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, 1995
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 30, 1995
(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, 1995
and December 31, 1994 3
Condensed consolidated statements of income - Three months
ended September 30, 1995 and 1994 4
Condensed consolidated statements of income - Nine months
ended September 30, 1995 and 1994 5
Condensed consolidated statements of cash flows - Nine months
ended September 30, 1995 and 1994 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,
1995 1994 *
ASSETS (Unaudited)
(000 Omitted)
Cash and due from banks $ 5,111 $
4,593
Interest-bearing deposits with banks 1,641 250
Federal funds sold 1,799 0
Securities available for sale 30,976
23,510
Federal Home Loan Bank, Federal Reserve
and Atlantic Central Bankers Bank
Stock, at cost which approximates
market value 869 808
Loans 101,124
90,839
Allowance for loan losses ( 1,274) (
1,200)
Net loans 99,850
89,639
Bank premises and equipment, net 2,980 2,512
Other assets 2,316
1,692
Total assets $ 145,542 $
123,004
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $ 14,853 $
13,262
Interest-bearing 112,824
93,103
Total deposits 127,677
106,365
Federal funds purchased and other
borrowed money 2,345 2,994
Other liabilities 1,569
1,292
Total liabilities 131,591
110,651
STOCKHOLDERS' EQUITY
Common stock, no par value - $ .2083
stated value per share at September 30,
1995 and December 31, 1994, 2,000,000
shares authorized with 976,863 and
930,891 shares issued at September 30,
1995 and December 31, 1994 204 194
Additional paid-in capital 10,625 9,393
Retained earnings 2,948 3,133
Unrealized holding gain (loss), net of
tax ($ 91) and $ 189 at September 30, 1995
and December 31, 1994, respectively 174 (
367)
Total stockholders' equity 13,951
12,353
Total liabilities and
stockholders' equity $ 145,542 $
123,004
* 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, 1995 and 1994
(UNAUDITED)
1995 1994
(Unaudited) (Unaudited)
(000 Omitted)
Interest Income
Interest and fees on loans $ 2,331 $
1,754
Interest on federal funds sold 9 38
Interest and dividends on investment
securities 459 376
Interest income on deposits with banks 9
11
Total interest income 2,808
2,179
Interest Expense
Interest on deposits 1,143 791
Interest on borrowed money 65
38
Total interest expense 1,208
829
Net interest income 1,600
1,350
Provision for loan losses 30
0
Net interest income after provision for
loan losses 1,570
1,350
Other Income
Service charges on deposits 92 92
Other service charges 41 40
Other 89
114
Total other income 222
246
Other Expenses
Salaries and employee benefits 524 550
Net occupancy and equipment expense 137 141
Other operating expense 307
332
Total other expense 968
1,023
Income before income taxes 824 573
Income tax expense 231
149
Net income $ 593 $
424
Weighted average number of shares
outstanding 946,552
946,552
Net income per share $ .61 $ .44
Cash dividends declared per share $ .15 $ .14
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, 1995 and 1994
(UNAUDITED)
1995 1994
(Unaudited) (Unaudited)
(000 Omitted)
Interest Income
Interest and fees on loans $ 6,641 $
4,917
Interest on federal funds sold 41 120
Interest and dividends on investment
securities 1,177 1,142
Interest income on deposits with banks 40
25
Total interest income 7,899
6,204
Interest Expense
Interest on deposits 3,110 2,270
Interest on borrowed money 155
111
Total interest expense 3,265
2,381
Net interest income 4,634
3,823
Provision for loan losses 90
5
Net interest income after provision for
loan losses 4,544
3,818
Other Income
Service charges on deposits 275 252
Other service charges 137 119
Other 232
320
Total other income 644
691
Other Expenses
Salaries and employee benefits 1,637 1,518
Net occupancy and equipment expense 402 363
Other operating expense 1,021
992
Total other expense 3,060
2,873
Income before income taxes 2,128 1,636
Income tax expense 624
419
Net income $ 1,504 $
1,217
Weighted average number of shares outstanding 946,552
946,552
Net income per share $ 1.59
$ 1.29
Cash dividends declared per share $ .45 $ .40
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, 1995 and 1994
(UNAUDITED)
1995 1994
(Unaudited) (Unaudited)
(000 Omitted)
Cash flows from operating activities:
Net income $ 1,504 $
1,217
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 174 155
Provision for loan losses 90 5
Other, net ( 30) (
52)
Net cash provided by operating activities 1,738
1,325
Cash flows from investing activities:
Net (increase) in interest bearing
deposits with banks ( 1,391) (
428)
Purchase of investment securities ( 13,342) (
5,291)
Maturities of investment securities 4,423 3,322
Sales of investment securities 2,273 6,356
Purchases of FHLB stock ( 61) 0
Net (increase) in loans ( 10,307) (
10,404)
Purchases of bank premises and
equipment - Net ( 642) (
744)
Premium paid on purchase of branch ( 589)
0
Net cash (used) by investing activities ( 19,636) (
7,189)
Cash flows from financing activities:
Net increase in deposits 21,312 5,090
Cash dividends paid ( 433) (
372)
Cash paid in lieu of fractional
dividends ( 15) 0
Payments on debt ( 649) (
1,100)
Proceeds from borrowed money 0
1,350
Federal funds purchased 0
235
Net cash provided by financing activities 20,215
5,203
Net increase in cash and cash equivalents 2,317 (
661)
Cash and cash equivalents, beginning
balance 4,593
5,327
Cash and cash equivalents, ending balance $ 6,910 $
4,666
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest $ 3,019 $
2,389
Income taxes 543 414
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, 1995 and 1994
(UNAUDITED)
1995 1994
(Unaudited) (Unaudited)
(000 Omitted)
Supplemental schedule of noncash investing and
financing activities:
Unrealized gain (loss) on investments
available for sale (net of deferred tax
benefit (liability) of ($ 91) and $ 61 at
September 30, 1995 and 1994,
respectively) $ 153 (
119)
5% stock dividend issued September 30,
1995 1,242 0
Other real estate acquired in settlement
of loans 22 0
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, 1995
(UNAUDITED)
Note 1. Basis of Presentation
The financial information presented at and for the three
months ended and nine months ended September 30, 1995 and
1994 is unaudited. Information presented at December 31,
1994 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
The Board of Directors approved a 5% stock dividend with
45,972 new shares issued September 30, 1995.
Earnings per share of common stock for the period ended
September 30, 1994 were computed based on an average of
946,552 shares after giving retroactive recognition to the 5%
stock dividend.
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, 1995 fair market
value exceeded amortized cost by $ 265,000. This resulted in
an increase in stockholders' equity of $ 174,000 after
recognizing the tax effects of the unrealized gains. At
December 31, 1994, amortized cost exceeded fair market value
by $ 556,000 resulting in a decrease in stockholders' equity
of $ 367,000 after recognizing the tax effects of the
unrealized losses.
Note 8. Branch Acquisition
In September 1995, the Orrstown Bank acquired a branch of
another bank. The acquisition included deposits of
$ 12,373,362, and land, building and equipment of $ 376,000.
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 1995 was
$1,504,000 compared to $1,217,000 for the same period in 1994
representing an increase of $287,000 or 23.6%. Net income on an
adjusted per share basis for the first nine months was $ 1.59 up $ .30
from the $ 1.29 per share realized during the nine months ended
September 30, 1994.
RESULTS OF OPERATIONS
Third Quarter 1995 vs. Third Quarter 1994
Interest income for the third quarter of 1995 was $ 2,808,000
compared to $ 2,179,000 as of September 30, 1994, for an increase of
$ 629,000. The increase is due primarily to an increase in loan
volumes.
Interest expense for the current quarter was $ 1,208,000, an
increase of $ 379,000 over the $ 829,000 for the same period of the
prior year. Interest bearing deposits, which have increased
significantly from September 30, 1994 plus an increase in average rates
paid over those paid in 1994 have resulted in higher interest
expense for the third quarter.
Net interest income for the third quarter of 1995 totaled
$ 1,600,000, up $ 250,000 from the third quarter of 1994.
Nine Months 1995 vs. Nine Months 1994
For the nine months ended September 30, 1995, interest income
was $ 7,899,000, an increase of $ 1,695,000 over the nine months ended
September 30, 1994. The increase is largely due to an increase in
loan volumes. Net loans at September 30, 1995 stood at $ 99,850,000
compared to $ 89,639,000 as of December 31, 1994.
Interest expense for the first nine months of 1995 was
$ 3,265,000 compared to $ 2,381,000 for the same period in 1994
representing a 37.1% increase. Significant increases have occurred in
time deposits reflecting a shift from interest bearing demand and
savings as interest rates generally rose over the first nine months of
1995.
Net interest income for the first three quarters of 1995
totaled $ 4,634,000, up $ 811,000 from the first three quarters of
1994. 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 1995 vs. Third Quarter 1994
Noninterest income dropped from $ 246,000 in 1994 to $ 222,000
in 1995. Service charges were flat while other income decreased
$ 25,000. The decrease in other income resulted primarily from a
$ 30,000 gain reported on the sale of other real estate in 1994.
Nine Months 1995 vs. Nine Months 1994
Noninterest income for the first nine months of 1995 was
$ 644,000 compared to $ 691,000 in 1994. Service charges and trust
fees were up $ 110,000 but offset by a $ 163,000 decrease in security
gains.
OTHER EXPENSES
Third Quarter 1995 vs. Third Quarter 1994
Other operating expenses totaled $ 968,000 as of September 30,
1995, a decrease of $ 55,000 from the $ 1,023,000 recorded for
September 30, 1994. Employee related expenses were down 4.7% compared
to the third quarter 1994 due to a timing difference in pay periods.
Net occupancy decreased slightly while other expenses were down 7.5%
from the prior year.
Nine Months 1995 vs. Nine Months 1994
Other operating expenses for the first nine months of 1995
reflect a $ 187,000 increase over the same period in 1994. Employee
related expenses continue the trend with a 7.8% increase. Net
occupancy increased $ 39,000 largely due to an increase in
depreciation expense related to the opening of a new branch.
INCOME TAXES
The effective income tax rate for the third quarter 1995
increased 3.9% compared to the same period for 1994. A 7.1% increase
is reflected for the nine month period ended September 30, 1995 over
1994 levels. This is due to a decrease in tax free municipal
securities.
FINANCIAL CONDITION
Total assets at September 30, 1995 were $ 145,542,000 an 18.3%
increase over December 31, 1994. Net loans at September 30, 1995
totaled $ 99,850,000, an increase of $ 10,211,000 over the
$ 89,639,000 level at December 31, 1994.
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
1995 1994 1995 1994
Balance, beginning of
period $ 1,261 $ 1,137 $ 1,200 $
1,125
Recoveries 0 3 6 11
Provision for loan loss
charged to income 30 0 90
5
Total 1,291 1,140 1,296
1,141
Losses 17 0 22
1
Balance, end of period $ 1,274 $ 1,140 $ 1,274 $
1,140
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):
<TABLE>
<S> <C>
90 Days or More
Past Due Nonaccrual Status
1995 1994 1995 1994
Real estate mortgages $ 381 $ 138 $
0$ 26
Installment loans 96 52 65
Demand and time loans 0 0 10
Credit card 10 0
0 0
Total $ 487 $ 190 $
7$ 31
</TABLE>
There were no restructured loans for any of the time periods
set forth above.
Total deposits increased to $ 127,677,000 at September 30,
1995 compared to $ 106,365,000 at December 31, 1994. Increases were
largely a result of the branch acquisition in September 1995.
Total equity at September 30, 1995 was $ 13,951,000
representing 9.6% of total assets. This is a $ 1,598,000 increase
from the company's capital position at December 31, 1994. $ 541,000
of the increase is due to a reduction in unrealized holding losses on
investment securities available for sale.
A comparison of Orrstown Financial Services' capital ratios to
regulatory minimum requirements at September 30, 1995 is as follows:
Orrstown Financial Regulatory Minimum
Services Requirements
Leverage ratio 9.6% 4%
Risk based capital ratios:
Tier I (core capital) 13.7%
4%
Combined tier I and
tier II (core capital plus
allowance for loan losses) 15.0%
8%
Page 12 of 15 pages
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
Year to Date
ASSETS September 30, 1995 1994
Securities available for sale:
Taxable interest income $ 16,520 $ 16,064
Nontaxable interest income 7,727 8,148
Total available for sale
securities 24,247 24,212
Other investments 1,140 1,106
Loans (net of unearned discounts) 96,206 81,740
Other short-term investments 901 3,394
Total interest earning assets 122,494 110,452
Allowance for loan losses ( 1,245) (
1,136)
Cash and due from banks 5,034 4,208
Bank premises and equipment 2,631 2,530
Other assets 1,502 2,334
Total assets $ 130,416 $ 118,388
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand deposits $ 24,627 $ 27,232
Savings deposits 23,624 24,425
Time deposits 50,822 37,526
Short-term borrowings 954 77
Long-term borrowings 2,346 2,304
Total interest bearing
liabilities 102,373 91,564
Demand deposits 13,487 12,991
Other liabilities 1,330 1,595
Total liabilities 117,190 106,150
Stockholders' equity 13,226 12,238
Total liabilities and
stockholders' equity $ 130,416 $ 118,388
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
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 5,111
<INT-BEARING-DEPOSITS> 1,641
<FED-FUNDS-SOLD> 1,799
<TRADING-ASSETS> 869
<INVESTMENTS-HELD-FOR-SALE> 30,976
<INVESTMENTS-CARRYING> 30,976
<INVESTMENTS-MARKET> 30,646
<LOANS> 101,124
<ALLOWANCE> 1,274
<TOTAL-ASSETS> 145,542
<DEPOSITS> 127,677
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,569
<LONG-TERM> 2,345
<COMMON> 204
0
0
<OTHER-SE> 13,747
<TOTAL-LIABILITIES-AND-EQUITY> 145,542
<INTEREST-LOAN> 6,641
<INTEREST-INVEST> 1,177
<INTEREST-OTHER> 81
<INTEREST-TOTAL> 7,899
<INTEREST-DEPOSIT> 3,110
<INTEREST-EXPENSE> 3,265
<INTEREST-INCOME-NET> 4,634
<LOAN-LOSSES> 90
<SECURITIES-GAINS> (44)
<EXPENSE-OTHER> 3,016
<INCOME-PRETAX> 2,128
<INCOME-PRE-EXTRAORDINARY> 1,504
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,504
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 1.59
<YIELD-ACTUAL> 5.01
<LOANS-NON> 7
<LOANS-PAST> 487
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,200
<CHARGE-OFFS> 22
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 1,274
<ALLOWANCE-DOMESTIC> 1,274
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
