Penseco Financial Services (PFNS) 8-K Results of Operations and Financial Condition

Exhibit 99.1

NEWS RELEASE

CONTACT:	Patrick Scanlon, Senior Vice President, Finance Division Head
	Penseco Financial Services Corporation
	(570) 346-7741

FOR RELEASE: 8:00 A.M. Eastern Time: April 26, 2013

Penseco Financial Services Corporation Reports Earnings as of March 31, 2013

SCRANTON, PA, April 26, 2013 – Penseco Financial Services Corporation (OTC Bulletin Board: PFNS) (the “Company”), the Scranton, Pennsylvania based financial holding company of Penn Security Bank & Trust Company, reported net income for the three months ended March 31, 2013 of $2,521,000, or $0.77 per basic and diluted weighted average share, compared with $2,730,000, or $0.83 per basic and diluted weighted average share, from the year ago period, a decrease of $209,000, or 7.7%. Pre-provision net interest income decreased $330,000, or 4.0%. Net interest income, after provision for loan and lease losses, decreased $438,000, or 5.5%, during the 2013 period, due to a $778,000, or 8.0%, decrease in interest income, and an increase in the provision for loan and lease losses of $108,000, or 56.3%, offset by a decrease in interest expense of $448,000, or 30.2%, from lower funding costs. The decrease in interest income was primarily attributable to investment and loan cash flows being reinvested at historically low yields, including excess reserve deposits held at the Federal Reserve Bank of Philadelphia.

Non-Interest Income

Total non-interest income decreased $68,000, or 2.3%, to $2,826,000 for the three months ended March 31, 2013, compared with $2,894,000 for the corresponding period in 2012. This decrease was primarily attributable to a decrease of $176,000 in merchant transaction income due to lower volume, and was offset by a $54,000 increase in net realized gains on securities, a $33,000 increase in brokerage fee income and a $29,000 increase in trust department income.

Non-Interest Expenses

Total non-interest expenses decreased $216,000, or 2.9%, to $7,125,000 for the three months ended March 31, 2013 compared with $7,341,000 for the corresponding period in 2012. This decrease was primarily attributable to a $132,000 decrease in salaries and employee benefits due to lower compensation expenses and a $106,000 decrease in merchant transaction expenses, due to lower volume. These decreases in total non-interest expenses were offset by a $50,000 increase in other operating expenses.

Asset Quality

The Company maintains an allowance for loan and lease losses which reflects management’s estimate of probable loan losses, as determined in accordance with the Company’s allowance for loan and lease losses methodology. The ratio of the allowance for loan and lease losses to total loans was 1.12% and 1.07% as of March 31, 2013 and 2012, respectively, and 1.11% as of December 31, 2012.

Non-accrual loans equaled $2,943,000, or 0.46% of outstanding loans, at March 31, 2013, representing an increase of $663,000, or 29.1%, from $2,280,000 in non-accrual loans, or 0.37% of outstanding loans, at December 31, 2012. There were no commitments to lend additional funds to borrowers whose loans were in non-accrual status at March 31, 2013.

Net loan charge-offs amounted to $140,000, or 0.02%, of average outstanding loans for the three months ended March 31, 2013, compared to $92,000, or 0.01%, of average outstanding loans outstanding for the three months ended March 31, 2012.

The Company continues to proactively evaluate probable loan and lease losses and address delinquent loans by, among other things, obtaining current appraisals of collateral, increasing communication with borrowers and placing loans on non-accrual status when collection is in doubt and the loan is moving toward foreclosure or liquidation of collateral.

Income Tax Expense

Applicable income taxes decreased $81,000, or 9.9%, primarily due to lower taxable income for the three months ended March 31, 2013.

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Restatement

During the quarter ended June 30, 2012, the Company became aware that the actuarially computed value of its postretirement benefit liability was inaccurate. The postretirement benefit plan provides employees with life insurance coverage that continues at various levels after retirement. Due to a change in the assumptions provided by the Company to its actuary as to the cost of future premiums, the actuarially computed unfunded liability was understated.

The restatement resulted in the following changes to numbers previously reported:

As of December 31, 2011, an increase in other liabilities (postretirement liability) of $2,525,000 and an increase in other assets (deferred taxes) of $858,000 resulted in a net decrease to Stockholders’ Equity of $1,667,000, from $129,000,000 to $127,333,000.

As of March 31, 2012, an increase in other liabilities (postretirement liability) of $2,589,000 and an increase in other assets (deferred taxes) of $880,000 resulted in a net decrease to Stockholders’ Equity of $1,709,000, from $130,468,000 to $128,759,000.

For the three months ended March 31, 2012, an increase of $64,000 in salaries and employee benefits expense and a decrease of $22,000 in applicable income taxes resulted in a net reduction in net income of $42,000 from $2,772,000 to $2,730,000, or approximately $0.02 per share. Comprehensive income also was reduced by $42,000, from $2,844,000 to $2,802,000.

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PENSECO FINANCIAL SERVICES CORPORATION

FINANCIAL HIGHLIGHTS

(unaudited)

(in thousands, except per share amounts based on weighted average shares outstanding in each period)

	March 31,			March 31,			Inc / (Dec)			%
	2013			2012*			$			Change
	Three Months Ended
PERFORMANCE RATIOS
Return on Average Assets		1.10	%		1.18	%					-6.78	%
Return on Average Equity		7.54	%		8.46	%					-10.87	%
Net Interest Margin (1)		3.97	%		4.10	%					-3.17	%
Efficiency Ratio (2)		66.69	%		66.25	%					0.66	%
STOCKHOLDERS’ VALUE
Net Income	$	2,521		$	2,730		$	(209	)		-7.66	%
Earnings per share - Basic		0.77			0.83			(0.06	)		-7.23	%
Earnings per share - Diluted		0.77			0.83			(0.06	)		-7.23	%
Dividends Per Share		0.42			0.42			—			—
Book Value Per Share		40.67			39.30			1.37			3.49	%
Market Value Per Share		37.55			37.75			(0.20	)		-0.53	%
Market Value/Book Value		92.33	%		96.06	%					-3.88	%
Price Earnings Multiple		12.19x			11.37x						7.21	%
Dividend Payout Ratio		54.55	%		50.60	%					7.81	%
Dividend Yield		4.47	%		4.45	%					0.45	%
SAFETY AND SOUNDNESS
Stockholders’ Equity/Assets		14.33	%		13.89	%					3.17	%
Total Capital/Risk Weighted Assets		18.00	%		16.94	%					6.26	%
Tier 1 Capital/Risk Weighted Assets		16.84	%		15.84	%					6.31	%
Tier 1 Capital/Average Assets		11.78	%		11.17	%					5.46	%
Non-performing Assets/Total Assets		0.39	%		0.46	%					-15.22	%
Non-performing loans to period end loans		0.46	%		0.38	%					21.05	%
Allowance for loan and lease losses to period end loans		1.12	%		1.07	%					4.67	%
BALANCE SHEET HIGHLIGHTS
Total Assets	$	929,788		$	927,002		$	2,786			0.30	%
Total Investments		172,248			190,977			(18,729	)		-9.81	%
Net Loans		629,173			630,517			(1,344	)		-0.21	%
Allowance for Loan and Lease Losses		7,110			6,811			299			4.39	%
Total Deposits		741,337			724,929			16,408			2.26	%
Stockholders’ Equity		133,225			128,759			4,466			3.47	%

(1) The net interest margin is equal to tax equivalent net interest income divided by average interest earning assets. In order to make pre-tax income on tax-exempt investments and loans comparable to taxable investments and loans, a tax equivalent adjustment, based on a 34% tax rate, is made to interest income. This adjustment increased interest income by $532 and $579 for the three months ended March 31, 2013 and 2012, respectively. The Company believes that the tax equivalent presentation is consistent with industry practice. Although the Company believes that these financial measures enhance investors’ understanding of our business and performance, these measures should not be considered an alternative to GAAP.

(2) The efficiency ratio is equal to non-interest expenses divided by the sum of net interest income and non-interest income.

* - as restated

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PENSECO FINANCIAL SERVICES CORPORATION

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except per share amounts)

	March 31,			March 31,
	2013			2012*
ASSETS
Cash and due from banks	$	10,321		$	12,451
Interest bearing balances with banks		42,945			14,648
Federal funds sold		—			—
Cash and Cash Equivalents		53,266			27,099
Investment securities:
Available-for-sale, at fair value		157,047			169,158
Held-to-maturity (fair value of $15,944 and $22,910, respectively)		15,201			21,819
Total Investment Securities		172,248			190,977
Loans, net of unearned income		636,283			637,328
Less: Allowance for loan and lease losses		7,110			6,811
Loans, Net		629,173			630,517
Bank premises and equipment		14,984			13,842
Other real estate owned		713			1,786
Accrued interest receivable		2,844			3,177
Goodwill		26,398			26,398
Bank owned life insurance		17,735			17,229
Federal Home Loan Bank stock		3,593			5,545
Other assets		8,834			10,432
Total Assets	$	929,788		$	927,002
LIABILITIES
Deposits:
Non-interest bearing	$	144,128		$	140,982
Interest bearing		597,209			583,947
Total Deposits		741,337			724,929
Other borrowed funds:
Securities sold under agreements to repurchase		8,011			10,069
Short-term borrowings		—			—
Long-term borrowings		36,287			54,016
Accrued interest payable		544			875
Other liabilities		10,384			8,354
Total Liabilities		796,563			798,243
STOCKHOLDERS’ EQUITY
Common stock; $ .01 par value, 15,000,000 shares authorized, 3,276,079 shares issued and outstanding		33			33
Surplus		48,920			48,865
Retained earnings		84,943			80,067
Accumulated other comprehensive income		(671	)		(206	)
Total Stockholders’ Equity		133,225			128,759
Total Liabilities and Stockholders’ Equity	$	929,788		$	927,002

* - as restated

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PENSECO FINANCIAL SERVICES CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(in thousands, except per share amounts)

	Three Months Ended
	March 31,
	2013		2012*
INTEREST INCOME
Interest and fees on loans and leases	$	7,787	$	8,287
Interest and dividends on investments:
U.S. Treasury securities and U.S. Agency obligations		439		639
States & political subdivisions		623		715
Other securities		19		16
Interest on Federal funds sold		—		—
Interest on balances with banks		22		11
Total Interest Income		8,890		9,668
INTEREST EXPENSE
Interest on time deposits of $100,000 or more		265		312
Interest on other deposits		406		644
Interest on other borrowed funds		362		525
Total Interest Expense		1,033		1,481
Net Interest Income		7,857		8,187
Provision for loan and lease losses		300		192
Net Interest Income After Provision for Loan and Lease Losses		7,557		7,995
NON-INTEREST INCOME
Trust department income		391		362
Service charges on deposit accounts		467		459
Merchant transaction income		1,031		1,207
Brokerage fee income		90		57
Other fee income		401		403
Bank-owned life insurance income		119		118
Other operating income		226		241
Impairment losses on investment securities		—		—
Realized gains (losses) on securities, net		101		47
Total Non-Interest Income		2,826		2,894
NON-INTEREST EXPENSES
Salaries and employee benefits		3,583		3,715
Premises and equipment		801		837
Merchant transaction expenses		625		731
FDIC insurance assessments		118		110
Other operating expenses		1,998		1,948
Total Non-Interest Expenses		7,125		7,341
Income before income taxes		3,258		3,548
Applicable income taxes		737		818
Net Income	$	2,521	$	2,730
Weighted average shares outstanding - Basic		3,276,079		3,276,079
Weighted average shares outstanding - Diluted		3,277,302		3,276,079
Earnings per Common Share - Basic	$	0.77	$	0.83
Earnings per Common Share - Diluted	$	0.77	$	0.83
Cash Dividends Declared Per Common Share	$	0.42	$	0.42

* - as restated

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PENSECO FINANCIAL SERVICES CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(in thousands)

	Three Months Ended			Three Months Ended
	March 31, 2013			March 31, 2012*
Net Income	$	2,521		$	2,730
Other comprehensive income, net of tax:
Unrealized (losses) gains on securities:
Unrealized holding (losses) gains arising during the period		(314	)		103
Less: reclassification adjustment for gains (losses) included in net income		67			31
Other comprehensive income		(381	)		72
Comprehensive Income	$	2,140		$	2,802

* - as restated

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PENSECO FINANCIAL SERVICES CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

THREE MONTHS ENDED MARCH 31, 2013 AND 2012

(unaudited)

(in thousands, except per share amounts)

								Accumulated
								Other			Total
	Common				Retained			Comprehensive			Stockholders’
	Stock		Surplus		Earnings			Income			Equity
Balance, December 31, 2011*	$	33	$	48,865	$	78,713		$	(278	)	$	127,333
Net income*		—		—		2,730			—			2,730
Other comprehensive income									72			72
Cash dividends declared ($0.42 per share)		—		—		(1,376	)		—			(1,376	)
Balance, March 31, 2012*	$	33	$	48,865	$	80,067		$	(206	)	$	128,759
Balance, December 31, 2012	$	33	$	48,905	$	83,798		$	(290	)	$	132,446
Stock-based compensation				15								15
Net income		—		—		2,521			—			2,521
Other comprehensive income									(381	)		(381	)
Cash dividends declared ($0.42 per share)		—		—		(1,376	)		—			(1,376	)
Balance, March 31, 2013	$	33	$	48,920	$	84,943		$	(671	)	$	133,225

* - as restated

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About Penseco Financial Services Corporation

Penseco Financial Services Corporation, through its subsidiary Penn Security Bank & Trust Company, operates thirteen offices in Lackawanna, Luzerne, Wayne and Monroe counties. The Company’s stock is quoted on the OTC Bulletin Board, under the symbol, “PFNS”.

Safe Harbor Forward-Looking Statements

This press release, as well as other written communications made from time to time by the Company and its subsidiaries and oral communications made from time to time by management of the Company, may contain statements relating to the future results of the Company (including certain projections and business trends) that are considered “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). Such forward-looking statements may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “intend” and “potential”. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the PSLRA.

The Company cautions you that a number of important factors could cause actual results to differ materially from those currently anticipated in any forward-looking statement. Such factors include, but are not limited to: prevailing economic and political conditions, particularly in our market area; credit risk associated with our lending activities; changes in interest rates, loan demand, real estate values and competition; changes in accounting principles, policies, and guidelines; changes in any applicable law, rule, regulation or practice with respect to tax or legal issues; and other economic, competitive, governmental, regulatory and technological factors affecting the Company’s operations, pricing, products and services and other factors that may be described in the Company’s Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q as filed with the Securities and Exchange Commission from time to time. The forward-looking statements are made as of the date of this release, and, except as may be required by applicable law or regulation, the Company assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.

Reconciliation of Non-GAAP Financial Measures

Tangible Assets and Equity

Management believes that tangible assets, tangible equity, and the related ratios of tangible equity to tangible assets, tangible book value per share, and market value to tangible book value, are useful to investors in evaluating the Company’s results of operations and financial condition. Our intangible assets, namely goodwill and the core deposit intangible, are the result of our accounting for the Merger, and we would not be able to sell those assets separately from all other assets of the business. Tangible equity and tangible book value per share are used generally as conservative measures of net worth, approximating liquidation value.

The following table presents a reconciliation of tangible assets / tangible equity.

	March 31, 2013					March 31, 2012*
Tangible Assets
Total Assets			$	929,788				$	927,002
Less:
Goodwill		26,398					26,398
Core Deposit Intangible		774					1,032
				27,172					27,430
Tangible Assets			$	902,616				$	899,572
Tangible Equity
Total Equity			$	133,225				$	128,759
Less:
Goodwill		26,398					26,398
Core Deposit Intangible		774					1,032
				27,172					27,430
Tangible Equity			$	106,053				$	101,329
Tangible Equity / Tangible Assets				11.75	%				11.26	%
Tangible Book Value Per Share			$	32.37				$	30.93
Market Value / Tangible Book Value				116.00	%				122.05	%

* - as restated

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