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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number 000-23777
PENSECO FINANCIAL SERVICES CORPORATION
Incorporated pursuant to the Laws of Pennsylvania
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Internal Revenue Service -- Employer Identification No. 23-2939222
150 North Washington Avenue, Scranton, Pennsylvania 18503-1848
(570) 346-7741
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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 |_|
The total number of shares of the registrant's Common Stock, $0.01 par value,
outstanding on October 31, 1999, was 2,148,000.
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<PAGE>
PENSECO FINANCIAL SERVICES CORPORATION
Page
----
Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements - Consolidated
Balance Sheets:
September 30, 1999......................................... 3
December 31, 1998.......................................... 3
Statements of Income:
Three Months Ended September 30, 1999...................... 4
Three Months Ended September 30, 1998...................... 4
Nine Months Ended September 30, 1999....................... 5
Nine Months Ended September 30, 1998....................... 5
Statements of Cash Flows:
Nine Months Ended September 30, 1999....................... 6
Nine Months Ended September 30, 1998....................... 6
Notes to Financial Statements................................ 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 11
Part II -- OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 18
Item 2. Changes in Securities.......................................... 18
Item 3. Defaults Upon Senior Securities................................ 18
Item 4. Submission of Matters to a Vote of Security Holders............ 18
Item 5. Other Information.............................................. 18
Item 6. Exhibits and Reports on Form 8-K............................... 18
Signatures............................................................. 18
<PAGE>
PART I. FINANCIAL INFORMATION, Item 1 -- Financial Statements
PENSECO FINANCIAL SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 11,165 $ 11,731
Interest-bearing balances with banks 4,790 345
Federal funds sold 5,550 6,650
--------------- ---------------
Cash and Cash Equivalents 21,505 18,726
Investment securities:
Available-for-sale, at fair value 102,670 112,346
Held-to-maturity (fair value of $4,943
and $6,266, respectively) 5,084 6,416
--------------- ---------------
Total Investment Securities 107,754 118,762
Loans, net of unearned income 281,904 283,219
Less: Allowance for loan losses 2,924 2,830
--------------- ---------------
Loans, Net 278,980 280,389
Bank premises and equipment 12,420 12,631
Other real estate owned 53 111
Accrued interest receivable 3,246 3,234
Other assets 2,791 2,246
--------------- ---------------
Total Assets $ 426,749 $ 436,099
=============== ===============
LIABILITIES
Deposits:
Non-interest bearing $ 60,492 $ 56,398
Interest bearing 304,160 321,128
--------------- ---------------
Total Deposits 364,652 377,526
Other borrowed funds:
Repurchase agreements 12,744 10,959
Short-term borrowings 651 -
Accrued interest payable 1,933 2,039
Other liabilities 828 614
--------------- ---------------
Total Liabilities 380,808 391,138
--------------- ---------------
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 35,821 33,688
Accumulated other comprehensive income (720) 433
--------------- ---------------
Total Stockholders' Equity 45,941 44,961
--------------- ---------------
Total Liabilities and Stockholders' Equity $ 426,749 $ 436,099
=============== ===============
</TABLE>
<PAGE>
PENSECO FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
----------------------- -----------------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 5,489 $ 5,757
Interest and dividends on investments:
U.S. Treasury securities and U.S. Agency obligations 1,194 1,609
States & political subdivisions 227 -
Other securities 30 -
Interest on Federal funds sold 87 141
Interest on balances with banks 111 51
------------- -------------
Total Interest Income 7,138 7,558
------------- -------------
INTEREST EXPENSE
Interest on time deposits of $100,000 or more 460 509
Interest on other deposits 2,148 2,650
Interest on other borrowed funds 139 116
------------- -------------
Total Interest Expense 2,747 3,275
------------- -------------
Net Interest Income 4,391 4,283
Provision for loan losses 14 75
------------- -------------
Net Interest Income After Provision for Loan Losses 4,377 4,208
------------- -------------
OTHER INCOME
Trust department income 265 264
Service charges on deposit accounts 178 171
Other fee income 1,927 1,656
Other operating income 27 25
Realized gains on securities, net - -
------------- -------------
Total Other Income 2,397 2,116
------------- -------------
OTHER EXPENSES
Salaries and employee benefits 1,824 1,829
Expense of premises and fixed assets 607 558
Other operating expenses 2,390 2,245
------------- -------------
Total Other Expenses 4,821 4,632
------------- -------------
Income before income taxes 1,953 1,692
Applicable income taxes 546 512
------------- -------------
Net Income 1,407 1,180
Other comprehensive income, net of taxes:
Unrealized securities (losses) gains (146) 362
------------- -------------
Comprehensive Income $ 1,261 $ 1,542
============= =============
Earnings per Common Share
(Based on 2,148,000 shares outstanding) $ 0.65 $ 0.55
Cash Dividends Declared Per Common Share $ 0.21 $ 0.21
</TABLE>
<PAGE>
PENSECO FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
----------------------- -----------------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 16,398 $ 17,106
Interest and dividends on investments:
U.S. Treasury securities and U.S. Agency obligations 3,772 5,156
States & political subdivisions 595 -
Other securities 88 1
Interest on Federal funds sold 220 441
Interest on balances with banks 148 52
------------- -------------
Total Interest Income 21,221 22,756
------------- -------------
INTEREST EXPENSE
Interest on time deposits of $100,000 or more 1,623 1,584
Interest on other deposits 6,437 8,116
Interest on other borrowed funds 374 276
------------- -------------
Total Interest Expense 8,434 9,976
------------- -------------
Net Interest Income 12,787 12,780
Provision for loan losses 70 285
------------- -------------
Net Interest Income After Provision for Loan Losses 12,717 12,495
------------- -------------
OTHER INCOME
Trust department income 770 756
Service charges on deposit accounts 510 489
Other fee income 4,533 4,028
Other operating income 105 94
Realized gains on securities, net - -
------------- -------------
Total Other Income 5,918 5,367
------------- -------------
OTHER EXPENSES
Salaries and employee benefits 5,596 5,488
Expense of premises and fixed assets 1,934 1,637
Other operating expenses 6,314 5,757
------------- -------------
Total Other Expenses 13,844 12,882
------------- -------------
Income before income taxes 4,791 4,980
Applicable income taxes 1,305 1,505
------------- -------------
Net Income 3,486 3,475
Other comprehensive income, net of taxes:
Unrealized securities (losses) gains (1,153) 267
------------- -------------
Comprehensive Income $ 2,333 $ 3,742
============= =============
Earnings per Common Share
(Based on 2,148,000 shares outstanding) $ 1.62 $ 1.62
Cash Dividends Declared Per Common Share $ 0.63 $ 0.63
</TABLE>
<PAGE>
PENSECO FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
-------------------- --------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 3,486 $ 3,475
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 885 733
Provision for loan losses 70 285
Deferred income tax provision (216) (127)
Amortization of securities (net of accretion) 273 144
Net (gains) losses on sale of investment securities - -
Loss (gain) on other real estate - 16
(Increase) decrease in interest receivable (12) 309
(Increase) decrease in other assets (545) (493)
Increase (decrease) in income taxes payable 66 89
(Decrease) increase in interest payable (106) (361)
Increase (decrease) in other liabilities 957 (8)
----------- -----------
Net cash provided by operating activities 4,858 4,062
----------- -----------
INVESTING ACTIVITIES
Purchase of investment securities available-for-sale (38,329) (24,905)
Proceeds from sales and maturities of investment securities available-for-sale 46,015 46,000
Proceeds from repayments of investment securities to be held-to-maturity 1,303 2,832
Net loans repaid (originated) 1,228 (18,006)
Proceeds from other real estate 169 218
Investment in premises and equipment (674) (3,978)
----------- -----------
Net cash provided (used) by investment activities 9,712 2,161
----------- -----------
FINANCING ACTIVITIES
Net (decrease) increase in demand and savings deposits (435) 4,592
Net (payments) proceeds on time deposits (12,439) (4,631)
Increase (decrease) in federal funds purchased - -
Increase (decrease) in repurchase agreements 1,785 5,443
Net increase (decrease) in short-term borrowings 651 (727)
Cash dividends paid (1,353) (1,353)
----------- -----------
Net cash (used) provided by financing activities (11,791) 3,324
----------- -----------
Net increase (decrease) in cash and cash equivalents 2,779 9,547
Cash and cash equivalents at January 1 18,726 18,578
----------- -----------
Cash and cash equivalents at September 30 $ 21,505 $ 28,125
=========== ===========
The Company paid interest and income taxes of $8,540 and $1,104 and $10,337 and
$1,453, for the nine month periods ended September 30, 1999 and 1998, respectively.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended September 30, 1999
(unaudited)
These Notes to Financial Statements reflect events subsequent to December 31,
1998, the date of the most recent Report of Independent Auditors, through the
date of this Quarterly Report on Form 10-Q for the nine month period ended
September 30, 1999. These Notes to Financial Statements should be read in
conjunction with Financial Information and Other Information required to be
furnished as part of this Report, in particular, (1) Management's Discussion and
Analysis of Financial Condition and Results of Operations for the three months
ended September 30, 1999 and September 30, 1998 and for the nine months ended
September 30, 1999 and September 30,1998, in respect to the Company's capital
requirements and liquidity, (2) Part II, Item 6, Reports on Form 8-K and (3) the
Company's Annual Report - Form 10-K for the year ended December 31, 1998,
incorporated herein by reference.
NOTE 1 -- Principles of Consolidation
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.
Intercompany transactions have been eliminated in preparing the consolidated
financial statements.
The accounting policies of the Company conform with generally accepted
accounting principles and with general practices within the banking industry.
NOTE 2 -- Basis of Presentation
The unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
In the opinion of management, all adjustments that are of a normal recurring
nature and are considered necessary for a fair presentation have been included.
They are not, however, necessarily indicative of the results of consolidated
operations for a full year.
For further information, refer to the consolidated financial statements and
accompanying notes included in the Company's Annual Report - Form 10-K for the
year ended December 31, 1998.
NOTE 3 -- 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.
NOTE 4 -- 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.
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. Unrealized gains
and losses are included as a separate item in computing comprehensive income.
The Company has no derivative financial instruments required to be disclosed
under SFAS No. 119.
<PAGE>
The amortized cost and fair value of investment securities at September 30, 1999
and December 31, 1998 are as follows:
Available-for-Sale
Gross Gross
Amortized Unrealized Unrealized Fair
September 30, 1999 Cost Gains Losses Value
- --------------------------------------------------------------------------------
U.S. Treasury securities $ 73,306 $ 126 $ 397 $ 73,035
U.S. Agency securities 5,000 - 140 4,860
States & political subdivisions 23,636 - 679 22,957
- --------------------------------------------------------------------------------
Total Debt Securities 101,942 126 1,216 100,852
Equity securities 1,818 - - 1,818
- --------------------------------------------------------------------------------
Total Available-for-Sale $ 103,760 $ 126 $ 1,216 $ 102,670
- --------------------------------------------------------------------------------
Available-for-Sale
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 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
- --------------------------------------------------------------------------------
Held-to-Maturity
Gross Gross
Amortized Unrealized Unrealized Fair
September 30, 1999 Cost Gains Losses Value
- --------------------------------------------------------------------------------
Obligations of U.S. Agencies:
Mortgage-backed securities $ 5,084 $ - $ 141 $ 4,943
- --------------------------------------------------------------------------------
Total Held-to-Maturity $ 5,084 $ - $ 141 $ 4,943
- --------------------------------------------------------------------------------
Held-to-Maturity
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1998 Cost Gains Losses Value
- --------------------------------------------------------------------------------
Obligations of U.S. Agencies:
Mortgage-backed securities $ 6,416 $ - $ 150 $ 6,266
- --------------------------------------------------------------------------------
Total Held-to-Maturity $ 6,416 $ - $ 150 $ 6,266
- --------------------------------------------------------------------------------
<PAGE>
The amortized cost and fair value of debt securities at September 30, 1999 by
contractual maturity are shown below. 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.
<TABLE>
<CAPTION>
September 30, 1999 Available-for-Sale Held-to-Maturity
- -----------------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less:
U.S. Treasury securities $ 35,040 $ 35,106 $ - $ -
After one year through five years:
U.S. Treasury securities 38,266 37,929 - -
U.S. Agency securities 5,000 4,860 - -
States & political subdivisions 17,558 17,184 - -
After five years through ten years:
States & political subdivisions 5,026 4,817 - -
After ten years:
States & political subdivisions 1,052 956 - -
- -----------------------------------------------------------------------------------------
Subtotal 101,942 100,852 - -
Mortgage-backed securities - - 5,084 4,943
- -----------------------------------------------------------------------------------------
Total Debt Securities $ 101,942 $ 100,852 $ 5,084 $ 4,943
- -----------------------------------------------------------------------------------------
</TABLE>
NOTE 5 -- 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's 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 1 and Total Capital to
risk-weighted assets and of Tier 1 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 September 30, 1999, that the Company and
the Bank meet all capital adequacy requirements to which they are subject.
As of September 30, 1999, the most recent notification from the Federal Deposit
Insurance Corporation 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 1 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 September 30,
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
<PAGE>
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.
<TABLE>
<CAPTION>
Actual Regulatory Requirements
- ---------------------------------------------- -----------------------------------------------
For Capital To Be
Adequacy Purposes "Well Capitalized"
As of September 30, 1999 Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets) $ 49,585 19.12% >$ 20,741 > 8.0% >$ 25,927 > 10.0%
- - - -
Tier 1 Capital
(to Risk Weighted Assets) $ 46,661 18.00% >$ 10,371 > 4.0% >$ 15,556 > 6.0%
- - - -
Tier 1 Capital
(to Average Assets) $ 46,661 10.79% >$ * > * >$ 21,616 > 5.0%
- - - -
</TABLE>
*3.0% ($12,970), 4.0% ($17,293) or 5.0% ($21,616) depending on the bank's CAMELS
Rating and other regulatory risk factors.
<TABLE>
<CAPTION>
Actual Regulatory Requirements
- ---------------------------------------------- -----------------------------------------------
For Capital To Be
Adequacy Purposes "Well Capitalized"
As of December 31, 1998 Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets) $ 47,289 18.36% >$ 20,610 > 8.0% >$ 25,764 > 10.0%
- - - -
Tier 1 Capital
(to Risk Weighted Assets) $ 44,459 17.26% >$ 10,305 > 4.0% >$ 15,458 > 6.0%
- - - -
Tier 1 Capital
(to Average Assets) $ 44,459 10.29% >$ * > * >$ 21,610 > 5.0%
- - - -
</TABLE>
*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.
<PAGE>
PART 1. FINANCIAL INFORMATION, Item 2 --
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following commentary provides an overview of the financial condition and
significant changes in the results of the operations of Penseco Financial
Services Corporation and its subsidiary ("Penn Security Bank and Trust Company")
for the three months ended September 30, 1999 and September 30, 1998 and for the
nine months ended September 30, 1999 and September 30,1998. Throughout this
review the subsidiary of Penseco Financial Services Corporation, Penn Security
Bank and Trust Company, is referred to as the "Company". All intercompany
accounts and transactions have been eliminated in preparing the consolidated
financial statements. All information is presented in thousands of dollars,
except as indicated.
Overview of Financial Condition
The Company reported net income of $1,407 for the three months ending September
30, 1999, an increase of $227 or 19.2% from the $1,180 reported for the same
three month period of 1998. Also reported was net income of $3,486 for the nine
months ending September 30, 1999, an increase of $11 from the $3,475 reported
for the nine months ending September 30, 1998. The increase in earnings is
attributed to a higher net interest income coupled with a lower provision for
loan loss expense, as well as increases in other income, mainly our merchant
discounts, offset somewhat with increases in operating expenses, due in part to
the addition of two branches which were not operational in the first eight
months of 1998.
Loans decreased $1.4 million, or .5%, while investments decreased $11.0 million,
or 9.26% since December 31, 1998. Deposits decreased $12.9 million, or 3.4%,
while repurchase agreements increased $1.7 million, or 15.5% since December 31,
1998.
Net Interest Income and Net Interest Margin
Net interest income, the largest contributor to the Company's earnings, is
defined as the difference between income on assets and the cost of funds
supporting those assets. Earning assets are composed primarily of loans and
investments while deposits and short-term borrowings, in the form of securities
sold under agreements to repurchase, represent interest-bearing liabilities.
Variations in the volume and mix of these assets and liabilities, as well as
changes in the yields earned and rates paid, are determinants of changes in net
interest income.
Net interest income after provision for loan loss, increased $169 or 4.2% to
$4,377 for the three months ending September 30, 1999 from $4,208 in 1998.
Similarly, for the first nine months of 1999, net interest income increased $222
or 1.8% to $12,717 from $12,495 in 1998. These increases are due in part to a
higher net interest margin, as further explained below, and a lower provision
for loan losses as a result of a large loan recovery in 1999.
The net interest margin represents the Company's net yield on its earning assets
and is calculated as net interest income divided by average earning assets. In
the first nine months of 1999, the net interest margin was 4.24%, increasing 4
basis points from 4.20% in the same period of 1998, the result of a decrease in
the yield on earning assets of 43 basis points offset by a larger reduction in
funding costs of 54 basis points.
Changes in the volume and rate of interest bearing assets and interest bearing
liabilities were key determinants of the increase in net interest income for
both the three months and nine months ending September 30, 1999 and 1998. Total
average earning assets and total average interest bearing funds declined in the
first nine months of 1999 as compared to the same period in 1998. Average
earning assets fell $4.3 million, or 1.1%, from $406.2 million in 1998 to $401.9
million in 1999 and average interest bearing funds decreased $6.6 million, or
2.0%, from $331.8 million to $325.2 million for the same periods. As a
percentage of average assets, earning assets decreased from 94.2% in the first
nine months of 1998 to 93.0% in 1999. Average interest bearing funding sources
decreased from 77.0% of total funding sources in the first nine months of 1998
to 75.2% in the same period in 1999. The average interest rate on earning assets
decreased from 7.47% in 1998 to 7.04% in 1999. The average rate on interest
bearing liabilities decreased by a greater amount from 4.00% in 1998 to 3.46% in
1999.
Changes in the mix of earning assets and funding sources also impacted net
interest income for both the three months and nine months ending September 30,
1999 and 1998. Average loans as a percentage of average earning assets decreased
slightly from 70.9% in 1998 to 70.4% in 1999; average investments increased from
26.0% to 27.1%; U.S. Treasury Securities decreased from 24.0% to 18.3% and
Municipal Securities increased from 0.0% to 5.9%. Short-term investments,
federal funds sold, and interest on balances with banks, fell from 3.1% of
earning assets to 2.5%. Changes in the mix of interest-bearing funds produced
lower interest costs as funds shifted from time deposit accounts, while the
Company concentrated on maintaining core deposits by not pricing time deposits
aggressively. Time deposits decreased $9.3 million, from 49.5% of funding
sources to 47.6% in 1999. This change in deposit composition resulted in a
significant decrease in the cost of funds.
Shifts in the interest rate environment and competitive factors affected the
rates paid for funds as well as the yields earned on assets. Average loan yields
fell 19 basis points, from 7.92% for the first nine months of 1998 to 7.73% in
1999. Investments and federal funds yields remained fairly stable as the market
rates were approximately the same on average in both 1998 and 1999. Average time
deposit cost of funds decreased from 5.65% in 1998 to 5.03% in 1999. This is the
primary cause of the decrease in the total cost of funds from 4.00% in 1998 to
3.46% in 1999.
<PAGE>
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 September 30, 1999 and
September 30, 1998.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
September 30, 1999 September 30, 1998
ASSETS Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense Rate
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Securities
Available-for-sale:
U.S. Treasury securities $ 73,349 $ 3,341 6.07% $ 97,307 $ 4,754 6.51%
U.S. Agency obligations 5,000 214 5.71% - - -
States & political subdivisions 23,640 595 5.08% - - -
Federal Home Loan Bank stock 1,798 87 6.45% 200 8 5.33%
Other 20 1 5.00% 20 1 5.00%
Held-to-maturity:
U.S. Agency obligations 5,252 217 5.51% 7,738 402 6.93%
Loans, net of unearned income:
Real estate mortgages 219,261 12,873 7.83% 224,417 13,349 7.93%
Commercial 22,775 1,405 8.23% 19,417 1,194 8.20%
Consumer and other 40,879 2,120 6.92% 44,003 2,563 7.77%
Federal funds sold 5,990 220 4.90% 11,330 424 5.00%
Interest on balances with banks 3,958 148 4.99% 1,750 61 4.65%
- ---------------------------------------------------------------------------------------------------------------------
Total Earning Assets/
Total Interest Income 401,922 $ 21,221 7.04% 406,182 $ 22,756 7.47%
- ---------------------------------------------------------------------------------------------------------------------
Cash and due from banks 11,355 10,407
Bank premises and equipment 12,552 10,955
Accrued interest receivable 3,062 3,454
Other assets 6,352 2,851
Less: Allowance for loan losses 2,919 2,784
- ---------------------------------------------------------------------------------------------------------------------
Total Assets $ 432,324 $ 431,065
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand-Interest bearing $ 23,985 $ 191 1.06% $ 23,687 $ 259 1.46%
Savings 71,073 801 1.50% 70,678 1,052 1.98%
Money markets 61,376 1,188 2.58% 63,166 1,425 3.00%
Time - Over $100 39,720 1,624 5.45% 38,393 1,584 5.50%
Time - Other 115,178 4,257 4.93% 125,777 5,380 5.70%
Federal funds purchased 85 3 4.71% 24 1 4.17%
Repurchase agreements 13,343 352 3.52% 9,204 251 3.64%
Short-term borrowings 471 18 5.10% 851 24 3.76%
- ---------------------------------------------------------------------------------------------------------------------
Total Interest Bearing Liabilities/
Total Interest Expense 325,231 $ 8,434 3.46% 331,780 $ 9,976 4.00%
- ---------------------------------------------------------------------------------------------------------------------
Demand - Non-interest bearing 59,474 52,022
All other liabilities 1,550 2,177
Stockholders' equity 46,069 45,086
- ---------------------------------------------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $ 432,324 $ 431,065
- ---------------------------------------------------------------------------------------------------------------------
Interest Spread 3.58% 3.47%
- ---------------------------------------------------------------------------------------------------------------------
Net Interest Income $ 12,787 $ 12,780
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
Net interest margin 4.24% 4.20%
Return on average assets 1.08% 1.07%
Return on average equity 10.09% 10.28%
Average equity to average assets 10.66% 10.46%
Dividend payout ratio 38.89% 38.89%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
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. The allowance for loan losses reflects management's judgment as to
the level considered appropriate to absorb such losses based upon a review of
many factors, including historical loss experience, adverse situations that may
affect the borrower's ability to repay (including the timing of future
payments), economic conditions and trends, loan portfolio volume and mix, loan
performance trends, the value and adequacy of collateral, and the Company's
internal credit review process. Accordingly, there can be no assurance that
existing levels of the allowance will ultimately prove adequate to cover actual
loan losses. The quarterly 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.
Based on this ongoing evaluation, management determines the provision necessary
to maintain an appropriate allowance.
In the first nine months of 1999, the provision for loan losses was $70, a
decrease from $285 in the first nine months of 1998, due to a large loan
recovery in 1999. Loans charged-off totaled $164 and recoveries were $188. In
the same period of 1998, recoveries of $16 offset loans charged off of $71.
Other Income
The following table sets forth information by category of other income for the
Company for three months ended September 30, 1999 and September 30, 1998,
respectively:
September 30, September 30,
Three Months Ended : 1999 1998
- -----------------------------------------------------------------------
Trust department income $ 265 $ 264
Service charges on deposit accounts 178 171
Other fee income 1,927 1,656
Other operating income 27 25
Realized gains on securities, net - -
- -----------------------------------------------------------------------
Total Other Income $ 2,397 $ 2,116
- -----------------------------------------------------------------------
Other income increased $281 or 13.3% for the three month period ending September
30, 1999 to $2,397, from $2,116 for the three months ended September 30, 1998.
Largely this increase was due to a $271 or 16.4% improvement in other fee
income. This increase was due to improved growth in merchant discounts of $214,
by expanding our customer base, as well as, increases with our existing
customers, along with a $57 increase in ATM service charges.
The following table sets forth information by category of other income for the
Company for nine months ended September 30, 1999 and September 30, 1998,
respectively:
September 30, September 30,
Nine Months Ended : 1999 1998
- ----------------------------------------------------------------------
Trust department income $ 770 $ 756
Service charges on deposit accounts 510 489
Other fee income 4,533 4,028
Other operating income 105 94
Realized gains on securities, net - -
- ----------------------------------------------------------------------
Total Other Income $ 5,918 $ 5,367
- ----------------------------------------------------------------------
Other income increased $551 or 10.3% for the first nine months of 1999 to $5,918
from $5,367 for the same period of 1998. Contributing increases came from
merchant discounts of $366 or 10.1% and increased ATM service charges of $139.
<PAGE>
Other Expenses
The following table sets forth information by category of other expenses for the
Company for the three months ended September 30, 1999 and September 30, 1998,
respectively:
September 30, September 30,
Three Months Ended : 1999 1998
- -----------------------------------------------------------------------
Salaries and employee benefits $ 1,824 $ 1,829
Expense of premises and fixed assets 607 558
Other operating expenses 2,390 2,245
- ----------------------------------------------------------------------
Total Other Expenses $ 4,821 $ 4,632
- ----------------------------------------------------------------------
Other expenses increased $189 or 4.1% for the three month period ending
September 30, 1999 to $4,821 from $4,632 for the three month period ending
September 30, 1998. Expense of premises and fixed assets increased $49 or 8.8%
in part due to the addition of two branches which were not operational until
September of 1998. Other operating expenses increased $145 or 6.5%, due to
improved growth in merchant discounts and costs associated with the processing
of additional transactions.
The following table sets forth information by category of other expenses for the
Company for the nine months ended September 30, 1999 and September 30, 1998,
respectively:
September 30, September 30,
Nine Months Ended : 1999 1998
- ----------------------------------------------------------------------
Salaries and employee benefits $ 5,596 $ 5,488
Expense of premises and fixed assets 1,934 1,637
Other operating expenses 6,314 5,757
- ----------------------------------------------------------------------
Total Other Expenses $ 13,844 $ 12,882
- ----------------------------------------------------------------------
Other expenses increased $962 or 7.8% for the nine months ended September 30,
1999 to $13,844 from $12,882 for the nine months ended September 30, 1998.
Salaries and benefits increased over the first nine months of 1998 due to higher
health care coverage provided by the company to its employees, merit increases,
and staff additions, along with the expense of premises and fixed assets
increasing $297 or 18.1% the result of adding two branches which were not
operational until September of 1998. Other operating expenses increased $557 or
9.7% due to Mastercard and Visa authorization interchange expenses passed on by
Mastercard and Visa International.
Loan Portfolio
September 30, December 31,
As Of: 1999 1998
- --------------------------------------------------------------------------------
Real estate - construction
and land development $ 3,712 $ 4,152
Real estate mortgages 215,008 221,879
Commercial 21,824 18,169
Credit card and related plans 2,127 2,286
Installment 29,439 28,538
Obligations of states
and political subdivisions 9,794 8,195
- --------------------------------------------------------------------------------
Loans, net of unearned income 281,904 283,219
Less: Allowance for loan losses 2,924 2,830
- --------------------------------------------------------------------------------
Loans, net $ 278,980 $ 280,389
- --------------------------------------------------------------------------------
<PAGE>
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.
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:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
As Of: 1999 1998 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual loans $ 884 $ 929 $ 1,111
Loans past due 90 days or more and accruing:
Guaranteed student loans 432 348 282
Credit card and home equity loans 4 27 26
- ------------------------------------------------------------------------------------------------
Total non-performing loans 1,320 1,304 1,419
Other real estate owned 53 111 147
- ------------------------------------------------------------------------------------------------
Total non-performing assets $ 1,373 $ 1,415 $ 1,566
- ------------------------------------------------------------------------------------------------
</TABLE>
Loans are generally placed on a non-accrual status when principal or interest is
past due 90 days or when payment in full is not anticipated. When a loan is
placed on nonaccrual status, all previously accrued but not collected interest
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 $884 and $1,111 at September 30, 1999 and September 30, 1998, respectively.
If interest on those loans had been accrued, such income would have been $123
and $122 for the nine months ended September 30, 1999 and September 30, 1998,
respectively. Interest income on those loans, which is recorded only when
received, amounted to $17 and $27 for September 30, 1999 and September 30, 1998,
respectively. There are no commitments to lend additional funds to individuals
whose loans are in 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 quality, and
current economic conditions that may affect the borrower's ability to pay. As of
September 30, 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 September 30, 1999 and December 31, 1998, the Company did not have any loans
specifically classified as impaired.
<PAGE>
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:
September 30, September 30,
Nine Months Ended : 1999 1998
- --------------------------------------------------------------------------------
Balance at beginning of year $ 2,830 $ 2,600
Charge-offs:
Real estate mortgages 82 31
Commercial (time and demand)
and all others 13 6
Credit card and related plans 50 21
Installment loans 19 13
- --------------------------------------------------------------------------------
Total charge-offs 164 71
- --------------------------------------------------------------------------------
Recoveries:
Real estate mortgages - 1
Commercial (time and demand) and all others 168 -
Credit card and related plans 9 9
Installment loans 11 6
- --------------------------------------------------------------------------------
Total recoveries 188 16
- --------------------------------------------------------------------------------
Net (recoveries) charge-offs (24) 55
- --------------------------------------------------------------------------------
Provision charged to operations 70 285
- --------------------------------------------------------------------------------
Balance at End of Period $ 2,924 $ 2,830
- --------------------------------------------------------------------------------
Ratio of net (recoveries) charge-offs
to average loans outstanding (0.008)% 0.019%
- --------------------------------------------------------------------------------
The allowance for loan losses is allocated as follows:
<TABLE>
<CAPTION>
As Of: September 30, 1999 December 31, 1998 September 30, 1998
- ----------------------------------------------------------------------------------------------------
Amount % * Amount % * Amount % *
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgages $ 1,500 78% $ 1,550 80% $ 1,450 78%
Commercial (time and demand)
and all others 924 11% 830 9% 930 11%
Credit card and related plans 150 1% 150 1% 150 1%
Personal installment loans 350 10% 300 10% 300 10%
- ----------------------------------------------------------------------------------------------------
Total $ 2,924 100% $ 2,830 100% $ 2,830 100%
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Percent of loans in each category to total loans
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.
<PAGE>
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. 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.
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 19.12% at September 30, 1999.
The Company's risk based capital ratio is almost double 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.
Year 2000 Compliance
The "Year 2000" (Y2K) issue is the result of computer programs and files being
written using a two digit as opposed to a four digit year field. Programs which
use two digit year fields in comparing dates, sorting dates or using dates in
calculations can result in system failures or significant miscalculations if not
corrected.
The Company's formal written Y2K Readiness Plan was developed in early 1998,
although much systems and programming work on existing and new systems had been
accomplished long before that date. The plan has awareness, assessment,
renovation, validation and implementation phases. The Company has completed
every phase of the plan as of September 30, 1999. All mission critical and
non-mission critical software systems of the Company have undergone renovation,
testing, implementation and validation and are Y2K ready.
Most of the Company's software used in conducting its business has been
internally developed, although the Company does license a minor portion from
third party software vendors. The Company has developed a comprehensive list of
all software and hardware in use within the organization, as well as all systems
that may be affected by computer chip failures such as heating and lighting
systems, elevators, etc.
The Company has been closely tracking the progress each vendor is making in
resolving the problems associated with Y2K. Testing has been completed with
third parties such as MasterCard and Visa, MAC ATM Network and Federal Reserve
FedLine.
Additionally, the Company has contacted its major borrowers to determine the
level of progress each has made in addressing the Y2K problem.
The Company has developed, and the Board of Directors has adopted, a Y2K
Contingency Plan. The overall Contingency Plan identifies the Company's core
business processes and analyzes the effect of failures of systems on the ability
to perform the various business processes. It further identifies those systems
which are mission critical - those which the Company cannot do without for more
than a day or two, and those that the Company can alternately process on a
manual basis or not process at all for a week or two - non-mission critical. For
all systems, an Extensive Business Resumption Contingency Plan provides for
alternative methods of doing business in the unlikely event of a system
malfunction.
The Contingency Plan also covers what the Company will do if electricity and/or
communications fail. It also provides for coverage of additional funding and
cash needs which may arise before and after the century date change and provides
for the possible temporary closing of offices due to loss of security systems,
electricity, etc.
The responsibility of validating the Contingency Plan lies with the Company's
Director of Internal Audit. Although completed, the Contingency Plan is a
document that will be continually updated as systems change in the remainder of
this year. Furthermore, the Contingency Plan will continue to be tested and
validated during the fourth quarter of this year.
The total cost for resolving the Y2K issues was $120,000, as of September 30,
1999. These costs have been, to a large degree, absorbed as ordinary operating
expenses as most of the work was performed by regular Company staff. This
concentrated effort has forced the postponement of a number of projects,
including, but not limited to, fully implementing the new continuous form laser
printer, image processing and Internet access.
<PAGE>
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings
None.
Item 2 -- Changes in Securities
None.
Item 3 -- Defaults Upon Senior Securities
None.
Item 4 -- Submission of Matters to a Vote of Security Holders
None.
Item 5 -- Other Information
None.
Item 6 -- Exhibits and Reports on Form 8-K
a. Exhibits
27.0 Financial Data Schedule
b. Reports on Form 8-K
No reports on Form 8-K were filed in the quarter ended September 30,
1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PENSECO FINANCIAL SERVICES
By /s/ RICHARD E. GRIMM
------------------------------
Richard E. Grimm
Executive Vice-President
Dated: October 29, 1999
By /s/ PATRICK SCANLON
------------------------------
Patrick Scanlon
Controller
Dated: October 29, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 11,165
<INT-BEARING-DEPOSITS> 4,790
<FED-FUNDS-SOLD> 5,550
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 102,670
<INVESTMENTS-CARRYING> 5,084
<INVESTMENTS-MARKET> 4,943
<LOANS> 281,904
<ALLOWANCE> 2,924
<TOTAL-ASSETS> 426,749
<DEPOSITS> 364,652
<SHORT-TERM> 13,395
<LIABILITIES-OTHER> 2,761
<LONG-TERM> 0
0
0
<COMMON> 21
<OTHER-SE> 45,920
<TOTAL-LIABILITIES-AND-EQUITY> 426,749
<INTEREST-LOAN> 16,398
<INTEREST-INVEST> 4,455
<INTEREST-OTHER> 368
<INTEREST-TOTAL> 21,221
<INTEREST-DEPOSIT> 8,434
<INTEREST-EXPENSE> 8,434
<INTEREST-INCOME-NET> 12,787
<LOAN-LOSSES> 70
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 13,844
<INCOME-PRETAX> 4,791
<INCOME-PRE-EXTRAORDINARY> 4,791
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,486
<EPS-BASIC> 1.62
<EPS-DILUTED> 1.62
<YIELD-ACTUAL> 7.04
<LOANS-NON> 884
<LOANS-PAST> 1,320
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,830
<CHARGE-OFFS> 164
<RECOVERIES> 188
<ALLOWANCE-CLOSE> 2,924
<ALLOWANCE-DOMESTIC> 2,924
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
