-----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, ClAevEuh4WLFvUPNYWdHpxXChFYumwKsO9kJZvElRr7PLGeO9Uz1LcHIgpwmWVFo Z2dz/ZJYA84g+T9HpD8UOw== 0000950115-00-000704.txt : 20000516 0000950115-00-000704.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950115-00-000704 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: 631097 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: STREET 1: 77 EAST KING STREET CITY: SHIPPANSBURG STATE: PA ZIP: 17257 10-Q 1 QUARTERLY REPORT 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, 2000 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 May 4, 2000 - ----------------------------- -------------------------- (Common stock, .625 par value) 2,228,359 Page 1 of 14 pages ORRSTOWN FINANCIAL SERVICES, INC. INDEX Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial statements (unaudited) Condensed consolidated balance sheets - March 31, 2000 and December 31, 1999 3 Condensed consolidated statements of income - three months ended March 31, 2000 and 1999 4 Condensed consolidated statements of comprehensive income - three months ended March 31, 2000 and 1999 5 Condensed consolidated statements of cash flows - three months ended March 31, 2000 and 1999 6 Notes to condensed consolidated financial statements 7 and 8 Item 2. Management's discussion and analysis of financial condition and results of operations 9 - 12 PART II - OTHER INFORMATION Other information 13 Signatures 14 Exhibits Page 2 of 14 pages PART I - FINANCIAL INFORMATION ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 2000 1999* ---- ----- ASSETS (Unaudited) (000 Omitted) Cash and due from banks $ 7,199 $ 8,585 Interest-bearing deposits with banks 254 115 Federal funds sold 2,383 0 Securities available-for-sale 65,384 60,455 Federal Home Loan Bank, Federal Reserve and Atlantic Central Bankers Bank Stock, at cost which approximates market value 1,734 1,509 Loans 185,670 180,691 Allowance for loan losses (2,523) (2,455) --------- --------- Net loans 183,147 178,236 Bank premises and equipment, net 7,435 6,809 Accrued interest receivable 1,616 1,599 Cash surrender value of life insurance 5,443 5,384 Other assets 2,752 2,361 --------- --------- Total assets $ 277,347 $ 265,053 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits: Noninterest-bearing $ 28,498 $ 25,264 Interest-bearing 177,412 179,125 --------- --------- Total deposits 205,910 204,389 Federal funds purchased and other short term borrowed funds 25,543 15,406 Long term borrowed funds 20,815 20,822 Accrued interest payable 407 422 Other liabilities 2,215 2,146 --------- --------- Total liabilities 254,890 243,185 --------- --------- STOCKHOLDERS' EQUITY Common stock, no par value - $.1041 stated value per share at March 31, 2000 and December 31, 1999, 10,000,000 shares authorized with 2,220,598 shares issued at March 31, 2000 and 2,218,291 issued at December 31, 1999 231 231 Additional paid-in capital 18,589 18,498 Retained earnings 4,354 3,717 Unrealized holding loss, net of tax of ($369) and ($298) at March 31, 2000 and December 31, 1999, respectively (717) (578) --------- --------- Total stockholders' equity 22,457 21,868 --------- --------- Total liabilities and stockholders' equity $ 277,347 $ 265,053 ========= =========
* Condensed from audited financial statements The accompanying notes are an integral part of these condensed financial statements. Page 3 of 14 pages ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
2000 1999 ---- ---- (000 Omitted) Interest Income Interest & fees on loans $ 3,918 $ 3,465 Interest on federal funds sold 49 80 Interest and dividends on investment securities 1,013 762 Interest income on deposits with banks 8 2 --------- --------- Total interest income 4,988 4,309 --------- --------- Interest Expense Interest on deposits 1,718 1,581 Interest on borrowed money 575 341 --------- --------- Total interest expense 2,293 1,922 --------- --------- Net interest income 2,695 2,387 Provision for loan losses 75 90 --------- --------- Net interest income after provision for loan losses 2,620 2,297 --------- --------- Other Income Service charges on deposits 270 236 Other service charges 115 120 Trust Department income 253 184 Brokerage income 79 82 Other income 86 91 Net gains on available for sale securities (2) (9) --------- --------- Total other income 801 704 --------- --------- Other Expenses Salaries and employee benefits 1,176 1,001 Net occupancy and equipment expenses 355 215 Other operating expenses 606 613 --------- --------- Total other expenses 2,137 1,829 --------- --------- Income before income taxes 1,284 1,172 Income tax expenses 335 323 --------- --------- Net income $ 949 $ 849 ========= ========= Weighted average number of shares outstanding 2,220,092 2,211,511 Net income per share $ .43 $ .38 Cash dividends declared per share $ .14 .12
The accompanying notes are an integral part of these condensed financial statements. All per share amounts have been adjusted to give retroactive recognition to a 7-1/2% stock dividend effective November 19, 1999. Page 4 of 14 pages ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED) 2000 1999 ---- ---- (000 Omitted) Net income $ 949 $ 849 Other comprehensive income, net of tax Unrealized gain (loss) on investment securities available for sale (139) (209) ----- ----- Comprehensive income $ 810 $ 640 ===== ===== The accompanying notes are an integral part of these condensed financial statements. Page 5 of 14 pages ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, 2000 and 1999 (UNAUDITED)
2000 1999 ---- ---- (000 Omitted) Cash flows from operating activities: Net income $ 949 $ 849 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 158 112 Provision for loan losses 75 90 Other - Net 40 54 ------ -------- Net cash provided by operating activities 1,222 1,105 ------ -------- Cash flows from investing activities: Net (increase) decrease in interest bearing deposits with banks (139) 7 Purchase of available for sale securities (6,267) (5,016) Maturities of available-for-sale securities 899 2,201 Net (increase) in loans (4,986) (4,465) Purchases of bank premises and equipment (771) (133) (Increase) in other assets (391) (302) ------- -------- Net cash (used) by investing activities (11,655) (7,708) ------- -------- Cash flows from financing activities: Net increase in deposits 1,521 4,323 Cash dividends paid (311) (268) Dividend reinvestment plan purchases 90 70 Net increase in purchased funds 10,137 103 Payments on debt (7) (6) ------- -------- Net cash provided by financing activities 11,430 4,222 ------- -------- Net increase(decrease) in cash and cash equivalents 997 (2,381) Cash and cash equivalents at beginning Of period 8,585 15,100 ------- -------- Cash and cash equivalents at end of period $ 9,582 $ 12,719 ======= ======== Supplemental disclosure of cash flows information: Cash paid during the period for: Interest $ 2,308 $ 2,007 Income taxes 0 0 Supplemental schedule of noncash investing and financing activities: Unrealized (loss) on investments available for sale (net of deferred taxes of $(72) and $(107) at march 31, 2000 and 1999, respectively (139) (209)
The accompanying notes are an integral part of these condensed financial statements. Page 6 of 14 pages NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000 (UNAUDITED) Review of Interim Financial Statements The condensed consolidated financial statements as of and for the three months ended March 31, 2000 and 1999 have been reviewed by independent certified public accountants. Their report on their review is attached as Exhibit 99 to this 10-Q filing. Note 1. Basis of Presentation The financial information presented at and for the three months ended March 31, 2000 and 1999 is unaudited. Information presented at December 31, 1999 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 statements 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. Page 7 of 14 pages 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 In October, 1999 the Board of Directors of Orrstown Financial Services, Inc. approved a 7-1/2% stock dividend payable November 19, 1999 to shareholders of record November 1, 1999. All per share amounts have been adjusted to give retroactive recognition to this event. 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 investment securities as "available for sale". At March 31, 2000 amortized cost exceeded fair value by $1,086,000. This resulted in a decrease in stockholders' equity of $717,000 after recognizing the tax effects of the unrealized losses. At December 31, 1999 amortized cost exceeded fair value by $875,000 resulting in a decrease in stockholders' equity of $578,000 after recognizing the tax effects of the unrealized losses. Page 8 of 14 pages ORRSTOWN FINANCIAL SERVICES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Summary Orrstown Financial Services, Inc. recorded net income of $949,000 for the first quarter of 2000 compared to $849,000 for the same period in 1999; representing an increase of $100,000 or 11.8%. Net income per share was $.43 during 2000's first quarter up $.05 from the $.38 earned during 1999's first quarter. The following statistics compare 2000's first quarter performed to that of 1999: First Quarter -------------------- 2000 1999 ------ ------ Return on average assets 1.42% 1.45% Return on average equity 16.99% 15.95% Average equity/average assets 8.33% 9.09% A more detailed discussion of the elements having the greatest impact on net income follows. NET INTEREST INCOME Net interest income for the first quarter of 2000 was $2,695,000 representing growth of $308,000, or 12.9%, over the $2,387,000 realized during 1999's first quarter. The growth in net interest income is driven by volume factors since spreads have tightened slightly. Net interest spread stayed at 4.07% but net interest margin tightened by 5 basis points due to a declining level of free funds. The table that follows states rates on a fully taxable equivalent basis (F.T.E.) and demonstrates the aforementioned effects:
First Quarter ------------------------------------------------------------ 2000 1999 ------------------------ ----------------------- (in thousands) Avg. Balances Rates Avg. Balances Rates ------------- ----- ------------- ----- Interest earning assets $ 248,785 8.29% $ 220,587 8.16% Interest bearing liabilities 218,478 4.22% 190,238 4.09% --------- ---- --------- ---- Free funds $ 30,307 $ 30,349 ========= ========= Net interest income $ 2,695 $ 2,387 ========= ========= Net interest spread (F.T.E.) 4.07% 4.07% ==== ==== Free funds ratio 12.18% 13.76% ===== ===== Net interest margin (F.T.E.) 4.58% 4.63% ==== ====
Page 9 of 14 pages OTHER INCOME AND OTHER EXPENSES First Quarter 2000 vs. First Quarter 1999 Other income increased $97,000, or 13.8% from $704,000 during 1999 to $ 801,000 during 2000's first quarter. The increase was primarily attributable to a $69,000, or 37.5%, increase in trust revenues and a $34,000, or 14.4% increase in service charges on deposits. Our trust and investment services division continues to grow and is now contributing approximately 8% of our net income. The service charge on deposits increase was a by product of deposit growth and a new service charge schedule installed in mid-1999. Orrstown Financial Services was one of the First Bank holding companies in the country to file for and receive Financial Holding Company (FHC) status which should facilitate the ability to realize noninterest income growth opportunities in the future. Other expenses rose from $1,829,000 during the first quarter 1999 to $2,137,000 during 2000's first quarter, an increase of $308,000, or 16.8%. Growth over the past three years has caused staff increases and conversions of all major systems during 1999, including a switch from a third party provider to in-house processing for core commercial bank processing, has required some staff increases in our operations area. This major operational overhead should bode well for future effeciencies and enable growth at improving incremental margins. Our eighth full service office was opened in September, 1999 at a Chambersburg, Pennsylvania Wal-Mart and our ninth is scheduled to open in Mid-2000 at Silver Spring, outside Mechanicsburg, Pennsylvania. We are excited at the prospect of entering the Mechanicsburg market, a natural extension from our Carlisle locations. In addition, a new operations center should be completed in June, 2000 in Shippensburg. This expansion has brought increased operating costs but we have been able to grow profitably. INCOME TAX EXPENSE Income tax expense increased $12,000 or 3.7% during 2000's first quarter versus first quarter 1999. Effective income tax rates were as follows: First Quarter --------------------- 2000 1999 ---- ---- Effective income tax rate 26.1% 27.6% The marginal federal income tax bracket is 34% for all periods presented. Page 10 of 14 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 ---------------------------------- 2000 1999 ---- ---- Balance, beginning of period $ 2,455 $ 1,971 Recoveries 1 1 Provision for loan loss Charged to income 75 90 ------- ------- Total 2,531 2,062 Losses 8 5 ------- ------- Balance, end of period $ 2,523 $ 2,057 ======= ======= 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 50% at March 31, 2000. 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 ------------------------- ------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Real estate mortgages $ 139 $ 89 $ 0 $ 0 Installment loans 39 1 0 32 Commercial loans 1,930 90 45 451 Credit card 1 3 0 0 ------- ----- ---- ----- Total $ 2,109 $ 183 $ 45 $ 483 ======= ===== ==== =====
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. Page 11 of 14 pages CAPITAL RESOURCES AND BALANCE SHEET FLUCTUATIONS A comparison of Orrstown Financial Services' capital ratios to regulatory minimum requirements at March 31, 2000 is as follows: Orrstown Financial Regulatory Minimum Services Requirements -------- ------------ Leverage ratio 8.42% 4% Risk based capital ratios: Tier I (core capital) 12.61% 4% Combined tier I and tier II (core capital plus allowance for loan losses) 13.86% 8% The growth experienced during 2000 has been supported by capital growth in the form of retained earnings and capital infusion from the dividend reinvestment plan. Dividend reinvestment plan participants will be able to add up to $2,500 per quarter beginning with the second quarter of 2000 so this source of capital should expand. Equity represented 8.10% of assets at March 31, 2000 which is down from 8.25% at December 31, 1999. Available-for-sale investment securities markdowns have reduced equity by $2,035,000 since March 31, 1999 as rates have risen. All balance sheet fluctuations exceeding 5% have been created by either the growth that has been experienced during 2000 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. Page 12 of 14 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: 27 - Financial Data Schedule 99 - Report of independent accountant's on interim financial statements (b) Reports on Form 8-K - None Page 13 of 14 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 -------------------------------- (Kenneth R. Shoemaker, President) (Duly Authorized Officer) Date May 10, 2000 /s/ Bradley S. Everly ------------ -------------------------------- (Bradley S. Everly, Senior Vice President) (Chief Financial Officer) /s/ Robert B. Russell -------------------------------- (Robert B. Russell, Controller) (Chief Accounting Officer) Page 14 of 14 pages EX-27 2 FINANCIAL DATA SCHEDULE
9 3-MOS DEC-31-1999 MAR-31-2000 7,199 254 2,823 0 65,384 65,384 65,384 185,670 2,523 277,347 205,910 25,543 2,622 20,815 231 0 0 22,457 277,347 3,918 1,013 57 4,988 1,718 2,293 2,695 75 (2) 2,137 1,284 949 0 0 949 .43 .43 4.58 45 2,109 0 0 2,455 8 1 2,523 2,523 0 0
EX-99 3 INDEPENDENT ACCOUNTANT'S REPORT EXHIBIT 99 INDEPENDENT ACCOUNTANT'S REPORT Board of Directors Orrstown Financial Services, Inc. Shippensburg, Pennsylvania We have reviewed the accompanying consolidated balance sheet of Orrstown Financial Services, Inc. and Subsidiary as of March 31, 2000 and the related consolidated statements of income for the three months ended March 31, 2000 and 1999 and consolidated statements of comprehensive income for the three months ended March 31, 2000 and 1999 and consolidated statements of cash flows for the three months ended March 31, 2000 and 1999. These financial statements are the responsibility of the corporation's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with generally accepted accounting principles. /s/ Smith Elliott Kearns & Company, LLC --------------------------------------- SMITH ELLIOTT KEARNS & COMPANY, LLC Chambersburg, Pennsylvania May 10, 2000 -----END PRIVACY-ENHANCED MESSAGE-----