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, 1998 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 August 4, 1998
------------------------------ --------------------------------
Common Stock ($2.50 par value) 6,062,609 Shares
<PAGE> 1
PENNROCK FINANCIAL SERVICES CORP.
---------------------------------
FORM 10-Q
---------
For the Quarter Ended June 30, 1998
Contents
--------
PART I. FINANCIAL INFORMATION
- -----------------------------
Item 1. Financial Statements
Consolidated balance sheets - June 30, 1998,
December 31, 1997 and June 30, 1997.
Consolidated statements of income - Six months ended
June 30, 1998 and 1997.
Consolidated statements of cash flows - Six months
ended June 30, 1998 and 1997.
Notes to condensed consolidated financial statements - June 30, 1998.
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, 1998
Item 1. Financial Statements
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31, June 30,
(Amounts in thousands) 1998 1997 1997
------------ ----------- -------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 19,063 $ 21,075 $ 20,570
Short-term investments 2,423 1,054 27,739
Mortgages held for sale 2,157 1,036 612
Securities available for sale 248,874 224,408 162,211
Loans:
Loans, net of unearned income 393,287 382,359 355,198
Allowance for loan losses (4,420) (4,247) (4,076)
--------- --------- ---------
Net loans 388,867 378,112 351,122
Bank premises and equipment 12,551 12,654 10,793
Accrued interest receivable 5,376 3,794 3,483
Net assets of discontinued subsidiary 27,766
Other assets 7,630 6,956 9,890
--------- --------- ---------
Total assets $686,941 $649,089 $614,186
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 77,076 $ 77,106 $ 67,531
Interest bearing 402,750 415,689 407,802
--------- --------- ---------
Total deposits 479,826 492,795 475,333
Short-term borrowings 43,413 12,832 10,426
Long-term debt 90,700 77,000 62,000
Accrued interest payable 3,270 3,158 3,200
Other liabilities 5,473 2,037 6,176
--------- --------- ---------
Total liabilities 622,682 587,822 557,135
Stockholders' Equity:
Common stock, par value $2.50 per share;
authorized - 20,000,000 shares;
issued - 6,077,299 of which 14,690,
10,639 and 12,617 shares are held
as treasury stock, respectively 15,193 15,193 15,193
Surplus 11,154 11,118 11,107
Unrealized gains (losses) on
securities available for sale,
net of deferred taxes 1,192 1,457 (297)
Retained earnings 37,113 33,704 31,287
Less treasury stock, at cost (393) (205) (239)
--------- --------- ---------
Total stockholders' equity 64,259 61,267 57,051
--------- --------- ---------
Total liabilities and
stockholders' equity $686,941 $649,089 $614,186
========= ========= =========
</TABLE>
<PAGE> 3
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION> Three Months Ended Six Months Ended
(Amounts in thousands) June 30, June 30,
-------------------- ---------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $8,656 $7,941 $17,385 $15,411
Securities:
Taxable 2,179 2,038 4,559 4,147
Tax-exempt 1,630 1,095 2,800 1,993
Mortgages held for sale 53 11 69 14
Other 34 227 86 305
------- ------- ------- -------
Total interest income 12,552 11,312 24,899 21,870
Interest expense:
Deposits 4,448 4,237 8,974 8,330
Short-term borrowings 759 744 1,262 1,162
Long-term debt 1,232 599 2,308 812
------- ------- ------- -------
Total interest expense 6,439 5,581 12,544 10,304
------- ------- ------- -------
Net interest income 6,113 5,731 12,355 11,566
Provision for loan losses 214 44 362 74
------- ------- ------- -------
5,899 5,687 11,993 11,492
Other income:
Service charges on deposit
accounts 361 352 711 680
Other service charges and fees 68 18 129 36
Fiduciary activities 235 206 463 405
Security gains, net 506 552 648 547
Mortgage banking 251 118 338 275
Other 125 96 272 245
------- ------- ------- -------
Total other income 1,546 1,342 2,561 2,188
------- ------- ------- -------
Net interest and other income 7,445 7,029 14,554 13,680
------- ------- ------- -------
Other expenses:
Salaries and benefits 2,325 2,281 4,789 4,424
Occupancy, net 332 326 600 655
Equipment expenses 326 316 632 591
Other 1,224 1,252 2,311 2,404
------- ------- ------- -------
Total other expense 4,207 4,175 8,332 8,074
------- ------- ------- -------
Income from continuing operations
before income taxes 3,328 2,854 6,222 5,606
Income taxes 613 712 1,235 1,381
------- ------- ------- -------
Income from continuing
operations 2,625 2,142 4,987 4,225
Discontinued operations:
Loss from operations of
discontinued subsidiary,
(less income taxes of
$110 and $201 respectively (214) (391)
------- ------- ------- -------
Net Income $2,625 $1,928 $4,987 $3,834
======= ======= ======= =======
Earnings per share:
From continuing operations $ .43 $ .35 $ .82 $ .70
From discontinue operations .00 (.04) .00 (.06)
------- ------- ------- -------
From net earnings $ .43 $ .31 $ .82 $ .64
======= ======= ======= =======
Weighted average shares
outstanding 6,071,582 6,059,412 6,071,582 6,059,412
========= ========= ========= =========
</TABLE>
Basic earnings per share and diluted earnings per share are the same for
1998 and 1997.
<PAGE> 4
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION> Three Months Ended Six Months Ended
(Amounts in thousands) June 30, June 30,
------------------ -------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $2,625 $1,929 $4,987 $3,834
Other comprehensive income,
net of tax:
Unrealized gains (losses) on
securities available for sale:
Gain arising during the
period, net of tax 329 2,491 163 880
Reclassification adjustment
for gains included in net
income, net of tax (334) (364) (428) (361)
------- ------- ------- -------
Other comprehensive income (loss) (5) 2,127 (265) 519
------- ------- ------- -------
Comprehensive income $2,620 $4,056 $4,722 $4,353
======= ======= ======= =======
</TABLE>
<PAGE> 5
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
(Amounts in thousands) -----------------------
1998 1997
--------- ---------
<S> <C> <C>
Net cash provided by operating activities
from continuing operation $ 5,040 $ 6,248
Net cash used in discontinued operations (22,222)
-------- --------
Net cash provided by (used in) operations 5,040 (15,974)
Investing activities:
Proceeds from sales of securities available
for sale 65,263 68,705
Purchases of securities available for sale (128,905) (49,933)
Maturities of securities available for sale 39,815 6,494
Net increase in loans (10,970) (35,891)
Purchases of premises and equipment (474) (1,288)
Sales of premises and equipment 7
-------- --------
Net cash used in investing activities (35,264) (11,913)
Financing activities:
Net increase (decrease) in non-interest
bearing deposits (30) 1,080
Net increase (decrease) in interest
bearing deposits (12,939) 21,872
Net increase (decrease) in short-term
borrowings 30,581 (11,680)
Increase in long-term debt 13,700 48,000
Issuance of treasury stock 612 693
Acquisition of treasury stock (765) (272)
Cash dividends (1,578) (1,454)
-------- --------
Net cash provided by financing activities 29,581 58,239
-------- --------
Increase (decrease) in cash and cash
equivalents (643) 30,352
Cash and cash equivalents,
beginning of year 22,129 17,649
-------- --------
Cash and cash equivalents, end of period $21,486 $48,001
======== ========
</TABLE>
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1998
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. Operations of ARMCO were
terminated during 1997.
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, 1998 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1998.
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 1997 Annual Report to shareholders except that, as of
January 1, 1998, PennRock adopted the Financial Accounting Standards Board's
Statement No. 130 ("SFAS 130"), "Reporting Comprehensive Income", SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information" and
SFAS 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits-an amendment of FASB Statements No. 87, 88, and 106" as discussed in
Note 3. 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> 7
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 $8.3 million and commitments to extend credit totaled $68.8 million at
June 30, 1998. Management does not anticipate any significant loss as a
result of these transactions.
NOTE 3. NEW ACCOUNTING STANDARDS
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income."
Comprehensive income, as defined by SFAS 130, is the change in equity of a
business enterprise during a reporting period from transactions and other
events and circumstances from non-owner sources. In addition to an
enterprise's net income, change in equity components under comprehensive
income reporting would also include such items as the net change in
unrealized gain or loss on available-for-sale securities.
In June 1997, Statement of Financial Accounting Standards No. 131 ("SFAS
131"), "Disclosures about Segments of an Enterprise and Related Information,"
was issued. SFAS 131 requires the reporting of selected segmented
information in quarterly and annual reports. Information from operating
segments is derived from methods used by the Company's management to allocate
resources and measure performance. The Company is required to disclose
profit/loss, revenues and assets for each segment identified, including
reconciliations of these items to consolidated totals. The Company is also
required to disclose the basis for identifying the segments and the types of
products and services within each segment. SFAS 131 is effective for the
Company for the year ended December 31, 1998, and quarterly beginning in
1999, including the restatement of prior periods reported consistent with
this pronouncement, if practical. The Company does not anticipate any
material impact from the implementation of SFAS No. 131.
In February 1998, Statement of Financial Accounting Standards No. 132 ("SFAS
132"), "Employers' Disclosures about Pensions and Other Postretirement
Benefits-an amendment of FASB Statements No. 87, 88, and 106," was issued.
SFAS 132 revises employers' disclosures about pension and other post-
retirement benefit plans. It standardizes the disclosure requirements for
pensions and other post-retirement benefits and requires additional
information on changes in the benefit obligations and fair values of plan
assets in the Company's 1998 year-end financial statements. SFAS 132 also
eliminates certain disclosures which were required by SFAS 87, "Employers'
Accounting for Pensions," SFAS 88, "Employers' Accounting for Settlement and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits,"
and SFAS 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions." SFAS 132 was effective for the Company on January 1, 1998. The
Company did not experience any material impact from the implementation of
SFAS No. 132.
<PAGE> 8
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 $37.9 million or 5.8% since the end of
1997 and by $72.8 million or 11.8% over June 30, 1997. The increases in
assets were reflected in increases in securities available for sale and loans
outstanding.
Net income for the current quarter was $2.6 million or $.43 per share
compared with $1.9 million or $.31 per share for the second quarter of 1997,
an increase of $696,000 or 36.1%. Income from continuing operations
increased $483,000 or 22.5% from the second quarter of 1997. A loss from
discontinued operations of $214,000 or $.04 per share was recorded in the
second quarter of 1997.
Net interest income increased $382,000 from the second quarter of 1997 due to
volume increases and notwithstanding tighter margins, while other income
excluding security gains increased $251,000 and other expenses increased
$33,000.
Dividends declared for the quarter totaled $789,000 or $.13 per share. This
represented 30.1% of net income. Dividends declared during the second
quarter of last year were $728,000 or $.12 per share.
Net income for the first six months of 1998 was $5.0 million or $.82 per
share compared with $3.8 million or $.64 per share for the first half of
1997, an increase of $1.2 million or 30.1%. A loss from discontinued
operations of $391,000 or $.06 per share was recognized for the first six
months of 1997. Income from continuing operations increased $762,000 or
18.0% from the first six months of 1997.
Dividends declared for the first six months of 1998 totaled $1.6 million or
$.26 per share compared with $1.5 million or $.24 per share paid for the same
period in 1997. This represented 31.6% of net income in 1998 and 38.0% in
1997.
<PAGE> 9
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 second quarter and first six months of 1998 and 1997. For the second
quarter of 1998, net interest income on a fully taxable equivalent basis
totaled $6.9 million, an increase of $847,000 or 13.9% from $6.1 million
earned for the same period of 1997. For the first six months of 1998, net
interest income on a fully taxable equivalent basis totaled $13.8 million, an
increase of $1.5 million or 11.8% from $12.3 million earned for the first six
months of 1997.
TABLE 1 - NET INTEREST INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Amounts in thousands) June 30, June 30,
-------------------- --------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total interest income $12,552 $11,312 $24,899 $21,870
Total interest expense 6,439 5,581 12,544 10,304
------- ------- -------- --------
Net interest income 6,113 5,731 12,355 11,566
Tax equivalent adjustment 811 346 1,404 742
------- ------- -------- --------
Net interest income
(fully taxable equivalent) $ 6,924 $ 6,077 $13,759 $12,308
======= ======= ======== ========
</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, 1998 and 1997. For the second quarter and first half
of 1998, net interest income increased due to increases in volumes while the
interest spread and margin decreased over the comparable period last year.
In both table 1 and table 2, earning assets and paying liabilities and the
related interest income and expense of ARMCO have been omitted from 1997
since the operating results for ARMCO were reclassified as discontinued
operations.
<PAGE> 10
TABLE 2 - AVERAGE BALANCES, RATES, AND INTEREST INCOME AND EXPENSE
<TABLE>
<CAPTION>
Three Months Ended June 30,
(Amounts in thousands) -------------------------------------------------
1998 1997
----------------------- ---------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- -------- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Short-term investments $ 1,765 $ 34 7.73% $ 2,496 $ 31 4.98%
Mortgages held for sale 2,508 53 8.48% 516 11 8.55%
Securities available for sale 251,843 4,559 7.26% 206,848 3,637 7.05%
Loans:
Mortgage 224,878 4,844 8.64% 192,067 4,344 9.07%
Commercial 104,048 2,384 9.19% 94,830 2,217 9.38%
Consumer 66,534 1,490 8.98% 59,645 1,413 9.50%
-------- ------- -------- -------
Total loans 395,460 8,718 8.84% 346,542 7,975 9.23%
-------- ------- -------- -------
Total earning assets 651,576 13,363 8.23% 556,402 11,653 8.40%
Other assets 37,099 ------- 51,202 -------
-------- --------
$688,675 $607,604
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing deposits:
Demand $ 78,462 562 2.87% $ 69,363 430 2.49%
Savings 57,016 315 2.22% 59,032 326 2.22%
Time 266,530 3,571 5.37% 259,194 3,481 5.39%
-------- ------- -------- -------
Total interest bearing deposits 402,008 4,448 4.44% 387,589 4,237 4.38%
Short-term borrowings 54,308 759 5.61% 49,340 744 6.05%
Long-term debt 86,909 1,232 5.69% 44,143 595 5.41%
-------- ------- -------- -------
543,225 6,439 4.75% 481,072 5,576 4.65%
Non-interest bearing deposits 73,209 ------- 64,008 -------
Other liabilities 8,909 8,260
Stockholders' equity 63,332 54,264
-------- -------
Total liabilities and stockholders'
equity $688,675 $607,604
======== ========
Net interest income $ 6,924 $ 6,077
======= =======
Interest rate spread 3.47% 3.75%
====== ======
Net interest margin 4.26% 4.38%
====== ======
<PAGE> 11
<CAPTION>
Six Months Ended June 30,
(Amounts in thousands) ----------------------------------------------------
1998 1997
----------------------- ---------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- -------- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets
Short-term investments $ 2,714 $ 86 6.39% $ 1,906 $ 47 4.97%
Mortgages held for sale 1,723 69 8.08% 433 14 6.52%
Securities available for sale 242,947 8,647 7.18% 200,406 7,057 7.10%
Loans:
Mortgage 222,853 9,844 8.91% 185,055 8,445 9.20%
Commercial 103,767 4,728 9.19% 91,220 4,269 9.44%
Consumer 65,019 2,929 9.08% 58,331 2,759 9.54%
-------- ------- -------- -------
Total loans 391,639 17,501 9.01% 334,606 15,474 9.33%
-------- ------- -------- -------
Total earning assets 639,023 26,303 8.30% 537,351 22,591 8.48%
Other assets 36,958 ------- 46,619 -------
-------- --------
$675,981 $582,970
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing deposits:
Demand $ 74,780 1,012 2.73% $ 71,151 870 2.47%
Savings 57,347 631 2.22% 59,189 650 2.21%
Time 273,448 7,331 5.41% 256,487 6,810 5.35%
-------- ------- -------- -------
Total interest bearing deposits 405,575 8,974 4.46% 386,827 8,330 4.34%
Short-term borrowings 46,170 1,262 5.51% 41,397 1,162 5.66%
Long-term debt 81,766 2,308 5.69% 29,608 791 5.39%
-------- ------- -------- -------
533,511 12,544 4.74% 457,832 10,283 4.53%
Non-interest bearing deposits 71,546 ------- 62,520 -------
Other liabilities 8,167 8,198
Stockholders' equity 62,757 54,420
-------- --------
Total liabilities and stockholders'
equity $675,981 $582,970
======== ========
Net interest income $13,759 $12,308
======= =======
Interest rate spread 3.56% 3.95%
====== ======
Net interest margin 4.34% 4.62%
====== ======
</TABLE>
Page> 12
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses charged to earnings was $214,000 for the second
quarter of 1998 compared with $44,000 for the second quarter of last year.
The provision for the first six months of 1998 was $362,000 compared with
$74,000 for 1997. 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 1998 and 1997.
TABLE 3 - ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Amounts in thousands) June 30, June 30,
------------------- ------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance, beginning of period $4,309 $4,147 $4,247 $4,049
Provision charged to operating expense 214 44 362 74
Total loans charged off (113) (97) (260) (148)
Total recoveries 10 30 71 149
------- ------- ------- -------
Net charge-offs (103) (67) (189) 1
------- ------- ------- -------
Balance, end of period $4,420 $4,124 $4,420 $4,124
======= ======= ======= =======
Total loans:
Average $395,460 $346,542 $391,639 $334,606
Period-end 393,286 355,198 393,286 355,198
Ratios:
Net charge-offs to
average loans (annualized) .10% .08% .10% .00%
Allowance for loan losses to
period-end loans 1.12% 1.16% 1.12% 1.16%
</TABLE>
<PAGE> 13
NON-PERFORMING ASSETS
Table 4 reflects PennRock's non-performing assets at June 30, 1998, December
31, 1997 and June 30, 1997. 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) 1998 1997 1997
---------- --------- -----------
<S> <C> <C> <C>
Non-accrual loans $ 526 $288 $749
Loans accruing but 90 days past due
as to principal or interest 1,982 311 321
---------- --------- ----------
Total non-performing loans 2,508 1,106 1,070
Other real estate owned 65 187 320
--------- --------- ---------
Total non-performing assets $2,573 $1,293 $1,390
========= ========= =========
Ratios:
Non-accrual loans to total loans 0.65% 0.35% 0.30%
Non-accrual loans to total loans and
other real estate owned 0.65% 0.40% 0.30%
Allowance for loan losses to
non-performing loans 176.24% 198.37% 385.42%
</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> 14
Total deposits decreased $13.0 million or 2.6% since year end and increased
$4.5 million or .9% from last year. Total borrowed funds increased $44.3
million since year end and by $61.7 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 second quarter of 1998 with year-end
and the second quarter of 1997.
TABLE 5 - DEPOSITS AND BORROWINGS BY MAJOR CLASSIFICATION
(Amounts in thousands)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1998 1997 1997
------------- ------------ -------------
<S> <C> <C> <C>
Non-interest bearing $ 77,076 $ 77,106 $ 67,531
NOW accounts 35,905 39,061 37,017
Money market deposit accounts 48,687 35,080 32,707
Savings accounts 56,418 57,557 59,532
Time deposits under $100,000 231,978 250,364 245,790
--------- --------- ---------
Total core deposits 450,064 459,168 442,577
Time deposits of $100,000 or more 29,762 33,627 32,756
--------- --------- ---------
Total deposits 479,826 492,795 475,333
Short-term borrowings 43,413 12,832 10,426
Long-term debt 90,700 77,000 62,000
--------- --------- ---------
Total deposits and borrowings $613,939 $582,627 $547,759
========= ========= =========
</TABLE>
CAPITAL RESOURCES:
Total stockholders' equity increased $7.2 million or 12.6% from June 30, 1997
and $3.0 million or 4.9% since year-end 1997. 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,
1997, this portfolio had net unrealized losses while on June 30, 1998 and
December 31, 1997, the portfolio had a net unrealized profit.
On June 9, 1998, 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 1997. Since the program was adopted
PennRock has repurchased 55,366 shares of which 14,690 shares were held as
treasury shares as of June 30, 1998.
<PAGE> 15
Table 6 shows PennRock's capital resources at June 30, 1998 and at December
31 and June 30, 1997. PennRock and its subsidiary bank exceed all minimum
capital guidelines.
TABLE 6 - CAPITAL RESOURCES
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1998 1997 1997
------------- ------------ -------------
<S> <C> <C> <C>
Leverage ratio:
Total capital to total assets 9.86% 10.46% 9.968%
Tier 1 capital to total assets 9.22% 9.75% 9.28%
Risk-based capital ratios:
Tier 1 capital to risk weighted
assets 14.31% 13.26% 14.01%
Total capital to risk weighted
assets 15.30% 14.22% 15.02%
</TABLE>
<PAGE> 16
PART II. OTHER INFORMATION
---------------------------
For the Quarter ended June 30, 1998
Item 4. Submission of Matters to a Vote of Security Holders
The 1998 Annual Meeting of Shareholders (the _Meeting_) of PennRock Financial
Services Corp. was held on April 28, 1998. Notice of the Meeting was mailed
to shareholders on or about April 3, 1998, 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 B. directors to
hold office for three years from the date of the election and until their
successors are elected and have qualified.
There were no solicitations 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 the nominees for
election to the Board of Directors, were as follows:
<TABLE>
<CAPTION>
Votes Abstentions and
Nominee Votes for Withheld Broker Nonvotes
----------------- ----------- ---------- ---------------
<S> <C> <C> <C>
Elton Horning 4,229,669 41,063 1,794,281
Glenn H. Weaver 4,268,269 2,463 1,794,281
Irving Bressler 4,262,565 8,167 1,794,281
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 June 30, 1998.
(b) Reports on Form 8-K
A current report on Form 8-K dated June 9, 1998, was filed with the
Securities and Exchange Commission on or about June 22, 1998. The report
was filed under Item 5 "Other Events" and disclosed that the Company
had extended for twelve months its common stock repurchase program
adopted in June 1997.
There were no other reports on Form 8-K filed for the three months ended
June 30, 1998.
<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 12, 1998 By: /s/Melvin Pankuch
- ----------------------- -----------------------------------------------
Melvin Pankuch
Executive Vice President and
Chief Executive Officer
Date: August 12, 1998 By: /s/George B. Crisp
- ------------------------ -----------------------------------------------
George B. Crisp
Vice President and Treasurer
(Principal Financial and Accounting Officer)
<PAGE> 18
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 19,063
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,423
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 248,874
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 393,287
<ALLOWANCE> 4,420
<TOTAL-ASSETS> 686,941
<DEPOSITS> 479,826
<SHORT-TERM> 43,413
<LIABILITIES-OTHER> 8,743
<LONG-TERM> 90,700
0
0
<COMMON> 15,193
<OTHER-SE> 49,066
<TOTAL-LIABILITIES-AND-EQUITY> 686,941
<INTEREST-LOAN> 17,385
<INTEREST-INVEST> 7,359
<INTEREST-OTHER> 155
<INTEREST-TOTAL> 24,899
<INTEREST-DEPOSIT> 8,974
<INTEREST-EXPENSE> 12,544
<INTEREST-INCOME-NET> 12,355
<LOAN-LOSSES> 362
<SECURITIES-GAINS> 648
<EXPENSE-OTHER> 8,332
<INCOME-PRETAX> 6,222
<INCOME-PRE-EXTRAORDINARY> 4,987
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,987
<EPS-PRIMARY> .82
<EPS-DILUTED> .82
<YIELD-ACTUAL> 4.34
<LOANS-NON> 526
<LOANS-PAST> 1,982
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 7,682
<ALLOWANCE-OPEN> 4,247
<CHARGE-OFFS> 260
<RECOVERIES> 71
<ALLOWANCE-CLOSE> 4,420
<ALLOWANCE-DOMESTIC> 4,420
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 438
</TABLE>
