Orrstown Financial Services, Inc. :ORRF-US: Earnings Analysis: Q2, 2017 By the Numbers : October 3, 2017

Orrstown Financial Services, Inc. reports financial results for the quarter ended June 30, 2017.


  • Summary numbers: Revenues of USD 16.37 million, Net Earnings of USD 3.31 million.
  • Net interest income margins narrowed from 65.93% to 65.49% compared to the same period last year.
  • Net loan assets changed 12.60% compared to same period last year and 3.71% from previous period, total deposits changed 9.92% compared to same period last year and 1.02% from previous period.
  • Change in operating cash flow of 69.56% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as from one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2017-06-30 2017-03-31 2016-12-31 2016-09-30 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 16.37 14.66 14.63 13.89 13.58
Revenue Growth (%YOY) 20.55 2.42 14.91 2.52 0.71
Earnings (mil) 3.31 2 1.93 1.44 0.68
Earnings Growth (%YOY) 387.91 -22.4 33.06 -41.41 -54.86
Net Margin (%) 20.21 13.66 13.18 10.39 4.99
EPS 0.4 0.24 0.23 0.18 0.08
Return on Equity (%) 2.36 1.47 1.4 1.03 0.49
Return on Assets (%) 0.9 0.56 0.56 0.43 0.21

Access our Ratings and Scores for Orrstown Financial Services, Inc.

Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, ORRF-US’s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if ORRF-US’s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 11.64% and earnings by 65.23% compared to the previous period.

Earnings Growth Analysis

ORRF-US’s earnings rose year-on-year. But this growth has not come as a result of improvement in net interest income margins or any loan loss improvement activities in its operations. Net interest income margins were 65.49% compared to 69.82% in the immediate last period. Net interest income after provisions margins were 64.87% this period compared to 69.82% in the previous period. In addition, loan loss provisions as a percentage of net interest income were 0.93% this period and 0% a year ago.

Net Interest Income Margin History
Loan Loss Provisions Margin History

Net Loans and Total Deposits

A financial institution’s core operations represented by Net Interest Income and Net Interest Income after Provisions are dependent on both the growth and quality of its deposits as well as the growth and quality of its loans. A firm could boost its interest income in the short-term by just increasing its loan assets with less concern about their quality – but this would eventually lead to greater loan loss provisions. Similarly a drive to increase deposits could result in higher interest expenses and eventually effect the firm’s equity. It is thus important to understand net interest income performance in context to loan loss provisions, loan assets and deposits.

Loan Assets Growth Rate History (Qtr YOY)
Total Deposits Growth Rate History (Qtr YOY)

The firm’s decline in net interest income margins came despite the relative increase in the levels of net loan assets. In addition, total deposits as a percentage of equity went from 7.71% to 8.35%. On an absolute basis, net loan assets changed 12.60% compared to the same period last year and 3.71% from the previous period. Total deposits changed 9.92% compared to the same period last year and 1.02% from the previous period.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

ORRF-US’s year-on-year change in operating cash flow of 69.56% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.


The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating margins from 14.87% to 23.52% and (2) one-time items. The company’s pretax margins are now 23.36%, compared to 6.85% for the same period last year.

EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Orrstown Financial Services, Inc.

Company Profile

Orrstown Financial Services, Inc. operates as a holding company for Orrstown Bank, which provides consumer and business financial services. It engages in commercial banking and trust business which involves accepting demand, time and savings deposits, and granting loans. The company grants commercial, residential, consumer and agribusiness loans in its market areas of Franklin, Lancaster, Perry and Cumberland Counties in Pennsylvania and in Washington County, Maryland. Orrstown Financial Services was founded on November 17, 1987 and is headquartered in Shippensburg, PA.

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