund the remainder of Mr. Fennell's
<PAGE>
employee agreement and COBRA payments. The description of the General Release is
qualified in its entirety by reference to Exhibit 10.2, attached hereto, and
incorporated herein by reference.
On November 11, 1996, PFC Bank terminated its non-qualified defined benefit
pension plan for Messrs. Dunmire, Fennell, Kifer and Robertson. The benefits
payable thereunder were equal to 65% of the average annual salary for the last
five years of service, reduced by those years of service less than 19 years, and
further reduced by any annual payment received under any defined benefit plan.
The nonqualified defined benefit pension plan was funded through mutual funds,
as well as insurance and annuity policies. As a result of the termination, the
specific reserve of $412,791.40 was released.
PFC Bank provides term life insurance for all of its employees at the rate of
two time annual salary.
<PAGE>
The following table provides information concerning Board of Director fees,
bonuses and committee fees for the year ended December 31, 1996, of all
directors of PFC and PFC Bank.
Directors Compensation 1996
<TABLE>
<CAPTION>
LOAN
DIRECTOR OFFICER COMMITTEE TOTAL
NAME FEE FEE FEE BONUS FEES
---- -------- ------- --------- ----- -----
<S> <C> <C> <C> <C>
Frank T. Baker 7,560 -- 2,336 5,000 14,896
Frank L. Doverspike 7,560 -- 7,008 5,000 19,568
C. Edward Dunmire 5,670 -- -- 3,000 8,670
E. Andrew Dunmire 7,560 -- -- 3,000 10,560
David P. Fennell -- -- -- -0- -0-
Marlin Foreman 7,560 -- -- 3,000 10,560
Brian Henry 7,560 10,000 -- 9,000 26,560
Darl Hetrick 7,560 3,600 7,008 5,000 23,168
Francis Kane 7,560 -- -- 3,000 10,560
R.B. Robertson 3,780 1,800 3,504 40,000 49,084
R.B. Robertson, Jr 7,560 -- 7,008 5,000 19,568
Howard Shreckengost 7,560 -- 7,008 5,000 19,568
J. Jack Sherman 7,560 -- -- 3,000 10,560
William H. Toy 7,560 -- 7,008 5,000 19,568
------ ------ ------ ------ -------
92,610 15,400 40,880 94,000 242,890
</TABLE>
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 1, 1997, the name and address of
each person who owns of record or who is known by the management of PFC to be
the beneficial owner of more than five percent of the PFC Common Stock
outstanding, the number of shares beneficially owned by such person and the
percentage of PFC Common Stock owned. As of December 31, 1996 and March 1, 1997,
there were 879,990 shares of PFC Common Stock outstanding.
<TABLE>
<CAPTION>
Percent of
Number of Outstanding
Shares PFC Common
Beneficially Stock Beneficially
Name and Address Owned Owned
---------------- ------------ ------------------
<S> <C> <C>
J. Jack Sherman 99,351 11.29%
PO Box 324
Tionesta, Pennsylvania 16353
C. Edward Dunmire 67,304 7.65%
425 Pine Hill Road
Kittanning, Pennsylvania 16201
Howard H. Shreckengost 60,337 (1) 6.86%
406 Vine St.
New Bethlehem, Pennsylvania 16242
Maxine Orr 57,875 (1) 6.58%
518 Wood St.
New Bethlehem, Pennsylvania 16242
</TABLE>
- ---------------------
(1) Of these shares, 56,776 are held jointly by Mr. Shreckengost and Ms. Orr.
<PAGE>
The following table sets forth, as of March 1, 1997, the amount and percentage
of PFC Common Stock outstanding and beneficially owned by each director and
executive officer of PFC and by all such persons as a group. The address for
each is Ford Street and Fourth Avenue, Ford City, Pennsylvania, 16226. C. Edward
Dunmire and E. Andrew Dunmire are father and son. Also, R.B. Robertson and R.B.
Robertson, Jr. are father and son. R.B. Robertson is Chairman and Chief
Executive Officer and James L. Kifer is Executive Vice President. As a group,
these persons own collectively 387,586 shares or approximately 44.04% of the PFC
Common Stock outstanding as of March 1, 1997.
Name of Individual Amount and Nature
or Identity of of Beneficial Percent
Group Ownership Ownership
------------------ ----------------- ---------
Frank T. Baker 26,108 2.97%
Frank L. Doverspike 34,182 3.88%
E. Andrew Dunmire 2,231 0.25%
C. Edward Dunmire 67,304 7.65%
David P. Fennell 6,104 0.69%
Marlin F. Foreman 10,440 1.19%
Brian Henry 100 .01%
Darl Hetrick 30,124 3.42%
Francis E. Kane 6,111 0.69%
James L. Kifer 200 0.02%
Raleigh B. Robertson 22,011(1) 2.50%
Raleigh B. Robertson, Jr 8,456(1) 0.96%
J. Jack Sherman 99,351 11.29%
Howard H. Shreckengost 60,337 6.86%
William H. Toy 17,857 2.03%
(All Officers and Directors as a Group, 387,586 44.04%
15 Persons in Total)
- ----------
(1) Includes 3,330 shares held jointly by Raleigh B. Robertson and Raleigh B.
Robertson, Jr.
<PAGE>
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PFC Bank has a policy of granting loans to eligible directors, officers,
employees and members of their immediate families. Loans are made in the
ordinary course of business and on the same terms, including collateral
requirements and interest rates, as those prevailing at the time for comparable
transactions and do not involve more than the normal risk of collection. The
table below sets forth information concerning each loan made by PFC Bank to
executive officers, directors and major shareholders, for which a loan balance
was outstanding at any time since January 1, 1996.
<TABLE>
<CAPTION>
LARGEST AMOUNT
DATE OF OUTSTANDING SINCE BALANCE
NAME POSITION LOAN JAN. 1, 1996 DEC. 31, 1996
- ---- -------- ------- ----------------- -------------
<S> <C> <C> <C> <C>
C. Edward Dunmire Director various 88,794 73,186
E. Andrew Dunmire Director various 147,395 137,961
Frank T. Baker Director 1993 71,757 52,003
David P. Fennell Director 1995 14,403 -0-
Brian Henry Director 1995 199,842 197,100 (1)
Darl Hetrick Director 216,551 166,124 (2)
</TABLE>
- -------------------
(1) Includes loans to Ray-War Holdings, Inc., of $143,018.05 and $54,081.65
(2) Comprised of third party receivables associated with equipment sales by Mr.
Hetrick's farm supply business. The receivables were purchased by PFC Bank
from Mr. Hetrick with recourse to Mr. Hetrick in the event of non-payment
by the equipment purchaser.
ITEM 13 - EXHIBIT AND REPORTS ON FORM 8-K.
(a) The following Exhibits are filed herewith, or incorporated by
reference as a part of this Report:
3(i) Registrant's Articles of Incorporation.
(Incorporated by Reference to Registrant's January
27, 1995, filing on Form S-4.)
3(ii) Registrant's By-Laws.
(Incorporated by Reference to Registrant's January
27, 1995, filing on Form S-4.)
10(i) Settlement Agreement and Release, dated December
30, 1996, among C. Edward Dunmire, the Registrant and
Peoples Bank of PA.
10(ii) General Release of David P. Fennell
11 Statement re: Computation of Earnings Per Share.
(Included at Exhibit 13, page 3, Consolidated
Statements of Income.)
13 Excerpts from Registrant's 1996 Annual Report to
Shareholders.
21 Subsidiaries of the Registrant.
20 Notice of Annual Meeting and Proxy Statement.
23 Consent of Independent Auditors.
(Included at Exhibit 13, page 1, Independent Auditors
Report.)
(b) No Current Report on Form 8-K was filed by the Registrant
during the fourth quarter of the 1996 fiscal year.
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereto duly authorized.
Peoples Financial Corp., Inc.
(Registrant)
March 21, 1997 By R.B. Robertson
-------------------------------
R.B. Robertson
Chairman/CEO
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.
Signature Title Date
- --------- ----- ----
/s/ R.B. Robertson Chairman/CEO March 27, 1997
- -------------------------- and Director
R.B. Robertson
/s/ Darl Hetrick Vice President and Director March 27, 1997
- --------------------------
Darl Hetrick
/s/ William H. Toy Director March 26, 1997
- --------------------------
William H. Toy
/s/ Frank L. Doverspike Director March 27, 1997
- --------------------------
Frank L. Doverspike
/s/ Howard H. Shreckengost
- --------------------------
Howard H. Shreckengost Director March 27, 1997
/s/ Francis E. Kane
- -----------------------
Francis E. Kane Director March 27, 1997
/s/ Brian Henry Secretary and March 28, 1997
- ----------------------- Director
Brian Henry
/s/ Marlin Foreman Director March 28, 1997
- -----------------------
Marlin Foreman
/s/ R.B. Robertson, Jr. Director March 28, 1997
- -----------------------
R.B. Robertson, Jr.
/s/ Frank Baker Director March 28, 1997
- -----------------------
Frank Baker
/s/ J. Jack Sherman Director March 28, 1997
- -----------------------
J. Jack Sherman
/s/ James L. Kifer Executive VP March 28, 1997
- ----------------------- Principal Financial Officer and
James L. Kifer Principal Accounting Officer
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX PAGE #
------------- ------
<S> <C> <C>
3(i) Registrant's Articles of Incorporation.
(Incorporated by Reference to Registrant's January 27, 1995,
filing on Form S-4.)
3(ii) Registrant's By-Laws.
(Incorporated by Reference to Registrant's January 27, 1995,
filing on Form S-4.)
10(i) Settlement Agreement and Release, dated December 30, 1996, among
C. Edward Dunmire, the Registrant and Peoples Bank of PA.
10(ii) General Release of David P. Fennell.
11 Statement re: Computation of Earnings Per Share.
(Included at Exhibit 13, page 3, Consolidated Statements of Income.)
13 Excerpts from Registrant's 1996 Annual Report to Shareholders ......... 61
20 Notice of Annual Meeting and Proxy Statement
21 Subsidiaries of the Registrant ...................................... 71
23 Consent of Independent Auditors.
(Included at Exhibit 13, page 1, Independent Auditors Report.)
27 Financial Data Schedule
</TABLE>
SETTLEMENT AGREEMENT AND RELEASE
THIS SETTLEMENT AGREEMENT AND RELEASE (the "Agreement") is made as of
December 30, 1996 by and among C. Edward Dunmire, an individual and resident of
the Commonwealth of Pennsylvania (the "Executive"), and Peoples Financial Corp.,
Inc. ("PFC"), a Pennsylvania corporation with its principal place of business in
Ford City, Pennsylvania, and Peoples Bank of Pa. ("Peoples"), a wholly-owned
subsidiary of PFC.
WITNESSETH:
WHEREAS, Executive and PFC entered into an employment
agreement on June 1, 1992 (the "PFC Employment Agreement");
WHEREAS, Executive and New Bethlehem Bank ("NBB") entered into
an employment agreement on June 1, 1992 (the "NBB Employment Agreement");
WHEREAS, Executive and Peoples entered into an employment agreement on
June 10, 1992 (the "Peoples Employment Agreement");
WHEREAS, each of NBB and Peoples instituted a non-qualified pension
plan (the "NQPP") for the benefit of certain key employees including Executive;
WHEREAS, in 1995, NBB was merged (the "Merger") with and into Peoples
with Peoples surviving the Merger;
WHEREAS, as a result of the Merger, Peoples is liable to Executive
under the NBB Employment Agreement and the NBB sponsored NQPP;
WHEREAS, PFC and Peoples terminated the employment of Executive with
the PFC and Peoples on or about April 17, 1996; and
WHEREAS, Executive has filed a complaint with the Equal Employment
Opportunity Commission (the "EEOC") alleging discrimination based on age and the
existence of certain disabilities; and
WHEREAS, Executive has made claims against PFC and Peoples for wrongful
discharge, breach of contract and personal injury resulting in damage to his
business reputation; and
WHEREAS, PFC and Peoples deny the various allegations of the Executive;
and
WHEREAS, PFC and Peoples have made claims against Executive with
respect to use of certain property and funds; and
<PAGE>
WHEREAS, Executive denies the various allegations of PFC and Peoples;
and
WHEREAS, the Executive, PFC and Peoples desire to put to rest and
settle all controversy between them related to and/or arising out of Executive's
employment with PFC and Peoples and provide for the termination of Executive's
employment with PFC and Peoples and the facts and circumstances underlying same,
and to settle and compromise any and all claims and differences between them, of
any sort, origin or description in order to put an end to the cost and
uncertainties inherent in litigation.
NOW THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Termination of Employment. The Executive shall cease to be an
employee of PFC and Peoples effective as of April 17, 1996 (the "Termination
Date").
2. Effect of Termination. Except as expressly provided in this
Agreement, the Executive shall have no obligations to PFC and/or Peoples and PFC
and/or Peoples shall have no obligations to the Executive from and after the
Termination Date. Without limiting the generality of the foregoing, PFC and
Peoples shall have no obligation to the Executive with respect to salary,
bonuses and other incentive compensation, fringe benefits, severance pay or
other termination benefits, pension, profit-sharing or other retirement or
deferred compensation payments under plans qualified under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code") (except as required in
accordance with the terms of such plans and applicable law), any other incentive
or deferred compensation payments under plans not so qualified, and any health,
life, disability, or other welfare benefit plans, programs or arrangements,
including but not limited to the following:
(a) New Bethlehem Bank Non-Qualified Pension Plan; and
(b) Peoples Bank of PA Non-Qualified Pension Plan.
Except for the payments and benefits described in Section 3 of
this Agreement, the Executive waives any and all of the foregoing compensation
and benefits that may have accrued prior to the Effective Date and shall not be
entitled to receive any of the foregoing compensation or benefits after the
Termination Date.
<PAGE>
3. Termination Benefits. The Executive shall receive the following
termination benefits, subject to Section 6 hereof:
(a) PFC and Peoples shall provide to the Executive, those certain
miscellaneous benefits set forth on Annex I hereto.
(b) Upon execution of this Agreement, PFC and Peoples shall deposit
the sum of $467,594.54 in immediately available funds with Kirkpatrick &
Lockhart LLP (the "Escrow Agent") in escrow for the benefit of the parties
hereto. Such sum shall represent the total of all amounts payable to Executive
pursuant to items 1, 4, 5 and 6 on Annex III hereto and shall hereinafter be
referred to as the "Escrowed Funds". Upon the eighth day first following the
execution of the Supplemental Release set forth on Annex II attached hereto and
incorporated herein by reference, the Escrow Agent shall pay the Executive the
Escrowed Funds. In the event the Executive shall fail to sign such Supplemental
Release within five (5) days of the date hereof, this Agreement shall terminate
and the Escrow Agent shall return the Escrowed Funds to PFC and Peoples.
(c) The execution of this Agreement by the Executive shall
constitute a qualifying event, as described in Section 4980B(f)(3) of the Code,
with respect to the Executive's health care continuation rights under the
Consolidated Omnibus Budget Reconciliation Act, as amended, and an election of
continuation coverage by the Executive, as described in Section 4980B(f)(1) of
the Code, beginning on the Effective Date, for the period described in Section
4980B(f)(2)(B). As a result of this election, the Executive shall receive health
care continuation coverage from PFC and Peoples for the period May 1, 1996
through July 31, 2002, subject to the terms and conditions of PFC's and Peoples'
existing health care programs and arrangements and Section 4980B(f) of the Code.
The premiums for such health care continuation coverage shall be paid by PFC and
Peoples. Since May 1, 1996 Executive has paid $2,469.52 to PFC or Peoples for
premiums for such health care continuation coverage. As indicated on item 5 on
Annex III, the Escrowed Funds include reimbursement to Executive of such
premiums paid to date by Executive. The health care continuation coverage
provided to the Executive hereunder shall be in complete satisfaction of his
rights to health care continuation coverage under the Consolidated Omnibus
Budget Reconciliation Act, as amended, and Section 4980B(f) of the Code and
shall discharge the PFC's and Peoples' obligations thereunder with respect to
the Executive.
(d) PFC and Peoples shall provide the benefits listed as items 2 and
3 on Annex III.
PFC and Peoples do not plan to withhold federal, state or local income
or other taxes for any amounts, payable to Executives hereunder however,
notwithstanding the foregoing, to the extent that any of the foregoing benefits
<PAGE>
are subject to federal, state or local income or other taxes and believes, in
good faith, that it is required by applicable law to withhold any such taxes in
respect of any payment or benefit, PFC and Peoples shall make withholding in the
amounts as it determines, in good faith, appropriate and shall remit those
amounts to the appropriate taxing agencies. Notwithstanding any withholding for
such taxes, PFC' and Peoples' obligations shall be limited to those imposed on
employers for withholding for income and, if applicable, payroll taxes under
applicable law and the Executive shall be responsible for the timely reporting
of income and payment of income taxes thereon.
4. Confidential and Proprietary Information; Press Releases.
(a) The Executive shall make available to PFC within five (5) days
after the date of this Agreement, all written materials, documents and other
information in his possession relating to PFC, Peoples and NBB and its
management and business. The Executive shall make available to PFC within five
(5) days after the date of this Agreement, all other property of PFC, Peoples
and NBB in his possession. The Executive acknowledges that, by virtue of his
position with PFC and Peoples, he has had access to certain confidential and
proprietary information of PFC, Peoples and NBB and its business affairs. The
Executive represents that he has held all such information confidential and that
he shall keep secret all confidential and/or proprietary matters relating to
PFC, Peoples and NBB, whether or not specifically designated as such, and shall
not disclose them for any purpose whatsoever to any outside party without the
prior written consent of PFC and Peoples.
(b) No party hereto will issue or make any reports, statements
or releases to the public with respect to this Agreement or the transactions
contemplated hereby without the consent of the other parties hereto, which
consent shall not be unreasonably withheld. If any party hereto is unable to
obtain, after reasonable effort, the approval of its public report, statement or
release from the other parties hereto and such report, statement or release is,
in the opinion of legal counsel to such party, required by law in order to
discharge such party's disclosure obligations, then such party may make or issue
the legally required report, statement or release and promptly furnish the other
parties with a copy thereof. Except as provided in this Section 4(b), the
parties agree not to disclose any information whatsoever regarding the existence
or substance of this Agreement to any person other than to their attorneys,
financial advisors and those needed to perform tasks to effectuate this
Agreement, or as is otherwise required by law. Executive may make oral
statements to the public to the effect that his employment with PFC, NBB and
Peoples has been terminated and that the parties have reached an agreement
<PAGE>
settling all claims each may have against the other. In addition PFC and Peoples
will take all actions necessary to assure that employees of PFC and Peoples who
are acquaintances of Executive or his family feel free to speak with Executive
and his family about any and all matters except for the termination of
Executive's employment and the content of this Agreement.
5. Acknowledgment and Mutual Release.
(a) The Executive acknowledges that the payments and benefits he is
to receive pursuant to this Agreement shall be in full satisfaction of all
claims, if any, against PFC and Peoples, its subsidiaries and other affiliates,
and their respective shareholders, directors, officers, employees and agents,
past and present. PFC and Peoples, on behalf of themselves and their respective
subsidiaries, affiliates, shareholders, directors, employees and agents,
acknowledge that this Agreement shall be in full satisfaction of all claims, if
any, against Executive and his heirs and assigns. Except for the obligations of
the respective parties under this Agreement, and except as set forth in Section
5(c) hereof, each of the Executive on the one hand, and PFC and Peoples on the
other hand, does, for himself or itself, and his or its heirs, personal
representatives, successors and assigns, hereby irrevocably release, promise,
quitclaim and discharge, in the case of the Executive, PFC and Peoples, its
subsidiaries and other affiliates, their respective stockholders, directors,
officers, employees and agents, past and present, and PFC's and Peoples
predecessors, successors and attorneys, and in the case of PFC and Peoples, the
Executive and his heirs and personal representatives, of and from any and all
manner of actions, causes of action, claims, suits, debts, dues, sums of money,
controversies, agreements, promises and demands whatsoever, both at law and in
equity, known or unknown, arising under any federal, state or local law, rule,
ordinance or regulation (including any common law), which he or it now have or
ever had or may in the future have, for, upon, or by reason of any matter, cause
or thing whatsoever from the beginning of the world to the date of this
Agreement for, on account of or arising out of any transactions or events that
have occurred prior to the execution and delivery of this Agreement. This
release is unqualified and for any relief, no matter how called, including,
without limitation, wages, back pay, front pay, compensatory damages, liquidated
damages, punitive damages, damages for pain or suffering, costs, attorneys' fees
and expenses and claims to be reinstated to employment with PFC and Peoples.
(b) Executive shall cause to be discharged with prejudice that
certain complaint pending before the Equal Employment Opportunity Commission, C.
Edward Dunmire v. Peoples Bank of PA (Division of PFC Bank), New Bethlehem Bank
(Division of PFC Bank), PFC Bank and Peoples Financial Corp., Inc., No.
172-960859.
<PAGE>
(c) Notwithstanding anything to the contrary in this Agreement, the
following shall not be included in the releases given by the parties:
(i) any claim by Executive for workers compensation or other
benefits arising from the automobile accident involving
Executive which occurred on November 19, 1993;
(ii) any amounts due by Executive to Peoples pursuant to that
certain mortgage loan, dated November 15, 1990, in the original
principal amount of $94,400.00;
(iii) any and all amounts due to Executive with respect to
deposit accounts held by Executive at Peoples; and
(iv) any amounts due by Executive to James Hetrick, son of Darl
Hetrick, a director of Peoples and PFC pursuant to that certain
note dated September 7, 1994, in the original principal amount
of $50,000 and that certain note dated January 11, 1996, in the
original principal amount of $15,000.
6. Breach of Agreement.
(a) Except as hereinafter provided, in the event that it is
determined the Executive breaches any provision of this Agreement, PFC and
Peoples shall be relieved of any and all obligations to make further payments or
provide further benefits to the Executive hereunder (except to the extent
provided by law). Except as hereinafter provided, in the event that it is
determined that PFC or Peoples has breached any provision of this Agreement,
Executive shall be relieved of any and all obligations to abide further with the
terms of this Agreement. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be determined settled in accordance
with the provisions of subsection (b) below.
(b) If any dispute arises under this Agreement, any party may from
time to time deliver written notice to the other party that he or it intends to
submit such dispute to arbitration. Such arbitration shall be held in
Pittsburgh, Pennsylvania, in accordance with the rules and regulations of the
American Arbitration Association by a panel of three arbitrators. The
determination of the arbitrators shall be conclusive and binding upon the
parties to such arbitration proceeding and judgment upon the award may be
entered in any court having jurisdiction. The expenses of each party, including
<PAGE>
legal and accounting fees, if any, with respect to the arbitration, shall be
borne by such party, except to the extent otherwise directed by the arbitrators,
who shall endeavor to allocate such expenses among the disputing parties based
upon the relative merits of their cases. The arbitrators shall designate the
party to bear the expenses of the arbitrators or the respective amounts of such
expenses to be borne by each party. Any provision in this Agreement to the
contrary notwithstanding, each party shall be free to seek provisional equitable
relief from a court of competent jurisdiction (whether or not an arbitration
proceeding shall then be pending). No arbitration pursuant to this Agreement
shall be stayed or delayed pending the outcome of any judicial or other
proceeding.
7. Notices. Any notice or other communication required or permitted
under this Agreement shall be effective only if it is in writing and delivered
personally or sent by registered or certified mail, postage prepaid, addressed
as follows:
If to PFC or Peoples:
Peoples Financial Corp., Inc.
Ford Street and Fourth Avenue
Ford City, PA 16226
Attention: President
If to the Executive:
C. Edward Dunmire
425 Pill Hill Road
Kittanning, PA 16201
or to such other address as either party may designate by notice to the other,
and shall be deemed to have been given upon delivery in person or upon deposit
in the mail.
8. Miscellaneous.
(a) The failure of a party to this Agreement to insist on any
occasion upon strict adherence to any term of this Agreement shall not be
considered to be a waiver or to deprive that party of the right thereafter to
insist upon strict adherence to that term or any other term of this Agreement.
Any waiver must be in writing.
(b) If any provision of this Agreement shall be invalid or
unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
<PAGE>
(c) This Agreement constitutes the entire understanding of the
parties with respect to its subject matter, supersedes all prior agreements and
understandings with respect to such subject matter, and may be terminated or
amended only by a writing signed by all of the parties to this Agreement.
(d) The provisions of this Agreement shall be governed by and
construed in accordance with the law of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed in the Commonwealth of
Pennsylvania.
(e) The headings in this Agreement are for convenience of reference
only and are not intended to be a part of or affect the meaning or
interpretation of this Agreement.
(f) This Agreement is personal to the parties hereto and cannot be
assigned or transferred by either party without the express written consent of
the other party. This Agreement shall inure to the benefit of and be binding
upon the Executive, his heirs representatives and permitted assigns, and PFC and
Peoples and their respective successors and permitted assigns.
(g) All payments and benefits to the Executive called for under this
Agreement shall be made from the general assets of PFC and Peoples and the
Executive shall have no rights in any such payments and benefits greater than
the rights of a general creditor of PFC and Peoples. Notwithstanding the
foregoing, those benefits to be paid to the Executive which are in the nature of
pension benefits shall be afforded the same protection and guarantees as similar
benefits payable to other retirees of PFC or Peoples.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the day and year first above written.
EXECUTIVE:
/s/ Richard D. Rose /s/ C. Edward Dunmire
Witness C. Edward Dunmire
ATTEST: PEOPLES FINANCIAL CORP., INC.
By: /s/ Brian Henry By: /s/ R. B. Robertson
Secretary Title: CEO/Chairman
PEOPLES BANK OF PA.
By:_______________________ By:_________________________
By: /s/ Brian Henry By: /s/ R. B. Robertson
Secretary Title: CEO/Chairman
<PAGE>
ANNEX I
MISCELLANEOUS
BENEFITS
PFC and Peoples will maintain at their cost for the benefit of
Executive during the period beginning on the date of the Agreement and ending on
May 31, 1998 (other than medical benefits which will be provided until Executive
attains age 65), the following benefits (as in effect on October 31, 1996):
o Term Life Insurance, Accidental Death and Dismemberment
Benefit*
o Dental/Vision Direct Reimbursement Plan**
o Medical Expense Direct Reimbursement Plan**
o Other employee benefits (other than qualified retirement
plan benefits) provided to full-time employees of PFC and
Peoples
- -------------
* This benefit may be continued by Executive after May 31, 1998 at Executive's
expense. In addition, the benefits offered through AFLAC which have been
maintained at the election of Executive and at his cost may be continued at
Executive's sole cost after the date of the Agreement.
** Medical and dental benefits will be maintained at levels equal to or
exceeding the coverages provided at the time of termination of Executives
employment.
<PAGE>
ANNEX II
SUPPLEMENTAL RELEASE
The undersigned, C. Edward Dunmire (the "Executive") acknowledges that
the payment he is to receive pursuant to Section 3(b) of the Settlement
Agreement and Release dated as of December 30, 1996, among the Executive,
Peoples Financial Corp., Inc., a Pennsylvania corporation ("PFC"), and Peoples
Bank of Pa. ("Peoples"), PFC and Peoples collectively referred to as the
"Company", shall be in full satisfaction of all claims, if any, against the
Company, its subsidiaries and other affiliates, and their respective
stockholders, directors, officers, employees and agents, past and present, and
in consideration of such payment the Executive hereby executes this release.
Each of the Executive on the one hand, and the Company on the other
hand, does, for himself or itself, and his or its heirs, personal
representatives, successors and assigns, hereby irrevocably release, promise,
quitclaim and discharge, in the case of the Executive, the Company, its
subsidiaries and other affiliates, their respective shareholders, directors,
officers, employees and agents, past and present, and the Company's
predecessors, successors and attorneys, and in the case of the Company, and the
Executive and his heirs and personal representatives, of and from any and all
manner of actions, causes of action, claims and suits whatsoever, both at law
and in equity, known or unknown, arising under the Civil Rights Act of 1974, as
amended, the Age Discrimination in Employment Act of 1967, as amended, and the
Americans With Disabilities Act which he or it now have or ever had or may in
the future have, for, upon, or by reason of any matter, cause or thing
whatsoever from the beginning of the world to the date hereof for, on account of
or arising out of his employment by the Company or the termination thereof that
have occurred prior to the execution and delivery of this Release.
This Release is unqualified and for any relief, no matter how called,
including, without limitation, wages, back pay, front pay, compensatory damages,
liquidated damages, punitive damages, damages for pain or suffering, costs,
attorneys' fees and expenses and claims to be reinstated to employment with the
Company.
The Executive represents that he has carefully read this Release, that
he has been given the opportunity to receive the advice of the attorney of his
choice with respect to this Release and to have an attorney explain to him the
<PAGE>
terms of this Release, that he accepts full responsibility and consequences of
his action or non-action in this regard, that he knows and understands the
content of this Release, that he executes this Release knowingly and voluntarily
as his own free act, that the terms of this Release are totally satisfactory and
thoroughly understood by him, and that this Release was freely negotiated and
entered into without fraud, duress or coercion. The Executive acknowledges that
he was given at least twenty-one (21) days in which to consider this Release and
that he may revoke this Release for a period of seven (7) days from the date set
forth below.
This Release is executed in connection with the above-mentioned
Separation Agreement and shall be construed and interpreted in accordance with
the applicable terms thereof (including, but not limited to, the choice of law
specified in Section 8(e) thereof).
WITNESS the due execution hereof as of this 30th day of December, 1996.
WITNESS: EXECUTIVE
/s/ Richard D. Rose_____ /s/ C. Edward Dunmire
C. Edward Dunmire
ATTEST: PEOPLES FINANCIAL CORP., INC.
By:/s/ Brian Henry______ By: /s/ R. B. Robertson
ATTEST: PEOPLES BANK OF PA.
By:/s/ Brian Henry______ By: /s/ R. B. Robertson
<PAGE>
ANNEX III
SEPARATION PAYMENTS
1. In settlement of Executive's various claims PFC and Peoples will pay
Executive FOUR HUNDRED FIFTY THOUSAND DOLLARS ($450,000) in immediately
available funds.
2. A monthly pension benefit payable under qualified defined benefit
plans in effect for PFC, Peoples and NBB assuming a pension starting date of
June 1998 (the "Monthly Pension Benefit"). As derived from the attached Schedule
A the Monthly Pension Benefit assuring a starting date of June 1998 will be
$5,209.58. The Monthly Pension Benefit is subject to actuarial adjustment if the
pension starting date is extended beyond June 1998. Such actuarial adjustment
will be determined by PFC's then actuaries, provided, however, that the method
and assumptions used for such determination shall be consistent with those used
for Schedule A.
3. Distribution of Executive's account balance under the Peoples 401(k)
plan (after inclusion of contributions for the 1996 plan year and after
inclusion of the "company match" with respect to sum payable or item 1.).
4. PFC and Peoples shall reimburse Executive the reasonable legal fees
of Executive with respect to this Settlement Agreement and Release and the
employment issues contemplated hereby in an amount not to exceed $15,000.
5. PFC and Peoples shall reimburse Executive the sum of $2,469.52
representing the health insurance continuation premium paid by Executive since
May 1996 (to be increased by $308.69 per month prior to the consummation of this
Agreement).
6. PFC and Peoples shall reimburse Executive the sum of $125.02 for
costs associated with 1995 Christmas decorating and removal advanced by
Executive.
<PAGE>
GENERAL RELEASE
NOTICE to David P. Fennell (hereinafter "the undersigned"), if you sign
this Release, you will be giving up all rights you may have to sue (and to
institute other legal proceedings against) and to recover damages from PFC BANK
and PFC Financial Corporation (hereinafter "PFC") and/or any persons affiliated
with PFC on account of any act or omission alleged to have occurred prior to the
date this Release is signed and becomes effective.
You are, therefore, advised to review this Release carefully and to
consult with an attorney of your choice before signing this Release. You have
twenty one (21) days after the date you receive this to decide whether or not to
sign it. If you decide to sign this, you can change your mind and revoke the
Release at any time within seven (7) days after the date you sign this Release.
To revoke your signature on this, you must give written notice of revocation to
PFC BANK. Notice is not deemed to be given until received by PFC BANK.
RELEASE
I.
FOR AND IN CONSIDERATION of the execution of this Release by the
undersigned, PFC agrees to provide the following:
1. continued health care coverage and other insurance benefits under
the terms of the current contract until June 1, 1998;
2. salary continuation under the terms of the current employment
contract;
3. a non-qualified pension benefit in the amount of the computed
difference between the amount of pension benefit that the undersigned
would have received had he continued to be employed at age fifty-five
(55) and the amount of pension benefit that he will be eligible to
receive upon election of this early retirement benefit as set forth in
the following chart:
-1-
<PAGE>
QUALIFIED NONQUALIFIED TOTAL
1,341.19 $ 1,658.93 $ 3,000.12
1,471.41 $ 1,559.75 $ 3,031.16
1,615.41 $ 1,449.97 $ 3,065.38
1,774.94 $ 1,328.35 $ 3,103.29
1,951.81 $ 1,193.52 $ 3,145.33
2,148.23 $ 1,043.78 $ 3,192.01
3,517.43 $ 0.00 $ 3,517.43
4. compensation in the amount of the undersigned's individual COBRA
premiums for a period of eighteen months from June 1, 1998, or until
the termination of his COBRA rights under the law, whichever occurs
first.
Payment of the benefits cited above, to the undersigned, shall begin within a
reasonable time following written notice from the undersigned to PFC stating
affirmatively that he has not exercised his right to revoke this Release as
provided for in Paragraph IV. hereof. Such written notice shall be sent to:
Mr. R.B. Robertson
Director
PFC BANK
Ford Street and Fourth Avenue
P.O. Box 311
Ford City, PA 16226-0311
Such notice shall not be sent until the seven (7) day period for
revocation specified in Paragraph IV. hereof has expired.
II.
FOR AND IN CONSIDERATION of the agreements and commitments set forth in
Paragraph I. hereinabove, (and with the specific exceptions referred to in
Paragraph III. hereof relating to profit sharing or other retirement benefits
and benefits under COBRA) the undersigned does hereby knowingly and voluntarily
release and forever discharge, both jointly and severally, PFC and all of its
subsidiaries, divisions, affiliates, whether or not the existence of such
entities is now known to the undersigned, and their officers, directors,
employees, shareholders, servants, agents and attorneys, in their official and
individual capacities, together with their predecessors, successors and/or
assigns from any and all actions, causes of action, suits, debts, dues, sums of
-2-
<PAGE>
money, accounts, damages, judgments, claims and/or demands whatsoever, in law or
in equity, (hereinafter collectively referred to as "claims"), whether known or
unknown to the undersigned, which the undersigned ever had, now has or may or
might in the future have against PFC based on any acts, omissions, transactions
or occurrences whatsoever occurring prior to or on the date of execution of this
Release (hereinafter referred to as "Release"), and specifically, but not by way
of limitation, from those claims which are, or arise by reason of or are in any
way connected with or which are or may be based in whole or in part on, or do or
may arise out of, or are or may be related to or with (I) the employment
relationship which existed between the undersigned and PFC and subsequent
termination thereof; (ii) those claims arising under any state fair employment
practices act and/or any law, ordinance or regulation promulgated by any county,
municipality or other state subdivision; (iii) those claims for breach of duty
and/or implied covenant of good faith and fair dealing; (iv) those claims for
interference with and/or breach of contract (express or implied, in fact or in
law, oral or written); (v) those claims for retaliatory or wrongful discharge of
any kind; (vi) those claims for intentional or negligent infliction of emotional
distress or mental anguish; (vii) those claims for outrageous conduct; (viii)
those claims for interference with business relationships, contractual
relationships or employment relationships of any kind; (ix) those claims for
breach of duty, fraud, fraudulent inducement to contract, breach of right of
privacy, libel, slander, or tortious conduct of any kind; (x) those claims
arising under Title VII of the Civil Rights Act of 1964, 42 U.S.C. ss. 2000e, et
seq.; (xi) those claims arising under the Age Discrimination in Employment Act,
29 U.S.C. ss. 621 et seq.; (xii) those claims arising under the National Labor
Relations Act, 29 U.S.C. ss. 151 et seq.; (xiii) those claims arising under the
Americans with Disabilities Act, 42 U.S.C. ss. 12101 et seq.; (xiv) those claims
arising under the Civil Rights Act of 1866 or 1871, 42 U.S.C. ss. 1981 et seq.;
(xv) those claims arising under any state or federal handicap or disability
discrimination law or act; (xvi) those claims arising from any damages suffered
at any time after the date of this Release by reason of the effects or continued
effects of any alleged or actual discriminatory or wrongful acts which occurred
on or before the date of the execution of this Release; (xvii) those claims
arising under or in reliance upon any statute, regulation, rule or ordinance
(local, state or federal); (xviii) any and all other claims arising under the
law or in equity; and (xix) any and all other claims asserted or which could
have been asserted by the undersigned in any other charges or claims of alleged
violation of any applicable law, rule, ordinance or regulation.
III.
Without limiting the generality of the foregoing, the undersigned
acknowledges and covenants that, in consideration for the agreements and
commitments set forth in Paragraph I. hereof, the undersigned has knowingly and
voluntarily relinquished, waived and forever released any and all remedies which
might otherwise be available to him including, without limitation, claims for
contract or tort damages, punitive or exemplary damages, special damages,
compensatory damages, consequential damages, lost benefits of any kind
including, without limitation, life insurance, sick pay, severance pay or
medical benefits, recovery of attorneys' fees, costs, expenses of any kind,
reinstatement to a position of employment or reemployment with PFC. [It is
understood and agreed that the waiver of benefits contained in the preceding
sentence does not include the waiver of any vested, nonforfeitable pension,
profit sharing or other
-3-
<PAGE>
retirement benefits to which the undersigned is entitled through an existing or
prior retirement or profit sharing program, nor does that waiver include
benefits to which the undersigned is entitled under COBRA.] The undersigned
further covenants not to sue PFC or to participate in any way in any suit or
proceeding or to execute, seek to impose, collect or recover upon or otherwise
enforce or accept any judgment, decision, award, warranty or attainment upon any
claim released herein.
IV.
The undersigned agrees and covenants that he has carefully reviewed,
studied and thought over the terms of this Release and that all questions
concerning this Release have been answered to his satisfaction. The undersigned
acknowledges that he is hereby advised and encouraged to consult with his
private attorney prior to executing this Release. The undersigned further agrees
and covenants that prior to execution of this Release, he was encouraged and
afforded the opportunity to review it with anyone else he desired to consult
including his accountant or tax advisor, and that, to the extent desired, he has
availed himself of that opportunity. The undersigned does further acknowledge
and agree that he was given a period of at least twenty one (21) days within
which to consider this Release, that he has had this Release in his possession
for a reasonable amount of time, and that he has had the opportunity to consider
and reflect upon the terms of this Release before signing or executing it. The
undersigned does further acknowledge and agree that he knowingly and voluntarily
entered into and executed this Release after deliberate consideration and that
he was not coerced, pressured or forced in any way by PFC or anyone else to
accept the terms of this Release, and that the decision to accept the terms of
this Release was entirely his own after full consultation with his attorney. The
undersigned also acknowledges and agrees that he fully understands that he may
be giving up certain legal rights by entering into this Release and that he
shall have no right to reinstatement or reemployment with PFC following his
execution of this Release based upon any claim(s) released herein. The
undersigned also acknowledges that no promise or inducement to enter into and
execute this Release has been offered or made except as herein set forth. The
undersigned also acknowledges that he understands that he has seven (7) days to
revoke this Release following its execution by mailing written notice or
revocation within that seven (7) day period to:
Mr. R.B. Robertson
Director
PFC BANK
Ford Street and Fourth Avenue
P.O. Box 311
Ford City, PA 16226-0311
-4-
<PAGE>
V.
The undersigned acknowledges and agrees that, should he fail or refuse
to execute this Release, or should he revoke this Release as provided in
Paragraph IV. above, all obligations of PFC, including the obligation to provide
payments to the undersigned as set forth herein shall be entirely null, void and
of no effect.
VI.
Notwithstanding any other provisions of this Release, no term or
provision of this Release is to be interpreted as waiving or releasing any
prospective claims based upon acts, omissions or events occurring after its
execution.
VII.
This Release shall be binding upon the undersigned and his heirs,
executors, administrators, assigns, successors, beneficiaries, employees and
agents, and all other persons asserting claims by, on behalf of, or through the
undersigned based or founded upon any of the claims released herein. All terms
of this Release shall inure to the benefit of PFC and its predecessors,
successors and assigns.
VIII.
It is understood and agreed that the provisions of this Release are
severable, and should any provision or provisions hereof be found unenforceable,
the other provisions shall remain fully valid and enforceable.
IX.
The undersigned covenants and agrees not to disclose any of the
consideration provided to him pursuant to this Release to any person other than
his attorney or tax advisor without the prior written consent of PFC. The
undersigned covenants and agrees that should he disclose the terms of this
Release to his attorney or his tax advisor, he shall obtain from each such
person an agreement to not disclose the consideration provided according to this
Release.
X.
This Release constitutes the entire agreement between the undersigned
and PFC pertaining to the subjects contained in them and supersedes any and all
prior and/or contemporaneous agreements, representations, or understandings,
written or oral. It is expressly understood and agreed that this Release may not
be altered, amended, modified or otherwise changed in any respect or particular
whatsoever except in writing duly executed by the undersigned and an authorized
representative of PFC. The pronouns "he," "his," and "him" used in this Release
are intended to refer to the undersigned regardless of the undersigned's gender.
This Release is
-5-
<PAGE>
intended to fully, completely and forever resolve all disputes based upon
events, omissions or acts occurring on or prior to its execution as well as all
other issues or claims in any way arising out of or connected with the prior
employment of the undersigned with PFC and/or its predecessors or the
termination of that employment.
IN WITNESS WHEREOF, the undersigned has executed this Release on the
date set forth below.
WITNESS:
- --------------------------------- ------------------------------------
David P. Fennell
------------------------------------
Date
-6-
<PAGE>
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
December 31, 1996, 1995 and 1994
CONTENTS PAGE
Independent Auditors' Report.............................................. 1
Consolidated Balance Sheets............................................... 2
Consolidated Statements of Income......................................... 3
Consolidated Statements of Changes in Stockholders' Equity................ 5
Consolidated Statements of Cash Flows..................................... 7
Notes to Consolidated Financial Statements................................ 9
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Peoples Financial Corp., Inc.
New Bethlehem, Pennsylvania
We have audited the accompanying consolidated balance sheets of Peoples
Financial Corp., Inc. and subsidiary (the Company) as of December 31, 1996 and
1995 and the related consolidated statements of income, changes in stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1996. 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 Peoples Financial
Corp., Inc. and subsidiary as of December 31, 1996 and 1995, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ Edwards Leap & Sauer
-------------------------------
Edwards Leap & Sauer
Pittsburgh, Pennsylvania
January 31, 1997
-1-
<PAGE>
CONSOLIDATED BALANCE SHEETS
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 8,944,707 $ 8,950,917
Federal funds sold 7,325,000 2,275,000
Available-for-sale securities 25,315,225 22,585,170
Held-to-maturity securities (market value of
$25,885,993 and $33,195,443 at
December 31, 1996 and 1995, respectively) 25,674,119 32,717,094
Federal Home Loan Bank stock, at cost 569,500 601,500
Loans receivable, net 136,050,197 113,601,195
Premises and equipment, net 3,748,922 3,573,279
Other assets 3,184,521 2,583,416
------------ ------------
Total Assets $210,812,191 $186,887,571
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $ 20,860,522 $ 18,447,009
Interest bearing 155,404,110 138,645,341
------------ ------------
Total deposits 176,264,632 157,092,350
Deferred taxes 5,921,816 4,855,893
Accrued interest and other liabilities 1,757,592 1,565,254
------------ ------------
Total liabilities 183,944,040 163,513,497
Stockholders' Equity
Common stock, par value $0.30, 5,000,000 shares
authorized, 879,990 shares issued and outstanding 264,247 264,247
Surplus 3,849,750 3,849,750
Retained earnings 13,377,522 12,067,816
Net unrealized holding gains on
available-for-sale securities 9,376,632 7,192,261
------------ ------------
Total stockholders' equity 26,868,151 23,374,074
------------ ------------
Total Liabilities and Stockholders' Equity $210,812,191 $186,887,571
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-2-
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Interest Income
Loans $10,890,677 $ 9,943,821 $ 9,432,607
Investment securities 2,734,704 2,848,176 3,103,280
Interest bearing deposits 3,469 1,912 6,594
Federal funds sold 303,927 374,251 249,022
----------- ----------- -----------
Total interest income 13,932,777 13,168,160 12,791,503
Interest Expense
Deposits 6,475,388 6,299,006 5,285,075
----------- ----------- -----------
Net Interest Income 7,457,389 6,869,154 7,506,428
Provision for Loan Losses 75,000 60,000 192,441
----------- ----------- -----------
Net Interest Income after
Provision for Loan Losses 7,382,389 6,809,154 7,313,987
Other Income
Service fees 1,067,337 661,204 568,183
Net investment security gains 1,053,326 1,252,974 2,405,359
----------- ----------- -----------
Total other income 2,120,663 1,914,178 2,973,542
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Other Expenses
Salaries $ 2,178,002 $ 2,108,730 $ 2,214,873
Pension and other employee
benefits 805,041 846,253 897,326
Occupancy expense 1,089,451 947,920 824,959
Legal and professional fees 234,434 251,345 269,201
Regulatory fees and deposit
insurance 35,139 351,322 385,667
Data processing 226,005 292,730 244,545
Separation expenses 544,322 -- --
Other 1,717,868 2,036,701 1,741,491
----------- ----------- -----------
Total other expenses 6,830,262 6,835,001 6,578,062
----------- ----------- -----------
Income Before Income Taxes
and Minority Interest 2,672,790 1,888,331 3,709,467
Provision for Income Taxes 562,651 346,714 1,030,426
----------- ----------- -----------
Income Before Minority
Interest 2,110,139 1,541,617 2,679,041
Minority Interest -- (163,499) (806,755)
----------- ----------- -----------
Net Income $ 2,110,139 $ 1,378,118 $ 1,872,286
=========== =========== ===========
Net Income per Share of
Common Stock $ 2.40 $ 1.76 $ 3.03
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Net Unrealized
Capital Retained Holding Gains Treasury
Stock Surplus Earnings (Losses) Stock
-------- ---------- ----------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1993 $250,000 $3,628,600 $ 9,098,098 $ -- $ --
Cumulative effect of
change in
accounting principle 10,621,279
Sale of 3,360 shares
of common stock 1,008 80,102
Net income 1,872,286
Cash dividends (150,104)
Changes in net
unrealized holding
gains (losses) on
available-for-sale
securities (5,628,366)
Change in minimum
pension liability (19,302)
Acquisition of
treasury stock (8,581,100)
-------- ---------- ----------- ----------- ----------
Balance at
December 31, 1994 251,008 3,708,702 10,800,978 4,992,913 (8,581,100)
Sale of 1,685 shares
of common stock 506 39,935
Net income 1,378,118
Cash dividends (620,763)
Changes in net
unrealized holding
gains (losses) on
available-for-sale
securities 2,199,348
Change in minimum
pension liability 27,227
Merger activity
Exchange of PFC
stock due to
merger 12,733 101,113
Acquisition of
subsidiary
minority interest 9,063,356
Re-authorization
of treasury stock (8,581,100) 8,581,100
-------- ---------- ----------- ----------- ----------
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
Net Unrealized
Capital Retained Holding Gains Treasury
Stock Surplus Earnings (Losses) Stock
-------- ---------- ----------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 $264,247 $3,849,750 $12,067,816 $7,192,261 $ --
Net income 2,110,139
Cash dividends (809,591)
Changes in net
unrealized holding
gains (losses) on
available-for-sale
securities 2,184,371
Change in minimum
pension liability 9,158
-------- ---------- ----------- ----------- ----------
Balance at
December 31, 1996 $264,247 $3,849,750 $13,377,522 $9,376,632 $ --
======== ========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-6-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,110,139 $ 1,378,118 $1,872,286
Adjustments to reconcile
net cash from operating
activities:
Depreciation and
merger amortization 584,626 564,053 496,781
Net amortization /
accretion of premiums
and discounts 17,383 3,852 50,960
Net investment security
gains (1,053,326) (1,252,974) (2,405,359)
Provision for loan losses 75,000 60,000 192,441
Net loss on disposal of
fixed assets 52,963 148,282 60,117
Reinvestment of stock
dividends (85,384) (80,740) (84,683)
Minority interest -- 163,499 806,755
Increase (decrease)
cash due to changes in
assets and liabilities:
Other assets (642,346) (563,416) (316,887)
Accrued interest and
other liabilities 159,594 764,936 (453,355)
----------- ----------- ----------
Net Cash From
Operating Activities $ 1,218,649 $ 1,185,610 $ 219,056
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of
available-for-sale securities $ 1,926,307 $ 2,046,274 $ 3,735,620
Proceeds from maturities of
held-to-maturity securities 9,250,000 7,060,882 17,974,031
Purchase of held-to-maturity
securities (2,189,655) (5,576,865) (11,534,270)
Purchase of available-for-sale
securities (230,293) (50,400) (41,000)
Net sales (purchases) of
FHLB stock 32,000 (14,800) (69,600)
Net loans made to customers (22,594,327) (2,002,474) (9,071,290)
Net purchases of premises
and equipment (743,741) (496,101) (1,036,549)
----------- ----------- ----------
Net Cash From (Used By)
Investing Activities (14,549,709) 966,516 (43,058)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 19,184,441 3,103,988 (1,191,959)
Proceeds from issuance of
common stock -- 40,441 81,110
Dividends paid (809,591) (693,283) (440,184)
Purchase of preferred stock -- -- (10,000)
Purchase of common stock -- -- (8,581,100)
Net proceeds (repayments)
from FHLB advances -- (2,175,000) 2,175,000
----------- ----------- ----------
Net Cash From (Used By)
Financing Activities 18,374,850 276,146 (7,967,133)
----------- ----------- ----------
Net Change in Cash and
Cash Equivalents 5,043,790 2,428,272 (7,791,135)
Cash and Cash Equivalents
at Beginning of Year 11,225,917 8,797,645 16,588,780
----------- ----------- ----------
Cash and Cash Equivalents
at End of Year $16,269,707 $11,225,917 $8,797,645
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-8-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1996, 1995 and 1994
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
accounts of Peoples Financial Corp., Inc. and its wholly-owned subsidiary, PFC
Bank. All significant intercompany accounts have been eliminated in the
consolidation. Peoples Financial Corp., Inc. transacts no other material
business.
Nature of Operations: Peoples Financial Corp., Inc. and its wholly-owned
subsidiary, PFC Bank (collectively referred to as the Bank), is a full service
commercial banking institution and provides a variety of financial services to
individuals and corporate customers in Armstrong, Clarion and Indiana counties
through its 5 branches and main office located in New Bethlehem, Pennsylvania.
The Bank's primary deposit products are non-interest and interest-bearing
checking accounts, savings accounts and certificates of deposit. Its primary
lending products are single-family and multi-family residential loans.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the valuation
of real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowances for loan losses
and the valuation of foreclosed real estate, management obtains independent
appraisals for significant properties.
Investment Securities: The Bank accounts for its investments in debt and equity
securities in accordance with Statement of Financial Accounting Standards (SFAS)
No. 115, Accounting for Certain Investments in Debt and Equity Securities. SFAS
No. 115 requires all investments in debt and equity securities to be classified
into three categories. Securities which management has positive intent and
ability to hold until maturity are classified as held-to-maturity.
Held-to-maturity securities are stated at cost, adjusted for amortization of
premium and accretion of discount computed on a level yield basis. Securities
that are bought and held principally for the purpose of selling them in the near
term are classified as trading securities. All other securities are classified
as available-for-sale securities. Unrealized holding gains and losses for
trading securities are included in earnings. Unrealized holding gains and losses
for available-for-sale securities are excluded from earnings and reported net of
income taxes as a separate component of stockholders' equity until realized. At
this time, management has no intention of establishing a trading securities
classification.
Adoption of SFAS No. 115 as of January 1, 1994, resulted in a net increase in
available-for-sale securities of $16,092,847 in recognition of net unrealized
holding gains and a $10,621,279, net of deferred income tax, increase in
stockholders' equity.
-9-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1996, 1995 and 1994
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Interest and dividends on investment securities are reported as interest income.
Gains and losses realized on sales of investment securities represent the
differences between net proceeds and carrying values determined by the specific
identification method.
Loans Receivable and Allowance for Loan Losses: Loans are stated at unpaid
principal balances, less the allowance for loan losses and unearned discounts.
Unearned discounts on installment loans are recognized as income over the term
of the loans using a method that approximates the interest method.
The allowance for loan losses is maintained at a level which, in management's
judgment, is adequate to absorb potential losses inherent in the loan portfolio.
The amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions. Allowances for impaired loans generally are
determined based on collateral values or the present value of estimated cash
flows. The allowance is increased by a provision for loan losses, which is
charged to expense, and reduced by charge-offs, net of recoveries. Loans are
placed on non-accrual status when they are 90 days past due, unless they are
adequately collateralized and in the process of collection.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation computed on both the straight-line and accelerated
methods over the estimated useful lives of the assets. Costs for maintenance and
repairs are expensed in the current period. The costs associated with major
additions or improvements are capitalized.
Other Real Estate Owned (OREO): Real estate acquired in satisfaction of a loan
and in-substance foreclosures are reported in OREO. In-substance foreclosures
are properties in which a borrower, with little or no equity in the collateral,
effectively abandons control of the property or has no economic interest to
continue involvement in the property. The borrower's ability to rebuild equity
based on current financial conditions would also be considered doubtful.
Properties acquired by foreclosure or deed in lieu of foreclosure and properties
classified as in-substance foreclosures are transferred to OREO and recorded at
the lower of cost or fair value, less estimated costs to sell. Costs to maintain
the assets, subsequent write-downs to reflect declines in the fair value of the
properties, and subsequent gains and losses related to their disposal are
included in non-interest income and expenses.
Employee Retirement Plan: The Bank accounts for retirement plan liabilities in
accordance with SFAS No. 87, Employer's Accounting for Pensions. The plan is
funded in accordance with the Employee Retirement Income Security Act of 1974.
SFAS No. 87 requires the recognition of liabilities for the plan based on the
actuarially calculated benefits that have accrued through the date of the
calculation.
-10-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1996, 1995 and 1994
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes: The Bank accounts for income taxes in accordance with SFAS No.
109, Accounting for Income Taxes, which requires an asset and liability approach
to financial accounting and reporting for income taxes. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
Earnings per Share: Earnings per share is calculated using the weighted average
number of shares outstanding. The weighted average shares outstanding was
879,990, 785,057 and 617,042 for the years ended December 31, 1996, 1995 and
1994, respectively.
Cash Equivalents: For purposes of the Statements of Cash Flows, the Bank
considers all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents. This includes the balance sheet captions
of "Cash and due from banks" and "Federal funds sold".
Reclassifications: Certain previously reported items have been reclassified to
conform with the current year's classifications. The reclassifications have no
effect on total assets, total liabilities and stockholders' equity, or net
income.
NOTE B - MERGER
Effective April 1, 1995, Peoples Bank of PA, the wholly owned subsidiary of
Peoples Financial Corp., Inc., completed a merger under which it acquired all of
the remaining outstanding stock of New Bethlehem Bank, a subsidiary of which,
until merger, Peoples Bank of PA owned 53.05%. New Bethlehem Bank was and, now
as a division of PFC Bank, is a full service commercial banking institution with
offices in New Bethlehem and Clarion, Clarion County, Pennsylvania. As part of
the merger, Peoples Bank of PA changed its corporate name to PFC Bank and
designated two divisions, the Peoples Bank of PA Division and the New Bethlehem
Bank Division.
-11-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1996, 1995 and 1994
NOTE B - MERGER (CONTINUED)
The transaction, which was accounted for as an acquisition of a minority
interest under the purchase method of accounting, resulted in a tax free
exchange of stock under which each outstanding share held by New Bethlehem Bank
shareholders, exclusive of shares held by those exercising dissenters' rights,
was exchanged for 183.15 shares of Peoples Financial Corp., Inc., with no cash
exchanging hands, with the exception of the purchase of fractional shares. Under
the purchase method, the portion of the assets and liabilities of New Bethlehem
Bank relating to the minority interest being acquired was re-valued to fair
market value on the date of the merger. Because substantially all of the assets
and liabilities of New Bethlehem Bank were carried at amounts approximating fair
value as a result of the adoption of recent accounting pronouncements (see Notes
A and C regarding investment securities), there was very little change in the
valuation as a result of the merger except for the costs of acquisition of
approximately $220,000, which consisted primarily of expenses relating thereto.
These expenses were allocated primarily to goodwill (approximately $170,000) and
the balance was allocated to other assets and liabilities. The goodwill is being
amortized on the straight-line basis over 15 years. Had the acquisition occurred
on January 1, 1995, the 1995 net income and earnings per share on a pro-forma
basis would have been $1,541,617 and $1.85 per share, respectively (unaudited).
In order to complete the merger, Peoples Financial Corp., Inc. returned its
shares of treasury stock as of December 31, 1994 to authorized but un-issued
status.
NOTE C - INVESTMENT SECURITIES
Available-for-sale securities consist of the following:
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Galns Losses Value
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Equity securities $ 11,108,207 $ 14,207,018 $ - $ 25,315,225
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Galns Losses Value
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Equity securities $ 11,687,806 $ 10,897,364 $ - $ 22,585,170
</TABLE>
-12-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1996, 1995 and 1994
NOTE C - INVESTMENT SECURITIES (CONTINUED)
Held-to-maturity securities consist of the following:
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Galns Losses Value
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $19,506,510 $ 176,802 $ 81,402 $19,601,910
Obligations of U.S.
government agencies 648,206 - 2,004 646,202
Obligations of state
and political
subdivisions 2,871,540 4,648 29,619 2,846,569
Corporate notes 2,647,863 143,449 - 2,791,312
----------- ------------ --------- -----------
$25,674,119 $ 324,899 $ 113,025 $25,885,993
=========== ============ ========= ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Galns Losses Value
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $22,117,737 $ 490,757 $ 13,869 $22,594,625
Obligations of U.S.
government agencies 1,595,746 2,250 4,005 1,593,991
Obligations of state
and political
subdivisions 3,283,450 5,678 48,428 3,240,700
Corporate notes 5,720,161 55,014 9,048 5,766,127
----------- ------------ --------- -----------
$32,717,094 $ 553,699 $ 75,350 $33,195,443
=========== ============ ========= ===========
</TABLE>
-13-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1996, 1995 and 1994
NOTE C - INVESTMENT SECURITIES (CONTINUED)
Gross realized gains and losses on sales of available-for-sale securities were:
1996 1995 1994
----------- ----------- -----------
Gross Realized Gains:
Obligations of U.S. Government $ 1,309,787 $ 1,510,860 $ 2,405,359
Amortization of merger step-up (256,461) (257,886) -
----------- ----------- -----------
$ 1,053,326 $ 1,252,974 $ 2,405,359
=========== =========== ===========
The amortized cost and estimated market value of available-for-sale and
held-to-maturity securities at December 31, 1996, by contractual maturity, are
shown below. Expected maturities may differ from contractual maturities because
borrowers have the right to call or prepay obligations with or without call or
prepayment penalties.
Amortized Market
Cost Value
------------ ------------
Available-for-sale Securities
Equity securities $ 11,108,207 $ 25,315,225
============ ============
Held-to-maturity Securities
Due to one year or less $ 8,772,177 $ 8,798,867
Due after one year through five years 14,734,318 14,759,938
Due after five years through ten years 2,294,043 2,327,188
------------ ------------
25,800,538 25,885,993
Step-down due to merger (126,419) -
------------ ------------
$ 25,674,119 $ 25,885,993
============ ============
As a member of the Federal Home Loan Bank of Pittsburgh (FHLB), the Bank is
required to maintain a minimum amount of FHLB stock. The minimum amount is
calculated based on the level of the Bank's assets, residential real estate
loans, and outstanding FHLB advances. At December 31, 1996 and 1995, the Bank
held $569,500 and $601,500, respectively, of FHLB stock.
-14-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1996, 1995 and 1994
NOTE D - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
The primary classifications of loans as of December 31 are as follows:
1996 1995
------------- -------------
Real estate $ 92,815,579 $ 73,134,735
Installment 25,708,254 22,223,117
Commercial 12,206,855 9,933,466
PHEAA and other 6,591,677 9,586,853
------------- -------------
137,322,365 114,878,171
Less: Unearned discounts 18,358 33,357
Allowance for loan losses 1,253,810 1,243,619
------------- -------------
$ 136,050,197 $ 113,601,195
============= =============
Loans on which the accrual of interest had been discontinued were approximately
$332,450 and $498,150 at December 31, 1996 and 1995, respectively. The gross
amount of interest which would have been recorded if such loans had been
accruing interest at their original terms was approximately $27,500 and $30,000
for 1996 and 1995, respectively.
Changes in the allowance for loan losses for the years ended December 31 were as
follows:
1996 1995
------------- -------------
Balance, beginning of year $ 1,243,619 $ 1,383,059
Provision charged to operations 75,000 60,000
Loans charged-off (107,354) (223,438)
Recoveries 42,545 23,998
------------ ------------
Balance, end of year $ 1,253,810 $ 1,243,619
============ ============
-15-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1996, 1995 and 1994
NOTE E - PREMISES AND EQUIPMENT
Premises and equipment, which are stated at cost, as of December 31 are as
follows:
1996 1995
------------ ------------
Land $ 315,454 $ 254,398
Buildings and improvements 3,113,053 2,971,959
Furntiure and equipment 4,287,234 4,116,136
------------ ------------
7,715,741 7,342,493
Less: Accumulated depreciation 3,966,819 3,769,214
------------ ------------
$ 3,748,922 $ 3,573,279
============ ============
Depreciation expense was $515,125, $564,053 and $496,781 for the years ended
December 31, 1996, 1995 and 1994, respectively.
NOTE F - PLEDGED ASSETS
At December 31, 1996 and 1995, assets carried at approximately $19,710,000 and
$16,285,000, respectively, were pledged to qualify for fiduciary powers, to
secure public monies as required by law, and for other purposes.
NOTE G - INCOME TAXES
The provision for income taxes for the years ended December 31 consists of:
1996 1995 1994
--------- --------- -----------
Currently payable $ 522,995 $ 453,411 $ 1,145,245
Deferred taxes 39,656 (106,697) (114,819)
--------- --------- -----------
$ 562,651 346,714 $ 1,030,426
========= ========= ===========
-16-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1996, 1995 and 1994
NOTE G - INCOME TAXES (CONTINUED)
The significant components of temporary differences under SFAS No. 109 as of
December 31 are as follows:
1996 1995 1994
--------- --------- ----------
Provision for loan losses $ 1,528 $ 28,263 $ ( 24,675)
Premises and equipment -- -- 14,554
Depreciation 97,345 (8,844) 2,442
Employee benefits 52,053 (36,197) (76,723)
Other (111,270) (89,919) (30,417)
--------- --------- ----------
Total $ 39,656 $(106,697) $ (114,819)
========= ========= ==========
A reconciliation of the federal statutory tax rate to the effective tax rate
applicable to income before income taxes for the years ended December 31 is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------- -------------------- ----------------------
% of % of % of
Pre-tax Pre-tax Pre-tax
Amount Income Amount Income Amount Income
--------- -------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Provision at statutory rate $ 908,748 34.0% $ 642,033 34.0% $ 1,261,045 34.0%
Effect of tax-exempt income (110,837) (4.1) (84,970) (4.5) (104,467) (2.8)
Bad debt deduction, net -- -- (45,263) (2.4) 24,675 0.7
Other (235,260) (8.8) (165,086) (8.7) (150,827) (4.1)
--------- ---- --------- ---- ---------- ----
Actual tax expense and
effective rate $ 562,651 21.1% $ 346,714 18.4% $ 1,030,426 27.8%
========= ==== ========= ==== =========== ====
</TABLE>
-17-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1996, 1995 and 1994
NOTE G - INCOME TAXES (CONTINUED)
The significant components of the Bank's deferred tax assets and liabilities
recorded on the balance sheet as of December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------ -------------------------
Deferred Tax Deferred Tax
------------------------ -------------------------
Assets Liabilities Assets Liabilties
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Provision for loan losses $ 261,937 $ -- $ 263,466 $ --
Depreciation 275,312 177,967
Employee benefits 79,854 131,907
Unrealized gains 4,830,386 3,705,104
Merger adjustment to
market value 1,329,259 1,428,274
Other 172,581 1,231 60,079
--------- ---------- ---------- ----------
$ 514,372 $6,436,188 $ 455,452 $5,311,345
========= ========== ========== ==========
</TABLE>
NOTE H - EMPLOYEE RETIREMENT PLANS
Prior to the merger, Peoples Bank of PA and New Bethlehem Bank each maintained
separate qualified non-contributory defined benefit pension plans which covered
substantially all employees meeting minimum age and service requirements. The
plans generally provide benefits based on years of credited service and final
average earnings. The current funding policies of the plans are to contribute
annually the maximum amount that can be deducted for Federal income tax
purposes. These plans were merged effective January 1, 1996.
Additionally, Peoples Bank of PA and New Bethlehem Bank also maintained separate
non-qualified deferred compensation plans. Participants of the plans were
designated by the Board of Directors. These plans were terminated effective
December 31, 1996. The termination and subsequent recovery of the terminated
plans' assets are included in the Bank's results of operations for the year
ended December 31, 1996.
Assets for the qualified pension plans and the New Bethlehem non-qualified
deferred compensation plan were primarily U.S. Government obligations, corporate
obligations and equity securities whose valuations are subject to fluctuations
of the securities market. Changes in plan asset values attributable to
differences between actual and expected returns on plan assets were deferred as
unrecognized gains or losses and included in the determination of pension cost
over time. The Peoples Bank of PA non-qualified deferred compensation plan was
funded primarily through the purchase of life insurance contracts. As a result,
no actuarial assumptions were used in determining the funded status and related
expenses of the Peoples Bank of PA non-qualified deferred compensation plan.
-18-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1996, 1995 and 1994
NOTE H - EMPLOYEE RETIREMENT PLANS (CONTINUED)
The following table sets forth the plan's (plans' for 1995) funded status and
amounts recognized in the Bank's balance sheets at December 31 based upon
valuation date of January 1 of each year:
1996 1995
----------- -----------
Accumulated benefit obligation $ 1,388,553 $ 1,643,287
Projected benefit obligation for service
rendered to date (1,388,553) (2,626,102)
Plan assets at fair value 1,005,092 1,216,499
----------- -----------
Projected benefit obligation less / (greater)
than plan assets at December 31 (383,461) (1,409,603)
Unrecognized net (gain) / loss from past
experience different from that assumed
and effects of changes in assumptions 446,989 435,847
Unrecognized net asset at transition
being recognized over 26 years 98,110 319,703
Prior service cost not yet recognized in net
periodic pension adjustment (471,234) 466,410
Additional minimum pension liability (73,865) (239,145)
----------- -----------
Accrued pension cost at year end $ (383,461) $ (426,788)
=========== ===========
Net pension cost for the year ended December 31 included the following
components:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost - benefits earned
during the period $ 77,482 $136,560 $158,086
Interest cost on projected benefit
obligation 83,503 154,830 144,579
Net amortization and deferral 55,491 120,831 (21,182)
Less: Actual return on plan assets 99,694 122,129 (15,783)
-------- -------- --------
Net periodic pension cost $116,782 $290,092 $297,266
======== ======== ========
</TABLE>
-19-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1996, 1995 and 1994
NOTE H - EMPLOYEE RETIREMENT PLANS (CONTINUED)
The projected benefit obligation was determined using an assumed discount rate
of 6.5% for 1996 and 1995 and an expected rate of increase in compensation of
5.0% for the same years. The assumed rate of return on the plan's investment
earnings was 6.5% for 1996 and 1995.
NOTE I - SUPPLEMENTAL CASH FLOW INFORMATION
Years Ended December 31,
---------------------------------------------
1996 1995 1994
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES
Cash payments for:
Interest $ 6,403,061 $ 6,421,032 $ 5,487,489
Income taxes $ 611,505 $ 258,965 $ 1,393,587
NON-CASH INVESTING AND FINANCING TRANSACTIONS
Recorded unrealized gains
on available-for-sale
securities at December 31 $14,207,018 $10,897,364 $11,767,564
Deferred income taxes on
recorded unrealized gains
on available-for-sale
securities at December 31 $ 4,830,386 $ 3,705,104 $ 4,000,972
Portion of net equity
attributable to minority
interest $ -- $ -- $ 2,773,679
Loans transferred to
foreclosed real estate
during the year $ 176,376 $ 14,700 $ 158,599
-20-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1996, 1995 and 1994
NOTE J - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, there are various outstanding commitments and
certain contingent liabilities which are not reflected in the accompanying
financial statements. These commitments and contingent liabilities represent
financial instruments with off-balance sheet risk. The contract or notional
amounts of those instruments were comprised of commitments to extend credit and
stand-by letters of credit of $6,777,934 and $5,486,411 as of December 31, 1996
and 1995, respectively, and approximate fair value.
The instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheet. The same
credit policies are used in making commitments and conditional obligations as
for on-balance sheet instruments. The amount of collateral obtained, if deemed
necessary, upon extension of credit is based on management's credit evaluation
of the party. The terms are typically for a one year period, with an annual
renewal option subject to prior approval by management.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the loan agreement. These
commitments are comprised primarily of outstanding commercial and personal lines
of credit.
The exposure to loss under these commitments is limited by subjecting them to
credit approval and monitoring procedures. Substantially all of the 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.
NOTE K - DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosure about Fair Value of Financial Instruments, requires
disclosure of estimated fair values of the Bank's financial instruments.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and cash equivalents: The carrying amount is a reasonable
estimate of fair value.
Investment securities: The fair value of securities 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.
FHLB stock: The carrying value of the FHLB stock is a reasonable
estimate of fair value due to restrictions on the securities.
-21-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1996, 1995 and 1994
NOTE K - DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Loans receivable: For certain homogeneous categories of loans, fair
value is estimated using the quoted market prices for securities
backed by similar loans adjusted for differences in loan
characteristics. The fair value of other types of loans is estimated
by discounting the future cash flows using the current rates at which
similar loans would be made to borrowers for the same remaining
maturities.
Deposits: The fair value of demand deposits, savings accounts and
money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of
deposit is estimated by discounting the future cash flows using the
rates currently offered for deposits of similar remaining maturities.
The estimated fair value of the Bank's financial instruments as of December 31,
1996 are as follows:
Carrying
Amount Fair Value
------------ --------------
Financial Assets
Cash and cash equivalents $ 16,269,707 $ 16,269,707
Investment securities $ 50,989,344 $ 51,201,218
Federal Home Loan Bank stock $ 569,500 $ 569,500
Loans receivable $136,050,197 $136,111,631
Financial Liabilities
Deposits $176,264,632 $175,714,661
The market values of classifications of investment securities, which are based
upon quoted market prices are contained in Note C.
NOTE L - REGULATORY MATTERS
Dividends are paid by the Bank from its assets. However, the Bank is subject to
legal limitations on the amount of dividends that can be paid to shareholders.
The Pennsylvania Banking Code restricts the payment of dividends, generally to
the extent of its retained earnings. The Bank pays dividends based on operating
results for the period. Consideration for dividend declarations and payments
include regulatory guidelines and limitations and the capital requirements of
the Bank.
-22-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1996, 1995 and 1994
NOTE L - REGULATORY MATTERS (CONTINUED)
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios, as set forth below, of
total and Tier 1 capital (as defined in the regulations) to risk-weighted
assets, and of Tier 1 capital to average assets. Management believes, as of
December 31, 1996, that the Bank meets all capital adequacy requirements to
which it is subjected.
As of December 31, 1996, the most recent notification from the Federal Deposit
Insurance Corporation (FDIC) categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
The Bank's actual capital ratios as of December 31, 1996, the minimum ratios
required for capital adequacy purposes, and the ratios required to be considered
well capitalized under the prompt corrective action provisions are, as follows:
Minimum Well
Capital Capitalized
Actual Requirements Requirements
---------- ------------ ------------
Risk-based capital ratio 14.21% 8% 10%
Leverage capital ratio 8.62% 3% to 4% 5%
Tier 1 risk-based capital ratio 13.23% 4% 6%
Included in the "Cash and due from banks" balance are required federal reserves
of approximately $950,000 and $700,000 at December 31, 1996 and 1995,
respectively for facilitating the implementation of monetary policy by the
Federal Reserve System. The required reserves are computed by applying
prescribed ratios to the classes of average deposit balances.
In accordance with the Deposit Insurance Funds Act of 1996, the FDIC has reduced
the insurance premiums on all deposits assessable under the Bank Insurance Fund
due to the over-capitalized nature of the fund. The Bank's FDIC insurance
expense for the year ended December 31, 1996 was $321,485 lower as a result of
the legislation.
-23-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1996, 1995 and 1994
NOTE M - CONCENTRATIONS, RISKS AND UNCERTAINTIES
The Bank primarily grants loans to customers in Armstrong, Clarion and Indiana
counties and maintains a diversified loan portfolio. The ability of its debtors
to honor their contracts is not substantially dependent on any particular
economic business sector.
The Bank has certain risks associated with deposit concentrations. The Bank had
151 customers with accounts greater than $100,000 representing $23.6 million of
deposits as of December 31, 1996 (13.4% of deposits as of December 31, 1996) and
approximately $19.2 million with 122 customers as of December 31, 1995 (12.2% of
total deposits as of December 31, 1995).
A substantial portion of the Bank's investments in municipal securities are
obligations of state or political subdivisions located within Pennsylvania.
At December 31, 1996, a significant portion of the Bank's "Cash and due from
banks" and "Federal funds sold" is maintained with one large financial
institution.
The Bank is involved in various legal actions from normal business activities.
Management believes that the liability, if any, arising from such actions will
not have a material adverse effect on the Bank's financial position.
NOTE N - RECENT ACCOUNTING PRONOUNCEMENTS
In August 1995, the FASB issued SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, which is
effective for transactions occurring after December 31, 1996. SFAS No. 125
addresses the proper accounting treatment of the sale of financial assets and
treatment of subsequent servicing of said financial assets. It also addresses
the de-recognition of liabilities on release of obligation.
Management is currently evaluating the financial statement impact of this
statement.
NOTE O - RELATED PARTIES
At December 31, 1996 and 1995, certain officers and directors of the Bank and
companies in which they have beneficial ownership, were indebted to the Bank in
the aggregate amount of $681,067 and $702,193, respectively. During 1996, new
loans to such related parties were $55,000 and repayments were $76,126.
Deposits with the Bank by related parties and shareholders' greater than 5% were
approximately $5,131,500 as of December 31, 1996.
-24-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1996, 1995 and 1994
NOTE P - PARENT COMPANY FINANCIAL INFORMATION
The condensed financial information for Peoples Financial Corp., Inc., as of
December 31, 1996 and 1995 and for the years ended December 31, 1996, 1995 and
1994 is as follows:
BALANCED SHEETS
December 31,
-----------------------------
1996 1995
------------- -------------
ASSETS
Cash in bank $ 149,868 $ 142,409
Investment in subsidiary 26,705,824 23,225,939
Other assets 12,459 5,726
----------- -----------
Total Assets $26,868,151 $23,374,074
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ -- $ --
Stockholders' Equity 26,868,151 23,374,074
----------- -----------
Total Liabilities and
Stockholders' Equity $26,868,151 $23,374,074
=========== ===========
STATEMENTS OF INCOME
Years Ended December 31,
----------------------------------------------
1996 1995 1994
----------- -------------- -------------
Income
Dividends from subsidiary $ 822,050 $ 780,793 $8,220,660
Other 7,539 7,655 --
Expenses
Professional fees -- (4,105) (218,607)
Miscellaneous (5,806) (2,952) (241)
---------- ---------- ----------
Income Before Income Taxes and
Equity in (Distributed) /
Undistributed Earnings of
Subsidiary 823,783 781,391 8,001,812
Equity in (Distributed) /
Undistributed Earnings of
Subsidiary 1,286,356 596,727 (6,129,526)
---------- ---------- ----------
Net Income $2,110,139 $1,378,118 $1,872,286
========== ========== ==========
-25-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1996, 1995 and 1994
NOTE P - PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1996 1995 1994
---------- ----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $2,110,139 $1,378,118 $1,872,286
Adjustments to reconcile net income to
net cash provided by operating activities:
Increase / (decrease) in cash due to
changes in assets and liabilities
Equity in distributed / (undistributed)
earnings of subsidiary (1,286,356) (596,727) $6,129,526
Other assets (6,733) (503) (2,612)
Loan payable -- (66,266) --
---------- ---------- ----------
Net Cash From
Operating Activities 817,050 714,622 7,999,200
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock -- 40,441 81,110
Dividends paid (809,591) (620,763) (149,760)
Purchase of treasury stock -- -- (8,581,100)
Contribution of capital -- -- (10,044)
---------- ---------- ----------
Net Cash Used By
Financing Activities (809,591) (580,322) (8,659,794)
---------- ---------- ----------
Net Change in Cash and
Cash Equivalents 7,459 134,300 (660,594)
Cash and Cash Equivalents
at Beginning of Year 142,409 8,109 668,703
---------- ---------- ----------
Cash and Cash Equivalents
at End of Year $ 149,868 $ 142,409 $ 8,109
========== ========== ==========
</TABLE>
-26-
[PEOPLES LETTERHEAD]
------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 8, 1997
------------------------------------------------
TO THE SHAREHOLDERS OF PEOPLES FINANCIAL CORP., INC.:
Notice is hereby given that the Annual Meeting of Shareholders of
PEOPLES FINANCIAL CORP., INC. ("PFC" or the "Corporation") will be held at 9:00
a.m., local time, on Tuesday, April 8, 1997, at Mister O's Restaurant, 405
Butler Road, Kittanning, Pennsylvania 16201, for the following purposes:
1. To elect eleven (11) Directors to serve for a one-year term
and until their successors are elected and qualified;
2. To ratify the selection of Edwards, Leap & Sauer of
Pittsburgh, Pennsylvania, Certified Public Accountants, as the
independent auditors for the Corporation for the year ending December
31, 1997; and
3. To transact such other business as may properly come before
the Annual Meeting and any adjournment or postponement thereof.
In accordance with the By-laws of the Corporation and action of the
Board of Directors, only those shareholders of record at the close of business
on March 1, 1997, will be entitled to notice of and to vote at the Annual
Meeting and any adjournment or postponement thereof.
A copy of the Corporation's Annual Report for the fiscal year ended
December 31, 1996 is being mailed with this Notice. Copies of the Corporation's
Annual Report for the 1995 fiscal year may be obtained at no cost by contacting
James L. Kifer, Executive Vice President, Peoples Financial Corp., Inc., 363
Broad Street, P.O. Box 186, New Bethlehem, Pennsylvania 16242, telephone
(814) 275-3133.
<PAGE>
You are urged to mark, sign, date and promptly return your Proxy in the
enclosed envelope so that your shares may be voted in accordance with your
wishes and to help ensure that the presence of a quorum may be assured. The
prompt return of your signed Proxy, regardless of the number of shares you hold,
will aid the Corporation in reducing the expense of additional proxy
solicitation. The giving of such Proxy does not affect your right to vote in
person if you attend the meeting and give written notice to the Secretary of the
Corporation.
By Order of the Board of Directors,
/s/ Raleigh B. Robertson
Raleigh B. Robertson, Chairman and
Chief Executive Officer
March 7, 1997
<PAGE>
PEOPLES FINANCIAL CORP., INC.
PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON APRIL 8, 1997
GENERAL
Introduction, Date, Time and Place of Annual Meeting
This Proxy Statement is being furnished in connection with the
solicitation by the Board of Directors of PEOPLES FINANCIAL CORP., INC. ("PFC"
or the "Corporation"), a Pennsylvania business corporation, of proxies to be
voted at the Annual Meeting of Shareholders of the Corporation to be held on
Tuesday, April 8, 1997, at 9:00 a.m., local time, at Mister O's Restaurant, 405
Butler Road, Kittanning, Pennsylvania 16201, and at any adjournment or
postponement of the Annual Meeting.
The principal executive office of the Corporation is located at the
same place as the main office of the Corporation's subsidiary, PFC Bank (the
"Bank"), Ford Street and Fourth Avenue, Ford City, Pennsylvania 16226. The
telephone number for the Corporation is (412) 763-1221. All inquiries should be
directed to James L. Kifer, Executive Vice President of the Corporation at
(814) 275-3133.
Solicitation and Voting of Proxies
This Proxy Statement and the enclosed form of proxy (the "Proxy") are
first being sent to shareholders of the Corporation on or about March 7, 1997.
Shares represented by proxies on the accompanying Proxy, if properly
signed and returned, will be voted in accordance with the specifications made
thereon by the shareholders. Any Proxy not specifying to the contrary will be
voted FOR the election of the nominees for Director named below, and FOR the
ratification of the selection of Edwards, Leap & Sauer, Certified Public
Accountants, of Pittsburgh, Pennsylvania, as the independent auditors for the
Corporation for the year ending December 31, 1997. Execution and return of the
enclosed Proxy will not affect a shareholder's right to attend the Annual
Meeting and vote in person, after giving written notice to the Secretary of the
Corporation. The cost of preparing, assembling, printing, mailing and soliciting
proxies, and any additional material which the Corporation may furnish
shareholders in connection with the Annual Meeting, will be borne by the
Corporation. In addition to the use of the mails, certain directors, officers
and employees of the Corporation and the Bank may solicit proxies personally, by
telephone and telecopier. Arrangements will be made with brokerage houses and
other custodians, nominees and fiduciaries to forward proxy solicitation
material to the beneficial owners of stock held of record by these persons, and,
upon request therefor, the Corporation will reimburse them for their reasonable
forwarding expenses.
<PAGE>
Revocability of Proxy
A shareholder who returns a Proxy may revoke the Proxy at any time
before it is voted only: (1) by giving written notice of revocation to Brian
Henry, Secretary, Peoples Financial Corp., Inc., 363 Broad Street, New
Bethlehem, Pennsylvania 16242; (2) by executing a later-dated proxy and giving
written notice thereof to the Secretary of the Corporation; or (3) by voting in
person after giving written notice to the Secretary of the Corporation.
Voting Securities and Record Date
At the close of business on March 1, 1997, the Corporation had issued
and outstanding 879,990 shares of common stock, $0.30 par value, the
Corporation's only authorized class of stock (the "Common Stock").
Only holders of Common Stock of record at the close of business on
March 1, 1997, will be entitled to notice of and to vote at the Annual Meeting.
Cumulative voting rights do not exist with respect to the election of directors.
On all matters to come before the Annual Meeting, each share of Common Stock is
entitled to one vote.
Quorum
Pursuant to the By-laws of the Corporation, the presence, in person or
by proxy, of shareholders entitled to cast at least a majority of the votes
which all shareholders are entitled to cast shall constitute a quorum for the
transaction of business at the Annual Meeting.
PRINCIPAL BENEFICIAL OWNERS OF THE CORPORATION'S STOCK
Principal Owners
The following table sets forth, as of March 1, 1997, the name and
address of each person who owns of record or who is known by the Board of
Directors to be the beneficial owner of more than 5 percent of the Corporation's
outstanding Common Stock, the number of shares beneficially owned by such person
and the percentage of the Corporation's outstanding Common Stock so owned.
Footnote disclosure is also set forth under the Table entitled "Beneficial
Ownership by Officers, Directors and Nominees."
2
<PAGE>
Percent of Outstanding
Shares Beneficially Common Stock
Name and Address Owned(1) Beneficially Owned
---------------- ------------------- ----------------------
J. Jack Sherman 99,351 11.29%
P.O. Box 324
Tionesta, PA 16353
C. Edward Dunmire 67,304 7.65%
425 Pine Hill Road
Kittanning, PA 16201
Howard Shreckengost 60,337(2) 6.86%
406 Vine Street
New Bethlehem, PA 16242
Maxine Orr 57,875(2) 6.58%
518 Wood Street
New Bethlehem, PA 16242
- ---------------
(1) For the definition of "beneficial ownership" see footnote 1 below under the
caption entitled "Beneficial Ownership by Officers, Directors and Nominees".
(2) Of these shares, 56,776 are held jointly by Mr. Shreckengost and Ms. Orr.
Beneficial Ownership by Officers, Directors and Nominees
The following table sets forth as of March 1, 1997, the amount and
percentage of the Common Stock of the Corporation beneficially owned by each
director, each nominee and all officers and directors of the Corporation as a
group.
Name of Individual Amount and Nature of Percent
or Identity of Group Beneficial Ownership(1)(2) of Class
-------------------- ------------------------- --------
Frank T. Baker 26,108 2.97%
Frank L. Doverspike 34,182 3.88%
E. Andrew Dunmire 2,231 0.25%
C. Edward Dunmire 67,304 7.65%
David P. Fennell 6,104 0.69%
3
<PAGE>
Marlin F. Foreman 10,440 1.19%
Brian Henry 100 0.01%
Darl Hetrick 30,124 3.42%
Francis E. Kane 6,111 0.69%
Raleigh B. Robertson 22,011(3) 2.50%
Raleigh B. Robertson, Jr. 8,456(3) 0.96%
J. Jack Sherman 99,351 11.29%
Howard H. Shreckengost 60,337(4) 6.86%
William H. Toy 17,857 2.03%
(All Officers and Directors as
a Group, 15 Persons in Total) 387,586 44.04%
- ---------------------
(1) Beneficial ownership by an individual is determined in accordance with the
definitions of "beneficial ownership" set forth in the General Rules and
Regulations of the Securities and Exchange Commission 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 60 days after March 1, 1997. Beneficial
ownership may be disclaimed as to certain of the securities.
(2) Information furnished by the directors of the Corporation.
(3) Includes 3,330 shares held jointly between Raleigh B. Robertson and Raleigh
B. Robertson, Jr.
(4) See footnote 2 Principal Beneficial Owner Table.
ELECTION OF DIRECTORS
In accordance with the By-laws of the Corporation, at the 1997 Annual
Meeting of Shareholders, eleven (11) Directors shall be elected to serve for a
one-year term and until their successors are elected and qualified.
Unless otherwise instructed, the Proxyholders will vote the Proxies
received by them for the election of the 11 nominees named below. If any nominee
should become unavailable for any reason, Proxies will be voted in favor of a
substitute nominee or the seat will remain vacant, as the Board of Directors of
the Corporation shall determine. The Board of Directors has no reason to believe
the nominees named will be unable to serve, if elected. Any vacancy occurring on
the Board of Directors of the Corporation for any reason may be filled by a
majority of the directors then in office until the expiration of the term of the
vacancy.
4
<PAGE>
There is no cumulative voting for the election of directors. Each share
of Common Stock is entitled to cast only one vote for each nominee.
On January 29, 1997, the Secretary of the Corporation received a notice
pursuant to Section 10.1 of the Corporation's By-laws nominating C. Edward
Dunmire and E. Andrew Dunmire as candidates other than the candidates nominated
by the Board of Directors. The Corporation has received notices for six
additional candidates. The Board of Directors believes its nominees will best
serve the interests of the shareholders. The Board of Directors recommends a
vote for its nominees as set forth below.
INFORMATION AS TO NOMINEES, DIRECTORS AND EXECUTIVE OFFICERS
The following table contains certain information with respect to the
nominees for Director:
<TABLE>
<CAPTION>
Age as of Director
March 1, Since
Name 1997 Principal Occupation Corporation/Bank
---- ---- -------------------- ----------------
<S> <C> <C> <C>
Frank T. Baker 61 Retired Professor, Indiana 1984/1973
University of Pennsylvania
Frank L. Doverspike 90 Retired 1995/1995(1)
Marlin F. Foreman 93 Retired 1984/1977
Brian Henry 43 Self-employed in the 1995/1995(1)
Health Care Industry
Darl Hetrick 74 Owner, Hetrick's Farm 1993/1993
Supply
Francis E. Kane 77 Retired 1984/1955
Raleigh B. Robertson 68 Chairman and Chief 1993/1993
Executive Officer of
the Corporation and the
Bank
Raleigh B. Robertson, Jr. 45 Partner, R.B. Robertson & 1995/1995(1)
Son, an oil and gas
business
5
<PAGE>
<S> <C> <C> <C>
J. Jack Sherman 59 President, Tionesta 1995/1995(1)
Sand & Gravel
Howard H. Shreckengost 59 Manager, Char-Val 1995/1995(1)
Candy Company
William H. Toy 67 Merchant (Textiles) 1992/1992
</TABLE>
- ---------------------
(1) Elected to Board of Directors in connection with the merger of New Bethlehem
Bank with and into the Bank. Messrs. Doverspike, Henry, Hetrick, Robertson,
Robertson, Jr., Sherman and Shreckengost served on the Board of Directors of
New Bethlehem Bank since 1949, 1986, 1983, 1985, 1994, 1994 and 1994,
respectively.
Each of the Directors except Frank Doverspike attended at least 75
percent of the combined total number of meetings of the Corporation's and the
Bank's Board of Directors, and the Committees of which he is a member, for the
period in which he so served.
Principal Officers of the Corporation
The following table sets forth selected information about the principal
officers of the Corporation, each of whom is elected by the Board of Directors
and each of whom holds office at the discretion of the Board of Directors:
<TABLE>
<CAPTION>
Bank Number of Age as of
Held Employee Shares Bene- March 1,
Name and Position Since Since ficially Owned 1997
----------------- ----- ----- -------------- ----
<S> <C> <C> <C> <C>
Raleigh B. Robertson 1995 1996(1) 22,011(2) 68
Chairman and CEO
James Kifer 1997 1995(3) 200 35
Executive Vice President
Brian Henry 1996 (4) 100 43
Secretary
</TABLE>
- --------------------
(1) Was employee of New Bethlehem Bank from 1987 until December 31, 1994 and was
a consultant to the Bank until he was appointed Chairman and CEO on April
17, 1996.
(2) See footnote (3), Beneficial Ownership by Officers, Directors
and Nominees table.
(3) Was employee of New Bethlehem Bank from 1984 until the merger
(effective 4/1/95) of New Bethlehem Bank with and into the Bank.
(4) Not an employee of the Bank.
6
<PAGE>
Remuneration of Officers and Directors
The following table sets forth all cash compensation for services in
all capacities paid by the Corporation and the Bank during 1996 (1) to each of
the three most highly compensated executive officers and each director of the
Corporation and the Bank to the extent such person's aggregate cash compensation
exceeded $100,000 (2) to the three most highly compensated executive officers as
a group and (3) to all officers and directors of the Corporation and its bank
subsidiary as a group:
CASH COMPENSATION TABLE
<TABLE>
<CAPTION>
(A) (B) (C)
Name of Individual or Capacities in Cash Compensation
Number in Group which Served (2)(3)
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
C. Edward Dunmire President and Chief Executive Officer $ 75,380.00
of the Corporation and the Bank through
4/1/96
David P. Fennell President of the Corporation and Bank $124,659.00
Effective 4/1/96 through 12/31/96
Raleigh B. Robertson Chairman and CEO of the Corporation $149,410.00
and Bank Effective 7/1/96
Three Most Highly Executive Officers $349,449.00
Compensated Executive Officers as a
Group (1)
All Executive Officers and Directors Directors and Executive Officers $604,834.52
as Group (4 directors and 4 executive
officers 15 persons in total)(4)
- -----------------
</TABLE>
(1) Includes salaries, bonuses and all fees to directors.
(2) No director or officer received in the aggregate more than $5,000 in
personal benefits.
(3) Includes $36,000 consulting fee, and $32,914 appraisal fees.
(4) Includes James L. Kifer as Executive Vice President of the Corporation and
the Bank.
Legal Proceedings
In the opinion of the management of the Corporation there are no
proceedings pending to which the Corporation or the Bank is a party or to which
its property is subject, which, if determined adversely to the Corporation would
be material in relation to its undivided profits or financial condition. There
are no proceedings pending other than ordinary routine litigation incidental to
the business of the Corporation or the Bank. In addition, no material
proceedings are pending or are known to be threatened or contemplated against
the Corporation or the Bank by government authorities.
7
<PAGE>
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
Unless instructed to the contrary, it is intended that votes will be
cast pursuant to the Proxies for the ratification of the selection of Edwards,
Leap & Sauer, Certified Public Accountants, of Pittsburgh, Pennsylvania, as the
Corporation's independent auditors for the year ending December 31, 1997.
Ratification of Edwards, Leap & Sauer, Certified Public Accountants, will
require the affirmative vote of a majority of the outstanding shares of Common
Stock represented in person or by proxy at the Annual Meeting. In the event that
the shareholders do not ratify the selection of Edwards, Leap & Sauer as the
Corporation's independent auditors for the year ending December 31, 1997,
another accounting firm may be chosen to provide independent audit services for
the 1997 fiscal year. The Board of Directors recommends that the shareholders
vote FOR the ratification of the selection of Edwards, Leap & Sauer as the
independent auditors for the Corporation for the year ending December 31, 1997.
A representative is expected to be present at the Annual Meeting to respond to
appropriate questions.
ANNUAL REPORT
A copy of the Corporation's Annual Report for its fiscal year ended
December 31, 1996 is enclosed with the Proxy Statement.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented for
consideration other than the matters described in the accompanying Notice of
Annual Meeting of Shareholders, but if any matters are properly presented, it is
the intention of the persons named in the accompanying proxy to vote on such
matters in accordance with their best judgement.
8
<PAGE>
Exhibit 21 -- Subsidiaries of the Registrant
PFC Bank -- incorporated in the state of Pennsylvania
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,923
<INT-BEARING-DEPOSITS> 22
<FED-FUNDS-SOLD> 7,325
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 25,674
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 25,315
<LOANS> 136,050
<ALLOWANCE> 1,254
<TOTAL-ASSETS> 210,812
<DEPOSITS> 176,265
<SHORT-TERM> 0
<LIABILITIES-OTHER> 7,679
<LONG-TERM> 0
0
0
<COMMON> 264
<OTHER-SE> 26,604
<TOTAL-LIABILITIES-AND-EQUITY> 210,812
<INTEREST-LOAN> 10,891
<INTEREST-INVEST> 2,735
<INTEREST-OTHER> 307
<INTEREST-TOTAL> 13,933
<INTEREST-DEPOSIT> 6,475
<INTEREST-EXPENSE> 6,475
<INTEREST-INCOME-NET> 7,457
<LOAN-LOSSES> 75
<SECURITIES-GAINS> 1,053
<EXPENSE-OTHER> 6,830
<INCOME-PRETAX> 2,673
<INCOME-PRE-EXTRAORDINARY> 2,110
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,110
<EPS-PRIMARY> 2.40
<EPS-DILUTED> 2.40
<YIELD-ACTUAL> 4.02
<LOANS-NON> 332
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<LOANS-PROBLEM> 1,780
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<RECOVERIES> 42
<ALLOWANCE-CLOSE> 1,254
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 436
</TABLE>
