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, 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 April 30, 1996
(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, 1996
and December 31, 1995 3
Condensed consolidated statements of income - Three months
ended March 31, 1996 and 1995 4
Condensed consolidated statements of cash flows - Three months
ended March 31, 1996 and 1995 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,
1996 1995 *
ASSETS (Unaudited)
(000 Omitted)
Cash and due from banks $ 4,975 $
4,330
Interest-bearing deposits with banks 1,568 1,289
Federal funds sold 4,781 2,317
Securities available for sale 29,574
30,694
Federal Home Loan Bank, Federal Reserve and
Atlantic Central Bankers Bank Stock, at cost
which approximates market value 934 869
Loans 103,570
102,857
Allowance for loan losses ( 1,475) (
1,433)
Net loans 102,095
101,424
Bank premises and equipment, net 3,198 3,042
Other assets 2,653
2,033
Total assets $ 149,778 $
145,998
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $ 14,884 $
13,962
Interest-bearing 116,339
113,368
Total deposits 131,223
127,330
Federal funds purchased and other borrowed money 2,340 2,345
Other liabilities 1,734
1,690
Total liabilities 135,297
131,365
STOCKHOLDERS' EQUITY
Common stock, no par value - $ .2083 stated
value per share at March 31, 1996 and
December 31, 1995 2,000,000 shares authorized
with 976,863 and 930,891 shares issued at
March 31, 1996 and December 31, 1995 204 204
Additional paid-in capital 10,625
10,625
Retained earnings 3,600 3,232
Unrealized holding gain, net of tax
$ 27 and $ 295 at March 31, 1996 and
December 31, 1995, respectively 52
572
Total stockholders' equity 14,481
14,633
Total liabilities and stockholders'
equity $ 149,778 $
145,998
* 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, 1996 and 1995
(UNAUDITED)
1996 1995
(Unaudited) (Unaudited)
(000 Omitted)
Interest Income
Interest and fees on loans $ 2,366
$ 2,055
Interest on federal funds sold 43
5
Interest and dividends on investment securities 476
360
Interest income on deposits with banks 21
10
Total interest income 2,906
2,430
Interest Expense
Interest on deposits 1,223 915
Interest on borrowed money 37
53
Total interest expense 1,260
968
Net interest income 1,646
1,462
Provision for loan losses 60
30
Net interest income after provision for loan
losses 1,586
1,432
Other Income
Service charges on deposits 99 88
Other service charges 35 43
Other 122
57
Total other income 256
188
Other Expenses
Salaries and employee benefits 600
532
Net occupancy and equipment expense 147 144
Other operating expense 354
334
Total other expense 1,101
1,010
Income before income taxes 741
610
Income tax expense 207
176
Net income $ 534 $
434
Weighted average number of shares outstanding 976,863
954,192
Net income per share $ .55 $
.46
Cash dividends declared per share $ .17 $
.15
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, 1996 and 1995
(UNAUDITED)
1996 1995
(Unaudited) (Unaudited)
(000 Omitted)
Cash flows from operating activities:
Net income $ 534 $
434
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 62 58
Provision for loan losses 60 30
Other, net ( 327)
86
Net cash provided by operating activities 329
608
Cash flows from investing activities:
Net (increase) in interest bearing
deposits with banks ( 279)
( 908)
Purchase of available for sale securities ( 39) (
2,084)
Sales of available for sale securities 0
2,273
Maturities of available for sale securities 372
1,218
Purchases of FHLB stock ( 65) (
61)
Net (increase) in loans ( 713) (
3,313)
Purchases of bank premises and equipment -
Net ( 218) (
159)
Net cash provided (used) by investing
activities ( 942) (
3,034)
Cash flows from financing activities:
Net increase in deposits 3,893
5,967
Payments on debt ( 5) (
649)
Cash dividends paid ( 166) (
140)
Net cash provided (used) by financing
activities 3,722
5,178
Net increase in cash and cash equivalents 3,109
2,752
Cash and cash equivalents, beginning balance 6,647
4,593
Cash and cash equivalents, ending balance $ 9,756 $
7,345
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest $ 1,214 $
926
Income taxes 21 169
Supplemental schedule of noncash investing and financing activities:
Unrealized gain (loss) on investments available for
sale (net of deferred taxes of $ (27) and $ 7
at March 31, 1996 and 1995, respectively) 52 (
13)
Other real estate acquired in settlement of loans 93 0
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, 1996
(UNAUDITED)
Note 1. Basis of Presentation
The financial information presented at and for the three
months ended March 31, 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 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 and 954,192 shares at March 31, 1996 and
1995, respectively.
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". Fair market value exceeded amortized
cost of debt securities by $ 79,000 and $ 867,000 at
March 31, 1996 and December 31, 1995, respectively. This
resulted in an increase in stockholders' equity of $ 52,000
and $ 572,000 at March 31, 1996 and December 31, 1995,
respectively after recognizing the tax effects of the
unrealized gains.
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 1996 was
$534,000 compared to $434,000 for the same period in 1995
representing an increase of $100,000 or 23.0%. Net income on an
adjusted per share basis for the first three months was $ .55 up $ .09
from the $ .46 per share realized during the quarter ended March 31,
1995.
RESULTS OF OPERATIONS
First Quarter 1996 vs. First Quarter 1995
Interest income for the first quarter of 1996 was $ 2,906,000
compared to $ 2,430,000 as of March 31, 1995, for an increase of
$ 476,000. The increase is due primarily to an increase in interest
on loans in response to rising interest rates and higher loan volumes.
Net loans at March 31, 1996 stood at $ 102,095,000 compared to
$ 101,424,000 as of December 31, 1995.
Interest expense for the current quarter was $ 1,260,000, an
increase of $ 292,000 over the $ 968,000 for the same period of the
prior year. Deposit volumes increased since the first of the year
with significant increases in time deposits as interest rates rise.
Average rates have increased over those paid in the first quarter 1995
resulting in higher interest expense.
Net interest income for the first quarter of 1996 totaled
$ 1,646,000, up $ 184,000 from the first quarter 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.
OTHER INCOME
First Quarter 1996 vs. First Quarter 1995
Noninterest income increased from $ 188,000 in 1995 to
$ 256,000 in 1996. The most significant impact was a $ 50,000
increase in trust fees. A decrease of $ 17,000 in net securities
losses also contributed to the increase.
OTHER EXPENSES
First Quarter 1996 vs. First Quarter 1995
Other expenses totaled $ 1,101,000 as of March 31, 1996, an
increase of $ 91,000 over the $ 1,010,000 recorded for March 31, 1995.
Employee related expenses were up 12.8% over the first quarter 1995,
consistent with the prior year. A $ 58,000 drop in FDIC insurance was
offset by increases in other operating expenses.
Page 8 of 13 pages
INCOME TAXES
The effective income tax rate remained constant at 28%
compared to the same period for 1995.
FINANCIAL CONDITION
Total assets at March 31, 1996 were $ 149,778,000 a 2.6%
increase over December 31, 1995. Net loans at March 31, 1996 totaled
$ 102,095,000, an increase of $ 671,000 over the $ 101,424,000 level
at December 31, 1995.
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
1996 1995
Balance, beginning of
period $ 1,433 $ 1,200
Recoveries 4 5
Provision for loan loss
charged to income 60 30
Total 1,497 1,235
Losses 22 3
Balance, end of period $ 1,475 $ 1,232
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
1996 1995 1996 1995
Real estate mortgages $ 65 $ 214 $ 58 $ 47
Installment loans 93 71 34 11
Demand and time loans 0 0 16
0
Credit card 8 20 2 0
Total $ 166 $ 305 $110 $ 58
There were no restructured loans for any of the time periods
set forth above.
Total deposits increased to $ 131,223,000 at March 31, 1996
compared to $ 127,330,000 at December 31, 1995. Significant increases
occurred in time deposits, as interest rates rose during the first
quarter.
Page 9 of 13 pages
Total equity at March 31, 1996 was $ 14,481,000 representing
9.7% of total assets. This is a $ 152,000 decrease from the company's
capital position at December 31, 1995. A $ 520,000 decrease in
unrealized holding gains was partially offset by net income.
A comparison of Orrstown Financial Services' capital ratios to
regulatory minimum requirements at March 31, 1996 is as follows:
Orrstown Financial Regulatory Minimum
Services Requirements
Leverage ratio 9.7% 4%
Risk based capital ratios:
Tier I (core capital) 13.65% 4%
Combined tier I and tier II
(core capital plus allowance
for loan losses) 15.05% 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
ASSETS 1996 March 31, 1995
Securities available for sale:
Taxable interest income $ 18,027 $
15,649
Nontaxable interest income 11,326
7,120
Total available for sale
securities 29,353 22,769
Other investments 1,206 1,097
Loans (net of unearned discounts) 102,867 92,479
Other short-term investments 3,253
566
Total interest earning assets 136,679 116,911
Allowance for loan losses ( 1,462) (
1,214)
Cash and due from banks 5,791 4,674
Bank premises and equipment 3,125 2,640
Other assets 2,897
806
Total assets $ 147,030 $
123,817
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand deposits $ 25,756 $
24,677
Savings deposits 26,065 23,306
Time deposits 62,224 45,892
Short-term borrowings 0 1,079
Long-term borrowings 2,342
2,346
Total interest bearing
liabilities 116,387 97,300
Page 10 of 13 pages
AVERAGE BALANCE SHEETS
Three Months Ended
1996 March 31, 1995
Demand deposits $ 14,156 $
12,731
Other liabilities 1,577
1,203
Total liabilities 132,120 111,234
Stockholders' equity 14,910
12,583
Total liabilities and
stockholders' equity $ 147,030 $
123,817
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 - None
(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
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,975
<INT-BEARING-DEPOSITS> 1,568
<FED-FUNDS-SOLD> 4,781
<TRADING-ASSETS> 934
<INVESTMENTS-HELD-FOR-SALE> 29,574
<INVESTMENTS-CARRYING> 29,574
<INVESTMENTS-MARKET> 29,574
<LOANS> 103,570
<ALLOWANCE> 1,475
<TOTAL-ASSETS> 149,778
<DEPOSITS> 131,223
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,734
<LONG-TERM> 2,340
<COMMON> 204
0
0
<OTHER-SE> 14,481
<TOTAL-LIABILITIES-AND-EQUITY> 149,778
<INTEREST-LOAN> 2,366
<INTEREST-INVEST> 476
<INTEREST-OTHER> 64
<INTEREST-TOTAL> 2,906
<INTEREST-DEPOSIT> 1,223
<INTEREST-EXPENSE> 1,260
<INTEREST-INCOME-NET> 1,646
<LOAN-LOSSES> 60
<SECURITIES-GAINS> (4)
<EXPENSE-OTHER> 1,101
<INCOME-PRETAX> 741
<INCOME-PRE-EXTRAORDINARY> 534
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 534
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
<YIELD-ACTUAL> 4.92
<LOANS-NON> 110
<LOANS-PAST> 166
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,433
<CHARGE-OFFS> 22
<RECOVERIES> 4
<ALLOWANCE-CLOSE> 1,475
<ALLOWANCE-DOMESTIC> 1,475
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
