-----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, Ltf7EZ+6i5jz6eJCIoOsUFrmZRJq9F7facqbFwiXgW2GX+2J+WoDTITVUvHWxZSB KIZOKovU9cH1adXcfWYFdA== 0000826154-96-000005.txt : 19960613 0000826154-96-000005.hdr.sgml : 19960613 ACCESSION NUMBER: 0000826154-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 DATE AS OF CHANGE: 19960612 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: 96573874 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 March 31, 1996 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 April 30, 1996 (Common stock, no par value) 976,863 Page 1 of 13 pages ORRSTOWN FINANCIAL SERVICES, INC. INDEX Page PART I - FINANCIAL INFORMATION Condensed consolidated balance sheets - March 31, 1996 and December 31, 1995 3 Condensed consolidated statements of income - Three months ended March 31, 1996 and 1995 4 Condensed consolidated statements of cash flows - Three months ended March 31, 1996 and 1995 5 Notes to condensed consolidated financial statements 6 and 7 Management's discussion and analysis of financial condition and results of operations 8 - 11 PART II - OTHER INFORMATION 12 Signatures 13 Page 2 of 13 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) March 31, December 31, 1996 1995 * ASSETS (Unaudited) (000 Omitted) Cash and due from banks $ 4,975 $ 4,330 Interest-bearing deposits with banks 1,568 1,289 Federal funds sold 4,781 2,317 Securities available for sale 29,574 30,694 Federal Home Loan Bank, Federal Reserve and Atlantic Central Bankers Bank Stock, at cost which approximates market value 934 869 Loans 103,570 102,857 Allowance for loan losses ( 1,475) ( 1,433) Net loans 102,095 101,424 Bank premises and equipment, net 3,198 3,042 Other assets 2,653 2,033 Total assets $ 149,778 $ 145,998 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits: Noninterest-bearing $ 14,884 $ 13,962 Interest-bearing 116,339 113,368 Total deposits 131,223 127,330 Federal funds purchased and other borrowed money 2,340 2,345 Other liabilities 1,734 1,690 Total liabilities 135,297 131,365 STOCKHOLDERS' EQUITY Common stock, no par value - $ .2083 stated value per share at March 31, 1996 and December 31, 1995 2,000,000 shares authorized with 976,863 and 930,891 shares issued at March 31, 1996 and December 31, 1995 204 204 Additional paid-in capital 10,625 10,625 Retained earnings 3,600 3,232 Unrealized holding gain, net of tax $ 27 and $ 295 at March 31, 1996 and December 31, 1995, respectively 52 572 Total stockholders' equity 14,481 14,633 Total liabilities and stockholders' equity $ 149,778 $ 145,998 * Condensed from audited financial statements The accompanying notes are an integral part of these condensed financial statements. Page 3 of 13 pages ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, ORRSTOWN BANK CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended March 31, 1996 and 1995 (UNAUDITED) 1996 1995 (Unaudited) (Unaudited) (000 Omitted) Interest Income Interest and fees on loans $ 2,366 $ 2,055 Interest on federal funds sold 43 5 Interest and dividends on investment securities 476 360 Interest income on deposits with banks 21 10 Total interest income 2,906 2,430 Interest Expense Interest on deposits 1,223 915 Interest on borrowed money 37 53 Total interest expense 1,260 968 Net interest income 1,646 1,462 Provision for loan losses 60 30 Net interest income after provision for loan losses 1,586 1,432 Other Income Service charges on deposits 99 88 Other service charges 35 43 Other 122 57 Total other income 256 188 Other Expenses Salaries and employee benefits 600 532 Net occupancy and equipment expense 147 144 Other operating expense 354 334 Total other expense 1,101 1,010 Income before income taxes 741 610 Income tax expense 207 176 Net income $ 534 $ 434 Weighted average number of shares outstanding 976,863 954,192 Net income per share $ .55 $ .46 Cash dividends declared per share $ .17 $ .15 The accompanying notes are an integral part of these condensed financial statements. Page 4 of 13 pages ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, ORRSTOWN BANK CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, 1996 and 1995 (UNAUDITED) 1996 1995 (Unaudited) (Unaudited) (000 Omitted) Cash flows from operating activities: Net income $ 534 $ 434 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 62 58 Provision for loan losses 60 30 Other, net ( 327) 86 Net cash provided by operating activities 329 608 Cash flows from investing activities: Net (increase) in interest bearing deposits with banks ( 279) ( 908) Purchase of available for sale securities ( 39) ( 2,084) Sales of available for sale securities 0 2,273 Maturities of available for sale securities 372 1,218 Purchases of FHLB stock ( 65) ( 61) Net (increase) in loans ( 713) ( 3,313) Purchases of bank premises and equipment - Net ( 218) ( 159) Net cash provided (used) by investing activities ( 942) ( 3,034) Cash flows from financing activities: Net increase in deposits 3,893 5,967 Payments on debt ( 5) ( 649) Cash dividends paid ( 166) ( 140) Net cash provided (used) by financing activities 3,722 5,178 Net increase in cash and cash equivalents 3,109 2,752 Cash and cash equivalents, beginning balance 6,647 4,593 Cash and cash equivalents, ending balance $ 9,756 $ 7,345 Supplemental disclosure of cash flows information: Cash paid during the period for: Interest $ 1,214 $ 926 Income taxes 21 169 Supplemental schedule of noncash investing and financing activities: Unrealized gain (loss) on investments available for sale (net of deferred taxes of $ (27) and $ 7 at March 31, 1996 and 1995, respectively) 52 ( 13) Other real estate acquired in settlement of loans 93 0 The accompanying notes are an integral part of these condensed financial statements. Page 5 of 13 pages NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 (UNAUDITED) Note 1. Basis of Presentation The financial information presented at and for the three months ended March 31, 1996 and 1995 is unaudited. Information presented at December 31, 1995 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 6 of 13 pages Note 6. Earnings Per Share of Common Stock Earnings per share of common stock were computed based on an average of 976,863 and 954,192 shares at March 31, 1996 and 1995, respectively. 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". Fair market value exceeded amortized cost of debt securities by $ 79,000 and $ 867,000 at March 31, 1996 and December 31, 1995, respectively. This resulted in an increase in stockholders' equity of $ 52,000 and $ 572,000 at March 31, 1996 and December 31, 1995, respectively after recognizing the tax effects of the unrealized gains. Page 7 of 13 pages ORRSTOWN FINANCIAL SERVICES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net after tax income for the first quarter of 1996 was $534,000 compared to $434,000 for the same period in 1995 representing an increase of $100,000 or 23.0%. Net income on an adjusted per share basis for the first three months was $ .55 up $ .09 from the $ .46 per share realized during the quarter ended March 31, 1995. RESULTS OF OPERATIONS First Quarter 1996 vs. First Quarter 1995 Interest income for the first quarter of 1996 was $ 2,906,000 compared to $ 2,430,000 as of March 31, 1995, for an increase of $ 476,000. The increase is due primarily to an increase in interest on loans in response to rising interest rates and higher loan volumes. Net loans at March 31, 1996 stood at $ 102,095,000 compared to $ 101,424,000 as of December 31, 1995. Interest expense for the current quarter was $ 1,260,000, an increase of $ 292,000 over the $ 968,000 for the same period of the prior year. Deposit volumes increased since the first of the year with significant increases in time deposits as interest rates rise. Average rates have increased over those paid in the first quarter 1995 resulting in higher interest expense. Net interest income for the first quarter of 1996 totaled $ 1,646,000, up $ 184,000 from the first quarter of 1995. Management continuously monitors liquidity and interest rate risk through its ALCO reporting and reprices products in order to maintain desired net interest margins. OTHER INCOME First Quarter 1996 vs. First Quarter 1995 Noninterest income increased from $ 188,000 in 1995 to $ 256,000 in 1996. The most significant impact was a $ 50,000 increase in trust fees. A decrease of $ 17,000 in net securities losses also contributed to the increase. OTHER EXPENSES First Quarter 1996 vs. First Quarter 1995 Other expenses totaled $ 1,101,000 as of March 31, 1996, an increase of $ 91,000 over the $ 1,010,000 recorded for March 31, 1995. Employee related expenses were up 12.8% over the first quarter 1995, consistent with the prior year. A $ 58,000 drop in FDIC insurance was offset by increases in other operating expenses. Page 8 of 13 pages INCOME TAXES The effective income tax rate remained constant at 28% compared to the same period for 1995. FINANCIAL CONDITION Total assets at March 31, 1996 were $ 149,778,000 a 2.6% increase over December 31, 1995. Net loans at March 31, 1996 totaled $ 102,095,000, an increase of $ 671,000 over the $ 101,424,000 level at December 31, 1995. 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 March 31 1996 1995 Balance, beginning of period $ 1,433 $ 1,200 Recoveries 4 5 Provision for loan loss charged to income 60 30 Total 1,497 1,235 Losses 22 3 Balance, end of period $ 1,475 $ 1,232 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 March 31 (in thousands): 90 Days or More Past Due Nonaccrual Status 1996 1995 1996 1995 Real estate mortgages $ 65 $ 214 $ 58 $ 47 Installment loans 93 71 34 11 Demand and time loans 0 0 16 0 Credit card 8 20 2 0 Total $ 166 $ 305 $110 $ 58 There were no restructured loans for any of the time periods set forth above. Total deposits increased to $ 131,223,000 at March 31, 1996 compared to $ 127,330,000 at December 31, 1995. Significant increases occurred in time deposits, as interest rates rose during the first quarter. Page 9 of 13 pages Total equity at March 31, 1996 was $ 14,481,000 representing 9.7% of total assets. This is a $ 152,000 decrease from the company's capital position at December 31, 1995. A $ 520,000 decrease in unrealized holding gains was partially offset by net income. A comparison of Orrstown Financial Services' capital ratios to regulatory minimum requirements at March 31, 1996 is as follows: Orrstown Financial Regulatory Minimum Services Requirements Leverage ratio 9.7% 4% Risk based capital ratios: Tier I (core capital) 13.65% 4% Combined tier I and tier II (core capital plus allowance for loan losses) 15.05% 8% 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 Three Months Ended ASSETS 1996 March 31, 1995 Securities available for sale: Taxable interest income $ 18,027 $ 15,649 Nontaxable interest income 11,326 7,120 Total available for sale securities 29,353 22,769 Other investments 1,206 1,097 Loans (net of unearned discounts) 102,867 92,479 Other short-term investments 3,253 566 Total interest earning assets 136,679 116,911 Allowance for loan losses ( 1,462) ( 1,214) Cash and due from banks 5,791 4,674 Bank premises and equipment 3,125 2,640 Other assets 2,897 806 Total assets $ 147,030 $ 123,817 LIABILITIES AND STOCKHOLDERS' EQUITY Interest bearing demand deposits $ 25,756 $ 24,677 Savings deposits 26,065 23,306 Time deposits 62,224 45,892 Short-term borrowings 0 1,079 Long-term borrowings 2,342 2,346 Total interest bearing liabilities 116,387 97,300 Page 10 of 13 pages AVERAGE BALANCE SHEETS Three Months Ended 1996 March 31, 1995 Demand deposits $ 14,156 $ 12,731 Other liabilities 1,577 1,203 Total liabilities 132,120 111,234 Stockholders' equity 14,910 12,583 Total liabilities and stockholders' equity $ 147,030 $ 123,817 Page 11 of 13 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 12 of 13 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 13 of 13 pages EX-27 2 ARTICLE 9 FDS FOR 10-Q
9 1,000 3-MOS DEC-31-1996 MAR-31-1996 4,975 1,568 4,781 934 29,574 29,574 29,574 103,570 1,475 149,778 131,223 0 1,734 2,340 204 0 0 14,481 149,778 2,366 476 64 2,906 1,223 1,260 1,646 60 (4) 1,101 741 534 0 0 534 .55 .55 4.92 110 166 0 0 1,433 22 4 1,475 1,475 0 0
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