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, 1999 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, 1999
------------------------------ --------------------------------
Common Stock ($2.50 par value) 5,966,376 Shares
<PAGE> 1
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
--------------------------------------------------
FORM 10-Q
---------
For the Quarter Ended June 30, 1999
Contents
--------
PART I. FINANCIAL INFORMATION
- -----------------------------
Item 1. Financial Statements
Consolidated balance sheets - June 30, 1999,
December 31, 1998 and June 30, 1998.
Consolidated statements of income _ Three months and six months ended
June 30, 1999 and 1998.
Consolidated statements of comprehensive income _ Three months and
six months ended June 30, 1999 and 1998.
Consolidated statements of cash flows - Six months ended
June 30, 1999 and 1998.
Notes to consolidated financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
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, 1999
Item 1. Financial Statements
<TABLE>
<CAPTION>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31, June 30,
(Amounts in thousands) 1999 1998 1998
------------ ----------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 16,731 $ 19,747 $ 19,063
Short-term investments 871 1,166 2,423
Mortgages held for sale 4,266 5,892 2,157
Securities available for sale 287,356 273,722 248,874
Loans:
Loans, net of unearned income 431,617 407,787 393,287
Allowance for loan losses (5,136) (4,897) (4,420)
--------- --------- ---------
Net loans 426,481 402,890 388,867
Bank premises and equipment 13,472 13,383 12,551
Accrued interest receivable 5,090 6,142 5,376
Other assets 26,694 7,589 7,630
--------- --------- ---------
Total assets $780,961 $730,531 $686,941
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 85,412 $ 88,061 $ 77,076
Interest bearing 498,976 461,985 402,750
--------- --------- ---------
Total deposits 584,388 550,046 479,826
Short-term borrowings 33,384 13,780 43,413
Long-term debt 90,000 90,700 90,700
Accrued interest payable 2,793 3,235 3,270
Other liabilities 6,614 5,859 5,473
--------- --------- ---------
Total liabilities 717,179 663,620 622,682
Stockholders' Equity:
Common stock, par value $2.50 per share;
authorized - 20,000,000 shares;
issued - 6,077,614 and 6,077,299
shares of which 96,834, 70,454,
and 14,690 shares are held as
treasury stock, respectively 15,194 15,193 15,193
Surplus 11,114 11,106 11,154
Unrealized gains (losses) on
securities available for sale,
Accumulated other comprehensive
income (loss), net of tax (3,696) 2,602 1,192
Retained earnings 43,367 39,694 37,113
Less treasury stock, at cost (2,197) (1,684) (393)
--------- --------- ---------
Total stockholders' equity 63,782 66,911 64,259
--------- --------- ---------
Total liabilities and
stockholders' equity $780,961 $730,531 $686,941
========= ========= =========
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended
(Amounts in thousands) June 30, June 30,
-------------------- ---------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $8,937 $8,656 $17,467 $17,385
Securities:
Taxable 2,877 2,179 5,346 4,559
Tax-exempt 1,645 1,630 2,731 2,800
Mortgages held for sale 93 53 161 69
Other 75 34 155 86
------- ------- ------- -------
Total interest income 13,130 12,552 25,860 24,899
Interest expense:
Deposits 5,040 4,448 10,019 8,974
Short-term borrowings 188 759 359 1,262
Long-term debt 1,276 1,232 2,539 2,308
------- ------- ------- -------
Total interest expense 6,504 6,439 12,917 12,544
------- ------- ------- -------
Net interest income 6,626 6,113 12,943 12,335
Provision for loan losses 224 214 446 362
------- ------- ------- -------
Net interest income after
provision for loan losses 6,402 5,899 12,497 11,993
Other income:
Service charges on deposit
accounts 382 361 759 711
Other service charges and fees 68 68 127 129
Fiduciary activities 282 235 597 463
Security gains, net 484 506 977 648
Mortgage banking 41 251 234 338
Other 333 125 520 272
------- ------- ------- -------
Total other income 1,590 1,546 3,214 2,561
------- ------- ------- -------
Net interest and other income 7,992 7,445 15,711 14,554
------- ------- ------- -------
Other expenses:
Salaries and benefits 2,714 2,325 5,360 4,789
Occupancy, net 318 332 613 600
Equipment expenses 335 326 653 632
Other 1,169 1,224 2,145 2,311
------- ------- ------- -------
Total other expense 4,536 4,207 8,771 8,332
------- ------- ------- -------
Income before income taxes 3,456 3,328 6,940 6,222
Income taxes 622 613 1,400 1,235
------- ------- ------- -------
Net Income $2,834 $2,625 $5,540 $4,987
======= ======= ======= =======
Earnings per share $ .47 $ .43 $ .92 $ .82
======= ======= ======= =======
Weighted average shares
outstanding 6,003,689 6,071,137 6,003,689 6,071,137
========= ========= ========= =========
</TABLE>
Basic earnings per share and diluted earnings per share are the same for
all periods presented.
<PAGE> 4
<TABLE>
<CAPTION>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended Six Months Ended
(Amounts in thousands) June 30, June 30,
------------------ -------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $2,834 $2,625 $5,540 $4,987
Other comprehensive income (loss),
net of tax:
Unrealized gains (losses) on
securities available for sale:
Gain (loss) arising during the
period, net of tax (4,640) 329 (5,653) 163
Reclassification adjustment
for gains included in net
income, net of tax (319) (334) (645) (428)
------- ------- ------- -------
Other comprehensive income (loss) (4,959) (5) (6,298) (265)
------- ------- ------- -------
Comprehensive income (loss) ($2,125) $2,620 ($ 758) $4,722
======= ======= ======= =======
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
PENNROCK FINANCIAL SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30,
(Amounts in thousands) -----------------------
1999 1998
--------- ---------
<S> <C> <C>
Net cash provided by (used in) operations ($ 8,045) $ 5,040
Investing activities:
Proceeds from sales of securities available
for sale 60,912 65,263
Purchases of securities available for sale (119,980) (128,905)
Maturities of securities available for sale 37,662 39,815
Net increase in loans (24,037) (10,970)
Purchases of premises and equipment (698) (474)
Sales of premises and equipment 7
-------- --------
Net cash used in investing activities (46,141) (35,264)
Financing activities:
Net decrease in non-interest bearing
deposits (2,649) (30)
Net increase (decrease) in interest
bearing deposits 36,990 (12,939)
Net increase in short-term borrowings 19,605 30,581
Increase (decrease) in long-term debt (700) 13,700
Issuance of treasury stock 795 612
Acquisition of treasury stock (1,369) (785)
Cash dividends (1,797) (1,578)
-------- --------
Net cash provided by financing activities 50,875 29,581
-------- --------
Decrease in cash and cash equivalents (3,311) (643)
Cash and cash equivalents,
beginning of year 20,913 22,129
-------- --------
Cash and cash equivalents, end of period $17,602 $21,486
======== ========
</TABLE>
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1999
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. PennRock Insurance Group Inc., a wholly owned
subsidiary of the Bank, began operations in the first quarter of 1999 to
offer and sell annuity products.
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, 1999 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1999.
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 1998 Annual Report to shareholders.
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 $12.1 million and commitments to extend credit totaled $113.4 million at
June 30, 1999. Management does not anticipate any significant loss as a
result of these transactions.
<PAGE> 7
NOTE 3. NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." The provisions of this
statement require that derivative instruments be carried at fair value on the
balance sheet. The statement continues to allow derivative instruments to be
used to hedge various risks and sets forth specific criteria to be used to
determine when hedge accounting can be used. The statement also provides for
offsetting changes in fair value or cash flows of both the derivative and the
hedged asset or liability to be recognized in earnings in the same period;
however, any changes in fair value or cash flow that represent the
ineffective portion of a hedge are required to be recognized in earnings and
cannot be deferred. For derivative instruments not accounted for as hedges,
changes in fair value are required to be recognized in earnings. The
provisions of this statement become effective for quarterly and annual
reporting beginning January 1, 2000. PennRock has no plans to adopt the
provisions of SFAS 133 prior to the effective date. The impact of adopting
the provisions of this statement on PennRock's financial position, results of
operations and cash flows subsequent to the effective date is not currently
estimable and will depend on the financial position of the Company and the
nature and purpose of the derivative instruments in use by management at that
time.
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.
(PennRock or the Company) and subsidiaries, Blue Ball National Bank (the
Bank) and its insurance subsidiary, PennRock Insurance Group Inc. (the
Insurance Group). This discussion should be read in conjunction with the
financial statements which appear elsewhere in this report.
Total assets of PennRock increased $50.4 million or 6.9% since the end of
1998 and by $94.0 million or 13.7% over June 30, 1998. The increases in
assets were reflected in increases in securities available for sale and loans
outstanding. These increases were funded primarily through growth in
interest bearing deposits.
Net income for the current quarter was $2.8 million or $.47 per share
compared with $2.6 million or $.43 per share for the second quarter of 1998,
an increase of $209,000 or 8.0%. Dividends paid in the second quarter of
1999 totaled $897,000 or $.15 per share and $789,000 or $.13 per share for
the second quarter of 1998.
For the first six months of 1999, net income totaled $5.5 million or $.92 per
share compared with $5.0 million or $.82 per share for the first six months
of 1998, an increase of $553,000 or 11.1%. Net interest income increased
$608,000 from the first half of 1998 while non-interest income excluding
security gains grew $324,000 and non-interest expense increased $439,000.
Dividends of $1.8 million or $.30 per share were paid during the first half
of 1999 compared with $1.6 million or $.26 per share in 1998. The dividend
payout ratio was 32% for both 1999 and 1998.
<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 second quarter and first six months of 1999 and 1998. For the second
quarter of 1999, net interest income on a fully taxable equivalent basis
totaled $7.2 million, an increase of $285,000 or 4.1% from $6.9 million
earned for the same period of 1998. For the first six months of 1999, net
interest income on a fully taxable equivalent basis totaled $14.3 million, an
increase of $558,000 or 4.1% from $13.8 million earned for the first six
months of 1998.
<TABLE>
<CAPTION>
TABLE 1 - NET INTEREST INCOME
Three Months Ended Six Months Ended
(Amounts in thousands) June 30, June 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total interest income $13,130 $12,553 $25,861 $24,900
Total interest expense 6,503 6,439 12,917 12,544
------- ------- -------- --------
Net interest income 6,627 6,114 12,944 12,356
Tax equivalent adjustment 582 810 1,373 1,403
------- ------- -------- --------
Net interest income
(fully taxable equivalent) $ 7,209 $ 6,924 $14,317 $13,759
======= ======= ======== ========
</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, 1999 and 1998. For the second quarter and first six
months of 1999, net interest income increased due to increases in volumes
while the interest spread and margin decreased over the comparable period
last year.
<PAGE> 9
<TABLE>
<CAPTION>
TABLE 2 - AVERAGE BALANCES, RATES, AND INTEREST INCOME AND EXPENSE
Three Months Ended June 30,
(Amounts in thousands) -------------------------------------------------
1999 1998
----------------------- ---------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- -------- --------------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Short-term investments $ 6,079 $ 75 4.95% $ 1,765 $ 34 7.73%
Mortgages held for sale 5,529 94 6.82% 2,508 53 8.48%
Securities available for sale 274,080 4,547 6.65% 251,843 4,559 7.26%
Loans:
Mortgage 238,742 5,033 8.46% 224,878 4,844 8.64%
Commercial 106,598 2,290 8.62% 104,048 2,384 9.19%
Consumer 75,737 1,673 8.86% 66,534 1,490 8.98%
-------- ------- -------- -------
Total loans 421,077 8,996 8.57% 395,460 8,718 8.84%
-------- ------- -------- -------
Total earning assets 706,765 13,712 7.78% 651,576 13,363 8.23%
Other assets 46,647 ------- 37,099 -------
-------- --------
$753,412 $688,675
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing deposits:
Demand $136,950 1,169 3.42% $ 78,462 562 2.87%
Savings 59,039 301 2.04% 57,016 315 2.22%
Time 287,651 3,569 4.98% 266,530 3,571 5.37%
-------- ------- -------- -------
Total interest bearing deposits 483,640 5,039 4.18% 402,008 4,448 4.44%
Short-term borrowings 17,287 188 4.36% 54,308 759 5.61%
Long-term debt 90,000 1,276 5.69% 86,909 1,232 5.69%
-------- ------- -------- -------
590,927 6,503 4.41% 543,225 6,439 4.75%
Non-interest bearing deposits 84,971 ------- 73,209 -------
Other liabilities 9,392 8,909
Stockholders' equity 68,122 63,332
-------- -------
Total liabilities and stockholders'
equity $753,412 $688,675
======== ========
Net interest income $ 7,209 $ 6,924
======= =======
Interest rate spread 3.37% 3.47%
====== ======
Net interest margin 4.09% 4.26%
====== ======
<PAGE> 10
<CAPTION>
Six Months Ended June 30,
(Amounts in thousands) ----------------------------------------------------
1999 1998
----------------------- ---------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- -------- --------------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets
Short-term investments $ 6,221 $ 155 5.02% $ 2,714 $ 86 6.39%
Mortgages held for sale 4,643 161 6.99% 1,723 69 8.08%
Securities available for sale 272,608 9,333 6.90% 242,947 8,647 7.18%
Loans:
Mortgage 236,733 9,838 8.38% 222,853 9,844 8.91%
Commercial 104,630 4,451 8.58% 103,767 4,728 9.19%
Consumer 74,459 3,295 8.92% 65,019 2,929 9.08%
-------- ------- -------- -------
Total loans 415,822 17,584 8.53% 391,639 17,501 9.01%
-------- ------- -------- -------
Total earning assets 699,294 27,234 7.85% 639,023 26,303 8.30%
Other assets 44,701 ------- 36,958 -------
-------- --------
$743,995 $675,981
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing deposits:
Demand $132,151 2,215 3.38% $ 74,780 1,012 2.73%
Savings 58,400 617 2.13% 57,347 631 2.22%
Time 287,354 7,187 5.04% 273,448 7,331 5.41%
-------- ------- -------- -------
Total interest bearing deposits 477,905 10,019 4.23% 405,575 8,974 4.46%
Short-term borrowings 16,314 359 4.44% 46,170 1,262 5.51%
Long-term debt 90,073 2,539 5.68% 81,766 2,308 5.69%
-------- ------- -------- -------
584,292 12,917 4.46% 553,511 12,544 4.74%
Non-interest bearing deposits 82,281 ------- 71,546 -------
Other liabilities 9,424 8,167
Stockholders' equity 67,998 62,757
-------- --------
Total liabilities and stockholders'
equity $743,995 $675,981
======== ========
Net interest income $14,317 $13,759
======= =======
Interest rate spread 3.40% 3.56%
====== ======
Net interest margin 4.13% 4.34%
====== ======
</TABLE>
<PAGE> 11
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses charged to earnings was $224,000 for the second
quarter of 1999 compared with $214,000 for the second quarter of last year.
The provision for the first six months of 1999 was $446,000 compared with
$362,000 for 1998. The provision is based on management's estimate of the
amount needed to maintain an adequate allowance for loan losses. Although
Table 4 shows that the level of non-performing assets is low and relatively
stable over the past year, the allowance for loan losses is below
management's target ratio relative to loans outstanding. With the federal
reserve in a tightening mode and expectations of a slowing economy,
management elected to increase the provision in 1999. 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 1999 and 1998.
<TABLE>
<CAPTION>
TABLE 3 - ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
Three Months Ended Six Months Ended
(Amounts in thousands) June 30, June 30,
------------------- ------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance, beginning of period $5,045 $4,309 $4,897 $4,247
Provision charged to operating expense 224 214 446 362
Total loans charged off (142) (113) (246) (260)
Total recoveries 9 10 39 71
------- ------- ------- -------
Net charge-offs (133) (103) (207) (189)
------- ------- ------- -------
Balance, end of period $5,136 $4,420 $5,136 $4,420
======= ======= ======= =======
Total loans:
Average $422,282 $395,641 $416,496 $392,022
Period-end 432,952 393,812 432,952 393,812
Ratios:
Net charge-offs to
average loans (annualized) .13% .10% .10% .10%
Allowance for loan losses to
period-end loans 1.19% 1.12% 1.19% 1.12%
</TABLE>
<PAGE> 12
NON-PERFORMING ASSETS
Table 4 reflects PennRock's non-performing assets at June 30, 1999, December
31, 1998 and June 30, 1998. 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>
<CAPTION>
TABLE 4 - NON-PERFORMING ASSETS
June 30, December 31, June 30,
(Amounts in thousands) 1999 1998 1998
---------- --------- -----------
<S> <C> <C> <C>
Non-accrual loans $1,336 $ 143 $ 526
Loans accruing but 90 days past due
as to principal or interest 1,485 1,196 1,982
---------- --------- ----------
Total non-performing loans 2,821 1,339 2,508
Other real estate owned 109 65
--------- --------- ---------
Total non-performing assets $2,930 $1,339 $2,573
========= ========= =========
Ratios:
Non-accrual loans to total loans 0.68% 0.33% 0.65%
Non-accrual loans to total loans and
other real estate owned 0.68% 0.33% 0.65%
Allowance for loan losses to
non-performing loans 175.29% 362.72% 171.78%
</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 $34.3 million or 6.2% since year end and increased
$104.6 million or 21.8% from last year. Total borrowed funds increased $18.9
million since year end and decreased by $10.7 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 1999
with year-end and the second quarter of 1998.
<TABLE>
<CAPTION>
TABLE 5 - DEPOSITS AND BORROWINGS BY MAJOR CLASSIFICATION
(Amounts in thousands)
June 30, December 31, June 30,
1999 1998 1998
------------- ------------ -------------
<S> <C> <C> <C>
Non-interest bearing $ 85,412 $ 88,061 $ 77,076
NOW accounts 36,094 39,931 35,905
Money market deposit accounts 107,828 80,048 48,687
Savings accounts 59,552 56,534 56,418
Time deposits under $100,000 256,917 248,252 231,978
--------- --------- ---------
Total core deposits 545,803 512,826 450,064
Time deposits of $100,000 or more 38,585 37,220 29,762
--------- --------- ---------
Total deposits 584,388 550,046 479,795
Short-term borrowings 33,384 13,780 43,413
Long-term debt 90,000 90,700 90,700
--------- --------- ---------
Total deposits and borrowings $707,772 $654,526 $613,939
========= ========= =========
</TABLE>
CAPITAL RESOURCES:
Total stockholders' equity decreased $477,000 or .7% from June 30, 1998 and
$3.1 million or 4.7% since year-end 1998. Stockholders' equity is impacted
by changes in the unrealized market gains and losses of the securities
available for sale portfolio, net of deferred taxes and is shown on the
consolidated balance sheets as a component of stockholders' equity as
accumulated other comprehensive income (loss), net of tax. This portfolio
had net unrealized gains in the periods ending June 30, 1998 and December 31,
1998 and a net unrealized loss as of June 30, 1999.
On June 8, 1999, 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. As of June 30, 1999, the Company held 96,834 shares as
treasury stock.
<PAGE> 14
Table 6 shows PennRock's capital resources at June 30, 1999 and at December
31 and June 30, 1998. PennRock and its subsidiary bank exceed all minimum
capital guidelines.
<TABLE>
<CAPTION>
TABLE 6 - CAPITAL RESOURCES
June 30, December 31, June 30,
1999 1998 1998
------------- ------------ -------------
<S> <C> <C> <C>
Leverage ratio:
Total capital to total
average assets 9.75% 9.96% 9.86%
Tier 1 capital to total
average assets 9.05% 9.22% 9.22%
Risk-based capital ratios:
Tier 1 capital to risk weighted
assets 12.40% 13.71% 14.31%
Total capital to risk weighted
assets 13.37% 14.77% 15.30%
</TABLE>
<PAGE> 15
PART II. OTHER INFORMATION
---------------------------
For the Quarter ended June 30, 1999
Item 1. Legal Proceedings
Various legal actions or proceedings are pending involving PennRock or its
subsidiaries. Management believes that the aggregate liability or loss, if
any, will not be material.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders (the _Meeting_) of PennRock Financial
Services Corp. was held on April 27, 1999. Notice of the Meeting was mailed
to shareholders on or about April 1, 1999, together with proxy materials
prepared in accordance with Section 14(a) of the Securities Exchange Act of
1934, as amended, and the regulation promulgated thereunder.
The Meeting was held for the purpose of electing three Class C directors to
hold office for three years from the date of 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
election to the Board of Directors, were as follows:
<TABLE>
<CAPTION>
Votes Abstentions and
Nominee Votes for Withheld Broker Nonvotes
----------------- ----------- ----------- -----------------
<S> <C> <C> <C>
Aaron S. Kurtz 4,041,835 24,018 4,065,853
Robert K. Weaver 4,041,199 24,654 4,065,853
Lewis M. Good 4,041,835 24,018 4,065,853
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule regarding unaudited interim financial
information of PennRock for the six months ended June 30, 1999.
(b) Reports on Form 8-K
A current report on Form 8-K dated June 8, 1999 was filed with the
Securities and Exchange Commission on or about June 14, 1999. The report
was filed under Item 5 _ _Other Events_ and disclosed that the Company
had authorized the repurchase of up to 200,000 shares of its common stock
to be held as treasury shares for use with future stock dividends and
splits, employee benefit plans, executive compensation plans and issuance
under the Dividend Reinvestment Plan.
There were no other reports on Form 8-K filed for the three months ended
June 30, 1999.
<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: August 9, 1999 By: /s/Melvin Pankuch
- ----------------------- -----------------------------------------------
Melvin Pankuch
Executive Vice President and
Chief Executive Officer
Date: August 9, 1999 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 16,731
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 871
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 287,356
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 431,617
<ALLOWANCE> 5,136
<TOTAL-ASSETS> 780,961
<DEPOSITS> 584,388
<SHORT-TERM> 33,384
<LIABILITIES-OTHER> 9,407
<LONG-TERM> 90,000
0
0
<COMMON> 15,194
<OTHER-SE> 48,588
<TOTAL-LIABILITIES-AND-EQUITY> 780,961
<INTEREST-LOAN> 17,467
<INTEREST-INVEST> 8,077
<INTEREST-OTHER> 316
<INTEREST-TOTAL> 25,860
<INTEREST-DEPOSIT> 10,019
<INTEREST-EXPENSE> 12,917
<INTEREST-INCOME-NET> 12,943
<LOAN-LOSSES> 446
<SECURITIES-GAINS> 977
<EXPENSE-OTHER> 8,771
<INCOME-PRETAX> 6,940
<INCOME-PRE-EXTRAORDINARY> 5,540
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,540
<EPS-BASIC> .92
<EPS-DILUTED> .92
<YIELD-ACTUAL> 4.13
<LOANS-NON> 1,336
<LOANS-PAST> 1,485
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,045
<CHARGE-OFFS> 142
<RECOVERIES> 9
<ALLOWANCE-CLOSE> 5,136
<ALLOWANCE-DOMESTIC> 5,136
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
