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COVER PAGE
The cover for our 1999 Annual Report portrays a graphical depiction of the
expansion and integration of the financial universe.
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
Construction Loans
Credit Lines
Educational Loans
Home Equity Loans
Home Repair and Remodeling Loans
Installment Loans
MasterCard and VISA (Cosmic Card)
Mortgage Loans (Residential and Commercial)
Personal Loans
OTHER SERVICES
ATM Services
Bank Money Orders
Cashier's Checks
College Campus Card Interface
Credit Card Merchant Draft Capture
Data Processing Services
Direct Deposit of Recurring Payments
EDI-ACH Service
Foreign Remittance
Home Banking and Videotex Services
Investor Services
(a) Brokerage
(b) Insurance
Lockbox Services
Night Depository
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 CENTRAL CITY
1100 Northern Boulevard 150 North Washington Avenue
Clarks Summit, PA Scranton, PA
(570) 587-4898 (570) 346-7741
EAST SCRANTON MOUNT POCONO
Prescott Avenue & Ash Street Route 611 & Route 940
Scranton, PA Mount Pocono, PA
(570) 342-9101 (570) 839-8732
EAST STROUDSBURG NORTH POCONO
Route 209 & Route 247 Main & Academy Streets
East Stroudsburg, PA Moscow, PA
(570) 420-0432 (570) 842-7626
GOULDSBORO SOUTH SCRANTON
Main & Second Streets 526 Cedar Avenue
Gouldsboro, PA Scranton, PA
(570) 842-6473 (570) 343-1151
GREEN RIDGE
1901 Sanderson Avenue
Scranton, PA
(570) 346-4695
OTHER ATM LOCATIONS
Acorn Market Meadow Ave. & Hemlock St.
Route 209 Scranton, PA
Marshall's Creek, PA
Acorn Market Metropolitan Life Insurance Company
Route 611 Morgan Highway
Swiftwater, PA Clarks Summit, PA
Convenient Food Mart Red Barn Village
Wyoming & Mulberry Streets Newton Ransom Blvd
Scranton, PA Newton, PA
Kutztown University
Student Center and South Dining Hall
Kutztown, PA
ON THE COVER
The cover for our 1999 Annual Report portrays a graphical depiction of the
expansion and integration of the financial universe.
To the left of this description is a picture of the cover.
INSIDE FRONT COVER
FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------
In thousands, except
per share data 1999 1998 1997
-----------------------------------------------------------------
Earnings per share $ 2.17 $ 1.99 $ 2.20
Dividends per share $ 1.10 $ 1.05 $ 1.05
Total Capital $ 45,743 $ 44,961 $ 42,924
Total Deposits $ 367,332 $ 377,526 $ 374,488
Total Assets $ 428,614 $ 436,099 $ 427,577
-----------------------------------------------------------------
CONTENTS
Customer Services.............................................Inside Front Cover
President's Letter.............................................................2
Board of Directors.............................................................3
Promotions and Appointments....................................................4
Form 10-K
Part 1, Item 1 Business.....................................................6
Item 2 Properties...................................................7
Item 3 Legal Proceedings............................................7
Item 4 Submission of Matters to a Vote of Security Holders..........7
Part 2, Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters..........................................8
Item 6 Selected Financial Data......................................9
Item 7 Management Discussion and Analysis of Financial Condition
and Results of Operations.................................10
Item 7A Quantitative and Qualitative Disclosures About Market Risk..18
Item 8 Financial Statements and Supplementary Data.................20
Consolidated Balance Sheets.................................20
Consolidated Statements of Income...........................21
Consolidated Statements of Changes in Stockholders' Equity..22
Consolidated Statements of Cash Flows.......................23
General Notes to Financial Statements.......................24
Independent Auditor's Report................................34
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................35
Part 3, Item 10 Directors and Executive Officers of the Registrant..........35
Item 11 Executive Compensation......................................35
Item 12 Security Ownership of Certain Beneficial Owners and
Management................................................35
Item 13 Certain Relationships and Related Transactions..............35
Part 4, Item 14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K..................................................36
Signatures..................................................................37
Index to Exhibits...........................................................38
Company Officers..............................................................39
Penseco Financial Services Corporation 1 1999 Annual Report
PRESIDENT'S LETTER
Dear Shareholder
I am pleased to report to you that 1999 was another successful year for
Penseco Financial Services Corporation. Earnings increased to $2.17 per share
for 1999 from $1.99 per share for 1998. Dividends increased to $1.10 per share
for 1999 from $1.05 per share for 1998. Capital also increased to $45.7 million
at year end 1999 from $45.0 million at year end 1998. The increase in net income
was achieved despite declines in total assets of $7.5 million and deposits of
$10.2 million as the Company concentrated on controlling its cost of funds,
generating additional fee income through existing services and in the future
through new services.
To this end, the Federal government adopted legislation which will have a far
reaching impact on the financial services industry, doing away with the
separation of the banking, insurance and securities businesses. The new law
provides that well managed and well capitalized bank holding companies may, by
filing a declaration with the Federal Reserve, become a "financial holding
company" and then may engage in activities which are "financial in nature" or
"incidental thereto" or, subject to Federal Reserve approval, that are
complementary thereto. These services include securities sales and underwriting,
mutual fund sales and management, insurance sales and underwriting, and
traditional peripheral activities of the insurance and investment banking
industries. We have filed such declaration and are expecting to receive approval
by March 15, 2000, the effective date of the new law.
Although we intend to approach these new possibilities with caution, we do,
initially, expect to enter some areas which we perceive have better risk/reward
profiles than we have had in traditional banking.
We have concluded an agreement with a third party brokerage company "Fiserv
Investor Services, Inc." to get our investment area up and running. Dual
employees of the Bank and the brokerage company will provide for sales and
purchases of investments including stocks, bonds, mutual funds and annuities. In
the future, at the appropriate time, we plan to establish a fully licensed
broker/dealer subsidiary of our holding company.
We continue to explore opportunities in the insurance area and will be moving
into high gear to bring insurance sales under the Penseco umbrella of financial
services as soon as our investment services are up and running.
Our Y2K efforts, to which much of 1998 and 1999 were devoted, met with great
success and we encountered very few problems in the century rollover, to which
we credit the hard work and planning of our staff. We were ready for practically
any contingency. Now that Y2K is behind us (although we continue to be on guard
for quarterly and year end processing this year) we can return to some
unfinished business like check, statement, and report imaging, document imaging,
Internet services, enhanced ATM transactions, e-mail statements, and postal bar
code savings to name a few.
Regarding the national economy, in 1999 the Federal Reserve took back all of
the rate decreases it gave in 1998 as the Fed became more concerned about the
economy overheating and fueling increased inflation. It is anticipated the Fed
will further increase rates to keep inflation under control. In a rates-up
environment, it becomes more feasible to become more aggressive in pricing of
loans than when rates are lower, thus we expect our loans to grow substantially
this year. In addition, leveraging techniques which we shunned the last few
years, may make more sense now that rates are up, therefore, we are evaluating
this type of transaction on a relatively small scale.
Donald F. LaTorre, the manager of our South Side Office, is retiring and J.
Patrick Dietz, our Mount Pocono Office manager, has been named to replace him.
Jeffrey Solimine has been named the new branch manager of our Mount Pocono
Office. Jennifer S. Wohlgemuth has been named acting assistant branch manager of
our East Scranton Office. Linda Wolf has been named Assistant Vice President and
Training Officer, Eileen Yanchak, Assistant Charge Card Manager, Susan D.
Blascak, Loan Administration Officer and Robert W. McDonald, Tax Officer. We are
indeed fortunate to have such a capable and dedicated staff.
I am pleased to announce that Jacqueline A. Carling, a long time resident and
business woman in the borough of Moscow, was named to the Advisory Board of our
North Pocono office.
Also, I am pleased to report to you that Stephen L. Weinberger joined the
Boards of Directors of Penseco Financial Services Corporation and Penn Security
Bank and Trust Company. Stephen is the Vice-President of G. Weinberger and
Company, a mechanical contractor headquartered in Old Forge, Pennsylvania. Mr.
Weinberger had served previously as a Director of a local bank which was
subsequently acquired and has a great deal of experience in the banking
industry. His experience will greatly benefit our organization.
I regret to inform you of the death of Fred Deiter who, although retired as a
member of the Board of Directors at the time of his death, had spent almost all
of his working life associated with Penn Security Bank and Trust Company
(formerly the South Side Bank and Trust Company). Mr. Deiter started as a bank
messenger for the Bank and finished as a Director and Executive Vice President.
His many years of dedicated service to the Bank were instrumental in the Bank's
progress and success over the years. We extend our condolences and our gratitude
to his lovely wife, Catherine (Kitty) Deiter and his family.
In looking to the future, we see our Company's strong capital position, good
earnings, technological resources, our positioning in the marketplace with
regard to niche national markets, as well as our traditional geographic market,
all providing an excellent foundation for continued success. In this endeavor,
you can help us by recommending us to your family, friends and business
acquaintances. This is your institution - let it serve you.
Sincerely yours,
/s/ Otto P. Robinson Jr.
Otto P. Robinson, Jr.
President
Penseco Financial Services Corporation 2 1999 Annual Report
BOARD OF DIRECTORS
The top portion of this page of the 1999 Annual Report to Shareholders contains
one picture. A description of the picture follows:
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
NEW MEMBERS
The remainder of this page of the 1999 Annual Report to Shareholders contains
two pictures. A description of each picture follows, starting from left to
right:
Steven L. Weinberger
Board of Directors
Jacqueline A. Carling
North Pocono Advisory Board
Penseco Financial Services Corporation 3 1999 Annual Report
PROMOTIONS & APPOINTMENTS
This page of the 1999 Annual Report to Shareholders contains seven pictures. A
description of each picture follows, starting at the top, from left to right:
J. Patrick Dietz
Assistant Vice-President
Jeffrey Solimine
Assistant Vice-President
Linda Wolf
Assistant Vice-President and Training Officer
Jennifer S. Wohlgemuth
Assistant Cashier
Eileen Yanchak
Assistant Charge Card Manager
Susan D. Blascak
Loan Administration Officer
Robert W. McDonald
Tax Officer
Penseco Financial Services Corporation 4 1999 Annual Report
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, 1999
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 MARCH 1, 2000, BASED ON THE AVERAGE OF THE CLOSING BID AND
ASKED PRICES OF SUCH STOCK ON THAT DATE EQUALS APPROXIMATELY $51,552,000. THE
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MARCH 1, 2000 EQUALS
2,148,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Corporations 1999 Annual Report to Stockholders are incorporated
by reference in Parts I and II.
Portions of the Corporation's definitive proxy statement relating to the 2000
Annual Meeting of Stockholders are incorporated by reference in Part III.
Penseco Financial Services Corporation 5 1999 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 bank holding company. The
Company became a bank 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, 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 general
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 entered into a third party marketingagreement with Fiserv
Investor Services, Inc. and will be offering a full range of securities
brokerage and annuity sales to it's customers. Investor services will be based
in it's headquarters building and the services will be offered through it's
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 other areas such as convenience of location,
types of services, service costs and banking hours.
EMPLOYEES
As of March 1, 2000, the Company employed 200 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 6 1999 Annual Report
As a bank 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.
Additional Bank assets held for sale consist of the Bank's former Green Ridge
office located at the corner of East Market Street and Boulevard Avenue,
Scranton, Pennsylvania.
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.
Penseco Financial Services Corporation 7 1999 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
1999 High Low Per Share
- ---------------------------------------------
First Quarter $ 43 $ 40 $ .21
Second Quarter 41 34 .21
Third Quarter 36 28 .21
Fourth Quarter 30 26 .47
-------
$ 1.10
=======
Dividends
Paid
1998 High Low Per Share
- ---------------------------------------------
First Quarter $ 35 $ 28 $ .21
Second Quarter 41 35 .21
Third Quarter 43 39 .21
Fourth Quarter 44 40 .42
-------
$ 1.05
=======
DIVIDENDS PAID (in millions) YEAR
- -------------------------------------------
$ 2,363 1999
2,255 1998
2,256 1997
2,148 1996
2,014 1995
As of March 1 , 2000 there were approximately 1,045 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 18 and 31.
TRANSFER AGENT
Penseco Financial Services Corporation, 150 North Washington Avenue, Scranton,
Pennsylvania 18503-1848. Stockholders' questions should be directed to the
Company's corporate headquarters at 570-346-7741.
QUARTERLY FINANCIAL DATA (unaudited)
(in thousands, except per share amounts)
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------
Net Interest Income $ 4,226 $ 4,170 $ 4,391 $ 4,320
Provision for Loan Losses 56 - 14 19
Other Income 2,114 1,407 2,397 1,828
Other Expenses 4,807 4,216 4,821 4,468
Net Income 1,076 1,003 1,407 1,185
Earnings Per Share $ .50 $ .47 $ .65 $ .55
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------
Net Interest Income $ 4,356 $ 4,141 $ 4,283 $ 4,016
Provision for Loan Losses 106 104 75 310
Other Income 1,911 1,340 2,116 1,471
Other Expenses 4,374 3,876 4,632 4,104
Net Income 1,248 1,047 1,180 806
Earnings Per Share $ .58 $ .49 $ .55 $ .37
Penseco Financial Services Corporation 8 1999 Annual Report
Item 6 Selected Financial Data
(in thousands, except per share data)
RESULTS OF OPERATIONS:
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Interest Income $ 28,320 $ 29,975 $ 30,099 $ 27,893 $ 27,474
Interest Expense 11,213 13,179 12,385 11,201 11,218
- --------------------------------------------------------------------------------
Net Interest Income 17,107 16,796 17,714 16,692 16,256
Provision for Loan Losses 89 595 316 334 321
- --------------------------------------------------------------------------------
Net Interest Income
after Provision for
Loan Losses 17,018 16,201 17,398 16,358 15,935
Other Income 7,746 6,838 6,285 5,952 6,202
Other Expenses 18,312 16,986 16,884 15,733 15,672
Income Tax 1,781 1,772 2,074 1,975 2,009
- --------------------------------------------------------------------------------
Net Income $ 4,671 $ 4,281 $ 4,725 $ 4,602 $ 4,456
================================================================================
BALANCE SHEET DATA:
Assets $ 428,614 $ 436,099 $ 427,577 $ 398,035 $ 378,968
Investment Securities $ 106,511 $ 118,762 $ 125,048 $ 125,263 $ 146,246
Net Loans $ 278,577 $ 280,389 $ 269,446 $ 237,915 $ 207,708
Deposits $ 367,332 $ 377,526 $ 374,488 $ 352,026 $ 336,386
Stockholders' Equity $ 45,743 $ 44,961 $ 42,924 $ 40,585 $ 39,239
PER SHARE DATA: (1)
Earnings per Share $ 2.17 $ 1.99 $ 2.20 $ 2.14 $ 2.07
Dividends per Share $ 1.10 $ 1.05 $ 1.05 $ 1.00 $ .937
Book Value per Share $ 21.30 $ 20.93 $ 19.98 $ 18.89 $ 18.27
Common Shares Outstanding 2,148,000 2,148,000 2,148,000 2,148,000 2,148,000
FINANCIAL RATIOS:
Net Interest Margin 4.22% 4.12% 4.51% 4.51% 4.57%
Return on Average Assets 1.08% .99% 1.14% 1.17% 1.19%
Return on Average Equity 10.12% 9.54% 11.22% 11.54% 11.86%
Average Equity to
Average Assets 10.70% 10.38% 10.16% 10.14% 10.01%
Dividend Payout Ratio 50.69% 52.76% 47.73% 46.67% 45.18%
(1) Per share data is based on 2,148,000 shares outstanding, giving effect to
the common stock reorganization on December 31, 1997.
Penseco Financial Services Corporation 9 1999 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 1999 totalled $4.7 million, an increase of 9.3% from the $4.3
million earned in 1998, which in turn was a decrease of 8.5% from the $4.7
million earned in 1997. Net earnings per share were $2.17 in 1999, compared with
$1.99 in 1998 and $2.20 in 1997. Net earnings for 1999 increased from 1998
results primarily due to an increase in the net interest margin, coupled with a
lower provision for loan losses. Also, fee income increased, offset by increases
in operating costs. Net earnings for 1998 decreased over 1997 results primarily
due to a narrowing of the net interest margin based on lower yields on earning
assets and increases in funding costs, together with a higher provision for loan
losses.
NET INCOME (in millions) YEAR
- -------------------------------------------
$ 4,671 1999
4,281 1998
4.725 1997
4.602 1996
4.456 1995
The Company's return on average assets was 1.08% in 1999 compared to .99% in
1998 and 1.14% in 1997. Return on average equity was 10.12%, 9.54% and 11.22% in
1999, 1998 and 1997, respectively.
RETURN ON AVERAGE ASSETS YEAR
- -------------------------------------------
1.08% 1999
.99% 1998
1.14% 1997
1.17% 1996
1.19% 1995
RETURN ON AVERAGE EQUITY YEAR
- -------------------------------------------
10.12% 1999
9.54% 1998
11.22% 1997
11.54% 1996
11.86% 1995
Penseco Financial Services Corporation 10 1999 Annual Report
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 $17.1 million in 1999, compared with $16.8 million in
1998, an increase of 1.8%. The increase in net interest income in 1999 resulted
from the Company concentrating on maintaining core deposits along with
increasing non-interest-bearing deposits which helped in reducing the cost of
funds.
Net interest income was $16.8 million in 1998, compared with $17.7 million in
1997, a decrease of 5.1%. The decrease in net interest income in 1998 resulted
from the Federal Reserve lowering rates throughout the year and local
competitive pricing, forcing banks to live with smaller margins.
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, 1999 was 4.2% compared with
4.1% for the year ended December 31, 1998, and 4.5% for the year ended December
31, 1997.
NET INTEREST INCOME (in millions) YEAR
- ---------------------------------------------
$ 17,107 1999
16,796 1998
17,714 1997
16,692 1996
16,256 1995
Interest income in 1999 totalled $28.3 million, compared to $30.0 million in
1998, decreasing 5.7% from the prior year. The yield on average interest-earning
assets was 7.0% in 1999, compared to 7.4% in 1998. Average interest-earning
assets decreased in 1999 to $405.0 million from $407.8 million in 1998. Average
loans, which are the Company's highest yielding earning assets, decreased $1.0
million in 1999, while investment securities and other earning assets decreased
on average by $1.9 million. Average loans represented 69.9% of 1999 average
interest-earning assets, compared to 69.7% in 1998.
Interest expense also decreased in 1999 to $11.2 million from $13.2 million in
1998, a decrease of $2 million or 15.2%. This decrease resulted from lower time
deposit volume and rate reductions on other deposit products. The average rate
paid on interest-bearing liabilities during 1999 was 3.4%, compared to 4.0% in
1998.
Interest income in 1998 totalled $30.0 million, compared to $30.1 million in
1997, remaining essentially unchanged from the prior year.
The yield on average interest-earning assets was 7.4% in 1998, compared to
7.7% in 1997. Average interest-earning assets increased in 1998 to $407.8
million from $392.8 million in 1997. Average loans increased $23.7 million in
1998, while investment securities and other earning assets decreased on average
by $8.7 million. Average loans represented 69.7% of 1998 average
interest-earning assets, compared to 66.3% in 1997.
Interest expense increased in 1998 to $13.2 million from $12.4 million in
1997, an increase of $.8 million or 6.5%. This increase resulted from higher
time deposit volume and rate increases. The average rate paid on
interest-bearing liabilities during 1998 was 4.0%, compared to 3.9% in 1997.
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.
Penseco Financial Services Corporation 11 1999 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 1999, 1998 and
1997.
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
- -------------------------------------------------------------------------------------------------------------------------------
Investment securities:
Available-for-sale:
U.S. Treasury securities $ 75,346 $ 4,329 5.75% $ 99,405 $ 6,024 6.06% $ 113,559 $ 7,092 6.25%
U.S. Agency obligations 5,000 286 5.72 1,250 71 5.68 - - -
States & political subdivisions 23,434 836 5.41 2,683 89 5.03 - - -
Federal Home Loan Bank
stock 1,796 119 6.63 619 43 6.95 - - -
Other 20 1 5.00 20 1 5.00 20 1 5.00
Held-to-maturity:
U.S. Agency obligations 4,647 279 6.00 8,228 505 6.14 11,342 712 6.28
States & political subdivisions 640 34 8.05 - - - - - -
Loans, net of unearned income:
Real estate mortgages 221,001 17,236 7.80 221,601 17,642 7.96 204,705 16,734 8.17
Commercial 21,164 1,818 8.59 18,508 1,562 8.44 13,465 1,207 8.96
Consumer and other 40,923 2,819 6.89 43,931 3,405 7.75 42,205 3,943 9.34
Federal funds sold 7,035 369 5.25 9,994 521 5.21 7,535 410 5.44
Interest on balances with banks 3,977 194 4.88 1,565 112 7.16 - - -
- -------------------------------------------------------------------------------------------------------------------------------
Total Earning Assets/
Total Interest Income 404,983 $ 28,320 6.99% 407,804 $ 29,975 7.35% 392,831 $ 30,099 7.66%
- -------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 11,188 10,642 9,629
Bank premises and equipment 12,588 10,532 7,950
Accrued interest receivable 2,992 3,544 3,573
Other assets 2,186 2,398 2,988
Less: Allowance for loan losses 2,894 2,711 2,439
- -------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 431,043 $ 432,209 $ 414,532
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand-Interest bearing $ 23,643 $ 252 1.07% $ 23,371 $ 347 1.48% $ 23,057 $ 349 1.51%
Savings 71,084 1,061 1.49 71,001 1,409 1.98 72,815 1,447 1.99
Money markets 59,066 1,585 2.68 63,489 1,818 2.86 68,437 2,039 2.98
Time - Over $100 43,397 2,172 5.00 39,769 2,165 5.44 30,697 1,616 5.26
Time - Other 115,764 5,633 4.87 126,737 7,035 5.55 121,201 6,729 5.55
Federal funds purchased 78 4 5.13 265 11 4.15 278 14 5.04
Repurchase agreements 12,169 482 3.96 8,051 364 4.52 3,971 161 4.05
Short-term borrowings 481 24 4.99 638 30 4.70 558 30 5.38
- -------------------------------------------------------------------------------------------------------------------------------
Total Interest Bearing Liabilities/
Total Interest Expense 325,682 $ 11,213 3.44% 333,321 $ 13,179 3.95% 321,014 $ 12,385 3.86%
- -------------------------------------------------------------------------------------------------------------------------------
Demand - Non-interest bearing 57,339 51,159 48,241
All other liabilities 1,888 2,868 3,154
Stockholders' equity 46,134 44,861 42,123
- -------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $ 431,043 $ 432,209 $ 414,532
- -------------------------------------------------------------------------------------------------------------------------------
Interest Spread 3.55% 3.40% 3.80%
- -------------------------------------------------------------------------------------------------------------------------------
Net Interest Income $ 17,107 $ 16,796 $ 17,714
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
Net interest margin 4.22% 4.12% 4.51%
Return on average assets 1.08% .99% 1.14%
Return on average equity 10.12% 9.54% 11.22%
Average equity to average assets 10.70% 10.38% 10.16%
Dividend payout ratio 50.69% 52.76% 47.73%
Penseco Financial Services Corporation 12 1999 Annual Report
DOLLAR AMOUNT OF CHANGE IN INTEREST INCOME AND INTEREST EXPENSE
Dollar Change
Amount Change in Change in in Rate-
1999 compared to 1998 of Change Volume Rate Volume
------------------------------------------------------------------------------------
EARNING Investment securities:
ASSETS Available-for-sale:
U.S. Treasury securities $ (1,695) $ (1,458) $ (308) $ 71
U.S. Agency obligations 215 213 - 2
States & political subdivisions 747 689 7 51
Federal Home Loan Bank stock 76 82 (2) (4)
Held-to-maturity:
U.S. Agency obligations (226) (220) (11) 5
States & political subdivisions 34 - - 34
Loans, net of unearned income:
Real estate mortgages (406) (48) (355) (3)
Commercial 256 224 28 4
Consumer and other (586) (233) (378) 25
Federal funds sold (152) (154) 4 (2)
Interest bearing balances with banks 82 172 (35) (55)
------------------------------------------------------------------------------------
Total Interest Income (1,655) (733) (1,050) 128
------------------------------------------------------------------------------------
INTEREST Deposits:
BEARING Demand - Interest bearing (95) 4 (96) (3)
LIABILITIES Savings (348) 1 (348) (1)
Money markets (233) (126) (114) 7
Time - Over $100 7 197 (175) (15)
Time - Other (1,402) (609) (862) 69
Federal funds purchased (7) (7) (2) 2
Repurchase agreements 118 186 (45) (23)
Short-term borrowings (6) (7) 2 (1)
------------------------------------------------------------------------------------
Total Interest Expense (1,966) (361) (1,640) 35
------------------------------------------------------------------------------------
Net Interest Income $ 311 $ (372) $ 590 $ 93
------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
1998 compared to 1997
------------------------------------------------------------------------------------
EARNING Investment securities:
ASSETS Available-for-sale:
U.S. Treasury securities $ (1,068) $ (883) $ (204) $ 19
U.S. Agency obligations 71 - - 71
States & political subdivisions 89 - - 89
Federal Home Loan Bank stock 43 - - 43
Held-to-maturity
U.S. Agency obligations (207) (196) 11 (22)
Loans, net of unearned income:
Real estate mortgages 908 1,380 (430) (42)
Commercial 355 452 (70) (27)
Consumer and other (538) 161 (671) (28)
Federal funds sold 111 134 (17) (6)
Interest bearing balances with banks 112 - - 112
------------------------------------------------------------------------------------
Total Interest Income (124) 1,048 (1,381) 209
------------------------------------------------------------------------------------
INTEREST Deposits:
BEARING Demand - Interest bearing (2) 5 (7) -
LIABILITIES Savings (38) (36) (2) -
Money markets (221) (149) (82) 10
Time - Over $100 549 478 52 19
Time - Other 306 306 - -
Federal funds purchased (3) (1) (2) -
Repurchase agreements 203 166 18 19
Short-term borrowings - - - -
------------------------------------------------------------------------------------
Total Interest Expense 794 769 (23) 48
------------------------------------------------------------------------------------
Net Interest Income $ (918) $ 279 $ (1,358) $ 161
------------------------------------------------------------------------------------
Penseco Financial Services Corporation 13 1999 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, 1999 1998 1997
- ---------------------------------------------------------------------
Trust department income $ 1,047 $ 1,001 $ 858
Service charges on
deposit accounts 695 657 648
Merchant transaction
income 5,166 4,500 4,083
Other fee income 704 539 602
Other operating income 134 141 94
Realized gains on
securities, net - - -
- ---------------------------------------------------------------------
Total Other Income $ 7,746 $ 6,838 $ 6,285
=====================================================================
Total other income increased $908 during 1999. There was a significant
increase in our merchant transaction income of $666 or 14.8% due to an increase
in our customer base and increased business with our existing customers. Other
fee income increased $165 or 30.6%.
Total other income increased $553 during 1998. The increase came from new
trust business which was up $143 from 1997, a 16.7% increase, as well as a
significant increase in our merchant transaction income of $417 or 10.2%.
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, 1999 1998 1997
- ---------------------------------------------------------------------
Salaries and employee
benefits $ 7,528 $ 7,331 $ 7,578
Occupancy expenses, net 1,334 1,274 1,278
Furniture and equipment
expenses 1,227 908 850
Merchant transaction
expenses 4,471 3,764 3,365
Other operating expenses 3,752 3,709 3,813
- ---------------------------------------------------------------------
Total Other Expenses $ 18,312 $ 16,986 $ 16,884
=====================================================================
Salaries and employee benefits increased by $197 or 2.7% in 1999 from 1998 and
decreased by $247 or 3.3% in 1998 from 1997. The Company employed 201 people on
a full-time equivalent basis at December 31, 1999, compared with 209 at December
31, 1998 and 202 at December 31, 1997. The salary and benefits expense in 1999
reflects cost of living increases granted to employees, along with a higher cost
of employee benefits. The salary and benefits expense in 1998 reflects cost of
living increases granted to employees, offset by a lower cost of employee
benefits.
Occupancy expenses and furniture and equipment expenses increased
significantly during the years 1999 and 1998 due to a new branch office in East
Stroudsburg, along with the replacement of our former office in the Green Ridge
section of Scranton. The Company incurred additional expense in its merchant
transaction business of $707 or 18.8% in 1999 and $399 or 11.9% in 1998, due to
additional growth.
INCOME TAXES
Federal income tax expense amounted to $1,781 in 1999 compared to $1,772
recorded in 1998. The Company's effective income tax rate for 1999 was 27.6%
compared to 29.3% for 1998, due to additional tax free income in 1999. In 1998,
income tax expense decreased $302 from $2,074 in 1997 due to a decrease in
pre-tax income. The effective income tax rate for 1998 was 29.3% compared to
30.5% for 1997.
For further discussion pertaining to Federal income taxes, see Note 12 to the
Consolidated Financial Statements.
FINANCIAL CONDITION
Total assets decreased $7.5 million or 1.7% during 1999 and amounted to $428.6
million at December 31, 1999 compared to $436.1 million at December 31, 1998.
For the year ended December 31, 1998 total assets increased $8.5 million to
$436.1 million or a 2.0% increase over $427.6 million at December 31, 1997.
ASSETS (in millions) YEAR
- -------------------------------------
$ 428,614 1999
436,099 1998
427,577 1997
398,035 1996
378,968 1995
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, 1999 1998 1997
- ---------------------------------------------------------------------
U.S.Treasury securities $ 66,459 $ 81,916 $ 114,922
U.S. Agency obligations 9,643 11,402 10,106
States & political subdivisions 28,591 23,634 -
Other securities 1,818 1,810 20
- ---------------------------------------------------------------------
Total Investment Securities $ 106,511 $ 118,762 $ 125,048
=====================================================================
Penseco Financial Services Corporation 14 1999 Annual Report
LOAN PORTFOLIO
Details regarding the Company's loan portfolio for the past five years are as
follows:
December 31, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------
Real estate - construction
and land development $ 3,241 $ 4,152 $ 3,731 $ 3,770 $ 4,042
Real estate mortgages 216,574 221,879 213,128 184,577 161,217
Commercial 18,995 18,169 17,173 13,476 11,770
Credit card and related plans 2,203 2,286 2,293 2,298 2,404
Installment 28,693 28,538 26,811 26,667 20,663
Obligations of states &
political subdivisions 11,821 8,195 8,910 9,427 9,712
- -----------------------------------------------------------------------------------------------
Loans, net of unearned income 281,527 283,219 272,046 240,215 209,808
Less: Allowance for loan losses 2,950 2,830 2,600 2,300 2,100
- -----------------------------------------------------------------------------------------------
Loans, net $ 278,577 $ 280,389 $ 269,446 $ 237,915 $ 207,708
===============================================================================================
LOANS
Total net loans decreased $1.8 million to $278.6 million at December 31, 1999
from $280.4 million at December 31, 1998, a decrease of .6%.
Total net loans increased $11.0 million to $280.4 million at December 31, 1998
from $269.4 million at December 31, 1997, an increase of 4.1%.
The increase in 1998 was due to growth in the Company's real estate,
commercial and installment loan portfolios.
NET LOANS (in millions) YEAR
- -------------------------------------------
$ 278,577 1999
280,389 1998
269,446 1997
237,915 1996
207,708 1995
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.
Penseco Financial Services Corporation 15 1999 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, 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
Non-accrual loans $ 836 $ 929 $ 1,031 $ 866 $ 940
Loans past due 90 days or more and accruing:
Guaranteed student loans 476 348 343 342 166
Credit card and home equity loans - 27 98 93 133
- ---------------------------------------------------------------------------------------------------------
Total non-performing loans 1,312 1,304 1,472 1,301 1,239
Other real estate owned 33 111 339 610 306
- ---------------------------------------------------------------------------------------------------------
Total non-performing assets $ 1,345 $ 1,415 $ 1,811 $ 1,911 $ 1,545
=========================================================================================================
Loans are generally placed on a nonaccrual status when principal or interest is
past due 90 days or when payment in full is not anticipated. When a loan is
placed on nonaccrual 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 $836, $929 and $1,031 at December 31, 1999, 1998 and 1997,
respectively. If interest on those loans had been accrued, such income would
have been $140, $108 and $89 for 1999, 1998 and 1997, respectively. Interest
income on those loans, which is recorded only when received, amounted to $22,
$30 and $35 for 1999, 1998 and 1997, 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, 1999, there are no significant loans as to which management
has serious doubt about their ability to continue to perform in accordance with
their contractual terms.
At December 31, 1999, 1998 and 1997, 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, 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
Balance at beginning of year $ 2,830 $ 2,600 $ 2,300 $ 2,100 $ 2,100
Charge-offs:
Real estate mortgages 82 69 38 87 300
Commercial and all others 13 252 - - 11
Credit card and related plans 65 37 52 64 67
Installment loans 26 25 32 32 3
- ---------------------------------------------------------------------------------------------------------
Total charge-offs 186 383 122 183 381
- ---------------------------------------------------------------------------------------------------------
Recoveries:
Real estate mortgages - 1 79 22 2
Commercial and all others 195 - 1 2 1
Credit card and related plans 10 9 17 16 11
Installment loans 12 8 9 9 46
- ---------------------------------------------------------------------------------------------------------
Total recoveries 217 18 106 49 60
- ---------------------------------------------------------------------------------------------------------
Net (recoveries) charge-offs (31) 365 16 134 321
- ---------------------------------------------------------------------------------------------------------
Provision charged to operations 89 595 316 334 321
- ---------------------------------------------------------------------------------------------------------
Balance at End of Year $ 2,950 $ 2,830 $ 2,600 $ 2,300 $ 2,100
=========================================================================================================
Ratio of net (recoveries) charge-offs
to average loans outstanding (0.01)% 0.13% 0.01% 0.06% 0.17%
==========================================================================================================
Penseco Financial Services Corporation 16 1999 Annual Report
The allowance for loan losses is allocated as follows:
December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
Amount %1 Amount %1 Amount %1 Amount %1 Amount %1
- ------------------------------------------------------------------------------------------------------------
Real estate mortgages $ 1,500 78% $ 1,550 80% $ 1,350 71% $ 1,125 71% $ 1,100 72%
Commercial
and all others 950 10 830 9 850 19 875 22 750 23
Credit card and
related plans 150 1 150 1 150 1 150 1 150 1
Personal installment loans 350 11 300 10 250 9 150 6 100 4
- ------------------------------------------------------------------------------------------------------------
Total $ 2,950 100% $ 2,830 100% $ 2,600 100% $ 2,300 100% $ 2,100 100%
============================================================================================================
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 decreased $10.2 million to $367.3 million at December 31,
1999 from $377.5 million at December 31, 1998, a decrease of 2.7%. Company
deposits increased $3.0 million to $377.5 million at December 31, 1998 from
$374.5 million at December 31, 1997, an increase of .8%. The decline in deposits
in 1999 is the result of the Company concentrating on maintaining core deposits,
along with increasing its non-interest bearing deposits, which helped to reduce
the cost of funds. The growth in deposits in 1998 was due to management
responding to competition by offering competitively priced or alternative
banking products.
The maturities of time deposits of $100,000 or more are as follows:
Three months or less $ 15,684
Over three months through six months 13,502
Over six months through twelve months 10,023
Over twelve months 5,088
--------
Total $ 44,297
========
DEPOSITS (in millions) YEAR
- --------------------------------------
$ 367,332 1999
377,526 1998
374,488 1997
352,026 1996
336,386 1995
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.
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 designation of securities as "Held-To-Maturity"
lessens the ability of banks to sell securities so classified, except in regard
to certain changes in circumstances or other events that are isolated,
nonrecurring and unusual.
Penseco Financial Services Corporation 17 1999 Annual Report
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 18.96% at December 31, 1999.
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
- --------------------------------------------------
$ 45,743 1999
44,961 1998
42,924 1997
40,585 1996
39,239 1995
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 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.
Penseco Financial Services Corporation 18 1999 Annual Report
MATURITIES AND SENSITIVITY OF MARKET RISK AS OF DECEMBER 31, 1999
Non-Rate
2000 2001 2002 2003 2004 Thereafter Sensitive Total Fair Value
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Fixed interest rate securities:
U.S. Treasury securities $ 19,017 $ 32,731 $ 4,925 $ 4,866 $ 4,920 $ - $ - $ 66,459 $ 66,459
Yield 5.88% 5.54% 5.14% 4.65% 6.01% - - 5.57%
U.S. Agency obligations - - - 4,800 - - - 4,800 4,800
Yield - - - 5.71% - - - 5.71%
States & political subdivisions 1,094 3,402 6,731 7,462 4,263 5,639 - 28,591 28,439
Yield 5.08% 5.22% 5.37% 5.68% 5.56% 8.51% - 6.04%
Variable interest rate securities:
U.S. Agency obligations 1,800 1,800 1,243 - - - - 4,843 4,691
Yield 6.00% 6.00% 6.00% - - - - 6.00%
Federal Home Loan Bank stock - - - - - 1,798 - 1,798 1,798
Yield - - - - - 6.63% - 6.63%
Other - - - - - 20 - 20 20
Yield - - - - - 5.00% - 5.00%
Fixed interest rate loans:
Real estate mortgages 13,008 12,122 11,799 11,170 11,574 93,060 - 152,733 146,191
Yield 7.59% 7.58% 7.57% 7.54% 7.50% 7.48% - 7.51%
Consumer and other 1,896 1,791 1,649 1,400 1,190 2,077 - 10,003 9,942
Yield 7.99% 7.89% 7.80% 7.80% 7.85% 8.04% - 7.91%
Variable interest rate loans:
Real estate mortgages 16,254 6,975 6,001 5,706 5,635 26,511 - 67,082 67,082
Yield 8.63% 8.43% 9.34% 8.66% 8.70% 8.69% - 8.70%
Commercial 18,995 - - - - - - 18,995 18,995
Yield 8.59% - - - - - - 8.59%
Consumer and other 8,975 5,089 4,940 4,648 4,959 4,103 - 32,714 32,714
Yield 8.66% 8.69% 8.34% 7.85% 7.85% 8.69% - 8.38%
Less: Allowance for loan losses 620 272 256 240 245 1,317 - 2,950
Interest bearing deposits
with banks 3,961 - - - - - - 3,961 3,961
Yield 5.20% - - - - - - 5.20%
Federal funds sold 10,875 - - - - - - 10,875 10,875
Yield 5.25% - - - - - - 5.25%
Cash and due from banks - - - - - - 10,275 10,275 10,275
Other assets - - - - - - 18,415 18,415
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 95,255 $ 63,638 $ 37,032 $ 39,812 $ 32,296 $ 131,891 $ 28,690 $ 428,614 $ 406,242
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Variable interest rate deposits:
Demand - Interest bearing $ - $ 23,558 $ - $ - $ - $ - $ - $ 23,558 $ 23,558
Yield - 1.07% - - - - - 1.07%
Savings - 68,824 - - - - - 68,824 68,824
Yield - 1.49% - - - - - 1.49%
Money markets 60,494 - - - - - - 60,494 60,494
Yield 2.68% - - - - - - 2.68%
Time - Other 14,104 - - - - - - 14,104 14,104
Yield 5.62% - - - - - - 5.62%
Fixed interest rate deposits:
Time - Over $100,000 39,209 2,957 1,411 300 245 175 - 44,297 44,492
Yield 5.03% 5.82% 6.11% 6.00% 6.36% 6.50% - 5.14%
Time - Other 75,384 12,687 7,789 482 1,074 409 - 97,825 98,095
Yield 4.77% 5.30% 5.94% 5.24% 5.62% 6.05% - 4.92%
Demand - Non-interest bearing - - - - - - 58,230 58,230 58,230
Repurchase agreements 11,981 - - - - - - 11,981 11,981
Yield 3.96% - - - - - - 3.96%
Short-term borrowings 887 - - - - - - 887 887
Yield 4.99% - - - - - - 4.99%
Other liabilities - - - - - - 2,671 2,671
Stockholders' equity - - - - - - 45,743 45,743
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $ 202,059 $ 108,026 $ 9,200 $ 782 $ 1,319 $ 584 $ 106,644 $ 428,614 $ 380,665
====================================================================================================================================
Excess of (liabilities) assets
subject to interest rate change $(106,804) $ (44,388) $ 27,832 $ 39,030 $ 30,977 $ 131,307 $ (77,954) $ -
====================================================================================================================================
Penseco Financial Services Corporation 19 1999 Annual Report
Item 8 Financial Statements and Supplementary Data
Consolidated Balance Sheets
(in thousands, except per share data)
December 31, 1999 1998
-------------------------------------------------------------------
ASSETS Cash and due from banks $ 10,275 $ 11,731
Interest bearing balances with banks 3,961 345
Federal funds sold 10,875 6,650
-------------------------------------------------------------------
Cash and Cash Equivalents 25,111 18,726
Investment securities:
Available-for-sale, at fair value 96,029 112,346
Held-to-maturity (fair value of $10,178
and $6,266, respectively) 10,482 6,416
-------------------------------------------------------------------
Total Investment Securities 106,511 118,762
Loans, net of unearned income 281,527 283,219
Less: Allowance for loan losses 2,950 2,830
-------------------------------------------------------------------
Loans, Net 278,577 280,389
Bank premises and equipment 12,296 12,631
Other real estate owned 33 111
Accrued interest receivable 2,927 3,234
Other assets 3,159 2,246
-------------------------------------------------------------------
Total Assets $ 428,614 $ 436,099
===================================================================
LIABILITIES Deposits:
Non-interest bearing $ 58,230 $ 56,398
Interest bearing 309,102 321,128
-------------------------------------------------------------------
Total Deposits 367,332 377,526
Other borrowed funds:
Repurchase agreements 11,981 10,959
Short-term borrowings 887 -
Accrued interest payable 1,860 2,039
Other liabilities 811 614
-------------------------------------------------------------------
Total Liabilities 382,871 391,138
-------------------------------------------------------------------
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 35,996 33,688
Accumulated other comprehensive income (1,093) 433
-------------------------------------------------------------------
Total Stockholders' Equity 45,743 44,961
-------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $ 428,614 $ 436,099
===================================================================
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
Penseco Financial Services Corporation 20 1999 Annual Report
Consolidated Statements of Income
(in thousands, except per share data)
Years Ended December 31, 1999 1998 1997
------------------------------------------------------------------------
INTEREST Interest and fees on loans $ 21,873 $ 22,609 $ 21,884
INCOME Interest and dividends on investments:
U.S. Treasury securities and U.S.
Agency obligations 4,894 6,600 7,804
States & political subdivisions 870 89 -
Other securities 120 44 1
Interest on Federal funds sold 369 521 410
Interest on balances with banks 194 112 -
------------------------------------------------------------------------
Total Interest Income 28,320 29,975 30,099
------------------------------------------------------------------------
INTEREST Interest on time deposits
EXPENSE of $100,000 or more 2,172 2,165 1,616
Interest on other deposits 8,531 10,609 10,564
Interest on other borrowed funds 510 405 205
------------------------------------------------------------------------
Total Interest Expense 11,213 13,179 12,385
------------------------------------------------------------------------
Net Interest Income 17,107 16,796 17,714
Provision for loan losses 89 595 316
------------------------------------------------------------------------
Net Interest Income After Provision
for Loan Losses 17,018 16,201 17,398
------------------------------------------------------------------------
OTHER Trust department income 1,047 1,001 858
INCOME Service charges on deposit accounts 695 657 648
Merchant transaction income 5,166 4,500 4,083
Other fee income 704 539 602
Other operating income 134 141 94
Realized gains on securities, net - - -
------------------------------------------------------------------------
Total Other Income 7,746 6,838 6,285
------------------------------------------------------------------------
OTHER Salaries and employee benefits 7,528 7,331 7,578
EXPENSES Occupancy expenses, net 1,334 1,274 1,278
Furniture and equipment expenses 1,227 908 850
Merchant transaction expenses 4,471 3,764 3,365
Other operating expenses 3,752 3,709 3,813
------------------------------------------------------------------------
Total Other Expenses 18,312 16,986 16,884
------------------------------------------------------------------------
Income before income taxes 6,452 6,053 6,799
Applicable income taxes 1,781 1,772 2,074
------------------------------------------------------------------------
NET INCOME Net Income $ 4,671 $ 4,281 $ 4,725
========================================================================
PER SHARE Earnings Per Share $ 2.17 $ 1.99 $ 2.20
========================================================================
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
Penseco Financial Services Corporation 21 1999 Annual Report
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------
Accumulated
Other Total
Common Retained Comprehensive Stockholders'
(in thousands, except per share data) Stock Surplus Earnings Income Equity
- -------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $ 21 $ 10,819 $ 29,193 $ 552 $ 40,585
Comprehensive income:
Net income, 1997 - - 4,725 - 4,725
Unrealized losses on securities,
net of taxes of $67 - - - (130) (130)
-----
Comprehensive income 4,595
Cash dividends declared ($1.05 per share) - - (2,256) - (2,256)
- -------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 21 10,819 31,662 422 42,924
Comprehensive income:
Net income, 1998 - - 4,281 - 4,281
Unrealized gains on securities,
net of taxes of $6 - - - 11 11
-----
Comprehensive income 4,292
Cash dividends declared ($1.05 per share) - - (2,255) - (2,255)
- -------------------------------------------------------------------------------------------------------------
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
=============================================================================================================
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
Penseco Financial Services Corporation 22 1999 Annual Report
Consolidated Statements of Cash Flows
(in thousands) Years Ended December 31, 1999 1998 1997
-------------------------------------------------------------------------------------
OPERATING Net Income $ 4,671 $ 4,281 $ 4,725
ACTIVITIES Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,176 1,005 972
Provision for loan losses 89 595 316
Deferred income tax benefit (165) (284) (8)
Amortization of securities
(net of accretion) 336 232 296
Net realized gains on securities - - -
Loss on other real estate 28 41 176
Decrease (increase) in interest receivable 307 661 (387)
Decrease (increase) in other assets 37 (475) (136)
Increase (decrease) in income taxes payable 253 (182) 51
(Decrease) increase in interest payable (179) (485) 523
(Decrease) increase in other liabilities (56) 102 (105)
-------------------------------------------------------------------------------------
Net cash provided by
operating activities 6,497 5,491 6,423
-------------------------------------------------------------------------------------
INVESTING Purchase of investment securities
ACTIVITIES available-for-sale (48,307) (53,579) (48,472)
Proceeds from maturities of investment
securities available-for-sale 62,015 56,000 46,000
Purchase of investment securities to be
held-to-maturity (5,639) - -
Proceeds from repayments of investment
securities to be held-to-maturity 1,535 3,650 2,194
Net loans repaid (originated) 1,612 (11,664) (32,274)
Proceeds from other real estate 161 313 523
Investment in premises and equipment (841) (4,990) (3,196)
-------------------------------------------------------------------------------------
Net cash provided (used) by
investing activities 10,536 (10,270) (35,225)
-------------------------------------------------------------------------------------
FINANCING Net increase (decrease) in demand and
ACTIVITIES savings deposits 851 6,236 (12,393)
Net (payments) proceeds on time deposits (11,045) (3,198) 34,855
Increase in repurchase agreements 1,022 5,037 3,925
Net increase (decrease) in short-term borrowings 887 (893) 422
Cash dividends paid (2,363) (2,255) (2,256)
-------------------------------------------------------------------------------------
Net cash (used) provided by
financing activities (10,648) 4,927 24,553
-------------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 6,385 148 (4,249)
-------------------------------------------------------------------------------------
Cash and cash equivalents at January 1 18,726 18,578 22,827
-------------------------------------------------------------------------------------
Cash and cash equivalents at December 31 $ 25,111 $ 18,726 $ 18,578
=====================================================================================
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
Penseco Financial Services Corporation 23 1999 Annual Report
GENERAL NOTES TO FINANCIAL STATEMENTS
1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Penseco Financial Services Corporation (Company) is a bank holding company,
incorporated 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 generally accepted
accounting principles 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.
On December 31, 1997, the Bank was reorganized into a holding company
structure. Each outstanding share of the Bank's common stock, par value of
$10.00 per share, was exchanged for four shares of Penseco Financial Services
Corporation common stock, par value of $.01 per share. As a result of the
reorganization, the Bank became a wholly-owned subsidiary of the Company. This
reorganization among entities under common control was accounted for at
historical cost in a manner similar to a pooling of interests.
The Statements are presented on the accrual basis of accounting, except for
Trust Department income which is recorded when payment is received.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130) which
was issued in June 1997. SFAS 130 established new rules for the reporting and
display of comprehensive income and its components, but had no effect on the
Company's net income or total stockholders' equity.
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.
PENDING ACCOUNTING PRONOUNCEMENTS
Management does not believe that any pending accounting pronouncements will have
a material impact on the Consolidated Financial Statements.
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 over the period to
maturity, which approximates the interest method.
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.
The Company has no derivative financial instruments required to be disclosed
under Statement of Financial Accounting Standards No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments" (SFAS
119).
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 on
discounted loans is generally recognized as income based on methods that
approximate the interest method. For all other loans, interest is accrued daily
on the outstanding balances.
Loans are generally placed on a nonaccrual status when principal or interest
is past due 90 days or when payment in full is not anticipated. When a loan is
placed on nonaccrual 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).
Penseco Financial Services Corporation 24 1999 Annual Report
1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
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).
ADVERTISING EXPENSES
Advertising costs are expensed as incurred. Advertising expenses for the years
ended December 31, 1999, 1998 and 1997, amounted to $387, $442 and $432,
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,
1999, 1998 and 1997 as follows:
1999 1998 1997
------------------------------------------------------
Income taxes paid $ 1,694 $ 2,238 $ 1,985
Interest paid $ 11,392 $ 13,664 $ 11,861
Non-cash transactions during the years ended December 31, 1999, 1998 and 1997,
comprised entirely of the net acquisition of real estate in the settlement of
loans, amounted to $111, $126, and $427, 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 cash basis and is not materially
different than if it were reported on the accrual basis.
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 1999
presentation.
2 CASH AND DUE FROM BANKS
Cash and due from banks are summarized as follows:
December 31, 1999 1998
- -----------------------------------------------------------
Cash items in process of collection $ 5 $ 66
Non-interest bearing balances 4,961 6,982
Cash on hand 5,309 4,683
- -----------------------------------------------------------
Total $ 10,275 $ 11,731
===========================================================
3 INVESTMENT SECURITIES
The amortized cost and fair value of investment securities at December 31, 1999
and 1998 are as follows:
AVAILABLE-FOR-SALE
Gross Gross
Amortized Unrealized Unrealized Fair
1999 Cost Gains Losses Value
- --------------------------------------------------------------------
U.S. Treasury
securities $ 67,237 $ 9 $ 787 $ 66,459
U.S. Agency
securities 5,000 - 200 4,800
States & political
subdivisions 23,629 - 677 22,952
- --------------------------------------------------------------------
Total Debt
Securities 95,866 9 1,664 94,211
Equity securities 1,818 - - 1,818
- --------------------------------------------------------------------
Total Available -
for-Sale $ 97,684 $ 9 $ 1,664 $ 96,029
====================================================================
Gross Gross
Amortized Unrealized Unrealized Fair
1998 Cost Gains Losses Value
- --------------------------------------------------------------------
U.S. Treasury
securities $ 81,210 $ 706 $ - $ 81,916
U.S. Agency
securities 5,000 - 14 4,986
States & political
subdivisions 23,669 15 50 23,634
- --------------------------------------------------------------------
Total Debt
Securities 109,879 721 64 110,536
Equity securities 1,810 - - 1,810
- --------------------------------------------------------------------
Total Available -
for-Sale $ 111,689 $ 721 $ 64 $ 112,346
====================================================================
There were no sales of available-for-sale debt securities in 1999, 1998 and
1997.
Penseco Financial Services Corporation 25 1999 Annual Report
3 INVESTMENT SECURITIES (continued)
HELD-TO-MATURITY
Gross Gross
Amortized Unrealized Unrealized Fair
1999 Cost Gains Losses Value
- --------------------------------------------------------------------
U.S. Agency
Obligations:
Mortgage-backed
securities $ 4,843 $ - $ 152 $ 4,691
States & political
subdivisions 5,639 - 152 5,487
- --------------------------------------------------------------------
Total Held-to-
Maturity $ 10,482 $ - $ 304 $ 10,178
====================================================================
Gross Gross
Amortized Unrealized Unrealized Fair
1998 Cost Gains Losses Value
- --------------------------------------------------------------------
U.S. Agency
Obligations:
Mortgage-backed
securities $ 6,416 $ - $ 150 $ 6,266
- --------------------------------------------------------------------
Total Held-to-
Maturity $ 6,416 $ - $ 150 $ 6,266
====================================================================
Investment securities with amortized costs and fair values of $50,446 and
$49,130 at December 31, 1999 and $56,194 and $56,697 at December 31, 1998, 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, 1999 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 $ 19,008 $ 19,017 $ - $ -
States & political
subdivisions 1,100 1,094 - -
After one year through
five years:
U.S. Treasury
securities 48,229 47,442 - -
U.S. Agency
securities 5,000 4,800 - -
States & political
subdivisions 20,581 20,032 - -
After five years
through ten years:
States & political
subdivisions 1,156 1,092 - -
After ten years:
States & political
subdivisions 792 734 5,639 5,487
- ------------------------------------------------------------------------
Subtotal 95,866 94,211 5,639 5,487
Mortgage-backed
securities - - 4,843 4,691
- ------------------------------------------------------------------------
Total Debt Securities $ 95,866 $ 94,211 $ 10,482 $ 10,178
========================================================================
4 LOANS
Major classifications of loans are as follows:
December 31, 1999 1998
- ---------------------------------------------------------------------
Loans secured by real estate:
Construction and land development $ 3,241 $ 4,152
Secured by farmland 526 5
Secured by 1-4 family residential
properties:
Revolving, open-end loans 7,312 7,901
Secured by first liens 123,955 131,564
Secured by junior liens 32,347 33,063
Secured by multi-family properties 896 829
Secured by non-farm, non-residential
properties 51,538 48,517
Commercial and industrial loans
to U.S. addressees 18,995 18,169
Loans to individuals for household, family
and other personal expenditures:
Credit card and related plans 2,203 2,286
Other (installment and
student loans, etc.) 28,615 28,486
Obligations of states &
political subdivisions 11,821 8,195
All other loans 78 58
- ---------------------------------------------------------------------
Gross Loans 281,527 283,225
Less: Unearned income on loans - 6
- ---------------------------------------------------------------------
Loans, Net of Unearned Income $ 281,527 $ 283,219
=====================================================================
Loans on which the accrual of interest has been discontinued or reduced amounted
to $836, $929 and $1,031 at December 31, 1999, 1998 and 1997, respectively. If
interest on those loans had been accrued, such income would have been $140, $108
and $89 for 1999, 1998 and 1997, respectively. Interest income on those loans,
which is recorded only when received, amounted to $22, $30 and $35 for 1999,
1998 and 1997, respectively. Also, at December 31, 1999 and 1998, the Bank had
loans totalling $476 and $375, 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, 1999 1998 1997
- --------------------------------------------------------------------
Balance at beginning of year $ 2,830 $ 2,600 $ 2,300
Provision charged to operations 89 595 316
Recoveries credited to allowance 217 18 106
- --------------------------------------------------------------------
3,136 3,213 2,722
Losses charged to allowance (186) (383) (122)
- --------------------------------------------------------------------
Balance at End of Year $ 2,950 $ 2,830 $ 2,600
====================================================================
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
- ------------------------ -------------- -------------
1999 $ 89 $ 0
1998 $ 595 $ 365
1997 $ 316 $ 16
The balance of the Reserve for Bad Debts as reported for Federal income tax
purposes was $979, $948 and $948 at December 31, 1999, 1998 and 1997,
respectively.
Penseco Financial Services Corporation 26 1999 Annual Report
6 BANK PREMISES AND EQUIPMENT
December 31, 1999 1998
- -----------------------------------------------------
Land $ 2,929 $ 2,929
Buildings and improvements 14,371 14,178
Furniture and equipment 10,282 9,634
- -----------------------------------------------------
27,582 26,741
Less: Accumulated depreciation 15,286 14,110
- -----------------------------------------------------
Net Bank Premises
and Equipment $ 12,296 $ 12,631
=====================================================
Buildings and improvements are being depreciated over 10 to 50 year periods and
equipment over 3 to 10 year periods. Depreciation expense amounted to $1,176 in
1999, $1,005 in 1998 and $972 in 1997.
Occupancy expenses were reduced by rental income received in the amount of
$59, $58 and $58 in the years ended December 31, 1999, 1998 and 1997,
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, 1999
and 1998 was $33 and $111, 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
Percent underlying Bank's
of voting Total net assets at Amount proportionate
stock investment balance of part of loss for
owned and loan sheet date dividends the period
- -----------------------------------------------------------------------
1999 100% $ 3,850 $ 3,835 None $ -
1998 100% $ 3,950 $ 3,936 None $ -
1997 100% $ 3,950 $ 3,936 None $ -
9 DEPOSITS
December 31, 1999 1998
- ---------------------------------------------------
Demand - Non-interest
bearing $ 58,230 $ 56,289
Demand - Interest bearing 23,558 25,438
Savings 68,824 71,771
Money markets 60,494 56,707
Time - Over $100,000 44,297 46,191
Time - Other 111,929 121,130
- ---------------------------------------------------
Total $ 367,332 $ 377,526
===================================================
9 DEPOSITS (continued)
Scheduled maturities of time deposits are as follows:
2000 $ 128,697
2001 15,644
2002 9,200
2003 782
2004 1,319
2005 and thereafter 584
----------------------------------
Total $ 156,226
==================================
10 OTHER BORROWED FUNDS
At December 31, 1999 and 1998, other borrowed funds consisted of demand notes to
the U.S. Treasury and Repurchase Agreements.
Short-term borrowings generally have original maturity dates of thirty days or
less.
Investment securities with amortized costs of $12,097 and $13,069 and fair
values of $11,816 and $13,200 were pledged to secure repurchase agreements at
December 31, 1999 and 1998, respectively.
Years Ended December 31, 1999 1998
- --------------------------------------------------------------
Amount outstanding at year end $ 12,868 $ 10,959
Average interest rate at year end 4.39% 4.37%
Maximum amount outstanding at
any month end $ 14,509 $ 12,382
Average amount outstanding $ 12,728 $ 8,954
Weighted average interest rate
during the year:
Federal funds purchased 5.13% 4.15%
Repurchase agreements 3.96% 4.52%
Demand notes to U.S. Treasury 4.99% 4.70%
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 $10,130 and $9,833 at December 31, 1999 and $10,002 and $10,044
at December 31, 1998 with an interest rate of 5.0% and 4.5% for 1999 and 1998,
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, 1999 and 1998, 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, 1999 and 1998, respectively.
The Company maintains a collateralized maximum borrowing capacity of $136,254
with the Federal Home Loan Bank of Pittsburgh (FHLB). There was no balance
outstanding or assets pledged as of December 31, 1999.
Penseco Financial Services Corporation 27 1999 Annual Report
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, 1999 and 1998, the ESOP held 86,511 and 94,725 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 $90, $0
and $140 to the plan during the years ended December 31, 1999, 1998 and 1997,
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
contributed $0, $20 and $0 to the plan during the years ended December 31, 1999,
1998 and 1997, 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, 1999 1998 1999 1998
Weighted - average
assumptions:
Discount rate 6.50% 6.50% 6.50% 6.50%
Expected return on
plan assets 9.00% 9.00% - -
Rate of compensation
increase 4.50% 4.50% - -
- -------------------------------------------------------------
A reconciliation of the funded status of the plans with amounts reported on the
Balance Sheet is as follows:
Pension Benefits Other Benefits
- -------------------------------------------------------------------------
December 31, 1999 1998 1999 1998
- -------------------------------------------------------------------------
Change in benefit
obligation:
Benefit obligation,
beginning $ 7,344 $ 6,764 $ 52 $ 48
Service cost 304 295 4 2
Interest cost 466 444 9 3
Actuarial (loss) gain (69) 206 78 2
Benefits paid (803) (221) (3) (2)
- -------------------------------------------------------------------------
Benefit obligation,
ending 7,242 7,488 140 53
- -------------------------------------------------------------------------
Change in plan assets:
Fair value of plan
assets, beginning 7,627 6,872 - -
Actual return on plan
assets 560 911 - -
Employer contribution 1 65 14 2
Benefits paid (233) (221) (14) (2)
- -------------------------------------------------------------------------
Fair value of plan
assets, ending 7,955 7,627 - -
- -------------------------------------------------------------------------
Funded status 713 139 (140) (53)
Unrecognized net transition
asset (132) (198) - -
Unrecognized net actuarial
loss (gain) 488 1,008 (126) (121)
Unrecognized prior service
cost (70) (45) 86 6
- -------------------------------------------------------------------------
Prepaid (accrued) benefit
cost $ 999 $ 904 $ (180) $ (168)
=========================================================================
A reconciliation of net periodic pension and other benefit costs is as follows:
Pension Benefits
----------------
Years Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------
Components of net periodic
pension cost:
Service cost $ 304 $ 295 $ 267
Interest cost 466 444 414
Expected return on plan assets (676) (615) (540)
Amortization of transition
asset (66) (66) (66)
Amortization of unrecognized
net loss 6 26 48
- -------------------------------------------------------------------------
Net periodic pension cost $ 34 $ 84 $ 123
=========================================================================
Other Benefits
--------------
Years Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------
Components of net periodic
other benefit cost:
Service cost $ 5 $ 2 $ 2
Interest cost 9 3 3
Amortization of prior service
cost 7 1 1
Amortization of unrecognized
net loss (7) (9) (10)
- -------------------------------------------------------------------------
Net periodic other benefit cost $ 14 $ (3) $ (4)
=========================================================================
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 $180, $140 and $0, respectively at December 31, 1999
and $144, $97 and $0, respectively at December 31, 1998.
Penseco Financial Services Corporation 28 1999 Annual Report
12 INCOME TAXES
The total income taxes in the Statements of Income are as follows:
Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------
Currently payable $ 1,946 $ 2,056 $ 2,082
Deferred benefit (165) (284) (8)
- --------------------------------------------------------------
Total $ 1,781 $ 1,772 $ 2,074
==============================================================
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, 1999 1998 1997
- --------------------------------------------------------------
Tax at statutory rate $ 2,194 $ 2,058 $ 2,312
Reduction for non-taxable
interest (471) (269) (299)
Other additions
(reductions) 58 (17) 61
- --------------------------------------------------------------
Applicable Income Taxes $ 1,781 $ 1,772 $ 2,074
==============================================================
The components of the deferred income tax benefit, which result from temporary
differences, are as follows:
Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------
Accretion of discount on bonds $ (57) $ (147) $ 73
Accelerated depreciation (59) (32) (54)
Supplemental benefit plan (7) (7) (8)
Allowance for loan losses (30) (78) (102)
Prepaid pension cost (12) (20) 48
Loan fees/costs - - 35
- --------------------------------------------------------------
Total $ (165) $ (284) $ (8)
==============================================================
The significant components of deferred tax assets and liabilities are as
follows:
December 31, 1999 1998
- -------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $ 670 $ 640
Depreciation 189 131
Supplemental Benefit Plan 22 15
Unrealized securities losses 563 -
- -------------------------------------------------------------
Total Deferred Tax Assets 1,444 786
=============================================================
Deferred tax liabilities:
Unrealized securities gains - 223
Prepaid pension costs 340 352
Accretion 8 65
- -------------------------------------------------------------
Total Deferred Tax Liabilities 348 640
- -------------------------------------------------------------
Net Deferred Tax Asset $ 1,096 $ 146
=============================================================
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 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 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, 1999 and 1998 are as follows:
1999 1998
- -------------------------------------------------------------
Commitments to extend credit:
Fixed rate $ 16,703 $ 11,722
Variable rate $ 37,261 $ 36,990
Standby letters of credit $ 1,130 $ 614
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. 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.
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.
14 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
Penseco Financial Services Corporation 29 1999 Annual Report
14 FAIR VALUE DISCLOSURE (continued)
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.
Management is concerned that reasonable comparability between companies may
not be likely due to the wide range of permitted valuation techniques and
numerous estimates which must be made given the absence of active secondary
markets for many of the financial instruments. This lack of uniform valuation
methodologies also introduces a greater degree of subjectivity to these
estimated fair values.
December 31, 1999 December 31, 1998
- ----------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- ----------------------------------------------------------------------------------------------
Financial Assets:
Cash and due from banks $ 10,275 $ 10,275 $ 11,731 $ 11,731
Interest bearing balances with banks 3,961 3,961 345 345
Federal funds sold 10,875 10,875 6,650 6,650
- ----------------------------------------------------------------------------------------------
Cash and cash equivalents 25,111 25,111 18,726 18,726
Investment Securities:
Available-for-sale:
U.S. Treasury securities 66,459 66,459 81,916 81,916
U.S. Agency obligations 4,800 4,800 4,986 4,986
States & political
subdivisions 22,952 22,952 23,634 23,634
Federal Home Loan Bank stock 1,798 1,798 1,790 1,790
Other securities 20 20 20 20
Held-to-maturity:
U.S. Agency obligations 4,843 4,691 6,416 6,266
States & political
subdivisions 5,639 5,487 - -
- ----------------------------------------------------------------------------------------------
Total investment securities 106,511 106,207 118,762 118,612
Loans, net of unearned income:
Real estate mortgages 219,815 213,273 226,031 226,605
Commercial 18,995 18,995 18,169 18,169
Consumer and other 42,717 42,656 39,019 38,826
Less: Allowance for loan losses 2,950 2,830
- ----------------------------------------------------------------------------------------------
Loans, net 278,577 274,924 280,389 283,600
- ----------------------------------------------------------------------------------------------
Total Financial Assets 410,199 $ 406,242 417,877 $ 420,938
Other assets 18,415 18,222
- ----------------------------------------------------------------------------------------------
Total Assets $ 428,614 $ 436,099
==============================================================================================
Financial Liabilities:
Demand - Non-interest bearing $ 58,230 $ 58,230 $ 56,289 $ 56,289
Demand - Interest bearing 23,558 23,558 25,438 25,438
Savings 68,824 68,824 71,771 71,771
Money markets 60,494 60,494 56,707 56,707
Time 156,226 156,691 167,321 168,088
- ----------------------------------------------------------------------------------------------
Total Deposits 367,332 367,797 377,526 378,293
Repurchase agreements 11,981 11,981 10,959 10,959
Short-term borrowings 887 887 - -
- ----------------------------------------------------------------------------------------------
Total Financial Liabilities 380,200 $ 380,665 388,485 $ 389,252
Other Liabilities 2,671 2,653
Stockholders' Equity 45,743 44,961
- ----------------------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $ 428,614 $ 436,099
==============================================================================================
Standby Letters of Credit $ (11) $ (11) $ (6) $ (6)
Penseco Financial Services Corporation 30 1999 Annual Report
15 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 $80 in 1999, $71 in 1998 and $67 in 1997. 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, 1999 are
as follows:
Mount Meadow ATM
Pocono Avenue Sites Total
- ------------------------------------------------------------
2000 $ 45 $ 18 $ 16 $ 79
2001 45 12 12 69
2002 45 - 6 51
2003 45 - - 45
2004 45 - - 45
2005 to 2011 294 - - 294
- ------------------------------------------------------------
Total minimum
payments required $ 519 $ 30 $ 34 $ 583
============================================================
16 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, 1999 1998
- -------------------------------------------------------
Beginning Balance $ 4,008 $ 4,658
Additions 3,892 4,787
Collections (2,979) (5,437)
- -------------------------------------------------------
Ending Balance $ 4,921 $ 4,008
=======================================================
17 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 classification 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 below) of Tier I and Total Capital to
risk-weighted asset 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, 1999, that the Company and
the Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 1999, 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,
1999, 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 31 1999 Annual Report
17 Regulatory Matters (continued)
Actual Regulatory Requirements
- ----------------------------------------------------- ----------------------------------------
For Capital To Be
Adequacy Purposes "Well Capitalized"
December 31, 1999 Amount Ratio Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------------------
Total Capital
(to Risk Weighted Assets) $ 49,786 18.96% > $ 21,006 > 8.0% > $ 26,259 > 10.0%
- - - -
Tier I Capital
(to Risk Weighted Assets) $ 46,836 17.84% > $ 10,503 > 4.0% > $ 15,755 > 6.0%
- - - -
Tier I Capital
(to Average Assets) $ 46,836 10.87% > * > * > $ 21,553 > 5.0%
- - - -
* 3.0% ($12,931), 4.0% ($17,242) or 5.0% ($21,553) depending
on the bank's CAMELS Rating and other regulatory risk factors.
December 31, 1998
- -----------------------------------------------------------------------------------------------
Total Capital
(to Risk Weighted Assets) $ 47,289 18.36% > $ 20,610 > 8.0% > $ 25,764 > 10.0%
- - - -
Tier I Capital
(to Risk Weighted Assets) $ 44,459 17.26% > $ 10,305 > 4.0% > $ 15,458 > 6.0%
- - - -
Tier I Capital
(to Average Assets) $ 44,459 10.29% > * > * > $ 21,610 > 5.0%
- - - -
* 3.0% ($12,966), 4.0% ($17,288) or 5.0% ($21,610) depending
on the bank's CAMELS Rating and other regulatory risk factors.
Penseco Financial Services Corporation 32 1999 Annual Report
18 PENSECO FINANCIAL SERVICES CORPORATION (PARENT CORPORATION)
On December 31, 1997, the Bank was reorganized into a holding company structure.
Each outstanding share of the Bank's common stock, par value of $10.00 per
share, was exchanged for four shares of Penseco Financial Services Corporation
common stock, par value of $.01 per share. As a result of the reorganization,
the Bank became a wholly-owned subsidiary of the Company.
This reorganization among entities under common control was accounted for at
historical cost in a manner similar to a pooling of interests.
The condensed Company-only information follows:
BALANCE SHEETS
December 31, 1999 1998
- -------------------------------------------------------
Investment in subsidiary $ 45,743 $ 44,961
- -------------------------------------------------------
Total Assets $ 45,743 $ 44,961
=======================================================
Total Stockholders' Equity $ 45,743 $ 44,961
=======================================================
STATEMENTS OF INCOME
Years Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------
Earnings of subsidiary:
Dividends received $ 2,363 $ 2,255 $ 2,256
Undistributed net income
of subsidiary 2,308 2,026 2,469
- -------------------------------------------------------------------
Net Income $ 4,671 $ 4,281 $ 4,725
===================================================================
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------
Operating Activities:
Net Income $ 4,671 $ 4,281 $ 4,725
Adjustments to reconcile net income
to net cash provided by
operating activities:
Equity in undistributed net
income of subsidiary (2,308) (2,026) (2,469)
- -----------------------------------------------------------------------------
Net cash provided by
operating activities 2,363 2,255 2,256
- -----------------------------------------------------------------------------
Investing Activities:
Investment in Interim Bank subsidiary - - (465)
Special dividend from subsidiary - - 465
- -----------------------------------------------------------------------------
Net cash provided by
investing activities - - -
- -----------------------------------------------------------------------------
Financing Activities:
Proceeds from short-term debt - - 470
Payment of short-term debt - - (470)
Proceeds from sale of stock - - 5
Purchase of stock - - (5)
Cash dividends paid (2,363) (2,255) (2,256)
- -----------------------------------------------------------------------------
Net cash used by
financing activities (2,363) (2,255) (2,256)
- -----------------------------------------------------------------------------
Net increase in cash and
cash equivalents - - -
Cash and cash equivalents at January 1 - - -
- -----------------------------------------------------------------------------
Cash and cash equivalents at December 31 $ - $ - $ -
=============================================================================
Penseco Financial Services Corporation 33 1999 Annual Report
McGrail Merkel Quinn & Associates
Certified Public Accountants & Consultants
February 18, 2000
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, 1999 and 1998, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three year period ended December 31, 1999.
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 generally accepted auditing
standards. 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, 1999 and 1998,
and the consolidated results of their operations and their cash flows for each
of the years in the three year period ended December 31, 1999, in conformity
with generally accepted accounting principles.
/s/ McGrail, Merkel, Quinn & Associates
Scranton, Pennsylvania
Penseco Financial Services Corporation 34 1999 Annual Report
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 1999.
PART III
Item 10 Directors and Executive Officers of the Registrant
The information on Directors of the Company on pages 4 and 5 in the definitive
proxy statement relating to the Company's Annual Meeting of stockholders, to be
held May 2, 2000, 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 2, 2000, 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 2, 2000, 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 2,3 and 4 in the definitive proxy statement relating
to the Company's Annual Meeting of stockholders, to be held May 2, 2000, is
incorporated herein by reference thereto.
Item 13 Certain Relationships and Related Transactions
The information contained in Note 16 under Item 8 on page 31 under the heading
"General Notes to Financial Statements" in the Company's 1999 Annual Report to
Shareholders is incorporated herein by reference thereto.
Penseco Financial Services Corporation 35 1999 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 incorpor-
ated by reference in Part II, Item 8 hereof:
Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in 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.)
27 Financial Data Schedule
(b) No current Report on Form 8-K was filed for the fourth quarter of 1999
of the fiscal year ended December 31, 1999.
(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 36 1999 Annual Report
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Bank has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized on March 7, 2000.
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 March 7, 2000.
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
Penseco Financial Services Corporation 37 1999 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, None
arrangement, 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 Exhibit3 (ii) of Registrant's
report on Form 10-K filed with
the SEC on March 30, 1998.
4 Instruments defining the rights of None
security holders, including indentures
9 Voting trust agreement None
10 Material contracts - Supplemental Page 8 of the Definitive Proxy
Benefit Plan Agreement Statement relating to the
Company's 1999 Meeting of Stock-
holders is incorporated herein
by reference thereto.
11 Statement re: Computation of per None
share earnings
12 Statements re: Computation of ratios None
13 Annual report to security holders, Included herein by reference on
Form 10-Q or quarterly report to pages 1-40, including the cover.
security holders
16 Letter re: Change in certifying None
accountant
18 Letter re: Change in accounting None
principles
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 None
submitted to vote of security holders
23 Consents of experts and counsel None
24 Power of attorney None
27 Financial Data Schedule None
99 Additional Exhibits None
Penseco Financial Services Corporation 38 1999 Annual Report
COMPANY OFFICERS
PENSECO FINANCIAL SERVICES CORPORATION AND
PENN SECURITY BANK AND TRUST COMPANY
EXECUTIVE 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
Robert F. Duguay
Senior Vice-President, Trust Department
Andrew A. Kettel, Jr.
Senior Vice-President
Thomas E. Clewell
Vice-President and Assistant Trust Officer
Anne M. Cottone
Vice-President and Compliance Officer
Michael Kosh
Vice-President and Assistant Trust Officer
Audrey F. Markowski
Vice-President
Richard P. Rossi
Vice-President, Director of Human Resources
James Tobin
Vice-President, Charge Card Department Manager
John H. Warnken
Vice-President, Operations
P. Frank Kozik
Secretary
Patrick Scanlon
Controller
Robert P. Heim
Director of Internal Audit
Gerard P. Vasil
Manager, Data Processing
Henry V. Janoski
Chief Investment Officer, Trust Department
PENN SECURITY BANK AND TRUST COMPANY OFFICERS
ASSISTANT VICE-PRESIDENTS
Carl M. Baruffaldi
Nancy Burns
Denise M. Cebular
Carol Curtis McMullen
Assistant Trust Officer and Assistant Secretary
Paula M. DePeters
J. Patrick Dietz
Geraldine Hughes
Ann M. Kennedy
Eleanor Kruk
Donald F. LaTorre
Caroline Mickelson
Aleta Sebastianelli
and Assistant Secretary
Jeffrey Solimine
Linda Wolf
and Training Officer
Beth S. Wolff
Deborah A. Wright
OFFICERS (continued)
ASSISTANT CASHIERS
Pamela Edwards
Karyn Gaus Vashlishan
Susan T. Holweg
Jacqueline Lucke
Kristen A. McGoff
and Branch Operations Officer
Candace F. Quick
Nereida Santiago
Sharon Thauer
Eileen Walsh
Jennifer S. Wohlgemuth
ACCOUNTING OFFICER
Luree M. Waltz
ASSISTANT CHARGE CARD MANAGER
Eileen Yanchak
ASSISTANT CONTROLLER
Susan M. Bray
ASSISTANT DIRECTOR OF Internal Audit
Paula A. Ralston Nenish
ASSISTANT STUDENT LOAN OFFICER
Jo Ann M. Bevilaqua
BRANCH OPERATIONS OFFICER
Lauren L. Lankford
BUSINESS DEVELOPMENT OFFICER
Christe A. Casciano
COMPUTER OPERATIONS OFFICER
Charles Penn
CREDIT REVIEW OFFICER
Mark M. Bennett
and Assistant Secretary
DIRECTOR OF CAMPUS BANKING
Douglas R. Duguay
DIRECTOR OF P.C. SYSTEMS
Robert J. Saslo
FINANCIAL REPORTING OFFICER
John R. Anderson III
HUMAN RESOURCES OFFICER
Sharon Rosar
LOAN ADMINISTRATION OFFICER
Susan D. Blascak
LOAN OFFICERS
Denise Belton
Frank Gardner
Barbara Garofoli
Lisa A. Kearney
OPERATIONS OFFICER
Patricia Pliske
TAX OFFICER
Robert W. McDonald
TRUST OPERATIONS OFFICER
Carol Trezzi
Penseco Financial Services Corporation 39 1999 Annual Report
COMPANY OFFICERS
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, 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
Account Executive, Murray Insurance Company
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
PENN SECURITY BANK AND TRUST COMPANY
ADVISORY BOARDS
ABINGTON OFFICE
James L. Burne, DDS
Nancy Burns
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
Attorney Kirby Upright
Jeffrey Weichel
GREEN RIDGE OFFICE
Carl M. Baruffaldi
Joseph N. Connor
Everett Jones
Attorney Patrick J. Mellody
Caroline Mickelson
George Noone
Howard J. Snowdon
MOUNT POCONO OFFICE
Bruce Berry
Francis Cappelloni
Attorney Brian Golden
Robert C. Hay
David Lansdowne
Jeffrey Solimine
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
Penseco Financial Services Corporation 40 1999 Annual Report