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Orrstown Financial Services, Inc. Announces Increased Quarterly Earnings, Increased Second Quarter Dividend and Reduction in Risk Assets


News provided by

Orrstown Financial Services, Inc.

Apr 28, 2011, 10:40 ET

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SHIPPENSBURG, Pa., April 28, 2011 /PRNewswire/ --

  • Increased first quarter 2011 earnings to $3.827 million, 12.4% above 2010 results
  • Nonperforming assets continue to decline; down 36.7% since March 31, 2010
  • Declaration of second quarter 2011 dividend of $0.23 per share, an increase of 4.6% over prior year
  • Inclusion on Keefe, Bruyette & Woods, Inc.'s (KBW) Bank Honor Roll of Superior Performers as one of the top 40 best performing publically traded community banks for 2010 (asset size of at least $500 million)
  • Inclusion on SNL Financial's 100 best performing community banks for 2010 (asset size ranging between $500 million and $5 billion)

Orrstown Financial Services, Inc. (NASDAQ: ORRF) announced today that net income increased 12.4% to $3.827 million for the quarter ended March 31, 2011, from $3.406 million for the first quarter of 2010.  Diluted earnings per share amounted to $0.48 for the quarter ended March 31, 2011, as compared to $0.52 during the first quarter of 2010, due to a higher share count in the current quarter.  The Company also announced that its Board of Directors declared a second quarter cash dividend of $0.23 per share, an increase of 4.6% over the second quarter of 2010, for shareholders of record on May 13, 2011.  The dividend will be paid to shareholders on May 25, 2011.

"Our primary goal is to manage the institution for consistent and sustainable growth as well as profitability. Thus far we have delivered favorable results throughout this challenging economic cycle that has persisted for over two years. Our solid underlying financial performance places us in a select group of community banks nationally, as evidenced by our inclusion among SNL Financial's 100 best performing community banks for 2010, and KBW's bank honor roll of superior performers," said Thomas R. Quinn, Jr., President and Chief Executive Officer. "We are pleased to have increased our dividend and still retain capital from earnings, while continuing to conservatively add to reserve coverage of problem assets. Total nonperforming assets continue to decline and were down 6.5% at March 31 from end of year levels. We believe our capital position is quite robust and should provide us with a significant platform to enhance our strong organic growth. We opened our 21st branch yesterday at the Carlisle Fairgrounds in Carlisle, Pennsylvania. This will enable us to provide banking services to the many attendees of Carlisle Events car shows and further extend our brand."

Results of Year-to-Date Operations

Net income totaled $3.827 million for the three months ended March 31, 2011, an increase of $421,000, or 12.4%, over first quarter 2010's results. Diluted earnings per share amounted to $0.48 for the three months ended March 31, 2011, compared to $0.52 for the same period in 2010, as a result of the issuance of approximately 1.481 million shares on March 29, 2010 in connection with the company's highly successful common stock offering.

Net interest income for the three months ended March 31, 2011, increased to $12.388 million as compared to $10.497 million in the same prior year period. The net interest margin was 3.68% for the three months ended March 31, 2011 as compared to 3.76% in the same prior year period. The yield on interest-earning assets was 4.52% for the first three months of 2011 as compared to 4.92% for the same period in 2010. Our cost of funds dropped to 0.84% for the three months ended March 31, 2011, as compared to 1.16% in the same prior year period. Average interest-earning assets increased by $277 million for the three months ended March 31, 2011, as compared to first quarter 2010.

The provision for loan losses increased to $3.195 million for the three months ended March 31, 2011, as compared to $1.420 million for the corresponding prior year period. While loan delinquencies remain below March 31, 2010 levels, the continuing tough economic conditions that plague the national and local economies create ongoing pressure even for resilient borrowers. Our ongoing credit review process led us to conduct a thorough review of watch and special mention loans during the quarter. This process led to increased provisioning of certain commercial credits, predominantly in our southern tier. The provision for loan loss for first quarter 2011 was nearly four times net charge offs for the period, which enabled us to bolster the allowance for loan losses to 129% of nonperforming loans and 1.87% of loans outstanding. Management believes these coverage ratios will compare favorably to peers.

Noninterest income increased to $5.076 million for the three months ended March 31, 2011, as compared to $4.347 million in the same prior year period. Revenue increases were generated across most business lines, with trust and brokerage income and mortgage banking activities posting healthy 25.0% and 92.8% increases, respectively.  

Operating expenses amounted to $9.439 million for the three months ended March 31, 2011, as compared to $8.660 million for the corresponding prior year period. This 9% increase in operating expense was spread broadly across many lines including salaries, advertising and OREO expense. Even with the increase in expenses we were able to generate an improved efficiency ratio of 52.9% during the first quarter of 2011, versus 58.0% during first quarter 2010.

Financial Condition

Assets grew $671,000 to $1.512 billion at March 31, 2011 from December 31, 2010.  Deposits increased by 1.6% to $1.207 billion at March 31, 2011, from $1.188 billion at December 31, 2010.  Stockholders' equity increased to $162.7 million at March 31, 2011 from $160.5 million at December 31, 2010. The Company was able to increase loans outstanding by $21.8 million from $967 million at year-end to $989 million at March 31, 2011.   This asset growth was funded principally through cash flow from available for sale securities, which decreased $36 million during the quarter. The growth in deposits enabled the Company to pay-down some of its borrowings, which declined $21.211 million, or 13.9% since year-end.  

Asset Quality

During the first quarter of 2010, the Company experienced deterioration in its nonperforming assets and loans greater than 90 days past due still accruing.   These problem assets peaked at March 31, 2010, and throughout the remainder of 2010 the Company was able to work its way through a number of these assets, which included foreclosures, pay-downs received from the customers and write-downs.  At December 31, 2010 nonperforming assets were $16.188 million and total nonperforming and loans greater than 90 days past due still accruing totaled $18.436 million.    

During the first quarter of 2011, the Company was able to dispose of several properties it acquired through foreclosure, one $964,000 loan was eliminated after the underlying collateral was sold to a third party, and a $500,000 charge was made to the allowance for loan losses.   These actions reduced the Company's nonperforming assets from $16.188 million at year-end to $15.130 million at March 31, 2011, a 6.5% decline. Loans past due 90 or more days and still accruing increased from $2.248 million at December 31, 2010 to $3.687 million at March 31, 2011.  Loans in this category are believed by management to be well secured and are in the process of collection.

Management prudently increased the provision for loan losses to compensate for increased delinquencies and the migration of loans to higher risk loan ratings, despite improvement in the ratio of nonperforming loans to total loans and nonperforming assets to total assets.

Summary of Financial Highlights:


For Quarter Ended:

March 31, 2011

March 31, 2010

% Change

Net Income

$3,827,000

$3,406,000

12.4%

Basic Earnings Per Share

$0.48

$0.52

-7.7%

Diluted Earnings Per Share

$0.48

$0.52

-7.7%

Dividends Per Share

$0.23

$0.22

4.6%

Return on Average Assets

1.03%

1.12%


Return on Average Equity

9.63%

12.18%


Return on Average Tangible Assets (1)

1.05%

1.15%


Return on Average Tangible Equity (1)

11.15%

15.12%


Net Interest Income

$12,388,000

$10,497,000

18.0%

Net Interest Margin

3.68%

3.76%






Balance Sheet Highlights:

March 31, 2011

March 31, 2010

% Change

Assets

$1,512,393,000

$1,316,038,000

14.9%

Loans, Gross

988,774,000

898,276,000

10.1%

Allowance for Loan Losses

18,398,000

12,020,000

53.1%

Deposits

1,207,373,000

997,675,000

21.0%

Shareholders' Equity

162,673,000

151,982,000

7.0%

Tangible Equity (1)

142,027,000

131,109,000

8.3%


(1) Supplemental Reporting of Non-GAAP-based Financial Measures

Return on average tangible assets and return on average tangible equity are non-GAAP-based financial measures calculated using non-GAAP-based amounts.  The most directly comparable GAAP-based measures are return on average assets and return on average equity, which are calculated using GAAP-based amounts.  The Company calculates the return on average tangible assets and equity by excluding the balance of intangible assets and their related amortization expense, net of tax, from the calculation of return on average assets and equity.  Management uses the return on average tangible assets and equity to assess the Company's core operating results and believes that this is a better measure of our operating performance, as it is based on the Company's tangible assets and capital.  Further, we believe that by excluding the impact of purchase accounting adjustments it allows for a more meaningful comparison with the Company's peers; particularly those that may not have acquired other companies.  Lastly, the exclusion of goodwill and intangible assets is consistent with the treatment by bank regulatory agencies, which exclude these amounts from the calculation of risk-based capital ratios. However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures.  A reconciliation of return on average assets and equity to the return on average tangible assets and equity, respectively, is set forth below.


For Three Months Ended:


March 31, 2011


March 31, 2010

Return on Average Assets (GAAP basis)


1.03%


1.12%

Add: Effect of excluding average intangible





assets and related amortization, net of tax


0.02%


0.03%

Return on Average Tangible Assets


1.05%


1.15%






Return on Average Equity (GAAP basis)


9.63%


12.18%

Add: Effect of excluding average intangible





assets and related amortization, net of tax


1.52%


2.94%

Return on Average Tangible Equity


11.15%


15.12%


Tangible equity is a non-GAAP financial measure calculated using non-GAAP based amounts.  The most directly comparable GAAP based measure is shareholders' equity.  In order to calculate tangible equity, Company management subtracts intangible assets from shareholders' equity.  A reconciliation of tangible equity to shareholders' equity is set forth below.


Total At End of Quarter:


March 31, 2011


March 31, 2010

Shareholders' Equity


$  162,673,000


$  151,982,000

Less: Intangible Assets


20,646,000


20,873,000

Tangible Equity


$  142,027,000


$  131,109,000



ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS












(Unaudited)


(Audited)*


(Unaudited)


March 31,


December 31,


March 31,

(Dollars in thousands, Except per Share Data)

2011


2010


2010

Assets






Cash and due from banks

$               14,751


$       10,400


$        14,639

Federal funds sold

21,500


8,800


52,330



Cash and cash equivalents

36,251


19,200


66,969









Short term investments

2,746


2,728


6,400

Interest bearing deposits with banks

557


925


644

Restricted investments in bank stock

8,515


8,798


8,056

Securities available for sale

395,792


431,772


253,155









Loans held for sale

3,807


2,693


632

Loans


984,967


964,293


897,644

Less: Allowance for loan losses

(18,398)


(16,020)


(12,020)

Net Loans

970,376


950,966


886,256









Premises and equipment, net

27,557


27,774


28,939

Cash surrender value of life insurance

22,946


22,649


21,883

Goodwill and intangible assets

20,646


20,698


20,873

Accrued interest receivable

5,849


5,715


4,714

Other assets

21,158


20,497


18,149



Total assets

$         1,512,393


$ 1,511,722


$  1,316,038









Liabilities






Deposits:






  Non-interest bearing

$            116,418


$     104,646


$        94,918

  Interest bearing

1,090,955


1,083,731


902,757


Total deposits

1,207,373


1,188,377


997,675









Short-term borrowings

86,750


87,850


110,213

Long-term debt

45,067


65,178


47,484

Accrued interest and other liabilities

10,530


9,833


8,684


Total liabilities

1,349,720


1,351,238


1,164,056









Shareholders' Equity






Preferred Stock, $1.25 par value per share; 500,000 shares authorized;






   no shares issued or outstanding

0


0


0

Common stock, no par value - $ 0.05205 stated value per share






   50,000,000 shares authorized; 7,991,791, 7,986,966 and 7,950,989






   shares issued; 7,991,512; 7,985,667 and 7,943,000 shares outstanding

416


416


414

Additional paid - in capital

121,579


121,508


120,379

Retained earnings

40,670


38,680


30,846

Accumulated other comprehensive income (loss)

15


(88)


584

Treasury stock - common,  279, 1,299 and 7,989 shares, at cost

(7)


(32)


(241)


Total shareholders' equity

162,673


160,484


151,982


Total liabilities and shareholders' equity

$         1,512,393


$ 1,511,722


$  1,316,038









The consolidated balance sheet at December 31, 2010 has been derived from audited financial statements at that date.



ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)











Three Months Ended




March 31,


March 31,

(Dollars in thousands, Except per Share Data)

2011


2010

Interest and dividend income




Interest and fees on loans

$      12,435


$    11,839

Interest and dividends on investment securities





Taxable

2,095


1,546


Tax-exempt

771


368


Short term investments

24


30



Total interest and dividend income

15,325


13,783







Interest expense




Interest on deposits

2,525


2,680

Interest on short-term borrowings

123


164

Interest on long-term debt

289


442



Total interest expense

2,937


3,286







Net interest income

12,388


10,497

Provision for loan losses

3,195


1,420


Net interest income after provision for loan losses

9,193


9,077







Other income




Service charges on deposit accounts

1,485


1,439

Other service charges, commissions and fees

370


396

Trust department income

1,012


760

Brokerage income

404


373

Mortgage banking activities

696


361

Earnings on life insurance

330


162

Merchant processing fees

255


257

Other income

145


201

Investment securities gains (losses)

379


398


Total other income

5,076


4,347







Other expenses




Salaries and employee benefits

4,832


4,598

Occupancy expense

562


559

Furniture and equipment

681


601

Data Processing

312


294

Telephone

176


172

Advertising and bank promotions

258


180

FDIC Insurance

550


544

Professional services

322


293

Taxes other than income

205


133

Intangible asset amortization

52


65

Other operating expenses

1,489


1,221


Total other expenses

9,439


8,660


Income before income tax

4,830


4,764

Income tax expense

1,003


1,358

Net income

$        3,827


$      3,406







Per share information:





Basic earnings per share

$          0.48


$        0.52


Diluted earnings per share

0.48


0.52


Dividends per share

0.23


0.22


Average shares and common stock equivalents outstanding

8,026,065


6,545,503




ANALYSIS OF NET INTEREST INCOME



Average Balances and Interest Rates, Taxable Equivalent Basis








Three Months Ended




March 31, 2011


March 31, 2010






Tax


Tax




Tax


Tax




Average


Equivalent


Equivalent


Average


Equivalent


Equivalent


(Dollars in thousands)

Balance


Interest


Rate


Balance


Interest


Rate


Assets













Federal funds sold














& interest bearing














bank balances

$            17,877


$                24


0.54

%

$       23,711


$              30


0.51

%

Securities

425,701


3,281


3.08


228,899


2,112


3.62


Loans

976,142


12,705


5.22


890,065


12,026


5.38


Total interest-earning














assets

1,419,720


16,010


4.52


1,142,675


14,168


4.92


Other assets

92,215






93,616






Total

$       1,511,935






$   1,236,291




















Liabilities and Shareholders' Equity












Interest bearing














demand deposits

$          420,235


$              449


0.43


$    350,336


$            681


0.79


Savings deposits

67,643


38


0.23


60,459


47


0.30


Time deposits

599,833


2,038


1.32


441,121


1,952


1.78


Short term borrowings

96,162


123


0.52


121,838


164


0.55


Long term debt

50,027


289


2.32


53,296


442


3.32


Total interest bearing













      liabilities

1,233,900


2,937


0.93


1,027,050


3,286


1.28


Non-interest bearing demand














deposits

107,119






88,328






Other

9,849






7,523






Total Liabilities

1,350,868






1,122,901






Shareholders' Equity

161,067






113,390






Total

$       1,511,935




0.84

%

$  1,236,291




1.16

%

Net interest income (FTE)/














net interest spread



13,073


3.59

%



$       10,885


3.64

%

Net interest margin





3.68

%





3.76

%

Tax-equivalent adjustment



(685)






(388)




Net interest income  



$         12,388






$       10,497


















NOTES:  Yields and interest income on tax-exempt assets have been computed on a fully taxable equivalent basis assuming a 35% tax rate.

              For yield calculation purposes, nonaccruing loans are included in the average loan balance.  



Nonperforming Assets / Risk Elements




























(Dollars in Thousands)

March 31, 2011


December 31, 2010


September 30, 2010


June 30, 2010


March 31, 2010

Loans on nonaccrual (cash) basis

$      13,106


$            13,896


$             14,427


$    14,496


$      23,020

Loans whose terms have been renegotiated

1,177


1,180


0


0


0

Total nonperforming loans

14,283


15,076


14,427


14,496


23,020

Other real estate owned (OREO)

847


1,112


2,528


1,264


873

Total nonperforming assets

15,130


16,188


16,955


15,760


23,893

Loans past due 90 or more days and still accruing

3,687


2,248


3,526


7,255


8,929

Total nonperforming and other risk assets

$      18,817


$            18,436


$             20,481


$    23,015


$      32,822

Ratio of total nonperforming loans to loans

1.45%


1.56%


1.57%


1.61%


2.56%

Ratio of total nonperforming assets to assets

1.00%


1.07%


1.15%


1.16%


1.82%

Ratio of total nonperforming assets to total loans and OREO

1.53%


1.67%


1.83%


1.75%


2.66%

Ratio of total risk assets to total loans and OREO

1.91%


1.90%


2.22%


2.56%


3.65%

Ratio of total risk assets to total assets

1.24%


1.22%


1.39%


1.69%


2.49%

Allowance for loan losses to nonperforming loans

129%


106%


107%


101%


52%

































Roll Forward of Allowance for Loan Losses


Three Months Ended



March 31,


March 31,

(Dollars in Thousands)


2011


2010






Balance at beginning of period


$        16,020


$     11,067

Provision for loan losses


3,195


1,420

Recoveries


7


18

Loans charged-off


(824)


(485)

Balance at end of period


$        18,398


$     12,020


About the Company:

With over $1.5 billion in assets, Orrstown Financial Services, Inc. and its subsidiary, Orrstown Bank, provide a full range of consumer and business financial services through twenty-one banking offices and two remote service facilities located in Cumberland, Franklin and Perry Counties, Pennsylvania and Washington County, Maryland.  Orrstown Financial Services, Inc.'s stock is traded on the NASDAQ Capital Market under the symbol ORRF.

Safe Harbor Statement:

This news release may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.  Actual results and trends could differ materially from those set forth in such statements due to various risks, uncertainties and other factors.  Such risks, uncertainties and other factors that could cause actual results and experience to differ from those projected include, but are not limited to, the following: ineffectiveness of the Company's business strategy due to changes in current or future market conditions; the effects of competition, including industry consolidation and development of competing financial products and services; changes in laws and regulations, including the recent Dodd-Frank Wall Street Reform and Consumer Protection Act; interest rate movements; changes in credit quality; volatilities in the securities markets; and deteriorating economic conditions, and other risks and uncertainties, including those detailed in Orrstown Financial Services, Inc.'s filings with the Securities and Exchange Commission.  The statements are valid only as of the date hereof and Orrstown Financial Services, Inc. disclaims any obligation to update this information.

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

SOURCE Orrstown Financial Services, Inc.

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