On October 22, 2024, Orrstown Financial Services Inc (ORRF, Financial) released its 8-K filing detailing the financial results for the third quarter of 2024. The company reported a net loss of $7.9 million, or $0.41 per diluted share, missing the analyst estimate of $0.17 earnings per share. This loss contrasts with a net income of $7.7 million in the previous quarter. The results reflect significant non-recurring charges related to the merger with Codorus Valley Bancorp, Inc., which was completed on July 1, 2024.
Company Overview
Orrstown Financial Services Inc is a holding company engaged in commercial banking and trust business. It provides a range of services including accepting deposits, granting loans, and offering investment and brokerage services through its Financial Advisors division. The company operates primarily in the community banking segment, focusing on commercial, residential, and consumer lending, as well as wealth management and investment brokerage services.
Performance and Challenges
The merger with Codorus Valley Bancorp significantly impacted Orrstown's financial performance. The company incurred $17.0 million in merger-related expenses, $15.5 million in provision for credit losses on non-purchase credit deteriorated loans, and $4.8 million for executive retirement costs. These non-recurring charges led to a net loss for the quarter. Excluding these charges, the company reported an adjusted net income of $21.4 million, or $1.11 per diluted share, indicating strong core earnings potential.
Financial Achievements
Despite the challenges, Orrstown achieved a net interest margin of 4.14%, up from 3.54% in the previous quarter, driven by the net accretion impact of purchase accounting marks. Noninterest income increased by $5.1 million to $12.4 million, supported by strong performance in wealth management and swap fee generation. These achievements highlight the company's ability to leverage its expanded scale and synergies post-merger.
Key Financial Metrics
Orrstown's total assets increased to $5.47 billion, up from $3.06 billion at the end of 2023, primarily due to the merger. Loans held for investment rose by $1.7 billion, and deposits increased by $2.0 billion. The company's tangible book value per share decreased to $21.12, reflecting the impact of purchase accounting adjustments. The provision for credit losses was $13.7 million, significantly higher than the previous quarter, due to the merger-related adjustments.
While the results for the quarter reflected the impact of certain non-recurring charges, the core income generated by the business demonstrates the significant opportunities afforded by the additional scale and synergies created by the merger," commented Thomas R. Quinn, Jr., President and Chief Executive Officer.
| Financial Metric | Q3 2024 | Q2 2024 |
|---|---|---|
| Net Interest Income | $51.7 million | $26.1 million |
| Noninterest Income | $12.4 million | $7.2 million |
| Net Loss | $(7.9) million | $7.7 million |
| Net Interest Margin | 4.14% | 3.54% |
Analysis
The merger with Codorus Valley Bancorp has positioned Orrstown Financial Services Inc for future growth, despite the short-term financial impact. The increase in assets, loans, and deposits enhances the company's market presence and operational scale. However, the significant non-recurring charges and increased provision for credit losses highlight the challenges of integrating large acquisitions. Moving forward, the company aims to realize cost savings and synergies from the merger, which could improve profitability and shareholder value.
Explore the complete 8-K earnings release (here) from Orrstown Financial Services Inc for further details.
