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, 1997 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 31, 1997
------------------------------ --------------------------------
Common Stock ($2.50 par value) 6,072,336 Shares
<PAGE> 1
PENNROCK FINANCIAL SERVICES CORP.
---------------------------------
FORM 10-Q
---------
For the Quarter Ended September 30, 1997
Contents
--------
PART I. FINANCIAL INFORMATION
- -----------------------------
Item 1. Financial Statements
Consolidated balance sheets - September 30, 1997,
December 31, 1996 and September 30, 1996.
Consolidated statements of income - Nine months ended
September 30, 1997 and 1996.
Consolidated statements of cash flows - Nine months
ended September 30, 1997 and 1996.
Notes to condensed consolidated financial statements - September 30,
1997.
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, 1997
Item 1. Financial Statements
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31, September 30,
(Amounts in thousands) 1997 1996 1996
------------ ----------- -------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 18,101 $ 16,405 $ 16,630
Short-term investments 35,316 1,244 183
Mortgages held for sale 24,509 5,690 3,913
Securities available for sale 170,759 186,026 182,224
Loans:
Loans, net of unearned income 357,660 319,354 318,487
Allowance for loan losses (4,177) (4,049) (3,938)
--------- --------- ---------
Net loans 353,483 315,305 314,549
Bank premises and equipment 12,258 10,662 9,685
Accrued interest receivable 3,661 3,333 3,210
Other assets 8,097 8,938 10,344
--------- --------- ---------
Total assets $626,184 $547,603 $540,738
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 68,681 $ 65,537 $ 60,896
Interest bearing 400,510 385,930 377,889
--------- --------- ---------
Total deposits 469,191 451,467 438,785
Short-term borrowings 12,349 22,106 38,094
Long-term debt 77,000 14,000 4,000
Accrued interest payable 3,094 2,758 2,344
Other liabilities 5,704 3,543 5,569
--------- --------- ---------
Total liabilities 567,338 493,874 488,792
Stockholders' Equity:
Common stock, par value $2.50 per share;
authorized - 20,000,000 shares;
issued - 6,077,299 of which 12,617,
39,880 and 12,333 shares are held
as treasury stock, respectively 15,193 15,193 15,193
Surplus 11,107 11,153 11,153
Unrealized gains (losses) on
securities available for sale,
net of deferred taxes 501 (816) (1,712)
Retained earnings 32,410 28,939 27,996
--------- --------- ---------
59,211 54,469 52,630
Less treasury stock, at cost (365) (740) (686)
--------- --------- ---------
Total stockholders' equity 58,846 53,729 51,944
--------- --------- ---------
Total liabilities and
stockholders' equity $626,184 $547,603 $540,736
========= ========= =========
</TABLE>
<PAGE> 3
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(Amounts in thousands) September 30, September 30,
------------------ -------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 8,231 $ 7,218 $23,574 $21,254
Securities:
Taxable 1,677 2,326 5,824 7,101
Tax-exempt 720 561 2,713 1,813
Mortgages held for sale 34 33 116 182
Other 1,025 11 1,329 29
------- ------- ------- -------
Total interest income 11,687 10,149 33,556 30,379
Interest expense:
Deposits 4,612 4,008 12,942 11,683
Short-term borrowings 76 538 1,238 2,192
Long-term debt 938 114 1,750 385
------- ------- ------- -------
Total interest expense 5,626 4,660 15,930 14,260
------- ------- ------- -------
Net interest income 6,061 5,489 17,626 16,119
Provision for loan losse 92 151 166 449
------- ------- ------- -------
5,969 5,338 17,460 15,670
Other income:
Service charges on deposit
accounts 362 295 1,042 817
Other service charges and fees 15 16 52 82
Fiduciary activities 193 172 598 520
Security gains, net 665 270 1,211 771
Mortgage banking 77 173 352 216
Other 425 117 671 282
------- ------- ------- -------
Total other income 1,737 1,043 3,926 2,688
------- ------- ------- -------
Net interest and other income 7,706 6,381 21,386 18,358
------- ------- ------- -------
Other expenses:
Salaries and benefits 2,396 2,081 6,820 6,065
Occupancy, net 316 307 970 893
Equipment depreciation and service 276 331 867 925
Other 1,356 1,015 3,760 2,972
------- ------- ------- -------
Total other expense 4,344 3,734 12,417 10,855
------- ------- ------- -------
Income from continuing operations
before income taxes 3,362 2,647 8,969 7,503
Income taxes 354 629 1,735 1,830
------- ------- ------- -------
Income from continuing
operations 3,008 2,018 7,234 5,673
Discontinued operations:
Loss from operations of
discontinued subsidiary,
(less income taxes of
$193, $147, $394 and $296 (374) (286) (765) (575)
respectively)
Estimated loss on disposal
of subsidiary including
provision for operating
losses during phaseout period
(less income taxes of $407) (790) (790)
------- ------- ------- -------
Net Income $1,844 $1,732 $5,679 $5,098
======= ======= ======= =======
Earnings per share:
From continuing operations $ .50 $ .33 $ 1.19 $ .93
From discontinue operations (.06) (.05) (.13) (.09)
From estimated loss on
disposal of subsidiary (.13) (.13)
------- ------- ------- -------
From net earnings $ .30 $ .29 $ .94 $ .85
======= ======= ======= =======
</TABLE>
<PAGE> 4
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(Amounts in thousands) -----------------------
1997 1996
-------- --------
<S> <C> <C>
Cash from operations $ 7,544 $ 5,102
Investing activities:
Proceeds from sales of securities available
for sale 102,792 57,756
Purchases of securities available for sale (97,236) (54,158)
Maturities of securities available for sale 13,099 7,136
Net increase in loans (57,163) (20,635)
Purchases of premises and equipment (2,355) (1,299)
-------- --------
Net cash used in investing activities (40,863) (11,200)
Financing activities:
Net increase in non-interest bearing deposits 3,143 3,121
Net increase in interest bearing deposits 14,581 17,735
Decrease in short-term borrowings (9,757) (9,382)
Increase (decrease) in long-term debt 63,000 (5,000)
Issuance of treasury stock 975 606
Acquisition of treasury stock (674) (998)
Cash dividends (2,181) (1,998)
-------- --------
Net cash provided by financing activities 69,087 4,084
-------- --------
Increase (decrease) in cash and cash
equivalents 35,768 (2,014)
Cash and cash equivalents,
beginning of year 17,649 18,827
-------- --------
Cash and cash equivalents, end of period $53,417 $16,813
======== ========
</TABLE>
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1997
NOTE 1. ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of
PennRock Financial Services Corp. and its subsidiaries. All material
intercompany balances and transactions have been eliminated in consolidation.
PennRock Financial Services Corp. (PennRock or the Company) is a bank holding
company incorporated under the laws of Pennsylvania in 1986. Blue Ball
National Bank (the Bank) is a wholly owned subsidiary of PennRock which
provides a broad range of banking, trust and other financial services to
consumers, small businesses and corporations in south-central and
southeastern Pennsylvania. The Bank's mortgage banking subsidiary, Atlantic
Regional Mortgage Corporation (ARMCO) was formed in 1996 to originate and
sell first mortgage loans of various types.
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, 1997 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
Subsidiaries, as applied in the consolidated interim financial statements
presented, are substantially the same as those followed on an annual basis as
presented in the 1996 Annual Report to shareholders except that, as of
January 1, 1997, PennRock adopted the Financial Accounting Standards Board's
Statement No. 125 (SFAS 125), "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" as discussed in Note 3
of Form 10-Q for the first quarter of 1997. 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, 1997.
<PAGE> 6
NOTE 2. DISCONTINUED OPERATIONS
On September 30, 1997, the Company adopted a plan to discontinue the
operations of the ARMCO. The Company anticipates that the business will be
disposed of by December 31, 1997. Accordingly, ARMCO is reported as a
discontinued operation for 1996 and 1997. Net assets of the discontinued
operations at September 30, 1997, consist primarily of mortgages held for
sale and related accrued interest receivable and furniture and equipment and
totaled $26.5 million.
The estimated loss on the disposal of ARMCO is $790,000 (net of income taxes
of $407,000), consisting of an estimated loss on disposal of the business of
$344,000 and a provision of $853,000 for anticipated operating losses until
disposal. Summarized results of ARMCO since its inception are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(Amounts in thousands) September 30, September 30,
------------------- -------------------
1997 1996 1997 1996
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Gross revenues $10,178 $9,825 $30,424 $28,531
-------- ------- -------- --------
Loss from operations before
income tax benefit (567) (433) (1,159) (871)
Income tax benefit 193 147 394 296
-------- ------- ------- -------
Loss from operations (374) (286) (765) (575)
-------- -------
Loss on disposal before income
tax benefit (1,197) (1,197)
Income tax benefit 407 407
-------- -------
Loss on disposal (790) (790)
-------- ------- ------- -------
Total loss on discontinued
operations ($ 1,164) ($ 286) ($ 1,555) ($ 575)
======= ======= ======= =======
</TABLE>
NOTE 3. 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 $9.2 million and commitments to extend credit totaled $79.4 million at
September 30, 1997. Management does not anticipate any significant loss as a
result of these transactions.
<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
subsidiaries. This discussion should be read in conjunction with the
financial statements which appear elsewhere in this report.
Total assets of PennRock increased $78.6 million or 14.3% since the end of
1996 and by $85.4 million or 15.8% over September 30, 1996. The increases in
assets were reflected in increases in short-term investments consisting
principally in federal funds sold, mortgages held for sale and loans
outstanding. Securities held for sale declined both from year-end and third
quarter of last year.
Income from continuing operations for the current quarter was $3.0 million or
$.50 per share compared with $2.0 million or $.33 per share for the third
quarter of 1996, an increase of $990,000 or 49.1%. The total loss from
discontinued operations recognized in the third quarter of 1997 (including an
estimate of the loss on disposal of the discontinued operation and a
provision for operating losses estimated to be incurred during the phase out
period) totaled $1.2 million or $.19 per share compared with $286,000 or $.05
per share in the third quarter of 1996. Net income for the third quarter of
1997 was $1.8 million or $.30 per share compared with $1.7 million or $.29
per share for the third quarter last year, an increase of $112,000 or 6.5%.
Net interest income increased $572,000 from the third quarter of 1996 due to
volume increases and wider spreads, while other income excluding security
gains increased $299,000 and other expenses increased $610,000.
Dividends declared for the quarter totaled $727,000 or $.12 per share. This
represented 39.4% of net income. Dividends declared during the third quarter
of last year were $665,000 or $.11 per share.
Income from continuing operations for the first nine months of 1997 was $5.7
million or $1.19 per share compared with $5.7 million or $.93 per share for
the third quarter of 1996, an increase of $1.6 million or 27.5%. The total
loss from discontinued operations recognized for the first nine months of
1997 totaled $1.6 million or $.26 per share compared with $575,000 or $.09
per share for the first nine months of last year. Net income for the first
nine months of 1997 was $5.7 million or $.94 per share compared with $5.1
million or $.84 per share for the first nine months last year, an increase of
$581,000 or 11.4%.
Dividends declared for the first nine months of 1997 totaled $2.2 million or
$.36 per share compared with $2.0 million or $.33 per share paid for the same
period in 1997. This represented 38.4% of net income in 1997 and 39.0% in
1996.
<PAGE> 8
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%.
Table 1 presents net interest income on a fully taxable equivalent basis for
the third quarter and first nine months of 1997 and 1996. For the third
quarter of 1997, net interest income on a fully taxable equivalent basis
totaled $6.4 million, an increase of $648,000 or 11.3% from $5.7 million
earned for the same period of 1996. For the first nine months of 1997, net
interest income on a fully taxable equivalent basis totaled $18.9 million, an
increase of $2.0 million or 11.7% from $16.9 million earned for the first
nine months of 1996.
TABLE 1 - NET INTEREST INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(Amounts in thousands) September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total interest income $11,687 $10,149 $33,556 $30,379
Total interest expense 5,626 4,660 15,930 14,260
------- ------- -------- --------
Net interest income 6,061 5,489 17,626 16,119
Tax equivalent adjustment 323 247 1,290 816
------- ------- -------- --------
Net interest income
(fully taxable equivalent) $ 6,384 $ 5,736 $18,916 $16,935
======= ======= ======== ========
</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, 1997 and 1996. For the third quarter of 1997
compared with the third quarter of 1996, net interest income increased due to
increases in volumes while the interest spread and margin decreased slightly
For the first nine months of 1997 compared to 1996, volumes also had
increased but the interest rate spread and margin were also higher which lead
to a 11.7% increase in net interest income. In both table 1 and table 2,
earning assets and paying liabilities and the related interest income and
expense of ARMCO have been omitted since the operating results for ARMCO have
been reclassified as discontinued operations.
<PAGE> 9
TABLE 2 - AVERAGE BALANCES, RATES, AND INTEREST INCOME AND EXPENSE
<TABLE>
<CAPTION>
Three Months Ended September 30,
(Amounts in thousands) ------------------------------------------------------
1997 1996
-------------------------- --------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets
Short-term investments $ 41,339 $ 534 5.12% $ 831 $ 10 4.77%
Mortgages held for sale 40 1 5.95% 826 17 8.17%
Mortgage warehouse line of credit 27,116 490 7.17% 1,354 13 3.81%
Securities available for sale 154,404 2,685 6.90% 186,259 3,128 6.66%
Loans:
Mortgage 200,516 4,678 9.26% 176,585 3,982 8.95%
Commercial 95,065 2,216 9.25% 85,259 1,965 9.14%
Consumer 60,892 1,406 9.16% 54,200 1,281 9.38%
-------- ------- -------- -------
Total loans 356,473 8,300 9.24% 316,044 7,228 9.07%
-------- ------- -------- -------
Total earning assets 579,372 12,010 8.22% 505,314 10,396 8.16%
Other assets 39,173 ------- 35,901 -------
-------- --------
$618,545 $541,215
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing deposits:
Demand $ 70,077 451 2.55% $ 72,248 441 2.42%
Savings 59,318 332 2.22% 61,370 341 2.20%
Time 279,234 3,829 5.44% 241,055 3,226 5.31%
-------- ------- -------- -------
Total interest bearing deposits 408,629 4,612 4.48% 374,673 4,008 4.24%
Short-term borrowings 11,717 76 4.84% 41,932 538 5.09%
Long-term debt 64,283 938 5.79% 5,902 114 5.85%
-------- ------- -------- -------
484,629 5,626 4.64% 422,507 4,660 4.41%
Non-interest bearing deposits 67,408 ------- 59,455 -------
Other liabilities 8,931 8,640
Stockholders' equity 57,577 50,613
-------- --------
Total liabilities and stockholders'
equity $618,545 $541,215
======== ========
Net interest income $ 6,384 $ 5,736
======= =======
Interest rate spread 3.58% 3.75%
====== ======
Net interest margin 4.41% 4.54%
====== ======
<PAGE> 10
<CAPTION>
Nine Months Ended September 30,
(Amounts in thousands) ------------------------------------------------------
1997 1996
-------------------------- --------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets
Short-term investments $ 16,439 $ 583 4.74% $ 684 $ 29 5.67%
Mortgages held for sale 301 13 5.77% 2,502 181 9.67%
Mortgage warehouse line of credit 14,765 747 6.76% 455 21 6.17%
Securities available for sale 179,450 9,622 7.17% 196,280 9,641 6.57%
Loans:
Mortgage 190,265 13,192 9.27% 171,174 11,613 9.07%
Commercial 91,906 6,487 9.44% 87,002 6,042 9.29%
Consumer 59,803 4,202 9.39% 52,198 3,668 9.39%
-------- ------- -------- -------
Total loans 341,974 23,881 9.34% 310,374 21,323 9.19%
-------- ------- -------- -------
Total earning assets 552,929 34,846 8.43% 510,295 31,195 8.17%
Other assets 41,897 ------- 33,860 -------
-------- --------
$594,826 $544,155
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing deposits:
Demand $ 70,789 1,321 2.49% $ 71,040 1,327 2.50%
Savings 59,212 982 2.22% 61,053 1,008 2.21%
Time 264,173 10,639 5.38% 233,085 9,347 5.36%
-------- ------- -------- -------
Total interest bearing deposits 394,174 12,942 4.39% 365,178 11,683 4.28%
Short-term borrowings 31,395 1,238 5.27% 53,934 2,192 5.43%
Long-term debt 41,293 1,750 5.67% 7,960 385 6.47%
-------- ------- -------- -------
466,862 15,930 4.56% 427,072 14,260 4.46%
Non-interest bearing deposits 64,167 ------- 57,238 -------
Other liabilities 8,315 7,683
Stockholders' equity 55,482 51,707
-------- --------
Total liabilities and stockholders'
equity $594,826 $543,700
======== ========
Net interest income $18,916 $16,935
======= =======
Interest rate spread 3.87% 3.71%
====== ======
Net interest margin 4.57% 4.44%
====== ======
</TABLE>
<PAGE> 11
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses charged to earnings was $92,000 for the third
quarter of 1997 compared with $151,000 for the third quarter of last year.
The provision for the first nine months of 1997 was $166,000 compared with
$449,000 for 1996. 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 1997 and 1996.
TABLE 3 - ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(Amounts in thousands) September 30, September 30,
--------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance, beginning of period $4,124 $3,806 $4,049 $3,661
Provision charged to operating expense 92 151 166 449
Total loans charged off (51) (55) (199) (244)
Total recoveries 12 36 161 72
------- ------- ------- -------
Net charge-offs (39) (18) (38) (172)
------- ------- ------- -------
Balance, end of period $4,177 $3,938 $4,177 $3,938
======= ======= ======= =======
Total loans:
Average $356,473 $316,044 $341,974 $310,374
Period-end 357,660 318,487 357,660 318,487
Ratios:
Net charge-offs to
average loans (annualized) .04% .03% .01% .07%
Allowance for loan losses to
period-end loans 1.17% 1.24% 1.17% 1.24%
</TABLE>
<PAGE> 12
NON-PERFORMING ASSETS
Table 4 reflects PennRock's non-performing assets at September 30, 1997,
December 31, 1996 and September 30, 1996. 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) 1997 1996 1996
------------- ------------ -------------
<S> <C> <C> <C>
Non-accrual loans $304 $ 795 $ 749
Loans accruing but 90 days past due
as to principal or interest 640 311 321
---------- --------- ---------
Total non-performing loans 944 1,106 1,070
Other real estate owned 187 320
--------- --------- ---------
Total non-performing assets $944 $1,293 $1,390
========= ========= =========
Ratios:
Non-accrual loans to total loans 0.26% 0.35% 0.30%
Non-accrual loans to total loans and
other real estate owned 0.26% 0.40% 0.30%
Allowance for loan losses to
non-accrual loans 442.48% 366.09% 426.21%
</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 $17.7 million or 3.9% since year end and $30.4
million or 6.9% from last year. Total borrowings increased $53.2 million
since year end and by $47.3 million 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 1997 with year-end and the
third quarter of 1996.
TABLE 5 - DEPOSITS AND BORROWINGS BY MAJOR CLASSIFICATION
(Amounts in thousands)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1997 1996 1996
------------- ------------ -------------
<S> <C> <C> <C>
Non-interest bearing $ 68,681 $ 65,537 $ 60,896
NOW accounts 35,387 41,209 37,567
Money market deposit accounts 32,986 34,125 33,465
Savings accounts 58,689 59,977 60,334
Time deposits under $100,000 240,277 224,071 220,506
--------- --------- ---------
Total core deposits 436,020 424,919 412,768
Time deposits of $100,000 or more 33,171 26,548 26,017
--------- --------- ---------
Total deposits 469,191 451,467 438,785
Short-term borrowings 12,349 22,106 38,094
Long-term debt 77,000 14,000 4,000
--------- --------- ---------
Total deposits and borrowings $558,540 $487,573 $480,879
========= ========= =========
</TABLE>
CAPITAL RESOURCES:
Total stockholders' equity increased $6.9 million or 13.3% from September 30,
1996 and $5.1 million or 9.5% since year-end 1996. 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 and December 31, 1996, this portfolio had net unrealized losses and on
September 30, 1997, the portfolio had a net unrealized profit.
On June 24, 1997, 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. This is an extension of an open market repurchase program
which was originally announced in 1995. Since the program was adopted
PennRock has repurchased 150,451 shares of which 12,617 shares were held as
treasury shares as of September 30, 1997.
<PAGE> 14
Table 6 shows PennRock's capital resources at September 30, 1997 and at
December 31 and September 30, 1996. PennRock and its subsidiary bank exceed
all minimum capital guidelines.
TABLE 6 - CAPITAL RESOURCES
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1997 1996 1996
------------- ------------ -------------
<S> <C> <C> <C>
Leverage ratio:
Total capital to total assets 9.94% 9.96% 10.48%
Tier 1 capital to total assets 9.28% 9.80% 9.76%
Risk-based capital ratios:
Tier 1 capital to risk weighted
assets 14.29% 14.95% 14.80%
Total capital to risk weighted
assets 15.32% 16.08% 15.91%
</TABLE>
<PAGE> 15
PART II. OTHER INFORMATION
---------------------------
For the Quarter ended September 30, 1997
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, 1997.
(b) Reports on Form 8-K
A current report on Form 8-K dated October 3, 1997, was filed with the
Securities and Exchange Commission on or about October 10, 1997. The
report was filed under Item 5 - "Other Events" and disclosed that the
Company had announced the closure of its mortgage banking subsidiary.
There were no other reports on Form 8-K filed for the three months ended
September 30, 1997.
<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, 1997 By: /s/Melvin Pankuch
- ----------------------- -------------------------------------------------
Melvin Pankuch
Executive Vice President and
Chief Executive Officer
Date: November 14, 1997 By: /s/George B. Crisp
- ------------------------ -------------------------------------------------
George B. Crisp
Vice President and Treasurer
(Principal Financial and Accounting Officer)
<PAGE> 17
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 18,101
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 35,316
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 170,759
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 382,169
<ALLOWANCE> 4,177
<TOTAL-ASSETS> 626,184
<DEPOSITS> 469,191
<SHORT-TERM> 12,349
<LIABILITIES-OTHER> 8,798
<LONG-TERM> 77,000
0
0
<COMMON> 15,193
<OTHER-SE> 43,653
<TOTAL-LIABILITIES-AND-EQUITY> 626,184
<INTEREST-LOAN> 23,574
<INTEREST-INVEST> 8,537
<INTEREST-OTHER> 1,445
<INTEREST-TOTAL> 33,556
<INTEREST-DEPOSIT> 12,942
<INTEREST-EXPENSE> 15,930
<INTEREST-INCOME-NET> 17,626
<LOAN-LOSSES> 166
<SECURITIES-GAINS> 1,211
<EXPENSE-OTHER> 12,417
<INCOME-PRETAX> 8,969
<INCOME-PRE-EXTRAORDINARY> 7,234
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,679
<EPS-PRIMARY> .94
<EPS-DILUTED> .94
<YIELD-ACTUAL> 4.57
<LOANS-NON> 304
<LOANS-PAST> 640
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,629
<ALLOWANCE-OPEN> 4,049
<CHARGE-OFFS> 199
<RECOVERIES> 161
<ALLOWANCE-CLOSE> 4,177
<ALLOWANCE-DOMESTIC> 4,177
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,128
</TABLE>
