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, 1997
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
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization Identification No.)
323 FORD STREET, FORD CITY, PA 16226
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(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:
Name of each exchange
Title of each class on which registered
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Common Stock, par value of $0.30 per share 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]
The Issuer's revenues for the year ended December 31, 1997, were:
$17,506,662.
State the aggregate market value of the voting stock held by non-affiliates
of the registrant: $22,378,048 on March 1, 1998
Indicate the number of shares outstanding of the registrant's common stock,
as of March 1, 1998: Peoples Financial Corp., Inc. Common Stock, par value $0.30
per share: 882,168 shares
DOCUMENTS INCORPORATED BY REFERENCE
Excerpts from the following documents have been incorporated by reference
in answer or partial answer to certain Items required herein and are attached
hereto as Exhibits:
1) Annual Report to Shareholders, Part I - II.
2) Proxy Statement pursuant to Regulation 14A promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934, Part
III.
<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 in June, 1984. PFC was organized as a holding company
for Peoples Bank of PA. Peoples Bank of PA, in turn owned approximately 53% of
New Bethlehem Bank common stock. Effective April 1, 1995, New Bethlehem merged
with and into Peoples and changed its name to PFC Bank (the "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 in each of Clarion and Indiana. As of December 31, 1997, the Bank had total
assets of $240.3 million and shareholders equity of $37.4 million. All of PFC
Bank's outstanding common stock is owned by PFC.
PFC Service Corporation (the "Service Corp") is a Delaware Corporation
which is a wholly owned subsidiary of the Bank. The Service Corp was
incorporated in Delaware, May 16, 1997. The primary purpose of the Service Corp
is to buy and sell equity securities, primarily Pennsylvania bank securities. As
of December 31, 1997, the Service Corp had total assets of $38.1 million and
shareholder's equity of $27.6 million.
Forward-Looking Statements
PFC may include forward-looking statements relating to such matters as
anticipated financial performance, business prospects, technological
developments, new products, research and development activities and similar
matters in this and other filings with the Commission. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, PFC notes that
a variety of factors could cause PFC's actual results and experience to differ
materially from the anticipated results or other expectations expressed in PFC's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of PFC's business include the
following: general economic conditions, including their impact on capital
expenditures; business conditions in the banking industry; the regulatory
environment; rapidly changing technology and evolving banking industry
standards; competitive factors, including increased competition with community,
regional and national financial institutions; new service and product offerings
by competitors and price pressures; and similar items.
Employees
As of December 31, 1997, PFC, PFC Bank and PFC Service Corp. had 84
full-time employees and 20 part-time employees.
Competition
The Financial services industry in the Company's service area is extremely
competitive. The Company's competitors within its service area include
multi-bank holding companies, with resources substantially greater than those of
the Company. Many competitor financial institutions have legal lending limits
substantially higher than the Bank's legal lending limit. In addition, the Bank
competes with savings banks, savings and loan associations, credit unions, money
market and other mutual funds, mortgage companies, leasing companies, finance
companies, and other financial services companies that offer products and
services similar to those offered by the Bank on competitive terms. The Bank is
not dependent on one or a few major competitors.
<PAGE>
In September 1994, federal legislation was enacted that is expected to have
a significant effect in restructuring the banking industry in the United States.
As a result, the Company expects the operating environment for
Pennsylvania-based financial institutions to become increasingly competitive.
Additionally, the manner in which banking institutions conduct their
operations may change materially as the activities increase in which bank
holding companies and their banking and nonbanking subsidiaries are permitted to
engage, and funding and investment alternatives continue to broaden, although
the long-range effects of these changes cannot be predicted, with reasonable
certainty, at this time. These changes probably will further narrow the
differences and intensify competition between and among commercial banks, thrift
institutions, and other financial service companies.
Supervision and Regulation of PFC and PFC Bank
PFC is subject to the provisions of the Bank Holding Company Act of 1956
("BHCA"), 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. Under the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a bank
holding company is required to guarantee the compliance of any insured
depository institution subsidiary that may become "undercapitalized" (as defined
by regulations) with the terms of any capital restoration plan filed by such
subsidiary with its appropriate federal banking agency, up to specified limits.
Under the BHCA, the Federal Reserve has the authority to require a bank
holding company to terminate any activity or relinquish control of a nonbank
subsidiary (other than a nonbank subsidiary of a bank) upon the Federal
Reserve's determination that such activity or control constitutes a serious risk
to the financial soundness and stability of any bank subsidiary of the bank
holding company.
The BHCA prohibits the Company from acquiring direct or indirect control of
more than 5% of the outstanding shares of any class of voting stock or
substantially all of the assets of any bank or merging or consolidating with
another bank holding company without prior approval of the Federal Reserve. Such
a transaction would also require approval of the Pennsylvania Department of
Banking. Pennsylvania law permits Pennsylvania bank holding companies to control
an unlimited number of banks.
Additionally, the BHCA prohibits the Company from engaging in or from
acquiring ownership or control of more than 5% of the outstanding shares of any
class of voting stock of any company engaged in a nonbanking business unless
such business is determined by the Federal Reserve to be so closely related to
banking as to be a proper incident thereto.
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.
The activities that the Federal Reserve has determined by regulation to be
permissible are:
(1) making, acquiring, or servicing loans or other extensions of credit
for its own account or for the account of others;
(2) operating an industrial bank, Morris Plan bank, or industrial loan
company, in the manner authorized by state law, so long as the
institution is not a bank;
(3) operating as a trust company in the manner authorized by federal or
state law so long as the institution is not a bank and does not make
loans or investments or accept deposits, except as may be permitted by
the Federal Reserve;
(4) subject to limitations, acting as an investment or financial advisor
(i) to a mortgage or real estate investment trust, (ii) to certain
registered investment companies, (iii) by providing portfolio
investment advice to other persons, (iv) by furnishing general
economic information and advice, general economic statistical
forecasting services, and industry studies, (v) by providing financial
advice to state and local governments, or (vi) by providing financial
and transaction advice to corporations, institutions, and certain
persons in connection with mergers, acquisitions, and other financial
transactions;
(5) subject to limitations, leasing real or personal property or acting as
agent, broker, or adviser in leasing such property in accordance with
prescribed conditions;
(6) investing in corporations or projects designed primarily to promote
community welfare;
(7) providing to others data processing services and data transmission
services, data bases, and facilities, within certain limitations;
(8) subject to limitations, engaging in certain agency and underwriting
activities with respect to credit insurance, and certain other
insurance activities as permitted by the Federal Reserve.
(9) owning, controlling, or operating a savings association, if the
savings association engages only in deposit-taking activities and
lending and other activities that are permissible for bank holding
companies under Federal Reserve regulations;
(10) providing courier services for certain financial documents;
(11) subject to limitations, providing management consulting advice to
nonaffiliated bank and nonbank depository institutions;
(12) retail selling of money orders and similar consumer-type payment
instruments having a face value of $1,000 or less, selling U.S.
Savings Bonds, and issuing and selling traveler's checks;
(13) performing appraisals of real estate and personal property;
(14) subject to limitations, acting as intermediary for the financing of
commercial or industrial income-producing real estate by arranging for
the transfer of the title, control, and risk of such a real estate
project to one or more investors;
(15) providing certain securities brokerage services;
(16) subject to limitations, underwriting and dealing in government
obligations and certain other instruments;
(17) subject to limitations, providing foreign exchange and transactional
services;
(18) subject to limitations, acting as a futures commission merchant for
nonaffiliated persons;
<PAGE>
(19) subject to limitations, providing investment advice on financial
futures and options to futures;
(20) subject to limitations, providing consumer financial counseling;
(21) subject to limitations, tax planning and preparation;
(22) providing check guaranty services;
(23) subject to limitations, operating a collection agency; and
(24) operating a credit bureau.
Federal Reserve approval may be required before the Company or its nonbank
subsidiaries may begin to engage in any such activity and before any such
business may be acquired.
PFC is a legal entity separate and distinct from the Bank. The Company's
revenues (on a parent Company only basis) result almost entirely from dividends
paid to the Company by its subsidiaries. The right of the Company, and
consequently the right of creditors and shareholders of the Company, to
participate in any distribution of the assets or earnings of any subsidiary
through the payment of such dividends or otherwise is necessarily subject to the
prior claims of creditors of the subsidiary (including depositors, in the case
of the Bank), except to the extent that claims of the Company in its capacity as
a creditor may be recognized.
Federal and state laws regulate the payment of dividends by the Company's
subsidiaries.
Further, it is the policy of the Federal Reserve that bank holding
companies should pay dividends only out of current earnings. Federal banking
regulators also have the authority to prohibit banks and bank holding companies
from paying a dividend if they should deem such payment to be an unsafe or
unsound practice.
Capital Adequacy
Bank holding companies are required to comply with the Federal Reserve's
risk-based capital guidelines. The required minimum ratio of total capital to
risk-weighted assets (including certain off-balance sheet activities, such as
standby letters of credit) is 8%. At least half (4%) of the total capital is
required to be "Tier 1 capital," consisting principally of common shareholders'
equity, noncumulative perpetual preferred stock, a limited amount of cumulative
perpetual preferred stock, and minority interests in the equity accounts of
consolidated subsidiaries, less certain intangible assets. The remainder ("Tier
2 capital") may consist of a limited amount of subordinated debt and
intermediate-term preferred stock, certain hybrid capital instruments and other
debt securities, perpetual preferred stock, and a limited amount of the general
loan loss allowance. In addition to the risk-based capital guidelines, the
Federal Reserve requires a bank holding company to maintain a minimum "leverage
ratio." This requires a minimum level of Tier 1 capital (as determined under the
risk-based capital rules) to average total consolidated assets of 3% for those
bank holding companies that have the highest regulatory examination ratings and
are not contemplating or experiencing significant growth or expansion. All other
bank holding companies that have the highest regulatory examination ratings and
are not contemplating or experiencing significant growth or expansion. All other
bank holding companies are expected to maintain a ratio of at least 1% to 2%
above the stated minimum. Further, the Federal Reserve has indicated that it
will consider a "tangible Tier 1 capital leverage ratio" (deducting all
intangibles) and other indicia of capital strength in evaluating proposals for
expansion or new activities. The Federal Reserve has not advised management of
any specific minimum leverage ratio applicable to PFC.
<PAGE>
Pursuant to FDICIA, the federal banking agencies have specified, by
regulation, the levels at which an insured institution is considered "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," or critically undercapitalized." Under these regulations, an
institution is considered "well capitalized" if it has a total risk-based
capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or
greater, a leverage ratio of 5% or greater, and is not subject to any order or
written directive to meet and maintain a specific capital level. PFC and PFC
Bank, at December 31, 1997, qualify as "well capitalized" under these regulatory
standards.
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 Department of Banking 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.
The FDIC, which has primary supervisory authority over the Bank, regularly
examines banks in such areas as reserves, loans, investments, management
practices, and other aspects of operations. These examinations are designed for
the protection of the Bank's depositors rather than the Company's shareholders.
The Bank must furnish annual and quarterly reports to the FDIC, which has the
authority under the Financial Institutions Supervisory Act to prevent a state
non-member bank from engaging in an unsafe or unsound practice in conducting its
business.
Federal and state banking laws and regulations govern, among other things,
the scope of a bank's business, the investments a bank may take, the reserves
against deposits a bank must maintain, the types and terms of loans a bank may
make and the collateral it may take, the activities of a bank with respect to
mergers and consolidations, and the establishment of branches. Pennsylvania law
permits statewide branching.
Under the Federal Deposit Insurance Act, as amended, the Bank is required
to obtain the prior approval of the FDIC for the payment of dividends if the
total of all dividends declared by the Bank in one year would exceed the Bank's
net profits (as defined and interpreted by regulation) for the current year plus
its retained net profits (as defined and interpreted by regulation) for the two
preceding years, less any required transfers to surplus. In addition, the Bank
may only pay dividends to the extent that its retained net profits (including
the portion transferred to surplus) exceed statutory bad debts (as defined by
regulation). Under FDICIA, any depository institution, including the Bank, is
prohibited from paying any dividends, making other distributions or paying any
management fees if, after such payment, it would fail to satisfy its minimum
capital requirements.
<PAGE>
A subsidiary bank of a bank holding company, such as the Bank, is subject
to certain restrictions imposed by the Federal Reserve Act on any extensions of
credit to the bank holding company or its subsidiaries, on investments in the
stock or other securities of the bank holding company or its subsidiaries, and
on taking such stock or securities as collateral for loans. The Federal Reserve
Act and Federal Reserve regulations also place certain limitations and reporting
requirements on extensions of credit by a bank to the principal shareholders of
its parent holding company, among others, and to related interests of such
principal shareholders. In addition, such legislation and regulations may affect
the terms upon which any person becoming a principal shareholder of a holding
company may obtain credit from banks with which the subsidiary bank maintains a
correspondent relationship.
The Bank, and the banking industry in general, are affected by the monetary
and fiscal policies of government agencies, including the Federal Reserve.
Through open market securities transactions and changes in its discount rate and
reserve requirements, the Board of Governors of the Federal Reserve exerts
considerable influence over the cost and unavailability of funds for lending and
investment.
Year 2000 Compliance Law
As the Year 2000 approaches, regulation of both the Corporation and the
Bank with respect to completing Year 2000 modifications is likely to increase. A
brief discussion of the most recent federal banking agency pronouncements that
affect the Corporation and/ or the Bank follows.
In December 1997, the Federal Financial Institutions Examination Council
("FFIEC") issued an interagency statement. The statement indicates that Senior
management and the board of directors should be actively involved in managing
the Corporation's and the Bank's Year 2000 compliance efforts. The statement
also recommended that institutions obtain Year 2000 compliance certification
from vendors followed by comprehensive internal testing. In addition,
contingency plans should be developed for all vendors that service "mission
critical" applications which are applications vital to the successful
continuance of a core business activity.
The Bank is in the process of assessing the cost and extent of
vulnerability of the Bank's computer systems to the "Year 2000 problem."
Modifications or replacements of computer systems to attain Year 2000 compliance
have begun, and the Bank expects to attain Year 2000 compliance and institute
appropriate testing of its modifications and replacements before the Year 2000
date change. The Bank believes that, with modifications to existing software,
the Year 2000 problem will not pose a significant operational problem for the
Bank. However, because most computer systems are, by their very nature,
interdependent, it is possible that noncompliant third party computers could
"reinfect" the Bank's computer systems. The Bank could be adversely affected by
the Year 2000 problem if unrelated parties fail to successfully address this
problem. The Bank has taken steps to communicate with the unrelated parties with
whom it deals to coordinate year 2000 compliance. Most of the costs incurred in
addressing the Year 2000 problem are expected to be expensed as incurred, in
compliance with GAAP.
The financial impact to the Bank of Year 2000 compliance has not been and is not
anticipated to be material to the Bank's financial position or results of
operations in any given year.
FDIC Insurance
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 related to savings institutions 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
<PAGE>
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.
Interstate Banking Legislation
In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act (the "Interstate Banking Act") was enacted. The Interstate
Banking Act facilitates the interstate expansion and consolidation of banking
organizations (i) by permitting bank holding companies that are adequately
capitalized and adequately managed, beginning September 29, 1995, to acquire
banks located in states outside their home states regardless of whether such
acquisitions are authorized under the law of the host state; (ii) by permitting
the interstate merger of banks after June 1, 1997, subject to the right of
individual states to "opt in" or "opt out" of this authority before that date;
(iii) by permitting banks to establish new branches on an interstate basis
provided that such action is specifically authorized by the law of the host
state; (iv) by permitting, beginning September 29, 1995, a bank to engage in
certain agency relationships (i.e., to receive deposits, renew time deposits,
close loans (but not including loan approvals or disbursements), service loans,
and receive payments on loans and other obligations) as agent for any bank or
thrift affiliate, whether the affiliate is located in the same state or a
different state then the agent bank; and (v) by permitting foreign banks to
establish, with approval of the regulators in the United States, branches
outside their "home" states to the same extent that national or state banks
located in the home state would be authorized to do so. One effect of this
legislation will be to permit the Company to acquire banks and bank holding
companies located in any state and to permit qualified banking organizations
located in any state to acquire banks and bank holding companies located in
Pennsylvania, irrespective of state law.
Since 1995, the Pennsylvania Banking Code has authorized full interstate
banking and branching under Pennsylvania law. Specifically, the legislation (i)
eliminates the "reciprocity" requirement previously applicable to interstate
commercial bank acquisitions by bank holding companies, (ii) authorizes
interstate bank mergers and reciprocal interstate branching into Pennsylvania by
interstate banks, and (iii) permits Pennsylvania institutions to branch into
other states with the prior approval of the Pennsylvania Department of Banking.
Overall, this federal and state legislation has, as was predicted, had the
effect of increasing consolidation and competition and promoting geographic
diversification in the banking industry.
Proposed Legislation and Regulations
From time to time, various federal and state legislation is proposed that
could result in additional regulation of, and restrictions on, the business of
the Company and the Bank, or otherwise change the business environment.
Management cannot predict whether any of this legislation, if enacted, will
have a material effect on the business of the Company.
Environmental Laws
Neither PFC nor the Bank anticipate that compliance with environmental laws
and regulations will have any material effect on capital, expenditures, or
earnings. 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
<PAGE>
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 the Bank. PFC 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 compel a 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 property
was purchased by the Bank on September 30, 1997. PFC Bank also 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.
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 374 shareholders of record as of February 20,
1998, and is rarely traded. Management of PFC believes that a few securities
dealers are attempting to form a market for the PFC Common Stock even though
there are very few trades recorded. As of February 20, 1998, there were 882,168
shares outstanding. Quarterly dividends of $0.23 per share were paid in each
quarter during 1996. PFC paid dividends of $0.24 per share the first and second
quarters of 1997 followed by dividends in each of the third and fourth quarters
of 1997 of $0.25 per share. A special dividend of $0.15 per share was paid
December 22, 1997. 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
M, Regulatory Matters, of the attached Exhibit 13.
The following table sets forth 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
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2 24.00 24.00
3 25.00 24.00
4 25.25 24.00
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1996
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1 25.25 24.00
2 27.00 24.00
3 29.75 28.25
4 38.25 29.00
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1997
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1 38.25 36.50
2 38.25 38.25
3 38.25 38.25
4 38.25 38.25
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<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 13
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. The average
balances shown consist of daily average balances.
<TABLE>
<CAPTION>
Years Ended
----------------------------------------
Summary of Operations 12/31/97 12/31/96 12/31/95
----------------------------------------
<S> <C> <C> <C>
Total interest income $ 15,571 $ 13,933 $ 13,168
Net interest income 8,082 7,457 6,869
Provision for loan losses 80 75 60
Gains on securities 1,065 1,053 1,253
Other operating income 870 1,067 661
Other operating expenses 5,934 6,830 6,835
Net income before deducting minority interest 2,997 2,110 1,542
Net income 2,997 2,110 1,378
Earnings per share 3.40 2.40 1.76
Earnings per share (fully diluted) 3.40 2.40 1.76
Average Balance Sheet Totals
Total assets (1) 206,871 185,907 180,598
Investment securities (1) 41,946 41,846 56,678
Loans & leases (net of unearned income
and allowance for loan losses) 142,266 123,115 110,803
Total deposits 183,770 164,496 156,450
Stockholders' equity (1) 18,505 17,737 19,075
Historical number of shares outstanding
at period end 882,168 879,990 879,990
Weighted average number of shares
outstanding 880,563 879,990 785,057
Period End Total assets (2) 240,271 210,812 186,888
</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 the effect of SFAS No. 115.
<PAGE>
Financial Condition
The total assets of PFC at December 31, 1997 were $240.3 million, an
increase of $29.5 million, or 13.99% over total assets at December 31, 1996 of
$210.8 million.
The increase in total assets as of December 31, 1997 was comprised
primarily of an increase of over $16.3 million in loan balances in addition to
increases of $12.8 million in securities available-for-sale and $6.7 million in
securities held to maturity. These increases more than offset a decrease of over
$3.2 million in federal funds sold.
The total liabilities of PFC at December 31, 1997 were $202.9 million, an
increase of $18.9 or 10.28% over total liabilities at December 31, 1996 of
$183.9 million.
The increase in liabilities during the 12 months ended December 31, 1997
resulted primarily from interest bearing deposit increases of $11.8 million and
a deferred tax increase of almost $4.6 million due primarily 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 income taxes for the 12 month
period ended December 31, 1997 of $4,003,000 as compared to $2,673,000 for the
12 month period ended December 31, 1996, an increase of $1,330,000 or 49.76%. An
increase in interest income of $1,639,000 was offset by an increase in interest
expense of $1,014,000 primarily the result of an increase in interest bearing
deposits. PFC's net income for the period ended December 31, 1997, after
deducting taxes, was $2,996,000 as compared to $2,110,000 for the year ended
December 31, 1996. PFC reported net income, before deducting minority interest
and taxes, for the year ended December 31, 1996 of $2,673,000 which was an
increase of $785,000 or 41.58% higher as compared to $1,888,000 reported for the
year ended December 31, 1995. The increase in net income from 1995 to 1996
resulted primarily from an increase of $588,000 in net interest income. PFC's
net income for the year ended December 31, 1996, after deducting the minority
interest and taxes, was $732,000 higher than for the year ended December 31,
1995.
Earnings per share, after deducting minority interest, for the 12 month
periods ended December 31, 1997, 1996, and 1995, was $3.40, $2.40, and $1.76,
respectively. Fully diluted earnings per share for the 12 month periods ended
December 31, 1997, 1996 and 1995 was $3.40, $2.40, and $1.76, respectively.
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 on page 21.
<PAGE>
Interest Income and Expenses
Total interest income increased to $15,571,000 in 1997 from 13,933,000 in
1996, an increase of $1,638,000 or 11.76%. This increase is primarily
attributable to an increase in interest earned on loans of $1,432,000 or 13.15%
along with an increase in interest on federal funds sold of $113,000 and
investment securities of $95,000. The average yield on interest-earning assets
decreased from 7.53% for the 12 months period ended December 31, 1996 to 7.31%
for the 12 months period ended December 31, 1997. The increase in total interest
income results from an increase in earning assets of $32.7 million. Total
securities increased by $19.5 million while gross loans increased by over $16.3
million.
Total interest income increased to $13,933,000 in 1996 from $13,168,000 for
the year ended December 31, 1995, an increase of $765,000 or 5.81%. This
increase is primarily attributable to an increase in interest earned on loans.
Total interest expense increased to $7,489,000 in 1997 from $6,475,000 in
1996, an increase of $1,014,000, or 15.66%. This increase is the result of an
environment of increasing interest rates and an increase in interest bearing
deposits of $11.8 million. The average rate on interest-bearing liabilities was
4.66% for the 12 months ended December 31, 1997 and 4.52% for the 12 months
ended December 31, 1996.
Total interest expense increased to $6,475,000 in 1996 from $6,299,000 in
1995, an increase of $176,000 or 2.79%. The increase is primarily a result of an
increase in interest bearing deposits of $16,759,000 or 12.09% for the year
ended December 31, 1996.
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 month period ended December 31, 1997 was $8,082,000 as compared to
$7,457,000 for the 12 month period ended December 31, 1996, an increase of
$625,000 or 8.38%. Net interest income increased $588,000 or 8.56% in 1996 as
compared to $6,869,000 for the year ended December 31, 1995.
PFC obtains a 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 51.01% of the total deposits of PFC at December
31, 1997.
The following tables present the average major asset and liability
categories for the 12 month periods ended December 31, 1997 and 1996 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 1997
(in thousands)
<TABLE>
<CAPTION>
Selected Asset Categories Average Balances Interest Yield/rate
- ------------------------- ---------------- -------- ----------
<S> <C> <C> <C>
Interest-bearing assets
Loans & direct lease financing $143,529 $12,323 8.59%
(net of unearned discount)
Investment securities 61,864 2,831 4.58%
Federal funds sold & securities purchased 7,637 417 5.46%
Non-interest-bearing assets
Cash and due from banks 7,100 N/A N/A
Premises and equipment 3,598 N/A N/A
Other assets 3,047 N/A N/A
Selected Liability Categories
- -----------------------------
Interest-bearing liabilities
Demand deposits $ 45,058 $ 1,590 3.53%
Savings deposits 28,353 901 3.18%
Time deposits 87,246 4,998 5.73%
Short-term borrowings 0 0 0
Non-interest-bearing liabilities
Demand deposits 23,113 N/A N/A
Other 10,168 N/A N/A
Net interest income $ 8,082
Net interest margin 3.79%
Average yield on interest-bearing assets 7.31%
Average rate on interest-bearing liabilities 4.66%
</TABLE>
<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%
(net of unearned discount)
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 29,172 921 3.19%
Time deposits 72,339 4,089 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 $ 7,457
Net interest margin 4.03%
Average yield on interest-bearing assets 7.53%
Average rate on interest-bearing liabilities 4.52%
</TABLE>
<PAGE>
Other Income
Other income for the twelve month period ended December 31, 1997 totaled
$1,935,000 as compared to $2,121,000 for the same period ended 1996, a decrease
of $186,000 or 8.77%. Other income for the year ended December 31, 1996
increased from the total in 1995 of $1,914,000 by $207,000. Changes in the level
of other income during 1997 is primarily attributable to a net decrease in flood
proceeds of $153,000 from 1996 to 1997.
Other Expenses
Other expenses for the twelve month period ended December 31, 1997 totaled
$5,934,000 as compared to $6,830,000 for the same period in 1996, a decrease of
$896,000 or 13.12%. The decrease is primarily related to a $544,000 decrease in
early retirement expenses from 1996 to 1997.
Other expenses for the year ended December 31, 1996 were substantially the same
as 1995.
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 uses
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, 1997.
The provision for loan losses was $80,000 for the twelve month period ended
December 31, 1997 and $75,000 for the same period ended December 31. 1996. The
allowance for loan losses was $1,249,000 at December 1997, which was $5,000 less
than the amount at December 31, 1996, of $1,254,000.
The provision for loan losses for the year ended December 31, 1996 as
compared to the year ended December 31, 1995, increased $15,000 from $60,000 or
25.00%. The allowance for loan losses of $1,254,000 at December 31, 1996, was
$10,000 more than the amount reported at December 31, 1995.
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 $85,000 for the twelve month
period ended December 31, 1997. Net loan charge-offs were $64,000 for the year
ended December 31, 1996 as compared to $199,000 for 1995.
<PAGE>
Non-performing assets at December 31, 1997 were at 76.62% of the allowance
for possible loan losses at December 31, 1997. At December 31, 1996,
non-performing loans were at 120.89% of allowance for loan losses.
Non-performing assets were at 125.88% of the allowance for possible loan losses
at December 31, 1995. 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, 1997.
<PAGE>
Allowance/Provision for Loan Losses (continued)
Loan Loss Summary
(in thousands)
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------------------------------
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Amount of loans outstanding at end
of period, net of unearned income $153,645 $137,304 $114,845 $112,818 $103,867
======== ======== ======== ======== ========
Daily average amounts of loans $143,529 $124,380 $111,927 $107,758 $101,990
======== ======== ======== ======== ========
Allowance for loan losses
at the beginning of period $ 1,254 $ 1,244 $ 1,383 $ 1,311 $ 1,214
Loans Charged-off:
Commercial, financial, agriculture 4 0 113 164 80
Real - estate construction 0 0 0 0 0
Real - estate mortgage 0 0 0 0 34
Consumer 101 107 110 136 135
Leasing and other 0 0 0 0 0
-------- -------- -------- -------- --------
Totals 105 107 223 300 215
Recoveries of loans previously charged-off:
Commercial, financial, agriculture 8 9 10 148 13
Real estate - construction 0 0 0 0 0
Real estate - mortgage 0 28 2 2 12
Consumer 12 5 12 30 15
Leasing and other 0 0 0 0 0
-------- -------- -------- -------- --------
Totals 20 42 24 180 40
-------- -------- -------- -------- --------
Net loans charged off $ 85 $ 65 $ 199 $ 120 $ 175
Additions to allowance charged
to operations 80 75 60 192 272
-------- -------- -------- -------- --------
Allowance for loan losses $ 1,249 $ 1,254 $ 1,244 $ 1,383 $ 1,311
======== ======== ======== ======== ========
Ratio of net charge-offs during period
to average loans outstanding 0.06% 0.05% 0.17% 0.11% 0.17%
Ratio of reserves to net loans at end
of period 0.81% 0.91% 1.08% 1.23% 1.26%
Allocation of Allowance for Loan Losses
Loan Type
Commercial, financial, agriculture $ 421 $ 600 $ 600 $ 439 $ 481
Real estate - construction/mortgage 100 100 164 193 175
Consumer and other 505 118 140 189 159
Not allocated 223 436 340 562 496
-------- -------- -------- -------- --------
Totals $ 1,249 $ 1,254 $ 1,244 $ 1,383 $ 1,311
======== ======== ======== ======== ========
</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, 1994, 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. Certain of these securities are held in PFC Service Corporation, Inc.
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
Stockholder's equity, adjusted for the deferred income tax effects thereof. For
the period ended December 31, 1997, PFC's net unrealized gain on
available-for-sale securities was $27.1 million. As of December 31, 1996, the
net unrealized gain was $14.2 million.
PFC's average securities balance for the twelve month period ended December
31, 1997, was $61.9 million, a $7.2 million or 13.19% increase over the period
ended December 31, 1996. After electing to deploy funds available primarily from
loan repayments, increases in deposit activity and security maturities into the
loan area in 1995 and 1996, management chose to increase the investment
portfolio due to pledge needs.
Average federal funds sold and securities sold under agreement to
repurchase were $7.6 million and $5.9 million for the year ended December 31,
1997 and 1996, respectively.
<PAGE>
Investment Securities (continued)
Maturity Distribtution of Investment Securities for 1997
(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> <C> <C>
U.S. Treasuries/Agencies $ 8,097 5.31% $18,373 6.44% $2,014 6.55% $28,484
State/Municipal 675 3.97% 1,014 4.17% 205 5.44% 1,894
Other Securities 1,250 7.67% 750 7.28% 0 0 2,000
Equity Securities $ 11,662 8.27% 11,662
--------------------------------------------------------------------------------------------------
Totals $ 11,662 8.27% $10,022 5.52% $20,137 6.35% $2,219 6.45% $44,040
======== ==== ======= ==== ======= ==== ====== ==== =======
Short-term Borrowings
(in thousands)
<CAPTION>
For each period: 1997 1996
---- ----
<S> <C> <C>
Balance at period end $ 0 $ 0
Weighted average interest rate 0 5.67%
Maximum amount outstanding 0 2,100
Maximum amount at any month end 0 0
Average amount outstanding 0 27
</TABLE>
<PAGE>
Loans
As of December 31, 1997, the net loan portfolio of PFC Bank comprised
63.43% of total consolidated assets as compared with 64.54% for the year ending
December 31, 1996.
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 66.53% of PFC Bank's gross loan
portfolio as of December 31, 1997. As of that date, the remainder of the
portfolio was made up of real estate construction loans comprising loans of
1.28%, commercial and agricultural loans of 11.19%, consumer loans of 18.65%;
and, other loans comprising 2.35% 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 Bank's lending areas,
there is no concentration of loans to borrowers engaged in similar economic
activities which exceed 10% of the loans at December 31, 1997.
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 tightened its lending policies
and is placing more reliance on the borrower's ability to repay. 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 1996 to 1997 of $559,000 or 36.87%. Foreclosed
assets, non-accrual loans and loans 90 days or more past-due decreased by
36.96%, 34.64% and 43.55%, respectively. The tightening of lending policies has
not decreased loan demand. In fact, total loans as of December 31, 1997, have
increased over the balances at December 31, 1996, 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, 1997, were $152,396,000, an increase of
$16,346,000 or 12.01% as compared to $136,050,000 at December 31, 1996. The
December 31, 1996, balance increased $22,449,000 or 19.76% over the year ended
December 31, 1995. The increase in 1997 was due primarily to increases in
residential loans and commercial loans. The increase in 1996 over 1995 was due
primarily to an increase in residential 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>
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial, agriculture $ 17,200 $ 13,859 $ 9,918 $ 7,555 $ 7,871
Real estate - construction 1,966 2,558 947 1,002 1,368
Real estate - mortgage 102,222 90,129 71,038 73,992 65,509
Consumer 28,646 27,774 30,303 28,403 25,974
Other 3,611 2,984 2,639 1,866 3,145
-------- -------- -------- -------- --------
Totals $153,645 $137,304 $114,845 $112,818 $103,867
======== ======== ======== ======== ========
</TABLE>
Percent of loan Categories to Total Loans
<TABLE>
<CAPTION>
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial, agriculture 11.19% 10.09% 8.63% 6.70% 7.58%
Consumer/Other 21.00% 22.40% 28.69% 26.83% 28.03%
Real estate 67.81% 67.51% 62.68% 66.47% 64.39%
------ ------ ------ ------ ------
100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
</TABLE>
Maturity Table as of December 31, 1997
Due
1 year or less 1 - 5 years After 5 years Totals
-----------------------------------------------------------
Floating rate $ 2,044 $ 0 $ 0 $ 2,044
Fixed rate 31,182 61,739 58,680 151,601
-------- -------- -------- --------
$ 33,226 $ 61,739 $ 58,680 $153,645
<PAGE>
Non-Performing Assets
The table below presents non-performing assets at December 31, 1997, 1996,
1995, 1994 and 1993. 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 or more days 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 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>
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 217 $ 332 $ 498 $ 518 $ 718
Accruing loans past due 90 days or more 451 799 819 416 418
Restructured loans 144 155 167 83 176
Other real estate 145 230 82 271 163
------ ------ ------ ------ ------
Totals $ 957 $1,516 $1,566 $1,288 $1,475
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
--------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income which would have been
recorded under original terms $26 $27 $32 $34 $65
Interest income recorded during period 4 9 14 21 34
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,
1997, and 1996.
(in thousands)
Deposits
<TABLE>
<CAPTION>
Average Amount Average Rate
----------------------------------------------
1997 1996 1997 1996
----------------------------------------------
<S> <C> <C> <C> <C>
Non-interest bearing demand deposits $ 23,113 $ 21,320 -- --
Interest bearing demand deposits 45,058 41,665 3.53% 3.52%
Savings deposits 28,353 29,172 3.18% 3.19%
Time deposits 87,246 72,339 5.73% 5.64%
-------- -------
Totals $183,770 164,496
</TABLE>
======== =======
Maturities of Time Deposits of $100,000 or more
1997 1996
------- -------
Three months or less $12,626 $ 6,710
Over three through twelve months 13,246 6,393
Over 1 year through 5 years 7,208 9,898
Over 5 years -- 100
------- -------
Totals $33,080 $23,101
PFC's consolidated deposits balance as of December 31, 1997 was $190,573,000,
which was a $14,308,000 increase over December 31, 1996's balance of
$176,265,000. The majority of the deposit growth experienced in 1997 occurred in
time 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 1997, PFC Bank
maintained an average balance of federal funds sold of $7.6 million for the 12
months ended December 31, 1997, as compared to $5.9 million at December 31,
1996. At December 31, 1997, PFC held $10.0 million of investment securities and
$31.2 million of loans maturing in less than one year. PFC Bank has the option
to borrow funds from the Federal Home Loan Bank and the Federal Reserve Bank.
The Bank also relies on the sale of bank equities as a secondary source of
liquidity through the planned taking of capital gains. 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 short-term, 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, 1997
0-3 0-6 0-12 0-5
Assets: Months Months Months Years
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Investment Securities $ 7,890 $ 9,640 $ 10,022 $ 30,244
Loans 9,539 17,704 31,182 95,304
Federal Funds sold 4,075 4,075 4,075 4,075
Other 35 35 35 35
-------- -------- -------- --------
Total Earning Assets $ 21,539 $ 31,454 $ 45,314 $129,658
======== ======== ======== ========
Liabilities:
NOW Accounts $ 7,693 $ 7,693 $ 7,693 $ 7,693
MMDA 14,961 14,961 14,961 14,961
> $100,000 12,626 19,704 25,872 33,080
< $100,000 13,862 29,744 39,050 58,921
-------- -------- -------- --------
Total interest-bearing liabilities $ 49,142 $72,102 $ 87,576 $114,655
======== ======== ======== ========
Cumulative gap (27,603) (40,648) (42,262) 15,003
Cumulative gap ratio .44 .44 .52 1.13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Peoples Financial Corp., Inc.
Changes in Interest Income/Expense
(in thousands) December 31
1997 vs. 1996
Increase/Decrease due
to change in
-------------------------------------------------
Interest income on: Volume Rate Net
---------- -------- --------
<S> <C> <C> <C>
Loans $ 1,677 $ (245) $ 1,432
Investment securities 357 (263) 94
Tax-free investment securities 0 0 0
Federal funds sold and securities purchased 91 22 113
---------- -------- --------
Total interest-earning assets $ 2,125 $ (486) $ 1,639
========== ======== =======
Interest expense on:
Demand deposits $ 120 $ 5 $ 125
Savings deposits (17) (3) (20)
Time deposits 822 87 909
Short-term borrowings 0 0 0
---------- -------- --------
Total interest-bearing liabilities $ 925 $ 89 $ 1,014
========== ======== ========
<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 $ (159) $ 945
Investment securities 235 (347) (112)
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
========== ======== ========
<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>
<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, 1997, not including
SFAS No. 115.
PFC Bank
Leverage Ratio 8.33%
Tier I Capital to Risk
Weighted Assets 12.30%
Total Capital to Risk
Weighted Assets 13.10%
Return on Equity and Assets
(not including SFAS No. 115)
<TABLE>
<CAPTION>
12/31/97 12/31/96 12/31/95 12/31/94
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Return on Assets
(net income divided by avg total assets) 1.45% 1.13% 0.76% 0.98%
Return on Equity
(net income divided by average equity) 16.19% 11.90% 7.22% 7.49%
Equity to assets ratio
(average equity divided by avg total assets) 9.15% 9.54% 10.56% 13.15%
</TABLE>
ITEM 7 - FINANCIAL STATEMENTS
The financial statements required by this Item are set forth at Exhibit 13,
and incorporated herein by reference.
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
No changes or significant disagreements occurred in 1997.
<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 1997 to serve a one-year term.
Frank T. Baker, Ph.D. (Age 62). Dr. Baker is Chairman of PFC and PFC Bank.
He has served as a director of PFC since its formation in 1984, a director of
Peoples since 1973 and as a director of PFC Bank since 1995. Dr. Baker retired
as a professor at Indiana University of Pennsylvania in 1996.
Marlin F. Foreman (Age 94). 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 75). 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 78). 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 69). Mr. Robertson is President 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 68). 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.
Brian Henry (Age 44). 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 46). 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 60). Mr. Sherman is President of Sherman Enterprises,
Inc. 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.
<PAGE>
Howard H. Shreckengost (Age 60). 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.
James L. Kifer (Age 36). Mr. Kifer is Executive Vice President of PFC and
PFC Bank. He has been employed with PFC Bank since 1995 and New Bethlehem Bank
since 1984.
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, 1997 through December 31, 1997, its officers and directors were in
compliance with all filing requirements applicable to them.
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 1995 - 1997
NAME TITLE YEAR SALARY BONUS OTHER
---- ----- ---- ------ ----- -----
Raleigh B. Robertson Chairman/CEO 1997 130,893 72,000.00 83,308 (1)
1996 62,330 40,000.00 47,084 (2)
1995 -- 42,000.00 86,977 (3)
(1) Contingent compensation based on a three (3) year employment agreement
(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.
Employment Contract
On September 1, 1997, the Corporation, the Bank and R.B. Robertson,
President and Chief Executive Officer of the Corporation and the Bank, entered
into an employment agreement for a term of three (3) years, after which term Mr.
Robertson shall be a consultant to the Corporation and the Bank for up to three
(3) years (the "Agreement"). The Agreement specifies Mr. Robertson's position
and duties, compensation and benefits. The Agreement also sets forth certain
indemnification and termination provisions and contains a non-competition clause
and a confidentiality provision.
<PAGE>
Under the terms of his Agreement, Mr. Robertson serves as the President and
Chief Executive Officer of the Corporation and of the Bank and as a member of
the Boards of Directors of the Corporation and of the Bank. In 1997, and
pursuant to the Agreement, Mr. Robertson was entitled to an annual direct salary
of $130,893, contingent compensation of $83,333.33, and was entitled to purchase
up to 6,536 shares of common stock of the Corporation at $38.25 per share,
pursuant to the terms of a stock option agreement. In addition, the Boards of
Directors of the Corporation and the Bank have discretion to pay a periodic
bonus to Mr. Robertson. Mr. Robertson is not entitled to receive director's fees
or other compensation for serving on the Corporation's and the Bank's Boards of
Directors or the committees thereof. Mr. Robertson is also entitled to receive
the employee benefits made available by the Bank to its employees.
The Agreement also provides that if Mr. Robertson's employment is
terminated by the Corporation or the Bank, due to death, disability or for cause
(as defined therein), then he is entitled to the full annual direct salary
through the date of termination. If Mr. Robertson's employment is terminated by
the Corporation or the Bank, other than pursuant to death, disability or for
cause (as defined therein), then he is entitled to his full annual direct salary
from the date of termination through the last day of the term of the Agreement,
or an amount equal to his current annual direct salary, whichever is greater. If
Mr. Robertson terminates his employment for good reason (as defined therein)
then he is entitled to an amount equal to his direct annual salary. If Mr.
Robertson's employment is terminated as a result of a change in control (as
defined therein), then he is entitled to receive a lump sum payment equal to
2.99 times his then current direct annual salary (as defined therein) and will
continue his eligibility to participate in all employee benefit plans and
programs in which he was previously entitled to participate.
PFC Bank provides life insurance for all of its employees at the rate of
two times their annual salaries.
<PAGE>
The following table provides information concerning Board of Director fees,
bonuses and committee fees for the year ended December 31, 1997, of all
directors of PFC and PFC Bank.
Directors Compensation 1997
<TABLE>
<CAPTION>
DIRECTOR OFFICER LOAN COMMITTEE TOTAL
NAME FEE FEE FEE BONUS FEES
---- --- --- --- ----- ----
<S> <C> <C> <C> <C> <C>
Frank T. Baker 7,560 0 7,008 9,000 23,568
Frank L. Doverspike 5,670 0 5,256 0 10,926
C. Edward Dunmire 1,890 0 0 0 1,890
E. Andrew Dunmire 1,890 0 0 0 1,890
David P. Fennell 1,890 0 0 0 1,890
Marlin Foreman 7,560 0 0 4,000 11,560
Brian Henry 7,560 12,000 0 11,000 30,560
Darl Hetrick 7,560 3,600 7,008 8,000 26,168
Francis Kane 7,560 0 0 4,000 11,560
R.B. Robertson 0 0 0 0 0
R.B. Robertson, Jr 7,560 0 7,008 8,000 22,568
Howard Shreckengost 7,560 0 7,008 2,000 16,568
J. Jack Sherman 7,560 0 0 7,000 14,560
William H. Toy 7,560 0 7,008 9,000 23,568
------- ------- ------- ------- -------
79,380 15,600 40,296 62,000 197,276
</TABLE>
Additional information required by this Item 10 is set forth on pages 6
through 8 of PFC's Proxy Statement, which is [attached hereto, as Exhibit 99,
and] incorporated herein by reference.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 1, 1998, 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, 1997 and March 1, 1998,
there were 882,168 shares of PFC Common Stock outstanding.
Percent of
Number of Outstanding
Shares PFC Common
Beneficially Stock Beneficially
Name and Address Owned Owned
---------------- ----- -----
J. Jack Sherman 99,351 11.26%
PO Box 324
Tionesta, Pennsylvania 16353
C. Edward Dunmire 67,304 7.63%
425 Pine Hill Road
Kittanning, Pennsylvania 16201
Howard H. Shreckengost 61,466 6.97%
406 Vine St.
New Bethlehem, Pennsylvania 16242
<PAGE>
The following table sets forth, as of March 1, 1998, 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. R.B. Robertson and R.B. Robertson, Jr. are father and son. R.B. Robertson
is President and Chief Executive Officer, Frank T. Baker is Chairman of the
Board and James L. Kifer is Executive Vice President. As a group, these persons
own collectively 297,121 shares or approximately 33.68% of the PFC Common Stock
outstanding as of March 1, 1998.
<TABLE>
<CAPTION>
Name of Individual Amount and Nature
or Identity of of Beneficial Percent
Group Ownership Ownership
----- --------- ---------
<S> <C> <C>
Frank T. Baker 37,665 4.27%
Marlin F. Foreman 10,440 1.18%
Brian Henry 100 0.01%
Darl Hetrick 31,520 3.57%
Francis E. Kane 6,111 0.69%
James L. Kifer 233 0.03%
Raleigh B. Robertson 14,189 (1) 1.61%
Raleigh B. Robertson, Jr 27,294 (1) 3.09%
J. Jack Sherman 99,351 11.26%
Howard H. Shreckengost 61,466 6.97%
William H. Toy 20,860 2.36%
(All Officers and Directors as 297,121 33.68%
a Group, 11 Persons in Total)
</TABLE>
Additional information on stock ownership is set forth in the footnotes on
Page 4 of PFC's Proxy Statement, which is [attached hereto, as Exhibit 99, and]
incorporated herein by reference.
<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, 1997.
<TABLE>
<CAPTION>
LARGEST AMOUNT
DATE OF OUTSTANDING BALANCE
NAME POSITION LOAN SINCE JAN. 1, 1997 DEC. 31, 1997
- ---- -------- ---- ------------------ -------------
<S> <C> <C>
C. Edward Dunmire Major Shareholder various 73,186 -0-
Frank T. Baker Chairman 1993 52,003 45,989
Brian Henry Secretary 1995 197,100 188,228(1)
Darl Hetrick Director various 186,385 156,192(2)
</TABLE>
(1) Includes loans to Ray-War Holdings, Inc., of $137,120 and $51,108
(2) Comprised primarily 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 of Form S-4.)
3(ii) Registrant's By-Laws.
(Incorporated by Reference to Registrant's January
27, 1995, filing of Form S-4.)
10(i) Agreement between R.B. Robertson and Bank.
(Incorporated by Reference to the Registrant's
September 30, 1997 filing of Form 10-QSB.)
10(ii) Settlement Agreement.
(Incorporated by Reference to the Registrant's
December 31, 1996 filing of Form 10-KSB.)
10(iii) General Release.
(Incorporated by Reference to the Registrant's
December 31, 1996 filing of Form 10-KSB.)
11 Statement re: Computation of Earnings Per Share.
(Refer to Exhibit 13, page 3, Consolidated Statement
of Income.)
13 Annual report to Security Holders.
(Included with Financial Statements, which are
attached as Exhibit 13 hereto.)
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
99 Proxy Statement.
<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 23, 1998 By /s/ R.B. Robertson
--------------------------
R.B. Robertson
President/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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ R.B. Robertson President/CEO March 23, 1998
- ------------------------------- and Director
R.B. Robertson
/s/ Darl Hetrick Vice President and Director March 23, 1998
- -------------------------------
Darl Hetrick
/s/ William H. Toy Director March 23, 1998
- -------------------------------
William H. Toy
/s/ Howard H. Shreckengost Director March 23, 1998
- -------------------------------
Howard H. Shreckengost
/s/ Francis E. Kane Director March 23, 1998
- -------------------------------
Francis E. Kane
/s/ Brian Henry Secretary and March 23, 1998
- ------------------------------- Director
Brian Henry
/s/ Marlin Foreman Director March 23, 1998
- -------------------------------
Marlin Foreman
/s/ R.B. Robertson, Jr. Director March 23, 1998
- -------------------------------
R.B. Robertson, Jr.
/s/ Frank T. Baker Chairman/Director March 23, 1998
- -------------------------------
Frank T. Baker
/s/ J. Jack Sherman Director March 23, 1998
- -------------------------------
J. Jack Sherman
/s/ James L. Kifer Executive Vice President March 23, 1998
- ------------------------------- Principal Financial Officer
James L. Kifer Principal Accounting Officer
</TABLE>
<PAGE>
EXHIBIT INDEX
PAGE NO.
IN MANUALLY
SIGNED
EXHIBIT NO.
ORIGINAL
3(i) Registrant's Articles of Incorporation.
(Incorporated by Reference to Registrant's January 27, 1995,
Filing of Form S-4.)
3(ii) Registrant's By-Laws.
(Incorporated by Reference to Registrant's January 27, 1995,
filing of Form S-4.)
10(i) Agreement between R.B. Robertson and Bank. (Incorporated by
Reference to the Registrant's September 30, 1997 filing of
Form 10-QSB.)
10(ii) Settlement Agreement.
(Incorporated by Reference to the Registrant's December 31,
1996 filing of Form 10-KSB.)
10(iii) General Release.
(Incorporated by Reference to the Registrant's December 31,
1996 filing of Form 10-KSB.)
11 Statement re: Computation of Earnings Per Share.
(Refer to Exhibit 13, page 3, Consolidated Statement of Income.)
13 Annual report to Security Holders. 36
(Included with Financial Statements, which are attached as
Exhibit 13 hereto.)
21 Subsidiaries of the Registrant. 66
23 Consent of Independent Auditors. 67
27 Financial Data Schedule. 68
99 Proxy Statement. 70
PEOPLES FINANCIAL CORP., INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
December 31, 1997, 1996 and 1995
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
[Letterhead of Edwards Leap & Sauer]
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. (the Company) and subsidiary as of December 31, 1997 and
1996 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, 1997. 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 an 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, 1997 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ Edwards Leap & Sauer
- --------------------------------
Pittsburgh, Pennsylvania
February 13, 1998
- 1 -
<PAGE>
CONSOLIDATED BALANCE SHEETS
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,003,534 $ 8,944,707
Federal funds sold 4,075,000 7,325,000
Available-for-sale securities 38,069,171 25,315,225
Held-to-maturity securities (market value of
$32,862,436 and $25,885,993 at
December 31, 1997 and 1996, respectively) 32,378,224 25,674,119
Federal Home Loan Bank stock, at cost 740,200 569,500
Loans receivable, net 152,395,769 136,050,197
Premises and equipment, net 3,459,173 3,748,922
Other assets 2,149,627 3,184,521
------------ ------------
Total Assets $240,270,698 $210,812,191
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $ 23,343,039 $ 20,860,522
Interest bearing 167,229,668 155,404,110
------------ ------------
Total deposits 190,572,707 176,264,632
Deferred taxes 10,503,460 5,926,532
Accrued interest and other liabilities 1,781,581 1,752,876
------------ ------------
Total liabilities 202,857,748 183,944,040
Stockholders' Equity
Common stock, par value $0.30, 5,000,000 shares
authorized, 882,168 and 879,990 shares issued
and outstanding at December 31, 1997 and 1996,
respectively 264,650 263,997
Surplus 3,932,656 3,850,000
Retained earnings 15,298,374 13,377,522
Net unrealized holding gains on
available-for-sale securities 17,917,270 9,376,632
------------ ------------
Total stockholders' equity 37,412,950 26,868,151
------------ ------------
Total Liabilities and Stockholders' Equity $240,270,698 $210,812,191
============ ============
</TABLE>
-2-
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Interest Income
Loans $ 12,323,037 $ 10,890,677 $ 9,943,821
Investment securities 2,829,841 2,734,704 2,848,176
Interest bearing deposits 1,648 3,469 1,912
Federal funds sold 416,973 303,927 374,251
------------ ------------ ------------
Total interest income 15,571,499 13,932,777 13,168,160
Interest Expense
Deposits 7,489,044 6,475,388 6,299,006
------------ ------------ ------------
Net Interest Income 8,082,455 7,457,389 6,869,154
Provision for Loan Losses 80,000 75,000 60,000
------------ ------------ ------------
Net Interest Income after
Provision for Loan Losses 8,002,455 7,382,389 6,809,154
Other Income
Service fees 614,572 672,176 661,204
Insurance proceeds 205,830 358,694 --
Net investment security gains 1,065,063 1,053,326 1,252,974
Other 49,698 36,467 --
------------ ------------ ------------
Total other income 1,935,163 2,120,663 1,914,178
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Other Expenses
Salaries $ 2,077,039 $ 2,178,002 $ 2,108,730
Pension and other employee
benefits 639,535 805,041 846,253
Occupancy expense 1,000,044 1,089,451 947,920
Legal and professional fees 215,619 234,434 251,345
Regulatory fees and deposit
insurance 54,278 35,139 351,322
Data processing 245,814 226,005 292,730
Separation expenses -- 544,322 --
Other 1,701,971 1,717,868 2,036,701
------------ ------------ ------------
Total other expenses 5,934,300 6,830,262 6,835,001
------------ ------------ ------------
Income Before Income Taxes
and Minority Interest 4,003,318 2,672,790 1,888,331
Provision for Income Taxes 1,006,880 562,651 346,714
------------ ------------ ------------
Income Before Minority
Interest 2,996,438 2,110,139 1,541,617
Minority Interest -- -- (163,499)
------------ ------------ ------------
Net Income $ 2,996,438 $ 2,110,139 $ 1,378,118
============ ============ ============
Net Income per Share of
Common Stock $ 3.40 $ 2.40 $ 1.76
============ ============ ============
</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, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Net Unrealized
Capital Retained Holding Gains Treasury
Stock Surplus Earnings (Losses) Stock
----------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1994 $ 250,758 $ 3,708,952 $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
----------- ----------- ----------- ----------- -----------
Balance at
December 31, 1995 263,997 3,850,000 12,067,816 7,192,261 --
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
Net Unrealized
Capital Retained Holding Gains Treasury
Stock Surplus Earnings (Losses) Stock
----------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
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 $ 263,997 $ 3,850,000 $13,377,522 $ 9,376,632 $ --
Sale of 2,178 shares
of common stock $ 653 $ 82,656 $ $ $
Net income 2,996,438
Dividends (995,261)
Changes in net
unrealized holding
gains (losses) on
available-for-sale
securities 8,540,638
Change in minimum
pension liability (80,325)
----------- ----------- ----------- ----------- -----------
Balance at
December 31, 1997 $ 264,650 $ 3,932,656 $15,298,374 $17,917,270 $ --
=========== =========== =========== =========== ===========
</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,
--------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,996,438 $ 2,110,139 $ 1,378,118
Adjustments to reconcile
net cash from operating
activities:
Depreciation and
merger amortization 584,356 584,626 564,053
Net amortization/
accretion of premiums
and discounts (17,366) 17,383 3,852
Net investment security
gains (1,065,063) (1,053,326) (1,252,974)
Provision for loan losses 80,000 75,000 60,000
Net loss on disposal of
fixed assets 30,349 52,963 148,282
Reinvestment of stock
dividends (74,811) (85,384) (80,740)
Minority interest -- -- 163,499
Increase (decrease) in
cash due to changes in
assets and liabilities:
Other assets 949,711 (642,346) (563,416)
Accrued interest and
other liabilities 199,434 159,594 764,936
------------ ------------ ------------
Net Cash From
Operating Activities $ 3,683,048 $ 1,218,649 $ 1,185,610
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of
available-for-sale securities $ 1,370,112 $ 1,926,307 $ 2,046,274
Proceeds from maturities of
held-to-maturity securities 8,800,000 9,250,000 7,060,882
Purchase of held-to-maturity
securities (15,446,563) (2,189,655) (5,576,865)
Purchase of available-for-sale
securities (84,000) (230,293) (50,400)
Net sales (purchases) of
FHLB stock (170,700) 32,000 (14,800)
Net loans made to customers (16,469,278) (22,594,327) (2,002,474)
Purchases of premises
and equipment (284,949) (743,741) (496,101)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Cash From (Used By)
Investing Activities (22,285,378) (14,549,709) 966,516
Net increase in deposits 14,323,109 19,184,441 3,103,988
Proceeds from issuance of
common stock 83,309 -- 40,441
Dividends paid (995,261) (809,591) (693,283)
Net proceeds (repayments)
from FHLB advances -- -- (2,175,000)
------------ ------------ ------------
Net Cash From
Financing Activities 13,411,157 18,374,850 276,146
------------ ------------ ------------
Net Change in Cash and
Cash Equivalents (5,191,173) 5,043,790 2,428,272
Cash and Cash Equivalents
at Beginning of Year 16,269,707 11,225,917 8,797,645
------------ ------------ ------------
Cash and Cash Equivalents
at End of Year $ 11,078,534 $ 16,269,707 $ 11,225,917
============ ============ ============
</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, 1997, 1996 and 1995
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: Peoples Financial Corp., Inc. (the Company) is a bank
holding company for its wholly owned subsidiary, PFC Bank (the Bank). The Bank
is a full-service commercial banking institution. It provides a variety of
financial services to individuals and corporate customers in Armstrong, Clarion
and Indiana counties through its five 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. PFC Bank has a wholly owned subsidiary, PFC Service
Corporation. PFC Service Corporation is a Delaware holding company for the
Bank's equity investments.
Principles of Consolidation: The consolidated financial statements include the
accounts of Peoples Financial Corp., Inc., its wholly-owned subsidiary, PFC
Bank, and PFC Service Corporation, a wholly owned subsidiary of the Bank. All
significant intercompany accounts have been eliminated in the consolidation.
Peoples Financial Corp., Inc. transacts no other material business.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions. Such estimates and assumptions 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. Management obtains independent appraisals for significant properties in
determining the allowances for loan losses and the valuation of foreclosed real
estate.
Investment Securities: The Bank classifies its investment securities as held to
maturity, trading or available for sale. 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 to sell 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 does not intend to establish a trading securities
classification.
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.
-9-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1997, 1996 and 1995
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loans Receivable and Allowance for Loan Losses (continued): The allowance for
loan losses is maintained at a level that, 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 plan is funded in accordance with the Employee
Retirement Income Security Act of 1974. Liabilities are recognized based on the
actuarially calculated benefits accrued through the date of the calculation.
Income Taxes: The Company accounts for income taxes using an asset and liability
approach to financial accounting and reporting. 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. When necessary, valuation allowances are established 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. The Company files
consolidated Federal income tax returns with its subsidiary.
Earnings per Share: Earnings per share are calculated using the weighted-average
number of shares outstanding. The weighted average shares outstanding were
880,563, 879,990 and 785,057 for the years ended December 31, 1997, 1996 and
1995, respectively.
-10-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1997, 1996 and 1995
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash Equivalents: For purposes of the Statements of Cash Flows, the Company
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 to 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.
The transaction was accounted for as an acquisition of a minority interest under
the purchase method of accounting. It 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. No cash was exchanged in the
transaction 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. 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). Consequently, there was very little change in
the valuation because 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
December 31, 1994 balance of treasury stock shares to authorized but un-issued
status.
-11-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1997, 1996 and 1995
NOTE C - INVESTMENT SECURITIES
Available-for-sale securities consist of the following:
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Equity securities $10,921,793 $27,147,378 $ -- $38,069,171
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Equity securities $11,108,207 $14,207,018 $ -- $25,315,225
</TABLE>
Held-to-maturity securities consist of the following:
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury
securities $27,396,668 $ 472,555 $ 7,293 $27,861,930
Obligations of U.S.
government
agencies 1,097,184 7,892 826 1,104,250
Obligations of state
and political sub-
divisions 1,889,897 6,778 11,669 1,885,006
Corporate notes 1,994,475 16,775 -- 2,011,250
----------- ----------- ----------- -----------
$32,378,224 $ 504,000 $ 19,788 $32,862,436
=========== =========== =========== ===========
</TABLE>
-12-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1997, 1996 and 1995
NOTE C - INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains 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 sub-
divisions 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>
Gross realized gains on sales of available-for-sale securities were $1,173,428,
$1,309,787 and $1,510,860 in 1997, 1996 and 1995, respectively. The gains are
reduced by previously recognized appreciation recorded through the merger of
$148,541, $291,410 and $263,386 in 1997, 1996 and 1995, respectively. Additional
net gains of $40,176, $34,949 and $5,500 in 1997, 1996 and 1995, respectively,
were recognized for write-downs and held-to-maturity securities resulting from
the merger.
The amortized cost and estimated market value of available-for-sale and
held-to-maturity securities at December 31, 1997, by contractual maturity, are
shown below. Expected maturities may differ from contractual maturities because
issuers have the right to call or prepay obligations.
<TABLE>
<CAPTION>
Amortized Cost Market Value
-------------- ------------
<S> <C> <C>
Available-for-sale Securities $ 10,921,793 $ 38,069,171
============ ============
Held-to-maturity Securities
Due in one year or less $ 10,022,210 $ 10,015,202
Due after one year through five years 20,222,108 20,540,414
Due after five years through ten years 2,219,238 2,306,820
------------ ------------
32,463,556 32,862,436
Step-down due to merger (85,332) --
------------ ------------
$ 32,378,224 $ 32,862,436
============ ============
</TABLE>
-13-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1997, 1996 and 1995
NOTE C - INVESTMENT SECURITIES (CONTINUED)
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 FHLB advances. At December 31, 1997 and 1996, the Bank held $740,200
and $569,500, respectively, of FHLB stock.
NOTE D - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
The primary classifications of loans as of December 31 are as follows:
1997 1996
------------ ------------
Real estate $106,617,350 $ 92,815,579
Installment 25,122,377 25,708,254
Commercial 18,377,724 12,206,855
PHEAA and other 3,537,526 6,591,677
------------ ------------
153,654,977 137,322,365
Less: Unearned discounts 10,329 18,358
Allowance for loan losses 1,248,879 1,253,810
------------ ------------
$152,395,769 $136,050,197
============ ============
NOTE D - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
The primary classifications of loans as of December 31 are as follows:
1997 1996
------------ ------------
Real estate $106,617,350 $ 92,815,579
Installment 25,122,377 25,708,254
Commercial 18,377,724 12,206,855
PHEAA and other 3,537,526 6,591,677
------------ ------------
153,654,977 137,322,365
Less: Unearned discounts 10,329 18,358
Allowance for loan losses 1,248,879 1,253,810
------------ ------------
$152,395,769 $136,050,197
============ ============
Loans on which the accrual of interest had been discontinued were approximately
$217,250 and $332,450 at December 31, 1997 and 1996, respectively. The gross
amount of interest which would have been recorded if such loans had been
accruing interest at their original terms was approximately $26,150 and $27,500
for 1997 and 1996, respectively.
Changes in the allowance for loan losses for the years ended December 31 were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year $ 1,253,810 $ 1,243,619 $ 1,383,059
Provision charged to operations 80,000 75,000 60,000
Loans charged-off (105,016) (107,354) (223,438)
Recoveries 20,085 42,545 23,998
----------- ----------- -----------
Balance, end of year $ 1,248,879 $ 1,253,810 $ 1,243,619
=========== =========== ===========
</TABLE>
-14-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1997, 1996 and 1995
NOTE E - PREMISES AND EQUIPMENT
Premises and equipment, which are stated at cost, as of December 31 are as
follows:
1997 1996
---------- ----------
Land $ 334,554 $ 315,454
Buildings and improvements 3,283,694 3,113,053
Furniture and equipment 4,274,178 4,287,234
---------- ----------
7,892,426 7,715,741
Less: Accumulated depreciation 4,433,253 3,966,819
---------- ----------
$3,459,173 $3,748,922
========== ==========
Depreciation expense was $544,349, $515,125 and $564,053 for the years ended
December 31, 1997, 1996 and 1995, respectively.
NOTE F - PLEDGED ASSETS
At December 31, 1997 and 1996, assets carried at approximately $28,515,000 and
$19,710,000, respectively, were pledged to qualify for fiduciary powers, to
secure public monies as required by law, and for other purposes.
NOTE G - DEPOSITS
The maturities of time deposit over the next five years and thereafter as of
December 31, 1997 are, as follows:
Amount Percent
----------- ---------
Within one year $63,863,768 70.5%
One to two years 12,332,971 13.6
Two to three years 7,652,324 8.4
Three to four years 2,143,368 2.4
Four to five years 3,164,293 3.5
Over five years 1,465,416 1.6
----------- -----
$90,622,140 100.0%
=========== =====
-15-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1997, 1996 and 1995
NOTE H - INCOME TAXES
The provision for income taxes for the years ended December 31, consists of:
1997 1996 1995
---------- ---------- ----------
Currently payable $ 963,936 $522,995 $ 453,411
Deferred taxes 42,944 39,656 (106,697)
---------- ---------- ----------
$1,006,880 $562,651 $ 346,714
========== ========== ==========
The significant components of temporary differences as of December 31 are as
follows:
1997 1996 1995
--------- --------- ---------
Provision for loan losses $ 1,677 $ 1,528 $ 28,263
Depreciation 3,488 97,345 (8,844)
Employee benefits (22,299) 52,053 (36,197)
Other 60,078 (111,270) (89,919)
--------- --------- ---------
Total $ 42,944 $ 39,656 $(106,697)
========= ========= =========
A reconciliation of income taxes at 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>
1997 1996 1995
------------------------ -------------------------- -------------------------
% 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 $ 1,361,128 34.0 % $ 908,748 34.0 % $ 642,033 34.0%
Effect of tax-exempt income (100,923) (2.5) (110,837) (4.1) (84,970) (4.5)
Bad debt deduction, net -- -- -- -- (45,263) (2.4)
Other (253,325) (6.3) (235,260) (8.8) (165,086) (8.7)
----------- ------ ----------- ------- ----------- ----
Actual tax expense and
effective rate $ 1,006,880 25.2 % $ 562,651 21.1 % $ 346,714 18.4%
=========== ====== =========== ======= =========== ====
</TABLE>
-16-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1997, 1996 and 1995
NOTE H - 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>
1997 1996
---------------------------- ----------------------------
Deferred Tax Deferred Tax
---------------------------- ----------------------------
Assets Liabilities Assets Liabilities
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Provision for loan
losses $ 260,291 $ -- $ 261,937 $ --
Depreciation 278,801 275,312
Employee benefits 102,163 79,854
Unrealized gains 9,230,109 4,830,386
Merger adjustment to
market value 1,273,351 1,329,259
Additional minimum
pension liability 41,378
Other 118,811 12,296 167,864 1,231
----------- ----------- ----------- -----------
$ 522,643 $10,794,557 $ 509,655 $ 6,436,188
=========== =========== =========== ===========
</TABLE>
NOTE I - 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. These plans were merged effective January 1, 1996. The current
funding policies of the plans are to contribute annually the maximum amount that
can be deducted for Federal income tax purposes.
Peoples Bank of PA and New Bethlehem Bank also maintained separate non-qualified
deferred compensation plans. The Board of Directors designated participants of
the plans. 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. Consequently,
no actuarial assumptions were used in determining the funded status and related
expenses of the Peoples Bank of PA non-qualified deferred compensation plan.
-17-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1997, 1996 and 1995
NOTE I - EMPLOYEE RETIREMENT PLANS (CONTINUED)
The following table sets forth the plan's funded status and amounts recognized
in the Bank's balance sheets at December 31 based upon valuation date of January
1 of each year:
1997 1996
----------- -----------
Accumulated benefit obligation $ 1,669,031 $ 1,388,553
=========== ===========
Projected benefit obligation for service
rendered to date $(1,710,378) $(1,388,553)
Plan assets at fair value 1,285,379 ,005,092
----------- -----------
Projected benefit obligation less/(greater)
than plan assets at December 31 (424,999) (383,461)
Unrecognized net (gain)/loss from past
experience different from that assumed
and effects of changes in assumptions 535,926 446,989
Unrecognized net asset at transition
being recognized over 26 years 92,722 98,110
Prior service cost not yet recognized in net
periodic pension adjustment (465,569) (471,234)
Additional minimum pension liability (121,732) (73,865)
----------- -----------
Accrued pension cost at year end $ (383,652) $ (383,461)
=========== ===========
Net pension costs for the year ended December 31 included the following
components:
1997 1996 1995
-------- -------- --------
Service cost - benefits earned
during the period $ 68,009 $ 77,482 $136,560
Interest cost on projected benefit
obligation 89,596 83,503 154,830
Net amortization and deferral 114,976 55,491 120,831
Less: Actual return on plan assets 175,841 99,694 122,129
-------- -------- --------
Net periodic pension cost $ 96,740 $116,782 $290,092
======== ======== ========
-18-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1997, 1996 and 1995
NOTE I - EMPLOYEE RETIREMENT PLANS (CONTINUED)
The projected benefit obligation was determined using an assumed discount rate
of 7.0% for 1997 and 6.5% for 1996 and an expected rate of increase in
compensation of 4.0% and 5.0%, respectively, for the same periods. The assumed
rate of return on the plan's investment earnings was 7.0% for 1997 and 6.5% for
1996.
NOTE J - SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES
Cash payments for:
Interest $ 7,141,409 $ 6,403,061 $ 6,421,032
Income taxes $ 946,040 $ 611,505 $ 258,965
NON-CASH INVESTING AND FINANCING
TRANSACTIONS
Recorded unrealized gains
on available-for-sale
securities at December 31 $27,147,378 $14,207,018 $10,897,364
Deferred income taxes on
recorded unrealized gains
on available-for-sale
securities at December 31 $ 9,230,109 $ 4,830,386 $ 3,705,104
Loans transferred to
foreclosed real estate
during the year $ 343,479 $ 176,376 $ 14,700
</TABLE>
NOTE K - FINANICAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
There are various outstanding commitments and contingent liabilities arising in
the normal course of business that 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 $7,316,524 and $7,422,924 as of December 31, 1997
and 1996, respectively, and approximate fair value.
-19-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1997, 1996 and 1995
NOTE K - FINANICAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)
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 L - DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and 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.
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.
-20-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1997, 1996 and 1995
NOTE L - DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair value of the Bank's financial instruments as of December 31,
1997 are as follows:
Carrying
Amount Fair Value
----------- -----------
Financial Assets
Cash and cash equivalents $ 11,078,534 $ 11,078,534
Investment securities $ 70,447,395 $ 70,931,607
Federal Home Loan Bank stock $ 740,200 $ 740,200
Loans receivable $152,395,769 $152,364,000
Financial Liabilities
Deposits $190,572,707 $190,379,000
The market values of classifications of investment securities, which are based
upon quoted market prices are contained in Note C.
NOTE M - REGULATORY MATTERS
The Bank pays dividends from its assets. However, the Bank is subject to legal
limitations on the amount of dividends that can be paid to the Company. 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.
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.
-21-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1997, 1996 and 1995
NOTE M - REGULATORY MATTERS (CONTINUED)
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, 1997 and 1996, that the Bank meets all capital adequacy
requirements to which it is subjected.
As of December 31, 1997 and 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 regulatory capital information as of December 31, 1997 and 1996 is,
as follows:
Minimum Well
Capital Capitalized
Actual Requirements Requirements
------ ------------ ------------
Risk-based capital ratio
1997 13.10% 8% 10%
1996 14.21% 8% 10%
Leverage capital ratio
1997 8.33% 3% to 4% 5%
1996 8.62% 3% to 4% 5%
Tier 1 risk-based
capital ratio
1997 12.30% 4% 6%
1996 13.23% 4% 6%
Included in the "Cash and due from banks" balance are required federal reserves
of approximately $963,000 and $950,000 at December 31, 1997 and 1996,
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 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 years ended December 31, 1997 and 1996 was $22,577 and $6,719,
respectively, lower because of the legislation.
-22-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1997, 1996 and 1995
NOTE N - CONCENTRATIONS, RISKS AND UNCERTAINTIES
The Bank primarily grants loans to customers in Armstrong, Clarion and Indiana
counties of Pennsylvania 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 188 customers with accounts greater than $100,000 representing $46.4 million
in deposits as of December 31, 1997 (24.3% of deposits as of December 31, 1997)
and approximately $44.9 million with 215 customers as of December 31, 1996
(25.5% of total deposits as of December 31, 1996).
A substantial portion of the Bank's investments in municipal securities is
obligations of state or political subdivisions located within Pennsylvania.
At December 31, 1997, approximately $3,677,000 of the Bank's "Cash and due
from banks" was maintained at various financial institutions in amounts that
exceed $100,000 limit on FDIC insured accounts.
The Company and the Bank are 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 financial
position of the Company or the Bank.
NOTE O - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 130, Reporting
Comprehensive Income. The statement establishes standards for reporting and
displaying comprehensive income and its individual components. Comprehensive
income includes net income and all other non-income changes to retained earnings
accounts.
Management is currently evaluating the impact of this statement.
NOTE P - RELATED PARTIES
At December 31, 1997 and 1996, certain officers and directors of the Bank
and companies in which they have beneficial ownership, were indebted to the Bank
for $415,408 and $678,067, respectively. During 1997, new loans to such related
parties were $2,500 and repayments were $27,318. Loan balances totaling $237,841
were removed from this classification, as the borrowers were no longer related
parties as of December 31, 1997. During 1996, new loans were $55,000 and
repayments were $76,126.
Deposits with the Bank by related parties and shareholders' greater than 5%
were approximately $4,432,000 and $5,131,500 as of December 31, 1997 and 1996.
-23-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1997, 1996 and 1995
NOTE Q -- PARENT COMPANY FINANCIAL INFORMATION
The condensed financial information for Peoples Financial Corp., Inc., as of
December 31, 1997 and 1996 and for the years ended December 31, 1997, 1996 and
1995 is as follows:
BALANCE SHEETS
December 31,
----------------------------
1997 1996
----------- -----------
ASSETS
Cash in bank $ 173,898 $ 149,868
Investment in subsidiary 37,217,593 26,705,824
Other assets 21,459 12,459
----------- -----------
Total Assets $37,412,950 $26,868,151
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ -- $ --
Stockholders' Equity 37,412,950 26,868,151
----------- -----------
Total Liabilities and
Stockholders' Equity $37,412,950 $26,868,151
=========== ===========
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Income
Dividends from subsidiary $1,004,261 $ 822,050 $ 780,793
Other 14,781 7,539 7,655
Expenses
Professional fees 69,860 -- 4,105
Miscellaneous 4,201 5,806 2,952
---------- ---------- ----------
Income Before Income Taxes and
Equity in Undistributed Earnings
of Subsidiary 944,981 823,783 781,391
Equity in Undistributed Earnings
of Subsidiary 2,051,457 1,286,356 596,727
---------- ---------- ----------
Net Income $2,996,438 $2,110,139 $1,378,118
========== ========== ==========
</TABLE>
-24-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1997, 1996 and 1995
NOTE Q -- PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,996,438 $ 2,110,139 $ 1,378,118
Adjustments to reconcile net income to
net cash provided by operating activities:
Decrease in cash due to changes
in assets and liabilities
Equity in undistributed earnings
of subsidiary (2,051,457) (1,286,356) (596,727)
Other assets (9,000) (6,733) (503)
Loan payable -- -- (66,266)
----------- ----------- -----------
Net Cash From
Operating Activities 935,981 817,050 714,622
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 83,309 -- 40,441
Dividends paid (995,261) (809,591) (620,763)
----------- ----------- -----------
Net Cash Used By
Financing Activities (911,952) (809,591) (580,322)
----------- ----------- -----------
Net Change in Cash and
Cash Equivalents 24,029 7,459 134,300
Cash and Cash Equivalents
at Beginning of Year 149,868 142,409 8,109
----------- ----------- -----------
Cash and Cash Equivalents
at End of Year $ 173,897 $ 149,868 $ 142,409
=========== =========== ===========
</TABLE>
-25-
Exhibit 21 - Subsidiaries of the Registrant
PFC Bank - incorporated in the state of Pennsylvania
PFC Service Corporation - incorporated in the state of Delaware.
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report of Form
10-KSB of Peoples Financial Corp., Inc. of our report dated February 13, 1998,
included in the Peoples Financial Corp., Inc. and Subsidiary Consolidated
Financial Statements - December 31, 1997, 1996 and 1995.
/s/ Edwards Leap & Sauer
March 20, 1998
Pittsburgh, Pennsylvania
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,969
<INT-BEARING-DEPOSITS> 35
<FED-FUNDS-SOLD> 4,075
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 32,378
<INVESTMENTS-CARRYING> 38,069
<INVESTMENTS-MARKET> 38,069
<LOANS> 153,640
<ALLOWANCE> 1,249
<TOTAL-ASSETS> 240,271
<DEPOSITS> 190,573
<SHORT-TERM> 0
<LIABILITIES-OTHER> 12,285
<LONG-TERM> 0
<COMMON> 265
0
0
<OTHER-SE> 37,148
<TOTAL-LIABILITIES-AND-EQUITY> 240,271
<INTEREST-LOAN> 12,323
<INTEREST-INVEST> 3,248
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 15,571
<INTEREST-DEPOSIT> 7,489
<INTEREST-EXPENSE> 7,489
<INTEREST-INCOME-NET> 8,082
<LOAN-LOSSES> 80
<SECURITIES-GAINS> 1,065
<EXPENSE-OTHER> 5,934
<INCOME-PRETAX> 4,003
<INCOME-PRE-EXTRAORDINARY> 4,003
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,996
<EPS-PRIMARY> 3.40
<EPS-DILUTED> 3.40
<YIELD-ACTUAL> 7.53
<LOANS-NON> 217
<LOANS-PAST> 451
<LOANS-TROUBLED> 144
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,254
<CHARGE-OFFS> 105
<RECOVERIES> 20
<ALLOWANCE-CLOSE> 1,249
<ALLOWANCE-DOMESTIC> 1,249
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 23, 1998
------------------------------------------------
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 10:00 a.m.,
local time, on Monday, March 23, 1998, at the Holiday Inn, Route 68 at I-80,
Clarion, Pennsylvania 16214, 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, 1998; 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
February 20, 1998, 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, 1997 is being mailed with this Notice. Copies of the Corporation's
Annual Report for the 1996 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/ R.B. Robertson
-------------------------------------
Raleigh B. Robertson, President and
Chief Executive Officer
February 27, 1998
<PAGE>
PEOPLES FINANCIAL CORP., INC.
PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON MARCH 23, 1998
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 Monday,
March 23, 1998, at 10:00 a.m., local time, at the Holiday Inn, Route 68 and
I-80, Clarion, Pennsylvania 16214, 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 February 27, 1998.
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, 1998. 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.
1
<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 February 20, 1998, the Corporation had issued
and outstanding 882,168 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 February
20, 1998, 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 February 20, 1998, 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>
<TABLE>
<CAPTION>
Percent of Outstanding
Shares Beneficially Common Stock
Name and Address Owned(1) Beneficially Owned
---------------- -------- ------------------
<S> <C> <C>
J. Jack Sherman 99,351 11.26%
P.O. Box 324
Tionesta, PA 16353
C. Edward Dunmire 67,304 7.63%
425 Pine Hill Road
Kittanning, PA 16201
Howard Shreckengost 61,466(2) 6.97%
406 Vine Street
New Bethlehem, PA 16242
</TABLE>
- ------------------
(1) For the definition of "beneficial ownership" see footnote 1 below under the
caption entitled "Beneficial Ownership by Officers, Directors and
Nominees".
(2) Mr. Shreckengost holds the shares jointly with his spouse.
Beneficial Ownership by Officers, Directors and Nominees
The following table sets forth as of February 20, 1998, 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)(3) of Class
-------------------- -------------------------- --------
Frank T. Baker 37,665(4) 4.27%
Marlin F. Foreman 10,440(5) 1.18%
Brian Henry 100 0.01%
Darl Hetrick 31,520(6) 3.57%
Francis E. Kane 6,111(7) 0.69%
Raleigh B. Robertson 14,189(8) 1.61%
Raleigh B. Robertson, Jr. 27,294(9) 3.09%
J. Jack Sherman 99,351 11.26%
3
<PAGE>
Howard H. Shreckengost 61,466(2) 6.97%
William H. Toy 20,860(10) 2.36%
(All Officers and Directors as
a Group, 11 Persons in Total) 297,121 33.68%
- -----------------
(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 February 20, 1998.
Beneficial ownership may be disclaimed as to certain of the securities.
(2) See footnote 2 above under the caption "Principal Beneficial Owners of the
Corporation's Stock."
(3) Information furnished by the directors of the Corporation.
(4) Mr. Baker holds 35,605 shares jointly with his spouse and she holds 2,060
individually.
(5) Mr. Foreman holds 9,674 shares jointly with his daughter, 50 shares jointly
with his granddaughter and 50 shares jointly with another granddaughter.
(6) Mr. Hetrick holds 29,839 shares jointly with his spouse, 315 shares jointly
with his son and his spouse and son hold 1,366 shares jointly.
(7) Mr. Kane holds 666 shares, individually, and 5,445 shares jointly with his
spouse.
(8) Mr. Raleigh B. Robertson holds 50 shares individually, 1,665 shares jointly
with his spouse, 12,108 shares jointly with his son, Raleigh B. Robertson,
Jr. and his spouse holds 366 shares individually.
(9) Mr. Raleigh B. Robertson, Jr. holds 11,158 shares jointly with his spouse,
2,014 shares jointly with his son, 2,014 shares jointly with her daughter
and 12,108 shares jointly with his father, Raleigh B. Robertson.
(10) Mr. Toy holds 20,860 shares jointly with his spouse.
ELECTION OF DIRECTORS
In accordance with the By-laws of the Corporation, at the 1998 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.
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.
4
<PAGE>
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 1998 Principal Occupation Corporation/Bank
---- ---- -------------------- ----------------
<S> <C> <C> <C>
Frank T. Baker 62 Chairman of the Corporation,
Retired Professor, Indiana 1984/1973
University of Pennsylvania
Marlin F. Foreman 94 Retired 1984/1977
Brian Henry 44 Self-employed in the 1995/1995(1)
Health Care Industry
Darl Hetrick 75 Owner, Hetrick's Farm 1993/1993
Supply
Francis E. Kane 78 Retired 1984/1955
Raleigh B. Robertson 69 President and Chief 1993/1993
Executive Officer of
the Corporation and the
Bank
Raleigh B. Robertson, Jr. 46 Partner, R.B. Robertson & 1995/1995(1)
Son, an oil and gas
business
Timothy P. Reddinger 38 President, TDK Coal Sales, Inc. --
J. Jack Sherman 60 President, Sherman 1995/1995(1)
Enterprises
Howard H. Shreckengost 60 Manager, Char-Val 1995/1995(1)
Candy Company
William H. Toy 68 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. Henry, Hetrick, Robertson,
Robertson, Jr., Sherman and Shreckengost served on the Board of Directors
of New Bethlehem Bank since 1986, 1983, 1985, 1994, 1994 and 1994,
respectively.
5
<PAGE>
Each of the Directors attended at least 70 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 1998
----------------- ----- ----- -------------- ----
<S> <C> <C> <C> <C>
Raleigh B. Robertson 1995 1996(1) 14,189(2) 69
President and CEO
Frank T. Baker 1997 (3) 37,665 62
Chairman of the Board
James Kifer 1997 1995(4) 233(5) 36
Executive Vice President
Brian Henry 1996 (3) 100 44
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, then President and CEO on April 8, 1997.
(2) See footnote (8), Beneficial Ownership by Officers, Directors and Nominees
table.
(3) Not an employee of the Bank.
(4) Was employee of New Bethlehem Bank from 1984 until the merger (effective
4/1/95) of New Bethlehem Bank with and into the Bank.
(5) Mr. Kifer holds the shares jointly with his spouse.
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 1997 (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 two 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:
6
<PAGE>
The following table provides information concerning the aggregate annual
remuneration of the highest paid persons (exceeding $100,000) who were officers
or directors of PFC and PFC Bank during 1997.
Summary Compensation Table
Annual Compensation 1995-1997
<TABLE>
<CAPTION>
Annual Compensation
Other Annual
Name and Principal Position Year Salary($) Bonus($) Compensation
- --------------------------- ---- --------- -------- ------------
<S> <C> <C> <C> <C>
Raleigh B. Robertson, President/CEO 1997 $130,893 $72,000 83,308.50 (1)
1996 $ 62,330 $40,000 47,084.00 (2)
1995 $42,000 86,977.00 (3)
</TABLE>
- -------------
(1) Contingent compensation paid in 1997.
(2) Includes $38,000 appraisal fees and $9,084 in Directors' fees.
(3) Includes $36,000 Consulting Fee, $32,914 appraisal fees and $18,063 in
Directors' Fees.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-----------------
(a) (b) (c) (d) (e) (f) (g)
5%($) 10%($)
Number of % of Total
Securities Options/SARs Exercise Potential Realizable Value
Underlying Granted to or Base at Assumed Annual Rates
Options/SARs Employees in Price Expiration of Stock Price Appreciation
Name Granted (#) Fiscal Year ($/Share) Date for Option Term
---- ----------- ----------- --------- ---- ---------------
<S> <C> <C> <C> <C> <C> <C>
Raleigh B. Robertson August 31,
President and CEO 6,536 100% $38.25 2002 $262,485.76 $275,002.20
</TABLE>
7
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End(#) at FY-End(#)
Shares Acquired on Exercisable/ Exercisable/
Name Exercise(#) Value Realized($) Unexercisable Unexercisable
---- ----------- ----------------- ------------- -------------
<S> <C> <C> <C> <C>
Raleigh B. Robertson 2,178 -0- 0/4,358 $0/$166,693.50
President and CEO
</TABLE>
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.
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, 1998.
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, 1998,
another accounting firm may be chosen to provide independent audit services for
the 1998 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, 1998.
A representative is expected to be present at the Annual Meeting to respond to
appropriate questions.
8
<PAGE>
ANNUAL REPORT
A copy of the Corporation's Annual Report for its fiscal year ended
December 31, 1997 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.
9
<PAGE>
PEOPLES FINANCIAL CORP., INC.
PROXY
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MARCH 23, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Raleigh B. Robertson and
Brian Henry and each or either of them, proxies of the undersigned, with full
power of substitution, to vote all of the shares of Peoples Financial Corp.,
Inc. (the "Corporation") that the undersigned may be entitled to vote at the
Annual Meeting of Shareholders of the Corporation to be held at the Holiday Inn,
Route 68 and I-80, Clarion, Pennsylvania 16214, on Monday, March 23, 1998, at
10:00 a.m., local time, and at any adjournment or postponement thereof as
follows:
1. ELECTION OF DIRECTORS TO SERVE FOR A ONE-YEAR TERM.
Frank T. Baker, Marlin F. Foreman, Brian Henry, Darl
Hetrick, Francis E. Kane, Raleigh B. Robertson, Raleigh B.
Robertson, Jr., Timothy P. Reddinger, J. Jack Sherman,
Howard H. Shreckengost, William H. Toy
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY
listed above (except to vote for all
as marked to the nominees listed
contrary below) above
(INSTRUCTION: IF YOU WISH TO WITHHOLD THE PROXIES' AUTHORITY TO VOTE FOR
ANY NOMINEE(S) FOR DIRECTOR LISTED ABOVE, DRAW A LINE THROUGH THE NOMINEE(S)
NAME.)
The Board of Directors recommends a vote FOR all of these nominees.
2. PROPOSAL 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, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors recommends a vote FOR this proposal.
<PAGE>
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting and any adjournment or
postponement thereof.
THIS PROXY, WHEN PROPERLY SIGNED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR ALL NOMINEES LISTED ABOVE AND FOR PROPOSAL 2.
Dated: , 1998 -----------------------------------
Signature
-----------------------------------
Signature
Number of Shares Held of
Record on February 20, 1998
THIS PROXY MUST BE DATED, SIGNED BY THE SHAREHOLDER AND RETURNED PROMPTLY
TO THE CORPORATION IN THE ENCLOSED ENVELOPE. WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE. IF MORE THAN ONE
TRUSTEE, ALL SHOULD SIGN. IF STOCK IS HELD JOINTLY, EACH OWNER SHOULD SIGN.
