(INSIDE COVER)
Customer Services
A detailed listing of the services offered by the Company is as follows:
DEPOSIT ACCOUNTS
All Purpose Clubs
Certificates of Deposit
Christmas Clubs
Demand Accounts
Individual Retirement Accounts
Money Market Accounts
NOW Accounts
Savings Accounts
Time Open Accounts
Vacation Clubs
LENDING
Appliance Loans
Automobile Loans
Business Loans
Collateral Loans
Comercial Equipment Leasing
Construction Loans
Cosmic Card (Debit Card, Check Card)
Credit Lines
Educational Loans
Home Equity Loans
Home Repair and Remodeling Loans
Installment Loans
MasterCard and VISA (Credit Card)
Mortgage Loans (Residential and Commercial)
Personal Loans
OTHER SERVICES
ATM Services
Bank Money Orders
Cash Management
Cashier's Checks
College Campus Card Interface
Data Processing Services
Direct Deposit of Recurring Payments
EDI-ACH Service
Foreign Remittance
Home Banking Services
Internet Banking
Investor Services
(a) Brokerage
(b) Insurance
Lockbox Services
Night Depository
Point-of-Sale Banking
Repurchase Agreements
Safe Deposit Boxes
Travelers Checks
Trust Department Services
(a) Administrator
(b) Agent
(c) Custodian and Trustee for Pension Plans
(d) Executor
(e) Guardian
(f) Securities Depository Service
(g) Trustee
(h) Trustee for Public Bond Issues
U.S. Savings Bonds
BRANCH LOCATIONS (with ATMs)
Abington
1100 Northern Boulevard
Clarks Summit, PA
Carl M. Baruffaldi, Manager
(570) 587-4898
East Scranton
Prescott Avenue & Ash Street
Scranton, PA
Beth S. Wolff, Manager
(570) 342-9101
East Stroudsburg
Route 209 & Route 447
East Stroudsburg, PA
Denise M. Cebular, Manager
(570) 420-0432
Gouldsboro
Main & Second Streets
Gouldsboro, PA
Lori A. Dzwieleski, Manager
(570) 842-6473
Green Ridge
1901 Sanderson Avenue
Scranton, PA
Jeffrey Solimine, Manager
(570) 346-4695
Central City
150 North Washington Avenue
Scranton, PA
Andrew A. Kettel, Jr., Manager
(570) 346-7741
Mount Pocono
Route 611 & Route 940
Mount Pocono, PA
Karyn Gaus Vashlishan, Manager
(570) 839-8732
North Pocono
Main & Academy Streets
Moscow, PA
Deborah A. Wright, Manager
(570) 842-7626
South Scranton
526 Cedar Avenue
Scranton, PA
J. Patrick Dietz, Manager
(570) 343-1151
Other ATM locations
Acorn Market
Route 209
Marshall's Creek, PA
Acorn Market
Route 611
Swiftwater, PA
Convenient Food Mart
Wyoming & Mulberry Streets
Scranton, PA
Meadow Ave. & Hemlock St.
Scranton, PA
Metropolitan Life Insurance Company
Morgan Highway
Clarks Summit, PA
Red Barn Village
Newton Ransom Blvd
Newton, PA
On the Cover
A picture of our lighted Central City Office building appears on the front cover
of this report. We added exterior lighting to highlight the significant
architectural features of the building and a new sign signifying our holding
company's logo, which was placed atop the building. We have received many
compliments from the community regarding this improvement to the downtown
Scranton business district. This new "beacon" of progress we hope will provide
impetus to a new administration in Scranton City Hall to lead our community into
a proud and better future.
www.pennsecurity.com
Financial Highlights
--------------------
In thousands, except
per share data 2001 2000 1999
- ---------------------------------------------------------
Earnings per share $ 2.62 $ 2.21 $ 2.17
Dividends per share $ 1.25 $ 1.15 $ 1.10
Total Capital $ 54,648 $ 50,067 $ 45,743
Total Deposits $ 406,531 $ 387,439 $ 367,332
Total Assets $ 482,551 $ 467,230 $ 428,614
Contents
--------
Customer Services ............................................Inside Front Cover
President's Letter ............................................................2
Board of Directors ............................................................3
Promotions and Appointments ...................................................3
Community Events ..............................................................5
Form 10-K
Part 1, Item 1 Business ....................................................7
Item 2 Properties ..................................................8
Item 3 Legal Proceedings ...........................................8
Item 4 Submission of Matters to a Vote of Security Holders .........8
Part 2, Item 5 Market for Registrant's Common Equity and
Related Stockholder Matters ...............................9
Item 6 Selected Financial Data ....................................10
Item 7 Management Discussion and Analysis of Financial Condition
and Results of Operations ................................11
Item 7A Quantitative and Qualitative Disclosures About Market Risk..20
Item 8 Financial Statements and Supplementary Data ................22
Consolidated Balance Sheets ................................22
Consolidated Statements of Income ..........................23
Consolidated Statements of Stockholders' Equity ............24
Consolidated Statements of Cash Flows ......................25
General Notes to Financial Statements ......................26
Independent Auditor's Report ...............................35
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure .................................36
Part 3, Item 10 Directors and Executive Officers of the Registrant .........36
Item 11 Executive Compensation .....................................36
Item 12 Security Ownership of Certain Beneficial Owners
and Management ...........................................36
Item 13 Certain Relationships and Related Transactions .............36
Part 4, Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K ......................................37
Signatures .................................................................38
Index to Exhibits ..........................................................39
Company Officers .............................................................40
Company Board Members .........................................Inside Back Cover
Penseco Financial Services Corporation / 2001 Annual Report 1
President's Letter
------------------
Dear Shareholder
I am pleased to report to you that 2001 was another record year for Penseco
Financial Services Corporation. Earnings increased to $2.62 per share for 2001
from $2.21 per share for 2000. Dividends increased to $1.25 per share for 2001
from $1.15 per share for 2000. Total Assets increased to $483 million at year
end 2001 from $467 million at year end 2000. Total Deposits increased to $407
million at year end 2001 from $387 million at year end 2000. Capital increased
to $54.6 million at year end 2001 from $50.1 million at year end 2000. Although
we believe our loan portfolio remains strong, the Bank also took steps to handle
the fallout from the declining economy, increasing the allowance for loan losses
by $500,000 or 16%.
During 2001, in a concerted effort to avoid an economic recession, the
Federal Reserve Board concentrated on providing a stimulus to the economy which
started slowing dramatically at the end of 2000. Although progress was being
made, the terrorist attacks on the World Trade Center and Pentagon pushed the
economy over the edge into recession. During the year, the Federal Discount Rate
and the Federal Funds target rate were lowered 11 times, resulting in the lowest
short-term rates experienced in the country in over 40 years. Prime rate this
year dropped from 9.50% to 4.75%. Long-term rates, however, did not fall as far,
declining by only 1.5%. The modest repositioning of our investment portfolio in
2000 served us well in this declining rate environment.
With the tax cuts and spending increases and slowdown of the economy, the
anticipated Federal surplus has evaporated. With the Federal deficits providing
a fiscal stimulus to the economy, combined with the Federal Reserve moves, the
country should be out of the recession this year. As a consequence, rates should
be on their way up over the next several years, so we must prepare for that
eventuality.
This year was a busy one for banks. The dramatic reduction in interest
rates led to a flood of borrowers seeking to refinance their loans. To
accommodate this, many loan modification agreements were entered into to enable
the customer to participate in the lower rate structure without the increased
expense of a complete refinancing.
During the year, several of our Branch managers completed investment
licensing so they can discuss investment products with our customers. They will
work hand in hand with securities sales representatives in advising our
customers regarding investment transactions. This is the first step toward
establishing a fully licensed broker dealer subsidiary of our holding company.
In the first quarter of the year, we employed the services of a bank
advisory firm to analyze our operations and make recommendations of ways to
increase our revenues and decrease our costs. Much of 2001 was spent
implementing these recommendations. I am pleased to report that this
significantly impacted our bottom line and the last recommendation, installation
of a loan and deposit documentation processing system, is happening as I write
this letter.
This year, the Enron scandal has called into question the reliability of
financial information being fed to investors.I am pleased to tell you that
Penseco Financial Services Corporation and its subsidiary, Penn Security Bank
and Trust Company, have not and will not engage in such deceptive practices.
The year 2002 is to be a year of celebration for Penn Security Bank and
Trust Company as it is the 100th year of existence of the Bank. Special events
will be happening all year long. New Year's Eve began our celebration as
literally thousands of people celebrated New Years in our Central City Lobby as
we partnered with First Night Scranton in bringing an evening of entertainment
for all to downtown Scranton. In anticipation, we added exterior lighting to our
Central City Office highlighting the significant architectural features of the
building and a new sign signifying our holding company's logo was placed atop
the building. A picture of the lighted building appears on the front cover of
this report. We have received many compliments from the community regarding this
improvement to the downtown Scranton business district. This new "beacon" of
progress we hope will impetus to a new administration in Scranton City Hall to
lead our community out of economic distress and into a proud and better future.
We have indicated our willingness to participate and invest our funds in this
renaissance.
During 2001, Michael G. Ostermayer was appointed Vice-President and Chief
Investment Officer, Trust Services; also Katherine M. Oven was appointed Trust
Portfolio Manager; and Dominick P. Gianuzzi, Assistant Trust Officer.
In March of 2001, Ann Kennedy, our Gouldsboro Branch Manager, retired after
29 1/2 years of loyal service to our Bank. We have indeed been fortunate to have
employees of such longevity. Lori A. Dzwieleski has assumed her duties as Branch
Manager.
In 2001, the following promotions were made: Patricia A. Bruno, Branch
Operations Officer; Mary Carol Cicco, Business Development Officer; Frank
Gardner, Assistant Cashier; Jill Ross, Merchant Officer; Susan Cottle, Assistant
Cashier and Assistant Branch Manager Gouldsboro Office; Jennifer A. Lucchese,
Assistant Branch Operations Officer; and Carolyn E. Brown, Assistant Branch
Operations Officer. We congratulate these fine employees on their many
achievements.
We have indicated before that we are interested in providing a wide range
of insurance products to our customers and we continue to pursue that goal.
We think that our strong capital position, good earnings, advanced
technology and solid customer base, both in our traditional geographic market
and niche national markets, provide an excellent foundation for our continued
success. In this endeavor you can help us by recommending us to your family,
friends, and business organizations. This is your institution - let it serve
you.
Sincerely yours,
Otto P. Robinson, Jr.
President
2 Penseco Financial Services Corporation / 2001 Annual Report
The top of this page of the 2001 Annual Report to Shareholders contains one
picture. A description of the picture follows:
Board of Directors
------------------
Seated left to right:
Edwin J. Butler, Emily S. Perry, Attorney Otto P. Robinson, Jr., President;
Sandra C. Phillips and Russell C. Hazelton
Standing left to right:
P. Frank Kozik, Secretary; Steven L. Weinberger, Robert W. Naismith, Ph.D.,
James B. Nicholas, James G. Keisling, D. William Hume, and Richard E. Grimm,
Executive Vice-President and Treasurer
The bottom of this page of the 2001 Annual Report to Shareholders contains three
pictures. A description of each picture follows, starting from left to right:
Promotions & Appointments
-------------------------
Michael G. Ostermayer
Vice-President, Chief Investment Officer, Trust Services
Katherine M. Oven
Trust Portfolio Manager
Dominick P. Gianuzzi
Assistant Trust Officer
Penseco Financial Services Corporation / 2001 Annual Report 3
This page of the 2001 Annual Report to Shareholders contains seven pictures. A
description of each picture follows, starting at the top, from left to right:
Promotions & Appointments
-------------------------
Susan Cottle
Assistant Cashier, Assistant Branch Manager
Frank Gardner
Assistant Cashier
Patricia A. Bruno
Branch Operations Officer
Carolyn E. Brown
Assistant Branch Operations Officer
Jennifer A. Lucchese
Assistant Branch Operations Officer
Mary Carol Cicco
Business Development Officer
Jill Ross
Merchant Officer
4 Penseco Financial Services Corporation / 2001 Annual Report
Community Events
----------------
The top portion of the 2001 Annual Report to Shareholders contains two pictures.
Starting at the top, from left to right:
We contributed our former Green Ridge branch office to Neighborhood Housing of
Scranton to make possible the site of the Neighbor Works Home Ownership Center,
which opened on June 9, 2001.
An exterior view of the Central City office lobby is shown which highlights the
significant architectural features of our building during the evening of our
First Night festivities.
The lower porton of this page of the 2001 Annual Report to Shareholders contains
six pictures.
The year 2002 is to be a year of celebration for Penn Security Bank and Trust
Company as it is the 100th year of existence of the Bank. Special events will be
happening all year long. New Year's Eve began our celebration as literally
thousands of people celebrated New Years in our Central City office lobby, as we
partnered with First Night Scranton in bringing an evening of entertainment for
all to downtown Scranton. The pictures shown below depict several of the
festivities which were happening in the Penn Security Bank lobby area on First
Night.
Penseco Financial Services Corporation / 2001 Annual Report 5
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2001
Commission File Number 000-23777
PENSECO FINANCIAL SERVICES CORPORATION
Scranton, Pennsylvania
Commonwealth of Pennsylvania
I.R.S. Employer Identification Number 23-2939222
150 North Washington Avenue
Scranton, Pennsylvania 18503-1848
Telephone number 570-346-7741
Securities Registered Under
Section 12(g) of the Act
Common Stock, Par Value $ .01 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of the Company's voting stock held by non-affiliates
of the registrant on FEBRUARY 15, 2002, based on the average of the closing bid
and asked prices of such stock on that date equals Approximately $61,218,000.
The number of shares of common stock outstanding as of FEBRUARY 15, 2002 equals
2,148,000.
Documents Incorporated by Reference
Portions of the Corporation's 2001 Annual Report to Stockholders are
incorporated by reference in Parts I and II.
Portions of the Corporation's definitive proxy statement relating to the 2002
Annual Meeting of Stockholders are incorporated by reference in Part III.
6 Penseco Financial Services Corporation / 2001 Annual Report
PENSECO FINANCIAL SERVICES CORPORATION
PART I
ITEM 1 Business
GENERAL
PENSECO FINANCIAL SERVICES CORPORATION, (the "Company"), which is headquartered
in Scranton, Pennsylvania, was formed under the general corporation laws of the
State of Pennsylvania in 1997 and is registered as a financial holding company.
The Company became a holding company upon the acquisition of all of the
outstanding shares of Penn Security Bank and Trust Company (the "Bank"), a state
chartered bank, on December 31, 1997. The Company is subject to supervision by
the Federal Reserve Board. The Bank, as a state chartered financial institution,
is subject to supervision by the Federal Deposit Insurance Corporation and the
Pennsylvania Department of Banking.
The Company's principal banking office is located at 150 North Washington
Avenue, Scranton, Pennsylvania, containing trust, investor services, marketing,
audit, credit card, human resources, executive, data processing and central
bookkeeping offices. There are eight additional offices.
Through it's banking subsidiary, the Company generates interest income from
it's outstanding loans receivable and it's investment portfolio. Other income is
generated primarily from merchant transaction fees, trust fees and service
charges on deposit accounts. The Company's primary costs are interest paid on
deposits and general operating expenses. The Bank provides a variety of
commercial and retail banking services to business and professional customers,
as well as retail customers, on a personalized basis. The Bank's primary lending
products are real estate, commercial and consumer loans. The Bank also offers
ATM access, credit cards, active investment accounts, trust department services
and other various lending, depository and related financial services. The Bank's
primary deposit products are savings and demand deposit accounts and
certificates of deposit.
The Bank has a third party marketing agreement with Fiserv Investor
Services, Inc. that allows the bank to offer a full range of securities,
brokerage and annuity sales to it's customers. The investor services division is
located in the headquarters building and the services are offered throughout the
entire branch system.
The Company is not dependent upon a single customer, or a few customers,
the loss of one or more of which would have a material adverse effect on it's
operations. The operations and earnings of the Corporation are not materially
affected by seasonal changes or by Federal, state or local environmental laws or
regulations.
COMPETITION
The Bank operates in a competitive environment in which it must share its market
with many local independent banks as well as several banks which are affiliates
or branches of very large regional holding companies. The Bank encounters
competition from diversified financial institutions, ranging in size from small
banks to the nationwide banks operating in it's region, and include commercial
banks, savings and loan associations, credit unions and other lending
institutions.
The principal competitive factors among the Bank's competitors can be
grouped into two categories: pricing and services. In the Bank's primary service
area, interest rates on deposits, especially time deposits, and interest rates
and fees charged to customers on loans are very competitive. From a service
perspective, the Bank competes in areas such as convenience of location, types
of services, service costs and banking hours.
EMPLOYEES
As of February 15, 2002, the Company employed 201 full-time equivalent
employees. The employees of the Company are not represented by any collective
bargaining group. Management of the Company considers relations with its
employees to be good.
SUPERVISION AND REGULATION
The Company is registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended, and, as such, is subject to supervision and
regulation by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board" or "FRB"). The Company is required to file quarterly reports of
its operations with the FRB.
Penseco Financial Services Corporation / 2001 Annual Report 7
As a financial holding company, the Company is permitted to engage in
banking-related activities as authorized by the Federal Reserve Board, directly
or through subsidiaries or by acquiring companies already established in such
activities subject to the FRB regulations relating to those activities.
The Bank, as a Pennsylvania state-chartered financial institution, is
subject to supervision, regulation and examination by the Commonwealth of
Pennsylvania Department of Banking and by the Federal Deposit Insurance
Corporation (the "FDIC"), which insures the Bank's deposits to the maximum
extent permitted by law.
FORWARD LOOKING INFORMATION
This Form 10-K contains forward-looking informational statements, in addition to
the historical financial information required by the Securities and Exchange
Commission. There are certain risks and uncertainties associated with these
forward-looking statements which could cause actual results to differ materially
from those stated herein. Such differences are discussed in the section entitled
"Management Discussion and Analysis of Financial Condition and Results of
Operations". These forward-looking statements reflect management's analysis as
of this point in time. Readers should review the other documents the Company
periodically files with the Securities and Exchange Commission in order to keep
apprised of any material changes.
ITEM 2 Properties
There are nine offices positioned throughout the greater Northeastern
Pennsylvania region. They are located in the South Scranton, East Scranton,
Green Ridge, and Central City sections of Scranton, the Borough of Moscow, the
Town of Gouldsboro, South Abington Township, the Borough of Mount Pocono and the
Borough of East Stroudsburg at Eagle Valley Corners. Through these offices, the
Company provides a full range of banking and trust services primarily to
Lackawanna, Wayne, Monroe and the surrounding counties. All offices are owned by
the Bank or through a wholly owned subsidiary of the Bank, Penseco Realty, Inc.,
with the exception of the Mount Pocono Office, which is owned by the Bank but is
located on land occupied under a long-term lease.
The principal office, located at the corner of North Washington Avenue and
Spruce Street in the "Central City" of Scranton's business district, houses the
operations, trust, investor services, marketing, credit card and audit
departments as well as the Company's executive offices. Several remote ATM
locations are leased by the Bank, which are located throughout Northeastern
Pennsylvania. All branches and ATM locations are equipped with closed circuit
television monitoring.
ITEM 3 Legal Proceedings
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to the business of the Company, as to which the Company or
subsidiary is a party or of which any of their property is subject.
ITEM 4 Submission of Matters to a Vote of Security Holders
No matter was submitted by the Company to its shareholders through the
solicitation of proxies or otherwise during the fourth quarter of the fiscal
year covered by this report.
8 Penseco Financial Services Corporation / 2001 Annual Report
PART II
ITEM 5 Market for Registrant's Common Equity and Related Stockholder Matters
This Annual Report is the Company's annual disclosure statement as required
under Section 13 or 15(d) of the Securities Exchange Act of 1934. Questions may
be directed to any branch location of the Company or by contacting the
Controller's office at:
Patrick Scanlon, Controller
Penseco Financial Services Corporation
150 North Washington Avenue
Scranton, Pennsylvania 18503-1848
1-800-327-0394
Management of the Company is aware of the following securities dealers who make
a market in the Company stock:
Baird, Patrick & Company, Inc. Legg Mason Wood Walker, Inc.
Ferris, Baker, Watts, Inc. Monroe Securities, Inc.
F.J. Morrissey & Company, Inc. Ryan, Beck & Company, Inc.
Hopper Soliday & Company, Inc. Sandler, O'Neill & Partners, LP
Janney Montgomery Scott, Inc.
The Company's capital stock is traded on the "Over-the-Counter" BULLETIN BOARD
under the symbol "PFNS". The following table sets forth the price range together
with dividends paid for each of the past two years. These quotations do not
necessarily reflect the value of actual transactions.
Dividends Paid
2001 High Low Per Share
- ---------------------------------------------
First Quarter $ 25 $ 20 $ .25
Second Quarter 25 22 .25
Third Quarter 30 23 .25
Fourth Quarter 32 27 .50
------
$ 1.25
======
Dividends Paid
2000 High Low Per Share
- ---------------------------------------------
First Quarter $ 26 $ 21 $ .22
Second Quarter 24 22 .22
Third Quarter 24 20 .22
Fourth Quarter 21 20 .49
------
$ 1.15
======
DIVIDENDS PAID (in millions) YEAR
- -------------------------------------------
$ 2,685 2001
2,470 2000
2,363 1999
2,255 1998
2,256 1997
As of February 15 , 2002 there were approximately 1,009 stockholders of the
Company based on the number of recordholders.
Reference should be made to the information about the Company's dividend policy
and regulatory guidelines on pages 19 and 33.
TRANSFER AGENT
Penn Security Bank and Trust Company, Trust Department, 150 North Washington
Avenue, Scranton, Pennsylvania 18503-1848. Stockholders' questions should be
directed to the Bank's Trust Department at 570-346-7741.
QUARTERLY FINANCIAL DATA (unaudited)
(in thousands, except per share amounts)
First Second Third Fourth
2001 Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------
Net Interest Income $ 4,461 $ 4,795 $ 5,124 $ 4,956
Provision for Loan Losses 150 291 284 229
Other Income 2,680 1,944 2,624 1,938
Other Expenses 5,629 4,631 5,054 4,763
Net Income 1,088 1,396 1,800 1,338
Earnings Per Share $ .51 $ .65 $ .84 $ .62
First Second Third Fourth
2000 Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------
Net Interest Income $ 4,158 $ 4,323 $ 4,467 $ 4,397
Provision for Loan Losses 40 32 148 13
Other Income 2,308 1,180 2,724 2,021
Other Expenses 5,046 4,337 5,241 4,682
Net Income 1,069 929 1,429 1,316
Earnings Per Share $ .50 $ .43 $ .67 $ .61
Penseco Financial Services Corporation / 2001 Annual Report 9
ITEM 6 Selected Financial Data
(in thousands, except per share data)
RESULTS OF OPERATIONS:
2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------
Interest Income $ 31,860 $ 31,043 $ 28,320 $ 29,975 $ 30,099
Interest Expense 12,524 13,698 11,213 13,179 12,385
- -----------------------------------------------------------------------------------------------
Net Interest Income 19,336 17,345 17,107 16,796 17,714
Provision for Loan Losses 954 233 89 595 316
- -----------------------------------------------------------------------------------------------
Net Interest Income
after Provision for
Loan Losses 18,382 17,112 17,018 16,201 17,398
Other Income 9,186 8,233 7,746 6,838 6,285
Other Expenses 20,077 19,306 18,312 16,986 16,884
Income Tax 1,869 1,296 1,781 1,772 2,074
- -----------------------------------------------------------------------------------------------
Net Income $ 5,622 $ 4,743 $ 4,671 $ 4,281 $ 4,725
===============================================================================================
BALANCE SHEET DATA:
Assets $ 482,551 $ 467,230 $ 428,614 $ 436,099 $ 427,577
Investment Securities $ 128,623 $ 125,808 $ 106,511 $ 118,762 $ 125,048
Net Loans $ 320,208 $ 304,641 $ 278,577 $ 280,389 $ 269,446
Deposits $ 406,531 $ 387,439 $ 367,332 $ 377,526 $ 374,488
Stockholders' Equity $ 54,648 $ 50,067 $ 45,743 $ 44,961 $ 42,924
PER SHARE DATA:
Earnings per Share $ 2.62 $ 2.21 $ 2.17 $ 1.99 $ 2.20
Dividends per Share $ 1.25 $ 1.15 $ 1.10 $ 1.05 $ 1.05
Book Value per Share $ 25.44 $ 23.31 $ 21.30 $ 20.93 $ 19.98
Common Shares Outstanding 2,148,000 2,148,000 2,148,000 2,148,000 2,148,000
FINANCIAL RATIOS:
Net Interest Margin 4.30% 4.08% 4.22% 4.12% 4.51%
Return on Average Assets 1.18% 1.06% 1.08% .99% 1.14%
Return on Average Equity 10.57% 9.96% 10.12% 9.54% 11.22%
Average Equity to Average Assets 11.19% 10.60% 10.70% 10.38% 10.16%
Dividend Payout Ratio 47.71% 52.04% 50.69% 52.76% 47.73%
10 Penseco Financial Services Corporation / 2001 Annual Report
ITEM 7 Management Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion is intended to provide information to facilitate the
understanding and assessment of significant changes and trends related to the
financial condition of the Company and the results of its operations. This
discussion and analysis should be read in conjunction with the Company's audited
consolidated financial statements and notes thereto. All information is
presented in thousands of dollars, except as indicated.
SUMMARY
Net earnings for 2001 totalled $5,622, an increase of 18.5% from the $4,743
earned in 2000, which in turn was an increase of 1.5% from the $4,671 earned in
1999. Net earnings per share were $ 2.62 in 2001, compared with $2.21 in 2000
and $2.17 in 1999. Net earnings for 2001 increased from 2000 results due to an
increase in the net interest margin and fee income, offset by an increase in the
provision for loan losses and operating costs. Net earnings for 2000 increased
from 1999 results due to an increase in the net interest margin. Also, fee
income increased, offset by increases in operating costs.
NET INCOME (in millions) YEAR
- -------------------------------------------
$ 5,622 2001
4,743 2000
4,671 1999
4,281 1998
4,725 1997
The Company's return on average assets was 1.18% in 2001 compared to 1.06% in
2000 and 1.08% in 1999. Return on average equity was 10.57%, 9.96% and 10.12% in
2001, 2000 and 1999, respectively.
RETURN ON AVERAGE ASSETS YEAR
- -------------------------------------------
1.18% 2001
1.06% 2000
1.08% 1999
.99% 1998
1.14% 1997
RETURN ON AVERAGE EQUITY YEAR
- -------------------------------------------
10.57% 2001
9.96% 2000
10.12% 1999
9.54% 1998
11.22% 1997
Penseco Financial Services Corporation / 2001 Annual Report 11
RESULTS OF OPERATIONS
Net Interest Income
The principal component of the Company's earnings is net interest income, which
is the difference between interest and fees earned on interest-earning assets
and interest paid on deposits and other borrowings.
Net interest income was $19.3 million in 2001, compared with $17.3 million
in 2000, an increase of 11.6%. The increase in net interest income in 2001
resulted from increases in loan income, increases in securities income, along
with lower funding costs mainly due to the Federal Reserve Bank reducing short
term interest rates eleven times during the year.
Net interest income was $17.3 million in 2000, compared with $17.1 million
in 1999, an increase of 1.2%. The increase in net interest income in 2000
resulted from increases in loan income, along with increases in securities
income, offset by higher money market, time deposit and short-term borrowing
costs.
Net interest income, when expressed as a percentage of average
interest-earning assets, is referred to as net interest margin. The Company's
net interest margin for the year ended December 31, 2001 was 4.3% compared with
4.1% for the year ended December 31, 2000, and 4.2% for the year ended December
31, 1999.
Interest income in 2001 totalled $31.9 million, compared to $31.0 million
in 2000, increasing 2.9% from the prior year. The yield on average
interest-earning assets was 7.1% in 2001, compared to 7.3% in 2000. Average
interest-earning assets increased in 2001 to $450.0 million from $424.9 million
in 2000. Average loans, which are the Company's highest yielding earning assets,
increased $28.5 million in 2001, while investment securities increased on
average by $7.7 million. Average loans represented 72.4% of 2001 average
interest-earning assets, compared to 70.0% in 2000.
Interest expense also decreased in 2001 to $12.5 million from $13.7 million
in 2000, a decrease of $1.2 million or 8.8%. This decrease resulted from the
Federal Reserve cutting short term interest rates due to the economy slipping
into a recession. The average rate paid on interest-bearing liabilities during
2001 was 3.5%, compared to 4.0% a decrease of 12.5% from 2000.
Interest income in 2000 totalled $31.0 million, compared to $28.3 million
in 1999, increasing 9.5% from the prior year.
The yield on average interest-earning assets was 7.3% in 2000, compared to
7.0% in 1999. Average interest-earning assets increased in 2000 to $424.9
million from $405.0 million in 1999. Average loans, which are the Company's
highest yielding earning assets, increased $14.3 million in 2000, while
investment securities and other earning assets increased on average by $5.7
million. Average loans represented 70.0% of 2000 average interest-earning
assets, compared to 69.9% in 1999.
Interest expense also increased in 2000 to $13.7 million from $11.2 million
in 1999, an increase of $2.5 million or 22.3%. This increase resulted from
higher money market, time deposit and short-term borrowing costs. The average
rate paid on interest-bearing liabilities during 2000 was 4.0%, compared to
3.4%, an increase of 17.6% from 1999.
The most significant impact on net interest income between periods is
derived from the interaction of changes in the volume of and rates earned or
paid on interest-earning assets and interest-bearing liabilities. The volume of
earning dollars in loans and investments, compared to the volume of
interest-bearing liabilities represented by deposits and borrowings, combined
with the spread, produces the changes in net interest income between periods.
NET INTEREST INCOME (in millions) YEAR
- ---------------------------------------------
$ 19,336 2001
17,345 2000
17,107 1999
16,796 1998
17,714 1997
12 Penseco Financial Services Corporation / 2001 Annual Report
Distribution of Assets, Liabilities and Stockholders' Equity/Interest Rates and
Interest Differential
The table below presents average balances, interest income on a fully taxable
equivalent basis and interest expense, as well as average rates earned and paid
on the Company's major asset and liability items for the years 2001, 2000 and
1999.
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investment securities:
Available-for-sale:
U.S. Treasury securities $ 40,596 $ 2,262 5.57% $ 60,684 $ 3,465 5.71% $ 75,346 $ 4,329 5.75%
U.S. Agency obligations 47,802 3,130 6.55 20,011 1,338 6.69 5,000 286 5.72
States & political subdivisions 6,725 245 5.52 15,522 572 5.58 23,434 836 5.41
Federal Home Loan Bank stock 1,881 122 6.49 1,798 127 7.06 1,796 119 6.63
Other 211 6 2.84 20 1 5.00 20 1 5.00
Held-to-maturity:
U.S. Agency obligations 3,192 185 5.80 4,407 259 5.88 4,647 279 6.00
States & political subdivisions 22,852 1,189 7.88 13,122 735 8.49 640 34 8.05
Loans, net of unearned income:
Real estate mortgages 250,000 19,148 7.66 227,819 18,249 8.01 221,001 17,236 7.80
Commercial 27,885 2,117 7.59 19,613 1,845 9.41 21,164 1,818 8.59
Consumer and other 47,961 3,418 7.13 49,930 3,717 7.44 40,923 2,819 6.89
Federal funds sold 181 6 3.31 6,729 414 6.15 7,035 369 5.25
Interest on balances with banks 651 32 4.92 5,253 321 6.11 3,977 194 4.88
- ------------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets/
Total Interest Income 449,937 $ 31,860 7.08% 424,908 $ 31,043 7.31% 404,983 $ 28,320 6.99%
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 8,310 11,514 11,188
Bank premises and equipment 11,218 12,104 12,588
Accrued interest receivable 3,831 2,628 2,992
Other assets 5,063 1,125 2,186
Less: Allowance for loan losses 3,185 3,004 2,894
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 475,174 $ 449,275 $ 431,043
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand-Interest bearing $ 25,033 $ 240 .96% $ 23,380 $ 250 1.07% $ 23,643 $ 252 1.07%
Savings 64,513 965 1.50 65,927 983 1.49 71,084 1,061 1.49
Money markets 86,154 2,616 3.04 75,959 2,927 3.85 59,066 1,585 2.68
Time - Over $100 32,998 1,779 5.39 38,407 2,262 5.89 43,397 2,172 5.00
Time - Other 114,943 5,784 5.03 115,345 6,236 5.41 115,764 5,633 4.87
Federal funds purchased 3 - - 22 1 4.55 78 4 5.13
Repurchase agreements 17,366 570 3.28 15,101 786 5.20 12,169 482 3.96
Short-term borrowings 15,520 570 3.67 4,522 253 5.59 481 24 4.99
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest Bearing Liabilities/
Total Interest Expense 356,530 $ 12,524 3.51% 338,663 $ 13,698 4.04% 325,682 $ 11,213 3.44%
- ------------------------------------------------------------------------------------------------------------------------------------
Demand - Non-interest bearing 61,823 61,162 57,339
All other liabilities 3,656 1,813 1,888
Stockholders' equity 53,165 47,637 46,134
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $ 475,174 $ 449,275 $ 431,043
====================================================================================================================================
Interest Spread 3.57% 3.27% 3.55%
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income $ 19,336 $ 17,345 $ 17,107
====================================================================================================================================
Financial Ratios
Net interest margin 4.30% 4.08% 4.22%
Return on average assets 1.18% 1.06% 1.08%
Return on average equity 10.57% 9.96% 10.12%
Average equity to average assets 11.19% 10.60% 10.70%
Dividend payout ratio 47.71% 52.04% 50.69%
Penseco Financial Services Corporation / 2001 Annual Report 13
DOLLAR AMOUNT OF CHANGE IN INTEREST INCOME AND INTEREST EXPENSE
Dollar Change
Amount Change in Change in in Rate-
2001 compared to 2000 of Change Volume Rate Volume
----------------------------------------------------------------------------------
EARNING Investment securities:
ASSETS Available-for-sale:
U.S. Treasury securities $ (1,203) $ (1,147) $ (84) $ 28
U.S. Agency obligations 1,792 1,859 (28) (39)
States & political subdivisions (327) (324) (6) 3
Equity securities - 19 (17) (2)
Held-to-maturity:
U.S. Agency obligations (74) (71) (4) 1
States & political subdivisions 454 545 (52) 39)
Loans, net of unearned income:
Real estate mortgages 899 1,775 (798) (78)
Commercial 272 778 (356) (150)
Consumer and other (299) (146) (154) 1
Federal funds sold (408) (403) (191) 186
Interest bearing balances with banks (289) (281) (63) 55
----------------------------------------------------------------------------------
Total Interest Income 817 2,604 (1,753) (34)
----------------------------------------------------------------------------------
INTEREST Deposits:
BEARING Demand - Interest bearing (10) 18 (26) (2)
LIABILITIES Savings (18) (21) 3 -
Money markets (311) 393 (615) (89)
Time - Over $100 (483) (318) (192) 27
Time - Other (452) (22) (438) 8
Federal funds purchased (1) (1) - -
Repurchase agreements (216) 118 (290) (44)
Short-term borrowings 317 615 (87) (211)
----------------------------------------------------------------------------------
Total Interest Expense (1,174) 782 (1,645) (311)
----------------------------------------------------------------------------------
Net Interest Income $ 1,991 $ 1,822 $ (108) $ 277
==================================================================================
2000 compared to 1999
----------------------------------------------------------------------------------
EARNING Investment securities:
ASSETS Available-for-sale:
U.S. Treasury securities $ (864) $ (843) $ (30) $ 9
U.S. Agency obligations 1,052 859 48 145
States & political subdivisions (264) (282) 26 (8)
Equity securities 8 - 8 -
Held-to-maturity:
U.S. Agency obligations (20) (14) (6) -
States & political subdivisions 701 663 2 36
Loans, net of unearned income:
Real estate mortgages 1,013 532 464 17
Commercial 27 (133) 174 (14)
Consumer and other 898 621 225 52
Federal funds sold 45 (16) 63 (2)
Interest bearing balances with banks 127 62 49 16
----------------------------------------------------------------------------------
Total Interest Income 2,723 1,449 1,023 251
----------------------------------------------------------------------------------
INTEREST Deposits:
BEARING Demand - Interest bearing (2) (2) - -
LIABILITIES Savings (78) (78) - -
Money markets 1,342 453 691 198
Time - Over $100 90 (249) 386 (47)
Time - Other 603 (20) 625 (2)
Federal funds purchased (3) (3) - -
Repurchase agreements 304 116 151 37
Short-term borrowings 229 202 3 24
----------------------------------------------------------------------------------
Total Interest Expense 2,485 419 1,856 210
----------------------------------------------------------------------------------
Net Interest Income $ 238 $ 1,030 $ (833) $ 41
==================================================================================
14 Penseco Financial Services Corporation / 2001 Annual Report
PROVISION FOR LOAN LOSSES
The provision for loan losses represents management's determination of the
amount necessary to bring the allowance for loan losses to a level that
management considers adequate to reflect the risk of future losses inherent in
the Company's loan portfolio. The process of determining the adequacy of the
allowance is necessarily judgmental and subject to changes in external
conditions. Accordingly, there can be no assurance that existing levels of the
allowance will ultimately prove adequate to cover actual loan losses.
OTHER INCOME
The following table sets forth information by category of other income for the
Company for the past three years:
Years Ended December 31, 2001 2000 1999
- ---------------------------------------------------------------
Trust department income $ 1,233 $ 1,329 $ 1,047
Service charges on
deposit accounts 1,126 718 695
Merchant transaction income 5,331 5,354 5,166
Other fee income 1,291 975 704
Other operating income 231 211 134
Realized losses on
securities, net (26) (354) -
- ---------------------------------------------------------------
Total Other Income $ 9,186 $ 8,233 $ 7,746
===============================================================
Total other income increased $953 or 11.6% during 2001 to $9,186 from $8,233 for
2000. Components of this increase include service charges on deposit accounts of
$408 or 56.8% mainly due to the ongoing implementation of the recommendations of
a cost/revenue study held in the first quarter of 2001, an increase in other fee
income of $316 or 32.4% from the same period last year, of which $199 was due to
our brokerage division. The loss on the sale of securities in 2001 was $26
compared to a $354 loss in 2000.
Total other income increased $487 or 6.3% during 2000 to $8,233 from $7,746
for 1999. Contributing increases came from trust fee income of $282 or 26.9%, of
which $107 is attributable to a one-time change from a quarterly charging of
fees to a monthly charging of fees for many of our trust customers during the
third quarter. Also, merchant transaction income increased $188 or 3.6% to
$5,354 from $5,166, along with increases in other fee income of $271 or 38.5%,
of which $173 was due to our brokerage division. The loss on the sales of
securities occurred mainly in the second quarter of 2000, which included a $333
loss on the sale of ten million dollars of short-term municipal securities,
which was re-invested in longer term, higher yielding municipal securities.
OTHER EXPENSES
The following table sets forth information by category of other expenses for the
Company for the past three years:
Years Ended December 31, 2001 2000 1999
- ---------------------------------------------------------------
Salaries and employee benefits $ 8,180 $ 7,951 $ 7,528
Occupancy expenses, net 1,416 1,387 1,334
Furniture and equipment expenses 1,245 1,189 1,227
Merchant transaction expenses 4,636 4,784 4,471
Other operating expenses 4,600 3,995 3,752
- ---------------------------------------------------------------
Total Other Expenses $ 20,077 $ 19,306 $ 18,312
===============================================================
Other expenses increased $771 or 4.0% for 2001 to $20,077 from $19,306 for 2000.
Salaries and benefits increased $229 or 2.9% to $8,180 for 2001 from $7,951 for
2000. Also, other operating expenses increased $605 or 15.1% to $4,600 from
$3,995 due to increases in advertising costs associated with our loan growth and
non-recurring insurance costs of $117 and $180 in outside consulting services.
Other expenses increased $994 or 5.4% for 2000 to $19,306 from $18,312 for
1999. Salaries and benefits increased $423 or 5.6% to $7,951 for 2000, from
$7,528 for 1999 due to higher health care costs and staff additions for our
brokerage division. Merchant transaction expenses increased $313 or 7.0%, due to
authorization interchange expenses passed on by MasterCard and Visa
International. Also, other operating expenses increased $243 or 6.5% to $3,995
from $3,752 due to increases in advertising, insurance and consulting costs.
INCOME TAXES
Federal income tax expense increased $573 or 44.2% to $1,869 in 2001 compared to
$1,296 in 2000. This is largely the result of increased net income from normal
business operations.
The Company's effective income tax rate for 2001 was 25.0% compared to
21.5% for 2000. In 2000, income tax expense decreased $485 from $1,781 in 1999.
Largely this decrease resulted from increases in tax free income recorded during
2000. The effective income tax rate for 2000 was 21.5% compared to 27.6% for
1999.
For further discussion pertaining to Federal income taxes, see Note 12 to
the Consolidated Financial Statements.
FINANCIAL CONDITION
Total assets increased $15.4 million or 3.3% during 2001 to $482.6 million at
December 31, 2001 compared to $467.2 million at December 31, 2000. For the year
ended December 31, 2000 total assets increased $38.6 million to $467.2 million
or a 9.0% increase over $428.6 million at December 31, 1999.
ASSETS (in millions) YEAR
- -------------------------------------
$ 482,551 2001
467,230 2000
428,614 1999
436,099 1998
427,577 1997
INVESTMENT PORTFOLIO
The Company maintains a portfolio of investment securities to provide income and
serve as a source of liquidity for its ongoing operations.
The following table presents the carrying value, by security type, for the
Company's investment portfolio.
December 31, 2001 2000 1999
- ----------------------------------------------------------------
U.S.Treasury securities $ 36,069 $ 54,662 $ 66,459
U.S. Agency obligations 60,520 39,654 9,643
States & political subdivisions 29,741 29,624 28,591
Equity securities 2,293 1,868 1,818
- ----------------------------------------------------------------
Total Investment Securities $ 128,623 $ 125,808 $ 106,511
================================================================
Penseco Financial Services Corporation / 2001 Annual Report 15
LOAN PORTFOLIO
Details regarding the Company's loan portfolio for the past five years are as
follows:
December 31, 2001 2000 1999 1998 1997
- --------------------------------------------------------------------------------------------
Real estate - construction
and land development $ 9,124 $ 9,321 $ 3,241 $ 4,152 $ 3,731
Real estate mortgages 246,486 234,212 216,574 221,879 213,128
Commercial 30,001 21,566 18,995 18,169 17,173
Credit card and related plans 2,377 2,267 2,203 2,286 2,293
Installment 30,142 30,290 28,693 28,538 26,811
Obligations of states &
political subdivisions 5,678 10,085 11,821 8,195 8,910
- --------------------------------------------------------------------------------------------
Loans, net of unearned income 323,808 307,741 281,527 283,219 272,046
Less: Allowance for loan losses 3,600 3,100 2,950 2,830 2,600
- --------------------------------------------------------------------------------------------
Loans, net $ 320,208 $ 304,641 $ 278,577 $ 280,389 $ 269,446
============================================================================================
LOANS
Total net loans increased $15.6 million to $320.2 million at December 31, 2001
from $304.6 million at December 31, 2000, an increase of 5.1%. The increase is
due to growth in the Company's real estate and commercial loan portfolios.
Total net loans increased $26.0 million to $304.6 million at December 31,
2000 from $278.6 million at December 31, 1999, an increase of 9.3%. The increase
is due to growth in the Company's real estate, commercial and installment loan
portfolios.
NET LOANS (in millions) YEAR
- -------------------------------------------
$ 320,208 2001
304,641 2000
278,577 1999
280,389 1998
269,446 1997
LOAN QUALITY
The lending activities of the Company are guided by the basic lending policy
established by the Board of Directors. Loans must meet criteria which include
consideration of the character, capacity and capital of the borrower, collateral
provided for the loan, and prevailing economic conditions.
Regardless of credit standards, there is risk of loss inherent in every
loan portfolio. The allowance for loan losses is an amount that management
believes will be adequate to absorb possible losses on existing loans that may
become uncollectible, based on evaluations of the collectibility of the loans.
The evaluations take into consideration such factors as change in the nature and
volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, industry experience, collateral value and current economic
conditions that may affect the borrower's ability to pay. Management believes
that the allowance for loan losses is adequate. While management uses available
information to recognize losses on loans, future additions to the allowance may
be necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses. Such agencies may
require the Company to recognize additions to the allowance based on their
judgment of information available to them at the time of their examination.
The allowance for loan losses is increased by periodic charges against
earnings as a provision for loan losses, and decreased periodically by
charge-offs of loans (or parts of loans) management has determined to be
uncollectible, net of actual recoveries on loans previously charged-off.Such
agencies may require the Company to recognize additions to the allowance based
on their judgment of information available to them at the time of their
examination. The allowance for loan losses is increased by periodic charges
against earnings as a provision for loan losses, and decreased periodically by
charge-offs of loans (or parts of loans) management has determined to be
uncollectible, net of actual recoveries on loans previously charged-off.
16 Penseco Financial Services Corporation / 2001 Annual Report
NON-PERFORMING ASSETS
Non-performing assets consist of non-accrual loans, loans past due 90 days or
more and still accruing interest and other real estate owned. The following
table sets forth information regarding non-performing assets as of the dates
indicated:
December 31, 2001 2000 1999 1998 1997
- ---------------------------------------------------------------------------------------------
Non-accrual loans $ 1,917 $ 1,210 $ 836 $ 929 $ 1,031
Loans past due 90 days or more and accruing:
Guaranteed student loans 304 313 476 348 343
Credit card and home equity loans 22 23 - 27 98
- ---------------------------------------------------------------------------------------------
Total non-performing loans 2,243 1,546 1,312 1,304 1,472
Other real estate owned 143 201 33 111 339
- ---------------------------------------------------------------------------------------------
Total non-performing assets $ 2,386 $ 1,747 $ 1,345 $ 1,415 $ 1,811
=============================================================================================
Loans are generally placed on a non-accrual status when principal or interest is
past due 90 days or when payment in full is not anticipated. When a loan is
placed on non-accrual status, all interest previously accrued but not collected
is charged against current income. Loans are returned to accrual status when
past due interest is collected and the collection of principal is probable.
Loans on which the accrual of interest has been discontinued or reduced
amounted to $1,917, $1,210 and $836 at December 31, 2001, 2000 and 1999,
respectively. If interest on those loans had been accrued, such income would
have been $152, $138 and $140 for 2001, 2000 and 1999, respectively. Interest
income on those loans, which is recorded only when received, amounted to $86,
$86 and $22 for 2001, 2000 and 1999, respectively. There are no commitments to
lend additional funds to individuals whose loans are on non-accrual status.
The management process for evaluating the adequacy of the allowance for
loan losses includes reviewing each month's loan committee reports which list
all loans that do not meet certain internally developed criteria as to
collateral adequacy, payment performance, economic conditions and overall credit
risk. These reports also address the current status and actions in process on
each listed loan. From this information, adjustments are made to the allowance
for loan losses. Such adjustments include both specific loss allocation amounts
and general provisions by loan category based on present and past collection
experience, nature and volume of the loan portfolio, overall portfolio quality,
and current economic conditions that may affect the borrower's ability to pay.
As of December 31, 2001, there are no significant loans as to which management
has serious doubt about their collectibility.
At December 31, 2001, 2000 and 1999, the Company did not have any loans
specifically classified as impaired.
Most of the Company's lending activity is with customers located in the
Company's geographic market area and repayment thereof is affected by economic
conditions in this market area.
LOAN LOSS EXPERIENCE
The following tables present the Company's loan loss experience during the
periods indicated:
Years Ended December 31, 2001 2000 1999 1998 1997
- ---------------------------------------------------------------------------------------
Balance at beginning of year $ 3,100 $ 2,950 $ 2,830 $ 2,600 $ 2,300
Charge-offs:
Real estate mortgages 38 37 82 69 38
Commercial and all others 389 51 13 252 -
Credit card and related plans 37 27 65 37 52
Installment loans 19 24 26 25 32
- ---------------------------------------------------------------------------------------
Total charge-offs 483 139 186 383 122
- ---------------------------------------------------------------------------------------
Recoveries:
Real estate mortgages 20 30 - 1 79
Commercial and all others - - 195 - 1
Credit card and related plans 1 9 10 9 17
Installment loans 8 17 12 8 9
- ---------------------------------------------------------------------------------------
Total recoveries 29 56 217 18 106
- ---------------------------------------------------------------------------------------
Net charge-offs (recoveries) 454 83 (31) 365 16
- ---------------------------------------------------------------------------------------
Provision charged to operations 954 233 89 595 316
- ---------------------------------------------------------------------------------------
Balance at End of Year $ 3,600 $ 3,100 $ 2,950 $ 2,830 $ 2,600
=======================================================================================
Ratio of net charge-offs (recoveries)
to average loans outstanding 0.14% 0.03% (0.01)% 0.13% 0.01%
=======================================================================================
Penseco Financial Services Corporation / 2001 Annual Report 17
The allowance for loan losses is allocated as follows:
December 31, 2001 2000 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
Amount %1 Amount %1 Amount %1 Amount %1 Amount %1
- ---------------------------------------------------------------------------------------------------------------
Real estate mortgages $ 1,700 79% $ 1,500 79% $ 1,500 78% $ 1,550 80% $ 1,350 71%
Commercial
and all others 1,375 11 1,100 10 950 10 830 9 850 19
Credit card and
related plans 175 1 150 1 150 1 150 1 150 1
Personal installment loans 350 9 350 10 350 11 300 10 250 9
- ---------------------------------------------------------------------------------------------------------------
Total $ 3,600 100% $ 3,100 100% $ 2,950 100% $ 2,830 100% $ 2,600 100%
===============================================================================================================
Note: 1 - Percent of loans in each category to total loans
DEPOSITS
The primary source of funds to support the Company's operations is its deposit
base. Company deposits increased $19.1 million to $406.5 million at December 31,
2001 from $387.4 million at December 31, 2000, an increase of 4.9% due to
increases in DDA, savings and time deposits. Company deposits increased $20.1
million to $387.4 million at December 31, 2000 from $367.3 million at December
31, 1999, an increase of 5.5%. The increase in deposits in 2000 was the result
of the Company introducing new deposit products along with increasing its
non-interest bearing deposits.
The maturities of time deposits of $100,000 or more are as follows:
Three months or less $ 11,288
Over three months through six months 8,570
Over six months through twelve months 7,604
Over twelve months 10,144
---------
Total $ 37,606
=========
DEPOSITS (in millions) YEAR
- --------------------------------------
$ 406,531 2001
387,439 2000
367,332 1999
377,526 1998
374,488 1997
ASSET/LIABILITY MANAGEMENT
The Company's policy is to match its level of rate-sensitive assets and
rate-sensitive liabilities within a limited range, thereby reducing its exposure
to interest rate fluctuations. While no single measure can completely identify
the impact of changes in interest rates on net interest income, one gauge of
interest rate-sensitivity is to measure, over a variety of time periods, the
differences in the amounts of the Company's rate-sensitive assets and
rate-sensitive liabilities. These differences, or "gaps", provide an indication
of the extent to which net interest income may be affected by future changes in
interest rates. A positive gap exists when rate-sensitive assets exceed
rate-sensitive liabilities and indicates that a greater volume of assets than
liabilities will reprice during a given period. This mismatch may enhance
earnings in a rising interest rate environment and may inhibit earnings when
interest rates decline. Conversely, when rate-sensitive liabilities exceed
rate-sensitive assets, referred to as a negative gap, it indicates that a
greater volume of liabilities than assets may reprice during the period. In this
case, a rising interest rate environment may inhibit earnings and declining
interest rates may enhance earnings. However, because interest rates for
different asset and liability products offered by financial institutions respond
differently, the gap is only a general indicator of interest rate sensitivity.
LIQUIDITY
The objective of liquidity management is to maintain a balance between sources
and uses of funds in such a way that the cash requirements of customers for
loans and deposit withdrawals are met in the most economical manner. Management
monitors its liquidity position continuously in relation to trends of loans and
deposits for short-term as well as long-term requirements. Liquid assets are
monitored on a daily basis to assure maximum utilization. Management also
manages its liquidity requirements by maintaining an adequate level of readily
marketable assets and access to short-term funding sources.
18 Penseco Financial Services Corporation / 2001 Annual Report
LIQUIDITY (continued)
The Company remains in a highly liquid condition both in the short and long
term. Sources of liquidity include the Company's substantial U.S. Treasury bond
portfolio, additional deposits, earnings, overnight loans to and from other
companies (Federal Funds) and lines of credit at the Federal Reserve Bank and
the Federal Home Loan Bank. The Company is not a party to any commitments,
guarantees or obligations that could materially affect its liquidity.
In the normal course of business, there are outstanding commitments and
contingent liabilities, created under prevailing terms and collateral
requirements such as commitments to extend credit, financial guarantees and
letters of credit, which are not reflected in the accompanying Financial
Statements. The Company does not anticipate any losses as a result of these
transactions. These instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the Balance Sheets.
The contract or notional amounts of those instruments reflect the extent of
involvement the Company has in particular classes of financial instruments.
Financial instruments whose contract amounts represent credit risk at
December 31, 2001 and 2000 are as follows:
2001 2000
- ---------------------------------------------------
Commitments to extend credit:
Fixed rate $ 17,490 $ 19,100
Variable rate $ 45,033 $ 37,075
Standby letters of credit $ 3,311 $ 2,077
RELATED PARTIES
The Company does not have any material transactions involving related persons or
entities, other than traditional banking transactions which are made on the same
terms and conditions as those prevailing at the time for comparable transactions
with unrelated parties.
CAPITAL RESOURCES
A strong capital position is important to the continued profitability of the
Company and promotes depositor and investor confidence. The Company's capital
provides a basis for future growth and expansion and also provides additional
protection against unexpected losses.
Additional sources of capital would come from retained earnings from the
operations of the Company and from the sale of additional common stock.
Management has no plans to offer additional common stock at this time.
The Company's total risk-based capital ratio was 18.22% at December 31,
2001. The Company's risk-based capital ratio is more than the 10.00% ratio that
Federal regulators use as the "well capitalized" threshold. This is the current
criteria which the FDIC uses in determining the lowest insurance rate for
deposit insurance. The Company's risk-based capital ratio is more than double
the 8.00% limit which determines whether a company is "adequately capitalized".
Under these rules, the Company could significantly increase its assets and still
comply with these capital requirements without the necessity of increasing its
equity capital.
DIVIDEND POLICY
Payment of future dividends will be subject to the discretion of the Board of
Directors and will depend upon the earnings of the Company, its financial
condition, its capital requirements, its need for funds and other matters as the
Board deems appropriate.
Dividends on the Company common stock, if approved by the Board of
Directors, are customarily paid on or about March 15, June 15, September 15 and
December 15.
STOCKHOLDERS' EQUITY (in millions) YEAR
- ----------------------------------------------
$ 54,648 2001
50,067 2000
45,743 1999
44,961 1998
42,924 1997
Penseco Financial Services Corporation / 2001 Annual Report 19
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk
The Company currently does not enter into derivative financial instruments,
which include futures, forwards, interest rate swaps, option contracts and other
financial instruments with similar characteristics. However, the Company is
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, financial guarantees and
letters of credit. These instruments involve to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
Consolidated Balance Sheets. Commitments to extend credit are agreements to lend
to a 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 and may require payment of a fee. Standby letters of credit
are conditional commitments issued to guarantee the performance of a customer to
a third party up to a stipulated amount and with specified terms and conditions.
Commitments to extend credit and standby letters of credit are not recorded
as an asset or liability by the Company until the instrument is exercised.
The Company's exposure to market risk is reviewed on a regular basis by the
Asset/Liability Committee. Interest rate risk is the potential of economic
losses due to future interest rate changes. These economic losses can be
reflected as a loss of future net interest income and/or a loss of current fair
market values. The objective is to measure the effect on net interest income and
to adjust the balance sheet to minimize the inherent risk while at the same time
maximizing income. Management realizes certain risks are inherent and that the
goal is to identify and minimize the risks. Tools used by management include the
standard GAP report and an interest rate shock simulation report. The Company
has no market risk sensitive instruments held for trading purposes. It appears
the Company's market risk is reasonable at this time.
The following table provides information about the Company's market rate
sensitive instruments used for purposes other than trading that are sensitive to
changes in interest rates. For loans, securities, and liabilities with
contractual maturities, the table presents principal cash flows and related
weighted-average interest rates by contractual maturities as well as the
Company's historical experience of the impact of interest rate fluctuations on
the prepayment of residential and home equity loans and mortgage-backed
securities. For core deposits (e.g., DDA, interest checking, savings and money
market deposits) that have no contractual maturity, the table presents principal
cash flows and, as applicable, related weighted-average interest rates based on
the Company's historical experience, management's judgment, and statistical
analysis, as applicable, concerning their most likely withdrawal behaviors.
20 Penseco Financial Services Corporation / 2001 Annual Report
MATURITIES AND SENSITIVITY OF MARKET RISK AS OF DECEMBER 31, 2001
Non-Rate
2002 2003 2004 2005 2006 Thereafter Sensitive Total Fair Value
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Fixed interest rate securities:
U.S. Treasury securities $ 10,095 $ 15,232 $ 5,306 $ 5,436 $ - $ - $ - $ 36,069 $ 36,069
Yield 6.59% 3.64% 6.01% 6.79% - - - 5.29%
U.S. Agency obligations - 10,522 18,342 21,435 7,844 - - 58,143 58,143
Yield - 6.98% 5.78% 6.34% 5.61% - - 6.18%
States & political subdivisions - - - - - 29,741 - 29,741 30,285
Yield - - - - - 7.74% - 7.74%
Variable interest rate securities:
U.S. Agency obligations 1,500 877 - - - - - 2,377 2,332
Yield 5.80% 5.80% - - - - - 5.80%
Federal Home Loan Bank stock - - - - - 1,911 - 1,911 1,911
Yield - - - - - 6.39% - 6.39%
Other - - - - - 382 - 382 382
Yield - - - - - 2.84% - 2.84%
Fixed interest rate loans:
Real estate mortgages 9,282 9,020 11,765 8,940 9,414 86,859 - 135,280 136,713
Yield 7.49% 7.62% 7.78% 7.63% 7.55% 7.58% - 7.60%
Consumer and other 1,684 1,499 1,356 1,244 1,168 1,322 - 8,273 8,108
Yield 7.94% 7.81% 7.67% 7.49% 7.33% 8.29% - 7.77%
Variable interest rate loans:
Real estate mortgages 20,214 9,605 9,485 10,066 8,794 62,166 - 120,330 122,151
Yield 5.35% 5.84% 5.86% 6.10% 5.91% 6.41% - 6.08%
Commercial 30,001 - - - - - - 30,001 30,001
Yield 7.59% - - - - - - 7.59%
Consumer and other 11,405 4,799 4,569 4,331 4,553 267 - 29,924 30,443
Yield 6.44% 7.80% 7.40% 6.87% 6.88% 5.79% - 6.93%
Less: Allowance for loan losses 807 277 302 273 266 1,675 - 3,600
Interest bearing deposits with banks 4,270 - - - - - - 4,270 4,270
Yield 1.20% - - - - - - 1.20%
Federal funds sold - - - - - - - -
Yield - - - - - - - -
Cash and due from banks - - - - - - 13,026 13,026 13,026
Other assets - - - - - - 16,424 16,424
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 87,644 $ 51,277 $ 50,521 $ 51,179 $ 31,507 $ 180,973 $ 29,450 $ 482,551 $ 473,834
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Variable interest rate deposits:
Demand - Interest bearing $ - $ 27,498 $ - $ - $ - $ - $ - $ 27,498 $ 27,498
Yield - .50% - - - - - .50%
Savings - 67,613 - - - - - 67,613 67,613
Yield - 1.48% - - - - - 1.48%
Money markets 88,342 - - - - - - 88,342 88,342
Yield 1.57% - - - - - - 1.57%
Time - Other 13,746 - - - - - - 13,746 13,746
Yield 3.06% - - - - - - 3.06%
Fixed interest rate deposits:
Time - Over $100,000 27,462 4,583 2,606 205 2,350 400 - 37,606 38,711
Yield 3.71% 5.04% 5.00% 7.15% 5.78% 7.25% - 4.15%
Time - Other 70,767 15,433 7,029 1,510 4,633 1,542 - 100,914 102,713
Yield 4.13% 4.67% 4.92% 6.34% 5.01% 6.40% - 4.38%
Demand - Non-interest bearing - - - - - - 70,812 70,812 70,812
Repurchase agreements 18,140 - - - - - - 18,140 18,140
Yield 1.74% - - - - - - 1.74%
Short-term borrowings 17 - - - - - - 17 17
Yield 2.03% - - - - - - 2.03%
Other liabilities - - - - - - 3,215 3,215
Stockholders' equity - - - - - - 54,648 54,648
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $ 218,474 $ 115,127 $ 9,635 $ 1,715 $ 6,983 $ 1,942 $ 128,675 $ 482,551 $ 427,592
====================================================================================================================================
Excess of (liabilities) assets
subject to interest rate change $(130,830) $ (63,850) $ 40,886 $ 49,464 $ 24,524 $ 179,031 $ (99,225) $ -
====================================================================================================================================
Penseco Financial Services Corporation / 2001 Annual Report 21
ITEM 8 Financial Statements and Supplementary Data
Consolidated Balance Sheets
(in thousands, except per share data)
December 31, 2001 2000
---------------------------------------------------------------
ASSETS Cash and due from banks $ 13,026 $ 18,775
Interest bearing balances with banks 4,270 358
Federal funds sold - -
---------------------------------------------------------------
Cash and Cash Equivalents 17,296 19,133
Investment securities:
Available-for-sale, at fair value 96,505 105,572
Held-to-maturity (fair value of $32,617
and $20,840, respectively) 32,118 20,236
---------------------------------------------------------------
Total Investment Securities 128,623 125,808
Loans, net of unearned income 323,808 307,741
Less: Allowance for loan losses 3,600 3,100
---------------------------------------------------------------
Loans, Net 320,208 304,641
Bank premises and equipment 10,783 11,707
Other real estate owned 143 201
Accrued interest receivable 3,599 3,990
Other assets 1,899 1,750
---------------------------------------------------------------
Total Assets $ 482,551 $ 467,230
===============================================================
LIABILITIES Deposits:
Non-interest bearing $ 70,812 $ 64,184
Interest bearing 335,719 323,255
---------------------------------------------------------------
Total Deposits 406,531 387,439
Other borrowed funds:
Repurchase agreements 18,140 15,086
Short-term borrowings 17 11,503
Accrued interest payable 1,577 2,268
Other liabilities 1,638 867
---------------------------------------------------------------
Total Liabilities 427,903 417,163
STOCKHOLDERS' Common stock, $.01 par value, 15,000,000
EQUITY shares authorized, 2,148,000
shares issued and outstanding 21 21
Surplus 10,819 10,819
Retained earnings 41,206 38,269
Accumulated other comprehensive income 2,602 958
---------------------------------------------------------------
Total Stockholders' Equity 54,648 50,067
---------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $ 482,551 $ 467,230
===============================================================
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
22 Penseco Financial Services Corporation / 2001 Annual Report
Consolidated Statements of Income
(in thousands, except per share data)
Years Ended December 31, 2001 2000 1999
------------------------------------------------------------------------
INTEREST Interest and fees on loans $ 24,683 $ 23,811 $ 21,873
INCOME Interest and dividends on investments:
U.S. Treasury securities and U.S.
Agency obligations 5,577 5,062 4,894
States & political subdivisions 1,434 1,307 870
Other securities 128 128 120
Interest on Federal funds sold 6 414 369
Interest on balances with banks 32 321 194
------------------------------------------------------------------------
Total Interest Income 31,860 31,043 28,320
------------------------------------------------------------------------
INTEREST Interest on time deposits
EXPENSE of $100,000 or more 1,779 2,262 2,172
Interest on other deposits 9,605 10,396 8,531
Interest on other borrowed funds 1,140 1,040 510
------------------------------------------------------------------------
Total Interest Expense 12,524 13,698 11,213
------------------------------------------------------------------------
Net Interest Income 19,336 17,345 17,107
Provision for loan losses 954 233 89
------------------------------------------------------------------------
Net Interest Income After Provision
for Loan Losses 18,382 17,112 17,018
------------------------------------------------------------------------
OTHER Trust department income 1,233 1,329 1,047
INCOME Service charges on deposit accounts 1,126 718 695
Merchant transaction income 5,331 5,354 5,166
Other fee income 1,291 975 704
Other operating income 231 211 134
Realized losses on securities, net (26) (354) -
------------------------------------------------------------------------
Total Other Income 9,186 8,233 7,746
------------------------------------------------------------------------
OTHER Salaries and employee benefits 8,180 7,951 7,528
EXPENSES Occupancy expenses, net 1,416 1,387 1,334
Furniture and equipment expenses 1,245 1,189 1,227
Merchant transaction expenses 4,636 4,784 4,471
Other operating expenses 4,600 3,995 3,752
------------------------------------------------------------------------
Total Other Expenses 20,077 19,306 18,312
------------------------------------------------------------------------
Income before income taxes 7,491 6,039 6,452
Applicable income taxes 1,869 1,296 1,781
------------------------------------------------------------------------
NET INCOME Net Income $ 5,622 $ 4,743 $ 4,671
========================================================================
PER SHARE Earnings Per Share $ 2.62 $ 2.21 $ 2.17
========================================================================
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
Penseco Financial Services Corporation / 2001 Annual Report 23
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------
Accumulated
Other Total
Common Retained Comprehensive Stockholders'
(in thousands except per share data) Stock Surplus Earnings Income Equity
- ----------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $ 21 $ 10,819 $ 33,688 $ 433 $ 44,961
Comprehensive income:
Net income, 1999 - - 4,671 - 4,671
Unrealized losses on securities,
net of taxes of $786 - - - (1,526) (1,526)
-------
Comprehensive income 3,145
Cash dividends declared ($1.10 per share) - - (2,363) - (2,363)
- ----------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 21 10,819 35,996 (1,093) 45,743
Comprehensive income:
Net income, 2000 - - 4,743 - 4,743
Unrealized gains on securities,
net of reclassification adjustment
and taxes - - - 2,051 2,051
-------
Comprehensive income 6,794
Cash dividends declared ($1.15 per share) - - (2,470) - (2,470)
- ----------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 21 10,819 38,269 958 50,067
Comprehensive income:
Net income, 2001 - - 5,622 - 5,622
Unrealized gains on securities,
net of reclassification adjustment
and taxes - - - 1,644 1,644
-------
Comprehensive income 7,266
Cash dividends declared ($1.25 per share) - - (2,685) - (2,685)
- ----------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 $ 21 $ 10,819 $ 41,206 $ 2,602 $ 54,648
==========================================================================================================
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
24 Penseco Financial Services Corporation / 2001 Annual Report
Consolidated Statements of Cash Flows
(in thousands) Years Ended December 31, 2001 2000 1999
------------------------------------------------------------------------------------------
OPERATING Net Income $ 5,622 $ 4,743 $ 4,671
ACTIVITIES Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,288 1,243 1,176
Provision for loan losses 954 233 89
Deferred income tax benefit (213) (109) (165)
Amortization of securities
(net of accretion) 38 55 336
Net realized losses on securities 26 354 -
(Gain) loss on other real estate (14) (22) 28
Loss on disposition of fixed assets - 8 -
Decrease (increase) in interest receivable 391 (1,063) 307
(Increase) decrease in other assets (299) 463 37
Increase in income taxes payable 208 26 253
(Decrease) increase in interest payable (691) 408 (179)
Increase (decrease) in other liabilities 78 30 (56)
------------------------------------------------------------------------------------------
Net cash provided by
operating activities 7,388 6,369 6,497
------------------------------------------------------------------------------------------
INVESTING Purchase of investment securities
ACTIVITIES available-for-sale (41,035) (44,610) (48,307)
Proceeds from sales and maturities of investment
securities available-for-sale 52,568 37,801 62,015
Purchase of investment securities to be
held-to-maturity (13,407) (10,689) (5,639)
Proceeds from repayments of investment
securities to be held-to-maturity 1,487 898 1,535
Net loans (originated) repaid (16,786) (26,569) 1,612
Proceeds from other real estate 337 126 161
Proceeds from sale of fixed assets - 4 -
Investment in premises and equipment (364) (666) (841)
------------------------------------------------------------------------------------------
Net cash (used) provided by
investing activities (17,200) (43,705) 10,536
------------------------------------------------------------------------------------------
FINANCING Net increase in demand and savings deposits 14,784 28,375 851
ACTIVITIES Net proceeds (payments) on time deposits 4,308 (8,268) (11,045)
Increase in repurchase agreements 3,054 3,105 1,022
Net (decrease) increase in short-term borrowings (11,486) 10,616 887
Cash dividends paid (2,685) (2,470) (2,363)
------------------------------------------------------------------------------------------
Net cash provided (used) by
financing activities 7,975 31,358 (10,648)
------------------------------------------------------------------------------------------
Net (decrease) increase in cash
and cash equivalents (1,837) (5,978) 6,385
Cash and cash equivalents at January 1 19,133 25,111 18,726
------------------------------------------------------------------------------------------
Cash and cash equivalents at December 31 $ 17,296 $ 19,133 $ 25,111
==========================================================================================
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
Penseco Financial Services Corporation / 2001 Annual Report 25
General Notes To Financial Statements
1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Penseco Financial Services Corporation (Company) is a financial holding company,
incorporated in 1997 under the laws of Pennsylvania. It is the parent company of
Penn Security Bank and Trust Company (Bank), a state chartered bank.
The Company operates from nine banking offices under a state bank charter
and provides full banking services, including trust services, to individual and
corporate customers primarily in Northeastern Pennsylvania. The Company's
primary deposit products are savings and demand deposit accounts and
certificates of deposit. Its primary lending products are real estate,
commercial and consumer loans.
The Company's revenues are attributable to a single reportable segment,
therefore segment information is not presented.
The accounting policies of the Company conform with accounting principles
generally accepted in the United States of America and with general practices
within the banking industry.
BASIS OF PRESENTATION
The Financial Statements of the Company have been consolidated with those of its
wholly-owned subsidiary, Penn Security Bank and Trust Company, eliminating all
intercompany items and transactions.
The Statements are presented on the accrual basis of accounting.
All information is presented in thousands of dollars, except per share
data.
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.
EMERGING ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued various new accounting
standards as of December 31, 2001, which are applicable in future periods.
Management does not anticipate that the adoption of any of the new
standards will have a significant effect on the Company's earnings or financial
position.
INVESTMENT SECURITIES
Investments in securities are classified in two categories and accounted for as
follows:
Securities Held-to-Maturity. Bonds, notes, debentures and mortgage-backed
securities for which the Company has the positive intent and ability to hold to
maturity are reported at cost, adjusted for amortization of premiums and
accretion of discounts computed on the straight-line basis, which approximates
the interest method, over the remaining period to maturity.
Securities Available-for-Sale. Bonds, notes, debentures and certain equity
securities not classified as securities to be held to maturity are carried at
fair value with unrealized holding gains and losses, net of tax, reported as a
net amount in a separate component of stockholders' equity until realized.
Gains and losses on the sale of securities available-for-sale are
determined using the specific identification method and are reported as a
separate component of other income in the Statements of Income.
LOANS AND PROVISION (ALLOWANCE) FOR POSSIBLE LOAN LOSSES
Loans are stated at the principal amount outstanding, net of any unearned
income, deferred loan fees and the allowance for loan losses. Interest is
accrued daily on the outstanding balances.
Loans are generally placed on a non-accrual status when principal or
interest is past due 90 days or when payment in full is not anticipated. When a
loan is placed on non-accrual status, all interest previously accrued but not
collected is charged against current income. Loans are returned to accrual
status when past due interest is collected and the collection of principal is
probable.
The provision for loan losses is based on past loan loss experience,
management's evaluation of the potential loss in the current loan portfolio
under current economic conditions and such other factors as, in management's
best judgement, deserve current recognition in estimating loan losses. The
annual provision for loan losses charged to operating expense is that amount
which is sufficient to bring the balance of the allowance for possible loan
losses to an adequate level to absorb anticipated losses.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Provision for depreciation and amortization, computed principally on the
straight-line method, is charged to operating expenses over the estimated useful
lives of the assets. Maintenance and repairs are charged to current expense as
incurred.
LONG-LIVED ASSETS
The Company reviews the carrying value of long-lived assets for impairment
whenever events or changes in circumstances indicate that carrying amounts of
the assets might not be recoverable, as prescribed in Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121).
PENSION EXPENSE
Pension expense has been determined in accordance with Statement of Financial
Accounting Standards No. 87, "Employers Accounting for Pensions" (SFAS 87).
POSTRETIREMENT BENEFITS EXPENSE
Postretirement benefits expense has been determined in accordance with Statement
of Financial Accounting Standards No. 106, "Employers Accounting for
Postretirement Benefits Other Than Pensions" (SFAS 106).
26 Penseco Financial Services Corporation / 2001 Annual Report
1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
ADVERTISING EXPENSES
Advertising costs are expensed as incurred. Advertising expenses for the years
ended December 31, 2001, 2000 and 1999, amounted to $497, $466 and $387,
respectively.
INCOME TAXES
Provisions for income taxes are based on taxes payable or refundable for the
current year (after exclusion of non-taxable income such as interest on state
and municipal securities) as well as deferred taxes on temporary differences,
between the amount of taxable income and pre-tax financial income and between
the tax bases of assets and liabilities and their reported amounts in the
Financial Statements. Deferred tax assets and liabilities are included in the
Financial Statements at currently enacted income tax rates applicable to the
period in which the deferred tax assets and liabilities are expected to be
realized or settled as prescribed in Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (SFAS 109). As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
CASH FLOWS
For purposes of the Statements of Cash Flows, cash and cash equivalents include
cash on hand, due from banks, interest bearing balances with banks and Federal
funds sold for a one-day period.
The Company paid interest and income taxes during the years ended December 31,
2001, 2000 and 1999 as follows:
2001 2000 1999
- ---------------------------------------------------------
Income taxes paid $ 1,909 $ 1,379 $ 1,694
Interest paid $ 13,215 $ 13,290 $ 11,392
Non-cash transactions during the years ended December 31, 2001, 2000 and 1999,
comprised entirely of the net acquisition of real estate in the settlement of
loans, amounted to $265, $272 and $111, respectively.
TRUST ASSETS AND INCOME
Assets held by the Company in a fiduciary or agency capacity for its customers
are not included in the Financial Statements since such items are not assets of
the Company. Trust income is reported on the accrual basis of accounting.
EARNINGS PER SHARE
Basic earnings per share is computed on the weighted average number of common
shares outstanding during each year (2,148,000) as prescribed in Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). A
calculation of diluted earnings per share is not applicable to the Company.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 2001
presentation.
2 CASH AND DUE FROM BANKS
Cash and due from banks are summarized as follows:
December 31, 2001 2000
- -----------------------------------------------------------------
Cash items in process of collection $ 293 $ 37
Non-interest bearing balances 9,672 13,263
Cash on hand 3,061 5,475
- -----------------------------------------------------------------
Total $ 13,026 $ 18,775
=================================================================
The Company may, from time to time, maintain bank balances with other
financial institutions in excess of $100,000 each. Management is not aware of
any evidence that would indicate that such deposits are at risk.
3 INVESTMENT SECURITIES
The amortized cost and fair value of investment securities at December 31, 2001
and 2000 are as follows:
AVAILABLE-FOR-SALE
Gross Gross
Amortized Unrealized Unrealized Fair
2001 Cost Gains Losses Value
- --------------------------------------------------------------------------
U.S. Treasury securities $ 35,014 $ 1,086 $ 31 $ 36,069
U.S. Agency securities 55,368 2,775 - 58,143
States & political
subdivisions - - - -
- --------------------------------------------------------------------------
Total Debt Securities 90,382 3,861 31 94,212
Equity securities 2,180 113 - 2,293
- --------------------------------------------------------------------------
Total Available-
for-Sale $ 92,562 $ 3,974 $ 31 $ 96,505
==========================================================================
Gross Gross
Amortized Unrealized Unrealized Fair
2000 Cost Gains Losses Value
- --------------------------------------------------------------------------
U.S. Treasury securities $ 54,133 $ 614 $ 85 $ 54,662
U.S. Agency securities 34,666 1,120 37 35,749
States & political
subdivisions 13,455 - 162 13,293
- --------------------------------------------------------------------------
Total Debt Securities 102,254 1,734 284 103,704
Equity securities 1,868 - - 1,868
- --------------------------------------------------------------------------
Total Available-
for-Sale $ 104,122 $ 1,734 $ 284 $105,572
==========================================================================
Equity securities at December 31, 2001 and 2000, consisted primarily of Federal
Home Loan Bank stock, which is a required investment in order to participate in
an available line of credit program. The stock is stated at par value as there
is no readily determinable fair value.
Penseco Financial Services Corporation / 2001 Annual Report 27
3 INVESTMENT SECURITIES (continued)
A summary of transactions involving available-for-sale debt securities in 2001,
2000 and 1999 are as follows:
December 31, 2001 2000 1999
- --------------------------------------------------------
Proceeds from sales $ 28,594 $ 18,952 $ -
Gross realized gains 53 2 -
Gross realized losses 79 356 -
Held-to-Maturity
Gross Gross
Amortized Unrealized Unrealized Fair
2001 Cost Gains Losses Value
- --------------------------------------------------------------------------
U.S. Agency Obligations:
Mortgage-backed
securities $ 2,377 $ - $ 45 $ 2,332
States & political
subdivisions 29,741 799 255 30,285
- --------------------------------------------------------------------------
Total Held-to-Maturity $ 32,118 $ 799 $ 300 $ 32,617
==========================================================================
Gross Gross
Amortized Unrealized Unrealized Fair
2000 Cost Gains Losses Value
- --------------------------------------------------------------------------
U.S. Agency Obligations:
Mortgage-backed
securities $ 3,905 $ - $ 125 $ 3,780
States & political
subdivisions 16,331 729 - 17,060
- --------------------------------------------------------------------------
Total Held-to-Maturity $ 20,236 $ 729 $ 125 $ 20,840
==========================================================================
Investment securities with amortized costs and fair values of $76,419 and
$79,091 at December 31, 2001 and $74,820 and $77,872 at December 31, 2000, were
pledged to secure trust funds, public deposits and for other purposes as
required by law.
The amortized cost and fair value of debt securities at December 31, 2001
by contractual maturity, are shown in the following table. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Available-for-Sale Held-to-Maturity
- -------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- -------------------------------------------------------------------------------
Due in one year or less:
U.S. Treasury securities $ 9,998 $ 10,095 $ - $ -
After one year through
five years:
U.S. Treasury securities 25,016 25,974 - -
U.S. Agency securities 55,368 58,143 - -
After ten years:
States & political
subdivisions - - 29,741 30,285
- -------------------------------------------------------------------------------
Subtotal 90,382 94,212 29,741 30,285
Mortgage-backed securities - - 2,377 2,332
- -------------------------------------------------------------------------------
Total Debt Securities $ 90,382 $ 94,212 $ 32,118 $ 32,617
===============================================================================
4 LOANS
Major classifications of loans are as follows:
December 31, 2001 2000
- ------------------------------------------------------------------
Loans secured by real estate:
Construction and land development $ 9,124 $ 9,321
Secured by farmland 395 508
Secured by 1-4 family residential
properties:
Revolving, open-end loans 8,410 6,146
Secured by first liens 159,748 146,422
Secured by junior liens 29,269 33,791
Secured by multi-family properties 808 843
Secured by non-farm, non-residential
properties 47,856 46,502
Commercial and industrial loans
to U.S. addressees 30,001 21,566
Loans to individuals for household, family
and other personal expenditures:
Credit card and related plans 2,377 2,267
Other (installment and
student loans, etc.) 29,169 29,725
Obligations of states &
political subdivisions 5,678 10,085
All other loans 973 565
- ------------------------------------------------------------------
Gross Loans 323,808 307,741
Less: Unearned income on loans - -
- ------------------------------------------------------------------
Loans, Net of Unearned Income $ 323,808 $ 307,741
==================================================================
Loans on which the accrual of interest has been discontinued or reduced amounted
to $1,917, $1,210 and $836 at December 31, 2001, 2000 and 1999, respectively. If
interest on those loans had been accrued, such income would have been $152, $138
and $140 for 2001, 2000 and 1999, respectively. Interest income on those loans,
which is recorded only when received, amounted to $86, $86 and $22 for 2001,
2000 and 1999, respectively. Also, at December 31, 2001 and 2000, the Bank had
loans totalling $326 and $336, respectively, which were past due 90 days or more
and still accruing interest (credit card, home equity and guaranteed student
loans).
5 ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
Years Ended December 31, 2001 2000 1999
- ----------------------------------------------------------------------
Balance at beginning of year $ 3,100 $ 2,950 $ 2,830
Provision charged to operations 954 233 89
Recoveries credited to allowance 29 56 217
- ----------------------------------------------------------------------
4,083 3,239 3,136
Losses charged to allowance (483) (139) (186)
- ----------------------------------------------------------------------
Balance at End of Year $ 3,600 $ 3,100 $ 2,950
======================================================================
A comparison of the provision for loan losses for Financial Statement purposes
with the allowable bad debt deduction for tax purposes is as follows:
Years Ended December 31, Book Provision Tax Deduction
- ------------------------ -------------- -------------
2001 $ 954 $ 454
2000 $ 233 $ 52
1999 $ 89 $ 0
The balance of the Reserve for Bad Debts as reported for Federal income tax
purposes was $948, $948 and $979 at December 31, 2001, 2000 and 1999,
respectively.
28 Penseco Financial Services Corporation / 2001 Annual Report
6 BANK PREMISES AND EQUIPMENT
December 31, 2001 2000
- -----------------------------------------------------------
Land $ 2,919 $ 2,919
Buildings and improvements 14,473 14,379
Furniture and equipment 11,208 10,938
- -----------------------------------------------------------
28,600 28,236
Less: Accumulated depreciation 17,817 16,529
- -----------------------------------------------------------
Net Bank Premises and Equipment $ 10,783 $ 11,707
===========================================================
Buildings and improvements are being depreciated over 10 to 50 year periods and
equipment over 3 to 10 year periods. Depreciation expense amounted to $1,288 in
2001, $1,243 in 2000 and $1,176 in 1999.
Occupancy expenses were reduced by rental income received in the amount of
$61, $60 and $59 in the years ended December 31, 2001, 2000 and 1999,
respectively.
7 OTHER REAL ESTATE OWNED
Real estate acquired through foreclosure is recorded at the lower of cost or
market at the time of acquisition. Any subsequent write-downs are charged
against operating expenses. The other real estate owned as of December 31, 2001
and 2000 was $143 and $201, respectively, supported by appraisals of the real
estate involved.
8 INVESTMENT IN AND LOAN TO, INCOME FROM DIVIDENDS AND EQUITY IN EARNINGS OR
LOSSES OF SUBSIDIARY
Penseco Realty, Inc. is a wholly-owned subsidiary of the Bank which owns certain
banking premises. Selected financial information is presented below:
Equity in
underlying Bank's
Percent Total net assets Amount proportionate
of voting investment at balance of part of loss
Year stock owned and loan sheet date dividends for the period
- --------------------------------------------------------------------------
2001 100% $ 3,650 $ 3,635 None $ -
2000 100% $ 3,750 $ 3,735 None $ -
1999 100% $ 3,850 $ 3,835 None $ -
9 DEPOSITS
December 31, 2001 2000
- -------------------------------------------------------------
Demand - Non-interest bearing $ 70,812 $ 64,184
Demand - Interest bearing 27,498 24,075
Savings 67,613 63,552
Money markets 88,342 87,670
Time - Over $100,000 37,606 33,328
Time - Other 114,660 114,630
- -------------------------------------------------------------
Total $ 406,531 $ 387,439
=============================================================
9 DEPOSITS (continued)
Scheduled maturities of time deposits are as follows:
2002 $ 111,975
2003 20,016
2004 9,635
2005 1,715
2006 6,983
2007 and thereafter 1,942
-------------------------------
Total $ 152,266
===============================
10 OTHER BORROWED FUNDS
At December 31, 2001 and 2000, other borrowed funds consisted of demand notes to
the U.S. Treasury, Repurchase agreements and Federal funds purchased.
Short-term borrowings generally have original maturity dates of thirty days
or less.
Investment securities with amortized costs and fair values of $22,056 and
$23,367 at December 31, 2001 and $22,038 and $22,498 at December 31, 2000, were
pledged to secure repurchase agreements.
Years Ended December 31, 2001 2000
- ----------------------------------------------------------------
Amount outstanding at year end $ 18,157 $ 26,589
Average interest rate at year end 1.81% 6.03%
Maximum amount outstanding at
any month end $ 49,313 $ 30,280
Average amount outstanding $ 32,364 $ 19,490
Weighted average interest rate
during the year:
Federal funds purchased 2.55% 4.55%
Repurchase agreements 3.28% 5.20%
Demand notes to U.S. Treasury 3.67% 5.59%
The Company has an available credit facility with the Federal Reserve Bank in
the amount of $10,000, secured by pledged securities with amortized costs and
fair values of $9,998 and $10,095 at December 31, 2001 and $10,092 and $10,039
at December 31, 2000, with an interest rate of 1.25% and 6.0% at December 31,
2001 and December 31, 2000, respectively. There is no stated expiration date for
the credit facility as long as the Company maintains the pledged securities at
the Federal Reserve Bank. There was no outstanding balance as of December 31,
2001 and 2000, respectively.
The Company has the availability of a $5,000 overnight Federal funds line
of credit with First Union Bank. There was no balance outstanding as of December
31, 2001 and 2000, respectively.
The Company maintains a collateralized maximum borrowing capacity of
$200,654 with the Federal Home Loan Bank of Pittsburgh (FHLB). There was no
balance outstanding or assets pledged as of December 31, 2001.
Penseco Financial Services Corporation / 2001 Annual Report 29
11 EMPLOYEE BENEFIT PLANS
The Company provides an Employee Stock Ownership Plan (ESOP), a Retirement
Profit Sharing Plan, an Employees' Pension Plan and a Postretirement Life
Insurance Plan, all non-contributory, covering all eligible employees.
The Company also maintains an unfunded supplemental executive pension plan,
that provides certain officers with additional retirement benefits to replace
benefits lost due to limits imposed on qualified plans by Federal tax law.
Under the Employee Stock Ownership Plan (ESOP), amounts voted by the Board
of Directors are paid into the ESOP and each employee is credited with a share
in proportion to their annual compensation. All contributions to the ESOP are
invested in or will be invested primarily in Company stock. Distribution of a
participant's ESOP account occurs upon retirement, death or termination in
accordance with the plan provisions.
At December 31, 2001 and 2000, the ESOP held 85,337 and 87,369 shares,
respectively of the Company's stock, all of which were acquired as described
above and allocated to specific participant accounts. These shares are treated
the same for dividend purposes and earnings per share calculations as are any
other outstanding shares of the Company's stock. The Company contributed $140,
$110 and $90 to the plan during the years ended December 31, 2001, 2000 and
1999, respectively.
Under the Retirement Profit Sharing Plan, amounts voted by the Board of
Directors are paid into a fund and each employee is credited with a share in
proportion to their annual compensation. Upon retirement, death or termination,
each employee is paid the total amount of their credits in the fund in one of a
number of optional ways in accordance with the plan provisions. The Company did
not contribute to the plan during the years ended December 31, 2001, 2000 and
1999, respectively.
Under the Pension Plan, amounts computed on an actuarial basis are paid by
the Company into a trust fund. Provision is made for fixed benefits payable for
life upon retirement at the age of 65, based on length of service and
compensation levels as defined in the plan. Plan assets of the trust fund are
invested and administered by the Trust Department of Penn Security Bank and
Trust Company.
The postretirement life insurance plan is an unfunded, non-vesting defined
benefit plan. The plan is non-contributory and provides for a reducing level of
term life insurance coverage following retirement.
In determining the benefit obligation the following assumptions were made:
Pension Benefits Other Benefits
------------------ -----------------
December 31, 2001 2000 2001 2000
- ------------------------------------------------------------------
Weighted - average
assumptions:
Discount rate 6.50% 7.00% 6.50% 7.00%
Expected return on
plan assets 9.00% 9.00% - -
Rate of compensation
increase 4.50% 4.50% 4.50% 4.50%
A reconciliation of the funded status of the plans with amounts reported on the
Consolidated Balance Sheets is as follows:
Pension Benefits Other Benefits
------------------ -----------------
December 31, 2001 2000 2001 2000
- ------------------------------------------------------------------
Change in benefit
obligation:
Benefit obligation,
beginning $ 7,940 $ 7,387 $ 167 $ 140
Service cost 310 295 5 5
Interest cost 540 509 11 11
Actuarial gain (loss) 563 28 10 16
Benefits paid (294) (279) (7) (5)
- ------------------------------------------------------------------
Benefit obligation,
ending 9,059 7,940 186 167
- ------------------------------------------------------------------
Change in plan assets:
Fair value of plan
assets, beginning 8,247 7,956 - -
Actual return on plan
assets 86 570 - -
Employer contribution 61 - - -
Benefits paid (294) (279) - -
- ------------------------------------------------------------------
Fair value of plan
assets, ending 8,100 8,247 - -
- ------------------------------------------------------------------
Funded status (959) 307 (186) (167)
Unrecognized net transition
asset - (66) - -
Unrecognized net actuarial
loss (gain) 1,853 614 (88) (103)
Unrecognized prior service
cost (55) (46) 72 79
- ------------------------------------------------------------------
Prepaid (accrued) benefit
cost $ 839 $ 809 $ (202) $ (191)
==================================================================
A reconciliation of net periodic pension and other benefit costs is as follows:
Pension Benefits
------------------
Years Ended December 31, 2001 2000 1999
- ------------------------------------------------------------------
Components of net periodic
pension cost:
Service cost $ 310 $ 295 $ 310
Interest cost 540 509 475
Expected return on plan assets (732) (705) (676)
Amortization of transition
asset (66) (66) (66)
Amortization of unrecognized
net (gain) loss - (12) 12
- ------------------------------------------------------------------
Net periodic pension cost $ 52 $ 21 $ 55
==================================================================
Other Benefits
------------------
Years Ended December 31, 2001 2000 1999
- ---------------------------------------------------------------------
Components of net periodic
other benefit cost:
Service cost $ 5 $ 5 $ 5
Interest cost 11 11 9
Amortization of prior service
cost 7 8 7
Amortization of unrecognized
net loss (5) (7) (7)
- ---------------------------------------------------------------------
Net periodic other benefit cost $ 18 $ 17 $ 14
=====================================================================
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the pension plan with accumulated benefit obligations in
excess of plan assets were $185, $174 and $0, respectively at December 31, 2001
and $160, $130 and $0, respectively at December 31, 2000.
30 Penseco Financial Services Corporation / 2001 Annual Report
12 INCOME TAXES
The total income taxes in the Statements of Income are as follows:
Years Ended December 31, 2001 2000 1999
- ---------------------------------------------------------
Currently payable $ 2,082 $ 1,405 $ 1,946
Deferred benefit (213) (109) (165)
- ---------------------------------------------------------
Total $ 1,869 $ 1,296 $ 1,781
=========================================================
A reconciliation of income taxes at statutory rates to applicable income taxes
reported in the Statements of Income is as follows:
Years Ended December 31, 2001 2000 1999
- ---------------------------------------------------------
Tax at statutory rate $ 2,547 $ 2,053 $ 2,194
Reduction for non-taxable
interest (746) (748) (471)
Other (reductions)
additions 68 (9) 58
- ---------------------------------------------------------
Applicable Income Taxes $ 1,869 $ 1,296 $ 1,781
=========================================================
The components of the deferred income tax benefit, which result from temporary
differences, are as follows:
Years Ended December 31, 2001 2000 1999
- ------------------------------------------------------------
Accretion of discount on bonds $ 53 $ 34 $ (57)
Accelerated depreciation (96) (85) (59)
Supplemental benefit plan (9) (4) (7)
Allowance for loan losses (180) (51) (30)
Prepaid pension cost 19 (3) (12)
- ------------------------------------------------------------
Total $ (213) $ (109) $ (165)
============================================================
The significant components of deferred tax assets and liabilities are as
follows:
December 31, 2001 2000
- ------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $ 901 $ 721
Depreciation 370 274
Supplemental Benefit Plan 35 26
- ------------------------------------------------------------
Total Deferred Tax Assets 1,306 1,021
============================================================
Deferred tax liabilities:
Unrealized securities gains 1,340 493
Prepaid pension costs 355 336
Accretion 95 42
- ------------------------------------------------------------
Total Deferred Tax Liabilities 1,790 871
- ------------------------------------------------------------
Net Deferred Tax (Liabilities) Assets $ (484) $ 150
============================================================
In management's opinion, the deferred tax assets are realizable in as much as
there is a history of strong earnings and a carryback potential greater than the
deferred tax assets. Management is not aware of any evidence that would preclude
the realization of the benefit in the future and, accordingly, has not
established a valuation allowance against the deferred tax assets.
13 ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income of $2,602, $958 and $(1,093) at December
31, 2001, 2000 and 1999, respectively consisted entirely of unrealized gains or
losses on available-for-sale securities, net of tax.
A reconciliation of other comprehensive income for the years ended December
31, 2001 and 2000 is as follows:
Tax
Before-Tax (Expense) Net-of-Tax
2001 Amount Benefit Amount
- ------------------------------------------------------------------------------
Unrealized gains on
available-for-sale securities:
Unrealized gains arising during
the year $ 2,465 $ (838) $ 1,627
Less: Reclassification adjustment
for losses realized in income (26) 9 (17)
- ------------------------------------------------------------------------------
Net unrealized gains $ 2,491 $ (847) $ 1,644
==============================================================================
2000
- ------------------------------------------------------------------------------
Unrealized gains on
available-for-sale securities:
Unrealized gains arising during
the year $ 2,753 $ (936) $ 1,817
Less: Reclassification adjustment
for losses realized in income (354) 120 (234)
- ------------------------------------------------------------------------------
Net unrealized gains $ 3,107 $ (1,056) $ 2,051
==============================================================================
14 COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, there are outstanding commitments and
contingent liabilities, created under prevailing Terms and collateral
requirements such as commitments to extend credit, financial guarantees and
letters of credit, which are not reflected in the accompanying Financial
Statements. The Company does not anticipate any losses as a result o f these
transactions. These instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the Balance Sheets.
The contract or notional amounts of those instruments reflect the extent of
involvement the Company has in particular classes of financial instruments.
Financial instruments whose contract amounts represent credit risk at
December 31, 2001 and 2000 are as follows:
2001 2000
- ---------------------------------------------------------
Commitments to extend credit:
Fixed rate $ 17,490 $ 19,100
Variable rate $ 45,033 $ 37,075
Standby letters of credit $ 3,311 $ 2,077
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have expiration dates of one year or less or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued to guarantee
the performance of a customer to a third party. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers.
Various actions and proceedings are presently pending to which the Company
is a party. Management is of the opinion that the aggregate liabilities, if any,
arising from such actions would not have a material adverse effect on the
financial position of the Company.
Penseco Financial Services Corporation / 2001 Annual Report 31
15 FAIR VALUE DISCLOSURE
GENERAL
Statement of Financial Accounting Standards No.107, "Disclosures about Fair
Value of Financial Instruments" (SFAS 107), requires the disclosure of the
estimated fair value of on and off - balance sheet financial instruments.
VALUATION METHODS AND ASSUMPTIONS
Estimated fair values have been determined using the best available data, an
estimation methodology suitable for each category of financial instruments. For
those loans and deposits with floating interest rates it is presumed that
estimated fair values generally approximate the carrying amount balances.
Financial instruments actively traded in a secondary market have been
valued using quoted available market prices. Those with stated maturities have
been valued using a present value discounted cash flow with a discount rate
approximating current market for similar assets and liabilities. Those
liabilities with no stated maturities have an estimated fair value equal to both
the amount payable on demand and the carrying amount balance. The net loan
portfolio has been valued using a present value discounted cash flow. The
discount rate used in these calculations is the current loan rate adjusted for
non-interest operating costs, credit loss and assumed prepayment risk. Off
balance sheet carrying amounts and fair value of letters of credit represent the
deferred income fees arising from those unrecognized financial instruments.
Changes in assumptions or estimation methodologies may have a material
effect on these estimated fair values.
All assets and liabilities which are not considered financial instruments
have not been valued differently than has been customary with historical cost
accounting.
December 31, 2001 December 31, 2000
- --------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------------------
Financial Assets:
Cash and due from banks $ 13,026 $ 13,026 $ 18,775 $ 18,775
Interest bearing balances with banks 4,270 4,270 358 358
Federal funds sold - - - -
- --------------------------------------------------------------------------------------------
Cash and cash equivalents 17,296 17,296 19,133 19,133
Investment Securities:
Available-for-sale:
U.S. Treasury securities 36,069 36,069 54,662 54,662
U.S. Agency obligations 58,143 58,143 35,749 35,749
States & political subdivisions - - 13,293 13,293
Federal Home Loan Bank stock 1,911 1,911 1,798 1,798
Other securities 382 382 70 70
Held-to-maturity:
U.S. Agency obligations 2,377 2,332 3,905 3,780
States & political subdivisions 29,741 30,285 16,331 17,060
- --------------------------------------------------------------------------------------------
Total investment securities 128,623 129,122 125,808 126,412
Loans, net of unearned income:
Real estate mortgages 255,610 258,864 243,533 237,664
Commercial 30,001 30,001 21,566 21,566
Consumer and other 38,197 38,551 42,642 42,291
Less: Allowance for loan losses 3,600 3,100
- --------------------------------------------------------------------------------------------
Loans, net 320,208 327,416 304,641 301,521
- --------------------------------------------------------------------------------------------
Total Financial Assets 466,127 $ 473,834 449,582 $ 447,066
Other assets 16,424 17,648
- --------------------------------------------------------------------------------------------
Total Assets $ 482,551 $ 467,230
============================================================================================
Financial Liabilities:
Demand - Non-interest bearing $ 70,812 $ 70,812 $ 64,184 $ 64,184
Demand - Interest bearing 27,498 27,498 24,075 24,075
Savings 67,613 67,613 63,552 63,552
Money markets 88,342 88,342 87,670 87,670
Time 152,266 155,170 147,958 148,518
- -------------------------------------------------------------------------------------------
Total Deposits 406,531 409,435 387,439 387,999
Repurchase agreements 18,140 18,140 15,086 15,086
Short-term borrowings 17 17 11,503 11,503
- --------------------------------------------------------------------------------------------
Total Financial Liabilities 424,688 $ 427,592 414,028 $ 414,588
Other Liabilities 3,215 3,135
Stockholders' Equity 54,648 50,067
- --------------------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $ 482,551 $ 467,230
============================================================================================
Standby Letters of Credit $ (33) $ (33) $ (21) $ (21)
32 Penseco Financial Services Corporation / 2001 Annual Report
16 OPERATING LEASES
The Company leases the land upon which the Mount Pocono Office was built and the
land upon which a drive-up ATM was built on Meadow Avenue, Scranton. The Company
also leases space at several locations which are being used as remote banking
facilities. Rental expense was $81 in 2001, $81 in 2000 and $80 in 1999. All
leases contain renewal options. The Mount Pocono and the Meadow Avenue leases
contain the right of first refusal for the purchase of the properties and
provisions for annual rent adjustments based upon the Consumer Price Index.
Future minimum rental commitments under these leases at December 31, 2001
are as follows:
Mount Meadow ATM
Pocono Avenue Sites Total
- -----------------------------------------------------------
2002 $ 47 $ 19 $ 15 $ 81
2003 47 19 6 72
2004 47 19 - 66
2005 47 19 - 66
2006 47 12 - 59
2007 to 2011 204 - - 204
- -----------------------------------------------------------
Total minimum
payments required $ 439 $ 88 $ 21 $ 548
===========================================================
17 LOANS TO DIRECTORS, PRINCIPAL OFFICERS AND RELATED PARTIES
The Company has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with directors, principal
officers, their immediate families and affiliated companies in which they are
principal stockholders (commonly referred to as related parties), on the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with others. A summary of loans to directors,
principal officers and related parties is as follows:
Years Ended December 31, 2001 2000
- -------------------------------------------------
Beginning Balance $ 5,959 $ 4,921
Additions 2,997 2,914
Collections (2,292) (1,876)
- -------------------------------------------------
Ending Balance $ 6,664 $ 5,959
=================================================
18 REGULATORY MATTERS
The Company and the Bank are 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 and the Bank's Consolidated 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 their assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Company and the Bank's capital amounts and classifications are
also subject to qualitative judgements by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the Capital Adequacy table on the following page) of Tier I and Total
Capital to risk-weighted assets and of Tier I Capital to average assets
(Leverage ratio). The table also presents the Company's actual capital amounts
and ratios. The Bank's actual capital amounts and ratios are substantially
identical to the Company's. Management believes, as of December 31, 2001, that
the Company and the Bank meet all capital adequacy requirements to which they
are subject.
As of December 31, 2001, the most recent notification from the Federal
Deposit Insurance Corporation (FDIC) categorized the Company as "well
capitalized" under the regulatory framework for prompt corrective action. To be
categorized as "well capitalized", the Company must maintain minimum Tier I
Capital, Total Capital and Leverage ratios as set forth in the Capital Adequacy
table. There are no conditions or events since that notification that management
believes have changed the Company's categorization by the FDIC.
The Company and Bank are also subject to minimum capital levels which could
limit the payment of dividends, although the Company and Bank currently have
capital levels which are in excess of minimum capital level ratios required.
The Pennsylvania Banking Code restricts capital funds available for payment
of dividends to the Retained Earnings of the Bank. Accordingly, at December 31,
2001, the balances in the Capital Stock and Surplus accounts totalling $10,840
are unavailable for dividends.
In addition, the Bank is subject to restrictions imposed by Federal law on
certain transactions with the Company's affiliates. These transactions include
extensions of credit, purchases of or investments in stock issued by the
affiliate, purchases of assets subject to certain exceptions, acceptance of
securities issued by an affiliate as collateral for loans, and the issuance of
guarantees, acceptances, and letters of credit on behalf of affiliates. These
restrictions prevent the Company's affiliates from borrowing from the Bank
unless the loans are secured by obligations of designated amounts. Further, the
aggregate of such transactions by the Bank with a single affiliate is limited in
amount to 10 percent of the Bank's Capital Stock and Surplus, and the aggregate
of such transactions with all affiliates is limited to 20 percent of the Bank's
Capital Stock and Surplus. The Federal Reserve System has interpreted "Capital
Stock and Surplus" to include undivided profits.
Penseco Financial Services Corporation / 2001 Annual Report 33
18 REGULATORY MATTERS (continued)
Actual Regulatory Requirements
- ---------------------------------------------- --------------------------------------------
For Capital To Be
Adequacy Purposes "Well Capitalized"
December 31, 2001 Amount Ratio Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------------
Total Capital
(to Risk Weighted Assets) $ 55,646 18.22% > $ 24,428 > 8.0% > $ 30,535 > 10.0%
- - - -
Tier I Capital
(to Risk Weighted Assets) $ 52,046 17.04% > $ 12,214 > 4.0% > $ 18,321 > 6.0%
- - - -
Tier I Capital
(to Average Assets) $ 52,046 10.95% > * > * > $ 23,759 > 5.0%
- - - -
* 3.0% ($14,255), 4.0% ($19,007) or 5.0% ($23,759) depending on the bank's
CAMELS Rating and other regulatory risk factors.
December 31, 2000
- ----------------------------------------------------------------------------------------------
Total Capital
(to Risk Weighted Assets) $ 52,209 18.32% > $ 22,796 > 8.0% > $ 28,494 > 10.0%
- - - -
Tier I Capital
(to Risk Weighted Assets) $ 49,109 17.23% > $ 11,398 > 4.0% > $ 17,096 > 6.0%
- - - -
Tier I Capital
(to Average Assets) $ 49,109 10.93% > * > * > $ 22,464 > 5.0%
- - - -
* 3.0% ($13,478), 4.0% ($17,971) or 5.0% ($22,464) depending on the bank's
CAMELS Rating and other regulatory risk factors.
19 PENSECO FINANCIAL SERVICES CORPORATION (PARENT CORPORATION)
The condensed Company-only information follows:
BALANCE SHEETS
December 31, 2001 2000
- ------------------------------------------------------
Cash $ 6 $ -
Investment in bank subsidiary 54,319 50,017
Equity Investments 362 50
- ------------------------------------------------------
Total Assets $ 54,687 $ 50,067
- ------------------------------------------------------
Total Stockholders' Equity $ 54,687 $ 50,067
======================================================
STATEMENTS OF INCOME
Years Ended December 31, 2001 2000 1999
- -------------------------------------------------------------------------
Dividends from bank subsidiary $ 2,892 $ 2,520 $ 2,363
Dividends on investment securities 5 - -
- -------------------------------------------------------------------------
Total Income 2,897 2,520 2,363
Other non-interest expense 7 - -
- -------------------------------------------------------------------------
Net income before undistributed
earnings of bank subsidiary 2,890 2,520 2,363
Undistributed earnings of bank
subsidiary 2,732 2,223 2,308
- -------------------------------------------------------------------------
Net Income $ 5,622 $ 4,743 $ 4,671
=========================================================================
STATEMENTS OF CASH FLOWS
Years Ended December 31, 2001 2000 1999
- ----------------------------------------------------------------------------
Operating Activities:
Net Income $ 5,622 $ 4,743 $ 4,671
Adjustments to reconcile net income
to net cash provided by
operating activities:
Equity in undistributed net
income of bank subsidiary (2,732) (2,223) (2,308)
- ----------------------------------------------------------------------------
Net cash provided by
operating activities 2,890 2,520 2,363
- ----------------------------------------------------------------------------
Investing Activities:
Purchase of equity investment (199) (50) -
- ----------------------------------------------------------------------------
Net cash (used) provided by
investing activities (199) (50) -
- ----------------------------------------------------------------------------
Financing Activities:
Cash dividends paid (2,685) (2,470) (2,363)
- ----------------------------------------------------------------------------
Net cash used by
financing activities (2,685) (2,470) (2,363)
- ----------------------------------------------------------------------------
Net increase in cash and
cash equivalents 6 - -
Cash and cash equivalents at January 1 - - -
- ----------------------------------------------------------------------------
Cash and cash equivalents at December 31 $ 6 $ - $ -
============================================================================
34 Penseco Financial Services Corporation / 2001 Annual Report
McGrail Merkel Quinn & Associates
Certified Public Accountants & Consultants
February 7, 2002
To the Board of Directors and Stockholders
Penseco Financial Services Corporation
Scranton, Pennsylvania
Independent Auditor's Report
----------------------------
We have audited the accompanying consolidated balance sheets of Penseco
Financial Services Corporation and its wholly-owned subsidiary, Penn Security
Bank and Trust Company as of December 31, 2001 and 2000, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three year period ended December 31, 2001. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Penseco
Financial Services Corporation and subsidiary as of December 31, 2001 and 2000,
and the consolidated results of their operations and their cash flows for each
of the years in the three year period ended December 31, 2001, in conformity
with accounting principles generally accepted in the United States of America.
/s/ McGrail, Merkel, Quinn & Associates
Penseco Financial Services Corporation / 2001 Annual Report 35
ITEM 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no changes in or disagreements with accountants on matters of
accounting principles or practices or financial statement disclosures in 2001.
PART III
ITEM 10 Directors and Executive Officers of the Registrant
The information on Directors of the Company on pages 4, 5 and 6 in the
definitive proxy statement relating to the Company's Annual Meeting of
stockholders, to be held May 7, 2002, is incorporated herein by reference
thereto.
The information on Executive Officers on pages 6 and 7 in the definitive proxy
statement relating to the Company's Annual Meeting of stockholders, to be held
May 7, 2002, is incorporated herein by reference thereto.
ITEM 11 Executive Compensation
The information contained under the heading "Executive Compensation" on page 6
in the definitive proxy statement relating to the Company's Annual Meeting of
stockholders, to be held May 7, 2002, is incorporated herein by reference
thereto.
ITEM 12 Security Ownership of Certain Beneficial Owners and Management
The information contained under the heading "Voting Securities & Principal
Holders Thereof" on pages 2 and 3 in the definitive proxy statement relating to
the Company's Annual Meeting of stockholders, to be held May 7, 2002, is
incorporated herein by reference thereto.
ITEM 13 Certain Relationships and Related Transactions
The information contained in Note 17 under Item 8 on page 33 under the heading
"General Notes to Financial Statements" in the Company's 2001 Annual Report to
Shareholders is incorporated herein by reference thereto.
36 Penseco Financial Services Corporation / 2001 Annual Report
PART IV
ITEM 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements - The following financial statements are
incorporated by reference in Part II, Item 8 hereof:
Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
General Notes to Financial Statements
Independent Auditor's Report
(2) Financial Statement Schedules - The Financial Statement Schedules are
incorporated by reference in Part II, Item 8 hereof.
(3) Exhibits
The following exhibits are filed herewith or incorporated by reference
as part of this Annual Report.
3(i) Registrant's Articles of Incorporation (Incorporated herein by
reference to Exhibit 3(i) of Registrant's report on Form 10-K
filed with the SEC on March 30, 1998.)
3(ii)Registrant's By-Laws (Incorporated herein by reference to
Exhibit 3(ii) of Registrant's report on Form 10-K filed with the
SEC on March 30, 1998.)
10 Material contracts - Supplemental Benefit Plan Agreement
(Incorporated herein by reference to Exhibit 10 of Registrant's
report on Form 10-Q filed with the SEC on May 10, 1999.)
13 Annual report to security holders (Included herein by reference
on pages 1-40, including the cover.)
21 Subsidiaries of the registrant (Incorporated herein by reference
to Exhibit 21 of Registrant's report on Form 10-K filed with the
SEC on March 30, 1998.)
(b) No current report on Form 8-K was filed for the fourth quarter of 2001
of the fiscal year ended December 31, 2001.
(c) The exhibits required to be filed by this Item are listed under Item
14. (a) 3, above.
(d) There are no financial statement schedules required to be filed under
this item.
Penseco Financial Services Corporation / 2001 Annual Report 37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchan ge
Act of 1934, the Bank has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized on February 19, 2002.
By: /s/ Otto P. Robinson, Jr.
-------------------------
Otto P. Robinson, Jr.
President
By: /s/ Richard E. Grimm
-------------------------
Richard E. Grimm
Executive Vice-President
By: /s/ Patrick Scanlon
-------------------------
Patrick Scanlon
Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on February 19, 2002.
By: /s/ Edwin J. Butler By: /s/ Robert W. Naismith, Ph.D.
------------------------- -------------------------
Edwin J. Butler Robert W. Naismith, Ph.D.
Director Director
By: /s/ Richard E. Grimm By: /s/ James B. Nicholas
------------------------- -------------------------
Richard E. Grimm James B. Nicholas
Director Director
By: /s/ Russell C. Hazelton By: /s/ Emily S. Perry
------------------------- -------------------------
Russell C. Hazelton Emily S. Perry
Director Director
By: /s/ D. William Hume By: /s/ Sandra C. Phillips
------------------------- -------------------------
D. William Hume Sandra C. Phillips
Director Director
By: /s/ James G. Keisling By: /s/ Otto P. Robinson, Jr.
------------------------- -------------------------
James G. Keisling Otto P. Robinson, Jr.
Director Director
By: /s/ P. Frank Kozik By: /s/ Steven L. Weinberger
------------------------- -------------------------
P. Frank Kozik Steven L. Weinberger
Director Director
38 Penseco Financial Services Corporation / 2001 Annual Report
INDEX TO EXHIBITS
Exhibit Number
Referred to
Item 601 of Prior Filing or Exhibit
Regulation S-K DESCRIPTION OF EXHIBIT Page Number Herein
- ----------------------------------------------------------------------------------------------------------------------------
2 Plan of acquisition, reorganization, arrangement, None
liquidation or succession
3 (i) Articles of Incorporation Incorporated herein by reference to Exhibit 3 (i) of
Registrant's report on Form 10-K filed with the
SEC on March 30, 1998.
(ii) By-Laws Incorporated herein by reference to Exhibit 3 (ii) of
Registrant's report on Form 10-K filed with the
SEC on March 30, 1998.
4 Instruments defining the rights of security holders, None
including indentures
9 Voting trust agreement None
10 Material contracts - Supplemental Benefit Plan Incorporated herein by reference to Exhibit 10 of
Agreement Registrant's report on Form 10-Q filed with the
SEC on May 10, 1999.
11 Statement re: Computation of per share earnings None
12 Statements re: Computation of ratios None
13 Annual report to security holders, Form 10-Q or Included herein by reference on pages 1-40,
quarterly report to security holders including the cover.
16 Letter re: Change in certifying accountant None
18 Letter re: Change in accounting principles None
21 Subsidiaries of the registrant Incorporated herein by reference to Exhibit 21 of
Registrant's report on Form 10-K filed with the
SEC on March 30, 1998.
22 Published report regarding matters submitted to None
vote of security holders
23 Consents of experts and counsel None
24 Power of attorney None
99 Additional Exhibits None
Penseco Financial Services Corporation / 2001 Annual Report 39
Company Officers
----------------
PENSECO FINANCIAL SERVICES CORPORATION AND PENN SECURITY BANK AND TRUST COMPANY
OFFICERS
Otto P. Robinson, Jr.
President and General Counsel
Richard E. Grimm
Executive Vice-President and Treasurer
Peter F. Moylan
Executive Vice-President Non-Deposit Services and Trust Officer
William J. Calpin, Jr.
Senior Vice-President, Trust Services
Andrew A. Kettel, Jr.
Senior Vice-President
Christe A. Casciano
Vice-President, Director of Marketing
Audrey F. Markowski
Vice-President
Michael G. Ostermayer
Vice-President, Chief Investment Officer, Trust Services
Richard P. Rossi
Vice-President, Director of Human Resources
Lynn M. Peters Thiel
Vice-President and Compliance Officer
James Tobin
Vice-President, Charge Card Manager
John H. Warnken
Vice-President, Operations
Robert P. Heim
Director of Internal Audit
Patrick Scanlon
Controller
Susan M. Bray
Assistant Controller and Assistant Treasurer
Gerard P. Vasil
Manager, Data Processing
P. Frank Kozik
Secretary
Mark M. Bennett
Credit Review Officer and Assistant Secretary
PENN SECURITY BANK AND TRUST COMPANY OFFICERS
ASSISTANT VICE-PRESIDENTS
Carl M. Baruffaldi
Denise M. Cebular
Carol Curtis McMullen
Assistant Trust Officer and Assistant Secretary
Paula M. DePeters
and Assistant Treasurer
J. Patrick Dietz
Karyn Gaus Vashlishan
Lisa A. Kearney
Eleanor Kruk
Caroline Mickelson
Aleta Sebastianelli
and Assistant Secretary
Jeffrey Solimine
Jennifer S. Wohlgemuth
Linda Wolf
and Training Officer
Beth S. Wolff
Deborah A. Wright
ASSISTANT CASHIERS
Susan Cottle
Lori A. Dzwieleski
Pamela Edwards
Frank Gardner
Barbara Garofoli
Susan T. Holweg
Susan A. Kopp
Jacqueline Lucke
Kristen A. McGoff
and Branch Operations Officer
Candace F. Quick
Nereida Santiago
Sharon Thauer
ACCOUNTING OFFICER
Luree M. Waltz
ASSISTANT BRANCH OPERATIONS OFFICERS
Carolyn E. Brown
Jennifer A. Lucchese
ASSISTANT CHARGE CARD MANAGER
Eileen Yanchak
ASSISTANT DIRECTOR OF INTERNAL AUDIT
Paula A. Ralston Nenish
ASSISTANT STUDENT LOAN OFFICER
Jo Ann M. Bevilaqua
ASSISTANT TRUST OFFICER
Dominick P. Gianuzzi
BRANCH OPERATIONS OFFICERS
Patricia A. Bruno
Stephen A. Hoffman
BUSINESS DEVELOPMENT OFFICER
Mary Carol Cicco
COMPUTER OPERATIONS OFFICER
Charles Penn
DIRECTOR OF CAMPUS BANKING
Douglas R. Duguay
DIRECTOR OF P.C. SYSTEMS
Robert J. Saslo
FINANCIAL REPORTING OFFICER
John R. Anderson III
LOAN ADMINISTRATION OFFICER
Susan D. Blascak
LOAN OFFICER
Denise Belton
MERCHANT OFFICER
Jill Ross
OPERATIONS OFFICER
Patricia Pliske
TAX OFFICER
Robert W. McDonald
TRUST OPERATIONS OFFICER
Carol Trezzi
TRUST PORTFOLIO MANAGER
Katherine M. Oven
40 Penseco Financial Services Corporation / 2001 Annual Report
(INSIDE BACK COVER)
Company Board Members
---------------------
PENSECO FINANCIAL SERVICES CORPORATION AND
PENN SECURITY BANK AND TRUST COMPANY
BOARD OF DIRECTORS
Edwin J. Butler
Retired Bank Officer
Richard E. Grimm
Executive Vice-President and Treasurer
Russell C. Hazelton
Retired Captain, Trans World Airlines
D. William Hume
Retired Bank Officer
James G. Keisling
Partner & Treasurer, Compression Polymers Group,
Manufacturer of Plastic Sheet Products
P. Frank Kozik
President, Scranton Craftsmen, Inc., Manufacturer of
Ornamental Iron and Precast Concrete Products
Robert W. Naismith, Ph.D.
Chairman & CEO, eMedsecurities, Inc.
James B. Nicholas
President, D. G. Nicholas Co., Wholesale Auto Parts Company
Emily S. Perry
Retired Insurance Account Executive & Community Volunteer
Sandra C. Phillips
Penn State Master Gardener
Community Volunteer
Otto P. Robinson, Jr.
Attorney-at-Law, President
Steven L. Weinberger
Vice-President of G. Weinberger Company, Mechanical
Contractor Specializing in Commercial & Industrial
Construction
PENN SECURITY BANK AND TRUST COMPANY
ADVISORY BOARDS
ABINGTON OFFICE
Carl M. Baruffaldi
James L. Burne, DDS
Keith Eckel
Richard C. Florey
C. Lee Havey, Jr.
Attorney Patrick J. Lavelle
Sandra C. Phillips
EAST SCRANTON OFFICE
Marie W. Allen
J. Conrad Bosley
Judge Carmen Minora
Mark R. Sarno
Beth S. Wolff
EAST STROUDSBURG OFFICE
Denise M. Cebular
Mary Citro
Robert J. Dillman, Ph.D.
Attorney Kirby Upright
Jeffrey Weichel
GREEN RIDGE OFFICE
Joseph N. Connor
Everett Jones
Attorney Patrick J. Mellody
Caroline Mickelson
George Noone
Howard J. Snowdon
Jeffrey Solimine
MOUNT POCONO OFFICE
Bruce Berry
Francis Cappelloni
Attorney Brian Golden
Robert C. Hay
David Lansdowne
Karyn Gaus Vashlishan
NORTH POCONO OFFICE
Jacqueline A. Carling
Anthony J. Descipio
George F. Edwards
James A. Forti
Attorney David Z. Smith
Deborah A. Wright
SOUTH SIDE OFFICE
Attorney Zygmunt R. Bialkowski, Jr.
Michael P. Brown
J. Patrick Dietz
Lois Ferrari
Jeffrey J. Leventhal
Ted M. Stampien, DDS
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