Exhibit 99.1
NEWS RELEASE
CONTACT: Patrick Scanlon, Senior Vice President, Controller
Penseco Financial Services Corporation
(570) 346-7741
FOR RELEASE: 4:00 P.M. Eastern Time: February 29, 2008
Penseco Financial Services Corporation Reports Increased Earnings of 11.5%
for 2007
SCRANTON, PA, February 29 -- 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 three
months ended December 31, 2007 increased $147,000 or 14.7% to $1,147,000
compared with $1,000,000 for the three months ended December 31, 2006. The
increase in net income is attributed to higher loans, which was somewhat offset
by increased interest expense. Earnings for the three months ended December 31,
2007 were impacted by a fourth quarter charge related to lawsuits against VISA
Inc., which VISA member banks must recognize a contingent liability to indemnify
VISA Inc. as described further herein. The Company, as a member bank, recorded a
total expense of $497,000, which is $328,000 net of tax, or $0.15 per share.
Upon successful completion of an anticipated public offering by VISA Inc. in
2008, the Company expects the value on its converted shares to exceed the
aggregate amount of these charges. Currently, the Company holds 78,122 shares of
VISA class USA common stock. Net interest income after provision for loan losses
increased $209,000 or 4.1% mainly from higher loan income of $553,000 or 8.8%
offset by lower investment income along with higher interest expense.
For the twelve months ended December 31, 2007, net income increased $690,000 or
11.5% to $6,698,000 or $3.12 per share compared with the year ago period of
$6,008,000 or $2.80 per share. Net interest income after provision for loan
losses increased $498,000 or $2.4% to $20,933,000 for the twelve months ended
December 31, 2007 compared to $20,435,000 for 2006. Net interest income
increased mainly from higher net loan growth of $34.2 million which was driven
by a mix of fixed and variable loans backed by real estate offset by lower
investment income and a higher loan loss provision compared to 2006 levels.
Other Income
Other income decreased $79,000 or 3.8% to $1,981,000 for the three months ended
December 31, 2007, compared to $2,060,000 from the year ago period, primarily
due to the gain on securities of $319,000 in 2006. Service charges on deposit
accounts increased $32,000 or 14.2% mainly due to our free checking program.
Merchant transaction income increased $134,000 or 18.6% due to increased
transaction volume and new business. Other fee income increased $50,000 or 14.1%
mainly from higher brokerage fee income of $21,000.
Other income increased $515,000 or 6.3% to $8,720,000 during the twelve months
of 2007, from $8,205,000 for the same period of 2006. Service charges on deposit
accounts increased $154,000 or 17.9 %, primarily due to increased service charge
collections during 2007. Merchant transaction income increased $309,000 or 7.8%,
mainly due to increased transaction volume and new business. Income from
Bank-Owned Life Insurance (BOLI) increased $260,000 to $314,000 in 2007 from
$54,000 in 2006. The BOLI was purchased in the fourth quarter of 2006. Gains on
the sale of securities decreased $270,000 to $49,000 in 2007 from $319,000 in
2006.
Other Expenses
VISA Contingency
In October 2007, Penn Security Bank and Trust Company, as a member of VISA
U.S.A. Inc. received shares of restricted stock in VISA, Inc. as a result of a
global restructuring of VISA in preparation for an initial public offering in
2008.
In connection with this, VISA member banks are required to recognize a
contingent obligation to indemnify VISA under its revised bylaws for potential
losses arising from certain antitrust litigation, at the estimated fair value of
such obligation,
in accordance with FASB Interpretation No. 45. The Company recorded a $497,000
charge or $328,000, net of tax, in the fourth quarter of 2007. The Company will
continue to monitor these litigation matters and record any change in the
liability upon additional information becoming available. Upon successful
completion of the anticipated public offering in 2008, VISA will establish an
escrow account for the litigation, funded by a partial redemption of member
shares for cash (limited to the amount of the obligation recorded). The Company
expects that the value it will receive on these converted shares will exceed the
aggregate amount of its fourth quarter charge.
Total other expense decreased $95,000 or 1.6% to $5,888,000 for the three months
ended December 31, 2007 compared to $5,983,000 for the same period of 2006.
Salaries and employee benefits expense decreased $1,086,000 mainly due to the
$1,119,000 charge recorded in the fourth quarter of 2006 in connection with the
Voluntary Early Retirement Initiative ("VERI"). Expense of premises and
equipment increased $48,000 or 8.2%. Merchant transaction expense increased
$116,000 or 19.4% due to higher transaction volume and new business. Other
operating expenses increased $827,000 due to increased advertising expense of
$146,000, contributions of $137,000 and the $497,000 liability recorded for the
VISA lawsuits discussed above, which is expected to be a one time charge.
Total other expenses increased $294,000 or 1.4% to $21,331,000 during 2007
compared with $21,037,000 the same period of 2006. Salaries and employee
benefits decreased $1,197,000 or 11.6%, primarily due to a one time charge of
$1,119,000 recorded in the fourth quarter of 2006 in connection with the VERI
program. Merchant transaction expenses increased $217,000 or 6.9%, due to
increased transaction volume. Other operating expenses increased $1,085,000 or
20.9%, largely due to increases in advertising expenses of $233,000 and
contributions of $100,000 in addition to a $497,000 liability recorded for the
VISA lawsuits discussed above, which is expected to be a one time charge.
Income Tax Expense
For the three months ended December 31, 2007 applicable income taxes increased
$78,000 due to increased operating income offset by higher tax-free income. For
the twelve months ended December 31, 2007 applicable income taxes increased
$29,000 or 1.8% to $1,624,000 in 2007 compared to $1,595,000 in 2006, due to
increased operating income partly offset by higher tax-free income. The
Company's effective income tax rate has been affected by the Company's income
being derived in part from BOLI appreciation, as well as tax-free interest.
Asset Quality
Non-accrual loans decreased $1,570,000 at December 31, 2007. This decrease was
primarily due to the resolution of a single borrower relationship outstanding in
2006. The allowance for loan losses at December 31, 2007 was $4,700,000 or 1.16%
of total loans compared to $4,200,000 or 1.14% of total loans at December 31,
2006. Management continues to believe the loan loss reserve is adequate.
Loans on which the accrual of interest has been discontinued or reduced amounted
to $1,610,000 and $3,180,000 at December 31, 2007 and December 31, 2006,
respectively. The decrease in 2007 was primarily due to the resolution of a
single borrower relationship outstanding in 2006. If interest on those loans had
been accrued, such additional income would have been $153,000 and $290,000 for
the twelve months ended December 31, 2007 and December 31, 2006, respectively.
Interest income on those loans, which is recorded only when received, amounted
to $17,000 and $10,000 for December 31, 2007 and December 31, 2006,
respectively. There are no commitments to lend additional funds to borrowers
whose loans are on non-accrual status.
The Company does not engage in any sub-prime or ALT-A credit lending. Therefore,
the Company is not subject to any credit risks associated with such loans.
PENSECO FINANCIAL SERVICES CORPORATION
FINANCIAL HIGHLIGHTS
(unaudited)
(in thousands, except per share amounts)
Twelve Months Ended
December 31, December 31, Increase %
-------------- --------------
(in thousands, except per share amounts) 2007 2006 $ Change
- -------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS
Return on Average Assets 1.15% 1.07% 7.48%
Return on Average Equity 9.75% 9.15% 6.56%
STOCKHOLDERS' VALUE
Net Income $ 6,698 $ 6,008 $ 690 11.48%
Earnings per share 3.12 2.80 0.32 11.43%
Dividends Per Share 1.58 1.50 0.08 5.33%
Book Value Per Share 32.45 30.99 1.46 4.71%
Market Value Per Share 39.50 42.75 -3.25 -7.60%
Market Value/Book Value Ratio 121.73% 137.95% -11.76%
Price Earnings Multiple 12.66x 15.27x -17.09%
Dividend Payout Ratio 50.64% 53.57% -5.47%
Dividend Yield 4.00% 3.51% 13.96%
SAFETY AND SOUNDNESS
Stockholders' Equity/Assets Ratio 12.00% 11.68% 2.74%
Total Capital/Risk Weighted Assets 19.89% 19.65% 1.22%
Tier 1 Capital/Risk Weighted Assets 18.65% 18.49% 0.87%
Tier 1 Capital/Average Assets 12.11% 11.93% 1.51%
Allowance for Loan Loss as
a Percent of Loans 1.16% 1.14% 1.75%
Allowance for Loan Loss/
Non-accrual Loans 291.93% 132.08% 121.03%
Non-accrual Loans/Total Loans 0.40% 0.86% -53.49%
Non-performing Loans/
Total Loans 0.52% 0.98% -46.94%
BALANCE SHEET HIGHLIGHTS
Total Assets $ 580,793 $ 569,821 $ 10,972 1.93%
Total Investments 145,448 166,080 -20,632 -12.42%
Net Loans 399,939 365,722 34,217 9.36%
Allowance for Loan Losses 4,700 4,200 500 11.90%
Total Deposits 416,533 413,800 2,733 0.66%
Stockholders' Equity 69,715 66,571 3,144 4.72%
PENSECO FINANCIAL SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except per share amounts)
December 31, December 31,
2007 2006
---------------- ----------------
ASSETS
Cash and due from banks $ 10,677 $ 12,999
Interest bearing balances with banks 967 1,779
Federal funds sold - -
---------------- ----------------
Cash and Cash Equivalents 11,644 14,778
Investment securities:
Available-for-sale, at fair value 77,328 91,705
Held-to-maturity (fair value of $69,491
and $75,120, respectively) 68,120 74,375
---------------- ----------------
Total Investment Securities 145,448 166,080
Loans, net of unearned income 404,639 369,922
Less: Allowance for loan losses 4,700 4,200
---------------- ----------------
Loans, Net 399,939 365,722
Bank premises and equipment 9,323 9,471
Other real estate owned - -
Accrued interest receivable 3,558 3,632
Cash surrender value of life insurance 7,368 7,054
Other assets 3,513 3,084
---------------- ----------------
Total Assets $ 580,793 $ 569,821
================ ================
LIABILITIES
Deposits:
Non-interest bearing $ 73,926 $ 71,585
Interest bearing 342,607 342,215
---------------- ----------------
Total Deposits 416,533 413,800
Other borrowed funds:
Repurchase agreements 20,492 13,441
Short-term borrowings 13,201 5,486
Long-term borrowings 55,966 65,853
Accrued interest payable 1,498 1,472
Other liabilities 3,388 3,198
---------------- ----------------
Total Liabilities 511,078 503,250
---------------- ----------------
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 59,697 56,393
Accumulated other comprehensive income (822) (662)
---------------- ----------------
Total Stockholders' Equity 69,715 66,571
---------------- ----------------
Total Liabilities and Stockholders' Equity $ 580,793 $ 569,821
================ ================
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,
---------------------------- ---------------------------
2007 2006 2007 2006
---------- ----------- ---------- ----------
INTEREST INCOME
Interest and fees on loans $ 6,808 $ 6,255 $ 26,429 $ 23,374
Interest and dividends on investments:
U.S. Treasury securities and U.S. Agency obligations 872 1,182 3,731 5,360
States & political subdivisions 766 730 2,944 2,688
Other securities 82 90 404 340
Interest on Federal funds sold 23 - 456 -
Interest on balances with banks 51 40 365 160
---------- ----------- ---------- ----------
Total Interest Income 8,602 8,297 34,329 31,922
---------- ----------- ---------- ----------
INTEREST EXPENSE
Interest on time deposits of $100,000 or more 470 603 2,010 1,408
Interest on other deposits 1,780 1,566 7,365 6,204
Interest on other borrowed funds 879 857 3,364 3,442
---------- ----------- ---------- ----------
Total Interest Expense 3,129 3,026 12,739 11,054
---------- ----------- ---------- ----------
Net Interest Income 5,473 5,271 21,590 20,868
Provision for loan losses 129 136 657 433
---------- ----------- ---------- ----------
Net Interest Income After Provision for Loan Losses 5,344 5,135 20,933 20,435
---------- ----------- ---------- ----------
OTHER INCOME
Trust department income 375 370 1,535 1,483
Service charges on deposit accounts 258 226 1,014 860
Merchant transaction income 854 720 4,256 3,947
Other fee income 404 354 1,472 1,423
Bank-owned life insurance 79 54 314 54
Other operating income 11 17 80 119
Realized (losses) gains on securities, net - 319 49 319
---------- ----------- ---------- ----------
Total Other Income 1,981 2,060 8,720 8,205
---------- ----------- ---------- ----------
OTHER EXPENSES
Salaries and employee benefits 2,317 3,403 9,118 10,315
Expense of premises and equipment, net 631 583 2,586 2,397
Merchant transaction expenses 714 598 3,358 3,141
Other operating expenses 2,226 1,399 6,269 5,184
---------- ----------- ---------- ----------
Total Other Expenses 5,888 5,983 21,331 21,037
---------- ----------- ---------- ----------
Income before income taxes 1,437 1,212 8,322 7,603
Applicable income taxes 290 212 1,624 1,595
---------- ----------- ---------- ----------
Net Income $ 1,147 $ 1,000 $ 6,698 $ 6,008
========== =========== ========== ==========
Earnings per Common Share
(Based on 2,148,000 shares outstanding) $ 0.54 $ 0.47 $ 3.12 $ 2.80
Cash Dividends Declared Per Common Share $ 0.47 $ 0.45 $ 1.58 $ 1.50
Penseco Financial Services Corporation, through its subsidiary Penn Security
Bank & Trust Company, operates nine offices in Lackawanna, Wayne and Monroe
counties. The Company's stock is traded on the OTC Bulletin Board Market, under
the symbol, "PFNS".
This press release, as well as other written communications made from time to
time by the Company and its subsidiaries and oral communications made from time
to time by authorized officers of the Company, may contain statements relating
to the future results of the Company (including certain projections and business
trends) that are considered "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995 (the "PSLRA"). Such
forward-looking statements may be identified by the use of such words as
"believe," "expect," "anticipate," "should," "planned," "estimated," "intend"
and "potential". For these statements, the Company claims the protection of the
safe harbor for forward-looking statements contained in the PSLRA.
The Company cautions you that a number of important factors could cause actual
results to differ materially from those currently anticipated in any
forward-looking statement. Such factors include, but are not limited to:
prevailing economic and geopolitical conditions; changes in interest rates, loan
demand, real estate values and competition; changes in accounting principles,
policies, and guidelines; changes in any applicable law, rule, regulation or
practice with respect to tax or legal issues; and other economic, competitive,
governmental, regulatory and technological factors affecting the Company's
operations, pricing, products and services and other factors that may be
described in the Company's Annual Report on Form 10-K and Quarterly Reports on
Form 10-Q as filed with the Securities and Exchange Commission. The
forward-looking statements are made as of the date of this release, and, except
as may be required by applicable law or regulation, the Company assumes no
obligation to update the forward-looking statements or to update the reasons why
actual results could differ from those projected in the forward-looking
statements.