Orrstown Financial Services, Inc. Reports Fourth Quarter and Full Year 2020 Results

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  • Diluted fourth quarter 2020 EPS of $0.91 per share versus $0.45 per share in the third quarter of 2020 due to robust revenue growth combined with expense reductions; full year diluted EPS of $2.40 per share

  • Tangible book value per share(1) increased to $19.93 at December 31, 2020 from $18.70 at September 30, 2020 and $17.65 at December 31, 2019, an increase of 12.9% for fiscal year 2020

  • Small Business Administration Paycheck Protection Program ("SBA PPP") portfolio averaged $443 million in the three months ended December 31, 2020; $5.8 million of unearned net processing fees at December 31, 2020

  • Continued efforts to assist clients, employees and communities affected by COVID-19; active participant in new round of SBA PPP lending in January 2021

  • Net interest income solidly higher at $23.7 million in the three months ended December 31, 2020 versus $20.8 million in the three months ended September 30, 2020; fourth quarter 2020 net interest margin expands to 3.73% versus 3.24% in the linked quarter

  • Relationship fee income momentum continues as noninterest income increased to $7.2 million for the fourth quarter of 2020 from $6.9 million in the third quarter of 2020

  • Commercial loan growth, excluding SBA PPP loans, for the three months ended December 31, 2020 totaled $38.1 million, or 13.9% annualized; total gross loans, excluding SBA PPP loans, grew slightly during the quarter as residential mortgage loans continue to be paid off at a high rate

  • Deposit growth of $77.4 million, or 13.6% annualized, from September 30, 2020 to December 31, 2020 with non-interest DDA balances growing by $47.5 million from September 30, 2020 to $457.0 million at December 31, 2020

  • COVID-19 related loan deferrals fell to $18.2 million at December 31, 2020 from $78.4 million at September 30, 2020 and $239.3 million at June 30, 2020

  • Provision for loan losses in fourth quarter of $0.3 million due primarily to loan growth; COVID-19 qualitative reserves flat at $2.7 million at December 31, 2020

  • Asset quality metrics continue to be solid with non-performing loans to non-SBA loans of 0.65% at December 31, 2020 as compared to 0.50% at September 30, 2020; net recoveries in the three months ended December 31, 2020 totaling $126 thousand as compared to $8 thousand in the three months ended September 30, 2020.

  • Allowance to non-SBA and non-acquired loans of 1.5% at December 31, 2020 and September 30, 2020; allowance plus purchase accounting marks to unguaranteed loans(1) of 1.8% at December 31, 2020 compared to 1.9% at September 30, 2020

  • For the full year, net recoveries totaled $0.2 million with another $2.8 million in net gains recorded on the sale of problem loans

  • The fourth quarter 2020 efficiency ratio fell to 58.5% due to strong revenue growth; noninterest expenses fell to $18.1 million

  • The Board of Directors declared a cash dividend of $0.18 per common share, payable February 8, 2021, to shareholders of record as of February 1, 2021, an increase from the $0.17 dividend declared in previous quarters.

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

SHIPPENSBURG, Pa., Jan. 20, 2021 (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 and full year ended December 31, 2020. Net income totaled $10.1 million for the three months ended December 31, 2020, compared with $5.0 million for the three months ended September 30, 2020 and $4.2 million for the three months ended December 31, 2019. Diluted earnings per share totaled $0.91 for the three months ended December 31, 2020, compared with $0.45 for the three months ended September 30, 2020 and $0.38 for the three months ended December 31, 2019. For the year ended December 31, 2020, net income was $26.5 million, or $2.40 per diluted share compared to $16.9 million, or $1.61 per diluted share for the year ended December 31, 2019.

Thomas R. Quinn, Jr., President & CEO, commented, “The COVID-19 pandemic and resultant economic fallout brought unprecedented challenges for Orrstown Bank in 2020. However, past strategic investments in technology, geographic diversity, and top-notch talent combined with our associates’ unwavering dedication to clients, Company, and coworkers resulted in a record level of pretax earnings for both the full-year and the fourth quarter. Though the window for new PPP loans was closed during the fourth quarter of 2020, the work continued as our team members shepherded clients through the forgiveness process and worked to deepen relationships with clients that are new to Orrstown Bank from the PPP. Mortgage volumes remained robust during the fourth quarter, but experienced seasonal slowness. Despite an elevated loan loss provision in 2020 due to economic uncertainty, asset quality metrics remain strong with minimal charge-offs during the year, which speaks to the Company’s risk management discipline."

Mr. Quinn continued, “The arrival of a vaccine and passage of more government stimulus in late 2020 provides hope for a return to normalcy in 2021. That said, many of the headwinds created by the pandemic will persist into 2021 and perhaps beyond. These include, but are not limited to, a lower interest rate environment, which will impact our margin negatively, reduced loan demand, and greater risk of default from borrowers. We remain confident we can partially offset these negative factors through the combined impact of increased fee revenue, particularly mortgage, wealth management, and interchange income and expense control, as evidenced by our third quarter 2020 announcement of reductions to our branch count and staffing re-alignment. Commercial loan demand is expected to be muted in 2021 as the economy recovers and we remain committed to maintaining our credit and financial discipline. We are pleased to report that we are participating in the latest round of PPP, and will provide updated information at a later date, but we look forward to using this opportunity to introduce more new clients to the high-touch, consultative business approach of the Company.”

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

  • Continue to perform branch transactions via drive-thru lanes or scheduled appointments at branch locations;

  • Launched an internal Pandemic Response Team at the outset of the COVID-19 pandemic;

  • 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 and community groups in order to educate and support them on the SBA PPP process, including loan forgiveness. Recently held more than five webinars regarding new SBA PPP funding;

  • Conducted media interviews and launched a multi-channel advertising campaign in all markets aimed at educating the community about PPP funding; and

  • 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 initial SBA PPP program and the recently approved Second Draw PPP Loan 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 continues to maintain the qualitative factor designated for the impact of COVID-19, which represented $2.7 million of the Bank's allowance for loan losses at December 31, 2020. As of December 31, 2020, the Bank had active COVID-19 related deferred loans totaling $18.2 million, or 1.15% of its total loan portfolio, excluding PPP loans. This compared to $78.4 million, or 5.0% of total loans, excluding PPP loans, at September 30, 2020 and $239.3 million in active COVID-19 deferrals, or 15.1% of total loans, excluding PPP loans, at June 30, 2020. While there was recent fiscal stimulus from the Federal government and talk of more to come, its impact will eventually wane 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 December 31, 2020, the Bank had $409.1 million outstanding principal for such loans. The program provides that the principal balance (or a reduced portion thereof) and accrued interest on 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, including the implementation of the SBA’s recently announced, streamlined forgiveness approval process on PPP loans of $150,000 and under. Loans of $150,000 and under make up the majority of the number of the Bank’s PPP loans, but a relatively small amount of its total 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 are anticipated to 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 Type

Amount of Loans

% of Non-PPP Loans

December 31, 2020

September 30, 2020

December 31, 2020

September 30, 2020

Commercial

$

15,702

$

61,597

1.4

%

5.6

%

Consumer Portfolio Loans

2,504

16,845

0.6

3.6

Total Loans

$

18,206

$

78,442

1.2

%

5.0

%

The following table summarizes COVID-19 related deferral balances within certain industry segments at December 31, 2020:

Industry Segment

Deferral Balance

% of Total non-PPP Loans

$ Non-PPP Segment Total

% of non-PPP Segment

Hotel/Motel

$

9,497

0.6

%

$

48,379

19.6

%

Restaurant/Bar

774

0.1

33,400

2.3

Commercial construction

499

51,826

1.0

Mixed use

376

21,875

1.7

Multi-Family CRE

115,671

Strip Center/Retail

61,268

Senior Housing

43,814

DISCUSSION OF RESULTS

Balance Sheet

Loans

Net loans fell by $50.6 million from September 30, 2020 to December 31, 2020 primarily due to SBA PPP loan forgiveness and runoff in residential mortgages. Commercial loans, excluding SBA PPP loans, grew by $38.1 million, or 13.9% annualized, from September 30, 2020 to December 31, 2020 as commercial loan demand started to improve late in the fourth quarter. Commercial loan closing activity significantly increased in the second half of December but local markets still have not improved to pre-pandemic levels. Forgiveness approvals for SBA PPP loans started to be received in the fourth quarter, resulting in outstanding PPP loans, net of deferred fees and costs, falling by $54.8 million to $403.3 million from September 30, 2020 to December 31, 2020. We expect these SBA PPP loans to continue to runoff in the first three quarters of 2021 as our clients' forgiveness requests are approved. The Bank plans on being an active participant in the new SBA PPP program in the first quarter of 2021 and has seen strong interest for new SBA PPP loans in January 2021.

Residential mortgage loans on the balance sheet continue to prepay at a high rate due to historically low interest rates, resulting in the portfolio declining $28.8 million or 42% annualized to $244.3 million at December 31, 2020 from September 30, 2020. The Bank has begun an effort to selectively portfolio some quality mortgage loans to reduce the runoff. To date, these efforts have not had a material impact on balances but we expect that to change in 2021. Consumer loans also fell $4.6 million or 9% annualized to $198.2 million at December 31, 2020 from September 30, 2020. Overall loan growth in 2021, excluding SBA PPP loans is expected to be low single digits with higher single digits possible for commercial lending if conditions continue to improve.

Deposits

Deposits grew by $77.4 million, or 13.6% annualized, to $2.36 billion at December 31, 2020 from $2.28 billion at September 30, 2020. Clients continue to hold larger deposits with the Bank given the low level of interest rates and economic uncertainty, which contributed to positive fourth quarter seasonality. Non-interest DDA balances grew by $47.5 million in the quarter, or 46% annualized, while interest bearing checking accounts rose $42.9 million, or 21% annualized. The Bank also saw modest money market and savings growth of $5.6 million, or 4% annualized. Due to very low interest rates, time deposits continue to fall and were down another $18.7 million in the quarter, or 18% annualized. Some of the deposit growth achieved during the year was due to new SBA PPP client activity. Over the long term, when interest rates return to more normal levels above today’s rates, some of the deposit growth that has been seen in 2020 is expected to reverse as clients deploy their excess liquidity to meet their needs. The Bank has very strong liquidity and will continue to target a loan to deposit ratio of 90%.

During 2020, the Bank announced or completed 11 branch consolidations, which is 30% of total branch locations at December 31, 2019. The Bank completed the most recent consolidations in January 2021 and now has 26 locations. Because of these efforts, the average branch size has increased from $51 million at December 31, 2019 to $91 million today, an increase of 79%.

Other

Total borrowings fell by $123.3 million to $109.4 million from September 30, 2020 to December 31, 2020 due to deposit growth and SBA PPP loan forgiveness. Short term borrowings were paid off and the Bank fully paid off its borrowings under the SBA PPP Borrowing Facility. Excess liquidity is beginning to build as evidenced by a $45.5 million increase in cash held at the Federal Reserve from September 30, 2020 to December 31, 2020. The Bank expects some loan growth as well as deposit runoff in coming quarters but some excess liquidity may build in the short-term depending on timing of portfolio growth and overall SBA PPP activity.

Investments fell by $11.8 million, or 10%, annualized to $466.5 million at December 31, 2020 as compared to September 30, 2020 due to portfolio runoff. No purchases were completed in the three months ended December 31, 2020. The Bank intends on shrinking this portfolio given the low level of interest rates and the opportunity to deploy funds into quality relationship loans. During the year ended December 31, 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 grew to $23.7 million for the three months ended December 31, 2020 despite a $31.0 million reduction in average earning assets to $2.55 billion during the three months ended December 31, 2020 as compared to the three months ended September 30, 2020. Additionally, the net interest margin rose 49 basis points to 3.73% over the same period. Net interest income rose as SBA PPP forgiveness began in the fourth quarter of 2020, which increased processing fee recognition by $1.4 million as compared to the third quarter of 2020. Accretion income grew by $0.6 million from the previous quarter due to some successful asset quality resolutions in the acquired loan portfolio. Finally, prepayment penalty income increased by $0.5 million from the previous quarter due to elevated refinance activity in the commercial real estate portfolio. These three items accounted for 90% of the increase in net interest income. The remainder was due to a continued favorable shift in balance sheet mix.

SBA PPP loans had an average outstanding balance of $443 million and yielded 4.3% in the three months ended December 31, 2020. This yield increased from the third quarter 2020 level of 2.9% due primarily to PPP forgiveness. As of December, 2020, 57% 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. While there continues to be uncertainty, we expect a significant portion of the balances in the existing SBA PPP portfolio to be forgiven in the first three quarters of 2021 and a continuation of elevated SBA PPP income due to that forgiveness.

Balance sheet mix improvement efforts have been emphasized throughout the past year and the fourth quarter saw additional progress. In the loan portfolio, commercial loans, excluding PPP loans, rose $38.1 million while residential loans fell $28.8 million and investments fell by $11.8 million. Additionally, the funding mix improved as non-interest DDA balances rose $47.5 million, interest bearing DDA balances rose by $42.9 million, CDs fell by $18.7 million and borrowings fell by $123.3 million. During 2020, CDs fell from 27%of total deposits in the first quarter of 2020 to 18% in the fourth quarter of 2020 while core deposits rose from 73% to 82% of total deposits during the same period. The Bank ended the year with no brokered deposits. The mix improvement and repricing actions by management led to a deposit cost reduction of an additional 11 basis points in the fourth quarter to 0.33%. As CDs reprice, this cost of funds will drift lower but we are nearing the bottom for deposit cost of funds.

While some excess liquidity is beginning to build which may negatively impact the margin in the short term, our long-term objective of emphasizing balance sheet mix is expected to lead to a higher net interest margin over the long-term. These efforts may mute growth in assets but should lead to growth in net interest income, earnings and return on assets. It is anticipated that the net interest margin will be under pressure with low interest rates forecasted for 2021 given the low-cost deposit portfolio and short duration asset profile. We believe that our efforts on balance sheet mix enhancement and fee income generation will be effective to manage through the current external environment.

Provision for loan losses

The allowance for loan losses totaled $20.2 million at December 31, 2020, compared with $19.7 million at September 30, 2020. Total classified loans decreased by $3.3 million, or 9%, to $33.1 million from September 30, 2020 to December 31, 2020. The provision for loan losses totaled $0.3 million in the three months ended December 31, 2020, which is down from $2.2 million in the three months ended September 30, 2020 and $1.9 million in the three months ended June 30, 2020. We continue to see favorable asset quality trends and most loans that we placed on payment deferral have resumed paying status.

Asset quality metrics remain solid with net recoveries for a second consecutive quarter. Net recoveries of $126 thousand were recorded in the fourth quarter of 2020 following $8 thousand recorded in the third quarter of 2020. Nonperforming loans increased by $2.4 million from $7.9 million at September 30, 2020 to $10.3 million at December 31, 2020 and totaled 0.52% of gross loans at December 31, 2020, compared with 0.39% of loans at September 30, 2020. The allowance for loan losses to nonperforming loans ratio was 195% at December 31, 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 totaled $7.2 million in the three months ended December 31, 2020 compared with $6.9 million in the three months ended September 30, 2020.

Total wealth management income for the three months ended December 31, 2020 was $2.6 million, as compared to $2.5 million for the three months ended September 30, 2020. Strong equity markets helped to propel income along with the addition of new clients. The Bank remains focused on growth markets and there continue to be opportunities for growth over the long-term as the Bank seeks to expand its portfolio of wealth management clients.

Debit card interchange income totaled $0.9 million for a second quarter in a row. After the COVID-19 pandemic hit, the Bank saw increased client usage of cards and revenue trends 7% higher than the same period last year. We expect more growth in 2021 as client usage continues to increase and we add new clients. Other service charge income was $1.0 million for the three months ended December 31, 2020 as compared to $0.9 million in the prior quarter but down 11% from $1.1 million in the same period last year. This is primarily a result of less overdraft income as clients have kept more cash in their accounts due to economic uncertainty and client retention of government stimulus payments.

Mortgage banking activity fell from the third quarter due primarily to seasonality. Mortgage banking income for the three months ended December 31, 2020 decreased to $1.3 million versus $2.0 million in the previous linked quarter. Mortgage loans sold in the fourth quarter of 2020 totaled $60.7 million compared with $72.8 million in the third quarter of 2020. The pipeline remains solid with locked loans of $22.6 million at December 31, 2020. The Bank records gains on closed and locked loans. In the three months ended December 31, 2020 and September 30, 2020, impairment charges of $0 and $0.2 million, respectively, were recognized on the Bank's mortgage servicing rights asset due to falling interest rates.

With an increase in loan demand occurring across our markets, loan swap fees increased to $0.3 million in the fourth quarter of 2020 as compared to $0.1 million in the previous quarter. These fees are derived from interest rate hedges for commercial real estate clients and we anticipate an increase in swap demand and activity in 2021.

With low interest rates, the Bank will focus on relationship fee income growth to offset net interest margin pressures. Growth in mortgage banking, wealth management, interchange income and interest rate swaps are an emphasis for 2021.

Noninterest Expenses

Noninterest expense fell by $1.2 million to $18.1 million in the three months ended December 31, 2020 from the three months ended September 30, 2020. In the third quarter of 2020, there were $1.6 million of charges related to the consolidation of branches and staff reductions. These initiatives are expected to result in approximately $4 million of expense savings in 2021.

Salaries and employee benefits totaled $11.0 million in the fourth quarter of 2020 as compared with $10.6 million in the third quarter of 2020. In the fourth quarter, $0.4 million was recorded for the liability associated with the carryover of paid time off for employees due to the pandemic. It is not anticipated that this will reoccur in future years. Also, $0.4 million was added for performance related incentives given the strong financial results recorded in fourth quarter of 2020. Finally, health insurance expenses rose by $0.2 million from the previous quarter to $0.9 million due to claims activity as employee spending was deferred from earlier quarters due to the pandemic.

Advertising expense increased by $0.3 million in the fourth quarter of 2020 as compared to the third quarter of 2020 primarily due to spending associated with a Pennsylvania Educational Improvement Initiative. Taxes other than income fell by $0.3 million primarily due to the related credit associated with the Educational Improvement program. Professional fees rose by $0.2 million from the three months ended September 30, 2020 to $0.8 million in the three months ended December 31, 2020 due primarily to higher legal expenses incurred in the quarter.

The Bank will continue to closely manage expenses in the near term. As the cost saving initiatives announced in 2020 are expected to be fully realized in 2021, we intend to selectively invest some of those savings in technology to meet client needs and improve the Bank's efficiency in 2021. We also expect normal mild expense increases due to inflation but have no material hiring plans for 2021. Longer term, Orrstown will continue to invest in talent, technology and infrastructure.

Income Taxes

The Company's effective tax rate for the fourth quarter of 2020 was 19.7% compared with 19.9% for the third quarter of 2020. 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 $246.2 million at December 31, 2020, an increase of $13.4 million from $232.8 million at September 30, 2020. The increase was primarily attributable to net income recorded in the three months ended December 31, 2020 and an increase in accumulated other comprehensive income from changes in net unrealized gains and losses in securities available for sale which increased by $5.7 million from September 30, 2020 to December 31, 2020. For the year, tangible book value per share grew from $17.65 at December 31, 2019 to $19.93 at December 31, 2020, an increase of 12.9%.

The Company's tangible common equity ratio rose from 7.6% at September 30, 2020 to 8.2% at December 31, 2020 and the Company's Tier 1 leverage ratio increased from 7.8% at September 30, 2020 to 8.1% at December 31, 2020. The Company's total risk-based capital ratio increased from 15.0% at September 30, 2020 to 15.6% at December 31, 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 September 30, 2021. During this time, the Bank expects to generate approximately $4.7 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, 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

Year Ended

December 31,

December 31,

December 31,

December 31,

(Dollars in thousands, except per share amounts)

2020

2019

2020

2019

Profitability for the period:

Net interest income

$

23,729

$

17,941

$

83,607

$

69,295

Provision for loan losses

300

5,325

900

Noninterest income

7,181

7,028

28,309

28,539

Noninterest expenses

18,080

19,707

74,080

77,300

Income before income taxes

12,530

5,262

32,511

19,634

Income tax expense

2,471

1,028

6,048

2,710

Net income available to common shareholders

$

10,059

$

4,234

$

26,463

$

16,924

Financial ratios:

Return on average assets (1)

1.47

%

0.72

%

1.00

%

0.76

%

Return on average equity (1)

17.01

%

7.53

%

11.66

%

8.21

%

Net interest margin (1)

3.73

%

3.37

%

3.44

%

3.43

%

Efficiency ratio

58.5

%

78.9

%

66.2

%

79.0

%

Income per common share:

Basic

$

0.92

$

0.39

$

2.42

$

1.63

Diluted

$

0.91

$

0.38

$

2.40

$

1.61

Average equity to average assets

8.65

%

9.60

%

8.58

%

9.26

%

(1) Annualized.


ORRSTOWN FINANCIAL SERVICES, INC.

FINANCIAL HIGHLIGHTS (Unaudited)

(continued)

December 31,

December 31,

2020

2019

At period-end:

Total assets

$

2,750,572

$

2,383,274

Total deposits

2,356,880

1,875,522

Loans, net of allowance for loan losses

1,959,539

1,629,675

Loans held-for-sale, at fair value

11,734

9,364

Securities available for sale

466,465

490,885

Borrowings

77,511

217,936

Subordinated notes

31,903

31,847

Shareholders' equity

246,249

223,249

Credit quality and capital ratios (1):

Allowance for loan losses to total loans

1.02

%

0.89

%

Total nonaccrual loans to total loans

0.52

%

0.65

%

Nonperforming assets to total assets

0.37

%

0.46

%

Allowance for loan losses to nonaccrual loans

195

%

138

%

Total risk-based capital:

Orrstown Financial Services, Inc.

15.6

%

14.1

%

Orrstown Bank

14.7

%

13.4

%

Tier 1 risk-based capital:

Orrstown Financial Services, Inc.

12.5

%

11.3

%

Orrstown Bank

13.5

%

12.5

%

Tier 1 common equity risk-based capital:

Orrstown Financial Services, Inc.

12.5

%

11.3

%

Orrstown Bank

13.5

%

12.5

%

Tier 1 leverage capital:

Orrstown Financial Services, Inc.

8.1

%

8.6

%

Orrstown Bank

8.7

%

9.4

%

Book value per common share

$

21.98

$

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)

December 31, 2020

December 31, 2019

Assets

Cash and due from banks

$

26,203

$

25,969

Interest-bearing deposits with banks

99,055

29,994

Cash and cash equivalents

125,258

55,963

Restricted investments in bank stocks

10,563

16,184

Securities available for sale (amortized cost of $460,999 and $491,492 at December 31, 2020 and December 31, 2019, respectively)

466,465

490,885

Loans held for sale, at fair value

11,734

9,364

Loans

1,979,690

1,644,330

Less: Allowance for loan losses

(20,151

)

(14,655

)

Net loans

1,959,539

1,629,675

Premises and equipment, net

35,149

37,524

Cash surrender value of life insurance

68,554

63,613

Goodwill

18,724

19,925

Other intangible assets, net

5,458

7,180

Accrued interest receivable

8,927

6,040

Other assets

40,201

46,921

Total assets

$

2,750,572

$

2,383,274

Liabilities

Deposits:

Noninterest-bearing

$

456,778

$

249,450

Interest-bearing

1,900,102

1,626,072

Total deposits

2,356,880

1,875,522

Securities sold under agreements to repurchase

19,466

8,269

FHLB Advances and other

58,045

209,667

Subordinated notes

31,903

31,847

Accrued interest and other liabilities

38,029

34,720

Total liabilities

2,504,323

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 11,201,317 outstanding at December 31, 2020; 11,220,604 shares issued and 11,199,874 outstanding at December 31, 2019

586

584

Additional paid—in capital

189,066

188,365

Retained earnings

54,100

35,246

Accumulated other comprehensive income (loss)

3,345

(480

)

Treasury stock— 55,729 and 20,730 shares, at cost at December 31, 2020 and December 31, 2019, respectively

(848

)

(466

)

Total shareholders’ equity

246,249

223,249

Total liabilities and shareholders’ equity

$

2,750,572

$

2,383,274


ORRSTOWN FINANCIAL SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

Three Months Ended

Year Ended

December 31,

December 31,

December 31,

December 31,

(In thousands, except per share amounts)

2020

2019

2020

2019

Interest income

Loans

$

23,887

$

20,083

$

87,492

$

75,071

Investment securities - taxable

2,080

3,575

10,458

14,538

Investment securities - tax-exempt

445

271

1,566

2,054

Short-term investments

14

99

115

1,331

Total interest income

26,426

24,028

99,631

92,994

Interest expense

Deposits

1,862

4,908

12,009

19,310

Securities sold under agreements to repurchase

13

539

85

623

FHLB Advances and other

320

139

1,924

1,779

Subordinated notes

502

501

2,006

1,987

Total interest expense

2,697

6,087

16,024

23,699

Net interest income

23,729

17,941

83,607

69,295

Provision for loan losses

300

5,325

900

Net interest income after provision for loan losses

23,429

17,941

78,282

68,395

Noninterest income

Service charges

999

1,119

3,557

4,209

Interchange income

916

859

3,423

3,281

Loan swap referral fees

320

568

847

1,197

Wealth management income

2,615

2,478

9,733

9,681

Mortgage banking activities

1,348

1,304

5,274

3,047

Gains on sale of portfolio loans

2,803

Other income

955

682

2,688

2,375

Investment securities gains (losses)

28

18

(16

)

4,749

Total noninterest income

7,181

7,028

28,309

28,539

Noninterest expenses

Salaries and employee benefits

10,998

11,407

43,350

39,495

Occupancy, furniture and equipment

2,467

2,433

9,516

9,048

Data processing, telephone, and communication

954

941

3,574

3,599

Advertising and bank promotions

507

619

1,660

1,967

FDIC insurance

195

(30

)

686

367

Professional services

780

876

3,120

2,954

Taxes other than income

240

92

1,144

1,018

Intangible asset amortization

345

474

1,569

1,570

Merger related and branch consolidation expenses

988

1,310

8,964

Insurance claim (recovery) receivable write-off

(486

)

615

Other operating expenses

1,594

1,907

8,637

7,703

Total noninterest expenses

18,080

19,707

74,080

77,300

Income before income tax expense

12,530

5,262

32,511

19,634

Income tax expense

2,471

1,028

6,048

2,710

Net income

$

10,059

$

4,234

$

26,463

$

16,924

Share information:

Basic earnings per share

$

0.92

$

0.39

$

2.42

$

1.63

Diluted earnings per share

$

0.91

$

0.38

$

2.40

$

1.61

Weighted average shares - basic

10,953

10,966

10,942

10,362

Weighted average shares - diluted

11,057

11,097

11,034

10,514


ORRSTOWN FINANCIAL SERVICES, INC.

ANALYSIS OF NET INTEREST INCOME

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

Three Months Ended

12/31/2020

09/30/20

06/30/20

03/31/20

12/31/2019

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

$

48,019

$

14

0.12

%

$

31,087

$

9

0.12

%

$

27,949

$

13

0.18

%

$

22,869

$

80

1.41

%

$

21,396

$

99

1.84

%

Securities (1)

486,613

2,643

2.16

496,107

2,673

2.14

493,847

3,327

2.71

500,987

3,797

3.05

504,571

3,919

3.08

Loans (1)(2)(3)

2,015,749

23,960

4.73

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

Total interest-earning assets

2,550,381

26,617

4.15

2,581,387

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

Other assets

182,764

190,119

200,684

188,400

191,585

Total

$

2,733,145

$

2,771,506

$

2,710,594

$

2,365,803

$

2,324,160

Liabilities and Shareholders' Equity

Interest-bearing demand deposits

$

1,283,024

655

0.20

$

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

Savings deposits

172,068

52

0.12

168,377

67

0.16

160,738

63

0.16

151,195

63

0.17

150,221

64

0.17

Time deposits

411,395

1,155

1.12

432,438

1,477

1.36

462,664

1,988

1.73

503,364

2,388

1.91

551,789

2,708

1.95

Securities sold under agreements to repurchase

20,055

13

0.26

21,145

20

0.38

21,582

24

0.45

9,416

28

1.20

9,257

29

1.24

FHLB advances and other

135,558

320

0.94

219,567

394

0.71

175,336

388

0.89

187,408

822

1.76

119,632

649

2.15

Subordinated notes

31,895

502

6.29

31,881

501

6.28

31,867

502

6.33

31,853

501

6.33

31,839

501

6.23

Total interest-bearing liabilities

2,053,995

2,697

0.52

2,086,616

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

Noninterest-bearing demand deposits

406,454

417,939

452,253

250,163

247,107

Other

36,216

37,330

36,511

33,763

35,282

Total Liabilities

2,496,665

2,541,885

2,495,385

2,139,648

2,101,102

Shareholders' Equity

236,480

229,621

215,209

226,155

223,058

Total

$

2,733,145

$

2,771,506

$

2,710,594

$

2,365,803

$

2,324,160

Taxable-equivalent net interest income / net interest spread

23,920

3.63

%

21,025

3.12

%

21,028

3.20

%

18,459

3.23

%

18,138

3.18

%

Taxable-equivalent net interest margin

3.73

%

3.24

%

3.37

%

3.41

%

3.37

%

Taxable-equivalent adjustment

(192

)

(207

)

(230

)

(197

)

(197

)

Net interest income

$

23,728

$

20,818

$

20,798

$

18,262

$

17,941

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

124

%

124

%

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.


ORRSTOWN FINANCIAL SERVICES, INC.

ANALYSIS OF NET INTEREST INCOME

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

(continued)

Year Ended

December 31, 2020

December 31, 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

$

32,519

$

115

0.35

%

$

58,100

$

1,339

2.30

%

Securities (1)

494,372

12,440

2.52

499,282

17,130

3.43

Loans (1)(2)(3)

1,928,486

87,900

4.56

1,492,815

75,568

5.06

Total interest-earning assets

2,455,377

100,455

4.09

2,050,197

94,037

4.59

Other assets

190,470

174,924

Total

$

2,645,847

$

2,225,121

Liabilities and Shareholders' Equity

Interest-bearing demand deposits

$

1,156,292

4,755

0.41

$

920,025

8,253

0.90

Savings deposits

163,133

246

0.15

138,761

261

0.19

Time deposits

452,298

7,008

1.55

549,937

10,796

1.96

Securities sold under agreements to repurchase

18,064

86

0.48

32,001

623

1.95

FHLB advances and other

179,457

1,923

1.07

80,636

1,779

2.21

Subordinated notes

31,874

2,006

6.29

31,842

1,987

6.24

Total interest-bearing liabilities

2,001,118

16,024

0.80

1,753,202

23,699

1.35

Noninterest-bearing demand deposits

381,869

234,354

Other

35,960

31,544

Total Liabilities

2,418,947

2,019,100

Shareholders' Equity

226,900

206,021

Total

$

2,645,847

$

2,225,121

Taxable-equivalent net interest income / net interest spread

84,431

3.29

%

70,338

3.24

%

Taxable-equivalent net interest margin

3.44

%

3.43

%

Taxable-equivalent adjustment

(824

)

(1,043

)

Net interest income

$

83,607

$

69,295

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

123

%

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 year ended December 31, 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 )

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

Profitability for the quarter:

Net interest income

$

23,729

$

20,818

$

20,798

$

18,262

$

17,941

Provision for loan losses

300

2,200

1,900

925

Noninterest income

7,181

6,861

7,193

7,074

7,028

Noninterest expenses

18,080

19,265

18,431

18,304

19,707

Income before income taxes

12,530

6,214

7,660

6,107

5,262

Income tax expense

2,471

1,237

1,301

1,039

1,028

Net income

$

10,059

$

4,977

$

6,359

$

5,068

$

4,234

Financial ratios:

Return on average assets (1)

1.47

%

0.72

%

0.94

%

0.86

%

0.72

%

Return on average equity (1)

17.01

%

8.67

%

11.82

%

8.96

%

7.53

%

Net interest margin (1)

3.73

%

3.24

%

3.37

%

3.41

%

3.37

%

Efficiency ratio

58.5

%

69.6

%

65.8

%

72.2

%

78.9

%

Efficiency ratio, adjusted (2)

58.5

%

64.8

%

65.9

%

72.1

%

75.0

%

Per share information :

Income per common share:

Basic

$

0.92

$

0.45

$

0.58

$

0.46

$

0.39

Diluted

$

0.91

$

0.45

$

0.58

$

0.46

$

0.38

Book value

$

21.98

$

20.78

$

20.13

$

18.81

$

19.93

Tangible book value (3)

$

19.93

$

18.70

$

18.03

$

16.53

$

17.65

Cash dividends paid

$

0.17

$

0.17

$

0.17

$

0.17

$

0.15

Average basic shares

10,953

10,941

10,916

10,959

10,966

Average diluted shares

11,057

11,025

10,993

11,062

11,097

(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)

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

Noninterest income:

Service charges

$

999

$

852

$

719

$

987

$

1,119

Interchange income

916

900

819

788

859

Loan swap referral fees

320

95

232

200

568

Wealth management income

2,615

2,464

2,295

2,359

2,478

Mortgage banking activities

1,348

1,985

1,609

332

1,304

Other income

955

578

585

2,448

682

Investment securities gains (losses)

28

(13

)

9

(40

)

18

Total noninterest income

$

7,181

$

6,861

$

6,268

$

7,074

$

7,028

Noninterest expenses:

Salaries and employee benefits

$

10,998

$

10,695

$

10,063

$

11,594

$

11,407

Occupancy, furniture and equipment

2,467

2,434

2,326

2,289

2,433

Data processing, telephone, and communication

954

958

791

871

941

Advertising and bank promotions

507

197

167

789

619

FDIC insurance

195

230

214

47

(30

)

Professional services

780

603

1,021

716

876

Taxes other than income

240

453

449

2

92

Intangible asset amortization

345

357

404

463

474

Merger related and branch consolidation expenses

1,310

988

Insurance claim receivable recovery

(486

)

Other operating expenses

1,594

2,028

2,996

2,019

1,907

Total noninterest expenses

$

18,080

$

19,265

$

18,431

$

18,304

$

19,707


ORRSTOWN FINANCIAL SERVICES, INC.

HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)

(continued)

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

Balance Sheet at quarter end:

Cash and cash equivalents

$

125,258

$

87,307

$

52,290

$

57,137

$

55,963

Restricted investments in bank stocks

10,563

12,646

16,256

15,823

16,184

Securities available for sale

466,465

478,288

483,936

479,599

490,885

Loans held for sale, at fair value

11,734

12,804

13,594

7,900

9,364

Loans:

Commercial real estate:

Owner occupied

174,908

166,623

164,442

168,586

170,884

Non-owner occupied

409,567

403,138

390,980

377,933

361,050

Multi-family

113,635

110,153

111,016

107,797

106,893

Non-owner occupied residential

114,505

111,958

116,531

118,773

120,038

Commercial and industrial

647,368

690,330

665,312

235,791

214,554

Total commercial loans

1,459,983

1,482,202

1,448,281

1,008,880

973,419

Acquisition and development:

1-4 family residential construction

9,486

9,627

7,966

13,037

15,865

Commercial and land development

51,826

37,850

50,220

49,348

41,538

Municipal

20,523

28,867

34,276

46,551

47,057

Residential mortgage:

First lien

244,321

273,149

295,736

324,766

336,372

Home equity – term

10,169

11,108

11,944

13,337

14,030

Home equity – lines of credit

157,021

158,106

160,842

165,375

165,314

Installment and other loans

26,361

28,961

32,052

35,654

50,735

Total loans

1,979,690

2,029,870

2,041,317

1,656,948

1,644,330

Allowance for loan losses

(20,151

)

(19,725

)

(17,517

)

(15,803

)

(14,655

)

Net loans held-for-investment

1,959,539

2,010,145

2,023,800

1,641,145

1,629,675

Goodwill

18,724

18,724

18,724

20,142

19,925

Other intangible assets, net

5,458

5,803

6,160

6,717

7,180

Total assets

2,750,572

2,781,667

2,772,796

2,387,553

2,383,274

Total deposits

2,356,880

2,279,483

2,251,731

1,897,296

1,875,522

Borrowings

77,511

200,818

226,520

212,099

217,936

Subordinated notes

31,903

31,889

31,875

31,861

31,847

Total shareholders' equity

246,249

232,847

225,638

210,570

223,249


ORRSTOWN FINANCIAL SERVICES, INC.

HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (Unaudited)

(continued)

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

Capital and credit quality measures (1):

Total risk-based capital:

Orrstown Financial Services, Inc

15.6

%

15.0

%

14.5

%

14.0

%

14.1

%

Orrstown Bank

14.7

%

14.3

%

13.9

%

13.4

%

13.4

%

Tier 1 risk-based capital:

Orrstown Financial Services, Inc

12.5

%

12.0

%

11.7

%

11.2

%

11.3

%

Orrstown Bank

13.5

%

13.1

%

12.8

%

12.5

%

12.5

%

Tier 1 common equity risk-based capital:

Orrstown Financial Services, Inc

12.5

%

12.0

%

11.7

%

11.2

%

11.3

%

Orrstown Bank

13.5

%

13.1

%

12.8

%

12.5

%

12.5

%

Tier 1 leverage capital:

Orrstown Financial Services, Inc

8.1

%

7.8

%

7.6

%

8.5

%

8.6

%

Orrstown Bank

8.7

%

8.5

%

8.4

%

9.4

%

9.4

%

Average equity to average assets

8.65

%

8.29

%

7.94

%

9.56

%

9.60

%

Allowance for loan losses to total loans

1.02

%

0.97

%

0.86

%

0.95

%

0.89

%

Total nonaccrual loans to total loans

0.52

%

0.39

%

0.36

%

0.47

%

0.65

%

Nonperforming assets to total assets

0.37

%

0.28

%

0.27

%

0.34

%

0.46

%

Allowance for loan losses to nonaccrual loans

195

%

250

%

237

%

202

%

138

%

Other information:

Net (recoveries) charge-offs

$

(126

)

$

(8

)

$

186

$

(223

)

$

154

Classified loans

33,147

36,408

33,376

30,470

40,808

Nonperforming and other risk assets:

Nonaccrual loans

10,310

7,899

7,404

7,806

10,657

Other real estate owned

17

197

197

Total nonperforming assets

10,310

7,899

7,421

8,003

10,854

Restructured loans still accruing

934

945

960

971

979

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

554

520

909

2,115

2,232

Total nonperforming and other risk assets

$

11,798

$

9,364

$

9,290

$

11,089

$

14,065

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

(2) Includes $0.5 million, $0.5 million, $0.6 million, $1.9 million and $2.0 million of purchased credit impaired loans at December 31, 2020, September 30, 2020, June 30, 2020, March 31, 2020, and December 31, 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

12/31/2020

9/30/20

6/30/20

3/31/20

12/31/2019

12/31/2020

12/31/2019

(In thousands)

Pretax Items

Merger related expenses

$

$

$

$

$

$

$

7,976

Branch consolidation expenses

1,310

988

1,310

988

Net securities gains (losses)

28

(13

)

9

(40

)

18

(16

)

4,749

Accelerated payoff of brokered deposits and borrowings penalty

223

Gain on swap termination

226

226

Life insurance proceeds

31

255

Restricted stock forfeiture expense benefit

350

Gain on sale of portfolio loans

925

1,878

2,803

Accretion - recoveries on purchased credit impaired loans

779

294

1,021

211

109

2,304

845

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 $24.2 million and $27.1 million at December 31, 2020 and December 31, 2019, respectively. Additionally, the Company incurred approximately $1.3 million during the three months ended September 30, 2020 and the year ended December 31, 2020 in charges associated with 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)

Tangible Book Value per Common Share

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

Shareholders' equity

$

246,249

$

232,847

$

225,638

$

210,570

$

223,249

Less: Goodwill

18,724

18,724

18,724

20,142

19,925

Other intangible assets

5,458

5,803

6,160

6,717

7,180

Related tax effect

(1,146

)

(1,219

)

(1,294

)

(1,411

)

(1,508

)

Tangible common equity (non-GAAP)

$

223,213

$

209,539

$

202,048

$

185,122

$

197,652

Common shares outstanding

11,201

11,204

11,209

11,197

11,200

Book value per share (most directly comparable GAAP based measure)

$

21.98

$

20.78

$

20.13

$

18.81

$

19.93

Intangible assets per share

2.05

2.08

2.10

2.28

2.28

Tangible book value per share (non-GAAP)

$

19.93

$

18.70

$

18.03

$

16.53

$

17.65


Allowance for loan losses to unguaranteed, non-acquired loans:

December 31, 2020

September 30, 2020

Allowance for loan losses

$

20,151

$

19,725

less: Reserves on acquired loans

(558

)

(518

)

Allowance for loan losses, adjusted

$

19,593

$

19,207

Gross loans

1,979,690

2,029,870

less: SBA guaranteed loans

(404,205

)

(459,662

)

less: Acquired loans

(269,103

)

(298,854

)

Unguaranteed, non-acquired loans

$

1,306,382

$

1,271,354

Allowance for loan losses to unguaranteed, non-acquired loans

1.5

%

1.5

%


Allowance for loan losses plus purchase accounting marks to unguaranteed loans:

December 31, 2020

September 30, 2020

Allowance for loan losses

$

20,151

$

19,725

Purchase accounting marks

7,784

9,607

Allowance plus purchase accounting marks

$

27,935

$

29,332

Gross loans

1,979,690

2,029,870

Less: SBA guaranteed loans

(404,205

)

(459,662

)

Unguaranteed loans

$

1,575,485

$

1,570,208

Allowance for loan losses plus purchase accounting marks to unguaranteed loans:

1.8

%

1.9

%


Three Months Ended

(dollars in thousands)

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

Taxable-Equivalent Net Interest Margin (excluding the effect of purchase accounting)

Taxable-equivalent net interest income/margin, as reported

$

23,920

3.73

%

$

21,025

3.24

%

$

21,028

3.37

%

$

18,459

3.41

%

$

18,138

3.37

%

Effect of purchase accounting:

Loans

Income

(1,846

)

(0.30

)%

(1,199

)

(0.20

)%

(1,603

)

(0.27

)%

(899

)

(0.20

)%

(1,186

)

(0.24

)%

Time deposits

Expense

13

%

16

%

24

%

28

%

(145

)

0.03

%

Purchase accounting effect on taxable-equivalent income/margin

(1,859

)

(0.30

)%

(1,215

)

(0.20

)%

(1,627

)

(0.27

)%

(927

)

(0.20

)%

(1,041

)

(0.21

)%

Taxable-equivalent net interest income/margin (excluding the effect of purchase accounting) (non-GAAP)

$

22,061

3.43

%

$

19,810

3.04

%

$

19,401

3.10

%

$

17,532

3.21

%

$

17,097

3.16

%


Year Ended

(dollars in thousands)

December 31,
2020

December 31,
2019

Taxable-Equivalent Net Interest Margin (excluding the effect of purchase accounting)

Taxable-equivalent net interest income/margin, as reported

$

84,431

3.44

%

$

70,338

3.43

%

Effect of purchase accounting:

Loans

Income

(5,547

)

(0.24

)%

(3,758

)

(0.21

)%

Time deposits

Expenses

81

%

(102

)

0.01

%

Purchase accounting effect on taxable-equivalent income/ margin

(5,628

)

(0.24

)%

(3,656

)

(0.20

)%

Taxable-equivalent net interest income/margin (excluding the effect of purchase accounting) (non-GAAP)

$

78,803

3.20

%

$

66,682

3.23

%

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 December 31, 2020:

(dollars in thousands)

Sector

Portfolio Mix

Amortized Book

Fair Value

Credit Enhancement

AAA

AA

A

BBB

NR

Collateral Type

Unsecured ABS

1

%

$

6,730

$

6,806

44

%

2

%

%

%

%

98

%

Unsecured Consumer Debt

Student Loan ABS

2

%

11,222

11,137

26

100

Seasoned Student Loans