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EXHIBIT 99.1
NEWS RELEASE
CONTACT: Patrick Scanlon, Senior Vice President, Controller
Penseco Financial Services Corporation
(570) 346-7741
FOR RELEASE: 4:00 P.M. Eastern Time: May 4, 2009
PENSECO FINANCIAL SERVICES CORPORATION REPORTS 1ST QUARTER 2009 EARNINGS
SCRANTON, PA, May 4, 2009 -- Penseco Financial Services Corporation (OTC
Bulletin Board: PFNS), the Scranton, Pennsylvania based financial holding
company of Penn Security Bank & Trust Company, reported a decrease in net income
of $2,516,000 for the three months ended March 31, 2009 to $441,000 or $.21 per
share compared with $2,957,000 or $1.38 per share from the year ago period. The
decrease in net income was primarily attributed to $1,335,000 of merger related
costs associated with the acquisition of the Old Forge Bank, which was completed
on April 1, 2009, along with the first quarter 2008 one time positive impact of
$1,710,000 related to Visa International's Initial Public Offering. Net interest
income increased $421,000 or 7.5% largely due to reduced interest expense from
lower deposit costs. Core net income decreased $367,000 or 20.1% due to an
increase in FDIC insurance costs of $143,000 and a higher provision for
potential loan losses of $761,000. As of March 31, 2009 there are no significant
loans as to which management has serious doubt about their collectibility,
however the Company felt it prudent to increase its provision for loan losses as
the general economy continues to weaken. The allowance for loan losses at March
31, 2009 was 1.41% of total loans compared to 1.20% of total loans at December
31, 2008 and 1.20% of total loans at March 31, 2008.
NON-INTEREST INCOME
Total non-interest income decreased $1,208,000 or 33.4% to $2,410,000 for the
three months ended March 31, 2009, compared with $3,618,000 for the same period
in 2008. The lower non-interest income was attributed to a one time gain of
$1,213,000 related to the VISA IPO during the first quarter of 2008. Trust
department income decreased $55,000 or 15.1% due to the decrease in market value
of trust assets. Service charges on deposit accounts increased $76,000 or 28.9%
primarily due to the increased number of accounts and increased service charge
activity. Merchant transaction income increased $24,000 or 2.0% due to higher
transaction volume and new business. Brokerage fee income decreased $64,000 or
35.4% mostly due to the decline in the overall market as the economy continues
to slow.
NON-INTEREST EXPENSES
Total non-interest expenses increased $2,066,000 or 40.8% to $7,124,000 for the
three months ended March 31, 2009 compared with $5,058,000 for the same period
of 2008. Salaries and employee benefits expense increased $63,000 or 2.6% due to
merit increases in salaries and employee benefits. Merger related costs of
$1,335,000, consist of computer and equipment upgrades of $606,000, investment
banking, valuation services, legal and accounting fees of $429,000 and severance
payments of $300,000. Other operating expenses increased $690,000 or 70.9%
partly from a higher one time FDIC assessment cost of $143,000. In March 2008,
the Company reversed $497,000 of legal and professional expense related to the
VISA IPO thereby lowering other operating expenses for three months ended March
31, 2008. Excluding both one time charges, operating expense increased $50,000
or 3.4%.
ASSET QUALITY
The allowance for loan losses at March 31, 2009 was $6,050,000 or 1.41% of total
loans compared to $4,925,000 or 1.20% of total loans at March 31, 2008.
Management believes the loan loss reserve is adequate.
Loans on which the accrual of interest has been discontinued or reduced amounted
to $882,000 at March 31, 2009, up from $301,000 at March 31, 2008. If interest
on those loans had been accrued, such income would have been $85,000 and $33,000
for the three months ended March 31, 2009 and March 31, 2008, respectively.
There were no commitments to lend additional funds to individuals whose loans
are in non-accrual status.
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Net loan charge-offs amounted to $221,000 or .05% of average outstanding loans
for the three months ended March 31, 2009 compared to $10,000 or .002% at March
31, 2008.
As of March 31, 2009 there are no significant loans as to which management has
serious doubt about their collectibility. During the second quarter of 2008, the
Company was notified that The Education Resources Institute, Inc. (TERI), a
guarantor of a portion of our student loan portfolio, had filed for
Reorganization under Chapter 11 of the Bankruptcy Act. Currently, the Company
holds $8.3 million of TERI loans out of a total student loan portfolio of $20.0
million. The Company does not anticipate that TERI's bankruptcy filing will
significantly impact the Company's financial statements. These loans are placed
on non-accrual status when they become more than 90 days past due. At March 31,
2009 there was $174,000 in such loans placed on non-accrual status.
At March 31, 2009 and December 31, 2008, the Company did not have any loans
specifically classified as impaired.
The Company does not engage in any sub-prime or Alt-A credit lending. Therefore,
the Company is not subject to any credit risks associated with such loans. The
Company's lending is primarily residential and commercial secured mortgage
loans, in Northeastern Pennsylvania, based upon conservative underwriting
standards.
INCOME TAX EXPENSE
Applicable income taxes decreased to a benefit of $153,000 for the three months
ended March 31, 2009 from a provision of $945,000 for the same period of 2008,
due to additional expenses related to the merger with Old Forge Bank in 2009, a
higher provision for loan losses in 2009 and a one time gain on the VISA IPO
during the three months ended March 31, 2008.
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<Table>
<Caption>
PENSECO FINANCIAL SERVICES CORPORATION
FINANCIAL HIGHLIGHTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended
March 31, March 31, Increase %
---------------------
(in thousands, except per share amounts 2009 2008 $ Change
- ------------------------------------------------------------------------------------------
PERFORMANCE RATIOS
Return on Average Assets 0.28% 2.00% -86.00%
Return on Average Equity 2.37% 16.77% -85.87%
STOCKHOLDERS' VALUE
Net Income $ 441 $ 2,957 (2,516) -85.09%
Earnings per share 0.21 1.38 (1.17) -84.78%
Dividends Per Share 0.42 0.41 0.01 2.44%
Book Value Per Share 34.14 33.61 0.53 1.58%
Market Value Per Share 33.90 38.00 (4.10) -10.79%
Market Value/Book Value Ratio 99.30% 113.06% -12.17%
Price Earnings Multiple 40.36x 6.88x 486.63%
Dividend Payout Ratio 200.00% 29.71% 573.17%
Dividend Yield 4.96% 4.32% 14.81%
SAFETY AND SOUNDNESS
Stockholders' Equity/Assets Ratio 11.31% 11.68% -3.17%
Total Capital/Risk Weighted Assets 19.09% 20.11% -5.07%
Tier 1 Capital/Risk Weighted Assets 17.84% 18.86% -5.41%
Tier 1 Capital/Average Assets 11.90% 12.28% -3.09%
Allowance for Loan Loss as a
a Percent of Loans 1.41% 1.20% 17.50%
Non-accrual Loans/Total Loans 0.21% 0.07% 200.00%
Non-performing Assets/Total Assets 0.21% 0.05% 320.00%
BALANCE SHEET HIGHLIGHTS
Total Assets $648,293 $618,089 $30,204 4.89%
Total Investments 168,852 163,511 5,341 3.27%
Net Loans 423,236 404,050 19,186 4.75%
Allowance for Loan Losses 6,050 4,925 1,125 22.84%
Total Deposits 435,087 421,314 13,773 3.27%
Stockholders' Equity 73,331 72,197 1,134 1.57%
</Table>
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<Table>
<Caption>
PENSECO FINANCIAL SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
March 31, March 31,
2009 2008
------------ ------------
ASSETS
Cash and due from banks $ 9,186 $ 21,095
Interest bearing balances with banks 2,114 6,345
Federal funds sold - -
------------ ------------
Cash and Cash Equivalents 11,300 27,440
Investment securities:
Available-for-sale, at fair value 108,272 96,888
Held-to-maturity (fair value of $64,678
and $68,662, respectively) 60,580 66,623
------------ ------------
Total Investment Securities 168,852 163,511
Loans, net of unearned income 429,286 408,975
Less: Allowance for loan losses 6,050 4,925
------------ ------------
Loans, Net 423,236 404,050
Bank premises and equipment 10,647 9,200
Other real estate owned 474 -
Accrued interest receivable 3,344 3,335
Cash surrender value of life insurance 7,762 7,446
Other assets 22,678 3,107
------------ ------------
Total Assets $648,293 $618,089
============ ============
LIABILITIES
Deposits:
Non-interest bearing $ 72,621 $ 78,668
Interest bearing 362,466 342,646
------------ ------------
Total Deposits 435,087 421,314
Other borrowed funds:
Repurchase agreements 35,319 40,520
Short-term borrowings 28,468 203
Long-term borrowings 70,141 79,310
Accrued interest payable 1,042 1,550
Other liabilities 4,905 2,995
------------ ------------
Total Liabilities 574,962 545,892
------------ ------------
STOCKHOLDERS' EQUITY
Common stock ($ .01 par value,
15,000,000 shares authorized, 2,148,000
shares issued and outstanding) 21 21
Surplus 10,819 10,819
Retained earnings 64,284 61,773
Accumulated other comprehensive income (1,793) (416)
------------ ------------
Total Stockholders' Equity 73,331 72,197
------------ ------------
Total Liabilities and Stockholders' Equity $648,293 $618,089
============ ============
</Table>
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PENSECO FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
<Table>
<Caption>
Three Months Ended
March 31,
-----------------------
2009 2008
--------- --------
INTEREST INCOME
Interest and fees on loans $6,284 $6,661
Interest and dividends on investments:
U.S. Treasury securities and U.S.
Agency obligations 878 905
States & political subdivisions 861 836
Other securities 14 74
Interest on Federal funds sold - -
Interest on balances with banks 3 11
--------- --------
Total Interest Income 8,040 8,487
--------- --------
INTEREST EXPENSE
Interest on time deposits of $100,000 or more 278 451
Interest on other deposits 943 1,533
Interest on other borrowed funds 821 926
--------- --------
Total Interest Expense 2,042 2,910
--------- --------
Net Interest Income 5,998 5,577
Provision for loan losses 996 235
--------- --------
Net Interest Income After Provision
for Loan Losses 5,002 5,342
--------- --------
NON-INTEREST INCOME
Trust department income 310 365
Service charges on deposit accounts 339 263
Merchant transaction income 1,208 1,184
Brokerage income 117 181
Other fee income 287 298
Bank-owned life insurance income 79 78
Other operating income 70 36
VISA mandatory share redemption - 1,213
Realized (losses) gains on securities, net - -
--------- --------
Total Non-Interest Income 2,410 3,618
--------- --------
NON-INTEREST EXPENSES
Salaries and employee benefits 2,478 2,415
Expense of premises and equipment, net 791 768
Merchant transaction expenses 857 902
Merger related costs 1,335 -
Other operating expenses 1,663 973
--------- --------
Total Non-Interest Expenses 7,124 5,058
--------- --------
Income before income taxes 288 3,902
Applicable income taxes (153) 945
--------- --------
Net Income $ 441 $2,957
========= ========
Earnings per Common Share
(Based on 2,148,000 shares outstanding) $ 0.21 $ 1.38
Cash Dividends Declared Per Common Share 0.42 0.41
</Table>
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Penseco Financial Services Corporation, through its subsidiary Penn Security
Bank & Trust Company, operates nine offices in Lackawanna, Wayne and Monroe
counties. The Company's stock is traded on the OTC Bulletin Board Market, under
the symbol, "PFNS".
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 authorized officers 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 geopolitical conditions; 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 Report on Form 10-K and Quarterly Reports on
Form 10-Q as filed with the Securities and Exchange Commission. 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.
NON-GAAP FINANCIAL MEASURES: (VISA TRANSACTION)
Certain financial measures contained in this 8-K as to March 31, 2008 exclude
the decrease of the liability accrual related to VISA's covered litigation
provision as well as the gain from the mandatory redemption of a portion of the
Company's class B shares in VISA. Also as to March 31, 2009, these financial
measures exclude merger related costs as to the acquisition of Old Forge Bank on
April 1, 2009. Financial measures which exclude the above-referenced items have
not been determined in accordance with generally accepted accounting principles
and are therefore non-GAAP financial measures. Management of the Company
believes that investors' understanding of the Company's performance is enhanced
by disclosing these non-GAAP financial measures as a reasonable basis for
comparison of the Company's ongoing results of operations. These non-GAAP
measures should not be considered a substitute for GAAP-basis measures and
results. Our non-GAAP measures may not be comparable to non-GAAP measures of
other companies. The attached Non-GAAP Reconciliation Schedule provides a
reconciliation of these non-GAAP financial measures to the most closely
analogous measure determined in accordance with GAAP.
In March 2008, VISA, Inc. (VISA) completed its initial public offering. Penn
Security Bank & Trust Company and certain other VISA member banks are
shareholders in VISA. Following the initial public offering, the Company
received $1.2 million in proceeds from the offering, as a mandatory partial
redemption of 28,351 shares, reducing the Company's holdings from 73,333 to
44,982 shares of Class B common stock. Using proceeds from this offering, VISA
established a $3.0 billion escrow account to cover the resolution of pending
litigation and related claims. The partial redemption proceeds of $1.2 million
are reflected in other non-interest income in the first quarter of 2008.
The remaining unredeemed shares of VISA Class B common stock are restricted and
may not be transferred until the later of (1) three years from the date of the
initial public offering or (2) the period of time necessary to resolve the
covered litigation. A conversion ratio of 0.6296 was established for the
conversion rate of Class B shares into Class A shares. If the funds in the
escrow account are insufficient to settle all the covered litigation, VISA may
sell additional Class A shares, use the proceeds to settle litigation, and
further reduce the conversion ratio. If funds remain in the escrow account after
all litigation is settled, the Class B conversion ratio will be increased to
reflect that surplus. As of March 31, 2009, the value of the Class A shares was
$55.60 per share. The value of unredeemed Class A equivalent shares owned by the
Company was $1.6 million as of March 31, 2009, and has not yet been reflected in
the accompanying financial statements.
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In connection with VISA's establishment of the litigation escrow account, the
Company reversed a $497 thousand reserve in the first quarter of 2008, reflected
as a reduction of other non-interest expense. This reserve was created in the
fourth quarter of 2007, pending completion of the VISA, Inc. initial public
offering as a charge to other non-interest expense.
Merger costs related to the acquisition of Old Forge Bank consists of investment
banking costs, system conversion costs, valuation services, legal and accounting
fees and severance payments to former directors of Old Forge Bank.
<Table>
<Caption>
NON-GAAP RECONCILIATION SCHEDULE
PENSECO FINANCIAL SERVICES CORPORATION
(UNAUDITED)
(IN THOUSANDS)
The following tables present the reconciliation of non-GAAP financial measures
to reported GAAP financial measures.
Three Months Ended
March 31,
2009 2008 Change
---------- ---------- -----------
Net interest income after provision for loan losses $ 5,002 $ 5,342 $ (340)
Non-interest income 2,410 3,618 (1,208)
Non-interest expense (7,124) (5,058) (2,066)
Income tax benefit (provision) 153 (945) 1,098
---------- ---------- -----------
Net income 441 2,957 (2,516)
ADJUSTMENTS
- -----------
Non-interest income
Gain on mandatory redemption of VISA, Inc.
class B common stock - (1,213) 1,213
Non-interest expense
Merger related costs 1,335 - 1,335
Covered litigation provision - (497) 497
---------- ---------- -----------
Total Adjustments pre-tax 1,335 (1,710) 3,045
Income tax provision (benefit) 315 (581) 896
---------- ---------- -----------
After tax adjustments to GAAP 1,020 (1,129) 2,149
---------- ---------- -----------
Adjusted net income $ 1,461 $ 1,828 $ (367)
========== ========== ===========
Return on Average Assets 0.93% 1.24%
Return on Average Equity 7.84% 10.37%
</Table>
Return on average equity (ROE) and return on average assets (ROA) for the three
months ended March 31, 2009 was 2.37% (7.84% excluding the merger costs) and
..28% (.93% excluding the merger costs), respectively. ROE was 16.77% (10.37%
excluding the VISA IPO impact) and ROA was 2.00% (1.24% excluding the VISA IPO
impact) for the same period last year.