-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QKcn48FGBBuWznRUtk+qJ4Kk+4ZG9jgjC+QSpRWs/Tg74J5BlybaUtvv1ieHRWn7 MFq3Gthd5XX7K/RYI5FGAg== 0001056943-99-000017.txt : 19991117 0001056943-99-000017.hdr.sgml : 19991117 ACCESSION NUMBER: 0001056943-99-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEOPLES FINANCIAL SERVICES CORP/ CENTRAL INDEX KEY: 0001056943 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 232391852 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23863 FILM NUMBER: 99752191 BUSINESS ADDRESS: STREET 1: 50 MAIN STREET STREET 2: 50 MAIN STREET CITY: HALSTEAD STATE: PA ZIP: 18822 BUSINESS PHONE: 5708792175 MAIL ADDRESS: STREET 1: 50 MAIN STREET STREET 2: 50 MAIN STREET CITY: HALSTEAD STATE: PA ZIP: 18822 10-Q 1 THIRD QUARTER REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (X) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 1999 or ( ) Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the transition period No. 0-23863 (Commission File Number) PEOPLES FINANCIAL SERVICES CORP. (Exact Name of Registrant as Specified in its Charter) Pennsylvania 23-2931852 (State of Incorporation) (IRS Employer ID Number) 50 Main Street Hallstead, PA 18822 (Address of Principal Executive Offices) (Zip Code) (570) 879-2175 (Registrant's Telephone Number) 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 Exchange Act of 1934 during the preceding 12 months or for such shorter period that the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days. Yes X NO____ Number of shares outstanding as of September 30, 1999 COMMON STOCK ($2 Par Value) 2,165,441 (Title of Class) (Outstanding Shares) PEOPLES FINANCIAL SERVICES CORP. FORM 10-Q For the Quarter Ended September 30, 1999 Contents PART I. FINANCIAL INFORMATION. Page No. Item 1. Financial Statements. Consolidated Statement of Financial Condition as of September 30, 1999 (Unaudited) and December 31, 1998. 4 Consolidated Statement of Income (Unaudited) for the Nine and Three Month Periods Ended September 30, 1999 and 1998. 5 Consolidated Statement of Comprehensive Income (Unaudited) for the Nine and Three Month Periods Ended September 30, 1999 and 1998. 6 Consolidated Statement of Shareholders' Equity (Unaudited) for the Nine Month Period Ended September 30, 1999 and 1998. 7 Consolidated Statement of Cash Flows (Unaudited) for the Nine Month Period Ended September 30, 1999 and 1998. 8 Notes to Consolidated Statements. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 10 Item 3. Quantitative and Qualitative Disclosure About Market Risks. 16 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. 17 PART I Item 1 PEOPLES FINANCIAL SERVICES CORP. AND SUBSIDIARY CONSOLIDATED STATEMENT OF FINANCIAL CONDITION September 30, 1999 and December 31, 1998 (UNAUDITED)
(in thousands) SEPTEMBER DECEMBER 1999 1998 ---- ---- ASSETS: Cash Due from Banks ................................ 2,958 2,084 Interest Bearing Deposits with Other Banks ......... 5,196 2,725 Federal Funds Sold ................................. 120 0 Securities Available for Sale ...................... 94,609 93,175 Loans .............................................. 147,428 141,283 Less: Unearned Income ............................. -13 -34 Allowance for Loan Loss ............................ -1,750 -1,713 Loans, Net ......................................... 145,665 139,536 Bank Premises and Equipment, Net ................... 3,483 3,523 Accrued Interest Receivable ........................ 1,788 1,781 Other Assets ....................................... 5,744 4,378 TOTAL Assets ....................................... 259,563 247,202 ======= ======= LIABILITIES: Deposits, Non-Interest Bearing ..................... 26,775 24,263 Deposits, Interest Bearing ......................... 195,296 185,618 Total Deposits ..................................... 222,071 209,881 Accrued Interest Payable ........................... 672 703 Borrowed Funds ..................................... 9,620 9,032 Other Liabilities .................................. 525 541 TOTAL Liabilities .................................. 232,888 220,157 ------- ------- SHAREHOLDERS' EQUITY Common Stock * ..................................... 4,455 4,455 Surplus ............................................ 4,471 4,455 Treasury Stock at Cost ............................. -1,084 -748 Undivided Profit ................................... 20,305 18,322 Accumulated Other Comprehensive Income ............. -,1472 561 TOTAL Shareholders' Equity ......................... 26,675 27,045 ------ ------ TOTAL LIABILITIES CAPITAL .......................... 259,563 247,202 ======= ======= * Common Stock, par value $2 per share, 12,500,000 shares authorized: 2,165,441 and 2,177,576 shares issued and outstanding at September 30, 1999 and December 31, 1998 respectively.
See notes to financial statements PEOPLES FINANCIAL SERVICES CORP. AND SUBSIDIARY CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Nine Months Three Months Ended Ended (in thousands) September 30 September 30 1999 1998 1999 1998 ---- ---- ---- ---- INTEREST INCOME: Interest and Fees on Loans ................. 8,864 8,464 3,003 2,897 Interest Investments, Taxable .............. 2,810 2,553 1,016 840 Tax Exempt ...................... 1,090 1,109 357 373 Dividends ....................... 59 39 20 15 Interest on Federal Funds Sold ............. 112 41 56 7 Interest on Deposits of Other Banks ........ 9 40 9 14 TOTAL Interest Income ...................... 12,944 12,246 4,461 4,146 ------ ------ ----- ----- Interest on Deposits ....................... 5,936 5,916 2,020 2,036 Interest on Borrowed Funds ................. 299 202 102 60 Interest Expense ........................... 6,235 6,118 2,122 2,096 Net Interest Income ........................ 6,709 6,128 2,339 2,050 Provision for Loan Losses .................. 180 130 60 55 Net Interest Income, after Loan Loss Provision .................. 6,529 5,998 2,279 1,995 OTHER INCOME: Service Charges and Fees ................... 751 759 262 270 Gains on Security Sales .................... 104 48 41 15 Other Operating Income ..................... 150 53 77 26 TOTAL Other Income ......................... 1,005 860 380 311 ----- --- --- --- OTHER EXPENSES: Salaries and Benefits ...................... 1,841 1,759 546 602 Occupancy Expenses ......................... 232 232 73 75 Furniture and Equipment Expense ............ 271 320 89 110 FDIC Insurance and Assessments ............. 69 66 23 22 Professional Fees and Outside Services ..... 141 168 50 52 Computer Services and Supplies ............. 235 196 74 71 Taxes, Other Than Payroll and Income ....... 182 166 62 56 Other Operating Expenses ................... 896 871 301 306 Total Non-Interest Expense ................. 3,867 3,778 1,218 1,294 ----- ----- ----- ----- Income Before Income Taxes ................. 3,667 3,080 1,441 1,012 Provision for Income Taxes ................. 855 635 377 202 Net Income ................................. 2,812 2,445 1,064 810 Net Income Per Share, Basic and Diluted .... 1.30 1.12
See notes to financial statements PEOPLES FINANCIAL SERVICES CORP. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands) Nine Months Three Months Ended Ended September 30 September 30 1999 1998 1999 1998 ---- ---- ---- ---- Net Income ................................. 2,812 2,445 1,064 810 Other Comp Income (loss) before tax Unrealized holding gains/losses on securities .............................. -3,082 750 -800 518 Less: reclassification Adjustment .......... 104 -48 167 -21 Other Comp Income (loss) before tax ........ -2,978 702 -759 497 Federal Income Tax expense (benefit) ....... 1,013 239 259 169 Other Comp Income (loss), Net of tax(benefit) ........................ -1,965 463 -500 328 TOTAL Comp income .......................... 847 2,908 564 1,138 === ===== === =====
See notes to financial statements PEOPLES FINANCIAL SERVICES CORP. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
Accumulated Other Common Undivided Comprehensive Treasury Stock Surplus Profit Income Stock Total ----- ------- ------- ------ ----- ----- (in thousands) Balance, December 31, 1997 ........4,455 4,455 15,912 371 -549 24,644 Net Income 1998 for the nine months ended September 30, 1998 . 2,445 2,445 Cash Dividends Paid, 1998 ....... -734 -734 Treasury Stock Purchase ......... -125 -125 Change in unrealized gain/loss on securities available for sale, net of deferred income taxes .... 463 463 Balance, September 30, 1998 .......4,455 4,455 17,623 834 -674 26,693 Balance, December 31, 1998 ........4,455 4,455 18,322 562 -748 27,046 Net Income 1999 ................. 2,812 2,812 Cash Dividends Paid, 1999 ....... -829 -829 Treasury Stock Activity ......... 16 -336 -320 Change in unrealized gain/loss on securities available for sale, net of deferred income taxes .... -2,034 -2,034 Balance, September 30, 1999 .......4,455 4,471 20,305 -1,472 -1,084 26,675
See notes to financial statements PEOPLES FINANCIAL SERVICES CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (UNAUDITED)
(in thousands) 1999 1998 ---- ---- Cash Flow Cash Flows from Operating Activities Net Income .................................................... 2,812 2,445 Adjustments: Depreciation and amortization .................... 466 527 Provision for Loan Losses ........................ 180 130 Gain/Loss on sale of equipment ................... 0 2 Gain/loss on sale of other real estate ........... 24 2 Amortization of securities' premiums and accretion of discounts 180 87 Gains on sales of investment securities, NET .................. -104 -48 Increase in accrued interest receivable ....................... -7 112 Increase/Decrease in other assets ............................. -547 -126 Increase/Decrease in accrues interest payable ................. -31 0 Increase/Decrease in other liabilities ........................ -16 -6 Net cash provided by operating activities ..................... 2,957 3,125 ------ ------ Cash Flows from investing activities Proceeds from sale of available for sale securities ........... 9,909 7,111 Proceeds from maturities of available for sale securities ..... 8,942 11,978 Purchase of available for sale securities ..................... -31,573 -22,420 Principal payments on mortgage-backed securities .............. 8,130 3,374 Purchase of Fed Funds Sold .................................... -120 0 Net increase in loans ......................................... -6,546 -11,785 Proceeds from sale of premises and equipment .................. 0 1 Purchase of premises and equipment ............................ -232 -137 Proceeds from sale of other real estate ....................... 249 30 Purchase of intangible assets ................................. 0 0 Net cash used in investing activities ......................... -11,241 -11,848 ------ ------ Cash flows from financing activities Cash dividends paid ........................................... -829 -734 Increase in deposits .......................................... 12,190 11,110 Net Increase/Decrease in long-term borrowing .................. 0 0 Net Increase/Decrease in short-term borrowing ................. 588 -2,945 Treasury Stock Activity ....................................... -320 -125 Net cash provided by financing activities ..................... 11,629 7,306 Net Increase/Decrease in cash/cash equivalents ................ 3,345 -1,417 Cash and cash equivalents, beginning of year .................. 4,809 5,549 Cash and cash equivalents,end of year ......................... 8,154 4,132 ------ ------ Supplemental disclosures of cash paid Interest Paid ................................................. 6,266 6,119 Income Taxes Paid ............................................. 858 579 ------ ------ Non-cash investing and financing activities Transfers from loans to real estate through foreclosure ....... 237 601 Proceeds from sales of foreclosed real estate ................. 0 200 TOTAL Increase/Decrease in unrealized gain/loss on securities avail for sale .................................. -3,082 702
See notes to financial statements PEOPLES FINANCIAL SERVICES CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission (SEC) and in compliance with generally accepted accounting principles. Because this report is based on an interim period, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The registrant believes that the disclosures made are adequate to make the information presented a fair representation of the Corporation's financial status. In the opinion of management, the accompanying consolidated financial statements for the nine-month period ended September 30, 1999 and 1998 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition and the results of operations for the period. The financial performance reported for the Corporation for the nine-month period ended September 30, 1999, is not necessarily the result to be expected for the full year. 2. RECENT ACCOUNTING PRONOUNCEMENTS ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES SFAS No. 133 In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued. This Statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. This Statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999, and will not be applied retroactively to financial statements of prior periods. Management of the Bank is in the process of evaluating the impact, if any, this Statement will have on the Bank's consolidated results of operations or financial position when adopted. ACCOUNTING FOR MORTGAGE-BACKED SECURITIES RETAINED AFTER THE SECURITIZATION OF MORTGAGE LOANS HELD FOR SALE BY A MORTGAGE BANKING ENTERPRISE SFAS No. 134 The Company adopted SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise", effective January 1, 1999. The Statement amends SFAS 65, "Accounting for Certain Mortgage Banking Activities". Statement 65, as amended, requires that after the securitization of a mortgage loan held for sale, an entity engaged in mortgage banking activities classify the resulting mortgage-backed security as a trading security. This Statement further amends SFAS 65 to require that after the securitization of mortgage loans held for sale, an entity engaged in mortgage banking activities classify the resulting mortgage-backed securities or other retained interest based on its ability and intent to sell or hold those investments. This Statement conforms the subsequent accounting for securities retained after securitization of mortgage loans by a mortgage banking entity with the subsequent accounting for securities retained after the securitization of other types of assets by nonmortgage banking enterprises. This means that such securities can be classified as held-to-maturity is they conform to the requirements of SFAS 115. The Statement is effective for the first fiscal quarter beginning after December 15, 1998. The adoption of this statement had no impact on the Company's financial position or results of operation. 3. COMMON STOCK On September 15, 1998, the Corporation effected a 5-for-2 stock split to shareholders of record on August 15, 1998. Earnings per share amounts and weighted average shares outstanding have been restated to give effect to the stock split. In connection with the stock split, the Corporation amended its Articles of Incorporation to authorize 12,500,000 shares of $2 par value common stock. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation The following discussion and analysis of the consolidated financial statements of the Corporation is presented to provide insight into management's assessment of financial results. The Corporation's only subsidiary, Peoples National Bank of Susquehanna County (the "Bank") provides financial services to individuals and businesses within the Bank's market area made up of Susquehanna, Wyoming and northern Lackawanna counties in Pennsylvania, and southern Broome County in New York. The Bank is a member of the Federal Reserve System and subject to regulation, supervision and examination by the Office of the Comptroller of the Currency. FINANCIAL CONDITION Cash and Cash Equivalents: At September 30, 1999, cash, federal funds sold and deposits with other banks totaled $8.274 million; an increase of $4.142 million compared to $4.132 million at September 30, 1998 and an increase of $3.465 million compared to December 31, 1998. Management believes the liquidity needs of the Corporation are satisfied by the current balance of cash and cash equivalents, readily available access to traditional funding sources, and the portion of the investment and loan portfolios that matures within one year. These sources of funds will enable the Corporation to meet cash obligations as they come due. Management is also aware of the possible public demand of cash due to the concerns over the Year 2000 and has taken necessary steps to address possible extra liquidity needs. Investments: Investments totaled $94.609 million on September 30, 1999; increasing $5.839 million as compared to September 30, 1998's total of $88.770 million and increasing $1.434 thousand compared to the total of $93.175 million held on December 31, 1998. The total investment portfolio is held as available for sale. This strategy was implemented in 1995 to provide more flexibility in using the investment portfolio for liquidity purposes as well as providing more flexibility in selling when market opportunities occur. Management monitors the earnings performance and effectiveness of the liquidity of the investment portfolio on a monthly basis through the Asset/Liability Committee ("ALCO") meetings. The ALCO also reviews and manages interest rate risk for the Corporation. Through active balance sheet management and analysis of the investment securities portfolio, the Corporation maintains sufficient liquidity to satisfy depositor requirements and various credit needs of its customers. Borrowings: The Bank utilizes borrowing as a source of funds for its asset/liability management. Advances are available from the FHLB provided certain standards related to credit worthiness have been met. Repurchase and term agreements are also available from FHLB. Total borrowings at September 30, 1999, were $9.620 million as compared to $6.331 million on September 30, 1998, showing an increase of $3.289 million and an increase of $588 thousand compared to the December 31, 1998 total of $9.032 million. On November 16, 1998, the Bank entered into a term borrowing agreement with FHLB for $5 Million. This accounts for a large part of the increase over September of 1998. Loans: The Bank's loan volume has been steady through the first nine months of 1999. Increasing the loan to deposit ratio is a goal of the Bank, but loan quality is a requisite in this effort. Management has continued its efforts to create tighter underwriting standards for both commercial and consumer credit. The Bank's lending consists primarily of retail lending which includes single family residential mortgage and other consumer lending, and also commercial lending primarily to locally owned small businesses. On September 30, 1999, net loans totaled $145.665 million as compared to $136.364 million on September 30, 1998 showing an increase of $9.301 million in the past year. The loan to deposit ratio was 66.057% on September 30, 1999, as compared to 66.707% on September 30, 1998. During the third quarter of 1999 net loans increased $4.889 million from the prior quarter end total of $140.776 million. Since December 31, 1998, loans have grown $6.129 million in 1999 and since September 30, 1998, loans have grown $9.301 million. Deposits: Deposits are attracted from within the Bank's primary market area through the offering of various deposit instruments including NOW accounts, money market accounts, savings accounts, certificates of deposit and IRAs. Total deposits at September 30, 1999, were $222.071 million as compared to $204.702 million at September 30, 1998. This is an increase in deposits of $17.369 million or 8.49%. Deposits totaled $209.881 million on December 31, 1998. Of the $12.190 million growth in 1999, $6.990 million occurred in the third quarter. Although we are not the highest payer for deposits in our market, our deposit growth has remained steady. Capital: The adequacy of the Corporation's capital is reviewed on an ongoing basis with reference to the size, composition and quality of the Corporation's resources and regulatory guidelines. Management seeks to maintain a level of capital sufficient to support existing assets and anticipated asset growth, maintain favorable access to capital markets and preserve high quality credit ratings. As of September 30, 1999, regulatory capital to total assets was 9.64% as compared to 9.51% on September 30, 1998. The Corporation has complied with the standards of capital adequacy mandated by the banking regulators. The bank regulators have established "risk-based" capital requirements designed to measure capital adequacy. Risk-based capital ratios reflect the relative risks of various assets banks hold in their portfolios. A weight category of either 0% (lowest risk asset), 20%, 50% or 100% (highest risk assets) is assigned to each asset on the balance sheet. Capital is being maintained in compliance with risk-based capital guidelines. The Company's Tier 1 capital to total risk weighted assets ratio is 16.62% and the total capital ratio to total risk weighted assets ratio is 17.81%. The Corporation is deemed to be well-capitalized under regulatory standards. On July 30, 1999, the Corporation mailed a prospective date July 30, 1999 with the option to have all or partial dividend payments paid through a dividend reinvestment plan. Liquidity and Interest Rate Sensitivity: Liquidity measures an organization's ability to meet cash obligations as they come due. The consolidated statement of cash flows presented in the accompanying financial statements included in Part I of this Form 10-Q provide analysis of the Corporation's cash and cash equivalents. Additionally, management considers that portion of the loan and investment portfolio that matures within one year as part of the Corporation's liquid assets. The ALCO addresses the liquidity needs of the Bank to see that sufficient funds are available to meet credit demands and deposit withdrawals as well as to the placement of available funds in the investment portfolio. In assessing liquidity requirements, equal consideration is given to the current position as well as the future outlook. The Corporation has included liquidity planning in the business resumption plan as part of the Y2K project. Although management cannot predict depositors' behavior, public awareness programs and cash contingency plans are in place in preparation of unusual withdrawal activity. The following table sets forth the Bank's interest rate sensitivity as of September 30, 1999. INTEREST RATE SENSITIVITY ANALYSIS September 30, 1999
(in thousands) Maturity or Repricing In: 3 3-6 6-12 1-5 Over 5 Months Months Months Years Years ------ ------ ------ ----- ----- RATE SENSITIVE ASSETS Loans .................... 18,192 8,267 21,511 55,474 43,971 Securities ............... 23,756 5,812 7,314 44,890 18,033 Federal Funds Sold ....... 120 0 0 0 0 Total Rate Sensitive Assets .... 42,068 14,079 28,825 100,364 62,004 ====== ====== ====== ======= ====== Cummulative Rate Sensitive Assets .... 42,068 56,147 84,972 185,336 247,340 ====== ====== ====== ======= ======= RATE SENSITIVE LIABILITIES Interest Bearing Checking 1,607 0 0 0 14,462 Money Market Deposits .... 29,770 1,713 0 0 8,566 Regular Savings .......... 7,421 30 24 4 27,259 CDs and IRAs ............. 22,110 17,744 30,209 32,798 1,579 Short-term Borrowings .... 4,620 0 0 0 1,032 Long-term Borrowings ..... 0 0 0 5,000 0 Total Rate Sensitive Liabilities 65,528 19,487 30,233 37,802 52,898 ====== ====== ====== ====== ====== Cummulative Rate Sensitive Liabilities 65,528 85,015 115,248 153,050 205,948 ====== ====== ======= ======= ======= Period Gap ............... -23,460 -5,408 -1,408 62,562 9,106 Cummulative Gap .......... -23,460 -28,868 -30,276 32,286 41,392 Cummulative RSA to RSL ... 64.20% 66.04% 73.73% 121.10% 121.10% Cummulative Gap to Total Assets ............. -9.04% -11.12% -11.66% 12.44% 15.95% ==== ===== ===== ===== =====
The following assumptions have been made in the foregoing model. Non-interest bearing categories are shown to reprice 10% of balances in the "within 3 months" period (all repricing within the first month) and the remaining balances in the last period. NOW accounts and regular Savings accounts also reprice 10% of balances in the "within 3 months" and the remaining balances in the last period. Management can change these rates, but such changes are infrequent and incrementally small. History has shown a strong core deposit relationship in these accounts and little or no run-off if rates change in these products. Repayment for principal on mortgage backed securities are projected by expected cash flows as evidenced by recent history. Repayment of principal for loan categories is projected at expected maturity (amortization) for fixed rate products and the next repricing date for variable rate products. RESULTS OF OPERATIONS Net Interest Income: Net interest income after loan provisions increased by $531 thousand or 8.85% for the nine-months and quarter ended September 30, 1999, as compared to the same periods in 1998. Earning assets increased $18.603 million or 8.20% for September 30, 1999, as compared to September 30, 1998. Interest Income: Interest and fees on loans for the nine-months and quarter ended September 30, 1999 totaled $8.864 million, reflecting increases of $400 thousand or 4.73% over the comparable periods in 1998. The loan portfolio grew $9.301 million from a total of $136.364 million in September 1998 to $145.665 million in September 1999 in comparison. Interest on investments for the nine-months and the quarter ended September 30, 1999, totaled $4.080 million which reflects increases of $298 thousand or 7.88% over the comparable period in 1998. The investment portfolio has increased by $5.839 million over the September 1998 total of $88.770 million. Interest Expense: Interest expense for the nine-months and the quarter ended September 30, 1999, totaled $6.235 million compared to $6.118 million in 1998, reflecting an increase of $117 thousand or 1.91% over the comparable periods in 1998. Provision for Loan Loss: The provision for loan loss for the third quarter ending September 30, 1999 increased by $5 thousand from the corresponding three month period in 1998 and increased $50 thousand for the corresponding nine month period. As of third quarter 1999, charge-offs totaled $179,799 while net charge-offs totaled $142,382 as compared to $125,091 and $94,661 respectively for the same nine months period in 1998. Senior management utilizes detailed analysis of the loan portfolio monthly to determine loan loss reserve adequacy. The process considers all "problem loans" including classified, criticized and monitored loans. Prior loan loss history and current market trends, both nationally and locally, are taken into consideration. A watch list of potential problem loans is maintained and monitored monthly. This list is reviewed by the Board of Directors on a monthly basis. The Bank has not had nor presently has any foreign loans. In addition, the Bank does not have any concentrations of credit. Based upon this analysis, senior management has concluded that the allowance of loan loss is adequate. The Bank's loan volume continues to be strong. One of the Bank's main goals is to increase the loan to deposit ratio without jeopardizing loan quality. To reach its goal, management has continued its efforts to create tighter underwriting standards for both commercial and consumer credit. The Bank's lending consists primarily of retail lending which includes single family residential mortgages and other consumer lending and commercial lending primarily to locally owned small businesses. Total Other Operating Income: The total for this entire category increased $145 thousand for the first nine months of 1999 as compared to the first nine months of 1998. There are three major accounts that make up this total. Service Charge Fee Income decreased $8 thousand when comparing the nine month and three month periods of 1999 to the same periods in 1998. Gains and Losses on Securities are $56 thousand more this year when comparing the first nine months of 1999 to 1998. Of that increase, $26 thousand occurred in the third quarter. In Other Income there was an increase of $97 thousand when comparing the first nine months of 1999 to 1998. Of that increase, $51 thousand occurred in the third quarter. Mick Saravitz's efforts as a joint employee of the Bank and T.H.E. Financial Group, Ltd. of Mechanicsburg, PA, have added $18.7 thousand of additional income as of September 30, 1999. The alternative investment products available through T.H.E. have been well received. The Bank has also offered a new service for accounts receivable servicing which has added $13.5 thousand to income as of the end of the third quarter. Other Operating Expenses: Non-Interest expense went up by $89 thousand during the first three quarters of 1999 as compared to the same quarters in 1998. Professional fees and outside services are lower by $27 thousand for the same periods. Employee salaries, the largest component of non-interest, increased $82 thousand for the first nine months of 1999 as compared to the first nine months of 1998. This increase reflects both salary increases as well as the filling of some new positions. Income Tax Provision: The income tax provision was $855 thousand and $635 thousand for the nine-month periods ended September 30, 1999 and September 30, 1998 respectively. Year 2000 Compliance: The Bank utilizes software and related computer technologies essential to its operations that can be affected by the Year 2000 issues. In 1998, the Bank assigned a senior officer and the compliance committee the responsibility to address the risks of the critical internal bank systems as well as external and environmental systems. A comprehensive plan was developed for assessment, review, remediation, testing, and contingency planning. The assessment, review and remediation stages involved creating inventory listings of internal and external sources of hardware, software, and environmental systems, and then installing all the necessary updates to put all systems at the required Year 2000 level or version. The loan portfolio was also inventoried. Selected borrowers were contacted to assess their Year 2000 readiness to determine the adequacy of our allowances for loan losses. The Bank has participated and continues to participate in a public awareness campaign through mailings, lobby materials, survey cards, and calling officer visits. The testing has been completed and contingency planning is ongoing. CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING INFORMATION Except for historical information, this Report may be deemed to contain "forward looking" information. Examples of forward looking information may include, but are not limited to (a) projections of or statements regarding future earnings, interest income, other income, earnings or loss per share, asset mix and quality, growth prospects, capital structure and other financial terms, (b) statements of plans and objectives of management or the Board of Directors, (c) statements of future economic performance, and (d) statements of assumptions, such as economic conditions in the market areas served by the Corporation and the Bank, underlying other statements and statements about the Corporation and the Bank or their respective businesses. Such forward looking information can be identified by the use of forward looking terminology such as "believes," "expects," "may," "intends," "will," "should," "anticipates," or the negative of any of the foregoing or other variations thereon or comparable terminology, or by discussion of strategy. No assurance can be given that the future results covered by the forward looking information will be achieved. Such statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from future results expressed or implied by such forward looking information. Important factors that could impact operating results include, but are not limited to, (i) the effects of changing economic conditions in both the market areas served by the Corporation and the Bank and nationally, (ii) credit risks of commercial, real estate, consumer and other lending activities, (iii) significant changes in interest rates, (iv) changes in federal and state banking laws and regulations which could affect operations, (v) funding costs, and (vi) other external developments which could materially affect business and operations. Item 3. Quantitative and Qualitative Disclosure About Market Risks The information set forth under the caption "Liquidity and Interest Sensitivity" under Item 2, Part I is incorporated herein by reference. PART II PEOPLES FINANCIAL SERVICES CORP ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS IN SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS FOR SECURITY HOLDER VOTE None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8K (a) Exhibits 27 Financial Data Schedule (b) Reports on Form 8K April 16, 1999 May 5, 1999 July 22, 1999 (c) Other Events Press Release of Peoples Financial Services Corp. dated April 16, 1999, previously submitted as Exhibit 99.1 Press Release of Peoples Financial Services Corp. dated May 5, 1999, previously submitted as Exhibit 99.2 Press Release of Peoples Financial Services Corp. dated July 22, 1999, previously submitted as Exhibit 99.3 Shareholder Automatic Dividend Reinvestment and Stock Purchase Plan dated July 30, 1999, previously submitted as Form S-3 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PEOPLES FINANCIAL SERVICES CORP By/s/ Debra E. Dissinger Debra E. Dissinger Executive Vice President/COO EX-27 2 FDS --
9 0001056943 2r$ixyyp 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 2,958 195,296 120 0 0 96,840 94,609 147,415 1,750 259,563 222,071 4,620 1,197 5,000 0 0 4,455 22,220 259,563 8,864 3,959 171 12,944 5,936 299 6,709 180 104 3,867 3,667 3,667 0 0 2,812 1.30 1.30 1.96 239 1,761 0 677 1,712 179 37 1,750 1,750 0 0
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