-----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, T9OPZLW/W/1JsJUwLG0GMck2Zg/MYBKyH7ynKPNRSLrwSpNL8rICn4y3u+QcNbSk krpScMvW15I27yHAsADFwg== 0000826154-96-000008.txt : 19961204 0000826154-96-000008.hdr.sgml : 19961204 ACCESSION NUMBER: 0000826154-96-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 DATE AS OF CHANGE: 19961203 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: 96672402 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, 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 October 29, 1996 (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, 1996 and December 31, 1995 3 Condensed consolidated statements of income - Three months ended September 30, 1996 and 1995 4 Condensed consolidated statements of income - Nine months ended September 30, 1996 and 1995 5 Condensed consolidated statements of cash flows - Nine months ended September 30, 1996 and 1995 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, 1996 1995 * ASSETS (Unaudited) (000 Omitted) Cash and due from banks $ 6,079 $ 4,330 Interest-bearing deposits with banks 301 1,289 Federal funds sold 5,903 2,317 Securities available for sale 30,382 30,694 Federal Home Loan Bank, Federal Reserve and Atlantic Central Bankers Bank Stock, at cost which approximates market value 934 869 Loans 107,295 102,857 Allowance for loan losses ( 1,573) ( 1,433) Net loans 105,722 101,424 Bank premises and equipment, net 3,766 3,042 Other assets 2,244 2,033 Total assets $ 155,331 $ 145,998 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits: Noninterest-bearing $ 16,692 $ 13,962 Interest-bearing 119,152 113,368 Total deposits 135,844 127,330 Federal funds purchased and other borrowed money 2,340 2,345 Other liabilities 1,915 1,690 Total liabilities 140,099 131,365 STOCKHOLDERS' EQUITY Common stock, no par value - $ .2083 stated value per share at September 30, 1996 and December 31, 1995, 2,000,000 shares authorized with 976,863 shares issued at September 30, 1996 and December 31, 1995 204 204 Additional paid-in capital 10,625 10,625 Retained earnings 4,403 3,232 Unrealized holding gain (loss), net of tax $ 0 and $ 295 at September 30, 1996 and December 31, 1995, respectively 0 572 Total stockholders' equity 15,232 14,633 Total liabilities and stockholders' equity $ 155,331 $ 145,998 * 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, 1996 and 1995 (UNAUDITED) 1996 1995 (Unaudited) (Unaudited) (000 Omitted) Interest Income Interest and fees on loans $ 2,450 $ 2,331 Interest on federal funds sold 104 9 Interest and dividends on investment securities 479 459 Interest income on deposits with banks 21 9 Total interest income 3,054 2,808 Interest Expense Interest on deposits 1,251 1,143 Interest on borrowed money 46 65 Total interest expense 1,297 1,208 Net interest income 1,757 1,600 Provision for loan losses 60 30 Net interest income after provision for loan losses 1,697 1,570 Other Income Service charges on deposits 119 92 Other service charges 67 41 Other 132 89 Total other income 318 222 Other Expenses Salaries and employee benefits 602 524 Net occupancy and equipment expense 153 137 Other operating expense 379 307 Total other expense 1,134 968 Income before income taxes 881 824 Income tax expense 273 231 Net income $ 608 $ 593 Weighted average number of shares outstanding 976,863 976,863 Net income per share $ .62 $ .61 Cash dividends declared per share $ .18 $ .15 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, 1996 and 1995 (UNAUDITED) 1996 1995 (Unaudited) (Unaudited) (000 Omitted) Interest Income Interest and fees on loans $ 7,219 $ 6,641 Interest on federal funds sold 259 41 Interest and dividends on investment securities 1,407 1,177 Interest income on deposits with banks 69 40 Total interest income 8,954 7,899 Interest Expense Interest on deposits 3,723 3,110 Interest on borrowed money 120 155 Total interest expense 3,843 3,265 Net interest income 5,111 4,634 Provision for loan losses 180 90 Net interest income after provision for loan losses 4,931 4,544 Other Income Service charges on deposits 324 275 Other service charges 176 137 Other 375 232 Total other income 875 644 Other Expenses Salaries and employee benefits 1,877 1,637 Net occupancy and equipment expense 445 402 Other operating expense 1,097 1,021 Total other expense 3,419 3,060 Income before income taxes 2,387 2,128 Income tax expense 707 624 Net income $ 1,680 $ 1,504 Weighted average number of shares outstanding 976,863 976,863 Net income per share $ 1.72 $ 1.54 Cash dividends declared per share $ .52 $ .44 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, 1996 and 1995 (UNAUDITED) 1996 1995 (Unaudited) (Unaudited) (000 Omitted) Cash flows from operating activities: Net income $ 1,680 $ 1,504 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 185 174 Provision for loan losses 180 90 Other, net 308 ( 30) Net cash provided by operating activities 2,353 1,738 Cash flows from investing activities: Net (increase) decrease in interest bearing deposits with banks 988 ( 1,391) Purchase of investment securities ( 5,512) ( 13,342) Maturities of investment securities 2,560 4,423 Sales of investment securities 2,397 2,273 Purchases of FHLB stock ( 65) ( 61) Net (increase) in loans ( 4,478) ( 10,307) Purchases of bank premises and equipment - Net ( 909) ( 642) Premium paid on purchase of branch 0 ( 589) Net cash (used) by investing activities ( 5,019) ( 19,636) Cash flows from financing activities: Net increase in deposits 8,514 21,312 Cash dividends paid ( 508) ( 433) Cash paid in lieu of fractional dividends 0 ( 15) Payments on debt ( 5) ( 649) Net cash provided by financing activities 8,001 20,215 Net increase in cash and cash equivalents 5,335 2,317 Cash and cash equivalents, beginning balance 6,647 4,593 Cash and cash equivalents, ending balance $ 11,982 $ 6,910 Supplemental disclosure of cash flows information: Cash paid during the period for: Interest $ 3,713 $ 3,019 Income taxes 652 543 The accompanying notes are an integral part of these condensed financial statements. 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, 1996 and 1995 (UNAUDITED) 1996 1995 (Unaudited) (Unaudited) (000 Omitted) Supplemental schedule of noncash investing and financing activities: Unrealized gain (loss) on investments available for sale (net of deferred tax (liability) of $ 295 and $ 91 at September 30, 1996 and 1995, respectively) ($ 572) $ 153 5% stock dividend issued July 25, 1995 0 1,242 Other real estate acquired in settlement of loans 0 22 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, 1996 (UNAUDITED) Note 1. Basis of Presentation The financial information presented at and for the three months ended and nine months ended September 30, 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 8 of 15 pages Note 6. Changes in Common Stock Earnings per share of common stock for the period ended September 30, 1995 were computed based on an average of 976,863 shares after giving retroactive recognition to the 5% stock dividend, issued July 25, 1995. 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, 1996 fair market value was the same as amortized cost. This resulted in a decrease in stockholders' equity of $ 572,000 after recognizing the tax effects of the unrealized losses. At December 31, 1995, fair market value exceeded amortized cost by $ 867,000 resulting in an increase in stockholders' equity of $ 572,000 after recognizing the tax effects of the unrealized gains. 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 1996 was $1,680,000 compared to $1,504,000 for the same period in 1995 representing an increase of $176,000 or 11.7%. Net income on an adjusted per share basis for the first nine months was $ 1.72 up $ .18 from the $ 1.54 per share realized during the nine months ended September 30, 1995. RESULTS OF OPERATIONS Third Quarter 1996 vs. Third Quarter 1995 Interest income for the third quarter of 1996 was $ 3,054,000 compared to $ 2,808,000 as of September 30, 1995, for an increase of $ 246,000. The increase is due primarily to an increase in loan volumes. Interest expense for the current quarter was $ 1,297,000, an increase of $ 89,000 over the $ 1,208,000 for the same period of the prior year. Interest bearing deposits, which have increased significantly from September 30, 1995 plus a slight increase in average rates paid over those paid in 1995 have resulted in higher interest expense for the third quarter. Net interest income for the third quarter of 1996 totaled $ 1,757,000, up $ 157,000 from the third quarter of 1995. Nine Months 1996 vs. Nine Months 1995 For the nine months ended September 30, 1996, interest income was $ 8,954,000, an increase of $ 1,055,000 over the nine months ended September 30, 1995. The increase is largely due to an increase in loan volumes. Gross loans at September 30, 1996 stood at $ 107,295,000 compared to $ 101,124,000 as of September 30, 1995. Interest expense for the first nine months of 1996 was $ 3,843,000 compared to $ 3,265,000 for the same period in 1995 representing a 17.7% increase. The Corporation realized 6% growth in deposits over the past twelve months. One half of this growth was concentrated in time deposits with the remaining growth occurring in statement savings and transaction accounts. This mix in growth of deposits combined with consistent rates has allowed the Corporation to maintain desired net interest margins through September 30, 1996. Net interest income for the first three quarters of 1996 totaled $ 5,111,000, up $ 477,000 from the first three quarters 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. Page 10 of 15 pages OTHER INCOME Third Quarter 1996 vs. Third Quarter 1995 Noninterest income increased from $ 222,000 in 1995 to $ 318,000 in 1996. The increase was due primarily to increases in services charges and trust fees. Nine Months 1996 vs. Nine Months 1995 Noninterest income for the first nine months of 1996 was $ 875,000 compared to $ 644,000 in 1995. The increase resulted primarily from service charges as the volume of transaction accounts continues to grow; increases in trust fees and the realization of $ 1,000 in net security gains compared to net losses of $ 47,000 in 1995. OTHER EXPENSES Third Quarter 1996 vs. Third Quarter 1995 Other expenses totaled $ 1,134,000 as of September 30, 1996, an increase of $ 166,000 from the $ 968,000 recorded for September 30, 1995. Employee related expenses were up 14.9% compared to the third quarter 1995. Net occupancy increased 11.7% while other operating expenses increased 23.4% from the prior year. Nine Months 1996 vs. Nine Months 1995 Other expenses for the first nine months of 1996 reflect a $ 359,000 increase over the same period in 1995. Employee related expenses increased 14.7% as a result of normal salary increases and the addition of staff to accommodate branch expansions. Net occupancy expense increased 10.7% largely due to increases in depreciation and equipment maintenance as the result of the Spring Run Branch acquisition. INCOME TAXES The effective income tax rate for the third quarter 1996 increased 2.9% compared to the same period for 1995. The effective income tax rate remained constant at 29% for the nine month period ended September 30, 1996 compared to 1995. FINANCIAL CONDITION Total assets at September 30, 1996 were $ 155,331,000 a 6.4% increase over December 31, 1995. Net loans at September 30, 1996 totaled $ 105,722,000, an increase of $ 4,298,000 over the $ 101,424,000 level at December 31, 1995. 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 1996 1995 1996 1995 Balance, beginning of period $ 1,519 $ 1,261 $ 1,433 $ 1,200 Recoveries 3 0 14 6 Provision for loan loss charged to income 60 30 180 90 Total 1,582 1,291 1,627 1,296 Losses 9 17 54 22 Balance, end of period $ 1,573 $ 1,274 $ 1,573 $ 1,274 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 1996 1995 1996 1995 Real estate mortgages $ 18 $ 381 $ 0$ 0 Installment loans 63 96 06 Demand and time loans 0 0 161 Credit card 14 10 0 0 Total $ 95 $ 487 $ 16$ 7
There were no restructured loans for any of the time periods set forth above. Total deposits increased to $ 135,844,000 at September 30, 1996 compared to $ 127,330,000 at December 31, 1995. Increases were largely in time deposits, statement savings and transaction accounts as mentioned earlier. Total equity at September 30, 1996 was $ 15,232,000 representing 9.8% of total assets. This is a $ 599,000 increase from the company's capital position at December 31, 1995. This is the result of a $ 1,171,000 increase in retained earnings offset by an unrealized loss of $ 572,000 on securities available for sale at September 30, 1996. Page 12 of 15 pages A comparison of Orrstown Financial Services' capital ratios to regulatory minimum requirements at September 30, 1996 is as follows: Orrstown Financial Regulatory Minimum Services Requirements Leverage ratio 9.8% 4% Risk based capital ratios: Tier I (core capital) 14.3% 4% Combined tier I and tier II (core capital plus allowance for loan losses) 15.7% 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 NINE MONTHS ENDED SEPTEMBER 30 (000 OMITTED) ASSETS 1996 1995 Securities available for sale: Taxable interest income $ 18,842 $ 16,520 Nontaxable interest income 9,820 7,727 Total available for sale securities 28,662 24,247 Other investments 1,277 1,140 Loans (net of unearned discounts) 104,991 96,206 Other short-term investments 6,528 901 Total interest earning assets 141,458 122,494 Allowance for loan losses ( 1,503) ( 1,245) Cash and due from banks 6,272 5,034 Bank premises and equipment 3,365 2,631 Other assets 2,249 1,502 Total assets $ 151,841 $ 130,416 LIABILITIES AND STOCKHOLDERS' EQUITY Interest bearing demand deposits $ 27,276 $ 24,627 Savings deposits 26,668 23,624 Time deposits 63,401 50,822 Short-term borrowings 0 954 Long-term borrowings 2,340 2,346 Total interest bearing liabilities 119,685 102,373 Demand deposits 15,812 13,487 Other liabilities 1,415 1,330 Total liabilities 136,912 117,190 Stockholders' equity 14,929 13,226 Total liabilities and stockholders' equity $ 151,841 $ 130,416 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-30-1996 6,079 301 5,903 934 30,382 30,382 30,382 107,295 1,573 155,331 135,844 0 1,915 2,340 204 0 0 15,232 155,331 7,219 1,407 328 8,954 3,723 3,843 5,111 180 1 3,419 2,387 1,680 0 0 1,680 1.72 1.72 4.86 16 95 0 0 1,433 54 14 1,573 1,573 0 0
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