SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
PEOPLES FINANCIAL SERVICES CORP.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2391852
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
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50 Main Street, Hallstead, Pennsylvania 18822
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (717)879-2175
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
None None
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $5.00 par value
(Title of Class)
Item 1. Business
General
Peoples Financial Services Corp. (the "Company") was incorporated under the laws of the Commonwealth of Pennsylvania on February 6, 1986 and is a one-bank holding company headquartered in Hallstead, Pennsylvania.
The Company is engaged primarily in commercial and retail banking services and in businesses related to banking services through its sole subsidiary, Peoples National Bank of Susquehanna County ("PNB" or the "Bank"). PNB was chartered in Hallstead, Pennsylvania in 1905 under the name of The First National Bank of Hallstead. In 1965, the Hop Bottom National Bank (chartered in 1910) merged with and into the First National Bank of Hallstead to form PNB. PNB is currently in its 93rd year of operation.
Market Areas
The PNB market areas are in the northeastern part of Pennsylvania with the primary focus being Susquehanna and Wyoming Counties. Since Susquehanna County borders the State of New York, the southern portion of Broome County, New York is also considered part of the market area of PNB. In addition, parts of Lackawanna, Wayne, and Bradford Counties in Pennsylvania that border Susquehanna and Wyoming Counties are also considered part of the PNB market area.
The PNB market area is situated between the city of Binghamton, Broome County, New York, located to the north and the cities of Scranton, Lackawanna County, Pennsylvania, to the south, and Wilkes Barre, Luzerne County, Pennsylvania to the southwest. Susquehanna County could best be described as a bedroom county with a high percentage of its residents commuting to work in Broome County, New York, or to the Scranton, Pennsylvania area. The southern part of Susquehanna County tends to gravitate south for both employment and shopping while the northern part of the county goes north to Broome County, New York. The western part of Susquehanna County gravitates south and west to and through Wyoming County. Wyoming County is home to a Proctor & Gamble manufacturing facility which employs approximately 3,000 people. This is an economic stimulus to Wyoming County and the surrounding areas.
Both Susquehanna and Wyoming Counties would be considered sparsely populated with many small towns and villages in their makeup. The latest population figures show Susquehanna County at approximately 41,000 and Wyoming County at approximately 30,000 residents. Both counties are experiencing growth, but not robust growth. Interstate 81 runs north and south through the eastern half of Susquehanna County and has brought an influx of people from New Jersey and the Philadelphia area. These people have purchased homes and land to build homes which are used as vacation/recreation retreats and, quite often, become retirement homes.
Farming is, although declining, still an important part of the economies of both Wyoming and Susquehanna Counties. Northeastern Pennsylvania is the source of most of the bluestone quarried in this country and this also is both an important employer in the market area as well as an economic stimulus. Forest products are also a significant part of the economy with many people employed in local sawmills and as independent contractors supplying these mills with raw materials. The Proctor and Gamble plant located in Wyoming County is a paper products plant which uses pulp wood in the process of making its products.
Although employment opportunities are available in the PNB market areas, employment has always tended to lag both the state and the nation.
Based on PNB's experience in real estate lending transactions and the appraisals obtained for such transactions, real estate values have declined somewhat over the last five years in Susquehanna County but this trend appears to be slowing and values are more stable. PNB's presence in Wyoming County, Pennsylvania has been limited to a de novo branch in Nicholson which has been open for five years, and the recent (1997) purchase of branches located in Tunkhannock and Meshoppen, Pennsylvania which are west of Nicholson and closer to the Proctor and Gamble plant. Market values in the newest branch areas are much higher than in the areas where the other branch offices are located.
PNB has four full-service banking offices in Susquehanna County along with a limited services office located in Springville, Pennsylvania which is operated as an adjunct to PNB's office located in Montrose, Pennsylvania. Other offices are located in the borough of Susquehanna Depot, the Hallstead Plaza, Great Bend Township; and the Borough of Hop Bottom; the Montrose office is located in Bridgewater Township, just outside the borough of Montrose boundary. Montrose is the county seat of Susquehanna County. The Administrative/Operations office for the Company and PNB is located in the Borough of Hallstead.
The Nicholson office in Wyoming County is located in the Borough of Nicholson. The Meshoppen Office is located in Meshoppen Township, just east of the Meshoppen Borough. Tunkhannock Borough is the county seat of Wyoming County and also is home to PNB's Tunkhannock office.
Lending and Deposit Activities
Lending Activities.
PNB provides a full range of retail and commercial banking services designed to meet the borrowing and depository needs of small and medium sized businesses and consumers in its market areas. Substantially all of PNB's loans are to customers located within its service areas. PNB has no foreign loans or highly leveraged transaction loans, as defined by the Federal Reserve Board ("FRB"). Substantially all of the loans in PNB's portfolio have been originated by PNB. Policies adopted by the Board of Directors are the basis by which PNB conducts its lending activities. These loan policies grant individual lending officers authority to make secured and unsecured loans in specific dollar amounts; larger loans must be approved by senior officers or various loan committees or by the Board of Directors. PNB's management information systems and loan review policies are designed to monitor lending sufficiently to ensure adherence to PNB's loan policies.
The commercial loans offered by PNB include
(i) commercial real estate loans, (ii) working capital,
equipment, and other commercial loans, (iii) construction loans,
(iv) SBA guaranteed loans, and (v) agricultural loans. PNB's
commercial real estate loans are used to provide permanent
financing for retail, manufacturing and farming operations. They
are also used for multi-family housing units and churches.
Commercial real estate secured loans are generally written for a
term of 15 years or less or amortized over a longer period with
balloon payments at shorter intervals. Personal guarantees are
obtained on nearly all commercial loans. Credit analyses, loan
review, and an effective collections process are also used to
minimize any potential losses. PNB employs two full-time
commercial lending officers. These two people are augmented by
branch managers who are authorized to make smaller, less complex,
commercial loans.
Consumer loans offered by PNB include (i) residential
real estate loans, (ii) automobile loans, (iii) manufactured
housing loans, (iv) personal installment loans secured and
unsecured for almost any purpose, (v) student loans, and
(vi) home equity loans (fixed-rate term and open ended revolving
lines of credit).
Residential mortgage products include adjustable-rate as well as conventional fixed-rate loans. Terms vary from 1, 5, 7 and 10-year adjustable rate loans to 5, 10, 15, 20, and 30-year fully amortized fixed rate loans. Bi-weekly payment plans are also available. Up to this point all real estate loans have been held in PNB's loan portfolio, but the longer term fixed rate loans have been underwritten as conforming and may be sold to the secondary market to reduce interest rate risk. Personal secured and unsecured revolving lines of credit with variable interest rates and principal amounts ranging from $1,000 to $10,000 are offered to credit-worthy customers. The largest segment of PNB's installment loan portfolio is fixed-rate loans. Most are secured either by automobiles, motorcycles, snowmobiles, boats or other personal property or by liens filed against real estate. These loans are generally available in terms of up to 15 years with automobile loans having maturities of up to 60 months and real estate loans having maturities up to 15 years. Loans secured by other collateral usually require a maturity of less than 60 months. Home equity products include both fixed-rate term products and also an open-end revolving line of credit with a maximum loan-to-value ratio of 80% of current appraisal. Credit checks, credit scoring, and debt-to-income ratios within preset parameters are used to qualify borrowers.
Lending volume increased substantially in 1997 as our presence in Wyoming County was expanded by the purchase of branch offices in Tunkhannock and Meshoppen, Pennsylvania. Loans were not included in the assets purchased in these transactions. A great number of loan customers at the Tunkhannock and Meshoppen branch offices desired to continue making payments at the same offices so throughout the year loans were transferred via new applications for credit at PNB. At the same time, a general push to increase the loan-to-deposit ratio of PNB as a whole was initiated. The general good economy and stable-to-lower interest rate scenario allowed good growth in total loans which ended 1997 up over 18% from year-end 1996. The highest percentage of growth was in personal installment loans and in mortgages. Industry standard debt-to-income ratios and credit checks are used to qualify borrowers on all consumer loans. Managers, assistant managers, and customer service officers have retail lending authorities at each of the full-service branch office locations. PNB has centralized loan administration at its operations/administrative offices where mortgage underwriting and loan review and analysis takes place.
Loan Approval.
Individual loan authorities are established by PNB's Board of Directors upon recommendation by the senior lending officer. In establishing individual's loan authority the experience of the lender is taken into consideration, as well as the type of lending in which the individual is involved. The officers loan committee consists of the President of PNB and the senior lending officer. This committee has the authority to approve loans up to $500,000. The full Board of Directors reviews on a monthly basis, all loans approved by individual lenders and the officers loan committee. All loan requests which are either complex in nature or exceed $500,000 must be analyzed and reviewed by loan administration and presented with recommendation to the full Board of Directors for approval or denial.
PNB generally requires that loans secured by first mortgages or real estate have loan-to-value ratios within specified limits, ranging from 75% for loans secured by raw land to 80% for improved property, with the exception of secondary market programs which allow loan-to-value ratios as high as 95%. In addition, in some instances for qualified borrowers, private mortgage insurance is available for purchase which allows loan- to-value ratios to go as high as 95%. PNB also makes loans secured by second mortgages on real estate. Adjustable rate mortgage products, as well as conventional fixed-rate products, are also available at PNB.
PNB participates in various community development programs and is an active lender in the Pennsylvania Housing Finance Authority program in effort to meet its responsibilities under the Community Reinvestment Act ("CRA"). PNB has consistently been rated "outstanding" in meeting its obligations under the CRA.
Deposit Activities.
PNB also offers a full range of deposit and personal
banking services insured by the Federal Deposit Insurance
Corporation ("FDIC"), including (i) commercial checking and small
business checking products, (ii) cash management services,
(iii) retirement accounts such as Individual Retirement Accounts
("IRA"), retail deposit services such as certificates of deposit,
money market accounts, saving accounts, a variety of checking
account products, automatic teller machines ("ATM's"), point of
sale and other electronic services such as automated clearing
house ("ACH") originations, and (iv) other personal miscellaneous
services such as safe deposit boxes, night depository services,
traveler's checks, merchant credit cards, direct deposit of
payroll and other checks, U.S. Savings Bonds, official bank
checks and money orders. PNB offers credit cards as an agent
bank through another correspondent bank.
The principal sources of funds for PNB are core deposits (demand deposits, interest bearing transaction accounts, money market accounts, savings deposits and certificate of deposit). These deposits are solicited from individuals, businesses, non-profit entities, and government authorities. Substantially all of PNB's deposits are from the local market areas surrounding each of its offices.
Investment Portfolio and Activities
PNB's investment portfolio has several objectives. A key objective is to provide a balance in PNB's asset mix of loans and investments consistent with its liability structure, and to assist in management of interest rate risk. The investments augment PNB's capital position in the risk-based capital formula, providing the necessary liquidity to meet fluctuations in credit demands of the community and also fluctuations in deposit levels. In addition, the portfolio provides collateral for pledging against public funds, and a reasonable allowance for control of tax liabilities. Finally, the investment portfolio is designed to provide income for PNB. In view of the above objectives, the portfolio is treated conservatively by management, and only securities that pass that criteria are purchased.
Competition
PNB operates in a fairly competitive environment, competing for deposits and loans with commercial banks, thrifts, credit unions, and finance and mortgage companies. Some of these competitors possess substantially greater financial resources than those available to PNB. Also, certain of these institutions have significantly higher lending limits then PNB and may provide various services for their customers, such as trust services, mutual funds and annuities, which are not presently available at PNB.
PNB does not maintain data concerning its competitive position within its market area and relies instead on data produced by third parties such as the FDIC. According to the latest statistics available, June 30, 1996, PNB had a 34.3% market share of deposits held by the Susquehanna County branches of financial institutions. On June 30, 1996, the Tunkhannock and Meshoppen offices of PNB were branches of Mellon Bank. Adding those deposits to the deposits of the Nicholson office of PNB, the total market share of deposits held in Wyoming County was 21.1%. The relative position in Susquehanna County was number 2 of 6 commercial banks and in Wyoming County, the position was number 3 of 5 commercial banks and other financial institutions.
Financial institutions generally compete on the basis of rates and service. PNB is subject to increasing competition from credit unions, finance companies, and mortgage companies, which may not be subject to the same regulatory restrictions and taxations as commercial banks. It is anticipated that recent legislation such as the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 may increase those competitive pressures by permitting additional entries into the existing market.
While PNB will seek to remain competitive with interest rates that it charges on its loans and offers on deposits, it also believes that its success has been, and will continue to be, due to its emphasis on community involvement, customer services, and relationships. With consolidation continuing in the financial industry, and particularly in PNB's markets, smaller profitable banks are gaining opportunities where larger institutions exit markets that are only marginally profitable for them. It is the belief of the management of PNB that it can profitably utilize such opportunities to establish a local community bank presence in those areas.
Seasonality
Management does not feel that the deposits or the business of PNB in general are seasonal in nature. The deposits may, however, vary with local and national economic conditions but should not have a material effect on planning and policy making.
Supervision and Regulation
General. Peoples Financial Services Corp. and its subsidiary, Peoples National Bank of Susquehanna County, are extensively regulated under federal and state law. Generally, these laws and regulations are intended to protect depositors, not shareholders. The following is a summary description of certain provisions of certain laws which affect the regulation of bank holding companies and banks. This discussion is qualified in its entirety by reference to applicable laws and regulations. Changes in such laws and regulations may have a material effect on the business and prospects of the Company and PNB.
The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended, and as such, it is subject to regulation, supervision, and examination by the Federal Reserve Bank ("FRB"). The Company is required to file annual and quarterly reports with the FRB and to provide the FRB with such additional information as the FRB may require. The FRB also conducts examinations of the Company.
With certain limited exceptions, the Company is required to obtain prior approval from the FRB before acquiring direct or indirect ownership or control of more than 5% of any voting securities or substantially all of the assets of a bank or bank holding company, or before merging or consolidating with another bank holding company. Additionally, with certain exceptions, any person or entity proposing to acquire control through direct or indirect ownership of 25% or more of any voting securities of the Company is required to give 60 days written notice of the acquisition to the FRB, which may prohibit the transaction, and to publish notice to the public.
Generally, a bank holding company may not engage in any activities other than banking, managing or controlling its bank and other authorized subsidiaries, and providing service to those subsidiaries. With prior approval of the FRB, the Company may acquire more than 5% of the assets or outstanding shares of a company engaging in non-bank activities determined by the FRB to be closely related to the business of banking or of managing or controlling banks. The FRB provides expedited procedures for expansion into approved categories of non-bank activities.
Subsidiary banks of a bank holding company are subject to certain quantitative and qualitative restrictions on extensions of credit to the bank holding company or its subsidiaries, on investments in their securities and on the use of their securities as collateral for loans to any borrower. These regulations and restrictions may limit the Company's ability to obtain funds from PNB for its cash needs, including funds for the payment of dividends, interest and operating expenses. Further, subject to certain exceptions, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of services. For example, PNB may not generally require a customer to obtain other services from itself or the Company, and may not require that a customer promise not to obtain other services from a competitor as a condition to an extension of credit to the customer.
Under FRB policy, a bank holding company is expected to act as a source of financial strength to its subsidiary banks and to make capital injections into a troubled subsidiary bank, and the FRB may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank when required. A required capital injunction may be called for at a time when the holding company does not have the resources to provide it. In addition, depository institutions insured by the FDIC can be held liable for any losses incurred by, or reasonably anticipated to be incurred by, the FDIC in connection with the default of or assistance provided to, a commonly controlled FDIC-insured depository institution. Accordingly, in the event that any insured subsidiary of the Company causes a loss to the FDIC, other insured subsidiaries of the Company could be required to compensate the FDIC by reimbursing it for the estimated amount of such loss. Such cross guarantee liabilities generally are superior in priority to the obligation of the depository institutions to its stockholders due solely to their status as stockholders and obligations to other affiliates.
As a Pennsylvania bank holding company, the Company is subject to various restrictions on its activities as set forth in Pennsylvania law, in addition to those restrictions set forth in federal law. See "Supervision and Regulation - Federal Bank Holding Company Regulation and Structure." Under Pennsylvania law, a bank holding company that desires to acquire a bank or bank holding company that has its principal place of business in Pennsylvania must obtain permission from the Pennsylvania Department of Banking.
The Company's banking subsidiary is a federally- chartered national banking association regulated by the Office of the Comptroller of the Currency ("OCC"). The OCC may prohibit the institution over which it has supervisory authority from engaging in activities or investments that the agency believes constitute unsafe or unsound banking practices. Federal banking regulators have extensive enforcement authority over the institutions they regulate to prohibit or correct activities which violate law, regulation or a regulatory agreement or which are deemed to constitute unsafe or unsound practices.
Enforcement actions may include the appointment of a conservator or receiver, the issuance of a cease and desist order, the termination of deposit insurance, the imposition of civil money penalties on the institution, its directors, officers, employees and institution affiliated parties, the issuance of directives to increase capital, the issuance of formal and informal agreements, the removal of or restrictions on directors, officers, employees and institution-affiliated parties, and the enforcement of any such mechanisms through restraining orders or any other court actions.
PNB is subject to certain restrictions on extensions of credit to executive officers, directors, principal shareholders or any related interests of such persons which generally require that such credit extensions be made on substantially the same terms as are available to third persons dealing with PNB and not involving more than the normal risk of repayment. Other laws tie the maximum amount which may be loaned to any one customer and its related interests to capital levels of the bank.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991, ("FDICIA"), each federal banking agency is required to prescribe, by regulation, non-capital safety and soundness standards for institutions under its authority. The federal banking agencies, including the OCC, have adopted standards covering internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, and compensation fees and benefits. Any institution which fails to meet these standards may be required by the agency to develop a plan acceptable to the agency, specifying the steps that the institutions will take to meet the standards. Failure to submit or implement such a plan may subject the institution to regulatory sanctions. The Company, on behalf of PNB, believes that it meets substantially all the standards which have been adopted. FDICIA also imposed new capital standards on insured depository institutions. See "Supervision and Regulation - Capital Requirements."
Before establishing new branch offices, PNB must meet certain minimum capital stock and surplus requirements and must obtain OCC approval.
Deposit Insurance. As a FDIC member institution, PNB's deposits are insured to a maximum of $100,000 per depositor through the Bank Insurance Fund ("BIF"), administered by the FDIC, and each institution is required to pay semi-annual deposit insurance premium assessments to the FDIC. The BIF assessment rates have a range of zero cents to 27 cents for every $100 in assessable deposits. PNB is presently in the category of banks that pay nothing for deposit insurance.
While PNB presently pays no premiums for deposit insurance, it is subject to assessments to pay the interest on Financing Corporation ("FICO") bonds. [FICO was created by Congress to issue bonds to finance the resolution of failed thrift institutions. Prior to 1997, only thrift institutions were subject to assessments to raise funds to pay the FICO bonds. On September 30, 1996, as part of the Omnibus Budget Act, Congress enacted the Deposit Insurance Funds Act of 1996, which recapitalized the Savings Association Insurance Fund ("SAIF") and provided that BIF deposits would be subject to 1/5 of the assessment to which SAIF deposits are subject for FICO bond payments through 1999. Beginning in 2000, BIF deposits and SAIF deposits will be subject to the same assessment for FICO bonds.] The FICO assessment for PNB for 1998 is $.0126 for each $100 of BIF deposits.
Limitations on Dividends and Other Payments. The Company's current ability to pay dividends is largely dependent upon the receipt of dividends from its banking subsidiary, PNB. Both federal and state laws impose restrictions on the ability of the Company to pay dividends. The FRB has issued a policy statement which provides that, as a general matter, insured banks and bank holding companies may pay dividends only out of prior operating earnings. Under the National Bank Act, a national bank, such as PNB, may pay dividends only out of the current year's net profits and the net profits of the last two years. In addition to these specific restrictions, bank regulatory agencies, in general, also have the ability to prohibit proposed dividends by a financial institution which would otherwise be permitted under applicable regulations if the regulatory body determines that such distribution would constitute an unsafe or unsound practice.
Capital Requirements. The federal banking regulators have adopted certain risk-based capital guidelines to assist in the assessment of the capital adequacy of a banking organization's operations for both transactions reported on the balance sheet as assets and transactions, such as letters of credit, and recourse agreements, which are recorded as off balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as certain US Treasury securities, to 100% for assets with relatively high credit risk, such as business loans.
A banking organization's risk based capital ratios are obtained by dividing its qualifying capital by its total risk adjusted assets. The regulators measure risk-adjusted assets, which include off balance sheet items, against both total qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. "Tier 1", or core capital, includes common equity, perpetual preferred stock (excluding auction rate issues) and minority interest in equity accounts of consolidated subsidiaries, less goodwill and other intangibles, subject to certain exceptions. "Tier 2", or supplementary capital, includes, among other things, limited life preferred stock, hybrid capital instruments, mandatory convertible securities, qualifying subordinated debt, and the allowance for loan and lease losses, subject to certain limitations and less restricted deductions. The inclusion of elements of Tier 2 capital is subject to certain other requirements and limitations of the federal banking agencies. Banks and bank holding companies subject to the risk-based capital guidelines are required to maintain a ratio of Tier 1 capital to risk-weighted assets of at least 4% and a ratio of total capital to risk-weighted assets of at least 8%. The appropriate regulatory authority may set higher capital requirements when particular circumstances warrant. As of December 31, 1997, PNB's ratio of Tier 1 capital to risk-weighted assets stood at 16.57% and its ratio of total capital to risk- weighted assets stood at 17.82%. In addition to risk based capital, banks and bank holding companies are required to maintain a minimum amount of Tier 1 capital to total assets, referred to as the leverage capital ratio, of at least 3%. As of December 31, 1997, PNB's leverage capital ratio was 9.20%.
In August 1995 and May 1996, the federal banking agencies adopted final regulations specifying that the agencies will include, in their evaluations of a bank's capital adequacy, an assessment of the bank's interest rate risk ("IRR") exposure. The standards for measuring the adequacy and effectiveness of a banking organization's IRR management includes a measurement of Board of Directors and senior management oversight, and a determination of whether a banking organization's procedures for comprehensive risk management are appropriate to the circumstances of the specific banking organization. PNB has internal IRR models that are used to measure and monitor IRR. In addition, an outside source also assesses IRR using its model on a quarterly basis. Additionally, the regulatory agencies have been assessing IRR on an informal basis for several years. For these reasons, the Company does not expect the addition of IRR evaluation to the agencies' capital guidelines to result in significant changes in capital requirements for PNB.
Failure to meet applicable capital guidelines could subject a banking organization to a variety of enforcement actions including limitations on its ability to pay dividends, the issuance by the applicable regulatory authority of a capital directive to increase capital and, in the case of depository institutions, the termination of deposit insurance by the FDIC, as well as to the measures described under "Federal Deposit Insurance Corporation Improvement Act of 1991" below, as applicable to under capitalized institutions. In addition, future changes in regulations or practices could further reduce the amount of capital recognized for purposes of capital adequacy. Such a change could affect the ability of PNB to grow and could restrict the amount of profits, if any, available for the payment of dividends to the Company.
Federal Deposit Insurance Corporation Improvement Act
of 1991. In December 1991, Congress enacted FDICIA, which
substantially revised the bank regulatory and funding provisions
of the Federal Deposit Insurance Act and made significant
revisions to several other federal banking statutes. FDICIA
provides for, among other things, (i) publicly available annual
financial condition and management reports for financial
institutions, including audits by independent accountants,
(ii) the establishment of uniform accounting standards by federal
banking agencies, (iii) the establishment of a "prompt corrective
action" system of regulatory supervision and intervention, based
on capitalization levels, with more scrutiny and restrictions
placed on depository institutions with lower levels of capital,
(iv) additional grounds for the appointment of a conservator or
receiver, and (v) restrictions or prohibitions on accepting
brokered deposits, except for institutions which significantly
exceed minimum capital requirements. FDICIA also provides for
increased funding of the FDIC insurance funds and the
implementation of risk based premiums.
A central feature of FDICIA is the requirement that the federal banking agencies take "prompt corrective action" with respect to depository institutions that do not meet minimum capital requirements. Pursuant to FDICIA, the federal bank regulatory authorities have adopted regulations setting forth a five-tiered system for measuring the capital adequacy of the depository institutions that they supervise. Under these regulations, a depository institution is classified in one of the following capital categories; "well capitalized," "adequately capitalized," "under capitalized," "significantly undercapitalized," and "critically undercapitalized." PNB is currently classified as "well capitalized." An institution may be deemed by the regulators to be in a capitalization category that is lower than is indicated by its actual capital position if, among other things, it receives an unsatisfactory examination rating with respect to asset quality, management, earnings or liquidity.
FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a cash dividend) or paying any management fees to its holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to growth limitations and are required to submit capital restoration plans. If a depository fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized. Significantly undercapitalized depository institutions may be subject to a number of other requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and stop accepting deposits from correspondent banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator, generally within 90 days of the date such institution is determined to be critically under capitalized.
FDICIA provides the federal banking agencies with significantly expanded powers to take enforcement action against institutions which fail to comply with capital or other standards. Such actions may include the termination of deposit insurance by the FDIC or the appointment of a receiver or conservator for the institution. FDICIA also limits the circumstances under which the FDIC is permitted to provide financial assistance to an insured institution before appointment of a conservator or receiver.
Interstate Banking Legislation. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 was enacted into law on September 29, 1994. The law provides that, among other things, substantially all state law barriers to the acquisition of banks by out-of-state bank holding companies were eliminated effective September 29, 1995. The law also permits interstate branching by banks effective as of June 1, 1997, subject to the ability of states to opt-out completely or to set an earlier effective date.
Monetary Policy. The earnings of a bank holding company are affected by the policies of regulatory authorities, including the FRB, in connection with the FRB's regulation of the money supply. Various methods employed by the FRB are open market operations in United States Government securities, changes in the discount rate on member bank borrowings and changes in reserve requirements against member bank deposits. These methods are used in varying combinations to influence overall growth and distribution of bank loans, investments, and deposits, and their use may also affect interest rates charged on loans or paid on deposits. The monetary policies of the FRB have had a significant effect on the operating results of commercial banks in the past and are expected to do so in the future.
Employees
As of December 31, 1997, PNB had the equivalent of 76 full-time employees. None of its employees are represented by a collective bargaining unit. PNB considers relations with its employees to be good.
Year 2000 Compliance
Like any other company, advances and changes in available technology can significantly impact the business and operations of PNB. For example, a challenging problem exists as many computer systems worldwide do not have the capability of recognizing the year 2000 or years thereafter. PNB has conducted a comprehensive review of its computer systems to identify the systems that could be affected by the "Year 2000" issue. PNB is utilizing both internal and external resources to identify, correct, and reprogram all systems for year 2000 compliance. It is anticipated that all critical applications will be tested by December 31, 1998. To date, confirmations have been received from all of PNB's primary vendors and management presently does not foresee any problems meeting the December 31 testing deadline. Management has assessed and budgeted the 1998 costs for year 2000 compliance to be $2,000.00.
Item 2. Financial Information
The following selected data are derived from should be read in conjunction with the Company's consolidated financial statements, related notes and other financial information included herein and Management's Discussion and Analysis of Financial Condition and Results of Operations included herein.
SELECTED FINANCIAL DATA
(In thousands of dollars, except per-share data)
Year Ended December 31,
1997 1996 1995 1994 1993
RESULTS FROM OPERATIONS
Interest Income $15,725 $13,446 $12,730 $11,271 $10,442
Interest expense 7,914 6,880 6,373 5,090 4,900
Net Interest Income 7,811 6,566 6,357 6,181 5,542
Provision for Loan Loss 130 220 450 265 270
Net Interest Income after Provision for Loan Loss 7,681 6,346 5,907 5,916 5,272
Non-Interest Income 1,138 824 712 590 665
Non-Interest Expense 4,994 3,603 3,293 3,415 3,249
Income Before Income Taxes 3,825 3,567 3,326 3,091 2,688
Applicable Income Taxes 814 851 838 764 613
Net Income before effect of accounting change 3,011 2,716 2,487 2,328 2,075
Effect of accounting change 0 0 0 0 0
Net Income $3,011 $2,716 $2,487 $2,328 $2,075
======= ======= ======= ====== ======
FINANCIAL CONDITION
Total Assets $228,720 $186,159 $170,181 $157,573 $144,044
Investment securities (including
available for sale) 88,149 72,131 66,383 58,227 51,531
Loans, net of unearned income 126,786 107,150 97,951 92,543 83,859
Allowance for loan losses 1,676 1,664 1,488 1,484 1,248
Deposits 193,592 156,930 147,168 135,897 124,354
Stockholders' Equity 24,642 21,714 20,351 16,899 16,543
PER SHARE DATA
Net Income $3.44 $3.06 $2.79* $2.61* $2.33*
Dividends .84 .68 .50 .48 .43
Stockholder's Equity 28.16 24.46 22.84 18.97 18.57
PERFORMANCE RATIOS
Return on average assets 1.38% 1.52% 1.51% 1.48% 1.47%
Return on average equity 12.20 12.75 12.81 13.24 13.23
Net interest margin on average earning assets 4.19 4.16 4.26 4.30 4.23
Efficiency (non-interest expense/(net
interest income + non-interest income)) 55.81 48.76 46.58 50.44 52.34
LIQUIDITY AND CAPITAL RATIOS
Stockholder 10.77% 11.66% 11.96% 10.72% 11.48%
Risk based:
Tier 1 Capital 16.57 20.82 21.44 20.40 19.23
Total Capital 17.82 22.07 22.69 21.65 20.48
Dividends (% net income) 24.42 22.23 19.94 18.35 18.60
Loans to deposits 64.63 67.22 67.28 67.01 66.43
ASSET QUALITY RATIOS
Allowance for loan losses to total loans 1.32% 1.55% 1.54% 1.60% 1.48%
Allowance for loan loses to non-performing loans 158.49 98.97 106.79 110.19 66.29
Net loan charge-offs to average loans .09 .04 .46 .03 .22
____________
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* Restated to reflect the 3-for-2-stock split effected on May 31, 1995.
Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations
The following discussion is should be read in conjunction with the consolidated financial statements and notes included herein.
Overview
In the past six years, the Company has grown steadily in total assets from $133,933,047 in 1992 to $228,719,915 at year-end 1997, an increase of almost 71%. In December 1992, a branch office was established in Nicholson, Wyoming County which was the first office of PNB to be located outside of Susquehanna County. In March 1997, PNB purchased the real estate, furniture and equipment and most of the deposits of the Tunkhannock and Meshoppen offices of Mellon Bank. These offices are also located in Wyoming County. The premium of 10.125% of the deposits purchased in this transaction amounted to nearly $4 million and will be written off as an expense over 180 months.
Despite 1997 being a year in which deposits were difficult to retain, the branch purchases caused assets to increase almost 23% to end the year at $228,720,000. The growth from 1995 to 1996 was $15,978,000, or 9.4%. Asset growth has been steady and generally above that of peers. The growth has been attained even though the market area has not grown at the same pace. Growth was attained, in part, because of merger activity which created changes in the local market.
Loan growth accelerated in 1997 as market coverage area increased and was up almost 19% over year-end 1996. The loan growth in 1996 was 10.8% over 1995. Net income rose 10.9% in 1997 to $3,011,259 from $2,716,037 in 1996. This increase is in addition to an increase of 9.2% from 1995 to 1996. Year-end 1995 net was $$2,487,220 compared to the December 31, 1996 net income figure of $2,716,037. Return on average assets was down in 1997 to 1.38%. This was due to the branch purchases which raised average assets significantly. Return on average assets was 1.52% for 1996 and 1995. Return on equity remained steady in 1995 and 1996 at 12.81% and 12.75% respectively, and declined slightly in 1997 to 12.20%.
Dividends on common stock rose to $.84 in 1997 from $.68 in 1996, an increase of 23.5%. The increase of dividends from 1995 to 1996 was 36.0% over the 1995 dividend rate of $.50 per share. As a percent of income, dividends rose from 19.9% in 1995, to 22.2% in 1996, to 24.4% in 1997. As of December 31, 1993, PNB adopted a change in accounting method, "Accounting for Investment Securities" whereby certain security investments may be designated "available for sale." Any gain or loss in fair market value must be shown as an adjustment to equity, net of taxes. Because of general market conditions at year-end in each of the past three years, this accounting method caused the equity to adjust to those conditions. In 1995, the effect was negative $82,890, in 1996 it was again negative $345,849, but at year-end 1997, there was a positive adjustment in the amount of $370,569. Except for this equity adjustment, retained earnings continue to be the major source of increases in stockholders' equity.
Net Interest Income
Net interest income is the chief component of the Company's earnings, and it consists of the excess of interest income from earning assets less the expense of interest bearing liabilities. Earning assets consist primarily of loans and investments, while deposits and short-term borrowings represent the major portion of interest bearing liabilities. Changes in the volume and mix of these assets and liabilities, as well as changes in the yields earned and rates paid are determinants of the changes in net interest income. The net interest margin is calculated as tax-equivalent net interest income (income plus the tax savings from tax-exempt loans and investments) divided by average earning assets and represents the Company's net yield on its earning assets.
Net interest income was $7,810,667 in 1997, $6,566,175 in 1996, and $6,356,861 in 1995. These levels represent increases of $1,244,492 over 1996, or 19%, and $209,314, or 3.3%, over 1995. On tax equivalent basis, the respective net interest incomes for 1997, 1996 and 1995 were respectively $8,620,000, $7,163,000 and $6,801,000.
In 1997, the growth in net interest income accelerated because of the growth in loans outstanding and in investments. With good economic conditions and the increase in market area this trend is expected to continue. Net interest margin, however, has come under pressure because of a sustained flat treasury yield curve and increased competition for loans. Net interest margin on a tax equivalent basis increased slightly to 4.19% in 1997 from 4.16% in 1996. In 1995, the net interest margin was 4.26%.
Average earning assets were $205,994,000 in 1997, up 19.5% from $172,381,000 in 1996 which were up 8% from $159,518,000 in 1995. Earning assets made up 94.9% of average assets in 1997 compared to 96.7% in 1996 and 97.1% in 1995. Total interest income on a tax equivalent basis, was $16,534,000 in 1997, up $2,491,000 or 17.7% from $14,043,000 in 1996 which was up $869,000 or 6.67% over 1995. Tax equivalent yields have declined over the past two years from 8.26% in 1995, 8.15% in 1996, to 8.03% in 1997.
Average interest bearing liabilities were $174,743,000 in 1997, up 22.6% from $142,583 in 1996 which were up 7.7% from $132,390,000 in 1995. These funds made up 80.0% of average assets in 1997 compared to 80.1% in 1996 and 80.6% in 1995. Total interest expense was $7,914,000 in 1997 up $1,034,000 or 15% from $6,880,000 in 1996 which was 8% higher than the 1995 level.
During 1995, 1996, and 1997, certificates of deposit were the major source of funds for the company, with money market deposit accounts the next biggest source, followed by savings accounts, non-interest bearing demand deposits and interest bearing demand deposits. Interest rates tend to determine the structure as customers seeking higher returns deposit their discretionary funds in those investments which pay the highest rates. Yields on interest bearing accounts have trended lower the past three years with 1995 at 4.81%, 1996 at 4.83% and 1997 at 4.53%. This pattern closely resembles US Treasury yields on maturities of up to five years because that is generally the manner in which deposit liabilities are priced. The past three years in particular have seen a tremendous amount of interest, followed by investment in, the equity markets via mutual funds. Mutual funds have become significant competition for bank deposits.
Tax equivalent interest income on loans increased by 941,000 in 1997 over 1996 or 10.2%, while average loans increased $11,594,000 or 11.3%. This reflects a slight decline in interest rates which were economic and competitive in nature. In comparing 1996 to 1995 tax equivalent loan interest increased $575,000 or 6.7%, while average loans increased $7,146,000 or 7.5% suggesting the trend mentioned earlier. Tax equivalent yields on loans mirror this trend. In 1995, this yield was 9.05% while it was 8.98% in 1996 and 8.90% in 1997.
The following table illustrates average balances of assets, liabilities and stockholder equity as well as the related income and expense for each item and the average yields and cost for the years 1995 through 1997.
AVERAGE BALANCE SHEETS AND YIELD ANALYSIS
(In thousands)
1997 1996 1995
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
ASSETS
Loans:
Real Estate $75,642 $6,595 8.72% $67,887 $5,953 8.77% $63,824 $5,593 8.76%
Mortgage
Construction
Installment 18,303 1,746 9.54% 13,416 1,289 9.61% 12,146 1,116 9.19%
Commercial 13,809 1,315 9.52% 13,943 1,419 10.18% 14,328 1,513 10.56%
Tax Exempt 6,028 459 7.61% 6,911 524 7.58% 4,744 391 8.24%
Other Loans 337 36 10.68% 378 25 6.61% 337 22 6.53%
Total Loans 114,119 10,151 8.90% 102,525 9,210 8.98% 95,379 8,635 9.05%
Investment securities
available for sale:
Taxable 64,978 4,316 6.64% 52,464 3,546 6.76% 51,073 3,547 6.94%
Non-taxable 24,753 1,947 7.87% 16,702 1,250 7.48% 12,025 932 7.75%
Total securities
available for sale 89,731 6,263 6.98% 69,166 4,796 6.93% 63,098 4,479 7.10%
Investment securities
held to maturity:
Taxable
Non-Taxable
Total securities
held to maturity:
Time deposits with
other banks 423 27 6.38% 22 1 4.55% 99 6 6.06%
Federal funds sold 1,721 93 5.40% 668 36 5.39% 942 54 5.73%
Total Earning Assets 205,994 16,534 8.03% 172,381 14,043 8.15% 159,518 13,174 8.26%
Less: Allowance for
loan losses (1,694) (1,575) (1,418)
Cash and due from banks 4,089 2,915 2,969
Premises and Equipment,
net 3,459 2,617 1,813
Other Assets 5,320 1,574 1,360
Total Assets $217,168 $177,912 $164,242
======== ======== ========
LIABILITIES AND
STOCKHOLDERS EQUITY
Interest-bearing
demand deposits $13,379 230 1.72% $7,748 135 1.74% $7,834 153 1.95%
Regular savings
deposits 28,870 828 2.87% 23,154 648 2.80% 23,806 662 2.78%
Money Market savings
deposits 40,529 1,760 4.34% 29,015 1,389 4.79% 23,611 1,215 5.15%
Time deposits 88,908 4,920 5.53% 80,965 4,627 5.71% 74,840 4,210 5.63%
Total Interest-Bearing 171,686 7,738 4.51% 140,882 6,799 4.83% 130,091 6,240 4.80%
Deposits
Other borrowings 3,057 176 5.76% 1,701 81 4.76% 2,299 133 5.79%
Total Interest-Bearing 174,743 7,914 4.53% 142,583 6,880 4.83% 132,390 6,373 4.81%
Liabilities
Net Interest Spread 8,620 3.50% 7,163 3.32% 6,801 3.45%
===== ==== ===== ==== ===== ====
Non-interest bearing
demand deposits 18,735 13,822 12,176
Accrued expenses and
other liabilities 974 994 913
Stockholders' Equity 22,716 20,513 18,763
Total Liabilities and
Stockholders' Equity $217,168 $177,912 $164,242
======== ======== ========
Net interest income/
earning assets 8.03% 8.15% 8.26%
Net interest expense/
earning assets 3.84% 3.99% 4.00%
assets
Net interest margin 4.19% 4.16% 4.26%
===== ===== =====
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1. Loan fee income is included in interest income for each loan category and yields are stated to include all income earned.
2. Balances of non-accrual loans and related income have been included for computational purposes.
3. Tax-exempt income has been converted to a tax equivalent basis by using an incremental rate of 34%.
The following table describes the impact comparison on net interest income resulting from changes in average balances and rates.
RATE AND VOLUME ANALYSIS
(In thousands)
Years-ended December 31,
1997 to 1996 1996 to 1995
Increase Change Due to Increase Change Due to
(Decrease) Rate Volume (Decrease) Rate Volume
INTEREST INCOME:
Loans:
Real Estate $642 $(39) $681 $360 $5 $355
Consumer 457 (13) 470 173 56 117
Commercial (104) (90) (14) (94) (53) (41)
Tax-exempt (65) 2 (67) 133 (46) 179
Other Loans 11 14 (3) 3 0 3
Total Loans 941 (126) 1,067 (38) 613
Investment securities available
for sale:
Taxable 770 (76) 846 (1) (98) 97
Non-taxable 697 94 603 318 (44) 362
Total securities available for sale 1,467 18 1,449 317 (142) 459
Total securities held to maturity 0 0 0 0 0 0
Time deposits with other banks 26 8 18 (5) (0) (5)
Federal Funds sold 57 0 57 (18) (2) (16)
Total Interest Income 2,491 (100) 2,591 869 (182) 1,051
INTEREST EXPENSE:
Interest-bearing demand deposits 95 (3) 98 (18) (16) (2)
Regular savings deposits 180 20 160 (14) 4 (18)
Money Market Savings deposits 371 (180) 551 174 (104) 278
Time deposits 293 (161) 454 417 72 345
Total Interest-Bearing Deposits 939 (324) 1,263 559 (44) 603
Other borrowings 95 30 65 (52) (17) (35)
Total Interest Expense 1,034 (294) 1,328 507 (61) 568
Net Interest Income $1,457 $194 $1,263 $362 $(121) $483
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(1) For the purpose of this report, the analyses includes non-accruing loans of average balances of $964,315 in 1997 and $1,423,875 in 1996 in the Real Estate portfolio.
(2) Loan fees are included in the above numbers. In 1997, the loan fees collected totaled $196,992. In 1996, the loan fees collected totaled $195,769.26.
(3) Tax-exempt income has been converted to a tax-equivalent basis using an incremental rate of 34%.
Non-Interest Income
Total non-interest income was $1,137,871 in 1997, which was up 38.1% over the 1996 figure of $823,816. Continuing the trend from 1996 being up 15.7% or $111,617 from year-end 1995. Service charges and other customer service fees were the significant contributors to growth in non-interest income the past two years. At $891,489 at year-end 1997, this number was up $209,486 over the previous year or 30.0%. Fees were increased in 1997 and volume was also increased because of the deposits purchased in the Wyoming County acquisitions. The trend was also up in 1996 over 1995 with service charges on deposit accounts and customer fees at $682,003 at year-end 1996 up $66,674, or 10.8% over year-end 1995. Another significant component to non- interest income is gains on investment securities sold. In 1997, this figure was $217,104 compared to a gain of $119,913 in 1996 and a gain of $60,194 in 1995.
Non-Interest Expense
Non-interest expense took a significant jump in 1997 as expenses involved in branch purchases and expenses involved in new computer software and hardware hit the income statement. Total non-interest expense in 1997 was $4,993,660 compared to $3,603,126. The increase of $1,390,534 was 38.6% higher than year-end 1996. In comparison year-end 1996 at $3,603,126 was 9.4% or $309,642 over 1995.
The largest component by far in non-interest expense is salaries and benefits. At year-end 1997, this figure was $2,282,412 which was up $491,932 or 27.5% over 1996. This increase is reflective of the increases in staff which came about with the purchase of the two Wyoming County offices. Another, although less significant factor, was the increase in minimum wage legislation. Although the bank's entry levels were always above the prevailing minimum wage, it was felt that increases were necessary to keep those levels at approximately the same percentage in excess of minimum as they were previously. The increase in salaries and benefits in 1996 over 1995 was 11.3% or $491,932. Growth in all areas of the bank and the commitment of the bank to recognize employees for their efforts contributes to the increases in salaries and benefits. Average assets per employee increased from 2,737,000 in 1995 to 2,870,000 in 1996 and decreased to 2,710,000 in 1997.
Occupancy and equipment expenses also showed sharp increases in 1997 over 1996 because of the purchases of the Wyoming County offices, the computer and equipment purchases and upgrades and the costs associated with the first full year of operation in the expanded Administrative/Operations building. This figure was up almost 50% at $712,389 compared to year-end 1996 at $476,983. Year-end 1995 was $394,660 so 1996 was 20.9% over 1995. Other operating expenses were $1,998,859 in 1997 compared to year-end 1996 at $1,335,663. This is an increase of $663,196 or 49.7%. Professional fees, computer services and supplies, advertising and promotional fees were up significantly and the increases can generally be traced to the branch acquisitions and to computer purchases and upgrades and the costs associated with these changes. In comparison, the difference between 1995 and 1996 on other operating expenses was 3.5% or only an increase of $45,217. Although depreciation will remain high because of the purchase of fixed assets it is expected that non-interest expense should level off in the future because a significant volume of expense in 1997 was one-time only.
Income Taxes
Income tax expense was $813,619 in 1997, $850,828 in 1996 and $838,356 in 1995. The 1997 expense was $37,209 lower than 1996 or 4.4% because of the significant increase in tax-free income received in 1997. The increase of $12,472 in income taxes from 1995 to 1996 was less than 1.5%. In the period 1995 through 1997, net income increased over $524,000 or 21%, while tax expense actually decreased $24,737. This is directly attributable to the increased investment in tax-free securities.
Securities Portfolio
The following table presents the composition of the securities portfolio for the periods indicated:
Investment Securities Portfolio Composition
(In thousands) 1997 1996 1995
US Government Treasury and Agency Obligations $32,513 $22,192 $ 18,567
State and Municipal Obligations 29,474 20,167 16,622
Mortgage-Backed Securities 19,215 23,184 26,318
Other Securities 7,936* 6,588 4,778
Total Investment Securities $89,138 $72,131 $66,285
======= ======= =======
Available For Sale (Fair Value) $89,138 $72,131 $66,285
Held to Maturity (Amortized Cost) 0 0 0
Total Investment Securities $89,138 $72,131 $66,285
======= ======= =======
*Includes CD's with other banks
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Total balances in the investment portfolio at year-end were $88,149,000 in 1997, $72,131,000 in 1996, and $66,285,000 in 1995. The portfolio expanded by 22.2% in 1997 generally because of the purchase of the deposit liabilities of the two new Wyoming County branches. while growing the loan portfolio was the desired approach to utilize the new deposits, it was understood that doing so would take some time. In the meantime, use of investments was the approach taken to provide maximum interest rate spread opportunities. Maturities were chosen to best fit the anticipated growth in the loan portfolio. Investments purchased in the three years reflect the Company's strategic goal of quality, liquidity, and income production. Emphasizing this strategy, the investment portfolio components showing growth are US Government Treasury and agency obligations and State and Municipal obligations. US Treasuries and Agencies generally supply the liquidity needs and states and municipal obligations provide more of the tax equivalent income needs. Rates have been stable and the treasury yield curve flatter than normal in the past three years as inflation fears have not been prevalent. During such times it is difficult to attain interest rate spreads. Yield gains by maturity extensions are not available as well as ill advised given relatively short deposit maturities which make up a significant part of liabilities. Tax-free investments have shown a greater tax-equivalent rate spread than most other investments during this three-year period and because of that, more of these investments have been purchased for the portfolio. Increased tax-free investment income has resulted in less federal income taxes being paid in 1997 than in 1995. There has been a general decline in interest rates in 1997 which has a positive effect on the market value of the investment portfolio and at year-end, the portfolio showed an appreciation of $561,468. The total portfolio had an average maturity of 7.57 years on December 31, 1997 compared with 9.76 years on December 31, 1996 and 8.93 years on December 31, 1995.
The Financial Accounting Standards Board issued Statement of Financial Accounting Standard no. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115") in 1993, requiring securities to be classified according to a bank's ability and intent to hold securities until maturity. Any instruments for which a company wishes to reserve the right to sell prior to maturity must be classified as available for sale, and their carrying values must be regularly adjusted to fair value with an offsetting adjustment, net of taxes, to stockholders' equity. This change was implemented on December 31, 1993. In order to provide the maximum portfolio flexibility, 100% of the portfolio has been designated as available for sale for the years 1997, 1996, and 1995. Many factors influence interest rates and, in turn, the fair value or market value of the portfolio. These changes were reflected in net of taxes adjustments to stockholders' equity on a quarterly basis. At year-end 1997, there was a positive adjustment of $370,669 while year-end 1996 saw a negative adjustment of $345,849 and there also was a negative adjustment of $82,890 at year-end 1995.
For the types of investment purchases at PNB, interest rate risk is considered to be moderate and price fluctuations can be compared to US Treasury securities with similar weighted average maturities. There is an active and well-established secondary market for all portfolio investments.
The following table sets forth the maturity distribution and weighted average yields of the investment portfolio as of December 31, 1997. The weighted average yields are calculated on the basis of carrying value of the securities and their related interest income adjusted for the amortization of premium and accretion of discount. Yields on tax-exempt securities have been computed on a tax equivalent basis assuming a federal tax rate of 34%.
MATURITY OF THE INVESTMENT SECURITIES PORTFOLIO
1 Year or Less 1-5 Years 5-10 Years Over 10 Years Totals
(In thousands)
Book Average Book Average Book Average Book Average Book Average
Value Yield Value Yield Value Yield Value Yield Value Yield
HELD TO MATURITY
US Government Treasury $1,000 5.93% $5,471 6.39% $1,000 6.25% $0 0% $11,471 16.34%
US Government Agency 0 0% 8,395 6.58% 9,670 7.36% 2,812 7.27% 20,877 7.03%
State, County & Municipal
Obligations 1,370 7.21% 6,976 7.93% 3,953 7.32% 16,592 7.92% 28,891 7.81%
Mortgage-backed
Securities 0 0% 1,624 6.87% 550 6.23% 17,136 6.60% 19,310 6.61%
Equity Securities 1,853 6.22% 500 6.50% 1,998 6.39% 3.679 6.50% 8,030 6.41%
Total Available for Sale $4,223 6.47% $26,966 6.88% $17,171 7.14% $40,219 7.18% $88,579 7.05%
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Loan Portfolio
Total loans outstanding on December 31, 1997 were $126,786,000 compared with $107,150,000 on the same date in 1996 and $97,951,000 in 1995. The loan portfolio represented 55.4% of the total assets on December 31, 1997 compared with 57.6% on both December 31, 1996 and December 31, 1995.
PNB's loan portfolio is composed of commercial loans, residential loans, and consumer loans. The commercial portfolio represents 11.7% of the total portfolio and is comprised of lines of credit, local municipal loans, equipment loans, and notes for various purposes, including working capital. A significant portion of commercial loans are secured by real estate and are carried in the real estate mortgage component of the portfolio. This combined component represents 75.9% of the total portfolio. Only a minimal number of mortgages have a loan to value ratio greater than 80%. Private mortgage insurance is required for those loans with higher loan to value ratios. At year-end 1997, all mortgages were kept "in house" although a percentage of those portfolio loans have been underwritten in anticipation of future sale. The consumer portfolio makes up the remaining 12.6% of the portfolio. Included in the consumer portfolio are direct installment loans for purposes such as vehicle purchases, debt consolidations, home improvements, and other personal needs. Home equity loans are also a part of the consumer portfolio. PNB does not engage in foreign lending nor does it engage in speculative real estate and land development lending. The primary areas of lending are Susquehanna and Wyoming Counties, Pennsylvania and these areas which border those counties yet gravitate by trade to Susquehanna and Wyoming Counties.
Some risk is involved in all types of lending. PNB, however, attempts to manage that risk to minimize potential losses on its portfolio. Concentration is considered minimal with the exception of real estate mortgages which include commercial real estate. Although property values have declined slightly, risk is not considered to be substantial unless there were to be major economic crisis in the future. Financial analysis is used as a tool to identify potential risk in commercial loans. Residential loans are generally well secured. Standard debt to income ratios are adhered to, and loan to value ratios greater than 80% require Private Mortgage Insurance again reducing risk. A large segment of the consumer portfolio is secured by motor vehicles. The use of debt to income ratios and credit bureau reports assist in the approval process. Delinquent accounts are worked quickly to minimize losses in all components in the loan portfolio.
The following table summarizes the composition of the loan portfolio at the periods indicated:
LOAN PORTFOLIO
December 31,
(In thousands) 1997 1996 1995 1994 1993
Commercial $14,796 $9,787 $10,920 $9,795 $8,897
Real Estate-Construction 9 0 0 0 0
Real Estate-Mortgage 96,192 83,484 73,699 70,959 65,268
Installment 16,035 14,169 13,643 12,113 9,990
Total Loans 127,032 107,440 98,262 92,867 84,155
Deferred Loans (246) (290) (311) (324) (296)
Total Loans (Net of deferred loans) 126,786 107,150 97,951 92,543 83,859
Allowance for Loan Loss (1,676) (1,664) (1,488) (1,484) (1,248)
Net Loans $125,110 $105,486 $96,463 $91,059 $82,611
======== ======== ======= ======= =======
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The table below details the maturity distribution as well as the fixed and variable rate distribution of the loan portfolio as of December 31, 1997:
MATURITY SCHEDULE OF LOANS
One Year Over One, within Over Five Total
or Less Five Years Years Loans
Commercial $16,374 $4,823 $741 $21,938
Real Estate-Construction 9 0 0 9
Real Estate-Mortgage 8,452 35,231 37,473 81,156
Installment 11,023 10,194 2,712 23,929
Total $35,858 $50,248 $40,926 $127,032
======= ======= ======= ========
Total Loans w/Predetermined Rates $26,248 $28,908 $ 7,937 $ 63,093
Total Loans w/Variable Rates 9,610 21,340 32,989 63,939
Total $35,858 $50,248 $40,926 $127,032
======= ======= ======= ========
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ALLOWANCE FOR CREDIT LOSSES AND MANAGEMENT OF CREDIT RISK
A comparative analysis of the allowance for credit losses, including charge-off activity, is presented below:
ALLOWANCE FOR CREDIT LOSSES
1997 1996 1995 1994 1993
Average Total Loans $114,119,000 $102,525,000 $95,379,000 $87,148,000 $79,320,000
============ ============ =========== =========== ===========
Balance, beginning of period 1,663,806 1,487,756 1,483,882 1,248,052 1,161,689
Less Charge-offs:
Commercial 37,791 20,031 301,000 21,522 193,389
Installment 50,197 26,030 122,857 7,835 0
Residential real Estate 61,184 31,035 38,634 52,683 16,995
Total Charge-offs 149,172 77,096 462,491 82,040 210,384
Plus Recoveries:
Commercial 3,900 26,369 1,000 36,565 16,034
Installment 16,655 442 0 8,336 0
Residential Real Estate 10,698 6,335 15,365 7,969 10,713
Total Recoveries 31,253 33,146 16,365 52,870 26,747
Net Charge-offs 117,919 43,950 446,126 29,170 183,637
Provision for Loan Losses 130,000 220,000 450,000 265,000 270,000
Balance, End of Period $ 1,675,867 $ 1,663,806 $ 1,487,756 $ 1,483,882 $ 1,248,052
Allowance for credit losses to 1.32% 1.55% 1.54% 1.60% 1.49%
period-end total loans
Allowance for credit losses to 163.19 107.80 110.29 118.05 72.85
non-accrual loans
Net charge-offs to average loans 0.09 0.04 0.47 0.03 0.23
(annualized)
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The following table reflects the allocation of the allowance for credit losses by loan type. The allowance has been allocated to the various categories of loans. The process considers all "problem loans" including classified, criticized, and monitored loans, and allocates a portion of the reserve to each of these categories. The excess allowances is then considered the unallocated portion. This allocation method is not intended to limit the amount of the allowance available to absorb losses from any specific type of loan and should not be viewed as an indicator of the specific amount or specific categories in which future charge-offs may ultimately occur.
ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES IN DOLLARS
1997 1996 1995 1994 1993
Commercial $ 321,064 $ 687,640 $ 733,507 $ 495,889 $ 368,391
Real Estate construction 139 119 0 0 0
Real Estate mortgage 342,980 197,032 165,479 55,227 5,242
Installment 129,383 117,876 183,721 17,783 19,248
Unallocated portion 882,321 661,139 405,049 914,983 855,171
Total allowance for credit losses $1,675,887 $1,664,806 $1,487,756 $1,483,882 $1,248,052
========== ========== ========== ========== ==========
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The following table breaks down the loan portfolio by category as a percentage of the whole:
LOAN CATEGORIES BY PERCENTAGES
1997 1996 1995 1994 1993
Commercial 11% 9% 11% 11% 11%
Real Estate-Construction 1% 0% 0% 0% 0%
Real Estate-Mortgage 76% 78% 75% 76% 77%
Installment 12% 13% 14% 13% 12%
Total 100% 100% 100% 100% 100%
==== ==== ==== ==== ====
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Any increase in the level of the allowance is warranted
because of the increase in the size of the loan portfolio and the
risk factors of the loans. Management uses detailed analyses of
the portfolio to determine the adequacy of the allowance for
credit losses. Prior loss history along with current trends,
both nationally and locally, are taken into consideration:
(i) specific reserves are established on all classified loans
where a loss seems imminent; (ii) a general reserve is
established on identified problem loans where specific potential
losses are not yet determined, but likely; (iii) smaller reserves
are also established on criticized loans that have identifiable
weaknesses but are not yet classified; and (iv) a general overall
reserve is calculated on the entire remainder of the portfolio by
loan type and included as an unallocated reserve allowance. In
addition, it is the practice of the bank to manage the risk
elements of lending through rigorous credit evaluation of
prospective borrowers, continuous review of the portfolio,
diversification of the types of borrowers, and by maintaining a
well collateralized portfolio.
The following table details information concerning non- accrual and past-due loans, as well as foreclosed assets (other Real Estate owned). It is the policy of the bank to consider a loan not in the process of collection when there is doubt to the full repayment of the principal and interest or when the loan is 90 days past due. When a loan is reclassified non-accrual any previously accrued income is charged against income, and no future income is accrued until performance is restored. More consistent and aggressive collection procedures as well as consistent, yet fair, underwriting has resulted in a decline in non-performing assets from 1993 and especially when comparing 1997 to 1996. The economy in the market area also has a significant effect on non-performing assets. Management believes that the current levels of reserve is sufficient to cover non- performing loans.
Consumer loans are not generally reclassified as non- accrual at this stage but collection procedures are continued. These loans are generally charged off at 120 days past due.
NON-PERFORMING ASSETS
December 31,
1997 1996 1995 1994 1993
Nonaccrual loans $1,026,625 $1,543,397 $1,348,877 $1,257,034 $1,713,796
Restructured loans 0 0 0 0 0
Loans past due 90 or more
days accruing interest 30,765 137,286 44,202 59,619 168,892
Total Non-performing loans 1,057,390 1,681,183 1,393,079 1,346,653 1,882,688
Foreclosed Assets 0 99,000 429,680 100,244 168,740
Total Non-performing assets $1,057,390 $1,775,183 $1,822,759 $1,446,897 $2,051,428
========== ========== ========== ========== ==========
Non-performing loans to
total loans at period end .83% 1.56% 1.44% 1.46% 2.24%
Non-performing assets to
period end total loans plus
foreclosed assets .83% 1.65% 1.85% 1.56% 2.44%
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The loans listed above as non-accruing are significantly past due and are not considered to be in the process of collection. Income was recorded on these loans in 1997 in the amount of $24,900 compared to income anticipated under the original loan agreements of $96,000. In 1996, those amounts were $30,700 and $163,000, respectively. Once the collection is deemed to be unlikely over the foreseeable future, a loan is charged off. Even though a loan is charged off, PNB continues to work with a borrower to collect that loan wherever possible. While management does not anticipate any loss not previously provided for these loans, economic conditions may be such as to necessitate future modifications in the repayment terms.
Deposits
PNB uses deposits as the primary source of funding of its assets and has experienced continuous growth in all measured components. A variety of accounts are offered to individuals, businesses, and non-profit organizations. These accounts, including checking, savings, money market, and certificates of deposit, are obtained primarily from the communities and surrounding areas which are serviced by PNB.
The following table details the average amount, the average rate paid on, and the percent of the total of, the following primary deposit categories for the past three years.
AVERAGE DEPOSIT COMPOSITION AND COST
(In thousands of dollars)
1997 1996 1995
Average % of Average % of Average % of
Balance Rate Total Balance Rate Total Balance Rate Total
Non-interest bearing
demand deposits $18,735 9.84% $13,822 8.93% $12,176 8.56%
Interest-bearing demand
deposits 13,379 1.72% 7.03% 7,748 1.71% 5.01% 7,834 1.95% 5.51%
Regular savings deposits 28,870 2.87% 15.16% 23,154 2.80% 14.97% 23,806 2.70% 16.73%
Money market savings
deposits 40,529 4.34% 21.28% 29,015 4.79% 18.76% 23,611 5.15% 16.60%
Time deposits 89,908 5.53% 46.69% 80,965 5.73% 52.33% 74,840 5.63% 52.60%
Total Interest-
Bearing Deposits 171,686 4.51% 90.16% 140,882 4.83% 91.07% 130,091 4.80% 91.44%
Total Deposits $190,421 4.16% 100.00% $154,704 4.45% 100.00% $142,267 4.48% 100.00%
======== ===== ====== ======== ==== ====== ======== ==== ======
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Total deposits were $193,592,017 on December 31, 1997 as compared to $156,930,353 on December 31, 1996 and $147,168,282 on December 31, 1995. A significant reason for growth in all deposit components in 1997 was the purchase of the two branch offices in Wyoming County. At year-end 1997, non-interest bearing deposits totaled $20,104,376 and interest bearing deposits totaled $173,487,641. The greatest portion of interest bearing deposits was certificates of deposits with an average balance for 1997 of $88,908,000 which was 51.8% of the average total deposits for the year.
The following is a summary of the maturity distribution of certificates of deposit in the amounts of $100,000 or more on December 31, 1997:
MATURITIES OR REPRICING OF CD'S OF $100,000 OR MORE ON DECEMBER 31, 1997
(In thousands of dollars)
Amount Percent
Three months or less $2,356 20.87%
Over three months through six months 3,631 32.16%
Over six months through twelve months 1,788 15.84%
Over twelve months 3,514 31.13%
$11,289 100.00%
======= ======
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Short-Term Borrowings
Short-term borrowings consist of federal funds purchased, repurchase agreements, and borrowings from the Federal Home Loan Bank and the Federal Reserve Bank. Because deposit and loan growth occur at different times throughout the year, it is necessary to have the flexibility to fund loan growth and securities purchases by drawing on credit lines at the Federal Home Loan Bank and by purchasing overnight federal funds from a correspondent bank.
Cash management became an important product for some bank customers in 1997 and as a result, repurchase agreements were introduced as a vehicle to sweep excess funds into each day. Repurchase agreements averaged $2,495,494 in 1997. Federal funds purchased was also used extensively and the average outstanding in 1997 was $1,254,192 while in 1996 the average was $714,123 and in 1995 it was $355,973. An additional source of funds for liquidity purposes was the Federal Home Loan Bank. During 1997, the average outstanding borrowings was $1,251,027 compared to $555,724 in 1996 and $1,419,452 in 1995. At year-end 1997, repurchase agreements were $2,596,742. There were no repurchase agreements outstanding at year-end 1996 or 1995. Borrowings from the Federal Home Loan Bank at year-end 1997 were $5,675,000. At year-end 1996, the total was $6,175,000 compared to $1,000,000 at year-end 1995.
Liquidity
Assuring adequate liquidity involves meeting future cash flow needs. This liquidity can be provided by reducing asset balances and increasing deposits and short-term borrowing, or a combination of both may be employed. Traditionally, PNB has maintained a strong liquidity position because of a concentration of core deposits such as regular savings and checking accounts. A high percentage of money market accounts and certificates of deposit can also be considered core deposits. Federal funds sold is the bank's most liquid earning asset. Other sources include money market instruments and securities classified as available for sale. In addition to these sources, the bank has credit lines of $67.8 million available from correspondent and Federal Home Loan Bank of Pittsburgh.
On December 31, 1997, securities available for sale and federal funds sold totaled $88,149,000 compared to $72,131,000 in 1996 and $66,285,000 in 1995. These funds averaged $91,002,000 in 1997, $68,677,000 in 1996 and $62,898,000 in 1995. In each year, all investment securities were classified as available for sale. Asset liquidity is also provided by managing the maturities of loans, securities, and certificates of deposits.
Interest Rate Sensitivity Analysis
An important element of both earnings performance and the maintenance of sufficient liquidity is maintaining an appropriate balance between rate-sensitive assets and rate- sensitive liabilities. Interest rate sensitivity analysis is the measure of the vulnerability of net interest income to changes in the level of rates. An interest rate sensitivity gap results when assets and liabilities reprice at different intervals. If the gap is negative or liability sensitive, the impact on earnings is negative if rates rise. A positive or asset sensitive gap implies the risk of lower earnings if rates decline. To attempt to offset this risk, PNB regularly forecasts its exposure to rate changes and monitors its performance. In addition, the net interest margin is calculated monthly so that interest rate changes and asset restructuring may be made as needed.
PNB's rate-sensitive position reflects a liability sensitive or negative gap position on a cumulative basis through one year, then shifts to a cumulative asset sensitive or positive gap position beyond one year. This analysis makes several assumptions. First that 10% of interest bearing demand deposit accounts and 10% of regular savings accounts are rate sensitive. Also, it is assumed that the entire third tier (balances of $50,000 or more) of money market deposits are rate sensitive. In addition, principal payments on mortgage backed securities are projected at the average levels experienced over the past 12 months.
The following table illustrates the interest rate sensitivity gap of the bank as of December 31, 1997. This table presents a position that existed at a particular point in time. Although that position can change continually, this position is also similar to other times as well.
INTEREST RATE SENSITIVITY ANALYSIS(1)
Within 3 >3 mos >6 mos >1 year 5 years
months to 6 mos to 1 year to 5 years and over
RATE SENSITIVE ASSETS
Loans 18,414 11,441 10,319 46,672 39,182
Securities 24,595 4,469 4,725 41,556 11,411
Federal funds sold 0 0 0 0 0
Total rate sensitive assets 43,009 15,910 15,044 88,228 50,593
Cumulative rate sensitive assets 43,009 58,919 73,963 162,191 212,784
RATE SENSITIVE LIABILITIES
Interest bearing checking 1,358 0 0 0 12,226
Money market deposits 23,716 2,608 0 0 13,037
Regular savings 2,932 44 258 0 26,131
Certificates of deposits/IRA 17,803 18,470 23,739 29,102 2,064
Short-term borrowings 9,275 0 0 0 0
Total rate sensitive liabilities 55,081 21,122 23,997 29,102 53,458
Cumulative rate sensitive liabilities $55,081 $76,203 $100,200 $129,302 $182,760
Period gap (12,072) (5,212) (8,953) 59,126 (2,865)
Cumulative gap (12,072) (17,284) (26,237) 32,889 30,024
Cumulative rate sensitive assets to 78.08% 77.32% 73.82% 125.44% 116.43%
rate sensitive liabilities
Cumulative gap to total assets (5.48)% (7.56)% (11.47)% 14.38% 13.13%
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(1) The following are assumptions that 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" period 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 of principal for mortgage backed securities are projected by expected cash flows as evidenced by recent history. Repayment of principal for loan categories are projected at expected maturity (amortization) for fixed rate products and the next repricing date for variable rate products.
Gap guidelines for PNB are that for the one year interval, the cumulative rate sensitive assets to rate sensitive liabilities ratio will be between 75% and 125%. The Asset Liability Committee (ALCO) and the Board of Directors reviews this guideline monthly to insure compliance. ALCO reviews their assumptions monthly and determines if the GAP is correctly predicting the net interest margin. In determining risk exposure limits, ALCO considers the nature of PNB's strategies and activities, its past performance, the level of earnings and capital available to absorb potential losses. Historically, PNB's performance has been within the guidelines set for GAP. If it appears that the guidelines may be breached, ALCO would implement actions to be taken to prevent this breach. Some of the strategies used by banks to assure compliance with GAP guidelines are controlling its interest rates, increasing or decreasing the duration of the portfolio, raising additional capital, selling assets to enhance liquidity, and/or implementing hedging and interest rate swaps.
Off-Balance Sheet Risk
In the normal course of business, the company enters into financial commitments with off-balance sheet risk. The company's maximum exposure to accounting loss, based upon the credit risk associated with unfunded loan commitments and letter of credit outstanding is represented by the contract amount of these items as of the dates indicated in the following table:
OFF-BALANCE SHEET RISK
December 31,
(In thousands of dollars) 1997 1996 1995
Commitments to extend credit $1,530,600 $1,304,700 $762,150
Standby letters of credit $ 249,915 $ 272,515 $250,915
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Many of such commitments to extend credit may expire without being drawn upon and, therefore, the total commitment amounts do not necessarily represent future cash flow requirements. In making the commitments, the company applies the same credit standards used in the lending process, and it periodically reassesses the customer's credit worthiness through ongoing credit reviews. The risks associated with making these commitments are also included in the overall credit risk in determining the allowance for possible loan losses.
Capital Management
Banking regulatory authorities have implemented strict capital guidelines directly related to the credit risk associated with an institutions assets. Banks and bank holding companies are required to maintain capital levels based on their "risk- adjusted" assets so that categories of assets with higher defined credit risks will require more capital support than assets with lower risk. Additionally, capital must be maintained to support certain off-balance sheet instruments.
Capital is classified Tier I capital (common stockholders' equity less certain intangible assets) and total capital (Tier I plus the allowance for credit losses). Minimum required levels must at least equal 4% for Tier I capital and 8 % for total capital. In addition, institutions must maintain a minimum of a 3% leverage capital ratio (Tier I capital to average total assets).
The bank's and company's capital position is presented in the following table:
December 31, Regulatory
1997 1996 Requirement
Tier 1 capital to risk weighted assets 16.57% 20.82% 4.00%
Total capital to risk weighted assets 17.82% 22.07% 8.00%
Capital leverage ratio 9.20% 11.99% 3.00%
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Fair Market Value
The Financial Accounting Standards Board, through its statement No. 107 ("FASB 107"), and the FDIC Improvement Act of 1991, require banks to disclose the fair value of all financial instruments. Approximately 90% of the total assets, 95% of total liabilities, and almost all off-balance sheet financial contracts in a depository institution come under the definition. This disclosure is required for banks with assets in excess of $150 million beginning with the 1992 annual report.
The fair market values of all financial instruments held by PNB are disclosed in the footnotes to the financial statements appearing elsewhere herein. For those financial instruments which are traded in active financial markets, the fair value is the market price. For loans and deposits with no quoted prices, FASB 107 provides that the value be determined by means of discounted present value models or option pricing models. The valuing technique employed for each group of instruments is based upon the characteristics of each instrument.
Item 3. Properties
The administrative/operations office of the Company and PNB is located at 50 Main Street, Hallstead, Pennsylvania. PNB's commercial, mortgage and consumer lending operations, as well as its executive offices, marketing department, human resources office, deposit account support services, and data processing department are located in the administrative/operations office. There are eight branch locations, five in Susquehanna County and three in Wyoming County. All offices are owned in fee title by PNB with the exception of the Springville Office, the Hallstead Plaza office and the Meshoppen office. The Springville office, which is located in a convenience store, is leased with approximately 18 months remaining on a lease with renewal options. The Hallstead Plaza and Meshoppen offices are subject to ground leases. Each lease is either long-term or includes renewal options. Current lease payments range from $2,000 to $12,000 annually. Six of the eight offices provide drive-up banking services and five offices have 24-hour ATM services.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table reflects the beneficial ownership of the Company's Common Stock as of January 28, 1998 by directors, executive officers, each person known to management to own beneficially, directly or indirectly, more than 5% of the Company's Common Stock, and all directors and executive officers as a group. Except as otherwise indicated, the persons or entities listed below have sole voting and investment power with respect to all shares shown as beneficially owned by them.
5% Beneficial Owners
Amount and Nature
of Beneficial
Beneficial Owners and Management Ownership Percent of Class
DIRECTORS AND EXECUTIVE OFFICERS
Carl F. Pease 12,000 1.37% (1)
Gerald R. Pennay 8,200 * (2)
John W. Ord 18,502 2.12% (3)
Virginia M. Turner 39,555 4.52%
Thomas F. Chamberlain 1,652 * (4)
Judith Ely Kelly 3,780 * (5)
Jack M. Norris 2,835 * (6)
George H. Stover, Jr. 19,575 2.24% (7)
William S. Crock 1,100 * (8)
Michael S. Karhnak** 2,580 * (9)
Debra E. Dissinger** 2,696 * (10)
All directors and executive officers
as a group (11 persons) 101,407 11.60%
_______________
* Less than 1%
** Executive officers only.
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(1) All shares are held jointly with spouse.
(2) Includes 4,055 shares held jointly with spouse.
(3) All shares are held jointly with spouse. Includes shares owned by the trustee of the Company's Employee Stock Ownership Plan ("ESOP") which have been allocated to Mr. Ord's account.
(4) Includes 270 shares held jointly with spouse.
(5) Includes 1,800 shares held jointly with husband and 30 shares held in custodial account for each of three children.
(6) All shares are held jointly with spouse.
(7) All shares are held jointly with spouse.
(8) All shares are held jointly with spouse.
(9) All shares are held jointly with spouse. Includes shares owned by the trustee of the Company's ESOP which have been allocated to Mr. Karhnak's account.
(10) All shares are held jointly with spouse. Includes shares owned by the trustee of the Company's ESOP which have been allocated to Ms. Dissinger's account.
Item 5. Directors and Executive Officers
The Company's Board of Directors presently consists of 9 members. The Company's Board of Directors is divided into three classes, one-third (as nearly equal in number as possible) of whom are elected annually to serve for a term of three years.
The following table sets forth the name, age and term of office of each executive officer and director of the Company and the principal occupations of such individuals during the past five years. The executive officers are appointed to their respective offices annually. All directors of the Company also serve as directors of PNB. Unless otherwise indicated, the principal occupation listed for a person has been the person's occupation for at least the past five years. Because a majority of persons listed served as officers or directors of PNB prior to the formation of the Company in 1986, the table indicates the earliest year a person became an officer or director for PNB or the Company.
Year Term
Name, Age and Principal Occupations Director or as Director
Position with Company During Past Five Years Officer Since Expires
Carl F, Pease, 66 Retired Director of the 1985 2000
Director, Chairman of Susquehanna County Planning
the Board Commission
Gerald R. Pennay, 62 Owner, Gerald R. Pennay & 1985 1998
Director, Vice Chairman Son Auctioneers
of the Board
John W. Ord, 57 President & CEO of Peoples 1969 2000
Director, President & National Bank
CEO
Virginia M. Turner, 62 Investor 1981 1998
Director, Corporate
Secretary
Thomas F. Chamberlain, 49 Nationwide Insurance Agent 1994 1998
Director
Judith Ely Kelly, 49 State Farm Insurance Agent 1988 1999
Director
Jack M. Norris, 64 Retired Owner, B.K. Norris 1985 1999
Director Distributor (Beverage
Distributorship)
George H. Stover, Jr., 51 Real Estate Appraiser 1992 1999
Director
William S. Crock, 51 President, W. S. Crock & 1992 2000
Director Sons, Inc. (Retail Store)
Michael S. Karhnak, 45 Executive Vice President of 1986 N/A
Vice Pres. & Treasurer Peoples National Bank
Debra E. Dissinger, 43 Executive Vice President of 1985 N/A
Vice Pres. & Asst. Peoples National Bank
Secretary (1997-Present), Senior Vice
President of Peoples National
Bank (1992-1996)
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There are no family relationships among any of the executive officers or directors of the Company. Executive officers of PNB are elected by the Board of Directors on an annual basis and serve at the discretion of the Board of Directors.
Committees of the Board of Directors
At present, the directors of the Company also serve as directors of PNB. There are presently no Board committees of the Company's Board of Directors and committee functions are performed by committees of PNB's Board of Directors.
PNB has an Executive Committee, an Audit Committee, an Asset/Liability Committee, a Human Resources and Marketing Committee, and a Loan Administration Committee.
The Executive Committee consists of John Ord, Carl Pease, Gerald Pennay, and Jack Norris. This committee may exercise the authority of PNB's Board of Directors to the extent permitted by law during intervals between meetings of the Board. This committee may also be assigned other duties by PNB's Board of Directors.
The Audit Committee consists of George Stover, Gerald Pennay, Jack Norris and Judith Kelly. This Committee supervises the compliance and internal audit program of PNB and recommends the appointment of, and serves as the principal liaison between, the Board of Directors and the independent auditors. This committee also reports to the Board of Directors on the general financial condition of PNB.
The Asset/Liability Committee consists of William Crock, Carl Pease, Virginia Turner, and Thomas Chamberlain. This committee helps control PNB's risk position by recommending the allocation of funds within guidelines for rate sensitivity, time deposits, liquidity, Federal Funds borrowing, loans, investments, dividends and tax position. This committee is also responsible for developing such guidelines, guiding PNB's investments, and coordinating PNB's budget process.
The Human Resources Committee consists of Gerald Pennay, Jack Norris, George Stover, and Judith Kelly. This committee is responsible for sound human resources management (e.g., in employment, compensation, and performance appraisals). This committee is also responsible for evaluation, planning and supervision of the marketing of PNB's products and services and also oversees community relations and other public relations activities.
The Loan Administration Committee consists of Jack Norris, Gerald Pennay, George Stover, and Judith Kelly. This committee assists PNB's Board of Directors in discharging its responsibility for the lending activities of PNB by reviewing loans, lines of credit, and floor plans; and monitoring loan review and compliance. This committee recommends lending authorizations and is responsible for assuring that PNB's loan activities are carried out in accordance with loan policies. This committee is also responsible for ensuring the adequacy of PNB's loan loss reserve.
Item 6. Executive Compensation
The following table sets forth information concerning the annual and long-term compensation for services in all capacities to the Company and PNB for the fiscal years ended December 31, 1997, 1996, and 1995 of the Chief Executive Officer of the Company and PNB. There were no other officers of the Company or PNB who received compensation in excess of $100,000 during any fiscal year.
Summary Compensation Table
Annual Compensation
Other Annual All Other
Name Year Salary Bonus Compensation Compensation
John W. Ord 1997 $103,500 (1) $11,117 -- $24,825 (2)
President,
Chief Executive
Officer
1996 $ 89,000 (3) $32,250 -- $31,879 (4)
1995 $ 89,000 (5) $21,801 -- $28,293 (6)
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(1) Includes Director's fees of $3,500.
(2) Includes Peoples National Bank's contribution to 401 (k) plan of $2,999, ESOP contribution of $4,490, Split Dollar Life Insurance premium payment of $1,504 and Supplemental Employee Retirement Plan contribution of $15,832.
(3) Includes Director's fees of $4,000.
(4) Includes Peoples National Bank's contribution to 401 (k) plan of $1,634, ESOP contribution of $7,555, Split Dollar Life Insurance premium payment of $1,504, and Supplemental Employee Retirement Plan contribution of $21,185.
(5) Includes Director's Fees of $4,000.
(6) Includes Peoples National Bank's contribution to 401 (k) plan of $1,536, ESOP contribution of $6,010, Split Dollar Life Insurance premium payment of $1,504 and Supplemental Employee Retirement Plan contribution of $19,242.
Compensation of Directors
Directors of the Company do not receive compensation in
such capacity. Directors of PNB, however, receive compensation
for serving on the Board of Directors in the following amounts:
(i) $200 per month for the Chairman of the Board, (ii) $250 per
Board meeting for all directors with a maximum of two meetings
missed and paid for between annual meetings, and (iii) $150 for
each director for each committee meeting and branch board meeting
that they attend.
Compensation Committee Interlocks and Insider Participation
The Executive Committee of the Board of Directors of PNB serves as the compensation committee of PNB. The members of this committee are John Ord, Carl Pease, Gerald Pennay, and Jack Norris. Mr. Ord is the current CEO and President of Peoples National Bank. While Mr. Ord was specifically excluded from any Committee discussion concerning his own compensation, he does participate in the Committee's discussion concerning other key executive's compensation.
Management Committee Compensation Report
The compensation of the CEO and other officers of PNB is determined by the Executive Committee of the Board of Directors of PNB. This committee sets compensation guidelines intended to provide suitable rewards for individual performance and to tie such performance to increased stockholder value. The compensation paid is designed to attract, retain and reward executive officers who are capable of leading the Company and PNB in achieving its business objectives in an industry characterized by complexity, competitiveness and constant change. The compensation of PNB's key executives is reviewed and approved by the Board of Directors upon recommendation of PNB's Executive Committee.
Total compensation for PNB's Chief Executive Officer and other key executive officers consists of base salary, short and long-term incentives and perquisites.
The guidelines and factors considered by the Committee in determining compensation include corporate profitability measured by return on assets, stock price, asset quality, loan loss reserve levels, market-share, regulatory capital strength, cost control, and regulatory examination.
Annually, at year end, the Committee reviews the base compensation and benefit levels of the CEO and other executive officers. Each officer's compensation is based on their individual contribution to the Company and PNB, and their meeting of the goals and objectives as set forth in the strategic plan of the Company and PNB. To ensure that the compensation and benefits are reasonable and competitive, the Committee compares the compensation awarded to executive officers of the Company and PNB with those of executive officers of similarly sized and situated banks and thrift institutions in the Mid-Atlantic region.
Executive Committee
John W. Ord, Carl F. Pease,
Gerald R. Pennay, Jack M. Norris
Employment and Other Contracts
In February 1997, the Company entered into an employment agreement with John W. Ord, President and Chief Executive Officer of the Company. The agreement is for an initial three-year term and is renewed annually for a three-year term unless notice of nonrenewal is given by either party in which case the agreement will expire at the end of the existing term.
The agreement provides for a base salary of $100,000 per year and for such incentive bonuses as may be awarded to the executive under any incentive compensation plan which may be in effect or otherwise in the discretion of the Board of Directors. If the executive's employment is terminated without "cause" (as defined in the agreement) or the executive terminates his employment for "good reason" (as defined in the agreement) following a "change in control" of the Company, the executive becomes entitled to severance benefits under the agreement. "Good reason" includes a reduction in title, responsibilities, or authority, a reassignment which requires the executive to move his principal residence, a reduction in salary, or a failure to provide the executive with comparable benefits following a "change in control." If any such termination occurs following a "change in control," the executive will be entitled generally to a lump-sum payment equal to 2.0 times the sum of his highest annual compensation in the prior three years plus certain pension and welfare benefits received in the relevant year.
Mr. Ord's agreement contains provisions restricting his ability to compete with the Company under certain circumstances following termination of his employment.
In February 1997, the Company also entered in severance agreements with two other executive officers of the Company, Michael S. Karnhak, Vice President and Treasurer, and Debra E. Dissinger, Vice President, which provided for certain severance benefits in the event the executive's employment is terminated or the executive resigns for specified reasons following a "change in control" of the Company. Under these agreements, the executive would be entitled generally to a severance benefit equal to 2.0 times the executive's average annual compensation for the five years preceding the year of termination. No benefits are payable under these agreements in the event the executive's employment is terminated for any reason prior to a "change in control." The specified reasons for termination under these agreements are substantially similar to the events of "good reason" contained in Mr. Ord's agreement.
PNB also maintains an excess benefit plan for Mr. Ord. Under this plan, which is a nonqualified plan, Mr. Ord will receive a supplemental payment necessary to provide him with an annual retirement benefit, together with payments received under PNB's pension plan, employee stock ownership plan, and 401)k) plan, equivalent to 90% of his average salary for the three years prior to his retirement, subject to certain adjustments. PNB has obtained a life insurance policy (designating PNB as beneficiary) on the life of Mr. Ord in an amount intended to cover PNB's obligations under the plan, based on certain actuarial assumptions relating to life expectancy. The amount charged to PNB's operations with respect to this plan for the years ended December 31, 1997, 1996 and 1995 was $15,832, $21,185, and $19,242, respectively.
Pension Plan
PNB's Pension Plan is available to PNB employees who have attained age 21, and have completed one year of service. Employees do not contribute to the plan. Each year, PNB contributes under the plan an actuarially determined amount for distribution to eligible employees at their retirement. Benefits are payable at normal retirement (age 65) and early retirement (age 55). Disability benefits are payable at age 55 with vesting at five years. The following table shows the annual retirement benefits payable at normal retirement (age 65) under PNB's plan for a range of compensation levels and years of service. The amounts are based on an employee who became a participant in 1997 and will have the service and salary at normal retirement.
YEARS OF SERVICE
Salary 10 20 30 $ 25,000 $2,000 $ 4,000 $ 6,000 $ 50,000 $4,000 $ 8,000 $12,000 $ 75,000 $6,000 $12,000 $18,000 $100,000 $8,000 $16,000 $24,000 |
Item 7. Certain Relationships and Related Transactions
Certain directors and officers of the Company or PNB, and their respective associates, were customers of and had transactions with PNB in the ordinary course of business during the Company's fiscal year ended December 31, 1997. Similar transactions may be expected to take place in the future. Such transactions included deposit products and extensions of credit in the ordinary course of business 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 risks of collectability or present other unfavorable features.
Item 8. Legal Proceedings
None.
Item 9. Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is not listed on an exchange or quoted on the National Association of Securities Dealers, Inc. Automated Quotation system (NASDAQ). The Company's Common Stock is traded sporadically in the over-the-counter market and, accordingly, there is no established public trading market at this time. The investment firm of Hopper Soliday and Co., Inc., Lancaster, Pennsylvania, makes a limited market in the Company's Common Stock. The following table reflects high bid and low asked prices for shares of the Company's Common Stock to the extent such information is available, and the dividends declared with respect thereto during the preceding two years.
1997 1996
Price Range Dividends Price Range Dividends
Low High Declared Low High Declared
1st Qtr. $32.00 $34.00 $.20 $28.50 $30.00 $.16
2nd Qtr. 34.00 36.00 .20 30.00 31.00 .16
3rd Qtr. 36.00 41.00 .20 31.00 32.00 .16
4th Qtr. 41.00 44.00 .24 32.00 32.00 .20
|
As of December 31, 1997, the approximate number of holders of record of the Company's Common Stock was 570. At such date, 874,330 shares of Common Stock were outstanding.
The Company's Board of Directors of Directors reviews its dividend policy at least annually. The amount of dividends, while in the sole discretion of the Board of Directors, depends, in part, on earnings, capital requirements, federal and state laws, regulations and policies and other factors, including the performance of PNB. The Company's ability to pay dividends is also subject to the restrictions imposed by Pennsylvania law. Generally, under Pennsylvania law, a business corporation, such as the Company, may pay dividends to the extent that the value of its assets (determined by the Board of Directors) exceeds the value of its liabilities.
Item 10. Recent Sales of Unregistered Securities
None.
Item 11. Description of Registrant's Securities to be Registered
The holders of the Company's Common Stock are entitled to share ratably in dividends when and if declared by the Company's Board of Directors from funds legally available therefor.
Each holder of the Company's Common Stock has one vote for each share held of record on each matter presented for consideration by Company's shareholders. The Company's shareholders are not entitled to cumulate votes in the election of directors.
The holders of the Company's Common Stock have no preemptive rights to acquire any additional shares of the Company.
In the event of liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, holders of the Company's Common Stock will be entitled to share ratably in any of its assets or funds that are available for distribution to its shareholders after the satisfaction of its liabilities (or after adequate provision is made therefor) and after payment of any liquidation preferences of any outstanding preferred stock.
The Bylaws of the Company provide for a "classified" Board of Directors of between nine (9) and twenty-five (25) members, which number is fixed by the Board of Directors, divided into three classes, serving for terms of three years each. In the event of a Board vacancy, the Bylaws provide that the sole power to fill such vacancy is vested in the Company's Board of Directors, and any such new director shall serve out the full term of the former director. The election of directors for staggered terms significantly extends the time required to make any change in control of the Company's Board of Directors and may tend to discourage any surprise and hostile takeover bid for control of the Company. The staggered terms also have the effect of increasing the number of votes required to elect a director. Under the Company's Bylaws, it will take at least two annual meetings for holders of a majority of the Company's voting securities to make a change in control of the Company's Board because only a minority (approximately one-third) of the directors will be elected at such meeting. In addition, because certain actions require more than majority approval of the Board, as described herein, it may take as many as three annual meetings for a controlling block of the Company's shareholders to obtain complete control of the Board, and thereby of the Company's management.
The Company's Articles of Incorporation provide that any merger, consolidation, sale of assets or similar transaction involving the Company and any other entity or person, and any liquidation or dissolution of the Company, will require the affirmative vote of holders of at least 75% of the Company's outstanding voting stock. The Company's Articles provide, however, that any such transaction will require approval by the affirmative vote of holders of a majority of the outstanding voting stock of the Company if such transaction is approved in advance by 66-2/3% of the Board of Directors of the Company. Thus, if a transaction is approved by 66-2/3% of the Board, a majority vote of the shareholders is necessary to approve the transaction, but if the Board does not approve the transaction, a 75% shareholder approval requirement will apply.
The Company's Bylaws vest the authority to make, alter, amend, or repeal the Bylaws of the Company in the holders of 75% of the Company's Common Stock or in the Board of Directors, acting by a majority vote except with respect to alteration, amendment or repeal of the By-law provision providing for a "classified" Board of Directors which would require the vote of at least 75% of the members of the Board of Directors. The right of the Board to make, alter, repeal or amend the Bylaws is always subject to the right of holders of at least 75% of the Company's voting stock to change such action.
The Pennsylvania Business Corporation Law provides that the Articles of Incorporation of a Pennsylvania corporation (such as the Company) may be amended by the affirmative vote of a majority of the votes cast at a meeting at which a quorum of shareholders is present, except as otherwise provided by such corporation's articles of incorporation. The Company's Articles of Incorporation, however, provide that the provisions requiring a supermajority vote in the event of a proposed merger, sale of assets, liquidation or other similar transaction and the provision permitting the Board to consider noneconomic factors in a tender or other acquisition offer for the Company's securities can only be amended by an affirmative vote of holders of at least 75% of the outstanding voting stock of the Company unless approved by the affirmative vote of 66-2/3% or more of the members of the Board of Directors in which case only majority shareholder approval is required.
Item 12. Indemnification of Directors and Officers
The Bylaws of the Company provide for
(1) indemnification of directors, officers, employees and agents
of the Company and its subsidiaries and (2) the elimination of a
director's liability for monetary damages, each to the fullest
extent permitted by Pennsylvania law. Pennsylvania law provides
that a Pennsylvania corporation may indemnify directors,
officers, employees and agents of the corporation against
liabilities they may incur in such capacities for any action
taken or any failure to act, whether or not the corporation would
have the power to indemnify the person under any provision of
law, unless such action or failure to act is determined by a
court to have constituted recklessness or willful misconduct.
Pennsylvania law also permits the adoption of a Bylaw amendment,
approved by shareholders, providing for the elimination of a
director's liability for monetary damages for any action taken or
any failure to take any action unless (1) the director has
breached or failed to perform the duties of his office and
(2) the breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness. The Company's shareholders
approved Bylaw amendments adopting these provisions at the 1987
Annual Meeting of Shareholders.
Item 13. Financial Statements and Supplementary Data
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Peoples Financial Services Corp.
And Subsidiary
We have audited the accompanying consolidated balance sheets of Peoples Financial Services Corp. and Subsidiary as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Peoples Financial Services Corp. and Subsidiary as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles.
February 11, 1998
/s/ Prociak and Associates PROCIAK AND ASSOCIATES, L.L.C. Wilkes-Barre, Pennsylvania |
PEOPLES FINANCIAL SERVICES CORP.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
|
December 31, December 31,
1997 1996
ASSETS
Cash and due from banks $ 2,401,332 $ 1,672,682
Interest-bearing deposits in other banks 3,147,371 1,395,892
Investment securities available for sale 88,149,054 72,131,211
Loans 126,852,708 107,265,269
Less: Unearned income (67,188) (115,308)
Allowance for loan losses (1,675,887) (1,663,806)
Net loans 125,109,633 105,486,155
Premises and equipment 3,756,300 2,972,312
Accrued interest receivable 1,776,908 1,429,957
Other assets 4,379,317 1,070,891
Total assets $228,719,915 $186,159,100
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 20,104,376 $ 13,780,637
Interest bearing 173,487,641 143,149,716
Total deposits 193,592,017 156,930,353
Short-term borrowings 9,274,834 6,712,918
Accrued interest payable 662,696 599,245
Other liabilities 546,445 203,006
Total liabilities 204,075,992 164,445,522
Stockholders' equity:
Common stock, par value $5 per share,
5,000,000 shares authorized; 874,330
and 875,905 shares issued and
outstanding at December 31,
1997 and 1996, respectively 4,455,000 4,455,000
Surplus 4,455,000 4,455,000
Undivided profits 15,912,129 13,636,162
Unrealized gain (loss) on securities
available for sale, net of applicable
deferred income taxes 370,569 (345,849)
Less: treasury stock, at cost (16,670 in
1997 and 15,095 in 1996) (548,775) (486,735)
Total stockholders' equity 24,643,923 21,713,578
Total liabilities and stockholders'
equity $228,719,915 $186,159,100
|
See notes to financial statements
PEOPLES FINANCIAL SERVICES CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
Interest income:
Interest and fees on loans $ 9,995,843 $ 9,031,697 $ 8,501,984
Interest and dividends on investments:
Taxable 4,255,842 3,491,090 3,432,158
Tax exempt 1,285,145 824,995 614,807
Dividends 60,533 55,257 44,622
Interest on deposits in other banks 34,684 7,333 13,326
Interest on trading account securities -0- -0- 68,625
Interest on federal funds sold 92,678 35,367 54,554
Total interest income 15,724,725 13,445,739 12,730,076
Interest expense:
Interest on deposits 7,737,668 6,798,796 6,240,687
Interest on short-term borrowings 176,390 69,958 84,328
Interest on long-term borrowings -0- 10,810 48,200
Total interest expense 7,914,058 6,879,564 6,373,215
Net interest income 7,810,667 6,566,175 6,356,861
Provision for loan losses 130,000 220,000 450,000
Net interest after provision
for loan losses 7,680,667 6,346,175 5,906,861
Other income:
Service charges and customer
service fees 891,489 682,003 615,329
Other income 29,278 21,900 36,676
Investment securities gains, net 217,104 119,913 60,194
Total other income 1,137,871 823,816 712,199
Other expenses:
Salaries and employee benefits 2,282,412 1,790,480 1,608,378
Occupancy expense, net 323,532 225,251 199,102
Equipment expense 388,857 251,732 195,558
FDIC insurance and assessments 81,410 55,730 211,144
Professional fees and outside services 192,530 182,974 80,515
Computer service and supplies 359,024 223,917 205,066
Taxes, other than payroll and income 203,719 183,332 167,786
Other operating expenses 1,162,176 689,710 625,935
Total other expense 4,993,660 3,603,126 3,293,484
Income before taxes 3,824,878 3,566,865 3,325,576
Provision for income tax 813,619 850,828 838,356
Net income $3,011,259 $2,716,037 $2,487,220
Net income per share $ 3.44 $ 3.06 $ 2.79
|
See notes to financial statements
PEOPLES FINANCIAL SERVICES CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Unrealized
Gain (Loss)
on Securities
Available for Sale
Net of Applicable
Common Undivided Deferred Income Treasury
Stock Surplus Profits Taxes Stock Total
Balance, December 31, 1994 $2,970,000 $2,970,000 $12,502,783 $(1,543,693) $ -0- $16,899,090
Net income, 1995 2,487,220 2,487,220
Cash dividends paid, 1995 ($.56 per share) (495,990) (495,990)
Stock dividend 1,485,000 1,485,000 (2,970,000) -0-
Change in unrealized gain (loss) on
securities available for sale, net
of deferred income taxes of $752,535 1,460,803 1,460,803
Balance, December 31, 1995 4,455,000 4,455,000 11,524,013 (82,890) -0- 20,351,123
Net income, 1996 2,716,037 2,716,037
Cash dividends paid, 1996 ($.68 per share) (603,888) (603,888)
Treasury stock purchase (486,735) (486,735)
Change in unrealized gain (loss) on
securities available for sale, net of
deferred income taxes of $135,463 (262,959) (262,959)
Balance, December 31, 1996 4,455,000 4,455,000 13,636,162 (345,849) (486,735) 21,713,578
Net income, 1997 3,011,259 3,011,259
Cash dividends paid, 1997 ($.84 per share) (735,292) (735,292)
Treasury stock purchase (62,040) (62,040)
Change in unrealized gain (loss) on
securities available for sale, net
of deferred income taxes of $369,063 716,418 716,418
Balance, December 31, 1997 $4,455,000 $4,455,000 $15,912,129 $ (370,569) $(548,775) $24,643,923
========== ========== =========== =========== ========= ===========
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PEOPLES FINANCIAL SERVICES CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
Cash flows from operating activities:
Net income $ 3,011,259 $ 2,716,037 $ 2,487,220
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 639,526 262,387 211,614
Provision for loan losses 130,000 220,000 450,000
(Gain) loss on sale of equipment 4,229 (1,283) -0-
(Gain) loss on sale of other real
estate 5,485 42,467 -0-
Amortization of securities' premiums
and accretion of Discounts (58,454) (4,270) 52,021
Losses (gains) on sale of investment
securities, net (217,104) (119,913) (106,619)
Decrease in trading account
securities -0- -0- 275,594
Deferred income taxes (benefit) 21,630 (72,682) 16,973
(Increase) in accrued interest
receivable (346,951) (183,700) (81,073)
(Increase) decrease in other assets (113,755) 12,507 (99,919)
Increase (decrease) in accrued
interest payable 63,451 (11,998) 76,358
Increase (decrease) in other
liabilities 343,439 (128,431) 109,231
Net cash provided by (used by)
operating activities 3,482,755 2,731,121 3,391,400
Cash flows from investing activities:
Proceeds from sale of available for
sale securities 16,552,440 21,945,795 33,795,336
Proceeds from maturities of available
for sale securities 40,404,500 3,705,000 -0-
Purchase of available for sale
securities (73,639,832) (34,223,967) (46,943,586)
Proceeds from maturities of held
to maturity securities -0- -0- 6,189,000
Purchase of held to maturity
securities 2,026,089 2,551,169 2,220,615
Net increase in loans (19,753,478) (9,201,875) (5,854,428)
Proceeds from sale of premises
and equipment 2,500 2,554 -0-
Purchase of premises and equipment (1,215,313) (1,237,641) (58,171)
Additions to construction
in progress -0- -0- (330,617)
Proceeds from sale of other real
estate 69,251 213,052 -0-
Purchase of intangible assets (3,875,031) -0- -0-
Net cash used in investing
activities (39,428,874) (16,245,913) (12,407,116)
Cash flows from financing activities:
Cash dividends paid (735,292) (603,888) (495,990)
Increase in deposits 36,661,664 9,762,071 11,270,988
Net decrease in long-term borrowing -0- (1,025,000) (25,000)
Net increase (decrease) in short-
term borrowing 2,561,916 6,018,858 (2,275,036)
Purchase of treasury stock (62,040) (486,735) -0-
Net cash provided by financing
activities 38,426,248 13,665,306 8,474,962
Net increase (decrease) in cash
and cash equivalents 2,480,129 150,514 (540,754)
Cash and cash equivalents, beginning
of year 3,068,574 2,918,060 3,458,814
Cash and cash equivalents, end of
year $ 5,548,703 $ 3,068,574 $ 2,918,060
Supplemental disclosures of cash paid:
Interest paid $ 7,850,607 $ 6,867,566 $ 6,296,857
Income taxes paid $ 838,000 $ 1,048,966 $ 544,000
Non-cash investing and financing
activities:
Transfers from loans to real
estate acquired through
foreclosure $ 164,854 $ -0- $ 438,207
Proceeds from sales of foreclosed
real estate financed through
loans $ 108,500 $ 41,000 $ -0-
Total increase (decrease) in
unrealized gain (loss) on
securities available for sale $ (1,085,481) $ 398,422 $ (2,213,338)
Stock dividend $ -0- $ -0- $ 2,970,000
|
See notes to financial statements
PEOPLES FINANCIAL SERVICES CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
Note 1:
Summary of Significant Accounting Policies
The accounting and reporting policies of Peoples Financial Services Corp. and Subsidiary (the "Company") follow generally accepted accounting principles and have been applied on a consistent basis. The more significant accounting policies are summarized below.
Basis of Presentation
The consolidated financial statements include the accounts of Peoples Financial Services Corp. and its wholly owned subsidiary, Peoples National Bank of Susquehanna County. All intercompany accounts and transactions have been eliminated in consolidation.
Nature of Operations
The Company provides a variety of financial services, through the bank, to individuals, small businesses and municipalities through its eight offices located in Hallstead, Hop Bottom, Susquehanna, Montrose, Nicholson, Meshoppen, Tunkhannock and Springville, which are small communities in a rural setting. The Bank's primary deposit products are checking accounts, savings accounts, and certificates of deposit. Its primary lending products are single-family residential loans and loans to small businesses.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for losses on loans and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowances for losses on loans and foreclosed real estate, management obtains independent appraisals for significant properties.
Investment Securities
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," requires investments to be classified and accounted for as either held to maturity, available for sale, or trading account securities based on management's intent at the time of acquisition. Management is required to reassess the appropriateness of such classifications at each reporting date.
The Company classifies debt securities as held to maturity when management has the positive intent and ability to hold such securities to maturity. Held to maturity securities are stated at cost, adjusted for amortization of premium and accretion of discount.
Securities classified as available for sale are those debt securities that the Corporation intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Corporation's assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. Securities available for sale are carried at fair value.
Unrealized gains or losses are reported as increases or decreases in stockholders' equity, net of the related tax effect. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings. Management determines the appropriate classification of securities at the time of purchase and re-evaluates the designations as of each balance sheet date. Equity securities consist primarily of Federal Home Loan Bank and Federal Reserve Bank stock.
Loans
Loans are stated at their outstanding unpaid principal balances net of an allowance for loan losses and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized over the contractual life of the related loan as an adjustment to the yield.
A loan is generally considered impaired when it is probable the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. The accrual of interest is discontinued when the contractual payment of principal and interest has become 90 days past due or management has serious doubts about further collectibility of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. Certain non-accrual loans may continue to perform, that is, payments are still being received. Generally, the payments are applied to principal. These loans remain under constant scrutiny and if performance continues, interest income may be recorded on a cash basis based on management's judgment as to collectibility of principal.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan losses which is charged to operations. Loans, determined to be uncollectible are charged against the allowance account and subsequent recoveries, if any, are credited to the account.
The allowance for loan losses related to impaired loans, that are identified for evaluation, is based on discounted cash flows using the loans' initial effective interest rate or the fair value, less selling costs, of the collateral for certain collateral dependent loans. By the time a loan becomes probable of foreclosure, it has been charged down to fair value, less estimated costs to sell.
The allowance is maintained at a level believed by management to be sufficient to absorb estimated potential credit losses. Management's determination of the adequacy of the allowance is based on periodic evaluations of the credit portfolio, the overall risk characteristics of the various portfolio segments, past experience with losses, the impact of economic conditions on borrowers, and other relevant factors. This evaluation is inherently subjective as it requires material estimates, including the amounts and timing of expected future cash flows on impaired loans, which may be susceptible to significant change in the near term.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight line and various accelerated methods based on estimated useful lives. Maintenance, repairs and minor replacements are expensed when incurred. Gains and losses on routine dispositions are reflected in current operations.
Intangible Assets
Intangible assets are included in other assets and are being amortized over a period of fifteen years using the straight-line method. Amortization for 1997 was $214,931.
Foreclosed Assets Held for Sale
Foreclosed assets held for sale is comprised of property acquired through a foreclosure proceeding or acceptance of a deed-in-lieu of foreclosure and loans classified as in- substance foreclosure. The Company includes such properties in other assets. A loan is classified as in-substance foreclosure when the Company has taken possession of the collateral regardless of whether formal foreclosure proceedings take place. Any excess of the loan balance over the recorded value is charged to the allowance for loan losses. Subsequent declines in the recorded value of the property prior to its disposal and costs to maintain the assets are included in other expense. In addition, any gain or loss realized upon disposal is included in other income or expense.
Income Taxes
The provision for income taxes is based on the current and deferred tax consequences of all transactions that have been recognized in the financial statements using the provisions of the enacted tax laws. Deferred income taxes are provided using the liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amount of assets and liabilities and their tax bases.
Advertising Costs
The Company follows the policy of charging marketing and advertising costs to expense as incurred.
Common Stock
Holders of Company Common Stock are entitled to one vote for each share on all matters voted on by shareholders. Holders of Company Common Stock do not have cumulative voting rights in the election of directors.
Holders of Company Common Stock do not have preemptive rights, or any subscription, redemption or conversion privileges. Holders of Company Common Stock are entitled to participate ratably in dividends on the Company Common Stock as declared by the Board of Directors, and are entitled to share ratably in all assets available for distribution to shareholders in the event of liquidation or dissolution of the Company.
Earnings per Common Share
During 1997, the Company adopted the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share (SFAS 128)." SFAS 128 eliminates primary and fully diluted earnings per share and requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share exclude dilution and is computed by dividing income available to common shareholders by the weighted-average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. Prior periods' earnings per share calculations have been restated to reflect the adoption of SFAS No. 128.
SFAS No. 128 requires that, unless there are no potential common shares outstanding, both basic and diluted EPS must be presented including a reconciliation of the numerator and denominator in the computation of basic EPS to the numerator and denominator used for diluted EPS. Since there are no potential common shares outstanding at December 31, 1997, these disclosures were not required.
Earnings per common share are based on the weighted average number of shares outstanding for the period after giving retroactive effect to stock dividends. The weighted average number of shares outstanding was 875,312, 888,034 and 891,000 for 1997, 1996 and 1995, respectively.
Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
The Company adopted SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 125 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. Implementation guidance is provided in SFAS No. 125 for assessing isolation of transferred assets and for accounting for transfers of partial interests, servicing of financial assets, securitizations, transfers of sales-type and direct financing lease receivables, securities lending transactions, repurchase and reverse-repurchase agreements, dollar-roll transactions, wash sales, loan syndications and participations, risk participations in banker's acceptances, factoring arrangements, transfers of receivables with recourse, and extinguishments of liabilities. The accounting and reporting standards of SFAS No. 125 are based on consistent application of financial-components approach that focuses on control.
Under such approach, after a transfer of financial assets, an enterprise recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. SFAS No. 125 provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. The Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996, except as amended in SFAS No. 127, "Deferral of the Effective Date of certain Provisions of FASB Statement No. 125." SFAS No. 125 is to be applied prospectively with earlier or retroactive application prohibited. Specifically, the provisions identified as being deferred under SFAS No. 127 include secured borrowings, collateralizations and transfers of financial assets that are part of repurchase agreements, dollar-rolls, securities lending and similar transactions. The adoption of SFAS No. 125 standards did not have a material effect on operating results. The standards deferred by SFAS No. 127 until 1998 are not expected to have a material effect on operating results or financial position.
Accounting Principles Issued and Not Yet Adopted
In June 1997, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income", which is effective for
years beginning after December 15, 1997. SFAS No. 130 requires
entities presenting a complete set of financial statements to
include details of comprehensive income. Comprehensive income
consists of net income or loss for the current period and income,
expenses, gains and losses that bypass the income statement and
are reported directly in a separate component of equity. The
effect of adopting SFAS No. 130 is not expected to be material to
the Company's financial position or results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which is effective for all periods beginning after December 15, 1997. SFAS No. 131 requires that public business enterprises report certain information about operating segments in complete sets of financial statements of the enterprise and in condensed financial statements of interim periods issued to shareholders. It also requires that public business enterprises report certain information about their products and services, the geographic areas in which they operate, and their major customers. Management is currently evaluating the disclosure impact of SFAS No. 131 on its financial statements.
Cash Flows
For the purpose of cash flow, cash and cash equivalents include cash and due from banks, interest-bearing deposits in other banks and federal funds sold.
Off-Balance Sheet Financial Instruments
In the ordinary course of business, the Company has entered into off-balance sheet financial instruments consisting of commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year's classifications.
Note 2:
Restrictions on Cash and Due from Banks
The Bank is required to maintain average reserve balances with the Federal Reserve Bank based on a percentage of deposits. The required reserve balance at December 31, 1997 and 1996 was $1,005,000 and $588,000, respectively.
Note 3:
Investment Securities
At December 31, 1997 and 1996, the amortized cost and fair values of securities available for sale are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
December 31, 1997
U.S. Treasury securities $11,470,890 $ 166,301 $ -0- $11,637,191
U.S. Government corporate
and agency obligations 20,876,825 120,812 121,375 20,876,262
Obligations of state and
political subdivisions 28,891,549 586,237 3,743 29,474,043
Corporate debt securities 6,177,235 66,907 129,603 6,114,539
Mortgage backed securities 19,339,387 81,942 206,010 19,215,319
Equity securities 831,700 -0- -0- 831,700
$87,587,586 $1,022,199 $460,731 $88,149,054
December 31, 1996
U.S. Treasury securities $ 2,899,624 $ 22,553 $ 113 $ 2,922,064
U.S. Government corporate
and energy obligations 19,553,795 29,033 312,713 19,270,115
Obligations of state and
political subdivisions 20,004,026 240,588 77,785 20,166,829
Corporate debt securities 5,817,041 26,089 186,222 5,656,908
Mortgage backed securities 23,449,838 116,618 382,061 23,184,395
Equity securities 930,900 -0- -0- 930,900
$72,655,224 $ 434,881 $958,894 $72,131,211
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The amortized cost and fair value of securities as of December 31, 1997 by contractual maturity or call date, are shown below. Expected maturities will differ from contractual maturities or call dates because borrowers may have the right to prepay obligations with or without call or prepayment penalties, or elect not to prepay the obligation at call date.
Amortized Fair
Cost Value
Due in one year or less $ 3,915,569 $ 3,921,743
Due after one year through five years 28,878,865 29,217,894
Due after five years through ten years 16,029,816 16,122,793
Due after ten years 18,592,249 18,839,605
67,416,499 68,102,035
Mortgage-backed securities 19,339,387 19,215,319
Equity securities 831,700 831,700
$87,587,586 $88,149,054
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Proceeds from sale of available for sale securities during 1997, 1996 and 1995 were $16,552,440, $21,945,795, and $33,795,336, respectively. Gross gains realized on these sales were $238,070, $251,687, and $191,722, respectively. Gross losses on these sales were $20,966, $131,774, and $85,103, respectively. Realized losses on trading securities amounting to $46,425 were recognized in net income in 1995. Net unrealized gains (losses) on securities available for sale included as a separate component of consolidated stockholders' equity net of tax was $370,569 and $(345,849) in 1997 and 1996, respectively.
On November 15, 1995 the Financial Accounting Standards Board (FASB) published a special report, "A Guide to Implementation of Statement No. 115 on Accounting for Certain Investments in Debt and Equity Securities" (the "Report"). The report included a provision that allowed banks a one-time opportunity to reclassify (at fair value) held-to-maturity securities without calling into question their intent to hold other debt securities to maturity in the future. The reclassification had to be made in conjunction with implementation of the supplemental guidance by December 31, 1995. The bank transferred debt securities with an amortized cost of $18,349,070 from held-to-maturity to available for sale due to management's reassessment of the classification of securities. The securities had an unrealized gain of approximately $229,400. Held-to-maturity securities were also sold for total proceeds of $399,920 resulting in a realized gain of $4,080.
Securities with a carrying value of $22,635,952 and $21,744,599 at December 31, 1997 and 1996, respectively, were pledged to secure public deposits and repurchase agreements as required or permitted by law.
Note 4: Loans
Loans are summarized as follows:
1997 1996
Commercial $ 14,796,511 $ 9,787,504
Real estate 95,953,797 83,193,457
Consumer 16,102,400 14,284,308
Total loans $126,852,708 $107,265,269
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A summary of the transactions in the allowance for loan losses is as follows:
1997 1996 1995
Balance at beginning of
year $1,663,806 $1,487,757 $1,483,883
Provision charged to
operating expenses 130,000 220,000 450,000
Recoveries 31,253 33,146 16,365
Loan charge-offs (149,172) (77,097) (462,491)
Balance at end of year $1,675,887 $1,663,806 $1,487,757
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Information with respect to impaired loans as of and for the years ended December 31, 1997 and 1996 are as follows:
1997 1996
Loans receivable for which there is a
related allowance for loan losses $432,000 $ 963,000
Loans receivable for which there is no
related allowance for loan losses -0- 82,000
Total impaired loans $432,000 $1,045,000
Related allowance for loan losses $ 89,000 $ 386,000
Average recorded balance on these
impaired loans $486,000 $1,100,000
Interest income on these impaired loans $ 7,100 $ 118,000
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In addition, the Bank had other non-accrual loans of approximately $595,000 and $647,000 at December 31, 1997 and 1996, respectively, for which impairment had not been recognized. Interest income on these loans, which is recorded when received, amounted to $24,900 and $30,700 for the years ended December 31, 1997 and 1996, respectively.
Interest income that would have been recorded under the original terms of the loan agreements amounted to $96,000 and $163,000 for the years ended December 31, 1997 and 1996, respectively.
The Bank has no commitments to loan additional funds to borrowers with impaired or non-accrual loans.
Note 5: Premises and Equipment
Premises and equipment at December 31, 1997 and 1996 are comprised of:
1997 1996
Land $ 348,280 $ 298,280
Building and improvements 3,408,074 3,027,282
Furniture, fixtures and equipment 2,713,521 2,107,570
Total 6,469,875 5,433,132
Accumulated depreciation (2,713,575) (2,460,820)
Net $ 3,756,300 $ 2,972,312
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Note 6: Deposits
The carrying amounts of deposits at December 31, consisted of the following:
1997 1996
Demand - non-interest bearing $ 20,104,376 $ 13,780,637
Demand - interest bearing 52,945,190 40,896,069
Savings 29,034,158 21,776,181
Time - $100,000 and over 12,510,000 11,964,463
Time - less than $100,000 78,998,293 68,513,003
$193,592,017 $156,930,353
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At December 31, 1997 and 1996 the time remaining to maturity of time certificates of deposit of $100,000 or more was as follows:
1997
Within 3 months $ 2,356,000
3 to 12 months 5,419,000
One to three years 3,664,000
Over three years 1,071,000
Total $12,510,000
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Interest expense related to time deposits of $100,000 or more was $611,961 in 1997, $653,410 in 1996 and $605,910 in 1995.
Note 7: Short-term Borrowings
Federal funds purchased, securities sold under agreements to repurchase and Federal Home Loan Bank advances generally represent overnight or less than 30-day borrowings. U.S. Treasury tax and loan notes for collections made by the Bank are payable on demand. Short-term borrowings consisted of the following at December 31, 1997 and 1996:
1997 1996
Maximum Maximum
Ending Average Month End Average Ending Average Month End Average
Balance Balance Balance Rate Balance Balance Balance Rate
Federal funds
purchased and
securities sold
under agreements
to repurchase $2,596,742 $1,271,083 $ 4,900,000 5.65% $ -0- $ 714,123 $1,800,000 5.51%
Federal Home Loan
Bank 5,675,000 1,251,027 6,000,000 6.32% 6,175,000 555,724 6,175,000 3.20%
U.S. Treasury tax
and loan notes 1,003,092 535,242 1,107,099 4.74% 537,918 424,301 1,116,693 4.05%
Total $9,274,834 $3,057,352 $12,007,099 5.77% $6,712,918 $1,694,148 $9,091,693 4.49%
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Advances on the flexible line of credit from the FHLB at December 31, 1997 and 1996 were $3,775,000 and $6,175,000, respectively. All advances from FHLB are secured by qualifying assets of the Bank.
Securities sold under repurchase agreements were under the Bank's control.
The Bank has a line of credit for the sale of federal funds with Atlantic Central Bankers Bank of which $-0- were outstanding at December 31, 1997 and 1996, respectively. These borrowings are unsecured.
Note 8: Income Taxes
The components of the provision for income tax are as follows:
1997 1996 1995
Federal
Currently payable $791,989 $923,510 $821,383
Deferred 21,630 (72,682) 16,973
Total provision for income
tax $813,619 $850,828 $838,356
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The deferred tax assets and liabilities resulting from temporary timing differences have been netted to reflect a net deferred tax asset included in other assets in these consolidated financial statements. The components of the net deferred tax assets at December 31, 1997, 1996, and 1995 are as follows:
1997 1996
Deferred tax asset:
Unrealized loss on available for sale
securities $ -0- $178,164
Allowance for loan losses 441,599 437,491
Deferred loan fees 83,680 98,565
Deferred compensation 61,873 56,490
587,152 770,710
Deferred tax liability:
Unrealized gain on available for sale
securities (190,899) -0-
Accretion (51,746) (44,190)
Other (20,129) (11,449)
Total (262,774) (55,639)
Net deferred tax asset $ 324,378 $715,071
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A reconciliation of the provision for income taxes and the amount that would have been provided at statutory rates for the years ended December 31, are as follows:
1997 1996 1995
Provision at statutory
rate $1,300,459 $1,212,734 $1,130,695
Tax exempt interest (561,156) (425,385) (351,586)
Non-deductible expenses 86,990 73,121 67,250
Other, net (12,674) (9,642) (8,003)
Net provision for
income taxes $ 813,619 $ 850,828 $ 838,356
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Note 9: Pension Plan and Other Employee Benefit Plans
The Bank has a noncontributory pension plan covering eligible employees. Benefits are based on the employee's compensation and years of service. The Bank's funding policy is to contribute annually amounts not to exceed the maximum amount deductible for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future.
The following table sets forth the plan's funded status and amounts recognized in the Bank's statement of financial position at December 31, 1997 and 1996.
1997 1996
Actuarial present value of benefit
obligation:
Accumulated benefit obligation
(including vested benefits of
$435,663 and $408,491 in 1997
and 1996, respectively) $ 435,663 $ 413,812
Plan assets at fair value 915,027 868,910
Projected benefit obligation for
services rendered to date (Including
vested benefits of $435,663 and
$408,491 in 1997 and 1996,
respectively) (499,036) (458,277)
Plan assets in excess of projected
benefit obligations 415,991 410,633
Net (gain) loss from past experience
different from that assumed and effects
of changes in assumptions (76,836) (84,716)
Prior service cost not yet recognized in
net periodic pension cost (214,025) (223,144)
Net obligation (asset) being recognized
over 20.89 years (80,710) (86,792)
Prepaid pension cost included in other
assets $ 44,420 $ 15,981
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Net pension cost for the years ended December 31, 1997, 1996 and 1995 included the following components:
1997 1996 1995
Service cost-benefits earned
during the year $ 21,665 $ 19,155 $ 19,933
Interest cost on projected
benefit 37,841 33,098 31,276
Actual return on plan assets (66,638) (96,036) (142,693)
Net amortization and deferral (6,082) (6,082) (6,082)
Prior service cost (9,119) (9,119) (9,119)
Deferred gain (loss) (6,106) 29,324 86,925
Net periodic pension cost $(28,439) $(29,660) $ (19,760)
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The weighted average discount rate and rate on increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation was 8.5% at December 31, 1997 and 1996. The expected long-rate of return on plan assets was 8.5% in 1997, 1996 and 1995.
The Bank has an employee stock ownership plan covering substantially all employees. Contributions to the plan are at the discretion of the Board of Directors. Employer contributions are allocated to participant accounts based on their percentage of total compensation for the plan year. Shares of Bank stock owned by the plan are included in the earnings per share calculation and dividends on these shares are deducted from undivided profits. During 1997, 1996 and 1995, contributions to the plan charged to operations were $65,416, $67,713 and $71,777, respectively.
The Bank also maintains a profit sharing plan under the provisions of Section 401(k) of the Internal Revenue Code. The plan covers substantially all employees who have completed one year of service. Contributions to the plan by the Bank equal 50% of the employee contribution up to a maximum of 6% of annual salary. During 1997, 1996 and 1995, employer contributions to the plan charged to operations were $34,831, $21,252 and $21,139, respectively.
The Bank has an agreement with its chief executive officer to establish an excess benefit retirement plan. The plan is a non-qualified Deferred Compensation Plan in which the Bank is not required to establish a reserve. The Bank has obtained life insurance (designating the Bank as the beneficiary) on the life of the chief executive officer in an amount which is intended to cover the Bank's obligations under the Deferred Compensation Plan, based upon certain actuarial assumptions upon the death of the officer. The cost charged to operations was $15,832, $21,185 and $19,242 for the years ended December 31, 1997, 1996 and 1995, respectively.
Note 10: Commitments and Contingencies
The Bank is obligated under non-cancelable lease agreements for certain bank premises expiring in September 2028. The leases contains a renewal option and provides that the Bank pay property taxes, insurance and maintenance costs.
The following is a schedule by years of future minimum lease payments required under this non-cancelable lease:
Years ended December 31
1998 $ 13,440
1999 17,760
2000 17,760
2001 17,760
2002 17,760
2003 through 2008 121,320
$205,800
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Total rent expense was $12,000 for the years ended December 31, 1997, 1996 and 1995.
Note 11: Financial Instruments with Off-Balance Sheet Risk and Concentration of Credit Risk
The Bank is a party to financial instruments with off- balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. Standby letters of credit commit the Bank to make payments on behalf of customers when certain specified future events occur. Commitments to extend credit are agreements to lend to the customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses. Since many of the commitments are expected to expire in one year or less without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
The Bank's exposure to credit loss is essentially the same for these items as that involved in extending loans to customers. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on balance sheet instruments. Collateral is obtained based on management's credit assessment of the particular customer.
The contract or notional amounts at December 31, 1997 and 1996 were as follows:
1997 1996
Commitments to extend credit $6,450,413 $3,544,638
Standby letters of credit 250,500 272,515
$6,700,913 $3,817,153
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The Bank grants commercial, consumer and residential loans to customers in the Susquehanna/Wyoming County, PA and Broome County, NY areas. Of the total loan portfolio, 76% is for real estate loans, principally residential. It is the opinion of management that this high concentration does not pose any adverse credit risk. Further, it is management's opinion that the remainder of the loan portfolio is balanced and diversified to the extent necessary to avoid any significant concentration of credit.
Note 12: Regulatory Matters
The Bank is subject to the dividend restrictions set forth by the Comptroller of the Currency. Under such restrictions, the Bank may not, without the prior approval of the Comptroller of the Currency, declare dividends in excess of the sum of the current year's earnings (as defined) plus the retained earnings (as defined) from the prior two years. Under this restriction, the Bank, without prior regulatory approval, can declare dividends to the Company totaling $4,575,000, plus an additional amount equal to the net profit for 1998, up to the date any such dividend is declared.
Under Federal Reserve regulations, the Bank is limited as to the amount it may lend to its affiliates, including the Company, unless such loans are collateralized by specified obligations. At December 31, 1997, the maximum amount available for transfer from the Bank to the Company in the form of loans approximated 20% of capital stock and surplus.
The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The 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 maintenance of minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets (as defined). Management believes, as of December 31, 1997, that the Company and Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 1997, the most recent notification from the Office of the Comptroller of the Currency categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk- based, and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed the Bank's category.
The Company and Bank's actual capital ratios as of December 31, and the minimum ratios required for capital adequacy purposes and to be well capitalized under the prompt corrective action provisions are as follows:
To Be Well Capital-
ized Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1997:
Total capital (to risk
weighted assets):
Consolidated $22,167,000 17.84% $9,938,000 8.00% $12,422,000 10.00%
Peoples National Bank $22,132,000 17.82% $9,933,000 8.00% $12,417,000 10.00%
Tier 1 capital (to risk
weighted assets):
Consolidated $20,613,000 16.59% $4,969,000 4.00% $ 7,453,000 6.00%
Peoples National Bank $20,578,000 16.57% $4,967,000 4.00% $ 7,450,000 6.00%
Tier 1 capital (to average
assets):
Consolidated $20,613,000 9.22% $8,947,000 4.00% $11,184,000 5.00%
Peoples National Bank $20,578,000 9.20% $8,947,000 4.00% $11,184,000 5.00%
As of December 31, 1996:
Total capital (to risk
weighted assets):
Consolidated $23,389,000 22.07% $8,476,000 8.00% $10,596,000 10.00%
Peoples National Bank $23,419,000 22.07% $8,488,000 8.00% $10,610,000 10.00%
Tier 1 capital (to risk
weighted assets):
Consolidated $22,060,000 20.82% $4,238,000 4.00% $ 6,357,000 6.00%
Peoples National Bank $22,089,000 20.82% $4,244,000 4.00% $ 6,366,000 6.00%
Tier 1 capital (to average
assets):
Consolidated $22,060,000 10.76% $8,201,000 4.00% $10,252,000 5.00%
Peoples National Bank $22,089,000 11.99% $7,368,000 4.00% $ 9,209,000 5.00%
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Note 13: Related Parties
The Bank has entered into transactions with its directors, significant shareholders and their affiliates (related parties). Such transactions were made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other customers, and did not, in the opinion of management, involve more than normal credit risk or present other unfavorable features. The aggregate amount of loans to such related parties at December 31, 1997 and 1996 was $758,083 and $712,083, respectively. During 1997, $262,106 of new loans and advances on lines of credit were made, and repayments totaled $213,509.
Note 14: Financial Instruments
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the statement of financial condition for cash and cash equivalents approximate those assets fair values.
Investment securities (including trading account securities and mortgage-backed securities): Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.
Loans: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying amounts. The fair values for other loans are estimated using discounted cash flow analysis, based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Loan fair value estimates include judgments regarding future expected loss experience and risk characteristics. The carrying amount of accrued interest receivable approximates its fair value.
Deposits: The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated contractual maturities on such time deposits. The carrying amount of accrued interest payable approximates fair value.
Short-term borrowings: The carrying amounts of short- term borrowings approximate their fair values.
Long-term borrowings: The fair values of the Bank's long-term debt are estimated using discounted cash flow analyses based on the Bank's current incremental borrowing rates for similar types of borrowing arrangements.
Commitments to extend credit and standby letters of credit: These financial instruments are generally not subject to sale, and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment or letter of credit, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar risk, are not considered material for disclosure. The contractual amounts of unfunded commitments and letters of credit are presented in Note 11.
The estimated fair values of the Bank's financial instruments are as follows:
December 31, 1997 December 31, 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial assets:
Cash and due
from banks $ 2,401,332 $ 2,401,332 $ 1,672,682 $ 1,672,682
Interest-bearing
deposits in
other banks 3,147,371 3,147,371 1,395,892 1,395,892
Investment
securities 88,149,054 88,149,054 72,131,211 72,131,211
Loans, net 125,109,633 128,853,451 105,486,155 106,330,931
Accrued interest
receivable 1,776,908 1,776,908 1,429,957 1,429,957
Financial liabilities:
Deposits $193,592,017 $193,621,446 $156,930,353 $156,962,830
Short-term borrowings 9,274,834 9,274,834 6,712,918 6,712,918
Accrued interest
payable 662,696 662,696 599,245 599,245
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The carrying amounts in the preceding table are included in the balance sheet under the applicable captions.
Note 15: Parent Company
The following is financial information for Peoples Financial Services Corp. (Parent Company only):
Balance Sheets
December 31, December 31,
1997 1996
Assets:
Cash $ 101,225 $ 13,265
Investment in bank subsidiary 24,608,305 21,743,285
Total assets 24,709,530 21,756,550
Liabilities:
Due to subsidiary 65,607 42,972
Total liabilities 65,607 42,972
Stockholders' equity:
Common stock 4,455,000 4,455,000
Surplus 4,455,000 4,455,000
Undivided profits 15,912,129 13,636,162
Unrealized gain (loss) on
securities available for sale,
net of applicable income taxes 370,569 (345,849)
Less: Treasury stock (548,775) (486,735)
Total stockholders' equity 24,643,923 21,713,578
Total liabilities and
stockholders' equity $24,709,530 $21,756,550
Statements of Income
1997 1996 1995
Dividends from bank
subsidiary $ 885,292 $1,103,888 $ 495,990
Other expenses 34,296 1,823 102
Income before taxes
and equity in
undistributed
income of
subsidiary 850,996 1,102,065 495,888
Provision for income tax
(benefit) (11,661) (620) (102)
Income before equity
in undistributed
income of
subsidiary 862,657 1,102,685 495,990
Equity in undistributed
income of subsidiary 2,148,602 1,613,352 1,991,230
Net income $3,011,259 $2,716,037 $2,487,220
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Statement of Cash Flows
1997 1996 1995
Cash flows from operating
activities:
Net income $ 3,011,259 $ 2,716,037 $ 2,487,220
Adjustments to reconcile net
income to net cash provided
by operating activities:
Undistributed earnings of
subsidiary (2,148,602) (1,613,352) (1,991,230)
Increase (decrease) in due
to subsidiary 22,635 1,203 0
Net cash provided by
operating activities 885,292 1,103,888 495,990
Cash flows from financing
activities:
Cash dividends paid (735,292) (603,888) (495,990)
Purchase of treasury stock (62,040) (486,735) 0
Net cash used by financing
activities (797,332) (1,090,623) (495,990)
Net increase in cash and cash
equivalents 87,960 13,265 0
Cash and cash equivalents,
beginning of year 13,265 0 0
Cash and cash equivalents, end
of year $ 101,225 $ 13,265 $ 0
Non-cash investing and financing
activities:
Stock dividend $ 0 $ 0 $ 2,970,000
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Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 15. Financial Statements and Exhibits
(a) The following financial statements are being filed as a part of this Registration Statement:
(i) Independent auditor's report;
(ii) Consolidated balance sheets as of December 31, 1997 and 1996;
(iii) Consolidated statements of income for the three years ended December 31, 1997, 1996 and 1995; and
(iv) Consolidated statements of cash flows for the three years ended December 31, 1997, 1996 nd 1995.
(b) The following exhibits are being filed as a part of this Registration Statement:
(3.1) Articles of Incorporation of Peoples Financial Services Corp.
(3.2) Bylaws of Peoples Financial Services Corp.
(10.1) Agreement dated January 1, 1997 between John W. Ord and Peoples Financial Services Corp.
(10.2) Excess Benefit Plan, dated January 14, 1992, for John W. Ord.
(10.3) Termination Agreement dated January 1, 1997 between Michael S. Karhnak and Peoples Financial Services Corp.
(10.4) Termination Agreement dated January 1, 1997 between Debra E. Dissinger and Peoples Financial Services Corp.
(21) Subsidiaries of Peoples Financial Services Corp.
(23) Consent of Independent Auditors.
(27) Financial Data Schedule.
Signatures
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized.
PEOPLES FINANCIAL SERVICES
CORPORATION
By /s/ John W. Ord John W. Ord, President and Chief Executive Officer Date: February 26, 1998 |
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
PEOPLES FINANCIAL SERVICES CORP.
(A PENNSYLVANIA CORPORATION)
1. The name of the corporation is PEOPLES FINANCIAL SERVICES CORP.
2. The registered address of the corporation is 50 Main Street, Hallstead, Susquehanna County, PA 18822.
3. The corporation was incorporated on February 6, 1986 under the provisions of the Business Corporation Law of the Commonwealth of Pennsylvania, Act of May 5, 1933.
4. The aggregate number of shares of capital stock which the corporation shall have authority to issue is Five Million (5,000,000) shares of common stock, $5.00 par value.
5. The term of the corporation's existence is perpetual.
6. The names of the incorporators are John W. Ord, Ward E. Bailey, Robert F. Reddon, and Virginia M. Turner.
7. Except as set forth below, the affirmative vote of shareholders entitled to cast at least 75% of the votes which all shareholders of this corporation are entitled to cast shall be required to approve any of the following transactions:
(i) any merger or consolidation of this corporation with or into any other corporation;
(ii) any share exchange in which a corporation, person or entity acquires the issued or outstanding shares of capital stock of this corporation pursuant to a vote of shareholders;
(iii) any sale, lease, exchange or other transfer of all, or substantially all, of the assets of this corporation to any other corporation, person or entity;
(iv) any complete liquidation or dissolution of this corporation; or
(v) any transaction similar to, or having similar effect as, any of the foregoing transactions.
The Board of Directors of this corporation shall have the power and duty to determine, on the basis of information known to the Board, if any transaction is similar to, or has a similar effect as, any of the transactions identified above in this Article 7. Any such determinations shall be conclusive and binding for all purposes of this Article 7.
The provisions of this Article 7 shall not apply to any transaction which is approved in advance at a meeting of the Board duly called and held for such specific purpose, but only if such transaction is approved at such meeting by at least 66-2/3% of the members of the entire Board. If such Board approval is obtained, then the affirmative vote of shareholders entitled to cast at least a majority of the votes which all shareholders of this corporation are entitled to cast shall be required to approve any such transaction. An affirmative vote as provided in this Article 7 shall be in addition to the vote of shareholders otherwise required by law.
The provisions of this Article 7 may not be repealed, altered or amended, in any respect whatsoever, unless such repeal, alteration or amendment is approved by either (a) the affirmative vote of shareholders entitled to cast at least 75% of the votes which all shareholders of this corporation are entitled to cast or (b) the affirmative vote of at least 66-2/3% of the members of the Board of Directors of this corporation and the affirmative vote of shareholders entitled to cast at least a majority of the votes which all shareholders of this corporation are entitled to cast.
8. Cumulative voting rights shall not exist with respect to the election of directors.
9. (a) The Board of Directors of this corporation, when
evaluating any offer of another party to (i) make a tender or
exchange offer for any equity security of this corporation,
(ii) merge or consolidate this corporation with another
corporation, (iii) purchase or otherwise acquire all or
substantially all of the properties and assets of this
corporation or (iv) engage in any transaction similar to, or
having similar effects as, any of the foregoing transactions,
shall, in connection with the exercise of its judgment in
determining what is in the best interests of this corporation and
its shareholders, give due consideration to all relevant factors,
including without limitation the social and economic effects of
the proposed transaction on the depositors, employees, suppliers,
customers and other constituents of this corporation and its
subsidiaries and on the communities in which this corporation and
its subsidiaries operate or are located, the business reputation
of the other party, and the Board of Directors' evaluation of the
then value of this corporation in a freely negotiated sale and of
the future prospects of this corporation as an independent
entity.
(b) The provisions of this Article 9 may not be
repealed, altered or amended, in any respect whatsoever, unless
such repeal, alteration or amendment is approved by either
(i) the affirmative vote of shareholders entitled to cast at
least 75% of the votes which all shareholders of this corporation
are entitled to cast or (ii) the affirmative vote of at least
66-2/3% of the members of the Board of Directors of this
corporation and the affirmative vote of shareholders entitled to
cast at least a majority of the votes which all shareholders of
this corporation are entitled to cast.
10. The total number of shares of preferred stock that the corporation shall have authority to issue is 500,000 shares, without par value. The preferred stock may be issued from time to time as a class without series, or if so determined by the Board of Directors of the corporation, either in whole or in part in one or more series. There is hereby expressly granted to and vested in the Board of Directors of the corporation authority to fix and determine (except as fixed and determined herein), by resolution, the voting powers, fully or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions thereof, if any, including specifically, but not limited to, the dividend rights, conversion rights, redemption rights and liquidation preferences, if any, of any wholly unissued series of preferred stock (or the entire class of preferred stock if none of such shares have been issued), the number of shares constituting any such series and the terms and conditions of the issue thereof. Prior to the issuance of any shares of preferred stock, a statement setting forth a copy of each such resolution or resolutions and the number of shares of preferred stock of each such class or series shall be executed and filed in accordance with the Pennsylvania Business Corporation Law. Unless otherwise provided in any such resolution or resolutions, the number of shares of capital stock of any such class or series so set forth in such resolution or resolutions may thereafter be increased or decreased (but not below the number of shares then outstanding), by a statement likewise executed and filed setting forth a statement that a specified increase or decrease therein had been authorized and directed by a resolution or resolutions likewise adopted by the Board of Directors of the corporation. In case the number of such shares shall be decreased, the number of shares so specified in the statement shall resume the status they had prior to the adoption of the first resolution or resolutions.
EXHIBIT 3.2
BY-LAWS
OF
PEOPLES FINANCIAL SERVICES CORP.
ARTICLE 1
CORPORATION OFFICE
Section 1.1. The Corporation shall have and continuously maintain in Pennsylvania a registered office which may, but need not, be the same as its place of business and at an address to be designated from time to time by the Board of Directors.
Section 1.2. The Corporation may also have offices at such other places as the Board of Directors may from time to time designate or the business of the Corporation may require.
ARTICLE 2
SHAREHOLDERS' MEETINGS
Section 2.1. All meetings of the shareholders shall be held at such time and place as may be fixed from time to time by the Board of Directors.
Section 2.2. The annual meeting of the shareholders shall be held no later than the thirtieth day of April in each year, when they shall elect a Board of Directors and transact such other business as may properly be brought before the meeting.
Section 2.3. Special meetings of the shareholders may be called at any time by the Chairman of the Board, the President, the Executive Vice President, if any, a majority of the Board of Directors or of its Executive Committee or by shareholders entitled to cast at least twenty percent (20%) of the votes which all shareholders are entitled to cast at the particular meeting. At any time, upon written request of any person or persons who have duly called a special meeting, it shall be the duty of the secretary to fix the date of the meeting, to be held not more than 60 days after the receipt of the request and to give due notice thereof. If the secretary shall neglect or refuse to fix the date of the meeting and give notice thereof, the person or persons calling the meeting may do so.
Section 2.4. Written notice of all meetings, other than adjourned meetings of shareholders, stating the place, date and hour, and, in case of special meetings of shareholders, the purpose thereof, shall be served upon, or mailed, postage prepaid, or telegraphed, charges prepaid, at least ten days before such meeting, unless a greater period of notice is required by statute or by these By-Laws, to each shareholder entitled to vote thereat at such address as appears on the transfer books of the Corporation.
ARTICLE 3
QUORUM OF SHAREHOLDERS
Section 3.1. The presence, in person or by proxy, of shareholders entitled to cast at least a majority of the votes which all shareholders are entitled to cast on the particular matter shall constitute a quorum for purposes of considering such matter, and unless otherwise provided by statute the acts of such shareholders at a duly organized meeting shall be the acts of the shareholders. If, however, any meeting of shareholders cannot be organized because of lack of a quorum, those present, in person or by proxy, shall have the power, except as otherwise provided by statute, to adjourn the meeting to such time and place as they may determine, without notice other than an announcement at the meeting, until the requisite number of shareholders for a quorum shall be present, in person or by proxy, except that in the case of any meeting called for the election of directors such meeting may be adjourned only for periods not exceeding 15 days as the holders, present in person or by proxy, of shares entitled to cast at least a majority of the votes which all shareholders are entitled to cast, shall direct, and those who attend the second of such adjourned meetings, although less than a quorum, shall nevertheless constitute a quorum for the purpose of electing directors. At any adjourned meeting at which a quorum shall be present or so represented, any business may be transacted which might have been transacted at the original meeting if a quorum had been present. The shareholders present, in person or by proxy, at a duly organized meeting can continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum.
ARTICLE 4
VOTING RIGHTS
Section 4.1. Except as may be otherwise provided by statute or by the Articles of Incorporation, at every shareholders' meeting, every shareholder entitled to vote thereat shall have the right to one vote for every share having voting power standing in his name on the books of the Corporation on the record dated fixed for the meeting. No share shall be voted at any meeting if any installment is due and unpaid thereon.
Section 4.2. When a quorum is present at any meeting, the vote of the holders, present in person or by proxy, of shares entitled to cast at least a majority of the votes which all shareholders are entitled to cast, shall decide any question brought before such meeting except as may be otherwise provided by statute or by the Articles of Incorporation.
Section 4.3. Upon demand made by a shareholder entitled to vote at any election for directors before the voting begins, the election shall be by ballot.
ARTICLE 5
PROXIES
Section 5.1. Every shareholder entitled to vote at a meeting of shareholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy. Every proxy shall be executed in writing by the shareholder or his duly authorized attorney-in-fact and filed with the Secretary of the Corporation. A proxy, unless coupled with an interest, shall be revocable at will, notwithstanding any other agreement or any provision in the proxy to the contrary, but the revocation of a proxy shall not be effective until notice thereof has been given to the Secretary of the Corporation. No unrevoked proxy shall be valid after 11 months from the date of its execution, unless a longer time is expressly provided therein, but in no event shall a proxy, unless coupled with an interest, be voted after three years from the date of its execution. A proxy shall not be revoked by the death or incapacity of the maker, unless before the vote is counted or the authority is exercised, written notice of such death or incapacity is given to the Secretary of the Corporation.
ARTICLE 6
RECORD DATE
Section 6.1. The Board of Directors may fix a time, not more than 90 days prior to the date of any meeting of shareholders, or the date fixed for the payment of any dividend or distribution, or the date for the allotment of rights, or the date when any change or conversion or exchange of shares will be made or go into effect, as a record date for the determination of the shareholders entitled to notice of, and to vote at, any such meeting, or entitled to receive payment of any such dividend or distribution, or to receive any such allotment of rights, or to exercise the rights in respect to any such change, conversion or exchange of shares. In such case, only such shareholders as shall be shareholders of record on the date so fixed shall be entitled to notice of, or to vote at, such meeting or to receive payment of such dividend or to receive such allotment of rights or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after any record date fixed as aforesaid. The Board of Directors may close the books of the corporation against transfers of shares during the whole or any part of such period, and in such case written or printed notice thereof shall be mailed at least ten days before closing thereof to each shareholder of record at the address appearing on the records of the Corporation or supplied by him to the Corporation for the purpose of notice. While the stock transfer books of the Corporation are closed, no transfer of shares shall be made thereon. If no record date is fixed by the Board of Directors for the determination of shareholders entitled to receive notice of, and vote at, a shareholders' meeting, transferees of shares which are transferred on the books of the Corporation within ten days next preceding the date of such meeting shall not be entitled to notice of or to vote at such meeting.
ARTICLE 7
VOTING LISTS
Section 7.1. The officer or agent having charge of the transfer books for shares of the Corporation shall make, at least five days before each meeting of shareholders, a complete alphabetical list of the shareholders entitled to vote at the meeting, with their addresses and the number of shares held by each, which list shall be kept on file at the registered office or principal place of business of the Corporation and shall be subject to inspection by any shareholder during the entire meeting. The original transfer books for shares of the Corporation, or a duplicate thereof kept in this Commonwealth, shall be prima facie evidence as to who are the shareholders entitled to exercise the rights of a shareholder.
ARTICLE 8
JUDGES OF ELECTION
Section 8.1. In advance of any meeting of shareholders, the Board of Directors may appoint judges of election, who need not be shareholders, to act at such meeting or any adjournment thereof. If judges of election are not so appointed, the Chairman of any such meeting may, and on the request of any shareholder or his proxy shall, make such appointment at the meeting. The number of judges shall be one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the holders of shares, present in person or by proxy, entitled to cast at least 9 votes which all shareholders are entitled to cast shall determine whether one or three judges are to be appointed. No person who is a candidate for office shall act as a judge. The judges of election shall do all such acts as may be proper to conduct the election or vote, and such other duties as may be prescribed by statute, with fairness to all shareholders, and if requested by the Chairman of the meeting or any shareholder or his proxy, shall make a written report of any matter determined by them and execute a certificate of any fact found by them. If there are three judges of election, the decision, act or certificate of a majority shall be the decision, act or certificate of all.
ARTICLE 9
CONSENT OF SHAREHOLDERS IN LIEU OF MEETING
Section 9.1. Any action required to be taken at a meeting of shareholders, or of a class of shareholders, may be taken without a meeting, if a consent or consents in writing setting forth the action so taken shall be signed by all of the shareholders who would be entitled to vote at a meeting for such purpose and shall be filed with the Secretary of the Corporation.
ARTICLE 10
DIRECTORS
Section 10.1. Any shareholder who intends to nominate or to cause to have nominated any candidate for election to the Board of Directors (other than any candidate proposed by the Corporation's then existing Board of Directors) shall so notify the Secretary of the Corporation in writing not less than 60 days prior to the date of any meeting of shareholders called for the election of directors. Such notification shall contain the following information to the extent known by the notifying shareholder:
(a) the name and address of each proposed nominee;
(b) the age of each proposed nominee;
(c) the principal occupation of each proposed nominee;
(d) the number of shares of the Corporation owned by each proposed nominee;
(e) the total number of shares, to the knowledge of the notifying shareholder, which will be voted for each proposed nominee;
(f) the name and residence address of the notifying shareholder; and
(g) the number of shares of the Corporation owned by the notifying shareholder.
Any nomination for director not made in accordance with this section shall be disregarded by the chairman of the meeting, and votes cast for each such nominee shall be disregarded by the judges of election. In the event that the same person is nominated by more than one shareholder, if at least one nomination for such person complies with this Section, the nomination shall be honored and all votes cast for such nominee shall be counted.
Section 10.2. The number of directors that shall constitute the whole Board of Directors shall be not less than nine nor more than twenty-five. The Board of Directors shall be classified into three classes, each class to be as nearly equal in number as possible and each class to be elected for a term of three years. The terms of the respective classes shall expire in successive years as provided in Section 10.3 hereof. Within the foregoing limits, the Board of Directors may from time to time fix the number of directors and their respective classifications.
Section 10.3. At the 1987 annual meeting of shareholders of the Corporation, the shareholders shall elect nine directors as follows: three Class A directors to serve until the 1988 annual meeting of shareholders, three Class B directors to serve until the 1989 annual meeting of shareholders and three Class C directors to serve until the 1990 annual meeting of shareholders. Each class shall be elected in a separate election. At each annual meeting of shareholders thereafter, successors to the class of directors whose term shall then expire shall be elected to hold office for a term of three years, so that the term of office of one class of directors shall expire in each year.
Section 10.4. The Board of Directors may declare vacant the office of a director if he is declared of unsound mind by an order of court or convicted of a felony or for any other proper cause or if, within 30 days after notice of election, he does not accept such office either in writing or by attending a meeting of the Board of Directors.
ARTICLE 11
VACANCIES ON BOARD OF DIRECTORS
Article 11.1. Vacancies on the Board of Directors, including vacancies resulting from an increase in the number of directors, shall be filled by a majority of the remaining members of the Board of Directors, though less than a quorum, and each person so appointed shall be a director until the expiration of the term of office of the class of directors to which he was appointed.
ARTICLE 12
POWERS OF BOARD OF DIRECTORS
Section 12.1. The business and affairs of the Corporation shall be managed by its Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these By-laws directed or required to be exercised and done by the shareholders.
Section 12.2. The Board of Directors shall have the power and authority to appoint an Executive Committee and such other committees as may be deemed necessary by the Board of Directors for the efficient operation of the Corporation. The Executive Committee shall consist of the Chairman of the Board, if any, the President and not less than two nor more than three other directors (which other directors shall not be employees of the Corporation or any of its subsidiaries). The Executive Committee shall meet at such time as may be fixed by the Board of Directors, or upon call of the Chairman of the Board or the President. A majority of members of the Executive Committee shall constitute a quorum. The Executive Committee shall have and exercise the authority of the Board of Directors in the intervals between the meetings of the Board of Directors as far as may be permitted by law.
ARTICLE 13
MEETINGS OF THE BOARD OF DIRECTORS
Section 13.1. An organization meeting may be held immediately following the annual shareholders' meeting without the necessity of notice to the directors to constitute a legally convened meeting, or the directors may meet at such time and place as may be fixed by either a notice or waiver of notice or consent signed by all of such directors.
Section 13.2. Regular meetings of the Board of Directors shall be held not less often than semi-annually at a time and place determined by the Board of Directors at the preceding meeting. One or more directors may participate in any meeting of the Board of Directors, or of any committee thereof, by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear one another.
Section 13.3. Special meetings of the Board of Directors may be called by the Chairman of the Board or the President on one day's notice to each director, either personally or by mail, telegram or telephone; special meetings shall be called by the Chairman of the Board or the President in like manner and on like notice upon the written request of three directors.
Section 13.4. At all meetings of the Board of Directors, a majority of the directors shall constitute a quorum for the transaction of business, and the acts of a majority of the directors present at a meeting in person or by conference telephone or similar communications equipment at which a quorum is present in person or by such communications equipment shall be the acts of the Board of Directors, except as may be otherwise specifically provided by statute or by the Articles of Incorporation or by these By-laws. If a quorum shall not be present in person or by communications equipment at any meeting of the directors, the directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or as permitted herein.
ARTICLE 14
INFORMAL ACTION BY THE BOARD OF DIRECTORS
Section 14.1. If all the directors shall severally or collectively consent in writing, including but not limited to telegrams and radiograms, to any action to be taken by the Corporation, such action shall be as valid corporate action as though it had been authorized at a meeting of the Board of Directors.
ARTICLE 15
COMPENSATION OF DIRECTORS
Section 15.1. Directors, as such, may receive a stated salary for their services or a fixed sum and expenses for attendance at regular and special meetings, or any combination of the foregoing as may be determined from time to time by resolution of the Board of Directors, and nothing contained herein shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.
ARTICLE 16
OFFICERS
Section 16.1. The officers of the corporation shall be elected by the Board of Directors at its organization meeting and shall be a President, a Secretary and a Treasurer. At its option, the Board of Directors may elect a Chairman of the Board. The Board of Directors may also elect one or more Vice Presidents and such other officers and appoint such agents as it shall deem necessary, who shall hold their offices for such terms, have such authority and perform such duties as may from time to time be prescribed by the Board of Directors. Any two or more offices may be held by the same person.
Section 16.2. The compensation of all officers of the Corporation shall be fixed by the Board of Directors.
Section 16.3. The Board of Directors may remove any officer or agent elected or appointed, at any time and within the period, if any, for which such person was elected or employed whenever in the Board of Directors' judgment it is in the best interests of the Corporation, and all persons shall be elected and employed subject to the provisions thereof. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors.
ARTICLE 17
THE CHAIRMAN OF THE BOARD
Section 17.1. The Chairman of the Board shall preside at all meetings of shareholders and directors. He shall supervise the carrying out of the policies adopted or approved by the Board of Directors. He shall have general executive powers, as well as the specific powers conferred by these By-laws. He shall also have and may exercise such further powers and duties as from time to time may be conferred upon or assigned to him by the Board of Directors.
ARTICLE 18
THE PRESIDENT
Section 18.1. The President shall be the chief executive officer of the Corporation. The President shall (1) have general and active management of the business of the Corporation, (2) see that orders and resolutions of the Board of Directors are put into effect, subject, however, to the right of the Board of Directors to delegate any specific powers, except such as may be by statue exclusively conferred on the president, to any other officer or officers of the Corporation and (3) execute bonds, mortgages and other contracts requiring a seal under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. In the absence or incapacity of the Chairman of the Board, the President shall preside at meetings of the shareholders and directors. If there is no Chairman of the Board, the President shall have and exercise all powers conferred by these By-laws or otherwise on the Chairman of the Board.
ARTICLE 19
THE VICE PRESIDENT
Section 19.1. The Vice President or, if more than one, the Vice Presidents in the order established by the Board of Directors shall, in the absence or incapacity of the President, exercise all powers and perform the duties of the President. The Vice Presidents, respectively, shall also have such other authority and perform such other duties as may be provided in these By-laws or as shall be determined by the Board of Directors or the President. Any Vice President may, in the discretion of the Board of Directors, be designated as "executive," "senior," or by departmental or functional classification.
ARTICLE 20
THE SECRETARY
Section 20.1. The Secretary shall attend all meetings of the shareholders and directors and keep accurate records thereof in one or more minute books kept for that purpose and shall perform the duties customarily performed by the secretary of a corporation and such other duties as may be assigned to the Secretary by the Board of Directors or the President.
ARTICLE 21
THE TREASURER
Section 21.1. The Treasurer shall (1) have the custody of the corporate funds and securities, (2) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and (3) perform such other duties as may be assigned to him by the Board of Directors or the President. He shall give bond in such sum and with such surety as the Board of Directors may from time to time direct.
ARTICLE 22
ASSISTANT OFFICERS
Section 22.1. Each assistant officer shall assist in the performance of the duties of the officer to whom he is assistant and shall perform such duties in the absence of the officer. He shall perform such additional duties as the Board of Directors, the President or the officer to whom he is assistant may from time to time assign. Such officers may be given such functional titles as the Board of Directors shall from time to time determine.
ARTICLE 23
LIMITATION OF DIRECTORS' LIABILITY; INDEMNIFICATION
Section 23.1. To the fullest extent permitted by the Directors' Liability Act (42 Pa. C.S. Section 8361 et seq.) and the Business Corporation Law of the Commonwealth of Pennsylvania, a director of the Corporation shall not be personally liable to the Corporation, its shareholders or others for monetary damages for any action taken or any failure to take any action unless the director has breached or failed to perform the duties of his or her office, as set forth in the Directors' Liability Act, and such breach or failure constitutes self-dealing, willful misconduct or recklessness. The provisions of this Article 23 shall not apply with respect to the responsibility or liability of a director under any criminal statute or the liability of a director for the payment of taxes pursuant to local, state or federal law.
Section 23.2. (a) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative by reason of the fact that such person is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys' fees), amounts paid in settlement, judgments, and fines actually and reasonably incurred by such person in connection with such action, suit, or proceeding; provided, however, that no indemnification shall be made in any case where the act or failure to act giving rise to the claim for indemnification is determined by a court to have constituted willful misconduct or recklessness.
(b) Expenses (including attorneys' fees) incurred in defending a civil or criminal action, suit, or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit, or proceeding, upon receipt of an undertaking by or on behalf of the director, officer, employee, or agent to repay such amount if it shall be ultimately determined that he or she is not entitled to be indemnified by the Corporation as authorized in this Article 23.
(c) The indemnification and advancement of expenses provided by this Article 23 shall not be deemed exclusive of any other right to which persons seeking indemnification and advancement of expenses may be entitled under any agreement, vote of shareholders or disinterested directors, or otherwise, both as to actions in such persons' official capacity and as to their actions in another capacity while holding office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such person.
(d) The Corporation may purchase and maintain insurance on behalf of any person, may enter into contracts of indemnification with any person, may create a fund of any nature (which may, but need not be, under the control of a trustee) for the benefit of any person, and may otherwise secure in any manner its obligations with respect to indemnification and advancement of expenses, whether arising under this Article 23 or otherwise, to or for the benefit of any person, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article 23.
Section 23.3. The limitation of liability provided in
Section 23.1 of this Article 23 and the right to indemnification
provided in Section 23.2 of this Article 23 shall apply to any
action or any failure to take any action occurring on or after
January 27, 1987.
Section 23.4. Notwithstanding anything herein contained to the contrary, this Article 23 may not be amended or repealed and a provision inconsistent herewith may not be adopted, except by the affirmative vote of 80% of the members of the entire Board of Directors or by the affirmative vote of shareholders of the Corporation entitled to cast at least 80% of the votes which all shareholders of the Corporation are then entitled to cast, except that if the Business Corporation Law or the Directors' Liability Act is amended or any other statute is enacted so as to decrease the exposure of directors to liability or to increase the indemnification rights available to directors, officers or others, then this Article 23 and any other provision of these Bylaws inconsistent with such decreased exposure or increased indemnification rights shall be amended, automatically and without any further action on the part of shareholders or directors, to reflect such decreased exposure or to include such increased indemnification rights, unless such legislation expressly requires otherwise. Any repeal or modification of this Article 23 by the shareholders of the Corporation shall be prospective only, and shall not adversely affect any limitation on the personal liability of a director of the Corporation or any right to indemnification from the Corporation with respect to any action or any failure to take any action occurring prior to the time of such repeal or modification.
Section 23.5. If, for any reason, any provision of this Article 23 shall be held invalid, such invalidity shall not affect any other provision not held so invalid, and each such other provision shall, to the full extent consistent with law, continue in full force and effect. If any provision of this Article 23 shall be held invalid in part, such invalidity shall in no way affect the remainder of such provision, and the remainder of such provision, together with all other provisions of this Article 23 shall, to the full extent consistent with law, continue in full force and effect.
ARTICLE 24
SHARE CERTIFICATES
Section 24.1. The share certificates of the Corporation shall be numbered and registered in a share register as they are issued; shall bear the name of the registered holder, the number and class of shares represented thereby, the par value of each share or a statement that such shares are without par value, as the case may be; shall be signed by the President or a Vice President and the Secretary or the Treasurer or any other person properly authorized by the Board of Directors, and shall bear the corporate seal, which seal may be a facsimile engraved or printed. Where the certificate is signed by a transfer agent or a registrar, the signature of any corporate officer on such certificate may be a facsimile engraved or printed. In case any officer who has signed, or whose facsimile signature has been placed upon, any share certificate shall have ceased to be such officer because of death, resignation or otherwise before the certificate is issued, it may be issued by the Corporation with the same effect as if the officer had not ceased to be such at the date of its issue.
ARTICLE 25
TRANSFER OF SHARES
Section 25.1. Upon surrender to the Corporation of a share certificate duly endorsed by the person named in the certificate or by attorney duly appointed in writing and accompanied where necessary by proper evidence of succession, assignment or authority to transfer, a new certificate shall be issued to the person entitled thereto and the old certificate cancelled and the transfer recorded upon the share register of the Corporation. No transfer shall be made if it would be inconsistent with the provisions of Article 8 of the Pennsylvania Uniform Commercial Code.
ARTICLE 26
LOST CERTIFICATES
Section 26.1. Where a shareholder of the Corporation alleges the loss, theft or destruction of one or more certificates for shares of the Corporation and requests the issuance of a substitute certificate therefor, the Board of Directors may direct a new certificate of the same tenor and for the same number of shares to be issued to such person upon such person's making of an affidavit in form satisfactory to the Board of Directors setting forth the facts in connection therewith, provided that prior to the receipt of such request the Corporation shall not have either registered a transfer of such certificate or received notice that such certificate has been acquired by a bona fide purchaser. When authorizing such issue of a new certificate the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his heirs or legal representatives, as the case may be, to advertise the same in such manner as it shall require and/or give the corporation a bond in such form and with surety or sureties, with fixed or open penalty, as shall be satisfactory to the Board of Directors, as indemnity for any liability or expense which it may incur by reason of the original certificate remaining outstanding.
ARTICLE 27
DIVIDENDS
Section 27.1. The Board of Directors may, from time to time, at any duly convened regular or special meeting or by unanimous consent in writing, declare and pay dividends upon the outstanding shares of capital stock of the Corporation in cash, property or shares of the Corporation, as long as any dividend shall not be in violation of law or the Articles of Incorporation.
Section 27.2. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purposes as the Board of Directors shall believe to be for the best interests of the Corporation, and the Board of Directors may reduce or abolish any such reserve in the manner in which it was created.
ARTICLE 28
FINANCIAL REPORT TO SHAREHOLDERS
Section 28.1. The President and the Board of Directors shall present at each annual meeting of the shareholders a full and complete statement of the business and affairs of the corporation for the preceding year.
ARTICLE 29
INSTRUMENTS
Section 29.1. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other persons as the President or the Board of Directors may from time to time designate.
Section 29.2. All agreements, indentures, mortgages, deeds, conveyances, transfers, certificates, declarations, receipts, discharges, releases, satisfactions, settlements, petitions, schedules, accounts, affidavits, bonds, undertakings, proxies and other instruments and documents may be signed, executed, acknowledged, verified, delivered or accepted, including those in connection with the fiduciary powers of the Corporation, on behalf of the Corporation by the President or other persons as may be designated by him.
ARTICLE 30
FISCAL YEAR
Section 30.1. The fiscal year of the Corporation shall be the calendar year.
ARTICLE 31
SEAL
Section 31.1. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Pennsylvania." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed in any manner reproduced.
ARTICLE 32
NOTICES AND WAIVERS THEREOF
Section 32.1. Whenever, under the provisions of applicable law or of the Articles of Incorporation or of these By-laws, written notice is required to be given to any person, it may be given to such person either personally or by sending a copy thereof through the mail or by telegram, charges prepaid, to his address appearing on the books of the Corporation or supplied by him to the Corporation for the purpose of notice. If the notice is sent by mail or telegraph, it shall be deemed to have been given to the person entitled thereto when deposited in the United States mail or with a telegraph office for transmission to such person. Such notice shall specify the place, day and hour of the meeting and, in the case of a special meeting of shareholders, the general nature of the business to be transacted.
Section 32.2. Any written notice required to be given to any person may be waived in writing signed by the person entitled to such notice whether before or after the time stated therein. Attendance of any person entitled to notice whether in person or by proxy, at any meeting shall constitute a waiver of notice of such meeting, except where any person attends a meeting for the express purpose of objecting to the transaction of any business because the meeting was not lawfully called or convened. Where written notice is required of any meeting, the waiver thereof must specify the purpose only if it is for a special meeting of the shareholders.
ARTICLE 33
AMENDMENTS
Section 33.1. These By-laws may be altered, amended or repealed by (1) the affirmative vote of the shareholders entitled to cast at least seventy-five percent (75%) of the votes which all shareholders are then entitled to cast at any regular or special meeting duly convened after notice to the shareholders of that purpose or (2) by the affirmative vote of a majority of the members of the Board of Directors, with the exception of Sections 10.2. and 10.3. of these By-laws which requires the affirmative vote of seventy-five percent (75%) or more of the members of the Board of Directors, at any regular or special meeting thereof duly convened after notice to the directors of that purpose, subject always to the power of the shareholders to change such action of the Board of Directors by the affirmative vote of the shareholders entitled to cast at least seventy-five percent (75%) of the votes which all shareholders are then entitled to cast.
EXHIBIT 10.1
AGREEMENT
THIS AGREEMENT ("Agreement") made as of the 1st day of January, 1997, between PEOPLES FINANCIAL SERVICES CORP., a Pennsylvania corporation ("Peoples"), and JOHN W. ORD (the "Executive").
WITNESSETH:
WHEREAS, Peoples is engaged in the business of a bank holding company and is the owner of all the issued and outstanding capital stock of Peoples National Bank of Susquehanna County (the "Bank"); and
WHEREAS, Peoples and the Executive desire to enter into an agreement regarding, among other things, the continued employment of the Executive by Peoples.
AGREEMENT:
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, agree as follows:
1. Employment. Peoples hereby employs the Executive, and the Executive hereby accepts employment with Peoples, on the terms and conditions set forth in this Agreement.
2. Duties of Executive. The Executive shall perform and discharge well and faithfully such duties as an executive officer of Peoples as may be assigned to the Executive from time to time by the Board of Directors of Peoples. The Executive shall be employed as President and Chief Executive Officer of Peoples, and shall hold such additional titles as may be given to him from time to time by the Board of Directors of Peoples, the Bank, and any companies affiliated with Peoples. The Executive shall devote his full time, attention and energies to the business of Peoples and its affiliated companies and shall not, during the Employment Period (as defined in Section 3 hereof), be employed or involved in any other business activity, whether or not such activity is pursued for gain, profit or other pecuniary advantage; provided, however, that this Section 2 shall not be construed as preventing the Executive from (a) investing the Executive's personal assets, (b) acting as a member of the Board of Directors of any other corporation or as a member of the Board of Trustees of any other organization, provided no such corporation or organization is a direct or indirect competitor of Peoples or any of its affiliated companies, or (c) being involved in any other activity with the prior approval of the Board of Directors of Peoples. In the event of any reduction in title or a reduction in the Executive's responsibilities or authority, including such responsibilities and authority as the same may be increased at any time during the term of this Agreement, or the assignment to the Executive of duties inconsistent with the Executive's status as President and Chief Executive Officer of Peoples, then the Executive may resign at any time thereafter during the term of this Agreement and prior to the occurrence of a Change in Control, in which case Executive shall be entitled to receive the amounts and benefits set forth in Section 7 hereof.
3. Term of Employment. The Executive's employment under this Agreement shall be for a period (the "Employment Period") commencing upon the date of this Agreement and ending at the end of the term of this Agreement pursuant to Section 17 hereof, unless the Executive's employment sooner terminates in accordance with Section 5 hereof or one of the following provisions:
(a) The Executive's employment under this Agreement may be terminated at any time during the Employment Period for "Cause" (as herein defined), by action of the Board of Directors of Peoples, upon giving notice of such termination to the Executive at least fifteen (15) days prior to the date upon which such termination shall take effect. As used in this Agreement, "Cause" means any of the following events:
(i) the Executive is convicted of or enters a plea of guilty or nolo contendere to a felony, a crime of falsehood, or a crime involving fraud or moral turpitude, or the actual incarceration of the Executive for a period of forty-five (45) consecutive days;
(ii) the Executive willfully fails to follow the lawful, good faith instructions of the Board of Directors of Peoples after the Executive's receipt of written notice of such instructions, other than a failure resulting from the Executive's incapacity because of physical or mental illness; or
(iii) any government regulatory agency orders that Peoples terminate the employment of the Executive or relieve him of his duties.
Notwithstanding the foregoing, the Executive's employment under this Agreement shall not be deemed to have been terminated for "Cause" under Section 3(a)(i) or 3(a)(ii) above if such termination took place solely as a result of:
(i) questionable judgment on the part of the Executive;
(ii) any act or omission believed by the Executive, in good faith, to have been in, or not opposed to, the best interests of Peoples or its affiliated companies; or
(iii) any act or omission in respect of which a determination could properly be made that the Executive met the applicable standard of conduct prescribed for indemnification or reimbursement or payment of expenses under the Charter or Bylaws of Peoples (or its affiliates) or the directors' and officers' liability insurance of Peoples (or its affiliates), in each case as in effect at the time of such act or omission.
If the Executive's employment is terminated under the provisions
of this Section 3(a), then all rights of the Executive under
Section 4 hereof shall cease as of the effective date of such
termination.
(b) The Executive's employment under this
Agreement may be terminated at any time during the Employment
Period without "Cause" (as defined in Section 3(a) hereof), by
action of the Board of Directors of Peoples, upon giving notice
of such termination to the Executive at least thirty (30) days
prior to the date upon which such termination shall take effect.
If the Executive's employment is terminated under the provisions
of this Section 3(b), then the Executive shall be entitled to
receive the compensation and benefits set forth in Section 6 or
Section 7 hereof, whichever shall be applicable.
(c) If the Executive retires or dies, the Executive's employment under this Agreement shall be deemed terminated as of the date of the Executive's retirement or death, and all rights of the Executive under Section 4 hereof shall cease as of the date of such termination. Any benefits thereafter payable to the Executive shall be determined in accordance with the retirement, insurance and benefit programs of Peoples (and its affiliates) then in effect. Notwithstanding the preceding two sentences, if the Executive dies after a Notice of Termination (as defined in Section 5(a) of this Agreement) is delivered by the Executive, he shall be entitled to the termination benefits otherwise provided herein, and the provisions of Section 16(b) shall apply.
(d) If the Executive is incapacitated by accident, sickness, or otherwise so as to render the Executive mentally or physically incapable of performing the services required of the Executive under Section 2 of this Agreement for a continuous period of six (6) months, then, upon the expiration of such period or at any time thereafter, by action of the Board of Directors of Peoples, the Executive's employment under this Agreement may be terminated immediately upon giving the Executive notice to that effect. If the Executive's employment is terminated under the provisions of this Section 3(d), then all rights of the Executive under Section 4 hereof shall cease as of the last business day of the week in which such termination occurs. Any benefits thereafter payable to the Executive shall be determined in accordance with the retirement, insurance and benefit programs of Peoples (and its affiliates) then in effect.
4. Employment Period Compensation.
(a) Salary. For services performed by the Executive under this Agreement, Peoples shall pay (or cause to be paid) to the Executive a salary, during the Employment Period, at the rate of One Hundred Thousand Dollars ($100,000.00) per year, payable at the same times as salaries are payable to other executive employees of Peoples. Peoples may, from time to time, increase the Executive's salary, and any and all such increases shall be deemed to constitute amendments to this Section 4(a) to reflect the increased amounts, effective as of the dates established for such increases by the Board of Directors of Peoples in the resolutions authorizing such increases.
(b) Bonus. For services performed by the Executive under this Agreement, Peoples shall pay (or cause to be paid) to the Executive a bonus, during the Employment Period, in such amounts and at such times, annually, as is provided in such executive incentive plan for the Executive as shall be approved by the Board of Directors of Peoples and in effect from time to time. In addition, Peoples may, from time to time, pay such other bonus or bonuses to the Executive as Peoples, in its sole discretion, deems appropriate. The payment of any such bonuses shall not reduce or otherwise affect any other obligation of Peoples to the Executive provided for in this Agreement.
(c) Other Benefits. Peoples will provide (or cause to be provided) the Executive, during the Employment Period, with insurance, vacation, pension, and other fringe benefits in the aggregate not less favorable than those received by other executive employees of Peoples or the Bank.
(d) Salary Deferral. The Executive may request that the payment of any portion of his base salary for any calendar year be deferred. Such request must be made in writing to Peoples before the beginning of such calendar year and must include the period of deferral requested by the Executive (the "Deferral Period"). If the Board of Directors of Peoples approves such request, the Executive shall be entitled to receive, at the end of the Deferral Period, the deferred portion of his base salary plus interest, which interest shall be computed by reference to an annual interest rate determined each year by the Board of Directors of Peoples. Any salary which is deferred as described herein shall be credited to an account on the books of Peoples established in the name of the Executive. However, this account need not be funded, and Peoples shall not be deemed to be a trustee for the Executive with respect to any deferred salary. The liabilities of Peoples to the Executive hereunder are those of a debtor pursuant to such contractual obligations as are created by this Agreement. No liabilities of Peoples which arise under this Section 4(d) shall be deemed to be secured by any pledge or other encumbrance on any property of Peoples. Peoples shall not be required to segregate any funds representing such deferred salary, and nothing herein shall be construed as providing for such segregation.
5. Resignation of the Executive for Good Reason.
(a) The Executive may resign for "Good Reason" (as herein defined) during the three-year period following a "Change in Control" (as defined in Section 5(b) hereof), as hereinafter set forth. As used in this Agreement, "Good Reason" means any of the following:
(i) any reduction in title or a reduction in the Executive's responsibilities or authority with respect to Peoples, including such responsibilities and authority as the same may be increased at any time during the term of this Agreement, or the assignment to the Executive of duties inconsistent with the Executive's status as President and Chief Executive Officer of Peoples;
(ii) any reassignment of the Executive which requires the Executive to move his principal residence;
(iii) any removal of the Executive from
office or any adverse change in the terms and conditions of
the Executive's employment, except for any termination of
the Executive's employment under the provisions of
Section 3(a) hereof;
(iv) any reduction in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time;
(v) any failure of Peoples to provide the Executive with benefits at least as favorable as those enjoyed by the Executive under any of the pension, life insurance, medical, health, accident, disability or other employee benefit plans of Peoples (or any affiliated company) in which the Executive participated at the time of the Change in Control, or the taking of any action that would materially reduce any of such benefits in effect at the time of the Change in Control, unless such reduction is part of a reduction applicable to all employees;
(vi) any failure to obtain a satisfactory agreement from any successor to assume and agree to perform under this Agreement, as contemplated in Section 16(a) hereof;
(vii) any material change in the legal relationship between Peoples and the Bank; or
(viii) any material breach of this Agreement on the part of Peoples.
At the option of the Executive, exercisable by the Executive within one hundred twenty (120) days after the occurrence of each and every of the foregoing events of "Good Reason" (or within ninety (90) days after the occurrence of a Change in Control if such event occurs before such Change in Control), the Executive may resign from employment under this Agreement by delivering a notice in writing (the "Notice of Termination") to Peoples, and the provisions of Section 6 hereof shall thereupon apply.
(b) As used in this Agreement, "Change in Control" means a change of control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as enacted and in force on the date hereof, whether or not Peoples is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if:
(i) any "person" (including a group acting in concert, as the term "person" is defined in Section 13(d) of the Exchange Act, as enacted and in force on the date hereof) becomes the "beneficial owner" (as that term is defined in Rule 13d-3, as enacted and in force on the date hereof, under the Exchange Act) of securities of Peoples representing more than 19.9% of the combined voting power of Peoples' securities then outstanding;
(ii) there occurs a merger, consolidation or other business combination or reorganization to which Peoples or the Bank is a party, whether or not approved in advance by the Board of Directors of Peoples or the Bank (as the case may be) in which the members of the Board of Directors of Peoples or the Bank (as the case may be) immediately preceding the consummation of such transaction do not constitute a majority of the members of the Board of Directors of the resulting corporation and of any parent corporation thereof immediately after the consummation of such transaction;
(iii) there occurs a sale, exchange, transfer, or other disposition of substantially all of the assets of Peoples or the Bank to another entity, which is not approved in advance by the Board of Directors of Peoples;
(iv) there occurs a contested proxy solicitation of the stockholders of Peoples that results in the contesting party obtaining the ability to elect candidates to a majority of the positions on Peoples' Board of Directors next up for election; or
(v) there occurs a tender offer for the shares of voting securities of Peoples that results in the tender offeror obtaining securities representing more than 19.9% of the combined voting power of Peoples' securities then outstanding.
6. Rights in Event of Certain Termination of Employment After Change in Control. In the event that Executive resigns from employment for Good Reason following a Change in Control, by delivery of a Notice of Termination to Peoples, or Executive's employment is involuntarily terminated by Peoples without Cause after a Change in Control, Peoples shall pay (or cause to be paid) to the Executive in cash, within twenty (20) days following termination, an amount equal to 2.99 times his "base amount" (within the meaning of Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code")), calculated as though the occurrence of the Change in Control were an event described in Code Section 280G(b)(2)(A)(i). Notwithstanding the preceding sentence, in the event the lump sum payment described in the preceding sentence, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with his termination of employment, would result in the imposition of an excise tax under Code Section 4999, such lump sum shall be reduced to the extent necessary to avoid such imposition.
7. Rights in Event of Certain Termination of
Employment in Absence of Change in Control. In the event that
Executive's employment is involuntarily terminated by Peoples
without Cause and no Change in Control shall have occurred at the
date of such termination, Peoples shall pay (or cause to be paid)
to the Executive in cash, within twenty (20) days following
termination, an amount equal to 2.0 times the highest sum of
(i) his taxable federal compensation reported on Form W-2 during
each of the immediately preceding three (3) calendar years, and
(ii) all amounts excluded from such compensation during the
relevant calendar year by reason of Section 4(d) hereof, Code
Section 125, and Code Section 401(k). Notwithstanding the
preceding sentence, in the event the lump sum payment described
in the preceding sentence, when added to all other amounts or
benefits provided to or on behalf of the Executive in connection
with his termination of employment, would result in the
imposition of an excise tax under Code Section 4999, such lump
sum shall be reduced to the extent necessary to avoid such
imposition. Notwithstanding anything herein to the contrary,
this section shall apply to the resignation of Executive by
reason of the occurrence of an event, described in the last
sentence of Section 2 hereof, more than three (3) years following
a Change in Control.
8. Covenant Not to Compete.
(a) The Executive hereby acknowledges and recognizes the highly competitive nature of the business of Peoples and the Bank and accordingly agrees that, during and for the applicable period set forth in Section 8(c) hereof, the Executive shall not:
(i) Be engaged, directly or indirectly, either for his own account or as agent, consultant, employee, partner, officer, director, proprietor, investor (except as an investor owning less than 5% of the stock of a publicly owned company) or otherwise of any person, firm, corporation, or enterprise engaged, in (1) the banking (including bank holding company) or financial services industry, or (2) any other activity in which Peoples or any of its subsidiaries is engaged during the Employment Period, in any county in which, at any time during the Employment Period or at the date of termination of the Executive's employment, a branch, office or other facility of Peoples or any of its subsidiaries is located, or in any county contiguous to such a county, including contiguous counties located outside of the Commonwealth of Pennsylvania (the "Non-Competition Area"); or
(ii) Provide financial or other assistance
to any person, firm, corporation, or enterprise engaged in
(1) the banking (including bank holding company) or
financial services industry, or (2) any other activity in
which Peoples or any of its subsidiaries is engaged during
the Employment Period, in the Non-Competition Area.
(b) It is expressly understood and agreed that, although the Executive and Peoples consider the restrictions contained in Section 8(a) hereof reasonable for the purpose of preserving for Peoples and its subsidiaries their good will and other proprietary rights, if a final judicial determination is made by a court having jurisdiction that the time or territory or any other restriction contained in Section 8(a) hereof is an unreasonable or otherwise unenforceable restriction against the Executive, the provisions of Section 8(a) hereof shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such other extent as such court may judicially determine or indicate to be reasonable.
(c) The provisions of this Section 8 shall be applicable commencing on the date of this Agreement and ending on one of the following dates, as applicable:
(i) if the Executive's employment terminates
in accordance with the provisions of Section 3 (other than
Section 3(a)) or Section 17 hereof, the effective date of
termination of employment;
(ii) if the Executive's employment
terminates in accordance with the provisions of Section 3(a)
hereof or the Executive voluntarily terminates his
employment other than in accordance with the provisions of
Section 5 hereof (or the last sentence of Section 2 or
Section 7), the first anniversary date of the effective date
of termination of employment; or
(iii) if the Executive voluntarily
terminates his employment in accordance with the provisions
of Section 5 hereof (or the last sentence of Section 2 or
Section 7), the effective date of termination of employment.
9. Arbitration. Peoples and the Executive recognize that in the event a dispute should arise between them concerning the interpretation or implementation of this Agreement, lengthy and expensive litigation will not afford a practical resolution of the issues within a reasonable period of time. Consequently, each party agrees that all disputes, disagreements and questions of interpretation concerning this Agreement are to be submitted for resolution to the American Arbitration Association (the "Association") in Philadelphia, Pennsylvania. Peoples, or the Executive, may initiate an arbitration proceeding at any time by giving notice to the other in accordance with the rules of the Association. The Association shall designate a single arbitrator to conduct the proceeding, but Peoples, and the Executive, may, as a matter of right, require the substitution of a different arbitrator chosen by the Association. Each such right of substitution may be exercised only once. The arbitrator shall not be bound by the rules of evidence and procedure of the courts of the Commonwealth of Pennsylvania but shall be bound by the substantive law applicable to this Agreement. The decision of the arbitrator, absent fraud, duress, incompetence or gross and obvious error of fact, shall be final and binding upon the parties and shall be enforceable in courts of proper jurisdiction. Following written notice of a request for arbitration, Peoples, and the Executive, shall be entitled to an injunction restraining all further proceedings in any pending or subsequently filed litigation concerning this Agreement, except as otherwise provided herein. Notwithstanding the preceding provisions of this section, in the event any such provision is in conflict with a rule or policy of the Association, the arbitration proceeding shall be governed by such rule or policy.
10. Legal Expenses. Peoples shall pay to the Executive all reasonable legal fees and expenses incurred by the Executive in seeking in good faith to obtain or enforce any right or benefit provided by this Agreement, provided that any action or proceeding is not summarily decided against the Executive.
11. Mitigation of Damages. The Executive shall not be
required to mitigate the amount of any payment provided for in
Section 6 or Section 7 by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for in
Section 6 or Section 7 be reduced by any compensation earned by
the Executive as the result of employment by another employer or
by reason of the Executive's receipt of or right to receive any
retirement or other benefits after the date of termination of
employment or otherwise; provided, however, that the payments
provided for in Section 6 or Section 7 shall be reduced by the
amount actually received by the Executive under any severance
policy of Peoples then in effect.
12. Notices. Any notice required or permitted to be given under this Agreement shall be deemed properly given if in writing and if mailed by registered or certified mail, postage prepaid with return receipt requested, to the residence of the Executive, in the case of notices to the Executive, and to the principal office of Peoples, in the case of notices to Peoples.
13. Waiver. No provision of this Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by the Executive and an executive officer of Peoples specifically designated by the Board of Directors of Peoples. No waiver by any party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.
14. Assignment. This Agreement shall not be assignable by either party hereto, except by Peoples to any successor in interest to the business of Peoples.
15. Entire Agreement. This Agreement contains the entire agreement of the parties relating to the subject matter of this Agreement.
16. Successors, Binding Agreement.
(a) Peoples will require any successor (whether
direct or indirect, by purchase, merger, consolidation, or
otherwise) to all or substantially all of the business and/or
assets of Peoples to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that Peoples
would be required to perform it if no such succession had taken
place. Failure by Peoples to obtain such assumption and
agreement prior to the effectiveness of any such succession shall
constitute a breach of this Agreement and the provisions of
Section 6 hereof shall apply. As used in this Agreement,
"Peoples" shall mean Peoples as hereinbefore defined and any
successor to the respective business and/or assets of Peoples
which assumes and agrees to perform this Agreement by operation
of law or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, heirs, distributees, devisees, and legatees. If the Executive should die after a Notice of Termination is delivered by the Executive and any amounts would be payable to the Executive under this Agreement if the Executive had continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee, or, if there is none, to the Executive's estate.
17. Termination.
(a) Unless the Executive's employment terminates pursuant to the provisions of Section 3 or Section 5 hereof (or the last sentence of Section 2 or Section 7), the term of this Agreement shall:
(i) initially be a term commencing as of January 1, 1997, and ending on December 31, 1999; and
(ii) be automatically extended to provide
for a three (3) year term, annually, on January 1, 1998, and
again on January 1 of each year thereafter, effective as of
such respective dates, unless either (1) Peoples or (2) the
Executive shall have given written notice of nonextension of
the term of this Agreement to the other at least ninety
(90) days before the date of any such extension.
(b) Any termination of the Executive's employment under this Agreement or of this Agreement shall not affect the provisions of Sections 6 or 7 hereof which shall survive any such termination and remain in full force and effect in accordance with their respective terms.
18. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
19. Applicable Law. This Agreement shall be governed by and construed in accordance with the domestic laws (but not the law of conflict of laws) of the Commonwealth of Pennsylvania.
20. Headings. The headings of the sections of this Agreement are for convenience only and shall not control or affect the meaning or construction or limit the scope or intent of any of the provisions of this Agreement.
21. Termination of Prior Agreements. Upon the execution and delivery of this Agreement by the parties hereto, any prior agreement relating to the subject matter hereof shall be automatically terminated and be of no further force or effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
PEOPLES FINANCIAL SERVICES CORP.
By_________________________________
(Executive/Senior) Vice President
(SEAL)
Attest:____________________________ (Assistant) Secretary
("Peoples")
Witness:
__________________________ _____________________________(SEAL)
John W. Ord
("Executive")
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EXHIBIT 10.2
PEOPLE'S NATIONAL BANK
EXCESS BENEFIT PLAN
FOR
JOHN ORD
This sets forth the PEOPLE'S NATIONAL BANK EXCESS BENEFIT PLAN FOR JOHN ORD (the "Plan"), established by PEOPLE'S NATIONAL BANK, a general business corporation organized under the laws of the Commonwealth of Pennsylvania, having its principal place of business at Hallstead, Pennsylvania ("Employer"), for the benefit of JOHN ORD, residing at R.D. #2, Box 38, Hallstead, Pennsylvania, 18822 ("Employee").
RECITALS
It is the intention of this Plan to create a reserve and fund for a benefit for Employee in excess of the benefits payable under Employer's qualified pension, profit sharing and employee stock ownership plans, and to pay Employee and his spouse the benefit so calculated, all as provided herein.
NOW, THEREFORE, effective January 1, 1991 ("Effective Date"), Employer hereby establishes the PEOPLE'S NATIONAL BANK EXCESS BENEFIT PLAN FOR JOHN ORD (the "Plan") for the exclusive benefit of Employee and his spouse, in accordance with the following terms and conditions:
ARTICLE I.
DEFINITIONS
As used in this Plan, the following terms shall have the following meanings, unless a different meaning is stated and clearly indicated in the context where the term is used:
1.01 "Actuarial Assumptions" of the Plan are as follows:
Mortality (1) Valuation - no mortality factor.
(2) Post-retirement mortality
determined by reference to IAM-1983
tables.
Discount Rate/ (1) Present value (discount)
Appreciation Rate factor of 8.0% per year.
(2) Future value (appreciation or
interest) factor of 8.0% per year.
(3) Pre-retirement and post-retirement
interest assumption of 8.0% per
year.
Age (1) Where age is a determining factor,
it will be based on the nearest
birthday.
Determination Date (1) The determination date for each
year shall be December 31.
Service (1) Service (for this Plan only) shall
be deemed to commence October 31,
1960.
Service shall be determined for
full years of service only;
fractions of years will be
disregarded.
Dates (1) Date of Birth - 05/19/40
(2) Date of Hire - 10/31/60
(3) Normal Retirement Date -
06/01/2005.
Annual Benefit or When the term "annual benefit" or
Annual Payment "annual payment" is used herein, it
shall mean 12 months of the
actuarially determined monthly
benefit or payment.
Reserve Calculation The value of the Reserve, as of a
particular Valuation Date, shall be
determined by calculating the
actuarial value of the amounts
needed, as of such date, to fully
fund for a hypothetical straight
life annuity payment to Employee in
the amount determined under this
Plan, such payment commencing as of
the Early, Normal or Late
Retirement Date.
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1.02 "Average Base Compensation" shall mean the Employee's average Salary for the thirty-six month period ending on the Determination Date coinciding with or next following the date of separation from Service. For purposes of determine Average Base Compensation, if Employee's effective separation from Service occurs other than on December 31 of any Plan Year, his Salary for the year of separation shall be calculated by annualizing for that year his Salary through the date of separation.
1.03 "Benefit" means Employee's annual benefit determined under the Plan expressed in the form of an annuity payable during the life of Employee, commencing at his Early, Normal or Late Retirement Date or the date of his death, and paid in the manner set forth in Paragraph 6.02 (in the case of Employee's death before his Retirement Date) or in Article VII (in all other cases).
1.04 "Code" shall mean the Internal Revenue Code of 1986, as amended, and any successor provision thereto.
1.05 "Date of Hire" shall mean October 31, 1960.
1.06 "Determination Date" shall mean December 31 of each Plan Year.
1.07 "Early Retirement Date" shall be the first day of the month coinciding with or next following the date on which Employee separates from Service with Employer prior to Normal Retirement Date under any of the circumstances described in Paragraph 5.02.
1.08 "Effective Date" shall be January 1, 1991.
1.09 "Employee" shall mean JOHN ORD.
1.10 "Employer" shall mean PEOPLE'S NATIONAL BANK.
1.11 "401(K) Profit Sharing Plan" shall mean the Employer's profit sharing plan qualified under Section 401(a) of the Code that contains a feature allowing elective deferrals of compensation that is governed under Section 401(k) of the Code.
1.12 "Investment Manager" shall mean the comptroller's office of Employer.
1.13 "Late Retirement Date" shall mean the first day of the month coinciding with or next following Employee's actual retirement date after his Normal Retirement Date.
1.14 "Normal Retirement Date" shall mean June 1, 2005.
1.15 "Pension Plan" shall mean Employer's defined benefit pension plan qualified under Code Section 401(a).
1.16 "Plan" shall mean the excess benefit plan established by the Employer as set forth in this document, and as hereafter amended.
1.17 "Plan Year" initially means the period beginning with the Effective Date and ending on December 31, 1991. Thereafter, the Plan Year shall mean the twelve (12) month period beginning on January 1.
1.18 "Reserve" shall mean as of the Effective Date, and as of any Valuation Date thereafter, the actuarial value of the amounts needed as of such date (using the Actuarial Assumptions of the Plan) to fully fund for a hypothetical straight life annuity benefit to Employee providing the Benefit payable to Employee under this Plan, such payment commencing as of the Early, Normal or Late Retirement Date. The Reserve shall be calculated initially, and shall be redetermined annually, assuming that Employee will retire at the Normal Retirement Date.
1.19 "Retirement Annuity" shall mean the hypothetical annual straight life annuity, payable to Employee until his death which, if it were to commence as of the Early, Normal or Late Retirement Date (whichever is applicable), would require (using the Actuarial Assumptions of the Plan), as of the Valuation Date, a fund equal to the value of the Reserve in order for full funding of the Retirement Annuity to be achieved by the applicable Retirement Date.
1.20 "Retirement Date" shall mean the date Employee separates from service with Employer on account of his Early, Normal or Late Retirement, or on account of his death.
1.21 "Salary" shall mean Employee's W-2 wages for services rendered on behalf of Employer during the Plan Year, or for periods prior to the Effective Date of the Plan, the twelve month period corresponding to such Plan Year. Such amount shall be increased or decreased by the following amounts:
(a) There shall be added to Employee's W-2 wages the amount of Employee's elective contributions for the Plan Year to the Employer's 401(k) Profit Sharing Plan and to the Employer's plan qualifying under Code Section 125, which contributions are otherwise excludable from Employee's gross income under Code Sections 402(a)(8) and 125, respectively.
(b) There shall be subtracted from Employee's W-2 wages the amount of any special program bonuses paid during the Plan Year, but not Employee's annual bonus as historically paid to Employee.
(c) Salary shall not include contributions made by Employer under the Plan, payments made by Employer for group life insurance, hospitalization or like benefits, nor contributions made by Employer under any other employee benefit plan it maintains.
1.22 "Service" means any period of time Employee is in the employ of Employer. Employee shall be entitled to a credit for all Service after his Date of Hire and continuing through the date of Employee's separation from Service with Employer. Employee will be credited with full years of Service only. Fractions of years will be disregarded.
1.23 "Trust" shall mean the PEOPLE'S NATIONAL BANK
EXCESS BENEFIT TRUST FOR THE BENEFIT OF JOHN ORD.
1.24 "Trustee" shall mean the currently acting Trustee of the Trust.
1.25 "Valuation Date" shall mean any date on which an actuarial valuation is to be made, including, without limitation, each Determination Date, and the Early, Normal and Late Retirement Dates.
ARTICLE II.
THE RESERVE ACCOUNT AND TRUST FUND
2.01 The Reserve Account. Employer shall establish an account (the "Reserve Account") to which will be credited, as of the Effective Date, an amount equal to the then value of the Reserve. The Reserve Account shall be restated as of each subsequent Valuation Date to reflect the value of the Reserve as of such date.
2.02 The Trust Fund. Employer shall establish a Trust Fund to receive the contributions required under the Plan. The Trust Fund shall be managed by the Investment Manager, and shall be held by the Trustee under the provisions of the Trust.
2.03 Employer Contributions. Employer shall, as of the Effective Date, contribute to the Trust liquid and marketable assets having a fair market value equal to the then value of the Reserve. As of each subsequent Determination Date, Employer shall calculate and contribute an additional contribution to the Trust equal to the difference between the value of the hypothetical Retirement Annuity as of the Determination Date and the balance in the Trust Fund.
2.04 No Right to Trust Assets. The assets of the Trust Fund shall be held separate and apart from other funds of Employer, and shall be used exclusively for the uses and purposes set forth in this Plan. However, neither Employee, any Beneficiary, nor the Plan shall have any preferred claim on, or any title to or beneficial ownership interest in, any assets of the Trust Fund or Trust prior to the time such assets are paid as Benefits under the Plan. All rights created under the Plan and Trust shall be mere unsecured contractual rights of Employee or his Beneficiary against Employer. The Plan is intended to constitute an unfunded deferred compensation arrangement maintained by Employer for the purpose of providing deferred compensation for a key executive of Employer, and shall be construed accordingly.
ARTICLE III.
NORMAL RETIREMENT
3.01 Normal Retirement Benefit. Employee shall be entitled to receive, if he retires as of his Normal Retirement Date, a Normal Retirement Benefit in an amount equal to ninety percent (90%) of Employee's Average Base Compensation, less the sum of the following:
(a) An amount equal to the annual benefit to be provided Employee by Employer's Pension Plan, determined as of the Normal Retirement Date and converted (if necessary) to its actuarial equivalent (using the Actuarial Assumptions for this Plan) as a straight life annuity payable as an annual benefit commencing as of his Normal Retirement Date;
(b) An amount equal to the annual benefit at Normal Retirement Date that is provided Employee from Employee's vested account balance in Employer's Employee Stock Ownership Plan ("ESOP"), expressed in the form of a straight life annuity (and calculated using the Actuarial Assumptions for this Plan), payable during Employee's life and commencing as of his Normal Retirement Date; and
(c) An amount equal to the annual benefit at
Normal Retirement Date that is provided Employee from the vested
portion of Employee's account balance in Employer's 401(k) Profit
Sharing Plan that is attributable to all Employer contributions
other than Employee's elective contribution as described in Code
Section 402(a)(8). Such benefit shall be expressed in the form
of a straight life annuity (and calculated using the Actuarial
Assumptions for this Plan) payable during Employee's life and
commencing as of his Normal Retirement Date.
3.02 Payment. Employee's Normal Retirement Benefit shall be paid in the manner set forth in Article VII.
ARTICLE IV.
LATE RETIREMENT
4.01 Late Retirement Benefit. Employer and Employee
may agree to continue Employee's employment beyond the Normal
Retirement Date. In such event, Employee shall be entitled to
receive, following his actual retirement, a Late Retirement
Benefit in an amount equal to the then actuarial equivalent
(determined by applying the Actuarial Assumptions for this Plan)
of Employee's Normal Retirement Benefit payable as of his Normal
Retirement Date. The Late Retirement Benefit shall be expressed
in the form of a straight life annuity payable in annual amounts
commencing as of his Late Retirement Date, and shall be paid in
the manner set forth in Article VII.
ARTICLE V.
EARLY RETIREMENT
5.01 Early Retirement Benefit. Employee shall be entitled to receive, if he qualifies under Paragraph 5.02 and retires from Service with the Employer, an Early Retirement Benefit determined as follows:
(a) An amount equal to ninety percent (90%) of Employee's Average Base Compensation, calculated as of his Early Retirement Date, shall be determined. This amount shall be multiplied by a fraction, the numerator of which is Employee's total years of Service as of his Early Retirement Date, and the denominator of which is the total years of Service Employee would have were he to continue in Service continuously through his Normal Retirement Date.
(b) The amount determined under subparagraph (a) above shall be reduced by the sum of the following "Subtraction Entries" to arrive at Employee's Early Retirement Benefit:
(i) An amount equal to the annual benefit that is provided by Employer's Pension Plan determined as of Employee's Early Retirement Date as if Employee were to retire on such date, and converted (if necessary) to its actuarial equivalent straight life annuity payable in annual amounts commencing as of the Early Retirement Date. If Employee's Early Retirement Date hereunder precedes the earliest date under which retirement benefits may be paid to Employee under the Pension Plan, there shall be no reduction under this Paragraph 5.01(b)(i) in the Early Retirement Benefit payable to Employee during the time period preceding the payment of retirement benefits under the Pension Plan; however, upon commencement of payment of retirement benefits under the Pension Plan, the Early Retirement Benefit shall thereupon be recalculated and reduced for all future years (but not retroactively) by taking into account the reduction under this Paragraph 5.01(b)(i).
(ii) An amount equal to the benefit at Early Retirement Date that would be provided Employee from Employee's then vested account balance in Employer's Employee Stock Ownership Plan, expressed in the form of a straight life annuity that is payable in annual amounts for the rest of Employee's life, commencing as of his Early Retirement Date; and
(iii) An amount equal to the annual benefit at Early Retirement Date that would be provided Employee from the vested portion of Employee's account balance in Employer's 401(k) Profit Sharing Plan that is attributable to all Employer contributions other than Employee's elective contributions as described in Code Section 402(a)(8). Such benefit shall be expressed in the form of a straight life annuity payable in annual amounts for the rest of Employee's life commencing as of his Early Retirement Date.
5.02 Early Retirement. Employee shall be entitled to an Early Retirement Benefit if, prior to his Normal Retirement Date, Employee separates from Service with Employer:
(a) upon mutual agreement between Employer and Employee;
(b) by action of Employer other than "for cause." For purposes hereof, "for cause" shall mean termination by a majority vote of Employer's Board of Directors upon its determination that Employee has committed fraud against or embezzled from Employer or is guilty of gross negligence that has resulted in irreparable harm to Employer. Pending Employer's final determination concerning the issue, all payments scheduled to be made to Employee hereunder shall be held by the Trustee in escrow; or
(c) by reason of Employee's suffering a disability, illness or injury which, in the sole opinion of Employer's Board of Directors, prevents Employee from fulfilling substantially all of his duties and responsibilities as President and Chief Executive Officer of Employer (hereinafter, "Disability").
5.03 Payment. The Early Retirement Benefit shall be paid in the manner set forth in Article VII.
ARTICLE VI.
DEATH BENEFIT
6.01 Pre-Retirement Death Benefit. Upon the death of Employee while in the employ of Employer, or during an authorized leave of absence, Employee's spouse shall be entitled to receive a pre-retirement death Benefit expressed in the form of a life annuity payable annually for the rest of the spouse's life, in an amount equal to fifty percent (50%) of Employee's Average Base Compensation as of the date of his death, reduced by the sum of the following:
(a) an amount equal to the annual benefit that would be provided the spouse under Employer's Pension Plan commencing immediately following Employee's death if Employee had separated from Service on the day immediately preceding his date of death and had elected to receive a joint and 50% survivor annuity for Employee and his spouse commencing on the date of his death. If Employee's date of death precedes the earliest date under which retirement benefits could be paid to Employee under the Pension Plan, there shall be no reduction under this Paragraph 6.01(a) in the Benefit payable to Employee's spouse during the time period preceding the payment of benefits to Employee's spouse under the Pension Plan; however, upon commencement of payment of benefits to the spouse under the Pension Plan, the death Benefit payable under this Article shall thereupon be reduced for all future years (but not retroactively) by the amount prescribed in this Paragraph 6.01(a);
(b) An amount equal to the annual benefit that is provided to Employee's spouse from Employee's then vested account balance in Employer's Employee Stock Ownership Plan, expressed in the form of a straight life annuity payable in annual amounts for the rest of the spouse's life, commencing immediately following Employee's death; plus
(c) An amount equal to the annual benefit that would be provided the spouse from the vested portion of Employee's account balance in Employer's 401(k) Profit Sharing Plan that is attributable to all Employer contributions except those described in Code Section 402(a)(8). Such benefit shall be expressed in the form of a straight life annuity payable in annual amounts for the rest of the spouse's life, commencing immediately following Employee's death.
6.02 Payment. Payment of the death Benefit under this Article shall be paid in the form of a straight life annuity for the benefit of Employee's spouse, commencing within thirty (30) days following Employee's death.
ARTICLE VII.
PAYMENT OF BENEFIT
7.01 Normal Form of Payment.
(a) If Employee is not married at his Early, Normal or Late Retirement Date, the normal form for payment of his Retirement Benefit shall be a single life annuity providing for equal monthly payments equal to one-twelfth (1/12th) of the annual Retirement Benefit, with payments ceasing upon Employee's death.
(b) If Employee is married at his Early, Normal or Late Retirement Date, the normal form of his Retirement Benefit shall be a joint and 50% survivor annuity that provides, for Employee's life, an annual amount equal to the annual amount that would be payable to Employee in accordance with subparagraph (a) were Employee not married on his Retirement Date. Such annuity shall provide monthly payments to Employee for the rest of his life and, if Employee's spouse survives him, monthly payments to his spouse thereafter for the rest of her life equal to fifty percent (50%) of the amount of the monthly benefit paid to Employee.
7.02 Optional Form of Payment. At any time prior to January 1 of the year in which the first installment of the Benefit would otherwise be paid, Employee may elect to receive his Benefit under one of the optional forms of distribution listed below:
(1) A straight life annuity, payable no less frequently than annually, with payment ending on Employee's death.
(2) A joint and survivor annuity over the joint life expectancies of Employee and his spouse, with the option in Employee to set the survivor's annuity at any percentage of the joint life annuity (not to exceed 100%).
7.03 Acceleration of Deferred Payments. In the discretion of Employer, but only with Employee's or his spouse's consent, the payment of any remaining Benefits to Employee or his spouse as a deferred payment may be accelerated, or the unpaid balance of such Benefits may be distributed to Employee or his spouse in a lump sum.
7.04 Commencement of Payment. Employer shall commence distribution of Employee's Benefit not later then thirty (30) days after the applicable Retirement Date.
7.05 Forfeiture. Notwithstanding anything herein to the contrary, no Benefit shall be paid to Employee or his spouse and Employee shall forfeit, for himself and his spouse, all right to receive Benefits hereunder if Employee's employment with Employer is terminated "for cause". For purposes of this Paragraph, "for cause" shall have the same meaning as set forth in Paragraph 5.02(b).
ARTICLE VIII.
ADMINISTRATIVE PROVISIONS
8.01 Payments to Persons Other Than Employee. If the Employer shall find that any person to whom any amount is payable under the Plan is unable to care for his affairs because of illness or accident, or is a minor, or has died, then any payment due him or his estate (unless a prior claim therefor has been made by a duly appointed legal representative), may, if Employer so determines, be paid to his spouse, a child, a relative, an institution maintaining or having custody of such person, or any other person deemed by Employer to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of Employer therefor.
8.02 No Alienation of Benefits. Except insofar as may otherwise be required by law, no amount payable at any time under the Plan shall be subject in any manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge, or encumbrance of any kind, nor in any manner be subject to the debts or liabilities of any person, and any attempt to so alienate or subject any such amount, whether presently or thereafter payable, shall be void. If any person shall attempt to, or shall alienate, sell transfer, assign, pledge, attach, charge or otherwise encumber any amount payable under the Plan, or any part thereof, or if by reason of his bankruptcy or other event happening at any such time such amount would be made subject to his debts or liabilities or would otherwise not be enjoyed by him, then Employer, if it so selects, may direct that such amount be withheld and that the same or any part thereof be paid or applied to or for the benefit of such person, his spouse, children or other dependents, or any of them in such manner and proportion as Employer may deem proper.
8.03 Employment Status. Nothing contained in this Plan shall be construed to give Employee the right to be retained as an Employee of Employer or to impair the right of Employer to terminate the services of Employee.
8.04 Administration Expense. The entire expense of administering this Plan shall be borne by Employer and shall not be charged against the Trust Fund.
8.05 Withholding. Employer shall be entitled to reduce any payment pursuant to this Plan by an amount which Employer deems reasonably required to comply with any federal or state withholding requirements.
8.06 Successors. The Plan shall be binding upon all persons entitled to benefits under the Plan, their respective heirs and legal representatives, upon the Employer, its successors and assigns, and upon the Trustee, and its successors.
8.07 Administration. The Plan shall be administered by Employer, which may appoint or employ any agents it deems advisable to assist Employer in interpreting and administering the Plan. Employer, as Plan administrator, shall make all determinations as to Employee's right to benefits hereunder, and shall have complete discretion in making all decisions with respect to the Plan. All such decisions shall be final and bind all parties.
8.08 Claims Procedure. Employer shall provide adequate notice in writing to any Employee or to any Beneficiary ("Claimant") whose claim for benefits under the Plan has been denied. Employer's notice to the Claimant shall set forth:
(a) The specific reason for the denial;
(b) Specific references to pertinent Plan provisions on which Employer based its denial;
(c) A description of any additional material and information needed for the Claimant to perfect his claim and an explanation of why the material or information is needed; and
(d) That any appeal the Claimant wishes to make of the adverse determination must be in writing to Employer within 75 days after receipt of Employer's notice of denial of benefits. The notice must further advise the Claimant that his failure to appeal the action to Employer in writing within the 75 day period will render Employer's determination final, binding and conclusive.
If the Claimant should appeal to Employer, he, or his duly authorized representative, may submit, in writing, whatever issues and comments he, or his duly authorized representative, feels are pertinent. The Claimant, or his duly authorized representative, may review pertinent Plan documents. Employer shall re-examine all facts related to the appeal and make a final determination as to whether the denial of benefits is justified under the circumstances. Employer shall advise the Claimant of its decision within 60 days of the Claimant's written request for review, unless special circumstances (such as a hearing) would make the rendering of a decision within the 60 day limit unfeasible, but in no event shall Employer render a decision respecting a denial of a claim for benefits later than 120 days after its receipt of a request for review. If any dispute remains after Employer renders its decision following review, such dispute shall be settled by binding arbitration, conducted in Scranton, Pennsylvania, in accordance with the rules of the American Arbitration Association.
8.09 Construction and Interpretation. This Plan shall be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania, except to the extent superseded by Federal law. If any provision of the Plan shall be held illegal or invalid for any reason, such determination shall not affect the remaining provisions of the Plan, and it shall be construed as if said illegal or invalid provision had never been included.
8.10 Amendments. No amendment of any of the provisions of this Plan shall be effective unless in writing signed by both Employer and Employee.
IN WITNESS WHEREOF, this Plan has been executed this 14th day of January, 1992.
PEOPLE'S NATIONAL BANK
By:________________________________
Attest:____________________________
Secretary
Agreed to this 14th day
of January, 1992.
EXHIBIT 10.3
TERMINATION AGREEMENT
THIS AGREEMENT ("Agreement") made as of this 1st day of January 1997, by and between PEOPLES FINANCIAL SERVICES CORP., a Pennsylvania corporation ("Peoples") and MICHAEL S. KARHNAK (the "Executive").
WITNESSETH:
WHEREAS, Peoples is engaged in the business of a bank holding company and is the owner of all the issued and outstanding capital stock of Peoples National Bank of Susquehanna County (the "Bank"); and
WHEREAS, the Executive is presently serving as Executive Vice President and Secretary of Peoples and of the Bank; and
WHEREAS, Peoples considers the continued services of the Executive to be in the best interests of Peoples and its shareholders and desires to induce the Executive to remain in the employ of Peoples on an impartial and objective basis in the event of change in control of Peoples.
AGREEMENT
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:
1. Term of Agreement.
(a) The term of this Agreement shall:
(i) initially be a term commencing as of January 1, 1997, and ending on December 31, 1998; and
(ii) be automatically extended to provide for a two (2) year term, annually, on January 1, 1998, and again on January 1 of each year thereafter, effective as of such respective dates, unless either Peoples or the Executive shall have given written notice of nonextension of the term of this Agreement to the other at least ninety (90) days before the date of any such extension.
(b) Notwithstanding the provisions of
Section 1(a) of this Agreement, this Agreement shall terminate
automatically upon termination by Peoples of the Executive's
employment for Cause. As used in this Agreement, "Cause" shall
mean the following:
(i) the Executive is convicted of or enters a plea of guilty or nolo contendere to a felony, a crime of falsehood, or a crime involving fraud or moral turpitude, or the actual incarceration of the Executive for a period of forty-five (45) consecutive days;
(ii) the Executive willfully fails to follow the lawful, good faith instructions of the Board of Directors of Peoples after the Executive's receipt of written notice of such instructions, other than a failure resulting from the Executive's incapacity because of physical or mental illness; or
(iii) any government regulatory agency orders that Peoples terminate the employment of the Executive or relieve him of his duties.
Notwithstanding the foregoing, the Executive's employment under this Agreement shall not be deemed to have been terminated for "Cause" under Clause (i) or (ii) above if such termination took place solely as a result of:
(i) questionable judgment on the part of the Executive;
(ii) any act or omission believed by the Executive, in good faith, to have been in, or not opposed to, the best interests of Peoples or its affiliated companies; or
(iii) any act or omission in respect of which a determination could properly be made that the Executive met the applicable standard of conduct prescribed for indemnification or reimbursement or payment of expenses under the Charter or Bylaws of Peoples (or its affiliates) or the directors' and officers' liability insurance of Peoples (or its affiliates), in each case as in effect at the time of such act or omission.
If the Executive's employment is terminated for Cause, the Executive's rights under this Agreement shall cease as of the effective date of such termination.
(c) Notwithstanding the provisions of
Section 1(a) of this Agreement, this Agreement shall terminate
automatically upon termination of the Executive's employment as a
result of the Executive's voluntary termination (other than in
accordance with Section 2 of this Agreement), retirement at the
Executive's election, or death, and the Executive's rights under
this Agreement shall cease as of the date of such voluntary
termination, retirement at the Executive's election, or death;
provided, however, that if the Executive dies after a Notice of
Termination (as defined in Section 2(a) of this Agreement) is
delivered by the Executive, the provisions of Section 11(b) of
this Agreement shall apply.
(d) Notwithstanding the provisions of
Section 1(a) of this Agreement, this Agreement shall terminate
automatically upon termination of the Executive's employment as a
result of the Executive's disability and the Executive's rights
under this Agreement shall cease as of the date of such
termination. For purposes of this Agreement, "disability" shall
mean the Executive's incapacitation by accident, sickness, or
otherwise that renders the Executive mentally or physically
incapable of performing the services therefore required of the
Executive for a continuous period of six (6) months.
2. Termination Following Change in Control.
(a) If a Change in Control (as defined in
Section 2(b) of this Agreement) shall occur and if thereafter, at
any time during the term of this Agreement, the Executive shall
be involuntarily terminated or there shall be:
(i) any reduction in title or a reduction in the Executive's responsibilities or authority with respect to Peoples, including such responsibilities and authority as the same may be increased at any time during the term of this Agreement, or the assignment to the Executive of duties inconsistent with the Executive's prior status as an officer of Peoples;
(ii) any reassignment of the Executive which requires the Executive to move his principal residence;
(iii) any removal of the Executive from
office or any adverse change in the terms and conditions of
the Executive's employment, except for any termination of
the Executive's employment under the provisions of
Section 1(b) hereof;
(iv) any reduction in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time;
(v) any failure of Peoples to provide the Executive with benefits at least as favorable as those enjoyed by the Executive under any of the pension, life insurance, medical, health, accident, disability or other employee benefit plans of Peoples (or any affiliated company) in which the Executive participated at the time of the Change in Control, or the taking of any action that would materially reduce any of such benefits in effect at the time of the Change in Control, unless such reduction is part of a reduction applicable to all employees;
(vi) any failure to obtain a satisfactory agreement from any successor to assume and agree to perform under this Agreement, as contemplated in Section 11(a) hereof;
(vii) any material change in the legal relationship between Peoples and the Bank; or
(viii) any material breach of this Agreement on the part of Peoples;
then, at the option of the Executive, exercisable by the
Executive within one hundred twenty (120) days of the occurrence
of each and every of the foregoing enumerated events, the
Executive may resign from employment with Peoples (or, if
involuntarily terminated, give notice of intention to collect
benefits under this Agreement) by delivering a notice in writing
(the "Notice of Termination") to Peoples, and the provisions of
Section 3 of this Agreement shall apply.
(b) As used in this Agreement, "Change in Control" means a change of control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as enacted and in force on the date hereof, whether or not Peoples is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if:
(i) any "person" (including a group acting in concert, as the term "person" is defined in Section 13(d) of the Exchange Act, as enacted and in force on the date hereof) becomes the "beneficial owner" (as that term is defined in Rule 13d-3, as enacted and in force on the date hereof, under the Exchange Act) of securities of Peoples representing more than 19.9% of the combined voting power of Peoples' securities then outstanding;
(ii) there occurs a merger, consolidation or other business combination or reorganization to which Peoples or the Bank is a party, whether or not approved in advance by the Board of Directors of Peoples or the Bank (as the case may be) in which the members of the Board of Directors of Peoples or the Bank (as the case may be) immediately preceding the consummation of such transaction do not constitute a majority of the members of the Board of Directors of the resulting corporation and of any parent corporation thereof immediately after the consummation of such transaction;
(iii) there occurs a sale, exchange, transfer, or other disposition of substantially all of the assets of Peoples or the Bank to another entity, which is not approved in advance by the Board of Directors of Peoples;
(iv) there occurs a contested proxy solicitation of the stockholders of Peoples that results in the contesting party obtaining the ability to elect candidates to a majority of the positions on Peoples' Board of Directors next up for election; or
(v) there occurs a tender offer for the shares of voting securities of Peoples that results in the tender offeror obtaining securities representing more than 19.9% of the combined voting power of Peoples' securities then outstanding.
3. Rights in Event of Certain Termination of
Employment After Change in Control. In the event that Executive
resigns from employment in accordance with the provisions of
Section 2(a), or Executive's employment is terminated by Peoples
without Cause after a Change in Control, Peoples shall pay (or
cause to be paid) to the Executive in cash, within twenty (20)
days following termination, an amount equal to 2.00 times his
"base amount" (within the meaning of Section 280G(b)(3) of the
Internal Revenue Code of 1986, as amended (the "Code")),
calculated as though the occurrence of the Change in Control were
an event described in Code Section 280G(b)(2)(A)(i).
Notwithstanding the preceding sentence, in the event the lump sum
payment described in the preceding sentence, when added to all
other amounts or benefits provided to or on behalf of the
Executive in connection with his termination of employment, would
result in the imposition of an excise tax under Code Section
4999, such lump sum shall be reduced to the extent necessary to
avoid such imposition.
4. Legal Expenses. Peoples shall pay to the Executive all legal fees and expenses incurred by the Executive in seeking in good faith to obtain or enforce any right or benefit provided by the Agreement, provided that any action or proceeding is not summarily decided against the Executive.
5. Arbitration. Peoples and the Executive recognize that in the event a dispute should arise between them concerning the interpretation or implementation of this Agreement, lengthy and expensive litigation will not afford a practical resolution of the issues within a reasonable period of time. Consequently, each party agrees that all disputes, disagreements and questions of interpretation concerning this Agreement are to be submitted for resolution to the American Arbitration Association (the "Association") in Philadelphia, Pennsylvania. Peoples, or the Executive, may initiate an arbitration proceeding at any time by giving notice to the other in accordance with the rules of the Association. The Association shall designate a single arbitrator to conduct the proceeding, but Peoples, and the Executive, may, as a matter of right, require the substitution of a different arbitrator chosen by the Association. Each such right of substitution may be exercised only once. The arbitrator shall not be bound by the rules of evidence and procedure of the courts of the Commonwealth of Pennsylvania but shall be bound by the substantive law applicable to this Agreement. The decision of the arbitrator, absent fraud, duress, incompetence or gross and obvious error of fact, shall be final and binding upon the parties and shall be enforceable in courts of proper jurisdiction. Following written notice of a request for arbitration, Peoples, and the Executive, shall be entitled to an injunction restraining all further proceedings in any pending or subsequently filed litigation concerning this Agreement. Notwithstanding the preceding provisions of this section, in the event any such provision is in conflict with a rule or policy of the Association, the arbitration proceeding shall be governed by such rule or policy.
6. Mitigation of Damages. The Executive shall not be
required to mitigate the amount of any payment provided for in
Section 3 by seeking other employment or otherwise, nor shall the
amount of any payment or benefit provided for in Section 3 be
reduced by any compensation earned by the Executive as the result
of employment by another employer or by reason of the Executive's
receipt of or right to receive any retirement or other benefits
after the date of termination of employment or otherwise;
provided, however, that the payments provided for in Section 3
shall be reduced by the amount actually received by the Executive
under any severance policy of Peoples then in effect.
7. Notices. Any notice required or permitted to be given under this Agreement shall be deemed properly given if in writing and if mailed by registered or certified mail, postage prepaid with return receipt requested, to the residence of the Executive, in the case of notices to the Executive, and to the principal office of Peoples, in the case of notices to Peoples.
8. Waiver. No provision of this Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by the Executive and an executive officer of Peoples specifically designated by the Board of Directors of Peoples. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.
9. Assignment. This Agreement shall not be assignable by either party, except by Peoples to any successor in interest to the business of Peoples.
10. Entire Agreement. This Agreement contains the entire agreement of the parties relating to the subject matter of this Agreement.
11. Successors; Binding Agreement.
(a) Peoples will require any successor (whether
direct or indirect, by purchase, merger, consolidation, or
otherwise) to all or substantially all of the business and/or
assets of Peoples to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that Peoples
would be required to perform it if no such succession had taken
place. Failure by Peoples to obtain such assumption and
agreement prior to the effectiveness of any such succession shall
constitute a breach of this Agreement and the provisions of
Section 3 of this Agreement shall apply. As used in this
Agreement, "Peoples" shall mean Peoples as hereinbefore defined
and any successor to the respective businesses and/or assets of
Peoples which assumes and agrees to perform this Agreement by
operation of law or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, heirs, distributees, devisees, and legatees. If the Executive should die after a Notice of Termination is delivered by the Executive and any amounts would be payable to the Executive under this Agreement if the Executive had continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee, or, if there is none, to the Executive's estate.
12. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
13. Applicable Law. This Agreement shall be governed by and construed in accordance with the domestic laws (but not the law of conflict of laws) of the Commonwealth of Pennsylvania.
14. Headings. The headings of the sections of this Agreement are for convenience only and shall not control or affect the meaning or construction or limit the scope or intent of any of the provisions of this Agreement.
15. Termination of Prior Agreements. Upon the execution and delivery of this Agreement by the parties hereto, any prior agreement relating to the subject matter hereof shall be automatically terminated and be of no further force or effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
PEOPLES FINANCIAL SERVICES CORP.
By_________________________________
President
(SEAL)
Attest:____________________________ (Assistant) Secretary
("Peoples")
Witness:
__________________________ _____________________________(SEAL)
Michael S. Karhnak
("Executive")
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EXHIBIT 10.4
TERMINATION AGREEMENT
THIS AGREEMENT ("Agreement") made as of this 1st day of January 1997, by and between PEOPLES FINANCIAL SERVICES CORP., a DEBRA E. DISSINGER (the "Executive").
WITNESSETH:
WHEREAS, Peoples is engaged in the business of a bank holding company and is the owner of all the issued and outstanding capital stock of Peoples National Bank of Susquehanna County (the "Bank"); and
WHEREAS, the Executive is presently serving as Senior Vice President and Cashier of Peoples and of the Bank; and
WHEREAS, Peoples considers the continued services of the Executive to be in the best interests of Peoples and its shareholders and desires to induce the Executive to remain in the employ of Peoples on an impartial and objective basis in the event of change in control of Peoples.
AGREEMENT
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:
1. Term of Agreement.
(a) The term of this Agreement shall:
(i) initially be a term commencing as of January 1, 1997, and ending on December 31, 1998; and
(ii) be automatically extended to provide for a two (2) year term, annually, on January 1, 1998, and again on January 1 of each year thereafter, effective as of such respective dates, unless either Peoples or the Executive shall have given written notice of nonextension of the term of this Agreement to the other at least ninety (90) days before the date of any such extension.
(b) Notwithstanding the provisions of
Section 1(a) of this Agreement, this Agreement shall terminate
automatically upon termination by Peoples of the Executive's
employment for Cause. As used in this Agreement, "Cause" shall
mean the following:
(i) the Executive is convicted of or enters a plea of guilty or nolo contendere to a felony, a crime of falsehood, or a crime involving fraud or moral turpitude, or the actual incarceration of the Executive for a period of forty-five (45) consecutive days;
(ii) the Executive willfully fails to follow the lawful, good faith instructions of the Board of Directors of Peoples after the Executive's receipt of written notice of such instructions, other than a failure resulting from the Executive's incapacity because of physical or mental illness; or
(iii) any government regulatory agency orders that Peoples terminate the employment of the Executive or relieve him of his duties.
Notwithstanding the foregoing, the Executive's employment under this Agreement shall not be deemed to have been terminated for "Cause" under Clause (i) or (ii) above if such termination took place solely as a result of:
(i) questionable judgment on the part of the Executive;
(ii) any act or omission believed by the Executive, in good faith, to have been in, or not opposed to, the best interests of Peoples or its affiliated companies; or
(iii) any act or omission in respect of which a determination could properly be made that the Executive met the applicable standard of conduct prescribed for indemnification or reimbursement or payment of expenses under the Charter or Bylaws of Peoples (or its affiliates) or the directors' and officers' liability insurance of Peoples (or its affiliates), in each case as in effect at the time of such act or omission.
If the Executive's employment is terminated for Cause, the Executive's rights under this Agreement shall cease as of the effective date of such termination.
(c) Notwithstanding the provisions of
Section 1(a) of this Agreement, this Agreement shall terminate
automatically upon termination of the Executive's employment as a
result of the Executive's voluntary termination (other than in
accordance with Section 2 of this Agreement), retirement at the
Executive's election, or death, and the Executive's rights under
this Agreement shall cease as of the date of such voluntary
termination, retirement at the Executive's election, or death;
provided, however, that if the Executive dies after a Notice of
Termination (as defined in Section 2(a) of this Agreement) is
delivered by the Executive, the provisions of Section 11(b) of
this Agreement shall apply.
(d) Notwithstanding the provisions of
Section 1(a) of this Agreement, this Agreement shall terminate
automatically upon termination of the Executive's employment as a
result of the Executive's disability and the Executive's rights
under this Agreement shall cease as of the date of such
termination. For purposes of this Agreement, "disability" shall
mean the Executive's incapacitation by accident, sickness, or
otherwise that renders the Executive mentally or physically
incapable of performing the services therefore required of the
Executive for a continuous period of six (6) months.
2. Termination Following Change in Control.
(a) If a Change in Control (as defined in
Section 2(b) of this Agreement) shall occur and if thereafter, at
any time during the term of this Agreement, the Executive shall
be involuntarily terminated or there shall be:
(i) any reduction in title or a reduction in the Executive's responsibilities or authority with respect to Peoples, including such responsibilities and authority as the same may be increased at any time during the term of this Agreement, or the assignment to the Executive of duties inconsistent with the Executive's prior status as an officer of Peoples;
(ii) any reassignment of the Executive which requires the Executive to move his principal residence;
(iii) any removal of the Executive from
office or any adverse change in the terms and conditions of
the Executive's employment, except for any termination of
the Executive's employment under the provisions of
Section 1(b) hereof;
(iv) any reduction in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time;
(v) any failure of Peoples to provide the Executive with benefits at least as favorable as those enjoyed by the Executive under any of the pension, life insurance, medical, health, accident, disability or other employee benefit plans of Peoples (or any affiliated company) in which the Executive participated at the time of the Change in Control, or the taking of any action that would materially reduce any of such benefits in effect at the time of the Change in Control, unless such reduction is part of a reduction applicable to all employees;
(vi) any failure to obtain a satisfactory agreement from any successor to assume and agree to perform under this Agreement, as contemplated in Section 11(a) hereof;
(vii) any material change in the legal relationship between Peoples and the Bank; or
(viii) any material breach of this Agreement on the part of Peoples;
then, at the option of the Executive, exercisable by the
Executive within one hundred twenty (120) days of the occurrence
of each and every of the foregoing enumerated events, the
Executive may resign from employment with Peoples (or, if
involuntarily terminated, give notice of intention to collect
benefits under this Agreement) by delivering a notice in writing
(the "Notice of Termination") to Peoples, and the provisions of
Section 3 of this Agreement shall apply.
(b) As used in this Agreement, "Change in Control" means a change of control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as enacted and in force on the date hereof, whether or not Peoples is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if:
(i) any "person" (including a group acting in concert, as the term "person" is defined in Section 13(d) of the Exchange Act, as enacted and in force on the date hereof) becomes the "beneficial owner" (as that term is defined in Rule 13d-3, as enacted and in force on the date hereof, under the Exchange Act) of securities of Peoples representing more than 19.9% of the combined voting power of Peoples' securities then outstanding;
(ii) there occurs a merger, consolidation or other business combination or reorganization to which Peoples or the Bank is a party, whether or not approved in advance by the Board of Directors of Peoples or the Bank (as the case may be) in which the members of the Board of Directors of Peoples or the Bank (as the case may be) immediately preceding the consummation of such transaction do not constitute a majority of the members of the Board of Directors of the resulting corporation and of any parent corporation thereof immediately after the consummation of such transaction;
(iii) there occurs a sale, exchange, transfer, or other disposition of substantially all of the assets of Peoples or the Bank to another entity, which is not approved in advance by the Board of Directors of Peoples;
(iv) there occurs a contested proxy solicitation of the stockholders of Peoples that results in the contesting party obtaining the ability to elect candidates to a majority of the positions on Peoples' Board of Directors next up for election; or
(v) there occurs a tender offer for the shares of voting securities of Peoples that results in the tender offeror obtaining securities representing more than 19.9% of the combined voting power of Peoples' securities then outstanding.
3. Rights in Event of Certain Termination of
Employment After Change in Control. In the event that Executive
resigns from employment in accordance with the provisions of
Section 2(a), or Executive's employment is terminated by Peoples
without Cause after a Change in Control, Peoples shall pay (or
cause to be paid) to the Executive in cash, within twenty (20)
days following termination, an amount equal to 2.00 times his
"base amount" (within the meaning of Section 280G(b)(3) of the
Internal Revenue Code of 1986, as amended (the "Code")),
calculated as though the occurrence of the Change in Control were
an event described in Code Section 280G(b)(2)(A)(i).
Notwithstanding the preceding sentence, in the event the lump sum
payment described in the preceding sentence, when added to all
other amounts or benefits provided to or on behalf of the
Executive in connection with his termination of employment, would
result in the imposition of an excise tax under Code Section
4999, such lump sum shall be reduced to the extent necessary to
avoid such imposition.
4. Legal Expenses. Peoples shall pay to the Executive all legal fees and expenses incurred by the Executive in seeking in good faith to obtain or enforce any right or benefit provided by the Agreement, provided that any action or proceeding is not summarily decided against the Executive.
5. Arbitration. Peoples and the Executive recognize that in the event a dispute should arise between them concerning the interpretation or implementation of this Agreement, lengthy and expensive litigation will not afford a practical resolution of the issues within a reasonable period of time. Consequently, each party agrees that all disputes, disagreements and questions of interpretation concerning this Agreement are to be submitted for resolution to the American Arbitration Association (the "Association") in Philadelphia, Pennsylvania. Peoples, or the Executive, may initiate an arbitration proceeding at any time by giving notice to the other in accordance with the rules of the Association. The Association shall designate a single arbitrator to conduct the proceeding, but Peoples, and the Executive, may, as a matter of right, require the substitution of a different arbitrator chosen by the Association. Each such right of substitution may be exercised only once. The arbitrator shall not be bound by the rules of evidence and procedure of the courts of the Commonwealth of Pennsylvania but shall be bound by the substantive law applicable to this Agreement. The decision of the arbitrator, absent fraud, duress, incompetence or gross and obvious error of fact, shall be final and binding upon the parties and shall be enforceable in courts of proper jurisdiction. Following written notice of a request for arbitration, Peoples, and the Executive, shall be entitled to an injunction restraining all further proceedings in any pending or subsequently filed litigation concerning this Agreement. Notwithstanding the preceding provisions of this section, in the event any such provision is in conflict with a rule or policy of the Association, the arbitration proceeding shall be governed by such rule or policy.
6. Mitigation of Damages. The Executive shall not be
required to mitigate the amount of any payment provided for in
Section 3 by seeking other employment or otherwise, nor shall the
amount of any payment or benefit provided for in Section 3 be
reduced by any compensation earned by the Executive as the result
of employment by another employer or by reason of the Executive's
receipt of or right to receive any retirement or other benefits
after the date of termination of employment or otherwise;
provided, however, that the payments provided for in Section 3
shall be reduced by the amount actually received by the Executive
under any severance policy of Peoples then in effect.
7. Notices. Any notice required or permitted to be given under this Agreement shall be deemed properly given if in writing and if mailed by registered or certified mail, postage prepaid with return receipt requested, to the residence of the Executive, in the case of notices to the Executive, and to the principal office of Peoples, in the case of notices to Peoples.
8. Waiver. No provision of this Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by the Executive and an executive officer of Peoples specifically designated by the Board of Directors of Peoples. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.
9. Assignment. This Agreement shall not be assignable by either party, except by Peoples to any successor in interest to the business of Peoples.
10. Entire Agreement. This Agreement contains the entire agreement of the parties relating to the subject matter of this Agreement.
11. Successors; Binding Agreement.
(a) Peoples will require any successor (whether
direct or indirect, by purchase, merger, consolidation, or
otherwise) to all or substantially all of the business and/or
assets of Peoples to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that Peoples
would be required to perform it if no such succession had taken
place. Failure by Peoples to obtain such assumption and
agreement prior to the effectiveness of any such succession shall
constitute a breach of this Agreement and the provisions of
Section 3 of this Agreement shall apply. As used in this
Agreement, "Peoples" shall mean Peoples as hereinbefore defined
and any successor to the respective businesses and/or assets of
Peoples which assumes and agrees to perform this Agreement by
operation of law or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, heirs, distributees, devisees, and legatees. If the Executive should die after a Notice of Termination is delivered by the Executive and any amounts would be payable to the Executive under this Agreement if the Executive had continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee, or, if there is none, to the Executive's estate.
12. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
13. Applicable Law. This Agreement shall be governed by and construed in accordance with the domestic laws (but not the law of conflict of laws) of the Commonwealth of Pennsylvania.
14. Headings. The headings of the sections of this Agreement are for convenience only and shall not control or affect the meaning or construction or limit the scope or intent of any of the provisions of this Agreement.
15. Termination of Prior Agreements. Upon the execution and delivery of this Agreement by the parties hereto, any prior agreement relating to the subject matter hereof shall be automatically terminated and be of no further force or effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
PEOPLES FINANCIAL SERVICES CORP.
By_________________________________
President
(SEAL)
Attest:____________________________ (Assistant) Secretary
("Peoples")
Witness:
__________________________ _____________________________(SEAL)
Debra E. Dissinger
("Executive")
|
EXHIBIT 21
Subsidiaries of the Registrant
Peoples National Bank of Susquehanna County
EXHIBIT 23
Consent of Independent Auditors
We consent to the inclusion in the Form 10 Registration Statement of Peoples Financial Services Corp. (the "Company") relating to the registration of the common stock of the Company under Section 12(g) of the Securities Exchange Act of 1934, as amended, of our report dated February 11, 1998 relating to the consolidated financial statements of the Company as of and for the year ended December 31, 1997.
/s/ Prociak and Associates, L.L.C.
March 2, 1998
Wilkes-Barre, Pennsylvania
|
| ARTICLE 9 |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1997 |
| PERIOD END | DEC 31 1997 |
| CASH | 2,401 |
| INT BEARING DEPOSITS | 3,147 |
| FED FUNDS SOLD | 0 |
| TRADING ASSETS | 0 |
| INVESTMENTS HELD FOR SALE | 88,149 |
| INVESTMENTS CARRYING | 0 |
| INVESTMENTS MARKET | 0 |
| LOANS | 126,786 |
| ALLOWANCE | 1,676 |
| TOTAL ASSETS | 228,720 |
| DEPOSITS | 193,592 |
| SHORT TERM | 9,275 |
| LIABILITIES OTHER | 1,209 |
| LONG TERM | 0 |
| PREFERRED MANDATORY | 4,455 |
| PREFERRED | 0 |
| COMMON | 0 |
| OTHER SE | 20,189 |
| TOTAL LIABILITIES AND EQUITY | 228,720 |
| INTEREST LOAN | 9,996 |
| INTEREST INVEST | 5,602 |
| INTEREST OTHER | 127 |
| INTEREST TOTAL | 15,725 |
| INTEREST DEPOSIT | 7,738 |
| INTEREST EXPENSE | 176 |
| INTEREST INCOME NET | 7,811 |
| LOAN LOSSES | 130 |
| SECURITIES GAINS | 217 |
| EXPENSE OTHER | 4,994 |
| INCOME PRETAX | 3,825 |
| INCOME PRE EXTRAORDINARY | 3,825 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 3,011 |
| EPS PRIMARY | 3.44 |
| EPS DILUTED | 0 |
| YIELD ACTUAL | 0 |
| LOANS NON | 1,027 |
| LOANS PAST | 31 |
| LOANS TROUBLED | 0 |
| LOANS PROBLEM | 0 |
| ALLOWANCE OPEN | 1,664 |
| CHARGE OFFS | 149 |
| RECOVERIES | 31 |
| ALLOWANCE CLOSE | 1,676 |
| ALLOWANCE DOMESTIC | 1,676 |
| ALLOWANCE FOREIGN | 0 |
| ALLOWANCE UNALLOCATED | 0 |