Exhibit 99
NEWS RELEASE
CONTACT: Patrick Scanlon, Controller
Penseco Financial Services Corporation
(570) 346-7741
FOR RELEASE: 4:00 P.M. Eastern Time: March 01, 2007
Penseco Financial Services Corporation Reports 2006 Earnings
SCRANTON, PA, March 01 -- Penseco Financial Services Corporation (OTC Bulletin
Board: PFNS), the Scranton, Pennsylvania based financial holding company of Penn
Security Bank & Trust Company reported net income for the twelve months ended
December 31, 2006 of $6,008,000 or $2.80 per share compared with the year ago
period of $5,869,000 or $2.73 per share. Earnings were impacted by a previously
announced one-time charge of $1,119,000 for a Voluntary Early Retirement
Initiative ("VERI"). Core after tax earnings for the twelve months ended
December 31, 2006, excluding the VERI and security gains, increased by $658,000
or 11.2% to $6,536,000 compared with $5,878,000 for 2005. Net interest income
after provision for loan losses increased $1,108,000 or 5.7%, to $20,435,000 for
the twelve months ended December 31, 2006 compared to $19,327,000 for 2005. Net
interest income increased mainly from higher loan growth which was driven by a
mix of fixed and variable rate loans backed by real estate.
For the three months ended December 31, 2006, net earnings were $1,000,000
compared with $1,406,000 in the same quarter of 2005. Net earnings per share
were $.47 compared with $.65 in 2005. The Company recorded a before tax expense
of $1,119,000 in the fourth quarter of 2006 in connection with the VERI, from
which the Company anticipates before tax cost savings of approximately
$2,380,000 over the next three years. Net earnings for 2006 increased from 2005
mainly from higher interest income from strong loan demand experienced during
2006. This was offset by increased operating expenses. Income taxes were lower
than year ago levels.
Other Income
Other income declined $669,000 or 7.5% to $8,205,000 during the twelve months of
2006, from $8,874,000 for the same period of 2005. Service charges on deposit
accounts decreased $80,000 or 8.5%, largely due to the implementation of the
free checking program. Merchant transaction income decreased $574,000 or 12.7%,
mainly due to lower transaction volume. Other fee income declined $152,000 or
9.7%, including reduced brokerage income of $98,000 or 26.6%. The Company
realized a gain on the sale of securities of $319,000 which was used to partly
offset the cost associated with the VERI discussed earlier.
Other income increased $222,000 or 12.1% to $2,060,000 for the three months
ended December 31, 2006 compared with $1,838,000 for the similar period of 2005.
Merchant transaction income increased $47,000 or 7.0% due to higher transaction
volume. Other fee income declined $109,000 or 28.4% due to lower loan service
fees. Gains on the sale of equity securities increased $319,000 which was used
to partially offset the acceptance of the VERI by certain employees.
Other Expenses
Total other expenses increased $318,000 or 1.5% to $21,037,000 during 2006
compared with $20,719,000 the same period of 2005. Salaries and employee
benefits increased $1,054,000 or 11.4%, primarily due to the $1,119,000 expense
recorded in the fourth quarter of 2006 in connection with the VERI. Merchant
transaction expenses decreased $505,000 or 13.9%, due to lower transaction
volume. Other operating expenses decreased $173,000 or 3.2%, mostly from lower
professional fees and general operating expenses.
Total other expenses increased $1,113,000 or 22.9% to $5,983,000 for the three
months ended December 31, 2006 compared with $4,870,000 for the same period of
2005. Salaries and employee benefits increased $953,000 or 38.9%, primarily due
to the $1,119,000 expense recorded in the fourth quarter of 2006 in connection
with the VERI. The Company anticipates before tax cost savings of approximately
$2,380,000 over the next three years. Merchant transaction expense increased
$36,000 or 6.4% due to higher transaction volume. Other operating expenses
increased $144,000 or 11.5% mostly from higher professional fees and general
operating expenses.
Asset Quality
Non-accrual loans increased $1,553,000 at December 31, 2006. This increase was
due to a single borrowing relationship being placed into non-accrual during the
third quarter of 2006. Management feels the Company is well secured and projects
no loss of principal as we work towards a resolution to this credit. The
allowance for loan losses at December 31, 2006 was $4,200,000 or 1.14% of total
loans compared to $3,800,000 or 1.18% of total loans at December 31, 2005.
Management continues to believe the loan loss reserve is adequate.
Loans on which the accrual of interest has been discontinued or reduced amounted
to $3,180,000 and $1,627,000 at December 31, 2006 and December 31, 2005,
respectively. If interest on those loans had been accrued, such additional
income would have been $209,000 and $264,000 for the twelve months ended
December 31, 2006 and December 31, 2005, respectively. Interest income on those
loans, which is recorded only when received, amounted to $10,000 and $27,000 for
December 31, 2006 and December 31, 2005, respectively. There are no commitments
to lend additional funds to individuals whose loans are in non-accrual.
Income Tax Expense
For the three months ended December 31, 2006 applicable income taxes decreased
$254,000 primarily due to the VERI. For the twelve months ended December 31,
2006 applicable income taxes decreased $18,000 or 1.1% to $1,595,000 in 2006
compared to $1,613,000 in 2005, due to higher tax-free income despite overall
higher operating income in 2006. The Company's effective income tax rate has
been affected by the Company's income being derived in part from Bank-owned life
insurance appreciation, as well as tax-exempt interest.
PENSECO FINANCIAL SERVICES CORPORATION
FINANCIAL HIGHLIGHTS
(unaudited)
(in thousands, except per share amounts)
FINANCIAL HIGHLIGHTS
(in thousands, except per share
amounts) 2006 2005 Increase $ % Change
- ----------------------------------------------------------------------------
Net Income $ 6,008 $ 5,869 $ 139 2.37%
Earnings per share $ 2.80 $ 2.73 $ 0.07 2.56%
Net Income - Core $ 6,536 $ 5,878 $ 658 11.19%
Earnings per share - Core $ 3.04 $ 2.74 $ 0.30 10.95%
ROA 1.07% 1.03% 3.88%
ROA- Core 1.16% 1.03% 12.62%
ROE 9.15% 9.23% -0.87%
ROE - Core 9.96% 9.24% 7.79%
Efficiency Ratio 72.36% 72.79% -0.59%
Efficiency Ratio - Core 69.27% 72.82% -4.88%
PENSECO FINANCIAL SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except per share amounts)
December 31, December 31,
2006 2005
---------------- ----------------
ASSETS
Cash and due from banks $ 12,999 $ 11,310
Interest bearing balances with banks 1,779 263
Federal funds sold - -
---------------- ----------------
Cash and Cash Equivalents 14,778 11,573
Investment securities:
Available-for-sale, at fair value 91,705 147,942
Held-to-maturity (fair value of $75,120
and $83,130, respectively) 74,375 82,015
---------------- ----------------
Total Investment Securities
166,080 229,957
Loans, net of unearned income 369,922 321,362
Less: Allowance for loan losses 4,200 3,800
---------------- ----------------
Loans, Net 365,722 317,562
Bank premises and equipment 9,471 9,453
Other real estate owned - 91
Accrued interest receivable 3,632 3,473
Cash surrender value of life insurance 7,054 -
Other assets 3,084 3,579
---------------- ----------------
Total Assets $ 569,821 $ 575,688
================ ================
LIABILITIES
Deposits:
Non-interest bearing $ 71,585 $ 91,713
Interest bearing 342,215 306,154
---------------- ----------------
Total Deposits 413,800 397,867
Other borrowed funds:
Repurchase agreements 13,441 30,414
Short-term borrowings 5,486 4,626
Long-term borrowings 65,853 75,401
Accrued interest payable 1,472 1,261
Other liabilities 3,198 2,320
---------------- ----------------
Total Liabilities 503,250 511,889
---------------- ----------------
STOCKHOLDERS' EQUITY
Common stock ($ .01 par value, 15,000,000 shares
authorized, 2,148,000 shares issued and outstanding) 21 21
Surplus 10,819 10,819
Retained earnings 56,393 53,607
Accumulated other comprehensive income (662) (648)
---------------- ----------------
Total Stockholders' Equity 66,571 63,799
---------------- ----------------
Total Liabilities and Stockholders' Equity $ 569,821 $ 575,688
================ ================
PENSECO FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)
Three Months Ended Twelve Months Ended
December 31, December 31,
-------------------------------- --------------------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
INTEREST INCOME
Interest and fees on loans $ 6,255 $ 5,121 $ 23,374 $ 18,569
Interest and dividends on investments:
U.S. Treasury securities and U.S. Agency obligations 1,182 1,538 5,360 6,408
States & political subdivisions 730 638 2,688 2,616
Other securities 90 61 340 190
Interest on Federal funds sold - 6 - 176
Interest on balances with banks 40 55 160 211
----------- ----------- ----------- -----------
Total Interest Income 8,297 7,419 31,922 28,170
----------- ----------- ----------- -----------
INTEREST EXPENSE
Interest on time deposits of $100,000 or more 603 253 1,408 808
Interest on other deposits 1,566 1,226 6,204 4,212
Interest on other borrowed funds 857 895 3,442 3,560
----------- ----------- ----------- -----------
Total Interest Expense 3,026 2,374 11,054 8,580
----------- ----------- ----------- -----------
Net Interest Income 5,271 5,045 20,868 19,590
Provision for loan losses 136 141 433 263
----------- ----------- ----------- -----------
Net Interest Income After Provision for Loan Losses 5,135 4,904 20,435 19,327
----------- ----------- ----------- -----------
OTHER INCOME
Trust department income 370 365 1,483 1,479
Service charges on deposit accounts 226 240 860 940
Merchant transaction income 720 673 3,947 4,521
Other fee income 275 384 1,423 1,575
Other operating income 150 176 173 372
Realized gains (losses) on securities, net 319 - 319 (13)
----------- ----------- ----------- -----------
Total Other Income 2,060 1,838 8,205 8,874
----------- ----------- ----------- -----------
OTHER EXPENSES
Salaries and employee benefits 3,403 2,450 10,315 9,261
Expense of premises and equipment, net 583 603 2,397 2,455
Merchant transaction expenses 598 562 3,141 3,646
Other operating expenses 1,399 1,255 5,184 5,357
----------- ----------- ----------- -----------
Total Other Expenses 5,983 4,870 21,037 20,719
----------- ----------- ----------- -----------
Income before income taxes 1,212 1,872 7,603 7,482
Applicable income taxes 212 466 1,595 1,613
----------- ----------- ----------- -----------
Net Income $ 1,000 $ 1,406 $ 6,008 $ 5,869
=========== =========== =========== ===========
Earnings per Common Share
(Based on 2,148,000 shares outstanding) $ 0.47 $ 0.65 $ 2.80 $ 2.73
Cash Dividends Declared Per Common Share $ 0.45 $ 0.45 $ 1.50 $ 1.44