-----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, FurU2H6S3vAmCmuVWUe3oXwNNX4f0yTQfibR9Z8D3jJCr6CRP8Pjp7FG7G5+r1Xz 2ZXecBJLcVJXlQQtJTUEBw== 0000826154-97-000016.txt : 19971117 0000826154-97-000016.hdr.sgml : 19971117 ACCESSION NUMBER: 0000826154-97-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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: SEC FILE NUMBER: 033-18888 FILM NUMBER: 97719565 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, 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 17257 P.O. Box 250, Shippensburg, Pennsylvania (Zip Code) (Address of principal executive offices) 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. X YES --------------- N-------------- 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 31, 1997 (Common stock, no par value) 1,025,094 ORRSTOWN FINANCIAL SERVICES, INC. INDEX Page Part I - FINANCIAL INFORMATION Item 1. Financial statements ( unaudited ) Condensed consolidated balance sheets - September 30, 1997 and December 31, 1996 3 Condensed consolidated statements ofThree months ended September 30, 1997 and 1996 4 Condensed consolidated statements of income - Nine months ended September 30, 1997 and 1996 5 Condensed consolidated statements of cash flows - Nine months ended September 30, 1997 and 1996 6 Notes to condensed consolidated financial statements 7 - 8 Item 2. Management's discussion and analysis of financial condition and results of operations 9 -12 PART II - OTHER INFORMATION 13 Signatures 14 PART I - FINANCIAL INFORMATION PART I - FINANCIAL INFORMATION Item 1. Financial Statments ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY - OWNED SUBSIDIARY, ORRSTOWN BANK CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) September 30, December 31, 1997 1996* (Unaudited) ASSETS (000 Omitted) Cash and due from banks 4,876 5,236 Interest - bearing deposits with banks 22 1,554 Federal funds sold 4 2,936 Securities available for sale 43,239 33,421 Federal Home Loan Bank, Federal Reserve and Atlantic Central Bankers Bank Stock, at cost which approximates market value 983 934 Loans 122,782 108,926 Allowance for loan losses (1,691) (1,620) ----------- ----------- Net Loans 121,091 107,306 Bank premises and equipment, net 4,721 3,916 Other assets 2,383 2,253 ----------- ----------- Total assets 177,319 157,556 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits: Noninterest - bearing 17,489 16,322 Interest - bearing 134,348 120,937 ----------- ----------- Total deposits 151,837 137,259 Federal funds purchased and other borrowed money 5,334 2,339 Other liabilities 2,468 2,102 ----------- ----------- Total liabilities 159,639 141,700 ----------- ----------- STOCKHOLDERS' EQUITY Common stock, no par value - $ .2083 stated value per share at September 30, 1997 and December 31, 1996, 2, 000, 000 shares authorized with 1, 025,094 shares issued at September 30, 1997 and 976, 863 issued at December 31, 1996 214 204 Additional paid - in capital 12,351 10,625 Retained earnings 4,449 4,786 Unrealized holding gain, net of tax $ 343 and $ 124 at September 30, 1997 and December 31, 1996, respectively 666 241 ----------- ----------- Total stockholders' equity 17,680 15,856 ----------- ----------- Total liabilities and stockholders' equity 177,319 157,556 =========== =========== * Condensed from audited financial statements The accompanying notes are an integral part of these condensed financial statements. ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY - OWNED SUBSIDIARY, ORRSTOWN BANK CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended September 30, 1997 and 1996 (UNAUDITED) 1997 1996 (Unaudited) (Unaudited) (000 Omitted) Interest Income Interest and fees on loans 2,764 2450 Interest on federal funds sold 44 104 Interest and dividends on investment securities 666 479 Interest income on deposits with banks 0 21 --------- --------- Total interest income 3,474 3,054 Interest Expense Interest on deposits 1,421 1,251 Interest on borrowed money 83 46 --------- --------- Total interest expense 1,504 1,297 --------- --------- Net interest income 1,970 1,757 --------- --------- Provision for loan losses 45 60 --------- --------- Net interest income after provision for loan losses 1,925 1,697 --------- --------- Other Income Service charges on deposits 155 119 Other service charges 81 67 Other income 115 131 Net gains on available for sale securities 5 1 --------- --------- Total other income 356 318 --------- --------- Other Expenses Salaries and employee benefits 707 602 Net occupancy and equipment expense 170 153 Other operating expense 420 379 --------- --------- Total other expense 1,297 1,134 --------- --------- Income before income taxes 984 881 Income tax expense 256 273 --------- --------- Net income 728 608 ========= ========= Weighted average number of shares outstanding ********* ********* Net income per share .71 .60 Cash dividends declared per share .20 .17 The accompanying notes are an integral part of these condensed financial statements. ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY - OWNED SUBSIDIARY, ORRSTOWN BANK CONDENSED CONSOLIDATED STATEMENTS OF INCOME Nine Months Ended September 30, 1997 and 1996 (UNAUDITED) 1997 1996 (Unaudited) (Unaudited) (000 Omitted) Interest Income Interest and fees on loans 7,879 7,219 Interest on federal funds sold 163 259 Interest and dividends on investment securities 1,847 1,407 Interest income on deposits with banks 4 69 ----------- ------------ Total interest income 9,893 8,954 Interest Expense Interest on deposits 4,020 3,723 Interest on borrowed money 202 120 ----------- ------------ Total interest expense 4,222 3,843 ----------- ------------ Net interest income 5,671 5,111 Provision for loan losses 135 180 ----------- ------------ Net interest income after provision for loan losses 5,536 4,931 ----------- ------------ Other Income Service charges on deposits 449 324 Other service charges 225 176 Other income 407 374 Net gains on available for sale securities 5 1 ----------- ------------ Total other income 1,086 875 Other Expenses Salaries and employee benefits 2,103 1,877 Net occupancy and equipment expense 523 445 Other operating expense 1,232 1,097 ----------- ------------ Total other expense 3,858 3,419 ----------- ------------ Income before income taxes 2,764 2,387 Income tax expense 758 707 ----------- ------------ Net income 2,006 1,680 =========== ============ Weighted average number of shares outstanding 1,025,398 1,025,706 Net income per share 1.96 1.64 Cash dividends declared per share 0.57 0.49 The accompanying notes are an integral part of these condensed financial statements. ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY - OWNED SUBSIDIARY, ORRSTOWN BANK CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, 1997 and 1996 (UNAUDITED) 1997 1996 (Unaudited) (Unaudited) (000 Omitted) Cash flows from operating activities: Net income 2,006 1,680 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 252 185 Provision for loan losses 135 180 Other, net (14) 308 ---------- --------- Net cash provided by operating activities 2,379 2,353 Cash flows from investing activities: Net (increase) decrease in interest bearing deposits with banks 1,532 988 Purchase of available for sale securities (11,818) (5,577) Maturities of available for sale securities 2,583 2,560 Sales of available for sale securities 12 2,397 Net (increase) in loans (13,920) (4,478) Purchases of bank premises and equipment (1,026) (909) ---------- --------- Net cash (used) by investing activities (22,637) (5,019) ---------- --------- Cash flows from financing activities: Net increase in deposits 14,578 8,514 Cash dividends paid (585) (508) Cash paid in lieu of fractional dividends (22) 0 Proceeds from long - term debt 3,000 0 Payments on debt (5) (5) ---------- --------- Net cash provided by financing activities 16,966 8,001 ---------- --------- Net increase (decrease) in cash and cash equivalents (3,292) 5,335 Cash and cash equivalents at beginning of period 8,172 6,647 ---------- --------- Cash and cash equivalents at beginning of period 4,880 11,982 ========== ========= Supplemental disclosure of cash flows information: Cash paid during the period for: Interest 3,860 3,713 Income Taxes 724 652 Supplemental schedule of noncash investing and financing activities: Unrealized gain (loss) on investments available for sale (net of deferred taxes of $ 219 and $ [ 295 ] at September 30, 1997 and 1996, respectively) 425 (572) 5 % stock dividend issued May, 1997 1,736 0 The accompanying notes are an integral part of these condensed financial statements. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 (UNAUDITED) NOTE 1. Basis of Presentation The financial information presented at and for the three months ended and nine months September 30, 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. Income tax expense is less than the amount calculated using the statutory tax rate primarily as a result of tax exempt income earned from state and political subdivision obligations. 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. Note 6. Changes in Common Stock On March 20, 1997 the Board of Directors of Orrstown Financial Services, Inc. declared a 5 % stock dividend payable May 15, 1997 to shareholders of record May 1, 1997. Earnings per share, dividends per share and weighted average shares outstanding references have been restated to reflect the 5 % stock dividend for all periods presented. 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 indentification 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, 1997 fair value exceeded amortized cost by $1,009,000. This resulted in an increase in stockholders' equity of $666,000 after recognizing the tax effects of the unrealized gains. At December 31, 1996, fair market value exceeded amortized cost by $ 365,000 resulting in an increase in stockholders' equity of $ 241,000 after recognizing the tax effects of the unrealized gains. ORRSTOWN FINANCIAL SERVICES, INC. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Summary Orrstown Financial Services, Inc. recorded net income of $ 728,000 for the third quarter of 1997 compared to $ 608,000 for the same period in 1996, representing an increase of $ 120,000 or 19.7 %. Net income per share was $ .71 during 1997's third quarter up $ .11 from the $ .60 earned during 1996's third quarter. Net income for the first nine months of 1997 was $ 2,006,000 compared to $ 1,680,000 for the same period in 1996, representing an increase of $ 326,000 or 19.4 %. Net income per share for the first nine months was $ 1.96 up $ .32 from the 1.64 per share realized during the nine months ended September 30, 1996. The following statistics compare 1997's year to date performance to that of 1996: Third Quarter Nine Months Year to Date 1997 1996 1997 1996 Return on average assets 1.65 % 1.56 % 1.59 % 1.47 % Return on average equity 16.89 % 16.14 % 16.22 % 15.16 % Average equity / Average assets 9.75 % 9.59 % 9.83 % 9.71 % A more detailed discussion of the elements having the greatest impact on net income follows. Net Interest Income Third Quarter 1997 vs. Third Quarter 1996 Net interest income for the third quarter of 1997 was $ 1,970,000 representing a growth of $ 213,000, or 12.1 % , over the $ 1,757,000 realized during 1996's third quarter. Loan demand has been adequate to enable the loan portfolio to grow at a slightly higher rate than the total balance sheet. This loan growth coupled with liability pricing and product offerings have enabled a 14 basis point increase in net interest spread. In addition, a growth in free funds of $ 1,785,000, or 7.3 %, has enabled a 12 basis point increase in net interest margin. Nine Months 1997 vs. Nine Months 1996 Net interest income for the first nine months of 1997 was $ 5,671,000 representing an increase of $ 560,000, or 11.0 %, over the $ 5,111,000 generated during the first nine months of 1996. Loan growth and liability pricing have contributed to a 15 basis point increase in net interest spread over the prior year's results. Free funds growth of $ 560,000, or 11.5 %, has contributed to a similar 15 basis point increase in net interest margin. The table that follows states rates on a fully taxable equivalent basis, ( F.T.E. ) and demonstrates the aforementioned effects: THIRD QUARTER 1997 1996 ( in thousands ) Avg. Balances Rates Avg. Balances Rates Interest earning assets 165,358 8.55 146,538 8.33 % Interest bearing liabilities 138,978 4.27 % 121,943 4.19 % --------- --------- ---------- -------- Free Funds 26,380 24,595 ========= ========== Net interest income 1,970 1,757 ========= ========== Net interest spread ( F.T.E. ) 4.28 % 4.14 % ========= ======== Free funds ratio 15.95 % 16.78 % ========= ========== Net interest margin ( F.T.E ) 4.96 % 4.84 % ========= ========= Nine Months Year to Date 1997 1996 (in thousands) Avg. Balances Rates Avg. Balances Rates Interest earning assets 158,002 8.57% 142,619 8.44% Interest bearing liabilities 132,441 4.25% 119,686 4.27% _________ ______ _______ _____ Free Funds 25,561 22,933 ========= ======== Net interest income 5,671 5,111 ========= ======== Net interest spread (F.T.E.) 4.32% 4.17% ======= ====== Free funds ratio 16.18% 16.08% ======== ======= Net interest margin (F.T.E.) 5.01% 4.86% ====== ======
Other Income and Other Expenses Third Quarter 1997 vs. Third Quarter 1996 Other income increased $ 38,000, or 11.9 %, from $ 318,000 during the third quarter of 1996 to $ 356,000 during the third quarter of 1997. Increases in service charges on deposit accounts accounted for $ 36,000 of the increase generated by a revised service fee schedule and growth in the deposit base. Other expense rose $ 163,000, or 14.47 %, from $ 1,134,000 for third quarter 1996 to $ 1,297,000 for 1997's third quarter. Salary and benefit increases contributed $ 105,000 of the growth. All expense categories grew due to general growth of the bank plus the opening of a sixth branch office during January 1997 in Carlisle, Pennsylvania and preliminary planning and staffing for the opening of a seventh branch office during November, 1997 in Chambersburg, Pennsylvania. Robust loan and deposit growth plus the addition of these two banking facilities have contributed to increases in all noninterest expense categories. Nine Months 1997 vs. Nine Months 1996 Other income increased $ 211,000, or 24.1 %, to $ 1,086,000 from $ 875,000 a year ago. A $ 125,000, or 14.3 %, increase in service charges on deposit account plus a $ 75,000, or 26.5 %, increase in trust department income were the primarily contributors to this growth. Other expenses rose $ 439,000, or 12.8 %, from $ 3,419,000 during the first nine months of 1996 to $ 3,858,000 for the same period of 1997. All categories of noninterest expense rose due to the aforementioned growth plus the addition of two new branch locations during 1997. Staff increases contributed to growth in salaries and benefits of $ 226,000, the largest single component of increase. Income Tax Expense Income tax expense decreased $ 17,000, or 6.2 %, during 1997's third quarter versus third quarter 1996. Income tax expense rose $ 51,000, or 7.2 % for the first nine months of 1997 versus the same period a year ago. The primary factor driving the change in income tax expense is a 97 % increase in the municipal bond portfolio from $ 8,933,000 at September 30, 1996 to $ 17,609,000 at September 30,1997. This increase in tax exempt investing has reduced effective federal income tax rates as follows: Third Quarter Nine Months Year to Date 1997 1996 1997 1996 Effective income tax rate 26.0 % 31.0 % 27.9 % 29.6 % The margined federal income tax bracket is 34 % for all periods presented. 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 1997 1996 1997 1996 Balance, beginning of period 1,684 1,519 1,620 1,433 Recoveries 0 3 1 14 Provision for loan loss charged to income 45 60 135 180 --------- -------- -------- --------- Total 1,729 1,582 1,756 1,627 Losses 38 9 65 54 --------- -------- -------- --------- Balance, end of period 1,691 1,573 1,691 1,573 ========= ======== ======== ========= 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. The unallocated portion of the allowance for loan losses exceeds 70 % at September 30, 1997. 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 1997 1996 1997 1996 Real estate mortgages 463 18 405 0 Installment loans 42 63 15 0 Demand and time loans 12 0 0 16 Credit card 5 14 0 0 --------- -------- -------- --------- Total 522 95 420 16 ========= ======== ======== ========= There were no restructured loans for any of the time periods set forth above. Any loans classified for regulatory purposes as loss, doubtful, substandard or special mention that have not been disclosed under Item III of Industry Guide 3 do not represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity or capital resources. CAPITAL RESOURCES AND BALANCE SHEET FLUCTUATIONS A comparison of Orrstown Financial Services' capital ratios to regulatory minimum requirements at September 30, 1997 is as follows: Orrstown Financial Regulatory Minimum Services Requirements Leverage ratio 9.32 % 4 % Risk based capital ratios: Tier I (core capital) 12.83 % 4 % Combined tier I and tier II (core capital plus allowance for loan losses) 14.08 % 8 % The robust growth experienced during 1997 has been supported by capital growth in the form of retained earnings. Equity represented 9.97 % of assets at September 30, 1997 which is down just slightly from 10.06 % at December 31, 1997. All balance sheet fluctuations exceeding 5 % have been created by either the robust growth that has been experienced during 1997 or single day fluctuations. Management is not aware of any current recommendations by regulatory authorities which, if implemented, would have a material effect on the corporation's liquidity, capital resources or operations. 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 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) (Chief Accounting Officer) EX-27 2
9 9-MOS DEC-31-1996 SEP-30-1997 4,876 22 4 0 43,239 43,239 43,239 122,782 1,691 177,319 151,837 0 2,468 5,334 0 0 214 17,680 177,319 7,879 1,847 167 9,893 4,020 4,222 5,671 135 5 3,858 2,764 2,006 0 0 2,006 1.96 1.96 5.01 420 522 0 0 1,620 65 1 1,691 1,691 0 0
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