SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1996 Commission File Number 0-15040
------------------ -------
PennRock Financial Services Corp.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2400021
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1060 Main St.
Blue Ball, Pennsylvania 17506
--------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(717) 354-4541
--------------------------------------------------
Registrant's telephone number, including area code
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 periods 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class Outstanding at October 30, 1996
------------------------------ --------------------------------
Common Stock ($2.50 par value) 6,060,028 Shares
<PAGE> 1
PENNROCK FINANCIAL SERVICES CORP.
---------------------------------
FORM 10-Q
---------
For the Quarter Ended September 30, 1996
Contents
--------
PART I. FINANCIAL INFORMATION
- -----------------------------
Item 1. Financial Statements
Consolidated balance sheets - September 30, 1996,
December 31, 1995 and September 30, 1995.
Consolidated statements of income - Nine months ended
September 30, 1996 and 1995.
Consolidated statements of cash flows - Nine months
ended September 30, 1996 and 1995.
Notes to condensed consolidated financial statements - September 30,
1996.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
- --------------------------
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
- ----------
<PAGE> 2
Part I
For the Quarter Ended September 30, 1996
Item 1. Financial Statements
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31, September 30,
(Amounts in thousands) 1996 1995 1995
------------ ----------- -------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 16,630 $ 17,888 $ 15,759
Short-term investments 183 939 294
-------- --------- --------
Cash and cash equivalents 18,813 18,827 16,053
Mortgages held for sale 3,913 2,373 3,764
Securities available for sale 182,224 196,029 174,144
Investment securities 19,191
Loans:
Loans, net of unearned income 318,487 298,025 290,247
Allowance for loan losses (3,937) (3,661) (3,708)
--------- --------- ---------
Net loans 314,550 294,364 286,539
Bank premises and equipment 9,682 9,111 8,794
Accrued interest receivable 3,210 3,264 3,301
Other assets 10,344 8,114 9,813
--------- --------- ---------
Total assets $540,736 $532,082 $521,599
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 60,896 $ 57,775 $ 52,099
Interest bearing 377,889 360,154 361,090
--------- --------- ---------
Total deposits 438,785 417,929 413,189
Short-term borrowings 38,094 47,476 43,054
Long-term debt 4,000 9,000 9,000
Accrued interest payable 2,344 2,494 2,393
Other liabilities 5,569 3,509 5,145
--------- --------- ---------
Total liabilities 488,792 480,408 472,781
Stockholders' Equity:
Common stock, par value $2.50 per share;
authorized - 20,000,000 shares;
issued - 6,077,299, 6,062,991,
and 6,062,991 of which 35,598 and
579 shares are held as treasury
stock, respectively 15,193 15,157 15,157
Surplus 11,153 10,905 10,905
Unrealized gains (losses) on
securities available for sale,
net of deferred taxes (1,712) 769 (1,144)
Retained earnings 27,996 24,854 23,900
--------- --------- ---------
52,630 51,685 48,818
Less treasury stock, at cost (686) (11)
--------- --------- ---------
Total stockholders' equity 51,944 51,674 48,818
--------- --------- ---------
Total liabilities and
stockholders' equity $540,736 $532,082 $521,599
========= ========= =========
</TABLE>
<PAGE> 3
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION> Three Months Ended Nine Months Ended
(Amounts in thousands) September 30, September 30,
-------------------- ---------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $7,247 $6,668 $21,299 $18,883
Securities:
Taxable 2,326 2,576 7,101 8,249
Tax-exempt 561 505 1,813 1,207
Mortgages held for sale 33 74 182 172
Other 11 2 29 20
------- ------- ------- -------
Total interest income 10,178 9,825 30,424 28,531
Interest expense:
Deposits 4,008 4,238 11,683 11,725
Short-term borrowings 538 644 2,192 2,400
Long-term debt 87 144 357 481
------- ------- ------- -------
Total interest expense 4,633 5,026 14,232 14,606
------- ------- ------- -------
Net interest income 5,545 4,799 16,192 13,925
Provision for loan losses 151 110 449 289
------- ------- ------- -------
5,394 4,689 15,743 13,636
Other income:
Service charges on deposit
accounts 295 241 817 731
Other service charges and fees 16 12 82 33
Fiduciary activities 172 143 520 436
Security gains, net 270 159 771 432
Mortgage banking 255 166 329 436
Other 117 101 282 217
------- ------- ------- -------
Total other income 1,125 822 2,801 2,285
------- ------- ------- -------
Net interest and other income 6,519 5,511 18,544 15,921
------- ------- ------- -------
Other expenses:
Salaries and benefits 2,478 1,861 6,831 5,484
Occupancy, net 354 261 969 734
Equipment depreciation and service 337 310 935 783
Other 1,093 946 3,136 3,040
------- ------- ------- -------
Total other expense 4,262 3,378 11,871 10,041
------- ------- ------- -------
Income before income taxes 2,257 2,133 6,673 5,880
Income taxes 483 479 1,533 1,318
------- ------- ------- -------
Net income $1,774 $1,654 $5,140 $4,562
======= ======= ======= =======
Earnings per share $ .29 $ .27 $ .85 $ .75
======= ======= ======= =======
</TABLE>
<PAGE> 4
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(Amounts in thousands) -----------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash from operations $ 5,102 $ 2,595
Investing activities:
Proceeds from sales of securities 57,756 51,802
Purchases of securities (54,158) (40,257)
Maturities and paydowns of securities 7,136 10,778
Net increase in loans (20,635) (50,382)
Purchases of premises and equipment (1,299) (2,650)
-------- --------
Net cash used in investing activities (11,200) (30,709)
Financing activities:
Net increase in demand, NOW, money market
and savings deposits 3,121 4,967
Net increase in time deposits 17,735 65,788
(Decrease) in short-term borrowings (9,382) (39,023)
(Decrease) in long-term debt (5,000) (1,500)
Issuance of stock 606 1,272
Acquisition of treasury stock (998)
Cash dividends (1,998) (1,813)
-------- --------
Net cash provided by financing activities 4,084 29,691
-------- --------
Increase (decrease) in cash and
cash equivalents (2,014) 1,577
Cash and cash equivalents,
beginning of year 18,827 14,476
-------- --------
Cash and cash equivalents, end of period $16,813 $16,053
======== ========
</TABLE>
<PAGE> 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1996
NOTE 1. ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of
PennRock Financial Services Corp. and its banking subsidiary, Blue Ball
National Bank. All material intercompany balances and transactions have been
eliminated in consolidation.
The information contained in the financial statements is unaudited. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of the results of
interim periods have been made. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. Operating results for the nine
months ended September 30, 1996 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1996.
The accounting policies of PennRock Financial Services Corp. and Subsidiary,
as applied in the consolidated interim financial statements presented, are
substantially the same as those followed on an annual basis as presented in
the 1995 Annual Report to shareholders except that, as of January 1, 1996,
PennRock adopted the Financial Accounting Standards Board's Statement No.
122, "Accounting for Mortgage Servicing Rights, an Amendment of FASB
Statement No. 65" as discussed in PennRock's Form 10-Q for the quarter ended
June 30, 1996, and as discussed in Note 3 of this Form 10-Q. For further
information on PennRock's accounting policies, refer to the consolidated
financial statements and footnotes thereto included in PennRock's annual
report on Form 10-K for the year ended December 31, 1995.
NOTE 2. COMMITMENTS AND CONTINGENT LIABILITIES
The financial statements do not reflect various commitments and contingent
liabilities, such as commitments to extend credit, letters of credit,
guarantees, and liability for assets held in Trust, which arise in the normal
course of business. Commitments under outstanding letters of credit amounted
to $8.6 million at September 30, 1996. Management does not anticipate any
significant loss as a result of these transactions.
NOTE 3. NEW ACCOUNTING STANDARDS
In October, 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123). This statement required a fair value-based
method of accounting for stock-based compensation plans. Under SFAS 123,
entities are permitted to expense the estimated fair value of employee stock
options or to continue to measure compensation cost for these plans using the
intrinsic value accounting method as discussed in APB Opinion No. 25.
PennRock will continue to use the intrinsic value method of accounting for
stock-based compensation and will provide pro forma disclosures of the fair
valued-based method in its 1996 annual report.
<PAGE> 6
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 125 (SFAS 125), "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS
125 provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities based on consistent
application of a financial-components approach that focuses on control. It
distinguishes transfers of financial assets that are sales from transfers
that are secured borrowings.
Under the financial-components approach, after a transfer of financial
assets, an entity recognizes all financial and servicing assets it controls
and liabilities it has incurred and ceases recognition of financial assets it
no longer controls and liabilities that have been extinguished. The
financial-components approach focuses on the assets and liabilities that
exist after the transfer. Many of these assets and liabilities are
components of financial assets that existed prior to the transfer. If a
transfer does not meet the criteria for a sale, the transfer is accounted for
as a secured borrowing with a pledge of collateral.
SFAS 125 extends the "available for sale" or "trading" approach in SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities," to non-
security financial assets that can contractually be prepaid or otherwise
settled in such a way that the holder of the asset would not recover
substantially all of its recorded investment. Thus, non-security financial
assets (no matter how acquired) that are subject to prepayment risk that
could prevent recovery of substantially all of the recorded amount are to be
reported at fair value with the change in fair value accounted for depending
on the asset's classification as "available-for-sale" or "trading." SFAS 125
also amends SFAS 115 to prevent a security from being classified as "held-to-
maturity" of the security can be prepaid or otherwise settled in such a way
that the holder of the security would not recover all of its recorded
investment.
SFAS 125 requires that a liability cease to be recognized if and only if
either (a) the debtor pays the creditor and is relieved of its obligation for
the liability or (b) the debtor is legally released from being the primary
obligor under the liability either judicially or by the creditor.
SFAS 125 is effective for transfers of financial assets and extinguishments
of liabilities occurring after December 31, 1996 except that the rules
governing secured borrowing and collateral as well as transfer of financial
assets for repurchase agreements, dollar rolls and securities lending are
delayed until years beginning after December 31, 1997. Earlier or
retroactive application is not permitted. Also, the extension of the SFAS
115 approach to certain non-security financial assets and the amendment to
SFAS 115 is effective for financial assets held on or acquired after January
1, 1997. Currently, management has not determined the impact on PennRock's
financial statements or the results of operations upon adoption of the
provision of SFAS 125.
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results
of Operations
This section presents management's discussion and analysis of the financial
condition and results of operations of PennRock Financial Services Corp. and
subsidiary, Blue Ball National Bank. This discussion should be read in
conjunction with the financial statements which appear elsewhere in this
report.
Total assets of PennRock increased $8.7 million or 1.6% since the end of 1995
and by $19.1 million or 3.7% over September 30, 1995. The increases in
assets were primarily reflected in increases in loans outstanding as loans
increased $20.5 million or 6.9% for the year-to-date and by $28.0 million or
9.8% since last year. Total securities (measured on an amortized cost basis)
decreased $10.0 million or 5.2% since year-end and by $10.3 million or 5.3%
from September 30 last year.
Net income for the current quarter was $1.8 million or $.29 per share
compared with $1.7 million or $.27 per share for the third quarter of 1995,
an increase of $120,000 or 7.3%. Net interest income increased $746,000 from
the third quarter of 1995 due to volume increases and wider spreads, while
other income excluding security gains increased $192,000 and other expenses
increased $884,000.
Dividends declared for the quarter totaled $665,000 or $.11 per share. This
represented 37.5% of net income. Dividends declared during the third quarter
of last year were $606,000 or $.10 per share.
Net income for the first nine months of 1996 was $5.1 million or $.85 per
share compared with $4.6 million or $.75 per share for the first nine months
of 1995, an increase of $578,000 or 12.7%. Net interest income increased
$2.3 million from the first nine months of 1995 while other income excluding
security gains increased $177,000 and other expenses increased $1.8 million.
Dividends declared for the first nine months of 1996 totaled $2.0 million or
$.33 per share compared with $1.8 million or $.30 per share paid for the same
period in 1995. This represented 39.0% of net income in 1996.
NET INTEREST INCOME
Net interest income is the product of the volume of average earning assets
and the average rates earned on them, less the volume of average interest
bearing liabilities and the average rates paid on them. The amount of net
interest income is affected by changes in interest rates, volumes and the mix
of earning assets and paying liabilities. For analytical purposes, net
interest income is adjusted to a taxable equivalent basis. This adjustment
allows for a more accurate comparison among taxable and tax-exempt assets by
increasing tax-exempt income by an amount equivalent to the federal income
tax which would have been paid if this income were taxable at the statutory
rate of 34%.
<PAGE> 8
Table 1 presents net interest income on a fully taxable equivalent basis for
the third quarter and first nine months of 1996 and 1995. For the third
quarter of 1996, net interest income on a fully taxable equivalent basis
totaled $5.7 million, an increase of $691,000 or 13.8% from $5.0 million
earned for the same period of 1995. For the first nine months of 1996, net
interest income on a fully taxable equivalent basis totaled $16.9 million, an
increase of $2.4 million or 16.9% from $14.5 million earned for the first
nine months of 1995.
TABLE 1 - NET INTEREST INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(Amounts in thousands) September 30, September 30,
-------------------- --------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total interest income $10,178 $9,825 $30,424 $28,531
Total interest expense 4,633 5,026 14,232 14,606
------- ------- -------- --------
Net interest income 5,545 4,799 16,192 13,925
Tax equivalent adjustment 170 225 751 570
------- ------- -------- --------
Net interest income
(fully taxable equivalent) $ 5,715 $5,024 $16,943 $14,495
======= ======= ======== ========
</TABLE>
Table 2 presents the average balances, taxable equivalent interest income and
expense and rates for PennRock's assets and liabilities for the three and
nine months ended September 30, 1996 and 1995. Both the interest rate spread
and net interest margin are higher in 1996 than in 1995 because rates on
interest earning assets increased while the average cost of funds declined.
For the third quarter of 1996 compared with the third quarter of 1995,
earning asset yields were only 1 basis point higher while rates on paying
liabilities decreased 46 basis points for the same period. For the first
nine months of 1996, earning asset yields were also 1 basis point higher
while rates on paying liabilities declined 32 basis points from the first
nine months of 1995. As a result, PennRock's interest rate spread and net
interest margins increased 33 basis points and 37 basis points respectively
during the first nine months of 1996 over the first nine months of 1995.
<PAGE> 9
TABLE 2 - AVERAGE BALANCES, RATES, AND INTEREST INCOME AND EXPENSE
<TABLE>
<CAPTION>
Three Months Ended September 30,
(Amounts in thousands) ----------------------------------------------------
1996 1995
----------------------- ---------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- --------------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets
Money market investments $ 831 $ 10 4.77% $ 453 $ 8 7.01%
Mortgages held for sale 826 17 8.17% 3,095 61 7.82%
Securities available for sale 186,259 3,092 6.59% 186,368 2,932 6.24%
Investment securities 16,045 360 8.90%
Loans:
Mortgage 176,585 3,982 8.95% 158,218 3,616 9.07%
Commercial 85,259 1,965 9.14% 75,294 1,858 9.79%
Consumer 54,200 1,281 9.38% 50,529 1,214 9.53%
-------- ------ -------- ------
Total loans 316,044 7,228 9.07% 284,041 6,6889 9.34%
-------- ------ -------- ------
Total earning assets 503,960 10,348 8.15% 490,002 10,049 8.14%
Other assets 37,255 ------ 30,791 ------
-------- --------
$541,215 $520,793
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing deposits:
Demand $ 72,248 441 2.42% $ 65,888 497 2.99%
Savings 61,370 341 2.20% 62,624 401 2.54%
Time 241,055 3,226 5.31% 233,944 3,340 5.66%
-------- ------ -------- ------
Total interest bearing deposits 374,673 4,008 4.24% 362,456 4,238 4.64%
Short-term borrowings 41,932 538 5.09% 43,052 643 5.93%
Long-term debt 5,902 87 5.85% 9,000 144 6.35%
-------- ------ -------- ------
422,507 4,633 4.35% 414,508 5,025 4.81%
Non-interest bearing deposits 59,455 ------ 52,336 ------
Other liabilities 8,640 7,556
Stockholders' equity 50,613 46,393
-------- -------
Total liabilities and stockholders'
equity $541,215 $520,793
======== ========
Net interest income $5,715 $5,024
====== ======
Interest rate spread 3.80% 3.33%
====== ======
Net interest margin 4.50% 4.07%
====== ======
<PAGE> 10
<CAPTION>
Nine Months Ended September 30,
(Amounts in thousands) ----------------------------------------------------
1996 1995
----------------------- ---------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- --------------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets
Money market investments $ 684 $ 29 5.65% $ 869 $ 38 5.85%
Mortgages held for sale 2,502 181 9.64% 2,420 139 7.68%
Securities available for sale 196,280 9,641 6.54% 186,761 8,839 6.33%
Investment securities 16,717 1,111 8.89%
Loans:
Mortgage 171,174 11,613 9.04% 149,346 10,157 9.09%
Commercial 87,002 6,042 9.25% 73,582 5,427 9.86%
Consumer 52,198 3,668 9.36% 47,721 3,357 9.41%
-------- ------ -------- ------
Total loans 310,374 21,323 9.15% 270,649 18,941 9.36%
-------- ------ -------- ------
Total earning assets 509,840 31,174 8.15% 477,416 29,068 8.14%
Other assets 33,860 ------ 31,322 ------
-------- --------
$543,700 $508,738
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing deposits:
Demand $ 71,040 1,327 2.49% $ 63,633 1,391 2.92%
Savings 61,053 1,008 2.20% 63,501 1,277 2.69%
Time 233,085 9,347 5.34% 220,194 9,057 5.50%
-------- ------ -------- ------
Total interest bearing deposits 365,178 11,682 4.26% 347,328 11,725 4.51%
Short-term borrowings 53,934 2,192 5.41% 52,254 2,400 6.14%
Long-term debt 7,960 357 5.97% 9,319 448 6.43%
-------- ------ -------- ------
427,072 14,231 4.44% 408,901 14,573 4.76%
Non-interest bearing deposits 57,238 ------ 50,880 ------
Other liabilities 7,683 6,586
Stockholders' equity 51,707 42,371
-------- -------
Total liabilities and stockholders'
equity $543,700 $508,738
======== ========
Net interest income $16,973 $14,495
====== ======
Interest rate spread 3.71% 3.38%
====== ======
Net interest margin 4.43% 4.06%
====== ======
</TABLE>
<PAGE> 11
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses charged to earnings was $151,000 for the third
quarter of 1996 compared with $110,000 for the third quarter of last year.
The provision for the first nine months of 1996 was $449,000 compared with
$289,000 for 1995. The provision is based on management's estimate of the
amount needed to maintain an adequate allowance for loan losses. The
adequacy of the allowance will continue to be examined in light of past loan
loss experience, current economic conditions, volume of non-performing and
delinquent loans and other relevant factors. The allowance is established at
a level considered by management to be adequate to absorb potential future
losses contained in the portfolio and is monitored on a continuous basis with
independent formal reviews conducted semiannually. The allowance is
increased by provisions charged to expense and decreased by net charge-offs.
Table 3 reflects an analysis of the allowance for loan losses for the third
quarter and first nine months of 1996 and 1995.
TABLE 3 - ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(Amounts in thousands) September 30, September 30,
------------------- ------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance, beginning of period $3,806 $3,602 $3,661 $3,482
Provision charged to operating expense 151 110 449 289
Total loans charged off (56) (11) (244) (104)
Total recoveries 36 7 71 41
------- ------- ------- -------
Net charge-offs (20) (4) (173) (63)
------- ------- ------- -------
Balance, end of period $3,937 $3,708 $3,937 $3,708
======= ======= ======= =======
Total loans:
Average $316,044 $284,041 $310,374 $270,649
Period-end 318,487 290,247 318,487 290,247
Ratios:
Net charge-offs to
average loans (annualized) .03% .00% .07% .09%
Allowance for loan losses to
period-end loans 1.24% 1.28% 1.24% 1.28%
</TABLE>
<PAGE> 12
NON-PERFORMING ASSETS
Table 4 reflects PennRock's non-performing assets at September 30, 1996,
December 31, 1995 and September 30, 1995. PennRock's policy is to
discontinue the accrual of interest on loans for which the principal or
interest is past due 90 days or more unless the loan is well secured and
corrective action has begun or the loan is in the process of collection.
When a loan is placed on non-accrual status, any unpaid interest is charged
against income. Other real estate owned represents property acquired through
foreclosure.
TABLE 4 - NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
September 30, December 31, September 30,
(Amounts in thousands) 1996 1995 1995
---------- --------- -----------
<S> <C> <C> <C>
Non-accrual loans $ 749 $ 862 $ 870
Other real estate owned 320 276 279
--------- --------- ---------
Total non-performing assets $1,069$ $1,138 $1,149
========= ========= =========
Ratios:
Non-accrual loans to total loans 0.24% 0.29% 0.30%
Non-accrual loans to total loans and
other real estate owned 0.23% 0.29% 0.30%
Allowance for loan losses to
non-accrual loans 525.63% 424.71% 426.21%
Loans accruing but 90 days past due
as to principal or interest $321 $375 $244
</TABLE>
LIQUIDITY
The purpose of liquidity management is to ensure that there are sufficient
cash flows available to meet a variety of needs. These include financial
commitments such as satisfying the credit needs of our borrowers and
withdrawals by our depositors, the ability to capitalize in investment and
business opportunities as they occur, and the funding of PennRock's own
operations. Liquidity is provided by maturities and sales of investment
securities, loan payments and maturities and liquidating money market
investments such as federal funds sold. Liquidity is also provided by short-
term lines of credit with various correspondents and fixed and variable rate
advances from the Federal Home Loan Bank of Pittsburgh and other
correspondent banks. However, PennRock's primary source of liquidity lies in
PennRock's ability to renew, replace and expand its base of core deposits
(consisting of demand, NOW, money market, savings, and time deposits of less
than $100,000).
<PAGE> 13
Total deposits increased $20.9 million or 5.0% since year end and $25.6
million or 6.2% from last year. Total borrowings decreased $14.4 million or
25.5% since year end and by $10.0 million or 19.1% from last year. Table 5
reflects the changes in the major classifications of deposits and borrowings
by comparing the balances at the end of the third quarter of 1996 with year-
end and the third quarter of 1995.
TABLE 5 - DEPOSITS AND BORROWINGS BY MAJOR CLASSIFICATION
(Amounts in thousands)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
------------- ------------ -------------
<S> <C> <C> <C>
Non-interest bearing $ 60,896 $ 57,775 $ 52,099
NOW accounts 37,567 39,942 35,746
Money market deposit accounts 33,465 31,227 31,611
Savings accounts 60,334 60,852 61,351
Time deposits under $100,000 220,506 208,022 212,353
--------- --------- ---------
Total core deposits 412,768 397,818 393,160
Time deposits of $100,000 or more 26,017 20,111 20,029
--------- --------- ---------
Total deposits 438,785 417,929 413,189
Short-term borrowings 38,094 47,476 43,054
Long-term debt 4,000 9,000 9,000
--------- --------- ---------
Total deposits and borrowings $480,879 $474,405 $465,243
========= ========= =========
</TABLE>
CAPITAL RESOURCES:
Total stockholders' equity increased $3.1 million or 6.4% from September 30,
1995 and $270,000 or .5% since year-end 1995. Stockholders' equity is
impacted by changes in the unrealized market gains and losses of the
securities available for sale portfolio, net of deferred taxes. At September
30, 1996 and 1995, this portfolio had net unrealized losses and on December
31, 1995, the portfolio had a net unrealized profit.
On June 27, 1995, the Company announced that the Board of Directors had
authorized the purchase of up to 200,000 shares of its outstanding common
stock. The shares are to be used for general corporate purposes including
employee benefit and executive compensation plans or for the dividend
reinvestment plan. On June 11, 1996, the Board of Directors extended this
program for an additional 12 months. Since the program was adopted PennRock
has repurchased 97,474 shares of which 35,598 shares were held as treasury
shares as of September 30, 1996.
<PAGE> 14
Table 6 shows PennRock's capital resources at September 30, 1996 and at
December 31 and September 30, 1995. PennRock and its subsidiary bank exceed
all minimum capital guidelines.
TABLE 6 - CAPITAL RESOURCES
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
------------- ------------ -------------
<S> <C> <C> <C>
Leverage ratio:
Total capital to total assets 10.48% 10.40% 10.07%
Tier 1 capital to total assets 9.76% 9.39% 9.36%
Risk-based capital ratios:
Tier 1 capital to risk weighted
assets 14.80% 15.82% 15.73%
Total capital to risk weighted
assets 15.91% 16.97% 16.92%
</TABLE>
<PAGE> 15
PART II. OTHER INFORMATION
---------------------------
For the Quarter ended September 30, 1996
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule regarding unaudited interim financial
information of PennRock for the quarter ended September 30, 1996.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
September 30, 1996.
<PAGE> 16
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.
PennRock Financial Services Corp.
---------------------------------
(Registrant)
Date: November 14, 1996 By: /s/Melvin Pankuch
- ----------------------- -----------------------------------------------
Melvin Pankuch
Executive Vice President and
Chief Executive Officer
Date: November 14, 1996 By: /s/George B. Crisp
- ------------------------ -----------------------------------------------
George B. Crisp
Vice President and Treasurer
(Principal Financial and Accounting Officer)
<PAGE> 17
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at September 30, 1996 (unaudited)
and the Consolidated Statements of Income for the nine months ended September
30, 1996 (unaudited) and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 16,630
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 183
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 182,224
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 322,400
<ALLOWANCE> 3,937
<TOTAL-ASSETS> 540,736
<DEPOSITS> 438,785
<SHORT-TERM> 38,094
<LIABILITIES-OTHER> 5,569
<LONG-TERM> 4,000
0
0
<COMMON> 15,193
<OTHER-SE> 36,751
<TOTAL-LIABILITIES-AND-EQUITY> 540,736
<INTEREST-LOAN> 21,299
<INTEREST-INVEST> 8,914
<INTEREST-OTHER> 211
<INTEREST-TOTAL> 30,424
<INTEREST-DEPOSIT> 11,683
<INTEREST-EXPENSE> 14,232
<INTEREST-INCOME-NET> 16,192
<LOAN-LOSSES> 449
<SECURITIES-GAINS> 771
<EXPENSE-OTHER> 11,871
<INCOME-PRETAX> 6,673
<INCOME-PRE-EXTRAORDINARY> 5,140
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,140
<EPS-PRIMARY> .85
<EPS-DILUTED> .85
<YIELD-ACTUAL> 8.15
<LOANS-NON> 749
<LOANS-PAST> 321
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,058
<ALLOWANCE-OPEN> 3,661
<CHARGE-OFFS> 244
<RECOVERIES> 71
<ALLOWANCE-CLOSE> 3,937
<ALLOWANCE-DOMESTIC> 3,937
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
