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

Oct 28, 2010, 10:21 ET from Orrstown Financial Services, Inc.

SHIPPENSBURG, Pa., Oct. 28 /PRNewswire-FirstCall/ --

  • Third quarter 2010 earnings increased 26.2% vs. third quarter 2009
  • 11.0% reduction of risk assets in the third quarter 2010
  • Nonperforming assets declined 29.0% since March 31, 2010
  • Basic earnings per share of $0.61 for the third quarter 2010, matches third quarter 2009, despite an increase in the number of shares from the March 2010 stock offering
  • The Company announced a 2.3% increase in the quarterly dividend over the fourth quarter 2009

Orrstown Financial Services, Inc. (Nasdaq: ORRF) announced today that net income increased 26.2% to $4,896,000 for the quarter ended September 30, 2010, from $3,880,000 for the third quarter of 2009.  Diluted earnings per share amounted to $0.61 for the quarter ended September 30, 2010, as compared to $0.60 for the corresponding prior year period.  The Company also announced that its Board of Directors declared a fourth quarter cash dividend of $0.225 per share for shareholders of record on November 12, 2010.  The dividend will be paid on November 24, 2010.

Commenting on the Company's results, Thomas R. Quinn, Jr., President and CEO, said, "We are very pleased to report record net income, by quarter, for three sequential quarters and a 17.8% increase in year-to-date earnings compared to the same period last year.

"Our capital raise in the first quarter of 2010, which increased capital by $37.6 million, combined with our ability to generate deposit growth, allowed us to grow assets 27.4% since September 30, 2009. Our regulatory capital ratios of 9.5% Tier 1 leverage, 13.7% Tier 1 risk-based, and 14.9% Total risk-based are well above the minimums to be considered well capitalized, and position the Company to take advantage of future opportunities."

Quinn concluded, "Despite a tough banking environment, we have been able to produce consistent operating results, bolster our reserves and capital, and continue our efforts in addressing asset quality. This forward momentum will continue to serve us well during the remainder of 2010 and into 2011."

Results of Quarterly Operations

Net interest income for the quarter ended September 30, 2010 increased to $11,668,000 as compared to $9,479,000 in the same prior year period. The net interest margin decreased slightly to 3.62% for the three months ended September 30, 2010, a reduction of one basis point versus the same quarter in 2009.  The Company continues to lower its cost of funds as evidenced by a decrease of 62 basis points to 0.92% for the three months ended September 30, 2010, as compared to 1.54% in the same prior year period.  Average interest-earning assets increased by $286 million for the three months ended September 30, 2010, as compared to the same prior year period.    

Other income increased to $6.2 million for the three months ended September 30, 2010, as compared to $4.4 million in the same prior year period. This includes an increase in securities gains from $338,000 during third quarter 2009, to $1,074,000 during third quarter 2010.  Noninterest income generation increased across all business lines, including Orrstown Financial Advisors, mortgage origination and deposit based fees.  Operating expenses amounted to $9.7 million for the three months ended September 30, 2010, as compared to $8.0 million for the corresponding prior year period.    

Results of Year-to-Date Operations

Net interest income for the nine months ended September 30, 2010, increased to $33,465,000 as compared to $26,313,000 in the same prior year period, reflecting a higher net interest margin and higher levels of interest-earnings assets.  The net interest margin increased to 3.72% for the nine months ended September 30, 2010, a gain of 19 basis points versus the same period in 2009.   The yield on interest-earning assets decreased to 4.76%, as compared to 5.25% in the prior year period.  Year to date, the cost of funds decreased  to 1.04% for the nine months ended September 30, 2010, as compared to 1.72% in the same prior year period.  Average interest-earning assets increased by $225 million for the nine months ended September 30, 2010, as compared to the same prior year period. The provision for loan losses increased to $7,550,000 for the nine months ended September 30, 2010, as compared to $1,265,000 for the corresponding prior year period.  

Other income increased to $18.3 million for the nine months ended September 30, 2010, as compared to $12.6 million in the same prior year period.  This includes an increase in securities gains from $796,000 through September 30, 2009, to $3,253,000 through September 30, 2010. Operating expenses amounted to $27.1 million for the nine months ended September 30, 2010, as compared to $23.9 million for the corresponding prior year period.  

Financial Condition

Assets grew $282 million to $1.478 billion at September 30, 2010, up from $1.196 billion at December 31, 2009.  Securities available for sale have increased $232.9 million, or 118.7%, since December 31, 2009. Deposits increased to $1.139 billion at September 30, 2010, from $915 million at December 31, 2009.  Stockholders' equity increased to $163.9 million at September 30, 2010, as compared to $110.9 million at December 31, 2009, boosted by the completion of a common stock offering, in March 2010, that netted approximately $37.6 million in additional capital.

Asset Quality

The Company's non-accrual loans totaled $14.4 million at September 30, 2010, down $8.6 million, or 37%, from the high of $23.0 million at March 31, 2010.  Improvement was made through the reduction in the level of non-accrual loans, loans past due 90 or more days and still accruing, and total delinquency.  The Company continues to be diligent in its handling of nonperforming and other risk assets and has been able to reduce the level of risk assets from a high of $32.8 million at March 31, 2010, to $20.5 million as of September 30, 2010.  Two large credits, totaling $7.6 million, have been worked off the books since March 2010, which resulted in a $2.0 million charge off in the second quarter.  Although the Company's ratio of total risk assets to total assets increased from 0.96% at December 31, 2009, to 1.39% at September 30, 2010, increases have been noted across the financial services industry and within our peer group.  The Company's allowance for loan losses covered its nonperforming loans and stood at 107% at September 30, 2010.

Summary of Financial Highlights:

For Quarter Ended:

September 30, 2010

September 30, 2009

% Change

Net Income

$4,896,000

$3,880,000

26.2%

Basic Earnings Per Share

$0.61

$0.61

0.0%

Diluted Earnings Per Share

$0.61

$0.60

1.7%

Dividends Per Share

$0.225

$0.220

2.3%

Return on Average Assets

1.36%

1.36%

Return on Average Equity

12.18%

14.33%

Return on Average Tangible Assets (1)

1.39%

1.40%

Return on Average Tangible Equity (1)

14.03%

18.01%

Net Interest Income

$11,668,000

$9,479,000

23.1%

Net Interest Margin

3.62%

3.63%

For Nine Months Ended:

September 30, 2010

September 30, 2009

% Change

Net Income

$12,206,000

$10,359,000

17.8%

Basic Earnings Per Share

$1.62

$1.62

0.0%

Diluted Earnings Per Share

$1.62

$1.61

0.6%

Dividends Per Share

$0.665

$0.660

0.8%

Return on Average Assets

1.23%

1.26%

Return on Average Equity

11.47%

13.13%

Return on Average Tangible Assets (1)

1.26%

1.30%

Return on Average Tangible Equity (1)

13.57%

16.60%

Net Interest Income

$33,465,000

$26,313,000

27.2%

Net Interest Margin

3.72%

3.53%

Balance Sheet Highlights:

September 30, 2010

September 30, 2009

% Change

Assets

$1,477,780,000

$1,159,996,000

27.4%

Loans, Gross

921,807,000

867,435,000

6.3%

Allowance for Loan Losses

15,386,000

7,963,000

93.2%

Deposits

1,138,869,000

849,094,000

34.1%

Shareholders' Equity

163,933,000

110,649,000

48.2%

Tangible Equity (1)

143,182,000

89,649,000

59.7%

(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.  In addition, this is consistent with the treatment by bank regulatory agencies, which exclude goodwill and other intangible assets 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 Quarter Ended:

September 30, 2010

September 30, 2009

Return on Average Assets (GAAP basis)

1.36%

1.36%

Effect of excluding average intangible assets and related amortization, net of tax

0.03%

0.04%

Return on Average Tangible Assets

1.39%

1.40%

Return on Average Equity (GAAP basis) 

12.18%

14.33%

Effect of excluding average intangible assets and related amortization, net of tax

1.85%

3.68%

Return on Average Tangible Equity

14.03%

18.01%

For Nine Months Ended:

September 30, 2010

September 30, 2009

Return on Average Assets (GAAP basis)

1.23%

1.26%

Effect of excluding average intangible assets and related amortization, net of tax

0.03%

0.04%

Return on Average Tangible Assets

1.26%

1.30%

Return on Average Equity (GAAP basis)

11.47%

13.13%

Effect of excluding average intangible assets and related amortization, net of tax

2.10%

3.47%

Return on Average Tangible Equity

13.57%

16.60%

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:

September 30, 2010

September 30, 2009

Shareholders' Equity

$          163,933,000

$          110,649,000

Intangible Assets

20,751,000

21,000,000

Tangible Equity

$          143,182,000

$            89,649,000

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

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Audited) *

(Unaudited)

September 30,

December 31,

September 30,

(Dollars in Thousands)

2010

2009

2009

ASSETS

Cash and due from banks

$        14,966

$      13,940

$      13,976

Federal funds sold

18,645

8,000

23,250

 Cash and cash equivalents

33,611

21,940

37,226

Short-term investments

2,728

6,388

0

Interest bearing deposits with banks

587

601

7,495

Member stock, at cost which approximates market value

8,596

8,056

8,056

Securities available for sale

429,156

196,253

165,281

Loans

921,807

881,074

867,435

Allowance for loan losses

(15,386)

(11,067)

(7,963)

 Net loans

906,421

870,007

859,472

Premises and equipment, net

28,163

29,601

29,994

Goodwill and intangible assets

20,751

20,938

21,000

Cash surrender value of life insurance

22,578

21,204

17,065

Accrued interest receivable

6,003

4,605

3,856

Other assets

19,186

16,839

10,551

Total assets

$   1,477,780

$ 1,196,432

$ 1,159,996

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:

   Non-interest bearing

$      105,452

$      90,676

$      90,562

   Interest bearing

1,033,417

824,494

758,532

Total deposits

1,138,869

915,170

849,094

Short-term borrowings

124,869

97,914

107,070

Long-term debt

40,828

64,858

85,700

Other liabilities

9,281

7,604

7,483

Total liabilities

1,313,847

1,085,546

1,049,347

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; 7,986,966, 6,469,508 and 6,469,508

   shares issued; 7,976,018, 6,443,195 and 6,417,284 shares outstanding

416

337

337

Additional paid-in capital

121,534

82,895

82,933

Retained earnings

36,102

28,857

27,258

Accumulated other comprehensive income (loss)

6,129

(501)

1,692

Treasury stock, 10,948, 26,313 and 52,224 shares, at cost

(248)

(702)

(1,571)

Total shareholders' equity

163,933

110,886

110,649

Total liabilities and shareholders' equity

$  1,477,780

$ 1,196,432

$ 1,159,996

*The consolidated balance sheet at December 31, 2009 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

September 30,

September 30,

(Dollars in Thousands)

2010

2009

INTEREST INCOME

Interest and fees on loans

$ 12,122

$ 12,117

Interest and dividends on investment securities

2,627

1,415

Interest on short-term investments

31

6

Total interest income

14,780

13,538

INTEREST EXPENSE

Interest on deposits

2,645

3,023

Interest on short-term borrowings

95

128

Interest on long-term debt

372

908

Total interest expense

3,112

4,059

Net interest income

11,668

9,479

Provision for loan losses

1,130

750

Net interest income after provision for loan losses

10,538

8,729

OTHER INCOME

Service charges on deposits

1,979

1,842

Other service charges

1,135

697

Trust department income

928

671

Brokerage income

394

322

Gains on sale of loans

383

161

Other income

314

331

Securities gains

1,074

338

Total other income

6,207

4,362

OTHER EXPENSES

Salaries and employee benefits

5,296

4,293

Occupancy and equipment

1,268

1,215

Data processing

319

291

Advertising

128

146

Other operating expense

2,692

2,039

Total other expense

9,703

7,984

Income before income taxes

7,042

5,107

Income tax expense

2,146

1,227

Net income

$   4,896

$   3,880

PER SHARE DATA

Basic earnings per share

$    0.61

$    0.61

Diluted earnings per share

$    0.61

$    0.60

Dividends per share

$  0.225

$    0.22

ORRSTOWN FINANCIAL SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Nine Months Ended

September 30,

September 30,

(Dollars in Thousands)

2010

2009

INTEREST INCOME

Interest and fees on loans

$ 36,166

$ 35,319

Interest and dividends on investment securities

6,839

3,899

Interest on short term investments

94

39

Total interest income

43,099

39,257

INTEREST EXPENSE

Interest on deposits

8,072

9,679

Interest on short-term borrowings

340

309

Interest on long-term debt

1,222

2,956

Total interest expense

9,634

12,944

Net interest income

33,465

26,313

Provision for loan losses

7,550

1,265

Net interest income after provision for loan losses

25,915

25,048

OTHER INCOME

Service charges on deposits

5,556

5,103

Other service charges

2,916

2,324

Trust department income

2,497

1,957

Brokerage income

1,232

957

Gains on sale of loans

782

629

Other income

2,021

833

Securities gains

3,253

796

Total other income

18,257

12,599

OTHER EXPENSES

Salaries and employee benefits

14,844

12,832

Occupancy and equipment

3,657

3,605

Data processing

922

821

Advertising

319

372

Security impairment expense

0

36

Other operating expense

7,360

6,257

Total other expense

27,102

23,923

Income before income taxes

17,070

13,724

Income tax expense

4,864

3,365

Net income

$ 12,206

$ 10,359

PER SHARE DATA

Basic earnings per share

$    1.62

$    1.62

Diluted earnings per share

$    1.62

$    1.61

Dividends per share

$  0.665

$    0.66

ORRSTOWN FINANCIAL SERVICES INC. AND SUBSIDIARIES

ANALYSIS OF NET INTEREST INCOME

Three Months Ended

September 2010

September 2009

Tax

Tax

Tax

Tax

Average

Equivalent

Equivalent

Average

Equivalent

Equivalent

(Dollars in thousands)

Balance

Interest

Rate

Balance

Interest

Rate

Interest Earning Assets:

Interest from short-term investments

$  26,666

$        31

0.46%

$  12,827

$         6

0.19%

Investment securities

394,927

2,956

2.99%

169,786

1,568

3.70%

Loans

907,026

12,325

5.33%

859,597

12,285

5.55%

Total interest-earning assets

1,328,619

15,312

4.54%

1,042,210

13,859

5.17%

Interest Bearing Liabilities:

Interest bearing demand deposits

$424,375

$      594

0.56%

$309,444

$     802

1.03%

Savings deposits

64,574

37

0.23%

60,338

47

0.31%

Time deposits

534,457

2,014

1.45%

358,930

2,174

2.40%

Short-term borrowings

63,818

95

0.59%

88,766

128

0.57%

Long-term debt

59,047

372

2.45%

101,549

908

3.50%

Total interest bearing liabilities

1,146,271

3,112

1.06%

919,027

4,059

1.75%

Overall cost of funds

0.92%

1.54%

Net interest income / net interest spread

$ 12,200

3.48%

$  9,800

3.42%

Net interest margin

3.62%

3.63%

Nine Months Ended

September 2010

September 2009

Tax

Tax

Tax

Tax

Average

Equivalent

Equivalent

Average

Equivalent

Equivalent

(Dollars in thousands)

Balance

Interest

Rate

Balance

Interest

Rate

Interest Earning Assets:

Interest from short-term investments

$    27,571

$          94

0.46%

$    21,891

$          39

0.24%

Investment securities

308,200

7,586

3.29%

149,695

4,356

3.89%

Loans

899,697

36,734

5.40%

839,201

35,798

5.62%

Total interest-earning assets

1,235,468

44,414

4.76%

1,010,787

40,193

5.25%

Interest Bearing Liabilities:

Interest bearing demand deposits

$  392,799

$     2,005

0.68%

$  297,407

$     2,466

1.11%

Savings deposits

62,919

127

0.27%

60,742

159

0.35%

Time deposits

486,809

5,940

1.60%

353,385

7,054

2.67%

Short-term borrowings

84,196

340

0.53%

76,551

309

0.53%

Long-term debt

54,342

1,222

3.00%

108,742

2,956

3.58%

Total interest bearing liabilities

1,081,065

9,634

1.18%

896,827

12,944

1.93%

Overall cost of funds

1.04%

1.72%

Net interest income / net interest spread

$  34,780

3.58%

$  27,249

3.32%

Net interest margin

3.72%

3.53%

Nonperforming Assets / Risk Elements

(Dollars in Thousands)

September 30, 2010

June 30, 2010

March 31, 2010

December 31, 2009

Loans on nonaccrual (cash) basis

$                14,427

$            14,496

$               23,020

$                 4,267

Loans whose terms have been renegotiated

0

0

0

0

Total nonperforming loans

14,427

14,496

23,020

4,267

Other real estate owned

2,528

1,264

873

1,065

Total nonperforming assets

16,955

15,760

23,893

5,332

Loans past due 90 or more days and still

    accruing

3,526

7,255

8,929

6,155

Total risk assets

$                20,481

$            23,015

$               32,822

$               11,487

Ratio of total nonperforming loans to loans

1.57%

1.61%

2.56%

0.48%

Ratio of total nonperforming assets to assets

1.15%

1.16%

1.82%

0.45%

Ratio of total risk assets to total loans and

    other real estate owned

2.22%

2.56%

3.65%

1.30%

Ratio of total risk assets to total assets

1.39%

1.69%

2.49%

0.96%

Allowance for loan losses to non-

   performing loans

107%

101%

52%

259%

Roll Forward of Allowance for Loan Losses

Three Months Ended

Nine Months Ended

September 30,

September 30,

September 30,

September 30,

(Dollars in Thousands)

2010

2009

2010

2009

Balance at beginning of

    period

$        14,582

$        7,413

$           11,067

$           7,140

Provision for loan losses

1,130

750

7,550

1,265

Recoveries

6

3

91

15

Loans charged-off

(332)

(203)

(3,322)

(457)

Balance at end of period

$        15,386

$        7,963

$           15,386

$           7,963

With over $1.4 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 Corporation'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.



RELATED LINKS

http://www.orrstown.com