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 June 30, 1996 Commission File Number 0-15040
-------------- -------
PennRock Financial Services Corp.
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(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 July 26, 1996
------------------------------ --------------------------------
Common Stock ($2.50 par value) 6,055,801 Shares
<PAGE> 1
PENNROCK FINANCIAL SERVICES CORP.
---------------------------------
FORM 10-Q
---------
For the Quarter Ended June 30, 1996
Contents
--------
PART I. FINANCIAL INFORMATION
- -----------------------------
Item 1. Financial Statements
Consolidated balance sheets - June 30, 1996,
December 31, 1995 and June 30, 1995.
Consolidated statements of income - Six months ended
June 30, 1996 and 1995.
Consolidated statements of cash flows - Six months
ended June 30, 1996 and 1995.
Notes to condensed consolidated financial statements - June 30, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
- --------------------------
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
- ----------
<PAGE> 2
Part I
For the Quarter Ended June 30, 1996
Item 1. Financial Statements
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31, June 30,
(Amounts in thousands) 1996 1995 1995
------------ ----------- -------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 17,432 $ 17,888 $ 15,697
Short-term investments 879 939 1,179
-------- --------- --------
Cash and cash equivalents 18,311 18,827 16,876
Mortgages held for sale 1,929 2,373 1,374
Securities available for sale 192,012 196,029 181,668
Investment securities 21,179
Loans:
Loans, net of unearned income 317,478 298,025 281,557
Allowance for loan losses (3,806) (3,661) (3,602)
--------- --------- ---------
Net loans 313,672 294,364 277,955
Bank premises and equipment 9,000 9,111 8,856
Accrued interest receivable 3,431 3,264 3,055
Other assets 12,257 8,114 8,204
--------- --------- ---------
Total assets $550,612 $532,082 $519,167
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 59,643 $ 57,775 $ 55,231
Interest bearing 364,602 360,154 364,114
--------- --------- ---------
Total deposits 424,245 417,929 419,345
Short-term borrowings 58,524 47,476 36,161
Long-term debt 9,000 9,000 9,000
Accrued interest payable 2,625 2,494 2,657
Other liabilities 6,298 3,509 4,294
--------- --------- ---------
Total liabilities 500,692 480,408 471,457
Stockholders' Equity:
Common stock, par value $2.50 per share;
authorized - 20,000,000 shares;
issued - 6,077,299, 6,062,991,
and 6,044,412 of which 33,708 and
579 shares are held as treasury
stock, respectively 15,193 15,157 15,111
Surplus 11,153 10,905 10,577
Unrealized gains (losses) on
securities available for sale,
net of deferred taxes (2,642) 769 (831)
Retained earnings 26,887 24,854 22,853
--------- --------- ---------
50,591 51,685 47,710
Less treasury stock, at cost (671) (11)
--------- --------- ---------
Total stockholders' equity 49,920 51,674 47,710
--------- --------- ---------
Total liabilities and
stockholders' equity $550,612 $532,082 $519,167
========= ========= =========
</TABLE>
<PAGE> 3
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Amounts in thousands) June 30, June 30,
-------------------- ---------------------
1996 1995 1996 1995
------ ------ ------- -------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $7,153 $6,406 $14,052 $12,214
Securities:
Taxable 2,451 2,781 4,775 5,673
Tax-exempt 664 351 1,252 702
Mortgages held for sale 61 59 147 98
Other 10 16 18 18
------- ------- ------- -------
Total interest income 10,339 9,613 20,245 18,705
Interest expense:
Deposits 3,782 4,138 7,674 7,488
Short-term borrowings 963 703 1,654 1,756
Long-term debt 134 178 270 337
------- ------- ------- -------
Total interest expense 4,879 5,019 9,598 9,580
------- ------- ------- -------
Net interest income 5,460 4,594 10,647 9,125
Provision for loan losses 149 90 298 177
------- ------- ------- -------
5,311 4,504 10,349 8,948
Other income:
Service charges on deposit
accounts 271 252 522 490
Other service charges and fees 97 69 163 156
Fiduciary activities 182 135 348 293
Security gains, net 86 186 501 273
Mortgage banking 122 149 143 270
Other 15 10 (1) (20)
------- ------- ------- -------
Total other income 773 801 1,676 1,462
------- ------- ------- -------
Net interest and other income 6,084 5,305 12,025 10,410
------- ------- ------- -------
Other expenses:
Salaries and benefits 2,333 1,783 4,352 3,623
Occupancy, net 304 245 616 473
Equipment depreciation and service 322 258 598 473
Other 987 1,062 2,042 2,095
------- ------- ------- -------
Total other expense 3,946 3,348 7,608 6,664
------- ------- ------- -------
Income before income taxes 2,138 1,957 4,417 3,746
Income taxes 432 368 1,051 838
------- ------- ------- -------
Net income $1,706 $1,589 $3,366 $2,908
======= ======= ======= =======
Earnings per share $ .28 $ .26 $ .55 $ .48
======= ======= ======= =======
</TABLE>
<PAGE> 4
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
(Amounts in thousands) -----------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash from operations $ 4,555 $ 4,125
Investing activities:
Proceeds from sales of securities 36,119 29,742
Purchases of securities (42,219) (22,482)
Maturities and paydowns of securities 5,343 5,953
Net increase in loans (19,606) (41,687)
Purchases of premises and equipment (363) (2,438)
-------- --------
Net cash used in investing activities (20,726) (30,912)
Financing activities:
Net increase in demand, NOW, money market
and savings deposits 1,868 8,696
Net increase in time deposits 4,448 68,215
Increase (decrease) in short-term borrowings 11,048 (45,916)
(Decrease) in long-term debt (1,500)
Issuance of stock 295 899
Acquisition of treasury stock (671)
Cash dividends (1,333) (1,207)
-------- --------
Net cash provided by financing activities 15,655 29,187
-------- --------
Increase (decrease) in cash and
cash equivalents (516) 2,400
Cash and cash equivalents,
beginning of year 18,827 14,476
-------- --------
Cash and cash equivalents, end of period $18,311 $16,876
======== ========
</TABLE>
<PAGE> 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 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 six
months ended June 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 Note 3. For further information, 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 June 30, 1996. Management does not anticipate any
significant loss as a result of these transactions.
<PAGE> 6
NOTE 3. ADOPTION OF SFAS NO. 122
Effective January 1, 1996, PennRock adopted Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights, an amendment of
FASB Statement No. 65" (SFAS 122). SFAS 122 amended Statement 65 to require
an institution to recognize as separate assets the rights to service mortgage
loans for others when a mortgage loan is sold or securitized and servicing
rights retained. When capitalizing originated mortgage servicing rights
("OMSR's"), an institution allocates the total cost of the mortgage loans
(the recorded investment in the mortgage loans including net deferred fees or
costs and any purchase premium or discount) to the OMSR's and the loans
(without the OMSR's) based on their relative fair values. OMSR's are
amortized in proportion to, and over the period of, estimated net servicing
income.
SFAS 122 also requires that all capitalized mortgage servicing rights be
evaluated for impairment based on the difference between the carrying amount
of the servicing rights and their current fair value. Impairment of OMSR's
is recognized through a valuation allowance. The amount of impairment
recognized is the amount by which the capitalized OMSR's exceed their fair
value. Subsequent to the initial measurement of impairment, the valuation
allowance is adjusted to reflect changes in the measurement of impairment.
Fair value in excess of the amount capitalized as OMSR's (net of
amortization) is not recognized.
The amount of originated mortgage servicing rights from January 1 through
June 30, 1996 was $68,000. There was no valuation allowance for impairment
related to such rights. Factors such as volume of mortgage loans originated
will have a substantial effect on the amount of OMSR's realized in the
future. PennRock has no purchased mortgage servicing rights.
<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 $18.5 million or 3.5% since the end of
1995 and by $31.4 million or 6.1% over June 30, 1995. The increases in
assets were primarily reflected in increases in loans outstanding as loans
increased $19.5 million or 6.5% for the year-to-date and by $35.9 million or
12.8% since last year. Total securities (measured on an amortized cost
basis) increased $1.2 million or .6% since year-end and declined by $8.1
million or 4.0% from June 30 last year.
Net income for the current quarter was $1.7 million or $.28 per share
compared with $1.6 million or $.26 per share for the second quarter of 1995,
an increase of $117,000 or 7.4%. Net interest income increased $866,000 from
the second quarter of 1995 due to volume increases and wider spreads, while
other income excluding security gains increased $73,000 and other expenses
increased $598,000.
Dividends declared for the quarter totaled $669,000 or $.11 per share. This
represented 39.2% of net income. Dividends declared during the second
quarter of last year were $604,000 or $.10 per share.
Net income for the first half of 1996 was $3.4 million or $.55 per share
compared with $2.9 million or $.48 per share for the first half of 1995, an
increase of $459,000 or 15.8%. Net interest income increased $1.5 million
from the first six months of 1995 while other income excluding security gains
decreased $14,000 and other expenses increased $944,000.
Dividends declared for the first six months of 1996 totaled $1.3 million or
$.22 per share compared with $1.2 million or $.20 per share paid for the
same period in 1995. This represented 39.7% of net income. Dividends
declared during the second quarter of last year were $604,000 or $.10 per
share.
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 second quarter and first six months of 1996 and 1995. For the second
quarter of 1996, net interest income on a fully taxable equivalent basis
totaled $5.8 million, an increase of $1.0 million or 21.1% from $4.8 million
earned for the same period of 1995. For the first six months of 1996, net
interest income on a fully taxable equivalent basis totaled $11.2 million, an
increase of $1.7 million or 18.0% from $9.5 million earned for the first six
months of 1995.
TABLE 1 - NET INTEREST INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Amounts in thousands) June 30, June 30,
-------------------- --------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total interest income $10,339 $9,613 $20,245 $18,705
Total interest expense 4,879 5,019 9,598 9,580
------- ------- -------- --------
Net interest income 5,460 4,594 10,647 9,125
Tax equivalent adjustment 310 170 564 348
------- ------- -------- --------
Net interest income
(fully taxable equivalent) $ 5,770 $4,764 $11,211 $ 9,474
======= ======= ======== ========
</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 six
months ended June 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
second quarter of 1996 compared with the second quarter of 1995, earning
asset yields were xx basis points higher while rates on paying liabilities
decreased xx basis points for the same period. For the first six months of
1996, earning asset yields were 12 basis points higher while rates on paying
liabilities declined 28 basis points from the first six months of 1995. As a
result, PennRock's interest rate spread and net interest margins increased 40
basis points and 39 basis points respectively during the first half of 1996
over the first half of 1995.
<PAGE> 9
TABLE 2 - AVERAGE BALANCES, RATES, AND INTEREST INCOME AND EXPENSE
<TABLE>
<CAPTION>
Three Months Ended June 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 $ 908 $ 10 4.42% $ 1,797 $ 16 3.57%
Mortgages held for sale 3,197 61 7.65% 2,552 59 9.27%
Securities available for sale 205,005 3,439 6.73% 186,071 2,911 6.28%
Investment securities 17,421 392 9.03%
Loans:
Mortgage 171,589 3,828 8.95% 150,191 3,437 9.18%
Commercial 87,866 2,053 9.37% 77,208 1,770 9.20%
Consumer 53,452 1,246 9.35% 45,826 1,082 9.47%
-------- ------ -------- ------
Total loans 312,907 7,127 9.14% 273,225 6,289 9.23%
-------- ------ -------- ------
Total earning assets 522,017 10,637 8.17% 481,066 9,667 8.06%
Other assets 34,120 ------ 31,719 ------
-------- --------
$556,137 $512,785
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing deposits:
Demand $ 69,896 438 2.51% $ 62,728 470 3.01%
Savings 61,059 334 2.19% 62,156 438 2.83%
Time 228,293 3,009 5.29% 231,539 3,230 5.60%
-------- ------ -------- ------
Total interest bearing deposits 359,248 3,781 4.22% 356,423 4,138 4.66%
Short-term borrowings 69,466 963 5.56% 45,347 703 6.22%
Long-term debt 9,000 135 6.02% 9,000 178 7.93%
-------- ------ -------- ------
437,714 4,879 4.47% 410,770 5,019 4.90%
Non-interest bearing deposits 58,457 ------ 51,601 ------
Other liabilities 7,925 6,653
Stockholders' equity 52,041 43,762
-------- -------
Total liabilities and stockholders'
equity $556,137 $512,786
======== ========
Net interest income $5,758 $4,648
====== ======
Interest rate spread 3.70% 3.16%
====== ======
Net interest margin 4.42% 3.88%
====== ======
<PAGE> 10
<CAPTION>
Six Months Ended June 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 $ 609 $ 18 5.93% $ 614 $ 18 5.91%
Mortgages held for sale 3,350 148 8.86% 2,077 98 9.51%
Securities available for sale 201,186 6,604 6.58% 196,201 5,943 6.11%
Investment securities 17,058 755 8.92%
Loans:
Mortgage 168,439 7,729 9.20% 144,836 6,560 9.13%
Commercial 87,867 3,864 8.82% 75,640 3,586 9.56%
Consumer 51,186 2,468 9.67% 43,366 2,143 9.97%
-------- ------ -------- ------
Total loans 307,492 14,061 9.17% 263,842 12,289 9.39%
-------- ------ -------- ------
Total earning assets 512,637 20,831 8.15% 479,792 19,103 8.03%
Other assets 32,319 ------ 24,772 ------
-------- --------
$544,956 $504,564
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing deposits:
Demand $ 70,429 887 2.53% $ 62,487 895 2.89%
Savings 60,892 667 2.20% 63,947 875 2.76%
Time 229,057 6,119 5.36% 213,205 5,717 5.41%
-------- ------ -------- ------
Total interest bearing deposits 360,378 7,673 4.27% 339,639 7,487 4.45%
Short-term borrowings 60,000 1,654 5.53% 56,931 1,756 6.22%
Long-term debt 9,000 271 6.04% 9,481 337 7.17%
-------- ------ -------- ------
421,043 9,598 4.48% 406,051 9,580 4.76%
Non-interest bearing deposits 56,117 ------ 50,140 ------
Other liabilities 7,201 5,265
Stockholders' equity 52,260 43,108
-------- -------
Total liabilities and stockholders'
equity $544,956 $504,564
======== ========
Net interest income $11,233 $9,523
====== ======
Interest rate spread 3.67% 3.27%
====== ======
Net interest margin 4.39% 4.00%
====== ======
</TABLE>
<PAGE> 11
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses charged to earnings was $149,000 for the second
quarter of 1996 compared with $90,000 for the second quarter of last year.
The provision for the first six months of 1996 was $298,000 compared with
$177,000 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 second
quarter and first six months of 1996 and 1995.
TABLE 3 - ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Amounts in thousands) June 30, June 30,
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance, beginning of period $3,693 $3,577 $3,661 $3,482
Provision charged to operating expense 149 90 298 178
Total loans charged off (69) (79) (188) (92)
Total recoveries 33 14 35 34
------- ------- ------- -------
Net charge-offs (36) (65) (153) (58)
------- ------- ------- -------
Balance, end of period $3,806 $3,602 $3,806 $3,602
======= ======= ======= =======
Total loans:
Average $316,105 $275,277 $307,492 $263,842
Period-end 317,478 281,557 317,478 281,557
Ratios:
Net charge-offs to
average loans (annualized) .05% .09% .10% .04%
Allowance for loan losses to
period-end loans 1.20% 1.28% 1.20% 1.28%
</TABLE>
<PAGE> 12
NON-PERFORMING ASSETS
Table 4 reflects PennRock's non-performing assets at June 30, 1996, December
31, 1995 and June 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>
June 30, December 31, June 30,
(Amounts in thousands) 1996 1995 1995
---------- --------- -----------
<S> <C> <C> <C>
Non-accrual loans $ 825 $ 862 $552
Other real estate owned 325 276 128
--------- --------- ---------
Total non-performing assets $1,150 $1,138 $680
========= ========= =========
Ratios:
Non-accrual loans to total loans 0.26% 0.29% 0.20%
Non-accrual loans to total loans and
other real estate owned 0.26% 0.29% 0.20%
Allowance for loan losses to
non-accrual loans 426.24% 424.71% 651.99%
Loans accruing but 90 days past due
as to principal or interest $150 $375 $534
</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 $6.3 million or 1.5% since year end and $4.9 million
or 1.2% from last year. Total short-term borrowings increased $23.3 million
or 23.3% since year end and by $22.4 million or 61.8% 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 second quarter of 1996
with year-end and the second quarter of 1995.
TABLE 5 - DEPOSITS AND BORROWINGS BY MAJOR CLASSIFICATION
(Amounts in thousands)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1996 1995 1995
------------- ------------ -------------
<S> <C> <C> <C>
Non-interest bearing $ 59,643 $ 57,775 $ 55,231
NOW accounts 37,190 39,942 37,880
Money market deposit accounts 32,603 31,227 27,983
Savings accounts 61,692 60,852 63,444
Time deposits under $100,000 211,065 208,022 213,870
--------- --------- ---------
Total core deposits 402,193 397,818 398,408
Time deposits of $100,000 or more 22,052 20,111 20,937
--------- --------- ---------
Total deposits 424,245 417,929 419,345
Short-term borrowings 58,524 47,476 36,161
Long-term debt 9,000 9,000 9,000
--------- --------- ---------
Total deposits and borrowings $491,769 $474,405 $464,506
========= ========= =========
</TABLE>
CAPITAL RESOURCES:
Total stockholders' equity increased $2.2 million or 4.6% from June 30, 1995
and decreased $1.8 million or 3.4% 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 June 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 79,374 shares of which 33,708 shares were held as treasury
shares as of June 30, 1996.
<PAGE> 14
Table 6 shows PennRock's capital resources at June 30, 1996 and at December
31 and June 30, 1995. PennRock and its subsidiary bank exceed all minimum
capital guidelines.
TABLE 6 - CAPITAL RESOURCES
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1996 1995 1995
------------- ------------ -------------
<S> <C> <C> <C>
Leverage ratio:
Total capital to total assets 10.00% 10.40% 9.88%
Tier 1 capital to total assets 9.32% 9.39% 9.19%
Risk-based capital ratios:
Tier 1 capital to risk weighted
assets 15.34% 15.82% 14.55%
Total capital to risk weighted
assets 16.47% 16.97% 15.65%
</TABLE>
<PAGE> 15
PART II. OTHER INFORMATION
---------------------------
For the Quarter ended June 30, 1996
Item 4. Submission of Matters to a Vote of Security Holders
The 1996 Annual Meeting of Shareholders (the "Meeting") of PennRock Financial
Services Corp. was held on April 23, 1996. Notice of the Meeting was mailed
to shareholders on or about March 29, 1996, together with proxy materials
prepared in accordance with Section 14(a) of the Securities Exchange Act of
1934, as amended, and the regulation promulgated thereunder.
The Meeting was held for the purpose of electing three Class C directors to
hold office for three years from the date of election and until their
successors are elected and have qualified. In addition, there was a proposal
to amend the Articles of Incorporation to increase the number of authorized
shares of common stock of PennRock Financial Services Corp. from 10,000,000
shares to 20,000,000 shares.
There was no solicitation in opposition to the nominees of the Board of
Directors for the election to the Board. All nominees of the Board of
Directors were elected. The number of votes cast for or withheld, as well as
the number of abstentions and broker nonvotes for each of the nominees for
election to the Board of Directors, were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Votes Abstentions and
Nominee Votes for Withheld Broker Nonvotes
- ------------------ ----------- ----------- ---------------
Aaron S. Kurtz 4,394,239 34,468 1,648,592
Robert K. Weaver 4,367,215 61,492 1,648,592
Lewis M. Good 4,394,180 34,526 1,648,593
</TABLE>
The shareholders also approved the amendment to the Article of Incorporation
by the following vote:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For Against Abstentions Broker Nonvotes
--------------- --------------- ---------------- ---------------
4,221,131 82,055 125,518 1,648,598
</TABLE>
<PAGE> 16
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(a) Articles of Incorporation, as amended, of PennRock Financial
Services Corp.
27. Financial Data Schedule regarding unaudited interim financial
information of PennRock for the quarter ended June 30, 1996.
(b) Reports on Form 8-K
A current report on Form 8-K dated June 11, 1996 was filed with the
Securities and Exchange Commission on or about June 21, 1996. The report
was filed under Item 5 - "Other Events" and disclosed that the Board of
Directors of PennRock has authorized a 12 month extension of an open
market stock repurchase program of up to 200,000 shares of PennRock's
common stock.
There were no other reports on Form 8-K filed for the three months ended
June 30, 1996.
<PAGE> 17
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: August 9, 1996 By: /s/Melvin Pankuch
- ----------------------- -----------------------------------------------
Melvin Pankuch
Executive Vice President and
Chief Executive Officer
Date: August 9, 1996 By: /s/George B. Crisp
- ------------------------ -----------------------------------------------
George B. Crisp
Vice President and Treasurer
(Principal Financial and Accounting Officer)
<PAGE> 18
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 17,432
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 879
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 192,012
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 317,478
<ALLOWANCE> 3,806
<TOTAL-ASSETS> 550,612
<DEPOSITS> 424,245
<SHORT-TERM> 58,524
<LIABILITIES-OTHER> 8,923
<LONG-TERM> 9,000
0
0
<COMMON> 15,193
<OTHER-SE> 34,727
<TOTAL-LIABILITIES-AND-EQUITY> 550,612
<INTEREST-LOAN> 14,052
<INTEREST-INVEST> 6,028
<INTEREST-OTHER> 166
<INTEREST-TOTAL> 20,246
<INTEREST-DEPOSIT> 7,674
<INTEREST-EXPENSE> 9,598
<INTEREST-INCOME-NET> 10,647
<LOAN-LOSSES> 298
<SECURITIES-GAINS> 501
<EXPENSE-OTHER> 7,608
<INCOME-PRETAX> 4,417
<INCOME-PRE-EXTRAORDINARY> 3,366
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,366
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
<YIELD-ACTUAL> 8.15
<LOANS-NON> 825
<LOANS-PAST> 150
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,153
<ALLOWANCE-OPEN> 3,661
<CHARGE-OFFS> 188
<RECOVERIES> 35
<ALLOWANCE-CLOSE> 3,806
<ALLOWANCE-DOMESTIC> 3,806
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
EXHIBIT 3(a)
ARTICLES OF INCORPORATION
PENNROCK FINANCIAL SERVICES CORP.
Adopted March 5, 1986
Amended April 30, 1996
In compliance with the requirements of Section 204 of the
Business Corporation Law, Act of May 5, 1933 (P.L. 364, 15 P.S.
Section 1204), as amended, the Articles of Incorporation of
PennRock Financial Services Corp. shall read as follows:
ARTICLE 1
---------
1. The name of the corporation is PennRock Financial
Services Corp.
ARTICLE 2
---------
2. The location and post office address of the initial
registered office of the corporation in this Commonwealth is:
1058 Main Street
P.O. Box 580
Blue Ball, Pennsylvania 17506
ARTICLE 3
---------
3. The corporation is incorporated under the Business
Corporation Law of the Commonwealth of Pennsylvania for the
purpose of engaging in and doing any lawful act concerning any
and all lawful business for which a corporation may be
incorporated under the Business Corporation Law of the
Commonwealth of Pennsylvania.
ARTICLE 4
---------
4. The term for which the corporation is to exist is
perpetual.
ARTICLE 5
----------
5. The aggregate number of shares which the corporation
shall have authority to issue is 20,000,000 shares of Common
Stock of Two and 50/100 Dollars ($2.50) par value per share. [As
amended, April 30, 1996]
ARTICLE 6
----------
6. The name and post office address of each incorporator
and the number and class of shares subscribed for by such
incorporator is as follows:
Number and
Name Address Class of Shares
- --------------- ---------------------- ----------------
Glenn H. Weaver 1060 Main Street One (1) share of
P.O. Box 580 $2.50 par value
Blue Ball, common stock
Pennsylvania 17506
ARTICLE 7
---------
7. The first director of the corporation shall be Glenn H.
Weaver, 1060 Main Street, P.O. Box 580, Blue Ball, Pennsylvania
17506.
ARTICLE 8
---------
8. The shareholders of the corporation shall not have the
right to cumulate their votes for the election of directors.
ARTICLE 9
---------
9. (a) Except as provided in Section (b) of this Article,
the affirmative vote of the holders of eighty-five percent (85%)
of the outstanding shares entitled to vote shall be required in
order to authorize the following corporate actions:
(1) Any merger or consolidation of the
corporation or any Subsidiary with or into an Interested
Shareholder; or
(2) Any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (whether in one transaction or in a
series of transactions) to, with or for the benefit of any
Interested Shareholder, of any assets of the corporation or of
any Subsidiary having an aggregate fair market value equal to or
greater than 5 percent (5%) of consolidated stockholders equity
as reported in the most recent year-end financial statements of
the corporation; or
(3) Any issuance, sale or transfer by the
corporation or by any Subsidiary, whether in one transaction or
in a series of transactions, of any securities of the corporation
or of any Subsidiary to any Interested shareholder in exchange
for cash, securities or other consideration having an aggregate
fair market value equal to or greater than 5 percent (5%) of
consolidated stockholders equity as reported in the most recent
year-end financial statements of the corporation; or
(4) Any purchase or other acquisition by the
corporation or by any Subsidiary, whether in one transaction or
in a series of transactions, of any securities of the corporation
from an Interested Shareholder in exchange for cash, securities
or other consideration having an aggregate fair market value
equal to or greater than 5 percent (5%) of consolidated
stockholders equity as reported in the most recent year-end
financial statements of the corporation; or
(5) The adoption of any plan or proposal for the
liquidation or dissolution of the corporation proposed by or on
behalf of an Interested Shareholder; or
(6) Any reclassification of stock (including any
reverse stock split) or recapitalization of the corporation, or
any merger or consolidation of the corporation with or into any
Subsidiary or any other transaction (whether or not with or into
or otherwise involving an Interested Shareholder) which has the
effect, directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of stock of the
corporation or of any Subsidiary which is directly or indirectly
owned by any Interested Shareholder; or
(7) any transaction or series of transactions
which is similar in purpose, form or effect to any of the
foregoing.
(b) The affirmative vote of the holders of a majority
of the outstanding shares entitled to vote shall be required in
order to authorize any corporate action described in Section 9(a)
of this Article, if such corporate action shall have been
approved by a majority of the Continuing Directors.
(c) For purposes of this Article, the following terms
shall have the meanings set forth below:
(1) "Person" shall mean any individual, firm,
corporation or other entity.
(2) "Interested Shareholder" shall mean any
person (other than the corporation or any Subsidiary) which, as
of the record date for the determination of shareholders entitled
to vote on a proposed corporate action or immediately before the
consummation of such corporate action, is the beneficial owner,
directly or indirectly, of 5 percent (5%) or more of the
outstanding shares of the corporation entitled to vote and any
Affiliate or Associate of such person.
(3) A person shall be deemed to be a "beneficial
owner" of (a) all shares owned, directly or indirectly, by such
person and by its Affiliates and Associates, and (b) all shares
which such person and its Affiliates and Associates have the
right to acquire or to vote pursuant to any agreement,
arrangement or understanding or upon the exercise of any
conversion right, exchange right, warrant, option or otherwise.
(4) "Subsidiary" shall mean any corporation of
which a majority of any class of equity security is owned,
directly or indirectly, by the corporation; provided, however,
that for purposes of the definition of Interested Shareholder set
forth in Section (c)(2) of this Article, the term "Subsidiary"
shall mean only a corporation of which a majority of each class
of equity security is owned, directly or indirectly, by the
corporation.
(5) "Affiliate" shall mean any person which
directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with
the person specified.
(6) "Associate," when used to indicate a
relationship with any person, means (a) any corporation or other
organization (other than the corporation or a Subsidiary) of
which such person is an officer or partner or is, directly or
indirectly, the beneficial owner of 10 percent (10%) or more of
any class of equity security, (b) any trust or other estate in
which such person has a substantial beneficial interest or as to
which such person serves as trustee or in a similar fiduciary
capacity, and (c) any relative or spouse of such person, or any
relative of such spouse.
(7) "Continuing Director" shall mean (a) any
member of the Board of Directors of the corporation who is
unaffiliated with and is not a representative of an Interested
Shareholder and who was a member of the Board of Directors prior
to the time that any Interested Shareholder became an Interested
Shareholder, and (b) any successor of a Continuing Director who
is unaffiliated with and is not a representative of an Interested
Shareholder and who is recommended to succeed a Continuing
Director by a majority of the Continuing Directors then members
of the Board of Directors.
(d) A majority of the Continuing Directors shall
have the power and duty to make factual determinations, on the
basis of information known to them after reasonable inquiry, as
to all facts relating to the application of this Article,
including, without limitation, the following: (i) whether a
person is an Interested Shareholder, (ii) the number of shares
owned beneficially by any person, and (iii) whether a person is
an Affiliate or Associate of another person. Any such
determination made in good faith shall be binding upon and
conclusive with respect to all parties.
(e) The vote specified in Sections 9(a) and 9(b)
of this Article shall be in addition to any vote which may
otherwise be required by law.
ARTICLE 10
----------
10. (a) For purposes of this Article 10, the term
"Acquisition Proposal" shall mean any action, proposal, plan or
attempt by any person, firm, corporation or other entity to: (1)
make any tender or exchange offer for any equity security of the
corporation, (2) merge or consolidate the corporation or any
subsidiary of the corporation with or into another corporation,
(3) purchase or otherwise acquire all or substantially all of the
assets of the corporation or of any subsidiary of the
corporation, or (4) any transaction or series of transactions
similar in purpose, form or effect to any of the foregoing.
(b) The Board of Directors, when evaluating an
Acquisition Proposal shall, in connection with the exercise of
its judgment in determining what is in the best interests of the
corporation and its shareholders, give due consideration to all
relevant factors, including, without limitation, the following:
(1) The adequacy of the offered consideration,
not only in relation to the then current market price of the
securities of the corporation, but also in relation to (i) the
historical, present and anticipated future operating results and
financial position of the corporation, (ii) the value of the
corporation in a freely negotiated transaction, and (iii) the
prospects and future value of the corporation as an independent
entity;
(2) The social and economic impact which the
Acquisition Proposal, if consummated. would have upon the
customers, depositors and employees of the corporation and its
subsidiaries and upon the communities which they serve;
(3) The reputation and business practices and
experience of the offeror and its management and affiliates as
they might affect (i) the business of the corporation and its
subsidiaries, (ii) the future value of the securities of the
corporation, and (iii) the customers, depositors and employees of
the corporation and its subsidiaries and the communities which
they serve; and
(4) The antitrust and other legal and regulatory
issues that might arise by reason of the Acquisition Proposal.
(c) The Board of Directors may, in its sole
discretion, oppose, recommend or remain neutral with respect to
an Acquisition Proposal on the basis of its evaluation of what is
in the best interests of the corporation and its shareholders.
(d) In the event that the Board of Directors
determines that an Acquisition Proposal is not in the best
interests of the corporation and its shareholders and should be
opposed, it may take any lawful action for this purpose,
including, without limitation, the following:
(1) Advising the shareholders of the corporation
of it's opposition to the Acquisition Proposal;
(2) Authorizing the initiation of legal
proceedings;
(3) Authorizing the initiation of opposition
proceedings before any regulatory authority having jurisdiction
over the Acquisition Proposal;
(4) Authorizing the corporation to acquire its
own securities;
(5) Authorizing the corporation to issue
authorized but unissued securities, to sell treasury stock or to
grant options with respect thereto; and
(6) Soliciting a more favorable offer from a
third party.
ARTICLE 11
----------
11. No director of the corporation shall be removed from
office by shareholder vote, except as follows:
(a) With cause, by the affirmative vote of the holders
of a majority of the then outstanding shares of stock of the
corporation entitled to vote generally in the election of
directors, voting together as a single class, at a meeting of
shareholders duly convened after notice to the shareholders of
such purpose; or
(b) Without cause, by the affirmative vote of the
holders of not less than eighty-five percent (85%) of the then
outstanding shares of stock of the corporation entitled to vote
generally in the election of directors, voting together as a
single class, at a meeting of shareholders duly convened after
notice to the shareholders of such purpose.
ARTICLE 12
----------
12. (a) No action required to be taken or which may be
taken at any annual or special meeting of shareholders of the
corporation may be taken without a duly called meeting and the
power of the shareholders of the corporation to consent in
writing to action without a meeting is specifically denied.
(b) A special meeting of the shareholders of the
corporation may be called only by (i) the Chief Executive Officer
of the corporation, (ii) the Executive Committee of the Board of
Directors, or (iii) the Board of Directors pursuant to a
resolution adopted by the affirmative vote of a majority of the
whole Board of Directors. Special meetings may not be called by
shareholders.
ARTICLE 13
----------
13. The authority to make, amend, alter, change or repeal
the bylaws of the corporation is hereby expressly and solely
granted to and vested in the Board of Directors, subject always
to the power of the shareholders to make, amend, alter, change or
repeal the bylaws of the corporation by the affirmative vote of
the holders of not less than eighty-five percent (85%) of the
then outstanding shares of stock of the corporation entitled to
vote generally in the election of directors, voting together as a
single class, at a meeting of shareholders duly convened after
notice to the shareholders of such purpose.
ARTICLE 14
----------
14. The Articles of Incorporation of the corporation may
not be amended, except as follows:
(a) Upon the affirmative vote of: (i) a majority of
the Continuing Directors (as that term is defined in Section
(c)(7) of Article 9), (ii) a majority of the whole Board of
Directors, and (iii) the holders of not less than a majority of
the then outstanding shares of stock of the corporation entitled
to vote generally in the election of directors, voting together
as a single class, at a meeting of shareholders duly convened
after notice to the shareholders of such purpose; or
(b) Upon the affirmative vote of the holders of not
less than eighty-five percent (85%) of the then outstanding
shares of stock of the corporation entitled to vote generally in
the election of directors, voting together as a single class, at
a meeting of shareholders duly convened after notice to the
shareholders of such purpose.
