Orrstown Financial Services, Inc. Reports Third Quarter 2020 Results

  • Diluted EPS of $0.45 per share; adjusted diluted EPS(1) totaled $0.57 per share, excluding the impact of charges related to branch consolidations, office space reductions and staffing model adjustments
  • Tangible book value per share(1) increased to $18.70 at September 30, 2020 from $18.03 at June 30, 2020 and $16.53 at March 31, 2020
  • Announced the consolidation of six branch locations, exit from three loan production offices and staffing model adjustments, expected to save approximately $4 million annually; one-time charge of $1.6 million in the third quarter of 2020, including $1.3 million related to branch consolidations
  • Small Business Administration Paycheck Protection Program ("SBA PPP") portfolio averaged $456 million in the quarter ended September 30, 2020; $9.5 million of unearned net processing fees at September 30, 2020
  • Net interest margin resilient at 3.24% versus 3.37% in the previous quarter with mild average quarterly earning asset growth primarily from SBA PPP loans
  • Mortgage banking income strong at $2.0 million in the quarter ended September 30, 2020 as compared to $1.6 million in the quarter ended June 30, 2020 and $0.3 million in the quarter ended March 31, 2020
  • Commercial loan growth, excluding SBA PPP loans, totaled 2.5% annualized; total gross loans, excluding SBA PPP loans, declined by 5.6% annualized due to high payoffs in the residential mortgage portfolio
  • COVID-19 related loan deferrals fell from $239.3 million at June 30, 2020 to $78.4 million at September 30, 2020
  • Asset quality metrics remain solid with non-performing loans to non-SBA loans of 0.51% at September 30, 2020 versus 0.47% at June 30, 2020; net recoveries in the three months ended September 30, 2020 totaling $8 thousand versus $0.2 million in net charge-offs in the three months ended June 30, 2020. Provision for loan losses at $2.2 million; COVID-19 qualitative reserves increased to $2.8 million at September 30, 2020 from $0.8 million at June 30, 2020
  • Allowance to non-SBA loans of 1.3% at September 30, 2020 as compared to 1.1% at June 30, 2020; allowance plus purchase accounting marks to unguaranteed loans(1) of 1.9% at September 30, 2020
  • Noninterest expenses totaled $19.3 million for the three months ended September 30, 2020; noninterest expenses excluding branch consolidation expenses, space reduction expenses and staffing model adjustments totaled $17.7 million
  • Continued efforts to assist clients, employees and communities affected by COVID-19
  • The Board of Directors declared a cash dividend of $0.17 per common share, payable November 9, 2020, to shareholders of record as of November 2, 2020, consistent with the dividend declared in the previous quarter

SHIPPENSBURG, Pa., Oct. 20, 2020 (GLOBE NEWSWIRE) -- Orrstown Financial Services, Inc. ("Orrstown" or the “Company”) (NASDAQ: ORRF), the parent company of Orrstown Bank (the “Bank”), announced earnings for the three months ended September 30, 2020. Net income totaled $5.0 million for the third quarter of 2020, compared with $6.4 million for the second quarter of 2020 and $6.9 million in the third quarter of 2019. Diluted earnings per share totaled $0.45 for the three months ended September 30, 2020, compared with $0.58 in the three months ended June 30, 2020 and $0.62 in the three months ended September 30, 2019.

Thomas R. Quinn, Jr., President & CEO, commented, “Through the combination of geographic diversity, top-notch talent and our employee’s dedication to clients, Company, and coworkers we were able to drive strong operating results in the quarter.  We participated in the SBA PPP in a substantial way, which is benefiting our shareholders through higher earnings in the near-term and allowing the Company to expand its client base for the long-term.  We originated nearly 3,200 PPP loans, with more than half to clients who are new to the Bank. Orrstown strives to migrate client relationships newly gained in the PPP process to full-banking relationships.  Market conditions for high quality loans have become more aggressive, and we remain committed to maintaining our risk-reward discipline through the underwriting standards the Company developed in the wake of the Great Recession.  Additionally, aided by low interest rates we continued with a brisk pace in mortgage banking in the quarter.”

(1) Non-GAAP measure. See Appendix B for additional information.

Mr. Quinn continued, “We continue to focus on the changing outlook for the economy, the banking industry, and Orrstown.  In the third quarter, we announced the consolidation of six branches, exit from three loan production offices, reduction in back-office real estate and staffing model adjustments. These changes are consistent with evolving client preferences for the digital delivery of products and services. Furthermore, the associated expense reductions proactively prepare for a challenging operating environment in 2021, which forecasts a lower net interest margin due to historically low interest rates and anticipated higher credit related costs. Orrstown made significant investments in technology in recent years, which enabled this adjustment to our branch footprint and staffing model.  We will continue to invest in the future direction of the Company which best positions us to meet the needs of our clients.”

Orrstown has implemented the following steps to mitigate the potential spread of COVID-19 and help our clients during this challenging time:

  • Performing branch transactions via drive-thru lanes or scheduled appointments at branch locations. On September 28, 2020, we welcomed clients back into branch lobbies at our Maryland locations, although our Pennsylvania branches remain closed for lobby traffic
  • Waived Orrstown fees on all foreign ATM transactions from March 18, 2020 through June 1, 2020 to encourage and support the use of this key delivery channel
  • Waived late fees on all loan payments for 60 days through May 31, 2020 to assist those whose employment status and income may have been negatively impacted by the virus
  • Designated a select group of loan specialists to work with clients needing special assistance or guidance
  • Implemented strategic efforts to effectively operate most of the core operations of the Company in a remote work environment
  • Maintaining enhanced staffing levels at our Client Service Center to manage and support our increased call volume
  • Instituted extensive preventative measures for workplace health and safety
  • Continuing to educate clients and consumers on the various assistance programs available to them through the SBA, as well as other federal and state government resources
  • Conducted virtual, interactive webinars with lending clients in order to educate and support them on the Paycheck Protection process, including loan forgiveness
  • Partnered with the American Bankers Association to execute their Banks Never Ask That campaign, aimed at educating clients and consumers on how to protect their privacy and money, especially during the pandemic as reports warn of heightened scam and fraud attempts

Loss Mitigation Efforts / Loan Concentration

Management has continued numerous proactive efforts to prepare for the difficult economic environment, including quarterly contact with commercial loan clients having $1.0 million or more in exposure and many with lower exposure, initiating a loan payment deferral program for consumer and business clients of up to six months, actively participating in the SBA PPP program, recently enrolling in the Federal Reserve Bank’s Main Street Lending program, performing stress testing of higher risk concentrations in the loan portfolio and implementing tighter underwriting for new loans. Currently, with government stimulus programs adding support to the economy and the benefits of limited re-opening of businesses in our markets, the Bank has not experienced a material increase in loan delinquencies or a negative impact to charge-off trends. We remain cautious regarding the economic impact of COVID-19 on our consumer and business borrowers in future quarters as the impact of federal stimulus wanes.

Due to continuing uncertainty in the external environment, management increased the qualitative factor designated for the impact of COVID-19, which resulted in the recording of a $2.2 million provision for loan losses in the three months ended September 30, 2020. As of September 30, 2020, the Bank had active COVID-19 related deferred loans totaling $78.4 million, or 5.0% of its total loan portfolio, excluding PPP loans. This compared to $239.3 million in active COVID-19 deferrals, or 15.1% of total loans, excluding PPP loans, at June 30, 2020.  However, as stimulus plans come to an end and reopening plans continue to yield mixed results in our primary markets, we remain cautious with regard to our future credit outlook.

The Bank is also actively consulting with clients that applied for and received SBA PPP loans.  At September 30, 2020, the Bank had $467.7 million of such loans. These loans may be forgiven if the borrower satisfies certain specified criteria.  The Bank has begun to process applications received from borrowers requesting such forgiveness. The Bank is working on implementing the SBA’s recently announced, streamlined forgiveness approval process on PPP loans of $50,000 and under, which is anticipated to make the forgiveness process easier for both borrowers and lenders. PPP loans of $50,000 and under make up the majority of the number of the Bank’s PPP loans, but a relatively small amount of the PPP loan balances.

The combination of active client relationship consultation, loan payment deferrals, increased risk management focus on higher risk loan concentrations and significant client participation in the SBA PPP should help offset potential future  losses. Due to the current economic environment, charge-offs may increase in the coming quarters, but more time is needed to fully understand the magnitude and length of the economic downturn and its impact on our loan portfolio.

The following table summarizes COVID-19 related modifications, including deferrals and forbearances:

Loan TypeAmount of Loans Percent of Non-PPP Loans
September 30, 2020 June 30, 2020 September 30, 2020 June 30, 2020
Commercial$61,597   $218,060   5.6 % 20.0 %
Consumer Portfolio Loans16,845   21,209   3.6   4.2  
Total Loans$78,442   $239,269   5.0 % 15.1 %


The following table summarizes COVID-19 related deferral balances within certain industry segments at September 30, 2020:

Industry SegmentBalance % of Total non-PPP
Loans
 $ Non-PPP
Segment Total
 % of non-PPP
Segment
Hotel/Motel$22,288   1.4 % $48,559   45.9 %
Restaurant/Bar7,229   0.5   31,817   22.7  
Multi-Family CRE16,613   1.1   110,417   15.1  
Strip Center/Retail—   —   51,402   —  
Senior Housing—   —   42,508   —  


DISCUSSION OF RESULTS

Balance Sheet

Loans

Net loans decreased by $13.7 million, or 3% annualized, to $2.0 billion at September 30, 2020 compared to $2.0 billion at June 30, 2020 due primarily to payoffs in the residential mortgage portfolio, partially offset by mild growth in SBA PPP loans of $10.9 million and $6.9 million of commercial loan growth, excluding SBA. SBA PPP loans are expected to start paying off in the fourth quarter as clients begin to achieve forgiveness. It is currently anticipated that forgiveness will be spread over the next three quarters, but this is subject to SBA program changes and/or Congressional action.  Runoff of the mortgage loan portfolio continued to be high in the third quarter of 2020 due to significant refinance activity as mortgage loans fell by $22.6 million, or 31% annualized, from June 30, 2020. Consumer loans fell by $6.7 million to $198.2 million, or 13% annualized, from June 30, 2020 to September 30, 2020, due primarily to considerable refinance activity of home equity loans. The Bank has begun to see increased commercial and small business loan demand although it has not reached levels previously experienced before the outbreak of the pandemic. Additionally, competition for loans has reached a point where the Bank is unwilling to participate in certain deals that do not meet its risk appetite.

Deposits

Deposits grew by $27.8 million, or 4.9% annualized, to $2.3 billion from June 30, 2020 to September 30, 2020. This growth followed the significant second quarter growth of $354.4 million due to SBA PPP activity. The mix of deposits continues to improve with $26 million of CD portfolio runoff primarily from the acquired deposits of Hamilton Bank.  Interest-bearing DDA balances rose by $47 million due to positive seasonality in the government deposit portfolio.  Non-interest DDAs fell as clients began to optimize their balance sheets, causing a $27 million reduction from the previous quarter. Savings and money market balances rose by $34 million as demand for liquidity products remains elevated in this period of low interest rates and elevated economic uncertainty.

Other

Borrowings fell by $25.7 million to $232.7 million from June 30, 2020 to September 30, 2020. As of September 30, 2020, the Bank had borrowed $70.9 million through the Federal Reserve SBA PPP lending facility. The Bank can borrow through this facility using closed PPP loans as collateral with a cost of funds of 0.35%. Outstanding borrowing balances on this facility reduce the capital impact of the loans on the leverage ratio. The Bank paid off these borrowings in the fourth quarter of 2020. FHLB short-term borrowings will be used in anticipation of the SBA PPP loan payoffs.

Investments fell by $9.3 million from June 30, 2020 to $490.9 million at September 30, 2020. As the investment portfolio has relatively low call risk, prepayments have remained manageable. Approximately 58% of the portfolio is variable rate, thus the portfolio yield has fallen to 2.14% for the three months ended September 30, 2020 as compared to 2.71% for the three months ended June 30, 2020 and 3.05% in the three months ended March 31, 2020. There were no purchases during the three months ended September 30, 2020, while payments and maturities totaled $9.7 million. The Bank intends to reduce its investment balance as loan growth provides the best reinvestment option. During the nine months ended September 30, 2020, there were no other-than-temporary impairment charges or other material changes to the quality of the investment portfolio. See Appendix C for a summary of the current investment portfolio that highlights the concentrations, quality and credit enhancement levels for the portfolio.

Income Statement

Net Interest Income and Margin

Net interest income was stable at $20.8 million as average earning assets rose by $60.9 million to $2.8 billion during the three months ended September 30, 2020 as compared to the three months ended June 30, 2020. The net interest margin fell 13 basis points to 3.24% for the three months ended September 30, 2020 from 3.37% for the three months ended June 30, 2020. The total deposit cost of funds fell another 16 basis points to 0.44% for the third quarter of 2020 which followed a reduction of 33 basis points in the second quarter of 2020. Further reductions in deposit costs are expected to occur as CDs reprice lower and additional reductions in non-maturity deposit portfolios occur.  The Bank is in the later stages of deposit repricing and the cost of funds is expected to bottom in the first half of next year.  Retention of SBA PPP client deposit balances along with improvements in commercial client deposit penetration are a focus for the coming quarters.

SBA PPP loans had an average outstanding balance of $456 million and yielded 3.1% in the three months ended September 30, 2020. As of September 30, 2020, 30% of the total $13.5 million in net deferred SBA PPP fees have been earned. The remaining fees are expected to be earned in the coming quarters upon SBA forgiveness of the loans. SBA PPP loans caused net interest margin compression of approximately 12 basis points in the third and second quarters of 2020.

The Bank continues to focus its efforts on balance sheet mix optimization given the outlook for an extended period of low interest rates. With the 70% increase in experienced relationship commercial bankers in 2019, growth in commercial loans continues to be a focus, together with long-term reductions in investment securities and on balance sheet mortgage loans. Depending on market opportunities in 2021, the Bank may consider putting some mortgages onto the balance sheet. Accretion income on acquired loans continues to help support the margin and should provide additional income in the coming quarters. As the acquired portfolio pays down, this income will fall and is expected to be partially replaced with higher margin commercial relationship loans. Given the significant drop in market interest rates, loans are currently being originated at lower rates than those that are running off. As such, there should be reductions in the loan yields over time. 

In summary, with deposit portfolios approaching the end of their repricing cycle, maturing loans being replaced with lower rate loans, and an eventual decline in accretion income, the margin is expected to see continued headwinds into 2021. While SBA PPP loans will compress the margin in the near term, the margin should be enhanced upon forgiveness ($9.5 million of processing fees are unearned and is expected to flow through interest income over the next few quarters, provided that borrowers achieve SBA forgiveness of the loans). Since SBA forgiveness is not certain and the timing of forgiveness may be delayed, the SBA income recognition could be uneven and cause a spike in the margin. The Bank is positioned for higher rates and the net interest margin would increase in a higher rate scenario. However, if rates remain low, rate-sensitive fees such as mortgage banking income, prepayment penalties and interest rate swap fees will remain elevated, which will help to offset margin pressure. Growing these rate-sensitive fee-based businesses continues to be an emphasis of the Bank.

Provision for loan losses

The allowance for loan losses totaled $19.7 million at September 30, 2020, compared with $17.5 million at June 30, 2020. Total classified loans increased by $3.0 million, or 9%, to $36.4 million from June 30, 2020 to September 30, 2020. The provision for loan losses totaled $2.2 million in the third quarter of 2020, $1.9 million in the second quarter of 2020 and $0.9 million in the first quarter of 2020.

The Bank continues to maintain solid asset quality metrics with net recoveries of $8 thousand in the third quarter of 2020 as compared to net charge offs of $0.2 million in the second quarter of 2020 and net recoveries of $0.2 million in the first quarter of 2020. Nonperforming loans increased by $0.5 million from June 30, 2020 to September 30, 2020 to $7.9 million, and totaled 0.39% of loans at September 30, 2020, compared with 0.36% of loans at June 30, 2020. The allowance for loan losses to nonperforming loans ratio was 250% at September 30, 2020. We believe the allowance for loan losses to be adequate based on current asset quality metrics; however, deterioration in the loan portfolio could occur, requiring additional provisioning, if unemployment remains elevated or due to other economic factors caused by lower business activity as a result of the COVID-19 pandemic.

Noninterest Income

Noninterest income remained strong at $6.9 million in the quarter ended September 30, 2020 compared with $7.2 million in the quarter ended June 30, 2020 and $7.1 million in the quarter ended March 31, 2020.

Total wealth management income for the quarter ended September 30, 2020 was $2.5 million, as compared to $2.3 million for the quarter ended June 30, 2020. The improvement is due to recovery in equity values in the third quarter, although total wealth management income was less than the third quarter of 2019. Looking ahead, potential exists for market share increases for the Bank's wealth management offerings in expansion markets and is a focus in 2021 and beyond.

Service charge and interchange income totaled $1.8 million in the three months ended September 30, 2020 versus $1.5 million and $1.8 million in the three months ended June 30, 2020 and March 31, 2020, respectively. Interchange revenue is now exceeding pre-COVID-19 levels as clients are using debit cards more as opposed to other payment types. The Bank also waived some fees during the early stages of the pandemic to assist our clients, which reduced service charge fees in the second quarter of 2020. As most of these waivers have been discontinued, the fees are expected to return to pre-COVID-19 levels late in 2020. All of these historically stable sources of fee revenue should grow over time as we add new retail clients and commercial businesses. Growth in these sources continues to be an area of opportunity and focus in future years specifically in the card-based interchange revenue category.

Mortgage banking continued to be strong as mortgage rates remained low during the quarter, triggering significant refinance activity. Mortgage banking income for the three months ended September 30, 2020 increased to $2.0 million versus $1.6 million in the previous quarter and $0.3 million in the quarter ended March 31, 2020. Mortgage loans sold in the third quarter of 2020 totaled $72.8 million compared with $50 million in the second quarter of 2020 and $22.2 million in the first quarter of 2020. The pipeline remains strong with locked loans of $33.6 million at September 30, 2020. The Bank records gains on closed and locked loans. In the three months ended September 30, 2020, June 30, 2020 and March 31, 2020 impairment charges of $0.2 million, $0.3 million and $0.5 million, respectively, were recognized on the Bank's mortgage servicing rights asset due to falling interest rates.

Loan swap fees totaled $0.1 million in the third quarter of 2020, down from $0.2 million in the second and first quarters of 2020. These fees for interest rate hedge referral income are related to commercial real estate lending. Markets continue to be somewhat unsettled, which has prevented many deals with interest rate swaps from closing, although some deals remain in the pipeline for 2020 and an opportunity for growth exists in 2021.

Noninterest Expenses

Noninterest expenses totaled $19.3 million in the third quarter of 2020 compared with $18.4 million in the second quarter of 2020. In the third quarter of 2020, the Bank announced the consolidation of six branch locations, exit from three loan production officers and some staffing model adjustments. The Bank recorded $1.4 million in expenses related to this activity and expects to generate $4 million of operating expense savings annually. Additionally, the Company previously announced the sale of excess office space and the closure of its small registered investment advisory business in the third quarter of 2020. During the three months ended September 30, 2020 and June 30, 2020, the Bank incurred charges of $0.2 million and $0.8 million, respectively, related to this activity. Excluding these items from non-interest expense, normalized expenses totaled $17.7 million in the three months ended September 30, 2020 and $17.6 million in the three months ended June 30, 2020.

Salaries and employee benefits totaled $10.7 million in the third quarter of 2020 as compared with $10.0 million in the second quarter of 2020. As expected, health care expenses normalized in the third quarter of 2020, attributing to most of the increase. Severance charges incurred in the third quarter related to the staffing model adjustments totaled $0.1 million.

Merger related and branch consolidation costs increased by $1.3 million in the third quarter of 2020 due to costs associated with the branch consolidations and exit of excess office space. Controllable expenses continue to be managed lower due to the economic environment.  Advertising and promotion expense totaled $0.2 million for the second consecutive quarter, while professional fees fell by $0.4 million to $0.6 million in the quarter ended September 30, 2020 as legal expenses moderated and consulting engagements declined.

Other expenses totaled $2.0 million in the three months ended September 30, 2020 which is down from an elevated $3.0 million in the second quarter of 2020.  Second quarter expenses included $0.8 million of charges related to the sale of excess office space and the closure of our registered investment advisory business.

Income Taxes

The Company's effective tax rate for the third quarter of 2020 was 19.9% compared with 17.0% for the second quarter of 2020 and generally reflected an increased profitability estimate for the year. The Company's effective tax rate is less than the 21% federal statutory rate due to tax-exempt income, including interest earned on tax-exempt loans and securities and income from life insurance policies, as well as tax credits.

Capital

Shareholders’ equity totaled $232.8 million at September 30, 2020, an increase of $7.2 million from $225.6 million at June 30, 2020. The increase was primarily attributable to net income recorded in the three months ended September 30, 2020 and a decrease in accumulated other comprehensive loss from changes in net unrealized gains and losses in securities available for sale which increased by $3.7 million from June 30, 2020 to September 30, 2020. The Company's tangible common equity ratio rose from 7.3% at June 30, 2020 to 7.7% at September 30, 2020 and the Company's Tier 1 leverage ratio increased from 8.3% at June 30, 2020 to 8.5% at September 30, 2020. The Company's total risk-based capital ratio increased from 14.5% at June 30, 2020 to 15.0% at September 30, 2020. Based upon conversations with SBA PPP borrowers regarding their eligibility for loan forgiveness and guidance issued by the SBA, it is anticipated that most of the SBA PPP loans will achieve loan forgiveness by the first half of next year. During this time, the Bank expects to generate approximately $7.8 million of additional retained earnings from its SBA PPP lending efforts. After the SBA PPP loans exit the balance sheet and the Bank records the net income, capital ratios are expected to increase, all other inputs remaining static. While the leverage ratio has temporarily declined from December 31, 2019, the risk-based capital ratios are not impacted by SBA PPP loan growth due to their 0% regulatory capital risk weighting. The Company continues to believe that capital is adequate at this time to support the risks inherent in the balance sheet.


Investor Relations Contact:Media Contact:
Matthew C. Schultheis, CFALuke Bernstein
Director Strategic Planning and Investor RelationsCorporate Communications Officer
Phone (717) 510-7127Phone (717) 510-7107




ORRSTOWN FINANCIAL SERVICES, INC.       
FINANCIAL HIGHLIGHTS (Unaudited)       
        
        
 Three Months Ended Nine Months Ended
 September 30, September 30, September 30, September 30,
(Dollars in thousands, except per share amounts)2020 2019 2020 2019
        
Profitability for the period:       
Net interest income$20,818   $18,078  $59,878   $51,353 
Provision for loan losses2,200   300  5,025   900 
Noninterest income6,861   8,603  21,128   21,512 
Noninterest expenses19,265   18,140  56,000   57,593 
Income before income taxes6,214   8,241  19,981   14,372 
Income tax expense1,237   1,340  3,577   1,682 
Net income available to common shareholders$4,977   $6,901  $16,404   $12,690 
        
Financial ratios:       
Return on average assets (1)0.72 % 1.15% 0.84 % 0.77%
Return on average equity (1)8.67 % 12.37% 9.80 % 8.47%
Net interest margin (1)3.24 % 3.27% 3.34 % 3.43%
Efficiency ratio69.6 % 68.0% 69.1 % 79.0%
Income per common share:       
Basic$0.45   $0.63  $1.50   $1.25 
Diluted$0.45   $0.62  $1.49   $1.23 
        
Average equity to average assets8.29 % 9.25% 8.55 % 9.14%
        
(1) Annualized.       


ORRSTOWN FINANCIAL SERVICES, INC.   
FINANCIAL HIGHLIGHTS (Unaudited)   
(continued)   
 September 30, December 31,
 2020 2019
At period-end:   
Total assets$2,781,667   $2,383,274  
Total deposits2,279,483   1,875,522  
Loans, net of allowance for loan losses2,010,145   1,629,675  
Loans held-for-sale, at fair value12,804   9,364  
Securities available for sale478,288   490,885  
Borrowings200,818   217,936  
Subordinated notes31,889   31,847  
Shareholders' equity232,847   223,249  
    
Credit quality and capital ratios (1):   
Allowance for loan losses to total loans0.97 % 0.89 %
Total nonaccrual loans to total loans0.39 % 0.65 %
Nonperforming assets to total assets0.28 % 0.46 %
Allowance for loan losses to nonaccrual loans250 % 138 %
Total risk-based capital:   
Orrstown Financial Services, Inc.14.9 % 14.1 %
Orrstown Bank14.2 % 13.4 %
Tier 1 risk-based capital:   
Orrstown Financial Services, Inc.11.9 % 11.3 %
Orrstown Bank13.0 % 12.5 %
Tier 1 common equity risk-based capital:   
Orrstown Financial Services, Inc.11.9 % 11.3 %
Orrstown Bank13.0 % 12.5 %
Tier 1 leverage capital:   
Orrstown Financial Services, Inc.7.8 % 8.6 %
Orrstown Bank8.5 % 9.4 %
    
Book value per common share$20.78   $19.93  
    
(1) Capital ratios are estimated, subject to regulatory filings   




ORRSTOWN FINANCIAL SERVICES, INC.   
CONSOLIDATED BALANCE SHEETS (Unaudited)   
    
(Dollars in thousands, except per share amounts)September 30, 2020 December 31, 2019
Assets   
Cash and due from banks$26,854    $25,969   
Interest-bearing deposits with banks60,453    29,994   
Cash and cash equivalents87,307    55,963   
Restricted investments in bank stocks12,646    16,184   
Securities available for sale (amortized cost of $478,476 and $491,492 at
September 30, 2020 and December 31, 2019, respectively)
478,288    490,885   
Loans held for sale, at fair value12,804    9,364   
Loans2,029,870    1,644,330   
Less: Allowance for loan losses(19,725)  (14,655) 
Net loans2,010,145    1,629,675   
Premises and equipment, net35,476    37,524   
Cash surrender value of life insurance68,446    63,613   
Goodwill18,724    19,925   
Other intangible assets, net5,803    7,180   
Accrued interest receivable8,812    6,040   
Other assets43,216    46,921   
Total assets$2,781,667    $2,383,274   
Liabilities   
Deposits:   
Noninterest-bearing$409,051    $249,450   
Interest-bearing1,870,432    1,626,072   
Total deposits2,279,483    1,875,522   
Securities sold under agreements to repurchase17,445    8,269   
FHLB Advances and other183,373    209,667   
Subordinated notes31,889    31,847   
Accrued interest and other liabilities36,630    34,720   
Total liabilities2,548,820    2,160,025   
Shareholders’ Equity   
Preferred stock, $1.25 par value per share; 500,000 shares authorized; no
shares issued or outstanding
—    —   
Common stock, no par value—$0.05205 stated value per share 50,000,000
shares authorized; 11,257,046 shares issued and 11,203,512 outstanding at
September 30, 2020; 11,220,604 shares issued and 11,199,874 outstanding
at December 31, 2019
586    584   
Additional paid—in capital188,588    188,365   
Retained earnings45,938    35,246   
Accumulated other comprehensive loss(1,455)  (480) 
Treasury stock— 53,534 and 20,730 shares, at cost at September 30, 2020
and December 31, 2019, respectively
(810)  (466) 
Total shareholders’ equity232,847    223,249   
Total liabilities and shareholders’ equity$2,781,667    $2,383,274   




ORRSTOWN FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
         
  Three Months Ended Nine Months Ended
  September 30, September 30, September 30, September 30,
(In thousands, except per share amounts) 2020 2019 2020 2019
Interest income        
Loans $21,645    $20,178    $63,605    $54,987  
Investment securities - taxable 2,145    3,790    8,378    10,963  
Investment securities - tax-exempt 417    309    1,121    1,783  
Short-term investments    558    101    1,232  
Total interest income 24,216    24,835    73,205    68,965  
Interest expense        
Deposits 2,483    5,795    10,147    14,402  
Securities sold under agreements to repurchase 20    29    72    84  
FHLB Advances and other 394    443    1,604    1,640  
Subordinated notes 501    490    1,504    1,486  
Total interest expense 3,398    6,757    13,327    17,612  
Net interest income 20,818    18,078    59,878    51,353  
Provision for loan losses 2,200    300    5,025    900  
Net interest income after provision for loan losses 18,618    17,778    54,853    50,453  
Noninterest income        
Service charges 852    1,111    2,558    3,091  
Interchange income 900    843    2,507    2,422  
Loan swap referral fees 95    629    527    629  
Wealth management income 2,464    2,546    7,118    7,203  
Mortgage banking activities 1,985    623    3,926    1,743  
Gains on sale of portfolio loans —    —    2,803    —  
Other income 578    523    1,733    1,693  
Investment securities (losses) gains (13)  2,328    (44)  4,731  
Total noninterest income 6,861    8,603    21,128    21,512  
Noninterest expenses        
Salaries and employee benefits 10,695    10,489    32,352    28,088  
Occupancy, furniture and equipment 2,434    2,385    7,049    6,615  
Data processing, telephone, and communication 958    830    2,620    2,658  
Advertising and bank promotions 197    279    1,153    1,348  
FDIC insurance 230    (9)  491    397  
Professional services 603    814    2,340    2,078  
Taxes other than income 453    306    904    926  
Intangible asset amortization 357    486    1,224    1,096  
Merger related and branch consolidation expenses 1,310    471    1,310    7,976  
Insurance claim (recovery) receivable write-off —    —    (486)  615  
Other operating expenses 2,028    2,089    7,043    5,796  
Total noninterest expenses 19,265    18,140    56,000    57,593  
Income before income tax expense 6,214    8,241    19,981    14,372  
Income tax expense 1,237    1,340    3,577    1,682  
Net income $4,977    $6,901    $16,404    $12,690  
         
Share information:        
Basic earnings per share $0.45    $0.63    $1.50    $1.25  
Diluted earnings per share $0.45    $0.62    $1.49    $1.23  
Weighted average shares - basic 10,941    10,949    10,939    10,159  
Weighted average shares - diluted 11,025    11,094    11,027    10,318  



ORRSTOWN FINANCIAL SERVICES, INC.    
ANALYSIS OF NET INTEREST INCOME    
Average Balances and Interest Rates, Taxable-Equivalent Basis (Unaudited)  
 Three Months Ended
 9/30/2020 06/30/20 03/31/20 12/31/19 9/30/2019
   Taxable- Taxable-   Taxable- Taxable-   Taxable- Taxable-   Taxable- Taxable-   Taxable- Taxable-
 Average Equivalent Equivalent Average Equivalent Equivalent Average Equivalent Equivalent Average Equivalent Equivalent Average Equivalent Equivalent
(Dollars in thousands)Balance Interest Rate Balance Interest Rate Balance Interest Rate Balance Interest Rate Balance Interest Rate
Assets                             
Federal funds sold & interest-bearing bank balances$31,087   $   0.12 % $27,949   $13    0.18 % $22,869   $80    1.41 % $21,396   $99    1.84 % $95,713   $558    2.31 %
Securities (1)496,107   2,673    2.14   493,847   3,327    2.71   500,987   3,797    3.05   504,571   3,919    3.08   496,981   4,180    3.34  
Loans (1)(2)(3)2,054,193   21,741    4.21   1,988,114   21,912    4.43   1,653,547   20,287    4.93   1,606,608   20,207    4.99   1,604,491   20,305    5.02  
Total interest-earning assets2,581,387   24,423    3.76   2,509,910   25,252    4.05   2,177,403   24,164    4.46   2,132,575   24,225    4.51   2,197,185   25,043    4.52  
Other assets190,119       200,684       188,400       191,585       193,946      
Total$2,771,506       $2,710,594       $2,365,803       $2,324,160       $2,391,131      
Liabilities and Shareholders' Equity                             
Interest-bearing demand deposits$1,213,208   939    0.31   $1,154,434   1,259    0.44   $972,486   1,903    0.79   $955,975   2,136    0.89   $954,824   2,206    0.92  
Savings deposits168,377   67    0.16   160,738   63    0.16   151,195   63    0.17   150,221   64    0.17   159,029   90    0.22  
Time deposits (4)432,438   1,477    1.36   462,664   1,988    1.73   503,364   2,388    1.91   551,789   2,708    1.95   651,250   3,499    2.13  
Securities sold under agreements to repurchase21,145   20    0.38   21,582   24    0.45   9,416   28    1.20   9,257   29    1.24   8,617   29    1.29  
FHLB advances and other219,567   394    0.71   175,336   388    0.89   187,408   822    1.76   119,632   649    2.15   76,404   443    2.31  
Subordinated notes31,881   501    6.28   31,867   502    6.33   31,853   501    6.33   31,839   501    6.23   31,826   490    6.10  
Total interest-bearing liabilities2,086,616   3,398    0.65   2,006,621   4,224    0.85   1,855,722   5,705    1.24   1,818,713   6,087    1.33   1,881,950   6,757    1.42  
Noninterest-bearing demand deposits417,939       452,253       250,163       247,107       252,211      
Other37,330       36,511       33,763       35,282       35,720      
Total Liabilities2,541,885       2,495,385       2,139,648       2,101,102       2,169,881      
Shareholders' Equity229,621       215,209       226,155       223,058       221,250      
Total$2,771,506       $2,710,594       $2,365,803       $2,324,160       $2,391,131      
Taxable-equivalent net interest income / net interest spread  21,025    3.12 %   21,028    3.20 %   18,459    3.23 %   18,138    3.18 %   18,286    3.10 %
Taxable-equivalent net interest margin    3.24 %     3.37 %     3.41 %     3.37 %     3.30 %
Taxable-equivalent adjustment  (207)      (230)      (197)      (197)      (208)   
Net interest income  $20,818        $20,798        $18,262        $17,941        $18,078     
Ratio of average interest-earning assets to average interest-bearing liabilities    124 %     117 %     125 %     117 %     117 %
                              
NOTES:                             
(1) Yields and interest income on tax-exempt assets have been computed on a taxable-equivalent basis assuming a 21% tax rate.
(2) Average balances include nonaccrual loans.
(3) Interest income on loans includes prepayment and late fees, where applicable, prior periods have been adjusted to include these fees.
(4) For the three months ended September 30, 2019, expenses associated with the early redemption of brokered time deposits totaled $0.2 million and increased the cost of funds by 13 basis points.

 



ORRSTOWN FINANCIAL SERVICES, INC.      
ANALYSIS OF NET INTEREST INCOME    
Average Balances and Interest Rates, Taxable-Equivalent Basis (Unaudited)  
(continued)           
 Nine Months Ended
 September 30, 2020 September 30, 2019
   Taxable- Taxable-   Taxable- Taxable-
 Average Equivalent Equivalent Average Equivalent Equivalent
(Dollars in thousands)Balance Interest Rate Balance Interest Rate
Assets           
Federal funds sold & interest-bearing bank balances$27,315   $101    0.49 % $70,020   $1,232    2.35 %
Securities (1)496,977   9,797    2.63   497,949   13,219    3.55  
Loans (1)(2)(3)1,899,186   63,940    4.50   1,454,468   55,360    5.09  
Total interest-earning assets2,423,478   73,838    4.07   2,022,437   69,811    4.62  
Other assets193,057       169,308      
Total$2,616,535       $2,191,745      
Liabilities and Shareholders' Equity           
Interest-bearing demand deposits$1,113,740   4,100    0.49   $907,911   6,117    0.90  
Savings deposits160,133   194    0.16   144,825   232    0.21  
Time deposits466,032   5,853    1.68   539,385   8,053    2.00  
Securities sold under agreements to repurchase17,395   72    0.55   8,708   85    1.31  
FHLB advances and other194,197   1,604    1.10   98,451   1,640    2.23  
Subordinated notes31,867   1,504    6.29   31,843   1,486    6.24  
Total interest-bearing liabilities1,983,364   13,327    0.90   1,731,123   17,613    1.36  
Noninterest-bearing demand deposits373,614       230,056      
Other35,874       30,286      
Total Liabilities2,392,852       1,991,465      
Shareholders' Equity223,683       200,280      
Total$2,616,535       $2,191,745      
Taxable-equivalent net interest income / net interest spread  60,511    3.17 %   52,198    3.25 %
Taxable-equivalent net interest margin    3.34 %     3.45 %
Taxable-equivalent adjustment  (633)      (845)   
Net interest income  $59,878        $51,353     
Ratio of average interest-earning assets to average interest-bearing liabilities    122 %     117 %
            


NOTES TO ANALYSIS OF NET INTEREST INCOME:        
(1) Yields and interest income on tax-exempt assets have been computed on a taxable-equivalent basis assuming a 21% tax rate.
(2) Average balances include nonaccrual loans.
(3) Interest income on loans includes prepayment and late fees, where applicable, prior periods have been adjusted to include these fees.
(4)  For the nine months ended September 30, 2019, expenses associated with the early redemption of brokered time deposits totaled $0.2 million, and increased the cost of funds by five basis points.



ORRSTOWN FINANCIAL SERVICES, INC.    
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)    
          
(In thousands, except per share amounts )September 30,
2020
 June 30,
2020
 March 31,
2020
 December 31,
2019
 September 30,
2019
Profitability for the quarter:         
Net interest income$20,818   $20,798   $18,262   $17,941   $18,078  
Provision for loan losses2,200   1,900   925   —   300  
Noninterest income6,861   7,193   7,074   7,028   8,603  
Noninterest expenses19,265   18,431   18,304   19,707   18,140  
Income before income taxes6,214   7,660   6,107   5,262   8,241  
Income tax expense1,237   1,301   1,039   1,028   1,340  
Net income$4,977   $6,359   $5,068   $4,234   $6,901  
          
Financial ratios:         
Return on average assets (1)0.72 % 0.94 % 0.86 % 0.72 % 1.15 %
Return on average equity (1)8.67 % 11.82 % 8.96 % 7.53 % 12.37 %
Net interest margin (1)3.24 % 3.37 % 3.41 % 3.37 % 3.30 %
Efficiency ratio69.6 % 65.8 % 72.2 % 78.9 % 68.0 %
Efficiency ratio, adjusted (2)64.8 % 65.9 % 72.1 % 75.0 % 72.6 %
          
Per share information :         
Income per common share:         
Basic$0.45   $0.58   $0.46   $0.39   $0.63  
Diluted$0.45   $0.58   $0.46   $0.38   $0.62  
Book value$20.78   $20.13   $18.81   $19.93   $20.00  
Tangible book value (3)$18.70   $18.03   $16.53   $17.65   $17.67  
Cash dividends paid$0.17   $0.17   $0.17   $0.15   $0.15  
Average basic shares10,941   10,916   10,959   10,966   10,949  
Average diluted shares11,025   10,993   11,062   11,097   11,094  
               
(1)  Annualized.
(2) Efficiency ratio has been adjusted for merger related and branch consolidation expenses and investment securities (losses) gains.
(3) Non-GAAP based financial measure. Please refer to Appendix B - Supplemental Reporting of Non-GAAP Measures and GAAP to Non-GAAP Reconciliations for a discussion of our use of non-GAAP based financial measures, including tables reconciling GAAP and non-GAAP financial measures appearing herein.
          



ORRSTOWN FINANCIAL SERVICES, INC.        
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)    
(continued)         
 September 30,
2020
 June 30,
2020
 March 31,
2020
 December 31,
2019
 September 30,
2019
Noninterest income:         
Service charges$852    $719   $987    $1,119    $1,111   
Interchange income900    819   788    859    843   
Loan swap referral fees95    232   200    568    629   
Wealth management income2,464    2,295   2,359    2,478    2,546   
Mortgage banking activities1,985    1,609   332    1,304    623   
Other income578    585   2,448    682    523   
Investment securities (losses) gains(13)    (40)  18    2,328   
Total noninterest income$6,861    $6,268   $7,074    $7,028    $8,603   
          
Noninterest expenses:         
Salaries and employee benefits$10,695    $10,063   $11,594    $11,407    $10,489   
Occupancy, furniture and equipment2,434    2,326   2,289    2,433    2,385   
Data processing, telephone, and communication958    791   871    941    830   
Advertising and bank promotions197    167   789    619    279   
FDIC insurance230    214   47    (30)  (9) 
Professional services603    1,021   716    876    814   
Taxes other than income453    449      92    306   
Intangible asset amortization357    404   463    474    486   
Merger related and branch consolidation expenses1,310    —   —    988    471   
Insurance claim receivable recovery—    —   (486)  —    —   
Other operating expenses2,028    2,996   2,019    1,907    2,089   
Total noninterest expenses$19,265    $18,431   $18,304    $19,707    $18,140   
          
 


ORRSTOWN FINANCIAL SERVICES, INC.        
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)      
(continued)         
 September 30,
2020
 June 30,
2020
 March 31,
2020
 December 31,
2019
 September 30,
2019
Balance Sheet at quarter end:         
Cash and cash equivalents$87,307    $52,290    $57,137    $56,462    $50,424   
Restricted investments in bank stocks12,646    16,256    15,823    16,184    11,399   
Securities available for sale478,288    483,936    479,599    490,386    481,619   
Loans held for sale, at fair value12,804    13,594    7,900    9,364    —   
Loans held for sale, at cost—    —    —    —    7,610   
Loans:         
Commercial real estate:         
Owner occupied166,623    164,442    168,586    170,884    171,327   
Non-owner occupied403,138    390,980    377,933    361,050    310,334   
Multi-family110,153    111,016    107,797    106,893    108,751   
Non-owner occupied residential111,958    116,531    118,773    120,038    120,395   
Commercial and industrial690,330    665,312    235,791    214,554    215,734   
Total commercial loans1,482,202    1,448,281    1,008,880    973,419    926,541   
Acquisition and development:         
1-4 family residential construction9,627    7,966    13,037    15,865    12,257   
Commercial and land development37,850    50,220    49,348    41,538    38,494   
Municipal28,867    34,276    46,551    47,057    47,920   
Residential mortgage:         
First lien273,149    295,736    324,766    336,372    353,811   
Home equity – term11,108    11,944    13,337    14,030    15,175   
Home equity – lines of credit158,106    160,842    165,375    165,314    159,930   
Installment and other loans28,961    32,052    35,654    50,735    38,977   
Total loans2,029,870    2,041,317    1,656,948    1,644,330    1,593,105   
Allowance for loan losses(19,725)  (17,517)  (15,803)  (14,655)  (14,809) 
Net loans held-for-investment2,010,145    2,023,800    1,641,145    1,629,675    1,578,296   
Goodwill18,724    18,724    20,142    19,925    19,925   
Other intangible assets, net5,803    6,160    6,717    7,180    7,654   
Total assets2,781,667    2,772,796    2,387,553    2,383,274    2,313,677   
Total deposits2,279,483    2,251,731    1,897,296    1,875,522    1,923,454   
Borrowings200,818    226,520    212,099    217,936    99,770   
Subordinated notes31,889    31,875    31,861    31,847    31,834   
Total shareholders' equity232,847    225,638    210,570    223,249    223,493   


ORRSTOWN FINANCIAL SERVICES, INC.        
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)      
(continued)         
 September 30,
2020
 June 30,
2020
 March 31,
2020
 December 31,
2019
 September 30,
2019
Capital and credit quality measures (1):         
Total risk-based capital:         
Orrstown Financial Services, Inc14.9 % 14.5% 14.0 % 14.1% 14.5 %
Orrstown Bank14.2 % 13.9% 13.4 % 13.4% 13.6 %
Tier 1 risk-based capital:         
Orrstown Financial Services, Inc11.9 % 11.7% 11.2 % 11.3% 11.6 %
Orrstown Bank13.0 % 12.8% 12.5 % 12.5% 12.7 %
Tier 1 common equity risk-based capital:         
Orrstown Financial Services, Inc11.9 % 11.7% 11.2 % 11.3% 11.6 %
Orrstown Bank13.0 % 12.8% 12.5 % 12.5% 12.7 %
Tier 1 leverage capital:         
Orrstown Financial Services, Inc7.8 % 7.6% 8.5 % 8.6% 8.2 %
Orrstown Bank8.5 % 8.4% 9.4 % 9.4% 8.9 %
          
Average equity to average assets8.29 % 7.94% 9.56 % 9.60% 9.25 %
Allowance for loan losses to total loans0.97 % 0.86% 0.95 % 0.89% 0.93 %
Total nonaccrual loans to total loans0.39 % 0.36% 0.47 % 0.65% 0.44 %
Nonperforming assets to total assets0.28 % 0.27% 0.34 % 0.46% 0.33 %
Allowance for loan losses to nonaccrual loans250 % 237% 202 % 138% 214 %
          
Other information:         
Net (recoveries) charge-offs$(8)  $186  $(223)  $154  $(49) 
Classified loans36,408   33,376  30,470   40,808  37,535  
Nonperforming and other risk assets:         
Nonaccrual loans7,899   7,404  7,806   10,657  6,931  
Other real estate owned   17  197   197  642  
Total nonperforming assets7,899   7,421  8,003   10,854  7,573  
Restructured loans still accruing945   960  971   979  1,042  
Loans past due 90 days or more and still accruing (2)520   909  2,115   2,232  2,982  
Total nonperforming and other risk assets$9,364   $9,290  $11,089   $14,065  $11,597  
(1) Capital ratios are estimated, subject to regulatory filings.
(2) Includes $0.5 million, $0.6 million, $1.9 million, $2.0 million, and $2.4 million of purchased credit impaired loans at September 30, 2020, June 30, 2020, March 31, 2020, December 31, 2019, and September 30, 2019, respectively.


Appendix A- Supplemental Reporting of Unusual Items

The following table presents unusual items that impacted each period shown. These items are presented to enable investors to better understand the magnitude of certain significant items on reported GAAP results in the context of the Company's growth and acquisition activities.

 Three Months Ended Year To Date
 9/30/2020 6/30/20 3/31/20 12/31/19 9/30/2019 9/30/2020 9/30/2019
(In thousands)             
Pretax Items             
Merger related expenses$   $  $   $  $471  $   $7,976  
Branch consolidation expenses1,310        988    1,310     
Net securities (losses) gains(13)  9  (40)  18  2,328  (44)  4,731  
Accelerated payoff of brokered deposits and borrowings penalty          223       
Life insurance proceeds               255  
Restricted stock forfeiture expense benefit               350  
Gain on sale of commercial loans   925  1,878       2,803     
Accretion -  recoveries on purchased credit impaired loans294   1,021  211   109  21  1,526   736  
Insurance claim receivable recovery (write-off)     486       486   (615) 
              
Income Tax Expense Items             
Tax benefit from state deferred tax asset rate change               334  
Tax benefit from acquired life insurance assets               185  
              


Appendix B- Supplemental Reporting of Non-GAAP Measures and GAAP to Non-GAAP Reconciliations

As a result of acquisitions, the Company has intangible assets consisting of goodwill and core deposit and other intangible assets totaling $24.5 million and $24.9 million at September 30, 2020 and December 31, 2019, respectively. Additionally, the Company has incurred approximately $1.3 million during the three and nine months ended September 30, 2020 in charges associated with recent branch consolidation efforts.

Management believes providing certain “non-GAAP” financial information will assist investors in their understanding of the effect of acquisition activity on reported results, particularly to overcome comparability issues related to the influence of intangibles (principally goodwill) created in acquisitions. Management also believes providing certain other “non-GAAP” financial information will assist investors in their understanding of the effect on recent financial results of non-recurring charges associated with increasing operational efficiencies for the long-term.

Tangible book value per share, net interest margin excluding the impact of purchase accounting, adjusted diluted EPS and adjusted non-interest expenses, as used by the Company in this earnings release, are determined by methods other than in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). While we believe this information is a useful supplement to GAAP based measures presented in this earnings release, readers are cautioned that this non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for financial measures determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of our results and financial condition as reported under GAAP, nor are such measures necessarily comparable to non-GAAP performance measures that may be presented by other companies. This supplemental presentation should not be construed as an inference that our future results will be unaffected by similar adjustments to be determined in accordance with GAAP.

The following tables present the computation of each non-GAAP based measure:

(dollars in thousands, except per share information)

Adjusted Diluted Earnings Per Share:

Adjusted diluted earnings per share for the three months ended September 30, 2020 was calculated as follows:

 September 30, 2020 
Net income$4,977   
Add:  Restructuring charges, net of tax1,320   
Adjusted net income$6,297   
   
Weighted average diluted shares11,025   
   
Adjusted diluted earnings per share (non-GAAP)$0.57   


Tangible Book Value per Common Share September 30,
2020
 June 30,
2020
 March 31,
2020
 December 31,
2019
 September 30,
2019
 
Shareholders' equity $232,847    $225,638    $210,570    $223,249    $223,493    
Less:  Goodwill 18,724    18,724    20,142    19,925    19,925    
Other intangible assets 5,803    6,160    6,717    7,180    7,654    
Related tax effect (1,219)  (1,294)  (1,411)  (1,508)  (1,607)  
Tangible common equity (non-GAAP) $209,539    $202,048    $185,122    $197,652    $197,521    
            
Common shares outstanding 11,204    11,209    11,197    11,200    11,175    
            
Book value per share (most directly comparable GAAP based measure) $20.78    $20.13    $18.81    $19.93    $20.00    
Intangible assets per share 2.08    2.10    2.28    2.28    2.33    
Tangible book value per share (non-GAAP) $18.70    $18.03    $16.53    $17.65    $17.67    




Allowance for loan losses to unguaranteed, non-acquired loans:   
    
 September 30, 2020 June 30, 2020
Allowance for loan losses$19,725    $17,517   
less: Reserves on acquired loans(518)  (564) 
     Allowance for loan losses, adjusted$19,207    $16,953   
    
Gross loans2,029,870    2,041,317   
less:  SBA guaranteed loans(459,662)  (448,972) 
less:  Acquired loans(298,854)  (325,072) 
     Unguaranteed, non-acquired loans$1,271,354   $1,267,273  
    
Allowance for loan losses to unguaranteed, non-acquired loans1.5  % 1.3  %


Allowance for loan losses plus purchase accounting marks to unguaranteed loans:   
    
 September 30, 2020 June 30, 2020
Allowance for loan losses$19,725    $17,517  
Purchase accounting marks9,607    11,025  
     Allowance plus purchase accounting marks$29,332    $28,542  
    
Gross loans2,029,870    2,041,317  
less:  SBA guaranteed loans(459,662)  (448,972) 
     Unguaranteed loans$1,570,208    $1,592,345  
    
Allowance for loan losses plus purchase accounting marks to unguaranteed loans:1.9  % 1.8 %




   Three Months Ended
(dollars in thousands)  September 30,
2020
 June 30,
2020
 March 31,
2020
 December 31,
2019
 September 30,
2019
Taxable-Equivalent Net Interest Margin (excluding the effect of purchase accounting)              
Taxable-equivalent net interest
income/margin, as reported
  $21,025    3.24% $21,028    3.37% $18,459    3.41% $18,138    3.37% $18,287    3.30%
Effect of purchase
accounting:
                     
LoansIncome (1,199)  (0.20)% (1,603)  (0.27)% (899)  (0.20)% (1,241)  (0.24)% (879)  (0.17)%
Time depositsExpense 16    % 24    % 28    % 32    (0.01)% 35    (0.01)%
Purchase accounting
effect on taxable-
equivalent income/margin
  (1,215)  (0.20)% (1,627)  (0.27)% (927)  (0.20)% (1,273)  (0.25)% (914)  (0.18)%
Taxable-equivalent net interest
income/margin (excluding the
effect of purchase accounting)
(non-GAAP)
  $19,810    3.04% $19,401    3.10% $17,532    3.21% $16,865    3.12% $17,373    3.12%


          
   Nine Months Ended
(dollars in thousands)  September 30,
2020
 September 30,
2019
Taxable-Equivalent Net Interest Margin (excluding the effect of purchase accounting)         
Taxable-equivalent net interest income/margin, as reported  $60,511    3.34% $52,198    3.45%
Effect of purchase accounting:         
LoansIncome (3,701)  (0.22)% (2,517)  (0.19)%
Time depositsExpenses 68    (0.01)% 50    %
Purchase accounting effect on taxable-equivalent income/ margin  (3,769)  (0.23)% (2,567)  (0.19)%
Taxable-equivalent net interest income/margin (excluding the effect of purchase accounting) (non-GAAP)  $56,742    3.11% $49,631    3.26%


Appendix C- Investment Portfolio Concentrations

The following table summarizes the credit ratings and collateral associated with the Company's investment portfolio, excluding equity securities, at September 30, 2020:

(dollars in thousands)

SectorPortfolio Mix Amortized Book Fair Value Credit Enhancement AAA AA A BBB NR Collateral Type
Unsecured ABS% $8,239   $8,291   43 % % — % — % — % 95 % Unsecured Consumer Debt
Student Loan ABS% 11,868   11,636   26   —   —   —   —   100   Seasoned Student Loans
Federal Family Education Loan ABS38 % 181,639   174,916     % 73 % 23 % — % — % Federal Family Education Loan (1)
PACE Loan ABS% 5,472   5,551     100 % — % — % — % — % PACE Loans
Non-Agency CMBS15 % 72,372   69,209   55   87 % — % % 10 % — % Commercial Real Estate
Non-Agency RMBS% 17,071   17,162   33   100 % — % — % — % — % Reverse Mortgages (2)
Municipal - General Obligation11 % 53,886   58,640     % 85 % 12 % — % — %  
Municipal - Revenue11 % 51,014   54,067     — % 61 % 19 % — % 20 %  
SBA ReRemic% 11,830   11,756     — % 100 % — % — % — % SBA Guarantee (3)
Agency MBS14 % 64,743   66,717     — % 100 % — % — % — % Residential Mortgages (3)
Bank CDs— % 249   249     — % — % — % — % 100   FDIC Insured CD
 100 % $478,383   $478,194     20 % 60 % 13 % % %  
                    
(1) Minimum of 97% guaranteed by U.S. government
(2) Reverse mortgages, expected credit enhancement is provided above
(3) 100% guaranteed by U.S. government agencies
 
Note : Ratings in table are the lowest of the three rating agencies (Standard & Poors, Moody's & Fitch). Standard & Poors rates U.S. government obligations at AA+


About the Company

With $2.8 billion in assets, Orrstown Financial Services, Inc. and its wholly-owned subsidiary, Orrstown Bank, provide a wide range of consumer and business financial services through banking offices in Berks, Cumberland, Dauphin, Franklin, Lancaster, Perry, and York Counties, Pennsylvania and Anne Arundel, Baltimore, Howard, and Washington Counties, Maryland, as well as Baltimore City, Maryland. Orrstown Bank is an Equal Housing Lender and its deposits are insured up to the legal maximum by the FDIC. Orrstown Financial Services, Inc.’s common stock is traded on Nasdaq (ORRF). For more information about Orrstown Financial Services, Inc. and Orrstown Bank, visit www.orrstown.com.

Cautionary Note Regarding Forward-looking Statements:

This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements reflect the current views of the Company's management with respect to, among other things, future events and the Company's financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,” “forecast,” “goal,” “target,” “would” and “outlook,” or the negative variations of those words or other comparable words of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about the Company's industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond the Company's control. Accordingly, the Company cautions you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements and there can be no assurances that the Company will be able to continue to successfully execute on its strategic growth plan into Dauphin, Lancaster, York and Berks counties, Pennsylvania, and the greater Baltimore market in Maryland, with newer markets continuing to be receptive to our community banking model; to take advantage of market disruption; to experience sustained growth in loans and deposits or maintain the momentum experienced to date from these actions; and to realize cost savings from our branch consolidation efforts. In addition to risks and uncertainties related to the COVID-19 pandemic and resulting governmental and societal responses, factors which could cause the actual results of the Company's operations to differ materially from expectations include, but are not limited to: ineffectiveness of the Company's strategic growth plan due to changes in current or future market conditions; the effects of competition and how it may impact our community banking model, including industry consolidation and development of competing financial products and services; the integration of the Company's strategic acquisitions; the inability to fully achieve expected savings, efficiencies or synergies from mergers and acquisitions, or taking longer than estimated for such savings, efficiencies and synergies to be realized; changes in laws and regulations; interest rate movements; changes in credit quality; inability to raise capital, if necessary, under favorable conditions; volatility in the securities markets; deteriorating economic conditions; expenses associated with pending litigation and legal proceedings; the failure of the SBA to honor its guarantee of loans issued under the SBA PPP; the timing of the repayment of SBA PPP loans and the impact it has on fee recognition; our ability to convert new relationships gained through the SBA PPP efforts to full banking relationships; and other risks and uncertainties, including those set forth under the heading "Risk Factors" in the Company's 2019 Annual Report on Form 10-K and subsequent filings. The foregoing list of factors is not exhaustive.

If one or more events related to these or other risks or uncertainties materializes, or if the Company's underlying assumptions prove to be incorrect, actual results may differ materially from what the Company anticipates. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and the Company does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New risks and uncertainties arise from time to time, and it is not possible for the Company to predict those events or how they may affect it. In addition, the Company cannot assess the impact of each factor on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements, expressed or implied, included in this press release are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that the Company or persons acting on the Company's behalf may issue.

The review period for subsequent events extends up to and includes the filing date of a public company’s financial statements, when filed with the Securities and Exchange Commission. Accordingly, the consolidated financial information presented in this announcement is subject to change.

Data & News supplied by www.cloudquote.io
Stock quotes supplied by Barchart
Quotes delayed at least 20 minutes.
By accessing this page, you agree to the following
Privacy Policy and Terms and Conditions.