Orrstown Financial Services, Inc. Reports Second Quarter 2020 diluted EPS of $0.58 and Announces Quarterly Dividend of $0.17 per Share

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  • Continued efforts to assist clients, employees and communities affected by COVID-19

  • Second quarter closings of U.S Small Business Administration Paycheck Protection Program ("SBA PPP") loans were approximately $460 million with $13.2 million of net deferred processing fees. The net deferred fees are being recognized over the contractual life of the loans. While uncertainty exists with the forgiveness process, it is expected that a significant portion of the fees will be recognized by the first quarter of 2021

  • Continued to build reserves due to economic uncertainty, thus recording $1.9 million of provision for loan losses in the second quarter; net charge-offs of $0.2 million; allowance to unguaranteed non-acquired loans of 1.3% at June 30, 2020 as compared to 1.2% at March 31, 2020; allowance plus purchase accounting marks to unguaranteed loans of 1.8% at June 30, 2020 and March 31, 2020

  • Continued proactive risk mitigation efforts completing $239.3 million of COVID-19 related loan payment deferrals through June 30, 2020, increasing reviews of higher risk concentrations and outreach to commercial borrowers

  • Classified loans increased by $2.9 million to $33.4 million from March 31, 2020 to June 30, 2020; non-performing loans to total loans fell by 11 basis points to 0.36% at June 30, 2020 as compared to 0.47% at March 31, 2020

  • Net loan growth of $382.7 million in the quarter due to SBA PPP loan production, partially offset by runoff in the mortgage and consumer portfolio due to high refinance activity

  • Deposits grew $354.4 million from March 31, 2020 to June 30, 2020 as clients were seeking a safe haven for their deposits combined with high usage of checking accounts for SBA PPP clients

  • Cost of deposits fell 33 basis points to 0.60% in the quarter due to repricing and mix improvement

  • Strong noninterest income of $7.2 million, or 26% of revenues, for the three months ended June 30, 2020; mortgage banking income increased significantly with the decline in interest rates, totaling $1.6 million in Q2 as compared to $0.3 million in Q1; noninterest income also included a $0.9 million gain on sale of portfolio loans

  • Despite margin pressures from rapidly declining rates, net interest margin contracted only four basis points from the first quarter of 2020 to 3.37% as accretion continued from acquired loans and management repriced deposits rapidly; interest rate floors were established for new loans and the balance sheet mix prioritization efforts continue

  • Commenced migration of Wheatland customers to the Bank's wealth management team as part of a plan to discontinue Wheatland operations as of July 31, 2020

  • The Board of Directors declared a cash dividend of $0.17 per common share, payable August 10, 2020, to shareholders of record as of August 3, 2020, in line with the dividend declared in the previous quarter

SHIPPENSBURG, Pa., July 21, 2020 (GLOBE NEWSWIRE) -- Orrstown Financial Services, Inc. ("Orrstown" or the Company) (NASDAQ: ORRF), the parent company of Orrstown Bank (the Bank) and Wheatland Advisors, Inc. ("Wheatland"), announced earnings for the three months ended June 30, 2020. Net income totaled $6.4 million for the second quarter of 2020, compared with $5.1 million for the first quarter of 2020 and $2.7 million in the second quarter of 2019. Diluted earnings per share totaled $0.58 for the three months ended June 30, 2020, compared with $0.46 in the three months ended March 31, 2020 and $0.26 in the three months ended June 30, 2019.

Thomas R. Quinn, Jr., President & CEO, commented, In the second quarter of 2020, the benefits of past strategic decisions and investments became more evident. Our employees executed well in a very challenging environment. Their dedication to clients, the Company and coworkers drove concrete results. The geographic diversification of the past few years combined with hiring top-flight talent across our footprint afforded Orrstown the opportunity to provide nearly 2,800 SBA PPP loans through June 30, 2020, to companies with almost 39,000 employees. Many of these companies represent new clients to the Bank. Aided by the low interest rate environment, the Company originated a record volume of mortgages during the quarter. All of this was accomplished while focusing on credit quality, the lifeblood of every bank. Our commercial lenders held discussions with a large majority of commercial clients about the current state of their business and projections for the future.

Mr. Quinn continued, Notwithstanding our showing in the second quarter, some degree of change is likely long-lasting.  Despite signs of economic reopening and material government actions to strengthen the economy, the level of uncertainty surrounding future economic activity remains elevated. Changing client behaviors and preferences for service delivery at Orrstown and in the industry as a whole appear to have accelerated as clients and bankers were less able to meet face to face. In light of this, as Orrstown strives to migrate client relationships newly gained in the PPP process to full-banking relationships, it will be done with the underwriting standards the Company developed in the wake of the Great Recession, and with an eye toward the most efficient delivery possible."

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

  • Returned to performing branch transactions via drive thru lanes or scheduled appointments;

  • Waived Orrstown fees on all foreign ATM transactions from March 18, 2020 through June 1, 2020;

  • 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 experts to work with clients needing special assistance or guidance

  • Nearly all back-office employees are working remotely and core operational functions of the Bank are being run remotely through telework, which is a direct result of Orrstowns technology investments;

  • Enhanced staffing levels at our Client Service Center to manage and support our increased call volume;

  • Enacted comprehensive pandemic response strategy which includes preventative measures for workplace health and safety;

  • Educated clients and consumers on the various assistance programs available to them through the SBA, as well as other federal and state government resources; and

  • Conducted our first Virtual Annual Shareholder Meeting in April 2020 by utilizing available technologies, allowing for a safe meeting to occur for all attendees.

Loss Mitigation Efforts / Loan Concentration

Management continued numerous proactive efforts to prepare for the difficult economic environment, including contacting every commercial loan client with more than $1.0 million in exposure and many with less 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 Banks Main Street Lending program, performing stress testing of higher risk concentrations in the loan portfolio and implementing tighter underwriting for new loans. So far, there has not been a material increase in delinquencies and little change in net charge-off trends as the government stimulus programs have supported the economy and borrowers with cash payments during the COVID-19 shutdown and more recently with the limited reopening. 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 factors for certain commercial loan segments in the Banks allowance for loan loss analysis, which resulted in the recording of $1.9 million of provision for loan losses in the quarter. During the quarter, management downgraded certain credits in higher risk concentrations, primarily hospitality, in an abundance of caution. As of June 30, 2020, the Bank provided payment deferrals on 465 commercial loans totaling $218.1 million and 164 consumer loans totaling $21.2 million. However, as stimulus plans come to an end and reopening plans are yielding mixed results in some states, we remain cautious with regard to our future credit outlook.

The Bank is also actively consulting with clients on the benefits of the many government lending programs with the most interest being in the SBA PPP loan program.  Through June 30, 2020, the Bank has closed approximately 2,800 loans for  $459.6 million.  These loans are fully guaranteed by the SBA and forgivable if the client meets certain conditions, including using at least 60% of the loan for payroll purposes. Forgiveness rules from the SBA continue to evolve and management continues to monitor this changing environment.

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 and Federal Reserve Main Street Lending program is expected to help offset potential future period losses. Due to the current economic environment, we expect charge-offs to 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.

Below is a summary of select loan concentrations as of June 30, 2020:

 

As a Percentage of

 

 

Category

Total Loans

 

Risk-based Capital

 

COVID-19 Deferrals as a Percentage of Category

 

 

 

 

 

 

Office

8.0%

 

67.0%

 

12.0%

Multifamily residential

5.5

 

46.0

 

32.7

Strip Center / Retail

2.5

 

21.0

 

23.1

Commercial Construction

2.5

 

21.0

 

4.2

Hotel / Motels

2.6

 

22.0

 

68.3

Warehouses

2.3

 

19.0

 

3.6

Restaurants & Bars

2.4

 

20.0

 

37.8

Storage Units

1.2

 

10.0

 

40.6

Residential Construction

0.4

 

3.0

 

13.0

 

 

 

 

 

 

DISCUSSION OF RESULTS

Balance Sheet

Loans

Net loans grew by $382.7 million, or 94% annualized, to $2.0 billion at June 30, 2020 compared to $1.6 billion at March 31, 2020 due to the origination of nearly 2,800 SBA PPP loans for $459.6 million. These loans are 100% guaranteed by the U.S. government and are forgivable if the borrower meets the established criteria. We continue participation in this program and expect additional volume in the third quarter of 2020, although demand has been significantly less during the second round of the program. Runoff of the mortgage loan portfolio accelerated in the second quarter of 2020 due to high refinance activity. Mortgage loans fell by $29.0 million, or 36% annualized, in the second quarter of 2020. Consumer loans fell $9.5 million to $204.8 million, or 18% annualized, from March 31, 2020 to June 30, 2020, due primarily to high refinance activity of home equity loans. Commercial loans, net of SBA PPP loans, fell $34 million, or 12% annualized, in the second quarter of 2020. In the first half of the quarter, the lending teams focused on assisting clients with the SBA PPP lending program and on asset quality outreach efforts. Also, the economy was shut down so new opportunities were limited. Later in the quarter, the Bank began to see activity resume and is beginning to rebuild its pipeline. While we anticipate less commercial loan originations in the near term, we will continue to actively pursue new lending opportunities that meet the needs of our clients and our communities, consistent with prudent underwriting standards.

Deposits

Deposits grew by $354.4 million to $2.3 billion, or 75% annualized, from March 31, 2020 to June 30, 2020 as many clients parked excess liquidity with the Bank during this period of uncertainty, combined with a growth in deposits from our new SBA PPP clients. Non-interest DDA balances grew $172.8 million from the March 31, 2020 to June 30, 2020 as a portion of the proceeds from the SBA PPP loans stayed with the Bank. We expect these deposits to be used by small business clients over time. Interest checking, money market and savings accounts grew by $217 million as clients sought safe alternatives to build their liquidity reserves due to the COVID crisis. CDs fell in the quarter by $36 million due to runoff of CDs from the Hamilton acquisition plus a change in client behavior. With very low interest rates, many clients are shifting money from CDs into money market and savings accounts to enhance flexibility with a similar return on their money. Overall, the Bank has seen a surge of deposit growth, which has been used to fund the SBA PPP loan growth. Eventually, some of this money will exit, but the Bank is focused on building relationship commercial and retail deposits, which are expected to grow over the long-term as we add relationships to the Bank, with the ultimate goal being to maintain a 90-95% loan to deposit ratio.

Other

Borrowings grew by $14.5 million during the quarter to $258.4 million. As of June 30, 2020, the Bank has borrowed $33.7 million through the Federal Reserve SBA PPP lending facility. The Bank can borrow through this facility using the closed 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. Repurchase agreements increased by $12.8 million and FHLB advances declined by $30.2 million from March 31, 2020 to June 30, 2020. If needed, the near-term borrowing strategy will be to utilize the Federal Reserve SBA PPP lending facility or short-term FHLB advances.

Investments increased by $4.3 million from March 31, 2020 to $483.9 million at June 30, 2020. During the three months ended June 30, 2020, market liquidity improved materially, thus the portfolio appreciated by $13.3 million. There were no purchases during the three months ended June 30, 2020, while payments and maturities totaled $8.8 million. On a go forward basis, the Bank intends to reduce its investment balance as loan growth from newly recruited commercial lenders provides the most attractive reinvestment option. During the second quarter of 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 increased by $2.5 million to $20.8 million as average earning assets rose by $332.5 million to $2.5 billion during the three months ended June 30, 2020 as compared to $2.2 billion for the three months ended March 31, 2020. The net interest margin fell only four basis points to 3.37% despite a significantly adverse drop in interest rates and the addition of lower yielding SBA PPP loans. Relative stability was achieved through active margin management and higher accretion income due to increased loan repayments and workout successes.  Active margin management included multiple deposit pricing changes, which led to a 33 basis point reduction in the total deposit cost of funds in one quarter to 0.60%. New loans have floors and higher spreads to compensate for higher risk and the very low absolute level of interest rates. Balance sheet mix improvement is a continuing effort that provides lift over time with growth in commercial loans and relationship deposits and reductions in mortgages, investments and wholesale funding.

SBA PPP loans had an average outstanding balance of $349 million and yielded 3.1% in the three months ended June 30, 2020. As of June 30, 2020, 14% of the $13.2 million of net deferred SBA PPP fees have been earned. The remaining fees are expected to be earned in the coming quarters, with a significant amount projected to be earned when the borrower achieves forgiveness of the loan. SBA PPP loans caused net interest margin compression of approximately 13 basis points in the second quarter of 2020. The Bank continues to see material accretion due to high levels of prepayments of acquired Hamilton Bank mortgages along with numerous successful workout conclusions with commercial clients. Total accretion income was $1.6 million in the three months ended June 30, 2020 as compared to $0.9 million in the three months ended March 31, 2020. 

As previously disclosed, the Company has an asset sensitive balance sheet with concentrations in variable rate commercial loans and investment securities. It also has significant concentrations in core deposits with a low cost of funds. With this profile, the Company will normally experience net interest margin pressure as interest rates fall and net interest margin expansion as rates rise. If the external environment continues to favor low interest rates, the Company will continue to focus on mix optimization to preserve margin, while also obtaining its fair share of rate sensitive fee revenues from mortgage loans to be sold in the secondary market and loan swap referral income for commercial real estate clients. The second quarter of 2020 saw record lows in many interest rates and rates are expected to stay low for the foreseeable future. 

Provision for loan losses

The Bank thoroughly evaluated its portfolio during the quarter to gain a better understanding as to the potential risk to the borrowers ability to make payments in the future and to better understand their revised business outlook.  This additional insight caused the Bank to downgrade certain higher risk concentrations to special mention, which increased reserve requirements.  The Bank also ran stress tests and added a new COVID-19 qualitative factor for unique risks from the crisis.  Overall portfolio trends and metrics continue to be relatively stable despite the current economic uncertainty.

The allowance for loan losses totaled $17.5 million at June 30, 2020, compared with $14.7 million at March 31, 2020. Total classified loans increased by $2.9 million, or 10%, to $33.4 million from March 31, 2020 to June 30, 2020. Management initiated a strategy in the first quarter of 2020 to pursue the sale or workout of classified loans.  The result of these efforts was the sale of $1.7 million of problem loans in the second quarter of 2020, which generated a net gain of $0.8 million.  The provision for loan losses totaled $1.9 million in the second quarter of 2020, compared with $0.9 million in the first quarter of 2020.

The Bank recorded net charge offs of $0.2 million in the second quarter of 2020 as compared to net recoveries of $0.2 million in the previous quarter. Nonperforming loans decreased by $0.4 million from March 31, 2020 to June 30, 2020 to $7.4 million, and totaled 0.36% of loans at June 30, 2020, compared with 0.47% of loans at March 31, 2020. The allowance for loan losses to nonperforming loans ratio was 237% at June 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 was strong at $7.4 million in the quarter ended June 30, 2020 compared with $7.1 million in the  quarter ended March 31, 2020. The Bank experienced very strong mortgage banking results, elevated workout gains and slightly lower activity-based service charge income in the second quarter of 2020.

Total wealth management income for the quarter ended June 30, 2020 was $2.3 million, as compared to $2.4 million for the quarter ended March 31, 2020. The improvement in the financial markets during the second quarter of 2020 helped maintain revenue, but new client acquisition activity slowed during the lock down period. With improving financial markets, a partially reopened economy and significant additions of relationship commercial lenders in 2019 in our growth markets adding to our referral network, we anticipate long-term growth opportunities in this business, although the timing of that growth remains uncertain due to COVID-19.

Service charge income and interchange income totaled $1.5 million in the three months ended June 30, 2020 versus $1.6 million and $2.0 million in the three months ended March 31, 2020 and December 31, 2019, respectively. The past two quarters have seen activity decline due to seasonality and the COVID-19 event as card transaction activity slowed and fees for services declined. The Bank also waived some fees during the lockdown period to assist our clients, which reduced these fees. Late in the quarter, we saw fees increasing to more normal levels as activity grew and the fee waiver period ended. These stable sources of fee revenue should grow over time as we add retail and commercial business. 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 income for the quarter ended June 30, 2020 increased by $1.3 million to $1.6 million compared to $0.3 million in the quarter ended March 31, 2020. Refinance activity was strong due to the decrease in interest rates and the gain on sale margin increased. Loans sold in the second quarter of 2020 totaled $49.5 million compared with $22.2 million in the first quarter of 2020. Due to significant purchases of new mortgage backed securities by the Federal Reserve, mortgage rates fell to very attractive levels in the second half of the quarter ended June 30, 2020. Therefore, the Bank experienced a material increase in applications and ended the second quarter of 2020 with an elevated amount of locked loans that were not closed, totaling $34.8 million. The Bank records gains on closed and locked loans. In the first quarter of 2020, an impairment charge of $0.5 million was recognized on the Bank's mortgage servicing rights asset due to falling interest rates and another $0.3 million impairment was recorded in the second quarter of 2020, as a result of the aforementioned payment deferrals.

Loan swap fees totaled $0.2 million in the second quarter of 2020, which is flat with the first quarter of 2020. While activity was low throughout the quarter, demand began to resume late in the second quarter. If markets remain stable, we should see additional opportunities in the second half of 2020. These fees for interest rate hedge referral income are related to commercial real estate lending. In the second quarter of 2020, the Bank began providing interest rate swaps directly for clients as opposed to referring them to a third party, which will allow the Bank to provide better pricing for clients while resulting in higher fee income.  

Noninterest Expenses

Noninterest expenses totaled $18.4 million in the second quarter of 2020 compared with $18.3 million in the first quarter of 2020. Overall, expenses were somewhat elevated due to the COVID-19 event with higher overtime, some write down activity for properties held-for-sale and exit costs associated with Wheatland.

Salaries and employee benefits totaled $10.1 million in the second quarter of 2020 as compared with $11.6 million in the first quarter of 2020. Seasonal reductions in payroll taxes accounted for $0.3 million of the decrease while health insurance costs fell $0.8 million after a period of elevated expenses over the past two quarters. Health insurance expenses are expected to increase to more normal levels in the second half of the year.

Advertising and promotion expense fell by $0.6 million to $0.2 million as the Bank pulled back on marketing efforts due to the COVID-19 event. FDIC expense resumed at $0.2 million after three quarters of no expense as the credit received when the FDIC reserve levels were at target has now been exhausted. Taxes other than income increased by $0.5 million as no tax credits were earned as in previous periods. Professional fees increased by $0.3 million to $1.0 million in the quarter due primarily to legal expenses related to the previously disclosed SEPTA litigation.

Other expenses increased by $1.4 million during the three months ended June 30, 2020 as compared to the three months ended March 31, 2020 due primarily to four items. First, the Bank had to reduce the price for the pending sale of an operations center which required a $0.5 million write down of the property which is held-for-sale. Second, the Company is dissolving Wheatland effective July 31, 2020 and recorded a $0.2 million write down of its client list intangible asset.  Third, the Bank recorded a $0.5 million recovery of a previously charged-off insurance claim in the first quarter of 2020.  Finally, the Bank decided to not move forward with the construction of a new branch location and wrote off related development costs of $0.1 million.

Income Taxes

The Company's effective tax rate for the first quarter of 2020 was 17.0% compared with 13.8% for 2019 and generally reflected increased profitability. 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 $225.6 million at June 30, 2020, an increase of $15.1 million from $210.6 million at March 31, 2020. The increase was primarily attributable to a decrease in accumulated other comprehensive loss from changes in net unrealized gains and losses in securities available for sale, which increased by $13.3 million from March 31, 2020 to June 30, 2020. The Company's tangible common equity ratio fell from 7.8% at March 31, 2020 to 7.3% at June 30, 2020 and the Company's Tier 1 leverage ratio fell from 8.5% at March 31, 2020 to 7.6% at June 30, 2020, in each case due to the growth in SBA PPP loans. The reduction in these ratios is expected to be temporary. It is anticipated that most of the SBA PPP loans will achieve loan forgiveness by early next year. During this time, the Bank expects to generate additional retained earnings from SBA PPP fee income. After the SBA PPP loans leave the balance sheet and the Bank records the net income, the tangible common equity and leverage ratios will increase, all else being equal. Risk based capital ratios are not impacted by SBA PPP loan growth due to their 0% regulatory capital risk weighting. The Company's total risk-based capital ratio increased from 14.0% at March 31, 2020 to 14.4% at June 30, 2020. The Company believes that capital is adequate at this time to support the risks inherent in the balance sheet.

 

 

Investor Relations Contact:

Media Contact:

Matthew C. Schultheis, CFA

Luke Bernstein

Director Strategic Planning and Investor Relations

Corporate Communications Officer

Phone (717) 510-7127

Phone (717) 510-7107


 

 

 

 

 

 

 

 

ORRSTOWN FINANCIAL SERVICES, INC.

 

 

 

 

 

 

 

FINANCIAL HIGHLIGHTS (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

June 30,

 

June 30,

(Dollars in thousands, except per share amounts)

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

Profitability for the period:

 

 

 

 

 

 

 

Net interest income

$

20,798 

 

 

$

18,515 

 

 

$

39,060 

 

 

$

33,275 

 

Provision for loan losses

1,900 

 

 

200 

 

 

2,825 

 

 

600 

 

Noninterest income

7,193 

 

 

7,774 

 

 

14,267 

 

 

12,909 

 

Noninterest expenses

18,431 

 

 

23,292 

 

 

36,735 

 

 

39,453 

 

Income before income taxes

7,660 

 

 

2,797 

 

 

13,767 

 

 

6,131 

 

Income tax expense

1,301 

 

 

110 

 

 

2,340 

 

 

342 

 

Net income available to common shareholders

$

6,359 

 

 

$

2,687 

 

 

$

11,427 

 

 

$

5,789 

 

 

 

 

 

 

 

 

 

Financial ratios:

 

 

 

 

 

 

 

Return on average assets  (1)

0.94 

%

 

0.48 

%

 

0.90 

%

 

0.56 

%

Return on average equity  (1)

11.82 

%

 

5.26 

%

 

10.36 

%

 

6.16 

%

Net interest margin  (1)

3.37 

%

 

3.63 

%

 

3.39 

%

 

3.54 

%

Efficiency ratio

65.8 

%

 

88.6 

%

 

68.9 

%

 

85.4 

%

Income per common share:

 

 

 

 

 

 

 

Basic

$

0.58 

 

 

$

0.26 

 

 

$

1.04 

 

 

$

0.59 

 

Diluted

$

0.58 

 

 

$

0.26 

 

 

$

1.04 

 

 

$

0.58 

 

 

 

 

 

 

 

 

 

Average equity to average assets

7.94 

%

 

9.09 

%

 

8.69 

%

 

9.07 

%

 

 

 

 

 

 

 

 

(1)  Annualized.

 

 

 

 

 

 

 


ORRSTOWN FINANCIAL SERVICES, INC.

 

 

 

FINANCIAL HIGHLIGHTS (Unaudited)

 

 

 

(continued)

 

 

 

 

June 30,

 

December 31,

 

2020

 

2019

At period-end:

 

 

 

Total assets

$

2,772,796 

 

 

$

2,383,274 

 

Total deposits

2,251,731 

 

 

1,875,522 

 

Loans, net of allowance for loan losses

2,023,800 

 

 

1,629,675 

 

Loans held-for-sale, at fair value

13,594 

 

 

9,364 

 

Securities available for sale

483,936 

 

 

490,885 

 

Borrowings

226,520 

 

 

217,936 

 

Subordinated notes

31,875 

 

 

31,847 

 

Shareholders' equity

225,638 

 

 

223,249 

 

 

 

 

 

Credit quality and capital ratios  (1) :

 

 

 

Allowance for loan losses to total loans

0.86 

%

 

0.89 

%

Total nonaccrual loans to total loans

0.36 

%

 

0.65 

%

Nonperforming assets to total assets

0.27 

%

 

0.46 

%

Allowance for loan losses to nonaccrual loans

237 

%

 

138 

%

Total risk-based capital:

 

 

 

Orrstown Financial Services, Inc.

14.7 

%

 

14.1 

%

Orrstown Bank

14.0 

%

 

13.4 

%

Tier 1 risk-based capital:

 

 

 

Orrstown Financial Services, Inc.

11.8 

%

 

11.3 

%

Orrstown Bank

12.9 

%

 

12.5 

%

Tier 1 common equity risk-based capital:

 

 

 

Orrstown Financial Services, Inc.

11.8 

%

 

11.3 

%

Orrstown Bank

12.9 

%

 

12.5 

%

Tier 1 leverage capital:

 

 

 

Orrstown Financial Services, Inc.

7.6 

%

 

8.6 

%

Orrstown Bank

8.3 

%

 

9.4 

%

 

 

 

 

Book value per common share

$

20.13 

 

 

$

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)

June 30, 2020

 

December 31, 2019

Assets

 

 

 

Cash and due from banks

$

26,652

 

 

$

25,969

 

Interest-bearing deposits with banks

25,638

 

 

29,994

 

Cash and cash equivalents

52,290

 

 

55,963

 

Restricted investments in bank stocks

16,256

 

 

16,184

 

Securities available for sale (amortized cost of $488,433 and $491,492 at June 30, 2020 and December 31, 2019, respectively)

483,936

 

 

490,885

 

Loans held for sale, at fair value

13,594

 

 

9,364

 

Loans

2,041,317

 

 

1,644,330

 

Less: Allowance for loan losses

(17,517

)

 

(14,655

)

Net loans

2,023,800

 

 

1,629,675

 

Premises and equipment, net

36,976

 

 

37,524

 

Cash surrender value of life insurance

64,411

 

 

63,613

 

Goodwill

18,724

 

 

19,925

 

Other intangible assets, net

6,160

 

 

7,180

 

Accrued interest receivable

8,182

 

 

6,040

 

Other assets

48,467

 

 

46,921

 

Total assets

$

2,772,796

 

 

$

2,383,274

 

Liabilities

 

 

 

Deposits:

 

 

 

Noninterest-bearing

$

436,290

 

 

$

249,450

 

Interest-bearing

1,815,441

 

 

1,626,072

 

Total deposits

2,251,731

 

 

1,875,522

 

Securities sold under agreements to repurchase

23,716

 

 

8,269

 

FHLB Advances and other

202,804

 

 

209,667

 

Subordinated notes

31,875

 

 

31,847

 

Accrued interest and other liabilities

37,032

 

 

34,720

 

Total liabilities

2,547,158

 

 

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; 11,268,249 shares issued and 11,209,146 outstanding at June 30, 2020; 11,220,604 shares issued and 11,199,874 outstanding at December 31, 2019

586

 

 

584

 

Additional paidin capital

188,226

 

 

188,365

 

Retained earnings

42,862

 

 

35,246

 

Accumulated other comprehensive loss

(5,114

)

 

(480

)

Treasury stock 59,283 and 20,730 shares, at cost at June 30, 2020 and December 31, 2019, respectively

(922

)

 

(466

)

Total shareholders equity

225,638

 

 

223,249

 

Total liabilities and shareholders equity

$

2,772,796

 

 

$

2,383,274

 


 

ORRSTOWN FINANCIAL SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

June 30,

 

June 30,

(In thousands, except per share amounts)

 

2020

 

2019

 

2020

 

2019

Interest income

 

 

 

 

 

 

 

 

Loans

 

$

21,794

 

 

$

19,658

 

 

$

41,960

 

 

 

$

34,809

 

Investment securities - taxable

 

2,795

 

 

3,681

 

 

6,233

 

 

 

7,173

 

Investment securities - tax-exempt

 

420

 

 

632

 

 

704

 

 

 

1,474

 

Short-term investments

 

13

 

 

501

 

 

92

 

 

 

674

 

Total interest income

 

25,022

 

 

24,472

 

 

48,989

 

 

 

44,130

 

Interest expense

 

 

 

 

 

 

 

 

Deposits

 

3,310

 

 

4,892

 

 

7,664

 

 

 

8,607

 

Securities sold under agreements to repurchase

 

152

 

 

28

 

 

184

 

 

 

55

 

FHLB Advances and other

 

260

 

 

538

 

 

1,078

 

 

 

1,197

 

Subordinated notes

 

502

 

 

499

 

 

1,003

 

 

 

996

 

Total interest expense

 

4,224

 

 

5,957

 

 

9,929

 

 

 

10,855

 

Net interest income

 

20,798

 

 

18,515

 

 

39,060

 

 

 

33,275

 

Provision for loan losses

 

1,900

 

 

200

 

 

2,825

 

 

 

600

 

Net interest income after provision for loan losses

 

18,898

 

 

18,315

 

 

36,235

 

 

 

32,675

 

Noninterest income

 

 

 

 

 

 

 

 

Service charges

 

719

 

 

1,078

 

 

1,706

 

 

 

1,980

 

Interchange income

 

819

 

 

843

 

 

1,607

 

 

 

1,579

 

Loan swap referral fees

 

232

 

 

 

 

432

 

 

 

 

Wealth management income

 

2,295

 

 

2,421

 

 

4,654

 

 

 

4,657

 

Mortgage banking activities

 

1,609

 

 

652

 

 

1,941

 

 

 

1,120

 

Gains on sale of portfolio loans

 

925

 

 

 

 

2,803

 

 

 

 

Other income

 

585

 

 

716

 

 

1,155

 

 

 

1,170

 

Investment securities gains (losses)

 

9

 

 

2,064

 

 

(31

)

 

 

2,403

 

Total noninterest income

 

7,193

 

 

7,774

 

 

14,267

 

 

 

12,909

 

Noninterest expenses

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

10,063

 

 

8,922

 

 

21,657

 

 

 

17,599

 

Occupancy, furniture and equipment

 

2,326

 

 

2,206

 

 

4,615

 

 

 

4,230

 

Data processing, telephone, and communication

 

791

 

 

1,058

 

 

1,662

 

 

 

1,828

 

Advertising and bank promotions

 

167

 

 

548

 

 

956

 

 

 

1,069

 

FDIC insurance

 

214

 

 

221

 

 

261

 

 

 

406

 

Professional services

 

1,021

 

 

707

 

 

1,737

 

 

 

1,264

 

Taxes other than income

 

449

 

 

314

 

 

451

 

 

 

620

 

Intangible asset amortization

 

404

 

 

402

 

 

867

 

 

 

610

 

Merger related expenses

 

 

 

6,860

 

 

 

 

 

7,505

 

Insurance claim receivable (recovery) write-off

 

 

 

 

 

(486

)

 

 

615

 

Other operating expenses

 

2,996

 

 

2,054

 

 

5,015

 

 

 

3,707

 

Total noninterest expenses

 

18,431

 

 

23,292

 

 

36,735

 

 

 

39,453

 

Income before income tax expense

 

7,660

 

 

2,797

 

 

13,767

 

 

 

6,131

 

Income tax expense

 

1,301

 

 

110

 

 

2,340

 

 

 

342

 

Net income

 

$

6,359

 

 

$

2,687

 

 

$

11,427

 

 

 

$

5,789

 

 

 

 

 

 

 

 

 

 

Share information:

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.58

 

 

$

0.26

 

 

$

1.04

 

 

 

$

0.59

 

Diluted earnings per share

 

$

0.58

 

 

$

0.26

 

 

$

1.04

 

 

 

$

0.58

 

Weighted average shares - basic

 

10,916

 

 

10,349

 

 

10,937

 

 

 

9,757

 

Weighted average shares - diluted

 

10,993

 

 

10,514

 

 

11,027

 

 

 

9,924

 


 

 

 

 

 

 

 

 

 

 

 

 

ORRSTOWN FINANCIAL SERVICES, INC.

 

 

 

 

 

 

 

 

 

 

 

ANALYSIS OF NET INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

Average Balances and Interest Rates, Taxable-Equivalent Basis (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

6/30/2020

 

03/31/20

 

12/31/19

 

09/30/19

 

6/30/2019

 

 

 

 

 

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

$

27,949

 

$

13

 

 

0.18

%

 

$

22,869

 

$

80

 

 

1.41

%

 

$

21,396

 

$

99

 

 

1.84

%

 

$

95,713

 

$

558

 

 

2.31

%

 

$

84,344

 

$

501

 

 

2.38

%

Securities (1)

493,847

 

3,327

 

 

2.71

 

 

500,987

 

3,797

 

 

3.05

 

 

504,571

 

3,919

 

 

3.08

 

 

496,981

 

4,180

 

 

3.34

 

 

497,302

 

4,481

 

 

3.61

 

Loans (1)(2)(3)

1,988,114

 

21,912

 

 

4.43

 

 

1,653,547

 

20,287

 

 

4.93

 

 

1,606,608

 

20,207

 

 

4.99

 

 

1,604,491

 

20,306

 

 

5.02

 

 

1,497,445

 

19,782

 

 

5.30

 

Total interest-earning assets

2,509,910

 

25,252

 

 

4.05

 

 

2,177,403

 

24,164

 

 

4.46

 

 

2,132,575

 

24,225

 

 

4.51

 

 

2,197,185

 

25,044

 

 

4.52

 

 

2,079,091

 

24,764

 

 

4.78

 

Other assets

200,684

 

 

 

 

 

188,400

 

 

 

 

 

191,585

 

 

 

 

 

193,946

 

 

 

 

 

175,566

 

 

 

 

Total

$

2,710,594

 

 

 

 

 

$

2,365,803

 

 

 

 

 

$

2,324,160

 

 

 

 

 

$

2,391,131

 

 

 

 

 

$

2,254,657

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

$

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

 

 

$

922,612

 

2,062

 

 

0.90

 

Savings deposits

160,738

 

63

 

 

0.16

 

 

151,195

 

63

 

 

0.17

 

 

150,221

 

64

 

 

0.17

 

 

159,029

 

90

 

 

0.22

 

 

153,235

 

89

 

 

0.23

 

Time deposits (4)

462,664

 

1,988

 

 

1.73

 

 

503,364

 

2,388

 

 

1.91

 

 

551,789

 

2,708

 

 

1.95

 

 

651,250

 

3,499

 

 

2.13

 

 

568,488

 

2,741

 

 

1.93

 

Securities sold under agreements to repurchase

21,582

 

24

 

 

0.45

 

 

9,416

 

28

 

 

1.20

 

 

9,257

 

29

 

 

1.24

 

 

8,617

 

28

 

 

1.29

 

 

8,847

 

29

 

 

1.31

 

FHLB advances and other

175,336

 

388

 

 

0.89

 

 

187,408

 

822

 

 

1.76

 

 

119,632

 

649

 

 

2.15

 

 

76,404

 

444

 

 

2.31

 

 

97,908

 

537

 

 

2.20

 

Subordinated notes

31,867

 

502

 

 

6.33

 

 

31,853

 

501

 

 

6.33

 

 

31,839

 

501

 

 

6.23

 

 

31,826

 

490

 

 

6.10

 

 

31,819

 

499

 

 

6.28

 

Total interest-bearing liabilities

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

 

 

1,782,909

 

5,957

 

 

1.34

 

Noninterest-bearing demand deposits

452,253

 

 

 

 

 

250,163

 

 

 

 

 

247,107

 

 

 

 

 

252,211

 

 

 

 

 

235,046

 

 

 

 

Other

36,511

 

 

 

 

 

33,763

 

 

 

 

 

35,282

 

 

 

 

 

35,720

 

 

 

 

 

31,692

 

 

 

 

Total Liabilities

2,495,385

 

 

 

 

 

2,139,648

 

 

 

 

 

2,101,102

 

 

 

 

 

2,169,881

 

 

 

 

 

2,049,647

 

 

 

 

Shareholders' Equity

215,209

 

 

 

 

 

226,155

 

 

 

 

 

223,058

 

 

 

 

 

221,250

 

 

 

 

 

205,010

 

 

 

 

Total

$

2,710,594

 

 

 

 

 

$

2,365,803

 

 

 

 

 

$

2,324,160

 

 

 

 

 

$

2,391,131

 

 

 

 

 

$

2,254,657

 

 

 

 

Taxable-equivalent net interest income / net interest spread

 

 

21,028

 

 

3.20

%

 

 

 

18,459

 

 

3.23

%

 

 

 

18,138

 

 

3.18

%

 

 

 

18,287

 

 

3.10

%

 

 

 

18,807

 

 

3.44

%

Taxable-equivalent net interest margin

 

 

 

 

3.37

%

 

 

 

 

 

3.41

%

 

 

 

 

 

3.37

%

 

 

 

 

 

3.30

%

 

 

 

 

 

3.63

%

Taxable-equivalent adjustment

 

 

(230

)

 

 

 

 

 

(197

)

 

 

 

 

 

(197

)

 

 

 

 

 

(208

)

 

 

 

 

 

(292

)

 

 

Net interest income

 

 

$

20,798

 

 

 

 

 

 

$

18,262

 

 

 

 

 

 

$

17,941

 

 

 

 

 

 

$

18,079

 

 

 

 

 

 

$

18,515

 

 

 

Ratio of average interest-earning assets to average interest-bearing liabilities

 

 

 

 

125

%

 

 

 

 

 

117

%

 

 

 

 

 

117

%

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

June 30, 2020

 

June 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

$

25,409

 

 

$

92

 

 

 

0.73

%

 

$

56,879

 

 

$

674

 

 

 

2.39

%

Securities (1)

497,418

 

 

7,124

 

 

 

2.88

 

 

498,522

 

 

9,039

 

 

 

3.66

 

Loans (1)(2)(3)

1,820,830

 

 

42,199

 

 

 

4.66

 

 

1,378,213

 

 

35,054

 

 

 

5.13

 

Total interest-earning assets

2,343,657

 

 

49,415

 

 

 

4.24

 

 

1,933,614

 

 

44,767

 

 

 

4.67

 

Other assets

194,543

 

 

 

 

 

 

156,786

 

 

 

 

 

Total

$

2,538,200

 

 

 

 

 

 

$

2,090,400

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

$

1,063,460

 

 

3,161

 

 

 

0.60

 

 

$

884,065

 

 

3,911

 

 

 

0.89

 

Savings deposits

155,966

 

 

127

 

 

 

0.16

 

 

137,606

 

 

142

 

 

 

0.21

 

Time deposits

483,014

 

 

4,376

 

 

 

1.82

 

 

482,525

 

 

4,554

 

 

 

1.90

 

Securities sold under agreements to repurchase

15,499

 

 

52

 

 

 

0.67

 

 

8,755

 

 

57

 

 

 

1.31

 

FHLB advances and other

181,372

 

 

1,210

 

 

 

1.34

 

 

109,658

 

 

1,195

 

 

 

2.20

 

Subordinated notes

31,860

 

 

1,003

 

 

 

6.29

 

 

31,852

 

 

996

 

 

 

6.30

 

Total interest-bearing liabilities

1,931,171

 

 

9,929

 

 

 

1.03

 

 

1,654,461

 

 

10,855

 

 

 

1.32

 

Noninterest-bearing demand deposits

351,208

 

 

 

 

 

 

218,796

 

 

 

 

 

Other

35,139

 

 

 

 

 

 

27,523

 

 

 

 

 

Total Liabilities

2,317,518

 

 

 

 

 

 

1,900,780

 

 

 

 

 

Shareholders' Equity

220,682

 

 

 

 

 

 

189,620

 

 

 

 

 

Total

$

2,538,200

 

 

 

 

 

 

$

2,090,400

 

 

 

 

 

Taxable-equivalent net interest income / net interest spread

 

 

39,486

 

 

 

3.21

%

 

 

 

33,912

 

 

 

3.35

%

Taxable-equivalent net interest margin

 

 

 

 

3.39

%

 

 

 

 

 

3.54

%

Taxable-equivalent adjustment

 

 

(426

)

 

 

 

 

 

 

(637

)

 

 

 

Net interest income

 

 

$

39,060

 

 

 

 

 

 

 

$

33,275

 

 

 

 

Ratio of average interest-earning assets to average interest-bearing liabilities

 

 

 

 

121

%

 

 

 

 

 

117

%

 

 

 

 

 

 

 

 

 

 

 

 

NOTES TO ANALYSIS OF NET INTEREST INCOME:

 

 

 

 

 

 

 

 

(1) Yields and interest income on tax-exempt assets have been computed on a taxable-equ...

ivalent 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.


ORRSTOWN FINANCIAL SERVICES, INC.

HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)

(In thousands, except per share amounts )

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

June 30,
2019

Profitability for the quarter:

Net interest income

$

20,798

$

18,262

$

17,941

$

18,079

$

18,515

Provision for loan losses

1,900

925

300

200

Noninterest income

7,193

7,074

7,028

8,602

7,774

Noninterest expenses

18,431

18,304

19,707

18,140

23,292

Income before income taxes

7,660

6,107

5,262

8,241

2,797

Income tax expense

1,301

1,039

1,028

1,340

110

Net income

$

6,359

$

5,068

$

4,234

$

6,901

$

2,687

Financial ratios:

Return on average assets (1)

0.94

%

0.86

%

0.72

%

1.15

%

0.48

%

Return on average equity (1)

11.82

%

8.96

%

7.53

%

12.37

%

5.26

%

Net interest margin (1)

3.37

%

3.41

%

3.37

%

3.30

%

3.63

%

Efficiency ratio

65.85

%

72.25

%

78.93

%

67.99

%

88.60

%

Efficiency ratio, adjusted (2)

65.87

%

72.13

%

75.02

%

72.55

%

67.83

%

Per share information:

Income per common share:

Basic

$

0.58

$

0.46

$

0.39

$

0.63

$

0.26

Diluted

$

0.58

$

0.46

$

0.38

$

0.62

$

0.26

Book value

$

20.13

$

18.81

$

19.93

$

20.00

$

19.59

Tangible book value (3)

$

18.03

$

16.53

$

17.65

$

17.67

$

17.27

Cash dividends paid

$

0.17

$

0.17

$

0.15

$

0.15

$

0.15

Average basic shares

10,916

10,959

10,966

10,949

10,349

Average diluted shares

10,993

11,062

11,097

11,094

10,514

(1) Annualized.

(2) Efficiency ratio has been adjusted for merger related fees 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)

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

June 30,
2019

Noninterest income:

Service charges

$

719

$

987

$

1,119

$

1,110

$

1,078

Interchange income

819

788

859

843

843

Loan swap referral fees

232

200

568

629

Wealth management income

2,295

2,359

2,478

2,546

2,421

Mortgage banking activities

1,609

332

1,304

623

652

Other income

585

2,448

682

523

716

Investment securities gains (losses)

9

(40

)

18

2,328

2,064

Total noninterest income

$

6,268

$

7,074

$

7,028

$

8,602

$

7,774

Noninterest expenses:

Salaries and employee benefits

$

10,063

$

11,594

$

11,407

$

10,489

$

8,922

Occupancy, furniture and equipment

2,326

2,289

2,433

2,385

2,206

Data processing, telephone, and communication

791

871

941

1,028

1,058

Advertising and bank promotions

167

789

619

279

548

FDIC insurance

214

47

(30

)

(9

)

221

Professional services

1,021

716

876

814

707

Taxes other than income

449

2

92

306

314

Intangible asset amortization

404

463

474

486

402

Merger related and branch consolidation expenses

988

471

6,860

Insurance claim receivable recovery

(486

)

Other operating expenses

2,996

2,019

1,907

1,891

2,054

Total noninterest expenses

$

18,431

$

18,304

$

19,707

$

18,140

$

23,292


ORRSTOWN FINANCIAL SERVICES, INC.

HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)

(continued)

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

June 30,
2019

Balance Sheet at quarter end:

Cash and cash equivalents

$

52,290

$

57,137

$

56,462

$

50,923

$

116,380

Restricted investments in bank stocks

16,256

15,823

16,184

11,399

10,105

Securities available for sale

483,936

479,599

490,386

481,120

497,429

Loans held for sale, at fair value

13,594

7,900

9,364

Loans held for sale, at cost

7,610

7,152

Loans:

Commercial real estate:

Owner occupied

164,442

168,586

170,884

171,327

170,272

Non-owner occupied

390,980

377,933

361,050

310,334

298,989

Multi-family

111,016

107,797

106,893

108,751

93,342

Non-owner occupied residential

116,531

118,773

120,038

120,395

121,364

Commercial and industrial

665,312

235,791

214,554

215,734

219,551

Total commercial loans

1,448,281

1,008,880

973,419

926,541

903,518

Acquisition and development:

1-4 family residential construction

7,966

13,037

15,865

12,257

12,801

Commercial and land development

50,220

49,348

41,538

38,494

57,027

Municipal

34,276

46,551

47,057

47,920

48,358

Residential mortgage:

First lien

295,736

324,766

336,372

353,811

363,946

Home equity – term

11,944

13,337

14,030

15,175

15,989

Home equity – lines of credit

160,842

165,375

165,314

159,930

157,645

Installment and other loans

32,052

35,654

50,735

38,977

42,386

Total loans

2,041,317

1,656,948

1,644,330

1,593,105

1,601,670

Allowance for loan losses

(17,517

)

(15,803

)

(14,655

)

(14,809

)

(14,460

)

Net loans held-for-investment

2,023,800

1,641,145

1,629,675

1,578,296

1,587,210

Goodwill

18,724

20,142

19,925

19,925

19,621

Other intangible assets, net

6,160

6,717

7,180

7,654

8,140

Total assets

2,772,796

2,387,553

2,383,274

2,313,677

2,399,508

Total deposits

2,251,731

1,897,296

1,875,522

1,923,454

2,015,541

Borrowings

226,520

212,099

217,936

99,770

92,634

Subordinated notes

31,875

31,861

31,847

31,834

31,821

Total shareholders' equity

225,638

210,570

223,249

223,493

219,868


ORRSTOWN FINANCIAL SERVICES, INC.

HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)

(continued)

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

June 30,
2019

Capital and credit quality measures (1):

Total risk-based capital:

Orrstown Financial Services, Inc

14.4

%

14.0

%

14.1

%

14.5

%

14.1

%

Orrstown Bank

13.8

%

13.4

%

13.4

%

13.6

%

13.0

%

Tier 1 risk-based capital:

Orrstown Financial Services, Inc

11.6

%

11.2

%

11.3

%

11.6

%

11.2

%

Orrstown Bank

12.7

%

12.5

%

12.5

%

12.7

%

12.1

%

Tier 1 common equity risk-based capital:

Orrstown Financial Services, Inc

11.6

%

11.2

%

11.3

%

11.6

%

11.2

%

Orrstown Bank

12.7

%

12.5

%

12.5

%

12.7

%

12.1

%

Tier 1 leverage capital:

Orrstown Financial Services, Inc

7.6

%

8.5

%

8.6

%

8.2

%

8.5

%

Orrstown Bank

8.3

%

9.4

%

9.4

%

8.9

%

8.6

%

Average equity to average assets

7.94

%

9.56

%

9.60

%

9.25

%

9.09

%

Allowance for loan losses to total loans

0.86

%

0.95

%

0.89

%

0.93

%

0.90

%

Total nonaccrual loans to total loans

0.36

%

0.47

%

0.65

%

0.44

%

0.27

%

Nonperforming assets to total assets

0.27

%

0.34

%

0.46

%

0.33

%

0.21

%

Allowance for loan losses to nonaccrual loans

237

%

202

%

138

%

214

%

330

%

Other information:

Net charge-offs (recoveries)

$

186

$

(223

)

$

154

$

(49

)

$

23

Classified loans

33,376

30,470

40,808

37,535

27,742

Nonperforming and other risk assets:

Nonaccrual loans

7,404

7,806

10,657

6,931

4,387

Other real estate owned

17

197

197

642

735

Total nonperforming assets

7,421

8,003

10,854

7,573

5,122

Restructured loans still accruing

960

971

979

1,042

1,104

Loans past due 90 days or more and still accruing (2)

909

2,115

2,232

2,982

1,661

Total nonperforming and other risk assets

$

9,290

$

11,089

$

14,065

$

11,597

$

7,887

(1) Capital ratios are estimated, subject to regulatory filings.

(2) Includes $0.6 million, $1.9 million, $2.0 million, $2.4 million, and $1.7 million of purchased credit impaired loans at June 30, 2020, March 31, 2020, December 31, 2019, September 30, 2019, and June 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

6/30/2020

3/31/20

12/31/19

9/30/19

6/30/2019

6/30/2020

6/30/2019

(In thousands)

Pretax Items

Merger related expenses

$

$

$

$

(471

)

$

6,860

$

$

7,505

Branch consolidation expenses

(988

)

Net securities gains (losses)

9

(40

)

18

2,328

2,064

(31

)

2,403

Accelerated payoff of brokered deposits and borrowings penalty

223

Life insurance proceeds

255

255

Restricted stock forfeiture expense benefit

350

350

Gain on sale of commercial loans

925

1,878

2,803

Accretion - recoveries on purchased credit impaired loans

1,021

211

109

21

715

1,232

715

Insurance claim receivable recovery (write-off)

486

486

(615

)

Income Tax Expense Items

Tax benefit from state deferred tax asset rate change

334

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 $24.9 million and $27.1 million at June 30, 2020 and December 31, 2019, respectively.

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.

Tangible book value per share and net interest margin excluding the impact of purchase accounting, 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:

(in thousands, except per share information)

Tangible Book Value per Common Share

June 30,
2020

March 31,
2020

December 31,
2019

September 30,
2019

June 30,
2019

Shareholders' equity

$

225,638

$

210,570

$

223,249

$

223,493

$

219,868

Less: Goodwill

18,724

20,142

19,925

19,925

19,621

Other intangible assets

6,160

6,717

7,180

7,654

8,140

Related tax effect

(1,294

)

(1,411

)

(1,508

)

(1,607

)

(1,709

)

Tangible common equity (non-GAAP)

$

202,048

$

185,122

$

197,652

$

197,521

$

193,816

Common shares outstanding

11,209

11,197

11,200

11,175

11,224