Orrstown Financial Services, Inc. Reports Updated Earnings for December 31, 2011

News provided by

Orrstown Financial Services, Inc.

Mar 12, 2012, 04:58 ET

SHIPPENSBURG, Pa., March 12, 2012 /PRNewswire/ -- Orrstown Financial Services, Inc. (the "Company") (NASDAQ: ORRF) announced today an update to its originally reported earnings for the quarter and year ended December 31, 2011.  The updated earnings release was prompted by events that arose subsequent to the original earnings release on January 26, 2012 that resulted in additional asset impairments.  These additional impairments necessitated an increase of $13.7 million in the provision for loan losses for the quarter ended December 31, 2011 above the previously-announced level.  This additional provision, net of deferred tax benefit of $4.7 million, lowered previously reported earnings by $9.0 million. As a result of the additional $9.0 million of provision for loan losses, net of deferred tax benefit, for the quarter ended December 31, 2011, the Company reported a net loss of $29.5 million, or $3.66 per diluted share, compared to net income of $4.4 million, or $0.55 per diluted share, for the quarter ended December 31, 2010.  On a year to date basis, net loss for the year ended December 31, 2011 was $32.0 million, or $3.98 per diluted share, compared to net income of $16.6 million, or $2.17 per diluted share, for the year ended December 31, 2010.

In the period subsequent to the January 26th earnings release, additional information on seven lending relationships was learned, which resulted in an evaluation as to whether increases to impairment reserves should be recognized as of December 31, 2011. It was concluded that the additional reserves should be recognized at December 31, 2011, as the information provided additional evidence about conditions that existed at the balance sheet date, including key assumptions used in the estimation process of preparing the financial statements.   The additional information received in the intervening period included the receipt of updated appraisals on several loans, which resulted in management's determination that the related loan was either impaired, or the impairment reserve previously allocated to the loans was not sufficient.  Additionally, on two lending relationships with loan balances totaling $28.3 million, our estimate of the impairment on these relationships was adjusted to reflect the relationships' observable market price based on third party bids on the notes.  The loan impairments were previously determined on a discounted cash flows or collateral dependent approach.  As a result, the impairment reserves on these two relationships were increased by $5.9 million through an increase in the provision for loan losses, and now total $10.5 million.  Management anticipates that the sale of these notes will take place in the first quarter of 2012, and will result in cash proceeds of $17.8 million and a charge-off of the remaining loan balances equal to the $10.5 million reserve established.  

In addition, loans totaling $12.7 million were moved into nonaccrual (cash basis) status at December 31, 2011, including $5.2 million that were previously presented as accruing troubled debt restructurings.  

Updated unaudited financial information is included in this press release.    

About the Company:

With nearly $1.5 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-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.


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

CONDENSED CONSOLIDATED BALANCE SHEETS











  (Unaudited)

(Audited)*

December 31,

December 31,

(Dollars in thousands, Except per Share Data)

2011

2010

Assets


Cash and due from banks

$            19,630

$         10,400

Federal funds sold

0

8,800


Cash and cash equivalents

19,630

19,200






Short-term investments

0

2,728

Interest bearing deposits with banks

90,039

925

Restricted investments in bank stock

11,758

8,798

Securities available for sale

310,365

431,772






Loans held for sale

2,553

2,693

Loans

965,440

964,293

Less: Allowance for loan losses

(43,715)

(16,020)


Net Loans

924,278

950,966






Premises and equipment, net

27,183

27,774

Cash surrender value of life insurance

24,147

22,649

Goodwill and intangible assets

1,041

20,698

Accrued interest receivable

4,548

5,715

Other assets

31,108

20,497


Total assets

$       1,444,097

$    1,511,722






Liabilities


Deposits:


  Non-interest bearing

$          111,930

$       104,646

  Interest bearing

1,104,972

1,083,731

Total deposits

1,216,902

1,188,377






Short-term borrowings

35,013

87,850

Long-term debt

53,798

65,178

Accrued interest and other liabilities

10,187

9,833

Total liabilities

1,315,900

1,351,238






Shareholders' Equity


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


   no shares issued or outstanding

0

0

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


   50,000,000 shares authorized; 8,055,787, and 7,986,966




shares issued; 8,054,975; and 7,985,667




   shares outstanding

419

416

Additional paid - in capital

122,514

121,508

Retained earnings

1,195

38,680

Accumulated other comprehensive income (loss)

4,089

(88)

Treasury stock - common, 812 and 1,299 shares, at cost

(20)

(32)

Total shareholders' equity

128,197

160,484

Total liabilities and shareholders' equity

$       1,444,097

$    1,511,722






*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 OPERATIONS (UNAUDITED)















Three Months Ended



December 31,

December 31,

(Dollars in thousands, Except per Share Data)

2011

2010

Interest and dividend income


Interest and fees on loans

$              11,693

$            12,328

Interest and dividends on investment securities



Taxable

1,588

2,292

Tax-exempt

676

682

Short-term investments

51

22


Total interest and dividend income

14,008

15,324






Interest expense


Interest on deposits

2,162

2,610

Interest on short-term borrowings

28

147

Interest on long-term debt

234

297


Total interest expense

2,424

3,054






Net interest income

11,584

12,270

Provision for loan losses

26,250

1,375

Net interest income after provision for loan losses

(14,666)

10,895






Other income


Service charges on deposit accounts

1,608

1,673

Other service charges, commissions and fees

290

575

Trust department income

1,125

977

Brokerage income

313

349

Mortgage banking activities

748

559

Earnings on life insurance

273

308

Merchant processing revenue

0

276

Other income

(3)

24

Investment securities gains

3,025

383

Total other income

7,379

5,124






Other expenses


Salaries and employee benefits

3,808

5,033

Occupancy expense

471

462

Furniture and equipment

661

762

Data processing

125

356

Telephone

180

185

Advertising and bank promotions

416

414

FDIC Insurance

415

659

Professional services

1,537

287

Taxes other than income

205

177

Goodwill amortization and Intangible asset amortization

19,500

53

Other operating expenses

3,168

1,650

Total other expenses

30,486

10,038

Income (loss) before income tax (benefit)

(37,773)

5,981

Income tax expense (benefit)

(8,292)

1,606

Net income (loss)

$(29,481)

$              4,375






Per share information:



Basic earnings (loss) per share

$(3.66)

$                 0.55

Diluted earnings (loss) per share

(3.66)

0.55

Dividends per share

0.00

0.225

Average shares and common stock equivalents outstanding

8,053,955

8,015,735


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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)















Twelve Months Ended



December 31,

December 31,

(Dollars in thousands, Except per Share Data)

2011

2010

Interest and dividend income


Interest and fees on loans

$              48,917

$            48,494

Interest and dividends on investment securities



Taxable

8,334

7,744

Tax-exempt

2,972

2,069

Short-term investments

138

116


Total interest and dividend income

60,361

58,423






Interest expense


Interest on deposits

9,368

10,682

Interest on short-term borrowings

314

487

Interest on long-term debt

1,072

1,519


Total interest expense

10,754

12,688






Net interest income

49,607

45,735

Provision for loan losses

58,575

8,925

Net interest income after provision for loan losses

(8,968)

36,810






Other income


Service charges on deposit accounts

6,411

6,388

Other service charges, commissions and fees

1,313

2,272

Trust department income

4,216

3,606

Brokerage income

1,573

1,450

Mortgage banking activities

3,007

2,290

Earnings on life insurance

1,110

1,192

Merchant processing revenue

1,850

1,118

Other income

916

1,024

Investment securities gains

6,224

3,636

Total other income

26,620

22,976






Other expenses


Salaries and employee benefits

17,506

19,120

Occupancy expense

1,987

2,002

Furniture and equipment

2,705

2,742

Data processing

1,161

1,278

Telephone

662

730

Advertising and bank promotions

1,246

1,209

FDIC Insurance

2,417

1,798

Professional services

3,531

856

Taxes other than income

841

764

Goodwill impairment and Intangible asset amortization

19,657

240

Other operating expenses

8,766

5,996

Total other expenses

60,479

36,735

Income (loss) before income tax (benefit)

(42,827)

23,051

Income tax expense (benefit)

(10,863)

6,470

Net income (loss)

$(31,964)

$16,581






Per share information:



Basic earnings (loss) per share

$ (3.98)

$2.18

Diluted earnings (loss) per share

(3.98)

2.17

Dividends per share

0.69

0.89

Average shares and common stock equivalents outstanding

8,026,726

7,637,824

Nonperforming Assets / Risk Elements






















December 31,

September 30,

June 30,

March 31,

December 31,

(Dollars in Thousands)

2011

2011

2011

2011

2010











Nonaccrual loans (cash basis)

$        83,697

$        31,174

$     14,762

$     13,106

$     13,896

Other real estate (OREO)

2,165

2,754

1,240

847

1,112

    Total nonperforming assets

85,862

33,928

16,002

13,953

15,008

Restructured loans still accruing

27,917

37,725

34,844

1,177

1,181

Loans past due 90 days or more and still accruing

0

2,956

3,617

3,687

2,248

    Total risk assets

$      113,779

$        74,609

$     54,463

$     18,817

$     18,437











Loans 30-89 days past due

6,723

21,365

11,021

14,272

5,335











Asset quality ratios:









    Total nonaccrual loans to loans

8.67%

3.15%

1.48%

1.33%

1.44%

    Total nonperforming assets to assets

5.95%

2.24%

1.05%

0.92%

0.99%

    Total nonperforming assets to total loans and                    OREO

8.87%

3.42%

1.60%

1.42%

1.55%

    Total risk assets to total loans and OREO


11.76%

7.52%

5.44%

1.91%

1.91%

    Total risk assets to total assets

7.88%

4.92%

3.56%

1.24%

1.22%











    Allowance for loan losses to total loans

4.53%

2.60%

2.72%

1.87%

1.66%

    Allowance for loan losses to nonaccrual loans

52.23%

82.37%

184.34%

140.31%

115.28%

    Allowance for loan losses to nonaccrual and









         restructured loans still accruing

39.17%

37.27%

54.86%

128.80%

106.25%


Roll forward of  Allowance for Loan Losses














Three Months Ended

Twelve Months Ended


December 31,

December 31,

December 31,

December 31,

(Dollars in Thousands)

2011

2010

2011

2010









Balance at beginning of period

$      25,677

$     15,386

$        16,020

$        11,067

  Provision for loan losses

26,250

1,375

58,575

8,925

  Recoveries

23

4

52

95

  Loans charged-off

(8,235)

(745)

(30,932)

(4,067)

Balance at end of period

$      43,715

$     16,020

$        43,715

$        16,020

SOURCE Orrstown Financial Services, Inc.

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