- Net income for the three months ended March 31, 2015 totaled $2.5 million, or $0.30 per diluted share, compared to $2.0 million, or $0.24 per diluted share, for the same period in 2014.
- Gross loans outstanding, excluding loans held for sale, increased $22.8 million, or 3.2%, for the three months ended March 31, 2015 and totaled $727.8 million.
- The allowance for loan losses remained strong and totaled 1.99% of total loans outstanding and 104.1% of nonaccrual loans at March 31, 2015.
- The Board of Directors declared a cash dividend of $0.07 per common share, payable May 21, 2015, to shareholders of record as of May 8, 2015.
SHIPPENSBURG, Pa., April 22, 2015 (GLOBE NEWSWIRE) -- Orrstown Financial Services, Inc. (the "Company") (Nasdaq:ORRF), the parent company of Orrstown Bank (the "Bank"), announced earnings for the three months ended March 31, 2015. Net income was $2.5 million, compared to $2.0 million for the same period in 2014. Diluted earnings per share amounted to $0.30 for the three months ended March 31, 2015, as compared to $0.24 for the first quarter of 2014. Return on average assets and return on average equity were 0.85% and 7.70%, respectively, for the three months ended March 31, 2015, compared to 0.69% and 8.54% for the same period in 2014.
Thomas R. Quinn, Jr., President and Chief Executive Officer, stated, "Despite a challenging interest rate environment and strong competitive conditions, we were able to grow our loan portfolio $22.8 million during the first quarter of 2015, or nearly 13% on an annualized basis, demonstrating our focus in meeting the needs of the markets we serve. Our commercial and retail customers are excited that Orrstown Bank, with a strengthened balance sheet and capital position, is prepared to support their growth."
Quinn added, "Today, the Board of Directors declared a dividend of $0.07 per common share to shareholders of record as of May 8, 2015."
OPERATING RESULTS
Net Interest Income
Net interest income totaled $8.3 million for the three months ended March 31, 2015, a 2.4% decrease compared to the same period in 2014. Net interest margin on a fully tax-equivalent basis was 3.18% for the three months ended March 31, 2015, compared to 3.30% for same period in 2014. Despite higher average balances in loans during 2015 as compared to 2014, the impact of the flattening yield curve in which short term interest rates rose but longer term interest rates declined, negatively impacted our net interest margin. Maturing loans and securities were reinvested at lower rates; however, lowering rates on our deposits to the same extent was not feasible.
Provision for Loan Losses
The Company recorded no provision for loan losses for the three months ended March 31, 2015 and 2014. In determining 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. For both periods presented, the favorable historical charge-off data combined with relatively stable economic and market conditions has resulted in the determination that no additional provision for loan losses was required to offset net charge-offs, nor were additional reserves needed on impaired loans, or for loan growth experienced during the periods.
Asset quality ratios have remained strong. The allowance for loan losses of $14.5 million at March 31, 2015, represents 1.99% of total loans and 104.13% of nonperforming loans. Classified loans, defined as loans rated substandard, doubtful or loss, totaled $34.3 million at March 31, 2015, or less than 5.0% of total loans. Classified loans have increased since December 31, 2014 when they totaled $28.2 million, principally due to one commercial real estate relationship totaling in excess of $6.0 million, which has experienced a downgrade due to the recent loss of a tenant and insufficient cash flow on other projects owned by the borrower. The Company believes it is well secured, and does not currently believe the loan is impaired.
Noninterest Income
Noninterest income, excluding securities gains, totaled $3.8 million for the three months ended March 31, 2015 and 2014. Mortgage banking activities generated revenue of $520 thousand for the three months ended March 31, 2015, a $61 thousand, or 13.3%, increase over the same period in 2014. Favorable real estate and interest rate conditions led to the increase in mortgage banking revenues. Trust department and brokerage income also increased $28 thousand, or 1.7%, for the three months ended March 31, 2015, as compared to the same period in 2014. New account generation and stable market conditions led to the increase in trust department income. The Company continues to experience declines in service charges on deposits and other services charges as a result of more conservative consumer spending behavior, particularly insufficient funds charges. For the three months ended March 31, 2015, service charges on deposit accounts totaled $1.2 million, a 6.0% decrease from $1.3 million for the three months ended March 31, 2014.
Securities gains totaled $1.5 million for the three months ended March 31, 2015, compared to $597 thousand for the same period in 2014. For both periods, asset/liability management strategies and interest rate conditions resulted in gains on sales of securities, as market conditions presented opportunities to realize earnings on securities through gains, while funding loan growth.
Noninterest expenses
Noninterest expenses totaled $10.5 million for the three months ended March 31, 2015, compared to $11.0 million for the corresponding prior year period, which represents a decrease of 4.3%. The improvement in the expense base is the result of enhanced operating performance in recent quarters, improved asset quality, and a reduction in discretionary spending.
FDIC insurance premiums produced the greatest dollar and percentage decline, and totaled $246 thousand for the three months ended March 31, 2015, compared to $464 thousand for the same period in 2014, a decline of $218 thousand, or 47.0%. This decline in FDIC insurance premiums was primarily due to a decrease in the assessment rate as the Company's risk profile continued to improve. Collection and problem loan expense decreased $63 thousand, or 39.6%, to $96 thousand for the three months ended March 31, 2015, as compared to the same period in 2014, and reflects improvement in the level of classified loans between the two periods. Similarly, professional services expense declined from $628 thousand for the three months ended March 31, 2014 to $512 thousand for the same period in 2015, as less assistance was needed from external parties.
Advertising and bank promotions expense totaled $245 thousand for the three months ended March 31, 2015, a $180 thousand, or 42.4%, decrease from $425 thousand for the same period in 2014, as the Company's brand promotion spending was concentrated in the first quarter of 2014. Bank promotion spending in 2015 has returned to more historically consistent levels. Occupancy, furniture and equipment expense of $1.4 million for the three months ended March 31, 2015 represented a decrease of $104 thousand from $1.5 million for the same period in 2014, due principally to losses on disposal of equipment in the 2014 period of $46 thousand for assets that were retired early and lower depreciation charges.
Offsetting the favorable variances were increases in employee related costs, data processing and taxes other than income. Salaries and employee benefits increased $88 thousand, or 1.5% for the three months ended March 31, 2015 compared to the same period in 2014, and totaled $5.9 million. Data processing costs of $467 thousand for the three months ended March 31, 2015 represent an increase of $86 thousand, or 22.6%, from $381 thousand for the same period in 2014, due to higher volumes and costs associated with more sophisticated product and service offerings. Taxes other than income totaled $226 thousand for the three months ended March 31, 2015, a $68 thousand increase over the same period in 2014 as Pennsylvania's Bank Shares tax is based on shareholders' equity at the beginning of the year. A combination of 2014's earnings, and unrealized gains on securities, net of tax, resulted in the increase in this equity-based tax.
Income Taxes
Income tax expense totaled $715 thousand for the three months ended March 31, 2015, for an effective tax rate of 22.5%, compared to no income tax expense for the same period in 2014.
As of December 31, 2014, the Company recaptured its entire valuation allowance on deferred tax assets which had previously been established. It was determined that with significant improvements in asset quality, strengthened capital ratios, and nine quarters of profitability, combined with improving market and economic conditions, maintaining a valuation allowance was no longer required. As a result of the reversal of the valuation allowance in the fourth quarter of 2014, income tax expense resulted in 2015, whereas no provision for income taxes was required in the first quarter of 2014.
FINANCIAL CONDITION
Assets totaled $1.2 billion at March 31, 2015 and December 31, 2014. Gross loans, excluding those held for sale, totaled $727.8 million at March 31, 2015, an increase of $22.8 million, or 3.2% (12.8% annualized), from $704.9 million at December 31, 2014. Growth was experienced primarily in the commercial real estate and residential mortgage loan segments.
Total deposits were $945.8 million at March 31, 2015, a 0.4% decrease from $949.7 million at December 31, 2014. Despite a minor decrease in deposits, transaction account balances increased by 1.4% and totaled $716.1 million at March 31, 2015, compared to $706.5 million at December 31, 2014. Loan growth was funded through sales and pay downs on securities available for sale, rather than maintaining balances in time deposits and, in particular, brokered time deposits.
Shareholders' Equity
Shareholders' equity totaled $131.9 million at March 31, 2015, an increase of $4.6 million, or 3.6%, from $127.3 million at December 31, 2014. This increase was primarily the result of net income of $2.5 million for the three months ended March 31, 2015, combined with a $1.9 million increase in accumulated other comprehensive income.
Effective January 1, 2015, the Basel III Capital Rules previously approved by the Board of Governors of the Federal Reserve System substantially revised the risk-based capital requirements applicable to the Company and the Bank, as compared to the U.S. risk-based capital rules which were in effect through December 31, 2014. Under the new guidelines, the Company and the Bank continue to meet all regulatory minimums required to be well capitalized.
Asset Quality
Risk assets, defined as nonaccrual loans, restructured loans, loans past due 90 days or more and still accruing, and other real estate owned totaled $16.4 million at March 31, 2015, down slightly from $16.5 million at December 31, 2014. Loans on nonaccrual status declined from $14.4 million at December 31, 2014 to $13.9 million at March 31, 2015, principally due to foreclosures that took place during the period, and resulted in a corresponding increase in other real estate owned.
The allowance for loan losses totaled $14.5 million at March 31, 2015, a decrease of $286 thousand from $14.7 million at December 31, 2014, due to net charge-offs recorded during the period, with no provision for loan losses. Despite the reduction in the allowance for loan losses balance, allowance coverage metrics remain strong, with the allowance for loan losses to total loans ratio at 1.99% at March 31, 2015, total nonperforming loans to loans of 1.91%, and the allowance for loan losses to nonaccrual loans coverage ratio at 104.1%.
| Operating Highlights (Unaudited): | |||
| Three Months Ended | |||
| March 31, | March 31, | ||
| (Dollars in thousands, except per share data) | 2015 | 2014 | |
| Net income | $ 2,462 | $ 1,978 | |
| Diluted earnings per share | $ 0.30 | $ 0.24 | |
| Dividends per share | $ 0.00 | $ 0.00 | |
| Return on average assets | 0.85% | 0.69% | |
| Return on average equity | 7.70% | 8.54% | |
| Net interest income | $ 8,315 | $ 8,516 | |
| Net interest margin | 3.18% | 3.30% | |
| Balance Sheet Highlights (Unaudited): | |||
| March 31, | December 31, | March 31, | |
| (Dollars in thousands, except per share data) | 2015 | 2014 | 2014 |
| Assets | $ 1,189,420 | $ 1,190,443 | $ 1,198,017 |
| Loans, gross | 727,753 | 704,946 | 673,282 |
| Allowance for loan losses | (14,461) | (14,747) | (20,497) |
| Deposits | 945,756 | 949,704 | 1,002,405 |
| Shareholders' equity | 131,854 | 127,265 | 96,252 |
|
ORRSTOWN FINANCIAL SERVICES, INC. AND ITS WHOLLY-OWNED SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
|||
| March 31, | December 31, | March 31, | |
| (Dollars in thousands) | 2015 | 2014 | 2014 |
| Assets | |||
| Cash and cash equivalents | $ 33,038 | $ 31,409 | $ 30,357 |
| Securities available for sale | 349,827 | 376,199 | 431,786 |
| Loans held for sale | 5,177 | 3,159 | 2,652 |
| Loans | 727,753 | 704,946 | 673,282 |
| Less: Allowance for loan losses | (14,461) | (14,747) | (20,497) |
| Net loans | 713,292 | 690,199 | 655,437 |
| Premises and equipment, net | 24,325 | 24,800 | 26,431 |
| Other assets | 63,761 | 64,677 | 54,006 |
| Total assets | $ 1,189,420 | $ 1,190,443 | $ 1,198,017 |
| Liabilities | |||
| Deposits: | |||
| Non-interest bearing | $ 129,593 | $ 116,302 | $ 124,353 |
| Interest bearing | 816,163 | 833,402 | 878,052 |
| Total deposits | 945,756 | 949,704 | 1,002,405 |
| Borrowings | 100,006 | 101,554 | 74,539 |
| Accrued interest and other liabilities | 11,804 | 11,920 | 24,821 |
| Total liabilities | 1,057,566 | 1,063,178 | 1,101,765 |
| Shareholders' Equity | |||
| Common stock | 430 | 430 | 422 |
| Additional paid - in capital | 123,573 | 123,392 | 123,164 |
| Retained earnings | 4,349 | 1,887 | (25,277) |
| Accumulated other comprehensive income | 3,522 | 1,576 | (2,037) |
| Treasury stock | (20) | (20) | (20) |
| Total shareholders' equity | 131,854 | 127,265 | 96,252 |
| Total liabilities and shareholders' equity | $ 1,189,420 | $ 1,190,443 | $ 1,198,017 |
|
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) | 2015 | 2014 |
| Interest and dividend income | ||
| Interest and fees on loans | $ 7,327 | $ 7,441 |
| Interest and dividends on investment securities | 1,901 | 2,160 |
| Total interest and dividend income | 9,228 | 9,601 |
| Interest expense | ||
| Interest on deposits | 777 | 956 |
| Interest on borrowings | 136 | 129 |
| Total interest expense | 913 | 1,085 |
| Net interest income | 8,315 | 8,516 |
| Provision for loan losses | 0 | 0 |
| Net interest income after provision for loan losses | 8,315 | 8,516 |
| Noninterest income | ||
| Service charges on deposit accounts | 1,193 | 1,269 |
| Trust department and brokerage income | 1,684 | 1,656 |
| Mortgage banking activities | 520 | 459 |
| Other income | 442 | 457 |
| Investment securities gains | 1,529 | 597 |
| Total noninterest income | 5,368 | 4,438 |
| Noninterest expenses | ||
| Salaries and employee benefits | 5,900 | 5,812 |
| Occupancy, furniture and equipment | 1,367 | 1,471 |
| Data processing | 467 | 381 |
| Advertising and bank promotions | 245 | 425 |
| FDIC insurance | 246 | 464 |
| Professional services | 512 | 628 |
| Collection and problem loan | 96 | 159 |
| Real estate owned expenses | 25 | 27 |
| Taxes, other than income | 226 | 158 |
| Other operating expenses | 1,422 | 1,451 |
| Total noninterest expenses | 10,506 | 10,976 |
| Income before income tax | 3,177 | 1,978 |
| Income tax expense | 715 | 0 |
| Net income | $ 2,462 | $ 1,978 |
| Per share information: | ||
| Basic earnings per share | $ 0.30 | $ 0.24 |
| Diluted earnings per share | 0.30 | 0.24 |
| Dividends per share | 0.00 | 0.00 |
| Average shares and common stock equivalents outstanding | 8,134,000 | 8,108,000 |
|
ANALYSIS OF NET INTEREST INCOME Average Balances and Interest Rates, Taxable Equivalent Basis (Unaudited) |
|||||||
| Three Months Ended | |||||||
| March 31, 2015 | March 31, 2014 | ||||||
| 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 | $ 29,569 | $ 26 | 0.36% | $ 12,902 | $ 8 | 0.25% | |
| Securities | 356,635 | 1,905 | 2.17 | 412,963 | 2,278 | 2.24 | |
| Loans | 713,330 | 7,601 | 4.32 | 672,364 | 7,741 | 4.67 | |
| Total interest-earning assets | 1,099,534 | 9,532 | 3.52 | 1,098,229 | 10,027 | 3.70 | |
| Other assets | 81,698 | 60,978 | |||||
| Total | $ 1,181,232 | $ 1,159,207 | |||||
| Liabilities and Shareholders' Equity | |||||||
| Interest bearing demand deposits | $ 504,387 | $ 220 | 0.18 | $ 478,369 | $ 186 | 0.16 | |
| Savings deposits | 87,665 | 34 | 0.16 | 80,399 | 33 | 0.17 | |
| Time deposits | 235,049 | 523 | 0.90 | 310,693 | 737 | 0.96 | |
| Short term borrowings | 78,370 | 60 | 0.31 | 50,719 | 33 | 0.26 | |
| Long term debt | 16,112 | 76 | 1.91 | 17,928 | 96 | 2.17 | |
| Total interest bearing liabilities | 921,583 | 913 | 0.40 | 938,108 | 1,085 | 0.47 | |
| Non-interest bearing demand deposits | 118,866 | 116,211 | |||||
| Other | 11,166 | 10,949 | |||||
| Total Liabilities | 1,051,615 | 1,065,268 | |||||
| Shareholders' Equity | 129,617 | 93,939 | |||||
| Total | $ 1,181,232 | $ 1,159,207 | |||||
| Net interest income (FTE)/net interest spread | 8,619 | 3.12% | 8,942 | 3.23% | |||
| Net interest margin | 3.18% | 3.30% | |||||
| Tax-equivalent adjustment | (304) | (426) | |||||
| Net interest income | $ 8,315 | $ 8,516 | |||||
| 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 (Unaudited) | |||
| (Dollars in thousands) |
March 31, 2015 |
December 31, 2014 |
March 31, 2014 |
| Nonaccrual loans (cash basis) | $ 13,888 | $ 14,432 | $ 14,606 |
| Other real estate (OREO) | 1,431 | 932 | 2,612 |
| Total nonperforming assets | 15,319 | 15,364 | 17,218 |
| Restructured loans still accruing | 1,096 | 1,100 | 5,935 |
| Loans past due 90 days or more and still accruing | 0 | 0 | 497 |
| Total risk assets | $ 16,415 | $ 16,464 | $ 23,202 |
| Loans 30-89 days past due | $ 1,630 | $ 1,612 | $ 2,903 |
| Asset quality ratios: | |||
| Total nonaccrual loans to loans | 1.91% | 2.05% | 2.17% |
| Total nonperforming assets to assets | 1.29% | 1.29% | 1.44% |
| Total nonperforming assets to total loans and OREO | 2.10% | 2.18% | 2.55% |
| Total risk assets to total loans and OREO | 2.25% | 2.33% | 3.43% |
| Total risk assets to total assets | 1.38% | 1.38% | 1.94% |
| Allowance for loan losses to total loans | 1.99% | 2.09% | 3.04% |
| Allowance for loan losses to nonaccrual loans | 104.13% | 102.18% | 140.33% |
| Allowance for loan losses to nonaccrual and restructured loans still accruing | 96.51% | 94.95% | 102.01% |
| Roll Forward of Allowance for Loan Losses (Unaudited) | |||
| Three Months Ended | |||
| (Dollars in thousands) |
March 31, 2015 |
March 31, 2014 |
|
| Balance at beginning of period | $ 14,747 | $ 20,965 | |
| Provision for loan losses | 0 | 0 | |
| Recoveries | 49 | 60 | |
| Loans charged-off | (335) | (528) | |
| Balance at end of period | $ 14,461 | $ 20,497 | |
About the Company
With nearly $1.2 billion in assets, Orrstown Financial Services, Inc. and its wholly-owned subsidiary, Orrstown Bank, provide a full range of consumer and business financial services through twenty-two banking offices and two remote service facilities located in Cumberland, 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 the NASDAQ Capital Market under the symbol ORRF. For more information about Orrstown Financial Services, Inc. and Orrstown Bank, visit www.orrstown.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, statements related to our ability to focus on and meet the needs of the markets we serve and our ability to maintain the strength of our balance sheet and capital position and support the growth of our commercial and retail customers. 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 focus on and meet the needs of the markets we serve or maintain the strength of our balance sheet and capital position and support the growth of our commercial and retail customers. 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; and other risks and uncertainties, including those detailed in Orrstown Financial Services, Inc.'s Form 10-K for the fiscal year ended December 31, 2014 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.