Orrstown Financial Services, Inc. Announces First Quarter Earnings of $2.0 Million And Quarterly Cash Dividend of $0.10 Per Sha

Orrstown Financial Services, Inc. Announces First Quarter Earnings of $2.0
Million And Quarterly Cash Dividend of $0.10 Per Share

  * Net income for the three months ended March 31, 2017 totaled $2.0 million,
    or $0.25 per common share ($0.24 per diluted share), compared with $2.6
    million, or $0.32 per common and diluted share, for the same period in
    2016.
  * Gross loans outstanding at March 31, 2017, excluding loans held for sale,
    totaled $901.3 million, an increase of $17.9 million, or 8.2%, on an
    annualized basis compared with the balance of $883.4 million at December
    31, 2016. In a year-over-year comparison, gross loans outstanding at
    March 31, 2017 increased 12.0% over March 31, 2016.
  * Deposits totaled $1.18 billion at March 31, 2017 and grew at an 11.1%
    annualized basis compared with the $1.15 billion balance at December 31,
    2016.
  * Net interest income totaled $10.2 million for the three months ended
    March 31, 2017, an 18.3% increase compared with $8.7 million for the three
    months ended March 31, 2016. Net interest margin, on a taxable-equivalent
    basis, increased from 3.06% in 2016 to 3.35% in 2017.
  * The Board of Directors declared a cash dividend of $0.10 per common share,
    payable May 15, 2017 to shareholders of record as of May 8, 2017, an
    increase of 11.1% over the dividend declared in the second quarter of
    2016.

SHIPPENSBURG, Pa.,  April  27, 2017  (GLOBE  NEWSWIRE) --  Orrstown  Financial 
Services, Inc. (the “Company”) (NASDAQ:ORRF),  the parent company of  Orrstown 
Bank (the  “Bank”)  and  Wheatland  Advisors,  Inc.  ("Wheatland"),  announced 
earnings for  the three  months ended  March 31, 2017.   Net income  was  $2.0 
million for the three months ended March 31, 2017, compared with $2.6  million 
for the same  period in  2016. Diluted earnings  per share  totaled $0.24  and 
$0.32 for the  three months  ended March 31, 2017  and 2016.  Earnings in  the 
first quarter of 2017 reflected increased interest income from expanding  loan 
and investment  portfolios as  the  Company pursued  its growth  strategy  and 
continued to  take  advantage of  market  disruption. Results  for  the  first 
quarter of 2016 were significantly  influenced by investment securities  gains 
of $1.4 million  compared with  minimal gains in  the first  quarter of  2017. 
Noninterest income, excluding  securities gains, was  consistent between  2017 
and 2016. Noninterest expenses totaled $12.1 million, up from $11.1 million in
the 2016 quarter, with overall increases attributable to salaries and benefits
associated with the Company's growth.

Thomas R. Quinn, Jr., President  and Chief Executive Officer, commented,  “The 
momentum which began in the second half  of 2016 has continued and is  growing 
in the first  quarter of 2017.  Our growth in  loans, combined with  effective 
balance sheet management, has moved our net interest margin substantially from
2016, ultimately resulting in over 18% net interest income growth. Our  growth 
in loans, deposits and net interest margin are the result of great efforts  by 
our staff in the Company’s core markets,  and our 2016 investments we made  in 
new markets."

OPERATING RESULTS

Net Interest Income

Net interest income totaled $10.2 million for the three months ended March 31,
2017, an 18.3% increase over  $8.7 million for the  same period in 2016.   Net 
interest margin on a  fully taxable-equivalent basis was  3.35% for the  three 
months ended March 31, 2017,  compared to 3.06% for  the same period in  2016. 
For the first quarter of  2017, the net interest  margin of 3.35% expanded  15 
basis points over the fourth quarter of  2016, and was 29 basis points  higher 
than the first quarter of 2016.

Increased yields in  loans and  investments reflected a  higher interest  rate 
environment as well as purchases  of additional tax-exempt securities in  late 
2016 and  2017 with  yields higher  than the  portfolio average.  The cost  of 
interest-bearing liabilities increased at a slower pace than the yields earned
on interest-earning assets from 2016 to 2017,  as the market has been slow  to 
respond to interest rate changes.

Provision for Loan Losses

The Company recorded  no provision  for loan  losses during  the three  months 
ended March 31, 2017 or 2016.  In calculating the required provision for  loan 
losses, both  quantitative  and  qualitative factors  are  considered  in  the 
determination of  the adequacy  of the  allowance for  loan losses.  Favorable 
historical charge-off data combined with stable economic and market conditions
resulted in the determination that no  provision for loan losses was  required 
to offset net  charge-offs or  for loan  growth experienced  during the  first 
quarter of 2017.

Despite improvement in many of the asset quality metrics since March 2016, the
growth the Company has  experienced in its loan  portfolio is one factor  that 
may result in  the need for  additional provisions for  loan losses in  future 
quarters.

Noninterest Income

Noninterest income, excluding  securities gains,  for the  three months  ended 
March 31, 2017 totaled $4.3 million, compared  with $4.2 million in the  prior 
year period. Trust, investment management and brokerage income increased  $128 
thousand, which is largely attributable  to activity from Wheatland  Advisors, 
Inc., which was acquired in December 2016. Mortgage banking activities  income 
decreased $139 thousand due to decreased refinance activity as interest  rates 
have increased.

Investment securities gains  were not  significant in the  three months  ended 
March 31, 2017, compared with  $1.4 million for the  same period in 2016.   As 
market conditions present opportunities  to act on asset/liability  management 
strategies or interest rate market conditions, the Company may sell investment
securities.

Noninterest Expenses

Noninterest expenses totaled  $12.1 million  and $11.1 million  for the  three 
months ended March 31, 2017 and 2016.   The principal drivers of the  increase 
were salaries  and  employee  benefits,  which  increased  $1.2  million,  and 
occupancy, furniture  and  equipment  which  increased  $181  thousand.  These 
increases reflect previously disclosed market expansion actions by the Company
as it  has added  new, primarily  customer-facing, employees  and  facilities, 
principally in Berks, Cumberland, Dauphin and Lancaster counties.

Other line  items  within  noninterest  expenses  showed  modest  fluctuations 
between 2017 and 2016.

Income Taxes

Income tax expense totaled $424 thousand for the three months ended  March 31, 
2017, compared to  $614 thousand for  the same period  in 2016. The  Company’s 
effective tax rate is significantly less than the 34.0% federal statutory rate
principally due to tax-exempt income, including interest earned on  tax-exempt 
loans and  securities  and  earnings  on the  cash  value  of  life  insurance 
policies. The effective tax rate for the three months ended March 31, 2017 was
17.5%, compared with  19.2% for  the three  months ended  March 31, 2016.  The 
lower effective tax rate for the first  quarter of 2017 compared with 2016  is 
primarily the result  of a  larger percentage  of tax-exempt  income to  total 
income and additional tax credits.   

FINANCIAL CONDITION

Assets totaled $1.45 billion at March 31,  2017, an increase of $39.4  million 
from $1.41  billion at  December 31, 2016  and of  $166.7 million  from  $1.29 
billion at March  31, 2016.  The principal growth  components were  securities 
available for sale, which  increased $23.4 million from  December 31, 2016  to 
March  31,  2017  and  $96.0  million  year-over-year,  and  loans  which  are 
summarized below.  Deposit  growth of $31.4  million in the  first quarter  of 
2017 was the primary source of funding  for growth in securities and loans  in 
the quarter.  Deposit  growth  of  $135.5 million,  coupled  with  an  overall 
reduction in cash balances of $38.4 million, was the primary source of funding
for year-over-year growth in securities and loans.

Gross loans,  excluding  those  held  for  sale,  totaled  $901.3  million  at 
March 31, 2017, and increased $17.9  million, or 2.0% (8.2% annualized),  from 
$883.4 million at December 31, 2016,  In  comparison to March 31, 2016’s  loan 
balance of $804.7 million, loans increased $96.6 million, or 12.0%.

The following table presents loan balances, by loan class within segments,  at 
March 31, 2017, December 31, 2016 and March 31, 2016.

(Dollars in thousands)     March 31, 2017   December 31, 2016   March 31, 2016
                                                                 
Commercial real estate:                                          
Owner occupied             $  114,991       $   112,295         $  106,464   
Non-owner occupied         209,601          206,358             154,731      
Multi-family               47,893           47,681              37,664       
Non-owner occupied         64,809           62,533              54,834       
residential
Acquisition and                                                  
development:
1-4 family residential     5,790            4,663               7,270        
construction
Commercial and land        27,648           26,085              42,245       
development
Commercial and industrial  90,638           88,465              77,277       
Municipal                  53,225           53,741              62,302       
Residential mortgage:                                            
First lien                 143,282          139,851             125,706      
Home equity – term         13,605           14,248              16,578       
Home equity – lines of     122,473          120,353             111,770      
credit
Installment and other      7,376            7,118               7,862        
loans
                           $  901,331       $   883,391         $  804,703   

Growth was experienced in nearly all  loan segments from December 31, 2016  to 
March 31, 2017,  with  the largest  increase  in the  commercial  real  estate 
segment, which  grew by  $8.4 million,  which was  approximately half  of  the 
portfolio growth for the period, or 8.0% annualized. The Company continues  to 
grow in both core markets and new markets through expansion in the sales force
and capitalizing on continued market disruption.

Total deposits grew 2.7% (11.1% annualized) from $1.15 billion at December 31,
2016 to $1.18  billion at March  31, 2017, and  increased 12.9% in  comparison 
with  $1.05  billion  at  March  31,  2016,  due  principally  to  growth   in 
interest-bearing  accounts.  The  Company  has  continued  to  increase   both 
noninterest-bearing and interest-bearing  deposit relationships from  enhanced 
cash management offerings delivered by its expanded sales force.

Shareholders’ Equity

Shareholders’ equity totaled $137.5 million at March 31, 2017, an increase  of 
$2.6 million,  or  1.9%,  from  $134.9 million  at  December 31,  2016.   This 
increase was principally the  result of net income  totaling $2.0 million  for 
the three months ended March 31, 2017 coupled with a $1.1 million increase  in 
accumulated other  comprehensive income  (loss),  net of  tax, and  offset  by 
dividends declared on common stock during the quarter.

Asset Quality

Asset quality metrics remained relatively  stable in comparing March 31,  2017 
with December 31, 2016 and have improved since March 31, 2016.

The allowance for loan losses balance totaled $12.7 million at March 31, 2017,
compared with the  $12.8 million at  December 31, 2016 and  the $13.3  million 
balance at March 31, 2016.  Management believes the allowance for loan  losses 
to total loans ratio remains adequate at 1.41% as of March 31, 2017. Favorable
historical charge-off data and management's emphasis on loan quality have been
significant  contributors  to  the  determination  that  a  relatively  stable 
allowance for loan losses balance is  adequate as the loan portfolio has  been 
increasing.

The allowance  for  loan  losses  to nonperforming  loans  totaled  198.6%  at 
March 31, 2017 compared with 181.4% at  December 31, 2016, and 83.9% at  March 
31, 2016, reflecting a  substantial decrease in nonaccrual  loans from a  year 
ago. The allowance  for loan  losses to nonperforming  and restructured  loans 
still accruing  totaled  173.5%  at  March 31, 2017,  compared  to  160.2%  at 
December 31, 2016 and 78.7% at March 31, 2016. 

Nonperforming and other risk assets, defined as nonaccrual loans, restructured
loans still accruing, loans past due 90  days or more and still accruing,  and 
other real estate owned totaled decreased  52.3% from March 31, 2016 to  March 
31, 2017. The balance at  March 31, 2017 and December  31, 2017 was a  similar 
$8.3 million compared  with $17.4  million at  March 31,  2016, as  nonaccrual 
loans decreased $9.5 million from March 31, 2016 to March 31, 2017.

Classified loans,  defined  as  loans rated  substandard,  doubtful  or  loss, 
totaled $22.0 million at March 31, 2017, or approximately 2.4% of total loans,
compared with  $22.9 million  (2.6%) at  December 31, 2016  and $24.4  million 
(3.0%) at March 31, 2016.

ORRSTOWN FINANCIAL SERVICES, INC.                             
Operating Highlights (Unaudited)                              
                                                Three Months Ended
                                                March 31,    March 31,
(Dollars in thousands, except per share data)   2017         2016
                                                              
Net income                                      $ 2,002      $ 2,580  
Diluted earnings per share                      $ 0.24       $ 0.32   
Dividends per share                             $ 0.10       $ 0.08   
Return on average assets                        0.57     %   0.80    %
Return on average equity                        6.01     %   7.64    %
Net interest income                             $ 10,237     $ 8,650  
Net interest margin                             3.35     %   3.06    %

ORRSTOWN FINANCIAL SERVICES,                                      
INC.
Balance Sheet Highlights                                          
(Unaudited)
                                 March 31,       December 31,    March 31,
(Dollars in thousands, except    2017            2016            2016
per share data)
                                                                  
Assets                           $ 1,453,946     $ 1,414,504     $ 1,287,279  
Loans, gross                     901,331         883,391         804,703      
Allowance for loan losses        (12,668     )   (12,775     )   (13,347     )
Deposits                         1,183,876       1,152,452       1,048,376    
Shareholders' equity             137,469         134,859         138,247      
Book value per share             16.50           16.28           16.68        

ORRSTOWN FINANCIAL SERVICES, INC.                                 
CONDENSED CONSOLIDATED BALANCE SHEETS                             
(Unaudited)
                                                                  
                                 March 31,       December 31,    March 31,
(Dollars in thousands)           2017            2016            2016
Assets                                                            
Cash and cash equivalents        $ 28,551        $ 30,273        $ 66,915     
Securities available for sale    423,601         400,154         327,590      
                                                                  
Loans held for sale              3,349           2,768           3,499        
                                                                  
Loans                            901,331         883,391         804,703      
Less: Allowance for loan losses  (12,668     )   (12,775     )   (13,347     )
   Net loans                     888,663         870,616         791,356      
                                                                  
Premises and equipment, net      34,767          34,871          29,689       
Other assets                     75,015          75,822          68,230       
     Total assets                $ 1,453,946     $ 1,414,504     $ 1,287,279  
                                                                  
Liabilities                                                       
Deposits:                                                         
   Noninterest-bearing           $ 157,983       $ 150,747       $ 146,094    
   Interest-bearing              1,025,893       1,001,705       902,282      
     Total deposits              1,183,876       1,152,452       1,048,376    
Borrowings                       117,491         112,027         87,106       
Accrued interest and other       15,110          15,166          13,550       
liabilities
     Total liabilities           1,316,477       1,279,645       1,149,032    
                                                                  
Shareholders' Equity                                              
Common stock                     434             437             437          
Additional paid - in capital     124,365         124,935         124,548      
Retained earnings                12,848          11,669          9,855        
Accumulated other comprehensive  (98         )   (1,165      )   4,434        
income (loss)
Treasury stock                   (80         )   (1,017      )   (1,027      )
     Total shareholders' equity  137,469         134,859         138,247      
     Total liabilities and       $ 1,453,946     $ 1,414,504     $ 1,287,279  
     shareholders' equity

ORRSTOWN FINANCIAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME  (Unaudited)
                                                                    
                                                     Three Months Ended
                                                     March 31,     March 31,
(Dollars in thousands, except share data)            2017          2016
Interest and dividend income                                        
Interest and fees on loans                           $  9,204      $  7,991   
Interest and dividends on investment securities      2,626         1,970      
  Total interest and dividend income                 11,830        9,961      
Interest expense                                                    
Interest on deposits                                 1,326         1,139      
Interest on borrowings                               267           172        
  Total interest expense                             1,593         1,311      
Net interest income                                  10,237        8,650      
Provision for loan losses                            0             0          
  Net interest income after provision for loan       10,237        8,650      
  losses
                                                                    
Noninterest income                                                  
Service charges on deposit accounts                  1,358         1,303      
Trust, investment management and brokerage income    1,913         1,785      
Mortgage banking activities                          503           642        
Other income                                         558           515        
Investment securities gains                          3             1,420      
  Total noninterest income                           4,335         5,665      
                                                                    
Noninterest expenses                                                
Salaries and employee benefits                       7,400         6,183      
Occupancy, furniture and equipment                   1,493         1,312      
Data processing                                      511           635        
Advertising and bank promotions                      387           456        
FDIC insurance                                       137           232        
Professional services                                508           520        
Collection and problem loan                          75            52         
Real estate owned                                    20            43         
Taxes other than income                              228           155        
Other operating expenses                             1,387         1,533      
  Total noninterest expenses                         12,146        11,121     
  Income before income tax                           2,426         3,194      
Income tax expense                                   424           614        
Net income                                           $  2,002      $  2,580   
                                                                    
Per share information:                                              
  Basic earnings per share                           $  0.25       $  0.32    
  Diluted earnings per share                         0.24          0.32       
  Dividends per share                                0.10          0.08       
  Diluted weighted-average shares of common stock    8,198,127     8,139,070  
  outstanding

ORRSTOWN FINANCIAL                                                                          
SERVICES, INC.
ANALYSIS OF NET                                                                             
INTEREST INCOME
Average Balances and Interest Rates, Taxable-Equivalent Basis (Unaudited)
                                                                                            
                    Three Months Ended
                    March 31, 2017                            March 31, 2016
                                    Taxable-     Taxable-                     Taxable-     Taxable-
                    Average         Equivalent   Equivalent   Average         Equivalent   Equivalent
(Dollars in         Balance         Interest     Rate         Balance         Interest     Rate
thousands)
Assets                                                                                      
Federal funds sold
& interest-bearing  $ 5,545         $ 18         1.32   %     $ 43,242        $  65        0.60   %
bank balances
Securities          415,342         3,010        2.94         363,614         2,142        2.37    
Loans               895,331         9,423        4.27         795,785         8,261        4.18    
Total
interest-earning    1,316,218       12,451       3.84         1,202,641       10,468       3.50    
assets
Other assets        107,587                                   94,292                        
Total               $ 1,423,805                               $ 1,296,933                   
Liabilities and
Shareholders'                                                                               
Equity
Interest-bearing    $ 609,052       $ 365        0.24         $ 521,442       $  252       0.19    
demand deposits
Savings deposits    93,312          36           0.16         87,702          35           0.16    
Time deposits       296,725         925          1.26         304,800         852          1.12    
Short-term          104,651         172          0.67         76,342          66           0.35    
borrowings
Long-term debt      21,460          95           1.80         24,459          106          1.74    
Total
interest-bearing    1,125,200       1,593        0.57         1,014,745       1,311        0.52    
liabilities
Noninterest-bearing 148,502                                   133,214                       
demand deposits
Other               14,588                                    13,206                        
Total Liabilities   1,288,290                                 1,161,165                     
Shareholders'       135,515                                   135,768                       
Equity
Total               $ 1,423,805                               $ 1,296,933                   
Taxable-equivalent
net interest income                 10,858       3.27   %                     9,157        2.98   %
/ net interest
spread
Taxable-equivalent                               3.35   %                                  3.06   %
net interest margin
Taxable-equivalent                  (621     )                                (507     )    
adjustment
Net interest income                 $ 10,237                                  $  8,650      
                                                                                            
NOTES:                                                                                      
(1) Yields and interest income on tax-exempt assets have been computed on a taxable-equivalent basis
assuming a 34% tax rate.
(2) For yield calculation purposes, nonaccruing loans are included in the average loan balance.

ORRSTOWN FINANCIAL SERVICES, INC.                                    
Nonperforming Assets / Risk Elements                                 
(Unaudited)
                                                                     
                                         March 31,   December 31,   March 31,
(Dollars in thousands)                   2017        2016           2016
                                                                     
Nonaccrual loans (cash basis)            $ 6,379     $  7,042       $ 15,906  
Other real estate (OREO)                 1,019       346            495       
Total nonperforming assets               7,398       7,388          16,401    
Restructured loans still accruing        921         930            1,044     
Loans past due 90 days or more and still 0           0              1         
accruing
Total nonperforming and other risk       $ 8,319     $  8,318       $ 17,446  
assets
                                                                     
Loans 30-89 days past due                $ 1,315     $  1,218       $ 1,391   
                                                                     
Asset quality ratios:                                                
Total nonperforming loans to total loans 0.71    %   0.80      %    1.98     %
Total nonperforming assets to total      0.51    %   0.52      %    1.27     %
assets
Total nonperforming assets to total      0.82    %   0.84      %    2.04     %
loans and OREO
Total risk assets to total loans and     0.92    %   0.94      %    2.17     %
OREO
Total risk assets to total assets        0.57    %   0.59      %    1.36     %
                                                                              
Allowance for loan losses to total loans 1.41    %   1.45      %    1.66     %
Allowance for loan losses to             198.59  %   181.41    %    83.91    %
nonperforming loans
Allowance for loan losses to
nonperforming and restructured loans     173.53  %   160.25    %    78.74    %
still accruing

ORRSTOWN FINANCIAL SERVICES, INC.                                   
Roll Forward of Allowance for Loan Losses (Unaudited)               
                                                                    
                                                      Three Months Ended
                                                      March 31,    March 31,
(Dollars in thousands)                                2017         2016
                                                                    
Balance at beginning of period                        $ 12,775     $ 13,568  
Provision for loan losses                             0            0         
Recoveries                                            22           108       
Charge-offs                                           (129     )   (329     )
Balance at end of period                              $ 12,668     $ 13,347  

About the Company

With over $1.4 billion  in assets, Orrstown Financial  Services, Inc. and  its 
wholly-owned subsidiaries, Orrstown Bank and Wheatland Advisors, Inc., provide
a wide range of  consumer and business financial  services through 26  banking 
and financial  advisory  offices  in  Berks,  Cumberland,  Dauphin,  Franklin, 
Lancaster and Perry Counties,  Pennsylvania and Washington County,  Maryland.  
Orrstown Bank is an Equal  Housing Lender and its  deposits are insured up  to 
the legal maximum by the FDIC.   Orrstown Financial Services, Inc.’s stock  is 
traded on  Nasdaq  (ORRF).   For more  information  about  Orrstown  Financial 
Services, Inc. and Orrstown Bank, visit www.orrstown.com. For more information
about Wheatland Advisors, Inc., visit www.wheatlandadvisors.com. 

Cautionary Note Regarding Forward-looking Statements:

This news release  may contain  forward-looking statements as  defined in  the 
Private Securities Litigation Reform Act of 1995.  Forward-looking  statements 
are statements that include projections, predictions, expectations, or beliefs
about events or results or otherwise  are not statements of historical  facts, 
including, without  limitation,  our  ability to  integrate  additional  teams 
across all business lines as we continue our expansion into Dauphin, Lancaster
and Berks counties and fill a void created in the community banking space from
the disruption  caused by  the  acquisition of  several competitors,  and  our 
belief that we are positioned to create additional long-term shareholder value
from these expansion initiatives.

Actual results and trends could differ materially from those set forth in such
statements and there can be no assurances that we will be able to continue  to 
successfully execute on our strategic  expansion east into Dauphin,  Lancaster 
and Berks  counties,  take  advantage of  market  disruption,  and  experience 
sustained growth  in loans  and  deposits.  Factors  that could  cause  actual 
results to  differ from  those expressed  or implied  by the  forward  looking 
statements 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  Dodd-Frank  Wall  Street  Reform  and   Consumer 
Protection Act; interest rate movements; changes in credit quality;  inability 
to raise capital,  if necessary, under  favorable conditions; volatilities  in 
the securities markets;  deteriorating economic conditions; the integration of
the Company's  strategic  acquisitions;  and other  risks  and  uncertainties, 
including those detailed in Orrstown Financial Services, Inc.'s Annual  Report 
on Form  10-K  for  the year  ended  December  31, 2016,  under  the  headings 
“Management’s Discussion and  Analysis of Financial  Condition and Results  of 
Operations” and “Risk Factors” and in  other filings made 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 includes the  filing 
date  of  a  public  company’s  financial  statements,  when  filed  with  the 
Securities and Exchange Commission.   Accordingly, the consolidated  financial 
information presented in this announcement is subject to change.

 

Contact:
David P. Boyle
Executive Vice President & CFO
Phone 717.530.2294
77 East King Street | Shippensburg PA

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