Orrstown Financial Services, Inc. · NASDAQ:ORRF
Orrstown Financial Services — Shareholder Meeting (May 2010)
71 slides from Orrstown Financial Services's shareholder meeting presentation, May 5, 2010
Slide 1: Welcome Shareholders! Annual Shareholder Meeting May 4, 2010
- . ~ ORRSTOWN FINANCIAL SERVICES, INC. A Tradition of Excellence Welcome Shareholders! Annual Shareholder Meeting May 4, 2010
Slide 2: Forward Looking Statement
Forward Looking Statement 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 t
Slide 3: Call to Order, Opening Remarks
Joel R. Zullinger Chairman of the Board Call to Order Opening Remarks
Slide 4: In Memoriam
In Memoriam Robert T. Henry
Slide 5: Board of Directors
Board of Directors Joel R. Zullinger Chairman of the Board Years on Board - Attorney-at-Law Jeffrey W. Coy Vice Chairman of the Board Years on Board - Commissioner, PA Gaming Control Board Former 89th District State Representative 1983-2004 Kenneth R. Shoemaker Secretary of the Board Years on Board
Slide 6: Joel R. Zullinger, Chairman of the Board
Joel R. Zullinger Chairman of the Board
Slide 7: Rick Weiss, Janney Montgomery Scott
Rick Weiss Director/Research Janney Montgomery Scott, LLC
Slide 8: Thomas R. Quinn, Jr. - 2009 Highlights
Thomas R. Quinn, Jr. President and Chief Executive Officer 2009 Highlights
Slide 9: Your Management Team
Your Management Team Executive Title Years with ORRF Banking Experience Thomas R. Quinn, Jr. President / CEO 1 Year 20 Years Jeffrey W. Embly EVP / Chief Credit Officer 13 Years 18 Years Philip E. Fague EVP / Mortgage & Consumer Business 22 Years 22 Years Barbara E. Brobst SVP / Senior Trust Officer
Slide 10: Your Company
Your Company • Headquartered in Shippensburg, PA • Founded in 1919 • 21 branches in Pennsylvania and Maryland – 8 branches in Cumberland County, PA – 7 branches in Franklin County, PA – 4 branches in Perry County, PA – 2 branches in Washington County, MD • $1.2 billion in assets and $915 million in
Slide 11: Quote on difficult 2009 economic year
a “When I look back, 2009 was probably the most difficult economic year that I’ve seen in my 37 years of banking.” James E. Rohr, Chairman & CEO, PNC
Slide 12: What a Year!
What a Year! • TARP • Stress tests • FDIC special assessment • Very difficult operating environment • 56% of banks and thrifts decreased their dividend in 2009; an additional 28% suspended their dividend altogether (1) • 140 banks were closed by the FDIC in 2009 • YTD banks have been closed (2) and
Slide 13: Changing Regulatory Landscape
Changing Regulatory Landscape Regulatory Changes Key Issues Financial Regulatory Reform Consumer Financial Protection Agency End “too big to fail” Accounting changes needed-FASB (loans mark-to-market) Regulation E Beginning this summer customers will need to opt-in to have non-recurring overdrafts p
Slide 14: Quote on 2009 positioning for growth
a “In my 28 years at Wells Fargo, | believe 2009 was the best year we ever had in terms of positioning us for future growth” John G. Stumpf, Chairman & CEO
Slide 15: 2009 Achievements
2009 Achievements • Listed on the NASDAQ Capital Market and added to Russell 2000 and 3000 Indices • Selected by Sandler O’Neill + Partners as one of the top performing small-cap banks in the country. “Our 2009 Sm-All Stars have performed exceptionally well in a difficult banking environment and rep
Slide 16: 2009 Achievements
2009 Achievements • Net charge-offs to average loans for 2009 of 11 basis points - nearly x better than peer of basis points (1) • Added 7,499 new customers as deposit base grew by more than 20% • 12 net new hires, primarily in customer facing positions (including 14 sales-related positions), bringi
Slide 17: Track Record of Strong Growth
Track Record of Strong Growth Assets Loans Deposits (1) 2006 reflects the acquisition of the First National Bank of Newport ($120mm of assets and $106mm of deposits) Note: Dollar values in thousands Source: Company Documents CAGR: 17.6% CAGR: 18.5% CAGR: 18.8%
Slide 18: Favorable Performance vs. Regional Peers
Favorable Performance vs. Regional Peers (1) (1) Includes publicly-traded Mid-Atlantic commercial banks with assets between $1bn and $2bn. Source: Company Documents; SNL Financial (2) The Tangible Common Equity Ratio is a non-GAAP based financial measure. See note (2) on page 23. 2009 ROAA (3.98%) 1
Slide 19: ORRF Stock Price & Capital Raise
ORRF Stock Price & Capital Raise • ORRF stock price in perspective - in traded from low of $22.00 to high of $40.00 • At 5/5/09 Shareholder Meeting, $24.50/share and 600 shares volume • Increased dividends for over 20 consecutive years, and a 10 year annual dividend CAGR of 15.8%
Slide 20: Capital Raise
Capital Raise • On 3/29 we completed the offering of 1.48 million shares of common stock netting approximately $37.5 million of additional capital • Long term strategy with unanimous board support • Deploying capital for the road ahead: Growth opportunities Flexibility “Capital is King” in current r
Slide 21: "Better than Orr-dinary!"
“Better than Orr-dinary!” “We initiate coverage of Orrstown Financial Services with a BUY rating and a 12-month fair value estimate of $31. We believe management will continue to grow its franchise through local opportunities and sustained hiring of experienced local bankers. Better run banks, such
Slide 22: Brad Everly - Financial Review
Brad Everly Senior Vice President, Chief Financial Officer Financial Review
Slide 23: Summary Financial Highlights
Summary Financial Highlights Year Ended December 31, 2005 2006 2007 2008 2009 (1) Return on average tangible equity is a non-GAAP-based financial measure calculated using non-GAAP-based amounts, including management’s definition of tangible assets and tangible common equity. The most directly compar
Slide 24: ORRF Stock Price Performance 2008-2009
ORRF - 12/31/2008 - 12/31/2009 Stock Price Performance 60 40 20 a Stock Price (%) & 3 iy ly lo yy ty ye “ty yey Voy My “C0 = ORRF (29.19%) —# SNL Bank and Thift (3.21%) —# SNL Bank $18-$58 (30.35%)
Slide 25: ORRF Stock Price Performance 2007-2010
ORREF - 12/31/2007 - 04/30/2010 Stock Price Performance 405 Stock Price (%) 8 n RY & % % % —a ORRF (14.73%) —# SNL Bank and Thiift (36.77%) —# SNL Bank $18-458 (32.42%) i= 3 1405 Ss 704 om o i i i i an
Slide 26: Pro Forma Capital Ratios
Pro Forma Capital Ratios (1) (2) (2) (2) (1) See note on page 4 regarding non-GAAP financial measures (2) Calculated in accordance with bank regulatory requirements Note: Assumes a $40 million offering with an underwriting spread of 5.50% and other expenses of $250,000. Net proceeds are risk-weighte
Slide 27: Total Assets
Total Assets ($ in millions) Increase 9.0% 16.9% 34.5% 9.4% 18.9% 13.7%
Slide 28: Gross Loans
Gross Loans ($ in millions) Increase 12.8% 18.3% 34.4% 13.4% 16.9% 7.4%
Slide 29: Total Deposits
Total Deposits ($ in millions) Increase 13.1% 14.2% 38.0% 1.2% 17.2% 20.8%
Slide 30: Total Shareholders' Equity
Total Shareholders’ Equity ($ in millions) Increase 15.2% 16.2% 56.0% 7.5% 7.5% 7.4%
Slide 31: Net Income
Net Income ($ in thousands) Increase 11.3% 28.5% 16.5% 8.0% 4.3% 2.1%
Slide 32: Regional Income
Regional Income Northern Amt % Carlisle 3,847,363 3,058,780 788,583 25.8% West Shore 2,452,176 1,753,228 698,948 39.9% Perry County 1,696,801 1,252,252 444,549 35.5% Totals 7,996,340 6,064,260 1,932,080 31.8% Southern Shippensburg 5,106,996 4,407,840 699,156 15.9% Chambersburg 4,515,924 3,779,301 73
Slide 33: Peer Comparisons
Peer Comparisons (Based on Year-End Results) Peer financial information obtained from SNL Financial. Peer percentile rankings obtained from Board of Governors of the Federal Reserve System for all BHCs with assets between $1 billion and $3 billion.
Slide 34: Return on Average Assets (%)
Return on Average Assets (%) 0.2 0.4 0.6 0.8 1.2 1.4 1.6 1.8 ORRF $1-5Billion All Banks ORRF 1.57 1.81 1.61 1.5 1.38 1.19 $1-5Billion 1.08 1.12 1.1 0.96 0.51 0.12 All Banks 0.98 1.01 0.98 0.82 0.36 0.15 FRB Percentile 87th 91st 89th 89th 93rd 90th
Slide 35: Return On Average Assets (Local Bank Comparison)
Return On Average Assets (%) (Local Bank Comparison) ORRF 1.57 1.81 1.61 1.50 1.38 1.19 FRAF 0.93 1.03 1.07 1.14 1.01 0.69 TOBC 1.55 1.51 1.34 1.25 0.57 0.32 MPB 1.12 1.10 1.08 0.94 0.66 -0.39 CVLY 1.03 1.06 1.05 1.11 0.70 0.41 METR 0.73 0.61 0.41 0.36 0.64 -0.09 ACNB 1.04 0.79 0.76 0.81 0.72 0.75 -
Slide 36: Return on Average Equity (%)
Return on Average Equity (%) 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00 20.00 ORRF $1-5Billion All Banks ORRF 16.80 18.70 15.10 13.60 13.20 12.50 $1-5Billion 10.70 11.10 10.50 8.40 3.90 1.50 All Banks 12.40 13.10 12.60 10.00 5.40 1.50
Slide 37: Return on Average Equity (Local Bank Comparison)
Return on Avera g e Equity (%) (Local Bank Comparison) ORRF 16.8 18.7 15.1 13.6 13.2 12.5 FRAF 9.8 11.1 11.9 12.6 11.0 8.7 TOBC 11.2 10.9 9.1 8.4 4.0 3.2 MPB 13.0 12.9 12.9 12.0 8.9 -4.4 CVLY 11.5 12.2 13.0 13.9 8.9 4.9 METR 14.8 9.9 7.6 6.6 11.4 -1.3 ACNB 12.8 10.0 9.7 9.8 8.0 8.3 -10.0 -5.0 0.0 5.
Slide 38: Net Interest Margin (%)
Net Interest Margin (%) ORRF 4.21 4.55 4.32 4.08 3.92 3.66 $1-5Billion 3.95 4.05 4.03 3.84 3.70 3.52 All Banks 3.97 4.08 4.06 3.91 3.71 3.60 FRB Percentile 64th 73rd 64th 62nd 71st 61st 3.25 3.45 3.65 3.85 4.05 4.25 4.45 4.65 ORRF $1-5Billion All Banks
Slide 39: Net Charge Offs/Average Loans (%)
Net Charge Offs/Average Loans (%) 0.00 0.20 0.40 0.60 0.80 1.00 1.20 ORRF $1-5Billion All Banks ORRF 0.01 0.01 0.00 0.02 0.06 0.11 $1-5Billion 0.15 0.10 0.11 0.16 0.43 1.10 All Banks 0.11 0.08 0.06 0.11 0.33 0.84 FRB Percentile 83rd 82nd 86th 86th 95th 95th
Slide 40: Net Charge Offs/Average Loans (Local Comparison)
Net Charge Offs/Average Loans (%) ORRF 0.01 0.01 0.00 0.02 0.06 0.11 FRAF -0.07 -0.02 0.04 0.09 0.19 0.26 TOBC 0.15 0.02 0.01 0.09 0.16 0.17 MPB 0.03 0.06 0.08 0.09 0.13 1.56 CVLY 0.09 0.03 0.02 -0.20 0.12 0.20 METR 0.14 0.02 0.13 0.06 0.11 1.00 ACNB 0.08 0.00 -0.01 0.00 0.68 0.03 -0.50 0.00 0.50 1.
Slide 41: Efficiency Ratio (%)
Efficiency Ratio (%) ORRF 55.10 52.97 53.06 55.73 57.27 58.85 $1-5Billion 62.14 59.87 61.10 62.47 64.45 64.15 All Banks 65.00 64.13 64.79 67.31 70.47 72.43 40.00 45.00 50.00 55.00 60.00 65.00 70.00 75.00 ORRF $1-5Billion All Banks
Slide 42: Dividend Payout Ratio (%)
Dividend Payout Ratio (%) 0.0 10.0 20.0 30.0 40.0 50.0 60.0 ORRF $1-5Billion All Banks ORRF 34.1 32.9 41.5 44.1 44.8 44.4 $1-5Billion 33.0 30.7 30.4 35.4 50.0 46.0 All Banks 30.0 29.7 28.9 33.1 44.7 42.4
Slide 43: Bank/Thrift 2009 Stock Index Values
Bank/Thrift 2009 Stock Index Values Full Year 2009 YTD SNL Bank -2.79 SNL Thrift -10.23 SNL All Bank & Thrift -3.21 NASDAQ 43.89 Bank Mid Atlantic 3.48 Bank New England 13.12 Bank Southeast -1.21 ORRF Market Change 29.19% ORRF Dividend 2.52 31.71 Percent Change (%) YTD Bank w/ Assets < $500M -11.45
Slide 44: Growth of Your Investment
Growth of Your Investment December st , Original Purchase 1/1/1981 $12,000 (1000 shares X $12.00 market price) Current Value $903,775.68 (25,911 shares at $34.88) 2009 Dividends $22,802 (1.9 times original investment) Cumulative Dividends, 1982-2009 $183,430.0 (15.3 times the original investment) An
Slide 45: Cash Dividends and Earnings
Cash Dividends and Earnings 0.45 0.56 0.74 0.82 0.87 0.88 1.38 1.76 1.87 1.95 2.04 2.09 Dividends Earnings ($ per share)
Slide 46: Jeff Embly - Credit Quality Review
Jeff Embly Executive Vice President, Chief Credit Officer Credit Quality Review
Slide 47: Historical Credit Cycle Analysis
Historical Credit Cycle Analysis 0.06% 0.54% 0.26% 0.11% 0.09% 1.28% 0.63% 0.44% (1) Includes publicly-traded Mid-Atlantic commercial banks with assets between $1bn and $2bn Source: Company Documents; SNL Financial
Slide 48: Proactive & Thorough Approach to Credit
Proactive & Thorough Approach to Credit • In November 2009, the Bank undertook an expanded review of the commercial loan portfolio which covered $526 million in outstanding and committed balances • This review was in addition to the normal loan review process conducted by loan review officers and th
Slide 49: Disciplined Credit Culture
Disciplined Credit Culture • Created the position of Chief Credit Officer in September 2009 to further strengthen the approval process and provide independence between sales and credit • Conservative Loan Approval Authorities: No individual commercial lender has a maximum aggregate approval authorit
Slide 50: Loan Portfolio Overview: Loans Stratification by Purpose
Loan Portfolio Overview Loans Stratification by Purpose Gross Loans: $881 million Most Recent Quarter Yield: 5.46% Source: Company Documents
Slide 51: Commercial Loans by Purpose
Commercial Loans by Purpose Loan Portfolio Overview
Slide 52: Nonperforming Assets
Nonperforming Assets NPAs by Type (1) Based on location where the borrower resides Source: Company Documents
Slide 53: Credit Quality Trends
Credit Quality Trends Net Charge-Offs / Average Loans Non-Performing Assets / Total Assets Reserves / Loans Delinquencies / Loans 0.30% 0.05% 0.04% 0.09% 0.44% 0.00% 0.25% 0.50% 0.75% 1.00% 1.25% 1.50% ORRF Regional Peers¹ 0.96% 0.89% 0.87% 0.87% 1.26% 0.85% 0.95% 1.05% 1.15% 1.25% ORRF Regional Pee
Slide 54: Barb Brobst - Orrstown Financial Advisors
Barb Brobst Senior Vice President, Senior Trust Officer Orrstown Financial Advisors
Slide 55: 2009 Strategic Objectives
2009 Strategic Objectives • Implement New Advisory Platform • Expand Insurance Products Offered • Additional Advisors in Southern Region
Slide 56: Investment Process
Investment Process • Risk Management Discipline • Depth of Staff • Investment Policy Statement • Foundation/Endowment Experience
Slide 57: 2009 Assets Under Management
2009 Assets Under Management • Beginning Assets Under Management : $599,319,640 • Ending Assets Under Management: $740,028,263 • 24% Increase!
Slide 58: BAR Financial
BAR Financial Division of Financial Network Investment Corp (FNIC) 2009 - Bob Russoli 2008 - Bob Russoli 2007 - Phyllis Nye 2006 - Paul Ritchie Dual Rep of the Year Orrstown Financial Advisors is ranked #1! Overall Production
Slide 59: Philip Fague - Mortgage Update
Philip Fague Executive Vice President, Mortgage & Consumer Business Mortgage Update
Slide 60: Mortgage Operations
Mortgage Operations • Technology Automated from application through settlement • Expertise Two Mortgage Underwriters with over 40 years experience Two Mortgage Processer/Closers with over 25 years experience • Loan Volume Capacity to double loan volume • Pricing and Servicing Selling over 90% of mor
Slide 61: Sales Team
Sales Team • Hired five Mortgage Lenders, which doubled the sales force since May 2009 • Expanded market from Hagerstown to Hershey • Competitive products and rates
Slide 62: Income
Income Mortgage Revenue $2,858,000 $1,593,000 Mortgage Income $1,128,000 $584,000 Secondary Market Loans $183,000,000 $121,000,000
Slide 63: Investment Portfolio
Investment Portfolio Current Par Distribution Debt Portfolio Breakdown by Rating Gov't Agency 60.0% CMO 4.0% Municipal 19.0% Cert. of Dep. 2.0% MBS 15.0% Source: Company Documents • As of December 31, 2009, the market value of the investment portfolio was approximately $203 million • Duration of 3.4
Slide 64: Thomas R. Quinn, Jr. - The Road Ahead
Thomas R. Quinn, Jr. President and Chief Executive Officer The Road Ahead
Slide 65: The Road Ahead: 2010
The Road Ahead: 2010 • We are a community bank with a proud heritage and we will continue to invest in our communities • We will continue our trend of strong financial performance mixed with conservative lending practices • Our employees are our competitive advantage - we will develop our existing t
Slide 66: Results of Election, Closing Comments
Joel R. Zullinger Chairman of the Board Results of Election Closing Comments
Slide 67: Thank You!
- . ~ ORRSTOWN FINANCIAL SERVICES, INC. A Tradition of Excellence Thank You!
Slide 68: Appendix
APPENDIX
Slide 69: Slide 69
Slide 70: Non-GAAP Financial Measures
Non- GAAP Financial Measures Year Ended December 31, 2005 2006 2007 2008 2009 The ratio of tangible common equity to tangible assets is a non-GAAP-based financial measure calculated using non-GAAP- based amounts. The most directly comparable GAAP-based measure is the ratio of stockholders’ equity to
Slide 71: Non-GAAP Financial Measures
Non- GAAP Financial Measures Year Ended December 31, 2005 2006 2007 2008 2009 Return on average tangible equity is a non-GAAP-based financial measure calculated using non-GAAP-based amounts. The most directly comparable measure is return on average equity, which is calculated using GAAP-based amount
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