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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission file number: 33-18888
ORRSTOWN FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
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
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, No Par Value The Common Stock is not
registered on any
exchange.
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 such 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
As of March 19, 1998, 1,025,094 shares of the registrant's common stock
were outstanding. The aggregate market value of such shares held by
nonaffiliates on that date was $ 48,179,418.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended
December 31, 1997 are incorporated by reference into Parts I and II.
Portions of the Proxy Statement for 1997 Annual Meeting of Security
Holders are incorporated by reference in Part III of this Form 10-K.
- -1-
Item 1. Business.
History and Business
Orrstown Financial Services, Inc. (OFS) is a bank holding
company registered under the Bank Holding Company Act of 1956, as
amended. Orrstown Financial Services, Inc. was organized on
November 17, 1987, under the laws of the Commonwealth of Pennsylvania
for the purpose of acquiring Orrstown Bank ("Orrstown"), Shippensburg,
Pennsylvania, and such other banks and bank related activities as are
permitted by law and desirable. On March 8, 1988, Orrstown Financial
Services, Inc. acquired 100% ownership of Orrstown, issuing 131,455
shares of Orrstown Financial Services, Inc.'s common stock to the former
Orrstown shareholders.
Orrstown Financial Services, Inc.'s primary activity
consists of owning and supervising its subsidiary, Orrstown Bank, which
is engaged in providing banking and bank related services in South
Central Pennsylvania, principally Franklin and Cumberland Counties,
where its seven branches are located in Shippensburg (2), Carlisle (2),
Spring Run, Orrstown, and Chambersburg, Pennsylvania. The day-to-day
management of Orrstown Bank is conducted by the subsidiary's officers.
Orrstown Financial Services, Inc. derives a majority of its current
income from Orrstown.
Orrstown Financial Services, Inc. has no employees other
than its six officers who are also employees of Orrstown, its
subsidiary. On December 31, 1997, Orrstown had 72 full-time and 30
part-time employees.
Business of Orrstown
Orrstown was organized as a state-chartered bank in 1987 as
part of an agreement and plan of merger between Orrstown Financial
Services, Inc. and Orrstown Bank, the predecessor of Orrstown, under
which Orrstown became a wholly-owned subsidiary of Orrstown Financial
Services, Inc. As indicated, Orrstown is the successor to Orrstown Bank
which was originally organized in 1919.
- -2-
Orrstown is engaged in commercial banking and trust business
as authorized by the Pennsylvania Banking Code of 1965. This involves
accepting demand, time and savings deposits and granting loans. The
Bank grants agribusiness, commercial and residential loans to customers
in South Central Pennsylvania, principally Franklin and Cumberland
Counties. The concentrations of credit by type of loan are set forth on
the face of the balance sheet (page 2 of the annual report to
shareholders). The Bank maintains a diversified loan portfolio and
evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank upon the
extension of credit, is based on management's credit evaluation of the
customer and collateral standards established in the Bank's lending
policies and procedures.
All secured loans are supported with appraisals of
collateral. Business equipment and machinery, inventories, accounts
receivable, and farm equipment are considered appropriate security,
provided they meet acceptable standards for liquidity and marketability.
Loans secured by equipment and/or other nonreal estate
collateral normally do not exceed 70% of appraised value or cost,
whichever is lower. Loans secured by real estate do not exceed 80% of
the appraised value of the property which is the maximum loan to
collateral value established in the Bank's lending policy. Loan to
collateral values are monitored as part of the loan review, and
appraisals are updated as deemed appropriate in the circumstances.
Administration and supervision over the lending process is
provided by the Bank's Credit Administration Department via loan
reviews. The loan review process is continuous, commencing with the
approval of a loan. Each new loan is reviewed by the Credit
Administration Department for compliance with banking regulations and
lending policy requirements for documentation, collateral standards, and
approvals.
The Credit Administration Department continues to monitor
and evaluate loan customers utilizing risk-rating criteria established
in the lending policy in order to spot deteriorating trends and detect
conditions which might indicate potential problem loans.
- -3-
Reports of the results of the loan reviews are submitted
quarterly to the Directors' Credit Administration Committee for approval
and provide the basis for evaluating the adequacy of the allowance for
loan losses.
Through its trust department, Orrstown renders services as
trustee, executor, administrator, guardian, managing agent, custodian,
investment advisor and other fiduciary activities authorized by law.
As of December 31, 1997, Orrstown had total assets of
approximately $ 190 million, total shareholders' equity of approximately
$ 18.2 million and total deposits of approximately $ 161 million.
Regulation and Supervision
Orrstown Financial Services (OFS) is a bank holding company
within the meaning of the Bank Holding Company Act of 1956 (BHC Act),
and is registered as such with the Board of Governors of the Federal
Reserve System (FRB). OFS is subject to examination by the FRB and is
restricted in its acquisitions, certain of which are prohibited and
certain of which are subject to approval by the FRB.
Under the BHC Act, a bank holding company is, with limited
exceptions, prohibited from (i) acquiring direct or indirect ownership
or control of more than 5% of the voting shares of any company which is
not a bank or (ii) engaging in any activity other than managing or
controlling banks. With the prior approval of the FRB, however, a bank
holding company may own shares of a company engaged in activities which
the FRB determines to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. In addition,
federal law imposes certain restrictions on transactions between OFS and
its subsidiary, Orrstown Bank. As an affiliate of Orrstown Bank OFS is
subject, with certain exceptions, to provisions of federal law imposing
limitations on, and requiring collateral for, extensions of credit by
Orrstown Bank to its affiliates.
- -4-
The operations of Orrstown are subject to federal and state
statutes applicable to banks chartered under the banking laws of the
United States, and to banks whose deposits are insured by the Federal
Deposit Insurance Corporation. Bank operations are also subject to
regulations of the Pennsylvania Department of Banking, the Federal
Reserve Board and the Federal Deposit Insurance Corporation.
The primary supervisory authority of Orrstown is the
Pennsylvania Department of Banking, who regularly examines such areas as
reserves, loans, investments, management practices and other aspects of
bank operations. These examinations are designed primarily for the
protection of the Bank depositors.
Federal and state banking laws and regulations govern, among
other things, the scope of a bank's business, the investments a bank may
make, the reserves against deposits a bank must maintain, the loans a
bank makes and collateral it takes, the maximum interest rates a bank
may pay on deposits, the activities of a bank with respect to mergers
and consolidations, and the establishment of branches, and management
practices and other aspects of banking operations. See Note 14 of the
Notes to Financial Statements for a discussion of the limitations on the
availability of Orrstown Financial Services' subsidiary's undistributed
earnings for the payment of dividends due to such regulation and other
reasons.
The Financial Institutions Reform, Recovery and Enforcement
Act of 1989 (FIRREA) provides that a financial institution insured by
the Federal Deposit Insurance Corporation (FDIC) sharing common
ownership with a failed institution can be required to indemnify the
FDIC for its losses resulting from the insolvency of the failed
institution, even if such indemnification causes the affiliated
institution also to become insolvent. OFS currently has only one
subsidiary and as a result has not been significantly affected by the
aforementioned provisions of FIRREA.
- -5-
Regulatory authorities have issued guidelines that establish
risk-based capital and leverage standards. These capital requirements
of bank regulators, are discussed on pages 37 to 39 of the annual report
to shareholders under "Capital Adequacy and Regulatory Matters".
Failure to meet applicable capital guidelines could subject a bank to a
variety of enforcement remedies available to the regulatory authorities.
Depending upon circumstances, the regulatory agencies may require an
institution to develop a "capital plan" to increase its capital to
levels established by the agency.
In 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") was enacted. Among other things,
FDICIA provides increased funding for the Bank Insurance Fund of the
FDIC by granting authority for special assessments against insured
deposits through a general risk-based assessment systems. FDICIA also
contains provisions limiting activities and business methods of
depository institutions. FDICIA requires the primary federal banking
regulators to promulgate regulations setting forth standards relating
to, among other things, internal controls and audit systems; credit
underwriting and loan documentation; interest rate exposure and other
off-balance sheet assets and liabilities; and compensation of directors
and officers. FDICIA also contains provisions limiting the acceptance
of brokered deposits by certain depository institutions, placing
restrictions on the terms of "bank investment contracts" that may be
offered by depository institutions and provisions requiring the FDIC
to study the current rules applicable to the aggregation of accounts of
depositors at an institution that is entitled to FDIC insurance.
Finally, FDICIA provides for expanded regulation of depository
institutions and their affiliates, including parent holding companies,
by such institutions' primary federal banking regulator. Each primary
federal banking regulator is required to specify, by regulation, capital
standards for measuring the capital adequacy of the depository
institutions it supervises and, depending upon the extent to which a
- -6-
depository institution does not meet such capital adequacy measures, the
primary federal banking regulator may prohibit such institution from
paying dividends or may require such institution to take other steps to
become adequately capitalized.
The earnings of Orrstown Bank, and therefore the earnings of
Orrstown Financial Services, are affected by general economic
conditions, management policies, and the legislative and governmental
actions of various regulatory authorities including the FRB, the FDIC
and the Pennsylvania Department of Banking. In addition, there are
numerous governmental requirements and regulations that affect the
activities of Orrstown Financial Services.
Competition
Orrstown's principal market area consists of Franklin County
and Cumberland County, Pennsylvania. It services a substantial number
of depositors in this market area, with the greatest concentration
within a radius of Shippensburg and Carlisle, Pennsylvania.
Orrstown, like other depository institutions, has been
subjected to competition from less heavily regulated entities such as
brokerage firms, money market funds, consumer finance and credit card
companies and other commercial banks, many of which are larger than
Orrstown Bank. Orrstown Bank is generally competitive with all
competing financial institutions in its service area with respect to
interest rates paid on time and savings deposits, service charges on
deposit accounts and interest rates charged on loans.
Item 2. Properties.
Orrstown Bank owns buildings in Orrstown, Pennsylvania,
Shippensburg, Pennsylvania (3), Carlisle, Pennsylvania, Spring Run,
Pennsylvania and Chambersburg, Pennsylvania. Offices of the bank are
located in each of these buildings. In 1996 the Bank began
leasing building space for a second office location in Carlisle,
Pennsylvania, which opened in January 1997. One of the offices located
in Shippensburg is an "Operations Center" which does not operate as a
branch, but rather as an accounting office. The bank completed the
- -7-
renovation of a property located adjacent to the downtown office, which
expanded its trust department and certain administrative facilities. In
November 1997, the Bank opened its seventh office, located in
Chambersburg, Pennsylvania. The Bank also owns property adjacent to the
Orrstown office which it intends to hold for future expansion purposes.
Item 3. Legal Proceedings.
Orrstown Financial Services, Inc. is an occasional party to
legal actions arising in the ordinary course of its business. In the
opinion of Orrstown Financial Services, Inc.'s management, Orrstown
Financial Services, Inc. has adequate legal defenses and/or insurance
coverage respecting any and each of these actions and does not believe
that they will materially affect Orrstown Financial Services, Inc.'s
operations or financial position.
Item 4. Submission of Matters to Vote of Security Holders.
None
Executive Officers of Registrant
The following table sets forth selected information about
the principal officers of the holding company, each of whom is elected
by the Board of Directors and each of whom holds office at the
discretion of the Board.
Age
Held Bank Employee as of
Name/Office Held Since Since 3/15/98
Galen L. Myers, Chairman of Board 1989 (1) 59
Joel R. Zullinger, Vice Chairman
of the Board 1991 (1) 49
Jeffrey W. Coy, Secretary 1988 (1) 46
Kenneth R. Shoemaker, President 1987 1986 50
Stephen C. Oldt, Executive
Vice President 1987 1987 55
Philip E. Fague, Vice President 1990 1988 38
Robert B. Russell, Vice President
and Treasurer 1988 1982 44
(1) Mr. Myers, Mr. Zullinger and Mr. Coy are not employees
of the Bank.
- -8-
Senior Operating Officers of the Bank
Held Bank Employee Age
Name/Office Held Since Since as of
3/15/98
Kenneth R. Shoemaker, President &
Chief Executive Officer 1987 1988 50
Stephen C. Oldt, Executive Vice
President & Chief Operating
Officer 1987 1987 55
Philip E. Fague, Vice President/ 1990/
Senior Trust Officer 1993 1988 38
Bradley S. Gerlach, Vice President
Director of Sales & Marketing 1995 1995 38
Bradley S. Everly, Senior Vice 1997/
President/Senior Loan Officer 1997 1997 46
Robert B. Russell, Vice President/ 1982/
Chief Accounting Officer 1993 1982 44
Patricia A. Corwell, Vice President
and Assistant Secretary 1982 1954 63
James B. Dubbs, Vice President & 1983/
Cashier/Community Office Manager 1982 1976 39
Charles E. Ferguson, Vice President
Human Resource Manager 1995 1995 61
Barbara E. Brobst, Vice President &
Trust Officer 1997 1997 39
Part II
Item 5. Market for Registrant's Common Stock and Related Security
Holder Matters.
Orrstown Financial Services, Inc.'s common stock is not
traded on a national securities exchange, but is traded inactively
through the local and over the counter local markets. At December 31,
1997, the approximate number of shareholders of record was approximately
1,600. The price ranges for Orrstown Financial Services, Inc. common
stock set forth below are the approximate bid prices obtained from
brokers who make a market in the stock.
Market Cash Market Cash
Price Dividend Price Dividend
Dividend (1) 1997 1996
High Low High Low
First Quarter $ 34.29 $ 32.28 $ .181 $ 30.48 $ 28.57 $ .162
Second Quarter 40.00 34.29 .190 31.43 30.48 .162
Third Quarter 42.00 40.00 .200 32.38 31.43 .171
Fourth Quarter 45.00 42.00 .310 32.38 32.38 .181
(1) Note: Cash dividends per share prior to the 2nd quarter of
1997 have been restated after giving retroactive recognition to a 5%
stock dividend issued May 15, 1997.
See Note 14 to the financial statements for restrictions on
the payment of dividends.
- -9-
Item 6. Selected Financial Data.
The selected five-year financial data on page 21 of the
annual shareholders' report for the year ended December 31, 1997 is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Management's discussion and analysis of financial condition
and results of operations, on pages 23 through 39 of the annual
shareholders' report are incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The financial statements and supplementary data, some of
which is required under Guide 3 (statistical disclosures by bank holding
companies) are shown on pages 2 through 39 of the annual shareholders
report for the year ended December 31, 1997 and are incorporated herein
by reference. Additional schedules required in addition to those
included in the annual shareholders report are submitted herewith.
- -10-
ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CHANGES IN NET INTEREST INCOME TAX EQUIVALENT YIELDS
1997 Versus 1996
Increase (Decrease)
Due to Change in
Total
Average Average Increase
Volume Rate
(Decrease)
(000 omitted)
Interest Income
Loans (net of unearned discounts) $ 1,062 ($ 12) $ 1,050
Taxable investment securities 285 6 291
Nontaxable investment securities 563 ( 57) 506
Other short-term investments ( 229) 9 ( 220)
Total interest income 1,681 ( 54) 1,627
Interest Expense
Interest bearing demand 245 130 375
Savings deposits ( 41) ( 4) ( 45)
Time deposits 207 ( 23) 184
Short-term borrowings 12 0 12
Long-term borrowings 180 ( 23) 157
Total interest expense 603 80 683
Net interest income $ 944
- -11-
1996 Versus 1995
Increase (Decrease)
Due to Change in
Total
Average Average Increase
Volume Rate (Decrease)
(000 omitted)
Interest Income
Loans (net of unearned discounts) $ 750 ($ 113) $ 637
Taxable investment securities 150 100 250
Nontaxable investment securities 131 ( 22) 109
Other short-term investments 481 ( 293) 188
Total interest income 1,512 ( 328) 1,184
Interest Expense
Interest bearing demand 63 1 64
Savings deposits 73 ( 40) 33
Time deposits 579 ( 44) 535
Short-term borrowings ( 44) 0 ( 44)
Long-term borrowings ( 1) 10 92
Total interest expense 670 ( 73) 597
Net interest income $ 587
Changes which are attributed in part to volume and in part to
rate are
allocated in proportion to their relationships to the amounts of changes.
ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
The following table shows the maturities of investment securities at
book value as of December 31, 1997, and weighted average yields of such
securities. Yields are shown on a tax equivalent basis, assuming a 34%
federal
income tax rate.
After 1 year After 5 years
Within but within but within After
1 year 5 years 10 years 10 years Total
(000 omitted)
Bonds:
U. S. Treasury
Book value $ 1,743 $ 8,030 $ 1,064 $ 0 $ 10,837
Yield 5.92% 6.24% 6.06% 0% 6.17%
U. S. Government
agencies
Book value 0 0 2,000 0 2,000
Yield 0% 0% 7.42% 0% 7.42%
State and municipal
Book value 0 1,784 2,839 12,988 17,611
Yield 0% 9.09% 10.25% 8.78% 8.83%
Total book
value $ 1,743 $ 9,814 $ 5,903 $ 12,988 $ 30,448
Yield 5.92% 6.76% 8.54% 8.78% 7.79%
Mortgage-backed
securities:
Total book value $ 13,812
Yield 7.01%
Equity Securities:
Total book value $ 480
Yield 3.0%
Total Investment Securities $ 44,740
Yield 8.02%
- -12-
ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
LOAN PORTFOLIO
The following table presents the loan portfolio at the end of each of
the last five years:
1997 1996 1995 1994 1993
(000 omitted)
Commercial, financial
and agricultural $ 10,275 $ 8,401 $ 8,211 $ 6,970 $ 5,281
Real estate -
Construction 5,961 4,304 5,706 5,038 3,758
Real estate - Mortgage 97,074 82,687 75,731 68,458 57,278
Installment and other
personal loans (net of
unearned discount) 15,021 13,534 13,209 10,373 9,257
Total loans $ 128,331 $ 108,926 $ 102,857 $ 90,839 $ 75,574
Presented below are the approximate maturities of the loan portfolio
(excluding real estate mortgages, installments and credit cards) at December
31,
1997:
Under One One to Over Five
Year Five Years Years Total
(000 omitted)
Commercial, financial
and agricultural $ 1,611 $ 1,932 $ 6,732 $ 10,275
Real estate - Construction 826 989 4,146 5,961
Total $ 2,437 $ 2,921 $ 10,878 $ 16,236
The following table presents the approximate amount of fixed rate
loans and variable rate loans due as of December 31, 1997:
Fixed Rate Variable
Loans Rate Loans
(000 omitted)
Due within one year $ 8,467 $ 76,543
Due after one but within
five years 22,251 0
Due after five years 21,070 0
Total $ 51,788 $ 76,543
- -13-
ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
SUMMARY OF LOAN LOSS EXPERIENCE
Years Ended December 31
1997 1996 1995 1994 1993
(000 omitted)
Average total loans
outstanding (net of
unearned income) $ 117,403 $ 105,779 $ 97,662 $ 81,740 $ 72,576
Allowance for loan
losses, beginning
of period $ 1,620 $ 1,433 $ 1,200 $ 1,125 $ 1,042
Additions to provision
for loan losses
charged to operations 215 240 270 71 121
Loans charged off
during the year
Commercial 1 20 0 0 17
Personal credit lines 32 17 3 1 3
Installment 50 31 48 7 31
Total charge-off's 83 68 51 8 51
Recoveries of loans
previously charged off:
Commercial 2 3 0 0 0
Installment 12 12 14 12 13
Personal credit
lines 1 0 0 0 0
Total recoveries 15 15 14 12 13
Net loans charged off
(recovered) 68 53 37 ( 4) 38
Allowance for loan
losses, end of
period $ 1,767 $ 1,620 $ 1,433 $ 1,200 $ 1,125
Ratio of net loans
charged off to
average loans
outstanding .06% .05% .04% 0.0% .05%
The provision is based on an evaluation of the adequacy of the
allowance
for
possible loan losses. The evaluation includes, but is not limited to, review
of
net loan losses for the year, the present and prospective financial condition
of
the borrowers and evaluation of current and projected economic conditions.
- -14-
ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
LOANS
The following table sets forth the outstanding balances of those
loans on a nonaccrual status and those on accrual status which are
contractually
past due as to principal or interest payments for 30 days or more at December
31.
1997 1996 1995 1994 1993
(000 omitted)
Nonaccrual loans $ 473 $ 14 $ 132 $ 27 $ 0
Accrual loans:
Restructured $ 0 $ 0 $ 0 $ 0 $ 0
30 through 89
days past due 2,398 1,976 1,949 1,553 1,468
90 days or
more past due 657 203 417 155 150
Total accrual
loans $ 3,055 $ 2,179 $ 2,366 $ 1,708 $ 1,618
See Note 7 of the notes to consolidated financial statements for
details
of income recognized and foregone revenue on nonaccrual loans for the past
three
years, and discussion concerning impaired loans at December 31, 1997.
- -15-
ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
The following is an allocation by loan categories of the allowance
for loan losses at December 31 for the last five years. In retrospect the
specific allocation in any particular category may prove excessive or
inadequate
and consequently may be reallocated in the future to reflect the then current
conditions. Accordingly, the entire allowance is available to absorb losses
in
any category:
Years Ended December 31
1997 1996
Percentage Percentage
Allowance of Loans to Allowance of Loans to
Amount Total Loans Amount Total Loans
(000 omitted)
Commercial, financial
and agricultural $ 31 8.00% $ 125 7.71%
Commercial, real estate
secured 354 35.00 0 0.00
Real estate -
Construction 0 4.64 64 3.95
Real estate -
Mortgage 188 40.64 1,229 75.91
Installment 12 11.72 202 12.43
Unallocated 1,182 0 0.00
Total $ 1,767 100.00% $ 1,620 100.00%
Years Ended December 31
1995 1994
Percentage Percentage
Allowance of Loans to Allowance of Loans to
Amount Total Loans Amount Total Loans
(000 omitted)
Commercial, financial
and agricultural $ 114 7.98% $ 113 9.42%
Commercial - Real estate
secured 0 0.0 0 0.0
Real estate -
Construction 80 5.55 67 5.58
Real estate -
Mortgage 1,055 73.63 844 70.33
Installment 184 12.84 176 14.67
Unallocated 0 0.00 0 0.00
Total $ 1,433 100.00% $ 1,200 100.00%
- -16-
Year Ended December 31
1993
Percentage
Allowance of Loans to
Amount Total Loans
(000 omitted)
Commercial, financial
and agricultural $ 78 6.99%
Commercial - Real estate
secured 0 0.00
Real estate -
Construction 56 4.97
Real estate -
Mortgage 853 75.79
Installment 138 12.25
Unallocated 0 0.00
Total $ 1,042 100.00%
ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
DEPOSITS
The average amounts of deposits are summarized below:
Years Ended December 31
1997 1996 1995
(000 omitted)
Demand deposits $ 17,665 $ 16,078 $ 13,833
Interest bearing demand deposits 37,535 27,601 25,048
Savings deposits 24,568 26,555 24,200
Time deposits 68,161 63,767 53,350
Total deposits $ 147,929 $ 134,001 $ 116,431
The following is a breakdown of maturities of time deposits of
$ 100,000 or more as of December 31, 1997:
Maturity (000 omitted)
Certificates of Deposit
Three months or less $ 3,410
Over three months through
six months 2,543
Over six months through
twelve months 4,082
Over twelve months 200
$ 10,235
RETURN ON EQUITY AND ASSETS (APPLYING DAILY AVERAGE BALANCES)
The following table presents a summary of significant earnings and
capital ratios: (dollar amounts in thousands)
1997 1996 1995
Average assets $ 172,366 $ 153,145 $ 135,648
Net income $ 2,606 $ 2,248 $ 1,954
Average equity $ 16,956 $ 15,076 $ 13,570
Cash dividends paid $ 903 $ 694 $ 613
Return on assets 1.51% 1.47% 1.44%
Return on equity 15.37% 14.90% 14.40%
Dividend payout ratio 34.65% 30.90% 30.7%
Equity to asset ratio 9.84% 9.8% 10.0%
- -17-
ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY
CONSOLIDATED SUMMARY OF OPERATIONS
Years Ended December 31
1997 1996 1995 1994 1993
(000 omitted)
Interest income $ 13,450 $ 12,018 $ 10,829 $ 8,571 $ 8,250
Interest expense 5,822 5,139 4,542 3,241 3,129
Net interest income 7,628 6,979 6,287 5,330 5,121
Provision for loan
losses 215 240 270 71 121
Net interest
income after
provision for
loan losses 7,413 6,639 6,017 5,259 5,000
Other income:
Trust 490 384 297 185 157
Service charges -
Deposits 601 477 375 349 308
Other service charges,
collection and
exchange, charges,
commission fees 341 258 218 180 163
Other operating
income (loss) 119 121 45 146 ( 26)
Total other
income 1,551 1,240 935 860 602
Income before
operating expense 8,964 7,879 6,952 6,119 5,602
Operating expenses:
Salaries and
employees benefits 2,901 2,621 2,326 2,115 1,908
Occupancy and
equipment expense 764 665 559 486 405
Other operating
expenses 1,719 1,507 1,371 1,363 1,280
Total operating
expenses 5,384 4,793 4,256 3,964 3,593
Income before income
taxes 3,580 3,086 2,696 2,155 2,009
Income tax 974 838 742 520 525
Net income
applicable to
common stock $ 2,606 $ 2,248 $ 1,954 $ 1,635 $ 1,484
Per share data:
Earnings per common
share $ 2.54 $ 2.19 $ 1.91 $ 1.59 $ 1.45
Cash dividend -
Common $ .88 $ .68 $ .58 $ .50 $ .45
Weighted average
number of common
shares 1,025,323 1,025,706 1,026,307 1,026,307 1,026,812
- -18-
Item 9. Disagreements on Accounting and Financial Disclosures.
Not applicable.
- -19-
PART III
The information required by Items 10, 11, 12 and
13 is incorporated by reference from Orrstown Financial
Services, Inc.'s definitive proxy statement for the 1998
Annual Meeting of Shareholders filed pursuant to Regulation
14A.
- -20-
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports of Form 8-K.
(a) (1) - List of Financial Statements
The following consolidated financial statements of
Orrstown Financial Services, Inc. and its
subsidiary, included in the annual report of the
registrant to its shareholders for the year ended
December 31, 1997, are incorporated by reference
in Item 8:
Consolidated balance sheets - December 31,
1997 and 1996
Consolidated statements of income - Years
ended December 31, 1997, 1996 and 1995
Consolidated statements of stockholders'
equity - Years ended December 31, 1997, 1996,
and 1995
Consolidated statements of cash flows - Years
ended December 31, 1997, 1996, and 1995
Notes to consolidated financial statements -
December 31, 1997
(2) List of Financial Statement Schedules
Schedule I - Changes in net interest income
tax equivalent yields
Schedule II - Investment portfolio
Schedule III - Loan portfolio
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Schedule IV - Summary of loan loss experience
Schedule V - Nonaccrual, delinquent and
impaired loans
Schedule VI - Allocation of allowance for loan
losses
Schedule VII - Deposits and return on equity
and assets
Schedule VIII - Consolidated summary of
operations
All other schedules for which provision is made in
the applicable accounting regulation of the
Securities and Exchange Commission are not
required under the related instructions or are
inapplicable and therefore have been omitted.
(3) Listing of Exhibits
Exhibit (3) (i) Articles of incorporation
Exhibit (3) (ii) Bylaws
Exhibit (4) Instruments defining the rights of
security holders including indentures
Exhibit (13) Annual report to security
holders
Exhibit (21) Subsidiaries of the registrant
Exhibit (27) Financial data schedule
All other exhibits for which provision is made in
the applicable accounting regulation of the
Securities and Exchange Commission are not
required under the related instructions or are
inapplicable and therefore have been omitted.
- -22-
(b) Reports on Form 8-K filed
None.
(c) Exhibits
(3)(i) Articles of incorporation. Incorporated
by reference to Exhibit 3.1 to the
Registrant's Registration Statement on
Form S-4, Registration No. 33-18888.
(ii) By-laws. Incorporated by reference
to Exhibit 3.2 to the Registrant's
Registration Statement on Form S-4,
Registration No. 33-18888.
(4) Instruments defining the rights of
security holders including indentures.
The rights of the holders of Registrant's
common stock are contained in:
(i) Articles of Incorporation of Orrstown
Financial Services, Inc., filed as
Exhibit 3.1 to Registrant's
Registration Statement on Form S-4
(Registration No. 33-18888).
(ii) By-laws of Orrstown Financial
Services, Inc., filed as Exhibit 3.2
to the Registrant's Registration
Statement on Form S-4 (Registration
No. 33-18888).
(13) Annual report to security holders - filed
herewith
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(21) Subsidiaries of the registrant - filed
herewith
(27) Financial data schedule - filed herewith
(d) Financial statement schedules
The following financial statement schedules
required under Article 9 Industry Guide 3 have
been included on pages 11 to 18 under Item 8
of this report:
Schedule I - Changes in net interest income
tax equivalent yields.
Schedule II - Investment portfolio
Schedule III - Loan portfolio
Schedule IV - Summary of loan loss experience
Schedule V - Nonaccrual delinquent and
impaired loans
Schedule VI - Allocation of allowance for loan
losses
Schedule VII - Deposits and return on equity
and assets
Schedule VIII - Consolidated summary of
operations
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ORRSTOWN FINANCIAL SERVICES, INC.
(Registrant)
By /s/ Kenneth R. Shoemaker
Kenneth R. Shoemaker, President
Dated: March _____, 1998 (Duly authorized officer)
By ______________________________
Robert B. Russell, Controller
(Principal Accounting Officer)
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, this report has been signed by the
following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
Signature Title Date
/s/ Kenneth R. Shoemaker President and March 26 , 1998
Kenneth R. Shoemaker Director
/s/ Anthony F. Ceddia Director March 26 , 1998
Dr. Anthony F. Ceddia
/s/ Robert T. Henry Director March 26 , 1998
Robert T. Henry
/s/ Gregory A. Rosenberry Director March 26 , 1998
Gregory A. Rosenberry
/s/ Joel R. Zullinger Vice Chairman of the March 26 , 1998
Joel R. Zullinger Board and Director
/s/ Jeffrey W. Coy Secretary and Chairman March 26 , 1998
Jeffrey W. Coy of Executive Committee
and Director
/s/ Ned R. Fogelsonger Director March 26 , 1998
Ned R. Fogelsonger
/s/ Galen L. Myers Chairman of the March 26 , 1998
Galen L. Myers Board and Director
/s/ Denver L. Tuckey________ Director March 26 , 1998
Denver L. Tuckey
/s/ Andrea Pugh_____________ Director March 26 , 1998
Andrea Pugh
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EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
1. Orrstown Bank, Orrstown, Pennsylvania; a state-chartered bank
organized under the Pennsylvania Banking Code of 1965.