-----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, UK93Rt/EciwdCsSp57L/cWo38pPSKPlz5mjnEopZmhZQ9kq6v15VLKVrjWXkYHcj bb0OLaeF9XN2puGQGit2xQ== 0000826154-97-000014.txt : 19970515 0000826154-97-000014.hdr.sgml : 19970515 ACCESSION NUMBER: 0000826154-97-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORRSTOWN FINANCIAL SERVICES INC CENTRAL INDEX KEY: 0000826154 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [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: 97605425 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, 1997 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, 1997 (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, 1997 and December 31, 1996 3 Condensed consolidated statements of income - Three months ended March 31, 1997 and 1996 4 Condensed consolidated statements of cash flows - Three months ended March 31, 1997 and 1996 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, 1997 1996 * ASSETS (Unaudited) (000 Omitted) Cash and due from banks $ 5,300 $ 5,236 Interest-bearing deposits with banks 30 1,554 Federal funds sold 6,154 2,936 Securities available for sale 36,367 33,421 Federal Home Loan Bank, Federal Reserve and Atlantic Central Bankers Bank Stock, at cost which approximates market value 983 934 Loans 112,198 108,926 Allowance for loan losses ( 1,657) ( 1,620) Net loans 110,541 107,306 Bank premises and equipment, net 4,063 3,916 Other assets 2,617 2,253 Total assets $ 166,055 $ 157,556 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits: Noninterest-bearing $ 17,098 $ 16,322 Interest-bearing 125,604 120,937 Total deposits 142,702 137,259 Federal funds purchased and other borrowed money 5,334 2,339 Other liabilities 2,074 2,102 Total liabilities 150,110 141,700 STOCKHOLDERS' EQUITY Common stock, no par value - $ .2083 stated value per share at March 31, 1997 and December 31, 1996 2,000,000 shares authorized with 976,863 shares issued 204 204 Additional paid-in capital 10,625 10,625 Retained earnings 5,159 4,786 Unrealized holding gain, (loss) net of tax $ 22 and $ 124 at March 31, 1997 and December 31, 1996, respectively ( 43) 241 Total stockholders' equity 15,945 15,856 Total liabilities and stockholders' equity $ 166,055 $ 157,556 * 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, 1997 and 1996 (UNAUDITED) 1997 1996 (Unaudited) (Unaudited) (000 Omitted) Interest Income Interest and fees on loans $ 2,491 $ 2,366 Interest on federal funds sold 45 43 Interest and dividends on investment securities 565 476 Interest income on deposits with banks 2 21 Total interest income 3,103 2,906 Interest Expense Interest on deposits 1,260 1,223 Interest on borrowed money 40 37 Total interest expense 1,300 1,260 Net interest income 1,803 1,646 Provision for loan losses 45 60 Net interest income after provision for loan losses 1,758 1,586 Other Income Service charges on deposits 143 99 Other service charges 58 35 Other 139 122 Total other income 340 256 Other Expenses Salaries and employee benefits 699 600 Net occupancy and equipment expense 178 147 Other operating expense 430 354 Total other expense 1,307 1,101 Income before income taxes 791 741 Income tax expense 232 207 Net income $ 559 $ 534 Weighted average number of shares outstanding 976,863 976,863 Net income per share $ .57 $ .55 Cash dividends declared per share $ .19 $ .17 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, 1997 and 1996 (UNAUDITED) 1997 1996 (Unaudited) (Unaudited) (000 Omitted) Cash flows from operating activities: Net income $ 559 $ 534 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 71 62 Provision for loan losses 45 60 Other, net ( 246) ( 327) Net cash provided by operating activities 429 329 Cash flows from investing activities: Net (increase) decrease in interest bearing deposits with banks 1,524 ( 279) Purchase of available for sale securities ( 4,196) ( 39) Maturities of available for sale securities 820 372 Purchases of FHLB stock ( 49) ( 65) Net (increase) in loans ( 3,280) ( 713) Purchases of bank premises and equipment - Net ( 218) ( 218) Net cash provided (used) by investing activities ( 5,399) ( 942) Cash flows from financing activities: Net increase in deposits 5,443 3,893 Proceeds from long-term debt 3,000 0 Payments on debt ( 5) ( 5) Cash dividends paid ( 186) ( 166) Net cash provided (used) by financing activities 8,252 3,722 Net increase in cash and cash equivalents 3,282 3,109 Cash and cash equivalents, beginning balance 8,172 6,647 Cash and cash equivalents, ending balance $ 11,454 $ 9,756 Supplemental disclosure of cash flows information: Cash paid during the period for: Interest $ 1,293 $ 1,214 Income taxes 43 21 Supplemental schedule of noncash investing and financing activities: Unrealized gain (loss) on investments available for sale (net of deferred taxes of $ (146) and $ (27) at March 31, 1997 and 1996, respectively) ( 284) 52 Other real estate acquired in settlement of loans 0 93 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, 1997 (UNAUDITED) Note 1. Basis of Presentation The financial information presented at and for the three months ended March 31, 1997 and 1996 is unaudited. Information presented at December 31, 1996 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 shares at March 31, 1997 and 1996. 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". Amortized cost exceeded the fair market value of available for sale securities by $ 65,000 at March 31, 1997. Fair market value exceeded amortized cost of available for sale securities by $ 365,000 at December 31, 1996. This resulted in a decrease in stockholders' equity of $ 43,000 at March 31, 1997 and an increase in stockholders' equity of $ 241,000 at December 31, 1996 after recognizing the tax effects of the unrealized gains (losses). 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 1997 was $ 559,000 compared to $ 534,000 for the same period in 1996 representing an increase of $ 25,000 or 4.7%. Net income on an adjusted per share basis for the first three months was $ .57 up $ .02 from the $ .55 per share realized during the quarter ended March 31, 1996. RESULTS OF OPERATIONS First Quarter 1997 vs. First Quarter 1996 Interest income for the first quarter of 1997 was $ 3,103,000 compared to $ 2,906,000 as of March 31, 1996, for an increase of $ 197,000. The increase is due primarily to an increase in interest on loans as the result of higher loan volumes. Gross loans at March 31, 1997 stood at $ 112,198,000 compared to $ 108,926,000 as of December 31, 1996. Interest expense for the current quarter was $ 1,300,000, an increase of $ 40,000 over the $ 1,260,000 for the same period of the prior year. Deposit volumes increased since the first of the year with increases mixed between time, savings, and interest bearing demand deposits. Average rates have decreased slightly over those paid in the first quarter 1996 resulting in smaller increases in interest cost compared to the increases experienced as of March 31, 1996. Net interest income for the first quarter of 1997 totaled $ 1,803,000, up $ 157,000 from the first quarter of 1996. 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 1997 vs. First Quarter 1996 Noninterest income increased from $ 256,000 in 1996 to $ 340,000 in 1997. Increases occurred in trust fees and in service charges on deposits, as the volume of transaction accounts continue to grow. OTHER EXPENSES First Quarter 1997 vs. First Quarter 1996 Other expenses totaled $ 1,307,000 as of March 31, 1997, an increase of $ 206,000 over the $ 1,101,000 recorded for March 31, 1996. Employee related expenses were up 16.5% over the first quarter 1996, due primarily to increases in personnel associated with an additional branch office in Carlisle. Net occupancy and equipment expenses increased 21.09% while other operating expenses increased 21.5% from the prior year's first quarter. Page 8 of 13 pages INCOME TAXES The effective income tax rate increased slightly from 28% to 29% compared to the same period for 1996. FINANCIAL CONDITION Total assets at March 31, 1997 were $ 166,055,000 a 5.4% increase over December 31, 1996. Gross loans at March 31, 1997 totaled $ 112,198,000, an increase of $ 3,272,000 over the $ 108,926,000 level at December 31, 1996. 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 1997 1996 Balance, beginning of period $ 1,620 $ 1,433 Recoveries 0 4 Provision for loan loss charged to income 45 60 Total 1,665 1,497 Losses 8 22 Balance, end of period $ 1,657 $ 1,475 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 1997 1996 1997 1996 Real estate mortgages $ 153 $ 65 $ 0 $ 58 Installment loans 47 93 31 34 Demand and time loans 11 0 0 16 Credit card 4 8 0 2 Total $ 215 $ 166 $ 31 $ 110 There were no restructured loans for any of the time periods set forth above. Total deposits increased to $ 142,702,000 at March 31, 1997 compared to $ 137,259,000 at December 31, 1996. Time deposits increased approximately $ 2,000,000, while savings and transaction accounts increased $ 1,500,000 and $ 1,800,000, respectively. Average rates paid during the first quarter of 1997 remained constant with rates in place at the end of 1996. Page 9 of 13 pages Total equity at March 31, 1997 was $ 15,945,000 representing 9.6% of total assets. This is a $ 89,000 increase from the company's capital position at December 31, 1996. A comparison of Orrstown Financial Services' capital ratios to regulatory minimum requirements at March 31, 1997 is as follows: Orrstown Financial Regulatory Minimum Services Requirements Leverage ratio 9.6% 4% Risk based capital ratios: Tier I (core capital) 12.7% 4% Combined tier I and tier II (core capital plus allowance for loan losses) 14.0% 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 MARCH 31 (000 OMITTED) ASSETS 1997 1996 Securities available for sale: Taxable interest income $ 21,280 $ 18,027 Nontaxable interest income 13,196 11,326 Total available for sale securities 34,476 29,353 Other investments 1,353 1,206 Loans (net of unearned discounts) 110,343 102,867 Other short-term investments 3,486 3,253 Total interest earning assets 149,658 136,679 Allowance for loan losses ( 1,642) ( 1,462) Cash and due from banks 4,413 5,791 Bank premises and equipment 4,015 3,125 Other assets 2,337 2,897 Total assets $ 158,781 $ 147,030 LIABILITIES AND STOCKHOLDERS' EQUITY Interest bearing demand deposits $ 29,341 $ 25,756 Savings deposits 26,153 26,065 Time deposits 66,767 62,224 Long-term borrowings 2,594 2,342 Total interest bearing liabilities 124,855 116,387 Page 10 of 13 pages AVERAGE BALANCE SHEETS THREE MONTHS ENDED MARCH 31 (000 OMITTED) 1997 1996 Demand deposits $ 16,152 $ 14,156 Other liabilities 1,930 1,577 Total liabilities 142,937 132,120 Stockholders' equity 15,844 14,910 Total liabilities and stockholders' equity $ 158,781 $ 147,030 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 Exhibit 27 - Financial Data Schedule (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
9 3-MOS DEC-31-1997 MAR-31-1997 5,300 30 6,154 983 36,367 36,367 36,367 112,198 1,657 166,055 142,702 0 2,074 5,334 0 0 204 15,741 166,055 2,491 565 47 3,103 1,260 1,300 1,803 45 (5) 1,307 791 559 0 0 559 .57 .57 5.06 31 215 0 0 1,620 8 0 1,657 1,657 0 0
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