-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ml5mbQesmKKabZbTYV6RUFxW/uCtK/grZAvvB9UcF+gcIzoHuTkaUiVzc9ZhBXBb sr5pPOhgrXVZexnJjJ/IVg== 0000826154-95-000005.txt : 19951202 0000826154-95-000005.hdr.sgml : 19951202 ACCESSION NUMBER: 0000826154-95-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 DATE AS OF CHANGE: 19951114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORRSTOWN FINANCIAL SERVICES INC CENTRAL INDEX KEY: 0000826154 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 232530374 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-18888 FILM NUMBER: 95596898 BUSINESS ADDRESS: STREET 1: 77 E KING STREET STREET 2: P O BOX 250 CITY: SHIPPENSBURG STATE: PA ZIP: 17257 BUSINESS PHONE: 7175326114 MAIL ADDRESS: ZIP: 00000 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 30, 1995 Commission file number:33-18888 ORRSTOWN FINANCIAL SERVICES, INC. (Exact name of registrant as specified in its charter) Commonwealth of Pennsylvania 23-2530374 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 77 East King Street P. O. Box 250, Shippensburg, Pennsylvania 17257 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (717) 532-6114 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 shorter period 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 practicable date. Class Outstanding at October 30, 1995 (Common stock, no par value) 976,863 Page 1 of 15 pages ORRSTOWN FINANCIAL SERVICES, INC. INDEX Page PART I - FINANCIAL INFORMATION Condensed consolidated balance sheets - September 30, 1995 and December 31, 1994 3 Condensed consolidated statements of income - Three months ended September 30, 1995 and 1994 4 Condensed consolidated statements of income - Nine months ended September 30, 1995 and 1994 5 Condensed consolidated statements of cash flows - Nine months ended September 30, 1995 and 1994 6 and 7 Notes to condensed consolidated financial statements 8 and 9 Management's discussion and analysis of financial condition and results of operations 10 - 13 PART II - OTHER INFORMATION 14 Signatures 15 Page 2 of 15 pages PART I - FINANCIAL INFORMATION PART I - FINANCIAL INFORMATION ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, ORRSTOWN BANK CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) September 30, December 31, 1995 1994 * ASSETS (Unaudited) (000 Omitted) Cash and due from banks $ 5,111 $ 4,593 Interest-bearing deposits with banks 1,641 250 Federal funds sold 1,799 0 Securities available for sale 30,976 23,510 Federal Home Loan Bank, Federal Reserve and Atlantic Central Bankers Bank Stock, at cost which approximates market value 869 808 Loans 101,124 90,839 Allowance for loan losses ( 1,274) ( 1,200) Net loans 99,850 89,639 Bank premises and equipment, net 2,980 2,512 Other assets 2,316 1,692 Total assets $ 145,542 $ 123,004 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits: Noninterest-bearing $ 14,853 $ 13,262 Interest-bearing 112,824 93,103 Total deposits 127,677 106,365 Federal funds purchased and other borrowed money 2,345 2,994 Other liabilities 1,569 1,292 Total liabilities 131,591 110,651 STOCKHOLDERS' EQUITY Common stock, no par value - $ .2083 stated value per share at September 30, 1995 and December 31, 1994, 2,000,000 shares authorized with 976,863 and 930,891 shares issued at September 30, 1995 and December 31, 1994 204 194 Additional paid-in capital 10,625 9,393 Retained earnings 2,948 3,133 Unrealized holding gain (loss), net of tax ($ 91) and $ 189 at September 30, 1995 and December 31, 1994, respectively 174 ( 367) Total stockholders' equity 13,951 12,353 Total liabilities and stockholders' equity $ 145,542 $ 123,004 * Condensed from audited financial statements The accompanying notes are an integral part of these condensed financial statements. Page 3 of 15 pages ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, ORRSTOWN BANK CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended September 30, 1995 and 1994 (UNAUDITED) 1995 1994 (Unaudited) (Unaudited) (000 Omitted) Interest Income Interest and fees on loans $ 2,331 $ 1,754 Interest on federal funds sold 9 38 Interest and dividends on investment securities 459 376 Interest income on deposits with banks 9 11 Total interest income 2,808 2,179 Interest Expense Interest on deposits 1,143 791 Interest on borrowed money 65 38 Total interest expense 1,208 829 Net interest income 1,600 1,350 Provision for loan losses 30 0 Net interest income after provision for loan losses 1,570 1,350 Other Income Service charges on deposits 92 92 Other service charges 41 40 Other 89 114 Total other income 222 246 Other Expenses Salaries and employee benefits 524 550 Net occupancy and equipment expense 137 141 Other operating expense 307 332 Total other expense 968 1,023 Income before income taxes 824 573 Income tax expense 231 149 Net income $ 593 $ 424 Weighted average number of shares outstanding 946,552 946,552 Net income per share $ .61 $ .44 Cash dividends declared per share $ .15 $ .14 The accompanying notes are an integral part of these condensed financial statements. Page 4 of 15 pages ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, ORRSTOWN BANK CONDENSED CONSOLIDATED STATEMENTS OF INCOME Nine Months Ended September 30, 1995 and 1994 (UNAUDITED) 1995 1994 (Unaudited) (Unaudited) (000 Omitted) Interest Income Interest and fees on loans $ 6,641 $ 4,917 Interest on federal funds sold 41 120 Interest and dividends on investment securities 1,177 1,142 Interest income on deposits with banks 40 25 Total interest income 7,899 6,204 Interest Expense Interest on deposits 3,110 2,270 Interest on borrowed money 155 111 Total interest expense 3,265 2,381 Net interest income 4,634 3,823 Provision for loan losses 90 5 Net interest income after provision for loan losses 4,544 3,818 Other Income Service charges on deposits 275 252 Other service charges 137 119 Other 232 320 Total other income 644 691 Other Expenses Salaries and employee benefits 1,637 1,518 Net occupancy and equipment expense 402 363 Other operating expense 1,021 992 Total other expense 3,060 2,873 Income before income taxes 2,128 1,636 Income tax expense 624 419 Net income $ 1,504 $ 1,217 Weighted average number of shares outstanding 946,552 946,552 Net income per share $ 1.59 $ 1.29 Cash dividends declared per share $ .45 $ .40 The accompanying notes are an integral part of these condensed financial statements. Page 5 of 15 pages ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, ORRSTOWN BANK CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, 1995 and 1994 (UNAUDITED) 1995 1994 (Unaudited) (Unaudited) (000 Omitted) Cash flows from operating activities: Net income $ 1,504 $ 1,217 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 174 155 Provision for loan losses 90 5 Other, net ( 30) ( 52) Net cash provided by operating activities 1,738 1,325 Cash flows from investing activities: Net (increase) in interest bearing deposits with banks ( 1,391) ( 428) Purchase of investment securities ( 13,342) ( 5,291) Maturities of investment securities 4,423 3,322 Sales of investment securities 2,273 6,356 Purchases of FHLB stock ( 61) 0 Net (increase) in loans ( 10,307) ( 10,404) Purchases of bank premises and equipment - Net ( 642) ( 744) Premium paid on purchase of branch ( 589) 0 Net cash (used) by investing activities ( 19,636) ( 7,189) Cash flows from financing activities: Net increase in deposits 21,312 5,090 Cash dividends paid ( 433) ( 372) Cash paid in lieu of fractional dividends ( 15) 0 Payments on debt ( 649) ( 1,100) Proceeds from borrowed money 0 1,350 Federal funds purchased 0 235 Net cash provided by financing activities 20,215 5,203 Net increase in cash and cash equivalents 2,317 ( 661) Cash and cash equivalents, beginning balance 4,593 5,327 Cash and cash equivalents, ending balance $ 6,910 $ 4,666 Supplemental disclosure of cash flows information: Cash paid during the period for: Interest $ 3,019 $ 2,389 Income taxes 543 414 Page 6 of 15 pages ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, ORRSTOWN BANK CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Nine Months Ended September 30, 1995 and 1994 (UNAUDITED) 1995 1994 (Unaudited) (Unaudited) (000 Omitted) Supplemental schedule of noncash investing and financing activities: Unrealized gain (loss) on investments available for sale (net of deferred tax benefit (liability) of ($ 91) and $ 61 at September 30, 1995 and 1994, respectively) $ 153 ( 119) 5% stock dividend issued September 30, 1995 1,242 0 Other real estate acquired in settlement of loans 22 0 The accompanying notes are an integral part of these condensed financial statements. Page 7 of 15 pages NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED) Note 1. Basis of Presentation The financial information presented at and for the three months ended and nine months ended September 30, 1995 and 1994 is unaudited. Information presented at December 31, 1994 is condensed from audited year-end financial statements. However, unaudited information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim period. Note 2. Principles of Consolidation The consolidated financial statements include the accounts of the corporation and its wholly-owned subsidiary, Orrstown Bank. All significant intercompany transactions and accounts have been eliminated. Note 3. Cash Flows For purposes of the statements of cash flows, the corporation has defined cash and cash equivalents as those amounts included in the balance sheet captions "cash and due from banks" and "federal funds sold". As permitted by Statement of Financial Accounting Standards No. 104, the corporation has elected to present the net increase or decrease in deposits in banks, loans and time deposits in the statement of cash flows. Note 4. Federal Income Taxes For financial reporting purposes the provision for loan losses charged to operating expense is based on management's judgment, whereas for federal income tax purposes, the amount allowable under present tax law is deducted. Additionally, certain expenses are charged to operating expense in the period the liability is incurred for financial reporting purposes, whereas for federal income tax purposes, these expenses are deducted when paid. As a result of these timing differences, deferred income taxes are provided in the financial statements. Federal income taxes were computed after reducing pretax accounting income for nontaxable municipal and loan income. Note 5. Other Commitments In the normal course of business, the bank makes various commitments and incurs certain contingent liabilities which are not reflected in the accompanying financial statements. These commitments include various guarantees and commitments to extend credit and the bank does not anticipate any losses as a result of these transactions. Page 8 of 15 pages Note 6. Changes in Common Stock The Board of Directors approved a 5% stock dividend with 45,972 new shares issued September 30, 1995. Earnings per share of common stock for the period ended September 30, 1994 were computed based on an average of 946,552 shares after giving retroactive recognition to the 5% stock dividend. Note 7. Investment Securities Management determines the appropriate classification of securities at the time of purchase. If management has the intent and the corporation has the ability at the time of purchase to hold securities until maturity or on a long-term basis, they are classified as securities held to maturity and carried at amortized historical cost. Securities to be held for indefinite periods of time and not intended to be held to maturity or on a long-term basis are classified as available for sale and carried at fair value. Securities held for indefinite periods of time include securities that management intends to use as part of its asset and liability management strategy and that may be sold in response to changes in interest rates, resultant prepayment risk and other factors related to interest rate and resultant prepayment risk changes. Realized gains and losses on dispositions are based on the net proceeds and the adjusted book value of the securities sold, using the specific identification method. Unrealized gains and losses on investment securities available for sale are based on the difference between book value and fair value of each security. These gains and losses are credited or charged to shareholders' equity, whereas realized gains and losses flow through the corporation's operations. Management has classified all investments securities as "available for sale". At September 30, 1995 fair market value exceeded amortized cost by $ 265,000. This resulted in an increase in stockholders' equity of $ 174,000 after recognizing the tax effects of the unrealized gains. At December 31, 1994, amortized cost exceeded fair market value by $ 556,000 resulting in a decrease in stockholders' equity of $ 367,000 after recognizing the tax effects of the unrealized losses. Note 8. Branch Acquisition In September 1995, the Orrstown Bank acquired a branch of another bank. The acquisition included deposits of $ 12,373,362, and land, building and equipment of $ 376,000. Page 9 of 15 pages ORRSTOWN FINANCIAL SERVICES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net after tax income for the first nine months of 1995 was $1,504,000 compared to $1,217,000 for the same period in 1994 representing an increase of $287,000 or 23.6%. Net income on an adjusted per share basis for the first nine months was $ 1.59 up $ .30 from the $ 1.29 per share realized during the nine months ended September 30, 1994. RESULTS OF OPERATIONS Third Quarter 1995 vs. Third Quarter 1994 Interest income for the third quarter of 1995 was $ 2,808,000 compared to $ 2,179,000 as of September 30, 1994, for an increase of $ 629,000. The increase is due primarily to an increase in loan volumes. Interest expense for the current quarter was $ 1,208,000, an increase of $ 379,000 over the $ 829,000 for the same period of the prior year. Interest bearing deposits, which have increased significantly from September 30, 1994 plus an increase in average rates paid over those paid in 1994 have resulted in higher interest expense for the third quarter. Net interest income for the third quarter of 1995 totaled $ 1,600,000, up $ 250,000 from the third quarter of 1994. Nine Months 1995 vs. Nine Months 1994 For the nine months ended September 30, 1995, interest income was $ 7,899,000, an increase of $ 1,695,000 over the nine months ended September 30, 1994. The increase is largely due to an increase in loan volumes. Net loans at September 30, 1995 stood at $ 99,850,000 compared to $ 89,639,000 as of December 31, 1994. Interest expense for the first nine months of 1995 was $ 3,265,000 compared to $ 2,381,000 for the same period in 1994 representing a 37.1% increase. Significant increases have occurred in time deposits reflecting a shift from interest bearing demand and savings as interest rates generally rose over the first nine months of 1995. Net interest income for the first three quarters of 1995 totaled $ 4,634,000, up $ 811,000 from the first three quarters of 1994. Management continuously monitors liquidity and interest rate risk through its ALCO reporting and reprices products in order to maintain desired net interest margins. Page 10 of 15 pages OTHER INCOME Third Quarter 1995 vs. Third Quarter 1994 Noninterest income dropped from $ 246,000 in 1994 to $ 222,000 in 1995. Service charges were flat while other income decreased $ 25,000. The decrease in other income resulted primarily from a $ 30,000 gain reported on the sale of other real estate in 1994. Nine Months 1995 vs. Nine Months 1994 Noninterest income for the first nine months of 1995 was $ 644,000 compared to $ 691,000 in 1994. Service charges and trust fees were up $ 110,000 but offset by a $ 163,000 decrease in security gains. OTHER EXPENSES Third Quarter 1995 vs. Third Quarter 1994 Other operating expenses totaled $ 968,000 as of September 30, 1995, a decrease of $ 55,000 from the $ 1,023,000 recorded for September 30, 1994. Employee related expenses were down 4.7% compared to the third quarter 1994 due to a timing difference in pay periods. Net occupancy decreased slightly while other expenses were down 7.5% from the prior year. Nine Months 1995 vs. Nine Months 1994 Other operating expenses for the first nine months of 1995 reflect a $ 187,000 increase over the same period in 1994. Employee related expenses continue the trend with a 7.8% increase. Net occupancy increased $ 39,000 largely due to an increase in depreciation expense related to the opening of a new branch. INCOME TAXES The effective income tax rate for the third quarter 1995 increased 3.9% compared to the same period for 1994. A 7.1% increase is reflected for the nine month period ended September 30, 1995 over 1994 levels. This is due to a decrease in tax free municipal securities. FINANCIAL CONDITION Total assets at September 30, 1995 were $ 145,542,000 an 18.3% increase over December 31, 1994. Net loans at September 30, 1995 totaled $ 99,850,000, an increase of $ 10,211,000 over the $ 89,639,000 level at December 31, 1994. Page 11 of 15 pages PROVISION AND ALLOWANCE FOR LOAN LOSSES The provision for loan losses and the other changes in the allowance for loan losses are shown below (in thousands): Quarter Ended Nine Months Ended September 30 September 30 1995 1994 1995 1994 Balance, beginning of period $ 1,261 $ 1,137 $ 1,200 $ 1,125 Recoveries 0 3 6 11 Provision for loan loss charged to income 30 0 90 5 Total 1,291 1,140 1,296 1,141 Losses 17 0 22 1 Balance, end of period $ 1,274 $ 1,140 $ 1,274 $ 1,140 In the opinion of management, the allowance, when taken as a whole, is adequate to absorb reasonably estimated loan losses inherent in the Bank's loan portfolio. Loans 90 days or more past due (still accruing interest) and those on nonaccrual status were as follows at September 30 (in thousands): 90 Days or More Past Due Nonaccrual Status 1995 1994 1995 1994 Real estate mortgages $ 381 $ 138 $ 0$ 26 Installment loans 96 52 65 Demand and time loans 0 0 10 Credit card 10 0 0 0 Total $ 487 $ 190 $ 7$ 31
There were no restructured loans for any of the time periods set forth above. Total deposits increased to $ 127,677,000 at September 30, 1995 compared to $ 106,365,000 at December 31, 1994. Increases were largely a result of the branch acquisition in September 1995. Total equity at September 30, 1995 was $ 13,951,000 representing 9.6% of total assets. This is a $ 1,598,000 increase from the company's capital position at December 31, 1994. $ 541,000 of the increase is due to a reduction in unrealized holding losses on investment securities available for sale. A comparison of Orrstown Financial Services' capital ratios to regulatory minimum requirements at September 30, 1995 is as follows: Orrstown Financial Regulatory Minimum Services Requirements Leverage ratio 9.6% 4% Risk based capital ratios: Tier I (core capital) 13.7% 4% Combined tier I and tier II (core capital plus allowance for loan losses) 15.0% 8% Page 12 of 15 pages BALANCE SHEET ANALYSIS The following table highlights the changes in the balance sheet. Since period end balances can be distorted by one-day fluctuations, an analysis of changes in average balances is provided to give a better indication of balance sheet trends. AVERAGE BALANCE SHEETS Year to Date ASSETS September 30, 1995 1994 Securities available for sale: Taxable interest income $ 16,520 $ 16,064 Nontaxable interest income 7,727 8,148 Total available for sale securities 24,247 24,212 Other investments 1,140 1,106 Loans (net of unearned discounts) 96,206 81,740 Other short-term investments 901 3,394 Total interest earning assets 122,494 110,452 Allowance for loan losses ( 1,245) ( 1,136) Cash and due from banks 5,034 4,208 Bank premises and equipment 2,631 2,530 Other assets 1,502 2,334 Total assets $ 130,416 $ 118,388 LIABILITIES AND STOCKHOLDERS' EQUITY Interest bearing demand deposits $ 24,627 $ 27,232 Savings deposits 23,624 24,425 Time deposits 50,822 37,526 Short-term borrowings 954 77 Long-term borrowings 2,346 2,304 Total interest bearing liabilities 102,373 91,564 Demand deposits 13,487 12,991 Other liabilities 1,330 1,595 Total liabilities 117,190 106,150 Stockholders' equity 13,226 12,238 Total liabilities and stockholders' equity $ 130,416 $ 118,388 Page 13 of 15 pages PART II - OTHER INFORMATION PART II - OTHER INFORMATION Item 1 - Legal Proceedings None Item 2 - Changes in Securities None Item 3 - Defaults Upon Senior Securities Not applicable Item 4 - Submission of Matters to a Vote of Security Holders None Item 5 - Other Information None Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits - None (b) Reports on Form 8-K - None Page 14 of 15 pages 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. /s/ (Kenneth R. Shoemaker, President) (Duly Authorized Officer) Date /s/ (Robert B. Russell, Controller) (Principal Financial Officer) Page 15 of 15 pages EX-27 2 ARTICLE 9 FDS FOR 10-Q
9 1,000 9-MOS DEC-31-1995 SEP-30-1995 5,111 1,641 1,799 869 30,976 30,976 30,646 101,124 1,274 145,542 127,677 0 1,569 2,345 204 0 0 13,747 145,542 6,641 1,177 81 7,899 3,110 3,265 4,634 90 (44) 3,016 2,128 1,504 0 0 1,504 1.59 1.59 5.01 7 487 0 0 1,200 22 6 1,274 1,274 0 0
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