Orrstown Financial Services, Inc. · NASDAQ:ORRF
Orrstown Financial Services — Shareholder Meeting (April 2020)
40 slides from Orrstown Financial Services's shareholder meeting presentation, Apr 28, 2020
Slide 1: Reflecting on 2019 with 2020 Vision
REFLECTING ON i: S WITH 2020 VISION OrrSTOWN FINANCIAL SERVICES, INC.
Slide 2: Conduct Meeting Business
Conduct Meeting Business Joel R. Zullinger Chairman of the Board 2 OrrSTOWN FINANCIAL SERVICES, INC.
Slide 3: Important Disclosure
mportant Disclosure Certain statements we may make today may constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. Orrstown Financial’s actual results may differ significantly from the results discussed in such forward-looking statements. Factors that mi
Slide 4: Rules of Conduct
Rules of Con t = Inthe interest of an orderly Meeting of the Shareholders of Orrstown Financial Services, Inc. (the “Company”), we ask you to honor the following rules of procedure: = Shareholders who are attending via webcast can submit questions during the meeting and those questions will be addre
Slide 5: Conduct Meeting Business
Conduct Meeting Business Joel R. Zullinger Chairman of the Board 5 OrrSTOWN FINANCIAL SERVICES, INC.
Slide 6: Board of Directors
Board of Directors ’ Robert A. DeAlmeida Floyd E. Stoner
Slide 7: Conduct Meeting Business
Conduct Meeting Business Joel R. Zullinger Chairman of the Board OrrSTOWN FINANCIAL SERVICES, INC.
Slide 8: Management Report
Management Report Thomas R. Quinn, Jr. President & CEO OrrSTOWN FINANCIAL SERVICES, INC.
Slide 9: Impacts of Novel Coronavirus (COVID-19)
Impacts of Novel Coronavirus (COVID = For the first time in our 101 year history, we are not meeting face-to-face = We continue to balance the safety of our employees, shareholders, and communities with our responsibility to provide essential services = Due tothe many significant and ongoing changes
Slide 10: Experienced Leadership Team
Experienced Leadership Team Expe: Name/Title Banking Joined Experience | ORRF Thomas R. Quinn, Jr. President & CEO 29 years 2009 Pee a maenes 28 years 2019 eve/cheftuman Resourcesoffeer 378851587 eve/Che bk Ofer ayes | ame ee en) Gee | Robert Fignar EvP/Operations, Technology, 33 years 2018 Logistic
Slide 11: Summary of Achievements
Summary of Achievements Our focus as described at last year’s Annual Shareholders Meeting: = Expand and build out commercial lending and fee income businesses, to take advantage of current and new markets = Complete integration of Hamilton Bank = Continue branch refresh and optimization of branch ne
Slide 12: Summary of Achievements (continued)
Summary of Achievements (continued) Our focus as described at last year’s Annual Shareholders Meeting: Optimize Hamilton network = Focus on operational efficiency = Focus on Enterprise Risk Management, including cybersecurity = Investmentin learning and development (Orrstown University) = Reward our
Slide 13: Expand Commercial Lending and Fee Income Businesses
Expand Commercial Lending and Fee Income Businesses = 72% growth in Commercial Relationship Managers in 2019 to 31 total* = §150 million pipeline increase since July = Significant increase in commercial loans = Q42019: 20% annualized growth = Qi 2020: 15% annualized growth =* Q2-Q4 2020: We are pred
Slide 14: Expand Commercial Lending and Fee Income Businesses: Total Loans
Expand Commercial Lending and Fee Income Businesses Total Loan Outstandings {in millions) $1,800 $1,644 $1,600 $1,400 g $1,200 $1,000 $800 $705 2182 a i soo 0l a ysis ysis aysiji6 17/31/17 ysis 1/3118 = Our loan portfolio has more than doubled in the past five years = Favorable demographics of our n
Slide 15: Expand Commercial Lending and Fee Income Businesses: Noninterest Income
Expand Commercial Lending and Fee Income Businesses Total Noninterest Income (00's) 524000 ols $23,537 523.000 be _ 2 521000 $19,776 Sam $19,179 sem $18,137 18.000 $17,020 517000 a || 15000 215 FY 2o16FY 217 FY 2o18FY 219 FY = Focused on growth in non-interest income throughout the Company in 2019 =
Slide 16: Complete Integration of Hamilton Bank
Complete Integration of Hamilton Ban 9, * 2 SHamilton Bank Together. Let's Grow. = Closed deal in Q2 2019 = Completed successful systems conversion in Q3 2019 = Chris Holt, Market President, joined in July 2019 and successfully recruited strong team that has had significant impact, ahead of our inte
Slide 17: Continue Branch Optimization
Continue Branch Optimization = Announced closure of five underperforming branches and North Pointe Operations Center (excess 50,000 sq. ft. ) in Q4 2019; Branches closed in Q1 2020 and operations center scheduled for sale in Q3 2020 = We are also investing in our existing branch network by selective
Slide 18: Focus on Operational Efficiency
ocus on Operational Efficie = Numerous enhancements to ensure scalability and efficiency, including: = Roll out of e-sign throughout the entire branch network = Quality control automation process for loan boarding = Utilization of robotic automation to eliminate inefficient data keying efforts = Sig
Slide 19: Focus on ERM, Including Cybersecurity
Focus on ERM, Including Cybersecurity Continue to support a culture that balances appropriate risk management with business development efforts BSA enhancements to include additional focus on client due diligence Continued down the path of CECL readiness (although we have not yet determined when we
Slide 20: Focus on ERM, Including Cybersecurity
Focus on ERM, Including Cybersecurity = Invested in technologies that operationalize threat intelligence and use artificial intelligence to detect and thwart threat actors = Invested in enhanced training and awareness programs for all employees = Invested in the reduction of and control over sensiti
Slide 21: Investments in Learning & Development
Investments in Learning & Developme = Orrstown University webpage = Introduction of Orrstown Connections (weekly e-newsletter) = Employee Learning Week = Mercersburg and Hamilton conversions = 805 participant training sessions : xk in 2019 ras * * fv x = Customer experience roll out O across entire
Slide 22: Reward our Shareholders
Reward our Shareholders Five Year Dividend Trend $0.18 $0.17 $0.16 sos $03 $03 $0.14 $0.12 $0.12 $0.12 $0.10 $0.10 $0.40 $0.09 $0.09 $0.09 oad $0.08 $0.08 $0.08 $0.07 $0.07 $0.06 B89? * % 9" GG" pF _ G9" yo w*_ GF GF ww F FP PP oF ha ” So a oo 0 9", ” we Ss a a ey” ae & se ‘f ae ae a vs at a” = 7 di
Slide 23: In Summary: We Accomplished a Lot Last Year
In Summary: We Accomplished a Lot Last Year Celebrated our 100* anniversary with our clients and communities Supported our communities with 2,285 new loans totaling $523.9 million Expanded Orrstown University to meet the learning and development needs of our growing organization Completed the system
Slide 24: Last Year's Accomplishments (continued)
Last Year’s Accomplishments (continued) 185 new employees joined the Orrstown family 9,250 hours of community service were logged More than $650,000 donated to worthy organizations Hired two new Market Presidents, Zack Khuri (Dauphin County/West Shore) and Chris Holt (Maryland) $16.9 milliontin net
Slide 25: Financial Report
Financial Report Thomas Brugger Chief Financial Officer 25 OrrSTOWN FINANCIAL SERVICES, INC.
Slide 26: Short-Term Financial Priorities to Mitigate COVID-19 Risk
Short-Term Financial Priorities to Mitigate COVID-19 eve Risk Management = Conservative near term risk appetite = Help clients to manage through potentially difficult upcoming period = Provide solutions of loan payment deferrals and SBA PPP loans = Early identification of problem loans with quick re
Slide 27: Short-Term Financial Priorities to Mitigate COVID-19 Risk
ort-Term Financial Priorities to Mitigate COVID-19 eve Capture Fee Income = Mortgage banking refinance activity = Interest rate hedging revenue for commercial clients = Wealth management opportunity Capital = Maintain strong capital position = Slower balance sheet growth expected = Maintain common d
Slide 28: Long-term Phases of Growth
Long-term Phases of Growth Phase 1 (completed) BUILD SCALE WITH ACQUISITIONS, ORGANIC GROWTH, AND KEY HIRES + Market expansion efforts in Eastern, Central, and Maryland regions (investments in customer facing talent and infrastructure to successfully enter new markets) * Two acqui: year * Focus on r
Slide 29: Long-term Path to Improving Profitability
Long-term Path to Improving Profitability Continue to grow the relationship community bank = Expand loan origination capacity with 3 new lending teams and invest in new locations (York County, Central Region, Maryland Region) in target markets Branch efficiency optimization = Utilize continuous asse
Slide 30: Long-term Path to Improving Profitability
Long-term Path to Improving Profitability Balance sheet mix optimization with the goal of expanding the net interest margin = Grow relationship C&I, CRE and cash management deposits = Reduce on balance sheet mortgages; sell new production = Reduce investment portfolio concentration & wholesale fundi
Slide 31: Summary Financial Trends
ummary Financial Trends dollars in millions (except for per share information) Growth Growth Summary Trends 1Year 3 Year Assets 1,293 1,415 1,559 1,934 2,383 23% 68% Net Loans 774 873 1,003 1,237 1,639 33% 88% Deposits 1,032 1,152 1,220 1,559 1,876 20% 63% Equity 133 135, 145, 173 223 29% 66% Tangib
Slide 32: Income Statement Trends
Income Statem Trends Growth Growth dollars in milli Income Statement 2015 2016 2017 2018 2019 1Year 3 Year Net Interest Income 34.3 36.5 43.8 52.2 69.3 33% 90% Non-Interest Income 17.3 18.3 188 20.0 23.8 19% 30% Net Securities Gains 13 14 £2 1.0 47 372% 234% Total Revenue 535 56.3 63.8 73.2 97.8 34%
Slide 33: Balance Sheet Trends
Balance Sheet Tren dollars in millions Loan Portfolio Mix 2015 2016 2017 2018 2019 Total Gross Loans 788 886 1,016 1,251 1,654 Residential Mortgage 16% 16% 16% 19% 20% Home Equity 16% 15% 14% 12% 11% Other Consumer 1% 1% 2% 3% 3% Total Consumer Loans 33% 32% 33% 34% 34% Construction Loans 6% 3% 3% 4
Slide 34: Tier 1 Capital
Tier 1 Capital Tier 2 Capital Total Regulatory Capital Tier 1 Leverage Ratio Common Equity Tier 1 Ratio Tier 1 Capital Ratio Total Risk Based Capital Ratio 123.8 10.7 134.6 9.8% 14.6% 14.6% 15.8% 127.0 12.0 139.0 9.3% 13.3% 13.3% 14.6% 138.8 13.6 152.4 9.0% 12.1% 12.1% 13.3% 160.1 46.9 207.0 8.4% 12
Slide 35: Performance Ratios
Performance Ratios Growth Growth 2015 2016 2017 1Year 3 Year Reported Pre-tax Pre-provision Income 8.9 8.1 13.4 15.2 20.5 35% 152% Pre-tax Pre-provision Inc / Avg Assets 0.72% 0.61% 0.90% 0.89% 0.92% Pre-tax Pre-provision Inc / Avg Equity 6.8% 5.9% 9.5% 10.2% 10.0% Efficiency Ratio 83% 86% 79% 79% 7
Slide 36: Management Report
Management Report Thomas R. Quinn, Jr. President & CEO OrrSTOWN FINANCIAL SERVICES, INC.
Slide 37: Strategic Focus in 2020
rategic Focus in 2020 The Board of Directors and Management set the following strategic priorities for 2020: = Expand our Investor Relations activities and capabilities = Expand fee income sources (SBA PPP program is example of Company being nimble and taking advantage of new opportunity) = Further
Slide 38: Conduct Meeting Business
Conduct Meeting Business Joel R. Zullinger Chairman of the Board OrrSTOWN FINANCIAL SERVICES, INC.
Slide 39: Appendix: Reconciliation of Non-GAAP Measures to GAAP Results
Appendix Reconciliation of Non-GAAP Measures to GAAP Results As a result of acquisitions, the Company has intangible assets consisting of goodwill and core deposit and other intangible assets. Management believes providing certain “non-GAAP” financial information will assist investors in their under
Slide 40: Non GAAP Financial Measure Reconciliation
Non GAAP Financial Measure Reconciliation Non GAAP Financial Measure Reconciliation Reported 2015 2016 2017 2018 2019 Net Interest Income, 343 265 438 $22 693 PlusNor-Interest Income 192 197 199 210 285 Total Revenue (A) 53.5 56.3 638 732 978 Total Non- Interest Expense (B) 446 48.1 503 57.9 773 Eff
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