SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(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, 1999
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.
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(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
------------------- ---------------------
None 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
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing 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-K 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-K. [X]
The Issuer's revenues for the year ended December 31, 1999, were: $22,697,270.
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: $37,371,312 on February 15, 2000
Indicate the number of shares outstanding of the registrant's common stock, as
of February 15, 2000: Peoples Financial Corp., Inc. Common Stock, par value
$0.30 per share: 1,773,052 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., 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 is a Pennsylvania-chartered banking institution and, as successor to
Peoples and New Bethlehem, traces its origins to 1914 and 1895. PFC Bank offers
a full range of banking services through seven banking offices in Pennsylvania,
two of which are located in Ford City, two in New Bethlehem, one each in
Clarion, Butler and Indiana. As of December 31, 1999, the bank had total assets
of $301.5 million and stockholders' equity of $38.3 million. All of PFC Bank's
outstanding common stock is owned by PFC.
PFC Service Corporation is a Delaware corporation and a wholly owned subsidiary
of the bank. The service corporation was incorporated in Delaware, on May 16,
1997. The primary purpose of the service corporation is to buy and sell equity
securities, primarily Pennsylvania bank securities. As of December 31, 1999, the
service corporation had total assets of $32.6 million and shareholder's equity
of $25.5 million.
Forward-Looking Statements
From time to time, the corporation may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, research and development
activities and similar matters. 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, the corporation notes that a variety of
factors could cause the corporation's actual results and experience to differ
materially from the anticipated results or other expectations expressed in the
corporation's forward-looking statements. The risks and uncertainties that may
affect the operations, performance, development and results of the corporation'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, 1999, PFC, PFC Bank and PFC Service Corporation had 85
full-time employees and 17 part-time employees.
Competition
The financial services industry in the corporation's service area is extremely
competitive. The corporation's competitors within its service area include
multi-bank holding companies, with resources substantially greater than those of
the corporation. 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,
<PAGE>
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 impacted by one or a few major
competitors.
Recently enacted federal legislation is expected to have a significant effect in
restructuring the banking industry in the United States. As a result, the
corporation 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, and to
supervision by the Board of Governors of the Federal Reserve System. 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, a bank
holding company is required to guarantee the compliance of any insured
depository institution subsidiary that may become "undercapitalized" with the
terms of any capital restoration plan filed by such subsidiary with its
appropriate federal banking agency, up to specified limits.
Under the Bank Holding Company Act, the Federal Reserve Board has the authority
to require a bank holding company to terminate any activity or relinquish
control of a nonbank subsidiary upon the Federal Reserve Board'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 Bank Holding Company Act prohibits the corporation 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 Board. 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.
In addition, the Bank Holding Company Act prohibits the corporation 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
Board to be so closely related to banking as to be a proper incident thereto.
As a bank holding company, the corporation is prohibited from engaging in or
acquiring direct or indirect control of more than 5% 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.
<PAGE>
As a bank holding company, PFC is required to file reports with the Federal
Reserve Board and is subject to examinations by the Federal Reserve Bank.
The activities that the Federal Reserve has determined by regulation to be
permissible are:
o making, acquiring, or servicing loans or other extensions of credit for its
own account or for the account of others;
o 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;
o 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 Board;
o 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;
o subject to limitations, leasing real or personal property or acting as
agent, broker, or adviser in leasing such property in accordance with
prescribed conditions;
o investing in corporations or projects designed primarily to promote
community welfare;
o providing to others data processing services and data transmission
services, data bases, and facilities, within certain limitations;
o 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 Board;
o 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 Board regulations;
o providing courier services for certain financial documents;
o subject to limitations, providing management consulting advice to
nonaffiliated bank and nonbank depository institutions;
o 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;
o performing appraisals of real estate and personal property;
<PAGE>
o 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;
o providing certain securities brokerage services;
o subject to limitations, underwriting and dealing in government obligations
and certain other instruments;
o subject to limitations, providing foreign exchange and transactional
services;
o subject to limitations, acting as a futures commission merchant for
nonaffiliated persons;
o subject to limitations, providing investment advice on financial futures
and options to futures;
o subject to limitations, providing consumer financial counseling;
o subject to limitations, tax planning and preparation;
o providing check guaranty services;
o subject to limitations, operating a collection agency; and,
o operating a credit bureau.
Federal Reserve Board approval may be required before the corporation or its
nonbank subsidiaries may begin to engage in any such activity and before any
such business may be acquired.
The corporation is a legal entity separate and distinct from the bank. The
corporation revenues (on a parent corporation only basis) result almost entirely
from dividends paid to the corporation by its subsidiary. The right of the
corporation, and consequently the right of creditors and shareholders of the
corporation, 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
corporation in its capacity as a creditor may be recognized.
Federal and state laws regulate the payment of dividends by the corporation's
subsidiaries.
Further, it is the policy of the Federal Reserve Board 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 Board'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 stockholders'
equity, noncumulative perpetual preferred stock, a limited amount of cumulative
perpetual preferred stock, and minority interests
<PAGE>
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 Board 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 Board has indicated that it will consider a "tangible Tier 1
capital leverage ratio" and other indicators of capital strength in evaluating
proposals for expansion or new activities. The Federal Reserve Board has not
advised management of any specific minimum leverage ratio applicable to PFC.
Pursuant to Federal Deposit Insurance Corporation Improvement Act, 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, 1999,
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 and the Federal Deposit
Insurance Corporation. 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:
o require the maintenance of certain reserves against deposits;
o limit the type and amount of loans that may be made and the interest that
may be charged thereon;
o restrict investments and other activities; and,
o 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% 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
<PAGE>
examinations are designed for the protection of the bank's depositors rather
than the corporation's stockholders. 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 for the current year plus its retained net profits 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 exceed statutory bad
debts. Under Federal Deposit Insurance Corporation Improvement Act, 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.
A subsidiary bank of a bank holding company, such as PFC 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 Board 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 Board.
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 availability of funds for lending and
investment.
Year 2000 Issues
The "Year 2000 Problem" arose because many existing computer programs use only
the last two digits to refer to a year. Therefore, these computer programs do
not properly recognize a year that begins with "20" instead of the familiar
"19". If not corrected, many computer applications could have failed or created
erroneous results by or at the year 2000. This could have caused entire system
failures, miscalculations, and disruptions of normal business operations
including, among other things, a temporary inability to process transactions,
send statements, or engage in similar day to day business activities. The
corporation or bank experienced no system failures or disruptions due to the
Year 2000 issue.
The bank is subject to the regulation and oversight of various banking
regulators, whose oversight includes the provision of specific timetables,
programs and guidance regarding Year 2000 issues. Regulatory examination of the
bank's Year 2000 programs have been conducted on a periodic basis.
<PAGE>
Costs of Year 2000
As of December 31, 1999, the corporation expended $99,000 in Year 2000 costs.
Management originally planned to spend a total of $110,000 for the entire
project. Of the total project's expenditures, approximately $61,000 was
attributable to the purchase of new software which has been capitalized. The
Year 2000 project costs included the costs and time associated with the impact
of third-parties' Year 2000 issues. The total cost of the project was funded
through operating cash flows.
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 depositor relationship. The bank pays insurance
premiums into a fund according to rates established by the FDIC. The Federal
Deposit Insurance Corporation Improvement Act was enacted, in part, to prevent
the deposit insurance funds related to savings institutions from becoming
insolvent. The act authorized the FDIC to raise insurance premium assessments in
order to achieve and maintain an adequate level of funds. The depletion of the
deposit insurance funds had been due, in part, to a large number of failed
financial institutions in the 1980's, as well as increases in coverage per
deposit account. As a result, the future cost of deposit insurance for the bank
is in large part dependent upon the extent of future banking failures and the
amount of insurance coverage provided by the FDIC per deposit account, neither
of which is within the bank's control. Moreover, the act 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.
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 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 borrowers 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.
Gramm-Leach-Bliley Act
On November 12, 1999 President Clinton signed into law the Gramm-Leach-Bliley
Financial Modernization Act. The Act has a profound impact on the financial
services industry.
<PAGE>
o The Act repeals prior legislation to permit commercial banks to affiliate
with securities firms and insurance companies. More importantly, the Act
significantly expands the authority of each of these financial industries
to engage in a full array of financial services. Thus, each industry may
now engage in activities previously reserved to one or the other.
o The Act authorizes bank holding companies meeting defined standards to
engage in a substantially broader range of non-banking activities than was
permissible before the legislation passed.
o A new hierarchy of existing state and federal regulators will monitor both
the bank and the corporation. The Act coordinates the efforts of these
regulators. The goal is to lessen regulatory burden and prevent duplication
of examination efforts.
Also, all financial institutions are required to take reasonable precautions to
protect the security and confidentiality of personal customer information. The
bank or corporation may only share customer information with its affiliates
under certain circumstances.
ITEM 2 - DESCRIPTION OF PROPERTIES
The corporation has seven full service offices at the following locations:
1. Ford City Office, 323 Ford Street, Ford City, Pennsylvania, Corporate
office, containing 8,300 square feet;
2. New Bethlehem Office, 363 Broad Street, New Bethlehem, Pennsylvania,
Operations Office, containing 12,707 square feet;
3. Clarion Office, 650 Main Street, Clarion, Pennsylvania, containing 7,101
square feet;
4. Butler Office, 181 New Castle Road, Butler, Pennsylvania, containing 1,400
square feet;
5 Indiana Office, 500 Philadelphia Street, Indiana, Pennsylvania, containing
4,000 square feet;
6. New Bethlehem Branch Office, 628 Broad Street, New Bethlehem, Pennsylvania,
containing 2,800 square feet;
7. Manor Township Office, Pleasantview Drive, Ford City, Pennsylvania,
containing 1,600 square feet;
All properties listed are owned by the corporation and are used by the
corporation in its operations. 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 the corporation 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 the corporation and the bank. In addition, no
material proceedings are pending or are known to be threatened or contemplated
against the corporation or the bank by governmental authorities.
<PAGE>
ITEM 4 - SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
Part II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PFC's common stock is held by 390 stockholders of record as of February 15,
2000, 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 15, 2000, there were
1,773,052 shares outstanding. PFC paid dividends, adjusted to reflect the
retroactive treatment of the 100% stock dividend, of $0.125 per share the first
and second quarters of 1998 followed by dividends in each of the third and
fourth quarters of 1998 of $0.13 per share. A special dividend of $0.075 per
share was paid December 22, 1998. A dividend of $0.13 per share was paid in each
of the first two quarters of 1999 followed by a $0.14 per share dividend in the
third and fourth quarters. 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 12, Regulatory Matters, in the footnotes to PFC's financial statement
attached at Exhibit 13.
The following table sets forth quarterly highs and lows of PFC common stock for
the years 1997 through 1999. 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
--------------------------------------
1997
--------------------------------------
1 38.25 36.50
2 38.25 38.25
3 38.25 38.25
4 38.25 38.25
--------------------------------------
--------------------------------------
1998
--------------------------------------
1 43.00 42.00
2 42.00 42.00
3 50.00 50.00
4 * 30.00 * 30.00
--------------------------------------
--------------------------------------
1999
--------------------------------------
1 * 32.00 * 30.00
2 * 36.00 * 32.00
3 * 33.50 * 32.50
4 * 33.50 * 32.50
--------------------------------------
* Adjusted stock price to reflect retroactive treatment of 100% stock dividend
in the form of a stock split.
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
The following is selected financial data of PFC and its wholly owned subsidiary,
PFC Bank. Dollar amounts are in thousands, except per share data. The average
balances shown consist of daily average balances.
<TABLE>
<CAPTION>
Years Ended
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Summary of Operations 12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total interest income $ 19,148 $ 17,355 $ 15,571 $ 13,933 $ 13,168
Total interest expense 9,765 8,450 7,489 6,476 6,299
Net interest income 9,383 8,905 8,082 7,457 6,869
Provision for loan losses 150 200 80 75 60
Gains on securities 2,950 3,001 1,065 1,053 1,253
Other operating income 591 626 870 1,067 661
Other operating expenses 6,219 6,037 5,934 6,830 6,835
Net income before deducting minority interest 4,700 4,464 2,997 2,110 1,542
Net income 4,700 4,464 2,997 2,110 1,378
Earnings per share 2.66 2.53 1.70 1.20 0.88
Earnings per share (fully diluted) 2.66 2.53 1.70 1.20 0.88
Dividend per share (2) 0.54 0.585 0.565 0.46 0.37
Total number of offices 7 7 6 6 6
Average Balance Sheet Totals
Total assets (1) 259,865 227,803 206,871 185,907 180,598
Investment securities (1) 40,390 43,337 41,946 41,846 56,678
Loans & leases (net of unearned income
and allowance for loan losses) 187,930 163,520 142,266 123,115 110,803
Total deposits 232,416 203,096 183,770 164,496 156,450
Total borrowings 2,323 - - 27 -
Stockholders' equity (1) 24,620 21,230 18,505 17,737 19,075
Historical number of shares outstanding
at period end (2) 1,773,052 1,768,694 1,764,336 1,759,980 1,759,980
Weighted average number of shares
outstanding (2) 1,770,151 1,765,792 1,761,126 1,759,980 1,570,114
Period End Total Assets (3) 301,715 266,002 240,271 210,812 186,888
</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 retroactive effect of 100% stock dividend in the form of a 2 for 1
stock split in February 1999.
(3) Includes the effect of SFAS No. 115.
<PAGE>
ITEM 7 - 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. The consolidated financial information should be read in
conjunction with PFC's consolidated financial statements included at Exhibit 13
to this report. Substantially all of the income and expenses of PFC are
attributable to PFC Bank and the bank's subsidiary, PFC Service Corporation.
Financial Condition
The total assets of PFC at December 31, 1999 were $301.7 million, an increase of
$35.7 million, or 13.43% over total assets at December 31, 1998 of $266.0
million. Total assets at December 31, 1998 increased by $25.7 million or 10.70%
over December 31, 1997.
The increase in total assets from December 31, 1998 to December 31, 1999 was
comprised primarily of an increase in the loan portfolio of over $21.8 million,
an increase in cash and interest-bearing balances with depository institutions
of over $20.1 million and an increase in federal funds sold of $3.7 million
offsetting a decrease in available-for-sale securities of $9.6 million.
The increase in total assets as of December 31, 1998 over December 31, 1997 was
comprised primarily of an increase of over $22.3 million in loan balances in
addition to an increase of $8.2 million in interest-bearing balances with
depository institutions. These increases more than offset a decrease of over
$2.2 million in federal funds sold.
Total liabilities of PFC increased by $37.6 million from $225.4 million at
December 31, 1998 to $263.0 million at December 31, 1999. This increase was due
to increases in interest-bearing deposits of $30.5 million, non-interest bearing
deposits of $2.2 million and an increase in borrowed funds of $8.0 million.
The total liabilities of PFC at December 31, 1998 were $225.4 million, an
increase of $22.5 million or 11.09% over total liabilities at December 31, 1997
of $202.9 million. The increase in liabilities during the 12 months ended
December 31, 1998 resulted primarily from interest bearing deposit increases of
$20.0 million and an increase in non-interest bearing deposits of $2.9 million.
Net Income
PFC reported net income, before deducting the income taxes for the 12 month
period ended December 31, 1999 of $6,556,000 as compared to $6,295,000 for the
12 month period ended December 31, 1998, an increase of $261,000 or 4.15%. An
increase in interest income of $1,793,000 was offset by an increase in interest
expense of $1,315,000. PFC's net income for the period ended December 31, 1999,
after deducting taxes, was $4,700,000 as compared to $4,464,000 for the year
ended December 31, 1998. PFC reported net income, before deducting income taxes,
for the year ended December 31, 1998 of $6,295,000 which was an increase of
$2,292,000 or 57.26% as compared to $4,003,000 reported for the year ended
December 31, 1997. PFC's net income, after taxes, for the year ended December
31, 1998 was $1,468,000 higher than for the year ended December 31, 1997.
Earnings per share adjusted for the 100% stock dividend in the form of a 2 for 1
stock split effective February 10, 1999 to shareholders of record January 20,
1999, for the 12 month periods ended December 31, 1999, 1998 and 1997 was $2.66,
$2.53 and $1.70, respectively.
<PAGE>
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 25.
Interest Income and Expenses
Total interest income increased to $19,148,000 in 1999 from $17,355,000 in 1998,
an increase of $1,793,000 or 10.33%. This increase is primarily attributable to
an increase in interest earned on loans of $1,471,000 or 10.62% along with an
increase in interest on federal funds sold and interest bearing deposits of
$295,000. The average yield on interest-earning assets decreased from 7.07% for
the 12 month period ended December 31, 1998 to 7.01% for the 12 month period
ended December 31, 1999. The average yield on interest-earning assets decreased
from 7.31% for the 12 month period ended December 31, 1997 to 7.07% for the 12
month period ended December 31, 1998. The increase in total interest income from
1998 to 1999 results from an increase in average earning assets of $27.4
million. Total average loans increased by $24.4 million while average
interest-bearing deposits increased by $26.7 million and average investment
securities decreased by $5.0 million.
Total interest income increased to $17,355,000 in 1998 from $15,571,000 for the
year ended December 31, 1997, an increase of $1,784,000 or 11.46%. The increase
in total interest income from 1997 to 1998 results from an increase in earning
assets of $25.8 million. Gross loans increased by $22.3 million while total
securities decreased by $355,000.
Total interest expense increased to $9,765,000 in 1999 from $8,450,000 in 1998,
an increase of $1,315,000, or 15.56%. This increase is the result of an increase
in interest bearing deposits of $30.5 million and a $136,000 increase in
interest on FHLB borrowings. Total interest expense increased to $8,450,000 in
1998 from $7,489,000 in 1997, an increase of $961,000 or 12.83%. The increase is
primarily the result of an increase in interest bearing deposits of $19.9
million for the year ended December 31, 1998. The average rate on
interest-bearing liabilities was 4.74% for the 12 months ended December 31, 1999
and 4.74% and 4.66% for the 12 month periods ended December 31, 1998 and 1997,
respectively.
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, 1999 was $9,383,000 as compared to
$8,905,000 for the 12 month period ended December 31, 1998, an increase of
$478,000 or 5.37%. Net interest income increased $823,000 or 10.18% in 1998 as
compared to $8,082,000 for the year ended December 31, 1997.
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 for the years ended December 31, 1999, 1998 and 1997 comprise
approximately 44.75%, 50.20% and 52.56% of total deposits, respectively.
<PAGE>
Interest Income and Expenses (continued)
The following tables present the average major asset and liability categories
for the 12 month periods ended December 31, 1999, 1998 and 1997 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.
Average Balance Sheets & Net Interest Analysis for 1999
(in thousands)
<TABLE>
<CAPTION>
Selected Asset Categories Average Balances Interest Yield/rate
- ------------------------- ---------------- -------- ----------
<S> <C> <C> <C>
Interest-bearing assets
Loans & direct lease financing
(net of unearned discount) $ 187,930 $ 15,317 8.15%
Investment securities 65,732 3,045 4.63%
Federal funds sold 8,42 440 5.22%
Due from banks 10,942 346 3.16%
Non-interest bearing assets
Cash and due from banks 7,032 N/A N/A
Premises and equipment 3,178 N/A N/A
Other assets 3,301 N/A N/A
Selected Liability Categories
- -----------------------------
Interest-bearing liabilities
Demand deposits $ 53,634 $ 1,969 3.67%
Savings deposits
29,459 936 3.18%
Time deposits 121,766 6,724 5.52%
Short-term borrowings 2,323 136 5.85%
Non-interest-bearing liabilities
Demand deposits 27,557 N/A N/A
Other 10,877 N/A N/A
Net interest income $ 9,383
Net interest margin 3.44%
Average yield on interest-bearing assets 7.01%
Average rate on interest-bearing liabilities 4.71%
</TABLE>
<PAGE>
Interest Income and Expenses (continued)
Average Balance Sheets & Net Interest Analysis for 1998
(in thousands)
<TABLE>
<CAPTION>
Selected Asset Categories Average Balances Interest Yield/rate
- ------------------------- ---------------- -------- ----------
<S> <C> <C> <C>
Interest-bearing assets
Loans & direct lease financing
(net of unearned discount) $ 163,520 $ 13,846 8.47%
Investment securities 70,696 3,018 4.27%
Federal funds sold 3,743 198 5.29%
Due from banks 7,684 293 3.81%
Non-interest bearing assets
Cash and due from banks 4,242 N/A N/A
Premises and equipment 3,354 N/A N/A
Other assets 2,436 N/A N/A
Selected Liability Categories
Interest-bearing liabilities
Demand deposits $ 48,843 $ 1,752 3.59%
Savings deposits 28,138 894 3.18%
Time deposits 101,135 5,804 5.74%
Short-term borrowings 0 0 0
Non-interest-bearing liabilities
Demand deposits 24,980 N/A N/A
Other 12,779 N/A N/A
Net interest income $ 8,905
Net interest margin 3.63%
Average yield on interest-bearing assets 7.07%
Average rate on interest-bearing liabilities 4.74%
</TABLE>
<PAGE>
Interest Income and Expenses (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
(net of unearned discount) $ 143,529 $ 12,323 8.59%
Investment securities 61,864 2,831 4.58%
Federal funds sold 7,637 417 5.46%
Due from banks 0 0 0
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>
Non-interest income
Non-interest income for the twelve month period ended December 31, 1999 totaled
$3,549,000 as compared to $3,627,000 for the same period ended 1998, a decrease
of $78,000 or 2.16%. Non-interest income for the year ended December 31, 1998
increased from the total in 1997 of $1,935,000 by $1,692,000. Changes in the
level of non-interest income during 1999 is primarily attributable to decreases
in net investment gains of $51,000 and service fees of $90,000 partially offset
by an increase of $62,000 in miscellaneous income. Changes in the level of
non-interest income during 1998 is primarily attributable to an increase in
investment gains of $1,936,000 over 1997.
Non-interest Expenses
Non-interest expenses for the twelve month period ended December 31, 1999
totaled $6,227,000 as compared to $6,037,000 for the same period in 1998, an
increase of $189,000 or 3.13%. The increase is primarily related to the net of
increases in occupancy expense of $13,500, data processing of $55,000 and
miscellaneous operating expenses of $136,000 partially offset by decreases of
$22,000 in legal and professional fees. Non-interest expense for the twelve
month period ended December 31, 1998 registered an increase of $103,000 or 1.74%
as compared to the same period in 1997. The increase is primarily related to a
$199,000 increase in salaries and employee benefits from 1997 to 1998 offset by
decreases of $69,000 in legal and professional fees and $48,000 in miscellaneous
operating expenses. Other expenses for the year ended December 31, 1997
decreased $896,000 as compared with 1996.
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. PFC accounts for investments in accordance with Statement of
Financial Accounting Standards 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. Substantially all 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 thereon. For the period
ended December 31, 1999, PFC's net unrealized gain on available-for-sale
securities was $17.8 million. As of December 31, 1998 the net unrealized gain
was $26.7 million.
PFC's investment securities balance for the period ended December 31, 1999 was
$61.2 million, a $9.6 million or 13.56% decrease compared to the period ended
December 31, 1998. This decrease is primarily the result of a decrease of $8.9
million in net unrealized gains on available-for-sale securities. The December
31, 1998 securities balance of $70.8 million was a decease of $0.4 million over
the same time period in 1997.
Average federal funds sold and securities sold under agreement to repurchase
were $8.4 million and $3.7 million for the year ended December 31, 1999 and
1998, respectively.
<PAGE>
Investment Securities (continued)
The following table summarizes the maturity distribution and itemized breakdown
of the investment portfolio as of December 31, 1999.
Maturity Distribution of Investment Securities for 1999
(in thousands and excluding SFAS No. 115)
<TABLE>
<CAPTION>
No Within 1 to 5 5 to 10
Maturity Yield 1 Year Yield Years Yield Years Yield Total
--------- ----- ------ ----- ------ ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasuries/Agencies $9,805 5.58% $21,989 5.91% $ - - $31,794
State/Municipal 20 4.25% 215 4.57% 25 4.65% 260
Other Securities - - - -
Equity Securities $ 1,357 9.79% 11,357
----------------------------------------------------------------------------------------------
Totals $ 1,357 9.79% $9,825 5.58% $22,204 5.90% $ 25 4.65% $43,411
======= ===== ====== ===== ======= ===== ==== ===== =======
</TABLE>
Short-term Borrowings
(in thousands)
For each period: 1999 1998 1997
---- ---- ----
Balance at period end $8,000 $ 0 $ 0
Weighted average interest rate 5.85% 0 0
Maximum amount outstanding 8,000 0 0
Average amount outstanding 2,323 0 0
<PAGE>
Loans
As of December 31, 1999, the net loan portfolio of PFC Bank comprised 65.14% of
total consolidated assets as compared with 65.67% for the year ending December
31, 1998.
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, Butler, Clarion and Indiana Counties of Pennsylvania, it
concentrates lending activities in residential mortgages in these local market
areas. These loans comprised approximately 62.71% of PFC Bank's gross loan
portfolio as of December 31, 1999. As of that date, the remainder of the
portfolio was made up of real estate construction loans comprising loans of
1.40%, commercial mortgage of 16.88%, commercial and agricultural loans of
5.82%, consumer loans of 11.18%; and, other loans comprising 2.01% 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, 1999.
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
evolve 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 outlying but moderately prosperous sections 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 1998 to 1999 of $489,000 or 55.01% following a decrease of $68,000
or 7.11% from 1997 to 1998. Restructured loans, non-accrual loans and loans 90
days or more past-due decreased by 11.28%, 92.47% and 47.93%, respectively. The
tightening of lending policies has not decreased loan demand. In fact, total
loans as of December 31, 1999, have increased over the balances at December 31,
1998, by $21.8 million following an increase from 1997 to 1998 of $22.3 million.
The bank intends to continue its policy of performing formal credit analyses in
support of loan requests.
The corporation's total consolidated loans (net of unearned income and the
allowance for loan losses) at December 31, 1999, were $196.5 million, an
increase of $21.8 million or 12.48% as compared to $174.7 million at December
31, 1998. The December 31, 1998 balance increased $22.3 million or 14.64% over
the year ended December 31, 1997. The increase in 1999 was due primarily to an
$18.3 million increase in residential property loans. The increase in 1998 was
due primarily to an increase in residential loans of $23.0 million.
<PAGE>
Loans (continued)
(in thousands and net of unearned income, but not the allowance for loan losses)
<TABLE>
<CAPTION>
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial, agriculture $ 11,517 $ 12,089 $ 17,200 $ 13,859 $ 9,918
Real estate-construction 2,762 2,439 1,966 2,558 947
Real estate-mortgage 157,527 133,035 102,222 90,129 71,038
Consumer 22,125 24,085 28,646 27,774 30,303
Other 3,987 4,294 3,611 2,984 2,639
-------- -------- -------- -------- --------
Totals $197,918 $175,942 $153,645 $137,304 $114,845
======== ======== ======== ======== ========
Percent of Loan Categories to Total Loans
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
------------------------------------------------------------------------
Commercial, financial, agriculture 5.82% 6.87% 11.19% 10.09% 8.63%
Consumer/Other 13.19% 16.13% 21.00% 22.40% 28.69%
Real estate 80.99% 77.00% 67.81% 67.51% 62.68%
-------- -------- -------- -------- --------
100.00% 100.00% 100.00% 100.00% 100.00%
======== ======== ======== ======== ========
</TABLE>
Maturity Table as of December 31, 1999
<TABLE>
<CAPTION>
Due
1 year or less 1-5 years After 5 years Totals
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Floating rate $ 838 $ - $ - $ 838
Fixed rate 8,813 38,006 50,261 197,080
-------- -------- -------- --------
$ 9,651 $ 38,006 $150,261 $197,918
</TABLE>
<PAGE>
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, 1999.
The provision for loan losses was $150,000 for the twelve month period ended
December 31, 1999 and $200,000 for the same period ended December 31, 1998. The
allowance for loan losses was $1,378,000 at December 31, 1999, which was an
increase of $140,000 or 11.31% over the amount at December 31, 1998.
The provision for loan losses of $200,000 for the twelve month period ended
December 31, 1998 was a $120,000 increase over the provision of $80,000 for the
same period ended December 31, 1997. The allowance for loan losses decreased
$11,000 from $1,249,000 at December 31, 1997 to $1,238,000 at December 1998.
The provision for loan losses for the year ended December 31, 1997 as compared
to the year ended December 31, 1996, increased $5,000 from $75,000 or 6.67%. The
allowance for loan losses of $1,249,000 at December 31, 1997 was $5,000 less
than the amount reported at December 31, 1996.
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 $10,000 for the twelve month
period ended December 31, 1999 as compared to 1998 and 1997 net charge-offs of
$211,000 and $85,000, respectively. The unusual increase in net charge-offs in
1998 was due to a single loan charge-off of $151,000 arising from a successor
letter of credit, derived from a letter of credit originally issued in 1985 by
past management.
Non-performing assets of $400,000 were 29.02% of the allowance for loan losses
at December 31, 1999. Non-performing assets compared to the allowance for loan
losses at December 31, 1998 and 1997 were 71.81% and 76.62%, respectively.
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.
The table on the following page summarizes the loan portfolio and loan
charge-offs for the five years ended December 31, 1999.
<PAGE>
Allowance/Provision for Loan Losses (continued)
Loan Loss Summary
(in thousands)
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------------------------
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amount of loans outstanding at end
of period, net of unearned income $197,918 $175,942 $153,645 $137,304 $114,845
======== ======== ======== ======== ========
Daily average amounts of loans $187,930 $163,520 $143,529 $124,380 $111,927
======== ======== ======== ======== ========
Allowance for loan losses
at the beginning of period $ 1,238 $ 1,249 $ 1,254 $ 1,244 $ 1,383
Loans Charged-off:
Commercial, financial, agriculture 3 151 4 0 113
Real-estate construction 0 0 0 0 0
Real-estate mortgage 0 0 0 0 0
Consumer 45 95 101 107 110
Leasing and other 0 0 0 0 0
-------- -------- -------- -------- --------
Totals 48 246 105 107 223
Recoveries of loans previously charged-off:
Commercial, financial, agriculture 1 8 8 9 10
Real estate - construction 0 0 0 0 0
Real estate - mortgage 0 0 0 28 2
Consumer 37 27 12 5 12
Leasing and other 0 0 0 0 0
-------- -------- -------- -------- --------
Totals 38 35 20 42 24
-------- -------- -------- -------- --------
Net loans charged off $ 10 $ 211 $ 85 $ 65 $ 199
Additions to allowance charged
to operations
150 200 80 75 60
-------- -------- -------- -------- --------
Allowance for loan losses $ 1,378 $ 1,238 $ 1,249 $ 1,254 $ 1,244
======== ======== ======== ======== ========
Ratio of net charge-offs during period
to average loans outstanding 0.01% 0.13% 0.06% 0.05% 0.17%
Ratio of reserves to net loans at end
of period 0.70% 0.70% 0.81% 0.91% 1.08%
Allocation of Allowance for Loan Losses
Loan Type
Commercial. financial, agriculture $ 278 $ 260 $ 421 $ 600 $ 600
Real estate - construction/mortgage
122 100 100 100 164
Consumer and other
138 180 505 118 140
Not allocated
840 698 223 436 340
-------- -------- -------- -------- --------
Totals $ 1,378 $ 1,238 $ 1,249 $ 1,254 $ 1,244
======== ======== ======== ======== ========
</TABLE>
<PAGE>
Non-Performing Assets
The table below presents non-performing assets in each of the five years ended
December 31, 1999. 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 foreclosures 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>
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 7 $ 93 $217 $ 332 $ 498
Accruing loans past due 90 days or more 226 434 451 799 819
Restructured loans 118 133 144 155 167
Other real estate 49 229 145 230 82
---- ---- ---- ------ ------
Totals $400 $889 $957 $1,516 $1,566
==== ==== ==== ====== ======
</TABLE>
<TABLE>
<CAPTION>
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
-----------------------------------------------------------------
Interest income which would have been
<S> <C> <C> <C> <C> <C>
recorded under original terms $ 3 $ 7 $ 26 $ 27 $ 32
Interest income recorded during period 117 40 4 9 14
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,
1999, 1998 and 1997.
Deposits
(in thousands)
<TABLE>
<CAPTION>
Average Amount Average Rate
---------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand deposits $ 27,557 $ 24,980 $ 23,113 - - -
Interest bearing demand deposits 53,634 48,843 45,058 3.67% 3.59% 3.53%
Savings deposits 29,459 28,138 28,353 3.18% 3.18% 3.18%
Time deposits 121,766 101,135 87,246 5.52% 5.74% 5.73%
-----------------------------------------
Totals $232,416 $203,096 $183,770
=========================================
</TABLE>
Maturities of Time Deposits of $100,000 or more
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Three months or less $ 22,640 $ 20,624 $ 12,626
Over three through twelve months 20,805 14,871 13,246
Over 1 year through 5 years 7,424 5,987 7,208
Over 5 years 100 100 0
-----------------------------------------
Totals $ 50,969 $ 41,582 $ 33,080
=========================================
</TABLE>
PFC's consolidated deposit balance as of December 31, 1999 was $246,073,000,
which is a $32,714,000 increase over the December 31, 1998 balance of
$213,359,000. The December 31, 1998 balance was a $22,786,000 increase over the
December 31, 1997 balance of $190,573,000. The majority of the deposit growth
experienced in 1999 and 1998 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 and sales 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 1999, PFC Bank
maintained an average balance of federal funds sold of $8.4 million for the 12
months ended December 31, 1999, as compared to $3.7 million at December 31,
1998. At December 31, 1999, PFC held $9.8 million of investment securities and
$9.7 million of loans maturing in less than one year. PFC Bank has the option to
borrow funds from the Federal Home Loan Bank (FHLB) and the Federal Reserve
Bank. At December 31, 1999, the bank had borrowed short terms funds of $8.0
million from FHLB, payable January 18, 2000. The borrowing was
<PAGE>
repaid in accordance with the required terms. These funds were borrowed for
liquidity purposes concerning the Year 2000 issue. 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.
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 manage 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, 1999
0-3 0-6 0-12 0-5
Assets: Months Months Months Years
---------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Investments Securities $ 6,804 $ 7,804 $ 9,824 $ 32,045
Loans 7,104 14,152 25,447 91,260
Federal Funds sold 5,600 5,600 5,600 5,600
Interest Bearing Depository Balances 17,593 17,593 17,593 17,593
-------- -------- -------- --------
Total Rate Sensitive Assets $ 37,101 $ 45,149 $ 58,464 $146,498
Liabilities:
NOW Accounts $ 8,345 $ 8,345 $ 8,345 $ 8,345
MMDA 17,930 17,930 17,930 17,930
>$100,000 22,641 37,708 43,446 51,015
<$100,000 22,147 44,268 60,808 83,276
-------- -------- -------- --------
Total Rate Sensitive Liabilities $ 71,063 $108,251 $130,529 $160,566
Cumulative gap (33,962) (63,102) (72,065) (14,068)
Cumulative gap ratio (11.26) (20.93) (23.90) (4.67)
Rate Sensitive Assets/
Rate Sensitive Liabilities 52.21% 41.71% 44.79% 91.24%
</TABLE>
<PAGE>
Peoples Financial Corp., Inc.
Changes in Interest Income/Expense
(in thousands)
<TABLE>
<CAPTION>
December 31, 1999 vs. 1998
Increase/Decrease due
to change in
----------------------------------------------------------
Interest income on: Volume Rate Net
--------------------- --------------------- --------------
<S> <C> <C> <C>
Loans $ 2,067 $ (596) $ 1,471
Investment securities
(212) 239 27
Due from banks 124 (71) 53
Federal funds sold and securities purchases
248 (6) 242
------------ ------------ -----------
Total interest-earning assets $ 2,227 $ (434) $ 1,793
Interest expense on:
Demand deposits $ 172 $ 44 $ 216
Savings deposits 42 0 42
Time deposits 1,184 (263) 921
Short-term borrowings 136 0 136
------------ ------------ -----------
Total interest-bearing liabilities $ 1,534 $ (219) $ 1,315
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998 vs. 1997
Increase/Decrease due
to change in
----------------------------------------------------------
Interest income on: Volume Rate Net
--------------------- --------------------- --------------
<S> <C> <C> <C>
Loans $ 1,719 $ (196) $ 1,523
Investment securities 408 (219) 189
Due from banks 459 (168) 291
Federal funds sold and securities purchases (213) (6) (219)
------------ ------------ -----------
Total interest-earning assets $ 2,373 $ (589) $ 1,784
Interest expense on:
Demand deposits $ 134 $ 29 $ 163
Savings deposits (7) 0 (7)
Time deposits 795 10 805
Short-term borrowings 0 0 0
------------ ------------ -----------
Total interest-bearing liabilities $ 922 $ 39 $ 961
</TABLE>
<TABLE>
<CAPTION>
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
Due from banks 0 0 0
Federal funds sold and securities purchases 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
------------ ------------ -----------
Total interest-bearing liabilities $ 925 $ 89 $ 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, 1999.
PFC Bank
Leverage Ratio 9.27%
Tier I Capital to Risk
Weighted Assets 15.13%
Total Capital to Risk
Weight Assets 20.55%
Return on Equity and Assets
(not including SFAS No. 115)
<TABLE>
<CAPTION>
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
-------------------------------------------------------------------------
Return on Assets
<S> <C> <C> <C> <C> <C>
(net income divided by avg total assets) 1.81% 1.96% 1.45% 1.13% 0.76%
Return on Equity
(net income divided by average equity) 19.09% 21.03% 16.19% 11.90% 7.22%
Equity to assets ratio
(average equity divided by avg total assets) 9.47% 9.32% 9.15% 9.54% 10.56%
</TABLE>
ITEM 8 - FINANCIAL STATEMENTS
The financial statements required by this Item are set forth at Exhibit 13, and
incorporated herein by reference.
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
Part III
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS
The information required by this Item, relating to directors, executive
officers, control persons is set forth on pages 4 through 8 of the Registrant's
Proxy Statement to be used in connection with the 2000 Annual Meeting of
Shareholders, which pages are incorporated herein by reference.
Section 16(a) Beneficial Ownership Compliance. Section 16(a) of the Securities
Exchange Act of 1934, as amended, requires the Registrant's officers and
directors, and persons who own more than 10% of a registered class of the
Registrant's equity securities, to file reports of ownership with the Securities
and Exchange Commission. Officers, directors and greater than 10% shareholders
are required by SEC regulation to furnish the Registrant 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 Registrant believes that during the period January 1, 1999
through December 31, 1999, its officers and directors were in compliance with
all filing requirements applicable to them.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this Item, relating to executive compensation, is
set forth in pages 7 and 8 of the Registrant's Proxy Statement to be used in
connection with the 2000 Annual Meeting of Shareholders, which pages are
incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item, relating to beneficial ownership of the
Registrant's Common Stock, is set forth in pages 9 and 11 of the Registrant's
Proxy Statement to be used in connection with the 2000 Annual Meeting of
Shareholders, which pages are incorporated herein by reference.
<PAGE>
ITEM 13 - 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, 1999.
<TABLE>
<CAPTION>
LARGEST AMOUNT
DATE OF OUTSTANDING BALANCE
NAME POSITION LOAN SINCE JAN. 1, 1999 DEC. 31, 1999
- ---- -------- ---- ------------------ -------------
<S> <C> <C> <C> <C>
Timothy P. Reddinger Secretary various $752,427 $752,427 (1)
Frank T. Baker Chairman 1998 82,460 78,650
Darl Hetrick Director various 145,226 145,226 (2)
James L. Kifer Exec. V.P. 1998 100,000 49,760
R.B. Robertson Pres./CEO 25,000 25,000 (3)
Francis E. Kane Director 1999 14,600 13,152
</TABLE>
(1) Comprised primarily of Standby Letters of Credit fully secured by cash
on deposit or residential property.
(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.
(3) Letter of Credit
<PAGE>
Part IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements.
The following financial statements are included by reference in
Part II, Item 8 hereof:
Report of Independent Certified Public Accountants.
Consolidated Balance Sheets.
Consolidated Statements of Income.
Consolidated Statements of Changes in Stockholders' Equity.
Consolidated Statement of Cash Flows.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules.
Financial Statement Schedules are omitted because the required
information is either not applicable, not required or is shown in
the respective financial statements or in the notes thereto.
3. The following Exhibits are files herewith or incorporated by
reference as a part of this Annual Report
3.1 Registrant's Articles of Incorporation.
(Incorporated by Reference to Registrant's January
27, 1995, filing of Form S-4.
3.2 Registrant's By-Laws.
(Incorporated by Reference to Registrant's January
27, 1995, filing of Form S-4.)
10.1 Agreement between R.B. Robertson and Bank.
(Incorporated by Reference to the Registrant's
September 30, 1997 filing of Form 10-QSB.)
10.2 Settlement Agreement.
(Incorporated by Reference to the Registrant's
December 31, 1996 filing of Form 10-KSB.)
10.3 General Release.
(Incorporated by Reference to the Registrant's
December 31, 1996 filing of Form 10-KSB.)
10.4 Amendment to Executive Employment Agreement dated
October 20, 1999, between R.B. Robertson and Bank.
(Incorporated by Reference to Registrants September
30, 1999 filing of Form 10-Q).
<PAGE>
10.5 Amendment to Executive Employment Agreement made
November 17, 1999 between R.B. Robertson, PFC Bank and
Peoples Financial Corp., Inc.
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.
(b) Reports on Form 8-K.
(c) The exhibits required herein are included at Item 14(a), above.
(d) Not Applicable.
<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 24, 2000 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.
Signature Title Date
- --------- ----- ----
/S/ R.B. Robertson President/CEO March 24, 2000
and Director
/S/ Frank Baker Chairman/Director March 24, 2000
/S/ Darl Hetrick Vice President and Director March 24, 2000
/S/ Timothy Reddinger Secretary and Director March 24, 2000
/S/ William H. Toy Director March 24, 2000
/S/ R.B. Robertson, Jr. Director March 24, 2000
/S/ Howard H. Shreckengost Director March 24, 2000
/S/ J. Jack Sherman Director March 24, 2000
/S/ Francis E. Kane Director March 24, 2000
/S/ James L. Kifer Executive Vice President March 24, 2000
Principal Financial Officer
Principal Accounting Officer
<PAGE>
EXHIBIT INDEX
PAGE NO.
IN MANUALLY
SIGNED
EXHIBIT NO.
ORIGINAL
(a) 1. Financial Statements.
The following financial statements are included by 35
reference in Part II, Item 8 hereof:
Report of Independent Certified Public Accountants.
Consolidated Balance Sheets.
Consolidated Statements of Income.
Consolidated Statements of Changes in Stockholders' Equity.
Consolidated Statement of Cash Flows.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules.
Financial Statement Schedules are omitted because the
required information is either not applicable, not
required or is shown in the respective financial
statements or in the notes thereto.
3. The following Exhibits are files herewith or incorporated by
reference as a part of this Annual Report
3.1 Registrant's Articles of Incorporation.
(Incorporated by Reference to Registrant's January 27, 1995,
filing of Form S-4.
3.2 Registrant's By-Laws.
(Incorporated by Reference to Registrant's January 27, 1995,
filing of Form S-4.)
10.1 Agreement between R.B. Robertson and Bank.
(Incorporated by Reference to the Registrant's
September 30, 1997 filing of Form 10-QSB.)
10.2 Settlement Agreement.
(Incorporated by Reference to the Registrant's
December 31, 1996 filing of Form 10-KSB.)
10.3 General Release.
(Incorporated by Reference to the Registrant's
December 31, 1996 filing of Form 10-KSB.)
<PAGE>
10.4 Amendment to Executive Employment Agreement dated
October 20, 1999, between R.B. Robertson and Bank.
(Incorporated by Reference to Registrants September
30, 1999 filing of Form 10-Q).
10.5 Amendment to Executive Employment Agreement made 60
November 17, 1999 between R.B. Robertson, PFC Bank
and Peoples Financial Corp., Inc.
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. 61
23 Consent of Independent Auditors. 62
27 Financial Data Schedule. 63
99 Proxy Statement. 65
(b) Reports on Form 8-K.
(c) The exhibits required herein are included at Item 14(a), above.
(d) Not Applicable.
<PAGE>
PEOPLES FINANCIAL CORP., INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
December 31, 1999, 1998 and 1997
CONTENTS PAGE
Independent Auditors' Report............................................1
Consolidated Balance Sheets.............................................2
Consolidated Statements of Income.......................................3
Consolidated Statements of Changes in Stockholders' Equity..............4
Consolidated Statements of Cash Flows...................................6
Notes to Consolidated Financial Statements..............................8
<PAGE>
EDWARDS
LEAP &
SAUER
Certified Public Accountants A Professional Corporation
- --------------------------------------------------------------------------------
500 Warner Centre, 332 Fifth Avenue, Pittsburgh, PA 15222
Phone: 412-281-9211 Fax: 412-281-2407 Direct Dial
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Peoples Financial Corp., Inc.
New Bethlehem, Pennsylvania
We have audited the accompanying consolidated balance sheets of Peoples
Financial Corp., Inc. (the Company) and subsidiary as of December 31, 1999 and
1998 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, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform 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, 1999 and 1998, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ Edwards, Leap & Sauer
- -----------------------------
Edwards, Leap & Sauer
Pittsburgh, Pennsylvania
February 4, 2000
<PAGE>
CONSOLIDATED BALANCE SHEETS
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
December 31,
------------------------------------
1999 1998
------------ ------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 15,486,474 $ 4,742,511
Interest-bearing deposits in banks 17,593,259 8,267,566
Federal funds sold 5,600,000 1,900,000
Available-for-sale securities 27,766,282 37,361,888
Held-to-maturity securities (market value of
$31,790,510 and $33,407,392 at
December 31, 1999 and 1998, respectively) 32,054,044 32,628,821
Federal Home Loan Bank stock, at cost 1,408,400 841,500
Loans receivable, net 196,539,392 174,704,201
Premises and equipment, net 2,988,549 3,331,643
Other assets 2,278,696 2,224,143
------------ ------------
Total Assets $301,715,096 $266,002,273
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $ 28,375,696 $ 26,205,654
Interest bearing 217,697,740 187,153,692
------------ ------------
Total deposits 246,073,436 213,359,346
Deferred taxes 6,890,031 10,056,183
Federal Home Loan Bank borrowings 8,000,000 -
Accrued interest and other liabilities 2,075,381 2,012,623
------------ ------------
Total liabilities 263,038,848 225,428,152
Stockholders' Equity
Common stock, par value $0.30, 5,000,000 shares
authorized, 1,773,052 and 1,768,694 shares issued
and outstanding at December 31, 1999 and 1998,
respectively 531,916 530,608
Surplus 3,832,083 3,750,044
Retained earnings 22,552,636 18,808,764
Accumulated other comprehensive income 11,759,613 17,484,705
------------ ------------
Total stockholders' equity 38,676,248 40,574,121
------------ ------------
Total Liabilities and Stockholders' Equity $301,715,096 $266,002,273
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-2-
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Interest Income
Loans $15,317,065 $13,845,749 $12,323,037
Investment securities 3,044,541 3,017,698 2,829,841
Interest-bearing deposits 346,267 293,710 1,648
Federal funds sold 440,448 197,762 416,973
----------- ----------- -----------
Total interest income 19,148,321 17,354,919 15,571,499
Interest Expense
Deposits 9,628,790 8,449,973 7,489,044
Federal Home Loan Bank borrowings 136,151 -- --
----------- ----------- -----------
Total interest expense 9,764,941 8,449,973 7,489,044
----------- ----------- -----------
Net Interest Income 9,383,380 8,904,946 8,082,455
Provision for Loan Losses 150,000 200,000 80,000
----------- ----------- -----------
Net Interest Income after
Provision for Loan Losses 9,233,380 8,704,946 8,002,455
Other Income
Service fees 502,659 592,421 614,572
Insurance proceeds -- -- 205,830
Net investment security gains 2,950,489 3,001,116 1,065,063
Other 95,801 33,837 49,698
----------- ----------- -----------
Total other income 3,548,949 3,627,374 1,935,163
Other Expenses
Salaries 2,135,263 2,173,212 2,077,039
Pension and other employee benefits 787,069 743,014 639,535
Occupancy expense 997,536 984,022 1,000,044
Legal and professional fees 124,963 146,732 215,619
Data processing 301,895 246,689 245,814
Pennsylvania bank shares tax 294,616 247,544 212,498
Other 1,585,165 1,496,247 1,543,751
----------- ----------- -----------
Total other expenses 6,226,507 6,037,460 5,934,300
----------- ----------- -----------
Income Before Income Taxes 6,555,822 6,294,860 4,003,318
Provision for Income Taxes 1,855,635 1,831,198 1,006,880
----------- ----------- -----------
Net Income $ 4,700,187 $ 4,463,662 $ 2,996,438
=========== =========== ===========
Net Income per Share
of Common Stock $ 2.66 $ 2.53 $ 1.70
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-3-
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Other
Common Retained Comprehensive
Stock Surplus Earnings Income Total
-------------- -------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 $ 263,997 $ 3,850,000 $ 13,377,522 $ 9,376,632 $ 26,868,151
Comprehensive Income
Net income 2,996,438 2,996,438
Other comprehensive
income, net of tax:
Changes in net unrealized
holding gains (losses) on
available-for-sale securities,
net of deferred income tax
of $4,399,723 8,540,638 8,540,638
Change in minimum pension
liability, net of deferred
income tax benefit of
$41,380 (80,325) (80,325)
-------------
Total Comprehensive Income 11,456,751
Sale of 2,178 shares
of common stock 653 82,656 83,309
Cash dividends (995,261) (995,261)
Retroactive restatement, 1999
stock dividend in the form of
a two-for-one one stock split 264,650 (264,650)
-------------- -------------- -------------- --------------- -------------
Balance at
December 31, 1997 529,300 3,668,006 15,378,699 17,836,945 37,412,950
Comprehensive Income
Net income 4,463,662 4,463,662
Other comprehensive
income, net of tax:
Changes in net unrealized
holding gains (losses) on
available-for-sale securities,
net of deferred income tax
benefit of $545,996 (1,059,874) (1,059,874)
Change in minimum pension
liability, net of deferred
income tax benefit of
$25,264 (49,041) (49,041)
Reclassification
adjustment due to sale of
securities, net of deferred
income tax of $389,802 756,675 756,675
-------------
Total Comprehensive Income 4,111,422
Sale of 2,179 shares
of common stock 654 82,692 83,346
Cash dividends (1,033,597) (1,033,597)
Adjustment to reflect stock split 654 (654) -
-------------- -------------- -------------- --------------- -------------
-4-
<PAGE>
<CAPTION>
Accumulated
Other
Common Retained Comprehensive
Stock Surplus Earnings Income Total
--------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1998 $ 530,608 $ 3,750,044 $ 18,808,764 $ 17,484,705 $ 40,574,121
Balance at
December 31, 1998 $ 530,608 $ 3,750,044 $ 18,808,764 $ 17,484,705 $ 40,574,121
Comprehensive Income
Net income 4,700,187 4,700,187
Other comprehensive
income, net of tax:
Changes in net unrealized
holding gains (losses) on
available-for-sale securities,
net of deferred income tax
benefit of $2,953,185 (5,732,653) (5,732,653)
Change in minimum pension
liability, net of deferred
income tax of $66,653 129,384 129,384
Reclassification
adjustment due to sale of
securities, net of deferred
income tax benefit of
$62,757 (121,823) (121,823)
-------------
Total Comprehensive Income (1,024,905)
Sale of 2,179 shares
of common stock 1,308 82,039 83,347
Cash dividends (956,315) (956,315)
--------- ----------- ------------ ------------ -------------
Balance at
December 31, 1999 $ 531,916 $ 3,832,083 $ 22,552,636 $ 11,759,613 $ 38,676,248
========= =========== ============ ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------
1999 1998 1997
----------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 4,700,187 $ 4,463,662 $ 2,996,438
Adjustments to reconcile net cash from
operating activities:
Depreciation and amortization 618,762 601,686 584,356
Net amortization / accretion of
premiums and discounts 31,202 (10,617) (17,366)
Net investment security gains (2,950,489) (3,001,116) (1,065,063)
Provision for loan losses 150,000 200,000 80,000
Net loss on disposal of
premises and equipment 41,589 43,681 30,349
Reinvestment of stock dividends (52,854) (60,669) (74,811)
Increase (decrease) in cash due to
changes in assets and liabilities:
Other assets 64,990 (85,851) 949,711
Accrued interest and
other liabilities (88,976) (109,082) 199,434
------------- ------------- -------------
Net Cash From Operating Activities 2,514,411 2,041,694 3,683,048
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of
available-for-sale securities 3,696,243 3,545,958 1,370,112
Proceeds from maturities of
held-to-maturity securities 8,880,000 11,125,000 8,800,000
Purchase of available-for-sale
securities - (268,094) (84,000)
Purchase of held-to-maturity securities (8,304,107) (11,333,169) (15,446,563)
Net purchases of Federal Home
Loan Bank stock (566,900) (101,300) (170,700)
Net loans made to customers (22,008,417) (22,537,032) (16,469,278)
Proceeds from disposal of
premises and equipment 76,174 1,969 7,887
Purchases of premises and equipment (365,054) (499,070) (292,836)
------------- ------------- -------------
Net Cash Used By
Investing Activities $(18,592,061) $(20,065,738) $(22,285,378)
</TABLE>
- 6 -
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------
1999 1998 1997
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
<S> <C> <C> <C>
Net increase in deposits $ 32,720,274 $ 22,805,838 $ 14,323,109
Proceeds from debt 8,000,000
Proceeds from issuing common stock 83,347 83,346 83,309
Dividends paid (956,315) (1,033,597) (995,261)
------------- ------------- -------------
Net Cash From Financing Activities 39,847,306 21,855,587 13,411,157
------------- ------------- -------------
Net Change in Cash and
Cash Equivalents 23,769,656 3,831,543 (5,191,173)
Cash and Cash Equivalents
at Beginning of Year 14,910,077 11,078,534 16,269,707
------------- ------------- -------------
Cash and Cash Equivalents
at End of Year $ 38,679,733 $ 14,910,077 $ 11,078,534
============= ============= =============
SUPPLEMENTAL DISCLOSURES
Cash payments for:
Interest $ 9,683,375 $ 8,173,810 $ 7,151,078
Income taxes $ 1,862,837 $ 2,054,842 $ 946,040
NON-CASH INVESTING AND FINANCING TRANSACTIONS
Recorded unrealized gains on securities
available for sale at December 31 $ 17,817,596 $ 26,687,984 $ 27,147,378
Deferred income taxes on recorded
unrealized gains on securities
available for sale at December 31 $ 6,057,983 $ 9,073,915 $ 9,230,109
Loans transferred to foreclosed assets
during the year $ 59,793 $ 268,697 $ 343,479
100% stock dividend in the form of a
two-for-one stock split, retroactively
restated to 1997
Common stock $ - $ - $ 265,304
Surplus $ - $ - $ (265,304)
Adjustment due to retroactive
restatement to reflect additional
share purchases
Common stock $ - $ 654 $ -
Surplus $ - $ (654) $ -
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
- 7 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
NOTE 1 - 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, Butler,
Clarion and Indiana counties through its six 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 installment,
commercial and single-family and multi-family mortgage 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.
The Bank intends to sell its guaranteed student loans. Such loans are recorded
at the lower of cost or estimated market value. Student loans held for sale at
December 31, 1999 were $654,057.
- 8 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
NOTE 1 - 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
significant 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 other income and expenses.
Employee Retirement Plans: The Bank's qualified defined benefit pension plan
(see Note 9) 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. The Bank's
non-qualified defined benefit pension plan is not funded as of December 31,
1999.
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.
- 9 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings per Share: Earnings per share are calculated using the weighted-average
number of shares outstanding, which also equals primary and fully diluted per
share calculations. The weighted average shares outstanding, giving retroactive
effect to the stock dividend discussed in Note 16, were 1,770,151, 1,765,792 and
1,761,126 for the years ended December 31, 1999, 1998 and 1997, respectively.
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", "Interest-bearing deposits in 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 2 - INVESTMENT SECURITIES
Available-for-sale securities consist of the following:
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Equity securities $ 9,948,686 $17,873,106 $(55,510) $27,766,282
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Equity securities $10,673,904 $26,698,406 $(10,422) $37,361,888
</TABLE>
- 10 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
Held-to-maturity securities consist of the following:
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury
securities $ 23,333,589 $ 65,356 $ (92,432) $ 23,306,513
Obligations of U.S.
government
agencies 8,460,770 -- (236,083) 8,224,687
Obligations of state
and political sub-
divisions 259,685 971 (1,346) 259,310
------------ ------------ ------------ ------------
$ 32,054,044 $ 66,327 $ (329,861) $ 31,790,510
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury
securities $ 23,967,745 $ 775,586 $ -- $ 24,743,331
Obligations of U.S.
government
agencies 6,774,380 17,427 (21,707) 6,770,100
Obligations of state
and political sub-
divisions 1,137,866 5,129 (1,745) 1,141,250
Corporate notes 748,830 3,881 -- 752,711
------------ ------------ ------------ ------------
$ 32,628,821 $ 802,023 $ (23,452) $ 33,407,392
============ ============ ============ ============
</TABLE>
Gross realized gains on sales of available-for-sale securities were $3,199,903,
$3,216,142 and $1,173,428 in 1999, 1998 and 1997, respectively. The gains are
reduced by previously recognized appreciation which occurred as a result of a
merger of $281,732, $246,837 and $148,541 in 1999, 1998 and 1997, respectively.
Additional net gains of $32,318, $31,811 and $40,176 in 1999, 1998 and 1997,
respectively, were recognized for previous write-downs of held-to-maturity
securities resulting from the merger.
- 11 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated market value of held-to-maturity securities at
December 31, 1999, by contractual maturity, are shown below. Available-for-sale
securities do not have a contractual maturity date as they consist of equity
securities. Expected maturities may differ from contractual maturities because
issuers have the right to call or prepay obligations.
Amortized Cost Market Value
-------------- ------------
Available-for-sale Securities $ 9,948,686 $ 27,766,282
============ ============
Held-to-maturity Securities
Due in one year or less $ 9,824,409 $ 9,821,048
Due after one year through five years 22,220,762 21,945,994
Due after five years through ten years 24,814 23,468
------------ ------------
32,069,985 31,790,510
Step-down due to merger (15,941) --
------------ ------------
$ 32,054,044 $ 31,790,510
============ ============
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, 1999 and 1998, the Bank held
$1,408,400 and $841,500, respectively, of FHLB stock.
NOTE 3 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
The primary classifications of loans as of December 31 are as follows:
1999 1998
------------ ------------
Mortgage $124,114,113 $112,915,388
Installment 22,684,830 23,925,546
Commercial 48,854,680 34,396,565
Student and other 2,269,725 4,714,617
------------ ------------
197,923,348 175,952,116
Less: Unearned discounts 5,587 9,683
Allowance for loan losses 1,378,369 1,238,232
------------ ------------
$196,539,392 $174,704,201
============ ============
- 12 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
NOTE 3 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Changes in the allowance for loan losses for the years ended December 31 were as
follows:
1999 1998 1997
----------- ----------- -----------
Balance, beginning of year $ 1,238,232 $ 1,248,879 $ 1,253,810
Provision charged to operations 150,000 200,000 80,000
Loans charged off (48,442) (246,182) (105,016)
Recoveries 38,579 35,535 20,085
----------- ----------- -----------
Balance, end of year $ 1,378,369 $ 1,238,232 $ 1,248,879
=========== =========== ===========
NOTE 4 - PREMISES AND EQUIPMENT
Premises and equipment, which are stated at cost, as of December 31 are as
follows:
1999 1998
---------- ----------
Land $ 371,554 $ 368,054
Buildings and improvements 3,490,126 3,446,544
Furniture and equipment 4,473,852 4,358,121
---------- ----------
8,335,532 8,172,719
Less: Accumulated depreciation 5,346,983 4,841,076
---------- ----------
$2,988,549 $3,331,643
========== ==========
Depreciation expense was $590,385, $580,950 and $544,349 for the years ended
December 31, 1999, 1998 and 1997, respectively.
NOTE 5 - PLEDGED ASSETS
At December 31, 1999 and 1998, assets carried at approximately $31,980,000 and
$31,105,000, respectively, were pledged to qualify for fiduciary powers, to
secure public monies as required by law, and for other purposes.
- 13 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
NOTE 6 - DEPOSITS
The maturities of time deposits over the next five years and thereafter as of
December 31, 1999 are, as follows:
Amount Percent
------------ -------
Within one year $104,168,094 76.6%
One to two years 12,653,682 9.3
Two to three years 4,202,768 3.1
Three to four years 6,955,888 5.1
Four to five years 6,224,962 4.6
Over five years 1,712,778 1.3
------------ -----
$135,918,172 100.0%
============ =====
NOTE 7 - INCOME TAXES
The provision for income taxes for the years ended December 31 consists of:
1999 1998 1997
----------- ----------- -----------
Currently payable $ 1,976,719 $ 1,781,535 $ 963,936
Deferred tax expense (benefit) (121,084) 49,663 42,944
----------- ----------- -----------
$ 1,855,635 $ 1,831,198 $ 1,006,880
=========== =========== ===========
The significant components of temporary differences as of December 31 are as
follows:
1999 1998 1997
--------- --------- ----------
Provision for loan losses $ (47,647) $ 3,620 $ 1,677
Depreciation (96,012) (90,913) 3,488
Employee benefits (1,422) 57,191 (22,299)
Other 23,997 79,765 60,078
--------- --------- ---------
Total $(121,084) $ 49,663 $ 42,944
========= ========= =========
- 14 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
NOTE 7 - INCOME TAXES (CONTINUED)
A reconciliation of the federal statutory tax rate to the effective tax rate
applicable to income before income taxes for the years ended December 31 is as
follows:
Percentage of Pre-Tax Income
--------------------------------
1999 1998 1997
------ ------ ------
Provision at statutory rate 34.0 % 34.0 % 34.0 %
Effect of tax-exempt income (1.6) (1.7) (2.5)
Dividend received deduction (3.9) (3.9) (5.5)
Other (0.2) 0.7 (0.8)
---- ---- ----
Actual tax expense and
effective rate 28.3 % 29.1 % 25.2 %
===== ===== =====
The significant components of the Bank's deferred tax assets and liabilities
recorded on the balance sheet as of December 31 are as follows:
1999 1998
-------------------------- --------------------------
Deferred Tax Deferred Tax
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
----------- ----------- ----------- -----------
Provision for loan
losses $ 304,319 $ -- $ 256,671 $ --
Depreciation -- 91,876 -- 187,888
Pension expense 7,875 -- 6,453 --
Unrealized gains -- 6,057,983 -- 9,073,915
Merger adjustment to
market value -- 1,093,637 -- 1,189,426
Additional minimum
pension liability -- -- 66,653 --
Other 96,293 55,022 109,303 44,034
----------- ----------- ----------- -----------
$ 408,487 $ 7,298,518 $ 439,080 $10,495,263
=========== =========== =========== ===========
NOTE 8 - FEDERAL HOME LOAN BANK BORROWINGS
At December 31, 1999, the Bank had an advance from the FHLB in the amount of
$8,000,000 at 5.78% with a maturity of January 18, 2000. The Bank has access to
additional FHLB borrowings in the amount of $8.9 million at 4.05% annual
interest.
- 15 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
NOTE 9 - EMPLOYEE RETIREMENT PLANS
PFC Bank maintains a qualified non-contributory defined benefit pension plan
which covers substantially all employees meeting minimum age and service
requirements. The plan generally provides benefits based on years of credited
service and final average earnings. The current funding policy of the plan is to
annually contribute the maximum amount that can be deducted for Federal income
tax purposes. In 1999, the Bank adopted a non-qualified deferred compensation
plan for certain executive employees. The Board of Directors designates
participants of the plan. Benefits provided under the non-qualified plan are
based on the discretion of the Board of Directors.
Assets for the qualified pension 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 non-qualified plan is unfunded as of December 31,
1999.
The following table summarizes financial data for the plans as of December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
Change in Projected Benefit Obligation:
<S> <C> <C>
Beginning of year benefit obligation $ 1,962,727 $ 1,710,378
Service cost 115,881 112,188
Interest cost 132,866 119,322
Plan adoption 143,966 --
Net actuarial (gain) loss (63,787) 131,452
Less: Benefits paid to participants (122,876) (110,613)
----------- -----------
End of year benefit obligation $ 2,168,777 $ 1,962,727
=========== ===========
Change in the Fair Value of Plan Assets:
Beginning of year plan assets, at fair value $ 1,571,422 $ 1,285,379
Actual return on plan assets 184,042 91,921
Employer contributions 229,151 304,735
Benefits paid to participants (122,876) (110,613)
----------- -----------
End of year plan assets, at fair value $ 1,861,739 $ 1,571,422
=========== ===========
Accrued Pension Expense:
Funded status (projected benefit obligation less plan
assets at fair value) $ (307,038) $ (391,305)
Unamortized transition amount 81,946 87,334
Unrecognized net actuarial loss 521,487 670,164
Additional minimum pension liability adjustment (130,878) (196,037)
Unamortized prior service benefit (323,361) (459,904)
----------- -----------
Accrued pension expense at year end $ (157,844) $ (289,748)
=========== ===========
</TABLE>
- 16 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
NOTE 9 - EMPLOYEE RETIREMENT PLANS (CONTINUED)
Net periodic pension cost included the following components for the years ended
December 31:
1999 1998 1997
--------- --------- ---------
Service cost - benefits earned
during the period $ 115,881 $ 112,188 $ 68,009
Interest cost on projected benefit
obligation 132,866 119,322 89,596
Net amortization (deferral) 97,701 (3,063) 114,976
Less: Actual return on plan assets 184,042 91,921 175,841
--------- --------- ---------
Net periodic pension cost $ 162,406 $ 136,526 $ 96,740
========= ========= =========
The projected benefit obligation for the qualified plan was determined using an
assumed discount rate of 7.5% for 1999 (6.5% for the non-qualified plan), 7.0%
for 1998, and 7.0% for 1997 and an expected rate of increase in compensation of
4.0%, 4.0% and 4.0%, respectively, for the same periods (compensation increases
are not considered as part of the non-qualified plan). The assumed rate of
return on the qualified plan's investment earnings was 8.0% for 1999 (6.5% for
the non-qualified plan), 7.0% for 1998, and 7.0% for 1997.
NOTE 10 - FINANCIAL 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 approximately $13,900,000 and $12,000,000 as of
December 31, 1999 and 1998, respectively, and approximate fair value.
The instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheet. The same
credit policies are used in making commitments and conditional obligations as
for on-balance sheet instruments. The amount of collateral obtained, if deemed
necessary, upon extension of credit is based on management's credit evaluation
of the party. The terms are typically for a one-year period, with an annual
renewal option subject to prior approval by management.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the loan agreement. These
commitments are comprised primarily of outstanding commercial and personal lines
of credit.
The exposure to loss under these commitments is limited by subjecting them to
credit approval and monitoring procedures. Substantially all of the commitments
to extend credit are contingent upon customers maintaining specific credit
standards at the time of the loan funding. Management assesses the credit risk
associated with certain commitments to extend credit in determining the level of
the allowance for loan losses. Since many of the commitments are expected to
expire without being drawn upon, the total contractual amounts do not
necessarily represent future funding requirements.
- 17 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
NOTE 11 - 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 most homogeneous categories of loans, fair
value is estimated by comparing rates currently offered on similar
loans to the interest rate yield being realized on existing loans.
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.
Deposit liabilities: 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 comparing the rates currently offered on
similarly maturing deposits to the interest rate being recognized on
existing certificates of deposit.
FHLB borrowings: The carrying value is a reasonable estimate of fair
value.
The estimated fair value of the Company's financial instruments as of December
31, 1999 is as follows:
Carrying
Amount Fair Value
------------ ------------
Financial Assets
Cash and cash equivalents $ 38,679,733 $ 38,679,733
Investment securities $ 59,820,326 $ 59,556,792
FHLB stock $ 1,408,400 $ 1,408,400
Loans receivable $196,539,392 $197,212,000
Financial Liabilities
Deposits $246,073,436 $246,834,000
FHLB borrowings $ 8,000,000 $ 8,000,000
The market values of classifications of investment securities are contained in
Note 2.
- 18 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
NOTE 12 - 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 retained earnings. Dividends are 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
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios, as set forth below, of
total and Tier 1 capital (as defined in the regulations) to risk-weighted
assets, and of Tier 1 capital to average assets. Management believes, as of
December 31, 1999 and 1998, that the Bank meets all capital adequacy
requirements to which it is subjected.
As of December 31, 1999 and 1998, 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, 1999 and 1998 is,
as follows:
<TABLE>
<CAPTION>
Minimum Well
Capital Capitalized
Actual Requirements Requirements
------ ------------ ------------
<S> <C> <C> <C>
Leverage capital ratio
1999 9.27% 3% to 4% 5%
1998 9.48% 3% to 4% 5%
Tier 1 capital to risk weighted assets
1999 15.13% 4% 6%
1998 13.18% 4% 6%
Total capital to risk weighted assets
1999 20.55% 8% 10%
1998 20.91% 8% 10%
</TABLE>
- 19 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
NOTE 12 - REGULATORY MATTERS (CONTINUED)
Included in the "Cash and due from banks" and "Interest-bearing deposits in
banks" balances are required federal reserves of approximately $1,370,000 and
$1,191,000 at December 31, 1999 and 1998, 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.
NOTE 13 - CONCENTRATIONS, RISKS AND UNCERTAINTIES
The Bank primarily grants loans to customers in Armstrong, Butler, 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
284 accounts greater than $100,000 representing $63.5 million in deposits as of
December 31, 1999 (25.8% of deposits as of December 31, 1999) and $62.3 million
in 327 accounts as of December 31, 1998 (29.2% of deposits as of December 31,
1998).
A substantial portion of the Bank's investments in municipal securities is
obligations of state or political subdivisions located within Pennsylvania.
At December 31, 1999, approximately $19,800,000 of the Bank's "Cash and due from
banks" and "Interest-bearing deposits in banks" was maintained at various
financial institutions in amounts that exceeded the $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 14 - RELATED PARTIES
At December 31, 1999 and 1998, certain executive officers, directors and
principal shareholders of the Company, and companies in which they have
beneficial ownership, were indebted (including loans, open letters of credit,
and third part consignors) to the Bank for $1,012,475 and $480,998,
respectively. During 1999, new loans to such related parties were $78,461 and
repayments were $119,389. Open letters of credit and third party guarantees had
a net increase of $572,405.
Deposits with the Bank by related parties and shareholders' greater than 5% were
approximately $6,045,000 and $3,739,000 as of December 31, 1999 and 1998,
respectively.
- 20 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
NOTE 15 - PARENT COMPANY FINANCIAL INFORMATION
The condensed financial information for Peoples Financial Corp., Inc. as of
December 31, 1999 and 1998 and for the years ended Decenber 31, 1999, 1998 and
1997 is as follows:
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Cash in bank $ 174,106 $ 35,173
Investment in subsidiary 38,298,540 40,322,888
Available-for-sale securities 194,434 216,060
Deferred taxes and other assets 9,168 --
----------- -----------
Total Assets $38,676,248 $40,574,121
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ -- $ --
Stockholders' Equity $38,676,248 40,574,121
----------- -----------
Total Liabilities and Stockholders' Equity $38,676,248 $40,574,121
=========== ===========
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Income
Dividends from subsidiary $1,006,296 $1,033,597 $1,004,261
Other 35,434 26,113 14,781
Expenses
Professional fees 25,096 45,142 69,860
Miscellaneous 4,733 3,100 4,200
---------- ---------- ----------
Income Before Income Taxes and Equity in
Undistributed Earnings of Subsidiary 1,011,901 1,011,468 944,982
Equity in Undistributed Earnings
of Subsidiary 3,688,286 3,452,194 2,051,456
---------- ---------- ----------
Net Income $4,700,187 $4,463,662 $2,996,438
========== ========== ==========
</TABLE>
- 21 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP., INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
NOTE 15 - PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------
1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,700,187 $ 4,463,662 $ 2,996,438
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 (3,688,286) (3,452,194) (2,051,456)
----------- ----------- -----------
Net Cash From Operating Activities 1,011,901 1,011,468 944,982
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of available-for-sale securities -- (199,942) (9,000)
----------- ----------- -----------
Net Cash Used By Investing Activities -- (199,942) (9,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuing of common stock 83,347 83,346 83,309
Dividends paid (956,315) (1,033,597) (995,261)
----------- ----------- -----------
Net Cash Used By Financing Activities (872,968) (950,251) (911,952)
----------- ----------- -----------
Net Change in Cash and Cash Equivalents 138,933 (138,725) 24,030
Cash and Cash Equivalents
at Beginning of Year 35,173 173,898 149,868
----------- ----------- -----------
Cash and Cash Equivalents
at End of Year $ 174,106 $ 35,173 $ 173,898
=========== =========== ===========
</TABLE>
NOTE 16 - STOCK SPLIT
On January 20, 1999, the Company declared a 100% stock dividend in the form
of a two-for-one stock split on the Company's outstanding common stock. One
additional share of common stock was issued for each share of comon stock held
by shareholders of record as of the close of business on January 20, 1999. The
distribution of new shares began February 10, 1999. The Company has
retroactively restated common stock and surplus for all periods presented to
reflect this stock split. Par value remained unchanged at $0.30 per share. The
number of shares issued and outstanding at December 31, 1998, after giving
effect to the stock split, was 1,768,694 (884,347 shares issued and outstanding
prior to the stock split). All reference to the number of share amounts
elsewhere in the consolidated financial statements and related footnotes have
been restated as appropriate to reflect the effect of the stock split for all
periods presented.
- 22 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PEOPLES FINANCIAL CORP. INC. AND SUBSIDIARY
Years Ended December 31, 1999, 1998 and 1997
NOTE 17 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. In addition, certain provisions of this statement will permit, at
the date of initial adoption, the transfer of any held-to-maturity security into
either the available-for-sale or trading category and the transfer of any
available-for-sale security into the trading category. Transfers from the
held-to-maturity portfolio at the date of initial adoption will not call into
question an entity's intent to hold other debt securities to maturity in the
future. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000, as amended by SFAS No. 137. At this time, the
Bank does not hold any derivative instruments or engage in any hedging
activities.
-23-
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
THIS AMENDMENT to an Executive Employment Agreement, dated October 20,
1999, is made this 17th day of November, 1999, between PFC BANK, a Pennsylvania
business corporation located at Fourth Street and Ford Avenue, PO Box 311, Ford
City, Pennsylvania 16226 (the "Bank") and PEOPLES FINANCIAL CORP., INC., a
Pennsylvania business corporation located at Fourth Street and Ford Avenue, PO
Box 311, Ford City, Pennsylvania 16226, (the "Corporation") and R. B. Robertson,
an adult individual residing in Pennsylvania (the "Executive").
WHEREAS, the Bank and Corporation desire to extend from August 31, 2001 to
August 31, 2003 the term under which R.B. Robertson shall serve as President and
Chief Executive Officer of the Bank and the Corporation under the terms and
conditions set forth in the Executive Employment Agreement, dated September 1,
1997, amended October 20, 1999, with all other terms and conditions unmodified.
ATTEST: PFC BANK
/s/ Timothy Reddinger /s/ Frank T. Baker
- ------------------------------------- ------------------------------------
Timothy Reddinger, Secretary Frank Baker, Chairman of the Board
ATTEST: PEOPLES FINANCIAL CORP., INC.
/s/ Timothy Reddinger /s/ Frank T. Baker
- ------------------------------------- ------------------------------------
Timothy Reddinger, Secretary Frank Baker, Chairman of the Board
WITNESS:
/s/ James L. Kifer /s/ R. B. Robertson
- ------------------------------------- ------------------------------------
R. B. Robertson
PFC Bank - incorporated in the state of Pennsylvania.
PFC Service Corporation - incorporated in the state of Delaware.
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report of Form
10-K of Peoples Financial Corp., Inc. of our report dated February 4, 2000,
included in the Peoples Financial Corp., Inc. and Subsidiary Consolidated
Financial Statements -- December 31, 1999, 1998 and 1997.
/s/ Edwards, Leap & Sauer
- -------------------------
Edwards, Leap & Sauer
Pittsburgh, Pennsylvania
February 18, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 15,487
<INT-BEARING-DEPOSITS> 17,593
<FED-FUNDS-SOLD> 5,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,175
<INVESTMENTS-CARRYING> 32,054
<INVESTMENTS-MARKET> 31,791
<LOANS> 197,918
<ALLOWANCE> 1,378
<TOTAL-ASSETS> 301,715
<DEPOSITS> 246,073
<SHORT-TERM> 8,000
<LIABILITIES-OTHER> 8,965
<LONG-TERM> 0
0
0
<COMMON> 532
<OTHER-SE> 38,145
<TOTAL-LIABILITIES-AND-EQUITY> 301,715
<INTEREST-LOAN> 15,317
<INTEREST-INVEST> 3,045
<INTEREST-OTHER> 786
<INTEREST-TOTAL> 19,148
<INTEREST-DEPOSIT> 9,629
<INTEREST-EXPENSE> 9,765
<INTEREST-INCOME-NET> 9,383
<LOAN-LOSSES> 150
<SECURITIES-GAINS> 2,950
<EXPENSE-OTHER> 6,227
<INCOME-PRETAX> 6,556
<INCOME-PRE-EXTRAORDINARY> 6,556
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,700
<EPS-BASIC> 2.66
<EPS-DILUTED> 2.66
<YIELD-ACTUAL> 7.07
<LOANS-NON> 7
<LOANS-PAST> 226
<LOANS-TROUBLED> 118
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,238
<CHARGE-OFFS> 48
<RECOVERIES> 38
<ALLOWANCE-CLOSE> 1,378
<ALLOWANCE-DOMESTIC> 1,378
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
March 3, 2000
Dear Shareholders:
On behalf of the Board of Directors, I am pleased to invite you to attend
our Annual Meeting of Shareholders to be held on Wednesday, March 29, 2000, at
10:00 a.m., Eastern Time, at the Holiday Inn, Route 68 and I-80, Clarion,
Pennsylvania 16214. At the annual meeting you will have the opportunity to ask
questions and to make comments. We enclose your proxy and the corporation's 1999
Annual Report to Shareholders with this proxy statement.
The principal business of the meeting is to elect 9 directors to serve a
term of 1 year, to ratify the selection of Edwards, Leap & Sauer of Pittsburgh,
Pennsylvania, Certified Public Accountants, as the auditors of the corporation
for 2000, and to transact any other business that is properly presented at the
annual meeting. The notice of the meeting and proxy statement accompanying this
letter describe the specific business to be acted upon in more detail.
I am delighted you have chosen to invest in the corporation, and I hope
that, whether or not you plan to attend the annual meeting, you will vote as
soon as possible by completing, signing and returning the enclosed proxy in the
envelope provided. The prompt return of your proxy will save the corporation
expenses involved in further communications. Your vote is important. Voting by
written proxy will ensure your representation at the annual meeting if you do
not attend in person.
I look forward to seeing you on March 29, 2000, at corporation's annual
meeting.
Sincerely,
Raleigh B. Robertson, President and
Chief Executive Officer
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OF PEOPLES FINANCIAL CORP., INC.
TO BE HELD ON MARCH 29, 2000
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that Peoples Financial Corp., Inc. will hold its
Annual Meeting of Shareholders on Wednesday, March 29, 2000, at 10:00 a.m., at
the Holiday Inn, Route 68 at 1-80, Clarion, Pennsylvania 16214, to consider and
vote upon the following proposals:
1. Election of 9 directors: Frank T. Baker, Darl Hetrick, Francis E. Kane,
Raleigh B. Robertson, Raleigh B. Robertson, Jr., Timothy P. Reddinger, J.
Jack Sherman, Howard H. Shreckengost, and William H. Toy, each for a term
of 1 year;
2. Ratification of the selection of Edwards, Leap & Sauer, Certified Public
Accountants, of Pittsburgh, Pennsylvania, as independent accountants for
the corporation for 2000; and
3. Transaction of any other business properly brought before the Annual
Meeting.
Shareholders, as of February 15, 2000, may vote at the annual meeting,
either in person or by proxy. If you plan to attend the annual meeting, please
mark the appropriate area when you vote on your proxy.
Management welcomes your attendance at the annual meeting. Whether or not
you expect to attend the annual meeting in person, we ask you to complete, sign,
date and promptly return the enclosed proxy in the accompanying postage-paid
envelope. Prompt return of your proxy saves the expense involved in further
communications. Even if you return a proxy, you may vote in person if you give
written notice to the Secretary of the corporation and attend the annual
meeting. We urge you to mark, sign, date and promptly return your proxy in the
enclosed envelope so that proxy holders may vote your shares in accordance with
your wishes and so that we may assure the presence of a quorum.
The corporation's Board of Directors distributes this proxy statement, form
of proxy and Peoples Financial Corp., Inc.'s 1999 Annual Report on or about
March 3, 2000.
By Order of the Board of Directors,
Raleigh B. Robertson, President and
Chief Executive Officer
Ford City, Pennsylvania
March 3, 2000
YOUR VOTE IS IMPORTANT.
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY AND MAIL
IT PROMPTLY IN THE ENCLOSED, POSTAGE-PAID RETURN ENVELOPE.
<PAGE>
PEOPLES FINANCIAL CORP. INC.
FOURTH & FORD STREETS
FORD CITY, PA 16226
TRADING SYMBOL: PPFN
PROXY STATEMENT
2000 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 29, 2000
Mailed to Shareholders on or about March 3, 2000
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
FREQUENTLY ASKED QUESTIONS AND ANSWERS
PROXY STATEMENT
GENERAL INFORMATION...............................................................................................1
Date, Time and Place of Annual Meeting...................................................................1
Description of the Corporation...........................................................................1
VOTING PROCEDURES.................................................................................................2
Solicitation and Voting of Proxies.......................................................................2
Quorum and Vote Required For Approval....................................................................2
Revocability of Proxy....................................................................................3
Methods of Voting........................................................................................3
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS.........................................................................4
Executive Officers of the Corporation....................................................................4
Executive Officers of the Bank...........................................................................4
Committees and Meetings of the Corporation's Board of Directors..........................................5
Qualification and Nomination of Directors................................................................5
Directors Meetings.......................................................................................7
Compensation of Officers and Directors...................................................................7
Summary Compensation Table Annual Compensation 1997-1999........................................7
Options/SAR Grants in Last Fiscal Year..........................................................8
Aggregated Options/SAR Exercises in Last Fiscal Year
and Fy/end Option/SAR Values..................................................................8
Employment Agreement for R. B. Robertson........................................................8
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................................................................8
BENEFICIAL OWNERSHIP OF THE CORPORATION'S STOCK OWNED BY PRINCIPAL OWNERS AND MANAGEMENT..........................9
Principal Shareholders...................................................................................9
Share Ownership by the Directors, Officers and Nominees.................................................10
PROPOSALS........................................................................................................11
Election of Directors...................................................................................11
Ratification of Edwards, Leap & Sauer, Certified Public Accountants,
as Independent Auditors.................................................................................12
EXECUTIVE COMPENSATION...........................................................................................12
SHAREHOLDERS PROPOSALS FOR 2001 ANNUAL MEETING...................................................................13
OTHER MATTERS THAT MAY COME BEFORE THE ANNUAL MEETING............................................................13
</TABLE>
FREQUENTLY ASKED QUESTIONS AND ANSWERS
Q: WHO IS ENTITLED TO VOTE?
A: Shareholders as of the close of business on the record date, February 15,
2000, may vote at the meeting. Each share of common stock entitles a
shareholder to one vote.
Q: HOW DO I VOTE?
A: There are two methods. You may vote by completing and mailing your proxy
or by attending the annual meeting and voting in person. More details are
on page 3 of this proxy statement.
Q: HOW DOES DISCRETIONARY AUTHORITY APPLY?
A: If you sign your proxy but do not make any selections, you give authority
to Raleigh B. Robertson and Timothy P. Reddinger, as proxy holders, to
vote on the two proposals and on any other matter that may arise at the
meeting.
Q. IS MY VOTE CONFIDENTIAL?
A: Yes. Only the Judge of Elections and the proxy holders will have access to
your proxy. All comments will remain confidential unless you ask that your
name be disclosed.
Q: WHO WILL COUNT THE VOTES?
A: William Strong, Esquire will tabulate the votes and act as the Judge of
Election.
Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY?
A: Your shares are probably registered differently or are in more than one
account. Sign and return all proxies to ensure that all your shares are
voted. Please have all of your accounts registered in the same name and
address. You may do this by contacting Timothy Reddinger, Secretary of the
Corporation at (814) 275-3133.
Q. WHAT CONSTITUTES A QUORUM?
A: As of February 15, 2000, 1,773,052 shares of common stock were issued and
outstanding. A majority of the outstanding shares, present or represented
by proxy, constitutes a quorum. If you vote by proxy or in person, we will
consider your shares as part of the quorum.
Q. WHAT PERCENTAGE OF STOCK DO THE DIRECTORS AND OFFICERS OWN?
A: Approximately 36.13% of our common stock as of February 15, 2000. More
details are on page 10 of this proxy statement.
<PAGE>
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS OF
PEOPLES FINANCIAL CORP., INC.
TO BE HELD ON MARCH 29, 2000
GENERAL INFORMATION
Date, Time and Place of Annual Meeting
Peoples Financial Corp., Inc., a Pennsylvania business corporation and
registered bank holding company, is furnishing this proxy statement in
connection with the solicitation by the Board of Directors of proxies to be
voted at the Annual Meeting of Shareholders of the corporation. The annual
meeting will be held at Holiday Inn, Route 68 and 1-80, Clarion, Pennsylvania
16214, on Wednesday, March 29, 2000, at 10:00 a.m., Eastern Standard Time. The
principal executive office of the corporation is located at Ford Street and
Fourth Avenue, Ford City, Pennsylvania 16226. The telephone number for the
corporation is (724) 763-1221. All inquiries should be directed to James L.
Kifer, Executive Vice President of the corporation at (814) 275-3133.
Description of the Corporation
PFC Bank incorporated Peoples Financial Corp., Inc. in 1984 to act as a
holding company under the laws of Pennsylvania. The bank is a wholly-owned
subsidiary of the corporation.
The corporation is mailing a copy of the Annual Report for the fiscal year
ended December 31, 1999 with this proxy statement. You may obtain a copy of the
corporation's Annual Report for the 1998 fiscal year at no cost by contacting
Timothy Reddinger, Corporate Secretary, Peoples Financial Corp., Inc., 363 Broad
Street, New Bethlehem, Pennsylvania 16242, telephone (814) 275-3133.
We have not authorized anyone to provide you with information, therefore,
you should rely only on the information contained in this proxy statement or
referred to in this proxy statement. Although we believe we have provided you
with all the information you need to vote, events may occur at Peoples Financial
Corp., Inc. subsequent to printing this proxy statement that might affect your
decision or the value of your stock.
<PAGE>
VOTING PROCEDURES
Solicitation and Voting of Proxies
The Board of Directors solicits this proxy for use at the 2000 Annual
Meeting of Shareholders. The directors, officers and other employees of the
corporation or bank may solicit proxies in person or by telephone, telecopy,
telegraph or mail, but only for use at the annual meeting. The corporation will
pay the cost of preparing, assembling, printing, mailing and soliciting proxies
and any additional material that the corporation sends to shareholders. The
corporation will make arrangements with brokerage houses and other custodians,
nominees and fiduciaries to forward proxy solicitation materials to the owners
of stock held by these persons. The corporation will reimburse these persons for
their reasonable forwarding expenses.
Only shareholders of record as of the close of business on Tuesday,
February 15, 2000, may vote at the annual meeting. The corporation's records
show that, as of the February 15, 2000, 1,773,052 shares of the corporation's
common stock were outstanding. On all matters to come before the annual meeting,
shareholders may cast one vote for each share held. Cumulative voting rights do
not exist with respect to the election of directors. See "Principal
Shareholders" on page 9 for a list of the persons known by the corporation to be
the beneficial owner of five percent (5%) or more of the corporation's common
stock.
By properly completing a proxy, you appoint Raleigh B. Robertson and
Timothy P. Reddinger as proxy holders to vote your shares as specified on the
proxy. Any proxy not specifying to the contrary will be voted as follows:
FOR the election of Frank T. Baker, Darl Hetrick, Francis E. Kane, Raleigh
B. Robertson, Raleigh B. Robertson, Jr., Timothy P. Reddinger, J. Jack
Sherman, Howard H. Shreckengost, and William H. Toy, each for a term of 1
year; and
FOR the ratification of the selection of Edwards, Leap & Sauer, as the
independent accountants of the corporation for 2000.
Quorum and Vote Required For Approval
In order to hold the annual meeting, there must be a "quorum" of
shareholders present. Under Pennsylvania law and the Bylaws of the corporation,
the presence, in person or by proxy, of the holders of a majority of the shares
entitled to vote is necessary to constitute a quorum for the transaction of
business at the meeting. We count votes withheld and abstentions in determining
the presence of a quorum for the particular matter. Broker non-votes are not
counted in determining the presence of a quorum for the particular matter as to
which the broker withheld authority.
Assuming the presence of a quorum, the 9 nominees for director receiving
the highest number of votes cast by shareholders entitled to vote for the
election of directors will be elected. Votes withheld from a nominee and broker
non-votes will not be cast for the nominee.
2
<PAGE>
Assuming the presence of a quorum, ratification of the selection of
independent auditors requires the affirmative vote of a majority of all votes
cast by shareholders. Abstentions and broker non-votes are not deemed to
constitute "votes cast" and, therefore, do not count either for or against
ratification. Abstentions and broker non-votes, however, have the practical
effect of reducing the number of affirmative votes required to achieve a
majority for the matter by reducing the total number of shares voted from which
the required majority is calculated.
Revocability of Proxy
Shareholders who sign proxies may revoke them at any time before they are
voted by:
o delivering written notice of the revocation to Timothy Reddinger,
Secretary of the Corporation, at 363 Broad Street, New Bethlehem,
Pennsylvania 16242;
o delivering a properly executed proxy bearing a later date to Timothy
Reddinger, Secretary of the Corporation, at 363 Broad Street, New
Bethlehem, Pennsylvania 16242; or
o attending the meeting and voting in person after giving written notice
to the Secretary of the Corporation.
You have the right to vote and, if desired, to revoke your proxy any time
before the annual meeting. Should you have any questions, please call Timothy
Reddinger, Secretary of the Corporation, at (814) 275-3133.
Methods of Voting
Proxy Voting
o Mark your selections.
o Date your proxy and sign your name exactly as it appears on your proxy.
o Mail to Peoples Financial Corp., Inc. in the enclosed, postage-paid
envelope.
Voting in Person
o Attend the annual meeting and show proof of eligibility to vote.
o Obtain a proxy.
o Mark your selections.
o Date your proxy and sign your name exactly as it appears in the transfer
books of the corporation.
3
<PAGE>
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
Executive 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>
Position Held Employee Age as of
Name Position Since Since February 15, 2000
- ---- -------- ------------- -------- -----------------
<S> <C> <C> <C> <C>
Raleigh B. Robertson President 1996 1996(1) 71
Timothy P. Reddinger Secretary 1998 (2) 40
Frank T. Baker Chairman of
the Board 1997 (2) 64
James L. Kifer Executive Vice
President 1997 1995(3) 38
</TABLE>
- ---------------
(1) Was an 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) Not an employee of the bank.
(3) Was employee of New Bethlehem Bank from 1984 until the merger (effective
4/1/95) of New Bethlehem Bank with and into the bank.
Executive Officers of the Bank
The following table sets forth selected information about the principal officers
of the bank, 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>
Position Held Employee Age as of
Name Position Since Since February 15, 2000
- ---- -------- ------------- -------- -----------------
<S> <C> <C> <C> <C>
Frank T. Baker Chairman of
the Board 1997 (2) 64
Raleigh B. Robertson President 1996 1996(1) 71
Timothy P. Reddinger Secretary 1998 (2) 40
James L. Kifer Executive Vice
President 1997 1995(3) 38
</TABLE>
- -----------------
(1) Was an 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) Not an employee of the bank.
(3) Was employee of New Bethlehem Bank from 1984 until the merger (effective
4/1/95) of New Bethlehem Bank with and into the bank.
4
<PAGE>
Committees and Meetings of the Corporation's Board of Directors
The corporation's Board of Directors does not have committees. The entire
Board meets to discuss the corporation's business.
Qualification and Nomination of Directors
The Board of Directors nominated the 9 persons named below to serve as
directors until the 2001 annual meeting of shareholders. All of the nominees are
presently members of the Board of Directors and all have consented to serve
another term as a director if re-elected. If any of the nominees should be
unavailable to serve for any reason, a majority of the Board of Directors then
in office may fill the vacancy until the expiration of the term of the class of
directors to which he or she was appointed.
The proxy holders intend to vote your proxy for the election of each of the
9 nominees named below, unless you indicate that your vote should be withheld
from either or all of them. Each nominee elected as a director will continue in
office until his successor has been duly elected and qualified, or until his
death, resignation or retirement.
The Board of Directors is proposing the following nominees for election as
Directors at the annual meeting:
o Frank T. Baker
o Darl Hetrick
o Frances E. Kane
o Timothy P. Reddinger
o Raleigh B. Robertson
o Raleigh B. Robertson, Jr.
o J. Jack Sherman
o Howard H. Shreckengost
o William H. Toy
The Board of Directors recommends a vote FOR the election of the
above-named nominees for election as directors.
We set forth below the principal occupation and certain other information
about the nominees and other directors whose terms of office will continue after
the annual meeting. You can find information about the share ownership of the
nominees and other directors on page 10.
5
<PAGE>
DIRECTORS (to serve until 2000)
AND
NOMINEES FOR DIRECTORS (to serve until 2001)
Frank T. Baker -- Director since 1973
Dr. Baker serves as the Chairman of the Board of the corporation and of the
bank. Dr. Baker is a former professor at Indiana University of Pennsylvania. He
is currently retired. Dr. Baker has been a director of the corporation since
1984 and of the bank since 1973 and serves as Chairman of the Board of the bank.
Raleigh B. Robertson -- Director since 1993
Mr. Robertson is the President and Chief Executive Officer of the
corporation and the President and Chief Executive Officer of the bank. He was
elected to the Board of Directors in connection with the merger of New Bethlehem
Bank, where he was a director since 1985. He has been a member of the bank's
Board of Directors since 1993.
Darl Hetrick - Director since 1993.
Mr. Hetrick has been a director of the corporation and a director of the
bank since 1993. He was elected to the Board of Directors in connection with the
merger of New Bethlehem Bank, where he was a director since 1983. He is the
owner of Hetrick's Farm Supply (a farm machinery distributor, located in New
Bethlehem, Pennsylvania.)
Francis E. Kane -- Director since 1955.
Mr. Kane has been a director of the corporation since 1984 and a director
of the bank since 1955. He is currently retired.
Timothy P. Reddinger - Director since 1998.
Mr. Reddinger has been a director of the corporation and a director of the
bank since 1998. He is the Secretary of the Corporation.
Raleigh B. Robertson, Jr.-- Director since 1995.
Mr. Robertson has been a director of the corporation and a director of the
bank since 1995. He was elected to the Board of Directors in connection with the
merger of New Bethlehem Bank, where he was a director since 1994. He is a
partner in R. B. Robertson & Son, (an oil and gas business located in New
Bethlehem, Pennsylvania.)
6
<PAGE>
J. Jack Sherman -- Director since 1995.
Mr. Sherman has been a director of the corporation and a director of the
bank since 1995. He was elected to the Board of Directors in connection with the
merger of New Bethlehem Bank, where he was a director since 1994. He is
President of Sherman Enterprises, located in Tionesta, Pennsylvania.
Howard H. Shreckengost - Director since 1995.
Mr. Shreckengost has been a director of the corporation and a director of
the bank since 1995. He was elected to the Board of Directors in connection with
the merger of New Bethlehem Bank, where he was a director since 1994. He is
Manager of Char-Val Candy Company (a candy manufacturer, located in New
Bethlehem, Pennsylvania.)
William H. Toy -- Director since 1992.
Mr. Toy has been a director of the corporation and a director of the bank
since 1992. He is the owner of Spic & Span Cleaners and Sail Care (dry cleaning
and sail maintenance businesses, located in Ford City, Pennsylvania.)
Directors Meetings
In 1999 each of the directors attended at least 75% of the total number of
Board of Directors meetings for the corporation and the bank.
Compensation of Officers and Directors
We set forth in the following table all cash compensation for services in
all capacities paid by the corporation and the bank during 1998 to the Chief
Executive Officer and up to four of the most highly compensated executive
officers of the corporation and the bank to the extent that these officer's
aggregate cash compensation exceeds $100,000.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION 1997-1999
<TABLE>
<CAPTION>
Other Annual
Name and Principle Position Year Salary($) Bonus($) Compensation($)
- --------------------------- ---- --------- -------- ---------------
<S> <C> <C> <C> <C>
Raleigh B. Robertson, 1999 142,652.70 72,000 83,344.74(1)
President/CEO
1998 144,235.08 72,000 83,358.16(1)
1997 130,893.00 72,000 83,308.50(1)
</TABLE>
- ------------
(1) Contingent compensation paid in 1997, 1998 and 1999.
7
<PAGE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
The corporation did not grant stock options or stock appreciation rights in
1999.
AGGREGATED OPTIONS/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/SAR's
at FY-End(#) at FY-End($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized($)(1) Unexercisable Unexercisable
---- --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Raleigh B. Robertson
President and CEO 4,358 $60,445.46 0/0 $0/$0
</TABLE>
-------------
(1) Calculated from information received from market maker in the corporation's
securities.
Employment Agreement for R. B. Robertson
The bank amended R. B. Robertson's executive employment agreement to
provide for an additional 3 years to August 31, 2003. The amended agreement also
provided a disability or retirement joint and survivor benefit in a monthly sum
of $1,200, to commence on the earlier of his disability, or retirement and
continuing until the later of his or his wife's death.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The corporation and the bank have not entered into any material
transactions, proposed or consummated, with any director or executive officer of
the corporation and the bank, or any associate of the foregoing persons. The
corporation and the bank have engaged in and intend to continue to engage in
banking and financial transactions in the ordinary course of business with
directors and officers of the corporation and the bank and their associates on
comparable terms with similar interest rates as those prevailing from time to
time for other customers of the corporation and the bank.
8
<PAGE>
Total loans outstanding from the corporation and the bank at December 31,
1999, to the corporation's and the bank's officers and directors as a group,
members of their immediate families and companies in which they had an ownership
interest of 10% or more amounted to $268,915, or approximately .70% of the total
equity capital of the bank. The bank made these loans in the ordinary course of
business, were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons, and did not involve more than the normal risk of collection or
present other unfavorable features.
BENEFICIAL OWNERSHIP OF THE
CORPORATION'S STOCK OWNED BY
PRINCIPAL OWNERS AND MANAGEMENT
Principal Shareholders
We set forth in the following table, as of February 15, 2000, 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% of the corporation's
outstanding common stock, the number of shares beneficially owned by the person
and the percentage of the corporation's outstanding common stock so owned.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Percent of
Outstanding
Shares Common Stock
Name and Address Beneficially Owned(1) Beneficially Owned
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
CEDE & CO
c/o The Depository Trust
P. O. Box 222
Bowling Green Station
New York, NY 10274 274,911 15.51%
- ----------------------------------------------------------------------------------------------
J. Jack Sherman
P. O. Box 324
Tionesta, PA 16353 204,752 11.55%
- ----------------------------------------------------------------------------------------------
Howard H. Shreckengost
406 Vine Street
New Bethlehem, PA 16242 127,640 (2) 7.20%
- ----------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) For the definition of "beneficial ownership" see footnote 1 below under the
caption entitled "Share Ownership by the Directors, Officers and Nominees.
(2) Mr. Shreckengost holds the shares jointly with his spouse.
9
<PAGE>
Share Ownership by the Directors, Officers and Nominees
We set forth in the following table, as of February 15, 2000, and from
information received from the respective individuals, the amount and percentage
of the common stock beneficially owned by each director, each nominee and all
officers, directors and nominees of the corporation as a group.
<TABLE>
<CAPTION>
Name of Individual or Amount and Nature of Percent of
Identity of Group Beneficial Ownership (1) Class
- --------------------- ------------------------ ----------
<S> <C> <C>
Frank T. Baker 78,155(3) 4.41%
Darl Hetrick 73,902(4) 4.17%
Francis E. Kane 12,602(5) .71%
Timothy Reddinger 14,169(6) .80%
Raleigh B. Robertson 35,080(7) 1.98%
Raleigh B. Robertson, Jr. 48,272(8) 2.72%
J. Jack Sherman 204,752 11.55%
Howard H. Shreckengost 127,640(2) 7.20%
William H. Toy 57,524(9) 3.24%
(All officers and directors as a Group,
10 persons total) 640,588 36.13%
</TABLE>
- -----------
(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 15, 2000.
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) Mr. Baker holds 70,378 shares jointly with his spouse, 4,120 individually
and his spouse holds 3,657 individually.
(4) Mr. Hetrick holds 60,520 shares jointly with his spouse, 10,479 shares
jointly with his son, and his spouse and son hold 2,903 shares jointly.
(5) Mr. Kane holds 12,602 shares jointly with his spouse.
10
<PAGE>
(6) Mr. Reddinger holds 1,025 shares jointly with his spouse and 13,144
individually.
(7) Mr. Raleigh B. Robertson holds 100 shares individually, 15,834 shares
jointly with his spouse, 12,108 shares jointly with his son, Raleigh B.
Robertson, Jr., 6,150 shares jointly with his son, Richard W. Robertson,
and his spouse holds 888 shares individually.
(8) Mr. Raleigh B. Robertson, Jr. holds 22,586 shares jointly with his spouse,
6,484 shares jointly with his son, 6,482 shares jointly with his daughter,
12,108 shares jointly with his father, Raleigh B. Robertson, and his son
and daughter own 612 shares jointly.
(9) Mr. Toy holds 57,524 shares jointly with his spouse.
PROPOSALS
1. ELECTION OF DIRECTORS.
Nominees for election this year are:
o Frank T. Baker (director since 1984)
o Darl Hetrick (director since 1993)
o Francis E. Kane (director since 1984)
o Timothy P. Reddinger (director since 1998)
o Raleigh B. Robertson (director since 1993)
o Raleigh B. Robertson, Jr. (director since 1995)
o J. Jack Sherman (director since 1995)
o Howard H. Schreckengost (director since 1995)
o William H. Toy (director since 1992)
Each has consented to serve a one-year term. (See pages 5, 6 and 7 for more
information.)
If any director is unable to stand for re-election, the Board may designate
a substitute. Proxy holders will vote in favor of a substitute nominee. The
Board of Directors has no reason to believe the 9 nominees will be unable to
serve if elected.
11
<PAGE>
Cumulative voting rights do not exist with respect to the election of
directors. The affirmative vote of the majority of shares present (in person or
by proxy and entitled to vote at the annual meeting) is needed to elect a
director.
The Board of Directors recommends a vote FOR the election of the nominees
as Directors.
2. RATIFICATION OF EDWARDS, LEAP & SAUER, CERTIFIED PUBLIC ACCOUNTANTS, AS
INDEPENDENT AUDITORS.
The bank's Audit Committee and the Board of Directors of the corporation
and the bank believe that Edwards, Leap & Sauer's knowledge of the corporation
and the bank is invaluable. Edwards, Leap & Sauer, advised the corporation that
none of its members has any financial interest in the corporation. Edwards, Leap
& Sauer, served as the corporation's independent auditors for the 1999 fiscal
year. They assisted the corporation and the bank with the preparation of their
federal and state tax returns and provided assistance in connection with
regulatory matters, charging the bank for such services at its customary hourly
billing rates. The corporation's and the bank's Board of Directors approved
these non-audit services after due consideration of the accountants' objectivity
and after finding them to be wholly independent.
In the event that the shareholders do not ratify the selection of Edwards,
Leap & Sauer, as the corporation's independent auditors for the 2000 fiscal
year, the Board of Directors may choose another accounting firm to provide
independent public accountant audit services for the 2000 fiscal year.
Representatives of Edwards, Leap & Sauer, will attend the annual meeting to
answer questions.
The affirmative vote of the majority of shares present (in person or by
proxy and entitled to vote at the annual meeting) is needed to ratify Edwards,
Leap & Sauer, as independent auditors for 2000.
The Board of Directors recommends a vote FOR the ratification of Edwards,
Leap & Sauer, Certified Public Accountants, as independent auditors.
EXECUTIVE COMPENSATION
The Board of Directors of Peoples Financial Corp., Inc. governs the
corporation and its subsidiary, PFC Bank. In fulfilling its fiduciary duties,
the Board of Directors acts in the best interests of the corporation's
shareholders, customers and the communities served by the corporation and its
subsidiary. To accomplish the strategic goals and objectives of the corporation,
the Board of Directors engages competent persons who undertake to accomplish
these objectives with integrity and in a cost-effective manner. The compensation
of these individuals is part of the Board of Directors' fulfillment of its
duties to accomplish the
12
<PAGE>
corporation's strategic mission. Officers of the corporation are not
compensated. The bank provides compensation to the employees of the bank.
General labor market conditions, the specific responsibilities of the
individual, and the individual's contributions to the bank's success influence
total compensation opportunities available to the employees of the bank.
Individuals are reviewed annually on a calendar year basis. The bank strives to
offer compensation that is competitive with that offered by employers of
comparable size in our industry. Through these compensation policies, the bank
strives to meet its strategic goals and objectives to its constituencies and to
provide compensation that is fair and meaningful to its employees.
SHAREHOLDERS PROPOSALS FOR 2001 ANNUAL MEETING
Any shareholder who, in accordance with the corporation's Bylaws, wishes to
submit a proposal for inclusion in the corporation's proxy statement for its
2001 Annual Meeting of Shareholders must deliver such proposal in writing to the
Secretary of Peoples Financial Corp., Inc. at its principal executive office,
363 Broad Street, New Bethlehem, Pennsylvania 16242, not later than November 3,
2000.
OTHER MATTERS THAT MAY COME BEFORE THE ANNUAL MEETING
The Board of Directors knows of no matters other than those referred to in
the accompanying Notice of Annual Meeting of Shareholders that properly may come
before the annual meeting. However, if any other matter should be properly
presented for consideration and voting at the annual meeting or any adjournments
of the meeting, the persons named as proxy holders will vote the proxies in what
they determine to be the best interest of the corporation.
13
<PAGE>
PEOPLES FINANCIAL CORP., INC.
PROXY
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MARCH 29, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Raleigh B. Robertson and
Timothy P. Reddinger and each or any of them, proxies of the undersigned, with
full power of substitution to vote all of the shares of Peoples Financial Corp.,
Inc. that the undersigned may be entitled to vote at the Annual Meeting of
Shareholders to be held at the Holiday Inn, Route 68 and I-80, Clarion,
Pennsylvania 16214, on Wednesday, March 29, 2000 at 10:00 a.m., prevailing time,
and at any adjournment or postponement thereof as follows:
1. ELECTION OF DIRECTORS TO SERVE FOR A ONE-YEAR TERM.
Frank T. Baker Raleigh B. Robertson, Jr.
Darl Hetrick J. Jack Sherman
Francis E. Kane Howard H. Shreckengost
Timothy P. Reddinger William H. Toy
Raleigh B. Robertson
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY
listed above (except to vote for all nominees
as marked to the contrary below) listed above
The Board of Directors recommends a vote FOR these nominees.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
2. RATIFICATION OF THE SELECTION OF EDWARD, LEAP & SAUER, CERTIFIED PUBLIC
ACCOUNTANTS, OF PITTSBURGH, PENNSYLVANIA, AS THE INDEPENDENT AUDITORS FOR
THE YEAR ENDING DECEMBER 31, 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors recommends a vote FOR this proposal.
- --------------------------------------------------------------------------------
<PAGE>
3. In their discretion, the proxy holders 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 AND DATED, WILL BE VOTED IN THE MANNER DIRECTED
BY THE UNDERSIGNED SHAREHOLDERS. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL NOMINEES LISTED ABOVE AND FOR PROPOSAL 2.
Dated: , 2000
----------------------- -----------------------------
Signature
-----------------------------
Signature
Number of Shares Held of Record
on February 15, 2000
- --------------------
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.
