Earnings Alert: Orrstown Financial Services, Inc. (NASDAQ: ORRF)

On Thursday, Shares of Orrstown Financial Services, Inc. (NASDAQ: ORRF) showed the bearish trend with a lower momentum of -1.20% and ended its trading session at $24.70. The company traded total volume of 16,030 shares as contrast to its average volume of 14.41K shares. The company has a market value of $205.50M and about 8.32M shares outstanding. During the 52-week trading session, the minimum price at which share price traded was registered at $19.05 and reached the max level of $26.95.

Orrstown Financial Services, Inc. (ORRF), the parent company of Orrstown Bank and Wheatland Advisors, Inc., declared earnings for the quarter and year ended December 31, 2017. Net income totaled $6.0K for the quarter ended December 31, 2017, contrast with $1.90M for the same period in 2016. For the year ended December 31, 2017, net income totaled $8.10M, contrast with $6.60M for 2016. Diluted earnings per share totaled $0.00 and $0.98 for the quarter and year ended December 31, 2017, respectively, contrast with $0.24 and $0.81 for the same 2016 periods. Earnings in 2017 reflected increased interest income from expanding loan and investment portfolios and a boosted rate environment, but were negatively influenced by a $2.650M tax expense to revalue certain of the Company’s net deferred tax assets in the fourth quarter upon enactment of the Tax Cuts and Jobs Act. Apart from the Tax Act expense charge, earnings per diluted share totaled $0.32 and $1.30 for the quarter and year ended December 31, 2017, respectively.

OPERATING RESULTS:

Net Interest Income

Net interest income totaled $11.30M for the quarter ended December 31, 2017, a 16.7% increase contrast with the same period in 2016. For the year ended December 31, 2017, net interest income totaled $43.40M, an 18.7% increase contrast with 2016. Net interest margin on a taxable-equivalent basis totaled 3.27% for the quarter and 3.32% for the year ended December 31, 2017, contrast with 3.20% and 3.14% for 2016.

Provision for Loan Losses

The Company recorded an $800.0K provision for loan losses for the quarter ended December 31, 2017 contrast with $0 in the same period in 2016. For the year ended December 31, 2017, the provision for loan losses totaled $1.00M contrast with $250.0K in 2016. The provision expense in the fourth quarter of 2017 principally reflected a charge-off on one commercial loan that was downgraded to nonaccrual status. 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. The Company has practiced the benefit of favorable historical charge-off data and generally stable economic and market conditions for the last few years. These factors have contributed in the determination that a provision for loan losses that offset net charge-offs in the fourth quarter of 2017 was required to maintain an adequate allowance for loan losses.

Noninterest Income

Noninterest income for the quarter ended December 31, 2017, apart from securities gains, totaled $5.20M contrast with $5.00M in 2016. For the year ended December 31, 2017, noninterest income, apart from securities gains, totaled $19.20M, an $878 thousand, or 4.8%, increase contrast with 2016.

Trust, investment management and brokerage income increased $499.0K and $1.30M in comparing the quarter and year ended December 31 from 2016 to 2017. Wheatland Advisors, Inc., attained in December 2016, has been a noteworthy contributor to the increases in 2017. Trust department fees have also increased as additional revenues have been generated from favorable market conditions and the addition of an office in Berks County, Pennsylvania.

Mortgage banking income reduced $225.0K in comparing the fourth quarter of 2017 with 2016, and reduced $493.0K in comparing the year ended December 31, 2017 with 2016. The comparisons reflect reduced refinance activity as interest rates have increased some slight compression in profit margins, as well as the effect of retaining a portion of mortgage production for the loan portfolio in 2017 over 2016.

Investment securities gains totaled $0 and $1.20M for the quarter and year ended December 31, 2017, contrast with $0 and $1.40M for the same periods in 2016. At times, the Company may accelerate earnings on securities through gains as market conditions present opportunities to reposition part of its investment portfolio to improve responsiveness of the portfolio to increases in Fed Funds rates, or to act on asset/liability management strategies and interest rate conditions, while also meeting the funding requirements of anticipated lending activity.

Noninterest Expenses

Noninterest expenses totaled $12.70M and $50.30M for the quarter and year ended December 31, 2017, contrast with $12.50M and $48.10M for the corresponding 2016 periods.

Salaries and employee benefits totaled $7.80M and $30.10M for the quarter and year ended December 31, 2017, contrast with $7.10M and $26.40M for the same periods in 2016. Higher expenses throughout 2017 have been incurred for the aforementioned additional employees, merit increases and increased incentive compensation, increased health care costs, and incremental expense for additional share-based awards granted in 2017.

Professional services expenses totaled $435.0K and $2.40M for the quarter and year ended December 31, 2017, contrast with $507.0K and $2.20M for the same periods in 2016. Generally, professional fees in 2017 have been lower than in 2016, when additional costs for outstanding litigation against the Company and administrative proceedings by the Securities and Exchange Commission were incurred. In the third quarter of 2017, the Company did incur $508.0K of fees because of indemnification costs to several professional service providers in connection with formerly revealed outstanding litigation against the Company.

Noninterest expenses for 2016 included a regulatory settlement expense of $1.00M paid to the Securities and Exchange Commission to settle formerly revealed administrative proceedings.

Other operating expenses totaled $1.30M and $6.00M for the quarter and year ended December 31, 2017, contrast with $1.60M and $6.60M for the same periods in 2016. A principal contributor to the reduction year over year was a decrease in expense for off-balance sheet commitment reserve requirements.

Income Taxes

Income tax expense totaled $3.00M and $4.30M for the quarter and year ended December 31, 2017, contrast with $275 thousand and $1.30M for the same periods in 2016. In the fourth quarter of 2017, the Tax Act, a principal provision of which will lower the Company’s marginal federal corporate income tax rate from 34% to 21% starting January 1, 2018, was enacted. In accordance with accounting principles generally accepted in the United States of America (GAAP), the Company revalued certain of its net deferred tax assets to reflect the lower corporate income tax rate and recognized a net $2.650M expense in the fourth quarter. The Company’s deferred tax assets related to low-income housing credit and alternative minimum tax credit carryforwards were not influenced by the change in tax rate, as they are treated as payments on future federal income taxes due and are not subject to revaluation at the new Tax Act rate.

FINANCIAL CONDITION:

Assets totaled $1.560B at December 31, 2017, a boost of $144.30M from $1.410B at December 31, 2016. Loans, which are summarized below, were the principal driver for the growth in total assets at December 31, 2017 from December 31, 2016. Securities available for sale increased modestly from $400.20M in 2016 to $415.30M in 2017. Deposit growth of $67.10M and an overall increase in borrowings of $65.40M in 2017 were the primary sources of funding for growth in loans and securities.

Gross loans, apart from those held for sale, totaled $1.00B at December 31, 2017, increasing $126.60M, or 14.3%, from $883.40M at December 31, 2016.

Growth was practiced in nearly all loan segments from December 31, 2016 to December 31, 2017, with the leading dollar increase in the commercial real estate segment, which grew by $64.00M, or 14.9%, representing about one-half of the dollar portfolio growth for the period. The residential mortgage and commercial and industrial segments also showed substantial growth of $32.00M, or 11.7%, and $27.20M, or 30.7%, respectively, during this period. The Company continues to grow in both core markets and new markets through continued expansion of its sales force and from its efforts to capitalize on market disruption caused by the acquisition of some of our competitors by larger institutions in the recent past. The Company placed additional emphasis on growing commercial and industrial loans in 2017 to increase diversification of its loan portfolio. In the fourth quarter of 2017, the Company also continued to increase diversification of its loan portfolio with the purchase of an additional $10.0M of automobile financing loans at returns higher than comparable cash flows in the investment portfolio. These purchased loans are included in installment and other loans and bring total purchased loans in 2017 to about $15.0M.

Total deposits grew 5.8% from $1.150B at December 31, 2016 to $1.220B at December 31, 2017 due principally to growth in interest-bearing accounts. The Company continued to increase both noninterest-bearing and interest-bearing deposit relationships in 2017 from improved cash management offerings delivered by its expanded sales force.

Shareholders’ Equity

Shareholders’ equity totaled $144.80M at December 31, 2017, a boost of $9.90M, or 7.3%, from $134.90M at December 31, 2016. Equity increased principally from 2017 net income totaling $8.10M coupled with a boost in accumulated other comprehensive income (loss), net of tax, and was reduced by dividends declared on common stock.

Asset Quality

The allowance for loan losses balance totaled $12.80M at December 31, 2017 and December 31, 2016. Management believes the allowance for loan losses to total loans ratio remains adequate at 1.27% at December 31, 2017. Favorable historical charge-off data and management’s emphasis on loan quality have been noteworthy contributors to the determination that a relatively stable allowance for loan losses balance is adequate even as the loan portfolio has been increasing.

The Company offered net profit margin of 17.00%. ROE was recorded as 6.20% while beta factor was 0.39. The stock, as of recent close, has shown the weekly downbeat performance of -1.79% which was maintained at -2.18% in this year.

Louis Jensen

Editor

I am Louis Jensen and I’m passionate about business and finance news with over 4 years in the industry starting as a writer working my way up into senior positions. I am the driving force behind thestockgem.com with a vision to broaden the company’s readership throughout 2016. I am an editor and reporter of “Earnings” category.

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