PEOPLES
FINANCIAL SERVICES CORP.
50 MAIN
STREET
HALLSTEAD,
PA 18822
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
TO BE
HELD ON APRIL 28, 2005
The 2005
Annual Meeting of Shareholders of Peoples Financial Services Corp. will be held
at the Shadowbrook Resort, Route 6, Tunkhannock, Pennsylvania, on Thursday,
April 28, 2005, beginning at 7:00 p.m.
ITEMS OF
BUSINESS:
| 1) |
Election
of two Class I Directors to hold office for three years from the date of
election and until their successors shall have been elected and qualified;
and
|
| 2) |
Any
other matters that properly come before the
meeting. |
All
Holders of Common Shares of record at the close of business on February 25,
2005, are entitled to vote at the Meeting and any postponements or adjournments
of the Meeting.
The
Company’s 2004 Annual Report, which is not a part of the proxy soliciting
material, is enclosed.
It is
important that your Shares be represented and voted at the Meeting. Mark, sign,
date and promptly return the enclosed proxy card in the postage-paid envelope
furnished for that purpose. Any proxy may be revoked in the manner described in
the accompanying Proxy Statement at any time prior to its exercise at the
Meeting.
By order
of the Board of Directors
John W.
Ord
President
and CEO
March 28,
2005
Hallstead,
Pennsylvania
TABLE
OF CONTENTS
|
PROXY
STATEMENT |
|
3 |
|
Proxies |
|
3 |
|
Required
Vote |
3 | |
|
Cost
of Proxy Solicitation |
3 | |
|
Advance
Notice Procedures |
4 | |
|
Shareholder
Communications |
|
4 |
|
GOVERNANCE
OF THE COMPANY |
4 | |
|
Committees
of the Board of Directors |
5 | |
|
Compensation
of Directors |
6 | |
|
Compensation
Committee Interlocks and Insider Participation |
6 | |
|
Relationship
with Independent Public Accountants |
6 | |
|
Section
16(a) Beneficial Ownership Reporting Compliance |
6 | |
|
SHARE
OWNERSHIP OF MANAGEMENT AND DIRECTORS |
6 | |
|
ELECTION
OF DIRECTORS |
7 | |
|
Nominees
for Terms Expiring in 2008 |
8 | |
|
Directors
Whose Terms Will Expire in 2006 |
8 | |
|
Directors
Whose Terms Will Expire in 2007 |
9 | |
|
EXECUTIVE
COMPENSATION |
9 | |
|
Summary
Compensation Table |
9 | |
|
Board
Compensation Committee Report on Executive Compensation |
10 | |
|
Option
Grants in Last Fiscal Year |
13 | |
|
Aggregated
Options Exercised in Last Year |
13 | |
|
Equity
Compensation Plans |
13 | |
|
Retirement
Plans |
14 | |
|
Performance
Graph |
14 | |
|
Executive
Employment Agreements |
15 | |
|
Supplemental
Executive Retirement Agreements |
15 | |
|
Relationships
and Other Related Transactions |
15 | |
|
REPORT
OF THE AUDIT COMMITTEE |
16 | |
|
DIRECTORS
AND EXECUTIVE OFFICERS |
17 | |
|
OTHER
MATTERS |
17 |
2
PROXY
STATEMENT
This
Proxy Statement is furnished in connection with the solicitation of proxies by
the Board of Directors of Peoples Financial Services Corp., parent company of
Peoples National Bank, for use at the Company’s Annual Meeting of Shareholders
to be held on April 28, 2005, (the “Meeting”) at 7:00 p.m. E.S.T. at the
Shadowbrook Resort, Route 6, Tunkhannock, Pennsylvania. The Proxy Statement and
the accompanying proxy are first being mailed to Shareholders of the Company on
or about March 28, 2005.
PROXIES
The
execution and return of the enclosed proxy will not affect a shareholder’s right
to attend the Meeting and vote in person. Any Shareholder giving a proxy may
revoke it at any time before it is exercised by submitting written notice of its
revocation or a subsequently executed proxy to the Secretary of the Company,
Debra E. Dissinger, 50 Main Street, PO Box A, Hallstead, Pennsylvania, 18822, or
by attending the Meeting and electing to vote in person after giving written
notice thereof to the Secretary of the Company. Shareholders of record at the
close of business on February 25, 2005 are entitled to notice of, and to vote
at, the Meeting. On that date, the Company had 3,156,276 shares of common stock
outstanding (the “Common Stock”), par value $2 per share, each of which will be
entitled to one vote at the meeting.
If the
enclosed proxy is appropriately marked, signed, and returned in time to be voted
at the Meeting, the shares represented by the proxy will be voted in accordance
with the instructions marked thereon. Any proxy not specifying to the contrary
will be voted FOR the election of the nominees for Class I
Directors.
Shares
represented by properly executed proxies on the accompanying form will be voted
FOR the nominees of the Board of Directors named unless otherwise specified on
the proxy by the Shareholder. Any Shareholder who wishes to withhold authority
from the proxyholder to vote for the election of Directors or to withhold
authority to vote for any individual nominee may do so by marking his or her
proxy to that effect. No proxy may be voted for a greater number of persons than
the number of nominees named. If any nominee should become unable to serve, the
person named in the proxy may vote for another nominee. The Company’s Board of
Directors and Management, however, have no present reason to believe that any
nominee listed will be unable to serve as a Director, if elected.
REQUIRED
VOTE
The
presence, in person or by proxy, of the holders of a majority of the Shares
entitled to vote generally for the election of Directors is necessary to
constitute a quorum at the Meeting. Abstentions and broker “non-votes” are
counted as present and entitled to vote for purposes of determining a quorum. A
broker “non-vote” occurs when a nominee holding Shares for a beneficial owner
does not vote on a particular proposal because the nominee does not have
discretionary voting power with respect to that item and has not received
instructions from the beneficial owner.
Directors
are elected by a plurality of the votes cast at the Meeting. Abstentions and
broker “non-votes” will not be considered as votes cast for purposes of the
Meeting.
COST OF
PROXY SOLICITATION
The
expense of soliciting proxies will be borne by the Company. It is expected that
the solicitation of proxies will be primarily by mail. The Company’s Directors,
Officers and Employees may also, but without compensation other than their
regular compensation, solicit proxies by further mailings or personal
conversations, or by telephone, fax, or other electronic means. This expense for
2004 was $5,616.
3
ADVANCE
NOTICE PROCEDURES
The
By-laws of the Company permit nominations for election to the Board of Directors
to be made by the Board of Directors or by any Shareholder of the Company. All
nominations are referred to the Board of Directors for consideration. The
By-laws require that any nomination for Director by a Shareholder (other than by
the Board of Directors) must be made by notice, in writing, delivered to the
Secretary of the Company not less than 60 days prior to the date of a
Shareholders’ Meeting.
Any
Shareholder proposal for consideration at the Company’s Annual Meeting of
Shareholders to be held in 2006 must be received by the Company at is principal
office not later than December 2, 2005, in order to be considered at the 2006
Annual Meeting of Shareholders. A copy of the full text of the By-law provisions
discussed above may be obtained by writing to the Corporate Secretary, PO Box A,
Hallstead, Pennsylvania, 18822.
SHAREHOLDER
COMMUNICATIONS
Shareholders
and other parties interested in communicating directly with the Chairman of the
Board or with the non-management Directors as a group may do so by writing to
the Chairman of the Board, Peoples Financial Services Corp., 50 Main Street,
Hallstead, Pennsylvania 18822. The Corporate Secretary of the Company reviews
all such correspondence and forwards to the Board a summary and/or copies of any
such correspondence that, in the opinion of the Corporate Secretary, deals with
the functions of the Board or Committees thereof or that she otherwise
determines requires their attention. Directors may at any time review a log of
all correspondence received by the Company that is addressed to members of the
Board and request copies of any such correspondence. Concerns relating to
accounting, internal controls or auditing matters are immediately brought to the
attention of the Company’s internal auditors and handled in accordance with
procedures established by the Audit Committee with respect to such
matters.
GOVERNANCE
OF THE COMPANY
Pursuant
to the Pennsylvania General Corporate Law and the Company’s By-laws, the
business property and affairs of the Company are managed under the direction of
the Board of Directors. Members of the Board are kept informed of the Company’s
business through discussions with the CEO and Officers, by reviewing materials
provided to them, and by participation in meetings of the Board and its
committees.
During
2004, all of the Directors of the Company attended at least 75% of the aggregate
of all meetings of the Company’s and the Bank’s Boards of Directors and Board
Committees on which they served. Each Director is expected attend the Company’s
Annual Meetings. Five Directors were present for the 2004 Annual
Meeting.
COMMITTEES
OF THE BOARD OF DIRECTORS
The
Company’s Board of Directors met seven times during 2004 and the Bank’s Board of
Directors met 12 times during 2004.
Committees
are concurrent committees of Peoples Financial Services Corp. and Peoples
National Bank.
The
Executive Committee consists of the Board Chairman, if any, the Vice Chairman,
if any, and the President plus not less than one, but no more than three other
Directors. The Executive Committee meets on an as-necessary basis and may
exercise the authority of the Board to the extent permitted by law during
intervals between meetings of the Board. This committee may also be assigned
other duties by the Bank’s Board.
4
The
Compensation Committee met one time during 2004. This committee consists of four
members of the Board. It reviews and recommends compensation policies and
plans.
The
Audit/Compliance Committee met four times during 2004. This committee supervises
the compliance and internal audit program of the Bank and recommends the
appointment of, and serves as the principal liaison between, the Board and the
Company’s independent accountants. It also reports to the Board on the general
financial condition of the Bank. During the year, the Board examined the
composition of the Audit Committee and confirmed that the members are
“independent” as defined in the NASDAQ listing standards. Director Lochen was
determined to qualify, and agreed to serve, as the Audit Committee’s “financial
expert” as defined by SEC regulations.
The
Nominating and Governance Committee met one time during 2004. This committee is
comprised of the Chairman, if any, the Vice Chairman, if any, and one Board
Member at Large. It identifies individuals qualified to become Board members,
consistent with criteria approved by the Board, oversees the organization of the
Board to discharge the Board’s duties and responsibilities properly and
effectively, and ensures that proper attention is given, and effective responses
are made to shareowner concerns regarding corporate governance. The members of
this committee are "independent directors" as defined in the NASDAQ listing
standards. The Nominating Committee Charter was included in the 2004 Proxy
Statement.
The
Asset/Liability Committee met 12 times in 2004. The primary objectives of the
Asset/Liability management process include: optimize earnings and return on
assets and equity within acceptable and controllable levels; provide for growth
that is sound, profitable and balanced without sacrificing the quality of
service; and manage and maintain policy and procedures that are consistent with
the short- and long-term strategic goals of the Board of Directors. To this end,
the Asset/Liability Committee is responsible for risk management within the
following key areas: interest rate; price; liquidity; investment/credit; and
budget. The committee meets monthly and consists of the Board of Directors and
key Bank officers.
The Human
Resources and Marketing Committee met four times during 2004. This committee is
responsible for sound human resources management and training e.g., in
employment, compensation, and performance appraisals. This committee is also
responsible for evaluation, planning and supervision of the marketing and
advertising of the Bank’s products and services, and also oversees community
involvement and other public relations activities. The Human Resources and
Marketing Committee meets on a quarterly basis with the Human Resources and
Marketing Managers and other executive officers.
The Loan
Administration Committee met four times during 2004. This committee assists the
Bank’s Board of Directors in discharging its responsibility for the lending
activities of the Bank by reviewing loans, lines of credits, floor plans,
customers, financial statements, and by monitoring loan review and compliance.
The Loan Administration Committee recommends lending authorizations and is
responsible for assuring that the Bank’s loan activities are carried out in
accordance with loan policies. This committee is also responsible for insuring
the adequacy of the Bank’s loan loss reserve. The Loan Administration Committee
meets with the Loan Administration Manager and other executive officers on a
quarterly basis.
The
Branch Committees each met 10 times during 2004. These committees consist of the
Directors assigned to or representing a particular community office. These
committees meet with the branch manager, executive officers and associate
directors of that office on a monthly basis to discuss the progress and/or
problems of the particular office they represent. The Committee may make
recommendations on unlimited matters concerning that office for consideration at
the monthly Director’s Meeting.
COMPENSATION
OF DIRECTORS
Each
member of the Board of Directors receives $500 for each Bank Board meeting. Each
member receives $200 for each committee meeting they attend. Mr. Ord is not
compensated for committee meetings. All Outside Directors receive a retainer of
$8,400 per year. The Chairman of the Board receives an additional $250 per
month. The Financial Expert receives an additional $200 per month. Each member
of the Board of Directors received a $600 profit sharing distribution based on
results of 2004.
5
DIRECTORS’
STOCK OPTIONS
On
November 12, 2004, each Director received an option to purchase 250 shares of
Common Stock pursuant to the Company’s 1998 Stock Option Plan. These options
have an exercise price of $34.10 and will expire ten years from the date of the
grant.
DIRECTORS’
RETIREMENT
The
Company provides a retirement benefit to its non-employee directors. The plan
requires a minimum of ten years of service. After the tenth year, the Director
is granted an annual retirement distribution of $150 times the director’s number
of years of service on the Board. This benefit is payable to the Director or
beneficiary for a ten-year period following retirement. The Company has a
mandatory retirement age of 70. During 2004, the Company charged $5,500 to
expenses for this benefit.
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
John W.
Ord is the only employee serving on the Compensation Committee of the Board of
Directors. Mr. Ord is excluded from any discussion concerning his own
compensation.
RELATIONSHIP
WITH INDEPENDENT PUBLIC ACCOUNTANTS
Representatives
of Beard Miller Company LLP, the accounting firm which examined the financial
statements, are expected to be present at the Annual Meeting and will be
afforded an opportunity to make a statement if they desire to do so. The
representatives of Beard Miller Company LLP will be available to respond to
appropriate questions concerning the Annual Report presented by the Shareholders
at the Annual Meeting.
No accounting
firm has been selected by the Board of Directors for the 2005 term.
Selection will take place in the second quarter of 2005.
SECTION
16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16 (a) of the Securities Exchange Act of 1934 requires the Company’s Directors
and Executive Officers to file reports of holdings and transactions in Shares
with the Securities and Exchange Commission. Based on Company records and other
information, the Company believes that all Securities and Exchange Commission
filing requirements applicable to its Directors and Executive Officers with
respect to the Company’s 2004 fiscal year were met.
SHARE
OWNERSHIP OF MANAGEMENT AND DIRECTORS
The
following table sets forth information concerning the beneficial ownership of
the Company’s Common Shares as of 12/31/04, for: (a) each incumbent Director and
each of the nominees for Director; (b) each named executive officer of the
Company identified in the Summary Compensation Table; and (c) the Directors and
Executive Officer as a group. Except as otherwise noted, the named individuals
or family members had sole voting and investment power with respect to such
securities.
6
|
Directors
and Executive Officers |
Amount
and Nature of
*Beneficial
Ownership |
Percent
of Common Class | |
|
Gerald
R. Pennay |
35,700 |
1.13%
(1) | |
|
John
W. Ord |
71,097 |
2.25%
(2) | |
|
Thomas
F. Chamberlain |
12,092 |
.38%
(3) | |
|
George
H. Stover, Jr. |
77,350 |
2.45%
(4) | |
|
Debra
E. Dissinger |
12,486 |
.40%
(5) | |
|
Russell
D. Shurtleff |
15,462 |
.49%
(6) | |
|
Richard
S. Lochen, Jr. |
3,055 |
.10%
(7) | |
|
All
Directors and Executive Officers as a Group |
227,242 |
7.20%
| |
*The
securities “beneficially owned” by an individual are determined in accordance
with the definitions of “beneficial ownership” set forth in the general rules
and regulations of the Securities and Exchange Commission and may include
securities owned by or for the individual’s spouse, minor children and any other
relative who has the same home, as well as securities that the individual has or
shares voting or investment power, or has the right to acquire beneficial
ownership within sixty (60) days after February 25, 2005. Beneficial ownership
may be disclaimed as to certain of the securities. All numbers have been rounded
to the nearest whole number.
| (1) |
Includes
15,370 shares held jointly with spouse and option grants of 4,437
shares. |
| (2) |
Includes
14,120 shares of the Company’s Employee Stock Ownership Plan (“ESOP”)
which have been allocated to Mr. Ord’s account and option grants of 5,375
shares. All other shares are held jointly with
spouse. |
| (3) |
Includes
1,155 shares held jointly with spouse and option grants of 4,437 shares.
|
| (4) |
Includes
option grants of 4,437 shares. All other shares are held jointly with
spouse. |
| (5) |
Includes
11,492 shares of the Company’s Employee Stock Ownership Plan (“ESOP”)
which have been allocated to Ms. Dissinger’s account and options grants of
300 shares. All other shares are held jointly with
spouse. |
| (6) |
Includes
427 shares held jointly with spouse, 363 shares held jointly with child
and options grants of 3,050 shares. |
| (7) |
Includes
option grants of 1,025 shares. All other shares are held jointly with
spouse. |
ELECTION
OF DIRECTORS
The
By-laws of the Company provide that the Company’s business shall be managed by a
Board of Directors of not less than five, and not more than twenty-five persons.
The Board of Directors of the Company, as provided in the Company’s By-laws, is
divided into three Classes: Class I, Class II, and Class III, with each class
being as nearly equal in number as possible. The Board of Directors of the
Company presently consists of six members. The term of office of the Class I
Directors elected at the Meeting will expire on the date of the Company’s Annual
Meeting of Shareholders in 2008. The term of each of the continuing Directors in
Class II and Class III will expire on the date of the Company’s Annual Meeting
of Shareholders in 2006 and 2007, respectively.
7
The
person named in the enclosed proxy intends to vote such proxy FOR the election
of each of the two nominees named below, unless you indicate that your vote
should be withheld from any or all of them. Each nominee elected as a Director
will continue in office until his or her successor has been duly elected and
qualified, or until the earliest of his or her death, resignation or
retirement.
The Board
of Directors has proposed the following nominees for election as Directors at
the Annual Meeting.
NOMINEES
FOR TERMS EXPIRING AT THE ANNUAL MEETING TO BE HELD IN THE YEAR
2008:
GEORGE H.
STOVER, JR.
RICHARD
S. LOCHEN, JR.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE ABOVE-NAMED
NOMINEES FOR ELECTION AS DIRECTORS.
The
Company expects each nominee for election as a Director at the Annual Meeting to
be able to serve if elected. If any nominee is unable to serve if elected,
proxies may be voted for a substitute nominee selected by the Board of
Directors.
The
principal occupation and certain other information, as of the Annual Meeting
record date, are set forth regarding such nominees and other Directors whose
terms of office will continue after the Annual Meeting. Information about the
share ownership of the nominees and other Directors can be found on page
6.
|
NOMINEES
FOR TERMS EXPIRING IN 2008 |
|
GEORGE
H. STOVER, JR., Director of Peoples Financial Services Corp. and Peoples
National Bank since 1992. Real Estate Appraiser since 1972. Member of the
Following Committees: Hallstead/Conklin Branch; Asset/Liability; Loan;
Human Resources/Marketing; and Audit/Compliance. Age: 58
|
|
RICHARD
S. LOCHEN, JR., Director of Peoples Financial Services Corp. and Peoples
National Bank since 2003. Certified Public Accountant since 1995. Member
of the Following Committees: Hop Bottom/Nicholson Branch; Asset/Liability;
Loan; Human Resources/Marketing; Audit/Compliance; Compensation; and
Nominating. Age: 41 |
|
CLASS
II DIRECTORS TERMS EXPIRING IN 2006 |
|
JOHN
W. ORD, Director of Peoples Financial Services Corp. since 1986 and of
Peoples National Bank since 1969. President and Chief Executive Officer of
the Company and of the Bank since 1974. Member of the Compensation
Committee. Age: 64
|
|
RUSSELL
D. SHURTLEFF, Director of Peoples Financial Services Corp. and Peoples
National Bank since 2000. Attorney at Law since 1988. Member of the
Following Committees: Tunkhannock/Meshoppen Branch; Asset/Liability; Loan;
Human Resources/Marketing; Audit/Compliance; Compensation; and Nominating.
Age: 42 |
8
|
CLASS
III DIRECTORS TERMS EXPIRING IN 2007
GERALD
R. PENNAY, Director of Peoples Financial Services Corp. since 1986 and
Director of Peoples National Bank since 1985. Owner, Gerald R. Pennay
& Son Auctioneers located in Hop Bottom, Pennsylvania, since 1958.
Member of the Following Committees: Hop Bottom/Nicholson Branch;
Asset/Liability; Loan; Human Resources/Marketing; Audit/Compliance;
Compensation; and Nominating. Age: 69
|
|
THOMAS
F. CHAMBERLAIN, Director of Peoples Financial Services Corp. and Peoples
National Bank since 1994. Nationwide Insurance Agent since 1972. Member of
the Following Committees: Hallstead/Conklin Branch; Asset/Liability; Loan;
Human Resources/Marketing; Audit/Compliance; Compensation; and Nominating.
Age: 56 |
EXECUTIVE
COMPENSATION
The
following table sets forth information concerning total compensation earned or
paid for each of the last three fiscal years to the Company’s Chief Executive
Officer and other executive officers who received total annual salary and bonus
in excess of $100,000 in 2004.
SUMMARY
COMPENSATION TABLE
|
NAME
AND PRINCIPAL POSITION |
YEAR |
ANNUAL
SALARY |
COMPENSATION
BONUS |
ALL
OTHER
COMPENSATION
|
NUMBER
OF STOCK OPTIONS GRANTED |
|||||||||||
John
W. Ord, President/Chief Executive Officer |
2004
2003
2002 |
$
$
$ |
164,100
156,600
146,400
|
(1)
(1)
(1) |
$
$
$ |
25,000
22,500
20,000 |
$
$
$ |
161,269
(2
150,671
(2
139,110
(2 |
)
)
) |
250
250
750 |
||||||
Debra
E. Dissinger, Executive Vice President |
2004
2003
2002 |
$
$
$ |
92,334
87,937
83,750 |
$
$
$ |
12,000
8,794
12,188 |
$
$
$ |
13,143
(3
12,888
(3
13,347
(3 |
)
)
) |
150
150
600 |
| (1) |
Includes
Director’s fees of $6,600, $6,600 and $7,500 for 2004, 2003, and 2002,
respectively. |
| (2) |
Includes
Peoples National Bank’s ESOP contributions of $7,875, $8,500, and $9,452
for 2004, 2003, and 2002, respectively, 401(k) plan contributions of
$5,400, $5,100, and $4,167 for 2004, 2003, and 2002, respectively,
contributions to split dollar life insurance premium payments of $0,
$1,504, and $1,504 for 2004, 2003, and 2002, respectively, and
supplemental employee retirement plan contributions of $147,994, $135,567,
and 123,987 for 2004, 2003, and 2002,
respectively. |
| (3) |
Includes
Peoples National Bank’s ESOP contributions of $4,617, $5,006, and $6,068
for 2004, 2003, and 2002, respectively, 401(k) plan contributions of
$2,770, $2,638, and $2,512 for 2004, 2003, and 2002, respectively, and
contributions to a supplemental employee retirement plan of $5,756, $5,244
and $4,767 for 2004, 2003 and 2002,
respectively. |
The
aggregate cash compensation paid to the two executive officers of the Company
and the Bank for services performed during 2004 was $293,434.
9
The Bank
provides an automobile for its President/CEO in connection with the Bank’s
business. The value of any resulting personal benefits, which is not directly
related to job performance, is not included above.
The Bank
has in effect a Directors’ and Officers’ liability insurance policy from the
Fidelity and Deposit Company of Maryland to cover certain liabilities, losses,
damages, and expenses that the Bank’s Directors and Officers may incur in such
capacities. $8,129 was charged to expenses in 2004 for this
insurance.
The
following report of the Compensation Committee on Executive Compensation shall
not be deemed incorporated by reference by any general statement incorporating
this Policy Statement into any filing under the Securities Act of 1933 or under
the Securities Exchange Act of 1934, except to the extent the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
BOARD
COMPENSATION COMMITTEE
REPORT ON
EXECUTIVE COMPENSATION
This
report of the Compensation Committee covers the following topics:
| § |
Role
of the Corporate Governance and Compensation Committee relative to the
compensation program. |
| § |
Executive
Compensation Guiding Principles. |
| § |
Components
of the Compensation Program. |
| § |
Compensation
of the Chief Executive Officer. |
ROLE OF
THE CORPORATE GOVERNANCE AND COMPENSATION COMMITTEE
The
Committee is made up of four members of the Board of Directors. Three of them
are not current or former employees of the Company. The Committee sets the
overall compensation principles of the Company and reviews the entire program at
least annually. This includes each element described below, the measurement used
to make payments of awards under the Company’s incentive plans and the overall
effectiveness of the program. The Committee specifically reviews and establishes
the individual compensation levels for the top three members of the senior
leadership team, including the Chief Executive Officer. The Committee has
considered the advice of an independent outside consultant in determining the
appropriateness and the level of compensation.
EXECUTIVE
COMPENSATION GUIDING PRINCIPLES
Peoples
National Bank has developed a compensation program that is intended to motivate
and retain the key talent it needs to be a market leader in a highly competitive
industry. The Committee and the Company’s leadership team developed this program
to support the Company’s aggressive business strategy. The following principles
guided the development of the program:
| § |
Compensation
opportunity should be related to performance. That is, if Peoples National
Bank’s and the individual’s performance are at the median of those
companies with whom we compete for talent, then pay should be at the
median. Opportunity should increase proportionately if Peoples National
Bank’s or the individual’s performance is above the median. On the other
hand, if performance is at less than the median, any award payment will be
at the Committee’s discretion. |
| § |
Ownership
of the Company’s shares should be pervasive throughout the Company with
each individual having a number of opportunities to own Peoples Financial
Services Corp. stock. To that end, stock options were granted to all
eligible employees in May 1998. Each following year, stock
option grants were made to key officers and managers. The overall intent
is to encourage each employee to be, and to behave like, an owner of the
business. |
10
| § |
As
described later in this report, our compensation programs are designed to
balance short- and long-term financial objectives, build shareholder value
and reward for individual, team and Company
performance. |
| § |
The
proportion of total pay that is at risk against individual and Company
performance objectives increases with the more senior positions. For
example, in 2004, approximately 20% of the President’s total target pay
opportunity was at risk against short- and long-term performance
goals. |
Survey
data is compiled by an independent outside consultant to ensure that our total
program is competitive. Compensation data includes 91 institutions, which
include 67 commercial banks or bank holding companies, and 24 thrifts and credit
unions.
COMPONENTS
OF THE COMPENSATION PROGRAM
The three
components of the total compensation program are:
| § |
Base
Salary |
| § |
Short-Term
Incentives |
| § |
Long-Term
Incentives |
1. Base
Salary
Base
salaries for all officers have been set at levels that are comparable to similar
positions at other companies with whom we compare for compensation
purposes.
2.
Short-Term Incentives
The
annual bonus component of incentive compensation is designed to align executive
pay with short-term (annual) performance of the Company.
In 2004,
the annual bonus opportunity was based on the goals and objectives set forth in
the strategic plan. Distribution of bonuses was based on job position and
performance ratings.
3.
Long-Term Incentives
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 base and short-term incentive compensation for the plan
year.
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.
On May 1,
1998, the Company made a grant of stock options to substantially all employees.
These options have an exercise price of $14.80 (price adjusted to reflect the
Company’s five-for-two stock split in September 1998 and three-for-two stock
split in May 2003). The options vest after five years of service and will expire
10 years from the date of the grant. For 1999, 2000, 2001, 2002, 2003, and 2004,
stock option grants were made to key officers and managers. The exercise price
of these grants are $17.00, $18.33, $16.50, $18.00, $27.50 and $34.10,
respectively. These option grants have an expiration date of 10 years from the
date of grant and the 2003 options vest after five years.
11
COMPENSATION
OF THE CHIEF EXECUTIVE OFFICER
In fiscal
2004, the Company’s most highly compensated officer was John W. Ord,
President/CEO. In 2004, Mr. Ord’s total compensation included 47% in base
salary, 7% in short-term incentive, and 46% in long-term
compensation.
The
guidelines and factors considered by the Committee in determining compensation
include corporate profitability measured by return on assets, stock prices,
asset quality, loan loss reserve levels, market share, regulatory capital
strength, cost control, and regulatory examination. The Committee based
compensation on the fact that the Company performed well in a time when the
market conditions were very challenging. The Company maintained its competitive
position.
Base
Salary:
The
Committee increased Mr. Ord’s base salary from $156,600 in 2003 to $164,100 in
2004. Mr. Ord’s base pay includes Director’s fees. Ms. Dissinger’s base salary
increased from $87,937 in 2003 to $92,334 in 2004.
Short-Term
Incentives:
The
Committee assessed Mr. Ord’s and Ms. Dissinger’s performance in determining
their short-term incentive awards. The goals and objectives set forth in the
strategic plan were achieved through their leadership efforts therefore they
were awarded bonuses of $25,000 and $12,000, respectively.
Long-Term
Incentives:
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 base and short-term incentive compensation for the plan
year. $7,875 was contributed to Mr. Ord’s account and $4,617 to Ms. Dissinger’s
account for the year-ending 2004.
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. Mr. Ord
received $5,400 and Ms. Dissinger received $2,770 in employer contributions in
2004.
Peoples
National Bank maintains an excess benefit plan for Mr. Ord and Ms. Dissinger.
Under these plans, which are non-qualified plans, they will receive a
supplemental payment in order to provide them with an annual retirement
benefit.
The
Company made a grant of stock options to key officers and managers. Grants for
2004 were made November 12, 2004. These options have an exercise price of $34.10
and will expire 10 years from the date of the grant. Mr. Ord was granted 250
shares and Ms. Dissinger was granted 150 shares.
12
OPTION
GRANTS IN THE LAST FISCAL YEAR
INDIVIDUAL
GRANTS
|
Name |
Number
of Shares Underlying Options Granted (#) |
|
|
%
of Total Options Granted to Employees |
|
|
Exercise
Price
($
per share) |
|
|
Expiration
Date |
|
|
Grant
Date Present Value ($) |
| ||
John
W. Ord |
250 |
12 |
% |
$ |
34.10 |
11/12/2014 |
$ |
1,747.50 |
||||||||
Debra
E. Dissinger |
150 |
7 |
% |
$ |
34.10 |
11/12/2014 |
$ |
1,048.50 |
Mr. Ord
has an aggregate amount of stock option grants of 5,375 shares that have a grant
date present value of *$13,970. Ms. Dissinger has an aggregate amount of stock
options of 300 shares that have a grant date present value of
*$1,557.
*Black-Scholes
Option Pricing Method
AGGREGATED
OPTIONS EXERCISED IN LAST YEAR AND
DECEMBER 31, 2004 OPTION VALUE
|
Name |
Shares
Acquired on
Exercise
(#) |
|
Value
Realized
($) |
|
Number
of Securities Underlying Unexercised
Options
at
December
31, 2004 (#) Exercisable/Unexercisable |
|
Value
of
Unexercised
In-the-Money
Options
at
December
31, 2004 ($) Exercisable/Unexercisable |
||||||
John
W. Ord |
-0- |
-0- |
5,125/250 |
$ |
95,850/2,125 |
||||||||
Debra
E. Dissinger |
3,788 |
$ |
65,424 |
150/150 |
$ |
285/1,275 |
|||||||
EQUITY
COMPENSATION PLANS
The
following table discloses the number of outstanding options, warrants and rights
granted by the Company to participants in equity compensation plans, as well as
the number of securities remaining available for future issuance under these
plans. The table provides this information separately for equity compensation
plans that have and have not been approved by security holders.
|
(a)
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights |
(b)
Weighted-average
exercise price of outstanding options, warrants and rights |
(c)
Number
of securities remaining available for future insurance under equity
compensation plans (excluding securities reflected in column
(a)) |
||||||||
Equity
compensation plans approved by stockholders |
64,035 |
$ |
18.83 |
*75,278 |
||||||
|
Equity
compensation plans not approved by stockholders |
0 |
0 |
0 |
|||||||
|
Total |
64,035 |
$ |
18.83 |
75,278 |
||||||
*Securities
for future issuance are reserved and issued at the discretion of the Board of
Directors on an annual basis.
13
RETIREMENT
PLANS
The
Company maintains an Employee Stock Ownership Plan (the “ESOP”) that was
established as of January 1, 1983. The purpose of the ESOP is to promote in
Employees the strongest interest in the successful operation of the Company’s
business and loyalty to the organization, in addition to increasing efficiency
in their work. The ESOP also provides the Employees with an opportunity to share
in the prosperity of the Company’s business by means of stock
ownership.
In
general, each employee of the Bank who has attained the age of 21 years is
eligible to participate in the ESOP, provided he or she has been employed for at
least one year and is credited with at least 500 hours of service. 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 the Company stock owned by the
plan are included in the earnings per share calculation, and dividends on these
shares are deducted from undivided profits. During 2004, contributions to the
plan charged to operations were $125,787. Under the terms of the ESOP, the
Trustee (Benefit Plans Administrators) must invest assets primarily in Common
Stock of the Company. Under the ESOP, employee-participants are entitled to
voting rights attributable to stock allocated to their accounts.
Effective
August 1, 1994, the Bank 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 2004, employer contributions to the plan charged to operations
were $69,282.
PERFORMANCE
GRAPH
The
following graph and table compare the cumulative total shareholder return on the
Company’s Common Stock during the period of December 31, 1999, through and
including December 31, 2004, with the S&P 500 Index and the NASDAQ Bank
Index. The comparison assumes $100 was invested on December 31, 1999, in the
Company’s Common Stock and in each of the indices below and assumes further the
reinvestment of dividends into the applicable securities. The shareholder return
shown on the graph and table below is not necessarily indicative of future
performance.
|
1999 |
2000 |
2001 |
2002 |
2003 |
2004 |
||||||||||||||
Peoples
Financial Services Corp. |
$ |
100 |
$ |
83 |
$ |
95 |
$ |
106 |
$ |
180 |
$ |
212 |
|||||||
NASDAQ
- Bank Index |
$ |
100 |
$ |
114 |
$ |
126 |
$ |
132 |
$ |
171 |
$ |
190 |
|||||||
S&P
500 Index |
$ |
100 |
$ |
90 |
$ |
78 |
$ |
60 |
$ |
75 |
$ |
82 |
|||||||
14
EXECUTIVE
EMPLOYMENT AGREEMENTS
In 1997,
the Company entered into an employment agreement with John W. Ord, President and
CEO of the Company. The agreement is for an initial three-year term and is
renewed annually for a three-year terms unless notice of non-renewal 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 a minimum 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 at 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 2.99 times his average annual compensation for
the five years preceding the year of termination. In the event that the
Executive’s employment is terminated by the Company without “cause” in the
absence of a “change in control,” the Executive will be entitled generally to a
lump-sum payment equal to two 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 1997,
the Company also entered into a severance agreement with Debra E. Dissinger,
Executive Vice President of the Company, which provides for certain severance
benefits in the event Ms. Dissinger’s employment is terminated or she resigns
for specified reasons following a “change in control” of the Company. Under this
agreement, Ms. Dissinger would be entitled generally to a severance benefit
equal to two times her average annual compensation for five years preceding the
year of termination. No benefits are payable under this agreement in the event
Ms. Dissinger’s employment is terminated for “cause” or in the event her
employment is terminated for any reason prior to a “change in control.” The
specified
reasons for termination under this agreement are substantially similar to the
events of “good reason” contained in Mr. Ord’s agreement.
SUPPLEMENTAL
EXECUTIVE RETIREMENT AGREEMENTS
In 2004,
the Bank entered into a Supplemental Executive Retirement Agreement with each of
Mr. Ord and Ms. Dissinger which provide for supplemental retirement payments to
each executive officer. In the case of Mr. Ord, the annual benefit payable
following normal retirement is $84,520 and, in the case of Ms. Dissinger, the
annual benefit payable following normal retirement is $20,000, payable for 15
years. The agreements are unfunded, but the Bank purchased life insurance and
annuities that are actuarially designed to offset the annual expenses associated
with these agreements.
RELATIONSHIPS
AND OTHER RELATED TRANSACTIONS
Some of
the Directors and Officers of the Company, and the companies with which they are
associated, are customers of, and during 2004 had banking transactions with, the
Bank in the ordinary course of the Bank’s business, and intend to do so in the
future. All loans and commitments to loan included in such transactions were
made under substantially the same terms, including interest rates, collateral,
and repayment terms, as those prevailing at the time for comparable transactions
with other persons and, in the opinion of the Bank’s Management, do not involve
more than the normal risk of collection or present other unfavorable
features.
15
REPORT
OF THE AUDIT COMMITTEE
The
following report of the Audit Committee does not constitute soliciting material
and should not be deemed filed or incorporated by reference into any other
Company filing under the Securities Act of 1933 or the Securities Exchange Act
of 1934, except to the extent the Company specifically incorporates the report
by reference therein.
The
members of the Bank’s Audit Committee are Richard S. Lochen, Jr., CPA, Gerald R.
Pennay, Russell D. Shurtleff, Esquire, and Thomas F. Chamberlain. The Committee
met four times during fiscal 2004. The Committee schedules its meetings with a
view to ensuring that it devotes appropriate attention to all of its tasks. The
Committee’s meetings include, whenever appropriate, executive sessions with the
Company’s independent auditors and with the Company’s internal management
auditors, in each case without the presence of the Company’s management. In
addition, the Committee reviewed major initiatives and programs aimed at
strengthening the effectiveness of the Company’s internal control structure. As
part of this process, the Committee continued to monitor the scope and adequacy
of the Company’s internal auditing program, reviewing staffing levels and steps
taken to implement recommended improvements in internal procedures and controls.
A copy of the Audit Committee Charter was included as an exhibit to the
Company’s Proxy Statement for its 2004 Annual Meeting of
Shareholders.
Independent
Auditor Fees
The Sarbanes-Oxley Act of 2002 and the auditor independence rules of the United
States Securities and Exchange Commission require all public accounting firms
who audit issuers to obtain pre-approval from their respective Audit Committees
in order to provide professional services without impairing
independence. Beard Miller Company LLC has previously issued
engagement letters to, or obtained formal approval from, the Audit Committee for
certain services. These services are summarized below.
The
following fees were incurred for 2004 and 2003:
|
2004 |
2003 | |
|
Audit
Fees (1) |
$76,946 |
$37,800 |
|
Audit-Related
Fees (2) |
5,555 |
2,641 |
|
Tax
Fees (3) |
7,709 |
4,649 |
|
All
Other Fees |
- |
- |
|
$90,210 |
$45,090 |
|
\
(1)
|
Includes
professional services rendered for the audit of the Company’s annual
financial statements and review of financial statements included in Forms
10-Q, or services normally provided in connection with statutory and
regulatory filings (i.e., attest services required by Section 404 of the
Sarbanes-Oxley Act), including out-of-pocket expenses.
|
| (2) |
Assurance
and related services reasonably related to the performance of the audit or
review of financial statements included the following: assistance with new
guarantees disclosures; assistance with accounting for stock options and
earnings per share; and other assistance with required disclosures in the
Form 10-K and Forms 10-Q. |
| (3) |
Tax
fees include the following: preparation of state and federal tax returns;
assistance with calculating bonus depreciation; assistance with tax
notices; and preparation of IRS Form 3115. |
The fees
were approved in accordance with the Audit Committee’s policy.
Financial
Information Systems Design and Implementation Fees The
Company did not engage Beard Miller Company LLP to provide advice to the Company
regarding financial information systems design and implementation during fiscal
year ended December 31, 2004.
The Audit
Committee of the Bank has reviewed the audited financial statements of the
Company for the fiscal year ended December 31, 2004, and discussed them with
management and the Company’s independent accountants, Beard Miller Company LLP.
The Audit Committee also has discussed with the independent accountants the
matters required to be discussed by the US Statements of Auditing Standards
No. 89
and 90. The Bank’s Audit Committee has received from the independent accountants
the written disclosures and letter required by the US Independence Standards
Board Standard No. 1, and the Audit Committee has discussed the accountants’
independence from the Company and management with the accountants. Based on the
review and discussions, the Bank’s Audit Committee recommended to the
16
Board of Directors that the Company’s audited
financial statements for the fiscal year ended December 31, 2004, be included in
the Company’s Annual Report and Form 10K for that fiscal year.
Members
of the Audit Committee
Richard
S. Lochen, Jr., CPA
Gerald R.
Pennay
Russell
D. Shurtleff, Esquire
Thomas F.
Chamberlain
DIRECTORS
AND EXECUTIVE OFFICERS
The
Company’s Board of Directors presently consists of six members. The Company’s
Board of Directors is divided into three classes, one-third (as nearly equal in
number as possible) of who are elected annually to serve for a term of three
years.
The
following information is set forth in the table entitled “Company’s Board of
Directors”:
| · |
name; |
| · |
age; |
| · |
term
of office; and |
| · |
the
principal occupation 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 Peoples National Bank.
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 Peoples National Bank prior to the formation of
the Company
in 1986, the table indicates the earliest year a person became an Officer or
Director for Peoples National Bank or the Company.
|
NAME |
AGE |
POSITION
ON BOARD |
YEAR
ELECTED |
YEAR
TERM EXPIRES |
OCCUPATION |
|
Gerald
R. Pennay |
69 |
Chairman |
1985 |
2007 |
Owner,
Gerald R. Pennay & Sons Auctioneers |
|
John
W. Ord |
64 |
President/CEO |
1969 |
2006 |
President/CEO
of Bank and Company |
|
Thomas
F. Chamberlain |
56 |
Director |
1994 |
2007 |
Nationwide
Insurance Agent |
|
George
H. Stover, Jr. |
58 |
Director |
1992 |
2005 |
Real
Estate Appraiser |
|
Russell
D. Shurtleff |
42 |
Director |
2000 |
2006 |
Attorney
At Law |
|
Richard
S. Lochen, Jr. |
41 |
Director |
2003 |
2005 |
Certified
Public Accountant |
|
Debra
E. Dissinger |
50 |
Secretary |
N/A |
N/A |
Executive
Vice President of the Bank |
There are
no family relationships among any of the Executive Officers or Directors of the
Company. Executive Officers of Peoples National Bank are elected by the Board of
Directors on an annual basis and serve at the discretion of the Board of
Directors.
OTHER
MATTERS
Management
knows of no business other than as described previously that is planned to be
brought before the Meeting. Should any other matters arise, however, the person
named on the enclosed proxy will vote in accordance with the recommendation of
the Board of Directors, or in the absence of such a recommendation, in
accordance with his/her best judgment.
17