SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1998 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
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(Address of principal executive offices) (Zip code)
(717) 354-4541
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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 May 8, 1998
------------------------------ --------------------------------
Common Stock ($2.50 par value) 6,074,109 Shares
<PAGE> 1
PENNROCK FINANCIAL SERVICES CORP.
---------------------------------
FORM 10-Q
---------
For the Quarter Ended March 31, 1998
Contents
--------
PART I. FINANCIAL INFORMATION
- -----------------------------
Item 1. Financial Statements
Consolidated balance sheets - March 31, 1998,
December 31, 1997 and March 31, 1997.<PAGE>
Consolidated statements of income - Three months ended
March 31, 1998 and 1997.
Consolidated statements of cash flows - Three months
ended March 31, 1998 and 1997.
Notes to condensed consolidated financial statements - March 31, 1998.
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 March 31, 1998
Item 1. Financial Statements
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31, March 31,
(Amounts in thousands) 1998 1997 1997
------------ ----------- -------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 18,991 $ 21,075 $ 21,376
Short-term investments 3,388 1,054 764
Mortgages held for sale 2,338 1,036 277
Securities available for sale 255,127 224,408 205,281
Loans:
Loans, net of unearned income 393,821 382,359 337,142
Allowance for loan losses (4,309) (4,247) (4,147)
--------- --------- ---------
Net loans 389,512 378,112 332,995
Bank premises and equipment 12,680 12,654 10,568
Accrued interest receivable 4,554 3,794 3,675
Net assets of discontinued subsidiary 10,079
Other assets 7,165 6,956 9,053
--------- --------- ---------
Total assets $693,755 $649,089 $594,068
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 75,865 $ 77,106 $ 67,977
Interest bearing 401,236 415,689 387,267
--------- --------- ---------
Total deposits 477,101 492,795 455,244
Short-term borrowings 69,563 12,832 41,093
Long-term debt 75,700 77,000 37,000
Accrued interest payable 3,326 3,158 2,576
Other liabilities 5,576 2,037 4,635
--------- --------- ---------
Total liabilities 631,266 587,822 540,548<PAGE>
Stockholders' Equity:
Common stock, par value $2.50 per
share; authorized - 20,000,000
shares; issued - 6,077,299 shares 15,193 15,193 15,193
Surplus 11,121 11,118 11,485
Unrealized gains (losses) on
securities available for sale,
net of deferred taxes 1,197 1,457 (2,424)
Retained earnings 35,277 33,704 30,117
Treasury stock at cost (12,286,
10,639, and 26,346 shares) (299) (205) (851)
--------- --------- ---------
Total stockholders' equity 62,489 61,267 53,520
--------- --------- ---------
Total liabilities and
stockholders' equity $693,755 $649,089 $594,068
========= ========= =========
</TABLE>
<PAGE> 3
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
(Amounts in thousands) March 31,
------------------
1998 1997
------ ------
<S> <C> <C>
Interest income:
Interest and fees on loans $8,729 $7,470
Securities:
Taxable 2,380 2,109
Tax-exempt 1,170 898
Mortgages held for sale 16 3
Other 52 78
------- -------
Total interest income 12,347 10,558
Interest expense:
Deposits 4,526 4,093
Short-term borrowings 503 418
Long-term debt 1,076 213
------- -------
Total interest expense 6,105 4,723
------- -------
Net interest income 6,242 5,835
Provision for loan losses 148 30
------- -------
6,094 5,805
Other income:
Service charges on deposit
accounts 350 328
Other service charges and fees 61 18
Fiduciary activities 228 199
Security gains (losses), net 142 (5)
Mortgage banking 87 157
Other 147 149
------- -------
Total other income 1,015 846
------- -------
Net interest and other income 7,109 6,651
------- -------
Other expenses:
Salaries and benefits 2,464 2,143
Occupancy, net 268 329
Equipment depreciation and service 306 275
Other 1,087 1,152
------- -------
Total other expense 4,125 3,899
------- -------
Income from continuing operations
before income taxes 2,984 2,752
Income taxes 622 669
------- -------
Income from continuing
operations 2,362 2,083
Discontinued operations:
Loss from operations of
discontinued subsidiary,
(less income taxes of $91) (177)
------- -------
Net Income $2,362 $1,906
======= =======
Earnings per common share:
From continuing operations $ .39 $ .34
From discontinue operations (.03)
------- -------
Net income $ .39 $ .31
======= =======
Weighted average shares outstanding 6,071,582 6,050,583
========= =========
</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
(Amounts in thousands) March 31,
------------------
1998 1997
------ ------
<S> <C> <C>
Net income $2,362 $1,906
Other comprehensive income, net of tax:
Unrealized gains (losses) on
securities available for sale:
Gain (losses) arising during the
year, net of tax benefit
of ($88,000) and ($547,000) (171) (1,062)
Reclassification adjustment for
gains (losses) included in net
income, net of tax (benefit) of
$48,000 and ($2,000) 94 (3)
------- -------
Other comprehensive income (loss) (265) (1,059)
------- -------
Comprehensive income $2,097 $ 847
======= =======
</TABLE>
<PAGE> 5
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(Amounts in thousands) -----------------------
1998 1997
--------- ---------
<S> <C> <C>
Net cash provided by operating activities
of continuing operations $ 3,984 $ 2,986
Net cash used in discontinued operations (3,763)
-------- --------
Net cash (used in) provided by operations 3,984 (777)
Investing activities:
Proceeds from sales of securities available
for sale 17,653 11,298
Purchases of securities available for sale (77,935) (36,156)
Maturities of securities available for sale 29,521 3,213
Net increase in loans (11,549) (17,720)
Purchases of premises and equipment (281) (504)
-------- --------
Net cash used in investing activities (42,591) (39,869)
Financing activities:
Net increase (decrease) in non-interest
bearing deposits (1,241) 2,319
Net increase (decrease) in interest
bearing deposits (14,452) 1,338
Increase in short-term borrowings 56,731 18,987
Increase (decrease) in long-term debt (1,300) 23,000
Issuance of treasury stock 321 328
Acquisition of treasury stock (413) (110)
Cash dividends (789) (725)
-------- --------
Net cash provided by financing activities 38,857 45,137
-------- --------
Increase in cash and cash equivalents 250 4,491
Cash and cash equivalents,
beginning of year 22,129 17,649
-------- --------
Cash and cash equivalents, end of period $22,379 $22,140
======== ========
</TABLE>
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 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
three months ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997.
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, 1997, 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 2. 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.
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 $8.1 million and commitments to extend credit totaled $80.3 million at
March 31, 1998. Management does not anticipate any significant loss as a
result of these transactions.
<PAGE> 7
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.
This Form 10-Q Report includes forward looking statements based on current
management expectations. The Company's actual results could differ
materially from those management expectations and the results discussed in
these forward looking statements. Factors that could cause such a difference
include, but are not limited to, general economic conditions, legislative and
regulatory changes, monetary and fiscal policies of the federal government,
changes in real estate values, interest rates, deposit flows, the cost of
funds, demand for loan products, demand for financial services, competition,
changes in the quality or composition of the Company's loan and investment
portfolios, changes in accounting principles, policies or guidelines, and
other economic, competitive, governmental and technological factors affecting
the Company's operations, markets, products, services and prices.
Total assets of PennRock increased $44.7 million or 6.9% since the end of
1997 and by $99.7 million or 16.8% over March 31, 1997. The increases in
assets were reflected in increases in securities available for sale and loans
outstanding. Most of the growth has been funded by short-term borrowings
which increased $56.7 million from year end 1997 and $28.5 from the first
quarter of last year.
Income from continuing operations for the current quarter was $2.4 million or
$.39 per share compared with $2.1 million or $.34 per share for the first
quarter of 1997, an increase of $279,000 or 13.4%. The total loss from
discontinued operations recognized in the first quarter of 1997 totaled
$177,000 or $.03 per share. Operations of the discontinued subsidiary were
terminated in the fourth quarter of 1997 and had no impact on income in 1998.
Net income for the first quarter of 1998 was $2.4 million or $.39 per share
compared with $1.9 million or $.31 per share for the first quarter of last
year, an increase of $456,000 or 23.9%.
Net interest income increased $407,000 from the first quarter of 1997 due to
primarily to volume increases, while other income excluding security gains
increased $22,000 and other expenses increased $226,000.
Dividends declared for the quarter totaled $789,000 or $.13 per share. This
represented 33.4% of net income. Dividends declared during the first quarter
of last year were $725,000 or $.12 per share.
<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 first quarter 1998 and 1997. For the first quarter of 1998, net interest
income on a fully taxable equivalent basis totaled $6.8 million, an increase
of $580,000 or 9.3% from $6.3 million earned for the same period of 1997.
TABLE 1 - NET INTEREST INCOME
<TABLE>
<CAPTION>
Three Months Ended
(Amounts in thousands) March 31,
-------------------
1998 1997
------- -------
<S> <C> <C>
Total interest income $12,346 $10,541
Total interest expense 6,105 4,707
------- -------
Net interest income 6,241 5,834
Tax equivalent adjustment 593 420
------- -------
Net interest income
(fully taxable equivalent) $ 6,834 $ 6,254
======= =======
</TABLE>
Table 2 presents the average balances, taxable equivalent interest income and
expense and rates for PennRock's assets and liabilities for the three months
ended March 31, 1998 and 1997. For the first quarter of 1998 compared with
the first quarter of 1997, net interest income increased due to increases in
volumes while the interest spread and margin decreased. 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> 10
TABLE 2 - AVERAGE BALANCES, RATES, AND INTEREST INCOME AND EXPENSE
<TABLE>
<CAPTION>
Three Months Ended March 31,
(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 $ 3,673 $ 52 5.74% $ 1,310 $ 18 5.57%
Mortgages held for sale 928 16 6.99% 350 6 6.92%
Securities available for sale 233,951 4,087 7.08% 193,893 3,420 7.15%
Loans:
Mortgage 220,806 5,000 9.18% 179,072 4,058 9.19%
Commercial 103,483 2,345 9.19% 86,829 1,946 9.09%
Consumer 63,486 1,439 9.19% 57,010 1,493 10.62%
-------- ------- -------- -------
Total loans 387,775 8,784 9.19% 322,911 7,498 9.42%
-------- ------- -------- -------
Total earning assets 628,327 12,939 8.38% 518,464 10,942 8.56%
Other assets 36,974 ------- 38,188 -------
-------- --------
$663,301 $556,652
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing deposits:
Demand $ 71,056 450 2.57% $ 72,958 440 2.45%
Savings 57,682 316 2.22% 59,783 324 2.20%
Time 280,444 3,760 5.44% 253,811 3,329 5.32%
-------- ------- -------- -------
Total interest bearing deposits 409,182 4,526 4.49% 386,552 4,093 4.29%
Short-term borrowings 37,940 503 5.38% 33,366 418 5.08%
Long-term debt 76,567 1,076 5.70% 14,911 196 5.33%
-------- ------- -------- -------
523,689 6,105 4.73% 434,829 4,707 4.39%
Non-interest bearing deposits 69,864 ------- 60,935 -------
Other liabilities 7,573 6,308
Stockholders' equity 62,175 54,580
-------- -------
Total liabilities and stockholders'
equity $663,301 $556,652
======== ========
Net interest income $ 6,834 $ 6,235
======= =======
Interest rate spread 3.65% 4.17%
====== ======
Net interest margin 4.43% 4.88%
====== ======
<PAGE> 11
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses charged to earnings was $148,000 for the first
quarter of 1998 compared with $30,000 for the first quarter of last year. 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 first quarter of 1998 and
1997.
TABLE 3 - ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
(Amounts in thousands) March 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Balance, beginning of period $4,247 $4,049
Provision charged to operating expense 148 30
Total loans charged off (147) (51)
Total recoveries 61 119
------- -------
Net (charge-offs) recoveries (86) 68
------- -------
Balance, end of period $4,309 $4,147
======= =======
Total loans:
Average $387,972 $322,911
Period-end 397,055 337,142
Ratios:
Net charge-offs to
average loans (annualized) .09% .06%
Allowance for loan losses to
period-end loans 1.11% 1.23%
</TABLE>
NON-PERFORMING ASSETS
Table 4 reflects PennRock's non-performing assets at March 31, 1998, December
31, 1997 and March 31, 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.
<PAGE> 12
TABLE 4 - NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
March 31, December 31, March 31,
(Amounts in thousands) 1998 1997 1997
---------- --------- -----------
<S> <C> <C> <C>
Non-accrual loans $ 61 $ 288 $326
Loans accruing but 90 days past due
as to principal or interest 1,266 1,853 57
---------- --------- ----------
Total non-performing loans 1,327 2,141 383
Other real estate owned 225 65 187
--------- --------- ---------
Total non-performing assets $1,552 $2,206 $570
========= ========= =========
Ratios:
Non-accrual loans to total loans 0.33% 0.56% 0.11%
Non-accrual loans to total loans and
other real estate owned 0.39% 0.58% 0.17%
Allowance for loan losses to
non-accrual loans 324.72% 198.37% 1083.77%
</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 on 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).
Total deposits decreased $15.7 million or 3.2% since year end and increased
$21.9 million or 4.8% from last year. Total borrowings increased $55.4
million since year end and by $67.2 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 first quarter of 1998 with year-end
and the first quarter of 1997.
<PAGE> 13
TABLE 5 - DEPOSITS AND BORROWINGS BY MAJOR CLASSIFICATION
(Amounts in thousands)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998 1997 1997
------------- ------------ -------------
<S> <C> <C> <C>
Non-interest bearing $ 75,865 $ 77,106 $ 67,856
NOW accounts 38,061 39,061 38,575
Money market deposit accounts 33,637 35,080 33,037
Savings accounts 58,248 57,557 60,273
Time deposits under $100,000 241,268 250,364 227,955
--------- --------- ---------
Total core deposits 477,079 459,168 427,696
Time deposits of $100,000 or more 30,022 33,627 27,427
--------- --------- ---------
Total deposits 477,101 492,795 455,123
Short-term borrowings 69,563 12,832 41,093
Long-term debt 75,700 77,000 37,000
--------- --------- ---------
Total deposits and borrowings $622,364 $582,627 $533,216
========= ========= =========
</TABLE>
CAPITAL RESOURCES:
Total stockholders' equity increased $9.0 million or 16.8% from March 31,
1997 and $1.2 million or 2.0% 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 March 31
1997, this portfolio had a net unrealized loss. On December 31, 1997 and
March 31, 1998, the portfolio had net unrealized profits.
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. The Company began open market repurchases of its<PAGE>
outstanding common stock in 1995. Since the program was adopted PennRock has
repurchased 179,790 shares of which 12,286 shares were held as treasury
shares as of March 31, 1998.
Table 6 shows PennRock's capital resources at March 31, 1998 and at December
31 and March 31, 1997. PennRock and its subsidiary bank exceed all minimum
capital guidelines.
<PAGE> 14
TABLE 6 - CAPITAL RESOURCES
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998 1997 1997
------------- ------------ -------------
<S> <C> <C> <C>
Leverage ratio:
Total capital to total assets 9.78% 10.46% 9.98%
Tier 1 capital to total assets 9.13% 9.75% 9.28%
Risk-based capital ratios:
Tier 1 capital to risk weighted
assets 13.66% 13.26% 14.29%
Total capital to risk weighted
assets 14.63% 14.22% 15.37%
</TABLE>
YEAR 2000 COMPLIANCE
During 1997, we formed a committee with a goal of ensuring that all of the
Company's operational and financial systems will not be adversely affected by
year 2000 software problems. The committee is comprised of members from loan
and deposit operations, branch administration, trust services, security,
audit and senior management. The Board of Directors and senior management
are supporting all compliance efforts and are allocating the necessary
resources to complete the project within the timeframe established by the
committee and bank regulators. An inventory of all systems, software and
outside service providers that could be affected by the year 2000 date change
has been developed and categorized as to importance to the Company in its
ability to continue normal operations. All software used for the Company's
systems is supplied by software vendors or outside service providers. We are
requiring all software vendors and outside service providers to represent
that the products or services they provide are or will be year 2000
compliant, beginning with those processes identified as the most critical.
We are also requesting information from them on testing procedures so that we
may verify compliance. Alternative sources will be identified for those
vendors or service providers that will not be year 2000 compliant within the
timeframe established. We are also contacting our large commercial loan and
deposits customers to determine if they are aware of the Year 2000 problem
and their level of compliance. We do not expect the costs of evaluating and
testing the Company's systems for year 2000 compliance to have a material
effect on the Company's financial condition, results of operations or
liquidity.
<PAGE> 15
PART II. OTHER INFORMATION
---------------------------
For the Quarter ended March 31, 1998
Item 6. Exhibits and Reports on Form 8-K<PAGE>
(a) Exhibits
27. Financial Data Schedule regarding unaudited interim financial
information of PennRock for the quarter ended March 31, 1998.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended March
31, 1998.
<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: May 14, 1998 By: /s/Melvin Pankuch
- ----------------------- -----------------------------------------------
Melvin Pankuch
Executive Vice President and
Chief Executive Officer
Date: May 14, 1998 By: /s/George B. Crisp
- ------------------------ -----------------------------------------------
George B. Crisp
Vice President and Treasurer
(Principal Financial and Accounting Officer)
<PAGE> 17
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